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: January 31, 2005
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Preferred Income Fund
1.31.2005
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, 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 13
For more information
page 29
Dear Fellow Shareholders,
After advancing for a second straight year in 2004, the stock market
pulled back in the first month of 2005. For much of 2004 the market had
been in the doldrums as investors fretted about rising oil prices, higher
interest rates, the war in Iraq and a closely contested presidential race.
But the year ended on a high note with a sharp rally sparked by a
definitive end to the U.S. presidential election and moderating oil
prices. Investors were brought back down to earth in January, however, as
the market declined in three of the four weeks and produced negative
results for the month in a broad-based move downward. Rising oil prices
and interest rates, and concerns about less robust corporate earnings
growth were among the culprits. In the first month of 2005, the Dow Jones
Industrial Average fell by 2.46% and the S&P 500 Index lost 2.44%, while
the Nasdaq fell by 5.18%. Bonds were essentially flat in January.
The way the last 12 months have played out in the financial markets serves
as a good reminder of why keeping a long-term perspective is such a
critical element of successful investing. Getting caught up in the
day-to-day twists and turns of the market -- and trying to act on them --
can wreak havoc with your portfolio and derail progress toward meeting
your overall financial objectives.
Since no one can predict the market's moves, the best way to reach your
goals is to stay invested and stick to your plan. Investing should be a
marathon, not a sprint. Do not try to time the market, and make sure you
work with your investment professional to ensure that your portfolio
remains properly diversified to meet your long-term objectives. For
example, after several years of dominance, small-cap stocks and value
stocks could now represent higher percentages of your portfolio than you
may want. If you are comfortable with your financial plan, it becomes
easier to ride out the market's daily ups and downs. It could also provide
you with a greater chance of success over time.
Sincerely,
/S/ JAMES A. SHEPHERDSON
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of January 31, 2005. 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 capi-
tal, 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 80% of its
assets in preferred
stocks and other
preferred securities.
Over the last six months
* Despite rising interest rates, preferred stocks posted good gains in
response to strong demand, weak supply and hopes that dividend tax cuts
would be made permanent.
* The Fund benefited from good security selection, but lagged the Lipper
peer group average due to its focus on preferred stocks in a period when
utility common stocks outperformed.
* High-quality, tax-advantaged preferred stocks and convertible securities
aided performance.
[Bar chart with heading "John Hancock Preferred Income Fund." Under the
heading is a note that reads "Fund performance for the six months ended
January 31, 2005." The chart is scaled in increments of 5% with 0% at the
bottom and 10% at the top. The first bar represents the Fund's 9.77% net
asset value and the second bar represents the Fund's 9.05% market value. A
note below the chart reads "The total return for the Fund includes all
distributions reinvested. The performance data contained within this
material represents past performance, which does not guarantee future
results."]
Top 10 issuers
2.9% DPL Capital Trust II
2.9% Nexen, Inc.
2.6% Shaw Communications, Inc.
2.5% General Motors Corp.
2.5% Interstate Power & Light Co.
2.3% Public Storage, Inc.
1.9% ING Groep N.V.
1.9% FPC Capital I
1.9% Telephone & Data Systems, Inc.
1.9% KeySpan Corp.
As a percentage of net assets plus the value of preferred shares on
January 31, 2005.
1
BY GREGORY K. PHELPS AND MARK T. MALONEY FOR THE PORTFOLIO
MANAGEMENT TEAM
MANAGERS'
REPORT
JOHN HANCOCK
Preferred Income Fund
Preferred stocks -- which are the primary emphasis of John Hancock
Preferred Income Fund -- posted strong gains during the six-month period
that ended January 31, 2005. The period began with preferreds rebounding
following a spring sell-off that was triggered by robust economic reports
that fanned fears of higher inflation and interest rates. Because
preferreds make fixed-income payments in the form of dividends, their
prices, like bond prices, tend to move in the opposite direction of
interest rates. The Federal Reserve Board did raise rates a quarter of a
percentage point on four separate occasions during the period, but the
bond and preferred markets staged a rebound that lasted until virtually
the end of the period.
"Preferred stocks...posted
strong gains during the
six-month period that ended
January 31, 2005."
That rally in the face of rising interest rates was based on investors'
confidence that even though the Fed might continue to raise rates, those
rate hikes would be small and measured given the potential for record high
oil prices and higher interest rates themselves to dampen economic growth
and inflationary pressures. Investors also viewed the re-election of
President George Bush as a positive for tax advantaged preferred stocks.
The president vowed to make permanent the tax cut provisions he and
Congress enacted in 2003, including the provision that reduced the tax
rate most individuals pay on many stock dividends. Finally, preferreds
benefited from favorable supply and demand conditions. Supply dwindled as
companies redeemed their higher-coupon preferred stock as a way of
reducing their financing costs, and there wasn't much in the way of new
issuance of preferred stocks. Meanwhile, demand for preferred stocks
remained strong as investors continued to seek out the relatively high
dividends and quality of many preferred stocks.
