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<SEC-DOCUMENT>0000950135-03-005303.txt : 20031027
<SEC-HEADER>0000950135-03-005303.hdr.sgml : 20031027
<ACCEPTANCE-DATETIME>20031024212930
ACCESSION NUMBER:		0000950135-03-005303
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		13
FILED AS OF DATE:		20031027

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			HANCOCK JOHN INCOME SECURITIES TRUST /MA
		CENTRAL INDEX KEY:			0000759866
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-04186
		FILM NUMBER:		03957385

	BUSINESS ADDRESS:	
		STREET 1:		101 HUNTINGTON AVE
		STREET 2:		JOHN HANCOCK FUNDS
		CITY:			BOSTON
		STATE:			MA
		ZIP:			02199-7603
		BUSINESS PHONE:		6173751702

	MAIL ADDRESS:	
		STREET 1:		JOHN HANCOCK FUNDS
		STREET 2:		101 HUNTINGTON AVENUE
		CITY:			BOSTON
		STATE:			MA
		ZIP:			02199

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			HANCOCK JOHN INCOME SECURITIES TRUST /MA
		CENTRAL INDEX KEY:			0000759866
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-108636
		FILM NUMBER:		03957386

	BUSINESS ADDRESS:	
		STREET 1:		101 HUNTINGTON AVE
		STREET 2:		JOHN HANCOCK FUNDS
		CITY:			BOSTON
		STATE:			MA
		ZIP:			02199-7603
		BUSINESS PHONE:		6173751702

	MAIL ADDRESS:	
		STREET 1:		JOHN HANCOCK FUNDS
		STREET 2:		101 HUNTINGTON AVENUE
		CITY:			BOSTON
		STATE:			MA
		ZIP:			02199
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>b48195isnv2za.txt
<DESCRIPTION>JOHN HANCOCK INCOME SECURITIES TRUST
<TEXT>
<PAGE>


As filed with the Securities and Exchange Commission on October 24, 2003

1933 Act File No. 333-108636

1940 Act File No. 811-4186

                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM N-2

                        (Check appropriate box or boxes)

[X]      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

[X]               Pre-Effective Amendment No. 1

[ ]               Post-Effective Amendment No. ______

                                     and/or

[X]      REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

[X]      Amendment No. 16

                      JOHN HANCOCK INCOME SECURITIES TRUST
                Exact Name of Registrant as Specified in Charter

               101 Huntington Avenue, Boston, Massachusetts 02199
 Address of Principal Executive Offices (Number, Street, City, State, Zip Code)

                                 (617) 375-1500
               Registrant's Telephone Number, including Area Code

        Susan S. Newton, Secretary, John Hancock Income Securities Trust
               101 Huntington Avenue, Boston, Massachusetts 02199
  Name and Address (Number, Street, City, State, Zip Code) of Agent for Service

Copies to: David C. Phelan, Esq.        Thomas A. Hale, Esq.
           Hale and Dorr LLP            Skadden, Arps, Slate, Meagher & Flom
           60 State Street              (Illinois)
           Boston, Massachusetts 02109  333 West Wacker Drive, Suite 2100
                                        Chicago, IL 60606

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.

If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. ___

        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
Title of Securities        Amount Being          Proposed Maximum           Proposed Maximum           Amount of
Being Registered            Registered        Offering Price Per Unit    Aggregate Offering Price   Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S>                        <C>                <C>                        <C>                        <C>
Preferred Shares           3,560 shares       $             25,000.00    $          89,000,000.00   $       7,200.10
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment, which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement shall be effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.


<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.


PRELIMINARY PROSPECTUS           Subject to completion          October 24, 2003

- --------------------------------------------------------------------------------

1,780 SHARES SERIES A


1,780 SHARES SERIES B


[JHF LOGO]

JOHN HANCOCK INCOME SECURITIES TRUST
AUCTION PREFERRED SHARES
- --------------------------------------------------------------------------------


John Hancock Income Securities Trust (the "Fund") is a diversified, closed-end
management investment company organized in 1972. The Fund is offering 1,780
shares of its Series A Auction Preferred Shares and 1,780 shares of its Series B
Auction Preferred Shares (collectively, the "Preferred Shares" or "APS").


INVESTMENT OBJECTIVE.  The Fund's investment objective is to generate a high
level of current income consistent with prudent investment risk.


PORTFOLIO CONTENTS.  The Fund seeks to achieve its objective by investing
primarily in a diversified portfolio of freely marketable debt securities issued
by U.S. and foreign corporations and governments. Under normal circumstances the
Fund invests at least 80% of its assets (net assets plus borrowing for
investment purposes) in income securities, consisting of the following: (i)
marketable corporate debt securities, (ii) governmental obligations and (iii)
cash and commercial paper. The Fund may also invest up to 20% of its total
assets in income-producing preferred and common stocks. At least 75% of Fund's
total assets will be represented by debt securities which are rated, at the time
of acquisition, investment grade (i.e., at least "Baa" by Moody's Investors
Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Rating Group ("S&P")) or
in unrated securities determined by the Fund's investment adviser to be of
comparable credit quality. While the Fund focuses on intermediate and
longer-term debt securities, the Fund may acquire securities of any maturity and
is not subject to any limits as to the average maturity of its overall
portfolio. There can be no assurance that the Fund will achieve its investment
objective.


INVESTMENT ADVISER.  John Hancock Advisers, LLC (the "Adviser") is the Fund's
investment adviser and administrator.


BEFORE BUYING ANY PREFERRED SHARES YOU SHOULD READ THE DISCUSSION OF THE
MATERIAL RISKS OF INVESTING IN THE FUND IN "RISK FACTORS" BEGINNING ON PAGE 25.
CERTAIN OF THESE RISKS ARE SUMMARIZED IN "PROSPECTUS SUMMARY--SPECIAL RISK
CONSIDERATIONS" BEGINNING ON PAGE 3.


NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.


<Table>
<Caption>
                                                              PRICE TO PUBLIC    SALES LOAD    PROCEEDS TO FUND(1)
- ------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>           <C>
Per share                                                       $    25,000       $    250             $    24,750
- ------------------------------------------------------------------------------------------------------------------
Total                                                           $89,000,000       $890,000             $88,110,000
- ------------------------------------------------------------------------------------------------------------------
</Table>



(1) Plus accumulated dividends, if any, from the date the APS are issued, but
    before offering expenses payable by the Fund estimated to be $208,900.



The APS are being offered by the underwriter subject to certain conditions. The
underwriter reserves the right to withdraw, cancel or modify the offering in
whole or in part. It is expected that the APS will be delivered to the nominee
of The Depository Trust Company on or about November   , 2003.


                              UBS Investment Bank
<PAGE>

- --------------------------------------------------------------------------------


Investors in APS will be entitled to receive cash dividends at an annual rate
that may vary for successive Dividend Periods for such shares. The dividend rate
on the Series A APS for the initial period from and including the date of issue
to, but excluding,           , 2003 will be      % per year. The dividend rate
on the Series B APS for the initial period from and including the date of issue
to, but excluding,           , 2003 will be      % per year. For each subsequent
period, the Auction Agent will determine the dividend rate for a particular
period by an Auction conducted in accordance with the procedures described in
this Prospectus and, in further detail, in Appendix D to the Statement of
Additional Information.


The APS, which have no history of public trading, will not be listed on an
exchange or automated quotation system. Broker-Dealers may maintain a secondary
trading market in the APS outside of Auctions; however, they have no obligation
to do so, and there can be no assurance that a secondary market for the APS will
develop or, if it does develop, that it will provide holders with a liquid
trading market (i.e., trading will depend on the presence of willing buyers and
sellers and the trading price will be subject to variables to be determined at
the time of the trade by such Broker-Dealers). A general increase in the level
of interest rates may have an adverse effect on the secondary market price of
the APS, and a selling shareholder that sells APS between Auctions may receive a
price per share of less than $25,000. The Fund may redeem APS as described under
"Description of Preferred Shares--REDEMPTION."

The APS will be senior in liquidation and distribution rights to the Fund's
outstanding common shares ("Common Shares"). The Fund's Common Shares are traded
on the New York Stock Exchange under the symbol "JHS." This offering is
conditioned upon the APS receiving a rating of "Aaa" from Moody's.


You should read this Prospectus, which contains important information about the
Fund, before deciding whether to invest and retain it for future reference. A
Statement of Additional Information, dated October   , 2003, containing
additional information about the Fund, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus, which means that it is part of the Prospectus for legal purposes.
You can review the table of contents of the Statement of Additional Information
on page 58 of this Prospectus. You may request a free copy of the Statement of
Additional Information by calling (800) 225-6020 or by writing to the Fund, or
obtain a copy (and other information regarding the Fund) from the Securities and
Exchange Commission's web site (http://www.sec.gov).


The APS do not represent a deposit or obligation of, and are not guaranteed or
endorsed by, any bank or other insured depository institution and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.


You should rely only on the information contained or incorporated by reference
in this Prospectus. The Fund has not, and the underwriter has not, authorized
anyone to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. The Fund is
not, and the underwriter is not, making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in this Prospectus is accurate as of any date other than
the date on the front of this Prospectus. The Fund's business, financial
condition, results of operations and prospects may have changed since that date.


Certain capitalized terms used in this Prospectus are defined in the Glossary
that appears at the end of the Prospectus.

TABLE OF CONTENTS
- --------------------------------------------------------------------------------


<Table>
<S>                                            <C>
Prospectus summary...........................    1
Financial highlights.........................   13
The Fund.....................................   15
Use of proceeds..............................   15
Capitalization (unaudited)...................   16
Portfolio composition........................   16
Investment objective and principal investment
  strategies.................................   17
Risk factors.................................   25
Description of Preferred Shares..............   33
The Auction..................................   43
Management of the Fund.......................   49
Net asset value..............................   51
U.S. federal income tax matters..............   52
Description of shares........................   55
Certain provisions of the Declaration of
  Trust and By-laws..........................   56
Underwriting.................................   57
Custodian, transfer agent, registrar and
  dividend disbursing agent..................   57
Legal matters................................   57
Table of contents for Statement of Additional
  Information................................   58
Glossary.....................................   59
</Table>


- --------------------------------------------------------------------------------

                                       ii
<PAGE>

Prospectus summary

This is only a summary. This summary does not contain all of the information
that you should consider before investing in the APS, especially the information
set forth under the heading "Risk factors." You should read the more detailed
information contained in this Prospectus, the Statement of Additional
Information and the Fund's By-laws. Certain capitalized terms used in this
Prospectus are defined in the Glossary that appears at the end of this
Prospectus.

THE FUND


John Hancock Income Securities Trust (the "Fund") is a diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund was organized in 1972 and commenced
operations in 1973. See "The Fund." John Hancock Advisers, LLC (the "Adviser")
acts as the Fund's investment adviser and administrator. The Fund's common
shares of beneficial interest ("Common Shares") are traded on the New York Stock
Exchange under the symbol "JHS." As of September 30, 2003, the Fund had
11,002,049 Common Shares outstanding and net assets of $185.6 million.


THE OFFERING


The Fund is offering an aggregate of 1,780 Series A APS and 1,780 Series B APS,
each at a purchase price of $25,000 per share plus accumulated dividends, if
any, from the date of original issue. The APS are being offered by UBS
Securities LLC (the "Underwriter"). See "Underwriting."


The APS entitle their holders to receive cash dividends at an annual rate that
may vary for the successive Dividend Periods. In general, except as described
under "--DIVIDENDS AND DIVIDEND PERIODS" below and "Description of Preferred
Shares--DIVIDENDS AND DIVIDEND PERIODS," the Dividend Period for the APS will be
seven days. Deutsche Bank Trust Company Americas (the "Auction Agent") will
determine the Applicable Rate for a particular period by an Auction conducted on
the Business Day immediately prior to the start of that Dividend Period. See
"The Auction."


The APS are not listed on an exchange. Instead, investors may buy or sell APS in
an Auction that normally is held weekly by submitting orders to Broker-Dealers
that have entered into an agreement with the Auction Agent or to certain other
Broker-Dealers. The Auction Agent reviews orders from Broker-Dealers on behalf
of Existing Holders that wish to sell, or hold at the auction rate, or hold only
at a specified Applicable Rate, and on behalf of Potential Holders that wish to
buy APS. The Auction Agent then determines the lowest Applicable Rate that will
result in all of the outstanding APS continuing to be held. The first Auction
Date for Series A APS will be           , 2003, and for Series B APS will be
          , 2003, each being the Business Day before the Initial Dividend
Payment Date for the Initial Dividend Period for the relevant series of APS,
          , 2003 for Series A APS, and           , 2003 for Series B APS. Unless
the then-current Dividend Period is a Special Dividend Period, or the day that
normally would be the Auction Date or the first day of the subsequent Dividend
Period is not a Business Day, the Auction Date for Series A APS generally will
be Wednesday and for Series B APS generally will be Thursday.


Generally, investors in the APS will not receive certificates representing
ownership of their shares. The Securities Depository (The Depository Trust
Company or any successor) or its nominee for the account of the investor's
Broker-Dealer will maintain record ownership of APS in book-entry form. An
investor's Broker-Dealer, in turn, will maintain records of that investor's
beneficial ownership of the APS.

INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE
The Fund's investment objective is to generate a high level of current income
consistent with prudent investment risk.

                                                                               1
<PAGE>

PORTFOLIO CONTENTS
The Fund seeks to achieve its objective by investing primarily in a diversified
portfolio of freely marketable debt securities issued by U.S. and foreign
corporations and governments. Under normal circumstances the Fund will invest at
least 80% of its assets (net assets plus borrowing for investment purposes) in
income securities, consisting of: (i) marketable corporate debt securities, (ii)
governmental obligations and (iii) cash and commercial paper. The Fund may also
invest up to 20% of its total assets in income-producing preferred and common
stocks. While the Fund focuses on intermediate and longer-term debt securities,
the Fund may acquire securities of any maturity and is not subject to any limits
as to the average maturity of its overall portfolio.


At least 75% of the Fund's total assets will be represented by debt securities
which are rated, at the time of acquisition, investment grade (i.e., at least
"Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard &
Poor's Rating Group ("S&P")) or in unrated securities determined by the Adviser
to be of comparable credit quality. The Fund may invest up to 25% of its total
assets in debt securities rated below investment grade or in unrated debt
securities determined by the Adviser to be of comparable quality.


In managing the Fund's portfolio, the Adviser concentrates first on sector
selection by deciding which types of debt securities and industries to emphasize
at a given time, and then which individual debt securities to buy. When making
sector and industry allocations, the Adviser tries to anticipate shifts in the
business cycle, using top-down analysis to determine which sectors and
industries may benefit over the next 12 months. In choosing individual
securities, the Adviser uses bottom-up research to find securities that appear
comparatively undervalued. The Adviser looks at bonds of all quality levels and
maturities from many different issuers, potentially including U.S.
dollar-denominated securities of foreign corporations and governments. The
Adviser may use short-term trading as a means of managing the Fund's portfolio
to achieve its investment objective. There can be no assurance that the Fund
will achieve its investment objective.

FOREIGN SECURITIES

Although the Fund will focus on securities of U.S. issuers, the Fund may invest
in securities of corporate and governmental issuers located outside the United
States that are payable in U.S. dollars, including emerging market issuers.



ILLIQUID SECURITIES


The Fund may invest up to 20% of its total assets in illiquid securities, which
are securities that cannot be disposed of by the Fund within seven days in the
ordinary course of business at approximately the amount at which the Fund values
the securities. The Fund may invest in securities that are sold in direct
private placement transactions and are neither listed on an exchange nor traded
in the over-the-counter market.


OTHER SECURITIES
Normally, the Fund will invest substantially all of its assets to meet its
investment objective. The Fund may invest the remainder of its assets in
securities with remaining maturities of less than one year or cash equivalents,
or it may hold cash. For temporary defensive purposes, the Fund may depart from
its principal investment strategies and invest part or all of its assets in
securities with remaining maturities of less than one year or cash equivalents,
or it may hold cash. During such periods, the Fund may not be able to achieve
its investment objective.

HEDGING AND INTEREST RATE TRANSACTIONS


The Fund may, but is not required to, use various hedging and interest rate
transactions to mitigate risks and to facilitate portfolio management. The Fund
may purchase and sell derivative instruments such as exchange-listed and
over-the-counter put and call options on securities, fixed income, interest rate
and equity indices, and other financial instruments and purchase and sell
financial futures contracts and options thereon, and enter into various interest
rate transactions such as swaps, caps, floors or collars or credit transactions
and credit default swaps. The Fund also may purchase derivative


 2
<PAGE>

instruments that combine features of these instruments. The Fund generally seeks
to use these instruments and transactions as a hedging or portfolio management
technique to seek to protect against possible adverse changes in the market
value of securities held in or to be purchased for the Fund's portfolio, protect
the value of the Fund's portfolio, facilitate the sale of certain securities for
investment purposes, manage the effective interest rate exposure of the Fund,
manage the effective maturity or duration of the Fund's portfolio, or establish
positions in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. The Fund does not engage in these transactions
for speculation, but only for hedging or other permissible risk management
purposes and to facilitate portfolio management.

THE INVESTMENT ADVISER AND ADMINISTRATOR

John Hancock Advisers, LLC is the Fund's investment adviser and administrator.
The Adviser is responsible on a day-to-day basis for investment of the Fund's
portfolio in accordance with its investment objective and policies. The Adviser
makes all investment decisions for the Fund and places purchase and sale orders
for the Fund's portfolio securities. The Adviser also provides office space to
the Fund and administrative and clerical services relating to the Fund's books
and records and the preparation of reports.


The Adviser serves as the investment adviser to several closed-end and open-end
investment companies which focus on investing in fixed income securities. The
Adviser also serves as the investment adviser to several leveraged dual-class,
closed-end investment companies. The Adviser was organized in 1968 and had, as
of June 30, 2003, approximately $27.5 billion in assets under management, of
which approximately $12.6 billion was invested in fixed income securities. The
Adviser manages approximately $3.4 billion in leveraged dual-class funds. The
Adviser is an indirect wholly-owned subsidiary of John Hancock Financial
Services, Inc., a financial services company. On September 28, 2003, Manulife
Financial Corporation and John Hancock Financial Services, Inc. announced plans
to merge, which transaction is expected to occur in the first half of 2004.


LEVERAGE

The Fund expects to utilize financial leverage on an ongoing basis for
investment purposes. After completion of the offering of the APS, the Fund
anticipates its total leverage from the issuance of APS will be approximately
33 1/3% of the Fund's total capital. This amount may change, but total leverage
will not exceed 50% of the Fund's total capital. Although the Fund may in the
future offer other preferred shares, the Fund does not currently intend to do
so.


The Fund generally will not utilize leverage if it anticipates that it would
result in a lower return to common shareholders over time. Use of financial
leverage creates an opportunity for increased income for common shareholders
but, at the same time, creates the possibility for greater loss (including the
likelihood of greater volatility of net asset value and market price of the
shares and of dividends). There can be no assurance that a leveraging strategy
will be successful during any period in which it is employed. Because the fees
paid to the Adviser will be calculated on the basis of the Fund's managed
assets, the fees will be higher when leverage (including the APS) is utilized,
giving the Adviser an incentive to utilize leverage. See "Risk factors--RISKS OF
INVESTMENT IN PREFERRED SHARES--Leverage risk."


SPECIAL RISK CONSIDERATIONS

Risks of investing in the Preferred Shares include:

THE PRIMARY RISKS

+  If an Auction fails you may not be able to sell some or all of your APS and
   the Fund is not obligated to redeem your APS if the Auction fails


+  Because of the nature of the market for APS, you may receive less than the
   price you paid for your APS if you sell them outside of the Auction,
   especially when market interest rates are rising


                                                                               3
<PAGE>

+  A rating agency could downgrade the rating assigned to the APS, which could
   affect liquidity

+  The Fund may be forced to redeem APS to meet regulatory or rating agency
   requirements or may voluntarily redeem the APS in certain circumstances

+  In certain circumstances, the Fund may not earn sufficient income from its
   investments to pay dividends on the APS

+  If interest rates rise, the value of the Fund's investment portfolio
   generally will decline, reducing the asset coverage for the APS

LEVERAGE RISK

The Fund's leveraged capital structure creates special risks not associated with
unleveraged funds having a similar investment objective and similar policies.
These include the possibility of higher volatility of the net asset value of the
Fund and the Preferred Shares' asset coverage.


INTEREST RATE RISK

The APS pay dividends based on shorter-term interest rates. The Fund will invest
the proceeds from the issuance of the APS primarily in debt securities issued by
corporate and governmental issuers, which bear intermediate to longer-term
interest rates. The yields on intermediate to longer-term debt securities are
typically, although not always, higher than shorter-term interest rates.
Shorter-term interest rates may rise so that the amount of dividends to be paid
to holders of APS exceeds the income from the debt securities and other
investments purchased by the Fund with the proceeds from the sale of the APS.
Because income from the Fund's entire investment portfolio (not just the portion
of the portfolio purchased with the proceeds of the APS offering) is available
to pay dividends on the APS, however, dividend rates on the APS would need to
exceed the rate of return on the Fund's investment portfolio by a wide margin
before the Fund's ability to pay dividends on the APS would be jeopardized. If
intermediate to longer-term interest rates rise, this could negatively impact
the value of the Fund's investment portfolio, reducing the amount of assets
serving as asset coverage for the APS. Given the historically low level of
interest rates during 2003 and the likelihood that interest rates will increase
when the national economy strengthens, the risk of the potentially negative
impact of rising interest rates on the value of the Fund's portfolio may be
significant and may adversely affect the Preferred Shares' asset coverage.
Increasing short-term interest rates may also adversely affect the benefits of a
leverage structure to the holders of the Common Shares, increasing the potential
for the Fund to voluntarily redeem the APS. In addition, the longer the average
maturity of the Fund's portfolio of debt securities, the greater the potential
impact of rising interest rates on the value of the Fund's portfolio and the
less flexibility the Fund may have to respond to the decreasing spread between
the yield on its portfolio securities and the yield on the APS.


AUCTION RISK

The dividend rate for the APS normally is set through an Auction process. In the
Auction, Existing Holders of APS may indicate the dividend rate at which the
Existing Holders would be willing to hold or sell their APS or purchase
additional APS. The Auction also provides liquidity for the sale of APS. An
Auction fails if there are more APS offered for sale than there are buyers. You
may not be able to sell your APS at an Auction if the Auction fails. Also, if
you place Hold Orders (orders to retain shares) at an Auction only at a
specified dividend rate and that rate exceeds the rate set at the Auction, you
will not retain your APS. Additionally, if you buy APS or elect to retain APS
without specifying a dividend rate below which you would not wish to buy or
continue to hold those APS, you could receive a lower rate of return on your APS
than the market rate. Finally, the Dividend Period for the APS may be changed by
the Fund, subject to certain conditions with notice to the holders of APS, which
could also affect the liquidity of your investment.


SECONDARY MARKET RISK
If you try to sell your APS between Auctions, you may not be able to sell any or
all of your APS, or you may not be able to sell them for $25,000 per share or
$25,000 per share plus accumulated

 4
<PAGE>

dividends. If the Fund has designated a Special Dividend Period, changes in
interest rates could affect the price you would receive if you sold your APS in
the secondary market.

You may transfer APS outside of Auctions only to or through a Broker-Dealer that
has entered into an agreement with the Auction Agent or other person as the Fund
permits.

RATINGS AND ASSET COVERAGE RISK
While it is expected that Moody's will assign a rating of "Aaa" to the APS, such
rating does not eliminate or necessarily mitigate the risks of investing in APS.

RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
Restrictions imposed on the declaration and payment of dividends or other
distributions to the holders of the Fund's Common Shares and the APS, both by
the 1940 Act and by requirements imposed by rating agencies, might impair the
Fund's ability to satisfy minimum distribution requirements that it must satisfy
to maintain its qualification as a regulated investment company for federal
income tax purposes.

General risks of investing in the Fund include:

INTEREST RATE RISK

Interest rate risk is the risk that fixed income securities such as debt
securities and preferred securities will decline in value because of changes in
market interest rates. When market interest rates rise, the market value of such
securities generally will fall. The Fund's investments in debt securities and
preferred securities means that the Fund's net asset value will tend to decline
if market interest rates rise. Given the historically low level of interest
rates during 2003 and the likelihood that interest rates will increase when the
national economy strengthens, the risk of the potentially negative impact of
rising interest rates on the value of the Fund's portfolio may be significant
and may adversely affect the Preferred Shares' asset coverage. Increasing
short-term interest rates may also adversely affect the benefits of a leverage
structure to the holders of the Common Shares, increasing the potential for the
Fund to voluntarily redeem the APS. In addition, the longer the average maturity
of the Fund's portfolio of debt securities, the greater the potential impact of
rising interest rates on the value of the Fund's portfolio and the less
flexibility the Fund may have to respond to the decreasing spread between the
yield on its portfolio securities and the yield on the APS.


During periods of declining interest rates, an issuer may exercise its option to
prepay principal of debt securities or to redeem preferred securities earlier
than scheduled, forcing the Fund to reinvest in lower yielding securities. This
is known as call or prepayment risk. During periods of rising interest rates,
the average life of certain types of securities may be extended because of
slower than expected principal payments. This may lock in a below market
interest rate, increase the security's duration and reduce the value of the
security. This is known as extension risk.


CORPORATE DEBT SECURITIES


Corporate debt obligations are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations and may also be subject
to price volatility due to such factors as market interest rates, market
perception of the creditworthiness of the issuer and general market liquidity.


CREDIT RISK

Credit risk is the risk that debt securities in the Fund's portfolio will
decline in price or fail to make interest or dividend payments when due because
the issuer of the security experiences a decline in its financial status. At
least 75% of the Fund's total assets will be represented by debt securities
which are rated, at the time of acquisition, investment grade or in unrated
securities determined by the Adviser to be of comparable credit quality.
Although the Fund will primarily invest in investment grade securities, the Fund
is authorized to invest up to 25% of its total assets in debt securities rated
below investment grade at the time of acquisition.


Securities rated "Baa" by Moody's are considered by Moody's as medium to lower
medium grade securities; they are neither highly protected nor poorly secured;
interest or dividend payments and

                                                                               5
<PAGE>


capital or principal security, as the case may be, appear to Moody's to be
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over time; and, in the opinion of Moody's,
securities in this rating category lack outstanding investment characteristics
and in fact have speculative characteristics as well. Securities rated "BBB" by
S&P are regarded by S&P as having an adequate capacity to pay interest or
dividends and repay capital or principal, as the case may be; whereas such
securities normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely, in the opinion of S&P, to
lead to a weakened capacity to pay interest or dividends and to repay capital or
principal for securities in this category than in higher rating categories.
Below investment grade securities and comparable unrated securities involve
substantial risk of loss, are considered highly speculative with respect to the
issuer's ability to pay interest and any required redemption or principal
payments and are susceptible to default or decline in market value due to
adverse economic and business developments. Below investment grade securities
are commonly referred to as "junk bonds" or "high yield securities." Securities
rated Ba or BB may face significant ongoing uncertainties or exposure to adverse
business, financial or economic conditions that could lead to the issuer being
unable to meet its financial commitments. The protection of interest and
principal may be moderate and not well safeguarded during both good and bad
times. Securities rated B generally lack the characteristics of a desirable
investment. Assurance of interest and principal payments over the long term may
be low, and such securities are more vulnerable to nonpayment than obligations
rated BB or Ba. Adverse business, financial or economic conditions will likely
impair the issuer's capacity or willingness to meet its financial commitments.
The ratings of Moody's and S&P represent their opinions as to the quality of
those securities that they rate; ratings are relative and subjective and are not
absolute standards of quality.


MORTGAGE-BACKED SECURITIES

Mortgage-backed securities represent participation interests in pools of
adjustable and fixed rate mortgage loans which are guaranteed by agencies or
instrumentalities of the U.S. government. Unlike conventional debt obligations,
mortgage-backed securities provide monthly payments derived from the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. The mortgage loans underlying
mortgage-backed securities are generally subject to a greater rate of principal
prepayments in a declining interest rate environment and to a lesser rate of
principal prepayments in an increasing interest rate environment. Under certain
interest and prepayment scenarios, the Fund may fail to recover the full amount
of its investment in mortgage-backed securities notwithstanding any direct or
indirect governmental or agency guarantee. Since faster than expected
prepayments must usually be invested in lower yielding securities, mortgage-
backed securities are less effective than conventional bonds in "locking in" a
specified interest rate. In a rising interest rate environment, a declining
prepayment rate may extend the average life of many mortgage-backed securities.
Extending the average life of a mortgage-backed security increases the risk of
depreciation due to future increases in market interest rates. Government
sponsored entities such as the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association and the Federal Home Loan Bank, although
chartered or sponsored by Congress, are not funded by congressional
appropriations and the debt and mortgage-backed securities issued by them are
neither guaranteed nor issued by the U.S. government.



U.S. GOVERNMENT SECURITIES


U.S. government securities in which the Fund invests include debt obligations of
varying maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. government. Some U.S. government
securities, such as U.S. Treasury bills, Treasury notes and Treasury bonds,
which differ only in their interest rates, maturities and times of issuance, are
supported by the full faith and credit of the United States government. Others
are supported by: (i) the right of the issuer to borrow from the U.S. Treasury;
(ii) the discretionary authority of the U.S. government to purchase the agency's
obligations; or (iii) only the credit of the issuer. No assurance can be given
that the U.S. government will provide financial support in the future to U.S.
government agencies, authorities or instrumentalities that are not supported by
the full faith and credit of the


 6
<PAGE>


United States. Securities guaranteed as to principal and interest by the U.S.
government, its agencies, authorities or instrumentalities include: (i)
securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. government or any of its
agencies, authorities or instrumentalities; and (ii) participations in loans
made to non-U.S. governments or other entities that are so guaranteed. The
secondary market for certain of these participations is limited and therefore
may be regarded as illiquid.



ILLIQUID SECURITIES


Illiquid securities may be difficult to dispose of at a fair price at the times
when the Adviser believes it is desirable to do so. The market price of illiquid
securities generally is more volatile than that of more liquid securities, which
may adversely affect the price that the Fund pays for or recovers upon the sale
of illiquid securities. Illiquid securities are also more difficult to value and
the Adviser's judgment may play a greater role in the valuation process.
Investment of the Fund's assets in illiquid securities may restrict the Fund's
ability to take advantage of market opportunities. The risks associated with
illiquid securities may be particularly acute in situations in which the Fund's
operations require cash and could result in the Fund borrowing to meet its
short-term needs or incurring losses on the sale of illiquid securities.


PREFERRED SECURITIES
Preferred securities are subordinated to bonds and other debt instruments in a
company's capital structure in terms of priority to corporate income and
liquidation payments and therefore will be subject to greater credit risk than
those debt instruments. Preferred securities may be substantially less liquid
than many other securities, such as common stocks or U.S. government securities.
Preferred securities may include provisions that permit the issuer, at its
discretion, to defer distributions for a stated period without any adverse
consequences to the issuer. If the Fund owns a preferred security that is
deferring its distributions, the Fund may be required to report income for
federal income tax purposes although it has not yet received such income in
cash. An issuer of preferred securities may also redeem the securities prior to
a specified date. A special redemption by the issuer may negatively impact the
return of the security held by the Fund. Generally, holders of preferred
securities (such as the Fund) have no voting rights with respect to the issuing
company unless preferred dividends have been in arrears for a specified number
of periods, at which time the preferred security holders may elect a number of
directors to the issuer's board.


COMMON STOCKS


The common stocks and other non-preferred equity securities in which the Fund
may invest may experience substantially more volatility in their market value
than the Fund's investments in debt securities. Such securities may also be more
susceptible to adverse changes in market value due to issuer specific events,
such as unfavorable earnings reports. The market values of common stocks are
also generally sensitive to general movements in the equities markets.


FOREIGN SECURITIES

Although the Fund will only invest in securities of non-U.S. issuers that are
payable in U.S. dollars, the Fund's investments in non-U.S. issuers may involve
unique risks compared to investing in securities of U.S. issuers. These risks
are more pronounced to the extent that the Fund invests a significant portion of
its non-U.S. investments in one region or in the securities of emerging market
issuers. These risks may include:


+  less information about non-U.S. issuers or markets may be available due to
   less rigorous disclosure, accounting standards or regulatory practices

+  many non-U.S. markets are smaller, less liquid and more volatile; therefore,
   in a changing market, the Adviser may not be able to sell the Fund's
   portfolio securities at times, in amounts and at prices it considers
   reasonable

+  currency exchange rates or controls may adversely affect the value of the
   Fund's investments

                                                                               7
<PAGE>

+  the economies of non-U.S. countries may grow at slower rates than expected or
   may experience a downturn or recession

+  economic, political and social developments may adversely affect the
   securities markets

+  withholding and other non-U.S. taxes may decrease the Fund's return

DERIVATIVES
The Fund's hedging and interest rate transactions have risks, including the
imperfect correlation between the value of such instruments and the underlying
assets of the Fund, the possible default of the other party to the transaction
or illiquidity of the derivative instruments. Furthermore, the ability to use
hedging and interest rate transactions successfully depends on the Adviser's
ability to predict pertinent market movements, which cannot be assured. Thus,
the use of derivatives for hedging and interest rate management purposes may
result in losses greater than if they had not been used, may require the Fund to
sell or purchase portfolio securities at inopportune times or for prices other
than current market values, may limit the amount of appreciation the Fund can
realize on an investment or may cause the Fund to hold a security that it might
otherwise sell. Additionally, amounts paid by the Fund as premiums and cash or
other assets held in margin accounts with respect to hedging and interest rate
transactions are not otherwise available to the Fund for investment purposes.

SHORT-TERM TRADING AND PORTFOLIO TURNOVER

The Fund may engage in short-term trading in response to changes in interest
rates, stock market conditions, or other economic trends and developments, or to
take advantage of yield disparities between various fixed income securities in
order to improve income. Short-term trading may have the effect of increasing
portfolio turnover rate. A high rate of portfolio turnover (100% or greater)
involves correspondingly greater brokerage expenses. For the fiscal year ended
December 31, 2002, the Fund's portfolio turnover rate was 371%. The success of
short-term trading will depend upon the ability of the Adviser to evaluate
particular securities, to anticipate relevant market factors, including trends
of interest rates and earnings and variations from such trends, to obtain
relevant information, to evaluate it promptly, and to take advantage of its
evaluations by completing transactions on a favorable basis. There can be no
assurance that the Adviser will be successful in that evaluation.


FEDERAL INCOME TAXATION


The Fund intends to take the position that under present law the APS will
constitute stock of the Fund. Distributions with respect to the APS (other than
distributions in redemption of the APS that are treated as exchanges of stock
under Section 302(b) of the Code) will constitute dividends to the extent of the
Fund's current or accumulated earnings and profits as calculated for U.S.
federal income tax purposes. Most of such dividends will be taxable as ordinary
income to shareholders that, in the case of corporate shareholders, will not
qualify for the dividends received deduction and, in the case of individual
shareholders, will not be treated as "qualified dividend income" and thus will
not be eligible for taxation at the new favorable tax rates applicable to
long-term capital gains. Distributions of net capital gain that are designated
by the Fund as capital gain dividends (if any) will be treated as long-term
capital gains without regard to the length of time the shareholder has held
shares of the Fund.


TRADING MARKET

The APS will not be listed on an exchange. Instead, you may buy or sell APS at
an Auction that normally is held every seven days by submitting orders to a
Broker-Dealer that has entered into an agreement with the Auction Agent, or to a
Broker-Dealer that has entered into a separate agreement with a Broker-Dealer.
In addition to the Auctions, Broker-Dealers and other broker-dealers may
maintain a secondary trading market in APS outside of Auctions, but may
discontinue this activity at any time. There is no assurance that a secondary
market will provide shareholders with liquidity. You may transfer APS outside of
Auctions only to or through a Broker-Dealer or a broker-dealer that has entered
into a separate agreement with a Broker-Dealer.

 8
<PAGE>

DIVIDENDS AND DIVIDEND PERIODS

The APS will entitle their holders to receive cash dividends at a rate per annum
that may vary for the successive Dividend Periods for such shares. In general,
except as described below, each Dividend Period for each series of APS
subsequent to the Initial Dividend Period will be seven days in length. The
Applicable Rate for a particular Dividend Period will be determined by an
Auction conducted on the Business Day immediately preceding the start of such
Dividend Period.


The table below shows the initial dividend rate, the Initial Dividend Payment
Date and the number of days for the Initial Dividend Period on each series of
the APS offered in this Prospectus. For subsequent Dividend Periods, the APS
will pay dividends based on a rate set at Auctions, normally held every seven
days. In most instances, dividends are payable on the first Business Day
following the end of the Dividend Period. The rate set at Auction will not
exceed the Maximum Applicable Rate. See "Description of Preferred
Shares--DIVIDENDS AND DIVIDEND PERIODS." Dividends on the APS will be cumulative
from the date the APS are first issued and will be paid out of legally available
funds.



<Table>
<Caption>
                                            ENDING DATE OF                                              NUMBER OF DAYS OF
                       INITIAL DIVIDEND    INITIAL DIVIDEND   INITIAL DIVIDEND    SUBSEQUENT DIVIDEND   INITIAL DIVIDEND
                             RATE               PERIOD          PAYMENT DATE         PAYMENT DATES           PERIOD
- -------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                 <C>                <C>                <C>                    <C>
Series A.............                  %            , 2003             , 2003    Normally every 7 days
Series B.............                  %            , 2003             , 2003    Normally every 7 days
</Table>


After the Initial Dividend Period, each subsequent Dividend Period will
generally consist of seven days; provided, however, that prior to any Auction,
the Fund may elect, subject to certain limitations described herein, after
giving notice to the holders of one or more series of APS, to declare a Special
Dividend Period with respect to such series. A "Special Dividend Period" is a
Dividend Period consisting of a specified number of days, evenly divisible by
seven and not fewer than 14 nor more than 364 (a "Short-Term Dividend Period")
or a Dividend Period of one year or more but not greater than five years (a
"Long-Term Dividend Period"). A requested Special Dividend Period will not be
effective unless Sufficient Clearing Bids were made in the Auction immediately
preceding the Special Dividend Period. In addition, full cumulative dividends,
any amounts due with respect to mandatory redemptions and any additional
dividends payable prior to such date must be paid in full. See "Description of
Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS--Designation of Special
Dividend Periods" and "The Auction."

Dividends for the APS will be paid through the Securities Depository on each
Dividend Payment Date. The Securities Depository's normal procedures provide for
it to distribute dividends in same-day funds to Agent Members, who are in turn
expected to distribute such dividends to the person for whom they are acting as
agent in accordance with the instructions of such person. See "Description of
Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS."

MAXIMUM APPLICABLE RATE

Except during a Non-Payment Period, the Applicable Rate for any Dividend Period
for APS will not be more than the Maximum Applicable Rate applicable to such
shares. The Maximum Applicable Rate for each series of APS will depend on the
credit rating assigned to such series and on the duration of the Dividend
Period. The Maximum Applicable Rate will be the Applicable Percentage of the
Reference Rate. The Reference Rate is (i) with respect to any seven day Dividend
Period or any Short-Term Dividend Period having 182 or fewer days, the
applicable "AA" Financial Composite Commercial Paper Rate, (ii) with respect to
any Short-Term Dividend Period having 183 or more but fewer than 364 days, the
applicable U.S. Treasury Bill Rate and (iii) with respect to any Long-Term
Dividend Period, the applicable U.S. Treasury Note Rate. The Applicable
Percentage will be determined based on the credit rating assigned on such date
to the APS by Moody's (or, if Moody's shall not make such rating available, the
equivalent of such rating by a Substitute Rating Agency).

                                                                               9
<PAGE>

APPLICABLE PERCENTAGE PAYMENT TABLE


<Table>
<Caption>
MOODY'S CREDIT RATINGS                                        APPLICABLE PERCENTAGE
- -----------------------------------------------------------------------------------
<S>                                                           <C>
Aaa.........................................................                   125%
Aa3 to Aa1..................................................                   150%
A3 to A1....................................................                   200%
Baa3 to Baa1................................................                   250%
Below Baa3..................................................                   300%
</Table>


RATINGS

The APS are expected to receive a rating of "Aaa" from Moody's. This rating is
an assessment of the capacity and willingness of an issuer to pay preferred
stock obligations. The ratings are not a recommendation to purchase, hold or
sell APS inasmuch as the rating does not comment as to market price or
suitability for a particular investor. The rating also does not address the
likelihood that an owner of APS will be able to sell such APS in an Auction or
otherwise. The rating is based on information obtained from the Fund and other
sources. The rating may be changed, suspended or withdrawn in Moody's discretion
as a result of changes in, or the unavailability of, such information. See
"Description of Preferred Shares--RATING AGENCY GUIDELINES AND ASSET COVERAGE."

REDEMPTION

The Fund is required to redeem APS if the Fund does not meet an asset coverage
ratio required by the 1940 Act or the rating agency guideline in a timely
manner. The Fund may voluntarily redeem APS, in whole or in part, under certain
conditions. Unless otherwise established in connection with a Special Dividend
Period, the redemption price per Preferred Share will be $25,000 plus
accumulated and unpaid dividends through the date of redemption. See
"Description of Preferred Shares--REDEMPTION" and "Description of Preferred
Shares--RATING AGENCY GUIDELINES AND ASSET COVERAGE."

ASSET MAINTENANCE

Under the By-laws which establish and fix the rights and preferences of the APS,
the Fund must maintain:

+  asset coverage of the APS as required by the rating agency or agencies rating
   the APS


+  asset coverage of at least 200% with respect to senior securities of the Fund
   that are shares of beneficial interest, including the APS



In the event that the Fund does not maintain or cure these coverage tests, some
or all of the APS will be subject to mandatory redemption. See "Description of
Preferred Shares--REDEMPTION." Based on the composition of the Fund's portfolio
as of September 30, 2003, the asset coverage of the APS as measured pursuant to
the 1940 Act would be approximately 307% if the Fund were to issue the APS
offered hereby.


LIQUIDATION PREFERENCE

The liquidation preference for shares of each series of APS will be $25,000 per
share plus accumulated but unpaid dividends, if any, whether or not earned or
declared. See "Description of Preferred Shares--LIQUIDATION."

VOTING RIGHTS

The holders of preferred shares, including the APS, voting as a separate class,
have the right to elect at least two Trustees of the Fund at all times. Such
holders also have the right to elect a majority of the Trustees in the event
that two years' dividends on the preferred shares are unpaid. In each case, the
remaining Trustees will be elected by holders of Common Shares. The holders of
preferred shares, including the APS, will vote as a separate class or classes on
certain other matters required under the

 10
<PAGE>

Declaration of the Trust, the By-laws, the 1940 Act and Massachusetts law. See
"Description of Preferred Shares--VOTING RIGHTS," and "Certain provisions of the
Declaration of Trust and By-laws."

AUCTION PROCEDURES

Unless otherwise permitted by the Fund, Beneficial Owners and Potential
Beneficial Owners of APS may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of APS
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of APS subject to Orders submitted to them by
Potential Beneficial Owners. On or prior to each Auction Date for the APS of a
series (the Business Day immediately preceding the first day of each Dividend
Period), each Beneficial Owner may submit Orders to its Broker-Dealer as
follows:

+  Hold Order--indicating its desire to hold the APS of such series without
   regard to the Applicable Rate for the next Dividend Period for such APS.

+  Bid--indicating its desire to hold the APS of such series, provided that the
   Applicable Rate for the next Dividend Period for such APS is not less than
   the rate per annum specified in such Bid.

+  Sell Order--indicating its desire to sell the APS of such series without
   regard to the Applicable Rate for the next Dividend Period for such APS.

A Beneficial Owner may submit different types of Orders to its Broker-Dealer
with respect to the APS of a series then held by such Beneficial Owner, provided
that the total number of APS covered by such Orders does not exceed the number
of APS of such series held by such Beneficial Owner. If, however, a Beneficial
Owner offers through its Broker-Dealer to purchase additional APS of a series in
such Auction, such Beneficial Owner, for purposes of such offer to purchase
additional shares, will be treated as a Potential Beneficial Owner as described
below. Bids by Beneficial Owners through their Broker-Dealers with rates per
annum higher than the Maximum Applicable Rate will be treated as Sell Orders. A
Hold Order (in the case of an Auction relating to a Dividend Period of 91 days
or less) or a Sell Order (in the case of an Auction relating to a Special
Dividend Period of longer than 91 days) shall be deemed to have been submitted
on behalf of a Beneficial Owner if an Order with respect to the APS then held by
such Beneficial Owner is not submitted on behalf of such Beneficial Owner for
any reason, including the failure of a Broker-Dealer to submit such Beneficial
Owner's Order to the Auction Agent.

Potential Beneficial Owners of APS may submit Bids through their Broker-Dealers
in which they offer to purchase APS, provided that the Applicable Rate for the
next Dividend Period for such APS is not less than the rate per annum specified
in such Bid. A Bid by a Potential Beneficial Owner with a rate per annum higher
than the Maximum Applicable Rate will not be considered.

Neither the Fund nor the Auction Agent will be responsible for a Broker-Dealer's
failure to act in accordance with the instructions of Beneficial Owners or
Potential Beneficial Owners or failure to comply with any of the foregoing.

If Sufficient Clearing Bids exist in an Auction for the APS of a series (that
is, in general, the number of APS subject to Bids by Potential Holders with
rates equal to or lower than the Maximum Applicable Rate is at least equal to
the number of APS subject to Sell Orders by Existing Holders), the Applicable
Rate will be the lowest rate per annum specified in the Submitted Bids which,
taking into account such rate per annum and all lower rates per annum bid by
Existing Holders and Potential Holders, would result in Existing Holders and
Potential Holders owning all of the APS available for purchase in the Auction.
If Sufficient Clearing Bids do not exist, the Applicable Rate will be the
Maximum Applicable Rate, and in such event, Existing Holders who have submitted
Sell Orders will not be able to sell in the Auction all, and may not be able to
sell any, APS subject to such Sell Orders. Thus, in certain circumstances,
Existing Holders and the Beneficial Owners they represent may not have liquidity
of investment. If all of the applicable outstanding APS are subject to submitted
Hold Orders (or Hold

                                                                              11
<PAGE>

Orders deemed to have been submitted), then the Dividend Period will be a seven
day Dividend Period and the Applicable Rate for the next Dividend Period will be
the "AA" Financial Composite Commercial Paper Rate for a seven day Dividend
Period.

A Sell Order by an Existing Holder will constitute an irrevocable offer to sell
the APS subject thereto, and a Bid placed by an Existing Holder also will
constitute an irrevocable offer to sell the APS subject thereto, if the rate per
annum specified in the Bid is higher than the Applicable Rate determined in the
Auction, in each case at a price per Preferred Share equal to $25,000. A Bid
placed by a Potential Holder will constitute an irrevocable offer to purchase
the APS subject thereto at a price per share equal to $25,000 if the rate per
annum specified in such Bid is less than or equal to the Applicable Rate
determined in the Auction. Settlement of purchases and sales will be made on the
next Business Day (also a Dividend Payment Date) after the Auction Date through
the Securities Depository. Purchasers will make payment through their Agent
Members in same-day funds to the Securities Depository against delivery by
book-entry to their Agent Members. The Securities Depository will make payment
to the sellers' Agent Members in accordance with the Securities Depository's
normal procedures, which now provide for payment in same-day funds. See "The
Auction."

 12
<PAGE>

- --------------------------------------------------------------------------------

Financial highlights


Information contained in the table below shows the audited operating performance
of the Fund for the last ten fiscal years. The information was audited by Ernst
& Young LLP, independent auditors, whose reports, along with the Fund's
financial statements, are included in the Fund's annual reports. The information
for the semi-annual period ended June 30, 2003 is unaudited.



<Table>
<Caption>
                                                SEMI-ANNUAL
                                               PERIOD ENDED           FISCAL YEARS ENDED DECEMBER 31,
                                                   JUNE 30,    ---------------------------------------------
                                                    2003(1)    2002(2)   2001(2)    2000     1999      1998
- ------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>       <C>       <C>      <C>       <C>
PER COMMON SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.........  $      16.31    $16.06    $15.89    $15.37   $ 16.64   $16.55
Increase/(decrease) from investment
  operations:
  Net investment income(3)...................          0.44      0.89      1.00      1.07      1.10     1.14
  Net realized and unrealized gain/(loss) on
    investments..............................          0.78      0.28      0.19      0.52     (1.27)    0.09
Total from investment operations.............          1.22      1.17      1.19      1.59     (0.17)    1.23
Less distributions:
  Distributions (from net investment income)
    to shareholders..........................         (0.46)    (0.92)    (1.02)    (1.07)    (1.10)   (1.14)
  Distributions (from net realized gain on
    investments sold) to shareholders........            --        --        --        --        --       --
Total distributions..........................         (0.46)    (0.92)    (1.02)    (1.07)    (1.10)   (1.14)
Net asset value, end of period...............  $      17.07    $16.31    $16.06    $15.89   $ 15.37   $16.64
Per share market value, end of period........  $      15.70    $14.66    $14.65    $14.44   $ 12.69   $15.88
Total Return at Market Value(4)(%)...........         10.26(5)   6.42      8.69     23.06    (13.42)    1.75
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in millions)......  $        188    $  179    $  175    $  172   $   165   $  177
Ratio of expenses to average net assets
  (%)........................................          0.81(6)   0.84      0.80      0.84      0.80     0.81
Ratio of net investment income to average net
  assets applicable to shareholders (%)......          5.31(6)   5.56      6.17      6.89      6.88     6.79
Portfolio turnover rate (%)..................           151       371       299       248       184      240
</Table>


- --------------------------------------------------------------------------------
                                                                              13
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------


<Table>
<Caption>
                                                                   FISCAL YEARS ENDED DECEMBER 31,
                                                             ---------------------------------------------
                                                            1997      1996      1995      1994      1993
- ----------------------------------------------------------------------------------------------------------
<S>                                                        <C>       <C>       <C>       <C>       <C>
PER COMMON SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.....................  $16.20    $16.74    $15.10    $16.97    $16.31
Increase/(decrease) from investment operations:
  Net investment income..................................    1.20      1.22      1.26      1.28      1.31
  Net realized and unrealized gain/(loss) on investments
    and financial futures contracts......................    0.35     (0.54)     1.64     (1.79)     0.80
Total from investment operations.........................    1.55      0.68      2.90     (0.51)     2.11
Less distributions:
  Distributions (from net investment income) to
    shareholders.........................................   (1.20)    (1.22)    (1.26)    (1.28)    (1.32)
  Distributions (from net realized gain on investments
    sold and financial futures contracts) to common
    shareholders.........................................      --        --        --     (0.08)    (0.13)
Total distributions......................................   (1.20)    (1.22)    (1.26)    (1.36)    (1.45)
Net asset value, end of period...........................  $16.55    $16.20    $16.74    $15.10    $16.97
Per share market value, end of period....................  $16.75    $14.88    $15.75    $13.75    $16.50
Total Return at Market Value(4)(%).......................   21.57      2.34     24.11     (8.70)     7.22
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in millions)..................  $  174    $  169    $  173    $  154    $  171
Ratio of expenses to average net assets (%)..............    0.84      0.84      0.84      0.87      0.84
Ratio of net investment income to average net assets
  (%)....................................................    7.34      7.50      7.77      8.03      7.67
Portfolio turnover rate (%)..............................     143       117       105        82        95
</Table>



 (1)  Semiannual period from January 1, 2003 to June 30, 2003 is unaudited



 (2)  As required, effective January 1, 2001, the Fund has adopted the
      provisions of the AICPA Audit and Accounting Guide for Investment
      Companies, as revised, relating to the amortization of premiums and
      accretion of discounts on debt securities. The effect of this change for
      the year ended December 31, 2001, was to decrease net investment income
      per share by $0.02, increase net realized and unrealized gain per share by
      $0.02, and, had the Fund not made these changes to amortization, the ratio
      of net investment income to average net assets would have been 6.30%. Per
      share ratios and supplemental data for the periods prior to January 1,
      2001 have not been restated to reflect this change in presentation



 (3)  Based on average shares outstanding



 (4)  Assumes dividend reinvestment



 (5)  Not annualized



 (6)  Annualized


- --------------------------------------------------------------------------------
 14
<PAGE>

- --------------------------------------------------------------------------------

The Fund

John Hancock Income Securities Trust (the "Fund") is a diversified, closed-end
management investment company registered under the 1940 Act. The Fund was
organized as a corporation under the laws of the State of Maryland on October
20, 1972 and converted to a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts on October 5, 1984. The Fund commenced operations
on February 22, 1973. The Fund's principal office is located at 101 Huntington
Avenue, Boston, Massachusetts 02199, and its telephone number is (800) 255-6020.
The Fund's Common Shares are traded on the NYSE under the symbol "JHS."


The following provides information about the Fund's outstanding shares as of
September 30, 2003.



<Table>
<Caption>
                                                                       AMOUNT HELD
                                                          AMOUNT     BY THE FUND OR      AMOUNT
TITLE OF CLASS                                          AUTHORIZED   FOR ITS ACCOUNT   OUTSTANDING
- --------------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>               <C>
Common Shares.........................................  Unlimited                 0    11,002,049
                                                        Unlimited
                                                         for each
Auction Preferred Shares..............................     series                 0             0
     Series A
     Series B
</Table>


Use of proceeds


The net proceeds of this offering of APS will be approximately $87,901,100 after
payment of offering costs (including sales load) estimated to be approximately
$1,098,900. The Fund will invest the net proceeds of the offering in accordance
with its investment objective and policies as stated below under "Investment
objective and principal investment strategies." The Fund expects that there will
be an initial investment period of up to three months following the completion
of this offering before all of the proceeds from the sale of the APS are
invested in accordance with its investment objective and policies. Pending such
investment, the Fund anticipates that all or a portion of the proceeds will be
invested in U.S. government securities or high-grade, short-term money market
instruments. See "Investment objective and principal investment strategies."


- --------------------------------------------------------------------------------
                                                                              15
<PAGE>
- --------------------------------------------------------------------------------

Capitalization (unaudited)


The following table sets forth the capitalization of the Fund as of September
30, 2003, and as adjusted to give effect to (i) the issuance of the APS offered
hereby (including estimated offering expenses and a sales load of $250 per APS)
and (ii) the outstanding Common Shares.



<Table>
<Caption>
                                                                  ACTUAL      AS ADJUSTED
- ------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>
Auction Preferred Shares, no par value per share (no shares
  issued;
  3,560 shares issued, as adjusted at $25,000 per share
     liquidation preference)................................   $         --   $ 89,000,000
                                                               ============   ============
SHAREHOLDER'S EQUITY:
  Common Shares, no par value per share (11,002,049 shares
     outstanding)(1)........................................    176,275,780    175,176,880
                                                               ------------   ------------
PAID-IN SURPLUS
  Balance of undistributed net investment income............         50,603         50,603
                                                               ------------   ------------
  Accumulated net realized gain/(loss) from investment
     transactions...........................................      2,839,412      2,839,412
                                                               ------------   ------------
  Net unrealized appreciation/(depreciation) of
     investments............................................      6,397,370      6,397,370
                                                               ------------   ------------
  Net assets attributable to Common Shares..................    185,563,165    184,464,265
                                                               ============   ============
</Table>


(1)  None of these outstanding shares are held by or for the account of the Fund

Portfolio composition


As of September 30, 2003, approximately 88% of the market value of the Fund's
portfolio was invested in debt securities, approximately 11% in preferred
securities and approximately 1% of the market value of the Fund's portfolio was
invested in short-term instruments. The following table sets forth certain
information with respect to the composition of the Fund's investment portfolio
as of September 30, 2003, based on the highest rating assigned each investment.



<Table>
<Caption>
                                                                                VALUE
CREDIT RATING (MOODY'S/S&P)                                NUMBER OF ISSUES     (000)      PERCENT
- --------------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>          <C>
Aaa/AAA..................................................         10          $   56,305      30%
Aa/AA....................................................          6               2,410       1
A/A......................................................         27              26,721      14
Baa/BBB..................................................         62              70,707      38
Ba/BB....................................................         16              16,143       9
B/B......................................................         16               9,759       5
Caa/CCC..................................................          2               1,433       1
Unrated+.................................................          4               1,498       1
Short-term...............................................          1               1,051       1
                                                                 ---          ----------     ---
  Total..................................................        144             186,027     100
                                                                 ===          ==========     ===
</Table>



+  Refers to securities that have not been rated by Moody's or S&P. See
   "Investment objective and principal investment strategies--PORTFOLIO CONTENTS
   AND PRINCIPAL INVESTMENT STRATEGIES"


- --------------------------------------------------------------------------------
 16
<PAGE>
- --------------------------------------------------------------------------------

Investment objective and principal investment strategies

INVESTMENT OBJECTIVE

The Fund's investment objective is to generate a high level of current income
consistent with prudent investment risk. The Fund's investment objective is not
a fundamental policy and may be changed without the approval of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Fund. The
Fund makes no assurance that it will realize its objective.

PRINCIPAL INVESTMENT FOCUS AND PHILOSOPHY

The Fund seeks to achieve its objective by investing primarily in a diversified
portfolio of freely marketable debt securities issued by U.S. and foreign
corporations and governments. Under normal circumstances the Fund will invest at
least 80% of its assets (net assets plus borrowing for investment purposes) in
income securities, consisting of: (i) marketable corporate debt securities, (ii)
governmental obligations and (iii) cash and commercial paper. This is a
non-fundamental policy and may be changed by the Board of Trustees of the Fund
as long as shareholders are provided with at least 60 days prior written notice
of any change as required by the rules under the 1940 Act. The Fund may also
invest up to 20% of its total assets in income-producing preferred and common
stocks. While the Fund focuses on intermediate and longer-term debt securities,
the Fund may acquire securities of any maturity and is not subject to any limits
as to the average maturity of its overall portfolio.


At least 75% of the Fund's total assets will be represented by debt securities
which are rated, at the time of acquisition, investment grade (i.e., at least
"Baa" by Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard &
Poor's Rating Group ("S&P")) or in unrated securities determined by the Fund's
investment adviser to be of comparable credit quality. The Fund may invest up to
25% of its total assets in debt securities rated below investment grade or in
unrated debt securities determined by the Adviser to be of comparable quality.



Securities rated "BBB" by S&P are regarded by S&P as having an adequate capacity
to pay interest or dividends and repay capital or principal, as the case may be;
whereas such securities normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely, in the opinion of
S&P, to lead to a weakened capacity to pay interest or dividends and repay
capital or principal for securities in this category than in higher rating
categories. Securities rated "Baa" by Moody's are considered by Moody's as
medium to lower medium grade securities; they are neither highly protected nor
poorly secured; interest or dividend payments and capital or principal security,
as the case may be, appear to Moody's to be adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
time; and, in the opinion of Moody's, securities in this rating category lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Below investment grade securities and comparable
unrated securities involve substantial risk of loss, are considered highly
speculative with respect to the issuer's ability to pay interest and any
required redemption or principal payments and are susceptible to default or
decline in market value due to adverse economic and business developments.
Securities rated Ba or BB may face significant ongoing uncertainties or exposure
to adverse business, financial or economic conditions that could lead to the
issuer being unable to meet its financial commitments. The protection of
interest and principal may be moderate and not well safeguarded during both good
and bad times. Securities rated B generally lack the characteristics of a
desirable investment. Assurance of interest and principal payments over the long
term may be low, and such securities are more vulnerable to nonpayment than
obligations rated BB or Ba. Adverse business, financial or economic conditions
will likely impair the issuer's capacity or willingness to meet its financial
commitments. The descriptions of the investment grade rating categories by
Moody's and S&P, including a description of their speculative characteristics,
are set forth in the Statement of Additional Information. All references to


- --------------------------------------------------------------------------------
                                                                              17
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

securities ratings by Moody's and S&P in this Prospectus shall, unless otherwise
indicated, include all securities within each such rating category (e.g.,
"Baa1", "Baa2" and "Baa3" in the case of Moody's and "BBB+", "BBB" and "BBB-" in
the case of S&P). All percentage and ratings limitations on securities in which
the Fund may invest apply at the time of making an investment and shall not be
considered violated if an investment rating is subsequently downgraded to a
rating that would have precluded the Fund's initial investment in such security.
In the event of such security downgrade, the Fund will sell the portfolio
security as soon as the Adviser believes it to be prudent to do so in order to
again cause the Fund to be within the percentage and ratings limitations set
forth in this Prospectus. In the event that the Fund disposes of a portfolio
security subsequent to its being downgraded, the Fund may experience a greater
risk of loss than if such security had been sold prior to such downgrading.

In managing the Fund's portfolio, the Adviser concentrates first on sector
selection by deciding which types of bonds and industries to emphasize at a
given time, and then which individual bonds to buy. When making sector and
industry allocations, the Adviser tries to anticipate shifts in the business
cycle, using top-down analysis to determine which sectors and industries may
benefit over the next 12 months. In choosing individual securities, the Adviser
uses bottom-up research to find securities that appear comparatively
undervalued. The Adviser looks at bonds of all quality levels and maturities
from many different issuers, potentially including U.S. dollar-denominated
securities of foreign corporations and governments. The Adviser may use
short-term trading as a means of managing the Fund's portfolio to achieve its
investment objective. There can be no assurance that the Fund will achieve its
investment objective.

PORTFOLIO CONTENTS AND PRINCIPAL INVESTMENT STRATEGIES

CORPORATE DEBT SECURITIES
Corporate debt obligations are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations and may also be subject
to price volatility due to such factors as market interest rates, market
perception of the creditworthiness of the issuer and general market liquidity.

U.S. GOVERNMENT SECURITIES

U.S. government securities in which the Fund invests include debt obligations of
varying maturities issued by the U.S. Treasury or issued or guaranteed by an
agency or instrumentality of the U.S. government, including the Federal Housing
Administration, Federal Financing Bank, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association (GNMA), General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Bank (FHLB), Federal Home Loan Mortgage Corporation (FHLMC),
Federal National Mortgage Association (FNMA), Maritime Administration, Tennessee
Valley Authority, District of Columbia Armory Board, Student Loan Marketing
Association, Resolution Trust Corporation and various institutions that
previously were or currently are part of the Farm Credit System (which has been
undergoing reorganization since 1987). Some U.S. government securities, such as
U.S. Treasury bills, Treasury notes and Treasury bonds, which differ only in
their interest rates, maturities and times of issuance, are supported by the
full faith and credit of the United States government. Others are supported by:
(i) the right of the issuer to borrow from the U.S. Treasury, such as securities
of the Federal Home Loan Banks; (ii) the discretionary authority of the U.S.
government to purchase the agency's obligations, such as securities of the FNMA;
or (iii) only the credit of the issuer. No assurance can be given that the U.S.
government will provide financial support in the future to U.S. government
agencies, authorities or instrumentalities that are not supported by the full
faith and credit of the United States. Securities guaranteed as to principal and
interest by the U.S. government, its agencies, authorities or instrumentalities
include: (i) securities for which the payment of principal and interest is
backed by an irrevocable letter of credit issued by the U.S. government or any
of its agencies, authorities or instrumentalities; and


- --------------------------------------------------------------------------------
 18
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

(ii) participations in loans made to non-U.S. governments or other entities that
are so guaranteed. The secondary market for certain of these participations is
limited and therefore may be regarded as illiquid.

MORTGAGE-BACKED SECURITIES

The Fund may invest in mortgage-backed securities which represent participation
interests in pools of adjustable and fixed rate mortgage loans which are
guaranteed by agencies or instrumentalities of the U.S. government. Unlike
conventional debt obligations, mortgage-backed securities provide monthly
payments derived from the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans. The
mortgage loans underlying mortgage-backed securities are generally subject to a
greater rate of principal prepayments in a declining interest rate environment
and to a lesser rate of principal prepayments in an increasing interest rate
environment. Under certain interest and prepayment scenarios, the Fund may fail
to recover the full amount of its investment in mortgage-backed securities
notwithstanding any direct or indirect governmental or agency guarantee. Since
faster than expected prepayments must usually be invested in lower yielding
securities, mortgage-backed securities are less effective than conventional
bonds in "locking in" a specified interest rate. In a rising interest rate
environment, a declining prepayment rate may extend the average life of many
mortgage-backed securities. Extending the average life of a mortgage-backed
security increases the risk of depreciation due to future increases in market
interest rates. Government sponsored entities such as the FHLMC, FNMA, and FHLB,
although chartered or sponsored by Congress, are not funded by congressional
appropriations and the debt and mortgage-backed securities issued by them are
neither guaranteed nor issued by the U.S. government.


The Fund's investments in mortgage-backed securities may include conventional
mortgage pass through securities and certain classes of multiple class
collateralized mortgage obligations ("CMOs"). In order to reduce the risk of
prepayment for investors, CMOs are issued in multiple classes, each having
different maturities, interest rates, payment schedules and allocations of
principal and interest on the underlying mortgages. Senior CMO classes will
typically have priority over residual CMO classes as to the receipt of principal
and/or interest payments on the underlying mortgages. The CMO classes in which
the Fund may invest include but are not limited to sequential and parallel pay
CMOs, including planned amortization class ("PAC") and target amortization class
("TAC") securities.

Different types of mortgage-backed securities are subject to different
combinations of prepayment, extension, interest rate and/or other market risks.
Conventional mortgage pass through securities and sequential pay CMOs are
subject to all of these risks, but are typically not leveraged. PACs, TACs and
other senior classes of sequential and parallel pay CMOs involve less exposure
to prepayment, extension and interest rate risk than other mortgage-backed
securities, provided that prepayment rates remain within expected prepayment
ranges or "collars."

FOREIGN SECURITIES

While the Fund primarily invests in the securities of U.S. issuers, the Fund may
invest in securities of corporate and governmental issuers located outside the
United States, including emerging market issuers. The Fund only invests in
securities of foreign issuers that are payable in U.S. dollars.


PREFERRED AND COMMON STOCKS
The Fund may invest up to 20% of its assets in income producing preferred
securities and common stocks. The Fund normally will invest in such securities
when the Adviser believes that they will provide a sufficiently high yield to
attain the Fund's investment objective. The Fund may also purchase income
producing securities which are convertible into or come with rights to purchase
preferred and common stocks.

Common stocks are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits, if any, of the corporation without
preference over any other shareholder or class of

- --------------------------------------------------------------------------------
                                                                              19
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

shareholders, including holders of such entity's preferred stock and other
senior equity securities. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so. In selecting common stocks for
investment, the Fund expects generally to focus more on the security's dividend
paying capacity than on its potential for capital appreciation.


Fixed rate preferred stocks have fixed dividend rates. They can be perpetual,
with no mandatory redemption date, or issued with a fixed mandatory redemption
date. Certain issues of preferred stock are convertible into other equity
securities. Perpetual preferred stocks provide a fixed dividend throughout the
life of the issue, with no mandatory retirement provisions, but may be callable.
Sinking fund preferred stocks provide for the redemption of a portion of the
issue on a regularly scheduled basis with, in most cases, the entire issue being
retired as of a future date. The value of fixed rate preferred stocks can be
expected to vary inversely with interest rates.


Adjustable rate preferred stocks have a variable dividend rate which is
determined periodically, typically quarterly, according to a formula based on a
specified premium or discount to the yield on particular U.S. Treasury
securities, typically the highest base-rate yield of one of three U.S. Treasury
securities: the 90-day Treasury bill; the 10-year Treasury note; and either the
20-year or 30-year Treasury bond or other index. The premium or discount to be
added to or subtracted from this base-rate yield is fixed at the time of
issuance and cannot be changed without the approval of the holders of the
adjustable rate preferred stock. Some adjustable rate preferred stocks have a
maximum and a minimum rate and in some cases are convertible into common stock.


Auction rate preferred stocks pay dividends that adjust based upon periodic
auctions. Such preferred stocks are similar to short-term corporate money market
instruments in that an auction rate preferred stockholder has the opportunity to
sell the preferred stock at its liquidation value in an auction, normally
conducted at least every 49 days, through which buyers set the dividend rate in
a bidding process for the next period. The dividend rate set in the auction
depends upon market conditions and the credit quality of the particular issuer.
Typically, the auction rate preferred stock's dividend rate is limited to a
specified maximum percentage of an external commercial paper index as of the
auction date. Further, the terms of auction rate preferred stocks generally
provide that they are redeemable by the issuer at certain times or under certain
conditions.


MONEY MARKET INSTRUMENTS

Money market instruments include short-term U.S. government securities, U.S.
dollar-denominated, high quality commercial paper (unsecured promissory notes
issued by corporations to finance their short-term credit needs), certificates
of deposit, bankers' acceptances and repurchase agreements relating to any of
the foregoing. U.S. government securities include Treasury notes, bonds and
bills, which are direct obligations of the U.S. government backed by the full
faith and credit of the United States, and securities issued by agencies and
instrumentalities of the U.S. government, which may be guaranteed by the U.S.
Treasury, may be supported by the issuer's right to borrow from the U.S.
Treasury or may be backed only by the credit of the federal agency or
instrumentality itself.


SHORT-TERM TRADING
The Fund may engage in short-term trading in response to stock market
conditions, changes in interest rates or other economic trends and developments,
or to take advantage of yield disparities between various fixed income
securities in order to realize capital gains or improve income. Short term
trading may have the effect of increasing portfolio turnover rate. A high rate
of portfolio turnover (100% or greater) involves correspondingly greater
brokerage expenses. For the fiscal year ended December 31, 2002, the Fund's
portfolio turnover rate was 371%. The success of short-term trading will depend
upon the ability of the Adviser to evaluate particular securities, to anticipate
relevant market factors, including trends of interest rates and earnings and
variations from such trends, to obtain relevant information, to evaluate it
promptly, and to take advantage of its evaluations by completing

- --------------------------------------------------------------------------------
 20
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

transactions on a favorable basis. There can be no assurance that the Adviser
will be successful in that evaluation.

HEDGING AND INTEREST RATE TRANSACTIONS
The Fund may, but is not required to, use various hedging and interest rate
transactions described below to mitigate risks or facilitate portfolio
management. Such transactions are generally accepted under modern portfolio
management and are regularly used by many mutual funds and other institutional
investors. Although the Adviser seeks to use these practices to further the
Fund's investment objective, no assurance can be given that these practices will
achieve this result.


The Fund may purchase and sell derivative instruments such as exchange-listed
and over-the-counter put and call options on securities, financial futures,
fixed income, interest rate and equity indices, and other financial instruments,
purchase and sell financial futures contracts and options thereon, and enter
into various interest rate transactions such as swaps, caps, floors or collars
or credit transactions and credit default swaps. The Fund also may purchase
derivative instruments that combine features of these instruments. Collectively,
all of the above are referred to as "Strategic Transactions." The Fund generally
seeks to use Strategic Transactions as a portfolio management or hedging
technique to seek to protect against possible adverse changes in the market
value of securities held in or to be purchased for the Fund's portfolio, protect
the value of the Fund's portfolio, facilitate the sale of certain securities for
investment purposes, manage the effective interest rate exposure of the Fund,
including the effective yield paid on any preferred shares issued by the Fund,
manage the effective maturity or duration of the Fund's portfolio or establish
positions in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. The Fund does not engage in these transactions
for speculative purposes.


Strategic Transactions have risks, including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to use successfully Strategic Transactions depends on
the Adviser's ability to predict pertinent market movements, which cannot be
assured. Thus, the use of Strategic Transactions may result in losses greater
than if they had not been used, may require the Fund to sell or purchase
portfolio securities at inopportune times or for prices other than current
market values, may limit the amount of appreciation the Fund can realize on an
investment or may cause the Fund to hold a security that it might otherwise
sell. Additionally, amounts paid by the Fund as premiums and cash or other
assets held in margin accounts with respect to Strategic Transactions are not
otherwise available to the Fund for investment purposes.

A more complete discussion of Strategic Transactions and their risks is
contained in the Statement of Additional Information.

TEMPORARY DEFENSIVE STRATEGIES


There may be times when, in the Adviser's judgment, conditions in the securities
market would make pursuit of the Fund's investment strategy inconsistent with
achievement of the Fund's investment objective. At such times, the Adviser may
employ alternative strategies primarily to seek to reduce fluctuations in the
value of the Fund's assets. In implementing these temporary defensive
strategies, depending on the circumstances, the Fund may invest an unlimited
portion of its portfolio in U.S. dollar-denominated corporate debt securities,
short-term money market instruments, U.S. government securities and cash. It is
impossible to predict when, or for how long, the Fund may use these alternative
strategies.


- --------------------------------------------------------------------------------
                                                                              21
<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

OTHER INVESTMENT POLICIES

STRUCTURED SECURITIES

The Fund may invest in structured securities including notes, bonds or
debentures, the value of the principal of and/or interest on which is to be
determined by reference to changes in the value of specific currencies, interest
rates, commodities, indices or other financial indicators (the "Reference") or
the relative change in two or more References. The interest rate or the
principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal is
due at maturity and, therefore, may result in the loss of the Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference. Consequently, structured securities entail
a greater degree of market risk than other types of debt obligations. Structured
securities may also be more volatile, less liquid and more difficult to price
accurately than less complex fixed income investments.


FORWARD COMMITMENT AND WHEN-ISSUED SECURITIES
The Fund may purchase securities on a when-issued or forward commitment basis.
For when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. When the Fund engages in forward commitment and when-
issued transactions, it relies on the seller to consummate the transaction. The
failure of the issuer or seller to consummate the transaction may result in the
Fund's losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when- issued or forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date. On the date the Fund enters into an
agreement to purchase securities on a when-issued or forward commitment basis,
the Fund will segregate in a separate account cash or liquid securities, of any
type or maturity, equal in value to the Fund's commitment. Alternatively, the
Fund may enter into offsetting contracts for the forward sale of other
securities that it owns.

REPURCHASE AGREEMENTS

In a repurchase agreement the Fund would buy a security for a relatively short
period (usually not more than 7 days) subject to the obligation to sell it back
to the issuer at a fixed time and price plus accrued interest. The Fund will
enter into repurchase agreements only with member banks of the Federal Reserve
System and with "primary dealers" in U.S. government securities. The Adviser
will continuously monitor the creditworthiness of the parties with whom the Fund
enters into repurchase agreements. In the event of bankruptcy or other default
by a seller of a repurchase agreement, the Fund could experience delays and
additional expense in liquidating the underlying securities, declines in value
of the underlying securities and a loss of income.


REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into reverse repurchase agreements but has no current
intention to do so. Reverse repurchase agreements involve the sale of U.S.
government securities held in its portfolio to a bank with an agreement that the
Fund will buy back the securities at a fixed future date at a fixed price plus
an agreed amount of "interest" which may be reflected in the repurchase price.
Reverse repurchase agreements are considered to be borrowings by the Fund.
Reverse repurchase agreements involve the risk that the market value of
securities purchased by the Fund with proceeds of the transaction may decline
below the repurchase price of the securities sold by the Fund which it is
obligated to repurchase. The Fund will also continue to be subject to the risk
of a decline in the market value of the securities sold under the agreements
because it will reacquire those securities upon effecting their repurchase. To
minimize various risks associated with reverse repurchase agreements, the


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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
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Fund will establish and maintain a separate account consisting of liquid
securities, of any type or maturity, in an amount at least equal to the
repurchase prices of the securities (plus any accrued interest thereon) under
such agreements. In addition, the Fund will not enter into reverse repurchase
agreements, except from banks as a temporary measure for extraordinary emergency
purposes in amounts not to exceed 33 1/3% of the Fund's total assets (including
the amount borrowed) taken at market value. The Fund will enter into reverse
repurchase agreements only with federally insured banks which are approved in
advance as being creditworthy by the Trustees. Under the procedures established
by the Trustees, the Adviser will monitor the creditworthiness of the banks
involved. The Fund's ability to enter into reverse repurchase agreements may be
limited by the issuance of the Preferred Shares, including the guidelines
established by Moody's.


MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Fund may enter into mortgage "dollar roll" transactions with selected banks
and broker-dealers pursuant to which the Fund sells mortgage-backed securities
and simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specified future date. The Fund will only
enter into covered rolls. A "covered roll" is a specific type of dollar roll for
which there is an offsetting cash position or a cash equivalent security
position which matures on or before the forward settlement date of the dollar
roll transaction. Covered rolls are not treated as a borrowing or other senior
security and will be excluded from the calculation of the Fund's borrowings and
other senior securities. For financial reporting and tax purposes, the Fund
treats mortgage dollar rolls as two separate transactions; one involving the
purchase of a security and a separate transaction involving a sale.

ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities. Asset-backed securities are
often subject to more rapid repayment than their stated maturity date would
indicate as a result of the pass-through of prepayments of principal on the
underlying loans. During periods of declining interest rates, prepayment of
loans underlying asset-backed securities can be expected to accelerate.
Accordingly, the Fund's ability to maintain positions in these securities will
be affected by reductions in the principal amount of such securities resulting
from prepayments, and its ability to reinvest the returns of principal at
comparable yields is subject to generally prevailing interest rates at that
time.

BRADY BONDS
The Fund may invest in Brady Bonds and other sovereign debt securities of
countries that have restructured or are in the process of restructuring
sovereign debt pursuant to the Brady Plan. Brady Bonds are debt securities
described as part of a restructuring plan created by U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external indebtedness (generally, commercial bank debt). In
restructuring its external debt under the Brady Plan framework, a debtor nation
negotiates with its existing bank lenders as well as multilateral institutions
such as the World Bank and the International Monetary Fund (the "IMF"). The
Brady Plan facilitates the exchange of commercial bank debt for newly issued
bonds (known as Brady Bonds). The World Bank and the IMF provide funds pursuant
to loan agreements or other arrangements which enable the debtor nation to
collateralize the new Brady Bonds or to repurchase outstanding bank debt at a
discount. Under these arrangements the IMF debtor nations are required to
implement domestic monetary and fiscal reforms. These reforms have included the
liberalization of trade and foreign investment, the privatization of state-owned
enterprises and the setting of targets for public spending and borrowing. These
policies and programs seek to promote the debtor country's ability to service
its external obligations and promote its economic growth and development. The
Brady Plan only sets forth general guiding principles for economic reform and
debt reduction, emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors.

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                                                                              23
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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
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REITS
The Fund may invest in common and preferred interests in real estate investment
trusts ("REITs"). REITs primarily invest in income producing real estate or real
estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with the applicable
requirements of the Code. The Fund will in some cases indirectly bear its
proportionate share of any management and other expenses paid by REITs in which
it invests in addition to the expenses paid by the Fund. Debt securities issued
by REITs are, for the most part, general and unsecured obligations and are
subject to risks associated with REITs.

OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies to the
extent that such investments are consistent with the Fund's investment objective
and policies and permissible under the 1940 Act. Under the 1940 Act, the Fund
may not acquire the securities of other investment companies if, as a result,
(i) more than 10% of the Fund's total assets would be invested in securities of
other investment companies, (ii) such purchase would result in more than 3% of
the total outstanding voting securities of any one investment company being held
by the Fund and its affiliates or (iii) more than 5% of the Fund's total assets
would be invested in any one investment company. These limitations do not apply
to the purchase of shares of any investment company in connection with a merger,
consolidation, reorganization or acquisition of substantially all the assets of
another investment company. The Fund, as a holder of the securities of other
investment companies, will bear its pro rata portion of the other investment
companies' expenses, including advisory fees. These expenses are in addition to
the direct expenses of the Fund's own operations.

ILLIQUID SECURITIES

The Fund may purchase securities that are not registered ("restricted
securities") under the 1933 Act, including commercial paper issued in reliance
on Section 4(2) of the 1933 Act. The Fund will not invest more than 20% of its
total assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) commercial
paper or Rule 144A securities, that they are liquid, they will not be subject to
the 20% limit on illiquid investments. The Trustees have adopted guidelines and
delegated to the Adviser the daily function of determining the monitoring and
liquidity of restricted investments. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for the determinations.


Illiquid securities may be difficult to dispose of at a fair price at the times
when the Adviser believes it is desirable to do so. The market price of illiquid
securities generally is more volatile than that of more liquid securities, which
may adversely affect the price that the Fund pays for or recovers upon the sale
of illiquid securities. Illiquid securities are also more difficult to value and
the Adviser's judgment may play a greater role in the valuation process.
Investment of the Fund's assets in illiquid securities may restrict the Fund's
ability to take advantage of market opportunities. The risks associated with
illiquid securities may be particularly acute in situations in which the Fund's
operations require cash and could result in the Fund borrowing to meet its
short-term needs or incurring losses on the sale of illiquid securities.

LENDING OF SECURITIES

The Fund may lend portfolio securities to brokers, dealers and financial
institutions if the loan is collateralized by cash or U.S. government securities
according to applicable regulatory requirements. The Fund may reinvest any cash
collateral in short-term securities and money market funds. When the


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 24
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INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------

Fund lends portfolio securities, there is a risk that the borrower may fail to
return the securities involved in the transaction. As a result, the Fund may
incur a loss or, in the event of the borrower's bankruptcy, the Fund may be
delayed in or prevented from liquidating the collateral. The Fund may not lend
portfolio securities having a total value exceeding 33 1/3% of its total assets.

Risk factors

Investing in the Fund involves risk, including the risk that you may receive
little or no return on your investment or that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in APS.

RISKS OF INVESTMENT IN PREFERRED SHARES

AUCTION RISK
The dividend rate for the APS normally is set through an auction process. In the
Auction, holders of APS may indicate the dividend rate at which they would be
willing to hold or sell their APS or purchase additional APS. The Auction also
provides liquidity for the sale of APS. You may not be able to sell your APS at
an Auction if the Auction fails. An Auction fails if there are more APS offered
for sale than there are buyers. If Sufficient Clearing Bids do not exist in an
Auction, the Applicable Rate will be the Maximum Applicable Rate, and in such
event, owners of APS wishing to sell will not be able to sell all, and may not
be able to sell any, of such APS in the Auction. As a result, your investment in
APS may be illiquid. Neither the Broker-Dealers nor the Fund is obligated to
purchase APS in an Auction or otherwise, nor is the Fund required to redeem APS
in the event of a failed Auction. Also, if you place Hold Orders (orders to
retain APS) at an Auction only at a specified rate and that bid rate exceeds the
Applicable Rate set at the Auction, you will not retain your APS. Additionally,
if you buy APS or elect to retain APS without specifying a dividend rate below
which you would not wish to buy or continue to hold those APS, you could receive
a lower rate of return on your APS than the market rate. Finally, the dividend
period for the APS may be changed by the Fund, subject to certain conditions
with notice to the holders of APS, which could also effect the liquidation of
your investment. See "Description of Preferred Shares" and "The Auction--AUCTION
PROCEDURES."

RATINGS AND ASSET COVERAGE RISK
While it is expected that Moody's will assign a rating of "Aaa" to the APS, such
rating does not eliminate or necessarily mitigate the risks of investing in APS.
Moody's could downgrade its rating of the APS or withdraw its rating of the APS
at any time, which may make your APS less liquid at an Auction or in the
secondary market. If Moody's downgrades the APS, the Fund may alter its
portfolio or redeem APS in an effort to improve the rating, although there is no
assurance that it will be able to do so to the extent necessary to restore the
prior rating. If the Fund fails to satisfy the asset coverage ratios discussed
under "Description of Preferred Shares--RATING AGENCY GUIDELINES AND ASSET
COVERAGE," the Fund will be required to redeem a sufficient number of APS in
order to return to compliance with the asset coverage ratios. The Fund may be
required to redeem APS at a time when it is not advantageous for the Fund to
make such redemption or to liquidate portfolio securities in order to have
available cash for such redemption. The Fund may voluntarily redeem APS under
certain circumstances in order to meet asset maintenance tests. While a sale of
substantially all the assets of the Fund or the merger of the Fund into another
entity would require the approval of the holders of the APS voting as a separate
class as discussed under "Description of Preferred Shares--VOTING RIGHTS," a
sale of substantially all the assets of the Fund or the merger of the Fund with
or into another entity would not be treated as a liquidation of the Fund nor
require that the Fund redeem the APS, in whole or in part, provided that the
Fund continued to comply with the asset coverage ratios discussed under
"Description of Preferred Shares--RATING AGENCY GUIDELINES AND ASSET COVERAGE."
See "Description of Preferred Shares--RATING AGENCY

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                                                                              25
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------

GUIDELINES AND ASSET COVERAGE" for a description of the asset maintenance tests
the Fund must meet.

SECONDARY MARKET RISK
If you try to sell your APS between Auctions, you may not be able to sell any or
all of your APS, or you may not be able to sell them for $25,000 per share or
$25,000 per share plus accumulated dividends. If the Fund has designated a
Special Dividend Period (a rate period of more than seven days for each series),
changes in interest rates could affect the price you would receive if you sold
your APS in the secondary market. An increase in the level of interest rates
likely will have an adverse effect on the secondary market price of the APS. You
may transfer APS outside of Auctions only to or through a Broker-Dealer that has
entered into an agreement with the Fund's Auction Agent, Deutsche Bank Trust
Company Americas, and the Fund or other person as the Fund permits. The Fund
does not anticipate imposing significant restrictions on transfers to other
persons. However, unless any such other person has entered into a relationship
with a Broker-Dealer that has entered into a Broker-Dealer agreement with the
Auction Agent, that person will not be able to submit Bids at Auctions with
respect to the APS. Broker-Dealers that maintain a secondary trading market for
APS are not required to maintain this market, and the Fund is not required to
redeem APS if an Auction or an attempted secondary market sale fails because of
a lack of buyers. The APS will not be listed on any stock exchange or the Nasdaq
National Market. If you sell your APS to a Broker-Dealer between Auctions, you
may receive less than the price you paid for them, especially if market interest
rates have risen since the last Auction.

INTEREST RATE RISK

The APS pay dividends based on short-term interest rates. The Fund invests the
proceeds from the issuance of the APS principally in debt securities and
preferred securities, which bear interest or dividends rates reflecting
intermediate and long-term interest rates. The interest or dividend rates on
debt securities and preferred stocks are typically, although not always, higher
than shorter-term interest rates. Both shorter-term and intermediate to
longer-term interest rates may fluctuate. If shorter-term interest rates rise,
dividend rates on the APS may rise so that the amount of dividends to be paid to
holders of APS exceeds the income from the debt securities, preferred stocks and
other investments purchased by the Fund with the proceeds from the sale of APS.
Because income from the Fund's entire investment portfolio (not just the portion
of the portfolio purchased with the proceeds of the APS offering) is available
to pay dividends on the APS, however, dividend rates on the APS would need to
exceed the rate of return on the Fund's investment portfolio by a wide margin
before the Fund's ability to pay dividends on the APS would be jeopardized. If
intermediate to longer-term interest rates rise, this could negatively impact
the value of the Fund's investment portfolio, reducing the amount of assets
serving as asset coverage for the APS. Given the historically low level of
interest rates during 2003 and the likelihood that interest rates will increase
when the national economy strengthens, the risk of the potentially negative
impact of rising interest rates on the value of the Fund's portfolio may be
significant and may adversely affect the Preferred Shares' asset coverage.
Increasing short-term interest rates may also adversely affect the benefits of a
leverage structure to the holders of the Common Shares, increasing the potential
for the Fund to voluntarily redeem the APS. In addition, the longer the average
maturity of the Fund's portfolio of debt securities, the greater the potential
impact of rising interest rates on the value of the Fund's portfolio and the
less flexibility the Fund may have to respond to the decreasing spread between
the yield on its portfolio securities and the yield on the APS.


LEVERAGE RISK
The Fund expects to use financial leverage on an ongoing basis for investment
purposes. Leverage risk includes the risk associated with the issuance of APS to
leverage the Common Shares. If the dividend rate on the APS exceeds the net rate
of return on the Fund's portfolio, the leverage will result in a

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 26
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------

lower net asset value than if the Fund were not leveraged, and the Fund's
ability to pay dividends and meet its asset coverage requirements on the APS
would be reduced. Similarly, any decline in the net asset value of the Fund's
investments could result in the Fund being in danger of failing to meet its
asset coverage requirements or of losing its expected "Aaa" rating on the APS
or, in an extreme case, the Fund's current investment income might not be
sufficient to meet the dividend requirements on the APS. To counteract such an
event, the Fund might need to liquidate investments in order to fund a
redemption of some or all of the APS.

It is currently anticipated that, taking into account the APS being offered in
this Prospectus, the initial amount of leverage will represent approximately
33 1/3% of the Fund's total capital.


The Fund's leveraged capital structure creates special risks not associated with
unleveraged funds having a similar investment objective and similar policies.
These include the possibility of higher volatility of the net asset value of the
Fund and the Preferred Shares' asset coverage.



While the Fund may from time to time consider reducing leverage in response to
actual or anticipated changes in interest rates in an effort to mitigate the
increased volatility of current income and net asset value associated with
leverage, there can be no assurance that the Fund will actually reduce leverage
in the future or that any reduction, if undertaken, will be effective in
reducing the volatility of the Fund's net asset value. Changes in the future
direction of interest rates are difficult to predict accurately. If the Fund
were to reduce leverage based on a prediction about future changes to interest
rates and that prediction turned out to be incorrect, the reduction in leverage
would likely operate to reduce the Fund's net asset value relative to the
circumstance where the Fund had not reduced leverage. The Fund may decide that
this risk outweighs the likelihood of achieving the desired reduction to
volatility in income and net asset value if the prediction were to turn out to
be correct, and determine not to reduce leverage as described above.


Because the fee paid to the Adviser will be calculated on the basis of the
Fund's managed assets (which equals the aggregate net asset value of the Common
Shares plus the liquidation preference of the APS), the fee will be higher when
leverage is utilized, giving the Adviser an incentive to utilize leverage.

RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
Restrictions imposed on the declaration and payment of dividends or other
distributions to the holders of the Fund's Common Shares and APS, both by the
1940 Act and by requirements imposed by Moody's or a Substitute Rating Agency,
might impair the Fund's ability to satisfy minimum distribution requirements
that it must satisfy to be treated as a regulated investment company for federal
income tax purposes. While the Fund intends to redeem APS to enable the Fund to
distribute its income as required to maintain its favorable tax treatment as a
regulated investment company under the Code, there can be no assurance that such
redemptions can be effected in time to meet the requirements of the Code. See
"U.S. federal income tax matters."

GENERAL RISKS OF INVESTING IN THE FUND

GENERAL
The Fund is a diversified, closed-end management investment company designed
primarily as a long-term investment and not as a trading tool. An investment in
the Fund's APS may be speculative in that it involves risk. The Fund should not
constitute a complete investment program and should only be considered as an
addition to an investor's existing diversified portfolio of investments. Due to
the uncertainty in all investments, there can be no assurance that the Fund will
achieve its investment objective.

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                                                                              27
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RISK FACTORS
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INTEREST RATE RISK
Debt securities are subject to certain common risks, including:


+  If interest rates go up, the value of debt securities in the Fund's portfolio
   generally will decline. Given the historical low level of interest rates
   during 2003 and the likelihood that interest rates will increase when the
   national economy strengthens, the risk of the potentially negative impact of
   rising interest rates on the value of the Fund's portfolio may be significant
   and may adversely affect the Preferred Shares' asset coverage. Increasing
   short-term interest rates may also adversely affect the benefits of a
   leverage structure to the holders of the Common Shares, increasing the
   potential for the Fund to voluntarily redeem the APS. In addition, the longer
   the average maturity of the Fund's portfolio of debt securities, the greater
   the potential impact of rising interest rates on the value of the Fund's
   portfolio and the less flexibility the Fund may have to respond to the
   decreasing spread between the yield on its portfolio securities and the yield
   on the APS


+  During periods of declining interest rates, the issuer of a security may
   exercise its option to prepay principal earlier than scheduled, forcing the
   Fund to reinvest in lower yielding securities. This is known as call or
   prepayment risk. Certain types of fixed income securities frequently have
   call features that allow the issuer to repurchase the security prior to its
   stated maturity. An issuer may redeem an obligation if the issuer can
   refinance the debt at a lower cost due to declining interest rates or an
   improvement in the credit standing of the issuer

+  During periods of rising interest rates, the average life of certain types of
   securities may be extended because of the right of the issuer to defer
   payments or slower than expected principal payments. This may lock in a below
   market interest rate, increase the security's duration (the estimated period
   until the security is paid in full) and reduce the value of the security.
   This is known as extension risk


+  The Adviser's judgment about the attractiveness, relative value or potential
   appreciation of a particular sector, security or investment strategy may
   prove to be incorrect


CREDIT RISK

Credit risk is the risk that debt securities or preferred securities in the
Fund's portfolio will decline in price or fail to make interest or dividend
payments when due because the issuer of the security experiences a decline in
its financial status. Although the Fund primarily invests in investment grade
securities, the Fund is authorized to invest up to 25% of its total assets in
debt securities rated below investment grade at the time of acquisition.
Securities rated "Baa" by Moody's are considered by Moody's as medium to lower
medium grade securities; they are neither highly protected nor poorly secured;
interest or dividend payments and capital or principal security, as the case may
be, appear to Moody's to be adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over time; and,
in the opinion of Moody's, securities in this rating category lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Securities rated "BBB" by S&P are regarded by S&P as having an adequate capacity
to pay interest or dividends and repay capital or principal, as the case may be;
and whereas such securities normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely, in the
opinion of S&P, to lead to a weakened capacity to pay interest or dividends and
repay capital or principal for securities in this category than in higher rating
categories. Below investment grade securities and comparable unrated securities
involve substantial risk of loss, are considered highly speculative with respect
to the issuer's ability to pay interest or dividends and any required redemption
or principal payments and are susceptible to default or decline in market value
due to adverse economic and business developments. Securities rated Ba or BB may
face significant ongoing uncertainties or exposure to adverse business,
financial or economic conditions that could lead to the issuer being unable to
meet its financial commitments. The protection of interest and principal may be
moderate and not well safeguarded during both good and bad times. Securities
rated B


- --------------------------------------------------------------------------------
 28
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RISK FACTORS
- --------------------------------------------------------------------------------


generally lack the characteristics of a desirable investment. Assurance of
interest and principal payments over the long term may be low, and such
securities are more vulnerable to nonpayment than obligations rated BB or Ba.
Adverse business, financial or economic conditions will likely impair the
issuer's capacity or willingness to meet its financial commitments. The ratings
of Moody's and S&P represent their opinions as to the quality of those
securities that they rate; ratings are relative and subjective and are not
absolute standards of quality.


MORTGAGE-BACKED AND ASSET-BACKED SECURITIES

To the extent the Fund invests significantly in mortgage-backed and asset-backed
securities, its exposure to prepayment and extension risks may be greater than
if it invested in other fixed income securities. Certain debt instruments may
only pay principal at maturity or may only represent the right to receive
payments of principal or payments of interest on underlying pools of mortgage or
government securities, but not both. The value of these types of instruments may
change more drastically than debt securities that pay both principal and
interest during periods of changing interest rates. Principal only
mortgage-backed securities generally increase in value if interest rates
decline, but are also subject to the risk of prepayment. Interest only
instruments generally increase in value in a rising interest rate environment
when fewer of the underlying mortgages are prepaid. The value of interest only
instruments may decline significantly or these instruments may become worthless
in the event that the underlying mortgage pool experiences substantial and
unanticipated payments. The Fund may invest in mortgage derivatives and
structured securities. Because these securities have imbedded leverage features,
small changes in interest or prepayment rates may cause large and sudden price
movements. Mortgage derivatives can also become illiquid and hard to value in
declining markets. Government sponsored entities such as the FHLMC, FNMA and
FHLB, although chartered or sponsored by Congress, are not funded by
congressional appropriations and the debt and mortgage-backed securities issued
by them are neither guaranteed nor issued by the U.S. government.


CORPORATE DEBT SECURITIES
Corporate debt obligations are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations and may also be subject
to price volatility due to such factors as market interest rates, market
perception of the creditworthiness of the issuer and general market liquidity.

PREFERRED SECURITIES
Preferred securities are subordinated to bonds and other debt instruments in a
company's capital structure in terms of priority to corporate income and
liquidation payments and therefore will be subject to greater credit risk than
those debt instruments. Preferred securities may be substantially less liquid
than many other securities, such as common stocks or U.S. government securities.
Preferred securities may include provisions that permit the issuer, at its
discretion, to defer distributions for a stated period without any adverse
consequences to the issuer. If the Fund owns a preferred security that is
deferring its distributions, the Fund may be required to report income for
federal income tax purposes although it has not yet received such income in
cash. An issuer of preferred securities may also redeem the securities prior to
a specified date. As with call provisions, a special redemption by the issuer
may negatively impact the return of the security held by the Fund. Generally,
holders of preferred securities (such as the Fund) have no voting rights with
respect to the issuing company unless preferred dividends have been in arrears
for a specified number of periods, at which time the preferred security holders
may elect a number of directors to the issuer's board.

COMMON STOCKS
The common stocks and other non-preferred equity securities in which the Fund
invests may experience substantially more volatility in their market value than
the Fund's investments in debt securities or preferred securities. Such
securities may also be more susceptible to adverse changes in

- --------------------------------------------------------------------------------
                                                                              29
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RISK FACTORS
- --------------------------------------------------------------------------------

market value due to issuer specific events, such as unfavorable earnings
reports. The market values of common stocks are also generally sensitive to
general movements in the equities markets.

FOREIGN SECURITIES

Although the Fund only invests in securities of non-U.S. issuers that are
payable in U.S. dollars, the Fund's investments in non-U.S. issuers may involve
unique risks compared to investing in securities of U.S. issuers. These risks
are more pronounced to the extent that the Fund invests a significant portion of
its non-U.S. investments in one region or in the securities of emerging market
issuers. These risks may include:


+  less information about non-U.S. issuers or markets may be available due to
   less rigorous disclosure, accounting standards or regulatory practices

+  many non-U.S. markets are smaller, less liquid and more volatile; therefore,
   in a changing market, the Adviser may not be able to sell the Fund's
   portfolio securities at times, in amounts and at prices it considers
   reasonable

+  currency exchange rates or controls may adversely affect the value of the
   Fund's investments

+  the economies of non-U.S. countries may grow at slower rates than expected or
   may experience a downturn or recession

+  economic, political and social developments may adversely affect the
   securities markets

+  withholding and other non-U.S. taxes may decrease the Fund's return

There may be less publicly available information about non-U.S. markets and
issuers than is available with respect to U.S. securities and issuers. Non-U.S.
companies generally are not subject to accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. The trading markets for most non-U.S. securities are
generally less liquid and subject to greater price volatility than the markets
for comparable securities in the U.S. The markets for securities in certain
emerging markets are in the earliest stages of their development. Even the
markets for relatively widely traded securities in certain non-U.S. markets,
including emerging market countries, may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the U.S. Additionally,
market making and arbitrage activities are generally less extensive in such
markets, which may contribute to increased volatility and reduced liquidity.

Economies and social and political climates in individual countries may differ
unfavorably from the U.S. Non-U.S. economies may have less favorable rates of
growth of gross domestic product, rates of inflation, currency valuation,
capital reinvestment, resource self-sufficiency and balance of payments
positions. Many countries have experienced substantial, and in some cases
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain emerging countries.
Unanticipated political or social developments may also affect the values of the
Fund's investments and the availability to the Fund of additional investments in
such countries.

SOVEREIGN DEBT OBLIGATIONS AND BRADY BONDS
An investment in debt obligations of non-U.S. governments and their political
subdivisions (sovereign debt), involves special risks that are not present in
corporate debt obligations. The non-U.S. issuer of the sovereign debt or the
non-U.S. governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or pay interest when due, and the Fund
may have limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt may be more volatile than
prices of debt obligations of U.S. issuers. In the past, certain non-U.S.
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their

- --------------------------------------------------------------------------------
 30
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------

sovereign debt. A sovereign debtor's willingness or ability to repay principal
and pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange, the relative size of the debt
service burden, the sovereign debtor's policy toward its principal international
lenders and local political constraints. Sovereign debtors may also be dependent
on expected disbursements from non-U.S. governments, multilateral agencies and
other entities to reduce principal and interest arrearages on their debt. The
failure of a sovereign debtor to implement economic reforms, achieve specified
levels of economic performance or repay principal or interest when due may
result in the cancellation of third-party commitments to lend funds to the
sovereign debtor, which may further impair such debtor's ability or willingness
to service its debts.

Brady Bonds may involve a high degree of risk, may be in default or present the
risk of default. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt, bonds issued at a discount of face value of such debt, bonds
bearing an interest rate which increases over time and bonds issued in exchange
for the advancement of new money by existing lenders. Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors. Although Brady Bonds may be collateralized
by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.


DERIVATIVES

Strategic Transactions have risks, including the imperfect correlation between
the value of such instruments and the underlying assets, the possible default of
the other party to the transaction or illiquidity of the derivative instruments.
Furthermore, the ability to successfully use Strategic Transactions depends on
the Adviser's ability to predict pertinent market movements, which cannot be
assured. Thus, the use of Strategic Transactions may result in losses greater
than if they had not been used, may require the Fund to sell or purchase
portfolio securities at inopportune times or for prices other than current
market values, may limit the amount of appreciation the Fund can realize on an
investment or may cause the Fund to hold a security that it might otherwise
sell. Additionally, amounts paid by the Fund as premiums and cash or other
assets held in margin accounts with respect to Strategic Transactions are not
otherwise available to the Fund for investment purposes.

There are several risks associated with the use of futures contracts and futures
options. A purchase or sale of a futures contract may result in losses in excess
of the amount invested in the futures contract. While the Fund may enter into
futures contracts and options on futures contracts for hedging purposes, the use
of futures contracts and options on futures contracts might result in a poorer
overall performance for the Fund than if it had not engaged in any such
transactions. There may be an imperfect correlation between the Fund's portfolio
holdings and futures contracts or options on futures contracts entered into by
the Fund, which may prevent the Fund from achieving the intended hedge or expose
the Fund to risk of loss. The degree of imperfection of correlation depends on
circumstances such as variations in market demand for futures, futures options
and the related securities, including technical influences in futures and
futures options trading, and differences between the securities markets and the
securities underlying the standard contracts available for trading. Further, the
Fund's use of futures contracts and options on futures contracts to reduce risk
involves costs and will be subject to the Adviser's ability to predict correctly
changes in interest rate relationships or other factors.

- --------------------------------------------------------------------------------
                                                                              31
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------

Depending on whether the Fund would be entitled to receive net payments from the
counterparty on the swap or cap, which in turn would depend on the general state
of short-term interest rates at that point in time, a default by a counterparty
could negatively impact the Fund's overall performance. In addition, at the time
an interest rate swap or cap transaction reaches its scheduled termination date,
there is a risk that the Fund would not be able to obtain a replacement
transaction or that the terms of the replacement would not be as favorable as on
the expiring transaction. If this occurs, it could have a negative impact on the
Fund's performance. If the Fund fails to maintain a required 200% asset coverage
of the liquidation value of the outstanding preferred shares or if the Fund
loses its expected rating on the preferred shares or fails to maintain other
covenants, the Fund may be required to redeem some or all of the preferred
shares. Similarly, the Fund could be required to prepay the principal amount of
any borrowings. Such redemption or prepayment would likely result in the Fund
seeking to terminate early all or a portion of any swap or cap transaction.
Early termination of a swap could result in a termination payment by or to the
Fund. Early termination of a cap could result in a termination payment to the
Fund. The Fund intends to maintain in a segregated account cash or liquid
securities having a value at least equal to the Fund's net payment obligations
under any swap transaction, marked to market daily. The Fund will not enter into
interest rate swap or cap transactions having a notional amount that exceeds the
outstanding amount of the Fund's leverage.


The use of interest rate swaps and caps is a highly specialized activity that
involves investment techniques and risks different from those associated with
ordinary portfolio security transactions. Depending on the state of interest
rates in general, the Fund's use of interest rate swaps or caps could enhance or
harm the Fund's overall performance. To the extent there is a change in interest
rates, the value of the interest rate swap or cap could decline, and could
result in a decline in the Fund's net asset value. In addition, if short-term
interest rates are lower than the Fund's fixed rate of payment on the interest
rate swap, the swap will reduce the Fund's net earnings. If, on the other hand,
short-term interest rates are higher than the fixed rate of payment on the
interest rate swap, the swap will enhance the Fund's net earnings. Buying
interest rate caps could enhance the Fund's performance by providing a maximum
leverage expense. Buying interest rate caps could also decrease the Fund's net
earnings in the event that the premium paid by the Fund to the counterparty
exceeds the additional amount the Fund would have been required to pay had it
not entered into the cap agreement. The Fund has no current intention of selling
an interest rate swap or cap.


Interest rate swaps and caps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Fund is contractually obligated to make. If the counterparty defaults, the Fund
would not be able to use the anticipated net receipts under the swap or cap to
offset the dividend payments on the Fund's preferred shares or interest payments
on borrowings. Depending on whether the Fund would be entitled to receive net
payments from the counterparty on the swap or cap, which in turn would depend on
the general state of short-term interest rates at that point in time, such a
default could negatively impact the Fund's performance.

ILLIQUID INVESTMENTS
Illiquid securities may be difficult to dispose of at a fair price at the times
when the Adviser believes it is desirable to do so. The market price of illiquid
securities generally is more volatile than that of more liquid securities, which
may adversely affect the price that the Fund pays for or recovers upon the sale
of illiquid securities. Illiquid securities are also more difficult to value and
the Adviser's judgment may play a greater role in the valuation process.
Investment of the Fund's assets in illiquid securities may restrict the Fund's
ability to take advantage of market opportunities. The risks associated with
illiquid securities may be particularly acute in situations in which the Fund's
operations require cash and could result in the Fund borrowing to meet its
short-term needs or incurring losses on the sale of illiquid securities.

- --------------------------------------------------------------------------------
 32
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------

LENDING OF SECURITIES
When the Fund lends portfolio securities, there is a risk that the borrower may
fail to return the securities involved in the transaction. As a result, the Fund
may incur a loss or, in the event of the borrower's bankruptcy, the Fund may be
delayed in or prevented from liquidating the collateral. The Fund would not have
the right to vote any securities having voting rights during the existence of
the loan, but would have the ability to call the loan in anticipation of an
important vote to be taken among holders of the securities or of the giving or
withholding of its consent on a material matter affecting the investment. If
there is a delay in the recall of a particular security out on loan, the Fund
may not be able to exercise its voting rights with respect to that security.

SHORT-TERM TRADING

Short-term trading may have the effect of increasing portfolio turnover rate,
which the Fund anticipates will be greater than 100% annually. For the fiscal
year ended December 31, 2002, the Fund's annual portfolio turnover rate was
371%. A high rate of portfolio turnover (100% or greater) involves
correspondingly greater brokerage expenses and other transactional expenses that
are borne by the Fund. High portfolio turnover may also result in the
realization of net short-term capital gains by the Fund which, when distributed
to shareholders, will be taxable as ordinary income. See "U.S. federal income
tax matters."


MARKET DISRUPTION AND GEOPOLITICAL RISK

The war with, and the continuing occupation of, Iraq may have a substantial
impact on the U.S. and world economies and securities markets. The nature, scope
and duration of such impact cannot be predicted with any certainty. Terrorist
attacks on the World Trade Center and the Pentagon on September 11, 2001 closed
some of the U.S. securities markets for a four-day period. Similar events and
market disruptions may occur in the future. Geopolitical risks have, and may in
the future, contribute to increased short-term market volatility and may have
adverse long-term effects on U.S. and world economies and markets generally.
Those events could also have an acute effect on individual issuers or related
groups of issuers.

Description of Preferred Shares

The following is a brief description of the material terms of the APS. This
description does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the By-laws, including the provisions thereof
establishing the APS. The By-laws establishing the terms of the APS have been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.

The APS are preferred shares that entitle their holders to receive dividends
when, as and if declared by the Fund's Board of Trustees, out of funds legally
available therefor, at a rate per annum that may vary for successive Dividend
Periods for each such series of APS. The Applicable Rate for a particular
Dividend Period for the APS will be determined by an Auction conducted on the
Business Day before the start of such Dividend Period. Beneficial Owners and
Potential Beneficial Owners of APS may participate in Auctions, although, except
in the case of Special Dividend Periods of longer than 91 days, Beneficial
Owners desiring to continue to hold all of their APS regardless of the
Applicable Rate resulting from Auctions need not participate in order to
continue to hold their APS. For an explanation of Auctions and the method of
determining the Applicable Rate, see "--DIVIDENDS AND DIVIDEND PERIODS" below
and "The Auction."

The nominee of the Securities Depository is expected to be the sole holder of
record of the APS. Accordingly, each purchaser of APS must rely on (i) the
procedures of the Securities Depository and, if such purchaser is not a member
of the Securities Depository, such purchaser's Agent Member, to receive
dividends, distributions and notices and to exercise voting rights (if and when
applicable) and

- --------------------------------------------------------------------------------
                                                                              33
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

(ii) the records of the Securities Depository and, if such purchaser is not a
member of the Securities Depository, such purchaser's Agent Member, to evidence
its beneficial ownership of the APS.

The APS will rank on parity with each other and any other series of preferred
shares of the Fund as to the payment of dividends and the distribution of assets
upon liquidation. Each share of APS carries one vote on matters on which APS can
be voted. When issued and sold, the APS will have a liquidation preference of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not declared) and will be fully paid and, except as discussed under
"Certain provisions of the Declaration of Trust and By-laws," non-assessable.
See "--LIQUIDATION." The APS will not be convertible into Common Shares or other
shares of beneficial interest of the Fund, and the holders thereof will have no
preemptive rights. The APS will not be subject to any sinking fund but will be
subject to redemption at the option of the Fund on any Dividend Payment Date for
the APS (except during the Initial Dividend Period and during a Non-Call Period)
of such series at a redemption price of $25,000 per share plus accumulated and
unpaid dividends. In certain circumstances, the APS will be subject to mandatory
redemption by the Fund at a redemption price of $25,000 per share plus
accumulated and unpaid dividends. See "--REDEMPTION."

DIVIDENDS AND DIVIDEND PERIODS

The holders of APS will be entitled to receive, when, as and if declared by the
Board of Trustees, out of funds legally available therefor, cumulative cash
dividends on their shares, at the Applicable Rate determined as set forth below
under "--Calculation of dividend payment," payable on the dates set forth below.
Dividends on the APS so declared and payable will be paid in preference to and
in priority over any dividends so declared and payable on the Common Shares. The
following is a general description of dividends for the APS.

DIVIDEND PERIODS
The Initial Dividend Payment Date for each series of APS is set forth below. Any
subsequent Dividend Period will generally be seven (7) days for each series of
the APS; provided, however, that prior to any Auction, the Fund may elect,
subject to certain limitations described herein and upon giving notice to
Existing Holders, a Special Dividend Period. See "--Designation of Special
Dividend Periods."

DIVIDEND PAYMENT DATES
Dividends on the APS will be payable, when, as and if declared by the Fund's
Board of Trustees, out of legally available funds in accordance with the
Declaration of Trust, the By-laws and applicable law. Initial Dividend Payment
Dates are scheduled as follows:


<Table>
<Caption>
                                                               INITIAL DIVIDEND
                                                                   PAYMENT DATE
- -------------------------------------------------------------------------------
<S>                                                            <C>
Series A....................................................            , 2003
Series B....................................................            , 2003
</Table>



Following the Initial Dividend Payment Date, dividends on each series of APS
will be payable (i) with respect to any seven day Dividend Period or any
Short-Term Dividend Period of 35 or fewer days, on the Business Day next
succeeding the last day thereof or (ii) with respect to any Short-Term Dividend
Period of more than 35 days and with respect to any Long-Term Dividend Period,
monthly on the first Business Day of each calendar month during such Short-Term
Dividend Period or Long-Term Dividend Period and on the Business Day next
succeeding the last day thereof. If dividends are payable on a day that is not a
Business Day, then dividends will generally be payable on the next day if that
is a Business Day or as otherwise specified in the By-laws.


Dividends will be paid through the Securities Depository on each Dividend
Payment Date. The Securities Depository, in accordance with its current
procedures, is expected to distribute dividends received from the Fund in
next-day funds on each Dividend Payment Date to Agent Members. These

- --------------------------------------------------------------------------------
 34
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

Agent Members are in turn expected to distribute such dividends to the persons
for whom they are acting as agents. However, each of the current Broker-Dealers
has indicated to the Fund that dividend payments will be available in same-day
funds on each Dividend Payment Date to customers that use such Broker-Dealer or
that Broker-Dealer's designee as Agent Member.

CALCULATION OF DIVIDEND PAYMENT

The amount of cash dividends per share of APS of each series payable (if
declared) on the Initial Dividend Payment Date, the Dividend Payment Date of
each seven day Dividend Period and each Dividend Payment Date of each Short-Term
Dividend Period will be computed by multiplying the Applicable Rate for such
Dividend Period by a fraction, the numerator of which will be the number of days
in such Dividend Period or part thereof that such share of APS was outstanding
and for which dividends are payable on such Dividend Payment Date and the
denominator of which will be 365, multiplying the amount so obtained by $25,000
and rounding the amount so obtained to the nearest cent. During any Long-Term
Dividend Period, the amount of cash dividends per share of APS payable (if
declared) on any Dividend Payment Date will be computed by multiplying the
Applicable Rate for such Dividend Period by a fraction, the numerator of which
will be such number of days in such part of such Dividend Period that such share
of APS was outstanding and for which dividends are payable on such Dividend
Payment Date and the denominator of which will be 360, multiplying the amount so
obtained by $25,000 and rounding the amount so obtained to the nearest cent.



Dividends on APS will accumulate from the date of their original issue, which is
          , 2003. The initial dividend rate is      % for Series A APS. The
initial dividend rate is      % for Series B APS. For each Dividend Period after
the Initial Dividend Period, the dividend rate will be the dividend rate for a
series determined at Auction for such series, except that the dividend rate that
results from an Auction will not be greater than the Maximum Applicable Rate
described below.


Except during a Non-Payment Period, the Applicable Rate for any Dividend Period
for APS will not be more than the Maximum Applicable Rate applicable to such
shares. The Maximum Applicable Rate for each series of APS will depend on the
credit rating assigned to such series and on the duration of the Dividend
Period. The Maximum Applicable Rate will be the Applicable Percentage of the
Reference Rate. The Reference Rate is (i) with respect to any seven day Dividend
Period or any Short-Term Dividend Period having 182 or fewer days, the
applicable "AA" Financial Composite Commercial Paper Rate, (ii) with respect to
any Short-Term Dividend period having 183 or more but fewer than 364 days, the
applicable U.S. Treasury Bill Rate and (iii) with respect to any Long-Term
Dividend Period, the applicable U.S. Treasury Note Rate. The Applicable
Percentage will be determined based on the credit rating assigned on such date
to the APS by Moody's (or, if Moody's shall not make such rating available, the
equivalent of such rating by a Substitute Rating Agency).

APPLICABLE PERCENTAGE PAYMENT TABLE


<Table>
<Caption>
MOODY'S CREDIT RATINGS                                        APPLICABLE PERCENTAGE
- -----------------------------------------------------------------------------------
<S>                                                           <C>
Aaa.........................................................                   125%
Aa3 to Aa1..................................................                   150%
A3 to A1....................................................                   200%
Baa3 to Baa1................................................                   250%
Below Baa3..................................................                   300%
</Table>


Prior to each Dividend Payment Date, the Fund is required to deposit with the
Auction Agent sufficient funds for the payment of declared dividends. The
failure to make such deposit will not result in the cancellation of any Auction.
The Fund does not intend to establish any reserves for the payment of dividends.

- --------------------------------------------------------------------------------
                                                                              35
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS
While any of the APS are outstanding, the Fund, except as provided below, may
not declare, pay or set apart for payment any dividend or other distribution in
respect of its Common Shares. In addition, the Fund may not call for redemption
or redeem any of its Common Shares. However, the Fund is not confined by the
above restrictions if:

+  immediately after such transaction, the Discounted Value of the Fund's
   portfolio would be equal to or greater than the Preferred Shares Basic
   Maintenance Amount and the value of the Fund's portfolio would be equal to or
   greater than the 1940 Act Preferred Shares Asset Coverage (see "--RATING
   AGENCY GUIDELINES AND ASSET COVERAGE" below)

+  full cumulative dividends on each series of APS due on or prior to the date
   of the transaction have been declared and paid or shall have been declared
   and sufficient funds for the payment thereof deposited with the Auction Agent

+  the Fund has redeemed the full number of APS required to be redeemed by any
   provision for mandatory redemption contained in the By-laws

The Fund generally will not declare, pay or set apart for payment any dividend
on any class or series of shares of the Fund ranking, as to the payment of
dividends, on a parity with APS unless the Fund has declared and paid or
contemporaneously declares and pays full cumulative dividends on the APS through
its most recent dividend payment date. However, when the Fund has not paid
dividends in full upon the APS through the most recent dividend payment date or
upon any other class or series of shares of the Fund ranking, as to the payment
of dividends, on a parity with APS through their most recent respective dividend
payment dates, the amount of dividends declared per share on APS and such other
class or series of shares will in all cases bear to each other the same ratio
that accumulated dividends per share on the APS and such other class or series
of shares bear to each other.

DESIGNATION OF SPECIAL DIVIDEND PERIODS
The Fund, at its option and to the extent permitted by law, by telephonic and
written notice (a "Request for Special Dividend Period") to the Auction Agent
and to each Broker-Dealer, may request that the next succeeding Dividend Period
for the APS of a series will be a number of days (other than seven days) evenly
divisible by seven, and not fewer than fourteen nor more than 364 in the case of
a Short-Term Dividend Period or one whole year or more but not greater than five
years in the case of a Long-Term Dividend Period, specified in such notice,
provided that the Fund may not give a Request for Special Dividend Period (and
any such request will be null and void) unless, for any Auction occurring after
the initial Auction, Sufficient Clearing Bids were made in the last occurring
Auction and unless full cumulative dividends and any amounts due with respect to
redemptions have been paid in full and provided further that the Fund may not
request a Special Dividend Period that is a Long-Term Dividend Period unless the
Fund has received written confirmation from Moody's (or any Substitute Rating
Agency) that the Fund's election of a proposed Long-Term Dividend Period will
not impair the ratings then assigned by Moody's (or any Substitute Rating
Agency) of the applicable series of APS. Such Request for Special Dividend
Period, in the case of a Short-Term Dividend Period, shall be given on or prior
to the second Business Day but not more than seven Business Days prior to an
Auction date for the APS of that series and, in the case of a Long-Term Dividend
Period, shall be given on or prior to the second Business Day but not more than
28 days prior to an Auction Date for the APS of that series. Upon receiving such
Request for Special Dividend Period, the Broker-Dealers jointly shall determine
the Optional Redemption Price of the APS of that series during such Special
Dividend Period and the Specific Redemption Provisions and shall give the Fund
and the Auction Agent written notice (a "Response") of such determination by no
later than the second Business Day prior to such Auction Date. In making such
determination, the Broker-Dealers will consider (i) existing short-term and
long-term market rates and indices of such short-term and long-term rates, (ii)
existing market supply and demand for short-term and long-term securities, (iii)
existing yield curves for short-term

- --------------------------------------------------------------------------------
 36
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

and long-term securities comparable to the APS, (iv) industry and financial
conditions which may affect the APS of that series, (v) the investment objective
of the Fund and (vi) the Dividend Periods and dividend rates at which current
and potential beneficial holders of the APS would remain or become beneficial
holders.

After providing the Request for Special Dividend Period to the Auction Agent and
each Broker-Dealer as set forth above, the Fund, by no later than the second
Business Day prior to such Auction Date, may give a notice (a "Notice of Special
Dividend Period") to the Auction Agent, the Securities Depository and each
Broker-Dealer, which notice will specify the duration of the Special Dividend
Period. The Fund has agreed to provide a copy of such Notice of Special Dividend
Period to Moody's. The Fund will not give a Notice of Special Dividend Period
and, if such Notice of Special Dividend Period was given already, will give
telephonic and written notice of its revocation (a "Notice of Revocation") to
the Auction Agent, each Broker-Dealer and the Securities Depository on or prior
to the Business Day prior to the relevant Auction Date if (x) either the 1940
Act Preferred Shares Asset Coverage or the Preferred Shares Basic Maintenance
Amount is not satisfied on each of the two Business Days immediately preceding
the Business Day prior to the relevant Auction Date or (y) sufficient funds for
the payment of dividends payable on the immediately succeeding Dividend Payment
Date have not been irrevocably deposited with the Auction Agent by the close of
business on the third Business Day preceding the Auction Date immediately
preceding such Dividend Payment Date. If the Fund is prohibited from giving a
Notice of Special Dividend Period as a result of the factors enumerated in
clause (x) or (y) above or if the Fund gives a Notice of Revocation with respect
to a Notice of Special Dividend Period, the next succeeding Dividend Period for
that series will be a seven day Dividend Period. In addition, in the event
Sufficient Clearing Bids are not made in an Auction, or if an Auction is not
held for any reason, the next succeeding Dividend Period will be a seven day
Dividend Period, and the Fund may not again give a Notice of Special Dividend
Period (and any such attempted notice will be null and void) until Sufficient
Clearing Bids have been made in an Auction with respect to a seven day Dividend
Period.

NON-PAYMENT PERIOD AND LATE CHARGE
A "Failure to Deposit," with respect to shares of a series of APS, means a
failure by the Fund to pay to the Auction Agent, not later than 12:00 noon, New
York City time, (A) on the Business Day next preceding any Dividend Payment Date
for shares of such series, in funds available on such Dividend Payment Date in
the City of New York, New York, the full amount of any dividend (whether or not
earned or declared) to be paid on such Dividend Payment Date on any share of
such series or (B) on the Business Day next preceding any redemption date in
funds available on such redemption date for shares of such series in the City of
New York, New York, the redemption price to be paid on such redemption date for
any share of such series after notice of redemption is mailed; provided,
however, that the foregoing clause (B) shall not apply to the Fund's failure to
pay the redemption price in respect of APS when the related notice of redemption
provides that redemption of such shares is subject to one or more conditions
precedent and any such condition precedent shall not have been satisfied at the
time or times and in the manner specified in such notice of redemption. If a
Failure to Deposit occurs with respect to a series of APS but, prior to 12:00
noon, New York City time, on the third Business Day next succeeding the date on
which such Failure to Deposit occurred, such Failure to Deposit shall have been
cured, the Fund shall have paid to the Auction Agent a late charge ("Late
Charge") equal to the sum of (1) if such Failure to Deposit consisted of the
failure timely to pay to the Auction Agent the full amount of dividends with
respect to any Dividend Period of the shares of such series, an amount computed
by multiplying (x) 300% of the "AA" Financial Composite Commercial Paper Rate
for the period during which such Failure to Deposit occurs on the Dividend
Payment Date for such Dividend Period by (y) a fraction, the numerator of which
shall be the number of days for which such Failure to Deposit has not been cured
(including the day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which shall be 360,

- --------------------------------------------------------------------------------
                                                                              37
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

and applying the rate obtained against the aggregate liquidation preference of
the outstanding shares of such series and (2) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the redemption price
of the shares, if any, of such series for which notice of redemption has been
mailed by the Fund, an amount computed by multiplying (x) 300% of the "AA"
Financial Composite Commercial Paper Rate for the Rate Period during which such
Failure to Deposit occurs on the redemption date by (y) a fraction, the
numerator of which shall be the number of days for which such Failure to Deposit
is not cured (including the day such Failure to Deposit occurs and excluding the
day such Failure to Deposit is cured) and the denominator of which shall be 360,
and applying the rate obtained against the aggregate liquidation preference of
the outstanding shares of such series to be redeemed, and no Auction will be
held in respect of shares of such series for the subsequent rate period thereof
and the dividend rate for shares of such series for such subsequent rate period
will be the Maximum Applicable Rate for shares of such series on the Auction
Date for such subsequent rate period. If any Failure to Deposit shall have
occurred with respect to shares of such series during any Rate Period thereof,
and, prior to 12:00 noon, New York City time, on the third Business Day next
succeeding the date on which such Failure to Deposit occurred, such Failure to
Deposit shall not have been cured or the Fund shall not have paid the applicable
Late Charge to the Auction Agent, no Auction will be held in respect of shares
of such series for the first subsequent rate period thereafter (or for any Rate
Period thereafter to and including the Rate Period during which (1) such Failure
to Deposit is cured and (2) the Fund pays the applicable Late Charge to the
Auction Agent (the condition set forth in this clause (2) to apply only in the
event Moody's is rating such shares at the time the Fund cures such Failure to
Deposit), in each case no later than 12:00 noon, New York City time, on the
fourth Business Day prior to the end of such Rate Period) (a "Non-Payment
Period") and the dividend rate for shares of such series for each such
subsequent rate period shall be a rate per annum (the "Non-Payment Period Rate")
equal to 300% of the applicable "AA" Financial Composite Commercial Paper Rate,
provided that the Board of Trustees shall have the authority to adjust, modify,
alter or change from time to time such rate if the Board of Trustees determines
and Moody's (or any Substitute Rating Agency) advises the Fund in writing that
such adjustment, modification, alteration or change will not adversely affect
its then current ratings on the APS.

RATING AGENCY GUIDELINES AND ASSET COVERAGE


The Fund is required under Moody's guidelines to maintain assets having in the
aggregate a Discounted Value at least equal to the Preferred Shares Basic
Maintenance Amount. The Preferred Shares Basic Maintenance Amount is equal to
130% of the sum of (a) the aggregate liquidation preference of the APS then
outstanding, together with the aggregate liquidation preference on any other
series of APS and (b) certain accrued and projected dividend and other payment
obligations of the Fund. Moody's has established guidelines for determining
Discounted Value, which are described in the Statement of Additional
Information. The amount of discount from market value varies depending upon
functions such as the type of security, the maturity of the instrument and the
issuer's credit rating. The Moody's guidelines also impose certain
diversification requirements on the Fund's portfolio and other limitations on
the Fund's investments. To the extent any particular portfolio holding does not
satisfy Moody's guidelines, all or a portion of the holding's value will not be
included in the calculation of Discounted Value (as defined by Moody's). The
Moody's guidelines do not impose any limitations on the percentage of the Fund's
assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Fund's portfolio. The amount of
ineligible assets included in the Fund's portfolio at any time may vary
depending upon the rating, diversification and other characteristics of the
eligible assets included in the portfolio.


The Fund will be required under the By-laws to maintain, with respect to the
APS, as of the last Business Day of each month in which any APS are outstanding,
asset coverage of at least 200% with respect to senior securities which are
shares of beneficial interest in the Fund, including the APS (or

- --------------------------------------------------------------------------------
 38
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

such other asset coverage as in the future may be specified in or under the 1940
Act as the minimum asset coverage for senior securities which are shares of
beneficial interest of a closed-end investment company as a condition of paying
dividends on its common stock) ("1940 Act Preferred Shares Asset Coverage"). If
the Fund fails to maintain the 1940 Act Preferred Shares Asset Coverage and such
failure is not cured as of the last Business Day of the following month (the
"1940 Act Cure Date"), the Fund will be required under certain circumstances to
redeem certain of the APS. See "--REDEMPTION" below.


The 1940 Act Preferred Shares Asset Coverage immediately following the issuance
of APS offered hereby (after giving effect to the deduction of the sales load
and offering expenses for the APS), computed using the Fund's net assets as of
September 30, 2003, and assuming the APS with an aggregate liquidation
preference of $89 million had been issued as of such date, will be as follows:



<Table>
  <C>                                                  <S>  <C>            <C>  <C>
       Value of Fund assets less liabilities not
            constituting senior securities                   273,464,265
            ------------------------------             =      --------     =    307%
   Senior securities representing indebtedness plus          89,000,000
        liquidation value of the shares of APS
</Table>


In the event the Fund does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the Preferred Shares Basic
Maintenance Amount or (b) the 1940 Act Preferred Shares Asset Coverage, in each
case in accordance with the requirements of Moody's or a Substitute Rating
Agency, the Fund will be required by the By-laws to redeem shares of APS as
described under "--REDEMPTION--Mandatory redemption" below.

The Moody's guidelines restrict the Fund's use of some types of investment
strategies. For example, the guidelines, among other restrictions, limit the
Fund's use of futures, options and other derivative transactions and limit the
percentage of the Fund's assets that may be invested in any one issuer or type
or class of issuer.

The Moody's guidelines also prohibit the Fund from taking certain types of
actions unless it has received written confirmation from Moody's that such
actions would not impair the ratings then assigned to the APS. These include
restrictions on borrowing money, issuing any class or series of shares ranking
prior to or on a parity with the APS with respect to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up of the
Fund or merging or consolidating into or with any other entity.

The restrictions in the Moody's guidelines may limit the Fund's ability to make
investments that the Adviser believes would benefit the Fund. The descriptions
of the Moody's guidelines in this section are summaries only and are not
complete. The Moody's guidelines are described in greater detail in the
Statement of Additional Information and are set forth in their entirety in the
By-laws, which have been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.

