August 25, 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 Tax-Advantaged Dividend Income Fund (the "Registrant")
File No. 811-21416
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 June 30, 2004.
If you have any questions or comments regarding this filing, please contact
the undersigned at (617) 375-1513.
Sincerely,
/s/Alfred P. Ouellette
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Tax-Advantaged Dividend Income Fund
6.30.2004
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chairman, President and Chief Executive
Officer 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 11
For your information
page 21
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 June 30, 2004. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks to
provide a high
level of after-tax
total return from
dividend income
and capital appre-
ciation. To meet its
objectives, the
Fund normally
invests at least
80% of its assets
in dividend-paying
common and
preferred securi-
ties that the
Adviser believes
are eligible to
pay dividends
which qualify for
U.S. taxation rates
applicable to long-
term capital gains,
which currently
are taxed at a
maximum rate
of 15%.
Over the period
* The stock market advanced only slightly amid concerns about rising
interest rates and geopolitical concerns.
* Financial stocks underperformed, but utility stocks held up better.
* Volatility aided the Fund's ability to pick up attractively valued
companies in its initial stages of operation.
[Bar chart with heading "John Hancock Tax-Advantaged Dividend Income Fund."
Under the heading is a note that reads "Fund performance for the six months
ended June 30, 2004." The chart is scaled in increments of 2% with -4% at
the bottom and 0% at the top. The bar represents the -3.50% 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
2.7% Bank of America Corp.
2.1% Dominion Resources, Inc.
2.1% Progress Energy, Inc.
2.1% DTE Energy Co.
2.1% Union Planters Corp.
2.1% Ameren Corp.
2.0% NSTAR
2.0% Royal Bank of Scotland Group Plc
2.0% Peoples Energy Corp.
2.0% Comerica, Inc.
As a percentage of net assets plus the value of preferred shares on June
30, 2004.
1
BY GREGORY K. PHELPS, JAMES K. SCHMIDT, CFA, MARK T. MALONEY, AND LISA
A. WELCH FOR THE PORTFOLIO MANAGEMENT TEAM
MANAGERS'
REPORT
JOHN HANCOCK
Tax-Advantaged Dividend Income Fund
Utility and financial common stocks -- the two primary areas of emphasis
of John Hancock Tax-Advantaged Dividend Income Fund -- traveled a bumpy
road from the inception of the Fund on February 27, 2004 through June
30, 2004. They, like the entire stock market, made little headway as
investors were buffeted by the positive news of a strengthening economy
on the one hand, and by a list of growing concerns over interest rates,
inflation and global political conditions on the other. Financial stocks
initially performed reasonably well, bolstered by a string of mergers.
But the group wound up underperforming both the broad market and utility
stocks during the period because investors viewed them as especially
sensitive to rising interest rates, which the Federal Reserve Board
raised on June 30th as expected. Utility stocks also battled against the
weight of interest rate hike fears. But other more positive developments
- -- including their ongoing efforts to repair their balance sheets by
selling unprofitable, unregulated subsidiaries and reducing debt --
helped stabilize their returns. The performance of preferred stocks --
which are a secondary focus of the Fund -- was lackluster as they were
range-bound by changing expectations about the economy, inflation and
interest rates.
"Utility and financial com
mon stocks...traveled a
bumpy road from the
inception of the Fund..."
FUND PERFORMANCE
From its inception on February 27, 2004 through June 30, 2004, John
Hancock Tax-Advantaged Dividend Income Fund returned -3.50% at net
asset value. Over the same period, the Standard & Poor's 500 Index
returned 0.19%.
BUILDING THE PORTFOLIO
Although the volatility that characterized the stock market during the
initial stages of investing the portfolio was
2
challenging over the short term, it held a silver lining of sorts for
investors with a long-term view. It afforded us the opportunity to take a
gradual approach to finding companies we liked at prices we felt were below
their fair value.
[Photos of Greg Phelps, Jim Schmidt, Mark Maloney and Lisa Welch flush
right at top of page.]
