July 21, 2004
EDGAR
United States Securities and
Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form N-CSR
John Hancock Patriot Preferred Dividend Fund (the "Registrant")
File Nos. 811-7590
Ladies and Gentlemen:
Enclosed herewith for filing pursuant to the Investment Company Act of 1940
and the Securities Exchange Act of 1934 is the Registrant's Form N-CSR filing
for the period ending May 31, 2004.
If you have any questions or comments regarding this filing, please contact
the undersigned at (617) 375-1513.
Sincerely,
/s/Alfred P. Ouellette
Alfred Ouellette
Attorney and Assistant Secretary
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Patriot Preferred Dividend Fund
5.31.2004
Annual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chairman, President and Chief Executive
Officer of John Hancock Funds, LLC, flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
Fund's investments
page 6
Financial statements
page 9
Trustees & officers
page 22
For your information
page 25
To Our Shareholders,
I am pleased to be writing to you as Chairman, President and Chief
Executive Officer of John Hancock Funds, LLC.
As you may know, John Hancock Financial Services, Inc. -- the parent
company of John Hancock Funds -- was acquired by Manulife Financial
Corporation on April 28, 2004. Although this change has no impact on the
mutual funds you have invested in, it did bring with it some changes in
the executive-level management of John Hancock Funds. Specifically,
Maureen Ford Goldfarb has decided to step down as Chairman, President
and Chief Executive Officer of John Hancock Funds, LLC in order to
pursue personal interests, and I was named her replacement. Since her
appointment in January 2000, Maureen has provided John Hancock Funds
with strong leadership and steady guidance through several years of
extremely turbulent market and industry conditions.
Additionally, on May 12, 2004, your fund's Board of Trustees appointed
me to the roles of Trustee, President and Chief Executive Officer of
your fund. On June 15, 2004, the board also appointed Charles L. Ladner
as independent Chairman of the Board of Trustees, a position previously
held by Ms. Goldfarb. This appointment came just in advance of new SEC
regulations requiring all mutual funds to have independent chairmen.
As to our backgrounds, I have been in the investment business for over
25 years, most recently as President of Retirement Services at John
Hancock Financial Services. My responsibilities included developing and
directing the sale of John Hancock's variable and fixed annuity products
through a diverse distribution network of banks and broker-dealers --
including wirehouses, regional brokerage houses and financial planners.
Mr. Ladner has served as an independent member of John Hancock Funds'
Board of Trustees since 1992 and formerly held the position of Senior
Vice President and Chief Financial Officer of UGI Corporation, a public
utility holding company in Valley Forge, PA, until his retirement in
1998. He brings a wealth of knowledge, experience and leadership and we
are delighted to have him serve as Chairman.
Although there has been change in executive-level management, the one
thing that never wavers is John Hancock Funds' commitment to placing the
needs of our shareholders above all else. We are all dedicated to the
task of working with you and your financial advisor to help you reach
your long-term financial goals.
Sincerely,
/S/ JAMES A. SHEPHERDSON
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of May 31, 2004. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
to provide high
current income,
consistent with
preservation of
capital, by nor-
mally investing at
least 80% of its
assets in dividend-
paying securities.
Over the last twelve months
* Preferred stocks were volatile in response to shifting views about the
direction of the economy, inflation and interest rates.
* The Fund's performance lagged its peer group due to a smaller mandated
stake in utility common stocks.
* High-quality, tax-advantaged securities helped the Fund's performance.
[Bar chart with heading "John Hancock Patriot Preferred Dividend Fund."
Under the heading is a note that reads "Fund performance for the year ended
May 31, 2004." The chart is scaled in increments of 2% with 0% at the
bottom and 8% at the top. The bar represents the 7.90% total return for the
Fund. A note below the chart reads "The total return for the Fund is at net
asset value with all distributions reinvested."]
Top 10 issuers
4.9% Lehman Brothers Holdings, Inc.
4.8% Citigroup, Inc.
4.8% Bear Stearns Cos., Inc.
4.5% HSBC USA, Inc.
4.2% El Paso Tennessee Pipeline Co.
4.1% Alabama Power Co.
4.0% Anadarko Petroleum Corp.
3.7% Bank of America Corp.
3.7% SLM Corp.
3.6% J.P. Morgan Chase & Co.
As a percentage of net assets plus the value of preferred shares on May
31, 2004.
1
BY GREGORY K. PHELPS AND MARK T. MALONEY FOR THE PORTFOLIO MANAGEMENT
TEAM
MANAGERS'
REPORT
JOHN HANCOCK
Patriot Preferred
Dividend Fund
Preferred stocks -- which are the primary emphasis of John Hancock
Patriot Preferred Dividend Fund -- were on a proverbial roller-coaster
ride during the 12 months ended May 31, 2004, fluctuating in response to
changing expectations about the economy, inflation and interest rates.
Preferred stocks began the period on somewhat weak footing when the U.S.
Treasury market suffered a steep decline due to growing concerns that
the Federal Reserve Board would be forced to hike interest rates sooner
rather than later in order to cool faster-than-expected economic growth.
Because preferreds make fixed payments in the form of dividends, their
prices, like bonds', tend to move in the opposite direction of interest
rates. Preferreds and bonds regained their footing later in the summer
when the economy and inflation concerns briefly cooled and the Fed
reassured investors that it wasn't in any hurry to raise rates. Strong
economic data caused preferreds to lapse into negative territory again
in the fall, but weaker-than-expected employment data and comments from
the Fed indicating that interest rate hikes were still distant triggered
a winter rally. In the final months of the period, the preferred market
sold off once more when a string of stronger-than-expected economic
reports and Fed Chairman Alan Greenspan's Congressional testimony
convinced investors that the Fed would raise interest rates sooner than
expected.
"Preferred stocks...were
on a proverbial roller-
coaster ride during
the 12 months ended
May 31, 2004..."
