September 27, 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 Preferred Income Fund (the "Registrant")
File No. 811-21131
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 July 31, 2004.
If you have any questions or comments regarding this filing, please contact
the undersigned at (617) 375-1513.
Sincerely,
/s/ Alfred P. Ouellette
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
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 811-21131
John Hancock Preferred Income Fund
(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Susan S. Newton, Secretary
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-375-1702
Date of fiscal year end: July 31
Date of reporting period: July 31, 2004
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Preferred Income Fund
7.31.2004
Annual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chief Executive Officer, 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 14
Trustees & officers
page 29
For more information
page 33
Dear Fellow Shareholders,
I am pleased to be writing to you as Chairman, President and Chief
Executive Officer of John Hancock Funds, LLC.
As you may know, John Hancock Financial Services, Inc. -- the parent
company of John Hancock Funds -- was acquired by Manulife Financial
Corporation on April 28, 2004. Although this change has no impact on the
mutual funds you have invested in, it did bring with it some changes in
the executive-level management of John Hancock Funds. Specifically,
Maureen Ford Goldfarb has decided to step down as Chairman, President
and Chief Executive Officer of John Hancock Funds, LLC in order to
pursue personal interests, and I was named her replacement. Since her
appointment in January 2000, Maureen has provided John Hancock Funds
with strong leadership and steady guidance through several years of
extremely turbulent market and industry conditions.
Additionally, on May 12, 2004, your fund's Board of Trustees appointed
me to the roles of Trustee, President and Chief Executive Officer of
your fund. On June 15, 2004, the board also appointed Charles L. Ladner
as independent Chairman of the Board of Trustees, a position previously
held by Ms. Goldfarb. This appointment came in advance of new SEC
regulations requiring all mutual funds to have independent chairmen.
As to our backgrounds, I have been in the investment business for over
25 years, most recently as President of Retirement Services at John
Hancock Financial Services. My responsibilities included developing and
directing the sale of John Hancock's variable and fixed annuity products
through a diverse distribution network of banks and broker-dealers --
including wirehouses, regional brokerage houses and financial planners.
Mr. Ladner has served as an independent member of John Hancock Funds'
Board of Trustees since 1992 and formerly held the position of Senior
Vice President and Chief Financial Officer of UGI Corporation, a public
utility holding company in Valley Forge, PA, until his retirement in
1998. He brings a wealth of knowledge, experience and leadership and we
are delighted to have him serve as Chairman.
Although there has been change in executive-level management, the one
thing that never wavers is John Hancock Funds' commitment to placing the
needs of our shareholders above all else. We are all dedicated to the
task of working with you and your financial advisor to help you reach
your long-term financial goals.
Sincerely,
/S/ James A. Shepherdson
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of July 31, 2004. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks to
provide a high level
of current income,
consistent with
preservation of
capital, by investing
in a diversified
portfolio of securi-
ties that, in the
opinion of the
Adviser, may be
undervalued relative
to similar securities
in the marketplace.
Under normal
market conditions,
the Fund invests at
least 80% of its
assets in preferred
stocks and other
preferred securities.
Over the last twelve months
* Preferred stocks were volatile in response to shifting views about the
direction of the economy, inflation and interest rates.
* The Fund continued to benefit from advantageous security selection.
* High-quality, high-yielding preferred stock holdings performed best.
[Bar chart with heading "John Hancock Preferred Income Fund." Under the
heading is a note that reads "Fund performance for the year ended July
31, 2004." The chart is scaled in increments of 5% with 0% at the
bottom and 10% at the top. The bar represents the 7.97% total return
for John Hancock Preferred Income Fund. A note below the chart reads
"The total return for the Fund is at net asset value with all
distributions reinvested."]
Top 10 issuers
2.7% Shaw Communications, Inc.
2.6% DPL Capital Trust II
2.5% General Motors Corp.
2.5% Interstate Power & Light Co.
2.4% Nexen, Inc.
2.3% Public Storage, Inc.
1.9% Duke Realty Corp.
1.9% KeySpan Corp.
1.7% J.P. Morgan Chase Capital X
1.7% ING Groep N.V.
As a percentage of net assets plus the value of preferred shares on July
31, 2004.
1
BY GREGORY K. PHELPS AND MARK T. MALONEY FOR THE PORTFOLIO MANAGEMENT
TEAM
MANAGERS'
REPORT
JOHN HANCOCK
Preferred Income Fund
Preferred stocks were on a proverbial roller-coaster ride during the 12
months ended July 31, 2004, fluctuating in response to changing
expectations about the economy, inflation and interest rates. Preferred
stocks began the period on somewhat of a weak footing when the U.S.
Treasury market suffered a steep decline due to growing concerns that
the Federal Reserve Board would be forced to hike interest rates sooner
rather than later in order to cool faster-than-expected economic growth.
Because preferreds make fixed payments in the form of dividends, their
prices, like bonds', tend to move in the opposite direction of interest
rates. Preferreds and bonds regained their footing later in the summer
of 2003 when the economy and inflation concerns briefly cooled and the
Fed reassured investors that it wasn't in any hurry to raise rates.
Strong economic data caused preferreds to lapse into negative territory
again in the fall, but weaker-than-expected employment data and comments
from the Fed indicating that interest rate hikes were still distant
triggered a winter rally. In the spring, the preferred market sold off
once more when a string of stronger-than-expected economic reports and
Fed Chairman Alan Greenspan's Congressional testimony convinced
investors that the Fed would raise interest rates sooner than expected.
But from the end of June 2004 through the end of the period, July 31,
2004, preferreds stabilized and later rallied as investors anticipated
the quarter-point rate hike that came June 30, followed by reassuring
comments from the Fed suggesting it would take a "measured" approach to
subsequent rate hikes.
"Preferred stocks were on a
proverbial roller-coaster ride dur
ing the 12 months ended
July 31, 2004..."
Performance
For the 12 months ended July 31, 2004, John Hancock Preferred Income
Fund returned 7.97% at net asset value. By comparison, the average
income and preferred stock closed-end fund returned 11.66%, according to
Lipper, Inc. For the same one-year period, the Dow Jones Utility Average
-- which tracks the performance of 15 electric and natural gas utilities
-- returned 23.87% and the
2
broader stock market, as measured by the Standard & Poor's 500 Index,
returned 13.16%. The Fund's underperformance of its Lipper peer group
average stems from its smaller stake in utility common stocks, which
performed far better than preferred stocks during the period, but are
not the focus of the Fund.
[Photos of Greg Phelps and Mark Maloney flush right next to first
paragraph.]
Leaders
In an otherwise disappointing year for preferred stocks, our
defensive-oriented holdings held up best. By defensive we're referring
to highly rated securities that also offered a high yield, which helped
cushion them against the preferred market's decline. A good example was
our stake in certain securities issued by Citigroup, a global financial
services company providing consumers, corporations, governments and
institutions with a broad range of financial products and services,
including consumer banking and credit, corporate and investment banking,
insurance, securities brokerage and asset management. Another
high-quality, high-yielding financial company where certain issues held
up well was Wells Fargo, a diversified financial services company
providing banking, insurance, investments, mortgage banking and consumer
finance to consumers, businesses and institutions. It saw better
earnings due to strong loan growth. General Electric was another
high-quality outperformer. Earnings for the mega-conglomerate met
investors' high expectations, as nine of its 11 businesses posted
double-digit gains in its most recent quarterly financial report.
