ANNUAL REPORT
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[PHOTO OMITTED]
Patriot Premium
Dividend Fund II
OCTOBER 31, 1998
[LOGO] John Hancock Funds
A Global Investment Management Firm
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TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin
William H. Cunningham*
Ronald R. Dion*
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Leo E. Linbeck, Jr.
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President and Chief Operating Officer
James B. Little
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN AND TRANSFER AGENT FOR
COMMON SHAREHOLDERS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT FOR DARTS
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110-1617
Listed New York Stock Exchange Symbol: PDT
For shareholder assistance
refer to page 17
============================CHAIRMAN'S MESSAGE==================================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dra- matic and,
at times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
Investors have been understandably shaken by these dramatic twists and
turns, but we are pleased to report that most individual investors did not
panic, and we hope that means they've taken our words to heart. Over the long
term, markets do not move up or down in a straight line. That's why after
watching the market charge ahead almost uninterrupted for so many years, we have
been striking a more cautionary stance in this space over the last several
months
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[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/S/ Edward J. Boudreau, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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By Gregory K. Phelps for the Portfolio Management Team
John Hancock Patriot
Premium Dividend Fund II
Utility common stocks shine amid increased
market volatility and global economic woes
Amid a weakening global economy and concerns about corporate earnings
shortfalls, utility common stocks - a growing emphasis for the Fund - turned in
a megawatt performance during the past year. Although they began the period on a
rather weak note, utility common stocks quickly gathered steam in late 1997,
when economic problems in Southeast Asia, Latin America, Russia and other
emerging markets prompted an increasing number of investors to seek out the
historical earnings reliability of U.S. electric and gas providers. By the end
of March, the Dow Jones Utility Average had set an all-time high. Utility stocks
lost ground in April and May, however, mainly because of fears that the Federal
Reserve Board would raise interest rates to stave off potential inflation.
Because they carry relatively high yields, utility stocks tend to mimic the
performance of the bond market, rising when interest rates fall, and vice versa.
When inflationary fears subsided in the summer, however, the Dow Jones Utility
Average resumed its climb and closed at another record high at the end of
June. When some high-profile non-utility companies later started warning
investors that their earnings would not meet expectations, and global financial
turmoil increased in August, the stock market began a significant sell-off that
lasted through September. Although utility stocks weren't able to completely
sidestep the market's decline, they held in better than most. The market
reversed course yet again in October, after the Federal Reserve Board put
inflation concerns aside and lowered interest rates two times over a three-week
period to prevent the global slowdown from serving as a drag on the U.S.
economy.
"...utility common stocks... turned in a megawatt performance during the past
year."
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[A 3" x 2" photo at bottom right side of page of John Hancock Patriot Premium
Dividend Fund II. Caption below reads "Fund management team members (l-r): Susan
Kelly, Gregory Phelps and Mark Maloney."]
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3
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John Hancock Funds - Patriot Premium Dividend Fund II
"Our preferred-stock holdings in the financial sector, however, were dis-
appointments."
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[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into five sections (from top to left): Other 1%, Industrials
6%, Financials 24%, Common Stock Utilities 32% and Preferred Stock Utilities
37%. A note below the chart reads "As a percentage of net assets on October 31,
1998."]
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Preferred stocks, which made up 68% of the Fund's investments at the
end of the period, performed in concert with the bond market throughout most of
the period. When Treasury prices were strong, so were preferred stocks; when
Treasuries turned down, preferreds typically followed suit. That was the case
until late August when the U.S. Treasury market staged an impressive rally,
while preferred stocks - along with corporate bonds - languished over concerns
about corporate profitability.
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[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Houston
Industries followed by an up arrow with the phrase "Blazing Houston summer
boosts profits." The second listing is Dominion Resources followed by an up
arrow with the phrase "Stock buyback, sale of U.K. subsidiary well received."
The third listing is Lehman Brothers Holdings followed by a down arrow with the
phrase "Pressured by losses from emerging markets, hedge funds." A note below
the table reads "See `Schedule of Investments.' Investment holdings are subject
to change."]
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Performance and strategy recap
For the 12 months ended October 31, 1998, the Fund posted a total return of
15.53% at net asset value. By comparison, the Dow Jones Utility Average had a
total return of 29.30% in the same period and the average preferred stock
closed-end fund returned 9.43%, according to Lipper Analytical Services, Inc.
Throughout the year, we continued to add to our utility common stock
holdings, focusing most of our purchases in periods of weakness. Utility common
stocks, which outpaced their preferred stock counterparts, made up 32% of the
Fund's investments at the end of the period compared to 25% a year earlier.
