SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Patriot Select
Dividend Trust
DECEMBER 31, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second 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 AUCTION
MARKET PREFERRED SHARES
THE CHASE MANHATTAN BANK
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
LISTED NEW YORK STOCK EXCHANGE SYMBOL: DIV
JOHN HANCOCK CLOSED-END FUNDS:
1-800-843-0090
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 were anything but dull. Bond investors enjoyed the
benefits of a strong economy with no inflation. Stock investors were treated to
record-breaking performance by the Dow Jones Industrial Average, but with
record-breaking volatility. After two years of strong advances with relatively
minor swings, the stock market's recent sharp drops and enormous rebounds have
caused a fair share of investor concern.
The latest round began in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had bounced back, yet it and many markets remained edgy and more
volatile as investors sorted out the Asian turmoil and its implications on
economic growth, interest rates and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
2
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BY GREGORY K. PHELPS, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock Patriot
Select Dividend Trust
Utility stocks surge ahead, powered by
positive legislative and economic backdrop
A heady combination of legislative, economic and market factors powered an
electric utility stock rally during the past six months. Electric stocks --
which made up roughly 70% of investments at the end of the period -- were the
beneficiary of three major trends. First, the legislative environment turned
decidedly more favorable. Since the dawn of electricity, most industrial and
residential customers have been forced to rely on one monopolistic provider as
the source of their power. More recently, several states have allowed
competition from out-of-state electric providers as a way to force electric
rates lower, and many more states are considering doing the same. But along the
path to more competition, state governments have been struggling with the issue
of "stranded costs." Simply put, the issue is this: How much, if any, of the
costs incurred from government-approved expansions taken on years ago can the
utilities recoup? The fear is that increased competition among electric
providers will drive electric rates lower, thereby curtailing utilities' ability
to recover these costs. During the period, however, two states -- California and
Massachusetts -- offered up plans to allow competition without "stranding"
utilities with these costs. Market participants viewed those developments as
positive, expecting many other states to mimic the California and Massachusetts
plans.
"...the legislative environment turned decidedly more favorable."
[A 2 1/4" x 3" photo of the portfolio management team at bottom right. Caption
reads: Fund management team members (l - r): Susan Kelly, Gregory Phelps, Mark
Maloney and Pam Kustas]
3
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John Hancock Funds - Patriot Select Dividend Trust
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[PIE CHART OMITTED]
[Page 4 Pie chart entitled "Portfolio Diversification" at top left hand column.
The chart is divided into three sections. Going from top right to left:
Industrials 9%; Utilities 70%; Financials 21%. A footnote below states: "As a
percentage of net assets on December 31, 1996."]
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Massachusetts
utility
companies
stand out.
The other two trends that helped to light up electric utility stocks were
macro-economic ones. On the global front, utility stocks were buoyed by the
currency and economic problems in Southeast Asia. The "Asian contagion" set off
a flight to safety, whereby investors preferred to own domestically-oriented
companies less susceptible to a slowdown in global and U.S. economic growth,
should that occur. Here in the U.S., falling interest rates also helped utility
stocks, since they offer relatively high dividends and as such are interest-rate
sensitive.
With this backdrop, John Hancock Patriot Select Dividend Trust had a strong
total return of 14.14% at net asset value for the six-month period ended
December 31, 1997. That compared to the Dow Jones Utilities Index, which posted
a gain of 23.05% for the same six-month period.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers". The first listing is Montana
Power followed by an up arrow and the phrase "Enters agreement with telecom
providers." The second listing is Salomon, Inc. followed by an up arrow and the
phrase "Merger with Travelers Group." The third listing is AMERCO followed by a
horizontal arrow and the phrase "Erratic earnings." Footnote below reads: "See
"Schedule of Investments." Investment holdings are subject to change."]