"In an otherwise disappointing
year for preferred stocks,
our defensive-oriented holdings
held up best."
Preferred holdings issued by oil and natural gas companies also held up
reasonably well as energy prices surged to near-record levels. Nexen,
Inc., an independent global energy and chemicals company primarily
engaged in the exploration, development, production and marketing of
crude oil and natural gas, also performed well, as did Kinder Morgan, a
leader in energy transportation.
Disappointments
Disappointments during the period included real estate investment trusts
(REITs), although the Fund had only a modest exposure to them during the
period. REITs began to fall off in April after a strong employment
report raised the odds of an interest rate
3
increase this year. Higher interest rates, among other things, make bond
yields more competitive with yields on REITs, which by law must pay out
90% of their income as dividends. In particular, we were disappointed by
the performance of Public Storage, Inc., a fully integrated,
self-administered and self-managed REIT that acquires, develops, owns
and operates storage facilities. It got caught up in the sell-off of the
REIT sector.
[Table at top left-hand side of page entitled "Top five industry
groups1." The first listing is Electric utilities 40%, the second is Gas
utilities 9%, the third Diversified banks 9%, the fourth Investment
banking and brokerage 7%, and the fifth REIT 4%.]
Outlook
The Fed has indicated that it is leaning toward future rate increases.
In anticipation of rates moving higher, the bond and preferred stock
markets seem to have already factored into Treasury and preferred stock
prices some amount of interest rate hikes. Beyond what the market
currently anticipates, only time will tell what the direction of
interest rates and the performance of preferred stocks will be. On the
one hand, if the economy continues to strengthen and there's more upward
pressure on interest rates, preferreds could continue to struggle. On
the other hand, there are some crosscurrents that could forestall any
additional
[Pie chart in middle of page with heading "Portfolio diversification1"
The chart is divided into five sections (from top to left): Preferred
stocks 83%, Capital preferred securities 7%, Short-term investments 6%,
Common stocks 2% and Bonds 2%.]
4
interest rate hikes beyond those the market currently anticipates. Chief
among those offsetting factors are higher interest rates themselves,
which, coupled with high energy prices, may slow consumer spending. In
addition, the positive effects of last year's income tax cuts and home
loan refinancing are behind us, which may limit consumption going
forward.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Citigroup followed by an up arrow with the phrase "Solid performer due
to high quality, high yield and good financial results." The second
listing is Kinder Morgan followed by an up arrow with the phrase "Rising
energy prices boost performance." The third listing is Public Storage
followed by a down arrow with the phrase "Interest rate fears trouble
REIT sector."]
"The Fed has indicated that
it is leaning toward future
rate increases."
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 at least 25% of its managed assets in
securities of companies in the utilities industry. Such an investment
concentration makes the Fund more susceptible than a more broadly
diversified fund to factors adversely affecting the utilities industry.
Sector investing is subject to greater risks than the market as a whole.
1 As a percentage of the Fund's portfolio on July 31, 2004.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
July 31, 2004
This schedule is divided into five main categories: bonds, capital
preferred securities, common stocks, preferred stocks, and short-term
investments. The bonds, capital preferred securities, common stocks and
preferred stocks are further broken down by industry group. Short-term
investments, which represent the Fund's cash position, are listed last.
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Bonds 2.49% $15,726,730
(Cost $15,518,092)
Consumer Finance 0.33% 2,091,198
Capital One Bank, Sr Note 8.250% 06-15-05 BBB- 2,000 2,091,198
Electric Utilities 2.16% 13,635,532
Black Hills Corp., Note 6.500 05-15-13 BBB- 5,000 5,023,270
Entergy Gulf States, Inc., 1st Mtg Bond 6.200 07-01-33 BBB 5,000 4,738,390
Midland Funding Corp. II, Lease Oblig
Bond, Ser A 11.750 07-23-05 BB- 3,614 3,873,872
Maturity Credit Par value
Issuer, description date rating (A) (000) Value
Capital preferred securities 9.88% $62,518,912
(Cost $58,313,173)
Diversified Banks 1.21% 7,643,475
Lloyds TSB Bank Plc, 6.90% (United Kingdom) 11-29-49 Aa2 7,500 7,643,475
Electric Utilities 3.75% 23,760,000
DPL Capital Trust II, 8.125% 09-01-31 B 24,000 23,760,000
Gas Utilities 2.72% 17,185,638
KN Capital Trust I, 8.56%, Ser B 04-15-27 BB+ 11,500 12,947,218
KN Capital Trust III, 7.63% 04-15-28 BB+ 4,000 4,238,420
Integrated Telecommunications Services 1.06% 6,687,479
TCI Communications Financing Trust III, 9.65% 03-31-27 BBB- 5,700 6,687,479
Regional Banks 1.14% 7,242,320
Summit Capital Trust I, 8.40%, Ser B 03-15-27 A- 6,500 7,242,320
See notes to
financial statements.
6
FINANCIAL STATEMENTS
Issuer Shares Value
Common stocks 3.52% $22,269,721
(Cost $19,233,515)
Electric Utilities 2.04% 12,909,721
Alliant Energy Corp. 236,100 6,117,351
Duke Energy Corp. 40,215 864,623
Progress Energy, Inc. 20,000 842,800
Scottish Power Plc, American Depositary Receipt (United Kingdom) 175,343 5,084,947
Gas Utilities 1.48% 9,360,000
Peoples Energy Corp. 240,000 9,360,000
Credit
Issuer, description rating (A) Shares Value
Preferred stocks 119.68% $757,043,405
(Cost $744,238,451)
Agricultural Products 1.58% 10,010,000
Ocean Spray Cranberries, Inc., 6.25%, Ser A (S) BB+ 143,000 10,010,000
Automobile Manufacturers 3.87% 24,473,138
Ford Motor Co., 7.50% BBB- 50,000 1,280,000
General Motors Corp., 7.25%, Ser 04-15-41 BBB 254,300 6,337,156
General Motors Corp., 7.25%, Ser 07-15-41 BBB 89,000 2,227,670
General Motors Corp., 7.25%, Ser 02-15-52 BBB 378,700 9,486,435
General Motors Corp., 7.375%, Ser 05-15-48 Baa1 70,000 1,754,200
General Motors Corp., 7.375%, Ser 10-01-51 BBB 134,325 3,387,677
Broadcasting & Cable TV 3.93% 24,843,682
Shaw Communications, Inc., 8.45%, Ser A (Canada) B+ 328,418 8,302,407
Shaw Communications, Inc., 8.50% (Canada) B+ 655,100 16,541,275
Consumer Finance 4.51% 28,537,018
Ford Motor Credit Co., 7.60% A3 315,600 8,155,104
Household Finance Corp., 6.00% A 214,200 5,076,540
Household Finance Corp., 6.875% A 399,800 10,330,832
SLM Corp., 6.00% A 207,100 4,974,542
Diversified Banks 11.24% 71,096,193
BAC Capital Trust IV, 5.875% A- 181,150 4,340,354
Bank One Capital Trust V, 8.00% BBB+ 20,500 547,350
Bank One Capital Trust VI, 7.20% BBB+ 55,500 1,443,000
BNY Capital V, 5.95%, Ser F A- 40,000 954,800
Chase Capital VII, 7.00%, Ser G A- 81,000 2,031,480
See notes to
financial statements.
