SEMIANNUAL Report
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[GRPAHIC OMITTED]
Patriot Select Dividend Trust
DECEMBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin
William H. Cunningham*
Ronald R. Dion*
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Leo E. Linbeck, Jr.
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer and
Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN AND TRANSFER AGENT
FOR COMMON SHAREHOLDERS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT FOR 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
For shareholder assistance
refer to page 15
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============================CHAIRMANS MESSAGE===================================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial
market investors pause - and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds - considered a safer alternative to stocks - went on a roller coaster
ride.
One lesson came through loud and clear this year: sticking out the
tough times paid off. After reaching new highs in mid-July, stocks plunged in
August in one of their worst sell-offs in years. The average U.S.
diversified-equity mutual fund fell 16.8% in the month of August alone. For many
mutual fund investors, it was the largest one-month loss they had ever
experienced, since the average equity fund had only had three such double-digit
monthly losses in the previous 20 years, most recently in October 1987. This
year, in a dramatic reversal of fortune, the market staged a stunning rebound in
the fourth quarter. The average U.S. diversified-equity fund made up all its
August lost ground and then some, returning 18.8% between October and December.
The result for the year: an average 14.52% return, as calculated by Lipper
Analytical Services, Inc.
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[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Given the dramatic swings, investors who tried to time the market's ups
and downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during this summer of
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
As we begin 1999, volatility remains on many investors' minds. But at
this time of year, many investors' thoughts also turn to more taxing matters. In
our view, now is a perfect time to focus on how much of your hard-earned money
you are able to keep. Part of a good tax-planning strategy should involve a
review of your portfolio to ensure that you are taking advantage of all
available ways to minimize and defer your tax payments - in an effort to
maximize investment returns.
We encourage you to work with your investment professional to consider
the various options. These include focusing on tax-exempt funds, contributing
the maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/Edward J. Boudreau, Jr.
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EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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By Gregory K. Phelps, for the Portfolio Management Team
John Hancock Patriot
Select Dividend Trust
Preferred stocks stage late-period rally;
utilities continue to post good results
The second half of 1998 started out as a trying time for preferred stocks,
although they ended the period on a strong note. Because of their relatively
fixed and high dividends, preferred stocks usually move in the same direction as
other fixed-income investments, marching higher in price when interest rates
decline and lower when rates rise. But despite quickly falling interest rates -
courtesy of three interest-rate cuts by the Federal Reserve Board - and a robust
U.S. Treasury bond market, preferred stocks suffered early on over persistent
worries that corporate earnings and profitability would slow. In the final weeks
of the period, however, there was relatively good news on the earnings front and
preferred stocks staged an impressive rally in response. In addition, a large
electric company redeemed a major portion of its outstanding preferred stock,
thereby reducing the overall supply of preferreds.
Utility common stocks, a growing emphasis of the Fund, enjoyed strong
performance. The devaluation of Russia's currency, persistent concern about
Japan's ability to stem an expanding regional recession, the collapse of a giant
hedge fund, President Clinton's impending impeachment proceedings and increased
stock market volatility all conspired to prompt investors to seek safe-haven
investments - including utility common stocks - in the early months of the
Fund's six-month period. In addition, with fears that the economy was slowing,
utility stocks were in stronger demand because electricity, water, natural gas
and phone service are viewed as relatively recession-proof areas. In the final
months of 1998, however, utility stocks were somewhat flat because investors
gravitated back to higher-growth segments of the market.
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[A 3 1/2" x 2" photo at bottom right side of page of John Hancock Patriot Select
Dividend Trust. Caption below reads "Fund management team members (l-r):
Sylvester Marquardt, Mark Maloney, Beverly Cleathero and Gregory Phelps."]
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"Utility common stocks... enjoyed strong performance."
3
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John Hancock Funds - Patriot Select Dividend Trust
"Our biggest disappointments came from the energy sector."
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[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into four sections (from top to left): Short-Term Investments &
Other 2%, Industrials 8%, Financials 21% and Utilities 69%. A note below the
chart reads "As a percentage of net assets on December 31, 1998."]
