N-CSR 1 d380012.htm N-CSR

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811- 21202

John Hancock Preferred Income Fund II
(Exact name of registrant as specified in charter)

200 Berkeley Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip code)

Salvatore Schiavone
Treasurer

200 Berkeley Street

Boston, Massachusetts 02116

(Name and address of agent for service)

Registrant's telephone number, including area code: 617-663-4497

Date of fiscal year end: July 31
   
Date of reporting period: July 31, 2020


ITEM 1. REPORTS TO STOCKHOLDERS.


John Hancock

Preferred Income Fund II

Ticker: HPF
Annual report 7/31/2020

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the fund's shareholder reports such as this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the transfer agent or from your financial intermediary. Instead, the reports will be made available on our website, and you will be notified by mail each time a report is posted and be provided with a website link to access the report.

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. You may elect to receive shareholder reports and other communications electronically by calling the transfer agent, Computershare, at 800-852-0218, by going to "Communication Preferences" at computershare.com/investor, or by contacting your financial intermediary.

You may elect to receive all reports in paper, free of charge, at any time. You can inform the transfer agent or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by following the instructions listed above. Your election to receive reports in paper will apply to all funds held with John Hancock Investment Management or your financial intermediary.

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A message to shareholders

Dear shareholder,

The financial markets delivered strong returns during first half of the 12-month period ended July 31, 2020; however, heightened fears over the coronavirus (COVID-19) sent markets tumbling during the latter half of February and early March. Yet by the end of the first quarter, equity markets began to rise—and this comeback gathered momentum during the final four months of the period; however, holdings of preferred shares in certain market segments did not participate fully in the rebound.

Of course, it would be a mistake to consider this market turnaround a trustworthy signal of assured or swift economic recovery. While there has been economic growth in most of the United States, the pace has slowed in many areas as spending remains far below pre-pandemic levels.

From an investment perspective, we continue to think that maintaining a focus on long-term objectives while pursuing a risk-aware strategy is a prudent way forward. Above all, we believe the counsel of a trusted financial professional continues to matter now more than ever. Periods of heightened uncertainty are precisely the time to review your financial goals and follow a plan that helps you make the most of what continues to be a challenging situation. 

On behalf of everyone at John Hancock Investment Management, I'd like to take this opportunity to welcome new shareholders and thank existing shareholders for the continued trust you've placed in us. 

Sincerely,

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Andrew G. Arnott
President and CEO,
John Hancock Investment Management
Head of Wealth and Asset Management,
United States and Europe

This commentary reflects the CEO's views as of this report's period end and are subject to change at any time. Diversification does not guarantee investment returns and does not eliminate risk of loss. All investments entail risks, including the possible loss of principal. For more up-to-date information, you can visit our website at jhinvestments.com.


John Hancock
Preferred Income Fund II

Table of contents

     
2   Your fund at a glance
6   Manager's discussion of fund performance
8   Fund's investments
16   Financial statements
20   Financial highlights
21   Notes to financial statements
30   Report of independent registered public accounting firm
31   Tax information
32   Additional information
35   Shareholder meeting
36   Continuation of investment advisory and subadvisory agreements
43   Trustees and Officers
47   More information

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       1


Your fund at a glance

INVESTMENT OBJECTIVE


The fund seeks 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.

AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/2020 (%)


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The ICE Bank of America Hybrid Preferred Securities Index is a subset of the ICE Bank of America Fixed Rate Preferred Securities Index, including all subordinated securities with a payment deferral feature. The ICE Bank of America Fixed Rate Preferred Securities Index tracks the performance of fixed-rate U.S. dollar-denominated preferred securities issued in the U.S. domestic market. Qualifying securities must have an investment-grade rating and the country of risk must also have an investment-grade rating.

It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would result in lower returns.

The performance data contained within this material represents past performance, which does not guarantee future results.

Investment returns and principal value will fluctuate and a shareholder may sustain losses. Further, the fund's performance at net asset value (NAV) is different from the fund's performance at closing market price because the closing market price is subject to the dynamics of secondary market trading. Market risk may be increased when shares are purchased at a premium to NAV or sold at a discount to NAV. Current month-end performance may be higher or lower than the performance cited. The fund's most recent performance can be found at jhinvestments.com or by calling 800-852-0218.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       2


PERFORMANCE HIGHLIGHTS OVER THE LAST TWELVE MONTHS


The spread of COVID-19 was the key driver of the preferred market's performance

After benefiting from a period of relative calm from August 2019 through January 2020, preferred securities came under severe pressure during the global markets sell-off in March 2020.

Energy holdings hurt performance

A decline in energy demand, an effect of the pandemic, hampered the fund's return.

Communication services holdings boosted relative performance

Investors' demand for companies benefiting from the work-from-home trend helped telecommunications holdings.

PORTFOLIO COMPOSITION AS OF 7/31/2020 (%)


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ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       3


SECTOR COMPOSITION AS OF 7/31/2020 (%)


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QUALITY COMPOSITION AS OF 7/31/2020 (%)


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ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       4


A note about risks

As is the case with all exchange-listed closed-end funds, shares of this fund may trade at a discount or a premium to the fund's net asset value (NAV). An investment in the fund is subject to investment and market risks, including the possible loss of the entire principal invested. There is no guarantee prior distribution levels will be maintained, and distributions may include a substantial tax return of capital. A return of capital is the return of all or a portion of a shareholder's investment in the fund. For the fiscal year ended July 31, 2020, the fund's aggregate distributions included a return of capital of $0.11 per share, or 7.28% of aggregate distributions, which could impact the tax treatment of a subsequent sale of fund shares. Fixed-income investments are subject to interest-rate risk; their value will normally decline as interest rates rise or if a creditor, grantor, or counterparty is unable or unwilling to make principal, interest, or settlement payments. Preferred stock dividends are payable only if declared by the issuer's board. Preferred stock may be subject to redemption provisions. The market value of convertible securities tend to fall as interest rates rise and rise as interest rates fall. Convertible preferred stock's value can depend heavily on the underlying common stock's value. Investments in higher-yielding, lower-rated securities are subject to a higher risk of default. An issuer of securities held by the fund may default, have its credit rating downgraded, or otherwise perform poorly, which may affect fund performance. Liquidity—the extent to which a security may be sold or a derivative position closed without negatively affecting its market value—may be impaired by reduced trading volume, heightened volatility, rising interest rates, and other market conditions. Domestic and foreign equity markets have experienced increased volatility and turmoil which may adversely affect the fund and issuers worldwide. The fund's use of leverage creates additional risks, including greater volatility of the fund's NAV, market price, and returns. There is no assurance that the fund's leverage strategy will be successful. In addition, in volatile market environments, the fund could be required to sell securities in the portfolio in order to comply with regulatory or other debt compliance requirements, which could negatively impact the fund's performance. Focusing on a particular industry or sector may increase the fund's volatility and make it more susceptible to market, economic, and regulatory risks as well as other factors affecting those industries or sectors.

A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, and affect fund performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future, could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other pre-existing political, social, and economic risks. Any such impact could adversely affect the fund's performance, resulting in losses to your investment.

The fund normally will invest at least 25%, measured at the time of purchase, of its total assets in the industries composing the utilities sector, which includes telecommunications companies. When the fund's investments focus on one or more sectors of the economy, they are far less diversified than the broad securities markets. This means that the fund may be more volatile than other funds, and the values of its investments may go up and down more rapidly. Because utility companies are capital intensive, they can be hurt by higher interest rates, which would increase the companies' interest burden. They can also be affected by costs in connection with capital construction programs, costs associated with environmental and other regulations, and the effects of economic declines, surplus capacity, and increased competition. In addition, the fund may invest in financial services companies, which can be hurt by economic declines, changes in interest rates, and regulatory and market impacts. The fund's investments in securities of foreign issuers involve special risks, such as political, economic, and currency risks and differences in accounting standards and financial reporting. Cybersecurity incidents may allow an unauthorized party to gain access to fund assets, customer data, or proprietary information, or cause a fund or its service providers to suffer data corruption or lose operational functionality. Similar incidents affecting issuers of a fund's securities may negatively affect performance.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       5


Manager's discussion of fund performance

How would you describe the investment backdrop during the 12 months ended July 31, 2020?

Preferred securities suffered significant losses for the period, hamstrung by poor performance during late February and throughout March when growing investor anxiety over the COVID-19 pandemic led to extreme global market volatility, with preferreds hit particularly hard. April marked the beginning of a robust rebound that persisted through period end, triggered largely by the U.S. Federal Reserve's (Fed's) moves to cut interest rates and restore liquidity to financial markets, as well as fiscal stimulus designed to shore up the U.S. economy. Even after this late period rally, many preferreds still hadn't fully recovered from their March lows by period end as they tend to be issued by energy, utilities, and financial services firms that saw their values hurt by the pandemic.

What elements of the fund's positioning affected results?

The fund's overweighting in the energy sector detracted from performance relative to its comparative index, the ICE Bank of America Hybrid Preferred Securities Index. The energy sector performed poorly as investors began to discount future energy demand in light of the forced pandemic-related shutdown of the economy. Even the midstream energy companies—firms that process, store, and transport oil and gas—were caught up in the sector's decline, even though they tend to be less sensitive to commodity prices.

TOP 10 ISSUERS AS OF 7/31/2020 (%)


   
DTE Energy Company 5.3
U.S. Cellular Corp. 4.0
CenterPoint Energy, Inc. 3.9
Algonquin Power & Utilities Corp. 3.4
Morgan Stanley 3.1
Southern California Edison Company 3.0
PPL Capital Funding, Inc. 3.0
Citigroup, Inc. 3.0
South Jersey Industries, Inc. 2.8
Duke Energy Corp. 2.7
TOTAL 34.2
As a percentage of total investments.
Cash and cash equivalents are not included.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       6


Also detracting from performance were sales of Kinder Morgan, Inc. and Stanley Black & Decker, Inc. These sales permitted a reduction of the fund's leverage in March, a strategy we pursued to manage the portfolio's overall risk profile. Given the weak market environment at the time, the sale of these securities resulted in losses for the fund.

In contrast, the fund's overweighting in the communication services sector contributed, with holdings in U.S. Cellular Corp. and Telephone and Data Systems, Inc. adding value amid investors' search for companies that would benefit from the work-from-home trend. Elsewhere, the fund's overweighting in electric utility preferreds further boosted relative performance.

How was the fund positioned at the end of the period?

We believe preferred securities will continue to recover over the next 6 to 12 months. We think interest rates will remain low given the economic impact of the coronavirus and that it will be some time before the Fed decides to raise rates for fear of derailing a recovery. The yields on preferreds looked very attractive relative to the 10-year U.S. Treasury bond as of the end of July, at wide levels not seen since the 2008 financial crisis. As the economy slowly goes back to normal, we expect this spread to revert to the historical mean, which will likely provide significant upside to preferred securities. The credit quality of the average preferred issue is very good, in our view, at an average of investment grade. We believe that, over time, preferreds' credit quality and attractive valuations will be recognized by the market and result in price appreciation for the asset class.

MANAGED BY


 
Joseph H. Bozoyan, CFA, Manulife IM (US)
Brad Lutz, CFA, Manulife IM (US)

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The views expressed in this report are exclusively those of Joseph H. Bozoyan, CFA, Manulife Investment Management, and are subject to change. They are not meant as investment advice. Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund's investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk.
ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       7


Fund’s investments
AS OF 7-31-20
        Shares Value
Preferred securities (A) 116.2% (78.2% of Total investments)     $449,988,434
(Cost $463,903,804)          
Communication services 12.0%       46,353,401
Diversified telecommunication services 2.3%        
Qwest Corp., 6.125% (B)       30,000 715,800
Qwest Corp., 6.500% (B)       110,790 2,714,355
Qwest Corp., 6.750%       220,000 5,590,200
Wireless telecommunication services 9.7%        
Telephone & Data Systems, Inc., 6.625% (B)       168,297 4,340,380
Telephone & Data Systems, Inc., 6.875% (B)       115,519 2,921,476
Telephone & Data Systems, Inc., 7.000%       283,000 7,154,240
U.S. Cellular Corp., 6.950% (B)(C)       673,600 17,378,880
U.S. Cellular Corp., 7.250%       215,825 5,538,070
Consumer discretionary 0.1%       567,000
Internet and direct marketing retail 0.1%        
QVC, Inc., 6.250% (B)       25,000 567,000
Consumer staples 3.4%       13,120,000
Food products 3.4%        
Ocean Spray Cranberries, Inc., 6.250% (D)       160,000 13,120,000
Energy 2.1%       8,250,000
Oil, gas and consumable fuels 2.1%        
Enbridge, Inc. (6.375% to 4-15-23, then 3 month LIBOR + 3.593%) (B)       210,000 5,229,000
NuStar Logistics LP (3 month LIBOR + 6.734%), 7.009% (B)(C)(E)       150,000 3,021,000
Financials 40.1%       155,373,615
Banks 18.5%        
Bank of America Corp., 6.000% (B)       108,575 2,963,012
Bank of America Corp. (6.450% to 12-15-66, then 3 month LIBOR + 1.327%) (B)       110,000 2,922,700
Citigroup Capital XIII (3 month LIBOR + 6.370%), 6.638% (E)       265,000 7,155,000
Citigroup, Inc. (7.125% to 9-30-23, then 3 month LIBOR + 4.040%) (B)(C)       300,564 8,533,012
Fifth Third Bancorp, 6.000% (B)       150,000 4,020,000
First Republic Bank, 4.700% (B)       128,875 3,348,173
GMAC Capital Trust I (3 month LIBOR + 5.785%), 6.177% (B)(E)       361,904 8,711,029
Pinnacle Financial Partners, Inc., 6.750%       140,000 3,640,000
Synovus Financial Corp. (6.300% to 6-21-23, then 3 month LIBOR + 3.352%) (B)       164,500 4,135,530
8 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS

 