7
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Diversified Banks (continued)
Comerica Capital Trust I, 7.60% BBB+ 171,400 $4,524,960
Fleet Capital Trust VII, 7.20% A- 322,500 8,407,575
Fleet Capital Trust VIII, 7.20% A- 464,750 12,120,680
Royal Bank of Scotland Group Plc, 5.75%, Ser B
(United Kingdom) A 550,900 12,885,551
USB Capital III, 7.75% A- 327,100 8,668,150
USB Capital IV, 7.35% A- 165,700 4,357,910
USB Capital V, 7.25% A- 103,599 2,719,474
Wachovia Preferred Funding Corp., 7.25%, Ser A BBB+ 69,000 1,842,990
Wells Fargo Capital Trust IV, 7.00% A 91,100 2,360,401
Wells Fargo Capital Trust VI, 6.95% A- 53,400 1,378,788
Wells Fargo Capital Trust VII, 5.85% A 107,750 2,512,730
Electric Utilities 49.33% 312,023,507
Ameren Corp., 9.75%, Conv BBB+ 480,000 13,113,600
American Electric Power Co., Inc., 9.25%, Conv BBB 200,000 8,590,000
Aquila, Inc., 7.875% Caa1 511,700 10,899,210
Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 40,000 4,246,000
BGE Capital Trust II, 6.20% A3 608,125 15,081,500
Boston Edison Co., 4.78% BBB+ 15,143 1,253,083
Cinergy Corp., 9.50%, Conv Baa2 230,000 13,816,100
Consumers Energy Co. Financing I, 8.36% B 42,800 1,079,416
Consumers Energy Co. Financing II, 8.20% B 136,200 3,451,308
Consumers Energy Co. Financing III, 9.25% B 115,200 2,951,424
Consumers Energy Co. Financing IV, 9.00% Ba2 117,600 3,125,808
Detroit Edison Co., 7.375% BBB- 210,435 5,298,753
Detroit Edison Co., 7.54% BBB- 74,600 1,882,904
Dominion Resources, Inc., 9.50%, Conv BBB+ 100,000 5,442,000
DQE Capital Corp., 8.375% Baa3 25,400 645,160
DTE Energy Co., 8.75%, Conv BBB 220,000 5,607,800
DTE Energy Trust I, 7.80% BBB- 111,700 2,929,891
Duke Capital Financing Trust III, 8.375% BB+ 349,100 8,891,577
Energy East Capital Trust I, 8.25% BBB- 447,200 11,680,864
Entergy Arkansas Capital I, 8.50%, Ser A BB+ 57,700 1,487,506
Entergy Gulf States Capital I, 8.75%, Ser A BB 70,400 1,791,680
Entergy Mississippi, Inc., 7.25% BBB+ 346,000 8,926,800
Enterprise Capital Trust I, 7.44%, Ser A BB+ 392,200 9,816,766
Enterprise Capital Trust III, 7.25%, Ser C BB+ 210,600 5,254,470
FPC Capital I, 7.10%, Ser A BB+ 552,285 13,812,648
See notes to
financial statements.
8
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Electric Utilities (continued)
FPL Group Capital Trust I, 5.875% BBB+ 468,300 $11,168,955
FPL Group, Inc., 8.00%, Conv A- 120,000 6,726,000
Georgia Power Capital Trust VII, 5.875% BBB+ 233,400 5,456,892
Georgia Power Co., 6.00%, Ser R A 386,897 9,556,356
HECO Capital Trust III, 6.50% BBB- 147,300 3,709,014
Idaho Power Co., 7.07% BBB 50,000 5,185,940
Indiana Michigan Power Co., 6.875% BB+ 36,547 3,678,456
Interstate Power & Light Co., 8.375%, Ser B BBB- 700,000 22,365,000
Monongahela Power Co., $7.73, Ser L CCC+ 45,000 4,140,000
Northern States Power Co., 8.00% BBB- 235,000 6,283,900
OGE Energy Capital Trust I, 8.375% BBB- 234,400 5,977,200
Penelec Capital Trust, 7.34% BB 114,950 2,915,132
Pennsylvania Power Co., 7.75% BB 91,700 9,261,700
PSEG Funding Trust II, 8.75% BB+ 208,000 5,740,800
Public Service Electric & Gas Co., 4.18%, Ser B BB+ 7,900 556,950
Public Service Enterprise Group, Inc., 10.25%, Conv BBB- 155,450 8,643,020
Puget Sound Energy Capital Trust II, 8.40% BB 103,900 2,738,804
Southern Co. Capital Trust VI, 7.125% BBB+ 49,800 1,300,776
TECO Capital Trust I, 8.50% Ba3 469,800 12,064,464
TECO Energy, Inc., 9.50%, Conv BB 430,000 5,736,200
TXU Corp., 8.125%, Conv Ba1 154,800 7,020,180
Virginia Power Capital Trust, 7.375% BBB 410,000 10,721,500
Gas Utilities 8.86% 56,055,123
Dominion CNG Capital Trust I, 7.80% BBB- 253,476 6,623,328
El Paso Tennessee Pipeline Co., 8.25%, Ser A CCC- 231,500 9,831,527
KeySpan Corp., 8.75%, Conv A 335,000 17,212,300
ONEOK, Inc., 8.50%, Conv A- 31,000 863,970
SEMCO Capital Trust I, 10.25% B- 404,600 10,519,600
Southern Union Co., 5.75%, Conv Baa3 12,000 718,500
Southwest Gas Capital II, 7.70% BB 362,100 9,450,810
TransCanada Pipelines Ltd., 8.25% (Canada) BBB 32,800 835,088
Hotels, Resorts & Cruise Lines 0.34% 2,140,656
Hilton Hotels Corp., 8.00% BBB- 83,100 2,140,656
Industrial Conglomerates 0.93% 5,887,272
Grand Metropolitan Delaware, L.P., 9.42%, Ser A BBB+ 231,600 5,887,272
Integrated Oil & Gas 0.42% 2,637,624
Coastal Finance I, 8.375% CCC- 116,400 2,637,624
See notes to
financial statements.