Utility common stocks enjoyed much more favorable conditions and produced
far better returns than preferreds for the year, defying historical trends
by doing well when interest rates were on the rise. Some of their success
owed to the 2003 reduction in taxes that individuals pay on most stock
dividends. Utilities traditionally have offered consistently high dividends
over the years, and those with dividends subject to tax relief benefited the
most
2
during the period. Another factor aiding the group was its overall improved
financial condition, the result of utilities' efforts to reduce debt,
improve their balance sheets and shed money-losing unregulated subsidiaries.
[Photos of Greg Phelps and Mark Maloney flush right next to first
paragraph.]
PERFORMANCE
For the 12 months ended May 31, 2004, John Hancock Patriot Preferred
Dividend Fund returned 7.90% at net asset value. By comparison, the
average income and preferred stock closed-end fund returned 7.31%,
according to Lipper, Inc. In the same 12-month period, the Dow Jones
Utility Average -- which tracks the performance of 15 electric and
natural gas utilities -- returned 16.64%, and the broader stock market,
as measured by the Standard & Poor's 500 Index, returned 18.32%.
"...the Fund did have its
share of winners among
utility common stocks..."
The Fund's underperformance relative to the indexes stems from its smaller
stake in utility common stocks, which performed far better than preferred
stocks during the period. By design, the Fund's investments in preferred
stocks must total at least 80% of net assets, naturally limiting our stake
in utility common stocks. That said, the Fund did have its share of winners
among utility common stocks, including our holdings in Dominion Resources.
The company, a fully integrated gas and electric holding company, benefited
from strong results from its regulated electric operation, as well as from
improving trends in its gas operations due to rising energy prices. Higher
oil and natural gas prices also helped boost our holdings in People's Energy
Corp., a holding company whose income is derived principally from its
regulated utility subsidiaries, which are primarily engaged in the sale and
transportation of natural gas to residential, commercial and industrial
customers in Chicago and the northeast section of Illinois. A disappointment
among our utility common holdings was Kansas City-based Aquila, a
multinational energy provider that has been trying to regain financial
stability after retreating from the wholesale energy-trading markets which
caused so many utilities pain in 2002. Despite the company's challenges in
fighting its way back, we continued to maintain our stake in Aquila because
we believe
3
management is making positive steps toward reducing debt, strengthening its
balance sheet and putting energy trading-related problems behind it.
[Table at top left-hand side of page entitled "Top five industry groups 1."
The first listing is Utilities 39%, the second is Oil & gas 12%, the third
is Finance 12%, the fourth is Broker services 12% and the fifth is Banks --
United States 8%.]
TAX-ADVANTAGED PREFERREDS OUTPERFORM
In an otherwise disappointing year for preferred stocks, those that
offered a combination of high quality and tax advantage under the recent
reduction in the tax on dividends generally outperformed their fully
taxable counterparts. A good example was our stake in Citigroup, a
global financial services company providing consumers, corporations,
governments and institutions with a broad range of financial products
and services, including consumer banking and credit, corporate and
investment banking, insurance, securities brokerage and asset
management. SLM, more commonly known as Sallie Mae, whose primary
business is to originate, acquire and hold student loans, was another
high-quality tax-advantaged holding that did well.
[Pie chart at middle of page with heading "Portfolio diversification 1."
The chart is divided into three sections (from top to left): Preferred
stocks 84%, Common stocks 14% and Short-term investments & other 2%.]
OUTLOOK
In our view, it's quite clear that the Fed is intent on raising interest
rates reasonably soon given the recent spate of surprisingly strong
employment and other economic data. In anticipation of rates moving higher,
the bond and preferred-stock markets seem to have already factored into
Treasury and preferred-stock prices as much as three-quarters of a
percentage point interest rate rise. Beyond what the market currently
anticipates, only time will tell what the direction of interest rates and
the performance of preferred stocks will be. On the one hand, if the economy
continues to strengthen and there's more upward pressure on interest rates,
preferreds could continue to struggle. On the
4
other hand, there are some cross currents that could forestall any
additional interest rate hikes beyond those the market currently
anticipates. Chief among those offsetting factors are higher interest rates
themselves, which, coupled with high energy prices may slow consumer
spending. In addition, the positive effects of last year's income-tax cuts
and home-loan refinancings are behind us, which may limit consumption going
forward. As for utility common stocks, we remain optimistic about their
prospects. The utility companies' improving financial health should continue
to catch the eye of investors looking for dividend-producing stocks.
[Table at top of page entitled "SCORECARD." The header for the left column
is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Citigroup followed by an up arrow with the phrase "Solid performer due to
high quality and tax advantages." The second listing is Dominion Resources
followed by an up arrow with the phrase "Rising energy prices help boost
financial performance." The third listing is Aquila followed by a down
arrow with the phrase "Lingering problems with energy trading causes
concern."]
"...it's quite clear that
the Fed is intent on
raising interest rates
reasonably soon..."
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. The
managers' statements reflect their own opinions. As such, they are in no
way guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
1 As a percentage of the Fund's portfolio on May 31, 2004.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
May 31, 2004
This schedule is divided into three main categories: preferred stocks,
common stocks and short-term investments. Stocks are further broken down
by industry group. Short-term investments, which represent the Fund's
cash position, are listed last.
