---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Patriot Premium
Dividend Fund II
OCTOBER 31, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Ivestment Management Firm
<PAGE>
-----------------------------------------
TRUSTEES
Stephen L. Brown
James F. Carlin
William H. Cunningham*
Ronald R. Dion*
Maureen R. Ford
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
200 Berkeley Street
Boston, Massachusetts 02116
Listed New York Stock Exchange Symbol: PDT
For shareholder assistance
refer to page 15
---------------------------------------------
==================================CEO CORNER====================================
As the decade ends and a new millennium dawns, John Hancock Funds (JHF) welcomes
a new leader. Effective December 31, 1999, Maureen R. Ford becomes vice chairman
and chief executive officer, succeeding Edward J. Boudreau, Jr., who retires
after 32 years at John Hancock, the last 11 at the helm of JHF .
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy. Keep in mind that the
estimated benefits are precisely that, and that rules and regulations may change
by the time you retire. Also remember that they are not inflation adjusted, so
it would be unrealistic to expect them to have the same purchasing power in the
future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/Maureen R. Ford
- ------------------
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Gregory K. Phelps for the Portfolio Management Team
John Hancock Patriot
Premium Dividend Fund II
U.S. rate concerns hamper preferred stocks;
-------------------------------------------
utility stocks fare slightly better
-----------------------------------
Fears of higher U.S. interest rates weighed heavily on preferred stocks, the
larger of two main components of John Hancock Patriot Premium Dividend Fund II.
Because they have fixed dividends, preferred stocks generally are quite
sensitive to interest-rate changes, falling in price when rates rise and vice
versa.
At the beginning of the Fund's fiscal year last November, however,
rising interest rates weren't really the problem; lack of demand was. Amid
1998's global economic turmoil, investors shunned most fixed-income-like
securities - including preferred stocks - in favor of U.S. Treasury bonds,
despite the fact that rates were on the decline at the time.
Interest-rate jitters first began to hamper preferred stocks at the end
of last year. With each passing day, there were growing concerns that inflation
might be headed higher. While rate fears were the main problem for preferred
stocks, preferreds also faced another challenge. To lock in relatively low
interest rates and to sidestep potential market-related problems resulting from
the Y2K bug, corporations issued near-record levels of debt and preferred stock
during the first nine months of 1999. The large increase in supply added more
pressure to the already strained preferred-stock market.
Utility common stocks, which made up 34% of net assets, got off to a
reasonably good start, but flickered in the final months of the Fund's
- --------------------------------------------------------------------------------
[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."]
- --------------------------------------------------------------------------------
"The poor performance of preferred stocks... resulted in disappointing returns."
3
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
"Common-stock electric utility companies involved in mergers and acquisitions
were among our best performers..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification."
The chart is divided into five sections (from top to left): Common Stock
Utilities 34%, Short-Term Investments & Other 1%, Industrials 10%,
Financials 23% and Preferred Stock Utilities 32%. A note below the chart reads
"As a percentage of net assets on October 31, 1999."]
- --------------------------------------------------------------------------------
fiscal year in response to growing inflationary fears. They ended the year with
only modest advances for utilities.
Performance review
The poor performance of preferred stocks -which made up roughly two-thirds of
John Hancock Patriot Premium Dividend Fund II -resulted in disappointing
returns. For the 12 months ended October 31, 1999, the Fund posted a total
return of -1.31% at net asset value. By comparison, the Dow Jones Utility
Average returned 5.34% in the same period and the average preferred stock
closed-end fund returned 0.97%, according to Lipper, Inc.
Generally speaking, our preferred-stock holdings performed in line with
the overall preferred-stock segment of the market, which is to say most of them
lost ground. However, some of our older securities - such as Merrill Lynch,
- --------------------------------------------------------------------------------
[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 Republic
New York followed by a down arrow with the phrase "Tainted by investigation of
a customer." The second listing is CMP Group followed by an up arrow with the
phrase "To be taken over by Energy East." The third listing is Florida Progress
followed by an up arrow with the phrase "Proposed acquisition by stronger
competitor." A note below the table reads "See 'Schedule of Investments.'
Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
AMERCO and Chase Manhattan - held in best. Issued years ago when rates were
higher, these securities carry high coupons that helped cushion them against
price declines.