Strategy explained
Throughout the past six months, we continued to emphasize DRD-eligible
securities. DRD stands for "dividends-received deduction" and these securities
offer major tax advantages for the corporations that invest in them. A favorable
supply/demand scenario continued to benefit most of our DRD holdings, since the
supply of DRD-eligible securities has dwindled, while demand for them remained
strong. We also maintained our emphasis on cushion-preferred and common stocks
with above-average dividend yields that tend to "cushion" them against price
swings. That focus helped our performance during periods when the bond market
was troubled, as it was in August. When interest rates were falling, however,
cushion preferreds and commons had a mixed impact on the Fund's performance.
While they augmented our yield, the price gains on these cushion preferreds
weren't as large as price gains on some common stock holdings, particularly in
the electric utility sector.
Winners and laggards
Our common stock holdings in Massachusetts-based electric utility companies were
some of our best performers over the past six months. Boston Edison was helped
by favorable developments on the legislative front in Massachusetts, as well as
by its sale of non-nuclear power plants. The legislative climate also helped
neighboring New England Electric Systems, as did sales of some of its generating
plants. Outside Massachusetts, another winner was Montana Power, one of the
lowest-cost electric providers in the United States. Our holdings in that
company were boosted in part by the news of Montana Power's partnering with
Enron and Williams Company in a telecommunications
4
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John Hancock Funds - Patriot Select Dividend Trust
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[CHART OMITTED]
[Page 5 Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the six months ended December 31, 1997."
The chart is scaled in increments of 5% from bottom to top, with 25% at the top
and 0% at the bottom. Within the chart, there are two solid bars. The first
represents the 14.14% total return for John Hancock Patriot Select Dividend
Trust. The second represents the 23.05% total return for the Dow Jones Utility
Average. Footnote below reads: "The total return for John Hancock Patriot Select
Dividend Trust is at net asset value with all distributions reinvested. The Dow
Jones Utility Average is an unmanaged index which measures the performance of
the utility industry in the United States."]
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joint venture to build fiber optic networks. Furthermore, the company's stock
got an added boost when it announced it would sell some of its generating
plants.
Beyond the electric sector we saw strong gains from some of our financial
holdings. The price of Salomon, Inc.'s preferred stock, for example, rallied on
the news that it planned to merge with insurance giant Travelers.
Fortunately, our disappointments during the period were limited. AMERCO,
the parent company of U-Haul, posted only slight gains based on uncertainty over
the company's future earnings. However, we continued to hold the stock because
it carries a coupon of 8.50%, is DRD-eligible and has three years of call
protection (a security with call protection can't be redeemed by the issuer
prematurely.) Another laggard was Commonwealth Edison, the electric company that
serves the metropolitan Chicago area. It suffered early in the period due to
concerns about the safety of its nuclear plants, its relatively high costs and a
less-than-favorable regulatory environment. More recently, the stock has shown
strength, retracing much of its earlier losses.
Outlook
Our outlook is reasonably optimistic. Recent developments suggest that the
economy may be slowing. We believe a slower U.S. economy, coupled with continued
uncertainty surrounding the Southeast Asian currency crisis and its potential
impact on global growth, eliminates the impetus for the Federal Reserve Board to
raise interest rates. On the other hand, we believe that U.S. economic growth --
although slowing -- will remain healthy enough that the Fed won't feel
comfortable lowering interest rates either. As a result, we don't expect to see
the same degree of capital appreciation generated by falling interest rates in
the first half of 1998, as we did in the last half of 1997.
"Our outlook is reasonably optimistic."