Thanks to the strong performance of these utility stocks, our increased holdings
in them were a "Global uncertainty shows no signs of abating over the near
term..."plus for the Fund's performance. Of our preferred holdings, roughly
three-quarters were securities eligible for the dividends-received deduction
(DRD), which offer distinct tax advantages to corporate investors. Although they
lagged utility common stocks throughout much of the past year, many of our
DRD-eligible preferreds posted solid performance over the past year and outpaced
their fully taxable preferred counterparts.
Leaders and laggards
Among our best-performing electric utility common stock holdings was Dominion
Resources, the parent company of Virginia Electric. The company benefited from a
combination of a favorable regulatory environment and the sale of its U.K.
electric company at a nice profit. Dominion's stock price was further boosted by
its higher-than-average dividend yield and the company's stock buyback program.
Houston Industries, another of the Fund's best common stock performers, advanced
thanks primarily to Houston's extremely hot summer. We also had some winners
among our preferred electric stock holdings, including Alabama Power. This stock
offers an attractive yield, is DRD-eligible and carries ten years of call
protection, which means it can't be redeemed by the company before a specified
date. Call protection is important because it allows us to hang on to stocks
with higher-than-average yields when interest rates are falling. Ocean Spray
Cranberries also performed well because of its combination of high DRD-eligible
yield, good credit quality, call protection and the company's near exclusive
focus on U.S. markets. Finally, our holdings in Capita were tendered - or sold
back to the company - at a significant profit to the Fund.
4
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John Hancock Funds - Patriot Premium Dividend Fund II
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 5% with 0% at the bottom and 30% at the top. The first
bar represents the 15.53% total return for John Hancock Patriot Premium Dividend
Fund II. The second bar represents the 9.43% total return for John Hancock
Average preferred stock closed-end fund. The third bar represents the 29.30%
total return for Dow Jones Utility Average. A note below the chart reads "Total
returns for John Hancock Patriot Premium Dividend Fund II are at net asset value
with all distributions reinvested. The average preferred stock closed-end fund
is tracked by Lipper Analytical Services, Inc. The Dow Jones Utility Average is
an unmanaged index that measures the performance of the utility industry in the
United States."]
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Our preferred stock holdings in the financial sector, however, were
disappointments. Despite being leaders in the first half of the period, Lehman
Brothers Holdings and Bear Stearns Companies lost significant ground in August
and September. That's when investors became concerned about losses stemming from
the brokerage companies' exposure to Russian debt, hedge funds and other weak
investments. Because we believe that the problems facing the brokerage companies
will eventually be worked out, and because they offer good call protection,
attractive yields and DRD-eligibility, we've held on to our brokerage company
holdings.
Outlook
We expect that the Federal Reserve Board will continue to cut interest rates for
the balance of the year in order to keep the U.S. economy on a growth track.
With that favorable backdrop in mind, we remain positive about the prospects for
both utility common and DRD-eligible preferred stocks. Global uncertainty shows
no signs of abating over the near term, so we think investors will likely
continue to focus on companies - like utilities - that offer predictable
earnings growth. Once considered too paltry by many investors, utilities'
historic 4%-5% annual earnings growth rate is beginning to look quite good
compared to many other sectors of the market. Furthermore, we expect that more
utility companies will announce stock buybacks, further fueling their advance.
As for DRD-eligible preferred stocks, we believe that technical factors will
work in their favor. The supply of DRD-eligible preferreds continues to shrink.
As demand firms, their relatively cheap current prices should offer attractive
values once again.
"Global uncertainty shows no signs of abating over the near term..."
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This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
5
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Patriot Premium Dividend Fund II
The Statement of Assets and Liabilities is the Fund's balance sheet on October
31, 1998. You'll also find the net asset value per share, for each Common Share,
as of that date.
Statement of Assets and Liabilities
October 31, 1998
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Assets:
Investments at value - Note C:
Preferred stocks (cost - $191,575,369) .................... $203,604,602
Common stocks (cost - $78,912,798) ........................ 95,907,437
Short-term investments (cost - $483,271) .................. 483,271
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299,995,310
Dividends receivable ...................................... 1,446,530
Other assets .............................................. 34,760
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Total Assets .................... 301,476,600
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Liabilities:
DARTS dividend payable .................................... 270,087
Common shares dividend payable ............................ 1,125,204
Federal income tax payable - Note A ....................... 1,213,501
Payable to John Hancock Advisers, Inc. ....................