Of particular interest to us during the start-up stage of the Fund were
utility common stocks, which benefited from slow but steady improvement
in balance sheets and a number of dividend increases across the
industry, as management responded to better financial conditions and the
new federal 15% tax on qualified dividends. Given that backdrop, we
invested in companies such as Dominion Resources, which was one of our
best performers during the period. 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. Another positive contributor
was KeySpan Corp., one of the largest natural gas distribution utilities
in the country. Our holdings in KeySpan were boosted by a combination of
rising energy prices and the company's efforts to sell assets and pay
down debt, which was seen by many investors as a precursor to higher
dividends down the road. Higher oil and natural gas prices also helped
boost our stake in Peoples 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.
FINANCIALS: SEARCH FOR DIVIDENDS
Within the banking/financial sector, we built a substantial stake in
banks such as Bank of America, which also was one of our best performers
during the period. The number two U.S. bank was boosted in part by its
announcement of a two-for-one stock split and a 12.5% increase in its
quarterly dividend. Banks that were targeted in mergers -- such as the
acquisition of Community First Bankshares by Bancwest Corporation --
also performed well. The current merger renaissance reaffirms two of
3
our theses: that banks perceive there to be value in bank branch networks
and that there are still too many banks -- currently around 8,000 -- that
will inevitably consolidate to a more workable level of about 4,000
nationwide.
[Table at top left-hand side of page entitled "Top five industry groups 1."
The first listing is Utilities 50%, the second is Banks--United States
26%, the third is Broker services 3%, the fourth is Finance 3% and the
fifth is Oil & gas 2%.]
PREFERRED STOCKS LACKLUSTER
Most of our preferred stock holdings got caught up in the interest rate
malaise that troubled the group during the period. Even high-quality
holdings that produced good dividends -- such as Royal Bank of Scotland
- -- couldn't overcome the challenges that daunted the sector. But a few
were able to buck the trend. Our holdings in Xcel Energy, for example,
performed relatively well. We were able to buy the stock when it was
selling at a significant discount to its par value. Since then, it has
risen in response to a credit rating upgrade and its attractive level of
tax-advantaged dividends.
[Pie chart at middle of page with heading "Portfolio diversification 1."
The chart is divided into three sections (from top to left): Common stocks
70%, Preferred stocks 19% and Short-term investments & other 11%.]
OUTLOOK
On the very last day of the Fund's semiannual period, the Fed -- as
anticipated -- raised short-term rates by one-quarter of a percentage point.
In doing so, the Fed also reassured investors by saying it would continue to
maintain a "measured" approach to future rate hikes, erasing current worries
about rates moving too high too fast. Given those comments, plus the fact
that there are some signs that the economy is already beginning to cool --
including reduced auto sales and mortgage refinancing -- we think that
future interest rate hikes will be small and gradual. To the extent that the
many economic and geopolitical crosscurrents remain unsettled as they are
currently, the higher-yielding tax-advantaged common and preferred
4
stocks that the Fund emphasizes should benefit. We continue to be optimistic
about the prospects for financial stocks. The banking sector continues to
generate a lot of excess capital. We believe that one of the uses of this
excess capital will be to continue paying dividends to bank shareholders. We
also think that large, diversified banks will perform well, especially in
comparison to the smaller regionals that focus on traditional banking
activities. Commercial loan growth remains sluggish, but we think it could
pick up later this year. Finally, given our belief that "mergers beget
mergers," we believe that merger activity will continue to be strong,
especially among banks. As for utility stocks, our outlook is favorable. The
utility companies' improving financial health is likely to continue to catch
the eye of investors seeking 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 Dominion
Resources followed by an up arrow with the phrase "Rising energy prices
boost financial performance." The second listing is Bank of America
followed by an up arrow with the phrase "Stock split and dividend hike help
stock price." The third listing is Royal Bank of Scotland followed by a
down arrow with the phrase "Preferred stock market malaise weighs on share
price."]
"We believe that one of
the uses of this excess
capital will be to continue
paying dividends to
bank shareholders."
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.
The Fund normally will invest at least 25% of its managed assets in
securities of companies in each of the utilities and financial services
industries. Such an investment concentration makes the Fund more
susceptible than a broader diversified fund to factors adversely
affecting the utilities and financial industries. Sector investing is
subject to greater risks than the market as a whole.