Other disappointments included our holdings in Republic New York, a
bank that crumpled over allegations about a customer's security fraud
investigation. Western Resources also stumbled when questions about its
accounting procedures surfaced.
Utility companies involved with the build-out of fiber-optic operations
generally performed better than the group as a whole. Of all the unregulated
operations electric utilities are pursuing as a way to boost their earnings
growth, we think fiber optics offers the biggest potential. That explains a
large part of why we favor companies such as CMP Group, Montana Power, NSTAR
(the new parent company of Boston Edison), Potomac Electric Power and TDS.
M&A activity heats up
Common-stock electric utility companies involved in mergers and acquisitions
were among our best performers, although these bright spots were still not
enough to overcome the Fund's other losses this year. CMP Group, for example,
staged a sizable rally on news that it was to be taken over by Energy East.
Likewise, MCN Energy Group performed well after announcing it would merge with
DTE Energy. Our holding in Florida Progress did well thanks to news that it
would be
4
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance".
Under the heading is a note that reads "For the year ended October 31, 1999."
The chart is scaled in increments of 1% with -3% at the bottom and 6% at the
top. The first bar represents the -1.31% total return for John Hancock Patriot
Premium Dividend Fund II. The second bar represents the 0.97% total return for
Average preferred stock closed-end fund. The third bar represents the 5.34%
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."
- --------------------------------------------------------------------------------
acquired by Carolina Power & Light. Merger activity had a curious effect on one
of our holdings. KN Energy was one of our biggest disappointments when it
bungled a merger with a stronger competitor in early 1999, but it came roaring
back and became one of our biggest winners this summer on news that it would be
acquired by Kinder Morgan. Eastern Enterprises also posted good gains after it
announced its intention to be sold. Finally, PennzEnergy performed reasonably
well when it assumed the higher credit rating of its acquirer, Devon Energy
Corp.
Focus on call protection and DRD eligibility
Throughout the period, we maintained our long-term focus on preferred stocks
eligible for the dividends received deduction (DRD) and on those that carry good
call protection. DRD-eligible preferred stocks offer distinct tax advantages to
corporate investors, and as such, remain in fairly constant demand. Call
protection means issuers can't redeem their preferred stocks before a specified
date, as they often do when interest rates fall. Even though rates appear to be
on the rise now, we think they will eventually resume their long-term downward
trend and believe that call protection will continue to be an important
contributor to our performance.
Bulking up yield
Rising interest rates held a silver lining of sorts. As rates moved higher, so
did the yields on most preferred and utility common stocks. When we found
attractive opportunities to do so, we replaced lower-yielding utility common
stocks with higher-yielding common and preferred stocks.
Outlook
We believe that the attractively priced preferred-stock segment of the market is
poised to come into a reasonably good period ahead. Supply and demand conditions
in the preferred market should turn more favorable. Companies had already
curtailed their new issuance activity in September 1999, with no indications
that issuance will pick up anytime soon. From a demand standpoint, we expect
that investors will eventually look to preferred stocks as relatively cheap
investments with attractive yields.
We also remain optimistic about the prospects for utility stocks. To
the extent that investors become concerned about the sustainability of corporate
earnings growth for the stock market as a whole, utility stocks could benefit.
Utility stocks also look very attractive from a historical basis, selling at a
low price-to-earnings ratio relative to the S&P 500 Index not seen in 20 years
or so. Evidence of a slowing U.S. economy - which could emerge later this year
if interest rates keep rising - would also likely stir demand for economically
resistant utility stocks.
- --------------------------------------------------------------------------------
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.
"Supply and demand conditions in the preferred market should turn more
favorable."