and affiliates - Note B ................................... 258,018
Accounts payable and accrued expenses ..................... 54,522
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Total Liabilities ............... 2,921,332
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Net Assets:
Dutch Auction Rate Transferable Securities Preferred
Shares Stock Series A (DARTS) - Without par value,
unlimited number of shares of beneficial interest
authorized, 500 shares issued, liquidation preference
of $100,000 per share - Note A............................ 50,000,000
---------------
Dutch Auction Rate Transferable Securities Preferred
Shares Stock Series B (DARTS) - Without par value,
unlimited number of shares of beneficial interest
authorized, 500 shares issued, liquidation preference
of $100,000 per share - Note A............................ 50,000,000
---------------
Common Shares -
Without par value, unlimited number of shares of
beneficial interest authorized, 15,002,724 shares
issued and outstanding.................................... 168,433,934
Accumulated net realized gain on investments............... 511,828
Net unrealized appreciation of investments................. 29,026,797
Undistributed net investment income........................ 582,709
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Net Assets applicable to
Common Shares ($13.23 per
share based on 15,002,724
shares outstanding).............. 198,555,268
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Net Assets....................... $298,555,268
======================================================
The 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.
Statement of Operations
Year ended October 31, 1998
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Investment Income:
Dividends (net of foreign withholding taxes of $13,967) $19,497,080
Interest.................................................. 265,225
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19,762,305
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Expenses:
Investment management fee - Note B....................... 2,483,012
Administration fee - Note B.............................. 298,873
DARTS and auction fees................................... 268,547
Custodian fee............................................ 73,056
Federal excise tax....................................... 69,657
Auditing fee............................................. 49,877
Printing and postage..................................... 43,645
Miscellaneous............................................ 40,928
Transfer agent fee....................................... 38,941
Trustees' fee............................................ 23,771
Legal fees............................................... 3,146
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Total Expenses................... 3,393,453
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Net Investment Income............ 16,368,852
------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold
(net of federal income taxes of $1,213,501).............. 4,327,150
Change in net unrealized appreciation/depreciation
of investments........................................... 10,319,164
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Net Realized and Unrealized
Gain on Investments.............. 14,646,314
------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations........ 31,015,166
======================================================
Distribution to DARTS
Shareholders..................... (4,084,662)
------------------------------------------------------
Net Increase in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less DARTS
Distributions.................... $26,930,504
======================================================
6
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Patriot Premium Dividend Fund II
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ...................................................... $17,457,100 $16,368,852
Net realized gain (loss) on investments sold ............................... (50,758) 4,327,150
Change in net unrealized appreciation/depreciation of investments .......... 11,166,919 10,319,164
------------- -------------
Net Increase in Net Assets Resulting from Operations....................... 28,573,261 31,015,166
------------- -------------
Distributions to Shareholders:
DARTS Series A - ($4,034 and $4,082 per share, respectively) - Note A ...... (2,016,809) (2,041,034)
DARTS Series B - ($4,064 and $4,087 per share, respectively) - Note A ...... (2,032,247) (2,043,628)
Common Shares - Note A:
Dividends from accumulated net investment income
($1.06 and $0.90 per share, respectively).................................. (15,902,145) (13,501,756)
------------- -------------
Total Distributions to Shareholders ...................................... (19,951,201) (17,586,418)
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Net Assets:
Beginning of period ........................................................ 276,504,460 285,126,520
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End of period (including undistributed net investment
income of $1,730,126 and $582,709, respectively)............................ $ 285,126,520 $ 298,555,268
============= ==============
Analysis of Common Shareholder Transactions:
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1998
---- ----
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Shares outstanding, beginning of period .................. 15,002,724 $166,305,685 15,002,724 $166,252,942
Reclassification of net realized long-term gains
retained on investments sold
(net of federal income taxes of $1,213,501)............... -- -- -- 2,253,646