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This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
5
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Patriot Select Dividend Trust
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on December 31, 1997. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
December 31, 1997 (Unaudited)
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Assets:
Investments at value - Note C:
Preferred stocks (cost - $168,378,770) ..................... $180,366,507
Common stocks (cost - $43,057,366) ......................... 55,752,787
Short-term investments (cost - $953,931) ................... 953,931
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237,073,225
Dividends receivable ......................................... 1,495,092
Other assets ................................................. 17,624
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Total Assets ............................ 238,585,941
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Liabilities:
AMPS dividend payable ........................................ 68,756
Common Share dividend payable ................................ 1,123,935
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 220,641
Accounts payable and accrued expenses ........................ 98,257
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Total Liabilities ....................... 1,511,589
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Net Assets:
Auction Market Preferred Shares Series A (AMPS)
Without par value, unlimited number of shares of
beneficial interest authorized, 700 shares issued,
liquidation preference of $100,000 per share -
Note A ..................................................... 70,000,000
------------
Common Shares - Without par value, unlimited number
of shares of beneficial interest authorized, 9,885,027
shares issued and outstanding .............................. 139,427,509
Accumulated net realized gain on investments ................. 1,326,971
Net unrealized appreciation of investments ................... 24,685,497
Undistributed net investment income .......................... 1,634,375
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Net Assets Applicable to Common Shares:
($16.90 per share based on 9,885,027
shares outstanding) ........................................ 167,074,352
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Net Assets .............................. $237,074,352
=========================================================
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended December 31, 1997 (Unaudited)
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Investment Income:
Dividends
(net of foreign withholding taxes of $7,874) ............. $ 8,400,146
Interest ................................................... 128,862
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8,529,008
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Expenses:
Investment management fee - Note B ....................... 918,013
Administration fee - Note B .............................. 172,127
DARTS and auction fees ................................... 104,279
Custodian fee ............................................ 37,420
Auditing fee ............................................. 30,123
Printing and postage ..................................... 29,298
Transfer agent fee ....................................... 19,822
Miscellaneous ............................................ 16,314
Trustees' fees ........................................... 14,095
Legal fees ............................................... 3,803
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Total Expenses ........................ 1,345,294
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Net Investment Income ................. 7,183,714
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Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ...................... 1,487,588
Change in net unrealized appreciation/depreciation
of investments ........................................... 12,779,646
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Net Realized and Unrealized
Gain on Investments ................... 14,267,234
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Net Increase in Net Assets
Resulting from Operations ............. 21,450,948
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Distribution to AMPS .................. (1,456,808)
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Net Increase in Net Assets
Applicable to Common Share-
holders Resulting from Operations
Less AMPS Distributions ............... $ 19,994,140
========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Patriot Select Dividend Trust
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1997
JUNE 30, 1997 (UNAUDITED)
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<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................... $ 14,013,143 $ 7,183,714
Net realized gain on investments sold ............................................... 1,321,734 1,487,588
Change in net unrealized appreciation/depreciation of investments ................... 5,182,877 12,779,646