Performance
For the six months ended January 31, 2005, John Hancock Preferred Income
Fund returned 9.77% at net asset value and
2
9.05% at market value. The difference in the Fund's net asset value (NAV)
performance and its market performance stems from the fact that the market
share price is subject to the dynamics of secondary market trading, which
could cause it to trade at a discount or premium to the Fund's NAV share
price at any time. By comparison, the average income and preferred stock
closed-end fund returned 11.37% at net asset value, 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 24.23%, and the broader stock market as measured by the Standard
& Poor's 500 Index returned 8.16%. 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.]
"...a number of our tax-advantaged
preferred holdings were in heavy
demand and turned in good gains
during the period."
Tax-advantaged holdings top performers
Given expectations that the 2003 tax reform bill would be made permanent
because of the re-election of President Bush and the larger Republican
majority in both the House and Senate, a number of our tax-advantaged
preferred holdings were in heavy demand and turned in good gains during
the period. Two examples were our holdings ABN AMRO and Royal Bank of
Scotland. On the flip side, our holdings in the bonds and preferred stock
of Ford Motor Co. and General Motors proved disappointing during the
period. Despite the rebound in the economy, overall U.S. car and
light-truck sales were up less than 1% for the year through the end of
November. At the same time, more brands and models are crowding in,
causing intense competitive pressures and pressure on car prices.
Convertible securities post good gains
We also enjoyed good gains from some of our convertible preferred stock
and bond holdings, which are securities that can be converted into common
stocks or corporate bonds at the option of the holder. One standout was
ONEOK, a diversified energy company involved in oil and gas production,
natural gas processing, gathering, storage and transmission in the
mid-continent areas of the United States. It benefited from a
well-executed business strategy and its ability to
3
pass on price increases in the wake of higher commodities prices. Another
winner was Public Service Enterprise Group, due to its announced
acquisition by Exelon in December. DTE Energy also performed well, partly
because of its attractive dividend and partly due to the favorable
resolution of a major utility rate case in its home state of Michigan.
[Table at top left-hand side of page entitled "Top five industry
groups1." The first listing is Electric utilities 27%, the second is
Multi-utilities & unregulated power 13%, the third is Gas utilities 9%,
the fourth is Diversified banks 9% and the fifth is Other diversified
financial services 7%.]
Oil and gas producers post strong results
Rising energy prices provided the fuel for improved profitability and
higher prices for our holdings in oil and natural gas producers during the
period. Among the best performers were our preferred stock holdings in
Nexen, Inc., an independent global energy and chemicals company primarily
engaged in the exploration, development, production and marketing of crude
oil and gas. Another was Coastal Finance, a wholly owned subsidiary of El
Paso Corp., which benefited from improved financial performance and the
improving balance sheet of its parent company.
[Pie chart at middle of page with heading "Portfolio diversification1." The
chart is divided into five sections (from top to right): Preferred stocks
85%, Capital preferred securities 8%, Common stocks 3%, Short-term
investments 2% and Bonds 2%.]
A word about dividends
Issuers exercising their call provisions to benefit from falling interest
rates last year caused the supply of preferred stocks to shrink, and
virtually every week other issuers continued to announce additional calls
of preferred stocks. From a technical standpoint, calls largely have been
beneficial for the preferred stock market because they have reduced
available supply. By the same token, however, the Fund has been forced to
surrender to calls some of its higher-yielding preferred stock holdings
and either reinvest the proceeds in securities that carried lower dividend
yields or hold on to cash or equivalents. At the same time, rising
short-term interest
4
rates forced the cost of leverage higher. The resulting downward pressure
on the Fund's dividend income, coupled with the rising cost of leverage,
caused us to declare a new monthly dividend on February 10, 2004. The new
dividend amount of $0.155 equates to an annualized yield of 7.24%, based
on the Fund's closing market price as of February 9, 2005.
[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 ONEOK
followed by an up arrow with the phrase "Well-executed business strategy
plus price hikes." The second listing is Public Service Enterprise Group
followed by an up arrow with the phrase "News that it will be acquired by
Exelon boosts price." The third listing is Ford Motor Co. followed by a
down arrow with the phrase "Sluggish sales and intense competition erode
profitability."]
Outlook
In our view, the late 2004 decline in oil prices and reports of better
economic data suggest that the Fed will continue on a measured path to
raise short-term interest rates. Although the rate hikes that were enacted
throughout the period haven't yet hurt the prices of preferred stocks,
it's possible that potentially higher long-term interest rates could
dampen their performance over the near term. Over the longer term,
however, there are a couple of factors we believe will continue to work in
favor of preferred stocks. Making permanent the recently reduced dividend
tax rate and strong demand from an aging American population potentially
more intent on shifting assets to high-quality income-producing securities
should provide some support for the group even if long-term bond yields
rise.