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
PREFERRED STOCKS 131.54% $123,846,218
(Cost $125,846,855)
Agricultural Operations 4.46% 4,200,000
Ocean Spray Cranberries, Inc., 6.25%, Ser A (R) BB+ 60,000 4,200,000
Banks -- Foreign 1.88% 1,771,200
Royal Bank of Scotland Group Plc, 5.75%, Ser B
(United Kingdom) A1 80,000 1,771,200
Banks -- United States 12.91% 12,153,671
Bank of America Corp., 6.75%, Ser VI A- 102,100 5,498,085
HSBC USA, Inc., $2.8575 A1 133,700 6,655,586
Broker Services 18.55% 17,466,740
Bear Stearns Cos., Inc. (The), 6.15%,
Depositary Shares, Ser E BBB 100,600 5,130,600
Bear Stearns Cos., Inc. (The), 5.72%,
Depositary Shares, Ser F A3 40,000 1,888,000
Lehman Brothers Holdings, Inc., 5.94%,
Depositary Shares, Ser C BBB+ 102,500 4,917,950
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D BBB+ 48,000 2,283,360
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A A- 120,700 3,246,830
Chemicals 3.04% 2,864,550
Du Pont (E.I.) de Nemours & Co., $4.50, Ser B A 33,900 2,864,550
Diversified Operations 2.36% 2,224,820
Grand Metropolitan Delaware, L.P., 9.42%, Gtd Ser A BBB+ 86,000 2,224,820
Finance 18.85% 17,749,495
Citigroup, Inc., 6.213%, Depositary Shares, Ser G Aa3 52,000 2,618,200
Citigroup, Inc., 6.231%, Depositary Shares, Ser H Aa3 88,700 4,466,045
J.P. Morgan Chase & Co., 6.625%, Depositary Shares, Ser H A- 100,000 5,287,000
SLM Corp., 6.97%, Ser A BBB+ 101,000 5,378,250
Leasing Companies 4.86% 4,572,000
Amerco, 8.50%, Ser A D *** 180,000 4,572,000
See notes to
financial statements.
6
FINANCIAL STATEMENTS
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
Media 5.39% $5,077,730
Shaw Communications, Inc., 8.45%, Ser A (Canada) B+ 202,300 5,077,730
Oil & Gas 19.41% 18,273,323
Anadarko Petroleum Corp., 5.46%, Depositary Shares, Ser B Baa3 60,989 5,900,686
Apache Corp., 5.68%, Depositary Shares, Ser B Baa2 52,200 5,190,637
Devon Energy Corp., 6.49%, Ser A BB+ 50,000 5,150,000
Nexen, Inc., 7.35% (Canada) BBB- 80,000 2,032,000
Utilities 39.83% 37,492,689
Alabama Power Co., 5.20% BBB+ 251,400 6,008,460
Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 20,000 2,145,000
Boston Edison Co., 4.78% A3 15,790 1,290,043
Coastal Finance I, 8.375% CCC- 199,800 4,205,790
Duquesne Light Co., 6.50% BB+ 29,000 1,428,250
El Paso Tennessee Pipeline Co., 8.25%, Ser A CCC- 136,600 6,193,963
Energy East Capital Trust I, 8.25% BBB- 168,000 4,344,480
Northern Indiana Public Service Co., 7.44% BB+ 15,150 1,559,030
PSEG Funding Trust II, 8.75% BB+ 30,000 815,400
PSI Energy, Inc., 6.875% BBB- 14,350 1,463,700
Public Service Electric & Gas Co., 6.92% BB+ 19,000 1,996,188
Sierra Pacific Power Co., 7.80%, Ser 1 (Class A) CCC+ 110,000 2,420,000
Southern Union Co., 7.55%, Ser A Ba2 55,000 1,447,600
Southwest Gas Capital II, 7.70% BB 60,000 1,539,000
Wisconsin Public Service Corp., 6.76% A 6,095 635,785
COMMON STOCKS 21.07% $19,834,265
(Cost $21,753,390)
Utilities 21.07% 19,834,265
Alliant Energy Corp. 60,000 1,498,800
Aquila, Inc.** 88,000 352,880
Dominion Resources, Inc. 27,500 1,731,675
DTE Energy Co. 30,000 1,206,300
KeySpan Corp. 81,000 2,867,400
NiSource, Inc. 34,000 688,840
Northeast Utilities 86,750 1,656,925
NSTAR 50,000 2,364,000
Peoples Energy Corp. 28,000 1,159,760
Progress Energy, Inc., Contingent Value Obligation (I)** 37,500 10,875
Puget Energy, Inc. 73,500 1,578,780
Sierra Pacific Resources** 215,000 1,603,900
TECO Energy, Inc. 62,000 753,920
WPS Resources Corp. 30,000 1,357,800
Xcel Energy, Inc. 59,000 1,002,410
See notes to
financial statements.
7
FINANCIAL STATEMENTS
INTEREST CREDIT PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE RATING* (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 2.70% $2,539,000
(Cost $2,539,000)
Commercial Paper 2.70%
ChevronTexaco Corp., 06-01-04 0.870% A-1+ $2,539 2,539,000
TOTAL INVESTMENTS 155.31% $146,219,483
OTHER ASSETS AND LIABILITIES, NET (55.31%) ($52,071,582)
TOTAL NET ASSETS 100.00% $94,147,901
* Credit ratings are unaudited and are rated by Moody's Investors
Service where Standard and Poor's ratings are not available, unless
indicated otherwise.
** Non-income-producing security.
*** Security rated internally by John Hancock Advisers, LLC.
(I) This security is valued in good faith under procedures established
by the Board of Trustees.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $4,200,000 or 4.46% of
net assets as of May 31, 2004.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
The percentage shown for each investment category is the total value
of that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
8
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
May 31, 2004
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes.
You'll also find
the net asset
value for each
common share.
ASSETS
Investments at value (cost $150,139,245) $146,219,483
Cash 683
Receivable for investments sold 284,321
Dividends receivable 392,379
Other assets 29,301
Total assets 146,926,167
LIABILITIES
Payable to affiliates
Management fees 99,269
Other 18,613
Other payables and accrued expenses 101,889
Total liabilities 219,771
Auction Rate Preferred Shares (ARPS), at value,
unlimited number of shares of beneficial
interest authorized with no par value,
525 shares issued, liquidation preference of
$100,000 per share 52,558,495
NET ASSETS
Common shares capital paid-in 98,893,650
Accumulated net realized loss on investments (2,673,494)
Net unrealized depreciation of investments (3,919,762)
Accumulated net investment income 1,847,507
Net assets applicable to common shares $94,147,901
NET ASSET VALUE PER COMMON SHARE
Based on 7,257,200 shares of beneficial interest
outstanding -- unlimited number of shares
authorized with no par value $12.97
See notes to
financial statements.
