February 25, 2004
EDGAR
United States Securities and
Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form N-CSR
John Hancock Patriot Select Dividend Trust (the "Registrant")
File No. 811-06107
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 December 31, 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 Select
Dividend Trust
12.31.2003
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen Ford Goldfarb, 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 made a strong recovery in 2003, producing
double-digit returns in a broad-based rally. A rebounding economy
fueled by historically low interest rates, plus improving corporate
earnings and government stimulus in the form of tax cuts were the
stimuli for the market's reversal after three down years. As a result,
the market, as measured by the Standard & Poor's 500 Index, returned
28.67% in 2003. With technology leading the way, the tech-heavy Nasdaq
Composite Index rose 50.77%, while the Dow Jones Industrial Average
returned 28.27%. Bonds produced much more modest results, as investors
were lured by stocks and interest rates began to rise. The exceptions
were high-yield bonds, which posted stock-like returns of 28.97% for
the year, 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 December 31, 2003.
They are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
to provide high
current income,
consistent with
modest growth of
capital, by nor-
mally investing at
least 80% of its
assets in dividend-
paying securities.
The Fund will nor-
mally invest more
than 65% of its
total assets in
securities of
companies in the
utilities industry.
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
preferred stocks.
* A significant stake in utility common stocks also aided performance.
[Bar chart with heading "John Hancock Patriot Select Dividend Trust." Under
the heading is a note that reads "Fund performance for the six months ended
December 31, 2003." The chart is scaled in increments of 2% with 0% at the
bottom and 8% at the top. The first bar represents the 7.62% total return
for John Hancock Patriot Select Dividend Trust. A note below the chart
reads "The total return for the Fund is at net asset value with all
distributions reinvested."]
Top 10 issuers
4.4% Energy East Corp.
4.4% Baltimore Gas & Electric
4.3% NSTAR
3.7% El Paso Tennessee Pipeline Co.
3.5% Citigroup, Inc.
3.3% Lehman Brothers
3.3% Bear Stearns Companies, Inc.
3.2% Sierra Pacific Power
3.1% CH Energy Group, Inc.
2.9% DTE Energy Co.
As a percentage of net assets plus the value of preferred shares on
December 31, 2003.
1
BY GREGORY K. PHELPS AND MARK T. MALONEY FOR THE PORTFOLIO MANAGEMENT TEAM
MANAGERS'
REPORT
JOHN HANCOCK
Patriot Select
Dividend Trust
Preferred stocks -- the primary emphasis of John Hancock Patriot
Select Dividend Trust -- posted solid returns during the six-month
period ended December 31, 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 those older preferred stocks to take advantage of the lower
interest rates that prevailed during much of the 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
December 31, 2003..."
UTILITIES RALLY
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 consistently high dividends over the years.
2
[Photos of Greg Phelps and Mark Maloney.]
PERFORMANCE
For the six months ended December 31, 2003, John Hancock Patriot
Select Dividend Trust returned 7.62% at net asset value. By
comparison, the average income and preferred stock closed-end fund
returned 7.44%, 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 8.44%, and the
broader stock market, as measured by the Standard & Poor's 500 Index,
returned 15.14%.
LEADERS AND LAGGARDS
Within the preferred-stock category, some of our best performers were
those issued by financial services companies. FleetBoston Financial,
for example, benefited from the announced purchase of the company by
Bank of America, which is expected to result in higher overall credit
for Fleet's outstanding preferred stock. 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.
"Within the preferred-stock
category, some of our best
performers were those
issued by financial services
companies."
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 the fortunes of holdings such as Anadarko
Petroleum, Apache, Devon Energy and Nexen.
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
operations. 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.
3
[Table at top left-hand side of page entitled "Top five industry groups 1."
The first listing is Utilities 69%, the second is Broker services 8%, the
third Oil & gas 8%, the fourth Finance 6%, and the fifth Banks-United
States 5%.]
A 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 diversification 1." The
chart is divided into three sections (from top to left): Preferred stocks
63%, Common stocks 35% and Short-term investments & other 2%.]
