ANNUAL REPORT
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[GRAPHIC OMITTED]
Patriot Premium
Dividend Fund I
SEPTEMBER 30, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN AND TRANSFER AGENT FOR
COMMON SHAREHOLDERS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT FOR DARTS
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Deloitte & Touche llp
125 Summer Street
Boston, Massachusetts 02110-1617
Listed: New York Stock Exchange Symbol: PDF
John Hancock Closed-End Funds:
1-800-843-0090nd Fund I
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
The Taxpayer Relief Act of 1997 recently signed into law by President Clinton
includes new twists and important changes to Individual Retirement Account (IRA)
laws. The provisions will, among other things, allow more people to qualify for
annual tax-deductible IRA contributions and to save tax-free for college. They
also allow IRA investors to withdraw money penalty-free from all IRAs to buy a
first home or pay for college expenses.
For existing deductible IRAs, the law doubles income limits over the next
eight to 10 years for those eligible to deduct an annual IRA contribution of up
to $2,000. For individuals, the annual income cap will increase incrementally
from the current $25,000 to $50,000 by 2005. For couples, the limit would
increase from $40,000 today to $80,000 in 2007. The new law allows non-working
spouses to make IRA contributions even if their spouse is covered by a pension
plan at work, provided the couple's joint income is less than $150,000.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The law also creates two new IRA investment vehicles. One, called the "Roth
IRA" after its principal congressional sponsor, allows for non-deductible annual
contributions up to a $2,000 maximum. But income accumulates tax-free and if the
account has been open for five years, distributions are tax-free if they are
used after age 591/2 or upon death, disability or a first-time home purchase.
Withdrawals for higher-education expenses would not be subject to a 10% penalty.
Eligible investors must earn less than $95,000 per year individually or $150,000
per couple.
A second new IRA plan, called the "Education IRA," allows non-deductible
contributions of up to $500 per year, per child under age 18. Earnings in the
account accumulate tax-free, and withdrawals are also not taxed when applied
toward undergraduate or graduate-level expenses. Eligible investors are subject
to the same income restrictions that apply to the Roth IRA.
The law has also made some important changes in capital gains tax rates and
estate tax laws. But the devil is in the details, and so we recommend exploring
how you can benefit from the changes with your investment professional and tax
advisor. The Taxpayer Relief Act of 1997 gives investors new options toward
savings. It's a move we applaud.
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
Utility stocks powered by favorable bond market,
------------------------------------------------
regulatory environment
----------------------
Utility stocks -- which are the primary focus of John Hancock Patriot Premium
Dividend Fund I -- were boosted by the twin engines of a strong bond market and
a more favorable regulatory environment over the past 12 months. Because of
their high yields, utility stocks tend to closely follow the bond market, which
was a bit shaky at first but ended the period with a full head of steam. After
shrugging off several bouts of nervousness earlier this year over whether the
economy was growing fast enough to whip up inflation, investors sent bond prices
higher and bond yields lower throughout most of the summer and fall.
While the bond market's success was the main key to utility stocks'
performance, there were also others. First, August 1997 was the stock market's
worst month in several years. In a classic "flight to safety," some investors
fled from high-flying growth stocks into high dividend-yielding stocks, such as
utility stocks, as a way to guard against the vagaries of a weaker stock market.
In the meantime, the regulatory environment showed signs of turning in favor of
the utilities themselves. Some areas of the country appear to be leaning toward
adopting California's and Massachusetts' model of allowing competition. In those
states, electric utilities will be allowed to recoup expenses -- incurred at a
time when utilities were monopolies -- in a manner that will allow them to
compete
"...the regulatory environment showed signs of turning in favor of the
utilities..."
[A 2" x 3 1/4" photo of Gregory K. Phelps at the bottom right. Caption reads
"Gregory K. Phelps."]
3
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John Hancock Funds - Patriot Premium Dividend Fund I
[Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into five sections. Going from top left to right:
Short-term Investments & Other 1%; Common Stock Utilities 21%; Preferred Stock
Utilities 47%; Financials 18%; Industrials 13%. A footnote below states "As a
percentage of net assets on September 30, 1997."]
