UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6107
John Hancock Patriot Select Dividend Trust
(Exact name of registrant as specified in charter)
601 Congress Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip code)
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
601 Congress Street
Boston, Massachusetts 02110
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-663-4324
Date of fiscal year end: June 30
Date of reporting period: June 30, 2005
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Patriot Select
Dividend Trust
6.30.2005
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 Keith F. Hartstein, President and Chief Executive Officer of
John Hancock Funds, LLC flush left next to first paragraph.]
CEO CORNER
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
Fund's investments
page 6
Financial statements
page 10
Trustees & officers
page 25
For more information
page 33
To Our Shareholders,
I am pleased to be writing to you as the new President and Chief Executive
Officer of John Hancock Funds, LLC, following the departure of James A.
Shepherdson to pursue other opportunities. In addition, on July 25, 2005,
your fund's Board of Trustees appointed me to the roles of President and
Chief Executive Officer of your fund.
As a means of introduction, I have been involved in the mutual fund industry
since 1985. I have been with John Hancock Funds for the last 15 years, most
recently as executive vice president of retail sales and marketing and a
member of the company's executive and investment committees. In my former
capacity, I was responsible for all aspects of the distribution and
marketing of John Hancock Funds' open-end and closed-end mutual funds.
Outside of John Hancock, I have served as Chairman of the Investment Company
Institute (ICI) Sales Force Marketing Committee since September 2003.
It is an exciting time to be at John Hancock Funds, and I am grateful for
the opportunity to lead and shape its future growth. With the acquisition of
John Hancock by Manulife Financial Corporation in April 2004, we are
receiving broad support toward the goal of providing our shareholders with
excellent investment opportunities and a more complete lineup of choices for
the discerning investor.
As you may have read, John Hancock recently entered into an agreement with
GMO, a Boston-based institutional money manager, to acquire eight of their
mutual funds. In addition, we are in the process of adding five "Lifestyle
Portfolio" funds-of-funds that blend multiple fund offerings from internal
and external money managers to create a broadly diversified asset allocation
portfolio. Look for more information about these exciting additions to the
John Hancock family of funds in your fourth quarter shareholder newsletter.
Although there has been a change in executive-level management, rest assured
that the one thing that never wavers is John Hancock Funds' commitment to
placing the needs of shareholders above all else. We are all dedicated to
the task of working with you and your financial advisors to help you reach
your long-term financial goals.
Sincerely,
/s/ Keith F. Hartstein
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO's views as of June 30, 2005. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks to
provide high current
income, consistent
with modest growth
of capital, by invest-
ing at least 80% of
its assets in a diver-
sified portfolio of
dividend-paying
securities. The Fund
will normally invest-
more than 65% of
its total assets in
securities of
companies in the
utilities industry.
Over the last twelve months
* Dividend-paying securities posted strong gains, overcoming scattered bouts
of weakness during the year.
* The Fund's comparatively large stake in strong-performing utility common
stocks helped it outpace its Lipper peer group average.
* Preferred stock holdings mostly posted gains, although lower-coupon
securities lagged.
[Bar chart with heading "John Hancock Patriot Select Dividend Trust" Under
the heading is a note that reads "Fund performance for the year ended
June 30, 2005." The chart is scaled in increments of 5% with 0% at the
bottom and 25% at the top. The first bar represents the 22.06% net asset
value of the Fund. The second bar represents the 8.46% market value of the
Fund. The third bar represents the 6.53% yield on closing market price. The
first note below the chart reads "The total returns for the Fund are with
all distributions reinvested. The performance data contained within this
material represents past performance, which does not guarantee future
results." The second note below the chart reads "The yield on closing
market price is calculated by dividing the current annualized distribution
per share by the closing market price."]
Top 10 issuers
5.1% NSTAR
4.9% Energy East Corp.
4.1% Baltimore Gas & Electric Co.
3.8% Sierra Pacific Power Co.
3.7% Bear Stearns Co.
3.3% CH Energy Group, Inc.
3.3% DTE Energy Co.
3.2% Citigroup, Inc.
3.1% Lehman Brothers Holdings
3.0% KeySpan Corp.
As a percentage of net assets plus the value of preferred shares on June 30,
2005.
1
BY GREGORY K. PHELPS AND MARK T. MALONEY FOR THE PORTFOLIO
MANAGEMENT TEAM
MANAGERS'
REPORT
JOHN HANCOCK
Patriot Select
Dividend Trust
Dividend-paying securities posted strong gains for the 12-month period ended
June 30, 2005, overcoming scattered bouts of weakness during the year.
Preferred stocks -- which are the primary emphasis of John Hancock Patriot
Select Dividend Trust -- began the period on somewhat rocky footing just
after the Federal Reserve Board began to raise short-term interest rates,
triggering a Treasury market sell-off that put pressure on preferred-stock
prices. Because preferreds make fixed payments in the form of dividends,
much like bonds pay in interest, their prices tend to follow those of U.S.
Treasury securities. Despite evidence of a strengthening economy and
additional rate hikes throughout the remainder of 2004, preferred-stock
prices moved higher, responding to investors' confidence that even though
the Fed might continue its campaign of raising interest rates, those rate
hikes would be small and measured, given the potential for high oil prices
and rising interest rates themselves to dampen future economic growth.
Preferred stocks were further boosted by strong demand, as investors
continued to seek dividend-paying securities, particularly in light of the
fact that changes in the federal tax code in 2003 helped make ownership of
certain dividend-yielding stocks more attractive.
"Dividend-paying securities
posted strong gains for the
12-month period ended
June 30, 2005..."