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. Our
interest-rate forecast -- which calls for continued low interest rates
-- also should 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 that the Federal
Reserve Board will raise interest rates until the current recovery
deepens and sustains itself for a longer period of 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 that investors' appetite
4
for preferred stocks and utility common stocks -- many of which benefit from
the new lower federal tax on dividends -- could remain strong. In addition
to robust 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 valuations -- albeit higher than at the
beginning of 2003 -- 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 should 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
FleetBoston Financial followed by an up arrow with the phrase "Pending
takeover expected to raise credit rating." 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."]
"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 management team
through the end of the Fund's period discussed in this report. The
team's statements reflect their own opinions. As such, they are in no
way guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
The Fund normally will invest more than 65% of its managed assets in
securities of companies in the utilities industry. Such an investment
concentration makes the Fund more susceptible to factors adversely
affecting the utilities industry than a broader diversified fund.
Sector investing is subject to greater risks than the market as a
whole.
1 As a percentage of the Fund's portfolio on December 31, 2003.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
December 31, 2003
(unaudited)
This schedule is divided into three main categories: preferred stocks,
common stocks and short-term investments. Preferred and common stocks
are further broken down by industry group. Short-term investments,
which represent the Fund's cash position, are listed last.
CREDIT
ISSUER RATING* SHARES VALUE
PREFERRED STOCKS 94.48% $133,760,351
(Cost $132,550,537)
Agricultural Operations 2.12% 3,000,000
Ocean Spray Cranberries, Inc., 6.25%, Ser A (R) BBB 40,000 3,000,000
Banks -- United States 7.91% 11,196,990
FleetBoston Financial Corp., 6.75%,
Depositary Shares, Ser VI BBB+ 99,000 5,445,990
HSBC USA, Inc., $2.8575 A1 108,000 5,751,000
Broker Services 11.44% 16,203,714
Bear Stearns Companies, Inc., 5.49%, Ser G A3 116,400 5,820,000
Bear Stearns Companies, Inc., 6.15%, Ser E BBB 23,000 1,215,550
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D A3 125,600 6,405,600
Lehman Brothers Holdings, Inc., 5.94%, Ser C BBB+ 13,000 671,450
Merrill Lynch & Co., Inc., 9.00%, Depositary Shares, Ser A A- 77,650 2,091,114
Finance 8.90% 12,606,052
Citigroup, Inc., 6.213%, Ser G Aa3 44,000 2,420,000
Citigroup, Inc., 6.231%, Depositary Shares, Ser H Aa3 92,400 5,057,052
SLM Corp., 6.97%, Ser A BBB+ 92,000 5,129,000
Leasing Companies 0.33% 459,420
AMERCO, 8.50%, Ser A D 18,600 459,420
Media 1.26% 1,777,875
Shaw Communications, Inc., 8.45%, Ser A (Canada) B+ 45,500 1,148,875
Shaw Communications, Inc., 8.50% (Canada) B+ 25,000 629,000
Oil & Gas 11.32% 16,021,639
Anadarko Petroleum Corp., 5.46%, Depositary Shares BBB- 47,700 4,829,625
Apache Corp., 5.68%, Depositary Shares, Ser B BBB 48,174 4,883,639
Devon Energy Corp., 6.49%, Ser A B 53,500 5,523,875
Nexen, Inc., 7.35% (Canada) BBB- 30,000 784,500
Telecommunications 1.03% 1,464,500
Touch America Holdings, Inc., $6.875 BBB- 50,500 1,464,500
See notes to
financial statements.