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Net Increase in Net Assets Resulting from Operations ............................. 20,517,754 21,450,948
------------- -------------
Distributions to Shareholders:
AMPS ($4,009 and $2,081 per share, respectively) - Note A ........................... (2,806,445) (1,456,808)
Common Shares - Note A
Dividends from net investment income ($1.2371 and $0.7216 per share, respectively) (12,228,832) (7,133,471)
------------- -------------
Total Distributions to Shareholders .............................................. (15,035,277) (8,590,279)
------------- -------------
Net Assets:
Beginning of period ................................................................. 218,731,206 224,213,683
------------- -------------
End of period (including undistributed net investment income
of $3,040,940 and $1,634,375, respectively) ...................................... $ 224,213,683 $ 237,074,352
============= =============
</TABLE>
Analysis of Common Shareholder Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1997
JUNE 30, 1997 (UNAUDITED)
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period ........................ 9,885,027 $ 138,623,025 9,885,027 $ 139,427,509
Reclassification of net realized long-term gains retained
on investments sold (net of federal income taxes of $516,849) -- 959,861 -- --
Reclassification of capital accounts ........................... -- (155,377) -- --
------------- ------------- ------------- -------------
Shares outstanding, end of period .............................. 9,885,027 $ 139,427,509 9,885,027 $ 139,427,509
============= ============= ============= =============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses and distributions paid
to shareholders. The footnote illustrates any reclassification of capital
amounts and the number of shares outstanding at the beginning and 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 Select Dividend Trust
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
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<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED
------------------------------------------------------------ DECEMBER 31, 1997
1993 1994 1995 1996 1997 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Common Shares
Per Share Operating Performance
Net Asset Value, Beginning of Period .......... $ 15.78 $ 17.33 $ 13.17 $ 14.56 $ 15.05 $ 15.60
-------- -------- -------- -------- -------- --------
Net Investment Income ......................... 1.31 1.34 1.62 1.50 1.42 0.73
Net Realized and Unrealized Gain (Loss) on
Investments ................................ 2.11 (3.47) 1.31 0.53 0.65 1.44
-------- -------- -------- -------- -------- --------
Total from Investment Operations ........... 3.42 (2.13) 2.93 2.03 2.07 2.17
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends to AMPS Shareholders ................ (0.22) (0.22) (0.30) (0.30) (0.28) (0.15)
Distributions to Common Shareholders from Net
Investment Income .......................... (1.08) (1.30) (1.24) (1.13) (1.24) (0.72)
Distributions to Common Shareholders from
Net Realized Short-Term Gain on Investments (0.57) (0.51) -- (0.11) -- --
-------- -------- -------- -------- -------- --------
Total Distributions ........................ (1.87) (2.03) (1.54) (1.54) (1.52) (0.87)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ................ $ 17.33 $ 13.17 $ 14.56 $ 15.05 $ 15.60 $ 16.90
======== ======== ======== ======== ======== ========
Per Share Market Value, End of Period ......... $ 18.250 $ 12.750 $ 13.875 $ 14.250 $ 14.313 $ 15.375
Total Investment Return at Market Value ....... 19.14% (21.60%) 19.73% 11.83% 9.38% 11.82%(5)
Ratios and Supplemental Data
Net Assets Applicable to Common Shares,
End of Period (000s omitted) ................ $170,512 $130,157 $143,914 $148,731 $154,214 $167,074
Ratio of Expenses to Average Net Assets (1) ... 1.52% 1.30% 1.29% 1.25% 1.24% 1.17%
Ratio of Net Investment Income to Average
Net Assets (1) ............................. 5.50% 5.83% 7.96% 6.79% 6.36% 6.26%
Portfolio Turnover Rate ....................... 53% 39% 107% 49% 47% 19%
Average Broker Commission Rate (4) ............ N/A N/A N/A N/A $ 0.0702 $ 0.0658
Senior Securities
Total AMPS Outstanding (000s omitted) ......... $ 70,000 $ 70,000 $ 70,000 $ 70,000 $ 70,000 $ 70,000
Asset Coverage per Unit (2) ................... $339,312 $285,137 $305,754 $306,112 $318,281 $337,336
Involuntary Liquidation Preference per Unit (3) $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit (3) ......... $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
</TABLE>
(1) Ratios calculated on the basis of expenses and net investment income
applicable to both the common and preferred shares relative to the average
net assets for both common and preferred shares.
(2) Calculated by subtracting the Fund's total liabilities (not including the
AMPS) from the Fund's total assets and dividing such amount by the number
of AMPS outstanding as of the applicable 1940 Act Evaluation Date.
(3) Plus accumulated and unpaid dividends.
(4) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(5) Not annualized.
