SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Patriot Premium
Dividend Fund II
APRIL 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
Edward J. Boudreau, Jr.
Stephen L. Brown
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
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
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
Listed New York Stock Exchange Symbol: PDT
For shareholder assistance
refer to page 15
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============================CHAIRMAN'S MESSAGE==================================
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
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[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing.
These modifications and replacements are nearly done, and the tests of all our
systems are on schedule for completion by the end of July. The rest of 1999 will
be spent testing with our business partners and continuing to participate in
industry testing. We have also established additional contingency plans beyond
our regular ones to prepare for any challenges that the Year 2000 might present.
In the end, John Hancock will spend approximately $90-$95 million to ensure we
make a successful transition to the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning. No one knows how the
dawning of the new millennium will unfold. Although we cannot make any ironclad
assurances, we are confident that the steps we have taken will provide
shareholders with as smooth a transition as possible. Once that occurs, we will
happily raise our glasses to toast the New Year, future prosperity and our hopes
to serve you well into the 2000's.
Sincerely,
/s/Edward J. Boudreau, Jr.
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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
Shifting period for preferred and utility stocks;
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both groups lag the market
--------------------------
Preferred stocks and utility common stocks - the Fund's two primary focuses -
marched along different paths during the past six months, although both wound up
posting disappointing returns. Worried that protracted economic problems
overseas would curtail U.S. economic growth, droves of investors gravitated to
highly secure U.S. Treasuries as the period began last November. In the process,
they shunned preferred stocks and all other fixed-income paying securities.
During that same month, however, global tumult benefited utility common stocks,
which had a myriad of things going for them. Their attractiveness stemmed from
their lack of exposure to foreign economies, their long history of performing in
tandem with the Treasury market, their reputation for providing consistent
earnings growth even in periods of economic weakness and their high dividend
yields.
By December, however, the winds started to shift significantly on
evidence that the U.S. economy's strength wasn't abating and that many foreign
economies appeared poised to turn the corner. Improving economic sentiment
fanned fears that inflation - a fixed-income investor's enemy - would pick up.
In addition, fewer investors felt the need to seek the safety and security of
Treasuries. From December through the end of the period in April, investors sent
bond yields - which move in the inverse direction of their prices - higher.
Along with deteriorating bond prices came a sell-off of utility stocks, which
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[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Patriot
Premium Dividend Fund II. Caption below reads "Fund management team members
(l-r): Sylvester Marquardt, Mark Maloney, Beverly Cleathero and Gregory
Phelps."]
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"Preferred stocks and utility common stocks...marched along different paths..."
3
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John Hancock Funds - Patriot Premium Dividend Fund II
"...the Fund has been forced to surrender to calls some of its higher-yielding
preferred stocks..."
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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): Short-Term Investments &
Other 3%, Industrials 7%, Financials 24%, Preferred Stock Utilities 33% and
Common Stock Utilities 33%. A note below the chart reads "As a percentage of net
assets on April 30, 1999."]
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suffered further from an exodus of investors seeking faster-growing groups of
stocks among Internet-related and other technology companies. At the same time,
preferred stocks - aided by diminished supply - began to gain ground on
poor-performing Treasuries. In April, utility common stocks staged another
strong rebound, when cyclical stocks, including utilities, came back into favor
as stock-market leadership broadened out.
Performance and strategy review
For the six months ended April 30, 1999, the Fund posted a total return of 1.61%
at net asset value. By comparison, the Dow Jones Utility Average had a total
return of 5.19% in the same period and the average preferred stock closed-end
fund returned 4.04%, according to Lipper, Inc.
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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 Montana Power
followed by an up arrow with the phrase "Excitement over fiber-optic business."
The second listing is MCN Energy Group followed by a down arrow with the phrase
"Earnings disappointments, write-offs." The third listing is Lasmo America
followed by an up arrow with the phrase "Higher energy prices." A note below the
table reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
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Throughout the period, we maintained our long-term focus on DRD-eligible
preferred stocks, which offer distinct tax advantages to corporate investors. We
also continued to focus on finding securities with good call protection, which
means issuers can't redeem them before a specified date. Call protection is
important because it allows us to hang on to stocks with higher-than-average
dividend yields when interest rates are falling.
