-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HSneRIZ2HsgKg9/nB5Mn20ChMLJ8YIOuA1GFffE5tQSVOWjBRobKzHxCvnXR8kIh jfwPi/kMUuudzZFsR45ZMA== 0000899581-04-000001.txt : 20040129 0000899581-04-000001.hdr.sgml : 20040129 20040129144542 ACCESSION NUMBER: 0000899581-04-000001 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031130 FILED AS OF DATE: 20040129 EFFECTIVENESS DATE: 20040129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN PATRIOT PREFERRED DIVIDEND FUND CENTRAL INDEX KEY: 0000899581 IRS NUMBER: 043190056 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07590 FILM NUMBER: 04551958 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02199-7603 BUSINESS PHONE: 6173751702 MAIL ADDRESS: STREET 1: JOHN HANCOCK STREET 2: 101 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02199-7603 FORMER COMPANY: FORMER CONFORMED NAME: PATRIOT PREFERRED DIVIDEND FUND DATE OF NAME CHANGE: 19930714 N-CSR 1 patpref.txt JH PATRIOT PREFERRED DIVIDEND FUND January 28, 2004 EDGAR United States Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Form N-CSR John Hancock Patriot Preferred Dividend Fund (the "Registrant") File No. 811-7590 Ladies and Gentlemen: Enclosed herewith for filing pursuant to the Investment Company Act of 1940 and the Securities Exchange Act of 1934 is the Registrant's Form N-CSR filing for the period ending November 30, 2003. 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 STOCKHOLDERS. John Hancock Patriot Preferred Dividend Fund SEMI ANNUAL REPORT 11.30.03 [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 Maureen R. Ford, Chairman and Chief Executive Officer, flush left next to first paragraph.] WELCOME Table of contents Your fund at a glance page 1 Managers' report page 2 Fund's investments page 6 Financial statements page 9 For your information page 21 Dear Fellow Shareholders, The stock market has made a strong recovery in 2003. Historically low interest rates, improving corporate earnings and government stimulus in the form of tax cuts gave investors hope that the economy would begin to strengthen, which it did. The market's move up began in April and the breadth of the rally was enormous. As a result, the major indexes were able to wipe out their first-quarter losses and post solid gains year-to-date through November 30. With technology leading the way, the tech-heavy Nasdaq Composite Index rose 47.46% through November, while the Dow Jones Industrial Average was up 19.80% and the Standard & Poor's 500 Index returned 22.26%. With falling interest rates, bonds also did well, although they began to reverse course in July. High yield bonds led the pack, returning 26.11% through November, as measured by the Lehman Brothers High Yield Index. In other news, we are pleased to inform you that on September 28, 2003, the Boards of Directors of Canada-based Manulife Financial Corporation and Boston-based John Hancock Financial Services, Inc., the parent company of John Hancock Funds, unanimously voted to merge the two companies. Please be assured that the completion of the merger -- anticipated to occur in the first half of 2004 -- will have no effect on your investment in our John Hancock mutual funds. Your fund's adviser and board of trustees will remain the same, as will your relationship with your financial adviser. The merger is subject to customary closing conditions, including receipt of required regulatory approvals and approval by John Hancock stockholders. If you only own shares in a John Hancock mutual fund you are not affected and will not receive a proxy. Additional information on this transaction is available on our Web site: www.jhfunds.com. If you have questions about the merger, you may also call 800-732-5543. Separately, for information about your investments in John Hancock funds, please contact your financial adviser or our Customer Service representatives at 800-225-5291. Sincerely, /S/ MAUREEN FORD GOLDFARB Maureen Ford Goldfarb, Chairman and Chief Executive Officer This commentary reflects the chairman's views as of November 30, 2003. They are subject to change at any time. YOUR FUND AT A GLANCE The Fund seeks to provide high current income, consistent with preservation of capital, by invest- ing at least 80% of its assets in dividend-paying securities. Over the last six months * A dividend tax cut helped buoy demand for preferred and utility common stocks. * The Fund benefited from advantageous security selection among preferreds. * A significant stake in utility common stocks also aided performance. [Bar chart with heading "John Hancock Patriot Preferred Dividend Fund." Under the heading is a note that reads "Fund performance for the six months ended November 30, 2003." The chart is scaled in increments of 4% with 0% at the bottom and 8% at the top. The first bar represents the 6.75% total return for John Hancock Patriot Preferred dividend 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 5.1% Lehman Brothers Holdings, Inc. 5.1% Citigroup, Inc. 5.0% Bear Stearns Cos., Inc. 4.6% HSBC USA, Inc. 4.1% Alabama Power Co. 4.0% Anadarko Petroleum Corp. 3.9% SLM Corp. 3.7% FleetBoston Financial Corp. 3.6% J.P. Morgan Chase & Co. 3.5% AMERCO As a percentage of net assets plus the value of preferred shares on November 30, 2003. 1 MANAGERS' REPORT BY GREGORY K. PHELPS AND MARK T. MALONEY FOR THE PORTFOLIO MANAGEMENT TEAM John Hancock Patriot Preferred Dividend Fund Preferred stocks -- which are the primary emphasis of John Hancock Patriot Preferred Dividend Fund -- posted solid returns during the six-month period ended November 30, 2003, fueled in large part by favorable supply and demand conditions. An increasing number of companies that had issued preferred stocks in years when interest rates were higher redeemed these older preferred stocks to take advantage of the lower interest rates that prevailed during much of the current period. Those redemptions resulted in a reduced net supply of preferred stocks. At the same time, demand burgeoned as individual and institutional investors increasingly sought out higher-yielding alternatives to most fixed-income securities and common stocks. Demand got an added boost from the passage of President Bush's dividend tax-cut package, which greatly reduced the taxes individuals pay on most stock dividends. A dramatic rise in interest rates and bond yields in the summer months briefly tempered an otherwise favorable backdrop for fixed-income investments, including preferreds. But they quickly regained their footing in the final months of the period when inflation concerns cooled, the Fed rushed to reassure investors that it wasn't poised to raise interest rates any time soon, and favorable supply and demand conditions trumped macroeconomic concerns. "Preferred stocks...posted solid returns during the six-month period ended November 30, 2003..." Utility common stocks -- the Fund's other primary area of focus -- also staged a significant rally during the period. Part of investors' renewed optimism was in reaction to efforts by utilities to reduce debt, improve their financing and shed money-losing