The Fund may, but is not required to, adopt any modifications to Moody's
guidelines that may hereafter be established by Moody's. Failure to adopt any
such modifications, however, may result in a change in the ratings assigned to
the APS or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the APS may, at any time, change or withdraw any such
rating. The Board of Trustees may, without shareholder approval, amend, alter or
repeal any or all of the definitions and related provisions which have been
adopted by the Fund pursuant to Moody's guidelines in the event Moody's is no
longer rating the APS or the Fund receives written confirmation from Moody's or
a Substitute Rating Agency that any such amendment, alteration or repeal would
not impair the rating then assigned to the APS.

As described by Moody's, a preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock obligations. The
rating on the APS is not a recommendation to purchase, hold or sell those
shares, inasmuch as the rating does not comment as to market price or

- --------------------------------------------------------------------------------
                                                                              39
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

suitability for a particular investor. The Moody's guidelines described above
also do not address the likelihood that an owner of APS will be able to sell
such shares in an Auction or otherwise. The rating is based on current
information furnished to Moody's by the Fund and/or the Adviser and information
obtained from other sources. The rating may be changed, suspended or withdrawn
as a result of changes in, or the unavailability of, such information. The
Common Shares have not been rated by Moody's.

The Moody's guidelines will apply to the APS only so long as Moody's is rating
APS. The Fund will pay certain fees to Moody's for rating the APS. The Fund may
at some future time seek to have the APS rated by an additional or Substitute
Rating Agency.

REDEMPTION

MANDATORY REDEMPTION

The Fund is required to maintain (a) a Discounted Value of eligible portfolio
securities at least equal to the Preferred Shares Basic Maintenance Amount and
(b) asset coverage of at least equal to the 1940 Act Preferred Shares Asset
Coverage. Eligible portfolio securities for purposes of the Preferred Shares
Basic Maintenance Amount and their Discounted Value will be determined from time
to time by the rating agency then rating the APS. The guidelines currently in
effect are described under "--RATING AGENCY GUIDELINES AND ASSET COVERAGE" above
and in the Statement of Additional Information. If the Fund fails to maintain
the 1940 Act Preferred Shares Asset Coverage and eligible portfolio securities
with a Discounted Value equal to the Preferred Shares Basic Maintenance Amount
and does not timely cure such failure in accordance with the requirements of the
rating agency that rates the APS, the Fund must redeem all or a portion of the
APS. This mandatory redemption will take place on a date that the Fund's Board
of Trustees specifies out of legally available funds, in accordance with the
Declaration of Trust, the By-laws and applicable law, at the redemption price of
$25,000 per share plus accumulated but unpaid dividends (whether or not earned
or declared) to (but not including) the date fixed for redemption. The mandatory
redemption will be limited to the number of APS necessary, after giving effect
to such redemption, to cause the Discounted Value of the Fund's portfolio to
equal or exceed the Preferred Shares Basic Maintenance Amount, and the value of
the Fund's portfolio to equal or exceed the 1940 Act Preferred Shares Asset
Coverage. In determining the number of APS required to be redeemed in accordance
with the foregoing, the Fund will allocate the number of APS required to be
redeemed to satisfy the Preferred Shares Basic Maintenance Amount or the 1940
Act Preferred Shares Asset Coverage, as the case may be, pro rata among the
series of APS and any other preferred shares of the Fund subject to redemption
or retirement. The Fund shall effect such redemption on the date fixed by the
Fund, which date shall not be earlier than 20 days nor later than 40 days after
the applicable cure date, except if the Fund does not have funds legally
available therefor. If fewer than all outstanding series of APS are, as a
result, to be redeemed, the Fund may redeem such shares by lot or other method
that it deems fair and equitable.


OPTIONAL REDEMPTION
To the extent permitted under the 1940 Act and Massachusetts law, the Fund at
its option may, without the consent of the holders of APS, redeem APS, in whole
or in part, on the Business Day after the last day of such Dividend Period upon
not less than 15 calendar days' and not more than 40 calendar days' prior notice
at the optional redemption price per share; provided that no APS may be redeemed
at the option of the Fund during (a) the Initial Dividend Period or (b) a
Non-Call Period to which such APS are subject. The optional redemption price per
share will be $25,000 per share, plus an amount equal to accumulated but unpaid
dividends thereon (whether or not declared) to the date fixed for redemption
plus any applicable redemption premium attributable to the designation of a
Premium Call Period. The Fund will not make any optional redemption unless,
after giving effect thereto, (i) the Fund has available certain deposit
securities with maturities or tender dates not later than the day preceding the
applicable redemption date and having a value not less than the amount

- --------------------------------------------------------------------------------
 40
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

(including any applicable premium) due to holders of the APS of such series by
reason of the redemption of the APS on such date fixed for the redemption and
(ii) the Fund has eligible assets with an aggregate Discounted Value at least
equal to the Preferred Shares Basic Maintenance Amount. Notwithstanding the
foregoing, APS may not be redeemed at the option of the Fund unless all
dividends in arrears on the outstanding preferred shares, including all
outstanding APS, have been or are being contemporaneously paid or set aside for
payment. This would not prevent the lawful purchase or exchange offer for APS
made on the same terms to holders of all outstanding preferred shares.

LIQUIDATION

If the Fund is liquidated, the holders of any series of outstanding APS will
receive the liquidation preference on such series, plus all accumulated but
unpaid dividends, before any payment is made to the holders of Common Shares.
The holders of APS will be entitled to receive these amounts from the assets of
the Fund available for distribution to its shareholders. In addition, the rights
of holders of APS to receive these amounts are subject to the rights of holders
of any series or class of shares, including other series of preferred shares,
ranking on a parity with the APS with respect to the distribution of assets upon
liquidation of the Fund. After the payment to the holders of APS of the full
preferential amounts as described, the holders of APS will have no right or
claim to any of the remaining assets of the Fund.

For purpose of the foregoing paragraph, a voluntary or involuntary liquidation
of the Fund does not include:

+  the sale, lease or exchange of all or substantially all the property or
   assets of the Fund;

+  the merger or consolidation of the Fund into or with any other business
   trust, corporation or other organization; or

+  the merger or consolidation of any other business trust or corporation into
   or with the Fund.

In addition, none of the foregoing would result in the Fund being required to
redeem any APS if after such transaction the Fund continued to comply with the
rating agency guidelines and asset coverage ratios.

VOTING RIGHTS

Except as otherwise provided in this Prospectus or as otherwise required by law,
holders of APS will have equal voting rights with holders of Common Shares and
any other preferred shares (one vote per share) and will vote together with
holders of Common Shares and any preferred shares as a single class.

Holders of outstanding preferred shares, including APS, voting as a separate
class, are entitled to elect two of the Fund's Trustees. The remaining Trustees
are elected by holders of Common Shares. In addition, if at any time dividends
(whether or not earned or declared) on outstanding preferred shares, including
APS, are due and unpaid in an amount equal to two full years of dividends, and
sufficient cash or specified securities have not been deposited with the Auction
Agent for the payment of such dividends, then, the sole remedy of holders of
outstanding preferred shares, including APS, is that the number of Trustees
constituting the Board will be automatically increased by the smallest number
that, when added to the two Trustees elected exclusively by the holders of
preferred shares, including APS, as described above, would constitute a majority
of the Board. The holders of preferred shares, including APS, will be entitled
to elect that smallest number of additional Trustees at a special meeting of
shareholders as soon as possible and at all subsequent meetings at which
Trustees are to be elected. The terms of office of the persons who are Trustees
at the time of that election will continue. If the Fund thereafter shall pay, or
declare and set apart for payment, in full, all dividends payable on all
outstanding preferred shares, including APS, the special voting rights stated
above will cease, and the

- --------------------------------------------------------------------------------
                                                                              41
<PAGE>
DESCRIPTION OF PREFERRED SHARES
- --------------------------------------------------------------------------------

terms of office of the additional Trustees elected by the holders of preferred
shares, including APS, will automatically terminate.

As long as any APS are outstanding, the Fund will not, without the affirmative
vote or consent of the holders of at least a majority of the APS outstanding at
the time (voting together as a separate class):

(a) authorize, create or issue any class or series of shares ranking prior to or
on a parity with the APS with respect to payment of dividends or the
distribution of assets on dissolution, liquidation or winding up the affairs of
the Fund, or authorize, create or issue additional shares of any series of APS
or any other preferred shares, unless, in the case of preferred shares on a
parity with the APS, the Fund obtains written confirmation from Moody's (if
Moody's is then rating the APS) or any Substitute Rating Agency (if any such
Substitute Rating Agency is then rating the APS) that the issuance of a class or
series would not impair the rating then assigned by such rating agency to the
APS and the Fund continues to comply with Section 13 of the 1940 Act, the 1940
Act Preferred Shares Asset Coverage requirements and the Preferred Shares Basic
Maintenance Amount requirements, in which case the vote or consent of the
holders of the APS is not required;

(b) amend, alter or repeal the provisions of the Declaration of Trust or the
By-laws, whether by merger, consolidation or otherwise, so as to adversely
affect any preference, right or power of the APS or holders of APS; provided,
however, that (i) none of the actions permitted by the exception to (a) above
will be deemed to affect such preferences, rights or powers, (ii) a division of
APS will be deemed to affect such preferences, rights or powers only if the
terms of such division adversely affect the holders of APS and (iii) the
authorization, creation and issuance of classes or series of shares ranking
junior to the APS with respect to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up of the affairs of the Fund
will be deemed to affect such preferences, rights or powers only if Moody's is
then rating the APS and such issuance would, at the time thereof, cause the Fund
not to satisfy the 1940 Act Preferred Shares Asset Coverage or the Preferred
Shares Basic Maintenance Amount;

(c) authorize the Fund's conversion from a closed-end to an open-end investment
company;

(d) approve any reorganization (as such term is used in the 1940 Act) adversely
affecting the APS.

So long as any shares of the APS are outstanding, the Fund shall not, without
the affirmative vote or consent of the holders of at least 66 2/3% of the APS
outstanding at the time, in person or by proxy, either in writing or at a
meeting, voting as a separate class, file a voluntary application for relief
under federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent.

To the extent permitted under the 1940 Act, the Fund will not approve any of the
actions set forth in (a) or (b) above which adversely affects the rights
expressly set forth in the Declaration of Trust or the By-laws of a holder of
shares of a series of preferred shares differently than those of a holder of
shares of any other series of preferred shares without the affirmative vote or
consent of the holders of at least a majority of the shares of each series
adversely affected. Unless a higher percentage is provided for under the
Declaration of Trust or the By-laws, the affirmative vote of the holders of a
majority of the outstanding APS, voting together as a single class, will be
required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act.

The foregoing voting provisions will not apply with respect to APS if, at or
prior to the time when a vote is required, such shares have been (i) redeemed or
(ii) called for redemption and sufficient funds have been deposited in trust to
effect such redemption.

- --------------------------------------------------------------------------------
 42
<PAGE>

- --------------------------------------------------------------------------------

The Auction

GENERAL

Holders of the APS will be entitled to receive cumulative cash dividends on
their APS when, as and if declared by the Fund's Board of Trustees, out of the
funds legally available therefor, on the Initial Dividend Payment Date with
respect to the Initial Dividend Period for each series and, thereafter, on each
Dividend Payment Date with respect to a Subsequent Dividend Period (generally a
period of seven days, subject to certain exceptions set forth under "Description
of the Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS"), at the rate per annum
equal to the Applicable Rate for each such Dividend Period.

The provisions of the By-laws establishing the terms of the APS offered hereby
will provide that the Applicable Rate for each Dividend Period after the Initial
Dividend Period for each series will be equal to the rate per annum that the
Auction Agent advises has resulted on the Business Day preceding the first day
of such Dividend Period due to implementation of the Auction Procedures set
forth in the By-laws in which persons determine to hold or offer to purchase or
sell the APS. The Auction Procedures are attached as Appendix D to the Statement
of Additional Information. Each periodic operation of such procedures with
respect to the APS is referred to herein as an "Auction." If, however, the Fund
should fail to pay or duly provide for the full amount of any dividend on or the
redemption price of the APS called for redemption, the Applicable Rate for the
APS will be determined as set forth under "Description of Preferred
Shares--DIVIDENDS AND DIVIDEND PERIODS--Non-Payment Period and Late Charge."

AUCTION AGENCY AGREEMENT

The Fund will enter into the Auction Agency Agreement with the Auction Agent
(currently, Deutsche Bank Trust Company Americas), which provides, among other
things, that the Auction Agent will follow the Auction Procedures to determine
the Applicable Rate for the APS. The Fund will pay the Auction Agent
compensation for its services under the Auction Agency Agreement.

The Auction Agent will act as agent for the Fund in connection with Auctions. In
the absence of bad faith or negligence on its part, the Auction Agent will not
be liable for any action taken, suffered or omitted, or for any error of
judgment made, by it in the performance of its duties under the Auction Agency
Agreement and will not be liable for any error of judgment made in good faith
unless the Auction Agent shall have been negligent in ascertaining the pertinent
facts. Pursuant to the Auction Agency Agreement, the Fund is required to
indemnify the Auction Agent for certain losses and liabilities incurred by the
Auction Agent without negligence or bad faith on its part in connection with the
performance of its duties under such agreement.

The Auction Agent may terminate the Auction Agency Agreement upon notice to the
Fund no earlier than 60 days after delivery of said notice. If the Auction Agent
should resign, the Fund will use its best efforts to enter into an agreement
with a successor Auction Agent containing substantially the same terms and
conditions as the Auction Agency Agreement. The Fund may remove the Auction
Agent provided that, prior to removal, the Fund has entered into a replacement
agreement with a successor Auction Agent.

BROKER-DEALER AGREEMENTS

Each Auction requires the participation of one or more Broker-Dealers. The
Auction Agent will enter into agreements with several Broker-Dealers, or other
entities permitted by law to perform the functions required of a Broker-Dealer
in the Auction Procedures, selected by the Fund, which provide for the
participation of those Broker-Dealers in Auctions for APS. The Auction Agent
will pay to each Broker-Dealer after each Auction, from funds provided by the
Fund, a service charge at the annual

- --------------------------------------------------------------------------------
                                                                              43
<PAGE>
THE AUCTION
- --------------------------------------------------------------------------------

rate: (i) for any seven day Dividend Period, 0.25% of the liquidation preference
($25,000 per share) of the APS held by a Broker-Dealer's customer upon
settlement in an Auction and (ii) for any Special Dividend Period, as determined
by mutual consent of the Fund and any such Broker-Dealer or Broker-Dealers and
which shall be based upon a selling concession that would be applicable to an
underwriting of fixed or variable rate preferred shares with a similar fixed
maturity or variable rate dividend period, respectively, at the commencement of
the Dividend Period with respect to such Auction.


The Fund may request that the Auction Agent terminate one or more Broker-Dealer
agreements at any time upon five days' notice, provided that at least one
Broker-Dealer agreement is in effect after termination of the agreement, and
provided that the Broker-Dealer Agreement with UBS Securities LLC may not be
terminated without the prior written consent of the Fund, which consent may not
be unreasonably withheld.


SECURITIES DEPOSITORY

The Depository Trust Company initially will act as the Securities Depository for
the Agent Members with respect to the APS. All of the shares of APS initially
will be registered in the name of Cede & Co., as nominee of the Securities
Depository. Such APS will be subject to the provisions restricting transfers of
APS, and Beneficial Owners will not be entitled to receive certificates
representing their ownership interest in such APS. See Appendix D (Auction
Procedures) to the Statement of Additional Information. The Securities
Depository will maintain lists of its participants and will maintain the
positions (ownership interests) of the APS held by each Agent Member, whether as
the Beneficial Owner thereof for its own account or as nominee for the
Beneficial Owner thereof. Payments made by the Fund to holders of APS will be
duly made by making payments to the nominee of the Securities Depository.

AUCTION PROCEDURES

The following is a brief summary of the procedures to be used in conducting
Auctions. This summary is qualified by reference to the Auction Procedures set
forth in Appendix D to the Statement of Additional Information. The Settlement
Procedures to be used with respect to Auctions are set forth in Appendix E to
the Statement of Additional Information.

ORDERS BY BENEFICIAL OWNERS, POTENTIAL BENEFICIAL OWNERS, EXISTING HOLDERS AND
POTENTIAL HOLDERS
Prior to the submission deadline on each Auction Date for the APS, each customer
of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if
applicable, the Auction Agent) as a Beneficial Owner of APS may submit the
following types of orders with respect to that Broker-Dealer:


+  Hold Order--indicating its desire to hold the APS of such series without
   regard to the Applicable Rate for the next Dividend Period for such APS.



+  Bid--indicating its desire to hold the APS of such series, provided that the
   Applicable Rate for the next Dividend Period for such APS is not less than
   the rate per annum specified in such Bid.



+  Sell Order--indicating its desire to sell the APS of such series without
   regard to the Applicable Rate for the next Dividend Period for such APS.


A Beneficial Owner may submit different types of orders to its Broker-Dealer
with respect to different shares of APS then held by the Beneficial Owner. A
Beneficial Owner that submits its bid to its Broker-Dealer having a rate higher
than the Maximum Applicable Rate on the Auction Date will be treated as having
submitted a Sell Order to its Broker-Dealer. A Beneficial Owner that fails to
submit an order to its Broker-Dealer will ordinarily be deemed to have submitted
a Hold Order to its Broker-Dealer. However, if a Beneficial Owner fails to
submit an order to its Broker-Dealer for an Auction relating to a Dividend
Period of more than 91 days such Beneficial Owner will be deemed to have
submitted a

- --------------------------------------------------------------------------------
 44
<PAGE>
THE AUCTION
- --------------------------------------------------------------------------------

Sell Order to its Broker-Dealer. A Sell Order constitutes an irrevocable offer
to sell the APS subject to the Sell Order. A Beneficial Owner that offers to
become the Beneficial Owner of additional APS is, for purposes of such offer, a
Potential Holder as discussed below.

A Potential Holder is either a customer of a Broker-Dealer that is not a
Beneficial Owner of a series of APS but that wishes to purchase APS or that is a
Beneficial Owner that wishes to purchase additional APS. A Potential Holder may
submit Bids to its Broker-Dealer in which it offers to purchase APS at $25,000
per share if the Applicable Rate for APS for the next Dividend Period is not
less than the specified rate in such Bid. A Bid placed by a Potential Holder of
APS specifying a rate higher than the Maximum Applicable Rate for APS on the
Auction Date will not be accepted.

The Broker-Dealers in turn will submit the orders of their respective customers
who are Beneficial Owners and Potential Holders to the Auction Agent. They will
designate themselves (unless otherwise permitted by the Fund) as Existing
Holders of APS subject to orders submitted or deemed submitted to them by
Beneficial Owners. They will designate themselves as Potential Holders of APS
subject to orders submitted to them by Potential Holders. However, neither the
Fund nor the Auction Agent will be responsible for a Broker-Dealer's failure to
comply with these procedures. Any order placed with the Auction Agent by a
Broker-Dealer as or on behalf of an Existing Holder or a Potential Holder will
be treated the same way as an order placed with a Broker-Dealer by a Beneficial
Owner or Potential Holder. Similarly, any failure by a Broker-Dealer to submit
to the Auction Agent an order for any APS held by it or customers who are
Beneficial Owners will be treated as a Beneficial Owner's failure to submit to
its Broker-Dealer an order in respect of APS held by it. A Broker-Dealer may
also submit orders to the Auction Agent for its own account as an Existing
Holder or Potential Holder, provided it is not an affiliate of the Fund.

There are Sufficient Clearing Bids in an Auction if the number of APS subject to
Bids submitted or deemed submitted to the Auction Agent by Broker-Dealers for
Potential Holders with rates or spreads equal to or lower than the Maximum
Applicable Rate is at least equal to or exceeds the sum of the number of APS
subject to Sell Orders and the number of shares subject to Bids specifying rates
or spreads higher than the Maximum Applicable Rate submitted or deemed submitted
to the Auction Agent by Broker-Dealers for Existing Holders. If there are
Sufficient Clearing Bids, the Applicable Rate for the next succeeding Dividend
Period thereof will be the lowest rate specified in the submitted Bids, which,
taking into account such rate and all lower rates bid by Broker-Dealers as or on
behalf of Existing Holders and Potential Holders, would result in Existing
Holders and Potential Holders owning the APS available for purchase in the
Auction.


If there are not Sufficient Clearing Bids, the Applicable Rate for the next
Dividend Period will be the Maximum Applicable Rate on the Auction Date.
However, if the Fund has declared a Special Dividend Period and there are not
Sufficient Clearing Bids, the election of a Special Dividend Period will not be
effective and the Applicable Rate for the next Dividend Period will be the
Applicable Rate determined on the previous Auction Date same as during the
Dividend Period. If there are not Sufficient Clearing Bids, Beneficial Owners of
APS that have submitted or are deemed to have submitted Sell Orders may not be
able to sell in the Auction all APS subject to such Sell Orders. If all of the
applicable outstanding APS are the subject of submitted Hold Orders (or Hold
Orders deemed to have been submitted), then the Dividend Period will be a seven
day Dividend Period and the Applicable Rate for the next Dividend Period will be
the "AA" Financial Composite Commercial Paper Rate for a seven day Dividend
Period.



The Auction Procedures include a pro rata allocation of APS for purchase and
sale which may result in an Existing Holder continuing to hold or selling, or a
Potential Holder purchasing, a number of APS that is different than the number
specified in its order. To the extent the allocation procedures have that
result, Broker-Dealers that have designated themselves as Existing Holders or
Potential Holders in


- --------------------------------------------------------------------------------
                                                                              45
<PAGE>
THE AUCTION
- --------------------------------------------------------------------------------

respect of customer orders will be required to make appropriate pro rata
allocations among their respective customers.


If an Auction Date is not a Business Day because the New York Stock Exchange is
closed for business due to an act of God, a natural disaster, an act of war, a
civil or military disturbance, an act of terrorism, sabotage, riots or a loss or
malfunction of utilities or communications services, or the Auction Agent is not
able to conduct an Auction in accordance with the Auction Procedures for any
such reason, then the Applicable Rate for the next Dividend Period will be the
Applicable Rate determined on the previous Auction Date.



If a Dividend Payment Date is not a Business Day because the New York Stock
Exchange is closed for business due to an act of God, a natural disaster, an act
of war, a civil or military disturbance, an act of terrorism, sabotage, riots or
a loss or malfunction of utilities or communications services, or the dividend
payable on such date can not be paid for any such reason, then:


+  the Dividend Payment Date for the affected Dividend Period will be the next
   Business Day on which the Fund and its paying agent, if any, are able to
   cause the dividend to be paid using their reasonable best efforts

+  the affected Dividend Period will end on the day it otherwise would have
   ended

+  the next Dividend Period will begin and end on the dates on which it
   otherwise would have begun and ended.

The following is a simplified example of how a typical Auction works. Assume
that the Fund has 1,000 outstanding APS and three Existing Holders. The three
Existing Holders and three Potential Holders submit orders through
Broker-Dealers at the Auction:

<Table>
<S>                          <C>                           <C>
Existing Holder A..........  Owns 500 shares, wants to     Bid of 2.1% rate for all
                             sell all 500 shares if        500 shares
                             Applicable Rate is less
                             than 2.1%
Existing Holder B..........  Owns 300 shares, wants to     Hold Order--will take the
                             hold                          Applicable Rate
Existing Holder C..........  Owns 200 shares, wants to     Bid of 1.9% rate for all
                             sell all 200 shares if        200 shares
                             Applicable Rate is less
                             than 1.9%
Potential Holder D.........  Wants to buy 200 shares       Place order to buy at or
                                                           above 2.0%
Potential Holder E.........  Wants to buy 300 shares       Place order to buy at or
                                                           above 1.9%
Potential Holder F.........  Wants to buy 200 shares       Place order to buy at or
                                                           above 2.1%
</Table>

The lowest dividend rate that will result in all 1,000 APS continuing to be held
is 2.0% (the offer by D). For the purposes of the example, the lowest dividend
rate is 2.0% at which there is Sufficient Clearing Bids and, therefore, the
dividend rate will be 2.0%. Existing Holders B and C will continue to own their
shares. Existing Holder A will sell its shares because A's bid was higher than
the Applicable Rate. Potential Holder D will buy 200 shares and Potential Holder
E will buy 300 shares because their bid rates were at or below the Applicable
Rate. Potential Holder F will not buy any shares because its bid rate was above
the dividend rate.

SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT
Prior to 1:30 p.m., New York City time, on each Auction Date, or such other time
on the Auction Date as may be specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will

- --------------------------------------------------------------------------------
 46
<PAGE>
THE AUCTION
- --------------------------------------------------------------------------------

submit to the Auction Agent in writing or through the Auction Agent's auction
processing system all Orders obtained by it for the Auction for a series of APS
to be conducted on such Auction Date, designating itself (unless otherwise
permitted by the Fund) as the Existing Holder or Potential Holder in respect of
the APS subject to such Orders. Any Order submitted by a Beneficial Owner or a
Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, prior to the Submission Deadline for any Auction Date, shall be
irrevocable.

If the rate per annum specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate per annum
up to the next highest one-thousandth (.001) of one-percent. If one or more
Orders of an Existing Holder are submitted to the Auction Agent and such Orders
cover in the aggregate more than the number of outstanding shares of APS held by
such Existing Holder, such Orders will be considered valid in the following
order of priority:

(i) any Hold Order will be considered valid up to and including the number of
outstanding APS held by such Existing Holder, provided that if more than one
Hold Order is submitted by such Existing Holder and the number of APS subject to
such Hold Orders exceeds the number of outstanding APS held by such Existing
Holder, the number of APS subject to each of such Hold Orders will be reduced
pro rata so that such Hold Orders, in the aggregate, will cover exactly the
number of outstanding APS held by such Existing Holder;

(ii) any Bids will be considered valid, in the ascending order of their
respective rates per annum if more than one Bid is submitted by such Existing
Holder, up to and including the excess of the number of outstanding APS held by
such Existing Holder over the number of outstanding APS subject to any Hold
Order referred to in clause (i) above (and if more than one Bid submitted by
such Existing Holder specifies the same rate per annum and together they cover
more than the remaining number of shares that can be the subject of valid Bids
after application of clause (i) above and of the foregoing portion of this
clause (ii) to any Bid or Bids specifying a lower rate or rates per annum, the
number of shares subject to each of such Bids will be reduced pro rata so that
such Bids, in the aggregate, cover exactly such remaining number of outstanding
shares); and the number of outstanding shares, if any, subject to Bids not valid
under this clause (ii) shall be treated as the subject of a Bid by a Potential
Holder; and

(iii) any Sell Order will be considered valid up to and including the excess of
the number of outstanding APS held by such Existing Holder over the sum of the
number of APS subject to Hold Orders referred to in clause (i) above and the
number of APS subject to valid Bids by such Existing Holder referred to in
clause (ii) above; provided that, if more than one Sell Order is submitted by
any Existing Holder and the number of APS subject to such Sell Orders is greater
than such excess, the number of APS subject to each of such Sell Orders will be
reduced pro rata so that such Sell Orders, in the aggregate, will cover exactly
the number of APS equal to such excess.

If more than one Bid of any Potential Holder is submitted in any Auction, each
Bid submitted in such Auction will be considered a separate Bid with the rate
per annum and number of APS therein specified.

NOTIFICATION OF RESULTS AND SETTLEMENT
The Auction Agent will advise each Broker-Dealer who submitted a Bid or Sell
Order in an Auction whether such Bid or Sell Order was accepted or rejected in
whole or in part and of the Applicable Rate for the next Dividend Period for the
related APS by telephone or through the Auction Agent's auction processing
system at approximately 3:00 p.m., New York City time, on the Auction Date for
such Auction. Each such Broker-Dealer that submitted an Order for the account of
a customer then will advise such customer whether such Bid or Sell Order was
accepted or rejected, will confirm purchases and sales with each customer
purchasing or selling APS as a result of the Auction and will advise each
customer purchasing or selling APS to give instructions to its Agent Member of
the Securities Depository to pay the purchase price against delivery of such
shares or to deliver such shares

- --------------------------------------------------------------------------------
                                                                              47
<PAGE>
THE AUCTION
- --------------------------------------------------------------------------------

against payment therefor as appropriate. If a customer selling APS as a result
of an Auction fails to instruct its Agent Member to deliver such shares, the
Broker-Dealer that submitted such customer's Bid or Sell Order will instruct
such Agent Member to deliver such shares against payment therefor. Each
Broker-Dealer that submitted a Hold Order in an Auction on behalf of a customer
also will advise such customer of the Applicable Rate for the next Dividend
Period for the APS. The Auction Agent will record each transfer of APS on the
record book of Existing Holders to be maintained by the Auction Agent.

In accordance with the Securities Depository's normal procedures, on the day
after each Auction Date, the transactions described above will be executed
through the Securities Depository, and the accounts of the respective Agent
Members at the Securities Depository will be debited and credited as necessary
to effect the purchases and sales of APS as determined in such Auction.
Purchasers will make payment through their Agent Members in same-day funds to
the Securities Depository against delivery through their Agent Members; the
Securities Depository will make payment in accordance with its normal
procedures, which now provide for payment in same-day funds. If the procedures
of the Securities Depository applicable to APS shall be changed to provide for
payment in next-day funds, then purchasers may be required to make payment in
next-day funds. If the certificates for the APS are not held by the Securities
Depository or its nominee, payment will be made in same-day funds to the Auction
Agent against delivery of such certificates.

If any Existing Holder selling APS in an Auction fails to deliver such APS, the
Broker-Dealer of any person that was to have purchased APS in such Auction may
deliver to such person a number of whole APS that is less than the number of APS
that otherwise was to be purchased by such person. In such event, the number of
APS to be so delivered will be determined by such Broker-Dealer. Delivery of
such lesser number of APS will constitute good delivery. Each Broker-Dealer
Agreement also will provide that neither the Fund nor the Auction Agent will
have responsibility or liability with respect to the failure of a Beneficial
Owner, Potential Beneficial Owner or their respective Agent Members to deliver
APS or to pay for APS purchased or sold pursuant to an Auction or otherwise.

BROKER-DEALERS


The Auction Agent after each Auction will pay a service charge from funds
provided by the Fund to each Broker-Dealer on the basis of the purchase price of
APS placed by such Broker-Dealer at such Auction. The service charge (i) for any
seven day Dividend Period shall be payable at the annual rate of 0.25% of the
purchase price of the APS placed by such Broker-Dealer in any such Auction and
(ii) for any Special Dividend Period shall be determined by mutual consent of
the Fund and any such Broker-Dealer or Broker-Dealers and shall be based upon a
selling concession that would be applicable to an underwriting of fixed or
variable rate preferred shares with a similar final maturity or variable rate
dividend period, respectively, at the commencement of the Dividend Period with
respect to such Auction. For the purposes of the preceding sentence, the APS
will be placed by a Broker-Dealer if such shares were (i) the subject of Hold
Orders deemed to have been made by Beneficial Owners that were acquired by such
Beneficial Owners through such Broker-Dealer or (ii) the subject of the
following Orders submitted by such Broker-Dealer: (A) a submitted Bid of a
Beneficial Owner that resulted in such Beneficial Owner continuing to hold such
APS as a result of the Auction, (B) a Submitted Bid of a Potential Beneficial
Owner that resulted in such Potential Beneficial Owner purchasing such APS as a
result of the Auction or (C) a Submitted Hold Order.


The Broker-Dealer Agreements provide that a Broker-Dealer may submit Orders in
Auctions for its own account, unless the Fund notifies all Broker-Dealers that
they no longer may do so; provided that Broker-Dealers may continue to submit
Hold Orders and Sell Orders. If a Broker-Dealer submits an Order for its own
account in any Auction of APS, it may have knowledge of Orders placed through it
in that Auction and therefore have an advantage over other Bidders, but such
Broker-Dealer would not have knowledge of Orders submitted by other
Broker-Dealers in that Auction.

- --------------------------------------------------------------------------------
 48
<PAGE>
THE AUCTION
- --------------------------------------------------------------------------------

SECONDARY MARKET TRADING AND TRANSFERS OF PREFERRED SHARES
The Broker-Dealers are expected to maintain a secondary trading market in APS
outside of Auctions, but are not obligated to do so, and may discontinue such
activity at any time. There can be no assurance that any secondary trading
market in APS will provide owners with liquidity of investment. The APS will not
be registered on any stock exchange or on the Nasdaq National Market.

Investors who purchase APS in an Auction (particularly if the Fund has declared
a Special Dividend Period) should note that because the dividend rate on such
shares will be fixed for the length of that Dividend Period, the value of such
shares may fluctuate in response to the changes in interest rates, and may be
more or less than their original cost if sold on the open market in advance of
the next Auction thereof, depending on market conditions.

A Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose
of APS only in whole shares and only:

+  pursuant to a Bid or Sell Order placed with the Auction Agent in accordance
   with the Auction Procedures

+  to a Broker-Dealer

+  to such other persons as may be permitted by the Fund; provided, however,
   that a sale, transfer or other disposition of APS from a customer of a
   Broker-Dealer who is listed on the records of that Broker-Dealer as the
   holder of such shares to that Broker-Dealer or another customer of that
   Broker-Dealer shall not be deemed to be a sale, transfer or other disposition
   if such Broker-Dealer remains the Existing Holder of the shares; and in the
   case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
   other person, if permitted by the Fund) to whom such transfer is made will
   advise the Auction Agent of such transfer

Management of the Fund

TRUSTEES AND OFFICERS

The Fund's Board of Trustees provides broad supervision over the affairs of the
Fund. The officers of the Fund are responsible for the Fund's operations. The
Trustees and officers of the Fund, together with their principal occupations
during the past five years, are listed in the Statement of Additional
Information.

INVESTMENT ADVISER


John Hancock Advisers, LLC, located at 101 Huntington Avenue, Boston,
Massachusetts 02199, has served as the Fund's investment adviser since the
commencement of the Fund's operations in 1973. The Adviser also serves as the
investment adviser to several other closed-end investment companies and open-end
investment companies which focus on investing in intermediate and long-term
fixed income securities. These funds include John Hancock Investors Trust, John
Hancock Bond Fund, John Hancock Government Income Fund, John Hancock High Income
Fund, John Hancock High Yield Bond Fund, John Hancock Investment Grade Bond
Fund, and John Hancock Strategic Income Fund. The Adviser also serves as the
investment adviser to several leveraged dual-class, closed-end investment
companies which focus on investing in preferred stocks and other securities.
These leveraged dual-class funds include John Hancock Preferred Income Fund,
John Hancock Preferred Income Fund II, John Hancock Preferred Income Fund III,
John Hancock Patriot Premium Dividend Fund I, John Hancock Patriot Premium
Dividend Fund II, John Hancock Patriot Select Dividend Trust, John Hancock
Patriot Preferred Dividend Fund and John Hancock Patriot Global Dividend Fund.
The Adviser was organized in 1968 and had, as of June 30, 2003, approximately
$27.5 billion in assets under management, of which approximately $12.6 billion
was invested in fixed income securities. The Adviser manages approximately $3.4
billion in leveraged dual-class funds. The Adviser is an indirect wholly-owned


- --------------------------------------------------------------------------------
                                                                              49
<PAGE>
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------


subsidiary of John Hancock Financial Services, Inc., a financial services
company. On September 28, 2003, Manulife Financial Corporation and John Hancock
Financial Services, Inc. announced plans to merge, which transaction is expected
to occur in the first half of 2004.


The Adviser has been managing closed-end funds since 1971 and has a long history
of delivering regular dividends through several market cycles. The Adviser is an
industry leader in managing dual-class closed-end funds.


The Adviser employs a team of seasoned investment professionals to manage the
Fund. This experienced team has been successful in managing fixed income assets
through John Hancock's similarly structured dual-class, closed-end funds, as
well as open-end funds and institutional portfolios. The team consists of 60
professionals with an average of 18 years of investment experience. In addition
to developing a structured process to manage interest-rate risk, the management
team has produced a track record of maintaining regular dividends through
several market cycles. The Adviser uses a total team approach in which portfolio
managers and analysts work together to research and identify investment
opportunities resulting in a free-flowing exchange of ideas. The Adviser's goal
is to deliver consistent investment results, where its investment philosophy can
be maintained through teamwork rather than individual efforts.


Under the terms of an investment advisory agreement between the Fund and the
Adviser (the "Advisory Agreement"), the Fund has retained the Adviser to provide
overall investment advice and to manage the investment of the Fund's assets and
to place orders for the purchase and sale of its portfolio securities. The
Adviser is responsible for obtaining and evaluating research, economic and
statistical data and, subject to the supervision of the Board of Trustees, for
formulating and implementing investment programs in furtherance of the Fund's
investment objective. The Adviser furnishes to the Fund the services of such
members of its organization as may be duly elected officers of the Fund. The
Adviser will not be liable to the Fund except for willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations.

The Adviser also provides administrative services to the Fund (to the extent
such services are not provided to the Fund pursuant to other agreements)
including (i) providing supervision of the Fund's non-investment operations,
(ii) providing the Fund with personnel to perform such executive, administrative
and clerical services as are reasonably necessary to provide effective
administration of the Fund, (iii) arranging for the preparation, at the Fund's
expense, of the Fund's tax returns, reports to shareholders and reports filed
with the Securities and Exchange Commission and other regulatory authorities,
(iv) providing the Fund with adequate office space and certain related office
equipment and services, and (v) maintaining all of the Fund's records other than
those maintained pursuant to such other agreements.

COMPENSATION AND EXPENSES
For its advisory and administrative services, the Fund accrues and pays to the
Adviser quarterly, as compensation for the services rendered and expenses paid
by it, a fee equivalent on an annual basis to a stated percentage of the average
weekly managed assets of the Fund as set forth below:


<Table>
<Caption>
MANAGED ASSET VALUE                                           ANNUAL RATE
- -------------------------------------------------------------------------
<S>                                                           <C>
First $150 million..........................................        0.650%
Next $50 million............................................        0.375%
Next $100 million...........................................        0.350%
Amount over $300 million....................................        0.300%
</Table>


Because the fee paid to the Adviser is determined on the basis of the Fund's
managed assets, the Adviser's interest in determining whether to leverage the
Fund may differ from the interests of the Fund. "Managed assets" means the total
assets of the Fund (including any assets attributable to any

- --------------------------------------------------------------------------------
 50
<PAGE>
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

leverage that may be outstanding) minus the sum of accrued liabilities (other
than liabilities representing financial leverage). The liquidation preference of
the APS is not a liability. Consequently, if the Fund issues preferred shares
and does not borrow, managed assets will generally be approximately equal to the
Fund's net assets attributable to common shares plus the liquidation preference
of any outstanding preferred shares.

Pursuant to a separate Accounting and Legal Services Agreement, the Adviser is
reimbursed for certain tax, accounting and legal services.

PORTFOLIO MANAGERS
Day-to-day management of the Fund's portfolio is the responsibility of a team of
portfolio managers led by Barry H. Evans and Jeffrey N. Given.


Barry H. Evans, CFA, is a Senior Vice President and Chief Fixed Income Officer
at the Adviser. He oversees fixed income strategies, which include both
corporate high grade and high yield mandates. He has 17 years of investment
experience and has managed the Fund since 2000. In 1998 and 1999, he was a
Senior Vice President at the Adviser and has been a Chief Fixed Income Officer
at the Adviser since 2000.



Jeffrey N. Given is a Senior Portfolio Officer and Portfolio Manager at the
Adviser. He has 10 years of investment experience. He has been a Senior
Portfolio Officer at the Adviser since 2002 and has been managing the Fund since
1999. From 1998 to 2002, he was an analyst with the Adviser.


Net asset value

The Fund calculates a net asset value for its Common Shares every day the New
York Stock Exchange is open when regular trading closes (normally 4:00 p.m. New
York City time). For purposes of determining the net asset value of a Common
Share, the value of the securities held by the Fund plus any cash or other
assets (including interest accrued but not yet received) minus all liabilities
(including accrued expenses and indebtedness) and the aggregate liquidation
value of any outstanding preferred shares is divided by the total number of
Common Shares outstanding at such time. Currently, the net asset values of
shares of publicly traded closed-end investment companies are published in
Barron's, the Monday edition of The Wall Street Journal and the Monday and
Saturday editions of The New York Times.

The Fund generally values its portfolio securities using closing market prices
or readily available market quotations. When closing market prices or market
quotations are not available or, in the opinion of the Adviser, are not
representative of the true market value, the fair value of a security may be
determined in accordance with procedures approved by the Trustees. Debt
investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices. Short-term debt investments which have a remaining maturity
of 60 days or less are generally valued at amortized cost, which approximates
market value. If market quotations are not readily available or if, in the
opinion of the Adviser, any quotation or price is not representative of true
market value, the fair value of the security may be determined in good faith in
accordance with procedures approved by the Trustees. Foreign securities are
valued on the basis of quotations from the primary market in which they are
traded. If quotations are not readily available, or the value has been
materially affected by the events occurring after closing of a foreign market,
assets are valued by a method that the Trustees believe accurately reflects fair
value. The value of interest rate swaps, caps and floors is determined in
accordance with a formula and then confirmed periodically by obtaining a bank
quotation. Positions in options are valued at the last sale price on the market
where any such option is principally traded.

- --------------------------------------------------------------------------------
                                                                              51
<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------

Positions in futures contracts are valued at closing prices for such contracts
established by the exchange on which they are traded. Repurchase agreements are
valued at cost plus accrued interest.

U.S. federal income tax matters


The following is a summary discussion of certain U.S. federal income tax
consequences that may be relevant to a shareholder acquiring, holding and
disposing of APS. This discussion only addresses U.S. federal income tax
consequences to U.S. shareholders who hold their shares as capital assets and
does not address all of the U.S. federal income tax consequences that may be
relevant to particular shareholders in light of their individual circumstances.
This discussion also does not address the tax consequences to shareholders who
are subject to special rules, including, without limitation, financial
institutions, insurance companies, dealers in securities or foreign currencies,
foreign shareholders, shareholders who hold their shares as or in a hedge
against currency risk, a constructive sale, or a conversion transaction,
shareholders who are subject to the alternative minimum tax, or tax-exempt or
tax-deferred plans, accounts, or entities. In addition, the discussion does not
address any state, local, or foreign tax consequences, and it does not address
any U.S. federal tax consequences other than U.S. federal income tax
consequences. The discussion reflects applicable tax laws of the United States
as of the date of this Prospectus, which tax laws may be changed or subject to
new interpretations by the courts or the Internal Revenue Service ("IRS")
retroactively or prospectively. No attempt is made to present a detailed
explanation of all U.S. federal income tax concerns affecting the Fund and its
shareholders, and the discussion set forth herein does not constitute tax
advice. Investors are urged to consult their own tax advisers to determine the
specific tax consequences to them of investing in the Fund, including the
applicable federal, state, local and foreign tax consequences to them and the
effect of possible changes in tax laws.



The Fund has elected to be treated, has qualified and intends to continue to
qualify each year as a "regulated investment company" under Subchapter M of the
Code and to comply with applicable distribution requirements so that it
generally will not pay U.S. federal income tax on income and capital gains
distributed to shareholders. In order to qualify as a regulated investment
company, which qualification the following discussion assumes, the Fund must
satisfy certain tests regarding the sources of its income and the
diversification of its assets. If the Fund qualifies as a regulated investment
company and, for each taxable year, it distributes to its shareholders an amount
equal to or exceeding the sum of (i) 90% of its "investment company taxable
income" as that term is defined in the Code (which includes, among other things,
dividends, taxable interest, and the excess of any net short-term capital gains
over net long-term capital losses, as reduced by certain deductible expenses)
without regard to the deduction for dividends paid and (ii) 90% of the excess of
its gross tax-exempt interest, if any, over certain disallowed deductions, the
Fund generally will not be subject to U.S. federal income tax on any income of
the Fund, including "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), distributed to shareholders. However, if the
Fund retains any investment company taxable income or net capital gain, it
generally will be subject to U.S. federal income tax at regular corporate rates
on the amount retained. The Fund intends to distribute at least annually all or
substantially all of its investment company taxable income, net tax-exempt
interest, if any, and net capital gain. If for any taxable year the Fund did not
qualify as a regulated investment company, it would be treated as a corporation
subject to U.S. federal income tax, thereby subjecting any income earned by the
Fund to tax at the corporate level at a 35% federal income tax rate and, when
such income is distributed, to a further tax at the shareholder level.


Under the Code, the Fund will be subject to a nondeductible 4% federal excise
tax on a portion of its undistributed ordinary income and capital gains if it
fails to meet certain distribution requirements with respect to each calendar
year. The Fund intends to make distributions in a timely manner and

- --------------------------------------------------------------------------------
 52
<PAGE>
U.S. FEDERAL INCOME TAX MATTERS
- --------------------------------------------------------------------------------

accordingly does not expect to be subject to the excise tax, but there can be no
assurance that the Fund's distributions will be sufficient to avoid this tax
entirely.


Based in part on the lack of any present intention on the part of the Fund to
redeem or purchase the APS at any time in the future, the Fund intends to take
the position that under present law the APS will constitute stock of the Fund
and distributions with respect to the APS (other than distributions in
redemption of the APS that are treated as exchanges under Section 302(b) of the
Code) will constitute dividends to the extent of the Fund's current or
accumulated earnings and profits as calculated for U.S. federal income tax
purposes. This view relies in part on a published ruling of the IRS stating that
certain preferred stock similar in many material respects to the APS represents
equity. It is possible, however, that the IRS might take a contrary position
asserting, for example, that the APS constitute debt of the Fund. If this
position were upheld, the discussion of the treatment of distributions above
would not apply. Instead, distributions by the Fund to holders of APS would
constitute interest, whether or not such distributions exceeded the earnings and
profits of the Fund, would be included in full in the income of the recipient
and would be taxed as ordinary income.



Dividends paid out of the Fund's current or accumulated earnings and profits
generally will be taxable as ordinary income, except as described below.
Distributions designated by the Fund as "qualified dividend income" (if any) may
be taxable to individual shareholders at a maximum 15% federal income tax rate.
Distributions of net capital gain (if any) that are designated by the Fund as
capital gain dividends will be treated as long-term capital gains without regard
to the length of time the shareholder has held shares of the Fund.
Distributions, if any, in excess of the Fund's current and accumulated earnings
and profits will first reduce the adjusted tax basis of a shareholder's shares
and, after that basis has been reduced to zero, will constitute a capital gain
to the shareholder. The U.S. federal income tax status of all distributions will
be reported to shareholders annually.



Most of the dividends distributed to shareholders will be attributable to income
from the Fund's investments in debt securities or other investments that do not
produce qualified dividend income as that term is defined in Section 1(h)(11) of
the Code, and thus will not qualify for the maximum 15% federal income tax rate
on qualified dividend income. A portion of the dividend distributions to
individual shareholders may qualify for such maximum 15% federal income tax rate
to the extent that such dividends are attributable to qualified dividend income
from the Fund's investments in common and preferred stock of U.S. companies and
stock of certain foreign corporations, provided that certain holding period and
other requirements are met. Capital gain dividends distributed by the Fund (if
any) to individual shareholders generally will qualify for the maximum 15%
federal income tax rate on long-term capital gains to the extent that such
dividends relate to capital gains recognized by the Fund on or after May 6,
2003. Under current law, the maximum 15% federal income tax rate on qualified
dividend income and long-term capital gains will cease to apply to taxable years
beginning after December 31, 2008. Distributions from the Fund to its corporate
shareholders also are not expected to qualify for the 70% corporate Dividends
Received Deduction to the extent of the income received by the Fund from its
investment in debt securities.


The IRS has taken the position that if a regulated investment company has two or
more classes of shares, it must designate distributions made to each class in
any year as consisting of no more than such class's proportionate share of
particular types of income (including ordinary income and capital gains). A
class's proportionate share of a particular type of income is determined
according to the percentage of total dividends paid by the regulated investment
company during the year to such class. Consequently, the Fund intends to
designate distributions made to the common shareholders and the preferred
shareholders of particular types of income (including ordinary income, qualified
dividend income and capital gains) in accordance with each such class's
proportionate share of such income.

If the Fund retains any net capital gain for a taxable year, the Fund may
designate the retained amount as undistributed capital gains in a notice to
shareholders who, if subject to U.S. federal income

- --------------------------------------------------------------------------------
                                                                              53
<PAGE>
U.S. FEDERAL INCOME TAX MATTERS
- --------------------------------------------------------------------------------

tax on long-term capital gains, (i) will be required to include in income for
U.S. federal income tax purposes, as long-term capital gain, their proportionate
shares of such undistributed amount, and (ii) will be entitled to credit their
proportionate shares of the tax paid by the Fund on the undistributed amount
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such liabilities.

Sales, redemptions, and other dispositions of APS generally are taxable events
for shareholders that are subject to tax. Shareholders should consult their own
tax advisers with reference to their individual circumstances to determine
whether any particular transaction in the Fund's shares (including a redemption
of APS) is properly treated as a sale or exchange for tax purposes, as the
following discussion assumes, and the tax treatment of any gains or losses
recognized in such transactions. In general, if APS are sold, the shareholder
will recognize gain or loss equal to the difference between the amount realized
on the sale and the shareholder's adjusted basis in the shares sold. Such gain
or loss generally will be treated as long-term gain or loss if the shares were
held for more than one year and otherwise generally will be treated as
short-term gain or loss. Even if a redemption of APS were treated as a sale or
exchange, any declared but unpaid dividends distributed to shareholders in
connection with the redeemed shares would be taxable to shareholders as
dividends as described above.

If, in connection with the selection of a Long-Term Dividend Period, (i) the
Fund provides that a Premium Call Period will follow a Non-Call Period, (ii)
based on all the facts and circumstances at the time of the designation of the
Long-Term Dividend Period the Fund is more likely than not to redeem the
Preferred Shares during the Premium Call Period, and (iii) the premium to be
paid upon redemption during the Premium Call Period exceeds a reasonable penalty
for early redemption, it is possible that the holders of APS will be required to
accrue such premium as a dividend (to the extent of the Fund's earnings and
profits) over the term of the Non-Call Period.

Any loss recognized by a shareholder upon the sale or other disposition of
shares with a tax holding period of six months or less generally will be treated
as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares. Losses on
sales or other dispositions of shares may be disallowed under "wash sale" rules
in the event a shareholder acquires other shares in the Fund (including those
acquired pursuant to reinvestment of dividends and/or capital gains
distributions) within a period of 61 days beginning 30 days before and ending 30
days after a sale or other disposition of shares.

The Fund is required in certain circumstances to backup withhold on reportable
payments, including dividends, capital gains distributions, and proceeds of
sales or other dispositions of the Fund's shares paid to certain holders of the
Fund's shares who do not furnish the Fund with their correct social security
number or other taxpayer identification number and certain other certifications,
or who are otherwise subject to backup withholding. Backup withholding is not an
additional tax. Any amounts withheld from payments made to a shareholder may be
refunded or credited against such shareholder's U.S. federal income tax
liability, if any, provided that the required information is furnished to the
IRS.

The foregoing is a general and abbreviated summary of the provisions of the Code
and the Treasury regulations currently in effect as they generally affect the
taxation of the Fund and its shareholders. As noted above, these provisions are
subject to change by legislative, judicial or administrative action, and any
such change may be retroactive. A further discussion of the U.S. federal income
tax rules applicable to the Fund can be found in the Statement of Additional
Information, which is incorporated by reference into this Prospectus.
Shareholders are urged to consult their tax advisers regarding specific
questions as to U.S. federal, foreign, state, and local income or other taxes.

- --------------------------------------------------------------------------------
 54
<PAGE>

- --------------------------------------------------------------------------------

Description of shares

The Fund is authorized to issue an unlimited number of Common Shares. The Fund
is also authorized to issue an unlimited number of preferred shares. The Board
of Trustees is authorized to classify and reclassify any unissued shares into
one or more additional classes or series of shares. The Board of Trustees may
establish such series or class, including preferred shares, from time to time by
setting or changing in any one or more respects the designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares
and pursuant to such classification or reclassification to increase or decrease
the number of authorized shares of any existing class or series. The Board of
Trustees, without shareholder approval, is authorized to amend the Declaration
of Trust and By-laws to reflect the terms of any such class or series, including
any class of preferred shares. The Fund is also authorized to issue other
securities, including debt securities.


Under Massachusetts law, shareholders of the Fund, including holders of the
Common Shares and any preferred shares, including the APS, could, in certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Fund. Notice of such disclaimer may be given in any
agreement, obligation or instrument entered into or executed by the Fund or the
Trustees on behalf of the Fund. The Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to meet its
obligations.


The Declaration of Trust further provides that obligations of the Fund are not
binding upon the Trustees or officers individually but only upon the property of
the Fund and that the Trustees or officers will not be liable for actions or
failures to act. Nothing in the Declaration of Trust, however, protects a
Trustee or officer against any liability to which such Trustee or officer may be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Trustee's or
officer's office.

COMMON SHARES

Common Shares, when issued and outstanding, will be fully paid and
non-assessable. Shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to Common Shareholders upon liquidation of
the Fund. Common Shareholders are entitled to one vote for each share held.

So long as any shares of the Fund's preferred shares are outstanding, including
the APS, holders of Common Shares will not be entitled to receive any net income
of or other distributions from the Fund unless all accumulated dividends on
preferred shares have been paid, and unless asset coverage (as defined in the
1940 Act) with respect to preferred shares would be at least 200% after giving
effect to such distributions.

The Fund will send unaudited reports at least semiannually and audited annual
financial statements to all of its shareholders.

- --------------------------------------------------------------------------------
                                                                              55
<PAGE>

- --------------------------------------------------------------------------------

Certain provisions of the Declaration of Trust and By-laws


The Fund's By-laws generally require that advance notice be given to the Fund in
the event a shareholder desires to nominate a person for election to the Board
of Trustees or to transact any other business at an annual meeting of
shareholders. With respect to an annual meeting of shareholders, notice of any
such nomination or business must be delivered to or received at the principal
executive offices of the Fund not less than 90 calendar days nor more than 120
calendar days prior to the first anniversary of the date of mailing of the
notice for the prior year's annual meeting (subject to certain exceptions). In
the case of a special meeting of shareholders, the notice must be given as
described above or no later than the tenth calendar day following public
disclosure, as specified in the By-laws, of the date of the special meeting. Any
notice by a shareholder must be accompanied by certain information as provided
in the By-laws.


- --------------------------------------------------------------------------------
 56
<PAGE>
- --------------------------------------------------------------------------------

Underwriting


UBS Securities LLC, 299 Park Avenue, New York, New York, acting as underwriter
(the "Underwriter") has agreed, subject to the terms and conditions of the
Underwriting Agreement with the Fund and the Adviser, to purchase from the Fund
the number of APS set forth below. The Underwriter is committed to purchase and
pay for all of such APS if any are purchased.



<Table>
<Caption>
                                                                 NUMBER OF      NUMBER OF
                                                              SERIES A APS   SERIES B APS
- -----------------------------------------------------------------------------------------
<S>                                                           <C>            <C>
UBS Securities LLC..........................................
</Table>



The Underwriter has advised the Fund that it proposes initially to offer the APS
directly to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not in
excess of $     per share. The Underwriter may allow, and such dealers may
reallow, a concession not in excess of $     per share to other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed. Investors must pay for any APS purchased in the initial public
offering on or before           , 2003.



The Underwriter will act in Auctions as a Broker-Dealer and receive fees as set
forth under "The Auction" and in the Statement of Additional Information. The
Underwriter also may provide information to be used in determining the Reference
Rate.



The Fund anticipates that the Underwriter may from time to time act as a broker
or dealer in connection with the execution of the Fund's portfolio transactions
after it has ceased to be a principal underwriter of the Fund under the 1940 Act
and, subject to certain conditions, may act as such a broker or dealer while it
is a principal underwriter.



In connection with this offering, the Underwriter or selected dealers may
distribute prospectuses electronically.



The Fund and the Adviser have agreed to indemnify the Underwriter against
certain liabilities including liabilities under the Securities Act.



Custodian, transfer agent, registrar and dividend disbursing agent



The Fund's securities and cash are held under a custodian agreement with The
Bank of New York, located at One Wall Street, New York, New York 10286. Deutsche
Bank Trust Company Americas, located at 60 Wall Street, New York, New York 10005
is the Fund's transfer agent, registrar and dividend disbursing agent in its
capacity as Auction Agent for the APS.


Legal matters


Certain legal matters in connection with the shares offered hereby are passed on
for the Fund by Hale and Dorr LLP, Boston, Massachusetts. Certain matters have
been passed upon for the Underwriter by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois and its affiliates.


- --------------------------------------------------------------------------------
                                                                              57
<PAGE>
- --------------------------------------------------------------------------------

Table of contents for
Statement of Additional Information


<Table>
<Caption>
                                                              PAGE
- ------------------------------------------------------------------
<S>                                                           <C>
Organization of the Fund....................................    2
Investment objective and policies...........................    2
Investment restrictions.....................................    9
Those responsible for management............................   11
Investment advisory and other services......................   15
Additional information concerning the auctions for the
  preferred shares..........................................   17
Rating agency guidelines....................................   18
Net asset value.............................................   31
Brokerage allocation........................................   31
U.S. federal income tax matters.............................   33
Performance.................................................   38
Custody of portfolio........................................   38
Independent auditors........................................   39
Additional information......................................   39
Financial Statements........................................   39
Appendix A--More about risk.................................  A-1
Appendix B--Description of ratings..........................  B-1
Appendix C--Proxy voting guidelines and procedures..........  C-1
Appendix D--Auction procedures..............................  D-1
Appendix E--Settlement procedures...........................  E-1
</Table>


PRIVACY PRINCIPLES OF THE FUND

The Fund is committed to maintaining the privacy of its shareholders and to
safeguarding their non-public personal information. The following information is
provided to help you understand what personal information the Fund collects, how
the Fund protects that information and why, in certain cases, the Fund may share
information with select other parties.

Generally, the Fund does not receive any non-public personal information
relating to its shareholders, although certain non-public personal information
of its shareholders may become available to the Fund. The Fund does not disclose
any non-public personal information about its shareholders or former
shareholders to anyone, except as permitted by law or as is necessary in order
to service shareholder accounts (for example, to a transfer agent or third-party
administrator).

The Fund restricts access to non-public personal information about its
shareholders to employees of the Fund's investment adviser and its affiliates
with a legitimate business need for the information. The Fund maintains
physical, electronic and procedural safeguards designed to protect the
non-public personal information of its shareholders.

- --------------------------------------------------------------------------------
 58
<PAGE>
- --------------------------------------------------------------------------------

Glossary


" 'AA' Financial Composite Commercial Paper Rate" on any date, means (i) (A) the
Interest Equivalent of the 30-day rate (for Dividend Periods fewer than or equal
to 31 days), the 60-day rate (for Dividend Periods greater than 31 days but
fewer than or equal to 61 days) and the 90-day rate (for Dividend Periods
greater than 61 days but fewer than or equal to 91 days) on commercial paper on
behalf of issuers whose corporate bonds are rated "AA" by S&P, or the equivalent
of such rating by another rating agency, as announced by the Federal Reserve
Bank of New York for the close of business on the Business Day immediately
preceding such date; and (B) for Dividend Periods greater than 91 days but fewer
than 184 days, the rate described in clause (ii) below; or (ii) if the Federal
Reserve Bank of New York does not make available such a rate, or with respect to
Dividend Periods greater than 91 days but fewer than 184 days, then the
arithmetic average of the Interest Equivalent of such rates on commercial paper
placed on behalf of such issuers, as quoted on a discount basis or otherwise by
the Commercial Paper Dealers to the Auction Agent for the close of business on
the Business Day immediately preceding such date (rounded to the next highest
one-thousandth (0.001) of 1%). If any Commercial Paper Dealer does not quote a
rate required to determine the "AA" Financial Composite Commercial Paper Rate,
such rate shall be determined on the basis of the quotations (or quotation)
furnished by the remaining Commercial Paper Dealers (or Dealer), if any, or, if
there are no such Commercial Paper Dealers, by the Auction Agent. For purposes
of this definition, (A) "Commercial Paper Dealers" shall mean (1) UBS Securities
LLC; (2) in lieu of any thereof, its respective affiliate or successor; and (3)
in the event that any of the foregoing shall cease to quote rates for commercial
paper of issuers of the sort described above, in substitution therefor, a
nationally recognized dealer in commercial paper of such issuers then making
such quotations selected by the Fund, and (B) "Interest Equivalent" of a rate
stated on a discount basis for commercial paper of a given number of days'
maturity shall mean a number equal to the quotient (rounded upward to the next
higher one-thousandth (0.001) of 1%) of (1) such rate expressed as a decimal,
divided by (2) the difference between (x) 1.00 and (y) a fraction, the numerator
of which shall be the product of such rate expressed as a decimal, multiplied by
the number of days in which such commercial paper shall mature and the
denominator of which shall be 360.


"Agent Member" means a member, or participant in, of the Securities Depository
that will act on behalf of a Beneficial Owner of one or more Preferred Shares or
on behalf of a Potential Beneficial Owner.

"Applicable Percentage" has the meaning specified under "Description of
Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS" in this Prospectus.

"Applicable Rate" means the rate per annum at which cash dividends are payable
on the APS for any Dividend Period.


"APS" means the Auction Preferred Shares, no par value per share and a
liquidation preference of $25,000 per share plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) of the Fund.


"Auction" means a periodic operation of the Auction Procedures.

"Auction Agency Agreement" means the agreement entered into between the Fund and
the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for the purpose of determining the Applicable
Rate.

"Auction Agent" means Deutsche Bank Trust Company Americas unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Fund or a duly authorized
committee thereof enters into an agreement with the Fund to follow

- --------------------------------------------------------------------------------
                                                                              59
<PAGE>
GLOSSARY
- --------------------------------------------------------------------------------

the Auction Procedures for the purpose of determining the Applicable Rate and to
act as transfer agent, registrar, dividend disbursing agent and redemption agent
for the APS.

"Auction Date" with respect to any series of APS and any Rate Period, means the
Business Day next preceding the first day of such Rate Period.

"Auction Procedures" means the procedures for conducting Auctions set forth in
Appendix C to the Statement of Additional Information.

"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or if applicable, the Auction Agent) as a holder
of Preferred Shares or a Broker-Dealer that holds Preferred Shares for its own
account.

"Bid" has the meaning specified under "The Auction--AUCTION PROCEDURES--Orders
by Beneficial Owners, Potential Beneficial Owners, Existing Holders and
Potential Holders" in this Prospectus.

"Broker-Dealer" has the meaning specified under "The Auction--BROKER-DEALER
AGREEMENTS" in this Prospectus.

"Broker-Dealer Agreement" has the meaning specified under "The
Auction--BROKER-DEALERS" in this Prospectus.

"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in New
York City are authorized or obligated by law to close.

"By-laws" means the By-laws of the Fund as amended, specifying, in part, the
powers, preferences and rights of the Preferred Shares.

"Common Shares" means the common shares of beneficial interest, no par value, of
the Fund.

"Date of Original Issue" means, with respect to any share of Preferred Shares,
the date on which such share first is issued by the Fund.

"Discounted Value" of any asset of the Fund means the quotient of the market
value of an asset eligible to be held by the Fund under the Moody's guidelines
divided by the applicable discount factor assigned to such asset under the
Moody's guidelines.

"Dividend Payment Date" has the meaning specified under "Description of
Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS--Divided Payment Dates" in this
Prospectus.

"Dividend Period" has the meaning specified under "Description of Preferred
Shares--DIVIDENDS AND DIVIDEND PERIODS--Divided Periods" in this Prospectus.

"Existing Holder" means a Broker-Dealer or any such other person as may be
permitted by the Fund that is listed as the holder of record of Preferred Shares
in the records of the Auction Agent.

"Hold Order" has the meaning specified under "Description of Preferred
Shares--AUCTION PROCEDURES--Orders by Beneficial Owners, Potential Beneficial
Owners, Existing Holders and Potential Holders" in this Prospectus.


"Initial Dividend Payment Date" means, with respect to a series of APS, the
Initial Dividend Payment Date specified under "Description of Preferred
Shares--DIVIDENDS AND DIVIDEND PERIODS--Divided payment dates" in this
Prospectus.


"Initial Dividend Period" means, for each series of Preferred Shares, the period
from and including the Date of Original Issue but excluding the Initial Dividend
Payment Date.

"Maximum Applicable Rate" has the meaning specified under "Description of
Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS--Calculation of dividend
payment" in this Prospectus.

- --------------------------------------------------------------------------------
 60
<PAGE>
GLOSSARY
- --------------------------------------------------------------------------------

"Moody's" means Moody's Investors Service, Inc. or its successors.

"1940 Act Preferred Shares Asset Coverage" has the meaning specified under
"Description of Preferred Shares--RATING AGENCY GUIDELINES AND ASSET COVERAGE"
in this Prospectus.

"1940 Act Cure Date" has the meaning specified under "Description of Preferred
Shares--RATING AGENCY GUIDELINES AND ASSET COVERAGE" in this Prospectus.

"Non-Call Period" has the meaning set forth in the definition of "Specific
Redemption Provisions" below.

"Non-Payment Period Rate" has the meaning specified under "Description of
Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS--Non-Payment Period and Late
Charge" in this Prospectus.

"Notice of Special Dividend Period" has the meaning specified under "Description
of Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS--Designation of Special
Dividend Periods" in this Prospectus.

"Order" has the meaning specified under "Description of Preferred
Shares--AUCTION PROCEDURES--Orders by Beneficial Owners, Potential Beneficial
Owners, Existing Holders and Potential Holders" in this Prospectus.

"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of Preferred Shares but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional Preferred Shares.


"Potential Holder" means any Broker-Dealer or any such other person as may be
permitted by the Fund, including any Existing Holder, who may be interested in
acquiring Preferred Shares (or, in the case of an Existing Holder, additional
Preferred Shares).


"Preferred Shares Basic Maintenance Amount" has the meaning specified under
"Description of Preferred Shares--RATING AGENCY GUIDELINES AND ASSET COVERAGE"
in this Prospectus.

"Preferred Shares Basic Maintenance Cure Date" has the meaning specified under
"Description of Preferred Shares--RATING AGENCY GUIDELINES AND ASSET COVERAGE"
in this Prospectus.

"Premium Call Period" has the meaning set forth in the definition of "Specific
Redemption Provisions" below.

"Rate Period" means the Initial Dividend Period and any subsequent Dividend
Period, including a Special Dividend Period.

"Redemption Price" means the redemption price for the APS specified under
"Description of Preferred Shares--REDEMPTION" in the Prospectus.

"Request for Special Dividend Period" has the meaning specified under
"Description of Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS--Designation of
Special Dividend Periods" in this Prospectus.

"Securities Depository" means The Depository Trust Company and its successors
and assigns or any successor securities depository selected by the Fund that
agrees to follow the procedures required to be followed by such securities
depository in connection with the Preferred Shares.

"Sell Order" has the meaning specified under "Description of Preferred
Shares--AUCTION PROCEDURES--Orders by Beneficial Owners, Potential Beneficial
Owners, Existing Holders and Potential Holders" in this Prospectus.

"Special Dividend Period" has the meaning specified under "Description of
Preferred Shares--DIVIDENDS AND DIVIDEND PERIODS--Description of Special
Dividend Periods" in this Prospectus.

- --------------------------------------------------------------------------------
                                                                              61
<PAGE>
GLOSSARY
- --------------------------------------------------------------------------------

"Specific Redemption Provisions" means, with respect to a Special Dividend
Period, either, or both of, (i) a period (a "Non-Call Period") determined by the
Fund, after consultation with the Auction Agent and the Broker-Dealers, during
which the APS subject to such Dividend Period shall not be subject to redemption
at the option of the Fund and (ii) a period (a "Premium Call Period"),
consisting of a number of whole years and determined by the Fund, after
consultation with the Auction Agent and the Broker-Dealers, during each year of
which the APS subject to such Dividend Period shall be redeemable at the Fund's
option at a price per share equal to $25,000 plus accumulated but unpaid
dividends plus a premium expressed as a percentage of $25,000, as determined by
the Fund after consultation with the Auction Agent and the Broker-Dealers.

"Subsequent Dividend Period" means each Dividend Period after the Initial
Dividend Period.

"Substitute Rating Agency" shall mean a nationally recognized statistical rating
organization selected by the Fund to act as a substitute rating agency to
determine the credit ratings of the Preferred Shares.

"Sufficient Clearing Bids" has the meaning specified in the Auction Procedures.

- --------------------------------------------------------------------------------
 62
<PAGE>

                      [This Page Intentionally Left Blank]
<PAGE>

THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.

                      JOHN HANCOCK INCOME SECURITIES TRUST

                       Statement of Additional Information


                             Dated October __, 2003



      John Hancock Income Securities Trust (the "Fund") is a diversified,
closed-end management investment company. This Statement of Additional
Information provides information about the Fund in addition to the information
that is contained in the Fund's current Prospectus, dated October __, 2003 (the
"Prospectus"). This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing the
Fund's Series A auction preferred shares and Series B auction preferred shares
(collectively, the "Preferred Shares" or "APS"). This Statement of Additional
Information is not a prospectus and investors should obtain and read the
Prospectus prior to purchasing the Preferred Shares. A copy of the Prospectus
can be obtained free of charge by writing or telephoning:


                           John Hancock Advisers, LLC
                       Closed-End Fund Product Management
                        101 Huntington Avenue, 12th Floor
                                Boston, MA 02199
                                 1-800-225-6020

      You may also obtain a copy of the Prospectus on the Securities and
Exchange Commission's web site (http://www.sec.gov).

                                TABLE OF CONTENTS


<TABLE>
<S>                                                                          <C>
ORGANIZATION OF THE FUND...............................................       2
INVESTMENT OBJECTIVE AND POLICIES......................................       2
INVESTMENT RESTRICTIONS................................................       9
THOSE RESPONSIBLE FOR MANAGEMENT.......................................      11
INVESTMENT ADVISORY AND OTHER SERVICES.................................      15
ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR THE PREFERRED SHARES      17
RATING AGENCY GUIDELINES...............................................      18
NET ASSET VALUE........................................................      31
BROKERAGE ALLOCATION...................................................      31
U.S. FEDERAL INCOME TAX MATTERS........................................      33
PERFORMANCE............................................................      38
CUSTODY OF PORTFOLIO...................................................      38
INDEPENDENT AUDITORS...................................................      39
ADDITIONAL INFORMATION.................................................      39
FINANCIAL STATEMENTS...................................................      39
APPENDIX A - MORE ABOUT RISK...........................................      A-1
APPENDIX B - DESCRIPTION OF RATINGS....................................      B-1
APPENDIX C - PROXY VOTING GUIDELINES AND PROCEDURES....................      C-1
APPENDIX D - AUCTION PROCEDURES........................................      D-1
APPENDIX E - SETTLEMENT PROCEDURES.....................................      E-1
</TABLE>

<PAGE>
                            ORGANIZATION OF THE FUND


      The Fund is a diversified, closed-end investment management company
originally organized as a Maryland corporation on October 20, 1972 and
reorganized as a Massachusetts business trust on October 5, 1984. John Hancock
Advisers, LLC (prior to February 1, 2002, John Hancock Advisers, Inc.) (the
"Adviser") is the Fund's investment adviser. The Adviser is an indirect,
wholly-owned subsidiary of John Hancock Life Insurance Company (formerly John
Hancock Mutual Life Insurance Company) (the "Life Company"), a Massachusetts
life insurance company chartered in 1862, with national headquarters at John
Hancock Place, Boston, Massachusetts. The Life Company is wholly owned by John
Hancock Financial Services, Inc., a Delaware corporation organized on February,
2000. On September 28, 2003, Manulife Financial Corporation and John Hancock
Financial Services, Inc. announced plans to merge, creating a leading global
insurance franchise. Company officials expect that the merger will close in the
first half of 2004.


                        INVESTMENT OBJECTIVE AND POLICIES

      The following information supplements the discussion of the Fund's
investment objective and policies discussed in the Prospectus. Appendix A
contains further information describing investment risks. The investment
objective is non-fundamental and may be changed by the Trustees without
shareholder approval. There is no assurance that the Fund will achieve its
investment objective.

      The Fund's investment objective is to generate a high level of current
income consisted with prudent investment risk.

      PORTFOLIO CONTENTS. The Fund seeks to achieve its objective by investing
primarily in a diversified portfolio of freely marketable debt securities issued
by U.S. and foreign corporations and governments. Under normal circumstances the
Fund will invest at least 80% of its assets (net assets plus borrowing for
investment purposes) in income securities, consisting of: (i) marketable
corporate debt securities, (ii) governmental obligations and (iii) cash and
commercial paper. The Fund may also invest up to 20% of its total assets in
income-producing preferred and common stocks. At least 75% of Fund's total
assets will be represented by debt securities which are rated, at the time of
acquisition, investment grade (i.e., at least "Baa" by Moody's Investors
Service, Inc. ("Moody's") or "BBB" by Standard & Poor's Rating Group ("S&P")) or
in unrated securities determined by the Adviser to be of comparable credit
quality. While the Fund focuses on intermediate and longer-term debt securities,
the Fund may acquire securities of any maturity and is not subject to any limits
as to the average maturity of its overall portfolio. There can be no assurance
that the Fund will achieve its investment objective.

      RATINGS AS INVESTMENT CRITERIA. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Fund as initial criteria for the selection of debt securities. Among the
factors which will be considered are the long-term ability of the issuer to pay
principal and interest and general economic trends. Appendix B contains further
information concerning the rating of Moody's and S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund or the average weighted credit quality of the Fund's portfolio may
cease to be investment grade. None of these events will require the sale of the
securities by the Fund.

      SHORT-TERM BANK AND CORPORATE OBLIGATIONS. The Fund may invest in
depository-type obligations of banks and savings and loan associations and other
high quality money market instruments consisting of short-term obligations of
the U.S. Government or its agencies and commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks
or bank holding companies, corporations and finance companies. Depository-type
obligations in which the Fund may invest include certificates of deposit,
bankers' acceptances and fixed time deposits. Certificates of deposit are
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return.

      Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument at maturity. Fixed time deposits are
bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the


                                       2
<PAGE>
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. Bank notes and bankers'
acceptances rank junior to domestic deposit liabilities of the bank and pari
passu with other senior, unsecured obligations of the bank. Bank notes are not
insured by the Federal Deposit Insurance Corporation or any other insurer.
Deposit notes are insured by the Federal Deposit Insurance Corporation only to
the extent of $100,000 per depositor per bank.

      PREFERRED SECURITIES. Generally, preferred stocks receive dividends prior
to distributions on common stock and usually have a priority claim over common
stockholders if the issuer of the stock is liquidated. The income paid by an
issuer to holders of its preferred and common stock typically qualifies for the
dividends received deduction (the "Dividends Received Deduction") under Section
243 of the Internal Revenue Code of 1986, as amended (the "Code"). Preferred
stocks do not usually have voting rights equivalent to common stock of the same
issue but may be convertible into common stock. Perpetual preferred stocks are
issued with no mandatory retirement provisions, but typically are callable after
a period of time at the option of the issuer. Generally, no redemption can occur
if full cumulative dividends have not been paid, although issuers may be able to
engage in open-market repurchases without regard to any cumulative dividends
payable. Sinking fund preferred stocks provide for the redemption of a portion
of the issue on a regularly scheduled basis with, in most cases, the entire
issue being retired at a future date. Preferred securities other than preferred
stock have certain characteristics of both debt and equity securities. Like debt
securities, preferred securities' rate of income is contractually fixed. Like
equity securities, preferred securities do not have rights to precipitate
bankruptcy filings or collection activities in the event of missed payments.
Furthermore, preferred securities are in a subordinated position in an issuer's
capital structure and their value is heavily dependent on the profitability of
the issuer rather than on any legal claims to specific assets or cash flows.
Taxable preferred securities are a comparatively new asset class, having first
been introduced late in 1993. Income paid on these securities is not eligible
for the Dividends Received Deduction, but does constitute deductible interest
expense for issuers thereof. The universe of issuers of taxable preferred
securities consists overwhelmingly of fixed coupon rate issues with final stated
maturity dates. However, certain issues have adjustable coupon rates, which
reset quarterly in a manner similar to adjustable rate preferred stocks
described above. The preferred securities universe is divided into the "$25 par"
and the "institutional" segments. The $25 par segment is typified by securities
that are listed on the New York Stock Exchange, which trade and are quoted
"flat", i.e., without accrued dividend income, and which are typically callable
at par value five years after their original issuance date. The institutional
segment is typified by $1,000 par value securities that are not exchange-listed,
which trade and are quoted on an "accrued income" basis, and which typically
have a minimum of ten years of call protection (at premium prices) from the date
of their original issuance.

      Taxable preferred securities are not considered equity of an issuer for
certain purposes. They are typically junior and fully subordinated liabilities
of an issuer or the beneficiary of a guarantee that is junior and fully
subordinated to the other liabilities of the guarantor. In addition, taxable
preferred securities typically permit an issuer to defer the payment of income
for specified periods triggering an event of default. Because of their
subordinated position in the capital structure of an issuer, the ability to
defer payments for extended periods of time without adverse consequence to the
issuer, and certain other features (such as restrictions on common dividend
payments by the issuer or ultimate guarantor when cumulative payments on the
hybrids have not been made), taxable preferred securities may also be treated in
a similar fashion to traditional preferred stocks by several regulatory
agencies, including the Federal Reserve Bank, and by credit rating agencies, for
various purposes, such as the assignment of minimum capital ratios,
over-collateralization rates and diversification limits. Taxable preferred
securities may be convertible into underlying common stock of the issuer or
associated grantor.

      Taxable preferred securities are typically issued with a final maturity
date, although, in certain instances the date may be extended and/or the final
payment of principal may be deferred at the issuer's option for a specified time
without any adverse consequences to the issuer. No redemption can typically take
place unless all cumulative payment obligations have been met, although issuers
may be able to engage in open-market repurchases without regard to any
cumulative dividends payable.

      In order to be payable, dividends on preferred stock must be declared by
the issuer's board of directors. In addition, distributions on taxable preferred
securities are also subject to deferral and are thus not automatically payable.
Income payments on the typical preferred securities currently outstanding are
cumulative, causing dividends and distributions to accrue even if not declared
by the board of directors or otherwise made payable. There is, of course, no
assurance that dividends or distributions on the preferred securities in which
the Fund invests


                                       3
<PAGE>
will be declared or otherwise made payable. The Fund may acquire non-cumulative
preferred securities subject to the restrictions on quality adopted by the Fund.

      Because the claim on an issuer's earnings represented by preferred
securities may become onerous when interest rates fall below the rate payable on
the stock or for other reasons, the issuer may redeem the securities. Thus, in
declining interest rate environments in particular, the Fund's holdings of
higher coupon-paying preferred securities may be reduced and the Fund would be
unable to acquire securities paying comparable coupons with the redemption
proceeds.

      From time to time, preferred securities issues have been, and may in the
future be, offered having features other than those described in the Prospectus
and in this Statement of Additional Information that are typical for fixed rate,
adjustable rate, or auction rate preferred securities. The Fund reserves the
right to invest in these securities if the Adviser believes that doing so would
be consistent with the Fund's investment objective and policies. Since the
market for these instruments would be new, the Fund may have difficulty
disposing of them at a suitable price and time. In addition to limited
liquidity, these instruments may present other risks, such as high price
volatility.

      INVESTMENTS IN FOREIGN SECURITIES. The Fund may invest directly in the
securities of foreign issuers as well as securities in the form of sponsored or
unsponsored American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs") or other securities convertible
into foreign securities. The Fund may only invest in foreign securities which
are traded or denominated in U.S. dollars. ADRs are receipts typically issued by
a U.S. bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe which
evidence a similar ownership arrangement. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information, including financial
information, in the United States. Generally, ADRs are designed for use in the
United States securities markets and EDRs are designed for use in European
securities markets.

      An investment in foreign securities including ADRs may be affected by
changes in currency rates and in exchange control regulations. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information, including financial information, in the United States and,
therefore, there may not be a correlation between such information and the
market value of the unsponsored ADR. Foreign companies may not be subject to
accounting standards or government supervision comparable to U.S. companies, and
there is often less publicly available information about their operations.
Foreign companies may also be affected by political or financial instability
abroad. These risk considerations may be intensified in the case of investments
in ADRs of foreign companies that are located in emerging market countries. ADRs
of companies located in these countries may have limited marketability and may
be subject to more abrupt or erratic price movements.

      RISKS OF FOREIGN SECURITIES. Investments in foreign securities may involve
a greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.

      Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.

      With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.


                                       4
<PAGE>
      The dividends, in some cases capital gains and interest payable on certain
of the Fund's foreign portfolio securities, may be subject to foreign
withholding or other foreign taxes, thus reducing the net amount of income or
gains available for distribution to the Fund's shareholders.

      OPTIONS ON SECURITIES AND SECURITIES INDICES. The Fund may purchase and
write (sell) call and put options on any securities and securities indices.
These options may be listed on national domestic securities exchanges or foreign
securities exchanges or traded in the over-the-counter market. The Fund may
write covered put and call options and purchase put and call options as a
substitute for the purchase or sale of securities or to protect against declines
in the value of portfolio securities and against increases in the cost of
securities to be acquired.

      WRITING COVERED OPTIONS. A call option on securities written by the Fund
obligates the Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. A put option on securities written by the Fund obligates the Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. Writing covered call options may deprive the Fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities to
be acquired for its portfolio.

      All call and put options written by the Fund are covered. A written call
option or put option may be covered by (i) maintaining cash or liquid securities
in a segregated account with a value at least equal to the Fund's obligation
under the option, (ii) entering into an offsetting forward commitment and/or
(iii) purchasing an offsetting option or any other option which, by virtue of
its exercise price or otherwise, reduces the Fund's net exposure on its written
option position. A written call option on securities is typically covered by
maintaining the securities that are subject to the option in a segregated
account. The Fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index.

      The Fund may terminate its obligations under an exchange traded call or
put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions."

      PURCHASING OPTIONS. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts"), in the market value of securities of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.

      The purchase of a call option would entitle the Fund, in return for the
premium paid, to purchase specified securities or currency at a specified price
during the option period. The Fund would ordinarily realize a gain on the
purchase of a call option if, during the option period, the value of such
securities or currency exceeded the sum of the exercise price, the premium paid
and transaction costs; otherwise the Fund would realize either no gain or a loss
on the purchase of the call option.

      The purchase of a put option would entitle the Fund, in exchange for the
premium paid, to sell specified securities at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities. Put
options may also be purchased by the Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. The
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.

      The Fund's options transactions will be subject to limitations established
by each of the exchanges, boards of trade or other trading facilities on which
such options are traded. These limitations govern the maximum number of options
in each class which may be written or purchased by a single investor or group of
investors acting in


                                       5
<PAGE>
concert, regardless of whether the options are written or purchased on the same
or different exchanges, boards of trade or other trading facilities or are held
or written in one or more accounts or through one or more brokers. Thus, the
number of options which the Fund may write or purchase may be affected by
options written or purchased by other investment advisory clients of the
Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.

      RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on a domestic or foreign options exchange will exist for
any particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities or currencies.

      Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.

      The Fund's ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Board of Trustees (the "Board").

      The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.

      FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may purchase
and sell futures contracts based on various securities (such as U.S. Government
securities) and securities indices, and any other financial instruments and
indices and purchase and write call and put options on these futures contracts.
The Fund may also enter into closing purchase and sale transactions with respect
to any of these contracts and options. All futures contracts entered into by a
Fund are traded on U.S. or foreign exchanges or boards of trade that are
licensed, regulated or approved by the Commodity Futures Trading Commission
("CFTC").

      FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
or currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).

      Positions taken in the futures markets are not normally held to maturity
but are instead liquidated through offsetting transactions, which may result in
a profit or a loss. While futures contracts on securities will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.

      A Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated decline
in market prices that would adversely affect the value of the Fund's portfolio
securities. Such futures contracts may include contracts for the future delivery
of securities held by a Fund or securities with characteristics similar to those
of the Fund's portfolio securities.


                                       6
<PAGE>
      HEDGING AND OTHER STRATEGIES. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which the portfolio securities are quoted or
denominated. When securities prices are falling, the Fund can seek to offset a
decline in the value of its current portfolio securities through the sale of
futures contracts. When securities prices are rising, the Fund, through the
purchase of futures contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases.

      If, in the opinion of the Adviser, there is a sufficient degree of
correlation between price trends for the Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in the
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any differential by
having the Fund enter into a greater or lesser number of futures contracts or by
attempting to achieve only a partial hedge against price changes affecting the
Fund's portfolio securities.

      When a short hedging position is successful, any depreciation in the value
of portfolio securities will be substantially offset by appreciation in the
value of the futures position. On the other hand, any unanticipated appreciation
in the value of the Fund's portfolio securities would be substantially offset by
a decline in the value of the futures position. On other occasions, the Fund may
take a "long" position by purchasing futures contracts.

      OPTIONS ON FUTURES CONTRACTS. The purchase of put and call options on
futures contracts will give the Fund the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, the Fund obtains the benefit of the futures position if
prices move in a favorable direction but limits its risk of loss in the event of
an unfavorable price movement to the loss of the premium and transaction costs.

      The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of the Fund's assets. By
writing a call option, the Fund becomes obligated, in exchange for the premium
(upon exercise of the option) to sell a futures contract if the option is
exercised, which may have a value higher than the exercise price. Conversely,
the writing of a put option on a futures contract generates a premium which may
partially offset an increase in the price of securities that the Fund intends to
purchase. However, a Fund becomes obligated (upon exercise of the option) to
purchase a futures contract if the option is exercised, which may have a value
lower than the exercise price. The loss incurred by each Fund in writing options
on futures is potentially unlimited and may exceed the amount of the premium
received.

      The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.

      OTHER CONSIDERATIONS. The Fund will engage in futures and related options
transactions either for bona fide hedging or to facilitate portfolio management.
The Fund will not engage in futures and related options for speculative
purposes. To the extent that the Fund is using futures and related options for
hedging purposes, futures contracts will be sold to protect against a decline in
the price of securities that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities it
intends to purchase. The Fund will determine that the price fluctuations in the
futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the Fund or
securities or instruments which it expects to purchase. To the extent that the
Fund engages in nonhedging transactions in futures contracts and options on
futures to facilitate portfolio management, the aggregate initial margin and
premiums required to establish these nonhedging positions will not exceed 5% of
the net asset value of the Fund's portfolio, after taking into account
unrealized profits and losses on any such positions and excluding the amount by
which such options were in-the-money at the time of purchase.

      Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities, require the Fund to establish a
segregated account consisting of cash or liquid securities in an amount equal to
the underlying value of such contracts and options.


                                       7
<PAGE>
      While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates or securities prices may result
in a poorer overall performance for the Fund than if it had not entered into any
futures contracts or options transactions.

      Perfect correlation between the Fund's futures positions and portfolio
positions will be impossible to achieve. In the event of an imperfect
correlation between a futures position and a portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Fund may be exposed to risk of loss.

      Some futures contracts or options on futures may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit trading in a futures contract or related
option, which may make the instrument temporarily illiquid and difficult to
price. Commodity exchanges may also establish daily limits on the amount that
the price of a futures contract or related option can vary from the previous
day's settlement price. Once the daily limit is reached, no trades may be made
that day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.

      INTEREST RATE SWAPS, COLLARS, CAPS AND FLOORS. In order to hedge the value
of the Fund's portfolio against interest rate fluctuations or to facilitate
portfolio management, the Fund may, but is not required to, enter into various
interest rate transactions such as interest rate swaps and the purchase or sale
of interest rate caps and floors. To the extent that the Fund enters into these
transactions, the Fund expects to do so primarily to preserve a return or spread
on a particular investment or portion of its portfolio, to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date or to manage the Fund's interest rate exposure on any debt securities or
preferred shares issued by the Fund for leverage purposes. The Fund intends to
use these transactions only as a hedge or to facilitate portfolio management.
However, the Fund also may invest in interest rate swaps to facilitate portfolio
management. The Fund is not required to hedge its portfolio and may choose not
to do so. The Fund cannot guarantee that any hedging strategies it uses will
work.

      In an interest rate swap, the Fund exchanges with another party their
respective commitments to pay or receive interest (e.g., an exchange of fixed
rate payments for floating rate payments). For example, if the Fund holds a debt
instrument with an interest rate that is reset only once each year, it may swap
the right to receive interest at this fixed rate for the right to receive
interest at a rate that is reset every week. This would enable the Fund to
offset a decline in the value of the debt instrument due to rising interest
rates but would also limit its ability to benefit from falling interest rates.
Conversely, if the Fund holds a debt instrument with an interest rate that is
reset every week and it would like to lock in what it believes to be a high
interest rate for one year, it may swap the right to receive interest at this
variable weekly rate for the right to receive interest at a rate that is fixed
for one year. Such a swap would protect the Fund from a reduction in yield due
to falling interest rates and may permit the Fund to enhance its income through
the positive differential between one week and one year interest rates, but
would preclude it from taking full advantage of rising interest rates.

      The Fund usually will enter into interest rate swaps on a net basis (i.e.,
the two payment streams are netted out with the trust receiving or paying, as
the case may be, only the net amount of the two payments). The net amount of the
excess, if any, of the Fund's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis, and an amount of cash
or liquid instruments having an aggregate net asset value at least equal to the
accrued excess will be maintained in a segregated account by the Fund's
custodian. If the interest rate swap transaction is entered into on other than a
net basis, the full amount of the Fund's obligations will be accrued on a daily
basis, and the full amount of the Fund's obligations will be maintained in a
segregated account by the Fund's custodian.

      The Fund also may engage in interest rate transactions in the form of
purchasing or selling interest rate caps or floors. The Fund will not sell
interest rate caps or floors that it does not own. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest equal to the
difference of the index and the predetermined rate on a notional principal
amount (i.e., the reference amount with respect to which interest obligations
are determined although no actual exchange of principal occurs) from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest at the difference of the index
and the predetermined rate on a notional principal amount from the party selling
such interest rate floor.


                                       8
<PAGE>
      Typically, the parties with which the Fund will enter into interest rate
transactions will be broker-dealers and other financial institutions. The Fund
will not enter into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other party thereto is
rated investment grade quality by at least one nationally recognized statistical
rating organization at the time of entering into such transaction or whose
creditworthiness is believed by the Adviser to be equivalent to such rating. If
there is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with other similar instruments traded in the
interbank market. Caps and floors, however, are less liquid than swaps. Certain
federal income tax requirements may limit the Fund's ability to engage in
interest rate swaps.

      The Fund may in the future employ new or additional investment strategies
and hedging instruments if those strategies and instruments are consistent with
the Fund's investment objective and are permissible under applicable regulations
governing the Fund.


      SHORT-TERM TRADING. The Fund may engage in short-term trading in response
to stock market conditions, changes in interest rates or other economic trends
and developments, or to take advantage of yield disparities between various
fixed income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The success of short-term trading will depend on the
ability of the Adviser to evaluate particular securities, to anticipate relevant
market factors, including trends of interest rates and earnings and variations
from such trends, to obtain relevant information, to evaluate it promptly, and
to take advantage of its evaluations by completing transactions on a favorable
basis. For the fiscal years ended December 31, 2001 and 2002, the Fund's annual
portfolio turnover rate was 299% and 371%, respectively. The Fund's annual
portfolio turnover rates are due to mortgage dollar roll transactions.


                             INVESTMENT RESTRICTIONS

      FUNDAMENTAL INVESTMENT RESTRICTIONS. The following investment restrictions
will not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.

The Fund may not:

      1.    Issue senior securities, except as permitted by the Investment
            Company Act of 1940 Act, as amended (the "1940 Act") and the rules
            and interpretive positions of the Securities and Exchange Commission
            (the "SEC") thereunder. Senior securities that the Fund may issue in
            accordance with the 1940 Act include preferred shares, borrowing,
            futures, when-issued and delayed delivery securities and forward
            foreign currency exchange transactions.

      2.    Borrow money, except as permitted by the 1940 Act and the rules and
            interpretive positions of the SEC thereunder.

      3.    Act as an underwriter, except to the extent that the Fund may be
            deemed to be an underwriter for the purposes of the Securities Act
            of 1933, as amended (the "1933 Act"), in connection with the
            disposition of portfolio securities.

      4.    Purchase real estate or any interest therein, except through the
            purchase of corporate or certain government securities (including
            securities secured by mortgage or a leasehold interest or other
            interest in real estate and securities of companies investing in
            real estate) in accordance with the Fund's investment objective. The
            Fund does not for this purpose treat a security issued by a real
            estate or mortgage investment trust as an interest in real estate.


                                       9
<PAGE>
      5.    Make loans, except through the lending of portfolio securities and
            the purchase of securities in accordance with the Fund's investment
            policies set forth above. The Fund does not for this purpose
            consider repurchase agreements, or the purchase of all or a portion
            of an issue of publicly distributed bonds, debentures or other
            securities, whether or not the purchase is made upon the original
            issuance of the securities, to be the making of a loan.

      6.    Invest in commodities or in commodity contracts or in puts, calls or
            combinations of both except options on securities and securities
            indices, and futures contracts on securities and securities indices
            and options on such futures.

      7.    Purchase the securities conducting their principal business activity
            in the same industry if immediately after such purchase the value of
            its investment in such industries would exceed 25% of its total
            assets taken at market value.

      8.    Purchase securities of any issuer if (a) more than 5% of the Fund's
            total assets taken at market value would at the time be invested in
            the securities of such issuer other than obligations of the United
            States government or its agencies or instrumentalities or repurchase
            agreements collateralized by such obligations or (b) such purchase
            would at the time result in more than 10% of the outstanding voting
            securities of such issuer being held by the Fund.

            The Fund does not have a fundamental policy with respect to short
            sales and purchases on margin.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.

      1.    The proportion of corporate debt securities and of income-producing
            preferred and common stocks is determined by market conditions at
            the time of investment, although no more than 20% of the Fund's
            total assets will consist of such preferred and common stocks.

      2.    The Fund purchases those corporate debt securities which are issued
            by the United States or foreign corporations and government
            securities, domestic and foreign. Foreign securities will be
            purchased only if they are payable in United States dollars.

      If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.

      The Fund intends to apply for ratings for its Preferred Shares from a
nationally recognized statistical rating organization ("NRSRO"). In order to
obtain and maintain the required ratings, the Fund may be required to comply
with investment quality, diversification and other guidelines established by the
NRSRO. Such guidelines will likely be more restrictive than the restrictions set
forth above. The Fund may also be subject to certain restrictions and guidelines
imposed by lenders if the Fund engages in borrowings. The Fund does not
anticipate that such guidelines would have a material adverse effect on its
common shareholders or the Fund's ability to achieve its investment objective.

      The Fund will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.

      If allowed by the Fund's other investment policies and restrictions, the
Fund may invest up to 5% of its total assets in Russian equity securities and up
to 10% of its total assets in Russian fixed income securities. All Russian
securities must be: (1) denominated in U.S. dollars; (2) traded on a major
exchange; and (3) held physically outside of Russia.


                                       10
<PAGE>

                        THOSE RESPONSIBLE FOR MANAGEMENT


      The business of the Fund is managed by its Trustees, who elect officers
who are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Fund are also officers or directors of the Adviser, or officers and directors of
the Fund's principal distributor, John Hancock Funds, LLC (prior to February 1,
2002, John Hancock Funds, Inc.) ("John Hancock Funds").

      John Hancock Fund Complex means the open-end and closed-end investment
companies for which the Adviser acts as investment adviser.


<TABLE>
<CAPTION>
                                                                                               NUMBER OF
                                                                                               FUNDS IN
                                                                                               THE JOHN
                                                                                                HANCOCK
                                                                                                 FUND
                        POSITION(S)                                                             COMPLEX
  NAME, ADDRESS (1)      HELD WITH    TRUSTEE/OFFICER   PRINCIPAL OCCUPATION(S)                OVERSEEN         OTHER
       AND AGE              FUND      SINCE(2)            DURING PAST 5 YEARS                 BY TRUSTEE    DIRECTORSHIPS
       -------              ----      --------            -------------------                 ----------    -------------
<S>                     <C>           <C>               <C>                                   <C>           <C>
INTERESTED TRUSTEES
John M. DeCiccio (3)    Trustee       2001              Executive Vice President and Chief         52           None
Born: 1948                                              Investment Officer, John Hancock
                                                        Financial Services, Inc.; Director,
                                                        Executive Vice President and Chief
                                                        Investment Officer, John Hancock
                                                        Life Insurance Company; Chairman of
                                                        the Committee of Finance of John
                                                        Hancock Life Insurance Company;
                                                        Director, John Hancock
                                                        Subsidiaries, LLC, Hancock Natural
                                                        Resource Group, Independence
                                                        Investment LLC, Declaration
                                                        Management & Research LLC, the
                                                        Adviser and The Berkeley Financial
                                                        Group, LLC ("The Berkeley Group"),
                                                        John Hancock Funds, LLC ("John
                                                        Hancock Funds"), Massachusetts
                                                        Business Development Corporation;
                                                        Director, John Hancock Insurance
                                                        Agency, Inc. ("Insurance Agency,
                                                        Inc.") (until 1999).

Maureen Ford Goldfarb   Trustee,      2000              Executive Vice President, John             52           None
(3)                     Chairman,                       Hancock Financial Services, Inc.,
Born: 1955              President                       John Hancock Life Insurance
                        and Chief                       Company; Chairman, Director,
                        Executive                       President and Chief Executive
                        Officer                         Officer, the Adviser and The
                                                        Berkeley Group; Chairman,
                                                        Director, President and Chief
                                                        Executive Officer, John Hancock
                                                        Funds; Chairman, Director,
                                                        President and Chief Executive
                                                        Officer, Sovereign Asset
                                                        Management Corporation
                                                        ("SAMCorp."); Director, John
                                                        Hancock Subsidiaries, LLC;
                                                        Independence Investment LLC and
                                                        John Hancock Signature
                                                        Services, Inc. ("Signature
                                                        Services"); Investment Company
                                                        Institute, Board of Governors
                                                        (since 2002); Senior Vice
                                                        President, MassMutual Insurance
                                                        Co. (until 1999).
</TABLE>



                                       11
<PAGE>

<TABLE>
<S>                     <C>           <C>               <C>                                   <C>           <C>
INDEPENDENT TRUSTEES

Dennis S. Aronowitz     Trustee       1988              Professor of Law, Emeritus, Boston         21           Director,
Born: 1931                                              University School of Law (as of                         Brookline
                                                        1996).                                                  Bancorp.

Richard P. Chapman,     Trustee       1975              President and Chief Executive              21           Chairman and
Jr.                                                     Officer, Brookline Bancorp., Inc.                       Director,
Born: 1935                                              (lending) (since 1972); Chairman                        Northeast
                                                        and Director, Lumber Insurance Co.                      Retirement
                                                        (insurance) (until 2000).                               Services, Inc.
                                                                                                                (retirement
                                                                                                                administration)
                                                                                                                (since 1998).

William J. Cosgrove     Trustee       1991              Vice President, Senior Banker and          21           Director,
Born: 1933                                              Senior Credit Officer, Citibank,                        Hudson City
                                                        N.A. (banking) (retired 1991);                          Bancorp
                                                        Executive Vice President, Citadel                       (banking);
                                                        Group Representatives, Inc.                             Trustee,
                                                        (financial reinsurance).                                Scholarship
                                                                                                                Fund for Inner
                                                                                                                City Children
                                                                                                                (since 1986).

Richard A. Farrell      Trustee       1996              President, Farrell, Healer & Co.,          21           Trustee,
Born: 1932                                              Inc., (venture capital management                       Marblehead
                                                        firm)(since 1980) and General                           Savings Bank
                                                        Partner of the Venture Capital Fund                     (since 1994).
                                                        of NE; Prior to 1980, headed the
                                                        venture capital group at Bank of
                                                        Boston Corporation.

William F. Glavin       Trustee       1996              President Emeritus, Babson College         21           None.
Born: 1932                                              (as of 1998); Vice Chairman, Xerox
                                                        Corporation (until 1989); Director,
                                                        Reebok, Inc. (until 2002) and Inco
                                                        Ltd. (until 2002).

John A. Moore           Trustee       1996              President and Chief Executive              29           Director, CIIT
Born: 1939                                              Officer, Institute for Evaluating                       (nonprofit
                                                        Health Risks, (nonprofit
                                                        research). institution) (until
                                                        2001); Senior Scientist,
                                                        Sciences International (health
                                                        research)(since 1998);
                                                        Principal, Hollyhouse
                                                        (consulting)(since 2000).

Patti McGill Peterson   Trustee       1996              Executive Director, Council for            29           Director,
Born: 1943                                              International Exchange of Scholars                      Niagara Mohawk
                                                        (since 1998); Vice President,                           Power
                                                        Institute of International                              Corporation
                                                        Education (since 1998); Senior                          (electric
                                                        Fellow, Cornell Institute of Public                     utility).
                                                        Affairs, Cornell University (until
                                                        1997); President Emerita of Wells
                                                        College and St. Lawrence
                                                        University.
</TABLE>



                                       12
<PAGE>

<TABLE>
<S>                     <C>           <C>               <C>                                   <C>           <C>
John W. Pratt           Trustee       1996              Professor of Business                      21           None.
Born: 1931                                              Administration Emeritus, Harvard
                                                        University Graduate School of
                                                        Business Administration (as of
                                                        1998).
</TABLE>


The following persons are the officers of the Fund who are not also members of
the Board of Trustees.

<TABLE>
<CAPTION>
                                                                                               NUMBER OF
                                                                                              FUNDS IN THE
                                                                                              JOHN HANCOCK
                        POSITION(S)                                                           FUND COMPLEX
NAME, ADDRESS (1)        HELD WITH    TRUSTEE/OFFICER   PRINCIPAL OCCUPATION(S)               OVERSEEN BY         OTHER
    AND AGE                 FUND          SINCE(2)        DURING PAST 5 YEARS                    TRUSTEE       DIRECTORSHIPS
    -------                 ----          --------        -------------------                    -------       -------------
<S>                     <C>           <C>               <C>                                   <C>              <C>
PRINCIPAL OFFICERS
WHO ARE NOT TRUSTEES

Richard A. Brown        Senior Vice   2000              Senior Vice President, Chief              N/A
Born: 1949              President                       Financial Officer and Treasurer,
                        and Chief                       the Adviser, the  John Hancock Fund
                        Financial                       Complex, and The Berkeley Group;
                        Officer                         Second Vice President and Senior
                                                        Associate Controller, Corporate Tax
                                                        Department, John Hancock Financial
                                                        Services, Inc. (until 2001).

Thomas H. Connors       Vice          1992              Vice President and Compliance             N/A
Born: 1959              President                       Officer, the Adviser and the John
                        and                             Hancock Fund Complex; Vice
                        Compliance                      President, John Hancock Funds.
                        Officer

William H. King         Vice          1991              Vice President and Assistant              N/A
Born: 1952              President                       Treasurer, the Adviser; Vice
                        and                             President and Treasurer of the John
                        Treasurer                       Hancock Fund Complex; Assistant
                                                        Treasurer of John Hancock Funds
                                                        (until 2001).

Susan S. Newton         Senior Vice   1991              Senior Vice President, Secretary          N/A
Born: 1950              President,                      and Chief Legal Officer, SAMCorp.,
                        Secretary                       the Adviser, the John Hancock Fund
                        and Chief                       Complex, John Hancock Funds and The
                        Legal                           Berkeley Group; Vice President,
                        Officer                         Signature Services (until 2000),
                                                        Director, Senior Vice President and
                                                        Secretary, NM Capital.
</TABLE>

(1)   Business address for independent and interested Trustees and officers is
      101 Huntington Avenue, Boston, Massachusetts 02199.

(2)   Each Trustee serves until resignation, retirement age or until her or his
      successor is elected.

(3)   Interested Trustee: holds positions with the Fund's investment adviser,
      underwriter, and/or certain other affiliates.

      The Fund's Board of Trustees currently has four standing Committees: the
Audit Committee, the Administration Committee, the Contracts/Operations
Committee and the Investment Performance Committee. Each Committee is comprised
of Independent Trustees who are not "interested persons".


      The Audit Committee members are Mr. Glavin, Dr. Moore and Ms. Peterson.
All of the members of the Audit Committee are independent under the New York
Stock Exchange's Revised Listing Rules, and each member is financially literate
with at least one having accounting or financial management expertise. The



                                       13
<PAGE>

Board has adopted a written charter for the Audit Committee. The Audit Committee
recommends to the full board auditors for the Fund, monitors and oversees the
audits of the Fund, communicates with both independent auditors and internal
auditors on a regular basis and provides a forum for the auditors to report and
discuss any matters they deem appropriate at any time. For the fiscal year ended
December 31, 2002, the Audit Committee held four meetings.



      The Administration Committee's members are all of the independent
Trustees. The Administration Committee reviews the activities of the other four
standing committees and makes the final selection and nomination of candidates
to serve as Independent Trustees. The Administration Committee will consider
nominees recommended by shareholders to serve as Independent Trustees, provided
that shareholders submit recommendations in compliance with all of the pertinent
provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The
Administration Committee also works with all Trustees on the selection and
election of officers of the Fund and reviews Trustee compensation, evaluates
Trustee performance and considers committee membership rotations as well as
relevant corporate governance issues. For the fiscal year ended December 31,
2002, the Administration Committee held four meetings.



      The Contracts/Operations Committee members are Messrs. Farrell and Pratt.
The Contracts/Operations Committee oversees the initiation, operation, and
renewal of contracts between the Fund and other entities. These contracts
include advisory and subadvisory agreements, custodial and transfer agency
agreements and arrangements with other service providers. For the fiscal year
ended December 31, 2002, the Contract/Operations Committee held four meetings.



      The Investment Performance Committee members are Messrs. Aronowitz,
Chapman and Cosgrove. The Investment Performance Committee monitors and analyzes
the performance of the Fund generally, consults with the adviser as necessary if
the Fund requires special attention, and reviews peer groups and other
comparative standards as necessary. For the fiscal year ended December 31, 2002,
the Investment Performance Committee held four meetings.


      The following table provides a dollar range indicating each Trustee's
ownership of equity securities of the Fund, as well as aggregate holdings of
shares of equity securities of all funds in the John Hancock Fund Complex
overseen by the Trustee, as of December 31, 2002.


<TABLE>
<CAPTION>
                                                             AGGREGATE DOLLAR RANGE OF
                                                                 HOLDINGS IN JOHN
                             DOLLAR RANGE OF FUND SHARES       HANCOCK FUND COMPLEX
NAME OF TRUSTEE                    OWNED BY TRUSTEE           OVERSEEN BY TRUSTEE (1)
- ---------------                    ----------------           -----------------------
<S>                          <C>                             <C>
INDEPENDENT TRUSTEES
Dennis S. Aronowitz                   $1-$10,000                 $50,001-$100,000
Richard P. Chapman, Jr.               $1-$10,000                   Over $100,000
William J. Cosgrove                   $1-$10,000                   Over $100,000
Richard A. Farrell                  Over $100,000                  Over $100,000
William F. Glavin                        none                      Over $100,000
Dr. John A. Moore                        none                      Over $100,000
Patti McGill Peterson                    none                      Over $100,000
John W. Pratt                         $1-$10,000                   Over $100,000
INTERESTED TRUSTEES
John M. DeCiccio                         none                      Over $100,000
Maureen Ford Goldfarb                 $1-$10,000                   Over $100,000
</TABLE>


(1)   Under the John Hancock Deferred Compensation Plan for Independent
      Trustees, an Independent Trustee may elect to earn a return on his or her
      deferred fees equal to the amount that he or she would have


                                       14
<PAGE>
      earned if the deferred fees amount were invested in one or more funds in
      the John Hancock Fund Complex. Under these circumstances, a trustee is not
      the legal owner of the underlying shares, but participates in any positive
      or negative return on those shares to the same extent as other
      shareholders. If the Trustees were deemed to own the shares used in
      computing the value of his or deferred compensation, as of December 31,
      2002, the respective "Dollar Range of Fund Shares Owned by Trustee" and
      the "Aggregate Dollar Range of Holdings in the John Hancock Fund Complex
      Overseen by Trustee" would be none and over $100,000 for Messrs. Chapman,
      Cosgrove, Gavin and Dr. Moore.

      The following table provides information regarding the compensation paid
by the Fund and the other investment companies in the John Hancock Fund Complex
to the Independent Trustees for their services. Ms. Ford Goldfarb and Mr.
DeCiccio, interested Trustees, and each of the officers of the Fund who are
interested persons of the Adviser, and/or affiliates are compensated by the
Adviser and receive no compensation from the Fund for their services.


<TABLE>
<CAPTION>
                                                          Total Compensation from All Funds in
                              Aggregate Compensation          John Hancock Fund Complex to
Trustees                         from the Fund(1)                     Trustees(2)
- --------                         ----------------                     -----------
<S>                           <C>                         <C>
Dennis S. Aronowitz                  $1,138                             $72,000
Richard P. Chapman, Jr.*             $1,243                             $78,100
William J. Cosgrove*                 $1,191                             $75,100
Richard A. Farrell                   $1,190                             $75,000
Gail D. Fosler +                     $1,138                             $72,000
William F. Glavin*                   $1,190                             $75,000
Dr. John A. Moore*                   $1,138                             $72,000
Patti McGill Peterson                $1,138                             $72,000
John W. Pratt                        $1,140                             $72,100
                                    -------                            --------
Total                               $10,506                            $663,300
</TABLE>


(1)   Aggregate compensation from the Fund is for the calendar year ended
      December 31, 2002.


(2)   Total compensation paid by the John Hancock Fund Complex to the
      Independent Trustees is for the calendar year ended December 31, 2002. As
      of that date, there were 61 funds in the John Hancock Fund Complex, of
      which Dr. Moore and Ms. Peterson served on 39 funds and each other
      independent Trustee served on 31 funds.


(*)   As of December 31, 2002, the value of the aggregate accrued deferred
      compensation from all Funds in the John Hancock Fund Complex for Mr.
      Chapman was $46,844, Mr. Cosgrove was $166,358, Mr. Glavin was $219,230
      and for Dr. Moore was $203,650 under the John Hancock Deferred
      Compensation Plan for Independent Trustees (the "Plan").


(+)   As of December 31, 2002, Ms. Fosler resigned as Trustee of the Fund.


      All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or Directors and/or Trustees of one or more other funds for which the
Adviser serves as investment adviser.


      As of October 15, 2003 officers and Trustees of the Fund as a group owned
less than 1% of the outstanding shares of the Fund. To the knowledge of the
Fund, no persons owned of record or beneficially 5% or more of any class of the
Fund's outstanding shares of the Fund.


                     INVESTMENT ADVISORY AND OTHER SERVICES


      The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and had over $27 billion in assets under
management as of June 30, 2003 in its capacity as investment adviser to the Fund
and other funds in the John Hancock Fund Complex as well as retail and
institutional privately managed accounts. The Adviser is an affiliate of the
Life Company, one of the most recognized and



                                       15
<PAGE>

respected financial institutions in the nation. With total assets under
management of approximately $139 billion, as of June 30, 2003, the Life Company
is one of the ten largest life insurance companies in the United States, and
carries a high rating with S&P and A. M. Best. Founded in 1862, the Life Company
has been serving clients for over 130 years.



      The Fund has entered into an investment management contract, as amended
and restated as of August 22, 2003 (the "Advisory Agreement"), with the Adviser,
which was approved by the Fund's shareholders on August 22, 2003. Pursuant to
the Advisory Agreement, the Adviser will: (a) furnish the Fund with advice and
recommendations through an investment program consistent with the investment
policies of the Fund with respect to the purchase, holding and disposition of
portfolio securities, and (b) provide supervision over all aspects of the Fund's
operations except those which are delegated to a custodian, transfer agent or
other agent.


      The Adviser provides the Fund with office space, supplies and other
facilities required for the business of the Fund. It pays the compensation of
all officers and employees of the Fund and pays the expenses of clerical
services relating to the administration of the Fund. All expenses which are not
specifically paid by the Adviser and which are incurred in the operation of the
Fund are borne by the Fund, including independent Trustees' fees and legal,
accounting, financial management, tax and auditing fees and expenses of the
Fund.

      For its advisory and administrative services, the Fund will accrue and pay
to the Adviser quarterly, as compensation for the services rendered and expenses
paid by it, a fee on an annual basis equal to 0.650% of the Fund's average
weekly managed assets for the first $150 million, 0.375% of such assets for the
next $50 million, 0.350% of such assets for the next $100 million, and 0.300% of
such assets for any amounts over $300 million. Because the fee paid to the
Adviser is determined on the basis of the Fund's managed assets, the Adviser's
interest in determining whether to leverage the Fund may differ from the
interests of the Fund. "Managed assets" means the total assets of the Fund
(including any assets attributable to any leverage that may be outstanding)
minus the sum of accrued liabilities (other than liabilities representing
financial leverage). The liquidation preference of any preferred shares is not a
liability.

      Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objective or other factors, a particular
security may be bought for one or more funds or clients when one or more other
funds or clients are selling the same security. If opportunities for purchase or
sale of securities by the Adviser for the Fund or for other funds or clients for
which the Adviser renders investment advice arise for consideration at or about
the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser or its affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.

      Pursuant to its Advisory Agreement, the Adviser is not liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Advisory Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless disregard
by the Adviser of its obligations and duties under the Advisory Agreement.

      Under the Advisory Agreement, the Fund may use the name "John Hancock" or
any name derived from or similar to it only for so long as the Advisory
Agreement or any extension, renewal or amendment thereof remains in effect. If
the Advisory Agreement is no longer in effect, the Fund (to the extent that it
lawfully can) will cease to use such a name or any other name indicating that it
is advised by or otherwise connected with the Adviser. In addition, the Adviser
or the Life Company may grant the nonexclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.

      The Board is responsible for overseeing the performance of the Adviser and
determining whether to approve and renew the Advisory Agreement. On May 20,
2003, the Board requested and received from the Adviser certain information the
Board deemed important in evaluating the Adviser's qualifications, the
reasonableness of the proposed fee, and the potential benefits that the Fund and
its common shareholders may realize from a leveraging strategy. In addition, the
Board drew upon its experience in acting as trustees for other investment
companies. The primary factors that the Board considered to be favorable in
approving the Advisory Agreement were:


                                       16

<PAGE>


      -     The performance results of the Fund and the Adviser's overall
            management, as compared with relevant performance standards,
            including the performance results of comparable intermediate and
            long-term fixed income funds derived from data provided by Lipper
            Inc. and appropriate market indices. In that regard, the Trustees
            noted that the Fund's performance for the one, three and five year
            periods ended December 31, 2002 exceeded the performance of the
            comparative closed-end bond fund universe prepared by Lipper, Inc.
            and the applicable Lipper index. Within the Lipper peer group, the
            Fund ranked in the second or third quintile (with first being the
            best in a one to five ranking) on a one, three, five and ten year
            basis.



      -     The reasonableness of the advisory fees paid by the Fund based on
            the average advisory fees for comparable funds. The Board also took
            into account the nature of the fee arrangements, which include
            breakpoints that adjust the fee downward as the size of the Fund's
            portfolio increases. The Trustees noted that the Fund's management
            fee and total expense ratio were slightly higher than the average
            management fee and expense ratio of its Lipper peer group, but noted
            that the fees and expenses were not significantly higher and as the
            size of the Fund grew, including through the issuance of the
            Preferred Shares, the Fund would benefit from the break point
            structure of the management fee.


      -     The Adviser's investment team and portfolio management process, as
            well as the composition and overall performance of the Fund's
            portfolio on both a short-term and long-term basis. The Board
            considered whether the Fund should obtain alternative portfolio
            management services and concluded that, under all the circumstances
            and based on its informed business judgment, it was in the best
            interest of the Fund's shareholders to approve the Advisory
            Agreement, as amended and restated to reflect the issuance of
            preferred shares.

      The Advisory Agreement was approved by all Trustees. The Advisory
Agreement will continue in effect from year to year, provided that its
continuance is approved annually after its initial two year term both (i) by the
holders of a majority of the outstanding voting securities of the Fund or by the
Trustees, and (ii) by a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any such parties. The Advisory Agreement
may be terminated on 60 days written notice by any party or by vote of a
majority of the outstanding voting securities of the Fund and will terminate
automatically if assigned.


      ACCOUNTING AND LEGAL SERVICES AGREEMENT. The Fund is a party to an
Accounting and Legal Services Agreement with the Adviser. Pursuant to this
agreement, the Adviser provides the Fund with certain tax, accounting and legal
services. For the fiscal years ended December 31, 2000, 2001 and 2002, the Fund
paid fees in the amount of $31,377, $35,715 and $52,579, respectively.


      PROXY VOTING. The Fund's Trustees have delegated to the Adviser the
authority to vote proxies on behalf of the Fund. The Trustees have approved the
proxy voting guidelines of the Adviser and will review the guidelines and
suggest changes as they deem advisable. A summary of the Adviser's proxy voting
guidelines and proxy voting procedures are attached to this Statement of
Additional Information as Appendix C.

      CODE OF ETHICS. Personnel of the Adviser and its affiliates may trade
securities for their personal accounts. The Fund also may hold, or may be buying
or selling, the same securities. To prevent the Fund from being disadvantaged,
the adviser(s), principal underwriter and the Fund have adopted a code of
ethics, which restricts the trading activity of those personnel.

     ADDITIONAL INFORMATION CONCERNING THE AUCTIONS FOR THE PREFERRED SHARES

         GENERAL. Depository Trust Company ("DTC") will act as the securities
depository with respect to the Preferred Shares. One certificate for all of the
Preferred Shares of any series will be registered in the name of Cede & Co., as
nominee of the securities depository. Such certificate will bear a legend to the
effect that such certificate is issued subject to the provisions restricting
transfers of the Preferred Shares contained in the By-Laws. Prior to the
commencement of the right of holders of the Preferred Shares to elect a majority
of the Trustees, as described under "Description of Preferred Shares -- Voting
Rights" in the prospectus, Cede & Co. will be the holder of record of the
Preferred Shares and owners of such shares will not be entitled to receive
certificates representing their ownership interest in such shares.


                                       17
<PAGE>
      DTC, a New York-chartered limited purpose trust company, performs services
for its participants, some of whom (and/or their representatives) own DTC. DTC
maintains lists of its participants and will maintain the positions (ownership
interests) held by each such participant in the Preferred Shares, whether for
its own account or as a nominee for another person.

      CONCERNING THE AUCTION AGENT. Deutsche Bank Trust Company Americas (the
"Auction Agent") will act as agent for the Fund in connection with the auctions
of the Preferred Shares (the "Auctions"). In the absence of willful misconduct
or gross negligence on its part, the Auction Agent will not be liable for any
action taken, suffered, or omitted or for any error of judgment made by it in
the performance of its duties under the auction agency agreement between the
trust and the Auction Agent and will not be liable for any error of judgment
made in good faith unless the Auction Agent was grossly negligent in
ascertaining the pertinent facts.

      The Auction Agent may conclusively rely upon, as evidence of the
identities of the holders of the Preferred Shares, the Auction Agent's registry
of holders, and the results of auctions and notices from any Broker-Dealer (or
other person, if permitted by the Fund) with respect to transfers described
under "The Auction -- Secondary Market Trading and Transfers of Preferred
Shares" in the prospectus and notices from the Fund. The Auction Agent is not
required to accept any such notice for an auction unless it is received by the
Auction Agent by 3:00 p.m., New York City time, on the business day preceding
such Auction.

      The Auction Agent may terminate its auction agency agreement with the Fund
upon notice to the Fund on a date no earlier than 60 days after such notice. If
the Auction Agent should resign, the Fund will use its best efforts to enter
into an agreement with a successor auction agent containing substantially the
same terms and conditions as the auction agency agreement. The Fund may remove
the Auction Agent provided that prior to such removal the Fund shall have
entered into such an agreement with a successor auction agent.


      BROKER-DEALERS. The Auction Agent after each Auction for Preferred Shares
will pay to each broker-dealer that has entered into an agreement with the
Auction Agent (a "Broker-Dealer"), from funds provided by the Fund, a service
charge at the annual rate of 0.25% in the case of any Auction immediately
preceding the dividend period of less than one year, or a percentage agreed to
by the Fund and the Broker-Dealer in the case of any auction immediately
preceding a dividend period of one year or longer, of the purchase price of the
Preferred Shares placed by such Broker-Dealer at such auction. For the purposes
of the preceding sentence, the Preferred Shares will be placed by a
Broker-Dealer if such shares were (a) the subject of hold orders deemed to have
been submitted to the Auction Agent by the Broker-Dealer and were acquired by
such Broker-Dealer for its customers who are beneficial owners or (b) the
subject of an order submitted by such Broker-Dealer that is (i) a submitted bid
of an existing holder that resulted in the existing holder continuing to hold
such shares as a result of the Auction or (ii) a submitted bid of a potential
bidder that resulted in the potential holder purchasing such shares as a result
of the Auction or (iii) a valid hold order.


      The Fund may request the Auction Agent to terminate one or more
Broker-Dealer agreements at any time, provided that at least one Broker-Dealer
agreement is in effect after such termination.

      The Broker-Dealer agreement provides that a Broker-Dealer (other than an
affiliate of the Fund) may submit orders in auctions for its own account, unless
the Fund notifies all Broker-Dealers that they may no longer do so, in which
case Broker-Dealers may continue to submit hold orders and sell orders for their
own accounts. Any Broker-Dealer that is an affiliate of the Fund may submit
orders in Auctions, but only if such orders are not for its own account. If a
Broker-Dealer submits an order for its own account in any Auction, it might have
an advantage over other bidders because it would have knowledge of all orders
submitted by it in that Auction; such Broker-Dealer, however, would not have
knowledge of orders submitted by other Broker-Dealers in that auction.

                            RATING AGENCY GUIDELINES


      The description of Moody's rating guidelines contained in this Statement
of Additional Information does not purport to be complete and is subject to and
qualified in its entirety by reference to the By-Laws. A copy of the By-Laws is
filed as an exhibit to the registration statement of which the Prospectus and
this Statement of Additional Information are a part and may be inspected, and
copies thereof may be obtained, as described in the prospectus.



                                       18

<PAGE>
      The composition of the Fund's portfolio reflects guidelines (referred to
herein as the "Rating Agency Guidelines") established by Moody's in connection
with the Fund's receipt of a rating of "Aaa" from Moody's for the Preferred
Shares. These Rating Agency Guidelines relate, among other things, to industry
and credit quality characteristics of issuers and diversification requirements
and specify various discount factors for different types of securities (with the
level of discount greater as the rating of a security becomes lower). Under the
Rating Agency Guidelines, certain types of securities in which the Fund may
otherwise invest consistent with its investment strategy are not eligible for
inclusion in the calculation of the discounted value of the Fund's portfolio.
Such instruments include, for example, private placements (other than Rule 144A
securities) and other securities not within the investment guidelines.
Accordingly, although the Fund reserves the right to invest in such securities
to the extent set forth herein, they have not and it is anticipated that they
will not constitute a significant portion of the Fund's portfolio.

      The Rating Agency Guidelines require that the Fund maintain assets having
an aggregate discounted value, determined on the basis of the Rating Agency
Guidelines, greater than the aggregate liquidation preference of the Preferred
Shares plus specified liabilities, payment obligations and other amounts, as of
periodic valuation dates. The Rating Agency Guidelines also require the Fund to
maintain asset coverage for the Preferred Shares on a non-discounted basis of at
least 200% as of the end of each month, and the 1940 Act requires this asset
coverage as a condition to paying dividends or other distributions on the Fund's
common shares. The Fund has agreed with Moody's that the auditors must certify
once per year the asset coverage test on a date randomly selected by the
auditor. The effect of compliance with the Rating Agency Guidelines may be to
cause the Fund to invest in higher quality assets and/or to maintain relatively
substantial balances of highly liquid assets or to restrict the Fund's ability
to make certain investments than would otherwise be deemed potentially desirable
by the Adviser, including private placements other than Rule 144A securities.
The Rating Agency Guidelines are subject to change from time to time with the
consent of Moody's and would not apply if the Fund in the future elected not to
use investment leverage consisting of senior securities rated by one or more
rating agencies, although other similar arrangements might apply with respect to
other senior securities that the Fund may issue.

      The Fund intends to maintain, at specified times, a discounted value for
its portfolio at least equal to the amount specified by Moody's (the "Preferred
Shares Basic Maintenance Amount"). Moody's has established guidelines for
determining discounted value. To the extent any particular portfolio holding
does not satisfy the Rating Agency's Guidelines, all or a portion of such
holding's value will not be included in the calculation of discounted value (as
defined by such rating agency).

      The Rating Agency Guidelines do not impose any limitations on the
percentage of Fund's assets that may be invested in holdings not eligible for
inclusion in the calculation of the discounted value of the Fund's portfolio.
The amount of such assets included in the portfolio at any time may vary
depending upon the rating, diversification and other characteristics of the
assets included in the portfolio which are eligible for inclusion in the
discounted value of the portfolio under the Rating Agency Guidelines.

      A credit rating of preferred stock does not address the likelihood that a
resale mechanism (e.g., the Auction) will be successful. As described by
Moody's, an issue of preferred stock which is rated "Aaa" is considered to be
top-quality preferred stock with good asset protection and the least risk of
dividend impairment within the universe of preferred stocks. "Aaa" ratings
denote the lowest expectation of credit risk and are assigned only in case of
exceptionally strong capacity for timely payment of financial commitments. This
capacity is highly unlikely to be adversely affected by foreseeable events.

      Ratings are not recommendations to purchase, hold or sell Preferred
Shares, inasmuch as the rating does not comment as to market price or
suitability for a particular investor. The rating is based on current
information furnished to Moody's by the Fund and obtained by Moody's from other
sources. The rating may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.

      For purposes of calculating the discounted value of the Fund's portfolio
under current Rating Agency Guidelines, the fair market value of portfolio
securities eligible for consideration under such guidelines ("Moody's Eligible
Assets") must be discounted by certain discount factors set forth below
("Moody's Discount Factors"). The discounted value ("Discounted Value") of a
portfolio security under Rating Agency Guidelines is the market value thereof,
determined as specified by Moody's, divided by the Moody's Discount Factor.
According to Rating Agency Guidelines, the portfolio coverage ratio of Moody's
Eligible Assets to liabilities should not be less than 130% to


                                       19
<PAGE>
maintain the rating. The Moody's Discount Factor with respect to securities
other than those described below will be the percentage provided in writing by
Moody's.

      MOODY'S DISCOUNT FACTOR. For the purposes of determining the Discounted
Value of any Moody's Eligible Asset, the percentage is determined as follows.
According to the Rating Agency Guidelines, in addition to standard weekly
reporting, the Fund must notify Moody's if the portfolio coverage ratio of the
Discounted Value of Moody's Eligible Assets to liabilities is less than 130%.
Computation of rating agency asset coverage ratio requires use of the
diversification tables prior to applying Moody's Discount Factors noted below
and after identifying Moody's Eligible Assets for purposes of completing basic
maintenance tests. The Moody's Discount Factor for any Moody's Eligible Asset
other than the securities set forth below will be the percentage provided in
writing by Moody's.

      Corporate debt securities. The percentage determined by reference to the
rating on such asset with reference to the remaining term to maturity of such
asset, in accordance with the table set forth below.




<TABLE>
<CAPTION>
                                                                      Moody's Rating Category
                                                     ----------------------------------------------------------------
                                                                                                           Below B
          Term to Maturity of Corporate                                                                      and
                Debt Security (1)                     Aaa      Aa       A       Baa      Ba        B      Unrated (2)
                -----------------                     ---      --       -       ---      --        -      -----------
<S>                                                  <C>       <C>     <C>      <C>      <C>      <C>        <C>
1 year or less                                        109%     112%    115%     118%     137%     150%       250%
2 years or less (but longer than 1 year) ........     115      118     122      125      146      160        250
3 years or less (but longer than 2 years) .......     120      123     127      131      153      168        250
4 years or less (but longer than 3 years) .......     126      129     133      138      161      176        250
5 years or less (but longer than 4 years) .......     132      135     139      144      168      185        250
7 years or less (but longer than 5 years) .......     139      143     147      152      179      197        250
10 years or less (but longer than 7 years) ......     145      150     155      160      189      208        250
15 years or less (but longer than 10 years) .....     150      155     160      165      196      216        250
20 years or less (but longer than 15 years) .....     150      155     160      165      196      228        250
30 years or less (but longer than 20 years) .....     150      155     160      165      196      229        250
Greater than 30 years ...........................     165      173     181      189      205      240        250
</TABLE>


- ---------------------------

(1)   The Moody's Discount Factor for debt securities shall also be applied to
      any interest rate swap or cap, in which case the rating of the
      counterparty shall determine the appropriate rating category.