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Performance and strategy review
For the six months ended December 31, 1998, John Hancock Patriot Select Dividend
Trust had a total return of 9.98%, at net asset value. For the same period, the
Dow Jones Utilities Average - which tracks the performance of 15 electric and
natural gas companies - returned 18.81%.
Throughout the period, we added to our stake in utility preferred and
common stocks, with the bulk of our purchases occurring when their prices were
weak in July and August. By the end of the period, utility stocks made up 69% of
the Fund's net assets, up from 67% six months earlier.
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[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is New England
Electric System followed by an up arrow with the phrase "Proposed takeover by
National Grid." The second listing is Fleet Financial Group followed by an up
arrow with the phrase "Domestic focus spurs optimism." The third listing is
Anadarko Petroleum followed by a down arrow with the phrase "Falling oil
prices." A note below the table reads "See `Schedule of Investments.' Investment
holdings are subject to change."]
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We kept the large majority of the Fund's preferred stocks in securities
eligible for the dividends-received deduction (DRD), which have benefited from
the fact that demand has outstripped supply throughout most of the 1990s. The
strong demand for DRDs stems from the fact that they offer tax advantages to the
corporations that invest in them. Although the supply of DRD-eligible securities
continued to contract during the most recent six-month period, demand was rather
tepid and these securities languished as a result. Even so, we retained our
holdings in DRD securities because we believe that demand will firm up and once
again outstrip a dwindling supply, providing positive underpinnings for our
holdings. When Commonwealth Edison redeemed a large portion of its outstanding
DRD securities in very late December, we saw it as evidence that the supply of
DRD-eligible securities was on the decline.
Utilities higher; energy lags
Our utility holdings provided us with our biggest winners during the period. New
England Electric System's stock performed extremely well when U.K.-based
National Grid announced it would take over the company. Dominion Resources - the
parent company of Virginia Electric & Power -- also performed well, thanks to a
combination of a favorable regulatory environment and the sale of its United
Kingdom electric subsidiary at an attractive profit. Houston Industries also
posted strong gains generated by the Houston area's extremely hot summer and
unusually high demand for electricity to run air conditioning.
4
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John Hancock Funds - Patriot Select Dividend Trust
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended December 31, 1998." The
chart is scaled in increments of 5% with 0% at the bottom and 20% at the top.
The first bar represents the 9.98% total return for John Hancock Patriot Select
Dividend Trust. The second bar represents the 18.81% total return for Dow Jones
Utilities Average. A note below the chart reads "The total return for John
Hancock Patriot Select Dividend Trust is at net asset value with all
distributions reinvested. The Dow Jones Utilities Average is an unmanaged index
that measures the performance of the utility industry in the United States."]
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Our biggest disappointments came from the energy sector. Anadarko
Petroleum was hurt by the collapse in oil prices to near 12-year lows. But we
held on to the stock because we believe that oil prices may be near a bottom and
because our Anadarko holdings are relatively high-quality, DRD-eligible
securities that provide the Fund with an attractive yield. Our Anadarko
investments also have good call protection, which shields us for a stated period
of time from having to surrender higher-yielding securities to issuers
prematurely, forcing us to reinvest the proceeds at lower prevailing interest
rates.
Our financial stocks proved a mixed bag. Fleet Financial Group
performed well thanks primarily to its almost exclusive focus on U.S. customers.
Despite leading their preferred counterparts in the first half of 1998,
financial companies including Lehman Brothers Holdings and Bear Stearns
Companies stumbled in the third quarter of the year, when investors worried
about the extent of losses sustained from exposure to Russian debt, hedge funds
and other weak investments. Although they staged a partial rebound in the fourth
quarter, Lehman and Bear Stearns weren't able to recoup all of their previous
losses. Even though they were short-term disappointments, we remain optimistic
about their longer-term prospects given their attractive yields, DRD-eligibility
and good call protection.