"...we made a conscious effort to add more high-yielding utility common
stocks..."
effectively with out-of-state providers. Additionally, the Federal Energy
Regulatory Commission and various state electric utility agencies quickened
their response to proposed mergers among utilities.
Performance and strategy recap
For the year ended September 30, 1997, the Fund had a total return of 18.60% at
net asset value. By comparison, the Dow Jones Utility Average had a total return
of 15.46% and the average preferred stock closed-end fund returned 18.68%,
according to Lipper Analytical Services, Inc. Throughout the past year we
maintained a defensive stance, but became a bit less so by the end of the
period. Preferred-stock holdings, which made up 78% of net assets at the end of
the period, offer above-average yields. Because of that, they are a great
defense against rising interest rates, and generally weathered the bond market's
volatility better than common stocks. Of our preferred holdings, roughly
three-quarters were securities eligible for the dividends-received deduction
(DRD), which offer distinct tax advantages to corporate investors. The prices of
DRD-eligible securities were driven higher because supply is shrinking and
demand has been unusually strong.
[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 Montana
Power Company followed by an up arrow and the phrase "Enters agreement with
telecom providers." The second listing is Florida Progress Corporation followed
by an up arrow and the phrase "Rebounded from nuclear plant problems." The third
listing is Commonwealth Edison Company followed by a horizontal arrow and the
phrase "Concerns about nuclear plant safety." Footnote below reads: "See
"Schedule of Investments." Investment holdings are subject to change."]
Despite our continued emphasis on preferred stocks, we made a conscious
effort to add more high-yielding utility common stocks because we thought they
were exceptionally cheap, particularly in April, July, and August. When some of
the Fund's higher-yielding preferred stocks were called out of the market -- or
redeemed -- by their issuers, we looked for attractively-priced, high-yielding
stocks to replace them. In many cases, utility common stocks were not only more
attractively-priced than their preferred DRD-eligible counterparts, but they
also offered higher yields. By the end of the period, utility common stocks made
up 21% of the Fund's net assets, compared to 14% six months earlier.
Winners and losers
During the period, one of our best performers was Boston Edison, which was
boosted by favorable and improving regulatory conditions in Massachusetts.
Likewise, neighboring New England Electric System benefited from that trend, as
well as from its sale of non-nuclear power plants at favorable prices. Another
solid performer was Montana Power, one of the lowest-cost electric providers in
the United States, which was boosted in part on the news of its partnering with
Enron and Williams Companies in a telecommunications joint venture to build
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 year ended September 30, 1997." The chart is
scaled in increments of 5% with 20% at the top and 0% at the bottom. Within the
chart there are three solid bars. The first represents the 18.60% total return
for the John Hancock Patriot Premium Dividend Fund I. The second represents the
18.68% total return for the Average preffered stock closed-end fund. The third
represents the 15.46% total return for the Dow Jones Utility Average. A footnote
below states: "The total return for John Hancock Patriot Premium Dividend Fund I
is at net asset value with all distributions reinvested. The average preferred
stock closed-end fund is tracked by Lipper Analytical Services, Inc. The Dow
Jones Utility Average is an unmanaged index which measures the performance of
the utility industry in the United States."]
fiber optic networks. Florida Progress Corporation also posted attractive gains,
after tumbling earlier when it was forced to close its nuclear plant. We bought
the stock after the problems surfaced because its price cheapened to a level we
felt was attractive, given the company's commitment to a relatively high
dividend, its strong balance sheet, its strong service territory, and the
favorable regulatory environment in Florida. More recently, the NRC has
applauded the utility's progress in cleaning up its nuclear site, which helped
the stock stage a rebound. Finally, we enjoyed good performance from IES
Industries, which announced its participation in a three-party electric company
merger.
Outside the utility sector, we saw solid performance from our financial
stocks. The price of Salomon Inc.'s preferred stock, for example, rose on news
that it planned to merge with insurance giant Travelers.