5
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Patriot Premium Dividend Fund II
The Statement of Assets and Liabilities is the Fund's balance sheet on October
31, 1999. 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, 1999
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Preferred stocks (cost - $182,433,263)........................ $182,347,908
Common stocks (cost - $85,458,483) ........................... 96,643,647
Short-term investments (cost - $3,126,715) ................... 3,126,715
--------------
282,118,270
Receivable for investments sold ............................... 1,365,385
Dividends receivable .......................................... 1,198,546
Other assets .................................................. 44,310
--------------
Total Assets ........................... 284,726,511
-------------------------------------------------------
Liabilities:
Payable for investments purchased ............................. 1,813,797
DARTS dividend payable ........................................ 243,024
Common shares dividend payable ................................ 975,177
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 248,339
Accounts payable and accrued expenses ......................... 67,317
--------------
Total Liabilities ...................... 3,347,654
-------------------------------------------------------
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 ....................................... 168,421,653
Accumulated net realized gain on investments .................. 1,427,073
Net unrealized appreciation of investments .................... 11,102,734
Undistributed net investment income ........................... 427,397
--------------
Net Assets applicable to
Common Shares ($12.09 per
share based on 15,002,724
shares outstanding) .................... 181,378,857
-------------------------------------------------------
Net Assets ............................. $281,378,857
=======================================================
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, 1999
- --------------------------------------------------------------------------------
Investment Income:
Dividends ..................................................... $19,211,310
Interest ...................................................... 136,465
--------------
19,347,775
--------------
Expenses:
Investment management fee - Note B ........................... 2,431,863
Administration fee - Note B .................................. 292,909
DARTS and auction fees ....................................... 268,472
Custodian fee ................................................ 70,474
Compliance systems fee ....................................... 67,601
Printing and postage ......................................... 56,113
Auditing fee ................................................. 49,233
Miscellaneous ................................................ 41,812
Transfer agent fee ........................................... 37,882
Trustees' fees ............................................... 19,203
Federal excise tax ........................................... 10,907
Legal fees ................................................... 3,227
--------------
Total Expenses ......................... 3,349,696
-------------------------------------------------------
Net Investment Income .................. 15,998,079
-------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ......................... 1,426,057
Change in net unrealized appreciation/depreciation
of investments ............................................... (17,924,063)
--------------
Net Realized and Unrealized
Loss on Investments .................... (16,498,006)
-------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations .............. (499,927)
=======================================================
Distribution to DARTS
Shareholders ........................... (3,924,917)
-------------------------------------------------------
Net Decrease in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less DARTS
Distributions .......................... ($4,424,844)
=======================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Patriot Premium Dividend Fund II
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .......................................................... $16,368,852 $15,998,079
Net realized gain on investments sold .......................................... 4,327,150 1,426,057
Change in net unrealized appreciation/depreciation of investments .............. 10,319,164 (17,924,063)
---------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Operations ............... 31,015,166 (499,927)
---------------- ----------------
Distributions to Shareholders:
DARTS Series A - ($4,082 and $3,912 per share, respectively) - Note A .......... (2,041,034) (1,956,188)
DARTS Series B - ($4,087 and $3,937 per share, respectively) - Note A .......... (2,043,628) (1,968,729)
Common Shares - Note A:
Dividends from accumulated net investment income ($0.90 and $0.84 per
share, respectively) ......................................................... (13,501,756) (12,655,871)
Distributions in excess of accumulated net investment income