unregulated subsidiaries. Like preferreds, utility common stocks also benefited from strong demand in response to dividend tax relief. Utilities traditionally have offered consis- 2 tently high dividends over the years, and those with dividends subject to tax relief benefited most. [Photos of Greg Phelps and Mark Maloney flush right next to first paragraph.] PERFORMANCE For the six months ended November 30, 2003, John Hancock Patriot Preferred Dividend Fund returned 6.79% at net asset value. By comparison, the average income and preferred stock closed-end fund returned 5.23%, according to Lipper, Inc. In the same six-month period, the Dow Jones Utility Average -- which tracks the performance of 15 electric and natural gas utilities -- returned 3.96%, and the broader stock market, as measured by the Standard & Poor's 500 Index, returned 10.80%. We believe our outperformance resulted from advantageous security selection, particularly in the preferred-stock group, and from our significant holdings in utility stocks, which gave the Fund an added boost when that group rebounded. LEADERS AND LAGGARDS Within the preferred-stock category, some of our best-performing holdings were those issued by financial services companies. J.P. Morgan Chase, for example, benefited from growth in its private banking business, as well as in its market share in underwriting stock and bond offerings. Merrill Lynch also performed well, thanks to its strong credit rating compared with its brokerage services group peers, and enhanced earnings consistency resulting from what the company termed "a diversity of revenues from multiple asset classes, client segments and geographic regions." Bear Stearns benefited from increased revenues and cost controls, which resulted in substantial improvement in the company's profitability. "We believe our out performance resulted from advantageous security selection, particularly in the preferred-stock group..." OIL & GAS SHINES Preferred stocks issued by oil and natural gas companies also posted strong returns during the period. In the post- September 11 era, energy prices stayed high in part because of a so-called "risk premium" for potential attacks both here and abroad. Those high energy prices, in turn, helped boost 3 the fortunes of holdings such as Anadarko Petroleum, Apache, Devon Energy and Nexen. [Table at top left-hand side of page entitled "Top five industry groups1." The first listing is Utilities 38%, the second is Finance 13%, the third Broker services 12%, the fourth Oil & gas 12%, and the fifth Banks-United States 8%.] High energy prices also helped some of our utility common stocks, particularly Dominion Resources, which has significant oil and gas operations. It also enjoyed strong results from its regulated electric operation. The common stock of electric utility Alliant Energy also performed well, boosted in large part by investors' enthusiasm over the company's back-to-basics approach. One disappointment during the period was Kansas City-based Aquila, a multinational energy provider that has been trying to regain financial stability after retreating from the wholesale energy-trading markets that caused so many utilities pain in 2002. Despite these problems, we continued to hold onto our stake in Aquila because we believe the company is making significant and positive steps toward reducing its debt, strengthening its balance sheet and putting its energy-trading problems behind it. [Pie chart in middle of page with heading "Portfolio diversification1." The chart is divided into three sections (from top to left): Preferred stocks 85%, Common stocks 14%, and Short-term investments & other 1%.] OUTLOOK In our view, the first half of 2004 likely will continue to favor preferred and utility stocks. First, we believe that both sectors will keep on benefiting from the favorable supply and demand conditions that boosted their prospects over the past six months. We also believe interest rates will continue to remain low, and that could help preferreds because they pay dividends at a fixed rate like the interest on a bond. As such, they tend to perform best when rates decline or stabilize at relatively low levels, just as bonds do. Although the economy has heated up, we don't think the Federal Reserve Board will raise interest rates until the current recovery deepens and sustains itself for a longer period of 4 time. Granted, longer-term bond yields could rise as investors worry about the prospects of future inflation, but the expected lack of an interest-rate hike would keep short-term interest rates low, thereby making preferred stocks an attractive alternative to shorter-term, lower-yielding money market and Treasury bond investments. Furthermore, we believe it's likely that investors' appetite for preferred stocks, and for that matter, utility common stocks -- both of which benefit from tax cuts - -- could remain strong. In addition to strong demand, utility common stocks appear to have other factors working in their favor. Chief among them are the potential for more stable credit ratings and continued attractive -- albeit higher than at the beginning of 2003 -- valuations relative to the stock market overall. Recent acquisitions of utility companies by deep-pocketed private equity investors may signal that more acquisition activity is in the offing in 2004, a trend that could also help boost utilities. [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 J.P. Morgan Chase followed by an up arrow with the phrase "Uptick in several lines of business." The second listing is Dominion Resources followed by an up arrow with the phrase "High energy prices help boost profits." The third listing is Aquila followed by a down arrow with the phrase "Lingering problems with energy trading causes concern."] "In our view, the first half of 2004 likely will continue to favor preferred and utility stocks." This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. The managers' statements reflect their own opinions. As such, they are in no way guarantees of future events, and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant. 1 As a percentage of the Fund's portfolio on November 30, 2003. 5 FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on November 30, 2003 (unaudited) This schedule is divided into three main categories: preferred stocks, common stocks and short-term investments. Stocks are further broken down by industry group. Short-term investments, which represent the Fund's cash position, are listed last.