9
FINANCIAL STATEMENTS
OPERATIONS
For the year ended
May 31, 2004
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in oper-
ating the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends $9,203,534
Interest 32,006
Total investment income 9,235,540
EXPENSES
Investment management fees 1,199,365
Administration fees 224,881
ARPS auction fees 139,212
Professional fees 54,366
Federal excise tax 51,668
Registration and filing fees 49,555
Transfer agent fees 39,177
Custodian fees 33,354
Printing 27,718
Trustees' fees 9,627
Total expenses 1,828,923
Net investment income 7,406,617
REALIZED AND UNREALIZED GAIN
Net realized gain on investments 263,572
Change in net unrealized appreciation
(depreciation) of investments 392,661
Net realized and unrealized gain 656,233
Distributions to ARPS (574,495)
Increase in net assets from operations $7,488,355
See notes to
financial statements.
10
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in
Net Assets show
how the value
of the Fund's
net assets has
changed during
the last two
periods. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses and
distributions,
if any, paid to
shareholders.
YEAR YEAR
ENDED ENDED
5-31-03 5-31-04
INCREASE IN NET ASSETS
From operations
Net investment income $7,849,173 $7,406,617
Net realized gain (loss) (1,089,148) 263,572
Change in net unrealized
appreciation (depreciation) 5,149,584 392,661
Distributions to ARPS (795,256) (574,495)
Increase in net assets
resulting from operations 11,114,353 7,488,355
Distributions to common shareholders
From net investment income (6,270,221) (8,084,520)
NET ASSETS
Beginning of period 89,899,934 94,744,066
End of period 1 $94,744,066 $94,147,901
1 Includes accumulated net investment income of $3,051,612 and
$1,847,507, respectively.
See notes to
financial statements.
11
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
COMMON SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 5-31-00 5-31-01 5-31-02 5-31-03 5-31-04
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $13.84 $11.76 $12.96 $12.39 $13.06
Net investment income 1 1.25 1.24 1.18 1.08 1.02
Net realized and unrealized
gain (loss) on investments (2.16) 1.16 (0.73) 0.56 0.08
Distributions to ARPS (0.31) (0.34) (0.16) (0.11) (0.08)
Total from
investment operations (1.22) 2.06 0.29 1.53 1.02
Less distributions to
common shareholders
From net investment income (0.86) (0.86) (0.86) (0.86) (1.11)
Net asset value, end of period $11.76 $12.96 $12.39 $13.06 $12.97
Per share market value,
end of period $10.25 $11.75 $12.47 $13.07 $12.00
Total return at market value 2 (%) (3.37) 23.81 13.76 12.50 (0.24)
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to common shares,
end of period (in millions) $85 $94 $90 $95 $94
Ratio of expenses to average net assets 3 (%) 1.96 1.91 1.96 2.11 1.88
Ratio of net investment income to
average net assets 4 (%) 9.97 9.89 9.09 9.21 7.60
Portfolio turnover (%) 22 10 16 9 7
SENIOR SECURITIES
Total value of ARPS outstanding (in millions) $53 $53 $53 $53 $53
Involuntary liquidation preference
per unit (in thousands) $100 $100 $100 $100 $100
Average market value per unit (in thousands) $100 $100 $100 $100 $100
Asset coverage per unit 5 $260,212 $276,853 $270,318 $277,801 $276,094
1 Based on the average of the shares outstanding.
2 Assumes dividend reinvestment.
3 Ratios calculated on the basis of expenses relative to the average net
assets of common shares. Without the exclusion of preferred shares, the
ratio of expenses would have been 1.24%, 1.21%, 1.26%,1.30% and 1.22%,
respectively.
4 Ratios calculated on the basis of net investment income relative to
the average net assets of common shares. Without the exclusion of
preferred shares, the ratio of net investment income would have been
6.31%, 6.27%, 5.84%, 5.70% and 4.94%, respectively.
5 Calculated by subtracting the Fund's total liabilities from the Fund's
total assets and dividing that amount by the number of ARPS outstanding
as of the applicable 1940 Act Evaluation Date, which may differ from the
financial reporting date.
See notes to
financial statements.
12
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock Patriot Preferred Dividend Fund (the "Fund") is a
diversified closed-end management investment company registered under
the Investment Company Act of 1940.
Significant accounting policies
of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60
days are valued at amortized cost, which approximates market value. The
Fund determines the net asset value of the common shares each business
day.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
Expenses
The majority of expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund are
allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
The Fund paid $51,668 of federal excise tax due to calendar year
distribution requirements. For federal income tax purposes, the Fund has
$2,381,886 of a capital loss carryforward available, to the extent
provided by regulations, to offset future net realized capital gains. To
the extent that such carryforward is used by the Fund, no capital gain
distributions will be made. The loss carryforward expires as follows:
May 31, 2010 -- $1,226,894, May 31, 2011 -- $1,075,016 and May 31, 2012
- -- $79,976. Net capital losses of $104,407 that are attributable to
security transactions incurred after October 31, 2003, are treated as
arising on June 1, 2004, the first day of the Fund's next taxable year.
Dividends, interest
and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
13
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date. During the year
ended May 31, 2004, the tax character of distributions paid was as
follows: ordinary income $8,659,015.
As of May 31, 2004, the components of distributable earnings on a tax
basis included $1,808,982 of undistributed ordinary income.