1 As a percentage of the Fund's portfolio on June 30, 2004.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
June 30, 2004
(unaudited)
This schedule is divided into three main categories: common stocks,
preferred stocks and short-term investments. Common stocks and preferred
stocks are further broken down by industry group. Short-term
investments, which represent the Fund's cash position, are listed last.
ISSUER SHARES VALUE
COMMON STOCKS 105.87% $806,192,855
(Cost $813,984,813)
Banks -- United States 36.06% 274,562,952
AmSouth Bancorp. 775,000 19,739,250
Bank of America Corp. 365,000 30,886,300
Bank One Corp. 215,000 10,965,000
BB&T Corp. 495,000 18,300,150
Colonial BancGroup, Inc. (The) 275,000 4,996,750
Comerica, Inc. 411,900 22,605,072
Community First Bankshares, Inc. 180,000 5,794,200
F.N.B. Corp. 190,000 3,876,000
First Horizon National Corp. 290,000 13,186,300
FirstMerit Corp. 365,000 9,625,050
Hudson United Bancorp. 195,000 7,269,600
KeyCorp 749,000 22,387,610
National City Corp. 505,000 17,680,050
PNC Financial Services Group 335,000 17,781,800
Susquehanna Bancshares, Inc. 275,000 6,919,000
U.S. Bancorp 582,000 16,039,920
Union Planters Corp. 795,000 23,698,950
Wachovia Corp. 230,000 10,235,000
Wells Fargo & Co. 130,000 7,439,900
Whitney Holding Corp. 115,000 5,137,050
Finance 3.57% 27,180,120
Citigroup, Inc. 145,000 6,742,500
People's Bank 150,000 4,672,500
Washington Mutual, Inc. 408,000 15,765,120
Oil & Gas 1.71% 13,032,170
BP Plc, American Depositary Receipts (ADR) (United Kingdom) 25,000 1,339,250
ChevronTexaco Corp. 72,000 6,775,920
Shell Transport & Trading Co. Plc, ADR (United Kingdom) 110,000 4,917,000
Telecommunications 1.99% 15,190,035
SBC Communications, Inc. 605,500 14,683,375
Verizon Communications, Inc. 14,000 506,660
See notes to
financial statements.
6
FINANCIAL STATEMENTS
ISSUER SHARES VALUE
Utilities 62.54% $476,227,578
Alliant Energy Corp. 50,000 1,304,000
Ameren Corp. 551,100 23,675,256
American Electric Power Co., Inc. 264,000 8,448,000
Atmos Energy Corp. 658,000 16,844,800
Black Hills Corp. 307,000 9,670,500
CH Energy Group, Inc. 277,100 12,868,524
Cinergy Corp. 528,300 20,075,400
Consolidated Edison, Inc. 525,100 20,877,976
Dominion Resources, Inc. 385,000 24,285,800
DTE Energy Co. 475,000 19,256,500
Duke Energy Corp. 423,400 8,590,786
Empire District Electric Co. (The) 428,400 8,615,124
Energy East Corp. 150,000 3,637,500
Entergy Corp. 10,000 560,100
FPL Group, Inc. 9,000 575,550
Great Plains Energy, Inc. 18,500 549,450
KeySpan Corp. 565,800 20,764,860
National Fuel Gas Co. 368,000 9,200,000
NiSource, Inc. 335,400 6,915,948
Northwest Natural Gas Co. 248,000 7,564,000
NSTAR 488,000 23,365,440
OGE Energy Corp. 867,600 22,097,772
ONEOK, Inc. 716,600 15,758,034
Peoples Energy Corp. 537,000 22,634,550
Piedmont Natural Gas Co., Inc. 90,000 3,843,000
Pinnacle West Capital Corp. 230,000 9,289,700
Progress Energy, Inc. 549,600 24,209,880
Public Service Enterprise Group, Inc. 444,700 17,801,341
Puget Energy, Inc. 598,000 13,102,180
SCANA Corp. 241,000 8,765,170
Scottish Power Plc, ADR (United Kingdom) 533,000 15,728,830
Southern Co. (The) 516,400 15,053,060
TECO Energy, Inc. 40,000 479,600
Vectren Corp. 595,300 14,936,077
Westar Energy, Inc. 425,000 8,461,750
WGL Holdings, Inc. 380,500 10,927,960
WPS Resources Corp. 373,000 17,288,550
Xcel Energy, Inc. 491,000 8,204,610
See notes to
financial statements.