        Shares Value
Financials (continued)        
Banks (continued)        
The PNC Financial Services Group, Inc. (6.125% to 5-1-22, then 3 month LIBOR + 4.067%) (B)       145,000 $3,935,300
Truist Financial Corp., Series G, 5.200% (B)       276,250 7,008,463
U.S. Bancorp (6.500% to 1-15-22, then 3 month LIBOR + 4.468%) (B)       130,000 3,473,600
Wells Fargo & Company (6.625% to 3-15-24, then 3 month LIBOR + 3.690%) (B)(C)       269,225 7,212,538
Wells Fargo & Company, 7.500%       3,000 4,054,500
Western Alliance Bancorp, 6.250% (B)       20,000 510,200
Capital markets 4.5%        
Morgan Stanley (6.375% to 10-15-24, then 3 month LIBOR + 3.708%) (B)(C)       125,000 3,530,000
Morgan Stanley (6.875% to 1-15-24, then 3 month LIBOR + 3.940%) (B)       86,000 2,468,200
Morgan Stanley (7.125% to 10-15-23, then 3 month LIBOR + 4.320%)       405,472 11,657,320
Consumer finance 1.4%        
Navient Corp., 6.000% (B)       244,271 5,349,535
Insurance 15.5%        
AEGON Funding Company LLC, 5.100% (B)(C)       267,925 6,716,880
American Equity Investment Life Holding Company (6.625% to 9-1-25, then 5 Year CMT + 6.297%)       131,750 3,284,528
American Financial Group, Inc., 5.125% (B)       123,850 3,282,025
American International Group, Inc., 5.850% (B)(C)       200,000 5,508,000
Athene Holding, Ltd., Series A (6.350% to 6-30-29, then 3 month LIBOR + 4.253%) (B)(C)       250,000 6,515,000
Brighthouse Financial, Inc., 6.600%       222,187 5,879,068
Prudential Financial, Inc., 5.750% (B)       120,000 3,127,200
Prudential PLC, 6.500% (B)       103,000 2,863,400
The Hartford Financial Services Group, Inc. (7.875% to 4-15-22, then 3 month LIBOR + 5.596%) (B)       46,750 1,336,583
The Phoenix Companies, Inc., 7.450% (B)       216,500 3,063,475
Unum Group, 6.250% (B)       127,500 3,355,800
W.R. Berkley Corp., 5.625% (B)(C)       599,074 15,174,544
Thrifts and mortgage finance 0.2%        
Federal National Mortgage Association, Series S, 8.250% (F)       75,000 639,000
Information technology 2.2%       8,556,825
Semiconductors and semiconductor equipment 2.2%        
Broadcom, Inc., 8.000% (B)(C)       7,500 8,556,825
SEE NOTES TO FINANCIAL STATEMENTS ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 9

 

        Shares Value
Real estate 4.7%       $18,011,364
Equity real estate investment trusts 4.7%        
American Homes 4 Rent, Series E, 6.350% (B)(C)       79,996 2,083,896
American Homes 4 Rent, Series F, 5.875% (B)       146,511 3,860,565
Digital Realty Trust, Inc., 6.350% (B)       922 23,391
Diversified Healthcare Trust, 5.625%       665,020 12,043,512
Utilities 51.6%       199,756,229
Electric utilities 19.9%        
Duke Energy Corp., 5.125% (B)(C)       416,624 10,757,232
Duke Energy Corp., 5.750% (B)       160,000 4,561,600
Entergy Louisiana LLC, 5.250% (B)       120,000 3,162,000
Interstate Power & Light Company, 5.100% (B)       108,837 2,772,078
NextEra Energy Capital Holdings, Inc., 5.125% (B)       80,000 2,032,800
NextEra Energy, Inc., 5.279% (B)(C)       140,000 6,781,600
NSTAR Electric Company, 4.780% (B)       15,143 1,544,737
PG&E Corp., 5.500%       45,000 4,511,250
PPL Capital Funding, Inc., 5.900% (B)       665,000 17,110,450
SCE Trust II, 5.100% (B)(C)       357,795 8,644,327
SCE Trust III (5.750% to 3-15-24, then 3 month LIBOR + 2.990%) (B)       20,000 451,600
The Southern Company, 6.250% (B)       132,625 3,381,938
The Southern Company, 6.750% (B)       245,000 11,299,400
Gas utilities 4.2%        
South Jersey Industries, Inc., 5.625% (B)       188,875 4,880,530
South Jersey Industries, Inc., 7.250%       283,600 11,222,052
Multi-utilities 27.5%        
Algonquin Power & Utilities Corp. (6.200% to 7-1-24, then 3 month LIBOR + 4.010%)       290,000 7,847,400
Algonquin Power & Utilities Corp. (6.875% to 10-17-23, then 3 month LIBOR + 3.677%)       420,050 11,488,368
CenterPoint Energy, Inc., 7.000% (B)       615,000 22,232,250
CMS Energy Corp., 5.625% (B)(C)       187,515 5,130,410
Dominion Energy, Inc., 7.250% (B)       56,000 5,823,440
DTE Energy Company (Callable 9-1-20), 5.250% (B)       199,477 5,122,569
DTE Energy Company (Callable 12-1-22), 5.250% (B)       160,000 4,257,600
DTE Energy Company, 6.000% (B)(C)       72,950 1,943,388
DTE Energy Company, 6.250% (B)       424,300 19,131,687
Integrys Holding, Inc. (6.000% to 8-1-23, then 3 month LIBOR + 3.220%) (B)(C)       237,872 6,047,979
NiSource, Inc. (6.500% to 3-15-24, then 5 Year CMT + 3.632%) (B)(C)       288,000 7,905,600
10 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS

 

        Shares Value
Utilities (continued)        
Multi-utilities (continued)        
Sempra Energy, 5.750% (B)(C)       270,000 $7,268,400
Sempra Energy, 6.750% (B)       23,600 2,443,544
Common stocks 3.5% (2.3% of Total investments)     $13,348,501
(Cost $22,249,261)          
Communication services 0.4%       1,447,500
Diversified telecommunication services 0.4%        
CenturyLink, Inc. (B)       150,000 1,447,500
Energy 3.1%       11,901,001
Oil, gas and consumable fuels 3.1%        
BP PLC, ADR (B)(C)       140,000 3,085,600
Equitrans Midstream Corp. (B)       358,446 3,459,004
The Williams Companies, Inc. (B)(C)       280,000 5,356,397
    
  Rate (%) Maturity date   Par value^ Value
Corporate bonds 26.8% (18.0% of Total investments)     $103,861,513
(Cost $110,667,226)          
Communication services 1.5%       5,817,043
Wireless telecommunication services 1.5%        
SoftBank Group Corp. (6.875% to 7-19-27, then 5 Year ICE Swap Rate + 4.854%) (B)(G) 6.875 07-19-27   5,988,000 5,817,043
Consumer discretionary 2.4%       9,197,219
Automobiles 2.4%        
General Motors Financial Company, Inc. (6.500% to 9-30-28, then 3 month LIBOR + 3.436%) (G) 6.500 09-30-28   9,739,000 9,197,219
Consumer staples 0.2%       656,600
Food products 0.2%        
Land O' Lakes, Inc. (B)(D)(G) 8.000 07-16-25   670,000 656,600
Energy 4.7%       18,195,797
Oil, gas and consumable fuels 4.7%        
DCP Midstream LP (7.375% to 12-15-22, then 3 month LIBOR + 5.148%) (G) 7.375 12-15-22   9,297,000 6,862,991
Energy Transfer Operating LP (3 month LIBOR + 3.018%) (B)(E) 3.704 11-01-66   8,050,000 4,025,000
Energy Transfer Operating LP (6.625% to 2-15-28, then 3 month LIBOR + 4.155%) (B)(C)(G) 6.625 02-15-28   6,500,000 4,680,000
MPLX LP (6.875% to 2-15-23, then 3 month LIBOR + 4.652%) (B)(G) 6.875 02-15-23   3,000,000 2,627,806
SEE NOTES TO FINANCIAL STATEMENTS ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 11

 

  Rate (%) Maturity date   Par value^ Value
Financials 13.2%       $51,289,473
Banks 7.7%        
Barclays PLC (7.750% to 9-15-23, then 5 Year U.S. Swap Rate + 4.842%) (B)(G) 7.750 09-15-23   1,102,000 1,122,663
Barclays PLC (8.000% to 6-15-24, then 5 Year CMT + 5.672%) (G) 8.000 06-15-24   1,935,000 2,048,681
Citigroup, Inc. (6.125% to 11-15-20, then 3 month LIBOR + 4.478%) (G) 6.125 11-15-20   1,350,000 1,346,625
Citizens Financial Group, Inc. (6.375% to 4-6-24, then 3 month LIBOR + 3.157%) (G) 6.375 04-06-24   6,000,000 5,785,830
Comerica, Inc. (5.625% to 7-1-25, then 5 Year CMT + 5.291%) (G) 5.625 07-01-25   2,750,000 2,936,450
Huntington Bancshares, Inc. (5.625% to 7-15-30, then 10 Year CMT + 4.945%) (G) 5.625 07-15-30   1,500,000 1,655,595
JPMorgan Chase & Co. (3 month LIBOR + 3.320%) (B)(C)(E)(G) 3.616 10-01-20   4,220,000 3,948,996
JPMorgan Chase & Co. (6.750% to 2-1-24, then 3 month LIBOR + 3.780%) (B)(G) 6.750 02-01-24   667,000 739,256
Lloyds Banking Group PLC (7.500% to 6-27-24, then 5 Year U.S. Swap Rate + 4.760%) (G) 7.500 06-27-24   6,000,000 6,330,000
Regions Financial Corp. (5.750% to 6-15-25, then 5 Year CMT + 5.430%) (G) 5.750 06-15-25   1,800,000 1,917,000
Wells Fargo & Company (5.900% to 6-15-24, then 3 month LIBOR + 3.110%) (B)(G) 5.900 06-15-24   2,000,000 2,031,922
Capital markets 1.4%        
The Bank of New York Mellon Corp. (4.700% to 9-20-25, then 5 Year CMT + 4.358%) (G) 4.700 09-20-25   2,000,000 2,165,560
The Charles Schwab Corp. (5.375% to 6-1-25, then 5 Year CMT + 4.971%) (G) 5.375 06-01-25   3,100,000 3,394,500
Consumer finance 0.9%        
Discover Financial Services (6.125% to 6-23-25, then 5 Year CMT + 5.783%) (G) 6.125 06-23-25   3,400,000 3,613,520
Insurance 3.2%        
Markel Corp. (6.000% to 6-1-25, then 5 Year CMT + 5.662%) (G) 6.000 06-01-25   2,000,000 2,102,500
MetLife, Inc. (5.875% to 3-15-28, then 3 month LIBOR + 2.959%) (B)(C)(G) 5.875 03-15-28   4,000,000 4,380,000
SBL Holdings, Inc. (7.000% to 5-13-25, then 5 Year CMT + 5.580%) (B)(D)(G) 7.000 05-13-25   6,890,000 5,770,375
Materials 0.6%       2,323,138
Chemicals 0.6%        
Braskem Netherlands Finance BV (8.500% to 10-24-25, then 5 Year CMT + 8.220%) (D) 8.500 01-23-81   2,300,000 2,323,138
Utilities 4.2%       16,382,243
Electric utilities 2.9%        
Emera, Inc. (6.750% to 6-15-26, then 3 month LIBOR + 5.440%) (B) 6.750 06-15-76   2,490,000 2,767,635
12 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS

 

  Rate (%) Maturity date   Par value^ Value
Utilities (continued)        
Electric utilities (continued)        
Southern California Edison Company (6.250% to 2-1-22, then 3 month LIBOR + 4.199%) (B)(C)(G) 6.250 02-01-22   8,500,000 $8,415,000
Multi-utilities 1.3%        
CMS Energy Corp. (4.750% to 3-1-30, then 5 Year CMT + 4.116%) (B) 4.750 06-01-50   3,500,000 3,737,108
NiSource, Inc. (5.650% to 6-15-23, then 5 Year CMT + 2.843%) (B)(G) 5.650 06-15-23   1,500,000 1,462,500
Capital preferred securities (H) 1.8% (1.2% of Total investments)     $7,043,215
(Cost $6,064,403)          
Financials 0.1%       483,526
Banks 0.1%        
Wachovia Capital Trust III (Greater of 3 month LIBOR + 0.930% or 5.570%) (B)(E)(G) 5.570 08-31-20   486,000 483,526
Utilities 1.7%       6,559,689
Multi-utilities 1.7%        
Dominion Resources Capital Trust III (B) 8.400 01-15-31   5,000,000 6,559,689
    
        Par value^ Value
Short-term investments 0.4% (0.3% of Total investments)     $1,616,000
(Cost $1,616,000)          
Repurchase agreement 0.4%         1,616,000
Repurchase Agreement with State Street Corp. dated 7-31-20 at 0.000% to be repurchased at $1,616,000 on 8-3-20, collateralized by $1,648,700 U.S. Treasury Notes, 0.160% due 7-31-22 (valued at $1,648,407)       1,616,000 1,616,000
Total investments (Cost $604,500,694) 148.7%       $575,857,663
Other assets and liabilities, net (48.7%)       (188,650,633)
Total net assets 100.0%         $387,207,030
    
The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the fund unless otherwise indicated.
^All par values are denominated in U.S. dollars unless otherwise indicated.
Security Abbreviations and Legend
ADR American Depositary Receipt
CMT Constant Maturity Treasury
ICE Intercontinental Exchange
LIBOR London Interbank Offered Rate
(A) Includes preferred stocks and hybrid securities with characteristics of both equity and debt that pay dividends on a periodic basis.
(B) All of a portion of this security is pledged as collateral pursuant to the Credit Facility Agreement. Total collateral value at 7-31-20 was $403,083,282. A portion of the securities pledged as collateral were loaned pursuant to the Credit Facility Agreement. The value of securities on loan amounted to $161,944,812.
SEE NOTES TO FINANCIAL STATEMENTS ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 13

 

(C) All or a portion of this security is on loan as of 7-31-20, and is a component of the fund's leverage under the Credit Facility Agreement.
(D) These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration.
(E) Variable rate obligation. The coupon rate shown represents the rate at period end.
(F) Non-income producing security.
(G) Perpetual bonds have no stated maturity date. Date shown as maturity date is next call date.
(H) Includes hybrid securities with characteristics of both equity and debt that trade with, and pay, interest income.
14 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS

 

DERIVATIVES
FUTURES
Open contracts Number of
contracts
Position Expiration
date
Notional
basis^
Notional
value^
Unrealized
appreciation
(depreciation)
10-Year U.S. Treasury Note Futures 520 Short Sep 2020 $(72,217,954) $(72,840,625) $(622,671)
            $(622,671)
^ Notional basis refers to the contractual amount agreed upon at inception of open contracts; notional value represents the current value of the open contract.
SWAPS
Interest rate swaps
Counterparty (OTC)/
Centrally cleared
Notional
amount
Currency Payments
made
Payments
received
Fixed
payment
frequency
Floating
payment
frequency
Maturity
date
Unamortized
upfront
payment paid
(received)
Unrealized
appreciation
(depreciation)
Value
Centrally cleared 60,000,000 USD Fixed 2.136% USD 3 Month LIBOR BBA(a) Semi-Annual Quarterly Oct 2022 $(2,959,396) $(2,959,396)
                $(2,959,396) $(2,959,396)
    
(a) At 7-31-20, the 3 month LIBOR was 0.249%.
    