Outlook
In our view, inflation won't be a problem in 1999 and the Federal Reserve Board
will most likely keep a bias toward lowering interest rates in its bid to keep
the U.S. and the world on a steady path toward economic growth. Even though they
weren't much help to preferreds in the final months of 1998, we think falling
interest rates will provide a favorable backdrop for preferreds in 1999. What
held preferred stocks back last year was that they were in fairly abundant
supply, and that situation had begun to taper off by year end. Looking out on
the new year, there doesn't appear to be a whole lot of new supply coming to
market in the early months. Another factor behind preferred stocks' malaise in
1998 was concern about the earnings prospects for brokers and energy companies.
Given that the earnings news for brokers actually has been quite good and that
pockets of enthusiasm for energy-company earnings have recently developed, those
concerns seem mostly behind us for now. Lower interest rates also should be a
positive for utility companies, because they often are able to reduce their
borrowing costs by refinancing debt. In addition, we think that utility
companies will benefit from the very low price of many types of energy, since
fuel is one of their largest expenses.
"In our view, inflation won't be a problem in 1999..."
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This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
5
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=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Patriot 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, 1998. You'll
also find the net asset value per share as of that date.
Statement of Assets and Liabilities
December 31, 1998 (Unaudited)
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Assets:
Investments at value - Note C:
Preferred stocks (cost - $155,079,189) ....................... $166,324,869
Common stocks (cost - $58,607,658) ........................... 73,428,918
Short-term investments (cost - $1,229,023) ................... 1,229,023
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240,982,810
Dividends receivable .......................................... 975,415
Other assets .................................................. 27,709
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Total Assets .......................... 241,985,934
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Liabilities:
AMPS dividend payable ......................................... 243,248
Common Share dividend payable ................................. 95,752
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 222,410
Accounts payable and accrued expenses ......................... 51,826
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Total Liabilities ..................... 613,236
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Net Assets:
Auction Market Preferred Shares Stock
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
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Common Shares - Without par value,
unlimited number of shares of beneficial
interest authorized, 9,885,027 shares
issued and outstanding........................................ 140,538,208
Accumulated net realized gain on investments .................. 4,558,484
Net unrealized appreciation of investments .................... 26,069,279
Undistributed net investment income ........................... 206,727
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Net Assets Applicable to Common Shares:
($17.34 per share based on 9,885,027
shares outstanding) .......................................... 171,372,698
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Net Assets ............................... $241,372,698
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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, 1998 (Unaudited)
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Investment Income:
Dividends ..................................................... $7,564,153
Interest ...................................................... 78,393
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7,642,546
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Expenses:
Investment management fee - Note B ............................ 956,938
Administration fee - Note B ................................... 179,426
AMPS and auction fees ......................................... 88,772
Custodian fee ................................................. 31,716
Auditing fee .................................................. 25,520
Printing and postage .......................................... 20,390
Miscellaneous ................................................. 20,224
Transfer agent fee ............................................ 16,474
Trustees' fees ................................................ 8,236
Legal fees .................................................... 959
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Total Expenses ......................... 1,348,655
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Net Investment Income .................. 6,293,891
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Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ......................... 1,458,849
Change in net unrealized appreciation/depreciation
of investments ............................................... 2,554,174
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Net Realized and Unrealized
Gain on Investments .................... 4,013,023
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Net Increase in Net Assets
Resulting from Operations .............. 10,306,914
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Distribution to AMPS
Shareholders ........................... (1,584,180)
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Net Increase in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less AMPS