CREDIT ISSUER, DESCRIPTION RATING* SHARES VALUE PREFERRED STOCKS 130.40% $127,627,131 (Cost $126,972,549) Agricultural Operations 4.49% 4,395,000 Ocean Spray Cranberries, Inc., 6.25%, Ser A (R) BBB 60,000 4,395,000 Banks -- Foreign 2.25% 2,196,000 Royal Bank of Scotland Group Plc, 5.75%, Ser B (United Kingdom) A 90,000 2,196,000 Banks -- United States 12.77% 12,501,050 FleetBoston Financial Corp., 6.75%, Depositary Shares, Ser VI BBB+ 102,100 5,615,500 HSBC USA, Inc., $2.8575 A1 133,700 6,885,550 Broker Services 18.86% 18,461,454 Bear Stearns Companies, Inc., 6.15%, Depositary Shares, Ser E BBB 100,600 5,402,220 Bear Stearns Companies, Inc., 5.72%, Depositary Shares, Ser F A3 40,000 2,038,000 Lehman Brothers Holdings, Inc., 5.94%, Depositary Shares, Ser C BBB+ 102,500 5,227,500 Lehman Brothers Holdings, Inc., 5.67%, Depositary Shares, Ser D A3 48,000 2,460,000 Merrill Lynch & Co., Inc., 9.00%, Depositary Shares, Ser A A- 120,700 3,333,734 Chemicals 3.27% 3,203,550 Du Pont (E.I.) de Nemours & Co., $4.50, Ser B A 33,900 3,203,550 Diversified Operations 2.35% 2,303,080 Grand Metropolitan Delaware, L.P., 9.42%, Gtd Ser A BBB+ 86,000 2,303,080 Finance 19.29% 18,880,624 Citigroup, Inc., 6.213%, Depositary Shares, Ser G Aa3 52,000 2,817,880 Citigroup, Inc., 6.231%, Depositary Shares, Ser H Aa3 88,700 4,800,444 J.P. Morgan Chase & Co., 6.625%, Depositary Shares, Ser H A1 100,000 5,475,000 SLM Corp., 6.97%, Ser A BBB+ 101,000 5,787,300 Leasing Companies 5.41% 5,291,000 AMERCO, 8.50%, Ser A D 220,000 5,291,000 See notes to financial statements. 6 FINANCIAL STATEMENTS CREDIT ISSUER, DESCRIPTION RATING* SHARES VALUE Media 5.30% $5,186,700 Shaw Communications, Inc., 8.45%, Ser A (Canada) B+ 203,400 5,186,700 Oil & Gas 18.83% 18,431,961 Anadarko Petroleum Corp., 5.46%, Depositary Shares, Ser B BBB- 60,989 6,037,911 Apache Corp., 5.68%, Depositary Shares, Ser B BBB 52,200 5,233,050 Devon Energy Corp., 6.49%, Ser A B 50,000 5,125,000 Nexen, Inc., 7.35% (Canada) BBB- 80,000 2,036,000 Utilities 37.58% 36,776,712 Alabama Power Co., 5.20% BBB+ 251,400 6,197,010 Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 20,000 2,165,000 Boston Edison Co., 4.78% A3 15,790 1,369,783 Coastal Finance I, 8.375% CCC+ 199,800 4,265,730 El Paso Tennessee Pipeline Co., 8.25%, Ser A CCC+ 136,600 5,190,800 Energy East Capital Trust I, 8.25% BBB- 168,000 4,519,200 Northern Indiana Public Service Co., 7.44% BB+ 15,150 1,558,556 PSEG Funding Trust II, 8.75% BB+ 30,000 837,600 PSI Energy, Inc., 6.875% BBB- 14,350 1,465,135 Public Service Electric & Gas Co., 6.92% BB+ 19,000 1,952,250 Rochester Gas & Electric Corp., 4.95%, Ser K Ba1 15,034 1,211,647 Sierra Pacific Power Co., 7.80%, Ser 1 (Class A) CCC+ 110,000 2,420,000 Southern Union Co., 7.55%, Ser A BB+ 55,000 1,432,750 Southwest Gas Capital Trust II, 7.70% BB 60,000 1,596,000 Wisconsin Public Service Corp., 6.76% A 5,703 595,251 SHARES ISSUER, DESCRIPTION VALUE COMMON STOCKS 21.05% $20,604,660 (Cost $22,728,051) Utilities 21.05% 60,000 Alliant Energy Corp. 1,467,000 88,000 Aquila, Inc.** 315,040 5,900 CH Energy Group, Inc. 259,010 27,500 Dominion Resources, Inc. 1,657,425 30,000 DTE Energy Co. 1,131,300 81,000 KeySpan Corp. 2,853,630 34,000 NiSource, Inc. 705,500 113,000 Northeast Utilities 2,254,350 50,000 NSTAR 2,382,500 28,000 Peoples Energy Corp. 1,125,600 37,500 Progress Energy, Inc., Contingent Value Obligation (I)** 3,750 73,500 Puget Energy, Inc. 1,708,875 234,000 Sierra Pacific Resources** 1,621,620 62,000 TECO Energy, Inc. 804,760 30,000 WPS Resources Corp. 1,329,000 59,000 Xcel Energy, Inc. 985,300 See notes to financial statements. 7 FINANCIAL STATEMENTS INTEREST PAR VALUE ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 2.15% $2,108,000 (Cost $2,108,000) Commercial Paper 2.15% ChevronTexaco Corp., 12-01-03 0.80% $2,108 2,108,000 TOTAL INVESTMENTS 153.60% $150,339,791 OTHER ASSETS AND LIABILITIES, NET (53.60%) ($52,466,008) TOTAL NET ASSETS 100.00% $97,873,783
* Credit ratings are unaudited and are rated by Moody's Investors Service, unless indicated otherwise. * * Non-income-producing security. (I) This security is valued in good faith under procedures established by the Board of Trustees. (R) These securities are exempt from registration under rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $4,395,000 or 4.49% of net assets as of November 30, 2003. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements. 8 FINANCIAL STATEMENTS ASSETS AND LIABILITIES November 30, 2003 (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 $151,808,600) $150,339,791 Cash 523 Dividends receivable 298,442 Other assets 28,550 Total assets 150,667,306 LIABILITIES Payable to affiliates Management fee 98,020 Other 18,379 Other payables and accrued expenses 107,823 Total liabilities 224,222 Auction Rate Preferred Shares (ARPS), at value, unlimited number of shares of beneficial interest authorized with no par value, 525 shares issued, liquidation preference of $100,000 per share 52,569,301 NET ASSETS Common shares capital paid-in 99,027,349 Accumulated net realized loss on investments (2,850,496) Net unrealized depreciation of investments (1,468,809) Accumulated net investment income 3,165,739 Net assets applicable to common shares $97,873,783 NET ASSET VALUE PER COMMON SHARE Based on 7,257,200 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value $13.49 See notes to financial statements. 9 FINANCIAL STATEMENTS OPERATIONS For the period ended November 30, 2003 (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 $4,382,865 Interest 21,893 Total investment income 4,404,758 EXPENSES Investment management fee 591,355 Administration fee 110,879 ARPS auction fee 69,964 Auditing fee 29,878 Printing 19,882 Registration and filing fee 19,673 Transfer agent fee 18,804 Custodian fee 16,253 Trustees' fee 4,688 Legal fee 1,114 Total expenses 882,490 Net investment income 3,522,268 REALIZED AND UNREALIZED GAIN Net realized gain on investments 171,976 Change in net unrealized appreciation (depreciation) of investments 2,843,614 Net realized and unrealized gain 3,015,590 Distributions to ARPS (273,031) Increase in net assets from operations $6,264,827 1 Semiannual period from 6-1-03 through 11-30-03. See notes to financial statements. 10 FINANCIAL STATEMENTS CHANGES IN NET ASSETS These Statements of Changes in Net Assets show how the value of the Fund's net assets has changed during the last two periods. The dif- ference reflects earnings less expenses, any investment gains and losses and distributions, if any, paid to shareholders. YEAR PERIOD ENDED ENDED 5-31-03 11-30-03 1 INCREASE IN NET ASSETS From operations Net investment income $7,849,173 $3,522,268 Net realized gain (loss) (1,089,148) 171,976 Change in net unrealized appreciation (depreciation) 5,149,584 2,843,614 Distributions to ARPS (795,256) (273,031) Increase in net assets resulting from operations 11,114,353 6,264,827 Distributions to common shareholders From net investment income (6,270,221) (3,135,110) NET ASSETS APPLICABLE TO COMMON SHARES Beginning of period 89,899,934 94,744,066 End of period 2 $94,744,066 $97,873,783 1 Semiannual period from 6-1-03 through 11-30-03. Unaudited. 2 Includes accumulated net investment income of $3,051,612 and $3,165,739, respectively. See notes to financial statements. 