Derivatives Currency Abbreviations
USD U.S. Dollar
    
Derivatives Abbreviations
BBA The British Banker's Association
LIBOR London Interbank Offered Rate
OTC Over-the-counter
At 7-31-20, the aggregate cost of investments for federal income tax purposes was $604,442,345. Net unrealized depreciation aggregated to $32,166,749, of which $15,714,184 related to gross unrealized appreciation and $47,880,933 related to gross unrealized depreciation.
See Notes to financial statements regarding investment transactions and other derivatives information.
SEE NOTES TO FINANCIAL STATEMENTS ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 15

 

Financial statements
STATEMENT OF ASSETS AND LIABILITIES 7-31-20

Assets  
Unaffiliated investments, at value (Cost $604,500,694) $575,857,663
Receivable for centrally cleared swaps 635,965
Collateral held at broker for futures contracts 1,040,000
Dividends and interest receivable 2,454,367
Receivable for investments sold 640,182
Other assets 25,446
Total assets 580,653,623
Liabilities  
Payable for futures variation margin 32,526
Due to custodian 140,696
Credit facility agreement payable 193,000,000
Interest payable 144,976
Payable to affiliates  
Accounting and legal services fees 17,596
Trustees' fees 116
Other liabilities and accrued expenses 110,683
Total liabilities 193,446,593
Net assets $387,207,030
Net assets consist of  
Paid-in capital $443,794,246
Total distributable earnings (loss) (56,587,216)
Net assets $387,207,030
 
Net asset value per share  
Based on 21,372,768 shares of beneficial interest outstanding - unlimited number of shares authorized with no par value $18.12
16 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS

 

STATEMENT OF OPERATIONS For the year ended  7-31-20

Investment income  
Dividends $32,516,680
Interest 7,102,678
Total investment income 39,619,358
Expenses  
Investment management fees 4,777,611
Interest expense 4,558,302
Accounting and legal services fees 65,463
Transfer agent fees 28,198
Trustees' fees 40,729
Custodian fees 62,736
Printing and postage 137,402
Professional fees 66,701
Stock exchange listing fees 23,869
Other 21,878
Total expenses 9,782,889
Less expense reductions (45,429)
Net expenses 9,737,460
Net investment income 29,881,898
Realized and unrealized gain (loss)  
Net realized gain (loss) on  
Unaffiliated investments (8,659,972)
Futures contracts (6,937,831)
Swap contracts (216,754)
  (15,814,557)
Change in net unrealized appreciation (depreciation) of  
Unaffiliated investments (43,686,753)
Futures contracts 528,138
Swap contracts (2,068,102)
  (45,226,717)
Net realized and unrealized loss (61,041,274)
Decrease in net assets from operations $(31,159,376)
SEE NOTES TO FINANCIAL STATEMENTS ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 17

 

STATEMENTS OF CHANGES IN NET ASSETS  

  Year ended
7-31-20
Year ended
7-31-19
Increase (decrease) in net assets    
From operations    
Net investment income $29,881,898 $28,562,368
Net realized loss (15,814,557) (7,354,466)
Change in net unrealized appreciation (depreciation) (45,226,717) 13,884,403
Increase (decrease) in net assets resulting from operations (31,159,376) 35,092,305
Distributions to shareholders    
From earnings (29,985,747) (29,832,159)
From tax return of capital (2,352,704) (5,952,981)
Total distributions (32,338,451) (35,785,140)
Fund share transactions    
Issued pursuant to Dividend Reinvestment Plan 909,862 856,535
Total increase (decrease) (62,587,965) 163,700
Net assets    
Beginning of year 449,794,995 449,631,295
End of year $387,207,030 $449,794,995
Share activity    
Shares outstanding    
Beginning of year 21,325,264 21,284,064
Issued pursuant to Dividend Reinvestment Plan 47,504 41,200
End of year 21,372,768 21,325,264
18 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS

 

STATEMENT OF CASH FLOWS For the year ended   7-31-20

   
Cash flows from operating activities  
Net decrease in net assets from operations $(31,159,376)
Adjustments to reconcile net decrease in net assets from operations to net cash provided by operating activities:  
Long-term investments purchased (212,319,860)
Long-term investments sold 269,250,090
Net purchases and sales in short-term investments (1,357,875)
Net amortization of premium (discount) 318,077
(Increase) Decrease in assets:  
Receivable for centrally cleared swaps (78,068)
Collateral held at broker for futures contracts (419,000)
Dividends and interest receivable 99,093
Receivable for investments sold 2,533,376
Other assets 11,389
Increase (Decrease) in liabilities:  
Payable for futures variation margin (8,089)
Payable for investments purchased (3,154,531)
Interest payable (470,740)
Payable to affiliates (37,766)
Other liabilities and accrued expenses (7,508)
Net change in unrealized (appreciation) depreciation on:  
Investments 43,686,753
Net realized (gain) loss on:  
Investments 8,659,972
Proceeds received as return of capital 650,968
Net cash provided by operating activities $76,196,905
Cash flows provided by (used in) financing activities  
Distributions to shareholders $(31,428,589)
Increase in due to custodian 140,696
Borrowings (repayments) under the credit facility agreement (45,000,000)
Net cash used in financing activities $(76,287,893)
Net decrease in cash $(90,988)
Cash at beginning of year $90,988
Cash at end of year
Supplemental disclosure of cash flow information:  
Cash paid for interest $(5,029,042)
Noncash financing activities not included herein consists of reinvestment distributions $909,862
SEE NOTES TO FINANCIAL STATEMENTS ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 19

 

Financial highlights
Period ended 7-31-20 7-31-19 7-31-18 7-31-17 7-31-16
Per share operating performance          
Net asset value, beginning of period $21.09 $21.13 $21.89 $22.58 $21.59
Net investment income1 1.40 1.34 1.50 1.60 1.59
Net realized and unrealized gain (loss) on investments (2.85) 0.30 (0.58) (0.61) 1.08
Total from investment operations (1.45) 1.64 0.92 0.99 2.67
Less distributions          
From net investment income (1.41) (1.40) (1.68) (1.68) (1.53)
From tax return of capital (0.11) (0.28) (0.15)
Total distributions (1.52) (1.68) (1.68) (1.68) (1.68)
Net asset value, end of period $18.12 $21.09 $21.13 $21.89 $22.58
Per share market value, end of period $18.46 $23.67 $21.27 $22.39 $22.68
Total return at net asset value (%)2,3 (7.07) 8.26 4.63 4.87 13.47
Total return at market value (%)2 (15.65) 20.70 2.97 6.79 26.12
Ratios and supplemental data          
Net assets, end of period (in millions) $387 $450 $450 $466 $480
Ratios (as a percentage of average net assets):          
Expenses before reductions 2.36 2.98 2.52 2.06 1.81
Expenses including reductions4 2.35 2.97 2.50 2.05 1.80
Net investment income 7.20 6.60 7.13 7.42 7.37
Portfolio turnover (%) 34 35 24 21 14
Senior securities          
Total debt outstanding end of period (in millions) $193 $238 $238 $238 $238
Asset coverage per $1,000 of debt5 $3,006 $2,890 $2,889 $2,956 $3,016
    
1 Based on average daily shares outstanding.
2 Total return based on net asset value reflects changes in the fund’s net asset value during each period. Total return based on market value reflects changes in market value. Each figure assumes that distributions from income, capital gains and tax return of capital, if any, were reinvested.
3 Total returns would have been lower had certain expenses not been reduced during the applicable periods.
4 Expenses including reductions excluding interest expense were 1.25%, 1.26%, 1.25%, 1.25% and 1.24% for the periods ended 7-31-20, 7-31-19, 7-31-18, 7-31-17 and 7-31-16, respectively.
5 Asset coverage equals the total net assets plus borrowings divided by the borrowings of the fund outstanding at period end (Note 7). As debt outstanding changes, the level of invested assets may change accordingly. Asset coverage ratio provides a measure of leverage.
20 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT SEE NOTES TO FINANCIAL STATEMENTS

 

Notes to financial statements
Note 1Organization
John Hancock Preferred Income Fund II (the fund) is a closed-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act).
Note 2Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP), which require management to make certain estimates and assumptions as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. The fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of US GAAP.
Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the fund:
Security valuation. Investments are stated at value as of the scheduled close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. In case of emergency or other disruption resulting in the NYSE not opening for trading or the NYSE closing at a time other than the regularly scheduled close, the net asset value (NAV) may be determined as of the regularly scheduled close of the NYSE pursuant to the fund's Valuation Policies and Procedures.
In order to value the securities, the fund uses the following valuation techniques: Equity securities, including exchange-traded or closed-end funds, are typically valued at the last sale price or official closing price on the exchange or principal market where the security trades. In the event there were no sales during the day or closing prices are not available, the securities are valued using the last available bid price. Debt obligations are typically valued based on evaluated prices provided by an independent pricing vendor. Independent pricing vendors utilize matrix pricing, which takes into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, as well as broker supplied prices. Futures contracts are typically valued at the last traded price on the exchange on which they trade. Swaps are generally valued using evaluated prices obtained from an independent pricing vendor.
In certain instances, the Pricing Committee may determine to value equity securities using prices obtained from another exchange or market if trading on the exchange or market on which prices are typically obtained did not open for trading as scheduled, or if trading closed earlier than scheduled, and trading occurred as normal on another exchange or market.
Other portfolio securities and assets, for which reliable market quotations are not readily available, are valued at fair value as determined in good faith by the fund's Pricing Committee following procedures established by the Board of Trustees. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
The fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities, including registered investment companies. Level 2 includes securities valued using other significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the fund's own assumptions in determining the fair value of investments. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or
  ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 21

 

methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques and related inputs may result in transfers into or out of an assigned level within the disclosure hierarchy.
The following is a summary of the values by input classification of the fund's investments as of July 31, 2020, by major security category or type:
  Total
value at
7-31-20
Level 1
quoted
price
Level 2
significant
observable
inputs
Level 3
significant
unobservable
inputs
Investments in securities:        
Assets        
Preferred securities        
Communication services $46,353,401 $46,353,401
Consumer discretionary 567,000 567,000
Consumer staples 13,120,000 $13,120,000
Energy 8,250,000 8,250,000
Financials 155,373,615 152,310,140 3,063,475
Information technology 8,556,825 8,556,825
Real estate 18,011,364 18,011,364
Utilities 199,756,229 193,708,250 6,047,979
Common stocks 13,348,501 13,348,501
Corporate bonds 103,861,513 103,861,513
Capital preferred securities 7,043,215 7,043,215
Short-term investments 1,616,000 1,616,000
Total investments in securities $575,857,663 $441,105,481 $134,752,182
Derivatives:        
Liabilities        
Futures $(622,671) $(622,671)
Swap contracts (2,959,396) $(2,959,396)
Repurchase agreements. The fund may enter into repurchase agreements. When the fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the fund's custodian, or for tri-party repurchase agreements, collateral is held at a third-party custodian bank in a segregated account for the benefit of the fund. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. Collateral received by the fund for repurchase agreements is disclosed in the Fund's investments as part of the caption related to the repurchase agreement.
Repurchase agreements are typically governed by the terms and conditions of the Master Repurchase Agreement and/or Global Master Repurchase Agreement (collectively, MRA). Upon an event of default, the non-defaulting party may close out all transactions traded under the MRA and net amounts owed. Absent an event of default, assets and liabilities resulting from repurchase agreements are not offset in the Statement of assets and liabilities. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline or the counterparty may have insufficient assets to pay claims resulting from close-out of the transactions.
22 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT  

 