9
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Integrated Telecommunications Services 2.45% $15,484,595
Telephone & Data Systems, Inc., 7.60%, Ser A A- 428,287 11,186,856
Verizon New England, Inc., 7.00%, Ser B Aa3 166,450 4,297,739
Investment Banking & Brokerage 9.71% 61,436,920
Bear Stearns Capital Trust III, 7.80% BBB 40,600 1,069,810
Bear Stearns Cos., Inc. (The), 5.72%, Ser F BBB 20,000 975,000
J.P. Morgan Chase Capital IX, 7.50% A- 61,000 1,621,380
J.P. Morgan Chase Capital X, 7.00%, Ser J A2 607,100 15,845,310
J.P. Morgan Chase Capital XI, 5.875% A- 289,700 6,709,452
Lehman Brothers Holdings, Inc., 5.94%,
Depositary Shares, Ser C BBB+ 175,600 8,411,240
Merrill Lynch & Co., Inc., 9.00%, Depositary Shares, Ser A A- 204,500 5,382,440
Merrill Lynch Preferred Capital Trust III, 7.00% A- 46,500 1,205,745
Merrill Lynch Preferred Capital Trust IV, 7.12% A- 63,452 1,659,904
Merrill Lynch Preferred Capital Trust V, 7.28% A- 89,700 2,365,389
Morgan Stanley Capital Trust II, 7.25% A- 240,200 6,197,160
Morgan Stanley Capital Trust III, 6.25% A- 60,400 1,485,840
Morgan Stanley Capital Trust IV, 6.25% A- 47,000 1,153,850
Morgan Stanley Capital Trust V, 5.75% A1 317,000 7,354,400
Life & Health Insurance 1.73% 10,949,954
Great-West Life & Annuity Insurance Capital I, 7.25%, Ser A A- 27,200 684,624
PLC Capital Trust IV, 7.25% BBB+ 186,600 4,860,930
PLC Capital Trust V, 6.125% BBB+ 236,000 5,404,400
Multi-Line Insurance 2.45% 15,489,460
ING Groep N.V., 7.05% (Netherlands) A- 602,000 15,489,460
Multi-Media 0.60% 3,790,567
Newscorp Overseas Ltd., 8.625%, Ser A (Cayman Islands) BB 144,844 3,790,567
Oil & Gas Exploration & Production 3.66% 23,159,697
EnCana Corp., 9.50% (Canada) BBB 43,800 1,118,652
Nexen, Inc., 7.35% (Canada) BBB- 859,300 22,041,045
Other Diversified Financial Services 5.52% 34,921,783
ABN AMRO Capital Funding Trust V, 5.90% A 481,800 11,172,942
ABN AMRO Capital Funding Trust VII, 6.08% A 188,000 4,453,720
Citigroup Capital VII, 7.125% A 98,700 2,583,966
Citigroup Capital VIII, 6.95% A 159,600 4,112,892
Citigroup Capital IX, 6.00% A 217,000 5,262,250
Citigroup Capital X, 6.10% A 100,000 2,455,000
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Other Diversified Financial Services (continued)
General Electric Capital Corp., 5.875% AAA 146,000 $3,582,840
General Electric Capital Corp., 6.10% AAA 51,210 1,298,173
Real Estate Investment Trusts 6.11% 38,632,476
Duke Realty Corp., 6.50%, Ser K BBB 100,000 2,410,000
Duke Realty Corp., 6.625%, Ser J BBB 59,925 1,441,945
Duke Realty Corp., 7.99%, Ser B BBB 251,830 13,669,660
Public Storage, Inc., 6.45%, Depositary Shares, Ser X BBB+ 25,000 592,500
Public Storage, Inc., 6.50%, Depositary Shares, Ser W BBB+ 100,000 2,424,000
Public Storage, Inc., 7.50%, Depositary Shares, Ser V BBB+ 497,643 13,038,246
Public Storage, Inc., 8.00%, Depositary Shares, Ser R BBB+ 157,965 4,140,263
Public Storage, Inc., 8.60%, Ser Q BBB+ 34,600 915,862
Regional Banks 0.53% 3,350,625
National Commerce Capital Trust II, 7.70% BBB 80,300 2,123,935
Regions Financing Trust I, 8.00% BBB+ 46,856 1,226,690
Thrifts & Mortgage Banks 1.75% 11,101,515
Abbey National Plc, 7.25% (United Kingdom) A- 73,580 1,903,515
Abbey National Plc, 7.375% (United Kingdom) A- 350,000 9,198,000
Wireless Telecommunication Service 0.16% 1,021,600
U.S. Cellular Corp., 7.50% A- 40,000 1,021,600
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Short-term investments 7.59% $48,000,000
(Cost $47,998,307)
Government U.S. Agency 7.59% 48,000,000
Federal Home Loan Bank, Disc Note 1.27% 08-02-04 Aaa $48,000 48,000,000
Total investments 143.16% $905,558,768
Other assets and liabilities, net (43.16%) ($273,025,577)
Total net assets 100.00% $632,533,191
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Notes to Schedule of Investments
(A) Credit ratings are unaudited and are rated by Moody's Investors
Service where Standard & Poor's ratings are not available.
(S) This security is 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 $10,010,000 or 1.58% of
net assets as of July 31, 2004.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer; however, security is
U.S. dollar denominated.
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.
12
FINANCIAL STATEMENTS
PORTFOLIO
CONCENTRATION
July 31, 2004
This table shows the
percentages of the
Fund's investments
aggregated by
various industries.
Industry distribution Value as a percentage of net assets
Agricultural Products 1.10%
Automobile Manufacturers 2.70
Broadcasting & Cable TV 2.75
Consumer Finance 3.38
Diversified Banks 8.70
Electric Utilities 40.01
Gas Utilities 9.12
Hotels, Resorts & Cruise Lines 0.24
Industrial Conglomerates 0.65
Integrated Oil & Gas 0.29
Integrated Telecommunications Services 2.45
Investment Banking & Brokerage 6.78
Life & Health Insurance 1.21
Multi-Line Insurance 1.71
Multi-Media 0.42
Oil & Gas Exploration & Production 2.56
Other Diversified Financial Services 3.86
Real Estate Investment Trusts 4.27
Regional Banks 1.17
Short-Term Investments 5.30
Thrifts & Mortgage Banks 1.22
Wireless Telecommunication Services 0.11
Total investments 1 100.00%
1 As a percentage of the Fund's portfolio on July 31, 2004.
See notes to
financial statements.
13
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
July 31, 2004
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows the
value of what the
Fund owns, is due
and owes. You'll
also find the net
asset value for each
common share.
Assets
Investments at value (cost $885,301,538) $905,558,768
Cash segregated for futures contracts 960,000
Dividends and interest receivable 3,991,559
Unrealized appreciation of swap contracts 3,214,136
Other assets 68,557
Total assets 913,793,020
Liabilities
Due to custodian 26,554
Payable for investments purchased 255,306
Payable for futures variation margin 637,500
Payable for swap contracts 123,145
Payable to affiliates
Management fees 27,392
Other 19,234
Other payables and accrued expenses 148,681
Total liabilities 1,237,812
Auction Preferred Shares (APS), at value, unlimited
number of shares of beneficial interest authorized
with no par value, 11,200 shares issued, liquidation
preference of $25,000 per share 280,022,017
Net assets
Common shares capital paid-in 610,100,382
Accumulated net realized gain on investments,
swap contracts and financial futures contracts 1,200,526
Net unrealized appreciation of investments,
financial futures contracts and swap contracts 21,294,632
Distributions in excess of net investment income (62,349)
Net assets applicable to common shares $632,533,191
Net asset value per common share
Based on 25,723,740 shares of beneficial interest
outstanding -- unlimited number of shares authorized
with no par value $24.59
See notes to
financial statements.