(2)   Unless conclusions regarding liquidity risk as well as estimates of both
      the probability and severity of default for the corporation's assets can
      be derived from other sources as well as combined with a number of sources
      as present by the corporation to Moody's, securities rated below B by
      Moody's and unrated securities, which are securities rated by neither
      Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If
      a corporate debt security is unrated by Moody's, S&P or Fitch, the Fund
      will use the percentage set forth under "Below B and Unrated" in the
      corporate debt table above. Ratings assigned by S&P or Fitch are generally
      accepted by Moody's at face value. However, adjustments to face value may
      be made to particular categories of credits for which the S&P and/or Fitch
      rating does not seem to approximate



                                       20
<PAGE>

      a Moody's rating equivalent. Split rated securities assigned by S&P and
      Fitch will be accepted at the lower of the two ratings.



      For corporate debt securities that do not pay interest in U.S. dollars,
the Fund will contact Moody's to obtain the applicable currency conversion
rates.










         U.S. Government Securities and U.S. Treasury Strips.




<TABLE>
<CAPTION>
                                                           U.S. Government and Agency        U.S. Treasury Strips
               Remaining Term to Maturity                  Securities Discount Factor          Discount Factor
               --------------------------                  --------------------------          ---------------
<S>                                                        <C>                               <C>
1 year or less.........................................               107%                           107%
2 years or less (but longer than 1 year)...............               113                            115
3 years or less (but longer than 2 years)..............               118                            121
4 years or less (but longer than 3 years)..............               123                            128
5 years or less (but longer than 4 years)..............               128                            135
7 years or less (but longer than 5 years)..............               135                            147
10 years or less (but longer than 7 years).............               141                            163
15 years or less (but longer than 10 years)............               146                            191
20 years or less (but longer than 15 years)............               154                            218
30 years or less (but longer than 20 years)............               154                            244
</TABLE>




      Short-term instruments and cash. The Moody's Discount Factor applied to
short-term portfolio securities, including without limitation short-term
corporate debt securities, short term money market instruments and short-term
municipal debt obligations, is (A) 100%, so long as such portfolio securities
mature or have a demand feature at par exercisable within the Moody's exposure
period, as described below ("Moody's Exposure Period"); (B) 115%, so long as
such portfolio securities do not mature within the Moody's Exposure Period or
have a demand feature at par not exercisable within the Moody's Exposure Period;
and (C) 125%, if such securities are not rated by Moody's, so long as such
portfolio securities are rated at least A-1+/AA or SP-1+/AA by S&P and mature or
have a demand feature at par exercisable within the Moody's Exposure Period. A
Moody's Discount Factor of 100% will be applied to cash. Moody's rated 2a-7
money market funds will also have a discount factor of 100%.






      Rule 144A securities. The Moody's Discount Factor applied to Rule 144A
securities whose terms include rights to registration under the 1933 Act, within
one year and Rule 144A securities which do not have registration rights within
one year will be 120% and 130%, respectively, of the Moody's Discount Factor
which would apply were the securities registered under the Securities Act of
1933.





                                       21
<PAGE>










      Convertible securities (including convertible preferred securities).



<TABLE>
<CAPTION>
Moody's Rating                       Utility             Industrial           Financial            Transportation
- --------------                       -------             ----------           ---------            --------------
<S>                                  <C>                 <C>                  <C>                  <C>
Aaa                                  162%                256%                 233%                 250%
Aa                                   167%                261%                 238%                 265%
A                                    172%                266%                 243%                 275%
Baa                                  188%                282%                 259%                 285%
Ba                                   195%                290%                 265%                 290%
B                                    199%                293%                 270%                 295%
Below B and Unrated (1)              300%                300%                 300%                 300%
</TABLE>




(1)   Unless conclusions regarding liquidity risk as well as estimates of both
      the probability and severity of default for the corporation's assets can
      be derived from other sources as well as combined with a number of sources
      as present by the corporation to Moody's, securities rated below B by
      Moody's and unrated securities, which are securities rated by neither
      Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If
      a corporate debt security is unrated by Moody's, S&P or Fitch, the Fund
      will use the percentage set forth under "Below B and Unrated" in this
      table. Ratings assigned by S&P or Fitch are generally accepted by Moody's
      at face value. However, adjustments to face value may be made to
      particular categories of credits for which the S&P and/or Fitch rating
      does not seem to approximate a Moody's rating equivalent. Split rated
      securities assigned by S&P and Fitch will be accepted at the lower of the
      two ratings.



      Common stock. The following Moody's Discount Factors will be applied to
the common stock holdings:



<TABLE>
<CAPTION>
Common Stocks                   Utility                      Industrial                   Financial
- -------------                   -------                      ----------                   ---------
<S>                             <C>                          <C>                          <C>
7 week exposure period          170%                         264%                         241%
</TABLE>




      Common stock and preferred stock of REITs and other real estate companies.




<TABLE>
<CAPTION>
                                                                           Moody's Discount Factor (1)(2)(3)
                                                                           ---------------------------------
<S>                                                                        <C>
Common Stock of REITs                                                                     154%
Preferred Stock of REITs
     with senior implied Moody's (or S&P) rating:                                         154%
     without senior implied Moody's (or S&P) rating:                                      208%
Preferred Stock of other real estate companies
     with senior implied Moody's (or S&P) rating:                                         208%
     without senior implied Moody's (or S&P) rating:                                      250%
</TABLE>



(1)   A Moody's Discount Factor of 250% will be applied to those assets in a
      single Moody's real estate industry / property sector classification which
      exceed 30% of Moody's Eligible Assets but are not greater than 35% of
      Moody's Eligible Assets.



                                       22
<PAGE>

(2)   A Moody's Discount Factor of 250% will be applied if dividends on such
      securities have not been paid consistently (either quarterly or annually)
      over the previous three years, or for such shorter time period that such
      securities have been outstanding.



(3)   A Moody's Discount Factor of 250% will be applied if the market
      capitalization (including common stock and preferred stock) of an issuer
      is below $500 million.



      Debt securities of REITS and other real estate companies.




<TABLE>
<CAPTION>
                                                                           Moody's Rating
                                               ---------------------------------------------------------------------
                                                                                                         Below B
                                                                                                           and
Term to maturity                                Aaa      Aa        A         Baa       Ba       B        Unrated (1)
- ----------------                                ---      --        -         ---       --       -        -----------
<S>                                             <C>      <C>       <C>       <C>       <C>      <C>      <C>
1 year or less                                  109%     112%      115%      118%      137%     150%      250%
2 years or less (but longer than 1 year)        115      118       122       125       146      160       250
3 years or less (but longer than 2 years)       120      123       127       131       153      168       250
4 years or less (but longer than 3 years)       126      129       133       138       161      176       250
5 years or less (but longer than 4 years)       132      135       139       144       168      185       250
7 years or less (but longer than 5 years)       139      143       147       152       179      197       250
10 years or less (but longer than 7 years)      145      150       155       160       189      208       250
15 years or less (but longer than 10 years)     150      155       160       165       196      216       250
20 years or less (but longer than 15 years)     150      155       160       165       196      228       250
30 years or less (but longer than 20 years)     150      155       160       165       196      229       250
Greater than 30 years                           165      173       181       189       205      240       250
</TABLE>




(1)   Unless conclusions regarding liquidity risk as well as estimates of both
      the probability and severity of default for a corporation's assets can be
      derived from other sources, securities rated below B by Moody's and
      unrated securities, which are securities rated by neither Moody's, S&P nor
      Fitch, are limited to 10% of Moody's Eligible Assets. If a corporate,
      municipal or other debt security is unrated by Moody's, S&P or Fitch, the
      Fund will use the percentage set forth under "Below B and Unrated" in this
      table. Ratings assigned by S&P or Fitch are generally accepted by Moody's
      at face value. However, adjustments to face value may be made to
      particular categories of credits for which the S&P and/or Fitch rating
      does not seem to approximate a Moody's rating equivalent. Split rated
      securities assigned by S&P and Fitch will be accepted at the lower of the
      two ratings.



      Bank loans. The Moody's Discount Factor applied to bank loans means Senior
Loans(1) with outstanding amounts greater than $25 million(2).



<TABLE>
<CAPTION>
Split Baa and Ba                         Split Ba, B, and Split B             Caa and Split Caa incl. Distressed
- ----------------                         ------------------------             ----------------------------------
<S>                                      <C>                                  <C>
136%                                     149%                                 250%
</TABLE>




(1)   Non-senior loans to be discounted using the factors, plus 10%.



(2)   Loans with outstandings less than $250 million accorded discounts above,
      plus incremental discounts of 20%.



      Asset-backed and mortgage-backed securities. The Moody's Discount Factor
applied to asset-backed securities shall be 131%. The Moody's Discount Factor
applied to collateralized mortgage obligations, planned amortization class bonds
and targeted amortization class bonds shall be determined by reference to the
weighted average life of the security in accordance with the table set forth
below.




<TABLE>
<CAPTION>
     Remaining Term to Maturity                         Moody's Discount Factor
     --------------------------                         -----------------------
<S>                                                     <C>
3 years or less                                                133%
7 years or less (but longer than 3 years)                      142
10 years or less (but longerthan 7 years)                      158
20 years or less (but longer than 10 years)                    174
</TABLE>





                                       23
<PAGE>

      The Moody's Discount Factor applied to residential mortgage pass-throughs
      (including private-placement mortgage pass-throughs) shall be determined
      by reference to the coupon paid by such security in accordance with the
      table set forth below.



<TABLE>
<CAPTION>
                                Coupon              Moody's Discount Factor
                                ------              -----------------------
<S>                             <C>                 <C>
                                  5%                            166 %
                                  6%                            162
                                  7%                            158
                                  8%                            154
                                  9%                            151
                                  10%                           148
                                  11%                           144
                                  12%                           142
                                  13%                           139
                              adjustable                        165
</TABLE>



      The Moody's Discount Factor applied to fixed-rate pass-through that are
      not rated by Moody's and are serviced by a servicer approved by Moody's
      shall be determined by reference to the table in the following paragraph
      (relating to whole loans).



      The Moody's Discount Factor applied to whole loans shall be determined by
      reference to the coupon paid by such security in accordance with the table
      set forth below.



<TABLE>
<CAPTION>
                                Coupon                 Moody's Discount Factor
                                ------                 -----------------------
<S>                             <C>                    <C>
                                  5%                              172 %
                                  6%                              167
                                  7%                              163
                                  8%                              159
                                  9%                              155
                                  10%                             151
                                  11%                             148
                                  12%                             145
                                  13%                             142
                              adjustable                          170
</TABLE>




      Municipal debt obligations. The Moody's Discount Factor applied to
municipal debt obligations shall be the percentage determined by reference to
the rating on such asset and the shortest Exposure Period set forth opposite
such rating that is the same length as or is longer than the Moody's Exposure
Period, in accordance with the table set forth below:



<TABLE>
<CAPTION>
Exposure Period                Aaa      Aa       A        Baa     MIG-1 (1)     MIG-1 (2)    Unrated (3)
- ---------------                ---      --       -        ---     ---------     ---------    -----------
<S>                            <C>      <C>      <C>      <C>     <C>           <C>          <C>
7 weeks                        151%     159%     160%     173%    135%          148%         225%
8 weeks or less (but greater   154      161      168      176     137           149          231
than 7 weeks)
9 weeks or less (but greater   158      163      170      177     138           150          240
than 8 weeks)
</TABLE>


- -----------------------------

(1)   Municipal debt obligations not rated by Moody's but rated equivalent to
      MIG-1, VMIG-1 or P-1 by S&P and Fitch that have a maturity less than or
      equal to 49 days.



(2)   Municipal debt obligations not rated by Moody's but rated equivalent to
      MIG-1, VMIG-1 or P-1 by S&P and Fitch that have a maturity greater than 49
      days.



(3)   Unless conclusions regarding liquidity risk as well as estimates of both
      the probability and severity of default for the municipal issuer's assets
      can be derived from other sources as well as combined with a number of
      sources as presented



                                       24
<PAGE>

      by the Fund to Moody's securities rated below Baa by Moody's and unrated
      securities, which are securities rated by neither Moody's, S&P nor Fitch,
      are limited to 10% of Moody's Eligible Assets. If a municipal debt
      security is unrated by Moody's, S&P or Fitch, the Fund will use the
      percentage set forth under "Unrated" in this table. Ratings assigned by
      S&P or Fitch are generally accepted by Moody's at face value. However,
      adjustments to face value may be made to particular categories of credits
      for which the S&P and/or Fitch rating does not seem to approximate a
      Moody's rating equivalent. Split rated securities assigned by S&P and
      Fitch will be accepted at the lower of the two ratings.



      By resolution of the Board of Trustees and without amending the By-Laws of
the Fund or otherwise submitting such resolution for Shareholder approval, (i)
the Moody's Discount Factors may be changed from those set forth above and (ii)
additional Moody's Discount Factors may be established for other Eligible Assets
if, in each case, the Rating Agency has advised the Fund in writing that such
change or addition would not adversely affect its then-current rating of the
Auction Preferred Shares, provided that the Fund shall cause to be made
available a written statement setting forth the Moody's Discount Factors, as
changed or as supplemented, for inspection by the Holders at the principal
executive office of the Fund.


      MOODY'S ELIGIBLE ASSETS. Under current Rating Agency Guidelines, the
following are considered to be Moody's Eligible Assets:

      Cash (including interest and dividends due on assets rated (A) Baa3 or
higher by Moody's if the payment date is within five business days of the
valuation date, as defined the Fund's By-Laws (the "Valuation Date"), (B) A2 or
higher if the payment date is within thirty days of the Valuation Date, and (C)
A1 or higher if the payment date is within the Moody's Exposure Period) and
receivables for Moody's Eligible Assets sold if the receivable is due within
five Business Days of the Valuation Date, and if the trades which generated such
receivables are (A) settled through clearing house firms with respect to which
the Fund has received prior written authorization from Moody's or (B) (1) with
counterparties having a Moody's long-term debt rating of at least Baa3 or (2)
with counterparties having a Moody's short term money market instrument rating
of at least P-1.


      Short term money market instruments so long as (A) such securities are
rated at least P-1, (B) in the case of demand deposits, time deposits and
overnight funds, the supporting entity is rated at least A2, or (C) in all other
cases, the supporting entity (1) is rated A2 and the security matures within one
month, (2) is rated A1 and the security matures within three months or (3) is
rated at least Aa3 and the security matures within six months. In addition,
Moody's rated 2a-7 money market funds are also eligible investments.

      U.S. Government Securities and U.S. Treasury Strips.

      Rule 144A securities.


                                       25
<PAGE>

      Senior loans and other bank loans approved by Moody's.



      Preferred stocks, if (A) dividends on such preferred stock are cumulative,
(B) such securities provide for the periodic payment of dividends thereon in
cash in U.S. dollars or euros and do not provide for conversion or exchange
into, or have warrants attached entitling the holder to receive, equity capital
at any time over the respective lives of such securities, (C) the issuer of such
a preferred stock has common stock listed on either the New York Stock Exchange
or the American Stock Exchange, (D) the issuer of such a preferred stock has a
senior debt rating from Moody's of Baa1 or higher or a preferred stock rating
from Moody's of Baa3 or higher and (E) such preferred stock has paid consistent
cash dividends in U.S. dollars or euros over the last three years or has a
minimum rating of A1 (if the issuer of such preferred stock has other preferred
issues outstanding that have been paying dividends consistently for the last
three years, then a preferred stock without such a dividend history would also
be eligible). In addition, the preferred stocks must have the following
diversification requirements: (X) the preferred stock issue must be greater than
$50 million and (Y) the minimum holding by the Trust of each issue of preferred
stock is $500,000 and the maximum holding of preferred stock of each issue is $5
million. In addition, preferred stocks issued by transportation companies will
not be considered Moody's Eligible Assets.



      Common stocks (i) which (A) are traded on a nationally recognized stock
exchange or in the over-the-counter market, (B) if cash dividend paying, pay
cash dividends in U.S/ dollars and (C) may be sold without restriction by the
corporation; provided, however, that (y) common stock which, while a Moody's
Eligible Asset owned by the Fund, ceases paying any regular cash dividend will
no longer be considered a Moody's Eligible Asset until 71 days after the date of
the announcement of such cessation, unless the issuer of the common stock has
senior debt securities rated at least A3 by Moody's and (z) the aggregate Market
Value of the Fund's holdings of the common stock of any issuer in excess of 4%
in the case of utility common stock and 6% in the case of non-utility common
stock of the aggregate Market Value of the Fund's holdings shall not be Moody's
Eligible Assets, (ii) which are securities denominated in any currency other
than the U.S. dollar or securities of issuers formed under the laws of
jurisdictions other than the United States, its states and the District of
Columbia for which there are dollar-denominated ADRs or their equivalents which
are traded in the United States on exchanges or over-the-counter and are issued
by banks formed under the laws of the United States, its states or the District
of Columbia or (iii) which are securities of issuers formed under the laws of
jurisdictions other than the United States (and in existence for at least five
years) for which no ADRs are traded; provided, however, that the aggregate
Market Value of the Fund's holdings of securities denominated in currencies
other than the U.S. dollar and ADRs in excess of (A) 6% of the aggregate Market
Value of the Outstanding shares of common stock of such issuer thereof or (B)
10% of the Market Value of the Fund's Moody's Eligible Assets with respect to
issuers formed under the laws of any single such non-U.S. jurisdiction other
than Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland,
Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland
and the United Kingdom, shall not be a Moody's Eligible Asset.



      Asset-backed and mortgage-backed securities,



                                       26
<PAGE>

      (A) Asset-backed securities if (1) such securities are rated at least Aa3
by Moody's or at least AA- by S&P or Fitch, (2) the securities are part of an
issue that is $250 million or greater, or the issuer of such securities has a
total of $500 million or greater of asset-backed securities outstanding at the
time of purchase of the securities by the Fund and (3) the expected average life
of the securities is not greater than 4 years;



      (B) Collateralized mortgage obligations ("CMOs"), including CMOs with
interest rates that float at a multiple of the change in the underlying index
according to a pre-set formula, provided that any CMO held by the Fund (1) has
been rated Aaa by Moody's or AAA by S&P or Fitch, (2) does not have a coupon
which floats inversely, (3) is not portioned as an interest-only or
principal-only strip and (4) is part of an issuance that had an original issue
size of at least $100 million;



      (C) Planned amortization class bonds ("PACs") and targeted amortization
class bonds ("TACs") provided that such PACs or TACs are (1) backed by
certificates of either the Federal National Mortgage Association ("FNMA"), the
Government National Mortgage Association ("GNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") representing ownership in single-family first
lien mortgage loans with original terms of 30 years, (2) part of an issuance
that had an original issue size of at least $10 million, (3) part of PAC or TAC
classes that have payment priority over other PAC or TAC classes, (4) if TACs,
TACs that do not support PAC classes, and (5) if TACs, not considered reverse
TACs (i.e., do not protect against extension risk);



      (D) Consolidated senior debt obligations of Federal Home Loan Banks
("FHLBs"), senior long-term debt of the FNMA, and consolidated systemwide bonds
and FCS Financial Assistance Corporation Bonds of Federal Farm Credit Banks
("FFCBs") (collectively, "FHLB, FNMA and FFCB Debentures"), provided that such
FHLB, FNMA and FFCB Debentures are (1) direct issuance corporate debt rated Aaa
by Moody's, (2) senior debt obligations backed by the FHLBs, FFCBs or FNMA, (3)
part of an issue entirely denominated in U.S. dollars and (4) not callable or
exchangeable debt issues;



      (E) Mortgage pass-throughs rated at least Aa by Moody's and pass-throughs
issued prior to 1987 (if rated AA by S&P and based on fixed-rate mortgage loans)
by Travelers Mortgage Services, Citicorp Homeowners, Citibank, N.A., Sears
Mortgage Security or RFC - Salomon Brothers Mortgage Securities, Inc., provided
that (1) certificates must evidence a proportional, undivided interest in
specified pools of fixed or adjustable rate mortgage loans, secured by a valid
first lien, on one- to four-family residential properties and (2) the securities
are publicly registered (not issued by FNMA, GNMA or FHLMC);



      (F) Private-placement mortgage pass-throughs provided that (1)
certificates represent a proportional undivided interest in specified pools of
fixed-rate mortgage loans, secured by a valid first lien, on one- to four-family
residential properties, (2) documentation is held by a trustee or independent
custodian, (3) pools of mortgage loans are serviced by servicers that have been
approved by FNMA or FHLMC and funds shall be advanced to meet deficiencies to
the extent provided in the pooling and servicing agreements creating such
certificates, and (4) pools have been rated Aa or better by Moody's; and



      (G) Whole loans (e.g., direct investments in mortgages) provided that (1)
at least 65% of such loans (a) have seasoning of no less than 6 months, (b) are
secured by single-family detached residences, (c) are owner-occupied primary
residences, (d) are secured by a first-lien, fully-documented mortgage, (e) are
neither currently delinquent (30 days or more) nor delinquent during the
preceding year, (f) have loan-to-value ratios of 80% or below, (g) carry normal
hazard insurance and title insurance, as well as special hazard insurance, if
applicable, (h) have original terms to maturity not greater than 30 years, with
at least one year remaining to maturity, (i) have a minimum of $10,000 remaining
principal balance, (j) for loans underwritten after January 1, 1978, FNMA and/or
FHLMC forms are used for fixed-rate loans, and (k) such loans are whole loans
and not participations; (2) for loans that do not satisfy the requirements set
forth in the foregoing clause (1), (a) non-owner occupied properties represent
no greater than 15% of the aggregate of either the adjustable-rate pool or the
fixed-rate pool, (b) multi-family properties (those with five or more units)
represent no greater than 15% of the aggregate of either the adjustable-rate
pool or the fixed-rate pool, (c) condominiums represent no greater than 10% of
the aggregate of either the adjustable-rate pool or the fixed-rate pool, and any
condominium project must be 80% occupied at the time the loan is originated, (d)
properties with loan-to-value ratios exceeding 80% represent no greater than 25%
of the aggregate of either the adjustable-rate pool or the fixed-rate pool and
the portion of the mortgage on any such property that exceeds a loan-to-value
ratio of 80% is insured with Primary Mortgage Insurance from an insurer rated at
least Baa3 by Moody's and (e) loan balances in excess of the current FHLMC limit
plus $75,000 represent no greater than 25% of the aggregate of either the
adjustable-rate pool or the fixed-rate pool, loan balances in excess of $350,000



                                       27
<PAGE>

represent no greater than 10% of the aggregate of either the adjustable-rate
pool or the fixed-rate pool, and loan balances in excess of $1,000,000 represent
no greater than 5% of the aggregate of either the adjustable-rate pool or the
fixed-rate pool; (3) no greater than 5% of the pool of loans is concentrated in
any one zip code; (4) the pool of loans contains at least 100 loans or $2
million in loans per servicer; (5) for adjustable-rate mortgages ("ARMs"), (a)
any ARM is indexed to the National Cost of Funds index, the 11th District Cost
of Funds index, the 1-year Treasury or the 6-month Treasury, (b) the margin over
the given index is between 0.15% and 0.25% for either cost-of-funds index and
between 0.175% and 0.325% for Treasuries, (c) the maximum yearly interest rate
increase is 2%, (d) the maximum life-time interest rate increase is 6.25% and
(e) ARMs may include Federal Housing Administration and Department of Veterans
Affairs loans; (6) for "teaser" loans, (a) the initial discount from the current
ARM market rate is no greater than 2%, (b) the loan is underwritten at the
market rate for ARMs, not the "teaser" rate, and (c) the loan is seasoned six
months beyond the "teaser" period.



      Any municipal debt obligations that (A) pays interest in cash, (B) does
not have a Moody's rating, as applicable, suspended by Moody's, and (C) is part
of an issue of municipal debt obligations of at least $5,000,000, except for
municipal debt obligations rated below A by Moody's, in which case the minimum
issue size is $10,000,000.



      Structured Notes and rated TRACERS; and TRAINS.



      Financial contracts, as such term is defined in Section 3(c)(2)(B)(ii) of
the 1940 Act, not otherwise provided for in this definition but only upon
receipt by the Fund of a letter from Moody's specifying any conditions on
including such financial contract in Moody's Eligible Assets and assuring the
Fund that including such financial contract in the manner so specified would not
affect the credit rating assigned by Moody's to the APS.



      Additionally, in order to merit consideration as a Moody's Eligible Asset,
securities should be issued by entities which:



      -     Have not filed for bankruptcy with the past year



      -     Are current on all principal and interest in their fixed income
            obligations



      -     Are current on all preferred stock dividends



      -     Possess a current, unqualified auditor's report without qualified,
            explanatory language.


      DIVERSIFICATION. In addition, portfolio holdings as described below must
be within the following diversification and issue size requirements in order to
be included in Moody's Eligible Assets. The table below establishes maximum
limits for inclusion of corporate bonds and preferred stocks except convertibles
and common stocks as eligible assets prior to applying Moody's Discount Factors
to eligible securities:



<TABLE>
<CAPTION>
                                 Maximum Single          Maximum Single       Minimum Issue Size ($
         Ratings (1)             Issuer (2),(3)          Industry(3),(4)        in millions) (5)
         -----------             --------------          ---------------        ----------------
<S>                              <C>                      <C>                 <C>
   Aaa....................            100%                    100%                    $100
   Aa.....................             20                      60                      100
   A......................             10                      40                      100
   Baa, Com. St. .........              6                      20                      100
   Ba.....................              4                      12                       50(6)
   B1-B2..................              3                       8                       50(6)
   B3 or below............              2                       5                       50(6)
</TABLE>


- -------------------

(1)   Refers to the preferred stock and senior debt rating of the portfolio
      holding.

(2)   Companies subject to common ownership of 25% or more are considered as one
      issuer.

(3)   Percentages represent a portion of the aggregate market value of the
      portfolio.

(4)   Industries are determined according to Moody's Industry Classifications,
      as defined herein.


                                       28
<PAGE>
(5)   Except for preferred stock, which has a minimum issue size of $50 million.


(6)   Portfolio holdings from issues ranging from $50 million to $100 million
      and are limited to 20% of the Fund's total assets.





      Where the Fund sells an asset and agrees to repurchase such asset in the
future, the Discounted Value of such asset will constitute a Moody's Eligible
Asset and the amount the Fund is required to pay upon repurchase of such asset
will count as a liability for the purposes of the Preferred Stock's Basic
Maintenance Amount. Where the Fund purchases an asset and agrees to sell it to a
third party in the future, cash receivable by the Fund thereby will constitute a
Moody's Eligible Asset if the long-term debt of such other party is rated at
least A2 by Moody's and such agreement has a term of 30 days or less; otherwise,
the Discounted Value of such purchased asset will constitute a Moody's Eligible
Asset. For the purposes of calculation of Moody's Eligible Assets, portfolio
securities which have been called for redemption by the issuer thereof shall be
valued at the lower of market value or the call price of such portfolio
securities.



      Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it (i) has been irrevocably deposited for the
payment of (i)(A) through (i)(E) under the definition of Preferred Shares Basic
Maintenance Amount as described in the Fund's By-Laws or to the extent it is
subject to any liens, except for (A) liens which are being contested in good
faith by appropriate proceedings and which Moody's has indicated to the Fund
will not affect the status of such assets as a Moody's Eligible Asset, (B) liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (C) liens to secure payment for services rendered or cash
advanced to the Fund by its investment manager or portfolio manager, the Fund's
custodian, transfer agent or registrar or the Auction Agent and (D) liens
arising by virtue of any repurchase agreement, or (ii) has been segregated
against obligations of the Fund in connection with any outstanding derivative
transaction.


      The following are Moody's industry classifications for the purpose of the
foregoing diversification requirements:

Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft
Manufacturing, Arms, Ammunition

Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts Manufacturing,
Personal Use Trailers, Motor Homes, Dealers

Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan, Agency,
Factoring, Receivables

Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors,
Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn
Refiners, Dairy Products, Meat Products, Poultry Products, Snacks, Packaged
Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars,
Leaf/Snuff, Vegetable Oil

Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting,
Engineering, Construction, Hardware, Forest Products (building-related only),
Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs, Land
Development

Chemicals, Plastics and Rubber: Chemicals (non-agricultural), Industrial Gases,
Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints, Varnish,
Fabricating, Containers

Packaging and Glass: Glass, Fiberglass, Containers made of: Glass, Metal, Paper,
Plastic, Wood or Fiberglass

Personal and Non-Durable Consumer Products (Manufacturing Only): Soaps,
Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies

Diversified/Conglomerate Manufacturing


                                       29
<PAGE>
Diversified/Conglomerate Service

Diversified Natural Resources, Precious Metals and Minerals: Fabricating,
Distribution

Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste Disposal

Electronics: Computer Hardware, Electric Equipment, Components, Controllers,
Motors, Household Appliances, Information Service Communication Systems, Radios,
TVs, Tape Machines, Speakers, Printers, Drivers, Technology

Finance: Investment Brokerage, Leasing, Syndication, Securities

Farming and Agriculture: Livestock, Grains, Produce, Agriculture Chemicals,
Agricultural Equipment, Fertilizers

Grocery: Grocery Stores, Convenience Food Stores

Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs, Research,
Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital Supplies, Medical
Equipment

Home and Office Furnishings, Housewares, and Durable Consumer Products: Carpets,
Floor Coverings, Furniture, Cooking, Ranges

Hotels, Motels, Inns and Gaming

Insurance: Life, Property and Casualty, Broker, Agent, Surety

Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling, Billiards,
Musical Instruments, Fishing, Photo Equipment, Records, Tapes, Sports, Outdoor
Equipment (Camping), Tourism, Resorts, Games, Toy Manufacturing, Motion Picture
Production Theaters, Motion Picture Distribution

Machinery (Non-Agricultural, Non-Construction, Non-Electronic): Industrial,
Machine Tools, Steam Generators

Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead, Uranium, Zinc,
Aluminum, Stainless Steel, Integrated Steel, Ore Production, Refractories, Steel
Mill Machinery, Mini-Mills, Fabricating, Distribution and Sales of the foregoing

Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling

Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper Products,
Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks, Radio,
T.V., Cable Broadcasting Equipment

Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship Builders,
Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck
Manufacturing, Trailer Manufacturing, Air Cargo, Transport

Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog,
Showroom

Telecommunications: Local, Long Distance, Independent, Telephone, Telegraph,
Satellite, Equipment, Research, Cellular

Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer, Leather
Shoes

Personal Transportation: Air, Bus, Rail, Car Rental

Utilities: Electric, Water, Hydro Power, Gas

Diversified Sovereigns: Semi-sovereigns, Canadian Provinces, Supranational
Agencies


                                       30

<PAGE>

         The Fund will use its discretion in determining which industry
classification is applicable to a particular investment in consultation with its
independent auditors and Moody's, to the extent the Fund considers necessary.

         MOODY'S EXPOSURE PERIOD means the period commencing on a given
Valuation Date and ending 42 days thereafter.

         HEDGING. The Fund may purchase or sell exchange-traded financial
futures contracts based on any index approved by Moody's or Treasury bonds,
purchase, write or sell exchange-traded put options on such financial futures
contracts, and purchase, write or sell exchange-traded call options on such
financial futures contracts (collectively, "Moody's Hedging Transactions"),
subject to the following limitations:

         -        The Fund may not engage in any Moody's Hedging Transaction
                  based on any index approved by Moody's (other than closing
                  transactions) that would cause the Fund at the time of such
                  transaction to own or have sold: (A) outstanding financial
                  futures contracts based on such index exceeding in number 10%
                  of the average number of daily traded financial futures
                  contracts based on such index in the 30 days preceding the
                  time of effecting such transaction as reported by The Wall
                  Street Journal; or (B) outstanding financial futures contracts
                  based on any index approved by Moody's having a market value
                  exceeding 50% of the market value of all portfolio securities
                  of the Fund constituting Moody's Eligible Assets owned by the
                  Fund (other than Moody's Eligible Assets already subject to a
                  Moody's Hedging Transaction).


         -        The Fund may not engage in any Moody's Hedging Transaction
                  based on Treasury bonds (other than closing transactions) that
                  would cause the Fund at the time of such transaction to own or
                  have sold: (A) outstanding financial futures contracts based
                  on Treasury bonds with such contracts having an aggregate
                  market value exceeding 20% of the aggregate market value of
                  Moody's Eligible Assets owned by the Fund and rated Aa by
                  Moody's (or, if not rated by Moody's but rated by S&P, rated
                  AA by S&P or Fitch); or (B) outstanding financial futures
                  contracts based on Treasury bonds with such contracts having
                  an aggregate market value exceeding 80% of the aggregate
                  market value of all portfolio securities of the Fund
                  constituting Moody's Eligible Assets owned by the Fund (other
                  than Moody's Eligible Assets already subject to a Moody's
                  Hedging Transaction) and rated Baa or A by Moody's (or, if not
                  rated by Moody's but rated by S&P, rated BBB or A by S&P or
                  Fitch).


         -        For purposes of the foregoing, the Fund is deemed to own the
                  number of financial futures contracts that underlie any
                  outstanding options written by the Fund).

         -        The Fund may engage in closing transactions to close out any
                  outstanding financial futures contract based on any index
                  approved by Moody's if the amount of open interest in such
                  index as reported by The Wall Street Journal is less than an
                  amount to be mutually determined by Moody's and the Fund.

         -        The Fund may engage in a closing transaction to close out any
                  outstanding financial futures contract by no later than the
                  fifth Business Day of the month in which such contract expires
                  and will engage in a closing transaction to close out any
                  outstanding option on a financial futures contract by no later
                  than the first Business Day of the month in which such option
                  expires.

         -        The Fund may engage in Moody's Hedging Transactions only with
                  respect to financial futures contracts or options thereon
                  having the next settlement date or the settlement date
                  immediately thereafter.

         -        The Fund (A) may not engage in options and futures
                  transactions for leveraging or speculative purposes, except
                  that an option or futures transaction shall not for these
                  purposes be considered a leveraged position or speculative so
                  long as the combination of the Fund's non-derivative
                  positions, together with the relevant option or futures
                  transaction, produces a synthetic investment position, or the
                  same economic result, that could be achieved by an investment,
                  consistent with the Fund's investment objective and policies,
                  in a security that is not an option or futures transaction,
                  and (B) will not write any call options or sell any financial
                  futures contracts for the purpose of hedging the anticipated
                  purchase of an asset prior to completion of such purchase.

                                       31
<PAGE>
         -        The Fund may not enter into an option or futures transaction
                  unless, after giving effect thereto, the Fund would continue
                  to have Moody's Eligible Assets with an aggregate Discounted
                  Value equal to or greater than the Preferred Shares Basic
                  Maintenance Amount.

         OTHER. Where the Fund sells an asset and agrees to repurchase such
asset in the future, the Discounted Value of such asset will constitute a
Moody's Eligible Asset and the amount the Fund is required to pay upon
repurchase of such asset will count as a liability for the purposes of the
Preferred Shares Basic Maintenance Amount. Where the Fund purchases an asset and
agrees to sell it to a third party in the future, cash receivable by the trust
thereby will constitute a Moody's Eligible Asset if the long-term debt of such
other party is rated at least A2 by Moody's and such agreement has a term of 30
days or less; otherwise the Discounted Value of such purchased asset will
constitute a Moody's Eligible Asset. For the purposes of calculation of Moody's
Eligible Assets, portfolio securities which have been called for redemption by
the issuer thereof shall be valued at the lower of market value or the call
price of such portfolio securities.

Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset to the extent that it has been irrevocably deposited for the
payment of (i)(A) through (i)(E) under the definition of Preferred Shares Basic
Maintenance Amount as described in the Fund's By-Laws or it is subject to any
liens, except for (A) liens which are being contested in good faith by
appropriate proceedings and which Moody's has indicated to the Fund will not
affect the status of such asset as a Moody's Eligible Asset, (B) liens for taxes
that are not then due and payable or that can be paid thereafter without
penalty, (C) liens to secure payment for services rendered or cash advanced to
the Fund by its investment manager or portfolio manager, the Fund's custodian,
transfer agent or registrar or the Auction Agent and (D) liens arising by virtue
of any repurchase agreement.

                                 NET ASSET VALUE

         For purposes of calculating the net asset value ("NAV") of the Fund's
common shares, the following procedures are utilized wherever applicable.

         Debt investment securities are valued on the basis of valuations
furnished by a principal market-maker or a pricing service, both of which
generally utilize electronic data processing techniques to determine valuations
for normal institutional size trading units of debt securities without exclusive
reliance upon quoted prices.

         Equity securities traded on a principal exchange are generally valued
at last sale price on the day of valuation or, in the case of securities traded
on NASDAQ, the NASDAQ official closing price. Securities in the aforementioned
category for which no sales are reported and other securities traded
over-the-counter are generally valued at the last available bid price.

         Short-term debt investments which have a remaining maturity of 60 days
or less are generally valued at amortized cost which approximates market value.
If market quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not representative of true market value, the
fair value of the security may be determined in good faith in accordance with
procedures approved by the Board of Trustees.

         Foreign securities are valued on the basis of quotations from the
primary market in which they are traded. Any assets or liabilities expressed in
terms of foreign currencies are translated into U.S. dollars by the custodian
bank based on London currency exchange quotations as of 5:00 p.m., London time
(12:00 noon, New York time) on the date of a determination of the Fund's NAV. If
quotations are not readily available, or the value has been materially affected
by the events occurring after the closing of a foreign market, assets are valued
by a method that the Board of Trustees believes accurately reflects fair value.

         The NAV of the Fund's common shares is determined each business day at
the close of regular trading on the New York Stock Exchange (typically 4:00 p.m.
Eastern Time) by dividing the net assets by the number of its common shares
outstanding. On any day an international market is closed and the New York Stock
Exchange is open, any foreign securities will be valued at the prior day's close
with the current day's exchange rate. Trading of foreign securities may take
place on Saturdays and U.S. business holidays on which the Fund's NAV is not
calculated. Consequently, the Fund's portfolio securities may trade and the NAV
of the Fund's common shares may be significantly affected on days when a
shareholder has no access to the New York Stock Exchange.

                                       32
<PAGE>
                              BROKERAGE ALLOCATION

         Decisions concerning the purchase and sale of portfolio securities and
the allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates and officers and
Trustees who are interested persons of the Fund. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the Adviser, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer, and transactions with dealers serving as market
makers reflect a "spread". Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on these transactions.

         In the U.S. Government securities market, securities are generally
traded on a "net" basis with dealers acting as principal for their own account
without a stated commission, although the price of the security usually includes
a profit to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.

         The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed.

         To the extent consistent with the foregoing, the Fund will be governed
in the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and, to a lesser extent, statistical assistance furnished to the Adviser and
their value and expected contribution to the performance of the Fund.

         As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Fund may pay a broker which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Board of Trustees that such
commission is reasonable in light of the services provided and to such policies
as the Board of Trustees may adopt from time to time.

         Research services received from broker-dealers supplement the Adviser's
own research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indices and investment
accounts; and information concerning prices of securities. Broker-dealers may
communicate such information electronically, orally, in written form or on
computer software. Research services may also include the providing of
electronic communication of trade information and the providing of custody
services, as well as the providing of equipment used to communicate research
information, the providing of specialized consultations with the Adviser's
personnel with respect to computerized systems and data furnished to the Adviser
as a component of other research services, the arranging of meetings with
management of companies, and the providing of access to consultants who supply
research information.

         The outside research assistance is useful to the Adviser since the
broker-dealers used by the Adviser tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
the research provides the Adviser with a diverse perspective on financial
markets. Research services provided to the Adviser by broker-dealers are
available for the benefit of all accounts managed or advised by the Adviser or
by its affiliates. Some broker-dealers may indicate that the provision of
research services is dependent upon the generation of certain specified levels
of commissions and underwriting concessions by the Adviser's clients, including
the Fund. However, the Fund is not under any obligation to deal with any
broker-dealer in the execution of transactions in portfolio securities. In some
cases, the research services are available only from the broker-dealer providing
them. In other cases, the research services may be obtainable from alternative
sources in return for cash payments.

                                       33
<PAGE>
         The Adviser believes that the research services are beneficial in
supplementing the Adviser's research and analysis and that they improve the
quality of the Adviser's investment advice. It is not possible to place a dollar
value on information and services to be received from brokers and dealers, since
it is only supplementary to the research efforts of the Adviser. The advisory
fee paid by the Fund is not reduced because the Adviser receives such services.
However, to the extent that the Adviser would have purchased research services
had they not been provided by broker-dealers, the expenses to the Adviser could
be considered to have been reduced accordingly. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis.

         While the Adviser's officers will be primarily responsible for the
allocation of the Fund's brokerage business, the policies and practices of the
Adviser in this regard must be consistent with the foregoing and at all times be
subject to review by the Trustees.

         The Adviser may determine target levels of commission business with
various brokers on behalf of its clients (including the Fund) over a certain
time period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Fund and other mutual funds advised by the Adviser in
particular, including sales of the Fund. In connection with (3) above, the
Fund's trades may be executed directly by dealers that sell shares of the John
Hancock funds or by other broker-dealers with which such dealers have clearing
arrangements, consistent with obtaining best execution and the Conduct Rules of
the National Association of Securities Dealers, Inc. The Adviser will not use a
specific formula in connection with any of these considerations to determine the
target levels.

         The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Pursuant
to procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through the Affiliated Broker.

         Signator may act as broker for the Fund on exchange transactions,
subject, however, to the general policy of the Fund set forth above and the
procedures adopted by the Trustees pursuant to the 1940 Act. Commissions paid to
an Affiliated Broker must be at least as favorable as those which the Trustees
believe to be contemporaneously charged by other brokers in connection with
comparable transactions involving similar securities being purchased or sold. A
transaction would not be placed with an Affiliated Broker if the Fund would have
to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Fund, the Adviser or the Affiliated Broker. Because the Adviser, which is
affiliated with the Affiliated Broker, has, as an investment adviser to the
Fund, the obligation to provide investment management services, which include
elements of research and related investment skills, such research and related
skills will not be used by the Affiliated Broker as a basis for negotiating
commissions at a rate higher than that determined in accordance with the above
criteria.

         Other investment advisory clients advised by the Adviser may also
invest in the same securities as the Fund. When these clients buy or sell the
same securities at substantially the same time, the Adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including the
Fund. Because of this, client accounts in a particular style may sometimes not
sell or acquire securities as quickly or at the same prices as they might if
each were managed and traded individually.

         For purchases of equity securities, when a complete order is not
filled, a partial allocation will be made to each account pro rata based on the
order size. For high demand issues (for example, initial public offerings),
shares will be allocated pro rata by account size as well as on the basis of
account objective, account size (a small account's allocation may be increased
to provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if

                                       34
<PAGE>
the accounts have different objectives or if an account is too small to get a
meaningful allocation. For new issues, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. However, if a partial allocation is too small to be meaningful, it may be
reallocated based on such factors as account objectives, strategies, duration
benchmarks and credit and sector exposure. For example, value funds will likely
not participate in initial public offerings as frequently as growth funds. In
some instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.


         For the fiscal years ended December 31, 2000, 2001 and 2002, the Fund
paid brokerage commissions in the amount of $0, $0 and $9,104, respectively.


                         U.S. FEDERAL INCOME TAX MATTERS


         The following is a summary discussion of the material U.S. federal
income tax consequences that may be relevant to a shareholder acquiring, holding
and disposing of the Preferred Shares. This discussion only addresses U.S.
federal income tax consequences to U.S. shareholders who hold their shares as
capital assets and does not address all of the U.S. federal income tax
consequences that may be relevant to particular shareholders in light of their
individual circumstances. This discussion also does not address the tax
consequences to shareholders who are subject to special rules, including,
without limitation, financial institutions, insurance companies, dealers in
securities or foreign currencies, foreign holders, persons who hold their shares
as or in a hedge against currency risk, a constructive sale, or conversion
transaction, holders who are subject to the alternative minimum tax, or
tax-exempt or tax-deferred plans, accounts, or entities. In addition, the
discussion does not address any state, local, or foreign tax consequences, and
it does not address any federal tax consequences other than U.S. federal income
tax consequences. The discussion reflects applicable tax laws of the United
States as of the date of this Statement of Additional Information, which tax
laws may be changed or subject to new interpretations by the courts, Treasury or
the Internal Revenue Service (the "IRS") retroactively or prospectively. No
attempt is made to present a detailed explanation of all U.S. federal income tax
concerns affecting the Fund and its shareholders, and the discussion set forth
herein does not constitute tax advice. Investors are urged to consult their own
tax advisers to determine the tax consequences to them of investing in the Fund,
including the applicable federal, state, local and foreign tax consequences to
them and the effect of possible changes in tax laws.


         The Fund has elected to be treated, has qualified and intends to
continue to qualify each year as a "regulated investment company" under
Subchapter M of the Code so that it generally will not pay U.S. federal income
tax on income and capital gains distributed to shareholders. In order to qualify
as a regulated investment company under Subchapter M of the Code, which
qualification this discussion assumes, the Fund must, among other things, derive
at least 90% of its gross income for each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
(the "90% income test") and satisfy certain quarterly asset diversification
requirements. For purposes of the 90% income test, the character of income
earned by certain entities in which the Fund invests that are not treated as
corporations for U.S. federal income tax purposes (e.g., partnerships or trusts)
will generally pass through to the Fund. Consequently, the Fund may be required
to limit its equity investments in such entities that earn fee income, rental
income or other nonqualifying income.

         If the Fund qualifies as a regulated investment company and, for each
taxable year, it distributes to its shareholders an amount equal to or exceeding
the sum of (i) 90% of its "investment company taxable income" as that term is
defined in the Code (which includes, among other things, dividends, taxable
interest, and the excess of any net short-term capital gains over net long-term
capital losses, as reduced by certain deductible expenses) without regard to the
deduction for dividends paid and (ii) 90% of the excess of its gross tax-exempt
interest, if any, over certain disallowed deductions, the Fund generally will
not be subject to U.S. federal income tax on any income of the Fund, including
"net capital gains" (the excess of net long-term capital gain over net
short-term capital loss), distributed to shareholders. However, if the Fund
retains any investment company taxable income or net capital gain, it generally
will be subject to U.S. federal income tax at regular corporate rates on the
amount retained. The Fund intends to distribute at least annually all or
substantially all of its investment company taxable income, net tax-exempt
interest, if any, and net capital gain. If for any taxable year the Fund did not
qualify as a regulated investment company, it would be treated as a corporation
subject to U.S. federal income tax (even if it distributed all of its income to
its shareholders) and all distributions out of earnings and profits would be
taxed to shareholders as

                                       35
<PAGE>
ordinary income. In addition, the Fund could be required to recognize unrealized
gains, pay taxes and make distributions (which could be subject to interest
charges) before requalifying as a regulated investment company.

         Under the Code, the Fund will be subject to a nondeductible 4% federal
excise tax on a portion of its undistributed ordinary income and capital gain
net income if it fails to meet certain distribution requirements with respect to
each calendar year. For purposes of the excise tax, any ordinary income or
capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed. The Fund intends
to make distributions in a timely manner and accordingly does not expect to be
subject to the excise tax, but, as described below, there can be no assurance
that the Fund's distributions will be sufficient to avoid entirely this tax.

         Based in part on the lack of any present intention on the part of the
Fund to redeem or purchase the Preferred Shares at any time in the future, the
Fund believes that under present law the Preferred Shares will constitute stock
of the Fund and distributions with respect to the Preferred Shares (other than
distributions in redemption of the Preferred Shares that are treated as
exchanges under Section 302(b) of the Code) will constitute dividends to the
extent of the Fund's current or accumulated earnings and profits as calculated
for U.S. federal income tax purposes. This view relies in part on a published
ruling of the IRS stating that certain preferred stock similar in many material
respects to the Preferred Shares represents equity. It is possible, however,
that the IRS might take a contrary position asserting, for example that the
Preferred Shares constitute debt of the Fund. If this position were upheld, the
discussion of the treatment of distributions above would not apply. Instead
distributions by the Fund to shareholders of Preferred Shares would constitute
interest, whether or not such distributions exceeded the earnings and profits of
the Fund, would be included in full in the income of the recipient and would be
taxed as ordinary income.


         In general, to the extent the Fund has sufficient current or
accumulated earnings and profits, dividends from investment company taxable
income will be taxable either as ordinary income or, if so designated by the
Fund, as qualified dividend income taxable to individual shareholders at a
maximum 15% federal income tax rate and distributions from net capital gain
designated as capital gain dividends, if any, will be taxable as long-term
capital gains for U.S. federal income tax purposes without regard to the length
of time the shareholder has held shares of the Fund. Distributions by the Fund
in excess of the Fund's current and accumulated earnings and profits will be
treated as a return of capital to the extent of (and in reduction of) the
shareholder's tax basis in its shares and any such amount in excess of that
basis will be treated as gain from the sale of the shares, as discussed below.
The U.S. federal income tax status of all distributions will be reported to
shareholders annually.



         Most of the dividends distributed to shareholders will be attributable
to income from the Fund's investments in debt securities or other investments
that do not produce "qualified dividend income" as that term is defined in
Section 1(h)(11) of the Code, and thus will not qualify for the maximum 15%
federal income tax rate on qualified dividend income. A portion of the dividend
distributions to individual shareholders may qualify for such maximum 15%
federal income tax rate to the extent that such dividends are attributable to
qualified dividend income from the Fund's investments in common and preferred
stock of U.S. companies and stock of certain foreign corporations, provided that
certain holding period and other requirements are met. Capital gain dividends
distributed by the Fund (if any) to individual shareholders generally will
qualify for the maximum 15% federal income tax rate on long-term capital gains
to the extent that such dividends relate to capital gains recognized by the Fund
on or after May 6, 2003. Under current law, the maximum 15% federal income tax
rate on qualified dividend income and long-term capital gains will cease to
apply to taxable years beginning after December 31, 2008.



         A fund's distributions to its corporate shareholders would potentially
qualify for the corporate Dividends Received Deduction, subject to certain
holding period requirements and limitations on debt financing under the Code,
only to the extent a fund earned dividend income from stock investments in U.S.
domestic corporations (including corporations qualifying as REITs) and certain
other requirements are met. The income to be received by the Fund from its
investment in debt securities is not expected to qualify for the Dividends
Received Deduction under the Code. As a result, the Fund expects that most of
its distributions to corporate shareholders will not qualify for such deduction.
The Fund is permitted to acquire stocks of U.S. domestic corporations, and it is
therefore possible that a small portion of the Fund's distributions from the
dividends attributable to such stocks, may qualify for the Dividends Received
Deduction. Such qualifying portion, if any, may affect a corporate shareholder's
liability for alternative minimum tax and/or result in basis reductions and
other consequences in certain circumstances.


                                       36
<PAGE>
         If the Fund retains any net capital gain for a taxable year, the Fund
may designate the retained amount as undistributed capital gains in a notice to
shareholders who, if subject to U.S. federal income tax on long-term capital
gains, (i) will be required to include in income for U.S. federal income tax
purposes, as long-term capital gain, their proportionate shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund on the undistributed amount against their
U.S. federal income tax liabilities, if any, and to claim refunds to the extent
the credit exceeds such liabilities. For federal income tax purposes, the tax
basis of shares owned by a shareholder of the Fund will be increased by the
amount of undistributed capital gain included in the gross income of such
shareholder less the tax deemed paid by such shareholder under clause (ii) of
the preceding sentence. The Fund intends to distribute at least annually to its
shareholders all or substantially all of its investment company taxable income,
net tax-exempt interest (if any) and net capital gain.

         Although dividends generally will be treated as distributed when paid,
any dividend declared by the Fund as of a record date in October, November or
December and paid during the following January will be treated for U.S. federal
income tax purposes as received by shareholders on December 31 of the calendar
year in which it is declared. In addition, certain other distributions made
after the close of a taxable year of the Fund may be "spilled back" and treated
as paid by the Fund (except for purposes of the 4% excise tax) during such
taxable year. In such case, shareholders will be treated as having received such
dividends in the taxable year in which the distributions were actually made.

         If the Fund acquires any equity interest generally including not only
stock but also (under Treasury regulations that may be promulgated in the
future, an option to acquire stock such as is inherent in a convertible bond) in
certain foreign corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, certain rents and
royalties, or capital gains) or that hold at least 50% of their assets in
investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to U.S. federal income tax and additional
interest charges on "excess distributions" received from such companies or on
gain from the disposition of stock in such companies, even if all income or gain
actually received by the Fund is timely distributed to its shareholders. The
Fund would not be able to pass through to its shareholders any credit or
deduction for such tax. An election may generally be available that would
ameliorate these adverse tax consequences, but any such election could require
the Fund to recognize taxable income or gain (subject to tax distribution
requirements) without the concurrent receipt of cash. These investments could
also result in the treatment of capital gains from the sale of stock of such
passive foreign investment companies as ordinary income. The Fund will monitor
and may limit and/or manage its holdings in passive foreign investment companies
to limit its tax liability or maximize its return from these investments.

         The Fund may invest to a limited extent in debt obligations that are in
the lowest rating categories or are unrated, including debt obligations of
issuers not currently paying interest or who are in default. Investments in debt
obligations that are at risk of or in default present special tax issues for the
Fund. Tax rules are not entirely clear about issues such as when and to what
extent deductions may be taken for bad debts or worthless securities and how
payments received on obligations in default should be allocated between
principal and income. These and other issues will be addressed by the Fund in
the event it invests in such securities in order to seek to ensure that it
distributes sufficient income to preserve its status as a regulated investment
company and does not become subject to U.S. federal income or excise tax.

         If at any time when the Preferred Shares are outstanding the Fund fails
to meet the Discounted Value of eligible portfolio securities equal to the
Preferred Shares Basic Maintenance Amount or the value of the Fund's portfolio
fails to equal or exceed the 1940 Preferred Shares Asset Coverage, the Fund will
be required to suspend distributions to holders of its common shares until such
maintenance or asset coverage, as the case may be, is restored. This could
prevent the Fund from distributing at least an amount equal to 90% of its
investment company taxable income (determined without regard to the deduction
for dividends paid) and 90% of its net tax-exempt income (if any), and may
therefore jeopardize the Fund's qualification for taxation as a regulated
investment company or cause the Fund to incur a tax liability or a
non-deductible 4% excise tax on the undistributed taxable income (including net
capital gain), or both. Upon any failure to meet such maintenance or asset
coverage requirements, the Fund will be required to purchase or redeem shares of
preferred stock, including the Preferred Shares, in order to maintain or restore
the requisite maintenance or asset coverage and avoid the adverse consequences
to the Fund and its shareholders of failing to qualify as a regulated investment
company. There can be no assurance, however, that any such action would achieve
these objectives. The Fund will endeavor to avoid restrictions on its ability to
distribute dividends.

                                       37
<PAGE>
         If the Fund invests in certain pay-in-kind securities, zero coupon
securities, deferred interest securities or, in general, any other securities
with original issue discount (or with market discount if the Fund elects to
include market discount in income currently), the Fund generally must accrue
income on such investments for each taxable year, which generally will be prior
to the receipt of the corresponding cash payments. However, the Fund must
distribute, at least annually, all or substantially all of its investment
company taxable income, including such accrued income, and its net tax-exempt
income (if any) to shareholders to qualify as a regulated investment company
under the Code and avoid U.S. federal income and excise taxes. Therefore, the
Fund may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to borrow the cash, to satisfy
distribution requirements.

         Sales and other dispositions of the Fund's shares generally are taxable
events for shareholders that are subject to tax. Shareholders should consult
their own tax advisers with reference to their individual circumstances to
determine whether any particular transaction in the Fund's shares (including a
redemption of the Preferred Shares) is properly treated as a sale or exchange
for tax purposes, as the following discussion assumes, and the tax treatment of
any gains or losses recognized in such transactions. In general, if Fund shares
are sold, the shareholder will recognize gain or loss equal to the difference
between the amount realized on the sale and the shareholder's adjusted basis in
the shares. Such gain or loss generally will be treated as long-term gain or
loss if the shares were held for more than one year and otherwise generally will
be treated as short-term gain or loss.

         The Fund may, at its option, redeem preferred shares (including the
Preferred Shares) in whole or in part subject to certain limitations and to the
extent permitted under applicable law, and is required to redeem all or a
portion of the Preferred Shares to the extent required to maintain the Preferred
Shares Basic Maintenance Amount and the 1940 Act Preferred Shares Asset
Coverage. Gain or loss, if any, resulting from a redemption of the Preferred
Shares generally will be taxed as gain or loss from the sale of the Preferred
Shares under Section 302 of the Code rather than as a dividend, but only if the
redemption distribution (a) is deemed not to be essentially equivalent to a
dividend, (b) is in complete redemption of a shareholder's interest in the Fund,
(c) is substantially disproportionate with respect to the shareholder, or (d)
with respect to a non-corporate shareholder, is in partial liquidation of the
shareholder's interest in the Fund. For purposes of clauses (a), (b), and (c)
above, a shareholder's ownership of common shares will be taken into account and
the Preferred Shares and common shares held by persons who are related to the
redeemed shareholder may also have to be taken into account. If none of the
conditions (a) through (d) above are met, the redemption proceeds may be
considered a dividend distribution taxable as ordinary income as discussed
above. In addition, any declared but unpaid dividends distributed to
shareholders in connection with a redemption will be taxable to shareholders as
dividends as described above.

         Any loss recognized by a shareholder upon the sale or other disposition
of shares with a tax holding period of six months or less generally will be
treated as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares. Losses on
sales or other dispositions of shares may be disallowed under "wash sale" rules
in the event a shareholder acquires other shares in the Fund (including those
acquired pursuant to reinvestment of dividends and/or capital gain
distributions) within a period of 61 days beginning 30 days before and ending 30
days after a sale or other disposition of shares. In that event, the basis of
the replacement shares of the Fund will be adjusted to reflect the disallowed
loss.

         Under recently promulgated Treasury regulations, if a shareholder
recognizes a loss with respect to shares of $2 million or more for an individual
shareholder, or $10 million or more for a corporate shareholder, in any single
taxable year (or greater amounts over a combination of years), the shareholder
must file a disclosure statement on Form 8886 with the IRS. Shareholders who own
portfolio securities directly are in many cases excepted from this reporting
requirement but, under current guidance, shareholders of regulated investment
companies are not excepted. The fact that a loss is reportable under these
regulations does not affect the legal determination of whether or not the
taxpayer's treatment of the loss is proper. Shareholders should consult with
their tax advisers to determine the applicability of these regulations in light
of their individual circumstances.

         Options written or purchased and futures contracts entered into by the
Fund on certain securities, indices and foreign currencies may cause the Fund to
recognize gains or losses from marking-to-market even though such options may
not have lapsed, been closed out, or exercised, or such futures may not have
been performed or closed out. The tax rules applicable to these contracts may
affect the characterization of some capital gains and losses recognized by the
Fund as long-term or short-term. Certain options and futures contracts relating
to foreign currency may be subject to Section 988 of the Code, and accordingly
may produce ordinary income or loss. Additionally, the Fund may be required to
recognize gain if an option, futures contract, short sale or other transaction
that is not

                                       38
<PAGE>
subject to the mark-to-market rules is treated as a "constructive sale" of an
"appreciated financial position" held by the Fund under Section 1259 of the
Code. Any net mark-to-market gains and/or gains from constructive sales may also
have to be distributed to satisfy the distribution requirements referred to
above even though the Fund may receive no corresponding cash amounts, possibly
requiring the Fund to dispose of portfolio securities or borrow to obtain the
necessary cash. Losses on certain options, futures contracts and/or offsetting
positions (portfolio securities or other positions with respect to which the
Fund's risk of loss is substantially diminished by one or more options or
futures contracts) may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses from
straddle positions and certain successor positions as long-term or short-term.
Certain tax elections may be available that would enable the Fund to ameliorate
some adverse effects of the tax rules described in this paragraph. The tax rules
applicable to options, futures contracts and straddles may affect the amount,
timing and character of the Fund's income and gains or losses and hence of its
distributions to shareholders.

         The federal income tax treatment of the Fund's investment in preferred
securities and its participation in transactions involving interest rate swaps,
caps, floors or collars and credit default swaps is uncertain and may be subject
to recharacterization by the IRS. To the extent that the tax treatment of such
securities or transactions differs from the tax treatment expected by the Fund,
the timing or character of income recognized by the Fund could be affected, the
Fund may be required to purchase or sell securities, or otherwise change its
portfolio, in order to comply with the tax rules applicable to regulated
investment companies under the Code.

         The IRS has taken the position that if a regulated investment company
has two or more classes of shares, it must designate distributions made to each
class in any year as consisting of no more than such class's proportionate share
of particular types of income, including net capital gains. A class's
proportionate share of a particular type of income is determined according to
the percentage of total dividends paid by the regulated investment company
during the year to such class. Consequently, the Fund intends to designate
distributions of particular types of income made to common shareholders and
preferred shareholders in accordance with each such class's proportionate share
of such income. Thus, the Fund will designate distributions comprised of
particular types of income, including ordinary income, qualified dividend income
and net capital gains, in a manner that allocates such income between the holder
of common shares and preferred shares, including the Preferred Shares, in
proportion to the total dividends paid to each class during or for the taxable
year, or otherwise required by applicable law. Distributions in excess of the
Fund's current and accumulated earnings and profits (if any), however, will not
be allocated proportionately among the Preferred Shares and the common shares.
Since the Fund's current and accumulated earnings will first be used to pay
dividends on the Preferred Shares, distributions in excess of such earnings and
profits, if any, will be made disproportionately to holders of common shares.

         The Fund may be subject to withholding and other taxes imposed by
foreign countries, including taxes on interest, dividends and capital gains with
respect to its investments in those countries, which would, if imposed, reduce
the yield on or return from those investments. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes in some cases. The
Fund does not expect to satisfy the requirements for passing through to its
shareholders their pro rata shares of qualified foreign taxes paid by the Fund,
with the general result that shareholders would not be entitled to any deduction
or credit for such taxes on their own tax returns.

         The Fund is required to withhold (as "backup withholding") on
reportable payments, including dividends, capital gain distributions and the
proceeds of sales or other dispositions of the Fund's shares paid to certain
shareholders who have not complied with IRS regulations. In order to avoid this
withholding requirement, shareholders must certify on their Account
Applications, or on separate IRS Forms W-9, that the Social Security number or
other taxpayer identification number they provide is their correct number and
that they are not currently subject to backup withholding, or that they are
exempt from backup withholding. The Fund may nevertheless be required to backup
withhold if it receives notice from the IRS or a broker that the taxpayer
identification number provided is incorrect or backup withholding is applicable
as a result of previous underreporting of income.

         The description of certain federal tax provisions above relates only to
U.S. federal income tax consequences for shareholders who are U.S. persons
(i.e., U.S. citizens or residents or U.S. corporations, partnerships, trusts or
estates, all as determined for U.S. federal income tax purposes) and who are
subject to U.S. federal income tax. Investors other than U.S. persons may be
subject to different U.S. federal income tax treatment, including a non-resident
alien U.S. withholding tax on amounts treated as ordinary income dividends from
the Fund and, unless an effective IRS Form W-8BEN or other authorized
withholding certificate of documentation is on file,

                                       39
<PAGE>
to backup withholding on certain other payments from the Fund. Shareholders
should consult their own tax advisers on these matters and on any specific
questions as to U.S. federal, state, local, foreign and other applicable tax
laws.

                                   PERFORMANCE

         From time to time, in reports and promotional literature, the Fund's
total return will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a
monthly publication which tracks net assets, total return and yield on mutual
funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well as the Russell and
Wilshire Indices.


         Performance rankings and ratings reported periodically in, and excerpts
from, national financial publications such as Money Magazine, Forbes, Business
Week, The Wall Street Journal, Micropal, Inc., Morningstar, Stanger's and
Barron's may also be utilized. The Fund's promotional and sales literature may
make reference to the Fund's "beta". Beta is a reflection of the market related
risk of the Fund by showing how responsive the Fund is to the market.


                              CUSTODY OF PORTFOLIO

         Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Fund and The Bank of New York, One Wall Street, New York,
New York 10286. Under the custodian agreement, The Bank of New York is
performing custody, portfolio, foreign custody manager and fund accounting
services.

                              INDEPENDENT AUDITORS


         The independent auditors of the Fund are PricewaterhouseCoopers LLP,
160 Federal Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP will
audit and render opinion on the Fund's annual financial statements for the
fiscal year ending December 31, 2003.



         Until December 31, 2002, the independent auditors of the Fund were
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116. The
financial statements of the Fund, incorporated by reference in the Prospectus
and this Statement of Additional Information, have been audited by Ernst & Young
LLP for the periods indicated in their report with respect to those financial
statements and are included in reliance upon the authority of Ernst & Young, LLP
as experts in accounting and auditing.


                             ADDITIONAL INFORMATION


         A Registration Statement on Form N-2, relating to the shares offered
hereby, has been filed by the Fund with the SEC, Washington, D.C. The Prospectus
and this Statement of Additional Information do not contain all of the
information set forth in the Registration Statement, including any exhibits and
schedules thereto. For further information with respect to the Fund and the
shares offered hereby, reference is made to the Registration Statement.
Statements contained in the Prospectus and this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the SEC's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the SEC upon the payment of certain fees prescribed
by the SEC.


                                       40
<PAGE>





The Fund's audited financial statements in its annual report to shareholders for
the fiscal year ended December 31, 2002, as filed with the SEC on February 24,
2003, and the Fund's unaudited financial statements in its semi-annual report to
shareholders for the period ended June 30, 2003, as filed with the SEC on August
28, 2003, are incorporated by reference into this Statement of Additional
Information. The financial statements have been audited by Ernst & Young LLP,
independent auditors, as indicated in their report thereon, appearing and
incorporated by reference herein, and are included in reliance upon such report,
given on the authority of Ernst & Young LLP as experts in accounting and
auditing. The Fund's annual and semi-annual reports referenced above are
available without charge upon request by contacting Mellon Investor Services, 85
Challenger Road, Ridgefield Park, New Jersey 07660 at 1-800-852-0218.


                                       43
<PAGE>
APPENDIX A - MORE ABOUT RISK

         A fund's risk profile is largely defined by the fund's primary
securities and investment practices. You may find the most concise description
of the fund's risk profile in the Prospectus.

         A fund is permitted to utilize -- within limits established by the
Trustees -- certain other securities and investment practices that have higher
risks and opportunities associated with them. To the extent that the Fund
utilizes these securities or practices, its overall performance may be affected,
either positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.

         As with any mutual fund, there is no guarantee that the Fund will earn
income or show a positive return over any period of time -- days, months or
years.

TYPES OF INVESTMENT RISK


         CORRELATION RISK. The risk that changes in the value of a hedging
instrument will not match those of the asset being hedged (hedging is the use of
one investment to offset the effects of another investment). Incomplete
correlation can result in unanticipated risks (e.g., short sales, financial
futures and options, securities and index options, currency contracts).



         CREDIT RISK. The risk that the issuer of a security, or the
counterparty to a contract, will default or otherwise become unable to honor a
financial obligation (e.g., borrowing, reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options, securities and index options).


         INFORMATION RISK. The risk that key information about a security or
market is inaccurate or unavailable (e.g., non-investment-grade securities,
foreign equities).

         INTEREST RATE RISK. The risk of market losses attributable to changes
in interest rates. With fixed-rate securities, a rise in interest rates
typically causes a fall in values, while a fall in rates typically causes a rise
in values (e.g., non-investment-grade securities, financial futures and options;
securities and index options).


         LEVERAGE RISK. Associated with securities or practices (such as
borrowing) that multiply small index or market movements into large changes in
value (e.g., borrowing, reverse repurchase agreements, when-issued securities
and forward commitments).



         HEDGING RISK. When a derivative (a security whose value is based on
another security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa. While
hedging can reduce or eliminate losses, it can also reduce or eliminate gains.
(e.g., short sales, financial futures and options securities and index options,
currency contracts).



         SPECULATIVE RISK. To the extent that a derivative is not used as a
hedge, the fund is directly exposed to the risks of that derivative. Gains or
losses from speculative positions in a derivative may be substantially greater
than the derivative's original cost. (e.g., short sales, financial futures and
options securities and index options, currency contracts).



         LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like. The
seller may have to lower the price, sell other securities instead or forego an
investment opportunity, any of which could have a negative effect on fund
management or performance (e.g., non-investment-grade securities, short sales,
restricted and illiquid securities, financial futures and options securities and
index options, currency contracts).


                                      A-1
<PAGE>
         MANAGEMENT RISK. The risk that a strategy used by a fund's management
may fail to produce the intended result. Common to all mutual funds.


         MARKET RISK. The risk that the market value of a security may move up
and down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less than it
was worth at an earlier time. Market risk may affect a single issuer, industry,
sector of the economy or the market as a whole. Common to all stocks and bonds
and the mutual funds that invest in them (e.g., short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign equities, financial futures and options, securities and index options
restricted and illiquid securities).


         NATURAL EVENT RISK. The risk of losses attributable to natural
disasters, crop failures and similar events (e.g., foreign equities).


         OPPORTUNITY RISK. The risk of missing out on an investment opportunity
because the assets necessary to take advantage of it are tied up in less
advantageous investments (e.g., short sales, when-issued securities and forward
commitments, financial futures and options, securities and index options,
currency contracts).


         POLITICAL RISK. The risk of losses attributable to government or
political actions, from changes in tax or trade statutes to governmental
collapse and war (e.g., foreign equities).

         VALUATION RISK. The risk that a fund has valued certain of its
securities at a higher price than it can sell them for (e.g.,
non-investment-grade securities, restricted and illiquid securities).

                                      A-2
<PAGE>
APPENDIX B - DESCRIPTION OF RATINGS

         The ratings of Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group represent their opinions as to the quality of various debt
instruments they undertake to rate. It should be emphasized that ratings are not
absolute standards of quality. Consequently, debt instruments with the same
maturity, coupon and rating may have different yields while debt instruments of
the same maturity and coupon with different ratings may have the same yield.

MOODY'S INVESTORS SERVICE, INC.  - PREFERRED SECURITIES RATINGS

Aaa: Preferred stocks which are rated "Aaa" are considered to be top quality.
This rating indicates good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.

Aa: Preferred stocks which are rated "Aa" are considered to be high grade. This
rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.

A: Preferred stocks which are rated "A" are considered to be upper-medium grade.
While risks are judged to be somewhat greater than in the "Aaa" and "Aa"
classifications, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.

Baa: Preferred stocks which are rated "Baa" are judged lower-medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.

Ba: Preferred stocks which are rated "Ba" are considered to have speculative
elements and their future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.

MOODY'S INVESTORS SERVICE, INC.- BOND RATINGS

Aaa: Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A: Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment at some time in the future.

Baa: Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

                                      B-1
<PAGE>
B: Bonds which are rated "B" generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated "Ca" represented obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

STANDARD & POOR'S RATINGS GROUP - PREFERRED SECURITIES RATINGS

AAA: This is the highest rating that may be assigned to a preferred stock issue
and indicates an extremely strong capacity to pay the preferred stock
obligations.

AA: A preferred stock issue rated "AA" also qualifies as a high quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA."

A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.

BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Although it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for preferred stock
in this category for issues in the "A" category.

BB: An issue rated "BB" is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay the preferred stock obligation.
While such issues will likely have some quality and protective characteristics,
there are outweighed by large uncertainties or major risk exposures to adverse
conditions.

STANDARD & POOR'S RATINGS GROUP - BOND RATINGS

AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B: Debt rated "BB," and "B" is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.

CCC: Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.

                                      B-2
<PAGE>
CC: The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.

                                      B-3
<PAGE>
APPENDIX C - PROXY VOTING GUIDELINES AND PROCEDURES

                           JOHN HANCOCK ADVISERS, LLC
                     SOVEREIGN ASSET MANAGEMENT CORPORATION
                              PROXY VOTING SUMMARY

We believe in placing our clients' interests first. Before we invest in a
particular stock or bond, our team of portfolio managers and research analysts
look closely at the company by examining its earnings history, its management
team and its place in the market. Once we invest, we monitor all our clients'
holdings, to ensure that they maintain their potential to produce results for
investors.

As part of our active investment management strategy, we keep a close eye on
each company we invest in. Routinely, companies issue proxies by which they ask
investors like us to vote for or against a change, such as a new management
team, a new business procedure or an acquisition. We base our decisions on how
to vote these proxies with the goal of maximizing the value of our clients'
investments.

Currently, John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management
Corporation ("Sovereign") manage open-end funds, closed-end funds and portfolios
for institutions and high-net-worth investors. Occasionally, we utilize the
expertise of an outside asset manager by means of a subadvisory agreement. In
all cases, JHA or Sovereign makes the final decision as to how to vote our
clients' proxies. There is one exception, however, and that pertains to our
international accounts. The investment management team for international
investments votes the proxies for the accounts they manage. Unless voting is
specifically retained by the named fiduciary of the client, JHA and Sovereign
will vote proxies for ERISA clients.

In order to ensure a consistent, balanced approach across all our investment
teams, we have established a proxy oversight group comprised of associates from
our investment, operations and legal teams. The group has developed a set of
policies and procedures that detail the standards for how JHA and Sovereign vote
proxies. The guidelines of JHA have been approved and adopted by each fund
client's board of trustees who have voted to delegate proxy voting authority to
their investment adviser, JHA. JHA and Sovereign's other clients have granted us
the authority to vote proxies in our advisory contracts or comparable documents.

JHA and Sovereign have hired a third party proxy voting service which has been
instructed to vote all proxies in accordance with our established guidelines
except as otherwise instructed.

In evaluating proxy issues, our proxy oversight group may consider information
from many sources, including the portfolio manager, management of a company
presenting a proposal, shareholder groups, and independent proxy research
services. Proxies for securities on loan through securities lending programs
will generally not be voted, however a decision may be made to recall a security
for voting purposes if the issue is material.

Below are the guidelines we adhere to when voting proxies. Please keep in mind
that these are purely guidelines. Our actual votes will be driven by the
particular circumstances of each proxy. From time to time votes may ultimately
be cast on a case-by-case basis, taking into consideration relevant facts and
circumstances at the time of the vote. Decisions on these matters (case-by-case,
abstention, recall) will normally be made by a portfolio manager under the
supervision of the chief investment officer and the proxy oversight group. We
may abstain from voting a proxy if we conclude that the effect on our clients'
economic interests or the value of the portfolio holding is indeterminable or
insignificant.


                                      C-1
<PAGE>
PROXY VOTING GUIDELINES

BOARD OF DIRECTORS

We believe good corporate governance evolves from an independent board.

We support the election of uncontested director nominees, but will withhold our
vote for any nominee attending less than 75% of the board and committee meetings
during the previous fiscal year. Contested elections will be considered on a
case by case basis by the proxy oversight group, taking into account the
nominee's qualifications. We will support management's ability to set the size
of the board of directors and to fill vacancies without shareholder approval but
will not support a board that has fewer than 3 directors or allows for the
removal of a director without cause.

We will support declassification of a board and block efforts to adopt a
classified board structure. This structure typically divides the board into
classes with each class serving a staggered term.

In addition, we support proposals for board indemnification and limitation of
director liability, as long as they are consistent with corporate law and
shareholders' interests. We believe that this is necessary to attract qualified
board members.

SELECTION OF AUDITORS

We believe an independent audit committee can best determine an auditor's
qualifications.

We will vote for management proposals to ratify the board's selection of
auditors, and for proposals to increase the independence of audit committees.

CAPITALIZATION

We will vote for a proposal to increase or decrease authorized common or
preferred stock and the issuance of common stock, but will vote against a
proposal to issue or convert preferred or multiple classes of stock if the board
has unlimited rights to set the terms and conditions of the shares, or if the
shares have voting rights inferior or superior to those of other shareholders.

In addition, we will support a management proposal to: create or restore
preemptive rights; approve a stock repurchase program; approve a stock split or
reverse stock split; and, approve the issuance or exercise of stock warrants

ACQUISITIONS, MERGERS AND CORPORATE RESTRUCTURING

Proposals to merge with or acquire another company will be voted on a
case-by-case basis, as will proposals for recapitalization, restructuring,
leveraged buyout, sale of assets, bankruptcy or liquidation. We will vote
against a reincorporation proposal if it would reduce shareholder rights. We
will vote against a management proposal to ratify or adopt a poison pill or to
establish a supermajority voting provision to approve a merger or other business
combination. We would however support a management proposal to opt out of a
state takeover statutory provision, to spin-off certain operations or divisions
and to establish a fair price provision.

CORPORATE STRUCTURE AND SHAREHOLDER RIGHTS

In general, we support proposals that foster good corporate governance
procedures and that provide shareholders with voting power equal to their equity
interest in the company.

To preserve shareholder rights, we will vote against a management proposal to
restrict shareholders' right to: call a special meeting and to eliminate a
shareholders' right to act by written consent. In addition, we will not support
a


                                      C-2
<PAGE>
management proposal to adopt a supermajority vote requirement to change certain
by-law or charter provisions or a non-technical amendment to by-laws or a
charter that reduces shareholder rights.

EQUITY-BASED COMPENSATION

Equity-based compensation is designed to attract, retain and motivate talented
executives and independent directors, but should not be so significant as to
materially dilute shareholders' interests.

We will vote against the adoption or amendment of a stock option plan if the:

      -   plan dilution is more than 10% of outstanding common stock,

      -   plan allows for non-qualified options to be priced at less than 85% of
          the fair market value on the grant date,

      -   company allows or has allowed the re-pricing or replacement of
          underwater options in the past fiscal year (or the exchange of
          underwater options).

With respect to the adoption or amendment of employee stock purchase plans or a
stock award plan, we will vote against management if:

      -   the plan allows stock to be purchased at less than 85% of fair market
          value;

      -   this plan dilutes outstanding common equity greater than 10%

      -   all stock purchase plans, including the proposed plan, exceed 15% of
          outstanding common equity.

OTHER BUSINESS

For routine business matters which are the subject of many proxy related
questions, we will vote with management proposals to:

      -   change the company name;

      -   approve other business;

      -   adjourn meetings;

      -   make technical amendments to the by-laws or charters;

      -   approve financial statements;

      -   approve an employment agreement or contract.

SHAREHOLDER PROPOSALS

Shareholders are permitted per SEC regulations to submit proposals for inclusion
in a company's proxy statement. We will generally vote against shareholder
proposals and in accordance with the recommendation of management except as
follows where we will vote for proposals:

      -   calling for shareholder ratification of auditors;

      -   calling for auditors to attend annual meetings;

      -   seeking to increase board independence;


                                      C-3
<PAGE>
      -   requiring minimum stock ownership by directors;

      -   seeking to create a nominating committee or to increase the
          independence of the nominating committee;

      -   seeking to increase the independence of the audit committee.

CORPORATE AND SOCIAL POLICY ISSUES

We believe that "ordinary business matters" are primarily the responsibility of
management and should be approved solely by the corporation's board of
directors.

Proposals in this category, initiated primarily by shareholders, typically
request that the company disclose or amend certain business practices. We
generally vote against business practice proposals and abstain on social policy
issues, though we may make exceptions in certain instances where we believe a
proposal has substantial economic implications.


                                      C-4
<PAGE>
                           JOHN HANCOCK ADVISERS, LLC
                     SOVEREIGN ASSET MANAGEMENT CORPORATION
                             PROXY VOTING PROCEDURES



THE ROLE OF THE PROXY VOTING SERVICE

John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management Corporation
("Sovereign") have hired a proxy voting service to assist with the voting of
client proxies. The proxy service coordinates with client custodians to ensure
that proxies are received for securities held in client accounts and acted on in
a timely manner. The proxy service votes all proxies received in accordance with
the proxy voting guidelines established and adopted by JHA and Sovereign. When
it is unclear how to apply a particular proxy voting guideline or when a
particular proposal is not covered by the guidelines, the proxy voting service
will contact the proxy oversight group coordinator for a resolution.

THE ROLE OF THE PROXY OVERSIGHT GROUP AND COORDINATOR

The coordinator will interact directly with the proxy voting service to resolve
any issues the proxy voting service brings to the attention of JHA or Sovereign.
When a question arises regarding how a proxy should be voted the coordinator
contacts the firm's investment professionals and the proxy oversight group for a
resolution. In addition the coordinator ensures that the proxy voting service
receives responses in a timely manner. Also, the coordinator is responsible for
identifying whether, when a voting issue arises, there is a potential conflict
of interest situation and then escalating the issue to the firm's Executive
Committee. For securities out on loan as part of a securities lending program,
if a decision is made to vote a proxy, the coordinator will manage the
return/recall of the securities so the proxy can be voted.

THE ROLE OF MUTUAL FUND TRUSTEES

The boards of trustees of our mutual fund clients have reviewed and adopted the
proxy voting guidelines of the funds' investment adviser, JHA. The trustees will
periodically review the proxy voting guidelines and suggest changes they deem
advisable.

CONFLICTS OF INTEREST

Conflicts of interest are resolved in the best interest of clients.

With respect to potential conflicts of interest, proxies will be voted in
accordance with JHA's or Sovereign's predetermined policies. If application of
the predetermined policy is unclear or does not address a particular proposal, a
special internal review by the JHA Executive Committee or Sovereign Executive
Committee will determine the vote. After voting, a report will be made to the
client (in the case of an investment company, to the fund's board of trustees),
if requested. An example of a conflict of interest created with respect to a
proxy solicitation is when JHA or Sovereign must vote the proxies of companies
that they provide investment advice to or are currently seeking to provide
investment advice to, such as to pension plans.


                                      C-5
<PAGE>
APPENDIX D - AUCTION PROCEDURES

      The following procedures will be set forth in provisions of the By-Laws
relating to the Preferred Shares and will be incorporated by reference in the
Auction Agency Agreement and each Broker-Dealer Agreement. Capitalized terms
used herein are defined in the By-Laws or the Prospectus, except that the term
"Trust" means the Fund. Nothing contained in this Appendix D constitutes a
representation by the Fund that in each Auction each party referred to herein
actually will perform the procedures described herein to be performed by such
party.

SECTION 8.9.  AUCTION PROCEDURES

(a)   ORDERS.

      (i)   Prior to the Submission Deadline on each Auction Date for shares
of a series of APS:

            (A) each Beneficial Owner of shares of such series may submit to its
Broker-Dealer by telephone or otherwise information as to:

                  (1) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner desires to continue to
hold without regard to the Applicable Rate for shares of such series for the
next succeeding Rate Period of such shares;

                  (2) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner offers to sell if the
Applicable Rate for shares of such series for the next succeeding Rate Period of
shares of such series shall be less than the rate per annum specified by such
Beneficial Owner; and/or

                  (3) the number of Outstanding shares, if any, of such series
held by such Beneficial Owner which such Beneficial Owner offers to sell without
regard to the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series; and

            (B) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive Auction
in a commercially reasonable manner, contact Potential Beneficial Owners (by
telephone or otherwise), including Persons that are not Beneficial Owners, on
such lists to determine the number of shares, if any, of such series which each
such Potential Beneficial Owner offers to purchase if the Applicable Rate for
shares of such series for the next succeeding Rate Period of shares of such
series shall not be less than the rate per annum specified by such Potential
Beneficial Owner.

            (C) For the purposes hereof, the communication by a Beneficial Owner
or Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in clause (A)(1), (A)(2), (A)(3) or
(B) of this Section 8.9(a)(i) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an
order with the Auction Agent, is hereinafter referred to as a "Bidder" and
collectively as "Bidders"; an Order containing the information referred to in
clause (A)(1) of this Section 8.9(a)(i) is hereinafter referred to as a "Hold
Order" and collectively as "Hold Orders"; an Order containing the information
referred to in clause (A)(2) or (B) of this Section 8.9(a)(i) is hereinafter
referred to as a "Bid" and collectively as "Bids"; and an Order containing the
information referred to in clause (A)(3) of this Section 8.9(a)(i) is
hereinafter referred to as a "Sell Order" and collectively as "Sell Orders."

            (D) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of APS subject to an Auction on any Auction Date shall constitute an
irrevocable offer to sell:

                  (1) the number of Outstanding shares of such series specified
in such Bid if the Applicable Rate for shares of such series determined on such
Auction Date shall be less than the rate specified therein;


                                      D-1
<PAGE>
                  (2) such number or a lesser number of Outstanding shares of
such series to be determined as set forth in Section 8.9(d)(i)(A)(4) if the
Applicable Rate for shares of such series determined on such Auction Date shall
be equal to the rate specified therein; or

                  (3) the number of Outstanding shares of such series specified
in such Bid if the rate specified therein shall be higher than the Maximum
Applicable Rate for shares of such series, or such number or a lesser number of
Outstanding shares of such series to be determined as set forth in Section
8.9(d)(i)(A)(4) if the rate specified therein shall be higher than the Maximum
Applicable Rate for shares of such series and Sufficient Clearing Bids for
shares of such series do not exist.

            (E) A Sell Order by a Beneficial Owner or an Existing Holder of
shares of a series of APS subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:

                  (1)   the number of Outstanding shares of such series
specified in such Sell Order; or

                  (2) such number or a lesser number of Outstanding shares of
such series as set forth in Section 8.9(d)(i)(B)(3) if Sufficient Clearing Bids
for shares of such series do not exist; provided, however, that a Broker-Dealer
that is an Existing Holder with respect to shares of a series of APS shall not
be liable to any Person for failing to sell such shares pursuant to a Sell Order
described in the proviso to paragraph (iii) of Section 8.9(b) if (X) such shares
were transferred by the Beneficial Owner thereof without compliance by such
Beneficial Owner or its transferee Broker-Dealer (or other transferee person, if
permitted by the Fund) with the provisions of Section 8.9(f) or (Y) such
Broker-Dealer has informed the Auction Agent pursuant to the terms of its
Broker-Dealer Agreement that, according to such Broker-Dealer's records, such
Broker Dealer believes it is not the Existing Holder of such shares.

            (F) A Bid by a Potential Beneficial Holder or a Potential Holder of
shares of a series of APS subject to an Auction on any Auction Date shall
constitute an irrevocable offer to purchase:

                  (1) the number of Outstanding shares of such series specified
in such Bid if the Applicable Rate for shares of such series determined on such
Auction Date shall be higher than the rate specified therein; or

                  (2) such number or a lesser number of Outstanding shares of
such series as set forth in Section 8.9(d)(i)(A)(5) if the Applicable Rate for
shares of such series determined on such Auction Date shall be equal to the rate
specified therein.

      (ii) No Order for any number of APS other than whole shares shall be
valid.

(b)   SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.

      (i) Each Broker-Dealer shall submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders for APS of a series
subject to an Auction on such Auction Date obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Fund) as an Existing
Holder in respect of shares subject to Orders submitted or deemed submitted to
it by Beneficial Owners and as a Potential Holder in respect of shares subject
to Orders submitted to it by Potential Beneficial Owners, and shall specify with
respect to each Order for such shares:

            (A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Fund);

            (B)    the aggregate number of shares of such series that are the
subject of such Order;

            (C) to the extent that such Bidder is an Existing Holder of shares
of such series:


                                      D-2
<PAGE>
                  (1)   the number of shares, if any, of such series subject
to any Hold Order of such Existing Holder;

                  (2) the number of shares, if any, of such series subject to
any Bid of such Existing Holder and the rate specified in such Bid; and

                  (3)    the number of shares, if any, of such series subject
to any Sell Order of such Existing Holder; and

            (D) to the extent such Bidder is a Potential Holder of shares of
such series, the rate and number of shares of such series specified in such
Potential Holder's Bid.

      (ii) If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.

      (iii) If an Order or Orders covering all of the outstanding APS of a
series held by any Existing Holder is not submitted to the Auction Agent prior
to the Submission Deadline, the Auction Agent shall deem a Hold Order to have
been submitted by or on behalf of such Existing Holder covering the number of
Outstanding shares of such series held by such Existing Holder and not subject
to Orders submitted to the Auction Agent; provided, however, that if an Order or
Orders covering all of the Outstanding shares of such series held by any
Existing Holder is not submitted to the Auction Agent prior to the Submission
Deadline for an Auction relating to a Special Rate Period consisting of more
than 91 days, the Auction Agent shall deem a Sell order to have been submitted
by or on behalf of such Existing Holder covering the number of outstanding
shares of such series held by such Existing Holder and not subject to Orders
submitted to the Auction Agent.

      (iv) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding APS
of a series subject to an Auction held by such Existing Holder, such Orders
shall be considered valid in the following order of priority:

            (A) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of Outstanding
shares of such series held by such Existing Holder, and if the number of shares
of such series subject to such Hold Orders exceeds the number of Outstanding
shares of such series held by such Existing Holder, the number of shares subject
to each such Hold Order shall be reduced pro rata to cover the number of
Outstanding shares of such series held by such Existing Holder;

            (B)

                  (1) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the number of shares of such series
subject to any Hold Orders referred to in clause (A) above;

                  (2) subject to subclause (1), if more than one Bid of an
Existing Holder for shares of such series is submitted to the Auction Agent with
the same rate and the number of Outstanding shares of such series subject to
such Bids is greater than such excess, such Bids shall be considered valid up to
and including the amount of such excess, and the number of shares of such series
subject to each Bid with the same rate shall be reduced pro rata to cover the
number of shares of such series equal to such excess;

                  (3) subject to subclauses (1) and (2), if more than one Bid of
an Existing Holder for shares of such series is submitted to the Auction Agent
with different rates, such Bids shall be considered valid in the ascending order
of their respective rates up to and including the amount of such excess;

                  (4) in any such event, the number, if any, of such Outstanding
shares of such series subject to any portion of Bids considered not valid in
whole or in part under this clause (B) shall be treated as the subject of a Bid
for shares of such series by or on behalf of a Potential Holder at the rate
therein specified; and


                                      D-3
<PAGE>
            (C) all Sell Orders for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding shares of such
series held by such Existing Holder over the sum of shares of such series
subject to valid Hold Orders referred to in clause (A) above and valid Bids
referred to in clause (B) above.

      (v) If more than one Bid for one or more shares of a series of APS is
submitted to the Auction Agent by or on behalf of any Potential Holder, each
such Bid submitted shall be a separate Bid with the rate and number of shares
therein specified.

      (vi) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.

(c) DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BIDS RATE AND APPLICABLE
RATE.

      (i) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of APS, the Auction Agent shall assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers in respect of shares
of such series (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted
Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders")
and shall determine for such series:

            (A) the excess of the number of Outstanding shares of such series
over the number of Outstanding shares of such series subject to Submitted Hold
Orders (such excess being hereinafter referred to as the "Available APS" of such
series);

            (B) from the Submitted Orders for shares of such series whether:

                  (1) the number of Outstanding shares of such series subject to
Submitted Bids of Potential Holders specifying one or more rates equal to or
lower than the Maximum Applicable Rate for shares of such series exceeds or is
equal to the sum of:

                  (2) the number of Outstanding shares of such series subject to
Submitted Bids of Existing Holders specifying one or more rates higher than the
Maximum Applicable Rate for shares of such series; and

                  (3)   the number of Outstanding shares of such series
subject to Submitted Sell Orders

      (in the event such excess or such equality exists (other than because the
number of shares of such series in subclauses (2) and (3) above is zero because
all of the Outstanding shares of such series are subject to Submitted Hold
Orders), such Submitted Bids in subclause (1) above being hereinafter referred
to collectively as "Sufficient Clearing Bids" for shares of such series); and

            (C) if Sufficient Clearing Bids for shares of such series exist, the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate" for shares
of such series) which if:

                  (1) (X) each such Submitted Bid of Existing Holders specifying
such lowest rate and (Y) all other such Submitted Bids of Existing Holders
specifying lower rates were rejected, thus entitling such Existing Holders to
continue to hold the shares of such series that are subject to such Submitted
Bids; and

                  (2) (X) each such Submitted Bid of Potential Holders
specifying such lowest rate and (Y) all other such Submitted Bids of Potential
Holders specifying lower rates were accepted would result in such Existing
Holders described in Section 8.9(c(i)(B)(2) (1) above continuing to hold an
aggregate number of Outstanding shares of such series which, when added to the
number of Outstanding shares of such series to be


                                      D-4
<PAGE>
purchased by such Potential Holders described in Section 8.9(c(i)(B)(2), would
equal not less than the Available APS of such series.

      (ii) Promptly after the Auction Agent has made the determinations pursuant
to paragraph (i) of this Section 8.9(c), the Auction Agent shall advise the Fund
of the Maximum Applicable Rate for shares of the series of APS for which an
Auction is being held on the Auction Date and, based on such determination the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:

            (A) if Sufficient Clearing Bids for shares of such series exist,
that the Applicable Rate for all shares of such series for the next succeeding
Rate Period thereof shall be equal to the Winning Bid Rate for shares of such
series so determined;

            (B) if Sufficient Clearing Bids for shares of such series do not
exist (other than because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), that the Applicable Rate for all shares of
such series for the next succeeding Rate Period thereof shall be equal to the
Maximum Applicable Rate for shares of such series; or

            (C) if all of the Outstanding shares of such series are subject to
Submitted Hold Orders, that the Applicable Rate for all shares of such series
for the next succeeding Rate Period thereof shall be the applicable "AA"
Financial Composite Commercial Paper Rate on such Auction Date.

(d) ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND
ALLOCATION OF SHARES.

      (i) Existing Holders shall continue to hold the APS that are subject to
Submitted Hold Orders, and, based on the determinations made pursuant to Section
8.9(c)(i)(A), the Submitted Bids and Submitted Sell Orders shall be accepted or
rejected by the Auction Agent and the Auction Agent shall take such other action
as set forth below:

            (A) If Sufficient Clearing Bids for shares of a series of APS have
been made, all Submitted Sell Orders with respect to shares of such series shall
be accepted and, subject to the provisions of paragraphs (iv) and (v) of Section
8.9(d), Submitted Bids with respect to shares of such series shall be accepted
or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:

                  (1) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares of such
series shall be accepted, thus requiring each such Existing Holder to sell the
APS subject to such Submitted Bids;

                  (2) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares of such
series shall be rejected, thus entitling each such Existing Holder to continue
to hold the APS subject to such Submitted Bids;

                  (3) Potential Holders' Submitted Bids for shares of such
series specifying any rate that is lower than the Winning Bid Rate for shares of
such series shall be accepted;

                  (4) each Existing Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be rejected, thus entitling such Existing Holder to continue
to hold the APS subject to such Submitted Bid, unless the number of Outstanding
APS subject to all such Submitted Bids shall be greater than the number of APS
("remaining shares") in the excess of the Available APS of such series over the
number of APS subject to Submitted Bids described in Sections 8.9(d)(i)(A) and
(C), in which event such Submitted Bid of such Existing Holder shall be rejected
in part, and such Existing Holder shall be entitled to continue to hold APS
subject to such Submitted Bid, but only in an amount equal to the number of APS
of such series obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the number of Outstanding APS held by
such Existing Holder subject to such Submitted Bid and the denominator of


                                      D-5
<PAGE>
which shall be the aggregate number of Outstanding APS subject to such Submitted
Bids made by all such Existing Holders that specified a rate equal to the
Winning Bid Rate for shares of such series; and

                  (5) each Potential Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be accepted but only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares in the excess
of the Available APS of such series over the number of APS subject to Submitted
Bids described in clauses (2) through (4) of this Section 8.9(i)(A) by a
fraction, the numerator of which shall be the number of Outstanding APS subject
to such Submitted Bid and the denominator of which shall be the aggregate number
of Outstanding APS subject to such Submitted Bids made by all such Potential
Holders that specified a rate equal to the Winning Bid Rate for shares of such
series.

            (B) If Sufficient Clearing Bids for shares of a series of APS have
not been made (other than because all of the Outstanding shares of such series
are subject to Submitted Hold Orders), subject to the provisions of Section
8.9(d)(4), Submitted Orders for shares of such series shall be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids for shares of such series shall be rejected:

                  (1) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Applicable Rate
for shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the APS subject to such Submitted Bids;

                  (2) Potential Holders' Submitted Bids for shares of such
series specifying any rate that is equal to or lower than the Maximum Applicable
Rate for shares of such series shall be accepted; and

                  (3) Each Existing Holder's Submitted Bid for shares of such
series specifying any rate that is higher than the Maximum Applicable Rate for
shares of such series and the Submitted Sell Orders for shares of such series of
each Existing Holder shall be accepted, thus entitling each Existing Holder that
submitted or on whose behalf was submitted any such Submitted Bid or Submitted
Sell Order to sell the shares of such series subject to such Submitted Bid or
Submitted Sell Order, but in both cases only in an amount equal to the number of
shares of such series obtained by multiplying the number of shares of such
series subject to Submitted Bids described in clause (2) of this paragraph (B)
by a fraction, the numerator of which shall be the number of Outstanding shares
of such series held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and the denominator of which shall be the aggregate number
of Outstanding shares of such series subject to all such Submitted Bids and
Submitted Sell Orders.

            (C) If all of the Outstanding shares of a series of APS are subject
to Submitted Hold Orders, all Submitted Bids for shares of such series shall be
rejected.

            (D) If, as a result of the procedures described in clause (4) or (5)
of paragraph (A) or clause (3) of paragraph (B) of this Section 8.9(d)(i), any
Existing Holder would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a fraction of a share of a series of
APS on any Auction Date, the Auction Agent shall, in such manner as it shall
determine in its sole discretion, round up or down the number of APS of such
series to be purchased or sold by any Existing Holder or Potential Holder on
such Auction Date as a result of such procedures so that the number of shares so
purchased or sold by each Existing Holder or Potential Holder on such Auction
Date shall be whole APS.

            (E) If, as a result of the procedures described in clause (5) of
Section 8.9(d)(i)(A), any Potential Holder would be entitled or required to
purchase less than a whole share of a series of APS on any Auction Date, the
Auction Agent shall, in such manner as it shall determine in its sole
discretion, allocate APS of such series for purchase among Potential Holders so
that only whole shares of APS of such series are purchased on such Auction Date
as a result of such procedures by any Potential Holder, even if such allocation
results in one or more Potential Holders not purchasing APS of such series on
such Auction Date.

            (F) Based on the results of each Auction for shares of a series of
APS, the Auction Agent shall determine the aggregate number of shares of such
series to be purchased and the aggregate number of shares of such series to be
sold by Potential Holders and Existing Holders and, with respect to each
Potential Holder and


                                      D-6
<PAGE>
Existing Holder, to the extent that such aggregate number of shares to be
purchased and such aggregate number of shares to be sold differ, determine to
which other Potential Holder(s) or Existing Holder(s) they shall deliver, or
from which other Potential Holder(s) or Existing Holder(s) they shall receive,
as the case may be, APS of such series. Notwithstanding any provision of the
Auction Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of a series of APS with respect to whom a Broker-Dealer
submitted a Bid to the Auction Agent for such shares that was accepted in whole
or in part, or submitted or is deemed to have submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent Member
to deliver such shares against payment therefor, partial deliveries of APS that
have been made in respect of Potential Holders' or Potential Beneficial Owners'
submitted Bids for shares of such series that have been accepted in whole or in
part shall constitute good delivery to such Potential Holders and Potential
Beneficial Owners.

            (G) None of the Fund, the Adviser, nor the Auction Agent nor any
affiliate of either shall have any responsibility or liability with respect to
the failure of an Existing Holder, a Potential Holder, a Beneficial Owner, a
Potential Beneficial Owner or its respective Agent Member to deliver APS of any
series or to pay for APS of any series sold or purchased pursuant to the Auction
Procedures or otherwise.

(e)   AUCTION AGENT.

      For so long as any APS are outstanding, the Auction Agent, duly appointed
by the Fund to so act, shall be in each case a commercial bank, trust company or
other financial institution independent of the Fund and its Affiliates (which
however may engage or have engaged in business transactions with the Fund or its
Affiliates) and at no time shall the Fund or any of its affiliates act as the
Auction Agent in connection with the Auction Procedures. If the Auction Agent
resigns or for any reason its appointment is terminated during any period that
any APS are outstanding, the Board of Trustees shall use its best efforts
promptly thereafter to appoint another qualified commercial bank, trust company
or financial institution to act as the Auction Agent. The Auction Agent's
registry of Existing Holders of a series of APS shall be conclusive and binding
on the Broker-Dealers. A Broker-Dealer may inquire of the Auction Agent between
3:00 p.m. on the Business Day preceding an Auction for a series of APS and 9:30
a.m. on the Auction Date for such Auction to ascertain the number of shares of
such series in respect of which the Auction Agent has determined such
Broker-Dealer to be an Existing Holder. If such Broker-Dealer believes it is the
Existing Holder of fewer shares of such series than specified by the Auction
Agent in response to such Broker-Dealer's inquiry, such Broker-Dealer may so
inform the Auction Agent of that belief. Such Broker-Dealer shall not, in its
capacity as Existing Holder of shares of such series, submit Orders in such
Auction in respect of shares of such series covering in the aggregate more than
the number of shares of such series specified by the Auction Agent in response
to such Broker-Dealer's inquiry.

(f)   TRANSFER OF APS.

      Unless otherwise permitted by the Fund, a Beneficial Owner or an Existing
Holder may sell, transfer or otherwise dispose of APS only in whole shares and
only pursuant to a Bid or Sell Order placed with the Auction Agent in accordance
with the procedures described in this Section 8.9 or to a Broker-Dealer;
provided, however, that (a) a sale, transfer or other disposition of APS from a
customer of a Broker-Dealer who is listed on the records of that Broker-Dealer
as the holder of such shares to that Broker-Dealer or another customer of that
Broker-Dealer shall not be deemed to be a sale, transfer or other disposition
for purposes of this Section 8.9 if such Broker-Dealer remains the Existing
Holder of the shares so sold, transferred or disposed of immediately after such
sale, transfer or disposition and (b) in the case of all transfers other than
pursuant to Auctions, the Broker-Dealer (or other Person, if permitted by the
Fund) to whom such transfer is made shall advise the Auction Agent of such
transfer.

(g)   GLOBAL CERTIFICATE.

      Prior to the commencement of a any period in which the holders of
Preferred Shares are entitled to elect a majority of the Board of Trustees, (i)
all of the shares of a series of APS outstanding from time to time shall be
represented by one global certificate registered in the name of the Securities
Depository or its nominee and (ii) no registration of transfer of shares of a
series of APS shall be made on the books of the Fund to any Person other than
the Securities Depository or its nominee.


                                      D-7
<PAGE>
(h)   FORCE MAJEURE.

      (i) Notwithstanding anything else set forth herein, if an Auction Date is
not a Business Day because the New York Stock Exchange is closed for business
due to an act of God, natural disaster, act of war, civil or military
disturbance, act of terrorism, sabotage, riots or a loss or malfunction of
utilities or communications services or the Auction Agent is not able to conduct
an Auction in accordance with the Auction Procedures for any such reason, then
the Auction Rate for the next Dividend Period shall be the Auction Rate
determined on the previous Auction Date.

      (ii) Notwithstanding anything else set forth herein, if a Dividend Payment
Date is not a Business Day because the New York Stock Exchange is closed for
business due to an act of God, natural disaster, act of war civil or military
disturbance, act of terrorism, sabotage, riots or a loss or malfunction of
utilities or communications services or the dividend payable on such date can
not be paid for any such reason, then:

            (A) the Dividend Payment Date for the affected Dividend Period shall
be the next Business Day on which the Fund and its paying agent, if any, are
able to cause the dividend to be paid using their reasonable best efforts;

            (B) the affected Dividend Period shall end on the day it would have
ended had such event not occurred and the Dividend Payment Date had remained the
scheduled date; and

            (C) the next Dividend Period will begin and end on the dates on
which it would have begun and ended had such event not occurred and the Dividend
Payment Date remained the scheduled date.

(i)   MISCELLANEOUS.

      The Board of Trustees may interpret the provisions of this Section 8.9 to
resolve any inconsistency or ambiguity, remedy any formal defect or make any
other change or modification that does not materially adversely affect the
rights of Existing Holders of the Preferred Shares, and if such inconsistency,
ambiguity or formal defect reflects an inaccurate provision hereof, the Board of
Trustees may, in appropriate circumstances, amend this Section 8.9. An Existing
Holder (A) may sell, transfer or otherwise dispose of Preferred Shares only
pursuant to a Bid or Sell Order in accordance with the procedures described in
this Section 8.9 or to or through a Broker-Dealer, provided that in the case of
all transfers other than pursuant to Auctions such Existing Holder or its
Broker-Dealer or its Agent Member advises the Auction Agent of such transfer,
and (B) shall have the ownership of the Preferred Shares held by it maintained
in book-entry form by the Securities Depository in the account of its Agent
Member, which in turn will maintain records of such Existing Holder's beneficial
ownership. Neither the Fund nor any affiliated person of the Fund (as defined
under the Investment Company Act) shall submit any Order in any Auction. All of
the Outstanding Preferred Shares shall be represented by one certificate
registered in the name of the nominee of the Securities Depository. Each such
certificate shall bear a legend substantially to the effect that transfer of the
Shares represented by such certificate is subject to the restrictions specified
in Section 8.9(f). Neither the Fund nor any of its agents, including, without
limitation, the Auction Agent, shall have any liability with respect to the
failure of a Potential Holder, Existing Holder or Agent Member to deliver, or to
pay for, Preferred Shares sold or purchased in an Auction or otherwise.


                                      D-8
<PAGE>
APPENDIX E - SETTLEMENT PROCEDURES

      The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agency Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix constitutes a
representation by the Fund that in each Auction each party referred to herein
will actually perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the glossary of the Prospectus or Appendix C hereto, as the case
may be.

      (a) On each Auction Date, the Auction Agent shall notify by telephone, or
through the Auction Agent's auction processing system, the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of any Existing Holder or Potential Holder of:

            (i) the Applicable Rate fixed for the next succeeding Dividend
Period;

            (ii) whether Sufficient Clearing Bids existed for the determination
of the Applicable Rate;

            (iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a
Bid or a Sell Order on behalf of an Existing Holder, the number of shares, if
any, of APS to be sold by such Existing Holder;

            (iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a
Bid on behalf of a Potential Holder, the number of shares, if any, of APS to be
purchased by such Potential Holder;

            (v) if the aggregate number of APS to be sold by all Existing
Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order
exceeds the aggregate number of APS to be purchased by all potential Holders on
whose behalf such Broker-Dealer submitted a Bid, the name or names of one or
more Buyer's Broker-Dealers (and the name of the Agent Member, if any, of each
such Buyer's Broker-Dealer) acting for one or more purchasers of such excess
number of APS and the number of such shares to be purchased from one or more
Existing Holders on whose behalf such Broker-Dealer acted by one or more
Potential Holders on whose behalf each of such Buyer's Broker-Dealers acted;

            (vi) if the aggregate number of APS to be purchased by all Potential
Holders on whose behalf such Broker-Dealer submitted a Bid exceeds the aggregate
number of APS to be sold by all Existing Holders on whose behalf such
Broker-Dealer submitted a Bid or a Sell Order, the name or names of one or more
Seller's Broker Dealers (and the name of the Agent Member, if any, of each such
Seller's Broker-Dealer) acting for one or more sellers of such excess number of
APS and the number of such shares to be sold to one or more Potential Holders on
whose behalf such Broker-Dealer acted by one or more Existing Holders on whose
behalf each of such Seller's Broker-Dealers acted; and

            (vii) the Auction Date of the next succeeding Auction with respect
to the APS.

      (b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Existing Holder or Potential Holder shall:

            (i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
instruct each Potential Holder on whose behalf such Broker-Dealer submitted a
Bid that was accepted, in whole or in part, to instruct such Potential Holder's
Agent Member to pay to such Broker - Dealer (or its Agent Member) through the
Securities Depository the amount necessary to purchase the number of APS to be
purchased pursuant to such Bid against receipt of such shares and advise such
Potential Holder of the Applicable Rate for the next succeeding Dividend Period;

            (ii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Holder on whose behalf such Broker-Dealer
submitted a Sell Order that was accepted, in whole or in part, to instruct such
Existing Holder's Agent Member to deliver to such Broker-Dealer (or its Agent
Member) through the


                                      E-1
<PAGE>
Securities Depository the number of APS to be sold pursuant to such Order
against payment therefor and advise any such Existing Holder that will continue
to hold APS of the Applicable Rate for the next succeeding Dividend Period;

            (iii) advise each Existing Holder on whose behalf such Broker-Dealer
submitted a Hold Order of the Applicable Rate for the next succeeding Dividend
Period;

            (iv) advise each Existing Holder on whose behalf such Broker-Dealer
submitted an Order of the Auction Date for the next succeeding Auction; and

            (v) advise each Potential Holder on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, of the Auction Date for
the next succeeding Auction.

      (c) On the basis of the information provided to it pursuant to (a) above,
each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential
Holder or an Existing Holder shall, in such manner and at such time or times as
in its sole discretion it may determine, allocated any funds received by it
pursuant to (b)(i) above and any APS received by it pursuant to (b)(ii) above
among the Potential Holders, if any, on whose behalf such Broker-Dealer
submitted Bids, the Existing Holders, if any, on whose behalf such Broker-Dealer
submitted Bids that were accepted or Sell Orders, and any Broker-Dealer or
Broker-Dealers identified to it by the Auction Agent pursuant to (a)(v) or
(a)(vi) above.

      (d)   On each Auction Date:

            (i) each Potential Holder and Existing Holder shall instruct its
Agent Member as provided in (b)(i) or (ii) above, as the case may be;

            (ii) each Seller's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to the Agent Member of the Existing Holder delivering
shares to such Broker-Dealer pursuant to (b)(ii) above the amount necessary to
purchase such shares against receipt of such shares, and (B) deliver such shares
through the Securities Depository to a Buyer's Broker-Dealer (or its Agent
Member) identified to such Seller's Broker-Dealer pursuant to (a)(v) above
against payment therefor; and

            (iii) each Buyer's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through the
Securities Depository to a Seller's Broker-Dealer (or its Agent Member)
identified pursuant to (a) (vi) above the amount necessary to purchase the
shares to be purchased pursuant to (b) (i) above against receipt of such shares,
and (B) deliver such shares through the Securities Depository to the Agent
Member of the purchaser thereof against payment therefor.

      (e)   On the day after the Auction Date:

            (i) each Bidder's Agent Member referred to in (d) (i) above shall
instruct the Securities Depository to execute the transactions described under
(b) (i) or (ii) above, and the Securities Depository shall execute such
transactions;

            (ii) each Seller's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d) (ii)
above, and the Securities Depository shall execute such transactions; and

            (iii) each Buyer's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d) (iii)
above, and the Securities Depository shall execute such transactions.

      (f) If an Existing Holder selling APS in an Auction fails to deliver such
shares (by authorized book-entry), a Broker-Dealer may deliver to the Potential
Holder on behalf of which it submitted a Bid that was accepted a number of whole
APS that is less than the number of shares that otherwise was to be purchased by
such Potential Holder. In such event, the number of APS to be so delivered shall
be determined solely by such Broker-Dealer.


                                      E-2
<PAGE>
Delivery of such lesser number of shares shall constitute good delivery.
Notwithstanding the foregoing terms of this paragraph (f), any delivery or
non-delivery of shares which shall represent any departure from the results of
an Auction, as determined by the Auction Agent, shall be of no effect unless and
until the Auction Agent shall have been notified of such delivery or
non-delivery in accordance with the provisions of the Auction Agent Agreement
and the Broker-Dealer Agreements.


                                      E-3



<PAGE>


                           PART C - OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(1)      Financial statements.

         Part A:  Financial highlights for the fiscal years ended December 31,
                  1993 to 2002, and the semi-annual period from January 1, 2003
                  to June 30, 2003.

         Part B:  Financial statements in the annual report to shareholders for
                  the fiscal year ended December 31, 2002, and semi-annual
                  report to shareholders for the semi-annual period from January
                  1, 2003 to June 30, 2003.

(2)      Exhibits:

         (a)      Amended and Restated Declaration of Trust. (2)

         (b)      Amended and Restated By-Laws. (2)

         (c)      Not applicable.

         (d)      Form of Preferred Share Certificates. (2)

         (e)      Not applicable.

         (f)      Not applicable.

         (g)      Amended and Restated Investment Management Contract between
                  the Registrant and John Hancock Advisers, LLC. (2)

         (h)      Form of Underwriting Agreement. (2)

         (i)      Not applicable.

         (j)      Custodian Agreement between the Registrant and The Bank of New
                  York. (2)

         (k)(1)   Transfer Agency and Service Agreement between the Registrant
                  and Mellon Investor Services, LLC. (2)

         (k)(2)   Accounting and Legal Services Agreement between the Registrant
                  and John Hancock Advisers, LLC. (2)

         (k)(3)   Form of Auction Agency Agreement. (2)

         (l)      Opinion and Consent of Counsel. (2)

         (m)      Not applicable.

         (n)      Consent of Independent Public Accountants. (2)

         (o)      Not applicable.

         (p)      Not applicable.

         (q)      Not applicable.

         (r)      Code of Ethics for John Hancock Advisers, LLC. (2)

         (s)      Power of Attorney. (1)

         (1)      Incorporated herein by reference from the exhibits filed with
                  the Registrant's Initial Registration Statement on Form N-2
                  (File No. 333-108636) as filed with the Securities and
                  Exchange Commission (the "SEC") on September 9, 2003
                  (accession no. 0001010521-03-000313).

         (2)      Filed herein.


                                      C-1
<PAGE>

ITEM 25. MARKETING ARRANGEMENTS

Reference is made to the Underwriting Agreement for the Registrant's preferred
shares, to be filed by amendment.

ITEM 26. OTHER EXPENSES AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:

<TABLE>
<S>                                                                       <C>
Registration fees                                                         $   7,200
Printing (other than certificates)                                        $  40,000
Accounting fees and expenses                                              $  20,000
Legal fees and expenses                                                   $  75,000
Rating agent fees                                                         $  26,700
Miscellaneous                                                             $  40,000
                           Total                                          $ 208,900
</TABLE>

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

None.

Item 28. NUMBER OF HOLDERS OF SECURITIES

As of October 15, 2003, the number of record holders of each class of securities
of the Registrant was:

<TABLE>
<CAPTION>
     (1)                                              (2)
TITLE OF CLASS                              NUMBER OF RECORD HOLDERS
<S>                                         <C>
Common Shares (no par value)                         4,236
Preferred Shares Series A (no par value)                 0
Preferred Shares Series B (no par value)                 0
</TABLE>

ITEM 29. INDEMNIFICATION

Indemnification provisions relating to the Registrant's Trustees, officers,
employees and agents is set forth in Article IV of the Registrant's Declaration
of Trust incorporated by reference as Exhibit (a)(1) herein.

Section 9(a) of the By-Laws of John Hancock Life Insurance Company (the
"Insurance Company") provides, in effect, that the Insurance Company will,
subject to limitations of law, indemnify each present and former director,
officer and employee of the Insurance Company who serves as a Trustee or officer
of the Registrant at the direction or request of the Insurance Company against
litigation expenses and liabilities incurred while acting as such, except that
such indemnification does not cover any expense or liability incurred or imposed
in connection with any matter as to which such person shall be finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Insurance Company. In addition, no such
person will be indemnified by the Insurance Company in respect of any final

                                      C-2
<PAGE>

adjudication unless such settlement shall have been approved as in the best
interests of the Insurance Company either by vote of the Board of Directors at a
meeting composed of directors who have no interest in the outcome of such vote,
or by vote of the policyholders. The Insurance Company may pay expenses incurred
in defending an action or claim in advance of its final disposition, but only
upon receipt of an undertaking by the person indemnified to repay such payment
if he should be determined not to be entitled to indemnification.

Article V of the Limited Liability Company Agreement of John Hancock Advisers,
LLC (the "Adviser") provides as follows:

"Section 5.06.  Indemnity."

1.01     Indemnification and Exculpation.

         (a)      No Indemnitee, and no shareholder, director, officer, member,
manager, partner, agent, representative, employee or Affiliate of an Indemnitee,
shall have any liability to the Company or to any Member for any loss suffered
by the Company (or the Corporation) which arises out of any action or inaction
by such Indemnitee with respect to the Company (or the Corporation) if such
Indemnitee so acted or omitted to act (i) in the good faith (A) belief that such
course of conduct was in, or was not opposed to, the best interests of the
Company (or the Corporation), or (B) reliance on the provisions of this
Agreement, and (ii) such course of conduct did not constitute gross negligence
or willful misconduct of such Indemnitee.

         (b)      The Company shall, to the fullest extent permitted by
applicable law, indemnify each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was, or has agreed to become, a Director or Officer,
or is or was serving, or has agreed to serve, at the request of the Company (or
previously at the request of the Corporation), as a director, officer, manager
or trustee of, or in a similar capacity with, another corporation, partnership,
limited liability company, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by or on
behalf of an Indemnitee in connection with such action, suit or proceeding and
any appeal therefrom.

         (c)      As a condition precedent to his right to be indemnified, the
Indemnitee must notify the Company in writing as soon as practicable of any
action, suit, proceeding or investigation involving him for which indemnity
hereunder will or could be sought. With respect to any action, suit, proceeding
or investigation of which the Company is so notified, the Company will be
entitled to participate therein at its own expense and/or to assume the defense
thereof at its own expense, with legal counsel reasonably acceptable to the
Indemnitee.

         (d)      In the event that the Company does not assume the defense of
any action, suit, proceeding or investigation of which the Company receives
notice under this Section 5.06, the Company shall pay in advance of the final
disposition of such matter any expenses (including attorneys' fees) incurred by
an Indemnitee in defending a civil or criminal action, suit,

                                      C-3
<PAGE>

proceeding or investigation or any appeal therefrom; provided, however, that the
payment of such expenses incurred by an Indemnitee in advance of the final
disposition of such matter shall be made only upon receipt of an undertaking by
or on behalf of the Indemnitee to repay all amounts so advanced in the event
that it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company as authorized in this Section 5.06, which undertaking
shall be accepted without reference to the financial ability of the Indemnitee
to make such repayment; and further provided that no such advancement of
expenses shall be made if it is determined that (i) the Indemnitee did not act
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Company, or (ii) with respect to any criminal
action or proceeding, the Indemnitee had reasonable cause to believe his conduct
was unlawful.

         (e)      The Company shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such Indemnitee unless the initiation thereof was approved by the Board of
Directors. In addition, the Company shall not indemnify an Indemnitee to the
extent such Indemnitee is reimbursed from the proceeds of insurance, and in the
event the Company makes any indemnification payments to an Indemnitee and such
Indemnitee is subsequently reimbursed from the proceeds of insurance, such
Indemnitee shall promptly refund such indemnification payments to the Company to
the extent of such insurance reimbursement.

         (f)      All determinations hereunder as to the entitlement of an
Indemnitee to indemnification or advancement of expenses shall be made in each
instance by (a) a majority vote of the Directors consisting of persons who are
not at that time parties to the action, suit or proceeding in question
("Disinterested Directors"), whether or not a quorum, (b) a majority vote of a
quorum of the outstanding Common Shares, which quorum shall consist of Members
who are not at that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the Company), or (d) a court of competent jurisdiction.

         (g)      The indemnification rights provided in this Section 5.06 (i)
shall not be deemed exclusive of any other rights to which an Indemnitee may be
entitled under any law, agreement or vote of Members or Disinterested Directors
or otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of the Indemnitees. The Company may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Company or other persons serving the Company
and such rights may be equivalent to, or greater or less than, those set forth
in this Section 5.06. Any indemnification to be provided hereunder may be
provided although the person to be indemnified is no longer a Director or
Officer.

Item 30. Business and Other Connections of the Adviser

         For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of the Adviser,
reference is made to Form ADV filed with the Commission (Commission File No.
801-8124) under the Investment Advisers Act of 1940 and incorporated herein by
reference thereto.

                                      C-4
<PAGE>

Item 31. Location of Accounts and Records

         Certain accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained by the Adviser, 101 Huntington Avenue, Boston, MA 02199. Records
relating to the duties of the Registrant's custodian are maintained by The Bank
of New York, One Wall Street, New York, New York, and the Registrant's transfer
agent by Mellon Investor Services, LLC, 85 Challenger Road, Ridgefield Park,
N.J. 07660.

Item 32. Management Services

         Not applicable.

Item 33. Undertakings

         1.       The Registrant undertakes to suspend the offering of shares
until the prospectus is amended if (1) subsequent to the effective date of its
registration statement, the net asset value declines more than ten percent from
its net asset value as of the effective date of the registration statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.

         2.       Not applicable.

         3.       Not applicable.

         4.       Not applicable.

         5.       The Registrant undertakes that:

              (a)    For purposes of determining any liability under the 1933
                     Act, the information omitted from the form of prospectus
                     filed as part of this registration statement in reliance
                     upon Rule 430A and contained in a form of prospectus filed
                     by the Registrant under 497(h) under the 1933 Act shall be
                     deemed to be part of this registration statement as of the
                     time it was declared effective.

              (b)    For the purposes of determining any liability under the
                     1933 Act, each post-effective amendment that contains a
                     form of prospectus shall be deemed to be a new registration
                     statement relating to the securities offered therein, and
                     the offering of such securities at that time shall be
                     deemed to be the initial bona fide offering thereof.

         6.       The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery within two business days of
receipt of a written or oral request, the Registrant's Statement of Additional
Information.

                                      C-5
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and/or Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston and The Commonwealth of Massachusetts, on the 24th day of
October, 2003.

                                     JOHN HANCOCK INVESTORS TRUST

                                     By: /s/ Maureen Ford Goldfarb
                                        ----------------------------------------
                                         Maureen Ford Goldfarb
                                         Chairman, President and Chief Executive
                                         Officer

Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated:

Signature                          Title

/s/ Maureen Ford Goldfarb          Chairman, President, Chief Executive Officer,
- -----------------------------
Maureen Ford Goldfarb              and Trustee

/s/ Richard A. Brown               Senior Vice President and Chief Financial
- -----------------------------
Richard A. Brown                   Officer

_______________________________*   Trustee
Dennis S. Aronowitz
_______________________________*   Trustee
Richard P. Chapman, Jr.
_______________________________*   Trustee
William J. Cosgrove
_______________________________*   Trustee
John M. DeCiccio
_______________________________*   Trustee
Richard A. Farrell

<PAGE>


_______________________________*   Trustee
William F. Glavin
_______________________________*   Trustee
John A. Moore
_______________________________*   Trustee
Patti McGill Peterson
_______________________________*   Trustee
John W. Pratt

                                                         Dated: October 24, 2003

*By: /s/ Susan S. Newton
     ___________________________
     Susan S. Newton
     Attorney-in-fact


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(A)
<SEQUENCE>3
<FILENAME>b48195isexv99wxay.txt
<DESCRIPTION>AMENDED AND RESTATED DECLARATION OF TRUST
<TEXT>
<PAGE>

                                                                   EXHIBIT 99(a)

                      JOHN HANCOCK INCOME SECURITIES TRUST

                              AMENDED AND RESTATED
                              DECLARATION OF TRUST

                              DATED OCTOBER 5, 1984
                             AS AMENDED AND RESTATED
                               ON AUGUST 26, 2003

<PAGE>

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                                                   Page
                                                                                                                   ----
<S>                                                                                                                <C>
ARTICLE I             NAME AND DEFINITIONS.......................................................................    2

   Section 1.1        Name and Principal Place of Business.......................................................    2
   Section 1.2        Definitions................................................................................    2

ARTICLE II            TRUSTEES...................................................................................    5

   Section 2.1        Powers.....................................................................................    5
   Section 2.2        Legal Title................................................................................   11
   Section 2.3        Number of Trustees; Term of Office.........................................................   12
   Section 2.4        Qualification of Trustees..................................................................   12
   Section 2.5        Election of Trustees.......................................................................   12
   Section 2.6        Resignation and Removal....................................................................   12
   Section 2.7        Vacancies..................................................................................   13
   Section 2.8        Committees; Delegation.....................................................................   14
   Section 2.9        Action Without a Meeting; Participation by Conference Telephone............................   15
   Section 2.10       By-Laws....................................................................................   15
   Section 2.11       No Bond Required...........................................................................   15
   Section 2.12       Reliance on Experts, Etc...................................................................   15
   Section 2.13       Effect of Issuance of Preferred Shares on Provisions Relating to the Board of Trustees.....   16

ARTICLE III           CONTRACTS..................................................................................   17

   Section 3.1        Underwriting Contract......................................................................   17
   Section 3.2        Advisory or Management Contract............................................................   17
   Section 3.3        Affiliations of Trustees or Officers, Etc..................................................   17

ARTICLE IV            LIMITATION OF LIABILITY; INDEMNIFICATION...................................................   19

   Section 4.1        No Personal Liability of Shareholders, Trustees, Etc.......................................   19
   Section 4.2        Execution of Documents; Notice; Apparent Authority.........................................   19
   Section 4.3        Indemnification of Trustees, Officers, Etc.................................................   20
   Section 4.4        Indemnification of Shareholders............................................................   22

ARTICLE V             SHARES OF BENEFICIAL INTEREST..............................................................   23

   Section 5.1        Beneficial Interest........................................................................   23
   Section 5.2        Rights of Shareholders.....................................................................   23
   Section 5.3        Trust Only.................................................................................   24
   Section 5.4        Issuance of  Shares........................................................................   24
   Section 5.5        Register of Shares.........................................................................   25
   Section 5.6        Common Share Certificates..................................................................   25
</TABLE>

                                      -i-

<PAGE>

<TABLE>
<S>                                                                                                                <C>
   Section 5.7        Transfer of Shares.........................................................................   27
   Section 5.8        Voting Powers..............................................................................   27
   Section 5.9        Meetings of Shareholders...................................................................   29
   Section 5.10       Action Without a Meeting...................................................................   30
   Section 5.11       Class Designation..........................................................................   30

ARTICLE VI            DETERMINATION OF NET ASSET VALUE; DISTRIBUTIONS............................................   32

   Section 6.1        By Whom Determined.........................................................................   32
   Section 6.2        When Determined............................................................................   32
   Section 6.3        Computation of Per Common Share Net Asset Value............................................   32
   Section 6.4        Interim Determinations.....................................................................   34
   Section 6.5        Outstanding Common Shares..................................................................   35
   Section 6.6        Distributions to Shareholders..............................................................   35
   Section 6.7        Power to Modify Foregoing Procedures.......................................................   36

ARTICLE VII           CUSTODIAN..................................................................................   38

   Section 7.1        Appointment and Duties.....................................................................   38
   Section 7.2        Action Upon Termination of Custodian Agreement.............................................   39
   Section 7.3        Central Certificate System, Etc............................................................   39
   Section 7.4        Acceptance of Receipts in Lieu of Certificates.............................................   39

ARTICLE VIII          DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC....................................   41

   Section 8.1        Duration and Termination...................................................................   41
   Section 8.2        Amendment Procedure........................................................................   42
   Section 8.3        Merger, Consolidation and Sale of Assets...................................................   43
   Section 8.4        Incorporation..............................................................................   43

ARTICLE IX            REPORTS TO SHAREHOLDERS....................................................................   45

ARTICLE X             MISCELLANEOUS..............................................................................   46

   Section 10.1       Filing.....................................................................................   46
   Section 10.2       Governing Law..............................................................................   46
   Section 10.3       Counterparts...............................................................................   46
   Section 10.4       Reliance by Third Parties..................................................................   46
   Section 10.5       Provisions in Conflict with Law or Regulations.............................................   47
   Section 10.6       Section Headings; Interpretation...........................................................   47
</TABLE>

                                      -ii-

<PAGE>

                    AMENDED AND RESTATED DECLARATION OF TRUST

                                       OF

                      JOHN HANCOCK INCOME SECURITIES TRUST

         DECLARATION OF TRUST, made on October 5, 1984, as amended and restated
on August 26, 2003

         WHEREAS, the Trustees established a Trust which acquired all of the
assets and liabilities, and assumed and carried on the business of John Hancock
Income Securities Corporation, a Maryland corporation and a closed-end
investment company registered under the 1940 Act;

         WHEREAS, the Trustees desire that the beneficial interest in the Trust
assets be divided into transferable shares of beneficial interest of one or more
Classes, as hereinafter provided; and

         WHEREAS, the Trustees and shareholders, at meetings held on August 26,
2003 and August 21, 2003, respectively, approved the amendment and restatement
of the Declaration;

         NOW, THEREFORE, the Trustees hereby declare that all money and property
contributed to the Trust established hereunder and all proceeds thereof shall be
held and managed in trust for the pro rata benefit of the holders, from time to
time, of the Shares of beneficial interest issued hereunder and subject to the
provisions hereof.

