================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
Patriot
Premium
Dividend
Fund I
SEMI-ANNUAL REPORT
March 31, 1996
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TRUSTEES
EDWARD J. BOUDREAU, JR.
THOMAS W.L. CAMERON
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 J. 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
THOMAS H. DROHAN
Senior Vice President and Secretary
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
JOHN A. MORIN
Vice President and Compliance Officer
JAMES J. STOKOWSKI
Vice President and Treasurer
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
CUSTODIAN AND TRANSFER AGENT FOR
COMMON SHAREHOLDERS
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TRANSFER AGENT FOR DARTS
CHEMICAL BANK
450 WEST 33RD STREET
NEW YORK, NEW YORK10001
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
LISTED NEW YORK STOCK EXC SYMBOL: POF
JOHN HANCOCK CLOSED-END FUNDS
1-800-843-0090
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY GREGORY K. PHELPS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Patriot Premium
Dividend Fund I
Recent period a mixed bag as rising interest
rates reverse earlier gains
Nineteen ninety-five was one of the best years on record for income investors.
As late as last October, when the Fund's six-month period began, optimism among
market participants was still high. The economy was growing at a steady but
moderate rate, inflation was tame and prospects for a balanced-budget agreement
between Congress and the White House were encouraging. The Federal Reserve did
nothing to dispel that optimism when it lowered short-term interest rates in
December and January. But after soaring to double-digit returns in 1995, the
bond market retreated during the first quarter of 1996, driven back by renewed
strength in the economy, rising interest rates and an abundant supply of new
issues. Three factors sparked the downturn. First was the Fed's semiannual
auction of 30-year Treasury bonds, which inundated the market with new supply.
Second, there was a broad increase in corporate debt
[A 2 1/2" x 3 3/4" photo of the Patriot management team. Caption reads "The
Patriot management team: Laura Provost, Gregory Phelps and Andrew St. Pierre."]
"... the bond market retreated during the first quarter of 1996 ..."
3
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John Hancock Funds - Patriot Premium Dividend Fund I
"... we increased the Fund's emphasis on preferred stocks ..."
[Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into five sections. Going from left to right:
Common Stock Utilities 27%; Financials 18%; Industrials 14%; Short-Term
Investments and Other 3%; and Preferred Stock 38%. A footnote below states "As a
percentage of net assets on March 31, 1996."]
issuance, which aggravated the supply imbalance. Third was the infamous February
employment report, the strength of which so surprised analysts that the bond
market suffered its biggest one-day decline in more than five years.
Utility stocks -- the focus of the Fund's investment strategy -- held up
surprisingly well for most of the period, but ultimately got caught in the
bond-market downdraft. The upshot was a two-tone semi-annual period for John
Hancock Patriot Premium Dividend Fund I: a continuing surge in the first half,
followed by a minor correction in the second half. Overall, during the six
months that ended March 31, 1996, the Fund had a total return of 5.45% at net
asset value, compared to 1.70% for the Dow Jones Utility Average and 5.10% for
the average income-oriented, closed-end equity fund, according to Lipper
Analytical Services.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is Coastal
Corp. followed by an up arrow and the phrase "paying down debt." The second
listing is NIPSCO Capital Markets followed by an up arrow and the phrase "Recent
credit upgrades." The third listing is Public Service Co. of New Hampshire
followed by a down arrow and the phrase "Regulatory pressure." Footnote below
reads: "See "Schedules of Investments." Investment holdings are subject to
change."]
Strategy recap
Throughout 1995, we increased the Fund's emphasis on preferred stocks --
gradually at first, then more aggressively later in the year, as we began
preparing for the possibility of rising interest rates. As rates started upward,
our main goal became preserving the Fund's net asset value. Preferreds help us
do that, especially so-called "cushion preferreds," which have especially high
yields. At the end of the period, preferred stocks totaled 72% of the Fund's net
assets, compared to 60% at the beginning of the period.
In choosing preferreds, we looked for three qualities: an attractive yield,
eligibility for the dividends received deduction (DRD) and good call protection.