Such distributions and distributable earnings, on a tax basis, are
determined in conformity with income tax regulations, which may differ
from accounting principles generally accepted in the United States of
America. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with John Hancock
Advisers, LLC (the "Adviser"), a wholly owned subsidiary of John Hancock
Financial Services, Inc. Under the investment management contract, the
Fund pays a monthly management fee to the Adviser at an annual rate of
0.80% of the Fund's average weekly net asset value and the value
attributable to the Auction Rate Preferred Shares (collectively,
"managed assets").
The Fund has an administrative agreement with the Adviser under which
the Adviser oversees the custodial, auditing, valuation, accounting,
legal, stock transfer and dividend disbursing services and maintains
Fund communications with shareholders. The Fund pays the Adviser a
monthly administration fee at an annual rate of 0.15% of the Fund's
average weekly managed assets. The Fund also paid the Adviser the amount
of $893 for certain publishing services, included in the printing fees.
Mr. James A. Shepherdson is a director and/or officer of the Adviser
and/or its affiliates, as well as Trustee of the Fund. The compensation
of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer, for tax purposes, their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investments, as well
as any unrealized gains or losses. The Deferred Compensation Plan
investments had no impact on the operations of the Fund.
NOTE C
Fund share transactions
Common shares
The Fund had no common share transactions during the last two years.
Auction Rate
Preferred Shares
The Fund issued 525 shares of Auction Rate Preferred Shares ("ARPS") on
July 29, 1993, in a public offering. The underwriting discount of $918,750
and the offering costs of $610,007 associated with the offering of the
common shares and ARPS were recorded as a reduction of the capital of
common shares.
14
Dividends on the ARPS, which accrue daily, are cumulative at a rate that
was established at the offering of the ARPS and has been reset every 49
days thereafter by an auction. Dividend rates on ARPS ranged from 0.95%
to 1.22% during the year ended May 31, 2004. Accrued dividends on ARPS
are included in the value of ARPS on the Fund's Statement of Assets and
Liabilities.
The ARPS are redeemable at the option of the Fund, at a redemption price
equal to $100,000 per share, plus accumulated and unpaid dividends on
any dividend payment date. The ARPS are subject to mandatory redemption
at a redemption price equal to $100,000 per share, plus accumulated and
unpaid dividends, if the Fund is in default on its asset coverage
requirements with respect to the ARPS, as defined in the Fund's by-laws.
If the dividends on the ARPS shall remain unpaid in an amount equal to
two full years' dividends, the holders of the ARPS, as a class, have the
right to elect a majority of the Board of Trustees. In general, the
holders of the ARPS and the common shareholders have equal voting rights
of one vote per share, except that the holders of the ARPS, as a class,
vote to elect two members of the Board of Trustees, and separate class
votes are required on certain matters that affect the respective
interests of the ARPS and common shareholders.
NOTE D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the year ended May 31, 2004, aggregated $13,331,247 and
$10,799,575, respectively.
The cost of investments owned on May 31, 2004, including short-term
investments, for federal income tax purposes, was $150,326,419. Gross
unrealized appreciation and depreciation of investments aggregated
$5,553,191 and $9,660,127, respectively, resulting in net unrealized
depreciation of $4,106,936. The difference between book basis and tax
basis net unrealized depreciation of investments is attributable
primarily to the tax deferral of losses on certain sales of securities.
NOTE E
Reclassification of
accounts
During the year ended May 31, 2004, the Fund reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of
$85,406, an increase in accumulated net investment income of $48,293 and
a decrease in capital paid-in of $133,699. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of May 31, 2004. Additional adjustments may be
needed in subsequent reporting periods. These reclassifications, which
have no impact on the net asset value of the Fund, are primarily
attributable to certain differences in the computation of distributable
income and capital gains under federal tax rules versus accounting
principles generally accepted in the United States of America, book and
tax differences in accounting for deferred compensation, federal excise
tax and expiring capital loss carryover. The calculation of net
investment income (loss) per share in the Fund's Financial Highlights
excludes these adjustments.
15
AUDITORS'
REPORT
Report of
Deloitte & Touche
LLP, Independent
Registered Public
Accounting Firm
To The Board of Trustees and Shareholders of John Hancock Patriot
Preferred Dividend Fund,
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of John Hancock Patriot Preferred
Dividend Fund (the "Fund") as of May 31, 2004, and the related statement
of operations for the year then ended, the statement of changes in net
assets for the years ended May 31, 2004 and 2003 and the financial
highlights for each of the years in the five year period ended May 31,
2004. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at May 31, 2004, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Fund as of May 31, 2004, the results of its operations for the year then
ended, the changes in its net assets for the year ended May 31, 2004 and
2003, and its financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
July 6, 2004
16
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund, if any, paid during its
taxable year ended May 31, 2004.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended May 31, 2004, 100.00% of the dividends qualify for the
corporate dividends-received deduction.
The Fund hereby designates the maximum amount allowable of its net
taxable income as qualified dividend income as provided in the Jobs and
Growth Tax Relief Reconciliation Tax Act of 2003. This amount will be
reflected on Form 1099-DIV for the calendar year 2004.
Shareholders will be mailed a 2004 U.S. Treasury Department Form
1099-DIV in January 2005. This will reflect the total of all
distributions that are taxable for calendar year 2004.
17
INVESTMENT
OBJECTIVE
AND POLICY
The Fund's investment objective is to provide high current income
consistent with preservation of capital. The Fund will pursue its
objective by investing in preferred stocks that, in the opinion of the
Adviser, may be undervalued relative to similar securities in the
marketplace.