Real estate investment trusts. The fund may invest in real estate investment trusts (REITs). Distributions from REITs may be recorded as income and subsequently characterized by the REIT at the end of the fiscal year as a reduction of cost of investments and/or as a realized gain. As a result, the fund will estimate the components of distributions from these securities. Such estimates are revised when the actual components of the distributions are known.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily NAV calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Dividend income is recorded on the ex-date, except for dividends of certain foreign securities where the dividend may not be known until after the ex-date. In those cases, dividend income, net of withholding taxes, is recorded when the fund becomes aware of the dividends. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a tax return of capital and/or capital gain, if any, are recorded as a reduction of cost of investments and/or as a realized gain, if amounts are estimable. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Overdrafts. Pursuant to the custodian agreement, the fund’s custodian may, in its discretion, advance funds to the fund to make properly authorized payments. When such payments result in an overdraft, the fund is obligated to repay the custodian for any overdraft, including any costs or expenses associated with the overdraft. The custodian may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
Expenses. Within the John Hancock group of funds complex, expenses that are directly attributable to an individual fund are allocated to such fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative net assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
Statement of cash flows. A Statement of cash flows is presented when a fund has a significant amount of borrowing during the period, based on the average total borrowing in relation to total assets, or when a certain percentage of the fund’s investments is classified as Level 3 in the fair value hierarchy. Information on financial transactions that have been settled through the receipt and disbursement of cash is presented in the Statement of cash flows. The cash amount shown in the Statement of cash flows is the amount included in the fund’s Statement of assets and liabilities and represents the cash on hand at the fund’s custodian and does not include any short-term investments or collateral on derivative contracts, if any.
Change in accounting principle. Accounting Standards Update (ASU) 2017-08, Premium Amortization on Purchased Callable Debt Securities, shortens the premium amortization period for purchased non contingently callable debt securities and is effective for public companies with fiscal years beginning after December 15, 2018. Adoption of the ASU did not have a material impact to the fund.
Federal income taxes. The fund intends to continue to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, as of July 31, 2020, the fund has a short-term capital loss carryforward of $7,267,096 and a long-term capital loss carryforward of $17,482,457 available to offset future net realized capital gains. These carryforwards do not expire.
  ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 23

 

As of July 31, 2020, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund's federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The fund generally declares and pays dividends monthly. Capital gain distributions, if any, are typically distributed annually.
The tax character of distributions for the years ended July 31, 2020 and 2019 was as follows:
  July 31, 2020 July 31, 2019
Ordinary income $29,985,747 $29,832,159
Return of capital 2,352,704 5,952,981
Total $32,338,451 $35,785,140
As of July 31, 2020, there were no distributable earnings on a tax basis.
Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from US GAAP. Distributions in excess of tax basis earnings and profits, if any, are reported in the fund's financial statements as a return of capital.
Capital accounts within the financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to amortization and accretion on debt securities and derivative transactions.
Note 3Derivative instruments
The fund may invest in derivatives in order to meet its investment objective. Derivatives include a variety of different instruments that may be traded in the over-the-counter (OTC) market, on a regulated exchange or through a clearing facility. The risks in using derivatives vary depending upon the structure of the instruments, including the use of leverage, optionality, the liquidity or lack of liquidity of the contract, the creditworthiness of the counterparty or clearing organization and the volatility of the position. Some derivatives involve risks that are potentially greater than the risks associated with investing directly in the referenced securities or other referenced underlying instrument. Specifically, the fund is exposed to the risk that the counterparty to an OTC derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction.
Certain derivatives are traded or cleared on an exchange or central clearinghouse. Exchange-traded or centrally-cleared transactions generally present less counterparty risk to a fund than OTC transactions. The exchange or clearinghouse stands between the fund and the broker to the contract and therefore, credit risk is generally limited to the failure of the exchange or clearinghouse and the clearing member.
Centrally-cleared swap contracts are subject to clearinghouse rules, including initial and variation margin requirements, daily settlement of obligations and the clearinghouse guarantee of payments to the broker. There is, however, still counterparty risk due to the potential insolvency of the broker with respect to any margin held in the brokers’ customer accounts. While clearing members are required to segregate customer assets from their own assets, in the event of insolvency, there may be a shortfall in the amount of margin held by the broker for its clients. Collateral or margin requirements for centrally-cleared derivatives are set by the broker or applicable clearinghouse. Margin for centrally-cleared transactions is detailed in the Statement of assets and liabilities as Receivable/Payable for centrally-cleared swaps. Securities pledged by the fund for centrally-cleared transactions, if any, are identified in the Fund's investments.
24 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT  

 

Futures. A futures contract is a contractual agreement to buy or sell a particular currency or financial instrument at a pre-determined price in the future. Futures are traded on an exchange and cleared through a central clearinghouse. Risks related to the use of futures contracts include possible illiquidity of the futures markets and contract prices that can be highly volatile and imperfectly correlated to movements in the underlying financial instrument and potential losses in excess of the amounts recognized on the Statement of assets and liabilities. Use of long futures contracts subjects the fund to the risk of loss up to the notional value of the futures contracts. Use of short futures contracts subjects the fund to unlimited risk of loss.
Upon entering into a futures contract, the fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is set by the broker and is generally based on a percentage of the contract value. The margin deposit must then be maintained at the established level over the life of the contract. Cash that has been pledged by the fund is detailed in the Statement of assets and liabilities as Collateral held at broker for futures contracts. Securities pledged by the fund, if any, are identified in the Fund's investments. Subsequent payments, referred to as variation margin, are made or received by the fund periodically and are based on changes in the market value of open futures contracts. Futures contracts are marked-to-market daily and unrealized gain or loss is recorded by the fund. Payable for futures variation margin is included on the Statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
During the year ended July 31, 2020, the fund used futures contracts to manage against anticipated interest rate changes. The fund held futures contracts with USD notional values ranging from $66.3 million to $72.8 million, as measured at each quarter end.
Swaps. Swap agreements are agreements between the fund and a counterparty to exchange cash flows, assets, foreign currencies or market-linked returns at specified intervals. Swap agreements are privately negotiated in the OTC market (OTC swaps) or may be executed on a registered commodities exchange (centrally cleared swaps). Swaps are marked-to-market daily and the change in value is recorded as a component of unrealized appreciation/depreciation of swap contracts. The value of the swap will typically impose collateral posting obligations on the party that is considered out-of-the-money on the swap.
Upfront payments made/received by the fund, if any, are amortized/accreted for financial reporting purposes, with the unamortized/unaccreted portion included in the Statement of assets and liabilities. A termination payment by the counterparty or the fund is recorded as realized gain or loss, as well as the net periodic payments received or paid by the fund.
Entering into swap agreements involves, to varying degrees, elements of credit, market and documentation risk that may provide outcomes that are in excess of the amounts recognized on the Statement of assets and liabilities. Such risks involve the possibility that there will be no liquid market for the swap, or that a counterparty may default on its obligation or delay payment under the swap terms. The counterparty may disagree or contest the terms of the swap. In addition to interest rate risk, market risks may also impact the swap. The fund may also suffer losses if it is unable to terminate or assign outstanding swaps or reduce its exposure through offsetting transactions.
Interest rate swaps. Interest rate swaps represent an agreement between the fund and a counterparty to exchange cash flows based on the difference between two interest rates applied to a notional amount. The payment flows are usually netted against each other, with the difference being paid by one party to the other. The fund settles accrued net interest receivable or payable under the swap contracts at specified, future intervals.
During the year ended July 31, 2020, the fund used interest rate swap contracts to manage against anticipated interest rate changes. The notional values at the period end are representative of the fund's exposure throughout the period. No new interest rate swap positions were entered into or closed during the year ended July 31, 2020.
  ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 25

 

Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the fund at July 31, 2020 by risk category:
Risk Statement of assets
and liabilities
location
Financial
instruments
location
Assets
derivatives
fair value
Liabilities
derivatives
fair value
Interest rate Receivable/payable for futures variation margin Futures 1 $(622,671)
Interest rate Swap contracts, at value Interest rate swaps2 (2,959,396)
      $(3,582,067)
    
1 Reflects cumulative appreciation/depreciation on futures as disclosed in Fund's investments. Only the year end variation margin is separately disclosed on the Statement of assets and liabilities.
2 Reflects cumulative value of swap contracts. Receivable/payable for centrally cleared swaps, which includes value and margin, are shown separately on the Statement of assets and liabilities.
Effect of derivative instruments on the Statement of operations
The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the year ended July 31, 2020:
  Statement of operations location - Net realized gain (loss) on:
Risk Futures contracts Swap contracts Total
Interest rate $(6,937,831) $(216,754) $(7,154,585)
The table below summarizes the net change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the year ended July 31, 2020:
  Statement of operations location - Change in net unrealized appreciation (depreciation) of:
Risk Futures contracts Swap contracts Total
Interest rate $528,138 $(2,068,102) $(1,539,964)
Note 4Guarantees and indemnifications
Under the fund's organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into contracts with service providers that contain general indemnification clauses. The fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 5Fees and transactions with affiliates
John Hancock Investment Management LLC (the Advisor) serves as investment advisor for the fund. The Advisor is an indirect, principally owned subsidiary of Manulife Financial Corporation (MFC).
Management fee. The fund has an investment management agreement with the Advisor under which the fund pays a daily management fee to the Advisor, equivalent on an annual basis, to 0.75% of the fund’s average daily managed assets including any assets attributable to the Credit Facility Agreement (see Note 7) (collectively, managed assets). The Advisor has a subadvisory agreement with Manulife Investment Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Advisor. The fund is not responsible for payment of the subadvisory fees.
26 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT  

 

The Advisor has contractually agreed to waive a portion of its management fee and/or reimburse expenses for certain funds of the John Hancock group of funds complex, including the fund (the participating portfolios). This waiver is based upon aggregate net assets of all the participating portfolios. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each fund. During the year ended July 31, 2020, this waiver amounted to 0.01% of the fund’s average daily net assets. This arrangement expires on July 31, 2022, unless renewed by mutual agreement of the fund and the Advisor based upon a determination that this is appropriate under the circumstances at that time.
The expense reductions described above amounted to $45,429 for the year ended July 31, 2020.
Expenses waived or reimbursed in the current fiscal period are not subject to recapture in future fiscal periods.
The investment management fees, including the impact of the waivers and reimbursements as described above, incurred for the year ended July 31, 2020, were equivalent to a net annual effective rate of 0.74% of the fund's average daily managed assets.
Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, compliance, accounting and recordkeeping services to the fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These accounting and legal services fees incurred, for the year ended July 31, 2020, amounted to an annual rate of 0.01% of the fund's average daily managed assets.
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. These Trustees receive from the fund and the other John Hancock closed-end funds an annual retainer. In addition, Trustee out-of-pocket expenses are allocated to each fund based on its net assets relative to other funds within the John Hancock group of funds complex.
Note 6Leverage risk
The fund utilizes a Credit Facility Agreement (CFA) to increase its assets available for investment. When the fund leverages its assets, shareholders bear the expenses associated with the CFA and have potential to benefit or be disadvantaged from the use of leverage. The Advisor’s fee is also increased in dollar terms from the use of leverage. Consequently, the fund and the Advisor may have differing interests in determining whether to leverage the fund’s assets. Leverage creates risks that may adversely affect the return for the holders of shares, including:
the likelihood of greater volatility of NAV and market price of shares;
fluctuations in the interest rate paid for the use of the CFA;
increased operating costs, which may reduce the fund’s total return;
the potential for a decline in the value of an investment acquired through leverage, while the fund’s obligations under such leverage remains fixed; and
the fund is more likely to have to sell securities in a volatile market in order to meet asset coverage or other debt compliance requirements.
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, returns would be lower if the cost of the leverage exceeds the income or capital appreciation derived.
In addition to the risks created by the fund’s use of leverage, the fund is subject to the risk that it would be unable to timely, or at all, obtain replacement financing if the CFA is terminated. Were this to happen, the fund would be required to de-leverage, selling securities at a potentially inopportune time and incurring tax consequences. Further, the fund’s ability to generate income from the use of leverage would be adversely affected.
  ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 27

 

Note 7Credit Facility Agreement
The fund has entered into a Credit Facility Agreement (CFA) with a subsidiary of BNP Paribas (BNP) that allows it to borrow up to $238.0 million (maximum facility amount) and to invest the borrowings in accordance with its investment practices.
The fund pledges a portion of its assets as collateral to secure borrowings under the CFA. Such pledged assets are held in a special custody account with the fund’s custodian. The amount of assets required to be pledged by the fund is determined in accordance with the CFA. The fund retains the benefits of ownership of assets pledged to secure borrowings under the CFA. Interest charged is at the rate of one month LIBOR (London Interbank Offered Rate) plus 0.70% and is payable monthly. As of July 31, 2020, the fund had borrowings of $193,000,000 at an interest rate of 0.85%, which are reflected in the Credit facility agreement payable on the Statement of assets and liabilities. During the year ended July 31, 2020, the average borrowings under the CFA and the effective average interest rate were $221,789,617 and 2.06%, respectively.
The fund is required to pay a commitment fee equal to 0.60% on any unused portion of the maximum facility amount, only for days on which the aggregate outstanding amount of the loans under the CFA is less than 80% of the maximum facility amount. For the year ended July 31, 2020, there were no commitment fees incurred by the fund.
The fund may terminate the CFA with 30 days’ notice. If certain asset coverage and collateral requirements, minimum net assets or other covenants are not met, the CFA could be deemed in default and result in termination. Absent a default or facility termination event, BNP generally is required to provide the fund with 360 days’ notice prior to terminating or amending the CFA.
The fund has an agreement with BNP that allows BNP to borrow a portion of the pledged collateral (Lent Securities) in an amount not to exceed the lesser of: (i) outstanding borrowings owed by the fund to BNP or (ii) 331/3% of the fund’s total assets. The fund can designate any security within the pledged collateral as ineligible to be a Lent Security and can recall any of the Lent Securities. The fund also has the right to apply and set-off an amount equal to 100% of the then-current fair market value of such Lent Securities against the current borrowings under the CFA in the event that BNP fails to timely return the Lent Securities and in certain other circumstances. In such circumstances, however, the fund may not be able to obtain replacement financing required to purchase replacement securities and, consequently, the fund’s income generating potential may decrease. Even if the fund is able to obtain replacement financing, it might not be able to purchase replacement securities at favorable prices. Income earned from Lent Securities of $17,709 for the year ended July 31, 2020 is recorded as a component of interest income on the Statement of operations.
Due to the anticipated discontinuation of LIBOR, as discussed in Note 8, the CFA may be amended to remove LIBOR as the reference rate for interest and to replace LIBOR with an alternative reference rate for interest mutually agreed upon by the fund and BNP. However, there remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate and the potential effect of a transition away from LIBOR on the fund and/or the CFA cannot yet be fully determined.
Note 8LIBOR Discontinuation Risk
The CFA utilizes LIBOR as the reference or benchmark rate for interest rate calculations. LIBOR is a measure of the average interest rate at which major global banks can borrow from one another. Following allegations of rate manipulation and concerns regarding its thin liquidity, in July 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it will stop encouraging banks to provide the quotations needed to sustain LIBOR after 2021. This event will likely cause LIBOR to cease to be published. Before then, it is expected that market participants such as the fund and BNP will transition to the use of different reference or benchmark rates. However, although regulators have suggested alternative rates, there is currently no definitive information regarding the future utilization of LIBOR or of any replacement rate.
It is uncertain what impact the discontinuation of LIBOR will have on the use of LIBOR as a reference rate in the
28 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT  