The Financial Highlights summarizes the impact of the following factors on a
single share for each 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 Select Dividend Trust
Schedule of Investments
December 31, 1997 (Unaudited)
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The Schedule of Investments is a complete list of all securities owned by the
Patriot Select Dividend Trust on December 31, 1997. 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
Automobile/Trucks (5.26%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B ................... 174,785 $ 5,090,613
General Motors Corp., 9.12%,
Depositary Shares, Ser G ................... 170,000 4,802,500
General Motors Corp., 9.125%,
Depositary Shares, Ser B ................... 97,750 2,572,047
-----------
12,465,160
-----------
Banks - Foreign (0.64%)
Australia and New Zealand Banking Group
Ltd., 9.125% (Australia) ................... 55,000 1,519,375
-----------
Banks - United States (8.07%)
ABN AMRO North America, Inc., 6.59%,
Ser H (R) .................................. 4,000 4,300,000
Chase Manhattan Corp., 10.84%, Ser C ......... 77,300 2,357,650
Chase Manhattan Corp., 9.76%, Ser B .......... 51,000 1,399,312
Fleet Financial Group, Inc., 6.75%, Ser VI ... 119,000 6,545,000
Fleet Financial Group, Inc., 9.35%,
Depositary Shares .......................... 165,000 4,537,500
-----------
19,139,462
-----------
Broker Services (3.89%)
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A ................... 179,700 5,570,700
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares .......................... 66,000 3,663,000
-----------
9,233,700
-----------
Diversified Operations (0.30%)
Grand Metropolitan Delaware, L.P., 9.42%,
Gtd Ser A .................................. 25,000 718,750
-----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Finance (1.97%)
MBNA Corp., 7.50%, Ser A ..................... 133,400 $ 3,543,437
SI Financing Trust I, 9.50%,
Gtd Pfd Sec & Purchase Contract ............ 41,700 1,125,900
-----------
4,669,337
-----------
Insurance (4.85%)
Travelers Group, Inc., 8.40%,
Depositary Shares, Ser K ................... 165,000 4,537,500
Travelers Group, Inc., 6.231%,
Depositary Shares, Ser H ................... 92,400 4,712,400
Travelers Group, Inc., 6.213% ................ 44,000 2,244,000
-----------
11,493,900
-----------
Leasing Companies (1.62%)
AMERCO, 8.50%, Ser A ......................... 105,000 2,782,500
Capita Preferred Trust, 9.06% ................ 40,000 1,067,500
-----------
3,850,000
-----------
Oil & Gas (0.47%)
Lasmo Plc, 10.00%, Ser A,
American Depositary Receipt (ADR),
(United Kingdom) ........................... 42,000 1,102,500
-----------
Paper & Paper Products (2.40%)
Boise Cascade Corp., 9.40%,
Depositary Shares, Ser F ................... 103,000 2,581,437
Bowater Inc., 8.40%,
Depositary Shares, Ser C ................... 120,000 3,105,000
-----------
5,686,437
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Utilities (46.61%)
Baltimore Gas & Electric Co., 6.70%,
Ser 1993 ................................... 10,000 1,102,500
Baltimore Gas & Electric Co., 6.99%,
Ser 1995 ................................... 40,000 4,540,000
Baltimore Gas & Electric Co., 7.78%,
Ser 1973 ................................... 16,515 1,670,079
Boston Edison Co., 4.25% ..................... 39,834 2,858,090
Boston Gas Co., 6.421%, Ser A ................ 64,000 1,683,200
Coastal Corp., $2.125, Ser H ................. 111,886 2,839,107
Columbus Southern Power Co., 8.375%,
Ser A ...................................... 60,000 1,541,250
Commonwealth Edison Co., $8.38 ............... 44,700 4,447,650
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Patriot Select Dividend Trust
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Utilities (continued)
Commonwealth Edison Co., $8.40,
Ser A ...................................... 25,110 $ 2,517,278
Consumers Energy Co., $2.08 (Class A) ........ 189,575 4,917,102
Detroit Edison Co., 7.75%,
Depositary Shares .......................... 20,000 503,750
El Paso Tennessee Pipeline Co., 8.25%,
Ser A ...................................... 163,500 9,115,125
Empire Distric Electric Co., 8.125% .......... 290,365 3,030,685
Entergy Gulf States, Inc., Adjustable Rate
Preferred (ARP), Depositary Shares,
Ser B ...................................... 45,902 2,289,362
Entergy Gulf States Capital 1, 8.75%,
Ser A ...................................... 60,000 1,541,250
Florida Power & Light Co., 6.75%,
Ser U ...................................... 25,000 2,767,000