Like any other time period, this one had a few disappointments. One was
electric provider Commonwealth Edison, which serves the Chicago metropolitan
area. Concerns about the safety of its nuclear plants, its relatively high
costs, and a less-than-favorable regulatory environment in Illinois kept the
credit under pressure.
"Our outlook is reasonably optimistic."
Outlook
Our outlook is reasonably optimistic. Recent developments suggest that the
economy may be slowing. One implication of that slowing is that it likely
eliminates the impetus for the Federal Reserve Board to raise interest rates.
Stable interest rates, of course, would be a positive for the bond market and,
ultimately, for preferred and utility stocks. Additionally, a weakening economy
could translate into lower corporate earnings. If that is the case, we could see
more buying of utility stocks, which are viewed as immune to the economy's ebbs
and flows. As far as electric utility stocks go, we think their recent strong
performance could be extended. We've already seen evidence that the regulatory
environment has improved and merger activity is quickening. There's a
possibility that the Public Utility Holding Company Act of 1935 -- which has
slowed merger activity -- will be repealed next year. If that law is eliminated,
we're likely to see the rate of utility company consolidation quicken, aided by
purchases from oil companies and foreign buyers.
- --------------------------------------------------------------------------------
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 conditions warrant.
5
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
The Statement of Assets and Liabilities is the Fund's balance sheet on September
30, 1997. You'll also find the net asset value per share, for each Common Share,
as of that date.
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Preferred stocks (cost - $159,418,381) ................... $169,201,810
Common stocks (cost - $44,646,895) ....................... 45,464,774
Short-term investments (cost - $2,092,488) ............... 2,092,488
216,759,072
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Dividends receivable ....................................... 1,110,655
Other assets ............................................... 14,529
------------
Total Assets ................... 217,884,256
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Liabilities:
DARTS dividend payable ..................................... 176,150
Common shares dividend payable ............................. 873,311
Payable to John Hancock Advisers, Inc. .....................
and affiliates - Note B .................................. 253,198
Accounts payable and accrued expenses ...................... 73,437
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Total Liabilities .............. 1,376,096
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Net Assets:
Dutch Auction Rate Transferable Securities Preferred
Shares 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, 14,979,601 shares
issued and outstanding ................................... 139,242,993
Accumulated net realized loss on investments ............... (2,167,738)
Net unrealized appreciation of investments ................. 10,602,384
Undistributed net investment income ........................ 330,521
------------
Net Assets applicable to
Common Shares ($9.88 per
share based on 14,979,601
shares outstanding) ............ 148,008,160
------------
Net Assets ..................... $216,508,160
=================================================
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains and losses for
the period stated.
Statement of Operations
Year ended September 30, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $38,506) ..... $17,066,574
Interest .................................................... 171,741
17,238,315
-----------
Expenses:
Investment management fee - Note B ........................ 1,911,443
Administration fee - Note B ............................... 209,518
DARTS and auction fees .................................... 203,085
Transfer agent fee ........................................ 67,078
Custodian fee ............................................. 63,752
Printing and postage ...................................... 60,822
Auditing fee .............................................. 53,380
Miscellaneous ............................................. 42,723
Trustees' fee ............................................. 19,538
Legal fees ................................................ 4,821
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Total Expenses .................. 2,636,160
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Net Investment Income ........... 14,602,155
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Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold ....................... (303,554)
Change in net unrealized appreciation/depreciation
of investments ............................................ 12,496,755
-----------
Net Realized and Unrealized
Gain on Investments ............. 12,193,201
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Net Increase in Net Assets
Resulting from Operations ....... 26,795,356
=================================================
Distribution to DARTS ........... (2,776,491)
