| UNITED STATES | ||
| SECURITIES AND EXCHANGE COMMISSION | ||
| Washington, D.C. 20549 | ||
| FORM N-Q | ||
| QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED | ||
| MANAGEMENT INVESTMENT COMPANIES | ||
| Investment Company Act file number 811- 21202 | ||
| John Hancock Preferred Income Fund II | ||
| (Exact name of registrant as specified in charter) | ||
| 601 Congress Street, Boston, Massachusetts 02210 | ||
| (Address of principal executive offices) (Zip code) | ||
| Alfred P. Ouellette, Senior Counsel and Assistant Secretary | ||
| 601 Congress Street | ||
| Boston, Massachusetts 02210 | ||
| (Name and address of agent for service) | ||
| Registrant's telephone number, including area code: 617-663-4324 | ||
| Date of fiscal year end: | July 31 | |
| Date of reporting period: | April 30, 2008 | |
| ITEM 1. SCHEDULE OF INVESTMENTS | ||
John Hancock
Preferred Income Fund II
Securities owned by the Fund on
April 30, 2008 (unaudited)
| Interest | Maturity | Credit | Par value | ||
| Issuer, description | rate | date | rating (A) | (000) | Value |
|
| |||||
| Bonds 4.12% | $18,047,760 | ||||
| (Cost $20,432,825) | |||||
| Electric Utilities 2.15% | 9,436,365 | ||||
|
| |||||
| Black Hills Corp., | |||||
| Note | 6.50% | 05-15-13 | BBB- | $5,000 | 4,992,155 |
| Entergy Gulf States, Inc., | |||||
| 1st Mtg Bond | 6.20 | 07-01-33 | BBB+ | 5,000 | 4,444,210 |
| Gas Utilities 1.97% | 8,611,395 | ||||
|
| |||||
| Southern Union Co., | |||||
| Jr Sub Note, Ser A | 7.20 | 11-01-66 | BB | 10,550 | 8,611,395 |
| Interest | Maturity | Credit | Par value | ||
| Issuer, description | rate | date | rating (A) | (000) | Value |
|
| |||||
| Capital preferred securities 9.96% | $43,637,710 | ||||
| (Cost $38,317,134) | |||||
| Diversified Banks 0.89% | 3,880,000 | ||||
|
| |||||
| Lloyds TSB Bank Plc | 6.90% | 11-29-49 | A+ | $4,000 | 3,880,000 |
| Electric Utilities 5.78% | 25,324,339 | ||||
|
| |||||
| DPL Capital Trust II | 8.125 | 09-01-31 | BB+ | 22,150 | 25,324,339 |
| Multi-Utilities 3.29% | 14,433,371 | ||||
|
| |||||
| Dominion Resources Capital Trust I | 7.83 | 12-01-27 | BBB | 8,450 | 8,644,696 |
| Dominion Resources Capital Trust III | 8.40 | 01-15-31 | BBB | 5,000 | 5,788,675 |
| Credit | |||||
| Issuer, description | rating (A) | Shares | Value | ||
|
| |||||
| Preferred stocks 134.38% | $588,602,758 | ||||
| (Cost $645,059,464) | |||||
| Agricultural Products 3.34% | 14,650,000 | ||||
|
| |||||
| Ocean Spray Cranberries, Inc., 6.25%, | |||||
| Ser A (S) | BB+ | 160,000 | 14,650,000 | ||
|
Page 1 | |||||
John Hancock
Preferred Income Fund II
Securities owned by the Fund on
April 30, 2008 (unaudited)
| Automobile Manufacturers 2.34% | 10,243,016 | ||
|
| |||
| General Motors Corp., 7.25%, Ser 04-15-41 | B- | 77,900 | 1,246,400 |
| General Motors Corp., 7.25%, Ser 07-15-41 | B- | 50,500 | 821,635 |
| General Motors Corp., 7.25%, Ser 02-15-52 | B- | 442,300 | 6,966,225 |
| General Motors Corp., 7.375%, | |||