14
FINANCIAL STATEMENTS
OPERATIONS
For the year ended
July 31, 2004
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 $58,701,314
Interest 7,325,140
Total investment income 66,026,454
Expenses
Investment management fees 6,934,219
APS auction fees 735,165
Accounting and legal services fees 262,236
Custodian fees 151,262
Printing 98,709
Professional fees 66,059
Miscellaneous 56,700
Trustees' fees 55,307
Transfer agent fees 34,900
Federal excise tax 27,099
Registration and filing fees 24,972
Interest 4,064
Total expenses 8,450,692
Less expense reductions (1,849,125)
Net expenses 6,601,567
Net investment income 59,424,887
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments 34,284
Financial futures contracts 4,956,522
Swap contracts (942,445)
Change in net unrealized appreciation (depreciation) of
Investments (4,701,206)
Financial futures contracts (5,255,464)
Swap contracts (722,301)
Net realized and unrealized loss (6,630,610)
Distributions to APS (3,385,544)
Increase in net assets from operations $49,408,733
See notes to
financial statements.
15
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, distrib-
utions, if any, paid
to shareholders
and any increase
due to the sale of
common shares.
Period Year
ended ended
7-31-03 1 7-31-04
Increase (decrease) in net assets
From operations
Net investment income $51,269,429 $59,424,887
Net realized gain 2,556,844 4,048,361
Change in net unrealized
appreciation (depreciation) 31,973,603 (10,678,971)
Distributions to APS (3,051,520) (3,385,544)
Increase in net assets resulting
from operations 82,748,356 49,408,733
Distributions to common shareholders
From net investment income (46,126,277) (55,502,223)
From net realized gain -- (8,472,279)
(46,126,277) (63,974,502)
From Fund share transactions 608,870,767 1,606,114
Net assets
Beginning of period -- 645,492,846
End of period 2 $645,492,846 $632,533,191
1 Inception period from 8-27-02 through 7-71-03.
2 Includes accumulated (distributions in excess of) net investment income
of $3,212,475 and ($62,349), respectively.
See notes to
financial statements.
16
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 7-31-03 1 7-31-04
Per share operating performance
Net asset value,
beginning of period $23.88 2 $25.15
Net investment income 3 2.02 2.31
Net realized and unrealized
gain (loss) on investments 1.32 (0.25)
Distributions to APS (0.12) (0.13)
Total from
investment operations 3.22 1.93
Less distributions
to common shareholders
From net investment income (1.80) (2.16)
From net realized gain -- (0.33)
(1.80) (2.49)
Capital charges
Offering costs related to common shares (0.02) --
Offering costs and underwriting discounts
related to APS (0.13) --
(0.15) --
Net asset value, end of period $25.15 $24.59
Per share market value, end of period $24.32 $24.14
Total return at market value 4,5 (%) 4.78 6,12 9.65
Ratios and supplemental data
Net assets applicable to common shares,
end of period (in millions) $645 $633
Ratio of expenses
to average net assets 7 (%) 1.00 8 1.02
Ratio of adjusted expenses
to average net assets 9 (%) 1.28 8 1.31
Ratio of net investment income
to average net assets 10 (%) 9.11 8 9.21
Portfolio turnover (%) 20 21
Senior securities
Total value of APS outstanding (in millions) $280 $280
Involuntary liquidation preference per unit
(in thousands) $25 $25
Average market value per unit (in thousands) $25 $25
Asset coverage per unit 11 $83,686 $79,892
See notes to
financial statements.
17
FINANCIAL HIGHLIGHTS
Notes to Financial Highlights
1 Inception period from 8-27-02 through 7-31-03.
2 Reflects the deduction of a $1.125 per share sales load.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been
reduced during the periods shown.
6 Not annualized.
7 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 0.72% and 0.71%.
8 Annualized.
9 Ratios calculated on the basis of expenses relative to the average net
assets of common shares that does not take into consideration expense
reductions during the periods shown. Without the exclusion of preferred
shares, the annualized adjusted ratio of expenses would have been 0.92%
and 0.91%.
10 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 6.59% and 6.43%.
11 Calculated by subtracting the Fund's total liabilities from the
Fund's total assets and dividing that amount by the number of APS
outstanding as of the applicable 1940 Act Evaluation Date, which may
differ from the financial reporting date.
12 Assumes dividend reinvestment and a purchase at the offering price of
$25.00 per share on the inception date and a sale at the current market
price on the last day of the period.
18
NOTES TO
STATEMENTS
Note A
Accounting policies
John Hancock Preferred Income Fund (the "Fund") is a diversified
closed-end management investment company registered under the Investment
Company Act of 1940.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60
days are valued at amortized cost, which approximates market value. The
Fund determines the net asset value of the common shares each business
day.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
Discount and premium on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over
the life of the security.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will
be 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.
Financial futures contracts
The Fund may buy and sell financial futures contracts. Buying futures
tends to increase the Fund's exposure to the underlying instrument.
Selling futures tends to decrease the Fund's exposure to the underlying
instrument or hedge other Fund's instruments. At the time the Fund
enters into a financial futures contract, it is required to deposit with
its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the value of
the financial futures contract being traded. Each day, the futures
contract is valued at the official settlement price of the board of
trade or U.S. commodities exchange on which it trades. Subsequent
payments to and from the broker, known as "variation margin," are made
on a daily basis as the market price of the financial futures contract
fluctuates. Daily variation margin adjustments arising from this "mark
to market" are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into financial futures contracts include the
19
possibility that there may be an illiquid market and/or that a change in
the value of the contracts may not correlate with changes in the value
of the underlying securities. In addition, the Fund could be prevented
from opening or realizing the benefits of closing out financial futures
positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of financial
futures contracts. On July 31, 2004, the Fund had deposited $960,000 in
a segregated account to cover margin requirements on open financial
futures contracts.
The Fund had the following financial futures contracts open on July 31,
2004:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION DEPRECIATION
U.S. 10-Yr Note 600 Short Sept 04 ($1,607,325)
U.S. Treasury Bond 150 Short Sept 04 (569,409)
($2,176,734)
Swap contracts
The Fund may enter into swap transactions in order to hedge the value of
the Fund's portfolio against interest rate fluctuations or to enhance
the Fund's income. Interest rate swaps represent an agreement between
two counterparties to exchange cash flows based on the difference in the
two interest rates, applied to the notional principal amount for a
specified period. The payment flows are usually netted against each
other, with the difference being paid by one party to the other.
Accrued interest receivable or payable on the swap contracts is recorded
as realized gain (loss). The Fund settles accrued net receivable or
payable under the swap contracts on a periodic basis. The Fund records
changes in the value of the swaps as unrealized gains or losses on swap
contracts.
Swap contracts are subject to risks related to the counterparty's
ability to perform under the contract, and may decline in value if the
counterparty's creditworthiness deteriorates. The risks may arise from
unanticipated movement in interest rates. The Fund may also suffer
losses if it is unable to terminate outstanding swap contracts or reduce
its exposure through offsetting transactions.
The Fund had the following interest rate swap contracts open on July 31,
2004:
RATE TYPE
-----------------------------
PAYMENTS
NOTIONAL PAYMENTS RECEIVED TERMINATION
AMOUNT MADE BY FUND BY FUND DATE APPRECIATION
$70,000,000 2.56%(a) 3-month LIBOR June 08 $3,214,136
(a) Fixed rate
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 $976,208 that are attributable to security
transactions incurred after
20
October 31, 2003, are treated as arising on August 1, 2004, the first
day of the Fund's next taxable year.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions from net investment income and net
realized gains on the ex-dividend date. During the year ended July 31,
2003, the tax character of distributions paid was as follows: ordinary
income $49,177,797. During the year ended July 31, 2004, the tax
character of distributions paid was as follows: ordinary income
$66,135,011 and long-term capital gains $1,225,035.