 

CFA. It is expected that market participants will amend financial instruments referencing LIBOR, such as the CFA, to include fallback provisions and other measures that contemplate the discontinuation of LIBOR or other similar market disruption events, but neither the effect of the transition process nor the viability of such measures is known. In addition, there are obstacles to converting certain longer term securities and transactions to a new benchmark or benchmarks and the effectiveness of one alternative reference rate versus multiple alternative reference rates in new or existing financial instruments and products has not been determined. As market participants transition away from LIBOR, LIBOR's usefulness may deteriorate, which could occur prior to the end of 2021. The transition process may lead to increased volatility and illiquidity in markets that currently rely on LIBOR to determine interest rates. LIBOR's deterioration may adversely affect the liquidity and/or market value of securities that use LIBOR as a benchmark interest rate. The use of an alternative reference rate, or the transition process to an alternative reference rate, may result in increases to the interest paid by the fund pursuant to the CFA and, therefore, may adversely affect the fund's performance.
Note 9Purchase and sale of securities
Purchases and sales of securities, other than short-term investments, amounted to $212,319,860 and $269,250,090, respectively, for the year ended July 31, 2020.
Note 10Industry or sector risk
The fund generally invests a large percentage of its assets in one or more particular industries or sectors of the economy. If a large percentage of the fund's assets are economically tied to a single or small number of industries or sectors of the economy, the fund will be less diversified than a more broadly diversified fund, and it may cause the fund to underperform if that industry or sector underperforms. In addition, focusing on a particular industry or sector may make the fund’s NAV more volatile. Further, a fund that invests in particular industries or sectors is particularly susceptible to the impact of market, economic, regulatory and other factors affecting those industries or sectors. Financial services companies can be hurt by economic declines, changes in interest rates regulatory and market impacts.
Note 11Coronavirus (COVID-19) pandemic
The novel COVID-19 disease has resulted in significant disruptions to global business activity. A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, and affect fund performance.
  ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 29

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of JOHN HANCOCK PREFERRED INCOME FUND II
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the Fund’s investments, of JOHN HANCOCK PREFERRED INCOME FUND II (the "Fund") as of July 31, 2020, the related statements of operations and cash flows for the year ended July 31, 2020, the statements of changes in net assets for each of the two years in the period ended July 31, 2020, including the related notes, and the financial highlights for each of the five years in the period ended July 31, 2020 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of July 31, 2020, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period ended July 31, 2020 and the financial highlights for each of the five years in the period ended July 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of July 31, 2020 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
September 16, 2020
We have served as the auditor of one or more investment companies in the John Hancock group of funds since 1988.
30 JOHN HANCOCK PREFERRED INCOME FUND II |ANNUAL REPORT  

 

Tax information (Unaudited)
For federal income tax purposes, the following information is furnished with respect to the distributions of the fund, if any, paid during its taxable year ended July 31, 2020.
The fund reports the maximum amount allowable of its net taxable income as eligible for the corporate dividends-received deduction.
The fund reports the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003.
The fund reports the maximum amount allowable of its Section 199A dividends as defined in Proposed Treasury Regulation §1.199A-3(d).
Eligible shareholders will be mailed a 2020 Form 1099-DIV in early 2021. This will reflect the tax character of all distributions paid in calendar year 2020.
Please consult a tax advisor regarding the tax consequences of your investment in the fund.
  ANNUAL REPORT |JOHN HANCOCK PREFERRED INCOME FUND II 31

Additional information (Unaudited)

Investment objective and principal investment strategies

The fund is a closed-end, diversified management investment company, common shares of which were initially offered to the public on November 29, 2002 and are publicly traded on the New York Stock Exchange (the NYSE). 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 investment objectives by investing in securities that, in the opinion of the Advisor, may be undervalued relative to similar securities in the marketplace. The fund's principal investment strategies include, but are not limited to, the following: Under normal market conditions, the fund invests at least 80% of its assets (net assets plus borrowings for investment purposes) in preferred stocks and other preferred securities, including convertible preferred securities. The fund normally invests 25% or more of its total assets in the industries composing the utilities sector. The fund will invest at least 50% of its total assets in preferred securities and other fixed-income securities that are rated investment grade (i.e., at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Ratings Services ("S&P"), or in unrated securities determined by the Advisor to be of comparable credit quality. In addition, under the new policy, the fund can invest up to 50% of its total assets in preferred securities and other fixed income securities that are rated below investment grade by either S&P or Moody's or in comparable unrated securities. Below investment grade securities must be rated "B" or higher by either S&P or Moody's (or determined to be of comparable quality). These investment policies are based on credit quality ratings at the time of acquisition.

Dividends and distributions

During the year ended July 31, 2020, distributions from net investment income totaling $1.4047 per share and tax return of capital totaling $0.1103 per share were paid to shareholders. The dates of payments and the amounts per share were as follows:



           
  Payment Date     Distributions  
  August 30, 2019     $0.1400  
  September 30, 2019     0.1400  
  October 31, 2019     0.1235  
  November 29, 2019     0.1235  
  December 31, 2019     0.1235  
  January 31, 2020     0.1235  
  February 28, 2020     0.1235  
  March 31, 2020     0.1235  
  April 30, 2020     0.1235  
  May 29, 2020     0.1235  
  June 30, 2020     0.1235  
  July 31, 2020     0.1235  
  Total     $1.5150  

Dividend reinvestment plan

The fund's Dividend Reinvestment Plan (the Plan) provides that distributions of dividends and capital gains are automatically reinvested in common shares of the fund by Computershare Trust Company, N.A. (the Plan Agent). Every shareholder holding at least one full share of the fund is entitled to participate in the Plan. In addition, every shareholder who became a shareholder of the fund after June 30, 2011, and holds at least one full share of the fund

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       32


will be automatically enrolled in the Plan. Shareholders may withdraw from the Plan at any time and shareholders who do not participate in the Plan will receive all distributions in cash.

If the fund declares a dividend or distribution payable either in cash or in common shares of the fund and the market price of shares on the payment date for the distribution or dividend equals or exceeds the fund's net asset value per share (NAV), the fund will issue common shares to participants at a value equal to the higher of NAV or 95% of the market price. The number of additional shares to be credited to each participant's account will be determined by dividing the dollar amount of the distribution or dividend by the higher of NAV or 95% of the market price. If the market price is lower than NAV, or if dividends or distributions are payable only in cash, then participants will receive shares purchased by the Plan Agent on participants' behalf on the NYSE or otherwise on the open market. If the market price exceeds NAV before the Plan Agent has completed its purchases, the average per share purchase price may exceed NAV, resulting in fewer shares being acquired than if the fund had issued new shares.

There are no brokerage charges with respect to common shares issued directly by the fund. However, whenever shares are purchased or sold on the NYSE or otherwise on the open market, each participant will pay a pro rata portion of brokerage trading fees, currently $0.05 per share purchased or sold. Brokerage trading fees will be deducted from amounts to be invested.

The reinvestment of dividends and net capital gains distributions does not relieve participants of any income tax that may be payable on such dividends or distributions.

Shareholders participating in the Plan may buy additional shares of the fund through the Plan at any time in amounts of at least $50 per investment, up to a maximum of $10,000, with a total calendar year limit of $100,000. Shareholders will be charged a $5 transaction fee plus $0.05 per share brokerage trading fee for each order. Purchases of additional shares of the fund will be made on the open market. Shareholders who elect to utilize monthly electronic fund transfers to buy additional shares of the fund will be charged a $2 transaction fee plus $0.05 per share brokerage trading fee for each automatic purchase. Shareholders can also sell fund shares held in the Plan account at any time by contacting the Plan Agent by telephone, in writing or by visiting the Plan Agent's website at www.computershare.com/investor. The Plan Agent will mail a check (less applicable brokerage trading fees) on settlement date (two business days after the shares have been sold). If shareholders choose to sell shares through their stockbroker, they will need to request that the Plan Agent electronically transfer those shares to their stockbroker through the Direct Registration System.

Shareholders participating in the Plan may withdraw from the Plan at any time by contacting the Plan Agent by telephone, in writing or by visiting the Plan Agent's website at www.computershare.com/investor. Such termination will be effective immediately if the notice is received by the Plan Agent 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. If shareholders withdraw from the Plan, their shares will be credited to their account; or, if they wish, the Plan Agent will sell their full and fractional shares and send the shareholders the proceeds, less a transaction fee of $5 and less brokerage trading fees of $0.05 per share. If a shareholder does not maintain at least one whole share of common stock in the Plan account, the Plan Agent may terminate such shareholder's participation in the Plan after written notice. Upon termination, shareholders will be sent a check for the cash value of any fractional share in the Plan account, less any applicable broker commissions and taxes.

Shareholders who hold at least one full share of the fund may join the Plan by notifying the Plan Agent by telephone, in writing or by visiting the Plan Agent's website at www.computershare.com/investor. If received in proper form by the Plan Agent before the record date of a dividend, the election will be effective with respect to all dividends paid after

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       33


such record date. If shareholders wish to participate in the Plan and their shares are held in the name of a brokerage firm, bank or other nominee, shareholders should contact their nominee to see if it will participate in the Plan. If shareholders wish to participate in the Plan, but their brokerage firm, bank or other nominee is unable to participate on their behalf, they will need to request that their shares be re-registered in their own name, or they will not be able to participate. The Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by shareholders as representing the total amount registered in their name and held for their account by their nominee.

Experience under the Plan may indicate that changes are desirable. Accordingly, the fund and the Plan Agent reserve the right to amend or terminate the Plan. Participants generally will 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 distribution by the fund.

All correspondence or requests for additional information about the Plan should be directed to Computershare Trust Company, N.A., at the address stated below, or by calling 800-852-0218, 201-680-6578 (For International Telephone Inquiries) and 800-952-9245 (For the Hearing Impaired (TDD)).

Shareholder communication and assistance

If you have any questions concerning the fund, we will be pleased to assist you. If you hold shares in your own name and not with a brokerage firm, please address all notices, correspondence, questions or other communications regarding the fund to the transfer agent at:

Regular Mail:
Computershare
P.O. Box 505000
Louisville, KY 40233

Registered or Overnight Mail:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202

If your shares are held with a brokerage firm, you should contact that firm, bank or other nominee for assistance.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       34


Shareholder meeting


The fund held its Annual Meeting of Shareholders on Monday, February 3, 2020. The following proposal was considered by the shareholders:

Proposal: To elect five (5) Trustees (James R. Boyle, William H. Cunningham, Grace K. Fey, Hassell H. McClellan and Gregory A. Russo) to serve for a three-year term ending at the 2023 Annual Meeting of Shareholders.

     
  Total votes
for the nominee
Total votes withheld
from the nominee
Independent Trustees    
James R. Boyle 17,221,431.411 501,475.000
William H. Cunningham 17,063,715.411 659,191.000
Grace K. Fey 17,039,323.411 683,583.000
Hassell H. McClellan 16,964,190.411 758,716.000
Gregory A. Russo 16,997,211.411 725,695.000

Trustees whose term of office continued after the Annual Meeting of Shareholders because they were not up for election are: Charles L. Bardelis, Peter S. Burgess, Marianne Harrison, Andrew G. Arnott, Deborah C. Jackson, James M. Oates and Steven R. Pruchansky.

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CONTINUATION OF INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS


Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees

This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Preferred Income Fund II (the fund) of the Advisory Agreement (the Advisory Agreement) with John Hancock Investment Management LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with Manulife Investment Management (US) LLC (the Subadvisor). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements. Prior to the June 23-25, 2020 telephonic1 meeting at which the Agreements were approved, the Board also discussed and considered information regarding the proposed continuation of the Agreements at a telephonic meeting held on May 26-27, 2020.

Approval of Advisory and Subadvisory Agreements

At telephonic meetings held on June 23-25, 2020, the Board, including the Trustees who are not parties to any Agreement or considered to be interested persons of the fund under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the fund and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.

In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meetings a variety of materials relating to the fund, the Advisor and the Subadvisor, including comparative performance, fee and expense information for a peer group of similar funds prepared by an independent third-party provider of fund data, performance information for an applicable benchmark index; and other pertinent information, such as the market premium and discount information, and, with respect to the Subadvisor, comparative performance information for comparably managed accounts, as applicable, and other information provided by the Advisor and the Subadvisor regarding the nature, extent and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor's revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meetings at which the renewal of the Advisory Agreement and Subadvisory Agreement are considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board (including its various committees) at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The information received and considered by the Board in connection with the May and June meetings and throughout the year was both written and oral. The Board noted the affiliation of the

____________________
1 On March 25, 2020, as a result of health and safety measures put in place to combat the global COVID-19 pandemic, the Securities and Exchange Commission issued an exemptive order (the "Order") pursuant to Sections 6(c) and 38(a) of the Investment Company Act of 1940, as amended (the "1940 Act"), that temporarily exempts registered investment management companies from the in-person voting requirements under the 1940 Act, subject to certain requirements, including that votes taken pursuant to the Order are ratified at the next in-person meeting. The Board determined that reliance on the Order was necessary or appropriate due to the circumstances related to current or potential effects of COVID-19 and therefore, the Board's May and June meetings were held telephonically in reliance on the Order.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       36


Subadvisor with the Advisor, noting any potential conflicts of interest. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor's affiliates. The Board considered the Advisory Agreement and the Subadvisory Agreement separately in the course of its review. In doing so, the Board noted the respective roles of the Advisor and Subadvisor in providing services to the fund.

Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the fund and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent legal counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.

Approval of Advisory Agreement

In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and did not treat any single factor as determinative, and each Trustee may have attributed different weights to different factors. The Board's conclusions may be based in part on its consideration of the advisory and subadvisory arrangements in prior years and on the Board's ongoing regular review of fund performance and operations throughout the year.

Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor's compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the fund's Chief Compliance Officer (CCO) regarding the fund's compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board observed that the scope of services provided by the Advisor, and of the undertakings required of the Advisor in connection with those services, including maintaining and monitoring its own and the fund's compliance programs, risk management programs, liquidity management programs and cybersecurity programs, had expanded over time as a result of regulatory, market and other developments. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and third-party service providers. The Board also considered the significant risks assumed by the Advisor in connection with the services provided to the fund including entrepreneurial risk in sponsoring new funds and ongoing risks including investment, operational, enterprise, litigation, regulatory and compliance risks with respect to all funds.

The Board also considered the differences between the Advisor's services to the fund and the services it provides to other clients that are not closed-end funds, including, for example, the differences in services related to the regulatory and legal obligations of closed-end funds.

In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor's management and the quality of the performance of the Advisor's duties, through Board meetings, discussions and reports during the preceding year and through each Trustee's experience as a Trustee of the fund and of the other funds in the John Hancock group of funds complex (the John Hancock Fund Complex).

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       37


In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:

     
  (a) the skills and competency with which the Advisor has in the past managed the fund's affairs and its subadvisory relationship, the Advisor's oversight and monitoring of the Subadvisor's investment performance and compliance programs, such as the Subadvisor's compliance with fund policies and objectives, review of brokerage matters, including with respect to trade allocation and best execution and the Advisor's timeliness in responding to performance issues;
  (b) the background, qualifications and skills of the Advisor's personnel;
  (c) the Advisor's compliance policies and procedures and its responsiveness to regulatory changes and fund industry developments;
  (d) the Advisor's administrative capabilities, including its ability to supervise the other service providers for the fund, as well as the Advisor's oversight of any securities lending activity, its monitoring of class action litigation and collection of class action settlements on behalf of the fund, and bringing loss recovery actions on behalf of the fund;
  (e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund;
  (f) the Advisor's initiatives intended to improve various aspects of the fund's operations and investor experience with the fund; and
  (g) the Advisor's reputation and experience in serving as an investment advisor to the fund and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.

The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.

Investment performance. In considering the fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund's performance results. In connection with the consideration of the Advisory Agreement, the Board:

     
  (a) reviewed information prepared by management regarding the fund's performance;
  (b) considered the comparative performance of an applicable benchmark index;
  (c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of fund data;
  (d) took into account the Advisor's analysis of the fund's performance; and
  (e) considered the fund's share performance and premium/discount information.

The Board noted that while it found the data provided by the independent third party generally useful it recognized its limitations, including in particular that the data may vary depending on the end date selected and the results of the performance comparisons may vary depending on the selection of the peer group. The Board noted that, based on its net asset value, the fund outperformed its benchmark index for the one-, three-, five- and ten-year periods ended December 31, 2019. The Board also noted that, based on its net asset value, the fund outperformed its peer group median for the one-year period and underperformed its peer group median for the three-, five- and ten-year periods ended December 31, 2019. The Board took into account management's discussion of the fund's performance, including the favorable performance relative to the benchmark for the one-, three-, five- and ten-year periods and to

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       38


the peer group for the one-year period. The Board concluded that the fund's performance has generally been in line with or outperformed the historical performance of the fund's benchmark index .

Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of fund data, including, among other data, the fund's contractual and net management fees (and subadvisory fees, to the extent available) and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund in light of the nature, extent and quality of the management and advisory and subadvisory services provided by the Advisor and the Subadvisor. The Board considered the fund's ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund's ranking within a broader group of funds. In comparing the fund's contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.

The Board also took into account the impact of leverage on fund expenses. The Board took into account the management fee structure, including that management fees for the fund were based on the fund's total managed assets, which are attributable to common stock and borrowings.

The Board noted that net management fees and net total expenses for the fund are each lower than the peer group median and that the contractual fee waiver and/or expense reimbursement reduces certain expenses of the fund.

The Board took into account management's discussion with respect to the overall management fee, the fees of the Subadvisor, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee, in each case in light of the services rendered for those amounts and the risks undertaken by the Advisor. The Board also noted that the Advisor pays the subadvisory fee. In addition, the Board took into account that management had agreed to implement an overall fee waiver across the complex, including the fund, which is discussed further below. The Board reviewed information provided by the Advisor concerning the investment advisory fee charged by the Advisor or one of its advisory affiliates to other clients (including other funds in the John Hancock Fund Complex) having similar investment mandates, if any. The Board considered any differences between the Advisor's and Subadvisor's services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable in light of the nature, extent and quality of the services provided to the fund under the Advisory Agreement.

Profitability/Fall out benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates (including the Subadvisor) from the Advisor's relationship with the fund, the Board:

                 
        (a)     reviewed financial information of the Advisor;  
        (b)     reviewed and considered information presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;  
        (c)     received and reviewed profitability information with respect to the John Hancock Fund Complex as a whole and with respect to the fund;  
        (d)     received information with respect to the Advisor's allocation methodologies used in preparing the profitability data and considered that the Advisor hired an independent third party consultant to provide an analysis of the Advisor's allocation methodologies;  
        (e)     considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;  

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       39


                 
       

(f)

(g)

   

noted that the fund's Subadvisor is an affiliate of the Advisor;

noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;

 
        (h)     noted that the subadvisory fees for the fund are paid by the Advisor;  
        (i)     considered the Advisor's ongoing costs and expenditures necessary to improve services, meet new regulatory and compliance requirements, and adapt to other challenges impacting the fund industry; and  
        (j)     considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the risks that it assumes as Advisor, including entrepreneurial, operational, reputational, litigation and regulatory risk.  

Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates (including the Subadvisor) from their relationship with the fund was reasonable and not excessive.

Economies of scale. In considering the extent to which the fund may realize any economies of scale and whether fee levels reflect these economies of scale for the benefit of the fund shareholders, the Board noted that the fund has a limited ability to increase its assets as a closed-end fund. The Board took into account management's discussions of the current advisory fee structure, and, as noted above, the services the Advisor provides in performing its functions under the Advisory Agreement and in supervising the Subadvisor.

The Board also considered potential economies of scale that may be realized by the fund as part of the John Hancock Fund Complex. Among them, the Board noted that the Advisor has contractually agreed to waive a portion of its management fee and/or reimburse expenses for certain funds of the John Hancock Fund Complex, including the fund (the participating portfolios). This waiver is based on the aggregate net assets of all the participating portfolios. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each fund. The Board also considered the Advisor's overall operations and its ongoing investment in its business in order to expand the scale of, and improve the quality of, its operations that benefit the fund. The Board noted that although the fund does not have breakpoints in its contractual management fee, its net management fee and total expenses are each below the peer group median. The Board determined that the management fee structure for the fund was reasonable.

Approval of Subadvisory Agreement

In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:

     
  (1) information relating to the Subadvisor's business, including current subadvisory services to the fund (and other funds in the John Hancock Fund Complex);
  (2) the historical and current performance of the fund and comparative performance information relating to an applicable benchmark index and comparable funds; and
  (3) the subadvisory fee for the fund and to the extent available, comparable fee information prepared by an independent third party provider of fund data.

Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor's Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor's current level of staffing and its overall resources, as well as received information relating to the Subadvisor's compensation program.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       40


The Board reviewed the Subadvisor's history and investment experience, as well as information regarding the qualifications, background, and responsibilities of the Subadvisor's investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor's compliance program and any disciplinary history. The Board also considered the Subadvisor's risk assessment and monitoring process. The Board reviewed the Subadvisor's regulatory history, including whether it was involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the fund's CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.

The Board considered the Subadvisor's investment process and philosophy. The Board took into account that the Subadvisor's responsibilities include the development and maintenance of an investment program for the fund that is consistent with the fund's investment objective, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor's brokerage policies and practices, including with respect to best execution and soft dollars.

Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund. The Board also considered any potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement.

In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor's relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock Fund Complex and reputational benefits.

Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays subadvisory fees to the Subadvisor. As noted above, the Board also considered the fund's subadvisory fee as compared to similarly situated investment companies deemed to be comparable to the fund as included in the report prepared by the independent third party provider of fund data, to the extent available. The Board noted that the limited size of the Lipper peer group was not sufficient for comparative purposes. The Board also took into account the subadvisory fee paid by the Advisor to the Subadvisor with respect to the fund and compared them to fees charged by the Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.

Subadvisor performance. As noted above, the Board considered the fund's performance as compared to the fund's peer group and the benchmark index and noted that the Board reviews information about the fund's performance results at its regularly scheduled meetings. The Board noted the Advisor's expertise and resources in monitoring the performance, investment style and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor's focus on the Subadvisor's performance. The Board also noted the Subadvisor's long-term performance record for similar accounts, as applicable.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       41


The Board's decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:

     
  (1) the Subadvisor has extensive experience and demonstrated skills as a manager;
  (2) the fund's performance, based on net asset value, has generally been in line with or outperformed the historical performance of the fund's benchmark; and
  (3) the subadvisory fees are reasonable in relation to the level and quality of services being provided under the Subadvisory Agreement.
* * *

Based on the Board's evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       42


Trustees and Officers

This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the fund and execute policies formulated by the Trustees.

Independent Trustees

     
Name, year of birth
Position(s) held with fund
Principal occupation(s) and other
directorships during past 5 years
Trustee
of the
Trust
since1
Number of John
Hancock funds
overseen by
Trustee
Hassell H. McClellan, Born: 1945 2012 195
Trustee and Chairperson of the Board
Director/Trustee, Virtus Funds (since 2008); Director, The Barnes Group (since 2010); Associate Professor, The Wallace E. Carroll School of Management, Boston College (retired 2013). Trustee (since 2005) and Chairperson of the Board (since 2017) of various trusts within the John Hancock Fund Complex.

     
Charles L. Bardelis,2 Born: 1941 2012 195
Trustee
Director, Island Commuter Corp. (marine transport). Trustee of various trusts within the John Hancock Fund Complex (since 1988).

     
James R. Boyle, Born: 1959 2015 195
Trustee
Chief Executive Officer, Foresters Financial (since 2018); Chairman and Chief Executive Officer, Zillion Group, Inc. (formerly HealthFleet, Inc.) (healthcare) (2014-2018); Executive Vice President and Chief Executive Officer, U.S. Life Insurance Division of Genworth Financial, Inc. (insurance) (January 2014-July 2014); Senior Executive Vice President, Manulife Financial, President and Chief Executive Officer, John Hancock (1999-2012); Chairman and Director, John Hancock Investment Management LLC, John Hancock Investment Management Distributors LLC, and John Hancock Variable Trust Advisers LLC (2005-2010). Trustee of various trusts within the John Hancock Fund Complex (2005-2014 and since 2015).

     
Peter S. Burgess,2 Born: 1942 2012 195
Trustee
Consultant (financial, accounting, and auditing matters) (since 1999); Certified Public Accountant; Partner, Arthur Andersen (independent public accounting firm) (prior to 1999); Director, Lincoln Educational Services Corporation (since 2004); Director, Symetra Financial Corporation (2010-2016); Director, PMA Capital Corporation (2004-2010). Trustee of various trusts within the John Hancock Fund Complex (since 2005).

     
William H. Cunningham, Born: 1944 2002 195
Trustee
Professor, University of Texas, Austin, Texas (since 1971); former Chancellor, University of Texas System and former President of the University of Texas, Austin, Texas; Chairman (since 2009) and Director (since 2006), Lincoln National Corporation (insurance); Director, Southwest Airlines (since 2000); former Director, LIN Television (2009-2014). Trustee of various trusts within the John Hancock Fund Complex (since 1986).

     
Grace K. Fey, Born: 1946 2012 195
Trustee
Chief Executive Officer, Grace Fey Advisors (since 2007); Director and Executive Vice President, Frontier Capital Management Company (1988-2007); Director, Fiduciary Trust (since 2009). Trustee of various trusts within the John Hancock Fund Complex (since 2008).

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       43


Independent Trustees (continued)

     
Name, year of birth
Position(s) held with fund
Principal occupation(s) and other
directorships during past 5 years
Trustee
of the
Trust
since1
Number of John
Hancock funds
overseen by
Trustee
Deborah C. Jackson, Born: 1952 2008 195
Trustee
President, Cambridge College, Cambridge, Massachusetts (since 2011); Board of Directors, Massachusetts Women's Forum (since 2018); Board of Directors, National Association of Corporate Directors/New England (since 2015); Board of Directors, Association of Independent Colleges and Universities of Massachusetts (2014-2017); Chief Executive Officer, American Red Cross of Massachusetts Bay (2002-2011); Board of Directors of Eastern Bank Corporation (since 2001); Board of Directors of Eastern Bank Charitable Foundation (since 2001); Board of Directors of American Student Assistance Corporation (1996-2009); Board of Directors of Boston Stock Exchange (2002-2008); Board of Directors of Harvard Pilgrim Healthcare (health benefits company) (2007-2011). Trustee of various trusts within the John Hancock Fund Complex (since 2008).