7
FINANCIAL STATEMENTS
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
PREFERRED STOCKS 28.59% $217,702,053
(Cost $239,528,211)
Banks -- Foreign 3.29% 25,057,905
Abbey National Plc, 7.375%, Depositary Shares,
Ser B (United Kingdom) A- 84,700 2,214,905
Royal Bank of Scotland Group Plc, 5.75%, Ser B
(United Kingdom) A 1,060,000 22,843,000
Banks -- United States 3.36% 25,564,500
ABN AMRO Capital Funding Trust V, 5.90% A 140,000 2,993,200
ABN AMRO Capital Funding Trust VII, 6.08% A 950,000 21,166,000
J.P. Morgan Chase Capital XI, 5.875% A- 65,000 1,405,300
Broker Services 4.82% 36,708,825
Bear Stearns Cos., Inc. (The), 5.49%,
Depositary Shares, Ser G BBB 249,800 11,328,430
Bear Stearns Cos., Inc. (The), 5.72%,
Depositary Shares, Ser F BBB 126,700 5,885,215
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D BBB+ 56,000 2,548,000
Lehman Brothers Holdings, Inc., 5.94%,
Depositary Shares, Ser C BBB+ 254,160 12,009,060
Lehman Brothers Holdings, Inc., 6.50%,
Depositary Shares, Ser F BBB+ 193,500 4,938,120
Finance 0.29% 2,198,282
General Electric Capital Corp., 6.10% AAA 38,100 915,924
SLM Corp., 6.97%, Ser A BBB+ 24,200 1,282,358
Government -- U.S. Agencies 1.45% 11,011,801
Fannie Mae, 4.75%, Ser M AA- 20,000 810,200
Fannie Mae, 5.10%, Ser E AA- 24,300 1,215,761
Fannie Mae, 5.125%, Ser L AA- 124,000 5,468,400
Fannie Mae, 5.375%, Ser I AA- 76,800 3,517,440
Insurance 0.64% 4,873,614
ING Groep N.V., 6.20% (Netherlands) A- 105,100 2,432,014
RenaissanceRe Holdings Ltd., 6.08%, Ser C (Bermuda) BBB+ 112,000 2,441,600
Oil & Gas 1.72% 13,117,000
Devon Energy Corp., 6.49%, Ser A BBB- 130,000 13,117,000
Utilities 13.02% 99,170,126
Alabama Power Co., 5.20% BBB+ 145,000 3,401,700
Alabama Power Co., 5.30% (Class A) BBB+ 213,000 4,892,354
Carolina Power & Light Co., $5.44 BB+ 110,991 9,545,226
Connecticut Light & Power Co., $3.24, Ser 68G BBB- 11,450 567,133
Connecticut Light & Power Co., 5.28%, Ser 1967 BBB- 18,294 738,049
See notes to
financial statements.