As of July 31, 2004, there were no distributable earnings on a tax
basis.
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 the John
Hancock Financial Services, Inc. Under the investment management
contract, the Fund pays a daily management fee to the Adviser at an
annual rate of 0.75% of the Fund's average daily net asset value and the
value attributable to the Auction Preferred Shares (collectively,
"managed assets").
The Adviser has contractually agreed to limit the Fund's management fee
to the following: 0.55% of the Fund's average daily managed assets until
the fifth anniversary of the commencement of the Fund's operations,
0.60% of such assets in the sixth year, 0.65% of such assets in the
seventh year, and 0.70% of average daily managed assets in the eighth
year. Accord ingly, the expense reductions related to the reduction in
management fee amounted to $1,849,125 for the year ended July 31, 2004.
After the eighth year the Adviser will no longer waive a portion of the
management fee.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year amounted to $262,236. The Fund also paid the Adviser the amount of
$1,078 for certain publishing services, included in the printing fees.
Mr. James A. Shepherdson is a director and/or officer of the Adviser
and/or its affiliates, as well as Trustee of the Fund. The compensation
of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer, for tax purposes, their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred
21
compensation liability are recorded on the Fund's books as an other
asset. The deferred compensation liability and the related other asset
are always equal and are marked to market on a periodic basis to reflect
any income earned by the investments, as well as any unrealized gains or
losses. The Deferred Compensation Plan investments had no impact on the
operations of the Fund.
Note C
Fund share
transactions
Common shares
This listing illustrates the Fund's common shares sold, offering cost
and underwriting discount charged to capital paid-in, distributions
reinvested, reclassification of the Fund's capital accounts and the
number of common shares outstanding at the beginning and end of the last
two periods, along with the corresponding dollar value.
Period ended 7-31-03 1 Year ended 7-31-04
Shares Amount Shares Amount
Beginning of period -- -- 25,661,053 $608,692,402
Shares sold 25,590,309 $610,968,628 2 -- --
Offering cost related to
common shares -- (617,673) -- --
Offering costs and
underwriting discount
related to Auction
Preferred Shares -- (3,185,442) -- --
Distributions reinvested 70,744 1,705,254 62,687 1,606,114
Reclassification of
capital accounts -- (178,365) -- (198,134)
Net increase 25,661,053 $608,692,402 25,723,740 $610,100,382
1 Inception period from 8-27-02 through 7-31-03.
2 Net of $1.125 per share sales load of the initial offering price of $25.00 per share.
Auction preferred shares
The Fund issued a total of 11,200 Auction Preferred Shares (2,240 shares
of Series M, 2,240 shares of Series T, 2,240 shares of Series W, 2,240
shares of Series TH and 2,240 shares of Series F) (collectively, the
"APS") on October 23, 2002, in a public offering. The underwriting
discount of $2,800,000 has been charged to capital paid-in of common
shares during the period ended July 31, 2003. Offering costs of $617,673
related to common shares and offering costs of $385,442 incurred in
connection with the preferred shares were charged to the Fund's capital
paid-in during the period ended July 31, 2003.
Dividends on the APS, which accrue daily, are cumulative at a rate that
was established at the offering of the APS and has been reset every 7
days thereafter by an auction (except for Series W, which reset its rate
on October 23, 2003, at which time the Fund elected a Special Dividend
Payment of 182 days for the subsequent distributions). Dividend rates on
APS ranged from 0.95% to 1.70% during the year ended July 31, 2004.
Accrued dividends on APS are included in the value of APS on the Fund's
Statement of Assets and Liabilities.
The APS are redeemable at the option of the Fund, at a redemption price
equal to $25,000 per share, plus accumulated and unpaid dividends on any
dividend payment date. The APS are also subject to mandatory redemption
at a redemption price equal to $25,000 per
22
share, plus accumulated and unpaid dividends, if the Fund is in default
on its asset coverage requirements with respect to the APS, as defined
in the Fund's by-laws. If the dividends on the APS shall remain unpaid
in an amount equal to two full years' dividends, the holders of the APS,
as a class, have the right to elect a majority of the Board of Trustees.
In general, the holders of the APS and the common shareholders have
equal voting rights of one vote per share, except that the holders of
the APS, as a class, vote to elect two members of the Board of Trustees,
and separate class votes are required on certain matters that affect the
respective interests of the APS and common shareholders.
Note D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the year ended July 31, 2004, aggregated $187,468,291 and
$197,693,125, respectively.
The cost of investments owned on July 31, 2004, including short-term
investments, for federal income tax purposes was $885,350,965. Gross
unrealized appreciation and depreciation of investments aggregated
$35,955,281 and $15,747,478, respectively, resulting in net unrealized
appreciation of $20,207,803. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the realization for tax purposes of unrealized losses on
certain futures contracts and amortization of premiums and accretion of
discounts on debt securities.
Note E
Reclassification of
accounts
During the year ended July 31, 2004, the Fund reclassified amounts to
reflect an increase in accumulated net realized gain on investments of
$4,010,078, an increase in distributions in excess of net investment
income of $3,811,944 and a decrease in capital paid-in of $198,134. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of July 31, 2004. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus accounting principles generally accepted in the United
States of America and book and tax differences in accounting for
deferred compensation, federal excise tax, non-deductible,
organizational costs, amortization of premium and interest-rate swap tax
adjustments. The calculation of net investment income (loss) per share
in the Fund's Financial Highlights excludes these adjustments.
23
AUDITORS'
REPORT
Report of Deloitte
& Touche LLP,
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of John Hancock Preferred
Income Fund,
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of John Hancock Preferred Income
Fund (the "Fund") as of July 31, 2004, and the related statement of
operations for the year then ended, the statement of changes in net
assets and the financial highlights for the year then ended and the
period from August 27, 2002 through July 31, 2003. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at July 31, 2004, by correspondence
with the custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our 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 July 31, 2004, the results of its
operations, the changes in its net assets and its financial highlights
for the year then ended and the period from August 27, 2002 through July
31, 2003 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 10, 2004
24
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 July 31, 2004.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended July 31, 2004, 16.52% of the dividends qualifies for the
corporate dividends-received deduction.
This Fund has designated distributions to shareholders of $1,238,041 as
long-term capital gain dividend.
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 2004.
Shareholders will be mailed a 2004 U.S. Treasury Department Form
1099-DIV in January 2005. This will reflect the total of all
distributions that are taxable for calendar year 2004.
25
Investment
objective
and policy
The Fund's primary objective is to provide a high level of current
income, consistent with preservation of capital. The Fund's secondary
objective is to provide growth of capital to the extent consistent with
its primary objective. The Fund seeks to achieve its objectives by
investing in a diversified portfolio of securities that, in the opinion
of the Adviser, may be undervalued relative to similar securities in the
marketplace.