<PAGE>

                                   ARTICLE I

                              NAME AND DEFINITIONS

         Section 1.1. Name and Principal Place of Business. The name of the
Trust created hereby is the "John Hancock Income Securities Trust", and as far
as may be practicable, the Trustees shall conduct the business and activities of
the Trust created hereby and execute all documents and take all actions under
that name or any other name they may from time to time determine, which name
(and the word "Trust" whenever used in this Declaration, except where the
context requires otherwise) shall refer to the Trustees in their capacity as
Trustees, and not individually or personally, and shall not refer to the
officers, agents, employees or shareholders of the Trust created hereby or of
such Trustees. The Trust's principal place of business is 101 Huntington Avenue,
Boston, Massachusetts 02199.

         Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following meanings:

         "Affiliated Person" shall have the meaning set forth in Section 2(a)(3)
of the 1940 Act.

         "By-Laws" shall meant he By-Laws, if any, adopted pursuant to Section
2.10 hereof, as from time to time amended.

         "Class" or "Class of Shares" means any division of Shares into two or
more Classes in accordance with the provisions of Article V.

         "Commission" shall mean the Securities and Exchange Commission.

         "Common Shares" shall mean the Trust's common shares of beneficial
interest or any class thereof established in accordance with this Declaration.

         "Custodian" shall mean any Person other than the Trustees who has
custody of any Trust Property as required by Section 17(f) of the 1940 Act.

                                     - 2 -
<PAGE>

         "Declaration" shall mean this Declaration of Trust, as amended from
time to time.

         "Distributor" shall have the meaning set forth in Section 3.1 hereof.

         "Interested Person" shall have the meaning set forth in Section
2(a)(19) of the 1940 Act.

         "Investment Adviser" shall have the meaning set forth in Section 3.2
hereof.

         "Majority Shareholder Vote" shall mean the vote of a majority of the
outstanding voting securities, as defined in Section 2(a)(42) of the 1940 Act.

         "1940 Act" shall mean the Investment Company Act of 1940, as amended
from time to time.

         "Person" shall mean an individual, a company, a corporation,
partnership, trust, or association, a joint venture, an organization, a
business, a firm or other entity, whether or not a legal entity, or a country,
state, municipality or other political subdivision or any governmental agency or
instrumentality.

         "Preferred Shares" mean the Trust's preferred shares or any Class
thereof. The provisions of this Declaration relating to the Preferred Shares
shall have no force and effect unless and until one or more Classes of Preferred
Shares are first duly authorized, issued and outstanding.

         "Principal Underwriter" shall have the meaning set forth in Section
2(a)(29) of the 1940 Act.

         "Shareholder" means a record owner of Outstanding Shares.

         "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time to
time, including any Class which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares. "Outstanding Shares" means those
Shares shown from time to time on the books of the Trust or

                                     - 3 -
<PAGE>

its Transfer Agent as then issued and outstanding, but shall not include Shares
which have been redeemed or repurchased by the Trust and which are at the time
held in the treasury of the Trust.

         "Transfer Agent" shall mean any Person other than the Trustees who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.

         "Trust" shall mean the Massachusetts business trust (the "John Hancock
Income Securities Trust") established by this Declaration, as from time to time
amended.

         "Trust Property" shall mean any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.

         "Trustees" shall mean the individuals who have signed this Declaration,
so long as they shall continue in office in accordance with the terms hereof,
and all other individuals who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the provisions
of Article II hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in his or her capacity or their capacities as
trustees hereunder.

                                     - 4 -
<PAGE>

                                   ARTICLE II

                                    TRUSTEES

         Section 2.1. Powers. The Trustees, subject only to the specific
limitations contained in this Declaration, shall have exclusive and absolute
power, control and authority over the Trust Property and over the business of
the Trust to the same extent as if the Trustees were the sole owners of the
Trust Property and business in their own right, including such power, control
and authority to do all such acts and things as in their sole judgment and
discretion are necessary, incidental, convenient or desirable for the carrying
out of or conducting of the business of the Trust or in order to promote the
interests of the Trust, but with such powers of delegation as may be permitted
by this Declaration. The enumeration of any specific power, control or authority
herein shall not be construed as limiting the aforesaid power, control and
authority or any other specific power, control or authority. The Trustees shall
have power to conduct and carry on the business of the Trust, or any part
thereof, to have one or more offices and to exercise any or all of its trust
powers and rights, in the Commonwealth of Massachusetts, in any other states,
territories, districts, colonies and dependencies of the United States and in
any foreign countries. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. Such powers
of the Trustees may be exercised without order of or resort to any court.

         Without limiting the foregoing, the Trustees shall have the power:

                  (a)      To operate as and to carry on the business of an
         investment company, and to exercise all the powers necessary and
         appropriate to the conduct of such operations.

                  (b)      To subscribe for and to invest and reinvest funds in,
         and hold for investment, the securities (including but not limited to
         bonds, debentures, time notes,

                                     - 5 -

<PAGE>

         certificates of deposit, commercial paper, bankers' acceptances and all
         other evidences of indebtedness and shares, stock, subscription rights,
         profit-sharing interests or participations and all other contracts for
         or evidences of equity interests) of any Person and to hold cash
         uninvested.

                  (c)      To acquire (by purchase, subscription or otherwise),
         to trade in and deal in, to sell or otherwise dispose of, to enter into
         repurchase agreements and firm commitment agreements with respect to,
         and to lend and to pledge any such securities.

                  (d)      To acquire (by purchase, subscription or otherwise),
         to trade in and deal in, to sell or otherwise dispose of, options or
         futures on any such securities or on any index composed of such
         securities.

                  (e)      To exercise all rights, powers and privileges of
         ownership or interest in all securities included in the Trust Property,
         including the right to vote, give assent, execute and deliver proxies
         or powers of attorney to such person or persons as the Trustees shall
         deem proper and otherwise act with respect thereto and to do all acts
         for the preservation, protection, improvement and enhancement in value
         of all such securities and to delegate, assign, waive or otherwise
         dispose of any of such rights, powers or privileges.

                  (f)      To exercise powers and rights of subscription or
         otherwise which in any manner arise out of the Trust's ownership of
         securities.

                  (g)      To declare (from interest, dividends or other income
         received or accrued, from accruals of original issue or other discounts
         on obligations held, from capital or other profits whether realized or
         unrealized and from any other lawful sources) dividends and
         distributions on the Shares of any Class and to credit the same to the
         account of Shareholders of such Class, or at the election of the
         Trustees to accrue income to the

                                     - 6 -
<PAGE>

         account of Shareholders of such Class, on such dates (which may be as
         frequently as every day) as the Trustees may determine. Subject to the
         rights of a specific Class of Shares, such dividends, distributions or
         accruals shall be payable in cash, property or Shares at such intervals
         as the Trustees may determine at any time in advance of such payment,
         whether or not the amount of such dividend, distribution or accrual can
         at the time of declaration or accrual be determined or must be
         calculated subsequent to declaration or accrual and prior to payment by
         reference to amounts or other factors not yet determined at the time of
         declaration or accrual (including but not limited to the amount of a
         dividend or distribution to be determined by reference to what is
         sufficient to enable the Trust to qualify as a regulated investment
         company under the United States Internal Revenue Code or to avoid
         liability for Federal income tax).

                  The power granted by this Subsection (g) shall include,
         without limitation, and if otherwise lawful, the power (A) to declare
         dividends or distributions or to accrue income to the account of
         Shareholders of any Class by means of a formula or other similar method
         of determination whether or not the amount of such dividend or
         distribution can be calculated at the time of such declaration; (B) to
         establish record or payment dates for dividends or distributions on any
         basis, including the power to establish a number of record or payment
         dates subsequent to the declaration of any dividend or distribution;
         (C) to establish the same payment date for any number of dividends or
         distributions declared prior to such date; and (D) to provide in
         advance for conditions under which any dividend or distribution may be
         payable in Shares to all or less than all of the Shareholders of a
         specific Class.

                                     - 7 -
<PAGE>

                  (h)      To acquire (by purchase, lease or otherwise) and to
         hold, use, maintain, develop and dispose of (by sale, lease or
         otherwise) any property, real or personal, and any interest therein.

                  (i)      To borrow money, and in this connection to issue
         notes or other evidences of indebtedness; to secure borrowings by
         mortgaging, pledging or otherwise subjecting to security interests the
         Trust Property; and to lend Trust Property.

                  (j)      To aid by further investment any Person, if any
         obligation of or interest in such Person is included in the Trust
         Property or if the Trustees have any direct or indirect interest in the
         affairs of such Person; to do anything designed to preserve, protect,
         improve or enhance the value of such obligation or interest; and to
         endorse or guarantee or become surety on any or all of the contracts,
         stocks, bonds, notes, debentures and other obligations of any such
         Person; and to mortgage the Trust Property or any part thereof to
         secure any of or all such obligations.

                  (k)      To promote or aid the incorporation of any
         organization or enterprise under the law of any country, state,
         municipality or other political subdivision, and to cause the same to
         be dissolved, wound up, liquidated, merged or consolidated.

                  (l)      To enter into joint ventures, general or limited
         partnerships and any other combinations or associations.

                  (m)      To purchase and pay for entirely out of Trust
         Property insurance policies insuring the Shareholders, Trustees,
         officers, employees and agents of the Trust, the Investment Adviser,
         the Distributor and dealers or independent contractors of the Trust
         against all-claims and liabilities of every nature arising by reason of
         holding or having held any such position or by reason of any action
         taken or omitted by any such Person in

                                     - 8 -
<PAGE>

         such capacity, whether or not constituting negligence and whether or
         not the Trust would have the power to indemnify such Person against
         such liability.

                  (n)      To establish and carry out pension, profit-sharing,
         share purchase, share bonus, savings, thrift and other retirement,
         incentive and benefit plans for any Trustees, officers, employees or
         agents of the Trust.

                  (o)      To the extent permitted by law and determined by the
         Trustees, to indemnify any Person with whom the Trust has dealings,
         including, without limitation, the Shareholders, the Trustees, the
         officers, employees and agents of the Trust, the Investment Adviser,
         the Distributor, the Transfer Agent, the Custodian and dealers.

                  (p)      To incur and pay any charges, taxes and expenses
         which in the opinion of the Trustees are necessary or incidental to or
         proper for carrying out any of the purposes of this Declaration, and to
         pay from the funds of the Trust Property to themselves as Trustees
         reasonable compensation and reimbursement for expenses.

                  (q)      To prosecute or abandon and to compromise, arbitrate
         or otherwise adjust claims in favor of or against the Trust or any
         matter in controversy, including but not limited to claims for taxes.

                  (r)      To foreclose any security interest securing any
         obligations owed to the Trust.

                  (s)      To exercise the right to consent, and to enter into
         releases, agreements and other instruments, including, but not limited
         to, the right to consent or participate in any plan for the
         reorganization, consolidation or merger of any corporation or issuer
         any security of which is or was held by the Trust; to consent to any
         contract, lease, mortgage,

                                     - 9 -
<PAGE>

         purchase or sale of such property by said corporation or issuer, and to
         pay calls or subscriptions with respect to securities held by the
         Trust.

                  (t)      To employ or contract with such Persons as the
         Trustees may deem desirable for the transaction of the business of the
         Trust.

                  (u)      To determine and change the fiscal year of the Trust
         and the method in which its accounts shall be kept.

                  (v)      To adopt a seal for the Trust, but the absence of
         such seal shall not impair the validity of any instrument executed on
         behalf of the Trust.

                  (w)      To establish multiple Classes of Shares (as
         authorized herein at Section 5.11), and to the extent necessary or
         appropriate to give effect to preferences, special or relative rights
         and privileges of any Class of Shares, to allocate assets, liabilities,
         income and expenses of the Shares or to apportion the same among two or
         more Classes.

                  (x)      To take such actions as are authorized or required to
         be taken by the Trustees pursuant to other provisions of this
         Declaration.

                  (y)      In general to carry on any other business in
         connection with or incidental to any of the objects and purposes of the
         Trust, to do everything necessary, suitable or proper for the
         accomplishment of any purpose or the attainment of any object or the
         furtherance of any power herein set forth, either alone or in
         association with others, and to take any action incidental or
         appurtenant to or growing out of or connected with the business,
         purposes, objects or powers of the Trustees.

         The foregoing clauses shall be construed both as objects and as powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.

                                     - 10 -
<PAGE>

         The Trustees shall not be limited by any law now or hereafter in effect
limiting the investments which may be made or retained by fiduciaries, but they
shall have full power and authority to make any and all investments within the
limitation of this Declaration that they, in their sole and absolute discretion,
shall determine, and without liability for loss even though such investments do
not or may not produce income or are of a character or in an amount not
considered proper for the investment of trust funds.

         Section 2.2. Legal Title. Legal title to all the Trust Property shall
as far as may be practicable be vested in the name of the Trust, which name
shall refer to the Trustees in their capacity as Trustees, and not individually
or personally, and shall not refer to the officers, agents, employees or
Shareholders of the Trust or of the Trustees, provided that the Trustees shall
have power to cause legal title to any Trust Property to be held by or in the
name of one or more of the Trustees with suitable reference to their trustee
status, or in the name of the Trust, or in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the name of a
Custodian or sub-Custodian or a nominee or nominees or otherwise. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office of a Trustee, whether upon such Trustee's
resignation or removal, or upon the due election and qualification of his
successor or upon the occurrence of any of the events specified in the first
sentence of Section 2.7 hereof or otherwise, such Trustee shall automatically
cease to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.

                                     - 11 -
<PAGE>

         Section 2.3. Number of Trustees; Term of Office. The number of Trustees
shall be ten, which number may be increased and thereafter decreased from time
to time by a written instrument signed by a majority of the Trustees, provided
that the number of Trustees shall not be fewer than two nor more than 15. Each
Trustee elected (whenever such election occurs) shall hold office until his
successor is elected and qualified or until the earlier occurrence of any of the
events specified in the first sentence of Section 2.7 hereof.

         Section 2.4. Qualification of Trustees. Of the total number of
Trustees, at least 40% shall be persons who are not Interested Persons of the
Trust or of the Distributor.

         Section 2.5. Election of Trustees. Except as otherwise provided in
Section 2.7 and 2.13 hereof, the Trustees shall be elected annually at the
annual Shareholders' meeting. Trustees may succeed themselves in office.
Trustees may be elected at a Shareholders' meeting. Trustees shall be elected by
a plurality of the votes validly cast. The election of any Trustee (other than
an individual who was serving as a Trustee immediately prior thereto) shall not
become effective, however, until the individual named shall have accepted in
writing such election and agreed in writing to be bound by the terms of this
Declaration. Trustees need not own Shares.

         Section 2.6. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the Chairman of the Board, or the Secretary or
any Assistant Secretary, and such resignation shall be effective upon such
delivery, or at any later date specified in the instrument. Subject to the
specific rights of any Class of Shares, any of the Trustees may be removed
(provided the aggregate number of Trustees after such removal shall not be less
than two) with cause by the affirmative vote of two-thirds of the remaining
Trustees. Subject to the specific rights of any Class of Shares, upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a

                                     - 12 -
<PAGE>

Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.

         Section 2.7. Vacancies. Subject to the specific rights of any Class of
Shares, the term of office of a Trustee shall terminate and a vacancy shall
occur in the event of the death, retirement, resignation or removal (whether
pursuant to Section 2.6 hereof or otherwise), bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee. No vacancy shall operate to annul this Declaration or to revoke any
existing agency created pursuant to the terms of the Declaration. Subject to the
specific rights of any Class of Shares, in the case of an existing vacancy,
including a vacancy existing by reason of an increase in the authorized number
of Trustees, the remaining Trustees shall, subject to the requirements of
Section 2.4 hereof, fill such vacancy by the appointment of such individual as
they in their sole and absolute discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office, provided that
immediately after filling any such vacancy (except during the period preceding
the initial annual meeting of Shareholders) at least two-thirds of the Trustees
then holding office shall have been elected to such office by the Shareholders.
In the event that at any time less than a majority of the Trustees holding
office at that time were elected by the Shareholders, a meeting of the
Shareholders shall be held promptly and in any event within 60 days (unless the
Commission shall by order extend such period) for the purpose of electing
Trustees to fill any existing vacancies. No such appointment or election shall
become effective, however, until the person named shall have accepted in writing
such appointment or

                                     - 13 -
<PAGE>

election and agreed in writing to be bound by the terms of this Declaration.
Whenever a vacancy in the number of Trustees shall occur, until such vacancy is
filled as provided in this Section 2.7, the Trustees in office, regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by the Declaration.

         Section 2.8. Committees; Delegation. The Trustees shall have the power
to appoint from their own number, and terminate, any one or more committees
consisting of two or more Trustees, including an executive committee which may
exercise some or all of the power and authority of the Trustees as the Trustees
may determine (including but not limited to the power to determine net asset
value and net income), subject to any limitations contained in the By-Laws, and
in general to delegate from time to time to one or more of their number or to
officers, employees or agents of the Trust such power and authority and the
doing of such things and the execution of such instruments, either in the name
of the Trust or the names of the Trustees or otherwise, as the Trustees may deem
expedient, provided that no committee shall have the power

                  (a)      to change the principal office of the Trust;

                  (b)      to amend the By-Laws;

                  (c)      to issue Common Shares;

                  (d)      to elect or remove from office any Trustee or the
         Chairman of the Board, the President, the Treasurer or the Secretary of
         the Trust;

                  (e)      to increase or decrease the number of Trustees;

                  (f)      to declare a dividend or other distribution on the
         Common Shares;

                  (g)      to authorize the repurchase of Common Shares; or

                  (h)      to authorize any merger, consolidation or sale, lease
         or exchange of all or substantially all of the Trust Property.

                                     - 14 -
<PAGE>

         Section 2.9. Action Without a Meeting; Participation by Conference
Telephone. Any action required or permitted to be taken at any meeting of the
Trustees (or of any committee of the Trustees) may be taken without a meeting if
written consents thereto are signed by a majority of the Trustees then in office
(or by a majority of the members of such committee) and such written consents
are filed with the records of the meetings. Trustees may participate in a
meeting of the Trustees (or of any committee of the Trustees) by means of a
conference telephone or similar communications equipment if all individuals
participating can hear each other at the same time. Participation in a meeting
by these means shall constitute presence in person at the meeting.

         Section 2.10. By-Laws. The Trustees may adopt By-Laws not inconsistent
with this Declaration or law to provide for the conduct of the business of the
Trust, and may amend or repeal such By-Laws.

         Section 2.11. No Bond Required. No Trustee shall be obligated to give
any bond or other security for the performance of any of his duties hereunder.

         Section 2.12. Reliance on Experts, Etc. Each Trustee, officer, agent
and employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected in relying in good faith upon the books of
account or other records of the Trust, or upon reports made to the Trustees (a)
by any of the officers or employees of the Trust, (b) by the Investment Adviser,
the Distributor, the Custodian or the Transfer Agent, or (c) by any accountants,
selected dealers or appraisers or other agents, experts or consultants selected
with reasonable care by the Trustees, regardless of whether such agent, expert
or consultant may also be a Trustee. The Trustees, officers, agents and
employees of the Trust may take advice of counsel with respect to the meaning
and operation of this Declaration, and shall be under no liability for any act
or

                                     - 15 -
<PAGE>

omission in accordance with such advice or for failing to follow such advice.
The exercise by the Trustees of their powers and discretion hereunder and the
construction in good faith by the Trustees of the meaning or effect of any
provision of this Declaration shall be binding upon everyone interested. A
Trustee, officer, agent or employee shall be liable for his own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, and for nothing else, and shall not be
liable for errors of judgment or mistakes of fact or law.

         Section 2.13. Effect of Issuance of Preferred Shares on Provisions
Relating to the Board of Trustees. Notwithstanding anything to the contrary in
Sections 2.3, 2.5, 2.6 and 2.7 or in any other section of the Declaration, the
provision relating to the number and election of Trustees, their removal and the
filling of any vacancy on the Board of Trustees shall be subject to the voting
and other rights established with respect to a particular Class of Shares.

                                     - 16 -
<PAGE>

                                   ARTICLE III

                                    CONTRACTS

         Section 3.1. Underwriting Contract. The Trustees may from time to time
enter into an underwriting contract with another Person (the "Distributor")
providing for the sale of Shares, pursuant to which the Trustees may agree to
sell the Shares to the Distributor or appoint the Distributor their sales agent
for the Shares. Such contract shall contain such terms and conditions, if any,
as may be prescribed in the By-Laws and such further terms and conditions not
inconsistent with the provisions of this Article III or of the By-Laws as the
Trustees may in their discretion determine.

         Section 3.2. Advisory or Management Contract. Subject to approval by a
Majority Shareholder Vote, the Trustees may from time to time enter into an
investment advisory or management contract with another Person (the "Investment
Adviser") pursuant to which the Investment Adviser shall agree to furnish to the
Trustees management, investment advisory, statistical and research facilities
and services, such contract to contain such other terms and conditions, if any,
as may be prescribed in the By-Laws and such further terms and conditions not
inconsistent with the provisions of this Article III, the By-Laws or applicable
law as the Trustees may in their discretion determine, including the grant of
authority to the Investment Adviser to determine what securities shall be
purchased or sold by the Trust and what portion of its assets shall be
uninvested and to implement its determinations by making changes in the Trust's
investments.

         Section 3.3. Affiliations of Trustees or Officers, Etc. The fact that
any Shareholder, Trustee, officer, agent or employee of the Trust is a
shareholder, member, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any Person or of or for any

                                     - 17 -
<PAGE>

parent or affiliate of any Person with which an investment advisory or
management contract, principal underwriter or distributor contract or custodian,
transfer agent, disbursing agent or similar agency contract may have been or may
hereafter be made, or that any such Person, or any parent or affiliate thereof,
is a Shareholder of or has any other interest in the Trust, or that any such
Person also has any one or more similar contracts with one or more other such
Persons, or has other businesses or interests, shall not affect the validity of
any such contract made or that may hereafter be made with the Trustees or
disqualify any Shareholder, Trustee, officer, agent or employee of the Trust
from voting upon or executing the same or create any liability or accountability
to the Trustees, the Trust or the Shareholders, provided that the material facts
as to the relationship or interest of any Trustee or officer of the Trust as to
such contract or transaction are disclosed or are known to the Trustees or a
committee of Trustees and the Trustees, or a committee of Trustees, authorizes,
approves or ratifies the contract or transaction by the affirmative vote of a
majority of disinterested Trustees, even if the disinterested Trustees
constitute less than a quorum; or the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
known to the Shareholders and the contract is authorized, approved or ratified
by a majority of the vote cast by Shareholders entitled to vote other than the
vote of Shares owned of record or beneficially by the interested Trustee or
officer or by an interested corporation, firm or other entity; or the contract
or transaction is fair and reasonable to the Trust. Common or interested
Trustees or the Shares owned by them or by an interested corporation, firm or
other entity may be counted in determining the presence of a quorum at a meeting
of Trustees, or a committee of Trustees, or at a meeting of Shareholders, as the
case may be, at which the contract is authorized, approved or ratified.

                                     - 18 -
<PAGE>

                                   ARTICLE IV

                    LIMITATION OF LIABILITY; INDEMNIFICATION

         Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever in connection
with Trust Property or the acts, obligations or affairs of the Trust. All
Persons extending credit to, contracting with or having any claim against the
Trust shall look only to the assets of the Trust for payment under such credit,
contract or claim, and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. The Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, employee or agent
(including, without limitation, the Investment Adviser, the Distributor, the
Custodian and the Transfer Agent) of the Trust, nor shall any Trustee be
responsible or liable for the act or omission of any other Trustee. Nothing in
this Declaration shall, however, protect any Trustee, officer, employee or agent
of the Trust against any liability to which such Person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.

         Section 4.2. Execution of Documents; Notice; Apparent Authority. Every
note, bond, contract, instrument, certificate or undertaking and every other act
or thing whatsoever executed or done by or on behalf of the Trust or the
Trustees or any of them in connection with the Trust shall be conclusively
deemed to have been executed or done only in or with respect to their or his or
her capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon. Every note, bond, contract, instrument, certificate
or undertaking made or issued by the Trustees or by any officers or officer
shall give notice that this Declaration is on file with the

                                     - 19 -
<PAGE>

Secretary of State of the Commonwealth of Massachusetts and shall recite that
the obligations of such instruments are not binding upon any of the Trustees,
Shareholders, officers, employees or agents of the Trust individually but are
binding only upon the assets and property of the Trust, but the omission thereof
shall not operate to bind any Trustees, Shareholders or officers, employees and
agents of the Trust individually. No purchaser, lender, Transfer Agent or other
Person dealing with the Trustees or any officer, employee or agent of the Trust
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by such officer, employee or agent or
make any inquiry concerning or be liable for the application of money or
property paid, loaned or delivered to or on the order of the Trustees or of such
officer, employee or agent.

         Section 4.3. Indemnification of Trustees, Officers, Etc. The Trust
shall indemnify each of its Trustees, officers, employees and agents (including
any individual who serves at its request as director, officer, partner, trustee
or the like of another organization in which it has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
him or her in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any court or administrative
or legislative body in which he or she may be or may have been involved as a
party or otherwise or with which he or she may be or may have been threatened,
while acting as Trustee or as an officer, employee or agent of the Trust or the
Trustees, as the case may be, or thereafter, by reason of his or her being or
having been such a Trustee, officer, employee or agent, except with respect to
any matter as to which he or she shall have been adjudicated not to have acted
in good faith in the reasonable belief that his or her action was in the best
interests of

                                     - 20 -
<PAGE>

the Trust, provided that no individual shall be indemnified hereunder against
any liability to the Trust or the Shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office, and provided further that as to any matter
disposed of by settlement or a compromise payment by such Trustee, officer,
employee or agent, pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless there
has been a determination that such compromise is in the best interests of the
Trust and that such Person appears to have acted in good faith in the reasonable
belief that his or her action was in the best interests of the Trust and did not
engage in willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office. All determinations
that the applicable standards of conduct have been met for indemnification
hereunder shall be made by (a) a majority vote of a quorum consisting of
disinterested Trustees who are not parties to the proceeding relating to
indemnification, or (b) if such a quorum is not obtainable or, even if
obtainable, if a majority vote of such quorum so directs, by independent legal
counsel in a written opinion, or (c) a Majority Shareholder Vote (excluding
Shares owned of record or beneficially by such individual); and provided that as
to any matter disposed of without a court determination (i) on the merits that
such Trustee, officer, employee or agent was not liable or (ii) that such Person
was not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office, no
indemnification shall be provided hereunder unless there has been a
determination by independent legal counsel in a written opinion that such Person
did not engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office. The
Trustees may make advance payments in connection with the expense of defending
any action

                                     - 21 -
<PAGE>

with respect to which indemnification might be sought under this Section 4.3,
provided that the indemnified Trustee, officer, employee or agent shall have
given a written undertaking to reimburse the Trust in the event it is
subsequently determined that he or she is not entitled to such indemnification
and provided further that (a) the indemnified Trustee, officer, employee or
agent shall provide security for his or her undertaking or (b) the Trust shall
be insured against losses arising by reason of lawful advances or (c) a majority
of a quorum of disinterested Trustees or an independent legal counsel in a
written opinion shall determine, based on a review of readily available facts
(as opposed to a full trial type inquiry), that there is reason to believe that
an indemnitee ultimately will be found entitled to indemnification. The rights
accruing to any Trustee, officer, employee or agent under these provisions shall
not exclude any other right to which he or she may be lawfully entitled and
shall inure to the benefit of his or her heirs, executors, administrators or
other legal representatives.

         Section 4.4. Indemnification of Shareholders. In case any Shareholder
or former Shareholder shall be held to be personally liable solely by reason of
his or her being or having been a Shareholder and not because of acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators or other legal representatives or in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of the Trust to be held harmless
from and indemnified against all loss and expense, including legal expenses
reasonably incurred, arising from such liability. The rights accruing to a
Shareholder under this Section 4.4 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor shall anything contained herein
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.

                                     - 22 -
<PAGE>

                                   ARTICLE V

                          SHARES OF BENEFICIAL INTEREST

         Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest, with
or without par value, as determined by the Trustees. The number of such Shares
of beneficial interest authorized hereunder is unlimited. The Trustees shall
have the exclusive authority without the requirement of Shareholder approval to
establish and designate one or more Classes of Shares as the Trustees deem
necessary or desirable. Subject to the rights, preferences and limitations
applicable to a specific Class, each Share shall represent an equal
proportionate share in the assets of the Trust. All Shares issued hereunder
including, without limitation, Shares issued in connection with a dividend in
Shares or a split in Shares and any Shares currently Outstanding, shall be fully
paid and nonassessable.

         Section 5.2. Rights of Shareholders. Shares shall be deemed to be
personal property giving only the rights provided in this Declaration. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof and to have become a party
hereto. The ownership of the Trust Property and the right to conduct any
business hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The death of a
Shareholder during the continuance of the Trust shall not operate to terminate
the same nor to entitle the legal representative of such Shareholder to an
accounting or to take any action in any court or

                                     - 23 -
<PAGE>

otherwise against other Shareholders or the Trustees or the Trust Property, but
only to the rights of such Shareholder hereunder. The Common Shares shall not
entitle the holder to preference, preemptive, appraisal, conversion or exchange
rights.

         Section 5.3. Trust Only. The Trust shall be of the type commonly termed
a Massachusetts business trust. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.

         Section 5.4. Issuance of Shares.

         Section 5.4.1 General. The Trustees in their discretion may, from time
to time without a vote of the Shareholders, issue Shares, in addition to the
then issued and Outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of, liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury. The Trustees may from time to
time divide or combine the Shares of the Trust or, if the Shares be divided into
Classes, of any Class thereof of the Trust, into a greater or lesser number
without thereby changing the proportionate beneficial interests in the Trust or
in the Trust Property allocated or belonging to such Class.

                                     - 24 -
<PAGE>

         Section 5.4.2 On Merger or Consolidation. In connection with the
acquisition of assets (including the acquisition of assets subject to, and in
connection with the assumption of, liabilities), businesses or stock of another
Person, the Trustees may issue or cause to be issued Shares and accept in
payment therefor, in lieu of cash, such assets or businesses at their market
value (as determined by the Trustees) or such stock at the market value (as
determined by the Trustees) of the assets held by such other Person, either with
or without adjustment for contingent costs or liabilities, provided that the
funds of the Trust are permitted by law to be invested in such assets,
businesses or stock.

         Section 5.4.3 Fractional Shares. The Trustees may issue and sell
fractions of Shares, to two decimal places (or in the case of Preferred Shares
such number of decimal places set forth in the By-Laws), having pro rata all the
rights of full Shares of such Class, including, without limitation, the right to
vote and to receive dividends and distributions.

         Section 5.5. Register of Shares. A register shall be kept at the
principal office of the Trust or an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares of
a Class held by them respectively and a record of all transfers thereof. Such
register shall be conclusive as to who are the holders of the Shares and who
shall be entitled to receive dividends or distributions or otherwise to exercise
or enjoy the rights of Shareholders. Except as provided for as to a specific
Class, no Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trust as shall keep the said register for entry thereon.

         Section 5.6. Common Share Certificates.

                                     - 25 -
<PAGE>

         Section 5.6.1 General. Each Shareholder shall be entitled to a
certificate stating the number of Common Shares he or she owns, in such form as
shall be prescribed from time to time by the Trustees. Such certificates shall
be signed by the Chairman of the Board, President or Vice President and by the
Treasurer or Assistant Treasurer. Such signatures may be facsimile if the
certificate is signed by a Transfer Agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate shall cease to be
such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he or she were such officer at the time of its issue.

         In lieu of issuing certificates for Shares, the Trustees or the
Transfer Agent may either issue receipts therefor or may keep accounts upon the
books of the Trust for the record holders of such Shares, who shall in either
case be deemed, for all purposes hereunder, to be the holders of certificates
for such Shares as if they had accepted such certificates and shall be held to
have expressly assented and agreed to the terms hereof.

         Section 5.6.2 Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees shall prescribe.

         Section 5.6.3 Issuance of New Certificates to Pledgee. A pledgee of
Shares transferred as collateral security shall be entitled to a new certificate
if the instrument of transfer substantially describes the debt or duty that is
intended to be secured thereby. Such new certificate shall express on its face
that it is held as collateral security, and the name of the pledgor shall be
stated thereon, who alone shall be liable as a shareholder and entitled to vote
thereon.

                                     - 26 -

<PAGE>

         Section 5.6.4 Discontinuance of Issuance of Certificates. The Trustees
may at any time discontinue the issuance of Share certificates and may, by
written notice to each Shareholder, require the surrender of share certificates
to the Trust for cancellation. Such surrender and cancellation shall not affect
the ownership of Shares in the Trust. Section

         Section 5.7. Transfer of Shares. Subject to the terms established for a
specific Class, Shares shall be transferable on the records of the Trust upon
delivery to the Trust or the Transfer Agent or Agents of appropriate evidence of
assignment, transfer, succession or authority to transfer accompanied by any
certificate or certificates representing such Shares previously issued to the
transferor. Upon such delivery, the transfer shall be recorded on the register
of the Trust. Until such record is made, the Trustees, the Transfer Agent, and
the officers, employees and agents of the Trust shall not be entitled or
required to treat the assignee or transferee of any Share as the absolute owner
thereof for any purpose, and accordingly shall not be bound to recognize any
legal, equitable or other claim or interest in such Share on the part of any
Person, other than the holder of record, whether or not any of them shall have
express or other notice of such claim or interest.

         Section 5.8. Voting Powers. The Shareholders shall have power to vote
only: (a) for the election of Trustees as provided in Sections 2.5, 2.7 and 2.13
hereof; (b) with respect to any investment advisory or management contract
entered into pursuant to Section 3.2 hereof; (c) with respect to any termination
of the Trust, as provided in Section 8.1 hereof; (d) with respect to any
amendment of this Declaration to the extent and as provided in Section 8.2
hereof; (e) with respect to any merger, consolidation or sale of assets of the
Trust as provided in Section 8.3 hereof; (f) with respect to incorporation of
the Trust to the extent and as provided in Section 8.4 hereof; (g) to the same
extent as the stockholders of a Massachusetts business corporation as to

                                     - 27 -

<PAGE>

whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders; and (h) with respect to such additional matters relating to
the Trust as may be required by this Declaration or the By-Laws or by reason of
the registration of the Trust or the Shares with the Commission or any State or
by any applicable law or any regulation or order of the Commission or any State
or as the Trustees may consider necessary or desirable. On any matter required
or permitted to be voted on by the Shareholders, all Shares then entitled to
vote shall be voted in the aggregate as a single class without regard to Class,
except (i) when required by this Declaration, the By-Laws (including the
provisions thereof establishing the rights of a specific Class of Shares), the
1940 Act, or when the Trustees shall have determined that any matter to be
submitted to a vote of the Shareholders affects the rights or interests of the
Shareholders of one or more Classes materially differently, Shares shall be
voted by each such affected Class individually; and (ii) when the Trustees shall
have determined that the matter affects only the interests of one or more
Classes, then only the Shareholders of such affected Class shall be entitled to
vote thereon. Each Share shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. The Trustees may, in conjunction with the
establishment of any further Classes of Shares, establish conditions under which
the several Classes of Shares shall have separate voting rights or no voting
rights. There shall be no cumulative voting in the election of Trustees. The
By-Laws may include further provisions for Shareholders' votes and meetings and
related matters. Shares may be voted in person or by proxy. Until Shares are
issued, the Trustees may exercise all rights of Shareholders (including the
right to authorize an amendment to this Declaration under Section 8.2 hereof)
and may take any action required by law, the By-Laws or this Declaration to be
taken by Shareholders.

                                     - 28 -

<PAGE>

         Section 5.9. Meetings of Shareholders. An annual meeting of the
Shareholders shall be held on the date fixed in the By-Laws for the purpose of
reelecting Trustees or electing new Trustees in place of and to succeed those in
office at that time or to fill vacancies and, for such other purposes as may be
specified by the Trustees. If any such annual meeting shall not be held as above
provided, a special meeting may be held in lieu thereof at any time and any
business which might have been transacted at such annual meeting may be
transacted at such special meeting and for all purposes hereof such special
meeting shall be deemed to be an annual meeting duly held as herein provided.
Special meetings of the Shareholders may be called at any time by the Chairman
of the Board, the President or any vice President of the Trust, or by a majority
of the Trustees for the purpose of taking action upon any matter requiring the
vote or authority of the Shareholders as herein provided or upon any other
matters deemed to be necessary or desirable. A special meeting of Shareholders
may also be called at any time upon the written request of a holder or the
holders of not less than 25% of all of the Common Shares entitled to be voted at
such meeting, provided that the Shareholder or Shareholders requesting such
meeting shall have paid to the Trust the reasonably estimated cost of preparing
and mailing the notice thereof, which the Secretary shall determine and specify
to such Shareholder or Shareholders. A majority of the Shares entitled to vote
shall be a quorum for the transaction of business at a Shareholders' meeting,
except that where the By-Laws so require or the Trustees provide that holders of
any Class or Classes shall vote as a Class or Classes, then a majority of the
aggregate number of Shares of that Class or Classes entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that Class
or Classes. Any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held within a reasonable time after the
date set for the original meeting without the necessity of further notice.

                                     - 29 -

<PAGE>

Except when a different vote is required by any provision of the By-Laws or this
Declaration or, when such a different vote is not specifically provided in this
Declaration or the By-Laws, the Trustees shall in their discretion require a
different vote or the vote of a majority of different percentage of the Shares
of one or more particular Classes, a majority of the Shares voted shall decide
any question and a plurality shall elect a Trustee.

         Section 5.10. Action Without a Meeting. Any action which may be taken
by Shareholders may be taken without a meeting if such proportion of
Shareholders as is required to vote for approval of the matter by law, the
Declaration or the By-Laws consents to the action in writing and the written
consents are filed with the records of Shareholders' meetings. Such consents
shall be treated for all purposes as a vote taken at a Shareholders' meeting.

         Section 5.11. Class Designation. Without limiting the authority of the
Trustees to establish and designate any further Classes, the Trustees hereby
establish a single Class of Shares, designated as the Common Shares. The
Trustees may divide the Shares of the Trust into one or more Classes. Any Shares
of any further Classes that may from time to time be established and designated
by the Trustees, shall be established and designated, and the variations in the
relative rights and preferences as between the different Classes shall be fixed
and determined by the Trustees; provided, that all Shares shall be identical
except for such variations as shall be fixed and determined between different
Classes by the Trustees in establishing and designating such Class. Unless
otherwise designated by the Trustees in the By-laws or resolutions establishing
a Class, the purchase price, the method of determining the net asset value, and
the relative liquidation, voting, dividend and other rights and preferences of
holders of a Class shall be as set forth in the Trust's Registration Statement
on Form N-2 under the Securities Act of 1933 and/or the 1940 Act relating to the
issuance of Shares of such Class.

                                     - 30 -

<PAGE>

To the extent that the Trustees authorize and issue Preferred Shares, they are
hereby authorized and empowered to amend or supplement this Declaration,
including an amendment or modification to the rights of any Outstanding Shares
at the time of such amendment or supplement, as they deem necessary or
appropriate, including to comply with the requirements of the 1940 Act or
requirements imposed by the rating agencies or other persons, all without the
approval of Shareholders. Any such supplement or amendment shall be filed as is
necessary. The Trustees are also authorized to take such actions and retain such
Persons as they see fit to offer and sell such securities.

                                     - 31 -

<PAGE>

                                   ARTICLE VI

                 DETERMINATION OF NET ASSET VALUE; DISTRIBUTIONS

         Section 6.1. By Whom Determined. The Trustees shall have the power and
duty to determine from time to time the net asset value per share of the Common
Shares. They may appoint one or more Persons to assist them in the determination
of the value of securities in the Trust's portfolio and to make the actual
calculations pursuant to their directions. Any determination made pursuant to
this Article VI shall be binding on all parties concerned.

         Section 6.2. When Determined. The net asset value shall be determined
at such times as the Trustees shall prescribe in accordance with the applicable
provisions of the 1940 Act and regulations and orders from time to time in
effect thereunder. The Trustees may suspend the determination of net asset value
to the extent permitted by the 1940 Act or the regulations and orders from time
to time in effect thereunder.

         Section 6.3. Computation of Per Common Share Net Asset Value.

         Section 6.3.1 Net Asset Value Per Common Share. The net asset value of
each Common Share as of any particular time shall be the quotient obtained by
dividing the value of the net assets of the Trust (determined in accordance with
Section 6.3.2) by the total number of outstanding Common Shares.

         Section 6.3.2 Value of the Net Assets of the Trust. The value of the
net assets of the Trust as of any particular time shall be the value of the
Trust's assets less its liabilities, determined and computed as follows:

         (1) Trust's Assets. The Trust's assets shall be deemed to include: (A)
         all cash on hand or on deposit, including any interest accrued thereon,
         (B) all bills and demand notes and accounts receivable, (C) all
         securities owned or contracted for by the Trustees, (D) all

                                     - 32 -

<PAGE>

         stock and cash dividends and cash distributions payable to but not yet
         received by the Trustees (when the valuation of the underlying security
         is being determined ex-dividend), (E) all interest accrued on any
         interest-bearing securities owned by the Trustees (except accrued
         interest included in the valuation of the underlying security) and (F)
         all other property of every kind and nature, including prepaid
         expenses.

         (2) Valuation of Assets. The value of such assets is to be determined
         as follows:

                  (i) Cash and Prepaid Expenses. The value of any cash on hand
                  and of any prepaid expenses shall be deemed to be their full
                  amount.

                  (ii) Other Current Assets. The value of any accounts
                  receivable and cash dividends and interest declared or accrued
                  as aforesaid and not yet received shall be deemed to be the
                  full amount thereof, unless the Trustees shall determine that
                  any such item is not worth its full amount. In such case the
                  value of the item shall be deemed to be its reasonable value,
                  as determined by the Trustees.

                  (iii) Securities and Other Property. A security for which
                  market quotations are readily available which is not subject
                  to restrictions against sale and has a remaining maturity of
                  more than 60 days from the date of valuation shall be valued
                  on the basis of such quotations. Any security which has a
                  remaining maturity of 60 days or less may be valued on the
                  basis of market quotations or may be valued at cost plus
                  earned discount; if such security was acquired with a
                  remaining maturity of more than 60 days, the cost thereof for
                  purposes of such valuation shall be deemed to be the value on
                  the sixty-first day prior to maturity. Any security for which
                  market quotations are not readily available

                                     - 33 -

<PAGE>

                  and any other property the valuation of which is not provided
                  for above, shall be valued at its fair market value as
                  determined in such manner as the Trustees shall from time to
                  time prescribe by resolution. For the purposes of this Article
                  VI, market quotations shall not be deemed to be readily
                  available if in the judgment of the Trustees such quotations,
                  if any, do not afford a fair and adequate basis for valuing
                  holdings of securities of a size normally held by the Trust,
                  whether due to the infrequency or size of the transactions
                  represented by such quotations or otherwise.

         (3) Liabilities. The Trust's liabilities shall not be deemed to include
         any Common Shares and surplus or the liquidation preference of any
         Preferred Shares, but they shall be deemed to include: (A) all bills
         and accounts payable, (B) all administrative expenses accrued and
         unpaid, (C) all contractual obligations for the payment of money or
         property, including the amount of any declared but unpaid dividends
         upon Shares and the amount of all income accrued but not paid to
         Shareholders, (D) all reserves authorized or approved by the Trustees
         for taxes or contingencies and (E) all other liabilities of whatsoever
         kind and nature except any liabilities represented by Shares and
         surplus.

         Section 6.4. Interim Determinations. Any determination of net asset
value other than as of the close of trading on the New York Stock Exchange may
be made either by appraisal or by calculation or estimate. Any such calculation
or estimate shall be based on changes in the market value of representative or
selected securities or on changes in recognized market averages since the last
closing appraisal and made in a manner which in the opinion of the Trustees will
fairly reflect the changes in the net asset value.

                                     - 34 -

<PAGE>

         Section 6.5. Outstanding Common Shares. For the purposes of this
Article VI, outstanding Common Shares shall mean those Common Shares shown from
time to time on the books of the Trust or the Transfer Agent as then issued and
outstanding, adjusted as follows:

                  (a) Common Shares sold shall be deemed to be outstanding
         Common Shares from the time when the sale is reported to the Trustees
         or their agents for determining net asset value, but not before (i) an
         unconditional purchase order therefor has been received by the Trustees
         (directly or through one of their agents) or by the Principal
         Underwriter of the Common Shares and the sale price in currency has
         been determined and (ii) receipt by the Trustees (directly or through
         one of their agents) of federal funds in the amount of the sale price;
         and such sale price (net of commission, if any, and any stamp or other
         tax payable by the Trust in connection with the issue and sale of the
         Common Shares sold) shall be thereupon deemed to be an asset of the
         Trust.

                  (b) Common Shares distributed pursuant to Section 6.6 shall be
         deemed to be outstanding as of the time that Shareholders who shall
         receive the distribution are determined.

                  (c) Common Shares which are subject to repurchase by the
         Trustees shall be deemed to be outstanding Common Shares up to and
         including the time as of which the repurchase price is determined.
         After such time, they shall be deemed to be no longer outstanding
         Common Shares and the purchase price until paid shall be deemed to be a
         liability of the Trust.

         Section 6.6. Distributions to Shareholders. Subject to the rights,
preferences and limitations of any Class of Shares and without limiting the
powers of the Trustees under Subsection (f) of Section 2.1 of Article II hereof,
the Trustees may at any time and from time to

                                     - 35 -

<PAGE>

time, as they may determine, allocate or distribute to Shareholders such income
and capital gains, accrued or realized, as the Trustees may determine, after
providing for actual, accrued or estimated expenses and liabilities (including
such reserves as the Trustees may establish) determined in accordance with
generally accepted accounting practices. Subject to the rights, preferences and
limitations of any Class of Shares, the Trustees shall have full discretion to
determine which items shall be treated as income and which items as capital and
their determination shall be binding upon the Shareholders. Subject to the
rights, preferences and limitations of any Class of Shares, such distributions
shall be made in cash, property or Common Shares or any combination thereof as
determined by the Trustees. Subject to the rights, preferences and limitations
of any Class of Shares, any such distribution paid in Common Shares shall be
paid at the net asset value thereof as determined pursuant to this Article VI.
Subject to the rights, preferences and limitations of any Class of Shares, the
Trustees may adopt and offer to Shareholders such dividend reinvestment plans,
cash dividend payout plans or related plans as the Trustees shall deem
appropriate. Subject to the rights, preferences and limitations of any Class of
Shares, inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books of the Trust,
the above provisions shall be interpreted to give the Trustees the power in
their discretion to allocate or distribute for any fiscal year as ordinary
dividends and as capital gains distributions, respectively, additional amounts
sufficient to enable the Trust to avoid or reduce liability for taxes.

         Section 6.7. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for the determination of
the per share net asset value of Common Shares as may be permitted by, or as
they may deem necessary or desirable to enable the Trust to

                                     - 36 -

<PAGE>

comply with, any provision of the 1940 Act, any rule or regulation thereunder or
any order of exemption issued by the Commission, all as in effect now or as
hereafter amended or modified.

                                     - 37 -

<PAGE>

                                   ARTICLE VII

                                    CUSTODIAN

         Section 7.1. Appointment and Duties. Subject to the 1940 Act and such
rules, regulations and orders as the Commission may adopt, the Trustees shall
employ a bank or trust company having a capital, surplus and undivided profits
of at least $2,000,000 as Custodian with authority as the agent of the Trust,
but subject to such restrictions, limitations and other requirements, if any, as
may be contained in the By-Laws of the Trust:

                  (a) to hold the securities owned by the Trust and deliver the
         same upon written order;

                  (b) to receive and receipt for any moneys due to the Trust and
         deposit the same in its own banking department or elsewhere as the
         Trustees may direct; and

                  (c) to disburse such funds upon orders or vouchers.

The Trustees may also authorize such Custodian as the agent of the Trust (x) to
keep the books and accounts of the Trust and furnish clerical and accounting
services and (y) to compute the net income and the value of the net assets of
the Trust.

         The acts and services of the Custodian shall be performed upon such
basis of compensation as may be agreed upon by the Trustees and the Custodian.
If so directed by a Majority Shareholder Vote, the Custodian shall deliver and
pay over all property of the Trust held by it as specified in such vote.

         The Trustees may also authorize the Custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
Custodian and upon such terms and conditions, as may be agreed upon between the
Custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank or trust

                                     - 38 -

<PAGE>

company organized under the laws of the United States or one of the states
thereof and having capital, surplus and undivided profits of at least
$2,000,000.

         Section 7.2. Action Upon Termination of Custodian Agreement. Upon
termination of a Custodian agreement or inability of any Custodian to continue
to serve, the Trustees shall promptly appoint a successor Custodian, but in the
event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special Shareholders' meeting to determine whether the Trust shall
function without a Custodian or shall be liquidated. If so directed by vote of
the holders of a majority of the Common Shares outstanding and entitled to vote,
the Custodian shall deliver and pay over all Trust Property held by it as
specified in such vote.

         Section 7.3. Central Certificate System, Etc. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.

         Section 7.4. Acceptance of Receipts in Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-

                                     - 39 -

<PAGE>

entry form in the Federal Reserve System in accordance with regulations
promulgated by the Board of Governors of the Federal Reserve System and the
local Federal Reserve Banks in lieu of receipt of certificates representing such
securities.

                                     - 40 -

<PAGE>

                                  ARTICLE VIII

            DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.

         Section 8.1. Duration and Termination.

                  (a) Unless terminated as provided herein, the Trust shall
         continue without limitation of time. Subject to the rights of a
         specific Class, the Trust may be terminated by the affirmative vote of
         at least 66 2/3% of the Common Shares outstanding or, when authorized
         by a Majority Shareholder Vote, by an instrument in writing signed by a
         majority of the Trustees. Upon the termination of the Trust,

                           (i) The Trust shall carry on no business except for
                           the purpose of winding up its affairs.

                           (ii) The Trustees shall proceed to wind up the
                           affairs of the Trust and all of the powers of the
                           Trustees under this Declaration shall continue until
                           the affairs of the Trust shall have been wound up,
                           including the power to fulfill or discharge the
                           contracts of the Trust, collect its assets, sell,
                           convey, assign, exchange, transfer or otherwise
                           dispose of all or any part of the remaining Trust
                           Property to one or more persons at public or private
                           sale for consideration which may consist in whole or
                           in part of cash, securities or other property of any
                           kind, discharge or pay its liabilities, and do all
                           other acts appropriate to liquidate its business,
                           provided that any sale, conveyance, assignment,
                           exchange, transfer or other disposition of all or
                           substantially all the Trust Property that requires
                           Shareholder approval under Section 8.3 hereof shall
                           receive the approval so required.

                                     - 41 -

<PAGE>

                           (iii) After paying or adequately providing for the
                           payment of all liabilities, and upon receipt of such
                           releases, indemnities and refunding agreements as
                           they deem necessary for their protection, the
                           Trustees may distribute the remaining Trust Property,
                           in cash or in kind or partly each, among the
                           Shareholders according to their respective rights.

                  (b) After termination of the Trust and distribution to the
         Shareholders as herein provided, a majority of the Trustees shall
         execute and lodge among the records of the Trust an instrument in
         writing setting forth the fact of such termination, and the Trustees
         shall thereupon be discharged from all further liabilities and duties
         hereunder, and the rights and interests of all Shareholders shall
         thereupon cease.

         Section 8.2. Amendment Procedure.

                  (a) This Declaration may be amended from time to time by an
         instrument in writing signed by a majority of the Trustees when
         authorized by a Majority Shareholder Vote, provided that any amendment
         having the purpose of changing the name of the Trust or of supplying
         any omission, curing any ambiguity or curing, correcting or
         supplementing any defective or inconsistent provision shall not require
         authorization by the Shareholders. Nothing contained in this
         Declaration shall permit the amendment of this Declaration to impair
         the exemption from personal liability of the Shareholders, Trustees,
         officers, employees and agents of the Trust or to permit assessments
         upon Shareholders.

                  (b) A certificate signed by a majority of the Trustees setting
         forth an amendment and reciting that it was duly adopted as aforesaid,
         or a copy of this

                                     - 42 -

<PAGE>

         Declaration as amended, executed by a majority of the Trustees, shall
         be conclusive evidence of such amendment when lodged among the records
         of the Trust.

                  (c) To the extent that the Trustees authorize and issue
         Preferred Shares of any Class, they are hereby authorized and empowered
         to amend or supplement this Declaration, including an amendment or
         modification to the rights of any Outstanding Shares at the time of
         such amendment or supplement, as they deem necessary or appropriate,
         including to comply with the requirements of the 1940 Act or
         requirements imposed by the rating agencies or other persons, all
         without the approval of Shareholders.

         Section 8.3. Merger, Consolidation and Sale of Assets. Subject to the
rights of a specific Class of Shares, the Trust may merge or consolidate with
any other corporation, association, trust or other organization or may sell,
lease or exchange all or substantially all of the Trust Property, including its
good will, upon such terms and conditions and for such consideration when and as
authorized at any Shareholders' meeting called for the purpose by a Majority
Shareholder Vote.

         Section 8.4. Incorporation. With the approval of a Majority Shareholder
Vote and subject to the rights of a specific Class of Shares, the Trustees may
cause to be organized or assist in organizing under the laws of any jurisdiction
a corporation or corporations or any other trust, partnership, association or
other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
may sell, convey and transfer the Trust Property to any such corporation, trust,
partnership, association or other organization in exchange for the shares or
securities thereof or otherwise, and may lend money to, subscribe for the shares
or securities of, and enter into any contracts with any such corporation, trust,
partnership, association or other organization, or any

                                     - 43 -

<PAGE>

corporation, partnership, trust, association or other organization in which the
Trust holds or is about to acquire shares or any other interest. The Trustees
may also cause a merger or consolidation between the Trust or any successor
thereto and any such corporation, trust, partnership, association or other
organization. Nothing contained herein shall be construed as requiring approval
of Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring less than all or substantially all of the
Trust Property to such organization or entities.

                                     - 44 -

<PAGE>

                                   ARTICLE IX

                             REPORTS TO SHAREHOLDERS

         The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be accompanied by a report thereon of
independent public accountants.

                                     - 45 -

<PAGE>

                                    ARTICLE X

                                  MISCELLANEOUS

         Section 10.1. Filing. This Declaration and any amendment hereto shall
be filed with the Secretary of the Commonwealth of Massachusetts and in such
other places as may be required under the laws of the Commonwealth of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Unless any such amendment sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing with the Secretary of the Commonwealth of Massachusetts. A restated
Declaration, integrating into a single instrument all of the provisions of this
Declaration which are then in effect and operative, may be executed from time to
time by a majority of the Trustees and shall, upon filing with the Secretary of
the Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may hereafter be referred to in lieu of the original
Declaration and the various amendments thereto.

         Section 10.2. Governing Law. This Declaration is executed by the
Trustees and delivered in the Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.

         Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.

         Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, certifying to: (a) the

                                     - 46 -

<PAGE>

number or identity of Trustees or Shareholders, (b) the due authorization of the
execution of any instrument or writing, (c) the form of any vote passed at a
meeting of Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adopted by or the identity of any officers elected by the Trustees or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.

         Section 10.5. Provisions in Conflict with Law or Regulations.

                  (a) The provisions of this Declaration are severable, and if
         the Trustees shall determine, with the advice of counsel, that any of
         such provisions is in conflict with requirements of the 1940 Act, would
         be inconsistent with any of the conditions necessary for qualification
         of the Trust as a regulated investment company under the United States
         Internal Revenue Code or is inconsistent with other applicable laws and
         regulations, such provision shall be deemed never to have constituted a
         part of this Declaration, provided that such determination shall not
         affect any of the remaining provisions of this Declaration or render
         invalid or improper any action taken or omitted prior to such
         determination.

                  (b) If any provision of this Declaration shall be held invalid
         or unenforceable in any jurisdiction, such invalidity or
         unenforceability shall attach only to such provision in such
         jurisdiction and shall not in any manner affect such provision in any
         other jurisdiction or any other provision of this Declaration in any
         jurisdiction.

         Section 10.6. Section Headings; Interpretation. Section headings in
this Declaration are for convenience of reference only, and shall not limit or
otherwise affect the meaning hereof.

                                     - 47 -

<PAGE>

References in this Declaration to "this Declaration" shall be deemed to refer to
this Declaration as from time to time amended, and all expressions such as
"hereof", "herein" and "hereunder" shall be deemed to refer to this Declaration
and not exclusively to the article or section in which such words appear.

                                     - 48 -

<PAGE>

         IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Declaration of Trust as of this 26th day of August, 2003.

/s/ Dennis S. Aronowitz                   /s/ Maureen Ford Goldfarb
____________________________________      ______________________________________
Dennis S. Aronowitz,                      Maureen Ford Goldfarb,
as Trustee and not individually*          as Trustee and not individually*

/s/ Richard P. Chapman, Jr.               /s/ William F. Glavin
____________________________________      ______________________________________
Richard P. Chapman, Jr.,                  William F. Glavin,
as Trustee and not individually*          as Trustee and not individually*

/s/ William J. Cosgrove                   /s/ John A. Moore
____________________________________      ______________________________________
William J. Cosgrove,                      John A. Moore,
as Trustee and not individually*          as Trustee and not individually*

/s/ John M. DeCiccio                      /s/ Patti McGill Peterson
____________________________________      ______________________________________
John M. DeCiccio,                         Patti McGill Peterson,
as Trustee and not individually*          as Trustee and not individually*

/s/ Richard A. Farrell                    /s/ John W. Pratt
____________________________________      ______________________________________
Richard A. Farrell,                       John W. Pratt,
as Trustee and not individually*          as Trustee and not individually*

* The address for each Trustee is 101 Huntington Avenue, Boston, Massachusetts
  02199.

                                     - 49 -


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(B)
<SEQUENCE>4
<FILENAME>b48195isexv99wxby.txt
<DESCRIPTION>AMENDED AND RESTATED BY-LAWS
<TEXT>
<PAGE>

                                                                   EXHIBIT 99(b)

                              AMENDED AND RESTATED

                                     BY-LAWS

                                       OF

                      JOHN HANCOCK INCOME SECURITIES TRUST

                             DATED DECEMBER 6, 1996
                           AS AMENDED AND RESTATED ON
                                 AUGUST 26, 2003

<PAGE>

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                             <C>
ARTICLE I     DEFINITIONS....................................................................................     1

ARTICLE II    OFFICES........................................................................................     1
     Section 2.1.  Principal Office..........................................................................     1
     Section 2.2.  Other Offices.............................................................................     1

ARTICLE III   SHAREHOLDERS...................................................................................     1
     Section 3.1.  Meetings..................................................................................     1
     Section 3.2.  Annual Meetings...........................................................................     1
     Section 3.3.  Notice of Meetings........................................................................     1
     Section 3.4.  Record Date for Meetings and Other Purposes...............................................     2
     Section 3.5.  Proxies...................................................................................     2
     Section 3.6.  Abstentions and Broker Non-Votes..........................................................     2
     Section 3.7.  Quorum....................................................................................     3
     Section 3.8.  Action at Meeting.........................................................................     3
     Section 3.9.  Action without Meeting....................................................................     3
     Section 3.10. Inspection of Records.....................................................................     3
     Section 3.11. Special Meetings..........................................................................     3
     Section 3.12. Nominations and Proposals by Shareholders.................................................     6

ARTICLE IV    TRUSTEES.......................................................................................     8
     Section 4.1.  Meetings of the Trustees..................................................................     8
     Section 4.2.  Quorum and Manner of Acting...............................................................     8

ARTICLE V     COMMITTEES.....................................................................................     8
     Section 5.1.  Executive and Other Committees............................................................     8
     Section 5.2.  Meetings, Quorum and Manner of Acting.....................................................     9

ARTICLE VI    OFFICERS.......................................................................................     9
     Section 6.1.  General Provisions........................................................................     9
     Section 6.2.  Election, Term of Office and Qualifications...............................................     9
     Section 6.3.  Removal...................................................................................     9
     Section 6.4.  Powers and Duties of the Chairman.........................................................    10
     Section 6.5.  Powers and Duties of the Vice Chairman....................................................    10
     Section 6.6.  Powers and Duties of the President........................................................    10
     Section 6.7.  Powers and Duties of Vice Presidents......................................................    10
     Section 6.8.  Powers and Duties of the Treasurer........................................................    10
     Section 6.9.  Powers and Duties of the Secretary........................................................    10
     Section 6.10. Powers and Duties of Assistant Officers...................................................    11
     Section 6.11. Powers and Duties of Assistant Secretaries................................................    11
     Section 6.12. Compensation of Officers and Trustees and Members
                   of the Advisory Board.....................................................................    11
</TABLE>

                                      -i-

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                             <C>
ARTICLE VII   SHARES OF BENEFICIAL INTEREST..................................................................    11
     Section 7.1.  Share certificates........................................................................    11
     Section 7.2.  Transfers of Pledged Shares...............................................................    11
     Section 7.3.  Regulations...............................................................................    12
     Section 7.4.  Lost, Destroyed or Mutilated Certificates.................................................    12

ARTICLE VIII  TERMS OF AUCTION PREFERRED SHARES..............................................................    12
     Section 8.1.  Designation...............................................................................    12
     Section 8.2.  Definitions...............................................................................    13
     Section 8.3.  Investment Company Act Preferred Share Asset Coverage and Preferred Shares Basic
     Maintenance Amount Coverage.............................................................................    38
     Section 8.4.  Dividends.................................................................................    41
     Section 8.5.  Liquidation Rights........................................................................    48
     Section 8.6.  Redemption................................................................................    49
     Section 8.7.  Voting Rights.............................................................................    53
     Section 8.8.  Other Restrictions........................................................................    57
     Section 8.9.  Auction Procedures........................................................................    60

ARTICLE IX    Terms of Common Shares.........................................................................    73
     Section 9.1.  Designation...............................................................................    73
     Section 9.2.  Common Shares.............................................................................    73

ARTICLE X     FISCAL YEAR....................................................................................    73

ARTICLE XI    SEAL...........................................................................................    74

ARTICLE XII   SUFFICIENCY AND WAIVERS OF NOTICE..............................................................    74

ARTICLE XIII  AMENDMENTS.....................................................................................    74
</TABLE>

                                      -ii-

<PAGE>

                              AMENDED AND RESTATED

                                   BY-LAWS OF

                      JOHN HANCOCK INCOME SECURITIES TRUST

                                 AUGUST 26, 2003

         The Amended and Restated By-Laws (the "By-Laws") of the John Hancock
Income Securities Trust (the "Trust") have been adopted pursuant to the
authority granted by Section 2.10 of the Trust's Amended and Restated
Declaration of Trust (the "Declaration of Trust") dated August 26, 2003 and
filed in the Office of the Secretary of The Commonwealth of Massachusetts.

                                   ARTICLE I

                                  DEFINITIONS

         All capitalized terms have the respective meanings given them in the
Declaration of Trust, as amended or restated from time to time.

                                   ARTICLE II

                                     OFFICES

         Section 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust shall be in Boston, Massachusetts.

         Section 2.2. Other Offices. The Trust may have offices in such other
places without as well as within The Commonwealth of Massachusetts as the
Trustees may from time to time determine.

                                  ARTICLE III

                                  SHAREHOLDERS

         Section 3.1. Meetings. Meetings of the Shareholders of the Trust or a
Series or Class thereof shall be held as provided in the Declaration of Trust or
required by the 1940 Act at such place within or without The Commonwealth of
Massachusetts as the Trustees shall designate.

         Section 3.2. Annual Meetings. The annual meeting of the Shareholders of
the Trust for the election of Trustees and the transaction of other proper
business shall be held on a date, not a legal holiday, and at a time and place
to be set annually by resolution of the Trustees.

         Section 3.3. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail or telegraphic means to each Shareholder at his
address as recorded on the register of the Trust mailed at least seven (7) days
before the meeting, provided, however, that notice of a meeting need not be
given

                                      -1-
<PAGE>

to a Shareholder to whom such notice need not be given under the proxy rules of
the Commission under the 1940 Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Any adjourned meeting may be held as adjourned
without further notice. No notice need be given to any Shareholder who shall
have failed to inform the Trust of his current address or if a written waiver of
notice, executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.

         Section 3.4. Record Date for Meetings and Other Purposes. For the
purpose of determining the Shareholders who are entitled to notice of and to
vote at any meeting, or to participate in any distribution, or for the purpose
of any other action, the Trustees may from time to time close the transfer books
for such period, not exceeding sixty (60) days, as the Trustees may determine;
or without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determination of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration of Trust.

         Section 3.5. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken. A
proxy shall be deemed signed if the Shareholder's name is placed on the proxy
(whether by manual signature, typewriting or telegraphic transmission) by the
Shareholder or the Shareholder's attorney-in-fact. Proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each whole share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
of Trust to vote and fractional shares shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy,
including a photographic or similar reproduction thereof and a telegram,
cablegram, wireless or similar transmission thereof, purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Share is a minor or a person of unsound
mind, and subject to guardianship or the legal control of any other person as
regards the charge or management of such Share, he may vote by his guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy. The placing of a Shareholder's name on a proxy pursuant
to telephonic or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such Shareholder shall constitute execution of such proxy by or on
behalf of such Shareholder.

         Section 3.6. Abstentions and Broker Non-Votes. Outstanding Shares
represented in person or by proxy (including Broker Non-Votes and Shares which
abstain with respect to one or more proposals presented for Shareholder
approval) will be counted for purposes of determining whether a quorum is
present at a meeting. Except as otherwise provided by law, abstentions will

                                      -2-
<PAGE>

be treated as Shares that are present and entitled to vote for purposes of
determining the number of Shares that are present and entitled to vote with
respect to any particular proposal, but will not be counted as a vote cast on
such proposal. A "Broker Non-Vote" occurs if a broker or nominee holding Shares
in "street name" indicates on the proxy that it does not have discretionary
authority to vote as to a particular proposal. For avoidance of any doubt,
Broker Non-Votes shall not include preferred shares which the broker is
permitted to proportionately vote in accordance with applicable law or rules of
a national securities exchange. Except as otherwise provided by law, Broker
Non-Votes will be treated as present and entitled to vote for purposes of
determining the number of Shares that are present and entitled to vote with
respect to such proposal, but will not be counted as a vote cast on such
proposal.

         Section 3.7. Quorum. Except as otherwise provided by law, the Trust's
Declaration of Trust or these By-laws, the holders of a majority of the Shares
issued and outstanding and entitled to vote at the meeting, present in person,
present by means of remote communication in a manner, if any, authorized by the
Board of Trustees in its sole discretion, or represented by proxy, shall
constitute a quorum for the transaction of business. A quorum, once established
at a meeting, shall not be broken by the withdrawal of enough votes to leave
less than a quorum.

         Section 3.8. Action at Meeting. When a quorum is present at any
meeting, any matter other than the election of Trustees to be voted upon by the
Shareholders at such meeting shall be decided by the vote of the holders of
Shares having a majority of the votes cast by the holders of all of the Shares
present or represented and voting on such matter (or if there are two or more
classes of shares entitled to vote as separate classes, then in the case of each
such class, the holders of a majority of the shares of that class present or
represented and voting on such matter), except when a different vote is required
by law, the Trust's Declaration of Trust or these By-laws. When a quorum is
present at any meeting, any election by Shareholders of Trustees shall be
determined by a plurality of the votes cast by the Shareholders entitled to vote
on the election.

         Section 3.9. Action without Meeting. For as long as there are under one
hundred fifty (150) shareholders, any action which may be taken by Shareholders
may be taken without a meeting if a majority of Outstanding Shares entitled to
vote on the matter (or such larger proportion thereof as shall be required by
law, the Declaration of Trust, or the By-laws) consent to the action in writing
and the written consents are filed with the records of the meetings of
Shareholders. Such consents shall be treated for all purposes as a vote taken at
a meeting of Shareholders.

         Section 3.10. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.

         Section 3.11. Special Meetings.

         (a)      Special meetings of the Shareholders may be called at any time
by the Chairman, the President or the Trustees. Subject to subsection (c) of
this Section 3.11, a special meeting of Shareholders shall also be called by the
Secretary of the Trust upon the written request of the Shareholders entitled to
cast the percentage of the outstanding votes specified in the Declaration

                                      -3-
<PAGE>

of Trust and only if the Shareholder is seeking to call a meeting on a matter
with respect to which the Shareholders are entitled to vote under the
Declaration of Trust without prior action by the Trustees.

         (b)      Any Shareholder of record seeking to have Shareholders request
a special meeting shall, by sending written notice to the Secretary (the "Record
Date Request Notice") by registered mail, return receipt requested, request the
Trustees to fix a record date to determine the Shareholders entitled to request
a special meeting (the "Requested Record Date"). The Record Date Request Notice
shall set forth the purpose of the meeting and the matters proposed to be acted
on, shall be signed by one or more Shareholders of record as of the date of
signature (or their duly authorized agents), shall bear the date of signature of
each such Shareholder (or other agent) and shall set forth all information
relating to each such Shareholder that must be disclosed in solicitations of
proxies for election of trustees in an election contest (even if an election
contest is not involved), or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act and the rules thereunder. Upon receiving
the Record Date Request Notice, the Trustees may fix a Requested Record Date.
The Requested Record Date shall not precede and shall not be more than ten (10)
days after the close of business on the date on which the resolution fixing the
Requested Record Date is adopted by the Trustees. If the Trustees, within thirty
(30) days after the date on which a valid Record Date Request Notice is
received, fails to adopt a resolution fixing the Requested Record Date and make
a public announcement of such Requested Record Date, the Requested Record Date
shall be the close of business on the 30th after the first date on which the
Record Date Request Notice is received by the Secretary.

         (c)      In order for any Shareholder to request a special meeting, one
or more written requests for a special meeting signed by Shareholders of record
(or their duly authorized agents) as of the Requested Record Date entitled to
cast the percentage of the outstanding shares specified in the Declaration of
Trust (the "Special Meeting Percentage") of all of the votes entitled to be cast
at such meeting (the "Special Meeting Request") shall be delivered to the
Secretary. In addition, the Special Meeting Request shall set forth the purpose
of the meeting and the matters proposed to be acted on at it (which shall be
limited to the matters set forth in the Record Date Request Notice received by
the Secretary), shall bear the date of signature of each such Shareholder (or
other agent) signing the Special Meeting Request, shall set forth the name and
address, as they appear in the Trust's books, of each Shareholder signing such
request (or on whose behalf the Special Meeting Request is signed) and the class
and number of shares of the Trust which are owned of record and beneficially by
each such Shareholder, shall be sent to the Secretary by registered mail, return
receipt requested, and shall be received by the Secretary within sixty (60) days
after the Requested Record Date. Any requesting Shareholder may revoke his, her
or its request for a special meeting at any time by written revocation delivered
to the Secretary.

         (d)      The Secretary shall inform the requesting Shareholders of the
reasonably estimated cost of preparing and mailing the notice of meeting
(including the Trust's proxy materials). The Secretary shall not be required to
call a special meeting upon Shareholder request and such meeting shall not be
held unless, in addition to the documents required by paragraphs (b) and (c) of
this Section 3.11, the Secretary receives payment of such reasonably estimated
cost prior to the mailing of any notice of the special meeting.

                                      -4-
<PAGE>

         (e)      Except as provided in the next sentence, any special meeting
shall be held at such place, date and time as may be designated by the
President, Chairman or Trustees, whoever has called the meeting. In the case of
any special meeting called by the Secretary upon the request of Shareholders (a
"Shareholder Requested Meeting"), such meeting shall be held at such place, date
and time as may be designated by the Trustees; provided, however, that the date
of any Shareholder Requested Meeting shall be not more than ninety (90) days
after the record date for such meeting (the "Meeting Record Date"); and provided
further that if the Trustees fail to designate, within thirty (30) days after
the date that a valid Special Meeting Request is actually received by the
Secretary (the "Delivery Date"), a date and time for a Shareholder Requested
Meeting, then such meeting shall be held at 2:00 p.m. Eastern Time on the 90th
day after the Delivery Date or, if such 90th day is not a business day, on the
first preceding business day; and provided further that in the event that the
Trustees fail to designate a place for a Shareholder Requested Meeting within
thirty (30) days after the Delivery Date, then such meeting shall be held at the
principal executive offices of the Trust. In fixing a date for any special
meeting, the President, Chairman or Trustees may consider such factors as he,
she, or they deem(s) relevant within the good faith exercise of business
judgment, including, without limitation, the nature of the matters to be
considered, the facts and circumstances surrounding any request for a meeting
and any plan of the Trustees to call an annual meeting or a special meeting. In
the case of any Shareholder Requested Meeting, if the Trustees fail to fix a
Meeting Record Date that is a date within thirty (30) days after the Delivery
Date, then the close of business on the 30th day after the Delivery Date shall
be the Meeting Record Date.

         (f)      If at any time as a result of written revocations of requests
for the special meeting, Shareholders of record (or their duly authorized
agents) as of the Requested Record Date shall have delivered and not revoked
requests for a special meeting, the Secretary may refrain from mailing the
notice of the meeting or, if the notice of the meeting has been mailed, the
Secretary may revoke the notice of the meeting at any time before ten (10) days
prior to the meeting if the Secretary has first sent to all other requesting
Shareholders written notice of such revocation and of intention to revoke the
notice of the meeting. Any request for a special meeting received after a
revocation by the Secretary of a notice of a meeting shall be considered a
request for a new special meeting.

         (g)      The Chairman, the President or the Trustees may appoint
regionally or nationally recognized independent inspectors of elections to act
as the agent of the Trust for the purpose of promptly performing a ministerial
review of the validity of any purported Special Meeting Request received by the
Secretary. For the purpose of permitting the inspectors to perform such review,
no such purported request shall be deemed to have been delivered to the
Secretary until the earlier of (i) five (5) business days after receipt by the
Secretary of such purported request and (ii) such date as the independent
inspectors certify to the Trust that the valid requests received by the
Secretary represent at least a majority of the issued and outstanding shares of
stock that would be entitled to vote at such meeting. Nothing contained in this
paragraph (g) shall in any way be construed to suggest or imply that the Trust
or any Shareholder shall not be entitled to contest the validity of any request,
whether during or after such five (5) business day period, or to take any other
action (including, without limitation, the commencement, prosecution or defense
of any litigation with respect thereto, and the seeking of injunctive relief in
such litigation).

                                      -5-
<PAGE>

         Section 3.12. Nominations and Proposals by Shareholders.

         (a)      Annual Meetings of Shareholders. Nominations of persons for
election as a Trustee and the proposal of business to be considered by the
Shareholders may be made at an annual meeting of Shareholders (i) pursuant to
the Trust's notice of meeting, (ii) by or at the direction of the Trustees or
(iii) by any Shareholder of the Trust who was a Shareholder of record both at
the time of giving of notice provided for in this Section 3.12(a) and at the
time of the annual meeting, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 3.12(a). For
nominations for election to the Trustees or other business to be properly
brought before an annual meeting by a Shareholder pursuant to this Section
3.12(a), the Shareholder must have given timely notice thereof in writing to the
Secretary of the Trust and such other business must otherwise be a proper matter
for action by Shareholders. To be timely, a Shareholder's notice must be
delivered to the Secretary at the principal executive office of the Trust by not
later than the close of business on the 90th day prior to the first anniversary
of the date of mailing of the notice for the preceding year's annual meeting nor
earlier than the close of business on the 120th day prior to the first
anniversary of the date of mailing of the notice for the preceding year's annual
meeting; provided, however, that in the event that the date of the mailing of
the notice for the annual meeting is advanced or delayed by more than thirty
(30) days from the anniversary date of the mailing of the notice for the
preceding year's annual meeting, notice by the Shareholder to be timely must be
so delivered not earlier than the close of business on the 120th day prior to
the date of mailing of the notice for such annual meeting and not later than the
close of business on the later of the 90th day prior to the date of mailing of
the notice for such annual meeting or the 10th day following the day on which
public announcement of the date of mailing of the notice for such meeting is
first made by the Trust. In no event shall the public announcement of a
postponement of the mailing of the notice for such annual meeting or of an
adjournment or postponement of an annual meeting to a later date or time
commence a new time period for the giving of a Shareholder's notice as described
above. A Shareholder's notice to be proper must set forth (i) as to each person
whom the Shareholder proposes to nominate for election or reelection as a
trustee (A) the name, age, business address and residence address of such
person, (B) the class and number of shares of the Trust that are beneficially
owned or owned of record by such person and (C) all other information relating
to such person that is required to be disclosed in solicitations of proxies for
election of trustees in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A (or any successor provision) under the Exchange
Act (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a trustee if elected); (ii) as to any
other business that the Shareholder proposes to bring before the meeting, a
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such Shareholder (including any anticipated benefit to the
Shareholder therefrom) and of each beneficial owner, if any, on whose behalf the
proposal is made; and (iii) as to the Shareholder giving the notice and each
beneficial owner, if any, on whose behalf the nomination or proposal is made,
(x) the name and address of such Shareholder, as they appear on the Trust's
stock ledger and current name and address, if different, and of such beneficial
owner, and (y) the class and number of shares of stock of the Trust which are
owned beneficially and of record by such Shareholder and such beneficial owner.
Notwithstanding anything in the second sentence of paragraph (a)(2) of this
Section 3.12 to the contrary, in the event that the number of trustees to be
elected to the Board of Trustees is increased and there is no public
announcement by the Trust of such action or

                                      -6-
<PAGE>

specifying the size of the increased Trustees at least one hundred (100) days
prior to the first anniversary of the date of mailing of the notice for the
preceding year's annual meeting, a Shareholder's notice required by this Section
3.8(a) shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if the notice is delivered to the
Secretary at the principal executive offices of the Trust not later than the
close of business on the 10th day immediately following the day on which such
public announcement is first made by the Trust.

         (b)      Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of Shareholders as shall have been brought before
the special meeting pursuant to the Trust's notice of meeting. Nominations of
persons for election to the Trustees may be made at a special meeting of
Shareholders at which trustees are to be elected (i) pursuant to the Trust's
notice of meeting, (ii) by or at the direction of the Trustees or (iii) provided
that the Trustees have determined that trustees shall be elected at such special
meeting, by any Shareholder of the Trust who is a Shareholder of record both at
the time of giving of notice provided for in this Section 3.12(b) and at the
time of the special meeting, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 3.12(b). In the
event the Trust calls a special meeting of Shareholders for the purpose of
electing one or more Trustees, any such Shareholder may nominate a person or
persons (as the case may be) for election to such position as specified in the
Trust's notice of meeting, if the Shareholder's notice containing the
information required by this Section 3.12(b) shall have been delivered to the
Secretary at the principal executive offices of the Trust not earlier than the
close of business on the 120th day prior to such special meeting and not later
than the close of business on the later of the 90th day prior to such special
meeting or the 10th day following the day on which public announcement is first
made of the date of the special meeting and the nominees proposed by the
Trustees to be elected at such meeting. In no event shall the public
announcement of a postponement or adjournment of a special meeting to a later
date or time commence a new time period for the giving of a Shareholder's notice
as described above.

         (c)      General. Only such persons who are nominated by the Board of
Trustees and in accordance with the procedures set forth in this Section 3.12
shall be eligible to serve as trustee, and only such business shall be conducted
at a meeting of Shareholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 3.12. The chairman of
the meeting shall have the power and duty to determine whether a nomination or
any other business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 3.12 and, if any proposed nomination or other business is not in
compliance with this Section 3.12, to declare that such nomination or proposal
shall be disregarded. For purposes of this Section 3.12, (a) the "date of
mailing of the notice" shall mean the date of the proxy statement for the
solicitation of proxies for election of trustees and (b) "public announcement"
shall mean disclosure (i) in a press release either transmitted to the principal
securities exchange on which Shares of the Trust's common stock are traded or
reported by a recognized news service or (ii) in a document publicly filed by
the Trust with the Commission.

         (d)      Compliance with State and Federal Law. Notwithstanding the
foregoing provisions of this Section 3.12, a Shareholder shall also comply with
all applicable requirements of state law and of the Exchange Act and the rules
and regulations thereunder with respect to the

                                      -7-
<PAGE>

matters set forth in this Section 3.12. Nothing in this Section 3.12 shall be
deemed to affect any right of a Shareholder to request inclusion of a proposal
in, nor the right of the Trust to omit a proposal from, the Trust's proxy
statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange
Act.

                                   ARTICLE IV

                                    TRUSTEES

         Section 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the President,
the Chairman or by any one of the Trustees, at the time being in office. Notice
of the time and place of each meeting other than regular or stated meetings
shall be given by the Secretary or an Assistant Secretary or by the officer or
Trustee calling the meeting and shall be mailed to each Trustee at least two
days before the meeting, or shall be given by telephone, cable, wireless,
facsimile or electronic means to each Trustee at his business address, or
personally delivered to him at least one day before the meeting. Such notice
may, however, be waived by any Trustee. Notice of a meeting need not be given to
any Trustee if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Trustee who attends
the meeting without protesting prior thereto or at its commencement the lack of
notice to him. A notice or waiver of notice need not specify the purpose of any
meeting. The Trustees may meet by means of a telephone conference circuit or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall be deemed to have been held at a place designated by the Trustees at the
meeting. Participation in a telephone conference meeting shall constitute
presence in person at such meeting. Any action required or permitted to be taken
at any meeting of the Trustees may be taken by the Trustees without a meeting if
a majority of the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated as a vote for all purposes.

         Section 4.2. Quorum and Manner of Acting. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees in
order to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration of Trust or these By-laws)
the act of a majority of the Trustees present at any such meeting, at which a
quorum is present, shall be the act of the Trustees. In the absence of a quorum,
a majority of the Trustees present may adjourn the meeting from time to time
until a quorum shall be present. Notice of an adjourned meeting need not be
given.

                                   ARTICLE V

                                   COMMITTEES

         Section 5.1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than two (2) members to hold office at the
pleasure of the Trustees, which shall have the power

                                      -8-
<PAGE>

to conduct the current and ordinary business of the Trust while the Trustees are
not in session, including the purchase and sale of securities and the
designation of securities to be delivered upon redemption of Shares of the
Trust, and such other powers of the Trustees as the Trustees may, from time to
time, delegate to them except those powers which by law, the Declaration of
Trust or these By-laws they are prohibited from delegating. The Trustees may
also elect from their own number other Committees from time to time; the number
composing such Committees, the powers conferred upon the same (subject to the
same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees may
designate a chairman of any such Committee. In the absence of such designation
the Committee may elect its own Chairman.

         Section 5.2. Meetings, Quorum and Manner of Acting. The Trustees may
(1) provide for stated meetings of any Committee, (2) specify the manner of
calling and notice required for special meetings of any Committee, (3) specify
the number of members of a Committee required to constitute a quorum and the
number of members of a Committee required to exercise specified powers delegated
to such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.

         The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the office of the Trust.

                                   ARTICLE VI

                                    OFFICERS

         Section 6.1. General Provisions. The officers of the Trust shall be a
Chairman, a President, a Treasurer and a Secretary, who shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, one or
more Assistant Secretaries, and one or more Assistant Treasurers. The Trustees
may delegate to any officer or committee the power to appoint any subordinate
officers or agents.

         Section 6.2. Election, Term of Office and Qualifications. The officers
of the Trust (except those appointed pursuant to Section 6.10) shall be elected
by the Trustees. Except as provided in Sections 6.3 and 6.4 of this Article VI,
each officer elected by the Trustees shall hold office at the pleasure of the
Trustees. Any two or more offices may be held by the same person. The Chairman
of the Board shall be selected from among the Trustees and may hold such office
only so long as he/she continues to be a Trustee. Any Trustee or officer may be
but need not be a Shareholder of the Trust.

         Section 6.3. Removal. The Trustees, at any regular or special meeting
of the Trustees, may remove any officer with or without cause, by a vote of a
majority of the Trustees then in office. Any officer or agent appointed by an
officer or committee may be removed with or without cause by such appointing
officer or committee.

                                      -9-
<PAGE>

         Section 6.4. Powers and Duties of the Chairman. The Chairman shall
preside at the meetings of the Shareholders and of the Trustees. He may call
meetings of the Trustees and of any committee thereof whenever he deems it
necessary. He shall be the Chief Executive Officer of the Trust and shall have,
with the President, general supervision over the business and policies of the
Trust.

         Section 6.5. Powers and Duties of the Vice Chairman. The Trustees may,
but need not, appoint one or more Vice Chairman of the Trust. A Vice Chairman
shall be an executive officer of the Trust and shall have the powers and duties
of a Vice President of the Trust as provided in Section 6.7 of this Article VI.
The Vice Chairman shall perform such duties as may be assigned to him or her
from time to time by the Trustees or the Chairman.

         Section 6.6. Powers and Duties of the President. The President shall
preside at all meetings of the Shareholders in the absence of the Chairman.
Subject to the control of the Trustees and to the control of any Committees of
the Trustees, within their respective spheres as provided by the Trustees, he
shall at all times exercise general supervision over the business and policies
of the Trust. He shall have the power to employ attorneys and counsel for the
Trust and to employ such subordinate officers, agents, clerks and employees as
he may find necessary to transact the business of the Trust. He shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties,
as from time to time may be conferred upon or assigned to him by the Trustees.

         Section 6.7. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees, shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.

         Section 6.8. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. He shall deliver
all funds of the Trust which may come into his hands to such Custodian as the
Trustees may employ. He shall render a statement of condition of the finances of
the Trust to the Trustees as often as they shall require the same and he shall
in general perform all the duties incident to the office of a Treasurer and such
other duties as from time to time may be assigned to him by the Trustees. The
Treasurer shall give a bond for the faithful discharge of his duties, if
required so to do by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.

         Section 6.9. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Trustees and of the Shareholders in
proper books provided for that purpose; he shall have custody of the seal of the
Trust; he shall have charge of the Share transfer books, lists and records
unless the same are in the charge of a transfer agent. He shall attend to the
giving and serving of all notices by the Trust in accordance with the provisions
of these By-laws and as required by law; and subject to these By-laws, he shall
in general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.

                                      -10-
<PAGE>

         Section 6.10. Powers and Duties of Assistant Officers. In the absence
or disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall give a bond for the faithful discharge of his duties, if required so to do
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.

         Section 6.11. Powers and Duties of Assistant Secretaries. In the
absence or disability of the Secretary, any Assistant Secretary designated by
the Trustees shall perform all the duties, and may exercise any of the powers,
of the Secretary. Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.

         Section 6.12. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration of
Trust, the compensation of the officers and Trustees and members of an advisory
board shall be fixed from time to time by the Trustees or, in the case of
officers, by any Committee or officer upon whom such power may be conferred by
the Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.

                                  ARTICLE VII

                          SHARES OF BENEFICIAL INTEREST

         Section 7.1. Share certificates. The Trustees may issue Shares either
in certificated or uncertificated form, and if they have issued Shares in
certificated form, they may, by written notice to the holders of such Shares,
require the surrender of their certificates to the Trust for cancellation, which
surrender and cancellation shall not affect the ownership of such Shares. For
any Shares issued without certificates, the Trust or its transfer agent may
either issue receipts therefor or may keep accounts upon the books of the Trust
for the record holders of such Shares, who shall in either case be deemed, for
all purposes hereunder, to be the holders of such Shares as if they had received
certificates therefor and shall be held to have expressly assented and agreed to
the terms hereof and of the Declaration of Trust. For any Shares for which the
Trustees shall issue certificates, each holder of such Shares shall be entitled
to a certificate stating the number of Shares owned by him in such form as shall
be prescribed from time to time by the Trustees. The certificates representing
Shares shall be signed by the President or a Vice-President and by the Secretary
or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and
sealed with the seal of the Trust. Any or all of the signatures or the seal of
the Trust on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate which shall have ceased to be such officer, transfer agent or
registrar before such certificate shall be issued, it may be issued by the Trust
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.

         Section 7.2. Transfers of Pledged Shares. Unless otherwise provided
herein, a pledgee of Shares pledged as collateral security shall be entitled to
a new certificate in his name as pledgee, in the case of certificated Shares, or
to be registered as the holder in pledge of such

                                      -11-
<PAGE>

Shares in the case of uncertificated Shares; provided, that the instrument of
pledge substantially describes the debt or duty that is intended to be secured
thereby. Any such new certificate shall express on its face that it is held as
collateral security, and the name of the pledgor shall be stated thereon, and
any such registration of uncertificated Shares shall be in a form which
indicates that the registered holder holds such Shares in pledge. After such
issue or registration, and unless and until such pledge is released, such
pledgee and his successors and assigns shall alone be entitled to the rights of
a Shareholder, and entitled to vote such Shares.

         Section 7.3. Regulations. The Trustees may make such additional rules
and regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the issue, transfer and registration of certificates for Shares of
the Trust. They may appoint, or authorize any officer or officers to appoint,
one or more transfer agents or one or more transfer clerks and one or more
registrars and may require all certificates for Shares to bear the signature or
signatures of any of them.

         Section 7.4. Lost, Destroyed or Mutilated Certificates. The holder of
any certificates representing Shares of the Trust shall immediately notify the
Trust of any loss, destruction or mutilation of such certificate, and the Trust
may issue a new certificate in the place of any certificate theretofore issued
by it which the owner thereof shall allege to have been lost or destroyed or
which shall have been mutilated, and the Trustees may, in their discretion,
require such owner or his legal representative to give to the Trust a bond in
such sum, limited or unlimited, and in such form and with such surety or
sureties, as the Trustees in their absolute discretion shall determine, to
indemnify the Trust against any claim that may be made against it on account of
the alleged loss or destruction of any such certificate or issuance of a new
certificate.

                                  ARTICLE VIII

                        TERMS OF AUCTION PREFERRED SHARES

         Section 8.1. Designation.

         (a)      Pursuant to authority expressly vested in the Board of
         Trustees by the Declaration of Trust, the Board of Trustees authorizes
         the establishment, designation and issuance of an unlimited number of
         shares of a class of the Trust's Preferred Shares, which class is
         designated as the Trust's Auction Preferred Shares (the "Auction
         Preferred Shares"). The Auction Preferred Shares shall be issuable in
         such series as are designated from time to time in these By-Laws and
         shall have the preferences, voting powers, restrictions, limitations as
         to dividends, qualifications, terms and conditions of redemption, and
         other rights and limitations set forth in this Article VIII.

         (b)      (i) Auction Preferred Shares, Series A: An unlimited number of
                  Auction Preferred Shares, without par value, liquidation
                  preference $25,000 per Auction Preferred Share plus
                  accumulated but unpaid dividends, if any, thereon (whether or
                  not earned or declared), is hereby designated "Auction
                  Preferred Shares, Series A." Each share of Auction Preferred
                  Shares, Series A (sometimes referred to herein as "Series A
                  APS") may be issued on a date to be determined by the

                                      -12-
<PAGE>

                  Board of Trustees of the Trust or pursuant to their delegated
                  authority; have an Initial Dividend Rate and an Initial
                  Dividend Payment Date as shall be determined in advance of the
                  issuance thereof by the Board of Trustees of the Trust or
                  pursuant to their delegated authority and have such other
                  preferences as provided herein or as may be determined in
                  advance of the issuance thereof by the Board of Trustees or
                  pursuant to their delegated authority. The Series A APS shall
                  constitute a separate series of Auction Preferred Shares, and
                  each share of Series A APS shall be identical.

                  (ii) Auction Preferred Shares, Series B: An unlimited number
                  of Auction Preferred Shares, without par value, liquidation
                  preference $25,000 per Auction Preferred Share plus
                  accumulated but unpaid dividends, if any, thereon (whether or
                  not earned or declared), is hereby designated "Auction
                  Preferred Shares, Series B." Each share of Auction Preferred
                  Shares, Series B (sometimes referred to herein as "Series B
                  APS") may be issued on a date to be determined by the Board of
                  Trustees of the Trust or pursuant to their delegated
                  authority; have an Initial Dividend Rate and an Initial
                  Dividend Payment Date as shall be determined in advance of the
                  issuance thereof by the Board of Trustees of the Trust or
                  pursuant to their delegated authority and have such other
                  preferences as provided herein or as may be determined in
                  advance of the issuance thereof by the Board of Trustees or
                  pursuant to their delegated authority. The Series B APS shall
                  constitute a separate series of Auction Preferred Shares, and
                  each share of Series B APS shall be identical.

         (c)      The preferences, voting powers restrictions, limitations as to
         dividends, qualifications, terms and conditions of redemption, and
         other rights and limitations of the shares of the Auction Preferred
         Shares, Series A, Auction Preferred Shares, Series B, and each other
         series of APS now or hereafter described in these By-Laws are or shall
         be as set forth in these By-Laws. No fractional APS shall be issued.

         Section 8.2. Definitions.

         Unless the context or use indicates another or different meaning, the
following terms shall have the following meanings, whether used in the singular
or plural:

         (a)      "AA Financial Composite Commercial Paper Rate" on any date
         means (i) (A) the Interest Equivalent of the 30-day rate (for Dividend
         Periods fewer than or equal to 31 days), the 60-day rate (for Dividend
         Periods greater than 31 days but fewer than or equal to 61 days) and
         the 90-day rate (for Dividend Periods greater than 61 days but fewer
         than or equal to 91 days) on commercial paper on behalf of issuers
         whose corporate bonds are rated AA by S&P, or the equivalent of such
         rating by another Rating Agency, as announced by the Federal Reserve
         Bank of New York for the close of business on the Business Day
         immediately preceding such date; and (B) for Dividend Periods greater
         than 91 days but fewer than 184 days, the rate described in clause (ii)
         below; or (ii) if the Federal Reserve Bank of New York does not make
         available such a rate, or with respect to Dividend Periods greater than
         91 days but fewer than 184 days, then the arithmetic average of the
         Interest Equivalent of such rates on commercial paper placed on behalf
         of

                                      -13-
<PAGE>

         such issuers, as quoted on a discount basis or otherwise by the
         Commercial Paper Dealers to the Auction Agent for the close of business
         on the Business Day immediately preceding such date (rounded to the
         next highest one-thousandth (0.001) of 1%). If any Commercial Paper
         Dealer does not quote a rate required to determine the "AA Financial
         Composite Commercial Paper Rate", such rate shall be determined on the
         basis of the quotations (or quotation) furnished by the remaining
         Commercial Paper Dealers (or Dealer), if any, or, if there are no such
         Commercial Paper Dealers, by the Auction Agent.

         For purposes of this definition, (A) "Commercial Paper Dealers" shall
         mean (1) UBS Securities LLC; (2) in lieu of any thereof, its respective
         affiliate or successor; and (3) in the event that any of the foregoing
         shall cease to quote rates for commercial paper of issuers of the sort
         described above, in substitution therefor, a nationally recognized
         dealer in commercial paper of such issuers then making such quotations
         selected by the Trust, and (B) "Interest Equivalent" of a rate stated
         on a discount basis for commercial paper of a given number of days'
         maturity shall mean a number equal to the quotient (rounded upward to
         the next higher one-thousandth (0.001) of 1%) of (1) such rate
         expressed as a decimal, divided by (2) the difference between (x) 1.00
         and (y) a fraction, the numerator of which shall be the product of such
         rate expressed as a decimal, multiplied by the number of days in which
         such commercial paper shall mature and the denominator of which shall
         be 360.

         (b)      "Adviser" means the Trust's investment adviser, John Hancock
         Advisers, LLC.

         (c)      "Affected Series" has the meaning specified in Section
         8.7(b)(i).

         (d)      "Affiliate" means any Person known to the Auction Agent to be
         controlled by, in control of, or under common control with, the Trust.

         (e)      "Agent Member" means a member of, or participant in, the
         Securities Depository that will act on behalf of a Beneficial Owner of
         one or more APS or on behalf of a Potential Beneficial Owner.

         (f)      "Annual Valuation Date" means the last Business Day of each
         fiscal year of the Trust.

         (g)      "Applicable Percentage" means the percentage determined based
         on the credit rating assigned to the series of APS on such date by
         Moody's as follows:

<TABLE>
<CAPTION>
Moody's Credit Rating     Applicable Percentage
- ---------------------     ---------------------
<S>                       <C>
         Aaa                      125%
      Aa3 to Aa1                  150%
       A3 to A1                   200%
     Baa3 to Baa1                 250%
      Below Baa3                  300%
</TABLE>

         The Applicable Percentage as so determined shall be further subject to
         upward but not downward adjustment in the discretion of the Board of
         Trustees after consultation with

                                      -14-
<PAGE>

         the Broker-Dealers, provided that immediately following any such
         increase the Trust would be in compliance with the Preferred Shares
         Basic Maintenance Amount. The Trust shall take all reasonable action
         necessary to enable Moody's to provide a rating for each series of APS.
         If Moody's shall not make such a rating available, the Trust shall
         select another Rating Agency to act as a Substitute Rating Agency.
         Notwithstanding the foregoing, the Trust shall not be required to have
         more than one Rating Agency provide a rating for any series of the APS.

         (h)      "Applicable Rate" means the rate per annum at which cash
         dividends are payable on a series of APS for any Dividend Period.

         (i)      "APS" means the Series A APS and the Series B APS.

         (j)      "Auction" means a periodic operation of the Auction
         Procedures.

         (k)      "Auction Agent" means Deutsche Bank Trust Company Americas
         unless and until another commercial bank, trust company or other
         financial institution appointed by a resolution of the Board of
         Trustees or a duly authorized committee thereof enters into an
         agreement with the Trust to follow the Auction Procedures for the
         purpose of determining the Applicable Rate and to act as transfer
         agent, registrar, dividend disbursing agent and redemption agent for
         the APS.

         (l)      "Auction Date" with respect to any series of APS and any Rate
         Period means the Business Day immediately preceding the first day of
         such Rate Period.

         (m)      "Auction Procedures" means the procedures set forth in Section
         8.9.

         (n)      "Auditor's Confirmation" has the meaning specified in Section
         8.3(d).

         (o)      "Available APS" has the meaning specified in Section
         8.9(c)(i)(A).

         (p)      "Beneficial Owner" means a customer of a Broker-Dealer who is
         listed on the records of that Broker-Dealer (or, if applicable, the
         Auction Agent) as a holder of APS or a Broker-Dealer that holds APS for
         its own account.

         (q)      "Bid" and "Bids" have the respective meanings specified in
         Section 8.9(a)(i)(C).

         (r)      "Bidder" and "Bidders" have the respective meanings specified
         in Section 8.9(a)(i)(C); provided, however, that neither the Trust nor
         any affiliate thereof shall be permitted to be a Bidder in an Auction,
         except that any Broker-Dealer that is an affiliate of the Trust may be
         a Bidder in an Auction, but only if the Orders placed by such
         Broker-Dealer are not for its own account.

         (s)      "Board of Trustees" means the Board of Trustees of the Trust.

         (t)      "Broker-Dealer" means any broker-dealer, or other entity
         permitted by law to perform the functions required of a Broker-Dealer
         in Section 8.9, that has been selected

                                      -15-
<PAGE>

         by the Trust and has entered into a Broker-Dealer Agreement with the
         Auction Agent that remains effective.

         (u)      "Broker-Dealer Agreement" means an agreement between the
         Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
         agrees to follow the procedures specified in Section 8.9.

         (v)      "Business Day" means a day on which the New York Stock
         Exchange is open for trading and which is not a Saturday, Sunday or
         other day on which commercial banks in The City of New York are
         required or authorized by law to close.

         (w)      "Closing Transactions" has the meaning set forth in Section
         8.8(b)(iv)(A).

         (x)      "Code" means the Internal Revenue Code of 1986, as amended
         from time to time. Each reference herein to a section of the Code shall
         be deemed to include the United States Treasury Regulations in effect
         thereunder and applicable to the APS or the use of proceeds thereof,
         and also includes all applicable amendments or successor provisions
         unless the context requires otherwise.

         (y)      "Commercial Paper Dealers" has the meaning set forth in the
         definition of " `AA' Financial Composite Commercial Paper Rate."

         (z)      "Common Shares" means the shares of beneficial interest
         designated as common shares, no par value, of the Trust.

         (aa)     "Cure Date" means the Preferred Shares Basic Maintenance Cure
         Date or the Investment Company Act Cure Date.

         (bb)     "Date of Original Issue" means, with respect any series of
         APS, the date on which the Trust first issues such share.

         (cc)     "Deposit Securities" means cash and portfolio securities rated
         at least A2 (having a remaining maturity of 12 months or less), P-1,
         VMIG-1 or MIG-1 by Moody's or A (having a remaining maturity of 12
         months or less), A-1+ or SP-1+ by S&P.

         (dd)     "Discount Factor" means a "Moody's Discount Factor."

         (ee)     "Discounted Value" of any asset of the Trust means, with
         respect to a Moody's Eligible Asset, the quotient of the Market Value
         thereof divided by the applicable Moody's Discount Factor.

         (ff)     "Dividend Payment Date" means, with respect to APS, any date
         on which dividends are payable for shares of such series pursuant to
         Section 8.4(a)(iv).

         (gg)     "Dividend Period" means, with respect to the APS, the period
         from and including the Date of Original Issue to but excluding the
         Initial Dividend Payment Date for such shares and any period thereafter
         from and including one Dividend Payment Date for such shares to but
         excluding the next succeeding Dividend Payment Date for such shares.

                                      -16-
<PAGE>

         (hh)     "Eligible Asset" means Moody's Eligible Asset (if Moody's is
         then rating the APS) and/or any asset included in the calculations used
         by any Rating Agency then rating the APS for purposes of determining
         such Rating Agency's rating on the APS, as applicable.

         (ii)     "Existing Holder" means a Broker-Dealer, or any such other
         Person that may be permitted by the Trust, that is listed as the holder
         of record of APS in the Share Books.

         (jj)     "Exposure Period" on a Valuation Date means the period
         commencing on such date and ending 42 days thereafter, as such exposure
         period may be modified by resolution of the Board of Trustees and
         without amending the By-Laws of the Trust; provided, however, that the
         Trust shall have received confirmation in writing from the Rating
         Agency that any such modification shall not adversely affect such
         Rating Agency's then-current rating of the APS.

         (kk)     "Failure to Deposit," means, with respect to shares of a
         series of APS, a failure by the Trust to pay to the Auction Agent, not
         later than 12:00 noon, New York City time, (A) on the Business Day
         immediately preceding any Dividend Payment Date for shares of such
         series, in funds available on such Dividend Payment Date in the City of
         New York, New York, the full amount of any dividend (whether or not
         earned or declared) to be paid on such Dividend Payment Date on any
         share of such series or (B) on the Business Day immediately preceding
         any redemption date in funds available on such redemption date for
         shares of such series in the City of New York, New York, the Redemption
         Price to be paid on such redemption date for any share of such series
         after Notice of Redemption is mailed pursuant to Section 8.6; provided,
         however, that the foregoing clause (B) shall not apply to the Trust's
         failure to pay the Redemption Price with respect to APS when the
         related Notice of Redemption provides that redemption of such shares is
         subject to one or more conditions precedent and any such condition
         precedent shall not have been satisfied at the time or times and in the
         manner specified in such Notice of Redemption.

         (ll)     "Holder" means an individual or entity in whose name an
         outstanding Share of the APS is registered on the Share Books.

         (mm)     "Hold Order" and "Hold Orders" have the respective meanings
         specified in Section 8.9(a)(i)(C).

         (nn)     "Independent Accountant" means a nationally recognized
         accounting firm that is, with respect to the Trust, an independent
         certified public accountant under the Securities Act of 1933, as
         amended, and serving as such for the Trust.

         (oo)     "Initial Rate Period" with respect to shares of a series of
         APS, means the period from the Date of Initial Issuance to and
         including the day immediately prior to the Dividend Payment Date for
         the Initial Rate Period specified with respect to shares of such series
         in Section 8.4(a).

         (pp)     "Investment Company Act" means the Investment Company Act of
         1940, as amended from time to time.

                                      -17-
<PAGE>

         (qq)     "Investment Company Act Cure Date," with respect to the
         failure by the Trust to maintain the Investment Company Act Preferred
         Share Asset Coverage (as required by Section 8.3(a) as of the last
         Business Day of each month, means the last Business Day of the
         following month.

         (rr)     "Investment Company Act Preferred Share Asset Coverage" means
         asset coverage, as defined in Section 18(h) of the Investment Company
         Act, of at least 200% with respect to all outstanding senior securities
         of the Trust which are shares of beneficial interest including all
         outstanding APS (or such other asset coverage as may in the future be
         specified in or under the Investment Company Act as the minimum asset
         coverage for senior securities which are shares or stock of a
         closed-end investment company as a condition of declaring dividends on
         its common shares or stock).

         (ss)     "Late Charge" has the meaning specified in Section
         8.4(b)(ii)(B).

         (tt)     "Liens" means any material lien, mortgage, pledge, security
         interest or security agreement of any kind.

         (uu)     "Long Term Dividend Period" means a Special Dividend Period
         consisting of a specific period of one whole year or more but not
         greater than five years.

         (vv)     "Market Value" means the price determined by a pricing service
         acceptable to the Rating Agency and which (i) with respect to an
         investment which is listed on an exchange or traded over-the-counter
         and quoted on the NASDAQ System, the last sale price on the day of
         valuation (using prices as of the close of trading) or, if there has
         been no sale that day, the last bid price reported on the day of
         valuation or, if not a Business Day, the last bid price reported as of
         the close of business on the preceding Business Day, (ii) with respect
         to an investment which is not listed on an exchange or quoted on the
         NASDAQ System, either (A) the market value thereof determined by a
         Pricing Service or (B) the lower of the bid prices, as of the close of
         business on the Business Day immediately preceding the date of
         determination, quoted (at least one of such quotes being in writing) to
         the Trust by two or more members of the National Association of
         Securities Dealers, Inc. making a market in such investment at the
         time. By resolution of the Board of Trustees and without amending the
         By-Laws of the Trust, the calculation of Market Values may be made on
         bases other than those set forth above if the Rating Agency has advised
         the Trust in writing that the revised method of calculation of Market
         Values would not adversely affect its then-current rating of the
         Preferred Shares, provided that the Trust shall cause to be made
         available a written statement setting forth such revised method for
         inspection by the Holders at the principal executive office of the
         Trust.

         (ww)     "Maximum Applicable Rate" means, with respect to APS for any
         Dividend Period, the Applicable Percentage of the Reference Rate. The
         Auction Agent will round each applicable Maximum Applicable Rate to the
         nearest one-thousandth (0.001) of one percent per annum, with any such
         number ending in five ten-thousandths of one percent being rounded
         upwards to the nearest one-thousandth (0.001) of one percent.

                                      -18-
<PAGE>

         (xx)     "Minimum Rate Period" means a period of seven (7) Rate Period
         days.

         (yy)     "Moody's" means Moody's Investors Service, Inc. or any
         successor thereto.

         (zz)     "Moody's Discount Factor" means, for purposes of determining
         the Discounted Value of any Moody's Eligible Asset, the percentage
         determined as follows:

                  (i)      Preferred Stock with cumulative dividends: The
                  Moody's Discount Factor for preferred stock shall be: Aaa
                  150%, Aa 155%, A 160%, Baa 165%, Ba 196%, B 216%, < B and Not
                  Rated 250%, for auction rate preferred stocks 350%. For
                  investment grade DRD preferreds 165%, and non-investment grade
                  DRD preferreds 216%. Preferred securities that have a 144A
                  classification, the discount factor will be multiplied 120%
                  for purposes of calculating the Discounted Value.

                  (ii)     Corporate Debt Securities: The percentage determined
                  by reference to the rating on such asset with reference to the
                  remaining term to maturity of such asset, in accordance with
                  the table set forth below.

                             MOODY'S RATING CATEGORY

<TABLE>
<CAPTION>
TERMS TO MATURITY OF CORPORATE                                                                     BELOW B AND
         DEBT SECURITY (1)               Aaa         Aa       A       Baa         Ba      B        UNRATED (2)
- -----------------------------------      ----       ----     ----     ----       ----    ----      -----------
<S>                                      <C>        <C>      <C>      <C>        <C>     <C>       <C>
1 year or less.....................      109%       112%     115%     118%       137%    150%         250%

2 years or less (but longer than 1
year)..............................      115        118      122      125        146     160          250

3 years or less (but longer than 2
years).............................      120        123      127      131        153     168          250

4 years or less (but longer than 3
years).............................      126        129      133      138        161     176          250

5 years or less (but longer than 4
years).............................      132        135      139      144        168     185          250

7 years or less (but longer than 5
years).............................      139        143      147      152        179     197          250

10 years or less (but longer than
7 years)...........................      145        150      155      160        189     208          250

15 years or less (but longer than
10 years)..........................      150        155      160      165        196     216          250

20 years or less (but longer than
15 years)..........................      150        155      160      165        196     228          250

30 years or less (but longer than
20 years)..........................      150        155      160      165        196     229          250
</TABLE>

                                      -19-
<PAGE>

<TABLE>
<S>                                      <C>        <C>      <C>      <C>        <C>     <C>          <C>
Greater than 30 years..............      165        173      181      189        205     240          250
</TABLE>

- ---------------------------------------
(1)     The Moody's Discount Factor for debt securities shall also be applied to
        any interest rate swap or cap, in which case the rating of the
        counterparty shall determine the appropriate rating category.

(2)     Unless conclusions regarding liquidity risk as well as estimates of both
        the probability and severity of default for the corporation's assets can
        be derived from other sources as well as combined with a number of
        sources as present by the corporation to Moody's, securities rated below
        B by Moody's and unrated securities, which are securities rated by
        neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible
        Assets. If a corporate debt security is unrated by Moody's, S&P or
        Fitch, the Trust will use the percentage set forth under "Below B and
        Unrated" in the corporate debt table above. Ratings assigned by S&P or
        Fitch are generally accepted by Moody's at face value. However,
        adjustments to face value may be made to particular categories of
        credits for which the S&P and/or Fitch rating does not seem to
        approximate a Moody's rating equivalent. Split rated securities assigned
        by S&P and Fitch will be accepted at the lower of the two ratings.

                  For corporate debt securities that do not pay interest in U.S.
                  dollars, the Trust will contact Moody's to obtain the
                  applicable currency conversion rate.

                  (iii)    U.S. Government Securities and U.S. Treasury Strips:

<TABLE>
<CAPTION>
                                                  U.S. GOVERNMENT AND
                                                   AGENCY SECURITIES         U.S. TREASURY STRIPS
          REMAINING TERM TO MATURITY                DISCOUNT FACTOR             DISCOUNT FACTOR
- --------------------------------------------     --------------------        --------------------
<S>                                              <C>                         <C>
1 year or less...............................              107%                     107%
2 years or less (but longer than 1 year).....              113                      115
3 years or less (but longer than 2 years)....              118                      121
4 years or less (but longer than 3 years)....              123                      128
5 years or less (but longer than 4 years)....              128                      135
7 years or less (but longer than 5 years)....              135                      147
10 years or less (but longer than 7 years)...              141                      163
15 years or less (but longer than 10 years)..              146                      191
20 years or less (but longer than 15 years)..              154                      218
30 years or less (but longer than 20 years)..              154                      244
</TABLE>

                  (iv) Short-Term Instruments and Cash: The Moody's Discount
                  Factor applied to short-term portfolio securities, including
                  without limitation short-term corporate debt securities, Short
                  Term Money Market Instruments and short-term municipal debt
                  obligations, will be (A) 100%, so long as such portfolio
                  securities mature or have a demand feature at par exercisable
                  within the Moody's Exposure Period; (B) 115%, so long as such
                  portfolio securities do not mature within the Moody's Exposure
                  Period or have a demand feature at par not exercisable within
                  the Moody's Exposure Period; and (C) 125%, if such securities
                  are not rated by Moody's, so long as such portfolio securities
                  are rated at least A-1+/AA or SP-1+/AA by S&P and mature or
                  have a demand feature at par exercisable within the Moody's
                  Exposure Period. A Moody's Discount Factor of 100% will be
                  applied to cash. Moody's rated 2a-7 money market funds will
                  also have a Discount Factor of 100%.

                  (v) Rule 144A Securities: The Moody's Discount Factor applied
                  to Rule 144A Securities for Rule 144A Securities whose terms
                  include rights to registration under the Securities Act within
                  one year and Rule 144A Securities

                                      -20-
<PAGE>

                  which do not have registration rights within one year will be
                  120% and 130%, respectively, of the Moody's Discount Factor
                  which would apply were the securities registered under the
                  Securities Act.

                  (vi)     Convertible Securities (including Convertible
                  Preferred Securities):

<TABLE>
<CAPTION>
Moody's Rating            Utility   Industrial   Financial    Transportation
- ----------------------------------------------------------------------------
<S>                       <C>       <C>          <C>          <C>
Aaa                        162%        256%         233%           250%
Aa                         167%        261%         238%           265%
A                          172%        266%         243%           275%
Baa                        188%        282%         259%           285%
Ba                         195%        290%         265%           290%
B                          199%        293%         270%           295%
Below B and Unrated (1)    300%        300%         300%           300%
</TABLE>

- ---------------------------------------
(1)     Unless conclusions regarding liquidity risk as well as estimates of both
        the probability and severity of default for the corporation's assets can
        be derived from other sources as well as combined with a number of
        sources as present by the corporation to Moody's, securities rated below
        B by Moody's and unrated securities, which are securities rated by
        neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible
        Assets. If a corporate debt security is unrated by Moody's, S&P or
        Fitch, the Trust will use the percentage set forth under "Below B and
        Unrated" in this table. Ratings assigned by S&P or Fitch are generally
        accepted by Moody's at face value. However, adjustments to face value
        may be made to particular categories of credits for which the S&P and/or
        Fitch rating does not seem to approximate a Moody's rating equivalent.
        Split rated securities assigned by S&P and Fitch will be accepted at the
        lower of the two ratings.

                  (vii)    Common Stock: The following Discount Factors will be
                  applied to the Common Stock holdings:

<TABLE>
<CAPTION>
Common Stocks             Utility   Industrial   Financial
- -------------             -------   ----------   ---------
<S>                       <C>       <C>          <C>
7 week exposure period      170%       264%         241%
</TABLE>

                  (viii)   Common Stock and Preferred Stock of REITs and Other
                  Real Estate Companies:

<TABLE>
<CAPTION>
                                                        Moody's Discount Factor (1)(2)(3)
                                                        ---------------------------------
<S>                                                     <C>
Common Stock of REITs                                                  154%

Preferred Stock of REITs
     with senior implied Moody's (or S&P) rating:                      154%
     without senior implied Moody's (or S&P) rating:                   208%
- -----------------------------------------------------------------------------------------

Preferred Stock of other real estate companies
     with senior implied Moody's (or S&P) rating:                      208%
     without senior implied Moody's (or S&P) rating:                   250%
</TABLE>

- ---------------------------------------
(1)      A Moody's Discount Factor of 250% will be applied to those assets in a
         single Moody's real estate industry / property sector classification
         which exceed 30% of Moody's Eligible Assets but are not greater than
         35% of Moody's Eligible Assets.

(2)      A Moody's Discount Factor of 250% will be applied if dividends on such
         securities have not been paid consistently (either quarterly or
         annually) over the previous three years, or for such shorter time
         period that such securities have been outstanding.

                                      -21-
<PAGE>

(3)      A Moody's Discount Factor of 250% will be applied if the market
         capitalization (including common stock and preferred stock) of an
         issuer is below $500 million.

                  (ix)     Debt Securities of REITs and Other Real Estate
                  Companies:

<TABLE>
<CAPTION>
                                                                          Moody's Rating
                                             ---------------------------------------------------------------------
                                                                                                       Below B
                                                                                                         and
            Term to maturity                 Aaa       Aa         A        Baa      Ba         B      Unrated(1)
- ------------------------------------------------------------------------------------------------------------------
<S>                                          <C>       <C>       <C>       <C>      <C>       <C>     <C>
1 year or less                               109%      112%      115%      118%     137%      150%       250%
- ------------------------------------------------------------------------------------------------------------------
2 years or less (but longer than 1 year)     115       118       122       125      146       160        250
- ------------------------------------------------------------------------------------------------------------------
3 years or less (but longer than 2 years)    120       123       127       131      153       168        250
- ------------------------------------------------------------------------------------------------------------------
4 years or less (but longer than 3 years)    126       129       133       138      161       176        250
- ------------------------------------------------------------------------------------------------------------------
5 years or less (but longer than 4 years)    132       135       139       144      168       185        250
- ------------------------------------------------------------------------------------------------------------------
7 years or less (but longer than 5 years)    139       143       147       152      179       197        250
- ------------------------------------------------------------------------------------------------------------------
10 years or less (but longer than 7 years)   145       150       155       160      189       208        250
- ------------------------------------------------------------------------------------------------------------------
15 years or less (but longer than 10 years)  150       155       160       165      196       216        250
- ------------------------------------------------------------------------------------------------------------------
20 years or less (but longer than 15 years)  150       155       160       165      196       228        250
- ------------------------------------------------------------------------------------------------------------------
30 years or less (but longer than 20 years)  150       155       160       165      196       229        250
- ------------------------------------------------------------------------------------------------------------------
Greater than 30 years                        165       173       181       189      205       240        250
</TABLE>

- ---------------------------------------

(1)     Unless conclusions regarding liquidity risk as well as estimates of both
        the probability and severity of default for a corporation's assets can
        be derived from other sources, securities rated below B by Moody's and
        unrated securities, which are securities rated by neither Moody's, S&P
        nor Fitch, are limited to 10% of Moody's Eligible Assets. If a
        corporate, municipal or other debt security is unrated by Moody's, S&P
        or Fitch, the Trust will use the percentage set forth under "Below B and
        Unrated" in this table. Ratings assigned by S&P or Fitch are generally
        accepted by Moody's at face value. However, adjustments to face value
        may be made to particular categories of credits for which the S&P and/or
        Fitch rating does not seem to approximate a Moody's rating equivalent.
        Split rated securities assigned by S&P and Fitch will be accepted at the
        lower of the two ratings.

                  (x)      Bank Loans: The Moody's Discount Factor applied to
                           bank loans means Senior Loans(1) with outstanding
                           amounts greater than $250 million(2).

<TABLE>
<CAPTION>
Split Baa and Ba     Split Ba, B, and Split B     Caa and Split Caa
                                                  incl. Distressed
- ----------------     ------------------------     -----------------
<S>                 <C>                          <C>
         136%                   149%                     250%

</TABLE>

(1)  Non-senior Loans to be discounted using the above factors plus 10%.

(2)  Loans with outstandings less than $250 million accorded discounts above
     plus incremental discounts of 20%.

                                      -22-
<PAGE>

                  (xi)     Asset-Backed and Mortgage-Backed Securities: The
                  Moody's Discount Factor applied to asset-backed securities
                  shall be 131%. The Moody's Discount Factor applied to
                  collateralized mortgage obligations, planned amortization
                  class bonds and targeted amortization class bonds shall be
                  determined by reference to the weighted average life of the
                  security in accordance with the table set forth below.

<TABLE>
<CAPTION>
        Remaining Term to Maturity             Moody's Discount Factor
        --------------------------             -----------------------
<S>                                            <C>
3 years or less                                         133 %
7 years or less (but longer than 3 years)               142
10 years or less (but longer than 7 years)              158
20 years or less (but longer than 10 years)             174
</TABLE>

                  The Moody's Discount Factor applied to residential mortgage
                  pass-throughs (including private-placement mortgage
                  pass-throughs) shall be determined by reference to the coupon
                  paid by such security in accordance with the table set forth
                  below.
<TABLE>
<CAPTION>
  Coupon              Moody's Discount Factor
  ------              -----------------------
<S>                   <C>
    5%                            166 %
    6%                            162
    7%                            158
    8%                            154
    9%                            151
   10%                            148
   11%                            144
   12%                            142
   13%                            139
adjustable                        165
</TABLE>

                  The Moody's Discount Factor applied to fixed-rate pass-through
                  that are not rated by Moody's and are serviced by a servicer
                  approved by Moody's shall be determined by reference to the
                  table in the following paragraph (relating to whole loans).

                  The Moody's Discount Factor applied to whole loans shall be
                  determined by reference to the coupon paid by such security in
                  accordance with the table set forth below.

<TABLE>
<CAPTION>
Coupon              Moody's Discount Factor
- ------              -----------------------
<S>                 <C>
  5%                          172 %
  6%                          167
  7%                          163
  8%                          159
  9%                          155
</TABLE>

                                      -23-
<PAGE>

<TABLE>
<S>               <C>
    10%           151
    11%           148
    12%           145
    13%           142
adjustable        170
</TABLE>

                  (xii)    Municipal debt obligations: The Moody's Discount
                  Factor applied to municipal debt obligations shall be the
                  percentage determined by reference to the rating on such asset
                  and the shortest Exposure Period set forth opposite such
                  rating that is the same length as or is longer than the
                  Moody's Exposure Period, in accordance with the table set
                  forth below:

<TABLE>
<CAPTION>
Exposure Period                Aaa      Aa        A       Baa     MIG-1 (1)     MIG-1 (2)    Unrated (3)
- ---------------                ---      ---      ---      ---     ---------     ---------    -----------
<S>                            <C>      <C>      <C>      <C>     <C>           <C>          <C>
7 weeks                        151%     159%     160%     173%      135%          148%           225%

8 weeks or less (but greater   154      161      168      176       137           149            231
than seven weeks)

9 weeks or less (but greater   158      163      170      177       138           150            240
than eight weeks)
</TABLE>

- ---------------------------------------
(1)      Municipal debt obligations not rated by Moody's but rated equivalent to
         MIG-1, VMIG-1 or P-1 by S& P and Fitch that have a maturity less than
         or equal to 49 days.

(2)      Municipal debt obligations not rated by Moody's but rated equivalent to
         MIG-1, VMIG-1 or P-1 by S&P and Fitch that have a maturity greater than
         49 days.

(3)      Unless conclusions regarding liquidity risk as well as estimates of
         both the probability and severity of default for the municipal issuer's
         assets can be derived from other sources as well as combined with a
         number of sources as presented by the Trust to Moody's securities rated
         below Baa by Moody's and unrated securities, which are securities rated
         by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's
         Eligible Assets. If a municipal debt security is unrated by Moody's,
         S&P or Fitch, the Trust will use the percentage set forth under
         "Unrated" in this table. Ratings assigned by S&P or Fitch are generally
         accepted by Moody's at face value. However, adjustments to face value
         may be made to particular categories of credits for which the S&P
         and/or Fitch rating does not seem to approximate a Moody's rating
         equivalent. Split rated securities assigned by S&P and Fitch will be
         accepted at the lower of the two ratings.

         By resolution of the Board of Trustees and without amending the By-Laws
of the Trust or otherwise submitting such resolution for Shareholder approval,
(i) the Moody's Discount Factors may be changed from those set forth above and
(ii) additional Moody's Discount Factors may be established for other Eligible
Assets if, in each case, the Rating Agency has advised the Trust in writing that
such change or addition would not adversely affect its then-current rating of
the Auction Preferred Shares, provided that the Trust shall cause to be made
available a written statement setting forth the Moody's Discount Factors, as
changed or as supplemented, for inspection by the Holders at the principal
executive office of the Trust.

         (aaa)    "Moody's Eligible Assets" means:

                  (i)      Cash (including interest and dividends due on assets
                  rated (A) Baa3 or higher by Moody's if the payment date is
                  within five Business Days of the Valuation Date, (B) A2 or
                  higher if the payment date is within thirty days of the

                                      -24-
<PAGE>

                  Valuation Date, and (C) A1 or higher if the payment date is
                  within Moody's Exposure Period) and receivables for Moody's
                  Eligible Assets sold if the receivable is due within five
                  Business Days of the Valuation Date, and if the trades which
                  generated such receivables are (A) settled through clearing
                  house firms with respect to which the Trust has received prior
                  written authorization from Moody's or (B) (1) with
                  counterparties having Moody's long-term debt rating of at
                  least Baa3 or (2) with counterparties having Moody's Short
                  Term Money Market Instrument rating of at least P-1;

                  (ii)     Short Term Money Market Instruments, so long as (A)
                  such securities are rated at least P-1, (B) in the case of
                  demand deposits, time deposits and overnight funds, the
                  supporting entity is rated at least A2, or (C) in all other
                  cases, the supporting entity (1) is rated A2 and the security
                  matures within one month, (2) is rated A1 and the security
                  matures within three months or (3) is rated at least Aa3 and
                  the security matures within six months. In addition, Moody's
                  rated 2a-7 money market funds are also eligible investments.

                  (iii)    U.S. Government Securities and U.S. Treasury Strips;

                  (iv)     Rule 144A Securities;

                  (v)      Senior Loans and other bank loans approved by
                  Moody's;


                                      -25-
<PAGE>
                  (vi)     Preferred stocks if (A) dividends on such preferred
                  stock are cumulative, (B) such securities provide for the
                  periodic payment of dividends thereon in cash in U.S. dollars
                  or euros and do not provide for conversion or exchange into,
                  or have warrants attached entitling the holder to receive,
                  equity capital at any time over the respective lives of such
                  securities, (C) the issuer of such a preferred stock has
                  common stock listed on either the New York Stock Exchange or
                  the American Stock Exchange, (D) the issuer of such a
                  preferred stock has a senior debt rating from Moody's of Baa1
                  or higher or a preferred stock rating from Moody's of Baa3 or
                  higher and (E) such preferred stock has paid consistent cash
                  dividends in U.S. dollars or euros over the last three years
                  or has a minimum rating of A1 (if the issuer of such preferred
                  stock has other preferred issues outstanding that have been
                  paying dividends consistently for the last three years, then a
                  preferred stock without such a dividend history would also be
                  eligible). In addition, the preferred stocks must have the
                  following diversification requirements: (X) the preferred
                  stock issue must be greater than $50 million and (Y) the
                  minimum holding by the Trust of each issue of preferred stock
                  is $500,000 and the maximum holding of preferred stock of each
                  issue is $5 million. In addition, preferred stocks issued by
                  transportation companies will not be considered Moody's
                  Eligible Assets.