11 FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS COMMON SHARES The Financial Highlights show how the Fund's net asset value for a share has changed since the end of the previous period. PERIOD ENDED 5-31-99 5-31-00 5-31-01 5-31-02 5-31-03 11-30-03 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $14.54 $13.84 $11.76 $12.96 $12.39 $13.06 Net investment income 2 1.23 1.25 1.24 1.18 1.08 0.49 Net realized and unrealized gain (loss) on investments (0.61) (2.16) 1.16 (0.73) 0.56 0.41 Distributions to ARPS (0.29) (0.31) (0.34) (0.16) (0.11) (0.04) Total from investment operations 0.33 (1.22) 2.06 0.29 1.53 0.86 Less distributions to common shareholders From net investment income (1.03) (0.86) (0.86) (0.86) (0.86) (0.43) Net asset value, end of period $13.84 $11.76 $12.96 $12.39 $13.06 $13.49 Per share market value, end of period $11.50 $10.25 $11.75 $12.47 $13.07 $13.35 Total return at market value 3 (%) (14.79) (3.37) 23.81 13.76 12.50 5.604 RATIOS AND SUPPLEMENTAL DATA Net assets applicable to common shares, end of period (in millions) $100 $85 $94 $90 $95 $98 Ratio of expenses to average net assets 5 (%) 1.84 1.96 1.91 1.96 2.11 1.85 6 Ratio of net investment income to average net assets 7 (%) 8.66 9.97 9.89 9.09 9.21 7.39 6 Portfolio turnover (%) 30 22 10 16 9 5 SENIOR SECURITIES Total ARPS outstanding (in millions) $53 $53 $53 $53 $53 $53 Involuntary liquidation preference per unit (in thousands) $100 $100 $100 $100 $100 $100 Approximate market value per unit (in thousands) $100 $100 $100 $100 $100 $100 Asset coverage per unit 8 $290,113 $260,212 $276,853 $270,318 $277,801 $285,124
1 Semiannual period from 6-1-03 through 11-30-03. Unaudited. 2 Based on the average of the shares outstanding. 3 Assumes dividend reinvestment. 4 Not annualized. 5 Ratios 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 1.22%, 1.24%, 1.21%, 1.26%,1.30% and 1.19%, respectively. 6 Annualized. 7 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 annualized ratio of net investment income would have been 5.73%, 6.31%, 6.27%, 5.84%, 5.70% and 4.77%, respectively. 8 Calculated by subtracting the Fund's total liabilities from the Fund's total assets and dividing that amount by the number of ARPS outstanding, as of the applicable 1940 Act Evaluation Date, which may differ from the financial reporting date. See notes to financial statements. 12 NOTES TO STATEMENTS Unaudited NOTE A Accounting policies John Hancock Patriot Preferred Dividend Fund (the "Fund") is a diversified closed-end management investment company registered under the Investment Company Act of 1940. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. The Fund determines the net asset value of the common shares each business day. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Expenses The majority of expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $2,301,910 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforward expires as follows: May 31, 2010 -- $1,226,894 and May 31, 2011 -- $1,075,016. 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 13 from accounting principles generally accepted in the United States of America. Distrib utions 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 The Berkeley Financial Group, LLC. Under the investment management contract, the Fund pays a monthly management fee to the Adviser at an annual rate of 0.80% of the Fund's average weekly net asset value and the value attributable to the preferred shares. 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 the shareholders. The Fund pays the Adviser a monthly administration fee at an annual rate of 0.15% of the Fund's average weekly net asset value and the value attributable to the preferred shares. Ms. Maureen Ford Goldfarb and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees 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 investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions Common shares The Fund had no common share transactions during the period. Auction Rate Preferred Shares The Fund issued 525 shares of Auction Rate Preferred Shares ("ARPS") on July 29, 1993, in a public offering. The underwriting discount of $918,750 and the offering costs of $610,007 associated with the offering of the common shares and ARPS were recorded as a reduction of the capital of common shares. Dividends on the ARPS, which accrue daily, are cumulative at a rate that was established at the offering of the ARPS and has been reset every 49 days thereafter by an auction. Dividend rates on the ARPS ranged from 0.95% to 1.18%, during the period ended November 30, 2003. Accrued dividends on ARPS are included in the value of ARPS on the Fund's Statement of Assets and Liabilities. The ARPS are redeemable at the option of the Fund, at a redemption price equal to $100,000 per share, plus accumulated and unpaid dividends on any dividend payment date. The ARPS are subject to mandatory redemption at a redemption price equal to $100,000 per share, plus accumulated and 14 unpaid dividends, if the Fund is in default on its asset coverage requirements with respect to the ARPS, as defined in the Funds' by-laws. If the dividends on the ARPS shall remain unpaid in an amount equal to two full years' dividends, the holders of the ARPS, as a class, have the right to elect a majority of the Board of Trustees. In general, the holders of the ARPS and the common shareholders have equal voting rights of one vote per share, except that the holders of the ARPS, as a class, vote to elect two members of the Board of Trustees, and separate class votes are required on certain matters that affect the respective interests of the ARPS and common shareholders. NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the period ended November 30, 2003, aggregated $11,840,734 and $7,117,110, respectively. The cost of investments owned on November 30, 2003, including short-term investments, for federal income tax purposes was $151,978,528. Gross unrealized appreciation and depreciation of investments aggregated $8,029,894 and $9,668,631, respectively, resulting in net unrealized depreciation of $1,638,737. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on certain sales of securities. 15 INVESTMENT OBJECTIVE AND POLICY The Fund's investment objective is to provide high current income consistent with preservation of capital. The Fund will pursue its objective by investing in preferred stocks that, in the opinion of the Adviser, may be undervalued relative to similar securities in the marketplace. The Fund's non-fundamental investment policy, which became effective October 15, 1994, with respect to the quality of ratings of its portfolio investments stipulates that preferred stocks and debt obligations in which the Fund will invest will be rated investment-grade (at least "BBB" by S&P or "Baa" by Moody's) at the time of investment or will be preferred stocks of issuers of investment grade senior debt, some of which may have speculative characteristics, or, if not rated, will be of comparable quality as determined by the Adviser. The Fund will invest in common stocks of issuers whose senior debt is rated investment grade or, in the case of issuers that have no rated senior debt outstanding, whose senior debt is considered by the Adviser to be of comparable quality. This policy supersedes the requirement that at least 80% of the Fund's total assets consist of preferred stocks and debt