The supply of DRD-eligible preferred stocks shrunk by about 22% in
1998, according to one estimate, a direct result of issuers' exercising their
call provisions in light of falling interest rates. So far in 1999, issuers -
prompted by continued low rates - have announced plans to call an additional
estimated $1 billion of preferred stocks in the near future. From a technical
standpoint, calls largely have been beneficial for the DRD-eligible preferred
market because they have reduced available supply, while demand has remained
fairly constant. At the same time, however, the Fund has been forced to
surrender to calls some of its higher-yielding preferred stocks and reinvest the
proceeds in securities that offer the Fund lower dividend yields - a direct
by-product of low interest rates.
In many cases, we used the proceeds from preferred stocks called away
from us to buy attractively priced utility common stocks beginning in January,
when their yields were relatively high - although still lower than the preferred
stocks we had called away. From a historical perspective, the price-to-earnings
ratios (P/Es) of utility common stocks have run about 65% to 70% of the P/E of
the Standard & Poor's 500 Index. P/Es are one measure of how much you're paying
for earnings. By the end of the period, however, the P/E of the average utility
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 six months ended April 30, 1999." The
chart is scaled in increments of 1% with 0% at the bottom and 6% at the top. The
first bar represents the 1.61% total return for John Hancock Patriot Premium
Dividend Fund II. The second bar represents the 4.04% total return for Average
preferred stock closed-end fund. The third bar represents the 5.19% total return
for Dow Jones Utility Average. A note below the chart reads "The total return
for John Hancock Patriot Premium Dividend Fund II is at net asset value with all
distributions reinvested. The average preferred stock closed-end fund is tracked
by Lipper, 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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stock was only about 50% of the S&P. That's the cheapest utility stocks have
been in 20 years. Furthermore, that relative cheapness came amid a good backdrop
for utility stocks, as more and more utilities announced stock buybacks, merger
and acquisition activity accelerated and the regulatory environment remained
favorable.
Leaders and laggards
Among our best-performing preferred stocks was El Paso Tennessee Pipeline, which
also was the Fund's largest holding at the end of the period. The stock rose
when the company announced a planned merger with large pipeline/oil and gas
producer Sonat. Montana Power, another of our largest holdings, also performed
relatively well. The company benefited from the sale of its generating plants
and from the fact that it is one of the lowest-cost electric producers in the
country. But investors seemed most excited by Montana Power's participation in
the high-growth business of building out a fiber-optic network. Another winner
was oil and gas producer/explorer Lasmo America, which benefited from the surge
in energy prices late in the period.
As we mentioned earlier, utility companies wound up lagging as the
period progressed. Even well-managed, highly respected companies such as BEC
Energy were caught in the downturn, despite the company's plans for a large
stock buyback and its success in selling off its electric generating plants at
attractive prices. Even the fact that BEC is partnering with RCN Corporation to
develop fast-growing cable, Internet access and local telephone service wasn't
enough to help it escape from the electric sector's doldrums. Company-specific
problems were the issue at natural gas provider MCN Energy Group, a
Michigan-based gas distribution utility. A string of earnings disappointments
and some significant one-time charges severely damaged the price of MCN stock.
Outlook
Assuming that the U.S. economy charts a moderate growth track and interest rates
remain relatively stable, we're optimistic about both preferred and utility
common stocks. That said, even a small rise in interest rates could cause market
jitters. From a technical standpoint, the continued shrinking supply of
DRD-eligible preferred stocks likely will work to that group's benefit. To the
extent that investors become concerned about the sustainability of corporate
earnings growth at large companies and in high-flying sectors such as
technology, utility stocks could benefit.
"...continued shrinking supply of DRD-eligible preferred stocks likely will work
to that group's benefit."
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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
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===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - Patriot Premium Dividend Fund II
The Statement of Assets and Liabilities is the Fund's balance sheet on April 30,
1999. You'll also find the net asset value per share, for each Common Share, as
of that date.