(none and $0.01 per share, respectively) ..................................... - (95,696)
---------------- ----------------
Total Distributions to Shareholders ........................................ (17,586,418) (16,676,484)
---------------- ----------------
Net Assets:
Beginning of period ............................................................ 285,126,520 298,555,268
---------------- ----------------
End of period (including undistributed net investment income of
$582,709 and $427,397, respectively) ......................................... $298,555,268 $281,378,857
================ ================
Analysis of Common Shareholder Transactions:
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1998 1999
-------------------------- --------------------------
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 and none, respectively) ... - 2,253,646 - -
Reclassification of capital account - Note D .......................... - (72,654) - (12,281)
------------ -------------- ------------ -------------
Shares outstanding, end of period ..................................... 15,002,724 $168,433,934 15,002,724 $168,421,653
============ ============== ============ =============
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
<PAGE>
============================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:
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
Per Share Operating Performance
Net Asset Value, Beginning of Period...................................... $9.67 $11.88 $11.76 $12.34 $13.23
-------- --------- -------- -------- --------
Net Investment Income(5) ................................................. 1.31 1.19 1.16 1.09 1.07
Net Realized and Unrealized Gain (Loss) on Investments ................... 2.02 (0.06) 0.75 0.97 (1.10)
-------- --------- -------- -------- --------
Total from Investment Operations ........................................ 3.33 1.13 1.91 2.06 (0.03)
-------- --------- -------- -------- --------
Less Distributions:
Dividends to DARTS Shareholders .......................................... (0.30) (0.28) (0.27) (0.27) (0.26)
Dividends to Common Shareholders from Net Investment Income .............. (0.82) (0.97) (1.06) (0.90) (0.84)
Distributions in Excess of Net Investment Income ......................... - - - - (0.01)
-------- --------- -------- -------- --------
Total Distributions ..................................................... (1.12) (1.25) (1.33) (1.17) (1.11)
-------- --------- -------- -------- --------
Net Asset Value, End of Period ........................................... $11.88 $11.76 $12.34 $13.23 $12.09
======== ========= ======== ======== ========
Per Share Market Value, End of Period ................................... $10.750 $10.875 $11.500 $12.125 $9.750
Total Investment Return, at Market Value ................................. 31.24% 9.86% 16.12% 13.51% (13.16%)
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of Period (000s omitted) ..... $178,200 $176,504 $185,127 $198,555 $181,379
Ratio of Expenses to Average Net Assets(1) ............................... 2.17% 1.98% 1.89% 1.72% 1.74%
Ratio of Net Investment Income to Average Net Assets(2) .................. 12.34% 10.15% 9.71% 8.24% 8.29%
Portfolio Turnover Rate .................................................. 87% 35% 41% 27% 26%
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(3) ............................................... $276,974 $272,651 $284,939 $302,763 $286,177
Involuntary Liquidation Preference DARTS A per Unit(4) ................... $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
Approximate Market Value per Unit(4) ..................................... $100,000 $100,000 $100,000 $100,000 $100,000
(1) Ratios calculated on the basis of expenses applicable to common shares
relative to the average net assets for common shares. Without the exclusion of
preferred shares, the ratio of expenses would have been 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 7.58%, 6.47%, 6.24%, 5.48% and 5.46%, 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) Based on the average of the shares outstanding at the end of each month.
</TABLE>
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, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fund on October 31, 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, DESCRIPTON NUMBER OF SHARES VALUE
- ------------------ ---------------- ------
PREFERRED STOCKS
Agricultural Operations (1.50%)
Ocean Spray Cranberries, Inc.,
6.25% (R)................................ 45,000 $4,220,640
----------
Automobile/Trucks (1.96%)
General Motors Corp., 9.12%,
Depositary Shares, Ser G ................ 208,800 5,507,100
----------
Banks - Foreign (0.47%)
Australia and New Zealand Banking
Group Ltd., 9.125% (Australia) .......... 51,200 1,331,200
----------
Banks - United States (8.45%)
ABN AMRO North America, Inc., 6.59%,
Ser H (R) ............................... 3,000 2,960,802
ABN AMRO North America, Inc., 8.75%,
Ser A (R) 1,060 1,179,356
Chase Manhattan Corp., 10.84%, Ser C ..... 137,376 3,872,286
Fleet Boston Corp., 6.75%,
Depositary Shares, Ser VI ............... 97,000 5,044,000
Fleet Boston Corp., 9.35%,