obligations rated "A" or higher and dividend paying common stocks whose issuers have senior debt rated "A" or higher. The Fund's Trustees approved the following investment policy investment restriction change, effective December 15, 2001. Under normal circumstances the Fund will invest at least 80% of its assets in dividend-paying securities. The "Assets" are defined as net assets including the liquidation preference amount of the APS plus borrowings for investment purposes. The Fund will notify shareholders at least 60 days prior to any change in this 80% investment policy. The Fund's Trustees approved the elimination of the dividend coverage test, effective October 1, 2001. Effective December 16, 2003, the Trustees approved additional changes to the Fund's by-laws. The changes included updating the leveraged rating agency requirements in keeping with recent changes to the agencies' basic maintenance reporting requirements for leveraged closed-end funds. In addition, changes were made to reflect recent updates that Moody's made to some of their eligible asset and discount factors. These revisions bring the Fund's by-laws in line with current rating agency requirements. DIVIDEND REINVESTMENT PLAN The Fund offers its shareholders a Dividend Reinvestment Plan (the "Plan"), which offers the opportunity to earn compounded yields. Each holder of common shares may elect to have all distributions of dividends and capital gains reinvested by Mellon Investor Services, as plan agent for the common shareholders (the "Plan Agent"). Holders of common shares who do not elect to participate in the Plan will receive all distributions in cash, paid by check mailed directly to the shareholder of record (or, if the common shares are held in street or other nominee name, then to the nominee) by the Plan Agent, as dividend disbursing agent. Shareholders may join the Plan by filling out and mailing an authorization card, by notifying the Plan Agent by telephone, or by visiting the Plan Agent's Web site at www.melloninvestor.com. Shareholders must indicate an election to reinvest all or a portion of dividend payments. If received in proper form by the Plan Agent before the record date of a dividend, the election will be effective with respect to all dividends paid after such record date. Shareholders whose shares are held in the name of a broker or nominee should contact the broker or nominee to determine 16 whether and how they may participate in the Plan. If the Fund declares a dividend payable either in common shares or in cash, non-participants will receive cash and participants in the Plan will receive the equivalent in common shares. If the market price of the common shares on the payment date of the dividend is equal to or exceeds their net asset value as determined on the payment date, participants will be issued common shares (out of authorized but unissued shares) at a value equal to the higher of net asset value or 95% of the market price. If the net asset value exceeds the market price of the common shares at such time, or if the Board of Trustees declares a dividend payable only in cash, the Plan Agent will, as agent for Plan participants, buy shares in the open market, on the New York Stock Exchange or elsewhere, for the participant's accounts. Such purchases will be made promptly after the payable date for such dividend and, in any event, prior to the next ex-dividend date after such date, except where necessary to comply with federal securities laws. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value of the common shares, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the common shares, resulting in the acquisition of fewer shares than if the dividend had been paid in shares issued by the Fund. Each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. In each case, the cost per share of the shares purchased for each participant's account will be the average cost, including brokerage commissions, of any shares purchased on the open market plus the cost of any shares issued by the Fund. There will be no brokerage charges with respect to common shares issued directly by the Fund. There are no other charges to participants for reinvesting dividends or capital gain distributions. Participants in the Plan may withdraw from the Plan at any time by contacting the Plan Agent by telephone, in writing or by visiting the Plan Agent's Web site at www.melloninvestor.com. Such withdrawal will be effective immediately if received not less than ten days prior to a dividend record date; otherwise, it will be effective for all subsequent dividend record dates. When a participant withdraws from the Plan or upon termination of the Plan, as provided below, certificates for whole common shares credited to his or her account under the Plan will be issued and a cash payment will be made for any fraction of a share credited to such account. The Plan Agent maintains each shareholder's account in the Plan and furnishes monthly written confirmations of all transactions in the accounts, including information needed by the shareholders for personal and tax 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 shareholder's 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 17 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. 18 SHAREHOLDER MEETING In November 2002, the Board of Trustees adopted several amendments to the Fund's by-laws, including provisions relating to the calling of a special meeting and requiring advance notice of shareholder proposals or nominees for Trustee. The advance notice provisions in the by-laws require shareholders to notify the Fund in writing of any proposal which they intend to present at an annual meeting of shareholders, including any nominations for Trustee, between 90 and 120 days prior to the first anniversary of the mailing date of the notice from the prior year's annual meeting of shareholders. The notification must be in the form prescribed by the by-laws. The advance notice provisions provide the Fund and its Trustees with the opportunity to thoughtfully consider and address the matters proposed before the Fund prepares and mails its proxy statement to shareholders. Other amendments set forth the procedures that must be followed in order for a shareholder to call a special meeting of shareholders. Please contact the Secretary of the Fund for additional information about the advance notice requirements or the other amendments to the by-laws. On March 20, 2003, the Annual Meeting of the Fund was held to elect four Trustees and to ratify the actions of the Trustees in selecting independent auditors for the Fund. Proxies covering 6,868,262 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 - ----------------------------------------------------------- Maureen Ford Goldfarb 6,788,023 79,814 Charles L. Ladner 6,779,102 88,735 Dr. John Moore 6,781,544 86,293 The preferred shareholders elected Ronald Dion to serve until his respective successor is duly elected and qualified, with the votes tabulated as follows: 425 FOR and 0 WITHHELD AUTHORITY. The common and preferred shareholders also ratified the Trustees' selection of Deloitte & Touche LLP as the Fund's independent auditors for the fiscal year ending May 31, 2003, with the votes tabulated as follows: 6,765,367 FOR, 54,268 AGAINST and 48,627 ABSTAINING. 