-----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, Dm1H8g7tlxHqqUl6xOyQxW1RqBB8eqGFvrfR5FpGvpCkGNXJJs+uixvltjh8JSoo 7cQ+IQHmENs/BgHYpH2bWA== 0001010521-02-000355.txt : 20021122 0001010521-02-000355.hdr.sgml : 20021122 20021122165149 ACCESSION NUMBER: 0001010521-02-000355 CONFORMED SUBMISSION TYPE: N-2/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20021122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHN HANCOCK PREFERRED INCOME FUND II CENTRAL INDEX KEY: 0001189740 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: N-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-99685 FILM NUMBER: 02838228 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 6173751617 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199-7603 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHN HANCOCK PREFERRED INCOME FUND II CENTRAL INDEX KEY: 0001189740 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: N-2/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-21202 FILM NUMBER: 02838229 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 6173751617 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199-7603 N-2/A 1 pref2.txt JOHN HANCCOK PREFERRED INCOME FUND II
As filed with the Securities and Exchange Commission on November 22, 2002 1933 Act File No. 333-99685 1940 Act File No. 811-21202 United States Securities and Exchange Commission Washington, D.C. 20549 FORM N-2 (Check appropriate box or boxes) X REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 - - X Pre-Effective Amendment No. 2 - - ------- __ Post-Effective Amendment No. ______ and/or X REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 - - X Amendment No. 2 - - JOHN HANCOCK PREFERRED INCOME FUND II Exact Name of Registrant as Specified in Charter 101 Huntington Avenue, Boston, Massachusetts 02199 Address of Principal Executive Offices (Number, Street, City, State, Zip Code) (617) 375-1500 Registrant's Telephone Number, including Area Code Susan S. Newton, Secretary, John Hancock Preferred Income Fund II 101 Huntington Avenue, Boston, Massachusetts 02199 Name and Address (Number, Street, City, State, Zip Code) of Agent for Service Copies to: Jeffrey N. Carp, Esq. Thomas A. Hale, Esq. Hale and Dorr LLP Skadden, Arps, Slate, Meagher & Flom LLP 60 State Street 333 West Wacker Drive, Suite 2100 Boston, Massachusetts 02109 Chicago, IL 60606 Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement. If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. ___ CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933 - ----------------------- --------------------- ------------------------- --------------------------- ------------------ Proposed Maximum Amount of Title of Securities Amount Being Proposed Maximum Aggregate Offering Price Registration Fee Being Registered Registered Offering Price Per Unit (1) - ----------------------- --------------------- ------------------------- --------------------------- ------------------ Common Shares 22,000,000 shares $25.00 $550,000,000.00 $50,600.00 - ----------------------- --------------------- ------------------------- --------------------------- ------------------
(1) Previously paid $92.00 on September 17, 2002 upon filing of the Registrant's initial Form N-2. Remainder transmitted prior to the filing date to the designated lockbox of the Securities and Exchange Commission at Mellon Bank in Pittsburgh, Pennsylvania. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment, which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall be effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PRELIMINARY PROSPECTUS Subject to completion November 22, 2002 - -------------------------------------------------------------------------------- SHARES [JHF LOGO] John Hancock Preferred Income Fund II Common Shares - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES. John Hancock Preferred Income Fund II (the "Fund") is a newly organized, diversified, closed-end management investment company. The Fund's primary investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund's secondary investment objective is to provide growth of capital to the extent consistent with its primary investment objective. PORTFOLIO CONTENTS. The Fund seeks to achieve its objectives by investing in securities that, in the opinion of the Fund's investment adviser, may be undervalued relative to similar securities in the marketplace. Under normal market conditions, the Fund invests at least 80% of its assets (net assets plus borrowing for investment purposes) in preferred stocks and other preferred securities, including convertible preferred securities. The Fund allocates its investments among various industry sectors and among issuers in such sectors based on the investment adviser's evaluation of market and economic conditions. The Fund expects to emphasize investments in preferred securities issued or guaranteed by U.S. corporations in the utilities sector and will be subject to certain risks due to such emphasis. The Fund will not invest 25% or more of its total assets in any one industry, except that the Fund will invest 25% or more of its total assets in the industries comprising the utilities sector. The Fund will invest at least 80% of its total assets in preferred securities and other fixed income securities which are rated investment grade (i.e., at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Rating Group ("S&P")) or in unrated securities determined by the investment adviser to be of comparable credit quality. The Fund may invest up to 20% of its total assets in (i) preferred securities or other fixed income securities rated below investment grade ("B" or higher) or unrated preferred securities or unrated fixed income securities determined by the Fund's investment adviser to be of comparable quality and (ii) common stocks or other equity securities that are not considered preferred securities. The weighted average credit rating of the Fund's portfolio of preferred securities and other fixed income securities will be at least investment grade. There can be no assurance that the Fund will achieve its investment objectives. INVESTMENT ADVISER. John Hancock Advisers, LLC (the "Adviser") is the Fund's investment adviser and administrator. NO PRIOR HISTORY. Because the Fund is newly organized, its shares have no history of public trading. Shares of closed-end funds frequently trade at prices lower than their net asset value. The risk of loss due to this discount may be greater for initial investors expecting to sell their shares in a relatively short period after completion of the public offering. The Fund's common shares have been approved for listing on the New York Stock Exchange under the symbol "HPF," subject to official notice of issuance. BEFORE BUYING ANY COMMON SHARES YOU SHOULD READ THE DISCUSSION OF THE MATERIAL RISKS OF INVESTING IN THE FUND IN "RISK FACTORS" BEGINNING ON PAGE 22. CERTAIN OF THESE RISKS ARE SUMMARIZED IN "PROSPECTUS SUMMARY--SPECIAL RISK CONSIDERATIONS" BEGINNING ON PAGE 4. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO PUBLIC SALES LOAD PROCEEDS TO FUND - --------------------------------------------------------------------------------------------------------------- Per share $25.000 $1.125 $23.875 - --------------------------------------------------------------------------------------------------------------- Total $ $ $ - --------------------------------------------------------------------------------------------------------------- Total assuming full exercise of the over-allotment option $ $ $ - ---------------------------------------------------------------------------------------------------------------
In addition to the sales load, the Fund will pay organizational and offering expenses of up to $0.05 per share which will reduce the "Proceeds to Fund" (above). The Adviser has agreed to pay the amount by which the aggregate of all of the Fund's organizational expenses and costs of this offering (other than the sales load) exceed $0.05 per share. The Fund's organizational and offering expenses are estimated to be $872,000. UBS WARBURG MERRILL LYNCH & CO. PRUDENTIAL SECURITIES RBC CAPITAL MARKETS WACHOVIA SECURITIES WELLS FARGO SECURITIES, LLC FAHNESTOCK & CO. INC. JANNEY MONTGOMERY SCOTT LLC QUICK & REILLY, INC. SIGNATOR INVESTORS, INC. LEVERAGE. The Fund may use leverage to the extent permitted by the Investment Company Act of 1940, as amended, and currently anticipates issuing preferred shares representing approximately 33 1/3% of the Fund's total capital immediately after issuance. By using leverage, the Fund will seek to obtain a higher return for holders of common shares than if the Fund did not use leverage. Leveraging is a speculative technique and there are special risks involved. There can be no assurance that a leveraging strategy will be used or that it will be successful during any period in which it is employed. See "Leverage." You should read this Prospectus, which contains important information about the Fund, before deciding whether to invest, and retain it for future reference. A Statement of Additional Information, dated , 2002 containing additional information about the Fund, has been filed with the Securities and Exchange Commission and is incorporated by reference in its entirety into this Prospectus, which means that it is part of the Prospectus for legal purposes. You can review the table of contents of the Statement of Additional Information on page 45 of this Prospectus. You may request a free copy of the Statement of Additional Information by calling 1-800-225-6020 or by writing to the Fund, or obtain a copy (and other information regarding the Fund) from the Securities and Exchange Commission's web site (http://www.sec.gov). The Fund's common shares do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. The underwriters named in this Prospectus may purchase up to additional common shares from the Fund under certain circumstances. The underwriters expect to deliver the common shares to purchasers on or about , 2002. You should rely only on the information contained or incorporated by reference in this Prospectus. The Fund has not, and the underwriters have not, authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Fund is not, and the underwriters are not, making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this Prospectus is accurate as of any date other than the date on the front of this Prospectus. The Fund's business, financial condition, results of operations and prospects may have changed since that date. Until , 2002 (25 days after the date of this Prospectus), all dealers that buy, sell or trade the common shares, whether or not participating in this offering, may be required to deliver a Prospectus. This is in addition to the dealers' obligation to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. TABLE OF CONTENTS - -------------------------------------------------------------------------------- Prospectus summary........................... 1 Summary of Fund expenses..................... 10 The Fund..................................... 12 Use of proceeds.............................. 12 Investment objectives and principal investment strategies...................... 12 Leverage..................................... 20 Risk factors................................. 22 Management of the Fund....................... 30 Dividends and distributions; Automatic Dividend Reinvestment Plan................. 32 Closed-end fund structure.................... 34 U.S. federal income tax matters.............. 35 Net asset value.............................. 37 Description of shares........................ 38 Certain provisions of the Agreement and Declaration of Trust and By-laws........... 40 Underwriting................................. 42 Custodian, transfer agent, registrar, dividend disbursing agent and shareholder servicing agent............................ 44 Validity of common shares.................... 44 Table of contents for the Statement of Additional Information..................... 45
- -------------------------------------------------------------------------------- II PROSPECTUS SUMMARY This is only a summary. This summary may not contain all of the information that you should consider before investing in the Fund's common shares. You should review the more detailed information contained in this Prospectus and in the Statement of Additional Information, especially the information set forth under the heading "Risk factors." THE FUND John Hancock Preferred Income Fund II (the "Fund") is a newly organized, diversified, closed-end management investment company. THE OFFERING The Fund is offering common shares of beneficial interest, no par value, at $25.00 per share through a group of underwriters (the "Underwriters") led by UBS Warburg LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. The common shares of beneficial interest are called "common shares" in the rest of this Prospectus. You must purchase at least 100 common shares. Investors will be required to pay a sales load of 4.50% of the initial offering price, which will reduce the initial amount invested. The Fund has given the Underwriters an option to purchase up to additional common shares to cover orders in excess of common shares. See "Underwriting." The Fund's investment adviser, John Hancock Advisers, LLC (the "Adviser"), has agreed to pay the amount by which the aggregate of all of the Fund's organizational expenses and costs of this offering (other than the sales load) exceed $0.05 per common share. INVESTMENT OBJECTIVES AND POLICIES INVESTMENT OBJECTIVES The Fund's primary investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund's secondary investment objective is to provide growth of capital to the extent consistent with its primary investment objective. There can be no assurance that the Fund will achieve its investment objectives. PORTFOLIO CONTENTS The Fund seeks to achieve its objectives by investing in 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 80% of its assets (net assets plus borrowing for investment purposes) in preferred stocks and other preferred securities, including convertible preferred securities. The Fund will invest at least 80% of its total assets in preferred securities and other fixed income securities which are rated investment grade (i.e., at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Rating Group ("S&P")) or in unrated securities determined by the Adviser to be of comparable credit quality. The Fund may invest up to 20% of its total assets in (i) preferred securities or other fixed income securities rated below investment grade ("B" or higher) or unrated preferred securities or unrated fixed income securities determined by the Adviser to be of comparable quality and (ii) common stocks or other equity securities that are not considered preferred securities. The weighted average credit rating of the Fund's portfolio of preferred securities and other fixed income securities will be at least investment grade. The Fund intends to invest primarily in fully taxable preferred securities. The Fund's portfolio may include both fixed rate and adjustable rate securities. The allocation of the Fund's assets in various types of preferred, debt and equity securities may vary from time to time depending on the Adviser's assessment of market conditions. The Adviser will perform its own investment analysis when making investment decisions for the Fund and will not rely solely on the ratings assigned to rated securities. Securities ratings are based largely on an issuer's historical financial information and each rating agency's investment analysis at the time of rating. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition, which may be better or worse than the rating indicates. The Adviser's analysis may include consideration of the issuer's experience and managerial strength, 1 changing financial condition, borrowing requirements or debt maturity schedules, and its responsiveness to changes in business conditions and interest or dividend rates. The Adviser will also consider relative values based on anticipated cash flow, interest or dividend coverage, asset coverage, earnings prospects, current yield and price stability. The Adviser seeks to produce superior results by focusing on the business cycle and individual security fundamentals and less so on interest rates and duration. In structuring the portfolio, the Adviser seeks to add investment value in two ways: + by anticipating the broader, more gradual changes in the business cycle, and then investing in those industries and sectors that are expected to benefit from the changes + by looking within those industries and sectors for issuers and companies that are undervalued and mispriced relative to the market INDUSTRY AND ISSUER CONCENTRATION The Fund intends to emphasize investments in preferred securities issued or guaranteed by U.S. corporations in the utilities sector and will be subject to certain risks due to such emphasis. The Fund will not invest 25% or more of its total assets in any one industry, except that the Fund will invest 25% or more of its total assets in the industries comprising the utilities sector. The Fund will allocate its investments among industry sectors and among issuers in such sectors, based on the Adviser's evaluation of market and economic conditions. FOREIGN SECURITIES Although the Fund will invest primarily in the securities of U.S. issuers, the Fund may invest up to 20% of its total assets in securities of corporate and governmental issuers located outside the United States that are traded or denominated in U.S. dollars. ILLIQUID SECURITIES The Fund may invest up to 20% of its total assets in illiquid securities, which are securities that can not be disposed of by the Fund within seven days in the ordinary course of business at approximately the amount at which the Fund values the securities. The Fund may invest in securities that are sold in direct private placement transactions and are neither listed on an exchange nor traded in the over-the-counter market. OTHER SECURITIES Normally, the Fund will invest substantially all of its assets to meet its investment objectives. The Fund may invest the remainder of its assets in securities with remaining maturities of less than one year, cash equivalents or may hold cash. For temporary defensive purposes, the Fund may depart from its principal investment strategies and invest part or all of its assets in securities with remaining maturities of less than one year, cash or cash equivalents. During such periods, the Fund may not be able to achieve its investment objectives. HEDGING AND INTEREST RATE TRANSACTIONS The Fund may, but is not required to, use various hedging and interest rate transactions to earn income, facilitate portfolio management and mitigate risks. The Fund may purchase and sell derivative instruments such as exchange-listed and over-the-counter put and call options on securities, equity, fixed income and interest rate indices, and other financial instruments, purchase and sell financial futures contracts and options thereon and enter into various interest rate transactions such as swaps, caps, floors or collars or credit transactions and credit default swaps. The Fund also may purchase derivative instruments that combine features of these instruments. The Fund generally seeks to use these instruments and transactions as a portfolio management or hedging technique to seek to protect against possible adverse changes in the market value of securities held in or to be purchased for the Fund's portfolio, protect the value of the Fund's portfolio, facilitate the sale of certain securities for investment purposes, manage the effective interest rate exposure of the Fund, manage the effective maturity or duration of the Fund's portfolio, or establish positions in the derivatives markets as a temporary substitute for purchasing or selling particular securities. The Fund may use these 2 transactions to enhance potential gains, although no more than 5% of the Fund's total assets will be committed to initial margin for such transactions entered into for non-hedging purposes. USE OF LEVERAGE BY THE FUND The Fund may use leverage to the extent permitted by the Investment Company Act of 1940, as amended (the "1940 Act"), and currently anticipates that it will issue preferred shares, as soon as practicable after the closing of this offering, with an aggregate liquidation preference of approximately 33 1/3% of the Fund's total assets immediately after issuance. The Fund may not be leveraged at all times and the amount of leverage, if any, may vary depending upon a variety of factors, including the Adviser's outlook for the market for preferred stocks and the costs that the Fund would incur as a result of such leverage. The Fund may issue preferred shares in the public or private markets or may borrow from banks and other financial institutions. The Fund may also borrow through reverse repurchase agreements. The Fund's leveraging strategy may not be successful. By leveraging its investment portfolio, the Fund creates an opportunity for increased net income or capital appreciation. However, the use of leverage also involves risks, which can be significant. These risks include the possibility that the value of the assets acquired with such borrowing decreases although the Fund's liability is fixed, greater volatility in the Fund's net asset value and the market price of the Fund's common shares and higher expenses. Since the Adviser's fee is based upon a percentage of the Fund's managed assets, the Adviser's fee will be higher if the Fund is leveraged and the Adviser will have an incentive to leverage the Fund. The Adviser intends only to leverage the Fund when it believes that the potential return on the additional investments acquired through the use of leverage is likely to exceed the costs incurred in connection with the borrowing. THE INVESTMENT ADVISER AND ADMINISTRATOR John Hancock Advisers, LLC is the Fund's investment adviser and administrator. The Adviser is responsible on a day-to-day basis for investment of the Fund's portfolio in accordance with its investment objectives and policies. The Adviser makes all investment decisions for the Fund and places purchase and sale orders for the Fund's portfolio securities. The Adviser also provides office space to the Fund and administrative and clerical services relating to the Fund's books and records and preparation of reports. The Adviser serves as the investment adviser to John Hancock Preferred Income Fund, a closed-end fund with the same investment objectives and policies as the Fund, and the Patriot Group of Trusts, consisting of Patriot Premium Dividend Fund I, Patriot Premium Dividend Fund II, Patriot Select Dividend Trust, Patriot Preferred Dividend Fund and Patriot Global Dividend Fund. Each of the funds is a leveraged dual-class, closed-end investment company, which focuses on investing in preferred stocks and other securities. John Hancock Preferred Income Fund commenced investment operations on August 22, 2002 and as of October 21, 2002 had total assets of approximately $574 million. The Adviser was organized in 1968 and had, as of September 30, 2002, approximately $24.7 billion in assets under management, of which approximately $1.8 billion was invested in preferred securities. The Adviser is an indirect wholly-owned subsidiary of John Hancock Financial Services, Inc., a financial services company. The Fund pays the Adviser an advisory fee for its investment advisory and administrative services on an annual basis equal to 0.75% of the Fund's average daily managed assets. This fee is accrued and payable daily. "Managed assets" means the total assets of the Fund (including any assets attributable to any leverage that may be outstanding) minus the sum of accrued liabilities (other than liabilities representing financial leverage). The liquidation preference of the preferred shares is not a liability. Consequently, if the Fund issues preferred shares and does not borrow, managed assets will generally be approximately equal to the Fund's net assets attributable to common shares plus the liquidation preference of any outstanding preferred shares. Pursuant to a separate Accounting and Legal Services Agreement, the Adviser is reimbursed for certain tax, accounting and legal services. 3 The Adviser has contractually agreed to waive a portion of its advisory fee. The Adviser has agreed that, until the fifth anniversary of the investment advisory agreement, the Adviser will limit its advisory fee to 0.55% of average daily managed assets, in the sixth year to 0.60% of average daily managed assets, in the seventh year to 0.65% of average daily managed assets, and in the eighth year to 0.70% of average daily managed assets. After the eighth year the Adviser will no longer waive a portion of its advisory fee. LISTING Currently, there is no public market for the Fund's common shares. However, the Fund's common shares have been approved for listing on the New York Stock Exchange under the trading or "ticker" symbol "HPF," subject to official notice of issuance. CUSTODIAN, TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND SHAREHOLDER SERVICING AGENT The Bank of New York will serve as the Fund's custodian. Mellon Investor Services, LLC will serve as the Fund's transfer agent, registrar and dividend disbursing agent. UBS Warburg LLC will serve as the Fund's shareholder servicing agent. MARKET PRICE OF COMMON SHARES Common shares of closed-end investment companies frequently trade at prices lower than their net asset value. This characteristic is separate and distinct from the risk that net asset value could decrease as a result of the Fund's investment activities and may be a greater risk to investors expecting to sell their shares in a relatively short period of time following the completion of this offering. The Fund cannot predict whether the common shares will trade at, above or below net asset value. The Fund's net asset value will be reduced immediately following this offering by the sales load and the amount of the organization and offering expenses paid by the Fund. See "Use of proceeds." In addition to net asset value, the market price of the Fund's common shares may be affected by such factors as the Fund's use of leverage, dividend stability, portfolio credit quality, liquidity, market supply and demand, the Fund's dividends paid (which are in turn affected by expenses), call protection for portfolio securities and interest rate movements. See "Leverage," "Risk factors" and "Description of shares." The Fund's common shares are designed primarily for long-term investors, and you should not purchase common shares if you intend to sell them shortly after purchase. DISTRIBUTIONS The Fund intends to distribute to common shareholders all or a portion of its investment company taxable income monthly and net capital gains, if any, at least annually. The Fund expects its initial distribution will be declared approximately 45 days, and paid approximately 60 to 90 days, after the completion of this offering. At times, in order to maintain a stable level of distributions, the Fund may pay out less than all of its investment income or pay out accumulated undistributed income in addition to current net investment income. Dividend and capital gains distributions generally are used to purchase additional common shares of the Fund. However, an investor can choose to receive distributions in cash. Since not all investors can participate in the Automatic Dividend Reinvestment Plan (the "Plan"), you should contact your broker or nominee to confirm that you are eligible to participate in the Plan. SPECIAL RISK CONSIDERATIONS NO OPERATING HISTORY The Fund is a newly organized closed-end management investment company and has no operating history or history of public trading. The Fund is not intended to be a complete investment program and should only be considered as an addition to an investor's existing diversified portfolio of investments. Due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objectives. 4 MARKET DISCOUNT RISK Shares of closed-end funds frequently trade at prices lower than their net asset value. This is commonly referred to as "trading at a discount." This characteristic of shares of closed-end funds is a risk separate and distinct from the risk that the Fund's net asset value may decrease. Investors who sell their shares within a relatively short period after completion of the public offering are likely to be exposed to this risk. Accordingly, the Fund is designed primarily for long-term investors and should not be considered a vehicle for trading purposes. Net asset value will be reduced following the offering by the underwriting discount and the amount of offering expenses paid by the Fund. INTEREST RATE RISK Interest rate risk is the risk that fixed income securities such as preferred securities and debt securities will decline in value because of changes in market interest rates. When market interest rates rise, the market value of such securities generally will fall. The Fund's investment in preferred securities means that the net asset value and market price of the common shares will tend to decline if market interest rates rise. Interest rates are currently low relative to historical levels. During periods of declining interest rates, an issuer may exercise its option to redeem preferred securities or prepay principal of debt securities earlier than scheduled, forcing the Fund to reinvest in lower yielding securities. This is known as call or prepayment risk. During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below market interest rate, increase the security's duration and reduce the value of the security. This is known as extension risk. CREDIT RISK Credit risk is the risk that preferred securities or debt securities in the Fund's portfolio will decline in price or fail to make dividend payments when due because the issuer of the security experiences a decline in its financial status. The weighted average credit rating of the Fund's portfolio of preferred securities and other fixed income securities will be at least investment grade. Although the Fund will primarily invest in investment grade securities, the Fund is authorized to invest up to 20% of its total assets in preferred securities and other fixed income securities that are rated below investment grade at the time of acquisition. These securities may be rated as low as "B" by Moody's and S&P. Securities rated "Baa" by Moody's are considered by Moody's as medium to lower medium grade securities; they are neither highly protected nor poorly secured; dividend or interest payments and capital or principal security, as the case may be, appear to Moody's to be adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over time; and in the opinion of Moody's, securities in this rating category lack outstanding investment characteristics and in fact have speculative characteristics as well. Securities rated "BBB" by S&P are regarded by S&P as having an adequate capacity to pay dividends or interest and repay capital or principal, as the case may be; whereas such securities normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely, in the opinion of S&P, to lead to a weakened capacity to pay dividends or interest and repay capital or principal for securities in this category than in higher rating categories. Below investment grade securities and comparable unrated securities involve substantial risk of loss, are considered speculative with respect to the issuer's ability to pay interest and any required redemption or principal payments and are susceptible to default or decline in market value due to adverse economic and business developments. The ratings of Moody's and S&P represent their opinions as to the quality of those securities that they rate; ratings are relative and subjective and are not absolute standards of quality. DIVIDENDS RECEIVED DEDUCTION The income from taxable preferred securities in which the Fund intends to invest does not qualify for the dividends received deduction (the "Dividends Received Deduction") under Section 243 of the Internal Revenue Code of 1986, as amended (the "Code"). The Dividends Received Deduction generally allows corporations to deduct from their income 70% of dividends received from domestic 5 corporations. Accordingly, any corporate shareholder should assume that none of the distributions it receives from the Fund will qualify for the Dividends Received Deduction. SPECIAL RISKS RELATED TO PREFERRED SECURITIES There are special risks associated with investing in preferred securities: + LIMITED VOTING RIGHTS. Generally, holders of preferred securities (such as the Fund) have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number of directors to the issuer's board. Generally, once the issuer pays all the arrearages, the preferred security holders no longer have voting rights. + SPECIAL REDEMPTION RIGHTS. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a special redemption by the issuer may negatively impact the return of the security held by the Fund. + DEFERRAL. Preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If the Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes although it has not yet received such income. + SUBORDINATION. Preferred securities are subordinated to bonds and other debt instruments in a company's capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments. + LIQUIDITY. Preferred securities may be substantially less liquid than many other securities, such as common stocks or U.S. government securities. SECTOR RISK Under normal market conditions, the Fund will emphasize investments in preferred securities issued or guaranteed by U.S. corporations in the utilities sector. The Fund will not invest 25% or more of its total assets in issuers engaged in any one industry, except that the Fund will invest 25% or more of its total assets in the industries comprising the utilities sector. The utilities industries in which the Fund may invest include companies engaged in: + the generation, transmission, sale or distribution of electric energy + the distribution, purification and treatment of water + the provision of sewage management, treatment or other sanitary services + the production, transmission or distribution of natural gas + the provision of pollution control or abatement services + telecommunications, including telephone, telegraph, satellite, microwave and other communications media (but not companies engaged primarily in the public broadcasting industry) The Fund's emphasis on securities of utilities issuers makes it more susceptible to adverse conditions affecting such industries than a fund that does not have its assets invested to a similar degree in such issuers. Issuers in the utilities sector are subject to a variety of factors that may adversely affect their business or operations, including: + high interest costs in connection with capital construction programs + governmental regulation of rates charged to customers + costs associated with environmental and other regulations + the effects of economic slowdowns and surplus capacity + increased competition from other providers of utility services 6 + uncertainties concerning the availability of fuel at reasonable prices + the effects of energy conservation policies + inexperience with and potential losses resulting from a developing deregulatory environment, including losses and regulatory issues in connection with energy trading Issuers in the utilities sector may also be subject to regulation by various governmental authorities and may be affected by the imposition of special tariffs and changes in tax laws, regulatory policies and accounting standards. Generally, prices charged by utilities are also regulated in the United States with the intention of protecting the public while ensuring that the rate of return earned by such companies is sufficient to allow them to attract capital in order to grow and continue to provide appropriate services. There can be no assurance that such pricing policies or rates of return will continue in the future. The nature of regulation of industries in the utilities sector is evolving. Changes in regulation increasingly allow participants in the utilities sector to provide services and products outside their traditional geographic areas and lines of business, creating new areas of competition within such industries. The emergence of competition may result in certain companies being forced to defend their core businesses which may cause such companies to be less profitable. While the Fund will not invest 25% or more of its total assets in any one of the industries comprising the financial services sector, from time to time the Fund may have significant exposure to issuers in the financial services sector. These industries include bank holding companies, banks, securities brokers and dealers and life, property, casualty and multi-line insurance companies. These industries are subject to extensive regulation at the federal and/or state level and, to the extent that they operate internationally, in other countries. Each of these industries may also be significantly affected by changes in prevailing interest rates, general economic conditions and industry specific risks. The enactment of new legislation and regulation, as well as changes in the interpretation and enforcement of existing laws and regulations, may directly affect the manner of operations and profitability of participants in the financial services sector. From time to time, changes in law and regulation have permitted greater diversification of their financial products, but their ability to expand by acquisition or branching across state lines and to engage in non-banking activities continues to be limited. Federal or state law and regulations require banks, bank holding companies, broker-dealers and insurance companies to maintain minimum levels of capital and liquidity. Bank regulators have broad authority and can impose sanctions, including conservatorship or receivership, on non-complying banks even when these banks continue to be solvent, thereby possibly resulting in the elimination of stockholders' equity. CONVERTIBLE SECURITIES The preferred securities and other fixed income securities in which the Fund invests may be convertible into the issuer's or a related party's common shares. Convertible securities generally offer lower dividend yields or interest rates than non-convertible securities of similar quality. As with all fixed income securities, the market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security tends to trade increasingly on a yield basis and thus may not decline in price to the same extent as the underlying common stock. COMMON STOCKS The common stocks and other non-preferred equity securities in which the Fund invests may experience substantially more volatility in their market value than the Fund's investments in preferred securities. Such securities may also be more susceptible to adverse changes in market value due to issuer specific events, such as unfavorable earnings reports. The market values of common stocks are also generally sensitive to general movements in the equities markets. 7 ILLIQUID SECURITIES The Fund may invest up to 20% of its total assets in illiquid securities. Illiquid securities may be difficult to dispose of at a fair price at the times when the Adviser believes it is desirable to do so. The market price of illiquid securities generally is more volatile than that of more liquid securities, which may adversely affect the price that the Fund pays for or recovers upon the sale of illiquid securities. Illiquid securities are also more difficult to value and the Adviser's judgment may play a greater role in the valuation process. Investment of the Fund's assets in illiquid securities may restrict the Fund's ability to take advantage of market opportunities. The risks associated with illiquid securities may be particularly acute in situations in which the Fund's operations require cash and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid securities. FOREIGN SECURITIES Although the Fund will only invest in securities of non-U.S. issuers that are traded or denominated in U.S. dollars, the Fund's investments in non-U.S. issuers may involve unique risks compared to investing in securities of U.S. issuers. These risks are more pronounced to the extent that the Fund invests a significant portion of its non-U.S. investments in one region or in the securities of emerging market issuers. These risks may include: + less information about non-U.S. issuers or markets may be available due to less rigorous disclosure or accounting standards or regulatory practices + many non-U.S. markets are smaller, less liquid and more volatile. In a changing market, the Adviser may not be able to sell the Fund's portfolio securities at times, in amounts and at prices it considers reasonable + the economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession + economic, political and social developments may adversely affect the securities markets + withholdings and other non-U.S. taxes may decrease the Fund's return DERIVATIVES The Fund's hedging and interest rate transactions have risks, including the imperfect correlation between the value of such instruments and the underlying assets of the Fund, the possible default of the other party to the transaction or illiquidity of the derivative instruments. Furthermore, the ability to successfully use hedging and interest rate transactions depends on the Adviser's ability to predict pertinent market movements, which cannot be assured. Thus, the use of derivatives for hedging and interest rate management purposes may result in losses greater than if they had not been used, may require the Fund to sell or purchase portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security that it might otherwise sell. Additionally, amounts paid by the Fund as premiums and cash or other assets held in margin accounts with respect to hedging and interest rate transactions are not otherwise available to the Fund for investment purposes. LEVERAGE The Fund may issue preferred shares, borrow money or issue debt securities to the extent permitted by the 1940 Act and currently anticipates that it will issue preferred shares, as soon as practicable after the closing of this offering, with an aggregate liquidation preference of approximately 33 1/3% of the Fund's total assets immediately after issuance. Leverage creates risks which may adversely affect the return for the holders of common shares, including: + the likelihood of greater volatility of net asset value and market price of the Fund's common shares + fluctuations in the dividend rates on any preferred shares or in interest rates on borrowings and short-term debt + increased operating costs, which may reduce the Fund's total return 8 + the potential for a decline in the value of an investment acquired with borrowed funds, while the Fund's obligations under such borrowing remain fixed To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to shareholders as dividends and other distributions will be reduced or potentially eliminated. Certain types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage, borrowing base and portfolio composition requirements and additional covenants that may affect the Fund's ability to pay dividends and distributions on common shares in certain instances. The Fund may also be required to pledge its assets to the lenders in connection with certain types of borrowing. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more nationally recognized statistical rating organizations which may issue ratings for the preferred shares or short-term debt instruments issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. ANTI-TAKEOVER PROVISIONS The Fund's Agreement and Declaration of Trust and By-laws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Trustees. Such provisions could limit the ability of holders of common shares to sell their shares at a premium over prevailing market prices by discouraging a third-party from seeking to obtain control of the Fund. These provisions include staggered terms of office for the Trustees, advance notice requirements for shareholder proposals, and super-majority voting requirements for open-ending the Fund or a merger, liquidation, asset sales and similar transactions. 9 SUMMARY OF FUND EXPENSES The following table shows the Fund's expenses as a percentage of net assets attributable to common shares assuming the use of leverage through the issuance of preferred shares in an amount equal to 33 1/3% of the Fund's total assets. Shareholder transaction expenses Sales load (as a percentage of offering price)......... 4.50% Dividend reinvestment and cash purchase plan fees...... None(1) Preferred shares offering expenses (borne by the Fund)................................................. 0.60%(2)
PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO COMMON SHARES (ASSUMING THE ISSUANCE OF PREFERRED SHARES)(3) - ------------------------------------------------------------------ Annual expenses Advisory fee........................................... 1.13% Other expenses......................................... 0.28% ---- Total annual expenses.................................. 1.41% Fee waiver (years 1-5)................................. 0.30%(4) ---- Net annual expenses (years 1-5)........................ 1.11%(4)
(1) A shareholder that directs the Plan Agent to sell shares held in a dividend reinvestment account will pay brokerage charges (2) The Fund anticipates that it will issue preferred shares, as soon as practicable after this offering, with an aggregate liquidation preference of approximately 33 1/3% of the Fund's total assets after such issuance. If the Fund offers preferred shares, the costs of that offering, estimated to be approximately 1.20% of the total dollar amount of the preferred shares offering, will be effectively borne by common shareholders and result in a reduction of the net asset value of the common shares. Assuming the Fund issues 20,000,000 common shares and the issuance of preferred shares in an amount equal to approximately 33 1/3% of the Fund's capital (after their issuance), these offering costs are estimated to be approximately $3,000,000 or $0.15 per common share. These offering costs are not included among the annual expenses shown in this table (3) The table above shows the estimated expenses that you will bear as a holder of common shares, assuming the Fund issues preferred shares in an amount equal to 33 1/3% of the Fund's total assets, stated as percentage of the Fund's net assets attributable to common shares. The table below shows the estimated expenses of the Fund assuming the Fund does not issue preferred shares or otherwise utilize leverage
PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO COMMON SHARES (ASSUMING NO PREFERRED SHARES ARE ISSUED OR OUTSTANDING) ------------------------------------------------------------------- Annual expenses Advisory fee............................................ 0.75% Other expenses.......................................... 0.16% ----- Total annual expenses................................... 0.91% Fee waiver (years 1-5).................................. 0.20%(4) ----- Net annual expenses (years 1-5)......................... 0.71%(4)
(4) The Adviser has contractually agreed to waive a portion of its advisory fee. The Adviser has agreed that, until the fifth anniversary of the investment advisory agreement, the Adviser will limit its advisory fee to 0.55% of average daily managed assets, in the sixth year to 0.60% of average daily managed assets, in the seventh year to 0.65% of average daily managed assets, and in the eighth year to 0.70% of average daily managed assets. After the eighth year, the Adviser will no longer waive a portion of its advisory fee. Without the fee waiver, "Net annual expenses" would be estimated to be 1.41% of average daily net assets attributable to common shares (assuming the issuance of preferred shares) and 0.91% of average daily net assets attributable to common shares (assuming no preferred shares are issued or outstanding). The Adviser has agreed to pay the amount by which the aggregate of all of the Fund's organizational expenses and costs of this offering (other than the sales load) exceed $0.05 per common share 10 The purpose of the tables in this section is to assist you in understanding the various costs and expenses that a shareholder will bear directly or indirectly by investing in the Fund's common shares. As of the date of this Prospectus, the Fund has not commenced investment operations. The amount set forth under other expenses is based upon estimates for the current year, assuming no exercise of the over-allotment option granted to the Underwriters. The table assumes that the Fund issues 20,000,000 common shares and issues preferred shares as a means of leverage. If the Fund issues fewer common shares, all other things being equal, these expenses would increase. If the Fund leverages through borrowing, the Fund would incur interest expense. For additional information with respect to the Fund's expenses, see "Management of the Fund." Other expenses include, but are not limited to, custodial and transfer agency fees, legal and accounting expenses, and listing fees. EXAMPLE The following example illustrates the expenses (including the sales load of $45) that you would pay on a $1,000 investment in common shares, assuming (i) total net annual expenses of 1.11% of net assets attributable to common shares in years 1 through 5, 1.19% in year 6, 1.26% in year 7, 1.34% in year 8 and 1.41% in years 9 and 10 and (ii) a 5% annual return:(1)
1 YEAR 3 YEARS 5 YEARS 10 YEARS - ----------------------------------------------------------------------------------------------- Total expenses incurred................................. $56 $79 $103 $186
(1) THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. This example assumes that the estimated other expenses set forth in the fee table are accurate and that all dividends and distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Fund's actual rate of return may be greater or less than the hypothetical 5% return shown in the example 11 - -------------------------------------------------------------------------------- THE FUND John Hancock Preferred Income Fund II (the "Fund") is a newly organized, diversified, closed-end management investment company. The Fund was organized under the laws of the Commonwealth of Massachusetts on September 12, 2002, and has registered under the 1940 Act. As a recently organized entity, the Fund has no operating history. The Fund's principal office is located at 101 Huntington Avenue, Boston, Massachusetts 02199, and its telephone number is (800) 225-6020. USE OF PROCEEDS The net proceeds of this offering will be approximately $ (or approximately $ assuming the Underwriters exercise the over-allotment option in full) after payment of organizational expenses and offering costs estimated to be approximately $872,000, and the deduction of the sales load. The Fund will invest the net proceeds of the offering in accordance with its investment objectives and principal investment strategies as stated below. The Fund expects that there will be an initial investment period of up to three months following the completion of its common shares offering before it is invested in accordance with its investment objectives and policies. Pending such investment, the Fund anticipates that all or a portion of the proceeds will be invested in U.S. government securities or high grade, short-term money market instruments. See "Investment objectives and principal investment strategies." INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES INVESTMENT OBJECTIVES The Fund's primary investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund's secondary investment objective is to provide growth of capital to the extent consistent with its primary investment objective. The Fund seeks to achieve its objectives by investing in securities that, in the opinion of the Adviser, may be undervalued relative to similar securities in the marketplace. The Fund's investment objectives are non-fundamental policies and may be changed without the approval of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Fund. The Fund makes no assurance that it will realize its objectives. PRINCIPAL INVESTMENT FOCUS AND PHILOSOPHY Under normal market conditions, the Fund will invest at least 80% of its assets (net assets plus borrowing for investment purposes) in preferred stocks and other preferred securities, including convertible preferred securities. This is a non-fundamental policy and may be changed by the Board of Trustees of the Fund provided that shareholders are provided with at least 60 days prior written notice of any change as required by the rules under the 1940 Act. The Fund intends to invest primarily in fully taxable preferred securities. The Fund's portfolio of preferred securities may include both fixed rate and adjustable rate securities. The allocation of the Fund's assets in various types of preferred, debt and equity securities may vary from time to time depending upon the Adviser's assessment of market conditions. The Fund will invest at least 80% of its total assets in preferred securities and other fixed income securities which are rated investment grade (i.e., at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Rating Group ("S&P")) or in unrated securities determined by the Adviser to be of comparable credit quality. The Fund may invest up to 20% of its total assets in (i) preferred securities or other fixed income securities rated below investment grade - -------------------------------------------------------------------------------- 12 INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- ("B" or higher) or unrated preferred securities or unrated fixed income securities determined by the Adviser to be of comparable quality and (ii) common stocks or other equity securities that are not considered preferred securities. The weighted average credit rating of the Fund's portfolio of preferred securities and other fixed income securities will be at least investment grade. Securities rated "BBB" by S&P are regarded by S&P as having an adequate capacity to pay dividends or interest and repay capital or principal, as the case may be; whereas such securities normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely, in the opinion of S&P, to lead to a weakened capacity to pay dividends or interest and repay capital or principal for securities in this category than in higher rating categories. Securities rated "Baa" by Moody's are considered by Moody's as medium to lower medium grade securities; they are neither highly protected nor poorly secured; dividend or interest payments and capital or principal security, as the case may be, appear to Moody's to be adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over time; and in the opinion of Moody's, securities in this rating category lack outstanding investment characteristics and in fact have speculative characteristics as well. Below investment grade securities and comparable unrated securities involve substantial risk of loss, are considered speculative with respect to the issuer's ability to pay interest and any required redemption or principal payments and are susceptible to default or decline in market value due to adverse economic and business developments. The descriptions of the investment grade rating categories by Moody's and S&P, including a description of their speculative characteristics, are set forth in the Statement of Additional Information. All references to securities ratings by Moody's and S&P in this Prospectus shall, unless otherwise indicated, include all securities within each such rating category (i.e., Baa1, Baa2 and Baa3 in the case of Moody's and BBB+ and BBB- in the case of S&P). All percentage and ratings limitations on securities in which the Fund may invest apply at the time of making an investment and shall not be considered violated if an investment rating is subsequently downgraded to a rating that would have precluded the Fund's initial investment in such security or weighted average portfolio. In the event of such security downgrade, the Fund will sell the portfolio security as soon as the Adviser believes it to be prudent to do so in order to again cause the Fund to be within the percentage and ratings limitations set forth in this Prospectus. In the event that the Fund disposes of a portfolio security subsequent to its being downgraded, the Fund may experience a greater risk of loss than if such security had been sold prior to such downgrade. The Adviser will perform its own investment analysis when making investment decisions for the Fund and will not rely solely on the ratings assigned to rated securities. Securities ratings are based largely on an issuer's historical financial information and each rating agency's investment analysis at the time of rating. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition, which may be better or worse than the rating indicates. The Adviser seeks to produce superior results by focusing on the business cycle and individual security fundamentals and less so on interest rate and duration. In structuring the portfolio, the Adviser seeks to add investment value in two ways: + by anticipating the broader, more gradual changes in the business cycle, and then investing in those industries and sectors that are expected to benefit from the changes + by looking within those industries and sectors for issuers and companies that are undervalued and mispriced relative to the market The Adviser believes that focusing on sectors, industries, issuers and individual security fundamentals, rather than predicting the direction of interest rates and duration, will lead to superior investment results over time. The Adviser's analysis may include consideration of the issuer's experience and managerial strength, changing financial condition, borrowing requirements or debt maturity schedules, and its - -------------------------------------------------------------------------------- 13 INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- responsiveness to changes in business conditions and interest or dividend rates. The Adviser will also consider relative values based on anticipated cash flow, interest or dividend coverage, asset coverage, earnings prospects, current yield and price stability. Preferred securities were developed initially as a cost-effective way for corporations to raise capital by attracting investors seeking a high level of income with preservation of capital. The Adviser believes that preferred securities have the following characteristics that investors may also find favorable: + issuers of preferred securities are typically established companies such as utilities, banks and financial services corporations + preferred securities have the potential to offer investors favorable yields relative to other income-producing securities like real estate investment trusts, corporate bonds and government bonds + preferred securities have historically exhibited low correlations relative to other popular asset classes. Adding preferred securities to a portfolio offers investors the potential for greater total returns and reduced portfolio volatility. The Fund offers investors the potential to reduce risk by investing in a portfolio of preferred securities that are diversified across multiple issuers and sectors. Historically, portfolio diversification has led to more consistent long-term performance PORTFOLIO CONTENTS AND PRINCIPAL INVESTMENT STRATEGIES INDUSTRY AND ISSUER CONCENTRATION The Fund intends to emphasize investments in preferred securities issued or guaranteed by U.S. corporations in the utilities sector and will be subject to certain risks due to such emphasis. The Fund will not invest 25% or more of its total assets in any one industry, except that the Fund will invest 25% or more of its total assets in the industries comprising the utilities sector. The Fund will allocate its investments from time to time among industry sectors and among issuers in such sectors, based on the Adviser's evaluation of market and economic conditions. TAXABLE PREFERRED SECURITIES Pursuant to the Dividends Received Deduction, corporations may generally deduct 70% of the dividend income they receive from domestic corporations. Corporate shareholders of a regulated investment company, for which status the Fund intends to qualify, generally are permitted to claim a deduction with respect to that portion of their distributions attributable to amounts received by the regulated investment company that qualify for the Dividends Received Deduction. However, not all preferred securities pay dividends that are eligible for the Dividends Received Deduction. The Adviser intends to invest primarily in taxable preferred securities (often referred to as "hybrid" preferred securities) that do not qualify for the Dividends Received Deduction. These types of taxable preferred securities typically offer additional yield spread versus other types of preferred securities due to the fact that payments made with respect to such preferred securities do not qualify for the Dividends Received Deduction. The income from taxable preferred securities in which the Fund intends to invest does not qualify for Dividends Received Deduction under Section 243 of the Code. The Dividends Received Deduction generally allows corporations to deduct from their income 70% of dividends received. Accordingly, any corporate shareholder should assume that none of the distributions it receives from the Fund will qualify for the Dividends Received Deduction. Taxable preferred securities are a comparatively new asset class. Taxable preferred securities include but are not limited to: + trust originated preferred securities + monthly income preferred securities + quarterly income bond securities - -------------------------------------------------------------------------------- 14 INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- + quarterly income debt securities + quarterly income preferred securities + corporate trust securities + public income notes, and + other trust preferred securities Taxable preferred securities are typically issued by corporations. Taxable preferred securities may also be issued by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The taxable preferred securities market consists of both fixed and adjustable coupon rate securities that are either perpetual in nature or have stated maturity dates. The taxable preferred securities market is divided into the "$25 par" and the "institutional" segments. The $25 par segment is typified by securities that are listed on the New York Stock Exchange, which trade and are quoted "flat" (i.e., without accrued dividend income) and which are typically callable at par value five years after their original issuance date. The institutional segment is typified by $1,000 par value securities that are not exchange-listed, which trade and are quoted on an "accrued income" basis, and which typically have a minimum of 10 years of call protection (at premium prices) from the date of their original issuance. Taxable preferred securities normally constitute junior and fully subordinated liabilities of an issuer or the beneficiary of a guarantee that is junior and fully subordinated to the other liabilities of the guarantor. In addition, taxable preferred securities typically permit the issuer to defer the payment of income for a specified period, which may be eighteen months or more, without triggering an event of default. Because of their subordinated position in the capital structure of an issuer, the ability to defer payments for extended periods of time without adverse consequence to the issuer, and certain other features (such as restrictions on common dividend payments by the issuer or ultimate guarantor when cumulative payments on the taxable preferred securities have not been made), issuers and investors generally treat taxable preferred securities as close substitutes for traditional preferred securities. Taxable preferred securities have many of the key characteristics of equity due to their subordinated position in an issuer's capital structure and because their quality and value are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets or cash flows. Taxable preferred securities are typically issued with a final maturity date, although some are perpetual in nature. In certain instances, the final maturity date may be extended and/or the final payment of principal may be deferred at the issuer's option for a specified time without any adverse consequence to the issuer. No redemption can typically take place unless all cumulative payment obligations have been met, although issuers may be able to engage in open-market repurchases without regard to any cumulative dividends payable. A portion of the portfolio may include investments in non-cumulative preferred securities, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. Should an issuer default on its obligations under such a security, the amount of dividends the Fund pays may be adversely affected. Many taxable preferred securities are issued by trusts or other special purpose entities established by operating companies, and are not direct obligations of the operating company. At the time a trust or special purpose entity sells its preferred securities to investors, the trust or special purpose entity purchases debt of the operating company (with terms comparable to those of the securities issued by the trust or special purpose entity), which enables the operating company to deduct for federal income tax purposes the interest paid on the debt held by the trust or special purpose entity. The trust or special purpose entity is generally required to be treated as transparent for federal income tax purposes such that the holders of the taxable preferred securities are treated as owning beneficial interests in the underlying debt of the operating company. - -------------------------------------------------------------------------------- 15 INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- Accordingly, dividend payments made with respect to the taxable preferred securities are treated as interest rather than dividends for federal income tax purposes and, as such, are not eligible for the Dividends Received Deduction. The trust or special purpose entity in turn would be a holder of the operating company's debt and would have priority with respect to the operating company's assets over the operating company's common shareholders, but would typically be subordinated to other classes of the operating company's debt. Typically a taxable preferred security has a rating that is slightly below that of its corresponding operating company's senior debt securities. TRADITIONAL PREFERRED SECURITIES Fixed rate preferred stocks have fixed dividend rates. They can be perpetual, with no mandatory redemption date, or issued with a fixed mandatory redemption date. Certain issues of preferred stock are convertible into other equity securities. Perpetual preferred stocks provide a fixed dividend throughout the life of the issue, with no mandatory retirement provisions, but may be callable. Sinking fund preferred stocks provide for the redemption of a portion of the issue on a regularly scheduled basis with, in most cases, the entire issue being retired at a future date. The value of fixed rate preferred stocks can be expected to vary inversely with interest rates. Adjustable rate preferred stocks have a variable dividend rate which is determined periodically, typically quarterly, according to a formula based on a specified premium or discount to the yield on particular U.S. Treasury securities, typically the highest base-rate yield of one of three U.S. Treasury securities: the 90-day Treasury bill; the 10-year Treasury note; and either the 20-year or 30-year Treasury bond or other index. The premium or discount to be added to or subtracted from this base-rate yield is fixed at the time of issuance and cannot be changed without the approval of the holders of the adjustable rate preferred stock. Some adjustable rate preferred stocks have a maximum and a minimum rate and in some cases are convertible into common stock. Auction rate preferred stocks pay dividends that adjust based upon periodic auctions. Such preferred stocks are similar to short-term corporate money market instruments in that an auction rate preferred stockholder has the opportunity to sell the preferred stock at par in an auction, normally conducted at least every 49 days, through which buyers set the dividend rate in a bidding process for the next period. The dividend rate set in the auction depends upon market conditions and the credit quality of the particular issuer. Typically, the auction rate preferred stock's dividend rate is limited to a specified maximum percentage of an external commercial paper index as of the auction date. Further, the terms of auction rate preferred stocks generally provide that they are redeemable by the issuer at certain times or under certain conditions. DEBT SECURITIES The Fund may invest in debt securities with ratings equivalent to those of the preferred securities in which the Fund may invest. Debt securities in which the Fund may invest include: securities issued or guaranteed by the U.S. government, its agencies or instrumentalities and custodial receipts therefor; securities issued or guaranteed by a foreign government or any of its political subdivisions, authorities, agencies or instrumentalities or by international or supranational entities; corporate debt securities including notes, bonds and debentures; certificates of deposit and bankers' acceptances issued or guaranteed by, or time deposits maintained at, banks (including U.S. or foreign branches of U.S. banks or U.S. or foreign branches of foreign banks) having total assets of more than $1 billion; commercial paper; and mortgage related securities. These securities may be of any maturity. The value of debt securities can be expected to vary inversely with interest rates. COMMON STOCKS The Fund may invest in common stocks. Common stocks are shares of a corporation or other entity that entitle the holder to a pro rata share of the profits, if any, of the corporation without preference over any other shareholder or class of shareholders, including holders of such entity's preferred stock - -------------------------------------------------------------------------------- 16 INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- and other senior equity securities. Common stock usually carries with it the right to vote and frequently an exclusive right to do so. In selecting common stocks for investment, the Fund expects generally to focus more on the security's dividend paying capacity than on its potential for capital appreciation. FOREIGN SECURITIES While the Fund primarily invests in the securities of U.S. issuers, the Fund may invest up to 20% of its total assets in securities of corporate and governmental issuers located outside the United States. The Fund will only invest in securities of foreign issuers that are traded or denominated in U.S. dollars. ILLIQUID SECURITIES The Fund may invest up to 20% of its assets in illiquid securities (i.e., securities that are not readily marketable). Illiquid securities include, but are not limited to, restricted securities (securities for which the disposition is restricted under the federal securities laws), securities that may be resold pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") but that are deemed to be illiquid, and repurchase agreements with maturities in excess of seven days. The Board of Trustees or its delegate has the ultimate authority to determine, to the extent permissible under the federal securities laws, which securities are liquid or illiquid. Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act. Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell. Illiquid securities will be priced at fair value as determined in good faith by the Board of Trustees or its delegate. MONEY MARKET INSTRUMENTS Money market instruments include short-term U.S. government securities, U.S. dollar denominated, high quality commercial paper (unsecured promissory notes issued by corporations to finance their short-term credit needs), certificates of deposit, bankers' acceptances and repurchase agreements relating to any of the foregoing. U.S. government securities include Treasury notes, bonds and bills, which are direct obligations of the U.S. government backed by the full faith and credit of the United States, and securities issued by agencies and instrumentalities of the U.S. government, which may be guaranteed by the U.S. Treasury, may be supported by the issuer's right to borrow from the U.S. Treasury or may be backed only by the credit of the federal agency or instrumentality itself. U.S. GOVERNMENT SECURITIES U.S. government securities in which the Fund invests include debt obligations of varying maturities issued by the U.S. Treasury or issued or guaranteed by an agency or instrumentality of the U.S. government, including the Federal Housing Administration, Federal Financing Bank, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association (GNMA), General Services Administration, Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Maritime Administration, Tennessee Valley Authority, District of Columbia Armory Board, Student Loan Marketing Association, Resolution Trust Corporation and various institutions that previously were or currently are part of the Farm Credit System (which has been undergoing reorganization since 1987). Some U.S. government securities, such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ only in their interest rates, maturities and times of issuance, are supported by the full faith and credit of the United States government. Others are supported by: (i) the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Home Loan Banks; (ii) the discretionary authority of the - -------------------------------------------------------------------------------- 17 INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- U.S. government to purchase the agency's obligations, such as securities of the FNMA; or (iii) only the credit of the issuer. No assurance can be given that the U.S. government will provide financial support in the future to U.S. government agencies, authorities or instrumentalities that are not supported by the full faith and credit of the United States. Securities guaranteed as to principal and interest by the U.S. government, its agencies, authorities or instrumentalities include: (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. government or any of its agencies, authorities or instrumentalities; and (ii) participations in loans made to non-U.S. governments or other entities that are so guaranteed. The secondary market for certain of these participations is limited and, therefore, may be regarded as illiquid. REITS The Fund may invest in common and preferred interests in real estate investment trusts ("REITs"). REITs primarily invest in income producing real estate or real estate related loans or interests. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs are not taxed on income distributed to shareholders provided they comply with the applicable requirements of the Code. The Fund will in some cases indirectly bear its proportionate share of any management and other expenses paid by REITs in which it invests in addition to the expenses paid by the Fund. Debt securities issued by REITs are, for the most part, general and unsecured obligations and are subject to risks associated with REITs. OTHER INVESTMENT COMPANIES The Fund may invest in the securities of other investment companies to the extent that such investments are consistent with the Fund's investment objectives and principal investment strategies and permissible under the 1940 Act. Under the 1940 Act, the Fund may not acquire the securities of other investment companies if, as a result, (i) more than 10% of the Fund's total assets would be invested in securities of other investment companies, (ii) such purchase would result in more than 3% of the total outstanding voting securities of any one investment company being held by the Fund and its affiliates, or (iii) more than 5% of the Fund's total assets would be invested in any one investment company. These limitations do not apply to the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or acquisition of substantially all the assets of another investment company. The Fund, as a holder of the securities of other investment companies, will bear its pro rata portion of the other investment companies' expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund's own operations. HEDGING AND INTEREST RATE TRANSACTIONS The Fund may, but is not required to, use various hedging and interest rate transactions described below to earn income, facilitate portfolio management and mitigate risks. Such transactions are generally accepted under modern portfolio management and are regularly used by many mutual funds and other institutional investors. Although the Adviser seeks to use the practices to further the Fund's investment objectives, no assurance can be given that these practices will achieve this result. The Fund may purchase and sell derivative instruments such as exchange-listed and over-the-counter put and call options on securities, equity, fixed income and interest rate indices, and other financial instruments, purchase and sell financial futures contracts and options thereon, enter into various interest rate transactions such as swaps, caps, floors or collars or credit transactions and credit default swaps. The Fund also may purchase derivative instruments that combine features of these instruments. Collectively, all of the above are referred to as "Strategic Transactions." The Fund generally seeks to - -------------------------------------------------------------------------------- 18 INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- use Strategic Transactions as a portfolio management or hedging technique to seek to protect against possible adverse changes in the market value of securities held in or to be purchased for the Fund's portfolio, protect the value of the Fund's portfolio, facilitate the sale of certain securities for investment purposes, manage the effective interest rate exposure of the Fund, including the effective yield paid on any preferred shares issued by the Fund, manage the effective maturity or duration of the Fund's portfolio, or establish positions in the derivatives markets as a temporary substitute for purchasing or selling particular securities. The Fund may use Strategic Transactions to enhance potential gains, although no more than 5% of the Fund's total assets will be committed to initial margin for Strategic Transactions for non-hedging purposes. Strategic Transactions have risks, including the imperfect correlation between the value of such instruments and the underlying assets, the possible default of the other party to the transaction or illiquidity of the derivative instruments. Furthermore, the ability to successfully use Strategic Transactions depends on the Adviser's ability to predict pertinent market movements, which cannot be assured. Thus, the use of Strategic Transactions may result in losses greater than if they had not been used, may require the Fund to sell or purchase portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security that it might otherwise sell. Additionally, amounts paid by the Fund as premiums and cash or other assets held in margin accounts with respect to Strategic Transactions are not otherwise available to the Fund for investment purposes. A more complete discussion of Strategic Transactions and their risks is contained in the Statement of Additional Information. TEMPORARY DEFENSIVE STRATEGIES There may be times when, in the Adviser's judgment, conditions in the securities market would make pursuit of the Fund's investment strategy inconsistent with achievement of the Fund's investment objectives. At such times, the Adviser may employ alternative strategies primarily to seek to reduce fluctuations in the value of the Fund's assets. In implementing these temporary defensive strategies, depending on the circumstances, the Fund may invest an unlimited portion of its portfolio in U.S. dollar denominated corporate debt securities, short-term money market instruments, U.S. government securities and cash. It is impossible to predict when, or for how long, the Fund may use these alternative strategies. OTHER INVESTMENT POLICIES WHEN-ISSUED AND DELAYED DELIVERY PURCHASES The Fund may make contracts to purchase securities on a "when-issued" or "delayed delivery" basis. Pursuant to such contracts, delivery and payment for the securities occurs at a date later than the customary settlement date. The payment obligations and the interest rate on the securities will be fixed at the time the Fund enters into the commitment, but interest will not accrue to the Fund until delivery of and payment for the securities is made. An amount of cash or high quality securities equal to the amount of the Fund's commitment will be deposited in a segregated account at the Fund's custodian to secure the Fund's obligation. Although the Fund would generally purchase securities on a when-issued or delayed delivery basis with the intention of actually acquiring the securities for its portfolio (or for delivery pursuant to options or futures contracts it has entered into) and not for leverage purchases, the Fund could dispose of a security prior to settlement if the Adviser deemed it advisable. The purchase of securities on a when-issued or delayed delivery basis involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. This risk is in addition to the risk of a decline in value of the Fund's other assets. Furthermore, when such purchases are made through a dealer, the dealer's failure to consummate the sale may result in the loss to the Fund of an advantageous yield or price. - -------------------------------------------------------------------------------- 19 INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES - -------------------------------------------------------------------------------- PORTFOLIO TURNOVER The Fund may engage in portfolio trading when considered appropriate, but short-term trading will not be used as the primary means of achieving the Fund's investment objectives. Although the Fund cannot accurately predict its annual portfolio turnover rate, it is not expected to exceed 25% under normal circumstances. However, there are no limits on the rate of portfolio turnover, and investments may be sold without regard to length of time held when, in the opinion of the Adviser, investment considerations warrant such action. A higher portfolio turnover rate results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to shareholders, will be taxable as ordinary income. See "U.S. federal income tax matters." LEVERAGE The Fund currently anticipates that it will issue, as soon as practicable after the closing of this offering, preferred shares with an aggregate liquidation preference of approximately 33 1/3% of the Fund's total assets after giving effect to such issuance. The Fund may issue preferred shares or borrow or issue short-term debt securities to increase its assets available for investment. The Fund is authorized to issue preferred shares or issue debt obligations to the extent permitted by the 1940 Act. The Fund generally will not issue preferred shares or borrow unless the Adviser expects that the Fund will achieve a greater return on such borrowed funds than the additional costs the Fund incurs as a result of such borrowing. The Fund also may borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of the Fund's holdings. When the Fund leverages its assets, the fees paid to the Adviser for investment advisory and management services will be higher than if the Fund did not borrow because the Adviser's fees are calculated based on the Fund's total assets including the proceeds of the issuance of preferred shares or any outstanding borrowings. Consequently, the Fund and the Adviser may have differing interests in determining whether to leverage the Fund's assets. The Board of Trustees will monitor this potential conflict. The Fund's use of leverage is premised upon the expectation that the Fund's dividends on its outstanding preferred shares or borrowing cost will be lower than the return the Fund achieves on its investments with the proceeds of the issuance of preferred shares or borrowing. Such difference in return may result from the short-term nature of its borrowing compared to the long-term nature of its investments or the Fund's higher credit rating. If the assets of the Fund (including the assets obtained from leverage) are invested in the higher yielding portfolio investments or portfolio investments that appreciate in value, the holders of common shares will be the beneficiaries of any excess of such return over the cost of leverage. Should the differential between the return in the underlying assets and cost of leverage narrow, the incremental return "pick up" will be reduced. Furthermore, if long-term rates rise or the Fund otherwise incurs losses on its investments, the Fund's net asset value attributable to its common shares will reflect the decline in the value of portfolio holdings resulting therefrom. Leverage creates risks which may adversely affect the return for the holders of common shares, including: + the likelihood of greater volatility of net asset value and market price of common shares + fluctuations in the dividend rates on any preferred shares or in interest rates on borrowings and short-term debt + increased operating costs, which may reduce the Fund's total return to the holders of common shares + the potential for a decline in the value of an investment acquired through leverage, while the Fund's obligations under such leverage remains fixed - -------------------------------------------------------------------------------- 20 LEVERAGE - -------------------------------------------------------------------------------- To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to shareholders as dividends and other distributions will be reduced or potentially eliminated. The Adviser may determine to maintain the Fund's leveraged position if it expects that the long-term benefits to the Fund's shareholders of maintaining the leveraged position will outweigh the current reduced return. Capital raised through the issuance of preferred shares or borrowing will be subject to dividend payments or interest costs that may or may not exceed the income and appreciation on the assets purchased. The issuance of additional classes of preferred shares involves offering expenses and other costs, which will be borne by the holders of common shares, and may limit the Fund's freedom to pay dividends on common shares or to engage in other activities. The Fund also may be required to maintain minimum average balances in connection with borrowings or to pay a commitment or other fee to maintain a line of credit; either of these requirements will increase the cost of borrowing over the stated interest rate. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more nationally recognized statistical rating organizations which may issue ratings for the preferred shares or short-term debt instruments issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. Certain types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage, borrowing base and portfolio composition requirements and additional covenants that may affect the Fund's ability to pay dividends and distributions on common shares in certain instances. The Fund may also be required to pledge its assets to the lenders in connection with certain types of borrowing. The Adviser does not anticipate that these covenants or restrictions will adversely affect its ability to manage the Fund's portfolio in accordance with the Fund's investment objectives and principal investment strategies. Due to these covenants or restrictions, the Fund may be forced to liquidate investments at times and at prices that are not favorable to the Fund, or the Fund may be forced to forego investments that the Adviser otherwise views as favorable. Under the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the net asset value of the Fund's portfolio is at least 200% of the liquidation value of the outstanding preferred shares (i.e., such liquidation value may not exceed 50% of the value of the Fund's total assets). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its common shares unless, at the time of such declaration, the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or distribution) is at least 200% of such liquidation value. In the event preferred shares are issued, the Fund intends, to the extent necessary, to maintain coverage of any preferred shares of at least 200% through the purchase or redemption of preferred shares. Under the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after such borrowing the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the value of the Fund's total assets). Additionally, under the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its shares, or purchase any such shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be. The extent that the Fund employs leverage, if any, will depend on many factors, the most important of which are investment outlook, market conditions and interest rates. Successful use of a leveraging strategy depends on the Adviser's ability to predict correctly interest rates and market movements. - -------------------------------------------------------------------------------- 21 LEVERAGE - -------------------------------------------------------------------------------- There is no assurance that a leveraging strategy will be successful during any period in which it is employed. Assuming the Fund issues preferred shares with a liquidation preference equal to approximately 33 1/3% of the Fund's total assets and an annual dividend rate of 2.00% of such liquidation preference (which rate is approximately the rate which the Adviser expects the Fund to pay), based on an estimate of market rates as of the date of this Prospectus, the Fund would need to achieve an annual return on its total assets of 0.67% in order to cover such dividend payments on the preferred shares. The following table illustrates the hypothetical effect on the return to a holder of the Fund's common shares of the leverage obtained by issuing preferred shares with a liquidation value equal to 33 1/3% of the Fund's total assets, assuming hypothetical annual returns of the Fund's portfolio of minus 10% to plus 10%. As the table shows, leverage generally increases the return to shareholders when portfolio return is positive and greater than the cost of leverage and decreases the return when the portfolio return is negative or less than the cost of leverage. The figures appearing in the table are hypothetical and actual returns may be greater or less than those appearing in the table. Assumed portfolio return (net of expenses)...... (10.00)% (5.00)% 0.00% 5.00% 10.00% Corresponding common share return............... (16.00)% (8.50)% (1.00)% 6.50% 14.00%