Depositary Shares ....................... 175,700 4,458,388
J.P. Morgan & Company, Inc., 6.625%,
Depositary Shares, Ser H ................ 100,000 5,100,000
Republic New York Corp., $2.8575 ......... 25,000 1,175,000
----------
23,789,832
----------
Broker Services (7.65%)
Bear Stearns Cos., Inc., 5.49%, Ser G .... 139,300 5,467,525
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D ................ 139,000 5,699,000
Lehman Brothers Holdings, Inc., 5.94%,
Ser C ................................... 38,000 1,615,000
MARKET
ISSUER, DESCRIPTON NUMBER OF SHARES VALUE
- ------------------ ---------------- ------
Broker Services (continued)
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A ................ 132,300 $4,035,150
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares ....................... 91,000 4,709,250
----------
21,525,925
----------
Diversified Operations (0.85%)
Grand Metropolitan Delaware, L.P., 9.42%,
Gtd Ser A ............................... 91,000 2,400,125
----------
Finance (5.13%)
Citigroup, Inc., 6.213%, Ser G ........... 96,000 4,560,000
Citigroup, Inc., 6.231%,
Depositary Shares, Ser H ................ 64,500 2,950,875
Citigroup, Inc., 6.365%,
Depositary Shares, Ser F ................ 28,500 1,403,625
Citigroup, Inc., 8.40%,
Depositary Shares, Ser K ................ 160,000 4,210,000
SI Financing Trust I, 9.50%, Gtd Pfd Sec
& Purchase Contract ..................... 50,100 1,302,600
----------
14,427,100
----------
Leasing Companies (0.81%)
AMERCO, 8.50%, Ser A ..................... 90,300 2,291,363
----------
Oil & Gas (5.80%)
Anadarko Petroleum Corp., 5.46%,
Depositary Shares ....................... 50,348 4,193,988
Apache Corp., 5.68%,
Depositary Shares, Ser B ................ 25,000 2,170,950
Coastal Finance I, 8.375% ................ 130,000 3,160,625
Devon Energy Corp., 6.49%, Ser A ......... 50,000 4,573,600
Lasmo America Ltd., 8.15% (R) ............ 20,000 2,210,460
----------
16,309,623
----------
Utilities (32.18%)
Alabama Power Co., 5.20% ................. 254,000 5,143,500
Avista Corp., $1.24, Ser L, Conv ......... 132,400 2,308,725
Baltimore Gas & Electric Co., 6.70%,
Ser 1993 ................................ 10,000 1,067,670
Baltimore Gas & Electric Co., 6.99%,
Ser 1995 ................................ 30,000 3,258,180
Boston Edison Co., 4.78% ................. 46,910 3,539,969
El Paso Tennessee Pipeline Co., 8.25%,
Ser A ................................... 181,100 9,507,750
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - Patriot Premium Dividend Fund II
MARKET
ISSUER, DESCRIPTON NUMBER OF SHARES VALUE
- ------------------ ---------------- ------
Utilities (continued)
Florida Power & Light Co., 6.75%, Ser U .. 33,000 $3,523,344
FPC Capital I, 7.10%, Ser A .............. 55,000 1,199,688
Hawaiian Electric Industries Capital Trust I,
8.36% ................................... 50,000 1,200,000
Idaho Power Co., 7.07% ................... 14,000 1,502,060
Indianapolis Power & Light Co., 5.65% .... 11,150 1,038,756
Massachusetts Electric Co., 6.99% ........ 16,500 1,767,183
MCN Michigan, L.P., 9.375%, Ser A ........ 25,000 617,187
Monongahela Power Co., 7.73%, Ser L ...... 45,500 4,915,866
Montana Power Co., $6.875 ................ 50,000 5,347,650
PSI Energy, Inc., 6.875% ................. 45,430 4,907,985
Public Service Electric & Gas Co., 6.92% . 45,500 4,876,508
Puget Sound Energy, Inc., 7.45%, Ser II .. 155,711 4,145,805
Sierra Pacific Power Capital I, 8.60% .... 32,000 800,000
Sierra Pacific Power Co., $3.90, Ser C ... 13,476 685,187
Sierra Pacific Power Co., 7.80%, Ser 1
(Class A) ............................... 155,986 4,219,265
South Carolina Electric & Gas Co., 6.52% . 50,000 5,250,000
TDS Capital Trust I, 8.50% ............... 152,215 3,567,539
TDS Capital Trust II, 8.04% .............. 91,600 2,026,650
TXU Electric Co., $1.875,
Depositary Shares, Ser A ................ 122,380 3,151,285
TXU Electric Co., $7.98 .................. 34,500 3,798,278
UtiliCorp Capital, L.P., 8.875%, Ser A ... 95,000 2,327,500
Virginia Electric & Power Co., $6.98 ..... 35,000 3,771,740
Virginia Electric & Power Co., $7.05 ..... 10,000 1,079,730
----------
90,545,000
----------
TOTAL PREFERRED STOCKS
(Cost $182,433,263) (64.80%) 182,347,908
--------- -----------
COMMON STOCKS
Utilities (34.35%)
Alliant Energy Corp. ..................... 199,900 5,434,781
Ameren Corp. ............................. 62,000 2,344,375
Central Hudson Gas & Electric Corp. ...... 111,800 4,185,513
Cinergy Corp. ............................ 105,000 2,966,250
CMP Group, Inc. .......................... 31,250 832,031
Conectiv, Inc. (Class A) ................. 20,100 739,931
Consolidated Edison, Inc. ................ 42,000 1,603,875
Dominion Resources, Inc. ................. 79,700 3,835,563
DPL, Inc. ................................ 207,000 4,191,750
DTE Energy Co. ........................... 100,500 3,335,344
Duke Energy Corp. ........................ 37,500 2,118,750
Eastern Enterprises ...................... 59,400 3,036,825
Edison International ..................... 18,000 533,250
Florida Progress Corp. ................... 176,250 8,074,453
Hawaiian Electric Industries, Inc. ....... 39,000 1,316,250