The important thing to know about DRD-eligible securities is that they offer
distinct tax advantages to corporate investors, yet are increasingly rare, which
supports higher prices. Call protection is a guarantee on the part of a bond
issuer that the security won't be redeemed prematurely. We prefer bonds with at
least two years of call protection. A good example of a preferred stock that met
all three of those criteria and performed well for the Fund was Coastal Corp.,
an oil and gas exploration and refining company. We added to the Fund's existing
stake in Coastal Corp. during the period, shortly before it was put on a
credit-upgrade watch by Standard & Poor's. Coastal Corp. turned in solid
earnings growth in 1995 and should benefit in the months ahead from the decision
to sell its coal assets to pay down debt.
4
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John Hancock Funds - Patriot Premium Dividend Fund I
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended March 31, 1996." The chart is
scaled in increments of 2% from the bottom to top, with 6% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 5.45% total return for the John Hancock Patriot Premium Dividend Fund I. The
second represents the 1.70% total return for the Dow Jones Utility Average. The
third represents the 5.10% total return for the average income-oriented,
closed-end equity fund. Footnote below reads: "The total return for John Hancock
Patriot Premium Dividend Fund I is at net asset value with all distributions
reinvested. The average income-oriented, closed-end equity fund is tracked by
Lipper Analytical Services.(1)" The Dow Jones Utility Average is an unmanaged
index, which measures the performance of the utility industry in the United
States.]
Utilities totaled 67% of the Fund's net assets at the end of the period.
The most interesting story was an unusual, non-DRD-eligible security issued in
early February by NIPSCO Capital Markets, part of NIPSCO Industries, an electric
utility. It appeared in the midst of a flood of corporate issuance, and
initially got swamped. Consequently, we were able to buy a significant stake at
an attractive discount. Soon afterwards, NIPSCO received a credit-rating
upgrade, the stock's price recovered, and the Fund profited. A utility that has
not worked out so well is Public Service Co. of New Hampshire (PSNH). On the
plus side, PSNH is DRD-eligible and carries an attractive 10.60% yield. On the
minus side, it's a subsidiary of Northeast Utilities, which has been under a
cloud lately because of its large investment in nuclear power. PSNH also faces
stiff regulatory pressure in New Hampshire. Fortunately, the issue we own is a
so-called "sinking fund preferred" for which PSNH must begin redeeming its
securities at the original-issue price next year. Meanwhile, we'll continue to
benefit from the double-digit yield.
Financial stocks totaled 18% of the Fund's net assets. Our favorites
included a rare DRD-eligible security newly issued by Salomon, Inc. in February.
It has five years of call protection and an 8.40% yield. It has held its own
quite well in the face of rising rates.
"Our outlook for the next six months is guarded."
Outlook
Our outlook for the next six months is guarded. Happily, inflation remains at
most a minor threat, which bodes well for interest rates. That's good news for
bonds and income-producing stocks, whose prices tend to rise as interest rates
fall. Utilities, with their large capital requirements, benefit further from low
borrowing costs in the absence of inflation. The Fed, meanwhile, probably won't
lower rates again anytime soon, but neither is it likely to raise rates,
especially in an election year. That said, after the year enjoyed by bonds and
income-producing stocks in 1995, it would be unreasonable to expect another
outstanding year in 1996. Our more modest goal going forward will be to preserve
the Fund's net asset value while maximizing yield.
- ------------------------------
(1)Source: Lipper Analytical Services
This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
5
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Preferred stocks (cost - $141,590,019) .................. $ 142,785,795
Common stocks (cost - $53,450,971) ...................... 54,769,394
Trust originated preferred securities
(cost - $4,785,000) ................................... 4,786,875
Short-term investments (cost - $1,577,750) .............. 1,577,750
-------------
203,919,814
Receivable for investments sold ........................... 1,573,582
Dividends receivable ...................................... 1,672,377
Other assets .............................................. 14,354
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Total Assets ...................... 207,180,127
-------------------------------------------------
Liabilities:
DARTS dividend payable .................................... 104,691
Common Share dividend payable ............................. 988,570
Payable to John Hancock Advisers, Inc. - Note B ........... 222,203
Accounts payable and accrued expenses ..................... 19,550
-------------
Total Liabilities ................. 1,335,014
-------------------------------------------------
Net Assets:
Dutch Auction Rate Transferable Securities Preferred
Stock Series A (DARTS) - Without par value,
unlimited number of shares of beneficial
interest authorized, 685 shares issued, liquidation
preference of $100,000 per share - Note A .............. 68,500,000
-------------
Common Shares -
Without par value, unlimited number of shares of
beneficial interest authorized, 14,821,141 shares
issued and outstanding .................................. 137,780,110
Accumulated net realized loss on investments .............. (2,233,348)
Net unrealized appreciation of investments ................ 2,517,150
Distributions in excess of net investment income .......... (718,799)
-------------
Net Assets Applicable to
Common Shares ($9.27 per
share based on 14,821,141
shares outstanding)................ 137,345,113
-------------------------------------------------
Net Assets ........................ $ 205,845,113
=================================================
The Statement Of Assets And Liabilities is the Fund's balance sheet on March 31,
1996. You'll also find the net asset value per share, for each Common Share, as
of that date.