Hawaiian Electric Industries Capital Trust I,
8.36% ...................................... 50,000 1,300,000
Jersey Central Power & Light Co., 7.52%,
Ser K ...................................... 6,500 680,875
MCN Michigan, L.P., 9.375%, Ser A ............ 50,000 1,318,750
Massachusetts Electric Co., 6.84% ........... 89,000 2,347,375
Massachusetts Electric Co., 6.99% ........... 13,500 1,495,125
Monongahela Power Co., 7.73%, Ser L .......... 44,000 5,071,000
Montana Power Co., $6.875 .................... 36,500 4,042,375
NIPSCO Capital Markets, Inc., 7.75%,
Ser A ...................................... 32,000 808,000
Narragansett Electric Co., 6.95% ............. 17,950 1,007,444
PECO Energy Co., $7.48 ....................... 19,200 2,169,600
PSI Energy, Inc., 6.875% ..................... 48,000 5,334,000
Potomac Electric Power Co., $3.82,
Ser 1969 ................................... 33,743 1,729,329
Public Service Electric & Gas Co., 6.92% ..... 14,000 1,543,500
Puget Sound Energy, Inc., 7.45%, Ser II ...... 165,140 4,706,490
Puget Sound Energy, Inc., 8.50%, Ser III ..... 115,130 3,050,945
Sierra Pacific Power Capital I, 8.60% ........ 30,000 798,750
Sierra Pacific Power Co., 7.80%, Ser 1
(Class A) .................................. 183,600 5,186,700
South Carolina Electric & Gas Co., 6.52% ..... 50,000 5,400,000
Southern Union Financing I, 9.48% ........... 59,000 1,548,750
Texas Utilities Electric Co., $1.805,
Dep Shares, Ser B .......................... 67,281 1,816,587
Texas Utilities Electric Co., $1.875,
Dep Shares, Ser A .......................... 128,000 3,456,000
Texas Utilities Electric Co., $2.05,
Depositary Shares .......................... 33,500 833,313
Texas Utilities Electric Co., $7.98 .......... 29,200 3,328,800
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Utilities (continued)
UtiliCorp Capital, L.P., 8.875%, Ser A ....... 70,000 $ 1,863,750
Virginia Electric & Power Co., $6.98 ......... 10,500 1,170,750
Virginia Electric & Power Co., $7.05 ......... 10,000 1,116,250
-----------
110,487,886
-----------
TOTAL PREFERRED STOCKS
(Cost $168,378,770) ........... (76.08%) 180,366,507
----------- -----------
COMMON STOCKS
Utilities (23.52%)
Boston Edison Co. ............................ 70,000 $ 2,651,250
CINergy Corp. ................................ 45,000 1,724,063
Consolidated Edison Co. of NY, Inc. .......... 50,000 2,050,000
DPL, Inc. .................................... 158,000 4,542,500
DTE Energy Co. ............................... 46,900 1,626,844
Delmarva Power & Light Co. ................... 99,500 2,294,719
Dominion Resources, Inc. ..................... 27,000 1,149,188
Hawaiian Electric Industries, Inc. ........... 19,400 792,975
Houston Industries, Inc. ..................... 94,700 2,527,306
IES Industries, Inc. ......................... 100,000 3,681,250
Long Island Lighting Co. ..................... 44,500 1,340,562
MidAmerican Energy Holdings Co. .............. 327,600 7,207,200
Montana Power Co. ............................ 88,400 2,812,225
Nevada Power Co. ............................. 75,000 1,992,187
New England Electric System .................. 45,000 1,923,750
OGE Energy Corp. ............................. 40,000 2,187,500
Potomac Electric Power Co. ................... 92,800 2,395,400
Puget Sound Energy, Inc. ..................... 215,500 6,505,406
Southern Co. ................................. 12,000 310,500
UtiliCorp United, Inc. ....................... 70,000 2,716,875
Washington Water Power Co. ................... 136,600 3,321,087
-----------
TOTAL COMMON STOCKS
(Cost $43,057,366) ........... (23.52%) 55,752,787
----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Patriot Select Dividend Trust
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Commercial Paper (0.40%)
Chevron USA, Inc.,
Due 01-02-98............. 6.75% $954 $ 953,931
------------
TOTAL SHORT-TERM INVESTMENTS (0.40%) 953,931
------- ------------
TOTAL INVESTMENTS (100.00%) 237,073,225
------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.00%) 1,127
------- ------------
TOTAL NET ASSETS (100.00%) $237,074,352
======= ============
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $4,300,000 or 1.81% of net assets as of
December 31, 1997.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Patriot Select Dividend Trust
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Patriot Select Dividend Trust (the "Fund") is a diversified
closed-end management investment company, registered under the Investment
Company Act of 1940.