Utility common stocks
Among dividend-paying stocks, utility common stocks were the clear victors
during the past 12 months, and ended the period as one of the overall stock
market's best-performing industry groups. There was robust investor demand
for utility common stocks due to their high dividend payouts, which were
very attractive in a period when fixed-income investments offered investors
low interest rates. Additionally, investors became increasingly bullish on
the group in
2
response to utility companies' strides to reduce their debt levels and
improve their balance sheets. Utility commons really surged in the final
month of the period, due to the announcement of planned mergers of several
large well-known players, which fueled speculation that more merger and
acquisition activity was on the horizon.
[Photos of Greg Phelps and Mark Maloney, flush right at top of page.]
Performance
For the 12 months ended June 30, 2005, John Hancock Patriot Select Dividend
Trust returned 22.06% at net asset value and 8.46% at market value. The
difference in the Fund's net asset value (NAV) performance and its market
performance stems from the fact that the market share price is subject to
the dynamics of secondary market trading, which could cause it to trade at a
discount or premium to the Fund's NAV share price at any time. By
comparison, the average income and preferred stock closed-end fund returned
16.20% at net asset value, according to Lipper, Inc.
The main factor driving the Fund's outperformance versus its Lipper peer
group average was our larger stake in utility common stocks. They, as
measured by the Dow Jones Utility Average -- which tracks the performance of
15 electric and natural gas utilities -- returned 44.24% for the year,
dramatically outpacing the broader stock market, as measured by the Standard
& Poor's 500 Index's return of 6.32%.
"...many of our utility common
stock holdings also were our best
performers during the year."
Chart-topping utility common stocks
Given the sector's overall strength, it's not surprising that many of our
utility common stock holdings also were our best performers during the year.
Among the best was NSTAR, which transmits and delivers electricity to
customers in eastern and central Massachusetts. It also was powered by
company-specific developments, including the settlement of a contentious
strike, the company's effecting a two-for-one-stock split and continued
financial improvement. Another chart topper was Cinergy Corp., which
performed well throughout the year and then got an added kick from the news
that Duke Energy would acquire the company. Utility companies with oil, gas
and/or coal operations also fared well as the price of energy skyrocketed,
with holdings such as
3
Vectren Corporation, National Fuel Gas Co. and NiSource each posting
impressive stock price gains.
[Table at top left-hand side of page entitled "Industry distribution1." The
first listing is Electric utilities 33%, the second is Multi-utilities &
unregulated power 27%, the third is Gas utilities 9%, the fourth is Oil &
gas exploration & production 7%, the fifth is Investment banking &
brokerage 7%, the sixth is Diversified financial services 3%, the seventh
is Regional banks 3%, the eighth is Agricultural products 2%, the ninth is
Consumer finance 2%, the tenth is Diversified banks 2%, the eleventh is
Integrated telecommunication services 2%, the twelfth is Multi-line
insurance 2% and the thirteenth is Integrated oil and gas 1%.]
Preferred-stock holdings: leaders and laggards
Among our preferred-stock holdings, Monongahela Power Co., a subsidiary of
utility holding company Alleghany Energy, was one of our top performers. It
benefited from improving financial results, prompting a major ratings agency
to upgrade Monongahela's credit rating. Sierra Pacific Power Co. was another
winner, helped by colder weather earlier this year and an increase in rates
that became effective late last year. On the flip side were our holdings in
Lehman Brothers, which tread water during the period because they carried
yields below those offered by newly issued securities, which muted demand
for the securities.
Supply glut = opportunity
In the final months of the period, there was a glut of newly issued
preferred stocks as companies rushed to lock in low interest rates. That
influx of supply temporarily weighed on preferred-stock prices and afforded
us the opportunity to buy some attractively valued, tax-advantaged issues
with relatively high coupons. Among our purchases was Entergy Mississippi,
an electric utility company with an improving credit profile, and insurance
giant MetLife, which carried coupons of 6.25% and 6.50%, respectively.
[Pie chart at middle of page with heading "Portfolio diversification1." The
chart is divided into two sections (from top to left): Preferred stocks 61%
and Common stocks 39%.]
Outlook
After chalking up substantial gains over the past two years, the utilities
sector has shown no signs of retreat. Utilities continue to reap the
benefits of their efforts to repair their balance sheets,
4
improve cash flows, whittle down debts and return to their core competencies
by shedding non-regulated business. And with utilities looking to
consolidate and cut costs, we believe that more merger and acquisition
activity is likely, which we expect to provide a good underpinning for
utility stocks. In addition, there is the strong possibility that
unfavorable federal regulation that has dogged the industry may be repealed.
Finally, there remains a strong appetite for dividends, with utility stocks
being a primary beneficiary of that trend. That said, given their strong
recent gains, some moderation in utility stock performance is likely in the
cards. Given our forecast for slowing economic conditions and ongoing strong
demand for dividend-paying securities, we believe that preferred stocks also
may have the wind at their backs in the months to come.
[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 NSTAR
followed by an up arrow with the phrase "Investors cheer improving
financial results, strike settlement, stock split." The second listing is
Cinergy followed by an up arrow with the phrase "Rallies on news that Duke
Energy plans to acquire it." The third listing is Lehman Brothers followed
by a down arrow with the phrase "Low coupon unattractive amid higher-coupon
new issues."]
"...there remains a strong appetite for
dividends, with utility stocks being a
primary beneficiary of that trend."