Reclassification of capital account - Note D ............. -- (52,743) -- (72,654)
---------- ----------- ---------- -----------
Shares outstanding, end of period ........................ 15,002,724 $166,252,942 15,002,724 $168,433,934
========== ============ ========== ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses and distributions paid
to shareholders. The footnote illustrates any reclassifications of share capital
amounts, and the number of Common Shares outstanding at the beginning and the
end of the period for the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
7
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===========================FINANCIAL STATEMENTS=================================
John Hancock Funds - Patriot Premium Dividend Fund II
Financial Highlights
Selected data for a Common Share outstanding throughout each period indicated,
investment returns, key ratios and supplemental data are listed as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------
1994 1995 1996 1997 1998
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................... $13.65 $9.67 $11.88 $11.76 $12.34
------- -------- -------- ------- -------
Net Investment Income .............................................. 1.10 1.31 1.19 1.16 1.09
Net Realized and Unrealized Gain (Loss) on Investments ............. (3.61) 2.02 (0.06) 0.75 0.97
------- -------- -------- ------- -------
Total from Investment Operations .......................... (2.51) 3.33 1.13 1.91 2.06
------- -------- -------- ------- -------
Less Distributions:
Dividends to DARTS Shareholders .................................... (0.22) (0.30) (0.28) (0.27) (0.27)
Dividends to Common Shareholders from Net Investment Income ........ (0.93) (0.82) (0.97) (1.06) (0.90)
Distributions to Common Shareholders from Net Realized
Short-Term Capital Gains on Investments ............................ (0.32) -- -- -- --
-------- -------- -------- -------- -------
Total Distributions ....................................... (1.47) (1.12) (1.25) (1.33) (1.17)
-------- -------- -------- -------- -------
Net Asset Value, End of Period ..................................... $9.67 $11.88 $11.76 $12.34 $13.23
======== ======== ======== ======== =======
Per Share Market Value, End of Period .............................. $8.875 $10.750 $10.875 $11.500 $12.125
Total Investment Return, at Market Value ........................... (20.91%) 31.24 9.86% 16.12% 13.51%
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of Period (000s omitted) $145,120 $178,200 $176,504 $185,127 $198,555
Ratio of Expenses to Average Net Assets (1) ........................ 1.27% 1.33% 1.26% 1.21% 1.14%
Ratio of Net Investment Income to Average Net Assets (1) ........... 6.20% 7.58% 6.47% 6.24% 5.48%
Portfolio Turnover Rate ............................................ 52% 87% 35% 41% 27%
Senior Securities
Total DARTS Series A Outstanding (000s omitted) .................... $50,000 $50,000 $50,000 $50,000 $50,000
Total DARTS Series B Outstanding (000s omitted) .................... $50,000 $50,000 $50,000 $50,000 $50,000
Asset Coverage per Unit (2) ........................................ $244,639 $276,974 $272,651 $284,939 $302,763
Involuntary Liquidation Preference DARTS A per Unit (3) ............ $100,000 $100,000 $100,000 $100,000 $100,000
Involuntary Liquidation Preference DARTS B per Unit (3) ............ $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit (3) .............................. $100,000 $100,000 $100,000 $100,000 $100,000
</TABLE>
(1) Ratios calculated on the basis of expenses and net investment income
applicable to both common and preferred shares relative to the average net
assets for both common and preferred shares.
(2) Calculated by subtracting the Fund's total liabilities (not including the
DARTS) from the Fund's total assets and dividing such amount by the
number of DARTS outstanding as of the applicable 1940 Act Evaluation Date.
(3) Plus accumulated and unpaid dividends.
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==========================FINANCIAL STATEMENTS==================================
John Hancock Funds - Patriot Premium Dividend Fund II
Schedule of Investments
October 31, 1998
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The Schedule of Investments is a complete list of all securities owned by the
Fund on October 31, 1998. It's divided into three main categories: preferred
stocks, common stocks and short-term investments. The stocks are further broken
down by industry group. Short-term investments, which represent the Fund's
"cash" position, are listed last.
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
PREFERRED STOCKS
Agricultural Operations (1.51%)
Ocean Spray Cranberries, Inc., 6.25% (R) .................. 45,000 $4,511,250
-----------
Automobile/Trucks (2.89%)
General Motors Corp., 9.12%,
Depositary Shares, Ser G ................................. 208,800 5,846,400
General Motors Corp., 9.125%,
Depositary Shares, Ser B ................................. 110,000 2,784,375
-----------
8,630,775
-----------
Banks - Foreign (0.84%)
Australia and New Zealand Banking
Group, Ltd., 9.125% (Australia) .......................... 51,200 1,414,400
Banco Bilbao Vizcaya International
(Gibraltar) Ltd., 9.75% Gtd Ser A,
American Depositary Receipt (Spain) ...................... 40,000 1,095,000
-----------
2,509,400
-----------
Banks - United States (9.30%)
ABN AMRO North America, Inc., 6.59%,
Ser H (R)................................................. 4,000 4,436,000
ABN AMRO North America, Inc., 8.75%,
Ser A (R)................................................. 1,060 1,245,500
Chase Manhattan Corp., 10.84%, Ser C ....................... 137,376 4,095,522