6
FINANCIAL STATEMENTS
CREDIT
ISSUER RATING* SHARES VALUE
Utilities 50.17% $71,030,161
Alabama Power Co., 5.20% BBB+ 225,000 5,985,000
Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 40,000 4,370,000
BGE Capital Trust II, 6.20% BBB 190,000 4,995,100
Boston Edison Co., 4.25% A3 56,815 4,488,385
Coastal Finance I, 8.375% CCC 78,300 1,851,012
El Paso Tennessee Pipeline Co., 8.25%, Ser A CCC 183,500 7,798,750
Energy East Capital Trust I, 8.25% BBB- 147,000 3,964,590
Entergy Gulf States Capital 1, 8.75%, Ser A BB 87,100 2,207,985
Hawaiian Electric Industries Capital Trust I, 8.36% BB+ 50,000 1,302,500
Monongahela Power Co., 7.73%, Ser L CCC+ 50,000 4,650,000
Northern Indiana Public Service Co., 4.22% BB+ 11,251 675,060
Potomac Electric Power Co., $2.28 Ser 1965 Baa3 16,400 688,800
PSEG Funding Trust II, 8.75% BB+ 30,000 843,000
PSI Energy, Inc., 6.875% BBB- 48,000 4,900,800
Public Service Electric & Gas Co., 6.92% BB+ 30,627 3,162,238
Rochester Gas & Electric Co., 4.10%, Ser H Ba1 10,184 611,040
Rochester Gas & Electric Corp., 4.75%, Ser I Ba1 11,986 963,001
Sierra Pacific Power Co., 7.80%, Ser 1 (Class A) CCC+ 205,600 4,677,400
South Carolina Electric & Gas Co., 6.52% Baa1 55,000 5,890,500
Southern Union Co., 7.55% BB+ 155,000 4,143,150
Virginia Electric & Power Co., $6.98 BBB 10,500 1,088,850
Virginia Electric & Power Co., $7.05 BBB 10,000 1,038,000
Wisconsin Public Service Corp., 6.76% A 7,000 735,000
COMMON STOCKS 52.82% $74,787,517
(Cost $78,811,606)
Telecommunications 0.00% 1,726
Touch America Holdings, Inc.** 191,800 1,726
Utilities 52.82% 74,785,791
Alliant Energy Corp. 158,000 3,934,200
Ameren Corp. 75,400 3,468,400
Aquila, Inc. 190,000 644,100
CH Energy Group, Inc. 141,550 6,638,695
Cinergy Corp. 16,000 620,960
Consolidated Edison, Inc. 45,000 1,935,450
Dominion Resources, Inc. 46,000 2,936,180
DPL, Inc. 99,000 2,067,120
DTE Energy Co. 155,900 6,142,460
Duke Energy Corp. 70,000 1,431,500
Energy East Corp. 242,000 5,420,800
KeySpan Corp. 161,850 5,956,080
National Fuel Gas Co. 52,150 1,274,546
NiSource, Inc. 97,850 2,146,829
See notes to
financial statements.
7
FINANCIAL STATEMENTS
ISSUER SHARES VALUE
Utilities (continued)
Northeast Utilities 201,650 $4,067,281
NSTAR 94,000 4,559,000
OGE Energy Corp. 96,092 2,324,465
Peoples Energy Corp. 41,800 1,757,272
Progress Energy, Inc. 64,000 2,896,640
Progress Energy, Inc.**(l) (Contingent Value Obligation) 20,000 4,400
Puget Energy, Inc. 170,500 4,052,785
Sierra Pacific Resources** 271,500 1,992,810
TECO Energy, Inc. 176,750 2,546,968
Vectren Corp. 30,000 739,500
WPS Resources Corp. 51,000 2,357,730
Xcel Energy, Inc. 169,000 2,869,620
INTEREST PAR VALUE
ISSUER, MATURITY DATE RATE (000S OMITTED)
SHORT-TERM INVESTMENTS 1.88% $2,664,793
(Cost $2,664,793)
Commercial Paper 1.88%
ChevronTexaco Corp., Due 01-05-04 0.70% $2,665 $2,664,793
TOTAL INVESTMENTS 149.18% $211,212,661
OTHER ASSETS AND LIABILITIES, NET (49.18%) ($69,630,020)
TOTAL NET ASSETS 100.00% $141,582,641
* Credit ratings are unaudited and are rated by Moody's Investors Service.
** Non-income-producing security.
(l) 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 $3,000,000 or 2.12% of
net assets as of December 31, 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
December 31, 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 $214,026,936) $211,212,661
Cash 1,003
Dividends receivable 719,208
Other assets 42,677
Total assets 211,975,549
LIABILITIES
Payable to affiliates
Management fee 156,144
Other 26,818
Other payables and accrued expenses 119,642
Total liabilities 302,604
Auction Market Preferred Shares (AMPS), at value,
unlimited number of shares of beneficial interest
authorized with no par value, 700 shares issued,
liquidation preference of $100,000 per share 70,090,304
NET ASSETS
Common shares capital paid-in 142,648,547
Accumulated net realized gain on investments 294,879
Net unrealized depreciation of investments (2,814,275)
Accumulated net investment income 1,453,490
Net assets applicable to common shares $141,582,641
NET ASSET VALUE PER COMMON SHARE
Based on 9,971,153 shares of beneficial interest
outstanding -- unlimited number of shares authorized
with no par value $14.20
See notes to
financial statements.