This commentary reflects the views of the portfolio management team through
the end of the Fund's period discussed in this report. The team's 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 more than 65% of its managed assets in
securities of companies in the utilities industry. Such an investment
concentration makes the Fund more susceptible to factors adversely affecting
the utilities industry than a more broadly diversified fund. 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, 2005.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
June 30, 2005
This schedule is divided into three main categories: common stocks,
preferred stocks, and short-term investments. Common 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 56.26% $85,534,110
(Cost $80,041,921)
Electric Utilities 21.47% 32,649,974
Alliant Energy Corp. 148,000 4,166,200
Ameren Corp. 85,400 4,722,620
CH Energy Group, Inc. 151,250 7,355,287
Cinergy Corp. 26,000 1,165,320
Consolidated Edison, Inc. 45,000 2,107,800
Great Plains Energy, Inc. 35,750 1,140,067
NSTAR 188,000 5,796,040
Progress Energy, Inc. 64,000 2,895,360
Progress Energy, Inc., (Contingent Value Obligation) (B)(I) 20,000 2,400
Xcel Energy, Inc. 169,000 3,298,880
Gas Utilities 8.94% 13,588,311
Atmos Energy Corp. 9,700 279,360
KeySpan Corp. 161,850 6,587,295
National Fuel Gas Co. 56,150 1,623,297
NiSource, Inc. 97,850 2,419,831
Peoples Energy Corp. 41,800 1,816,628
Vectren Corp. 30,000 861,900
Integrated Telecommunication Services 2.28% 3,465,708
SBC Communications, Inc. 97,700 2,320,375
Verizon Communications, Inc. 33,150 1,145,333
Multi-Utilities & Unregulated Power 23.57% 35,830,117
Dominion Resources, Inc. 46,000 3,375,940
DTE Energy Co. 155,900 7,291,443
Duke Energy Corp. 70,000 2,081,100
Energy East Corp. 242,000 7,013,160
OGE Energy Corp. 96,092 2,780,902
See notes to
financial statements.
6
FINANCIAL STATEMENTS
Issuer Shares Value
Public Service Enterprise Group, Inc. 16,000 $973,120
Puget Energy, Inc. 121,800 2,847,684
Sierra Pacific Resources (I) 261,500 3,255,675
TECO Energy, Inc. 176,750 3,342,343
WPS Resources Corp. 51,000 2,868,750
Credit
Issuer, description rating (A) Shares Value
Preferred stocks 88.71% $134,874,731
(Cost $132,088,386)
Agricultural Products 2.32% 3,530,000
Ocean Spray Cranberries, Inc., 6.25%, Ser A (S) BB+ 40,000 3,530,000
Broadcasting & Cable TV 0.41% 630,250
Shaw Communications, Inc., 8.50% (Canada) B+ 25,000 630,250
Consumer Finance 3.45% 5,248,600
SLM Corp., 6.97%, Ser A BBB+ 92,000 5,248,600
Diversified Banks 3.41% 5,192,250
Bank of America Corp., 6.75%, Depositary Shares, Ser VI A 96,600 5,192,250
Diversified Financial Services 4.73% 7,197,388
Citigroup, Inc., 6.213%, Depositary Shares, Ser G A 44,000 2,266,000
Citigroup, Inc., 6.231%, Depositary Shares, Ser H A 92,400 4,931,388
Electric Utilities 26.61% 40,457,020
Alabama Power Co., 5.20% BBB+ 240,000 5,992,800
Boston Edison Co., 4.25% BBB+ 64,157 5,453,345
Duquesne Light Co., 6.50% BB+ 107,000 5,574,700
Entergy Mississippi, Inc., 6.25% BB+ 84,000 2,113,128
Interstate Power & Light Co., 7.10%, Ser C BBB- 25,000 687,500
Interstate Power & Light Co., 8.375%, Ser B BBB- 46,000 1,536,400
Monongahela Power Co., $7.73, Ser L B 50,000 5,025,000
Northern Indiana Public Service Co., 4.22% BB+ 11,526 969,265
PSI Energy, Inc., 6.875% BBB- 48,000 5,016,000
Sierra Pacific Power Co., 7.80%, Ser 1 (Class A) CCC+ 205,600 5,222,240
Virginia Electric & Power Co., $6.98 BBB- 10,500 1,092,329
Virginia Electric & Power Co., $7.05 BBB- 10,000 1,040,625
Wisconsin Public Service Corp., 6.76% A 7,000 733,688
See notes to
financial statements.
7
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Gas Utilities 3.68% $5,593,980
Southern Union Co., 7.55% BB+ 210,300 5,593,980
Integrated Oil & Gas 1.29% 1,955,151
Coastal Finance I, 8.375% CCC- 78,300 1,955,151
Integrated Telecommunication Services 0.28% 421,100
Telephone & Data Systems, Inc., 6.625% A- 15,000 374,100
Touch America Holdings, Inc., $6.875 (H) D 47,000 47,000
Investment Banking & Brokerage 9.94% 15,105,576
Bear Stearns Cos., Inc. (The), 5.49%, Depositary Shares, Ser G BBB 141,400 7,047,376
Bear Stearns Cos., Inc. (The), 6.15%, Depositary Shares, Ser E BBB 23,000 1,184,500
Lehman Brothers Holdings, Inc., 5.67%, Depositary Shares, Ser D BBB+ 125,600 6,217,200
Lehman Brothers Holdings, Inc., 5.94%, Depositary Shares, Ser C BBB+ 13,000 656,500
Multi-Line Insurance 3.48% 5,287,800
MetLife, Inc., 6.50%, Ser B BBB 210,000 5,287,800
Multi-Utilities & Unregulated Power 14.82% 22,525,715
Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 40,000 4,162,500
BGE Capital Trust II, 6.20% BBB- 190,000 4,902,000
Energy East Capital Trust I, 8.25% BBB- 147,000 3,858,750
PSEG Funding Trust II, 8.75% BB+ 30,000 813,000
Public Service Electric & Gas Co., 6.92% BB+ 30,627 3,179,465
South Carolina Electric & Gas Co., 6.52% Baa1 55,000 5,610,000
Oil & Gas Exploration & Production 10.74% 16,329,901
Anadarko Petroleum Corp., 5.46%, Depositary Shares, Ser B BBB- 48,200 4,756,737
Apache Corp., 5.68%, Depositary Shares, Ser B BBB 48,174 4,993,539
Devon Energy Corp., 6.49%, Ser A BB+ 53,500 5,590,750
Nexen, Inc., 7.35% (Canada) BB+ 37,500 988,875
Regional Banks 3.55% 5,400,000
HSBC USA, Inc., $2.8575 A2 108,000 5,400,000
See notes to
financial statements.