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Net Increase in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less DARTS
Distributions ................... $24,018,865
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .......................................................................... $13,885,984 $14,602,155
Net realized gain (loss) on investments sold ................................................... 1,608,570 (303,554)
Change in net unrealized appreciation/depreciation of investments .............................. (2,986,883) 12,496,755
------------ ------------
Net Increase in Net Assets Resulting from Operations ......................................... 12,507,671 26,795,356
------------ ------------
Distributions to Shareholders:
DARTS ($4,160 and $4,053 per share, respectively) - Note A ..................................... (2,849,681) (2,776,491)
Common Shares - Note A
Dividends from net investment income ($0.7442 and $0.7500 per share, respectively) ........... (11,036,303) (11,207,156)
Distributions in excess of net investment income ($0.0562 and none per share, respectively) .. (832,797) --
------------ ------------
Total Distributions to Shareholders ........................................................ (14,718,781) (13,983,647)
------------ ------------
From Fund Share Transactions:*
Value of shares issued to common shareholders in reinvestment of distributions ................. 196,359 1,271,862
------------ ------------
Net Assets:
Beginning of period ............................................................................ 204,439,340 202,424,589
------------ ------------
End of period (including distributions in excess of net investment income of $467,761 and
undistributed net investment income of $330,521, respectively) ............................... $202,424,589 $216,508,160
============ ============
* Analysis of Common Shareholder Transactions:
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1996 1997
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares outstanding beginning of period ........................ 14,821,141 $137,780,110 14,843,056 $137,976,469
Shares issued to common shareholders for reinvestment
of distributions ............................................ 21,915 196,359 136,545 1,271,862
Reclassification of capital accounts - Note D ................. -- -- -- (5,338)
Shares outstanding end of period .............................. 14,843,056 $137,976,469 14,979,601 $139,242,993
</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.
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>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMMON SHARES
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................... $10.47 $11.29 $7.93 $9.17 $9.02
-------- -------- -------- -------- --------
Net Investment Income .............................................. 0.90 0.89 0.95 0.94 0.98
Net Realized and Unrealized Gain (Loss) on Investments ............. 1.25 (2.86) 1.30 (0.10) 0.82
-------- -------- -------- -------- --------
Total from Investment Operations ................................. 2.15 (1.97) 2.25 0.84 1.80
-------- -------- -------- -------- --------
Less Distributions:
Dividends to DARTS Shareholders .................................... (0.13) (0.14) (0.21) (0.19) (0.19)
Dividends from Accumulated Net Investment Income to
Common Shareholders .............................................. (0.64) (1.00) (0.80) (0.74) (0.75)
Distributions in Excess of Accumulated Net Investment Income
to Common Shareholders ........................................... -- -- -- (0.06) --
Distributions from Net Realized Short-term Capital Gains on
Investments to Common Shareholders ............................... (0.56) (0.25) -- -- --
-------- -------- -------- -------- --------
Total Distributions .............................................. (1.33) (1.39) (1.01) (0.99) (0.94)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ..................................... $11.29 $7.93 $9.17 $9.02 $9.88
======== ======== ======== ======== ========
Per Share Market Value, End of Period .............................. $10.875 $8.000 $9.000 $9.125 $9.375
Total Investment Return at Market Value ............................ 15.66% (16.05%) 23.68 10.58% 11.35%
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of Period (000s omitted) $163,683 $116,123 $135,939 $133,925 $148,008
Ratio of Expenses to Average Net Assets* ........................... 1.40% 1.29% 1.32% 1.24% 1.26%
Ratio of Net Investment Income to Average Net Assets* .............. 5.62% 6.42% 7.29% 6.75% 6.97%
Portfolio Turnover Rate ............................................ 69% 56% 74% 57% 56%
Senior Securities
Total DARTS Outstanding (000s omitted) ............................. $68,500 $68,500 $68,500 $68,500 $68,500
Asset Coverage per Unit (a) ........................................ $342,383 $271,736 $290,238 $294,044 $308,832
Involuntary Liquidation Preference per Unit (b) .................... $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit (b) .............................. $100,000 $100,000 $100,000 $100,000 $100,000
Average Brokerage Commission Rate (c) .............................. N/A N/A N/A $0.0580 $0.0384
* 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) 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.
(b) Plus accumulated and unpaid dividends.