Until the Fund issues preferred shares or borrows, the Fund's common shares will not be leveraged, and the risks and special considerations related to leverage described in this Prospectus will not apply. Such leveraging of the common shares cannot be fully achieved until the proceeds resulting from the use of leverage have been invested in longer-term debt instruments in accordance with the Fund's investment objectives and policies. RISK FACTORS GENERAL The Fund is a diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading tool. An investment in the Fund's common shares may be speculative in that it involves risk. The Fund should not constitute a complete investment program and should only be considered as an addition to an investor's existing diversified portfolio of investments. Due to the uncertainty in all investments, there can be no assurance that the Fund will achieve its investment objectives. NO OPERATING HISTORY The Fund is a newly organized closed-end management investment company and has no operating history or history of public trading. LEVERAGE The Fund may issue preferred shares, borrow money or issue debt securities with a liquidation preference or principal amount to the extent permitted by the 1940 Act and currently anticipates that it will issue preferred shares, as soon as practicable after the closing of this offering, with an aggregate liquidation preference of approximately 33 1/3% of the Fund's total assets immediately after issuance. Leverage creates risks which may adversely affect the return for the holders of common shares, including: + the likelihood of greater volatility of net asset value and market price of common shares + fluctuations in the dividend rates on any preferred shares or in interest rates on borrowings and short-term debt - -------------------------------------------------------------------------------- 22 RISK FACTORS - -------------------------------------------------------------------------------- + increased operating costs, which may reduce the Fund's total return to the holders of common shares + the potential for a decline in the value of an investment acquired through leverage, while the Fund's obligations under such leverage remain fixed To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund's return will be greater than if leverage had not been used. Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage or if the Fund incurs capital losses, the return of the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to shareholders as dividends and other distributions will be reduced or potentially eliminated. Certain types of borrowings may result in the Fund being subject to covenants in credit agreements, including those relating to asset coverage, borrowing base and portfolio composition requirements and additional covenants that may affect the Fund's ability to pay dividends and distributions on common shares in certain instances. The Fund may also be required to pledge its assets to the lenders in connection with certain types of borrowing. The Fund may be subject to certain restrictions on investments imposed by guidelines of one or more nationally recognized statistical rating organizations which may issue ratings for the preferred shares or short-term debt instruments issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. Since the Adviser's fee is a percentage of the Fund's managed assets, the Adviser's fee will be higher if the Fund is leveraged and the Adviser will have an incentive to leverage the Fund. INTEREST RATE RISK Fixed income securities are subject to certain common risks, including: + if interest rates go up, the value of debt securities in the Fund's portfolio generally will decline. Interest rates are currently low relative to historical levels + during periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest in lower yielding securities. This is known as call or prepayment risk. Preferred securities and other fixed income securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer + during periods of rising interest rates, the average life of certain types of securities may be extended because of the right of the issuer to defer payments or make slower than expected principal payments. This may lock in a below market interest rate, increase the security's duration (the estimated period until the security is paid in full) and reduce the value of the security. This is known as extension risk CREDIT RISK Credit risk is the risk that preferred securities or debt securities in the Fund's portfolio will decline in price or fail to make dividend payments when due because the issuer of the security experiences a decline in its financial status. Although the Fund will primarily invest in investment grade securities, the Fund is authorized to invest up to 20% of its total assets in preferred securities and other fixed income securities that are rated below investment grade at the time of acquisition. These securities may be rated as low as "B" by Moody's and S&P. Securities rated "Baa" by Moody's are considered by Moody's as medium to lower medium grade securities; they are neither highly protected nor poorly - -------------------------------------------------------------------------------- 23 RISK FACTORS - -------------------------------------------------------------------------------- secured; dividend or interest payments and capital or principal security, as the case may be, appear to Moody's to be adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over time; and in the opinion of Moody's, securities in this rating category lack outstanding investment characteristics and in fact have speculative characteristics as well. Securities rated "BBB" by S&P are regarded by S&P as having an adequate capacity to pay dividends or interest and repay capital or principal, as the case may be; whereas such securities normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely, in the opinion of S&P, to lead to a weakened capacity to pay dividends or interest and repay capital or principal for securities in this category than in higher rating categories. Below investment grade securities and comparable unrated securities involve substantial risk of loss, are considered speculative with respect to the issuer's ability to pay interest and any required redemption or principal payments and are susceptible to default or decline in market value due to adverse economic and business developments. The ratings of Moody's and S&P represent their opinions as to the quality of those securities that they rate; ratings are relative and subjective and are not absolute standards of quality. SECTOR RISK Under normal market conditions, the Fund will emphasize investments in preferred securities issued or guaranteed by U.S. corporations in the utilities sector. The Fund will not invest 25% or more of its total assets in any one industry, except that the Fund will invest 25% or more of its total assets in the industries comprising the utilities sector. The utilities industries in which the Fund may invest include companies engaged in: + the generation, transmission, sale or distribution of electric energy + the distribution, purification and treatment of water + the provision of sewage management, treatment or other sanitary services + the production, transmission or distribution of natural gas + the provision of pollution control or abatement services + telecommunications, including telephone, telegraph, satellite, microwave and other communications media (but not companies engaged primarily in the public broadcasting industry) The Fund's emphasis on securities of utilities issuers makes it more susceptible to adverse conditions affecting such industries than a fund that does not have its assets invested to a similar degree in such issuers. Issuers in the utilities sector are subject to a variety of factors that may adversely affect their business or operations, including: + high interest costs in connection with capital construction programs + governmental regulation of rates charged to customers + costs associated with environmental and other regulations + the effects of economic slowdowns and surplus capacity + increased competition from other providers of utility services + technological innovations that may render existing plants, equipment or products obsolete + inexperience with and potential losses resulting from a developing deregulatory environment, including losses and regulatory issues in connection with energy trading + increased costs and reduced availability of certain types of fuel, occasionally reduced availability and high costs of natural gas for resale, the effects of energy conservation, and the potential that - -------------------------------------------------------------------------------- 24 RISK FACTORS - -------------------------------------------------------------------------------- costs incurred by the utility, such as the cost of fuel, change more rapidly than the rate the utility is permitted to charge its customers + the effects of a national energy policy and lengthy delays and greatly increased costs and other problems associated with the design, construction, licensing, regulation and operation of nuclear facilities for electric generation, including, among other considerations, the problems associated with the use of radioactive materials and the disposal of radioactive wastes There are substantial differences between the regulatory practices and policies of various jurisdictions, and any given regulatory agency may make major shifts in policy from time to time. There is no assurance that regulatory authorities will, in the future, grant rate increases or that such increases will be adequate to permit the payment of dividends on preferred or common stocks. Additionally, existing and possible future regulatory legislation may make it even more difficult for these utilities to obtain adequate relief. Certain of the issuers of securities held in the Fund's portfolio may own or operate nuclear generating facilities. Governmental authorities may from time to time review existing policies and impose additional requirements governing the licensing, construction and operation of nuclear power plants. Prolonged changes in climatic conditions can also have a significant impact on both the revenues of an electric and gas utility as well as the expenses of a utility, particularly a hydro-based electric utility. The nature of regulation of the utility industries is evolving both in the United States and in foreign countries. In recent years, changes in regulation in the United States increasingly have allowed utility companies to provide services and products outside their traditional geographic areas and lines of business, creating new areas of competition within the industries. In some instances, utility companies are operating on an unregulated basis. Because of trends toward deregulation and the evolution of independent power producers as well as new entrants to the field of telecommunications, non-regulated providers of utility services have become a significant part of their respective industries. The emergence of competition and deregulation may result in certain utility companies being able to earn more than their traditional regulated rates of return, while others may be forced to defend their core business from increased competition and may be less profitable. Reduced profitability, as well as new uses of funds (such as for expansion, operations or stock buybacks) could result in cuts in dividend payout rates. While the Fund will not invest 25% or more of its total assets in any one of the industries comprising the financial services sector, from time to time the Fund may have significant exposure to issuers in the financial services sector. These industries include bank holding companies, banks, securities brokers and dealers, and life, property, casualty and multi-line insurance companies. These industries are subject to extensive regulation at the federal and/or state level and, to the extent that they operate internationally, in other countries. Each of these industries may also be significantly affected by changes in prevailing interest rates, general economic conditions and industry specific risks. The enactment of new legislation and regulation, as well as changes in the interpretation and enforcement of existing laws and regulations, may directly affect the manner of operations and profitability of participants in the financial services sector. From time to time, changes in law and regulation have permitted greater diversification of their financial products, but their ability to expand by acquisition or branching across state lines and to engage in non-banking activities continues to be limited. Federal or state law and regulations require banks, bank holding companies, broker-dealers and insurance companies to maintain minimum levels of capital and liquidity. Bank regulators have broad authority and can impose sanctions, including conservatorship or receivership, on non-complying banks even when these banks continue to be solvent, thereby possibly resulting in the elimination of stockholders' equity. - -------------------------------------------------------------------------------- 25 RISK FACTORS - -------------------------------------------------------------------------------- SPECIAL RISKS RELATED TO PREFERRED SECURITIES There are special risks associated with investing in preferred securities: + LIMITED VOTING RIGHTS. Generally, holders of preferred securities (such as the Fund) have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods at which time the preferred security holders may elect a number of directors to the issuer's board. Generally, once the issuer pays all the arrearages, the preferred security holders no longer have voting rights. + SPECIAL REDEMPTION RIGHTS. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a special redemption by the issuer may negatively impact the return of the security held by the Fund. + DEFERRAL. Preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If the Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes although it has not yet received such income. + LIQUIDITY. Preferred securities may be substantially less liquid than many other securities, such as common stocks or U.S. government securities. + SUBORDINATION. Preferred securities are subordinated to bonds and other debt instruments in a company's capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments. + SUPPLY OF TAXABLE PREFERRED SECURITIES. The Financial Accounting Standards Board is reviewing accounting guidelines relating to taxable preferred securities. To the extent that a change in the guidelines could adversely affect the market for, and availability of, these securities, the Fund may be adversely affected. + NEW TYPES OF SECURITIES. From time to time, preferred securities, including taxable preferred securities have been, and may in the future be, offered having features other than those described herein. The Fund reserves the right to invest in these securities if the Adviser believes that doing so would be consistent with the Fund's investment objectives and principal investment strategies. Since the market for these instruments would be new, the Fund may have difficulty disposing of them at a suitable price and time. In addition to limited liquidity, these instruments may present other risks, such as high price volatility. CONVERTIBLE SECURITIES The Fund may invest in convertible securities. Convertible preferred securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. As with all fixed income securities, market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security tends to trade increasingly on a yield basis and thus may not decline in price to the same extent as the underlying common stock. Convertible securities rank senior to common stock in an issuer's capital structure and consequently entail less risk than the issuer's common stock. The Fund may invest in convertible securities of any maturity and will determine whether to hold, sell or convert any security in which it has invested depending upon the Adviser's outlook for the market value for such security and the security into which it converts. - -------------------------------------------------------------------------------- 26 RISK FACTORS - -------------------------------------------------------------------------------- COMMON STOCKS The common stocks and other non-preferred equity securities in which the Fund invests may experience substantially more volatility in their market value than the Fund's investments in preferred securities. Such securities may also be more susceptible to adverse changes in market value due to issuer specific events, such as unfavorable earnings reports. The market values of common stocks are also generally sensitive to general movements in the equities markets. ILLIQUID SECURITIES The Fund may invest up to 20% of its total assets in illiquid securities. Illiquid securities may be difficult to dispose of at a fair price at the times when the Adviser believes it is desirable to do so. The market price of illiquid securities generally is more volatile than that of more liquid securities, which may adversely affect the price that the Fund pays for or recovers upon the sale of illiquid securities. Illiquid securities are also more difficult to value and the Adviser's judgment may play a greater role in the valuation process. Investment of the Fund's assets in illiquid securities may restrict the Fund's ability to take advantage of market opportunities. The risks associated with illiquid securities may be particularly acute in situations in which the Fund's operations require cash and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid securities. FOREIGN SECURITIES Although the Fund will invest primarily in the securities of U.S. issuers, the Fund may invest up to 20% of its total assets in securities of corporate and governmental issuers located outside the U.S. Although the Fund only invests in securities of non-U.S. issuers that are traded or denominated in U.S. dollars, the Fund's investments in non-U.S. issuers may involve unique risks compared to investing in securities of U.S. issuers. These risks are more pronounced to the extent that the Fund invests a significant portion of its non-U.S. investments in one region or in the securities of emerging market issuers. These risks may include: + less information about non-U.S. issuers or markets may be available due to less rigorous disclosure or accounting standards or regulatory practices + many non-U.S. markets are smaller, less liquid and more volatile. In a changing market, the Adviser may not be able to sell the Fund's portfolio securities at times, in amounts and at prices it considers reasonable + adverse effect of currency exchange rates or controls on the financial condition of non-U.S. issuers in which the Fund invests + the economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession + economic, political and social developments may adversely affect the securities markets + withholdings and other non-U.S. taxes may decrease the Fund's return There may be less publicly available information about non-U.S. markets and issuers than is available with respect to U.S. securities and issuers. Non-U.S. companies generally are not subject to accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies. The trading markets for most non-U.S. securities are generally less liquid and subject to greater price volatility than the markets for comparable securities in the U.S. The markets for securities in certain emerging markets are in the earliest stages of their development. Even the markets for relatively widely traded securities in certain non-U.S. markets, including emerging market countries, may not be able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in the U.S. Additionally, - -------------------------------------------------------------------------------- 27 RISK FACTORS - -------------------------------------------------------------------------------- market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced liquidity. Economies and social and political climate in individual countries may differ unfavorably from the U.S. Non-U.S. economies may have less favorable growth rates of gross domestic product, rates of inflation, currency valuation, capital reinvestment, resource self-sufficiency and balance of payments positions. Many countries have experienced substantial, and in some cases extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, very negative effects on the economies and securities markets of certain emerging countries. Unanticipated political or social developments may also affect the value of the Fund's investments and the availability to the Fund of additional investments in such countries. MARKET PRICE OF SHARES Shares of closed-end funds frequently trade at prices lower than their net asset value. This is commonly referred to as "trading at a discount." This characteristic of shares of closed-end funds is a risk separate and distinct from the risk that the Fund's net asset value may decrease. Investors who sell their shares within a relatively short period after completion of the public offering are likely to be exposed to this risk. Accordingly, the Fund is designed primarily for long-term investors and should not be considered a vehicle for trading purposes. Net asset value will be reduced following the offering by the underwriting discount and the amount of offering expenses paid by the Fund. Whether investors will realize a gain or loss upon the sale of the Fund's common shares will depend upon whether the market value of the shares at the time of sale is above or below the price the investor paid for the shares, taking into account transaction costs, and is not directly dependent upon the Fund's net asset value. Because the market value of the Fund's shares will be determined by factors such as the relative demand for and supply of the shares in the market, general market conditions and other factors beyond the control of the Fund, the Fund cannot predict whether its common shares will trade at, below or above net asset value, or below or above the initial offering price for the shares. DERIVATIVES Strategic Transactions have risks, including the imperfect correlation between the value of such instruments and the underlying assets, the possible default of the other party to the transaction or illiquidity of the derivative instruments. Furthermore, the ability to successfully use Strategic Transactions depends on the Adviser's ability to predict pertinent market movements, which cannot be assured. Thus, the use of Strategic Transactions may result in losses greater than if they had not been used, may require the Fund to sell or purchase portfolio securities at inopportune times or for prices other than current market values, may limit the amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security that it might otherwise sell. Additionally, amounts paid by the Fund as premiums and cash or other assets held in margin accounts with respect to Strategic Transactions are not otherwise available to the Fund for investment purposes. There are several risks associated with the use of futures contracts and futures options. The purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. While the Fund may enter into futures contracts and options on futures contracts for hedging purposes, the use of futures contracts and options on futures contracts might result in a poorer overall performance for the Fund than if it had not engaged in any such transactions. There may be an imperfect correlation between the Fund's portfolio holdings and futures contracts or options on futures contracts entered into by the Fund, which may prevent the Fund from achieving the intended hedge or expose the Fund to risk of loss. The degree of imperfection of correlation depends on circumstances such as variations in market demand for futures, options on futures and their related securities, including technical influences in futures and futures options trading, and differences between the securities markets and the securities underlying the standard contracts available for trading. Further, - -------------------------------------------------------------------------------- 28 RISK FACTORS - -------------------------------------------------------------------------------- the Fund's use of futures contracts and options on futures contracts to reduce risk involves costs and will be subject to the Adviser's ability to predict correctly changes in interest rate relationships or other factors. Depending on whether the Fund would be entitled to receive net payments from the counterparty on a swap or cap, which in turn would depend on the general state of short-term interest rates at that point in time, a default by a counterparty could negatively impact the performance of the common shares. In addition, at the time an interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that the Fund would not be able to obtain a replacement transaction or that the terms of the replacement would not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the performance of the common shares. If the Fund fails to maintain the required 200% asset coverage of the liquidation value of any outstanding preferred shares or if the Fund loses its expected rating on the preferred shares or fails to maintain other covenants, the Fund may be required to redeem some or all of the preferred shares. Similarly, the Fund could be required to prepay the principal amount of any borrowings. Such redemption or prepayment would likely result in the Fund seeking to terminate early all or a portion of any swap or cap transaction. Early termination of a swap could result in a termination payment by or to the Fund. Early termination of a cap could result in a termination payment to the Fund. The Fund intends to maintain, in a segregated account, cash or liquid securities having a value at least equal to the Fund's net payment obligations under any swap transaction, marked to market daily. The Fund will not enter into interest rate swap or cap transactions having a notional amount that exceeds the outstanding amount of the Fund's leverage. The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. Depending on the state of interest rates in general, the Fund's use of interest rate swaps or caps could enhance or harm the overall performance of the common shares. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline, and could result in a decline in the net asset value of the common shares. In addition, if short-term interest rates are lower than the Fund's fixed rate of payment on the interest rate swap, the swap will reduce common share net earnings. If, on the other hand, short-term interest rates are higher than the fixed rate of payment on the interest rate swap, the swap will enhance common share net earnings. Buying interest rate caps could enhance the performance of the common shares by providing a maximum leverage expense. Buying interest rate caps could also decrease the net earnings of the common shares in the event that the premium paid by the Fund to the counterparty exceeds the additional amount the Fund would have been required to pay had it not entered into the cap agreement. The Fund has no current intention of selling an interest rate swap or cap. Interest rate swaps and caps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty defaults, the Fund would not be able to use the anticipated net receipts under the swap or cap to offset the dividend payments on the Fund's preferred shares or interest payments on borrowings. Depending on whether the Fund would be entitled to receive net payments from the counterparty on the swap or cap, which in turn would depend on the general state of short-term interest rates at that point in time, such a default could negatively impact the performance of the common shares. ANTI-TAKEOVER PROVISIONS The Fund's Agreement and Declaration of Trust and By-laws include provisions that could limit the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Trustees. Such provisions could limit the ability of holders of common shares to sell their shares at a premium over prevailing market prices by discouraging a third-party from seeking to obtain - -------------------------------------------------------------------------------- 29 RISK FACTORS - -------------------------------------------------------------------------------- control of the Fund. These provisions include staggered terms of office for the Trustees, advance notice requirements for shareholder proposals, and super-majority voting requirements for open-ending the Fund or a merger, liquidation, asset sales and similar transactions. RECENT EVENTS The terrorist attacks in the United States on September 11, 2001 had a disruptive effect on the securities markets. The Fund does not know how long the securities markets will continue to be affected by these events and cannot predict the effects of similar events in the future on the U.S. economy. MANAGEMENT OF THE FUND TRUSTEES AND OFFICERS The Fund's Board of Trustees provides broad supervision over the affairs of the Fund. The officers of the Fund are responsible for the Fund's operations. The Trustees and officers of the Fund, together with their principal occupations during the past five years, are listed in the Statement of Additional Information. Each of the Trustees serves as a Trustee of each of the other leveraged closed-end investment companies for which the Adviser acts as investment adviser. INVESTMENT ADVISER AND ADMINISTRATOR The Fund has contracted with John Hancock Advisers, LLC to act as its investment adviser. The Adviser serves as the investment adviser to John Hancock Preferred Income Fund and the Patriot Group of Trusts, consisting of Patriot Premium Dividend Fund I, Patriot Premium Dividend Fund II, Patriot Select Dividend Trust, Patriot Preferred Dividend Fund and Patriot Global Dividend Fund, all leveraged dual-class, closed-end investment companies. John Hancock Preferred Income Fund commenced investment operations on August 22, 2002 and has the same investment objectives and policies as the Fund. As of October 21, 2002, John Hancock Preferred Income Fund had total assets of approximately $574 million. The Adviser was organized in 1968 and had, as of September 30, 2002 approximately $24.7 billion in assets under management, of which approximately $1.8 billion was invested in preferred securities. The Adviser is an indirect wholly-owned subsidiary of John Hancock Financial Services, Inc., a financial services company. The Adviser has been managing closed-end funds since 1971 and has a long history of delivering regular dividends through several market cycles. The Adviser is an industry leader in preferred stock fund management and is the only firm to actively manage six closed-end preferred stock funds. The Adviser will employ a team of seasoned investment professionals to manage the Fund. This experienced team has been successful in managing preferred assets through the Adviser's similarly structured John Hancock Preferred Income Fund and the Patriot Group of Trusts, as well as open-end funds and institutional portfolios. The team consists of 59 professionals with an average of 16 years of investment experience. In addition to developing a structured process to manage interest rate risk, the management team has a track record of maintaining regular dividends through several market cycles. The Adviser uses a total team approach in which portfolio managers and analysts work together to research and identify investment opportunities resulting in a free-flowing exchange of ideas. The Adviser's goal is to deliver consistent investment results, where its investment philosophy can be maintained through teamwork rather than individual efforts. Under the terms of an investment advisory agreement between the Fund and the Adviser (the "Advisory Agreement"), the Fund has retained the Adviser to provide overall investment advice and to manage the investment of the Fund's assets and to place orders for the purchase and sale of its portfolio securities. The Adviser is responsible for obtaining and evaluating research, economic and - -------------------------------------------------------------------------------- 30 MANAGEMENT OF THE FUND - -------------------------------------------------------------------------------- statistical data and, subject to the supervision of the Board of Trustees, for formulating and implementing investment programs in furtherance of the Fund's investment objectives. The Adviser will furnish to the Fund the services of such members of its organization as may be duly elected officers of the Fund. The Adviser will not be liable to the Fund except for willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations. The Adviser will also provide administrative services to the Fund (to the extent such services are not provided to the Fund pursuant to other agreements) including (i) providing supervision of the Fund's non-investment operations, (ii) providing the Fund with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Fund, (iii) arranging for the preparation, at the Fund's expense, of the Fund's tax returns, reports to shareholders and reports filed with the Securities and Exchange Commission and other regulatory authorities, (iv) providing the Fund with adequate office space and certain related office equipment and services, and (v) maintaining all of the Fund's records other than those maintained pursuant to such other agreements. COMPENSATION AND EXPENSES For its advisory and administrative services, the Fund will accrue and pay to the Adviser daily, as compensation for the services rendered and expenses paid by it, a fee on an annual basis equal to 0.75% of the Fund's average daily managed assets. Because the fee paid to the Adviser is determined on the basis of the Fund's managed assets, the Adviser's interest in determining whether to leverage the Fund may differ from the interests of the Fund. "Managed assets" means the total assets of the Fund (including any assets attributable to any leverage that may be outstanding) minus the sum of accrued liabilities (other than liabilities representing financial leverage). The liquidation preference of the preferred shares is not a liability. Consequently, if the Fund issues preferred shares and does not borrow, managed assets will generally be approximately equal to the Fund's net assets attributable to common shares plus the liquidation preference of any outstanding preferred shares. Pursuant to a separate Accounting and Legal Services Agreement, the Adviser is reimbursed for certain tax, accounting and legal services. The Adviser has contractually agreed to waive a portion of its advisory fees. The Adviser has agreed that, until the fifth anniversary of the Advisory Agreement, the Adviser will limit its advisory fee to 0.55% of average daily managed assets, in the sixth year to 0.60% of average daily managed assets, in the seventh year to 0.65% of average daily managed assets, and in the eighth year to 0.70% of average daily managed assets. After the eighth year, the Adviser will no longer waive a portion of its advisory fee. PORTFOLIO MANAGERS Day-to-day management of the Fund's portfolio is the responsibility of a team of portfolio managers led by Gregory K. Phelps, Mark T. Maloney and Barry H. Evans. Gregory K. Phelps is a Vice President and Portfolio Manager with over 21 years of experience. He has extensive expertise managing preferred securities within closed-end funds and in researching securities in the utility, bank, and oil and gas industries. Mark T. Maloney is a Senior Equity Research Officer and Assistant Portfolio Manager with over five years of investment experience focusing on electric utilities, gas distribution and local distribution companies. Barry H. Evans, CFA, is a Senior Vice President and Chief Fixed Income Officer at John Hancock Advisers, LLC. He oversees fixed income strategies, which include both corporate high grade and high yield mandates. He has 16 years of investment experience. - -------------------------------------------------------------------------------- 31 MANAGEMENT OF THE FUND - -------------------------------------------------------------------------------- SHAREHOLDER SERVICING AGENT The Adviser has retained UBS Warburg LLC to act as shareholder servicing agent for the Fund. In consideration of these services, the Adviser will pay UBS Warburg LLC a fee equal on an annual basis to 0.10% of the Fund's average daily managed assets. This fee will be an expense of the Adviser and not the Fund. See "Custodian, transfer agent, registrar, dividend disbursing agent and shareholder servicing agent." DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC DIVIDEND REINVESTMENT PLAN DIVIDENDS AND DISTRIBUTIONS The Fund intends to distribute dividends of all or a portion of its investment company taxable income monthly to holders of common shares. It is expected that its initial distribution will be declared approximately 45 days, and paid approximately 60 to 90 days, after the completion of this offering. Dividends and distributions may be payable in cash or common shares, with the option to receive cash in lieu of the shares. The Fund may at times in its discretion pay out less than the entire amount of investment company taxable income earned in any particular period and may at times pay out such accumulated undistributed income in addition to investment company taxable income earned in other periods in order to permit the Fund to maintain a more stable level of distributions. As a result, the dividend paid by the Fund to holders of common shares for any particular period may be more or less than the amount of investment company taxable income earned by the Fund during such period. The Fund is not required to maintain a stable level of distributions to shareholders. For federal tax purposes, the Fund is required to distribute substantially all of its investment company taxable income for each year. All, or substantially all of the Fund's net capital gains, if any, will be distributed to the Fund's shareholders at least annually. Under the 1940 Act, the Fund is not permitted to incur indebtedness unless immediately after such incurrence the Fund has an asset coverage of at least 300% of the aggregate outstanding principal balance of indebtedness. Additionally, under the 1940 Act, the Fund may not declare any dividend or other distribution upon any class of its capital shares, or purchase any such capital shares, unless the aggregate indebtedness of the Fund has, at the time of the declaration of any such dividend or distribution or at the time of any such purchase, an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be. While any preferred shares are outstanding, the Fund may not declare any cash dividend or other distribution on its common shares, unless at the time of such declaration, (1) all accumulated preferred dividends have been paid and (2) the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the outstanding preferred shares (expected to be equal to the original purchase price per share plus any accumulated and unpaid dividends thereon). In addition to the limitations imposed by the 1940 Act described above, certain lenders or rating agencies rating the Fund's preferred shares may impose additional restrictions on the payment of dividends or distributions on the common shares. If the Fund's ability to make distributions on its common shares is limited, such limitation could under certain circumstances impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company, which would have adverse tax consequences for shareholders. See "Leverage" and "U.S. federal income tax matters." See "AUTOMATIC DIVIDEND REINVESTMENT PLAN" for information concerning the manner in which dividends and distributions to common shareholders may be automatically reinvested in - -------------------------------------------------------------------------------- 32 DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC DIVIDEND REINVESTMENT PLAN - -------------------------------------------------------------------------------- common shares. Dividends and distributions may be taxable to shareholders whether they are reinvested in shares of the Fund or received in cash. See "U.S. federal income tax matters." The yield on the Fund's common shares will vary from period to period depending on factors including, but not limited to, market conditions, the timing of the Fund's investment in portfolio securities, the securities comprising the Fund's portfolio, changes in interest rates including changes in the relationship between short-term rates and long-term rates, the amount and timing of the use of borrowings and other leverage by the Fund, the effects of leverage on the common shares discussed above under "Leverage," the timing of the investment of leverage proceeds in portfolio securities, the Fund's net assets and its operating expenses. Consequently, the Fund cannot guarantee any particular yield on its shares and the yield for any given period is not an indication or representation of future yields on the Fund's shares. AUTOMATIC DIVIDEND REINVESTMENT PLAN Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"), unless a shareholder is ineligible or elects otherwise, all dividend and capital gains distributions are automatically reinvested by Mellon Bank N.A., as agent for shareholders in administering the Plan (the "Plan Agent"), in additional common shares of the Fund. In the event a dividend or capital gains distribution is declared in shares with the option to take cash and the shares are trading at a "market discount," as described below, the Plan provides that its distribution will be taken in cash and reinvested in accordance with the Plan. Shareholders who are ineligible or who elect not to participate in the Plan will receive all dividends and distributions payable in cash paid by check mailed directly to the shareholder of record (or, if the shares are held in street or other nominee name, then to such nominee) by the Plan Agent, as dividend paying agent. Such shareholders may elect not to participate in the Plan and to receive all distributions of dividends and capital gains in cash by sending written instructions to the Plan Agent, as dividend paying agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by written notice if received by the Plan Agent not less than ten days prior to any dividend record date; otherwise, such termination will be effective with respect to any subsequently declared dividend or capital gains distribution. Whenever the Fund declares an ordinary income dividend or a capital gains distribution (collectively referred to as "dividends") payable either in shares or in cash, non-participants in the Plan will receive cash, and participants in the Plan will receive common shares. The shares are acquired by the Plan Agent for the participant's account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares from the Fund ("newly issued shares") or (ii) by purchase of outstanding common shares on the open market ("open-market purchases") on the New York Stock Exchange or elsewhere. If, on the payment date for any dividend or distribution, the net asset value per share of the common shares is equal to or less than the market price per common share as determined on the payment date (such condition being referred to herein as "market premium"), the Plan Agent will invest the amount of such dividend or distribution in newly issued shares on behalf of the participant. The number of newly issued common shares to be credited to the participant's account will be determined by dividing the dollar amount of the dividend by the higher of the net asset value per share on the date the shares are issued or 95% of the market price per share on such date. If on the dividend payment date the net asset value per share is greater than the market price (such condition being referred to herein as "market discount"), the Plan Agent will invest the dividend amount (less a pro-rata share of any brokerage commissions) in shares acquired on behalf of the participant in open-market purchases. In the event of a market discount on the payment date for any dividend or distribution, the Plan Agent will be purchasing shares shortly after the payment date of the dividend and in no event later than the day preceding the next ex-dividend date, except where temporary curtailment or suspension of - -------------------------------------------------------------------------------- 33 DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC DIVIDEND REINVESTMENT PLAN - -------------------------------------------------------------------------------- purchase is necessary to comply with the federal securities laws ("last purchase date") to invest the dividend amount in shares acquired in open-market purchases. It is contemplated that the Fund will pay monthly income dividends. Therefore, the period during which open-market purchases can be made will exist only from the payment date of the dividend through the date before the next ex- dividend date, which typically will be approximately ten days. The Plan Agent maintains all shareholders' accounts in the Plan and furnishes written confirmation of all transactions in the account within 60 days, including information needed by shareholders for tax records. Shares in the account of each Plan participant will be held by the Plan Agent in non- certificated form in the name of the participant, and each shareholder's proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to the Plan in accordance with the instructions of the participants. In the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the record shareholders as representing the total amount registered in the record shareholder's name and held for the account of beneficial owners who are to participate in the Plan. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. However, 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. The automatic reinvestment of dividend and capital gains distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such distributions. See "U.S. federal income tax matters." Shareholders participating in the Plan may receive benefits not available to shareholders not participating in the Plan. If the market price of the Fund's shares is higher than the net asset value, participants in the Plan will receive shares of the Fund at less than they could otherwise purchase them and will have shares with a cash value greater than the value of any cash distribution they would have received on their shares. If the market price is below the net asset value, participants receive distributions of shares with a net asset value greater than the value of any cash distribution they would have received on their shares. However, there may be insufficient shares available in the market to make distributions in shares at prices below the net asset value. Also, since the Fund does not redeem its shares, the price on resale may be more or less than the net asset value. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be directed to the Plan Agent at Mellon Investor Services, P.O. Box 3338, South Hackensack, NJ 07606-1938 (800-852-0218). CLOSED-END FUND STRUCTURE The Fund is a newly organized, diversified, closed-end management investment company (commonly referred to as a closed-end fund). Closed-end funds differ from open-end funds (which are generally referred to as mutual funds) in that closed-end funds generally list their shares for trading on a stock exchange and do not redeem their shares at the request of the shareholder. This means that if you wish to sell your shares of a closed-end fund you must trade them on the market like any other stock at the prevailing market price at that time. In a mutual fund, if the shareholder wishes to sell shares of - -------------------------------------------------------------------------------- 34 CLOSED-END FUND STRUCTURE - -------------------------------------------------------------------------------- the fund, the mutual fund will redeem or buy back the shares at "net asset value." Also, mutual funds generally offer new shares on a continuous basis to new investors, and closed-end funds generally do not. The continuous inflows and outflows of assets in a mutual fund can make it difficult to manage the fund's investments. By comparison, closed-end funds are generally able to stay more fully invested in securities that are consistent with their investment objectives and also have greater flexibility to make certain types of investments and to use certain investment strategies, such as financial leverage and investments in illiquid securities. Shares of closed-end funds frequently trade at a discount to their net asset value. Common shares of closed-end investment companies like the Fund, that invest predominantly in preferred securities, have during some periods traded at prices higher than their net asset value (at a "premium") and during other periods traded at prices lower than their net asset value (at a "discount"). This is in part because the market price reflects the dividend yield on the common shares. When the yield on the net asset value per share is higher than yields generally available in the market for comparable securities, the market price will tend to reflect this by trading higher than the net asset value per share to adjust the yield to a comparable market rate. To the extent the common shares do trade at a discount, the Fund's Board of Trustees may from time to time engage in open-market repurchases or tender offers for shares after balancing the benefit to shareholders of the increase in the net asset value per share resulting from such purchases against the decrease in the assets of the Fund and potential increase in the expense ratio of expenses to assets of the Fund and consequent reduction in yield. The Board of Trustees believes that in addition to the beneficial effects described above, any such purchases or tender offers may result in the temporary narrowing of any discount but will not have any long-term effect on the level of any discount. U.S. FEDERAL INCOME TAX MATTERS The following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a shareholder of acquiring, holding and disposing of common shares of the Fund. This discussion only addresses U.S. federal income tax consequences to U.S. shareholders who hold their shares as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to particular shareholders in light of their individual circumstances. This discussion also does not address the tax consequences to shareholders who are subject to special rules, including, without limitation, financial institutions, insurance companies, dealers in securities or foreign currencies, foreign shareholders, shareholders who hold their shares as or in a hedge against currency risk, a constructive sale, or conversion transaction, shareholders who are subject to the alternative minimum tax, or tax-exempt or tax-deferred plans, accounts, or entities. In addition, the discussion does not address any state, local, or foreign tax consequences, and it does not address any federal tax consequences other than U.S. federal income tax consequences. The discussion reflects applicable tax laws of the United States as of the date of this Prospectus, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service ("IRS") retroactively or prospectively. No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting the Fund and its shareholders, and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers to determine the specific tax consequences to them of investing in the Fund, including the applicable federal, state, local and foreign tax consequences to them and the effect of possible changes in tax laws. The Fund intends to elect to be treated and to qualify each year as a "regulated investment company" under Subchapter M of the Code and to comply with applicable distribution requirements so that it generally will not pay U.S. federal income tax on income and capital gains distributed to shareholders. In order to qualify as a regulated investment company, which qualification the following discussion assumes, the Fund must satisfy certain tests regarding the sources of its income and the diversification - -------------------------------------------------------------------------------- 35 U.S. FEDERAL INCOME TAX MATTERS - -------------------------------------------------------------------------------- of its assets. If the Fund qualifies as a regulated investment company and, for each taxable year, it distributes to its shareholders an amount equal to or exceeding the sum of (i) 90% of its "investment company taxable income" as that term is defined in the Code (which includes, among other things, dividends, taxable interest, and the excess of any net short-term capital gains over net long-term capital losses, as reduced by certain deductible expenses) without regard to the deduction for dividends paid and (ii) 90% of the excess of its gross tax-exempt interest, if any, over certain disallowed deductions, the Fund generally will be relieved of U.S. federal income tax on any income of the Fund, including "net capital gains" (the excess of net long-term capital gain over net short-term capital loss), distributed to shareholders. However, if the Fund retains any investment company taxable income or net capital gain, it generally will be subject to U.S. federal income tax at regular corporate rates on the amount retained. The Fund intends to distribute at least annually all or substantially all of its investment company taxable income, net tax-exempt interest, and net capital gain. If for any taxable year the Fund did not qualify as a regulated investment company, it would be treated as a corporation subject to U.S. federal income tax. Although dividends generally will be treated as distributed when paid, any dividend declared by the Fund as of a record date in October, November or December and paid during the following January will be treated for U.S. federal income tax purposes as received by shareholders on December 31 of the calendar year in which it is declared. Unless a shareholder is ineligible to participate or elects otherwise, distributions will be automatically reinvested in additional common shares of the Fund pursuant to the Plan. For U.S. federal income tax purposes, assuming the Fund has sufficient current or accumulated earnings and profits, such distributions generally will be taxable whether a shareholder takes them in cash they are reinvested pursuant to the Plan in additional shares of the Fund. In general, dividends from investment company taxable income are taxable as ordinary income, and dividends from net capital gain (if any) that are designated as capital gain dividends are taxable as long-term capital gains for U.S. federal income tax purposes without regard to the length of time the shareholder has held shares of the Fund. Shareholders receiving distributions in the form of additional shares issued by the Fund will be treated for federal income tax purposes as receiving a distribution in an amount equal to the amount of cash they would have received had they elected to receive cash, except when the Fund distributes newly issued shares, in which case the amount of the distribution will be equal to the fair market value of the shares received, determined as of the distribution date. The basis of such shares will equal the amount of the distribution. The source and U.S. federal income tax status of all distributions will be reported to shareholders annually, and shareholders receiving distributions in the form of additional shares of the Fund will receive a report as to the net asset value of those shares. If the Fund retains any net capital gains for a taxable year, the Fund may designate the retained amount as undistributed capital gains in a notice to shareholders who, if subject to U.S. federal income tax on long-term capital gains, (i) will be required to include in income for U.S. federal income tax purposes, as long-term capital gain, their proportionate shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. Distributions from the Fund to its corporate shareholders are not expected to qualify for the 70% corporate Dividends Received Deduction to the extent of the income received by the Fund from its investment in taxable preferred securities. See "Investment objectives and principal investment strategies--PORTFOLIO CONTENTS AND PRINCIPAL INVESTMENT STRATEGIES--Taxable preferred securities." Sales and other dispositions of the Fund's shares generally are taxable events for shareholders that are subject to tax. Shareholders should consult their own tax advisers with reference to their individual - -------------------------------------------------------------------------------- 36 U.S. FEDERAL INCOME TAX MATTERS - -------------------------------------------------------------------------------- circumstances to determine whether any particular transaction in the Fund's shares is properly treated as a sale for tax purposes, as the following discussion assumes, and the tax treatment of any gains or losses recognized in such transactions. In general, if shares of the Fund are sold, the shareholder will recognize gain or loss equal to the difference between the amount realized on the sale and the shareholder's adjusted basis in the shares. Such gain or loss generally will be treated as long-term gain or loss if the shares were held for more than one year and otherwise generally will be treated as short-term gain or loss. Any loss recognized by a shareholder upon the sale or other disposition of shares with a tax holding period of six months or less generally will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gains with respect to such shares. Losses on sales or other dispositions of shares may be disallowed under "wash sale" rules in the event of other investments in the Fund (including those made pursuant to reinvestment of dividends and/or capital gains distributions) within a period of 61 days beginning 30 days before and ending 30 days after a sale or other disposition of shares. The Fund is required in certain circumstances to backup withhold on reportable payments, including dividends, capital gains distributions, and proceeds of sales or other dispositions of the Fund's shares paid to certain holders of the Fund's shares who do not furnish the Fund with their correct Social Security number or other taxpayer identification number and make certain other certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to a shareholder may be refunded or credited against such shareholder's U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS. The foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations in effect as they generally affect the taxation of the Fund and its shareholders. As noted above, these provisions are subject to change by legislative, judicial or administrative action, and any such change may be retroactive. A further discussion of the U.S. federal income tax rules applicable to the Fund can be found in the Statement of Additional Information which is incorporated by reference into this prospectus. Shareholders are urged to consult their tax advisers regarding specific questions as to U.S. federal, foreign, state, and local income or other taxes. NET ASSET VALUE The Fund calculates a net asset value for its common shares every day the New York Stock Exchange is open when regular trading closes (normally 4:00 p.m. New York City time). For purposes of determining the net asset value of a common share, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses and indebtedness) and the aggregate liquidation value of any outstanding preferred shares is divided by the total number of common shares outstanding at such time. Currently, the net asset values of shares of publicly traded closed-end investment companies investing in debt securities are published in Barron's, the Monday edition of The Wall Street Journal and the Monday and Saturday editions of The New York Times. The Fund generally values its portfolio securities using closing market prices or readily available market quotations. When closing market prices or market quotations are not available or, in the opinion of the Adviser, are not representative of the true market value, the fair value of a security may be determined in accordance with procedures approved by the Trustees. Debt investment securities are valued on the basis of valuations furnished by a principal market maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if, - -------------------------------------------------------------------------------- 37 NET ASSET VALUE - -------------------------------------------------------------------------------- in the opinion of the Adviser, any quotation or price is not representative of true market value, the fair value of the security may be determined in good faith in accordance with procedures approved by the Trustees. Foreign securities are valued on the basis of quotations from the primary market in which they are traded. If quotations are not readily available, or the value has been materially affected by the events occurring after closing of a foreign market, assets are valued by a method that the Trustees believe accurately reflects fair value. The value of interest rate swaps, caps and floors is determined in accordance with a formula and then confirmed periodically by obtaining a bank quotation. Positions in options are valued at the last sale price on the market where any such option is principally traded. Positions in futures contracts are valued at closing prices for such contracts established by the exchange on which they are traded. Repurchase agreements are valued at cost plus accrued interest. DESCRIPTION OF SHARES The Fund is authorized to issue an unlimited number of common shares. The Fund is also authorized to issue an unlimited number of preferred shares. After the completion of this offering, the Fund will only have common shares outstanding. The Fund currently anticipates that it will issue preferred shares as soon as practicable after the closing of this offering. See "Leverage." The Fund is also authorized to issue other securities, including debt securities. The Board of Trustees is authorized to classify and reclassify any unissued shares into one or more additional classes or series of shares. The Board of Trustees may establish such series or class, including preferred shares, from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series. The Board of Trustees, without shareholder approval, is authorized to amend the Agreement and Declaration of Trust and By-laws to reflect the terms of any such class or series, including any class of preferred shares. Under Massachusetts law, shareholders of the Fund, including holders of the common shares and any preferred shares, could, in certain circumstances, be held personally liable for the obligations of the Fund. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Fund. Notice of such disclaimer may be given in any agreement, obligation or instrument entered into or executed by the Fund or the Trustees on behalf of the Fund. The Agreement and Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations. The Agreement and Declaration of Trust further provides that obligations of the Fund are not binding upon the Trustees or officers individually but only upon the property of the Fund and that the Trustees or officers will not be liable for actions or failures to act. Nothing in the Agreement and Declaration of Trust, however, protects a Trustee or officer against any liability to which such Trustee or officer may be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Trustee's or officer's office. COMMON SHARES Common shares, when issued and outstanding, will be fully paid and non-assessable. Shareholders are entitled to share pro rata in the net assets of the Fund available for distribution to common shareholders upon liquidation of the Fund. Common shareholders are entitled to one vote for each share held. - -------------------------------------------------------------------------------- 38 DESCRIPTION OF SHARES - -------------------------------------------------------------------------------- In the event that the Fund issues preferred shares and so long as any shares of the Fund's preferred shares are outstanding, holders of common shares will not be entitled to receive any net income of or other distributions from the Fund unless all accumulated dividends on preferred shares have been paid, and unless asset coverage (as defined in the 1940 Act) with respect to preferred shares would be at least 200% after giving effect to such distributions. See "Leverage." The Fund will send unaudited reports at least semiannually and audited annual financial statements to all of its shareholders. The Adviser provided the initial capital for the Fund by purchasing 6,409 common shares of the Fund for $153,015. As of the date of this Prospectus, the Adviser owned 100% of the outstanding common shares. The Adviser may be deemed to control the Fund until such time as it owns less than 25% of the outstanding shares of the Fund. PREFERRED SHARES The Fund in the future may elect to issue preferred shares as part of its leverage strategy. The Fund may issue preferred shares with an aggregate liquidation preference to the extent permitted by the 1940 Act and currently anticipates issuing, as soon as practicable after the closing of this offering, preferred shares with an aggregate liquidation preference of approximately 33 1/3% of the Fund's total assets. The Board of Trustees reserves the right to issue preferred shares to the extent permitted by the 1940 Act, which currently limits the aggregate liquidation preference of all outstanding preferred shares to 50% of the value of the Fund's total assets less the Fund's liabilities and indebtedness. Although the terms of any preferred shares, including dividend rate, liquidation preference and redemption provisions, will be determined by the Board of Trustees, subject to applicable law and the Agreement and Declaration of Trust, it is likely that the preferred shares will be structured to carry a relatively short-term dividend rate reflecting interest rates on short-term bonds by providing for the periodic redetermination of the dividend rate at relatively short intervals through an auction, remarketing or other procedure. The Fund also believes that it is likely that the liquidation preference, voting rights and redemption provisions of the preferred shares will be similar to those stated below. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Fund, the holders of preferred shares will be entitled to receive a preferential liquidating distribution, which is expected to equal the original purchase price per preferred share plus accrued and unpaid dividends, whether or not declared, before any distribution of assets is made to holders of common shares. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of preferred shares will not be entitled to any further participation in any distribution of assets by the Fund. The 1940 Act requires that the holders of any preferred shares, voting separately as a single class, have the right to elect at least two Trustees at all times. The remaining Trustees will be elected by holders of common shares. In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the holders of any preferred shares have the right to elect a majority of the Trustees at any time two years' dividends on any preferred shares are unpaid. The 1940 Act also requires that, in addition to any approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred shares, voting separately as a class, would be required to (1) adopt any plan of reorganization that would adversely affect the preferred shares, and (2) take any action requiring a vote of security holders under Section 13(a) of the 1940 Act, including, among other things, changes in the Fund's subclassification as a closed-end investment company or changes in its fundamental investment restrictions. See "Certain provisions of the Agreement and Declaration of Trust and By-Laws." As a result of these voting rights, the Fund's ability to take any such actions may be impeded to the extent that there are any preferred shares outstanding. The Board of Trustees presently intends that, except as otherwise indicated in this - -------------------------------------------------------------------------------- 39 DESCRIPTION OF SHARES - -------------------------------------------------------------------------------- Prospectus and except as otherwise required by applicable law, holders of preferred shares will have equal voting rights with holders of common shares (one vote per share, unless otherwise required by the 1940 Act) and will vote together with holders of common shares as a single class. The affirmative vote of the holders of a majority of the outstanding preferred shares, voting as a separate class, will be required to amend, alter or repeal any of the preferences, rights or powers of holders of preferred shares so as to affect materially and adversely such preferences, rights or powers, or to increase or decrease the authorized number of preferred shares. The class vote of holders of preferred shares described above will in each case be in addition to any other vote required to authorize the action in question. The terms of the preferred shares are expected to provide that (i) they are redeemable by the Fund in whole or in part at the original purchase price per share plus accrued dividends per share, (ii) the Fund may tender for or purchase preferred shares and (iii) the Fund may subsequently resell any shares so tendered for or purchased. Any redemption or purchase of preferred shares by the Fund will reduce the leverage applicable to the common shares, while any resale of shares by the Fund will increase that leverage. The discussion above describes the possible offering of preferred shares by the Fund. If the Board of Trustees determines to proceed with such an offering, the terms of the preferred shares may be the same as, or different from, the terms described above, subject to applicable law and the Agreement and Declaration of Trust. The Board of Trustees, without the approval of the holders of common shares, may authorize an offering of preferred shares or may determine not to authorize such an offering, and may fix the terms of the preferred shares to be offered. CERTAIN PROVISIONS OF THE AGREEMENT AND DECLARATION OF TRUST AND BY-LAWS The Agreement and Declaration of Trust includes provisions that could limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end status. Specifically, the Agreement and Declaration of Trust requires a vote by holders of at least 75% of the outstanding common and preferred shares, voting together as a single class, to authorize: + a conversion of the Fund from a closed-end to an open-end investment company + a merger of the Fund, or a series of the Fund, with or into or a consolidation or exchange of shares with any other entity + a sale, or conveyance of all or substantially all of the Fund's assets (other than in the ordinary course of the Fund's business) + a termination of the Fund, or a series of the Fund + a removal of Trustees by shareholders, and then only for cause unless, with respect to the forgoing (other than the removal of Trustees), such transaction has already been authorized by the affirmative vote of 75% of the total number of Trustees fixed in accordance with the Agreement and Declaration of Trust or the By-laws, in which case the affirmative vote of the holders of at least a majority of the Fund's common and preferred shares outstanding at the time, voting together as a single class, is required, provided, however, that where only a particular class or series is affected (or, in the case of removing a Trustee, when the Trustee has been elected by only one class), only the required vote by the applicable class or series will be required. Approval of shareholders is not required, however, for any transaction, whether deemed a merger, consolidation, reorganization or otherwise whereby the Fund issues shares in connection with the acquisition of assets (including those subject to liabilities) from any other investment company or similar entity. None of - -------------------------------------------------------------------------------- 40 CERTAIN PROVISIONS OF THE AGREEMENT AND DECLARATION OF TRUST AND BY-LAWS - -------------------------------------------------------------------------------- the foregoing provisions may be amended except by the vote of at least 75% of the outstanding common shares and preferred shares, voting together as a single class. In the case of the conversion of the Fund to an open-end investment company, or in the case of any of the foregoing transactions constituting a plan of reorganization which adversely affects the holders of the Fund's preferred shares, the action in question will also require the affirmative vote of the holders of at least 75% of the outstanding preferred shares, voting as a separate class, or, if such action has been authorized by the affirmative vote of 75% of the total number of Trustees fixed in accordance with the Agreement and Declaration of Trust or the By-laws, the affirmative vote of the holders of at least a majority of the Fund's outstanding preferred shares, voting as a separate class. The votes required to approve the conversion of the Fund from a closed-end to an open-end investment company or to approve transactions constituting a plan of reorganization which adversely affects the holders of the Fund's preferred shares are higher than those required by the 1940 Act. The Board of Trustees believes that the provisions of the Agreement and Declaration of Trust relating to such higher votes are in the best interest of the Fund and its shareholders. The Board of Trustees is divided into three classes of approximately equal size. The terms of the Trustees of the different classes are staggered so that approximately one-third of the Board of Trustees is elected by shareholders each year. The provisions of the Agreement and Declaration of Trust described above could have the effect of depriving the common shareholders of opportunities to sell their common shares at a premium over the then current market price of the common shares by discouraging a third-party from seeking to obtain control of the Fund in a tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a third-party. They provide, however, the advantage of potentially requiring persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Fund's investment objectives and principal investment strategies. The Board of Trustees of the Fund has considered the foregoing anti-takeover provisions and concluded that they are in the best interests of the Fund and its common shareholders. The Fund's By-laws generally require that advance notice be given to the Fund in the event a shareholder desires to nominate a person for election to the Board of Trustees or to transact any other business at an annual meeting of shareholders. With respect to an annual meeting following the first annual meeting of shareholders, notice of any such nomination or business must be delivered to or received at the principal executive offices of the Fund not less than 90 calendar days nor more than 120 calendar days prior to the anniversary date of the prior year's annual meeting (subject to certain exceptions). In the case of the first annual meeting of shareholders, the notice must be given no later than the tenth calendar day following public disclosure as specified in the By-laws of the date of the meeting. Any notice by a shareholder must be accompanied by certain information as provided in the By-laws. - -------------------------------------------------------------------------------- 41 - -------------------------------------------------------------------------------- Underwriting The underwriters named below (the "Underwriters"), acting through UBS Warburg LLC, 299 Park Avenue, New York, New York and Merrill Lynch, Pierce, Fenner & Smith Incorporated, 4 World Financial Center, New York, New York, as lead managers, and Prudential Securities Incorporated, RBC Dain Rauscher Incorporated, Wachovia Securities, Inc., Wells Fargo Securities, LLC, Fahnestock & Co. Inc., Janney Montgomery Scott LLC, Quick & Reilly, Inc. and Signator Investors, Inc. as their representatives (together with the lead managers, the "Representatives") have severally agreed, subject to the terms and conditions of the Underwriting Agreement with the Fund and the Adviser, to purchase from the Fund the number of common shares set forth opposite their respective names. The Underwriters are committed to purchase and pay for all of such common shares (other than those covered by the over-allotment option described below) if any are purchased.