8
FINANCIAL STATEMENTS
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 0.67% $1,013,000
(Cost $1,013,000)
Commercial Paper 0.67% 1,013,000
ChevronTexaco Corp., Due 7-1-05 3.140% $1,013 1,013,000
Total investments 145.64% $221,421,841
Other assets and liabilities, net 0.40% $614,289
Fund preferred shares, at value (46.04%) ($70,000,000)
Total net assets 100.00% $152,036,130
(A) Credit ratings are unaudited and are rated by Moody's Investors Service
where Standard & Poor's ratings are not available.
(B) This security is fair valued in good faith under procedures established
by the Board of Trustees.
(H) Non-income-producing issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(I) Non-income-producing security.
(S) This security is exempt from registration under Rule 144A of the
Securities Act of 1933. Such security may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $3,530,000 or 2.32% of the Fund's net assets as of
June 30, 2005.
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.
9
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
June 30, 2005
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 $213,143,307) $221,421,841
Cash 114
Dividends receivable 867,979
Other assets 29,963
Total assets 222,319,897
Liabilities
Payable to affiliates
Management fees 159,630
Other 29,931
Other payables and accrued expenses 82,150
Total liabilities 271,711
Auction Market Preferred Shares (AMPS) and accrued dividends,
unlimited number of shares of beneficial interest
authorized with no par value, 700 shares issued,
liquidation preference of $100,000 per share 70,012,056
Net assets
Common shares capital paid-in 143,161,777
Accumulated net realized gain on investments 638,157
Net unrealized appreciation of investments 8,278,534
Distributions in excess of net investment income (42,338)
Net assets applicable to common shares $152,036,130
Net asset value per common share
Based on 10,010,393 shares of beneficial interest
outstanding -- unlimited number of shares
authorized with no par value $15.19
See notes to
financial statements.
10
FINANCIAL STATEMENTS
OPERATIONS
For the year ended
June 30, 2005
This Statement
of Operations
summarizes the
Fund's investment
income earned and
expenses incurred
in operating the
Fund. It also shows
net gains (losses)
for the period
stated.
Investment income
Dividends $12,651,227
Interest 127,172
Total investment income 12,778,399
Expenses
Investment management fees 1,709,859
Administration fees 320,599
AMPS auction fees 185,417
Registration and filing fees 67,811
Printing 47,082
Professional fees 45,035
Custodian fees 42,896
Transfer agent fees 40,875
Trustees' fees 12,175
Federal excise tax 492
Total expenses 2,472,241
Net investment income 10,306,158
Realized and unrealized gain
Net realized gain on investments 911,266
Change in net unrealized appreciation (depreciation)
of investments 18,420,639
Net realized and unrealized gain 19,331,905
Distributions to AMPS (1,461,944)
Increase in net assets from operations $28,176,119
See notes to
financial statements.
11
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
difference reflects
earnings less
expenses, any
investment
gains and losses,
distributions, if
any, paid to
shareholders and
the net of Fund
share transactions.
Year Year
ended ended
6-30-04 6-30-05
Increase (decrease) in net assets
From operations
Net investment income $9,600,735 $10,306,158
Net realized gain 636,979 911,266
Change in net unrealized
appreciation (depreciation) (2,432,023) 18,420,639
Distributions to AMPS (751,663) (1,461,944)
Increase in net assets resulting
from operations 7,054,028 28,176,119
Distributions to common shareholders
From net investment income (10,769,063) (9,904,919)
From Fund share transactions 557,883 339,016
Net assets
Beginning of period 136,583,066 133,425,914
End of period 1 $133,425,914 $152,036,130
1 Includes accumulated (distribution in excess of) net investment income of
$521,487 and ($42,338), respectively.
See notes to
financial statements.
12
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 6-30-01 6-30-02 6-30-03 6-30-04 6-30-05
Per share operating performance
Net asset value,
beginning of period $13.97 $15.43 $13.77 $13.73 $13.36
Net investment income 1 1.34 1.18 1.08 0.96 1.03
Net realized and unrealized
gain (loss) on investments 1.52 (1.61) 0.06 (0.17) 1.94
Distributions to AMPS (0.32) (0.15) (0.10) (0.08) (0.15)
Total from investment operations 2.54 (0.58) 1.04 0.71 2.82
Less distributions to
common shareholders
From net investment income (1.08) (1.08) (1.08) (1.08) (0.99)
Net asset value, end of period $15.43 $13.77 $13.73 $13.36 $15.19
Per share market value, end of period $14.80 $13.69 $14.72 $13.65 $13.79
Total return at market value 2 (%) 29.40 (0.45) 16.82 0.23 8.46
Ratios and supplemental data
Net assets applicable to
common shares, end of period
(in millions) $153 $136 $137 $133 $152
Ratio of expenses to
average net assets 3 (%) 1.77 1.77 1.90 1.78 1.72
Ratio of net investment income
to average net assets 4 (%) 8.22 7.99 8.62 7.04 7.17
Portfolio turnover (%) 13 15 2 18 36
Senior securities
Total value of AMPS outstanding
(in millions) $70 $70 $70 $70 $70
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 $316,086 $290,311 $294,629 $288,521 $316,085
See notes to
financial statements.