Statement of Assets and Liabilities
April 30, 1999 (Unaudited)
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Assets:
Investments at value - Note C:
Preferred stocks (cost - $184,351,790) .................... $194,291,674
Common stocks (cost - $83,970,486) ........................ 96,825,677
Short-term investments (cost - $4,287,735) ................ 4,287,735
--------------
295,405,086
Receivable for investments sold ............................ 1,312,336
Dividends receivable ....................................... 1,083,513
Other assets ............................................... 34,761
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Total Assets........................ 297,835,696
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Liabilities:
Payable for shares repurchased.............................. 1,200,599
DARTS dividend payable ...................................... 343,332
Common shares dividend payable .............................. 1,125,204
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 239,052
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Total Liabilities ................... 2,908,187
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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................. 3,312,420
Net unrealized appreciation of investments .................. 22,798,000
Undistributed net investment income.......................... 383,155
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Net Assets applicable to
Common Shares ($12.99 per
share based on 15,002,724
shares outstanding).................. 194,927,509
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Net Assets .......................... $294,927,509
=====================================================
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
Six months ended April 30, 1999 (Unaudited)
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Investment Income:
Dividends ................................................... $9,597,292
Interest .................................................... 81,594
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9,678,886
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Expenses:
Investment management fee - Note B ......................... 1,219,056
Administration fee - Note B ................................ 147,022
DARTS and auction fees ..................................... 128,245
Compliance systems fee ..................................... 55,488
Custodian fee .............................................. 33,194
Auditing fee ............................................... 24,234
Printing and postage ....................................... 24,194
Transfer agent fee ......................................... 16,807
Federal excise tax ......................................... 10,907
Trustees' fees ............................................. 8,852
Miscellaneous .............................................. 4,971
Legal fees ................................................. 1,750
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Total Expenses...................... 1,674,720
----------------------------------------------------
Net Investment Income............... 8,004,166
----------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ....................... 3,312,420
Change in net unrealized appreciation/depreciation
of investments ............................................. (6,228,797)
--------------
Net Realized and Unrealized
Loss on Investments ................. (2,916,377)
----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........... 5,087,789
====================================================
Distribution to DARTS
Shareholders ........................ (1,964,704)
----------------------------------------------------
Net Increase in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less DARTS
Distributions ....................... $3,123,085
====================================================
SEE NOTES TO FINANCIAL STATEMENTS
6
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=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Patriot Premium Dividend Fund II
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................................... $16,368,852 $8,004,166
Net realized gain on investments sold ................................................... 4,327,150 3,312,420
Change in net unrealized appreciation/depreciation of investments ....................... 10,319,164 (6,228,797)
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Net Increase in Net Assets Resulting from Operations ................................... 31,015,166 5,087,789
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Distributions to Shareholders:
DARTS Series A - ($4,082 and $1,953 per share, respectively) - Note A ................... (2,041,034) (976,712)
DARTS Series B - ($4,087 and $1,976 per share, respectively) - Note A ................... (2,043,628) (987,992)
Common Shares - Note A:
Dividends from accumulated net investment income
($0.9000 and $0.4159 per share, respectively).......................................... (13,501,756) (6,239,016)
Distributions from net realized gain on investments sold
(none and $0.0341 per share, respectively) ............................................ -- (511,828)
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Total Distributions to Shareholders .................................................... (17,586,418) (8,715,548)