8
FINANCIAL STATEMENTS
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
Utilities (continued)
Connecticut Light & Power Co., 6.56%, Ser 1968 BBB- 5,842 296,116
DTE Energy Co., 8.75%, Conv BBB 187,000 4,693,700
Duquesne Light Co., 6.50% BB+ 200,000 9,950,000
El Paso Tennessee Pipeline Co., 8.25%, Ser A CCC- 300,000 12,937,500
Entergy Arkansas, Inc., 4.56% BB+ 8,515 571,836
Entergy Arkansas, Inc., 4.56%, Ser 1965 BB+ 9,818 659,341
Entergy Arkansas, Inc., $6.08 BB+ 9,808 878,123
Entergy Gulf States, Inc., $7.56 BB 28,022 2,690,112
Entergy Louisiana, Inc., 5.16% BB+ 12,044 925,883
Entergy Mississippi, Inc., 4.92% BB+ 7,884 577,750
FPL Group Capital Trust I, 5.875% BBB+ 348,200 7,573,350
Interstate Power & Light Co., 7.10%, Ser C BBB- 15,000 387,300
Interstate Power & Light Co., 8.375%, Ser B BBB- 233,000 7,425,710
KeySpan Corp., 8.75%, Conv A 27,500 1,421,750
Monongahela Power Co., $7.73, Ser L CCC+ 33,143 3,024,299
Northern Indiana Public Service Co., 4.50% BB+ 28,615 2,146,125
Northern Indiana Public Service Co., 4.88% BB+ 7,616 619,514
Ohio Edison Co., 4.56% BB 15,125 1,100,344
Public Service Electric & Gas Co., 5.05%, Ser D BB+ 11,800 957,216
Public Service Electric & Gas Co., 5.28%, Ser E BB+ 21,930 1,860,103
South Carolina Electric & Gas Co., 6.52% Baa1 20,000 2,074,376
Southern Union Co., 7.55% BB+ 305,000 8,052,000
Union Electric Co., $4.50 BBB 10,370 746,640
Wisconsin Power & Light Co., 4.50% BBB 4,600 354,200
Xcel Energy, Inc., $4.08, Ser B BB+ 66,070 4,276,050
Xcel Energy, Inc., $4.56, Ser G 53,590 3,826,326
INTEREST CREDIT PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE RATING* (000S OMITTED) VALUE
SHORT-TERM INVESTMENTS 17.15% $130,600,000
(Cost $130,600,000)
Government -- U.S. Agencies 17.15%
Federal Home Loan Bank, Disc Note 07-01-04 1.250% Aaa $130,600 130,600,000
TOTAL INVESTMENTS 151.61% $1,154,494,908
OTHER ASSETS AND LIABILITIES, NET (51.61%) ($392,982,452)
TOTAL NET ASSETS 100.00% $761,512,456
See notes to
financial statements.
9
FINANCIAL STATEMENTS
Notes to Schedule of Investments
* Credit ratings are unaudited and are rated by Moody's Investors Service
where Standard and Poor's ratings are not available.
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.
10
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
June 30, 2004
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes.
You'll also find
the net asset
value for each
common share.
ASSETS
Investments at value (cost $1,184,113,024) $1,154,494,908
Cash 77,871
Cash segregated for futures contracts 340,000
Receivable for investments sold 2,000,953
Dividends receivable 3,163,912
Other assets 682
Total assets 1,160,078,326
LIABILITIES
Payable for investments purchased 17,324,495
Payable for futures variation margin 201,563
Payable to affiliates
Management fees 17,071
Other 24,658
Other payables and accrued expenses 977,670
Total liabilities 18,545,457
Auction Preferred Shares (APS), at value,
unlimited number of shares of beneficial interest
authorized with no par value, 15,200 shares issued,
liquidation preference of $25,000 per share 380,020,413
NET ASSETS
Common shares capital paid-in 798,588,002
Accumulated net realized loss on investments
and financial futures contracts (8,258,092)
Net unrealized depreciation of investments and
financial futures contracts (30,006,586)
Accumulated net investment income 1,189,132
Net assets $761,512,456
NET ASSET VALUE PER COMMON SHARE
Based on 42,077,487 shares of beneficial interest
outstanding -- unlimited number of shares authorized
with no par value $18.10
1 Inception period from 2-27-04 through 6-30-04. Unaudited.
2 Includes accumulated net investment income of $1,189,132.
See notes to
financial statements.
11
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
June 30, 2004
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in operat
ing the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends $16,035,475
Interest 583,319
Total investment income 16,618,794
EXPENSES
Investment management fees 2,379,383
Custodian fees 177,785
APS auction fees 114,760
Accounting and legal services fees 81,683
Professional fees 76,638
Printing 64,769
Transfer agent fees 50,664
Organization expense 43,000
Trustees' fees 18,194
Miscellaneous 9,002
Registration and filing fees 108
Total expenses 3,015,986
Less expense reductions (634,502)
Net expenses 2,381,484
Net investment income 14,237,310
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
Investments (8,880,854)
Financial futures contracts 622,762
Change in net unrealized appreciation (depreciation) of
Investments (29,618,116)
Financial futures contracts (388,470)
Net realized and unrealized loss (38,264,678)
Distribution to APS (841,499)
Decrease in net assets from operations ($24,868,867)
1 Inception period from 2-27-04 through 6-30-04.
See notes to
financial statements.