13
Notes to Financial Highlights
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 1.21%, 1.20%, 1.22%, 1.18% and 1.16%,
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 5.61%, 5.40%,
5.52%, 4.65% and 4.82%, respectively.
5 Calculated by subtracting the Fund's total liabilities from the Fund's
total assets and dividing such amount by the number of AMPS 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
Note A
Accounting policies
John Hancock Patriot Select Dividend Trust (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, which have a remaining maturing
of 60 days or less, may be 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 the 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. Net capital losses
of $16,509 that are attributable to security transactions incurred after
October 31, 2004, are treated as arising on July 1, 2005, 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. The Fund may place a security on non-accrual
status and reduce related investment income by ceasing current accruals or
writing off interest, or dividends receivable, when the collection of income
has become doubtful. 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 gain, if any, on the ex-dividend date. During the year
ended June 30, 2004, the tax character of distributions paid was as follows:
ordinary income $11,520,726.
15
During the year ended June 30, 2005, the tax character of distributions paid
was as follows: ordinary income $11,366,863.
As of June 30, 2005, the components of distributable earnings on a tax basis
included $688,216 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 assets plus the value attributable to the
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 compensation for the year amounted to $320,599. The Fund
also paid the Adviser the amount of $104 for certain publishing services,
included in the printing fees and the amount of $3,279 for certain
compliance costs, included in the miscellaneous expenses.
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.
The Fund is listed for trading on the New York Stock Exchange (NYSE) and has
filed with the NYSE its chief executive officer certification regarding
compliance with the NYSE's listing standards. The Fund also files with the
Securities and Exchange Commission the certification of its chief executive
officer and chief accounting officer required by Section 302 of the
Sarbanes-Oxley Act.
16
Note C
Fund share transactions
Common shares
This listing illustrates the Fund's common shares distribution
reinvestments, reclassification of the Fund's capital accounts and the
number of common shares outstanding at the beginning and end of the last two
years, along with the corresponding dollar value.
Year ended 6-30-04 Year ended 6-30-05
Shares Amount Shares Amount
Beginning of period 9,945,720 $142,306,741 9,985,999 $142,823,677
Distributions reinvested 40,279 557,883 24,394 339,016
Reclassification of capital accounts -- (40,947) -- (916)
End of period 9,985,999 $142,823,677 10,010,393 $143,161,777
Auction Market Preferred
Shares Series A
The Fund issued 700 shares of Dutch Auction Market Preferred Shares Series A
("AMPS") on August 30, 1990, in a public offering. The underwriting discount
was recorded as a reduction of the capital of common shares.
Dividends on the AMPS, which accrue daily, are cumulative at a rate that was
established at the offering of the AMPS and has been reset every 49 days
thereafter by an auction. Dividend rates on AMPS ranged from 1.27% to 3.10%
during the year ended June 30, 2005. Accrued dividends on AMPS are included
in the value of AMPS on the Fund's Statement of Assets and Liabilities.
The AMPS 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 AMPS are also 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 AMPS, as defined in the Fund's by-laws. If the dividends on
the AMPS shall remain unpaid in an amount equal to two full years'
dividends, the holders of the AMPS, as a class, have the right to elect a
majority of the Board of Trustees. In general, the holders of the AMPS and
the common shareholders have equal voting rights of one vote per share,
except that the holders of the AMPS, 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 AMPS and common
shareholders.
Note D
Investment
transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the year ended
June 30, 2005, aggregated $81,360,324 and $74,569,416, respectively.
The cost of investments owned on June 30, 2005, including short-term
investments, for federal income tax purposes was $213,176,857. Gross
unrealized appreciation and depreciation of investments aggregated
$16,398,533 and $8,153,549, respectively, resulting in net unrealized
appreciation of $8,244,984. The difference between book basis and tax basis
net unrealized appreciation of investments is attributable primarily to the
tax deferral of losses on certain sales of securities.
Note E
Reclassification
of accounts
During the year ended June 30, 2005, the Fund reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$495,964, a decrease in distributions in
17
excess of net investment income of $496,880 and a decrease in capital
paid-in of $916. This represents the amounts necessary to report these
balances on a tax basis, excluding certain temporary differences, as of June
30, 2005. 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
and federal excise tax. The calculation of net investment income per share
in the Fund's Financial Highlights excludes these adjustments.
Change in
Independent Auditor
(unaudited)
Based on the recommendation of the Audit Committee of the Fund, the Board of
Trustees has determined not to retain Deloitte & Touche LLP as the Fund's
Independent Registered Public Accounting Firm and voted to appoint
PricewaterhouseCoopers LLP for the fiscal year ended June 30, 2006. During
the two most recent fiscal years, Deloitte & Touche LLP's audit reports
contained no adverse opinion or disclaimer of opinion; nor were their
reports qualified as to uncertainty, audit scope or accounting principles.
Further, there were no disagreements between the Fund and Deloitte & Touche
LLP on accounting principles, financial statements disclosures or audit
scope, which, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused them to make reference to the disagreement in their
reports.
18
AUDITORS'
REPORT
Report of Deloitte
& Touche LLP,
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of
John Hancock Patriot Select Dividend Trust,
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of John Hancock Patriot Select
Dividend Trust (the "Fund"), as of June 30, 2005, and the related statement
of operations for the year then ended, and the statement of changes in net
assets for the years ended June 30, 2004 and 2005 and the financial
highlights for each of the years in the five-year period ended June 30,
2005. 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 the 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. The Fund is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned at June 30, 2005, by correspondence with the custodian. We
believe that our audits provide 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 June 30, 2005, and the results of its operations, the changes
in its net assets 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
August 4, 2005
19
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 June 30, 2005.