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Net Assets:
Beginning of period...................................................................... 285,126,520 298,555,268
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End of period (including undistributed net investment income of $582,709 and
$383,155, respectively) ................................................................ $298,555,268 $294,927,509
============== =============
Analysis of Common Shareholder Transactions:
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1999
OCTOBER 31, 1998 (UNAUDITED)
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ----------
Shares outstanding, beginning of period ...................................... 15,002,724 $166,252,942 15,002,724 $168,433,934
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 accounts.......................................... -- (72,654) -- --
---------- ------------ ---------- ------------
Shares outstanding, end of period............................................. 15,002,724 $168,433,934 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:
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<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
_________________________________________________ APRIL 30, 1999
1994 1995 1996 1997 1998 (UNAUDITED)
------ ------ ------- ------- ------ ----------------
<S> <C> <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 $13.23
-------- ------- -------- -------- -------- --------
Net Investment Income 1.10 1.31 1.19 1.16 1.09 0.53
Net Realized and Unrealized Gain (Loss) on Investments (3.61) 2.02 (0.06) 0.75 0.97 (0.19)
-------- -------- -------- -------- -------- --------
Total from Investment Operations (2.51) 3.33 1.13 1.91 2.06 0.34
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends to DARTS Shareholders (0.22) (0.30) (0.28) (0.27) (0.27) (0.13)
Dividends to Common Shareholders from Net Investment Income (0.93) (0.82) (0.97) (1.06) (0.90) (0.42)
Distributions to Common Shareholders from Net Realized
Short-Term Capital Gains on Investments (0.32) -- -- -- -- (0.03)
-------- -------- -------- -------- -------- --------
Total Distributions (1.47) (1.12) (1.25) (1.33) (1.17) (0.58)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $9.67 $11.88 $11.76 $12.34 $13.23 $12.99
======== ======== ======== ======== ======== ========
Per Share Market Value, End of Period $8.875 $10.750 $10.875 $11.500 $12.125 $11.063
Total Investment Return, at Market Value (20.91%) 31.24% 9.86% 16.12% 13.51% (5.15%)(5)
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 $194,928
Ratio of Expenses to Average Net Assets (1) 2.04% 2.17% 1.98% 1.89% 1.72% 1.72%(6)
Ratio of Net Investment Income to Average Net Assets (2) 9.95% 12.34% 10.15% 9.71% 8.24% 8.22%(6)
Portfolio Turnover Rate 52% 87% 35% 41% 27% 13%
Senior Securities
Total DARTS Series A Outstanding (000s omitted) $50,000 $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 $50,000
Asset Coverage per Unit (3) $244,639 $276,974 $272,651 $284,939 $302,763 $289,433
Involuntary Liquidation Preference DARTS A per Unit (4) $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Involuntary Liquidation Preference DARTS B per Unit (4) $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit (4) $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
</TABLE>
(1) Ratios calculated on the basis of expenses applicable to common shares
relative to the average net assets of common shares. Without the exclusion
of preferred shares, the ratio of expenses would have been 1.27%, 1.33%,
1.26%, 1.21%, 1.14% and 1.14%, respectively.
(2) Ratios calculated on the basis of net investment income applicable to common
shares relative to the average net assets of common shares. Without the
exclusion of preferred shares, the ratio of net investment income would have
been 6.20%, 7.58%, 6.47%, 6.24%, 5.48% and 5.44%, respectively.
(3) 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.
(4) Plus accumulated and unpaid dividends.
(5) Not annualized.
(6) Annualized.
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
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=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Patriot Premium Dividend Fund II
Schedule of Investments
April 30, 1999 (Unaudited)
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The Schedule of Investments is a complete list of all securities owned by the
Fund on April 30, 1999. 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.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
PREFERRED STOCKS
Agricultural Operations (1.59%)
Ocean Spray Cranberries, Inc.,
6.25% (R)................................... 45,000 $4,691,250
----------
Automobile/Trucks (2.03%)
General Motors Corp., 9.12%,
Depositary Shares, Ser G ................... 208,800 5,976,900
----------
Banks - Foreign (0.85%)
Australia and New Zealand Banking
Group Ltd., 9.125% (Australia) ............. 51,200 1,411,200
Banco Bilbao Vizcaya International
(Gibraltar) Ltd., 9.75% Gtd Ser A,
American Depositary Receipt (Spain) ........ 40,000 1,082,500
----------
2,493,700
----------
Banks - United States (9.48%)
ABN AMRO North America, Inc., 6.59%,
Ser H (R) .................................. 4,000 4,260,000
ABN AMRO North America, Inc., 8.75%,
Ser A (R) .................................. 1,060 1,197,800
Chase Manhattan Corp., 10.84%,