The Fund's non-fundamental investment policy, which became effective
October 15, 1994, with respect to the quality of ratings of its
portfolio investments stipulates that preferred stocks and debt
obligations in which the Fund will invest will be rated investment-grade
(at least "BBB" by S&P or "Baa" by Moody's) at the time of investment or
will be preferred stocks of issuers of investment grade senior debt,
some of which may have speculative characteristics, or, if not rated,
will be of comparable quality as determined by the Adviser. The Fund
will invest in common stocks of issuers whose senior debt is rated
investment grade or, in the case of issuers that have no rated senior
debt outstanding, whose senior debt is considered by the Adviser to be
of comparable quality. This policy supersedes the requirement that at
least 80% of the Fund's total assets consist of preferred stocks and
debt obligations rated "A" or higher and dividend paying common stocks
whose issuers have senior debt rated "A" or higher.
The Fund's Trustees approved the following investment policy investment
restriction change, effective December 15, 2001. Under normal circumstances
the Fund will invest at least 80% of its assets in dividend-paying
securities. The "Assets" are defined as net assets including the liquidation
preference amount of the ARPS plus borrowings for investment purposes. The
Fund will notify shareholders at least 60 days prior to any change in this
80% investment policy.
BY-LAWS
In November 2002, the Board of Trustees adopted several amendments to
the Fund's by-laws, including provisions relating to the calling of a
special meeting and requiring advance notice of shareholder proposals or
nominees for Trustee. The advance notice provisions in the by-laws
require shareholders to notify the Fund in writing of any proposal which
they intend to present at an annual meeting of shareholders, including
any nominations for Trustee, between 90 and 120 days prior to the first
anniversary of the mailing date of the notice from the prior year's
annual meeting of shareholders. The notification must be in the form
prescribed by the by-laws. The advance notice provisions provide the
Fund and its Trustees with the opportunity to thoughtfully consider and
address the matters proposed before the Fund prepares and mails its
proxy statement to shareholders. Other amendments set forth the
procedures that must be followed in order for a shareholder to call a
special meeting of shareholders. Please contact the Secretary of the
Fund for additional information about the advance notice requirements or
the other amendments to the by-laws.
Effective December 16, 2003, the Trustees approved additional changes to
the Fund's by-laws. The changes included updating the leveraged rating
agency requirements in keeping with recent changes to the agencies'
basic maintenance reporting requirements for leveraged closed-end funds.
In addition, changes were made to reflect recent updates that Moody's
made to some of their eligible asset and discount factors. These
revisions bring the Fund's by-laws in line with current rating agency
requirements.
DIVIDEND
REINVESTMENT PLAN
The Fund offers its shareholders a Dividend Reinvestment Plan (the
"Plan"), which offers the opportunity to earn compounded yields. Each
holder of common shares may elect to have all distributions of dividends
and capital gains reinvested by Mellon Investor Services, as plan
18
agent for the common shareholders (the "Plan Agent"). Holders of common
shares who do not elect to participate in the Plan will receive all
distributions in cash, paid by check mailed directly to the shareholder
of record (or, if the common shares are held in street or other nominee
name, then to the nominee) by the Plan Agent, as dividend disbursing
agent.
Shareholders may join the Plan by filling out and mailing an
authorization card, by notifying the Plan Agent by telephone, or by
visiting the Plan Agent's Web site at www.melloninvestor.com.
Shareholders must indicate an election to reinvest all or a portion of
dividend payments. If received in proper form by the Plan Agent before
the record date of a dividend, the election will be effective with
respect to all dividends paid after such record date. Shareholders whose
shares are held in the name of a broker or nominee should contact the
broker or nominee to determine whether and how they may participate in
the Plan.
If the Fund declares a dividend payable either in common shares or in
cash, non- participants will receive cash and participants in the Plan
will receive the equivalent in common shares. If the market price of the
common shares on the payment date of the dividend is equal to or exceeds
their net asset value as determined on the payment date, participants
will be issued common shares (out of authorized but unissued shares) at
a value equal to the higher of net asset value or 95% of the market
price. If the net asset value exceeds the market price of the common
shares at such time, or if the Board of Trustees declares a dividend
payable only in cash, the Plan Agent will, as agent for Plan
participants, buy shares in the open market, on the New York Stock
Exchange or elsewhere, for the participant's accounts. Such purchases
will be made promptly after the payable date for such dividend and, in
any event, prior to the next ex-dividend date after such date, except
where necessary to comply with federal securities laws. If, before the
Plan Agent has completed its purchases, the market price exceeds the net
asset value of the common shares, the average per share purchase price
paid by the Plan Agent may exceed the net asset value of the common
shares, resulting in the acquisition of fewer shares than if the
dividend had been paid in shares issued by the Fund.
Each participant will pay a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
the reinvestment of dividends and distributions. In each case, the cost per
share of the shares purchased for each participant's account will be the
average cost, including brokerage commissions, of any shares purchased on
the open market plus the cost of any shares issued by the Fund. There will
be no brokerage charges with respect to common shares issued directly by the
Fund. There are no other charges to participants for reinvesting dividends
or capital gain distributions.
Participants in the Plan may withdraw from the Plan at any time by
contacting the Plan Agent by telephone, in writing or by visiting the
Plan Agent's Web site at www.melloninvestor.com. Such withdrawal will be
effective immediately if received not less than ten days prior to a
dividend record date; otherwise, it will be effective for all subsequent
dividend record dates. When a participant withdraws from the Plan or
upon termination of the Plan, as provided below, certificates for whole
common shares credited to his or her account under the Plan will be
issued and a cash payment will be made for any fraction of a share
credited to such account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by the shareholders for personal and tax
19
records. The Plan Agent will hold common shares in the account of each Plan
participant in non-certificated form in the name of the participant. Proxy
material relating to the shareholders' meetings of the Fund will include
those shares purchased as well as shares held pursuant to the Plan.
The reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable or required
to be withheld on such dividends or distributions. Participants under
the Plan will receive tax information annually. The amount of dividend
to be reported on 1099-DIV should be (1) in the case of shares issued by
the Fund, the fair market value of such shares on the dividend payment
date and (2) in the case of shares purchased by the Plan Agent in the
open market, the amount of cash used by the Plan Agent to purchase
shares in the open market, including the amount of cash allocated to
brokerage commissions paid on such purchases.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan
as applied to any dividend or distribution paid subsequent to written
notice of the change sent to all shareholders of the Fund at least 90
days before the record date for the dividend or distribution. The Plan
may be amended or terminated by the Plan Agent after at least 90 days'
written notice to all shareholders of the Fund. All correspondence or
additional information concerning the Plan should be directed to the
Plan Agent, Mellon Bank, N.A., c/o Mellon Investor Services, P.O. Box
3338, South Hackensack, NJ 07606-1938 (telephone 1-800-852-0218).
SHAREHOLDER
COMMUNICATION
AND ASSISTANCE
If you have any questions concerning the Fund, we will be pleased to
assist you. If you hold shares in your own name and not with a brokerage
firm, please address all notices, correspondence, questions or other
communications regarding the Fund to the transfer agent at:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone 1-800-852-0218
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
20
SHAREHOLDER MEETING
On March 18, 2004, the Annual Meeting of the Fund was held to elect
three Trustees and to ratify the actions of the Trustees in selecting
independent auditors for the Fund.
Proxies covering 6,903,931 shares of beneficial interest were voted at
the meeting. The common shareholders elected the following Trustees to
serve until their respective successors are duly elected and qualified
(there were no current nominees for election by the preferred
shareholders), with the votes tabulated as follows:
WITHHELD
FOR AUTHORITY
- --------------------------------------------------------------------
Patti McGill Peterson 6,844,576 58,979
Steven Pruchansky 6,849,966 53,589
Norman H. Smith 6,843,316 60,239
The common and preferred shareholders also ratified the Trustees'
selection of Deloitte & Touche LLP as the Fund's independent auditors
for the fiscal year ending May 31, 2005, with the votes tabulated as
follows: 6,832,579 FOR, 27,922 AGAINST and 43,430 ABSTAINING.
21
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Charles L. Ladner, 2 Born: 1938 1993 49
Independent Chairman (since 2004); Chairman and Trustee, Dunwoody
Village, Inc. (retirement services); Senior Vice President and Chief
Financial Officer, UGI Corporation (Public Utility Holding Company)
(retired 1998); Vice President and Director for AmeriGas, Inc. (retired
1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution);
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History
Association (since 2001).
James F. Carlin, Born: 1940 1993 29
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since
1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since
1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance
Agency, Inc. (since 1996); Director and Treasurer, Rizzo Associates (until 2000);
Chairman and CEO, Carlin Consolidated, Inc. (management/investments)
(since 1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee,
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director
of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance)
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc.
(until 1999), Carlin Insurance Agency, Inc. (until 1999); Chairman,
Massachusetts Board of Higher Education (until 1999).
William H. Cunningham, Born: 1944 1995 29
Former Chancellor, University of Texas System and former President of the
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies
(until 2001); Director of the following: The University of Texas Investment
Management Company (until 2000), Hire.com (since 2000), STC Broadcasting,
Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. (since 2001), Adorno/
Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2001),
rateGenius (since 2001), LaQuinta Motor Inns, Inc. (hotel management company)
(until 1998), Jefferson-Pilot Corporation (diversified life insurance company)
(since 1985), New Century Equity Holdings (formerly Billing Concepts) (until 2001),
eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001),
LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor
Worldwide (until 2000), AskRed.com (until 2001), Southwest Airlines (since 2000)
and Introgen (since 2000); Advisory Director, Q Investments (since 2000); Advisory
Director, Chase Bank (formerly Texas Commerce Bank -- Austin) (since 1988),
LIN Television (since 2002) and WilTel Communications (since 2002).
22
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Ronald R. Dion, Born: 1946 1998 29
Chairman and Chief Executive Officer, R.M. Bradley & Co., Inc.; Director,
The New England Council and Massachusetts Roundtable; Trustee, North
Shore Medical Center; Director, Boston Stock Exchange; Director, BJ's
Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee,
Emmanuel College.
Patti McGill Peterson, 2 Born: 1943 2002 30
Executive Director, Council for International Exchange of Scholars (since
1998); Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1997); President Emerita of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (electric utility); Director,
Ford Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003); and Advisory Board, UNCF, Global
Partnerships Center (since 2002).
John A. Moore, 2 Born: 1939 2002 30
President and Chief Executive Officer, Institute for Evaluating Health
Risks (nonprofit institution) (until 2001); Chief Scientist, Sciences
International (health research) (until 2003); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Steven Pruchansky, Born: 1944 1993 29
Chairman and Chief Executive Officer, Greenscapes of Southwest
Florida, Inc. (since 2000); Director and President, Greenscapes of
Southwest Florida, Inc. (until 2000); Managing Director, JonJames, LLC
(real estate) (since 2001); Director, First Signature Bank & Trust Company
(until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell
Building Corp. (until 1991).
Norman H. Smith, Born: 1933 1993 29
Lieutenant General, United States Marine Corps; Deputy Chief of Staff for
Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding
General III Marine Expeditionary Force/3rd Marine Division (retired 1991).
John P. Toolan, 2 Born: 1930 1993 29
Director, The Smith Barney Muni Bond Funds, The Smith Barney Tax-Free
Money Funds, Inc., Vantage Money Market Funds (mutual funds), The
Inefficient-Market Fund, Inc. (closed-end investment company); Chairman,
Smith Barney Trust Company of Florida (retired 1991); Director, Smith
Barney, Inc., Mutual Management Company and Smith Barney Advisers, Inc.
(investment advisers) (retired 1991); Senior Executive Vice President, Director
and member of the Executive Committee, Smith Barney, Harris Upham & Co.,
Incorporated (investment bankers) (until 1991).