                  (vii)    Common stocks (i) which (A) are traded on a
                  nationally recognized stock exchange or in the
                  over-the-counter market, (B) if cash dividend paying, pay cash
                  dividends in US dollars and (C) may be sold without
                  restriction by the corporation; provided, however, that (y)
                  common stock which, while a Moody's Eligible Asset owned by
                  the Trust, ceases paying any regular cash dividend will no
                  longer be considered a Moody's Eligible Asset until 71 days
                  after the date of the announcement of such cessation, unless
                  the issuer of the common stock has senior debt securities
                  rated at least A3 by Moody's and (z) the aggregate Market
                  Value of the Trust's holdings of the common stock of any
                  issuer in excess of 4% in the case of utility common stock and
                  6% in the case of non-utility common stock of the aggregate
                  Market Value of the Trust's holdings shall not be Moody's
                  Eligible Assets, (ii) which are securities denominated in any
                  currency other than the US dollar or securities of issuers
                  formed under the laws of jurisdictions other than the United
                  States, its states and the District of Columbia for which
                  there are dollar-denominated American Depository Receipts
                  ("ADRs") or their equivalents which are traded in the United
                  States on exchanges or over-the-counter and are issued ---- by
                  banks formed under the laws of the United States, its states
                  or the District of Columbia or (iii) which are securities of
                  issuers formed under the laws of jurisdictions other than the
                  United States (and in existence for at least five years) for
                  which no ADRs are traded; provided, however, that the
                  aggregate

                                      -26-
<PAGE>

                  Market Value of the Trust's holdings of securities denominated
                  in currencies other than the US dollar and ADRs in excess of
                  (A) 6% of the aggregate Market Value of the Outstanding shares
                  of common stock of such issuer thereof or (B) 10% of the
                  Market Value of the Trust's Moody's Eligible Assets with
                  respect to issuers formed under the laws of any single such
                  non-U.S. jurisdiction other than Australia, Belgium, Canada,
                  Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
                  Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland
                  and the United Kingdom, shall not be a Moody's Eligible Asset;

                  (viii)   Asset-backed and mortgage-backed securities:

                  (A) Asset-backed securities if (1) such securities are rated
              at least Aa3 by Moody's or at least AA- by S&P or Fitch, (2) the
              securities are part of an issue that is $250 million or greater,
              or the issuer of such securities has a total of $500 million or
              greater of asset-backed securities outstanding at the time of
              purchase of the securities by the Trust and (3) the expected
              average life of the securities is not greater than 4 years;

                  (B) Collateralized mortgage obligations ("CMOs"), including
              CMOs with interest rates that float at a multiple of the change in
              the underlying index according to a pre-set formula, provided that
              any CMO held by the Trust (1) has been rated Aaa by Moody's or AAA
              by S&P or Fitch, (2) does not have a coupon which floats
              inversely, (3) is not portioned as an interest-only or
              principal-only strip and (4) is part of an issuance that had an
              original issue size of at least $100 million;

                  (C) Planned amortization class bonds ("PACs") and targeted
              amortization class bonds ("TACs") provided that such PACs or TACs
              are (1) backed by certificates of either the Federal National
              Mortgage Association ("FNMA"), the Government National Mortgage
              Association ("GNMA") or the Federal Home Loan Mortgage Corporation
              ("FHLMC") representing ownership in single-family first lien
              mortgage loans with original terms of 30 years, (2) part of an
              issuance that had an original issue size of at least $10 million,
              (3) part of PAC or TAC classes that have payment priority over
              other PAC or TAC classes, (4) if TACs, TACs that do not support
              PAC classes, and (5) if TACs, not considered reverse TACs (i.e.,
              do not protect against extension risk);

                  (D) Consolidated senior debt obligations of Federal Home Loan
              Banks ("FHLBs"), senior long-term debt of the FNMA, and
              consolidated systemwide bonds and FCS Financial Assistance
              Corporation Bonds of Federal Farm Credit Banks ("FFCBs")
              (collectively, "FHLB, FNMA and FFCB Debentures"), provided that
              such FHLB, FNMA and FFCB Debentures are (1) direct issuance
              corporate debt rated Aaa by Moody's, (2) senior debt obligations
              backed by the FHLBs, FFCBs or FNMA, (3) part of an issue entirely
              denominated in U.S. dollars and (4) not callable or exchangeable
              debt issues;

                  (E) Mortgage pass-throughs rated at least Aa by Moody's and
              pass-throughs issued prior to 1987 (if rated AA by S&P and based
              on fixed-rate mortgage loans) by

                                      -27-
<PAGE>

              Travelers Mortgage Services, Citicorp Homeowners, Citibank, N.A.,
              Sears Mortgage Security or RFC - Salomon Brothers Mortgage
              Securities, Inc., provided that (1) certificates must evidence a
              proportional, undivided interest in specified pools of fixed or
              adjustable rate mortgage loans, secured by a valid first lien, on
              one- to four-family residential properties and (2) the securities
              are publicly registered (not issued by FNMA, GNMA or FHLMC);

                  (F) Private-placement mortgage pass-throughs provided that (1)
              certificates represent a proportional undivided interest in
              specified pools of fixed-rate mortgage loans, secured by a valid
              first lien, on one- to four-family residential properties, (2)
              documentation is held by a trustee or independent custodian, (3)
              pools of mortgage loans are serviced by servicers that have been
              approved by FNMA or FHLMC and funds shall be advanced to meet
              deficiencies to the extent provided in the pooling and servicing
              agreements creating such certificates, and (4) pools have been
              rated Aa or better by Moody's; and

                  (G) Whole loans (e.g., direct investments in mortgages)
              provided that (1) at least 65% of such loans (a) have seasoning of
              no less than 6 months, (b) are secured by single-family detached
              residences, (c) are owner-occupied primary residences, (d) are
              secured by a first-lien, fully-documented mortgage, (e) are
              neither currently delinquent (30 days or more) nor delinquent
              during the preceding year, (f) have loan-to-value ratios of 80% or
              below, (g) carry normal hazard insurance and title insurance, as
              well as special hazard insurance, if applicable, (h) have original
              terms to maturity not greater than 30 years, with at least one
              year remaining to maturity, (i) have a minimum of $10,000
              remaining principal balance, (j) for loans underwritten after
              January 1, 1978, FNMA and/or FHLMC forms are used for fixed-rate
              loans, and (k) such loans are whole loans and not participations;
              (2) for loans that do not satisfy the requirements set forth in
              the foregoing clause (1), (a) non-owner occupied properties
              represent no greater than 15% of the aggregate of either the
              adjustable-rate pool or the fixed-rate pool, (b) multi-family
              properties (those with five or more units) represent no greater
              than 15% of the aggregate of either the adjustable-rate pool or
              the fixed-rate pool, (c) condominiums represent no greater than
              10% of the aggregate of either the adjustable-rate pool or the
              fixed-rate pool, and any condominium project must be 80% occupied
              at the time the loan is originated, (d) properties with
              loan-to-value ratios exceeding 80% represent no greater than 25%
              of the aggregate of either the adjustable-rate pool or the
              fixed-rate pool and the portion of the mortgage on any such
              property that exceeds a loan-to-value ratio of 80% is insured with
              Primary Mortgage Insurance from an insurer rated at least Baa3 by
              Moody's and (e) loan balances in excess of the current FHLMC limit
              plus $75,000 represent no greater than 25% of the aggregate of
              either the adjustable-rate pool or the fixed-rate pool, loan
              balances in excess of $350,000 represent no greater than 10% of
              the aggregate of either the adjustable-rate pool or the fixed-rate
              pool, and loan balances in excess of $1,000,000 represent no
              greater than 5% of the aggregate of either the adjustable-rate
              pool or the fixed-rate pool; (3) no greater than 5% of the pool of
              loans is concentrated in any one zip code; (4) the pool of loans
              contains at least 100 loans or $2 million in loans per servicer;
              (5) for adjustable-rate mortgages ("ARMs"), (a) any ARM is indexed
              to the National Cost of Funds index, the 11th District Cost of
              Funds index,

                                      -28-
<PAGE>

              the 1-year Treasury or the 6-month Treasury, (b) the margin over
              the given index is between 0.15% and 0.25% for either
              cost-of-funds index and between 0.175% and 0.325% for Treasuries,
              (c) the maximum yearly interest rate increase is 2%, (d) the
              maximum life-time interest rate increase is 6.25% and (e) ARMs may
              include Federal Housing Administration and Department of Veterans
              Affairs loans; (6) for "teaser" loans, (a) the initial discount
              from the current ARM market rate is no greater than 2%, (b) the
              loan is underwritten at the market rate for ARMs, not the "teaser"
              rate, and (c) the loan is seasoned six months beyond the "teaser"
              period.

                  (ix)     Any municipal debt obligation that (A) pays interest
                  in cash, (B) does not have a Moody's rating, as applicable,
                  suspended by Moody's, and (C) is part of an issue of municipal
                  debt obligations of at least $5,000,000, except for municipal
                  debt obligations rated below A by Moody's, in which case the
                  minimum issue size is $10,000,000;

                  (x)      Structured Notes and rated TRACERs; and TRAINS;

                  (xi)     Financial contracts, as such term is defined in
                  Section 3(c)(2)(B)(ii) of the 1940 Act, not otherwise provided
                  for in this definition but only upon receipt by the Trust of a
                  letter from Moody's specifying any conditions on including
                  such financial contract in Moody's Eligible Assets and
                  assuring the Trust that including such financial contract in
                  the manner so specified would not affect the credit rating
                  assigned by Moody's to the APS.

         Additionally, in order to merit consideration as a Moody's Eligible
Asset, securities should be issued by entities which:

                  -        Have not filed for bankruptcy with the past year

                  -        Are current on all principle and interest in their
                           fixed income obligations

                  -        Are current on all preferred stock dividends

                  -        Possess a current, unqualified auditor's report
                           without qualified, explanatory language.

         The table below establishes maximum limits for inclusion of corporate
bonds and preferred stocks except convertibles and common stocks as Moody's
Eligible Assets prior to applying Moody's Discount Factors to eligible
securities:

<TABLE>
<CAPTION>
                 Maximum Single    Maximum Single    Minimum Issue Size
 Ratings (1)      Issuer (2,3)     Industry (3,4)    ($ in million) (5)
- -------------    --------------    --------------    ------------------
<S>              <C>               <C>               <C>
Aaa                  100 %              100 %            $100
Aa                    20                 60               100
A                     10                 40               100
Baa, Com. St.          6                 20               100
Ba                     4                 12                50 (6)
B1-B2                  3                  8                50 (6)
B3 or below            2                  5                50 (6)
</TABLE>

                                      -29-
<PAGE>

- ------------
(1) Refers to the preferred stock and senior debt rating of the portfolio
holding.

(2) Companies subject to common ownership of 25% or more are considered as one
issuer.

(3) Percentages represent a portion of the aggregate Market Value of the
portfolio.

(4) Industries are determined according to Moody's Industry Classifications, as
defined herein.

(5) Except for preferred stock, which has a minimum issue size of $50 million.

(6) Portfolio holdings from issues ranging from $50 million to $100 million and
are limited to 20% of the Trust's total assets.

         Where the Trust sells an asset and agrees to repurchase such asset in
the future, the Discounted Value of such asset will constitute a Moody's
Eligible Asset and the amount the Trust is required to pay upon repurchase of
such asset will count as a liability for the purposes of the Preferred Shares
Basic Maintenance Amount. Where the Trust purchases an asset and agrees to sell
it to a third party in the future, cash receivable by the Trust thereby will
constitute a Moody's Eligible Asset if the long-term debt of such other party is
rated at least A2 by Moody's and such agreement has a term of 30 days or less;
otherwise the Discounted Value of such purchased asset will constitute a Moody's
Eligible Asset. For the purposes of calculation of Moody's Eligible Assets,
portfolio securities which have been called for redemption by the issuer thereof
shall be valued at the lower of Market Value or the call price of such portfolio
securities.

         Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent that it (i) has been irrevocably deposited
for the payment of (i)(A) through (i)(E) under the definition of Preferred
Shares Basic Maintenance Amount or to the extent it is subject to any Liens,
except for (A) Liens which are being contested in good faith by appropriate
proceedings and which Moody's has indicated to the Trust will not affect the
status of such asset as a Moody's Eligible Asset, (B) Liens for taxes that are
not then due and payable or that can be paid thereafter without penalty, (C)
Liens to secure payment for services rendered or cash advanced to the Trust by
its investment manager or portfolio manager, the Trust's custodian, transfer
agent or registrar or the Auction Agent and (D) Liens arising by virtue of any
repurchase agreement, or (ii) has been segregated against obligations of the
Fund in connection with an outstanding derivative transaction.

         (bbb)    "Moody's Hedging Transactions" has the meaning set forth in
         Section 8.8.

         (ccc)    "Moody's Industry Classification" means, for the purposes of
         determining Moody's Eligible Assets, each of the following industry
         classifications (or such other classifications as Moody's may from time
         to time approve for application to the APS):

         1.       Aerospace and Defense: Major Contractor, Subsystems, Research,
                  Aircraft Manufacturing, Arms, Ammunition

         2.       Automobile: Automobile Equipment, Auto-Manufacturing, Auto
                  Parts Manufacturing, Personal Use Trailers, Motor Homes,
                  Dealers

         3.       Banking: Bank Holding, Savings and Loans, Consumer Credit,
                  Small Loan, Agency, Factoring, Receivables

                                      -30-
<PAGE>

         4.       Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines
                  and Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery,
                  Mill Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat
                  Products, Poultry Products, Snacks, Packaged Foods,
                  Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes,
                  Cigars, Leaf/Snuff, Vegetable Oil

         5.       Buildings and Real Estate: Brick, Cement, Climate Controls,
                  Contracting, Engineering, Construction, Hardware, Forest
                  Products (building-related only), Plumbing, Roofing,
                  Wallboard, Real Estate, Real Estate Development, REITs, Land
                  Development

         6.       Chemicals, Plastics and Rubber: Chemicals (non-agricultural),
                  Industrial Gases, Sulphur, Plastics, Plastic Products,
                  Abrasives, Coatings, Paints, Varnish, Fabricating Containers

         7.       Packaging and Glass: Glass, Fiberglass, Containers made of:
                  Glass, Metal, Paper, Plastic, Wood or Fiberglass

         8.       Personal and Non-Durable Consumer Products (Manufacturing
                  Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning
                  Supplies, School Supplies

         9.       Diversified/Conglomerate Manufacturing

         10.      Diversified/Conglomerate Service

         11.      Diversified Natural Resources, Precious Metals and Minerals:
                  Fabricating, Distribution

         12.      Ecological: Pollution Control, Waste Removal, Waste Treatment
                  and Waste Disposal

         13.      Electronics: Computer Hardware, Electric Equipment,
                  Components, Controllers, Motors, Household Appliances,
                  Information Service Communication Systems, Radios, TVs, Tape
                  Machines, Speakers, Printers, Drivers, Technology

         14.      Finance: Investment Brokerage, Leasing, Syndication,
                  Securities

         15.      Farming and Agriculture: Livestock, Grains, Produce,
                  Agriculture Chemicals, Agricultural Equipment, Fertilizers

         16.      Grocery: Grocery Stores, Convenience Food Stores

         17.      Healthcare, Education and Childcare: Ethical Drugs,
                  Proprietary Drugs, Research, Health Care Centers, Nursing
                  Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment

         18.      Home and Office Furnishings, Housewares, and Durable Consumer
                  Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges

         19.      Hotels, Motels, Inns and Gaming

         20.      Insurance: Life, Property and Casualty, Broker, Agent, Surety

         21.      Leisure, Amusement, Motion Pictures, Entertainment: Boating,
                  Bowling, Billiards, Musical Instruments, Fishing, Photo
                  Equipment, Records, Tapes, Sports, Outdoor Equipment
                  (Camping), Tourism, Resorts, Games, Toy Manufacturing, Motion
                  Picture Production Theaters, Motion Picture Distribution

         22.      Machinery (Non-Agricultural, Non-Construction,
                  Non-Electronic): Industrial, Machine Tools, Steam Generators

         23.      Mining, Steel, Iron and Non-Precious Metals: Coal, Copper,
                  Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated
                  Steel, Ore Production, Refractories, Steel Mill Machinery,
                  Mini-Mills, Fabricating, Distribution and Sales of the
                  foregoing

                                      -31-
<PAGE>

         24.      Oil and Gas: Crude Producer, Retailer, Well Supply, Service
                  and Drilling

         25.      Printing, Publishing, and Broadcasting: Graphic Arts, Paper,
                  Paper Products, Business Forms, Magazines, Books, Periodicals,
                  Newspapers, Textbooks, Radio, T.V., Cable Broadcasting
                  Equipment

         26.      Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders,
                  Ship Builders, Containers, Container Builders, Parts,
                  Overnight Mail, Trucking, Truck Manufacturing, Trailer
                  Manufacturing, Air Cargo, Transport

         27.      Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail
                  Order Catalog, Showroom

         28.      Telecommunications: Local, Long Distance, Independent,
                  Telephone, Telegraph, Satellite, Equipment, Research, Cellular

         29.      Textiles and Leather: Producer, Synthetic Fiber, Apparel
                  Manufacturer, Leather Shoes

         30.      Personal Transportation: Air, Bus, Rail, Car Rental

         31.      Utilities: Electric, Water, Hydro Power, Gas

         32.      Diversified Sovereigns: Semi-sovereigns, Canadian Provinces,
                  Supra-national Agencies

         The Trust will use its discretion in determining which industry
         classification is applicable to a particular investment in consultation
         with the Independent Accountant and Moody's, to the extent the Trust
         considers necessary.

         (ddd)    "NASDAQ System" means the electronic inter-dealer quotation
         system operated by NASDAQ, Inc., a subsidiary of the National
         Association of Securities Dealers, Inc.

         (eee)    "NRSRO" means any nationally recognized statistical rating
         organization.

         (fff)    "Non-Call Period" has the meaning set forth under the
         definition of "Specific Redemption Provisions."

         (ggg)    "Non-Payment Period Rate" means 300% of the applicable `AA'
         Financial Composite Commercial Paper Rate, provided that the Board of
         Trustees shall have the authority to adjust, modify, alter or change
         from time to time the initial Non-Payment Period Rate if the Board of
         Trustees determines and Moody's (or any Substitute Rating Agency in
         lieu of Moody's in the event Moody's shall not rate the APS) advises
         the Trust in writing that such adjustment, modification, alteration or
         change will not adversely affect its then current ratings on the APS.

         (hhh)    "Notice of Redemption" has the meaning specified in Section
         8.6(c).

         (iii)    "Notice of Special Rate Period" means any notice with respect
         to a Special Rate Period of APS pursuant to Sections 8.4(c).

         (jjj)    "Optional Redemption Price" means $25,000 per share plus an
         amount equal to accumulated but unpaid dividends (whether or not earned
         or declared) to the date fixed for redemption plus any applicable
         redemption premium attributable to the designation of a Premium Call
         Period.

                                      -32-
<PAGE>

         (kkk)    "Order" and "Orders" have the respective meanings specified in
         Section 8.9(a)(i)(C).

         (lll)    "Outstanding" means, as of any date (i) with respect to APS,
         APS theretofore issued by the Trust except, without duplication, (A)
         any APS theretofore canceled or delivered to the Auction Agent for
         cancellation, or redeemed by the Trust, or as to which a Notice of
         Redemption shall have been given and Deposit Securities shall have been
         deposited in trust or segregated by the Trust pursuant to Section
         8.6(g) and (B) any APS as to which the Trust or any Affiliate (other
         than an Affiliate that is a Broker-Dealer) thereof shall be a
         Beneficial Owner, provided that APS held by an Affiliate shall be
         deemed outstanding for purposes of calculating the Preferred Shares
         Basic Maintenance Amount and (ii) with respect to other preferred
         shares of beneficial interest of the Trust, the meaning equivalent to
         that for APS as set forth in clause (i).

         (mmm)    "Person" means and includes an individual, a partnership, a
         trust, an unincorporated association, a joint venture or other entity
         or government agency or political subdivision thereof.

         (nnn)    "Potential Beneficial Owner" means a customer of a
         Broker-Dealer or a Broker-Dealer that is not a Beneficial Owner of APS
         but that wishes to purchase such shares, or that is a Beneficial Owner
         that wishes to purchase additional APS.

         (ooo)    "Potential Holder" means any Broker-Dealer or any such other
         Person as may be permitted by the Trust, including any Existing Holder,
         who may be interested in acquiring APS (or, in the case of an Existing
         Holder, additional APS).

         (ppp)    "Preferred Shares Basic Maintenance Amount," as of any
         Valuation Date, means the dollar amount equal (i) to 130% of the sum of
         (A) the product of the number of APS outstanding on such date
         multiplied by $25,000 (plus the product of the number of shares of any
         other series of preferred shares outstanding on such date multiplied by
         the liquidation preference of such shares), plus any redemption premium
         applicable to the APS (or other preferred shares) then subject to
         redemption; (B) the aggregate amount of dividends that will have
         accumulated at the respective Applicable Rates (whether or not earned
         or declared) to (but not including) the first respective Dividend
         Payment Dates for each series of APS outstanding that follow such
         Valuation Date (plus the aggregate amount of dividends, whether or not
         earned or declared, that will have accumulated in respect of other
         outstanding preferred shares to, but not including, the first
         respective dividend payment dates for such other shares that follow
         such Valuation Date); (C) the aggregate amount of dividends that would
         accumulate on shares of each series of the APS outstanding from such
         first respective Dividend Payment Date therefor through the 42nd day
         after such Valuation Date, at the Maximum Applicable Rate (calculated
         as if such Valuation Date were the Auction Date for the Rate Period
         commencing on such Dividend Payment Date) for a Minimum Rate Period of
         shares of such series to commence on such Dividend Payment Date,
         assuming, solely for purposes of the foregoing, that if on such
         Valuation Date the Trust shall have delivered a Notice of Special Rate
         Period to the Auction Agent pursuant to Section 8.4(c) with respect to
         shares of such series, such Maximum Applicable Rate shall be the
         Maximum Applicable Rate for the Special Rate

                                      -33-
<PAGE>

         Period of shares of such series to commence on such Dividend Payment
         Date (except that (1) if such Valuation Date occurs at a time when a
         Failure to Deposit (or, in the case of preferred shares other than the
         APS, a failure similar to a Failure to Deposit) has occurred that has
         not been cured, the dividend for purposes of calculation would
         accumulate at the current dividend rate then applicable to the shares
         in respect of which such failure has occurred and (2) for those days
         during the period described in this subparagraph (C) in respect of
         which the Applicable Rate in effect immediately prior to such Dividend
         Payment Date will remain in effect (or, in the case of preferred shares
         other than the APS, in respect of which the dividend rate or rates in
         effect immediately prior to such respective dividend payment dates will
         remain in effect), the dividend for purposes of calculation would
         accumulate at such Applicable Rate (or other rate or rates, as the case
         may be) in respect of those days); (D) the amount of anticipated
         expenses of the Trust for the 42 days subsequent to such Valuation
         Date; (E) any current liabilities as of such Valuation Date to the
         extent not reflected in any of (i)(A) through (i)(D) (including,
         without limitation, any payables for portfolio securities of the Trust
         purchased as of such Valuation Date and any liabilities incurred for
         the purpose of clearing securities transactions) less (ii) the value
         (i.e., the face value of cash, short-term securities rated MIG-1,
         VMIG-1, or P-1, and short-term securities that are the direct
         obligation of the U.S. government, provided in each case that such
         securities mature on or prior to the date upon which any of (i)(A)
         through (i)(E) become payable, otherwise the Discounted Value) of any
         of the Trust's assets irrevocably deposited by the Trust for the
         payment of any of (i)(A) through (i)(E).

         (qqq)    "Preferred Shares Basic Maintenance Cure Date," with respect
         to the failure by the Trust to satisfy the Preferred Shares Basic
         Maintenance Amount (as required by Section 8.3) as of a given Valuation
         Date, means the sixth Business Day following such Valuation Date.

         (rrr)    "Preferred Shares Basic Maintenance Report" means a report by
         any of the President, Treasurer, any Vice President or any Assistant
         Treasurer of the Trust which sets forth, as of the related Valuation
         Date, the assets of the Trust, the Market Value and the Discounted
         Value thereof (seriatim and in aggregate), and the Preferred Shares
         Basic Maintenance Amount.

         (sss)    "Preferred Shares Paying Agent" means Deutsche Bank Trust
         Company Americas unless and until another bank or trust company has
         been appointed as Preferred Shares Paying Agent by a resolution of the
         Board of Trustees and thereafter such substitute bank or trust company.

         (ttt)    "Premium Call Period" has the meaning set forth under the
         definition of "Specific Redemption Provisions."

         (uuu)    "Pricing Service" means any pricing service designated by the
         Board of Trustees of the Trust and approved by Moody's, for purposes of
         determining whether the Trust has Eligible Assets with an aggregate
         Discounted Value that equals or exceeds the Preferred Shares Basic
         Maintenance Amount.

                                      -34-
<PAGE>

         (vvv)    "Rate Period" means, with respect to shares of a series of
         APS, the Initial Rate Period of such Series and any Subsequent Rate
         Period, including any Special Rate Period, of such Series.

         (www)    "Reference Rate" means (i) with respect to a seven-day
         Dividend Period or a Short Term Dividend Period having fewer than 183
         days, the applicable "AA" Financial Composite Commercial Paper Rate,
         (ii) with respect to any Short Term Dividend Period having 183 or more
         but fewer than 364 days, the applicable U.S. Treasury Bill Rate and
         (iii) with respect to any Long Term Dividend Period, the applicable
         U.S. Treasury Note Rate.

         (xxx)    "Response" has the meaning set forth in Section 8.4(c) of
         these By-laws.

         (yyy)    "Rating Agency," on any date of determination, means (i)
         Moody's if Moody's is then rating the APS, or (ii) if Moody's is then
         not rating the APS, any NRSRO rating the APS at the request of the
         Trust. In the event that Moody's is not rating the APS, any reference
         to a rating by Moody's in this Article VIII shall be deemed to be a
         reference to the equivalent rating by such substitute NRSRO

         (zzz)    "Redemption Price" has the meaning set forth in Section 8.6.

         (aaaa)   "Rule 144A Securities" means securities which are restricted
         as to resale under federal securities laws but are eligible for resale
         pursuant to Rule 144A under the Securities Act as determined by the
         Trust's investment manager or portfolio manager acting pursuant to
         procedures approved by the Board of Trustees of the Trust.

         (bbbb)   "S&P" means Standard & Poor's, a division of The McGraw-Hill
         Companies, Inc., or its successors.

         (cccc)   "Securities Act" means the Securities Act of 1933, as amended
         from time to time.

         (dddd)   "Securities Depository" means The Depository Trust Company and
         its successors and assigns or the successor depository selected by the
         Trust as securities depository for the APS that agrees to follow the
         procedures required to be followed by such securities depository in
         connection with the APS.

         (eeee)   "Sell Order" and "Sell Orders" have the respective meanings
         specified in Section 8.9(a)(i)(C).

         (ffff)   "Share Books" means the Share transfer books of the Trust
         maintained by the Preferred Shares Paying Agent with respect to the
         Preferred Shares.

         (gggg)   "Short Term Dividend Period" means a Special Dividend Period
         consisting of a specified number of days, evenly divisible by seven and
         not fewer than fourteen nor more than 364.

         (hhhh)   "Short Term Money Market Instruments" means the following
         types of instruments if, on the date of purchase or other acquisition
         thereof by the Trust, the

                                      -35-
<PAGE>

         remaining term to maturity thereof is not in excess of 180 days (or 270
         days for instruments rated at least Aaa for purposes of determining
         Moody's Eligible Assets):

                  (i)      commercial paper rated either F1 by Fitch or A-1 by
                  S&P if such commercial paper matures in 30 days or P-1 by
                  Moody's and either F1+ by Fitch or A-1+ by S&P if such
                  commercial paper matures in over 30 days;

                  (ii)     demand or time deposits in, and banker's acceptances
                  and certificates of deposit of (A) a depository institution or
                  trust company incorporated under the laws of the United States
                  of America or any state thereof or the District of Columbia or
                  (B) a United States branch office or agency of a foreign
                  depository institution (provided that such branch office or
                  agency is subject to banking regulation under the laws of the
                  United States, any state thereof or the District of Columbia);

                  (iii)    overnight funds;

                  (iv)     U.S. Government Securities; and

                  (v)      Eurodollar demand or time deposits in, or
                  certificates of deposit of, the head office or the London
                  branch office of a depository institution or trust company if
                  the certificates of deposit, if any, and the long-term
                  unsecured debt obligations (other than such obligations the
                  ratings of which are based on the credit of a person or entity
                  other than such depository institution or trust company) of
                  such depository institution or trust company that have (1)
                  credit ratings on each Valuation Date of at least P-1 from
                  Moody's and either F1+ from Fitch or A-1+ from S&P, in the
                  case of commercial paper or certificates of deposit, and (2)
                  credit ratings on each Valuation Date of at least Aa3 from
                  Moody's and either AA- from Fitch or AA- from S&P, in the case
                  of long-term unsecured debt obligations; provided, however,
                  that in the case of any such investment that matures in no
                  more than one Business Day from the date of purchase or other
                  acquisition by the Trust, all of the foregoing requirements
                  shall be applicable except that the required long-term
                  unsecured debt credit rating of such depository institution or
                  trust company from Moody's, Fitch and S&P shall be at least
                  A2, A and A, respectively; and provided further, however, that
                  the foregoing credit rating requirements shall be deemed to be
                  met with respect to a depository institution or trust company
                  if (1) such depository institution or trust company is the
                  principal depository institution in a holding company system,
                  (2) the certificates of deposit, if any, of such depository
                  institution or trust company are not rated on any Valuation
                  Date below P-1 by Moody's, F1+ by Fitch or A-1+ by S&P and
                  there is no long-term rating, and (3) the holding company
                  shall meet all of the foregoing credit rating requirements
                  (including the preceding proviso in the case of investments
                  that mature in no more than one Business Day from the date of
                  purchase or other acquisition by the Trust); and provided
                  further, that the interest receivable by the Trust shall not
                  be subject to any withholding or similar taxes.

                                      -36-
<PAGE>

         (iiii)   "Special Rate Period," with respect to shares of a series of
         APS, has the meaning specified in Section 8.4(c).

         (jjjj)   "Specific Redemption Provisions" means, with respect to a
         Special Dividend Period either, or both of (i) a period (a "Non-Call
         Period") determined by the Trust, after consultation with the Auction
         Agent and the Broker-Dealers, during which the APS subject to such
         Dividend Period shall not be subject to redemption at the option of the
         Trust and (ii) a period (a "Premium Call Period"), consisting of a
         number of whole years and determined by the Trust, after consultation
         with the Auction Agent and the Broker-Dealers, during each year of
         which the APS subject to such Dividend Period shall be redeemable at
         the Trust's option at a price per share equal to $25,000 plus
         accumulated but unpaid dividends plus a premium expressed as a
         percentage of $25,000, as determined by the Trust after consultation
         with the Auction Agent and the Broker-Dealers.

         (kkkk)   "Structured Notes" means privately negotiated debt obligations
         where the principal and/or interest is determined by reference to the
         performance of a benchmark asset or market (an "embedded index"), such
         as selected securities or an index of securities, or the differential
         performance of two assets or markets, such as indices reflecting bonds.

         (llll)   "Submission Deadline" means 1:30 P.M., New York city time, on
         any Auction Date or such other time on any Auction Date by which
         Broker-Dealers are required to submit Orders to the Auction Agent as
         specified by the Auction Agent from time to time.

         (mmmm)   "Submitted Bid" And "Submitted Bids" have the respective
         meanings specified in Section 8.9(c)(i).

         (nnnn)   "Submitted Hold Order" and "Submitted Hold Orders" have the
         respective meanings specified in Section 8.9(c)(i).

         (oooo)   "Submitted Order" and "Submitted Orders" have the respective
         meanings specified in Section 8.9(c)(i).

         (pppp)   "Subsequent Rate Period," means, with respect to shares of a
         series of APS, the period from and including the first day following
         the Initial Rate Period of shares of such series to but excluding the
         next Dividend Payment Date for shares of such series and any period
         thereafter from and including one Dividend Payment Date for shares of
         such series to but excluding the next succeeding Dividend Payment Date
         for shares of such series; provided, however, that if any Subsequent
         Rate Period is also a Special Rate Period, such term shall mean the
         period commencing on the first day of such Special Rate Period and
         ending on the last day of the last Dividend Period thereof.

         (qqqq)   "Substitute Rating Agency" means a Rating Agency selected by
         the Trust to act as the substitute Rating Agency to determine the
         credit ratings of the APS.

         (rrrr)   "Treasury Bonds" means U.S. Treasury Bonds or notes.

                                      -37-
<PAGE>

         (ssss)   "U.S. Treasury Bill Rate" on any date means (i) the Interest
         Equivalent of the rate on the actively traded Treasury Bill with a
         maturity most nearly comparable to the length of the related Dividend
         Period, as such rate is made available on a discount basis or otherwise
         by the Federal Reserve Bank of New York in its Composite 3:30 P.M.
         Quotations for U.S. Government Securities report for such Business Day,
         or (ii) if such yield as so calculated is not available, the Alternate
         Treasury Bill Rate on such date. For purposes of determining the "U.S.
         Treasury Bill Rate" the "Alternate Treasury Bill Rate" on any date
         means the Interest Equivalent of the yield as calculated by reference
         to the arithmetic average of the bid price quotations of the actively
         traded Treasury Bill with a maturity most nearly comparable to the
         length of the related Dividend Period, as determined by bid price
         quotations as of any time on the Business Day immediately preceding
         such ate, obtained from at least three recognized primary U. S.
         Government securities dealers selected by the Auction Agent.

         (tttt)   "U.S. Treasury Note Rate" on any date means (i) the yield as
         calculated by reference to the bid price quotation of the actively
         treaded, current coupon Treasury Note with a maturity most nearly
         comparable to the length of the related Dividend Period, as such bid
         price quotation is published on the Business day immediately preceding
         such date by the Federal Reserve Bank of New York in its Composite 3:30
         P.M. Quotations for U. S Government Securities report for such Business
         Day, or (ii) if such yield as so calculated is not available, the
         Alternate Treasury Note Rate on such date. For purposes of determining
         the U.S. Treasury Note rate, the "Alternate Treasury Note Rate" on any
         date means the yield as calculated by reference to the arithmetic
         average of the bid price quotations of the actively traded current
         coupon Treasury Note with a maturity most nearly comparable to the
         length of the related Dividend Period, as determined by the bid price
         quotations as of any time on the Business Day immediately preceding
         such date, obtained from at least three recognized primary U.S.
         Government securities dealers selected by the Auction Agent.

         (uuuu)   "U.S. Treasury Securities" means obligations issued by the
         United States of America which are not zero coupon securities (other
         than Treasury bills), except that, for purposes of determining Eligible
         Assets, such obligations must be direct obligations of the United
         States Government (not including zero coupon securities).

         (vvvv)   "Valuation Date" means, for purposes of determining whether
         the Trust is maintaining the Preferred Shares Basic Maintenance Amount,
         the last Business Day of each week commencing with the Date of Original
         Issue or such other date as agreed to by the Rating Agency.

         (wwww)   "Winning Bid Rate" has the meaning specified in Section
         8.9(c)(i)(C).

         All references in these By-Laws to securities ratings by Standard &
Poor's or Moody's shall, unless otherwise indicated, include all securities
within such rating categories (i.e. (+), (-) or without either modifier for
Standard & Poor's or a numerical modifier for Moody's).

         Section 8.3. Investment Company Act Preferred Share Asset Coverage and
Preferred Shares Basic Maintenance Amount Coverage.

                                      -38-
<PAGE>

         (a)      The Trust shall maintain, as of the last Business Day of each
         month in which any APS are Outstanding, the Investment Company Act
         Preferred Share Asset Coverage.

         (b)      So long as APS are Outstanding, the Trust shall maintain, on
         each Valuation Date, and shall verify to its satisfaction that it is
         maintaining on such Valuation Date, Moody's Eligible Assets having an
         aggregate Discounted Value equal to or greater than the Preferred
         Shares Basic Maintenance Amount (if Moody's is then rating the APS).

         (c)      On or before 5:00 P.M., New York City time, on the third
         Business Day after a Valuation Date on which the Trust fails to satisfy
         the Preferred Shares Basic Maintenance Amount, and on the third
         Business Day after the Preferred Shares Basic Maintenance Cure Date
         with respect to such Valuation Date, the Trust shall complete and
         deliver to the Independent Accountant and the Auction Agent a Preferred
         Shares Basic Maintenance Report as of the date of such failure or such
         Preferred Shares Basic Maintenance Cure Date, as the case may be, which
         will be deemed to have been delivered to the Auction Agent if the
         Auction Agent receives a copy or telecopy, telex or other electronic
         transcription thereof and on the same day the Trust mails to the
         Auction Agent for delivery on the next Business Day the full Preferred
         Shares Basic Maintenance Report. The Trust shall also deliver a
         Preferred Shares Basic Maintenance Report to (i) the Auction Agent as
         of the last Valuation Date of each calendar month (or, if such day is
         not a Business Day, the immediately prior Business Day) and (ii) the
         Independent Accountant as of the last Valuation Date of each calendar
         month (or, if such day is not a Business Day, the immediately prior
         Business Day), in each case on or before the third Business Day after
         such day. A failure by the Trust to deliver a Preferred Shares Basic
         Maintenance Report pursuant to the preceding sentence shall be deemed
         to be delivery of a Preferred Shares Basic Maintenance Report
         indicating the Discounted Value for all assets of the Trust is less
         than the Preferred Shares Basic Maintenance Amount, as of the relevant
         Valuation Date.

         (d)      Within ten Business Days after the date of delivery of a
         Preferred Shares Basic Maintenance Report in accordance with paragraph
         (c) of this Section 8.3 relating to each Annual Valuation Date, the
         Trust shall cause the Independent Accountant to confirm in writing to
         Moody's (if Moody's is then rating the APS) and the Auction Agent (i)
         the mathematical accuracy of the calculations reflected in such
         Preferred Shares Basic Maintenance Report (and in any other Preferred
         Shares Basic Maintenance Report, randomly selected by the Independent
         Accountant, that was prepared by the Trust during the quarter ending on
         such Annual Valuation Date), (ii) that, in such Preferred Shares Basic
         Maintenance Report (and in such randomly selected Preferred Shares
         Basic Maintenance Report), the Trust correctly determined in accordance
         with these By-Laws the assets of the Trust which constitute Moody's
         Eligible Assets (if Moody's is then rating the APS), (iii) that, in
         such Preferred Shares Basic Maintenance Report (and in such randomly
         selected Preferred Shares Basic Maintenance Report), the Trust
         determined whether the Trust had, at such Annual Valuation Date (and at
         the Valuation Date addressed in such randomly selected Report) in
         accordance with these By-Laws, Moody's Eligible Assets of an aggregate
         Discounted Value at least equal to the Preferred Shares Basic
         Maintenance Amount, (iv) with respect to the S&P ratings on portfolio
         securities of the Trust, the issuer name, issue size and coupon rate,
         if any, listed in such

                                      -39-
<PAGE>

         Report, that the Independent Accountant has requested that S&P verify
         such information with respect to a sample of portfolio securities the
         number of which is agreed upon by the Rating Agency and the Independent
         Accountant shall provide a listing in its letter of any differences,
         (v) with respect to the Moody's ratings on portfolio securities of the
         Trust, the issuer name, issue size and coupon rate, if any, listed in
         such Preferred Shares Basic Maintenance Report, that such information
         has been verified by Moody's (in the event such information is not
         verified by Moody's, the Independent Accountant will inquire of Moody's
         what such information is, and provide a listing in its letter of any
         differences) and (vi) with respect to the bid or mean price (or such
         alternative permissible factor used in calculating the Market Value)
         provided by the custodian of the Trust's assets to the Trust for
         purposes of valuing securities in the Trust's portfolio, the
         Independent Accountant has traced the price used in such Preferred
         Shares Basic Maintenance Report to the bid or mean price listed in such
         Preferred Shares Basic Maintenance Report as provided to the Trust and
         verified that such information agrees (in the event such information
         does not agree, the Independent Accountant will provide a listing in
         its letter of such differences) (such confirmation is herein called the
         "Auditor's Confirmation").

         (e)      Within ten Business Days after the date of delivery of a
         Preferred Shares Basic Maintenance Report in accordance with paragraph
         (c) of this Section 8.3 relating to any Valuation Date on which the
         Trust failed to satisfy the Preferred Shares Basic Maintenance Amount,
         and relating to the Preferred Shares Basic Maintenance Cure Date with
         respect to such failure to satisfy the Preferred Shares Basic
         Maintenance Amount, the Trust shall cause the Independent Accountant to
         provide to Moody's (if Moody's is then rating the APS) and the Auction
         Agent an Auditor's Confirmation as to such Preferred Shares Basic
         Maintenance Report.

         (f)      If any Auditor's Confirmation delivered pursuant to paragraph
         (d) or (e) of this Section 8.3 shows that an error was made in the
         Preferred Shares Basic Maintenance Report for a particular Valuation
         Date for which such Auditor's Confirmation was required to be
         delivered, or shows that a lower aggregate Discounted Value for the
         aggregate of all Moody's Eligible Assets (if Moody's is then rating the
         APS) of the Trust was determined by the Independent Accountant, the
         calculation or determination made by such Independent Accountant shall
         be final and conclusive and shall be binding on the Trust, and the
         Trust shall accordingly amend and deliver the Preferred Shares Basic
         Maintenance Report to Moody's (if Moody's is then rating the APS) and
         the Auction Agent promptly following receipt by the Trust of such
         Auditor's Confirmation.

         (g)      On or before 5:00 p.m., New York City time, on the fifth
         Business Day after the Date of Original Issue of any APS, the Trust
         shall complete and deliver to Moody's (if Moody's is then rating the
         APS) a Preferred Shares Basic Maintenance Report as of the close of
         business on such Date of Original Issue.

         (h)      On or before 5:00 p.m., New York City time, on the third
         Business Day after either (i) the Trust shall have redeemed Common
         Shares or (ii) on any Valuation Date, the Discounted Value of Moody's
         Eligible Assets is less than or equal to the Preferred Shares Basic
         Maintenance Amount, or (iii) whenever requested by Moody's, the Trust

                                      -40-
<PAGE>

         shall complete and deliver to Moody's (if Moody's is then rating the
         APS) a Preferred Shares Basic Maintenance Report as of the date of such
         event.

         Section 8.4. Dividends.

         (a)      GENERAL.

                  (i)      Ranking. The shares of a series of the APS shall rank
                  on a parity with each other, with shares of any other series
                  of the APS and with shares of any other series of preferred
                  shares that is not designated as junior to the APS as to the
                  payment of dividends by the Trust.

                  (ii)     Cumulative Cash Dividends. The Holders of any series
                  of APS shall be entitled to receive, when, as and if declared
                  by the Board of Trustees, out of funds legally available
                  therefor in accordance with the Declaration of Trust, these
                  By-Laws and applicable law, cumulative cash dividends at the
                  Applicable Rate for shares of such series, determined as set
                  forth in Section 8.4(b), and no more, payable on the Dividend
                  Payment Dates with respect to shares of such series determined
                  pursuant to paragraph (b) of this Section 8.4. Holders of APS
                  shall not be entitled to any dividend, whether payable in
                  cash, property or shares, in excess of full cumulative
                  dividends, as herein provided, on APS. No interest, or sum of
                  money in lieu of interest, shall be payable in respect of any
                  dividend payment or payments on APS which may be in arrears,
                  and, except to the extent set forth in Section 8.4(b)(ii), no
                  additional sum of money shall be payable in respect of any
                  such arrearage.

                  (iii)    Dividends Cumulative From Date of Original Issue.
                  Dividends on any series of APS shall accumulate at the
                  Applicable Rate for shares of such series from the Date of
                  Original Issue thereof.

                  (iv)     Dividend Payment Dates and Adjustment Thereof.

                  (A)      The Dividend Payment Dates with respect the APS, for
                  the Initial Rate Period, shall be on as set forth in the
                  following table:

<TABLE>
<CAPTION>
 SERIES                INITIAL DIVIDEND PAYMENT DATE
- -----------------------------------------------------
<S>                    <C>
Series A                       [      ], 2003
- -----------------------------------------------------
Series B                       [      ], 2003
- -----------------------------------------------------
</TABLE>

                  (B)      The Dividend Payment Date for any Subsequent Rate
                  Period shall be (i) with respect to any Dividend Period of
                  seven days and any Short Term Dividend Period of 35 or fewer
                  days, on the Business Day next succeeding the last day of such
                  Subsequent Rate Period, and (ii) with respect to any Short
                  Term Dividend Period of more than 35 days and with respect to
                  any Long Term Dividend Period, monthly on the first Business
                  Day of each calendar month

                                      -41-
<PAGE>

                  during such Short Term Dividend Period or Long Term Dividend
                  Period and on the Business Day next succeeding the last day of
                  such Subsequent Rate Period (each such date referred to in
                  clause (i) or (ii) being herein referred to as a Normal
                  Dividend Payment Date"), except that if such Normal Dividend
                  Payment Date is not a Business Day, then the Dividend Payment
                  Date shall be the first Business Day next succeeding such
                  Normal Dividend Payment Date. Although any particular Dividend
                  Payment Date may not occur on the originally scheduled date
                  because of the exceptions discussed above, the next succeeding
                  Dividend Payment Date, subject to such exceptions, will occur
                  on the next following originally scheduled date; and

                  (C)      Notwithstanding the foregoing, the Trust in its
                  discretion may establish the Dividend Payment Dates other than
                  as provided in Section 8.4(a)(iv) in respect of any Special
                  Rate Period of shares of a series of APS consisting of more
                  than seven Rate Period days; provided, however, that such
                  dates shall be set forth in the Notice of Special Rate Period
                  relating to such Special Rate Period, as delivered to the
                  Auction Agent, which Notice of Special Rate Period shall be
                  filed with the Secretary of the Trust; and further provided
                  that (1) any such Dividend Payment Date shall be a Business
                  Day and (2) the last Dividend Payment Date in respect of such
                  Special Rate Period shall be the Business Day immediately
                  following the last day thereof.

                  (D)      The Dividend Payment Dates for any series of APS
                  subsequently established by the Trust shall be as set forth in
                  resolutions of the Board of Trustees establishing such series.

         (b)      DIVIDEND RATES AND CALCULATIONS OF DIVIDENDS.

                  (i)      Dividend Rates. The dividend rate on the APS during
                  the period from and after the Date of Original Issue of shares
                  of such series to and including the last day of the Initial
                  Rate Period of shares of such series shall be equal to the
                  rate per annum set forth below:

<TABLE>
<CAPTION>
 SERIES             INITIAL DIVIDEND RATE
<S>                 <C>
Series A                   [    ]%
Series B                   [    ]%
</TABLE>

                  The initial dividend rate on any series of APS subsequently
                  established by the Trust shall be the rate set forth in or
                  determined in accordance with the resolutions of the Board of
                  Trustees establishing such series.

                  (ii)     For each Subsequent Rate Period of shares of such
                  series thereafter, the dividend rate on shares of such series
                  shall be equal to the rate per annum that results from an
                  Auction for shares of such series on the Auction Date
                  immediately preceding such Subsequent Rate Period; provided,
                  however, that if:

                                      -42-
<PAGE>

                           (A)      an Auction for any such Subsequent Rate
                           Period is not held for any reason other than as
                           described below, the dividend rate on shares of such
                           series for such Subsequent Rate Period will be the
                           Maximum Applicable Rate for shares of such series on
                           the Auction Date therefor;

                           (B)      any Failure to Deposit shall have occurred
                           with respect to shares of such series during any Rate
                           Period thereof, but, prior to 12:00 Noon, New York
                           City time, on the third Business Day next succeeding
                           the date on which such Failure to Deposit occurred,
                           such Failure to Deposit shall have been cured in
                           accordance with Section 8.4(b)(iv) and the Trust
                           shall have paid to the Auction Agent a late charge
                           ("Late Charge") equal to the sum of (1) if such
                           Failure to Deposit consisted of the failure timely to
                           pay to the Auction Agent the full amount of dividends
                           with respect to any Dividend Period of the shares of
                           such series, an amount computed by multiplying (X)
                           300% of the 'AA' Financial Composite Commercial Paper
                           Rate for the Rate Period during which such Failure to
                           Deposit occurs on the Dividend Payment Date for such
                           Dividend Period by (Y) a fraction, the numerator of
                           which shall be the number of days for which such
                           Failure to Deposit has not been cured in accordance
                           with Section 8.4(b)(iv) (including the day such
                           Failure to Deposit occurs and excluding the day such
                           Failure to Deposit is cured) and the denominator of
                           which shall be 360, and applying the rate obtained
                           against the aggregate Liquidation Preference of the
                           outstanding shares of such series and (2) if such
                           Failure to Deposit consisted of the failure timely to
                           pay to the Auction Agent the Redemption Price of the
                           shares, if any, of such series for which Notice of
                           Redemption has been mailed by the Trust pursuant to
                           Section 8.6(c), an amount computed by multiplying (x)
                           300% of the `AA' Financial Composite Commercial Paper
                           Rate for the Rate Period during which such Failure to
                           Deposit occurs on the redemption date by (y) a
                           fraction, the numerator of which shall be the number
                           of days for which such Failure to Deposit is not
                           cured in accordance with Section 8.4(b)(iv)
                           (including the day such Failure to Deposit occurs and
                           excluding the day such Failure to Deposit is cured)
                           and the denominator of which shall be 360, and
                           applying the rate obtained against the aggregate
                           Liquidation Preference of the outstanding shares of
                           such series to be redeemed, no Auction will be held
                           in respect of shares of such series for the
                           Subsequent Rate Period thereof and the dividend rate
                           for shares of such series for such Subsequent Rate
                           Period will be the Maximum Applicable Rate for shares
                           of such series on the Auction Date for such
                           Subsequent Rate Period; and

                           (C)      any Failure to Deposit shall have occurred
                           with respect to shares of such series during any Rate
                           Period thereof, and, prior to 12:00 Noon, New York
                           City time, on the third Business Day next succeeding
                           the date on which such Failure to Deposit occurred,
                           such Failure to Deposit shall not have been cured in
                           accordance with Section 8.4(b)(iv) or the Trust shall
                           not have paid the applicable Late Charge to the
                           Auction Agent, no Auction will be held in respect of
                           shares of such series for the first

                                      -43-
<PAGE>

                           Subsequent Rate Period thereof thereafter (or for any
                           Rate Period thereof thereafter to and including the
                           Rate Period during which (1) such Failure to Deposit
                           is cured in accordance with Section 8.4(b)(iv) and
                           (2) the Trust pays the applicable Late Charge to the
                           Auction Agent (the condition set forth in this clause
                           (2) to apply only in the event Moody's is rating such
                           shares at the time the Trust cures such Failure to
                           Deposit), in each case no later than 12:00 Noon, New
                           York City time, on the fourth Business Day prior to
                           the end of such Rate Period), and the dividend rate
                           for shares of such series for each such Subsequent
                           Rate Period shall be a rate per annum equal to the
                           Non-Payment Period Rate for shares of such series on
                           the Auction Date for such Subsequent Rate Period.

                  (iii)    Calculation of Dividends. The amount of dividends per
                  share payable on shares of a series of APS on any date on
                  which dividends shall be payable on shares of such series
                  shall be computed by multiplying the Applicable Rate for
                  shares of such series in effect for such Dividend Period or
                  Dividend Periods or part thereof for which dividends have not
                  been paid by a fraction, the numerator of which shall be the
                  number of days in such Dividend Period or Dividend Periods or
                  part thereof and the denominator of which shall be 365 if such
                  Dividend Period consists of seven Rate Period days or is a
                  Short Term Dividend Period and 360 for any Long Term Dividend
                  Period, and applying the rate obtained against $25,000. The
                  amount so obtained shall be rounded to the nearest cent.

                  (iv)     Curing a Failure to Deposit. A Failure to Deposit
                  with respect to shares of a series of APS shall have been
                  cured (if such Failure to Deposit is not solely due to the
                  willful failure of the Trust to make the required payment to
                  the Auction Agent) with respect to any Rate Period of shares
                  of such series if, within the respective time periods
                  described in Section 8.4(b)(ii), the Trust shall have paid to
                  the Auction Agent (A) all accumulated and unpaid dividends on
                  shares of such series and (B) without duplication, the
                  Redemption Price for shares, if any, of such series for which
                  Notice of Redemption has been mailed by the Trust pursuant to
                  Section 8.6(c); provided, however, that the foregoing clause
                  (B) shall not apply to the Trust's failure to pay the
                  Redemption Price in respect of APS when the related Notice of
                  Redemption provides that redemption of such shares is subject
                  to one or more conditions precedent and any such condition
                  precedent shall not have been satisfied at the time or times
                  and in the manner specified in such Notice of Redemption.

                  (v)      Dividend Payments by Trust to Auction Agent. The
                  Trust shall pay to the Auction Agent, not later than 12:00
                  Noon, New York City time, on the Business Day next preceding
                  each Dividend Payment Date for shares of a series of APS, an
                  aggregate amount of funds available on the next Business Day
                  in the City of New York, New York, equal to the dividends to
                  be paid to all Holders of shares of such series on such
                  Dividend Payment Date.

                                      -44-
<PAGE>

                  (vi)     Auction Agent as Trustee of Dividend Payments by
                  Trust. All moneys paid to the Auction Agent for the payment of
                  dividends (or for the payment of any Late Charge) shall be
                  held in trust for the payment of such dividends (and any such
                  Late Charge) by the Auction Agent for the benefit of the
                  Holders specified in Section 8.4(a)(vi). Any moneys paid to
                  the Auction Agent in accordance with the foregoing but not
                  applied by the Auction Agent to the payment of dividends (and
                  any such Late Charge) will, to the extent permitted by law, be
                  repaid to the Trust at the end of 90 days from the date on
                  which such moneys were so to have been applied.

                  (vii)    Dividends Paid to Holders. Each dividend on APS shall
                  be paid on the Dividend Payment Date therefor to the Holders
                  thereof as their names appear on the record books of the Trust
                  on the Business Day next preceding such Dividend Payment Date.

                  (viii)   Dividends Credited Against Earliest Accumulated but
                  Unpaid Dividends. Any dividend payment made on APS shall first
                  be credited against the earliest accumulated but unpaid
                  dividends due with respect to such shares. Dividends in
                  arrears for any past Dividend Period may be declared and paid
                  at any time, without reference to any regular Dividend Payment
                  Date, to the Holders as their names appear on the record books
                  of the Trust on such date, not exceeding 15 days preceding the
                  payment date thereof, as may be fixed by the Board of
                  Trustees.

         (c)      DESIGNATION OF SPECIAL RATE PERIODS.

                  (i)      The Trust, at its option and to the extent permitted
                  by law, by telephonic and written notice (a "Request for
                  Special Dividend Period") to the Auction Agent and to each
                  Broker-Dealer, may request that the next succeeding Dividend
                  Period for any series of APS will be a number of days (other
                  than seven days) evenly divisible by seven, and not fewer than
                  fourteen nor more than 364 in the case of a Short Term
                  Dividend Period or one whole year or more but not greater than
                  five years in the case of a Long Term Dividend Period,
                  specified in such notice, provided that the Trust may not give
                  a Request for Special Dividend Period (and any such request
                  will be null and void) unless, for any Auction occurring after
                  the initial Auction, Sufficient Clearing Bids were made in the
                  last occurring Auction and unless full cumulative dividends
                  and any amounts due with respect to redemptions have been paid
                  in full, and provided further that the Trust may not request a
                  Special Dividend Period that is a Long Term Dividend Period
                  unless the Trust shall have received written confirmation from
                  Moody's (or any Substitute Rating Agency) that the Trust's
                  election of the proposed Long Term Dividend Period would not
                  impair the rating then assigned by Moody's (or any Substitute
                  Rating Agency) of the applicable series of APS. Such Request
                  for Special Dividend Period, in the case of a Short Term
                  Dividend Period, shall be given on or prior to the second
                  Business Day but

                                      -45-
<PAGE>

                  not more than seven Business Days prior to an Auction Date for
                  the APS of that series and, in the case of a Long Term
                  Dividend Period, shall be given on or prior to the second
                  Business Day but not more than 28 days prior to an Auction
                  Date for the APS of that series. Upon receiving such Request
                  for Special Dividend Period, the Broker-Dealers jointly shall
                  determine the Optional Redemption Price of the APS of that
                  series during such Special Dividend Period and the Specific
                  Redemption Provisions and shall give the Trust and the Auction
                  Agent written notice (a "Response") of such determination by
                  no later than the second Business Day prior to such Auction
                  date. In making such determination, the Broker-Dealers will
                  consider (i) existing short-term and long-term market rates
                  and indices of such short-term and long-term rates, (ii)
                  existing market supply and demand for short-term and long-term
                  securities, (iii) existing yield curves for short-term and
                  long-term securities comparable to the APS, (iv) industry and
                  financial conditions which may affect the APS of that series,
                  (v) the investment objectives of the Trust and (vi) the
                  Dividend Periods and dividend rates at which current and
                  potential beneficial holders of the APS would remain or become
                  beneficial holders.

                  (ii)     After providing the Request for Special Dividend
                  Period to the Auction Agent and each Broker-Dealer as set
                  forth above, the Trust, by no later than the second Business
                  Day prior to such Auction Date, may give a notice (a "Notice
                  of Special Dividend Period") to the Auction Agent, the
                  Securities Depository, each Broker-Dealer and the Rating
                  Agency which notice will specify the duration of the Special
                  Dividend Period. The Trust will not give a Notice of Special
                  Dividend Period and, if such Notice of Special Dividend Period
                  was given already, will give telephonic and written notice of
                  its revocation (a "Notice of Revocation") to the Auction
                  Agent, each Broker-Dealer, the Securities Depository and the
                  Rating Agency on or prior to the Business Day prior to the
                  relevant Auction Date if (x) either the Investment Company Act
                  Preferred Shares Asset Coverage or the Preferred Shares Basic
                  Maintenance Amount is not satisfied, on each of the two
                  Business Days immediately preceding the Business Day prior to
                  the relevant Auction Date or (y) sufficient funds for the
                  payment of dividends payable on the immediately succeeding
                  Dividend Payment Date have not been irrevocably deposited with
                  the Auction Agent by the close of business on the third
                  Business Day preceding the Auction Date immediately preceding
                  such Dividend Payment Date. The Trust also shall provide a
                  copy of such Notice of Special Dividend Period to the Rating
                  Agency. If the Trust is prohibited from giving a Notice of
                  Special Dividend Period as a result of the factors enumerated
                  in clause (x) or (y) above or if the Trust gives a Notice of
                  Revocation with respect to a Notice of Special Dividend
                  Period, the next succeeding Dividend Period for that series of
                  APS will be a seven day Dividend Period. In addition, in the
                  event Sufficient Clearing Bids are not made in an Auction, or
                  if an Auction is not held for any reason, the next succeeding
                  Dividend Period will be a seven day Dividend Period, and the
                  Trust may not again give a Notice of Special Dividend Period
                  (and any such attempted notice will be null and void) until
                  Sufficient Clearing Bids have been made in an Auction with
                  respect to a seven day Dividend Period.

         (d)      RESTRICTIONS ON DIVIDENDS.

                                      -46-
<PAGE>

                  (i)      Dividends on Shares Other Than the APS. Except as set
                  forth in the next sentence, no dividends shall be declared or
                  paid or set apart for payment on the shares of any class or
                  series of shares of beneficial interest of the Trust ranking,
                  as to the payment of dividends, on a parity with the APS for
                  any period unless full cumulative dividends have been or
                  contemporaneously are declared and paid on the shares of each
                  series of the APS through its most recent Dividend Payment
                  Date. When dividends are not paid in full upon the shares of
                  each series of the APS through its most recent Dividend
                  Payment Date or upon the shares of any other class or series
                  of shares of beneficial interest of the Trust ranking on a
                  parity as to the payment of dividends with the APS through
                  their most recent respective dividend payment dates, all
                  dividends declared upon the APS and any other such class or
                  series of shares of beneficial interest ranking on a parity as
                  to the payment of dividends with APS shall be declared pro
                  rata so that the amount of dividends declared per share on APS
                  and such other class or series of shares of beneficial
                  interest shall in all cases bear to each other the same ratio
                  that accumulated dividends per share on the Trust and such
                  other class or series of shares of beneficial interest bear to
                  each other (for purposes of this sentence, the amount of
                  dividends declared per share of APS shall be based on the
                  Applicable Rate for such share for the Dividend Periods during
                  which dividends were not paid in full).

                  (ii)     Dividends and Other Distributions with Respect to
                  Common Shares Under the Investment Company Act. The Board of
                  Trustees shall not declare any dividend (except a dividend
                  payable in Common Shares), or declare any other distribution,
                  upon the Common Shares, or purchase Common Shares, unless in
                  every such case the APS have, at the time of any such
                  declaration or purchase, an asset coverage (as defined in and
                  determined pursuant to the Investment Company Act) of at least
                  200% (or such other asset coverage as may in the future be
                  specified in or under the Investment Company Act as the
                  minimum asset coverage for senior securities which are shares
                  or stock of a closed- end investment company as a condition of
                  declaring dividends on its common shares or stock) after
                  deducting the amount of such dividend, distribution or
                  purchase price, as the case may be.

                  (iii)    Other Restrictions on Dividends and Other
                  Distributions. For so long as any APS are outstanding, and
                  except as set forth in Section 8.4(d) and Section 8.6(b), (A)
                  the Trust shall not declare, pay or set apart for payment any
                  dividend or other distribution (other than a dividend or
                  distribution paid in shares of, or in options, warrants or
                  rights to subscribe for or purchase, Common Shares or other
                  shares, if any, ranking junior to the APS as to the payment of
                  dividends and the distribution of assets upon dissolution,
                  liquidation or winding up) in respect of the Common Shares or
                  any other shares of the Trust ranking junior to or on a parity
                  with the APS as to the payment of dividends or the
                  distribution of assets upon dissolution, liquidation or
                  winding up, or call for redemption, redeem, purchase or
                  otherwise acquire for consideration any Common Shares or any
                  other such junior shares (except by

                                      -47-
<PAGE>

                  conversion into or exchange for shares of the Trust ranking
                  junior to the APS as to the payment of dividends and the
                  distribution of assets upon dissolution, liquidation or
                  winding up), or any such parity shares (except by conversion
                  into or exchange for shares of the Trust ranking junior to or
                  on a parity with APS as to the payment of dividends and the
                  distribution of assets upon dissolution, liquidation or
                  winding up), unless (i) full cumulative dividends on shares of
                  each series of APS through its most recently ended Dividend
                  Period shall have been paid or shall have been declared and
                  sufficient funds for the payment thereof deposited with the
                  Auction Agent and (ii) the Trust has redeemed the full number
                  of APS required to be redeemed by any provision for mandatory
                  redemption pertaining thereto, and (B) the Trust shall not
                  declare, pay or set apart for payment any dividend or other
                  distribution (other than a dividend or distribution paid in
                  shares of, or in options, warrants or rights to subscribe for
                  or purchase, Common Shares or other shares, if any, ranking
                  junior to APS as to the payment of dividends and the
                  distribution of assets upon dissolution, liquidation or
                  winding up) in respect of Common Shares or any other shares of
                  the Trust ranking junior to APS as to the payment of dividends
                  or the distribution of assets upon dissolution, liquidation or
                  winding up, or call for redemption, redeem, purchase or
                  otherwise acquire for consideration any Common Shares or any
                  other such junior shares (except by conversion into or
                  exchange for shares of the Trust ranking junior to APS as to
                  the payment of dividends and the distribution of assets upon
                  dissolution, liquidation or winding up), unless immediately
                  after such transaction the Discounted Value of Moody's
                  Eligible Assets (if Moody's is then rating the APS) would at
                  least equal the Preferred Shares Basic Maintenance Amount.

         Section 8.5. Liquidation Rights.

         (a)      The shares of a series of APS shall rank on a parity with each
         other, with shares of any other series of preferred shares not
         designated as junior to the APS and with shares of any other series of
         APS as to the distribution of assets upon dissolution, liquidation or
         winding up of the affairs of the Trust. Upon the liquidation,
         dissolution or winding up of the affairs of the Trust, whether
         voluntary or involuntary, Holders shall be entitled to receive, out of
         the assets of the Trust available for distribution to Shareholders
         after satisfying claims of creditors but before any payment or
         distribution to the holders of the Common Shares or on any other class
         of Shares ranking junior to the shares of each series of APS upon
         liquidation, a liquidation distribution in the amount of $25,000 per
         share of each series of APS plus an amount equal to accumulated and
         unpaid dividends on each shares of such series (whether or not earned
         or declared) to the date of such distribution. Unless and until payment
         in full has been made to the Holders of the liquidation distributions
         to which they are entitled as provided in this Section 8.5, no
         dividends or distributions will be made to holders of the Common Shares
         or any other Shares junior to or on parity with the APS on liquidation,
         and no purchase, redemption or other acquisition for any consideration
         by the Trust will be made in respect of the Common Shares or any other
         Shares ranking junior to or on parity with the APS upon liquidation.
         After the payment to Holders of the full amount of the liquidation
         distributions to which they are entitled pursuant to the first sentence
         of this Section 8.5(a), Holders (in their capacity as such Holders)
         shall have no right or claim to any of the remaining assets of the
         Trust.

                                      -48-
<PAGE>

         (b)      Neither the sale, lease or exchange (for cash, stock,
         securities or other consideration) of all or substantially all of the
         property and assets of the Trust, nor the merger or consolidation of
         the Trust into or with any other corporation, association, trust or
         other organization, nor the merger or consolidation of any other
         corporation, association, trust or other organization into or with the
         Trust, shall be deemed to be a dissolution, liquidation or winding up,
         voluntary or involuntary, for the purposes of this Section 8.5.

         (c)      If the assets of the Trust available for distribution to the
         Holders upon the dissolution, liquidation or winding up of the Trust,
         whether voluntary or involuntary, shall be insufficient to pay the full
         amount of the liquidation distributions to which the Holders are
         entitled pursuant to Section 8.5(a) above, then such assets shall be
         distributed among the Holders, together with the holders of any other
         class or series of preferred shares ranking on parity with the APS,
         ratably in proportion to the full amount of distribution to which each
         Holder would have been entitled under such Section 8.5(a).

         Section 8.6. Redemption.

         The shares of each series of APS shall be redeemable by the Trust as
         provided below:

         (a)      OPTIONAL REDEMPTION.

                  (i)      Except to the extent prohibited by Massachusetts law
                  or the Investment Company Act, the Trust, at its option, may
                  without the consent of the Holders of the APS, redeem APS, in
                  whole or in part, on the Business Day after the last day of a
                  Dividend Period upon not less than 15 calendar days' and not
                  more than 40 calendar days' prior notice; provided that no
                  share of APS may be redeemed at the option of the Trust during
                  (A) the Initial Dividend Period with respect to a series of
                  shares or (B) a Non-Call Period to which such share is
                  subject. Except with respect to a Call Premium Period, the
                  optional redemption price per share will be $25,000 per share,
                  plus an amount equal to accumulated but unpaid dividends
                  thereon (whether or not earned or declared) to the date fixed
                  for redemption.

                  (ii)     If fewer than all of the outstanding shares of a
                  series of APS are to be redeemed pursuant to subparagraph (i)
                  of this Section 8.6(a), the number of shares of such series to
                  be redeemed shall be determined by the Board of Trustees, and
                  such shares shall be redeemed pro rata from the Holders of
                  shares of such series in proportion to the number of shares of
                  such series held by such Holders.

                  (iii)    The Trust may not on any date mail a Notice of
                  Redemption pursuant to Section 8.6(c) in respect of a
                  redemption contemplated to be effected pursuant to this
                  Section 8.6(a) unless on such date (A) the Trust has available
                  Deposit Securities with maturity or tender dates not later
                  than the day preceding the applicable redemption date and
                  having a value not less than the amount (including any
                  applicable premium) due to Holders of APS by reason of the
                  redemption of such shares on such redemption date, and (B) the
                  Discounted Value of Moody's Eligible Assets (if Moody's is
                  then rating the APS) at least equals the Preferred

                                      -49-
<PAGE>

                  Shares Basic Maintenance Amount, and would at least equal the
                  Preferred Shares Basic Maintenance Amount immediately
                  subsequent to such redemption if such redemption were to occur
                  on such date. For purposes of determining in clause (B) of the
                  preceding sentence whether the Discounted Value of Moody's
                  Eligible Assets at least equals the Preferred Shares Basic
                  Maintenance Amount, the Moody's Discount Factors applicable to
                  Moody's Eligible Assets shall be determined by reference to
                  the first Exposure Period longer than the Exposure Period then
                  applicable to the Trust.

         (b)      MANDATORY REDEMPTION. The Trust shall redeem, at a redemption
         price equal to $25,000 per share plus accumulated but unpaid dividends
         thereon (whether or not earned or declared) to (but not including) the
         date fixed by the Board of Trustees for redemption, certain of the APS,
         if the Trust fails to have Moody's Eligible Assets with a Discounted
         Value greater than or equal to the Preferred Shares Basic Maintenance
         Amount or fails to maintain the Investment Company Act Preferred Share
         Asset Coverage, in accordance with the requirements of the rating
         agency or agencies then rating the APS, and such failure is not cured
         on or before the Preferred Shares Basic Maintenance Cure Date or the
         Investment Company Act Cure Date, as the case may be. The number of APS
         to be redeemed shall be equal to the lesser of (i) the minimum number
         of APS, together with all other preferred shares subject to redemption
         or retirement, the redemption of which, if deemed to have occurred
         immediately prior to the opening of business on the Cure Date, would
         have resulted in the Trust's having Moody's Eligible Assets with a
         Discounted Value greater than or equal of the Preferred Shares Basic
         Maintenance Amount or maintaining the Investment Company Act Preferred
         Shares Asset Coverage, as the case may be, on such Cure Date (provided,
         however, that if there is no such minimum number of APS and other
         preferred shares the redemption or retirement of which would have had
         such result, all APS and other preferred shares then outstanding shall
         be redeemed), and (ii) the maximum number of APS, together with all
         other preferred shares subject to redemption or retirement, that can be
         redeemed out of funds expected to be legally available therefor in
         accordance with the Declaration of Trust and applicable law. In
         determining the APS required to be redeemed in accordance with the
         foregoing, the Trust shall allocate the number required to be redeemed
         to satisfy the requirement of the Trust's having Moody's Eligible
         Assets with a Discounted Value greater than or equal the Preferred
         Shares Basic Maintenance Amount or the Investment Company Act Preferred
         Share Asset Coverage, as the case may be, pro rata among APS and other
         preferred shares (and, then, pro rata among each series of APS) subject
         to redemption or retirement; provided that, shares of APS which may not
         be redeemed at the option of the Trust due to the designation of a
         Non-Call Period applicable to such shares (A) will be subject to
         mandatory redemption only to the extent that other shares are not
         available to satisfy the number of shares required to be redeemed and
         (B) will be selected for redemption in an ascending order of
         outstanding number of days in the Non-Call Period (with shares with the
         lowest number of days to be redeemed first) and by lot in the event of
         shares having an equal number of days in such Non-Call Period. The
         Trust shall effect such redemption on the date fixed by the Trust
         therefor, which date shall not be earlier than 20 days nor later than
         40 days after such Cure Date, except that if the Trust does not have
         funds legally available for the redemption of all of the required
         number of the APS and other preferred shares which are subject to
         redemption or retirement or the Trust

                                      -50-
<PAGE>

         otherwise is unable to effect such redemption on or prior to 40 days
         after such Cure Date, the Trust shall redeem those APS and other
         preferred shares which it was unable to redeem on the earliest
         practicable date on which it is able to effect such redemption. If
         fewer than all of the outstanding shares of a series of APS are to be
         redeemed pursuant to this paragraph (b), the shares of such series to
         be redeemed shall be selected by lot or such other method that the
         Trust deems fair and equitable.

         (c)      NOTICE OF REDEMPTION. If the Trust shall determine or be
         required to redeem shares of a series of APS pursuant to paragraph (a)
         or (b) of this Section 8.6, it shall mail a Notice of Redemption with
         respect to such redemption by first-class mail, postage prepaid, to
         each Holder of the shares of such series to be redeemed, at such
         Holder's address as the same appears on the record books of the Trust
         on the record date established by the Board of Trustees and to the
         Auction Agent. Such Notice of Redemption shall be so mailed not less
         than 15 nor more than 40 days prior to the date fixed for redemption.
         Each such Notice of Redemption shall state: (i) the redemption date;
         (ii) the number of APS to be redeemed and the series thereof; (iii) the
         CUSIP number for shares of such series; (iv) the Redemption Price; (v)
         the place or places where the certificate(s) for such shares (properly
         endorsed or assigned for transfer, if the Board of Trustees shall so
         require and the Notice of Redemption shall so state) are to be
         surrendered for payment of the Redemption Price; (vi) that dividends on
         the shares to be redeemed will cease to accumulate on such redemption
         date; (vii) that the Holders of any shares of a series of APS being so
         redeemed shall not participate in the Auction, if any, immediately
         preceding the redemption date; and (viii) the provisions of this
         Section 8.6 under which such redemption is made. If fewer than all
         shares of a series of APS held by any Holder are to be redeemed, the
         Notice of Redemption mailed to such Holder shall also specify the
         number of shares of such series to be redeemed from such Holder. The
         Trust may provide in any Notice of Redemption relating to a redemption
         contemplated to be effected pursuant to paragraph (a) of this Section
         8.6 that such redemption is subject to one or more conditions precedent
         and that the Trust shall not be required to effect such redemption
         unless each such condition shall have been satisfied at the time or
         times and in the manner specified in such Notice of Redemption.

         (d)      NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
         provisions of paragraphs (a) or (b) of this Section 8.6, if any
         dividends on shares of a series of APS (whether or not earned or
         declared) are in arrears, no shares of such series shall be redeemed
         unless all outstanding shares of such series are simultaneously
         redeemed, and the Trust shall not purchase or otherwise acquire any
         shares of such series; provided, however, that the foregoing shall not
         prevent the purchase or acquisition of all outstanding shares of such
         series pursuant to the successful completion of an otherwise lawful
         purchase or exchange offer made on the same terms to, and accepted by,
         Holders of all outstanding shares of such series.

         (e)      ABSENCE OF TRUSTS AVAILABLE FOR REDEMPTION. To the extent that
         any redemption for which Notice of Redemption has been mailed is not
         made by reason of the absence of legally available funds therefor in
         accordance with the Declaration of Trust or applicable law, such
         redemption shall be made as soon as practicable to the extent such
         funds become available. Failure to redeem APS shall be deemed to exist
         at

                                      -51-
<PAGE>

         any time after the date specified for redemption in a Notice of
         Redemption when the Trust shall have failed, for any reason whatsoever,
         to deposit in trust with the Auction Agent the Redemption Price with
         respect to any shares for which such Notice of Redemption has been
         mailed; provided, however, that the foregoing shall not apply in the
         case of the Trust's failure to deposit in trust with the Auction Agent
         the Redemption Price with respect to any shares where (1) the Notice of
         Redemption relating to such redemption provided that such redemption
         was subject to one or more conditions precedent and (2) any such
         condition precedent shall not have been satisfied at the time or times
         and in the manner specified in such Notice of Redemption.
         Notwithstanding the fact that the Trust may not have redeemed APS for
         which a Notice of Redemption has been mailed, dividends may be declared
         and paid on APS and shall include those APS for which a Notice of
         Redemption has been mailed.

         (f)      AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY THE TRUST.
         All moneys paid to the Auction Agent for payment of the Redemption
         Price of APS called for redemption shall be held in trust by the
         Auction Agent for the benefit of Holders of shares so to be redeemed.

         (g)      SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO
         LONGER OUTSTANDING. Provided a Notice of Redemption has been mailed
         pursuant to Section 8.6(c), upon the deposit with the Auction Agent (on
         the Business Day next preceding the date fixed for redemption thereby,
         in funds available on the next Business Day in The City of New York,
         New York) of funds sufficient to redeem the APS that are the subject of
         such notice, dividends on such shares shall cease to accumulate and
         such shares shall no longer be deemed to be outstanding for any
         purpose, and all rights of the Holders of the shares so called for
         redemption shall cease and terminate, except the right of such Holders
         to receive the Redemption Price, but without any interest or other
         additional amount, except as provided in Section 8.4(b)(ii). The
         Auction Agent shall pay the Redemption Price to the Holders of APS
         subject to redemption upon surrender of the certificates for the shares
         (properly endorsed or assigned for transfer, if the Board of Trustees
         shall so require and the Notice of Redemption shall so state) to be
         redeemed in accordance with the Notice of Redemption. In the case that
         fewer than all of the shares represented by any such certificate are
         redeemed, a new certificate shall be issued, representing the
         unredeemed shares, without cost to the Holder thereof. The Trust shall
         be entitled to receive from the Auction Agent, promptly after the date
         fixed for redemption, any cash deposited with the Auction Agent in
         excess of (i) the aggregate Redemption Price of the APS called for
         redemption on such date and (ii) all other amounts to which Holders of
         APS called for redemption may be entitled. Any funds so deposited that
         are unclaimed at the end of 90 days from such redemption date shall, to
         the extent permitted by law, be repaid to the Trust, after which time
         the Holders of APS so called for redemption may look only to the Trust
         for payment of the Redemption Price and all other amounts to which they
         may be entitled.

         (h)      COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption
         pursuant to this Section 8.6, the Trust shall use its best efforts to
         comply with all applicable conditions precedent to effecting such
         redemption under the Investment Company Act and any

                                      -52-
<PAGE>

         applicable Massachusetts law, but shall effect no redemption except in
         accordance with the Investment Company Act and any applicable
         Massachusetts law.

         (i)      ONLY WHOLE APS MAY BE REDEEMED. In the case of any redemption
         pursuant to this Section 8.6, only whole APS shall be redeemed, and in
         the event that any provision of the Declaration of Trust would require
         redemption of a fractional share, the Auction Agent shall be authorized
         to round up so that only whole shares are redeemed.

         (j)      MODIFICATION OF REDEMPTION PROCEDURES. Notwithstanding any of
         the foregoing provisions of this Section 8.6, the Trust may modify any
         or all of the requirements relating to the Notice of Redemption
         provided that (i) any such modification does not materially and
         adversely affect any Holder of the relevant series of APS, and (ii) the
         Trust receives written notice from Moody's (if Moody's is then rating
         the APS) that such modification would not impair the ratings assigned
         by Moody's to shares of APS.

         Section 8.7. Voting Rights.

         (a)      GENERAL. Except as otherwise provided by law and as specified
         by this Section 8.7, the Holders of APS shall have equal voting rights
         with the holders of Common Shares and shall be entitled to one vote for
         each share of a series of APS on each matter submitted to a vote of the
         Shareholders of the Trust. For purposes of determining any right of the
         Holders to vote on any matter, whether such right is created by the
         Declaration of Trust or these By-Laws, or otherwise, no Holder shall be
         entitled to vote and no Share of a series of APS shall be deemed to be
         "outstanding" for the purpose of voting or determining the number of
         Shares required to constitute a quorum, if prior to or concurrently
         with the time of determination of Shares entitled to vote or Shares
         deemed outstanding for quorum purposes, as the case may be, sufficient
         funds for the redemption of such APS have been deposited in trust with
         the Preferred Shares Paying Agent for that purpose and the requisite
         Notice of Redemption with respect to such APS shall have been given as
         provided in Section 8.6(c) above.

         (b)      HOLDERS OF APS TO VOTE ON CERTAIN OTHER MATTERS.

                  (i)      So long as any APS are outstanding, the Trust shall
                  not, without the affirmative vote or consent of the Holders of
                  at least a majority of the APS outstanding at the time, in
                  person or by proxy, either in writing or at a meeting, voting
                  as a separate class: (A) authorize, create or issue any class
                  or series of shares ranking prior to or on a parity with the
                  APS with respect to the payment of dividends or the
                  distribution of assets upon dissolution, liquidation or
                  winding up of the affairs of the Trust, or authorize, create
                  or issue additional shares of any series of APS (except that,
                  notwithstanding the foregoing, the Board of Trustees, without
                  the vote or consent of the Holders of APS, may from time to
                  time authorize and create, and the Trust may from time to time
                  issue, additional shares of any series of APS or classes or
                  series of other preferred shares ranking on a parity with APS
                  with respect to the payment of dividends and the distribution
                  of assets upon dissolution, liquidation or winding up of the
                  affairs of the Trust, if the Trust obtains written
                  confirmation from Moody's (if Moody's is then rating the

                                      -53-
<PAGE>

                  APS) or any Substitute Rating Agency (if any such Substitute
                  Rating Agency is then rating the APS) that the issuance of a
                  class or series would not impair the rating then assigned by
                  such rating agency to the APS and the Trust continues to
                  comply with Section 13 of the Investment Company Act, the
                  Investment Company Act Preferred Share Asset Coverage and the
                  Preferred Shares Basic Maintenance Amount requirements); or
                  (B) amend, alter or repeal the provisions of the Declaration
                  of Trust or the By-Laws, whether by merger, consolidation or
                  otherwise, so as to adversely affect any preference, right or
                  power of such APS or the Holders thereof; provided, however,
                  that (x) none of the actions permitted by the exception to (A)
                  above will be deemed to affect such preferences, rights or
                  powers, (y) a division of APS will be deemed to affect such
                  preferences, rights or powers only if the terms of such
                  division adversely affect the Holders of APS and (z) the
                  authorization, creation and issuance of classes or series of
                  shares ranking junior to the APS with respect to the payment
                  of dividends and the distribution of assets upon dissolution,
                  liquidation or winding up of the affairs of the Trust, will be
                  deemed to affect such preferences, rights or powers only if
                  Moody's is then rating the APS and such issuance would, at the
                  time thereof, cause the Trust not to satisfy the Investment
                  Company Act Preferred Share Asset Coverage or the Preferred
                  Shares Basic Maintenance Amount. So long as any shares of the
                  APS are outstanding, the Trust shall not, without the
                  affirmative vote or consent of the Holders of at least 66 2/3%
                  of the APS outstanding at the time, in person or by proxy,
                  either in writing or at a meeting, voting as a separate class,
                  file a voluntary application for relief under Federal
                  bankruptcy law or any similar application under state law for
                  so long as the Trust is solvent and does not foresee becoming
                  insolvent. If any action set forth above would adversely
                  affect the rights of one or more series (the "Affected
                  Series") of APS in a manner different from any other series of
                  APS, the Trust will not approve any such action without the
                  affirmative vote or consent of the Holders of at least a
                  majority of the shares of each such Affected Series
                  outstanding at the time, in person or by proxy, either in
                  writing or at a meeting (each such Affected Series voting as a
                  separate class).

                  (ii)     Unless a higher percentage is provided for in the
                  Declaration of Trust, (A) the affirmative vote of the Holders
                  of at least a majority of the APS outstanding at the time,
                  voting as a separate class, shall be required to approve any
                  conversion of the Trust from a closed-end to an open-end
                  investment company, (B) the affirmative vote of the Holders of
                  at least a majority of the APS outstanding at the time, voting
                  as a separate class, shall be required to amend the provisions
                  of the Declaration of Trust, which provides for the
                  classification of the Board of Trustees into three classes,
                  and (C) the affirmative vote of the Holders of a "majority of
                  the outstanding APS," voting as a separate class, shall be
                  required to approve any plan of reorganization (as such term
                  is used in the Investment Company Act) adversely affecting
                  such shares. The affirmative vote of the holders of a
                  "majority of the outstanding APS," voting as a separate class,
                  shall be required to approve any action not described in the
                  first sentence of this Section 8.7(b)(ii) requiring a vote of
                  security holders of the Trust under section 13(a) of the
                  Investment Company Act. For purposes of the foregoing,
                  "majority of the outstanding APS" means (i) 67% or more of
                  such shares present at a meeting, if

                                      -54-
<PAGE>

                  the Holders of more than 50% of such shares are present or
                  represented by proxy, or (ii) more than 50% of such shares,
                  whichever is less. In the event a vote of Holders of APS is
                  required pursuant to the provisions of section 13(a) of the
                  Investment Company Act, the Trust shall, not later than ten
                  Business Days prior to the date on which such vote is to be
                  taken, notify Moody's (if Moody's is then rating the APS) that
                  such vote is to be taken and the nature of the action with
                  respect to which such vote is to be taken. The Trust shall,
                  not later than ten Business Days after the date on which such
                  vote is taken, notify Moody's (if Moody's is then rating the
                  APS) of the results of such vote.

         (c)      ELECTION OF TRUSTEES; RIGHT TO ELECT MAJORITY OF BOARD
         TRUSTEES.

                  (i)      The Holders of the APS and any other class of APS of
                  the Trust that may be outstanding from time to time, voting
                  separately as a single class, shall be entitled to elect two
                  members of the Board of Trustees, and the holders of the
                  Common Shares, voting separately as a single class, shall be
                  entitled to elect the remaining members of the Board of
                  Trustees. If at any time, however, dividends on any of the APS
                  shall be unpaid in an amount equal to two full years'
                  dividends (whether or not earned or declared) or the Holders
                  of Preferred Shares, including the Auction Preferred Shares
                  are otherwise entitled under the Investment Company Act to
                  elect a majority of the Trustees, then the number of Trustees
                  constituting the Board of Trustees shall automatically be
                  increased by the smallest number such that, when added to the
                  number of Trustees then constituting the Board of Trustees,
                  the incumbent Trustees then elected solely by the Holders of
                  the APS plus such additional Trustees shall constitute a
                  majority of such increased number of Trustees; and at a
                  special meeting of Shareholders, which shall be called and
                  held as provided in Section 8.7(d), and at all subsequent
                  meetings at which Trustees are to be elected, the Holders of
                  the APS and holders of any other class of preferred shares of
                  the Trust ranking on parity with the APS, by majority vote,
                  voting separately as a single class (to the exclusion of the
                  holders of all other series and classes of Shares of the Trust
                  ranking junior to the APS), shall be entitled to elect such
                  smallest number of additional Trustees of the Trust who will
                  constitute a majority of the total number of Trustees of the
                  Trust as so increased. The terms of office of the persons who
                  are Trustees at the time of that election shall continue. If
                  the Trust thereafter shall pay, or declare and set apart for
                  payment, in full all dividends payable on all outstanding APS
                  for all past Dividend Periods, the voting rights stated in the
                  preceding sentence shall cease, and the terms of office of all
                  of the additional Trustees elected by the Holders of the APS
                  and holders of any other class of preferred shares of the
                  Trust ranking on parity with the APS (but not the terms of the
                  two incumbent Trustees elected by the Holders of the APS and
                  the remaining incumbent Trustees elected by the Common Shares)
                  shall terminate automatically, subject to the revesting of the
                  rights of the Holders of the APS as provided in the second
                  sentence of this paragraph in the event of any subsequent
                  arrearage in the payment of two full years' dividends on the
                  APS

                                      -55-
<PAGE>

                  (ii)     Any vacancy in the office of any Trustees elected by
                  the Holders of the APS may be filled by the remaining Trustees
                  (or Trustee) so elected or, if not so filled, by the Holders
                  of the APS and any other class of preferred shares of the
                  Trust ranking on parity with the APS, voting separately as a
                  single class, at any meeting of Shareholders for the election
                  of Trustees held thereafter. Any vacancy in the office of any
                  Trustees elected by the holders of the Common Shares may be
                  filled by the remaining Trustees (or Trustee) so elected or,
                  if not so filled, by the Holders of the Common Shares, voting
                  separately as a single class, at any meeting of Shareholders
                  for the election of Trustees held thereafter. Unless as
                  otherwise provided in the Declaration of Trust, a Trustee
                  elected by the Holders of the APS and any other class of
                  preferred shares of the Trust ranking on parity with the APS
                  may be removed with or without cause, but only by action taken
                  by the Holders of at least a majority of the outstanding APS
                  and any other class of preferred shares of the Trust ranking
                  on parity with the APS. Unless as otherwise provided in the
                  Declaration of Trust, a Trustee elected by the holders of the
                  Common Shares may be removed but only for cause by action
                  taken by the holders of at least 75% of the outstanding Common
                  Shares; provided, however, that if such termination is
                  recommended by two-thirds of the total number of Trustees then
                  in office elected by the holders of the Common Shares, the
                  vote of the holders of at least a majority of the Common
                  Shares then outstanding shall be sufficient authorization.

         (d)      VOTING PROCEDURES.

         As soon as practicable after the accrual of any right of the Holders to
         elect Trustees at a special meeting of Shareholders as described in
         Section 8.7(c), the Trust shall notify the Auction Agent and the
         Auction Agent shall call or cause to be called such special meeting by
         mailing or causing to be mailed a notice of such special meeting to the
         Holders upon not less than 10 nor more than 45 days prior to the date
         fixed for the meeting. If the Trust fails to send such notice to the
         Auction Agent or if the Auction Agent does not call such special
         meeting, it may be called by any Holder on like notice.

         The record date for determining the Holders entitled to notice of and
         to vote at such meeting shall be the close of business on the fifth
         Business Day preceding the day on which such notice is mailed.

         The Holders of a majority of the APS then outstanding, present in
         person or by proxy, will constitute a quorum for the election of
         additional Trustees. At any such meeting or adjournment thereof in the
         absence of a quorum, a majority of the Holders present in person or by
         proxy shall have the power to adjourn the meeting for the election of
         additional Trustees without notice, other than an announcement at the
         meeting, until a quorum is present, and, subject to Section 8.7(b), to
         take any other action as shall properly come before such meeting.

         If the right to elect additional Trustees shall have terminated as
         provided in Section 8.7(c) after the notice of a special meeting
         provided for in this Section 8.7(d) has been given but before the
         special meeting shall have been held, the Trust shall, as soon as
         practicable

                                      -56-
<PAGE>

         after such termination, mail or cause to be mailed to the Holders a
         notice of cancellation of such special meeting.

         (e)      BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL.
         The Board of Trustees, without the vote or consent of the shareholders
         of the Trust, may from time to time amend, alter or repeal any or all
         of the definitions of the terms listed below, and any provision of
         these By-Laws viewed by Moody's as a predicate for any such definition,
         and any such amendment, alteration or repeal will not be deemed to
         affect the preferences, rights or powers of APS or the Holders thereof;
         provided, however, that the Board of Trustees receives written
         confirmation from Moody's (such confirmation being required to be
         obtained only in the event Moody's is rating the APS) that any such
         amendment, alteration or repeal would not impair the ratings then
         assigned by Moody's to the APS:

         Annual Valuation Date
         Auditor's Confirmation
         Business Day
         Closing Transaction
         Commercial Paper Dealer
         Deposit Securities
         Discount Factor
         Discounted Value
         Eligible Assets
         Exposure Period
         Failure to Deposit
         Independent Accountant
         Investment Company Act Cure Date
         Investment Company Act Preferred Asset Coverage
         Market Value
         Maximum Applicable Rate
         Moody's Discount Factor
         Moody's Eligible Assets
         Moody's Hedging Transaction
         Moody's Industry Classifications
         Preferred Shares Basic Maintenance Amount
         Preferred Shares Basic Maintenance Cure Date
         Preferred Shares Basic Maintenance Report
         Pricing Service
         Rating Agency
         Reference Rate Response
         Short Term Money Market Instruments
         Specific Redemption Provisions
         Structured Notes
         Treasury Bonds
         Valuation Date

         (f)      VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
         otherwise required by law, the Holders of APS shall not have any
         relative rights or preferences or other special rights other than those
         specifically set forth herein.

         (g)      NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of APS
         shall have no preemptive rights or rights to cumulative voting.

         (h)      VOTING FOR TRUSTEES SOLE REMEDY FOR TRUST'S FAILURE TO PAY
         DIVIDENDS. In the event that the Trust fails to pay any dividends on
         the APS, the exclusive remedy of the Holders shall be the right to vote
         for trustees pursuant to the provisions of this Section 8.7.

         Section 8.8. OTHER RESTRICTIONS.

         (a)      The Trustees may from time to time in their sole discretion
         impose restrictions on certain investment practices of the Trust in
         order to comply with guidelines established by Moody's or any other
         Rating Agency that may be rating the Trust's APS at the time.

                                      -57-
<PAGE>

         (b)      For so long as any APS are rated by Moody's, the Trust will
         not, without the prior consent of Moody's:

                  (i)      issue senior securities representing indebtedness as
                  defined under the Investment Company Act;

                  (ii)     merge or consolidate into or with any other fund;

                  (iii)    engage in interest rate swaps, caps and floors,
                  except that the Trust may, without obtaining the written
                  consent described above, engage in interest rate swaps, caps
                  and floors, if; (1) the unsecured senior debt or claims paying
                  ability of the counterparty to the swap, cap or floor is rated
                  Aa3 or better by Moody's or A/A-1 or better by S&P and; (2)
                  the swap, collar or floor is marked-to-market daily by the
                  counterparty; (3) a swap, collar or floor that is "in the
                  money" is valued at 95% of the accrued net excess of the
                  Trust's entitlements over its obligations for purposes of
                  calculating the Investment Company Act Preferred Shares Asset
                  Coverage; (4) 100% of any accrued net excess of the Trust's
                  obligations over it entitlements with respect to a swap, cap
                  or floor that has not been defeased through the segregation of
                  liquid assets on the Trust's books and records is included as
                  a liability of the Trust for the purposes of calculating the
                  Preferred Share Basic Maintenance Amount; (5) the swap, cap or
                  floor notional amount does not exceed the liquidation
                  preference of the Outstanding Preferred Shares and (6) the
                  Trust intends to terminate the swap, cap or floor if the Trust
                  fails to maintain the Investment Company Preferred Shares
                  Asset Coverage on the last Business Day of any two consecutive
                  months.

                  (iv)     buy or sell financial futures contracts, write,
                  purchase or sell call options on financial futures contracts
                  or purchase put options on financial futures contracts or
                  write call options (except covered call options) on portfolio
                  securities unless it receives written confirmation from
                  Moody's that engaging in such transactions would not impair
                  the ratings then assigned to the APS by Moody's, except that
                  the Trust may purchase or sell exchange-traded financial
                  futures contracts based on any index approved by Moody's or
                  Treasury Bonds, and purchase, write or sell exchange-traded
                  put options on such financial futures contracts, any index
                  approved by Moody's or Treasury Bonds, and purchase, write or
                  sell exchange-traded call options on such financial futures
                  contracts, any index approved by Moody's or Treasury Bonds
                  (collectively "Moody's Hedging Transactions"), subject to the
                  following limitations:

                           (A)      the Trust will not engage in any Moody's
                           Hedging Transaction based on any index approved by
                           Moody's (other than transactions that terminate a
                           futures contract or option held by the Trust by the
                           Trust's taking the opposite position thereto
                           ("Closing Transactions")) that would cause the Trust
                           at the time of such transaction to own or have sold:

                                    (1)      outstanding financial futures
                           contracts based on such index exceeding in number 10%
                           of the average number of daily traded financial

                                      -58-
<PAGE>

                           futures contracts based on such index in the 30 days
                           preceding the time of effecting such transaction as
                           reported by The Wall Street Journal; or

                                    (2)      outstanding financial futures
                           contracts based on any index approved by Moody's
                           having a Market Value exceeding 50% of the Market
                           Value of all portfolio securities of the Trust
                           constituting Moody's Eligible Assets owned by the
                           Trust (other than Moody's Eligible Assets already
                           subject to a Moody's Hedging Transaction);

                           (B)      the Trust will not engage in any Moody's
                           Hedging Transaction based on Treasury Bonds (other
                           than Closing Transactions) that would cause the Trust
                           at the time of such transaction to own or have sold:

                                    (1)      outstanding financial futures
                           contracts based on Treasury Bonds with such contracts
                           having an aggregate Market Value exceeding 20% of the
                           aggregate Market Value of Moody's Eligible Assets
                           owned by the Trust and rated Aa by Moody's (or, if
                           not rated by Moody's but rated by S&P, rated AA by
                           S&P or Fitch); or

                                    (2)      outstanding financial futures
                           contracts based on Treasury Bonds with such contracts
                           having an aggregate Market Value exceeding 80% of the
                           aggregate Market Value of all portfolio securities of
                           the Trust constituting Moody's Eligible Assets owned
                           by the Trust (other than Moody's Eligible Assets
                           already subject to a Moody's Hedging Transaction) and
                           rated Baa or A by Moody's (or, if not rated by
                           Moody's but rated by S&P, rated BBB or A by S&P or
                           Fitch);

                                    (3)      for purposes of the foregoing
                           clauses (1) and (2), the Trust shall be deemed to own
                           the number of financial futures contracts that
                           underlie any outstanding options written by the
                           Trust;

                           (C)      the Trust will engage in Closing
                           Transactions to close out any outstanding financial
                           futures contract based on any index approved by
                           Moody's if the amount of open interest in such index
                           as reported by The Wall Street Journal is less than
                           an amount to be mutually determined by Moody's and
                           the Trust;

                           (D)      the Trust may engage in a Closing
                           Transaction to close out any outstanding financial
                           futures contract by no later than the fifth Business
                           Day of the month in which such contract expires and
                           will engage in a Closing Transaction to close out any
                           outstanding option on a financial futures contract by
                           no later than the first Business Day of the month in
                           which such option expires;

                           (E)      the Trust will engage in Moody's Hedging
                           Transactions only with respect to financial futures
                           contracts or options thereon having the next
                           settlement date or the settlement date immediately
                           thereafter;

                                      -59-
<PAGE>

                           (F)      the Trust (1) will not engage in options and
                           futures transactions for leveraging or speculative
                           purposes, except that an option or futures
                           transaction shall not for these purposes be
                           considered a leveraged position or speculative so
                           long as the combination of the Trust's non-derivative
                           positions, together with the relevant option or
                           futures transaction, produces a synthetic investment
                           position, or the same economic result, that could be
                           achieved by an investment, consistent with the
                           Trust's investment objectives and policies, in a
                           security that is not an option or futures
                           transaction, and (2) will not write any call options
                           or sell any financial futures contracts for the
                           purposes of hedging the anticipated purchase of an
                           asset prior to completion of such purchase; and

                           (G)      the Trust will not enter into an option or
                           futures transaction unless, after giving effect
                           thereto, the Trust would continue to have Moody's
                           Eligible Assets with an aggregate Discounted Value
                           equal to or greater than the Preferred Shares Basic
                           Maintenance Amount.

         Section 8.9. AUCTION PROCEDURES.

         (a)      ORDERS.

                  (i)      Prior to the Submission Deadline on each Auction Date
                  for shares of a series of APS:

                           (A)      each Beneficial Owner of shares of such
                           series may submit to its Broker-Dealer by telephone
                           or otherwise information as to:

                                             (1)      the number of Outstanding
                                    shares, if any, of such series held by such
                                    Beneficial Owner which such Beneficial Owner
                                    desires to continue to hold without regard
                                    to the Applicable Rate for shares of such
                                    series for the next succeeding Rate Period
                                    of such shares;

                                             (2)      the number of Outstanding
                                    shares, if any, of such series held by such
                                    Beneficial Owner which such Beneficial Owner
                                    offers to sell if the Applicable Rate for
                                    shares of such series for the next
                                    succeeding Rate Period of shares of such
                                    series shall be less than the rate per annum
                                    specified by such Beneficial Owner; and/or

                                             (3)      the number of Outstanding
                                    shares, if any, of such series held by such
                                    Beneficial Owner which such Beneficial Owner
                                    offers to sell without regard to the
                                    Applicable Rate for shares of such series
                                    for the next succeeding Rate Period of
                                    shares of such series; and

                           (B)      one or more Broker-Dealers, using lists of
                           Potential Beneficial Owners, shall in good faith for
                           the purpose of conducting a competitive

                                      -60-
<PAGE>

                           Auction in a commercially reasonable manner, contact
                           Potential Beneficial Owners (by telephone or
                           otherwise), including Persons that are not Beneficial
                           Owners, on such lists to determine the number of
                           shares, if any, of such series which each such
                           Potential Beneficial Owner offers to purchase if the
                           Applicable Rate for shares of such series for the
                           next succeeding Rate Period of shares of such series
                           shall not be less than the rate per annum specified
                           by such Potential Beneficial Owner.

                           (C)      For the purposes hereof, the communication
                           by a Beneficial Owner or Potential Beneficial Owner
                           to a Broker-Dealer, or by a Broker-Dealer to the
                           Auction Agent, of information referred to in clause
                           (A)(1), (A)(2), (A)(3) or (B) of this Section
                           8.9(a)(i) is hereinafter referred to as an "Order"
                           and collectively as "Orders" and each Beneficial
                           Owner and each Potential Beneficial Owner placing an
                           Order with a Broker-Dealer, and such Broker-Dealer
                           placing an order with the Auction Agent, is
                           hereinafter referred to as a "Bidder" and
                           collectively as "Bidders"; an Order containing the
                           information referred to in clause (A)(1) of this
                           Section 8.9(a)(i) is hereinafter referred to as a
                           "Hold Order" and collectively as "Hold Orders"; an
                           Order containing the information referred to in
                           clause (A)(2) or (B) of this Section 8.9(a)(i) is
                           hereinafter referred to as a "Bid" and collectively
                           as "Bids"; and an Order containing the information
                           referred to in clause (A)(3) of this Section
                           8.9(a)(i) is hereinafter referred to as a "Sell
                           Order" and collectively as "Sell Orders."

                           (D)      A Bid by a Beneficial Owner or an Existing
                           Holder of shares of a series of APS subject to an
                           Auction on any Auction Date shall constitute an
                           irrevocable offer to sell:

                                             (1)      the number of Outstanding
                                    shares of such series specified in such Bid
                                    if the Applicable Rate for shares of such
                                    series determined on such Auction Date shall
                                    be less than the rate specified therein;

                                             (2)      such number or a lesser
                                    number of Outstanding shares of such series
                                    to be determined as set forth in Section
                                    8.9(d)(i)(A)(4) if the Applicable Rate for
                                    shares of such series determined on such
                                    Auction Date shall be equal to the rate
                                    specified therein; or

                                             (3)      the number of Outstanding
                                    shares of such series specified in such Bid
                                    if the rate specified therein shall be
                                    higher than the Maximum Applicable Rate for
                                    shares of such series, or such number or a
                                    lesser number of Outstanding shares of such
                                    series to be determined as set forth in
                                    Section 8.9(d)(i)(A)(4) if the rate
                                    specified therein shall be higher than the
                                    Maximum Applicable Rate for shares of such
                                    series and Sufficient Clearing Bids for
                                    shares of such series do not exist.

                                      -61-
<PAGE>

                           (E)      A Sell Order by a Beneficial Owner or an
                           Existing Holder of shares of a series of APS subject
                           to an Auction on any Auction Date shall constitute an
                           irrevocable offer to sell:

                                             (1)      the number of Outstanding
                                    shares of such series specified in such Sell
                                    Order; or

                                             (2)      such number or a lesser
                                    number of Outstanding shares of such series
                                    as set forth in Section 8.9(d)(i)(B)(3) if
                                    Sufficient Clearing Bids for shares of such
                                    series do not exist; provided, however, that
                                    a Broker-Dealer that is an Existing Holder
                                    with respect to shares of a series of APS
                                    shall not be liable to any Person for
                                    failing to sell such shares pursuant to a
                                    Sell Order described in the proviso to
                                    paragraph (iii) of Section 8.9(b) if (X)
                                    such shares were transferred by the
                                    Beneficial Owner thereof without compliance
                                    by such Beneficial Owner or its transferee
                                    Broker-Dealer (or other transferee person,
                                    if permitted by the Trust) with the
                                    provisions of Section 8.9(f) or (Y) such
                                    Broker-Dealer has informed the Auction Agent
                                    pursuant to the terms of its Broker-Dealer
                                    Agreement that, according to such
                                    Broker-Dealer's records, such Broker Dealer
                                    believes it is not the Existing Holder of
                                    such shares.

                           (F)      A Bid by a Potential Beneficial Holder or a
                           Potential Holder of shares of a series of APS subject
                           to an Auction on any Auction Date shall constitute an
                           irrevocable offer to purchase:

                                             (1)      the number of Outstanding
                                    shares of such series specified in such Bid
                                    if the Applicable Rate for shares of such
                                    series determined on such Auction Date shall
                                    be higher than the rate specified therein;
                                    or

                                             (2)      such number or a lesser
                                    number of Outstanding shares of such series
                                    as set forth in Section 8.9(d)(i)(A)(5) if
                                    the Applicable Rate for shares of such
                                    series determined on such Auction Date shall
                                    be equal to the rate specified therein.

                  (ii)     No Order for any number of APS other than whole
                  shares shall be valid.

         (b)      SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.

                  (i)      Each Broker-Dealer shall submit in writing to the
                  Auction Agent prior to the Submission Deadline on each Auction
                  Date all Orders for APS of a series subject to an Auction on
                  such Auction Date obtained by such Broker-Dealer, designating
                  itself (unless otherwise permitted by the Trust) as an
                  Existing Holder in respect of shares subject to Orders
                  submitted or deemed submitted to it by Beneficial Owners and
                  as a Potential Holder in respect of shares subject to Orders

                                      -62-
<PAGE>

                  submitted to it by Potential Beneficial Owners, and shall
                  specify with respect to each Order for such shares:

                           (A)      the name of the Bidder placing such Order
                           (which shall be the Broker-Dealer unless otherwise
                           permitted by the Trust);

                           (B)      the aggregate number of shares of such
                           series that are the subject of such Order;

                           (C)      to the extent that such Bidder is an
                           Existing Holder of shares of such series:

                                             (1)      the number of shares, if
                                    any, of such series subject to any Hold
                                    Order of such Existing Holder;

                                             (2)      the number of shares, if
                                    any, of such series subject to any Bid of
                                    such Existing Holder and the rate specified
                                    in such Bid; and

                                             (3)      the number of shares, if
                                    any, of such series subject to any Sell
                                    Order of such Existing Holder; and

                           (D)      to the extent such Bidder is a Potential
                           Holder of shares of such series, the rate and number
                           of shares of such series specified in such Potential
                           Holder's Bid.

                  (ii)     If any rate specified in any Bid contains more than
                  three figures to the right of the decimal point, the Auction
                  Agent shall round such rate up to the next highest one
                  thousandth (.001) of 1%.

                  (iii)    If an Order or Orders covering all of the outstanding
                  APS of a series held by any Existing Holder is not submitted
                  to the Auction Agent prior to the Submission Deadline, the
                  Auction Agent shall deem a Hold Order to have been submitted
                  by or on behalf of such Existing Holder covering the number of
                  Outstanding shares of such series held by such Existing Holder
                  and not subject to Orders submitted to the Auction Agent;
                  provided, however, that if an Order or Orders covering all of
                  the Outstanding shares of such series held by any Existing
                  Holder is not submitted to the Auction Agent prior to the
                  Submission Deadline for an Auction relating to a Special Rate
                  Period consisting of more than 91 days, the Auction Agent
                  shall deem a Sell order to have been submitted by or on behalf
                  of such Existing Holder covering the number of outstanding
                  shares of such series held by such Existing Holder and not
                  subject to Orders submitted to the Auction Agent.

                  (iv)     If one or more Orders of an Existing Holder is
                  submitted to the Auction Agent covering in the aggregate more
                  than the number of Outstanding APS of a series subject to an
                  Auction held by such Existing Holder, such Orders shall be
                  considered valid in the following order of priority:

                                      -63-
<PAGE>

                           (A)      all Hold Orders for shares of such series
                           shall be considered valid, but only up to and
                           including in the aggregate the number of Outstanding
                           shares of such series held by such Existing Holder,
                           and if the number of shares of such series subject to
                           such Hold Orders exceeds the number of Outstanding
                           shares of such series held by such Existing Holder,
                           the number of shares subject to each such Hold Order
                           shall be reduced pro rata to cover the number of
                           Outstanding shares of such series held by such
                           Existing Holder;

                           (B)

                                             (1)      any Bid for shares of such
                                    series shall be considered valid up to and
                                    including the excess of the number of
                                    Outstanding shares of such series held by
                                    such Existing Holder over the number of
                                    shares of such series subject to any Hold
                                    Orders referred to in clause (A) above;

                                             (2)      subject to subclause (1),
                                    if more than one Bid of an Existing Holder
                                    for shares of such series is submitted to
                                    the Auction Agent with the same rate and the
                                    number of Outstanding shares of such series
                                    subject to such Bids is greater than such
                                    excess, such Bids shall be considered valid
                                    up to and including the amount of such
                                    excess, and the number of shares of such
                                    series subject to each Bid with the same
                                    rate shall be reduced pro rata to cover the
                                    number of shares of such series equal to
                                    such excess;

                                             (3)      subject to subclauses (1)
                                    and (2), if more than one Bid of an Existing
                                    Holder for shares of such series is
                                    submitted to the Auction Agent with
                                    different rates, such Bids shall be
                                    considered valid in the ascending order of
                                    their respective rates up to and including
                                    the amount of such excess;

                                             (4)      in any such event, the
                                    number, if any, of such Outstanding shares
                                    of such series subject to any portion of
                                    Bids considered not valid in whole or in
                                    part under this clause (B) shall be treated
                                    as the subject of a Bid for shares of such
                                    series by or on behalf of a Potential Holder
                                    at the rate therein specified; and

                           (C)      all Sell Orders for shares of such series
                           shall be considered valid up to and including the
                           excess of the number of Outstanding shares of such
                           series held by such Existing Holder over the sum of
                           shares of such series subject to valid Hold Orders
                           referred to in clause (A) above and valid Bids
                           referred to in clause (B) above.

                  (v)      If more than one Bid for one or more shares of a
                  series of APS is submitted to the Auction Agent by or on
                  behalf of any Potential Holder, each such

                                      -64-
<PAGE>

                  Bid submitted shall be a separate Bid with the rate and number
                  of shares therein specified.

                  (vi)     Any Order submitted by a Beneficial Owner or a
                  Potential Beneficial Owner to its Broker-Dealer, or by a
                  Broker-Dealer to the Auction Agent, prior to the Submission
                  Deadline on any Auction Date, shall be irrevocable.

         (c)      DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BIDS RATE
         AND APPLICABLE RATE.

                  (i)      Not earlier than the Submission Deadline on each
                  Auction Date for shares of a series of APS, the Auction Agent
                  shall assemble all valid Orders submitted or deemed submitted
                  to it by the Broker-Dealers in respect of shares of such
                  series (each such Order as submitted or deemed submitted by a
                  Broker-Dealer being hereinafter referred to individually as a
                  "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell
                  Order," as the case may be, or as a "Submitted Order" and
                  collectively as "Submitted Hold Orders," "Submitted Bids" or
                  "Submitted Sell Orders," as the case may be, or as "Submitted
                  Orders") and shall determine for such series:

                           (A)      the excess of the number of Outstanding
                           shares of such series over the number of Outstanding
                           shares of such series subject to Submitted Hold
                           Orders (such excess being hereinafter referred to as
                           the "Available APS" of such series);

                           (B)      from the Submitted Orders for shares of such
                           series whether:

                                             (1)      the number of Outstanding
                                    shares of such series subject to Submitted
                                    Bids of Potential Holders specifying one or
                                    more rates equal to or lower than the
                                    Maximum Applicable Rate for shares of such
                                    series exceeds or is equal to the sum of:

                                             (2)      the number of Outstanding
                                    shares of such series subject to Submitted
                                    Bids of Existing Holders specifying one or
                                    more rates higher than the Maximum
                                    Applicable Rate for shares of such series;
                                    and

                                             (3)      the number of Outstanding
                                    shares of such series subject to Submitted
                                    Sell Orders

(in the event such excess or such equality exists (other than because the number
of shares of such series in subclauses (2) and (3) above is zero because all of
the Outstanding shares of such series are subject to Submitted Hold Orders),
such Submitted Bids in subclause (1) above being hereinafter referred to
collectively as "Sufficient Clearing Bids" for shares of such series); and

                           (C)      if Sufficient Clearing Bids for shares of
                           such series exist, the lowest rate specified in such
                           Submitted Bids (the "Winning Bid Rate" for shares of
                           such series) which if:

                                      -65-
<PAGE>

                                             (1)      (X) each such Submitted
                                    Bid of Existing Holders specifying such
                                    lowest rate and (Y) all other such Submitted
                                    Bids of Existing Holders specifying lower
                                    rates were rejected, thus entitling such
                                    Existing Holders to continue to hold the
                                    shares of such series that are subject to
                                    such Submitted Bids; and

                                             (2)      (X) each such Submitted
                                    Bid of Potential Holders specifying such
                                    lowest rate and (Y) all other such Submitted
                                    Bids of Potential Holders specifying lower
                                    rates were accepted would result in such
                                    Existing Holders described in Section
                                    8.9(c(i)(B)(2) (1) above continuing to hold
                                    an aggregate number of Outstanding shares of
                                    such series which, when added to the number
                                    of Outstanding shares of such series to be
                                    purchased by such Potential Holders
                                    described in Section 8.9(c(i)(B)(2), would
                                    equal not less than the Available APS of
                                    such series.

                  (ii)     Promptly after the Auction Agent has made the
                  determinations pursuant to paragraph (i) of this Section
                  8.9(c), the Auction Agent shall advise the Trust of the
                  Maximum Applicable Rate for shares of the series of APS for
                  which an Auction is being held on the Auction Date and, based
                  on such determination the Applicable Rate for shares of such
                  series for the next succeeding Rate Period thereof as follows:

                           (A)      if Sufficient Clearing Bids for shares of
                           such series exist, that the Applicable Rate for all
                           shares of such series for the next succeeding Rate
                           Period thereof shall be equal to the Winning Bid Rate
                           for shares of such series so determined;

                           (B)      if Sufficient Clearing Bids for shares of
                           such series do not exist (other than because all of
                           the Outstanding shares of such series are subject to
                           Submitted Hold Orders), that the Applicable Rate for
                           all shares of such series for the next succeeding
                           Rate Period thereof shall be equal to the Maximum
                           Applicable Rate for shares of such series; or

                           (C)      if all of the Outstanding shares of such
                           series are subject to Submitted Hold Orders, that the
                           Dividend Period shall be a Dividend Period of seven
                           Rate Period Days and the Applicable Rate for all
                           shares of such series for the next succeeding Rate
                           Period thereof shall be the applicable "AA" Financial
                           Composite Commercial Paper Rate on such Auction Date.

         (d)      ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL
         ORDERS AND ALLOCATION OF SHARES.

                  (i)      Existing Holders shall continue to hold the APS that
                  are subject to Submitted Hold Orders, and, based on the
                  determinations made pursuant to Section 8.9(c)(i)(A), the
                  Submitted Bids and Submitted Sell Orders shall be

                                      -66-
<PAGE>

                  accepted or rejected by the Auction Agent and the Auction
                  Agent shall take such other action as set forth below:

                           (A)      If Sufficient Clearing Bids for shares of a
                           series of APS have been made, all Submitted Sell
                           Orders with respect to shares of such series shall be
                           accepted and, subject to the provisions of paragraphs
                           (iv) and (v) of Section 8.9(d), Submitted Bids with
                           respect to shares of such series shall be accepted or
                           rejected as follows in the following order of
                           priority and all other Submitted Bids with respect to
                           shares of such series shall be rejected:

                                             (1)      Existing Holders'
                                    Submitted Bids for shares of such series
                                    specifying any rate that is higher than the
                                    Winning Bid Rate for shares of such series
                                    shall be accepted, thus requiring each such
                                    Existing Holder to sell the APS subject to
                                    such Submitted Bids;

                                             (2)      Existing Holders'
                                    Submitted Bids for shares of such series
                                    specifying any rate that is lower than the
                                    Winning Bid Rate for shares of such series
                                    shall be rejected, thus entitling each such
                                    Existing Holder to continue to hold the APS
                                    subject to such Submitted Bids;

                                             (3)      Potential Holders'
                                    Submitted Bids for shares of such series
                                    specifying any rate that is lower than the
                                    Winning Bid Rate for shares of such series
                                    shall be accepted;

                                             (4)      each Existing Holder's
                                    Submitted Bid for shares of such series
                                    specifying a rate that is equal to the
                                    Winning Bid Rate for shares of such series
                                    shall be rejected, thus entitling such
                                    Existing Holder to continue to hold the APS
                                    subject to such Submitted Bid, unless the
                                    number of Outstanding APS subject to all
                                    such Submitted Bids shall be greater than
                                    the number of APS ("remaining shares") in
                                    the excess of the Available APS of such
                                    series over the number of APS subject to
                                    Submitted Bids described in Sections
                                    8.9(d)(i)(A) and (C), in which event such
                                    Submitted Bid of such Existing Holder shall
                                    be rejected in part, and such Existing
                                    Holder shall be entitled to continue to hold
                                    APS subject to such Submitted Bid, but only
                                    in an amount equal to the number of APS of
                                    such series obtained by multiplying the
                                    number of remaining shares by a fraction,
                                    the numerator of which shall be the number
                                    of Outstanding APS held by such Existing
                                    Holder subject to such Submitted Bid and the
                                    denominator of which shall be the aggregate
                                    number of Outstanding APS subject to such
                                    Submitted Bids made by all such Existing
                                    Holders that specified a rate equal to the
                                    Winning Bid Rate for shares of such series;
                                    and

                                      -67-
<PAGE>

                                             (5)      each Potential Holder's
                                    Submitted Bid for shares of such series
                                    specifying a rate that is equal to the
                                    Winning Bid Rate for shares of such series
                                    shall be accepted but only in an amount
                                    equal to the number of shares of such series
                                    obtained by multiplying the number of shares
                                    in the excess of the Available APS of such
                                    series over the number of APS subject to
                                    Submitted Bids described in clauses (2)
                                    through (4) of this Section 8.9(i)(A) by a
                                    fraction, the numerator of which shall be
                                    the number of Outstanding APS subject to
                                    such Submitted Bid and the denominator of
                                    which shall be the aggregate number of
                                    Outstanding APS subject to such Submitted
                                    Bids made by all such Potential Holders that
                                    specified a rate equal to the Winning Bid
                                    Rate for shares of such series.

                           (B)      If Sufficient Clearing Bids for shares of a
                           series of APS have not been made (other than because
                           all of the Outstanding shares of such series are
                           subject to Submitted Hold Orders), subject to the
                           provisions of Section 8.9(d)(4), Submitted Orders for
                           shares of such series shall be accepted or rejected
                           as follows in the following order of priority and all
                           other Submitted Bids for shares of such series shall
                           be rejected:

                                             (1)      Existing Holders'
                                    Submitted Bids for shares of such series
                                    specifying any rate that is equal to or
                                    lower than the Maximum Applicable Rate for
                                    shares of such series shall be rejected,
                                    thus entitling such Existing Holders to
                                    continue to hold the APS subject to such
                                    Submitted Bids;

                                             (2)      Potential Holders'
                                    Submitted Bids for shares of such series
                                    specifying any rate that is equal to or
                                    lower than the Maximum Applicable Rate for
                                    shares of such series shall be accepted; and

                                             (3)      Each Existing Holder's
                                    Submitted Bid for shares of such series
                                    specifying any rate that is higher than the
                                    Maximum Applicable Rate for shares of such
                                    series and the Submitted Sell Orders for
                                    shares of such series of each Existing
                                    Holder shall be accepted, thus entitling
                                    each Existing Holder that submitted or on
                                    whose behalf was submitted any such
                                    Submitted Bid or Submitted Sell Order to
                                    sell the shares of such series subject to
                                    such Submitted Bid or Submitted Sell Order,
                                    but in both cases only in an amount equal to
                                    the number of shares of such series obtained
                                    by multiplying the number of shares of such
                                    series subject to Submitted Bids described
                                    in clause (2) of this paragraph (B) by a
                                    fraction, the numerator of which shall be
                                    the number of Outstanding shares of such
                                    series held by such Existing Holder subject
                                    to such Submitted Bid or Submitted Sell
                                    Order and the denominator of which shall be
                                    the aggregate number of

                                      -68-
<PAGE>

                                    Outstanding shares of such series subject to
                                    all such Submitted Bids and Submitted Sell
                                    Orders.

                           (C)      If all of the Outstanding shares of a series
                           of APS are subject to Submitted Hold Orders, all
                           Submitted Bids for shares of such series shall be
                           rejected.

                           (D)      If, as a result of the procedures described
                           in clause (4) or (5) of paragraph (A) or clause (3)
                           of paragraph (B) of this Section 8.9(d)(i), any
                           Existing Holder would be entitled or required to
                           sell, or any Potential Holder would be entitled or
                           required to purchase, a fraction of a share of a
                           series of APS on any Auction Date, the Auction Agent
                           shall, in such manner as it shall determine in its
                           sole discretion, round up or down the number of APS
                           of such series to be purchased or sold by any
                           Existing Holder or Potential Holder on such Auction
                           Date as a result of such procedures so that the
                           number of shares so purchased or sold by each
                           Existing Holder or Potential Holder on such Auction
                           Date shall be whole APS.

                           (E)      If, as a result of the procedures described
                           in clause (5) of Section 8.9(d)(i)(A), any Potential
                           Holder would be entitled or required to purchase less
                           than a whole share of a series of APS on any Auction
                           Date, the Auction Agent shall, in such manner as it
                           shall determine in its sole discretion, allocate APS
                           of such series for purchase among Potential Holders
                           so that only whole shares of APS of such series are
                           purchased on such Auction Date as a result of such
                           procedures by any Potential Holder, even if such
                           allocation results in one or more Potential Holders
                           not purchasing APS of such series on such Auction
                           Date.

                           (F)      Based on the results of each Auction for
                           shares of a series of APS, the Auction Agent shall
                           determine the aggregate number of shares of such
                           series to be purchased and the aggregate number of
                           shares of such series to be sold by Potential Holders
                           and Existing Holders and, with respect to each
                           Potential Holder and Existing Holder, to the extent
                           that such aggregate number of shares to be purchased
                           and such aggregate number of shares to be sold
                           differ, determine to which other Potential Holder(s)
                           or Existing Holder(s) they shall deliver, or from
                           which other Potential Holder(s) or Existing Holder(s)
                           they shall receive, as the case may be, APS of such
                           series. Notwithstanding any provision of the Auction
                           Procedures to the contrary, in the event an Existing
                           Holder or Beneficial Owner of a series of APS with
                           respect to whom a Broker-Dealer submitted a Bid to
                           the Auction Agent for such shares that was accepted
                           in whole or in part, or submitted or is deemed to
                           have submitted a Sell Order for such shares that was
                           accepted in whole or in part, fails to instruct its
                           Agent Member to deliver such shares against payment
                           therefor, partial deliveries of APS that have been
                           made in respect of Potential Holders' or Potential
                           Beneficial Owners' submitted Bids for shares of such
                           series that have been

                                      -69-
<PAGE>

                           accepted in whole or in part shall constitute good
                           delivery to such Potential Holders and Potential
                           Beneficial Owners.

                           (G)      None of the Trust, the Adviser, nor the
                           Auction Agent nor any affiliate of either shall have
                           any responsibility or liability with respect to the
                           failure of an Existing Holder, a Potential Holder, a
                           Beneficial Owner, a Potential Beneficial Owner or its
                           respective Agent Member to deliver APS of any series
                           or to pay for APS of any series sold or purchased
                           pursuant to the Auction Procedures or otherwise.

         (e)      AUCTION AGENT.

         For so long as any APS are outstanding, the Auction Agent, duly
appointed by the Trust to so act, shall be in each case a commercial bank, trust
company or other financial institution independent of the Trust and its
Affiliates (which however may engage or have engaged in business transactions
with the Trust or its Affiliates) and at no time shall the Trust or any of its
affiliates act as the Auction Agent in connection with the Auction Procedures.
If the Auction Agent resigns or for any reason its appointment is terminated
during any period that any APS are outstanding, the Board of Trustees shall use
its best efforts promptly thereafter to appoint another qualified commercial
bank, trust company or financial institution to act as the Auction Agent. The
Auction Agent's registry of Existing Holders of a series of APS shall be
conclusive and binding on the Broker-Dealers. A Broker-Dealer may inquire of the
Auction Agent between 3:00 p.m. on the Business Day preceding an Auction for a
series of APS and 9:30 a.m. on the Auction Date for such Auction to ascertain
the number of shares of such series in respect of which the Auction Agent has
determined such Broker-Dealer to be an Existing Holder. If such Broker-Dealer
believes it is the Existing Holder of fewer shares of such series than specified
by the Auction Agent in response to such Broker-Dealer's inquiry, such
Broker-Dealer may so inform the Auction Agent of that belief. Such Broker-Dealer
shall not, in its capacity as Existing Holder of shares of such series, submit
Orders in such Auction in respect of shares of such series covering in the
aggregate more than the number of shares of such series specified by the Auction
Agent in response to such Broker-Dealer's inquiry.

         (f)      TRANSFER OF APS.

         Unless otherwise permitted by the Trust, a Beneficial Owner or an
Existing Holder may sell, transfer or otherwise dispose of APS only in whole
shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in
accordance with the procedures described in this Section 8.9 or to a
Broker-Dealer; provided, however, that (a) a sale, transfer or other disposition
of APS from a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer as the holder of such shares to that Broker-Dealer or another
customer of that Broker-Dealer shall not be deemed to be a sale, transfer or
other disposition for purposes of this Section 8.9 if such Broker-Dealer remains
the Existing Holder of the shares so sold, transferred or disposed of
immediately after such sale, transfer or disposition and (b) in the case of all
transfers other than pursuant to Auctions, the Broker-Dealer (or other Person,
if permitted by the Trust) to whom such transfer is made shall advise the
Auction Agent of such transfer.

                                      -70-
<PAGE>

         (g)      GLOBAL CERTIFICATE.

         Prior to the commencement of a any period in which the holders of
Preferred Shares are entitled to elect a majority of the Board of Trustees, (i)
all of the shares of a series of APS outstanding from time to time shall be
represented by one global certificate registered in the name of the Securities
Depository or its nominee and (ii) no registration of transfer of shares of a
series of APS shall be made on the books of the Trust to any Person other than
the Securities Depository or its nominee.

                                      -71-
<PAGE>

         (h)      FORCE MAJEURE.

                  (i)      Notwithstanding anything else set forth herein, if an
                  Auction Date is not a Business Day because the New York Stock
                  Exchange is closed for business due to an act of God, natural
                  disaster, act of war, civil or military disturbance, act of
                  terrorism, sabotage, riots or a loss or malfunction of
                  utilities or communications services or the Auction Agent is
                  not able to conduct an Auction in accordance with the Auction
                  Procedures for any such reason, then the Auction Rate for the
                  next Dividend Period shall be the Auction Rate determined on
                  the previous Auction Date.

                  (ii)     Notwithstanding anything else set forth herein, if a
                  Dividend Payment Date is not a Business Day because the New
                  York Stock Exchange is closed for business due to an act of
                  God, natural disaster, act of war civil or military
                  disturbance, act of terrorism, sabotage, riots or a loss or
                  malfunction of utilities or communications services or the
                  dividend payable on such date can not be paid for any such
                  reason, then:

                           (A)      the Dividend Payment Date for the affected
                           Dividend Period shall be the next Business Day on
                           which the Trust and its paying agent, if any, are
                           able to cause the dividend to be paid using their
                           reasonable best efforts;

                           (B)      the affected Dividend Period shall end on
                           the day it would have ended had such event not
                           occurred and the Dividend Payment Date had remained
                           the scheduled date; and

                           (C)      the next Dividend Period will begin and end
                           on the dates on which it would have begun and ended
                           had such event not occurred and the Dividend Payment
                           Date remained the scheduled date.

         (i)      MISCELLANEOUS.

                  The Board of Trustees may interpret the provisions of this
         Section 8.9 to resolve any inconsistency or ambiguity, remedy any
         formal defect or make any other change or modification that does not
         materially adversely affect the rights of Existing Holders of the
         Preferred Shares, and if such inconsistency, ambiguity or formal defect
         reflects an inaccurate provision hereof, the Board of Trustees may, in
         appropriate circumstances, amend this Section 8.9. An Existing Holder
         (A) may sell, transfer or otherwise dispose of Preferred Shares only
         pursuant to a Bid or Sell Order in accordance with the procedures
         described in this Section 8.9 or to or through a Broker-Dealer,
         provided that in the case of all transfers other than pursuant to
         Auctions such Existing Holder or its Broker-Dealer or its Agent Member
         advises the Auction Agent of such transfer, and (B) shall have the
         ownership of the Preferred Shares held by it maintained in book-entry
         form by the Securities Depository in the account of its Agent Member,
         which in turn will maintain records of such Existing Holder's
         beneficial ownership. Neither the Trust nor any affiliated person of
         the Trust (as defined under the Investment Company Act) shall

                                      -72-
<PAGE>

         submit any Order in any Auction. All of the Outstanding Preferred
         Shares shall be represented by one certificate registered in the name
         of the nominee of the Securities Depository. Each such certificate
         shall bear a legend substantially to the effect that transfer of the
         Shares represented by such certificate is subject to the restrictions
         specified in Section 8.9(f). Neither the Trust nor any of its agents,
         including, without limitation, the Auction Agent, shall have any
         liability with respect to the failure of a Potential Holder, Existing
         Holder or Agent Member to deliver, or to pay for, Preferred Shares sold
         or purchased in an Auction or otherwise.

                                   ARTICLE IX

                             TERMS OF COMMON SHARES

         Section 9.1. DESIGNATION. A class of common shares of beneficial
interest, without par value, is hereby designated "Common Shares" (the "Common
Shares").

         Section 9.2. COMMON SHARES.

         (a)      The Common Shares shall rank junior to the Preferred Shares
with respect to payment of dividends and distributions on liquidation or
dissolution and shall have such other qualifications, limitations or
restrictions as provided in the Declaration.

         (b)      Except as otherwise provided herein or by law and the
Declaration, the holders of the Common Shares shall be entitled to one vote for
each Share on each matter submitted to a vote of the Shareholders of the Trust.
The holders of the Common Shares and the holders of the Preferred Shares shall
vote together as a single class except as herein provided or to the extent
otherwise required by the 1940 Act or the Declaration.

         (c)      After all accumulated and unpaid dividends upon all
outstanding Preferred Shares for all previous dividend periods have been paid,
and full dividends on all outstanding Preferred Shares for the then-current
dividend period have been paid or declared and a sum sufficient for the payment
thereof set apart therefore, then and not otherwise, dividends or other
distributions may be declared upon and paid to the holders of the Common Shares,
to the exclusion of the holders of the Preferred Shares.

         (d)      In the event of the dissolution, liquidation, or winding up of
the Trust, whether voluntary or involuntary, after payment in full of the
amounts, if any, required to be paid to the holders of the Preferred Shares, the
holders of the Common Shares shall be entitled, to the exclusion of the holders
of the Preferred Shares, to share ratably in all remaining assets of the Trust.

                                   ARTICLE X

                                   FISCAL YEAR

         The fiscal year of the Trust shall be established by resolution of the
Trustees.

                                      -73-
<PAGE>

                                   ARTICLE XI

                                      SEAL

         The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe
but the absence of a seal shall not impair the validity or execution of any
document.

                                  ARTICLE XII

                        SUFFICIENCY AND WAIVERS OF NOTICE

         Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed to
have been sent by mail, telegraph, cable, wireless, facsimile or electronic
means for the purposes of these By-laws when it has been delivered to a
representative of any entity holding itself out as capable of sending notice by
such means with instructions that it be so sent.

                                  ARTICLE XIII

                                   AMENDMENTS

         These By-laws, or any of them, may be altered, amended or repealed, or
new By-laws may be adopted by a vote of a majority of the Trustees, provided,
however, that no By-law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to federal or state law,
the Declaration of Trust or these By-laws, a vote of the Shareholders.