With respect to the ordinary dividends paid by the Fund for the fiscal year
ended June 30, 2005, 100% of the dividends qualifies 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 Act of 2003. This amount will be reflected on Form
1099-DIV for the calendar year 2005.
Shareholders will be mailed a 2005 U.S. Treasury Department Form 1099-DIV in
January 2006. This will reflect the total of all distributions that are
taxable for calendar year 2005.
20
Investment
objective
and policy
The Fund's investment objective is to provide high current income,
consistent with modest growth of capital. The Fund seeks to achieve its
investment 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, 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.
On November 20, 2001, 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 and the
liquidation preference amount of the AMPS 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, which 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.
On December 16, 2003, the Trustees approved additional changes to the Fund's
by-laws. The auction preferred shares section of the Fund's by-laws was
changed to update the rating agency requirements in keeping with recent
changes to the agencies' basic maintenance reporting requirements for
leveraged closed-end funds. By-laws now require an independent accountant's
confirmation only once per year, at the Fund's fiscal year end, and changes
to the agencies' basic maintenance reporting requirements that include
modifications to the eligible assets and their respective discount factors.
These revisions bring the Fund's by-laws in line with current rating agency
requirements.
On September 14, 2004, the Trustees approved an amendment to the Fund's
by-laws increasing the maximum applicable dividend rate ceiling on the
preferred shares to conform with the modern calculation methodology used by
the industry and other John Hancock funds.
Dividends and
distributions
During the year ended June 30, 2005, dividends from net investment income
21
totaling $0.9900 per share were paid to shareholders. The dates of payments
and the amounts per share are as follows:
INCOME
PAYMENT DATE DIVIDEND
- ---------------------------------------
July 30, 2004 $0.0900
August 31, 2004 0.0900
September 30, 2004 0.0900
October 29, 2004 0.0900
November 30, 2004 0.0900
December 31, 2004 0.0900
January 31, 2005 0.0750
February 28, 2005 0.0750
March 31, 2005 0.0750
April 29, 2005 0.0750
May 31, 2005 0.0750
June 30, 2005 0.0750
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 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 participants' 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 com missions, 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 10 days prior to a dividend
record date; otherwise, it will be effective for all subsequent dividend
record dates.
22
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 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.
23
Shareholder meeting
On March 2, 2005, the Annual Meeting of the Fund was held to elect five
Trustees and to ratify the actions of the Trustees in selecting independent
auditors for the Fund.
Proxies covering 9,255,974 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, with the
votes tabulated as follows:
WITHHELD
FOR AUTHORITY
- -------------------------------------------------------------------
James F. Carlin 9,156,909 98,451
William H. Cunningham 9,161,641 93,719
Richard P. Chapman, Jr. 9,152,239 103,121
James A. Shepherdson* 9,166,928 88,432
* Mr. James A. Shepherdson resigned, effective July 15, 2005.
The preferred shareholders elected Patti McGill Peterson to serve as the
Fund's Trustee until her successor is duly elected and qualified, with the
votes tabulated as follows: 614 FOR, 0 AGAINST, 0 WITHHELD.
The common and preferred shareholders ratified the Trustees' selection of
Deloitte & Touche LLP as the Fund's independent auditor for the fiscal year
ending December 31, 2005, with votes tabulated as follows: 9,139,366 FOR,
34,842 AGAINST and 81,766 ABSTAINING.
24
Board Consideration
of and Continuation
of Investment
Advisory Agreement
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act")
requires the Board of Trustees (the "Board") of John Hancock Patriot Select
Dividend Trust (the "Fund"), including a majority of the Trustees who have
no direct or indirect interest in the investment advisory agreement and are
not "interested persons" of the Fund, as defined in the 1940 Act (the
"Independent Trustees"), annually to review and consider the continuation of
the investment advisory agreement (the "Advisory Agreement") with John
Hancock Advisers, LLC (the "Adviser") for the Fund.
At meetings held on May 19-20 and June 6-7, 2005, the Board, including the
Independent Trustees considered the factors and reached the conclusions
described below relating to the selection of the Adviser and the
continuation of the Advisory Agreement. During such meetings, the Board's
Contracts/Operations Committee and the Independent Trustees also met in
executive sessions with their independent legal counsel. In evaluating the
Advisory Agreement, the Board, including the Contracts/Operations Committee
and the Independent Trustees, reviewed a broad range of information
requested for this purpose by the Independent Trustees, including but not
limited to the following: (i) the investment performance of the Fund and a
broader universe of relevant funds (the "Universe") selected by Lipper Inc.
("Lipper"), an independent provider of investment company data, for a range
of periods, (ii) advisory and other fees incurred by, and the expense ratios
of, the Fund and a peer group of comparable funds selected by Lipper (the
"Peer Group"), (iii) the advisory fees of comparable portfolios of other
clients of the Adviser, (iv) the Adviser's financial results and condition,
including its and certain of its affiliates' profitability from services
performed for the Fund, (v) breakpoints in the Fund's and the Peer Group's
fees and a study undertaken at the direction of the Independent Trustees as
to the allocation of the benefits of economies of scale between the Fund and
the Adviser, (vi) the Adviser's record of compliance with applicable laws
and regulations, with the Fund's investment policies and restrictions, and
with the Fund's Code of Ethics and the structure and responsibilities of the
Adviser's compliance department, (vii) the background and experience of
senior management and investment professionals, and (viii) the nature, cost
and character of advisory and non-investment management services provided by
the Adviser and its affiliates.