NUMBER OF COMMON UNDERWRITERS SHARES - ----------------------------------------------------------------------------------- UBS Warburg LLC............................................. Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... Prudential Securities Incorporated.......................... RBC Dain Rauscher Incorporated ............................. Wachovia Securities, Inc. .................................. Wells Fargo Securities, LLC................................. Fahnestock & Co. Inc. ...................................... Janney Montgomery Scott LLC................................. Quick & Reilly, Inc. ....................................... Signator Investors, Inc. ................................... ------------- Total.................................................. =============
The Fund has granted to the Underwriters an option, exercisable for 45 days from the date of this Prospectus, to purchase up to an additional common shares to cover over-allotments, if any, at the initial offering price. The Underwriters may exercise such option solely for the purpose of covering over-allotments incurred in the sale of the common shares offered hereby. To the extent that the Underwriters exercise this option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase an additional number of common shares proportionate to such Underwriter's initial commitment. The Fund has agreed to pay a commission to the Underwriters in the amount of up to $1.125 per common share (4.50% of the public offering price per common share). The Representatives have advised the Fund that the Underwriters may pay up to $ per common share from such commission to selected dealers who sell the common shares and that such dealers may reallow a concession of up to $ per common share to certain other dealers who sell shares. Investors must pay for any common shares purchased on or before , 2002. Prior to this offering, there has been no public or private market for the common shares or any other securities of the Fund. Consequently, the offering price for the common shares was determined by negotiation among the Fund, the Adviser and the Representatives. There can be no assurance, however, that the price at which common shares sell after this offering will not be lower than the price at which they are sold by the Underwriters or that an active trading market in the common shares will develop and continue after this offering. The minimum investment requirement is 100 common shares. - -------------------------------------------------------------------------------- 42 UNDERWRITING - -------------------------------------------------------------------------------- The Fund and the Adviser have agreed to indemnify the several Underwriters for or to contribute to the losses arising out of certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Fund has agreed not to offer, sell or register with the Securities and Exchange Commission any equity securities of the Fund, other than issuances of common shares, including pursuant to the Fund's Automatic Dividend Reinvestment Plan, and issuances in connection with any offering of preferred shares, each as contemplated in this Prospectus, for a period of 180 days after the date of the Underwriting Agreement without the prior written consent of the Representatives. The Representatives have informed the Fund that the Underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority. In connection with this offering, the Underwriters may purchase and sell common shares in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with this offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the common shares and syndicate short positions involve the sale by the Underwriters of a greater number of common shares than they are required to purchase from the Fund in this offering. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the common shares sold in this offering for their account, may be reclaimed by the syndicate if such common shares are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the common shares, which may be higher than the price that might otherwise prevail in the open market; and these activities, if commenced, may be discontinued at any time without notice. These transactions may be effected on the New York Stock Exchange or otherwise. The Fund anticipates that the Representatives and certain other Underwriters may from time to time act as brokers and dealers in connection with the execution of its portfolio transactions after they have ceased to be Underwriters and, subject to certain restrictions, may act as such brokers while they are Underwriters. The Adviser has also agreed to pay from its own assets to certain of the Underwriters an incentive fee at an annual rate equal to up to 0.10% of the Fund's managed assets. This fee will be payable in arrears at the end of each calendar quarter so long as the Advisory Agreement remains in effect between the Fund and the Adviser or any successor in interest or affiliate of the Adviser, as and to the extent that such Advisory Agreement is renewed periodically in accordance with the 1940 Act. If an Underwriter meets certain requirements established by the Adviser (each a "Qualifying Underwriter") (which may be waived or modified in the discretion of the Adviser), it will receive an annual fee equal to 0.10% of the Fund's managed assets multiplied by the percentage of the Fund's common shares sold by the Qualifying Underwriter in this offering. The total amount of the incentive fee payments, discounted to the closing date of this offering, plus the amounts paid by the Fund to reimburse certain Underwriter expenses, will not exceed the maximum compensation allowed under the conduct rules of the National Association of Securities Dealers, as such rules are then in effect. As described below under "Custodian, transfer agent, registrar, dividend disbursing agent and shareholder servicing agent," UBS Warburg LLC will provide shareholder services to the Fund pursuant to a shareholder servicing agreement with the Adviser. - -------------------------------------------------------------------------------- 43 - -------------------------------------------------------------------------------- CUSTODIAN, TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND SHAREHOLDER SERVICING AGENT The Adviser (and not the Fund) has agreed to pay from its own assets to UBS Warburg LLC a shareholder servicing fee (the "Shareholder Servicing Fee") at an annual rate of 0.10% of the average daily managed assets of the Fund pursuant to a shareholder servicing agreement between the Adviser and UBS Warburg LLC (the "Shareholder Servicing Agreement"). Pursuant to the Shareholder Servicing Agreement, UBS Warburg LLC will: (i) undertake to make public information pertaining to the Fund on an ongoing basis and to communicate to investors and prospective investors the Fund's features and benefits (including periodic seminars or conference calls, responses to questions from current or prospective shareholders and specific shareholder contact where appropriate); (ii) make available to investors and prospective investors market price, net asset value, yield and other information regarding the Fund, if reasonably obtainable, for the purpose of maintaining the visibility of the Fund in the investor community; (iii) at the request of the Adviser, provide certain economic research and statistical information and reports, if reasonably obtainable, on behalf of the Fund, and consult with representatives and Trustees of the Fund in connection therewith, which information and reports shall include: (a) statistical and financial market information with respect to the Fund's market performance and (b) comparative information regarding the Fund and other closed-end management investment companies with respect to (1) the net asset value of their respective shares, (2) the respective market performance of the Fund and such other companies, (3) other relevant performance indicators; and (iv) at the request of the Adviser, provide information to and consult with the Board of Trustees with respect to applicable modifications to dividend policies or capital structure, repositioning or restructuring of the Fund, conversion of the Fund to an open-end investment company, or a Fund liquidation or merger; provided, however, that under the terms of the Shareholder Servicing Agreement, UBS Warburg LLC is not obligated to render any opinions, valuations or recommendations of any kind or to perform any such similar services. Under the terms of the Shareholder Servicing Agreement, UBS Warburg LLC is relieved from liability to the Adviser for any act or omission in the course of its performances under the Shareholder Servicing Agreement in the absence of gross negligence or willful misconduct. The Shareholder Servicing Agreement will remain in effect until November 29, 2004 and may be continued thereafter upon the mutual agreement of the Adviser and UBS Warburg LLC. The Fund's securities and cash are held under a custodian agreement with The Bank of New York. Mellon Investor Services, LLC is the Fund's transfer agent, registrar and dividend disbursing agent for the Fund's shares. VALIDITY OF COMMON SHARES Certain legal matters in connection with the shares offered hereby are passed on for the Fund by Hale and Dorr LLP, Boston, Massachusetts. Certain matters have been passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois and its affiliates. - -------------------------------------------------------------------------------- 44 - -------------------------------------------------------------------------------- Table of contents for the Statement of Additional Information
PAGE - ------------------------------------------------------------------ Use of proceeds............................................. 2 Organization of the Fund.................................... 2 Investment objectives and policies.......................... 2 Investment restrictions..................................... 15 Those responsible for management............................ 17 Investment advisory and other services...................... 23 Net asset value............................................. 26 Brokerage allocation........................................ 27 Repurchase of common shares................................. 29 U.S. federal income tax matters............................. 30 Performance................................................. 34 Transfer agent services..................................... 36 Custodian of portfolio...................................... 36 Independent auditor......................................... 36 Additional information...................................... 36 Appendix A--More about risks................................ A-1 Appendix B--Description of ratings.......................... B-1 Financial statements........................................ F-1
PRIVACY PRINCIPLES OF THE FUND The Fund is committed to maintaining the privacy of its shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Fund collects, how the Fund protects that information and why, in certain cases, the Fund may share information with select other parties. Generally, the Fund does not receive any non-public personal information relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Fund. The Fund does not disclose any non-public personal information about its shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third-party administrator). The Fund restricts access to non-public personal information about its shareholders to employees of the Fund's investment adviser and its affiliates with a legitimate business need for the information. The Fund maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its shareholders. - -------------------------------------------------------------------------------- 45 [JHF LOGO] P11RN 10/02 THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS PERMITTED. SUBJECT TO COMPLETION DATED NOVEMBER 22, 2002 JOHN HANCOCK PREFERRED INCOME FUND II Statement of Additional Information November ___, 2002 John Hancock Preferred Income Fund II (the "Fund") is a newly organized, diversified, closed-end management investment company. This Statement of Additional Information provides information about the Fund in addition to the information that is contained in the Fund's current prospectus, dated November___, 2002 (the "Prospectus"). This Statement of Additional Information does not include all information that a prospective investor should consider before purchasing common shares, is not a prospectus and investors should obtain and read the Prospectus prior to purchasing common shares. A copy of the Prospectus can be obtained free of charge by writing or telephoning: John Hancock Advisers, LLC Closed-End Fund Product Management 101 Huntington Avenue, 12th Floor Boston, MA 02199 1-800-225-6020 You may also obtain a copy of the Prospectus on the Securities and Exchange Commission's web site (http://www.sec.gov). TABLE OF CONTENTS Use of Proceeds................................................................2 Organization of the Fund.......................................................2 Investment Objectives and Policies.............................................2 Investment Restrictions.......................................................15 Those Responsible for Management..............................................17 Investment Advisory and Other Services........................................23 Net Asset Value...............................................................26 Brokerage Allocation..........................................................27 Repurchase of Common Shares...................................................29 U.S. Federal Income Tax Matters...............................................30 Performance...................................................................34 Transfer Agent Services.......................................................36 Custody of Portfolio..........................................................36 Independent Auditors..........................................................36 Additional Information........................................................36 Appendix A - More About Risk.................................................A-1 Appendix B - Description of Ratings..........................................B-1 Financial Statements.........................................................F-1 USE OF PROCEEDS Pending investment in securities that meet the Fund's investment objectives and policies, the net proceeds will be invested in accordance with the Fund's investment objectives and policies during a period not to exceed three months from the closing of this offering. Pending such investment, the net proceeds may be invested in high quality, short-term debt securities. If necessary, the Fund may also purchase, as temporary investments, securities of other open- or closed-end investment companies that invest primarily in preferred stocks to the extent permitted by the Investment Company Act of 1940, as amended (the "1940 Act"). ORGANIZATION OF THE FUND The Fund is a diversified, closed-end investment management company organized as a Massachusetts business trust on September 12, 2002 under the laws of The Commonwealth of Massachusetts as John Hancock Preferred Income Fund II. John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers, Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is an indirect, wholly-owned subsidiary of John Hancock Life Insurance Company (formerly John Hancock Mutual Life Insurance Company) (the "Life Company"), a Massachusetts life insurance company chartered in 1862, with national headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is wholly owned by John Hancock Financial Services, Inc., a Delaware corporation organized in February, 2000. INVESTMENT OBJECTIVES AND POLICIES The following information supplements the discussion of the Fund's investment objectives and policies discussed in the Prospectus. Appendix A contains further information describing investment risks. The investment objectives are non-fundamental and may be changed by the Trustees without shareholder approval. There is no assurance that the Fund will achieve its investment objectives. The Fund's primary investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund's secondary investment 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 securities that, in the opinion of the Adviser, may be undervalued relative to similar securities in the marketplace. Portfolio contents. Under normal market conditions, the Fund invests at least 80% of its assets (net assets plus borrowing for investment purposes) in preferred stocks and other preferred securities, including convertible preferred securities. The Fund will invest at least 80% of its total assets in preferred securities and other fixed income securities which are rated investment grade (i.e., at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Rating Group ("S&P")) or in unrated securities determined by the Adviser to be of comparable quality. The Fund may invest up to 20% of its total assets in (i) preferred securities or other fixed income securities rated below investment grade or unrated preferred securities or unrated fixed income securities determined by the Adviser to be of comparable quality, and (ii) common stocks or other equity securities that are not considered preferred securities. The weighted average credit rating of the Fund's portfolio of preferred securities and other fixed income securities will be at least investment grade. The Fund intends to invest primarily in fully taxable preferred securities. The Fund's portfolio may include both fixed rate and adjustable rate securities. The allocation of the Fund's assets in various types of preferred, debt and equity securities may vary from time to time depending on the Adviser's assessment of market conditions. The Adviser will perform its own investment analysis when making investment decisions for the Fund and will not rely solely on the ratings assigned to rated securities. Securities ratings are based largely on an issuer's historical financial information and each rating agency's investment analysis at the time of rating. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition, which may be better or worse than the rating indicates. The Adviser's analysis may include consideration of the issuer's experience and managerial strength, changing financial condition, borrowing requirements or debt maturity schedules, and its responsiveness to changes in business conditions and interest or dividend rates. The Adviser will also consider relative values based on anticipated cash flow, interest or dividend coverage, asset coverage, earnings prospects, current yield and price stability. 2 Industry and issuer concentration. The Fund intends to emphasize investments in preferred securities issued or guaranteed by U.S. corporations in the utilities sector and will be subject to certain risks due to such emphasis. The Fund will not invest 25% or more of its total assets in any one industry, except that the Fund will invest 25% or more of its total assets in the industries comprising the utilities sector. The Fund will allocate its investments among industry sectors and among issuers in such sectors, based on the Adviser's evaluation of market and economic conditions. Foreign securities. Although the Fund will invest primarily in the securities of U.S. issuers, the Fund may invest up to 20% of its total assets in securities of corporate and governmental issuers located outside the United States that are traded or denominated in U.S. dollars. Illiquid securities. The Fund may invest up to 20% of its total assets in illiquid securities, which are securities that can not be disposed of by the Fund within seven days in the ordinary course of business at approximately the amount at which the Fund values the securities. The Fund may invest in securities that are sold in direct private placement transactions and are neither listed on an exchange nor traded in the over-the-counter market. Other securities. Normally, the Fund will invest substantially all of its assets to meet its investment objectives. The Fund may invest the remainder of its assets in securities with remaining maturities of less than one year, cash equivalents or may hold cash. For temporary defensive purposes, the Fund may depart from its principal investment strategies and invest part or all of its assets in securities with remaining maturities of less than one year or cash equivalents or may hold cash. During such periods, the Fund may not be able to achieve its investment objectives. Traditional fixed rate preferred stock. Traditional fixed rate preferred stocks have fixed dividend rates for the life of the issue and typically pay dividends that qualify for the dividends received deduction. These securities can be perpetual with no maturity date or subject to mandatory redemptions such as through a sinking fund. Certain fixed rate preferred stocks have features intended to provide some degree of price stability. These features may include an auction mechanism at some specified future date. The auction feature is normally intended to enhance the probability that a preferred stock shareholder will be able to dispose of his holdings close to a pre-specified price, typically equal to par or stated value. Other price stability mechanisms include convertibility into an amount of common equity of the same issuer at some specified future date, typically in amounts not greater than par value of the underlying preferred stocks. Another common form of fixed rate preferred stock is the traditional convertible preferred stock, which permits the holder to convert into a specified number of shares at the holder's option at any time prior to some specified date. Adjustable rate preferred stock. Unlike traditional fixed rate preferred stocks, adjustable rate preferred stocks are preferred stocks that have a dividend rate that adjusts periodically to reflect changes in the general level of interest rates. The adjustable dividend rate feature is intended to make the market value of these securities less sensitive to changes in interest rates than similar securities with fixed dividend rates. Nonetheless, adjustable rate preferred stocks have fluctuated in market value and are expected to do so in the future. The dividend rate on an adjustable rate preferred stock is determined typically each quarter by applying an adjustment formula established at the time of issuance of the stock. Although adjustment formulas vary among issues, they typically involve a fixed relationship either to (1) rates on specific classes of debt securities issued by the U.S. Treasury or (2) LIBOR, with limits (known as "collars") on the minimum and maximum dividend rates that may be paid. As the maximum dividend rate is approached, any further increase in interest rates may adversely affect the market value of the stock. Conversely, as the minimum dividend rate is approached, any further decrease in interest rates may positively affect the market value of the stock. The adjustment formula is fixed at the time of issuance of the adjustable rate preferred stock and cannot be changed without the approval of the holders thereof. The market values of outstanding issues of adjustable rate preferred stock may fluctuate in response to changing market conditions. In the event that market participants in a particular issue demand a different dividend yield than the adjustment formula produces, the market price will change to produce the desired yield. The dividend yield demanded by market participants may vary with changing perceptions of credit quality and the relative levels of short-term and long-term interest rates, as well as other factors. 3 Preferred securities. Generally, preferred stocks receive dividends prior to distributions on common stock and usually have a priority of claim over common stockholders if the issuer of the stock is liquidated. The income paid by an issuer to holders of its preferred and common stocks is typically eligible for the dividends received deduction. Preferred stocks do not usually have voting rights equivalent to common stock of the same issue but may be convertible into common stock. Perpetual preferred stocks are issued with no mandatory retirement provisions, but typically are callable after a period of time at the option of the issuer. Generally, no redemption can occur if full cumulative dividends have not been paid, although issuers may be able to engage in open-market repurchases without regard to any cumulative dividends payable. Sinking fund preferred stocks provide for the redemption of a portion of the issue on a regularly scheduled basis with, in most cases, the entire issue being retired at a future date. Preferred securities other than preferred stock have certain characteristics of both debt and equity securities. Like debt securities, preferred securities' rate of income is contractually fixed. Like equity securities, preferred securities do not have rights to precipitate bankruptcy filings or collection activities in the event of missed payments. Furthermore, preferred securities are in a subordinated position in an issuer's capital structure and their value is heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets or cash flows. Taxable preferred securities are a comparatively new asset class having first been introduced late in 1993. Income paid on these securities is not eligible for the dividends received deduction, but does constitute deductible interest expense for issuers thereof. The universe of issuers of taxable preferred securities consists overwhelmingly of fixed coupon rate issues with final stated maturity dates. However, certain issues have adjustable coupon rates, which reset quarterly in a manner similar to adjustable rate preferred stocks described above. The preferred securities universe is divided into the "$25 par" and the "institutional" segments. The $25 par segment is typified by securities that are listed on the New York Stock Exchange, which trade and are quoted "flat", i.e., without accrued dividend income, and which are typically callable at par value five years after their original issuance date. The institutional segment is typified by $1,000 par value securities that are not exchange-listed, which trade and are quoted on an "accrued income" basis, and which typically have a minimum of ten years of call protection (at premium prices) from the date of their original issuance. Taxable preferred securities are not eligible for the dividends received deduction and are not considered equity of an issuer for certain purposes. They are typically junior and fully subordinated liabilities of an issuer or the beneficiary of a guarantee that is junior and fully subordinated to the other liabilities of the guarantor. In addition, taxable preferred securities typically permit an issuer to defer the payment of income for specified periods triggering an event of default. Because of their subordinated position in the capital structure of an issuer, the ability to defer payments for extended periods of time without adverse consequence to the issuer, and certain other features (such as restrictions on common dividend payments by the issuer or ultimate guarantor when cumulative payments on the hybrids have not been made), taxable preferred securities may also be treated in a similar fashion to traditional preferred stocks by several regulatory agencies, including the Federal Reserve Bank, and by credit rating agencies, for various purposes, such as the assignment of minimum capital ratios, over-collateralization rates and diversification limits. Taxable preferred securities may be convertible into underlying common stock of the issuer or associated grantor. Taxable preferred securities are typically issued with a final maturity date, although, in certain instances the date may be extended and/or the final payment of principal may be deferred at the issuer's option for a specified time without any adverse consequences to the issuer. No redemption can typically take place unless all cumulative payment obligations have been met, although issuers may be able to engage in open-market repurchases without regard to any cumulative dividends payable. In order to be payable, dividends on preferred stock must be declared by the issuer's board of directors. In addition, distributions on taxable preferred securities are also subject to deferral and are thus not automatically payable. Income payments on the typical preferred securities currently outstanding are cumulative, causing dividends and distributions to accrue even if not declared by the board of directors or otherwise made payable. There is, of course, no assurance that dividends or distributions on the preferred securities in which the Fund invests will be declared or otherwise made payable. The Fund may acquire non-cumulative preferred securities subject to the restrictions on quality adopted by the Fund. Because the claim on an issuer's earnings represented by preferred securities may become onerous when interest rates fall below the rate payable on the stock or for other reasons, the issuer may redeem the securities. Thus, in declining interest rate environments in particular, the Fund's holdings of higher coupon-paying preferred securities may be reduced and the Fund would be unable to acquire securities paying comparable coupons with the redemption proceeds. 4 From time to time, preferred securities issues have been, and may in the future be, offered having features other than those described in the Prospectus on this Statement of Additional Information that are typical for fixed rate, adjustable rate, or auction rate preferred securities. The Fund reserves the right to invest in these securities if the Adviser believes that doing so would be consistent with the Fund's investment objectives and policies. Since the market for these instruments would be new, the Fund may have difficulty disposing of them at a suitable price and time. In addition to limited liquidity, these instruments may present other risks, such as high price volatility. Risks of Concentration in Utility Industries. Risks that are intrinsic to the utility industries include: o difficulty in obtaining an adequate return on invested capital, o difficulty in financing large construction programs during an inflationary period, o restrictions on operations and increased cost and delays attributable to environmental considerations and regulation, o difficulty in raising capital in adequate amounts on reasonable terms in periods of high inflation and unsettled capital markets, o technological innovations that may render existing plants, equipment or products obsolete, o the potential impact of natural or man-made disasters, o increased costs and reduced availability of certain types of fuel, o occasionally reduced availability and high costs of natural gas for resale, o the effects of energy conservation, o inexperience with and potential losses resulting from a developing deregulatory environment, including losses and regulatory issues in connection with energy trading, o the effects of a national energy policy, and o lengthy delays and greatly increased costs and other problems associated with the design, construction, licensing, regulation and operation of nuclear facilities for electric generation, including, among other considerations, the problems associated with the use of radioactive materials and the disposal of radioactive wastes. There are substantial differences between the regulatory practices and policies of various jurisdictions, and any given regulatory agency may make major shifts in policy from time to time. There is no assurance that regulatory authorities will, in the future, grant rate increases or that such increases will be adequate to permit the payment of dividends on common stocks. Additionally, existing and possible future regulatory legislation may make it even more difficult for these utilities to obtain adequate relief. Certain of the issuers of securities held in the Fund's portfolio may own or operate nuclear generating facilities. Governmental authorities may from time to time review existing policies and impose additional requirements governing the licensing, construction and operation of nuclear power plants. Prolonged changes in climatic conditions can also have a significant impact on both the revenues of an electric and gas utility as well as the expenses of a utility, particularly a hydro-based electric utility. Utility companies in the United States and in foreign countries are generally subject to regulation. In the United States, most utility companies are regulated by state and/or federal authorities. Such regulation is intended to ensure appropriate standards of service and adequate capacity to meet public demand. Generally, prices are also regulated in the United States and in foreign countries with the intention of protecting the public while ensuring that the rate of return earned by utility companies is sufficient to allow them to attract capital in order to grow and continue to provide appropriate services. There can be no assurance that such pricing policies or rates of return will continue in the future. 5 The nature of regulation of the utility industries is evolving both in the United States and in foreign countries. In recent years, changes in regulation in the United States increasingly have allowed utility companies to provide services and products outside their traditional geographic areas and lines of business, creating new areas of competition within the industries. In some instances, utility companies are operating on an unregulated basis. Because of trends toward deregulation and the evolution of independent power producers as well as new entrants to the field of telecommunications, non-regulated providers of utility services have become a significant part of their respective industries. Foreign utility companies are also subject to regulation, although such regulations may or may not be comparable to those in the United States. Foreign utility companies may be more heavily regulated by their respective governments than utilities in the United States and, as in the United States, generally are required to seek government approval for rate increases. In addition, many foreign utilities use fuels that may cause more pollution than those used in the United States, which may require such utilities to invest in pollution control equipment to meet any proposed pollution restrictions. Foreign regulatory systems vary from country to country and may evolve in ways different from regulation in the United States. The revenues of domestic and foreign utility companies generally reflect the economic growth and development in the geographic areas in which they do business. The Adviser will take into account anticipated economic growth rates and other economic developments when selecting securities of utility companies. Electric. The electric utility industry consists of companies that are engaged principally in one of more of the following activities: the generation, transmission, sale and distribution of electric energy, although many also provide other energy-related services. In the past, electric utility companies, in general, have been favorably affected by lower fuel and financing costs and the full or near completion of major construction programs. In addition, many of these companies have generated cash flows in excess of current operating expenses and construction expenditures, permitting some degree of diversification into unregulated businesses. Some electric utilities have also taken advantage of the right to sell power outside of their traditional geographic areas. Electric utility companies have historically been subject to the risks associated with increases in fuel and other operating costs, high interest costs on borrowings needed for capital construction programs, costs associated with compliance with environmental and safety regulations and changes in the regulatory climate. As interest rates declined, many utilities refinanced high cost debt and in doing so improved their fixed charges coverage. Regulators, however, lowered allowed rates of return as interest rates declined and thereby caused the benefits of the rate declines to be shared wholly or in part with customers. The construction and operation of nuclear power facilities are subject to increased scrutiny by, and evolving regulations of, the Nuclear Regulatory Commission and state agencies having comparable jurisdiction. Increased scrutiny might result in higher operating costs and higher capital expenditures, with the risk that the regulators may disallow inclusion of these costs in rate authorizations or the risk that a company may not be permitted to operate or complete construction of a facility. In addition, operators of nuclear power plants may be subject to significant costs for disposal of nuclear fuel and for decommissioning such plants. The rating agencies are taking a closer look at the business profile of utilities. Ratings for companies are expected to be impacted to a greater extent in the future by the division of their asset base. Electric utility companies that focus more on the generation of electricity may be assigned less favorable ratings as this business is expected to be competitive and the least regulated. On the other hand, companies that focus on transmission and distribution which is expected to be the least competitive and the more regulated part of the business may see higher ratings given the greater predictability of cash flow. Currently, several states are considering deregulation proposals, while other states have already enacted enabling legislation. The introduction of competition into the industry as a result of deregulation may result in lower revenue, lower credit ratings, increased default risk, and lower electric utility security prices. Such increased competition may also cause long-term contracts, which electric utilities previously entered into to buy power, to become "stranded assets" which have no economic value. Any loss associated with 6 such contracts must be absorbed by ratepayers and investors. In addition, in anticipation of increasing competition, some electric utilities have acquired electric utilities overseas to diversify, enhance earnings and gain experience in operating in a deregulated environment. In some instances, such acquisitions have involved significant borrowings, which have burdened the acquirer's balance sheet. There is no assurance that current deregulation proposals will be adopted. However, deregulation in any form could significantly impact the electric utilities industry. Following deregulation of the energy markets in certain states, a number of companies have engaged in energy trading and incurred substantial losses. Certain of these energy trading businesses have been accused of employing improper accounting practices and have been required to make significant restatements of their financial results. In addition, several energy companies have been accused of attempting to manipulate the price and availability of energy in certain states. Telecommunications. The telecommunications industry today includes both traditional telephone companies, with a history of broad market coverage and highly regulated businesses, and cable companies, which began as small, lightly regulated businesses focused on limited markets. Today these two historically different businesses are converging in an industry which is trending toward larger, competitive, national and international markets with an emphasis on deregulation. Companies that distribute telephone services and provide access to the telephone networks still comprise the greatest portion of this segment, but non-regulated activities such as cellular telephone services, paging, data processing, equipment retailing, computer software and hardware services are becoming increasingly significant components as well. The presence of unregulated companies in this industry and the entry of traditional telephone companies into unregulated or less regulated businesses provide significant investment opportunities with companies which may increase their earnings at faster rates than had been allowed in traditional regulated businesses. Still, increasing competition, technological innovations and other structural changes could adversely affect the profitability of such utilities and the growth rate of their dividends. Given mergers, certain marketing tests currently underway and proposed legislation and enforcement changes, it is likely that both traditional telephone companies and cable companies will soon provide a greatly expanded range of utility services, including two-way video and informational services to both residential, corporate and governmental customers. In February 1996, the Telecommunications Act of 1996 (the "Act") became law. The Act removed regulatory restrictions on entry that prevented local and long-distance telephone companies and cable television companies from competing against one another. The Act also removed most cable rate controls and allows broadcasters to own more radio and television stations. Litigation concerning the constitutionality of certain major provisions of the Act has slowed the implementation of such provisions. Gas. Gas transmission companies and gas distribution companies are also undergoing significant changes. In the United States, interstate transmission companies are regulated by the Federal Energy Regulatory Commission, which is reducing its regulation of the industry. Many companies have diversified into oil and gas exploration and development, making returns more sensitive to energy prices. In the recent decade, gas utility companies have been adversely affected by disruptions in the oil industry and have also been affected by increased concentration and competition. Water. Water supply utilities are companies that collect, purify, distribute and sell water. In the United States and around the world the industry is highly fragmented because most of the water utilities are owned by local authorities. Companies in this industry are generally mature and are experiencing little or no per capita volume growth. There can be no assurance that the positive developments noted above, including those relating to privatization and changing regulation, will occur or that risk factors other than those noted above will not develop in the future. Risks of Investments in the Financial Services Sector. Since a significant portion of the Fund's investments may be focused in issuers in the financial services sector, the Fund will be subject to risks or events which significantly affect the sector as a whole or a particular segment in which the Fund invests. 7 Most financial services companies are subject to extensive governmental regulation which limits their activities and may (as with insurance rate regulation) affect the ability to earn a profit from a given line of business. Certain financial services businesses are subject to intense competitive pressures, including market share and price competition. The removal of regulatory barriers to participation in certain segments of the financial services sector may also increase competitive pressures on different types of firms. For example, recent legislation removing traditional barriers between banking and investment banking activities will allow large commercial banks to compete for business that previously was the exclusive domain of securities firms. Similarly, the removal of regional barriers in the banking industry has intensified competition within the industry. The availability and cost of funds to financial services firms is crucial to their profitability. Consequently, volatile interest rates and general economic conditions can adversely affect their financial performance. Financial services companies in foreign countries are subject to similar regulatory and interest rate concerns. In particular, government regulation in certain foreign countries may include controls on interest rates, credit availability, prices and currency movements. In some cases, foreign governments have taken steps to nationalize the operations of banks and other financial services companies. As deregulation of various financial services businesses continues and new segments of the financial services sector are opened to certain larger financial services firms formerly prohibited from doing business in these segments, (such as national and money center banks) certain established companies in these market segments (such as regional banks or securities firms) may become attractive acquisition candidates for the larger firm seeking entrance into the segment. In addition, financial services companies in growth segments (such as securities firms during times of stock market expansion) or geographically linked to areas experiencing strong economic growth (such as certain regional banks) are likely to participate in and benefit from such growth through increased demand for their products and services. Many financial services companies which are actively and aggressively managed and are expanding services as deregulation opens up new opportunities also show potential for capital appreciation, particularly in expanding into areas where nonregulatory barriers to entry are low. Ratings as Investment Criteria. In general, the ratings of Moody's and S&P represent the opinions of these agencies as to the quality of the securities which they rate. It should be emphasized, however, that ratings are relative and subjective and are not absolute standards of quality. These ratings will be used by the Fund as initial criteria for the selection of debt securities. Among the factors which will be considered are the long-term ability of the issuer to pay principal and interest and general economic trends. Appendix B contains further information concerning the rating of Moody's and S&P and their significance. Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund or the average weighted credit quality of the Fund's portfolio may cease to be investment grade. None of these events will require the sale of the securities by the Fund. Short-Term Bank and Corporate Obligations. The Fund may invest in depository-type obligations of banks and savings and loan associations and other high quality money market instruments consisting of short-term obligations of the U.S. Government or its agencies and commercial paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by banks or bank holding companies, corporations and finance companies. Depository-type obligations in which the Fund may invest include certificates of deposit, bankers' acceptances and fixed time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits. Bank notes and bankers' acceptances rank junior to domestic deposit liabilities of the bank and pari passu with other senior, unsecured obligations of the bank. Bank notes are not insured by the Federal Deposit Insurance Corporation or any other insurer. Deposit notes are insured by the Federal Deposit Insurance Corporation only to the extent of $100,000 per depositor per bank. 8 Investments in Foreign Securities. The Fund may invest directly in the securities of foreign issuers as well as securities in the form of sponsored or unsponsored American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other securities convertible into foreign securities. ADRs are receipts typically issued by a U.S. bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. Issuers of unsponsored ADRs are not contractually obligated to disclose material information, including financial information, in the United States. Generally, ADRs are designed for use in the United States securities markets and EDRs are designed for use in European securities markets. An investment in foreign securities including ADRs may be affected by changes in currency rates and in exchange control regulations. Issuers of unsponsored ADRs are not contractually obligated to disclose material information including financial information, in the United States and, therefore, there may not be a correlation between such information and the market value of the unsponsored ADR. Foreign companies may not be subject to accounting standards or government supervision comparable to U.S. companies, and there is often less publicly available information about their operations. Foreign companies may also be affected by political or financial instability abroad. These risk considerations may be intensified in the case of investments in ADRs of foreign companies that are located in emerging market countries. ADRs of companies located in these countries may have limited marketability and may be subject to more abrupt or erratic price movements. Risks of Foreign Securities. Investments in foreign securities may involve a greater degree of risk than those in domestic securities. There is generally less publicly available information about foreign companies in the form of reports and ratings similar to those that are published about issuers in the United States. Also, foreign issuers are generally not subject to uniform accounting, auditing and financial reporting requirements comparable to those applicable to United States issuers. Foreign securities will be purchased in the best available market, whether through over-the-counter markets or exchanges located in the countries where principal offices of the issuers are located. Foreign securities markets are generally not as developed or efficient as those in the United States. While growing in volume, they usually have substantially less volume than the New York Stock Exchange, and securities of some foreign issuers are less liquid and more volatile than securities of comparable United States issuers. Fixed commissions on foreign exchanges are generally higher than negotiated commissions on United States exchanges, although the Fund will endeavor to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of securities exchanges, brokers and listed issuers than in the United States. With respect to certain foreign countries, there is the possibility of adverse changes in investment or exchange control regulations, expropriation, nationalization or confiscatory taxation limitations on the removal of funds or other assets of the Fund, political or social instability, or diplomatic developments which could affect United States investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the United States' economy in terms of growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. The dividends, in some cases capital gains and interest payable on certain of the Fund's foreign portfolio securities, may be subject to foreign withholding or other foreign taxes, thus reducing the net amount of income or gains available for distribution to the Fund's shareholders. Repurchase Agreements. In a repurchase agreement the Fund buys a security for a relatively short period (usually not more than 7 days) subject to the obligation to sell it back to the issuer at a fixed time and price plus accrued interest. The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in U.S. Government securities. The Adviser will continuously monitor the creditworthiness of the parties with whom the Fund enters into repurchase agreements. The Fund has established a procedure providing that the securities serving as collateral for each repurchase agreement must be delivered to the Fund's custodian either physically or in book-entry form and that the collateral must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. In the event of bankruptcy or other default by a seller of a repurchase agreement, the Fund could experience delays in liquidating the underlying securities during the period in which the Fund seeks to enforce its rights thereto, possible subnormal levels of income decline in value of the underlying securities or lack of access to income during this period and the expense of enforcing its rights. 9 Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase agreements, which involve the sale of U.S. Government securities held in its portfolio to a bank with an agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus an agreed amount of "interest" which may be reflected in the repurchase price. Reverse repurchase agreements are considered to be borrowings by the Fund. Reverse repurchase agreements involve the risk that the market value of securities purchased by the Fund with proceeds of the transaction may decline below the repurchase price of the securities sold by the Fund which it is obligated to repurchase. The Fund will also continue to be subject to the risk of a decline in the market value of the securities sold under the agreements because it will reacquire those securities upon effecting their repurchase. To minimize various risks associated with reverse repurchase agreements, the Fund will establish and maintain a separate account consisting of liquid securities, of any type or maturity, in an amount at least equal to the repurchase prices of the securities (plus any accrued interest thereon) under such agreements. Options on Securities and Securities Indices. The Fund may purchase and write (sell) call and put options on any securities and securities indices. These options may be listed on national domestic securities exchanges or foreign securities exchanges or traded in the over-the-counter market. The Fund may write covered put and call options and purchase put and call options as a substitute for the purchase or sale of securities or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired. Writing Covered Options. A call option on securities written by the Fund obligates the Fund to sell specified securities to the holder of the option at a specified price if the option is exercised at any time before the expiration date. A put option on securities written by the Fund obligates the Fund to purchase specified securities from the option holder at a specified price if the option is exercised at any time before the expiration date. Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash settlement payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security. Writing covered call options may deprive the Fund of the opportunity to profit from an increase in the market price of the securities in its portfolio. Writing covered put options may deprive the Fund of the opportunity to profit from a decrease in the market price of the securities to be acquired for its portfolio. All call and put options written by the Fund are covered. A written call option or put option may be covered by (i) maintaining cash or liquid securities in a segregated account with a value at least equal to the Fund's obligation under the option, (ii) entering into an offsetting forward commitment and/or (iii) purchasing an offsetting option or any other option which, by virtue of its exercise price or otherwise, reduces the Fund's net exposure on its written option position. A written call option on securities is typically covered by maintaining the securities that are subject to the option in a segregated account. The Fund may cover call options on a securities index by owning securities whose price changes are expected to be similar to those of the underlying index. The Fund may terminate its obligations under an exchange traded call or put option by purchasing an option identical to the one it has written. Obligations under over-the-counter options may be terminated only by entering into an offsetting transaction with the counterparty to such option. Such purchases are referred to as "closing purchase transactions." Purchasing Options. The Fund would normally purchase call options in anticipation of an increase, or put options in anticipation of a decrease ("protective puts"), in the market value of securities of the type in which it may invest. The Fund may also sell call and put options to close out its purchased options. The purchase of a call option would entitle the Fund, in return for the premium paid, to purchase specified securities or currency at a specified price during the option period. The Fund would ordinarily realize a gain on the purchase of a call option if, during the option period, the value of such securities or currency exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the call option. 10 The purchase of a put option would entitle the Fund, in exchange for the premium paid, to sell specified securities at a specified price during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of the Fund's portfolio securities. Put options may also be purchased by the Fund for the purpose of affirmatively benefiting from a decline in the price of securities which it does not own. The Fund would ordinarily realize a gain if, during the option period, the value of the underlying securities decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise the Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the Fund's portfolio securities. The Fund's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Fund may write or purchase may be affected by options written or purchased by other investment advisory clients of the Adviser. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions. Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on a domestic or foreign options exchange will exist for any particular exchange-traded option or at any particular time. If the Fund is unable to effect a closing purchase transaction with respect to covered options it has written, the Fund will not be able to sell the underlying securities or dispose of assets held in a segregated account until the options expire or are exercised. Similarly, if the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities or currencies. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued, the secondary market on that exchange (or in that class or series of options) would cease to exist. However, outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. The Fund's ability to terminate over-the-counter options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. The Adviser will determine the liquidity of each over-the-counter option in accordance with guidelines adopted by the Board of Trustees (the "Board"). The writing and purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The successful use of options depends in part on the Adviser's ability to predict future price fluctuations and, for hedging transactions, the degree of correlation between the options and securities or currency markets. Futures Contracts and Options on Futures Contracts. The Fund may purchase and sell futures contracts based on various securities (such as U.S. Government securities) and securities indices, and any other financial instruments and indices and purchase and write call and put options on these futures contracts. The Fund may also enter into closing purchase and sale transactions with respect to any of these contracts and options. All futures contracts entered into by a Fund are traded on U.S. or foreign exchanges or boards of trade that are licensed, regulated or approved by the Commodity Futures Trading Commission ("CFTC"). 11 Futures Contracts. A futures contract may generally be described as an agreement between two parties to buy and sell particular financial instruments or currencies for an agreed price during a designated month (or to deliver the final cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contract). Positions taken in the futures markets are not normally held to maturity but are instead liquidated through offsetting transactions which may result in a profit or a loss. While futures contracts on securities will usually be liquidated in this manner, the Fund may instead make, or take, delivery of the underlying securities or currency whenever it appears economically advantageous to do so. A clearing corporation associated with the exchange on which futures contracts are traded guarantees that, if still open, the sale or purchase will be performed on the settlement date. A Fund may, for example, take a "short" position in the futures market by selling futures contracts in an attempt to hedge against an anticipated decline in market prices that would adversely affect the value of the Fund's portfolio securities. Such futures contracts may include contracts for the future delivery of securities held by a Fund or securities with characteristics similar to those of the Fund's portfolio securities. Hedging and Other Strategies. Hedging is an attempt to establish with more certainty than would otherwise be possible the effective price or rate of return on portfolio securities or securities that the Fund proposes to acquire or the exchange rate of currencies in which the portfolio securities are quoted or denominated. When securities prices are falling, the Fund can seek to offset a decline in the value of its current portfolio securities through the sale of futures contracts. When securities prices are rising, the Fund, through the purchase of futures contracts, can attempt to secure better rates or prices than might later be available in the market when it effects anticipated purchases. If, in the opinion of the Adviser, there is a sufficient degree of correlation between price trends for the Fund's portfolio securities and futures contracts based on other financial instruments, securities indices or other indices, the Fund may also enter into such futures contracts as part of its hedging strategy. Although under some circumstances prices of securities in the Fund's portfolio may be more or less volatile than prices of such futures contracts, the Adviser will attempt to estimate the extent of this volatility difference based on historical patterns and compensate for any differential by having the Fund enter into a greater or lesser number of futures contracts or by attempting to achieve only a partial hedge against price changes affecting the Fund's portfolio securities. When a short hedging position is successful, any depreciation in the value of portfolio securities will be substantially offset by appreciation in the value of the futures position. On the other hand, any unanticipated appreciation in the value of the Fund's portfolio securities would be substantially offset by a decline in the value of the futures position. On other occasions, the Fund may take a "long" position by purchasing futures contracts. Options on Futures Contracts. The purchase of put and call options on futures contracts will give the Fund the right (but not the obligation) for a specified price to sell or to purchase, respectively, the underlying futures contract at any time during the option period. As the purchaser of an option on a futures contract, the Fund obtains the benefit of the futures position if prices move in a favorable direction but limits its risk of loss in the event of an unfavorable price movement to the loss of the premium and transaction costs. The writing of a call option on a futures contract generates a premium which may partially offset a decline in the value of the Fund's assets. By writing a call option, the Fund becomes obligated, in exchange for the premium (upon exercise of the option) to sell a futures contract if the option is exercised, which may have a value higher than the exercise price. Conversely, the writing of a put option on a futures contract generates a premium which may partially offset an increase in the price of securities that the Fund intends to purchase. However, a Fund becomes obligated (upon exercise of the option) to purchase a futures contract if the option is exercised, which may have a value lower than the exercise price. The loss incurred by each Fund in writing options on futures is potentially unlimited and may exceed the amount of the premium received. The holder or writer of an option on a futures contract may terminate its position by selling or purchasing an offsetting option of the same series. There is no guarantee that such closing transactions can be effected. A Fund's ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid market. 12 Other Considerations. The Fund will engage in futures and related options transactions either for bona fide hedging or for other purposes as permitted by the CFTC. These purposes may include using futures and options on futures as a substitute for the purchase or sale of securities to increase or reduce exposure to particular markets. To the extent that the Fund is using futures and related options for hedging purposes, futures contracts will be sold to protect against a decline in the price of securities that the Fund owns or futures contracts will be purchased to protect the Fund against an increase in the price of securities it intends to purchase. The Fund will determine that the price fluctuations in the futures contracts and options on futures used for hedging purposes are substantially related to price fluctuations in securities held by the Fund or securities or instruments which it expects to purchase. As evidence of its hedging intent, the Fund expects that on 75% or more of the occasions on which it takes a long futures or option position (involving the purchase of futures contracts), the Fund will have purchased, or will be in the process of purchasing, equivalent amounts of related securities in the cash market at the time when the futures or option position is closed out. However, in particular cases, when it is economically advantageous for the Fund to do so, a long futures position may be terminated or an option may expire without the corresponding purchase of securities or other assets. To the extent that the Fund engages in nonhedging transactions in futures contracts and options on futures, the aggregate initial margin and premiums required to establish these nonhedging positions will not exceed 5% of the net asset value of the Fund's portfolio, after taking into account unrealized profits and losses on any such positions and excluding the amount by which such options were in-the-money at the time of purchase. Transactions in futures contracts and options on futures involve brokerage costs, require margin deposits and, in the case of contracts and options obligating the Fund to purchase securities, require the Fund to establish a segregated account consisting of cash or liquid securities in an amount equal to the underlying value of such contracts and options. While transactions in futures contracts and options on futures may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest rates or securities prices may result in a poorer overall performance for the Fund than if it had not entered into any futures contracts or options transactions. Perfect correlation between the Fund's futures positions and portfolio positions will be impossible to achieve. In the event of an imperfect correlation between a futures position and a portfolio position which is intended to be protected, the desired protection may not be obtained and the Fund may be exposed to risk of loss. Some futures contracts or options on futures may become illiquid under adverse market conditions. In addition, during periods of market volatility, a commodity exchange may suspend or limit trading in a futures contract or related option, which may make the instrument temporarily illiquid and difficult to price. Commodity exchanges may also establish daily limits on the amount that the price of a futures contract or related option can vary from the previous day's settlement price. Once the daily limit is reached, no trades may be made that day at a price beyond the limit. This may prevent the Fund from closing out positions and limiting its losses. Interest Rate Swaps, Collars, Caps and Floors. In order to hedge the value of the Fund's portfolio against interest rate fluctuations or to enhance the Fund's income, the Fund may, but is not required to, enter into various interest rate transactions such as interest rate swaps and the purchase or sale of interest rate caps and floors. To the extent that the Fund enters into these transactions, the Fund expects to do so primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date or to manage the Fund's interest rate exposure on any debt securities or preferred shares issued by the Fund for leverage purposes. The Fund intends to use these transactions primarily as a hedge. However, the Fund also may invest in interest rate swaps to enhance income or to increase the Fund's yield, for example, during periods of steep interest rate yield curves (i.e., wide differences between short-term and long-term interest rates). The Fund is not required to hedge its portfolio and may choose not to do so. The Fund cannot guarantee that any hedging strategies it uses will work. 13 In an interest rate swap, the Fund exchanges with another party their respective commitments to pay or receive interest (e.g., an exchange of fixed rate payments for floating rate payments). For example, if the Fund holds a debt instrument with an interest rate that is reset only once each year, it may swap the right to receive interest at this fixed rate for the right to receive interest at a rate that is reset every week. This would enable the Fund to offset a decline in the value of the debt instrument due to rising interest rates but would also limit its ability to benefit from falling interest rates. Conversely, if the Fund holds a debt instrument with an interest rate that is reset every week and it would like to lock in what it believes to be a high interest rate for one year, it may swap the right to receive interest at this variable weekly rate for the right to receive interest at a rate that is fixed for one year. Such a swap would protect the Fund from a reduction in yield due to falling interest rates and may permit the Fund to enhance its income through the positive differential between one week and one year interest rates, but would preclude it from taking full advantage of rising interest rates. The Fund usually will enter into interest rate swaps on a net basis (i.e., the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net amount of the two payments). The net amount of the excess, if any, of the Fund's obligations over its entitlements with respect to each interest rate swap will be accrued on a daily basis, and an amount of cash or liquid instruments having an aggregate net asset value at least equal to the accrued excess will be maintained in a segregated account by the Fund's custodian. If the interest rate swap transaction is entered into on other than a net basis, the full amount of the Fund's obligations will be accrued on a daily basis, and the full amount of the Fund's obligations will be maintained in a segregated account by the Fund's custodian. The Fund also may engage in interest rate transactions in the form of purchasing or selling interest rate caps or floors. The Fund will not sell interest rate caps or floors that it does not own. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest equal to the difference of the index and the predetermined rate on a notional principal amount (i.e., the reference amount with respect to which interest obligations are determined although no actual exchange of principal occurs) from the party selling such interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest at the difference of the index and the predetermined rate on a notional principal amount from the party selling such interest rate floor. Typically, the parties with which the Fund will enter into interest rate transactions will be broker-dealers and other financial institutions. The Fund will not enter into any interest rate swap, cap or floor transaction unless the unsecured senior debt or the claims-paying ability of the other party thereto is rated investment grade quality by at least one nationally recognized statistical rating organization at the time of entering into such transaction or whose creditworthiness is believed by the Adviser to be equivalent to such rating. If there is a default by the other party to such a transaction, the Fund will have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with other similar instruments traded in the interbank market. Caps and floors, however, are less liquid than swaps. Certain federal income tax requirements may limit the Fund's ability to engage in interest rate swaps. Credit Default Swap Agreements. The Fund may enter into credit default swap agreements. The "buyer" in a credit default contract is obligated to pay the "seller" a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the "par value" (full notional value) of the reference obligation in exchange for the 14 reference obligation. The Fund may be either the buyer or seller in the transaction. If the Fund is a buyer and no event of default occurs, the Fund loses its investment and recovers nothing. However, if an event of default occurs, the buyer receives full notional value for a reference obligation that may have little or no value. As a seller, the Fund receives a fixed rate of income throughout the term of the contract, which typically is between six months and three years, provided that there is no default event. If an event of default occurs, the seller must pay the buyer the full notional value of the reference obligation. Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risks. The Fund will enter into swap agreements only with counterparties who are rated investment grade quality by at least one nationally recognized statistical rating organization at the time of entering into such transaction or whose creditworthiness is believed by the Adviser to be equivalent to such rating. A buyer also will lose its investment and recover nothing should no event of default occur. If an event of default were to occur, the value of the reference obligation received by the seller, coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. When the Fund acts as a seller of a credit default swap agreement it is exposed to the risks of leverage since if an event of default occurs the seller must pay the buyer the full notional value of the reference obligation. The Fund may in the future employ new or additional investment strategies and hedging instruments if those strategies and instruments are consistent with the Fund's investment objectives and are permissible under applicable regulations governing the Fund. Rights and Warrants. The Fund may purchase warrants and rights which are securities permitting, but not obligating, their holder to purchase the underlying securities at a predetermined price, subject to the Fund's investment restrictions. Generally, warrants and stock purchase rights do not carry with them the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. As a result, an investment in warrants and rights may be considered to entail greater investment risk than certain other types of investments. In addition, the value of warrants and rights does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or prior to their expiration date. Investment in warrants and rights increases the potential profit or loss to be realized from the investment of a given amount of the Fund's assets as compared with investing the same amount in the underlying stock. Forward Commitment and When-Issued Securities. The Fund may purchase securities on a when-issued or forward commitment basis. "When-issued" refers to securities whose terms are available and for which a market exists, but which have not been issued. The Fund will engage in when-issued transactions with respect to securities purchased for its portfolio in order to obtain what is considered to be an advantageous price and yield at the time of the transaction. For when-issued transactions, no payment is made until delivery is due, often a month or more after the purchase. In a forward commitment transaction, the Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. When the Fund engages in forward commitment and when-issued transactions, it relies on the seller to consummate the transaction. The failure of the issuer or seller to consummate the transaction may result in the Fund's losing the opportunity to obtain a price and yield considered to be advantageous. The purchase of securities on a when-issued or forward commitment basis also involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. On the date the Fund enters into an agreement to purchase securities on a when-issued or forward commitment basis, the Fund will segregate in a separate account cash or liquid securities equal, of any type or maturity, in value to the Fund's commitment. These assets will be valued daily at market, and additional cash or securities will be segregated in a separate account to the extent that the total value of the assets in the account declines below the amount of the when-issued commitments. Alternatively, the Fund may enter into offsetting contracts for the forward sale of other securities that it owns. INVESTMENT RESTRICTIONS Fundamental Investment Restrictions. The following investment restrictions will not be changed without the approval of a majority of the Fund's outstanding voting securities which, as used in the Prospectus and this Statement of Additional Information, means the approval by the lesser of (1) the holders of 67% or more of the Fund's shares represented at a meeting if more than 50% of the Fund's outstanding shares are present in person or by proxy at that meeting or (2) more than 50% of the Fund's outstanding shares. The Fund may not: 15 1. Issue senior securities, except as permitted by the 1940 Act and the rules and interpretive positions of the Securities and Exchange Commission (the "SEC") thereunder. Senior securities that the Fund may issue in accordance with the 1940 Act include preferred shares, borrowing, futures, when-issued and delayed delivery securities and forward foreign currency exchange transactions. 2. Borrow money, except as permitted by the 1940 Act and the rules and interpretive positions of the SEC thereunder. 3. Act as an underwriter, except to the extent that in connection with the disposition of portfolio securities, the Fund may be deemed to be an underwriter for purposes of the Securities Act of 1933. 4. Purchase, sell or invest in real estate, but subject to its other investment policies and restrictions may invest in securities of companies that deal in real estate or are engaged in the real estate business. These companies include real estate investment trusts and securities secured by real estate or interests in real estate. The Fund may hold and sell real estate acquired through default, liquidation or other distributions of an interest in real estate as a result of the Fund's ownership of securities. 5. Invest in commodities or commodity futures contracts, other than financial derivative contracts. Financial derivatives include forward currency contracts; financial futures contracts and options on financial futures contracts; options and warrants on securities, currencies and financial indices; swaps, caps, floors, collars and swaptions; and repurchase agreements entered into in accordance with the Fund's investment policies. 6. Make loans, except that the Fund may (i) lend portfolio securities in accordance with the Fund's investment policies, (ii) enter into repurchase agreements, and (iii) purchase all or a portion of an issue of publicly distributed debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities. 7. Purchase the securities of issuers conducting their principal activity in the same industry if, immediately after such purchase, the value of its investments in such industry would exceed 25% of its total assets taken at market value at the time of such investment, except that the Fund will invest 25% or more of its total assets in the industries comprising the utilities sector. This limitation does not apply to investments in securities issued by the U.S. Government or any of its agencies, instrumentalities or authorities. 8. With respect to 75% of the fund's total assets, the Fund may not invest more than 5% of the fund's total assets in the securities of any single issuer or own more than 10% of the outstanding voting securities of any one issuer, in each case other than (i) securities issued or guaranteed by the U.S. Government, its agencies or its instrumentalities or (ii) securities of other investment companies. Non-Fundamental Investment Restrictions. The following investment restrictions are designated as non-fundamental and may be changed by the Trustees without shareholder approval. 1. Purchase a security if, as a result, (i) more than 10% of the Fund's total assets would be invested in the securities of other investment companies, (ii) the Fund would hold more than 3% of the total outstanding voting securities of any one investment company, or (iii) more than 5% of the Fund's total assets would be invested in the securities of any one investment company. These limitations do not apply to (a) the investment of cash collateral, received by the Fund in connection with lending of the Fund's portfolio securities, in the securities of open-end investment companies or (b) the purchase of shares of any investment company in connection with a merger, consolidation, reorganization or purchase of substantially all of the assets of another investment company. Subject to the above percentage limitations, the fund may, in connection with the John Hancock Deferred Compensation Plan for Independent Trustees/Directors (a means for the Fund's trustee to defer receipt of his or her fees as trustee), purchase securities of other investment companies within the group of open-end and closed-end investment companies for which the Adviser acts as investment adviser (the "John Hancock Fund Complex"). 16 2. Invest more than 20% of its net assets in securities which are illiquid. If a percentage restriction on investment or utilization of assets as set forth above is adhered to at the time an investment is made, a later change in percentage resulting from changes in the value of the Fund's assets will not be considered a violation of the restriction. The Fund intends to apply for ratings for its preferred shares from a nationally recognized statistical rating organization ("NRSRO"). In order to obtain and maintain the required ratings, the Fund may be required to comply with investment quality, diversification and other guidelines established by the NRSRO. Such guidelines will likely be more restrictive than the restrictions set forth above. The Fund may also be subject to certain restrictions and guidelines imposed by lenders if the Fund engages in borrowings. The Fund does not anticipate that such guidelines would have a material adverse effect on its common shareholders or the Fund's ability to achieve its investment objectives. The Fund will invest only in countries on the Adviser's Approved Country Listing. The Approved Country Listing is a list maintained by the Adviser's investment department that outlines all countries, including the United States, that have been approved for investment by Funds managed by the Adviser. If allowed by the Fund's other investment policies and restrictions, the Fund may invest up to 5% of its total assets in Russian equity securities and up to 10% of its total assets in Russian fixed income securities. All Russian securities must be: (1) denominated in U.S. dollars; (2) traded on a major exchange; and (3) held physically outside of Russia. THOSE RESPONSIBLE FOR MANAGEMENT The business of the Fund is managed by its Trustees, who elect officers who are responsible for the day-to-day operations of the Fund and who execute policies formulated by the Trustees. Several of the officers and Trustees of the Fund are also officers or directors of the Adviser, or officers and directors of the Fund's principal distributor, John Hancock Funds, LLC (prior to February 1, 2002, John Hancock Funds, Inc.) ("John Hancock Funds"). John Hancock Fund Complex means the open and closed-end investment companies for which the Adviser acts as investment adviser.
- ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Number of Funds in Position(s) Trustee/ the John Name, Address (1) Held with Officer Principal Occupation(s) Hancock Other And Age Fund since(2) During Past 5 Years Fund Directorships Complex Overseen by Trustee - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Interested Trustees - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- John M. DeCiccio (3) Trustee 2002 Executive Vice President and Chief 61 None (Age 54) Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") until 1999) and John Hancock Signature Services, Inc. ("Signature Services") (until 1997). - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- 17 - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Maureen R. Ford (3) Trustee, 2002 Executive Vice President, John 61 None (Age 47) Chairman, Hancock Financial Services, Inc., President John Hancock Life Insurance and Chief Company; Chairman, Director, Executive President and Chief Executive Officer Officer, the Adviser and The Berkeley Group; Chairman, Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Independence Fixed Income LLC and Signature Services, Inc.; Senior Vice President, MassMutual Insurance Co. (until 1999). - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Independent Trustees - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- James F. Carlin Trustee 2002 Chairman and CEO, Alpha Analytical 30 Massachusetts (Age 62) Laboratories (chemical analysis); Health and Part owner and Treasurer, Lawrence Education Tax Carlin Insurance Agency, Inc. Exempt Trust; (since 1995); Part owner and Vice Uno Restaurant President, Mone Lawrence Carlin Corp. (until Insurance Agency, Inc. (since 2001), Arbella 1996); Director/Treasurer, Rizzo Mutual Associatees (until 2000); Chairman (insurance) and CEO, Carlin Consolidated, Inc. (until 2000), (management/investments); HealthPlan Director/Partner, Proctor Carlin & Services, Inc. Co., Inc. (until 1999). (until 1999), Flagship Healthcare, Inc. (until 1999), Carlin Insurance Agency, Inc. (until 1999) Chairman, Massachusetts Board of Higher Education (until 1999). - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- William H. Cunningham Trustee 2002 Former Chancellor, University of 30 Hire.com (since (Age 58) Texas System and former President 2000), STC of the University of Texas, Austin, Broadcasting, Texas; Chairman, IBT Technologies. Inc. and Sunrise Television Corp. (since 2000), Symtx Inc. (since 2001), Adorno/Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2000), rateGenius (since 2000), Southwest Airlines and Introgen; Advisory Director, Q Investments; Advisory Director, Chase Bank (formerly Texas Commerce Bank-Austin). - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- 18 - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Ronald R. Dion Trustee 2002 Chairman and Chief Executive 30 The New England (Age 56) Officer, R.M. Bradley & Co., Inc. Council and Massachusetts Roundtable; North Shore Medical Center; BJ's Wholesale Club, Inc. and a corporator of the Eastern Bank; Emmanuel College. - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Charles L. Ladner Trustee 2002 Chairman and Trustee, Dunwoody 30 Parks and (Age 64) Village, Inc. (continuing care History retirement community); Senior Vice Association President and Chief Financial (since 2001). 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. - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- John A. Moore Trustee 2002 President and Chief Executive 39 CIIT (nonprofit (Age 63) Officer, Institute for Evaluating research) Health Risks (nonprofit (since 2002). institution) (until 2001); Senior Scientist, Sciences International (health research) (since 1998); Principal, Hollyhouse (consulting) (since 2000). - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Patti McGill Peterson Trustee 2002 Executive Director, Counsel for 39 Niagara Mohawk (Age 59) International Exchange of Scholars Power (since 1998); Vice President, Corporation Institute of International (electric Education (sine 1998); Senior utility). Fellow, Cornell Institute of Public Affairs, Cornell University (until 1997): President Emerita of Wells College and St. Lawrence University. - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Steven R. Pruchansky Trustee 2002 Chairman and Chief Executive 30 None (Age 58) Officer, Mast Holdings, Inc. (since 2000); Director and President, Mast Holdings, Inc. (until 2000); Managing Director, JonJames, LLC (real estate) (since 2001). - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- 19 - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Norman H. Smith Trustee 2002 Lieutenant General, United States 30 None (Age 69) Marine Corps; Deputy Chief of Staff for Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding General III Marine Expeditionary Force/3rd Marine Division (retired 1991). - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- John P. Toolan Trustee 2002 Chairman, Smith Barney Trust 30 The Smith (Age 72) Company (retired 1991); Director, Barney Muni Smith Barney, Inc., Mutual Bond Funds, The Management Company and Smith Barney Smith Barney (investment advisers) (retired Tax-Free Money 1991); Senior Executive Vice Funds, Inc., President, Director and member of Vantage Money the Executive Committee, Smith Market Funds Barney, Harris Upham & Co., (mutual funds), Incorporated (investment bankers) The (until 1991). Inefficient- Market Fund, Inc. (closed-end investment company) and Smith Barney Trust Company of Florida. - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- The following persons are the officers of the Fund who are not also members of the Board of Trustees. - ----------------------- ------------- ---------- ------------------------------------- ------------- ----------------- Number of Funds in Position(s) Trustee/ the John Name, Address (1) Held with Officer Principal Occupation(s) Hancock Other And Age Fund since(2) During Past 5 Years Fund Directorships Complex Overseen by Trustee - ----------------------- ------------- ---------- ------------------------------------- --------------- --------------- Principal Officers who are not Trustees - ----------------------- ------------- ---------- ------------------------------------- --------------- --------------- William L. Braman Executive 2002 Executive Vice President and Chief N/A (Age 48) Vice Investment Officer, the Adviser and President the John Hancock Fund Complex; and Chief Director, SAMCorp., Executive Vice Investment President and Chief Investment Officer Officer, Baring Asset Management, London U.K. (until 2000). - ----------------------- ------------- ---------- ------------------------------------- --------------- --------------- Richard A. Brown Senior Vice 2002 Senior Vice President, Chief N/A (Age 53) President Financial Officer and Treasurer, and Chief the Adviser, the John Hancock Fund Financial Complex, and The Berkeley Group; Officer Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). - ----------------------- ------------- ---------- ------------------------------------- --------------- --------------- Thomas H. Connors Vice 2002 Vice President and Compliance N/A (Age 43) President Officer, the Adviser and the John and Hancock Group of Funds; Vice Compliance President, John Hancock Funds. Officer - ----------------------- ------------- ---------- ------------------------------------- --------------- --------------- 20 - ----------------------- ------------- ---------- ------------------------------------- --------------- --------------- William H. King Vice 2002 Vice President and Assistant N/A (Age 49) President Treasurer, the Adviser; Vice and President and Treasurer of the John Treasurer Hancock Fund Complex; Assistant Treasurer of John Hancock Funds (until 2001). - ----------------------- ------------- ---------- ------------------------------------- --------------- --------------- Susan S. Newton Senior Vice 2002 Senior Vice President, Secretary N/A (Age 52) President, and Chief Legal Officer, SAMCorp., Secretary the Adviser and the John Hancock and Chief Fund Complex, John Hancock Funds Legal and The Berkeley Group; Vice Officer President, Signature Services (until 2000), Director, Senior Vice President and Secretary, NM Capital. - ----------------------- ------------- ---------- ------------------------------------- --------------- ---------------