Ser C ...................................... 137,376 4,035,420
Chase Manhattan Corp., 9.76%,
Ser B ...................................... 68,000 1,776,500
Fleet Financial Group, Inc., 6.75%,
Ser VI 97,000 5,383,500
Fleet Financial Group, Inc., 9.35%,
Depositary Shares .......................... 175,700 4,667,031
J.P. Morgan & Company, Inc., 6.625%,
Depositary Shares, Ser H ................... 100,000 5,375,000
Republic New York Corp., $2.8575 ............ 25,000 1,275,000
----------
27,970,251
----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Broker Services (7.86%)
Bear Stearns Cos., Inc., 5.49%,
Ser G ....................................... 139,300 $6,198,850
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D .................... 75,000 3,262,500
Lehman Brothers Holdings, Inc., 5.94%,
Ser C ....................................... 100,000 4,712,500
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A .................... 132,300 4,126,106
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares ........................... 91,000 4,868,500
----------
23,168,456
----------
Diversified Operations (0.52%)
Grand Metropolitan Delaware, L.P., 9.42%,
Gtd Ser A ................................... 54,000 1,528,875
----------
Finance (5.82%)
Citigroup, Inc., 6.213%,
Ser G ....................................... 96,000 5,040,000
Citigroup, Inc., 6.231%,
Depositary Shares, Ser H .................... 64,500 3,354,000
Citigroup, Inc., 6.365%,
Depositary Shares, Ser F .................... 28,500 1,514,062
Citigroup, Inc., 8.40%,
Depositary Shares, Ser K .................... 160,000 4,400,000
Coastal Finance I, 8.375% .................... 60,000 1,511,250
SI Financing Trust I, 9.50%, Gtd Pfd Sec
& Purchase Contract ......................... 50,100 1,340,175
----------
17,159,487
----------
Leasing Companies (0.81%)
AMERCO, 8.50%,
Ser A ....................................... 90,300 2,392,950
----------
Oil & Gas (3.80%)
Anadarko Petroleum Corp., 5.46%,
Depositary Shares ........................... 50,348 4,581,668
Lasmo America Ltd., 8.15% (R) ............... 20,000 2,045,000
PennzEnergy Co., 6.49%,
Ser A ....................................... 50,000 4,600,000
----------
11,226,668
----------
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Patriot Premium Dividend Fund II
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Utilities (33.12%)
Alabama Power Co., 5.20% ..................... 254,000 $6,350,000
Avista Corp., $1.24,
Ser L, Conv ................................. 172,400 2,790,724
Baltimore Gas & Electric Co., 6.70%,
Ser 1993 .................................... 10,000 1,115,000
Baltimore Gas & Electric Co., 6.99%,
Ser 1995 .................................... 30,000 3,450,000
Boston Edison Co., 4.78% ..................... 35,785 3,149,080
El Paso Tennessee Pipeline Co., 8.25%,
Ser A ....................................... 181,100 10,051,050
Florida Power & Light Co., 6.75%,
Ser U ....................................... 33,000 3,679,500
Hawaiian Electric Industries Capital
Trust I, 8.36% .............................. 50,000 1,281,250
Idaho Power Co., 7.07% ....................... 14,000 1,561,000
Indianapolis Power & Light Co., 5.65% ........ 11,150 1,142,875
Massachusetts Electric Co., 6.99% ............ 16,500 1,837,687
MCN Michigan, L.P., 9.375%,
Ser A ....................................... 50,000 1,275,000
Monongahela Power Co., 7.73%,
Ser L ....................................... 45,500 5,164,250
Montana Power Co., $6.875 .................... 50,000 5,562,500
PSI Energy, Inc., 6.875% ..................... 45,430 5,099,518
Public Service Electric & Gas Co., 6.92% ..... 45,500 5,107,375
Puget Sound Energy, Inc., 7.45%,
Ser II ...................................... 155,711 4,301,516
Puget Sound Energy, Inc., 8.50%,
Ser III ..................................... 124,405 3,172,327
Sierra Pacific Power Capital I, 8.60% ........ 32,000 832,000
Sierra Pacific Power Co., $3.90,
Ser C ....................................... 13,476 673,800
Sierra Pacific Power Co., 7.80%,
Ser 1 (Class A) ............................. 153,986 4,311,608
South Carolina Electric & Gas Co., 6.52% ..... 50,000 5,581,250
TDS Capital Trust I, 8.50% ................... 147,215 3,680,375
TDS Capital Trust II, 8.04% .................. 71,600 1,772,100
Texas Utilities Electric Co., $1.875,
Dep Shares, Ser A ........................... 122,380 3,273,665
Texas Utilities Electric Co., $7.98 .......... 34,500 3,976,125
UtiliCorp Capital, L.P., 8.875%,
Ser A ....................................... 95,000 2,440,312
Virginia Electric & Power Co., $6.98 ......... 35,000 3,928,750
Virginia Electric & Power Co., $7.05 ......... 10,000 1,122,500
----------
97,683,137
----------
TOTAL PREFERRED STOCKS
(Cost $184,351,790) (65.88%) 194,291,674
--------- -----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
COMMON STOCKS
Utilities (32.83%)
Ameren Corp. ................................. 57,000 $2,205,188
BEC Energy ................................... 90,000 3,825,000
Cinergy Corp. ................................ 105,000 3,130,313
Conectiv, Inc. ............................... 135,000 3,231,562
Conectiv, Inc. (Class A) ..................... 20,100 704,756
Consolidated Edison, Inc. .................... 15,000 681,563
Dominion Resources, Inc. ..................... 79,700 3,277,663
DPL, Inc. .................................... 207,000 3,700,124