Under normal market conditions, the Fund invests at least: (a) 80% of
its assets in preferred stocks and other preferred securities, including
convertible preferred securities, (b) 25% of its total assets in the
industries comprising the utilities sector and (c) 80% of its total
assets in preferred securities or other fixed-income securities, which
are rated investment grade or higher by Moody's or Standard & Poor's at
the time of investment. "Assets" are defined as net assets, including
the liquidation preference of APS, plus borrowing for investment
purposes.
By-laws
On December 16, 2003, the Trustees approved the following change 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 accountants' 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.
Dividend
reinvestment plan
The Fund offers its shareholders a Dividend Reinvestment Plan (the "Plan"),
which offers the opportunity to earn compounded yields. Each holder of
common shares will automatically have all distributions of dividends and
capital gains reinvested by Mellon Investor Services, as Plan Agent for the
common shareholders (the "Plan Agent"), unless an election is made to
receive cash. Holders of common shares who elect not to participate in the
Plan will receive all distributions in cash, paid by check and mailed
directly to the shareholder of record (or, if the common shares are held in
street or other nominee name, then to the nominee) by the Plan Agent, as
dividend-disbursing agent. Shareholders whose shares are held in the name
of a broker or a nominee should contact the broker or nominee to determine
whether and how they may participate in the Plan.
If the Fund declares a dividend payable either in common shares or in cash,
non-participants will receive cash and participants in the Plan will
receive the equivalent in common shares. If the market price of the common
shares on the payment date of the dividend is equal to, or exceeds, their
net asset value as determined on the payment date, participants will be
issued common shares (out of authorized but unissued shares) at a value
equal to the higher of net asset value or 95% of the market price. If the
net asset value exceeds the market price of the common shares at such time,
or if the Board of Trustees declares a dividend payable only in cash, the
Plan Agent will, as agent for Plan participants, buy shares in the open
market, on the New York Stock Exchange or elsewhere, for the participant's
accounts. Such purchases will be made promptly after the payable date for
such dividend and, in any event, prior to the next ex-dividend date after
such date, except where necessary to comply with federal securities laws.
If, before the Plan Agent has completed its purchases, the market price
exceeds the net asset value of the common shares, the average per share
purchase price paid by the Plan Agent may exceed the net
26
asset value of the common shares, resulting in the acquisition of fewer
shares than if the dividend had been paid in shares issued by the Fund.
Each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends and distributions. The cost
per share of the shares purchased for each participant's account will be
the average cost, including brokerage commissions, of any shares purchased
on the open market, plus the cost of any shares issued by the Fund. There
will be no brokerage charges with respect to common shares issued directly
by the Fund. There are no other 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. When a participant withdraws from the Plan or upon
termination of the Plan, as provided below, certificates for whole common
shares credited to his or her account under the Plan will be issued and a
cash payment will be made for any fraction of a share credited to such
account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the
accounts, including information needed by the shareholders for personal and
tax records. The Plan Agent will hold common shares in the account of each
Plan participant in non-certificated form in the name of the participant.
Proxy material relating to the shareholders' meetings of the Fund will
include those shares purchased, as well as shares held pursuant to the
Plan.
The reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable or required to
be withheld on such dividends or distributions. Participants under the Plan
will receive tax information annually. The amount of dividend to be
reported on the 1099-DIV should be: (1) in the case of shares issued by the
Fund, the fair market value of such shares on the dividend payment date and
(2) in the case of shares purchased by the Plan Agent in the open market,
the amount of cash used by the Plan Agent to purchase shares in the open
market, including the amount of cash allocated to brokerage commissions
paid on such purchases.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice
of the change sent to all shareholders of the Fund at least 90 days before
the record date for the dividend or distribution. The Plan may be amended
or terminated by the Plan Agent after at least 90 days' written notice to
all shareholders of the Fund. All correspondence or additional information
concerning the Plan should be directed to the Plan Agent, Mellon Bank,
N.A., c/o Mellon Investor Services, P.O. Box 3338, South Hackensack, NJ
07606-1938 (telephone 1-800-852-0218).
Shareholder
communication
and assistance
If you have any questions concerning the Fund, we will be pleased to
assist you. If you hold shares in your own name and not with a brokerage
firm, please address all notices, correspondence, questions or other
communications regarding the Fund to the transfer agent at:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone 1-800-852-0218
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
27
Shareholder meeting
On March 18, 2004, the Annual Meeting of the Fund was held to elect
three Trustees and to ratify the actions of the Trustees in selecting
independent auditors for the Fund.
Proxies covering 24,893,828 shares of beneficial interest were voted at
the meeting. The common shareholders elected the following Trustees to
serve until their respective successors are duly elected and qualified
(there were no current nominees for election by the preferred
shareholders), with the votes tabulated as follows:
WITHHELD
FOR AUTHORITY
Patti McGill Peterson 24,638,319 246,469
Steven Pruchansky 24,645,416 239,372
Norman H. Smith 24,625,529 259,259
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 July 31, 2004, with the votes tabulated as follows: 24,613,783
FOR, 136,356 AGAINST and 143,689 ABSTAINING.
28
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 2002 49
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 2002 29
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since
1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since
1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance
Agency, Inc. (since 1996); Director and Treasurer, Rizzo Associates (until 2000);
Chairman and CEO, Carlin Consolidated, Inc. (management/investments)
(since 1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee,
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director
of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance)
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc.
(until 1999), Carlin Insurance Agency, Inc. (until 1999); Chairman,
Massachusetts Board of Higher Education (until 1999).
William H. Cunningham, Born: 1944 2002 29
Former Chancellor, University of Texas System and former President of the
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies
(until 2001); Director of the following: The University of Texas Investment
Management Company (until 2000), Hire.com (since 2000), STC Broadcasting,
Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. (since 2001), Adorno/
Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2001),
rateGenius (since 2001), Jefferson-Pilot Corporation (diversified life insurance company)
(since 1985), New Century Equity Holdings (formerly Billing Concepts) (until 2001),
eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001),
LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor
Worldwide (until 2000), AskRed.com (until 2001), Southwest Airlines (since 2000)
and Introgen (since 2000); Advisory Director, Q Investments (since 2000); Advisory
Director, Chase Bank (formerly Texas Commerce Bank -- Austin) (since 1988),
LIN Television (since 2002) and WilTel Communications (since 2002).
29
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
Ronald R. Dion, Born: 1946 2002 29
Chairman and Chief Executive Officer, R.M. Bradley & Co., Inc.; Director,
The New England Council and Massachusetts Roundtable; Trustee, North
Shore Medical Center; Director, Boston Stock Exchange; Director, BJ's
Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee,
Emmanuel College.
John A. Moore, 2 Born: 1939 2002 30
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Chief Scientist, Sciences
International (health research) (until 2003); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Patti McGill Peterson, 2 Born: 1943 2002 30
Executive Director, Council for International Exchange of Scholars (since
1998); Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1997); President Emerita of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (electric utility); Director,
Ford Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003); and Advisory Board, UNCF, Global
Partnerships Center (since 2002).
