June 24, 2004
EDGAR
United States Securities and
Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form N-CSR
John Hancock Bank and Thrift Opportunity Fund (the "Registrant")
File Nos. 811-8568
Ladies and Gentlemen:
Enclosed herewith for filing pursuant to the Investment Company Act of 1940
and the Securities Exchange Act of 1934 is the Registrant's Form N-CSR filing
for the period ending April 30, 2004.
If you have any questions or comments regarding this filing, please contact
the undersigned at (617) 375-1513.
Sincerely,
/s/Alfred P. Ouellette
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Bank and Thrift
Opportunity Fund
4.30.2004
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chairman, President and Chief Executive
Officer, flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
Fund's investments
page 6
Financial statements
page 11
For your information
page 25
To Our Shareholders,
I am pleased to be writing to you as Chairman, President and Chief
Executive Officer of John Hancock Funds, LLC.
As you may know, John Hancock Financial Services, Inc. -- the parent
company of John Hancock Funds -- was acquired by Manulife Financial
Corporation on April 28, 2004. The merger combines two exceptionally strong
companies into a single, integrated, global market leader whose scale and
capital will create an industry pacesetter strengthening our company's
leadership in markets around the world.
Although this change has no impact on the mutual funds you have invested
in, it did bring with it some changes in the executive-level management of
John Hancock Funds. Specifically, Maureen Ford Goldfarb has decided to step
down as chairman, president and chief executive officer in order to pursue
personal interests. Since her appointment in January 2000, Maureen has
provided John Hancock Funds with strong leadership and steady guidance
through several years of extremely turbulent market and industry
conditions.
Effective May 12, 2004, I have also been appointed by your Board of
Trustees to the roles of Trustee, President and Chief Executive Officer of
your fund. I have been in the investment business for over 25 years, most
recently as President of Retirement Services at John Hancock Financial
Services. In that role, my responsibilities included developing and
directing the sale of John Hancock's variable and fixed annuity businesses
through a diverse distribution network of banks and broker-dealers --
including wirehouses, regional brokerage houses and financial planners.
Prior to joining John Hancock, I served as Co-Chief Executive Officer of
MetLife Investors Group, a subsidiary of MetLife, Inc. In that capacity my
responsibilities included the design, manufacture and distribution of
MetLife's annuity and life insurance products sold through third-party
channels.
Although there has been a change in executive-level management, the one
thing that never wavers is John Hancock Funds' commitment to placing the
needs of our shareholders above all else. We are all dedicated to the task
of working with you and your financial advisors to help you reach your
long-term financial goals.
Sincerely,
/S/ JAMES A. SHEPHERDSON
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of April 30, 2004. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
long-term capital
appreciation by
normally invest-
ing at least 80%
of its assets in
equity securities
of U.S. regional
banks and thrifts
and holding
companies that
primarily own
or receive a sub-
stantial portion
of their income
from regional
banks or thrifts.
Over the last six months
* The stock market advanced, but encountered headwinds late in the period.
* Financial stocks, especially banks, lagged the broader market as fears
grew that the Federal Reserve would raise rates sooner than later.
* The Fund's focus on banks held back its relative performance.
[Bar chart with heading "John Hancock Bank and Thrift Opportunity Fund."
Under the heading is a note that reads "Fund performance for the six months
ended April 30, 2004." The chart is scaled in increments of 1% with 0% at
the bottom and 3% at the top. The bar represents the 2.41% total return
for John Hancock Bank and Thrift Opportunity Fund. A note below the chart
reads "The total return for the Fund is at net asset value with all
distributions reinvested."]
Top 10 holdings
3.1% Bank of America Corp.
3.0% Wells Fargo & Co.
3.0% Zions Bancorp.
2.9% Wachovia Corp.
2.8% SouthTrust Corp.
2.8% U.S. Bancorp
2.7% National Commerce Financial Corp.
2.7% Comerica, Inc.
2.7% Compass Bancshares, Inc.
2.6% Fifth Third Bancorp
As a percentage of net assets on April 30, 2004.
1
BY JAMES K. SCHMIDT, CFA, AND LISA A. WELCH, PORTFOLIO MANAGERS
MANAGERS' REPORT
JOHN HANCOCK
Bank and Thrift
Opportunity Fund
James J. McKelvey, previously a member of the Fund's portfolio management
team, recently left John Hancock Advisers, LLC to pursue other
opportunities.
Stocks advanced over the six months ended April 30, 2004, but encountered
headwinds as the period progressed. In November 2003, stocks were in the
midst of a year-long rally, lifted by historically low interest rates, a
rebounding economy, tax cuts and positive corporate earnings results. But
in 2004, stocks were choppy as investors worried about terrorism and Iraq,
and good economic news in April that sparked fears that the Federal Reserve
would raise interest rates sooner than later to ward off inflation. Even
with the turmoil, the broad market, as measured by the Standard & Poor's
500 Index, returned 6.27% for the six months ended April 30, 2004.
"...financial stocks, and
banks in particular, wound
up underperforming the
market over the period..."
Like the broader market, financial stocks began the period on a high note,
lifted by news of the mega-merger between Bank of America and FleetBoston
and heightened takeover speculation, and further bolstered by a string of
mergers in early 2004. But financial stocks, and banks in particular, wound
up underperforming the market over the period because investors view them
as especially sensitive to rising interest rates. As a rate hike became
increasingly certain and increasingly near, investors sold off the group.
As a result, the S&P 500 Financials Index returned 4.67% for the period.
FUND PERFORMANCE
For the six months ended April 30, 2004, John Hancock Bank and Thrift
Opportunity Fund posted a total return of 2.41% at net asset value,
compared with the 4.89% return of the average open-end financial services
fund, according to Lipper, Inc. Keep
2
in mind that your net asset value return will be different from the Fund's
performance if you were not invested in the Fund for the entire period and
did not reinvest all distributions. Our heavy concentration in banks was
the main reason for our relative underperformance versus both our benchmark
index and peer group, since banks lagged behind the stock-market-sensitive
groups such as life insurers, investment bankers and asset managers.
[Photos of Jim Schmidt and Lisa Welch flush right next to first paragraph.]
MERGER-RELATED BANKS DOMINATE
Despite the banks' underperformance, there were exceptions, specifically
banks that were involved in mergers, and they were some of our greatest
contributors to performance. Bank One Corp.'s stock did exceptionally well
after its announced acquisition by J.P. Morgan Chase, whose stock also
rose, as the market liked the low-premium deal and believed managements'
arguments about the companies' synergies. Both FleetBoston and Bank of
America served us well when their stocks rose after an initial shakeout
period following the merger announcement. And GreenPoint Financial's stock
rose on takeover rumors, which preceded North Fork Bancorp.'s merger
announcement.
"...banks that were
involved in mergers...
were some of our
greatest contributors
to performance."
There were a number of other announced mergers during the period in which a
Fund holding was the acquisition target. Allegiant Bancorp was purchased by
National City Corp., Community First Bankshares, Inc. was acquired by BNP
Paribas (BankWest), Local Financial Corp. was bought by International
Bancshares, CCBT Financial Cos. was taken over by Banknorth Group, Inc. and
Union Planters Corp. entered into a merger agreement with Regions
Financial.
This increased merger activity reverses the trend of recent years, where
the falloff reached its low point in 2002. We believe the activity level
will remain higher than it was, but not return to the frenetic pace, or
pricing levels, of 1997--1998. The current merger renaissance reaffirms two
of our theses: that banks perceive there to be value in bank branch
networks and that there are still too many banks -- currently 8,000 -- that
will inevitably consolidate to a more workable level of 4,000 nationwide.
3
[Table at top left-hand side of page entitled "Top five industry groups."
The first listing is Banks-regional 55%, the second is Banks-superregional
27%, the third Thrifts 5%, the fourth Mortgage banking 4%, and the fifth
Finance 4%.]
DISAPPOINTMENTS
Some of our disappointments during the period were stocks that had produced
exceptional results in 2003 and took a breather, such as Zions Bancorp and
U.S. Bancorp. Others included banks with disappointing earnings news such
as Fifth Third Bancorp. In addition, Washington Mutual, M&T Bank Corp. and
BB&T all fell on the drop-off in mortgage-related activity and the
challenging mortgage environment.
FUNDAMENTALS STILL STRONG
Bank fundamentals remain in good shape, with first quarter earnings solid
and within the range we expected, averaging 8% growth. The biggest positive
is asset quality, as commercial credit quality has improved faster than we
thought, due primarily to the strong economy. With the bull market,
market-related revenues and capital markets activity have also picked up.
We're still waiting for a pickup in commercial loan activity and are seeing
more signs that it will happen, but no evidence yet that it has. Our sense
is that it will begin to accelerate later in the year. Margins, which had
come under pressure in this low-rate environment, seem to have stabilized,
but have yet to improve.
[Pie chart in middle of page with heading "Portfolio diversification As a
percentage of net assets on 4-30-04." The chart is divided into two
sections (from top to left): Common stocks 99% and Short-term investments &
other 1%.]
A WORD ABOUT INTEREST RATES
In this period, the increasing likelihood of a Fed rate hike hurt financial
stocks as the knee-jerk reaction of investors was that rising rates would
be a detriment to earnings. We continue to believe that the relationship
between interest rates and banks is more complicated and nuanced than the
market believes. Commercial banks have improved their ability to maintain
stable margins as rates change and indeed many banks would see net
4
[Table at top of page entitled "SCORECARD." The header for the left column
is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Bank One
followed by an up arrow with the phrase "Boosted by deal with J.P. Morgan."
The second listing is GreenPoint Financial followed by an up arrow with the
phrase "Acquisition by North Fork lifts stock." The third listing is BB&T
followed by a down arrow with the phrase "Mortgage-related earnings miss."]
interest income benefit from a 50 basis point increase in Fed Funds. We
have studied the relationship between interest rates and the relative
performance of banks and other financials in great detail, and have found
that there is relatively little correlation. The market impact of a Fed
tightening is very short-lived and almost completely vanishes over horizons
beyond six months.
MANAGED DISTRIBUTION
In December 2003, the Fund was granted an exemptive order from the
Securities and Exchange Commission to implement a managed distribution
plan. The plan requires the Fund to make quarterly distributions totaling
at least 10% per year of the Fund's net asset value as of the prior
calendar year-end. The first distribution was made in March 2004.
OUTLOOK
We remain positive about the prospects for bank stocks. Strong
fundamentals, steady earnings and rising dividends as the result of tax law
changes make the group a compelling component of a diversified portfolio.
Good economic growth and a vibrant stock market could cause the group to
underperform faster-growing market sectors. But if the economy falters,
banks still have the ability to generate more steady results. Banks also
stand to benefit from a resurgence in commercial lending and continued
consolidation.
"Banks also stand to benefit
from a resurgence in
commercial lending and
continued consolidation."
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. The managers' statements
reflect their own opinions. As such, they are in no way guarantees of
future events, and are not intended to be used as investment advice or a
recommendation regarding any specific security. They are also subject to
change at any time as market and other conditions warrant.
Sector investing is subject to greater risks than the market as a whole.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
April 30, 2004
(unaudited)
This schedule is divided into three main categories: common stocks, bonds
and short-term investments. Common stocks and bonds are further broken down
by industry group. Short-term investments, which represent the Fund's cash
position, are listed last.
ISSUER SHARES VALUE
COMMON STOCKS 99.22% $858,399,429
(Cost $394,655,998)
Banks -- Regional 54.67% 472,993,637
ABC Bancorp. (GA) 65,400 1,246,524
Alabama National Bancorp. (AL) 142,500 7,270,350
AmericanWest Bancorp. (WA) * 357,921 6,542,796
AmSouth Bancorp. (AL) + 95,879 2,111,256
Banknorth Group, Inc. (ME) + 482,474 14,778,179
BB&T Corp. (NC) + 344,846 11,893,739
Beverly National Corp. (MA) 47,500 1,223,125
BOK Financial Corp. (OK) * + 113,795 4,444,833
Camden National Corp. (ME) 140,000 4,292,400
Capital City Bank Group, Inc. (FL) + 59,635 2,310,856
Cardinal Financial Corp. (VA) * 86,200 771,490
Cascade Bancorp. (OR) + 194,272 3,257,941
CCBT Financial Cos., Inc. (MA) 184,700 6,180,062
Charter One Financial, Inc. (OH) 370,000 12,346,900
Chittenden Corp. (VT) 140,196 4,264,762
City National Corp. (CA) 224,427 13,835,925
Colonial BancGroup (The), Inc. (AL) 585,200 10,082,996
Columbia Bancorp. (MD) 90,000 2,610,000
Columbia Bancorp. (OR) 5,250 77,700
Columbia Banking System, Inc. (WA) 2,500 56,100
Commercial Bankshares, Inc. (FL) 63,702 1,686,829
Community Banks, Inc. (PA) 105,055 3,225,188
Community First Bankshares, Inc. (ND) 213,100 6,857,558
Compass Bancshares, Inc. (AL) + 600,857 23,048,875
Cullen/Frost Bankers, Inc. (TX) 20,000 866,000
Desert Community Bank (CA) 137,500 3,386,625
DNB Financial Corp. (PA) 65,830 1,734,620
East-West Bancorp., Inc. (CA) 340,000 19,152,200
Financial Institutions, Inc. (NY) 73,000 1,701,630
First Charter Corp. (NC) 52,200 1,077,930
First Horizon National Corp. (TN) 170,900 7,512,764
First National Bankshares of Florida (FL) 90,049 1,657,802
See notes to
financial statements.
6
FINANCIAL STATEMENTS
ISSUER SHARES VALUE
Banks -- Regional (continued)
First Regional Bancorp. (CA) (r) * 100,000 $2,722,500
First Regional Bancorp. (CA) * 50,000 1,512,500
First State Bancorp. (NM) 65,000 2,064,400
FNB Bankshares (ME) 62,340 1,355,895
F.N.B. Corp. (FL) + 90,049 1,764,960
Fulton Financial Corp. (PA) 101,718 2,095,391
Glacier Bancorp., Inc. (MT) 235,385 7,214,550
Harleysville National Corp. (PA) 131,216 3,429,986
Hibernia Corp. (Class A) (LA) 230,000 5,011,700
Independent Bank Corp. (MI) 308,105 7,711,868
Local Financial Corp. (OK) (R) 310,000 6,754,900
M&T Bank Corp. (NY) + 238,657 20,285,845
Marshall & Ilsley Corp. (WI) 334,545 12,301,220
MB Financial, Inc. (IL) 105,000 3,701,250
Mercantile Bankshares Corp. (MD) + 209,500 8,991,740
Merrill Merchants Bankshares, Inc. (ME) 73,687 1,743,508
Mid-State Bancshares (CA) 50,000 1,124,500
National Commerce Financial Corp. (TN) 873,392 23,223,493
North Fork Bancorp., Inc. (NY) 290,800 10,794,496
Northrim Bancorp., Inc. (AK) 70,053 1,519,380
Oriental Financial Group (Puerto Rico) 18,395 524,625
Pacific Capital Bancorp. (CA) 273,266 10,023,397
Prosperity Bancshares, Inc. (TX) + 120,000 2,780,400
Provident Bankshares Corp. (MD) + 165,058 4,649,684
S&T Bancorp., Inc. (PA) 154,700 4,398,121
Sandy Spring Bancorp., Inc. (MD) 9,500 339,910
Security Bank Corp. (GA) 35,000 1,116,500
Sky Financial Group, Inc. (OH) 234,850 5,612,915
SouthTrust Corp. (AL) 784,350 24,377,598
Southwest Bancorp. of Texas, Inc. (TX) * 260,330 10,587,621
Summit Bancshares, Inc. (TX) 139,500 3,906,000
Synovus Financial Corp. (GA) + 450,000 10,741,500
Taylor Capital Group, Inc. (IL) 213,200 4,428,164
TCF Financial Corp. (MN) + 214,008 10,604,096
TriCo Bancshares (CA) 26,500 921,670
UCBH Holdings, Inc. (CA) 200,000 7,404,000
Umpqua Holdings Corp. (OR) 177,901 3,371,224
Union Planters Corp. (TN) 127,390 3,541,442
Univest Corp. (PA) 136,812 6,731,150
Valley National Bancorp. (NJ) 149,892 3,874,708
West Coast Bancorp. (OR) 67,583 1,486,826
Whitney Holding Corp. (LA) 106,500 4,366,500
Wilmington Trust Corp. (DE) 350,000 12,169,500
Yardville National Bancorp. (NJ) 97,400 2,386,300
Zions Bancorp. (UT) 456,825 25,819,749
See notes to
financial statements.
7
FINANCIAL STATEMENTS
ISSUER SHARES VALUE
Banks -- Superregional 27.47% $237,699,962
Bank of America Corp. (NC) 337,335 27,152,094
Bank One Corp. (OH) 359,880 17,767,276
Comerica, Inc. (MI) + 447,400 23,099,262
Fifth Third Bancorp (OH) 422,563 22,674,731
KeyCorp (OH) + 320,000 9,504,000
Mellon Financial Corp. (PA) 330,000 9,781,200
National City Corp. (DE) + 590,188 20,461,818
PNC Financial Services Group (PA) 390,500 20,735,550
SunTrust Banks, Inc. (GA) + 161,152 10,966,394
U.S. Bancorp (MN) 941,041 24,128,291
Wachovia Corp. (NC) 556,625 25,465,594
Wells Fargo & Co. (CA) 459,861 25,963,752
Broker Services 0.22% 1,933,316
Lehman Brothers Holdings, Inc. (NY) 20,000 1,468,000
Piper Jaffray Cos., Inc. (MN) + 9,610 465,316
Finance 3.61% 31,186,046
CIT Group, Inc. (NY) 206,900 7,111,153
Citigroup, Inc. (NY) 449,925 21,636,893
MBNA Corp. (DE) 100,000 2,438,000
Insurance 1.42% 12,332,400
MetLife, Inc. (NY) 104,000 3,588,000
Prudential Financial, Inc. (NJ) 60,000 2,636,400
XL Capital Ltd. (Class A) (Bermuda) + 80,000 6,108,000
Investment Management 3.04% 26,265,475
Affiliated Managers Group, Inc. (MA) *+ 270,750 13,185,525
Federated Investors, Inc. (Class B) (PA) 30,000 882,000
Legg Mason, Inc. (MD) 132,500 12,197,950
Mortgage Banking 3.69% 31,888,480
Countrywide Financial Corp. (CA) 225,000 13,342,500
Fannie Mae (DC) 122,500 8,418,200
Freddie Mac (VA) 140,000 8,176,000
New Century Financial Corp. (CA) 46,000 1,951,780
Thrifts 5.10% 44,100,113
Astoria Financial Corp. (NY) 71,910 2,475,142
Commercial Capital Bancorp., Inc. (CA) * + 450,000 7,947,000
GreenPoint Financial Corp. (NY) 255,750 9,974,250
Hingham Institute for Savings (MA) 80,000 3,200,000
LSB Corp. (MA) 65,000 1,059,500
NewAlliance Bancshares Inc (CT) * + 12,581 171,731
PennFed Financial Services, Inc. (NJ) 156,800 4,719,680
Sovereign Bancorp, Inc. (PA) 30,000 599,400
Washington Mutual, Inc. (WA) 276,812 10,903,625
Webster Financial Corp. (CT) 70,110 3,049,785
See notes to
financial statements.
8
FINANCIAL STATEMENTS
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE
BONDS 0.11% $939,323
(Cost $770,000)
Banks -- United States 0.11%
CSBI Capital Trust I,
Sub Cap Income, Ser A 06-06-27 (A) 11.750% $770 939,323
SHORT-TERM INVESTMENTS 15.31% $132,418,750
(Cost $132,418,750)
Certificates of Deposit 0.01%
Deposits in mutual banks 76 76,490
Joint Repurchase Agreement 0.77%
Investment in a joint repurchase agreement
transaction with Barclays Capital, Inc. --
Dated 04-30-04, due 05-03-04 (Secured by
U.S. Treasury Inflation Indexed Bond 3.875%,
due 04-15-29, and U.S. Treasury Inflation
Indexed Note 3.000%, due 07-15-12) 0.93 6,643 6,643,000
SHARES
Cash Equivalents 14.53%
AIM Cash Investment Trust** 125,699,260 125,699,260
TOTAL INVESTMENTS 114.64% $991,757,502
OTHER ASSETS AND LIABILITIES, NET (14.64%) ($126,614,758)
TOTAL NET ASSETS 100.00% $865,142,744
See notes to
financial statements.