(c) Per portfolio share traded. Required for fiscal years that began September
1, 1995, or later.
</TABLE>
The Financial Highlights summarizes the impact of the following
factors on a single share for each period indicated: net investment income,
gains (losses), dividends, and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed since the end of the previous
period. Additionally, important relationships between some items presented in
the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
Schedule of Investments
September 30, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fund on September 30, 1997. It's divided into three main categories: preferred
stocks, common stocks, and short-term investments. The stocks are further broken
down by industry group. 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.
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
PREFERRED STOCKS
Automobile / Trucks (2.96%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B ................................................... 60,000 $1,732,500
General Motors Corp., 9.12%,
Depositary Shares, Ser G ................................................... 160,000 4,670,000
------------
6,402,500
------------
Banks - Foreign (2.20%)
Australia and New Zealand Banking Group
Ltd., 9.125% (Australia) ................................................... 173,000 4,768,312
------------
Banks - U.S. (8.54%)
Chase Manhattan Corp., 10.84%, Ser C ......................................... 96,175 2,933,337
Fleet Financial Group, Inc., 6.75%, Ser VI ................................... 59,000 3,167,562
Fleet Financial Group, Inc., 9.35%,
Depositary Shares .......................................................... 140,000 3,920,000
J.P. Morgan & Company Inc., 6.625%,
Depositary Shares, Ser H ................................................... 80,000 4,340,000
LaSalle National Bank, 6.46% (R) ............................................ 4,000 4,128,000
------------
18,488,899
------------
Conglomerates (0.47%)
Grand Metropolitan Delaware, L.P., 9.42%,
Gtd Ser A .................................................................. 35,420 1,011,684
------------
Equipment Leasing (2.69%)
AMERCO, 8.50%, Ser A ......................................................... 90,000 2,345,625
Capita Preferred Trust, 9.06% ................................................ 130,000 3,485,625
------------
5,831,250
------------
Financial Services (3.90%)
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A ................................................... 90,000 $2,778,750
Morgan Stanley Group Inc., 7.75%,
Depositary Shares .......................................................... 15,000 821,250
Salomon Inc., 8.40%,
Depositary Shares, Ser E ................................................... 175,000 4,834,375
------------
8,434,375
------------
Insurance (0.49%)
Provident Companies, Inc., 8.10%,
Depositary Shares .......................................................... 41,500 1,068,625
------------
Oil & Gas (7.21%)
Coastal Corp., $2.125, Ser H ................................................. 211,900 5,429,938
El Paso Tennessee Pipeline Co., 8.25%,
Ser A ...................................................................... 100,000 5,500,000
Lasmo PLC, 10.00%, Ser A, American
Depositary Receipt (ADR), (United Kingdom) ................................. 79,500 2,091,844
Phillips Gas Co., 9.32%, Ser A ............................................... 101,100 2,597,006
------------
15,618,788
------------
Paper (2.39%)
Boise Cascade Corp., 9.40%,
Depositary Shares, Ser F ................................................... 79,700 2,037,331
Bowater Inc., 8.40%,
Depositary Shares, Ser C ................................................... 120,000 3,135,000
------------
5,172,331
------------
Utilities (47.30%)
Appalachian Power Co., 8.25%, Ser A .......................................... 96,721 2,496,611
Baltimore Gas & Electric Co., 6.99% .......................................... 34,000 3,621,000
Boston Edison Co., 4.25% ..................................................... 37,172 2,397,594
Columbus Southern Power Co.,
7.92%, Ser B ............................................................... 60,000 1,511,250
Columbus Southern Power Co.,
8.375%, Ser A .............................................................. 66,000 1,691,250
Commonwealth Edison Co., $7.24 ............................................... 47,270 4,534,966
Commonwealth Edison Co., $8.40, Ser A ........................................ 51,103 5,110,300
Detroit Edison Co., 7.75%,
Depositary Shares .......................................................... 60,000 1,518,750
Entergy Gulf States, Inc., Adjustable Rate
Preferred (ARP), Depositary Shares, Ser B .................................. 38,460 1,884,540
Florida Power & Light Co., 6.75%, Ser U ...................................... 42,000 4,557,000
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Utilities (continued)