(1) Business address for independent and interested Trustees and officers is 101 Huntington Avenue, Boston, Massachusetts 02199. (2) Each Trustee serves until resignation, retirement age or until her or his successor is elected. (3) Interested Trustee: holds positions with the Fund's investment adviser, underwriter, and/or certain other affiliates. The Fund's Board of Trustees currently has five standing Committees: the Audit Committee, the Administration Committee, the Contracts/Operations Committee, the Investment Performance Committee and the Coordinating Committee. Each Committee is comprised of Independent Trustees who are not "interested persons." The Audit Committee members are Messrs. Carlin (Chairman), Ladner, Moore and Toolan. All of the members of the Audit Committee are independent under the New York Stock Exchange's Revised Listing Rules, and each member is financially literate with at least one having accounting or financial management expertise. The Board has adopted a written charter for the Audit Committee. The Audit Committee recommends to the full board auditors for the Fund, monitors and oversees the audits of the Fund, communicates with both independent auditors and internal auditors on a regular basis and provides a forum for the auditors to report and discuss any matters they deem appropriate at any time. The Administration Committee members are Messrs. Smith (Chairman), Carlin, Cunningham, Dion, Ladner, Moore, Pruchansky, Toolan and Madame Peterson. The Administration Committee reviews the activities of the other four standing committees and makes the final selection and nomination of candidates to serve as Independent Trustees. The Administration Committee will consider nominees recommended by shareholders to serve as Independent Trustees, provided that shareholders submit recommendations in compliance with all of the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The Administration Committee also works with all Trustees on the selection and election of officers of the Fund. The Contracts/Operations Committee members are Messrs. Cunningham (Chairman) and Pruchansky. The Contracts/Operations Committee oversees the initiation, operation, and renewal of contracts between the Fund and other entities. These contracts include advisory and subadvisory agreements, custodial and transfer agency agreements and arrangements with other service providers. The Investment Performance Committee members are Messrs. Dion (Chairman), Smith and Madame Peterson. The Investment Performance Committee monitors and analyzes the performance of the Fund generally, consults with the adviser as necessary if the Fund requires special attention, and reviews peer groups and other comparative standards as necessary. The Coordinating Committee members are the chairpersons of the other four standing committees. The Coordinating Committee assures consistency of action among committees, reviews Trustee compensation, evaluates Trustee performance and considers committee membership rotations as well as relevant corporate governance issues. 21 The following table provides a dollar range indicating each Trustee's ownership of equity securities of the Fund, as well as aggregate holdings of shares of equity securities of all funds in the John Hancock Fund Complex overseen by the Trustee, as of December 31, 2001. - -------------------------------------------------------------------------------- Aggregate Dollar Range of Dollar Range of Fund Holdings in John Hancock Fund Name of Trustee Shares Owned by Trustee Complex Overseen by Trustee (1) - -------------------------------------------------------------------------------- Independent Trustees - -------------------------------------------------------------------------------- James F. Carlin None $10,001-$50,000 - -------------------------------------------------------------------------------- William H. Cunningham None $10,001-$50,000 - -------------------------------------------------------------------------------- Ronald R. Dion None Over $100,000 - -------------------------------------------------------------------------------- Charles L. Ladner None Over $100,000 - -------------------------------------------------------------------------------- John A. Moore None Over $100,000 - -------------------------------------------------------------------------------- Patti McGill Peterson None Over $100,000 - -------------------------------------------------------------------------------- Steven R. Pruchansky None Over $100,000 - -------------------------------------------------------------------------------- Norman H. Smith None Over $100,000 - -------------------------------------------------------------------------------- John P. Toolan None Over $100,000 - -------------------------------------------------------------------------------- Interested Trustees - -------------------------------------------------------------------------------- John M. DeCiccio None Over $100,000 - -------------------------------------------------------------------------------- Maureen R. Ford None Over $100,000 - -------------------------------------------------------------------------------- (1)Under the John Hancock Deferred Compensation Plan for Independent Trustees, an Independent Trustee may elect to earn a return on his or her deferred fees equal to the amount that he or she would have earned if the deferred fees amount were invested in one or more funds in the John Hancock Fund Complex. Under these circumstances, a trustee is not the legal owner of the underlying shares, but participates in any positive or negative return on those shares to the same extent as other shareholders. If the Trustees were deemed to own the shares used in computing the value of his or her deferred compensation, as of December 31, 2001, the respective "Dollar Range of Fund Shares Owned by Trustee" and the "Aggregate Dollar Range of Holdings in the John Hancock Fund Complex Overseen by Trustee" would be none and over $100,000 for Mr. Cunningham, none and over $100,000 for Mr. Dion, none and $10,000-$50,000 for Mr. Pruchansky, none and $10,000-$50,000 for Mr. Smith, none and over $100,000 for Mr. Toolan. The following table provides information regarding the compensation paid by the Fund and the other investment companies in the John Hancock Fund Complex to the Independent Trustees for their services. Ms. Ford and John M. Diccio, interested Trustees, and each of the officers of the Fund who are interested persons of the Adviser, and/or affiliates are compensated by the Adviser and receive no compensation from the Fund for their services. Aggregate Total Compensation from All Funds Compensation in John Hancock Fund Complex to Trustees from the Fund(1) Trustees (2) - -------- ---------------- --------------------------------- James F. Carlin $50 $75,000 William H. Cunningham* $50 $72,100 Ronald R. Dion* $50 $75,000 Charles L. Ladner $50 $75,100 John A. Moore $50 $75,100 Patti McGill Peterson $50 $72,000 Steven R. Pruchansky* $50 $72,000 Norman H. Smith* $50 $78,000 John P. Toolan* $50 $72,000 - ----------------------- ---------------- --------------------------------- Total $450 $666,300 22 (1) Since the Fund is newly organized, this figure is estimated for the calendar year ending December 31, 2002. (2) Total compensation paid by the John Hancock Fund Complex to the Independent Trustees is for the calendar year ended December 31, 2001. As of that date, there were sixty-six funds in the John Hancock Fund Complex, with each of these Independent Trustees serving on thirty-six funds. (*) As of December 31, 2001 the value of the aggregate accrued deferred compensation from all Funds in the John Hancock Fund Complex for Mr. Cunningham was $540,844, for Mr. Dion was $112,044, for Mr. Moore was $238,982, for Mr. Pruchansky was $117,545, for Mr. Smith was $202,737 and for Mr. Toolan was $621,800 under the John Hancock Deferred Compensation Plan for Independent Trustees (the "Plan"). All of the officers listed are officers or employees of the Adviser or affiliated companies. Some of the Trustees and officers may also be officers and/or Directors and/or Trustees of one or more other funds for which the Adviser serves as investment adviser. As of October 31, 2002 officers and Trustees of the Fund as a group owned less than 1% of the outstanding shares of the Fund. To the knowledge of the Fund, no persons owned of record or beneficially 5% or more of any class of the Fund's outstanding shares of the Fund. INVESTMENT ADVISORY AND OTHER SERVICES The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603, was organized in 1968 and has approximately $24.7 billion in assets under management as of September 30, 2002 in its capacity as investment adviser to the Fund and other funds in the John Hancock Fund Complex as well as retail and institutional privately managed accounts. The Adviser is an affiliate of the Life Company, one of the most recognized and respected financial institutions in the nation. With total assets under management of approximately $121.2 billion as of September 30, 2002, the Life Company is one of the ten largest life insurance companies in the United States, and carries a high rating with S&P and A. M. Best. Founded in 1862, the Life Company has been serving clients for over 130 years. The Fund has entered into an investment management contract (the "Advisory Agreement") with the Adviser, which was approved by the Fund's sole shareholder. Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously an investment program for the Fund and determine, subject to the overall supervision and review of the Trustees, which investments should be purchased, held, sold or exchanged, and (b) provide supervision over all aspects of the Fund's operations except those which are delegated to a custodian, transfer agent or other agent. The Fund bears all costs of its organization and operation, including but not limited to expenses of preparing, printing and mailing all shareholders' reports, notices, prospectuses, proxy statements and reports to regulatory agencies; expenses relating to the issuance, registration and qualification of shares; government fees; interest charges; expenses of furnishing to shareholders their account statements; taxes; expenses of redeeming shares; brokerage and other expenses connected with the execution of portfolio securities transactions; expenses pursuant to the Fund's plan of distribution; fees and expenses of custodians including those for keeping books and accounts, maintaining a committed line of credit, and calculating the net asset value of shares; fees and expenses of transfer agents and dividend disbursing agents; legal, accounting, financial, management, tax and auditing fees and expenses of the Fund (including an allocable portion of the cost of the Adviser's employees rendering such services to the Fund); the compensation and expenses of Trustees who are not otherwise affiliated with the Fund, the Adviser or any of their affiliates; expenses of Trustees' and shareholders' meetings; trade association memberships; insurance premiums; and any extraordinary expenses. For its advisory and administrative services, the Fund will accrue and pay to the Adviser daily, as compensation for the services rendered and expenses paid by it, a fee on an annual basis equal to 0.75% of the Fund's average daily managed assets. Because the fee paid to the Adviser is determined on the basis of the Fund's managed assets, the Adviser's interest in determining whether to leverage the Fund may differ from the interests of the Fund. "Managed assets" means the total assets of the Fund (including any assets attributable to any leverage that may be outstanding) minus the sum of accrued liabilities (other than liabilities representing financial leverage). The liquidation preference of any preferred shares is not a liability. 23 The Adviser has contractually agreed to waive a portion of its advisory fee. The Adviser has agreed that, until the fifth anniversary of investment advisory agreement, the Adviser will limit its advisory fee to 0.55% of average daily managed assets, in the sixth year to 0.60% of average daily managed assets, in the seventh year to 0.65% of average daily managed assets, and in the eighth year to 0.70% of average daily managed assets. After the eighth year the Adviser will no longer waive a portion of its advisory fee. From time to time, the Adviser may reduce its fee or make other arrangements to limit the Fund's expenses to a specified percentage of its average daily net assets. The Adviser retains the right to reimpose a fee and recover any other payments to the extent that, at the end of any fiscal year, the Fund's annual expenses fall below this limit. The Adviser has also agreed to pay from its own assets to certain of the Underwriters an incentive fee at an annual rate equal to up to 0.10% of the Fund's managed assets. This fee will be payable in arrears at the end of each calendar quarter so long as the Advisory Agreement remains in effect between the Fund and the Adviser or any successor in interest or affiliate of the Adviser, as and to the extent that such Advisory Agreement is renewed periodically in accordance with the 1940 Act. If an Underwriter meets certain requirements established by the Adviser (each a "Qualifying Underwriter") (which may be waived or modified in the discretion of the Adviser), it will receive an annual fee equal to 0.10% of the Fund's managed assets multiplied by the percentage of the Fund's common shares sold by the Qualifying Underwriter in this offering. The total amount of the incentive fee payments, discounted to the closing date of this offering, plus the amounts paid by the Fund to reimburse certain Underwriter expenses, will not exceed the maximum compensation allowed under the conduct rules of the National Association of Securities Dealers, as such rules are then in effect. Securities held by the Fund may also be held by other funds or investment advisory clients for which the Adviser or its affiliates provide investment advice. Because of different investment objectives or other factors, a particular security may be bought for one or more funds or clients when one or more other funds or clients are selling the same security. If opportunities for purchase or sale of securities by the Adviser for the Fund or for other funds or clients for which the Adviser renders investment advice arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds or clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of more than one client of the Adviser or its affiliates may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. Pursuant to its Advisory Agreement, the Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which the Advisory Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under the Advisory Agreement. Under the Advisory Agreement, the Fund may use the name "John Hancock" or any name derived from or similar to it only for so long as the Advisory Agreement or any extension, renewal or amendment thereof remains in effect. If the Advisory Agreement is no longer in effect, the Fund (to the extent that it lawfully can) will cease to use such a name or any other name indicating that it is advised by or otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the nonexclusive right to use the name "John Hancock" or any similar name to any other corporation or entity, including but not limited to any investment company of which the Life Company or any subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate thereof shall be the investment adviser. The Board is responsible for overseeing the performance of the Adviser and determining whether to approve and renew the Advisory Agreement. Prior to the October 10, 2002 meeting, the Board requested and received from the Adviser certain information the Board deemed important in evaluating the Adviser's qualifications and the reasonableness of the proposed fee. The Board also met with the proposed portfolio management team for the Fund. In addition, the Board drew upon its experience in acting as trustees for other investment companies. The primary factors that the Board considered to be favorable in approving the Advisory Agreement were: 24 o The Adviser's experience in managing other investment companies, including investment companies that invest in preferred securities and employ a leverage structure (the "Comparable Funds"). In considering this factor, the Board considered the experience of the portfolio management team in managing portfolios of preferred securities. The members of the Board also considered their experience, as trustees of the Comparable Funds, with the quality of the compliance and administrative staff of the Adviser. o The investment performance of the Comparable Funds, both in absolute terms and relative to their performance benchmarks. During the one, three and five year periods ended September 30, 2002, the average annual return of Patriot Select Dividend Fund was (8.08)%, 1.75% and 3.49% respectively, the average annual return of Patriot Preferred Dividend Fund was (2.45)%, 4.73% and 4.72% respectively, and the average annual return of Patriot Premium Dividend Fund I was (8.68)%, 1.34% and 3.78% respectively. During the same one, three and five year periods, the average annual return of the Standard & Poor's 500 was (20.47)%, (12.88)% and (1.62)% and the average annual return of the Dow Jones Utilities Average was (25.58)%, (6.93)% and 1.69%. o The reasonableness of the proposed fee. In making that determination, the Board took into consideration the fees charged by similar funds managed by other investment advisers and the fees charged by the Adviser for managing the Comparable Funds. The fee payable by the Fund is lower than the fee charged to the Comparable Funds and lower than another closed-end fund focusing on preferred securities that had recently completed the public offering of its common shares, before giving effect to fee waivers. o The Adviser's commitment to waive a portion of its advisory fee for a period of eight years. The Adviser has agreed that, until the fifth anniversary of the investment advisory agreement, the Adviser will limit its advisory fee to 0.55% of average daily managed assets, in the sixth year to 0.60% of average daily managed assets, in the seventh year to 0.65% of average daily managed assets, and in the eighth year to 0.70% of average daily managed assets. After the eighth year the Adviser will no longer waive a portion of its advisory fee. o The reasonableness of the estimated total expenses of the Fund, both with and without the advisory fee waiver. The Advisory Agreement was approved by all Trustees who were serving as Trustees on October 10, 2002. The Board was increased effective November 19, 2002 from 3 members to 11 members. The Advisory Agreement will continue in effect from year to year, provided that its continuance is approved annually after its initial two year term both (i) by the holders of a majority of the outstanding voting securities of the Fund or by the Trustees, and (ii) by a majority of the Trustees who are not parties to the Agreement or "interested persons" of any such parties. The Advisory Agreement may be terminated on 60 days written notice by any party or by vote of a majority of the outstanding voting securities of the Fund and will terminate automatically if assigned. Accounting and Legal Services Agreement. The Fund is a party to an Accounting and Legal Services Agreement with the Adviser. Pursuant to this agreement, the Adviser provides the Fund with certain tax, accounting and legal services. Shareholder Servicing Agent. The Adviser has retained UBS Warburg LLC to act as shareholder servicing agent for the Fund. Pursuant to the Shareholder Servicing Agreement, UBS Warburg LLC will: (i) undertake to make public information pertaining to the Fund on an ongoing basis and to communicate to investors and prospective investors the Fund's features and benefits (including periodic seminars or conference calls, responses to questions from current or prospective shareholders and specific shareholder contact where appropriate); (ii) make available to investors and prospective investors market price, net asset value, yield and other information regarding the Fund, if reasonably obtainable, for the purpose of maintaining the visibility of the Fund in the investor community; (iii) at the request of the Adviser, provide certain economic research and statistical information and reports, if reasonably obtainable, on behalf of the Fund, and consult with representatives and Trustees of the Fund in connection therewith, which information and reports shall 25 include: (a) statistical and financial market information with respect to the Fund's market performance and (b) comparative information regarding the Fund and other closed-end management investment companies with respect to (1) the net asset value of their respective share, (2) the respective market performance of the Fund and such other companies, (3) other relevant performance indicators; and (iv) at the request of the Adviser, provide information to and consult with the Board with respect to applicable modifications to dividend policies or capital structure, repositioning or restructuring of the Fund, conversion of the Fund to an open-end investment company, or a Fund liquidation or merger; provided, however, that under the terms of the Shareholder Servicing Agreement, UBS Warburg LLC is not obligated to render any opinions, valuations or recommendations of any kind or to perform any such similar services. Under the terms of the Shareholder Servicing Agreement, UBS Warburg LLC is relieved from liability to the Adviser for any act or omission in the course of its performances under the Shareholder Servicing Agreement in the absence of gross negligence or willful misconduct. In consideration of these services, the Adviser will pay UBS Warburg LLC a fee equal on an annual basis to 0.10% of the Fund's average daily-managed assets. This fee will be an expense of the Adviser and not the Fund. The Shareholder Services Agreement has an initial term of two years and is renewable thereafter with the consent of both parties. Direct Registration of Trust Shares. Through Mellon Investor Services, LLC ("Mellon") the Fund has made its common shares eligible for inclusion in the direct registration system ("DRS") administered by The Depository Trust Company ("DTC"), wherein Mellon will process transfers of common shares utilizing DTC's Profile Modification System. Code of Ethics. Personnel of the Adviser and its affiliates may trade securities for their personal accounts. The Fund also may hold, or may be buying or selling, the same securities. To prevent the Fund from being disadvantaged, the adviser(s), principal underwriter and the Fund have adopted a code of ethics, which restricts the trading activity of those personnel. NET ASSET VALUE For purposes of calculating the net asset value ("NAV") of the Fund's common shares, the following procedures are utilized wherever applicable. Debt investment securities are valued on the basis of valuations furnished by a principal market-maker or a pricing service, both of which generally utilize electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities without exclusive reliance upon quoted prices. Equity securities traded on a principal exchange or NASDAQ National Market Issues are generally valued at last sale price on the day of valuation. Securities in the aforementioned category for which no sales are reported and other securities traded over-the-counter are generally valued at the last available bid price. Short-term debt investments which have a remaining maturity of 60 days or less are generally valued at amortized cost which approximates market value. If market quotations are not readily available or if in the opinion of the Adviser any quotation or price is not representative of true market value, the fair value of the security may be determined in good faith in accordance with procedures approved by the Board of Trustees. Foreign securities are valued on the basis of quotations from the primary market in which they are traded. Any assets or liabilities expressed in terms of foreign currencies are translated into U.S. dollars by the custodian bank based on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on the date of a determination of the Fund's NAV. If quotations are not readily available, or the value has been materially affected by the events occurring after the closing of a foreign market, assets are valued by a method that the Board of Trustees believes accurately reflects fair value. The NAV of the Fund's common shares is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern Time) by dividing the net assets by the number of its common shares outstanding. On any day an international market is closed and the New York Stock Exchange is open, any foreign securities will be valued at the prior day's close with the current day's exchange rate. Trading of foreign securities may take place on Saturdays and U.S. business holidays on which the Fund's NAV is not calculated. Consequently, the Fund's portfolio securities may trade and the NAV of the Fund's common shares may be significantly affected on days when a shareholder has no access to the New York Stock Exchange. 26 BROKERAGE ALLOCATION Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage commissions are made by the Adviser pursuant to recommendations made by an investment committee of the Adviser, which consists of officers and directors of the Adviser and affiliates and officers and Trustees who are interested persons of the Fund. Orders for purchases and sales of securities are placed in a manner which, in the opinion of the Adviser, will offer the best price and market for the execution of each such transaction. Purchases from underwriters of portfolio securities may include a commission or commissions paid by the issuer, and transactions with dealers serving as market makers reflect a "spread". Debt securities are generally traded on a net basis through dealers acting for their own account as principals and not as brokers; no brokerage commissions are payable on these transactions. In the U.S. Government securities market, securities are generally traded on a "net" basis with dealers acting as principal for their own account without a stated commission, although the price of the security usually includes a profit to the dealer. On occasion, certain money market instruments and agency securities may be purchased directly from the issuer, in which case no commissions or premiums are paid. In other countries, both debt and equity securities are traded on exchanges at fixed commission rates. Commissions on foreign transactions are generally higher than the negotiated commission rates available in the U.S. There is generally less government supervision and regulation of foreign stock exchanges and broker-dealers than in the U.S. The Fund's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. This policy governs the selection of brokers and dealers and the market in which a transaction is executed. To the extent consistent with the foregoing, the Fund will be governed in the selection of brokers and dealers, and the negotiation of brokerage commission rates and dealer spreads, by the reliability and quality of the services, including primarily the availability and value of research information and, to a lesser extent, statistical assistance furnished to the Adviser and their value and expected contribution to the performance of the Fund. As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund may pay a broker which provides brokerage and research services to the Fund an amount of disclosed commission in excess of the commission which another broker would have charged for effecting that transaction. This practice is subject to a good faith determination by the Board of Trustees that such commission is reasonable in light of the services provided and to such policies as the Board of Trustees may adopt from time to time. Research services received from broker-dealers supplement the Adviser's own research (and the research of its affiliates), and may include the following types of information: statistical and background information on the U.S. and foreign economies, industry groups and individual companies; forecasts and interpretations with respect to the U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on federal, state, local and foreign political developments; portfolio management strategies; performance information on securities, indexes and investment accounts; and information concerning prices of securities. Broker-dealers may communicate such information electronically, orally, in written form or on computer software. Research services may also include the providing of electronic communication of trade information and the providing of custody services, as well as the providing of equipment used to communicate research information, the providing of specialized consultations with the Adviser's personnel with respect to computerized systems and data furnished to the Adviser as a component of other research services, the arranging of meetings with management of companies, and the providing of access to consultants who supply research information. The outside research assistance is useful to the Adviser since the broker-dealers used by the Adviser tend to follow a broader universe of securities and other matters than the Adviser's staff can follow. In addition, the research provides the Adviser with a diverse perspective on financial markets. Research services provided to the Adviser by broker-dealers are available for the benefit of all accounts managed or advised by the Adviser or 27 by its affiliates. Some broker-dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by the Adviser's clients, including the Fund. However, the Fund is not under any obligation to deal with any broker-dealer in the execution of transactions in portfolio securities. In some cases, the research services are available only from the broker-dealer providing them. In other cases, the research services may be obtainable from alternative sources in return for cash payments. The Adviser believes that the research services are beneficial in supplementing the Adviser's research and analysis and that they improve the quality of the Adviser's investment advice. It is not possible to place a dollar value on information and services to be received from brokers and dealers, since it is only supplementary to the research efforts of the Adviser. The advisory fee paid by the Fund is not reduced because the Adviser receives such services. However, to the extent that the Adviser would have purchased research services had they not been provided by broker-dealers, the expenses to the Adviser could be considered to have been reduced accordingly. The research information and statistical assistance furnished by brokers and dealers may benefit the Life Company or other advisory clients of the Adviser, and conversely, brokerage commissions and spreads paid by other advisory clients of the Adviser may result in research information and statistical assistance beneficial to the Fund. The Fund will make no commitment to allocate portfolio transactions upon any prescribed basis. While the Adviser's officers will be primarily responsible for the allocation of the Fund's brokerage business, the policies and practices of the Adviser in this regard must be consistent with the foregoing and at all times be subject to review by the Trustees. The Adviser may determine target levels of commission business with various brokers on behalf of its clients (including the Fund) over a certain time period. The target levels will be based upon the following factors, among others: (1) the execution services provided by the broker; (2) the research services provided by the broker; and (3) the broker's interest in mutual funds in general and in the Fund and other mutual funds advised by the Adviser in particular, including sales of the Fund. In connection with (3) above, the Fund's trades may be executed directly by dealers that sell shares of the John Hancock funds or by other broker-dealers with which such dealers have clearing arrangements, consistent with obtaining best execution and the Conduct Rules of the National Association of Securities Dealers, Inc. The Adviser will not use a specific formula in connection with any of these considerations to determine the target levels. The Adviser's indirect parent, the Life Company, is the indirect sole shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999, John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Pursuant to procedures determined by the Trustees and consistent with the above policy of obtaining best net results, the Fund may execute portfolio transactions with or through the Affiliated Broker. Signator may act as broker for the Fund on exchange transactions, subject, however, to the general policy of the Fund set forth above and the procedures adopted by the Trustees pursuant to the 1940 Act. Commissions paid to an Affiliated Broker must be at least as favorable as those which the Trustees believe to be contemporaneously charged by other brokers in connection with comparable transactions involving similar securities being purchased or sold. A transaction would not be placed with an Affiliated Broker if the Fund would have to pay a commission rate less favorable than the Affiliated Broker's contemporaneous charges for comparable transactions for its other most favored, but unaffiliated, customers, except for accounts for which the Affiliated Broker acts as clearing broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to the Fund as determined by a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated Broker, has, as an investment adviser to the Fund, the obligation to provide investment management services, which include elements of research and related investment skills, such research and related skills will not be used by the Affiliated Broker as a basis for negotiating commissions at a rate higher than that determined in accordance with the above criteria. Other investment advisory clients advised by the Adviser may also invest in the same securities as the Fund. When these clients buy or sell the same securities at substantially the same time, the Adviser may average the transactions as to price and allocate the amount of available investments in a manner which the Adviser believes to be equitable to each client, including the Fund. Because of this, client accounts in a particular style may sometimes not sell or acquire securities as quickly or at the same prices as they might if each were managed and traded individually. 28 For purchases of equity securities, when a complete order is not filled, a partial allocation will be made to each account pro rata based on the order size. For high demand issues (for example, initial public offerings), shares will be allocated pro rata by account size as well as on the basis of account objective, account size (a small account's allocation may be increased to provide it with a meaningful position), and the account's other holdings. In addition, an account's allocation may be increased if that account's portfolio manager was responsible for generating the investment idea or the portfolio manager intends to buy more shares in the secondary market. For fixed income accounts, generally securities will be allocated when appropriate among accounts based on account size, except if the accounts have different objectives or if an account is too small to get a meaningful allocation. For new issues, when a complete order is not filled, a partial allocation will be made to each account pro rata based on the order size. However, if a partial allocation is too small to be meaningful, it may be reallocated based on such factors as account objectives, strategies, duration benchmarks and credit and sector exposure. For example, value funds will likely not participate in initial public offerings as frequently as growth funds. In some instances, this investment procedure may adversely affect the price paid or received by the Fund or the size of the position obtainable for it. On the other hand, to the extent permitted by law, the Adviser may aggregate securities to be sold or purchased for the Fund with those to be sold or purchased for other clients managed by it in order to obtain best execution. REPURCHASE OF COMMON SHARES The Fund is a closed-end investment company and as such its shareholders will not have the right to cause the Fund to redeem their shares. Instead, the Fund's common shares will trade in the open market at a price that will be a function of several factors, including dividend levels (which are in turn affected by expenses), NAV, dividend stability, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Shares of closed-end funds frequently trade at a discount to their NAV. Common shares of closed-end investment companies like the Fund that invest predominantly in preferred securities have during some periods traded at prices higher than their NAV (at a "premium") and during other periods traded at prices lower than their NAV (at a "discount"). This is in part because the market price reflects the dividend yield on the common shares. When the yield on the NAV per share is higher than yields generally available in the market for comparable securities, the market price will tend to reflect this by trading higher than the net asset value per share to adjust the yield to a comparable market rate. To the extent the common shares do trade at a discount, the Board may from time to time engage in open market repurchases or tender offers for shares after balancing the benefit to shareholders of the increase in the net asset value per share resulting from such purchases against the decrease in the assets of the Fund and potential increase in the expense ratio of expenses to assets of the Fund and consequent reduction in yield. The Board of Trustees believes that in addition to the beneficial effects described above, any such purchases or tender offers may result in the temporary narrowing of any discount but will not have any long-term effect on the level of any discount. At any time when the Fund's preferred shares are outstanding, the Fund may not purchase, redeem or otherwise acquire any of its common shares unless (1) all accrued preferred shares dividends have been paid and (2) at the time of such purchase, redemption or acquisition, the net asset value of the Fund's portfolio (determined after deducting the acquisition price of the common shares) is at least 200% of the liquidation value of the outstanding preferred shares (expected to equal the original purchase price per share plus any accrued and unpaid dividends thereon). Any service fees incurred in connection with any tender offer made by the Fund will be borne by the Fund and will not reduce the stated consideration to be paid to tendering shareholders. Subject to its investment restrictions, the Fund may borrow to finance the repurchase of shares or to make a tender offer. Interest on any borrowings to finance share repurchase transactions or the accumulation of cash by the Fund in anticipation of share repurchases or tenders will reduce the Fund's net income. The Fund will comply with the Securities Exchange Act of 1934, the 1940 Act and the rules and regulations thereunder in connection with any share repurchase, tender offer or borrowing that might be approved by the Fund's Board of Trustees. Although the decision to take action in response to a discount from NAV will be made by the Board at the time it considers such issue, it is the Board's present policy, which may be changed by the Board, not to authorize repurchases of common shares or a tender offer for such shares if: (1) such transactions, if consummated, would (a) result in the delisting of the common shares from the New York Stock Exchange, or (b) impair the Fund's status as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"), (which would make the Fund a taxable entity, causing the Fund's income to be taxed at the corporate level in addition to the taxation of shareholders who receive dividends from the Fund) or as a registered closed-end investment company under the 1940 Act; (2) the Fund would not be able to liquidate portfolio securities 29 in an orderly manner and consistent with the Fund's investment objectives and policies in order to repurchase shares; or (3) there is, in the board's judgment, any (a) material legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Fund, (b) general suspension of or limitation on prices for trading securities on the New York Stock Exchange, (c) declaration of a banking moratorium by federal or state authorities or any suspension of payment by United States or New York banks, (d) material limitation affecting the Fund or the issuers of its portfolio securities by federal or state authorities on the extension of credit by lending institutions or on the exchange of foreign currency, (e) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States, or (f) other event or condition which would have a material adverse effect (including any adverse tax effect) on the Fund or its shareholders if shares were repurchased. The Board may in the future modify these conditions in light of experience. The repurchase by the Fund of its shares at prices below NAV will result in an increase in the NAV of those shares that remain outstanding. However, there can be no assurance that share repurchases or tender offers at or below NAV will result in the Fund's shares trading at a price equal to their NAV. Nevertheless, the fact that the Fund's shares may be the subject of repurchase or tender offers from time to time, or that the Fund may be converted to an open-end investment company, may reduce any spread between market price and net asset value that might otherwise exist. In addition, a purchase by the Fund of its common shares will decrease the Fund's total assets which would likely have the effect of increasing the Fund's expense ratio. Any purchase by the Fund of its common shares at a time when preferred shares are outstanding will increase the leverage applicable to the outstanding common shares then remaining. Before deciding whether to take any action if the common shares trade below NAV, the Board would likely consider all relevant factors, including the extent and duration of the discount, the liquidity of the Fund's portfolio, the impact of any action that might be taken on the Fund or its shareholders and market considerations. Based on these considerations, even if the Fund's shares should trade at a discount, the Board may determine that, in the interest of the Fund and its shareholders, no action should be taken. U.S. FEDERAL INCOME TAX MATTERS The following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a shareholder of acquiring, holding and disposing of common shares of the Fund. This discussion only addresses U.S. federal income tax consequences to U.S. shareholders who hold their shares as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to particular shareholders in light of their individual circumstances. This discussion also does not address the tax consequences to shareholders who are subject to special rules, including, without limitation, financial institutions, insurance companies, dealers in securities or foreign currencies, foreign holders, persons who hold their shares as or in a hedge against currency risk, a constructive sale, or conversion transaction, holders who are subject to the alternative minimum tax, or tax-exempt or tax-deferred plans, accounts, or entities. In addition, the discussion does not address any state, local, or foreign tax consequences, and it does not address any federal tax consequences other than U.S. federal income tax consequences. The discussion reflects applicable tax laws of the United States as of the date of this Prospectus, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the "IRS") retroactively or prospectively. No attempt is made to present a detailed explanation of all U.S. federal income tax concerns affecting the Fund and its shareholders, and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers to determine the tax consequences to them of investing in the Fund, including the applicable federal, state, local and foreign tax consequences to them and the effect of possible changes in tax laws. The Fund intends to elect to be treated and to qualify each year as a "regulated investment company" under Subchapter M of the Code so that it generally will not pay U.S. federal income tax on income and capital gains distributed to shareholders. In order to qualify as a regulated investment company under Subchapter M of the Code, which qualification this discussion assumes, the Fund must, among other things, derive at least 90% of its gross 30 income for each taxable year from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including gains from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "90% income test") and satisfy certain quarterly asset diversification requirements. For purposes of the 90% income test, the character of income earned by certain entities in which the Fund invests that are not treated as corporations for U.S. federal income tax purposes (e.g., partnerships or trusts) will generally pass through to the Fund. Consequently, the Fund may be required to limit its equity investments in such entities that earn fee income, rental income or other nonqualifying income. If the Fund qualifies as a regulated investment company and, for each taxable year, it distributes to its shareholders an amount equal to or exceeding the sum of (i) 90% of its "investment company taxable income" as that term is defined in the Code (which includes, among other things, dividends, taxable interest, and the excess of any net short-term capital gains over net long-term capital losses, as reduced by certain deductible expenses) without regard to the deduction for dividends paid and (ii) 90% of the excess of its gross tax-exempt interest, if any, over certain disallowed deductions, the Fund will generally be relieved of U.S. federal income tax on any income of the Fund, including "net capital gains" (the excess of net long-term capital gain over net short-term capital loss), distributed to shareholders. However, if the Fund retains any investment company taxable income or net capital gain, it generally will be subject to U.S. federal income tax at regular corporate rates on the amount retained. The Fund intends to distribute at least annually all or substantially all of its investment company taxable income, net tax-exempt interest, and net capital gain. If for any taxable year the Fund did not qualify as a regulated investment company, it would be treated as a corporation subject to U.S. federal income tax (even if it distributed all of its income to its shareholders) and all distributions out of earnings and profits would be taxed to shareholders as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject to interest charges) before requalifying as a regulated investment company. Under the Code, the Fund will be subject to a nondeductible 4% federal excise tax on a portion of its undistributed ordinary income and capital gain net income if it fails to meet certain distribution requirements with respect to each calendar year. For purposes of the excise tax, any ordinary income or capital gain net income retained by, and subject to federal income tax in the hands of, the Fund will be treated as having been distributed. The Fund intends to make distributions in a timely manner and accordingly does not expect to be subject to the excise tax, but, as described below, there can be no assurance that the Fund's distributions will be sufficient to avoid entirely this tax. Commencing within approximately 90 days from the date of this prospectus, the Fund intends to declare dividends from all or a portion of its investment company taxable income on a monthly basis. The Fund intends to distribute any net capital gains at least annually. Dividends may also be paid at such other times as may be necessary for the Fund to avoid U.S. federal income or excise tax. Unless a shareholder is ineligible to participate or elects otherwise, distributions from the Fund will be automatically reinvested in additional common shares of the Fund pursuant to the Automatic Dividend Reinvestment Plan (the "Plan"). For U.S. federal income tax purposes, such distributions generally will be taxable whether a shareholder takes them in cash or they are reinvested pursuant to the Plan in additional shares of the Fund. In general, assuming that the Fund has sufficient earnings and profits, dividends from investment company taxable income are taxable as ordinary income, and dividends from net capital gain (if any) that are designated as capital gains dividends, are taxable as long-term capital gains for U.S. federal income tax purposes without regard to the length of time the shareholder has held shares of the Fund. Distributions by the Fund in excess of the Fund's current and accumulated earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in its shares and any such amount in excess of that basis will be treated as gain from the sale of shares, as discussed below. The source and U.S. federal income tax status of all distributions will be reported to shareholders annually, and shareholders receiving distributions in the form of additional shares of the Fund will receive a report as to the NAV of those shares. If the Fund retains any net capital gain for a taxable year, the Fund may designate the retained amount as undistributed capital gains in a notice to shareholders who, if subject to U.S. federal income tax on long-term capital gains, (i) will be required to include in income for U.S. federal income tax purposes, as long-term capital gain, their proportionate shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. 31 Although dividends generally will be treated as distributed when paid, any dividend declared by the Fund as of a record date in October, November or December and paid during the following January will be treated for U.S. federal income tax purposes as received by shareholders on December 31 of the calendar year in which it is declared. In addition, certain other distributions made after the close of a taxable year of the Fund may be "spilled back" and treated as paid by the Fund (except for purposes of the 4% excise tax) during such taxable year. In such case, shareholders will be treated as having received such dividends in the taxable year in which the distributions were actually made. If the Fund acquires any equity interest (under Treasury regulations that may be promulgated in the future, generally including not only stock but also an option to acquire stock such as is inherent in a convertible bond) in certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or that hold at least 50% of their assets in investments producing such passive income ("passive foreign investment companies"), the Fund could be subject to U.S. federal income tax and additional interest charges on "excess distributions" received from such companies or on gain from the disposition of stock in such companies, even if all income or gain actually received by the Fund is timely distributed to its shareholders. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An election may generally be available that would ameliorate these adverse tax consequences, but any such election could require the Fund to recognize taxable income or gain (subject to tax distribution requirements) without the concurrent receipt of cash. These investments could also result in the treatment of capital gains from the sale of stock of passive foreign investment companies as ordinary income. The Fund may limit and/or manage its holdings in passive foreign investment companies to limit its tax liability or maximize its return from these investments. The Fund may invest to a limited extent in debt obligations that are in the lowest rating categories or are unrated, including debt obligations of issuers not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default present special tax issues for the Fund. Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a workout context are taxable. These and other issues will be addressed by the Fund, in the event it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a regulated investment company and does not become subject to U.S. federal income or excise tax. If the Fund utilizes leverage through borrowing or issuing preferred shares, a failure by the Fund to meet the asset coverage requirements imposed by the 1940 Act or by any rating organization that has rated such leverage or additional restrictions that may be imposed by certain lenders on the payment of dividends or distributions potentially could limit or suspend the Fund's ability to make distributions on its common shares. Such a suspension or limitation could prevent the Fund from distributing at least 90% of its investment company taxable income as is required under the Code and therefore might jeopardize the Fund's qualification for taxation as a regulated investment company and/or might subject the Fund to the 4% excise tax. Upon any failure to meet such asset coverage requirements, the Fund may, in its sole discretion, purchase or redeem shares of preferred stock in order to maintain or restore the requisite asset coverage and avoid the adverse consequences to the Fund and its shareholders of failing to satisfy the distribution requirement. There can be no assurance, however, that any such action would achieve these objectives. The Fund will endeavor to avoid restrictions on its ability to distribute dividends. If the Fund invests in certain pay-in-kind securities, zero coupon securities, deferred interest securities or, in general, any other securities with original issue discount (or with market discount if the Fund elects to include market discount in income currently), the Fund generally must accrue income on such investments for each taxable year, which generally will be prior to the receipt of the corresponding cash payments. However, the Fund must distribute, at least annually, all or substantially all of its investment company taxable income, including such accrued income, to shareholders to qualify as a regulated investment company under the Code and avoid U.S. federal income and excise taxes. Therefore, the Fund may have to dispose of its portfolio securities under disadvantageous circumstances to generate cash, or may have to borrow the cash, to satisfy distribution requirements. 32 At the time of an investor's purchase of the Fund's shares, a portion of the purchase price may be attributable to realized or unrealized appreciation in the Fund's portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions by the Fund with respect to these shares from such appreciation or income may be taxable to such investor even if the net asset value of the investor's shares is, as a result of the distributions, reduced below the investor's cost for such shares and the distributions economically represent a return of a portion of the investment. Sales and other dispositions of the Fund's shares generally are taxable events for shareholders that are subject to tax. Shareholders should consult their own tax advisers with reference to their individual circumstances to determine whether any particular transaction in the Fund's shares is properly treated as a sale for tax purposes, as the following discussion assumes, and the tax treatment of any gains or losses recognized in such transactions. In general, if Fund shares are sold, the shareholder will recognize gain or loss equal to the difference between the amount realized on the sale and the shareholder's adjusted basis in the shares. Such gain or loss generally will be treated as long-term gain or loss if the shares were held for more than one year and otherwise generally will be treated as short-term gain or loss. Any loss recognized by a shareholder upon the sale or other disposition of shares with a tax holding period of six months or less generally will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain with respect to such shares. Losses on sales or other dispositions of shares may be disallowed under "wash sale" rules in the event of other investments in the Fund (including those made pursuant to reinvestment of dividends and/or capital gain distributions) within a period of 61 days beginning 30 days before and ending 30 days after a sale or other disposition of shares. Options written or purchased and futures contracts entered into by the Fund on certain securities and indices may cause the Fund to recognize gains or losses from marking-to-market even though such options may not have lapsed, been closed out, or exercised, or such futures or forward contracts may not have been performed or closed out. The tax rules applicable to these contracts may affect the characterization of some capital gains and losses recognized by the Fund as long-term or short-term. Additionally, the Fund may be required to recognize gain if an option, futures contract, forward contract, short sale or other transaction that is not subject to the mark-to-market rules is treated as a "constructive sale" of an "appreciated financial position" held by the Fund under Section 1259 of the Code. Any net mark-to-market gains and/or gains from constructive sales may also have to be distributed to satisfy the distribution requirements referred to above even though the Fund may receive no corresponding cash amounts, possibly requiring the Fund to dispose of portfolio securities or borrow to obtain the necessary cash. Losses on certain options, futures or forward contracts and/or offsetting positions (portfolio securities or other positions with respect to which the Fund's risk of loss is substantially diminished by one or more options, futures or forward contracts) may also be deferred under the tax straddle rules of the Code, which may also affect the characterization of capital gains or losses from straddle positions and certain successor positions as long-term or short-term. Certain tax elections may be available that would enable the Fund to ameliorate some adverse effects of the tax rules described in this paragraph. The tax rules applicable to options, futures, forward contracts and straddles may affect the amount, timing and character of the Fund's income and gains or losses and hence of its distributions to shareholders. The income to be received by the Fund from its investment in taxable preferred securities is not expected to qualify for the dividends received deduction under the Code. As a result, the Fund does not expect that its distributions to its corporate shareholders will qualify for such deduction. The federal income tax treatment of the Fund's investment in preferred securities or other securities and its transactions involving interest rate swaps, caps, floors and collars is uncertain and may be subject to recharacterization by the IRS. To the extent the tax treatment of such securities or transactions differs from the tax treatment expected by the Fund, the timing or character of income recognized by the Fund could be affected, and the Fund may be required to purchase or sell securities, or otherwise change its portfolio, in order to comply with the tax rules applicable to regulated investment companies under the Code. The IRS has taken the position that if a regulated investment company has two classes of shares, it must designate distributions made to each class in any year as consisting of no more than such class's proportionate share of particular types of income, including dividends qualifying for the corporate dividends-received deduction (if any) and net capital gains. A class's proportionate share of a particular type of income is determined according to the percentage of total dividends paid by the regulated investment company to such class. Consequently, if both common shares and preferred shares are 33 outstanding, the Fund intends to designate distributions made to the classes of particular types of income in accordance with the classes' proportionate shares of such income. Thus, the Fund will designate dividends qualifying for the corporate dividends-received deduction (if any), income not qualifying for the dividends-received deduction and net capital gains in a manner that allocates such income between the holders of common shares and preferred shares in proportion to the total dividends paid to each class during or for the taxable year, or otherwise as required by applicable law. The Fund may be subject to withholding and other taxes imposed by foreign countries, including taxes on interest, dividends and capital gains with respect to its investments in those countries, which would, if imposed, reduce the yield on or return from those investments. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes in some cases. The Fund does not expect to satisfy the requirements for passing through to its shareholders their pro rata shares of qualified foreign taxes paid by the Fund, with the general result that shareholders would not include such taxes in their gross incomes and would not be entitled to a tax deduction or credit for such taxes on their own tax returns. Federal law requires that the Fund withhold (as "backup withholding") on reportable payments, including dividends, capital gain distributions and the proceeds of sales or other dispositions of the Fund's shares paid to certain shareholders who have not complied with IRS regulations. In order to avoid this withholding requirement, shareholders must certify on their Account Applications, or on separate IRS Forms W-9, that the Social Security Number or other taxpayer identification number they provide is their correct number and that they are not currently subject to backup withholding, or that they are exempt from backup withholding. The Fund may nevertheless be required to backup withhold if it receives notice from the IRS or a broker that the number provided is incorrect or backup withholding is applicable as a result of previous underreporting of income. The description of certain federal tax provisions above relates only to U.S. federal income tax consequences for shareholders who are U.S. persons, i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or estates, and who are subject to U.S. federal income tax. Investors other than U.S. persons may be subject to different U.S. federal income tax treatment, including a non-resident alien U.S. withholding tax on amounts treated as ordinary dividends from the Fund and, unless an effective IRS Form W-8BEN or other authorized withholding certificate is on file, to backup withholding on certain other payments from the Fund. Shareholders should consult their own tax advisers on these matters and on any specific questions as to U.S. federal, foreign, state, local and other applicable tax laws. PERFORMANCE From time to time, in reports and promotional literature, the Fund's total return will be compared to indices of mutual funds such as Lipper Analytical Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a monthly publication which tracks net assets, total return and yield on mutual funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used for comparison purposes, as well as the Russell and Wilshire Indices. Performance rankings and ratings reported periodically in, and excerpts from, national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be utilized. The Fund's promotional and sales literature may make reference to the Fund's "beta". Beta is a reflection of the market related risk of the Fund by showing how responsive the Fund is to the market. The performance of the Fund is not fixed or guaranteed. Performance quotations should not be considered to be representations of performance of the Fund for any period in the future. The performance of the Fund is a function of many factors including its earnings, expenses and number of outstanding shares. Fluctuating market conditions; purchases, sales and maturities of portfolio securities; sales and redemptions of shares of beneficial interest; and changes in operating expenses are all examples of items that can increase or decrease the Fund's performance. 34 The Fund may be an appropriate addition to an investor's existing portfolio. The Fund allows investors to diversify their portfolios with a low correlated asset class that offers a high level of current income through regular, monthly dividends. The Fund offers investors the potential to reduce risk by investing in a portfolio of preferred securities that are diversified across multiple issuers and sectors. Performance should be less volatile and potentially less risky when a portfolio includes a variety of investments. Characteristics of Preferred Securities. Favorable yields: preferred securities have the potential to offer investors favorable yields relative to other income producing securities like real estate investment trusts, corporate bonds and government bonds. Low correlation: preferred securities have historically exhibited low correlations relative to other popular asset classes. Adding preferred securities to a portfolio offers investors the potential for greater total returns and reduced portfolio volatility. Established Companies: issuers of preferred securities are typically established companies such as utilities, banks and financial services corporations. - -------------------------------------------------------------------------------- [TWO BAR CHARTS ARE REPRESENTED HERE] - -------------------------------------------------------------------------------- All yields shown are as of September 30, 2002. Total return correlation is based on monthly returns from September 1997 through September 2002. The yield and correlation of preferred securities is based upon the yield and return of the Merrill Lynch Preferred Stock Hybrid Securities Index, which is an unmanaged index consisting of a set of investment-grade exchange-traded preferred stocks with outstanding market values of at least $50 million that are covered by Merrill Lynch Fixed Income Research. The index includes certain publicly issued, $25- and $100-par securities and at least one year to maturity. The yield and correlation of REITs is based upon the yield and return of the NAREIT Equity REIT Index, which is an unmanaged index consisting of certain companies that own and operate income-producing real estate that have 75% or more of their respective gross invested book in the equity or mortgage debt, respectively, of commercial properties. The yield and correlation of corporate bonds is based upon the yield and return of the Lehman Brothers Aggregate Index, which is an unmanaged index consisting of certain publicly issued taxable U.S. investment-grade, fixed-rate, non-convertible, dollar-denominated bonds composed of government and corporate securities, mortgage pass-through and asset-backed securities with at least $150 million par amount outstanding and at least one year to maturity. The yield and correlation of government bonds is based upon the yield and return of the Lehman Brothers Government Bond Index, which is an unmanaged index consisting of certain public obligations of the U.S. treasury and publicly issued debt of U.S. government agencies, quasi-federal corporations, and corporate or foreign debts that are U.S.-dollar-denominated and non-convertible, with at least $150 million par amount outstanding and at least one year to maturity. The yield and correlation of common stocks are based upon the yield and return of the Standard & Poor's 500 Stock Index, which is an unmanaged index of 500 publicly traded, widely held common stocks listed on the NYSE, AMEX and OTC markets. The historical yields shown here are for comparative purposes only, and are no indication of the future yields of these asset classes or of the John Hancock Preferred Income Fund II. The historical correlations shown here are for comparative purposes only, and are no indication of the future correlations of these asset classes or of the John Hancock Preferred Income Fund II. It is not possible to invest directly in any of these indexes. Correlation coefficients range from +1 (meaning that two investments have a perfectly positive relationship and behave in the same way), through 0 (two investments have no relationship), to -1 (two investments have a perfectly negative relationship and move in opposite directions). 35 - -------------------------------------------------------------------------------- [BAR CHART REPRESENTED HERE] - -------------------------------------------------------------------------------- TRANSFER AGENT SERVICES Mellon, P.O. Box 3338, South Hackensack, NJ 07606-1938, is the transfer agent, registrar and dividend disbursing agent for the Fund. CUSTODY OF PORTFOLIO Portfolio securities of the Fund are held pursuant to a custodian agreement between the Fund and The Bank of New York, One Wall Street, New York, New York 10286. Under the custodian agreement, The Bank of New York is performing custody, portfolio, foreign custody manager and fund accounting services. INDEPENDENT AUDITORS The independent auditors of the Fund, Deloitte & Touche LLP, 200 Berkeley Street, Boston, MA 02116, audit and render an opinion on the Fund's annual financial statements, and reviews the Fund's annual federal income tax return. ADDITIONAL INFORMATION A Registration Statement on Form N-2, relating to the shares offered hereby, has been filed by the Fund with the Securities and Exchange Commission (the "Commission"), Washington, D.C. The Prospectus and this Statement of Additional Information do not contain all of the information set forth in the Registration Statement, including any exhibits and schedules thereto. For further information with respect to the Fund and the shares offered hereby, reference is made to the Registration Statement. Statements contained in the Prospectus and this Statement of Additional Information as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement may be inspected without charge at the Commission's principal office in Washington, D.C., and copies of all or any part thereof may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. 36 APPENDIX A - MORE ABOUT RISK A fund's risk profile is largely defined by the fund's primary securities and investment practices. You may find the most concise description of the fund's risk profile in the Prospectus. A fund is permitted to utilize -- within limits established by the Trustees -- certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the Fund utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief definitions of certain associated risks with them with examples of related securities and investment practices included in brackets. See the "Investment Objective and Policies" and "Investment Restrictions" sections of this Statement of Additional Information for a description of this Fund's investment policies. The Fund follows certain policies that may reduce these risks. As with any mutual fund, there is no guarantee that the Fund will earn income or show a positive return over any period of time -- days, months or years. TYPES OF INVESTMENT RISK Correlation risk The risk that changes in the value of a hedging instrument will not match those of the asset being hedged (hedging is the use of one investment to offset the effects of another investment). Incomplete correlation can result in unanticipated risks. (e.g., short sales, financial futures and options; securities and index options, currency contracts). Credit risk The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. (e.g., borrowing; reverse repurchase agreements, repurchase agreements, securities lending, non-investment-grade securities, financial futures and options; securities and index options). Information risk The risk that key information about a security or market is inaccurate or unavailable. (e.g., non-investment-grade securities, foreign equities). Interest rate risk The risk of market losses attributable to changes in interest rates. With fixed-rate securities, a rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. (e.g., non-investment-grade securities, financial futures and options; securities and index options). Leverage risk Associated with securities or practices (such as borrowing) that multiply small index or market movements into large changes in value. (e.g., borrowing; reverse repurchase agreements, when-issued securities and forward commitments). o Hedged When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the fund also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. (e.g., short sales, financial futures and options securities and index options; currency contracts). o Speculative To the extent that a derivative is not used as a hedge, the fund is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost. (e.g., short sales, financial futures and options securities and index options; currency contracts). Liquidity risk The risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. The seller may have to lower the price, sell other securities instead or forego an investment opportunity, any of which could have a negative effect on fund management or performance. (e.g., non-investment-grand securities, short sales, restricted and illiquid securities, financial futures and options securities and index options; currency contracts). A-1 Management risk The risk that a strategy used by a fund's management may fail to produce the intended result. Common to all mutual funds. Market risk The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time. Market risk may affect a single issuer, industry, sector of the economy or the market as a whole. Common to all stocks and bonds and the mutual funds that invest in them. (e.g., short sales, short-term trading, when-issued securities and forward commitments, non-investment-grade securities, foreign equities, financial futures and options; securities and index options restricted and illiquid securities). Natural event risk The risk of losses attributable to natural disasters, crop failures and similar events. (e.g., foreign equities). Opportunity risk The risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. (e.g., short sales, when-issued securities and forward commitments; financial futures and options; securities and index options, currency contracts). Political risk The risk of losses attributable to government or political actions, from changes in tax or trade statutes to governmental collapse and war.(e.g., foreign equities). Valuation risk The risk that a fund has valued certain of its securities at a higher price than it can sell them for. (e.g., non-investment-grade securities, restricted and illiquid securities). A-2 APPENDIX B - DESCRIPTION OF RATINGS The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings Group represent their opinions as to the quality of various debt instruments they undertake to rate. It should be emphasized that ratings are not absolute standards of quality. Consequently, debt instruments with the same maturity, coupon and rating may have different yields while debt instruments of the same maturity and coupon with different ratings may have the same yield. MOODY'S INVESTORS SERVICE, INC. - PREFERRED SECURITIES RATINGS aaa: Preferred stocks which are rated "aaa" are considered to be top quality. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. aa: Preferred stocks which are rated "aa" are considered to be high grade. This rating indicates that there is reasonable assurance that earnings and asset proection will remain relatively well maintained in the foreseeable future. a: Preferred stocks which are rated "a" are considered to be upper-medium grade. While risks are judged to be somewhat greater than in the "aaa" and "aa" classifications, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. baa: Preferred stocks which are rated "baa" are judged lower-medium grade, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. ba: Preferred stocks which are rated "ba" are considered to have speculative elements and their future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. MOODY'S INVESTORS SERVICE, INC. - BOND RATINGS Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment at some time in the future. Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B-1 B: Bonds which are rated B generally lack the characteristics of desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca: Bonds which are rated Ca represented obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. STANDARD & POOR'S RATINGS GROUP - PREFERRED SECURITIES RATINGS AAA: This is the highest rating that may be assigned to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations. AA: A preferred stock issue rated AA also qualifies as a high quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA. A: An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB: An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations. Although it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for preferred stock in this category for issues in the A category. BB: An issue rated BB is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay the preferred stock obligation. While such issues will likely have some quality and protective characteristics, there are outweighed by large uncertainties or major risk exposures to adverse conditions. STANDARD & POOR'S RATINGS GROUP - BOND RATINGS AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A: Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B: Debt rated BB and B is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. CCC: Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. B-2 CC: The rating 'CC' is typically applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating. B-3 FINANCIAL STATEMENTS Following are the audited financial statements for the initial capitalization of the John Hancock Preferred Income Fund II dated November 5, 2002, and the report of Deloitte and Touche LLP. John Hancock Preferred Income Fund II Statement of Assets and Liabilities - ----------------------------------- November 5, 2002 Assets: Cash $153,015 -------- Total assets $153,015 -------- Liabilities: Payable for organization expenses $53,000 ------- Total liabilities $53,000 ------- Net Assets: Capital paid-in $153,015 Accumulated net investment loss (53,000) -------- Net assets $100,015 -------- Net asset value per share: (Based on net assets and 6,409 shares of beneficial interest outstanding - 22 million shares authorized with no par value) $15.61 ------ Statement of Operations - ----------------------- For the period from September 12, 2002 (date of inception) to November 5, 2002 Organization expenses $53,000 -------- Net investment loss ($53,000) -------- Statement of Changes in Net Assets - ---------------------------------- For the period from September 12, 2002 (date of inception) to November 5, 2002 INCREASE (DECREASE) IN NET ASSETS From operations: Net investment loss ($53,000) --------- Decrease in net assets resulting from operations (53,000) --------- From Fund share transactions: Net proceeds from the issuance of common shares 153,015 ------- NET ASSETS Beginning of period - End of period $100,015 -------- See notes to financial statements. F-1 NOTES TO FINANCIAL STATEMENTS Note 1. Organization John Hancock Preferred Income Fund II (the "Fund") was organized on September 12, 2002 as a diversified closed-end management investment company registered under the Investment Company Act of 1940. The Fund's primary investment objective is to provide a high level of current income, consistent with preservation of capital. The Fund's secondary investment objective is to provide growth of capital. The Fund will invest at least 80% of its managed assets (net assets plus borrowing for investment purposes) in preferred stocks and other preferred securities, including convertible preferred securities, in various industry sectors. At November 5, 2002, the Fund is inactive except for matters relating to its organization, registration and the sale of 6,409 shares for $153,015 ($23.875 per share) to John Hancock Advisers, LLC (the "Adviser"), an indirect, wholly-owned subsidiary of John Hancock Life Insurance Company. Note 2. Agreements The Fund has entered into an investment management contract with the Adviser. The Fund also has an administrative agreement with the Adviser under which the Adviser will oversee the custodial, auditing, valuation, accounting, legal, stock transfer and dividend disbursing services and will maintain the Fund's communications with shareholders. Upon commencement of the Fund's operations, the Adviser will receive a daily management fee from the Fund at an annual rate of 0.75% of the Fund's average daily managed assets. The Adviser has agreed to limit the Fund's management fee to the following: 0.55% of the Fund's average daily managed assets until the fifth anniversary of the commencement of the Fund's operations, 0.60% of such assets in the sixth year, 0.65% of such assets in the seventh year, and 0.70% of average daily managed assets in the eighth year. After the eighth year the Adviser will no longer waive a portion of the management fee. Note 3. Organization Expenses and Offering Costs Organization expenses, which amount to $53,000, have been expensed by the Fund. Offering costs, estimated to be approximately $819,000, will be charged to the Fund's capital paid-in at the time shares of beneficial interest are sold. Note 4. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Fund's management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. F-2 Independent Auditors' Report The Board of Trustees and Shareholder of John Hancock Preferred Income Fund II We have audited the accompanying statement of assets and liabilities of John Hancock Preferred Income Fund II (the "Fund") as of November 5, 2002 and the related statements of operations and changes in net assets for the period from September 12, 2002 (date of inception) to November 5, 2002. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Fund at November 5, 2002 and the results of its operations and changes in its net assets for the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Boston, Massachusetts November 7, 2002 F-3 PART C - OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (1) Financial statements. Part A: Financial Highlights (not applicable). Part B: Financial Statements. The Registrant's statement of assets and liabilities dated November 5, 2002, statement of operations and statement of changes in net assets for the period from September 12, 2002 to November 5, 2002, notes to the financial statement and independent auditors' report thereon are included in the Registrant's Statement of Additional Information. (2) Exhibits: (a) Agreement and Declaration of Trust.(1) (b) By-Laws.(1) (c) Not applicable. (d) Share Certificate.(3) (e) Automatic Dividend Reinvestment Plan.(3) (f) Not applicable. (g) Form of Investment Management Contract between the Registrant and John Hancock Advisers, LLC.(3) (h) Form of Underwriting Agreement.(3) (i) Not applicable. (j)(1) Form of Amendment adding the Registrant to the Amended and Restated Master Custodian Agreement.(3) (j)(2) Master Custodian Agreement between certain John Hancock Funds and The Bank of New York.(3) (k)(1) Form of Amendment adding the Registrant to the Master Transfer Agency and Service Agreement.(3) (k)(2) Master Transfer Agency and Service Agreement between the Registrant and Mellon Investor Services, LLC.(3) (k)(3) Accounting and Legal Services Agreement between the Registrant and John Hancock Advisers, LLC.(3) (k)(4) Form of Shareholder Servicing Agreement.(3) (l) Opinion and Consent of Counsel.(3) (m) Not applicable. (n) Consent of Independent Public Accountants.(3) (o) Not applicable. (p) Subscription Agreement between the Registrant and John Hancock Advisers, LLC.(3) (q) Not applicable. (r) Code of Ethics for John Hancock Advisers, LLC.(3) (s) Power of Attorney.(3) C-1 (1) Incorporated herein by reference from the exhibits filed in the Registrant's Registration Statement on Form N-2 (File No. 333-99685) as filed with the Securities and Exchange Commission (the "SEC") on September 17, 2002 (Accession No. 0001010521-02-000301). (2) Incorporated herein by reference from the exhibits filed in Pre-Effective Amendment No.1 to the Registration Statement as filed with the SEC on October 25, 2002 (Accession No. 0000950135-02-004638). (3) Filed herewith. ITEM 25. MARKETING ARRANGEMENTS Reference is made to the underwriting agreement for the Registrant's common shares of beneficial interest, no par value, filed herewith. ITEM 25. OTHER EXPENSES AND DISTRIBUTION The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement: Registration fees $ 57,500 New York Stock Exchange Initial Listing Fees 120,000 Printing 392,000 Accounting fees and expenses 5,000 Legal fees and expenses 150,000 NASD fee 30,500 Miscellaneous 64,000 Total $819,000 ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL None. Item 28. NUMBER OF HOLDERS OF SECURITIES As of November 15, 2002, the number of record holders of each class of securities of the Registrant was: (1) (2) TITLE OF CLASS NUMBER OF RECORD HOLDERS Common Shares (no par value) 1 ITEM 29. INDEMNIFICATION C-2 Indemnification provisions relating to the Registrant's Trustees, officers, employees and agents is set forth in Article IV of the Registrant's Declaration of Trust incorporated by reference as Exhibit (a) herein. Section 9(a) of the By-Laws of John Hancock Life Insurance Company (the "Insurance Company") provides, in effect, that the Insurance Company will, subject to limitations of law, indemnify each present and former director, officer and employee of the Insurance Company who serves as a Trustee or officer of the Registrant at the direction or request of the Insurance Company against litigation expenses and liabilities incurred while acting as such, except that such indemnification does not cover any expense or liability incurred or imposed in connection with any matter as to which such person shall be finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interests of the Insurance Company. In addition, no such person will be indemnified by the Insurance Company in respect of any final adjudication unless such settlement shall have been approved as in the best interests of the Insurance Company either by vote of the Board of Directors at a meeting composed of directors who have no interest in the outcome of such vote, or by vote of the policyholders. The Insurance Company may pay expenses incurred in defending an action or claim in advance of its final disposition, but only upon receipt of an undertaking by the person indemnified to repay such payment if he should be determined not to be entitled to indemnification. Article V of the Limited Liability Company Agreement of John Hancock Advisers, LLC (the "Adviser") provides as follows: "Section 5.06. Indemnity." 1.01 Indemnification and Exculpation. ------------------------------- (a) No Indemnitee, and no shareholder, director, officer, member, manager, partner, agent, representative, employee or Affiliate of an Indemnitee, shall have any liability to the Company or to any Member for any loss suffered by the Company (or the Corporation) which arises out of any action or inaction by such Indemnitee with respect to the Company (or the Corporation) if such Indemnitee so acted or omitted to act (i) in the good faith (A) belief that such course of conduct was in, or was not opposed to, the best interests of the Company (or the Corporation), or (B) reliance on the provisions of this Agreement, and (ii) such course of conduct did not constitute gross negligence or willful misconduct of such Indemnitee. (b) The Company shall, to the fullest extent permitted by applicable law, indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was, or has agreed to become, a Director or Officer, or is or was serving, or has agreed to serve, at the request of the Company (or previously at the request of the Corporation), as a director, officer, manager or trustee of, or in a similar capacity with, another corporation, partnership, limited liability company, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of an Indemnitee in connection with such action, suit or proceeding and any appeal therefrom. C-3 (c) As a condition precedent to his right to be indemnified, the Indemnitee must notify the Company in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity hereunder will or could be sought. With respect to any action, suit, proceeding or investigation of which the Company is so notified, the Company will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. (d) In the event that the Company does not assume the defense of any action, suit, proceeding or investigation of which the Company receives notice under this Section 5.06, the Company shall pay in advance of the final disposition of such matter any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom; provided, however, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company as authorized in this Section 5.06, which undertaking shall be accepted without reference to the financial ability of the Indemnitee to make such repayment; and further provided that no such advancement of expenses shall be made if it is determined that (i) the Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, or (ii) with respect to any criminal action or proceeding, the Indemnitee had reasonable cause to believe his conduct was unlawful. (e) The Company shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was approved by the Board of Directors. In addition, the Company shall not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Company makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund such indemnification payments to the Company to the extent of such insurance reimbursement. (f) All determinations hereunder as to the entitlement of an Indemnitee to indemnification or advancement of expenses shall be made in each instance by (a) a majority vote of the Directors consisting of persons who are not at that time parties to the action, suit or proceeding in question ("Disinterested Directors"), whether or not a quorum, (b) a majority vote of a quorum of the outstanding Common Shares, which quorum shall consist of Members who are not at that time parties to the action, suit or proceeding in question, (c) independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Company), or (d) a court of competent jurisdiction. (g) The indemnification rights provided in this Section 5.06 (i) shall not be deemed exclusive of any other rights to which an Indemnitee may be entitled under any law, agreement or vote of Members or Disinterested Directors or otherwise, and (ii) shall inure to the benefit of the heirs, executors and administrators of the Indemnitees. The Company may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Company or other persons serving the Company and such rights may be equivalent to, or greater or less than, those set forth in this Section 5.06. Any indemnification to be provided hereunder may be provided although the person to be indemnified is no longer a Director or Officer. C-4 Item 30. Business and Other Connections of the Adviser For information as to the business, profession, vocation or employment of a substantial nature of each of the officers and directors of the Adviser, reference is made to Form ADV filed with the Commission (Commission File No. 801-8124) under the Investment Advisers Act of 1940 and incorporated herein by reference thereto. Item 31. Location of Accounts and Records Certain accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules promulgated thereunder are maintained by the Adviser, 101 Huntington Avenue, Boston, MA 02199. Records relating to the duties of the Registrant's custodian are maintained by The Bank of New York, One Wall Street, New York, New York, and the Registrant's transfer agent by Mellon Investor Services, LLC, 85 Challenger Road, Ridgefield Park, NJ 07660. Item 32. Management Services Not applicable. Item 33. Undertakings 1. The Registrant undertakes to suspend the offering of shares until the prospectus is amended if (1) subsequent to the effective date of its registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of the registration statement or (2) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus. 2. Not applicable. 3. Not applicable. 4. Not applicable. 5. The Registrant undertakes that: (a) For purposes of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under 497(h) under the 1933 Act shall be deemed to be part of this registration statement as of the time it was declared effective. C-5 (b) For the purposes of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 6. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery within two business days of receipt of a written or oral request, the Registrant's Statement of Additional Information. C-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and/or Investment Company Act of 1940, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston and the Commonwealth of Massachusetts, on the 22nd day of November, 2002. JOHN HANCOCK PREFERRED INCOME FUND II By: /s/ Maureen R. Ford ------------------------------- Maureen R. Ford Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated:
Signature Title /s/ Maureen R. Ford Chairman, President and Chief Executive Officer - ----------------------------------------------------- Maureen R. Ford /s/ Richard A. Brown Senior Vice President and Chief Financial Officer - ----------------------------------------------------- Richard A. Brown * Trustee - ------------------------------------------------------ James F. Carlin * Trustee - ------------------------------------------------------ William H. Cunningham * Trustee - ------------------------------------------------------ John M. DeCiccio * Trustee - ----------------------------------------------------- Ronald R. Dion * Trustee - ----------------------------------------------------- Maureen R. Ford * Trustee - ----------------------------------------------------- Charles L. Ladner * Trustee - ----------------------------------------------------- John A. Moore * Trustee - ----------------------------------------------------- Patti McGill Peterson * Trustee - ----------------------------------------------------- Steven R. Pruchansky * Trustee - ----------------------------------------------------- Norman H. Smith * Trustee - ----------------------------------------------------- John P. Toolan *By: /s/ Susan S. Newton Dated: November 22, 2002 ------------------- Susan S. Newton Attorney-in-fact