| Ser 10-01-51 | B- | 73,125 | 1,208,756 |
| Broadcasting & Cable TV 4.84% | 21,183,472 | ||
|
| |||
| CBS Corp., 6.75% | BBB | 127,800 | 2,774,538 |
| Comcast Corp., 6.625% | BBB+ | 118,500 | 2,642,550 |
| Comcast Corp., 7.00% | BBB+ | 40,000 | 970,800 |
| Comcast Corp., 7.00%, Ser B | BBB+ | 615,201 | 14,795,584 |
| Consumer Finance 4.52% | 19,780,705 | ||
|
| |||
| HSBC Finance Corp., 6.00% | AA- | 72,200 | 1,697,422 |
| HSBC Finance Corp., 6.36%, Depositary | |||
| Shares, Ser B | A | 143,200 | 3,173,312 |
| HSBC Finance Corp., 6.875% | AA- | 349,100 | 8,661,171 |
| SLM Corp., 6.00% | BBB+ | 196,800 | 3,640,800 |
| SLM Corp., 6.97%, Ser A | BBB- | 64,000 | 2,608,000 |
| Diversified Banks 9.66% | 42,316,605 | ||
|
| |||
| BAC Capital Trust II, 7.00% | A+ | 22,400 | 549,920 |
| BAC Capital Trust IV, 5.875% | A+ | 51,150 | 1,118,651 |
| Barclays Bank Plc, 7.10%, Ser 3 | A+ | 100,000 | 2,484,000 |
| Fleet Capital Trust VIII, 7.20% | A+ | 344,700 | 8,496,855 |
| HSBC Holdings Plc, 6.20%, Ser A | A | 254,600 | 5,728,500 |
| Republic New York Corp., 6.25%, Ser HSBC | A | 50,000 | 1,118,000 |
| Royal Bank of Scotland Group Plc, 5.75%, | |||
| Ser L | A | 450,500 | 8,933,415 |
| Royal Bank of Scotland Group Plc, 7.25%, | |||
| Ser T | A | 26,000 | 631,020 |
| Santander Finance Preferred SA, | |||
| Unipersonal, 6.41%, Ser 1 | A+ | 225,000 | 5,253,750 |
| USB Capital VIII, 6.35%, Ser 1 | A+ | 83,000 | 1,883,270 |
| Wells Fargo Capital Trust IV, 7.00% | AA- | 140,800 | 3,524,224 |
| Wells Fargo Capital XII, 7.875% | AA-e | 100,000 | 2,595,000 |
| Diversified Financial Services 15.36% | 67,274,562 | ||
|
| |||
| ABN AMRO Capital Funding Trust V, 5.90% | A | 403,600 | 8,402,952 |
| ABN AMRO Capital Funding Trust VII, 6.08% | A | 365,000 | 7,825,600 |
| Bank of America Corp., 6.204%, | |||
| Depositary Shares, Ser D | A+ | 140,000 | 3,099,600 |
| Citigroup Capital VII, 7.125% | A | 364,200 | 8,795,430 |
| Citigroup Capital VIII, 6.95% | A | 611,000 | 14,315,730 |
| DB Capital Funding VIII, 6.375% | A+ | 414,700 | 9,455,160 |
| DB Capital Funding X, 7.35% | A+ | 40,000 | 966,000 |
| DB Capital Trust II, 6.55% | A+ | 357,500 | 7,936,500 |
| JPMorgan Chase Capital X, 7.00%, Ser J | A | 259,000 | 6,477,590 |
| Page 2 |
John Hancock
Preferred Income Fund II
Securities owned by the Fund on
April 30, 2008 (unaudited)
| Electric Utilities 24.27% | 106,291,154 | ||
|
| |||
| Duquesne Light Co., 6.50% | BB | 98,450 | 4,356,413 |
| Entergy Mississippi, Inc., 7.25% | A- | 109,000 | 2,777,320 |
| FPC Capital I, 7.10%, Ser A | BBB- | 625,003 | 15,400,074 |
| FPL Group Capital Trust I, 5.875% | BBB+ | 441,800 | 10,519,258 |
| FPL Group Capital, Inc., 7.45%, Ser E | BBB+ | 60,000 | 1,566,600 |
| Georgia Power Capital Trust VII, 5.875% | BBB+ | 116,500 | 2,827,455 |
| HECO Capital Trust III, 6.50% | BB+ | 130,000 | 3,039,400 |
| Interstate Power & Light Co., 8.375%, | |||
| Ser B | Baa2 | 700,000 | 20,510,000 |
| NSTAR Electric Co., 4.78% | A- | 15,143 | 1,196,297 |