Distributions .......................... $8,722,734
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SEE NOTES TO FINANCIAL STATEMENTS
6
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=============================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, 1998
JUNE 30, 1998 (UNAUDITED)
---------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ..................................................... $13,617,219 $6,293,891
Net realized gain on investments sold ..................................... 4,453,059 1,458,849
Change in net unrealized appreciation/depreciation of investments ......... 11,609,254 2,554,174
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Net Increase in Net Assets Resulting from Operations ................. 29,679,532 10,306,914
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Distributions to Shareholders:
AMPS ($4,143 and $2,263 per share, respectively) - Note A ................. (2,900,356) (1,584,180)
Common Shares - Note A
Dividends from net investment income
($1.2371 and $0.6185 per share, respectively) ........................... (12,228,627) (6,114,268)
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Total Distributions to Shareholders ................................. (15,128,983) (7,698,448)
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Net Assets:
Beginning of period ....................................................... 224,213,683 238,764,232
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End of period (including undistributed net investment income of
$1,611,284 and $206,727, respectively)..................................... $238,764,232 $241,372,698
============= =============
Analysis of Common Shareholder Transactions:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, 1998
JUNE 30, 1998 (UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ------------
Shares outstanding, beginning of period........................ 9,885,027 $139,427,509 9,885,027 $140,538,208
Reclassification of net realized long-term gains retained on
investments sold
(net of federal income taxes of $643,352 and none,
respectively) - Note A...................................... - 1,194,797 - -
Reclassification of capital accounts........................... - (84,098) - -
----------- ------------- ---------- ------------
Shares outstanding, end of period 9,885,027 $140,538,208 9,885,027 $140,538,208
=========== ============= ========== ============
</TABLE>
The Statement of Chnages 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 expensive, 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
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=============================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>
<S> <C> <C>
YEAR ENDED JUNE 30, SIX MONTHS ENDED
__________________________________________ DECEMBER 31, 1998
1994 1995 1996 1997 1998 (UNAUDITED)
Common Shares
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $17.33 $13.17 $14.56 $15.05 $15.60 $17.07
------ ------ ------ ------ ------ ------
Net Investment Income ............................................. 1.34 1.62 1.50 1.42 1.38 0.64
Net Realized and Unrealized Gain (Loss) on Investments ............ (3.47) 1.31 0.53 0.65 1.62 0.41
------ ------ ------ ------ ------ ------
Total from Investment Operations ................................. (2.13) 2.93 2.03 2.07 3.00 1.05
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends to AMPS Shareholders .................................... (0.22) (0.30) (0.30) (0.28) (0.29) (0.16)
Distributions to Common Shareholders from Net Investment Income ... (1.30) (1.24) (1.13) (1.24) (1.24) (0.62)
Distributions to Common Shareholders from Net Realized Short-Term
Gain on Investments .............................................. (0.51) -- (0.11) -- -- --
------ ------ ------ ------ ------ ------
Total Distributions .............................................. (2.03) (1.54) (1.54) (1.52) (1.53) (0.78)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period .................................... $13.17 $14.56 $15.05 $15.60 $17.07 $17.34
====== ====== ====== ====== ====== ======
Per Share Market Value, End of Period............................. $12.750 $13.875 $14.250 $14.313 $15.500 $15.625
Total Investment Return at Market Value .......................... (21.60%) 19.73% 11.83% 9.38% 17.26% 4.80%(5)
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of Period
(000s omitted) ..................................................$130,157 $143,914 $148,731 $154,214 $168,764 $171,373
Ratio of Expenses to Average Net Assets (1)........................ 1.88% 1.96% 1.85% 1.81% 1.68% 1.60%(6)
Ratio of Net Investment Income to Average Net Assets (2)......... 8.44% 12.20% 10.00% 9.33% 8.38% 7.46%(6)
Portfolio Turnover Rate............................................ 39% 107% 49% 47% 41% 10%
Senior Securities
Total AMPS Outstanding (000s omitted) ........................... $70,000 $70,000 $70,000 $70,000 $70,000 $70,000
Asset Coverage per Unit (3)........................................$285,137 $305,754 $306,112 $318,281 $338,876 $340,297
Involuntary Liquidation Preference per Unit (4)....................$100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit (4)..............................$100,000 $100,000 $100,000 $100,000 $100,000 $100,000
</TABLE>
(1) Ratios calculated on the basis of expenses applicable to the common and
preferred shares relative to the average net assets of common shares.
Without the exclusion of preferred shares, the ratio of expenses would have
been 1.30%, 1.29%, 1.25% 1.24%, 1.18% and 1.13%, respectively.
(2) Ratios calculated on the basis of net investment income applicable to
common shares relative to the average net assets of common shares. Without
the exclusion of preferred shares, the ratio of net investment income would
have been 5.83%, 7.96%, 6.79%, 6.36%, 5.86% and 5.26%, respectively.
(3) 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.