Chase Manhattan Corp., 9.76%, Ser B ........................ 68,000 1,814,750
Fleet Financial Group, Inc., 6.75%, Ser VI ................. 97,000 5,238,000
Fleet Financial Group, Inc., 9.35%,
Depositary Shares ......................................... 175,700 4,678,013
J.P. Morgan & Company, Inc., 6.625%,
Depositary Shares, Ser H .................................. 100,000 5,500,000
Republic New York Corp., $2.8575 ........................... 15,000 757,500
-----------
27,765,285
-----------
Broker Services (6.99%)
Bear Stearns Companies, Inc., 5.72%,
Ser F .................................................... 40,000 $1,850,000
Bear Stearns Companies, Inc., 6.15%,
Ser E .................................................... 84,300 4,236,075
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D .................................. 40,000 1,760,000
Lehman Brothers Holdings, Inc., 5.94%,
Ser C .................................................... 100,000 4,800,000
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A .................................. 112,000 3,381,000
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares ......................................... 91,000 4,828,688
-----------
20,855,763
-----------
Diversified Operations (0.50%)
Grand Metropolitan Delaware, L.P., 9.42%,
Gtd Ser A ................................................ 54,000 1,505,250
-----------
Finance (5.25%)
Citigroup, Inc., 6.213%, Ser G ............................ 96,000 5,145,750
Citigroup, Inc., 6.231%,
Depositary Shares, Ser H ................................. 64,500 3,315,199
Citigroup, Inc., 6.365%,
Depositary Shares, Ser F ................................. 28,500 1,517,625
Citigroup, Inc., 8.40%,
Depositary Shares, Ser K ................................. 160,000 4,360,000
SI Financing Trust I, 9.50%,
Gtd Pfd Sec & Purchase Contract ........................... 50,100 1,330,781
-----------
15,669,355
-----------
Leasing Companies (0.78%)
AMERCO, 8.50%, Ser A ...................................... 90,300 2,336,512
-----------
Oil & Gas (3.49%)
Anadarko Petroleum Corp., 5.46%,
Depositary Shares ........................................ 40,348 3,807,842
Coastal Finance I, 8.375% .................................. 60,000 1,481,250
Pennzoil Co., 6.49% , Ser A ................................ 50,000 5,112,500
-----------
10,401,592
-----------
Utilities (36.65%)
Alabama Power Co., 5.20% .................................. 210,000 5,040,000
Baltimore Gas & Electric Co., 6.70%,
Ser 1993 ................................................. 10,000 1,122,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
=====================FINANCIAL STATEMENTS=======================================
John Hancock Funds - Patriot Premium Dividend Fund II
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
Utilities (continued)
Baltimore Gas & Electric Co., 6.99%,
Ser 1995 ................................................. 30,000 $3,472,500
Boston Edison Co., 4.78% .................................. 32,314 2,904,221
Commonwealth Edison Co., $7.24 ............................ 35,785 3,609,812
Commonwealth Edison Co., $8.38 ............................ 26,830 2,714,861
Commonwealth Edison Co., $8.40, Ser A ..................... 48,586 4,910,223
El Paso Tennessee Pipeline Co., 8.25%,
Ser A .................................................... 181,100 9,869,950
Empire District Electric Co., 8.125% ...................... 150,100 1,538,525
Florida Power & Light Co., 6.75%, Ser U ................... 33,000 3,712,500
Hawaiian Electric Industries Capital Trust I,
8.36%..................................................... 50,000 1,306,250
Idaho Power Co., 7.07% .................................... 14,000 1,582,000
Indianapolis Power & Light Co., 5.65% ..................... 10,000 1,068,750
MCN Michigan, L.P., 9.375%, Ser A ......................... 50,000 1,281,250
Massachusetts Electric Co., 6.99% ......................... 16,500 1,862,437
Monongahela Power Co., 7.73%, Ser L ....................... 45,500 5,260,938
Montana Power Co., $6.875 ................................. 50,000 5,625,000
NIPSCO Capital Markets, Inc., 7.75%,
Ser A .................................................... 56,000 1,431,500
PSI Energy, Inc., 6.875% .................................. 45,430 5,133,590
Public Service Electric & Gas Co., 6.92% .................. 45,500 5,107,375
Puget Sound Energy, Inc., 7.45%, Ser II ................... 155,711 4,515,619
Puget Sound Energy, Inc., 8.50%, Ser III .................. 124,405 3,296,732
Sierra Pacific Power Capital I, 8.60% ..................... 32,000 848,000
Sierra Pacific Power Co., $3.90, Ser C .................... 13,476 690,645
Sierra Pacific Power Co., 7.80%,
Ser 1 (Class A) .......................................... 153,986 4,465,594
South Carolina Electric & Gas Co., 6.52% .................. 50,000 5,581,250
TDS Capital Trust I, 8.50% ................................ 141,215 3,468,593
TDS Capital Trust II, 8.04% ............................... 40,000 935,000
Texas Utilities Electric Co., $1.805,
Depositary Shares, Ser B ................................. 81,900 2,190,825
Texas Utilities Electric Co., $1.875,
Depositary Shares, Ser A ................................. 122,380 3,334,855
Texas Utilities Electric Co., $7.98 ....................... 34,500 3,967,500
UtiliCorp Capital, L.P., 8.875%, Ser A .................... 95,000 2,446,250
Virginia Electric & Power Co., $6.98 ...................... 35,000 3,985,625
Virginia Electric & Power Co., $7.05 ...................... 10,000 1,138,750
------------
109,419,420
------------
TOTAL PREFERRED STOCKS
(Cost $191,575,369) (68.20%) 203,604,602
------------ ------------