9
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
December 31, 2003
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in oper-
ating the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends $5,948,354
Interest 33,462
Total investment income 5,981,816
EXPENSES
Investment management fee 815,468
Administration fee 152,900
AMPS auction fee 96,990
Auditing fee 24,768
Registration and filing fee 23,010
Printing 22,068
Custodian fee 21,722
Transfer agent fee 20,574
Trustees' fee 7,190
Legal fee 1,929
Interest 235
Total expenses 1,186,854
Net investment income 4,794,962
REALIZED AND UNREALIZED GAIN
Net realized gain on investments 709,237
Change in net unrealized appreciation
(depreciation) of investments 4,895,807
Net realized and unrealized gain 5,605,044
Distributions to AMPS (363,629)
Increase in net assets from operations $10,036,377
1 Semiannual period from 7-1-03 through 12-31-03.
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,
distributions, if
any, paid to
shareholders and
any increase due
to the sale of
common shares.
YEAR PERIOD
ENDED ENDED
6-30-03 12-31-03 1
INCREASE IN NET ASSETS
From operations
Net investment income $10,728,574 $4,794,962
Net realized gain (loss) (153,364) 709,237
Change in net unrealized
appreciation (depreciation) 856,632 4,895,807
Distributions to AMPS (1,013,193) (363,629)
Increase in net assets
resulting from operations 10,418,649 10,036,377
Distributions to common shareholders
From net investment income (10,716,598) (5,378,608)
From Fund share transactions 594,672 341,806
NET ASSETS APPLICABLE TO COMMON SHARES
Beginning of period 136,286,343 136,583,066
End of period 2 $136,583,066 $141,582,641
1 Semiannual period from 7-1-03 through 12-31-03. Unaudited.
2 Includes accumulated net investment income of $2,400,765 and
$1,453,490, 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 6-30-99 6-30-00 6-30-01 6-30-02 6-30-03 12-31-03 1
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $17.07 $16.00 $13.97 $15.43 $13.77 $13.73
Net investment income 2 1.26 1.27 1.34 1.18 1.08 0.48
Net realized and unrealized
gain (loss) on investments (0.80) (1.91) 1.52 (1.61) 0.06 0.57
Distributions to AMPS (0.29) (0.31) (0.32) (0.15) (0.10) (0.04)
Total from investment operations 0.17 (0.95) 2.54 (0.58) 1.04 1.01
Less distributions to
common shareholders
From net investment income (1.24) (1.08) (1.08) (1.08) (1.08) (0.54)
Net asset value, end of period $16.00 $13.97 $15.43 $13.77 $13.73 $14.20
Per share market value,
end of period $13.81 $12.38 $14.80 $13.69 $14.72 $15.40
Total return at market value 3 (%) (3.56) (2.46) 29.40 (0.45) 16.82 8.86 4
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to common shares,
end of period (in millions) $159 $138 $153 $136 $137 $142
Ratio of expenses to average
net assets 5 (%) 1.72 1.74 1.77 1.77 1.90 1.78 6
Ratio of net investment income
to average net assets 7 (%) 7.51 8.57 8.22 7.99 8.62 7.18 6
Portfolio turnover (%) 30 20 13 15 2 17
SENIOR SECURITIES
Total AMPS outstanding (in millions) $70 $70 $70 $70 $70 $70
Involuntary liquidation preference per unit
(in thousands) $100 $100 $100 $100 $100 $100
Average market value per unit
(in thousands) $100 $100 $100 $100 $100 $100
Asset coverage per unit 8 $329,508 $299,106 $316,086 $290,311 $294,629 $299,078
1 Semiannual period from 7-1-03 through 12-31-03. 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 for common shares. Without the exclusion of preferred
shares, the ratio of expenses would have been 1.21%, 1.18%, 1.21%,
1.20%, 1.22% and 1.16%, respectively.
6 Annualized.
7 Ratios calculated on the basis of net investment income relative to
the average net assets for common shares. Without the exclusion of
preferred shares, the ratio of net investment income would have been
5.28%, 5.79%, 5.61%, 5.40%, 5.52% and 4.70%, respectively.