| PPL Electric Utilities Corp., 6.25%, | |||
| Depositary Shares | BBB | 130,000 | 3,111,875 |
| PPL Energy Supply, LLC, 7.00% | BBB | 638,570 | 16,008,950 |
| Southern California Edison Co., 6.00%, | |||
| Ser C | BBB- | 20,000 | 1,936,876 |
| Virginia Power Capital Trust, 7.375% | BBB | 339,019 | 8,489,036 |
| Westar Energy, Inc., 6.10% | AAA | 100,000 | 2,494,000 |
| Xcel Energy, Inc., 7.60% | BBB- | 480,000 | 12,057,600 |
| Gas Utilities 2.19% | 9,600,315 | ||
|
| |||
| Southern Union Co., 7.55% | BB | 129,500 | 3,153,325 |
| Southwest Gas Capital II, 7.70% | BB | 258,500 | 6,446,990 |
| Integrated Telecommunication Services 0.25% | 1,077,069 | ||
|
| |||
| AT&T, Inc., 6.375% | A | 43,100 | 1,077,069 |
| Investment Banking & Brokerage 12.70% | 55,631,592 | ||
|
| |||
| Bear Stearns Cos., Inc. (The), 6.15%, | |||
| Depositary Shares, Ser E | A | 275,400 | 10,575,360 |
| Lehman Brothers Holdings Capital Trust | |||
| III, 6.375%, Ser K | A- | 177,000 | 3,736,470 |
| Lehman Brothers Holdings Capital Trust | |||
| V, 6.00%, Ser M | A- | 46,600 | 929,204 |
| Lehman Brothers Holdings, Inc., 5.94%, | |||
| Depositary Shares, Ser C | A- | 145,200 | 5,524,860 |
| Merrill Lynch Preferred Capital Trust | |||
| III, 7.00% | A- | 360,400 | 8,065,752 |
| Merrill Lynch Preferred Capital Trust | |||
| IV, 7.12% | A- | 172,200 | 3,877,944 |
| Merrill Lynch Preferred Capital Trust V, | |||
| 7.28% | A- | 275,000 | 6,204,000 |
| Morgan Stanley Capital Trust III, 6.25% | A | 268,779 | 5,792,187 |
| Morgan Stanley Capital Trust IV, 6.25% | A | 57,000 | 1,216,380 |
| Morgan Stanley Capital Trust V, 5.75% | A1 | 311,500 | 6,133,435 |
| Morgan Stanley Capital Trust VI, 6.60% | A | 160,000 | 3,576,000 |
| Life & Health Insurance 3.45% | 15,121,701 | ||
|
| |||
| Phoenix Cos., Inc. (The), 7.45% | BBB- | 236,200 | 5,031,060 |
| PLC Capital Trust IV, 7.25% | BBB+ | 350,475 | 7,973,306 |
| Prudential Plc, 6.50% | A- | 95,807 | 2,117,335 |
| Page 3 |
John Hancock
Preferred Income Fund II
Securities owned by the Fund on
April 30, 2008 (unaudited)
| Movies & Entertainment 4.38% | 19,179,293 | ||
|
| |||
| Viacom, Inc., 6.85% | BBB | 834,245 | 19,179,293 |
| Multi-Line Insurance 11.91% | 52,154,970 | ||
|
| |||
| Aegon NV, 6.375% | A- | 355,000 | 7,526,000 |
| ING Groep NV, 7.05% | A | 780,700 | 18,728,993 |
| ING Groep NV, 7.375% | A | 88,000 | 2,189,440 |
| MetLife, Inc., 6.50%, Ser B | BBB | 1,029,550 | 23,710,537 |
| Multi-Utilities 8.35% | 36,576,399 | ||
|
| |||
| Baltimore Gas & Electric Co., 6.99%, | |||
| Ser 1995 | Ba1 | 39,870 | 4,117,825 |
| BGE Capital Trust II, 6.20% | BBB- | 672,200 | 15,830,310 |
| DTE Energy Trust I, 7.80% | BB+ | 315,000 | 7,950,600 |
| PNM Resources, Inc., 6.75% | BB+ | 240,700 | 6,599,994 |
| Public Service Electric & Gas Co., | |||
| 4.18%, Ser B | BB+ | 7,900 | 586,575 |
| South Carolina Electric & Gas Co., 6.52% | Baa1 | 15,000 | 1,491,095 |
| Oil & Gas Exploration & Production 6.83% | 29,907,129 | ||
|
| |||