DTE Energy Co. ............................... 90,500 3,693,531
Duke Energy Corp. ............................ 37,500 2,100,000
Eastern Enterprises .......................... 71,900 2,583,906
Edison International ......................... 78,000 1,911,000
Florida Progress Corp. ....................... 176,250 6,785,625
Hawaiian Electric Industries, Inc. ........... 27,000 960,188
Interstate Energy Corp. ...................... 199,900 5,759,619
KeySpan Energy ............................... 70,000 1,872,500
KN Energy, Inc. .............................. 42,500 876,563
LG&E Energy Corp. ............................ 40,000 872,500
MCN Energy Group, Inc. ....................... 60,000 1,196,250
Montana Power Co. ............................ 103,300 7,702,306
Nevada Power Co. ............................. 75,000 1,935,938
New Century Energies, Inc. ................... 17,000 595,000
New England Electric System .................. 116,750 5,779,125
Northern States Power Co. .................... 60,000 1,447,500
OGE Energy Corp. ............................. 100,000 2,368,750
PacifiCorp ................................... 56,900 949,519
Peoples Energy Corp. ......................... 1,100 41,113
Potomac Electric Power Co. ................... 150,500 4,402,125
Public Service Enterprise Group, Inc. ........ 15,000 600,000
Puget Sound Energy, Inc. ..................... 215,400 5,317,688
Reliant Energy, Inc. ......................... 82,300 2,330,119
Sempra Energy ................................ 56,812 1,178,849
Southern Co. ................................. 80,000 2,165,000
Teco Energy, Inc. ............................ 144,000 3,069,000
Texas Utilities Co. .......................... 29,000 1,152,750
UtiliCorp United, Inc. ....................... 120,000 2,932,500
Western Resources, Inc. ...................... 120,900 3,286,969
WPS Resources Corp. .......................... 6,800 203,575
----------
TOTAL COMMON STOCKS
(Cost $83,970,486) (32.83%) 96,825,677
--------- ----------
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 (1.45%)
Chevron USA, Inc., 05-03-99....... 4.80% $4,289 $4,287,735
-------- ------------
TOTAL SHORT-TERM INVESTMENTS (1.45%) 4,287,735
-------- ------------
TOTAL INVESTMENTS (100.16%) 295,405,086
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.16%) (477,577)
-------- ------------
TOTAL NET ASSETS (100.00%) $294,927,509
======== ============
(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 $12,194,050 or 4.13% of net assets as of
April 30, 1999.
Parenthetical disclosure of a foreign 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
(UNAUDITED)
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. 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 have 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 has been reset
every 49 days thereafter by auction. Dividend rates on the DARTS Series A and
Series B ranged from 3.59% to 4.07% and 3.54% to 4.27%, respectively, during the
period ended April 30, 1999. 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 Dividend 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 period ended April 30, 1999, 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., Mr. Stephen L. Brown, 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 assets 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 April 30, 1999 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 period
ended April 30, 1999, aggregated $38,639,240 and $44,117,549, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1999.
The cost of long-term investments owned at April 30, 1999, for federal
income tax purposes was $272,610,011. Gross unrealized appreciation and
depreciation of investments aggregated $28,166,191 and $5,371,116, respectively,
resulting in net unrealized appreciation of $22,795,075 for federal tax
purposes.
13
<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 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 revisit 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 contact 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 the shareholder's meetings of the
14
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
Fund will include those shares purchased as well as shares held pursuant to the
Plan.
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 issuers in which the Fund invests, 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.
SHAREHOLDER MEETING (UNAUDITED)
On March 18, 1999, the Annual Meeting of John Hancock Patriot Premium Dividend
Fund II (the "Fund") was held to elect five Trustees and to ratify the actions
of the Trustees in selecting independent auditors for the Fund.
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
--- ---------
Stephen L. Brown 10,774,207 160,289
James F. Carlin 10,779,465 155,031
William H. Cunningham 10,774,207 160,289
John P. Toolan 10,777,465 157,031
The preferred shareholders elected Harold R. Hiser, Jr. to serve until
his successor is duly elected and qualified, with the votes tabulated as
follows: 524 FOR and 0 WITHHELD AUTHORITY.
The shareholders also ratified the Trustees' selection of Deloitte &
Touche LLP as the Fund's independent auditors for the fiscal year ending October
31, 1999, with the votes tabulated as follows: 10,745,631 FOR, 47,822 AGAINST
and 141,567 ABSTAINING.
15
<PAGE>
================================================================================
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