                                 END OF BY-LAWS

                                      -74-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(D)
<SEQUENCE>5
<FILENAME>b48195isexv99wxdy.txt
<DESCRIPTION>FORM OF PREFERRED  SHARE CERTIFICATE
<TEXT>
<PAGE>

                                                                   EXHIBIT 99(d)

                       AUCTION PREFERRED SHARES, SERIES A

                             NO PAR VALUE PER SHARE

                    $25,000 LIQUIDATION PREFERENCE PER SHARE

Certificate Number: 1

Number of Shares:   1,780

CUSIP No.:          410123 20 2

                      JOHN HANCOCK INCOME SECURITIES TRUST

This certifies that Cede & Co. is the owner of the above referenced number of
fully paid and non-assessable Auction Preferred Shares, Series A, no par value
per share, $25,000 liquidation preference per share, of John Hancock Income
Securities Trust, a Massachusetts business trust (the "Trust"), the said shares
being issued, received and held under and subject to the terms and provisions of
the Agreement and Declaration of Trust, as amended and restated on August 26,
2003, establishing the Trust and the By-Laws of the Trust, as amended and
restated on August 26, 2003 (the "By-Laws"), and all amendments and restatements
thereto, copies of which are on file with the Secretary of the Trust at the
offices of the Trust. The said owner by accepting this certificate agrees to and
is bound by all of the said terms and provisions. The shares represented hereby
are transferable in writing by the owner thereof in person or by attorney upon
surrender of this certificate to the Trust in the manner provided in the By-Laws
properly endorsed for transfer. This certificate is executed on behalf of the
Trustees of the Trust as Trustees and not individually, and the obligations
hereof are not binding upon any of the Trustees, officers or shareholders of the
Trust individually but are binding only upon the assets and property of the
Trust. This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.

Witness the facsimile seal of the Trust and the facsimile signatures of its duly
authorized officers.

Dated:

Executed on behalf of the Trust:

_____________________________________               ____________________________
President and Chief Executive Officer                         Treasurer

Countersigned and Registered:

Deutsche Bank Trust Company Americas
New York, New York
Transfer Agent and Registrar

BY:_________________________________

<PAGE>

Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Trust or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

EXPLANATION OF ABBREVIATIONS

The following abbreviations when used in the form of ownership on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations. Abbreviations in addition to those
appearing below may be used.

ABBREVIATION            EQUIVALENT

JT TEN                   As joint tenants, with rights of survivorship

TEN IN COM               As tenants in common

TEN BY ENT               As tenants by the entireties and not as tenants in
                         common

UNIF TRANSFERS MIN ACT   Uniform Transfers to Minors Act

ADM                      Administrator(s)

FDN                      Foundation

PL                       Pubic Law

AGMT                     Agreement

TR                       (As) trustee(s) for, of

CUST                     Custodian for

UA                       Under Agreement

EST                      Estate, Of estate of

UW                       Under will of, Of will of

EX                       Executor(s), Executrix, Under last will & testament

FBO                      For the benefit of

Additional abbreviations may also be used though not in the above list.

                                       -2-

<PAGE>

THIS CERTIFICATE IS ISSUED SUBJECT TO THE PROVISIONS RESTRICTING TRANSFERS OF
THE AUCTION PREFERRED SHARES CONTAINED IN THE BY-LAWS.

                                  TRANSFER FORM

For value received, ____________________ hereby sell, assign and transfer unto:

___________________         ______________________________________

(Name)                     (Social Security Number)

Please print or typewrite Name and Address (including postal ZIP Code of
Assignee)
________________________________________________________________________________

________________________________________________________________________________

_________________________ shares represented by this Certificate, and do hereby
irrevocably constitute and appoint _________________________________ Attorney,
to transfer such beneficial interest on the books of the Trust named therein
with full power of substitution in the premises.

Dated __________________, _______

Signature(s)______________________________________

(The signature of this assignment must correspond exactly with the name as
written upon the face of this Certificate in every particular, without
alteration or enlargement or any change whatsoever. If more than one owner, all
must sign.)

_________________________

(Signature must be guaranteed by a commercial bank or trust company or member
firm of any national stock exchange.)

IMPORTANT NOTICE

When you sign your name to the Transfer Form without filling in the name of your
"Assignee" this certificate becomes fully negotiable, similar to a check
endorsed in blank. Therefore, to safeguard a signed certificate, it is
recommended that you fill in the name of the new owner in the "Assignee" space.

Alternatively, instead of using this Transfer Form, you may sign a separate
"stock power" form and then mail the unsigned certificate and the signed "stock
power" in separate envelopes. For added protection, use registered mail for a
certificate.

                                       -3-
<PAGE>

                       AUCTION PREFERRED SHARES, SERIES B

                             NO PAR VALUE PER SHARE

                    $25,000 LIQUIDATION PREFERENCE PER SHARE

Certificate Number: 1

Number of Shares:   1,780

CUSIP No.:          410123 30 1

                      JOHN HANCOCK INCOME SECURITIES TRUST

This certifies that Cede & Co. is the owner of the above referenced number of
fully paid and non-assessable Auction Preferred Shares, Series B, no par value
per share, $25,000 liquidation preference per share, of John Hancock Income
Securities Trust, a Massachusetts business trust (the "Trust"), the said shares
being issued, received and held under and subject to the terms and provisions of
the Agreement and Declaration of Trust, as amended and restated on August 26,
2003, establishing the Trust and the By-Laws of the Trust, as amended and
restated on August 26, 2003 (the "By-Laws"), and all amendments and restatements
thereto, copies of which are on file with the Secretary of the Trust at the
offices of the Trust. The said owner by accepting this certificate agrees to and
is bound by all of the said terms and provisions. The shares represented hereby
are transferable in writing by the owner thereof in person or by attorney upon
surrender of this certificate to the Trust in the manner provided in the By-Laws
properly endorsed for transfer. This certificate is executed on behalf of the
Trustees of the Trust as Trustees and not individually, and the obligations
hereof are not binding upon any of the Trustees, officers or shareholders of the
Trust individually but are binding only upon the assets and property of the
Trust. This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.

Witness the facsimile seal of the Trust and the facsimile signatures of its duly
authorized officers.

Dated:

Executed on behalf of the Trust:

_____________________________________                  _________________________
President and Chief Executive Officer                         Treasurer

Countersigned and Registered:

Deutsche Bank Trust Company Americas
New York, New York
Transfer Agent and Registrar

BY:____________________________

<PAGE>

Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Trust or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

EXPLANATION OF ABBREVIATIONS

The following abbreviations when used in the form of ownership on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations. Abbreviations in addition to those
appearing below may be used.

ABBREVIATION             EQUIVALENT

JT TEN                   As joint tenants, with rights of survivorship

TEN IN COM               As tenants in common

TEN BY ENT               As tenants by the entireties and not as tenants
                         in common

UNIF TRANSFERS MIN ACT   Uniform Transfers to Minors Act

ADM                      Administrator(s)

FDN                      Foundation

PL                       Pubic Law

AGMT                     Agreement

TR                       (As) trustee(s) for, of

CUST                     Custodian for

UA                       Under Agreement

EST                      Estate, Of estate of

UW                       Under will of, Of will of

EX                       Executor(s), Executrix, Under last will & testament

FBO                      For the benefit of

Additional abbreviations may also be used though not in the above list.

                                       -2-

<PAGE>

THIS CERTIFICATE IS ISSUED SUBJECT TO THE PROVISIONS RESTRICTING TRANSFERS OF
THE AUCTION PREFERRED SHARES CONTAINED IN THE BY-LAWS.

                                  TRANSFER FORM

For value received, ____________________ hereby sell, assign and transfer unto:

_________________________       _________________________________

(Name)                          (Social Security Number)

Please print or typewrite Name and Address (including postal ZIP Code of
Assignee)

________________________________________________________________________________

________________________________________________________________________________

________________________ shares represented by this Certificate, and do hereby
irrevocably constitute and appoint __________________________________ Attorney,
to transfer such beneficial interest on the books of the Trust named therein
with full power of substitution in the premises.

Dated __________________, _______

Signature(s)______________________________________

(The signature of this assignment must correspond exactly with the name as
written upon the face of this Certificate in every particular, without
alteration or enlargement or any change whatsoever. If more than one owner, all
must sign.)

______________________________________

(Signature must be guaranteed by a commercial bank or trust company or member
firm of any national stock exchange.)

IMPORTANT NOTICE

When you sign your name to the Transfer Form without filling in the name of your
"Assignee" this certificate becomes fully negotiable, similar to a check
endorsed in blank. Therefore, to safeguard a signed certificate, it is
recommended that you fill in the name of the new owner in the "Assignee" space.

Alternatively, instead of using this Transfer Form, you may sign a separate
"stock power" form and then mail the unsigned certificate and the signed "stock
power" in separate envelopes. For added protection, use registered mail for a
certificate.

                                       -3-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(G)
<SEQUENCE>6
<FILENAME>b48195isexv99wxgy.txt
<DESCRIPTION>AMENDED AND RESTATED INVESTMENT MGMT. CONTRACT
<TEXT>
<PAGE>

                                                                   EXHIBIT 99(g)

                      JOHN HANCOCK INCOME SECURITIES TRUST

                         INVESTMENT MANAGEMENT CONTRACT

                             AS AMENDED AND RESTATED
                                 AUGUST 22, 2003

<PAGE>

                      JOHN HANCOCK INCOME SECURITIES TRUST

                           Boston, Massachusetts 02199

                                 August 22, 2003

John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199

                         INVESTMENT MANAGEMENT CONTRACT

Dear Sirs:

         John Hancock Income Securities Trust (the "Trust") has been organized
as a business trust under the laws of Massachusetts to engage in the business of
investing in securities. Its Trustees have selected you to provide investment
advice and management for the Trust and to provide certain other services, as
more fully set forth below, and you are willing to provide such advice,
management and services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:

         1.       Delivery of Trust Documents. The Trust has furnished you with
copies, properly certified or authenticated, of each of the following:

                  (a)      "Declaration of Trust" of the Trust.

                  (b)      "By-Laws of the Trust" as in effect on the date
         hereof.

                  (c)      "Resolutions of the Trustees" of the Trust selecting
         you as investment adviser and manager and approving the form of this
         Contract.

The Trust will furnish you from time to time with copies, properly certified or
authenticated, of all amendments of or supplements to the foregoing, if any.

         2.       Investment Services. You will use your best efforts to present
to the Trust a continuing and suitable investment program consistent with the
investment policies and objective of the Trust. In the performance of your
duties hereunder, subject always to the provisions contained in the documents
delivered to you pursuant to Section 1, as each of the same may from time to
time be amended or supplemented, you will, at your own expense:

                  (a)      furnish the Trust with advice and recommendations,
         consistent with the investment policies of the Trust with respect to
         the purchase, holding and disposition of portfolio securities;

                  (b)      advise the Trust in connection with policy decisions
         to be made by its Trustees or any committee thereof and, as requested,
         furnish the Trust with research,

<PAGE>

         economic and statistical data in connection with the Trust's
         investments and investment policies;

                  (c)      provide administration of the day-to-day investment
         operations of the Trust;

                  (d)      submit reports relating to the valuation of the
         Trust's securities as its Trustees may reasonably request;

                  (e)      assist the Trust in any negotiations relating to the
         Trust's investments with issuers, investment banking firms, securities
         brokers or dealers and other institutions or investors;

                  (f)      provide office space and office equipment, the use of
         accounting equipment when required, and necessary executive, clerical
         and secretarial personnel for the performance of the foregoing
         services;

                  (g)      from time to time or any time requested by the
         Trust's Trustees, make reports to the Trust of your performance of the
         foregoing services and furnish advice and recommendations with respect
         to other aspects of the business and affairs of the Trust; and

                  (h)      maintain and preserve the records required by the
         Investment Company Act of 1940 to be maintained and preserved by the
         Trust. You agree that such records are the property of the Trust and
         will be surrendered to the Trust promptly upon request therefore.

         3.       Expenses of the Adviser. You will pay:

                  (a)      the expenses of organizing the Trust, of registering
         it under the Investment Company Act of 1940 and registering its shares
         under the Securities Act of 1933 for initial public offering and sale,
         other than the costs of preparing stock certificates and the fees of
         custodians, transfer agents and registrars;

                  (b)      the compensation and expenses of all officers and
         employees of the Trust;

                  (c)      the expenses of office rent, telephone, utilities,
         office furniture, equipment and other office expenses of the Trust;

                  (d)      the expense of periodic calculations of the net asset
         value of the Trust's shares;

                  (e)      any other expenses incurred by you in connection with
         the performance of your duties hereunder; and

                  (f)      insurance as required by the Trust's Trustees.

                                       -2-

<PAGE>

         4.       Expenses of the Trust. You will not be required to pay any
expenses of the Trust not expressly assumed by you. In particular, and without
limiting the generality of the foregoing, you will not be required to pay:

                  (a)      the compensation and expenses of Trustees who are not
         interested persons (as used in this Contract, such term shall have the
         meaning specified in the Investment Company Act of 1940, as amended) of
         you, and of independent advisers, independent contractors, consultants,
         managers and other agents employed by the Trust other than through you;

                  (b)      legal, accounting, financial management, tax and
         auditing fees and expenses of the Trust (including an allocable portion
         of the cost of its employees rendering such services to the Trust);

                  (c)      the fees or disbursements of custodians and
         depositories of the Trust's assets, transfer agents, disbursing agents,
         and registrars;

                  (d)      taxes or governmental fees;

                  (e)      the cost of preparing and mailing dividends,
         distributions, reports, notices and proxy materials to stockholders;
         and

                  (f)      brokers' commissions or underwriting fees.

         5.       Compensation of the Adviser. For all services to be rendered
and payments to be made by you as provided in paragraphs 2 and 3 hereof, the
Trust will pay you quarterly, an investment management fee approximately
equivalent on an annual basis to a stated percentage of the average weekly
managed assets of the Trust as set forth below:

<TABLE>
<CAPTION>
    Net Asset Value          Annual Rate
- ------------------------     -----------
<S>                          <C>
First $150,000,000             0.650%
Next $50,000,000               0.375%
Next $100,000,000              0.350%
Amount Over $300,000,000       0.300%
</TABLE>

         "Managed assets" means the total assets of the Trust (including any
assets attributable to any leverage that may be outstanding) minus the sum of
accrued liabilities (other than liabilities representing financial leverage).
The liquidation preference of any preferred shares is not a liability. The
"average weekly managed assets" of the Trust shall be determined on the basis
set forth in the Trust's prospectus or otherwise consistent with the 1940 Act
and the rules and regulations promulgated thereunder, provided that a majority
of the Trustees of the Trust, including a majority of the Trustees of the Trust
who are not interested persons of you or of the Trust (otherwise than as
Trustees) shall have approved the valuations of the Trust's assets on which such
fee is based.

         6.       Other Activities of Adviser and Its Affiliates. Nothing herein
contained shall prevent you or any affiliate or associate of yours from engaging
in any other business or from

                                       -3-

<PAGE>

acting as investment adviser or investment manager for any other person or
entity, whether or not having investment policies or portfolios similar to the
Trust's and it is specifically understood that officers, directors and employees
of yours and those of your parent company, John Hancock Mutual Insurance
Company, may continue to engage in portfolio management and advice on behalf of
other investment companies, whether or not registered, and of the said Insurance
Company itself.

         7.       Avoidance of Inconsistent Position. In connection with
purchases or sales of portfolio securities for the account of the Trust neither
you nor any of your directors, officers or employees will act as principal or
agent or receive any commission. If any occasion should arise in which you
advise persons concerning the shares of the Trust you will act solely on your
own behalf and not in any way on behalf of the Trust.

         8.       No Partnership or Joint Venture. The Trust and you are not
partners or joint venturers with each other and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.

         9.       Name of Trust. The Trust may use the name "John Hancock" or
may name derived from or similar to the name "John Hancock Advisers, Inc." or
"John Hancock Mutual Life Insurance Company" only for so long as this Agreement
or any extension, renewal, or amendment hereof remains in effect. At such time
as such an agreement shall no longer be in effect, the Trust will (to the extent
that it lawfully can) cease to use such a name or any other name indicating that
it is advised by or otherwise connected with you.

         10.      Limitation of Liability of Adviser. You shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the matters to which this Contract relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless disregard by you of your
obligations and duties under this Contract. Any person, even though also
employed by you, who may be or become an employee of and paid by the Trust shall
be deemed, when acting within the scope of his employment by the Trust to be
acting in such employment solely for the Trust and not as your employee or
agent.

         11.      Duration and Termination of this Contract. This Contract shall
remain in force but only so long as such continuance is specifically approved at
least annually by (a) a majority of the Trustees who are not interested persons
of you or (other than as Trustees) of the Trust cast in person at a meeting
called for the purpose of voting on such approval, and (b) either (i) the
Trustees of the Trust or (ii) a majority of the outstanding voting securities of
the Trust. This Contract may, on 60 days' written notice, be terminated at any
time without the payment of any penalty, by the Trustees of the Trust; by vote
of a majority of the outstanding voting securities of the Trust; or by you. This
Contract shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Paragraph 11, the definitions contained in
Section 2(a) of the Investment Company Act of 1940, as amended (particularly the
definitions of "assignment" and "voting security"), shall be applied.

         12.      Amendment of this Contract. No provision of this Contract may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party

                                       -4-

<PAGE>

against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Contract shall be effective until approved by
(a) a majority of the Trustees who are not interested persons of you or (other
than as Trustees) of the Trust cast in person at a meeting called for the
purpose of voting on such approval, and (b) either (i) the Trustees of the Trust
or (ii) a majority of the outstanding voting securities of the Trust as defined
in the Investment Company Act of 1940, as amended.

         13.      Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Contract may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

                                       -5-

<PAGE>

         If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.

                                     Yours very truly,

                                     JOHN HANCOCK INCOME SECURITIES TRUST

                                     By_________________________________________
                                         Chairman of the Board and President

The foregoing Agreement is hereby
accepted as of the date thereof.

JOHN HANCOCK ADVISERS, INC.


By__________________________________________
   Vice Chairman of the Board and President

         The name John Hancock Income Securities Trust is the designation of the
Trustees under the Declaration of Trust, dated October 5, 1984, as amended from
time to time. The obligations of the Trust are not personally binding upon, nor
shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Trust but only the Trust's
property shall be bound.

                                       -6-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(H)
<SEQUENCE>7
<FILENAME>b48195isexv99wxhy.txt
<DESCRIPTION>FORM OF UNDERWRITING AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 99(h)

                      John Hancock Income Securities Trust

                            Auction Preferred Shares

                                  No Par Value

                             UNDERWRITING AGREEMENT

October [ ], 2003

<PAGE>

                             UNDERWRITING AGREEMENT

                                                               October [ ], 2003
UBS Securities LLC
   as Managing Representative
299 Park Avenue
New York, New York 10171-0026

Ladies and Gentlemen:

                  John Hancock Income Securities Trust, a voluntary association
with transferable shares organized and existing under and by virtue of the laws
of The Commonwealth of Massachusetts (commonly referred to as a Massachusetts
business trust) (the "Fund"), proposes to issue and sell to the underwriters
named in Schedule A annexed hereto (the "Underwriters") an aggregate of [ ]
preferred shares of beneficial interest of the Fund, no par value, designated
Series M Auction Preferred Shares of the Fund, [ ] preferred shares of
beneficial interest of the Fund, no par value, designated Series T Auction
Preferred Shares of the Fund, [ ] preferred shares of beneficial interest of the
Fund, no par value, designated Series W Auction Preferred Shares of the Fund, [
] preferred shares of beneficial interest of the Fund, no par value, designated
Series TH Auction Preferred Shares of the Fund, and [ ] preferred shares of
beneficial interest of the Fund, no par value, designated Series F Auction
Preferred Shares of the Fund, each with a liquidation preference of $25,000 per
share (the "Shares"). The Shares are described in the Prospectus, which is
referred to below.

                  The Fund has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively called the "Act"), and with the provisions of the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder
(collectively called the "Investment Company Act"), with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form N-2
(File Nos. 333-108636 and 811-04186), including a prospectus and a statement of
additional information, relating to the Shares. The Fund has furnished to you,
for use by the Underwriters and by dealers, copies of one or more preliminary
prospectuses (including a preliminary statement of additional information) (each
thereof, including such preliminary statement of additional information, being
herein called a "Preliminary Prospectus") relating to the Shares. Except where
the context otherwise requires, the Registration Statement, as amended when it
becomes effective (the "Effective Date"), including all documents filed as a
part thereof or incorporated by reference therein, and including any information
contained in a prospectus subsequently filed with the Commission pursuant to
Rule 497 under the Act and deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 430A under the Act is herein called
the Registration Statement, and the prospectus (including the statement of
additional information), in the form filed by the Fund with the Commission
pursuant to Rule 497 under the Act or, if no such filing is required, the form
of final

<PAGE>

prospectus (including the form of final statement of additional information)
included in the "Registration Statement" at the time it became effective, is
herein called the "Prospectus." In addition, the Fund has filed a Notification
of Registration on Form N-8A (the "Notification") pursuant to Section 8 of the
Investment Company Act.

                  John Hancock Advisers, LLC ("John Hancock Advisers" or the
"Investment Adviser") acts as the Fund's investment adviser pursuant to an
Amended and Restated Investment Management Contract by and between the Fund and
the Investment Adviser, dated as of [ ], 2003 (the "Investment Advisory
Agreement"). The Bank of New York acts as the custodian (the "Custodian") of the
Fund's cash and portfolio assets pursuant to a Custody Agreement, dated as of [
], 2003 (the "Custody Agreement"). Mellon Investor Services, LLC acts as the
Fund's transfer agent, registrar and dividend disbursing agent with respect to
the common shares of the Fund (the "Transfer Agent") pursuant to a transfer
agency agreement, dated as of [ ], 2003 (the "Transfer Agency Agreement").
Deutsche Bank Trust Company Americas will act as the Fund's auction agent (the
"Auction Agent") for the Shares pursuant to an Auction Agency Agreement, dated
as of [ ], 2003 (the "Auction Agency Agreement"). The Fund has entered into a
Letter Agreement, dated as of [ ], 2003, with the Depository Trust Company (the
"DTC Agreement").

                  The Fund, the Investment Adviser and the Underwriters agree as
follows:

1.       SALE AND PURCHASE. Upon the basis of the warranties and representations
         and subject to the terms and conditions herein set forth, the Fund
         agrees to sell to the respective Underwriters and each of the
         Underwriters, severally and not jointly, agrees to purchase from the
         Fund the aggregate number of Shares set forth opposite the name of such
         Underwriter in Schedule A attached hereto in each case at a purchase
         price of $24,750 per Share. The Fund is advised that the Underwriters
         intend (i) to make a public offering of their respective portions of
         the Shares as soon after the effective date of the Registration
         Statement as is advisable and (ii) initially to offer the Shares upon
         the terms set forth in the Prospectus. The Underwriters may from time
         to time increase or decrease the public offering price after the
         initial public offering to such extent as they may determine.

2.       PAYMENT AND DELIVERY. Payment of the purchase price for the Shares
         shall be made by the Underwriters to the Fund by Federal Funds wire
         transfer, against delivery of the certificates for the Shares to you
         through the facilities of the Depository Trust Company ("DTC") for the
         respective accounts of the Underwriters. Such payment and delivery
         shall be made at 10:00 A.M., New York City time on the third business
         day following the date of this Underwriting Agreement (unless another
         date or time shall be agreed to by you and the Fund). The time at which
         such payment and delivery are actually made is hereinafter sometimes
         called the "Time of Purchase" or the "Closing Date."

                  A certificate in definitive form representing the Shares
         registered in the name of Cede & Co., as nominee for DTC, shall be
         delivered by or on behalf of

                                       2
<PAGE>

         the Fund to DTC for the account of the Underwriters. For the purpose of
         expediting the checking of the certificates for the Shares by you, the
         Fund agrees to make such certificates available to you for such purpose
         at least one full business day preceding the Time of Purchase.

3.       REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE INVESTMENT ADVISER.
         Each of the Fund and the Investment Adviser jointly and severally
         represents and warrants to each Underwriter as follows:

         (a)      On (A) the Effective Date and the date on which the Prospectus
                  is first filed with the Commission pursuant to Rule 497(b),
                  (h) or (j) under the Act, as the case may be, (B) the date on
                  which any post-effective amendment to the Registration
                  Statement (except any post-effective amendment which is filed
                  with the Commission after the later of (x) one year from the
                  date of this Underwriting Agreement or (y) the date on which
                  the distribution of the Shares is completed) became or becomes
                  effective or any amendment or supplement to the Prospectus was
                  or is filed with the Commission and (C) the Closing Dates, the
                  Registration Statement, the Prospectus and any such amendment
                  or supplement thereto and the Notification complied or will
                  comply in all material respects with the requirements of the
                  Act and the Investment Company Act, as the case may be. On the
                  Effective Date and on the date that any post-effective
                  amendment to the Registration Statement (except any
                  post-effective amendment which is filed with the Commission
                  after the later of (x) one year from the date of this
                  Underwriting Agreement or (y) the date on which the
                  distribution of the Shares is completed) became or becomes
                  effective, neither the Registration Statement nor any such
                  amendment did or will contain any untrue statement of a
                  material fact or omit to state a material fact required to be
                  stated in it or necessary to make the statements in it not
                  misleading. At the Effective Date and, if applicable, the date
                  the Prospectus or any amendment or supplement to the
                  Prospectus was or is filed with the Commission and at the
                  Closing Dates, the Prospectus did not or will not, as the case
                  may be, contain any untrue statement of a material fact or
                  omit to state a material fact required to be stated in it or
                  necessary to make the statements in it, in light of the
                  circumstances under which they were made, not misleading. The
                  foregoing representations in this Section 3(a) do not apply to
                  statements or omissions relating to the Underwriters made in
                  reliance on and in conformity with information furnished in
                  writing to the Fund by you expressly for use in the
                  Registration Statement, the Prospectus, or any amendments or
                  supplements thereto, as described in Section 9(f) hereof.

         (b)      The Fund has been duly formed, is validly existing as a
                  Massachusetts business trust, with full power and authority to
                  conduct its business as described in the Registration
                  Statement and Prospectus, and the Fund is duly licensed and
                  qualified to do business and in good standing in each
                  jurisdiction in which its ownership or leasing of property or
                  its conducting

                                       3
<PAGE>

                  of business requires such qualification, except where the
                  failure to be so licensed and qualified, either alone or in
                  the aggregate, would not result in a Material Adverse Effect
                  (as defined below in Section 3(m)) and the Fund owns,
                  possesses or has obtained and currently maintains all
                  governmental licenses, permits, consents, orders, approvals
                  and other authorizations, whether foreign or domestic,
                  necessary to carry on its business as contemplated in the
                  Prospectus, except such licenses, permits, consents, orders,
                  approvals and other authorizations of the Fund to obtain,
                  either alone or in the aggregate, would not result in a
                  Material Adverse Effect (as defined below in Section 3(m)).
                  The Fund has no subsidiaries.

         (c)      The capitalization of the Fund is as set forth in the
                  Registration Statement and the Prospectus. The common shares
                  of beneficial interest of the Fund (the "Common Shares") and
                  the Shares conform to the description of them in the
                  Prospectus. All the outstanding Common Shares have been duly
                  authorized and are validly issued, fully paid and, except to
                  the extent set forth in the Prospectus, nonassessable. The
                  Shares to be issued and delivered to and paid for by the
                  Underwriters in accordance with this Underwriting Agreement
                  against payment therefor as provided by this Underwriting
                  Agreement have been duly authorized and when issued and
                  delivered to the Underwriters will have been validly issued
                  and will be fully paid and, except to the extent set forth in
                  the Prospectus, nonassessable. No person is entitled to any
                  preemptive or other similar rights with respect to the Shares.

         (d)      The Fund is duly registered with the Commission under the
                  Investment Company Act as a diversified, closed-end management
                  investment company, and, subject to the filing of a final
                  amendment to the Registration Statement, or any required
                  filing under Rule 430A or Rule 497 under the Act (the "Final
                  Amendment"), if not already filed, all action under the Act
                  and the Investment Company Act, as the case may be, necessary
                  under the federal securities laws on the part of the Fund to
                  make the public offering and consummate the sale of the Shares
                  as provided in this Underwriting Agreement has or will have
                  been taken by the Fund.

         (e)      The Fund has full power and authority to enter into each of
                  this Underwriting Agreement, the Investment Advisory
                  Agreement, the Custody Agreement, the Transfer Agency
                  Agreement, the Auction Agency Agreement and the DTC Agreement
                  (collectively, the "Fund Agreements") and to perform all of
                  the terms and provisions hereof and thereof to be carried out
                  by it and (i) each Fund Agreement has been duly and validly
                  authorized, executed and delivered by or on behalf of the
                  Fund, (ii) each Fund Agreement does not violate in any
                  material respect any of the applicable provisions of the
                  Investment Company Act or the Investment Advisers Act of 1940,
                  as amended, and the rules and regulations thereunder
                  (collectively called the "Advisers Act"), as the case may be,
                  and (iii) assuming due authorization, execution and delivery
                  by

                                       4
<PAGE>

                  the other parties thereto, each Fund Agreement constitutes the
                  legal, valid and binding obligation of the Fund enforceable in
                  accordance with its terms, (A) subject, as to enforcement, to
                  applicable bankruptcy, insolvency and similar laws affecting
                  creditors' rights generally and to general equitable
                  principles (regardless of whether enforcement is sought in a
                  proceeding in equity or at law) and (B) except as rights to
                  indemnity thereunder may be limited by federal or state
                  securities laws.

         (f)      None of (i) the execution and delivery by the Fund of the Fund
                  Agreements, (ii) the issue and sale by the Fund of the Shares
                  as contemplated by this Underwriting Agreement and (iii) the
                  performance by the Fund of its obligations under any of the
                  Fund Agreements or consummation by the Fund of the other
                  transactions contemplated by the Fund Agreements conflicts
                  with or will conflict with, or results or will result in a
                  breach of, the Declaration of Trust of the Fund, as amended
                  through the date hereof (the "Declaration of Trust"), the
                  Amended and Restated Bylaws of the Fund, adopted in connection
                  with the issuance of the Shares and as amended through the
                  date hereof (the "Amended Bylaws") or any agreement or
                  instrument to which the Fund is a party or by which the Fund
                  is bound, or any law, rule or regulation, or order of any
                  court, governmental instrumentality, securities exchange or
                  association or arbitrator, whether foreign or domestic,
                  applicable to the Fund, other than state securities or "blue
                  sky" laws applicable in connection with the purchase and
                  distribution of the Shares by the Underwriters pursuant to
                  this Underwriting Agreement.

         (g)      The Fund is not currently in breach of, or in default under,
                  any written agreement or instrument to which it is a party or
                  by which it or its property is bound or affected, except for
                  such breaches or defaults that do not, either alone or in the
                  aggregate, have a Material Adverse Effect (as defined below in
                  Section 3(m)).

         (h)      No person has any right to the registration of any securities
                  of the Fund because of the filing of the Registration
                  Statement.

         (i)      No consent, approval, authorization or order of any court or
                  governmental agency or body or securities exchange or
                  association, whether foreign or domestic, is required to be
                  obtained by the Fund prior to the Closing Date for the
                  consummation by the Fund of the transactions to be performed
                  by the Fund or the performance by the Fund of all the terms
                  and provisions to be performed by or on behalf of it in each
                  case as contemplated in the Fund Agreements, except such as
                  (i) have been obtained under the Act, the Investment Company
                  Act or the Advisers Act, and (ii) may be required under state
                  securities or "blue sky" laws, in connection with the purchase
                  and distribution of the Shares by the Underwriters pursuant to
                  this Underwriting Agreement.

                                       5
<PAGE>

         (j)      [ ], whose report appears in the Prospectus, are independent
                  public accountants with respect to the Fund as required by the
                  Act and the Investment Company Act.

         (k)      The statement of assets and liabilities included in the
                  Registration Statement and the Prospectus presents fairly in
                  all material respects, in accordance with generally accepted
                  accounting principles in the United States applied on a
                  consistent basis, the financial position of the Fund as of the
                  date indicated.

         (l)      The Fund will maintain a system of internal accounting
                  controls sufficient to provide reasonable assurances that (i)
                  transactions are executed in accordance with management's
                  general or specific authorization; (ii) transactions are
                  recorded as necessary to permit preparation of financial
                  statements in conformity with generally accepted accounting
                  principles and to maintain accountability for assets; (iii)
                  access to assets is permitted only in accordance with
                  management's general or specific authorization; and (iv) the
                  recorded accountability for assets is compared with existing
                  assets through an asset reconciliation procedure or otherwise
                  at reasonable intervals and appropriate action is taken with
                  respect to any differences.

         (m)      Since the date as of which information is given in the
                  Registration Statement and the Prospectus, except as otherwise
                  stated therein, (i) there has been no material adverse change
                  in the condition, financial or otherwise, business affairs or
                  business of the Fund, whether or not arising in the ordinary
                  course of business (a "Material Adverse Effect"), (ii) there
                  have been no transactions entered into by the Fund other than
                  those in the ordinary course of its business and (iii) there
                  has been no dividend or distribution of any kind declared,
                  paid or made on any class of its capital shares.

         (n)      There is no action, suit or proceeding before or by any court,
                  commission, regulatory body, administrative agency or other
                  governmental agency or body, foreign or domestic, now pending,
                  or, to the knowledge of the Fund, threatened against or
                  affecting the Fund, which (i) might result in any material
                  adverse change in the condition, financial or otherwise,
                  business affairs or business prospects of the Fund or might
                  materially adversely affect the properties or assets of the
                  Fund or (ii) is of a character required to be described in the
                  Registration Statement or the Prospectus; and there are no
                  contracts, franchises or other documents that are of a
                  character required to be described in, or that are required to
                  be filed as exhibits to, the Registration Statement that have
                  not been described or filed as required.

         (o)      The Fund intends to direct the investment of the proceeds of
                  the offering of the Shares in such a manner as to comply with
                  the requirements of

                                       6
<PAGE>

                  Subchapter M of the Internal Revenue Code of 1986, as amended
                  (the "Code").

         (p)      The Common Shares are listed on the New York Stock Exchange.

         (q)      The Shares have been, or prior to the Closing Date will be,
                  assigned a rating of "Aaa" by Moody's Investors Service, Inc.

         (r)      No advertising, sales literature or other promotional
                  materials (excluding road show slides or road show tapes) were
                  authorized or prepared by or on behalf of the Fund or the
                  Investment Adviser or any representative thereof for use in
                  connection with the public offering or sale of the Shares
                  (collectively referred to as the "sales materials"); any road
                  show slides or road show tapes complied and comply in all
                  material respects with the applicable requirements of the Act
                  and the rules and interpretations of the NASD; and no broker
                  kits, road show slides, road show tapes or sales materials
                  authorized or prepared by the Fund or authorized or prepared
                  on behalf of the Fund by the Investment Adviser or any
                  representative thereof for use in connection with the public
                  offering or sale of the Shares contained or contains any
                  untrue statement of a material fact or omitted or omits to
                  state any material fact required to be stated therein or
                  necessary in order to make the statements therein not
                  misleading.

4.       REPRESENTATIONS AND WARRANTIES OF THE INVESTMENT ADVISER. The
         Investment Adviser represents to each Underwriter as follows:

         (a)      The Investment Adviser has been duly formed, is validly
                  existing as a limited liability company under the laws of
                  Delaware with full power and authority to perform its
                  obligations under this Agreement and the Investment Advisory
                  Agreement, and the Investment Adviser is duly licensed and
                  qualified to do business and in good standing in each
                  jurisdiction in which it is required to be so qualified in
                  order to perform its obligations under this Agreement and the
                  Investment Advisory Agreement; and the Investment Adviser
                  owns, possesses or has obtained and currently maintains all
                  governmental licenses, permits, consents, orders, approvals
                  and other authorizations, whether foreign or domestic,
                  necessary to perform its obligations under this Agreement and
                  the Investment Advisory Agreement.

         (b)      The Investment Adviser is (i) registered as an investment
                  adviser under the Advisers Act and (ii) not prohibited by the
                  Advisers Act or the Investment Company Act from acting as the
                  investment adviser for the Fund as contemplated by the
                  Investment Advisory Agreement, the Registration Statement and
                  the Prospectus.

         (c)      The Investment Adviser has, or at the relevant time had, full
                  power and authority to enter into each of this Underwriting
                  Agreement and the

                                       7
<PAGE>

                  Investment Advisory Agreement (collectively, this Underwriting
                  Agreement and the Investment Advisory Agreement being referred
                  to as the "Investment Adviser Agreements") and to carry out
                  all the terms and provisions hereof and thereof to be carried
                  out by it; and each Investment Adviser Agreement has been duly
                  and validly authorized, executed and delivered by the
                  Investment Adviser; none of the Investment Adviser Agreements
                  violate any of the applicable provisions of the Investment
                  Company Act or the Advisers Act; and assuming due
                  authorization, execution and delivery by the other parties
                  thereto, each Investment Adviser Agreement constitutes a
                  legal, valid and binding obligation of the Investment Adviser,
                  enforceable in accordance with its terms, (i) subject, as to
                  enforcement, to applicable bankruptcy, insolvency and similar
                  laws affecting creditors' rights generally and to general
                  equitable principles (regardless of whether enforcement is
                  sought in a proceeding in equity or at law) and (ii) except as
                  rights to indemnity thereunder may be limited by federal or
                  state securities laws.

         (d)      Neither (i) the execution and delivery by the Investment
                  Adviser of any Investment Adviser Agreement nor (ii) the
                  consummation by the Investment Adviser of the transactions
                  contemplated by, or the performance of its obligations under
                  any Investment Adviser Agreement conflicts or will conflict
                  with, or results or will result in a breach of, the limited
                  liability company agreement or other organizational documents
                  of the Investment Adviser or any agreement or instrument to
                  which the Investment Adviser is a party or by which the
                  Investment Adviser is bound, or any law, rule or regulation,
                  or order of any court, governmental instrumentality,
                  securities exchange or association or arbitrator, whether
                  foreign or domestic, applicable to the Investment Adviser,
                  except in each case for such conflicts or breaches which do
                  not, either alone or in the aggregate, have a material adverse
                  effect upon the Investment Adviser's ability to perform its
                  obligations under the Investment Adviser Agreements.

         (e)      No consent, approval, authorization or order of any court,
                  governmental agency or body or securities exchange or
                  association, whether foreign or domestic, is required to be
                  obtained by the Investment Adviser on or prior to the Closing
                  Date for the consummation of the transactions contemplated in,
                  or the performance by the Investment Adviser of its
                  obligations under, any Investment Adviser Agreement, as the
                  case may be, except such as (i) have been obtained under the
                  Act, the Investment Company Act or the Advisers Act, and (ii)
                  may be required by the New York Stock Exchange or under state
                  securities or "blue sky" laws, in connection with the purchase
                  and distribution of the Shares by the Underwriters pursuant to
                  this Underwriting Agreement.

         (f)      The description of the Investment Adviser and its business,
                  and the statements attributable to the Investment Adviser, in
                  the Registration

                                       8
<PAGE>

                  Statement and the Prospectus comply in all material respects
                  with the requirements of the Act and the Investment Company
                  Act and do not contain any untrue statement of a material fact
                  or omit to state any material fact required to be stated
                  therein or necessary in order to make the statements therein
                  not misleading (and, solely with respect to the Prospectus, in
                  the light of the circumstances under which they were made).

         (g)      There is no action, suit or proceeding before or by any court,
                  commission, regulatory body, administrative agency or other
                  governmental agency or body, foreign or domestic, now pending
                  or, to the knowledge of the Investment Adviser, threatened
                  against or affecting the Investment Adviser of a nature
                  required to be disclosed in the Registration Statement or
                  Prospectus.

         (h)      The Investment Adviser has not made available any promotional
                  materials intended for use only by qualified broker-dealers
                  and registered representatives thereof by means of an Internet
                  web site or similar electronic means.

5.       AGREEMENTS OF THE PARTIES.

         (a)      If the Registration Statement relating to the Shares has not
                  yet become effective, the Fund will promptly file the Final
                  Amendment, if not previously filed, with the Commission, and
                  will use its best efforts to cause such Registration Statement
                  to become effective and, as soon as the Fund is advised, will
                  advise the Managing Representative when the Registration
                  Statement or any amendment thereto has become effective. If
                  the Registration Statement has become effective and the
                  Prospectus contained therein omits certain information at the
                  time of effectiveness pursuant to Rule 430A under the Act, the
                  Fund will file a 430A Prospectus pursuant to Rule 497(h) under
                  the Act as promptly as practicable, but no later than the
                  second business day following the earlier of the date of the
                  determination of the offering price of the Shares or the date
                  the Prospectus is first used after the Effective Date. If the
                  Registration Statement has become effective and the Prospectus
                  contained therein does not so omit such information, the Fund
                  will file a Prospectus pursuant to Rule 497(b) or (j) under
                  the Act as promptly as practicable, but no later than the
                  fifth business day following the date of the later of the
                  Effective Date or the commencement of the public offering of
                  the Shares after the Effective Date. In either case, the Fund
                  will provide you satisfactory evidence of the filing. The Fund
                  will not file with the Commission any Prospectus or any other
                  amendment (except any post-effective amendment which is filed
                  with the Commission after the later of (x) one year from the
                  date of this Underwriting Agreement or (y) the date on which
                  distribution of the Shares is completed) or supplement to the
                  Registration Statement or the Prospectus unless a copy has
                  first been submitted to the Managing

                                       9
<PAGE>

                  Representative a reasonable time before its filing and the
                  Managing Representative has not objected to it in writing
                  within a reasonable time after receiving the copy.

         (b)      For the period of three years from the date hereof, the Fund
                  will advise the Managing Representative promptly (1) of the
                  issuance by the Commission of any order in respect of the Fund
                  or the Investment Adviser or which relates to the offering of
                  the Shares, (2) of the initiation or threatening of any
                  proceedings for, or receipt by the Fund of any notice with
                  respect to, the suspension of the qualification of the Shares
                  for sale in any jurisdiction or the issuance of any order by
                  the Commission suspending the effectiveness of the
                  Registration Statement, (3) of receipt by the Fund, or any
                  representative or attorney of the Fund, of any other
                  communication from the Commission relating to the offering of
                  the Shares, the Registration Statement, the Notification, any
                  Preliminary Prospectus, the Prospectus or to the transactions
                  contemplated by this Underwriting Agreement and (4) the
                  issuance by any court, regulatory body, administrative agency
                  or other governmental agency or body, whether foreign or
                  domestic, of any order, ruling or decree, or the threat to
                  initiate any proceedings with respect thereto, regarding the
                  offering of the Shares by the Fund. The Fund will make every
                  reasonable effort to prevent the issuance of any order
                  suspending the effectiveness of the Registration Statement
                  and, if any such order is issued, to obtain its lifting as
                  soon as possible.

         (c)      If not delivered prior to the date of this Underwriting
                  Agreement, the Fund will deliver to the Managing
                  Representative, without charge, a signed copy of the
                  Registration Statement and the Notification and of any
                  amendments (except any post-effective amendment which is filed
                  with the Commission after the later of (x) one year from the
                  date of this Underwriting Agreement or (y) the date on which
                  the distribution of the Shares is completed) to either the
                  Registration Statement or the Notification (including all
                  exhibits filed with any such document) and as many conformed
                  copies of the Registration Statement and any amendments
                  thereto (except any post-effective amendment which is filed
                  with the Commission after the later of (x) one year from the
                  date of this Underwriting Agreement or (y) the date on which
                  the distribution of the Shares is completed) (excluding
                  exhibits) as the Managing Representative may reasonably
                  request.

         (d)      During such period as a prospectus is required by law to be
                  delivered by an underwriter or a dealer, the Fund will
                  deliver, without charge, to you, the Underwriters and any
                  dealers, at such office or offices as you may designate, as
                  many copies of the Prospectus as you may reasonably request,
                  and, if any event occurs during such period as a result of
                  which it is necessary to amend or supplement the Prospectus,
                  in order to make the statements therein, in light of the
                  circumstances existing when such

                                       10
<PAGE>

                  Prospectus is delivered to a purchaser of Shares, not
                  misleading in any material respect, or if during such period
                  it is necessary to amend or supplement the Prospectus to
                  comply with the Act or the Investment Company Act, the Fund
                  promptly will prepare, submit to the Managing Representative,
                  file with the Commission and deliver, without charge, to the
                  Underwriters and to dealers (whose names and addresses the
                  Managing Representative will furnish to the Fund) to whom
                  Shares may have been sold by the Underwriters, and to other
                  dealers on request, amendments or supplements to the
                  Prospectus so that the statements in such Prospectus, as so
                  amended or supplemented, will not, in light of the
                  circumstances existing when such Prospectus is delivered to a
                  purchaser, be misleading in any material respect and will
                  comply with the Act and the Investment Company Act. Delivery
                  by the Underwriters of any such amendments or supplements to
                  the Prospectus will not constitute a waiver of any of the
                  conditions in Section 6 hereof.

         (e)      The Fund will make generally available to holders of the
                  Fund's securities, as soon as practicable but in no event
                  later than the last day of the 18th full calendar month
                  following the calendar quarter in which the Effective Date
                  falls, an earnings statement, if applicable, satisfying the
                  provisions of Section 11(a) of the Act and, at the option of
                  the Fund, Rule 158 under the Act.

         (f)      The Fund will take such actions as the Managing Representative
                  reasonably requests in order to qualify the Shares for offer
                  and sale under the securities or "blue sky" laws of such
                  jurisdictions as the Managing Representative reasonably
                  designates; provided that the Fund shall not be required in
                  connection therewith or as a condition thereof to qualify as a
                  foreign corporation or to execute a general consent to service
                  of process in any jurisdiction.

         (g)      The Fund will pay or cause to be paid the following: (i) the
                  fees, disbursements and expenses of the Fund's counsel and
                  accountants in connection with the registration of the Shares
                  and all other expenses in connection with the preparation,
                  printing and filing of the Registration Statement, any
                  Preliminary Prospectus and the Prospectus and amendments and
                  supplements thereto and the mailing and delivering of copies
                  thereof to the Underwriters and dealers; (ii) the cost of
                  printing or reproducing this Underwriting Agreement and any
                  other documents in connection with the offering, purchase,
                  sale and delivery of the Shares (including advertising
                  expenses of the Underwriters, if any); (iii) the cost of
                  preparing share certificates; (iv) the expenses (including,
                  but not limited to, travel, hotels and other accommodations)
                  incurred by the Fund's directors, officers, employees and
                  other personnel in connection with meetings held with
                  registered brokers in connection with the offering of the
                  Shares, the preparing to market and the marketing of the
                  Shares; (v) any fees charged by securities rating services for
                  rating the Shares; (vi) the

                                       11
<PAGE>

                  fees and expenses of the DTC and its nominee, the Custodian
                  and the Auction Agent; and (vii) all other costs and expenses
                  incident to the performance of its obligations hereunder which
                  are not otherwise specifically provided for. It is understood,
                  however, that, except as provided in this Section 5 and
                  Section 7 hereof, the Underwriters will pay all of their own
                  costs and expenses, including the fees of their counsel and
                  stock transfer taxes, if any, on resale of any of the Shares
                  by them, except any advertising expenses connected with any
                  offers they may make.

         (h)      If the transactions contemplated by this Underwriting
                  Agreement are not consummated, except as otherwise provided
                  herein, no party will be under any liability to any other
                  party, except that (i) if this Underwriting Agreement is
                  terminated by (A) the Fund or the Investment Adviser pursuant
                  to any of the provisions hereof (otherwise than pursuant to
                  Section 8 hereof) or (B) by you or the Underwriters because of
                  any inability, failure or refusal on the part of the Fund or
                  the Investment Adviser to comply with any material terms or
                  because any of the conditions in Section 6 are not satisfied,
                  John Hancock Advisers or an affiliate and the Fund, jointly
                  and severally, will reimburse the Underwriters for all
                  out-of-pocket expenses (including the reasonable fees,
                  disbursements and other charges of their counsel) reasonably
                  incurred by them in connection with the proposed purchase and
                  sale of the Shares and (ii) no Underwriter who has failed or
                  refused to purchase the Shares agreed to be purchased by it
                  under this Underwriting Agreement, in breach of its
                  obligations pursuant to this Underwriting Agreement, will be
                  relieved of liability to the Fund and the Investment Adviser
                  and the other Underwriters for damages occasioned by its
                  default.

         (i)      Without the prior written consent of the Managing
                  Representative, the Fund will not offer, sell or register with
                  the Commission, or announce an offering of, any equity
                  securities of the Fund, within 180 days after the Effective
                  Date, except for the Shares as described in the Prospectus and
                  any issuances of Common Shares pursuant to the dividend
                  reinvestment plan established by the Fund.

         (j)      The Fund will direct the investment of the net proceeds of the
                  offering of the Shares in such a manner as to comply with the
                  investment objective and policies of the Fund as described in
                  the Prospectus.

6.       CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
         Underwriters to purchase the Shares are subject to the accuracy on the
         date of this Underwriting Agreement, and on the Closing Date, of the
         representations of the Fund and the Investment Adviser in this
         Underwriting Agreement, to the accuracy and completeness of all
         statements made by the Fund, the Investment Adviser or any of their
         respective officers in any certificate delivered to the Managing
         Representative or its counsel pursuant to this Underwriting Agreement,
         to performance by the Fund and the Investment Adviser of their
         respective

                                       12
<PAGE>

         obligations under this Underwriting Agreement and to each of the
         following additional conditions:

         (a)      The Registration Statement must have become effective by 5:30
                  p.m., New York City time, on the date of this Underwriting
                  Agreement or such later date and time as the Managing
                  Representative consents to in writing. The Prospectus must
                  have been filed in accordance with Rule 497(b), (h) or (j), as
                  the case may be, under the Act.

         (b)      No order suspending the effectiveness of the Registration
                  Statement may be in effect and no proceedings for such purpose
                  may be pending before or, to the knowledge of counsel to the
                  Underwriters, threatened by the Commission, and any requests
                  for additional information on the part of the Commission (to
                  be included in the Registration Statement or the Prospectus or
                  otherwise) must be complied with or waived to the reasonable
                  satisfaction of the Managing Representative.

         (c)      Since the dates as of which information is given in the
                  Registration Statement and the Prospectus, (i) there must not
                  have been any material adverse change in the number of
                  outstanding Common Shares or liabilities of the Fund except as
                  set forth in or contemplated by the Prospectus (provided that
                  a change in the Fund's net asset value, liabilities or
                  portfolio securities arising in the course of its normal
                  investment operations shall not be deemed to be a material
                  adverse change); (ii) there must not have been any material
                  adverse change in the general affairs, prospects, management,
                  business, financial condition or results of operations of the
                  Fund or the Investment Adviser whether or not arising from
                  transactions in the ordinary course of business as set forth
                  in or contemplated by the Prospectus (provided that a change
                  in the Fund's net asset value, liabilities or portfolio
                  securities arising in the course of its normal investment
                  operations shall not be deemed to be a material adverse
                  change); (iii) the Fund must not have sustained any material
                  interference with its business from any court or from
                  legislative or other governmental action, order or decree,
                  whether foreign or domestic, not described in the Registration
                  Statement and Prospectus; and (iv) there must not have
                  occurred any event that makes untrue or incorrect in any
                  material respect any statement or information contained in the
                  Registration Statement or Prospectus or that is not reflected
                  in the Registration Statement or Prospectus but should be
                  reflected therein in order to make the statements or
                  information therein (in the case of the Prospectus, in light
                  of the circumstances in which they were made) not misleading
                  in any material respect; if, in the judgment of the Managing
                  Representative, any such development referred to in clause
                  (i), (ii), (iii) or (iv) of this paragraph (c) makes it
                  impracticable or inadvisable to consummate the sale and
                  delivery of the Shares pursuant to this Underwriting Agreement
                  by the Underwriters, at the initial public offering price of
                  the Shares.

                                       13
<PAGE>

         (d)      The Managing Representative must have received on the Closing
                  Date a certificate, dated such date, of the President or a
                  Vice-President and the chief financial or accounting officer
                  of each of the Fund and the Investment Adviser certifying in
                  their capacity as such officers that (i) the signers have
                  examined the Registration Statement, the Prospectus, and this
                  Underwriting Agreement, (ii) the representations of the Fund
                  (with respect to the certificates from such Fund officers) and
                  the representations of the Investment Adviser (with respect to
                  the certificates from such officers of the Investment Adviser)
                  in this Underwriting Agreement are accurate on and as of the
                  date of the certificate, (iii) there has not been any material
                  adverse change in the general affairs, prospects, management,
                  business, financial condition or results of operations of the
                  Fund (with respect to the certificates from such Fund
                  officers) or the Investment Adviser (with respect to the
                  certificates from such officers of the Investment Adviser),
                  which change would materially and adversely affect the ability
                  of the Fund or the Investment Adviser, as the case may be, to
                  fulfill its obligations under this Underwriting Agreement or
                  the Investment Advisory Agreement, whether or not arising from
                  transactions in the ordinary course of business, (iv) with
                  respect to the Fund only, no order suspending the
                  effectiveness of the Registration Statement, or prohibiting
                  the sale of any of the Shares has been issued and no
                  proceedings for any such purpose are pending before or
                  threatened by the Commission or any other regulatory body,
                  whether foreign or domestic, (v) no order having a material
                  adverse effect on the ability of the Investment Adviser to
                  fulfill its obligations under this Underwriting Agreement or
                  the Investment Advisory Agreement, as the case may be, has
                  been issued and no proceedings for any such purpose are
                  pending before or threatened by the Commission or any other
                  regulatory body, whether foreign or domestic, and (vi) each of
                  the Fund (with respect to the certificates from such Fund
                  officers) and the Investment Adviser (with respect to the
                  certificates from such officers of the Investment Adviser) has
                  performed all of its respective agreements that this
                  Underwriting Agreement requires it to perform by the Closing
                  Date (to the extent not waived in writing by the Managing
                  Representative).

         (e)      You must receive on the Closing Date the opinions dated such
                  Closing Date substantially in the form of Schedules B and C to
                  this Underwriting Agreement from the counsel identified in
                  each such Schedules.

         (f)      You must receive on the Closing Date from Skadden, Arps,
                  Slate, Meagher & Flom (Illinois) or its affiliated entities an
                  opinion dated the Closing Date with respect to the Fund, the
                  Shares, the Registration Statement and the Prospectus, this
                  Underwriting Agreement and the form and sufficiency of all
                  proceedings taken in connection with the sale and delivery of
                  the Shares. Such opinion and proceedings shall fulfill the
                  requirements of this Section 6(f) only if such opinion and
                  proceedings are satisfactory in all respects to the Managing
                  Representative. The Fund and

                                       14
<PAGE>

                  the Investment Adviser must have furnished to such counsel
                  such documents as counsel may reasonably request for the
                  purpose of enabling them to render such opinion.

         (g)      The Managing Representative must receive on the date this
                  Underwriting Agreement is signed and delivered by you a signed
                  letter, dated such date, substantially in the form of Schedule
                  D to this Underwriting Agreement from the firm of accountants
                  designated in such Schedule. The Managing Representative also
                  must receive on the Closing Date a signed letter from such
                  accountants, dated as of the Closing Date, confirming on the
                  basis of a review in accordance with the procedures set forth
                  in their earlier letter that nothing has come to their
                  attention during the period from a date not more than five
                  business days before the date of this Underwriting Agreement,
                  specified in the letter, to a date not more than five business
                  days before the Closing Date, that would require any change in
                  their letter referred to in the foregoing sentence.

         (h)      The Shares shall have been accorded a rating of "Aaa" by
                  Moody's Investors Service, Inc. and a letter to such effect,
                  dated on or before the Closing Date, shall have been delivered
                  to the Managing Representative.

         (i)      As of the Closing Date, and assuming the receipt of the net
                  proceeds from the sale of the Shares, the 1940 Act Fund
                  Preferred Shares Asset Coverage and the Fund Preferred Shares
                  Basic Maintenance Amount (each as defined in the Prospectus)
                  each will be met.

                  All opinions, letters, evidence and certificates mentioned
         above or elsewhere in this Underwriting Agreement will comply only if
         they are in form and scope reasonably satisfactory to counsel for the
         Underwriters, provided that any such documents, forms of which are
         annexed hereto, shall be deemed satisfactory to such counsel if
         substantially in such form.

7.       TERMINATION. This Underwriting Agreement may be terminated by the
         Managing Representative by notifying the Fund at any time:

         (a)      before the later of the effectiveness of the Registration
                  Statement and the time when any of the Shares are first
                  generally offered pursuant to this Underwriting Agreement by
                  the Managing Representative to dealers by letter or telegram;

         (b)      at or before the Closing Date if, in the sole judgment of the
                  Managing Representative, payment for and delivery of any
                  Shares is rendered impracticable or inadvisable because (i)
                  trading in the equity securities of the Fund is suspended by
                  the Commission or by the principal exchange that lists the
                  Common Shares, (ii) trading in securities generally on the New
                  York Stock Exchange or the Nasdaq Stock Market shall have been
                  suspended or limited or minimum or maximum prices shall have
                  been

                                       15
<PAGE>

                  generally established on such exchange or over-the-counter
                  market, (iii) additional material governmental restrictions,
                  not in force on the date of this Underwriting Agreement, have
                  been imposed upon trading in securities or trading has been
                  suspended on any U.S. securities exchange, (iv) a general
                  banking moratorium has been established by U.S. federal or New
                  York authorities or (v) any material adverse change in the
                  financial or securities markets in the United States or in
                  political, financial or economic conditions in the United
                  States or any outbreak or material escalation of hostilities
                  or declaration by the United States of a national emergency or
                  war or other calamity or crisis shall have occurred the effect
                  of any of which is such as to make it, in the sole judgment of
                  the Managing Representative, impracticable or inadvisable to
                  market the Shares on the terms and in the manner contemplated
                  by the Prospectus; or

         (c)      at or before the Closing Date, if any of the conditions
                  specified in Section 6 have not been fulfilled when and as
                  required by this Underwriting Agreement.

8.       SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters fails
         (other than for a reason sufficient to justify the termination of this
         Underwriting Agreement) to purchase on the Closing Date the Shares
         agreed to be purchased on the Closing Date by such Underwriter or
         Underwriters, the Managing Representative may find one or more
         substitute underwriters to purchase such Shares or make such other
         arrangements as the Managing Representative deems advisable, or one or
         more of the remaining Underwriters may agree to purchase such Shares in
         such proportions as may be approved by the Managing Representative, in
         each case upon the terms set forth in this Underwriting Agreement. If
         no such arrangements have been made within 36 hours after the Closing
         Date, and

         (a)      the number of Shares to be purchased by the defaulting
                  Underwriters on the Closing Date does not exceed 10% of the
                  Shares that the Underwriters are obligated to purchase on such
                  Closing Date, each of the nondefaulting Underwriters will be
                  obligated to purchase such Shares on the terms set forth in
                  this Underwriting Agreement in proportion to their respective
                  obligations under this Underwriting Agreement, or

         (b)      the number of Shares to be purchased by the defaulting
                  Underwriters on the Closing Date exceeds 10% of the Shares to
                  be purchased by all the Underwriters on the Closing Date, the
                  Fund will be entitled to an additional period of 24 hours
                  within which to find one or more substitute underwriters
                  reasonably satisfactory to the Managing Representative to
                  purchase such Shares on the terms set forth in this
                  Underwriting Agreement.

                  In any such case, either the Managing Representative or the
         Fund will have the right to postpone the Closing Date for not more than
         five business days

                                       16
<PAGE>

         in order that necessary changes and arrangements (including any
         necessary amendments or supplements to the Registration Statement or
         the Prospectus) may be effected by the Managing Representative and the
         Fund. If the number of Shares to be purchased on the Closing Date by
         such defaulting Underwriter or Underwriters exceeds 10% of the Shares
         that the Underwriters are obligated to purchase on the Closing Date,
         and none of the nondefaulting Underwriters or the Fund makes
         arrangements pursuant to this Section within the period stated for the
         purchase of the Shares that the defaulting Underwriters agreed to
         purchase, this Underwriting Agreement will terminate without liability
         on the part of any nondefaulting Underwriter, the Fund or the
         Investment Adviser, except as provided in Sections 6(h) and 9 hereof.
         This Section will not affect the liability of any defaulting
         Underwriter to the Fund or the nondefaulting Underwriters arising out
         of such default. A substitute underwriter will become a Underwriter for
         all purposes of this Underwriting Agreement.

9.       INDEMNITY AND CONTRIBUTION.

         (a)      Each of the Fund and the Investment Adviser, jointly and
                  severally, agrees to indemnify, defend and hold harmless each
                  Underwriter, its partners, directors and officers, and any
                  person who controls any Underwriter within the meaning of
                  Section 15 of the Act or Section 20 of the Exchange Act, and
                  the successors and assigns of all of the foregoing persons
                  from and against any loss, damage, expense, liability or claim
                  (including the reasonable cost of investigation) which,
                  jointly or severally, any such Underwriter or any such person
                  may incur under the Act, the Exchange Act, the Investment
                  Company Act, the Advisers Act, the common law or otherwise,
                  insofar as such loss, damage, expense, liability or claim
                  arises out of or is based upon any untrue statement or alleged
                  untrue statement of a material fact contained in the
                  Registration Statement (or in the Registration Statement as
                  amended by any post-effective amendment thereof by the Fund)
                  or in a Prospectus (the term "Prospectus" for the purpose of
                  this Section 9 being deemed to include any Preliminary
                  Prospectus, any sales materials prepared or authorized by the
                  Fund, the Prospectus and the Prospectus as amended or
                  supplemented by the Fund), or arises out of or is based upon
                  any omission or alleged omission to state a material fact
                  required to be stated in either such Registration Statement or
                  Prospectus or necessary to make the statements made therein
                  not misleading, except insofar as any such loss, damage,
                  expense, liability or claim arises out of or is based upon any
                  untrue statement or alleged untrue statement of a material
                  fact contained in and in conformity with information furnished
                  in writing by or on behalf of any Underwriter through you to
                  the Fund or the Investment Adviser expressly for use with
                  reference to such Underwriter in such Registration Statement
                  or such Prospectus or arises out of or is based upon any
                  omission or alleged omission to state a material fact in
                  connection with such information required to be stated in such
                  Registration Statement or such Prospectus or necessary to make
                  such information not misleading, provided, however,

                                       17
<PAGE>

                  that the indemnity agreement contained in this subsection (a)
                  with respect to any Preliminary Prospectus or amended
                  Preliminary Prospectus shall not inure to the benefit of any
                  Underwriter (or to the benefit of any person controlling such
                  Underwriter) from whom the person asserting any such loss,
                  damage, expense, liability or claim purchased the Shares which
                  is the subject thereof if the Prospectus corrected any such
                  alleged untrue statement or omission and if such Underwriter
                  failed to send or give a copy of the Prospectus to such person
                  at or prior to the written confirmation of the sale of such
                  Shares to such person, unless the failure is the result of
                  noncompliance by the Fund with Section 5(d) hereof.

                           If any action, suit or proceeding (together, a
                  "Proceeding") is brought against an Underwriter or any such
                  person in respect of which indemnity may be sought against the
                  Fund or the Investment Adviser pursuant to the foregoing
                  paragraph, such Underwriter or such person shall promptly
                  notify the Fund or the Investment Adviser, as the case may be,
                  in writing of the institution of such Proceeding and the Fund
                  or the Investment Adviser shall assume the defense of such
                  Proceeding, including the employment of counsel reasonably
                  satisfactory to such indemnified party and payment of all fees
                  and expenses; provided, however, that the omission to so
                  notify the Fund or the Investment Adviser shall not relieve
                  the Fund or the Investment Adviser from any liability which
                  the Fund or the Investment Adviser may have to any Underwriter
                  or any such person or otherwise and, unless only to the extent
                  that, such omission results in the forfeiture of substantive
                  rights or defenses by the indemnifying party. Such Underwriter
                  or such person shall have the right to employ its or their own
                  counsel in any such case, but the fees and expenses of such
                  counsel shall be at the expense of such Underwriter or of such
                  person unless the employment of such counsel shall have been
                  authorized in writing by the Fund or the Investment Adviser,
                  as the case may be, in connection with the defense of such
                  Proceeding or the Fund or the Investment Adviser shall not
                  have, within a reasonable period of time in light of the
                  circumstances, employed counsel to have charge of the defense
                  of such Proceeding or such indemnified party or parties shall
                  have reasonably concluded that there may be defenses available
                  to it or them which are different from, additional to or in
                  conflict with those available to the Fund or the Investment
                  Adviser (in which case the Fund or the Investment Adviser
                  shall not have the right to direct the defense of such
                  Proceeding on behalf of the indemnified party or parties), in
                  any of which events such fees and expenses shall be borne by
                  the Fund or the Investment Adviser and paid as incurred (it
                  being understood, however, that the Fund or the Investment
                  Adviser shall not be liable for the expenses of more than one
                  separate counsel (in addition to any local counsel) in any one
                  Proceeding or series of related Proceedings in the same
                  jurisdiction representing the indemnified parties who are
                  parties to such Proceeding). None of the Fund or the
                  Investment Adviser shall be liable for any settlement of any
                  Proceeding effected without its

                                       18
<PAGE>

                  written consent but if settled with the written consent of the
                  Fund or the Investment Adviser, the Fund or the Investment
                  Adviser, as the case may be, agrees to indemnify and hold
                  harmless any Underwriter and any such person from and against
                  any loss or liability by reason of such settlement.
                  Notwithstanding the foregoing sentence, if at any time an
                  indemnified party shall have requested an indemnifying party
                  to reimburse the indemnified party for fees and expenses of
                  counsel as contemplated by the second sentence of this
                  paragraph, then the indemnifying party agrees that it shall be
                  liable for any settlement of any Proceeding effected without
                  its written consent if (i) such settlement is entered into
                  more than 60 business days after receipt by such indemnifying
                  party of the aforesaid request, (ii) such indemnifying party
                  shall not have reimbursed the indemnified party in accordance
                  with such request prior to the date of such settlement and
                  (iii) such indemnified party shall have given the indemnifying
                  party at least 30 days' prior notice of its intention to
                  settle. No indemnifying party shall, without the prior written
                  consent of the indemnified party, effect any settlement of any
                  pending or threatened Proceeding in respect of which any
                  indemnified party is or could have been a party and indemnity
                  could have been sought hereunder by such indemnified party,
                  unless such settlement includes an unconditional release of
                  such indemnified party from all liability on claims that are
                  the subject matter of such Proceeding and does not include an
                  admission of fault, culpability or a failure to act, by or on
                  behalf of such indemnified party.

         (b)      Each Underwriter severally agrees to indemnify, defend and
                  hold harmless the Fund and the Investment Adviser, its
                  directors and officers, and any person who controls the Fund
                  or the Investment Adviser within the meaning of Section 15 of
                  the Act or Section 20 of the Exchange Act, and the successors
                  and assigns of all of the foregoing persons from and against
                  any loss, damage, expense, liability or claim (including the
                  reasonable cost of investigation) which, jointly or severally,
                  the Fund or the Investment Adviser or any such person may
                  incur under the Act, the Exchange Act, the Investment Company
                  Act, the Advisers Act, the common law or otherwise, insofar as
                  such loss, damage, expense, liability or claim arises out of
                  or is based upon any untrue statement or alleged untrue
                  statement of a material fact contained in and in conformity
                  with information furnished in writing by or on behalf of such
                  Underwriter through you to the Fund or the Investment Adviser
                  expressly for use with reference to such Underwriter in the
                  Registration Statement (or in the Registration Statement as
                  amended by any post-effective amendment thereof by the Fund)
                  or in a Prospectus, or arises out of or is based upon any
                  omission or alleged omission to state a material fact in
                  connection with such information required to be stated in such
                  Registration Statement or such Prospectus or necessary to make
                  such information not misleading.

                           If any Proceeding is brought against the Fund, the
                  Investment Adviser, or any such person in respect of which
                  indemnity may be sought

                                       19
<PAGE>

                  against any Underwriter pursuant to the foregoing paragraph,
                  the Fund or the Investment Adviser or such person shall
                  promptly notify such Underwriter in writing of the institution
                  of such Proceeding and such Underwriter shall assume the
                  defense of such Proceeding, including the employment of
                  counsel reasonably satisfactory to such indemnified party and
                  payment of all fees and expenses; provided, however, that the
                  omission to so notify such Underwriter shall not relieve such
                  Underwriter from any liability which such Underwriter may have
                  to the Fund, the Investment Adviser, or any such person or
                  otherwise. The Fund, the Investment Adviser, or such person
                  shall have the right to employ its own counsel in any such
                  case, but the fees and expenses of such counsel shall be at
                  the expense of the Fund, the Investment Adviser, or such
                  person, as the case may be, unless the employment of such
                  counsel shall have been authorized in writing by such
                  Underwriter in connection with the defense of such Proceeding
                  or such Underwriter shall not have, within a reasonable period
                  of time in light of the circumstances, employed counsel to
                  have charge of the defense of such Proceeding or such
                  indemnified party or parties shall have reasonably concluded
                  that there may be defenses available to it or them which are
                  different from or additional to or in conflict with those
                  available to such Underwriter (in which case such Underwriter
                  shall not have the right to direct the defense of such
                  Proceeding on behalf of the indemnified party or parties, but
                  such Underwriter may employ counsel and participate in the
                  defense thereof but the fees and expenses of such counsel
                  shall be at the expense of such Underwriter), in any of which
                  events such fees and expenses shall be borne by such
                  Underwriter and paid as incurred (it being understood,
                  however, that such Underwriter shall not be liable for the
                  expenses of more than one separate counsel (in addition to any
                  local counsel) in any one Proceeding or series of related
                  Proceedings in the same jurisdiction representing the
                  indemnified parties who are parties to such Proceeding). No
                  Underwriter shall be liable for any settlement of any such
                  Proceeding effected without the written consent of such
                  Underwriter but if settled with the written consent of such
                  Underwriter, such Underwriter agrees to indemnify and hold
                  harmless the Fund or the Investment Adviser and any such
                  person from and against any loss or liability by reason of
                  such settlement. Notwithstanding the foregoing sentence, if at
                  any time an indemnified party shall have requested an
                  indemnifying party to reimburse the indemnified party for fees
                  and expenses of counsel as contemplated by the second sentence
                  of this paragraph, then the indemnifying party agrees that it
                  shall be liable for any settlement of any Proceeding effected
                  without its written consent if (i) such settlement is entered
                  into more than 60 business days after receipt by such
                  indemnifying party of the aforesaid request, (ii) such
                  indemnifying party shall not have reimbursed the indemnified
                  party in accordance with such request prior to the date of
                  such settlement and (iii) such indemnified party shall have
                  given the indemnifying party at least 30 days' prior notice of
                  its intention to settle.

                                       20
<PAGE>

                  No indemnifying party shall, without the prior written consent
                  of the indemnified party, effect any settlement of any pending
                  or threatened Proceeding in respect of which any indemnified
                  party is or could have been a party and indemnity could have
                  been sought hereunder by such indemnified party, unless such
                  settlement includes an unconditional release of such
                  indemnified party from all liability on claims that are the
                  subject matter of such Proceeding.

         (c)      If the indemnification provided for in this Section 9 is
                  unavailable to an indemnified party under subsections (a) and
                  (b) of this Section 9 in respect of any losses, damages,
                  expenses, liabilities or claims referred to therein, then each
                  applicable indemnifying party, in lieu of indemnifying such
                  indemnified party, shall contribute to the amount paid or
                  payable by such indemnified party as a result of such losses,
                  damages, expenses, liabilities or claims (i) in such
                  proportion as is appropriate to reflect the relative benefits
                  received by the Fund and the Investment Adviser on the one
                  hand and the Underwriters on the other hand from the offering
                  of the Shares or (ii) if the allocation provided by clause (i)
                  above is not permitted by applicable law, in such proportion
                  as is appropriate to reflect not only the relative benefits
                  referred to in clause (i) above but also the relative fault of
                  the Fund and the Investment Adviser on the one hand and of the
                  Underwriters on the other in connection with the statements or
                  omissions which resulted in such losses, damages, expenses,
                  liabilities or claims, as well as any other relevant equitable
                  considerations. The relative benefits received by the Fund or
                  the Investment Adviser on the one hand and the Underwriters on
                  the other shall be deemed to be in the same respective
                  proportions as the total proceeds from the offering (net of
                  underwriting discounts and commissions but before deducting
                  expenses) received by the Fund and the total underwriting
                  discounts and commissions received by the Underwriters, bear
                  to the aggregate public offering price of the Shares. The
                  relative fault of the Fund and the Investment Adviser on the
                  one hand and of the Underwriters on the other shall be
                  determined by reference to, among other things, whether the
                  untrue statement or alleged untrue statement of a material
                  fact or omission or alleged omission relates to information
                  supplied by the Fund or the Investment Adviser or by the
                  Underwriters and the parties' relative intent, knowledge,
                  access to information and opportunity to correct or prevent
                  such statement or omission. The amount paid or payable by a
                  party as a result of the losses, damages, expenses,
                  liabilities and claims referred to in this subsection shall be
                  deemed to include any legal or other fees or expenses
                  reasonably incurred by such party in connection with
                  investigating, preparing to defend or defending any
                  Proceeding.

         (d)      The Fund and the Investment Adviser and the Underwriters agree
                  that it would not be just and equitable if contribution
                  pursuant to this Section 9 were determined by pro rata
                  allocation (even if the Underwriters were treated as one
                  entity for such purpose) or by any other method of

                                       21
<PAGE>

                  allocation that does not take account of the equitable
                  considerations referred to in subsection (c) above.
                  Notwithstanding the provisions of this Section 9, no
                  Underwriter shall be required to contribute any amount in
                  excess of the fees and commissions received by such
                  Underwriter. No person guilty of fraudulent misrepresentation
                  (within the meaning of Section 11(f) of the Act) shall be
                  entitled to contribution from any person who was not guilty of
                  such fraudulent misrepresentation. The Underwriters'
                  obligations to contribute pursuant to this Section 9 are
                  several in proportion to their respective underwriting
                  commitments and not joint.

         (e)      The indemnity and contribution agreements contained in this
                  Section 9 and the covenants, warranties and representations of
                  the Fund contained in this Agreement shall remain in full
                  force and effect regardless of any investigation made by or on
                  behalf of any Underwriter, its partners, directors or officers
                  or any person (including each partner, officer or director of
                  such person) who controls any Underwriter within the meaning
                  of Section 15 of the Act or Section 20 of the Exchange Act, or
                  by or on behalf of the Fund, the Investment Adviser, its
                  directors or officers or any person who controls the Fund, the
                  Investment Adviser within the meaning of Section 15 of the Act
                  or Section 20 of the Exchange Act, and shall survive any
                  termination of this Agreement or the issuance and delivery of
                  the Shares. The Fund or the Investment Adviser and each
                  Underwriter agree promptly to notify each other of the
                  commencement of any Proceeding against it and, in the case of
                  the Fund, the Investment Adviser, against any of the Fund's,
                  the Investment Adviser's officers or directors in connection
                  with the issuance and sale of the Shares, or in connection
                  with the Registration Statement or Prospectus.

         (f)      The Fund and the Investment Adviser each acknowledge that the
                  statements with respect to (1) the public offering of the
                  Shares as set forth on the cover page of and (2) the
                  statements relating to stabilization, to selling concessions
                  and reallowances of selling concessions and with respect to
                  discretionary accounts under the caption "Underwriting" in the
                  Prospectus constitute the only information furnished in
                  writing to the Fund by the Managing Representative on behalf
                  of the Underwriters expressly for use in such document. The
                  Underwriters severally confirm that these statements are
                  correct in all material respects and were so furnished by or
                  on behalf of the Underwriters severally for use in the
                  Prospectus.

         (g)      Notwithstanding any other provisions in this Section 9, no
                  party shall be entitled to indemnification or contribution
                  under this Underwriting Agreement against any loss, claim,
                  liability, expense or damage arising by reason of such
                  person's willful misfeasance, bad faith, gross negligence or
                  reckless disregard in the performance of its duties hereunder.

                                       22
<PAGE>

10.      NOTICES. Except as otherwise herein provided, all statements, requests,
         notices and agreements shall be in writing or by telegram and, if to
         the Underwriters, shall be sufficient in all respects if delivered or
         sent to UBS Securities LLC, 299 Park Avenue, New York, NY 10171-0026,
         Attention: Syndicate Department and, if to the Fund or the Investment
         Adviser, shall be sufficient in all respects if delivered or sent to
         the Fund or the Investment Adviser, as the case may be, at the offices
         of the Fund or the Investment Adviser at 101 Huntington Avenue, Boston,
         MA 02199-7603, Attention: Susan S. Newton, Senior Vice President and
         General Counsel.

11.      GOVERNING LAW; CONSTRUCTION. This Agreement and any claim, counterclaim
         or dispute of any kind or nature whatsoever arising out of or in any
         way relating to this Agreement ("Claim"), directly or indirectly, shall
         be governed by, and construed in accordance with, the laws of the State
         of New York. The Section headings in this Agreement have been inserted
         as a matter of convenience of reference and are not a part of this
         Agreement.

12.      SUBMISSION TO JURISDICTION. Except as set forth below, no Claim may be
         commenced, prosecuted or continued in any court other than the courts
         of the State of New York located in the City and County of New York or
         in the United States District Court for the Southern District of New
         York, which courts shall have jurisdiction over the adjudication of
         such matters, and the Fund consents to the jurisdiction of such courts
         and personal service with respect thereto. The Fund hereby consents to
         personal jurisdiction, service and venue in any court in which any
         Claim arising out of or in any way relating to this Agreement is
         brought by any third party against UBS Securities LLC or any
         indemnified party. Each of UBS Securities LLC, the Fund (on its behalf
         and, to the extent permitted by applicable law, on behalf of its
         stockholders and affiliates) and the Investment Adviser (on its behalf
         and, to the extent permitted by applicable law, on behalf of its
         stockholders and affiliates) waives all right to trial by jury in any
         action, proceeding or counterclaim (whether based upon contract, tort
         or otherwise) in any way arising out of or relating to this Agreement.
         Each of the Fund and the Investment Adviser agrees that a final
         judgment in any such action, proceeding or counterclaim brought in any
         such court may be enforced in any other courts in the jurisdiction of
         which the Fund or the Investment Adviser, as the case may be, is or may
         be subject, by suit upon such judgment.

13.      PARTIES AT INTEREST. The Agreement herein set forth has been and is
         made solely for the benefit of the Underwriters and the Fund and to the
         extent provided in Section 9 hereof the controlling persons, directors
         and officers referred to in such section, and their respective
         successors, assigns, heirs, personal representatives and executors and
         administrators. No other person, partnership, association or
         corporation (including a purchaser, as such purchaser, from any of the
         Underwriters) shall acquire or have any right under or by virtue of
         this Agreement.

                                       23
<PAGE>

14.      COUNTERPARTS. This Agreement may be signed by the parties in one or
         more counterparts which together shall constitute one and the same
         agreement among the parties.

15.      SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
         Underwriters, the Fund or the Investment Adviser, and any successor or
         assign of any substantial portion of the Fund's, the Investment
         Adviser's, or any of the Underwriters' respective businesses and/or
         assets.

16.      DISCLAIMER OF LIABILITY OF TRUSTEES AND BENEFICIARIES. A copy of the
         Declaration of Trust is on file with the Secretary of The Commonwealth
         of Massachusetts, and notice hereby is given that this Underwriting
         Agreement is executed on behalf of the Trustees of the Fund as Trustees
         and not individually and that the obligations or arising out of this
         Underwriting Agreement are not binding upon any of the Trustees or
         beneficiaries individually but are binding only upon the assets and
         properties of the Fund.

                                       24
<PAGE>

         If the foregoing correctly sets forth the understanding among the Fund
and the Underwriters, please so indicate in the space provided below for the
purpose, whereupon this letter and your acceptance shall constitute a binding
agreement among the Fund, the Investment Adviser and the Underwriters,
severally.

                                            Very truly yours,

                                            JOHN HANCOCK INCOME SECURITIES TRUST

                                            ____________________________________
                                            By:
                                            Title:

                                            JOHN HANCOCK ADVISERS, LLC

                                            ____________________________________
                                            By:
                                            Title:

                                       25
<PAGE>

Accepted and agreed to as of the
date first above written, on
behalf of themselves and
the other several Underwriters
named in Schedule A

UBS SECURITIES LLC
[ ]

By: UBS SECURITIES LLC

______________________________
By:
Title:

______________________________
By:
Title:

                                       26
<PAGE>
                                   SCHEDULE A

<TABLE>
<CAPTION>
                                            Number of Shares to be
Underwriter                                        Purchased
- -----------                                 ----------------------
<S>                                         <C>
UBS Securities LLC                                    [ ]

                                                      [ ]
              TOTAL
</TABLE>

                                      A-1
<PAGE>

                                   SCHEDULE B

                               FORM OF OPINION OF

                         HALE & DORR REGARDING THE FUND

                                                                       [ ], 2003

UBS Securities LLC
As Representative of the
   Several Underwriters
299 Park Avenue
New York, New York 10171-0026
Re: John Hancock Income Securities Trust

Ladies and Gentlemen:

         This opinion is furnished to you pursuant to Section 6(e) of the
Underwriting Agreement, dated as of [ ], 2003 (the "Underwriting Agreement"),
among you, as Representative of the several Underwriters, John Hancock Advisers,
LLC, a Delaware limited liability company (the "Adviser"), and John Hancock
Income Securities Trust, a Massachusetts business trust (the "Fund").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to them in the Underwriting Agreement.

         We have acted as counsel for the Fund and the Adviser in connection
with the sale to the Underwriters by the Fund of an aggregate of [ ] preferred
shares of beneficial interest of the Fund, no par value, designated Series M
Auction Preferred Shares of the Fund, [ ] preferred shares of beneficial
interest of the Fund, no par value, designated Series T Auction Preferred Shares
of the Fund, [ ] preferred shares of beneficial interest of the Fund, no par
value, designated Series W Auction Preferred Shares of the Fund [ ] preferred
shares of beneficial interest of the Fund, no par value, designated Series TH
Auction Preferred Shares of the Fund and [ ] preferred shares of beneficial
interest of the Fund, no par value, designated Series F Auction Preferred Shares
of the Fund, each with a liquidation preference of $25,000 per share
(collectively, the "Shares"), all pursuant to the Section 1 of the Underwriting
Agreement. As such counsel, we have assisted in the preparation and filing with
the Securities and Exchange Commission (the "Commission") of the Fund's
Registration Statement on Form N-2 dated [ ], 2003 (File Nos. 333-108636 and
811-04186), and amendments No. [ ] thereto, which Registration Statement became
effective on [ ], 2003 (the "Effective Date"). Such Registration Statement, in
the form in which it became effective, is referred to herein as the
"Registration Statement," and the prospectus dated [    ], 2003 and statement of
additional information dated [ ], 2003, included therein, as filed pursuant to
Rule 497 of the Securities Act of 1933, as amended (the "Securities Act"), on
[ ], 2003, are referred to herein as the "Prospectus" and the "Statement of
Additional Information."

                                      B-1

<PAGE>

         We have examined and relied upon the Declaration of Trust and Amended
By-laws of the Fund, each as amended to date, records of meetings or written
actions of shareholders and of the Board of Trustees of the Fund, proceedings of
the Fund in connection with the authorization and issuance of the Shares, the
Registration Statement, the Prospectus, the Statement of Additional Information,
the Underwriting Agreement, certificates of representatives of the Fund,
certificates of public officials and such other documents as we have deemed
necessary as a basis for the opinions hereinafter expressed. We have assumed
that all corporate or trust records of the Fund and the Adviser and stock books
of the Fund and are complete and accurate.

         Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Fund or the Adviser, we have
relied, with your permission, upon certificates, statements and representations
of officers and other representatives of the Fund and the Adviser,
representations made in the Underwriting Agreement and statements contained in
the Registration Statement. We have not attempted to verify independently such
facts, although nothing has come to our attention which has caused us to
question the accuracy of such certificates, statements or representations.

         In our examination of the documents referred to above, we have assumed
the genuineness of all signatures, the legal capacity of each individual signing
such documents, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as copies,
and the authenticity of the originals of such documents.

         Any reference to "our knowledge" or "best of our knowledge" or to any
matters "known to us," "of which we are aware" or "coming to our attention" or
any variation of any of the foregoing, shall mean the conscious awareness, as to
the existence or absence of any facts, which would contradict the opinions and
statements so expressed, of the attorneys of this firm who have rendered
substantive attention to the transaction to which this opinion relates. Other
than as expressly set forth below, we have not undertaken, for purposes of this
opinion, any independent investigation to determine the existence or absence of
such facts, and no inference as to our knowledge of the existence or absence of
such facts should be drawn from the fact of our representation of the Fund and
the Adviser. Moreover, we have not searched any electronic databases or the
dockets of any court, regulatory body or governmental agency or other filing
office in any jurisdiction.

         For purposes of this opinion, we have assumed that the agreements
referred to herein have been duly authorized, executed and delivered by all
parties thereto other than the Fund, and that all such other parties have all
requisite power and authority to effect the transactions contemplated by such
agreements. We have also assumed that each such agreement is the valid and
binding obligation of each party thereto other than the Fund and is enforceable
against all such other parties in accordance with its terms. We do not render
any opinion as to the application of any federal or state law or regulation to
the power, authority or competence of any party to the agreements other than the
Fund.

                                      B-2

<PAGE>

         Our opinions set forth below are qualified to the extent that they may
be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws relating to or
affecting the rights of creditors generally, (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or
hearing, (iii) duties and standards imposed on creditors and parties to
contracts, including, without limitation, requirements of good faith,
reasonableness and fair dealing, and (iv) general equitable principles. We
express no opinion as to the availability of any equitable or specific remedy
upon any breach of any of the agreements as to which we are opining herein, or
any of the agreements, documents or obligations referred to therein, or to the
successful assertion of any equitable defenses, inasmuch as the availability of
such remedies or the success of any equitable defense may be subject to the
discretion of a court. Without limiting the foregoing, with respect to our
opinion in paragraph 9 below, (i) we are expressing no opinion as to the
enforceability of the indemnification or contribution provisions of the
Underwriting Agreement, (ii) we note that a court may refuse to enforce, or may
limit the application of, the Underwriting Agreement or certain provisions
thereof, as unconscionable or contrary to public policy, and (iii) we have
assumed compliance by all parties with federal and state securities laws.

         We also express no opinion herein as to any provision of any agreement
(a) which may be deemed to or construed to waive any right of the Fund, (b) to
the effect that rights and remedies are not exclusive, that every right or
remedy is cumulative and may be exercised in addition to or with any other right
or remedy and does not preclude recourse to one or more other rights or
remedies, (c) relating to the effect of invalidity or unenforceability of any
provision of any agreement on the validity or enforceability of any other
provision thereof, (d) requiring the payment of penalties, consequential damages
or liquidated damages, (e) which is in violation of public policy, including,
without limitation, any provision relating to non-competition and
non-solicitation or relating to indemnification and contribution with respect to
securities law matters, (f) purporting to indemnify any person against his, her
or its own negligence or intentional misconduct, (g) which provides that the
terms of any agreement may not be waived or modified except in writing or (h)
relating to choice of law or consent to jurisdiction.

         Our opinion expressed in paragraph 1 below as to the valid existence
and good standing of the Fund is based solely on a certificate of legal
existence issued by the Secretary of State of the Commonwealth of Massachusetts,
a copy of which has been made available to your counsel, and our opinion with
respect to such matters is rendered as of the date of such certificate and
limited accordingly. We express no opinion as to the tax good standing of the
Fund in any jurisdiction.

         In connection with our opinion expressed in paragraph 2 below, insofar
as it relates to full payment for the outstanding Common Shares of the Fund, we
have relied solely on a certificate of an officer of the Fund. Our opinion
expressed in paragraph 2 below as to issued and outstanding shares of capital
stock of the Fund is based solely on a certificate of the Fund's transfer agent,
which we assume to be complete and accurate. Our opinion expressed in paragraph
2 below as to the due and valid issuance of all

                                      B-3

<PAGE>

outstanding common shares of the Fund is based solely on a review of the
corporate minute books of the Fund, and a certificate of an officer of the Fund,
each of which we assume to be complete and accurate.

         Our opinion expressed in paragraph 4 below as to the effectiveness of
the Registration Statement under the Securities Act is based solely upon oral
advice from [ ] at the Division of Investment Management of the Commission that
such Registration Statement was declared effective as of [ ] p.m. on [ ], 2003.
Our opinion expressed in paragraph 10 below as to the listing of the Common
Shares on the New York Stock Exchange is solely based upon a letter from the
Exchange to the Fund dated [     ], 2003.

         Our opinions in paragraphs 2 and 3 below are qualified to the extent
that, under Massachusetts law, shareholders of a Massachusetts business trust
may be held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholders liability for acts or obligations of
the Fund. Also, the Declaration of Trust provides for indemnification out of
Fund property for all loss and expense of any shareholder held personally liable
for the obligations of the Fund.

         We have not made any investigation of the laws of any jurisdiction
other than the state laws of the Commonwealth of Massachusetts and the federal
laws of the United States of America. To the extent that any other laws govern
any of the matters as to which we express an opinion below, we have assumed for
purposes of this opinion, with your permission and without independent
investigation, that the laws of such jurisdiction are identical to the state
laws of the Commonwealth of Massachusetts, and we express no opinion as to
whether such assumption is reasonable or correct. We express no opinion with
respect to the securities or Blue Sky laws of any state of the United States,
with respect to state or federal antifraud laws (except to the extent expressly
provided in the third to last paragraph below) or with respect to the approval
by the National Association of Securities Dealers, Inc. of the offering.

         On the basis of and subject to the foregoing, we are of the opinion
that:

         1.       The Fund is validly existing as a business trust in good
                  standing under the laws of the Commonwealth of Massachusetts
                  and has business trust power and authority to carry on its
                  business and own, lease and operate its properties as
                  described in the Prospectus, and to enter into and perform its
                  obligations under the Underwriting Agreement.

         2.       The authorized, issued and outstanding shares of beneficial
                  interest of the Fund as of the date of the Prospectus are as
                  set forth in the Prospectus under the caption "The Fund". All
                  issued and outstanding shares of beneficial interest of the
                  Fund as of the date hereof have been duly authorized, validly
                  issued, and fully paid and are not subject to any preemptive
                  or similar statutory rights under the Massachusetts Business
                  Trust statute or, to our knowledge, similar contractual rights
                  granted by the Fund.

                                      B-4

<PAGE>

         3.       The Shares have been duly authorized and, when issued and
                  delivered to the Underwriters against payment therefor
                  pursuant to the Underwriting Agreement, will be validly issued
                  and fully paid.

         4.       The Registration Statement has been declared effective under
                  the Securities Act. Any required filing of the Prospectus
                  pursuant to Rule 497(c) or Rule 497(h) has been made in the
                  manner and within the time period required by Rule 497. To the
                  best of our knowledge, no stop order suspending the
                  effectiveness of the Registration Statement has been issued
                  under the Securities Act. To the best of our knowledge, no
                  order of suspension or revocation of registration pursuant to
                  Section 8(e) of the Investment Company Act of 1940, as amended
                  (the "1940 Act"), has been issued, and no proceedings for any
                  such purpose have been instituted or are pending or threatened
                  by the Commission.

         5.       The Fund is registered with the Commission under the 1940 Act
                  as a closed-end, diversified management investment company;
                  and to our knowledge, no order of suspension or revocation of
                  such registration has been issued nor have any proceedings
                  therefore been initiated or threatened by the Commission.

         6.       The Underwriting Agreement has been duly authorized, executed
                  and delivered by the Fund.

         7.       Each of the Investment Advisory Agreement between the Fund and
                  the Adviser, dated [ ], 2003 (the "Investment Advisory
                  Agreement"), the Custodian Agreement between the Fund and The
                  Bank of New York, dated [ ], 2003 (the "Custodian Agreement"),
                  the Transfer Agency Agreement between the Fund and Mellon
                  Investor Services, LLC, dated [ ], 2003 (the "Transfer Agency
                  Agreement"), the Auction Agency Agreement between the Fund and
                  Deutsche Bank Trust Company Americas, dated [ ], 2003 (the
                  "Auction Agency Agreement"), the Letter Agreement between the
                  Fund and the Depository Trust Company, dated [ ], 2003 (the
                  "DTC Agreement") and the Underwriting Agreement comply in all
                  material respects with all applicable provisions of the 1940
                  Act, the Investment Advisers Act of 1940, as amended (the
                  "Advisers Act"), and the rules and regulations of the
                  Commission under the 1940 Act and the Advisers Act.

         8.       Each of the Investment Advisory Agreement, the Custodian
                  Agreement, the Transfer Agency Agreement, the Auction Agency
                  Agreement and the DTC Agreement has been duly authorized by
                  all requisite action on the part of the Fund, executed and
                  delivered by the Fund, as of the date noted therein. Assuming
                  due authorization, execution and delivery by the other parties
                  thereto, each of the Investment Advisory Agreements, the
                  Custodian Agreement, the Transfer Agency Agreement, the
                  Auction Agency Agreement and the DTC Agreement constitutes a
                  valid and

                                      B-5

<PAGE>

                  binding agreement of the Fund, enforceable against the Fund in
                  accordance with its terms.

         9.       The execution, delivery and performance of the Investment
                  Advisory Agreement, Transfer Agency Agreement, Custodian
                  Agreement and the Underwriting Agreement by the Fund, the
                  compliance by the Fund with all the provisions thereof and the
                  consummation by the Fund of the transactions contemplated
                  thereby (including the issuance and sale of the Shares and the
                  use of the proceeds from the sale of the Shares as described
                  in the Prospectus under the caption "Use of Proceeds") do not
                  and will not (A) require any consent, approval, authorization
                  or other order of, or qualification with, any Massachusetts
                  state or U.S. federal court or governmental body or agency
                  (except such as may be required under the securities or Blue
                  Sky laws of the various states or the National Association of
                  Securities Dealers, Inc. or as have been obtained under the
                  federal securities laws), (B) conflict with or constitute a
                  breach of any of the terms or provisions of, or a default
                  under, or result in the imposition of a lien, charge or
                  encumbrance upon the assets of the Fund pursuant to any
                  indenture, loan agreement, mortgage, lease or other agreement
                  or instrument filed as an exhibit to the Registration
                  Statement, (C) violate or conflict with the Declaration of
                  Trust or By-laws, (D) violate or conflict with any applicable
                  U.S. federal or Massachusetts state law, rule or regulation
                  which in our experience is normally applicable in transactions
                  of the type contemplated by the Underwriting Agreement, or (E)
                  violate or conflict with any judgment, order or decree
                  specifically naming the Fund or its property of which we are
                  aware.

         10.      The Common Shares are listed on the New York Stock Exchange.

         11.      To our knowledge, there are no legal or governmental
                  proceedings pending or threatened against the Fund.

         12.      The statements in the Prospectus under the caption
                  "Description of the Shares" and in Item 29 of Part C of the
                  Registration Statement, insofar as such statements constitute
                  matters of law or legal conclusions, are correct in all
                  material respects.

         13.      The Fund does not require any tax or other rulings to enable
                  it to qualify as a regulated investment company under
                  Subchapter M of the Internal Revenue Code of 1986, as amended.

         14.      Each of the section in the Prospectus entitled "U.S. Federal
                  Income Tax Matters" and the section in the Statement of
                  Additional Information entitled "U.S. Federal Income Tax
                  Matters" is a fair summary of the principal United States
                  federal income tax rules currently in effect applicable to the
                  Fund and to the purchase, ownership and disposition of the
                  Shares.

                                      B-6

<PAGE>

         15.      The Registration Statement, including any Rule 430A
                  Information, the Prospectus and each amendment or supplement
                  to the Registration Statement and Prospectus as of their
                  respective effective or issue dates (other than the financial
                  statements and supporting schedules including the notes and
                  schedules thereto, or any other financial or accounting data
                  included therein or omitted therefrom, as to which we express
                  no opinion), and the notification on Form N-8A complied as to
                  form in all material respects with the requirements of the
                  Securities Act, the 1940 Act and the rules and regulations of
                  the Commission thereunder.

         In connection with the preparation of the Registration Statement, the
Prospectus and the Statement of Additional Information, we have participated in
conferences with officers and representatives of the Fund and the Adviser,
representatives of the Underwriters, counsel for the Underwriters and the
independent accountants of the Fund, at which conferences we made inquiries of
such persons and others and discussed the contents of the Registration Statement
and the Prospectus and the Statement of Additional Information. While the
limitations inherent in the independent verification of factual matters and the
character of determinations involved in the registration process are such that
we are not passing upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, subject to the foregoing and based on such
participation, inquiries and discussions, no facts have come to our attention
which have caused us to believe that the Registration Statement, as of the
Effective Date (but after giving effect to changes incorporated pursuant to Rule
430A under the Securities Act), contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading (except that we
express no such view with respect to the financial statements, including the
notes and schedules thereto, or any other financial or accounting data included
therein), or that the Prospectus, as of the date it was filed with the
Commission pursuant to Rule 497 under the Securities Act or as of the date
hereof, contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (except that we
express no such view with respect to the financial statements, including the
notes and schedules thereto, or any other financial or accounting data included
therein).

         This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions and is rendered as of the date hereof, and we
disclaim any obligation to advise you of any change in any of the foregoing
sources of law or subsequent developments in law or changes in facts or
circumstances which might affect any matters or opinions set forth herein.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters.

         This opinion is being furnished to you, as Representative of the
Underwriters, at the request of the Fund pursuant to the Underwriting Agreement,
is solely for the benefit of the Underwriters, and may not be relied upon by you
for any other purpose, or furnished to, quoted to or relied upon by any other
party for any purpose, without our

                                      B-7

<PAGE>

prior written consent. We understand that Skadden, Arps, Slate, Meagher & Flom
(Illinois) in delivering their opinion pursuant to Section 6(f) of the
Underwriting Agreement is relying upon this opinion as to matters of the laws of
the Commonwealth of Massachusetts. We consent to such reliance.

                                      B-8

<PAGE>

                                   SCHEDULE C

                       FORM OF OPINION OF INTERNAL COUNSEL

                      REGARDING JOHN HANCOCK ADVISERS, LLC

i.       John Hancock Advisers, LLC ("John Hancock Advisers") has been duly
formed and is validly existing as a limited liability company under the laws of
the State of Delaware. John Hancock Advisers has limited liability company power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement and the Investment Advisory
Agreement.

ii.      John Hancock Advisers is registered as an investment adviser under the
Advisers Act and is not prohibited by the Advisers Act or the Investment Company
Act from acting as investment adviser and administrator for the Fund as
contemplated by the Investment Advisory Agreement, the Registration Statement
and the Prospectus.

iii.     The Underwriting Agreement and the Investment Advisory Agreement have
been duly authorized, executed and delivered by John Hancock Advisers, and the
Investment Advisory Agreement constitutes a valid and binding obligation of John
Hancock Advisers, enforceable in accordance with its respective terms

iv.      The execution, delivery and performance of the Underwriting Agreement
by John Hancock Advisers, the compliance by John Hancock Advisers with all the
provisions thereof and the consummation by John Hancock Advisers of the
transactions contemplated thereby do not and will not (A) require any consent,
approval, authorization or order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states or the National Association of Securities
Dealers, Inc. or as have been obtained under the federal securities laws), (B)
conflict with or constitute a breach of any of the terms or provisions of, or a
default under or result in the imposition of a lien, charge or encumbrance upon
the assets of John Hancock Advisers pursuant to, any indenture, loan agreement,
mortgage, lease or other agreement or instrument to which John Hancock Advisers
is a party filed as an exhibit to the Registration Statement, (C) violate or
conflict with the Certificate of Limited Liability Company or the Limited
Liability Company Agreement of John Hancock Advisers, or (D) violate or conflict
with any applicable federal and Massachusetts law, rule or regulation or the
Delaware Limited Liability Company statute, or (E) violate or conflict with any
judgment, order or decree specifically naming John Hancock Advisers or its
property.

v.       To our knowledge, there is no legal or governmental proceeding pending
or threatened against John Hancock Advisers that is either: (1) required by the
Securities Act or the 1940 Act and their Rules and Regulations to be described
in the Registration Statement or Prospectus that is not already described, or:
(2) which would, under Section

                                      C-1

<PAGE>

9 of the 1940 Act, make John Hancock Advisers ineligible to act as the Fund's
investment adviser.

In connection with the registration of the Shares, such counsel has advised John
Hancock Advisers as to the requirements of the Securities Act, the Investment
Company Act and the applicable rules and regulations of the Commission
thereunder and has rendered other legal advice and assistance to John Hancock
Advisers in the course of the preparation of the registration Statement and the
Prospectus. Rendering such assistance involved, among other things, discussions
and inquiries concerning various legal and related subjects and reviews of
certain corporate records, documents and proceedings. Such counsel has also
participated in conferences with representatives of the Fund and its accountants
and John Hancock Advisers at which the contents of the registration and
Prospectus and related matters were discussed. With your permission, such
counsel not undertaken, except as otherwise indicated herein, to determine
independently, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement or
Prospectus. On the basis of the information which was developed in the course of
the performance of the services referred to above, no information has come to
such counsel's attention that would lead him to believe that the Registration
Statement, at the time it became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus, as of its date and as of the date hereof, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that any amendment
or supplement to the Prospectus, as of its respective date, and as of the date
hereof, contained any untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they were made, not
misleading (except the financial statements, schedules and other financial data
included therein or any other financial or accounting data included therein, as
to which such counsel expresses no view).

                                      C-2

<PAGE>

                                   SCHEDULE D

                           FORM OF ACCOUNTANT'S LETTER

[ ], 2003

The Board of Trustees of
John Hancock Income Securities Trust
101 Huntington Avenue
Boston, MA 02199-7603

UBS Securities LLC
299 Park Avenue
New York, New York 10171
  as Managing Representative of the Underwriters

Ladies and Gentlemen:

                  We have audited the statement of assets and liabilities of
John Hancock Preferred Income Fund (the "Fund") as of ______, 2003 included in
the Registration Statement on Form N-2 filed by the Fund under the Securities
Act of 1933 (the "Act") (File No. 333-108636) and under the Investment Company
Act of 1940 (the "1940 Act") (File No. 811-04186); such statement and our report
with respect to such statement are included in the Registration Statement.

In connection with the Registration Statement:

                  1.       We are independent public accountants with respect to
         the Fund within the meaning of the Act and the applicable rules and
         regulations thereunder.

                  2.       In our opinion, the statement of assets and
         liabilities included in the Registration Statement and audited by us
         complies as to form in all respects with the applicable accounting
         requirements of the Act, the 1940 Act and the respective rules and
         regulations thereunder.

                  3.       For purposes of this letter we have read the minutes
         of all meetings of the Shareholders, the Board of Trustees and all
         Committees of the Board of Trustees of the Fund as set forth in the
         minute books at the offices of the Fund, officials of the Fund having
         advised us that the minutes of all such meetings through _______ ,
         2003, were set forth therein.

                  4.       Fund officials have advised us that no financial
         statements as of any date subsequent to ________, 2003, are available.
         We have made inquiries of certain officials of the Fund who have
         responsibility for financial and accounting matters regarding whether
         there was any change at ______, 2003, in the capital

                                      D-1

<PAGE>

         shares or net assets of the Fund as compared with amounts shown in the
         _______, 2003, statement of assets and liabilities included in the
         Registration Statement, except for changes that the Registration
         Statement discloses have occurred or may occur. On the basis of our
         inquiries and our reading of the minutes as described in Paragraph 3,
         nothing came to our attention that caused us to believe that there were
         any such changes.

         The foregoing procedures do not constitute an audit made in accordance
with generally accepted auditing standards. Accordingly, we make no
representations as to the sufficiency of the foregoing procedures for your
purposes.

         This letter is solely for the information of the addressees and to
assist the underwriters in conducting and documenting their investigation of the
affairs of the Fund in connection with the offering of the securities covered by
the Registration Statement, and is not to be used, circulated, quoted or
otherwise referred to within or without the underwriting group for any other
purpose, including but not limited to the registration, purchase or sale of
securities, nor is it to be filed with or referred to in whole or in part in the
Registration Statement or any other document, except that reference may be made
to it in the underwriting agreement or in any list of closing documents
pertaining to the offering of the securities covered by the Registration
Statement.

                                 Very Truly Yours,

                                      D-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(J)
<SEQUENCE>8
<FILENAME>b48195isexv99wxjy.txt
<DESCRIPTION>CUSTODIAN AGREEMENT
<TEXT>
<PAGE>

                                                                 EXHIBIT 99(j)

                                CUSTODY AGREEMENT

         AGREEMENT, dated as of September 10, 2001 between each John Hancock
Fund listed on Schedule II, each either a business trust organized and existing
under the laws of The Commonwealth of Massachusetts, or a Maryland corporation
organized and existing under the laws of the state of Maryland, having its
principal office and place of business at 101 Huntington Avenue, Boston,
Massachusetts 02199 (each the "Fund", collectively the "Funds") and The Bank of
New York, a New York corporation authorized to do a banking business having its
principal office and place of business at One Wall Street, New York, New York
10286 ("Custodian").

                              W I T N E S S E T H:

that for and in consideration of the mutual promises hereinafter set forth the
Fund and Custodian agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

         Whenever used in this Agreement, the following words shall have the
meanings set forth below:

         1. "Authorized Person" shall be any person, whether or not an officer
or employee of the Fund, duly authorized by the Fund's board to execute any
Certificate or to give any Oral Instruction or other Instruction on behalf of
the Fund and listed in the Certificate annexed hereto as Schedule I hereto or
such other Certificate as may be received by Custodian from time to time.

         2. "BNY Affiliate" shall mean any office, branch or subsidiary of The
Bank of New York Company, Inc.

         3. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for receiving and delivering securities, its successors and
nominees.

         4. "Business Day" shall mean any day on which the Fund, Custodian and
relevant Depositories are open for business.

         5. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
Custodian, which is actually received by Custodian and signed on behalf of the
Fund by an Authorized Person or a person reasonably believed by Custodian to be
an Authorized Person.

         6. "Composite Currency Unit" shall mean the Euro or any other composite
currency unit consisting of the aggregate of specified amounts of specified
currencies, as such unit may be constituted from time to time.

         7. "Depository" shall include (a) the Book-Entry System, (b) the
Depository Trust Company, (c) any other clearing agency or securities depository
registered with the Securities and Exchange Commission identified to the Fund
from time to time, and (d) the respective successors and nominees of the
foregoing.

<PAGE>

         8. "Foreign Depository" shall mean (a) Euroclear, (b) Clearstream
Banking, societe anonyme, (c) each Eligible Securities Depository as defined in
Rule 17f-7 under the Investment Company Act of 1940, as amended (the "'40 Act"),
identified to the Fund from time to time, and (d) the respective successors and
nominees of the foregoing.

         9. "Instructions" shall mean communications transmitted by electronic
or telecommunications media, including S.W.I.F.T./I.S.I.T.C.,
computer-to-computer interface, facsimile transmissions executed by an
Authorized Person, or dedicated transmission lines.

         10. "Oral Instructions" shall mean verbal instructions received by
Custodian from an Authorized Person or from a person reasonably believed by
Custodian to be an Authorized Person.

         11. "Securities" shall have the same meaning as when used in the
Securities Act of 1933, including, without limitation, any common stock and
other equity securities, bonds, debentures and other debt securities, notes,
mortgages or other obligations, and any instruments representing rights to
receive, purchase, or subscribe for the same, or representing any other rights
or interests therein (whether represented by a certificate or held in a
Depository or by a Subcustodian).

         12. "Subcustodian" shall mean a bank (including any branch thereof) or
other financial institution (other than a Foreign Depository) located outside
the U.S. which is utilized by Custodian in connection with the purchase, sale or
custody of Securities hereunder and identified to the Fund from time to time,
and their respective successors and nominees.

                                   ARTICLE II
                       APPOINTMENT OF CUSTODIAN; ACCOUNTS

         1. (a) The Fund hereby appoints Custodian as custodian of all
Securities and cash at any time delivered to Custodian during the term of this
Agreement, and authorizes Custodian to hold Securities in registered form in its
name or the name of its nominees. Custodian hereby accepts such appointment and
agrees to establish and maintain one or more separate securities accounts and
cash accounts for each Fund in which Custodian will hold Securities and cash as
provided herein. Custodian shall maintain books and records segregating the
assets of each Fund from the assets of any other Fund. Such accounts (each, an
"Account"; collectively, the "Accounts") shall be in the name of the Fund.

         (b) Custodian may from time to time establish on its books and records
such sub-accounts within each Account as the Fund and Custodian may agree upon
(each a "Special Account"), and Custodian shall reflect therein such assets as
the Fund may specify in a Certificate or Instructions.

         (c) Custodian may from time to time establish pursuant to a written
agreement with and for the benefit of a broker, dealer, futures commission
merchant or other third party identified in a Certificate or Instructions such
accounts on such terms and conditions as the Fund and Custodian shall agree, and
Custodian shall transfer to such account such Securities and money as the Fund
may specify in a Certificate or Instructions.

                                        2
<PAGE>

                                   ARTICLE III
                          CUSTODY AND RELATED SERVICES

         1. (a) Subject to the terms hereof, the Fund hereby authorizes
Custodian to hold any Securities received by it from time to time for the Fund's
account. Custodian shall be entitled to utilize Depositories, Subcustodians,
and, subject to subsection(c) of this Section 1, Foreign Depositories, to the
extent possible in connection with its performance hereunder. Securities and
cash held in a Depository or Foreign Depository will be held subject to the
rules, terms and conditions of such entity. Securities and cash held through
Subcustodians shall be held subject to the terms and conditions of Custodian's
agreements with such Subcustodians. Subcustodians may be authorized to hold
Securities in Foreign Depositories in which such Subcustodians participate.
Unless otherwise required by local law or practice or a particular subcustodian
agreement, Securities deposited with a Subcustodian, a Depositary or a Foreign
Depository will be held in a commingled account, in the name of Custodian,
holding only Securities held by Custodian as custodian for its customers.
Custodian shall identify on its books and records the Securities and cash
belonging to the Fund, whether held directly or indirectly through Depositories,
Foreign Depositories, or Subcustodians. Custodian shall, directly or indirectly
through Subcustodians, Depositories, or Foreign Depositories, endeavor, to the
extent feasible, to hold Securities in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for cancellation and/or payment and/or
registration, or where such Securities are acquired. Custodian at any time may
cease utilizing any Subcustodian and/or may replace a Subcustodian with a
different Subcustodian (the "Replacement Subcustodian"). In the event Custodian
selects a Replacement Subcustodian, Custodian shall not utilize such Replacement
Subcustodian until after the Fund's board or foreign custody manager has
determined that utilization of such Replacement Subcustodian satisfies the
requirements of the `40 Act and Rule 17f-5 thereunder.

         (b) Unless Custodian has received a Certificate or Instructions to the
contrary, Custodian shall hold Securities indirectly through a Subcustodian only
if (i) the Securities are not subject to any right, charge, security interest,
lien or claim of any kind in favor of such Subcustodian or its creditors or
operators, including a receiver or trustee in bankruptcy or similar authority,
except for a claim of payment for the safe custody or administration of
Securities on behalf of the Fund by such Subcustodian, and (ii) beneficial
ownership of the Securities is freely transferable without the payment of money
or value other than for safe custody or administration.

         (c) With respect to each Foreign Depository, Custodian shall exercise
reasonable care, prudence, and diligence (i) to provide the Fund with an
analysis of the custody risks associated with maintaining assets with the
Foreign Depository, and (ii) to monitor such custody risks on a continuing basis
and promptly notify the Fund of any material change in such risks. The Fund
acknowledges and agrees, that such analysis and monitoring shall be made on the
basis of, and limited by, information gathered from Subcustodians, from trade
associations of which Custodian is a member from time to time, or through
publicly available information otherwise obtained by Custodian, and shall not
include any evaluation of Country Risks. As used herein the term "Country Risks"
shall mean with respect to any Foreign Depository: (a) the financial

                                        3
<PAGE>

infrastructure of the country in which it is organized, (b) such country's
prevailing custody and settlement practices, (c) nationalization, expropriation
or other governmental actions, (d) such country's regulation of the banking or
securities industry, (e) currency controls, restrictions, devaluations or
fluctuations, and (f) market conditions which affect the orderly execution of
securities transactions or affect the value of securities. Custodian represents
that each Foreign Depository in which a Subcustodian is authorized to maintain
Fund assets is an "Eligible Securities Depository" as defined in Rule 17f-7
under the '40 Act. Custodian agrees to certify to the Fund's board, annually and
upon reasonable request, that each Foreign Depository remains an Eligible
Securities Depository.

         2. Custodian shall furnish Fund on-line access to daily transactions on
a real time basis and a monthly summary of all transfers to or from Fund's
account on the first business day after the month end.

         3. With respect to all Securities held hereunder, Custodian shall,
unless otherwise instructed to the contrary:

         (a) Collect all income, dividends, distributions and other payments due
or payable;

         (b) Present for payment and collect the amount paid upon all Securities
which mature;

         (c) Forward to the Fund promptly copies of all information or documents
that it may actually receive from an issuer of Securities which, in the
reasonable opinion of Custodian, are intended for the beneficial owner of
Securities;

         (d) Execute, as custodian, any certificates of ownership, affidavits,
declarations or other certificates under any tax laws now or hereafter in effect
in connection with the collection of bond and note coupons;

         (e) Hold directly or through a Depository, a Foreign Depository, or a
Subcustodian all rights and similar Securities issued with respect to any
Securities credited to an Account hereunder; and

         (f) Endorse for collection checks, drafts or other negotiable
instruments.

         4. (a) Custodian promptly shall notify the Fund of rights or
discretionary actions with respect to Securities held hereunder, and of the date
or dates by when such rights must be exercised or such action must be taken,
provided that Custodian has actually received, from the issuer or the relevant
Depository (with respect to Securities issued in the United States) or from the
relevant Subcustodian, Foreign Depository, or a nationally or internationally
recognized bond or corporate action service to which Custodian subscribes,
timely notice of such rights or discretionary corporate action or of the date or
dates such rights must be exercised or such action must be taken.

                                        4
<PAGE>

         (b) Whenever Securities (including, but not limited to, warrants,
options, tenders, options to tender or non-mandatory puts or calls) confer
discretionary rights on the Fund or provide for discretionary action or
alternative courses of action by the Fund, the Fund shall be responsible for
making any decisions relating thereto and for directing Custodian to act
provided that Custodian promptly has notified the Fund of such discretionary
right or action. In order for Custodian to act, it must receive the Fund's
Certificate or Instructions at Custodian's offices, addressed as Custodian may
from time to time request, not later than noon (New York time) at least one (1)
Business Day prior to the last scheduled date to act with respect to such
Securities (or such earlier date or time as Custodian may specify to the Fund).
Custodian shall not be liable for failure to take any action relating to or to
exercise any rights conferred by such Securities, unless Custodian has failed to
timely receive the Fund's Certificate or Instruction and such failure is
attributable to Custodian's negligence or willful misconduct.

         5. All voting rights with respect to Securities, however registered,
shall be exercised by the Fund or its designee. For domestic and foreign
securities Custodian will utilize a proxy service for the exercise of such
voting rights.

         6. Custodian shall promptly advise the Fund upon Custodian's actual
receipt of notification of the partial redemption, partial payment or other
action affecting less than all Securities of the relevant class. If Custodian,
any Subcustodian, any Depository, or any Foreign Depository holds any Securities
in which the Fund has an interest as part of a fungible mass, Custodian, such
Subcustodian, Depository, or Foreign Depository may select the Securities to
participate in such partial redemption, partial payment or other action in any
non-discriminatory manner that it customarily uses to make such selection.

         7. Custodian shall not under any circumstances accept bearer interest
coupons which have been stripped from United States federal, state or local
government or agency securities unless explicitly agreed to by Custodian in
writing.

         8. The Fund shall be liable for all taxes, assessments, duties and
other governmental charges, including any interest or penalty with respect
thereto ("Taxes"), with respect to any cash or Securities held on behalf of the
Fund or any transaction related thereto. The Fund shall indemnify Custodian and
each Subcustodian for the amount of any Tax that Custodian, any such
Subcustodian or any other withholding agent is required under applicable laws
(whether by assessment or otherwise) to pay on behalf of, or in respect of
income earned by or payments or distributions made to or for the account of the
Fund (including any payment of Tax required by reason of an earlier failure to
withhold). Custodian shall, or shall instruct the applicable Subcustodian or
other withholding agent to, withhold the amount of any Tax which is required to
be withheld under applicable law upon collection of any dividend, interest or
other distribution made with respect to any Security and any proceeds or income
from the sale, loan or other transfer of any Security. In the event that
Custodian or any Subcustodian is required under applicable law to pay any Tax on
behalf of the Fund, Custodian is hereby authorized to withdraw cash from that
Fund's cash account in the amount required to pay such Tax and to use such cash,
or to remit such cash to the appropriate Subcustodian or other withholding
agent, for the timely payment of such Tax in the manner required by applicable
law. If the aggregate amount of cash in that Fund's cash accounts is not
sufficient to pay such Tax, Custodian shall promptly notify the Fund of the

                                        5
<PAGE>

additional amount of cash (in the appropriate currency) required, and the Fund
shall directly deposit such additional amount in the appropriate cash account
promptly after receipt of such notice, for use by Custodian as specified herein.
In the event that Custodian reasonably believes that Fund is eligible, pursuant
to applicable law or to the provisions of any tax treaty, for a reduced rate of,
or exemption from, any Tax which is otherwise required to be withheld or paid on
behalf of the Fund under any applicable law, Custodian shall, or shall instruct
the applicable Subcustodian or withholding agent to, either withhold or pay such
Tax at such reduced rate or refrain from withholding or paying such Tax, as
appropriate; provided that Custodian shall have received from the Fund all
documentary evidence of residence or other qualification for such reduced rate
or exemption required to be received under such applicable law or treaty. In the
event that Custodian reasonably believes that a reduced rate of, or exemption
from, any Tax is obtainable only by means of an application for refund,
Custodian and the applicable Subcustodian shall have responsibility for
providing the Fund with the correct forms and filling them out in a timely and
accurate fashion, but no responsibility for the accuracy or validity of the
Fund's information on any forms or documentation provided solely by the Fund to
Custodian hereunder. The Fund hereby agrees to indemnify and hold harmless
Custodian and each Subcustodian for any liability arising from any
underwithholding or underpayment of any Tax which results from the inaccuracy or
invalidity of any information provided by the Fund for such forms or other
documentation prepared solely by the Fund, and such obligation to indemnify
shall be a continuing obligation of the Fund, its successors and assigns
notwithstanding the termination of this Agreement.

         9. (a) For the purpose of settling Securities and foreign exchange
transactions, the Fund shall provide Custodian with sufficient immediately
available funds for all transactions by such time and date as conditions in the
relevant market dictate. As used herein, "sufficient immediately available
funds" shall mean either (i) sufficient cash denominated in U.S. dollars to
purchase the necessary foreign currency, or (ii) sufficient applicable foreign
currency, to settle the transaction. Custodian shall provide the Fund with
immediately available funds each day which result from the contractual
settlement of all sale transactions, based upon advices received by Custodian
from Subcustodians, Depositories, and Foreign Depositories. Such funds shall be
in U.S. dollars or such other currency as the Fund may specify to Custodian.

         (b) Any foreign exchange transaction effected by Custodian in
connection with this Agreement may be entered with Custodian or a BNY Affiliate
acting as principal or otherwise through customary banking channels. The Fund
may issue a standing Certificate or Instructions with respect to foreign
exchange transactions, but Custodian may establish rules or limitations
concerning any foreign exchange facility made available to the Fund. The Fund
shall bear all investment risks of investing in Securities or holding cash
denominated in a foreign currency.

         10. Custodian shall promptly send to the Fund (a) any reports it
receives from a Depository on such Depository's system of internal accounting
control, and (b) such reports on its own system of internal accounting control
as the Fund may reasonably request from time to time.

                                        6
<PAGE>

                                   ARTICLE IV
                        PURCHASE AND SALE OF SECURITIES;
                               CREDITS TO ACCOUNT

         1. Promptly after each purchase or sale of Securities by the Fund, the
Fund shall deliver to Custodian a Certificate or Instructions, or with respect
to a purchase or sale of a Security generally required to be settled on the same
day the purchase or sale is made, Oral Instructions specifying all information
Custodian may reasonably request to settle such purchase or sale. Custodian
shall account for all purchases and sales of Securities on the actual settlement
date unless otherwise agreed by Custodian.

         2. The Fund understands that when Custodian is instructed to deliver
physical Securities against payment, delivery of such Securities and receipt of
payment therefor may not be completed simultaneously. Notwithstanding any
provision in this Agreement to the contrary, settlements, payments and
deliveries of physical Securities may be effected by Custodian or any
Subcustodian in accordance with the customary or established securities trading
or securities processing practices and procedures in the jurisdiction in which
the transaction occurs, including, without limitation, delivery to a purchaser
or dealer therefor (or agent) against receipt with the expectation of receiving
later payment for such Securities

         3. Custodian may, as a matter of bookkeeping convenience or by separate
agreement with the Fund, credit the Account with the proceeds from the sale,
redemption or other disposition of Securities or interest, dividends or other
distributions payable on Securities prior to its actual receipt of final payment
therefor. All such credits shall be conditional until Custodian's actual receipt
of final payment and may be reversed by Custodian to the extent that final
payment is not received. Payment with respect to a transaction will not be
"final" until Custodian shall have received immediately available funds which
under applicable local law, rule and/or practice are irreversible and not
subject to any security interest, levy or other encumbrance, and which are
specifically applicable to such transaction.

                                   ARTICLE V
                           OVERDRAFTS OR INDEBTEDNESS

         1. If Custodian should in its sole discretion advance funds on behalf
of any Fund which results in an overdraft because the money held by Custodian in
an Account for such Fund shall be insufficient to pay the total amount payable
upon a purchase of Securities by such Fund, as set forth in a Certificate,
Instructions or Oral Instructions, or if an overdraft arises with respect to a
Fund for some other reason, including, without limitation, because of a reversal
of a conditional credit or the purchase of any currency, or if any Fund is for
any other reason indebted to Custodian (except a borrowing for investment or for
temporary or emergency purposes pursuant to a separate agreement), such
overdraft or indebtedness shall be deemed to be a loan made by Custodian to such
Fund payable on demand and shall bear interest from the date incurred at such
rate per annum as such Fund and Custodian may agree upon from time to time. In
addition, the Fund hereby agrees that Custodian shall to the maximum extent
permitted by law have a continuing lien, security interest, and security

                                        7
<PAGE>

entitlement in and to any property, including, without limitation, any
investment property or any financial asset, of such Fund at any time held by
Custodian for the benefit of such Fund or in which such Fund may have an
interest which is then in Custodian's possession or control or in possession or
control of any third party acting in Custodian's behalf. Such Fund authorizes
Custodian, in its sole discretion, at any time to charge any such overdraft or
indebtedness together with interest due thereon against any balance of account
standing to such Fund's credit on Custodian's books. Custodian shall promptly
advise any Fund whenever such Fund has an overdraft or indebtedness bearing
interest as provided in this Article, or whenever Custodian intends to realize
upon its lien, security interest or security entitlement.

         2. If the Fund borrows money from any bank (including Custodian if the
borrowing is pursuant to a separate agreement) for investment or for temporary
or emergency purposes using Securities held by Custodian hereunder as collateral
for such borrowings, the Fund shall deliver to Custodian a Certificate
specifying with respect to each such borrowing: (a) the Series to which such
borrowing relates; (b) the name of the bank, (c) the amount of the borrowing,
(d) the time and date, if known, on which the loan is to be entered into, (e)
the total amount payable to the Fund on the borrowing date, (f) the Securities
to be delivered as collateral for such loan, including the name of the issuer,
the title and the number of shares or the principal amount of any particular
Securities, and (g) a statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such loan is in
conformance with the `40 Act and the Fund's prospectus. Custodian shall deliver
on the borrowing date specified in a Certificate the specified collateral
against payment by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. Custodian shall deliver such Securities as additional collateral as
may be specified in a Certificate to collateralize further any transaction
described in this Section. The Fund shall cause all Securities released from
collateral status to be the name of the Series for which such money was
received.

                                   ARTICLE VI
                          SALE AND REDEMPTION OF SHARES

         1. Whenever the Fund shall sell any shares issued by the Fund
("Shares") it shall deliver to Custodian a Certificate or Instructions
specifying the amount of money and/or Securities to be received by Custodian for
the sale of such Shares and specifically allocated to an Account for such
Series.

         2. Upon receipt of such money, Custodian shall credit such money to an
Account in the name of the Series for which such money was received.

         3. Except as provided hereinafter, whenever the Fund desires Custodian
to make payment out of the money held by Custodian hereunder in connection with
a redemption of any Shares, it shall furnish to Custodian a Certificate or
Instructions specifying the total amount to be paid for such Shares. Custodian
shall make payment of such total amount to the transfer agent specified in such
Certificate or Instructions out of the money held in an Account of the
appropriate Series.

                                        8
<PAGE>

                                   ARTICLE VII
                      PAYMENT OF DIVIDENDS OR DISTRIBUTIONS

         1. Whenever the Fund shall determine to pay a dividend or distribution
on Shares it shall furnish to Custodian Instructions or a Certificate setting
forth with respect to the Series specified therein the date of the declaration
of such dividend or distribution, the total amount payable, and the payment
date.

         2. Upon the payment date specified in such Instructions or Certificate,
Custodian shall pay out of the money held for the account of such Series the
total amount payable to the dividend agent of the Fund specified therein.

                                  ARTICLE VIII
                              CONCERNING CUSTODIAN

         1. (a) Except as otherwise expressly provided herein, Custodian shall
not be liable for any costs, expenses, damages, liabilities or claims, including
attorneys' and accountants' fees (collectively, "Losses"), incurred by or
asserted against the Fund, except those Losses arising out of Custodian's own
negligence or willful misconduct. Custodian shall have no liability whatsoever
for the action or inaction of any Depositories or any Foreign Depositories. With
respect to any Losses incurred by the Fund as a result of the acts or failures
to act by a Subcustodian which is either a BNY Affiliate or listed on Appendix A
hereto, Custodian shall be liable to the Fund for such Losses, but only to the
extent such Losses arise out of or are caused by acts or failures to act by such
Subcustodian which are contrary to the prevailing practices or standard of care
in the relevant market in which such Subcustodian operates. With respect to any
Losses incurred by the Fund as a result of the acts or failures to act by a
Subcustodian which is not a BNY Affiliate and is not listed on Appendix A
hereto, Custodian shall take appropriate action to recover such Losses from such
Subcustodian, and Custodian's sole responsibility and liability to the Fund
shall be limited to amounts so received from such Subcustodians (exclusive of
costs and expenses incurred by Custodian). In no event shall Custodian be liable

                                        9
<PAGE>

to the Fund or any third party for special, indirect or consequential damages,
or lost profits or loss of business, arising in connection with this Agreement,
nor shall BNY or any Subcustodian be liable: (i) for acting in accordance with
any Certificate or Oral Instructions actually received by Custodian; (ii) for
acting in accordance with Instructions; (iii) for conclusively presuming that
all Instructions other than Oral Instructions are given only by person(s) duly
authorized; (iv) for any Losses due to forces beyond the control of Custodian,
including without limitation strikes, work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear or natural catastrophes or acts of God,
interruption, loss or malfunction of utilities or communication services, or,
but only to the extent beyond Custodian's reasonable control, and only if
Custodian is maintaining the same and appropriate back-up system(s) in
accordance with industry standards and practices, interruption, loss, or
malfunction of computers (hardware or software); or (v) for any Losses arising
from the applicability of any law or regulation now or hereafter in effect, or
from the occurrence of any event, including, without limitation, implementation
or adoption of any rules or procedures of a Foreign Depository, which may
affect, limit, prevent or impose costs or burdens on, the transferability,
convertibility, or availability of any currency or Composite Currency Unit in
any country or on the transfer of any Securities, and in no event shall
Custodian be obligated to substitute another currency for a currency (including
a currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected, limited, or
prevented by such law, regulation or event, and to the extent that any such law,
regulation or event imposes a cost or charge upon Custodian in relation to the
transferability, convertibility, or availability of any cash currency or
Composite Currency Unit, such cost or charge shall be for the account of the
Fund, and Custodian may treat any account denominated in an affected currency as
a group of separate accounts denominated in the relevant component currencies.