9
FINANCIAL STATEMENTS
Notes to Schedule of Investments
+ All or a portion of this security is on loan as of April 30, 2004.
* Non-income-producing security.
** Represents investment of securities lending collateral.
(A) This security is valued in good faith under procedures established by
the Board of Trustees.
(R) This security is exempt from registration under Rule 144A of the
Securities Act of 1933. Such security may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $6,754,900 or 0.78% of net assets as of April 30,
2004.
(r) Direct placement securities are restricted to resale. They have been
valued in accordance with procedures approved by the Trustees after
consideration of restrictions as to resale, financial condition and
prospectus of the issuer, general market conditions and pertinent
information in accordance with the Fund's by-laws and the Investment
Company Act of 1940, as amended. The Fund has limited rights to
registration under the Securities Act of 1933 with respect to these
restricted securities. Additional information on these securities is as
follows:
VALUE AS A
PERCENTAGE VALUE
ACQUISITION ACQUISITION OF FUND'S AS OF
ISSUER, DESCRIPTION DATE COST NET ASSETS APRIL 30, 2004
----------------------------------------------------------------------------------------
First Regional Bancorp 03-25-04 $2,950,000 0.31% $2,722,500
Parenthetical disclosure of a foreign country in the security description
represents the country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
10
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
April 30, 2004
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes.
You'll also find
the net asset
value for each
common share.
ASSETS
Investments at value, including $123,063,636 of
securities loaned
Unaffiliated issuers (cost $527,277,598) $990,401,607
Affiliated issuers (cost $567,150) 1,355,895
Cash 339
Dividends and interest receivable 1,269,314
Other assets 160,337
Total assets 993,187,492
LIABILITIES
Payable for securities purchased 1,073,644
Payable for securities on loan 125,699,260
Payable to affiliates
Management fees 979,395
Other 170,330
Other payables and accrued expenses 122,119
Total liabilities 128,044,748
NET ASSETS
Capital paid-in 396,939,741
Accumulated net realized gain on investments 935,962
Net unrealized appreciation of investments 463,912,754
Accumulated net investment income 3,354,287
Net assets $865,142,744
NET ASSET VALUE PER SHARE
Based on 84,400,000 shares outstanding $10.25
See notes to
financial statements.
11
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
April 30, 2004
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in operat-
ing the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends (including $17,663 received from affiliated issuers) $11,239,402
Interest 109,944
Securities lending 91,456
Total investment income 11,440,802
EXPENSES
Investment management fees 5,270,009
Administration fees 1,145,654
Custodian fees 56,757
Printing 43,177
Registration and filing fees 30,947
Professional fees 24,378
Trustees' fees 20,834
Transfer agent fees 17,926
Miscellaneous 17,164
Securities lending fees 2,247
Total expenses 6,629,093
Less expense reductions (229,131)
Net expenses 6,399,962
Net investment income 5,040,840
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on investments 23,850,985
Change in net unrealized appreciation (depreciation)
of investments (10,939,166)
Net realized and unrealized gain 12,911,819
Increase in net assets from operations $17,952,659
1 Semiannual period from 11-1-03 through 4-30-04.
See notes to
financial statements.
12
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show how
the value of the
Fund's net assets
has changed dur-
ing the last two
periods. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses and
distributions paid
to shareholders.
YEAR PERIOD
ENDED ENDED
10-31-03 4-30-04 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $10,173,850 $5,040,840
Net realized gain 43,579,476 23,850,985
Change in net unrealized
appreciation (depreciation) 136,897,644 (10,939,166)
Increase in net assets
resulting from operations 190,650,970 17,952,659
Distributions to shareholders
From net investment income (9,831,756) (9,873,112)
From net realized gain (62,701,604) (66,363,720)
(72,533,360) (76,236,832)
NET ASSETS
Beginning of period 805,309,307 923,426,917
End of period 2 $923,426,917 $865,142,744
1 Semiannual period from 11-1-03 through 4-30-04. Unaudited.
2 Including accumulated net investment income of $8,186,559 and
$3,354,287, respectively.
See notes to
financial statements.