     
James M. Oates,2 Born: 1946 2012 195
Trustee
Managing Director, Wydown Group (financial consulting firm) (since 1994); Chairman and Director, Emerson Investment Management, Inc. (2000-2015); Independent Chairman, Hudson Castle Group, Inc. (formerly IBEX Capital Markets, Inc.) (financial services company) (1997-2011); Director, Stifel Financial (since 1996); Director, Investor Financial Services Corporation (1995-2007); Director, Connecticut River Bancorp (1998-2014); Director/Trustee, Virtus Funds (since 1988). Trustee (since 2004) and Chairperson of the Board (2005-2016) of various trusts within the John Hancock Fund Complex.

     
Steven R. Pruchansky, Born: 1944 2002 195
Trustee and Vice Chairperson of the Board
Managing Director, Pru Realty (since 2017); Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. (2014-2020); Director and President, Greenscapes of Southwest Florida, Inc. (until 2000); Member, Board of Advisors, First American Bank (until 2010); Managing Director, Jon James, LLC (real estate) (since 2000); Partner, Right Funding, LLC (2014-2017); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). Trustee (since 1992), Chairperson of the Board (2011-2012), and Vice Chairperson of the Board (since 2012) of various trusts within the John Hancock Fund Complex.

     
Gregory A. Russo, Born: 1949 2008 195
Trustee
Director and Audit Committee Chairman (2012-2020), and Member, Audit Committee and Finance Committee (2011-2020), NCH Healthcare System, Inc. (holding company for multi-entity healthcare system); Director and Member (2012-2018) and Finance Committee Chairman (2014-2018), The Moorings, Inc. (nonprofit continuing care community); Vice Chairman, Risk & Regulatory Matters, KPMG LLP (KPMG) (2002-2006); Vice Chairman, Industrial Markets, KPMG (1998-2002); Chairman and Treasurer, Westchester County, New York, Chamber of Commerce (1986-1992); Director, Treasurer, and Chairman of Audit and Finance Committees, Putnam Hospital Center (1989-1995); Director and Chairman of Fundraising Campaign, United Way of Westchester and Putnam Counties, New York (1990-1995). Trustee of various trusts within the John Hancock Fund Complex (since 2008).

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       44


Non-Independent Trustees3

     
Name, year of birth
Position(s) held with fund
Principal occupation(s) and other
directorships during past 5 years
Trustee
of the
Trust
since1
Number of John
Hancock funds
overseen by
Trustee
Andrew G. Arnott, Born: 1971 2017 195
President and Non-Independent Trustee
Head of Wealth and Asset Management, United States and Europe, for John Hancock and Manulife (since 2018); Executive Vice President, John Hancock Financial Services (since 2009, including prior positions); Director and Executive Vice President, John Hancock Investment Management LLC (since 2005, including prior positions); Director and Executive Vice President, John Hancock Variable Trust Advisers LLC (since 2006, including prior positions); President, John Hancock Investment Management Distributors LLC (since 2004, including prior positions); President of various trusts within the John Hancock Fund Complex (since 2007, including prior positions). Trustee of various trusts within the John Hancock Fund Complex (since 2017).

     
Marianne Harrison, Born: 1963 2018 195
Non-Independent Trustee
President and CEO, John Hancock (since 2017); President and CEO, Manulife Canadian Division (2013-2017); Member, Board of Directors, CAE Inc. (since 2019); Member, Board of Directors, MA Competitive Partnership Board (since 2018); Member, Board of Directors, American Council of Life Insurers (ACLI) (since 2018); Member, Board of Directors, Communitech, an industry-led innovation center that fosters technology companies in Canada (2017-2019); Member, Board of Directors, Manulife Assurance Canada (2015-2017); Board Member, St. Mary's General Hospital Foundation (2014-2017); Member, Board of Directors, Manulife Bank of Canada (2013-2017); Member, Standing Committee of the Canadian Life & Health Assurance Association (2013-2017); Member, Board of Directors, John Hancock USA, John Hancock Life & Health, John Hancock New York (2012-2013). Trustee of various trusts within the John Hancock Fund Complex (since 2018).

Principal officers who are not Trustees

   
Name, year of birth
Position(s) held with fund
Principal occupation(s)
during past 5 years
Officer
of the
Trust
since
Charles A. Rizzo, Born: 1957 2007
Chief Financial Officer
Vice President, John Hancock Financial Services (since 2008); Senior Vice President, John Hancock Investment Management LLC and John Hancock Variable Trust Advisers LLC (since 2008); Chief Financial Officer of various trusts within the John Hancock Fund Complex (since 2007).

   
Salvatore Schiavone, Born: 1965 2010
Treasurer
Assistant Vice President, John Hancock Financial Services (since 2007); Vice President, John Hancock Investment Management LLC and John Hancock Variable Trust Advisers LLC (since 2007); Treasurer of various trusts within the John Hancock Fund Complex (since 2007, including prior positions).

   
Christopher (Kit) Sechler, Born: 1973 2018
Chief Legal Officer and Secretary
Vice President and Deputy Chief Counsel, John Hancock Investments (since 2015); Assistant Vice President and Senior Counsel (2009-2015), John Hancock Investment Management; Chief Legal Officer and Secretary of various trusts within the John Hancock Fund Complex (since 2018); Assistant Secretary of John Hancock Investment Management LLC and John Hancock Variable Trust Advisers LLC (since 2009).

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       45


Principal officers who are not Trustees (continued)

   
Name, year of birth
Position(s) held with fund
Principal occupation(s)
during past 5 years
Officer
of the
Trust
since
Trevor Swanberg, Born: 1979 2020
Chief Compliance Officer
Chief Compliance Officer, various trusts within the John Hancock Fund Complex, John Hancock Investment Management LLC, and John Hancock Variable Trust Advisers LLC (since 2020); Deputy Chief Compliance Officer, various trusts within the John Hancock Fund Complex (2018-2020); Deputy Chief Compliance Officer, John Hancock Investment Management LLC and John Hancock Variable Trust Advisers LLC (2019-2020); Assistant Chief Compliance Officer, various trusts within the John Hancock Fund Complex (2016-2018); Assistant Chief Compliance Officer, John Hancock Investment Management LLC and John Hancock Variable Trust Advisers LLC (2016-2019); Vice President, State Street Global Advisors (2015-2016).

The business address for all Trustees and Officers is 200 Berkeley Street, Boston, Massachusetts 02116-5023.

1 Mr. Bardelis, Mr. Burgess and Ms. Harrison serve as Trustees for a term expiring in 2021; Mr. Arnott, Ms. Jackson, Mr. Oates and Mr. Pruchansky serve as Trustees for a term expiring in 2022; Mr. Boyle, Mr. Cunningham, Ms. Fey, Mr. McClellan and Mr. Russo serve as Trustees for a term expiring in 2023; Mr. Boyle has served as Trustee at various times prior to date listed in the table.
2 Member of the Audit Committee.
3 The Trustee is a Non-Independent Trustee due to current or former positions with the Advisor and certain of its affiliates.
ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       46


More information

   

Trustees

Hassell H. McClellan, Chairperson
Steven R. Pruchansky, Vice Chairperson
Andrew G. Arnott
Charles L. Bardelis*
James R. Boyle
Peter S. Burgess*
William H. Cunningham
Grace K. Fey
Marianne Harrison
Deborah C. Jackson
James M. Oates*
Gregory A. Russo

Officers

Andrew G. Arnott
President

Charles A. Rizzo
Chief Financial Officer

Salvatore Schiavone
Treasurer

Christopher (Kit) Sechler
Secretary and Chief Legal Officer

Trevor Swanberg1
Chief Compliance Officer

Investment advisor

John Hancock Investment Management LLC

Subadvisor

Manulife Investment Management (US) LLC

Portfolio Managers

Joseph H. Bozoyan, CFA
Bradley L. Lutz, CFA

Custodian

State Street Bank and Trust Company

Transfer agent

Computershare Shareowner Services, LLC

Legal counsel

K&L Gates LLP

Independent registered public accounting firm

PricewaterhouseCoopers LLP

Stock symbol

Listed New York Stock Exchange: HPF

* Member of the Audit Committee
† Non-Independent Trustee
1 Effective July 31, 2020

For shareholder assistance refer to page  7

       
  You can also contact us:
  800-852-0218
jhinvestments.com

Regular mail:

Computershare
P.O. Box 505000
Louisville, KY 40233

Express mail:

Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202

The fund's proxy voting policies and procedures, as well as the fund's proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) website at sec.gov or on our website.

All of the fund's holdings as of the end of the third month of every fiscal quarter are filed with the SEC on Form N-PORT within 60 days of the end of the fiscal quarter. The fund's Form N-PORT filings are available on our website and the SEC's website, sec.gov.

We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our website at jhinvestments.com or by calling 800-852-0218.



The report is certified under the Sarbanes-Oxley Act, which requires closed-end funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

ANNUAL REPORT   |   JOHN HANCOCK PREFERRED INCOME FUND II       47


John Hancock family of funds

 

     

DOMESTIC EQUITY FUNDS



Blue Chip Growth

Classic Value

Disciplined Value

Disciplined Value Mid Cap

Equity Income

Financial Industries

Fundamental All Cap Core

Fundamental Large Cap Core

New Opportunities

Regional Bank

Small Cap Core

Small Cap Growth

Small Cap Value

U.S. Global Leaders Growth

U.S. Quality Growth

GLOBAL AND INTERNATIONAL EQUITY FUNDS



Disciplined Value International

Emerging Markets

Emerging Markets Equity

Fundamental Global Franchise

Global Equity

Global Shareholder Yield

Global Thematic Opportunities

International Dynamic Growth

International Growth

International Small Company

 

INCOME FUNDS



Bond

California Tax-Free Income

Emerging Markets Debt

Floating Rate Income

Government Income

High Yield

High Yield Municipal Bond

Income

Investment Grade Bond

Money Market

Short Duration Bond

Short Duration Credit Opportunities

Strategic Income Opportunities

Tax-Free Bond

ALTERNATIVE AND SPECIALTY FUNDS



Absolute Return Currency

Alternative Asset Allocation

Alternative Risk Premia

Diversified Macro

Infrastructure

Multi-Asset Absolute Return

Seaport Long/Short

The fund's investment objectives, risks, charges, and expenses are included in the prospectus and should be considered carefully before investing. For a prospectus, contact your financial professional, call John Hancock Investment Management at 800-852-0218, or visit the fund's website at jhinvestments.com. Please read the prospectus carefully before investing or sending money.

The John Hancock funds are distributed by John Hancock Investment Management Distributors LLC. Member FINRA SIPC.


     

ASSET ALLOCATION



Balanced

Multi-Asset High Income

Multi-Index Lifetime Portfolios

Multi-Index Preservation Portfolios

Multimanager Lifestyle Portfolios

Multimanager Lifetime Portfolios

Retirement Income 2040

EXCHANGE-TRADED FUNDS



John Hancock Multifactor Consumer Discretionary ETF

John Hancock Multifactor Consumer Staples ETF

John Hancock Multifactor Developed International ETF

John Hancock Multifactor Emerging Markets ETF

John Hancock Multifactor Energy ETF

John Hancock Multifactor Financials ETF

John Hancock Multifactor Healthcare ETF

John Hancock Multifactor Industrials ETF

John Hancock Multifactor Large Cap ETF

John Hancock Multifactor Materials ETF

John Hancock Multifactor Media and
Communications ETF

John Hancock Multifactor Mid Cap ETF

John Hancock Multifactor Small Cap ETF

John Hancock Multifactor Technology ETF

John Hancock Multifactor Utilities ETF

 

ENVIRONMENTAL, SOCIAL, AND
GOVERNANCE FUNDS



ESG All Cap Core

ESG Core Bond

ESG International Equity

ESG Large Cap Core

CLOSED-END FUNDS



Financial Opportunities

Hedged Equity & Income

Income Securities Trust

Investors Trust

Preferred Income

Preferred Income II

Preferred Income III

Premium Dividend

Tax-Advantaged Dividend Income

Tax-Advantaged Global Shareholder Yield

John Hancock Multifactor ETF shares are bought and sold at market price (not NAV), and are not individually redeemed
from the fund. Brokerage commissions will reduce returns.

John Hancock ETFs are distributed by Foreside Fund Services, LLC, and are subadvised by Dimensional Fund Advisors LP.
Foreside is not affiliated with John Hancock Investment Management Distributors LLC or Dimensional Fund Advisors LP.

Dimensional Fund Advisors LP receives compensation from John Hancock in connection with licensing rights to the
John Hancock Dimensional indexes. Dimensional Fund Advisors LP does not sponsor, endorse, or sell, and makes no
representation as to the advisability of investing in, John Hancock Multifactor ETFs.


John Hancock Investment Management

A trusted brand

John Hancock Investment Management is a premier asset manager
with a heritage of financial stewardship dating back to 1862. Helping
our shareholders pursue their financial goals is at the core of
everything we do. It's why we support the role of professional financial
advice and operate with the highest standards of conduct and integrity.

A better way to invest

We serve investors globally through a unique multimanager approach:
We search the world to find proven portfolio teams with specialized
expertise for every strategy we offer, then we apply robust investment
oversight to ensure they continue to meet our uncompromising
standards and serve the best interests of our shareholders.

Results for investors

Our unique approach to asset management enables us to provide
a diverse set of investments backed by some of the world's best
managers, along with strong risk-adjusted returns across asset classes.

jhdigest_backcover-logo.jpg

John Hancock Investment Management LLC
200 Berkeley Street n Boston, MA 02116-5010 n 800-225-5291 n jhinvestments.com

   
MF1291593 P11A 7/20
9/2020


ITEM 2. CODE OF ETHICS.

As of the end of the period, July 31, 2020, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer, Chief Financial Officer and Treasurer (respectively, the principal executive officer, the principal financial officer and the principal accounting officer, the “Senior Financial Officers”). A copy of the code of ethics is filed as an exhibit to this Form N-CSR.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Peter S. Burgess is the audit committee financial expert and is “independent”, pursuant to general instructions on Form N-CSR Item 3.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant(s) in connection with statutory and regulatory filings or engagements amounted to $50,115 for the fiscal year ended July 31, 2020 and $44,779 for the fiscal year ended July 31, 2019. These fees were billed to the registrant and were approved by the registrant’s audit committee.

(b) Audit-Related Services
Audit related fees billed to the registrant or to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant ("control affiliates") amounted to $5 for the fiscal year ended July 31, 2020 and $5 for the fiscal year ended July 31, 2019.

(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the tax compliance, tax advice and tax planning (“tax fees”) amounted to $3,837 for the fiscal year ended July 31, 2020 and $3,837 for the fiscal year ended July 31, 2019. The nature of the services comprising the tax fees was the review of the registrant’s tax returns and tax distribution requirements. These fees were billed to the registrant and were approved by the registrant’s audit committee.

(d) All Other Fees
The all other fees billed to the registrant for products and services provided by the principal accountant were $89 for the fiscal year ended July 31, 2020 and $84 for the fiscal year ended July 31, 2019. The nature of the services comprising the all other fees was mainly tax consulting work. These fees were approved by the registrant’s audit committee.

(e)(1) Audit Committee Pre-Approval Policies and Procedures:

The trust’s Audit Committee must pre-approve all audit and non-audit services provided by the independent registered public accounting firm (the “Auditor”) relating to the operations or financial reporting of the funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law.

The trust’s Audit Committee has adopted policies and procedures to, among other purposes, provide a framework for the Committee’s consideration of audit-related and non-audit services by the Auditor. The policies and procedures require that any audit-related and non-audit service provided by the Auditor and any non-audit service provided by the Auditor to a fund service provider that relates directly to the operations and financial reporting of a fund are subject to approval by the Audit Committee before such service is provided. Audit-related services provided by the Auditor that are expected to exceed $25,000 per instance/per fund are subject to specific pre-approval by the Audit Committee. Tax services provided by the Auditor that are expected to exceed $30,000 per instance/per fund are subject to specific pre-approval by the Audit Committee.


All audit services, as well as the audit-related and non-audit services that are expected to exceed the amounts stated above, must be approved in advance of provision of the service by formal resolution of the Audit Committee. At the regularly scheduled Audit Committee meetings, the Committee reviews a report summarizing the services, including fees, provided by the Auditor.

(e)(2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:

Audit-Related Fees, Tax Fees and All Other Fees:
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.

(f) According to the registrant’s principal accountant, for the fiscal year ended July 31, 2020, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who were not full-time, permanent employees of principal accountant was less than 50%.

(g) The aggregate non-audit fees billed by the registrant's accountant(s) for services rendered to the registrant and rendered to the registrant's control affiliates for each of the last two fiscal years of the registrant were $1,510,492 for the fiscal year ended July 31, 2020 and $998,470 or the fiscal year ended July 31, 2019.

(h) The audit committee of the registrant has considered the non-audit services provided by the registrant’s principal accountant(s) to the control affiliates and has determined that the services that were not pre-approved are compatible with maintaining the principal accountant(s)' independence.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

The registrant has a separately-designated standing audit committee comprised of independent trustees. The members of the audit committee are as follows:

Peter S. Burgess – Chairman
Charles L. Bardelis
James M. Oates

ITEM 6. SCHEDULE OF INVESTMENTS.

(a) Not applicable.
(b) Not applicable.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

See attached exhibit “Proxy Voting Policies and Procedures”.


ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Information about the portfolio managers
Management Biographies

Below is a list of the Manulife Investment Management (US) LLC (“Manulife IM (US)”) portfolio managers who share joint responsibility for the day-to-day investment management of the Fund. It provides a brief summary of their business careers over the past five years. Information is provided as of July 31, 2020.

Joseph H. Bozoyan, CFA
Portfolio Manager
Managing Director and Senior Investment Analyst, Intrinsic Value Team,
Manulife Investment Management (US) LLC (2014–2015)
Director and Senior Investment Manager, Intrinsic Value Team,
Manulife Investment Management (US) LLC (2011–2014)
Began business career in 1993
Managed the fund since 2015

Bradley L. Lutz, CFA
Portfolio Manager, Manulife Investment Management (US) LLC since 2017
Managing Director and Senior Investment Analyst, Manulife Investment Management (US) LLC (2002-2017)
Began business career in 1993
Managed the fund since 2017

Other Accounts the Portfolio Managers are Managing

The table below indicates for each portfolio manager information about the accounts over which the portfolio manager has day-to-day investment responsibility. All information on the number of accounts and total assets in the table is as of July 31, 2020. For purposes of the table, “Other Pooled Investment Vehicles” may include investment partnerships and group trusts, and “Other Accounts” may include separate accounts for institutions or individuals, insurance company general or separate accounts, pension funds and other similar institutional accounts.

Portfolio Manager Name Other Accounts Managed by the Portfolio Manager
Joseph H. Bozoyan, CFA Other Registered Investment Companies: Approximately $3.67 billion
Other Pooled Investment Vehicles: Approximately $501.47 million
Other Accounts: 0
Bradley L. Lutz, CFA Other Registered Investment Companies: Approximately $3.67 billion
Other Pooled Investment Vehicles: $454.95 million
Other Accounts: Approximately $296.90 million

Number and value of accounts within the total accounts that are subject to a performance-based advisory fee: None.


Conflicts of Interest. When a portfolio manager is responsible for the management of more than one account, the potential arises for the portfolio manager to favor one account over another. The principal types of potential conflicts of interest that may arise are discussed below. For the reasons outlined below, the Fund does not believe that any material conflicts are likely to arise out of a portfolio manager’s responsibility for the management of the Fund as well as one or more other accounts. The Advisor and Subadvisor have adopted procedures that are intended to monitor compliance with the policies referred to in the following paragraphs. Generally, the risks of such conflicts of interests are increased to the extent that a portfolio manager has a financial incentive to favor one account over another. The Advisor and Subadvisor have structured their compensation arrangements in a manner that is intended to limit such potential for conflicts of interests. See “Compensation of Portfolio Managers” below.

A portfolio manager could favor one account over another in allocating new investment opportunities that have limited supply, such as initial public offerings and private placements. If, for example, an initial public offering that was expected to appreciate in value significantly shortly after the offering was allocated to a single account, that account may be expected to have better investment performance than other accounts that did not receive an allocation on the initial public offering. The Subadvisor has policies that require a portfolio manager to allocate such investment opportunities in an equitable manner and generally to allocate such investments proportionately among all accounts with similar investment objectives.
   
A portfolio manager could favor one account over another in the order in which trades for the accounts are placed. If a portfolio manager determines to purchase a security for more than one account in an aggregate amount that may influence the market price of the security, accounts that purchased or sold the security first may receive a more favorable price than accounts that made subsequent transactions. The less liquid the market for the security or the greater the percentage that the proposed aggregate purchases or sales represent of average daily trading volume, the greater the potential for accounts that make subsequent purchases or sales to receive a less favorable price. When a portfolio manager intends to trade the same security for more than one account, the policies of the Subadvisor generally require that such trades be “bunched,” which means that the trades for the individual accounts are aggregated and each account receives the same price. There are some types of accounts as to which bunching may not be possible for contractual reasons (such as directed brokerage arrangements). Circumstances may also arise where the trader believes that bunching the orders may not result in the best possible price. Where those accounts or circumstances are involved, the Subadvisor will place the order in a manner intended to result in as favorable a price as possible for such client.
   
A portfolio manager could favor an account if the portfolio manager’s compensation is tied to the performance of that account rather than all accounts managed by the portfolio manager. If, for example, the portfolio manager receives a bonus based upon the performance of certain accounts relative to a benchmark while other accounts are disregarded for this purpose, the portfolio manager will have a financial incentive to seek to have the accounts that determine the portfolio manager’s bonus achieve the best possible performance to the possible detriment of other accounts. Similarly, if the Subadvisor receives a performance-based advisory fee, the portfolio manager may favor that account, whether or not the performance of that account directly determines the portfolio manager’s compensation. The investment performance on specific accounts is not a factor in determining the portfolio manager’s compensation. See “Compensation of Portfolio Managers” below. Neither the Advisor nor the Subadvisor receives a performance-based fee with respect to any of the accounts managed by the portfolio managers.



A portfolio manager could favor an account if the portfolio manager has a beneficial interest in the account, in order to benefit a large client or to compensate a client that had poor returns. For example, if the portfolio manager held an interest in an investment partnership that was one of the accounts managed by the portfolio manager, the portfolio manager would have an economic incentive to favor the account in which the portfolio manager held an interest. The Subadvisor imposes certain trading restrictions and reporting requirements for accounts in which a portfolio manager or certain family members have a personal interest in order to confirm that such accounts are not favored over other accounts.
   
If the different accounts have materially and potentially conflicting investment objectives or strategies, a conflict of interest may arise. For example, if a portfolio manager purchases a security for one account and sells the same security short for another account, such trading pattern could disadvantage either the account that is long or short. In making portfolio manager assignments, the Subadvisor seeks to avoid such potentially conflicting situations. However, where a portfolio manager is responsible for accounts with differing investment objectives and policies, it is possible that the portfolio manager will conclude that it is in the best interest of one account to sell a portfolio security while another account continues to hold or increase the holding in such security.

Compensation of Portfolio Managers. The Subadvisor has adopted a system of compensation for portfolio managers and others involved in the investment process that is applied systematically among investment professionals. At the Subadvisor, the structure of compensation of investment professionals is currently composed of the following basic components: base salary and an annual investment bonus plan as well as customary benefits that are offered generally to all full-time employees of the Subadvisor. The following describes each component of the compensation package for the individuals identified as a portfolio manager for the Funds.

Base salary. Base compensation is fixed and normally reevaluated on an annual basis. The Subadvisor seeks to set compensation at market rates, taking into account the experience and responsibilities of the investment professional.
   
Investment Bonus Plan. Only investment professionals are eligible to participate in the Investment Bonus Plan. Under the plan, investment professionals are eligible for an annual bonus. The plan is intended to provide a competitive level of annual bonus compensation that is tied to the investment professional achieving superior investment performance and aligns the financial incentives of the Subadvisor and the investment professional. Any bonus under the plan is completely discretionary, with a maximum annual bonus that may be well in excess of base salary. Payout of a portion of this bonus may be deferred for up to five years. While the amount of any bonus is discretionary, the following factors are generally used in determining bonuses under the plan:

Investment Performance: The investment performance of all accounts managed by the investment professional over one- and three-and five-year periods are considered, and no specific benchmark is used to measure performance. With respect to fixed income accounts, relative yields are also used to measure performance.
   
The Profitability of the Subadvisor: The profitability of the Subadvisor and its parent company are also considered in determining bonus awards.
   
Non-Investment Performance: To a lesser extent, intangible contributions, including the investment professional’s support of client service and sales activities, new fund/strategy idea generation, professional growth and development, and management, where applicable, are also evaluated when determining bonus awards.



In addition to the above, compensation may also include a revenue component for an investment team derived from a number of factors including, but not limited to, client assets under management, investment performance, and firm metrics.
   
Options and Stock Grants. A limited number of senior investment professionals may receive options to purchase shares of Manulife Financial stock. Generally, such option would permit the investment professional to purchase a set amount of stock at the market price on the date of grant. The option can be exercised for a set period (normally a number of years or until termination of employment) and the investment professional would exercise the option if the market value of Manulife Financial stock increases. Some investment professionals may receive restricted stock grants, where the investment professional is entitled to receive the stock at no or nominal cost, provided that the stock is forgone if the investment professional’s employment is terminated prior to a vesting date.
   
Deferred Incentives. Investment professionals may receive deferred incentives which are fully invested in strategies managed by the team/individuals as well as other Manulife Asset Management strategies.

The Subadvisor also permits investment professionals to participate on a voluntary basis in a deferred compensation plan, under which the investment professional may elect on an annual basis to defer receipt of a portion of their compensation until retirement. Participation in the plan is voluntary.

Share Ownership by Portfolio Managers. For purposes of these tables, “similarly managed accounts” include all accounts that are managed (i) by the same portfolio managers that are jointly and primarily responsible for the day-to-day management of the Fund; and (ii) with an investment style, objective, policies and strategies substantially similar to those that are used to manage the Fund.

Range of Beneficial
Range of Beneficial Ownership in Similarly
Portfolio Manager Ownership in the Fund Managed Accounts
Joseph H. Bozoyan,
CFA $10,001-$50,000 $10,001-$50,000
Bradley L. Lutz, CFA $10,001-$50,000 $10,001-$50,000

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

None.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

(a) The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds – Nominating and Governance Committee Charter".

ITEM 11. CONTROLS AND PROCEDURES.

(a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's principal executive officer and principal financial officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.


(b) There were no changes in the registrant's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

The Fund did not participate directly in securities lending activities. See Note 7 to financial statements in Item 1.

ITEM 13. EXHIBITS.

(a)(1) Code of Ethics for Senior Financial Officers is attached.

(a)(2) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached.

(b)(1) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The certifications furnished pursuant to this paragraph are not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference.

(c)(1) Proxy Voting Policies and Procedures are attached.

(c)(2) Submission of Matters to a Vote of Security Holders is attached. See attached "John Hancock Funds - Governance Committee Charter".

(c)(3) Registrant’s notice to shareholders pursuant to Registrant’s exemptive order granting an exemption from Section 19(b) of the Investment Company Act of 1940, as amended and Rule 19b-1 thereunder regarding distributions made pursuant to the Registrant’s Managed Distribution Plan.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

John Hancock Preferred Income II Fund

By: /s/ Andrew Arnott
Andrew Arnott
President
 
Date:    September 16, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Andrew Arnott
Andrew Arnott
President
 
Date:    September 16, 2020
 
By: /s/ Charles A. Rizzo
Charles A. Rizzo
Chief Financial Officer
 
Date: September 16, 2020