Hawaiian Electric Industries, Inc., 8.36% ............................................ 100,000 2,575,000
Idaho Power Co., 7.07% ............................................................... 13,000 1,417,000
Indianapolis Power & Light Co., 8.20% ................................................ 8,000 816,000
MCN Michigan, Limited Partnership, 9.375%, Ser A ..................................... 148,800 3,896,700
Massachusetts Electric Co., 6.84% .................................................... 134,900 3,439,950
Massachusetts Electric Co., 6.99% .................................................... 13,500 1,420,875
Monongahela Power Co., 7.73%, Ser L .................................................. 34,500 3,738,937
Montana Power Capital I, 8.45%, Ser A ................................................ 40,000 1,047,500
Montana Power Co., $6.875 ............................................................ 22,500 2,407,500
NIPSCO Capital Markets, Inc., 7.75%, Ser A ........................................... 196,110 4,927,264
Narragansett Electric Co., 6.95% ..................................................... 28,500 1,528,312
PECO Energy Co., $7.48 ............................................................... 13,000 1,407,250
PSI Energy, Inc., 6.875% ............................................................. 37,000 3,996,000
PacifiCorp 8.375%, Ser A ............................................................. 25,000 642,188
Portland General Electric Co. 8.25%, Ser A ........................................... 59,500 1,524,688
Potomac Electric Power Co., $3.82 .................................................... 25,701 1,307,538
Public Service Electric & Gas Co., 6.92% ............................................. 25,800 2,721,900
Puget Sound Energy, Inc., 7.45%, Ser II .............................................. 124,000 3,441,000
Puget Sound Energy, Inc., 8.50%, Ser III ............................................. 135,836 3,616,634
Sierra Pacific Power Capital I, 8.60% ................................................ 28,000 742,000
Sierra Pacific Power Co., 7.80%,
Ser 1 (Class A) .................................................................... 50,000 1,387,500
South Carolina Electric & Gas Co., 6.52% ............................................. 50,000 5,300,000
Southern California Gas Co., 7.75% ................................................... 138,550 3,481,069
Southern Union Financing I, 9.48% .................................................... 185,000 4,867,813
Texas Utilities Electric Co., $7.98 .................................................. 36,000 3,960,000
Texas Utilities Electric Co., $1.875,
Depositary Shares, Ser A ........................................................... 55,100 1,449,819
UtiliCorp Capital, Limited Partnership, 8.875%, Ser A ................................ 184,256 4,928,848
Virginia Electric & Power Co., $7.05 ................................................. 10,000 1,092,500
------------
102,405,046
------------
TOTAL PREFERRED STOCKS
(Cost $159,418,381) (78.15%) 169,201,810
-------- ------------
COMMON STOCKS
Utilities (21.00%)
Allegheny Power System, Inc. ......................................................... 34,000 1,028,500
Boston Edison Co. .................................................................... 175,000 5,370,312
Consolidated Edison Co. of NY, Inc. .................................................. 50,000 1,700,000
Delmarva Power & Light Co. ........................................................... 140,000 2,642,500
Dominion Resources, Inc. ............................................................. 64,300 2,435,362
DTE Energy Co. ....................................................................... 67,000 2,039,312
Florida Progress Corp. ............................................................... 69,000 2,277,000
Houston Industries, Inc. ............................................................. 71,000 1,544,250
IES Industries, Inc. ................................................................. 42,000 1,338,750
MidAmerican Energy Holdings Co. ...................................................... 143,700 2,478,825
Montana Power Co. .................................................................... 108,300 2,883,487
Nevada Power Co. ..................................................................... 56,600 1,245,200
New England Electric System .......................................................... 62,000 2,433,500
PECO Energy Co. ...................................................................... 40,000 937,500
Potomac Electric Power Co. ........................................................... 114,000 2,593,500
Public Service Enterprise Group, Inc. ................................................ 128,500 3,308,875
Puget Sound Power & Light Co. ........................................................ 216,900 5,774,963
Southern Co. ......................................................................... 57,000 1,286,063