8 Calculated by subtracting the Fund's total liabilities from the
Fund's total assets and dividing such amount by the number of AMPS
outstanding as of the applicable 1940 Act Evaluation Date, which may
differ from the financial reporting date.
See notes to
financial statements.
12
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Patriot Select Dividend Trust (the "Fund") is a diversified
closed-end management investment company registered under the Investment
Company Act of 1940.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments 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.
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 $386,472 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: June 30, 2010 -- $116,663 and June
30,2011 -- $269,809.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund are
allocated in such a manner as deemed equitable, taking into consideration,
among other things, the nature and type of expense and
the relative sizes of the funds.
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.
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
13
to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to common and preferred shareholders from
net investment income and net realized gains on the ex-dividend date.
Such distributions, on a tax basis, are determined in conformity with
income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Distributions in
excess of tax basis earnings and profits, if any, are reported in the
Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
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 assets, plus 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 shareholders. The Fund pays the Adviser a monthly
administration fee at an annual rate of 0.15% of the Fund's average weekly
net assets, plus the value attributable to the preferred shares. The Fund
also paid the Adviser the amount of $404 for certain publishing services,
included in the printing fees.
Ms. Maureen R. Ford 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.
14
NOTE C
Fund share transactions
Common shares
This listing illustrates the Fund's dividend reinvestments, the
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.
YEAR ENDED 6-30-03 PERIOD ENDED 12-31-03 1
SHARES AMOUNT SHARES AMOUNT
Beginning of period 9,899,636 $141,805,115 9,945,720 $142,306,741
Distributions reinvested 46,084 594,672 25,433 341,806
Reclassification of capital accounts -- (93,046) -- --
End of period 9,945,720 $142,306,741 9,971,153 $142,648,547
1 Semiannual period from 7-1-03 through 12-31-03. Unaudited.
Auction Market Preferred Shares Series A
The Fund issued 700 shares of Dutch Auction Market Preferred Shares
Series A ("AMPS") on August 30, 1990, in a public offering. The
underwriting discount was recorded as a reduction of the capital of
common shares.
Dividends on the AMPS, which accrue daily, are cumulative at a rate that
was established at the offering of the AMPS and has been reset every 49
days thereafter by an auction. Dividend rates on AMPS ranged from 0.99%
to 1.08% during the period ended December 31, 2003. Accrued dividends on
AMPS are included in the value of AMPS on the Fund's Statement of Assets
and Liabilities.
The AMPS are redeemable at the option of the Fund, at a redemption price
equal to $100,000 per share, plus accumulated and unpaid dividends on
any dividend payment date. The AMPS are also subject to mandatory
redemption at a redemption price equal to $100,000 per share, plus
accumulated and unpaid dividends, if the Fund is in default on its asset
coverage requirements with respect to the AMPS, as defined in the Fund's
by-laws. If the dividends on the AMPS shall remain unpaid in an amount
equal to two full years' dividends, the holders of the AMPS, as a class,
have the right to elect a majority of the Board of Trustees. In general,
the holders of the AMPS and the common shareholders have equal voting
rights of one vote per share, except that the holders of the AMPS, as a
class, vote to elect two members of the Board of Trustees, and separate
class votes are required on certain matters that affect the respective
interests of the AMPS and common shareholders.
NOTE D
Investment transactions
Purchases and proceeds from sales and maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the period ended December 31, 2003, aggregated $32,873,830 and
$36,132,886, respectively.
The cost of investments owned on December 31, 2003, including short-term
investments, for federal income tax purposes, was $214,054,822. Gross
unrealized appreciation and depreciation of investments aggregated
$17,288,262 and $20,130,423, respectively, resulting in net unrealized
depreciation of $2,842,161. 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 modest growth of capital. The Fund seeks to achieve its
investment objective by investing in preferred stocks that, in the
opinion of the Adviser, may be undervalued relative to similar
securities in the marketplace.