Nature, Extent and Quality
of Services
The Board considered the ability of the Adviser, based on its resources,
reputation and other attributes, to attract and retain qualified investment
professionals, including research, advisory, and supervisory personnel. The
Board further considered the compliance programs and compliance records of
the Adviser. In addition, the Board took into account the administrative
services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board
concluded that, within the context of its full deliberations, the nature,
extent and quality of the investment advisory services provided to the Fund
by the Adviser were sufficient to support renewal of the Advisory Agreement.
Fund Performance
The Board considered the performance results for the Fund over various time
periods. The Board also considered these results in comparison to the
performance of the Universe, as well as the Fund's benchmark indices. Lipper
determined the Universe
25
for the Fund. The Board reviewed with a represen tative of Lipper the
methodology used by Lipper to select the funds in the Universe and the Peer
Group.
The Board noted that the performance of the Fund was below the median and
average performance of its Universe for most of the time periods under
review, but noted that, more recently, the Fund's performance improved and
was above the median and average performance of its Universe for the
one-year period ended December 31, 2004. The Board also noted that the
Fund's performance was not appreciably below the performance of the Lipper
Closed-End Income and Preferred Funds Index during years under review, and
was above the benchmark index's performance for the first quarter period
ended March 31, 2005. The Board noted that, except for the one-year period
ended December 31, 2004, the Fund's performance was either above or not
appreciably below the performance of the Dow Jones Utility Average Index for
the time periods under review. The Adviser provided information to the Board
regarding factors contributing to the Fund's performance results, as well as
the Adviser's outlook and investment strategy for the near future. The Board
indicated its intent to continue to monitor the Fund's performance trends.
Investment Advisory Fee
Rates and Expenses
The Board reviewed and considered the contractual investment advisory fee
rate payable by the Fund to the Adviser for investment advisory services
(the "Advisory Agreement Rate"). The Board received and considered
information comparing the Advisory Agreement Rate and the actual management
fee expense ratio with fees for the Peer Group. The Board noted that the
Advisory Agreement Rate was at the high end of the range of other funds in
the Peer Group, but noted that the Peer Group included very few funds. The
Board also noted that the actual management fee expense ratio was higher
than the median rate of the Peer Group. The Adviser explained that, in its
view, the actual management fee expense ratio reported by Lipper is
overstated because the Lipper analysis excludes amounts attributable to
redeemable preferred shares from the denominator or asset base when
converting dollars actually paid to a ratio. The Board received a more
detailed analysis provided by the Adviser, which showed that the actual
management fee expense ratio is in line with the industry average of other
similar funds, when adjusted for leverage by including amounts attributable
to redeemable preferred shares in the asset base.
The Board received and considered information regarding the Fund's total
operating expense ratio and its various components, including contractual
advisory fees, actual advisory fees, non-management fees, transfer agent
fees and custodian fees, including and excluding investment-related
expenses. The Board also considered comparisons of these expenses to the
Peer Group and the Universe. The Board noted that the total operating
expense ratio of the Fund was higher than the Peer Group's and Universe's
median total operating expense ratio. The Adviser provided additional
analysis, which showed that the actual total operating expense ratio is in
line with the industry average of other similar funds, when adjusted for
leverage by including amounts attributable to redeemable preferred shares in
the asset base.
The Adviser also discussed the Lipper data and rankings, and other relevant
information, for the Fund. Based on the above-referenced considerations and
other factors, the Board concluded that the Fund's overall expense results
and performance supported the re-approval of the Advisory Agreement.
Profitability
The Board received and considered a detailed profitability analysis of the
26
Adviser based on the Advisory Agreement, as well as on other relationships
between the Fund and the Adviser and its affiliates. The Board concluded
that, in light of the costs of providing investment management and other
services to the Fund, the profits and other ancillary benefits reported by
the Adviser were not unreasonable.
Economies of Scale
The Board received and considered general information regarding economies of
scale with respect to the management of the Fund, including the Fund's
ability to appropriately benefit from economies of scale under the Fund's
fee structure. The Board recognized the inherent limitations of any analysis
of economies of scale, stemming largely from the Board's understanding that
most of the Adviser's costs are not specific to individual Funds, but rather
are incurred across a variety of products and services.
The Board observed that the Advisory Agreement did not offer breakpoints.
However, the Board considered the limited relevance of economies of scale in
the context of a closed-end fund that, unlike an open-end fund, does not
continuously offer its shares, and concluded that the fees were fair and
equitable based on relevant factors, including the Fund's total expenses
ranking relative to its Peer Group.
Information About
Services to Other Clients
The Board also received information about the nature, extent and quality of
services and fee rates offered by the Adviser to its other clients,
including other registered investment companies, institutional investors and
separate accounts. The Board concluded that the Advisory Agreement Rate was
not unreasonable, taking into account fee rates offered to others by the
Adviser and giving effect to differences in services covered by such fee
rates
Other Benefits to
the Adviser
The Board received information regarding potential "fall-out" or ancillary
benefits received by the Adviser and its affiliates as a result of the
Adviser's relationship with the Fund. Such benefits could include, among
others, benefits directly attributable to the relationship of the Adviser
with the Fund and benefits potentially derived from an increase in the
business of the Adviser as a result of its relationship with the Fund (such
as the ability to market to shareholders other financial products offered by
the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser's and the Fund's
policies and procedures for complying with the requirements of the federal
securities laws, including those relating to best execution of portfolio
transactions and brokerage allocation.
Other Factors and
Broader Review
As discussed above, the Board reviewed detailed materials received from the
Adviser as part of the annual re-approval process under Section 15(c) of the
1940 Act. The Board also regularly reviews and assesses the quality of the
services that the Fund receives throughout the year. In this regard, the
Board reviews reports of the Adviser at least quarterly, which include,
among other things, a detailed portfolio review, detailed fund performance
reports and compliance reports. In addition, the Board meets with portfolio
managers and senior investment officers at various times throughout the
year.