19 20 FOR YOUR INFORMATION TRUSTEES James F. Carlin William H. Cunningham John M. DeCiccio Ronald R. Dion Maureen Ford Goldfarb Charles L. Ladner* Dr. John A. Moore* Patti McGill Peterson* Steven R. Pruchansky Lt. Gen. Norman H. Smith, USMC (Ret.) John P. Toolan* *Members of the Audit Committee OFFICERS Maureen Ford Goldfarb Chairman, 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 Thomas H. Connors Vice President and Compliance Officer INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT FOR COMMON SHAREHOLDERS Mellon Investor Services 85 Challenger Road Overpeck Centre Ridgefield Park, New Jersey 07660 TRANSFER AGENT FOR ARPS Deutsche Bank Trust Company Americas 280 Park Avenue New York, New York 10017 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 STOCK SYMBOL Listed New York Stock Exchange: PPF For shareholder assistance refer to page 18 HOW TO CONTACT US On the Internet www.jhfunds.com By regular mail Mellon Investor Services 85 Challenger Road Overpeck Centre Ridgefield Park, NJ 07660 Customer service representatives 1-800-852-0218 Portfolio commentary 1-800-344-7054 24-hour automated information 1-800-843-0090 TDD Line 1-800-231-5469 The Fund's voting policies and procedures are available without charge, upon request: By phone 1-800-225-5291 On the Fund's Web site www.jhfunds.com/proxy On the SEC's Web site www.sec.gov 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."] PRESORTED STANDARD U. S. POSTAGE PAID MIS 1-800-852-0218 1-800-843-0090 EASI-Line 1-800-231-5469 (TDD) www.jhfunds.com P70SA 11/03 1/04 22 ITEM 2. CODE OF ETHICS. As of the end of the period, November 30, 2003, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer, Chief Financial Officer and Treasurer (respectively, the principal executive officer, the principal financial officer and the principal accounting officer, the "Senior Financial Officers"). A copy of the code of ethics is filed as an exhibit to this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Charles L. Ladner is the audit committee financial expert and is "independent", pursuant to general instructions on Form N-CSR Item 3. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable at this time. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable at this time. ITEM 6. [RESERVED] 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. [RESERVED] ITEM 9. 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 10. 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. (d)(1) 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. By: - ------------------------------ Maureen Ford Goldfarb Chairman, President and Chief Executive Officer Date: January 28, 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: - ------------------------------- Maureen Ford Goldfarb Chairman, President and Chief Executive Officer Date: January 28, 2004 By: - ----------------------- Richard A. Brown Senior Vice President and Chief Financial Officer Date: January 28, 2004 EX-99.CERT 3 certification.txt CERTIFICATION CERTIFICATION I, Maureen Ford Goldfarb, certify that 1. I have reviewed this report on Form N-CSR of the John Hancock Patriot Preferred Dividend Fund (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change 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 has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 28, 2004 Maureen Ford Goldfarb Chairman, President and Chief Executive Officer CERTIFICATION I, Richard A. Brown, certify that 1. I have reviewed this report on Form N-CSR of the John Hancock Patriot Preferred Dividend Fund (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change 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 has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 28, 2004 Richard A. Brown Senior Vice President and Chief Financial Officer EX-99.906 CERT 4 patprefdiv906.txt CERTIFICATION 906 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the attached Report of John Hancock Patriot Preferred Dividend Fund (the "registrant") on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify that, to the best of such officer's knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. - ----------------------- Maureen Ford Goldfarb Chairman, President and Chief Executive Officer Dated: January 28, 2004 - ----------------------- Richard A. Brown Senior Vice President and Chief Financial Officer Dated: January 28, 2004 A signed original of this written statement, required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.CODE ETH 5 codeofethics.txt CODE OF ETHICS [J1]JOHN HANCOCK FUNDS CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS General Principles The Trustees of the registered investment companies (the "Funds" or each a "Fund") managed by John Hancock Advisers, LLC (the "Adviser") have adopted this code of ethics (this "Code") setting forth standards of ethics for the 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") of each Fund. All Senior Financial Officers are charged with the duty to maintain the standards set forth below. No Code can address every situation that a Senior Financial Officer might face. As a guiding principle, Senior Financial Officers should strive to implement the spirit as well as the letter of applicable laws, rules and regulations, and to provide the type of clear and complete disclosure and information that Fund shareholders have a right to expect. Honest and Ethical Conduct Each Senior Financial Officer owes a duty to each Fund to act with integrity and honesty in the conduct of his or her duties and responsibilities. Each Senior Financial Officer shall comply with all applicable laws and accounting standards, while adhering to a high standard of business ethics. Avoidance of Conflicts of Interest Senior Financial Officers shall avoid any actual or apparent conflict of interest, direct or indirect, between personal and professional relationships. A Senior Financial Officer should not engage in personal, business or professional relationships or dealings which would impair his or her independence of judgment or adversely affect the performance of his or her duties in the best interests of each Fund and its shareholders. Any relationship or dealing that would present a conflict for a Senior Financial Officer could also present a conflict if it is related to a member of his or her immediate family. Disclosure Senior Financial Officers have a supervisory role with respect to the financial information included in reports filed with regulatory agencies and public disclosures by each Fund, and therefore have particular responsibilities in connection with those communications. * Each Senior Financial Officer shall familiarize himself or herself with the disclosure requirements applicable to each Fund, as well as the business and financial operations of each Fund. * Each Senior Financial Officer shall