(4) Plus accumulated and unpaid dividends.
(5) Not annualized.
(6) Annualized.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions 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, 1998 (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, 1998. It's divided into three main
categories: preferred stocks, common stocks and short-term investments. The
stocks are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
PREFERRED STOCKS
Agricultural Operations (1.69%)
Ocean Spray Cranberries, Inc., 6.25%,
Ser A (R) .............................. 40,000 $ 4,082,000
-----------
Automobile/Trucks (2.01%)
General Motors Corp., 9.12%,
Depositary Shares, Ser G ................ 170,000 4,845,000
-----------
Banks - Foreign (0.64%)
Australia and New Zealand Banking Group
Ltd., 9.125% (Australia) ................ 55,000 1,536,562
-----------
Banks - United States (6.71%)
ABN AMRO North America, Inc., 6.59%,
Ser H (R) ............................... 2,000 2,150,000
Chase Manhattan Corp., 10.84%,
Ser C ................................... 77,300 2,290,013
Fleet Financial Group, Inc., 6.75%,
Ser VI .................................. 119,000 6,604,500
Fleet Financial Group, Inc., 9.35%,
Depositary Shares ....................... 165,000 4,393,125
Republic New York Corp., $2.8575 ......... 15,000 759,375
-----------
16,197,013
-----------
Broker Services (7.49%)
Bear Stearns Companies, Inc., 5.49%,
Ser G ................................... 42,500 1,923,125
Bear Stearns Companies, Inc., 6.15%,
Ser E ................................... 66,500 3,349,937
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D ................ 40,000 1,793,125
Lehman Brothers Holdings, Inc., 5.94%,
Ser C ................................... 100,000 4,653,125
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Broker Services (continued)
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A ................ 89,700 $2,780,700
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares ....................... 66,000 3,580,500
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18,080,512
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Diversified Operations (0.30%)
Grand Metropolitan Delaware, L.P., 9.42%,
Gtd Ser A ............................... 25,000 717,188
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Finance (5.31%)
Citigroup, Inc., 6.213%,
Ser G ................................... 44,000 2,332,000
Citigroup, Inc., 6.231%,
Depositary Shares, Ser H ................ 92,400 4,943,400
Citigroup, Inc., 8.40%,
Depositary Shares, Ser K ................ 165,000 4,444,687
SI Financing Trust I, 9.50%,
Gtd Pfd Sec & Purchase Contract ......... 41,700 1,110,262
-----------
12,830,349
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Leasing Companies (1.13%)
AMERCO, 8.50%,
Ser A ................................... 105,000 2,730,000
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Oil & Gas (4.78%)
Anadarko Petroleum Corp., 5.46%,
Depositary Shares ....................... 50,348 4,506,146
Lasmo America, Ltd., 8.15% (R) ........... 20,000 2,000,000
PennzEnergy Co., 6.49%, Ser A ........... 50,000 5,018,750
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11,524,896
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Utilities (38.85%)
Alabama Power Co., 5.20% ................. 210,000 5,250,000
Baltimore Gas & Electric Co., 6.70%,
Ser 1993 ................................ 10,000 1,135,000
Baltimore Gas & Electric Co., 6.99%,
Ser 1995 ................................ 40,000 4,745,000
Boston Edison Co., 4.25% ................. 40,951 3,291,437
Commonwealth Edison Co., $8.38 ........... 44,700 4,534,256
Commonwealth Edison Co., $8.40,
Ser A ................................... 25,110 2,569,067
El Paso Tennessee Pipeline Co., 8.25%,
Ser A ................................... 183,500 10,000,750
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)
Entergy Gulf States Capital I, 8.75%,
Ser A ................................... 87,100 $2,226,494
Florida Power & Light Co., 6.75%,
Ser U ................................... 25,000 2,845,313
Hawaiian Electric Industries
Capital Trust I, 8.36% .................. 50,000 1,318,750
Indianapolis Power & Light Co., 5.65% .... 15,000 1,621,875
MCN Michigan, L.P., 9.375%,