" Over the longer term, however,
there are a couple of factors we
believe will continue to work in favor
of preferred 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 its 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 January 31, 2005.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
January 31, 2005
(unaudited)
This schedule is divided into five main categories: bonds, capital
preferred securities, common stocks, preferred securities and short-term
investments. The bonds, capital preferred securities, common stocks and
preferred securities 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 2.41% $16,026,614
(Cost $15,523,669)
Consumer Finance 0.31% 2,036,140
Capital One Bank,
Sr Note 8.250% 06-15-05 BBB $2,000 2,036,140
Electric Utilities 2.10% 13,990,474
Black Hills Corp.,
Note 6.500 05-15-13 BBB- 5,000 5,182,895
Entergy Gulf States, Inc.,
1st Mtg Bond 6.200 07-01-33 BBB 5,000 5,077,015
Midland Funding Corp. II,
Lease Oblig Bond, Ser A 11.750 07-23-05 BB- 3,613 3,730,564
Credit Par value
Issuer, description, maturity date rating (A) (000) Value
Capital preferred securities 10.73% $71,422,674
(Cost $62,695,710)
Diversified Banks 1.18% 7,872,000
Lloyds TSB Bank Plc, 6.90%, 11-29-49 (United Kingdom) A+ $7,500 7,872,000
Electric Utilities 4.10% 27,270,383
DPL Capital Trust II, 8.125%, 09-01-31 B 24,000 27,270,383
Gas Utilities 3.37% 22,408,745
KN Capital Trust I, 8.56%, Ser B, 04-15-27 BB+ 11,500 13,163,625
KN Capital Trust III, 7.63%, 04-15-28 BB+ 8,000 9,245,120
Integrated Telecommunication Services 0.98% 6,546,228
TCI Communications Financing Trust III, 9.65%, 03-31-27 BB+ 5,700 6,546,228
Regional Banks 1.10% 7,325,318
Summit Capital Trust I, 8.40%, Ser B, 03-15-27 A- 6,500 7,325,318
See notes to
financial statements.
6
FINANCIAL STATEMENTS
Issuer Shares Value
Common stocks 4.64% $30,856,498
(Cost $28,486,815)
Electric Utilities 1.95% 12,953,657
Alliant Energy Corp. 236,100 6,492,750
Progress Energy, Inc. 20,000 885,000
Scottish Power Plc, American Depositary Receipt (United Kingdom) 175,343 5,575,907
Gas Utilities 1.54% 10,279,200
Peoples Energy Corp. 240,000 10,279,200
Multi-Utilities & Unregulated Power 1.15% 7,623,641
Duke Energy Corp. 40,215 1,077,360
TECO Energy, Inc. 408,887 6,546,281
Credit
Issuer, description rating (A) Shares Value
Preferred securities 120.71% $803,252,612
(Cost $757,384,336)
Agricultural Products 1.79% 11,904,750
Ocean Spray Cranberries, Inc., 6.25%, Ser A (S) BB+ 143,000 11,904,750
Asset Management & Custody Banks 0.15% 1,013,600
BNY Capital V, 5.95%, Ser F A- 40,000 1,013,600
Automobile Manufacturers 3.70% 24,624,030
Ford Motor Co., 7.50% BBB- 50,000 1,294,500
General Motors Corp., 7.25%, Ser 04-15-41 BBB- 378,700 9,213,771
General Motors Corp., 7.25%, Ser 07-15-41 BBB- 89,000 2,164,480
General Motors Corp., 7.25%, Ser 02-15-52 BBB- 254,300 6,110,829
General Motors Corp., 7.375%, Ser 05-15-48 Baa2 90,000 2,182,500
General Motors Corp., 7.375%, Ser 10-01-51 BBB- 149,000 3,657,950
Broadcasting & Cable TV 3.75% 24,948,342
Shaw Communications, Inc., 8.45%, Ser A (Canada) Ba3 328,418 8,243,292
Shaw Communications, Inc., 8.50% (Canada) B+ 655,100 16,705,050
Consumer Finance 4.43% 29,481,683
Ford Motor Credit Co., 7.60% A3 315,600 8,177,196
Household Finance Corp., 6.00% A 214,200 5,412,834
Household Finance Corp., 6.875% A 399,800 10,670,662
SLM Corp., 6.00% A 207,100 5,220,991
See notes to
financial statements.
7
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Diversified Banks 11.35% $75,498,567
BAC Capital Trust IV, 5.875% A 181,150 4,521,504
Bank One Capital Trust V, 8.00% A- 20,500 534,230
Bank One Capital Trust VI, 7.20% A- 55,500 1,461,870
Comerica Capital Trust I, 7.60% BBB+ 171,400 4,547,242
Fleet Capital Trust VII, 7.20% A 322,500 8,510,775
Fleet Capital Trust VIII, 7.20% A 464,750 12,343,760
Royal Bank of Scotland Group Plc,
5.75%, Ser L (United Kingdom) A 550,900 13,574,176
Santander Finance Preferred S.A.