12
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
This Statement of
Changes in Net
Assets shows
how the value
of the Fund's
net assets has
changed since
inception of the
Fund. The differ-
ence reflects
earnings less
expenses, any
investment gains
and losses,
distributions
paid to share-
holders and any
increase or
decrease due to
the issuance of
common shares.
PERIOD
ENDED
6-30-04 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $14,237,310
Net realized loss (8,258,092)
Change in net unrealized depreciation (30,006,586)
Distributions to APS (841,499)
Decrease in net assets
resulting from operations (24,868,867)
Distributions to common shareholders
From net investment income (12,206,679)
From Fund share transactions 798,588,002
NET ASSETS
End of period 2 $761,512,456
1 Inception period from 2-27-04 through 6-30-04. Unaudited.
2 Includes accumulated net investment income of $1,189,132.
See notes to
financial statements.
13
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
COMMON SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since inception of the Fund.
PERIOD ENDED 6-30-04 1
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $19.10 2
Net investment income 3 0.35
Net realized and unrealized loss on investments (0.91)
Distributions to APS (0.03)
Total from investment operations (0.59)
Less distributions to common shareholders
From net investment income (0.29)
Capital charges
Offering costs related to common shares (0.02)
Offering costs and underwriting discounts related to APS (0.10)
Net asset value, end of period $18.10
Per share market value, end of period $16.12
Total return at market value 4,5 (%) (18.05) 6
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to common shares, end of period (in millions) $762
Ratio of expenses to average net assets 7 (%) 0.93 8
Ratio of adjusted expenses to average net assets 9 (%) 1.18 8
Ratio of net investment income to average net assets 10 (%) 5.56 8
Portfolio turnover (%) 26
SENIOR SECURITIES
Total value of APS outstanding (in millions) $380
Involuntary liquidation preference per unit (in thousands) $25
Average market value per unit (in thousands) $25
Asset coverage per unit 11 $73,814
1 Inception period from 2-27-04 through 6-30-04. Unaudited.
2 Reflects the deduction of $0.90 per share sales load.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and a purchase at $20.01 per share on
the inception date and a sale at the current market price on the last
day of the period.
5 Total return would have been lower had certain expenses not been
reduced during the period shown.
6 Not annualized.
7 Ratio calculated on the basis of expenses relative to the average net
assets of common shares. Without the exclusion of preferred shares, the
annualized ratio of expenses would have been 0.75%.
8 Annualized.
9 Ratio calculated on the basis of expenses relative to the average net
assets of common shares, that does not take into consideration expense
reductions during the period shown. Without the exclusion of preferred
shares, the annualized adjusted ratio of expenses would have been 0.95%.
10 Ratio calculated on the basis of net investment income relative to
the average net assets of common shares. Without the exclusion of
preferred shares, the annualized ratio of net investment income would
have been 4.49%.
11 Calculated by subtracting the Fund's total liabilities from the
Fund's total assets and dividing that amount by the number of APS
outstanding as of the applicable 1940 Act Evaluation Date, which may
differ from the financial reporting date.
See notes to
financial statements.
14
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Tax-Advantaged Dividend Income 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.
Discount and premium on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over the
life of the security.
Expenses
The majority of expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund are
allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Organization expense and
offering costs
Expenses incurred in connection with the organization of the Fund, which
amounted to $43,000, have been borne by the Fund. Offering costs of $867,000
related to common shares and offering costs of $425,000 incurred in
connection with the preferred shares were charged to the Fund's capital
paid-in.
Financial futures contracts
The Fund may buy and sell financial futures contracts. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund's instruments. At the time the Fund enters into
financial futures contracts, it is required to deposit with its custodian a
specified amount of cash or U.S. government securities, known as "initial
margin," equal to a certain percentage of the value of the financial futures
contract being traded. Each day, the
15
futures contract is valued at the official settlement price of the board of
trade or U.S. commodities exchange on which it trades. Subsequent payments
to and from the broker, known as "variation margin," are made on a daily
basis as the market price of the financial futures contract fluctuates.