Steven Pruchansky, Born: 1944 2002 29
Chairman and Chief Executive Officer, Greenscapes of Southwest
Florida, Inc. (since 2000); Director and President, Greenscapes of
Southwest Florida, Inc. (until 2000); Managing Director, JonJames, LLC
(real estate) (since 2001); Director, First Signature Bank & Trust Company
(until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell
Building Corp. (until 1991).
Norman H. Smith, Born: 1933 2002 29
Lieutenant General, United States Marine Corps; Deputy Chief of Staff for
Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding
General III Marine Expeditionary Force/3rd Marine Division (retired 1991).
John P. Toolan, 2 Born: 1930 2002 29
Director, The Smith Barney Muni Bond Funds, The Smith Barney Tax-Free
Money Funds, Inc., Vantage Money Market Funds (mutual funds), The
Inefficient-Market Fund, Inc. (closed-end investment company); Chairman,
Smith Barney Trust Company of Florida (retired 1991); Director, Smith
Barney, Inc., Mutual Management Company and Smith Barney Advisers, Inc.
(investment advisers) (retired 1991); Senior Executive Vice President, Director
and member of the Executive Committee, Smith Barney, Harris Upham & Co.,
Incorporated (investment bankers) (until 1991).
30
Non-Independent Trustees 3
Name, age Number of
Position(s) held with fund Trustee John Hancock
Principal occupation(s) and other of fund funds overseen
directorships during past 5 years since 1 by Trustee
James A. Shepherdson, Born: 1952 2004 49
President and Chief Executive Officer
Executive Vice President, Manulife Financial Corporation; Chairman,
Director, President and Chief Executive Officer, John Hancock Advisers,
LLC and The Berkeley Group; Chairman, Director, President and Chief
Executive Officer, John Hancock Funds, LLC; Chairman, President,
Director and Chief Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp"); President, John Hancock Retirement
Services, John Hancock Life Insurance Company (until 2004); Chairman,
Essex Corporation (until 2004); Co-Chief Executive Officer, MetLife
Investors Group (until 2003); Senior Vice President, AXA/Equitable
Insurance Company (until 2000).
Principal officers who are not Trustees
Name, age
Position(s) held with fund Officer
Principal occupation(s) and of fund
directorships during past 5 years since
Richard A. Brown, Born: 1949 2002
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock
Funds and The Berkeley Group; Second Vice President and Senior Associate Controller,
Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001).
William H. King, Born: 1952 2002
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each
of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 2002
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each
of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President and
Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustees hold positions with the Fund's investment adviser,
underwriter and certain other affiliates.
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
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent and
dividend disburser
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Transfer agent for DARTS
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: HPI
For shareholder assistance refer to page 27
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
Complete portfolio information is available on our Web site,
www.jhfunds.com, or upon request by calling 1-800-225-5291 and on a
quarterly basis 60 days after the end of the fiscal quarter.
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
---------------
P800A 7/04
9/04
ITEM 2. CODE OF ETHICS.
As of the end of the period, July 31, 2004, the registrant has adopted a
code of ethics, as defined in Item 2 of Form N-CSR, that applies to its
Chief Executive Officer, Chief Financial Officer and Treasurer
(respectively, the principal executive officer, the principal financial
officer and the principal accounting officer, the "Senior Financial
Officers"). A copy of the code of ethics is filed as an exhibit to this
Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Charles L. Ladner is the audit committee financial expert and is
"independent", pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the
principal accountant(s) for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant(s) in
connection with statutory and regulatory filings or engagements amounted to
$31,300 for the fiscal year ended July 31, 2003 and $32,850 for the fiscal
year ended July 31, 2004. These fees were billed to the registrant and were
approved by the registrant's audit committee.
(b) Audit-Related Services
There were no audit-related fees during the fiscal year ended July 31, 2003
and fiscal year ended July 31, 2004 billed to the registrant or to the
registrant's investment adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant ("control affiliates").
(c) Tax Fees
The aggregate fees billed for professional services rendered by the
principal accountant(s) for the tax compliance, tax advice and tax planning
("tax fees") amounted to $2,100 for the fiscal year ended July 31, 2003 and
$2,250 for the fiscal year ended July 31, 2004. The nature of the services
comprising the tax fees was the review of the registrant's income tax
returns and tax distribution requirements. These fees were billed to the
registrant and were approved by the registrant's audit committee. There
were no tax fees billed to the control affiliates.
(d) All Other Fees
The all other fees billed to the registrant for products and services
provided by the principal accountant were $24,800 for the fiscal year ended
July 31, 2003 and $4,000 for the fiscal year ended July 31, 2004. There
were no other fees during the fiscal year ended July 31, 2003 and July 31,
2004 billed to control affiliates for products and services provided by the
principal accountant. The nature of the services comprising the all other
fees was related to the principal accountant's report on the registrant's
Eligible Asset Coverage. These fees were approved by the registrant's audit
committee.
(e) (1) See attachment "Approval of Audit, Audit-related, Tax and Other
Services", with the audit committee pre-approval policies and procedures.
(e)(2) There were no fees that were approved by the audit committee
pursuant to the de minimis exception for the fiscal years ended July 31,
2003 and July 31, 2004 on behalf of the registrant or on behalf of the
control affiliates that relate directly to the operations and financial
reporting of the registrant.
(f) According to the registrant's principal accountant, for the fiscal year
ended July 31, 2004, the percentage of hours spent on the audit of the
registrant's financial statements for the most recent fiscal year that were
attributed to work performed by persons who were not full-time, permanent
employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant(s)
for services rendered to the registrant and rendered to the registrant's
control affiliates for each of the last two fiscal years of the registrant
were $147,600 for the fiscal year ended July 31, 2003, and none for the
fiscal year ended July 31, 2004.
(h) The audit committee of the registrant has considered the non-audit
services provided by the registrant's principal accountant(s) to the
control affiliates and has determined that the services that were not
pre-approved are compatible with maintaining the principal accountant(s)'
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee
comprised of independent trustees. The members of the audit committee are
as follows:
Charles L. Ladner
Dr. John A. Moore
Patti McGill Peterson
John P. Toolan
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
See attached Exhibit "Proxy Voting Policies and Procedures".
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The registrant has adopted procedures by which shareholders may
recommend nominees to the registrant's Board of Trustees. A copy of the
procedures is filed as an exhibit to this Form N-CSR. See attached
"John Hancock Funds - Administration Committee Charter".
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing date of
this Form N-CSR, the registrant's principal executive officer and principal
financial officer have concluded that those disclosure controls and
procedures provide reasonable assurance that the material information
required to be disclosed by the registrant on this report is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal half-year (the registrant's second fiscal half-year in the case of
an annual report) that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics for Senior Financial Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company
Act of 1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
and Rule 30a-2(b) under the Investment Company Act of 1940, are attached.
The certifications furnished pursuant to this paragraph are not deemed to
be "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of that section. Such
certifications are not deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Registrant specifically incorporates
them by reference.
(c)(1) Proxy Voting Policies and Procedures are attached.
(c)(2) Submission of Matters to a Vote of Security Holders is attached. See
attached "John Hancock Funds - Administration Committee Charter".
(c)(3) Approval of Audit, Audit-related, Tax and Other Services is
attached.
(c)(4) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Preferred Income Fund
By:
-------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: September 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By:
-------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: September 27, 2004
By:
-----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer