---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Patriot Premium
Dividend Fund II
OCTOBER 31, 2000
[LOGO] John Hancock
JOHN HANCOCK FUNDS
<PAGE>
--------------------------------------------
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion*
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
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, President and
Chief Executive Officer
William L. Braman
Executive Vice President and
Chief Investment 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
Bankers Trust Company
4 Albany Street
New York, New York 10005
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===================================
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years, the
financial markets have brought investors back down to earth in 2000. Rising
interest rates and oil prices, the prospects of a slowing economy and earnings
fears all caught up with pricey growth stocks - technology in particular. A
dramatic plunge in the spring and again in the fall caused the major indexes to
end October in negative territory for the year to date. The tech-heavy NASDAQ
Composite Index was hardest hit, returning -17.19% year to date through October.
But there is a silver lining. Investors have finally turned their attention to
broader swaths of the market, including old economy stocks in sectors like
financials, health care and energy, that combined both strong fundamentals and
more attractive valuation levels. Since April, less expensive value stocks have
outperformed growth stocks.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
Bonds and other fixed-income type securities also began to make a comeback as
the year progressed and investors grew more confident that the series of Fed
rate hikes might be coming to an end. Pockets of strength have emerged there,
including municipal bonds and longer-maturity Treasury bonds. The 30-year bond,
for instance, returned 13.53% year to date through October.
The market's shifts in leadership so far this year highlight one of the key
investment tenets that we can't emphasize enough: investing should be a
marathon, not a sprint. If your portfolio is diversified and you have an
up-to-date financial plan crafted with an investment professional to meet your
goals, it becomes easier to ride out the market's short-term ups and downs. It
could also provide you with a greater chance of success over time.
Sincerely,
/s/Maureen R. Ford
------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Gregory K. Phelps for the Portfolio Management Team
John Hancock Patriot
Premium Dividend Fund II
Rebound in utility stocks lights up Fund's performance
------------------------------------------------------
Utility common stocks - which made up 39% of the Fund's net assets at the end of
the Fund's fiscal year - have come on very strong so far in 2000, particularly
during the third quarter. Part of their good fortune stemmed from the fact that
utilities are among a few stock-market sectors that pay handsome dividends. They
now pay yields that are quite high from a historical perspective. They also
began to shed their traditional reputation as being supersensitive to
interest-rate changes. In fact, most utilities derive a growing portion of their
earnings from unregulated businesses such as cellular, cable and others and no
longer need to borrow large amounts to fund the building of new generating
capacity. Many investors began to embrace the notion that deregulation is
unlocking value for many utilities. Furthermore, weary investors were seeking
safer haven from the volatility that marked many other industry groups,
particularly the tech sector. And, many utility stocks were viewed favorably as
bargains after years of underperforming the stock market overall. Finally, third
quarter 2000 earnings - most of which were announced in October - proved much
better than expected, thanks to cost-cutting and merger savings, stock buybacks
and higher usage of electricity and natural gas.
Preferred-stock rebound more moderate
Preferred stocks - the Fund's other focus - steadily improved during the year,
although their performance paled in comparison to that of the utility
common-stock sector. From the beginning through the middle portion of the
period, preferreds were under pressure as worries about
--------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo bottom right side of John Hancock Patriot Premium
Dividend Fund II. Caption below reads "Fund management team members (l-r): Mark
Maloney, Beverly Cleathero and Gregory Phelps."]
--------------------------------------------------------------------------------
"Preferred stocks - the Fund's other focus - steadily improved during the
year..."
3
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund II
"Not surprisingly, our best performers during the period were utility common
stocks."
--------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into five sections (from top to left): Oil & Gas 4%, Short-Term
Investments & Other 5%, Financials 20%, Utility Preferred Stock 32% and Utility
Common Stock 39%. A note below the chart reads "As a percentage of net assets on
October 31, 2000."]