Unipersonal, 6.41%, Ser 1 (Spain) BBB+ 225,000 5,816,250
USB Capital III, 7.75% A- 327,100 8,563,478
USB Capital IV, 7.35% A- 165,700 4,369,509
USB Capital V, 7.25% A- 103,599 2,754,697
Wachovia Preferred Funding Corp., 7.25%, Ser A BBB+ 69,000 1,964,430
Wells Fargo Capital Trust IV, 7.00% A 91,100 2,415,972
Wells Fargo Capital Trust VI, 6.95% A- 53,400 1,418,304
Wells Fargo Capital Trust VII, 5.85% A 107,750 2,702,370
Electric Utilities 30.06% 200,057,467
Ameren Corp., 9.75%, Conv BBB+ 480,000 13,948,800
American Electric Power Co., Inc., 9.25%, Conv BBB 200,000 9,690,000
Boston Edison Co., 4.78% BBB+ 15,143 1,395,882
Cinergy Corp., 9.50%, Conv Baa2 230,000 14,329,000
Detroit Edison Co., 7.375% BB+ 210,435 5,349,258
Detroit Edison Co., 7.54% BB+ 74,600 1,902,300
Entergy Gulf States Capital I, 8.75%, Ser A BB 70,400 1,843,072
Entergy Mississippi, Inc., 7.25% A- 346,000 9,307,400
FPC Capital I, 7.10%, Ser A BB+ 708,391 17,978,964
FPL Group Capital Trust I, 5.875% BBB+ 468,300 11,749,647
FPL Group, Inc., 8.00%, Conv A- 120,000 7,356,000
Georgia Power Capital Trust VII, 5.875% BBB+ 233,400 5,774,316
Georgia Power Co., 6.00%, Ser R A 393,197 9,987,204
Great Plains Energy, Inc., 8.00%, Conv BBB- 637,600 16,896,400
HECO Capital Trust III, 6.50% BBB- 375,400 10,135,800
Interstate Power & Light Co., 8.375%, Ser B BBB- 700,000 23,275,000
Monongahela Power Co., $7.73, Ser L B- 45,000 4,455,000
Northern States Power Co., 8.00% BBB- 235,000 6,486,000
Pennsylvania Power Co., 7.75% BB 91,700 9,281,764
Southern Co. Capital Trust VI, 7.125% BBB+ 49,800 1,337,130
TXU Corp., 8.125%, Conv Ba1 79,800 4,795,980
Virginia Power Capital Trust, 7.375% BBB- 476,250 12,782,550
See notes to
financial statements.
8
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Gas Utilities 7.72% $51,339,834
El Paso Tennessee Pipeline Co., 8.25%, Ser A CCC- 231,500 11,647,344
KeySpan Corp., 8.75%, Conv A 335,000 17,520,500
SEMCO Capital Trust I, 10.25% B- 404,600 10,499,370
Southern Union Co., 5.75%, Conv Baa3 12,000 842,640
Southwest Gas Capital II, 7.70% BB 362,100 9,979,476
TransCanada Pipelines Ltd., 8.25% (Canada) BBB 32,800 850,504
Hotels, Resorts & Cruise Lines 0.33% 2,186,361
Hilton Hotels Corp., 8.00% BBB- 83,100 2,186,361
Integrated Oil & Gas 0.44% 2,912,328
Coastal Finance I, 8.375% CCC- 116,400 2,912,328
Integrated Telecommunication Services 3.34% 22,212,715
Telephone & Data Systems, Inc., 7.60%, Ser A A- 669,687 17,773,493
Verizon New England, Inc., 7.00%, Ser B A2 166,450 4,439,222
Investment Banking & Brokerage 7.52% 50,056,799
Bear Stearns Capital Trust III, 7.80% BBB 40,600 1,069,404
Bear Stearns Cos., Inc. (The), 5.72%,
Depositary Shares, Ser F BBB 20,000 1,050,000
Lehman Brothers Holdings, Inc., 5.94%,
Depositary Shares, Ser C BBB+ 175,600 8,999,500
Merrill Lynch Preferred Capital Trust III, 7.00% A- 257,300 6,944,527
Merrill Lynch Preferred Capital Trust IV, 7.12% A- 203,552 5,512,188
Merrill Lynch Preferred Capital Trust V, 7.28% A- 328,000 8,987,200
Morgan Stanley Capital Trust II, 7.25% A- 240,200 6,298,044
Morgan Stanley Capital Trust III, 6.25% A- 60,400 1,545,636
Morgan Stanley Capital Trust IV, 6.25% A- 47,000 1,200,850
Morgan Stanley Capital Trust V, 5.75% A1 347,000 8,449,450
Life & Health Insurance 1.63% 10,837,490
PLC Capital Trust IV, 7.25% BBB+ 186,600 4,972,890
PLC Capital Trust V, 6.125% BBB+ 236,000 5,864,600
Multi-Line Insurance 2.71% 18,049,849
ING Groep N.V., 6.20% (Netherlands) A- 64,193 1,640,131
ING Groep N.V., 7.05% (Netherlands) A- 609,800 16,409,718
Multi-Utilities & Unregulated Power 17.64% 117,402,719
Aquila, Inc., 7.875% B2 511,700 12,792,500
Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 40,000 4,203,752
BGE Capital Trust II, 6.20% BBB- 623,825 15,976,158
Consumers Energy Co. Financing I, 8.36% B 42,800 1,079,844
See notes to
financial statements.