         (b) Custodian may enter into subcontracts, agreements and
understandings with any BNY Affiliate, whenever and on such terms and conditions
as it deems necessary or appropriate to perform its services hereunder. No such
subcontract, agreement or understanding shall discharge Custodian from its
obligations hereunder.

         (c) The Fund agrees to indemnify and hold Custodian harmless from and
against any and all Losses sustained or incurred by or asserted against
Custodian by reason of or as a result of any action or inaction, or arising out
of Custodian performance hereunder, including reasonable fees and expenses of
counsel, provided however, that the Fund shall not indemnify Custodian for those
Losses arising out of Custodian's own negligence or willful misconduct, nor for
any Losses which constitute indirect, special, or consequential damages, or lost
profits or loss of business. Custodian agrees to indemnify and hold the Fund
harmless from and against any and all Losses, including reasonable fees and
expenses of counsel, sustained or incurred by or asserted against the Fund
arising out of Custodian's own negligence or willful misconduct, provided,
however, that Custodian shall not indemnify the Fund for any Losses which
constitute indirect, special, or consequential damages, or lost profits or loss
of business. This indemnity shall be a continuing obligation of Fund and
Custodian, their successors and assigns, notwithstanding the termination of this
Agreement.

         2. Without limiting the generality of the foregoing, Custodian shall be
under no obligation to inquire into, and shall not be liable for:

         (a) The validity of the issue of any Securities purchased, sold, or
written by or for the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received therefor;

         (b) The legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor;

         (c) The legality of the declaration or payment of any dividend or
distribution by the Fund;

         (d) The legality of any borrowing by the Fund;

         (e) Whether any Securities at any time delivered to, or held by
Custodian or by any Subcustodian, for the account of the Fund are such as
properly may be held by the Fund under the provisions of its then current
prospectus and statement of additional information, or to ascertain whether any
transactions by the Fund, whether or not involving Custodian, are such
transactions as may properly be engaged in by the Fund.

                                       10
<PAGE>

         3. Custodian may, with respect to questions of law specifically
regarding an Account, obtain the advice of counsel at its own expense and shall
be fully protected with respect to anything done or omitted by it in good faith
in conformity with such advice.

         4. Custodian shall have no duty or responsibility to inquire into, make
recommendations, supervise, or determine the suitability of any Securities
transactions effected for a Fund.

         5. The Fund shall pay to Custodian the fees and charges as may be
specifically agreed upon from time to time and such other fees and charges at
Custodian's standard rates for such services as may be applicable. The Fund
shall also reimburse Custodian for out-of-pocket expenses which are a normal
incident of the services provided hereunder.

         6. With instructions from an Authorized Person of the Fund, the
Custodian has the right to debit any cash account for any amount payable by the
Fund in connection with any and all obligations of the Fund to Custodian.
Custodian will use its bet efforts to consult with Fund's investment advisor
about the selection of securities used to offset that Fund's obligations to
Custodian. Any such asset of, or obligation to the Fund may be transferred to
Custodian and any BNY Affiliate in order to effect the above rights.

         7. The Fund will make its best efforts to forward to Custodian a
Certificate or Instructions confirming Oral Instructions by the close of
business of the same day that such Oral Instructions are given to Custodian.
Fund and Custodian agree that the fact that such confirming Certificate or
Instructions are not received or that a contrary Certificate or contrary
Instructions are received by Custodian shall affect the validity and
enforceability of transactions authorized by such Oral Instructions and effected
by Custodian. If the Fund elects to transmit Instructions through an on-line
communications system offered by Custodian, the Fund's use thereof shall be
subject to the Terms and Conditions attached as Appendix I hereto, and Custodian
shall provide user and authorization codes, passwords and authentication keys
only to an Authorized Person.

         8. The books and records pertaining to the Fund which are in possession
of Custodian shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the `40 Act and the rules thereunder. The
Fund, or its authorized representatives, shall have access to such books and
records during Custodian's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by Custodian to
the Fund or its authorized representative. Upon the reasonable request of the
Fund, Custodian shall provide in hard copy or on computer disc any records
included in any such delivery which are maintained by Custodian on a computer
disc, or are similarly maintained.

         9. It is understood that Custodian is authorized to supply any
information regarding the Accounts which is required by any law, regulation or
rule now or hereafter in effect. Custodian shall provide the Fund with any
report obtained by Custodian on the system of internal accounting control of a
Depository, and with such reports on its own system of internal accounting
control as the Fund may reasonably request from time to time.

                                       11
<PAGE>

                                   ARTICLE IX
                                   TERMINATION

         1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than sixty (60) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the board of the Fund, certified by the Fund's
Secretary or any Assistant Secretary, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. In the event such notice is given by Custodian, the Fund
shall, on or before the termination date, deliver to Custodian a copy of a
resolution of the board of the Fund, certified by the Secretary or any Assistant
Secretary, designating a successor custodian or custodians. In the absence of
such designation by the Fund, Custodian may designate a successor custodian
which shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to the
successor custodian all Securities and money then owned by the Fund and held by
it as Custodian, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.

         2. If a successor custodian is not designated by the Fund or Custodian
in accordance with the preceding Section, the Fund shall upon the date specified
in the notice of termination of this Agreement and upon the delivery by
Custodian of all Securities (other than Securities which cannot be delivered to
the Fund) and money then owned by the Fund be deemed to be its own custodian and
Custodian shall thereby be relieved of all duties and responsibilities pursuant
to this Agreement, other than the duty with respect to Securities which cannot
be delivered to the Fund to hold such Securities hereunder in accordance with
this Agreement.

                                    ARTICLE X
                                  MISCELLANEOUS

         1. The Fund agrees to furnish to Custodian a new Certificate of
Authorized Persons in the event of any change in the then present Authorized
Persons. Until such new Certificate is received, Custodian shall be fully
protected in acting upon Certificates or Oral Instructions of such present
Authorized Persons.

         2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to Custodian, shall be sufficiently given if
addressed to Custodian and received by it at its offices at 100 Church Street,
New York, New York 10286, or at such other place as Custodian may from time to
time designate in writing.

                                       12
<PAGE>

         3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and received by it at its offices at 101 Huntington Avenue, Boston,
Massachusetts 02199, or at such other place as the Fund may from time to time
designate in writing.

         4. Each and every right granted to either party hereunder or under any
other document delivered hereunder or in connection herewith, or allowed it by
law or equity, shall be cumulative and may be exercised from time to time. No
failure on the part of either party to exercise, and no delay in exercising, any
right will operate as a waiver thereof, nor will any single or partial exercise
by either party of any right preclude any other or future exercise thereof or
the exercise of any other right.

         5. In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any exclusive jurisdiction, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected thereby. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties, except that any
amendment to the Schedule I hereto need be signed only by the Fund and any
amendment to Appendix I hereto need be signed only by Custodian. This Agreement
shall extend to and shall be binding upon the parties hereto, and their
respective successors and assigns; provided, however, that this Agreement shall
not be assignable by either party without the written consent of the other.

         6. This Agreement shall be construed in accordance with the substantive
laws of The Commonwealth of Massachusetts, without regard to conflicts of laws
principles thereof. The Fund and Custodian each hereby irrevocably waives any
and all rights to trial by jury in any legal proceeding arising out of or
relating to this Agreement.

         7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.

         8. Fund and Custodian agree that the obligations of each Fund are not
binding upon any of the Trustees/Directors, officers or shareholders of the Fund
individually, but are binding only upon that Fund and its assets. Each Fund
shall be severally, not jointly, liable only for its own obligations under this
Agreement.

                                       13
<PAGE>

         IN WITNESS WHEREOF, the Fund and Custodian have caused this Agreement
to be executed by their respective officers, thereunto duly authorized, as of
the day and year first above written.

                             Each John Hancock Fund listed on Schedule II

                             By:   /s/Richard A. Brown
                                   -------------------

                             Title: Senior Vice President & CFO

                             THE BANK OF NEW YORK

                             By:   /s/James E. Hillman
                                   -------------------

                             Title: Senior Vice President

                                       14

<PAGE>

                                   SCHEDULE II

                               John Hancock Funds

                             (As of August 22, 2002)

- --------------------------------------------------------------------------------
   EIN                                    Name
- --------------------------------------------------------------------------------
04-3478429      John Hancock 500 Index Fund
- --------------------------------------------------------------------------------
04-3167136      John Hancock Balanced Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-3241844      John Hancock Bank & Thrift Opportunity Fund
- --------------------------------------------------------------------------------
04-3551118      John Hancock Biotechnology Fund
- --------------------------------------------------------------------------------
04-2528977      John Hancock Bond Fund
- --------------------------------------------------------------------------------
76-0296100      John Hancock California Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-3551126      John Hancock Communications Fund
- --------------------------------------------------------------------------------
04-3551129      John Hancock Consumer Industries Fund
- --------------------------------------------------------------------------------
04-3122478      John Hancock Core Equity Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-3260671      John Hancock Dividend Performers Fund
- --------------------------------------------------------------------------------
04-3409706      John Hancock European Equity Fund
- --------------------------------------------------------------------------------
04-3305812      John Hancock Financial Industries Fund
- --------------------------------------------------------------------------------
56-1662953      John Hancock Financial Trends Fund, Inc.
- --------------------------------------------------------------------------------
04-3535633      John Hancock Focused Equity Fund  (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
04-3313164      John Hancock Focused Small Cap Growth Fund
- --------------------------------------------------------------------------------
04-6944774      John Hancock Fundamental Value Fund
- --------------------------------------------------------------------------------
04-6543623      John Hancock Global Fund
- --------------------------------------------------------------------------------
76-0230587      John Hancock Government Income Fund
- --------------------------------------------------------------------------------
04-3524763      John Hancock Growth Trends Fund (add Class I eff 11/15/01)
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
04-3124238      John Hancock Health Sciences Fund
- --------------------------------------------------------------------------------
04-3551132      John Hancock High Income Fund
- --------------------------------------------------------------------------------
76-0230586      John Hancock High Yield Bond Fund
- --------------------------------------------------------------------------------
76-0235997      John Hancock High Yield Municipal Bond Fund
                (name change eff. 1/1/02)
- --------------------------------------------------------------------------------
04-2507646       John Hancock Income Securities Trust
- --------------------------------------------------------------------------------
04-3260680      John Hancock Independence Diversified Core Equity Fund II
                (terminate Class P 9/13/01)
- --------------------------------------------------------------------------------
04-3214877      John Hancock International Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-6944776      John Hancock International Small Cap Growth Fund
- --------------------------------------------------------------------------------
76-0354706      John Hancock Investment Grade Bond Fund
                (name change eff. 1/1/02)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
   EIN                                   Name
- --------------------------------------------------------------------------------
04-2474663     John Hancock Investors Trust
- --------------------------------------------------------------------------------
74-6035056     John Hancock Large Cap Equity Fund (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
04-2443211     John Hancock Large Cap Growth Fund
- --------------------------------------------------------------------------------
41-2025611     John Hancock Large Cap Spectrum Fund (launch 1/14, but no money
               until 2/22/02 - strike first NAV 2/25/02)
- --------------------------------------------------------------------------------
04-6564705     John Hancock Massachusetts Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-3208756     John Hancock Mid Cap Growth Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
76-0230583     John Hancock Money Market Fund
- --------------------------------------------------------------------------------
04-3539446     John Hancock Multi-Cap Growth Fund
- --------------------------------------------------------------------------------
04-6564703     John Hancock New York Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-6567740     John Hancock Pacific Basin Equities Fund
- --------------------------------------------------------------------------------
04-3161453     John Hancock Patriot Global Dividend Fund
- --------------------------------------------------------------------------------
04-3190056     John Hancock Patriot Preferred Dividend Fund
- --------------------------------------------------------------------------------
04-3044078     John Hancock Patriot Premium Dividend Fund I
- --------------------------------------------------------------------------------
04-3097281     John Hancock Patriot Premium Dividend Fund II
- --------------------------------------------------------------------------------
04-3090916     John Hancock Patriot Select Dividend Trust
- --------------------------------------------------------------------------------
               John Hancock Preferred Income Fund (eff. 8/22/02)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
04-3435529     John Hancock Real Estate Fund
- --------------------------------------------------------------------------------
04-6526682     John Hancock Regional Bank Fund
- --------------------------------------------------------------------------------
04-3214880     John Hancock Small Cap Equity Fund (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
76-0230584     John Hancock Small Cap Growth Fund
- --------------------------------------------------------------------------------
51-0094374     John Hancock Sovereign Investors Fund
- --------------------------------------------------------------------------------
04-6956080     John Hancock Strategic Growth Fund (eff 12/01/01)
- --------------------------------------------------------------------------------
04-6545497     John Hancock Strategic Income Fund
- --------------------------------------------------------------------------------
76-0296098     John Hancock Tax-Free Bond Fund
- --------------------------------------------------------------------------------
13-3100162     John Hancock Technology Fund
- --------------------------------------------------------------------------------
76-0235823     John Hancock U.S. Government Cash Reserve
- --------------------------------------------------------------------------------
13-3843241     John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02)
- --------------------------------------------------------------------------------
04-3367188     John Hancock V.A. Financial Industries Fund
- --------------------------------------------------------------------------------
04-3402969     John Hancock V.A. Relative Value Fund
- --------------------------------------------------------------------------------
04-3326565     John Hancock V.A. Sovereign Investors Fund
- --------------------------------------------------------------------------------
04-3326570     John Hancock V.A. Strategic Income Fund
- --------------------------------------------------------------------------------
04-3513386     John Hancock V.A. Technology Fund
- --------------------------------------------------------------------------------

                      or: JOHN HANCOCK FUNDS listed above

                          /s/Avery P. Maher
                          -------------------------

                          By:  Avery P. Maher

                          Title:  Second Vice President and Assistant Secretary

                          Accepted and agreed for:

                          THE BANK OF NEW YORK

                          /s/Ira R. Rosner
                          --------------------------

                          By: Ira R. Rosner

                          Title: Vice President

Corpsec/Agreement/custodian/BNYScheduleII
<PAGE>

                                   APPENDIX I

                              THE BANK OF NEW YORK

                  ON-LINE COMMUNICATIONS SYSTEM (THE "SYSTEM")

                              TERMS AND CONDITIONS

         1. License; Use. Upon delivery to an Authorized Person or a person
reasonably believed by Custodian to be an Authorized Person of the Fund of
software enabling the Fund to obtain access to the System (the "Software"),
Custodian grants to the Fund a personal, nontransferable and nonexclusive
license to use the Software solely for the purpose of transmitting Written
Instructions, receiving reports, making inquiries or otherwise communicating
with Custodian in connection with the Account(s). The Fund shall use the
Software solely for its own internal and proper business purposes and not in the
operation of a service bureau. Except as set forth herein, no license or right
of any kind is granted to the Fund with respect to the Software. The Fund
acknowledges that Custodian and its suppliers retain and have title and
exclusive proprietary rights to the Software, including any trade secrets or
other ideas, concepts, know-how, methodologies, or information incorporated
therein and the exclusive rights to any copyrights, trademarks and patents
(including registrations and applications for registration of either), or other
statutory or legal protections available in respect thereof. The Fund further
acknowledges that all or a part of the Software may be copyrighted or
trademarked (or a registration or claim made therefor) by Custodian or its
suppliers. The Fund shall not take any action with respect to the Software
inconsistent with the foregoing acknowledgments, nor shall you attempt to
decompile, reverse engineer or modify the Software. The Fund may not copy, sell,
lease or provide, directly or indirectly, any of the Software or any portion
thereof to any other person or entity without Custodian's prior written consent.
The Fund may not remove any statutory copyright notice or other notice included
in the Software or on any media containing the Software. The Fund shall
reproduce any such notice on any reproduction of the Software and shall add any
statutory copyright notice or other notice to the Software or media upon
Custodian's request.

         2. Equipment. The Fund shall obtain and maintain at its own cost and
expense all equipment and services, including but not limited to communications
services, necessary for it to utilize the Software and obtain access to the
System, and Custodian shall not be responsible for the reliability or
availability of any such equipment or services.

         3. Proprietary Information. The Software, any data base and any
proprietary data, processes, information and documentation made available to the
Fund (other than which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of Custodian or its suppliers. The
Fund shall keep the Information confidential by using the same care and

<PAGE>

discretion that the Fund uses with respect to its own confidential property and
trade secrets, but not less than reasonable care. Upon termination of the
Agreement or the Software license granted herein for any reason, the Fund shall
return to Custodian any and all copies of the Information which are in its
possession or under its control.

         4. Modifications. Custodian reserves the right to modify the Software
from time to time and the Fund shall install new releases of the Software as
Custodian may direct. The Fund agrees not to modify or attempt to modify the
Software without Custodian's prior written consent. The Fund acknowledges that
any modifications to the Software, whether by the Fund or Custodian and whether
with or without Custodian's consent, shall become the property of Custodian.

         5. NO REPRESENTATIONS OR WARRANTIES. CUSTODIAN AND ITS MANUFACTURERS
AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE
SOFTWARE, SERVICES OR ANY DATABASE, EXPRESS OR IMPLIED, IN FACT OR IN LAW,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE FUND ACKNOWLEDGES THAT THE SOFTWARE, SERVICES AND ANY
DATABASE ARE PROVIDED "AS IS." IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE
LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL,
WHICH THE FUND MAY INCUR IN CONNECTION WITH THE SOFTWARE, SERVICES OR ANY
DATABASE, UNLESS CUSTODIAN OR SUCH SUPPLIER KNOWS OR SHOULD HAVE KNOWN OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE
LIABLE FOR ACTS OF GOD, MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION,
INTERRUPTION OR MALFUNCTION OF COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR
ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND THEIR REASONABLE CONTROL.

         6. Security; Reliance; Unauthorized Use. The Fund will cause all
persons utilizing the Software and System to treat all applicable user and
authorization codes, passwords and authentication keys with extreme care, and it
will establish internal control and safekeeping procedures to restrict the
availability of the same to persons duly authorized to give Instructions.
Custodian is hereby irrevocably authorized to act in accordance with and rely on
Instructions received by it through the System. The Fund acknowledges that it is
its sole responsibility to assure that only persons duly authorized use the
System and that Custodian shall not be responsible nor liable for any
unauthorized use thereof.

<PAGE>

         7. System Acknowledgments. Custodian shall acknowledge through the
System its receipt of each transmission communicated through the System. In the
absence of such acknowledgment Custodian shall not be liable for any failure to
act in accordance with such transmission however, Custodian will be liable for
all transmissions where the Fund shows that such transmission was received by
Custodian.

         8. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED
STATES LAW. THE FUND MAY NOT UNDER ANY CIRCUMSTANCES RESELL, DIVERT, TRANSFER,
TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO ANY OTHER
COUNTRY. IF CUSTODIAN DELIVERED THE SOFTWARE TO THE FUND OUTSIDE OF THE UNITED
STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN ACCORDANCE WITH THE
EXPORTER ADMINISTRATION REGULATIONS. DIVERSION CONTRARY TO U.S. LAW IS
PROHIBITED. The Fund hereby authorizes Custodian to report its name and address
to government agencies to which Custodian is required to provide such
information by law.

         9. ENCRYPTION. The Fund acknowledges and agrees that encryption may not
be available for every communication through the System, or for all data. The
Fund agrees that Custodian may deactivate any encryption features at any time,
with notice to the Fund, for the purpose of maintaining, repairing or
troubleshooting the System or the Software.

         The Fund and the bank agree that the obligations of each Fund are not
binding upon any of the Trustees/Directors. Officers or shareholders of the Fund
individually, but are binding only upon that Fund and its assets. Each Fund
shall be severally, not jointly, liable for its own obligations under this
Agreement.

<PAGE>

                                   SCHEDULE II

                               John Hancock Funds

                             (As of August 22, 2002)

- --------------------------------------------------------------------------------
   EIN                                   Name
- --------------------------------------------------------------------------------
04-3478429      John Hancock 500 Index Fund
- --------------------------------------------------------------------------------
04-3167136      John Hancock Balanced Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-3241844      John Hancock Bank & Thrift Opportunity Fund
- --------------------------------------------------------------------------------
04-3551118      John Hancock Biotechnology Fund
- --------------------------------------------------------------------------------
04-2528977      John Hancock Bond Fund
- --------------------------------------------------------------------------------
76-0296100      John Hancock California Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-3551126      John Hancock Communications Fund
- --------------------------------------------------------------------------------
04-3551129      John Hancock Consumer Industries Fund
- --------------------------------------------------------------------------------
04-3122478      John Hancock Core Equity Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-3260671      John Hancock Dividend Performers Fund
- --------------------------------------------------------------------------------
04-3409706      John Hancock European Equity Fund
- --------------------------------------------------------------------------------
04-3305812      John Hancock Financial Industries Fund
- --------------------------------------------------------------------------------
56-1662953      John Hancock Financial Trends Fund, Inc.
- --------------------------------------------------------------------------------
04-3535633      John Hancock Focused Equity Fund  (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
04-3313164      John Hancock Focused Small Cap Growth Fund
- --------------------------------------------------------------------------------
04-6944774      John Hancock Fundamental Value Fund
- --------------------------------------------------------------------------------
04-6543623      John Hancock Global Fund
- --------------------------------------------------------------------------------
76-0230587      John Hancock Government Income Fund
- --------------------------------------------------------------------------------
04-3524763      John Hancock Growth Trends Fund (add Class I eff. 11/15/01)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
04-3124238      John Hancock Health Sciences Fund
- --------------------------------------------------------------------------------
04-3551132      John Hancock High Income Fund
- --------------------------------------------------------------------------------
76-0230586      John Hancock High Yield Bond Fund
- --------------------------------------------------------------------------------
76-0235997      John Hancock High Yield Municipal Bond Fund
                (name change eff. 1/1/02)
- --------------------------------------------------------------------------------
04-2507646       John Hancock Income Securities Trust
- --------------------------------------------------------------------------------
04-3260680      John Hancock Independence Diversified Core Equity Fund II
                (terminate Class P 9/13/01)
- --------------------------------------------------------------------------------
04-3214877      John Hancock International Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-6944776      John Hancock International Small Cap Growth Fund
- --------------------------------------------------------------------------------
76-0354706      John Hancock Investment Grade Bond Fund
                (name change eff. 1/1/02)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
   EIN                                     Name
- --------------------------------------------------------------------------------
04-2474663     John Hancock Investors Trust
- --------------------------------------------------------------------------------
74-6035056     John Hancock Large Cap Equity Fund (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
04-2443211     John Hancock Large Cap Growth Fund
- --------------------------------------------------------------------------------
41-2025611     John Hancock Large Cap Spectrum Fund (launch 1/14, but no money
               until 2/22/02 - strike first NAV 2/25/02)
- --------------------------------------------------------------------------------
04-6564705     John Hancock Massachusetts Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-3208756     John Hancock Mid Cap Growth Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
76-0230583     John Hancock Money Market Fund
- --------------------------------------------------------------------------------
04-3539446     John Hancock Multi-Cap Growth Fund
- --------------------------------------------------------------------------------
04-6564703     John Hancock New York Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-6567740     John Hancock Pacific Basin Equities Fund
- --------------------------------------------------------------------------------
04-3161453     John Hancock Patriot Global Dividend Fund
- --------------------------------------------------------------------------------
04-3190056     John Hancock Patriot Preferred Dividend Fund
- --------------------------------------------------------------------------------
04-3044078     John Hancock Patriot Premium Dividend Fund I
- --------------------------------------------------------------------------------
04-3097281     John Hancock Patriot Premium Dividend Fund II
- --------------------------------------------------------------------------------
04-3090916     John Hancock Patriot Select Dividend Trust
- --------------------------------------------------------------------------------
               John Hancock Preferred Income Fund (eff. 8/22/02)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
04-3435529     John Hancock Real Estate Fund
- --------------------------------------------------------------------------------
04-6526682     John Hancock Regional Bank Fund
- --------------------------------------------------------------------------------
04-3214880     John Hancock Small Cap Equity Fund (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
76-0230584     John Hancock Small Cap Growth Fund
- --------------------------------------------------------------------------------
51-0094374     John Hancock Sovereign Investors Fund
- --------------------------------------------------------------------------------
04-6956080     John Hancock Strategic Growth Fund (eff 12/01/01)
- --------------------------------------------------------------------------------
04-6545497     John Hancock Strategic Income Fund
- --------------------------------------------------------------------------------
76-0296098     John Hancock Tax-Free Bond Fund
- --------------------------------------------------------------------------------
13-3100162     John Hancock Technology Fund
- --------------------------------------------------------------------------------
76-0235823     John Hancock U.S. Government Cash Reserve
- --------------------------------------------------------------------------------
13-3843241     John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02)
- --------------------------------------------------------------------------------
04-3367188     John Hancock V.A. Financial Industries Fund
- --------------------------------------------------------------------------------
04-3402969     John Hancock V.A. Relative Value Fund
- --------------------------------------------------------------------------------
04-3326565     John Hancock V.A. Sovereign Investors Fund
- --------------------------------------------------------------------------------
04-3326570     John Hancock V.A. Strategic Income Fund
- --------------------------------------------------------------------------------
04-3513386     John Hancock V.A. Technology Fund
- --------------------------------------------------------------------------------

                      or: JOHN HANCOCK FUNDS listed above

                          /s/ Avery P. Maher
                          -------------------------

                          By:  Avery P. Maher

                          Title:  Second Vice President and Assistant Secretary

                          Accepted and agreed for:

                          THE BANK OF NEW YORK

                          /s/ Ira R. Rosner
                          --------------------------

                          By: Ira R. Rosner

                          Title: Vice President

Corpsec/Agreement/custodian/BNYScheduleII
<PAGE>

                            FUND ACCOUNTING AGREEMENT

         AGREEMENT made as of this 10th day of September, 2001 by and between
each John Hancock Fund listed on Schedule II, each either a business trust
organized and existing under the laws of The Commonwealth of Massachusetts or a
Maryland corporation organized and existing under the laws of the state of
Maryland, having its principal place of business at 101 Huntington Avenue,
Boston, Massachusetts 02199 (each a "Fund") and The Bank of New York, a New York
corporation authorized to do a banking business, having its principal place of
business at One Wall Street, New York, New York 10286 (hereinafter called the
"Bank").

                              W I T N E S S E T H:

         In consideration of the mutual agreements herein contained, the Fund
and the Bank hereby agree as follows:

         1. The Fund hereby appoints the Bank to perform the duties hereinafter
set forth.

         2. The Bank hereby accepts appointment and agrees to perform the duties
hereinafter set forth.

         3. Subject to the provisions of paragraphs 4 and 5 below, the Bank
shall compute the net asset value per share of each Fund listed on Schedule II
and shall value the securities held by the Fund (the "Securities") at such times
and dates and in the manner specified in the then currently effective Prospectus
of the Fund.

         4. To the extent valuation of Securities or computation of a Fund's net
asset value as specified in the Fund's then currently effective Prospectus is at
any time inconsistent with any applicable laws or regulations, the Fund shall
immediately so notify the Bank in writing and thereafter shall either furnish
the Bank at all appropriate times with the values of such Securities and each
Fund's net asset value, or subject to the prior approval of the Bank, instruct
the Bank in writing to value Securities and compute each Fund's net asset value
in a manner which the Fund then represents in writing to be consistent with all
applicable laws and regulations. The Fund may also from time to time, subject to
the prior approval of the Bank, instruct the Bank in writing to compute the

<PAGE>

value of the Securities or a Fund's net asset value in a manner other than as
specified in paragraph 3 of this Agreement. By giving such instruction, the Fund
shall be deemed to have represented that such instruction is consistent with all
applicable laws and regulations and the then currently effective Prospectus of
the Fund. The Fund shall have sole responsibility for determining the method of
valuation of Securities and the method of computing each Fund's net asset value.

         5. The Fund shall furnish the Bank with any and all instructions,
explanations, information, specifications and documentation deemed necessary by
the Bank in the performance of its duties hereunder, including, without
limitation, the amounts or written formula for calculating the amounts and times
of accrual of Fund liabilities and expenses. The Bank shall not be required to
include as Fund liabilities and expenses, nor as a reduction of net asset value,
any accrual for any federal, state, or foreign income taxes unless the Fund
shall have specified to the Bank the precise amount of the same to be included
in liabilities and expenses or used to reduce net asset value. The Fund shall
also furnish the Bank with bid, offer, or market values of Securities if the
Bank notifies the Fund that same are not available to the Bank from a security
pricing or similar service utilized, or subscribed to, by the Bank which the
Bank in its judgment deems reliable at the time such information is required for
calculations hereunder. At any time and from time to time, the Fund also may
furnish the Bank with bid, offer, or market values of Securities and instruct
the Bank to use such information in its calculations hereunder.

         6. The Bank as Fund Accounting agent shall advise the Fund and the
Fund's transfer agent of the Fund's net asset value upon completion of the
computations required to be made by the Bank pursuant to this Agreement.

                                        2
<PAGE>

         7. The Bank shall, as agent for the Fund, maintain and keep current the
books, accounts and other documents, if any, listed in Appendix A hereto and
made a part hereof, as such Appendix A may be amended from time to time, and
preserve any such books, accounts and other documents in accordance with the
applicable provisions of Rule 31a-2 of the General Rules and Regulations under
the Investment Company Act of 1940, as amended (the "Rules"). Such books,
accounts and other documents shall be made available upon reasonable request for
inspection by officers, employees and auditors of the Fund.

         8. All records maintained and preserved by the Bank pursuant to this
Agreement which the Fund is required to maintain and preserve in accordance with
the above-mentioned Rules shall be and remain the property of the Fund and shall
be surrendered to the Fund promptly upon request in the that the Fund requests.
Upon reasonable request of the Fund, the Bank shall provide in hard copy, on
micro-film or electronically, whichever the Fund shall elect, any records
included in any such delivery.

         9. The Bank, in performing the services required of it under the terms
of this Agreement, shall be entitled to rely fully on the accuracy and validity
of any and all instructions, explanations, information, specifications and
documentation furnished to it by the Fund and shall have no duty or obligation
to review the accuracy, validity or propriety of such instructions,
explanations, information, specifications or documentation, including, without
limitation, evaluations of Securities; the amounts or formula for calculating
the amounts and times of accrual of Fund's liabilities and expenses; the amounts
receivable and the amounts payable on the sale or purchase of Securities; and
amounts receivable or amounts payable for the sale or redemption of Fund shares
effected by or on behalf of the Fund. In the event the Bank's computations
hereunder rely, in whole or in part, upon information, including, without
limitation, bid, offer or market values of Securities or other assets, or
accruals of interest or earnings thereon, from a pricing or similar service
utilized, or subscribed to, by the Bank which the Bank in its judgment deems
reliable, the Bank shall not be responsible for, deemed to make any assurances
with respect to, nor under any duty to inquire into, the accuracy and
completeness of such information, except that if any such information contains
manifest error, the Bank shall in accordance with its then standard practices
attempt to have such manifest error corrected, and shall notify the Fund if such
attempt is unsuccessful.

                                        3

<PAGE>

         10. The Bank shall not be required to inquire into any valuation of
Securities or other assets by the Fund or any third party described in preceding
paragraph 9 hereof, even though the Bank in performing services similar to the
services provided pursuant to this Agreement for others may receive different
valuations of the same or different securities of the same issuers.

         11. The Bank, in performing the services required of it under the terms
of this Agreement, shall not be responsible for determining whether any interest
accruable to the Fund is or will be actually paid, but will accrue such interest
until otherwise instructed by the Fund.

         12. The Bank shall not be responsible for delays or errors which occur
by reason of circumstances beyond its control in the performance of its duties
under this Agreement, including, without limitation, mechanical breakdowns,
flood or catastrophe, acts of God, failures of transportation, communication or
power supply, or other similar circumstances. Nor shall the Bank be responsible
for delays or failures to supply the information or services specified in this
Agreement where such delays or failures are caused by the failure of any
person(s) other than the Bank to supply any instructions, explanations,
information, specifications or documentation deemed necessary by the Bank in the
performance of its duties under this Agreement.

         13. No provision of this Agreement shall prevent the Bank from offering
services similar or identical to those covered by this Agreement to any other
corporations, associations or entities of any kind. Any and all operational
procedures, techniques and devices developed by the Bank in connection with the
performance of its duties and obligations under this Agreement, including those
developed in conjunction with the Fund, shall be and remain the property of the
Bank, and the Bank shall be free to employ such procedures, techniques and
devices in connection with the performance of any other contract with any other
person whether or not such contract is similar or identical to this Agreement.

                                        4
<PAGE>

         14. The Bank may, with respect to questions of law, apply to and obtain
the advice and opinion of counsel to the Fund or its own counsel and shall be
entitled to rely on the advice or opinion of such counsel.

         15. The Bank shall be entitled to rely upon any oral instructions
received by the Bank and reasonably believed by the Bank to be given by or on
behalf of the Fund, unless the Bank subsequently receives written instructions
contradicting such oral instructions.

         16. Notwithstanding any other provision contained in this Agreement,
the Bank shall have no duty or obligation with respect to, including, without
limitation, any duty or obligation to determine, or advise or notify the Fund
of: (a) the taxable nature of any distribution or amount received or deemed
received by, or payable to, the Fund; (b) the taxable nature or effect on the
Fund or its shareholders of any corporate actions, class actions, tax reclaims,
tax refunds, or similar events; (c) the taxable nature or taxable amount of any
distribution or dividend paid, payable or deemed paid, by the Fund to its
shareholders; or (d) the effect under any federal, state, or foreign income tax
laws of the Fund making or not making any distribution or dividend payment, or
any election with respect thereto.

         17. The Bank shall not be liable for any loss, damage or expense
resulting from, arising out of, or in connection with its performance hereunder,
including its actions or omissions, the incompleteness or inaccuracy of any
specifications or other information furnished by the Fund, or for delays caused
by circumstances beyond the Bank's control, unless such loss, damage or expense
arises out of the negligence or willful misconduct of the Bank. In no event
shall the Bank be liable for special, indirect, or consequential damages, or for
lost profits or loss of business, arising under or in connection with this
Agreement, even if previously informed of the possibility of such damages and
regardless of the form of action. For purposes of this provision, if as a result
of the negligence or willful misconduct of the Bank there is a material error in
the net asset value per share of the Fund, the material losses of the Fund on
the sale and issuance, or the redemption, of its shares attributable to such
material error shall be direct money damages.

                                        5
<PAGE>

         18. Without limiting the generality of the foregoing, (i) the Bank
shall indemnify the Fund against any loss, damage or expense, including
reasonable counsel fees and other costs and expenses of a defense against any
claim or liability, arising out of the negligence or willful misconduct of the
Bank, except that in no event shall the Bank be liable for special, indirect, or
consequential damages, or for lost profits or loss of business, and (ii) the
Fund shall indemnify the Bank against any loss, damage or expense, including
reasonable counsel fees and other costs and expenses of a defense against any
claim or liability, arising from any one or more of the following, except that
in no event shall the Fund be liable for special, indirect, or consequential
damages, or for lost profits or loss of business:

         (a) Errors in records or instructions, explanations, information,
specifications or documentation of any kind, as the case may be, supplied to the
Bank by the Fund, or, subject to the provisions of paragraph 9, by a pricing or
similar service which the Bank in its judgment deems reliable;

         (b) Action or inaction taken or omitted to be taken by the Bank
pursuant to written or oral instructions of the Fund without negligence or
willful misconduct;

         (c) Any action taken or omitted to be taken by the Bank in good faith
and with notice to the Fund, in accordance with the advice or opinion of counsel
for the Fund or Bank counsel;

         (d) Any improper use by the Fund or its agents, distributor or
investment advisor of any valuations or computations supplied by the Bank
pursuant to this Agreement;

                                        6
<PAGE>

         (e) The method of valuation of the Securities and the method of
computing each Fund's net asset value; or

         (f) Any valuations of Securities or net asset value provided by the
Fund.

         19. In consideration for all of the services to be performed by the
Bank as set forth herein the Bank shall be entitled to receive reimbursement for
all out-of-pocket expenses and such compensation as may be agreed upon in
writing from time to time between the Bank and the Fund.

         20. Attached hereto as Appendix B is a list of persons duly authorized
by the Fund's Declaration of Trust and By-Laws to execute this Agreement and
give any written, electronic or oral instructions, or written, electronic or
oral specifications, by or on behalf of the Fund. From time to time the Fund may
deliver a new Appendix B to add or delete any person and the Bank shall be
entitled to rely on the last Appendix B actually received by the Bank.

         21. The Fund represents and warrants to the Bank that it has all
requisite power to execute and deliver this Agreement, to give any written,
electronic or oral instructions contemplated hereby, and to perform the actions
or obligations contemplated to be performed by it hereunder, and has taken all
necessary action to authorize such execution, delivery, and performance.

         22. This Agreement shall not be assignable by the Fund without the
prior written consent of the Bank, or by the Bank without the prior written
consent of the Fund, which consents shall not be unreasonably withheld.

         23. Either of the parties hereto may terminate this Agreement by giving
the other party a notice in writing specifying the date of such termination,
which shall not be less than sixty (60) days after the date of giving of such
notice. Upon the date set forth in such notice, the Bank shall deliver to the
Fund all its records.

                                        7
<PAGE>

         24. This Agreement may not be amended or modified in any manner except
by written agreement executed by both parties hereto.

         25. This Agreement shall be construed in accordance with the
substantive laws of The Commonwealth of Massachusetts without regard to
conflicts of laws principals. The Fund and the Bank each hereby irrevocably
waives any and all rights to trial by jury in any legal proceeding arising out
of or relating to this Agreement.

         26. The performance and provisions of this Agreement are intended to
benefit only the Bank and the Fund, and no rights shall be granted to any other
person by virtue of this Agreement.

         27. The Fund and the Bank agree that the obligations of each Fund are
not binding upon any of the Trustees/Directors, officers or shareholders of the
Fund individually, but are binding only upon that Fund and its assets. Each Fund
shall be severally, not jointly, liable for its own obligations under this
Agreement.

                                        8
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.

                          Each John Hancock Fund listed on Schedule II

                                    By: /s/Richard A. Brown, SVP & CFO
                                        ------------------------------

Attest:

/s/Rita A. Grimes
- -----------------

                                    THE BANK OF NEW YORK

                                    By: /s/James E. Hillman, SVP
                                        ------------------------

Attest:

/s/Rita A. Grimes
- -----------------

                                        9
<PAGE>

                     APPENDIX A TO FUND ACCOUNTING AGREEMENT
                                     BETWEEN
                              THE BANK OF NEW YORK
                                       AND

                  The John Hancock Funds listed on Schedule II

         I._______The Bank of New York (the "Bank"), as agent for each John
Hancock Fund listed on Schedule II (each a "Fund"), shall maintain the following
records on a daily basis for each Fund.

                    1.       Report of priced portfolio securities

                    2.       Statement of net asset value per share

         II. The Bank shall maintain the following records on a monthly basis
for each Fund:

                    1.       General Ledger

                    2.       General Journal

                    3.       Cash Receipts Journal

                    4.       Cash Disbursements Journal

                    5.       Subscriptions Journal

                    6.       Redemptions Journal

                    7.       Accounts Receivable Reports

                    8.       Accounts Payable Reports

                    9.       Open Subscriptions/Redemption Reports

                    10.      Transaction (Securities) Journal

                    11.      Broker Net Trades Reports

         III. The Bank shall prepare a Holdings Ledger on a quarterly basis, and
a Buy-Sell Ledger (Broker's Ledger) on a semiannual basis for each Fund.
Schedule D shall be produced on an annual basis for each Fund.

<PAGE>

         The above reports may be printed according to any other required
frequency to meet the requirements of the Internal Revenue Service, the
Securities and Exchange Commission and the Fund's Auditors.

         IV. For internal control purposes, the Bank uses the Account Journals
produced by The Bank of New York Custody System to record daily settlements of
the following for each Fund:

                    1.       Securities bought

                    2.       Securities sold

                    3.       Interest received

                    4.       Dividends received

                    5.       Capital stock sold

                    6.       Capital stock redeemed

                    7.       Other income and expenses

         All portfolio purchases for the Fund are recorded to reflect expected
maturity value and total cost including any prepaid interest.

                                        2
<PAGE>

                                   SCHEDULE II

                               John Hancock Funds

                             (As of August 22, 2002)

- --------------------------------------------------------------------------------
   EIN                                     Name
- --------------------------------------------------------------------------------
04-3478429      John Hancock 500 Index Fund
- --------------------------------------------------------------------------------
04-3167136      John Hancock Balanced Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-3241844      John Hancock Bank & Thrift Opportunity Fund
- --------------------------------------------------------------------------------
04-3551118      John Hancock Biotechnology Fund
- --------------------------------------------------------------------------------
04-2528977      John Hancock Bond Fund
- --------------------------------------------------------------------------------
76-0296100      John Hancock California Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-3551126      John Hancock Communications Fund
- --------------------------------------------------------------------------------
04-3551129      John Hancock Consumer Industries Fund
- --------------------------------------------------------------------------------
04-3122478      John Hancock Core Equity Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-3260671      John Hancock Dividend Performers Fund
- --------------------------------------------------------------------------------
04-3409706      John Hancock European Equity Fund
- --------------------------------------------------------------------------------
04-3305812      John Hancock Financial Industries Fund
- --------------------------------------------------------------------------------
56-1662953      John Hancock Financial Trends Fund, Inc.
- --------------------------------------------------------------------------------
04-3535633      John Hancock Focused Equity Fund  (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
04-3313164      John Hancock Focused Small Cap Growth Fund
- --------------------------------------------------------------------------------
04-6944774      John Hancock Fundamental Value Fund
- --------------------------------------------------------------------------------
04-6543623      John Hancock Global Fund
- --------------------------------------------------------------------------------
76-0230587      John Hancock Government Income Fund
- --------------------------------------------------------------------------------
04-3524763      John Hancock Growth Trends Fund (add Class I eff 11/15/01)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
04-3124238      John Hancock Health Sciences Fund
- --------------------------------------------------------------------------------
04-3551132      John Hancock High Income Fund
- --------------------------------------------------------------------------------
76-0230586      John Hancock High Yield Bond Fund
- --------------------------------------------------------------------------------
76-0235997      John Hancock High Yield Municipal Bond Fund
                (name change eff. 1/1/02)
- --------------------------------------------------------------------------------
04-2507646       John Hancock Income Securities Trust
- --------------------------------------------------------------------------------
04-3260680      John Hancock Independence Diversified Core Equity Fund II
                (terminate Class P 9/13/01)
- --------------------------------------------------------------------------------
04-3214877      John Hancock International Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-6944776      John Hancock International Small Cap Growth Fund
- --------------------------------------------------------------------------------
76-0354706      John Hancock Investment Grade Bond Fund
                (name change eff. 1/1/02)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
   EIN                                  Name
- --------------------------------------------------------------------------------
04-2474663     John Hancock Investors Trust
- --------------------------------------------------------------------------------
74-6035056     John Hancock Large Cap Equity Fund (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
04-2443211     John Hancock Large Cap Growth Fund
- --------------------------------------------------------------------------------
41-2025611     John Hancock Large Cap Spectrum Fund (launch 1/14, but no money
               until 2/22/02 - strike first NAV 2/25/02)
- --------------------------------------------------------------------------------
04-6564705     John Hancock Massachusetts Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-3208756     John Hancock Mid Cap Growth Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
76-0230583     John Hancock Money Market Fund
- --------------------------------------------------------------------------------
04-3539446     John Hancock Multi-Cap Growth Fund
- --------------------------------------------------------------------------------
04-6564703     John Hancock New York Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-6567740     John Hancock Pacific Basin Equities Fund
- --------------------------------------------------------------------------------
04-3161453     John Hancock Patriot Global Dividend Fund
- --------------------------------------------------------------------------------
04-3190056     John Hancock Patriot Preferred Dividend Fund
- --------------------------------------------------------------------------------
04-3044078     John Hancock Patriot Premium Dividend Fund I
- --------------------------------------------------------------------------------
04-3097281     John Hancock Patriot Premium Dividend Fund II
- --------------------------------------------------------------------------------
04-3090916     John Hancock Patriot Select Dividend Trust
- --------------------------------------------------------------------------------
               John Hancock Preferred Income Fund (eff. 8/22/02)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
04-3435529     John Hancock Real Estate Fund
- --------------------------------------------------------------------------------
04-6526682     John Hancock Regional Bank Fund
- --------------------------------------------------------------------------------
04-3214880     John Hancock Small Cap Equity Fund (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
76-0230584     John Hancock Small Cap Growth Fund
- --------------------------------------------------------------------------------
51-0094374     John Hancock Sovereign Investors Fund
- --------------------------------------------------------------------------------
04-6956080     John Hancock Strategic Growth Fund (eff 12/01/01)
- --------------------------------------------------------------------------------
04-6545497     John Hancock Strategic Income Fund
- --------------------------------------------------------------------------------
76-0296098     John Hancock Tax-Free Bond Fund
- --------------------------------------------------------------------------------
13-3100162     John Hancock Technology Fund
- --------------------------------------------------------------------------------
76-0235823     John Hancock U.S. Government Cash Reserve
- --------------------------------------------------------------------------------
13-3843241     John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02)
- --------------------------------------------------------------------------------
04-3367188     John Hancock V.A. Financial Industries Fund
- --------------------------------------------------------------------------------
04-3402969     John Hancock V.A. Relative Value Fund
- --------------------------------------------------------------------------------
04-3326565     John Hancock V.A. Sovereign Investors Fund
- --------------------------------------------------------------------------------
04-3326570     John Hancock V.A. Strategic Income Fund
- --------------------------------------------------------------------------------
04-3513386     John Hancock V.A. Technology Fund
- --------------------------------------------------------------------------------

                      or: JOHN HANCOCK FUNDS listed above

                          /s/ Avery P. Maher
                          -------------------------

                          By:  Avery P. Maher

                          Title:  Second Vice President and Assistant Secretary

                          Accepted and agreed for:

                          THE BANK OF NEW YORK

                          /s/ Ira R. Rosner
                          --------------------------

                          By: Ira R. Rosner

                          Title: Vice President

Corpsec/Agreement/custodian/BNYScheduleII
<PAGE>

                                   APPENDIX B

         I, William H. King, Treasurer, of each John Hancock Fund listed on
Schedule II, (each a "Fund"), do hereby certify that:

         The following individuals serve in the following positions with the
Fund, and each has been duly elected or appointed by the Board of Trustees of
the Fund to each such position and qualified therefor in conformity with the
Fund's Declaration of Trust and By-Laws, and the signatures set forth opposite
their respective names are their true and correct signatures. Each such person
is authorized to give written or oral instructions or written or oral
specifications by or on behalf of the Fund to the Bank.

William H. King            Treasurer                   /s/ William H. King
- ---------------            ---------                   -------------------
Name                       Position                    Signature

Robert E. Gramer           Associate Treasurer         /s/ Robert E. Gramer
- ----------------           -------------------         --------------------
Name                       Position                    Signature

William J. Hayes           Associate Treasurer         /s/ William J. Hayes
- ----------------           -------------------         --------------------
Name                       Position                    Signature

Cheryl J. Fahy             Assistant Treasurer         /s/ Cheryl J. Fahy
- ------------------         -------------------         ------------------
Name                       Position                    Signature

Joan E. McCormick          Assistant Treasurer         /s/ Joan E. McCormick
- -----------------          -------------------         ---------------------
Name                       Position                    Signature

Joseph G. Thompson         Assistant Treasurer         /s/ Joseph G. Thompson
- ------------------         -------------------         ----------------------
Name                       Position                    Signature

S:\general\funds\authorizedsignersfundmoney
<PAGE>

                        FOREIGN CUSTODY MANAGER AGREEMENT

         AGREEMENT made as of September 10, 2001 between each John Hancock Fund
listed on Schedule II (each a "Fund") and The Bank of New York ("BNY").

                              W I T N E S S E T H:

         WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager
on the terms and conditions contained herein;

         WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform
the duties set forth herein on the terms and conditions contained herein;

         NOW THEREFORE, in consideration of the mutual promises hereinafter
contained in this Agreement, the Fund and BNY hereby agree as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:

         1. "Board" shall mean the board of directors or board of trustees, as
the case may be, of the Fund.

         2. "Eligible Foreign Custodian" shall have the meaning provided in the
Rule.

         3. "Monitoring System" shall mean a system established by BNY to
fulfill the Responsibilities specified in clauses (d) and (e) of Section 1 of
Article III of this Agreement.

         4. "Responsibilities" shall mean the responsibilities delegated to BNY
under the Rule as a Foreign Custody Manager with respect to each Specified
Country and each Eligible Foreign Custodian selected by BNY, as such
responsibilities are more fully described in Article III of this Agreement.

         5. "Rule" shall mean Rule 17f-5 under the Investment Company Act of
1940, as amended (the "1940 Act"). Specific references to Sections of the Rule
(or of Rule 17f-7) in this Agreement shall mean those Sections as in effect as
of the date of this Agreement.

         6. "Risk Analysis" shall mean the analysis required under Rule
17f-7(a)(1)(A) under the 1940 Act.

<PAGE>

         7. "Securities Depository" shall mean a system for the central handling
of securities as defined in Rule 17f-4 under the 1940 Act.

         8. "Specified Country" shall mean each country listed on Schedule I
attached hereto and each country, other than the United States, constituting the
primary market for a security with respect to which the Fund has given
settlement instructions to The Bank of New York as custodian (the "Custodian")
under its Custody Agreement with the Fund. BNY agrees to notify immediately the
Fund and the Fund's investment adviser if, at any time, BNY believes that it
cannot perform, in accordance with the foregoing standard of care, its duties
hereunder with respect to any Eligible Foreign Custodian.

                                   ARTICLE II.
                        BNY AS A FOREIGN CUSTODY MANAGER

         1. The Fund on behalf of its Board hereby delegates to BNY with respect
to each Specified Country the Responsibilities.

         2. BNY accepts the Board's delegation of Responsibilities with respect
to each Specified Country and agrees in performing the Responsibilities as a
Foreign Custody Manager to exercise reasonable care, prudence and diligence such
as a person having responsibility for the safekeeping of the Fund's assets would
exercise.

         3. BNY shall provide to the Board at least annually and at such other
times as the Board deems reasonable and appropriate based on the circumstances
of the Fund's foreign custody arrangements written reports, which shall include
the following:

(a) Information relating to Eligible Foreign Custodians. Such written reports
shall include a list of all Eligible Foreign Custodians with which assets of the
Fund are maintained, and notification of any material changes in the
arrangements with such Eligible Foreign Custodians (including without
limitation, adding a new Eligible Foreign Custodian, replacing an Eligible
Foreign Custodian, changes in the capital structure of an existing Eligible
Foreign Custodian and changes in the contract governing an arrangement with an
Eligible Foreign Custodian).

(b) Information relating to Securities Depositories. Such written report shall
include a Risk Analysis with respect to each Securities Depository in each
Specified Country. If a new Securities Depository commences operations in a
Specified Country (or in the case of a new Specified Country), BNY shall
promptly notify the Board and the Fund's investment adviser of such commencement
and shall provide a Risk Analysis for such Securities Depository (or in the case
of a new Specified Country, all Securities Depositories in such country) as soon
as reasonably practicable after such Securities Depository becomes operational
(or in the case of a new Specified Country, after such country becomes a
Specified Country) but in any event prior to maintaining a Fund's assets with
such Securities Depository. BNY shall also include in such written report a
representation that each Securities Depository in which the Fund maintains
assets is an "Eligible Foreign Custodian" as defined in Rule 17f-7 under the
1940 Act.

<PAGE>

(c) Information relating to Country Risk. Notwithstanding anything to the
contrary in this Agreement or in the Custody Agreement between the Fund and BNY,
with respect to each Specified Country, BNY shall promptly provide to the Board
and to the Fund's investment adviser such information with respect to Country
Risk (as defined in Section 2 of Article III hereof) as may be sent to, and
received by, BNY from any Eligible Foreign Custodian.

                                  ARTICLE III.
                                RESPONSIBILITIES

         1. Subject to the provisions of this Agreement, BNY shall with respect
to each Specified Country select an Eligible Foreign Custodian. In connection
therewith, BNY shall: (a) determine that assets of the Fund held by such
Eligible Foreign Custodian will be subject to reasonable care, based on the
standards applicable to custodians in the relevant market in which such Eligible
Foreign Custodian operates, after considering all factors relevant to the
safekeeping of such assets, including, without limitation, those contained in
paragraph (c)(1) of the Rule; (b) determine that the Fund's foreign custody
arrangements with each Eligible Foreign Custodian are governed by a written
contract with the Custodian which will provide reasonable care for the Fund's
assets based on the standards specified in paragraph (c)(1) of the Rule; (c)
determine that each contract with an Eligible Foreign Custodian shall include
the provisions specified in paragraph (c)(2)(i)(A) through (F) of the Rule or,
alternatively, in lieu of any or all of such (c)(2)(i)(A) through (F)
provisions, such other provisions as BNY determines will provide, in their
entirety, the same or a greater level of care and protection for the assets of
the Fund as such specified provisions; (d) monitor pursuant to the Monitoring
System the appropriateness of maintaining the assets of the Fund with a
particular Eligible Foreign Custodian pursuant to paragraph (c)(1) of the Rule
and the performance of the contract governing such arrangement; and (e) advise
the Fund whenever BNY determines under the Monitoring System that an arrangement
(including, any material change in the contract governing such arrangement)
described in preceding clause (d) no longer meets the requirements of the Rule.

         2. For purposes of clause (d) of preceding Section 1 of this Article,
BNY's determination of appropriateness shall not include, nor be deemed to
include, any evaluation of Country Risks associated with investment in a
particular country. For purposes hereof, "Country Risks" shall mean systemic
risks of holding assets in a particular country including but not limited to (a)
an Eligible Foreign Custodian's use of any depositories that act as or operate a
system or a transnational system for the central handling of securities or any
equivalent book-entries; (b) such country's financial infrastructure; (c) such
country's prevailing custody and settlement practices; (d) nationalization,
expropriation or other governmental actions; (e) regulation of the banking or
securities industry; (f) currency controls, restrictions, devaluations or
fluctuations; and (g) market conditions which affect the orderly execution of
securities transactions or affect the value of securities.

<PAGE>

                                   ARTICLE IV.
                                 REPRESENTATIONS

         1. The Fund hereby represents that this Agreement has been duly
authorized, executed and delivered by the Fund, constitutes a valid and legally
binding obligation of the Fund enforceable in accordance with its terms, and no
statute, regulation, rule, order, judgment or contract binding on the Fund
prohibits the Fund's execution or performance of this Agreement; and this
Agreement has been approved by the Board at a meeting duly called and at which a
quorum was at all times present.

         2. BNY hereby represents that: (a) BNY is duly organized and existing
under the laws of the State of New York, with full power to carry on its
businesses as now conducted, and to enter into this Agreement and to perform its
obligations hereunder; (b) this Agreement has been duly authorized, executed and
delivered by BNY, constitutes a valid and legally binding obligation of BNY
enforceable in accordance with its terms, and no statute, regulation, rule,
order, judgment or contract binding on BNY prohibits BNY's execution or
performance of this Agreement; and (c) BNY has established the Monitoring
System.

                                   ARTICLE V.
                                 CONCERNING BNY

         1. BNY shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees, sustained or
incurred by, or asserted against, the Fund except to the extent the same arises
out of the failure of BNY to exercise the care, prudence and diligence required
by Section 2 of Article II hereof. In no event shall BNY be liable to the Fund,
the Board, or any third party for special, indirect or consequential damages, or
for lost profits or loss of business, arising in connection with this Agreement.

         2. The Fund shall indemnify BNY and hold it harmless from and against
any and all costs, expenses, damages, liabilities or claims, including
attorneys' and accountants' fees, sustained or incurred by, or asserted against,
BNY by reason or as a result of any action or inaction, or arising out of BNY's
performance hereunder, provided that the Fund shall not indemnify BNY to the
extent any such costs, expenses, damages, liabilities or claims arises out of
BNY's failure to exercise the reasonable care, prudence and diligence required
by Section 2 of Article II hereof. In no event shall the Fund be liable to BNY
for any special, indirect or consequential damages, or for lost profits or loss
of business, arising in connection with this Agreement. BNY shall indemnify the

<PAGE>

Fund and hold it harmless from and against any and all costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees, sustained or
incurred by, or asserted against, the Fund by reason or as a result of BNY's
failure to exercise the reasonable care, prudence and diligence required by
Section 2 of Article II hereof; provided, however, that BNY shall not be liable
to the Fund for any special, indirect or consequential damages, or for lost
profits or loss of business, arising in connection with this Agreement.

         3. For its services hereunder, the Fund agrees to pay to BNY such
compensation and out-of-pocket expenses as shall be mutually agreed.

         4. BNY shall have only such duties as are expressly set forth herein.
In no event shall BNY be liable for any Country Risks associated with
investments in a particular country, except that BNY shall timely forward such
information with respect to Country Risk, if any, as may have been sent to, and
received by, BNY from any Eligible Foreign Custodian.

                                   ARTICLE VI.
                                  MISCELLANEOUS

         1. This Agreement sets forth BNY's duties with respect to, among other
things, the selection of Foreign Custodians, the administration of contracts
with Foreign Custodians, the addition and deletion of Foreign Custodians, the
issuance of reports in connection with such duties, the monitoring of such
duties, and the supplying of information with respect to Country Risk. The terms
of the Custody Agreement between the Fund and BNY, as amended from time to time,
shall apply generally as to matters not expressly covered in this Agreement,
including dealings with the Foreign Custodians in the course of discharge of
BNY's obligations under the Custody Agreement. The terms of this Agreement shall
control to the extent of any conflicts between this Agreement and the Custody
Agreement. Except as set forth in this Article, nothing in this Agreement shall
affect the obligations of the parties hereto under any other agreement.

         2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to BNY, shall be sufficiently given if received by it
at its offices at 100 Church Street, 10th Floor, New York, New York 10286, or at
such other place as BNY may from time to time designate in writing.

         3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if received
by it at its offices at 101 Huntington Avenue, Boston, Massachusetts 02199, or
at such other place as the Fund may from time to time designate in writing.

         4. In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
thereby. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties. This Agreement shall extend to and
shall be binding upon the parties hereto, and their respective successors and
assigns; provided however, that this Agreement shall not be assignable by either
party without the written consent of the other, which consent shall not be
unreasonably withheld.

<PAGE>

         5. If at any time BNY shall be a party to an agreement to serve as a
Foreign Custody Manager to an investment company that provides for either (i) a
standard of care with respect to the selection of Foreign Custodians in any
jurisdiction higher than that set forth in Article I of this Agreement or (ii) a
standard of care with respect to BNY exercising its duties as Foreign Custody
Manager in any jurisdiction or with regard to its responsibilities under Rule
17f-7 higher than those set forth in Article II, Section 2 of this Agreement,
BNY agrees to notify the Fund of this fact and to raise the applicable standard
of care hereunder in the applicable jurisdiction to the standard specified in
such other agreement.

         6. The Fund and BNY agree that the obligations of each Fund are not
binding upon the Trustees/Directors, officers or shareholders of the Fund
individually, but are binding only upon that Fund and its assets. Each Fund
shall be severally, not jointly, liable for its own obligations under this
agreement.

This Agreement shall be construed in accordance with the substantive laws of The
Commonwealth of Massachusetts, without regard to conflicts of laws principles
thereof. The Fund and BNY each hereby irrevocably waives any and all rights to
trial by jury in any legal proceeding arising out of or relating to this
Agreement.

The parties hereto agree that in performing hereunder, BNY is acting solely on
behalf of the Fund and no contractual or service relationship shall be deemed to
be established hereby between BNY and any other person by reason of this
Agreement.

This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.

This Agreement shall terminate simultaneously with the termination of the
Custody Agreement between the Fund and the Custodian, and may otherwise be
terminated by either party giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than thirty
(30) days after the date of such notice.

<PAGE>

         IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the date
first above written.

                             Each John Hancock Fund listed on Schedule II

                             By: /s/ Richard A. Brown
                                 -------------------

                             Title:  Senior Vice President & CFO

                                    THE BANK OF NEW YORK

                                    By: /s/ James E. Hillman
                                        -------------------

                                    Title:  Senior Vice President

<PAGE>

                                   SCHEDULE I

                               Date: July 23, 2001

To:      International Markets Committee

From:    Bob Pieroni

Re:      Approved Country Listing - Funds

SIPC and the International Market Committee have approved the following
countries for investments by John Hancock funds:

Argentina                     Greece
Australia                     Hong Kong                     Peru
Austria                       Hungary                       Philippines
Bangladesh                    Iceland                       Poland
Belgium                       India                         Portugal
Bermuda                       Indonesia                     Romania
Brazil                        Ireland                       Russia*
Botswana                      Israel                        Singapore
Bulgaria **                   Italy                         Slovak Republic
Canada                        Japan                         South Africa
Chile                         Kenya                         Spain
China                         Korea                         Sweden
Columbia                      Latvia                        Switzerland
Costa Rica                    Lithuania                     Taiwan
Croatia                       Luxembourg                    Thailand
Czech Republic                Malaysia                      Turkey
Denmark                       Mauritius                     United Kingdom
Egypt **                      Mexico                        United States
Estonia                       Netherlands                   Venezuela
Finland                       New Zealand                   Zimbabwe
France                        Norway
Germany                       Panama
Ghana                         Pakistan

* Please note that Russia is restricted to Sovereign Russian and municipal fixed
income securities only and these investments are further restricted to only
certain fixed income accounts. Please consult Operations or Legal for detailed
listing.

Investments in other countries (including ADR & GDR vehicles) are not permitted
without prior approval from the International Markets Committee.


** Addition since 1/1/01

Cc:      Merrill Lynch Asset Management
         Nicholas Applegate
         American Fund Advisers

<PAGE>

                                   SCHEDULE II

                               John Hancock Funds

                             (As of August 22, 2002)

- --------------------------------------------------------------------------------
   EIN                                    Name
- --------------------------------------------------------------------------------
04-3478429      John Hancock 500 Index Fund
- --------------------------------------------------------------------------------
04-3167136      John Hancock Balanced Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-3241844      John Hancock Bank & Thrift Opportunity Fund
- --------------------------------------------------------------------------------
04-3551118      John Hancock Biotechnology Fund
- --------------------------------------------------------------------------------
04-2528977      John Hancock Bond Fund
- --------------------------------------------------------------------------------
76-0296100      John Hancock California Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-3551126      John Hancock Communications Fund
- --------------------------------------------------------------------------------
04-3551129      John Hancock Consumer Industries Fund
- --------------------------------------------------------------------------------
04-3122478      John Hancock Core Equity Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-3260671      John Hancock Dividend Performers Fund
- --------------------------------------------------------------------------------
04-3409706      John Hancock European Equity Fund
- --------------------------------------------------------------------------------
04-3305812      John Hancock Financial Industries Fund
- --------------------------------------------------------------------------------
56-1662953      John Hancock Financial Trends Fund, Inc.
- --------------------------------------------------------------------------------
04-3535633      John Hancock Focused Equity Fund  (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
04-3313164      John Hancock Focused Small Cap Growth Fund
- --------------------------------------------------------------------------------
04-6944774      John Hancock Fundamental Value Fund
- --------------------------------------------------------------------------------
04-6543623      John Hancock Global Fund
- --------------------------------------------------------------------------------
76-0230587      John Hancock Government Income Fund
- --------------------------------------------------------------------------------
04-3524763      John Hancock Growth Trends Fund (add Class I eff 11/15/01)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
04-3124238      John Hancock Health Sciences Fund
- --------------------------------------------------------------------------------
04-3551132      John Hancock High Income Fund
- --------------------------------------------------------------------------------
76-0230586      John Hancock High Yield Bond Fund
- --------------------------------------------------------------------------------
76-0235997      John Hancock High Yield Municipal Bond Fund
                (name change eff. 1/1/02)
- --------------------------------------------------------------------------------
04-2507646       John Hancock Income Securities Trust
- --------------------------------------------------------------------------------
04-3260680      John Hancock Independence Diversified Core Equity Fund II
                (terminate Class P 9/13/01)
- --------------------------------------------------------------------------------
04-3214877      John Hancock International Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
04-6944776      John Hancock International Small Cap Growth Fund
- --------------------------------------------------------------------------------
76-0354706      John Hancock Investment Grade Bond Fund
                (name change eff. 1/1/02)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
   EIN                                    Name
- --------------------------------------------------------------------------------
04-2474663     John Hancock Investors Trust
- --------------------------------------------------------------------------------
74-6035056     John Hancock Large Cap Equity Fund (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
04-2443211     John Hancock Large Cap Growth Fund
- --------------------------------------------------------------------------------
41-2025611     John Hancock Large Cap Spectrum Fund (launch 1/14, but no money
               until 2/22/02 - strike first NAV 2/25/02)
- --------------------------------------------------------------------------------
04-6564705     John Hancock Massachusetts Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-3208756     John Hancock Mid Cap Growth Fund  (add Class I eff. 3/15/02)
- --------------------------------------------------------------------------------
76-0230583     John Hancock Money Market Fund
- --------------------------------------------------------------------------------
04-3539446     John Hancock Multi-Cap Growth Fund
- --------------------------------------------------------------------------------
04-6564703     John Hancock New York Tax-Free Income Fund
- --------------------------------------------------------------------------------
04-6567740     John Hancock Pacific Basin Equities Fund
- --------------------------------------------------------------------------------
04-3161453     John Hancock Patriot Global Dividend Fund
- --------------------------------------------------------------------------------
04-3190056     John Hancock Patriot Preferred Dividend Fund
- --------------------------------------------------------------------------------
04-3044078     John Hancock Patriot Premium Dividend Fund I
- --------------------------------------------------------------------------------
04-3097281     John Hancock Patriot Premium Dividend Fund II
- --------------------------------------------------------------------------------
04-3090916     John Hancock Patriot Select Dividend Trust
- --------------------------------------------------------------------------------
               John Hancock Preferred Income Fund (eff. 8/22/02)
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
04-3435529     John Hancock Real Estate Fund
- --------------------------------------------------------------------------------
04-6526682     John Hancock Regional Bank Fund
- --------------------------------------------------------------------------------
04-3214880     John Hancock Small Cap Equity Fund (name change eff. 3/1/02)
- --------------------------------------------------------------------------------
76-0230584     John Hancock Small Cap Growth Fund
- --------------------------------------------------------------------------------
51-0094374     John Hancock Sovereign Investors Fund
- --------------------------------------------------------------------------------
04-6956080     John Hancock Strategic Growth Fund (eff 12/01/01)
- --------------------------------------------------------------------------------
04-6545497     John Hancock Strategic Income Fund
- --------------------------------------------------------------------------------
76-0296098     John Hancock Tax-Free Bond Fund
- --------------------------------------------------------------------------------
13-3100162     John Hancock Technology Fund
- --------------------------------------------------------------------------------
76-0235823     John Hancock U.S. Government Cash Reserve
- --------------------------------------------------------------------------------
13-3843241     John Hancock U.S. Global Leaders Growth Fund (eff 5/13/02)
- --------------------------------------------------------------------------------
04-3367188     John Hancock V.A. Financial Industries Fund
- --------------------------------------------------------------------------------
04-3402969     John Hancock V.A. Relative Value Fund
- --------------------------------------------------------------------------------
04-3326565     John Hancock V.A. Sovereign Investors Fund
- --------------------------------------------------------------------------------
04-3326570     John Hancock V.A. Strategic Income Fund
- --------------------------------------------------------------------------------
04-3513386     John Hancock V.A. Technology Fund
- --------------------------------------------------------------------------------

                      or: JOHN HANCOCK FUNDS listed above

                          /s/ Avery P. Maher
                          -------------------------

                          By:  Avery P. Maher

                          Title:  Second Vice President and Assistant Secretary

                          Accepted and agreed for:

                          THE BANK OF NEW YORK

                          /s/ Ira R. Rosner
                          --------------------------

                          By: Ira R. Rosner

                          Title: Vice President

Corpsec/Agreement/custodian/BNYScheduleII
<PAGE>

                                   APPENDIX A
                      SUB-CUSTODIAN INDEMNIFICATION POLICY

<TABLE>
<S>                             <C>              <C>                 <C>
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Market                                A                 B                               Sub-Custodian
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Argentina                             X                                             Banco Rio de la Plata
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Australia                             X                                          National Australia Bank Ltd.
                                      X                                         Commonwealth Bank of Australia
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Austria                               X                                                Bank Austria AG
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Bahrain                                                 X                           HSBC Bank Middle East
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Bangladesh                                              X                          Standard Chartered Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Belgium                               X                                            Banque Bruxelles Lambert
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Benin                                                   X                Societe Generale de Banques en Cote d'Ivoire
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Bermuda                               X                                              Bank of Bermuda Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Bolivia                                                 X                                  Citibank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Botswana                                                X                       Barclays Bank of Botswana Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Brazil                                X                                                  Bank Boston
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Bulgaria                                                X                                  ING Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Burkina Faso                                            X                Societe Generale de Banques en Cote d'Ivoire
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Canada                                X                                              Royal Bank of Canada
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Chile                                 X                                                Bank Boston N.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
China                                 X                                            Standard Chartered Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Colombia                                                X                          Cititrust Colombia, S.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Costa Rica                                              X                                 Banco BCT
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Croatia                                                 X                        Privredna Banka Zqgreb d.d.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Cyprus                                                  X                               Bank of Cyprus
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Czech Republic                        X                                      Ceskoslovenska Obchodni Banka, A.S.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Denmark                               X                                                Den Danske Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
EASDAQ                                X                                            Banque Bruxelles Lambert
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Ecuador                                                 X                               Citibank, N.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Egypt                                                   X                               Citibank, N.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Estonia                                                 X                               Hansabank Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Euromarket - Cedel                    X                                                  Clearstream
                Euroclear             X                                                  Euroclear
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Finland                               X                                                Merita Bank plc
- -----------------------------   --------------   -----------------   -----------------------------------------------------
France                                X                                                    Paribas
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Germany                               X                                                Dresdner Bank AG
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Ghana                                                   X                        Barclays Bank of Ghana Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Greece                                X                                                    Paribas
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Guinea Bissau                                           X                Societe Generale de Banques en Cote d'Ivoire
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Hong Kong                             X                                                      HSBC
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Hungary                               X                                             Citibank Budapest Rt.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Iceland                                                 X                             Landsbanki Islands
- -----------------------------   --------------   -----------------   -----------------------------------------------------
India                                                   X                                    HSBC
                                                        X                              Deutsche Bank AG
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Indonesia                                               X                                    HSBC
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Ireland                               X                                            Allied Irish Banks, plc
- -----------------------------   --------------   -----------------   -----------------------------------------------------
</TABLE>

A= BNY will accept  responsibility  for negligence and wilful  misconduct by the
subcustodian.

B= BNY does not guarantee or indemnify but will provide  "Pass-Through"  for any
situations.

<PAGE>

                                   APPENDIX A
                      SUB-CUSTODIAN INDEMNIFICATION POLICY

<TABLE>
<S>                             <C>              <C>                 <C>
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Market                                A                 B                               Sub-Custodian
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Israel                                X                                          Bank Leumi LE - Israel B.M.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Italy                                 X                                           Banca Commerciale Italiana
                                      X                                                    Paribas
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Ivory Coast                                             X                         Societe Generale - Abidjan
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Jamaica                                                 X                  CIBC Trust & Merchant Bank Jamaica Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Japan                                 X                                               The Fuji Bank Ltd.
                                      X                                       The Bank of Tokyo-Mitsubishi Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Jordan                                                  X                           HSBC Bank Middle East
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Kazakhstan                                              X                                  ABN/AMRO
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Kenya                                                   X                        Barclays Bank of Kenya Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Latvia                                                  X                              Hansabanka Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Lebanon                                                 X                           HSBC Bank Middle East
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Lithuania                                               X                              Vilniaus Bankas
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Luxembourg                            X                                     Banque et Caisse d'Espargne de l'Etat
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Malaysia                                                X                       HongKong Bank Malaysia Berhad
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Mali                                                    X                Societe Generale de Banques en Cote d'Ivoire
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Malta                                 X                                              HSBC Bank Malta plc
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Mauritius                                               X                                    HSBC
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Mexico                                X                                            Banco Nacional de Mexico
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Morocco                                                 X                        Banque Commerciale du Maroc
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Namibia                                                 X                         Stanbic Bank Namibia Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Netherlands                           X                                                  Mees Pierson
- -----------------------------   --------------   -----------------   -----------------------------------------------------
New Zealand                           X                                     Australia & New Zealand Banking Group
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Niger                                                   X                Societe Generale de Banques en Cote d'Ivoire
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Nigeria                                                 X                     Stanbic Merchant Bank Nigeria Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Norway                                X                                              Den Norske Bank ASA
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Oman                                                    X                           HSBC Bank Middle East
Pakistan                                                X                          Standard Chartered Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Panama                                                  X                              BankBoston, N.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Peru                                                    X                               Citibank, N.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Philippines                           X                                                      HSBC
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Poland                                X                                         Bank Handlowy W Warszawie S.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Portugal                              X                                           Banco Comercial Portugues
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Romania                                                 X                                  ING Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Russia                                                  X                               Vneshtorgbank
                                                        X                       Credit Suisse First Boston AO
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Senegal                                                 X                Societe Generale de Banques en Cote d'Ivoire
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Singapore                             X                                           United Overseas Bank Ltd.
                                      X                                    The Development. Bank of Singapore Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Slovakia                                                X                     Ceskoslovenska Obchodni Banka, AS
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Slovenia                              X                                   Bank Austria Creditanstalt d.d. Ljublijan
- -----------------------------   --------------   -----------------   -----------------------------------------------------
South Africa                                            X                       Societe Generale Johannesburg
                                      X                                     The Standard Bank of South Africa Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
</TABLE>

A= BNY will accept  responsibility  for negligence and wilful  misconduct by the
subcustodian.

B= BNY does not guarantee or indemnify but will provide  "Pass-Through"  for any
situations.

<PAGE>

                                   APPENDIX A
                      SUB-CUSTODIAN INDEMNIFICATION POLICY

<TABLE>
<S>                             <C>              <C>                 <C>
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Market                                A                 B                               Sub-Custodian
- -----------------------------   --------------   -----------------   -----------------------------------------------------
South Korea                           X                                            Standard Chartered Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Spain                                 X                                  Banco Bilboa Vizcaya Argentaria S.A. (BBVA)
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Sri Lanka                                               X                          Standard Chartered Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Swaziland                                               X                        Stanbic Bank Swaziland Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Sweden                                X                                         Skandinaviska Enskilda Banken
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Switzerland                           X                                           Credit Suisse First Boston
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Taiwan                                X                                                      HSBC
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Thailand                              X                                            Standard Chartered Bank
                                      X                                        Bangkok Bank Public Company Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Togo                                                    X                Societe Generale de Banques en Cote d'Ivoire
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Trinidad & Tobago                                       X                          Republic Bank Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Tunisia                                                 X                   Banque Internationale Arabe de Tunisie
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Turkey                                X                                              Osmanli Bankasi A.S.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Ukraine                                                 X                                  ING Bank
- -----------------------------   --------------   -----------------   -----------------------------------------------------
United Kingdom                       NA                 NA                           The Bank of New York
                                      X                                     The Depository & Clearing Centre (DCC)
- -----------------------------   --------------   -----------------   -----------------------------------------------------
United States                        NA                 NA                           The Bank of New York
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Uruguay                               X                                               Bank Boston, N.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Venezuela                                               X                               Citibank, N.A.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Zambia                                                  X                        Barclays Bank of Zambia Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
Zimbabwe                                                X                       Barclays Bank of Zimbabwe Ltd.
- -----------------------------   --------------   -----------------   -----------------------------------------------------
</TABLE>

A= BNY will accept  responsibility  for negligence and wilful  misconduct by the
subcustodian.

B= BNY does not guarantee or indemnify but will provide  "Pass-Through"  for any
situations.

<PAGE>

                                  Fee Schedule

                                       for

                    JOHN HANCOCK FUNDS Listed on Schedule II

                          DOMESTIC CUSTODY FEE SCHEDULE

1.       Securities Settled and Safekept Within the United States.

         The Bank of New York's fee for custody services for each account is as
follows:

                               Maintenance Charges

<TABLE>
<CAPTION>
Asset Holding                                        Annual Basis Points
- --------------------------------------------------------------------------------
<S>                                                  <C>
0 - $10 billion                                              .25
Excess                                                       .15
</TABLE>

                               Transaction Charges

<TABLE>
<CAPTION>
Category                                                       Per Transaction
- --------------------------------------------------------------------------------
<S>                                                            <C>
Receive/Delivery - Book Entry                                      $  5.00
Receive/Delivery - PTC                                                5.00
Receive/Delivery - Physical                                          15.00
P & I Payments                                                        5.00
Wires In/Out and official check requests to pay                       3.50
Fund related expenses
</TABLE>

     A transaction is defined as a receipt or delivery versus payment or a free
receipt or deliver.

II.      General

         - Account Maintenance:      Monthly fee of $50.00 per account. (Waived)
         - On-Line Services:         $200.00 monthly access fee.        (Waived)
         - Dedicated Line Services:  Charged as pass through costs.

                                        1
<PAGE>

                         GLOBAL SECURITIES FEE SCHEDULE

<TABLE>
<CAPTION>
                                      ADMINISTRATION/          INSTRUCTION FEE
                                      SAFEKEEPING FEE         (PER INSTRUCTION)
COUNTRY                              (IN BASIS POINTS)*         (U.S. DOLLARS)
- --------------------------------------------------------------------------------
<S>                                  <C>                      <C>
Argentina (Equities)...............         22.0                      60
Argentina (Bonds)..................         18.0                      60
Australia..........................          3.0                      45
Austria (ATS Securities)...........          4.5                      55
Bahrain............................         50.0                     140
Bangladesh.........................         50.0                     165
Belgium (Equities).................          3.5                      50
Belgium (Bonds)....................          2.5                      50
Belgium (T/Bills)..................          2.0                      50
Bermuda............................         22.0                      80
Bolivia............................         60.0                     150
Botswana...........................         45.0                     150
Brazil.............................         22.0                      30
Bulgaria...........................         45.0                      95
Canada.............................          2.0                      18
Chile..............................         22.0                      85
China..............................         22.0                      80
Colombia...........................         50.0                     115
Costa Rica.........................         22.0                      75
Croatia............................         35.0                      85
Cyprus.............................         22.0                      65
Czech Republic (Equities/Bonds)....         22.0                      75
Czech Republic (T/Bills)...........         18.0                      75
Denmark............................          3.5                      55
EASDAQ.............................          5.5                      60
Ecuador............................         40.0                      85
Egypt..............................         45.0                     115
Estonia............................         12.0                      45
Euromarkets (Euroclear -
 Eurobonds only**).................          1.8                      18
Finland............................          6.0                      55
France.............................         3.25                      50
Germany............................          2.5                      35
Ghana..............................         45.0                     150
Greece (Equities)..................         22.0                     105
Greece (Bonds).....................         16.0                     105
Hong Kong (Equities/Bonds).........          6.0                      70
Hong Kong (CMU Bonds)..............          4.0                      50
Hungary (KELER - Equities).........         30.0                      85
Hungary (KELER - Bonds)............         30.0                      65
Iceland ...........................         28.0                      80
</TABLE>

                                        2
<PAGE>

<TABLE>
<CAPTION>
                                            ADMINISTRATION/       INSTRUCTION FEE
                                            SAFEKEEPING FEE      (PER INSTRUCTION)
COUNTRY                                    (IN BASIS POINTS)*      (U.S. DOLLARS)
- --------------------------------------------------------------------------------
<S>                                        <C>                   <C>
India (Dematerialized Securities).......         20.0                  160
India (Physical Securities).............         70.0                  335
Indonesia...............................         13.0                  105
Ireland.................................         3.75                   40
Israel..................................         22.0                   50
Italy...................................         3.25                   55
Ivory Coast.............................         50.0                  155
Jamaica.................................         45.0                   75
Japan...................................          2.5                   25
Jordan (Equities/Bonds).................         45.0                  140
Jordan (Gov't Bonds)....................         26.0                  100
Kazakhstan (Equities)...................         60.0                  150
Kazakhstan (Bonds)......................         40.0                  160
Kenya...................................         45.0                  150
Latvia..................................         55.0                   70
Lebanon (Equities/Bonds)................         50.0                  140
Lebanon (Gov't Bonds)...................         26.0                  100
Lithuania...............................         22.0                   55
Luxembourg..............................          5.5                   55
Malaysia................................          6.0                   65
Malta...................................         22.0                   75
Mauritius...............................         35.0                  135
Mexico..................................          9.0                   40
Morocco.................................         40.0                  115
Namibia.................................         32.0                   75
Netherlands.............................          4.0                   40
New Zealand.............................          3.5                   50
Nigeria.................................         32.0                   75
Norway..................................          4.0                   55
Oman....................................         50.0                  140
Pakistan................................         35.0                  135
Panama..................................         65.0                   85
Peru....................................         40.0                   90
Philippines.............................         10.0                   90
Poland (Equities/Bonds).................         25.0                   75
Poland (T/Bills) .......................         12.0                   75
Portugal................................         10.0                   75
Romania.................................         45.0                   85
Russia (Equities).......................         65.0                  160
Russia (MinFins)........................         16.0                   85
Singapore...............................          5.0                   60
Slovak Republic (Equities/Bonds)........         30.0                  140
Slovak Republic (Promissory Notes)......         30.0                  260
Slovenia................................         45.0                   70
South Africa............................          4.0                   40
South Korea.............................         11.0                   60
Spain (Equities/Bonds)..................          4.5                   60
Spain (Gov't Bonds).....................          2.5                   60
Sri Lanka...............................         18.0                   90
Swaziland...............................         32.0                   75
</TABLE>

                                        3
<PAGE>

<TABLE>
<CAPTION>
                                        ADMINISTRATION/      INSTRUCTION FEE
                                        SAFEKEEPING FEE     (PER INSTRUCTION)
COUNTRY                                (IN BASIS POINTS)*     (U.S. DOLLARS)
- --------------------------------------------------------------------------------
<S>                                    <C>                  <C>
Sweden..............................           4.0                 50
Switzerland.........................           4.0                 60
Taiwan..............................          16.0                 90
Thailand............................           7.0                 75
Trinidad & Tobago...................          30.0                 65
Tunisia (Equities)..................          50.0                 65
Tunisia (Bonds).....................          35.0                 65
Tunisia (T/Bills)...................          12.0                 65
Turkey (Equities)...................          18.0                 55
Turkey (Bonds)......................          15.0                 55
UK..................................           1.5                 30
Ukraine (Equities)..................          70.0                260
Ukraine (Bonds).....................          25.0                 85
Uruguay (Equities)..................          60.0                 90
Uruguay (Bonds).....................          45.0                 90
Venezuela...........................          45.0                140
Zambia..............................          45.0                150
Zimbabwe............................          45.0                150
</TABLE>

* Fee is expressed in basis points per annum and is calculated based upon
month-end market value. ** For non-Eurobond holdings in Euroclear, surcharges
apply

The above instruction fees are based on an assumption that BNY will receive
instructions via SWIFT, BNY proprietary systems or other electronic medium as
agreed by BNY. Instructions received through other medium (e.g. Facsimile) may
be subject to a surcharge.

Out of Pocket Expenses :

Charges incurred by The Bank of New York for local taxes, stamp duties or other
local duties and assessments, stock exchange fees, postage and insurance for
shipping, facsimile reporting, extraordinary telecommunications fees or other
unusual expenses which are unique to the country of investment, will be passed
along as incurred.

A Foreign Exchange transaction undertaken through a third party will be charged
$35.00 per transaction.

                                        4
<PAGE>

                          FUND ACCOUNTING FEE SCHEDULE

Accounting Fee  (Based on market value of all funds at each calendar month-end)

         2.0 basis points, per annum, on the first $5 billion of net assets
         1.5 basis points, per annum, on the next $5 billion of net assets
         1.0 basis points, per annum, on the next $5 billion of net assets
          .75 basis points, per annum, on the excess of net assets

Minimum Fees (Per fund)

         (a)$30,000 minimum fee, per annum, per domestic portfolio
         (a)$30,000 minimum fee, per annum, per international portfolio

Out-of-Pocket Expenses

    Out-of-pocket expenses include, but are limited to, the cost of obtaining
    prices for security evaluations, the cost associated with attendance at
    Board presentations, legal fees, filing fees, miscellaneous printing,
    courier and express mail charges, etc.

Billing Cycle

    The above fees will be billed on a monthly basis.

    (a) Waived for the first 12 months on any new funds up to a maximum of four
        funds in any calendar year.  This fee is waived for any fund undergoing
        an incubation exercise.

    Other

    The Bank of New York agrees to rebate the following amount against fees due
    for accounting and custody services as follows:

         First 12 months @ $29,166.67 per month
         Next 12 months @ $20,833.33 per month
         Next 12 months @ $12,500.00 per month

    These fees are guaranteed for a period of three years from the date of the
Contract.

    Agreed to and accepted by:

    John Hancock Funds listed on Schedule II         The Bank of New York

    Name :                                           Name:

    Title:                                           Title:
    Date:                                            Date:

                                        5

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(K)(1)
<SEQUENCE>9
<FILENAME>b48195isexv99wxkyx1y.txt
<DESCRIPTION>TRANSFER AND SERVICE AGREEMENT
<TEXT>
<PAGE>

                                                                EXHIBIT 99(k)(1)

[MELLON LOGO]

                                SERVICE AGREEMENT

                                       FOR

                             TRANSFER AGENT SERVICES

                                       TO

                  JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I
                  JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II
                  JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND
                    JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND
                   JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST
                          JOHN HANCOCK INVESTORS TRUST
                      JOHN HANCOCK INCOME SECURITIES TRUST
                  JOHN HANCOCK BANK AND THRIFT OPPORTUNITY FUND
<PAGE>

         THIS TRANSFER AGENT AGREEMENT (this "Agreement") between John Hancock
Patriot Premium Dividend Fund I, John Hancock Patriot Premium Dividend Fund II,
John Hancock Patriot Preferred Dividend Fund, John Hancock Patriot Global
Dividend Fund, John Hancock Patriot Select Dividend Trust, John Hancock
Investors Trust, John Hancock Income Securities Trust, John Hancock Bank And
Thrift Opportunity Fund, each a Massachusetts Business Trust, a Maryland
corporation (each a "Client" and collectively the "Clients") and Mellon Investor
Services LLC, a New Jersey limited liability company ("Mellon"), is dated as of
June 1, 2002.

1.       Appointment. Clients appoint Mellon as their transfer agent, registrar
and dividend disbursing agent and Mellon accepts such appointment in accordance
with the following terms and conditions for all authorized shares of each class
of common stock listed in Exhibit A hereto (the "Shares").

2.       Term and Termination of Agreement.

         (a) This Agreement shall commence on the date hereof and shall continue
for a term of two years. Unless either party gives written notice of termination
of this Agreement at least 60 days prior to the end of the initial two year
term, or any successive one year term, this Agreement shall automatically renew
for an additional one year term.

         (b) This Agreement may be terminated at any time by either party upon a
material breach of a representation, covenant or term of this Agreement by the
other which is not cured within a period not to exceed thirty (30) days after
the date of written notice thereof by the other party.

         (c) Prior to termination of this Agreement, Clients must provide Mellon
with written instructions as to the disposition of records, as well as any
additional documentation reasonably requested by Mellon. Except as otherwise
expressly provided in this Agreement, the respective rights and duties of
Clients and Mellon under this Agreement shall cease upon termination of the
appointment.

         (d) Upon receipt of written notice of termination, Mellon shall follow
its standard procedures to facilitate the transition of services hereunder to a
successor agent, and both parties agree to use commercially practicable efforts
to effect an orderly termination of this Agreement.

3.       Duties of Mellon. Mellon will provide the services listed in Exhibit B
hereto, in the performance of its duties as transfer agent, registrar, and
dividend disbursing agent.

4.       Representations and Warranties of Mellon and Client.

         (a) Mellon represents, warrants and covenants to Clients that:

                  (i) it is a limited liability company duly organized and
existing and in good standing under the laws of the State of New Jersey;

<PAGE>

                  (ii) it is empowered under applicable laws and by its
organizational documents to enter into and perform the Transfer Agent function
per this Agreement; and

                  (iii) all requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.

         (b) each Client represents, warrants and covenants to Mellon that:

                  (i) the Shares issued and outstanding on the date hereof have
been duly authorized, validly issued and are fully paid and are non-assessable;
and any Shares to be issued hereunder, when issued, shall have been duly
authorized, validly issued and fully paid and will be non-assessable;

                  (ii) the Shares issued and outstanding on the date hereof have
been duly registered under the Securities Act of 1933, as amended, and such
registration has become effective, or are exempt from such registration; and
have been duly registered under the Securities Exchange Act of 1934, as amended,
or are exempt from such registration;

                  (iii) any Shares to be issued hereunder, when issued shall
have been duly registered under the Securities Act of 1933, as amended, and such
registration shall have become effective or shall be exempt from such
registration; and shall have been duly registered under the Securities Exchange
Act of 1934, as amended, or shall be exempt from such registration;

                  (iv) such Client has paid or caused to be paid all taxes, if
any, that were payable upon or in respect of the original issuance of the Shares
issued and outstanding on the date hereof;

                  (v) the execution and delivery of this Agreement, and the
issuance and any subsequent transfer of the Shares hereunder, do not and will
not conflict with, violate, or result in a breach of, the terms, conditions or
provisions of, or constitute a default under, the charter or the by-laws of such
Client, any law or regulation, any order or decree of any court or public
authority having jurisdiction, or any mortgage, indenture, contract, agreement
or undertaking to which such Client is a party or by which it is bound; and this
Agreement is enforceable against such Client in accordance with its terms,
except as may be limited by bankruptcy, insolvency, moratorium, reorganization
and other similar laws affecting the enforcement of creditors' rights generally;
and

                  (vi) such Client shall provide the documentation and
notifications listed in Exhibit C hereto. Such Client further agrees to deliver
an opinion of counsel as provided in Exhibit C, Section 7(a) and (b) upon any
future original issuance of Shares for which Mellon will act as transfer agent
hereunder.

5.       Compensation and Expenses. Each Client shall compensate Mellon for its
services hereunder in accordance with the fee schedules listed in Exhibit D
hereto. In accordance with Exhibit D hereto, each Client shall reimburse Mellon
for all reasonable expenses, disbursements or advances incurred by it in
accordance herewith. All amounts owed to Mellon hereunder are due upon receipt
of the invoice. Delinquent payments are subject to a late payment charge of one
and one half percent (1.5%) per month commencing forty-five (45) days from the
invoice date. Clients agree to reimburse Mellon for any reasonable attorney's
fees and any other costs associated with collecting delinquent payments.

                                       2
<PAGE>

6.       Scope of Agency.

         (a) Mellon shall act solely as agent for Clients under this Agreement
and owes no duties hereunder to any other person. Mellon undertakes to perform
the duties and only the duties that are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into this
Agreement against Mellon.

         (b) Mellon may rely upon, and shall be protected in acting or
refraining from acting in reliance upon, (i) any Client communication authorized
by this Agreement, (ii) any communication from any predecessor Transfer Agent or
co-Transfer Agent or from any Registrar (other than Mellon), predecessor
Registrar or co-Registrar, and (iii) any other written instruction, notice,
request, direction, consent, report, certificate, or other instrument, paper,
document or electronic transmission believed by Mellon to be genuine and to have
been signed or given by the proper party or parties. In addition, Mellon is
authorized to refuse to make any transfer it deems improper.

         (c) Mellon may consult with counsel (including internal counsel) whose
advice shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.

         (d) Any instructions given by a Client to Mellon orally shall be
confirmed in writing by such Client as soon as practicable. Mellon shall not be
liable or responsible and shall be fully authorized and protected for acting, or
failing to act, in accordance with any oral instructions which do not conform
with the written confirmation received in accordance with this Section.

         (e) Mellon may perform any of its duties hereunder either directly or
by or through agents or attorneys.

         (f) Mellon shall not be obligated to take any legal action hereunder;
if, however, Mellon determines to take any legal action hereunder, and, where
the taking of such legal action might in Mellon's judgment subject or expose
Mellon to any expense or liability, Mellon shall not act unless it shall have
been furnished with an indemnity satisfactory to it.

7.       Indemnification.

         (a) Clients shall indemnify Mellon for, and hold it harmless against,
any loss, liability, claim or expense ("Loss") arising out of or in connection
with its duties under this Agreement or this appointment, including the costs
and expenses of defending itself against any Loss or enforcing this Agreement,
except to the extent that such Loss shall have been determined by a court of
competent jurisdiction to be a result of Mellon's negligence or intentional
misconduct.

                                       3
<PAGE>

         (b) Mellon shall indemnify Clients for, and hold them harmless against,
any Loss arising out of or in connection with Mellon's duties under this
Agreement or this appointment, including the costs and expenses of defending
Clients against any Loss or enforcing this Agreement, to the extent that such
Loss shall have been determined by a court of competent jurisdiction to be a
result of Mellon's negligence or intentional misconduct.

         (c) In order that the indemnification provisions contained in this
Section shall apply, upon the assertion of a claim for which one party may be
required to indemnify another, the indemnified party shall promptly notify the
indemnifying party of such assertion, and shall keep such party advised with
respect to all developments concerning such claim; provided, however, that a
party's failure to so notify or advise the other party shall not limit such
other party's indemnification obligation hereunder except to the extent that
such other party has been materially prejudiced by such failure. The
indemnifying party shall have the option to participate with the indemnified
party in the defense of any such claim or to defend against said claim. In no
case shall an indemnified party confess any claim or make any compromise in any
case in which an indemnifying party may be required to indemnify it except with
such indemnifying party's written consent.

8.       Limitation of Liability.

         (a) In the absence of negligence or intentional misconduct on its part,
Mellon shall not be liable for any action taken, suffered, or omitted by it or
for any error of judgment made by it in the performance of its duties under this
Agreement. Mellon's liability to each Client shall be limited in the aggregate
to an amount equal to (12) times the flat monthly fee to be paid by such Client
as set forth in Exhibit D hereto. In no event will Mellon be liable for special,
indirect, incidental or consequential loss or damages of any kind whatsoever
(including but not limited to lost profits), even if Mellon has been advised of
the possibility of such damages.

         (b) In the event any question or dispute arises with respect to
Mellon's duties hereunder, Mellon shall not be required to act or be held liable
or responsible for its failure or refusal to act until the question or dispute
has been (i) judicially settled (and, if appropriate, Mellon may file a suit in
interpleader or for a declaratory judgment for such purpose) by final judgment
rendered by a court of competent jurisdiction that is binding on all parties
interested in the matter and is no longer subject to review or appeal, or (ii)
settled by a written document in form and substance satisfactory to Mellon and
executed by Client. In addition, Mellon may require for such purpose, but shall
not be obligated to require, the execution of such written settlement by parties
that may have an interest in the settlement.

9.       Force Majeure. Mellon shall not be liable for any failures, delays or
losses, arising directly or indirectly out of conditions beyond its reasonable
control, including, but not limited to, acts of government, exchange or market
ruling, suspension of trading, work stoppages or labor disputes, civil
disobedience, riots, rebellions, electrical or mechanical failure, computer
hardware or software failure, communications facilities failures including
telephone failure, war, fires, earthquakes, storms, floods, acts of God or
similar occurrences.

                                       4
<PAGE>

10.      Market Data. Each Client acknowledges that Mellon may provide real-time
or delayed quotations and other market information and messages ("Market Data"),
which Market Data is provided to Mellon by certain national securities exchanges
and associations who assert a proprietary interest in Market Data disseminated
by them but do not guarantee the timeliness, sequence, accuracy or completeness
thereof. Each Client agrees and acknowledges that Mellon shall not be liable in
any way for any loss or damage arising from or occasioned by any inaccuracy,
error, delay in, omission of, or interruption in any Market Data or the
transmission thereof.

11.      Bankruptcy; Non-payment; Reorganization. Subject to a reasonable
opportunity for Clients to cure, Mellon may suspend transfers and/or terminate
this Agreement with respect to a Client if (i) such Client fails to pay amounts
due or defaults on any of its material obligations hereunder; (ii) any
proceeding in bankruptcy, reorganization, receivership or insolvency is
commenced by or against such Client, such Client shall become insolvent, or
shall cease paying its obligations as they become due or makes any assignment
for the benefit of its creditors; or (iii) such Client is acquired by or is
merged with or into another entity where such Client is not the surviving
company, or such Client sells all or substantially all of its assets. Each
Client agrees that if any of the foregoing events shall occur and such Client
failures to cure, all fees to which Mellon is or shall be entitled hereunder
shall be immediately due and payable to Mellon. Unrealized fees will be
calculated from the termination date to the expiration date of the then current
term based on the services and number of shareholders as of the termination
date.

12.      Notices. All notices, demands and other communications given pursuant
to the terms and provisions hereof shall be in writing, shall be deemed
effective on the date of receipt, and may be sent by facsimile, overnight
delivery services, or by certified or registered mail, return receipt requested
to:

If to a Client:                             with an additional copy to:

(see title page for Client names)           [additional notice name and address]
c/o John Hancock Advisers                   None
101 Huntington Avenue
Boston, MA 02199
Attn: Susan S. Newton
Tel: 617 375 1702
Fax: 617 375 1770

                                       5
<PAGE>

If to Mellon:                                       with an additional copy to:

Mellon Investor Services LLC                        Mellon Investor Services LLC
111 Founders Plaza - 11th Floor                     Overpeck Centre
Hartford, CT 06108                                  85 Challenger Road
Attn: Lynore Leconche                               Ridgefield Park, NJ 07660
Tel: 860-282-3509                                   Attn: Legal Department
Fax: 860-528-6472                                   Tel: 201-373-7155
                                                    Fax: 201-373-7166

13.      Submission to Jurisdiction; Foreign Law.

         (a) Each Client hereby irrevocably submits to the non-exclusive
jurisdiction of any New York State court sitting in New York City or the United
States District Court for the Southern District of New York and any appellate
court from any thereof in any action or proceeding arising out of or relating to
this Agreement, and each Client hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in such New
York State court or in such United States Federal court. Each Client hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of such action or proceeding or a
defense based on the grounds of jurisdiction with respect thereto. Each Client
agrees that, to the fullest extent permitted by applicable laws, a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.

         (b) Mellon is not required hereunder to comply with the laws or
regulations of any country other than the United States of America or any
political subdivision thereof. After consultation with a Client, Mellon may
consult with foreign counsel, at such Client's expense, to resolve any foreign
law issues that may arise as a result of such Client or any other applicable
party being subject to the laws or regulations of any foreign jurisdiction.

14.      Miscellaneous.

         (a) Amendments. This Agreement may not be amended or modified in any
manner except by a written agreement signed by both Clients and Mellon. Clients
and Mellon agree to enter into discussions to amend the Fee Schedule (Exhibit D)
if the number of shareholders increases or decreases by more than 7% in any 12
month period or the nature of services provided materially changes or if Mellon
enters into Transfer Agent contract negotiations with John Hancock Financial
Services, Inc.

         (b) Governing Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.

         (c) Survival of Terms. Sections 5, 7 and 8 hereof shall survive
termination of this Agreement.

                                       6
<PAGE>

         (d) Assignment. This Agreement may not be assigned, or otherwise
transferred, in whole or in part, by either party without the prior written
consent of the other party, which the other party will not unreasonably
withhold, condition or delay. Any attempted assignment in violation of the
foregoing will be void.

         (e) Headings. The headings contained in this Agreement are for the
purposes of convenience only and are not intended to define or limit the
contents of this Agreement.

         (f) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is found to violate a
law, it will be severed from the rest of the Agreement and ignored.

         (g) Counterparts. This Agreement may be executed manually in any number
of counterparts, each of which such counterparts, when so executed and
delivered, shall be deemed an original, and all such counterparts when taken
together shall constitute one and the same original instrument.

         (h) Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and
merges all prior written or oral communications, understandings, and agreements
with respect to the subject matter of this Agreement. The parties acknowledge
that the Exhibits hereto are an integral part of this Agreement.

         (i) Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any person or entity other than Mellon and Clients any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of Mellon and Clients.

15.      Confidentiality.

         (a) Mellon and each Client agree that they will not, at any time during
the term of this Agreement or after its termination, reveal, divulge, or make
known to any person, firm, corporation or other business organization, any
lists, trade secrets, cost figures and projections, profit figures and
projections, or any other secret or confidential information whatsoever, whether
of Mellon or of a Client, used or gained by Mellon or a Client during
performance under this Agreement. Each Client and Mellon further covenant and
agree to retain all such knowledge and information acquired during and after the
term of this Agreement respecting such lists, trade secrets, or any secret or
confidential information whatsoever in trust for the sole benefit of Mellon or
the Client and their successors and assigns. The above prohibition of disclosure
shall not apply to the extent that Mellon must disclose such data to its
sub-contractor or Client agent for purposes of providing services under this
Agreement, however, such sub-contractor shall be bound by the provisions of this
Section.

         (b) In the event that any requests or demands are made for the
inspection of the Shareholder records of the Client, other than request for
records of Shareholders pursuant to standard subpoenas from state or federal
government authorities (e.g., in divorce and criminal actions), Mellon will
endeavor to notify the Client and to secure instructions from an authorized

                                       7
<PAGE>

officer of the Client as to such inspection. Mellon expressly reserves the
right, however, to exhibit the Shareholder records to any person whenever it is
advised by counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person or if required by law or court order.

16.      Privacy of Consumer Information. Whereas, it is reasonably necessary
for Client to furnish to Mellon certain information about Client customers or
prospective customers ("customer information"), to enable Mellon to perform its
services for Client; and Client and/or its representative has provided and/or
will provide customer information to Mellon for the purpose of performing one or
more tasks for Client; and Client is legally required to protect the
confidentiality of customer information; Mellon and Client agree as follows:

         (a) Mellon will not disclose any customer information provided to it by
or on behalf of Client to any affiliated or unaffiliated third party except to
the extent Mellon reasonably believes necessary to satisfy the purpose for which
the customer information was provided to Mellon, and provided that Mellon will
take reasonable efforts to impose on such third party the same confidentiality
requirements that Mellon is required to abide by with respect to the customer
information.

         (b) Mellon will not use customer information for any purpose other than
the specific purpose for which it was provided to Mellon by or on behalf of
Client, and will make customer information available to its employees only as
reasonably necessary to satisfy the purpose for which the customer information
was provided to Mellon.

         (c) Mellon will maintain reasonable security guidelines to ensure its
ability to comply with the requirements of this Section 16.

         (d) This Agreement shall be in addition to any confidentiality
provisions in any existing agreement between the parties; provided, however,
that in the event of a conflict, the provision that provides the most
confidentiality or security protection for customer information shall prevail.

[The remainder of this page has been intentionally left blank. Signature page
follows.]

                                       8
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the day and year above written.

JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I
JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II
JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND
JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND
JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST
JOHN HANCOCK INVESTORS TRUST
JOHN HANCOCK INCOME SECURITIES TRUST
JOHN HANCOCK BANK AND THRIFT OPPORTUNITY FUND

By:    /s/ Susan S. Newton
       ---------------------------------------------
Name:  Susan S. Newton
Title: Senior Vice President and Corporate Secretary

MELLON INVESTOR SERVICES LLC

By:    /s/ Beverly A. Verrico
       ---------------------------------------------
Name:  Beverly A. Verrico
Title: Vice President

                                       9
<PAGE>

[MELLON LOGO]                                                          Exhibit A

                         STOCK SUBJECT TO THE AGREEMENT

<TABLE>
<CAPTION>
                                                              Common Shares
                                                         Number of Authorized &
                  Client Name                                issued Shares
- -------------------------------------------------------------------------------
<S>                                                      <C>
JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I                  14,979,601

JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II                 15,002,724

JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND                   7,257,200

JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND                      8,334,700

JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST                     9,885,027

JOHN HANCOCK INVESTORS TRUST                                   7,978,242

JOHN HANCOCK INCOME SECURITIES TRUST                          10,898,374

JOHN HANCOCK BANK AND THRIFT OPPORTUNITY FUND                 84,400,000
</TABLE>

                                      A-1
<PAGE>

[MELLON LOGO]                                                          Exhibit B

                             SERVICES TO BE PROVIDED

Account Maintenance Functions

- -        Opening new accounts

- -        Posting debits and credits

- -        Maintaining certificate history

- -        Placing and releasing stop transfer notations

- -        Consolidating accounts

- -        Coding accounts requiring special handling (e.g. "bad address," "do not
         mail," "VIP," etc.)

- -        Processing address changes

- -        Responding to shareholder correspondence

- -        Providing a dedicated toll-free phone number for shareholder inquiries

- -        Obtaining and posting Taxpayer Identification Number certifications
         pursuant to IDTCA regulations

- -        Maintaining inactive accounts for the purpose of research and tax
         reporting

- -        Closing (purging) inactive accounts that meet selective criteria

- -        Providing Client and its shareholders with on-line access to
         shareholder records

- -        Training on all aspects of Mellon's stock transfer system

- -        Create and generate management reports which Client and Mellon agree
         upon.

- -        Handle buck-slip inserts into statements or privacy statement and or
         special mailings.

Security Issuance Functions

- -        Qualifying under the rules of the NYSE and NASDAQ/AMEX to act in the
         dual capacity as transfer agent and registrar

- -        Maintaining mail and window facilities for the receipt of transfer
         requests

- -        Maintaining and securing unissued certificate inventory and supporting
         documents

- -        Examining issuance or transfer requests to ensure that proper authority
         is being exercised

- -        Verifying (to the extent possible) that surrendered certificates are
         genuine and have not been altered

- -        Verifying that original issuances are properly authorized and have
         necessary regulatory approval

                                      B-1
<PAGE>

- -        In connection with requests for transfer, verifying that Shares issued
         equal the amount surrendered

- -        Place and remove stop orders on Shares

- -        Verifying that no stop orders are held against Shares submitted for
         transfer

- -        Issuing and registering new securities

- -        Recording canceled and issued securities

- -        Canceling surrendered certificates

- -        Delivering completed transfers

- -        Processing restricted and legal transfers upon presentment of
         appropriate supporting documentation

- -        Preparing daily transfer or management summary journals

- -        Replacing lost, destroyed or stolen certificates provided that Mellon
         is in receipt of (a) evidence acceptable to it of the loss, theft or
         destruction, and (b) a surety bond acceptable to Mellon sufficient to
         indemnify and hold it and Client harmless (charge imposed on
         shareholder)

Proxy and Annual Meeting Functions

- -        Assisting in annual meeting planning

- -        Processing and mailing proxy material and Annual Report

- -        Tabulating physical proxies (both scanner and manual) returned by
         shareholders

- -        Identifying shareholders who will attend the Annual Meeting

- -        Providing Inspector(s) of Election for the Annual Meeting

- -        Supporting efforts of any proxy solicitor

- -        Preparing certified list of record date holders

- -        Preparing report of final vote

- -        Providing remote access to proxy tabulation system

- -        Maintaining an automated link with (i) DTC to redistribute record date
         Cede & Co. share positions to participants and (ii) ADP to receive
         transmissions of broker votes

- -        Processing omnibus proxies for respondent banks

Cash Dividend Disbursement Functions (If Applicable)

- -        Disburse regularly scheduled dividends for each fund as outlined in
         Exhibit D hereto

- -        Preparing and mailing checks

- -        Reconciling checks

- -        Preparing payment register in list form

- -        Withholding and filing taxes for non-resident aliens and others

- -        Filing federal tax information returns

- -        Processing "B" and "C" notices received from the IRS

- -        Mailing required statements (Form 1099DIV or Form 1042) to registered
         holders

                                      B-2
<PAGE>

- -        Maintaining stop payment files and issuing replacement checks

- -        Maintaining separate dividend addresses

- -        Receiving, verifying and posting funds to cover entire dividend
         distribution on mailing date of checks

Escheatment Services

- -        Taking all necessary steps to establish compliance with the unclaimed
         property requirements of all jurisdictions that may have a claim on
         escheatable property held by your organization

- -        Identifying specific records and property subject to reporting based
         upon current state statutes, rules, and regulations

- -        Executing state mandated due diligence mailings for lost property
         owners as required, organizing records into acceptable formats for
         reporting, and remitting property due each state when and as required

- -        Obtaining penalty and interest release agreements and indemnification
         from future claim agreements (on property remitted) from the states
         that offer such agreements

- -        Identifying all property that has become escheatable since the last
         filing date

- -        Reviewing the applicable state regulations to determine if there have
         been any changes in reporting procedures

- -        Reporting and remitting to each state when and as required

- -        Executing a mailing to all accounts with uncashed checks or RPO
         certificates as required by state laws

- -        Executing SEC mandated lost shareholder database searches

Quality Standards

- -        Establish mutually agreed upon set of service performance standards.

- -        Provide client with monthly service performance reports and formal
         quarterly service performance reports for review by Board of Trustees.

                                      B-3
<PAGE>

Other Services (Optional Services - Subject to additional fees):

- -        ACH, Direct Deposit Services

- -        Bank/Broker Distributions

- -        Confidential Proxy Voting

- -        Corporate Stock Buy-Backs

- -        Custodial Services

- -        Direct Purchase & Dividend Reinvestment Services

- -        Direct Registration System/Profile Services

- -        Dividends - special cash dividends

- -        Solicitation, processing and maintenance of consents for electronic
         distribution of materials

- -        Electronic distribution of material

- -        Electronic Proxy Voting (e.g. telephone, internet, intranet)

- -        Employee Stock Option Plan administration

- -        Employee Stock Purchase Plan Administration

- -        Escrow Services

- -        Exchanges or Tender Offers

- -        Foreign Tax Re-claim

- -        Solicitation, processing and maintenance of consents for delivery of
         materials to households

- -        Logistics services including document transportation, fulfillment,
         printing and media placement

- -        Mailing Quarterly or Periodic Reports

- -        Maintaining Mail Lists

- -        Odd-Lot Programs

- -        Proxy Solicitation

- -        Secondary Offerings or Closings

- -        Special Meetings

- -        Standby Rights Agency

- -        Stock Splits and Stock Dividends

- -        StockWatch (beneficial owner identification)

- -        Subscription Agent Services

- -        Survey Tabulation

- -        Warrant Agency

                                      B-4
<PAGE>

[MELLON LOGO]                                                          Exhibit C

              DOCUMENTS AND NOTIFICATIONS TO BE DELIVERED TO MELLON

                        UPON EXECUTION OF THIS AGREEMENT

Client shall provide Mellon with the following:

1.       An adequate supply of Share certificates.

2.       A copy of the resolutions adopted by the Board of Directors of Client
         appointing or authorizing the appointment of Mellon as Transfer Agent
         and/or Registrar and Dividend Disbursing Agent, as the case may be,
         duly certified by the Secretary or Assistant Secretary of Client under
         the corporate seal.

3.       A copy of the Certificate of Incorporation of Client, and all
         amendments thereto, certified by the Secretary of State of the state of
         incorporation.

4.       A copy of the By-laws of Client as amended to date, duly certified by
         the Secretary of Client under the corporate seal.

5.       A certificate of the Secretary or an Assistant Secretary of Client,
         under its corporate seal, stating that:

         a) this Agreement has been executed and delivered pursuant to the
         authority of Client's Board of Directors;

         b) the attached specimen Share certificate(s) are in substantially the
         form submitted to and approved by Client's Board of Directors for
         current use and the attached specimen Share certificates for each Class
         of Stock with issued and outstanding Shares are in the form previously
         submitted to and approved by Client's Board of Directors for past use;

         c) the attached list of existing agreements pursuant to which Shares
         have been reserved for future issuance specifying the number of
         reserved Shares subject to each such existing agreement and the
         substantive provisions thereof, is true and complete, or no Shares have
         been reserved for future issuance.

         d) each shareholder list provided is true and complete (such
         certification may state that it is based upon the certification of the
         predecessor Transfer Agent or predecessor Registrar that prepared the
         list) or no Shares are outstanding;

         e) the name of each stock exchange upon which any of the Shares are
         listed and the number and identity of the Shares so listed;

         f) the name and address of each co-Transfer Agent, Registrar (other
         than Mellon) or co-Registrar for any of the Shares and the extent of
         its appointment, or there are no co-Transfer Agents, Registrars (other
         than Mellon) or co-Registrars for any of the Shares; and

                                      C-1
<PAGE>

         g) the officer(s) of Client, who executed this Agreement as well as any
         certificates or papers delivered to Mellon pursuant to this Agreement,
         were validly elected to, and the incumbents of, the offices they
         purported to hold at the time of such execution and delivery, and that
         their signatures on all documentation are genuine; and upon which is
         subscribed a certificate of an officer of Client, other than the
         officer executing the certificate of the Secretary, stating that the
         person who executed the certificate of the Secretary was validly
         elected to, and is the Secretary or an Assistant Secretary of Client
         and that his signature on the certificate is genuine.

6.       A shareholder list, preferably in machine readable format, certified as
         true and complete by the person preparing the list, for the issued and
         outstanding Shares, setting forth as to each holder, his/her name and
         address, tax identification number certified by the shareholder
         pursuant to requirements of the Internal Revenue Code and applicable
         regulations, the number of Shares held, the Share certificate numbers
         and the existence of any stop orders or other transfer restrictions.

7.       Opinion of in-house counsel for Client, addressed to Mellon, to the
         effect that:

         a) the Shares issued and outstanding on the date hereof have been duly
         authorized, validly issued and are fully paid and are non-assessable;

         b) the Shares issued and outstanding on the date hereof have been duly
         registered under the Securities Act of 1933, as amended, and such
         registration has become effective, or are exempt from such
         registration; and have been duly registered under the Securities
         Exchange Act of 1934, as amended, or are exempt from such registration;

         c) Client has paid or caused to be paid all taxes, if any, which were
         payable upon or in respect of the original issuance of the Shares
         issued and outstanding on the date hereof; and

         d) the execution and delivery of this Agreement and the issuance of the
         Shares do not and will not conflict with, violate, or result in a
         breach of, the terms, conditions or provisions of, or constitute a
         default under, the charter or the by-laws of Client, any law or
         regulation, any order or decree of any court or public authority having
         jurisdiction, or any mortgage, indenture, contract, agreement or
         undertaking to which Client is a party or by which it is bound and this
         Agreement is enforceable against Client in accordance with it terms,
         except as limited by bankruptcy, insolvency, moratorium, reorganization
         and other similar laws affecting the enforcement of creditors' rights
         generally.

8.       A completed Internal Revenue Service Form 2678.

                                      C-2
<PAGE>

                             NOTIFICATION OF CHANGES

Client shall promptly notify Mellon of the following:

1.       Any change in the name of Client, amendment of its certificate of
         incorporation or its by-laws;

2.       Any change in the title of a Class of Stock from that set forth in the
         first column of Exhibit A;

3.       Any change in the Number of Authorized Shares from that set forth in
         the second column of Exhibit A;

4.       Any change in existing agreements or any entry into new agreements
         changing the Number of Authorized Shares Reserved for Future Issuance
         Under Existing Agreements from that listed in the fourth column of
         Exhibit A hereto;

5.       Any change in the number of outstanding Shares subject to stop orders
         or other transfer limitations;

6.       The listing or delisting of any Shares on any stock exchange;

7.       The appointment after the date hereof of any co-Transfer Agent,
         Registrar (other than Mellon) or any co-Registrar for any of the
         Shares;

8.       The merger of Client into, or the consolidation of Client with, or the
         sale or other transfer of the assets of Client substantially as an
         entirety to, another person; or the merger or consolidation of another
         person into or with Client; and

9.       Any other change in the affairs of Client of which Mellon must have
         knowledge to perform properly its duties under this Agreement.

                                      C-3
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                  FEE SCHEDULE
                                       TO
                  JOHN HANCOCK BANK & thrift opportunities Fund

Initial Term of Agreement:              Two (2) Years

<TABLE>
<S>                                                                   <C>
Annual Administrative Fee:                                            $ 10,000
Annual Dividend Reinvestment Administrative Fee:                      $  6,300
Annual Fee Per Active Shareholder Account:                            $   2.50
Annual Fee Per Inactive Shareholder Account:                          $   1.00
Annual Fee Per Dividend Reinvestment Account:                         $   4.00

The above fee will be charged for all services listed in Exhibit B
and will be subject to the following annual allowances and
additional charges:

Number of active accounts maintained                                     1,487
Number of option items processed                                            50
Number of restricted items processed                                        25
Number of legal items processed                                             10
Number of mailings per year (including one enclosure)                        1
Number of cash dividends paid per fiscal year                                1
Number of semi-annual report mailings                                        2
Number of reports, analyses, list or labels                                  6
Number of Inspectors of Election                                             1
Number of respondent bank omnibus proxies                                   15
Number of certificates issued and book-entry credits                        10
Number of certificates cancelled and book-entry debits                     300
Number of DWACS                                                             25
Number of shareholder telephone calls handled by Interactive
  Voice Response System                                                     50
Number of shareholder telephone calls transferred out of the IVR to
  a Customer Service Representative                                        500
Number of shareholder written or E-mail inquiries                           25
Number of Investor ServiceDirect? transactions                              50
Number of state mandated due diligence mailings for lost property,
  as required                                                               25
Number of SEC mandated lost shareholder database searches                   25
</TABLE>

                                      D-1
<PAGE>

[MELLON LOGO]                                                          Exhibit D

To the extent the above annual allowances are exceeded, the following unit fees
will apply:

<TABLE>
<S>                                                               <C>
For each active account maintained (per year)                                     $    2.50
For each inactive account maintained                              40% of active account fee
For each option issued                                                            $   25.00
For each legal item processed                                                     $   50.00
Mailings                                                                       See Attached
Lists / Labels / Analyses                                                      See Attached
For each additional Inspector of Election                                         $1,500.00
For each respondent bank omnibus proxy                                            $  100.00
For each DWAC delivery                                                            $   25.00
For each certificate issued or cancelled                                          $    2.00
For each book-entry credit or debit posted                                        $    1.50
For each shareholder telephone call via CSR                                       $    5.25
For each shareholder telephone call via IVR                                       $    1.50
For each correspondence responding to a shareholder                               $   15.00
For each Investor ServiceDirect transaction                                       $    1.50
For each stop maintained on a lost certificate (per month)                        $    0.05
For each stop removed from a lost certificate                                     $    0.05
For each stop placed on or removed from a restricted security                     $   50.00
</TABLE>

For the purposes of this agreement the following definitions apply:

1.       Investor ServiceDirect (ISD) transactions will include any shareholder
         transaction initiated through ISD including, but not limited to, the
         following:

         -        Purchasing or selling shares

         -        Duplicate 1099 requests

         -        Updating or changing consent to electronic delivery

         -        Forms or document requests

         -        Taxpayer certification

         -        Certificate issuance

         -        Update dividend reinvestment selection

         -        Duplicate book entry statement

         -        PIN change

2.       Active and Inactive accounts will be defined as follows:

         -        Active accounts are defined as accounts with a share balance
                  greater than zero or outstanding cash balances or taxable
                  income that has not yet been reported to the Internal Revenue
                  Service.

                                      D-2
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                  FEE SCHEDULE
                                       TO
                      JOHN HANCOCK INCOME SECURITIES TRUST

Initial Term of Agreement:              Two (2) Years

<TABLE>
<S>                                                                   <C>
Annual Administrative Fee:                                            $ 18,000
Annual Dividend Reinvestment Administrative Fee:                      $  7,500
Annual Fee Per Active Shareholder Account:                            $   2.50
Annual Fee Per Inactive Shareholder Account:                          $   1.00
Annual Fee Per Dividend Reinvestment Account:                         $   4.00

The above fee will be charged for all services listed in Exhibit B
and will be subject to the following annual allowances and
additional charges:

Number of active accounts maintained                                     5,132
Number of option items processed                                            50
Number of restricted items processed                                        25
Number of legal items processed                                             75
Number of mailings per year (including one enclosure)                        1
Number of cash dividends paid per fiscal year                                4
Number of semi-annual report mailings                                        2
Number of reports, analyses, list or labels                                  6
Number of Inspectors of Election                                             1
Number of respondent bank omnibus proxies                                   15
Number of certificates issued and book-entry credits                       150
Number of certificates cancelled and book-entry debits                     900
Number of DWACS                                                             25
Number of shareholder telephone calls handled by Interactive
  Voice Response System                                                     50
Number of shareholder telephone calls transferred out of the IVR
  to a Customer Service                                                    800
Representative
Number of shareholder written or E-mail inquiries                          100
Number of Investor ServiceDirect? transactions                              50
Number of state mandated due diligence mailings for lost property,
  as required                                                               25
Number of SEC mandated lost shareholder database searches                   25
</TABLE>

                                      D-3
<PAGE>

[MELLON LOGO]                                                          Exhibit D

To the extent the above annual allowances are exceeded, the following unit fees
will apply:

<TABLE>
<S>                                                                 <C>
For each active account maintained (per year)                                       $    2.50
For each inactive account maintained                                40% of active account fee
For each option issued                                                              $   25.00
For each legal item processed                                                       $   50.00
Mailings                                                                         See Attached
Lists / Labels / Analyses                                                        See Attached
For each additional Inspector of Election                                           $1,500.00
For each respondent bank omnibus proxy                                              $  100.00
For each DWAC delivery                                                              $   25.00
For each certificate issued or cancelled                                            $    2.00
For each book-entry credit or debit posted                                          $    1.50
For each shareholder telephone call via CSR                                         $    5.25
For each shareholder telephone call via IVR                                         $    1.50
For each correspondence responding to a shareholder                                 $   15.00
For each Investor ServiceDirect transaction                                         $    1.50
For each stop maintained on a lost certificate (per month)                          $    0.05
For each stop removed from a lost certificate                                       $    0.05
For each stop placed on or removed from a restricted security                       $   50.00
</TABLE>

For the purposes of this agreement the following definitions apply:

1.       Investor ServiceDirect (ISD) transactions will include any shareholder
         transaction initiated through ISD including, but not limited to, the
         following:

         -        Purchasing or selling shares

         -        Duplicate 1099 requests

         -        Updating or changing consent to electronic delivery

         -        Forms or document requests

         -        Taxpayer certification

         -        Certificate issuance

         -        Update dividend reinvestment selection

         -        Duplicate book entry statement

         -        PIN change

2.       Active and Inactive accounts will be defined as follows:

         -        Active accounts are defined as accounts with a share balance
                  greater than zero or outstanding cash balances or taxable
                  income that has not yet been reported to the Internal Revenue
                  Service.

                                      D-4
<PAGE>

[MELLON LOGO]                                                          Exhibit D

         -        Inactive accounts are defined as accounts with a share balance
                  equal to zero and no outstanding cash balances and no taxable
                  income to be reported to the Internal Revenue Service.

                                      D-5
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                  FEE SCHEDULE
                                       TO
                          JOHN HANCOCK INVESTORS TRUST

Initial Term of Agreement:              Two (2) Years

<TABLE>
<S>                                                                 <C>
Annual Administrative Fee:                                          $  18,000
Annual Dividend Reinvestment Administrative Fee:                    $   7,500
Annual Fee Per Active Shareholder Account:                          $    2.50
Annual Fee Per Inactive Shareholder Account:                        $    1.00
Annual Fee Per Dividend Reinvestment Account:                       $    4.00

The above fee will be charged for all services listed in Exhibit B
and will be subject to the following annual allowances and
additional charges:

Number of active accounts maintained                                    4,428
Number of option items processed                                           50
Number of restricted items processed                                       25
Number of legal items processed                                            75
Number of mailings per year (including one enclosure)                       1
Number of cash dividends paid per fiscal year                               4
Number of semi-annual report mailings                                       2
Number of reports, analyses, list or labels                                 6
Number of Inspectors of Election                                            1
Number of respondent bank omnibus proxies                                  15
Number of certificates issued and book-entry credits                    1,000
Number of certificates cancelled and book-entry debits                    900
Number of DWACS                                                            25
Number of shareholder telephone calls handled by Interactive
  Voice Response System                                                    50
Number of shareholder telephone calls transferred out of the IVR
  to a Customer Service Representative                                    800
Number of shareholder written or E-mail inquiries                         100
Number of Investor ServiceDirect? transactions                             50
Number of state mandated due diligence mailings for lost
  property, as required                                                    25
Number of SEC mandated lost shareholder database searches                  25
</TABLE>

                                      D-6
<PAGE>

[MELLON LOGO]                                                          Exhibit D

To the extent the above annual allowances are exceeded, the following unit fees
will apply:

<TABLE>
<S>                                                               <C>
For each active account maintained (per year)                                     $    2.50
For each inactive account maintained                              40% of active account fee
For each option issued                                                            $   25.00
For each legal item processed                                                     $   50.00
Mailings                                                                       See Attached
Lists / Labels / Analyses                                                      See Attached
For each additional Inspector of Election                                         $1,500.00
For each respondent bank omnibus proxy                                            $  100.00
For each DWAC delivery                                                            $   25.00
For each certificate issued or cancelled                                          $    2.00
For each book-entry credit or debit posted                                        $    1.50
For each shareholder telephone call via CSR                                       $    5.25
For each shareholder telephone call via IVR                                       $    1.50
For each correspondence responding to a shareholder                               $   15.00
For each Investor ServiceDirect transaction                                       $    1.50
For each stop maintained on a lost certificate (per month)                        $    0.05
For each stop removed from a lost certificate                                     $    0.05
For each stop placed on or removed from a restricted security                     $   50.00
</TABLE>

For the purposes of this agreement the following definitions apply:

1.       Investor ServiceDirect (ISD) transactions will include any shareholder
         transaction initiated through ISD including, but not limited to, the
         following:

         -        Purchasing or selling shares

         -        Duplicate 1099 requests

         -        Updating or changing consent to electronic delivery

         -        Forms or document requests

         -        Taxpayer certification

         -        Certificate issuance

         -        Update dividend reinvestment selection

         -        Duplicate book entry statement

         -        PIN change

2.       Active and Inactive accounts will be defined as follows:

         -        Active accounts are defined as accounts with a share balance
                  greater than zero or outstanding cash balances or taxable
                  income that has not yet been reported to the Internal Revenue
                  Service.

                                      D-7
<PAGE>

[MELLON LOGO]                                                          Exhibit D

         -        Inactive accounts are defined as accounts with a share balance
                  equal to zero and no outstanding cash balances and no taxable
                  income to be reported to the Internal Revenue Service.

                                      D-8
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                  FEE SCHEDULE
                                       TO
                    JOHN HANCOCK PATRIOT GLOBAL DIVIDEND FUND

Initial Term of Agreement:              Two (2) Years

<TABLE>
<S>                                                                  <C>
Annual Administrative Fee:                                           $  12,000
Annual Dividend Reinvestment Administrative Fee:                     $  10,000
Annual Fee Per Active Shareholder Account:                           $    2.50
Annual Fee Per Inactive Shareholder Account:                         $    1.00
Annual Fee Per Dividend Reinvestment Account:                        $    4.00

The above fee will be charged for all services listed in Exhibit B
and will be subject to the following annual allowances and
additional charges:

Number of active accounts maintained                                       444
Number of option items processed                                            50
Number of restricted items processed                                        25
Number of legal items processed                                             25
Number of mailings per year (including one enclosure)                        1
Number of cash dividends paid per fiscal year                               12
Number of semi-annual report mailings                                        2
Number of reports, analyses, list or labels                                  6
Number of Inspectors of Election                                             1
Number of respondent bank omnibus proxies                                   15
Number of certificates issued and book-entry credits                        15
Number of certificates cancelled and book-entry debits                     150
Number of DWACS                                                             25
Number of shareholder telephone calls handled by Interactive
  Voice Response System                                                     50
Number of shareholder telephone calls transferred out of the
  IVR to a Customer Service Representative                                 150
Number of shareholder written or E-mail inquiries                           50
Number of Investor ServiceDirect? transactions                              50
Number of state mandated due diligence mailings for lost
  property, as required                                                     25
Number of SEC mandated lost shareholder database searches                   25
</TABLE>

                                      D-9
<PAGE>

[MELLON LOGO]                                                          Exhibit D

To the extent the above annual allowances are exceeded, the following unit fees
will apply:

<TABLE>
<S>                                                               <C>
For each active account maintained (per year)                                     $    2.50
For each inactive account maintained                              40% of active account fee
For each option issued                                                            $   25.00
For each legal item processed                                                     $   50.00
Mailings                                                                       See Attached
Lists / Labels / Analyses                                                      See Attached
For each additional Inspector of Election                                         $1,500.00
For each respondent bank omnibus proxy                                            $  100.00
For each DWAC delivery                                                            $   25.00
For each certificate issued or cancelled                                          $    2.00
For each book-entry credit or debit posted                                        $    1.50
For each shareholder telephone call via CSR                                       $    5.25
For each shareholder telephone call via IVR                                       $    1.50
For each correspondence responding to a shareholder                               $   15.00
For each Investor ServiceDirect transaction                                       $    1.50
For each stop maintained on a lost certificate (per month)                        $    0.05
For each stop removed from a lost certificate                                     $    0.05
For each stop placed on or removed from a restricted security                     $   50.00
</TABLE>

For the purposes of this agreement the following definitions apply:

1.       Investor ServiceDirect (ISD) transactions will include any shareholder
         transaction initiated through ISD including, but not limited to, the
         following:

         -        Purchasing or selling shares

         -        Duplicate 1099 requests

         -        Updating or changing consent to electronic delivery

         -        Forms or document requests

         -        Taxpayer certification

         -        Certificate issuance

         -        Update dividend reinvestment selection

         -        Duplicate book entry statement

         -        PIN change

2.       Active and Inactive accounts will be defined as follows:

         -        Active accounts are defined as accounts with a share balance
                  greater than zero or outstanding cash balances or taxable
                  income that has not yet been reported to the Internal Revenue
                  Service.