Ser A ................................... 50,000 1,275,000
Massachusetts Electric Co., 6.99% ........ 13,500 1,555,031
Monongahela Power Co., 7.73%,
Ser L ................................... 44,000 5,230,500
Montana Power Co., $6.875 ................ 36,500 4,174,687
NIPSCO Capital Markets, Inc., 7.75%,
Ser A ................................... 32,000 814,000
PSI Energy, Inc., 6.875% ................. 48,000 5,454,000
Public Service Electric & Gas Co., 6.92% 14,625 1,663,594
Puget Sound Energy, Inc., 7.45%,
Ser II .................................. 165,140 4,623,920
Sierra Pacific Power Capital I, 8.60% .... 30,000 781,875
Sierra Pacific Power Co., 7.80%,
Ser 1 (Class A) ......................... 183,600 5,301,450
South Carolina Electric & Gas Co., 6.52% 50,000 5,756,250
Southern Union Financing I, 9.48% ........ 59,000 1,497,125
TDS Capital Trust I, 8.50% ............... 54,000 1,356,750
Texas Utilities Electric Co., $1.805,
Dep Shares, Ser B ........................ 67,281 1,795,562
Texas Utilities Electric Co., $1.875,
Dep Shares, Ser A ........................ 102,000 2,766,750
Texas Utilities Electric Co., $7.98 ...... 29,200 3,390,850
UtiliCorp Capital, L.P., 8.875%,
Ser A ................................... 70,000 1,820,000
Virginia Electric & Power Co., $6.98 ..... 10,500 1,195,688
Virginia Electric & Power Co., $7.05 ..... 10,000 1,143,750
Washington Water Power Co., $1.24
Ser L ................................... 136,600 2,646,625
-----------
93,781,349
-----------
TOTAL PREFERRED STOCKS
(Cost $155,079,189) .............. (68.91%) 166,324,869
-------- -----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Utilities (30.42%)
BEC Energy ............................... 70,000 $2,883,125
Cinergy Corp. ............................ 45,000 1,546,875
Conectiv, Inc. (Class A) ................. 50,500 1,994,750
Conectiv, Inc. ........................... 99,500 2,437,750
Consolidated Edison, Inc. ................ 50,000 2,643,750
DPL, Inc. ................................ 237,000 5,125,125
DTE Energy Co. ........................... 46,900 2,010,838
Dominion Resources, Inc. ................. 39,000 1,823,250
Eastern Enterprises ...................... 29,900 1,308,125
Edison International ..................... 58,000 1,616,750
Hawaiian Electric Industries, Inc. ....... 19,400 780,850
Houston Industries, Inc. ................. 94,700 3,042,237
Interstate Energy Corp. .................. 114,000 3,676,500
K N Energy, Inc. ......................... 25,000 909,375
KeySpan Energy ........................... 141,000 4,371,000
LG&E Energy Corp. ........................ 42,000 1,189,125
MCN Energy Group, Inc. ................... 80,000 1,525,000
MidAmerican Energy Holdings Co. .......... 209,500 5,630,313
Montana Power Co. ........................ 88,400 5,000,125
Nevada Power Co. ......................... 75,000 1,950,000
New England Electric System .............. 53,000 2,550,625
OGE Energy Corp. ......................... 80,000 2,320,000
PacifiCorp ............................... 54,000 1,137,375
Potomac Electric Power Co. ............... 92,800 2,441,800
Public Service Enterprise Group, Inc. .... 15,000 600,000
Puget Sound Energy, Inc. ................. 215,500 6,007,063
Sempra Energy ............................ 72,648 1,843,443
Southern Co. ............................. 42,000 1,220,625
UtiliCorp United, Inc. ................... 75,000 2,751,562
Williams Cos., Inc. ...................... 35,000 1,091,562
------------
TOTAL COMMON STOCKS
(Cost $58,607,658) ............... (30.42%) 73,428,918
----------- ------------
INTEREST PAR VALUE
RATE (000s OMITTED)
SHORT-TERM INVESTMENTS
Commercial Paper (0.51%)
Chevron USA, Inc.,
Due 01-04-99 ................ 4.80% $1,230 1,229,023
------------
TOTAL SHORT-TERM INVESTMENTS (0.51%) 1,229,023
------------ ------------
TOTAL INVESTMENTS (99.84%) 240,982,810
------------ ------------
OTHER ASSETS AND LIABILITIES, NET (0.16%) 389,888
------------ ------------
TOTAL NET ASSETS (100.00%) $241,372,698
============ ============
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Patriot Select Dividend Trust
NOTES TO THE SCHEDULE OF INVESTMENTS
(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 $8,232,000 or 3.41% of
net assets as of December 31, 1998.