9
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Multi-Utilities & Unregulated Power (continued)
Consumers Energy Co. Financing II, 8.20% B 136,200 $3,436,326
Consumers Energy Co. Financing IV, 9.00% Ba2 117,600 3,123,456
Dominion CNG Capital Trust I, 7.80% BBB- 253,476 6,701,905
DTE Energy Co., 8.75%, Conv BBB- 220,000 5,794,800
DTE Energy Trust I, 7.80% BB+ 131,300 3,520,153
Energy East Capital Trust I, 8.25% BBB- 447,200 11,806,080
Enterprise Capital Trust I, 7.44%, Ser A BB+ 392,200 9,930,504
Enterprise Capital Trust III, 7.25%, Ser C BB+ 210,600 5,328,180
ONEOK, Inc., 8.50%, Conv BBB+ 31,000 1,062,990
PSEG Funding Trust II, 8.75% BB+ 233,000 6,519,340
Public Service Electric & Gas Co., 4.18%, Ser B BB+ 7,900 633,975
Public Service Enterprise Group, Inc., Conv BBB- 155,450 10,573,709
Puget Sound Energy Capital Trust II, 8.40% BB 103,900 2,760,623
TECO Capital Trust I, 8.50% B 469,800 12,158,424
Oil & Gas Exploration & Production 4.06% 27,047,323
Nexen, Inc., 7.35% (Canada) BB+ 1,008,100 27,047,323
Other Diversified Financial Services 10.57% 70,335,334
ABN AMRO Capital Funding Trust V, 5.90% A 626,100 15,477,192
ABN AMRO Capital Funding Trust VII, 6.08% A 328,000 8,265,600
Citigroup Capital VII, 7.125% A 98,700 2,614,563
Citigroup Capital VIII, 6.95% A 214,600 5,650,418
Citigroup Capital IX, 6.00% A 217,000 5,498,780
Citigroup Capital X, 6.10% A 100,000 2,577,000
General Electric Capital Corp., 5.875% AAA 151,500 3,878,400
General Electric Capital Corp., 6.10% AAA 51,210 1,343,750
J.P. Morgan Chase Capital IX, 7.50%, Ser I A- 61,000 1,603,080
J.P. Morgan Chase Capital X, 7.00%, Ser J A1 607,100 16,221,712
J.P. Morgan Chase Capital XI, 5.875%, Ser K A- 289,700 7,204,839
Real Estate Investment Trusts 5.86% 39,009,841
Duke Realty Corp., 6.50%, Depositary Shares, Ser K BBB 110,000 2,768,700
Duke Realty Corp., 6.625%,
Depositary Shares, Ser J BBB 59,925 1,552,435
Duke Realty Corp., 7.99%, Depositary Shares, Ser B BBB 251,830 13,150,260
Public Storage, Inc., 6.45%,
Depositary Shares, Ser X BBB+ 25,000 629,250
Public Storage, Inc., 6.50%,
Depositary Shares, Ser W BBB+ 100,000 2,537,000
Public Storage, Inc., 7.50%,
Depositary Shares, Ser V BBB+ 497,643 13,292,045
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Real Estate Investment Trusts (continued)
Public Storage, Inc., 8.00%,
Depositary Shares, Ser R BBB+ 157,965 $4,175,015
Public Storage, Inc., 8.60%,
Depositary Shares, Ser Q BBB+ 34,600 905,136
Regional Banks 0.51% 3,375,518
National Commerce Capital Trust II, 7.70% A- 80,300 2,148,828
Regions Financing Trust I, 8.00% BBB+ 46,856 1,226,690
Reinsurance 0.57% 3,792,287
RenaissanceRe Holdings Ltd., 6.08%, Ser C (Bermuda) BBB+ 153,100 3,792,287
Thrifts & Mortgage Finance 1.73% 11,538,239
Abbey National Plc, 7.25% (United Kingdom) A- 73,580 1,930,739
Abbey National Plc, 7.375% (United Kingdom) A- 350,000 9,607,500
Wireless Telecommunication Services 0.85% 5,627,536
United States Cellular, 7.50% A- 205,760 5,627,536
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Short-term investments 2.82% $18,800,000
(Cost $18,800,000)
Government U.S. Agency 2.82% 18,800,000
Federal National Mortgage Assn.,
Disc Note 2.41% 02-01-05 AAA $18,800 18,800,000
Total investments 141.31% $940,358,398
Other assets and liabilities, net 0.77% $5,112,306
Fund preferred shares, at value (42.08%) ($280,035,665)
Total net assets 100.00% $665,435,039
(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 $11,904,750 or 1.79% of the Fund's net
assets as of January 31, 2005.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
11
FINANCIAL STATEMENTS
PORTFOLIO
CONCENTRATION
January 31, 2005
(unaudited)
This table shows the
percentages of the
Fund's investments
as aggregated by
various industries.