COMMON STOCKS
Utilities (32.12%)
BEC Energy ................................................ 90,000 $3,571,875
Cinergy Corp. ............................................. 105,000 3,622,500
Conectiv, Inc. (Class A) .................................. 30,400 1,122,900
Conectiv, Inc. ............................................ 85,000 1,944,375
Dominion Resources, Inc. .................................. 67,700 3,126,894
DPL, Inc. ................................................. 207,000 3,920,063
DTE Energy Corp. .......................................... 61,500 2,621,438
Eastern Enterprises ....................................... 29,900 1,227,769
Edison International ...................................... 40,000 1,055,000
Florida Progress Corp. .................................... 176,250 7,391,484
Hawaiian Electric Industries, Inc. ........................ 19,500 772,687
Houston Industries, Inc. .................................. 82,300 2,556,444
Interstate Energy Corp. ................................... 153,900 4,761,281
KeySpan Energy ............................................ 165,288 4,937,979
KN Energy, Inc. ........................................... 25,000 1,242,188
MCN Energy Group, Inc. .................................... 60,000 1,158,750
MidAmerican Energy Holdings Co. ........................... 293,300 7,625,800
Montana Power Co. ......................................... 103,300 4,474,181
Nevada Power Co. .......................................... 75,000 1,893,750
New Century Energies, Inc. ................................ 76,760 3,708,468
New England Electric System ............................... 99,500 4,048,406
OGE Energy Corp. .......................................... 100,000 2,656,250
PacifiCorp ................................................ 56,900 1,084,656
Potomac Electric Power Co. ................................ 150,500 3,941,219
Public Service Enterprise Group, Inc. ..................... 15,000 570,000
Puget Sound Energy, Inc. .................................. 215,400 5,815,800
Sempra Energy ............................................. 118,618 3,084,068
Southern Co. .............................................. 58,000 1,634,875
Teco Energy, Inc. ......................................... 72,000 1,989,000
Texas Utilities Co. ....................................... 29,000 1,268,750
UtiliCorp United, Inc. .................................... 80,000 2,875,000
Washington Water Power Co. ................................ 172,400 3,243,275
Williams Cos., Inc. (The) ................................. 35,000 960,312
------------
TOTAL COMMON STOCKS
(Cost $78,912,798) (32.12%) 95,907,437
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
===========================FINANCIAL STATEMENTS=================================
John Hancock Funds - Patriot Premium Dividend Fund II
INTEREST PER VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Oil & Gas (0.16%)
Chevron Corp., 11-02-98............... 5.43% $483 $483,271
--------- ------------
TOTAL SHORT-TERM INVESTMENTS (0.16%) 483,271
--------- ------------
TOTAL INVESTMENTS (100.48%) 299,995,310
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.48%) (1,440,042)
--------- -------------
TOTAL NET ASSETS (100.00%) $298,555,268
--------- -------------
--------- -------------
(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 $10,192,750 or 3.41% of
net assets as of October 31, 1998.
Parenthetical disclosure of a foreig country in the security description
represents country of foreign issuer; however, security is U.S. dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Patriot Premium Dividend Fund II
NOTE A -
ACCOUNTING POLICIES
John Hancock Patriot Premium Dividend Fund II (the "Fund") is a
diversified closed-end management investment company, registered under the
Investment Company Act of 1940, as amended. 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.
Effective June 1, 1998, 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 which is distributed to
shareholders.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all dividends and distributions to shareholders from
net investment income and realized gains on the ex-dividend date. Such
distributions are determined in conformity with federal income tax regulations.
Due to permanent book/tax differences in accounting for certain transactions,
this has the potential for treating certain distributions as return of capital
as opposed to distributions of net investment income or realized capital gains.
The Fund has adjusted for the cumulative effect of such permanent book/tax
differences through October 31, 1998, which has no effect on the Fund's net
assets, net investment income or net realized gains.
The Fund has the option and has chosen to retain and pay the applicable
federal tax on $3,467,147 of its net long-term capital gain for the fiscal
period ended October 31, 1998.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
DUTCH AUCTION RATE TRANSFERABLE SECURITIES PREFERRED STOCK SERIES A AND SERIES B
(DARTS) The Fund issued 598 shares of DARTS Series A and 598 shares of DARTS
Series B concurrently with the issuance of its Common Shares in the public
offering. The underwriting discount was recorded as a reduction of the capital
of the Common Shares. Dividends on the DARTS, which accrue daily, are cumulative
at a rate which was established at the offering of the DARTS and have been reset
every 49 days thereafter by auction. Dividend rates on the DARTS Series A and
Series B ranged from 3.94% to 4.25% and 3.88% to 4.27%, respectively, during the
year ended October 31, 1998. During the year ended October 31, 1990, the Fund
retired 98 shares of DARTS from both Series A and Series B.