The Statement Of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
Statement of Operations
Six months ended March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes
of $26,754) .............................................. $ 7,957,668
Interest ................................................... 57,147
-----------
8,014,815
-----------
Expenses:
Investment management fee - Note B ......................... 925,064
DARTS and auction fees ..................................... 104,868
Administration fee - Note B ................................ 104,585
Transfer agent fee ......................................... 34,759
Printing ................................................... 33,659
Custodian fee .............................................. 32,782
Auditing fee ............................................... 28,870
Miscellaneous .............................................. 19,114
Trustees' fees ............................................. 13,755
Legal fees ................................................. 2,977
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Total Expenses .................... 1,300,433
------------------------------------------------
Net Investment Income ............. 6,714,382
------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ..................... 672,970
Change in net unrealized appreciation/depreciation
of investments ......................................... 1,424,638
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Net Realized and Unrealized
Gain on Investments ............... 2,097,608
------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ......... 8,811,990
================================================
Distributions to DARTS ............ (1,475,083)
------------------------------------------------
Net Increase in Net Assets
Applicable to Common Shareholders
Resulting from Operations
Less DARTS Distributions .......... $ 7,336,907
================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1996 SEPTEMBER 30,
(UNAUDITED) 1995
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .......................................................................... $ 6,714,382 $ 13,992,687
Net realized gain (loss) on investments sold ................................................... 672,970 (1,482,849)
Change in net unrealized appreciation/depreciation of investments .............................. 1,424,638 20,715,056
------------- -------------
Net Increase in Net Assets Resulting from Operations ......................................... 8,811,990 33,224,894
------------- -------------
Distributions to Shareholders:
DARTS ($2,153 and $4,486 per share, respectively) - Note A ..................................... (1,475,083) (3,073,252)
Common Shares - Note A
Dividends from net investment income ($0.3535 and $0.7986) per share, respectively) .......... (5,239,299) (11,772,508)
Distributions in excess of net investment income ($0.0467 and $0.0018 per share, respectively) (691,835) (26,964)
------------- -------------
Total Distributions to Shareholders ........................................................ (7,406,217) (14,872,724)
------------- -------------
From Fund Share Transactions:
Value of shares issued to common shareholders
in reinvestment of distributions * ............................................................ -- 1,464,283
------------- -------------
Net Assets:
Beginning of period ............................................................................ 204,439,340 184,622,887
------------- -------------
End of period (including distributions in excess of
net investment income of $718,799 and $26,964 respectively) ................................... $ 205,845,113 $ 204,439,340
============= =============
</TABLE>
<TABLE>
* Analysis of Common Shareholder Transactions:
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1996 YEAR ENDED SEPTEMBER 30,
(UNAUDITED) 1995
------------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period ................................ 14,821,141 $137,780,110 14,645,024 $136,315,827
Shares issued to common shareholders for reinvestment of distributions . -- -- 176,117 1,464,283
---------- ------------ ---------- ------------
Shares outstanding, end of period ...................................... 14,821,141 $137,780,110 14,821,141 $137,780,110
========== ============ ========== ============
</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, distributions paid to
shareholders, and any increase due to reinvestment of distributions. The
footnote illustrates any reclassifications of capital share amounts, the number
of Common Shares outstanding at the beginning of the period, reinvested and
outstanding at the end of the period, for the last two periods, along with the
corresponding dollar value.See notes to financial statements.