EX-99.D 3 exd.txt SHARE CERTIFICATE JOHN HANCOCK PREFERRED INCOME FUND II COMMON SHARE CERTIFICATE THIS CERTIFICATE IS TRANSFERABLE IN RIDGEFIELD PARK, NJ OR NEW YORK, NY Number Shares COMMON SHARE(S) OF BENEFICIAL INTEREST NO PAR VALUE CUSIP 41013X 10 6 SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFIES that ________________________ is the owner of___________________ FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF BENEFICIAL INTEREST OF JOHN HANCOCK PREFERRED INCOME FUND II, the said shares being issued, received and held under and subject to the terms and provisions of the Agreement and Declaration of Trust dated as of September 12, 2002, establishing John Hancock Preferred Income Fund II, and all amendments thereto, copies of which are on file with the Secretary of The Commonwealth of Massachusetts and the Fund's By-Laws, and all amendments thereto. The said owner by accepting this certificate agrees to and is bound by all of the said terms and provisions. The shares represented hereby are transferable in writing by the owner thereof in person or by attorney upon surrender of this certificate to the Fund, properly endorsed for transfer. This certificate is executed on behalf of the Trustees of the Fund as Trustees and not individually and the obligations hereof are not binding upon any of the Trustees, officers or shareholders of the Fund individually but are binding only upon the assets and property of the Fund. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Fund and the facsimile signatures of its duly authorized officers. DATED: /s/ William H. King /s/ Maureen R. Ford ------------------- ------------------- Treasurer President JOHN HANCOCK PREFERRED INCOME FUND II CORPORATE 2002 MASSACHUSETTS COUNTERSIGNED AND REGISTERED: MELLON INVESTOR SERVICES LLC TRANSFER AGENT AND REGISTRAR, AUTHORIZED SIGNATURE. Classes of Shares of Beneficial Interest The preferences, voting powers, qualifications, and special and relative rights of the shares of beneficial interest of each class and series of the Fund are set forth in the Agreement and Declaration of Trust and By-Laws. The Fund will furnish a copy of the Agreement and Declaration of Trust and By-Laws to the holder of this certificate without charge upon written request. EXPLANATION OF ABBREVIATIONS The following abbreviations when used in the form of ownership on the face of this certificate shall be construed as though they were written out in full according to applicable laws or regulations. Abbreviations in addition to those appearing below may be used. Abbreviation Equivalent - ------------ ---------- JT TEN As joint tenants, with right of survivorship and not as tenants in common TEN IN COM As tenants in common TEN BY ENT As tenants by the entireties UNIF TRANSFERS MIN ACT Uniform Transfers to Minors Act ADM Administrator(s); Administratix AGMT Agreement CUST Custodian for EST Estate, Of estate of EX Executor(s), Executrix FBO For the benefit of FDN Foundation PL Public Law TR (As) trustee(s) for, of UA Under Agreement UW Under will of, Of will of, Under last will & Testament - -------------------------------------------------------------------------------- TRANSFER FORM FOR VALUE RECEIVED, (I, We) hereby sell, assign and transfer unto [please print or typewrite name and address (including postal zip code of assignee)] Common shares represented by this Certificate and do hereby irrevocably constitute and appoint ______ Attorney as to transfer said shares on the books of the Fund with full power of substitution in the premises. Dated:_______________ Signature(s): _____________________________ (The signature to this agreement must correspond with the name as written upon the face of this Certificate in every particular, without alteration or enlargement or any change whatsoever. If more than one owner, all must sign). Signature Guaranteed By: ______________________________ (Signature must be guaranteed by a commercial bank or trust company or member firm of any national stock exchange.) IMPORTANT NOTICE When you sign your name to the Transfer Form without filling in the name of your "Assignee" this certificate becomes fully negotiable, similar to a check endorsed in blank. Therefore, to safeguard a signed certificate, it is recommended that you fill in the name of the new owner in the "Assignee" space. Alternatively, instead of using this Transfer Form, you may sign a separate "stock power" form and then mail the unsigned certificate and the signed "stock power" in separate envelopes. For added protection, use registered mail for a certificate. EX-99.E 4 exe.txt DIVIDEND REINVESTMENT PLAN - -------------------------------------------------------------------------------- John Hancock Preferred Income Fund II - -------------------------------------------------------------------------------- Dividend Reinvestment Plan [LOGO] John Hancock Dear Fellow Shareholder: Thank you for selecting the John Hancock Preferred Income Fund II as a complement to your investment portfolio. The Terms and Conditions of the Dividend Reinvestment Plan as well as the procedures to either continue dividend reinvestment or have your dividends paid in cash are included in this brochure. The Dividend Reinvestment Plan offers an opportunity to earn compounded yields. Compounding your investment returns over time by reinvesting in shares of the Fund may afford benefits to you not achieved by taking your investment returns in cash. Participants in the Plan benefit from the safekeeping provided by the Plan Agent for all shares purchased on their behalf by the Agent. This service protects against theft or loss of certificates. Recordkeeping is also provided by the Plan Agent for participants. Monthly statements will detail distributions, purchases, prices and total shares held by you and the Plan Agent. Every shareholder is automatically enrolled in the Dividend Reinvestment Plan. Mellon Bank, N.A. acts as Plan Agent for shareholders in reinvesting all dividends and distributions in additional shares of the Fund for individual accounts. If you would like automatic dividend reinvestment and your shares are held in the name of a nominee (broker, bank or other), please contact your nominee to see if they will participate in the Plan for you. If your nominee can participate in the Plan, your monthly statements will reflect the reinvestment. If your nominee cannot participate in the Plan for you, have your shares re-registered in your name so you may participate. If you do not wish to participate in the Dividend Reinvestment Plan, please complete and return the withdrawal card or notify the Plan Agent by telephone or by visiting the Plan Agent's Web site at www.melloninvestor.com. Sincerely, /s/Maureen R. Ford - ------------------ Maureen R. Ford Chairman and Chief Executive Officer What is the Dividend Reinvestment Plan? The Dividend Reinvestment Plan offers shareholders of John Hancock Preferred Income Fund II a prompt and simple way to reinvest their dividend and net capital gains distributions in shares of the Fund. The Fund will declare monthly dividends out of net income. Mellon Bank, N.A. acts as Plan Agent for shareholders in administering the Plan. Certain administrative support will be provided to the Plan Agent by Mellon Investor Services, a registered transfer agent. The complete Terms and Conditions of the Plan appear later in this brochure. Who can participate in the Plan? If you own shares in your own name, you will automatically be enrolled in the Plan. If you own shares that are held in the name of a brokerage firm, bank or other nominee, you should instruct your nominee to participate on your behalf. If you wish to participate in the Plan, but your brokerage firm, bank or other nominee is unable to participate on your behalf, you should request it to re-register your shares in your own name, which will enable your participation in the Plan. The Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by you as representing the total amount registered in your name and held for your account by your nominee. How does the Plan work? Every shareholder is automatically enrolled in the Plan. If the Fund declares a dividend or net capital gains distribution payable either in cash or in shares of the Fund, and the market price of shares on the valuation date equals or exceeds the net asset value, the Fund will issue new shares to you at the greater of net asset value or 95% of the current market price. If the market price is lower than net asset value, or if dividends or net capital gains distributions are payable only in cash, then you will receive shares purchased by the Plan Agent on your behalf on the New York Stock Exchange or otherwise on the open market. If the market price exceeds net asset value before the Plan Agent has completed its purchases, the average purchase price may exceed net asset value, resulting in fewer shares being acquired than if the Fund had issued new shares. All reinvestments are in full and fractional shares, carried to four decimal places. Is there a cost to participate? There are no brokerage charges for shares issued directly by the Fund. However, whenever shares are purchased on the New York Stock Exchange or otherwise on the open market, each participant will pay a pro rata portion of brokerage commissions. Brokerage charges for purchasing shares through the Plan are expected to be lower than the annual brokerage charges for individual transactions, because the Plan Agent will purchase shares for all participants in blocks, resulting in lower commissions for each individual participant. Brokerage commissions will be deducted from amounts to be invested. What are the tax implications for participants? You will receive tax information annually for your personal records and to help you prepare your federal income tax return. The automatic reinvestment of dividends and net capital gains distributions does not relieve you of any income tax which may be payable on dividends or distributions. The amount of the dividend to be reported on Form 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 to purchase them (including the amount of cash allocable to brokerage commissions paid on such purchases). Once enrolled in the Plan, may I withdraw from it? You 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. Your withdrawal will be effective as specified in Paragraph 10 of the Terms and Conditions. If you withdraw, you will receive without charge, share certificates issued in your name for all full shares; or, if you wish, Mellon Bank, N.A. will sell your shares and send you the proceeds, less a service fee of $5.00 and less brokerage commissions. Mellon Bank, N.A. will convert any fractional shares you hold at the time of your withdrawal to cash at current market price and send you a check for the proceeds. How do participating shareholders benefit? You will build holdings in the Fund easily and automatically, at no brokerage cost or at reduced brokerage costs. You will receive a detailed account statement from Mellon Bank, N.A., your Plan Agent, showing total dividends and distributions, date of investment, shares acquired and price per share, and total shares of record held by you and by the Plan Agent for you. You will receive a proxy for your existing shares as well as the shares purchased for you by the Plan Agent according to the Plan. As long as you participate in the Plan, Mellon Bank, N.A., as your Plan Agent, will hold the shares it has acquired for you in safekeeping, in noncertificated form. This convenience provides added protection against loss, theft or inadvertent destruction of certificates. However, you may request that a certificate representing your full reinvested shares be issued to you. Whom should I contact for additional information? If you hold shares in your own name, you may address all notices, correspondence, questions or other communications regarding the Plan to the following: Telephone Customer Service (within the U.S. and Canada): 1-800-852-0218 International Telephone Inquiries: 1-201-329-8660 An automated voice response system is available 24 hours a day, 7 days a week. Customer service representatives are available from 9:00 a.m. to 7:00 p.m., ET, Monday through Friday (except holidays). Internet You can withdraw from the Plan, obtain information and perform certain transactions on your Fund account online via Investor ServiceDirect. To gain access, you will need a password, which you may establish when you visit the Web site. If you have forgotten your password, call 1-877-978-7778 to have it reset. To access Investor ServiceDirect, please visit the Mellon Investor Services Web site at www.melloninvestor.com. In writing You may also write to the Agent at the following address: Mellon Bank, N.A. c/o Mellon Investor Services P. O. Box 3338 South Hackensack, NJ 07606-1938 Be sure to include your name, address, daytime telephone number, social security or tax I.D. number and a reference to the John Hancock Preferred Income Fund II on all correspondence. If your shares are not held in your name, you should contact your brokerage firm, bank or other nominee for more information and to see if your nominee will participate in the plan on your behalf. John Hancock Preferred Income Fund II and Mellon Bank, N.A. may amend or terminate the Plan. Participants will generally receive written notice at least 90 days before the effective date of any amendment. In the case of termination, participants will receive written notice at least 90 days before the record date for the payment of any dividend or net capital gains distribution by the Fund. Please study the information and the Terms and Conditions of the Dividend Reinvestment Plan carefully to determine which alternative is best for you. You may also want to review the Dividends and Distributions section of the John Hancock Preferred Income Fund II Prospectus or contact the Plan Agent. Terms and Conditions of the Dividend Reinvestment Plan 1. You, Mellon Bank, N.A., will act as Agent (the OPlan AgentO) for me, and will open an account for me under the Dividend Reinvestment Plan (the OPlanO) in the same name as my present shares are registered, and put the Plan into effect for me as of the first record date for a dividend or capital gains distribution. 2. Whenever John Hancock Preferred Income II Fund declares any dividend or capital gains distribution and the market price of the common shares on the payment date for the distribution or dividend payable is equal to or exceeds its net asset value as determined on the payment date, the Fund will issue, and you will receive as my agent, common shares at a value equal to the higher of net asset value or 95% of the market price. The number of additional shares to be credited to my account shall be determined by dividing the equivalent dollar amount of the distribution or dividend payable to me by the higher of net asset value or 95% of the market price. 3. Whenever the Fund declares any dividend or capital gains distribution and the net asset value per share of the common shares exceeds the market price of the common shares on the dividend payment date, or if the Board of Directors declares a dividend payable only in cash, you will, as Plan Agent for me, apply the amount of such dividend or distribution payable to me (less my pro rata share of brokerage commissions incurred with respect to open-market purchases in connection with the reinvestment of such dividend or distribution) to the purchase on the open market of shares for my account. Such purchases will be made on or shortly after the payable date for such dividend or distribution, and in no event later than the day preceding the next ex-dividend date, except where temporary curtailment or suspension of purchase is necessary to comply with applicable provisions of federal securities laws. 4. For all purposes of the Plan: (a) the market price of the Fund's shares on a particular date shall be the last sales price on the New York Stock Exchange on that date, or, if there is no sale on such exchange on that date, then the mean between the closing bid and asked quotations for such shares on such exchange on such date and (b) the net asset value per share of the Fund's shares on a particular date shall be as determined by or on behalf of the Fund. 5. Open-market purchases provided for above may be made on any securities exchange where the Fund's shares are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as you shall determine. It is understood that, in any event, you shall have no liability in connection with any inability to purchase shares within 30 days after the initial date of such purchases as herein provided, or with the timing of any purchases effected. You shall have no responsibility as to the value of the Fund's shares acquired for my account. For the purposes of purchases in the open market, you may aggregate my purchases with those of other shareholders of the Fund for whom you similarly act as Plan Agent, and the average price (including brokerage commissions) of all shares purchased by you as Plan Agent shall be the price per share allocable to me in connection therewith. 6. You may hold my shares acquired together with the shares of other shareholders of the Fund acquired pursuant to similar authorizations, in noncertificated form in your name or that of your nominee. You will forward to me any proxy solicitation material and will vote any shares so held for me only in accordance with the proxy returned by me to the Fund. Upon my request, you will deliver to me, without charge, a certificate or certificates for the full shares. 7. You will confirm to me each acquisition made for my account as soon as practicable but not later than 60 days after the date thereof. Although I may from time to time have an undivided fractional interest (computed to four decimal places) in a share of the Fund, no certificate for a fractional share will be issued. However, dividends and distributions on fractional shares will be credited to my account. In the event of termination of my account under the Plan, you will adjust for any such undivided fractional interest in cash at the market value of the Fund's shares at the time of termination, less the pro rata expense of any sale required to make such an adjustment. 8. Any share dividends or split shares distributed by the Fund on shares held by you for me will be credited to my account. In the event that the Fund makes available to its shareholders rights to purchase additional shares or other securities, the shares held for me under the Plan will be added to other shares held by me in calculating the number of rights to be issued to me. 9. Your service fee for handling capital gains distributions or income dividends will be paid by the Fund. I will be charged a pro rata share of brokerage commissions on all open market purchases. 10. I may terminate my account under the Plan by notifying you in writing, by telephone or by visiting your Web site. Such termination will be effective immediately if my notice is received by you prior to any dividend or distribution record date; otherwise, such termination will be effective on the first trading day after the payment date for such dividend or distribution, with respect to any subsequent dividend or distribution. The Plan may be terminated by you or the Fund upon notice in writing mailed to me at least 90 days prior to any record date for the payment of any dividend or distribution by the Fund. Upon any termination, you will cause a certificate or certificates for the full shares held for me under the Plan and cash adjustment for any fraction to be delivered to me without charge. If I elect by notice to you in advance of such termination to have you sell part or all of my shares and remit the proceeds to me, you are authorized to deduct from the proceeds a $5.00 fee plus brokerage commission for this transaction. 11. After terminating my account under the Plan, I may reopen my account at any time by notifying you in writing, by telephone or by visiting your Web site. In such case, you will reopen my account in the same manner as set forth in Paragraph 1 above and will put the Plan into effect for me as of the first record date for a dividend or capital gains distribution after you receive authorization from me. 12. These Terms and Conditions may be amended or supplemented by you or the Fund at any time or times but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to me appropriate written notice at least 90 days prior to the effective date thereof. The amendment or supplement shall be deemed to be accepted by me unless, prior to the effective date thereof, you receive notice of the termination of my account under the Plan. Any such amendment may include an appointment by you in your place and stead of a successor Plan Agent under these Terms and Conditions, with full power and authority to perform all or any of the acts to be performed by the Plan Agent under these Terms and Conditions. Upon any such appointment of any Plan Agent for the purpose of receiving dividends and distributions, the Fund will be authorized to pay such successor Agent, for my account, all dividends and distributions payable on shares of the Fund held in my name or under the Plan for retention or application by such successor Plan Agent as provided in these Terms and Conditions. 13. You shall at all times act in good faith and agree to use your best efforts within reasonable limits to ensure the accuracy of all services performed under this Agreement and to comply with applicable law, but assume no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by your negligence, bad faith or willful misconduct or that of your employees. 14. This agreement shall be governed by the laws of the Commonwealth of Massachusetts. - -------------------------------------------------------------------------------- John Hancock Preferred Income Fund II Authorization to Withdraw from the Dividend Reinvestment Plan - -------------------------------------------------------------------------------- This form is for shareholders who hold shares in their own name (registered shareholders). If your shares are held at a brokerage firm, bank or other nominee and your distributions are being reinvested, you must contact that institution to withdraw from the Plan. [LOGO] John Hancock I hereby authorize Mellon Bank, N.A. to withdraw my account from the Dividend Reinvestment Plan. I elect to receive all future dividends and distributions paid by John Hancock Preferred Income Fund II in cash. - ------------------------------------------------------- Shareholder Signature Date - ------------------------------------------------------- Joint Shareholder Signature Date All joint owners must sign exactly as names appear on reverse side. You should not return this form if you wish to continue to have your dividends and distributions reinvested in additional shares of the John Hancock Preferred Income Fund II. This authorization form, when signed, should be mailed to: Mellon Bank, N.A. c/o Mellon Investor Services P. O. Box 3339 South Hackensack, NJ 07606-1939 P8DRPF 8/02 [LOGO] John Hancock I hereby authorize Mellon Bank, N.A. to withdraw my account from the Dividend Reinvestment Plan. I elect to receive all future dividends and distributions paid by John Hancock Preferred Income Fund II in cash. - ------------------------------------------------------- Shareholder Signature Date - ------------------------------------------------------- Joint Shareholder Signature Date All joint owners must sign exactly as names appear on reverse side. You should not return this form if you wish to continue to have your dividends and distributions reinvested in additional shares of the John Hancock Preferred Income Fund II. This authorization form, when signed, should be mailed to: Mellon Bank, N.A. c/o Mellon Investor Services P. O. Box 3339 South Hackensack, NJ 07606-1939 P8DRPF 8/02 [LOGO] John Hancock EX-99.G 5 exg.txt INVESTMENT MANAGEMENT CONTRACT JOHN HANCOCK PREFERRED INCOME FUND II 101 Huntington Avenue Boston, Massachusetts 02199 November 29, 2002 John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199 Investment Management Contract ------------------------------ Ladies and Gentlemen: John Hancock Preferred Income Fund II (the "Trust") has been organized as a business trust under the laws of The Commonwealth of Massachusetts to engage in the business of an investment company. The Board of Trustees of the Trust (the "Trustees") has selected John Hancock Advisers, LLC (the "Adviser") to provide overall investment advice and management for the Trust, and to provide certain other services, as more fully set forth below, and the Adviser is willing to provide such advice, management and services under the terms and conditions hereinafter set forth. Accordingly, the Adviser and the Trust agree as follows: 1. DELIVERY OF DOCUMENTS. The Trust has furnished the Adviser with copies, properly certified or otherwise authenticated, of each of the following: (a) Declaration of Trust dated September 12, 2002, as amended from time to time (the "Declaration of Trust"); (b) By-Laws of the Trust as in effect on the date hereof; (c) Resolutions of the Trustees selecting the Adviser as investment adviser for the Trust and approving the form of this Agreement; (d) The Trust's Code of Ethics. The Trust will furnish to the Adviser from time to time copies, properly certified or otherwise authenticated, of all amendments of or supplements to the foregoing, if any. 2. INVESTMENT AND MANAGEMENT SERVICES. The Adviser will use its best efforts to provide to the Trust continuing and suitable investment programs with respect to investments, consistent with the investment objectives, policies and restrictions of the Trust. In the performance of the Adviser's duties hereunder, subject always (x) to the provisions contained in the documents delivered to the Adviser pursuant to Section 1, as each of the same may from time to time be amended or supplemented, and (y) to the limitations set forth in the Trust's then-current Prospectus and Statement of Additional Information included in the registration statement of the Trust as in effect from time to time under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), the Adviser will, at its own expense: (a) furnish the Trust with advice and recommendations, consistent with the investment objectives, policies and restrictions of the Trust, with respect to the purchase, holding and disposition of portfolio securities, alone or in consultation with any subadviser or subadvisers appointed pursuant to this Agreement and subject to the provisions of any sub-investment management contract respecting the responsibilities of such subadviser or subadvisers; (b) advise the Trust in connection with policy decisions to be made by the Trustees or any committee thereof with respect to the Trust's investments and, as requested, furnish the Trust with research, economic and statistical data in connection with the Trust's investments and investment policies; (c) submit such reports relating to the valuation of the Trust's securities as the Trustees may reasonably request; (d) assist the Trust in any negotiations relating to the Trust's investments with issuers, investment banking firms, securities brokers or dealers and other institutions or investors; (e) consistent with the provisions of Section 7 of this Agreement, place orders for the purchase, sale or exchange of portfolio securities with brokers or dealers selected by the Adviser, PROVIDED that in connection with the placing of such orders and the selection of such brokers or dealers the Adviser shall seek to obtain execution and pricing within the policy guidelines determined by the Trustees; (f) from time to time or at any time requested by the Trustees, make reports to the Trust of the Adviser's performance of the foregoing services and furnish advice and recommendations with respect to other aspects of the business and affairs of the Trust; (g) obtain and evaluate such information relating to economies, industries, businesses, securities markets and securities as the Adviser may deem necessary or useful in the discharge of the Adviser's duties hereunder; 2 (h) give instructions to the Trust's custodian as to deliveries of securities to and from such custodian and transfer of payment of cash for the account of the Trust; and (i) appoint and employ one or more sub-advisers satisfactory to the Trust under sub-investment management agreements. Subject to the general supervision of the Board of Trustees of the Trust, the Adviser will provide certain administrative services to the Trust. The Adviser will, to the extent such services are not required to be performed by others pursuant to the investment advisory agreement, custodian agreements or transfer agency agreement, (i) provide supervision of all aspects of the Trust's operations; (ii) provide the Trust with personnel to perform such executive, administrative and clerical services as are reasonably necessary to provide effective administration of the Trust; (iii) arrange for, at the Trust's expense, (a) the preparation for the Trust of all required tax returns, (b) the preparation and submission of reports to existing shareholders and (c) the preparation of reports filed with the Securities and Exchange Commission and other regulatory authorities; (iv) maintain all of the Trust's records; and (v) provide the Trust with adequate office space and all necessary office equipment and services including telephone service, heat, utilities, stationery supplies and similar items. The Adviser will also provide to the Trust's Board of Trustees such periodic and special reports as the Board may reasonably request. 3. EXPENSES PAID BY THE ADVISER. The Adviser will pay: (a) the compensation and expenses of all officers and employees of the Trust; and (b) any other expenses incurred by the Adviser in connection with the performance of its duties hereunder. 4. EXPENSES OF THE TRUST NOT PAID BY THE ADVISER. The Adviser will not be required to pay any expenses which this Agreement does not expressly make payable by it. In particular, and without limiting the generality of the foregoing but subject to the provisions of Section 3, the Adviser will not be required to pay under this Agreement: (a) any and all expenses, taxes and governmental fees incurred by the Trust prior to the effective date of this Agreement; (b) without limiting the generality of the foregoing clause (a), the expenses of organizing the Trust (including without limitation, legal, accounting and auditing fees and expenses incurred in connection with the matters referred to in this clause (b)), of initially registering shares of the Trust under the Securities Act of 1933, as amended, and of qualifying the shares for sale under state securities laws for the initial offering and sale of shares; (c) the compensation and expenses of Trustees who are not interested persons (as used in this Agreement, such term shall have the meaning specified in the 1940 Act) of the Adviser and of independent advisers, independent contractors, consultants, managers and other unaffiliated agents employed by the Trust other than through the Adviser; 3 (d) legal, accounting, financial management, tax and auditing fees and expenses of the Trust (including an allocable portion of the cost of its employees rendering such services to the Trust); (e) the fees and disbursements of custodians and depositories of the Trust's assets, transfer agents, disbursing agents, plan agents and registrars; (f) taxes and governmental fees assessed against the Trust's assets and payable by the Trust; (g) the cost of preparing and mailing dividends, distributions, reports, notices and proxy materials to shareholders of the Trust; (h) brokers' commissions and underwriting fees; (i) the expense of periodic calculations of the net asset value of the shares of the Trust; and (j) insurance premiums on fidelity, errors and omissions and other coverages. 5. COMPENSATION OF THE ADVISER. For all services to be rendered and expenses paid or assumed by the Adviser as herein provided, the Adviser shall be entitled to a fee, paid daily, at an annual rate equal to 0.75% of the average daily managed asset value of the Trust. "Managed assets" means the total assets of the Trust (including any assets attributable to any leverage that may be outstanding) minus the sum of accrued liabilities (other than liabilities representing financial leverage). The liquidation preference of any preferred shares is not a liability. The "average daily managed assets" of the Trust shall be determined on the basis set forth in the Trust's Prospectus or otherwise consistent with the 1940 Act and the regulations promulgated thereunder. Notwithstanding the forgoing, the Adviser agrees that for the following calendar years, the Adviser will limit its fees under this Agreement to the following percentages of the Trust's average daily-managed assets: Year Effective Advisory Fee After Waiver Until November 28, 2007 0.55% November 29, 2007 until November 28, 2008 0.60% November 29, 2008 until November 28, 2009 0.65% November 29, 2009 until November 28, 2010 0.70% 4 In addition, the Adviser may agree not to impose all or a portion of its fee (in advance of the time its fee would otherwise accrue) and/or undertake to make any other payments or arrangements necessary to limit the Trust's expenses to any level the Adviser may specify. Any fee reduction or undertaking shall constitute a binding modification of this Agreement while it is in effect but may be discontinued or modified prospectively by the Adviser at any time. 6. OTHER ACTIVITIES OF THE ADVISER AND ITS AFFILIATES. Nothing herein contained shall prevent the Adviser or any affiliate or associate of the Adviser from engaging in any other business or from acting as investment adviser or investment manager for any other person or entity, whether or not having investment policies or portfolios similar to the Trust's; and it is specifically understood that officers, directors and employees of the Adviser and those of its parent company, John Hancock Financial Services, Inc., or other affiliates may continue to engage in providing portfolio management services and advice to other investment companies, whether or not registered, to other investment advisory clients of the Adviser or of its affiliates and to said affiliates themselves. The Adviser shall have no obligation to acquire with respect to the Trust a position in any investment which the Adviser, its officers, affiliates or employees may acquire for its or their own accounts or for the account of another client, if, in the sole discretion of the Adviser, it is not feasible or desirable to acquire a position in such investment on behalf of the Trust. Nothing herein contained shall prevent the Adviser from purchasing or recommending the purchase of a particular security for one or more funds or clients while other funds or clients may be selling the same security. 7. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or sales of portfolio securities for the account of the Trust, neither the Adviser nor any of its investment management subsidiaries, nor any of the Adviser's or such investment management subsidiaries' directors, officers or employees will act as principal or agent or receive any commission, except as may be permitted by the 1940 Act and rules and regulations promulgated thereunder. If any occasions shall arise in which the Adviser advises persons concerning the shares of the Trust, the Adviser will act solely on its own behalf and not in any way on behalf of the Trust. Nothing herein contained shall limit or restrict the Adviser or any of its officers, affiliates or employees from buying, selling or trading in any securities for its or their own account or accounts. 8. NO PARTNERSHIP OR JOINT VENTURE. Neither the Trust nor the Adviser are partners of or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on any of them. 9. NAME OF THE TRUST. The Trust may use the name "John Hancock" or any name or names derived from or similar to the names "John Hancock Advisers, Inc.", "John Hancock Life Insurance Company", or "John Hancock Financial Services, Inc." only for so long as this Agreement remains in effect. At such time as this Agreement shall no longer be in effect, the Trust will (to the extent that they lawfully can) cease to use such a name or any other name indicating that the Trust is advised by or otherwise connected with the Adviser. The Trust acknowledges that it has adopted its name through permission of John Hancock Life Insurance Company, a Massachusetts insurance company, and agrees that John Hancock Life Insurance Company reserves to itself and any successor to its business the right to grant the nonexclusive right to use the name "John Hancock" or any similar name or names to any other corporation or entity, including but not limited to any investment company of which John Hancock Life Insurance Company or any subsidiary or affiliate thereof shall be the investment adviser. 5 10. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. Any person, even though also employed by the Adviser, who may be or become an employee of and paid by the Trust shall be deemed, when acting within the scope of his employment by the Trust, to be acting in such employment solely for the Trust and not as the Adviser's employee or agent. 11. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in force until November 28, 2004, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a majority of the Trustees who are not interested persons of the Adviser or (other than as Board members) of the Trust, cast in person at a meeting called for the purpose of voting on such approval, and (b) either (i) the Trustees or (ii) a majority of the outstanding voting securities of the Trust. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the vote of a majority of the outstanding voting securities of the Trust, by the Trustees or by the Adviser. Termination of this Agreement shall not be deemed to terminate or otherwise invalidate any provisions of any contract between the Adviser and any other series of the Trust. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 11, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "assignment," "interested person" and "voting security") shall be applied. 12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of this Agreement shall be effective until approved by (a) the Trustees, including a majority of the Trustees who are not interested persons of the Adviser or (other than as Trustees) of the Trust, cast in person at a meeting called for the purpose of voting on such approval, and (b) a majority of the outstanding voting securities of the Trust, as defined in the 1940 Act. 13. GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of The Commonwealth of Massachusetts. 6 14. SEVERABILITY. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be deemed invalid or unenforceable in whole or in part. 15. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The Declaration of Trust has been filed with the Secretary of State of The Commonwealth of Massachusetts. The obligations of the Trust are not personally binding upon, nor shall resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Trust, but only upon the Trust and its property. The Trust shall not be liable for the obligations of any other series of the Trust and no other series shall be liable for the Trust's obligations hereunder. Yours very truly, JOHN HANCOCK PREFERRED INCOME FUND II By: ___________________________ Maureen R. Ford President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, LLC By: ___________________________ Susan S. Newton Vice President and Secretary EX-99.H 6 exh.txt UNDERWRITING AGREEMENT John Hancock Preferred Income Fund II [ ] Common Shares of Beneficial Interest No Par Value UNDERWRITING AGREEMENT November 25, 2002 UNDERWRITING AGREEMENT November 25, 2002 UBS Warburg LLC as Managing Representative 299 Park Avenue New York, New York 10171-0026 Ladies and Gentlemen: John Hancock Preferred Income Fund II, a voluntary association with transferable shares organized and existing under and by virtue of the laws of The Commonwealth of Massachusetts (commonly referred to as a Massachusetts business trust) (the "Fund"), proposes to issue and sell to the underwriters named in Schedule A annexed hereto (the "Underwriters") an aggregate of [ ] common shares of beneficial interest (the "Firm Shares"), no par value (the "Common Shares"), of the Fund. In addition, solely for the purpose of covering over-allotments, the Fund proposes to grant to the Underwriters the option to purchase from the Fund up to an additional [ ] Common Shares (the "Additional Shares"). The Firm Shares and the Additional Shares are hereinafter collectively sometimes referred to as the "Shares." The Shares are described in the Prospectus which is referred to below. The Fund has filed, in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively called the "Act"), and with the provisions of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (collectively called the "Investment Company Act"), with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form N-2 (File Nos. 333-99685 and 811-21202), including a prospectus and a statement of additional information, relating to the Shares. The Fund has furnished to you, for use by the Underwriters and by dealers, copies of one or more preliminary prospectuses (including a preliminary statement of additional information) (each thereof, including such preliminary statement of additional information, being herein called a "Preliminary Prospectus") relating to the Shares. Except where the context otherwise requires, the Registration Statement, as amended when it becomes effective (the "Effective Date"), including all documents filed as a part thereof or incorporated by reference therein, and including any information contained in a prospectus subsequently filed with the Commission pursuant to Rule 497 under the Act and deemed to be part of the Registration Statement at the time of effectiveness pursuant to Rule 430A under the Act is herein called the Registration Statement, and the prospectus (including the statement of additional information), in the form filed by the Fund with the Commission pursuant to Rule 497 under the Act or, if no such filing is required, the form of final prospectus (including the form of final statement of additional information) included in the "Registration Statement" at the time it became effective, is herein called the "Prospectus." In addition, the Fund has filed a Notification of Registration on Form N-8A (the "Notification") pursuant to Section 8 of the Investment Company Act. 2 John Hancock Advisers, LLC ("John Hancock Advisers" or the "Investment Adviser") will act as the Fund's investment adviser pursuant to an Investment Management Contract by and between the Fund and the Investment Adviser, dated as of November 29, 2002 (the "Investment Advisory Agreement"). The Bank of New York will act as the custodian (the "Custodian") of the Fund's cash and portfolio assets pursuant to a Custody Agreement, dated as of November 29, 2002 (the "Custody Agreement"). Mellon Investor Services, LLC will act as the Fund's transfer agent, registrar and dividend disbursing agent (the "Transfer Agent") pursuant to a transfer agency agreement, dated as of November 29, 2002 (the "Transfer Agency Agreement"). The Investment Adviser and UBS Warburg (the "Managing Representative") have entered into a Shareholder Servicing Agreement dated November 29, 2002 (the "Shareholder Servicing Agreement") and an Additional Compensation Agreement dated November 25, 2002 (the "Additional Compensation Agreement"). In addition, the Fund has adopted a dividend reinvestment plan (the "Dividend Reinvestment Plan") pursuant to which holders of Shares may elect to reinvest their dividends in additional Common Shares of the Fund. The Fund, the Investment Adviser and the Underwriters agree as follows: 1. Sale and Purchase. Upon the basis of the warranties and representations and subject to the terms and conditions herein set forth, the Fund agrees to sell to the respective Underwriters and each of the Underwriters, severally and not jointly, agrees to purchase from the Fund the aggregate number of Firm Shares set forth opposite the name of such Underwriter in Schedule A attached hereto in each case at a purchase price of $23.875 per Share. The Fund is advised that the Underwriters intend (i) to make a public offering of their respective portions of the Firm Shares as soon after the effective date of the Registration Statement as is advisable and (ii) initially to offer the Firm Shares upon the terms set forth in the Prospectus. The Underwriters may from time to time increase or decrease the public offering price after the initial public offering to such extent as they may determine. In addition, the Fund hereby grants to the several Underwriters the option to purchase, and upon the basis of the warranties and representations and subject to the terms and conditions herein set forth, the Underwriters shall have the right to purchase, severally and not jointly, from the Fund, ratably in accordance with the number of Firm Shares to be purchased by each of them, all or a portion of the Additional Shares as may be necessary to cover over-allotments made in connection with the offering of the Firm Shares, at the same purchase price per share to be paid by the Underwriters to the Fund for the Firm Shares. This option may be exercised by you on behalf of the several Underwriters at any time and from time to time on or before the forty-fifth day following the date hereof, by written notice to the Fund. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being 3 exercised, and the date and time when the Additional Shares are to be delivered (such date and time being herein referred to as the "Additional Time of Purchase"); provided, however, that the Additional Time of Purchase shall not be earlier than the Time of Purchase (as defined below) nor earlier than the second business day after the date on which the option shall have been exercised nor later than the tenth business day after the date on which the option shall have been exercised. The number of Additional Shares to be sold to each Underwriter shall be the number which bears the same proportion to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter on Schedule A hereto bears to the total number of Firm Shares (subject, in each case, to such adjustment as you may determine to eliminate fractional shares). 2. Payment and Delivery. Payment of the purchase price for the Firm Shares shall be made to the Fund by Federal Funds wire transfer, against delivery of the certificates for the Firm Shares to you through the facilities of the Depository Trust Company ("DTC") for the respective accounts of the Underwriters. Such payment and delivery shall be made at 10:00 A.M., New York City time on the third business day following the date of this Underwriting Agreement (unless another date or time shall be agreed to by you and the Fund). The time at which such payment and delivery are actually made is hereinafter sometimes called the Time of Purchase. Certificates for the Firm Shares shall be delivered to you in definitive form in such names and in such denominations as you shall specify on the second business day preceding the Time of Purchase. For the purpose of expediting the checking of the certificates for the Firm Shares by you, the Fund agrees to make such certificates available to you for such purpose at least one full business day preceding the Time of Purchase. Payment of the purchase price for the Additional Shares shall be made at the Additional Time of Purchase in the same manner and at the same office as the payment for the Firm Shares. Certificates for the Additional Shares shall be delivered to you in definitive form in such names and in such denominations as you shall specify no later than the second business day preceding the Additional Time of Purchase. For the purpose of expediting the checking of the certificates for the Additional Shares by you, the Fund agrees to make such certificates available to you for such purpose at least one full business day preceding the Additional Time of Purchase. The Time of Purchase and the Additional Time of Purchase are sometimes referred to herein as the "Closing Dates." 3. Representations and Warranties of the Fund and the Investment Adviser. Each of the Fund and the Investment Adviser jointly and severally represents and warrants to each Underwriter as follows: (a) On (A) the Effective Date and the date on which the Prospectus is first filed with the Commission pursuant to Rule 497(b), (h) or (j) under the Act, as the case may be, (B) the date on which any post-effective amendment to the Registration Statement (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which the distribution of the Shares is completed) became or becomes effective or any amendment or supplement to the Prospectus was or is filed with the Commission and (C) the Closing Dates, the Registration Statement, the Prospectus and any such amendment or supplement thereto and the Notification complied or will comply 4 in all material respects with the requirements of the Act and the Investment Company Act, as the case may be. On the Effective Date and on the date that any post-effective amendment to the Registration Statement (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which the distribution of the Shares is completed) became or becomes effective, neither the Registration Statement nor any such amendment did or will contain any untrue statement of a material fact or omit to state a material fact required to be stated in it or necessary to make the statements in it not misleading. At the Effective Date and, if applicable, the date the Prospectus or any amendment or supplement to the Prospectus was or is filed with the Commission and at the Closing Dates, the Prospectus did not or will not, as the case may be, contain any untrue statement of a material fact or omit to state a material fact required to be stated in it or necessary to make the statements in it, in light of the circumstances under which they were made, not misleading. The foregoing representations in this Section 3(a) do not apply to statements or omissions relating to the Underwriters made in reliance on and in conformity with information furnished in writing to the Fund by you expressly for use in the Registration Statement, the Prospectus, or any amendments or supplements thereto, as described in Section 9(f) hereof. (b) The Fund has been duly formed, is validly existing as a Massachusetts business trust, with full power and authority to conduct its business as described in the Registration Statement and Prospectus, and the Fund is duly licensed and qualified to do business and in good standing in each jurisdiction in which its ownership or leasing of property or its conducting of business requires such qualification, except where the failure to be so licensed and qualified, either alone or in the aggregate, would not result in a Material Adverse Effect (as defined below in Section 3(n)) and the Fund owns, possesses or has obtained and currently maintains all governmental licenses, permits, consents, orders, approvals and other authorizations, whether foreign or domestic, necessary to carry on its business as contemplated in the Prospectus, except such licenses, permits, consents, orders, approvals and other authorizations of the Fund to obtain, either alone or in the aggregate, would not result in a Material Adverse Effect. The Fund has no subsidiaries. 5 (c) The capitalization of the Fund is as set forth in the Registration Statement and the Prospectus. The Common Shares conform to the description of them in the Prospectus. All the outstanding Common Shares have been duly authorized and are validly issued, fully paid and, except to the extent set forth in the Prospectus, nonassessable. The Shares to be issued and delivered to and paid for by the Underwriters in accordance with this Underwriting Agreement against payment therefor as provided by this Underwriting Agreement have been duly authorized and when issued and delivered to the Underwriters will have been validly issued and will be fully paid and, except to the extent set forth in the Prospectus, nonassessable. No person is entitled to any preemptive or other similar rights with respect to the Shares. (d) The Fund is duly registered with the Commission under the Investment Company Act as a diversified, closed-end management investment company, and, subject to the filing of a final amendment to the Registration Statement, or any required filing under Rule 430A or Rule 497 under the Securities Act (the "Final Amendment"), if not already filed, all action under the Act and the Investment Company Act, as the case may be, necessary under the federal securities laws on the part of the Fund to make the public offering and consummate the sale of the Shares as provided in this Underwriting Agreement has or will have been taken by the Fund. (e) The Fund has full power and authority to enter into each of this Underwriting Agreement, the Investment Advisory Agreement, the Custody Agreement, the Transfer Agency Agreement and the Dividend Reinvestment Plan (collectively, the "Fund Agreements") and to perform all of the terms and provisions hereof and thereof to be carried out by it and (i) each Fund Agreement has been duly and validly authorized, executed and delivered by or on behalf of the Fund, (ii) each Fund Agreement does not violate in any material respect any of the applicable provisions of the Investment Company Act or the Investment Advisers Act of 1940, as amended, and the rules and regulations thereunder (collectively called the "Advisers Act"), as the case may be, and (iii) assuming due authorization, execution and delivery by the other parties thereto, each Fund Agreement constitutes the legal, valid and binding obligation of the Fund enforceable in accordance with its terms, (A) subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law) and (B) except as rights to indemnity thereunder may be limited by federal or state securities laws. (f) None of (i) the execution and delivery by the Fund of the Fund Agreements, (ii) the issue and sale by the Fund of the Shares as contemplated by this Underwriting Agreement and (iii) the performance by the Fund of its obligations under any of the Fund Agreements or consummation by the Fund of the other transactions contemplated by the Fund Agreements conflicts with 6 or will conflict with, or results or will result in a breach of, the Declaration of Trust or the By-laws of the Fund or any agreement or instrument to which the Fund is a party or by which the Fund is bound, or any law, rule or regulation, or order of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to the Fund, other than state securities or "blue sky" laws applicable in connection with the purchase and distribution of the Shares by the Underwriters pursuant to this Underwriting Agreement. (g) The Fund is not currently in breach of, or in default under, any written agreement or instrument to which it is a party or by which it or its property is bound or affected, except for such breaches or defaults that do not, either alone or in the aggregate, have a Material Adverse Effect. (h) No person has any right to the registration of any securities of the Fund because of the filing of the Registration Statement. (i) No consent, approval, authorization or order of any court or governmental agency or body or securities exchange or association, whether foreign or domestic, is required to be obtained by the Fund prior to the Closing Date for the consummation by the Fund of the transactions to be performed by the Fund or the performance by the Fund of all the terms and provisions to be performed by or on behalf of it in each case as contemplated in the Fund Agreements, except such as (i) have been obtained under the Act, the Investment Company Act or the Advisers Act, and (ii) may be required by the New York Stock Exchange or under state securities or "blue sky" laws, in connection with the purchase and distribution of the Shares by the Underwriters pursuant to this Underwriting Agreement. (j) The Shares are duly authorized for listing, subject to official notice of issuance, on the New York Stock Exchange and the Fund's Registration Statement on Form 8-A, under the Securities Exchange Act of 1934, as amended and the rules and regulations thereunder (the "Exchange Act"), has become effective. (k) Deloitte & Touche LLP, whose report appears in the Prospectus, are independent public accountants with respect to the Fund as required by the Act and the Investment Company Act. (l) The statement of assets and liabilities included in the Registration Statement and the Prospectus presents fairly in all material respects, in accordance with generally accepted accounting principles in the United States applied on a consistent basis, the financial position of the Fund as of the date indicated. 7 (m) The Fund will maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets through an asset reconciliation procedure or otherwise at reasonable intervals and appropriate action is taken with respect to any differences. (n) Since the date as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (i) there has been no material adverse change in the condition, financial or otherwise, business affairs or business of the Fund, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (ii) there have been no transactions entered into by the Fund other than those in the ordinary course of its business and (iii) there has been no dividend or distribution of any kind declared, paid or made on any class of its capital shares. (o) There is no action, suit or proceeding before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, foreign or domestic, now pending, or, to the knowledge of the Fund, threatened against or affecting the Fund, which (i) might result in any material adverse change in the condition, financial or otherwise, business affairs or business prospects of the Fund or might materially adversely affect the properties or assets of the Fund or (ii) is of a character required to be described in the Registration Statement or the Prospectus; and there are no contracts, franchises or other documents that are of a character required to be described in, or that are required to be filed as exhibits to, the Registration Statement that have not been described or filed as required. (p) Except for stabilization transactions conducted by the Managing Representative, and except for tender offers, Share repurchases and the issuance or purchase of Common Shares pursuant to the Dividend Reinvestment Plan effected following the date on which the distribution of the Shares is completed in accordance with the policies of the Fund as set forth in the Prospectus, the Fund has not taken and will not take, directly or indirectly, any action designed or which might be reasonably expected to cause or result in, or which will constitute, stabilization or manipulation of the price of the Common Shares in violation of applicable federal securities laws. (q) The Fund intends to direct the investment of the proceeds of the offering of the Shares in such a manner as to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). 8 (r) No advertising, sales literature or other promotional materials (excluding road show slides or road show tapes) were authorized or prepared by or on behalf of the Fund or the Investment Adviser or any representative thereof for use in connection with the public offering or sale of the Shares other than the definitive client brochure and the broker selling memo which were filed with the NASD on October 14, 2002 (collectively referred to as the "sales materials") and the Prospecting Letter filed with the NASD on October 14, 2002; the sales materials and any road show slides or road show tapes complied and comply in all material respects with the applicable requirements of the Act and the rules and interpretations of the NASD; and no broker kits, road show slides, road show tapes or sales materials authorized or prepared by the Fund or authorized or prepared on behalf of the Fund by the Investment Adviser or any representative thereof for use in connection with the public offering or sale of the Shares contained or contains any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. 4. Representations and Warranties of the Investment Adviser. The Investment Adviser represents to each Underwriter as follows: (a) The Investment Adviser has been duly formed, is validly existing as a limited liability company under the laws of Delaware with full power and authority to perform its obligations under this Agreement, the Shareholder Servicing Agreement, the Investment Advisory Agreement and the Additional Compensation Agreement, and the Investment Adviser is duly licensed and qualified to do business and in good standing in each jurisdiction in which it is required to be so qualified in order to perform its obligations under this Agreement, the Shareholder Servicing Agreement the Investment Advisory Agreement and the Additional Compensation Agreement; and the Investment Adviser owns, possesses or has obtained and currently maintains all governmental licenses, permits, consents, orders, approvals and other authorizations, whether foreign or domestic, necessary to perform its obligations under this Agreement, the Shareholder Servicing Agreement, the Investment Advisory Agreement and the Additional Compensation Agreement. (b) The Investment Adviser is (i) registered as an investment adviser under the Advisers Act and (ii) not prohibited by the Advisers Act or the Investment Company Act from acting as the investment adviser for the Fund as contemplated by the Investment Advisory Agreement, the Registration Statement and the Prospectus. 9 (c) The Investment Adviser has full power and authority to enter into each of this Underwriting Agreement, the Shareholder Servicing Agreement, the Investment Advisory Agreement and the Additional Compensation Agreement (collectively, this Underwriting Agreement, the Shareholder Servicing Agreement, the Investment Advisory Agreement and the Additional Compensation Agreement being referred to as the "Investment Adviser Agreements") and to carry out all the terms and provisions hereof and thereof to be carried out by it; and each Investment Adviser Agreement has been duly and validly authorized, executed and delivered by the Investment Adviser; none of the Investment Adviser Agreements violate any of the applicable provisions of the Investment Company Act or the Advisers Act; and assuming due authorization, execution and delivery by the other parties thereto, each Investment Adviser Agreement constitutes a legal, valid and binding obligation of the Investment Adviser, enforceable in accordance with its terms, (i) subject, as to enforcement, to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general equitable principles (regardless of whether enforcement is sought in a proceeding in equity or at law) and (ii) except as rights to indemnity thereunder may be limited by federal or state securities laws. (d) Neither (i) the execution and delivery by the Investment Adviser of any Investment Adviser Agreement nor (ii) the consummation by the Investment Adviser of the transactions contemplated by, or the performance of its obligations under any Investment Adviser Agreement conflicts or will conflict with, or results or will result in a breach of, the limited liability company agreement or other organizational documents of the Investment Adviser or any agreement or instrument to which the Investment Adviser is a party or by which the Investment Adviser is bound, or any law, rule or regulation, or order of any court, governmental instrumentality, securities exchange or association or arbitrator, whether foreign or domestic, applicable to the Investment Adviser, except in each case for such conflicts or breaches which do not, either alone or in the aggregate, have a material adverse effect upon the Investment Adviser's ability to perform its obligations under the Investment Adviser Agreements. (e) No consent, approval, authorization or order of any court, governmental agency or body or securities exchange or association, whether foreign or domestic, is required to be obtained by the Investment Adviser on or prior to the Closing Date for the consummation of the transactions contemplated in, or the performance by the Investment Adviser of its obligations under, any Investment Adviser Agreement, as the case may be, except such as (i) have been obtained under the Act, the Investment Company Act or the Advisers Act, and (ii) may be required by the New York Stock Exchange or under state securities or "blue sky" laws, in connection with the purchase and distribution of the Shares by the Underwriters pursuant to this Underwriting Agreement. 10 (f) The description of the Investment Adviser and its business, and the statements attributable to the Investment Adviser, in the Registration Statement and the Prospectus comply in all material respects with the requirements of the Act and the Investment Company Act and do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading (and, solely with respect to the Prospectus, in the light of the circumstances under which they were made). (g) There is no action, suit or proceeding before or by any court, commission, regulatory body, administrative agency or other governmental agency or body, foreign or domestic, now pending or, to the knowledge of the Investment Adviser, threatened against or affecting the Investment Adviser of a nature required to be disclosed in the Registration Statement or Prospectus. (h) Except for stabilization activities conducted by the Managing Representative and except for tender offers, Share repurchases and the issuance or purchase of Common Shares pursuant to the Dividend Reinvestment Plan effected following the date on which the distribution of the Shares is completed in accordance with the policies of the Fund as set forth in the Prospectus, the Investment Adviser has not taken and will not take, directly or indirectly, any action designed, or which might reasonably be expected to cause or result in, or which will constitute, stabilization or manipulation of the price of the Common Shares in violation of applicable federal securities laws. (i) The Investment Adviser has not made available any promotional materials intended for use only by qualified broker-dealers and registered representatives thereof by means of an Internet web site or similar electronic means. 5. Agreements of the Parties. (a) If the Registration Statement relating to the Shares has not yet become effective, the Fund will promptly file the Final Amendment, if not previously filed, with the Commission, and will use its best efforts to cause such Registration Statement to become effective and, as soon as the Fund is advised, will advise the Managing Representative when the Registration Statement or any amendment thereto has become effective. If the Registration Statement has become effective and the Prospectus contained therein omits certain information at the time of effectiveness pursuant to Rule 430A under the Act, the Fund will file a 430A Prospectus pursuant to Rule 497(h) under the Act as promptly as practicable, but no later than the second business day following the earlier of the date of the determination of the offering price of the Shares or the date the Prospectus is first used after the Effective Date. If the Registration Statement has become effective and the Prospectus contained therein does not so 11 omit such information, the Fund will file a Prospectus pursuant to Rule 497(b) or (j) under the Act as promptly as practicable, but no later than the fifth business day following the date of the later of the Effective Date or the commencement of the public offering of the Shares after the Effective Date. In either case, the Fund will provide you satisfactory evidence of the filing. The Fund will not file with the Commission any Prospectus or any other amendment (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which distribution of the Shares is completed) or supplement to the Registration Statement or the Prospectus unless a copy has first been submitted to the Managing Representative a reasonable time before its filing and the Managing Representative has not objected to it in writing within a reasonable time after receiving the copy. (b) For the period of three years from the date hereof, the Fund will advise the Managing Representative promptly (1) of the issuance by the Commission of any order in respect of the Fund or the Investment Adviser or which relates to the offering of the Shares, (2) of the initiation or threatening of any proceedings for, or receipt by the Fund of any notice with respect to, the suspension of the qualification of the Shares for sale in any jurisdiction or the issuance of any order by the Commission suspending the effectiveness of the Registration Statement, (3) of receipt by the Fund, or any representative or attorney of the Fund, of any other communication from the Commission relating to the offering of the Shares, the Registration Statement, the Notification, any Preliminary Prospectus, the Prospectus or to the transactions contemplated by this Underwriting Agreement and (4) the issuance by any court, regulatory body, administrative agency or other governmental agency or body, whether foreign or domestic, of any order, ruling or decree, or the threat to initiate any proceedings with respect thereto, regarding the offering of the Shares by the Fund. The Fund will make every reasonable effort to prevent the issuance of any order suspending the effectiveness of the Registration Statement and, if any such order is issued, to obtain its lifting as soon as possible. (c) If not delivered prior to the date of this Underwriting Agreement, the Fund will deliver to the Managing Representative, without charge, a signed copy of the Registration Statement and the Notification and of any amendments (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which the distribution of the Shares is completed) to either the Registration Statement or the Notification (including all exhibits filed with any such document) and as many conformed copies of the Registration Statement and any amendments thereto (except any post-effective amendment which is filed with the Commission after the later of (x) one year from the date of this Underwriting Agreement or (y) the date on which the distribution of the Shares is completed) (excluding exhibits) as the Managing Representative may reasonably request. 12 (d) During such period as a prospectus is required by law to be delivered by an underwriter or a dealer, the Fund will deliver, without charge, to you, the Underwriters and any dealers, at such office or offices as you may designate, as many copies of the Prospectus as you may reasonably request, and, if any event occurs during such period as a result of which it is necessary to amend or supplement the Prospectus, in order to make the statements therein, in light of the circumstances existing when such Prospectus is delivered to a purchaser of Shares, not misleading in any material respect, or if during such period it is necessary to amend or supplement the Prospectus to comply with the Act or the Investment Company Act, the Fund promptly will prepare, submit to the Managing Representative, file with the Commission and deliver, without charge, to the Underwriters and to dealers (whose names and addresses the Managing Representative will furnish to the Fund) to whom Shares may have been sold by the Underwriters, and to other dealers on request, amendments or supplements to the Prospectus so that the statements in such Prospectus, as so amended or supplemented, will not, in light of the circumstances existing when such Prospectus is delivered to a purchaser, be misleading in any material respect and will comply with the Act and the Investment Company Act. Delivery by the Underwriters of any such amendments or supplements to the Prospectus will not constitute a waiver of any of the conditions in Section 6 hereof. (e) The Fund will make generally available to holders of the Fund's securities, as soon as practicable but in no event later than the last day of the 18th full calendar month following the calendar quarter in which the Effective Date falls, an earnings statement, if applicable, satisfying the provisions of Section 11(a) of the Act and, at the option of the Fund, Rule 158 under the Act. (f) The Fund will take such actions as the Managing Representative reasonably requests in order to qualify the Shares for offer and sale under the securities or "blue sky" laws of such jurisdictions as the Managing Representative reasonably designates; provided that the Fund shall not be required in connection therewith or as a condition thereof to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction. 13 (g) If the transactions contemplated by this Underwriting Agreement are consummated, the Fund shall pay all costs and expenses incident to the performance of the obligations of the Fund under this Underwriting Agreement (to the extent such expenses do not, in the aggregate, exceed $0.05 per Share), including but not limited to costs and expenses of or relating to (1) the preparation, printing and filing of the Registration Statement and exhibits to it, each Preliminary Prospectus, the Prospectus and all amendments and supplements thereto, (2) the issuance of the Shares and the preparation and delivery of certificates for the Shares, (3) the registration or qualification of the Shares for offer and sale under the securities or "blue sky" laws of the jurisdictions referred to in the foregoing paragraph, including the fees and disbursements of counsel for the Underwriters in that connection, and the preparation and printing of any preliminary and supplemental "blue sky" memoranda, (4) the furnishing (including costs of design, production, shipping and mailing) to the Underwriters and dealers of copies of each Preliminary Prospectus relating to the Shares, the sales materials, the Prospectus, and all amendments or supplements to the Prospectus, and of the other documents required by this Section to be so furnished, (5) the filing requirements of the NASD, in connection with its review of the financing, including filing fees and the fees, disbursements and other charges of counsel for the Underwriters in that connection, (6) all transfer taxes, if any, with respect to the sale and delivery of the Shares to the Underwriters, (7) the listing of the Shares on the New York Stock Exchange, and (8) the transfer agent for the Shares. To the extent the foregoing costs and expenses incident to the performance of the obligations of the Fund under this Underwriting Agreement exceed, in the aggregate, $0.05 per Share, John Hancock Advisers or an affiliate will pay all such excess costs and expenses. (h) If the transactions contemplated by this Underwriting Agreement are not consummated, except as otherwise provided herein, no party will be under any liability to any other party, except that (i) if this Underwriting Agreement is terminated by (A) the Fund or the Investment Adviser pursuant to any of the provisions hereof (otherwise than pursuant to Section 8 hereof) or (B) by you or the Underwriters because of any inability, failure or refusal on the part of the Fund or the Investment Adviser to comply with any material terms or because any of the conditions in Section 6 are not satisfied, John Hancock Advisers or an affiliate and the Fund, jointly and severally, will reimburse the Underwriters for all out-of-pocket expenses (including the reasonable fees, disbursements and other charges of their counsel) reasonably incurred by them in connection with the proposed purchase and sale of the Shares and (ii) no Underwriter who has failed or refused to purchase the Shares agreed to be purchased by it under this Underwriting Agreement, in breach of its obligations pursuant to this Underwriting Agreement, will be relieved of liability to the Fund and the Investment Adviser and the other Underwriters for damages occasioned by its default. 14 (i) Without the prior written consent of the Managing Representative, the Fund will not offer, sell or register with the Commission, or announce an offering of, any equity securities of the Fund, within 180 days after the Effective Date, except for the Shares as described in the Prospectus and any issuances of Common Shares pursuant to the Dividend Reinvestment Plan and except in connection with any offering of preferred shares of beneficial interest as contemplated by the Prospectus. (j) The Fund will use its best efforts to list the Shares on the New York Stock Exchange and comply with the rules and regulations of such exchange. (k) The Fund will direct the investment of the net proceeds of the offering of the Shares in such a manner as to comply with the investment objective and policies of the Fund as described in the Prospectus. 6. Conditions of the Underwriters' Obligations. The obligations of the Underwriters to purchase the Shares are subject to the accuracy on the date of this Underwriting Agreement, and on each of the Closing Dates, of the representations of the Fund and the Investment Adviser in this Underwriting Agreement, to the accuracy and completeness of all statements made by the Fund, the Investment Adviser or any of their respective officers in any certificate delivered to the Managing Representative or its counsel pursuant to this Underwriting Agreement, to performance by the Fund and the Investment Adviser of their respective obligations under this Underwriting Agreement and to each of the following additional conditions: (a) The Registration Statement must have become effective by 5:30 p.m., New York City time, on the date of this Underwriting Agreement or such later date and time as the Managing Representative consents to in writing. The Prospectus must have been filed in accordance with Rule 497(b), (h) or (j), as the case may be, under the Act. (b) No order suspending the effectiveness of the Registration Statement may be in effect and no proceedings for such purpose may be pending before or, to the knowledge of counsel to the Underwriters, threatened by the Commission, and any requests for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) must be complied with or waived to the reasonable satisfaction of the Managing Representative. (c) Since the dates as of which information is given in the Registration Statement and the Prospectus, (i) there must not have been any material adverse change in the number of outstanding Common Shares or liabilities of the Fund except as set forth in or contemplated by the Prospectus (provided that a change in the Fund's net asset value, liabilities or portfolio securities arising in the course of its normal investment operations shall not be deemed to be a material adverse change); (ii) there must not have been any material adverse change in the general affairs, prospects, management, business, financial condition or results of operations of the Fund or the Investment Adviser whether or not arising from transactions in the ordinary course of business as set forth in or contemplated by the Prospectus (provided that a change in the Fund's net asset value, liabilities or portfolio securities arising in the course of its 15 normal investment operations shall not be deemed to be a material adverse change); (iii) the Fund must not have sustained any material interference with its business from any court or from legislative or other governmental action, order or decree, whether foreign or domestic, not described in the Registration Statement and Prospectus; and (iv) there must not have occurred any event that makes untrue or incorrect in any material respect any statement or information contained in the Registration Statement or Prospectus or that is not reflected in the Registration Statement or Prospectus but should be reflected therein in order to make the statements or information therein (in the case of the Prospectus, in light of the circumstances in which they were made) not misleading in any material respect; if, in the judgment of the Managing Representative, any such development referred to in clause (i), (ii), (iii) or (iv) of this paragraph (c) makes it impracticable or inadvisable to consummate the sale and delivery of the Shares pursuant to this Underwriting Agreement by the Underwriters, at the initial public offering price of the Shares. (d) The Managing Representative must have received on each Closing Date a certificate, dated such date, of the President or a Vice-President and the chief financial or accounting officer of each of the Fund and the Investment Adviser certifying in their capacity as such officers that (i) the signers have examined the Registration Statement, the Prospectus, and this Underwriting Agreement, (ii) the representations of the Fund (with respect to the certificates from such Fund officers) and the representations of the Investment Adviser (with respect to the certificates from such officers of the Investment Adviser) in this Underwriting Agreement are accurate on and as of the date of the certificate, (iii) there has not been any material adverse change in the general affairs, prospects, management, business, financial condition or results of operations of the Fund (with respect to the certificates from such Fund officers) or the Investment Adviser (with respect to the certificates from such officers of the Investment Adviser), which change would materially and adversely affect the ability of the Fund or the Investment Adviser, as the case may be, to fulfill its obligations under this Underwriting Agreement or the Investment Advisory Agreement, whether or not arising from transactions in the ordinary course of business, (iv) with respect to the Fund only, no order 16 suspending the effectiveness of the Registration Statement, or prohibiting the sale of any of the Shares has been issued and no proceedings for any such purpose are pending before or threatened by the Commission or any other regulatory body, whether foreign or domestic, (v) no order having a material adverse effect on the ability of the Investment Adviser to fulfill its obligations under this Underwriting Agreement, the Shareholder Servicing Agreement, the Investment Advisory Agreement or the Additional Compensation Agreement, as the case may be, has been issued and no proceedings for any such purpose are pending before or threatened by the Commission or any other regulatory body, whether foreign or domestic, and (vi) each of the Fund (with respect to the certificates from such Fund officers) and the Investment Adviser (with respect to the certificates from such officers of the Investment Adviser) has performed all of its respective agreements that this Underwriting Agreement requires it to perform by such Closing Date (to the extent not waived in writing by the Managing Representative). (e) You must receive on each Closing Date the opinions dated such Closing Date substantially in the form of Schedules B and C to this Underwriting Agreement from the counsel identified in each such Schedules. (f) You must receive on each Closing Date from Skadden, Arps, Slate, Meagher & Flom LLP or its affiliated entities an opinion dated such Closing Date with respect to the Fund, the Shares, the Registration Statement and the Prospectus, this Underwriting Agreement and the form and sufficiency of all proceedings taken in connection with the sale and delivery of the Shares. Such opinion and proceedings shall fulfill the requirements of this Section 6(f) only if such opinion and proceedings are satisfactory in all respects to the Managing Representative. The Fund and the Investment Adviser must have furnished to such counsel such documents as counsel may reasonably request for the purpose of enabling them to render such opinion. (g) The Managing Representative must receive on the date this Underwriting Agreement is signed and delivered by you a signed letter, dated such date, substantially in the form of Schedule D to this Underwriting Agreement from the firm of accountants designated in such Schedule. The Managing Representative also must receive on each Closing Date a signed letter from such accountants, dated as of such Closing Date, confirming on the basis of a review in accordance with the procedures set forth in their earlier letter that nothing has come to their attention during the period from a date not more than five business days before the date of this Underwriting Agreement, specified in the letter, to a date not more than five business days before such Closing Date, that would require any change in their letter referred to in the foregoing sentence. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Underwriting Agreement will comply only if they are in form and scope reasonably satisfactory to counsel for the Underwriters, provided that any such documents, forms of which are annexed hereto, shall be deemed satisfactory to such counsel if substantially in such form. 17 7. Termination. This Underwriting Agreement may be terminated by the Managing Representative by notifying the Fund at any time: (a) before the later of the effectiveness of the Registration Statement and the time when any of the Shares are first generally offered pursuant to this Underwriting Agreement by the Managing Representative to dealers by letter or telegram; (b) at or before any Closing Date if, in the sole judgment of the Managing Representative, payment for and delivery of any Shares is rendered impracticable or inadvisable because (i) trading in the equity securities of the Fund is suspended by the Commission or by the principal exchange that lists the Shares, (ii) trading in securities generally on the New York Stock Exchange or the Nasdaq Stock Market shall have been suspended or limited or minimum or maximum prices shall have been generally established on such exchange or over-the-counter market, (iii) additional material governmental restrictions, not in force on the date of this Underwriting Agreement, have been imposed upon trading in securities or trading has been suspended on any U.S. securities exchange, (iv) a general banking moratorium has been established by U.S. federal or New York authorities or (v) any material adverse change in the financial or securities markets in the United States or in political, financial or economic conditions in the United States or any outbreak or material escalation of hostilities or declaration by the United States of a national emergency or war or other calamity or crisis shall have occurred the effect of any of which is such as to make it, in the sole judgment of the Managing Representative, impracticable or inadvisable to market the Shares on the terms and in the manner contemplated by the Prospectus; or (c) at or before any Closing Date, if any of the conditions specified in Section 6 have not been fulfilled when and as required by this Underwriting Agreement. 8. Substitution of Underwriters. If one or more of the Underwriters fails (other than for a reason sufficient to justify the termination of this Underwriting Agreement) to purchase on any Closing Date the Shares agreed to be purchased on such Closing Date by such Underwriter or Underwriters, the Managing Representative may find one or more substitute underwriters to purchase such Shares or make such other arrangements as the Managing Representative deems advisable, or one or more of the remaining Underwriters may agree to purchase such Shares in such proportions as may be approved by the Managing Representative, in each case upon the terms set forth in this Underwriting Agreement. If no such arrangements have been made within 36 hours after such Closing Date, and (a) the number of Shares to be purchased by the defaulting Underwriters on such Closing Date does not exceed 10% of the Shares that the Underwriters are obligated to purchase on such Closing Date, each of the nondefaulting Underwriters will be obligated to purchase such Shares on the terms set forth in this Underwriting Agreement in proportion to their respective obligations under this Underwriting Agreement, or 18 (b) the number of Shares to be purchased by the defaulting Underwriters on such Closing Date exceeds 10% of the Shares to be purchased by all the Underwriters on such Closing Date, the Fund will be entitled to an additional period of 24 hours within which to find one or more substitute underwriters reasonably satisfactory to the Managing Representative to purchase such Shares on the terms set forth in this Underwriting Agreement. In any such case, either the Managing Representative or the Fund will have the right to postpone the applicable Closing Date for not more than five business days in order that necessary changes and arrangements (including any necessary amendments or supplements to the Registration Statement or the Prospectus) may be effected by the Managing Representative and the Fund. If the number of Shares to be purchased on such Closing Date by such defaulting Underwriter or Underwriters exceeds 10% of the Shares that the Underwriters are obligated to purchase on such Closing Date, and none of the nondefaulting Underwriters or the Fund makes arrangements pursuant to this Section within the period stated for the purchase of the Shares that the defaulting Underwriters agreed to purchase, this Underwriting Agreement will terminate without liability on the part of any nondefaulting Underwriter, the Fund or the Investment Adviser, except as provided in Sections 6(h) and 9 hereof. This Section will not affect the liability of any defaulting Underwriter to the Fund or the nondefaulting Underwriters arising out of such default. A substitute underwriter will become a Underwriter for all purposes of this Underwriting Agreement. 9. Indemnity and Contribution. (a) Each of the Fund and the Investment Adviser, jointly and severally, agrees to indemnify, defend and hold harmless each Underwriter, its partners, directors and officers, and any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or any such person may incur under the Act, the Exchange Act, the Investment Company Act, the Advisers Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Fund) or in a Prospectus (the term "Prospectus" for the purpose of this Section 9 being deemed to include any Preliminary Prospectus, the sales materials prepared or authorized by the Fund, the Prospectus and the Prospectus as amended or supplemented by the Fund), or arises out of or is based upon any omission or alleged 19 omission to state a material fact required to be stated in either such Registration Statement or Prospectus or necessary to make the statements made therein not misleading, except insofar as any such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by or on behalf of any Underwriter through you to the Fund or the Investment Adviser expressly for use with reference to such Underwriter in such Registration Statement or such Prospectus or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in such Registration Statement or such Prospectus or necessary to make such information not misleading, provided, however, that the indemnity agreement contained in this subsection (a) with respect to any Preliminary Prospectus or amended Preliminary Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) from whom the person asserting any such loss, damage, expense, liability or claim purchased the Shares which is the subject thereof if the Prospectus corrected any such alleged untrue statement or omission and if such Underwriter failed to send or give a copy of the Prospectus to such person at or prior to the written confirmation of the sale of such Shares to such person, unless the failure is the result of noncompliance by the Fund with Section 5(d) hereof. If any action, suit or proceeding (together, a "Proceeding") is brought against an Underwriter or any such person in respect of which indemnity may be sought against the Fund or the Investment Adviser pursuant to the foregoing paragraph, such Underwriter or such person shall promptly notify the Fund or the Investment Adviser, as the case may be, in writing of the institution of such Proceeding and the Fund or the Investment Adviser shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify the Fund or the Investment Adviser shall not relieve the Fund or the Investment Adviser from any liability which the Fund or the Investment Adviser may have to any Underwriter or any such person or otherwise and, unless only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party. Such Underwriter or such person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter or of such person unless the employment of such counsel shall have been authorized in writing by the Fund or the Investment Adviser, as the case may be, in connection with the defense of such Proceeding or the Fund or the Investment Adviser shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are 20 different from, additional to or in conflict with those available to the Fund or the Investment Adviser (in which case the Fund or the Investment Adviser shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the Fund or the Investment Adviser and paid as incurred (it being understood, however, that the Fund or the Investment Adviser shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding). None of the Fund or the Investment Adviser shall be liable for any settlement of any Proceeding effected without its written consent but if settled with the written consent of the Fund or the Investment Adviser, the Fund or the Investment Adviser, as the case may be, agrees to indemnify and hold harmless any Underwriter and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days' prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party. (b) Each Underwriter severally agrees to indemnify, defend and hold harmless the Fund and the Investment Adviser, its directors and officers, and any person who controls the Fund or the Investment Adviser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, the Fund or the Investment Adviser or any such person may incur under the Act, the Exchange Act, the Investment Company Act, the Advisers Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is 21 based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by or on behalf of such Underwriter through you to the Fund or the Investment Adviser expressly for use with reference to such Underwriter in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Fund) or in a Prospectus, or arises out of or is based upon any omission or alleged omission to state a material fact in connection with such information required to be stated in such Registration Statement or such Prospectus or necessary to make such information not misleading. If any Proceeding is brought against the Fund, the Investment Adviser, or any such person in respect of which indemnity may be sought against any Underwriter pursuant to the foregoing paragraph, the Fund or the Investment Adviser or such person shall promptly notify such Underwriter in writing of the institution of such Proceeding and such Underwriter shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify such Underwriter shall not relieve such Underwriter from any liability which such Underwriter may have to the Fund, the Investment Adviser, or any such person or otherwise. The Fund, the Investment Adviser, or such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Fund, the Investment Adviser, or such person, as the case may be, unless the employment of such counsel shall have been authorized in writing by such Underwriter in connection with the defense of such Proceeding or such Underwriter shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to or in conflict with those available to such Underwriter (in which case such Underwriter shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties, but such Underwriter may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Underwriter), in any of which events such fees and expenses shall be borne by such Underwriter and paid as incurred (it being understood, however, that such Underwriter shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding). No Underwriter shall be liable for any settlement of any such Proceeding effected without the written consent of such Underwriter but if 22 settled with the written consent of such Underwriter, such Underwriter agrees to indemnify and hold harmless the Fund or the Investment Adviser and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days' prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding. (c) If the indemnification provided for in this Section 9 is unavailable to an indemnified party under subsections (a) and (b) of this Section 9 in respect of any losses, damages, expenses, liabilities or claims referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, damages, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Fund and the Investment Adviser on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Fund and the Investment Adviser on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such losses, damages, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Fund or the Investment Adviser on the one hand and the Underwriters on the other shall be deemed to be in the same respective proportions as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Fund and the total underwriting discounts and commissions received by the Underwriters, bear to the aggregate public offering price of the Shares. The relative fault of the Fund and the 23 Investment Adviser on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Fund or the Investment Adviser or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, damages, expenses, liabilities and claims referred to in this subsection shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating, preparing to defend or defending any Proceeding. (d) The Fund and the Investment Adviser and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in subsection (c) above. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the fees and commissions received by such Underwriter. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several in proportion to their respective underwriting commitments and not joint. (e) The indemnity and contribution agreements contained in this Section 9 and the covenants, warranties and representations of the Fund contained in this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of any Underwriter, its partners, directors or officers or any person (including each partner, officer or director of such person) who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of the Fund, the Investment Adviser, its directors or officers or any person who controls the Fund, the Investment Adviser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or the issuance and delivery of the Shares. The Fund or the Investment Adviser and each Underwriter agree promptly to notify each other of the commencement of any Proceeding against it and, in the case of the Fund, the Investment Adviser, against any of the Fund's, the Investment Adviser's officers or directors in connection with the issuance and sale of the Shares, or in connection with the Registration Statement or Prospectus. (f) The Fund and the Investment Adviser each acknowledge that the statements with respect to (1) the public offering of the Shares as set forth on the cover page of and (2) the statements relating to stabilization, to selling concessions and reallowances of selling concessions and with respect to discretionary accounts under the caption "Underwriting" in the Prospectus constitute the only information furnished in writing to the Fund by the Managing Representative on behalf of the Underwriters expressly for use in such document. The Underwriters severally confirm that these statements are correct in all material respects and were so furnished by or on behalf of the Underwriters severally for use in the Prospectus. 24 (g) Notwithstanding any other provisions in this Section 9, no party shall be entitled to indemnification or contribution under this Underwriting Agreement against any loss, claim, liability, expense or damage arising by reason of such person's willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of its duties hereunder. 10. Notices. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram and, if to the Underwriters, shall be sufficient in all respects if delivered or sent to UBS Warburg LLC, 299 Park Avenue, New York, NY 10171-0026, Attention: Syndicate Department and, if to the Fund or the Investment Adviser, shall be sufficient in all respects if delivered or sent to the Fund or the Investment Adviser, as the case may be, at the offices of the Fund or the Investment Adviser at 101 Huntington Avenue, Boston, MA 02199-7603, Attention: Susan S. Newton, Senior Vice President and General Counsel. 11. Governing Law; Construction. This Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement ("Claim"), directly or indirectly, shall be governed by, and construed in accordance with, the laws of the State of New York. The Section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement. 12. Submission to Jurisdiction. Except as set forth below, no Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have jurisdiction over the adjudication of such matters, and the Fund consents to the jurisdiction of such courts and personal service with respect thereto. The Fund hereby consents to personal jurisdiction, service and venue in any court in which any Claim arising out of or in any way relating to this Agreement is brought by any third party against UBS Warburg LLC or any indemnified party. Each of UBS Warburg LLC, the Fund (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Investment Adviser (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) waives all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Agreement. Each of the Fund and the Investment Adviser agrees that a final judgment in any such action, proceeding or counterclaim brought in any such court may be enforced in any other courts in the jurisdiction of which the Fund or the Investment Adviser, as the case may be, is or may be subject, by suit upon such judgment. 25 13. Parties at Interest. The Agreement herein set forth has been and is made solely for the benefit of the Underwriters and the Fund and to the extent provided in Section 9 hereof the controlling persons, directors and officers referred to in such section, and their respective successors, assigns, heirs, personal representatives and executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Agreement. 14. Counterparts. This Agreement may be signed by the parties in one or more counterparts which together shall constitute one and the same agreement among the parties. 15. Successors and Assigns. This Agreement shall be binding upon the Underwriters, the Fund or the Investment Adviser, and any successor or assign of any substantial portion of the Fund's, the Investment Adviser's, or any of the Underwriters' respective businesses and/or assets. 16. Disclaimer of Liability of Trustees and Beneficiaries. A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of The Commonwealth of Massachusetts, and notice hereby is given that this Underwriting Agreement is executed on behalf of the Trustees of the Fund as Trustees and not individually and that the obligations or arising out of this Underwriting Agreement are not binding upon any of the Trustees or beneficiaries individually but are binding only upon the assets and properties of the Fund. 26 If the foregoing correctly sets forth the understanding among the Fund and the Underwriters, please so indicate in the space provided below for the purpose, whereupon this letter and your acceptance shall constitute a binding agreement among the Fund, the Investment Adviser and the Underwriters, severally. Very truly yours, JOHN HANCOCK PREFERRED INCOME FUND II -------------------------- By: Maureen R. Ford Title: Chairman, President and Chief Executive Officer JOHN HANCOCK ADVISERS, LLC -------------------------- By: Maureen R. Ford Title: Chairman, President and Chief Executive Officer Accepted and agreed to as of the date first above written, on behalf of themselves and the other several Underwriters named in Schedule A UBS WARBURG LLC By: UBS WARBURG LLC - -------------------------- By: Oscar Junquera Title: Managing Director - -------------------------- By: Todd A. Reit Title: Executive Director 27 28 SCHEDULE A Number of Shares Name to be Purchased - ---- --------------- UBS Warburg LLC Total..................................................................... SCHEDULE B FORM OF OPINION OF HALE & DORR REGARDING THE FUND November , 2002 UBS Warburg LLC Merrill Lynch, Pierce, Fenner & Smith, Incorporated As Representatives of the Several Underwriters c/o UBS Warburg LLC 299 Park Avenue New York, New York 10171-0026 Re: John Hancock Preferred Income Fund II Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 6(e) of the Underwriting Agreement, dated as of November 25, 2002 (the "Underwriting Agreement"), among you, as Representatives of the several Underwriters, John Hancock Advisers, LLC, a Delaware limited liability company (the "Adviser"), and John Hancock Preferred Income Fund II, a Massachusetts business trust (the "Trust"). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to them in the Underwriting Agreement. We have acted as counsel for the Trust and the Adviser in connection with the sale to the Underwriters by the Trust of ________ Common Shares of beneficial interest, no par value per share, of the Trust (collectively, the "Shares") pursuant to the Section 1 of the Underwriting Agreement. As such counsel, we have assisted in the preparation and filing with the Securities and Exchange Commission (the "Commission") of the Trust's Registration Statement on Form N-2 dated June 27, 2002 (File No. 333-99685 and 811-21202), and amendments No.1 and No. 2 thereto, which Registration Statement became effective on November __, 2002 (the "Effective Date"). Such Registration Statement, in the form in which it became effective, is referred to herein as the "Registration Statement," and the prospectus dated November __, 2002 and statement of additional information dated November __, 2002 included therein, as filed pursuant to Rule 497 of the Securities Act of 1933, as amended (the "Securities Act"), on November __, 2002, are referred to herein as the "Prospectus" and the "Statement of Additional Information." We have examined and relied upon the Agreement and Declaration of Trust and By-laws of the Trust, each as amended to date, records of meetings or written actions of shareholders and of the Board of Trustees of the Trust, trust proceedings of the Trust in connection with the authorization and issuance of the Shares, the Registration Statement, the Prospectus, the Statement of Additional Information, the Underwriting Agreement, certificates of representatives of the Trust, certificates of public officials and such other documents as we have deemed necessary as a basis for the opinions hereinafter expressed. We have assumed that all corporate or trust records of the Trust and the Adviser and stock books of the Trust and are complete and accurate. Insofar as this opinion relates to factual matters, information with respect to which is in the possession of the Trust or the Adviser, we have relied, with your permission, upon certificates, statements and representations of officers and other representatives of the Trust and the Adviser, representations made in the Underwriting Agreement and statements contained in the Registration Statement. We have not attempted to verify independently such facts, although nothing has come to our attention which has caused us to question the accuracy of such certificates, statements or representations. In our examination of the documents referred to above, we have assumed the genuineness of all signatures, the legal capacity of each individual signing such documents, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, and the authenticity of the originals of such documents. Any reference to "our knowledge" or "best of our knowledge" or to any matters "known to us," "of which we are aware" or "coming to our attention" or any variation of any of the foregoing, shall mean the conscious awareness, as to the existence or absence of any facts which would contradict the opinions and statements so expressed, of the attorneys of this firm who have rendered substantive attention to the transaction to which this opinion relates. Other than as expressly set forth below, we have not undertaken, for purposes of this opinion, any independent investigation to determine the existence or absence of such facts, and no inference as to our knowledge of the existence or absence of such facts should be drawn from the fact of our representation of the Trust and the Adviser. Moreover, we have not searched any electronic databases or the dockets of any court, regulatory body or governmental agency or other filing office in any jurisdiction. For purposes of this opinion, we have assumed that the agreements referred to herein have been duly authorized, executed and delivered by all parties thereto other than the Trust, and that all such other parties have all requisite power and authority to effect the transactions contemplated by such agreements. We have also assumed that each such agreement is the valid and binding obligation of each party thereto other than the Trust and is enforceable against all such other parties in accordance with its terms. We do not render any opinion as to the application of any federal or state law or regulation to the power, authority or competence of any party to the agreements other than the Trust. Our opinions set forth below are qualified to the extent that they may be subject to or affected by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws relating to or affecting the rights of creditors generally, (ii) statutory or decisional law concerning recourse by creditors to security in the absence of notice or hearing, (iii) duties and standards imposed on creditors and parties to contracts, including, without limitation, requirements of good faith, reasonableness and fair dealing, and (iv) general equitable principles. We express no opinion as to the availability of any equitable or specific remedy C-2 upon any breach of any of the agreements as to which we are opining herein, or any of the agreements, documents or obligations referred to therein, or to the successful assertion of any equitable defenses, inasmuch as the availability of such remedies or the success of any equitable defense may be subject to the discretion of a court. Without limiting the foregoing, with respect to our opinion in paragraph 9 below, (i) we are expressing no opinion as to the enforceability of the indemnification or contribution provisions of the Underwriting Agreement, (ii) we note that a court may refuse to enforce, or may limit the application of, the Underwriting Agreement or certain provisions thereof, as unconscionable or contrary to public policy, and (iii) we have assumed compliance by all parties with federal and state securities laws. We also express no opinion herein as to any provision of any agreement (a) which may be deemed to or construed to waive any right of the Trust, (b) to the effect that rights and remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy and does not preclude recourse to one or more other rights or remedies, (c) relating to the effect of invalidity or unenforceability of any provision of any agreement on the validity or enforceability of any other provision thereof, (d) requiring the payment of penalties, consequential damages or liquidated damages, (e) which is in violation of public policy, including, without limitation, any provision relating to non-competition and non-solicitation or relating to indemnification and contribution with respect to securities law matters, (f) purporting to indemnify any person against his, her or its own negligence or intentional misconduct, (g) which provides that the terms of any agreement may not be waived or modified except in writing or (h) relating to choice of law or consent to jurisdiction. Our opinion expressed in paragraph 1 below as to the valid existence and good standing of the Trust is based solely on a certificate of legal existence issued by the Secretary of State of the Commonwealth of Massachusetts, a copy of which has been made available to your counsel, and our opinion with respect to such matters is rendered as of the date of such certificate and limited accordingly. We express no opinion as to the tax good standing of the Trust in any jurisdiction. In connection with our opinion expressed in paragraph 2 below, insofar as it relates to full payment for the outstanding Common Shares of the Trust, we have relied solely on a certificate of an officer of the Trust. Our opinion expressed in paragraph 2 below as to issued and outstanding shares of capital stock of the Trust is based solely on a certificate of the Trust's transfer agent, which we assume to be complete and accurate. Our opinion expressed in paragraph 2 below as to the due and valid issuance of all outstanding common shares of the Trust is based solely on a review of the corporate minute books of the Trust, and a certificate of an officer of the Trust, each of which we assume to be complete and accurate. Our opinions expressed in paragraphs 4 and 10 below as to the effectiveness of the Registration Statement under the Securities Act and the Trust's Registration Statement on Form 8-A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are based solely upon oral advice from Mr. Brion Thompson at the Division of Investment Management of the Commission that such Registration Statements were declared effective as of ____ p.m. on November __, 2002. Our opinion expressed in paragraph 10 below as to the listing of the common shares on the New York Stock Exchange (the "Exchange") is solely based upon a letter from the Exchange to the Trust dated November 15, 2002. C-3 Our opinions in paragraphs 2 and 3 below are qualified to the extent that, under Massachusetts law, shareholders of a Massachusetts business trust may be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims shareholders liability for acts or obligations of the Trust and provides for indemnification out of Trust property for all loss and expense of any shareholder held personally liable for the obligations of the Trust. We have not made any investigation of the laws of any jurisdiction other than the state laws of the Commonwealth of Massachusetts and the federal laws of the United States of America. To the extent that any other laws govern any of the matters as to which we express an opinion below, we have assumed for purposes of this opinion, with your permission and without independent investigation, that the laws of such jurisdiction are identical to the state laws of the Commonwealth of Massachusetts, and we express no opinion as to whether such assumption is reasonable or correct. We express no opinion with respect to the securities or Blue Sky laws of any state of the United States, with respect to state or federal antifraud laws (except to the extent expressly provided in the third to last paragraph below) or with respect to the approval by the National Association of Securities Dealers, Inc. of the offering. On the basis of and subject to the foregoing, we are of the opinion that: 1. The Trust is validly existing as a business trust in good standing under the laws of the Commonwealth of Massachusetts and has business trust power and authority to carry on its business and own, lease and operate its properties as described in the Prospectus, and to enter into and perform its obligations under the Underwriting Agreement. 2. The authorized, issued and outstanding shares of beneficial interest of the Trust as of the date of the Prospectus are as set forth in the Prospectus under the caption "Description of Shares". All issued and outstanding shares of beneficial interest of the Trust as of the date hereof have been duly authorized, validly issued, and fully paid and are not subject to any preemptive or similar statutory rights under the Massachusetts Business Trust statute or, to our knowledge, similar contractual rights granted by the Trust. 3. The Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor pursuant to the Underwriting Agreement, will be validly issued and fully paid. C-4 4. The Registration Statement has been declared effective under the Securities Act. Any required filing of the Prospectus pursuant to Rule 497(c) or Rule 497(h) has been made in the manner and within the time period required by Rule 497. To the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued under the Securities Act. To the best of our knowledge, no order of suspension or revocation of registration pursuant to Section 8(e) of the Investment Company Act of 1940, as amended (the "1940 Act"), has been issued, and no proceedings for any such purpose have been instituted or are pending or threatened by the Commission. 5. The Trust is registered with the Commission under the 1940 Act as a closed-end, diversified management investment company; and, to the best of our knowledge, no order of suspension or revocation of such registration has been issued nor have any proceedings therefore been initiated or threatened by the Commission. 6. The Underwriting Agreement has been duly authorized, executed and delivered by the Trust. 7. Each of the Investment Management Contract between the Trust and the Adviser, dated November 29, 2002 (the "Investment Advisory Agreement"), the Custodian Agreement between the Trust and The Bank of New York, dated November 29, 2002 (the "Custodian Agreement"), the Transfer Agency Agreement between the Trust and Mellon Investor Services, LLC, dated November 29, 2002 (the "Transfer Agency Agreement"), the Underwriting Agreement, the Shareholder Servicing Agreement between the Adviser and UBS Warburg, LLC, dated November 29, 2002 and the Additional Compensation Agreement between the Adviser and UBS Warburg, LLC, dated November 25, 2002 comply in all material respects with all applicable provisions of the 1940 Act, the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules and regulations of the Commission under the 1940 Act and the Advisers Act. 8. Each of the Investment Advisory Agreement, the Custodian Agreement, and the Transfer Agency Agreement, has been duly authorized by all requisite action on the part of the Trust, executed and delivered by the Trust, as of the dates noted therein. Assuming due authorization, execution and delivery by the other parties thereto, each of the Investment Advisory Agreement, the Custodian Agreement, and the Transfer Agency Agreement constitutes a valid and binding agreement of the Trust, enforceable against the Trust in accordance with its terms. 9. The execution, delivery and performance of the Investment Advisory Agreement, Transfer Agency Agreement, Custodian Agreement and the Underwriting Agreement by the Trust, the compliance by the Trust with all the provisions thereof and the consummation by the Trust of the transactions contemplated thereby (including the issuance and sale of the Shares and the use of the proceeds from the sale of the Shares as described in the Prospectus under the caption "Use of Proceeds") do not and will not (A) require any consent, approval, authorization or other order of, or qualification with, any Massachusetts state or U.S. federal court or governmental body or agency (except such as may be C-5 required under the securities or Blue Sky laws of the various states or the National Association of Securities Dealers, Inc. or as have been obtained under the federal securities laws), (B) conflict with or constitute a breach of any of the terms or provisions of, or a default under, or result in the imposition of a lien, charge or encumbrance upon the assets of the Trust pursuant to any indenture, loan agreement, mortgage, lease or other agreement or instrument filed as an exhibit to the Registration Statement, (C) violate or conflict with the Declaration of Trust or By-laws, (D) violate or conflict with any applicable U.S. federal or Massachusetts state law, rule or regulation which in our experience is normally applicable in transactions of the type contemplated by the Underwriting Agreement, or (E) violate or conflict with any judgment, order or decree specifically naming the Trust or its property of which we are aware. 10. The Shares have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, and the Trust's Registration Statement on Form 8-A under the Exchange Act as amended is effective. 11. To our knowledge, there are no legal or governmental proceedings pending or threatened against the Trust. 12. The statements in the Prospectus under the captions "Description of the Shares" and in Item 29 of Part C of the Registration Statement, insofar as such statements constitute matters of law or legal conclusions, are correct in all material respects. 13. The Trust does not require any tax or other rulings to enable it to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. 14. Each of the section in the Prospectus entitled "U.S. Federal Income Tax Matters" and the section in the Statement of Additional Information entitled "U.S. Federal Income Tax Matters" is a fair summary of the principal United States federal income tax rules currently in effect applicable to the Trust and to the purchase, ownership and disposition of the Shares. 15. The Registration Statement, including any Rule 430A Information, the Prospectus and each amendment or supplement to the Registration Statement and Prospectus as of their respective effective or issue dates (other than the financial statements and supporting schedules including the notes and schedules thereto, or any other financial or accounting data included therein or omitted therefrom, as to which we express no opinion), and the notification on Form N-8A complied as to form in all material respects with the requirements of the Securities Act, the 1940 Act and the rules and regulations of the Commission thereunder. C-6 In connection with the preparation of the Registration Statement, the Prospectus and the Statement of Additional Information, we have participated in conferences with officers and representatives of the Trust and the Adviser, representatives of the Underwriters, counsel for the Underwriters and the independent accountants of the Trust, at which conferences we made inquiries of such persons and others and discussed the contents of the Registration Statement and the Prospectus and the Statement of Additional Information. While the limitations inherent in the independent verification of factual matters and the character of determinations involved in the registration process are such that we are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, subject to the foregoing and based on such participation, inquiries and discussions, no facts have come to our attention which have caused us to believe that the Registration Statement, as of the Effective Date (but after giving effect to changes incorporated pursuant to Rule 430A under the Securities Act), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading (except that we express no such view with respect to the financial statements, including the notes and schedules thereto, or any other financial or accounting data included therein), or that the Prospectus, as of the date it was filed with the Commission pursuant to Rule 497 under the Securities Act or as of the date hereof, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (except that we express no such view with respect to the financial statements, including the notes and schedules thereto, or any other financial or accounting data included therein). This opinion is based upon currently existing statutes, rules, regulations and judicial decisions and is rendered as of the date hereof, and we disclaim any obligation to advise you of any change in any of the foregoing sources of law or subsequent developments in law or changes in facts or circumstances which might affect any matters or opinions set forth herein. Please note that we are opining only as to the matters expressly set forth herein, and no opinion should be inferred as to any other matters. This opinion is being furnished to you, as Representatives of the Underwriters, at the request of the Trust pursuant to the Underwriting Agreement, is solely for the benefit of the Underwriters, and may not be relied upon by you for any other purpose, or furnished to, quoted to or relied upon by any other party for any purpose, without our prior written consent. C-7 Very truly yours, HALE AND DORR LLP C-8 SCHEDULE C FORM OF OPINION OF INTERNAL COUNSEL REGARDING JOHN HANCOCK ADVISERS, LLC i. John Hancock Advisers, LLC ("John Hancock Advisers") has been duly formed and is validly existing as a limited liability company under the laws of the State of Delaware. John Hancock Advisers has limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Underwriting Agreement, the Shareholder Servicing Agreement, the Additional Compensation Agreement and the Investment Advisory Agreement. ii. John Hancock Advisers is registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the Investment Company Act from acting as investment adviser and administrator for the Fund as contemplated by the Investment Advisory Agreement, the Registration Statement and the Prospectus. iii. The Underwriting Agreement, the Shareholder Servicing Agreement, the Investment Advisory Agreement and the Additional Compensation Agreement have been duly authorized, executed and delivered by John Hancock Advisers, and the Investment Advisory Agreement, the Shareholder Servicing Agreement and the Additional Compensation Agreement each constitutes a valid and binding obligation of John Hancock Advisers, enforceable in accordance with their respective terms iv. The execution, delivery and performance of the Underwriting Agreement by John Hancock Advisers, the compliance by John Hancock Advisers with all the provisions thereof and the consummation by John Hancock Advisers of the transactions contemplated thereby do not and will not (A) require any consent, approval, authorization or order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states or the National Association of Securities Dealers, Inc. or as have been obtained under the federal securities laws), (B) conflict with or constitute a breach of any of the terms or provisions of, or a default under or result in the imposition of a lien, charge or encumbrance upon the assets of John Hancock Advisers pursuant to, any indenture, loan agreement, mortgage, lease or other agreement or instrument to which John Hancock Adviser is a party filed as an exhibit to the Registration Statement, (C) violate or conflict with the Certificate of Limited Liability Company or the Limited Liability Company Agreement of John Hancock Advisers, or (D) violate or conflict with any applicable federal and Massachusetts law, rule or regulation or the Delaware Limited Liability Company statute, or (E) violate or conflict with any judgment, order or decree specifically naming John Hancock Advisers or its property. vi. To our knowledge, there is no legal or governmental proceeding pending or threatened against John Hancock Advisers that is either: (1) required by the Securities Act or the 1940 Act and their Rules and Regulations to be described in the Registration Statement or Prospectus that is not already described, or: (2) which would, under Section 9 of the 1940 Act, make John Hancock Advisers ineligible to act as the Fund's investment adviser. In rendering our opinion, we have relied, as to factual matters, upon the attached written certificates and statements of officers of John Hancock Advisers. In connection with the registration of the Shares, we have advised John Hancock Advisers as to the requirements of the Securities Act, the Investment Company Act and the applicable rules and regulations of the Commission thereunder and have rendered other legal advice and assistance to John Hancock Advisers in the course of the preparation of the registration Statement and the Prospectus. Rendering such assistance involved, among other things, discussions and inquiries concerning various legal and related subjects and reviews of certain corporate records, documents and proceedings. We also participated in conferences with representatives of the Fund and its accountants and John Hancock Advisers at which the contents of the registration and Prospectus and related matters were discussed. With your permission, we have not undertaken, except as otherwise indicated herein, to determine independently, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements in the Registration Statement or Prospectus. On the basis of the information which was developed in the course of the performance of the services referred to above, no information has come to our attention that would lead us to believe that the Registration Statement, at the time it became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, as of its date and as of the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or that any amendment or supplement to the Prospectus, as of its respective date, and as of the date hereof, contained any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements in the Prospectus, in the light of the circumstances under which they were made, not misleading (except the financial statements, schedules and other financial data included therein, as to which we express no view). C-2 SCHEDULE D FORM OF ACCOUNTANT'S LETTER November , 2002 The Board of Trustees of John Hancock Preferred Income Fund 101 Huntington Avenue Boston, MA 02199-7603 UBS Warburg LLC 299 Park Avenue New York, New York 10171 as Managing Representative of the Underwriters Ladies and Gentlemen: We have audited the statement of assets and liabilities of John Hancock Preferred Income Fund (the "Fund") as of __ _, 2002 included in the Registration Statement on Form N-2 filed by the Fund under the Securities Act of 1933 (the "Act") (File No. 333-90685) and under the Investment Company Act of 1940 (the "1940 Act") (File No. 811-21202); such statement and our report with respect to such statement are included in the Registration Statement. In connection with the Registration Statement: 1. We are independent public accountants with respect to the Fund within the meaning of the Act and the applicable rules and regulations thereunder. 2. In our opinion, the statement of assets and liabilities included in the Registration Statement and audited by us complies as to form in all respects with the applicable accounting requirements of the Act, the 1940 Act and the respective rules and regulations thereunder. 3. For purposes of this letter we have read the minutes of all meetings of the Shareholders, the Board of Trustees and all Committees of the Board of Trustees of the Fund as set forth in the minute books at the offices of the Fund, officials of the Fund having advised us that the minutes of all such meetings through , 2002, were set forth therein. 4. Fund officials have advised us that no financial statements as of any date subsequent to , 2002, are available. We have made inquiries of certain officials of the Fund who have responsibility for financial and accounting matters regarding whether there was any change at , 2002, in the capital shares or net assets of the Fund as compared with amounts shown in the , 2002, statement of assets and liabilities included in the Registration Statement, except for changes that the Registration Statement discloses have occurred or may occur. On the basis of our inquiries and our reading of the minutes as described in Paragraph 3, nothing came to our attention that caused us to believe that there were any such changes. The foregoing procedures do not constitute an audit made in accordance with generally accepted auditing standards. Accordingly, we make no representations as to the sufficiency of the foregoing procedures for your purposes. This letter is solely for the information of the addressees and to assist the underwriters in conducting and documenting their investigation of the affairs of the Fund in connection with the offering of the securities covered by the Registration Statement, and is not to be used, circulated, quoted or otherwise referred to within or without the underwriting group for any other purpose, including but not limited to the registration, purchase or sale of securities, nor is it to be filed with or referred to in whole or in part in the Registration Statement or any other document, except that reference may be made to it in the underwriting agreement or in any list of closing documents pertaining to the offering of the securities covered by the Registration Statement. Very Truly Yours, D-2 EX-99.J 7 exj1.txt AMENDED CUSTODIAN AGREEMENT November 29, 2002 The Bank of New York One Wall Street New York, NY 10286 Re: JOHN HANCOCK PREFERRED INCOME FUND II Dear Sirs: John Hancock Preferred Income Fund II (the "Fund"), a Massachusetts business trust, hereby notifies The Bank of New York (the "Bank") that the Fund desires to place and maintain the Fund's securities and cash in the custody of the Bank pursuant to the Custody Agreement, Foreign Custody Manager Agreement, and Fund Accounting Agreement, effective November 29, 2002. If the Bank agrees to provide such services, please sign below and return a signed original of this letter to the undersigned. THE BANK OF NEW YORK JOHN HANCOCK PREFERRED INCOME FUND II By: By: -------------------------- --------------------------------------- Name: Name: Maureen R. Ford Title: Title: Chairman, President, and CEO Attest: Attest: ---------------------- ----------------------------------- SCHEDULE II John Hancock Funds (As of November 29, 2002) - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-3478429 John Hancock 500 Index Fund - -------------------------------------------------------------------------------- 04-3167136 John Hancock Balanced Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3241844 John Hancock Bank & Thrift Opportunity Fund - -------------------------------------------------------------------------------- 04-3551118 John Hancock Biotechnology Fund - -------------------------------------------------------------------------------- 04-2528977 John Hancock Bond Fund - -------------------------------------------------------------------------------- 76-0296100 John Hancock California Tax-Free Income Fund John Hancock Classic Value Fund (eff. 11/9/02) - -------------------------------------------------------------------------------- 04-3551126 John Hancock Communications Fund - -------------------------------------------------------------------------------- 04-3551129 John Hancock Consumer Industries Fund - -------------------------------------------------------------------------------- 04-3122478 John Hancock Core Equity Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3260671 John Hancock Dividend Performers Fund - -------------------------------------------------------------------------------- 04-3409706 John Hancock European Equity Fund - -------------------------------------------------------------------------------- 04-3305812 John Hancock Financial Industries Fund - -------------------------------------------------------------------------------- 56-1662953 John Hancock Financial Trends Fund, Inc. - -------------------------------------------------------------------------------- 04-3535633 John Hancock Focused Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-3313164 John Hancock Focused Small Cap Growth Fund - -------------------------------------------------------------------------------- 04-6944774 John Hancock Fundamental Value Fund - -------------------------------------------------------------------------------- 04-6543623 John Hancock Global Fund - -------------------------------------------------------------------------------- 76-0230587 John Hancock Government Income Fund - -------------------------------------------------------------------------------- 04-3524763 John Hancock Growth Trends Fund (add Class I eff 11/15/01) - -------------------------------------------------------------------------------- 04-3124238 John Hancock Health Sciences Fund - -------------------------------------------------------------------------------- 04-3551132 John Hancock High Income Fund - -------------------------------------------------------------------------------- 76-0230586 John Hancock High Yield Bond Fund - -------------------------------------------------------------------------------- 76-0235997 John Hancock High Yield Municipal Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- 04-2507646 John Hancock Income Securities Trust - -------------------------------------------------------------------------------- 04-3260680 John Hancock Independence Diversified Core Equity Fund II (terminate Class P 9/13/01) - -------------------------------------------------------------------------------- 04-3214877 John Hancock International Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-6944776 John Hancock International Small Cap Growth Fund - -------------------------------------------------------------------------------- 76-0354706 John Hancock Investment Grade Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-2474663 John Hancock Investors Trust - -------------------------------------------------------------------------------- 74-6035056 John Hancock Large Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-2443211 John Hancock Large Cap Growth Fund - -------------------------------------------------------------------------------- 41-2025611 John Hancock Large Cap Spectrum Fund (launch 1/14, but no money until 2/22/02 - strike first NAV 2/25/02) - -------------------------------------------------------------------------------- 04-6564705 John Hancock Massachusetts Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3208756 John Hancock Mid Cap Growth Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 76-0230583 John Hancock Money Market Fund - -------------------------------------------------------------------------------- 04-3539446 John Hancock Multi-Cap Growth Fund - -------------------------------------------------------------------------------- 04-6564703 John Hancock New York Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-6567740 John Hancock Pacific Basin Equities Fund - -------------------------------------------------------------------------------- 04-3161453 John Hancock Patriot Global Dividend Fund - -------------------------------------------------------------------------------- 04-3190056 John Hancock Patriot Preferred Dividend Fund - -------------------------------------------------------------------------------- 04-3044078 John Hancock Patriot Premium Dividend Fund I - -------------------------------------------------------------------------------- 04-3097281 John Hancock Patriot Premium Dividend Fund II - -------------------------------------------------------------------------------- 04-3090916 John Hancock Patriot Select Dividend Trust - -------------------------------------------------------------------------------- 75-3075015 John Hancock Preferred Income Fund (eff. 8/27/02) - -------------------------------------------------------------------------------- John Hancock Preferred Income Fund II (eff. c. 11/29/02) - -------------------------------------------------------------------------------- 04-3435529 John Hancock Real Estate Fund - -------------------------------------------------------------------------------- 04-6526682 John Hancock Regional Bank Fund - -------------------------------------------------------------------------------- 04-3214880 John Hancock Small Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 76-0230584 John Hancock Small Cap Growth Fund - -------------------------------------------------------------------------------- 51-0094374 John Hancock Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-6956080 John Hancock Strategic Growth Fund (eff 12/01/01) - -------------------------------------------------------------------------------- 04-6545497 John Hancock Strategic Income Fund - -------------------------------------------------------------------------------- 76-0296098 John Hancock Tax-Free Bond Fund - -------------------------------------------------------------------------------- 13-3100162 John Hancock Technology Fund - -------------------------------------------------------------------------------- 76-0235823 John Hancock U.S. Government Cash Reserve - -------------------------------------------------------------------------------- 13-3843241 John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02) - -------------------------------------------------------------------------------- 04-3367188 John Hancock V.A. Financial Industries Fund - -------------------------------------------------------------------------------- 04-3402969 John Hancock V.A. Relative Value Fund - -------------------------------------------------------------------------------- 04-3326565 John Hancock V.A. Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-3326570 John Hancock V.A. Strategic Income Fund - -------------------------------------------------------------------------------- 04-3513386 John Hancock V.A. Technology Fund - -------------------------------------------------------------------------------- For: JOHN HANCOCK FUNDS listed above ------------------------- By: Avery P. Maher Title: Second Vice President and Assistant Secretary Accepted and agreed for: THE BANK OF NEW YORK -------------------------- By: Title: EX-99.J 8 exj2.txt MASTER CUSTODIAN AGREEMENT CUSTODY AGREEMENT AGREEMENT, dated as of September 10, 2001 between each John Hancock Fund listed on Schedule II, each either a business trust organized and existing under the laws of The Commonwealth of Massachusetts, or a Maryland corporation organized and existing under the laws of the state of Maryland, having its principal office and place of business at 101 Huntington Avenue, Boston, Massachusetts 02199 (each the "Fund", collectively the "Funds") and The Bank of New York, a New York corporation authorized to do a banking business having its principal office and place of business at One Wall Street, New York, New York 10286 ("Custodian"). W I T N E S S E T H: that for and in consideration of the mutual promises hereinafter set forth the Fund and Custodian agree as follows: ARTICLE I DEFINITIONS Whenever used in this Agreement, the following words shall have the meanings set forth below: 1. "Authorized Person" shall be any person, whether or not an officer or employee of the Fund, duly authorized by the Fund's board to execute any Certificate or to give any Oral Instruction or other Instruction on behalf of the Fund and listed in the Certificate annexed hereto as Schedule I hereto or such other Certificate as may be received by Custodian from time to time. 2. "BNY Affiliate" shall mean any office, branch or subsidiary of The Bank of New York Company, Inc. 3. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system for receiving and delivering securities, its successors and nominees. 4. "Business Day" shall mean any day on which the Fund, Custodian and relevant Depositories are open for business. 5. "Certificate" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to Custodian, which is actually received by Custodian and signed on behalf of the Fund by an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person. 6. "Composite Currency Unit" shall mean the Euro or any other composite currency unit consisting of the aggregate of specified amounts of specified currencies, as such unit may be constituted from time to time. 7. "Depository" shall include (a) the Book-Entry System, (b) the Depository Trust Company, (c) any other clearing agency or securities depository registered with the Securities and Exchange Commission identified to the Fund from time to time, and (d) the respective successors and nominees of the foregoing. 8. "Foreign Depository" shall mean (a) Euroclear, (b) Clearstream Banking, societe anonyme, (c) each Eligible Securities Depository as defined in Rule 17f-7 under the Investment Company Act of 1940, as amended (the "'40 Act"), identified to the Fund from time to time, and (d) the respective successors and nominees of the foregoing. 9. "Instructions" shall mean communications transmitted by electronic or telecommunications media, including S.W.I.F.T./I.S.I.T.C., computer-to-computer interface, facsimile transmissions executed by an Authorized Person, or dedicated transmission lines. 10. "Oral Instructions" shall mean verbal instructions received by Custodian from an Authorized Person or from a person reasonably believed by Custodian to be an Authorized Person. 11. "Securities" shall have the same meaning as when used in the Securities Act of 1933, including, without limitation, any common stock and other equity securities, bonds, debentures and other debt securities, notes, mortgages or other obligations, and any instruments representing rights to receive, purchase, or subscribe for the same, or representing any other rights or interests therein (whether represented by a certificate or held in a Depository or by a Subcustodian). 12. "Subcustodian" shall mean a bank (including any branch thereof) or other financial institution (other than a Foreign Depository) located outside the U.S. which is utilized by Custodian in connection with the purchase, sale or custody of Securities hereunder and identified to the Fund from time to time, and their respective successors and nominees. ARTICLE II APPOINTMENT OF CUSTODIAN; ACCOUNTS 1. (a) The Fund hereby appoints Custodian as custodian of all Securities and cash at any time delivered to Custodian during the term of this Agreement, and authorizes Custodian to hold Securities in registered form in its name or the name of its nominees. Custodian hereby accepts such appointment and agrees to establish and maintain one or more separate securities accounts and cash accounts for each Fund in which Custodian will hold Securities and cash as provided herein. Custodian shall maintain books and records segregating the assets of each Fund from the assets of any other Fund. Such accounts (each, an "Account"; collectively, the "Accounts") shall be in the name of the Fund. (b) Custodian may from time to time establish on its books and records such sub-accounts within each Account as the Fund and Custodian may agree upon (each a "Special Account"), and Custodian shall reflect therein such assets as the Fund may specify in a Certificate or Instructions. (c) Custodian may from time to time establish pursuant to a written agreement with and for the benefit of a broker, dealer, futures commission merchant or other third party identified in a Certificate or Instructions such accounts on such terms and conditions as the Fund and Custodian shall agree, and Custodian shall transfer to such account such Securities and money as the Fund may specify in a Certificate or Instructions. 2 ARTICLE III CUSTODY AND RELATED SERVICES 1. (a) Subject to the terms hereof, the Fund hereby authorizes Custodian to hold any Securities received by it from time to time for the Fund's account. Custodian shall be entitled to utilize Depositories, Subcustodians, and, subject to subsection(c) of this Section 1, Foreign Depositories, to the extent possible in connection with its performance hereunder. Securities and cash held in a Depository or Foreign Depository will be held subject to the rules, terms and conditions of such entity. Securities and cash held through Subcustodians shall be held subject to the terms and conditions of Custodian's agreements with such Subcustodians. Subcustodians may be authorized to hold Securities in Foreign Depositories in which such Subcustodians participate. Unless otherwise required by local law or practice or a particular subcustodian agreement, Securities deposited with a Subcustodian, a Depositary or a Foreign Depository will be held in a commingled account, in the name of Custodian, holding only Securities held by Custodian as custodian for its customers. Custodian shall identify on its books and records the Securities and cash belonging to the Fund, whether held directly or indirectly through Depositories, Foreign Depositories, or Subcustodians. Custodian shall, directly or indirectly through Subcustodians, Depositories, or Foreign Depositories, endeavor, to the extent feasible, to hold Securities in the country or other jurisdiction in which the principal trading market for such Securities is located, where such Securities are to be presented for cancellation and/or payment and/or registration, or where such Securities are acquired. Custodian at any time may cease utilizing any Subcustodian and/or may replace a Subcustodian with a different Subcustodian (the "Replacement Subcustodian"). In the event Custodian selects a Replacement Subcustodian, Custodian shall not utilize such Replacement Subcustodian until after the Fund's board or foreign custody manager has determined that utilization of such Replacement Subcustodian satisfies the requirements of the `40 Act and Rule 17f-5 thereunder. (b) Unless Custodian has received a Certificate or Instructions to the contrary, Custodian shall hold Securities indirectly through a Subcustodian only if (i) the Securities are not subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian or its creditors or operators, including a receiver or trustee in bankruptcy or similar authority, except for a claim of payment for the safe custody or administration of Securities on behalf of the Fund by such Subcustodian, and (ii) beneficial ownership of the Securities is freely transferable without the payment of money or value other than for safe custody or administration. (c) With respect to each Foreign Depository, Custodian shall exercise reasonable care, prudence, and diligence (i) to provide the Fund with an analysis of the custody risks associated with maintaining assets with the Foreign Depository, and (ii) to monitor such custody risks on a continuing basis and promptly notify the Fund of any material change in such risks. The Fund acknowledges and agrees, that such analysis and monitoring shall be made on the basis of, and limited by, information gathered from Subcustodians, from trade associations of which Custodian is a member from time to time, or through publicly available information otherwise obtained by Custodian, and shall not include any evaluation of Country Risks. As used herein the term "Country Risks" shall mean with respect to any Foreign Depository: (a) the financial 3 infrastructure of the country in which it is organized, (b) such country's prevailing custody and settlement practices, (c) nationalization, expropriation or other governmental actions, (d) such country's regulation of the banking or securities industry, (e) currency controls, restrictions, devaluations or fluctuations, and (f) market conditions which affect the orderly execution of securities transactions or affect the value of securities. Custodian represents that each Foreign Depository in which a Subcustodian is authorized to maintain Fund assets is an "Eligible Securities Depository" as defined in Rule 17f-7 under the '40 Act. Custodian agrees to certify to the Fund's board, annually and upon reasonable request, that each Foreign Depository remains an Eligible Securities Depository. 2. Custodian shall furnish Fund on-line access to daily transactions on a real time basis and a monthly summary of all transfers to or from Fund's account on the first business day after the month end. 3. With respect to all Securities held hereunder, Custodian shall, unless otherwise instructed to the contrary: (a) Collect all income, dividends, distributions and other payments due or payable; (b) Present for payment and collect the amount paid upon all Securities which mature; (c) Forward to the Fund promptly copies of all information or documents that it may actually receive from an issuer of Securities which, in the reasonable opinion of Custodian, are intended for the beneficial owner of Securities; (d) Execute, as custodian, any certificates of ownership, affidavits, declarations or other certificates under any tax laws now or hereafter in effect in connection with the collection of bond and note coupons; (e) Hold directly or through a Depository, a Foreign Depository, or a Subcustodian all rights and similar Securities issued with respect to any Securities credited to an Account hereunder; and (f) Endorse for collection checks, drafts or other negotiable instruments. 4. (a) Custodian promptly shall notify the Fund of rights or discretionary actions with respect to Securities held hereunder, and of the date or dates by when such rights must be exercised or such action must be taken, provided that Custodian has actually received, from the issuer or the relevant Depository (with respect to Securities issued in the United States) or from the relevant Subcustodian, Foreign Depository, or a nationally or internationally recognized bond or corporate action service to which Custodian subscribes, timely notice of such rights or discretionary corporate action or of the date or dates such rights must be exercised or such action must be taken. 4 (b) Whenever Securities (including, but not limited to, warrants, options, tenders, options to tender or non-mandatory puts or calls) confer discretionary rights on the Fund or provide for discretionary action or alternative courses of action by the Fund, the Fund shall be responsible for making any decisions relating thereto and for directing Custodian to act provided that Custodian promptly has notified the Fund of such discretionary right or action. In order for Custodian to act, it must receive the Fund's Certificate or Instructions at Custodian's offices, addressed as Custodian may from time to time request, not later than noon (New York time) at least one (1) Business Day prior to the last scheduled date to act with respect to such Securities (or such earlier date or time as Custodian may specify to the Fund). Custodian shall not be liable for failure to take any action relating to or to exercise any rights conferred by such Securities, unless Custodian has failed to timely receive the Fund's Certificate or Instruction and such failure is attributable to Custodian's negligence or willful misconduct. 5. All voting rights with respect to Securities, however registered, shall be exercised by the Fund or its designee. For domestic and foreign securities Custodian will utilize a proxy service for the exercise of such voting rights. 6. Custodian shall promptly advise the Fund upon Custodian's actual receipt of notification of the partial redemption, partial payment or other action affecting less than all Securities of the relevant class. If Custodian, any Subcustodian, any Depository, or any Foreign Depository holds any Securities in which the Fund has an interest as part of a fungible mass, Custodian, such Subcustodian, Depository, or Foreign Depository may select the Securities to participate in such partial redemption, partial payment or other action in any non-discriminatory manner that it customarily uses to make such selection. 7. Custodian shall not under any circumstances accept bearer interest coupons which have been stripped from United States federal, state or local government or agency securities unless explicitly agreed to by Custodian in writing. 8. The Fund shall be liable for all taxes, assessments, duties and other governmental charges, including any interest or penalty with respect thereto ("Taxes"), with respect to any cash or Securities held on behalf of the Fund or any transaction related thereto. The Fund shall indemnify Custodian and each Subcustodian for the amount of any Tax that Custodian, any such Subcustodian or any other withholding agent is required under applicable laws (whether by assessment or otherwise) to pay on behalf of, or in respect of income earned by or payments or distributions made to or for the account of the Fund (including any payment of Tax required by reason of an earlier failure to withhold). Custodian shall, or shall instruct the applicable Subcustodian or other withholding agent to, withhold the amount of any Tax which is required to be withheld under applicable law upon collection of any dividend, interest or other distribution made with respect to any Security and any proceeds or income from the sale, loan or other transfer of any Security. In the event that Custodian or any Subcustodian is required under applicable law to pay any Tax on behalf of the Fund, Custodian is hereby authorized to withdraw cash from that Fund's cash account in the amount required to pay such Tax and to use such cash, or to remit such cash to the appropriate Subcustodian or other withholding agent, for the timely payment of such Tax in the manner required by applicable law. If the aggregate amount of cash in that Fund's cash accounts is not sufficient to pay such Tax, Custodian shall promptly notify the Fund of the 5 additional amount of cash (in the appropriate currency) required, and the Fund shall directly deposit such additional amount in the appropriate cash account promptly after receipt of such notice, for use by Custodian as specified herein. In the event that Custodian reasonably believes that Fund is eligible, pursuant to applicable law or to the provisions of any tax treaty, for a reduced rate of, or exemption from, any Tax which is otherwise required to be withheld or paid on behalf of the Fund under any applicable law, Custodian shall, or shall instruct the applicable Subcustodian or withholding agent to, either withhold or pay such Tax at such reduced rate or refrain from withholding or paying such Tax, as appropriate; provided that Custodian shall have received from the Fund all documentary evidence of residence or other qualification for such reduced rate or exemption required to be received under such applicable law or treaty. In the event that Custodian reasonably believes that a reduced rate of, or exemption from, any Tax is obtainable only by means of an application for refund, Custodian and the applicable Subcustodian shall have responsibility for providing the Fund with the correct forms and filling them out in a timely and accurate fashion, but no responsibility for the accuracy or validity of the Fund's information on any forms or documentation provided solely by the Fund to Custodian hereunder. The Fund hereby agrees to indemnify and hold harmless Custodian and each Subcustodian for any liability arising from any underwithholding or underpayment of any Tax which results from the inaccuracy or invalidity of any information provided by the Fund for such forms or other documentation prepared solely by the Fund, and such obligation to indemnify shall be a continuing obligation of the Fund, its successors and assigns notwithstanding the termination of this Agreement. 9. (a) For the purpose of settling Securities and foreign exchange transactions, the Fund shall provide Custodian with sufficient immediately available funds for all transactions by such time and date as conditions in the relevant market dictate. As used herein, "sufficient immediately available funds" shall mean either (i) sufficient cash denominated in U.S. dollars to purchase the necessary foreign currency, or (ii) sufficient applicable foreign currency, to settle the transaction. Custodian shall provide the Fund with immediately available funds each day which result from the contractual settlement of all sale transactions, based upon advices received by Custodian from Subcustodians, Depositories, and Foreign Depositories. Such funds shall be in U.S. dollars or such other currency as the Fund may specify to Custodian. (b) Any foreign exchange transaction effected by Custodian in connection with this Agreement may be entered with Custodian or a BNY Affiliate acting as principal or otherwise through customary banking channels. The Fund may issue a standing Certificate or Instructions with respect to foreign exchange transactions, but Custodian may establish rules or limitations concerning any foreign exchange facility made available to the Fund. The Fund shall bear all investment risks of investing in Securities or holding cash denominated in a foreign currency. 10. Custodian shall promptly send to the Fund (a) any reports it receives from a Depository on such Depository's system of internal accounting control, and (b) such reports on its own system of internal accounting control as the Fund may reasonably request from time to time. 6 ARTICLE IV PURCHASE AND SALE OF SECURITIES; CREDITS TO ACCOUNT 1. Promptly after each purchase or sale of Securities by the Fund, the Fund shall deliver to Custodian a Certificate or Instructions, or with respect to a purchase or sale of a Security generally required to be settled on the same day the purchase or sale is made, Oral Instructions specifying all information Custodian may reasonably request to settle such purchase or sale. Custodian shall account for all purchases and sales of Securities on the actual settlement date unless otherwise agreed by Custodian. 2. The Fund understands that when Custodian is instructed to deliver physical Securities against payment, delivery of such Securities and receipt of payment therefor may not be completed simultaneously. Notwithstanding any provision in this Agreement to the contrary, settlements, payments and deliveries of physical Securities may be effected by Custodian or any Subcustodian in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction in which the transaction occurs, including, without limitation, delivery to a purchaser or dealer therefor (or agent) against receipt with the expectation of receiving later payment for such Securities 3. Custodian may, as a matter of bookkeeping convenience or by separate agreement with the Fund, credit the Account with the proceeds from the sale, redemption or other disposition of Securities or interest, dividends or other distributions payable on Securities prior to its actual receipt of final payment therefor. All such credits shall be conditional until Custodian's actual receipt of final payment and may be reversed by Custodian to the extent that final payment is not received. Payment with respect to a transaction will not be "final" until Custodian shall have received immediately available funds which under applicable local law, rule and/or practice are irreversible and not subject to any security interest, levy or other encumbrance, and which are specifically applicable to such transaction. ARTICLE V OVERDRAFTS OR INDEBTEDNESS 1. If Custodian should in its sole discretion advance funds on behalf of any Fund which results in an overdraft because the money held by Custodian in an Account for such Fund shall be insufficient to pay the total amount payable upon a purchase of Securities by such Fund, as set forth in a Certificate, Instructions or Oral Instructions, or if an overdraft arises with respect to a Fund for some other reason, including, without limitation, because of a reversal of a conditional credit or the purchase of any currency, or if any Fund is for any other reason indebted to Custodian (except a borrowing for investment or for temporary or emergency purposes pursuant to a separate agreement), such overdraft or indebtedness shall be deemed to be a loan made by Custodian to such Fund payable on demand and shall bear interest from the date incurred at such rate per annum as such Fund and Custodian may agree upon from time to time. In addition, the Fund hereby agrees that Custodian shall to the maximum extent permitted by law have a continuing lien, security interest, and security 7 entitlement in and to any property, including, without limitation, any investment property or any financial asset, of such Fund at any time held by Custodian for the benefit of such Fund or in which such Fund may have an interest which is then in Custodian's possession or control or in possession or control of any third party acting in Custodian's behalf. Such Fund authorizes Custodian, in its sole discretion, at any time to charge any such overdraft or indebtedness together with interest due thereon against any balance of account standing to such Fund's credit on Custodian's books. Custodian shall promptly advise any Fund whenever such Fund has an overdraft or indebtedness bearing interest as provided in this Article, or whenever Custodian intends to realize upon its lien, security interest or security entitlement. 2. If the Fund borrows money from any bank (including Custodian if the borrowing is pursuant to a separate agreement) for investment or for temporary or emergency purposes using Securities held by Custodian hereunder as collateral for such borrowings, the Fund shall deliver to Custodian a Certificate specifying with respect to each such borrowing: (a) the Series to which such borrowing relates; (b) the name of the bank, (c) the amount of the borrowing, (d) the time and date, if known, on which the loan is to be entered into, (e) the total amount payable to the Fund on the borrowing date, (f) the Securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular Securities, and (g) a statement specifying whether such loan is for investment purposes or for temporary or emergency purposes and that such loan is in conformance with the `40 Act and the Fund's prospectus. Custodian shall deliver on the borrowing date specified in a Certificate the specified collateral against payment by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable as set forth in the Certificate. Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. Custodian shall deliver such Securities as additional collateral as may be specified in a Certificate to collateralize further any transaction described in this Section. The Fund shall cause all Securities released from collateral status to be the name of the Series for which such money was received. ARTICLE VI SALE AND REDEMPTION OF SHARES 1. Whenever the Fund shall sell any shares issued by the Fund ("Shares") it shall deliver to Custodian a Certificate or Instructions specifying the amount of money and/or Securities to be received by Custodian for the sale of such Shares and specifically allocated to an Account for such Series. 2. Upon receipt of such money, Custodian shall credit such money to an Account in the name of the Series for which such money was received. 3. Except as provided hereinafter, whenever the Fund desires Custodian to make payment out of the money held by Custodian hereunder in connection with a redemption of any Shares, it shall furnish to Custodian a Certificate or Instructions specifying the total amount to be paid for such Shares. Custodian shall make payment of such total amount to the transfer agent specified in such Certificate or Instructions out of the money held in an Account of the appropriate Series. 8 ARTICLE VII PAYMENT OF DIVIDENDS OR DISTRIBUTIONS 1. Whenever the Fund shall determine to pay a dividend or distribution on Shares it shall furnish to Custodian Instructions or a Certificate setting forth with respect to the Series specified therein the date of the declaration of such dividend or distribution, the total amount payable, and the payment date. 2. Upon the payment date specified in such Instructions or Certificate, Custodian shall pay out of the money held for the account of such Series the total amount payable to the dividend agent of the Fund specified therein. ARTICLE VIII CONCERNING CUSTODIAN 1. (a) Except as otherwise expressly provided herein, Custodian shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees (collectively, "Losses"), incurred by or asserted against the Fund, except those Losses arising out of Custodian's own negligence or willful misconduct. Custodian shall have no liability whatsoever for the action or inaction of any Depositories or any Foreign Depositories. With respect to any Losses incurred by the Fund as a result of the acts or failures to act by a Subcustodian which is either a BNY Affiliate or listed on Appendix A hereto, Custodian shall be liable to the Fund for such Losses, but only to the extent such Losses arise out of or are caused by acts or failures to act by such Subcustodian which are contrary to the prevailing practices or standard of care in the relevant market in which such Subcustodian operates. With respect to any Losses incurred by the Fund as a result of the acts or failures to act by a Subcustodian which is not a BNY Affiliate and is not listed on Appendix A hereto, Custodian shall take appropriate action to recover such Losses from such Subcustodian, and Custodian's sole responsibility and liability to the Fund shall be limited to amounts so received from such Subcustodians (exclusive of costs and expenses incurred by Custodian). In no event shall Custodian be liable 9 to the Fund or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising in connection with this Agreement, nor shall BNY or any Subcustodian be liable: (i) for acting in accordance with any Certificate or Oral Instructions actually received by Custodian; (ii) for acting in accordance with Instructions; (iii) for conclusively presuming that all Instructions other than Oral Instructions are given only by person(s) duly authorized; (iv) for any Losses due to forces beyond the control of Custodian, including without limitation strikes, work stoppages, acts of war or terrorism, insurrection, revolution, nuclear or natural catastrophes or acts of God, interruption, loss or malfunction of utilities or communication services, or, but only to the extent beyond Custodian's reasonable control, and only if Custodian is maintaining the same and appropriate back-up system(s) in accordance with industry standards and practices, interruption, loss, or malfunction of computers (hardware or software); or (v) for any Losses arising from the applicability of any law or regulation now or hereafter in effect, or from the occurrence of any event, including, without limitation, implementation or adoption of any rules or procedures of a Foreign Depository, which may affect, limit, prevent or impose costs or burdens on, the transferability, convertibility, or availability of any currency or Composite Currency Unit in any country or on the transfer of any Securities, and in no event shall Custodian be obligated to substitute another currency for a currency (including a currency that is a component of a Composite Currency Unit) whose transferability, convertibility or availability has been affected, limited, or prevented by such law, regulation or event, and to the extent that any such law, regulation or event imposes a cost or charge upon Custodian in relation to the transferability, convertibility, or availability of any cash currency or Composite Currency Unit, such cost or charge shall be for the account of the Fund, and Custodian may treat any account denominated in an affected currency as a group of separate accounts denominated in the relevant component currencies. (b) Custodian may enter into subcontracts, agreements and understandings with any BNY Affiliate, whenever and on such terms and conditions as it deems necessary or appropriate to perform its services hereunder. No such subcontract, agreement or understanding shall discharge Custodian from its obligations hereunder. (c) The Fund agrees to indemnify and hold Custodian harmless from and against any and all Losses sustained or incurred by or asserted against Custodian by reason of or as a result of any action or inaction, or arising out of Custodian performance hereunder, including reasonable fees and expenses of counsel, provided however, that the Fund shall not indemnify Custodian for those Losses arising out of Custodian's own negligence or willful misconduct, nor for any Losses which constitute indirect, special, or consequential damages, or lost profits or loss of business. Custodian agrees to indemnify and hold the Fund harmless from and against any and all Losses, including reasonable fees and expenses of counsel, sustained or incurred by or asserted against the Fund arising out of Custodian's own negligence or willful misconduct, provided, however, that Custodian shall not indemnify the Fund for any Losses which constitute indirect, special, or consequential damages, or lost profits or loss of business. This indemnity shall be a continuing obligation of Fund and Custodian, their successors and assigns, notwithstanding the termination of this Agreement. 2. Without limiting the generality of the foregoing, Custodian shall be under no obligation to inquire into, and shall not be liable for: (a) The validity of the issue of any Securities purchased, sold, or written by or for the Fund, the legality of the purchase, sale or writing thereof, or the propriety of the amount paid or received therefor; (b) The legality of the sale or redemption of any Shares, or the propriety of the amount to be received or paid therefor; (c) The legality of the declaration or payment of any dividend or distribution by the Fund; (d) The legality of any borrowing by the Fund; (e) Whether any Securities at any time delivered to, or held by Custodian or by any Subcustodian, for the account of the Fund are such as properly may be held by the Fund under the provisions of its then current prospectus and statement of additional information, or to ascertain whether any transactions by the Fund, whether or not involving Custodian, are such transactions as may properly be engaged in by the Fund. 10 3. Custodian may, with respect to questions of law specifically regarding an Account, obtain the advice of counsel at its own expense and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice. 4. Custodian shall have no duty or responsibility to inquire into, make recommendations, supervise, or determine the suitability of any Securities transactions effected for a Fund. 5. The Fund shall pay to Custodian the fees and charges as may be specifically agreed upon from time to time and such other fees and charges at Custodian's standard rates for such services as may be applicable. The Fund shall also reimburse Custodian for out-of-pocket expenses which are a normal incident of the services provided hereunder. 6. With instructions from an Authorized Person of the Fund, the Custodian has the right to debit any cash account for any amount payable by the Fund in connection with any and all obligations of the Fund to Custodian. Custodian will use its bet efforts to consult with Fund's investment advisor about the selection of securities used to offset that Fund's obligations to Custodian. Any such asset of, or obligation to the Fund may be transferred to Custodian and any BNY Affiliate in order to effect the above rights. 7. The Fund will make its best efforts to forward to Custodian a Certificate or Instructions confirming Oral Instructions by the close of business of the same day that such Oral Instructions are given to Custodian. Fund and Custodian agree that the fact that such confirming Certificate or Instructions are not received or that a contrary Certificate or contrary Instructions are received by Custodian shall affect the validity and enforceability of transactions authorized by such Oral Instructions and effected by Custodian. If the Fund elects to transmit Instructions through an on-line communications system offered by Custodian, the Fund's use thereof shall be subject to the Terms and Conditions attached as Appendix I hereto, and Custodian shall provide user and authorization codes, passwords and authentication keys only to an Authorized Person. 8. The books and records pertaining to the Fund which are in possession of Custodian shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the `40 Act and the rules thereunder. The Fund, or its authorized representatives, shall have access to such books and records during Custodian's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by Custodian to the Fund or its authorized representative. Upon the reasonable request of the Fund, Custodian shall provide in hard copy or on computer disc any records included in any such delivery which are maintained by Custodian on a computer disc, or are similarly maintained. 9. It is understood that Custodian is authorized to supply any information regarding the Accounts which is required by any law, regulation or rule now or hereafter in effect. Custodian shall provide the Fund with any report obtained by Custodian on the system of internal accounting control of a Depository, and with such reports on its own system of internal accounting control as the Fund may reasonably request from time to time. 11 ARTICLE IX TERMINATION 1. Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than sixty (60) days after the date of giving of such notice. In the event such notice is given by the Fund, it shall be accompanied by a copy of a resolution of the board of the Fund, certified by the Fund's Secretary or any Assistant Secretary, electing to terminate this Agreement and designating a successor custodian or custodians, each of which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. In the event such notice is given by Custodian, the Fund shall, on or before the termination date, deliver to Custodian a copy of a resolution of the board of the Fund, certified by the Secretary or any Assistant Secretary, designating a successor custodian or custodians. In the absence of such designation by the Fund, Custodian may designate a successor custodian which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall upon receipt of a notice of acceptance by the successor custodian on that date deliver directly to the successor custodian all Securities and money then owned by the Fund and held by it as Custodian, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled. 2. If a successor custodian is not designated by the Fund or Custodian in accordance with the preceding Section, the Fund shall upon the date specified in the notice of termination of this Agreement and upon the delivery by Custodian of all Securities (other than Securities which cannot be delivered to the Fund) and money then owned by the Fund be deemed to be its own custodian and Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities which cannot be delivered to the Fund to hold such Securities hereunder in accordance with this Agreement. ARTICLE X MISCELLANEOUS 1. The Fund agrees to furnish to Custodian a new Certificate of Authorized Persons in the event of any change in the then present Authorized Persons. Until such new Certificate is received, Custodian shall be fully protected in acting upon Certificates or Oral Instructions of such present Authorized Persons. 2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Custodian, shall be sufficiently given if addressed to Custodian and received by it at its offices at 100 Church Street, New York, New York 10286, or at such other place as Custodian may from time to time designate in writing. 12 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if addressed to the Fund and received by it at its offices at 101 Huntington Avenue, Boston, Massachusetts 02199, or at such other place as the Fund may from time to time designate in writing. 4. Each and every right granted to either party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of either party to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by either party of any right preclude any other or future exercise thereof or the exercise of any other right. 5. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any exclusive jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties, except that any amendment to the Schedule I hereto need be signed only by the Fund and any amendment to Appendix I hereto need be signed only by Custodian. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by either party without the written consent of the other. 6. This Agreement shall be construed in accordance with the substantive laws of The Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof. The Fund and Custodian each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. 7. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 8. Fund and Custodian agree that the obligations of each Fund are not binding upon any of the Trustees/Directors, officers or shareholders of the Fund individually, but are binding only upon that Fund and its assets. Each Fund shall be severally, not jointly, liable only for its own obligations under this Agreement. 13 IN WITNESS WHEREOF, the Fund and Custodian have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the day and year first above written. Each John Hancock Fund listed on Schedule II By: /s/Richard A. Brown ------------------- Title: SeniorVice President & CFO THE BANK OF NEW YORK By: /s/James E. Hillman ------------------- Title: Senior Vice President 14 SCHEDULE II John Hancock Funds (As of August 22, 2002) - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-3478429 John Hancock 500 Index Fund - -------------------------------------------------------------------------------- 04-3167136 John Hancock Balanced Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3241844 John Hancock Bank & Thrift Opportunity Fund - -------------------------------------------------------------------------------- 04-3551118 John Hancock Biotechnology Fund - -------------------------------------------------------------------------------- 04-2528977 John Hancock Bond Fund - -------------------------------------------------------------------------------- 76-0296100 John Hancock California Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3551126 John Hancock Communications Fund - -------------------------------------------------------------------------------- 04-3551129 John Hancock Consumer Industries Fund - -------------------------------------------------------------------------------- 04-3122478 John Hancock Core Equity Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3260671 John Hancock Dividend Performers Fund - -------------------------------------------------------------------------------- 04-3409706 John Hancock European Equity Fund - -------------------------------------------------------------------------------- 04-3305812 John Hancock Financial Industries Fund - -------------------------------------------------------------------------------- 56-1662953 John Hancock Financial Trends Fund, Inc. - -------------------------------------------------------------------------------- 04-3535633 John Hancock Focused Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-3313164 John Hancock Focused Small Cap Growth Fund - -------------------------------------------------------------------------------- 04-6944774 John Hancock Fundamental Value Fund - -------------------------------------------------------------------------------- 04-6543623 John Hancock Global Fund - -------------------------------------------------------------------------------- 76-0230587 John Hancock Government Income Fund - -------------------------------------------------------------------------------- 04-3524763 John Hancock Growth Trends Fund (add Class I eff 11/15/01) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 04-3124238 John Hancock Health Sciences Fund - -------------------------------------------------------------------------------- 04-3551132 John Hancock High Income Fund - -------------------------------------------------------------------------------- 76-0230586 John Hancock High Yield Bond Fund - -------------------------------------------------------------------------------- 76-0235997 John Hancock High Yield Municipal Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- 04-2507646 John Hancock Income Securities Trust - -------------------------------------------------------------------------------- 04-3260680 John Hancock Independence Diversified Core Equity Fund II (terminate Class P 9/13/01) - -------------------------------------------------------------------------------- 04-3214877 John Hancock International Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-6944776 John Hancock International Small Cap Growth Fund - -------------------------------------------------------------------------------- 76-0354706 John Hancock Investment Grade Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-2474663 John Hancock Investors Trust - -------------------------------------------------------------------------------- 74-6035056 John Hancock Large Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-2443211 John Hancock Large Cap Growth Fund - -------------------------------------------------------------------------------- 41-2025611 John Hancock Large Cap Spectrum Fund (launch 1/14, but no money until 2/22/02 - strike first NAV 2/25/02) - -------------------------------------------------------------------------------- 04-6564705 John Hancock Massachusetts Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3208756 John Hancock Mid Cap Growth Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 76-0230583 John Hancock Money Market Fund - -------------------------------------------------------------------------------- 04-3539446 John Hancock Multi-Cap Growth Fund - -------------------------------------------------------------------------------- 04-6564703 John Hancock New York Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-6567740 John Hancock Pacific Basin Equities Fund - -------------------------------------------------------------------------------- 04-3161453 John Hancock Patriot Global Dividend Fund - -------------------------------------------------------------------------------- 04-3190056 John Hancock Patriot Preferred Dividend Fund - -------------------------------------------------------------------------------- 04-3044078 John Hancock Patriot Premium Dividend Fund I - -------------------------------------------------------------------------------- 04-3097281 John Hancock Patriot Premium Dividend Fund II - -------------------------------------------------------------------------------- 04-3090916 John Hancock Patriot Select Dividend Trust - -------------------------------------------------------------------------------- John Hancock Preferred Income Fund (eff. 8/22/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 04-3435529 John Hancock Real Estate Fund - -------------------------------------------------------------------------------- 04-6526682 John Hancock Regional Bank Fund - -------------------------------------------------------------------------------- 04-3214880 John Hancock Small Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 76-0230584 John Hancock Small Cap Growth Fund - -------------------------------------------------------------------------------- 51-0094374 John Hancock Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-6956080 John Hancock Strategic Growth Fund (eff 12/01/01) - -------------------------------------------------------------------------------- 04-6545497 John Hancock Strategic Income Fund - -------------------------------------------------------------------------------- 76-0296098 John Hancock Tax-Free Bond Fund - -------------------------------------------------------------------------------- 13-3100162 John Hancock Technology Fund - -------------------------------------------------------------------------------- 76-0235823 John Hancock U.S. Government Cash Reserve - -------------------------------------------------------------------------------- 13-3843241 John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02) - -------------------------------------------------------------------------------- 04-3367188 John Hancock V.A. Financial Industries Fund - -------------------------------------------------------------------------------- 04-3402969 John Hancock V.A. Relative Value Fund - -------------------------------------------------------------------------------- 04-3326565 John Hancock V.A. Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-3326570 John Hancock V.A. Strategic Income Fund - -------------------------------------------------------------------------------- 04-3513386 John Hancock V.A. Technology Fund - -------------------------------------------------------------------------------- or: JOHN HANCOCK FUNDS listed above /s/Avery P. Maher ------------------------- By: Avery P. Maher Title: Second Vice President and Assistant Secretary Accepted and agreed for: THE BANK OF NEW YORK /s/Ira R. Rosner -------------------------- By: Ira R. Rosner Title: Vice President Corpsec/Agreement/custodian/BNYScheduleII APPENDIX I THE BANK OF NEW YORK ON-LINE COMMUNICATIONS SYSTEM (THE "SYSTEM") TERMS AND CONDITIONS 1. License; Use. Upon delivery to an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person of the Fund of software enabling the Fund to obtain access to the System (the "Software"), Custodian grants to the Fund a personal, nontransferable and nonexclusive license to use the Software solely for the purpose of transmitting Written Instructions, receiving reports, making inquiries or otherwise communicating with Custodian in connection with the Account(s). The Fund shall use the Software solely for its own internal and proper business purposes and not in the operation of a service bureau. Except as set forth herein, no license or right of any kind is granted to the Fund with respect to the Software. The Fund acknowledges that Custodian and its suppliers retain and have title and exclusive proprietary rights to the Software, including any trade secrets or other ideas, concepts, know-how, methodologies, or information incorporated therein and the exclusive rights to any copyrights, trademarks and patents (including registrations and applications for registration of either), or other statutory or legal protections available in respect thereof. The Fund further acknowledges that all or a part of the Software may be copyrighted or trademarked (or a registration or claim made therefor) by Custodian or its suppliers. The Fund shall not take any action with respect to the Software inconsistent with the foregoing acknowledgments, nor shall you attempt to decompile, reverse engineer or modify the Software. The Fund may not copy, sell, lease or provide, directly or indirectly, any of the Software or any portion thereof to any other person or entity without Custodian's prior written consent. The Fund may not remove any statutory copyright notice or other notice included in the Software or on any media containing the Software. The Fund shall reproduce any such notice on any reproduction of the Software and shall add any statutory copyright notice or other notice to the Software or media upon Custodian's request. 2. Equipment. The Fund shall obtain and maintain at its own cost and expense all equipment and services, including but not limited to communications services, necessary for it to utilize the Software and obtain access to the System, and Custodian shall not be responsible for the reliability or availability of any such equipment or services. 3. Proprietary Information. The Software, any data base and any proprietary data, processes, information and documentation made available to the Fund (other than which are or become part of the public domain or are legally required to be made available to the public) (collectively, the "Information"), are the exclusive and confidential property of Custodian or its suppliers. The Fund shall keep the Information confidential by using the same care and discretion that the Fund uses with respect to its own confidential property and trade secrets, but not less than reasonable care. Upon termination of the Agreement or the Software license granted herein for any reason, the Fund shall return to Custodian any and all copies of the Information which are in its possession or under its control. 4. Modifications. Custodian reserves the right to modify the Software from time to time and the Fund shall install new releases of the Software as Custodian may direct. The Fund agrees not to modify or attempt to modify the Software without Custodian's prior written consent. The Fund acknowledges that any modifications to the Software, whether by the Fund or Custodian and whether with or without Custodian's consent, shall become the property of Custodian. 5. NO REPRESENTATIONS OR WARRANTIES. CUSTODIAN AND ITS MANUFACTURERS AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE SOFTWARE, SERVICES OR ANY DATABASE, EXPRESS OR IMPLIED, IN FACT OR IN LAW, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE FUND ACKNOWLEDGES THAT THE SOFTWARE, SERVICES AND ANY DATABASE ARE PROVIDED "AS IS." IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL, WHICH THE FUND MAY INCUR IN CONNECTION WITH THE SOFTWARE, SERVICES OR ANY DATABASE, UNLESS CUSTODIAN OR SUCH SUPPLIER KNOWS OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ACTS OF GOD, MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR MALFUNCTION OF COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND THEIR REASONABLE CONTROL. 6. Security; Reliance; Unauthorized Use. The Fund will cause all persons utilizing the Software and System to treat all applicable user and authorization codes, passwords and authentication keys with extreme care, and it will establish internal control and safekeeping procedures to restrict the availability of the same to persons duly authorized to give Instructions. Custodian is hereby irrevocably authorized to act in accordance with and rely on Instructions received by it through the System. The Fund acknowledges that it is its sole responsibility to assure that only persons duly authorized use the System and that Custodian shall not be responsible nor liable for any unauthorized use thereof. 7. System Acknowledgments. Custodian shall acknowledge through the System its receipt of each transmission communicated through the System. In the absence of such acknowledgment Custodian shall not be liable for any failure to act in accordance with such transmission however, Custodian will be liable for all transmissions where the Fund shows that such transmission was received by Custodian. 8. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED STATES LAW. THE FUND MAY NOT UNDER ANY CIRCUMSTANCES RESELL, DIVERT, TRANSFER, TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO ANY OTHER COUNTRY. IF CUSTODIAN DELIVERED THE SOFTWARE TO THE FUND OUTSIDE OF THE UNITED STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN ACCORDANCE WITH THE EXPORTER ADMINISTRATION REGULATIONS. DIVERSION CONTRARY TO U.S. LAW IS PROHIBITED. The Fund hereby authorizes Custodian to report its name and address to government agencies to which Custodian is required to provide such information by law. 9. ENCRYPTION. The Fund acknowledges and agrees that encryption may not be available for every communication through the System, or for all data. The Fund agrees that Custodian may deactivate any encryption features at any time, with notice to the Fund, for the purpose of maintaining, repairing or troubleshooting the System or the Software. The Fund and the bank agree that the obligations of each Fund are not binding upon any of the Trustees/Directors. Officers or shareholders of the Fund individually, but are binding only upon that Fund and its assets. Each Fund shall be severally, not jointly, liable for its own obligations under this Agreement. S:\Corporate Secretary\AGRCONT\AGREEMNT\CUSTODIA\BNYcustody01.DOC SCHEDULE II John Hancock Funds (As of August 22, 2002) - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-3478429 John Hancock 500 Index Fund - -------------------------------------------------------------------------------- 04-3167136 John Hancock Balanced Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3241844 John Hancock Bank & Thrift Opportunity Fund - -------------------------------------------------------------------------------- 04-3551118 John Hancock Biotechnology Fund - -------------------------------------------------------------------------------- 04-2528977 John Hancock Bond Fund - -------------------------------------------------------------------------------- 76-0296100 John Hancock California Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3551126 John Hancock Communications Fund - -------------------------------------------------------------------------------- 04-3551129 John Hancock Consumer Industries Fund - -------------------------------------------------------------------------------- 04-3122478 John Hancock Core Equity Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3260671 John Hancock Dividend Performers Fund - -------------------------------------------------------------------------------- 04-3409706 John Hancock European Equity Fund - -------------------------------------------------------------------------------- 04-3305812 John Hancock Financial Industries Fund - -------------------------------------------------------------------------------- 56-1662953 John Hancock Financial Trends Fund, Inc. - -------------------------------------------------------------------------------- 04-3535633 John Hancock Focused Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-3313164 John Hancock Focused Small Cap Growth Fund - -------------------------------------------------------------------------------- 04-6944774 John Hancock Fundamental Value Fund - -------------------------------------------------------------------------------- 04-6543623 John Hancock Global Fund - -------------------------------------------------------------------------------- 76-0230587 John Hancock Government Income Fund - -------------------------------------------------------------------------------- 04-3524763 John Hancock Growth Trends Fund (add Class I eff 11/15/01) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 04-3124238 John Hancock Health Sciences Fund - -------------------------------------------------------------------------------- 04-3551132 John Hancock High Income Fund - -------------------------------------------------------------------------------- 76-0230586 John Hancock High Yield Bond Fund - -------------------------------------------------------------------------------- 76-0235997 John Hancock High Yield Municipal Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- 04-2507646 John Hancock Income Securities Trust - -------------------------------------------------------------------------------- 04-3260680 John Hancock Independence Diversified Core Equity Fund II (terminate Class P 9/13/01) - -------------------------------------------------------------------------------- 04-3214877 John Hancock International Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-6944776 John Hancock International Small Cap Growth Fund - -------------------------------------------------------------------------------- 76-0354706 John Hancock Investment Grade Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-2474663 John Hancock Investors Trust - -------------------------------------------------------------------------------- 74-6035056 John Hancock Large Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-2443211 John Hancock Large Cap Growth Fund - -------------------------------------------------------------------------------- 41-2025611 John Hancock Large Cap Spectrum Fund (launch 1/14, but no money until 2/22/02 - strike first NAV 2/25/02) - -------------------------------------------------------------------------------- 04-6564705 John Hancock Massachusetts Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3208756 John Hancock Mid Cap Growth Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 76-0230583 John Hancock Money Market Fund - -------------------------------------------------------------------------------- 04-3539446 John Hancock Multi-Cap Growth Fund - -------------------------------------------------------------------------------- 04-6564703 John Hancock New York Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-6567740 John Hancock Pacific Basin Equities Fund - -------------------------------------------------------------------------------- 04-3161453 John Hancock Patriot Global Dividend Fund - -------------------------------------------------------------------------------- 04-3190056 John Hancock Patriot Preferred Dividend Fund - -------------------------------------------------------------------------------- 04-3044078 John Hancock Patriot Premium Dividend Fund I - -------------------------------------------------------------------------------- 04-3097281 John Hancock Patriot Premium Dividend Fund II - -------------------------------------------------------------------------------- 04-3090916 John Hancock Patriot Select Dividend Trust - -------------------------------------------------------------------------------- John Hancock Preferred Income Fund (eff. 8/22/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 04-3435529 John Hancock Real Estate Fund - -------------------------------------------------------------------------------- 04-6526682 John Hancock Regional Bank Fund - -------------------------------------------------------------------------------- 04-3214880 John Hancock Small Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 76-0230584 John Hancock Small Cap Growth Fund - -------------------------------------------------------------------------------- 51-0094374 John Hancock Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-6956080 John Hancock Strategic Growth Fund (eff 12/01/01) - -------------------------------------------------------------------------------- 04-6545497 John Hancock Strategic Income Fund - -------------------------------------------------------------------------------- 76-0296098 John Hancock Tax-Free Bond Fund - -------------------------------------------------------------------------------- 13-3100162 John Hancock Technology Fund - -------------------------------------------------------------------------------- 76-0235823 John Hancock U.S. Government Cash Reserve - -------------------------------------------------------------------------------- 13-3843241 John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02) - -------------------------------------------------------------------------------- 04-3367188 John Hancock V.A. Financial Industries Fund - -------------------------------------------------------------------------------- 04-3402969 John Hancock V.A. Relative Value Fund - -------------------------------------------------------------------------------- 04-3326565 John Hancock V.A. Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-3326570 John Hancock V.A. Strategic Income Fund - -------------------------------------------------------------------------------- 04-3513386 John Hancock V.A. Technology Fund - -------------------------------------------------------------------------------- or: JOHN HANCOCK FUNDS listed above /s/Avery P. Maher ------------------------- By: Avery P. Maher Title: Second Vice President and Assistant Secretary Accepted and agreed for: THE BANK OF NEW YORK /s/Ira R. Rosner -------------------------- By: Ira R. Rosner Title: Vice President Corpsec/Agreement/custodian/BNYScheduleII FUND ACCOUNTING AGREEMENT ------------------------- AGREEMENT made as of this 10th day of September, 2001 by and between each John Hancock Fund listed on Schedule II, each either a business trust organized and existing under the laws of The Commonwealth of Massachusetts or a Maryland corporation organized and existing under the laws of the state of Maryland, having its principal place of business at 101 Huntington Avenue, Boston, Massachusetts 02199 (each a "Fund") and The Bank of New York, a New York corporation authorized to do a banking business, having its principal place of business at One Wall Street, New York, New York 10286 (hereinafter called the "Bank"). W I T N E S S E T H: - - - - - - - - - - In consideration of the mutual agreements herein contained, the Fund and the Bank hereby agree as follows: 1. The Fund hereby appoints the Bank to perform the duties hereinafter set forth. 2. The Bank hereby accepts appointment and agrees to perform the duties hereinafter set forth. 3. Subject to the provisions of paragraphs 4 and 5 below, the Bank shall compute the net asset value per share of each Fund listed on Schedule II and shall value the securities held by the Fund (the "Securities") at such times and dates and in the manner specified in the then currently effective Prospectus of the Fund. 4. To the extent valuation of Securities or computation of a Fund's net asset value as specified in the Fund's then currently effective Prospectus is at any time inconsistent with any applicable laws or regulations, the Fund shall immediately so notify the Bank in writing and thereafter shall either furnish the Bank at all appropriate times with the values of such Securities and each Fund's net asset value, or subject to the prior approval of the Bank, instruct the Bank in writing to value Securities and compute each Fund's net asset value in a manner which the Fund then represents in writing to be consistent with all applicable laws and regulations. The Fund may also from time to time, subject to the prior approval of the Bank, instruct the Bank in writing to compute the value of the Securities or a Fund's net asset value in a manner other than as specified in paragraph 3 of this Agreement. By giving such instruction, the Fund shall be deemed to have represented that such instruction is consistent with all applicable laws and regulations and the then currently effective Prospectus of the Fund. The Fund shall have sole responsibility for determining the method of valuation of Securities and the method of computing each Fund's net asset value. 