| Devon Energy Corp., 6.49%, Ser A | BB+ | 32,355 | 3,271,899 |
| Nexen, Inc., 7.35% | BB+ | 1,096,100 | 26,635,230 |
| Real Estate Management & Development 5.19% | 22,736,009 | ||
|
| |||
| Duke Realty Corp., 6.50%, Depositary | |||
| Shares, Ser K | BBB | 110,000 | 2,312,200 |
| Duke Realty Corp., 6.60%, Depositary | |||
| Shares, Ser L | BBB | 109,840 | 2,394,512 |
| Duke Realty Corp., 6.625%, Depositary | |||
| Shares, Ser J | BBB | 449,400 | 9,837,366 |
| Public Storage, Inc., 6.45%, Depositary | |||
| Shares, Ser X | BBB+ | 30,000 | 634,200 |
| Public Storage, Inc., 7.50%, Depositary | |||
| Shares, Ser V | BBB+ | 307,100 | 7,557,731 |
| Regional Banks 6.23% | 27,291,957 | ||
|
| |||
| PFGI Capital Corp., 7.75% | A | 686,000 | 17,643,097 |
| Wachovia Corp., 8.00% | A | 383,500 | 9,648,860 |
| Reinsurance 0.18% | 773,600 | ||
|
| |||
| RenaissanceRe Holdings Ltd., 6.08%, | |||
| Ser C | BBB+ | 40,000 | 773,600 |
| Specialized Finance 1.10% | 4,822,903 | ||
|
| |||
| CIT Group, Inc., 6.35%, Ser A | BBB+ | 100,000 | 1,381,000 |
| Repsol International Capital Ltd., | |||
| 7.45%, Ser A | BB+ | 136,313 | 3,441,903 |
| Thrifts & Mortgage Finance 0.58% | 2,559,375 | ||
|
| |||
| Sovereign Capital Trust V, 7.75% | BB+ | 137 | 2,559,375 |
| Page 4 |
John Hancock
Preferred Income Fund II
Securities owned by the Fund on
April 30, 2008 (unaudited)
| Wireless Telecommunication Services 6.72% | 29,430,932 | ||||
|
| |||||
| Telephone & Data Systems, Inc., 6.625% | BB+ | 155,000 | 3,069,000 | ||
| Telephone & Data Systems, Inc., 7.60%, | |||||
| Ser A | BB+ | 666,834 | 14,136,881 | ||
| United States Cellular Corp., 7.50% | BB+ | 559,243 | 12,225,051 | ||
| Interest | Maturity | Credit | Par value | ||
| Issuer, description | rate | date | rating (A) | (000) | Value |
| Short-term investments 9.47% | $41,500,000 | ||||
|
| |||||
| (Cost $41,500,000) | |||||
| Government U.S. Agency 9.47% | 41,500,000 | ||||
|
| |||||
| Discount Note | 2.10% (Y) | 05-01-08 | AAA | $41,500 | 41,500,000 |
| Total investments (Cost $745,309,423)† 157.93% | $691,788,228 | ||||
|
| |||||
| Other assets and liabilities, net 0.07% | $317,312 | ||||
|
| |||||
| Fund preferred shares, at liquidation value (58.00%) | ($254,063,304) | ||||
|
| |||||
| Total net assets applicable to | |||||
| common shareholders 100.00% | $438,042,236 | ||||
The percentage shown for each investment category is the total value of that category as a percentage of the net assets applicable to common shareholders.
| Page 5 |
John Hancock
Preferred Income Fund II
Notes to Schedule of Investments
April 30, 2008 (unaudited)
(A) Credit ratings are unaudited and are rated by Moody's Investors Service where Standard & Poor's ratings are not available unless indicated otherwise.
(S) This security is exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $14,650,000 or 3.34% of the net assets applicable to common shareholders as of April 30, 2008.
(Y) Represents current yield as of April 30, 2008.