--------------------------------------------------------------------------------
inflation and a string of interest-rate hikes muted returns. Because of their
high, mostly fixed, dividends, preferred stocks tend to be quite sensitive to
interest-rate movements. Throughout the summer and early fall, however, slower
economic growth and reduced concerns about higher interest rates provided a more
favorable investment backdrop. The preferred market was further boosted by more
favorable supply and demand conditions. On the supply side, the number of
preferred stocks issued was limited in response to higher interest rates and
financing costs. Preferreds also got a lift from somewhat better demand, as
investors opportunistically looked to them for their bargain prices and high
yields. Within the preferred market, preferred stocks eligible for the
dividends-received deduction (DRD) - which offer distinct advantages to
corporate investors - lagged their non-DRD-
--------------------------------------------------------------------------------
[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 KeySpan
followed by an up arrow with the phrase "Planned merger generates excitement."
The second listing is Dominion Resources followed by an up arrow with phrase
"Rise in gas prices boosts earnings." The third listing is Western Resources
followed by a down arrow with the phrase "Credit rating downgraded." A note
below the table reads "See `Schedule of Investments,' Investment holdings are
subject to change."]
--------------------------------------------------------------------------------
eligible counterparts, which benefited from growing demand from investors
looking for cheaper alternatives to corporate bonds.
Performance review
Thanks to the recent strong performance of utility stocks, the Fund returned
9.82% at net asset value for the year ended October 31, 2000. By comparison, the
average income and preferred stock closed-end fund returned 3.76%, according to
Lipper, Inc. The Dow Jones Utility Average returned 33.34%.
Not surprisingly, our best performers during the period were utility
common stocks. Electric utility company LG&E Energy got a significant boost when
it was announced that the company would be acquired by U.K.-based PowerGen. We
also enjoyed good gains from our holdings in two Florida utility companies -
TECO Energy and Florida Progress - which were boosted in part by that state's
above-average growth in electric usage and a hospitable regulatory environment.
Dominion Resources was another good performer, thanks to its successful merger
with Consolidated Natural Gas and a surge in natural gas prices. Merger activity
and rising gas prices also boosted KeySpan, which plans to combine with Eastern
Enterprises. It is also one of the largest gas distribution utilities in the
United States. Furthermore, the company enjoyed improved profitability.
We were also rewarded for avoiding electric utilities in California,
which performed poorly due to an extremely difficult regulatory environment. On
the flip side, Western Resources drastically underperformed the utility group
due to its inability to complete a planned merger and problems with its
Protection One home security
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, 2000." The
chart is scaled in increments of 5% with 0% at the bottom and 40% at the top.
The first bar represents the 9.82% total return for John Hancock Patriot Premium
Dividend Fund II. The second bar represents the 3.76% total return for Average
income and preferred stock closed-end fund. The third bar represents the 33.34%
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 income and 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."]
--------------------------------------------------------------------------------
business. The company's credit rating was downgraded in response.
The rise of natural gas prices also helped bolster the financial
results and stock prices of our preferred holdings involved in the exploration
and production of oil and gas. Anadarko Petroleum and Devon Energy both rode
that wave and each ended the period with strong cash flow, an improved outlook
for earnings and the potential to get better credit ratings.
Outlook
We believe that the Federal Reserve is near, if not at, the end of its
tightening activities. That viewpoint is based on the fact that we're beginning
to see growing evidence that the economy is slowing. To the extent that
investors recognize the value that preferred stocks now offer, preferreds will
continue to benefit.
As for utility common stocks, we're optimistic, believing that they
have even more room to run higher. We anticipate continued consolidation in the
industry, which will likely be favorable for the group. We are particularly
bullish on the companies that offer unregulated services like broadband and
fiber optics. We believe that investors may continue to find these companies
increasingly attractive alternatives to some of the much more expensive
telecommunications and technology companies.
--------------------------------------------------------------------------------
This commentary reflects the views of 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.
"We believe that the Federal Reserve is near, if not at, the end of its
tightening activities."