After considering the above-described factors and based on its deliberations
and its evaluation of the information described above, the Board concluded
that approval of the continuation of the Advisory Agreement for the Fund was
in the best interest of the Fund and its shareholders. Accordingly, the
Board unanimously approved the continuation of the Advisory Agreement.
27
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 1992 51
Independent Chairman (since 2004); Chairman and Trustee, Dunwoody
Village, Inc. (retirement services) (until 2003); 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 1990 51
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 (engineering) (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).
Richard P. Chapman, Jr., 2 Born: 1935 2005 51
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William H. Cunningham, Born: 1944 1995 51
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 (until 2004), STC Broadcasting,
Inc. and Sunrise Television Corp. (electronic manufacturing) (until 2001),
Symtx, Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology,
Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius (Internet
28
Independent Trustees (continued)
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
William H. Cunningham, Born: 1944 (continued) 1995 51
service) (until 2003), 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 (until 2003); Advisory Director, Chase Bank (formerly Texas
Commerce Bank -- Austin) (since 1988), LIN Television (since 2002), WilTel
Communications (until 2003) and Hayes Lemmerz International, Inc.
(diversified automotive parts supply company) (since 2003).
Ronald R. Dion, Born: 1946 1998 51
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; Director, Boston Municipal Research Bureau; Member
of the Advisory Board, Carroll Graduate School of Management at
Boston College.
John A. Moore, 2 Born: 1939 2005 51
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).
Patti McGill Peterson, 2 Born: 1943 2005 51
Executive Director, Council for International Exchange of Scholars and
Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1998); Former President of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003).
Steven R. Pruchansky, Born: 1944 1992 51
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).
29
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
Keith F. Hartstein, Born: 1956 2005
President and Chief Executive Officer
Senior Vice President, Manulife Financial Corporation (since 2004); Director,
President and Chief Executive Officer, John Hancock Advisers, LLC (the
"Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group")
(holding company); Director, President and Chief Executive Officer, John
Hancock Funds, LLC. ("John Hancock Funds"); Director, President and Chief
Executive Officer, Sovereign Asset Management Corporation ("SAMCorp.");
Director, John Hancock Signature Services, Inc.; President, John Hancock Trust;
Chairman and President, NM Capital Management, Inc. (NM Capital) (since
2005); Chairman, Investment Company Institute Sales Force Marketing
Committee (since 2003); Executive Vice President, John Hancock Funds, LLC
(until 2005).
William H. King, Born: 1952 1992
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).
Francis V. Knox, Jr., Born: 1947 2005
Vice President and Chief Compliance Officer
Vice President and Chief Compliance Officer for John Hancock Investment
Company, John Hancock Life Insurance Company (U.S.A.), John Hancock Life
Insurance Company and John Hancock Funds (since 2005); Fidelity Investments --
Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004);
Fidelity Investments -- Vice President and Ethics & Compliance Officer (until 2001).
The business address for all Trustees and Officers is 601 Congress Street,
Boston, Massachusetts 02210-2805.
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.
30
31
32
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Investment adviser
John Hancock Advisers, LLC
601 Congress Street
Boston, MA 02210-2805
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent for
common shareholders
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Transfer agent for AMPS
Deutsche Bank Trust
Company Americas
280 Park Avenue
New York, NY 10017
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
Independent registered
public accounting firm
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116-5022
Stock symbol
Listed New York Stock
Exchange:
DIV
For shareholder assistance
refer to page 23
How to contact us
Internet www.jhfunds.com
Mail Regular mail:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Phone 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
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available on
a quarterly basis 60 days after the fiscal quarter on our Web site or upon
request by calling 1-800-225-5291, or on the Securities and Exchange
Commission's Web site, www.sec.gov.
33
[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
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P300A 6/05
8/05
ITEM 2. CODE OF ETHICS.
As of the end of the period, June 30, 2005, 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.
The code of ethics was amended effective February 1, 2005 to address new
Rule 204A-1 under the Investment Advisers Act of 1940 and to make other
related changes.
The most significant amendments were:
(a) Broadening of the General Principles of the code to cover compliance
with all federal securities laws.
(b) Eliminating the interim requirements (since the first quarter of 2004)
for access persons to preclear their personal trades of John Hancock mutual
funds. This was replaced by post-trade reporting and a 30 day hold
requirement for all employees.
(c) A new requirement for "heightened preclearance" with investment
supervisors by any access person trading in a personal position worth
$100,000 or more.
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
$31,250 for the fiscal year ended June 30, 2004 and $33,000 for the fiscal
year ended June 30, 2005. 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 June 30, 2004
and fiscal year ended June 30, 2005 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 $2,250 for the fiscal year ended June 30, 2004 and
$2,400 for the fiscal year ended June 30, 2005. 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 $4,000 for the fiscal year ended
June 30, 2004 and $4,000 for the fiscal year ended June 30, 2005. There
were no other fees during the fiscal year ended June 30, 2004 and June 30,
2005 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 June 30,
2004 and June 30, 2005 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 June 30, 2005, 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 $41,187.50 for the fiscal year ended June 30, 2004, and $71,400 for
the fiscal year ended June 30, 2005.
(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 - Chairman
Richard P. Chapman, Jr.
Dr. John A. Moore
Patti McGill Peterson
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. 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 11. 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 12. 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 Select Dividend Trust
By: /s/ Keith F. Hartstein
------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: August 29, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Keith F. Hartstein
------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: August 29, 2005
By: /s/ William H. King
------------------------------
William H. King
Vice President and Treasurer
Date: August 29, 2005