5. The Fund shall furnish the Bank with any and all instructions, explanations, information, specifications and documentation deemed necessary by the Bank in the performance of its duties hereunder, including, without limitation, the amounts or written formula for calculating the amounts and times of accrual of Fund liabilities and expenses. The Bank shall not be required to include as Fund liabilities and expenses, nor as a reduction of net asset value, any accrual for any federal, state, or foreign income taxes unless the Fund shall have specified to the Bank the precise amount of the same to be included in liabilities and expenses or used to reduce net asset value. The Fund shall also furnish the Bank with bid, offer, or market values of Securities if the Bank notifies the Fund that same are not available to the Bank from a security pricing or similar service utilized, or subscribed to, by the Bank which the Bank in its judgment deems reliable at the time such information is required for calculations hereunder. At any time and from time to time, the Fund also may furnish the Bank with bid, offer, or market values of Securities and instruct the Bank to use such information in its calculations hereunder. 6. The Bank as Fund Accounting agent shall advise the Fund and the Fund's transfer agent of the Fund's net asset value upon completion of the computations required to be made by the Bank pursuant to this Agreement. 2 7. The Bank shall, as agent for the Fund, maintain and keep current the books, accounts and other documents, if any, listed in Appendix A hereto and made a part hereof, as such Appendix A may be amended from time to time, and preserve any such books, accounts and other documents in accordance with the applicable provisions of Rule 31a-2 of the General Rules and Regulations under the Investment Company Act of 1940, as amended (the "Rules"). Such books, accounts and other documents shall be made available upon reasonable request for inspection by officers, employees and auditors of the Fund. 8. All records maintained and preserved by the Bank pursuant to this Agreement which the Fund is required to maintain and preserve in accordance with the above-mentioned Rules shall be and remain the property of the Fund and shall be surrendered to the Fund promptly upon request in the that the Fund requests. Upon reasonable request of the Fund, the Bank shall provide in hard copy, on micro-film or electronically, whichever the Fund shall elect, any records included in any such delivery. 9. The Bank, in performing the services required of it under the terms of this Agreement, shall be entitled to rely fully on the accuracy and validity of any and all instructions, explanations, information, specifications and documentation furnished to it by the Fund and shall have no duty or obligation to review the accuracy, validity or propriety of such instructions, explanations, information, specifications or documentation, including, without limitation, evaluations of Securities; the amounts or formula for calculating the amounts and times of accrual of Fund's liabilities and expenses; the amounts receivable and the amounts payable on the sale or purchase of Securities; and amounts receivable or amounts payable for the sale or redemption of Fund shares effected by or on behalf of the Fund. In the event the Bank's computations hereunder rely, in whole or in part, upon information, including, without limitation, bid, offer or market values of Securities or other assets, or accruals of interest or earnings thereon, from a pricing or similar service utilized, or subscribed to, by the Bank which the Bank in its judgment deems reliable, the Bank shall not be responsible for, deemed to make any assurances with respect to, nor under any duty to inquire into, the accuracy and completeness of such information, except that if any such information contains manifest error, the Bank shall in accordance with its then standard practices attempt to have such manifest error corrected, and shall notify the Fund if such attempt is unsuccessful. 3 10. The Bank shall not be required to inquire into any valuation of Securities or other assets by the Fund or any third party described in preceding paragraph 9 hereof, even though the Bank in performing services similar to the services provided pursuant to this Agreement for others may receive different valuations of the same or different securities of the same issuers. 11. The Bank, in performing the services required of it under the terms of this Agreement, shall not be responsible for determining whether any interest accruable to the Fund is or will be actually paid, but will accrue such interest until otherwise instructed by the Fund. 12. The Bank shall not be responsible for delays or errors which occur by reason of circumstances beyond its control in the performance of its duties under this Agreement, including, without limitation, mechanical breakdowns, flood or catastrophe, acts of God, failures of transportation, communication or power supply, or other similar circumstances. Nor shall the Bank be responsible for delays or failures to supply the information or services specified in this Agreement where such delays or failures are caused by the failure of any person(s) other than the Bank to supply any instructions, explanations, information, specifications or documentation deemed necessary by the Bank in the performance of its duties under this Agreement. 13. No provision of this Agreement shall prevent the Bank from offering services similar or identical to those covered by this Agreement to any other corporations, associations or entities of any kind. Any and all operational procedures, techniques and devices developed by the Bank in connection with the performance of its duties and obligations under this Agreement, including those developed in conjunction with the Fund, shall be and remain the property of the Bank, and the Bank shall be free to employ such procedures, techniques and devices in connection with the performance of any other contract with any other person whether or not such contract is similar or identical to this Agreement. 4 14. The Bank may, with respect to questions of law, apply to and obtain the advice and opinion of counsel to the Fund or its own counsel and shall be entitled to rely on the advice or opinion of such counsel. 15. The Bank shall be entitled to rely upon any oral instructions received by the Bank and reasonably believed by the Bank to be given by or on behalf of the Fund, unless the Bank subsequently receives written instructions contradicting such oral instructions. 16. Notwithstanding any other provision contained in this Agreement, the Bank shall have no duty or obligation with respect to, including, without limitation, any duty or obligation to determine, or advise or notify the Fund of: (a) the taxable nature of any distribution or amount received or deemed received by, or payable to, the Fund; (b) the taxable nature or effect on the Fund or its shareholders of any corporate actions, class actions, tax reclaims, tax refunds, or similar events; (c) the taxable nature or taxable amount of any distribution or dividend paid, payable or deemed paid, by the Fund to its shareholders; or (d) the effect under any federal, state, or foreign income tax laws of the Fund making or not making any distribution or dividend payment, or any election with respect thereto. 17. The Bank shall not be liable for any loss, damage or expense resulting from, arising out of, or in connection with its performance hereunder, including its actions or omissions, the incompleteness or inaccuracy of any specifications or other information furnished by the Fund, or for delays caused by circumstances beyond the Bank's control, unless such loss, damage or expense arises out of the negligence or willful misconduct of the Bank. In no event shall the Bank be liable for special, indirect, or consequential damages, or for lost profits or loss of business, arising under or in connection with this Agreement, even if previously informed of the possibility of such damages and regardless of the form of action. For purposes of this provision, if as a result of the negligence or willful misconduct of the Bank there is a material error in the net asset value per share of the Fund, the material losses of the Fund on the sale and issuance, or the redemption, of its shares attributable to such material error shall be direct money damages. 5 18. Without limiting the generality of the foregoing, (i) the Bank shall indemnify the Fund against any loss, damage or expense, including reasonable counsel fees and other costs and expenses of a defense against any claim or liability, arising out of the negligence or willful misconduct of the Bank, except that in no event shall the Bank be liable for special, indirect, or consequential damages, or for lost profits or loss of business, and (ii) the Fund shall indemnify the Bank against any loss, damage or expense, including reasonable counsel fees and other costs and expenses of a defense against any claim or liability, arising from any one or more of the following, except that in no event shall the Fund be liable for special, indirect, or consequential damages, or for lost profits or loss of business: (a) Errors in records or instructions, explanations, information, specifications or documentation of any kind, as the case may be, supplied to the Bank by the Fund, or, subject to the provisions of paragraph 9, by a pricing or similar service which the Bank in its judgment deems reliable; (b) Action or inaction taken or omitted to be taken by the Bank pursuant to written or oral instructions of the Fund without negligence or willful misconduct; (c) Any action taken or omitted to be taken by the Bank in good faith and with notice to the Fund, in accordance with the advice or opinion of counsel for the Fund or Bank counsel; (d) Any improper use by the Fund or its agents, distributor or investment advisor of any valuations or computations supplied by the Bank pursuant to this Agreement; 6 (e) The method of valuation of the Securities and the method of computing each Fund's net asset value; or (f) Any valuations of Securities or net asset value provided by the Fund. 19. In consideration for all of the services to be performed by the Bank as set forth herein the Bank shall be entitled to receive reimbursement for all out-of-pocket expenses and such compensation as may be agreed upon in writing from time to time between the Bank and the Fund. 20. Attached hereto as Appendix B is a list of persons duly authorized by the Fund's Declaration of Trust and By-Laws to execute this Agreement and give any written, electronic or oral instructions, or written, electronic or oral specifications, by or on behalf of the Fund. From time to time the Fund may deliver a new Appendix B to add or delete any person and the Bank shall be entitled to rely on the last Appendix B actually received by the Bank. 21. The Fund represents and warrants to the Bank that it has all requisite power to execute and deliver this Agreement, to give any written, electronic or oral instructions contemplated hereby, and to perform the actions or obligations contemplated to be performed by it hereunder, and has taken all necessary action to authorize such execution, delivery, and performance. 22. This Agreement shall not be assignable by the Fund without the prior written consent of the Bank, or by the Bank without the prior written consent of the Fund, which consents shall not be unreasonably withheld. 23. Either of the parties hereto may terminate this Agreement by giving the other party a notice in writing specifying the date of such termination, which shall not be less than sixty (60) days after the date of giving of such notice. Upon the date set forth in such notice, the Bank shall deliver to the Fund all its records. 7 24. This Agreement may not be amended or modified in any manner except by written agreement executed by both parties hereto. 25. This Agreement shall be construed in accordance with the substantive laws of The Commonwealth of Massachusetts without regard to conflicts of laws principals. The Fund and the Bank each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. 26. The performance and provisions of this Agreement are intended to benefit only the Bank and the Fund, and no rights shall be granted to any other person by virtue of this Agreement. 27. The Fund and the Bank agree that the obligations of each Fund are not binding upon any of the Trustees/Directors, officers or shareholders of the Fund individually, but are binding only upon that Fund and its assets. Each Fund shall be severally, not jointly, liable for its own obligations under this Agreement. 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. Each John Hancock Fund listed on Schedule II By: /s/Richard A. Brown, SVP & CFO ------------------------------ Attest: /s/Rita A. Grimes - ----------------- THE BANK OF NEW YORK By: /s/James E. Hillman, SVP ------------------------ Attest: /s/Rita A. Grimes - ----------------- 9 APPENDIX A TO FUND ACCOUNTING AGREEMENT BETWEEN THE BANK OF NEW YORK AND The John Hancock Funds listed on Schedule II I._______The Bank of New York (the "Bank"), as agent for each John Hancock Fund listed on Schedule II (each a "Fund"), shall maintain the following records on a daily basis for each Fund. 1. Report of priced portfolio securities 2. Statement of net asset value per share II. The Bank shall maintain the following records on a monthly basis for each Fund: 1. General Ledger 2. General Journal 3. Cash Receipts Journal 4. Cash Disbursements Journal 5. Subscriptions Journal 6. Redemptions Journal 7. Accounts Receivable Reports 8. Accounts Payable Reports 9. Open Subscriptions/Redemption Reports 10. Transaction (Securities) Journal 11. Broker Net Trades Reports III. The Bank shall prepare a Holdings Ledger on a quarterly basis, and a Buy-Sell Ledger (Broker's Ledger) on a semiannual basis for each Fund. Schedule D shall be produced on an annual basis for each Fund. The above reports may be printed according to any other required frequency to meet the requirements of the Internal Revenue Service, the Securities and Exchange Commission and the Fund's Auditors. IV. For internal control purposes, the Bank uses the Account Journals produced by The Bank of New York Custody System to record daily settlements of the following for each Fund: 1. Securities bought 2. Securities sold 3. Interest received 4. Dividends received 5. Capital stock sold 6. Capital stock redeemed 7. Other income and expenses All portfolio purchases for the Fund are recorded to reflect expected maturity value and total cost including any prepaid interest. 2 SCHEDULE II John Hancock Funds (As of August 22, 2002) - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-3478429 John Hancock 500 Index Fund - -------------------------------------------------------------------------------- 04-3167136 John Hancock Balanced Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3241844 John Hancock Bank & Thrift Opportunity Fund - -------------------------------------------------------------------------------- 04-3551118 John Hancock Biotechnology Fund - -------------------------------------------------------------------------------- 04-2528977 John Hancock Bond Fund - -------------------------------------------------------------------------------- 76-0296100 John Hancock California Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3551126 John Hancock Communications Fund - -------------------------------------------------------------------------------- 04-3551129 John Hancock Consumer Industries Fund - -------------------------------------------------------------------------------- 04-3122478 John Hancock Core Equity Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3260671 John Hancock Dividend Performers Fund - -------------------------------------------------------------------------------- 04-3409706 John Hancock European Equity Fund - -------------------------------------------------------------------------------- 04-3305812 John Hancock Financial Industries Fund - -------------------------------------------------------------------------------- 56-1662953 John Hancock Financial Trends Fund, Inc. - -------------------------------------------------------------------------------- 04-3535633 John Hancock Focused Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-3313164 John Hancock Focused Small Cap Growth Fund - -------------------------------------------------------------------------------- 04-6944774 John Hancock Fundamental Value Fund - -------------------------------------------------------------------------------- 04-6543623 John Hancock Global Fund - -------------------------------------------------------------------------------- 76-0230587 John Hancock Government Income Fund - -------------------------------------------------------------------------------- 04-3524763 John Hancock Growth Trends Fund (add Class I eff 11/15/01) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 04-3124238 John Hancock Health Sciences Fund - -------------------------------------------------------------------------------- 04-3551132 John Hancock High Income Fund - -------------------------------------------------------------------------------- 76-0230586 John Hancock High Yield Bond Fund - -------------------------------------------------------------------------------- 76-0235997 John Hancock High Yield Municipal Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- 04-2507646 John Hancock Income Securities Trust - -------------------------------------------------------------------------------- 04-3260680 John Hancock Independence Diversified Core Equity Fund II (terminate Class P 9/13/01) - -------------------------------------------------------------------------------- 04-3214877 John Hancock International Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-6944776 John Hancock International Small Cap Growth Fund - -------------------------------------------------------------------------------- 76-0354706 John Hancock Investment Grade Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-2474663 John Hancock Investors Trust - -------------------------------------------------------------------------------- 74-6035056 John Hancock Large Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-2443211 John Hancock Large Cap Growth Fund - -------------------------------------------------------------------------------- 41-2025611 John Hancock Large Cap Spectrum Fund (launch 1/14, but no money until 2/22/02 - strike first NAV 2/25/02) - -------------------------------------------------------------------------------- 04-6564705 John Hancock Massachusetts Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3208756 John Hancock Mid Cap Growth Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 76-0230583 John Hancock Money Market Fund - -------------------------------------------------------------------------------- 04-3539446 John Hancock Multi-Cap Growth Fund - -------------------------------------------------------------------------------- 04-6564703 John Hancock New York Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-6567740 John Hancock Pacific Basin Equities Fund - -------------------------------------------------------------------------------- 04-3161453 John Hancock Patriot Global Dividend Fund - -------------------------------------------------------------------------------- 04-3190056 John Hancock Patriot Preferred Dividend Fund - -------------------------------------------------------------------------------- 04-3044078 John Hancock Patriot Premium Dividend Fund I - -------------------------------------------------------------------------------- 04-3097281 John Hancock Patriot Premium Dividend Fund II - -------------------------------------------------------------------------------- 04-3090916 John Hancock Patriot Select Dividend Trust - -------------------------------------------------------------------------------- John Hancock Preferred Income Fund (eff. 8/22/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 04-3435529 John Hancock Real Estate Fund - -------------------------------------------------------------------------------- 04-6526682 John Hancock Regional Bank Fund - -------------------------------------------------------------------------------- 04-3214880 John Hancock Small Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 76-0230584 John Hancock Small Cap Growth Fund - -------------------------------------------------------------------------------- 51-0094374 John Hancock Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-6956080 John Hancock Strategic Growth Fund (eff 12/01/01) - -------------------------------------------------------------------------------- 04-6545497 John Hancock Strategic Income Fund - -------------------------------------------------------------------------------- 76-0296098 John Hancock Tax-Free Bond Fund - -------------------------------------------------------------------------------- 13-3100162 John Hancock Technology Fund - -------------------------------------------------------------------------------- 76-0235823 John Hancock U.S. Government Cash Reserve - -------------------------------------------------------------------------------- 13-3843241 John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02) - -------------------------------------------------------------------------------- 04-3367188 John Hancock V.A. Financial Industries Fund - -------------------------------------------------------------------------------- 04-3402969 John Hancock V.A. Relative Value Fund - -------------------------------------------------------------------------------- 04-3326565 John Hancock V.A. Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-3326570 John Hancock V.A. Strategic Income Fund - -------------------------------------------------------------------------------- 04-3513386 John Hancock V.A. Technology Fund - -------------------------------------------------------------------------------- or: JOHN HANCOCK FUNDS listed above /s/Avery P. Maher ------------------------- By: Avery P. Maher Title: Second Vice President and Assistant Secretary Accepted and agreed for: THE BANK OF NEW YORK /s/Ira R. Rosner -------------------------- By: Ira R. Rosner Title: Vice President Corpsec/Agreement/custodian/BNYScheduleII APPENDIX B I, William H. King, Treasurer, of each John Hancock Fund listed on Schedule II, (each a "Fund"), do hereby certify that: The following individuals serve in the following positions with the Fund, and each has been duly elected or appointed by the Board of Trustees of the Fund to each such position and qualified therefor in conformity with the Fund's Declaration of Trust and By-Laws, and the signatures set forth opposite their respective names are their true and correct signatures. Each such person is authorized to give written or oral instructions or written or oral specifications by or on behalf of the Fund to the Bank. William H. King Treasurer /s/William H. King - --------------- --------- ------------------ Name Position Signature Robert E. Gramer Associate Treasurer /s/Robert E. Gramer - ---------------- ------------------- ------------------- Name Position Signature William J. Hayes Associate Treasurer /s/William J. Hayes - ---------------- ------------------- ------------------- Name Position Signature Cheryl J. Fahy Assistant Treasurer /s/Cheryl J. Fahy - ------------------ ------------------- ----------------- Name Position Signature Joan E. McCormick Assistant Treasurer /s/Joan E. McCormick - ----------------- ------------------- -------------------- Name Position Signature Joseph G. Thompson Assistant Treasurer /s/Joseph G. Thompson - ------------------ ------------------- --------------------- Name Position Signature S:\general\funds\authorizedsignersfundmoney FOREIGN CUSTODY MANAGER AGREEMENT AGREEMENT made as of September 10, 2001 between each John Hancock Fund listed on Schedule II (each a "Fund") and The Bank of New York ("BNY"). W I T N E S S E T H: WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager on the terms and conditions contained herein; WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform the duties set forth herein on the terms and conditions contained herein; NOW THEREFORE, in consideration of the mutual promises hereinafter contained in this Agreement, the Fund and BNY hereby agree as follows: ARTICLE I. DEFINITIONS Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: 1. "Board" shall mean the board of directors or board of trustees, as the case may be, of the Fund. 2. "Eligible Foreign Custodian" shall have the meaning provided in the Rule. 3. "Monitoring System" shall mean a system established by BNY to fulfill the Responsibilities specified in clauses (d) and (e) of Section 1 of Article III of this Agreement. 4. "Responsibilities" shall mean the responsibilities delegated to BNY under the Rule as a Foreign Custody Manager with respect to each Specified Country and each Eligible Foreign Custodian selected by BNY, as such responsibilities are more fully described in Article III of this Agreement. 5. "Rule" shall mean Rule 17f-5 under the Investment Company Act of 1940, as amended (the "1940 Act"). Specific references to Sections of the Rule (or of Rule 17f-7) in this Agreement shall mean those Sections as in effect as of the date of this Agreement. 6. "Risk Analysis" shall mean the analysis required under Rule 17f-7(a)(1)(A) under the 1940 Act. 7. "Securities Depository" shall mean a system for the central handling of securities as defined in Rule 17f-4 under the 1940 Act. 8. "Specified Country" shall mean each country listed on Schedule I attached hereto and each country, other than the United States, constituting the primary market for a security with respect to which the Fund has given settlement instructions to The Bank of New York as custodian (the "Custodian") under its Custody Agreement with the Fund. BNY agrees to notify immediately the Fund and the Fund's investment adviser if, at any time, BNY believes that it cannot perform, in accordance with the foregoing standard of care, its duties hereunder with respect to any Eligible Foreign Custodian. ARTICLE II. BNY AS A FOREIGN CUSTODY MANAGER 1. The Fund on behalf of its Board hereby delegates to BNY with respect to each Specified Country the Responsibilities. 2. BNY accepts the Board's delegation of Responsibilities with respect to each Specified Country and agrees in performing the Responsibilities as a Foreign Custody Manager to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Fund's assets would exercise. 3. BNY shall provide to the Board at least annually and at such other times as the Board deems reasonable and appropriate based on the circumstances of the Fund's foreign custody arrangements written reports, which shall include the following: (a) Information relating to Eligible Foreign Custodians. Such written reports shall include a list of all Eligible Foreign Custodians with which assets of the Fund are maintained, and notification of any material changes in the arrangements with such Eligible Foreign Custodians (including without limitation, adding a new Eligible Foreign Custodian, replacing an Eligible Foreign Custodian, changes in the capital structure of an existing Eligible Foreign Custodian and changes in the contract governing an arrangement with an Eligible Foreign Custodian). (b) Information relating to Securities Depositories. Such written report shall include a Risk Analysis with respect to each Securities Depository in each Specified Country. If a new Securities Depository commences operations in a Specified Country (or in the case of a new Specified Country), BNY shall promptly notify the Board and the Fund's investment adviser of such commencement and shall provide a Risk Analysis for such Securities Depository (or in the case of a new Specified Country, all Securities Depositories in such country) as soon as reasonably practicable after such Securities Depository becomes operational (or in the case of a new Specified Country, after such country becomes a Specified Country) but in any event prior to maintaining a Fund's assets with such Securities Depository. BNY shall also include in such written report a representation that each Securities Depository in which the Fund maintains assets is an "Eligible Foreign Custodian" as defined in Rule 17f-7 under the 1940 Act. (c) Information relating to Country Risk. Notwithstanding anything to the contrary in this Agreement or in the Custody Agreement between the Fund and BNY, with respect to each Specified Country, BNY shall promptly provide to the Board and to the Fund's investment adviser such information with respect to Country Risk (as defined in Section 2 of Article III hereof) as may be sent to, and received by, BNY from any Eligible Foreign Custodian. ARTICLE III. RESPONSIBILITIES 1. Subject to the provisions of this Agreement, BNY shall with respect to each Specified Country select an Eligible Foreign Custodian. In connection therewith, BNY shall: (a) determine that assets of the Fund held by such Eligible Foreign Custodian will be subject to reasonable care, based on the standards applicable to custodians in the relevant market in which such Eligible Foreign Custodian operates, after considering all factors relevant to the safekeeping of such assets, including, without limitation, those contained in paragraph (c)(1) of the Rule; (b) determine that the Fund's foreign custody arrangements with each Eligible Foreign Custodian are governed by a written contract with the Custodian which will provide reasonable care for the Fund's assets based on the standards specified in paragraph (c)(1) of the Rule; (c) determine that each contract with an Eligible Foreign Custodian shall include the provisions specified in paragraph (c)(2)(i)(A) through (F) of the Rule or, alternatively, in lieu of any or all of such (c)(2)(i)(A) through (F) provisions, such other provisions as BNY determines will provide, in their entirety, the same or a greater level of care and protection for the assets of the Fund as such specified provisions; (d) monitor pursuant to the Monitoring System the appropriateness of maintaining the assets of the Fund with a particular Eligible Foreign Custodian pursuant to paragraph (c)(1) of the Rule and the performance of the contract governing such arrangement; and (e) advise the Fund whenever BNY determines under the Monitoring System that an arrangement (including, any material change in the contract governing such arrangement) described in preceding clause (d) no longer meets the requirements of the Rule. 2. For purposes of clause (d) of preceding Section 1 of this Article, BNY's determination of appropriateness shall not include, nor be deemed to include, any evaluation of Country Risks associated with investment in a particular country. For purposes hereof, "Country Risks" shall mean systemic risks of holding assets in a particular country including but not limited to (a) an Eligible Foreign Custodian's use of any depositories that act as or operate a system or a transnational system for the central handling of securities or any equivalent book-entries; (b) such country's financial infrastructure; (c) such country's prevailing custody and settlement practices; (d) nationalization, expropriation or other governmental actions; (e) regulation of the banking or securities industry; (f) currency controls, restrictions, devaluations or fluctuations; and (g) market conditions which affect the orderly execution of securities transactions or affect the value of securities. ARTICLE IV. REPRESENTATIONS 1. The Fund hereby represents that this Agreement has been duly authorized, executed and delivered by the Fund, constitutes a valid and legally binding obligation of the Fund enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on the Fund prohibits the Fund's execution or performance of this Agreement; and this Agreement has been approved by the Board at a meeting duly called and at which a quorum was at all times present. 2. BNY hereby represents that: (a) BNY is duly organized and existing under the laws of the State of New York, with full power to carry on its businesses as now conducted, and to enter into this Agreement and to perform its obligations hereunder; (b) this Agreement has been duly authorized, executed and delivered by BNY, constitutes a valid and legally binding obligation of BNY enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on BNY prohibits BNY's execution or performance of this Agreement; and (c) BNY has established the Monitoring System. ARTICLE V. CONCERNING BNY 1. BNY shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, the Fund except to the extent the same arises out of the failure of BNY to exercise the care, prudence and diligence required by Section 2 of Article II hereof. In no event shall BNY be liable to the Fund, the Board, or any third party for special, indirect or consequential damages, or for lost profits or loss of business, arising in connection with this Agreement. 2. The Fund shall indemnify BNY and hold it harmless from and against any and all costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, BNY by reason or as a result of any action or inaction, or arising out of BNY's performance hereunder, provided that the Fund shall not indemnify BNY to the extent any such costs, expenses, damages, liabilities or claims arises out of BNY's failure to exercise the reasonable care, prudence and diligence required by Section 2 of Article II hereof. In no event shall the Fund be liable to BNY for any special, indirect or consequential damages, or for lost profits or loss of business, arising in connection with this Agreement. BNY shall indemnify the Fund and hold it harmless from and against any and all costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, the Fund by reason or as a result of BNY's failure to exercise the reasonable care, prudence and diligence required by Section 2 of Article II hereof; provided, however, that BNY shall not be liable to the Fund for any special, indirect or consequential damages, or for lost profits or loss of business, arising in connection with this Agreement. 3. For its services hereunder, the Fund agrees to pay to BNY such compensation and out-of-pocket expenses as shall be mutually agreed. 4. BNY shall have only such duties as are expressly set forth herein. In no event shall BNY be liable for any Country Risks associated with investments in a particular country, except that BNY shall timely forward such information with respect to Country Risk, if any, as may have been sent to, and received by, BNY from any Eligible Foreign Custodian. ARTICLE VI. MISCELLANEOUS 1. This Agreement sets forth BNY's duties with respect to, among other things, the selection of Foreign Custodians, the administration of contracts with Foreign Custodians, the addition and deletion of Foreign Custodians, the issuance of reports in connection with such duties, the monitoring of such duties, and the supplying of information with respect to Country Risk. The terms of the Custody Agreement between the Fund and BNY, as amended from time to time, shall apply generally as to matters not expressly covered in this Agreement, including dealings with the Foreign Custodians in the course of discharge of BNY's obligations under the Custody Agreement. The terms of this Agreement shall control to the extent of any conflicts between this Agreement and the Custody Agreement. Except as set forth in this Article, nothing in this Agreement shall affect the obligations of the parties hereto under any other agreement. 2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to BNY, shall be sufficiently given if received by it at its offices at 100 Church Street, 10th Floor, New York, New York 10286, or at such other place as BNY may from time to time designate in writing. 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if received by it at its offices at 101 Huntington Avenue, Boston, Massachusetts 02199, or at such other place as the Fund may from time to time designate in writing. 4. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided however, that this Agreement shall not be assignable by either party without the written consent of the other, which consent shall not be unreasonably withheld. 5. If at any time BNY shall be a party to an agreement to serve as a Foreign Custody Manager to an investment company that provides for either (i) a standard of care with respect to the selection of Foreign Custodians in any jurisdiction higher than that set forth in Article I of this Agreement or (ii) a standard of care with respect to BNY exercising its duties as Foreign Custody Manager in any jurisdiction or with regard to its responsibilities under Rule 17f-7 higher than those set forth in Article II, Section 2 of this Agreement, BNY agrees to notify the Fund of this fact and to raise the applicable standard of care hereunder in the applicable jurisdiction to the standard specified in such other agreement. 6. The Fund and BNY agree that the obligations of each Fund are not binding upon the Trustees/Directors, officers or shareholders of the Fund individually, but are binding only upon that Fund and its assets. Each Fund shall be severally, not jointly, liable for its own obligations under this agreement. This Agreement shall be construed in accordance with the substantive laws of The Commonwealth of Massachusetts, without regard to conflicts of laws principles thereof. The Fund and BNY each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. The parties hereto agree that in performing hereunder, BNY is acting solely on behalf of the Fund and no contractual or service relationship shall be deemed to be established hereby between BNY and any other person by reason of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. This Agreement shall terminate simultaneously with the termination of the Custody Agreement between the Fund and the Custodian, and may otherwise be terminated by either party giving to the other party a notice in writing specifying the date of such termination, which shall be not less than thirty (30) days after the date of such notice. IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the date first above written. Each John Hancock Fund listed on Schedule II By:/s/Richard A. Brown ------------------- Title: Senior Vice President & CFO THE BANK OF NEW YORK By:/s/James E. Hillman ------------------- Title: Senior Vice President SCHEDULE I Date: July 23, 2001 To: International Markets Committee From: Bob Pieroni Re: Approved Country Listing - Funds - -------------------------------------------------------------------------------- SIPC and the International Market Committee have approved the following countries for investments by John Hancock funds: Argentina Greece Australia Hong Kong Peru Austria Hungary Philippines Bangladesh Iceland Poland Belgium India Portugal Bermuda Indonesia Romania Brazil Ireland Russia* Botswana Israel Singapore Bulgaria ** Italy Slovak Republic Canada Japan South Africa Chile Kenya Spain China Korea Sweden Columbia Latvia Switzerland Costa Rica Lithuania Taiwan Croatia Luxembourg Thailand Czech Republic Malaysia Turkey Denmark Mauritius United Kingdom Egypt ** Mexico United States Estonia Netherlands Venezuela Finland New Zealand Zimbabwe France Norway Germany Panama Ghana Pakistan * Please note that Russia is restricted to Sovereign Russian and municipal fixed income securities only and these investments are further restricted to only certain fixed income accounts. Please consult Operations or Legal for detailed listing. Investments in other countries (including ADR & GDR vehicles) are not permitted - ------------------------------------------------------------------------------- without prior approval from the International Markets Committee. - ---------------------------------------------------------------- ** Addition since 1/1/01 Cc: Merrill Lynch Asset Management Nicholas Applegate American Fund Advisers SCHEDULE II John Hancock Funds (As of August 22, 2002) - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-3478429 John Hancock 500 Index Fund - -------------------------------------------------------------------------------- 04-3167136 John Hancock Balanced Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3241844 John Hancock Bank & Thrift Opportunity Fund - -------------------------------------------------------------------------------- 04-3551118 John Hancock Biotechnology Fund - -------------------------------------------------------------------------------- 04-2528977 John Hancock Bond Fund - -------------------------------------------------------------------------------- 76-0296100 John Hancock California Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3551126 John Hancock Communications Fund - -------------------------------------------------------------------------------- 04-3551129 John Hancock Consumer Industries Fund - -------------------------------------------------------------------------------- 04-3122478 John Hancock Core Equity Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-3260671 John Hancock Dividend Performers Fund - -------------------------------------------------------------------------------- 04-3409706 John Hancock European Equity Fund - -------------------------------------------------------------------------------- 04-3305812 John Hancock Financial Industries Fund - -------------------------------------------------------------------------------- 56-1662953 John Hancock Financial Trends Fund, Inc. - -------------------------------------------------------------------------------- 04-3535633 John Hancock Focused Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-3313164 John Hancock Focused Small Cap Growth Fund - -------------------------------------------------------------------------------- 04-6944774 John Hancock Fundamental Value Fund - -------------------------------------------------------------------------------- 04-6543623 John Hancock Global Fund - -------------------------------------------------------------------------------- 76-0230587 John Hancock Government Income Fund - -------------------------------------------------------------------------------- 04-3524763 John Hancock Growth Trends Fund (add Class I eff 11/15/01) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 04-3124238 John Hancock Health Sciences Fund - -------------------------------------------------------------------------------- 04-3551132 John Hancock High Income Fund - -------------------------------------------------------------------------------- 76-0230586 John Hancock High Yield Bond Fund - -------------------------------------------------------------------------------- 76-0235997 John Hancock High Yield Municipal Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- 04-2507646 John Hancock Income Securities Trust - -------------------------------------------------------------------------------- 04-3260680 John Hancock Independence Diversified Core Equity Fund II (terminate Class P 9/13/01) - -------------------------------------------------------------------------------- 04-3214877 John Hancock International Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 04-6944776 John Hancock International Small Cap Growth Fund - -------------------------------------------------------------------------------- 76-0354706 John Hancock Investment Grade Bond Fund (name change eff. 1/1/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EIN Name - -------------------------------------------------------------------------------- 04-2474663 John Hancock Investors Trust - -------------------------------------------------------------------------------- 74-6035056 John Hancock Large Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 04-2443211 John Hancock Large Cap Growth Fund - -------------------------------------------------------------------------------- 41-2025611 John Hancock Large Cap Spectrum Fund (launch 1/14, but no money until 2/22/02 - strike first NAV 2/25/02) - -------------------------------------------------------------------------------- 04-6564705 John Hancock Massachusetts Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-3208756 John Hancock Mid Cap Growth Fund (add Class I eff. 3/15/02) - -------------------------------------------------------------------------------- 76-0230583 John Hancock Money Market Fund - -------------------------------------------------------------------------------- 04-3539446 John Hancock Multi-Cap Growth Fund - -------------------------------------------------------------------------------- 04-6564703 John Hancock New York Tax-Free Income Fund - -------------------------------------------------------------------------------- 04-6567740 John Hancock Pacific Basin Equities Fund - -------------------------------------------------------------------------------- 04-3161453 John Hancock Patriot Global Dividend Fund - -------------------------------------------------------------------------------- 04-3190056 John Hancock Patriot Preferred Dividend Fund - -------------------------------------------------------------------------------- 04-3044078 John Hancock Patriot Premium Dividend Fund I - -------------------------------------------------------------------------------- 04-3097281 John Hancock Patriot Premium Dividend Fund II - -------------------------------------------------------------------------------- 04-3090916 John Hancock Patriot Select Dividend Trust - -------------------------------------------------------------------------------- John Hancock Preferred Income Fund (eff. 8/22/02) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 04-3435529 John Hancock Real Estate Fund - -------------------------------------------------------------------------------- 04-6526682 John Hancock Regional Bank Fund - -------------------------------------------------------------------------------- 04-3214880 John Hancock Small Cap Equity Fund (name change eff. 3/1/02) - -------------------------------------------------------------------------------- 76-0230584 John Hancock Small Cap Growth Fund - -------------------------------------------------------------------------------- 51-0094374 John Hancock Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-6956080 John Hancock Strategic Growth Fund (eff 12/01/01) - -------------------------------------------------------------------------------- 04-6545497 John Hancock Strategic Income Fund - -------------------------------------------------------------------------------- 76-0296098 John Hancock Tax-Free Bond Fund - -------------------------------------------------------------------------------- 13-3100162 John Hancock Technology Fund - -------------------------------------------------------------------------------- 76-0235823 John Hancock U.S. Government Cash Reserve - -------------------------------------------------------------------------------- 13-3843241 John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02) - -------------------------------------------------------------------------------- 04-3367188 John Hancock V.A. Financial Industries Fund - -------------------------------------------------------------------------------- 04-3402969 John Hancock V.A. Relative Value Fund - -------------------------------------------------------------------------------- 04-3326565 John Hancock V.A. Sovereign Investors Fund - -------------------------------------------------------------------------------- 04-3326570 John Hancock V.A. Strategic Income Fund - -------------------------------------------------------------------------------- 04-3513386 John Hancock V.A. Technology Fund - -------------------------------------------------------------------------------- or: JOHN HANCOCK FUNDS listed above /s/Avery P. Maher ------------------------- By: Avery P. Maher Title: Second Vice President and Assistant Secretary Accepted and agreed for: THE BANK OF NEW YORK /s/Ira R. Rosner -------------------------- By: Ira R. Rosner Title: Vice President Corpsec/Agreement/custodian/BNYScheduleII APPENDIX A SUB-CUSTODIAN INDEMNIFICATION POLICY
- ----------------------------- -------------- ----------------- ----------------------------------------------------- Market A B Sub-Custodian - ----------------------------- -------------- ----------------- ----------------------------------------------------- Argentina X Banco Rio de la Plata - ----------------------------- -------------- ----------------- ----------------------------------------------------- Australia X National Australia Bank Ltd. X Commonwealth Bank of Australia - ----------------------------- -------------- ----------------- ----------------------------------------------------- Austria X Bank Austria AG - ----------------------------- -------------- ----------------- ----------------------------------------------------- Bahrain X HSBC Bank Middle East - ----------------------------- -------------- ----------------- ----------------------------------------------------- Bangladesh X Standard Chartered Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- Belgium X Banque Bruxelles Lambert - ----------------------------- -------------- ----------------- ----------------------------------------------------- Benin X Societe Generale de Banques en Cote d'Ivoire - ----------------------------- -------------- ----------------- ----------------------------------------------------- Bermuda X Bank of Bermuda Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Bolivia X Citibank - ----------------------------- -------------- ----------------- ----------------------------------------------------- Botswana X Barclays Bank of Botswana Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Brazil X Bank Boston - ----------------------------- -------------- ----------------- ----------------------------------------------------- Bulgaria X ING Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- Burkina Faso X Societe Generale de Banques en Cote d'Ivoire - ----------------------------- -------------- ----------------- ----------------------------------------------------- Canada X Royal Bank of Canada - ----------------------------- -------------- ----------------- ----------------------------------------------------- Chile X Bank Boston N.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- China X Standard Chartered Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- Colombia X Cititrust Colombia, S.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Costa Rica X Banco BCT - ----------------------------- -------------- ----------------- ----------------------------------------------------- Croatia X Privredna Banka Zqgreb d.d. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Cyprus X Bank of Cyprus - ----------------------------- -------------- ----------------- ----------------------------------------------------- Czech Republic X Ceskoslovenska Obchodni Banka, A.S. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Denmark X Den Danske Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- EASDAQ X Banque Bruxelles Lambert - ----------------------------- -------------- ----------------- ----------------------------------------------------- Ecuador X Citibank, N.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Egypt X Citibank, N.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Estonia X Hansabank Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Euromarket - Cedel X Clearstream Euroclear X Euroclear - ----------------------------- -------------- ----------------- ----------------------------------------------------- Finland X Merita Bank plc - ----------------------------- -------------- ----------------- ----------------------------------------------------- France X Paribas - ----------------------------- -------------- ----------------- ----------------------------------------------------- Germany X Dresdner Bank AG - ----------------------------- -------------- ----------------- ----------------------------------------------------- Ghana X Barclays Bank of Ghana Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Greece X Paribas - ----------------------------- -------------- ----------------- ----------------------------------------------------- Guinea Bissau X Societe Generale de Banques en Cote d'Ivoire - ----------------------------- -------------- ----------------- ----------------------------------------------------- Hong Kong X HSBC - ----------------------------- -------------- ----------------- ----------------------------------------------------- Hungary X Citibank Budapest Rt. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Iceland X Landsbanki Islands - ----------------------------- -------------- ----------------- ----------------------------------------------------- India X HSBC X Deutsche Bank AG - ----------------------------- -------------- ----------------- ----------------------------------------------------- Indonesia X HSBC - ----------------------------- -------------- ----------------- ----------------------------------------------------- Ireland X Allied Irish Banks, plc - ----------------------------- -------------- ----------------- ----------------------------------------------------- A= BNY will accept responsibility for negligence and wilful misconduct by the subcustodian. B= BNY does not guarantee or indemnify but will provide "Pass-Through" for any situations. APPENDIX A SUB-CUSTODIAN INDEMNIFICATION POLICY - ----------------------------- -------------- ----------------- ----------------------------------------------------- Market A B Sub-Custodian - ----------------------------- -------------- ----------------- ----------------------------------------------------- Israel X Bank Leumi LE - Israel B.M. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Italy X Banca Commerciale Italiana X Paribas - ----------------------------- -------------- ----------------- ----------------------------------------------------- Ivory Coast X Societe Generale - Abidjan - ----------------------------- -------------- ----------------- ----------------------------------------------------- Jamaica X CIBC Trust & Merchant Bank Jamaica Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Japan X The Fuji Bank Ltd. X The Bank of Tokyo-Mitsubishi Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Jordan X HSBC Bank Middle East - ----------------------------- -------------- ----------------- ----------------------------------------------------- Kazakhstan X ABN/AMRO - ----------------------------- -------------- ----------------- ----------------------------------------------------- Kenya X Barclays Bank of Kenya Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Latvia X Hansabanka Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Lebanon X HSBC Bank Middle East - ----------------------------- -------------- ----------------- ----------------------------------------------------- Lithuania X Vilniaus Bankas - ----------------------------- -------------- ----------------- ----------------------------------------------------- Luxembourg X Banque et Caisse d'Espargne de l'Etat - ----------------------------- -------------- ----------------- ----------------------------------------------------- Malaysia X HongKong Bank Malaysia Berhad - ----------------------------- -------------- ----------------- ----------------------------------------------------- Mali X Societe Generale de Banques en Cote d'Ivoire - ----------------------------- -------------- ----------------- ----------------------------------------------------- Malta X HSBC Bank Malta plc - ----------------------------- -------------- ----------------- ----------------------------------------------------- Mauritius X HSBC - ----------------------------- -------------- ----------------- ----------------------------------------------------- Mexico X Banco Nacional de Mexico - ----------------------------- -------------- ----------------- ----------------------------------------------------- Morocco X Banque Commerciale du Maroc - ----------------------------- -------------- ----------------- ----------------------------------------------------- Namibia X Stanbic Bank Namibia Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Netherlands X Mees Pierson - ----------------------------- -------------- ----------------- ----------------------------------------------------- New Zealand X Australia & New Zealand Banking Group - ----------------------------- -------------- ----------------- ----------------------------------------------------- Niger X Societe Generale de Banques en Cote d'Ivoire - ----------------------------- -------------- ----------------- ----------------------------------------------------- Nigeria X Stanbic Merchant Bank Nigeria Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Norway X Den Norske Bank ASA - ----------------------------- -------------- ----------------- ----------------------------------------------------- Oman X HSBC Bank Middle East Pakistan X Standard Chartered Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- Panama X BankBoston, N.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Peru X Citibank, N.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Philippines X HSBC - ----------------------------- -------------- ----------------- ----------------------------------------------------- Poland X Bank Handlowy W Warszawie S.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Portugal X Banco Comercial Portugues - ----------------------------- -------------- ----------------- ----------------------------------------------------- Romania X ING Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- Russia X Vneshtorgbank X Credit Suisse First Boston AO - ----------------------------- -------------- ----------------- ----------------------------------------------------- Senegal X Societe Generale de Banques en Cote d'Ivoire - ----------------------------- -------------- ----------------- ----------------------------------------------------- Singapore X United Overseas Bank Ltd. X The Development. Bank of Singapore Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Slovakia X Ceskoslovenska Obchodni Banka, AS - ----------------------------- -------------- ----------------- ----------------------------------------------------- Slovenia X Bank Austria Creditanstalt d.d. Ljublijan - ----------------------------- -------------- ----------------- ----------------------------------------------------- South Africa X Societe Generale Johannesburg X The Standard Bank of South Africa Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- A= BNY will accept responsibility for negligence and wilful misconduct by the subcustodian. B= BNY does not guarantee or indemnify but will provide "Pass-Through" for any situations. APPENDIX A SUB-CUSTODIAN INDEMNIFICATION POLICY - ----------------------------- -------------- ----------------- ----------------------------------------------------- Market A B Sub-Custodian - ----------------------------- -------------- ----------------- ----------------------------------------------------- South Korea X Standard Chartered Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- Spain X Banco Bilboa Vizcaya Argentaria S.A. (BBVA) - ----------------------------- -------------- ----------------- ----------------------------------------------------- Sri Lanka X Standard Chartered Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- Swaziland X Stanbic Bank Swaziland Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Sweden X Skandinaviska Enskilda Banken - ----------------------------- -------------- ----------------- ----------------------------------------------------- Switzerland X Credit Suisse First Boston - ----------------------------- -------------- ----------------- ----------------------------------------------------- Taiwan X HSBC - ----------------------------- -------------- ----------------- ----------------------------------------------------- Thailand X Standard Chartered Bank X Bangkok Bank Public Company Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Togo X Societe Generale de Banques en Cote d'Ivoire - ----------------------------- -------------- ----------------- ----------------------------------------------------- Trinidad & Tobago X Republic Bank Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Tunisia X Banque Internationale Arabe de Tunisie - ----------------------------- -------------- ----------------- ----------------------------------------------------- Turkey X Osmanli Bankasi A.S. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Ukraine X ING Bank - ----------------------------- -------------- ----------------- ----------------------------------------------------- United Kingdom NA NA The Bank of New York X The Depository & Clearing Centre (DCC) - ----------------------------- -------------- ----------------- ----------------------------------------------------- United States NA NA The Bank of New York - ----------------------------- -------------- ----------------- ----------------------------------------------------- Uruguay X Bank Boston, N.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Venezuela X Citibank, N.A. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Zambia X Barclays Bank of Zambia Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- Zimbabwe X Barclays Bank of Zimbabwe Ltd. - ----------------------------- -------------- ----------------- ----------------------------------------------------- A= BNY will accept responsibility for negligence and wilful misconduct by the subcustodian. B= BNY does not guarantee or indemnify but will provide "Pass-Through" for any situations.
Fee Schedule for JOHN HANCOCK FUNDS Listed on Schedule II ---------------------------------------- DOMESTIC CUSTODY FEE SCHEDULE 1. Securities Settled and Safekept Within the United States. The Bank of New York's fee for custody services for each account is as follows: Maintenance Charges Asset Holding Annual Basis Points - -------------------------------------------------------------------------------- 0 - $10 billion .25 Excess .15 Transaction Charges Category Per Transaction - -------------------------------------------------------------------------------- Receive/Delivery - Book Entry $ 5.00 Receive/Delivery - PTC 5.00 Receive/Delivery - Physical 15.00 P & I Payments 5.00 Wires In/Out and official check requests to pay 3.50 Fund related expenses A transaction is defined as a receipt or delivery versus payment or a free receipt or deliver. II. General - Account Maintenance: Monthly fee of $50.00 per account. (Waived) - On-Line Services: $200.00 monthly access fee. (Waived) - Dedicated Line Services: Charged as pass through costs. 1 GLOBAL SECURITIES FEE SCHEDULE ADMINISTRATION/ INSTRUCTION FEE SAFEKEEPING FEE (PER INSTRUCTION) COUNTRY (IN BASIS POINTS)* (U.S. DOLLARS) - -------------------------------------------------------------------------------- Argentina (Equities)..................... 22.0 ............. 60 Argentina (Bonds)........................ 18.0 ............. 60 Australia................................ 3.0 ............. 45 Austria (ATS Securities)................. 4.5 ............. 55 Bahrain.................................. 50.0 ............. 140 Bangladesh............................... 50.0 ............. 165 Belgium (Equities)....................... 3.5 ............. 50 Belgium (Bonds).......................... 2.5 ............. 50 Belgium (T/Bills)........................ 2.0 ............. 50 Bermuda.................................. 22.0 ............. 80 Bolivia.................................. 60.0 ............. 150 Botswana................................. 45.0 ............. 150 Brazil................................... 22.0 ............. 30 Bulgaria................................. 45.0 ............. 95 Canada................................... 2.0 ............. 18 Chile.................................... 22.0 ............. 85 China.................................... 22.0 ............. 80 Colombia................................. 50.0 ............. 115 Costa Rica............................... 22.0 ............. 75 Croatia.................................. 35.0 ............. 85 Cyprus................................... 22.0 ............. 65 Czech Republic (Equities/Bonds).......... 22.0 ............. 75 Czech Republic (T/Bills)................. 18.0 ............. 75 Denmark.................................. 3.5 ............. 55 EASDAQ................................... 5.5 ............. 60 Ecuador.................................. 40.0 ............. 85 Egypt.................................... 45.0 ............. 115 Estonia.................................. 12.0 ............. 45 Euromarkets (Euroclear - Eurobonds only**)....................... 1.8 ............. 18 Finland.................................. 6.0 ............. 55 France................................... 3.25 ............. 50 Germany.................................. 2.5 ............. 35 Ghana.................................... 45.0 ............. 150 Greece (Equities)........................ 22.0 ............. 105 Greece (Bonds)........................... 16.0 ............. 105 Hong Kong (Equities/Bonds)............... 6.0 ............. 70 Hong Kong (CMU Bonds).................... 4.0 ............. 50 Hungary (KELER - Equities)............... 30.0 ............. 85 Hungary (KELER - Bonds).................. 30.0 ............. 65 Iceland ................................. 28.0 ............. 80 2 ADMINISTRATION/ INSTRUCTION FEE SAFEKEEPING FEE (PER INSTRUCTION) COUNTRY (IN BASIS POINTS)* (U.S. DOLLARS) - -------------------------------------------------------------------------------- India (Dematerialized Securities)....... 20.0 ............. 160 India (Physical Securities)............. 70.0 ............. 335 Indonesia............................... 13.0 ............. 105 Ireland................................. 3.75 ............. 40 Israel.................................. 22.0 ............. 50 Italy................................... 3.25 ............. 55 Ivory Coast............................. 50.0 ............. 155 Jamaica................................. 45.0 ............. 75 Japan................................... 2.5 ............. 25 Jordan (Equities/Bonds)................. 45.0 ............. 140 Jordan (Gov't Bonds).................... 26.0 ............. 100 Kazakhstan (Equities)................... 60.0 ............. 150 Kazakhstan (Bonds)...................... 40.0 ............. 160 Kenya................................... 45.0 ............. 150 Latvia.................................. 55.0 ............. 70 Lebanon (Equities/Bonds)................ 50.0 ............. 140 Lebanon (Gov't Bonds)................... 26.0 ............. 100 Lithuania............................... 22.0 ............. 55 Luxembourg.............................. 5.5 ............. 55 Malaysia................................ 6.0 ............. 65 Malta................................... 22.0 ............. 75 Mauritius............................... 35.0 ............. 135 Mexico.................................. 9.0 ............. 40 Morocco................................. 40.0 ............. 115 Namibia................................. 32.0 ............. 75 Netherlands............................. 4.0 ............. 40 New Zealand............................. 3.5 ............. 50 Nigeria................................. 32.0 ............. 75 Norway.................................. 4.0 ............. 55 Oman.................................... 50.0 ............. 140 Pakistan................................ 35.0 ........... 135 Panama.................................. 65.0 ........... 85 Peru.................................... 40.0 ........... 90 Philippines............................. 10.0 ........... 90 Poland (Equities/Bonds)................. 25.0 ........... 75 Poland (T/Bills) ....................... 12.0 ........... 75 Portugal................................ 10.0 ........... 75 Romania................................. 45.0 ........... 85 Russia (Equities)....................... 65.0 ........... 160 Russia (MinFins)........................ 16.0 ........... 85 Singapore............................... 5.0 ............. 60 Slovak Republic (Equities/Bonds)........ 30.0 ............. 140 Slovak Republic (Promissory Notes)...... 30.0 ............. 260 Slovenia................................ 45.0 ............. 70 South Africa............................ 4.0 ............. 40 South Korea............................. 11.0 ............. 60 Spain (Equities/Bonds).................. 4.5 ............. 60 Spain (Gov't Bonds)..................... 2.5 ............. 60 Sri Lanka............................... 18.0 ............. 90 Swaziland............................... 32.0 ............. 75 3 ADMINISTRATION/ INSTRUCTION FEE SAFEKEEPING FEE (PER INSTRUCTION) COUNTRY (IN BASIS POINTS)* (U.S. DOLLARS) - -------------------------------------------------------------------------------- Sweden.............................. 4.0 ............. 50 Switzerland......................... 4.0 ............. 60 Taiwan.............................. 16.0 ............. 90 Thailand............................ 7.0 ............. 75 Trinidad & Tobago................... 30.0 ............. 65 Tunisia (Equities).................. 50.0 ............. 65 Tunisia (Bonds)..................... 35.0 ............. 65 Tunisia (T/Bills)................... 12.0 ............. 65 Turkey (Equities)................... 18.0 ............. 55 Turkey (Bonds)...................... 15.0 ............. 55 UK.................................. 1.5 ............. 30 Ukraine (Equities).................. 70.0 ............. 260 Ukraine (Bonds)..................... 25.0 ............. 85 Uruguay (Equities).................. 60.0 ............. 90 Uruguay (Bonds)..................... 45.0 ............. 90 Venezuela........................... 45.0 ............. 140 Zambia.............................. 45.0 ............. 150 Zimbabwe............................ 45.0 ............. 150 * Fee is expressed in basis points per annum and is calculated based upon month-end market value. ** For non-Eurobond holdings in Euroclear, surcharges apply The above instruction fees are based on an assumption that BNY will receive instructions via SWIFT, BNY proprietary systems or other electronic medium as agreed by BNY. Instructions received through other medium (e.g. Facsimile) may be subject to a surcharge. Out of Pocket Expenses : Charges incurred by The Bank of New York for local taxes, stamp duties or other local duties and assessments, stock exchange fees, postage and insurance for shipping, facsimile reporting, extraordinary telecommunications fees or other unusual expenses which are unique to the country of investment, will be passed along as incurred. A Foreign Exchange transaction undertaken through a third party will be charged $35.00 per transaction. 4 FUND ACCOUNTING FEE SCHEDULE Accounting Fee (Based on market value of all funds at each calendar month-end) - -------------- 2.0 basis points, per annum, on the first $5 billion of net assets 1.5 basis points, per annum, on the next $5 billion of net assets 1.0 basis points, per annum, on the next $5 billion of net assets .75 basis points, per annum, on the excess of net assets Minimum Fees (Per fund) - ------------ (a)$30,000 minimum fee, per annum, per domestic portfolio (a)$30,000 minimum fee, per annum, per international portfolio Out-of-Pocket Expenses - ---------------------- Out-of-pocket expenses include, but are limited to, the cost of obtaining prices for security evaluations, the cost associated with attendance at Board presentations, legal fees, filing fees, miscellaneous printing, courier and express mail charges, etc. Billing Cycle - ------------- The above fees will be billed on a monthly basis. (a) Waived for the first 12 months on any new funds up to a maximum of four funds in any calendar year. This fee is waived for any fund undergoing an incubation exercise. - -------------------------------------------------------------------------------- Other ----- The Bank of New York agrees to rebate the following amount against fees due for accounting and custody services as follows: First 12 months @ $29,166.67 per month Next 12 months @ $20,833.33 per month Next 12 months @ $12,500.00 per month These fees are guaranteed for a period of three years from the date of the Contract. Agreed to and accepted by: John Hancock Funds listed on Schedule II The Bank of New York ---------------------------------------- -------------------- Name : Name: Title: Title: Date: Date: 5 EX-99.K 9 exk1.txt AMENDED TRANSFER AGENCY AGREEMENT [LOGO] November 29, 2002 Via Overnight Delivery Kimberely Dietrich Product Manager John Hancock Funds, Inc. 101 Huntington Avenue Boston, MA 02199 Dear Kimberely: In accordance with our existing transfer agency services agreement (the "Agreement") between John Hancock Preferred Income Fund, John Hancock Patriot Premium Dividend Fund I, John Hancock Patriot Premium Dividend Fund II, John Hancock Patriot Preferred Dividend Fund, John Hancock Patriot Global Dividend Fund, John Hancock Patriot Select Dividend Trust, John Hancock Investors Trust, John Hancock Income Securities Trust, John Hancock Bank And Thrift Opportunity Fund, each a Massachusetts Business Trust, a Maryland corporation (each a "Client" and collectively the "Clients") and Mellon Investor Services LLC, a New Jersey limited liability company ("Mellon"), dated as of June 1, 2002, both Mellon and Client hereby amend the Agreement to add the following fund to the Agreement under the same terms and conditions: The John Hancock Preferred Income Fund II. The fees established for services rendered to The John Hancock Preferred Income Fund II are listed within the enclosed schedule D hereby attached. If the Fund agrees to provide such services, please sign below and return a signed original of this letter to the undersigned. -------------------------------- Name: Susan S. Newton Title: Senior Vice President and Corporate Secretary Date: -------------------------------- Name: Lynore A. LeConche Title: Vice President Date: CC: Al Ouellette, Senior Attorney and Assistant Secretary FEE SCHEDULE TO JOHN HANCOCK PREFERRED INCOME FUND II
Initial Term of Agreement: Eighteen (18) months Annual Administrative Fee: $15,000 Annual Dividend Reinvestment Administrative Fee: $10,000 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 500 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 25 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 12 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 10 Number of certificates cancelled and book-entry debits 100 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service 300 Representative Number of shareholder written or E-mail inquiries 50 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-1 To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this amended agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: Purchasing or selling shares Duplicate 1099 requests Updating or changing consent to electronic delivery Forms or document requests Taxpayer certification Certificate issuance Update dividend reinvestment selection Duplicate book entry statement PIN change D-2 2. Active and Inactive accounts will be defined as follows: Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. Inactive accounts are defined as accounts with a share balance equal to zero and no outstanding cash balances and no taxable income to be reported to the Internal Revenue Service. D-3 LISTS / LABELS / ANALYSES FEE SCHEDULE LISTS Per name listed $0.05 LABELS Per label printed $0.05 ANALYSES Per name passed on data base $0.02 Per name listed in report $0.05 (Minimum charge for each of the above services will be $250.) D-4 MAILING SERVICES FEE SCHEDULE ADDRESSING Addressing mailing medium (per name) $0.05 AFFIXING Affixing labels (per label) $0.04 INSERTING Inserting Enclosures (Machine) 1st Enclosure (per piece) $0.05 2nd Enclosure (per piece) $0.04 Each Enclosure thereafter (per piece) $0.03 Inserting Enclosures (Manual) Charge will be determined based on analysis of work to be performed. (Minimum charge for any mailing will be $500.) D-5 EXPENSES AND OTHER CHARGES Fees and Out of Pocket Expenses: The cost of stationery and supplies, including but not limited to transfer sheets, dividend checks, envelopes, and paper stock, together with any disbursement for telephone, postage, mail insurance, travel for annual meeting, link-up charges for ADP and tape charges from DTC are billed in addition to the above fees. All charges and fees, out of pocket costs, expenses and disbursements of Mellon are due and payable by Client upon receipt of an invoice from Mellon. With respect to any shareholder mailing processed by Mellon, client shall, at least one business day prior to mail date, provide immediately available funds sufficient to cover all postage due on such mailing. For any dividend mailing, client shall, at least one business day prior to the mail date, also provide immediately available funds sufficient to pay the aggregate amount of dividends to be paid. If Client participates in the Direct Registration System, Mellon will provide a "sell" feature for liquidation of book-entry shares held on behalf of a shareholder. Upon receipt of a sell request by the registered shareholder, Mellon Bank, N.A. will process the request and remit the proceeds to the shareholder in the form of a check (less the appropriate fees). The charge for each such sale is $15.00 plus $0.12 per share or, if applicable, the fees quoted in the Client's stock purchase and / or dividend reinvestment plan. Offering Administration Fee: A minimum fee of $5,000 will be imposed for activities associated with initial public offerings (IPO's), secondary offerings and / or closings. The fee covers the coordination of efforts necessary between Mellon, the Client's underwriters, the banknote company and DTC in order to effect the closing. This fee will cover the issuance of up to 200 certificates and /or book-entry credits. Certificates and / or book-entry credits over this amount will be billed at $2.00 each. This fee is in addition to any fees Mellon may charge for coordination of selling shareholders, custody services and / or escrow services. Conversion: There shall be no charge for converting the Client's files to Mellon's systemunless extraordinary efforts will be required to complete the conversion, such as account history conversion or file format conversion. Mellon will review the conversion requirements and any charge will be discussed with and approved by the Client prior to work commencing. In addition, if an out-of-proof condition exists at the time of conversion, and such condition is not resolved within 90 days of such conversion, Client agrees to provide Mellon with funds or shares sufficient to resolve the out-of-proof condition promptly after the 90th day. Deconversion Fee: In the event Client requests that Mellon provide records to a successor agent, in connection with the expiration or termination of this Agreement, Client shall pay Mellon a fee for deconversion services (e.g., providing shareholder lists and files, producing and shipping records, answering successor agent inquiries). This fee will be based on Mellon's then-current deconversion fee schedule. Mellon may withhold the Client's records, reports and unused certificate stock from a successor agent pending the Client's payment in full of all fees and expenses owed to Mellon under this Agreement. Legal, Technological Expenses: Certain expenses may be incurred in resolving legal matters that arise in the course of performing services hereunder. This may result in a separate charge to cover Mellon's expenses (including the cost of external or internal counsel) in resolving such matters; provided that any legal expenses charged to the Clients shall be reasonable. Mellon shall use best efforts to consult with Client prior to incurring any material expenses in accordance with this paragraph. D-6 In the event any Federal regulation and/or state or local law are enacted which require Mellon to make any technological improvements and/or modifications to its current system, Client shall compensate Mellon, on a pro rata basis proportionate to the Client's registered shareholder base, for the costs associated with making such required technological improvements and/or modifications. Record Storage: Monthly fee of $2.50 per box, with a minimum charge of $50.00. Lost Shareholder Services: A fee of $3.00 will be charged for each lost account searched per database searched. A fee of $2.50 will be charged per account for each state mandated due diligence mailing. Other Services: Fees for any services provided to Client by or on behalf of Mellon hereunder that are not set forth in Exhibit B hereto or in this Exhibit D will be based on Mellon's standard fees at the time such services are provided or, if no standard fees have been established, an appraisal of the work to be performed. D-7 INVESTOR PLAN SERVICES FEE SCHEDULE - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Item Amount Note Paid By 1 ---- ------ ---- --------- - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Initial Purchase Fee via pre-authorized debit (PAD) or check $10.00 Per new investor C or P - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Fulfillment Processing $2.50 Per request 2 C - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Reinvestment Trading Fee $.10 Per share C or P - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Purchase of Additional Shares By check $5.00 Per investment C or P By PAD $3.00 Per investment C or P Trading Fee $.10 Per share C or P - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Sale of Shares 3 $5.00 C or P Trading Fee $.10 Per share C or P - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Safekeeping No charge - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Duplicate Statement - Prior Year $20.00 Per statement C or P - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Insufficient Funds or Rejected Automatic Debit $35.00 Per check or debit C or P - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Tape or file processing $250.00 Per tape or file C - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Other services including (but not limited to): Per Stock Transfer C or P Certificate Issuance Agency Contract Transfer of Shares - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Out of Pocket Expenses including (but not limited As incurred C to): Forms/Brochures, Postage, 800 Number, etc. - ---------------------------------------------------- ------------------------ -------------------------- ----------------- Notes - ---------------- --------------------------------------------------------------------------------------------------------- Note 1 Fees could be: "P", Participant Paid or "C", Company Paid - ---------------- --------------------------------------------------------------------------------------------------------- Note 2 Mellon recommends that initial plan roll out include a mailing to all registered shareholders (if 10,000 or less) of the enrollment packet. General mailings to existing shareholders will result in much lower cost to the issuer versus fulfillment process. Fulfillment will, therefore, be applicable to "unsolicited" requests for program material. - ---------------- --------------------------------------------------------------------------------------------------------- Note 3 Including sales of fractional shares upon termination from plan. - ---------------- ---------------------------------------------------------------------------------------------------------