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, 2000. 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, 2000
--------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Preferred stocks (cost - $177,566,260) ....................... $171,426,807
Common stocks (cost - $92,152,089) ........................... 111,277,620
Short-term investments (cost - $1,663,000) ................... 1,663,000
--------------
284,367,427
Cash .......................................................... 980
Dividends receivable .......................................... 1,147,947
Other assets .................................................. 53,288
--------------
Total Assets ...................... 285,569,642
-------------------------------------------------
Liabilities:
DARTS dividend payable ........................................ 592,374
Common shares dividend payable ................................ 975,177
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 223,902
Accounts payable and accrued expenses ......................... 135,868
--------------
Total Liabilities ................. 1,927,321
-------------------------------------------------
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 ....................................... 168,349,024
Accumulated net realized gain on investments .................. 790,852
Net unrealized appreciation of investments .................... 12,986,078
Undistributed net investment income ........................... 1,516,367
--------------
Net Assets applicable to
Common Shares ($12.24 per
share based on 15,002,724
shares outstanding) ............... 183,642,321
-------------------------------------------------
Net Assets ........................ $283,642,321
=================================================
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, 2000
--------------------------------------------------------------------------------
Investment Income:
Dividends ..................................................... $18,952,357
Interest ...................................................... 134,993
--------------
............................................................... 19,087,350
--------------
Expenses:
Investment management fee - Note B ........................... 2,323,834
Accounting and legal service fee - Note B .................... 273,894
DARTS and auction fees ....................................... 267,292
Federal excise tax ........................................... 70,074
Custodian fee ................................................ 68,835
Auditing fee ................................................. 56,950
Miscellaneous ................................................ 49,426
Printing and postage ......................................... 47,568
Transfer agent fee ........................................... 38,510
Trustees' fees ............................................... 13,223
Legal fees ................................................... 2,567
--------------
Total Expenses .................... 3,212,173
-------------------------------------------------
Net Investment Income ............. 15,875,177
-------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ......................... 792,931
Change in net unrealized appreciation (depreciation)
of investments ............................................... 1,883,344
--------------
Net Realized and Unrealized
Gain on Investments ............... 2,676,275
-------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ......... 18,551,452
=================================================
Distribution to DARTS
Shareholders ...................... (4,586,610)
-------------------------------------------------
Net Increase in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less DARTS
Distributions ..................... $13,964,842
==================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Patriot Premium Dividend Fund II
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------
1999 2000
------------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .............................................................. $15,998,079 $15,875,177
Net realized gain on investments sold .............................................. 1,426,057 792,931
Change in net unrealized appreciation (depreciation) of investments ................ (17,924,063) 1,883,344
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................... (499,927) 18,551,452
--------------- ---------------
Distributions to Shareholders:
DARTS Series A - ($3,912 and $4,599 per share, respectively) - Note A .............. (1,956,188) (2,299,317)
DARTS Series B - ($3,937 and $4,575 per share, respectively) - Note A .............. (1,968,729) (2,287,293)
Common Shares - Note A:
Dividends from accumulated net investment income ($0.84 and $0.81 per
share, respectively) ............................................................. (12,655,871) (11,701,378)
Distributions in excess of accumulated net investment income ($0.01 and
none per share, respectively) .................................................... (95,696) -
--------------- ---------------
Total Distributions to Shareholders .............................................. (16,676,484) (16,287,988)
--------------- ---------------
Net Assets:
Beginning of period ................................................................ 298,555,268 281,378,857
--------------- ---------------
End of period (including undistributed net investment income of $427,397
and $1,516,367, respectively) ..................................................... $281,378,857 $283,642,321
=============== ===============
Analysis of Common Shareholder Transactions:
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1999 2000
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------ --------------
Shares outstanding, beginning of period ........................... 15,002,724 $168,433,934 15,002,724 $168,421,653
Reclassification of capital account - Note D ...................... - (12,281) - (72,629)
------------ -------------- ------------- --------------
Shares outstanding, end of period ................................. 15,002,724 $168,421,653 15,002,724 $168,349,024
============ ============== ============= =============
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,
----------------------------------------------------------------------
1996 1997 1998 1999 2000
-------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $11.88 $11.76 $12.34 $13.23 $12.09
-------- -------- -------- -------- --------
Net Investment Income(1) ..................................... 1.19 1.16 1.09 1.07 1.06
Net Realized and Unrealized Gain (Loss) on Investments ....... (0.06) 0.75 0.97 (1.10) 0.21
-------- -------- -------- -------- --------
Total from Investment Operations ............................ 1.13 1.91 2.06 (0.03) 1.27
-------- -------- -------- -------- --------
Less Distributions:
Dividends to DARTS Shareholders .............................. (0.28) (0.27) (0.27) (0.26) (0.31)
Dividends to Common Shareholders from Net Investment Income .. (0.97) (1.06) (0.90) (0.84) (0.81)
Distributions in Excess of Net Investment Income ............. - - - (0.01) -
-------- -------- -------- -------- --------
Total Distributions ......................................... (1.25) (1.33) (1.17) (1.11) (1.12)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............................... $11.76 $12.34 $13.23 $12.09 $12.24
======== ======== ======== ======== ========
Per Share Market Value, End of Period ........................ $10.875 $11.500 $12.125 $9.750 $10.125
Total Investment Return, at Market Value ..................... 9.86% 16.12% 13.51% (13.16%) 12.56%
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of
Period (000s omitted) ....................................... $176,504 $185,127 $198,555 $181,379 $183,642
Ratio of Expenses to Average Net Assets(2) ................... 1.98% 1.89% 1.72% 1.74% 1.85%
Ratio of Net Investment Income to Average Net Assets(3) ...... 10.15% 9.71% 8.24% 8.29% 9.13%
Portfolio Turnover Rate ...................................... 35% 41% 27% 26% 18%
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(4) ................................... $272,651 $284,939 $302,763 $286,177 $283,629
Involuntary Liquidation Preference DARTS A per Unit(5) ....... $100,000 $100,000 $100,000 $100,000 $100,000
Involuntary Liquidation Preference DARTS B per Unit(5) ....... $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit(5) ......................... $100,000 $100,000 $100,000 $100,000 $100,000
(1) Based on the average of the shares outstanding at the end of each month.