The DARTS 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 DARTS 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 DARTS. If the dividend on the DARTS shall remain unpaid in an
amount equal to two full years' dividends, the holders of the DARTS, as a class,
have the right to elect a majority of the Board of Trustees. In general, the
holders of the DARTS and the Common Shares have equal voting rights of one vote
per share, except that the holders of the DARTS, 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 DARTS and Common
Shares. The DARTS have a liquidation preference of $100,000 per share, plus
accumulated and unpaid dividends. The Fund is required to maintain certain asset
coverage with respects to the DARTS, as defined in the Fund's By-Laws.
12
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Patriot Premium Fund II
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the investment management contract, the Fund pays a monthly management fee
to John Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., for a continuous investment program equivalent,
on an annual basis, to the sum of 0.50% of the Fund's average weekly net assets,
plus 5.00% of the Fund's weekly gross income. The Adviser's total fee is limited
to a maximum amount equal to 1% annually of the Fund's average weekly net
assets. For the year ended October 31, 1998, the advisory fee incurred did not
exceed the maximum advisory fee allowed.
The Fund has entered into 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 services with the shareholders. The Adviser receives a monthly
administration fee equivalent, on an annual basis, to 0.10% of the Fund's
average weekly net assets.
Each unaffiliated Trustee is entitled, as compensation for his or her
services, to an annual fee plus remuneration for attendance at various meetings.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione 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 other assets. 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.
At October 31, 1998 the Fund's investment to cover the deferred compensation
liability had unrealized appreciation of $2,925.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the year
ended October 31, 1998, aggregated $79,774,858 and $80,804,508, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1998.
The cost of investments owned at October 31, 1998, for federal income
tax purposes was $270,971,438. Gross unrealized appreciation and depreciation of
investments aggregated $31,966,261 and $2,942,389, respectively, resulting in
net unrealized appreciation of $29,023,872.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified amounts to
reflect an increase in accumulated net realized gain on investments of $2,505,
an increase in undistributed net investment income of $70,149 and a decrease in
capital paid-in of $72,654. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1998. In addition, pursuant to Internal Revenue Code Section 852(b)(3)(D),
the Fund has reclassified $2,253,646 from accumulated net realized gain on
investments to capital paid-in. This amount represents the retained long-term
capital gains, net of federal income taxes payable. Additional adjustments may
be needed in subsequent reporting periods. These reclassifications, which have
no impact on the net asset value of the Fund, are primarily attributable to
book/tax differences in accounting for deferred compensation and federal excise
tax. The calculation of net investment income per share in the financial
highlights excludes these adjustments. Similar booking required prior year.
13
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
John Hancock Patriot Premium Dividend Fund II
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of John Hancock Patriot Premium Dividend Fund II
(the "Fund") as of October 31, 1998, the related statement of operations for the
year then ended, and the statements of changes in net assets and financial
highlights for the years ended October 31, 1998 and 1997. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
The financial highlights for each of the years in the three-year period
ended October 31, 1996 were audited by other auditors whose report, dated
December 6, 1996, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1998 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the Fund at
October 31, 1998, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 4, 1998
14
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1998.
All of the dividends paid for the fiscal year end are taxable as
ordinary income. Distributions to preferred and common shareholders were 100%
qualified for the dividends received deduction available to corporations.
Shareholders will be mailed a 1998 U.S. Treasury Department Form
1099-DIV in January 1999. This will reflect the tax character of all
distributions for calendar year 1998.
The Fund has chosen to retain (and pay federal corporate income tax on)
a portion of net long-term capital gains for its fiscal period ended October 31,
1998.
Within 60 days of the Fund's fiscal year end, the Fund will mail to its
shareholders of record on October 31, 1998 a designation, on Internal Revenue
Service (IRS) Form 2439, of that portion of the undistributed capital gains for
the year to be included in a shareholder's 1998 taxable income as long-term
capital gains all of which are 20% rate gains. Form 2439 will also show their
portion of the tax paid by the Fund on these gains. The portion of the taxes
paid may be credited against any federal income tax due. These gains will not be
reported on Form 1099-DIV, the form on which the Fund would ordinarily report
income taxable to a shareholder.
To reflect the Fund's retention of capital gains and payment of the
related tax and their pass through to shareholders as described above,
shareholders are entitled to increase the adjusted tax basis of their shares by
the excess of the capital gains included in their income over their share of the
tax paid by the Fund on such gains as reported on Form 2439, as provided in
Internal Revenue Code (IRC) Section 852(b)(3).