D-8 EX-99.K 10 exk2.txt MASTER TRANSFER AGENCY AGREEMENT [LOGO] Mellon SERVICE AGREEMENT FOR TRANSFER AGENT SERVICES TO JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST JOHN HANCOCK INVESTORS TRUST JOHN HANCOCK INCOME SECURITIES TRUST JOHN HANCOCK BANK AND THRIFT OPPORTUNITY FUND THIS TRANSFER AGENT AGREEMENT (this "Agreement") between John Hancock Patriot Premium Dividend Fund I, John Hancock Patriot Premium Dividend Fund II, John Hancock Patriot Preferred Dividend Fund, John Hancock Patriot Global Dividend Fund, John Hancock Patriot Select Dividend Trust, John Hancock Investors Trust, John Hancock Income Securities Trust, John Hancock Bank And Thrift Opportunity Fund, each a Massachusetts Business Trust, a Maryland corporation (each a "Client" and collectively the "Clients") and Mellon Investor Services LLC, a New Jersey limited liability company ("Mellon"), is dated as of June 1, 2002. 1. Appointment. Clients appoint Mellon as their transfer agent, registrar and dividend disbursing agent and Mellon accepts such appointment in accordance with the following terms and conditions for all authorized shares of each class of common stock listed in Exhibit A hereto (the "Shares"). 2. Term and Termination of Agreement. (a) This Agreement shall commence on the date hereof and shall continue for a term of two years. Unless either party gives written notice of termination of this Agreement at least 60 days prior to the end of the initial two year term, or any successive one year term, this Agreement shall automatically renew for an additional one year term. (b) This Agreement may be terminated at any time by either party upon a material breach of a representation, covenant or term of this Agreement by the other which is not cured within a period not to exceed thirty (30) days after the date of written notice thereof by the other party. (c) Prior to termination of this Agreement, Clients must provide Mellon with written instructions as to the disposition of records, as well as any additional documentation reasonably requested by Mellon. Except as otherwise expressly provided in this Agreement, the respective rights and duties of Clients and Mellon under this Agreement shall cease upon termination of the appointment. (d) Upon receipt of written notice of termination, Mellon shall follow its standard procedures to facilitate the transition of services hereunder to a successor agent, and both parties agree to use commercially practicable efforts to effect an orderly termination of this Agreement. 3. Duties of Mellon. Mellon will provide the services listed in Exhibit B hereto, in the performance of its duties as transfer agent, registrar, and dividend disbursing agent. 4. Representations and Warranties of Mellon and Client. (a) Mellon represents, warrants and covenants to Clients that: (i) it is a limited liability company duly organized and existing and in good standing under the laws of the State of New Jersey; (ii) it is empowered under applicable laws and by its organizational documents to enter into and perform the Transfer Agent function per this Agreement; and (iii) all requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. (b) each Client represents, warrants and covenants to Mellon that: (i) the Shares issued and outstanding on the date hereof have been duly authorized, validly issued and are fully paid and are non-assessable; and any Shares to be issued hereunder, when issued, shall have been duly authorized, validly issued and fully paid and will be non-assessable; (ii) the Shares issued and outstanding on the date hereof have been duly registered under the Securities Act of 1933, as amended, and such registration has become effective, or are exempt from such registration; and have been duly registered under the Securities Exchange Act of 1934, as amended, or are exempt from such registration; (iii) any Shares to be issued hereunder, when issued shall have been duly registered under the Securities Act of 1933, as amended, and such registration shall have become effective or shall be exempt from such registration; and shall have been duly registered under the Securities Exchange Act of 1934, as amended, or shall be exempt from such registration; (iv) such Client has paid or caused to be paid all taxes, if any, that were payable upon or in respect of the original issuance of the Shares issued and outstanding on the date hereof; (v) the execution and delivery of this Agreement, and the issuance and any subsequent transfer of the Shares hereunder, do not and will not conflict with, violate, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, the charter or the by-laws of such Client, any law or regulation, any order or decree of any court or public authority having jurisdiction, or any mortgage, indenture, contract, agreement or undertaking to which such Client is a party or by which it is bound; and this Agreement is enforceable against such Client in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting the enforcement of creditors' rights generally; and (vi) such Client shall provide the documentation and notifications listed in Exhibit C hereto. Such Client further agrees to deliver an opinion of counsel as provided in Exhibit C, Section 7(a) and (b) upon any future original issuance of Shares for which Mellon will act as transfer agent hereunder. 5. Compensation and Expenses. Each Client shall compensate Mellon for its services hereunder in accordance with the fee schedules listed in Exhibit D hereto. In accordance with Exhibit D hereto, each Client shall reimburse Mellon for all reasonable expenses, disbursements or advances incurred by it in accordance herewith. All amounts owed to Mellon hereunder are due upon receipt of the invoice. Delinquent payments are subject to a late payment charge of one and one half percent (1.5%) per month commencing forty-five (45) days from the invoice date. Clients agree to reimburse Mellon for any reasonable attorney's fees and any other costs associated with collecting delinquent payments. 2 6. Scope of Agency. (a) Mellon shall act solely as agent for Clients under this Agreement and owes no duties hereunder to any other person. Mellon undertakes to perform the duties and only the duties that are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against Mellon. (b) Mellon may rely upon, and shall be protected in acting or refraining from acting in reliance upon, (i) any Client communication authorized by this Agreement, (ii) any communication from any predecessor Transfer Agent or co-Transfer Agent or from any Registrar (other than Mellon), predecessor Registrar or co-Registrar, and (iii) any other written instruction, notice, request, direction, consent, report, certificate, or other instrument, paper, document or electronic transmission believed by Mellon to be genuine and to have been signed or given by the proper party or parties. In addition, Mellon is authorized to refuse to make any transfer it deems improper. (c) Mellon may consult with counsel (including internal counsel) whose advice shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (d) Any instructions given by a Client to Mellon orally shall be confirmed in writing by such Client as soon as practicable. Mellon shall not be liable or responsible and shall be fully authorized and protected for acting, or failing to act, in accordance with any oral instructions which do not conform with the written confirmation received in accordance with this Section. (e) Mellon may perform any of its duties hereunder either directly or by or through agents or attorneys. (f) Mellon shall not be obligated to take any legal action hereunder; if, however, Mellon determines to take any legal action hereunder, and, where the taking of such legal action might in Mellon's judgment subject or expose Mellon to any expense or liability, Mellon shall not act unless it shall have been furnished with an indemnity satisfactory to it. 7. Indemnification. (a) Clients shall indemnify Mellon for, and hold it harmless against, any loss, liability, claim or expense ("Loss") arising out of or in connection with its duties under this Agreement or this appointment, including the costs and expenses of defending itself against any Loss or enforcing this Agreement, except to the extent that such Loss shall have been determined by a court of competent jurisdiction to be a result of Mellon's negligence or intentional misconduct. 3 (b) Mellon shall indemnify Clients for, and hold them harmless against, any Loss arising out of or in connection with Mellon's duties under this Agreement or this appointment, including the costs and expenses of defending Clients against any Loss or enforcing this Agreement, to the extent that such Loss shall have been determined by a court of competent jurisdiction to be a result of Mellon's negligence or intentional misconduct. (c) In order that the indemnification provisions contained in this Section shall apply, upon the assertion of a claim for which one party may be required to indemnify another, the indemnified party shall promptly notify the indemnifying party of such assertion, and shall keep such party advised with respect to all developments concerning such claim; provided, however, that a party's failure to so notify or advise the other party shall not limit such other party's indemnification obligation hereunder except to the extent that such other party has been materially prejudiced by such failure. The indemnifying party shall have the option to participate with the indemnified party in the defense of any such claim or to defend against said claim. In no case shall an indemnified party confess any claim or make any compromise in any case in which an indemnifying party may be required to indemnify it except with such indemnifying party's written consent. 8. Limitation of Liability. (a) In the absence of negligence or intentional misconduct on its part, Mellon shall not be liable for any action taken, suffered, or omitted by it or for any error of judgment made by it in the performance of its duties under this Agreement. Mellon's liability to each Client shall be limited in the aggregate to an amount equal to (12) times the flat monthly fee to be paid by such Client as set forth in Exhibit D hereto. In no event will Mellon be liable for special, indirect, incidental or consequential loss or damages of any kind whatsoever (including but not limited to lost profits), even if Mellon has been advised of the possibility of such damages. (b) In the event any question or dispute arises with respect to Mellon's duties hereunder, Mellon shall not be required to act or be held liable or responsible for its failure or refusal to act until the question or dispute has been (i) judicially settled (and, if appropriate, Mellon may file a suit in interpleader or for a declaratory judgment for such purpose) by final judgment rendered by a court of competent jurisdiction that is binding on all parties interested in the matter and is no longer subject to review or appeal, or (ii) settled by a written document in form and substance satisfactory to Mellon and executed by Client. In addition, Mellon may require for such purpose, but shall not be obligated to require, the execution of such written settlement by parties that may have an interest in the settlement. 9. Force Majeure. Mellon shall not be liable for any failures, delays or losses, arising directly or indirectly out of conditions beyond its reasonable control, including, but not limited to, acts of government, exchange or market ruling, suspension of trading, work stoppages or labor disputes, civil disobedience, riots, rebellions, electrical or mechanical failure, computer hardware or software failure, communications facilities failures including telephone failure, war, fires, earthquakes, storms, floods, acts of God or similar occurrences. 4 10. Market Data. Each Client acknowledges that Mellon may provide real-time or delayed quotations and other market information and messages ("Market Data"), which Market Data is provided to Mellon by certain national securities exchanges and associations who assert a proprietary interest in Market Data disseminated by them but do not guarantee the timeliness, sequence, accuracy or completeness thereof. Each Client agrees and acknowledges that Mellon shall not be liable in any way for any loss or damage arising from or occasioned by any inaccuracy, error, delay in, omission of, or interruption in any Market Data or the transmission thereof. 11. Bankruptcy; Non-payment; Reorganization. Subject to a reasonable opportunity for Clients to cure, Mellon may suspend transfers and/or terminate this Agreement with respect to a Client if (i) such Client fails to pay amounts due or defaults on any of its material obligations hereunder; (ii) any proceeding in bankruptcy, reorganization, receivership or insolvency is commenced by or against such Client, such Client shall become insolvent, or shall cease paying its obligations as they become due or makes any assignment for the benefit of its creditors; or (iii) such Client is acquired by or is merged with or into another entity where such Client is not the surviving company, or such Client sells all or substantially all of its assets. Each Client agrees that if any of the foregoing events shall occur and such Client failures to cure, all fees to which Mellon is or shall be entitled hereunder shall be immediately due and payable to Mellon. Unrealized fees will be calculated from the termination date to the expiration date of the then current term based on the services and number of shareholders as of the termination date. 12. Notices. All notices, demands and other communications given pursuant to the terms and provisions hereof shall be in writing, shall be deemed effective on the date of receipt, and may be sent by facsimile, overnight delivery services, or by certified or registered mail, return receipt requested to: If to a Client: with an additional copy to: (see title page for Client names) [additional notice name and address] c/o John Hancock Advisers None 101 Huntington Avenue Boston, MA 02199 Attn: Susan S. Newton Tel: 617 375 1702 Fax: 617 375 1770 5 If to Mellon: with an additional copy to: Mellon Investor Services LLC Mellon Investor Services LLC 111 Founders Plaza - 11th Floor Overpeck Centre Hartford, CT 06108 85 Challenger Road Attn: Lynore Leconche Ridgefield Park, NJ 07660 Tel: 860-282-3509 Attn: Legal Department Fax: 860-528-6472 Tel: 201-373-7155 Fax: 201-373-7166 13. Submission to Jurisdiction; Foreign Law. (a) Each Client hereby irrevocably submits to the non-exclusive jurisdiction of any New York State court sitting in New York City or the United States District Court for the Southern District of New York and any appellate court from any thereof in any action or proceeding arising out of or relating to this Agreement, and each Client hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or in such United States Federal court. Each Client hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding or a defense based on the grounds of jurisdiction with respect thereto. Each Client agrees that, to the fullest extent permitted by applicable laws, a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Mellon is not required hereunder to comply with the laws or regulations of any country other than the United States of America or any political subdivision thereof. After consultation with a Client, Mellon may consult with foreign counsel, at such Client's expense, to resolve any foreign law issues that may arise as a result of such Client or any other applicable party being subject to the laws or regulations of any foreign jurisdiction. 14. Miscellaneous. (a) Amendments. This Agreement may not be amended or modified in any manner except by a written agreement signed by both Clients and Mellon. Clients and Mellon agree to enter into discussions to amend the Fee Schedule (Exhibit D) if the number of shareholders increases or decreases by more than 7% in any 12 month period or the nature of services provided materially changes or if Mellon enters into Transfer Agent contract negotiations with John Hancock Financial Services, Inc. (b) Governing Law. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of New York, without regard to principles of conflicts of law. (c) Survival of Terms. Sections 5, 7 and 8 hereof shall survive termination of this Agreement. 6 (d) Assignment. This Agreement may not be assigned, or otherwise transferred, in whole or in part, by either party without the prior written consent of the other party, which the other party will not unreasonably withhold, condition or delay. Any attempted assignment in violation of the foregoing will be void. (e) Headings. The headings contained in this Agreement are for the purposes of convenience only and are not intended to define or limit the contents of this Agreement. (f) Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is found to violate a law, it will be severed from the rest of the Agreement and ignored. (g) Counterparts. This Agreement may be executed manually in any number of counterparts, each of which such counterparts, when so executed and delivered, shall be deemed an original, and all such counterparts when taken together shall constitute one and the same original instrument. (h) Entire Agreement. This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and merges all prior written or oral communications, understandings, and agreements with respect to the subject matter of this Agreement. The parties acknowledge that the Exhibits hereto are an integral part of this Agreement. (i) Benefits of this Agreement. Nothing in this Agreement shall be construed to give any person or entity other than Mellon and Clients any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of Mellon and Clients. 15. Confidentiality. (a) Mellon and each Client agree that they will not, at any time during the term of this Agreement or after its termination, reveal, divulge, or make known to any person, firm, corporation or other business organization, any lists, trade secrets, cost figures and projections, profit figures and projections, or any other secret or confidential information whatsoever, whether of Mellon or of a Client, used or gained by Mellon or a Client during performance under this Agreement. Each Client and Mellon further covenant and agree to retain all such knowledge and information acquired during and after the term of this Agreement respecting such lists, trade secrets, or any secret or confidential information whatsoever in trust for the sole benefit of Mellon or the Client and their successors and assigns. The above prohibition of disclosure shall not apply to the extent that Mellon must disclose such data to its sub-contractor or Client agent for purposes of providing services under this Agreement, however, such sub-contractor shall be bound by the provisions of this Section. (b) In the event that any requests or demands are made for the inspection of the Shareholder records of the Client, other than request for records of Shareholders pursuant to standard subpoenas from state or federal government authorities (e.g., in divorce and criminal actions), Mellon will endeavor to notify the Client and to secure instructions from an authorized 7 officer of the Client as to such inspection. Mellon expressly reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by counsel that it may be held liable for the failure to exhibit the Shareholder records to such person or if required by law or court order. 16. Privacy of Consumer Information. Whereas, it is reasonably necessary for Client to furnish to Mellon certain information about Client customers or prospective customers ("customer information"), to enable Mellon to perform its services for Client; and Client and/or its representative has provided and/or will provide customer information to Mellon for the purpose of performing one or more tasks for Client; and Client is legally required to protect the confidentiality of customer information; Mellon and Client agree as follows: (a) Mellon will not disclose any customer information provided to it by or on behalf of Client to any affiliated or unaffiliated third party except to the extent Mellon reasonably believes necessary to satisfy the purpose for which the customer information was provided to Mellon, and provided that Mellon will take reasonable efforts to impose on such third party the same confidentiality requirements that Mellon is required to abide by with respect to the customer information. (b) Mellon will not use customer information for any purpose other than the specific purpose for which it was provided to Mellon by or on behalf of Client, and will make customer information available to its employees only as reasonably necessary to satisfy the purpose for which the customer information was provided to Mellon. (c) Mellon will maintain reasonable security guidelines to ensure its ability to comply with the requirements of this Section 16. (d) This Agreement shall be in addition to any confidentiality provisions in any existing agreement between the parties; provided, however, that in the event of a conflict, the provision that provides the most confidentiality or security protection for customer information shall prevail. [The remainder of this page has been intentionally left blank. Signature page follows.] 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the day and year above written. JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST JOHN HANCOCK INVESTORS TRUST JOHN HANCOCK INCOME SECURITIES TRUST JOHN HANCOCK BANK AND THRIFT OPPORTUNITY FUND By: /s/Susan S. Newton --------------------------------------------------- Name: Susan S. Newton Title: Senior Vice President and Corporate Secretary MELLON INVESTOR SERVICES LLC By: /s/Beverly A. Verrico --------------------------------------------------- Name: Beverly A. Verrico Title: Vice President 9 [LOGO] Mellon Exhibit A STOCK SUBJECT TO THE AGREEMENT Common Shares Number of Authorized & Client Name issued Shares - -------------------------------------------------------------------------------- JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I 14,979,601 JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II 15,002,724 JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND 7,257,200 JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND 8,334,700 JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST 9,885,027 JOHN HANCOCK INVESTORS TRUST 7,978,242 JOHN HANCOCK INCOME SECURITIES TRUST 10,898,374 JOHN HANCOCK BANK AND THRIFT OPPORTUNITY FUND 84,400,000 A-1 [LOGO] Mellon Exhibit B SERVICES TO BE PROVIDED Account Maintenance Functions o Opening new accounts o Posting debits and credits o Maintaining certificate history o Placing and releasing stop transfer notations o Consolidating accounts o Coding accounts requiring special handling (e.g. "bad address," "do not mail," "VIP," etc.) o Processing address changes o Responding to shareholder correspondence o Providing a dedicated toll-free phone number for shareholder inquiries o Obtaining and posting Taxpayer Identification Number certifications pursuant to IDTCA regulations o Maintaining inactive accounts for the purpose of research and tax reporting o Closing (purging) inactive accounts that meet selective criteria o Providing Client and its shareholders with on-line access to shareholder records o Training on all aspects of Mellon's stock transfer system o Create and generate management reports which Client and Mellon agree upon. o Handle buck-slip inserts into statements or privacy statement and or special mailings. Security Issuance Functions o Qualifying under the rules of the NYSE and NASDAQ/AMEX to act in the dual capacity as transfer agent and registrar o Maintaining mail and window facilities for the receipt of transfer requests o Maintaining and securing unissued certificate inventory and supporting documents o Examining issuance or transfer requests to ensure that proper authority is being exercised o Verifying (to the extent possible) that surrendered certificates are genuine and have not been altered o Verifying that original issuances are properly authorized and have necessary regulatory approval B-1 o In connection with requests for transfer, verifying that Shares issued equal the amount surrendered o Place and remove stop orders on Shares o Verifying that no stop orders are held against Shares submitted for transfer o Issuing and registering new securities o Recording canceled and issued securities o Canceling surrendered certificates o Delivering completed transfers o Processing restricted and legal transfers upon presentment of appropriate supporting documentation o Preparing daily transfer or management summary journals o Replacing lost, destroyed or stolen certificates provided that Mellon is in receipt of (a) evidence acceptable to it of the loss, theft or destruction, and (b) a surety bond acceptable to Mellon sufficient to indemnify and hold it and Client harmless (charge imposed on shareholder) Proxy and Annual Meeting Functions o Assisting in annual meeting planning o Processing and mailing proxy material and Annual Report o Tabulating physical proxies (both scanner and manual) returned by shareholders o Identifying shareholders who will attend the Annual Meeting o Providing Inspector(s) of Election for the Annual Meeting o Supporting efforts of any proxy solicitor o Preparing certified list of record date holders o Preparing report of final vote o Providing remote access to proxy tabulation system o Maintaining an automated link with (i) DTC to redistribute record date Cede & Co. share positions to participants and (ii) ADP to receive transmissions of broker votes o Processing omnibus proxies for respondent banks Cash Dividend Disbursement Functions (If Applicable) o Disburse regularly scheduled dividends for each fund as outlined in Exhibit D hereto o Preparing and mailing checks o Reconciling checks o Preparing payment register in list form o Withholding and filing taxes for non-resident aliens and others o Filing federal tax information returns o Processing "B" and "C" notices received from the IRS o Mailing required statements (Form 1099DIV or Form 1042) to registered holders B-2 o Maintaining stop payment files and issuing replacement checks o Maintaining separate dividend addresses o Receiving, verifying and posting funds to cover entire dividend distribution on mailing date of checks Escheatment Services o Taking all necessary steps to establish compliance with the unclaimed property requirements of all jurisdictions that may have a claim on escheatable property held by your organization o Identifying specific records and property subject to reporting based upon current state statutes, rules, and regulations o Executing state mandated due diligence mailings for lost property owners as required, organizing records into acceptable formats for reporting, and remitting property due each state when and as required o Obtaining penalty and interest release agreements and indemnification from future claim agreements (on property remitted) from the states that offer such agreements o Identifying all property that has become escheatable since the last filing date o Reviewing the applicable state regulations to determine if there have been any changes in reporting procedures o Reporting and remitting to each state when and as required o Executing a mailing to all accounts with uncashed checks or RPO certificates as required by state laws o Executing SEC mandated lost shareholder database searches Quality Standards o Establish mutually agreed upon set of service performance standards. o Provide client with monthly service performance reports and formal quarterly service performance reports for review by Board of Trustees. B-3 Other Services (Optional Services - Subject to additional fees): o ACH, Direct Deposit Services o Bank/Broker Distributions o Confidential Proxy Voting o Corporate Stock Buy-Backs o Custodial Services o Direct Purchase & Dividend Reinvestment Services o Direct Registration System/Profile Services o Dividends - special cash dividends o Solicitation, processing and maintenance of consents for electronic distribution of materials o Electronic distribution of material o Electronic Proxy Voting (e.g. telephone, internet, intranet) o Employee Stock Option Plan administration o Employee Stock Purchase Plan Administration o Escrow Services o Exchanges or Tender Offers o Foreign Tax Re-claim o Solicitation, processing and maintenance of consents for delivery of materials to households o Logistics services including document transportation, fulfillment, printing and media placement o Mailing Quarterly or Periodic Reports o Maintaining Mail Lists o Odd-Lot Programs o Proxy Solicitation o Secondary Offerings or Closings o Special Meetings o Standby Rights Agency o Stock Splits and Stock Dividends o StockWatch (beneficial owner identification) o Subscription Agent Services o Survey Tabulation o Warrant Agency B-4 [LOGO] Mellon Exhibit C DOCUMENTS AND NOTIFICATIONS TO BE DELIVERED TO MELLON UPON EXECUTION OF THIS AGREEMENT Client shall provide Mellon with the following: 1. An adequate supply of Share certificates. 2. A copy of the resolutions adopted by the Board of Directors of Client appointing or authorizing the appointment of Mellon as Transfer Agent and/or Registrar and Dividend Disbursing Agent, as the case may be, duly certified by the Secretary or Assistant Secretary of Client under the corporate seal. 3. A copy of the Certificate of Incorporation of Client, and all amendments thereto, certified by the Secretary of State of the state of incorporation. 4. A copy of the By-laws of Client as amended to date, duly certified by the Secretary of Client under the corporate seal. 5. A certificate of the Secretary or an Assistant Secretary of Client, under its corporate seal, stating that: a) this Agreement has been executed and delivered pursuant to the authority of Client's Board of Directors; b) the attached specimen Share certificate(s) are in substantially the form submitted to and approved by Client's Board of Directors for current use and the attached specimen Share certificates for each Class of Stock with issued and outstanding Shares are in the form previously submitted to and approved by Client's Board of Directors for past use; c) the attached list of existing agreements pursuant to which Shares have been reserved for future issuance specifying the number of reserved Shares subject to each such existing agreement and the substantive provisions thereof, is true and complete, or no Shares have been reserved for future issuance. d) each shareholder list provided is true and complete (such certification may state that it is based upon the certification of the predecessor Transfer Agent or predecessor Registrar that prepared the list) or no Shares are outstanding; e) the name of each stock exchange upon which any of the Shares are listed and the number and identity of the Shares so listed; f) the name and address of each co-Transfer Agent, Registrar (other than Mellon) or co-Registrar for any of the Shares and the extent of its appointment, or there are no co-Transfer Agents, Registrars (other than Mellon) or co-Registrars for any of the Shares; and C-1 g) the officer(s) of Client, who executed this Agreement as well as any certificates or papers delivered to Mellon pursuant to this Agreement, were validly elected to, and the incumbents of, the offices they purported to hold at the time of such execution and delivery, and that their signatures on all documentation are genuine; and upon which is subscribed a certificate of an officer of Client, other than the officer executing the certificate of the Secretary, stating that the person who executed the certificate of the Secretary was validly elected to, and is the Secretary or an Assistant Secretary of Client and that his signature on the certificate is genuine. 6. A shareholder list, preferably in machine readable format, certified as true and complete by the person preparing the list, for the issued and outstanding Shares, setting forth as to each holder, his/her name and address, tax identification number certified by the shareholder pursuant to requirements of the Internal Revenue Code and applicable regulations, the number of Shares held, the Share certificate numbers and the existence of any stop orders or other transfer restrictions. 7. Opinion of in-house counsel for Client, addressed to Mellon, to the effect that: a) the Shares issued and outstanding on the date hereof have been duly authorized, validly issued and are fully paid and are non-assessable; b) the Shares issued and outstanding on the date hereof have been duly registered under the Securities Act of 1933, as amended, and such registration has become effective, or are exempt from such registration; and have been duly registered under the Securities Exchange Act of 1934, as amended, or are exempt from such registration; c) Client has paid or caused to be paid all taxes, if any, which were payable upon or in respect of the original issuance of the Shares issued and outstanding on the date hereof; and d) the execution and delivery of this Agreement and the issuance of the Shares do not and will not conflict with, violate, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, the charter or the by-laws of Client, any law or regulation, any order or decree of any court or public authority having jurisdiction, or any mortgage, indenture, contract, agreement or undertaking to which Client is a party or by which it is bound and this Agreement is enforceable against Client in accordance with it terms, except as limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting the enforcement of creditors' rights generally. 8. A completed Internal Revenue Service Form 2678. C-2 NOTIFICATION OF CHANGES Client shall promptly notify Mellon of the following: 1. Any change in the name of Client, amendment of its certificate of incorporation or its by-laws; 2. Any change in the title of a Class of Stock from that set forth in the first column of Exhibit A; 3. Any change in the Number of Authorized Shares from that set forth in the second column of Exhibit A; 4. Any change in existing agreements or any entry into new agreements changing the Number of Authorized Shares Reserved for Future Issuance Under Existing Agreements from that listed in the fourth column of Exhibit A hereto; 5. Any change in the number of outstanding Shares subject to stop orders or other transfer limitations; 6. The listing or delisting of any Shares on any stock exchange; 7. The appointment after the date hereof of any co-Transfer Agent, Registrar (other than Mellon) or any co-Registrar for any of the Shares; 8. The merger of Client into, or the consolidation of Client with, or the sale or other transfer of the assets of Client substantially as an entirety to, another person; or the merger or consolidation of another person into or with Client; and 9. Any other change in the affairs of Client of which Mellon must have knowledge to perform properly its duties under this Agreement. C-3 [LOGO] Mellon Exhibit D FEE SCHEDULE TO JOHN HANCOCK BANK & thrift opportunities Fund Initial Term of Agreement: Two (2) Years ------------- Annual Administrative Fee: $10,000 Annual Dividend Reinvestment Administrative Fee: $6,300 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 1,487 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 10 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 1 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 10 Number of certificates cancelled and book-entry debits 300 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service Representative 500 Number of shareholder written or E-mail inquiries 25 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-1 [LOGO] Mellon Exhibit D To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: o Purchasing or selling shares o Duplicate 1099 requests o Updating or changing consent to electronic delivery o Forms or document requests o Taxpayer certification o Certificate issuance o Update dividend reinvestment selection o Duplicate book entry statement o PIN change 2. Active and Inactive accounts will be defined as follows: o Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. D-2 [LOGO] Mellon Exhibit D FEE SCHEDULE TO JOHN HANCOCK INCOME SECURITIES TRUST Initial Term of Agreement: Two (2) Years ------------- Annual Administrative Fee: $18,000 Annual Dividend Reinvestment Administrative Fee: $7,500 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 5,132 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 75 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 4 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 150 Number of certificates cancelled and book-entry debits 900 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service 800 Representative Number of shareholder written or E-mail inquiries 100 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-3 [LOGO] Mellon Exhibit D To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: o Purchasing or selling shares o Duplicate 1099 requests o Updating or changing consent to electronic delivery o Forms or document requests o Taxpayer certification o Certificate issuance o Update dividend reinvestment selection o Duplicate book entry statement o PIN change 2. Active and Inactive accounts will be defined as follows: o Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. D-4 [LOGO] Mellon Exhibit D o Inactive accounts are defined as accounts with a share balance equal to zero and no outstanding cash balances and no taxable income to be reported to the Internal Revenue Service. D-5 [LOGO] Mellon Exhibit D FEE SCHEDULE TO JOHN HANCOCK INVESTORS TRUST Initial Term of Agreement: Two (2) Years ------------- Annual Administrative Fee: $18,000 Annual Dividend Reinvestment Administrative Fee: $7,500 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 4,428 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 75 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 4 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 1,000 Number of certificates cancelled and book-entry debits 900 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service Representative 800 Number of shareholder written or E-mail inquiries 100 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-6 [LOGO] Mellon Exhibit D To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: o Purchasing or selling shares o Duplicate 1099 requests o Updating or changing consent to electronic delivery o Forms or document requests o Taxpayer certification o Certificate issuance o Update dividend reinvestment selection o Duplicate book entry statement o PIN change 2. Active and Inactive accounts will be defined as follows: o Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. D-7 [LOGO] Mellon Exhibit D o Inactive accounts are defined as accounts with a share balance equal to zero and no outstanding cash balances and no taxable income to be reported to the Internal Revenue Service. D-8 [LOGO] Mellon Exhibit D FEE SCHEDULE TO JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND Initial Term of Agreement: Two (2) Years ------------- Annual Administrative Fee: $12,000 Annual Dividend Reinvestment Administrative Fee: $10,000 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 444 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 25 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 12 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 15 Number of certificates cancelled and book-entry debits 150 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service Representative 150 Number of shareholder written or E-mail inquiries 50 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-9 [LOGO] Mellon Exhibit D To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: o Purchasing or selling shares o Duplicate 1099 requests o Updating or changing consent to electronic delivery o Forms or document requests o Taxpayer certification o Certificate issuance o Update dividend reinvestment selection o Duplicate book entry statement o PIN change 2. Active and Inactive accounts will be defined as follows: o Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. D-10 [LOGO] Mellon Exhibit D o Inactive accounts are defined as accounts with a share balance equal to zero and no outstanding cash balances and no taxable income to be reported to the Internal Revenue Service. D-11 [LOGO] Mellon Exhibit D FEE SCHEDULE TO JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND Initial Term of Agreement: Two (2) Years ------------- Annual Administrative Fee: $12,500 Annual Dividend Reinvestment Administrative Fee: $10,000 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 681 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 25 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 12 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 10 Number of certificates cancelled and book-entry debits 150 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service Representative 150 Number of shareholder written or E-mail inquiries 50 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-12 [LOGO] Mellon Exhibit D To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: o Purchasing or selling shares o Duplicate 1099 requests o Updating or changing consent to electronic delivery o Forms or document requests o Taxpayer certification o Certificate issuance o Update dividend reinvestment selection o Duplicate book entry statement o PIN change 2. Active and Inactive accounts will be defined as follows: o Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. D-13 [LOGO] Mellon Exhibit D o Inactive accounts are defined as accounts with a share balance equal to zero and no outstanding cash balances and no taxable income to be reported to the Internal Revenue Service. D-14 [LOGO] Mellon Exhibit D FEE SCHEDULE TO JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I Initial Term of Agreement: Two (2) Years ------------- Annual Administrative Fee: $12,500 Annual Dividend Reinvestment Administrative Fee: $10,000 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 1,299 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 25 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 12 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 20 Number of certificates cancelled and book-entry debits 300 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service Representative 400 Number of shareholder written or E-mail inquiries 80 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-15 [LOGO] Mellon Exhibit D To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: o Purchasing or selling shares o Duplicate 1099 requests o Updating or changing consent to electronic delivery o Forms or document requests o Taxpayer certification o Certificate issuance o Update dividend reinvestment selection o Duplicate book entry statement o PIN change 2. Active and Inactive accounts will be defined as follows: o Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. D-16 [LOGO] Mellon Exhibit D o Inactive accounts are defined as accounts with a share balance equal to zero and no outstanding cash balances and no taxable income to be reported to the Internal Revenue Service. D-17 [LOGO] Mellon Exhibit D FEE SCHEDULE TO JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II Initial Term of Agreement: Two (2) Years ------------- Annual Administrative Fee: $15,000 Annual Dividend Reinvestment Administrative Fee: $10,000 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 844 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 25 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 12 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 10 Number of certificates cancelled and book-entry debits 200 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service Representative 300 Number of shareholder written or E-mail inquiries 50 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-18 [LOGO] Mellon Exhibit D To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: o Purchasing or selling shares o Duplicate 1099 requests o Updating or changing consent to electronic delivery o Forms or document requests o Taxpayer certification o Certificate issuance o Update dividend reinvestment selection o Duplicate book entry statement o PIN change 2. Active and Inactive accounts will be defined as follows: o Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. D-19 [LOGO] Mellon Exhibit D o Inactive accounts are defined as accounts with a share balance equal to zero and no outstanding cash balances and no taxable income to be reported to the Internal Revenue Service. D-20 [LOGO] Mellon Exhibit D FEE SCHEDULE TO JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST Initial Term of Agreement: Two (2) Years ------------- Annual Administrative Fee: $12,500 Annual Dividend Reinvestment Administrative Fee: $10,000 Annual Fee Per Active Shareholder Account: $2.50 Annual Fee Per Inactive Shareholder Account: $1.00 Annual Fee Per Dividend Reinvestment Account: $4.00 The above fee will be charged for all services listed in Exhibit B and will be subject to the following annual allowances and additional charges: Number of active accounts maintained 846 Number of option items processed 50 Number of restricted items processed 25 Number of legal items processed 25 Number of mailings per year (including one enclosure) 1 Number of cash dividends paid per fiscal year 12 Number of semi-annual report mailings 2 Number of reports, analyses, list or labels 6 Number of Inspectors of Election 1 Number of respondent bank omnibus proxies 15 Number of certificates issued and book-entry credits 10 Number of certificates cancelled and book-entry debits 150 Number of DWACS 25 Number of shareholder telephone calls handled by Interactive Voice Response System 50 Number of shareholder telephone calls transferred out of the IVR to a Customer Service Representative 300 Number of shareholder written or E-mail inquiries 50 Number of Investor ServiceDirect? transactions 50 Number of state mandated due diligence mailings for lost property, as required 25 Number of SEC mandated lost shareholder database searches 25 D-21 [LOGO] Mellon Exhibit D To the extent the above annual allowances are exceeded, the following unit fees will apply: For each active account maintained (per year) $2.50 For each inactive account maintained 40% of active account fee For each option issued $25.00 For each legal item processed $50.00 Mailings See Attached Lists / Labels / Analyses See Attached For each additional Inspector of Election $1,500.00 For each respondent bank omnibus proxy $100.00 For each DWAC delivery $25.00 For each certificate issued or cancelled $2.00 For each book-entry credit or debit posted $1.50 For each shareholder telephone call via CSR $5.25 For each shareholder telephone call via IVR $1.50 For each correspondence responding to a shareholder $15.00 For each Investor ServiceDirect transaction $1.50 For each stop maintained on a lost certificate (per month) $0.05 For each stop removed from a lost certificate $0.05 For each stop placed on or removed from a restricted security $50.00 For the purposes of this agreement the following definitions apply: 1. Investor ServiceDirect (ISD) transactions will include any shareholder transaction initiated through ISD including, but not limited to, the following: o Purchasing or selling shares o Duplicate 1099 requests o Updating or changing consent to electronic delivery o Forms or document requests o Taxpayer certification o Certificate issuance o Update dividend reinvestment selection o Duplicate book entry statement o PIN change 2. Active and Inactive accounts will be defined as follows: o Active accounts are defined as accounts with a share balance greater than zero or outstanding cash balances or taxable income that has not yet been reported to the Internal Revenue Service. D-22 [LOGO] Mellon Exhibit D o Inactive accounts are defined as accounts with a share balance equal to zero and no outstanding cash balances and no taxable income to be reported to the Internal Revenue Service. D-23 [LOGO] Mellon Exhibit D LISTS / LABELS / ANALYSES FEE SCHEDULE (Applicable to all Clients) LISTS Per name listed $0.05 LABELS Per label printed $0.05 ANALYSES Per name passed on data base $0.02 Per name listed in report $0.05 (Minimum charge for each of the above services will be $250.) D-24 [LOGO] Mellon Exhibit D MAILING SERVICES FEE SCHEDULE (Applicable to all Clients) ADDRESSING Addressing mailing medium (per name) $0.05 AFFIXING Affixing labels (per label) $0.04 INSERTING Inserting Enclosures (Machine) 1st Enclosure (per piece) $0.05 2nd Enclosure (per piece) $0.04 Each Enclosure thereafter (per piece) $0.03 Inserting Enclosures (Manual) Charge will be determined based on analysis of work to be performed. (Minimum charge for any mailing will be $500.) D-25 [LOGO] Mellon Exhibit D EXPENSES AND OTHER CHARGES (Applicable to all Clients) Fees and Out of Pocket Expenses: The cost of stationery and supplies, including but not limited to transfer sheets, dividend checks, envelopes, and paper stock, together with any disbursement for telephone, postage, mail insurance, travel for annual meeting, link-up charges for ADP and tape charges from DTC are billed in addition to the above fees. All charges and fees, out of pocket costs, expenses and disbursements of Mellon are due and payable by Client upon receipt of an invoice from Mellon. With respect to any shareholder mailing processed by Mellon, client shall, at least one business day prior to mail date, provide immediately available funds sufficient to cover all postage due on such mailing. For any dividend mailing, client shall, at least one business day prior to the mail date, also provide immediately available funds sufficient to pay the aggregate amount of dividends to be paid. If Client participates in the Direct Registration System, Mellon will provide a "sell" feature for liquidation of book-entry shares held on behalf of a shareholder. Upon receipt of a sell request by the registered shareholder, Mellon Bank, N.A. will process the request and remit the proceeds to the shareholder in the form of a check (less the appropriate fees). The charge for each such sale is $15.00 plus $0.12 per share or, if applicable, the fees quoted in the Client's stock purchase and / or dividend reinvestment plan. Offering Administration Fee: A minimum fee of $5,000 will be imposed for activities associated with initial public offerings (IPO's), secondary offerings and / or closings. The fee covers the coordination of efforts necessary between Mellon, the Client's underwriters, the banknote company and DTC in order to effect the closing. This fee will cover the issuance of up to 200 certificates and /or book-entry credits. Certificates and / or book-entry credits over this amount will be billed at $2.00 each. This fee is in addition to any fees Mellon may charge for coordination of selling shareholders, custody services and / or escrow services. Conversion: There shall be no charge for converting the Client's files to Mellon's systemunless extraordinary efforts will be required to complete the conversion, such as account history conversion or file format conversion. Mellon will review the conversion requirements and any charge will be discussed with and approved by the Client prior to work commencing. In addition, if an out-of-proof condition exists at the time of conversion, and such condition is not resolved within 90 days of such conversion, Client agrees to provide Mellon with funds or shares sufficient to resolve the out-of-proof condition promptly after the 90th day. Deconversion Fee: In the event Client requests that Mellon provide records to a successor agent, in connection with the expiration or termination of this Agreement, Client shall pay Mellon a fee for deconversion services (e.g., providing shareholder lists and files, producing and shipping records, answering successor agent inquiries). This fee will be based on Mellon's then-current D-26 [LOGO] Mellon Exhibit D deconversion fee schedule. Mellon may withhold the Client's records, reports and unused certificate stock from a successor agent pending the Client's payment in full of all fees and expenses owed to Mellon under this Agreement. Legal, Technological Expenses: Certain expenses may be incurred in resolving legal matters that arise in the course of performing services hereunder. This may result in a separate charge to cover Mellon's expenses (including the cost of external or internal counsel) in resolving such matters; provided that any legal expenses charged to the Clients shall be reasonable. Mellon shall use best efforts to consult with Client prior to incurring any material expenses in accordance with this paragraph. In the event any Federal regulation and/or state or local law are enacted which require Mellon to make any technological improvements and/or modifications to its current system, Client shall compensate Mellon, on a pro rata basis proportionate to the Client's registered shareholder base, for the costs associated with making such required technological improvements and/or modifications. Record Storage: Monthly fee of $2.50 per box, with a minimum charge of $50.00. Lost Shareholder Services: A fee of $3.00 will be charged for each lost account searched per database searched. A fee of $2.50 will be charged per account for each state mandated due diligence mailing. Other Services: Fees for any services provided to Client by or on behalf of Mellon hereunder that are not set forth in Exhibit B hereto or in this Exhibit D will be based on Mellon's standard fees at the time such services are provided or, if no standard fees have been established, an appraisal of the work to be performed. D-27 EX-99.K 11 exk3.txt ACCOUNTING AND LEGAL SERVICES As of January 1, 1996 ACCOUNTING & LEGAL SERVICES AGREEMENT John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199 Dear Sir: The John Hancock Funds listed on Schedule A (the "Funds") have selected John Hancock Advisers, Inc. (the "Administrator") to provide certain accounting and legal services for the Funds, as more fully set forth below, and you are willing to provide such services under the terms and conditions hereinafter set forth. Accordingly, the Funds agree with you as follows: 1. Services. Subject to the general supervision of the Board of Trustees/Directors of the Funds, you will provide certain tax, accounting and legal services (the "Services") to the Funds. You will, to the extent such services are not required to be performed by you pursuant to an investment advisory agreement, provide: (A) such tax, accounting, recordkeeping and financial management services and functions as are reasonably necessary for the operation of each Fund. Such services shall include, but shall not be limited to, supervision, review and/or preparation and maintenance of the following books, records and other documents: (1) journals containing daily itemized records of all purchases and sales, and receipts and deliveries of securities and all receipts and disbursements of cash and all other debits and credits, in the form required by Rule 31a-1(b) (1) under the Act; (2) general and auxiliary ledgers reflecting all asset, liability, reserve, capital, income and expense accounts, in the form required by Rules 31a-1(b) (2) (i)-(iii) under the Act; (3) a securities record or ledger reflecting separately for each portfolio security as of trade date all "long" and "short" positions carried by each Fund for the account of the Funds, if any, and showing the location of all securities long and the off-setting position to all securities short, in the form required by Rule 31a-1(b) (3) under the Act; (4) a record of all portfolio purchases or sales, in the form required by Rule 31a-1(b) (6) under the Act; (5) a record of all puts, calls, spreads, straddles and all other options, if any, in which any Fund has any direct or indirect interest or which the Funds have granted or guaranteed, in the form required by Rule 31a-1(b) (7) under the Act; (6) a record of the proof of money balances in all ledger accounts maintained pursuant to this Agreement, in the form required by Rule 31a-1(b) (8) under the Act; (7) price make-up sheets and such records as are necessary to reflect the determination of each Funds' net asset value; and (8) arrange for, or participate in (a) the preparation for the Fund of all required tax returns, (b) the preparation and submission of reports to existing shareholders and (c) the preparation of financial data or reports required by the Securities and Exchange Commission and other regulatory authorities; 1 (B) certain legal services as are reasonably necessary for the operation of each Funds. Such services shall include, but shall not be limited to; (1) maintenance of each Fund's registration statement and federal and state registrations; (2) preparation of certain notices and proxy materials furnished to shareholders of the Funds; (3) preparation of periodic reports of each Fund to regulatory authorities, including Form N-SAR and Rule 24f-2 legal opinions; (4) preparation of materials in connection with meetings of the Board of Trustees/Directors of the Funds; (5) preparation of written contracts, distribution plans, compliance procedures, corporate and trust documents and other legal documents; (6) research advice and consultation about certain legal, regulatory and compliance issues, (7) supervision, coordination and evaluation of certain services provided by outside counsel. (C) provide the Funds with staff and personnel to perform such accounting, bookkeeping and legal services as are reasonably necessary to effectively service the Fund. Without limiting the generality of the foregoing, such staff and personnel shall be deemed to include officers of the Administrator, and persons employed or otherwise retained by the Administrator to provide or assist in providing of the services to the Fund. (D) maintain all books and records relating to the foregoing services; and (E) provide the Funds with all office facilities to perform tax, accounting and legal services under this Agreement. 2. Compensation of the Administrator The Funds shall reimburse the Administrator for: (1) a portion of the compensation, including all benefits, of officers and employees of the Administrator based upon the amount of time that such persons actually spend in providing or assisting in providing the Services to the Funds (including necessary supervision and review); and (2) such other direct and indirect expenses, including, but not limited to, those listed in paragraph (1) above, incurred on behalf of the Fund that are associated with the providing of the Services and (3) 10% of the reimbursement amount. In no event, however, shall such reimbursement exceed levels that are fair and reasonable in light of the usual and customary charges made by others for services of the same nature and quality. Compensation under this Agreement shall be calculated and paid monthly in a arrears. 3. No Partnership or Joint Venture. The Funds and you are not partners of or joint ventures with each other and nothing herein shall be construed so as to make you such partners or joint venturers or impose any liability as such on any of you. 4. Limitation of Liability of the Administrator. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also employed by you, who may be or become an employee of and paid by the Funds shall be deemed, when acting within the scope of his or her employment by the Funds, to be acting in such employment solely for the Funds and not as your employee or agent. 3 5. Duration and Termination of this Agreement. This Agreement shall remain in force until the second anniversary of the date upon which this Agreement was executed by the parties hereto, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by a majority of the Trustees/Directors. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty by the Funds by vote of a majority of the Trustees/Directors, or by you. This Agreement shall automatically terminate in the event of its assignment. 6. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver or termination is sought. 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to the choice of law provisions thereof. 8. Miscellaneous. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. A copy of the Declaration of Trust of each Fund organized as Massachusetts business trusts is on file with the Secretary of State of the Commonwealth of Massachusetts. The obligations of each such Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Fund, but only the Fund's property shall be bound. Yours very truly, JOHN HANCOCK FUNDS (See Schedule A) By: /s/James B. Little -------------------------------- Senior Vice President The foregoing contract is hereby agreed to as of the date hereof. JOHN HANCOCK ADVISERS, INC. By: /s/Anne C. Hodsdon ---------------------------- President 3 ACCOUNTING & LEGAL SERVICES AGREEMENT ------------------------------------- SCHEDULE A ---------- as of November 29, 2002 - ----------------------- John Hancock Capital Series - John Hancock Core Equity Fund - John Hancock U.S. Global Leaders Growth Fund John Hancock Income Securities Trust John Hancock Investors Trust John Hancock Sovereign Bond Fund - John Hancock Bond Fund John Hancock Strategic Series - John Hancock Strategic Income Fund - John Hancock High Income Fund John Hancock Tax-Exempt Series Fund - John Hancock Massachusetts Tax-Free Income Fund - John Hancock New York Tax-Free Income Fund John Hancock World Fund - - John Hancock Pacific Basin Equities Fund - - John Hancock Health Sciences Fund - - John Hancock European Equity Fund - - John Hancock Biotechnology Fund - - John Hancock Communications Fund - - John Hancock Consumer Industries Fund - - John Hancock International Small Cap Growth Fund John Hancock Series Trust - - John Hancock Small Cap Growth Fund - - John Hancock Multi Cap Growth Fund - - John Hancock 500 Index Fund - - John Hancock Real Estate Fund - - John Hancock Focused Equity Fund John Hancock Institutional Series Trust - John Hancock Dividend Performers Fund - John Hancock Focused Small Cap Growth Fund - John Hancock Independence Diversified Core Equity Fund II John Hancock Declaration Trust - John Hancock V.A. Financial Industries Fund - John Hancock V.A. Relative Value Fund - John Hancock V.A. Sovereign Investors Fund - John Hancock V.A. Strategic Income Fund - John Hancock V.A. Technology Fund John Hancock Bond Trust - John Hancock Government Income Fund - John Hancock High Yield Bond Fund - John Hancock Investment Grade Bond Fund 4 John Hancock California Tax-Free Income Fund John Hancock Current Interest - John Hancock Money Market Fund - John Hancock U.S. Government Cash Reserve John Hancock Investment Trust - - John Hancock Large Cap Equity Fund - - John Hancock Sovereign Investors Fund - - John Hancock Balanced Fund - - John Hancock Fundamental Value Fund - - John Hancock Strategic Growth Fund John Hancock Tax-Free Bond Trust - John Hancock Tax-Free Bond Fund - John Hancock High Yield Municipal Bond Fund John Hancock Investment Trust II - John Hancock Financial Industries Fund - John Hancock Regional Bank Fund - John Hancock Small Cap Equity Fund John Hancock Investment Trust III - John Hancock Global Fund - John Hancock Large Cap Growth Fund - John Hancock International Fund - John Hancock Mid Cap Growth Fund - John Hancock U.S. Global Leaders Fund John Hancock Equity Trust - John Hancock Growth Trends Fund - John Hancock Large Cap Spectrum Fund John Hancock Preferred Income Fund John Hancock Preferred Income Fund II 5 EX-99.K 12 exk4.txt SHAREHOLDER SERVICING AGREEMENT SHAREHOLDER SERVICING AGREEMENT SHAREHOLDER SERVICING AGREEMENT (the "Agreement"), dated as of November 29, 2002, between John Hancock Advisers, LLC ("John Hancock Advisers") and UBS Warburg LLC ("UBS Warburg"). WHEREAS, John Hancock Preferred Income Fund II (the "Fund") is a closed-end, diversified management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and its shares of beneficial interest are registered under the Securities Act of 1933, as amended; and WHEREAS, John Hancock Advisers is the investment adviser of the Fund; and WHEREAS, John Hancock Advisers desires to retain UBS Warburg to provide shareholder servicing and market information with respect to the Fund, and UBS Warburg is willing to render such services; NOW, THEREFORE, in consideration of the mutual terms and conditions set forth below, the parties hereto agree as follows: 1. John Hancock Advisers hereby employs UBS Warburg, for the period and on the terms and conditions set forth herein, to provide the following services: (a) Undertake to make available public information pertaining to the Fund on an ongoing basis and to communicate to investors and prospective investors the Fund's features and benefits (including periodic seminars or conference calls, responses to questions from current or prospective shareholders and specific shareholder contact where appropriate); (b) Make available to investors and prospective investors market price, net asset value, yield and other information regarding the Fund, if reasonably obtainable, for the purpose of maintaining the visibility of the Fund in the investor community; (c) At the request of John Hancock Advisers or the Fund, provide certain economic research and statistical information and reports, if reasonably obtainable, on behalf of John Hancock Advisers or the Fund and consult with representatives of John Hancock Advisers and/or Trustees of the Fund in connection therewith, which information and reports shall include: (i) statistical and financial market information with respect to the Fund's market performance; and (ii) comparative information regarding the Fund and other closed-end management investment companies with respect to (x) the net asset value of their respective shares, (y) the respective market performance of the Fund and such other companies, and (z) other relevant performance indicators; and (d) At the request of John Hancock Advisers or the Fund, provide information to and consult with John Hancock Advisers and/or the Board of Trustees of the Fund with respect to applicable strategies designed to address market value discounts, which may include share repurchases, tender offers, modifications to dividend policies or capital structure, repositioning or restructuring of the Fund, conversion of the Fund to an open-end investment company, liquidation or merger; including providing information concerning the use and impact of the above strategic alternatives by other market participants. (e) At the request of John Hancock Advisers or the Fund, UBS Warburg shall limit or cease any action or service provided hereunder to the extent and for the time period requested by John Hancock Advisers or the Fund; provided, however, that pending termination of this Agreement as provided for in Section 5 hereof, any such limitation or cessation shall not relieve John Hancock Advisers of its payment obligations pursuant to Section 2 hereof. (f) UBS Warburg will promptly notify John Hancock Advisers or the Fund, as the case may be, if it learns of any material inaccuracy or misstatement in, or material omission from, any written information provided by UBS Warburg to John Hancock Advisers or the Fund in connection with the performance of services by UBS Warburg under this Agreement. 2. John Hancock Advisers will pay UBS Warburg a fee computed weekly and payable quarterly at an annualized rate of 0.10% of the average weekly gross assets of the Fund. 3. John Hancock Advisers acknowledges that the shareholder services of UBS Warburg provided for hereunder do not include any advice as to the value of securities or regarding the advisability of purchasing or selling any securities for the Fund's portfolio. No provision of this Agreement shall be considered as creating, nor shall any provision create, any obligation on the part of UBS Warburg, and UBS Warburg is not hereby agreeing, to: (i) furnish any advice or make any recommendations regarding the purchase or sale of portfolio securities or (ii) render any opinions, valuations or recommendations of any kind or to perform any such similar services in connection with providing the services described in Section 1 hereof. 4. Nothing herein shall be construed as prohibiting UBS Warburg or its affiliates from providing similar or other services to any other clients (including other registered investment companies or other investment managers), so long as UBS Warburg's services to John Hancock Advisers and the Fund are not impaired thereby. 5. The term of this Agreement shall commence upon the date referred to above, shall be in effect for a period of two years and shall thereafter continue for successive one year periods provided that the agreement may be terminated by either party upon 60 days' written notice of the intention to terminate; provided, however, that in the event that the contractual advisory fee rate payable by the Fund to John Hancock Advisers or such successor or affiliate under the Investment Management Agreement is reduced below 0.55%, the fee payable by John Hancock Advisers to UBS Warburg pursuant to Section 2 of this agreement shall reduced in proportion to, and for the period of, such reduction of the advisory fee, and this agreement shall be deemed to be amended automatically to reflect the same. 6. John Hancock Advisers will furnish UBS Warburg with such information as UBS Warburg believes appropriate to its assignment hereunder (all such information so furnished being the "Information"). John Hancock Advisers recognizes and confirms that UBS Warburg (a) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having independently verified the same and (b) does not assume responsibility for the accuracy or completeness of the Information and such other information. To the best of John Hancock Adviser's knowledge, the Information to be furnished by John Hancock Advisers when delivered, will be true and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. John Hancock Advisers will promptly notify UBS Warburg if it learns of any material inaccuracy or misstatement in, or material omission from, any Information delivered to UBS Warburg. 7. It is understood that UBS Warburg is being engaged hereunder solely to provide the services described above to John Hancock Advisers and to the Fund and that UBS Warburg is not acting as an agent or fiduciary of, and shall have no duties or liability to the current or future shareholders of the Fund, the current or future shareholders of the Fund or any other third party in connection with its engagement hereunder, all of which are hereby expressly waived. 8. John Hancock Advisers agrees that UBS Warburg shall have no liability to John Hancock Advisers or the Fund for any act or omission to act by UBS Warburg in the course of its performance under this Agreement, in the absence of gross negligence or willful misconduct on the part of UBS Warburg. John Hancock Advisers agrees to the indemnification and other agreements set forth in the Indemnification Agreement attached hereto, the provisions of which are incorporated herein by reference and shall survive the termination, expiration or supersession of this Agreement. 9. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK FOR CONTRACTS TO BE PERFORMED ENTIRELY THEREIN AND WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 10. EACH OF THE JOHN HANCOCK ADVISERS AND UBS WARBURG AGREE THAT ANY ACTION OR PROCEEDING BASED HEREON, OR ARISING OUT OF UBS WARBURG'S ENGAGEMENT HEREUNDER, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. JOHN HANCOCK ADVISERS AND UBS WARBURG EACH HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH ACTION OR PROCEEDING AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH ACTION OR PROCEEDING. EACH OF JOHN HANCOCK ADVISERS AND UBS WARBURG HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 11. John Hancock Advisers and UBS Warburg each hereby irrevocably waive any right they may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or the transactions contemplated hereby. This Agreement may not be assigned by either party without the prior written consent of the other party. 12. This Agreement (including the attached Indemnification Agreement) embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this Agreement, which will remain in full force and effect. This Agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by both UBS Warburg and John Hancock Advisers. 13. All notices required or permitted to be sent under this Agreement shall be sent, if to John Hancock Advisers: John Hancock Advisers, LLC 101 Huntington Avenue Boston, MA 02199-7603 Attention: Chief Legal Officer or if to UBS Warburg: UBS Warburg LLC 299 Park Avenue New York, New York 10171 Attention: Chief Legal Officer or such other name or address as may be given in writing to the other parties. Any notice shall be deemed to be given or received on the third day after deposit in the U.S. mail with certified postage prepaid or when actually received, whether by hand, express delivery service or facsimile transmission, whichever is earlier. 14. This Agreement may be exercised on separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Shareholder Servicing Agreement as of the date first above written. JOHN HANCOCK ADVISERS, LLC By: _____________________________ Name: Maureen R. Ford Title: Chairman, President and Chief Executive Officer UBS WARBURG LLC By: _____________________________ Name: Oscar Junquera Title: Managing Director By: _____________________________ Name: Todd A. Reit Title: Executive Director UBS Warburg LLC Indemnification Agreement ----------------------------------------- November 29, 2002 UBS Warburg LLC 299 Park Avenue New York, New York 10171 In connection with the engagement of UBS Warburg LLC ("UBS Warburg") to advise and assist the undersigned (together with its affiliates and subsidiaries, referred to as the "Company") with the matters set forth in the Agreement dated November 29, 2002 between the Company and UBS Warburg (the "Agreement"), in the event that UBS Warburg becomes involved in any capacity in any claim, suit, action, proceeding, investigation or inquiry (including, without limitation, any shareholder or derivative action or arbitration proceeding) (collectively, a "Proceeding") in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, the Company agrees to indemnify, defend and hold UBS Warburg harmless to the fullest extent permitted by law, from and against any losses, claims, damages, liabilities and expenses in connection with any matter in any way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review, that such losses, claims, damages, liabilities and expenses resulted solely from the gross negligence or willful misconduct of UBS Warburg. In addition, in the event that UBS Warburg becomes involved in any capacity in any Proceeding in connection with any matter in any 1 way relating to or referred to in the Agreement or arising out of the matters contemplated by the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, the Company will reimburse UBS Warburg for its legal and other expenses (including the cost of any investigation and preparation) as such expenses are incurred by UBS Warburg in connection therewith. If such indemnification were not to be available for any reason, the Company agrees to contribute to the losses, claims, damages, liabilities and expenses involved (i) in the proportion appropriate to reflect the relative benefits received or sought to be received by the Company and its stockholders and affiliates and other constituencies, on the one hand, and UBS Warburg, on the other hand, in the matters contemplated by the Agreement or (ii) if (but only if and to the extent) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and its stockholders and affiliates and other constituencies, on the one hand, and the party entitled to contribution, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received, or sought to be received, by the Company and its stockholders and affiliates, on the one hand, and the party entitled to contribution, on the other hand, of a transaction as contemplated shall be deemed to be in the same proportion that the total value received or paid or contemplated to be received or paid by the Company or its stockholders or affiliates and other constituencies, as the case may be, as a result of or in connection with the transaction (whether or not consummated) for which UBS Warburg has been retained to perform financial services bears to the fees paid to UBS Warburg under the Agreement; provided, that in no event shall the Company contribute less than the amount necessary to assure that UBS Warburg is not liable for losses, claims, damages, liabilities and expenses in excess of the amount of fees actually received by UBS Warburg pursuant to the Agreement. Relative fault shall be determined by reference to, among other things, whether any alleged untrue statement or omission or any other alleged conduct relates to information provided by the Company or other conduct by the Company (or its employees or other agents), on the one hand, or by UBS Warburg, on the other hand. The Company will not settle any Proceeding in respect of which indemnity may be sought hereunder, whether or not UBS Warburg is an actual or potential party to such Proceeding, without UBS Warburg's prior written consent. For purposes of this Indemnification Agreement, UBS Warburg shall include UBS Warburg LLC, any of its affiliates, each other person, if any, controlling UBS Warburg or any of its affiliates, their respective officers current and former directors, employees and agents, and the successors and assigns of all of the foregoing persons. The foregoing indemnity and contribution agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise. The Company agrees that neither UBS Warburg nor any of its affiliates, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of either UBS Warburg's engagement under the Agreement or any matter referred to in the Agreement, including, without limitation, related services and activities prior to the date of the Agreement, except to the extent that it shall be determined by a court of competent jurisdiction in a judgment that has become final in that it is no longer subject to appeal or other review that any losses, claims, damages, liabilities or expenses incurred by the Company resulted solely from the gross negligence or willful misconduct of UBS Warburg in performing the services that are the subject of the Agreement. THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE 2 COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND UBS WARBURG CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY AND THIRD PARTY AGAINST UBS WARBURG OR ANY INDEMNIFIED PARTY. EACH OF UBS WARBURG AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT. 3 The foregoing Indemnification Agreement shall remain in full force and effect notwithstanding any termination of UBS Warburg's engagement. This Indemnification Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. Very truly yours, JOHN HANCOCK ADVISERS, LLC By: ----------------------------------- Name: Maureen R. Ford Title: Chairman, President and Chief Executive Officer Accepted and agreed to as of the date first above written: UBS WARBURG LLC By ------------------------------- Name: Oscar Junquera Title: Managing Director By ------------------------------- Name: Todd A. Reit Title: Executive Director 4 EX-99.L 13 exl.txt OPINION OF COUNSEL HALE AND DORR LLP COUNSELLORS AT LAW haledorr.com 60 STATE STREET o BOSTON, MA 02109 617-526-6000 o FAX 617-526-5000 November 22, 2002 John Hancock Preferred Income Fund II 101 Huntington Avenue Boston, Massachusetts 02199 Ladies and Gentlemen: John Hancock Preferred Income Fund II (the "Fund") was established as a Massachusetts business trust under an Agreement and Declaration of Trust dated September 12, 2002 (the "Declaration of Trust"). The beneficial interests thereunder are represented by transferable shares of beneficial interest, no par value. The Trustees have the powers set forth in the Declaration of Trust, subject to the terms, provisions and conditions therein provided. Pursuant to Article V, Section 5.1 of the Declaration of Trust, the number of shares of beneficial interest authorized to be issued under the Declaration of Trust is unlimited and the Trustees are authorized to divide the shares into one or more series of shares and one or more classes thereof as they deem necessary or desirable. Pursuant to Article V, Section 5.4 of the Declaration of Trust, the Trustees are empowered in their discretion to issue shares of any series for such amount and type of consideration, including cash or property, and on such terms as the Trustees may authorize, all without action or approval of the shareholders. As of the date of this opinion, the Trustees have divided the shares of the Fund into one class of shares. We have examined the Declaration of Trust and By-Laws, each as amended from time to time, of the Fund, and such other documents as we have deemed necessary or appropriate for the purposes of this opinion, including, but not limited to, originals, or copies certified or otherwise identified to our satisfaction, of such documents, Fund records and other instruments. In our examination of the above documents, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as certified of photostatic copies. Any reference to "our knowledge", to any matter "known to us", "coming to our attention" or "of which we are aware" or any variation of any of the foregoing shall mean the conscious awareness of the attorneys in this firm who have rendered substantive attention to the preparation of the Fund's Registration Statement on Form N-2 or any amendments thereto, of the existence or absence of any facts which would contradict the opinions set forth below. We have not undertaken any independent investigation to determine the existence or absence of such facts, and no inference as to our knowledge of the existence or absence of such facts should be drawn from the fact of our representation of the Fund. Without limiting the foregoing, we have not examined any dockets or records of any court, administrative tribunal or other similar entity, or any electronic or computer databases, in connection with our opinions expressed below.
BOSTON LONDON* MUNICH* NEW YORK OXFORD* PRINCETON RESTON WALTHAM WASHINGTON - ------------------------------------------------------------------------------------------------------------------- Hale and Dorr LLP is a Massachusetts Limited Liability * an independent joint venture law firm Partnership and includes Professional Corporations
John Hancock Preferred Income Fund II November 22, 2002 Page 2 Our opinions below are qualified to the extent that they may be subject to or affected by (i) applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the rights and remedies of creditors generally, (ii) statutory or decisional law concerning recourse by creditors to security in the absence of notice or hearing and (iii) duties and standards imposed on creditors and parties to contracts, including, without limitation, requirements of good faith, reasonableness and fair dealing. Further, we do not express any opinion as to (i) the availability of the remedy of specific performance or any other equitable remedy upon breach of any provision of any agreement whether applied by a court of law or equity, (ii) the successful assertion of any equitable defense, or (iii) the right of any party to enforce the indemnification or contribution provisions of any agreement. In rendering the opinion below, insofar as it relates to the good standing and valid existence of the Fund, we have relied solely on a certificate of the Secretary of State of The Commonwealth of Massachusetts, dated as of a recent date, and such opinion is limited accordingly and is rendered as of the date of such certificate. This opinion is limited to the laws of The Commonwealth of Massachusetts relating to business trusts, and we express no opinion with respect to the laws of any other jurisdiction or to any other laws of The Commonwealth of Massachusetts. Further, we express no opinion as to compliance with any state or federal securities laws, including the securities laws of The Commonwealth of Massachusetts. Our opinion below, as it relates to the non-assessability of the shares of the Fund, is qualified to the extent that, under Massachusetts law, shareholders of a Massachusetts business trust may be held personally liable for the obligations of the Fund. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Fund. Also, the Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Subject to the foregoing, we are of the opinion that the Fund is a duly organized and validly existing business trust in good standing under the laws of The Commonwealth of Massachusetts and that the shares of beneficial interest of the Fund, when issued in accordance with the terms, conditions, requirements and procedures set forth in the Declaration of Trust, the Fund's Registration Statement on Form N-2 and any amendments thereto and the Underwriting Agreement between the Fund, John Hancock Advisers, LLC and UBS Warburg LLC, as managing representative of the underwriters named therein, will constitute legally and validly issued, fully paid and non-assessable shares of beneficial interest in the Fund, subject to compliance with the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and the applicable state laws regulating the sale of securities. We are opining only as to the specific legal issues expressly set forth herein, and no opinion should be inferred as to any other matters. We are opining on the date hereof as to the law in effect on the date hereof, and we disclaim any obligation to advise you of any change in any of these sources of law or subsequent legal or factual developments that might affect any matters of opinions set forth herein. John Hancock Preferred Income Fund II November 22, 2002 Page 3 This opinion is furnished to you solely for your use and may not be quoted to or relied upon by any other person or entity or used for any other purpose, without our prior written consent. We consent to your filing this opinion with the Securities and Exchange Commission (the "Commission") as an exhibit to any amendments to the Fund's Registration Statement with the Commission. Except as provided in this paragraph, this opinion may not be relied upon by, or filed with, any other parties or for any other purpose. Very truly yours, /s/ Hale and Dorr LLP --------------------- Hale and Dorr LLP EX-99.J 14 exn.txt AUDITOR'S CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the use in this Pre-Effective Amendment No. 2 to the Registration Statement of John Hancock Preferred Income Fund II (Registration No. 333-99685) of our report dated November 7, 2002, relating to the financial statements of John Hancock Preferred Income Fund II as of November 5, 2002 and for the period then ended in the Statement of Additional Information which is part of such registration statement. We also consent to the reference to our Firm under the headings "Independent Auditors" and "Financial Statements" in the Registration Statement. /s/Deloitte & Touche LLP - ------------------------ Boston, Massachusetts November 22, 2002 EX-99 15 exp.txt SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT This Agreement is made as of the 10th day of October, 2002 between John Hancock Advisers, LLC, a Delaware limited liability company (the "Adviser"), and John Hancock Preferred Income Fund II, a Massachusetts business trust (the "Trust"). WHEREAS, the Trust wishes to sell to the Adviser, and the Adviser wishes to purchase from the Trust, $153,015 of common shares of beneficial interest, no par value, of the Trust (6,409 common shares at a purchase price of $23.875 per share (collectively, the "Shares")); and WHEREAS, the Adviser is purchasing the Shares for the purpose of providing the initial capitalization of the Trust as required by the Investment Company Act of 1940; NOW, THEREFORE, the parties hereto agree as follows: 1. Simultaneously with the execution of this Agreement, the Adviser is delivering to the Trust a check in the amount of $153,015 in full payment for the Shares. 2. The Adviser agrees that it is purchasing the Shares for investment and has no present intention of reselling the Shares. Executed as of the date first set forth above. JOHN HANCOCK ADVISERS, LLC /s/ Maureen R. Ford ----------------------------------------------- By: Maureen R. Ford Its: Chairman, President and Chief Executive Officer JOHN HANCOCK PREFERRED INCOME FUND II /s/ Susan S. Newton ----------------------------------------------- By: Susan S. Newton Its: Senior Vice President, Secretary and Chief Legal Officer EX-99 16 exr.txt CODE OF ETHICS Code of Ethics of John Hancock Advisers, LLC each John Hancock fund John Hancock Funds, LLC (together, called "John Hancock Funds") October 1, 2002 - ------------------------------------------------------------------------- 1. General Principles.....................................................2 2. To Whom Does This Code Apply?..........................................2 3. Overview of Policies...................................................3 4. Policies Outside the Code of Ethics....................................4 >> Company Conflict & Business Practice Policy.........................4 >> Inside Information Policy and Procedures............................4 5. Policies in the Code of Ethics.........................................5 >> Restriction on Gifts................................................5 >> Preclearance of Securities Transactions.............................5 >> Ban on Short-Term Profits...........................................6 >> Ban on IPOs.........................................................6 >> Disclosure of Private Placement Conflicts...........................7 >> Seven Day Blackout Period...........................................7 6. Reports and Other Disclosures Outside the Code of Ethics...............8 >> Broker Letter/Duplicate Confirm Statements..........................8 7. Reports and Other Disclosures In the Code of Ethics....................8 >> Initial Holdings Report and Annual Holdings Report..................8 >> Quarterly Transaction Reports.......................................9 >> Annual Certification................................................9 8. Limited Access Persons.................................................9 9. Subadvisers............................................................9 10. Reporting Violations..................................................10 11. Interpretation and Enforcement........................................10 Appendix A: Categories of Personnel........................................11 Appendix B: Preclearance Procedures........................................12 Appendix C: Limited Access Persons.........................................16 Appendix D: Subadvisers...................................................17 Appendix E: Administration and Recordkeeping..............................18 - ----------------------------------------------------------------------------- 1. General Principles Each person within the John Hancock Funds organization is responsible for maintaining the very highest ethical standards when conducting business. This means that: o You have a duty at all times to place the interests of our clients first. o All of your personal securities transactions must be conducted consistent with this code of ethics 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 frontrunning) with respect to our clients' accounts. 2. To Whom Does This Code Apply? This code of ethics applies to you if you are a director, officer or employee of John Hancock Advisers, LLC, Sovereign Asset Management Co., John Hancock Funds, LLC or a "John Hancock fund" (any fund or account advised by John Hancock Advisers, LLC). 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 of the John Hancock funds. 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 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 Tom Connors, Vice President. 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 obtains information regarding fund portfolio A person who regularly participates in trades. A person who does not regularly a fund's investment process. participate in a fund's investment process or obtain information regarding fund portfolio trades. examples: examples: examples: - --------- --------- --------- o portfolio managers o personnel in Investment Operations or Compliance o wholesalers o analysts o most Fund Financial o inside wholesalers o traders Management personnel, o certain administrative o Technology Resources personnel personnel with access to investment systems o attorneys and some legal administration personnel o investment administration personnel - ---------------------------------------- -------------------------------------- -------------------------------------- 2 3. Overview of Policies Please refer to the following chart to determine which policies apply to your category. These policies are described in detail below. - -------------------------------------------------------------------------------------------------------------- Investment Access Regular Access Person Non-Access Person Person - -------------------------------------------------------------------------------------------------------------- General principles yes yes yes - -------------------------------------------------------------------------------------------------------------- Policies outside the code - -------------------------------------------------------------------------------------------------------------- Conflict of interest policy yes yes yes - -------------------------------------------------------------------------------------------------------------- Inside information policy yes yes yes - -------------------------------------------------------------------------------------------------------------- Policies in the code - -------------------------------------------------------------------------------------------------------------- Restriction on gifts yes yes yes - -------------------------------------------------------------------------------------------------------------- Pre-clearance requirement yes yes Limited - -------------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------------- 3 4. 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 -------------------------------------------------------- A conflict of interest occurs when your private interests interfere or could potentially interfere with your Applies to: Investment Access Persons responsibilities at work. You must not place yourself Regular Access Persons or the company in a position of actual or potential conflict. Non-Access Persons -------------------------------------------------------- This Policy 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. 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 -------------------------------------------------------- The antifraud provisions of the federal securities laws generally prohibit persons with material non-public Applies to: Investment Access Persons information from trading on or communicating the Regular Access Persons information to others. Sanctions for violations can Non-Access Persons 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 5 of this code of ethics) 4 5. Policies in the Code of Ethics >> Restriction on Gifts -------------------------------------------------------- You and your family cannot accept preferential treatment or favors from securities brokers or dealers or other Applies to: Investment Access Persons organizations with which John Hancock Funds might Regular Access Persons transact business except in accordance with the Company Non-Access Persons 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. >> Preclearance of Securities Transactions -------------------------------------------------------- If you are an Investment Access person or Regular Access person, you must "preclear" (i.e.: receive advance Applies to: Investment Access Persons approval of) any personal securities transactions. The Regular Access Persons preclearance policy applies to trades for your personal accounts, those of a spouse, "significant other," Also, for a limited category of trades: minor children or family members sharing your household, as --------------------------- well as all accounts over which you have discretion or give Non-Access Persons advice or information. Due to this preclearance requirement, -------------------------------------------------------- participation in investment clubs is prohibited. The following securities are exempt from the preclear policy: (1) direct obligations of the U.S. Government, (2) shares of all open-end mutual funds, (3) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. 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 submitting duplicate confirmation statements, as described in section 5 of this code of ethics. The preclearance policy is designed to proactively identify possible "problem trades" that raise frontrunning or other conflict of interest concerns (example: when an Investment Access person trades a security on the same day as a John Hancock fund). Please keep in mind that even if you receive a preclearance, or are exempt from preclearing a securities transaction, you are still prohibited from engaging in any fraud or manipulative practice (such as frontrunning) with respect to a John Hancock fund. 5 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. o A separate procedure should be followed for requesting preclearance of a private placement or a derivative, as detailed in Appendix B. The 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. >> Ban on Short-Term Profits -------------------------------------------------------- If you are an Investment Access person, you cannot profit from the purchase and sale (or sale and purchase) of the Applies to: Investment Access Persons same (or equivalent) securities within 60 calendar days. The purpose of this policy is to address the -------------------------------------------------------- risk, real or perceived, of frontrunning 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. This policy applies to trades for 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. If you give away a security, it is considered a sale. You may invest in derivatives or sell short provided the transaction period exceeds the 60-day holding period. You may request an exemption from this policy for involuntary sales due to unforeseen corporate activity (such as a merger), or hardship reasons (such as unexpected medical expenses) by sending an e-mail to Tom Connors, Vice President. >> Ban on IPOs -------------------------------------------------------- If you are an Investment Access person, you may not acquire securities in an initial public offering. You Applies to: Investment Access Persons may not purchase any newly-issued securities until the next business (trading) day after the offering date. -------------------------------------------------------- This policy applies to trades for 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. 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. 6 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; or (2) fixed rights offerings. >> Disclosure of Private Placement Conflicts -------------------------------------------------------- If you are an Investment Access person and you own securities purchased in a private placement, you must Applies to: Investment Access Persons disclose that holding when you participate in a decision to purchase or sell that same issuer's securities for a . -------------------------------------------------------- John Hancock fund 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. This policy applies to holdings in 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. 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 -------------------------------------------------------- If you are a portfolio manager (or were identified to the Compliance Department as part of a portfolio management Applies to: Investment Access Persons 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. 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. 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. Any profits realized on trades during a seven day blackout period must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity. 7 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. 6. Reports and Other Disclosures Outside the Code of Ethics >> Broker Letter/Duplicate Confirm Statements -------------------------------------------------------- As required by the Inside Information Policy, you must inform your stockbroker that you are employed by an Applies to: Investment Access Persons investment adviser or broker. Regular Access Persons Your broker is subject to certain rules Non-Access Persons 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 you open a brokerage account, before any trades are made, you must: o Notify the Compliance Department (attn: Fred Spring) so the Compliance Department can send to the broker a letter notifying the broker of the requirement to send duplicate confirmation statements and certain other requirements. o ensure that your broker sends duplicate confirmations and copies of all periodic statements on a timely basis to the Compliance Department, 10th Floor, 101 Huntington Ave., Boston, MA 02199. These requirements apply to holdings in 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. 7. Reports and Other Disclosures In the Code of Ethics >> Initial Holdings Report and Annual Holdings Report -------------------------------------------------------- You must file an initial holdings report within 10 calendar days after becoming an Investment Access person or a Applies to: Investment Access Persons Regular Access person. You must also file an annual Regular Access Persons holdings report (as December 31st) within 30 calendar days -------------------------------------------------------- after the calendar year end. These reports must cover all holdings in 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. You must report: o holdings of all securities except: (1) direct obligations of the U.S. Government, (2) shares of open-end mutual funds, (3) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. o all brokerage accounts that contain securities (including brokerage accounts that only contain securities exempt from reporting, such as shares of open-end mutual funds). 8 >> Quarterly Transaction Reports -------------------------------------------------------- You must file a quarterly transaction report within 10 calendar days after the end of a calendar quarter if you Applies to: Investment Access Persons are an Investment Access person or a Regular ccess Regular Access Persons person. This report must cover all transactions during -------------------------------------------------------- the past calendar quarter in 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. You must report: o transactions in all securities except: (1) direct obligations of the U.S. Government, (2) open-end mutual funds, (3) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. o the opening of any brokerage account that contains securities (including brokerage accounts that only contain securities exempt from reporting, such as shares of open-end mutual funds). >> Annual Certification -------------------------------------------------------- You must provide an annual certification at a date designated by the Compliance Department that: (1) you Applies to: Investment Access Persons have read and understood this code of ethics; (2) Regular Access Persons you recognize that you are subject to its policies; Non-Access Persons 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. 8. 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. 9. Subadvisers A subadviser to a John Hancock fund has a number of responsibilities under this code of ethics, as described in Appendix D. 9 10. Reporting Violations If you know of any violation of our code of ethics, you have a responsibility to immediately report it. You should also report any deviations from the controls and procedures that safeguard John Hancock Funds and the assets of our clients. You can report confidentially to: o Tom Connors (375-1724) or Tim Fagan (375-6205); or o Your manager or department head 11. 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. 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 might exist, you should discuss the transaction beforehand with the Legal Department (contacts: Tom Connors (375-1724) or Tim Fagan (375-6205)). 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 Tom Connors, Vice President, or the Ethics and Business Practices Committee. Exceptions may be granted where warranted by applicable facts and circumstances. To provide assurance that policies are effective, the Compliance Department will monitor and check personal securities transaction reports and certifications against fund portfolio transactions. Other internal auditing procedures may be adopted from time to time. Additional administration and recordkeeping procedures are described in Appendix E. The Ethics and Business Practices Committee of John Hancock Funds has general responsibility for this code of ethics. The Legal Department will refer violations to the Ethics Committee for review and appropriate action. The following factors will be considered when the Ethics Committee determines 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 to the Ethics Committee. 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 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. 10 Appendix A: Categories of Personnel You have been notified about which of these categories applies to you, based on the 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 Tom Connors, Vice President. 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: o You are an officer (vice president and higher) or director of John Hancock Advisers, LLC or a John Hancock fund. (Some directors may be Limited Access persons--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: (i) in connection with your regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of securities by a John Hancock fund; or (ii) your functions relate to the making of any recommendation to the fund regarding the purchase or sale of securities by a John Hancock fund. (examples: Investment Operations personnel, 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 obtain information regarding the purchase or sale of securities by a John Hancock fund 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 Code of Ethics PRE-CLEARANCE 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 JH Applications/Personal Trading & Reporting/ Personal Trading & Reporting and by entering your Web Security Services user id and password. If JH Applications or the John Hancock Personal Trading & Reporting System is not on your Desktop, please contact the HELP Desk at (617) 375-4357 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. [PHOTO DEPICTED HERE] 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 compliance department. Click the [Submit Request] button to send the trade request to your 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. 13 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 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 compliance department to add the security for you. Contacts are listed below: Fred Spring x54987 Michelle Yung x54883 MaryEllen Logee x54967 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. 14 3. Pre-clearance for Private Placements and Initial Public Offerings: [PHOTO DEPICTED HERE] You may request a preclearance of private placement securities or an Initial Public Offering by contacting Fred Spring via Microsoft Outlook (please "cc." Tim Fagan 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 and whether or not the seller is one with whom the associate does business 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; and |_| the date of the request. Clearance of private placements or initial public offerings may be denied 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. 15 Appendix C: Limited Access Persons You are a Limited Access person if you are a director of John Hancock Advisers, LLC or a John Hancock fund and you meet the two following criteria: (a) you are not an officer of John Hancock Advisers, LLC or a John Hancock fund; and (b) you do not obtain information in the ordinary course of business regarding the purchase or sale of securities by a John Hancock fund. (examples: certain directors of John Hancock Advisers, LLC or a John Hancock fund) The following policies apply to your category. These policies are described in detail in the code of ethics. o Fundamental concept o Inside information policy and procedures* o Broker letter/Duplicate Confirms* o Initial/annual holdings reports* o Quarterly transaction reports* o Annual recertification* *Exception: If you are an independent director of a John Hancock fund: o you are exempt from the broker letter/duplicate confirms requirement o you are exempt from the inside information policy and procedures o you do not have to file an initial holdings report. o you do not have to file an annual holdings report. o you do not have to file a quarterly transaction report unless 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 Tom Connors, Vice President, at (617) 375-724 and he will assist you with the requirements of the quarterly transaction report. 16 Appendix D: Subadvisers A subadviser to a John Hancock fund has a number of responsibilities under this code of ethics. If John Hancock Advisers, LLC determines that a subadviser has failed to comply with the provisions of Rule 17j-1, John Hancock Advisers, LLC may deem the subadviser's directors, officers or employees to be subject to this code of ethics. >> 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). 17 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 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. 18
EX-99 17 exs.txt POWER OF ATTORNEY John Hancock Preferred Income Fund II POWER OF ATTORNEY ----------------- The undersigned Trustee of the above listed Trust, a Massachusetts business trust, does hereby severally constitute and appoint SUSAN S. NEWTON, WILLIAM H. KING, and AVERY P. MAHER, and each acting singly, to be my true, sufficient and lawful attorneys, with full power to each of them, and each acting singly, to sign for me, in my name and in the capacity indicated below, any Registration Statement on Forms N-1A, N-2, N-8 and any Registration Statement on Form N-14 to be filed by the Trust under the Investment Company Act of 1940, as amended (the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments to said Registration Statements, with respect to the offering of shares and any and all other documents and papers relating thereto, and generally to do all such things in my name and on my behalf in the capacity indicated to enable the Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the Securities and Exchange Commission thereunder, hereby ratifying and confirming my signature as it may be signed by said attorneys or each of them to any such Registration Statements and any and all amendments thereto. IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as of the 19th day of November, 2002. /s/John M. DeCiccio /s/James F. Carlin - ------------------------------ ------------------------------ John M. DeCiccio James F. Carlin /s/William H. Cunningham /s/Patti McGill Peterson - ------------------------------ ------------------------------ William H. Cunningham Patti McGill Peterson /s/John A. Moore /s/Steven R. Pruchansky - ------------------------------ ------------------------------ John A. Moore Steven R. Pruchansky /s/Norman H. Smith /s/John P. Toolan - ------------------------------ ------------------------------ Norman H. Smith John P. Toolan -----END PRIVACY-ENHANCED MESSAGE-----