(2) Ratios calculated on the basis of expenses relative to the average net
assets for common shares. Without the exclusion of preferred shares, the ratio
of expenses would have been 1.26%, 1.21%, 1.14%, 1.14% and 1.17%, respectively.
(3) Ratios calculated on the basis of net investment income relative to the
average net assets of common shares. Without the exclusion of preferred shares,
the ratio of net investment income would have been 6.47%, 6.24%, 5.48%, 5.46%
and 5.80%, respectively.
(4) Calculated by subtracting the Fund's total liabilities (excluding 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, which may differ from
the financial reporting date.
(5) Plus accumulated and unpaid dividends.
</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, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fund on October 31, 2000. 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 (1.28%)
Ocean Spray Cranberries, Inc.,
6.25% (R) ................................. 45,000 $3,633,750
----------
Automobile / Trucks (1.90%)
General Motors Corp., 9.12%,
Depositary Shares, Ser G .................. 208,800 5,402,700
----------
Banks - United States (5.73%)
ABN AMRO North America, Inc., 8.75%,
Ser A (R) ................................. 1,060 1,123,600
Chase Manhattan Corp., 10.84%, Ser C ....... 137,376 3,691,980
FleetBoston Financial Corp., 6.75%,
Depositary Shares, Ser IV ................. 97,000 4,947,000
HSBC USA, Inc., $2.8575 .................... 35,000 1,443,750
J.P. Morgan & Company, Inc., 6.625%,
Depositary Shares, Ser H .................. 100,000 5,050,000
----------
16,256,330
----------
Broker Services (7.31%)
Bear Stearns Cos., Inc., 5.72%, Ser F ...... 92,800 3,723,600
Bear Stearns Cos., Inc., 6.15%, Ser E ...... 38,000 1,586,500
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D .................. 104,000 4,147,000
Lehman Brothers Holdings, Inc., 5.94%,
Ser C ..................................... 71,000 2,875,500
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A .................. 132,300 3,844,969
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares ......................... 91,000 4,561,375
----------
20,738,944
----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
------------------- ---------------- ------
Diversified Operations (0.38%)
Grand Metropolitan Delaware, L.P.,
9.42%, Gtd Ser A .......................... 42,000 $1,076,250
----------
Finance (6.56%)
Citigroup, Inc., 6.213%, Ser G ............. 96,000 4,296,000
Citigroup, Inc., 6.231%,
Depositary Shares, Ser H .................. 64,500 2,894,437
Citigroup, Inc., 6.365%,
Depositary Shares, Ser F .................. 28,500 1,275,375
Citigroup, Inc., 8.40%,
Depositary Shares, Ser K .................. 160,000 4,090,000
SI Financing Trust I, 9.50%, Gtd Pfd
Sec & Purchase Contract ................... 50,100 1,261,894
USA Education, Inc., 6.97%, Ser A .......... 100,000 4,775,000
----------
18,592,706
----------
Leasing Companies (0.77%)
AMERCO, 8.50%, Ser A ....................... 90,600 2,174,400
----------
Oil & Gas (4.44%)
Anadarko Petroleum Corp., 5.46%,
Depositary Shares ......................... 37,348 3,015,851
Apache Corp., 5.68%,
Depositary Shares, Ser B .................. 32,500 2,721,875
Devon Energy Corp., 6.49%, Ser A ........... 50,000 4,712,500
Lasmo America Ltd., 8.15% (R) .............. 20,000 2,140,000
----------
12,590,226
----------
Utilities (32.07%)
Alabama Power Co., 5.20% ................... 266,900 5,104,462
Baltimore Gas & Electric Co., 6.70%,
Ser 1993 .................................. 10,000 975,000
Baltimore Gas & Electric Co., 6.99%,
Ser 1995 .................................. 30,000 3,030,000
Boston Edison Co., 4.78% ................... 54,498 3,773,987
Coastal Finance I, 8.375% .................. 140,000 3,307,500
El Paso Tennessee Pipeline Co., 8.25%,
Ser A ..................................... 181,100 9,100,275
Florida Power & Light Co., 6.75%, Ser U .... 33,000 3,250,500
FPC Capital I, 7.10%, Ser A ................ 186,465 3,939,073
Hawaiian Electric Industries Capital Trust I,
8.36% ..................................... 52,000 1,241,500
Idaho Power Co., 7.07% ..................... 14,000 1,428,000
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 (continued)