Industry distribution Value as a percentage of Fund's total investments
-------------------------------------------------------------------------------
Agricultural products 1.27%
Asset management & custody banks 0.11
Automobile manufacturers 2.62
Broadcasting & cable TV 2.65
Consumer finance 3.35
Diversified banks 8.87
Electric utilities 27.04
Gas utilities 8.94
Hotels, resorts & cruise lines 0.23
Integrated oil & gas 0.31
Integrated telecommunication services 3.06
Investment banking & brokerage 5.32
Life & health insurance 1.15
Multi-line insurance 1.92
Multi-utilities & unregulated power 13.29
Oil & gas exploration & production 2.87
Other diversified financial services 7.48
Real estate investment trusts 4.15
Regional banks 1.14
Reinsurance 0.40
Thrifts & mortgage finance 1.23
Wireless telecommunication services 0.60
Short-term investments 2.00
Total investments 100.00%
See notes to
financial statements.
12
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
January 31, 2005
(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 $882,890,530) $940,358,398
Cash 44,291
Cash segregated for futures contracts 595,000
Dividends and interest receivable 3,486,671
Unrealized appreciation of swap contracts 2,857,826
Other assets 70,520
Total assets 947,412,706
Liabilities
Payable for investments purchased 1,740,050
Payable for futures variation margin 10,941
Payable for swap contracts 3,408
Payable to affiliates
Management fees 42,675
Other 20,019
Other payables and accrued expenses 124,909
Total liabilities 1,942,002
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 280,035,665
Net assets
Common shares capital paid-in 610,315,444
Accumulated net realized loss on investments, financial
futures contracts and swap contracts (3,917,249)
Net unrealized appreciation of investments, financial
futures contracts and swap contracts 60,126,650
Distributions in excess of net investment income (1,089,806)
Net assets applicable to common shares $665,435,039
Net asset value per common share
Based on 25,732,207 shares of beneficial interest
outstanding -- unlimited number of shares authorized
with no par value $25.86
See notes to
financial statements.
13
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
January 31, 2005
(unaudited) 1
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 $28,556,440
Interest 4,226,911
Total investment income 32,783,351
Expenses
Investment management fees 3,527,535
APS auction fees 370,285
Accounting and legal services fees 117,585
Custodian fees 75,016
Miscellaneous 68,180
Printing 48,467
Professional fees 25,107
Trustees' fees 22,929
Transfer agent fees 15,585
Registration and filing fees 12,008
Total expenses 4,282,697
Less expense reductions (940,676)
Net expenses 3,342,021
Net investment income 29,441,330
Realized and unrealized gain (loss)
Net realized loss on
Investments (392,269)
Financial futures contracts (4,516,706)
Swap contracts (208,800)
Change in net unrealized appreciation (depreciation) of
Investments 37,210,638
Financial futures contracts 1,977,690
Swap contracts (356,310)
Net realized and unrealized gain 33,714,243
Distributions to APS (2,682,575)
Increase in net assets from operations $60,472,998
1 Semiannual period from 8-1-04 through 1-31-05.
See notes to
financial statements.
14
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show how
the value of the
Fund's net assets
has changed
during the last
two periods. The
difference reflects
earnings less
expenses, any
investment
gains and losses,
distributions, if
any, paid to
shareholders and
the net of Fund
share transactions.
Year Period
ended ended
7-31-04 1-31-05 1
Increase (decrease) in net assets
From operations
Net investment income $59,424,887 $29,441,330
Net realized gain (loss) 4,048,361 (5,117,775)
Change in net unrealized
appreciation (depreciation) (10,678,971) 38,832,018
Distributions to APS (3,385,544) (2,682,575)
Increase in net assets
resulting from operations 49,408,733 60,472,998
Distributions to common shareholders
From net investment income (55,502,223) (27,786,212)
From net realized gain (8,472,279) --
(63,974,502) (27,786,212)
From Fund share transactions 1,606,114 215,062
Net assets
Beginning of period 645,492,846 632,533,191
End of period 2 $632,533,191 $665,435,039
1 Semiannual period from 8-1-04 through 1-31-05. Unaudited.
2 Includes distributions in excess of net investment income of
$62,349 and $1,089,806, respectively.
See notes to
financial statements.
15
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 1-31-05 2
Per share operating performance
Net asset value, beginning of period $23.88 3 $25.15 $24.59
Net investment income 4 2.02 2.31 1.15
Net realized and unrealized
gain (loss) on investments 1.32 (0.25) 1.30
Distributions to APS (0.12) (0.13) (0.10)
Total from investment operations 3.22 1.93 2.35
Less distributions to common shareholders
From net investment income (1.80) (2.16) (1.08)
From net realized gain -- (0.33) --
(1.80) (2.49) (1.08)
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 $25.86
Per share market value, end of period $24.32 $24.14 $25.22
Total return at market value 5,6 (%) 4.78 7,8 9.65 9.05 7
Ratios and supplemental data
Net assets applicable to common shares,
end of period (in millions) $645 $633 $665
Ratio of expenses
to average net assets 9 (%) 1.00 10 1.02 1.02 10
Ratio of adjusted expenses
to average net assets 11 (%) 1.28 10 1.31 1.30 10
Ratio of net investment income
to average net assets 12 (%) 9.11 10 9.21 8.94 10
Portfolio turnover (%) 20 21 8
Senior securities
Total value of APS outstanding (in millions) $280 $280 $280
Involuntary liquidation preference
per unit (in thousands) $25 $25 $25
Average market value per unit (in thousands) $25 $25 $25
Asset coverage per unit 13 $83,686 $79,892 $83,305
See notes to
financial statements.