ensure that reasonable steps are taken within his or her areas of responsibility to promote full, fair, accurate, timely and understandable disclosure in all regulatory filings, as well as when communicating with each Fund's shareholders or the general public, in accordance with applicable law. * No Senior Financial Officer shall violate his or her responsibility to a Fund by knowingly and willfully misrepresenting, or causing others to misrepresent, facts about a Fund to others, including a Fund's independent auditors, governmental regulators or self-regulatory organizations. Compliance with Applicable Law It is each Fund's policy to comply with all applicable laws and governmental rules and regulations. It is the personal responsibility of each Senior Financial Officer to take reasonable steps to adhere to the standards and restrictions imposed by those laws, rules and regulations, including those relating to accounting and auditing matters. Compliance Procedures All Senior Financial Officers are responsible for ensuring that their own conduct complies with this Code. If a Senior Financial Officer is aware of any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest or which might be viewed as potentially affecting his or her performance of Fund responsibilities, the Senior Financial Officer shall notify the Fund's Chief Legal Officer of this transaction or relationship. In addition, any Senior Financial Officer who becomes aware of any existing or potential violation of this Code shall notify the Chief Legal Officer promptly, who shall conduct an appropriate investigation. The Chief Legal Officer shall report any violation of this Code to the Audit Committee of the Fund. If a Senior Financial Officer believes that his or her responsibilities as an officer or employee of the Adviser are likely to materially compromise his or her objectivity or ability to perform the duties of his or her role as an officer of the Funds, he or she should consult with the Adviser's Chief Legal Officer, the Fund's Chief Legal Officer or outside counsel, or counsel to the independent Trustees of the Funds. Under appropriate circumstances, a Senior Financial Officer should also consider whether to present the matter to the Trustees of the Funds or a committee thereof. Anyone who violates the provisions of this Code, fails to report a known violation or refuses to cooperate in the investigation of any potential violation will be subject to disciplinary action, up to and including dismissal. Subject to applicable law, the Audit Committee may waive provisions of this Code. Other Policies and Procedures This Code does not supplant or supercede any other Fund, John Hancock Advisers, LLC or John Hancock Funds, LLC policy or procedure currently in effect or adopted in the future relating to conflicts of interest or business practices. Those policies and procedures are separate requirements applying to the Funds, John Hancock Advisers, LLC or John Hancock Funds, LLC associates generally, including Senior Financial Officers among others, and are not part of this Code. The Trustees of the Funds recognize that the Senior Financial Officers are also officers or employees of the Adviser. Furthermore, the Trustees of the Funds recognize that, subject to the Adviser's fiduciary duties to the Funds, the Senior Financial Officers will in the normal course of their duties (whether formally for the Funds or for the adviser, or for both) be involved in establishing policies and implementing decisions that will have different effects on the Adviser and the Funds. The Trustees of the Funds recognize that the participation of the Senior Financial Officers in such activities is inherent in the contract relationship between the Funds and the Adviser, and is consistent with the expectation of the Trustees of the performance by the Senior Financial Officers of their duties as officers of the Funds. Each Senior Financial Officer recognizes that, as an officer of a Fund, he or she has a duty to act in the best interests of the Fund and its shareholders. Date: May 20, 2003 Compliance 2003/compliance procedures/code of ethics for financial officer 4-03 [J1] 3 1 EX-99 6 proxyvotingpolicies.txt PROXY VOTING POLICIES John Hancock Advisers, LLC Sovereign Asset Management Corporation Proxy Voting Guidelines We believe in placing our clients' interests first. Before we invest in a particular stock or bond, our team of portfolio managers and research analysts look closely at the company by examining its earnings history, its management team and its place in the market. Once we invest, we monitor all our clients' holdings, to ensure that they maintain their potential to produce results for investors. As part of our active investment management strategy, we keep a close eye on each company we invest in. Routinely, companies issue proxies by which they ask investors like us to vote for or against a change, such as a new management team, a new business procedure or an acquisition. We base our decisions on how to vote these proxies with the goal of maximizing the value of our clients' investments. Currently, John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management Corporation ("Sovereign") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or Sovereign makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and Sovereign will vote proxies for ERISA clients. In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and Sovereign vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and Sovereign's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents. JHA and Sovereign have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed. In evaluating proxy issues, our proxy oversight group may consider information from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material. Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant. Proxy Voting Guidelines Board of Directors We believe good corporate governance evolves from an independent board. We support the election of uncontested director nominees, but will withhold our vote for any nominee attending less than 75% of the board and committee meetings during the previous fiscal year. Contested elections will be considered on a case by case basis by the proxy oversight group, taking into account the nominee's qualifications. We will support management's ability to set the size of the board of directors and to fill vacancies without shareholder approval but will not support a board that has fewer than 3 directors or allows for the removal of a director without cause. We will support declassification of a board and block efforts to adopt a classified board structure. This structure typically divides the board into classes with each class serving a staggered term. In addition, we support proposals for board indemnification and limitation of director liability, as long as they are consistent with corporate law and shareholders' interests. We believe that this is necessary to attract qualified board members. Selection of Auditors We believe an independent audit committee can best