Indianapolis Power & Light Co., 5.65%........ 11,150 $894,787
Massachusetts Electric Co., 6.99% ........... 16,500 1,652,063
MCN Michigan, L.P., 9.375%, Ser A ........... 50,000 1,243,750
Monongahela Power Co., 7.73%, Ser L ......... 45,500 4,743,375
Montana Power Co., $6.875 ................... 50,000 4,937,500
PSI Energy, Inc., 6.875% .................... 45,430 4,520,285
Public Service Electric & Gas Co., 6.92% .... 45,500 4,470,375
Puget Sound Energy, Inc., 7.45%, Ser II ..... 155,711 3,970,630
Sierra Pacific Power Capital I, 8.60% ....... 32,000 766,000
Sierra Pacific Power Co., 7.80%, Ser 1
(Class A) .................................. 155,986 3,997,141
South Carolina Electric & Gas Co.,
6.52% ...................................... 50,000 4,775,000
TDS Capital Trust I, 8.50% .................. 157,415 3,699,253
TDS Capital Trust II, 8.04% ................. 112,700 2,569,560
TXU Electric Co., $1.875,
Depositary Shares, Ser A ................... 122,380 3,074,797
TXU Electric Co., $7.98 ..................... 34,500 3,613,875
UtiliCorp Capital, L.P., 8.875%, Ser A ...... 95,500 2,327,813
Virginia Electric & Power Co., $6.98 ........ 35,000 3,535,000
Virginia Electric & Power Co., $7.05 ........ 10,000 1,020,000
----------
90,961,501
----------
TOTAL PREFERRED STOCKS
(Cost $177,566,260) (60.44%) 171,426,807
--------- ------------
COMMON STOCKS
Utilities (39.23%)
Alliant Energy Corp. ........................ 199,900 6,059,469
Ameren Corp. ................................ 62,000 2,464,500
Avista Corp. ................................ 18,785 421,488
CH Energy Group, Inc. ....................... 176,300 6,941,812
Conectiv, Inc. (Class A) .................... 20,100 179,644
Consolidated Edison, Inc. ................... 42,000 1,477,875
Dominion Resources, Inc. .................... 79,700 4,747,131
DPL, Inc. ................................... 107,000 3,036,125
DTE Energy Co. .............................. 177,500 6,412,187
Duke Energy Corp. ........................... 37,500 3,241,406
Eastern Enterprises ......................... 43,400 2,793,875
Energy East Corp. ........................... 141,000 2,846,438
Florida Progress Corp. ...................... 176,250 9,374,297
Kansas City Power & Light Co. ............... 177,200 4,263,875
KeySpan Corp. ............................... 95,000 3,342,813
LG&E Energy Corp. ........................... 207,250 5,090,578
Montana Power Co. ........................... 254,600 7,192,450
NSTAR ....................................... 125,000 4,835,938
OGE Energy Corp. ............................ 246,000 5,058,375
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
------------------- ---------------- -------
Utilities (continued)
Potomac Electric Power Co. .................. 221,500 $5,066,813
Puget Sound Energy, Inc. .................... 145,400 3,571,387
Reliant Energy, Inc. ........................ 82,300 3,400,019
Sierra Pacific Resources .................... 349,000 5,998,437
TECO Energy, Inc. ........................... 175,750 4,899,031
UtiliCorp United, Inc. ...................... 122,500 3,253,906
Western Resources, Inc. ..................... 103,500 2,212,313
WPS Resources Corp. ......................... 37,400 1,203,813
Xcel Energy, Inc. ........................... 74,000 1,891,625
----------
TOTAL COMMON STOCKS
(Cost $92,152,089) (39.23%) 111,277,620
-------- ------------
INTEREST PAR VALUE
RATE (000s OMITTED)
---------- --------------
SHORT-TERM INVESTMENTS
Commercial Paper (0.59%)
Chevron USA, Inc., 11-01-00... 6.50% $1,663 1,663,000
-------- -----------
TOTAL SHORT-TERM INVESTMENTS (0.59%) 1,663,000
-------- -----------
TOTAL INVESTMENTS (100.26%) 284,367,427
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.26%) (725,106)
-------- -----------
TOTAL NET ASSETS (100.00%) $283,642,321
======== ============
(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 $6,897,350 or 2.43% of net assets as of
October 31, 2000.
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. Therefore, 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 income tax regulations.
USE OF ESTIMATES The preparation of these financial statements, in accordance
with accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported amount of
assets, liabilities, revenues and expenses of the Fund. Actual results could
differ from these estimates.
DUTCH AUCTION RATE TRANSFERABLE SECURITIES PREFERRED STOCK SERIES A AND SERIES B
(DARTS) Dividends on the DARTS, which accrue daily, are cumulative at a rate
which was established at the offering of the DARTS and have been reset every 49
days thereafter by auction. Dividend rates on the DARTS Series A and Series B
ranged from 4.090% to 4.840% and 4.050% to 4.850%, respectively, during the
period ended October 31, 2000. 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.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Fund has an investment management contract with John Hancock Advisers, Inc.
(the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, Inc.
Under the investment management contract, the Fund pays a monthly management fee
to the Adviser 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, 2000, 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
11
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Patriot Premium Dividend Fund II
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. Stephen L. Brown and Ms. Maureen R. Ford are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of the Fund.
The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated
Trustees may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes
investments into other John Hancock funds, as applicable, to cover its liability
for the deferred compensation. Investments to cover the Fund's deferred
compensation liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. The Deferred Compensation
Plan investments had no impact on the operations of the Fund.
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, 2000, aggregated $49,236,985 and $48,200,388, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 2000.
The cost of investments owned at October 31, 2000 (including short-term
investments) for federal income tax purposes was $271,401,093. Gross unrealized
appreciation and depreciation of investments aggregated $24,579,923 and
$11,613,589, respectively, resulting in net unrealized appreciation of
$12,966,334.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 2000, the Fund has reclassified amounts to
reflect a decrease in net realized gain on investments of $1,429,152, an
increase in accumulated net investment income of $1,501,781 and a decrease in
capital paid-in of $72,629. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 2000. 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 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, 2000, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended
October 31, 2000 and 1999 and the financial highlights for each of the years in
the four-year period ended October 31, 2000. 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 the year
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 auditing standards generally
accepted in the United States of America. 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, 2000 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the Fund at
October 31, 2000, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 6, 2000
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,
2000.
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 2000 U.S. Treasury Department Form
1099-DIV in January 2001. This will reflect the tax character of all
distributions for calendar year 2000.
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).
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 16, 2000, the Annual Meeting of John Hancock Patriot Premium Dividend
Fund II (the "Fund") was held to elect four 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
--- ---------
Maureen R. Ford 13,414,058 167,991
Charles L. Ladner 13,412,308 169,740
The preferred shareholders elected Ronald R. Dion and Richard S.
Scipione to serve until their respective successors are duly elected and
qualified, with the votes tabulated as follows: 740 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, 2000, with the votes tabulated as follows: 13,440,861 FOR, 53,338 AGAINST
and 88,589 ABSTAINING.
15
<PAGE>
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