Significant accounting policies of the Fund are as follows:
VALUATION 0F 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.
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.
The Fund has chosen to retain, and pay the applicable federal income tax
on, its net long-term capital gains for its fiscal year ended June 30, 1997.
Shareholders will be informed of their proportionate share of the undistributed
net long-term gains and the tax paid on their share of such gains via IRS Form
2439, which will be mailed within sixty days of the Fund's fiscal year end.
Shareholders are required to include income reported to them on IRS Form 2439 in
their taxable income as long-term capital gain; tax paid on their behalf as
reported on IRS Form 2439 may be credited against any resulting federal income
tax liability. Information reported to shareholders on IRS Form 2439 will not be
reported on IRS Form 1099-DIV, the form usually used to report the Fund's
taxable income to its shareholders.
In addition to the above, shareholders are entitled to increase the
adjusted tax basis of their share of the tax paid by the Fund on such gains, as
reported on IRS Form 2439.
DIVIDENDS, DISTRIBUTIONS AND INTEREST 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 June 30, 1997, which has no effect on the Fund's net assets, net
investment income or net realized gains.
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.
AUCTION MARKET PREFERRED SHARES SERIES A (AMPS) The Fund issued 700 shares of
Auction Market Preferred Shares Series A (AMPS) on August 30, 1990 in a public
offering. The underwriting discount was recorded as a reduction of the capital
of the Common Shares. Dividends on the AMPS, which accrue daily, are cumulative
at a rate which was established at the offering of the AMPS and have been reset
every 49 days thereafter by an auction. Dividend rates ranged from 4.00% to
4.42% during the period ended December 31, 1997.
The AMPS 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 AMPS 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 AMPS. If the dividends on the AMPS shall remain unpaid in an
amount equal to two full years' dividends, the holders of the AMPS as a class
have the right to elect a majority of the Board of Trustees. In general, the
holders of the AMPS and the Common Shares have equal voting rights of one vote
per share,
12
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Patriot Select Dividend Trust
except that the holders of the AMPS, 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 AMPS and Common Shares. The AMPS
have a liquidation preference of $100,000 per share, plus accumulated and unpaid
dividends. The Fund is required to maintain certain asset coverage with respect
to the AMPS, as defined in the Fund's By-Laws.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present 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, for a continuous investment program
equivalent, on an annual basis, to the sum of 0.80% of the Fund's average weekly
net assets.
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 the sum of 0.15% of the
Fund's average weekly net assets.
Each unaffiliated Trustee is entitled, as compensation for his or her
services, to an annual fee plus remuneration for attendance at various meetings.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are directors and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as 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. At December 31, 1997, the Fund's investment to cover the deferred
compensation liability had unrealized appreciation of $2,339.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended December 31, 1997, aggregated $44,399,819 and $43,098,599, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended December 31, 1997.
The cost of investments owned at December 31, 1997 (including the
short-term investments) for federal income tax purposes was $212,390,067. Gross
unrealized appreciation and depreciation of investments aggregated $25,148,483
and $465,325, respectively, resulting in net unrealized appreciation of
$24,683,158.
13
<PAGE>
================================================================================
John Hancock Funds - Patriot Select Dividend Trust
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.
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 will automatically 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 unless an election is
made to receive cash. Holders of Common Shares who elect not to participate in
the Plan will receive all distributions in cash, paid by check, mailed directly
to the shareholder of record (or if the Common Shares are held in street or
other nominee name then to the nominee) by the Plan Agent, as dividend
disbursing agent. Shareholders whose shares are held in the name of a broker or
nominee should contact the broker or nominee to determine whether and how they
may participate in the Plan.
If the Fund declares a dividend payable either in Common Shares or in
cash, 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 participant's 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, 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 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 div-
14
<PAGE>
================================================================================
John Hancock Funds - Patriot Select Dividend Trust
idend 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 at least 90 days after 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).
15
<PAGE>
[LOGO] JOHN HANCOCK FUNDS -----------------
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