16
FINANCIAL HIGHLIGHTS
Notes to Financial Highlights
1 Inception period from 8-27-02 through 7-31-03.
2 Semiannual period from 8-1-04 through 1-31-05. Unaudited.
3 Reflects the deduction of a $1.125 per share sales load.
4 Based on the average of the shares outstanding.
5 Assumes dividend reinvestment.
6 Total returns would have been lower had certain expenses not been
reduced during the periods shown.
7 Not annualized.
8 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.
9 Ratios calculated on the basis of expenses relative to the average net
assets of common shares. Without the exclusion of preferred shares, the
annualized ratios of expenses would have been 0.72%, 0.71% and 0.71%.
10 Annualized.
11 Ratios calculated on the basis of expenses relative to the average net
assets of common shares that do not take into consideration expense
reductions during the periods shown. Without the exclusion of preferred
shares, the annualized adjusted ratios of expenses would have been 0.92%,
0.91% and 0.91%.
12 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 ratios of net investment income would
have been 6.59%, 6.43% and 6.26%.
13 Calculated by subtracting the Fund's total liabilities from the Fund's
total assets and dividing that amount by the number of APS outstanding as
of the applicable 1940 Act Evaluation Date, which may differ from the
financial reporting date.
See notes to
financial statements.
17
NOTES TO
STATEMENTS
Unaudited
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 which have a remaining
maturity of 60 days or less may be valued at amortized cost, which
approximates market value. The Fund determines the net asset value of the
common shares each business day.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
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
18
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 January 31, 2005, the Fund had deposited $595,000 in
a segregated account to cover margin requirements on open financial
futures contracts.
The Fund had the following financial futures contracts open on January 31,
2005:
NUMBER OF APPRECIATION
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION (DEPRECIATION)
---------------------------------------------------------------------------
U.S. 10-year Treasury Note 350 Short March 05 $5,751
U.S. 10-year Treasury Note 350 Short March 05 (204,795)
---------------------------------------------------------------------------
($199,044)
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. 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. Accrued interest receivable or payable on the
swap contracts is recorded as realized gain (loss).
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 January
31, 2005:
RATE TYPE
-------------------------
PAYMENTS
NOTIONAL PAYMENTS MADE RECEIVED TERMINATION
AMOUNT BY FUND BY FUND DATE APPRECIATION
---------------------------------------------------------------------------
$70,000,000 2.56%(a) 3-month LIBOR June 08 $2,857,826
---------------------------------------------------------------------------
(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.
Dividends, interest
and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some
19
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, 2004, the
tax character of distributions paid was as follows: ordinary income
$66,135,011 and long-term capital gains $1,225,035. 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 John Hancock Financial
Services, Inc. Under the investment management contract, the Fund pays a
daily management fee to the Adviser at an annual rate of 0.75% of the
Fund's average daily net asset value and the value attributable to the
Auction Preferred Shares (collectively, "managed assets").
The Adviser has contractually agreed to limit the Fund's management fee to
the following: 0.55% of the Fund's average daily managed assets until the
fifth anniversary of the commencement of the Fund's operations, 0.60% of
such assets in the sixth year, 0.65% of such assets in the seventh year,
and 0.70% of average daily managed assets in the eighth year. Accordingly,
the expense reductions related to the reduction in management fee amounted
to $940,676 for the period ended January 31, 2005. After the eighth year
the Adviser will no longer waive a portion of the management fee.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
period amounted to $117,585. The Fund also paid the Adviser the amount of
$6 for certain publishing services, included in the printing fees.
Mr. James A. Shepherdson is a director and officer of the Adviser, as well
as affiliated Trustee of the Fund, and is compensated by the Adviser. The
compensation of unaffiliated Trustees is borne by the Fund. The
unaffiliated Trustees may elect to defer, for tax purposes, their receipt
of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock
funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The deferred
compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by
the investments, as well as any unrealized gains or losses. The Deferred
Compensation Plan investments had no impact on the operations of the Fund.
20
Note C Fund share transactions
Common shares
This listing illustrates the Fund's 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.
Year ended 7-31-04 Period ended 1-31-05 1
Shares Amount Shares Amount
Beginning of period 25,661,053 $608,692,402 25,723,740 $610,100,382
Distributions reinvested 62,687 1,606,114 8,467 215,062
Reclassification of
capital accounts -- (198,134) -- --
Net increase 25,723,740 $610,100,382 25,732,207 $610,315,444
1 Semiannual period from 8-1-04 through 1-31-05. Unaudited.
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 seven
days thereafter by an auction (except for Series W, which reset its rate
on October 22, 2004, at which time the Fund elected a Special Dividend
Payment of 182 days for the subsequent distributions). Dividend rates on
APS ranged from 1.30% to 2.67% during the period ended January 31, 2005.
Accrued dividends on APS are included in the value of APS on the Fund's
Statement of Assets and Liabilities.