determine an auditor's qualifications. We will vote for management proposals to ratify the board's selection of auditors, and for proposals to increase the independence of audit committees. Capitalization We will vote for a proposal to increase or decrease authorized common or preferred stock and the issuance of common stock, but will vote against a proposal to issue or convert preferred or multiple classes of stock if the board has unlimited rights to set the terms and conditions of the shares, or if the shares have voting rights inferior or superior to those of other shareholders. In addition, we will support a management proposal to: create or restore preemptive rights; approve a stock repurchase program; approve a stock split or reverse stock split; and, approve the issuance or exercise of stock warrants Acquisitions, mergers and corporate restructuring Proposals to merge with or acquire another company will be voted on a case-by-case basis, as will proposals for recapitalization, restructuring, leveraged buyout, sale of assets, bankruptcy or liquidation. We will vote against a reincorporation proposal if it would reduce shareholder rights. We will vote against a management proposal to ratify or adopt a poison pill or to establish a supermajority voting provision to approve a merger or other business combination. We would however support a management proposal to opt out of a state takeover statutory provision, to spin-off certain operations or divisions and to establish a fair price provision. Corporate Structure and Shareholder Rights In general, we support proposals that foster good corporate governance procedures and that provide shareholders with voting power equal to their equity interest in the company. To preserve shareholder rights, we will vote against a management proposal to restrict shareholders' right to: call a special meeting and to eliminate a shareholders' right to act by written consent. In addition, we will not support a management proposal to adopt a supermajority vote requirement to change certain by-law or charter provisions or a non-technical amendment to by-laws or a charter that reduces shareholder rights. Equity-based compensation Equity-based compensation is designed to attract, retain and motivate talented executives and independent directors, but should not be so significant as to materially dilute shareholders' interests. We will vote against the adoption or amendment of a stock option plan if the: * plan dilution is more than 10% of outstanding common stock, * plan allows for non-qualified options to be priced at less than 85% of the fair market value on the grant date, * company allows or has allowed the re-pricing or replacement of underwater options in the past fiscal year (or the exchange of underwater options). With respect to the adoption or amendment of employee stock purchase plans or a stock award plan, we will vote against management if: * the plan allows stock to be purchased at less than 85% of fair market value; * this plan dilutes outstanding common equity greater than 10% * all stock purchase plans, including the proposed plan, exceed 15% of outstanding common equity. Other Business For routine business matters which are the subject of many proxy related questions, we will vote with management proposals to: * change the company name; * approve other business; * adjourn meetings; * make technical amendments to the by-laws or charters; * approve financial statements; * approve an employment agreement or contract. Shareholder Proposals Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as follows where we will vote for proposals: * calling for shareholder ratification of auditors; * calling for auditors to attend annual meetings; * seeking to increase board independence; * requiring minimum stock ownership by directors; * seeking to create a nominating committee or to increase the independence of the nominating committee; * seeking to increase the independence of the audit committee. Corporate and social policy issues We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors. Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications. John Hancock Advisers, LLC Sovereign Asset Management Corporation Proxy Voting Procedures The role of the proxy voting service John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management Corporation ("Sovereign") have hired a proxy voting service to assist with the voting of client proxies. The proxy service coordinates with client custodians to ensure that proxies are received for securities held in client accounts and acted on in a timely manner. The proxy service votes all proxies received in accordance with the proxy voting guidelines established and adopted by JHA and Sovereign. When it is unclear how to apply a particular proxy voting guideline or when a particular proposal is not covered by the guidelines, the proxy voting service will contact the proxy oversight group coordinator for a resolution. The role of the proxy oversight group and coordinator The coordinator will interact directly with the proxy voting service to resolve any issues the proxy voting service brings to the attention of JHA or Sovereign. When a question arises regarding how a proxy should be voted the coordinator contacts the firm's investment professionals and the proxy oversight group for a resolution. In addition the coordinator ensures that the proxy voting service receives responses in a timely manner. Also, the coordinator is responsible for identifying whether, when a voting issue arises, there is a potential conflict of interest situation and then escalating the issue to the firm's Executive Committee. For securities out on loan as part of a securities lending program, if a decision is made to vote a proxy, the coordinator will manage the return/recall of the securities so the proxy can be voted. The role of mutual fund trustees The boards of trustees of our mutual fund clients have reviewed and adopted the proxy voting guidelines of the funds' investment adviser, JHA. The trustees will periodically review the proxy voting guidelines and suggest changes they deem advisable. Conflicts of interest Conflicts of interest are resolved in the best interest of clients. With respect to potential conflicts of interest, proxies will be voted in accordance with JHA's or Sovereign's predetermined policies. If application of the predetermined policy is unclear or does not address a particular proposal, a special internal review by the JHA Executive Committee or Sovereign Executive Committee will determine the vote. After voting, a report will be made to the client (in the case of an investment company, to the fund's board of trustees), if requested. An example of a conflict of interest created with respect to a proxy solicitation is when JHA or Sovereign must vote the proxies of companies that they provide investment advice to or are currently seeking to provide investment advice to, such as to pension plans. S:\Corporate Secretary\PROXY\2003 Proxy Voting Policy Summary.doc -----END PRIVACY-ENHANCED MESSAGE-----