The Fund's non-fundamental investment policy, which became effective
October 15, 1994, stipulates that preferred stocks and debt obligations
in which the Fund will invest will be rated investment-grade (at least
"BBB" by S&P or "Baa" by Moody's) at the time of investment or will be
preferred stocks of issuers of investment-grade senior debt, some of
which may have speculative characteristics or, if not rated, will be of
comparable quality as determined by the Adviser. The Fund will invest in
common stocks of issuers whose senior debt is rated investment-grade or,
in the case of issuers that have no rated senior debt outstanding, whose
senior debt is considered by the Adviser to be of comparable quality.
On November 20, 2001, the Fund's Trustees approved the following investment
policy investment restriction change, effective December 15, 2001. Under
normal circumstances, the Fund will invest at least 80% of its assets in
dividend-paying securities. The "Assets" are defined as net assets and the
liquidation preference amount of the AMPS plus borrowings for investment
purposes. The Fund will notify shareholders at least 60 days prior to any
change in this 80% investment policy.
DIVIDEND
REINVESTMENT PLAN
The Fund offers its shareholders a Dividend Reinvestment Plan (the "Plan"),
which offers the opportunity to earn compounded yields. Each holder of
common shares will automatically have all distributions of dividends and
capital gains reinvested by Mellon Investor Services, as Plan Agent for the
common shareholders (the "Plan Agent"), unless an election is made to
receive cash. Holders of common shares who elect not to participate in the
Plan will receive all distributions in cash, paid by check mailed directly
to the shareholder of record (or, if the common shares are held in street
or other nominee name, then to the nominee) by the Plan Agent, as dividend
disbursing agent. Shareholders whose shares are held in the name of a
broker or a nominee should contact the broker or nominee to determine
whether and how they may participate in the Plan.
If the Fund declares a dividend payable either in common shares or in cash,
non-participants will receive cash and participants in the Plan will receive
the equivalent in common shares. If the market price of the common shares on
the payment date of the dividend is equal to or exceeds their net asset
value as determined on the payment date, participants will be issued common
shares (out of authorized but unissued shares) at a value equal to the
higher of net asset value or 95% of the market price. If the net asset value
exceeds the market price of the common shares at such time, or if the Board
of Trustees declares a dividend payable only in cash, the Plan Agent will,
as agent for Plan participants, buy shares in the open market, on the New
York Stock Exchange or elsewhere, for the 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
16
common shares, the average per share purchase price paid by the Plan Agent
may exceed the net asset value of the common shares, resulting in the
acquisition of fewer shares than if the dividend had been paid in shares
issued by the Fund.
Each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends and distributions. The cost
per share of the shares purchased for each participant's account will be
the average cost, including brokerage commissions, of any shares purchased
on the open market, plus the cost of any shares issued by the Fund. There
will be no brokerage charges with respect to common shares issued directly
by the Fund. There are no other 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 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
17
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.
SHAREHOLDER
MEETINGS
In November 2002, the Board of Trustees adopted several amendments to the
Fund's by-laws, including provisions relating to the calling of a special
meeting and requiring advance notice of shareholder proposals or nominees
for Trustee. The advance notice provisions in the by-laws require
shareholders to notify the Fund in writing of any proposal which they
intend to present at an annual meeting of shareholders, including any
nominations for Trustee, between 90 and 120 days prior to the first
anniversary of the mailing date of the notice from the prior year's annual
meeting of shareholders. The notification must be in the form prescribed by
the by-laws. The advance notice provisions provide the Fund and its
Trustees with the opportunity to thoughtfully consider and address the
matters proposed before the Fund prepares and mails its proxy statement to
shareholders. Other amendments set forth the procedures, which must be
followed in order for a shareholder to call a special meeting of
shareholders. Please contact the Secretary of the Fund for additional
information about the advance notice requirements or the other amendments
to the by-laws.
18
19
20
FOR YOUR
INFORMATION
TRUSTEES
James F. Carlin
William H. Cunningham
John M. DeCiccio
Ronald R. Dion
Maureen Ford Goldfarb
Charles L. Ladner*
Patti McGill Peterson*
Dr. John A. Moore*
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 AMPS
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: DIV
For shareholder assistance refer to page 17
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."]
1-800-852-0218
1-800-843-0090 EASI-Line
1-800-231-5469 (TDD)
-------------
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
-------------
P30SA 12/03
2/04
ITEM 2. CODE OF ETHICS.
As of the end of the period, December 31, 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: February 11, 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: February 11, 2004
By:
-----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: February 11, 2004