† The cost of investments owned on April 30, 2008, including short-term investments, for Federal income tax purposes, was $745,410,490. Gross unrealized appreciation and depreciation of investments aggregated $10,820,732 and $64,442,994, respectively, resulting in net unrealized depreciation of $53,622,262.
| Country concentration1 | ||||
| United States | 87.23% | |||
| Netherlands | 4.11% | |||
| Canada | 3.85% | |||
| United Kingdom | 3.44% | |||
| Others (individually less than 1%) | 1.37% | |||
| Totals | 100.00% |
1 As a percentage of the Fund's total investments on April 30, 2008.
| Notes to Schedule of Investments - Page 6 |
John Hancock
Preferred Income Fund II
Interest rate swap contracts
April 30, 2008 (unaudited)
| Rate type | Unrealized | ||||||
| Notional | Payments made | Payments received | Termination | appreciation | |||
| amount | by Fund | by Fund | date | Counterparty | (depreciation) | ||
|
| |||||||
| $63,500,000 | 2.56% (a) | 3-month LIBOR | Jun 2008 | Morgan Stanley | $34,858 | ||
| $63,500,000 | 3.79% (a) | 3-month LIBOR | Jan 2011 | Morgan Stanley | (788,213) | ||
| $63,500,000 | 4.37% (a) | 3-month LIBOR | Nov 2010 | Bank of America | (1,691,989) | ||
| Total | ($2,445,344) | ||||||
(a) Fixed rate
| Interest rate swap contracts - Page 7 |
John Hancock
Preferred Income Fund II
Financial futures contracts
April 30, 2008 (unaudited)
| Number of | Unrealized | ||||
| Open contracts | contracts | Position | Expiration | depreciation | |
|
| |||||
| U.S. 10-year Treasury Note | 900 | Short | Jun 2008 | $1,377,396 | |
| financial futures contracts - Page 8 |
Notes to portfolio of investments
Security valuation
The net asset value of common shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. Short-term debt investments that have a remaining maturity of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on the principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Securities for which there are no such quotations, principally debt securities, are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take 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.
Other assets and securities for which no such quotations are readily available are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non- U.S. securities is substantially completed each day at various times prior to the close of trading on the NYSE. The values of such securities used in computing the net asset value of the Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the NYSE. Upon such an occurrence, these securities will be valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poor’s 500 Index, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
Swap contracts
The Fund may enter into swap transactions in order to hedge the value of the Fund’s portfolio against interest rate fluctuations or to enhance the Fund’s income or to manage the Fund’s exposure to credit or market risk.
Interest rate swaps represent an agreement between two counterparties to exchange cash flows based on the difference in the two interest rates, applied to the notional principal amount for a specified period. The payment flows are usually netted against each other, with the difference being paid by one party to the other. The Fund settles accrued net receivable or payable under the swap contracts on a periodic basis.
Credit default swaps involve the exchange of a fixed rate premium for protection against the loss in value of an underlying debt instrument in the event of a defined credit event (such as payment default or bankruptcy). Under the terms of the swap, one party acts as a “guarantor” receiving a periodic payment that is a fixed percentage applied to a notional principal amount. In return the party agrees to purchase the notional amount of the underlying instrument, at par, if a credit event occurs during the term of the swap. The Fund may enter into credit default swaps in which either it or its counterparty act as guarantors. By acting as the guarantor of a swap, the Fund assumes the market and credit risk of the underlying instrument including liquidity and loss of value.
The Fund records changes in the value of the swap as unrealized gains or losses on swap contracts. Net periodic payments accrued but not yet received (paid) are included in change in the unrealized appreciation/depreciation. Accrued interest income and interest expense on the swap contracts are recorded as realized gain (loss).
Swap contracts are subject to risks related to the counterparty’s ability to perform under the contract, and may decline in value if the counterparty’s creditworthiness deteriorates. The risks may arise from unanticipated movement in interest rates. The Fund may also suffer losses if it is unable to terminate outstanding swap contracts or reduce its exposure through offsetting transactions.
| Notes to Schedule of Investments - Page 9 |
ITEM 2. 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-Q, the registrant's principal executive officer and principal financial officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached.
| SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Preferred Income Fund II
By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: June 19, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: June 19, 2008
By: /s/ Charles A. Rizzo
-------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: June 19, 2008