Trustees for Individual Retirement Accounts (IRAs) and organizations
which are exempt from federal income tax under IRC Section 501(a) (and to which
IRC Section 511 does not apply) should claim a refund by filing Form 990-T with
the IRS. Record owners who are not the actual owners (nominees) will also be
required to report the amounts shown on Form 2439 to the actual owners within 90
days of the Fund's fiscal year (on or before October 31, 1998) and the IRS in
the manner required by the instructions of Form 2439. A trustee or custodian of
an IRA should not send a copy of Form 2439 to the owner of the IRA.
State tax consequences may differ from those described above and may
vary from state to state. Therefore, shareholders should consult their state tax
advisers for specific information regarding their particular situations.
Non-resident aliens may also have different tax consequences and should consult
their tax adviser.
15
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
INVESTMENT OBJECTIVE AND POLICY
The Fund's investment objective is to provide high current income, consistent
with modest growth of capital for holders of its common shares. The Fund will
pursue its objective by investing in a diversified portfolio of dividend-paying
preferred and common equity securities.
The Fund's non-fundamental investment policy, with respect to the
quality of ratings of its portfolio investments, was changed by a vote of the
Fund's Trustees on September 13, 1994. The new 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 who have no rated
senior debt outstanding, whose senior debt is considered by the Adviser to be of
comparable quality.
DIVIDEND REINVESTMENT PLAN
The Fund provides shareholders with a Dividend Reinvestment Plan ("the Plan")
which offers the opportunity to earn compounded yields. Each holder of Common
Shares may elect to have all distributions of dividends and capital gains
reinvested by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts, 02210, as agent for the common shareholders. Holders of Common
Shares who do not elect to participate in the Plan will receive all
distributions in cash, paid by check, mailed directly to the shareholder of
record (or if the Common Shares are held in street or other nominee name then to
the nominee) by the Plan Agent, as dividend disbursing agent. Shareholders may
join the Plan by filling out and mailing an authorization card showing an
election to reinvest all or a portion of dividend payments. If received in
proper form by State Street Bank and Trust Company, P.O. Box 8209, Boston,
Massachusetts 02266-8209 no later than seven business days before the record
date for a dividend, the election will be effective with respect to all
dividends paid after such record date. Shareholders whose shares are held in the
name of a broker or nominee should contract the broker, bank or nominee to
participate in the Plan.
If the Fund declares a dividend payable either in Common Shares or in
cash, nonparticipants 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 for the dividend is equal to or exceeds their net
asset value as determined on the payment date, participants will be issued
Common Shares (out of authorized but unissued shares) at a value equal to the
higher of net asset value or 95% of the market price. If the net asset value
exceeds the market price of the Common Shares at such time, or if the Board of
Trustees declares a dividend payable only in cash, the Plan Agent will, as agent
for Plan participants, buy shares in the open market, on the New York Stock
Exchange or elsewhere, for the participants' accounts. Such purchases will be
made promptly after the payable date for such dividend and, in any event, prior
to the next ex-dividend date, after such date except where necessary to comply
with federal securities laws. If, before the Plan Agent has completed its
purchases, the market price exceeds the net asset value of the Common Shares,
the average per share purchase price paid by the Plan Agent may exceed the net
asset value of the Common Shares, resulting in the acquisition of fewer shares
than if the dividend had been paid in shares issued by the Fund.
Participants in the Plan may withdraw from the Plan upon written notice
to the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to a dividend record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant withdraws
from the Plan or upon termination of the Plan as provided below, certificates
for whole Common Shares credited to his or her account under the Plan will be
issued and a cash payment will be made for any fraction of a share credited to
such account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by the shareholders for personal and tax records.
Common Shares in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant. Proxy material
relating to the shareholder's meetings of the Fund will include those shares
purchased as well as shares held pursuant to the Plan.
16
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
There will be no brokerage charges with respect to Common Shares issued
directly by the Fund. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends and distributions. In
each case, the cost per share of the shares purchased for each participant's
account will be the average cost, including brokerage commissions, of any shares
purchased on the open market plus the cost of any shares issued by the Fund.
There are no other charges to participants for reinvesting dividends or capital
gain distributions, except for certain brokerage commissions, as described
above.
The automatic 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
Form 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
to purchase them (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, State Street Bank and Trust Company, at P.O. Box
8209, Boston, Massachusetts 02266-8209 (telephone 1-800-426-5523).
Year 2000 Compliance
The Adviser and the Fund's service providers are taking steps to address any
year 2000-related computer problems. However, there is some risk that these
problems could disrupt the Fund's operations or financial markets generally.
Shareholder communication and assistance
If you have any questions concerning the John Hancock Patriot Premium Dividend
Fund II, 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:
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
Telephone: (800) 426-5523
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
17
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Patriot Premium Dividend Fund II
18
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Patriot Premium Dividend Fund II
19
<PAGE>
================================================================================
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