SEE NOTES TO FINANCIAL STATEMENTS.
7
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
Financial Highlights
Selected data for a Common Share outstanding throughout the periods indicated,
investment returns, key ratios and supplemental data are listed as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended September 30,
MARCH 31, 1996 ------------------------------------------------------------
Common Shares (UNAUDITED) 1995 1994 1993 1992(a) 1991
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $ 9.17 $ 7.93 $ 11.29 $ 10.47 $ 9.54 $ 7.77
-------- -------- -------- -------- -------- --------
Net Investment Income .............................. 0.45 0.95 0.89 0.90 0.92 1.00
Net Realized and Unrealized Gain (Loss)
on Investments ................................... 0.15 1.30 (2.86) 1.25 0.95 1.86
-------- -------- -------- -------- -------- --------
Total from Investment Operations ............. 0.60 2.25 (1.97) 2.15 1.87 2.86
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends to DARTS Shareholders ................ (0.10) (0.21) (0.14) (0.13) (0.14) (0.25)
Dividends from Accumulated Net Investment
Income to Common Shareholders ................ (0.35) (0.80) (1.00) (0.64) (0.54) (0.65)
Distributions in Excess of Net Investment Income (0.05) -- -- -- -- --
Distributions from Net Realized Short-term
Capital Gains on Investments to
Common Shareholders .......................... -- -- (0.25) (0.56) (0.26) (0.19)
-------- -------- -------- -------- -------- --------
Total Distributions .......................... (0.50) (1.01) (1.39) (1.33) (0.94) (1.09)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ..................... $ 9.27 $ 9.17 $ 7.93 $ 11.29 $ 10.47 $ 9.54
======== ======== ======== ======== ======== ========
Per Share Market Value, End of Period .............. $ 9.000 $ 9.000 $ 8.000 $ 10.875 $ 10.500 $ 9.000
Total Investment Return at Market Value ............ 4.32%(d) 23.68% (16.05%) 15.66% 26.52% 8.40%
Ratios and Supplemental Data
Net Assets Applicable to Common Shares,
End of Period (000's omitted) .................... $137,345 $135,939 $116,123 $163,683 $151,459 $137,347
Ratio of Expenses to Average Net Assets * .......... 1.24%(e) 1.32% 1.29% 1.40% 1.37% 1.48%
Ratio of Net Investment Income to
Average Net Assets * ............................. 6.42%(e) 7.29% 6.42% 5.62% 6.46% 7.53%
Portfolio Turnover Rate ............................ 27% 74% 56% 69% 100% 101%
Senior Securities
Total DARTS Outstanding (000's omitted) ............ $ 68,500 $ 68,500 $ 68,500 $ 68,500 $ 68,500 $ 68,500
Asset Coverage per Unit (b) ........................ $303,758 $290,238 $271,736 $342,383 $318,829 $290,615
Involuntary Liquidation Preference per Unit (c) .... $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit (c) .............. $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
</TABLE>
* Ratios calculated on the basis of expenses and net investment income
applicable to both common and preferred shares relative to the average net
assets for both common and preferred shares.
(a) Prior to the assumption of the advisory contract on May 6, 1992 by John
Hancock Advisers, Inc., the Fund was advised by Patriot Advisers, Inc.
(b) Calculated by subtracting the Fund's total liabilities (not including the
DARTS) from the Fund's total assets and dividing such amount by the number
of DARTS outstanding as of the applicable 1940 Act Evaluation Date.
(c) Plus accumulated and unpaid dividends.
(d) Not annualized.
(e) On an annualized basis.
SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
Schedule of Investments
March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
PREFERRED STOCKS
Auto/Truck (2.15%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B .................... 60,000 $ 1,635,000
General Motors Corp., 9.12%,
Depositary Shares, Ser G .................... 100,000 2,800,000
-----------
4,435,000
-----------
Banks - U.S. (13.14%)
Ahmanson, H.F. & Co., 8.40%,
Depositary Shares, Ser C .................... 35,000 905,625
Ahmanson, H.F. & Co., 9.60%,
Depositary Shares, Ser B .................... 106,300 2,710,650
Bank of Boston Corp., 8.60%,
Depositary Shares, Ser E .................... 168,654 4,342,840
Chase Manhattan Corp., 8.40%, Ser M ........... 21,000 543,375
Chase Manhattan Corp., 9.76%, Ser H ........... 26,700 734,250
First Interstate Bancorp, 9.875%,
Depositary Shares, Ser F .................... 65,000 1,665,625
Fleet Financial Group, Inc., 7.25%,
Depositary Shares, Ser V .................... 43,000 1,032,000
Fleet Financial Group, Inc., 9.35%,
Depositary Shares ........................... 140,000 3,797,500
Fleet Financial Group, Inc., Adjustable
Rate Preferred ("ARP") ...................... 37,500 1,603,125
LaSalle National Corp., 8.75%, Ser K (R) ...... 60,000 3,060,000
Mellon Bank Corp., 9.60%, Ser I ............... 55,000 1,416,250
J.P. Morgan & Co., Inc., 6.625%,
Depositary Shares, Ser H .................... 80,000 3,750,000
Source One Mortgage Services Corp.,
8.42%, Ser A ................................ 56,800 1,476,800
-----------
27,038,040
-----------
Computer Services (0.38%)
Comdisco, Inc., 8.75%, Ser A .................. 30,900 776,362
-----------
Conglomerate (0.47%)
Grand Metropolitan Deleware, 9.42%,
Gtd Ser A ................................... 35,420 974,050
-----------
Equipment Leasing (0.92%)
AMERCO, 8.50%, Ser A .......................... 80,000 1,890,000
-----------
Financial Services (1.98%)
Merrill Lynch & Co., 9.00%,
Depositary Shares, Ser A .................... 30,000 851,250
Morgan Stanley Group, Inc., 8.88%,
Depositary Shares ........................... 30,000 772,500
The Schedule Of Investments is a complete list of all securities owned by the
Fund on March 31, 1996. It's divided into four main categories: preferred
stocks, common stocks, trust originated preferred securities and short-term
investments. The stocks and trust originated preferred securities are further
broken down by industry groups. Under each industry group is a list of the
stocks owned by the Fund. Short-term investments, which represent the Fund's
"cash" position, are listed last. See notes to financial statements.
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
Financial Services (continued)
Salomon, Inc., 8.08%,
Depositary Shares, Ser D .................... 50,000 $ 1,212,500
Salomon, Inc., 8.40%,
Depositary Shares, Ser E .................... 50,000 1,231,250
-----------
4,067,500
-----------
Insurance (2.47%)
Provident Cos., Inc., 8.10%, Depositary
Shares, (formerly Provident Life &
Accident Insurance Co. of America) .......... 41,500 1,073,813
SunAmerica, Inc., 9.25%, Ser B ................ 50,000 1,293,750
Travelers Group, Inc., 9.25%,
Depositary Shares, Ser D .................... 105,000 2,716,875
-----------
5,084,438
-----------
Oil & Gas (7.48%)
Coastal Corp., $2.125, Ser H .................. 188,500 4,759,625
Elf Overseas Ltd., 8.50%, Gtd Ser A
(Cayman Islands) ............................ 150,000 3,900,000
ENSERCH Corp., ARP, Depositary
Shares, Ser F ............................... 25,000 537,500
Enterprise Oil PLC, 10.50%, American
Depositary Receipt ("ADR"), Ser A
(United Kingdom) .......................... 24,000 621,000
Lasmo PLC, 10.00%, ADR, Ser A
(United Kingdom) .......................... 117,500 2,893,438
Phillips Gas Co., 9.32%, Ser A ................ 101,100 2,691,787
-----------
15,403,350
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
Paper (2.20%)
Boise Cascade Corp., 9.40%, Ser F ............. 56,300 $ 1,463,800
Bowater, Inc., 8.40%, Depositary
Shares, Ser C ............................... 120,000 3,075,000
-----------
4,538,800
-----------
Publishing (0.37%)
Newscorp Overseas Ltd., 8.625%, Gtd
Ser A (Cayman Islands) ...................... 30,000 753,750
-----------
Utilities (37.81%)
Baltimore Gas & Electric Co., 6.99% ........... 25,000 2,434,375
Boston Edison Co., 4.25% ...................... 25,172 1,384,460
CL & P Capital Corp., 9.30%, Ser A ............ 61,050 1,572,037
Central Maine Power Co., 7.999%, Ser A ........ 10,000 947,500
Central Maine Power Co., 8.875% (R) ........... 16,000 1,438,000
Columbus Southern Power Corp., 7.875% ......... 20,000 2,042,500
Columbus Southern Power Corp., 8.375%,
Ser A ....................................... 40,000 1,015,000
Commonwealth Edison Co., $7.24 ................ 47,000 4,329,875
Commonwealth Edison Co., $8.40, Ser A ......... 44,543 4,459,868
Detroit Edison Co., 7.75% ..................... 60,000 1,530,000
Florida Power Corp., 7.40% .................... 6,474 661,966
Florida Power Corp., 7.76% .................... 13,600 1,399,100
GTE Florida, Inc., 8.16% ...................... 25,000 2,693,750
GTE North, Inc., $7.60, Ser IND ............... 11,000 1,104,125
Georgia Power Co., $7.80 ...................... 10,760 1,070,620
Gulf States Utilities Co., $8.52 .............. 18,996 1,785,624
Gulf States Utilities Co., $9.96 .............. 15,605 1,560,500
Gulf States Utilities Co., ARP,
Depositary Shares, Ser B .................... 25,460 1,222,080
Houston Lighting & Power Co., $8.12 ........... 13,960 1,416,940
Idaho Power Co., 7.07% ........................ 13,000 1,275,625
Indianapolis Power & Light Co., 8.20% ......... 8,000 808,000
MCN Michigan, Limited Partnership,
9.375%, Ser A ............................... 140,000 3,727,500
Massachusetts Electric Co., 6.84% ............. 134,900 3,153,288
Massachusetts Electric Co., 6.99% ............. 13,500 1,302,750
Monongahela Power Co., $7.73, Ser L ........... 29,500 3,082,750
NIPSCO Capital Markets, 7.75% ................. 171,110 4,192,195
PSI Energy, Inc., 7.44% ....................... 90,580 2,275,823
PacifiCorp., 8.375%, Ser A .................... 25,000 637,500
Peco Energy Co., $7.48 ........................ 13,000 1,265,875
Potomac Electric Power Co., $3.82,
Ser 1969 .................................... 22,077 1,059,696
Public Service Co. of NH, 10.60%, Ser A ....... 25,000 625,000
Public Service Electric & Gas Co., 6.80% ...... 24,509 2,352,864
Public Service Electric & Gas Co., 6.92% ...... 25,800 2,309,100
Public Service Electric & Gas Co., 7.52% ...... 5,000 485,000
Southern California Gas Co., 7.75% ............ 75,000 1,912,500
TU Electric Capital III, 8.00% ................ 160,000 4,000,000
Texas Utilities Electric Co., $1.875,
Depositary Shares, Ser A .................... 50,000 1,287,500
Texas Utilities Electric Co., $7.98 ........... 26,000 2,626,000
UtiliCorp Capital, Limited Partnership,
8.875%, Ser A ............................... 144,256 3,714,592
Washington Natural Gas Co., 8.50%,
Ser III ..................................... 64,883 1,662,627
-----------
77,824,505
-----------
TOTAL PREFERRED STOCKS
(Cost $141,590,019) ........... (69.37%) 142,785,795
------ -----------
COMMON STOCKS
Utilities (26.61%)
American Electric Power Co., Inc. ............. 110,000 4,592,500
Boston Edison Co. ............................. 175,000 4,725,000
Central & South West Corp. .................... 84,000 2,394,000
Cinergy Corp. ................................. 225,000 6,750,000
Consolidated Edison Co. of NY, Inc. ........... 43,000 1,370,625
DPL, Inc. ..................................... 100,000 2,387,500
Delmarva Power & Light Co. .................... 140,000 2,975,000
Dominion Resources, Inc. of VA ................ 92,000 3,645,500
Florida Progress Corp. ........................ 105,150 3,588,244
Houston Industries, Inc. ...................... 132,800 2,871,800
IES Industries, Inc. .......................... 20,000 557,500
MidAmerican Energy Co. ........................ 75,200 1,344,200
New England Electric System ................... 92,000 3,519,000
Oklahoma Gas & Electric Co. ................... 55,000 2,193,125
Peco Energy Co. ............................... 100,000 2,662,500
Potomac Electric Power Co. .................... 74,400 1,943,700
Public Service Enterprise Group, Inc. ......... 98,500 2,708,750
Puget Sound Power & Light Co. ................. 126,900 3,235,950
Southern Co. .................................. 25,000 596,875
Washington Water Power Co. .................... 37,000 707,625
-----------
TOTAL COMMON STOCKS
(Cost $53,450,971) ............... (26.61%) 54,769,394
------ -----------
SEE NOTES TO FINANCIAL STATEMENTS.
10
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
TRUST ORIGINATED PREFERRED SECURITIES
Utilities (2.32%)
Southern Union Financing I, 9.48%,
Ser 05/17/25 ................................ 185,000 $ 4,786,875
------------
TOTAL CAPITAL SECURITIES
(Cost $4,785,000) ........... (2.32%) 4,786,875
------- ------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ------------------- -------- ---------------- ------------
SHORT-TERM INVESTMENTS
Commercial Paper (0.76%)
Cheveron Oil Finance Co.
04-01-96............................ 5.38% 1,578 $ 1,577,750
------------
TOTAL SHORT-TERM INVESTMENTS (0.76%) 1,577,750
------- ------------
TOTAL INVESTMENTS (99.06%) $203,919,814
======= ============
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer, however, security is U.S. dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
The securities indicated by (R) 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. See Note A of
the Notes to Financial Statements for valuation policy. Rule 144A securities
amounted to $4,498,000 as of March 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
11
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Patriot Premium Dividend Fund I (the "Fund") is a diversified
closed-end management investment company, registered under the Investment
Company Act of 1940, as amended. Significant accounting policies of the Fund are
as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services,
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
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's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $2,648,843 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforward is used by the Fund, no
capital gains distributions will be made. The carryforwards expire as follows:
September 30, 2002 -- $1,300,401 and September 30, 2003 -- $1,348,442.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all dividends and distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with federal income tax regulations. Due to
permanent book/tax differences in accounting for certain transactions, this has
the potential for treating certain distributions as return of capital as opposed
to distributions of net investment income or realized capital gains. The Fund
has adjusted for the cumulative effect of such permanent book/tax differences
through September 30, 1995, 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.
DUTCH AUCTION RATE TRANSFERABLE SECURITIES PREFERRED STOCK SERIES A (DARTS) The
Fund issued 685 shares of Dutch Auction Rate Transferable Securities Preferred
Stock Series A (DARTS) concurrently with the issuance of its Common Shares in
the public offering. The underwriting discount was recorded as a reduction of
the capital of the Common Shares. Dividends on the DARTS, which accrue daily,
are cumulative at a rate which was established at the offering of the DARTS and
have been reset every 49 days thereafter by auction. Dividend rates ranged from
3.93% to 4.37% during the period ended March 31, 1996.
The DARTS are redeemable at the option of the Fund, at a redemption price
equal to $100,000 per share, plus accumulated and unpaid dividends on any
dividend payment date. The DARTS are also subject to mandatory redemption at a
redemption price equal to $100,000 per share, plus accumulated and unpaid
dividends, if the Fund is in default on its asset coverage requirements with
respect to the DARTS. If the dividend on the DARTS shall remain unpaid in an
amount equal to two full years' dividends, the holders of the DARTS, as a class,
have the right to elect a majority of the Board of Trustees. In general, the
holders of the DARTS and the Common Shares have equal voting rights of one vote
per share, except that the holders of the DARTS, as a class, vote to elect two
members of the Board of Trustees, and separate class votes are required on
certain matters that affect the respective interests of the DARTS and Common
Shares. The DARTS have a liquidation preference of $100,000 per share, plus
accumulated and unpaid dividends. The Fund is required to maintain certain asset
coverage with respects to the DARTS, as defined in the Fund's By-Laws.