Daily variation margin adjustments arising from this "mark to market" are
recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into financial futures contracts include the possibility
that there may be an illiquid market and/or that a change in the value
of the contracts may not correlate with changes in the value of the
underlying securities. In addition, the Fund could be prevented from
opening or realizing the benefits of closing out financial futures
positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of financial
futures contracts. On June 30, 2004, the Fund had deposited $340,000 in
a segregated account to cover margin requirements on open financial
futures contracts.
The Fund had the following financial futures contracts open on June 30, 2004:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION DEPRECIATION
- ------------------------------------------------------------------------------
U.S. Treasury 10-year Note 150 Short Sep 04 ($193,238)
U.S. Treasury Bond 100 Short Sep 04 (195,232)
($388,470)
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
Dividends, interest
and distributions
Dividend income on investment securities is recorded on the ex-dividend date
or, in the case of some foreign securities, on the date thereafter when the
Fund identifies the dividend. Interest income on investment securities is
recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment income
and net realized gains on the ex-dividend date. Such distributions, on a tax
basis, are determined in conformity with income tax regulations, which may
differ from accounting principles generally accepted in the United States of
America. Distributions in excess of tax basis earnings and profits, if any,
are reported in the Fund's financial statements as a return of capital.
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.
16
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 daily management fee to the Adviser at an annual rate of
0.75% of the Fund's average daily net asset value and the value
attributable to the Auction Preferred Shares (collectively, "managed
assets").
The Adviser has contractually agreed to limit the Fund's management fee
to the following: 0.55% of the Fund's average daily managed assets until
the fifth anniversary of the commencement of the Fund's operations,
0.60% of such assets in the sixth year, 0.65% of such assets in the
seventh year and 0.70% of average daily managed assets in the eighth
year. Accordingly, the expense reductions related to the reduction in
the management fee amounted to $634,502 for the period ended June 30,
2004. After the eighth year, the Adviser will no longer waive a portion
of the management fee.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
period amounted to $81,683. The Fund also paid the Adviser the amount of
$110 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.
17
NOTE C
Fund share transactions
Common shares
This listing illustrates the number of Fund shares sold, offering costs
and underwriting discount charged to capital paid-in, distributions
reinvestments, reclassification of the Fund's capital accounts and the
number of common shares outstanding at the beginning and end of the
period, along with the corresponding dollar value.
PERIOD ENDED 6-30-04 1
SHARES AMOUNT
Shares sold 42,077,487 $803,680,002 2
Offering cost related to common shares -- (867,000)
Offering costs and underwriting discount related to
Auction Preferred Shares -- (4,225,000)
Net increase 42,077,487 $798,588,002
1 Inception period from 2-27-04 through 6-30-04.
2 Net of $0.90 per share sales load of the initial offering price of $20.00
per share.
Auction preferred shares
The Fund issued total of 15,200 Auction Preferred Shares (3,800 shares
of Series M, 3,800 shares of Series W, 3,800 of shares of Series TH and
3,800 shares of Series F) (collectively, the "APS") on May 3, 2004, in a
public offering. The underwriting discount of $3,800,000 has been
charged to capital paid-in of common shares.
Dividends on the APS, which accrue daily, are cumulative at a rate that
was established at the offering of the APS and has been reset every 7
days thereafter by an auction (except for the Series TH, for which the
initial reset date will be October 28, 2004). Dividend rates on APS
ranged from 1.15% to 1.60% during the period ended June 30, 2004.
Accrued dividends on APS are included in the value of APS on the Fund's
Statement of Assets and Liabilities.
The APS are redeemable at the option of the Fund, at a redemption price
equal to $25,000 per share, plus accumulated and unpaid dividends on any
dividend payment date. The APS are also subject to mandatory redemption
at a redemption price equal to $25,000 per share, plus accumulated and
unpaid dividends, if the Fund is in default on its asset coverage
requirements with respect to the APS as defined in the Fund's by-laws.