                                      D-10
<PAGE>

[MELLON LOGO]                                                          Exhibit D

         -        Inactive accounts are defined as accounts with a share balance
                  equal to zero and no outstanding cash balances and no taxable
                  income to be reported to the Internal Revenue Service.

                                      D-11
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                  FEE SCHEDULE
                                       TO
                  JOHN HANCOCK PATRIOT PREFERRED DIVIDEND FUND

Initial Term of Agreement:              Two (2) Years

<TABLE>
<S>                                                                  <C>
Annual Administrative Fee:                                           $  12,500
Annual Dividend Reinvestment Administrative Fee:                     $  10,000
Annual Fee Per Active Shareholder Account:                           $    2.50
Annual Fee Per Inactive Shareholder Account:                         $    1.00
Annual Fee Per Dividend Reinvestment Account:                        $    4.00

The above fee will be charged for all services listed in Exhibit B
and will be subject to the following annual allowances and
additional charges:

Number of active accounts maintained                                       681
Number of option items processed                                            50
Number of restricted items processed                                        25
Number of legal items processed                                             25
Number of mailings per year (including one enclosure)                        1
Number of cash dividends paid per fiscal year                               12
Number of semi-annual report mailings                                        2
Number of reports, analyses, list or labels                                  6
Number of Inspectors of Election                                             1
Number of respondent bank omnibus proxies                                   15
Number of certificates issued and book-entry credits                        10
Number of certificates cancelled and book-entry debits                     150
Number of DWACS                                                             25
Number of shareholder telephone calls handled by Interactive
  Voice Response System                                                     50
Number of shareholder telephone calls transferred out of the
  IVR to a Customer Service Representative                                 150
Number of shareholder written or E-mail inquiries                           50
Number of Investor ServiceDirect? transactions                              50
Number of state mandated due diligence mailings for lost
  property, as required                                                     25
Number of SEC mandated lost shareholder database searches                   25
</TABLE>

                                      D-12
<PAGE>

[MELLON LOGO]                                                          Exhibit D

To the extent the above annual allowances are exceeded, the following unit fees
will apply:

<TABLE>
<S>                                                             <C>
For each active account maintained (per year)                                   $    2.50
For each inactive account maintained                            40% of active account fee
For each option issued                                                          $   25.00
For each legal item processed                                                   $   50.00
Mailings                                                                     See Attached
Lists / Labels / Analyses                                                    See Attached
For each additional Inspector of Election                                       $1,500.00
For each respondent bank omnibus proxy                                          $  100.00
For each DWAC delivery                                                          $   25.00
For each certificate issued or cancelled                                        $    2.00
For each book-entry credit or debit posted                                      $    1.50
For each shareholder telephone call via CSR                                     $    5.25
For each shareholder telephone call via IVR                                     $    1.50
For each correspondence responding to a shareholder                             $   15.00
For each Investor ServiceDirect transaction                                     $    1.50
For each stop maintained on a lost certificate (per month)                      $    0.05
For each stop removed from a lost certificate                                   $    0.05
For each stop placed on or removed from a restricted security                   $   50.00
</TABLE>

For the purposes of this agreement the following definitions apply:

1.       Investor ServiceDirect (ISD) transactions will include any shareholder
         transaction initiated through ISD including, but not limited to, the
         following:

         -        Purchasing or selling shares

         -        Duplicate 1099 requests

         -        Updating or changing consent to electronic delivery

         -        Forms or document requests

         -        Taxpayer certification

         -        Certificate issuance

         -        Update dividend reinvestment selection

         -        Duplicate book entry statement

         -        PIN change

2.       Active and Inactive accounts will be defined as follows:

         -        Active accounts are defined as accounts with a share balance
                  greater than zero or outstanding cash balances or taxable
                  income that has not yet been reported to the Internal Revenue
                  Service.

                                      D-13
<PAGE>

[MELLON LOGO]                                                          Exhibit D

         -        Inactive accounts are defined as accounts with a share balance
                  equal to zero and no outstanding cash balances and no taxable
                  income to be reported to the Internal Revenue Service.

                                      D-14
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                  FEE SCHEDULE
                                       TO
                  JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND I

Initial Term of Agreement:              Two (2) Years

<TABLE>
<S>                                                                   <C>
Annual Administrative Fee:                                            $ 12,500
Annual Dividend Reinvestment Administrative Fee:                      $ 10,000
Annual Fee Per Active Shareholder Account:                            $   2.50
Annual Fee Per Inactive Shareholder Account:                          $   1.00
Annual Fee Per Dividend Reinvestment Account:                         $   4.00

The above fee will be charged for all services listed in Exhibit B
and will be subject to the following annual allowances and
additional charges:

Number of active accounts maintained                                     1,299
Number of option items processed                                            50
Number of restricted items processed                                        25
Number of legal items processed                                             25
Number of mailings per year (including one enclosure)                        1
Number of cash dividends paid per fiscal year                               12
Number of semi-annual report mailings                                        2
Number of reports, analyses, list or labels                                  6
Number of Inspectors of Election                                             1
Number of respondent bank omnibus proxies                                   15
Number of certificates issued and book-entry credits                        20
Number of certificates cancelled and book-entry debits                     300
Number of DWACS                                                             25
Number of shareholder telephone calls handled by Interactive
  Voice Response System                                                     50
Number of shareholder telephone calls transferred out of the
  IVR to a Customer Service Representative                                 400
Number of shareholder written or E-mail inquiries                           80
Number of Investor ServiceDirect? transactions                              50
Number of state mandated due diligence mailings for lost
  property, as required                                                     25
Number of SEC mandated lost shareholder database searches                   25
</TABLE>

                                      D-15
<PAGE>

[MELLON LOGO]                                                          Exhibit D

To the extent the above annual allowances are exceeded, the following unit fees
will apply:

<TABLE>
<S>                                                               <C>
For each active account maintained (per year)                                     $    2.50
For each inactive account maintained                              40% of active account fee
For each option issued                                                            $   25.00
For each legal item processed                                                     $   50.00
Mailings                                                                       See Attached
Lists / Labels / Analyses                                                      See Attached
For each additional Inspector of Election                                         $1,500.00
For each respondent bank omnibus proxy                                            $  100.00
For each DWAC delivery                                                            $   25.00
For each certificate issued or cancelled                                          $    2.00
For each book-entry credit or debit posted                                        $    1.50
For each shareholder telephone call via CSR                                       $    5.25
For each shareholder telephone call via IVR                                       $    1.50
For each correspondence responding to a shareholder                               $   15.00
For each Investor ServiceDirect transaction                                       $    1.50
For each stop maintained on a lost certificate (per month)                        $    0.05
For each stop removed from a lost certificate                                     $    0.05
For each stop placed on or removed from a restricted security                     $   50.00
</TABLE>

For the purposes of this agreement the following definitions apply:

1.       Investor ServiceDirect (ISD) transactions will include any shareholder
         transaction initiated through ISD including, but not limited to, the
         following:

         -        Purchasing or selling shares

         -        Duplicate 1099 requests

         -        Updating or changing consent to electronic delivery

         -        Forms or document requests

         -        Taxpayer certification

         -        Certificate issuance

         -        Update dividend reinvestment selection

         -        Duplicate book entry statement

         -        PIN change

2.       Active and Inactive accounts will be defined as follows:

         -        Active accounts are defined as accounts with a share balance
                  greater than zero or outstanding cash balances or taxable
                  income that has not yet been reported to the Internal Revenue
                  Service.

                                      D-16
<PAGE>

[MELLON LOGO]                                                          Exhibit D

         -        Inactive accounts are defined as accounts with a share balance
                  equal to zero and no outstanding cash balances and no taxable
                  income to be reported to the Internal Revenue Service.

                                      D-17
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                  FEE SCHEDULE
                                       TO
                  JOHN HANCOCK PATRIOT PREMIUM DIVIDEND FUND II

Initial Term of Agreement:              Two (2) Years

<TABLE>
<S>                                                                  <C>
Annual Administrative Fee:                                           $  15,000
Annual Dividend Reinvestment Administrative Fee:                     $  10,000
Annual Fee Per Active Shareholder Account:                           $    2.50
Annual Fee Per Inactive Shareholder Account:                         $    1.00
Annual Fee Per Dividend Reinvestment Account:                        $    4.00

The above fee will be charged for all services listed in Exhibit B
and will be subject to the following annual allowances and
additional charges:

Number of active accounts maintained                                       844
Number of option items processed                                            50
Number of restricted items processed                                        25
Number of legal items processed                                             25
Number of mailings per year (including one enclosure)                        1
Number of cash dividends paid per fiscal year                               12
Number of semi-annual report mailings                                        2
Number of reports, analyses, list or labels                                  6
Number of Inspectors of Election                                             1
Number of respondent bank omnibus proxies                                   15
Number of certificates issued and book-entry credits                        10
Number of certificates cancelled and book-entry debits                     200
Number of DWACS                                                             25
Number of shareholder telephone calls handled by Interactive
  Voice Response System                                                     50
Number of shareholder telephone calls transferred out of the
  IVR to a Customer Service Representative                                 300
Number of shareholder written or E-mail inquiries                           50
Number of Investor ServiceDirect? transactions                              50
Number of state mandated due diligence mailings for lost
  property, as required                                                     25
Number of SEC mandated lost shareholder database searches                   25
</TABLE>

                                      D-18
<PAGE>

[MELLON LOGO]                                                          Exhibit D

To the extent the above annual allowances are exceeded, the following unit fees
will apply:

<TABLE>
<S>                                                               <C>
For each active account maintained (per year)                                    $     2.50
For each inactive account maintained                              40% of active account fee
For each option issued                                                            $   25.00
For each legal item processed                                                     $   50.00
Mailings                                                                       See Attached
Lists / Labels / Analyses                                                      See Attached
For each additional Inspector of Election                                         $1,500.00
For each respondent bank omnibus proxy                                            $  100.00
For each DWAC delivery                                                            $   25.00
For each certificate issued or cancelled                                          $    2.00
For each book-entry credit or debit posted                                        $    1.50
For each shareholder telephone call via CSR                                       $    5.25
For each shareholder telephone call via IVR                                       $    1.50
For each correspondence responding to a shareholder                               $   15.00
For each Investor ServiceDirect transaction                                       $    1.50
For each stop maintained on a lost certificate (per month)                        $    0.05
For each stop removed from a lost certificate                                     $    0.05
For each stop placed on or removed from a restricted security                     $   50.00
</TABLE>

For the purposes of this agreement the following definitions apply:

1.       Investor ServiceDirect (ISD) transactions will include any shareholder
         transaction initiated through ISD including, but not limited to, the
         following:

         -        Purchasing or selling shares

         -        Duplicate 1099 requests

         -        Updating or changing consent to electronic delivery

         -        Forms or document requests

         -        Taxpayer certification

         -        Certificate issuance

         -        Update dividend reinvestment selection

         -        Duplicate book entry statement

         -        PIN change

2.       Active and Inactive accounts will be defined as follows:

         -        Active accounts are defined as accounts with a share balance
                  greater than zero or outstanding cash balances or taxable
                  income that has not yet been reported to the Internal Revenue
                  Service.

                                      D-19
<PAGE>

[MELLON LOGO]                                                          Exhibit D

         -        Inactive accounts are defined as accounts with a share balance
                  equal to zero and no outstanding cash balances and no taxable
                  income to be reported to the Internal Revenue Service.

                                      D-20
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                  FEE SCHEDULE
                                       TO
                   JOHN HANCOCK PATRIOT SELECT DIVIDEND TRUST

Initial Term of Agreement:              Two (2) Years

<TABLE>
<S>                                                                 <C>
Annual Administrative Fee:                                          $  12,500
Annual Dividend Reinvestment Administrative Fee:                    $  10,000
Annual Fee Per Active Shareholder Account:                          $    2.50
Annual Fee Per Inactive Shareholder Account:                        $    1.00
Annual Fee Per Dividend Reinvestment Account:                       $    4.00

The above fee will be charged for all services listed in Exhibit B
and will be subject to the following annual allowances and
additional charges:

Number of active accounts maintained                                      846
Number of option items processed                                           50
Number of restricted items processed                                       25
Number of legal items processed                                            25
Number of mailings per year (including one enclosure)                       1
Number of cash dividends paid per fiscal year                              12
Number of semi-annual report mailings                                       2
Number of reports, analyses, list or labels                                 6
Number of Inspectors of Election                                            1
Number of respondent bank omnibus proxies                                  15
Number of certificates issued and book-entry credits                       10
Number of certificates cancelled and book-entry debits                    150
Number of DWACS                                                            25
Number of shareholder telephone calls handled by Interactive
  Voice Response System                                                    50
Number of shareholder telephone calls transferred out of the
  IVR to a Customer Service Representative                                300
Number of shareholder written or E-mail inquiries                          50
Number of Investor ServiceDirect? transactions                             50
Number of state mandated due diligence mailings for lost
  property, as required                                                    25
Number of SEC mandated lost shareholder database searches                  25
</TABLE>

                                      D-21
<PAGE>

[MELLON LOGO]                                                          Exhibit D

To the extent the above annual allowances are exceeded, the following unit fees
will apply:

<TABLE>
<S>                                                              <C>
For each active account maintained (per year)                                    $    2.50
For each inactive account maintained                             40% of active account fee
For each option issued                                                           $   25.00
For each legal item processed                                                    $   50.00
Mailings                                                                      See Attached
Lists / Labels / Analyses                                                     See Attached
For each additional Inspector of Election                                        $1,500.00
For each respondent bank omnibus proxy                                           $  100.00
For each DWAC delivery                                                           $   25.00
For each certificate issued or cancelled                                         $    2.00
For each book-entry credit or debit posted                                       $    1.50
For each shareholder telephone call via CSR                                      $    5.25
For each shareholder telephone call via IVR                                      $    1.50
For each correspondence responding to a shareholder                              $   15.00
For each Investor ServiceDirect transaction                                      $    1.50
For each stop maintained on a lost certificate (per month)                       $    0.05
For each stop removed from a lost certificate                                    $    0.05
For each stop placed on or removed from a restricted security                    $   50.00
</TABLE>

For the purposes of this agreement the following definitions apply:

1.       Investor ServiceDirect (ISD) transactions will include any shareholder
         transaction initiated through ISD including, but not limited to, the
         following:

         -        Purchasing or selling shares

         -        Duplicate 1099 requests

         -        Updating or changing consent to electronic delivery

         -        Forms or document requests

         -        Taxpayer certification

         -        Certificate issuance

         -        Update dividend reinvestment selection

         -        Duplicate book entry statement - PIN change

2.       Active and Inactive accounts will be defined as follows:

         -        Active accounts are defined as accounts with a share balance
                  greater than zero or outstanding cash balances or taxable
                  income that has not yet been reported to the Internal Revenue
                  Service.

                                      D-22
<PAGE>

[MELLON LOGO]                                                          Exhibit D

         -        Inactive accounts are defined as accounts with a share balance
                  equal to zero and no outstanding cash balances and no taxable
                  income to be reported to the Internal Revenue Service.

                                      D-23
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                            LISTS / LABELS / ANALYSES

                                  FEE SCHEDULE

                           (Applicable to all Clients)

<TABLE>
<S>                                                                        <C>
LISTS

     Per name listed                                                       $0.05

LABELS

     Per label printed                                                     $0.05

ANALYSES

     Per name passed on data base                                          $0.02

     Per name listed in report                                             $0.05

(Minimum charge for each of the above services will be $250.)
</TABLE>

                                      D-24
<PAGE>

[MELLON LOGO]                                                          Exhibit D

                                MAILING SERVICES

                                  FEE SCHEDULE

                           (Applicable to all Clients)

<TABLE>
<S>                                                                              <C>
ADDRESSING

     Addressing mailing medium (per name)                                        $0.05

AFFIXING

     Affixing labels (per label)                                                 $0.04

INSERTING

     Inserting Enclosures (Machine)

         1st Enclosure (per piece)                                               $0.05

         2nd Enclosure (per piece)                                               $0.04

         Each Enclosure thereafter (per piece)                                   $0.03

     Inserting Enclosures (Manual)

         Charge will be determined based on analysis of work to be performed.

(Minimum charge for any mailing will be $500.)
</TABLE>

                                      D-25
<PAGE>

[MELLON LOGO]                                                          Exhibit D

EXPENSES AND OTHER CHARGES (Applicable to all Clients)

Fees and Out of Pocket Expenses: The cost of stationery and supplies, including
but not limited to transfer sheets, dividend checks, envelopes, and paper stock,
together with any disbursement for telephone, postage, mail insurance, travel
for annual meeting, link-up charges for ADP and tape charges from DTC are billed
in addition to the above fees. All charges and fees, out of pocket costs,
expenses and disbursements of Mellon are due and payable by Client upon receipt
of an invoice from Mellon.

With respect to any shareholder mailing processed by Mellon, client shall, at
least one business day prior to mail date, provide immediately available funds
sufficient to cover all postage due on such mailing. For any dividend mailing,
client shall, at least one business day prior to the mail date, also provide
immediately available funds sufficient to pay the aggregate amount of dividends
to be paid.

If Client participates in the Direct Registration System, Mellon will provide a
"sell" feature for liquidation of book-entry shares held on behalf of a
shareholder. Upon receipt of a sell request by the registered shareholder,
Mellon Bank, N.A. will process the request and remit the proceeds to the
shareholder in the form of a check (less the appropriate fees). The charge for
each such sale is $15.00 plus $0.12 per share or, if applicable, the fees quoted
in the Client's stock purchase and / or dividend reinvestment plan.

Offering Administration Fee: A minimum fee of $5,000 will be imposed for
activities associated with initial public offerings (IPO's), secondary offerings
and / or closings. The fee covers the coordination of efforts necessary between
Mellon, the Client's underwriters, the banknote company and DTC in order to
effect the closing. This fee will cover the issuance of up to 200 certificates
and /or book-entry credits. Certificates and / or book-entry credits over this
amount will be billed at $2.00 each. This fee is in addition to any fees Mellon
may charge for coordination of selling shareholders, custody services and / or
escrow services.

Conversion: There shall be no charge for converting the Client's files to
Mellon's systemunless extraordinary efforts will be required to complete the
conversion, such as account history conversion or file format conversion. Mellon
will review the conversion requirements and any charge will be discussed with
and approved by the Client prior to work commencing. In addition, if an
out-of-proof condition exists at the time of conversion, and such condition is
not resolved within 90 days of such conversion, Client agrees to provide Mellon
with funds or shares sufficient to resolve the out-of-proof condition promptly
after the 90th day.

Deconversion Fee: In the event Client requests that Mellon provide records to a
successor agent, in connection with the expiration or termination of this
Agreement, Client shall pay Mellon a fee for deconversion services (e.g.,
providing shareholder lists and files, producing and shipping records, answering
successor agent inquiries). This fee will be based on Mellon's then-current

                                      D-26
<PAGE>

[MELLON LOGO]                                                          Exhibit D

deconversion fee schedule. Mellon may withhold the Client's records, reports and
unused certificate stock from a successor agent pending the Client's payment in
full of all fees and expenses owed to Mellon under this Agreement.

Legal, Technological Expenses: Certain expenses may be incurred in resolving
legal matters that arise in the course of performing services hereunder. This
may result in a separate charge to cover Mellon's expenses (including the cost
of external or internal counsel) in resolving such matters; provided that any
legal expenses charged to the Clients shall be reasonable. Mellon shall use best
efforts to consult with Client prior to incurring any material expenses in
accordance with this paragraph.

In the event any Federal regulation and/or state or local law are enacted which
require Mellon to make any technological improvements and/or modifications to
its current system, Client shall compensate Mellon, on a pro rata basis
proportionate to the Client's registered shareholder base, for the costs
associated with making such required technological improvements and/or
modifications.

Record Storage: Monthly fee of $2.50 per box, with a minimum charge of $50.00.

Lost Shareholder Services: A fee of $3.00 will be charged for each lost account
searched per database searched. A fee of $2.50 will be charged per account for
each state mandated due diligence mailing.

Other Services: Fees for any services provided to Client by or on behalf of
Mellon hereunder that are not set forth in Exhibit B hereto or in this Exhibit D
will be based on Mellon's standard fees at the time such services are provided
or, if no standard fees have been established, an appraisal of the work to be
performed.

                                      D-27

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(K)(2)
<SEQUENCE>10
<FILENAME>b48195isexv99wxkyx2y.txt
<DESCRIPTION>ACCOUNTING AND LEGAL SERVICES AGREEMENT
<TEXT>
<PAGE>

                                                                EXHIBIT 99(k)(2)

                                                           As of January 1, 1996

                      ACCOUNTING & LEGAL SERVICES AGREEMENT

John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts  02199

Dear Sir:

The John Hancock Funds listed on Schedule A (the "Funds") have selected John
Hancock Advisers, Inc. (the "Administrator") to provide certain accounting and
legal services for the Funds, as more fully set forth below, and you are willing
to provide such services under the terms and conditions hereinafter set forth.
Accordingly, the Funds agree with you as follows:

1.   Services. Subject to the general supervision of the Board of
     Trustees/Directors of the Funds, you will provide certain tax, accounting
     and legal services (the "Services") to the Funds. You will, to the extent
     such services are not required to be performed by you pursuant to an
     investment advisory agreement, provide:

           (A) such tax, accounting, recordkeeping and financial management
               services and functions as are reasonably necessary for the
               operation of each Fund. Such services shall include, but shall
               not be limited to, supervision, review and/or preparation and
               maintenance of the following books, records and other documents:
               (1) journals containing daily itemized records of all purchases
               and sales, and receipts and deliveries of securities and all
               receipts and disbursements of cash and all other debits and
               credits, in the form required by Rule 31a-1(b) (1) under the Act;
               (2) general and auxiliary ledgers reflecting all asset,
               liability, reserve, capital, income and expense accounts, in the
               form required by Rules 31a-1(b) (2) (i)-(iii) under the Act; (3)
               a securities record or ledger reflecting separately for each
               portfolio security as of trade date all "long" and "short"
               positions carried by each Fund for the account of the Funds, if
               any, and showing the location of all securities long and the
               off-setting position to all securities short, in the form
               required by Rule 31a-1(b) (3) under the Act; (4) a record of all
               portfolio purchases or sales, in the form required by Rule
               31a-1(b) (6) under the Act; (5) a record of all puts, calls,
               spreads, straddles and all other options, if any, in which any
               Fund has any direct or indirect interest or which the Funds have
               granted or guaranteed, in the form required by Rule 31a-1(b) (7)
               under the Act; (6) a record of the proof of money balances in all
               ledger accounts maintained pursuant to this Agreement, in the
               form required by Rule 31a-1(b) (8) under the Act; (7) price
               make-up sheets and such records as are necessary to reflect the
               determination of each Funds' net asset value; and (8) arrange
               for, or participate in (a) the preparation for the Fund of all
               required tax returns, (b) the preparation and submission of
               reports to existing shareholders and (c) the preparation of
               financial data or reports required by the Securities and Exchange
               Commission and other regulatory authorities;

                                        1
<PAGE>

           (B) certain legal services as are reasonably necessary for the
               operation of each Funds. Such services shall include, but shall
               not be limited to; (1) maintenance of each Fund's registration
               statement and federal and state registrations; (2) preparation of
               certain notices and proxy materials furnished to shareholders of
               the Funds; (3) preparation of periodic reports of each Fund to
               regulatory authorities, including Form N-SAR and Rule 24f-2 legal
               opinions; (4) preparation of materials in connection with
               meetings of the Board of Trustees/Directors of the Funds; (5)
               preparation of written contracts, distribution plans, compliance
               procedures, corporate and trust documents and other legal
               documents; (6) research advice and consultation about certain
               legal, regulatory and compliance issues, (7) supervision,
               coordination and evaluation of certain services provided by
               outside counsel.

           (C) provide the Funds with staff and personnel to perform such
               accounting, bookkeeping and legal services as are reasonably
               necessary to effectively service the Fund. Without limiting the
               generality of the foregoing, such staff and personnel shall be
               deemed to include officers of the Administrator, and persons
               employed or otherwise retained by the Administrator to provide or
               assist in providing of the services to the Fund.

           (D) maintain all books and records relating to the foregoing
               services; and

           (E) provide the Funds with all office facilities to perform tax,
               accounting and legal services under this Agreement.

2.   Compensation of the Administrator The Funds shall reimburse the
     Administrator for: (1) a portion of the compensation, including all
     benefits, of officers and employees of the Administrator based upon the
     amount of time that such persons actually spend in providing or assisting
     in providing the Services to the Funds (including necessary supervision and
     review); and (2) such other direct and indirect expenses, including, but
     not limited to, those listed in paragraph (1) above, incurred on behalf of
     the Fund that are associated with the providing of the Services and (3) 10%
     of the reimbursement amount. In no event, however, shall such reimbursement
     exceed levels that are fair and reasonable in light of the usual and
     customary charges made by others for services of the same nature and
     quality. Compensation under this Agreement shall be calculated and paid
     monthly in a arrears.

3.   No Partnership or Joint Venture. The Funds and you are not partners of or
     joint ventures with each other and nothing herein shall be construed so as
     to make you such partners or joint venturers or impose any liability as
     such on any of you.

4.   Limitation of Liability of the Administrator. You shall not be liable for
     any error of judgment or mistake of law or for any loss suffered by the
     Funds in connection with the matters to which this Agreement relates,
     except a loss resulting from willful misfeasance, bad faith or gross
     negligence on your part in the performance of your duties or from reckless
     disregard by you of your obligations and duties under this Agreement. Any
     person, even though also employed by you, who may be or become an employee
     of and paid by the Funds shall be deemed, when acting within the scope of
     his or her employment by the Funds, to be acting in such employment solely
     for the Funds and not as your employee or agent.

                                        2
<PAGE>

5.   Duration and Termination of this Agreement. This Agreement shall remain in
     force until the second anniversary of the date upon which this Agreement
     was executed by the parties hereto, and from year to year thereafter, but
     only so long as such continuance is specifically approved at least annually
     by a majority of the Trustees/Directors. This Agreement may, on 60 days'
     written notice, be terminated at any time without the payment of any
     penalty by the Funds by vote of a majority of the Trustees/Directors, or by
     you. This Agreement shall automatically terminate in the event of its
     assignment.

6.   Amendment of this Agreement. No provision of this Agreement may be changed,
     waived, discharged or terminated orally, but only by an instrument in
     writing signed by the party against which enforcement of the change, waiver
     or termination is sought.

7.   Governing Law. This Agreement shall be governed by and construed in
     accordance with the laws of The Commonwealth of Massachusetts without
     regard to the choice of law provisions thereof.

8.   Miscellaneous. The captions in this Agreement are included for convenience
     of reference only and in no way define or limit any of the provisions
     hereof or otherwise affect their construction or effect. This Agreement may
     be executed simultaneously in two or more counterparts, each of which shall
     be deemed an original, but all of which together shall constitute one and
     the same instrument. A copy of the Declaration of Trust of each Fund
     organized as Massachusetts business trusts is on file with the Secretary of
     State of the Commonwealth of Massachusetts. The obligations of each such
     Fund are not personally binding upon, nor shall resort be had to the
     private property of, any of the Trustees, shareholders, officers, employees
     or agents of the Fund, but only the Fund's property shall be bound.

                                         Yours very truly,

                                          JOHN HANCOCK FUNDS (See Schedule A)

                                          By:  /s/James B. Little
                                               ---------------------------------
                                               James B. Little
                                               Senior Vice President

The foregoing contract
is hereby agreed to as
of the date hereof.

JOHN HANCOCK ADVISERS, INC.

By:  /s/Anne C. Hodsdon
     ----------------------------
     Anne C. Hodsdon
     President

                                        3
<PAGE>

                      ACCOUNTING & LEGAL SERVICES AGREEMENT

                                   SCHEDULE A

as of June 19, 2003

John Hancock Capital Series
 - John Hancock Core Equity Fund
 - John Hancock Classic Value Fund
 - John Hancock U.S. Global Leaders Growth Fund
John Hancock Income Securities Trust
John Hancock Investors Trust
John Hancock Sovereign Bond Fund
 - John Hancock Bond Fund
John Hancock Strategic Series
 - John Hancock Strategic Income Fund
 - John Hancock High Income Fund
John Hancock Tax-Exempt Series Fund
 - John Hancock Massachusetts Tax-Free Income Fund
 - John Hancock New York Tax-Free Income Fund
John Hancock World Fund
 - John Hancock Pacific Basin Equities Fund
 - John Hancock Health Sciences Fund
 - John Hancock Biotechnology Fund
 - John Hancock International Small Cap Growth Fund
John Hancock Series Trust
 - John Hancock Small Cap Growth Fund
 - John Hancock Multi Cap Growth Fund
 - John Hancock 500 Index Fund
 - John Hancock Real Estate Fund
 - John Hancock Focused Equity Fund
John Hancock Institutional Series Trust
 - John Hancock Dividend Performers Fund
 - John Hancock Focused Small Cap Growth Fund
 - John Hancock Independence Diversified Core Equity Fund II
John Hancock Bond Trust
 - John Hancock Government Income Fund
 - John Hancock High Yield Bond Fund
 - John Hancock Investment Grade Bond Fund
John Hancock California Tax-Free Income Fund
John Hancock Current Interest
 - John Hancock Money Market Fund
 - John Hancock U.S. Government Cash Reserve
John Hancock Investment Trust
 - John Hancock Large Cap Equity Fund
 - John Hancock Sovereign Investors Fund
 - John Hancock Balanced Fund
 - John Hancock Fundamental Value Fund
 - John Hancock Strategic Growth Fund

                                        4
<PAGE>

John Hancock Tax-Free Bond Trust
 - John Hancock Tax-Free Bond Fund
 - John Hancock High Yield Municipal Bond Fund
John Hancock Investment Trust II
 - John Hancock Financial Industries Fund
 - John Hancock Regional Bank Fund
 - John Hancock Small Cap Equity Fund
John Hancock Investment Trust III
 - John Hancock Global Fund
 - John Hancock Large Cap Growth Fund
 - John Hancock International Fund
 - John Hancock Mid Cap Growth Fund
John Hancock Equity Trust
 - John Hancock Growth Trends Fund
 - John Hancock Large Cap Spectrum Fund
John Hancock Preferred Income Fund
John Hancock Preferred Income Fund II
John Hancock Preferred Income Fund III

                                        5

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(K)(3)
<SEQUENCE>11
<FILENAME>b48195isexv99wxkyx3y.txt
<DESCRIPTION>FORM OF AUCTION AGREEMENT
<TEXT>
<PAGE>

                                                                 EXHIBIT (k)(3)

                      JOHN HANCOCK INCOME SECURITIES TRUST

                            AUCTION AGENCY AGREEMENT

                          dated as of November 4, 2003

                                   Relating to

                            Auction Preferred Shares

                              Series A and Series B

                                       of

                      JOHN HANCOCK INCOME SECURITIES TRUST

                      DEUTSCHE BANK TRUST COMPANY AMERICAS,
                                as Auction Agent

                            AUCTION AGENCY AGREEMENT

         This Auction Agency Agreement (this "Agreement"), dated as of November
4, 2003, is by and between John Hancock Income Securities Trust, a Massachusetts
business trust (the "Trust") and Deutsche Bank Trust Company Americas, a New
York banking corporation.

         The Trust proposes to issue an aggregate of 3,560 preferred shares, no
par value per share, liquidation preference $25,000 per share, designated as
Auction Preferred Shares, Series A and Auction Preferred Shares, Series B
(collectively, the "Auction Preferred Shares" or "APS"), pursuant to the Amended
By-Laws of the Trust (as defined below).

         The Trust desires that Deutsche Bank Trust Company Americas perform
certain duties as agent in connection with each Auction (as defined below) (in
such capacity, the "Auction Agent"), and as the transfer agent, registrar,
dividend paying agent and redemption agent with respect to the APS (in such
capacity, the "Paying Agent"), upon the terms and conditions of this Agreement,
and the Trust hereby appoints Deutsche Bank Trust Company Americas as said
Auction Agent.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Trust and the Auction Agent agree as follows:

1. Definitions and Rules of Construction.

         1.1 Terms Defined By Reference to the Amended By-Laws.

         Capitalized terms not defined herein shall have the respective meanings
specified in the Amended By-Laws.

<PAGE>

         1.2 Terms Defined Herein.

         As used herein and in the Settlement Procedures, the following terms
shall have the following meanings, unless the context otherwise requires:

                           (a) "Agent Member" of any Person shall mean the
member of, or participant in, the Securities Depository that will act on behalf
of a Bidder.

                           (b) "Agreement" shall mean the Auction Agency
Agreement relating to one or more series of APS.

                           (c) "APS" shall mean the preferred shares, Series A
and Series B, no par value per share, of the Trust designated as its "Auction
Preferred Shares" and bearing such further designation as to series as the Board
of Trustees of the Trust or any committee thereof shall specify.

                           (d) "Auction" shall have the meaning specified in
Section 2.1 hereof.

                           (e) "Auction Procedures" shall mean the auction
procedures constituting Section 8.9 of the Amended By-Laws.

                           (f) "Authorized Officer" of the Auction Agent shall
mean each Vice President, Assistant Vice President, and Associate of the Auction
Agent assigned to its Corporate Trust and Agency Group and every other officer
or employee of the Auction Agent designated as an "Authorized Officer" for
purposes hereof in a communication to the Trust.

                           (g) "Broker-Dealer Agreement" shall mean each
agreement between the Auction Agent and a Broker-Dealer substantially in the
form attached hereto as Exhibit A.

                           (h) "Amended By-Laws" shall mean the By-Laws of the
Trust, as the same may be amended, supplemented or modified from time to time.

                           (i) "Settlement Procedures" shall mean the Settlement
Procedures attached hereto as Exhibit B.

                           (j) "Trust Officer" shall mean the Chairman, the
President, each Vice President (whether or not designated by a number or word or
words added before or after the title "Vice President"), the Secretary, the
Treasurer, each Assistant Vice President, each Assistant Secretary and each
Assistant Treasurer of the Trust and every other officer or employee of the
Trust designated as a "Trust Officer" for purposes hereof in a notice to the
Auction Agent.

         1.3 Rules of Construction.

         Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of the Agreement:

                  (a) words importing the singular number shall include the
plural number and vice versa.

                  (b) the captions and headings herein are solely for
convenience of reference and shall not constitute a part of the Agreement nor
shall they affect its meaning, construction or effect.

                  (c) the words "hereof," "herein," "hereto" and other words of
similar import refer to the Agreement as a whole.

                                       2

<PAGE>

                  (d) all references herein to a particular time of day shall be
to New York City time.

2. The Auction.

         2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.

                  (a) The Board of Trustees of the Trust has adopted a
resolution appointing Deutsche Bank Trust Company Americas as Auction Agent for
purposes of the Auction Procedures. The Auction Agent hereby accepts such
appointment and agrees that, on each Auction Date for a series of APS, it shall
follow the procedures set forth in this Section 2 and the Auction Procedures for
the purpose of determining the Applicable Rate for any Subsequent Rate Period of
any series of APS for which the Applicable Rate is to be determined by such
auction. Each periodic operation of such procedures is hereinafter referred to
as an "Auction."

                  (b) All of the provisions contained in the Auction Procedures
and the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part hereof to the same extent as if such
provisions were fully set forth herein.

         2.2 Preparation for Each Auction; Maintenance of Registry of Beneficial
Owners.

                  (a) Not later than seven days prior to the first Auction Date
for the first series of APS subject to an Auction, the Trust shall provide the
Auction Agent with a list of the Broker-Dealers. Not later than seven days prior
to any Auction Date for any series of APS for which any change in such list of
Broker-Dealers is to be effective, the Trust will notify the Auction Agent in
writing of such change and, if any such change involves the addition of a
Broker-Dealer to such list, shall cause to be delivered to the Auction Agent for
execution by the Auction Agent a Broker-Dealer Agreement signed by such
Broker-Dealer; provided, however, that if the Trust proposes to designate any
Special Rate Period of any series of APS pursuant to Section 8.4(c) of the
Amended By-Laws, not later than 11:00 A.M. on the Business Day immediately
preceding the Auction immediately preceding the first day of such Rate Period
(or by such later time or date, or both, as may be agreed to by the Auction
Agent), the Trust shall provide the Auction Agent with a list of the
Broker-Dealers for such series and a manually signed copy of each Broker-Dealer
Agreement or a new Schedule A to a Broker-Dealer Agreement (which Schedule A
shall replace and supersede any previous Schedule A to such Broker-Dealer
Agreement) with each Broker-Dealer for such series. The Auction Agent shall have
entered into a Broker-Dealer Agreement with each Broker-Dealer prior to the
participation of any such Broker-Dealer in any Auction.

                  (b) In the event that any Auction Date for any series of APS
shall be changed after the Auction Agent shall have given the notice referred to
in paragraph (a) of the Settlement Procedures, or after the notice referred to
in Section 2.3 hereof, if applicable, the Auction Agent, by such means as the
Auction Agent deems practicable, shall give notice of such change to the
Broker-Dealers for such series not later than the earlier of either 9:15 A.M. on
the new Auction Date or 9:15 A.M. on the old Auction Date.

                  (c) (i) The Auction Agent shall maintain a registry of the
beneficial owners of the APS of each series who shall constitute Existing
Holders of APS of such series for purposes of Auctions. The Auction Agent shall
indicate thereon the identity of the respective Broker-Dealer of each Existing
Holder on whose behalf such Broker-Dealer submitted the most recent Order in any
Auction which resulted in such Existing Holder continuing to hold or purchasing
APS of such series. The Auction Agent shall keep such registry current and
accurate based on the information provided to it from time to time by the
Broker-Dealer. The Trust shall provide or cause to be provided to the Auction
Agent at or prior to the Date of Original Issue of the APS of each series a list
of the initial Existing Holders of the shares of each

                                       3

<PAGE>

such series of APS, the number of shares purchased by each such Existing Holder
and the respective Broker-Dealer of each such Existing Holder or the affiliate
thereof through which each such Existing Holder purchased such shares. The
Auction Agent may rely upon, as conclusive evidence of the identities of the
Existing Holders of APS of any series, (A) such list, (B) the results of
Auctions, (C) notices from any Broker-Dealer as described in the first sentence
of Section 2.2(c)(iii) hereof and (D) the results of any procedures approved by
the Trust that have been devised for the purpose of determining the identities
of Existing Holders in situations where APS may have been transferred without
complying with any restrictions on the transfer thereof as set forth in the
Auction Procedures.

                  (ii) In the event of any partial redemption of any series of
APS, the Auction Agent shall, at least two Business Days prior to the next
Auction for such series, request each Broker-Dealer to provide the Auction Agent
with a list of Persons who such Broker-Dealer believes are Existing Holders
after giving effect to such redemption based upon inquiries of the Persons
reflected in such Broker-Dealer's records as Beneficial Owners as a result of
the most recent Auction and with respect to each such Person, the number of APS
of such series such Broker-Dealer believes are owned by such Person after giving
effect to such redemption. In the absence of receiving any such information from
any Broker-Dealer, the Auction Agent may continue to treat the Persons listed in
its registry of Existing Holders as the beneficial owner of the number of APS of
such series shown in such registry.

                  (iii) The Auction Agent shall be required to register a
transfer of APS of any series from an Existing Holder of such APS only if such
transfer is to another Existing Holder, or other Person if permitted by the
Trust, and only if such transfer is made (A) pursuant to an Auction, or (B) the
Auction Agent has been notified in writing (I) in a notice substantially in the
form of Exhibit B to the Broker-Dealer Agreements by a Broker-Dealer of such
transfer or (II) in a notice substantially in the form of Exhibit C to the
Broker-Dealer Agreements by the Broker-Dealer of any Existing Holder, or other
Person if permitted by the Trust, that purchased or sold such APS in an Auction
of the failure of such APS to be transferred as a result of such Auction. The
Auction Agent is not required to accept any notice described in clause (B) of
the preceding sentence for an Auction unless the Auction Agent receives it by
3:30 P.M. on the Business Day preceding such Auction.

                  (d) The Auction Agent may, but shall have no obligation to,
request the Broker-Dealers, as set forth in the Broker-Dealer Agreements, to
provide the Auction Agent with a list of Persons who such Broker-Dealer believes
are Existing Holders based upon inquiries of those Persons such Broker-Dealer's
records indicate are Beneficial Owners as a result of the most recent Auction
and with respect to each such Person, the number of shares of such series of APS
such Broker-Dealer believes to be owned by such Person. The Auction Agent shall
keep confidential such registry of Existing Holders and shall not disclose the
identities of the Existing Holders of such APS to any Person other than the
Trust and the Broker-Dealer that provided such information; provided, however,
that the Auction Agent reserves the right and is authorized to disclose any such
information if (A) it is ordered to do so by a court of competent jurisdiction
or a regulatory body, judicial or quasi-judicial agency or authority having the
authority to compel such disclosure, (B) it is advised by its counsel that its
failure to do so would be unlawful or (C) failure to do so would expose the
Auction Agent to loss, liability, claim, damage or expense for which it has not
received indemnity or security satisfactory to it.

                                       4

<PAGE>

         2.3 Auction Schedule.

         The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent with
the consent of the Trust, which consent shall not be unreasonably withheld. The
Auction Agent shall give written notice of any such change to each
Broker-Dealer. Such notice shall be given prior to the close of business on the
Business Day immediately preceding the first Auction Date on which any such
change shall be effective.

          TIME                                        EVENT

By 9:30 A.M.                        Auction Agent advises the Trust and
                                    Broker-Dealers of the applicable Maximum
                                    Applicable Rate and the "AA" Financial
                                    Composite Commercial Paper Rate used in
                                    determining such Maximum Applicable Rate as
                                    set forth in Section 2.7 hereof.

9:30 A.M. - 1:30 P.M.               Auction Agent assembles information
                                    communicated to it by Broker-Dealers as
                                    provided in Section 8.9(b) of the Auction
                                    Procedures. Submission Deadline is 1:30 P.M.

Not earlier than 1:30 P.M.          Auction Agent makes determinations pursuant
                                    to Section 8.9(c) of the Auction Procedures.

By approximately 3:30 P.M.          Auction Agent advises Trust of results
                                    of Auction as provided in Section 8.9(c) of
                                    the Auction Procedures.

                                    Submitted Bids and Submitted Sell Orders are
                                    accepted and rejected and APS allocated as
                                    provided in Section 8.9(d) of the Auction
                                    Procedures. Auction Agent gives notice of
                                    Auction results as set forth Section 2.4
                                    hereof.

The Auction Agent shall follow the notification procedures set forth in
paragraph (a) of the Settlement Procedures.

         2.4 Notice of Auction Results.

         The Auction Agent will advise each Broker-Dealer who submitted a Bid or
Sell Order in an Auction whether such Bid or Sell Order was accepted or rejected
in whole or in part and of the Applicable Rate for the next Dividend Period for
the related APS by telephone or through the Auction Agent's auction processing
system as set forth in paragraph (a) of the Settlement Procedures.

         2.5 Broker-Dealers.

                  (a) Not later than 12:00 Noon on each Auction Date for any
series of APS, the Trust shall pay to the Auction Agent an amount in cash equal
to the aggregate fees payable to the Broker-Dealers for such series pursuant to
Section 3.5 of the Broker-Dealer Agreements for such series. The Auction Agent
shall apply such moneys as set forth in Section 3.5 of each such Broker-Dealer
Agreement.

                  (b) The Trust shall notify the Auction Agent in writing prior
to selecting any Person to act as a Broker-Dealer.

                                       5

<PAGE>

                  (c) The Auction Agent shall terminate any Broker-Dealer
Agreement as set forth therein if so directed by the Trust, provided that at
least one Broker-Dealer Agreement would be in effect for each series of APS
after such termination.

                  (d) Subject to the Auction Agent's having received notice of
the selection of the relevant Broker-Dealer pursuant to Section 2.5(b) hereof,
the Auction Agent shall from time to time enter into such Broker-Dealer
Agreements with one or more Broker-Dealers as the Trust shall request, and shall
enter into such schedules to any such Broker-Dealer Agreements as the Trust
shall request, which schedules, among other things, shall set forth the series
of APS to which such Broker-Dealer Agreement relates.

         2.6 Special Rate Periods.

         The provisions contained in Section 8.4(c) of the Amended By-Laws
concerning Special Rate Periods and the notification of a Special Rate Period
will be followed by the Trust and, to the extent applicable, the Auction Agent,
and the provisions contained therein are incorporated herein by reference in
their entirety and shall be deemed to be a part of this Agreement to the same
extent as if such provisions were set forth fully herein.

         2.7 Determination of Maximum Applicable Rate.

                  (a) (i) On each Auction Date, the Auction Agent shall
determine the Maximum Applicable Rate. If any "AA" Financial Composite
Commercial Paper Rate is not quoted on an interest equivalent basis, the Auction
Agent shall convert the quoted rate to the interest equivalent thereof as set
forth in the definition of such rate in the Amended By-Laws if the rate obtained
by the Auction Agent is quoted on a discount basis, or if such rate is quoted on
a basis other than an interest equivalent or discount basis the Auction Agent
shall convert the quoted rate to an interest equivalent rate after consultation
with the Trust as to the method of such conversion.

                  (ii) If any "AA" Financial Composite Commercial Paper Rate is
to be based on rates supplied by Commercial Paper Dealers and one or more of the
Commercial Paper Dealers shall not provide a quotation for the determination of
such "AA" Financial Composite Commercial Paper Rate, the Auction Agent shall
immediately notify the Trust so that the Trust can determine whether to select a
substitute Commercial Paper Dealer or substitute Commercial Paper Dealers to
provide the quotation or quotations not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers. The Trust shall promptly advise the Auction
Agent of any such selection.

         2.8 Ownership of Shares of APS.

         The Trust shall notify the Auction Agent if the Trust or any affiliate
of the Trust acquires any APS of any series. Neither the Trust nor any affiliate
of the Trust shall submit any Order in any Auction for APS, except as set forth
in the next sentence. Any Broker-Dealer that is an affiliate of the Trust may
submit Orders in Auctions, but only if such Orders are not for its own account.
For purposes of this Section 2.8, a Broker-Dealer shall not be deemed to be an
affiliate of the Trust solely because one or more of the directors or executive
officers of such Broker-Dealer or of any Person controlled by, in control of or
under common control with such Broker-Dealer is also a director of the Trust.
The Auction Agent shall have no duty or liability with respect to enforcement of
this Section 2.8.

                                       6

<PAGE>

         2.9 Access to and Maintenance of Auction Records.

         The Auction Agent shall afford to the Trust, its agents, independent
public accountants and counsel and the Broker-Dealers, access at reasonable
times during normal business hours to review and make extracts or copies of all
books, records, documents and other information concerning the conduct and
results of Auctions (at no cost to the Auction Agent), provided that any such
agent, accountant, counsel or Broker-Dealer shall furnish the Auction Agent with
a letter from the Trust requesting that the Auction Agent afford such person
access. The Auction Agent shall maintain records relating to any Auction for a
period of two years after such Auction, and such records shall, in reasonable
detail, accurately and fairly reflect the actions taken by the Auction Agent
hereunder.

3. The Auction Agent as Dividend and Redemption Price Disbursing Agent.

         The Auction Agent, as dividend and redemption price disbursing agent,
shall pay to the Holders of APS of any series (i) on each Dividend Payment Date
for such series, dividends on the APS of such series, (ii) on any date fixed for
redemption of APS of any series, the Redemption Price of any shares of such
series called for redemption and (iii) any Late Charge related to any payment of
dividends or Redemption Price, in each case after receipt of the necessary funds
from the Trust with which to pay such dividends, Redemption Price or Late
Charge. The amount of dividends for any Rate Period for any series of APS to be
paid by the Auction Agent to the Holders of such shares of such series will be
determined by the Trust as set forth in Sections 8.4 and 8.9 of the Amended
By-Laws with respect to such series. The Redemption Price of any shares to be
paid by the Auction Agent to the Holders will be determined by the Trust as set
forth in Sections 8.4, 8.6 and 8.9 of the Amended By-Laws with respect to such
series. The Trust shall notify the Auction Agent in writing of a decision to
redeem shares of any series of APS at least five days prior to the date a notice
of redemption is required to be mailed to the Holders of the shares to be
redeemed by Section 8.6 of the Amended By-Laws. Such notice by the Trust to the
Auction Agent shall contain the information required by paragraph (c) of Section
8.6 of the Amended By-Laws to be stated in the notice of redemption required to
be mailed by the Trust to such Holders.

4. The Auction Agent as Transfer Agent and Registrar.

         4.1 Issue of Stock or Shares Certificates.

         Upon the Date of Original Issue of each series of APS, one or more
certificates representing all of the shares of such series issued on such date
shall be issued by the Trust and, at the request of the Trust, registered in the
name of Cede & Co. and countersigned by the Auction Agent.

         4.2 Registration of Transfer of Shares.

         Shares of each series of APS may be registered solely in the name of
the Securities Depository or its nominee.

         4.3 Removal of Legend on Restricted Shares.

         All requests for removal of legends on APS of any series indicating
restrictions on transfer shall be accompanied by an opinion of counsel stating
that such legends may be removed and such shares freely transferred, such
opinion to be delivered under cover of a letter from a Trust Officer authorizing
the Auction Agent to remove the legend on the basis of said opinion.

                                       7

<PAGE>

         4.4 Lost Stock or Share Certificates.

         The Auction Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed upon the
fulfillment of such requirements as shall be deemed appropriate by the Trust and
the Auction Agent, subject at all times to provisions of law, the Declaration of
Trust and Amended By-Laws governing such matters and resolutions adopted by the
Trust with respect to lost securities. The Auction Agent may issue new
certificates in exchange for and upon the cancellation of mutilated
certificates. Any request by the Trust to the Auction Agent to issue a
replacement or new certificate pursuant to this Section 4.4 shall be deemed to
be a representation and warranty by the Trust to the Auction Agent that such
issuance will comply with such provisions of law and the Amended By-Laws and
resolutions of the Trust.

         4.5 Disposition of Cancelled Certificates; Record Retention.

         The Auction Agent shall retain all stock or share certificates which
have been cancelled in transfer or exchange and all accompanying documentation
in accordance with applicable rules and regulations of the Securities and
Exchange Commission for two calendar years. The Trust shall also undertake to
furnish to the Securities and Exchange Commission and to the Board of Governors
of the Federal Reserve System, upon demand, at either the principal office or at
any regional office, complete, correct and current hard copies of any and all
such records.

         4.6 Stock or Record Books.

         For so long as the Auction Agent is acting as the transfer agent for
any series of APS pursuant to the Agreement, it shall maintain a stock or record
book containing a list of the Holders of the APS of each such series. In case of
any request or demand for the inspection of the stock or record books of the
Trust or any other books in the possession of the Auction Agent, the Auction
Agent will notify the Trust and secure instructions as to permitting or refusing
such inspection. The Auction Agent reserves the right, however, to exhibit the
stock or record books or other books to any Person if (a) it is ordered to do so
by a court of competent jurisdiction or a regulatory body, judicial or
quasi-judicial agency or authority having the authority to compel such
disclosure, (b) it is advised by its counsel that its failure to do so would be
unlawful or (c) failure to do so would expose the Auction Agent to loss,
liability, claim, damage or expense for which it has not received indemnity or
security satisfactory to it.

         4.7 Return of Funds.

         Any funds deposited with the Auction Agent hereunder by the Trust for
any reason, including but not limited to redemption of APS of any series, that
remain unpaid after sixty days shall be repaid to the Trust upon the written
request of the Trust.

5. Representations and Warranties.

         5.1 Representations and Warranties of the Trust.

         The Trust represents and warrants to the Auction Agent that:

                  (a) the Trust is a duly organized and existing business trust
in good standing under the laws of the State of its organization and has full
trust power or all requisite power to execute and deliver the Agreement and to
authorize, create and issue the APS of each series, and the APS of each series
when issued, will be duly authorized, validly issued, fully paid and
nonassessable;

                                       8

<PAGE>

                  (b) the Agreement has been duly and validly authorized,
executed and delivered by the Trust and constitutes the legal, valid and binding
obligation of the Trust;

                  (c) the form of the certificate evidencing the APS of each
series complies or will comply with all applicable laws of the State of its
organization;

                  (d) when issued, the APS of each series will have been duly
registered under the Securities Act of 1933, as amended, and no further action
by or before any governmental body or authority of the United States or of any
state thereof is required in connection with the execution and delivery of the
Agreement or will have been required in connection with the issuance of APS of
each series;

                  (e) the execution and delivery of the Agreement and the
issuance and delivery of the APS of each series do not and will not conflict
with, violate or result in a breach of, the terms, conditions or provisions of,
or constitute a default under, the Declaration or the Amended By-Laws of the
Trust, any law or regulation, any order or decree of any court or public
authority having jurisdiction, or any mortgage, indenture, contract, agreement
or undertaking to which the Trust is a party or by which it is bound the effect
of which conflict, violation, default or breach would be material to the Trust
or the Trust and its subsidiaries taken as a whole; and

                  (f) no taxes are payable upon or in respect of the execution
of the Agreement or the issuance of the APS of any series.

         5.2 Representations and Warranties of the Auction Agent.

         The Auction Agent represents and warrants to the Trust that:

                  (a) the Auction Agent is duly organized and is validly
existing as a banking corporation in good standing under the laws of New York
and has the corporate power to enter into and perform its obligations under this
Agreement; and

                  (b) this Agreement has been duly and validly authorized,
executed and delivered by the Auction Agent and constitutes the legal, valid and
binding obligation of the Auction Agent, enforceable against the Auction Agent
in accordance with its terms, subject to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights and to general equitable principles.

6. The Auction Agent.

         6.1 Duties and Responsibilities.

                  (a) The Auction Agent is acting solely as agent for the Trust
hereunder and owes no fiduciary duties to any Person, other than the Trust, by
reason of the Agreement.

                  (b) The Auction Agent undertakes to perform such duties and
only such duties as are specifically set forth in the Agreement, and no implied
covenants or obligations shall be read into the Agreement against the Auction
Agent.

                  (c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered, or omitted or
for any error of judgment made by it in the performance of its duties under the
Agreement. The Auction Agent shall not be liable for any error of

                                       9

<PAGE>

judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining the pertinent facts.

         6.2 Rights of the Auction Agent.

                  (a) The Auction Agent may conclusively rely and shall be
protected in acting or refraining from acting upon any communication authorized
hereby and upon any written instruction, notice, request, direction, consent,
report, certificate, share certificate or other instrument, paper or document
believed in good faith by it to be genuine. The Auction Agent shall not be
liable for acting upon any telephone communication authorized hereby which the
Auction Agent believes in good faith to have been given by the Trust or by a
Broker-Dealer. The Auction Agent may record telephone communications with the
Trust or with the Broker-Dealers or both.

                  (b) The Auction Agent may consult with counsel of its choice
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.

                  (c) The Auction Agent shall not be required to advance, expend
or risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder.

                  (d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys and shall
not be responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder.

                  (e) The Auction Agent shall not be responsible or liable for
any failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, it being understood that the Auction Agent shall use
reasonable efforts which are consistent with accepted practices in the banking
industry to resume performance as soon as practicable under the circumstances.

         6.3 Compensation, Expenses and Indemnification.

                  (a) The Trust shall pay the Auction Agent an annual fee as
compensation for all services rendered by it under the Agreement and the
Broker-Dealer Agreements as the Trust and the Auction Agent have agreed to from
time to time.

                  (b) The Trust shall reimburse the Auction Agent upon its
request for all reasonable out-of-pocket expenses, disbursements and advances
incurred or made by the Auction Agent in accordance with any provision of the
Agreement and the Broker-Dealer Agreements (including the compensation and the
reasonable expenses and disbursements of its agents (unless such agent is
providing a service for which the Auction Agent is already being compensated by
the Trust) and counsel), except any expense or disbursement attributable to its
negligence or bad faith. In no event shall the Auction Agent be responsible or
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including, but not limited to, loss of profit), even if the Auction
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.

                  (c) The Trust shall indemnify the Auction Agent for and hold
it harmless against any loss, liability or expense incurred without negligence
or bad faith on its part, arising out of or in connection with its agency under
the Agreement and the Broker-Dealer Agreements, including the costs and expenses
of defending itself against any such claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder.

                                       10

<PAGE>

         6.4 Auction Agent's Disclaimer.

         The Auction Agent makes no representation as to the validity or
adequacy of the Agreement, the Broker-Dealer Agreements or the APS of any series
except that the Auction Agent hereby represents that the Agreement has been duly
authorized, executed and delivered by the Auction Agent and constitutes a legal
and binding obligation of the Auction Agent.

7. Miscellaneous.

         7.1 Term of Agreement.

                  (a) The term of the Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Trust may terminate the
Agreement at any time by so notifying the Auction Agent, provided that the Trust
has entered into an agreement in substantially the form of the Agreement with a
successor Auction Agent. The Auction Agent may terminate the Agreement upon
written notice to the Trust on the date specified in such notice, which date
shall be no earlier than 45 days after the date of delivery of such notice.

                  (b) Except as otherwise provided in this paragraph (b), the
respective rights and duties of the Trust and the Auction Agent under the
Agreement with respect to any series of APS shall cease upon termination of the
Agreement with respect to such series. The Trust's representations, warranties,
covenants and obligations to the Auction Agent under Sections 5 and 6.4 hereof
shall survive the termination of the Agreement with respect to any series of
APS. Upon termination of the Agreement with respect to any series of APS, the
Auction Agent shall, at the Trust's request, promptly deliver to the Trust
copies of all books and records maintained by it with respect to APS in
connection with its duties hereunder and to any successor Auction Agent any
funds then held by the Auction Agent for the benefit of the Holders of APS or
the Trust.

         7.2 Communications

         Except for (i) communications authorized to be by telephone pursuant to
the Agreement or the Auction Procedures and (ii) communications in connection
with Auctions (other than those expressly required to be in writing), all
notices, requests and other communications to any party hereunder shall be in
writing (including telecopy or similar writing) and shall be given to such
party, addressed to it, at its address or telecopy number set forth below:

If to the Trust: John Hancock Income Securities Trust

                             Susan S. Newton
                             Senior Vice President, Secretary and Chief Legal
                               Officer
                             c/o John Hancock Advisers, LLC
                             101 Huntington Avenue
                             Boston MA 02199
                             Telecopier No.: (617) 375-1702
                             Telephone No.: (617) 375-1770

If to the Auction Agent:     Deutsche Bank Trust Company Americas
                             Corporate Trust & Agency Services
                             60 Wall Street
                             New York, NY 10005
                             Telecopier No.: (212) 797-8600
                             Telephone No.:  (212) 250-6679

                                       11

<PAGE>

         Each such notice, request or communication shall be effective when
delivered at the address specified herein. Communications shall be given on
behalf of the Trust by a Trust Officer and on behalf of the Auction Agent by
telephone (confirmed by telecopy or in writing) by an Authorized Officer.

         7.3 Entire Agreement.

         The Agreement (including the Auction and Settlement Procedures
incorporated herein) contains the entire agreement between the parties relating
to, and superseding any prior agreement between the parties relating to, the
subject matter hereof, and there are no other representations, endorsements,
promises, agreements or understandings, oral, written or implied, between the
parties relating to the subject matter hereof except for agreements relating to
the compensation of the Auction Agent.

         7.4 Benefits.

         Nothing herein, express or implied, shall give to any Person, other
than the Trust, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.

         7.5 Amendment; Waiver.

                  (a) The Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled or waived, in whole or in part, except
by a written instrument signed by a duly authorized representative of the party
to be charged.

                  (b) Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.

         7.6 Successors and Assigns.

         The Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and assigns of each of the Trust and
the Auction Agent.

         7.7 Severability.

         If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.

         7.8 Disclosure of Information.

         The Auction Agent agrees that it will not disclose or use any
"non-public personal information" about the Trust's shareholders other than such
uses or disclosures as are permitted by Regulation S-P under Section 504 of the
Gramm-Leach Biley Act ("Regulation S-P"). "Nonpublic personal information" about
a shareholder shall mean: (i) personally identifiable financial information;
(ii) any list, description, or other grouping of consumers that is derived from
using any personally identifiable information that is not publicly available;
and (iii) any other information that a customer or the transfer agent is
prohibited from using or disclosing pursuant to Regulation S-P.

                                       12

<PAGE>

         7.9 Governing Law.

         The Agreement shall be governed by and construed in accordance with the
laws of the State of New York.

                                       13

<PAGE>

         If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Trust and the Auction Agent in accordance with its terms.

                                JOHN HANCOCK INCOME SECURITIES TRUST

                                By: __________________________________
                                    Name:  Susan S. Newton
                                    Title: Senior Vice President, Secretary and
                                           Chief Legal Officer

                                DEUTSCHE BANK TRUST COMPANY AMERICAS

                                By: __________________________________
                                    Name:  Linda Reale
                                    Title: Vice President

                                       14

<PAGE>

                                                                       EXHIBIT A

                                     FORM OF
                             BROKER-DEALER AGREEMENT

                             BROKER-DEALER AGREEMENT

                                     between

                      DEUTSCHE BANK TRUST COMPANY AMERICAS

                                       and

                               UBS SECURITIES LLC

                          Dated as of November 4, 2003

                                   Relating to

                            AUCTION PREFERRED SHARES

                              Series A and Series B

                                       of

                      JOHN HANCOCK INCOME SECURITIES TRUST

                                      A-1

<PAGE>

         BROKER-DEALER AGREEMENT dated as of November 4, 2003, between DEUTSCHE
BANK TRUST COMPANY AMERICAS, a New York banking corporation (the "Auction
Agent") (not in its individual capacity, but solely as agent of John Hancock
Income Securities Trust, a Massachusetts business trust (the "Trust"), pursuant
to authority granted to it in the Auction Agency Agreement dated as of November
4, 2003, between the Trust and the Auction Agent (the "Auction Agency
Agreement")) and UBS Securities LLC (together with its successors and assigns,
"BD").

The Trust proposes to issue 1,780 preferred shares of beneficial interest, no
par value, liquidation preference $25,000 per share, designated Series A Auction
Preferred Shares and 1,780 preferred shares of beneficial interest, no par
value, liquidation preference $25,000 per share, designated Series B Auction
Preferred Shares (collectively, the "Auction Preferred Shares" or the "APS"),
pursuant to the Trust's Amended By-laws (as defined below).

         The Trust's Amended By-laws provide that the dividend rate on each
series of APS for each Dividend Period therefore after the Initial Dividend
Period shall be the Applicable Rate therefore, which in each case, in general
shall be the rate per annum that a commercial bank, trust company or other
financial institution appointed by the Company advises results from
implementation of the Auction Procedures (as defined below). The Board of
Trustees of the Trust has adopted a resolution appointing Deutsche Bank Trust
Company Americas as Auction Agent for purposes of the Auction Procedures, and
pursuant to the Auction Agency Agreement, the Trust has requested and directed
the Auction Agent to execute and deliver this Agreement.

         The Auction Procedures require the participation of one or more
Broker-Dealers.

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:

I. DEFINITIONS AND RULES OF CONSTRUCTION.

         1.1. Terms Defined by Reference to the Amended By-laws.

         Capitalized terms not defined herein shall have the respective meanings
specified in the Amended By-laws of the Trust.

         1.2. Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:

         (a) "Amended By-laws" shall mean the By-laws of the Trust, as amended
through the date hereof, establishing the powers, preferences and rights of the
APS.

         (b) "Auction" shall have the meaning specified in Section 3.1 hereof.

         (c) "Auction Procedures" shall mean the Auction Procedures that are set
forth in Section 8.9 of Article VIII of the Amended By-laws.

         (d) "Authorized Officer" shall mean each Managing Director, Vice
President, Assistant Vice President, Assistant Treasurer and Assistant Secretary
of the Auction Agent and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes of this Agreement in a
communication to BD.

                                      A-2

<PAGE>

         (e) "BD Officer" shall mean each officer or employee of BD designated
as a "BD Officer" for purposes of this Agreement in a communication to the
Auction Agent.

         (f) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.

         (g) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.

         1.3. Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:

         (a) Words importing the singular number shall include the plural number
and vice versa.

         (b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.

         (c) The words "hereof," "herein," "hereto," and other words of similar
import refer to this Agreement as a whole.

         (d) All references herein to a particular time of day shall be to New
York City time.

II. NOTIFICATION OF DIVIDEND PERIOD.

         2.1. The provisions contained in paragraph 8.4 of Article VIII of the
Amended By-laws concerning the notification of a Special Dividend Period will be
followed by the Auction Agent and BD, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.

III. THE AUCTION.

         3.1. Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.

                  (a) On each Auction Date, the provisions of the Auction
Procedures will be followed by the Auction Agent for the purpose of determining
the Applicable Rate for each series of APS, for the next Dividend Period
therefor. Each periodic operation of such procedures is hereinafter referred to
as an "Auction."

                  (b) All of the provisions contained in the Auction Procedures
and the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part of this Agreement to the same extent
as if such provisions were set forth fully herein.

                  (c) BD agrees to act as, and assumes the obligations of and
limitations and restrictions placed upon, a Broker-Dealer under this Agreement.
BD understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in Section 8.2 of Article VIII of the
Amended By-laws may execute a Broker-Dealer Agreement and participate as
Broker-Dealers in Auctions.

                                      A-3

<PAGE>

                  (d) BD and other Broker-Dealers may participate in Auctions
for their own accounts. However, the Trust, by notice to BD and all other Broker
Dealers, may prohibit all Broker-Dealers from submitting Bids in Auctions for
their own accounts, provided that Broker-Dealers may continue to submit Hold
Orders and Sell Orders.

         3.2. Preparation for Each Auction.

                  (a) Not later than 9:30 A.M. on each Auction Date for the APS,
the Auction Agent shall advise BD by telephone of the Reference Rate and the
Maximum Applicable Rate in effect on such Auction Date.

                  (b) The Auction Agent from time to time may request BD to
provide it with a list of the respective customers BD believes are Beneficial
Owners of shares of each series of APS. BD shall comply with any such request,
and the Auction Agent shall keep confidential any such information, including
information received as to the identity of Bidders in any Auction, and shall not
disclose any such information so provided to any Person other than the Trust;
and such information shall not be used by the Auction Agent or its officers,
employees, agents or representatives for any purpose other than such purposes as
are described herein. The Auction Agent shall transmit any list of customers BD
believes are Beneficial Owners of shares of each series of APS and information
related thereto only to its officers, employees, agents or representatives who
need to know such information for the purposes of acting in accordance with this
Agreement, and the Auction Agent shall prevent the transmission of such
information to others and shall cause its officers, employees, agents and
representatives to abide by the foregoing confidentiality restrictions;
provided, however, that the Auction Agent shall have no responsibility or
liability for the actions of any of its officers, employees, agents or
representatives after they have left the employ of the Auction Agent.

         3.3. Auction Schedule; Method of Submission of Orders.

                           (a) The Trust and the Auction Agent shall conduct
Auctions for each series of APS in accordance with the schedule set forth below.
Such schedule may be changed at any time by the Auction Agent with the consent
of the Trust, which consent shall not be withheld unreasonably. The Auction
Agent shall give notice of any such change to BD. Such notice shall be received
prior to the first Auction Date on which any such change shall be effective.

              Time                                    Event

       By 9:30 A.M.                 Auction Agent advises the Trust and
                                    Broker-Dealers of the Reference Rate and the
                                    Maximum Applicable Rate as set forth in
                                    Section 3.2(a) hereof.

       9:30 A.M. - 1:30 P.M.        Auction Agent assembles information
                                    communicated to it by Broker-Dealers as
                                    provided in Section 8.9(b) of Article VIII
                                    of the Amended By-laws. Submission Deadline
                                    is 1:00 P.M.

       Not earlier than 1:30 P.M.   Auction Agent makes determinations pursuant
                                    to Section 8.9(c) of Article VIII of the
                                    Amended By-laws.

                                      A-4

<PAGE>

       By approximately 3:00 P.M.   Auction Agent advises the Trust of the
                                    results of the Auction. Submitted Bids and
                                    Submitted Sell Orders are accepted and
                                    rejected in whole or in part and shares of
                                    APS are allocated as provided in Section
                                    8.9(d) of Article VIII of the Amended
                                    By-laws. Auction Agent gives notice of the
                                    Auction results as set forth in Section
                                    3.4(a) hereof.

                           (b) BD agrees to maintain a list of Potential
Beneficial Owners and to contact the Potential Beneficial Owners on such list on
or prior to each Auction Date for the purposes set forth in Section 8.9 of
Article VIII of the Amended By-laws.

                           (c) BD shall submit Orders to the Auction Agent in
writing in substantially the form attached hereto as Exhibit B. BD shall submit
separate Orders to the Auction Agent for each Potential Beneficial Owner or
Beneficial Owner on whose behalf BD is submitting an Order and shall not net or
aggregate the Orders of Potential Beneficial Owners or Beneficial Owners on
whose behalf BD is submitting Orders.

                           (d) BD shall deliver to the Auction Agent (i) a
written notice, substantially in the form attached hereto as Exhibit C, of
transfers of shares of any series of APS, made through BD by an Existing Holder
to another Person other than pursuant to an Auction, and (ii) a written notice,
substantially in the form attached hereto as Exhibit D, of the failure of shares
of any series of any series of APS to be transferred to or by any Person that
purchased or sold shares of any series of APS through BD pursuant to an Auction.
The Auction Agent is not required to accept any notice delivered pursuant to the
terms of the foregoing sentence with respect to an Auction unless it is received
by the Auction Agent by 3:00 P.M. on the Business Day next preceding the
applicable Auction Date.

         3.4. Notice of Auction Results.

                           (a) On each Auction Date, the Auction Agent shall
notify BD by telephone as set forth in paragraph (a) of the Settlement
Procedures. On the Business Day next succeeding such Auction Date, the Auction
Agent shall notify BD in writing of the disposition of all Orders submitted by
BD in the Auction held on such Auction Date.

                           (b) BD shall notify each Beneficial Owner, Potential
Beneficial Owner, Existing Holder or Potential Holder on whose behalf BD has
submitted an Order as set forth in paragraph (b) of the Settlement Procedures,
and take such other action as is required of BD pursuant to the Settlement
Procedures.

                           If any Beneficial Owner or Existing Holder selling
shares of APS in an Auction fails to deliver such shares, the BD of any Person
that was to have purchased shares of such series of APS in such Auction may
accept delivery from such Person of a number of whole shares of such series of
APS that is less than the number of shares that otherwise was to be purchased by
such Person. In such event, the number of shares of such series of APS to be so
delivered shall be determined by such BD. Delivery of such lesser number of
shares shall constitute good delivery. Upon the occurrence of any such failure
to deliver shares, such BD shall deliver to the Auction Agent the notice
required by Section 3.3(d)(ii) hereof. Notwithstanding the foregoing terms of
this Section 3.4(b), any delivery or non-delivery of shares of any series of APS
which represents any departure from the results of an Auction, as determined by
the

                                      A-5

<PAGE>

Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the terms
of Section 3.3(d) hereof. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 3.4(b).

         3.5. Service Charge to Be Paid to BD.

                           On the Business Day next succeeding each Auction
Date, the Auction Agent shall pay to BD from moneys received from the Trust an
amount equal to: (a) in the case of any Auction Date immediately preceding a
Dividend Period of 7 days or less, the product of (i) a fraction the numerator
of which is the number of days in such Dividend Period (calculated by counting
the first day of such Dividend Period but excluding the last day thereof) and
the denominator of which is 360, times (ii) 1/4 of 1%, times (iii) $25,000,
times (iv) the sum of (A) the aggregate number of APS placed by BD in the
applicable Auction that were (x) the subject of a Submitted Bid of a Beneficial
Owner submitted by BD and continued to be held as a result of such submission
and (y) the subject of a Submitted Bid of a Potential Beneficial Owner submitted
by BD and were purchased as a result of such submission plus (B) the aggregate
number of APS subject to valid Hold Orders (determined in accordance with
Section 8.9 of Article VIII of the Amended By-laws) submitted to the Auction
Agent by BD plus (C) the number of APS deemed to be subject to Hold Orders by
Beneficial Owners pursuant to Article VIII of the Amended By-laws that were
acquired by such Beneficial Owners through BD; and (b) in the case of any
Auction Date immediately preceding a Special Dividend Period, that amount as
mutually agreed upon by the Trust and BD, based on the selling concession that
would be applicable to an underwriting of fixed or variable rate preferred
shares with a similar final maturity or variable rate dividend period, at the
commencement of such Special Dividend Period.

                           For purposes of subclause (a)(iv)(C) of the foregoing
sentence, if any Beneficial Owner who acquired shares of any series of APS
through BD transfers those shares to another Person other than pursuant to an
Auction, then the Broker-Dealer for the shares so transferred shall continue to
be BD, provided, however, that if the transfer was effected by, or if the
transferee is, a Broker-Dealer other than BD, then such Broker-Dealer shall be
the Broker-Dealer for such shares.

IV. THE AUCTION AGENT.

         4.1. Duties and Responsibilities.

                           (a) The Auction Agent is acting solely as agent for
the Trust hereunder and owes no fiduciary duties to any other Person by reason
of this Agreement.

                           (b) The Auction Agent undertakes to perform such
duties and only such duties as are set forth specifically in this Agreement, and
no implied covenants or obligations shall be read into this Agreement against
the Auction Agent.

                           (c) In the absence of bad faith or negligence on its
part, the Auction Agent shall not be liable for any action taken, suffered or
omitted by it, or for any error of judgment made by it in the performance of its
duties under this Agreement. The Auction Agent shall not be liable for any error
of judgment made in good faith unless the Auction Agent shall have been
negligent in ascertaining (or failing to ascertain) the pertinent facts.

                                      A-6

<PAGE>

         4.2. Rights of the Auction Agent.

                           (a) The Auction Agent may rely upon, and shall be
protected in acting or refraining from acting upon, any communication authorized
by this Agreement and any written instruction, notice, request, direction,
consent, report, certificate, share certificate or other instrument, paper or
document believed by it to be genuine. The Auction Agent shall not be liable for
acting upon any telephone communication authorized by this Agreement which the
Auction Agent believes in good faith to have been given by the Trust or by BD.
The Auction Agent may record telephone communications with BD.

                           (b) The Auction Agent may consult with counsel of its
own choice, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.

                           (c) The Auction Agent shall not be required to
advance, expend or risk its own funds or otherwise incur or become exposed to
financial liability in the performance of its duties hereunder.

                           (d) The Auction Agent may perform its duties and
exercise its rights hereunder either directly or by or through agents or
attorneys.

         4.3. Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the APS.

V.       MISCELLANEOUS.

         5.1. Termination. Any party may terminate this Agreement at any time
upon five days' prior written notice to the other party; provided, however, that
if BD is UBS Securities LLC or Merrill Lynch, Pierce, Fenner & Smith Inc.,
neither BD nor the Auction Agent may terminate this Agreement without first
obtaining the prior written consent of the Trust to such termination, which
consent shall not be withheld unreasonably.

         5.2. Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.

                           (a) BD is, and shall remain for the term of this
Agreement, a member of, or a participant in, the Securities Depository (or an
affiliate of such a member or participant).

                           (b) BD represents that it (or if BD does not act as
Agent Member, one of its affiliates) shall make all dividend payments on the APS
available in same-day funds on each Dividend Payment Date to customers that use
BD (or its affiliate) as Agent Member.

         5.3. Agent Member. At the date hereof, BD is a participant of the
Securities Depository.

         5.4. Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given to such party at its address or telecopier number set forth
below:

                                      A-7

<PAGE>

   If to BD,                        UBS Securities LLC
   addressed to:                    299 Park Avenue
                                    New York, NY 10171
                                    Attention: Oscar Junquera
                                    Telecopier No.: (212) 821-4205
                                    Telephone No.:  (212) 821-3334

   If to the Auction                Deutsche Bank Trust Company Americas
   Agent, addressed to:             Corporate Trust & Agency Services
                                    60 Wall Street
                                    New York, NY 10005
                                    Telecopier No.: (212) 797-8600
                                    Telephone No.: (212) 250-6679

or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.

         5.5. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.

         5.6. Benefits. Nothing in this Agreement, express or implied, shall
give to any person, other than the Trust, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim under this Agreement.

         5.7. Amendment; Waiver.

                           (a) This Agreement shall not be deemed or construed
to be modified, amended, rescinded, canceled or waived, in whole or in part,
except by a written instrument signed by a duly authorized representative of the
party to be charged.

                           (b) Failure of either party to this Agreement to
exercise any right or remedy hereunder in the event of a breach of this
Agreement by the other party shall not constitute a waiver of any such right or
remedy with respect to any subsequent breach.

         5.8. Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not be
assigned by either party hereto absent the prior written consent of the other
party; provided, however, that this Agreement may be assigned by the Auction
Agent to a successor Auction Agent selected by the Trust without the consent of
BD.

         5.9. Severability. If any clause, provision or section of this
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.

         5.10. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.

                                      A-8

<PAGE>

         5.11. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed in said state.

                                      A-9

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.

                                       DEUTSCHE BANK TRUST COMPANY AMERICAS

                                       By: _______________________________
                                           Name:  Linda Reale
                                           Title: Vice President

                                       UBS SECURITIES LLC

                                       By: _______________________________
                                           Name:
                                           Title:

                                      A-10

<PAGE>

                                    EXHIBIT B

                              SETTLEMENT PROCEDURES

         The following summary of Settlement Procedures sets forth the
procedures expected to be followed in connection with the settlement of each
Auction and will be incorporated by reference in the Auction Agency Agreement
and each Broker-Dealer Agreement. Nothing contained in this Appendix constitutes
a representation by the Trust that in each Auction each party referred to herein
will actually perform the procedures described herein to be performed by such
party.

                  (a) On each Auction Date, the Auction Agent shall notify by
telephone, or through the Auction Agent's auction processing system, the
Broker-Dealers that participated in the Auction held on such Auction Date and
submitted an Order on behalf of any Existing Holder or Potential Holder of:

                           (i)      the Applicable Rate fixed for the next
                  succeeding Dividend Period;

                           (ii)     whether Sufficient Clearing Bids existed for
                  the determination of the Applicable Rate;

                           (iii)    if such Broker-Dealer (a "Seller's
                  Broker-Dealer") submitted a Bid or a Sell Order on behalf of
                  an Existing Holder, the number of shares, if any, of APS to be
                  sold by such Existing Holder;

                           (iv)     if such Broker-Dealer (a "Buyer's
                  Broker-Dealer") submitted a Bid on behalf of a Potential
                  Holder, the number of shares, if any, of APS to be purchased
                  by such Potential Holder;

                           (v)      if the aggregate number of APS to be sold by
                  all Existing Holders on whose behalf such Broker-Dealer
                  submitted a Bid or a Sell Order exceeds the aggregate number
                  of APS to be purchased by all potential Holders on whose
                  behalf such Broker-Dealer submitted a Bid, the name or names
                  of one or more Buyer's Broker-Dealers (and the name of the
                  Agent Member, if any, of each such Buyer's Broker-Dealer)
                  acting for one or more purchasers of such excess number of APS
                  and the number of such shares to be purchased from one or more
                  Existing Holders on whose behalf such Broker-Dealer acted by
                  one or more Potential Holders on whose behalf each of such
                  Buyer's Broker-Dealers acted;

                           (vi)     if the aggregate number of APS to be
                  purchased by all Potential Holders on whose behalf such
                  Broker-Dealer submitted a Bid exceeds the aggregate number of
                  APS to be sold by all Existing Holders on whose behalf such
                  Broker-Dealer submitted a Bid or a Sell Order, the name or
                  names of one or more Seller's Broker Dealers (and the name of
                  the Agent Member, if any, of each such Seller's Broker-Dealer)
                  acting for one or more sellers of such excess number of APS
                  and the number of such shares to be sold to one or more
                  Potential Holders on whose behalf such Broker-Dealer acted by
                  one or more Existing Holders on whose behalf each of such
                  Seller's Broker-Dealers acted; and

                           (vii)    the Auction Date of the next succeeding
                  Auction with respect to the APS.

                                      B-1

<PAGE>

                  (b) On each Auction Date, each Broker-Dealer that submitted an
Order on behalf of any Existing Holder or Potential Holder shall:

                           (i)      in the case of a Broker-Dealer that is a
                  Buyer's Broker-Dealer, instruct each Potential Holder on whose
                  behalf such Broker-Dealer submitted a Bid that was accepted,
                  in whole or in part, to instruct such Potential Holder's Agent
                  Member to pay to such Broker - Dealer (or its Agent Member)
                  through the Securities Depository the amount necessary to
                  purchase the number of APS to be purchased pursuant to such
                  Bid against receipt of such shares and advise such Potential
                  Holder of the Applicable Rate for the next succeeding Dividend
                  Period;

                           (ii)     in the case of a Broker-Dealer that is a
                  Seller's Broker-Dealer, instruct each Existing Holder on whose
                  behalf such Broker-Dealer submitted a Sell Order that was
                  accepted, in whole or in part, to instruct such Existing
                  Holder's Agent Member to deliver to such Broker-Dealer (or its
                  Agent Member) through the Securities Depository the number of
                  APS to be sold pursuant to such Order against payment therefor
                  and advise any such Existing Holder that will continue to hold
                  APS of the Applicable Rate for the next succeeding Dividend
                  Period;

                           (iii)    advise each Existing Holder on whose behalf
                  such Broker-Dealer submitted a Hold Order of the Applicable
                  Rate for the next succeeding Dividend Period;

                           (iv)     advise each Existing Holder on whose behalf
                  such Broker-Dealer submitted an Order of the Auction Date for
                  the next succeeding Auction; and

                           (v)      advise each Potential Holder on whose behalf
                  such Broker-Dealer submitted a Bid that was accepted, in whole
                  or in part, of the Auction Date for the next succeeding
                  Auction.

                  (c) On the basis of the information provided to it pursuant to
(a) above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of
a Potential Holder or an Existing Holder shall, in such manner and at such time
or times as in its sole discretion it may determine, allocated any funds
received by it pursuant to (b)(i) above and any APS received by it pursuant to
(b)(ii) above among the Potential Holders, if any, on whose behalf such
Broker-Dealer submitted Bids, the Existing Holders, if any, on whose behalf such
Broker-Dealer submitted Bids that were accepted or Sell Orders, and any
Broker-Dealer or Broker-Dealers identified to it by the Auction Agent pursuant
to (a)(v) or (a)(vi) above.

                  (d) On each Auction Date:

                           (i)      each Potential Holder and Existing Holder
                  shall instruct its Agent Member as provided in (b)(i) or (ii)
                  above, as the case may be;

                           (ii)     each Seller's Broker-Dealer which is not an
                  Agent Member of the Securities Depository shall instruct its
                  Agent Member to (A) pay through the Securities Depository to
                  the Agent Member of the Existing Holder delivering shares to
                  such Broker-Dealer pursuant to (b)(ii) above the amount
                  necessary to purchase such shares against receipt of such
                  shares, and (B) deliver such shares through the Securities
                  Depository to a Buyer's Broker-Dealer (or its Agent Member)
                  identified to such Seller's Broker-Dealer pursuant to (a)(v)
                  above against payment therefor; and

                                      B-2

<PAGE>

                           (iii)    each Buyer's Broker-Dealer which is not an
                  Agent Member of the Securities Depository shall instruct its
                  Agent Member to (A) pay through the Securities Depository to a
                  Seller's Broker-Dealer (or its Agent Member) identified
                  pursuant to (a) (vi) above the amount necessary to purchase
                  the shares to be purchased pursuant to (b) (i) above against
                  receipt of such shares, and (B) deliver such shares through
                  the Securities Depository to the Agent Member of the purchaser
                  thereof against payment therefor.

                  (e) On the day after the Auction Date:

                           (i)      each Bidder's Agent Member referred to in
                  (d) (i) above shall instruct the Securities Depository to
                  execute the transactions described under (b) (i) or (ii)
                  above, and the Securities Depository shall execute such
                  transactions;

                           (ii)     each Seller's Broker-Dealer or its Agent
                  Member shall instruct the Securities Depository to execute the
                  transactions described in (d) (ii) above, and the Securities
                  Depository shall execute such transactions; and

                           (iii)    each Buyer's Broker-Dealer or its Agent
                  Member shall instruct the Securities Depository to execute the
                  transactions described in (d) (iii) above, and the Securities
                  Depository shall execute such transactions.

                  (f) If an Existing Holder selling APS in an Auction fails to
deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to
the Potential Holder on behalf of which it submitted a Bid that was accepted a
number of whole APS that is less than the number of shares that otherwise was to
be purchased by such Potential Holder. In such event, the number of APS to be so
delivered shall be determined solely by such Broker-Dealer. Delivery of such
lesser number of shares shall constitute good delivery. Notwithstanding the
foregoing terms of this paragraph (f), any delivery or non-delivery of shares
which shall represent any departure from the results of an Auction, as
determined by the Auction Agent, shall be of no effect unless and until the
Auction Agent shall have been notified of such delivery or non-delivery in
accordance with the provisions of the Auction Agency Agreement and the
Broker-Dealer Agreements.

                                      B-3

<PAGE>

                                    EXHIBIT C

                      DEUTSCHE BANK TRUST COMPANY AMERICAS
                                AUCTION BID FORM

<TABLE>
<S>        <C>                                <C>
Submit To: Deutsche Bank Trust                Issue: John Hancock Income Securities Trust
           Company Americas
           60 Wall Street
           New York, NY 10005
           Telecopier No.: (212) 797-8600
           Telephone No.:  (212) 250-6679
</TABLE>

The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:

Name of Bidder: ________________________

BENEFICIAL OWNER

Shares now held _______________       HOLD            _____________
                                      BID at rate of  _____________
                                      SELL            _____________

POTENTIAL BENEFICIAL OWNER

                           # of shares bid   _____________
                           BID at rate of    _____________ Notes:

(1) If submitting more than one Bid for one Bidder, use additional Auction Bid
Forms.

(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Beneficial Owner are submitted, such bid shall be
considered valid in the order of priority set forth in the Auction Procedures on
the above issue.

(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a
number of shares not greater than the number of shares currently held.

(4) Potential Beneficial Owners may make only Bids, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential Beneficial
Owner, each Bid submitted shall be a separate Bid with the rate specified.

(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%). Fractions will not be accepted.

NAME OF BROKER-DEALER ________________________

Authorized Signature   ________________________

                                      C-1

<PAGE>

                                    EXHIBIT D

                    (Note: To be used only for transfers made
                       other than pursuant to an Auction)

                                  TRANSFER FORM

Re:   John Hancock Income Securities Trust
      Auction Preferred Shares,
      Series [A or B]

     We are (check one):

[ ]  the Existing Holder named below;

[ ]  the Broker-Dealer for such Existing Holder; or

[ ]  the Agent Member for such Existing Holder.


         We hereby notify you that such Beneficial Owner has transferred _____
APS to __________________.

                           ________________________________
                           (Name of Existing Holder)

                           ________________________________
                           (Name of Broker-Dealer)

                           ________________________________
                           (Name of Agent Member)

                  By: _________________________
                      Printed Name:
                  Title:

                                      D-1

<PAGE>

                                    EXHIBIT E

                 (Note: To be used only for failures to deliver
                        APS sold pursuant to an Auction)

                         NOTICE OF A FAILURE TO DELIVER

Complete either I or II

I. We are a Broker-Dealer for ____________________ (the "Purchaser"), which
purchased _____ shares of APS, Series [A or B], of John Hancock Income
Securities Trust in the Auction held on ____________________ from the seller of
such shares.

II. We are a Broker-Dealer for _____________________ (the "Seller"), which sold
____ shares of APS, Series [A or B], of John Hancock Income Securities Trust, in
the Auction held on ______________ to the Purchaser of such shares.

         We hereby notify you that (check one):

         _______ the Seller failed to deliver such shares to the Purchaser

         _______ the Purchaser failed to make payment to the Seller upon
delivery of such shares

                 Name: _________________________
                       (Name of Broker-Dealer)

                 By:   _________________________
                       Printed Name:
                       Title:

                                      E-1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(L)
<SEQUENCE>12
<FILENAME>b48195isexv99wxly.txt
<DESCRIPTION>OPINION AND CONSENT OF COUNSEL
<TEXT>
<PAGE>
                                                                     Exhibit (L)


                                     (LOGO)
                                  HALEDORR.COM
                       60 State Street o Boston, MA 02109
                       617-526-6000 o fax 617-526-5000


                                                                October 24, 2003


John Hancock Income Securities Trust
101 Huntington Avenue
Boston, Massachusetts 02199

Ladies and Gentlemen:

     John Hancock Income Securities Trust (the "Trust") was established as a
Massachusetts business trust under a Declaration of Trust, dated October 5,
1984, as amended and restated on August 26, 2003 (the "Declaration of Trust").
The beneficial interests thereunder are represented by transferable shares of
one series and one or more separate and distinct classes established by the
Trustees.

     The Trustees have the powers set forth in the Declaration of Trust, subject
to the terms, provisions and conditions therein provided. Pursuant to Article V,
Section 5.1 of the Declaration of Trust, the number of shares of beneficial
interest authorized to be issued under the Declaration of Trust is unlimited and
the Trustees are authorized to divide the shares into one or more classes
thereof as they deem necessary or desirable. Pursuant to Article V, Section 5.4
of the Declaration of Trust, the Trustees are empowered in their discretion to
issue shares of for such amount and type of consideration, including cash or
property, and on such terms as the Trustees may authorize, all without action or
approval of the shareholders. Pursuant to the By-Laws of the Trust, as amended
and restated on August 26, 2003 (the "By-Laws"), the Trustees have established
two series of preferred shares: Auction Preferred Shares, Series A and Auction
Preferred Shares, Series B (collectively, the "Preferred Shares").

     We have examined the Declaration of Trust and By-Laws, each as amended from
time to time, of the Trust, and such other documents as we have deemed necessary
or appropriate for the purposes of this opinion, including, but not limited to,
originals, or copies certified or otherwise identified to our satisfaction, of
such documents, Trust records and other instruments. In our examination of the
above documents, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as certified of photostatic
copies.

     Any reference to "our knowledge," to any matter "known to us," "coming to
our attention" or "of which we are aware" or any variation of any of the
foregoing shall mean the conscious awareness of the attorneys in this firm who
have rendered substantive attention to the preparation of the Trust's
Registration Statement on Form N-2 or any amendments thereto, of the existence
or absence of any facts which would contradict the opinions set forth below. We
have not undertaken any independent investigation to determine the existence or
absence of such facts,


BOSTON  LONDON  MUNICH  NEW YORK  OXFORD  PRINCETON RESTON  WALTHAM  WASHINGTON
- --------------------------------------------------------------------------------
      Hale and Dorr LLP is a Massachusetts Limited Liability Partnership
<PAGE>
John Hancock Income Securities Trust
October 24, 2003
Page 2


and no inference as to our knowledge of the existence or absence of such facts
should be drawn from the fact of our representation of the Trust. Without
limiting the foregoing, we have not examined any dockets or records of any
court, administrative tribunal or other similar entity, or any electronic or
computer databases, in connection with our opinions expressed below.

      Our opinions below are qualified to the extent that they may be subject to
or affected by (i) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the rights and
remedies of creditors generally, (ii) statutory or decisional law concerning
recourse by creditors to security in the absence of notice or hearing and (iii)
duties and standards imposed on creditors and parties to contracts, including,
without limitation, requirements of good faith, reasonableness and fair dealing.
Further, we do not express any opinion as to (i) the availability of the remedy
of specific performance or any other equitable remedy upon breach of any
provision of any agreement whether applied by a court of law or equity, (ii) the
successful assertion of any equitable defense, or (iii) the right of any party
to enforce the indemnification or contribution provisions of any agreement.

      In rendering the opinion below, insofar as it relates to the good standing
and valid existence of the Trust, we have relied solely on a certificate of the
Secretary of the Commonwealth of the Commonwealth of Massachusetts, dated as of
a recent date, and such opinion is limited accordingly and is rendered as of the
date of such certificate.

      This opinion is limited to the laws of the Commonwealth of Massachusetts
relating to business trusts, and we express no opinion with respect to the laws
of any other jurisdiction or to any other laws of the Commonwealth of
Massachusetts. Further, we express no opinion as to compliance with any state or
federal securities laws, including the securities laws of the Commonwealth of
Massachusetts.

      Our opinion below, as it relates to the non-assessability of the shares of
the Trust, is qualified to the extent that, under Massachusetts law,
shareholders of a Massachusetts business trust may be held personally liable for
the obligations of the Trust. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust. Also, the
Declaration of Trust provides for indemnification out of Trust property for all
loss and expense of any shareholder held personally liable for the obligations
of the Trust.

      Subject to the foregoing, we are of the opinion that the Trust is a
validly existing business trust under the laws of the Commonwealth of
Massachusetts and that the Preferred Shares of beneficial interest of the Trust,
when issued in accordance with the terms, conditions, requirements and
procedures set forth in the Declaration of Trust, the By-Laws, the Trust's
Registration Statement on Form N-2 and the Underwriting Agreement between the
Trust, John Hancock Advisers, LLC and UBS Securities LLC, as representatives of
the underwriters named therein, will constitute legally and validly issued,
fully paid and non-assessable shares of beneficial interest in the Trust,
subject to compliance with the Securities Act of 1933, as amended (the
"Securities Act"), the Investment Company Act of 1940, as amended, and the
applicable state laws regulating the sale of securities.

      We are opining only as to the specific legal issues expressly set forth
herein, and no opinion should be inferred as to any other matters. We are
opining on the date hereof as to the law in effect on the date hereof, and we
disclaim any obligation to advise you of any change in
<PAGE>
John Hancock Income Securities Trust
October 24, 2003
Page 3


any of these sources of law or subsequent legal or factual developments that
might affect any matters of opinions set forth herein.

      We hereby consent to the filing of this opinion with the Securities and
Exchange Commission (the "Commission") as an exhibit to the Trust's Registration
Statement in accordance with the requirements of Form N-2 under the Securities
Act and to the use of our name therein and in the related Prospectus under the
caption "Legal matters". In giving such consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission.




                                    Very truly yours,


                                    /s/ Hale and Dorr LLP



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(N)
<SEQUENCE>13
<FILENAME>b48195isexv99wxny.txt
<DESCRIPTION>CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<TEXT>
<PAGE>
               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Financial
Highlights" for the John Hancock Income Securities Trust in the John Hancock
Income Securities Trust Auction Preferred Share prospectus and "Independent
Auditors" and "Financial Statements" in the John Hancock Income Securities
Trust Statement of Additional Information and to the incorporation by reference
in Pre-Effective Amendment No. 1 to the Registration Statement (Form N-2, No.
333-108636) of our report dated February 7, 2003, on the financial statements
and financial highlights in the Annual Report to the Shareholders for the year
ended December 31, 2002, of the John Hancock Income Securities Trust for the
registration of its Auction Preferred Shares.

                                                           /s/ ERNST & YOUNG LLP

Boston, Massachusetts
October 23, 2003

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.(R)
<SEQUENCE>14
<FILENAME>b48195isexv99wxry.txt
<DESCRIPTION>CODE OF ETHICS
<TEXT>
<PAGE>
                                                                   EXHIBIT 99(r)

                                Code of Ethics of

                           John Hancock Advisers, LLC
                             each John Hancock fund
                             John Hancock Funds, LLC
                     (together, called "John Hancock Funds")

                                 March 15, 2003

<TABLE>
<S>                                                                                   <C>
1.   General Principles.........................................................       2
2.   To Whom Does This Code Apply?..............................................       2
3.   Overview of Policies.......................................................       3
4.   Policies Outside the Code of Ethics........................................       4
        Company Conflict & Business Practice Policy.............................       4
        Inside Information Policy and Procedures................................       4
5.   Policies in the Code of Ethics.............................................       5
        Restriction on Gifts....................................................       5
        Preclearance of Securities Transactions.................................       5
        Ban on Short-Term Profits...............................................       6
        Ban on IPOs.............................................................       6
        Disclosure of Private Placement Conflicts...............................       7
        Seven Day Blackout Period...............................................       7
6.   Reports and Other Disclosures Outside the Code of Ethics...................       8
        Broker Letter/Duplicate Confirm Statements..............................       8
7.   Reports and Other Disclosures In the Code of Ethics........................       8
        Initial Holdings Report and Annual Holdings Report......................       8
        Quarterly Transaction Reports...........................................       9
        Annual Certification....................................................       9
8.   Limited Access Persons.....................................................       9
9.   Subadvisers................................................................       9
10.  Reporting Violations.......................................................      10
11.  Interpretation and Enforcement.............................................      10
Appendix A: Categories of Personnel.............................................      11
Appendix B: Preclearance Procedures.............................................      12
Appendix C: Limited Access Persons..............................................      16
Appendix D:  Subadvisers........................................................      17
Appendix E:  Administration and Recordkeeping...................................      18
</TABLE>

<PAGE>

1.   General Principles

Each person within the John Hancock Funds organization is responsible for
maintaining the very highest ethical standards when conducting business. This
means that:

- -    You have a duty at all times to place the interests of our clients first.

- -    All of your personal securities transactions must be conducted consistent
     with this code of ethics and in such a manner as to avoid any actual or
     potential conflict of interest or other abuse of your position of trust and
     responsibility.

- -    You should not take inappropriate advantage of your position or engage in
     any fraudulent or manipulative practice (such as frontrunning) with respect
     to our clients' accounts.

2.   To Whom Does This Code Apply?

This code of ethics applies to you if you are a director, officer or employee of
John Hancock Advisers, LLC, Sovereign Asset Management Co., John Hancock Funds,
LLC or a "John Hancock fund" (any fund or account advised by John Hancock
Advisers, LLC). It also applies to you if you are an employee of John Hancock
Life Insurance Co. or its subsidiaries who participates in making
recommendations for, or receives information about, portfolio trades of the John
Hancock funds. Please note that if a policy described below applies to you, it
applies to your personal accounts, those of a spouse, "significant other," minor
children or family members sharing a household, as well as all accounts over
which you have discretion or give advice or information. "Significant others"
are defined for these purposes as two people who (1) share the same primary
residence; (2) share living expenses; and (3) are in a committed relationship
and intend to remain in the relationship indefinitely.

There are three main categories for persons covered by this code of ethics,
taking into account their positions, duties and access to information regarding
fund portfolio trades. You have been notified about which of these categories
applies to you, based on the Compliance Department's understanding of your
current role. If you have a level of investment access beyond your assigned
category, or if you are promoted or change duties and as a result should more
appropriately be included in a different category, it is your responsibility to
notify Tom Connors, Vice President.

The basic definitions of the three main categories, with examples, are provided
below. The more detailed definitions of each category are attached as Appendix
A.

 "Investment Access" person                      "Regular Access" person
   "Non-Access" person

                                                A person who regularly obtains
                                           information regarding fund portfolio
                                                        trades.
A person who regularly participates in
A person who does not regularly
       a fund's investment process.
participate in a fund's investment         examples:

process or obtain information              -     personnel in Investment
regarding fund portfolio trades.                 Operations or Compliance

examples:

- -    portfolio managers                    -     most FFM  personnel

examples:

- -    analysts wholesalers                  -     Technology personnel with
                                                 access to investment systems

- -    traders inside wholesalers who        -     attorneys and some legal
     don't attend investment                     administration personnel
     "morning meetings"
     certain administrative personnel      -     investment admin. personnel

                                        2

<PAGE>

3.   Overview of Policies

Please refer to the following chart to determine which policies apply to your
category. These policies are described in detail below.

<TABLE>
<CAPTION>
                                                       Investment Access
                                                            Person          Regular Access Person    Non-Access Person
                                                       -----------------    ---------------------    -----------------
<S>                                                    <C>                  <C>                      <C>
General principles                                            yes                    yes                    yes
Policies outside the code
Conflict of interest policy                                   yes                    yes                    yes
Inside information policy                                     yes                    yes                    yes
Policies in the code
Restriction on gifts                                          yes                    yes                    yes
Pre-clearance requirement                                     yes                    yes                  Limited
Ban on short-term profits                                     yes                    no                     no
Ban on IPOs                                                   yes                    no                     no
Disclosure of private placement conflicts                     yes                    no                     no
Seven day blackout period                                     yes                    no                     no
Reports and other disclosures outside the code
Broker letter/duplicate confirms                              yes                    yes                    yes
Reports and other disclosures in the code
Annual recertification form                                   yes                    yes                    yes
Initial/annual holdings reports                               yes                    yes                    no
Quarterly transaction reports                                 yes                    yes                    no
</TABLE>

                                        3

<PAGE>

4.   Policies Outside the Code of Ethics

John Hancock Funds has certain policies that are not part of the code of ethics,
but are equally important. The two most important of these policies are (1) the
Company Conflict and Business Practice Policy; and (2) the Inside Information
Policy.

     Company Conflict & Business Practice Policy

A conflict of interest occurs when your private interests interfere or could
potentially interfere with your responsibilities at work. You must not place
yourself or the company in a position of actual or potential conflict.

Applies to:       Investment Access Persons
                  Regular Access Persons
                  Non-Access Persons

This Policy covers a number of important issues. For example, you cannot serve
as a director of any company without first obtaining the required written
executive approval.

Other important issues in this Policy include:

- -    personal investments or business relationships

- -    misuse of inside information

- -    receiving or giving of gifts, entertainment or favors

- -    misuse or misrepresentation of your corporate position

- -    disclosure of confidential or proprietary information

- -    antitrust activities

- -    political campaign contributions and expenditures on public officials

     Inside Information Policy and Procedures

The antifraud provisions of the federal securities laws generally prohibit
persons with material non-public information from trading on or communicating
the information to others. Sanctions for violations can include civil
injunctions, permanent bars from the securities industry, civil penalties up to
three times the profits made or losses avoided, criminal fines and jail
sentences. While Investment Access persons are most likely to come in contact
with material non-public information, the rules (and sanctions) in this area
apply to all John Hancock Funds personnel and extend to activities both related
and unrelated to your job duties.

Applies to:       Investment Access Persons
                  Regular Access Persons
                  Non-Access Persons

The Inside Information Policy and Procedures covers a number of important
issues, such as: o The misuse of material non-public information o The
information barrier procedure o The "restricted list" and the "watch list" o
broker letters and duplicate confirmation statements (see section 5 of this code
of ethics)

                                        4

<PAGE>

5.   Policies in the Code of Ethics

     Restriction on Gifts

You and your family cannot accept preferential treatment or favors from
securities brokers or dealers or other organizations with which John Hancock
Funds might transact business except in accordance with the Company Conflict and
Business Practice Policy. For the protection of both you and John Hancock Funds,
the appearance of a possible conflict of interest must be avoided. You should
exercise caution in any instance in which business travel and lodging are paid
for by someone other than John Hancock Funds. The purpose of this policy is to
minimize the basis for any charge that you used your John Hancock Funds position
to obtain for yourself opportunities which otherwise would not be offered to
you. Please see the Company Conflict and Business Practice Policy's
"Compensation and Gifts" section for additional details regarding restrictions
on gifts and exceptions for "nominal value" gifts.

Applies to:       Investment Access Persons
                  Regular Access Persons
                  Non-Access Persons

     Preclearance of Securities Transactions

If you are an Investment Access person or Regular Access person, you must
"preclear" (i.e.: receive advance approval of) any personal securities
transactions. The preclearance policy applies to trades for your personal
accounts, those of a spouse, "significant other," minor Also, for a limited
category of trades: children or family members sharing your household, as well
as all accounts over which you have discretion or give advice or information.
Due to this preclearance requirement, participation in investment clubs is
prohibited.

Applies to:       Investment Access Persons
                  Regular Access Persons
                  Non-Access Persons

Preclearance of private placements requires some special considerations--the
decision will take into account whether, for example: (1) the investment
opportunity should be reserved for John Hancock Funds clients; and (2) it is
being offered to you because of your position with John Hancock Funds.

The following securities are exempt from the preclear policy: (1) direct
obligations of the U.S. Government, (2) shares of all open-end mutual funds, (3)
bankers' acceptances, bank certificates of deposit, commercial paper & high
quality short-term debt instruments, including repurchase agreements.

If you are a Non-Access person, you must preclear transactions in securities of
any closed-end funds advised by John Hancock Advisers, LLC. A Non-Access person
is not required to preclear other trades. However, please keep in mind that a
Non-Access person is required to report securities transactions after every
trade (even those that are not required to be precleared) by submitting
duplicate confirmation statements, as described in section 5 of this code of
ethics.

The preclearance policy is designed to proactively identify possible "problem
trades" that raise frontrunning or other conflict of interest concerns (example:
when an Investment Access person trades a security on the same day as a John
Hancock fund). Please keep in mind that even if you receive a preclearance, or
are exempt from preclearing a securities transaction, you are still prohibited
from engaging in any fraud or manipulative practice (such as frontrunning) with
respect to a John Hancock fund.

                                        5

<PAGE>

You preclear a trade by following the steps outlined in the preclearance
procedures, which are attached as Appendix B. Please note that:

- -    You may not trade until clearance is received.

- -    Clearance approval is valid only for the date granted.

- -    A separate procedure should be followed for requesting preclearance of a
     private placement or a derivative, as detailed in Appendix B. The
     Compliance Department must maintain a five-year record of all clearances of
     private placement purchases by Investment Access persons, and the reasons
     supporting the clearances.

     Ban on Short-Term Profits

If you are an Investment Access person, you cannot profit from the purchase and
sale (or sale and purchase) of the same (or equivalent) securities within 60
calendar days. The purpose of this policy is to address the risk, real or
perceived, of frontrunning or other abusive practices involving short-term
personal trading. Any profits realized on short-term trades must be surrendered
by check payable to John Hancock Advisers, LLC and will be contributed by John
Hancock Advisers, LLC to a charity.

Applies to:       Investment Access Persons

This policy applies to trades for your personal accounts, those of a spouse,
"significant other," minor children or family members sharing a household, as
well as all accounts over which you have discretion or give advice or
information. If you give away a security, it is considered a sale.

You may invest in derivatives or sell short provided the transaction period
exceeds the 60-day holding period.

You may request an exemption from this policy for involuntary sales due to
unforeseen corporate activity (such as a merger), or hardship reasons (such as
unexpected medical expenses) by sending an e-mail to Tom Connors, Vice
President.

     Ban on IPOs

If you are an Investment Access person, you may not acquire securities in an
initial public offering. You may not purchase any newly-issued securities until
the next business (trading) day after the offering date.

Applies to:       Investment Access Persons

This policy applies to trades for your personal accounts, those of a spouse,
"significant other," minor children or family members sharing your household, as
well as all accounts over which you have discretion or give advice or
information.

There are two main reasons for this prohibition: (1) these purchases may suggest
that persons have taken inappropriate advantage of their positions for personal
profit; and (2) these purchases may create at least the appearance that an
investment opportunity that should have been available to the John Hancock funds
was diverted to the personal benefit of an individual employee.

                                        6

<PAGE>

You may request an exemption for certain investments that do not create a
potential conflict of interest, such as: (1) securities of a mutual bank or
mutual insurance company received as compensation in a demutualization and other
similar non-voluntary stock acquisitions; or (2) fixed rights offerings.

     Disclosure of Private Placement Conflicts

If you are an Investment Access person and you own securities purchased in a
private placement, you must disclose that holding decision to purchase or sell
that same issuer's securities for a John Hancock fund.

Applies to:       Investment Access Persons

Private placements are securities exempt from SEC registration under section
4(2), section 4(6) or rules 504 -506 of the Securities Act of 1933.

The investment decision must be subject to an independent review by investment
personnel with no personal interest in the issuer. This policy applies to
holdings in your personal accounts, those of a spouse, "significant other,"
minor children or family members sharing your household, as well as all accounts
over which you have discretion or give advice or information.

The purpose of this policy is to provide appropriate scrutiny in situations in
which there is a potential conflict of interest.

     Seven Day Blackout Period

If you are a portfolio manager (or were identified to the Compliance Department
as part of a portfolio management Persons team) you are prohibited from buying
or selling a security within seven calendar days before and after that security
is traded for a fund that you manage unless no conflict of interest exists in
relation to that security.

Applies to:       Investment Access

In addition, all investment access persons are prohibited from knowingly buying
or selling a security within seven calendar days before and after that security
is traded for a John Hancock fund unless no conflict of interest exists in
relation to that security. If a John Hancock fund trades in a security within
seven calendar days before or after you trade in that security, you may be
required to demonstrate that you did not know that the trade was being
considered for that John Hancock fund.

You will be required to sell any security purchased in violation of this policy
unless it is determined that no conflict of interest exists in relation to that
security. Any profits realized on trades during a seven day blackout period must
be surrendered by check payable to John Hancock Advisers, LLC and will be
contributed by John Hancock Advisers, LLC to a charity.

                                        7

<PAGE>

This policy applies to holdings in your personal accounts, those of a spouse,
"significant other" or family members sharing your household, as well as all
accounts over which you have discretion or give advice or information.

6.   Reports and Other Disclosures Outside the Code of Ethics

     Broker Letter/Duplicate Confirm Statements

As required by the Inside Information Policy, you must inform your stockbroker
that you are employed by an investment adviser or broker. Regular Access Persons
Your broker is subject to certain rules Non-Access Persons designed to prevent
favoritism toward your accounts.

Applies to:       Investment Access Persons

You may not accept negotiated commission rates that you believe may be more
favorable than the broker grants to accounts with similar characteristics. When
you open a brokerage account, before any trades are made, you must:

- -    Notify the Compliance Department (attn: Fred Spring) so the Compliance
     Department can send to the broker a letter notifying the broker of the
     requirement to send duplicate confirmation statements and certain other
     requirements.

- -    ensure that your broker sends duplicate confirmations and copies of all
     periodic statements on a timely basis to the Compliance Department, 10th
     Floor, 101 Huntington Ave., Boston, MA 02199.

These requirements apply to holdings in your personal accounts, those of a
spouse, "significant other," minor children or family members sharing your
household, as well as all accounts over which you have discretion or give advice
or information.

7.   Reports and Other Disclosures In the Code of Ethics

     Initial Holdings Report and Annual Holdings Report

You must file an initial holdings report within 10 calendar days after becoming
an Investment Access person or a Regular Access person. You must also file an
annual holdings report (as of December 31st) within 30 calendar days after the
calendar year end. These reports must cover all holdings in your personal
accounts, those of a spouse, "significant other," minor children or family
members sharing your household, as well as all accounts over which you have
discretion or give advice or information. You must report:

Applies to:       Investment Access Persons
                  Regular Access Persons

- -    holdings of all securities except: (1) direct obligations of the U.S.
     Government, (2) shares of open-end mutual funds, (3) bankers' acceptances,
     bank certificates of deposit, commercial paper and high quality short-term
     debt instruments, including repurchase agreements.

- -    all brokerage accounts that contain securities (including brokerage
     accounts that only contain securities exempt from reporting, such as shares
     of open-end mutual funds).

                                        8

<PAGE>

     Quarterly Transaction Reports

You must file a quarterly transaction report within 10 calendar days after the
end of a calendar quarter if you are an Investment Access person or a Regular
Access person. This report must cover all transactions during the past calendar
quarter in your personal accounts, those of a spouse, "significant other," minor
children or family members sharing your household, as well as all accounts over
which you have discretion or give advice or information.

Applies to:       Investment Access Persons
                  Regular Access Persons

You must report:

- -    transactions in all securities except: (1) direct obligations of the U.S.
     Government, (2) open-end mutual funds, (3) bankers' acceptances, bank
     certificates of deposit, commercial paper and high quality short-term debt
     instruments, including repurchase agreements.

- -    the opening of any brokerage account that contains securities (including
     brokerage accounts that only contain securities exempt from reporting, such
     as shares of open-end mutual funds).

     Annual Certification

You must provide an annual certification at a date designated by the Compliance
Department that: (1) you have read and understood this code of ethics; (2) you
recognize that you are subject to its policies; and (3) you have complied with
its requirements.

Applies to:       Investment Access Persons
                  Regular Access Persons
                  Non-Access Persons

You are required to make this certification to demonstrate that you understand
the importance of these policies and your responsibilities under the Code.

8.   Limited Access Persons

There is an additional category of persons called "Limited Access" persons. This
category consists only of directors of John Hancock Advisers, LLC or the John
Hancock funds who:

          (a) are not also officers of John Hancock Advisers, LLC; and

          (b) do not ordinarily obtain information about fund portfolio trades.

A more detailed definition of Limited Access persons, and a list of the policies
that apply to them, is attached as Appendix C.

9.   Subadvisers

A subadviser to a John Hancock fund has a number of responsibilities under this
code of ethics, as described in Appendix D.

                                        9

<PAGE>

10.  Reporting Violations

If you know of any violation of our code of ethics, you have a responsibility to
immediately report it. You should also report any deviations from the controls
and procedures that safeguard John Hancock Funds and the assets of our clients.

You can report confidentially to:


- -    Tom Connors (375-1724) or Tim Fagan (375-6205); or

- -    Your manager or department head


11.  Interpretation and Enforcement

This code of ethics cannot anticipate every situation in which personal
interests may be in conflict with the interests of our clients. You should be
responsive to the spirit and intent of this code of ethics as well as its
specific provisions.

When any doubt exists regarding any code of ethics provision or whether a
conflict of interest with clients might exist, you should discuss the
transaction beforehand with the Legal Department (contacts: Tom Connors
(375-1724) or Tim Fagan (375-6205)). The code of ethics is designed to detect
and prevent fraud against clients and fund investors, and to avoid the
appearance of impropriety. If you feel inequitably burdened by any policy, you
should feel free to contact Tom Connors, Vice President, or the Ethics and
Business Practices Committee. Exceptions may be granted where warranted by
applicable facts and circumstances.

To provide assurance that policies are effective, the Compliance Department will
monitor and check personal securities transaction reports and certifications
against fund portfolio transactions. Other internal auditing procedures may be
adopted from time to time. Additional administration and recordkeeping
procedures are described in Appendix E.

The Ethics and Business Practices Committee of John Hancock Funds has general
responsibility for this code of ethics. The Legal Department will refer
violations to the Ethics Committee for review and appropriate action. The
following factors will be considered when the Ethics Committee determines a fine
or other disciplinary action:

- -    the person's position and function (senior personnel may be held to a
     higher standard);

- -    the amount of the trade;

- -    whether the funds or accounts hold the security and were trading the same
     day;

- -    whether the violation was by a family member.

- -    whether the person has had a prior violation and which policy was involved.

- -    whether the employee self-reported the violation.

You can request reconsideration of any disciplinary action by submitting a
written request to the Ethics Committee.

No less frequently than annually, a written report of all material violations
and sanctions, significant conflicts of interest and other related issues will
be submitted to the boards of directors of the John Hancock funds for their
review. Sanctions for violations could include fines, limitation of personal
trading activity, suspension or termination of the violator's position with John
Hancock Funds and/or a report to the appropriate regulatory authority.

                                       10

<PAGE>

Appendix A: Categories of Personnel

You have been notified about which of these categories applies to you, based on
the Compliance Department's understanding of your current role. If you have a
level of investment access beyond that category, or if you are promoted or
change duties and as a result should more appropriately be included in a
different category, it is your responsibility to immediately notify Tom Connors,
Vice President.

1)   Investment Access person: You are an Investment Access person if you are an
     employee of John Hancock Advisers, LLC, a John Hancock fund, or John
     Hancock Life Insurance Company or its subsidiaries who, in connection with
     your regular functions or duties, makes or participates in making
     recommendations regarding the purchase or sale of securities by a John
     Hancock fund.

     (examples: portfolio managers, analysts, traders)

2)   Regular Access person: You are a Regular Access person if:

     -    You are an officer (vice president and higher) or director of John
          Hancock Advisers, LLC or a John Hancock fund. (Some directors may be
          Limited Access persons--please see Appendix C for this definition.)

     -    You are:

       -  an employee of John Hancock Advisers, LLC, a John Hancock fund or John
          Hancock Life Insurance Co. or its subsidiaries , or

       -  a director, officer (vice president and higher) or employee of John
          Hancock Funds, LLC

          who: (i) in connection with your regular functions or duties, makes,
          participates in, or obtains information regarding the purchase or
          sale of securities by a John Hancock fund; or (ii) your functions
          relate to the making of any recommendation to the fund regarding the
          purchase or sale of securities by a John Hancock fund.

     (examples: Investment Operations personnel, Compliance Department
     personnel, most Fund Financial Management personnel, investment
     administrative personnel, Technology Resources personnel with access to
     investment systems, attorneys and some legal administration personnel)

3)   Non-Access person: You are a non-access person if you are an employee of
     John Hancock Advisers, LLC, John Hancock Funds, LLC or a John Hancock fund
     who does not fit the definitions of any of the other three categories
     (Investment Access Person, Regular Access Person or Limited Access Person).
     To be a non-access person, you must not obtain information regarding the
     purchase or sale of securities by a John Hancock fund in connection with
     your regular functions or duties.

     (examples: wholesalers, inside wholesalers, certain administrative staff)

4)   Limited Access Person: Please see Appendix C for this definition.

                                       11

<PAGE>

Appendix B: Preclearance Procedures

                                 CODE OF ETHICS
                            PRE-CLEARANCE PROCEDURES

You should read the Code of Ethics to determine whether you must obtain a
preclearance before you enter into a securities transaction. If you are required
to obtain a preclearance, you should follow the procedures detailed below.

1. Pre-clearance for Public Securities including Derivatives, Futures, Options
and Selling Short:

A request to pre-clear should be entered into the John Hancock Personal Trading
& Reporting System.

The John Hancock Personal Trading & Reporting System is located under your Start
Menu on your Desktop. It can be accessed by going to JH Applications/Personal
Trading & Reporting/ Personal Trading & Reporting and by entering your Web
Security Services user id and password.

If JH Applications or the John Hancock Personal Trading & Reporting System is
not on your Desktop, please contact the HELP Desk at (617) 375-4357 for
assistance.

The Trade Request Screen:

At times you may receive a message like "System is currently unavailable". The
system is scheduled to be offline from 8:00 PM until 7:00 AM each night.

                               [GRAPHIC OMITTED]

                                       12

<PAGE>

Ticker/Security Cusip: Fill in this one of these fields with the proper
information of the security you want to buy or sell. Then click the [Lookup]
button. Select one of the hyperlinks for the desired security, and the system
will populate the proper fields Ticker, Security Cusip, Security Name and
Security Type automatically on the Trade Request Screen.

If You Don't Know the Ticker, Cusip, or Security Name:

If you do not know the full ticker, you may type in the first few letters
followed by an asterisk * and click the [Lookup] button. For example, let's say
you want to buy some shares of Intel, but all you can remember of the ticker is
that it begins with int, so you enter int* for Ticker. If any tickers beginning
with int are found, they are displayed on a new screen. Select the hyperlink of
the one you want, and the system will populate Security Cusip, Security Name and
Security Type automatically on the Trade Request Screen. If you do not know the
full cusip, you may type in the first few numbers followed by an asterisk * and
click the [Lookup] button. For example, let's say you want to buy some shares of
Microsoft, but all you can remember of the cusip is that it begins with 594918,
so you enter 594918* for Ticker. If any cusips beginning with 594918 are found,
they are displayed on a new screen. Select the hyperlink of the one you want,
and the system will fill in Ticker, Security Name and Security Type
automatically on the Trade Request Screen. If you do not know the Ticker but
have an idea of what the Security Name is, you may type in an asterisk, a few
letters of the name and an asterisk * and click the [Lookup] button. For
example, let's say you want to buy some shares of American Brands, so you enter
*amer* for Security Name. Any securities whose names have amer in them are
displayed on a new screen, where you are asked to select the hyperlink of the
one you want, and the system will fill in Ticker, Cusip and Security Type
automatically on the Trade Request Screen.

Other Items on the Trade Request Screen:

Brokerage Account: Click on the dropdown arrow to the right of the Brokerage
Account field to choose the account to be used for the trade.

Transaction Type: Choose one of the values displayed when you click the dropdown
arrow to the right of this field.

Trade Date: You may only submit trade requests for the current date.

Note: One or more of these fields may not appear on the Request Entry screen if
the information is not required. Required fields are determined by the
compliance department.

Click the [Submit Request] button to send the trade request to your compliance
department.

Once you click the [Submit Request] button, you will be asked to confirm the
values you have entered. Review the information and click the [Confirm] button
if all the information is correct. After which, you will receive immediate
feedback in your web browser. (Note: We suggest that you print out this
confirmation and keep it as a record of the trade you have made). After this,
you can either submit another trade request or logout.

                                       13

<PAGE>

Attention Investment Access Persons: If the system identifies a potential
violation of the Ban on Short Term Profits Rule, your request will be sent to
the Compliance Department for review and you will receive feedback via the
e-mail system.

Starting Over:

To clear everything on the screen and start over, click the [Clear Screen]
button.

Exiting Without Submitting the Trade Request:

If you decide not to submit the trade request before clicking the [Submit
Request] button, simply exit from the browser by clicking the [X] button on the
upper right or by pressing [Alt+F4], or by clicking the Logout hyperlink on the
lower left side of the screen.

Ticker/Security Name Lookup Screen:

You arrive at this screen from the Trade Request Screen, where you've clicked
the [Lookup] button (see above, "If You Don't Know the Ticker, Cusip, or
Security Name"). If you see the security you want to trade, you simply select
its corresponding hyperlink, and you will automatically return to the Trade
Request Screen, where you finish making your trade request. If the security you
want to trade is not shown, that means that it is not recognized by the system
under the criteria you used to look it up. Keep searching under other names
(click the [Return to Request] button) until you are sure that the security is
not in the system. If you determine that the desired security is not in the
system, please contact a member of the compliance department to add the security
for you. Contacts are listed below:

Fred Spring x54987          Michelle Yung x54883      MaryEllen Logee x54967

Adding Brokerage Accounts:

To access this functionality, click on the Add Brokerage Account hyperlink on
the left frame of your browser screen. You will be prompted to enter the
Brokerage Account Number, Brokerage Account Name, Date Opened, and Broker. When
you click the [Create New Brokerage Account] button, you will receive a message
that informs you whether the account was successfully created.

                                       14

<PAGE>

3.   Pre-clearance for Private Placements and Initial Public Offerings:

                                [GRAPHIC OMITTED]

You may request a preclearance of private placement securities or an Initial
Public Offering by contacting Fred Spring via Microsoft Outlook (please "cc."
Tim Fagan on all such requests). Please keep in mind that the code of ethics
prohibits Investment Access persons from purchasing securities in an initial
public offering.

The request must include:

[_]  the associate's name;

[_]  the associate's John Hancock Funds' company;

[_]  the complete name of the security;

[_]  the seller and whether or not the seller is one with whom the associate
     does business on a regular basis;

[_]  any potential conflict, present or future, with fund trading activity and
     whether the security might be offered as inducement to later recommend
     publicly traded securities for any fund; and

|_|  the date of the request.

Clearance of private placements or initial public offerings may be denied if the
transaction could create the appearance of impropriety. Clearance of initial
public offerings will also be denied if the transaction is prohibited for a
person due to his or her access category under the code of ethics.

                                       15

<PAGE>

Appendix C: Limited Access Persons

You are a Limited Access person if you are a director of John Hancock Advisers,
LLC or a John Hancock fund and you meet the two following criteria:

     (a)  you are not an officer of John Hancock Advisers, LLC or a John Hancock
          fund; and

     (b)  you do not obtain information in the ordinary course of business
          regarding the purchase or sale of securities by a John Hancock fund.

(examples: certain directors of John Hancock Advisers, LLC or a John Hancock
fund)

The following policies apply to your category. These policies are described in
detail in the code of ethics.

- -    Fundamental concept

- -    Inside information policy and procedures*

- -    Broker letter/Duplicate Confirms*

- -    Initial/annual holdings reports*

- -    Quarterly transaction reports*

- -    Annual recertification*

*Exception: If you are an independent director of a John Hancock fund:

- -    you are exempt from the broker letter/duplicate confirms requirement

- -    you are exempt from the inside information policy and procedures

- -    you do not have to file an initial holdings report.

- -    you do not have to file an annual holdings report.

- -    you do not have to file a quarterly transaction report unless you knew (or
     should have known) that during the 15 calendar days before or after you
     trade a security, either:

     (i)  a John Hancock fund purchased or sold the same security, or

     (ii) a John Hancock fund or John Hancock Advisers, LLC considered
          purchasing or selling the same security.

          This policy applies to holdings in your personal accounts, those of a
          spouse, "significant other" or family members sharing your household,
          as well as all accounts over which you have discretion or give advice
          or information. If this situation occurs, it is your responsibility to
          contact Tom Connors, Vice President, at (617) 375-1724 and he will
          assist you with the requirements of the quarterly transaction report.

                                       16

<PAGE>

Appendix D: Subadvisers

A subadviser to a John Hancock fund has a number of responsibilities under this
code of ethics. If John Hancock Advisers, LLC determines that a subadviser has
failed to comply with the provisions of Rule 17j-1, John Hancock Advisers, LLC
may deem the subadviser's directors, officers or employees to be subject to this
code of ethics.

     Approval of Code of Ethics

Each subadviser to a John Hancock fund must provide a copy of its code of ethics
to the trustees of the relevant John Hancock funds for approval initially and
within 60 calendar days of any material amendment. The trustees will give their
approval if they determine that the code:

- -    contains provisions reasonably necessary to prevent the subadviser's Access
     Persons (as defined in Rule 17j-1) from engaging in any conduct prohibited
     by Rule 17j-1;

- -    requires the subadviser's Access Persons to make reports to at least the
     extent required in Rule 17j-1(d);

- -    requires the subadviser to institute appropriate procedures for review of
     these reports by management or compliance personnel (as contemplated by
     Rule 17j-1(d)(3));

- -    provides for notification of the subadviser's Access Persons in accordance
     with Rule 17j-1(d)(4); and

- -    requires the subadviser's Access Persons who are Investment Personnel to
     obtain the pre-clearances required by Rule 17j-1(e);

     Reports and Certifications

Each subadviser must provide an annual report and certification to John Hancock
Advisers, LLC and the fund's trustees in accordance with Rule 17j-1(c)(2)(ii).
The subadviser must also provide other reports or information that John Hancock
Advisers, LLC may reasonably request.

     Recordkeeping Requirements

The subadviser must maintain all records for its Access Persons as required by
Rule 17j-1(f).

                                       17

<PAGE>

Appendix E: Administration and Recordkeeping

     Adoption and Approval

The trustees of a John Hancock fund must approve the code of ethics of an
adviser, subadviser or affiliated principal underwriter before initially
retaining its services.

Any material change to a code of ethics of a John Hancock fund, John Hancock
Funds, LLC, John Hancock Advisers, LLC or a subadviser to a fund must be
approved by the trustees of the John Hancock fund, including a majority of
trustees who are not interested persons, no later than six months after adoption
of the material change.

     Administration

No less frequently than annually, John Hancock Funds, LLC, John Hancock
Advisers, LLC, each subadviser and each John Hancock fund will furnish to the
trustees of each John Hancock fund a written report that:

- -    describes issues that arose during the previous year under the code of
     ethics or the related procedures, including, but not limited to,
     information about material code or procedure violations, and

- -    certifies that each entity has adopted procedures reasonably necessary to
     prevent its access persons from violating its code of ethics.

     Recordkeeping

The Compliance Department will maintain:

- -    a copy of the current code of ethics for John Hancock Funds, LLC, John
     Hancock Advisers, LLC, and each John Hancock fund, and a copy of each code
     of ethics in effect at any time within the past five years.

- -    a record of any violation of the code of ethics, and of any action taken as
     a result of the violation, for six years.

- -    a copy of each report made by an Access person under the code of ethics,
     for six years (the first two years in a readily accessible place).

- -    a record of all persons, currently or within the past five years, who are
     or were required to make reports under the code of ethics. This record will
     also indicate who was responsible for reviewing these reports.

- -    a copy of each code of ethics report to the trustees, for six years (the
     first two years in a readily accessible place).

- -    a record of any decision, and the reasons supporting the decision, to
     approve the acquisition by an Investment Access person of initial public
     offering securities or private placement securities, for six years.

                                       18

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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