MARKET
ISSUER, DESCRIPTON NUMBER OF SHARES VALUE
- ------------------ ---------------- ------
Utilities (continued)
Kansas City Power & Light Co. ............ 60,000 $1,470,000
KeySpan Corp. ............................ 90,000 2,531,250
LG&E Energy Corp. ........................ 76,250 1,677,500
Montana Power Co. ........................ 206,600 5,875,188
New Century Energies, Inc. ............... 17,000 553,562
New England Electric System .............. 116,750 6,078,297
Northern States Power Co. ................ 60,000 1,290,000
NSTAR .................................... 90,000 3,425,625
OGE Energy Corp. ......................... 100,000 2,268,750
PacifiCorp ............................... 25,000 515,625
Potomac Electric Power Co. ............... 150,500 4,129,344
Puget Sound Energy, Inc. ................. 145,400 3,216,975
Reliant Energy, Inc. ..................... 82,300 2,242,675
Sempra Energy ............................ 150,000 3,065,625
Sierra Pacific Resources ................. 75,000 1,687,500
Southern Co. ............................. 80,000 2,125,000
Teco Energy, Inc. ........................ 158,750 3,502,422
UtiliCorp United, Inc. ................... 112,500 2,432,812
Western Resources, Inc. .................. 126,900 2,926,631
WPS Resources Corp. ...................... 37,400 1,079,925
----------
TOTAL COMMON STOCKS
(Cost $85,458,483) (34.35%) 96,643,647
---------- ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
-------- --------------
SHORT-TERM INVESTMENTS
Oil & Gas (1.11%)
Chevron USA, Inc., 11-01-99 .... 5.20% $3,127 3,126,715
-------- ------------
TOTAL SHORT-TERM INVESTMENTS (1.11%) 3,126,715
-------- ------------
TOTAL INVESTMENTS (100.26%) 282,118,270
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.26%) (739,413)
-------- ------------
TOTAL NET ASSETS (100.00%) $281,378,857
======== ============
(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 transaction exempt from
registration. Rule 144A securities amounted to $10,571,258 or 3.76% of
net assets as of October 31, 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.
10
<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. 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. Therfore, no federal income tax provision is required.
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, 1999, which have no effect on the Fund's net
assets, net investment income or net realized gains.
The Fund had the option and had choosen 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 3.55% to 4.15% and 3.54% to 4.27%, respectively, during the
year ended October 31, 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.
11
<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 1.00% annually of the Fund's average weekly net
assets. For the year ended October 31, 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. Maureen R. Ford,
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 through
December 31, 1999. 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.
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, 1999, aggregated $74,689,673 and $78,712,151, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1999.
The cost of long-term investments owned at October 31, 1999 for federal
income tax purposes was $271,022,380. Gross unrealized appreciation and
depreciation of investments aggregated $21,019,139 and $9,923,249, respectively,
resulting in net unrealized appreciation of $11,095,890 for federal income tax
purposes.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the period ended October 31, 1999, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of $510,812,
an increase in undistributed net investment income of $523,093 and a decrease in
capital paid-in of $12,281. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1999. 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 federal excise taxes. The calculation of net
investment income per share in the financial highlights excludes these
adjustments.
12
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
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, 1999, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended
October 31, 1999 and 1998 and the financial highlights for each of the years in
the three-year period ended October 31, 1999. 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 two-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, 1999 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the Fund at
October 31, 1999, 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.
/s/DELOITTE & TOUCHE LLP
- ------------------------
Boston, Massachusetts
December 3, 1999
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,
1999.
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 1999 U.S.Treasury Department Form
1099-DIV in January 2000. This will reflect the tax character of all
distributions for calendar year 1999.
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 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 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.
15
<PAGE>
================================================================================
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