If the dividends on the APS shall remain unpaid in an amount equal to
two full years' dividends, the holders of the APS, as a class, have the
right to elect a majority of the Board of Trustees. In general, the
holders of the APS and the common shareholders have equal voting rights
of one vote per share, except that the holders of the APS, 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 APS 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 period ended June 30, 2004, aggregated $1,238,235,488 and
$175,841,610 respectively.
The cost of investments owned on June 30, 2004, including short-term
investments, for federal income tax purposes, was $1,184,113,024. Gross
unrealized appreciation and depreciation of investments aggregated
$7,705,738 and $37,323,854, respectively, resulting in net unrealized
depreciation of $29,618,116.
18
INVESTMENT
OBJECTIVE
AND POLICY
The Fund's investment objective is to provide a high level of after-tax
total return from dividend income and capital appreciation.
Under normal market conditions, the Fund will invest at least 80% of its
assets (net assets plus borrowings for investment purposes) in
dividend-paying common and preferred securities that the Adviser believes at
the time of acquisition are eligible to pay dividends which, for individual
shareholders, qualify for U.S. federal income taxation at rates applicable
to long-term capital gains, which currently are taxed at a maximum rate of
15% ("tax-advantaged dividends"). Tax-advantaged dividends generally include
dividends from domestic corporations and dividends from foreign corporations
that meet certain specified criteria. The Fund generally can pass the tax
treatment of tax-advantaged dividends it receives through to its common
shareholders.
DIVIDEND
REINVESTMENT PLAN
The Fund offers its shareholders a Dividend Reinvestment Plan (the
"Plan"), which offers the opportunity to earn compounded yields. Each
holder of common shares will automatically have all distributions of
dividends and capital gains reinvested by Mellon Investor Services, as
Plan Agent for the common shareholders (the "Plan Agent"), unless an
election is made to receive cash. Holders of common shares who elect not
to participate in the Plan will receive all distributions in cash, paid
by check and mailed directly to the shareholder of record (or, if the
common shares are held in street or other nominee name, then to the
nominee) by the Plan Agent, as dividend-disbursing agent. Shareholders
whose shares are held in the name of a broker or a 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. 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
19
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 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 the 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
FOR YOUR
INFORMATION
TRUSTEES
Charles L. Ladner, Chairman*
James F. Carlin
William H. Cunningham
Ronald R. Dion
Dr. John A. Moore*
Patti McGill Peterson*
Steven R. Pruchansky
James A. Shepherdson
Lt. Gen. Norman H. Smith,
USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
James A. Shepherdson
President and
Chief Executive Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President and Treasurer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND DISBURSER
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
TRANSFER AGENT
FOR APS
Deutsche Bank Trust Company Americas
280 Park Avenue
New York, New York 10017
LEGAL COUNSEL
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
STOCK SYMBOL
Listed New York Stock Exchange:
HTD
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
21
[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
1-843-0090 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
- ------------------
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
- ------------------
P13SA 6/04
8/04
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The registrant has adopted procedures by which shareholders may
recommend nominees to the registrant's Board of Trustees. A copy of the
procedures is filed as an exhibit to this Form N-CSR. See attached
"John Hancock Funds - Administration Committee Charter".
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's principal executive officer and principal financial
officer have concluded that those disclosure controls and procedures
provide reasonable assurance that the material information required to be
disclosed by the registrant on this report is recorded, processed,
summarized and reported within the time periods specified in the Securities
and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal half-year (the registrant's second fiscal half-year in the case of
an annual report) that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 11. EXHIBITS.
(a)(1) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company
Act of 1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
and Rule 30a-2(b) under the Investment Company Act of 1940, are attached.
The certifications furnished pursuant to this paragraph are not deemed to
be "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of that section. Such
certifications are not deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Registrant specifically incorporates
them by reference.
(c)(1) Submission of Matters to a Vote of Security Holders is attached. See
attached "John Hancock Funds - Administration Committee Charter".
(c)(2) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Tax-Advantaged Dividend Income Fund
By:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: August 25, 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: August 25, 2004
By:
-----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: August 25, 2004