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 OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
Effective June 1,1998, the Fund determines the net asset value of the
Common Shares each business day.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of
the date of purchase, sale or maturity. Net realized gains and losses on sales
of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders.
DIVIDENDS, 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, 1998, 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 has been reset
every 49 days thereafter by an auction. Dividend rates ranged from 3.99% to
4.30% during the period ended December 31, 1998.
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, 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, Inc., for a continuous investment
program equivalent, on an annual basis, to the sum of 0.80% of the Fund's
average weekly net assets.
12
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS.========================
John Hancock Funds - Patriot Select Dividend Trust
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, 1998, 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, 1998, aggregated $27,168,298 and $23,373,155, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended December 31, 1998.
The cost of investments owned at December 31, 1998 (including the
short-term investments) for federal income tax purposes was $214,915,870. Gross
unrealized appreciation and depreciation of investments aggregated $28,536,082
and $2,469,142, respectively, resulting in net unrealized appreciation of
$26,066,940.
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.
The Fund's non-fundamental investment policy, with respect to the
quality of ratings of its portfolio investments, was changed by a vote of the
Fund's Trustees on September 13, 1994. The new policy, which became effective
October 15, 1994, stipulates that preferred stocks and debt obligations in which
the Fund will invest will be rated investment grade (at least "BBB" by S&P or
"Baa" by Moody's) at the time of investment or will be preferred stocks of
issuers of investment-grade senior debt, some of which may have speculative
characteristics, or, if not rated, will be of comparable quality as determined
by the Adviser. The Fund will invest in common stocks of issuers whose senior
debt is rated investment grade or, in the case of issuers who have no rated
senior debt outstanding, whose senior debt is considered by the Adviser to be of
comparable quality.
DIVIDEND REINVESTMENT PLAN
The Fund provides shareholders with a Dividend Reinvestment Plan ("the
Plan") which offers the opportunity to earn compounded yields. Each holder of
Common Shares 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 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, except where necessary to comply with federal
securities laws. If, before the Plan Agent has completed its purchases, the
market price exceeds the net asset value of the Common Shares, the average per
share purchase price paid by the Plan Agent may exceed the net asset value of
the Common Shares, resulting in the acquisition of fewer shares than if the
dividend had been paid in shares issued by the Fund.
Participants in the Plan may withdraw from the Plan upon written notice
to the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to a dividend record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant withdraws
from the Plan or upon termination of the Plan as provided below, certificates
for whole Common Shares credited to his or her account under the Plan will be
issued and a cash payment will be made for any fraction of a Share credited to
such account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by the shareholders for personal and tax records.
Common Shares in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant. Proxy material
relating to the shareholder's meetings of the Fund will include those shares
purchased as well as shares held pursuant to the Plan.
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.
14
<PAGE>
================================================================================
John Hancock Funds - Patriot Select Dividend Trust
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 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).
YEAR 2000 COMPLIANCE
The Adviser and the Fund's service providers are taking steps to address any
year 2000-related computer problems. However, there is some risk that these
problems could disrupt the Fund's operations or financial markets generally.
SHAREHOLDER COMMUNICATION AND ASSISTANCE
If you have any questions concerning John Hancock Patriot Select
Dividend Trust, we will be pleased to assist you. If you hold shares in your own
name and not with a brokerage firm, please address all notices, correspondence,
questions or other communications regarding the Fund to the transfer agent at:
State Street Bank and Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
Telephone: (800) 426-5523
If your shares are held with a brokerage firm, you should contact that firm,
bank or other nominee for assistance.
15
<PAGE>
================================================================================
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