The APS are redeemable at the option of the Fund, at a redemption price
equal to $25,000 per share, plus accumulated and unpaid dividends on any
dividend payment date. The APS are also subject to mandatory redemption at
a redemption price equal to $25,000 per share, plus accumulated and unpaid
dividends, if the Fund is in default on its asset coverage requirements
with respect to the APS, as defined in the Fund's by-laws. If the
dividends on the APS shall remain unpaid in an amount equal to two full
years' dividends, the holders of the APS, as a class, have the right to
elect a majority of the Board of Trustees. In general, the holders of the
APS and the common shareholders have equal voting rights of one vote per
share, except that the holders of the APS, as a class, vote to elect two
members of the Board of Trustees, and separate class votes are required on
certain matters that affect the respective interests of the APS and common
shareholders.
Note D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other than
short-term securities and obligations of the U.S. government, during the
period ended January 31, 2005, aggregated $95,656,214 and $68,494,759,
respectively.
The cost of investments owned on January 31, 2005, including short-term
investments, for federal income tax purposes was $882,959,068.
21
Gross unrealized appreciation and depreciation of investments aggregated
$61,894,677 and $4,495,347, respectively, resulting in net unrealized
appreciation of $57,399,330. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable primarily
to the amortization of premiums and accretion of discounts on debt
securities.
22
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.
On September 14, 2004, the Trustees approved an amendment to the Fund's
by-laws increasing the maximum applicable dividend rate ceiling on the
preferred shares to conform with the modern calculation methodology used
by the industry and other John Hancock funds.
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
participants' accounts. Such purchases will be made promptly after the
payable date for such dividend and, in any event,
23
prior to the next ex-dividend date after such date, except where necessary
to comply with federal securities laws. If, before the Plan Agent has
completed its purchases, the market price exceeds the net asset value of
the common shares, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the common shares, resulting in
the acquisition of fewer shares than if the dividend had been paid in
shares issued by the Fund.
Each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends and distributions. The cost
per share of the shares purchased for each participant's account will be
the average cost, including brokerage commissions, of any shares purchased
on the open market, plus the cost of any shares issued by the Fund. There
will be no brokerage charges with respect to common shares issued directly
by the Fund. There are no other 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:
24
Mellon Investor Services If your shares are held with a
85 Challenger Road brokerage firm, you should
Overpeck Centre contact that firm, bank or
Ridgefield Park, NJ 07660 other nominee for assistance.
Telephone 1-800-852-0218
Shareholder meeting
On March 7, 2005, the Annual Meeting of the Fund was held to elect four
Trustees and to ratify the actions of the Trustees in selecting
independent auditors for the Fund.
Proxies covering 25,253,004 shares of beneficial interest were voted at
the meeting. The common shareholders elected the following Trustees to
serve until their respective successors are duly elected and qualified,
with the votes tabulated as follows:
WITHHELD
FOR AUTHORITY
---------------------------------------------------------
James F. Carlin 25,032,509 209,465
Richard P. Chapman Jr. 25,022,738 219,236
William H. Cunningham 25,008,464 233,510
James A. Shepherdson 25,032,772 209,202
The preferred shareholders elected Patti McGill Peterson as a Trustee of
the Fund until her successor is duly elected and qualified, with the votes
tabulated as follows: 11,025 FOR, 0 AGAINST and 5 ABSTAINING.
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, 2005, with the votes tabulated as follows:
25,040,976 FOR, 88,122 AGAINST and 123,906 ABSTAINING.
25
26
27
28
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
Trustees
Charles L. Ladner, Chairman*
James F. Carlin
William H. Cunningham
Ronald R. Dion
Dr. John A. Moore*
Patti McGill Peterson*
Steven R. Pruchansky
James A. Shepherdson
Lt. Gen. Norman H. Smith,
USMC (Ret.)
* Members of the Audit Committee
Officers
James A. Shepherdson
President and
Chief Executive Officer
Susan S. Newton
Senior Vice President and
Secretary
William H. King
Vice President and Treasurer
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, 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
Stock symbol
Listed New York
Stock Exchange:
HPI
For shareholder assistance
refer to page 24
How to contact us
Internet www.jhfunds.com
Mail Regular mail:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Phone Customer service representatives 1-800-852-0218
Portfolio commentary 1-800-344-7054
24-hour automated information 1-800-843-0090
TDD line 1-800-231-5469
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available
on a quarterly basis 60 days after the fiscal quarte r on our Web site or
upon request by calling 1-800-225-5291, or on the Securities and Exchange
Commission's Web site, www.sec.gov.
29
[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
P80SA 1/05
3/05
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to previously disclosed John Hancock Funds -
Administration Committee Charter.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's principal executive officer and principal
accounting officer have concluded that those disclosure controls and
procedures provide reasonable assurance that the material information
required to be disclosed by the registrant on this report is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal half-year (the registrant's second fiscal half-year in the case of
an annual report) that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Separate certifications for the registrant's principal executive
officer and principal accounting 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 accounting 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) 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: March 29, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: March 29, 2005
By:
------------------------------
William H. King
Vice President and Treasurer
Date: March 29, 2005