23
NON-INDEPENDENT TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
James A. Shepherdson, Born: 1952 2004 49
President and Chief Executive Officer
Executive Vice President, Manulife Financial Corporation; Chairman,
Director, President and Chief Executive Officer, John Hancock Advisers,
LLC and The Berkeley Group; Chairman, Director, President and Chief
Executive Officer, John Hancock Funds, LLC; Chairman, President,
Director and Chief Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp"); President, John Hancock Retirement
Services, John Hancock Life Insurance Company (until 2004); Chairman,
Essex Corporation (until 2004); Co-Chief Executive Officer, MetLife
Investors Group (until 2003); Senior Vice President, AXA/Equitable
Insurance Company (until 2000).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock
Funds and The Berkeley Group; Second Vice President and Senior Associate Controller,
Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001).
William H. King, Born: 1952 1993
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each
of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1993
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each
of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustees hold positions with the Fund's investment adviser,
underwriter and certain other affiliates.
24
FOR YOUR
INFORMATION
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT FOR
COMMON SHAREHOLDERS
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
TRANSFER AGENT
FOR ARPS
The Bank of New York
One Wall Street
New York, New York 10286
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
STOCK SYMBOL
Listed New York Stock Exchange:
PPF
For shareholder assistance
refer to page 20
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Customer service
representatives 1-800-852-0218
Portfolio commentary 1-800-344-7054
24-hour automated information 1-800-843-0090
TDD Line 1-800-231-5469
The Fund's proxy voting policies and procedures are available without
charge, upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site www.sec.gov
25
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-852-0218
1-800-843-0090 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
P700A 5/04
7/04
ITEM 2. CODE OF ETHICS.
As of the end of the period, May 31, 2004, the registrant has adopted a code
of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief
Executive Officer, Chief Financial Officer and Treasurer (respectively, the
principal executive officer, the principal financial officer and the principal
accounting officer, the "Senior Financial Officers"). A copy of the code of
ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Charles L. Ladner is the audit committee financial expert and is
"independent", pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal
accountant(s) for the audit of the registrant's annual financial statements or
services that are normally provided by the accountant(s) in connection with
statutory and regulatory filings or engagements amounted to $29,750 for the
fiscal year ended May 31, 2003 and $31,200 for the fiscal year ended May 31,
2004. These fees were billed to the registrant and were approved by the
registrant's audit committee.
(b) Audit-Related Services
There were no audit-related fees during the fiscal year ended May 31, 2003 and
fiscal year ended May 31, 2004 billed to the registrant or to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant ("control affiliates").
(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal
accountant(s) for the tax compliance, tax advice and tax planning ("tax fees")
amounted to $2,100 for the fiscal year ended May 31, 2003 and $2,250 for the
fiscal year ended May 31, 2004. The nature of the services comprising the tax
fees was the review of the registrant's income tax returns and tax
distribution requirements. These fees were billed to the registrant and were
approved by the registrant's audit committee. There were no tax fees billed to
the control affiliates.
(d) All Other Fees
The all other fees billed to the registrant for products and services provided
by the principal accountant were $24,800 for the fiscal year ended May 31,
2003 and $4,000 for the fiscal year ended May 31, 2004. There were no other
fees during the fiscal year ended May 31, 2003 and May 31, 2004 billed to
control affiliates for products and services provided by the principal
accountant. The nature of the services comprising the all other fees was
related to the principal accountant's report on the registrant's Eligible
Asset Coverage. These fees were approved by the registrant's audit committee.
(e) (1) See attachment "Approval of Audit, Audit-related, Tax and Other
Services", with the audit committee pre-approval policies and procedures.
(e)(2) There were no fees that were approved by the audit committee pursuant
to the de minimis exception for the fiscal years ended May 31, 2003 and May
31, 2004 on behalf of the registrant or on behalf of the control affiliates
that relate directly to the operations and financial reporting of the
registrant.
(f) According to the registrant's principal accountant, for the fiscal year
ended May 31, 2004, the percentage of hours spent on the audit of the
registrant's financial statements for the most recent fiscal year that were
attributed to work performed by persons who were not full-time, permanent
employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant(s) for
services rendered to the registrant and rendered to the registrant's control
affiliates for each of the last two fiscal years of the registrant were
$106,113 for the fiscal year ended May 31, 2003, and $22,888 for the fiscal
year ended May 31, 2004.
(h) The audit committee of the registrant has considered the non-audit
services provided by the registrant's principal accountant(s) to the control
affiliates and has determined that the services that were not pre-approved are
compatible with maintaining the principal accountant(s)' independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee comprised
of independent trustees. The members of the audit committee are as follows:
Charles L. Ladner
Dr. John A. Moore
Patti McGill Peterson
John P. Toolan
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
See attached Exhibit "Proxy Voting Policies and Procedures".
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The registrant has adopted procedures by which shareholders may recommend
nominees to the registrant's Board of Trustees. A copy of the procedures is
filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds -
Administration Committee Charter".
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's principal executive officer and principal financial officer
have concluded that those disclosure controls and procedures provide
reasonable assurance that the material information required to be disclosed by
the registrant on this report is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report)
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics for Senior Financial Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act
of 1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The
certifications furnished pursuant to this paragraph are not deemed to be
"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section. Such certifications are
not deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Registrant specifically incorporates them by reference.
(c)(1) Proxy Voting Policies and Procedures are attached.
(c)(2) Submission of Matters to a Vote of Security Holders is attached. See
attached "John Hancock Funds - Administration Committee Charter".
(c)(3) Approval of Audit, Audit-related, Tax and Other Services is attached.
(c)(4) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Patriot Preferred Dividend Fund
By:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: July 21, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:
-------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: July 21, 2004
By:
-----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: July 21, 2004