12
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the investment management contract, the Fund pays a monthly management fee
to John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, for a continuous investment program equivalent on an
annual basis, to the sum of .50 of 1% of the Fund's average weekly net assets,
plus 5% of the Fund's weekly gross income. The Adviser's total fee is limited to
a maximum amount equal to 1% annually of the Fund's average weekly net assets.
For the period ended March 31, 1996, the advisory fee incurred did not exceed
the maximum advisory fee allowed.
The Fund has entered into an administrative agreement with the Adviser
under which the Adviser oversees the custodial, auditing, valuation, accounting,
legal, stock transfer and dividend disbursing services and maintains Fund
communications services with the shareholders. The Adviser receives a monthly
administration fee equivalent, on an annual basis, to .10 of 1% 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.
Messrs. Edward J. Boudreau, Jr. and 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. Effective
with the fees paid for 1995, 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 investment to cover the liability are marked to market on a
periodic basis to reflect income earned by the investment and income earned by
the investment is recorded on the Fund's books. At March 31, 1996, the Fund's
deferred compensation had an unrealized appreciation of $1,076.
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 March 31, 1996, aggregated $54,578,545 and $54,640,738, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended March 31, 1996.
The cost of long-term investments owned at March 31, 1996 for Federal
income tax purposes was $200,691,463. Gross unrealized appreciation and
depreciation of investments aggregated $5,464,741 and $3,814,140, respectively,
resulting in net unrealized appreciation of $1,650,601 for federal tax purposes.
13
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John Hancock Funds - Patriot Premium Dividend Fund I
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, after such date except where necessary to comply with federal
securities laws. If, before the Plan Agent has completed its purchases, the
market price exceeds the net asset value of the Common Shares, the average per
share purchase price paid by the Plan Agent may exceed the net asset value of
the Common Shares, resulting in the acquisition of fewer shares than if the
dividend had been paid in shares issued by the Fund.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to a dividend record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant withdraws
from the Plan or upon termination of the Plan as provided below, certificates
for whole Common Shares credited to his or her account under the Plan will be
issued and a cash payment will be made for any fraction of a Share credited to
such account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by the shareholders for personal and tax records.
Common Shares in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant. Proxy material
relating the shareholder's meetings of the 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
14
<PAGE>
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John Hancock Funds - Patriot Premium Dividend Fund I
dividend to be reported on Form 1099-DIV should be (1) in the case of shares
issued by the Fund, the fair market value of such shares on the dividend payment
date and (2) in the case of shares purchased by the Plan Agent in the open
market, the amount of cash used to purchase them (including the amount of cash
allocated to brokerage commissions paid on such purchases).
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Fund at least 90 days before the record
date for the dividend or distribution. The Plan may be amended or terminated by
the Plan Agent after at least 90 days written notice to all shareholders of the
Fund. All correspondence or additional information concerning the Plan should be
directed to the Plan Agent, State Street Bank and Trust Company, at 225 Franklin
Street, Boston, Massachusetts 02110 (telephone 1-800-426-5523).
SHAREHOLDER MEETING
On March 7, 1996, the Annual Meeting of John Hancock Patriot Premium Dividend
Fund I (the "Fund") was held to elect five Trustees and to ratify the action of
the Trustees in selecting independent auditors for the Fund.
The common shareholders elected the following Trustees to serve until their
respective successors are duly elected and qualified, with the votes tabulated
as follows:
WITHHELD
NAME OF TRUSTEE FOR AUTHORITY
- --------------- --- ---------
James F. Carlin.............. 12,682,283 118,118
William H. Cunningham........ 12,654,217 146,183
Charles F. Fretz............. 12,668,880 131,520
John P. Toolan............... 12,649,163 151,238
The preferred shareholders elected Harold R. Hiser, Jr. to serve until his
successor is duly elected and qualified, with the votes tabulated as follows:
389 FOR and 0 WITHHELD AUTHORITY.
The shareholders also ratified the Trustees' selection of Arthur Anderson,
LLP as the Fund's independent auditors for the Fund for the fiscal year ending
September 30, 1996, with the votes tabulated as follows: 12,587,412 FOR, 58,889
AGAINST and 154,488 ABSTAINING.
15
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