13
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
COMMON SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 10-31-99 10-31-00 10-31-01 10-31-02 10-31-03 4-30-04 1
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.08 $11.31 $9.53 $9.76 $9.54 $10.94
Net investment income 2 0.14 0.19 0.15 0.11 0.12 0.06
Net realized and unrealized
gain (loss) on investments 0.40 (1.27) 0.86 0.88 2.14 0.16
Total from
investment operations 0.54 (1.08) 1.01 0.99 2.26 0.22
Less distributions
From net investment income (0.14) (0.15) (0.21) (0.13) (0.12) (0.12)
From net realized gain (0.17) (0.55) (0.57) (1.08) (0.74) (0.79)
(0.31) (0.70) (0.78) (1.21) (0.86) (0.91)
Net asset value,
end of period $11.31 $9.53 $9.76 $9.54 $10.94 $10.25
Per share market value,
end of period $9.50 $7.81 $7.88 $7.92 $9.65 $9.13
Total return
at market value 3 (%) (16.44) (10.58) 9.56 4 15.39 4 35.54 4 3.42 4,5
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $955 $804 $823 $805 $923 $865
Ratio of expenses
to average net assets (%) 1.48 1.47 1.43 1.43 1.43 1.40 6
Ratio of adjusted expenses
to average net assets 7 (%) -- -- 1.45 1.46 1.48 1.45 6
Ratio of net investment income
to average net assets (%) 1.29 2.18 1.51 1.11 1.28 1.11 6
Portfolio turnover (%) 5 13 27 20 4 1
1 Semiannual period from 11-1-03 through 4-30-04. Unaudited.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment.
4 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
5 Not annualized.
6 Annualized.
7 Does not take into consideration expense reductions during the periods
shown.
See notes to
financial statements.
14
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Bank and Thrift Opportunity Fund (the "Fund") is a diversified
closed-end management investment company, shares of which were initially
offered to the public on August 23, 1994, and are publicly traded on the
New York Stock Exchange.
Significant accounting policies
of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at fair
value as determined in good faith in accordance with procedures approved by
the Trustees. Short-term debt investments maturing within 60 days are
valued at amortized cost, which approximates market value. Investments in
AIM Cash Investment Trust are valued at their net asset value each business
day.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of John Hancock Financial Services,
Inc., may participate in a joint repurchase agreement transaction.
Aggregate cash balances are invested in one or more large repurchase
agreements, whose underlying securities are obligations of the U.S.
government and/or its agencies. The Fund's custodian bank receives delivery
of the underlying securities for the joint account on the Fund's behalf.
The Adviser is responsible for ensuring that the agreement is fully
collateralized at all times.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
Discount and premium on securities
The Fund accretes discount and amortizes premiums from par value on
securities from either the date of issue or the date of purchase over the
life of the security.
Expenses
The majority of expenses are directly identifiable to an individual fund.
Expenses that are not readily identifiable to a specific fund are allocated
in such a manner as deemed equitable, taking into consideration, among
other things, the nature and type of expense and the relative sizes of the
funds.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
negotiated lender fees. The loans are collateralized at all times with cash
or securities with
15
a market value at least equal to the market value of the securities on
loan. As with other extensions of credit, the Fund may bear the risk of
delay of the loaned securities in recovery or even loss of rights in the
collateral, should the borrower of the securities fail financially. On
April 30, 2004, the Fund loaned securities having a market value of
$123,063,636 collateralized by cash in the amount of $125,699,260. The cash
collateral was invested in a short-term instrument. Securities lending
expenses are paid by the Fund to the Adviser.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be subject
to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment income
and net realized gains on the ex-dividend date. Such distributions, on a
tax basis, are determined in conformity with income tax regulations, which
may differ from accounting principles generally accepted in the United
States of America. Distributions in excess of tax basis earnings and
profits, if any, are reported in the Fund's financial statements as a
return of capital.
In December 2003, the Fund was granted an exemptive order from the
Securities and Exchange Commission to implement a managed distribution
plan. The plan requires the Fund to make quarterly distributions of at
least 2.5% of the Fund's net asset value as of the prior calendar year end
or at least 10% annually. On March 5, 2004, the Fund declared its first
managed distribution of $0.27 per share from long-term capital gains.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported
amount of assets, liabilities, revenues and expenses of the Fund. Actual
results could differ from these estimates.
NOTE B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under the
investment management contract, the Fund pays a monthly management fee to
the Adviser at an annual rate of 1.15% of the Fund's average weekly net
asset value.
The Fund has an agreement with the Adviser to perform certain
administrative services for the Fund. The compensation for the period was
at an annual rate of approximately 0.25% of the average weekly net asset
value of the Fund. The Adviser agreed to limit the administration fee to
0.20% of the Fund's average weekly net asset value. Accordingly, the
expense reductions related to the administration fee amounted to $229,131
for the period ended April 30, 2004. The Adviser reserves the right to
terminate this limitation in the future with Trustees' approval.
Mr. James A. Shepherdson is a director and/or officer of the Adviser and/or
its affiliates, as well as Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may
elect to defer, for tax purposes, their receipt of this compensation under
the John Hancock Group of Funds Deferred
16
Compensation Plan. The Fund makes investments into other John Hancock
funds, as applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are
recorded on the Fund's books as another asset. The deferred compensation
liability and the related other asset are always equal and are marked to
market on a periodic basis to reflect any income earned by the investments,
as well as any unrealized gains or losses. The Deferred Compensation Plan
investments had no impact on the operations of the Fund.
NOTE C
Fund common
share transactions
The Fund had no common share transactions during the period ended April 30,
2004.
NOTE D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other than
short-term securities and obligations of the U.S. government, during the
period ended April 30, 2004, aggregated $11,744,235 and $73,158,540,
respectively.
The cost of investments owned on April 30, 2004, including short-term
investments, for federal income tax purposes, was $527,971,627. Gross
unrealized appreciation and depreciation of investments aggregated
$466,297,264 and $2,511,389, respectively, resulting in net unrealized
appreciation of $463,785,875. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable primarily
to the tax deferral of losses on certain sales of securities.
NOTE E
Transactions in securities of affiliated issuers
Affiliated issuers, as defined by the Investment Company Act of 1940, are
those in which the Fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the Fund's
transactions in the securities of these issuers during the period ended
April 30, 2004 is set forth below.
BEGINNING ENDING
SHARE SHARE REALIZED DIVIDEND ENDING
AFFILIATE AMOUNT AMOUNT GAIN INCOME VALUE
FNB Bankshares (ME)
common stock
bought: none
sold: none 20,780 62,340* -- $17,663 $1,355,895
Totals $17,663 $1,355,895
* Reflects 3-for-1 stock split, record date 3-22-04.
17
INVESTMENT
OBJECTIVE
AND POLICY
The Fund is a closed-end diversified management investment company, shares
of which were initially offered to the public on August 23, 1994 and are
publicly traded on the New York Stock Exchange. Its investment objective is
long-term capital appreciation.
On November 20, 2001 the Fund's Trustees approved the following investment
policy changes effective December 15, 2001: Under normal circumstances, the
Fund will invest at least 80% of its net assets in equity securities of
U.S. regional banks and thrifts and holding companies that primarily own or
receive a substantial portion of their income from regional banks or
thrifts. "Net assets" is defined as net assets plus borrowings for
investment purposes. "Primarily owned" means that the bank or financial
holding company derives a substantial portion of its business from U.S.
regional banks or thrifts as determined by the Adviser, based upon
generally accepted measures such as revenues, asset size and number of
employees. U.S. regional banks or thrifts are ones that provide
full-service banking (i.e. savings accounts, checking accounts, commercial
lending and real estate lending) and whose assets are primarily of domestic
origin. The Fund will notify shareholders at least 60 days prior to any
change in this 80% investment policy.
The Fund may invest in investment-grade debt securities as well as debt
securities rated BB or below by Standard & Poor's Ratings group ("Standard
& Poor's") or Ba or below by Moody's Investors Service, Inc. ("Moody's"),
or, if unrated by such rating organizations, determined by the Adviser to
be of comparable quality.
BY-LAWS
On November 19, 2002, the Board of Trustees adopted several amendments to
the Fund's by-laws, including provisions relating to the calling of a
special meeting and requiring advance notice of shareholder proposals or
nominees for Trustee. The advance notice provisions in the by-laws require
shareholders to notify the Fund in writing of any proposal that they intend
to present at an annual meeting of shareholders, including any nominations
for Trustee, between 90 and 120 days prior to the first anniversary of the
mailing date of the notice from the prior year's annual meeting of
shareholders. The notification must be in the form prescribed by the
by-laws. The advance notice provisions provide the Fund and its Trustees
with the opportunity to thoughtfully consider and address the matters
proposed before the Fund prepares and mails its proxy statement to
shareholders. Other amendments set forth the procedures that must be
followed in order for a shareholder to call a special meeting of
shareholders. Please contact the Secretary of the Fund for additional
information about the advance notice requirements or the other amendments
to the by-laws.
DIVIDEND
REINVESTMENT PLAN
The Fund offers its shareholders a Dividend Reinvestment Plan, (the
"Plan"), which offers the opportunity to earn compounded yields. Each
holder of common shares will automatically have all distributions of
dividends and capital gains reinvested by Mellon Investor Services as Plan
agent for the shareholders (the "Plan Agent"), unless an election is made
to receive cash. Each registered shareholder will receive from the Plan
Agent an authorization card to be signed and returned if the shareholder
elects to receive distributions from net investment income in cash or
elects not to receive capital gains distributions in the form of a shares
dividend. Shareholders may also make their election by notifying the Plan
Agent by telephone or by visiting the Plan Agent's Web site at
www.melloninvestor.com.
18
Holders of common shares who elect not to participate in the Plan will
receive all distributions in cash paid by check mailed directly to the
shareholder of record (or if the common shares are held in street or other
nominee name, then to the nominee) by the Plan Agent, as dividend
disbursing agent. Shareholders whose shares are held in the name of a
broker or nominee or shareholders transferring such an account to a new
broker or nominee should contact the broker or nominee, to determine
whether and how they may participate in the Plan.
The Plan Agent serves as agent for the holders of common shares in
administering the Plan. After the Fund declares a dividend or makes a
capital gains distribution, the Plan Agent will, as agent for the
participants, receive the cash payment and use it to buy common shares in
the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. The Fund will not issue any new shares in
connection with the Plan. The Plan Agent's fees for the handling of
reinvestment of dividends and other distributions will be paid by the Fund.
Each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of distributions. There are no other
charges to participants for reinvesting dividends or capital gain
distributions.
Participants in the Plan may withdraw from the Plan at any time by
contacting the Plan Agent by telephone, in writing or by visiting the Plan
Agent's Web site at www.melloninvestor.com. Such withdrawal will be
effective immediately if received prior to a dividend record date;
otherwise, it will be effective for all subsequent dividend record dates.
When a participant withdraws from the Plan or upon termination of the Plan,
as provided below, either a cash payment will be made to the participant
for the full value of the common shares credited to the account upon
instruction by the participant, or certificates for whole common shares
credited to his or her account under the Plan will be issued and a cash
payment will be made for any fraction of a common share credited to such
account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the
accounts, including information needed by the shareholders for personal and
tax records. The Plan Agent will hold common shares in the account of each
Plan participant in non-certificated form in the name of the participant.
Proxy material relating to shareholders' meetings of the Fund will include
those shares purchased as well as shares held pursuant to the Plan. In the
case of shareholders such as banks, brokers, or nominees, which hold common
shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of common shares certified
from time to time by the record shareholders as representing the total
amount registered in the record shareholder's name and held for the account
of beneficial owners who are participants in the Plan. Shares may be
purchased through broker-dealers.
Dividends and capital gains distributions are taxable whether received in
cash or reinvested in additional common shares, and the automatic
reinvestment of dividends and capital gain distributions will not relieve
participants of any U.S.federal income tax that may be payable or required
to be withheld on such dividends or distributions. The amount of dividends
to be reported on 1099-DIV should be the amount of cash used by the Plan
Agent to purchase shares in the open market, including the amount of cash
allocated to brokerage commissions paid on such purchases.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right
19
to amend or terminate the Plan as applied to any distribution paid
subsequent to written notice of the change sent to all shareholders of the
Fund at least 90 days before the record date for the dividend or
distribution. The Plan may be amended or terminated by the Plan Agent by at
least 90 days' written notice to all shareholders of the Fund. All
correspondence or additional information concerning the Plan should be
directed to the Plan Agent, Mellon Bank, N.A., c/o Mellon Investor
Services, P.O. Box 3338, South Hackensack, NJ 07606-1938 (telephone
1-800-852-0218).
SHAREHOLDER
COMMUNICATION
AND ASSISTANCE
If you have any questions concerning the Fund, we will be pleased to assist
you. If you hold shares in your own name and not with a brokerage firm,
please address all notices, correspondence, questions or other
communications regarding the Fund to the transfer agent at:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone: 1-800-852-0218
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
20
SHAREHOLDER MEETINGS
On March 18, 2004, the Annual Meeting of the Fund was held to elect three
Trustees and to ratify the actions of the Trustees in selecting independent
auditors for the Fund.
Proxies covering 81,234,775 shares of beneficial interest were voted at the
meeting. The shareholders elected the following Trustees to serve until
their respective successors are duly elected and qualified, with the votes
tabulated as follows:
WITHHELD
FOR AUTHORITY
---------------------------------------------------------------------
Patti McGill Peterson 79,074,918 2,159,857
Steven R. Pruchansky 79,411,637 1,823,138
Norman H. Smith 79,015,917 2,218,858
The shareholders ratified the Trustees' selection of Deloitte & Touche LLP
as the Fund's independent auditor for the fiscal year ending October 31,
2004, with votes tabulated as follows: 79,675,601 FOR, 597,378 AGAINST and
961,796 ABSTAINING.
21
22
23
24
FOR YOUR
INFORMATION
TRUSTEES
James F. Carlin
William H. Cunningham
Ronald R. Dion
Charles L. Ladner*
Patti McGill Peterson*
Dr. John A. Moore*
Steven R. Pruchansky
James A. Shepherdson
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
James A. Shepherdson
President and Chief Executive Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President and Secretary
William H. King
Vice President and Treasurer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND DISBURSER
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
STOCK SYMBOL
Listed New York Stock Exchange: BTO
For shareholder assistance refer to page 20
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Customer service representatives 1-800-852-0218
Portfolio commentary 1-800-344-7054
24-hour automated information 1-800-843-0090
TDD Line 1-800-231-5469
The Fund's voting policies and procedures are available without
charge, upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site www.sec.gov
25
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-852-0218
1-800-843-0090 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
---------------
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
---------------
P90SA 4/04
6/04
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The registrant has adopted procedures by which shareholders may recommend
nominees to the registrant's Board of Trustees. A copy of the procedures is
filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds -
Administration Committee Charter".
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's principal executive officer and principal financial officer
have concluded that those disclosure controls and procedures provide
reasonable assurance that the material information required to be disclosed by
the registrant on this report is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report)
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act
of 1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The
certifications furnished pursuant to this paragraph are not deemed to be
"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section. Such certifications are
not deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Registrant specifically incorporates them by reference.
(c)(1) Submission of Matters to a Vote of Security Holders is attached. See
attached "John Hancock Funds - Administration Committee Charter".
(c)(2) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Patriot Premium Dividend Fund II
By:
---------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: June 24, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:
---------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: June 24, 2004
By:
---------------------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: June 24, 2004