WPL Holdings Inc. .................................................................... 75,000 2,146,875
TOTAL COMMON STOCKS
(Cost $44,646,895) (21.00%) 45,464,774
-------- ------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- ---- --------------
SHORT-TERM INVESTMENTS
Finance (0.97%)
Chevron Oil Finance Co.,
10-01-97 .............................................................. 6.00% $2,092 $2,092,488
------------
TOTAL SHORT-TERM INVESTMENTS (0.97%) 2,092,488
-------- ------------
TOTAL INVESTMENTS (100.12%) $216,759,081
======== ============
</TABLE>
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. Rule 144A
securities amounted to $4,128,000 as of September 30, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
10
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
NOTE A --
ACCOUNTING POLICIES
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 $1,225,714 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 carryforward expires on September
30, 2003. Additionally, net capital losses of $2,399 attributable to security
transactions incurred after October 31, 1996 are treated as arising on the first
day (October 1, 1997) of the Fund's next taxable year.
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, 1997, which has no effect on the Fund's net assets, net
investment income or net realized gains.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from these estimates.
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
3.86% to 4.25% during the year ended September 30, 1997.
The DARTS are redeemable at the option of the Fund at a redemption price
equal to $100,000 per share plus accumulated and unpaid dividends on any
dividend payment date. The DARTS are also subject to mandatory redemption at a
redemption price equal to $100,000 per share, plus accumulated and unpaid
dividends, if the Fund is in default on its asset coverage requirements with
respect to the DARTS. If the dividend on the DARTS shall remain unpaid in an
amount equal to two full years' dividends, the holders of the DARTS, as a class,
have the right to elect a majority of the Board of Trustees. In general, the
holders of the DARTS and the Common Shares have equal voting rights of one vote
per share, except that the holders of the DARTS, as a class, vote to elect two
members of the Board of Trustees, and separate class votes are required on
certain matters that affect the respective interests of the DARTS and Common
Shares. The DARTS have a liquidation preference of $100,000 per share, plus
accumulated and unpaid dividends. The Fund is required to maintain certain asset
coverage with respects to the DARTS, as defined in the Fund's By-Laws.
11
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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 0.50% 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 1.00% annually of the Fund's average weekly net assets.
For the period ended September 30, 1997, the advisory fee incurred did not
exceed the maximum advisory fee allowed.
The Fund has entered into an administrative agreement with the Adviser
under which the Adviser oversees the custodial, auditing, valuation, accounting,
legal, stock transfer, and dividend disbursing services and maintains Fund
communications services with the shareholders. The Adviser receives a monthly
administration fee equivalent, on an annual basis, to 0.10% of the Fund's
average weekly net assets.
Each unaffiliated Trustee is entitled, as compensation for his or her
services, to an annual fee plus remuneration for attendance at various meetings.
Mr. Edward J. Boudreau, Jr., 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 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 September 30, 1997, the Fund's investment to cover the
deferred compensation liability had unrealized appreciation of $2,192.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the year
ended September 30, 1997, aggregated $119,115,005 and $116,368,267,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the year ended September 30, 1997.
The cost of long-term investments owned at September 30, 1997 for federal
income tax purposes was $205,004,901. Gross unrealized appreciation and
depreciation of investments aggregated $11,321,778 and $1,660,095, respectively,
resulting in net unrealized appreciation of $9,661,683 for federal tax purposes.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended September 30, 1997, the Fund has reclassified amounts to
reflect an increase in accumulated net realized loss on investments of $174,436,
an increase in undistributed net investment income of $179,774 and a decrease in
capital paid-in of $5,338. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of
September 30, 1997. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to certain differences in the computation
of distributable income and capital gains under federal tax rules versus
generally accepted accounting principles. The calculation of net investment
income per share in the financial highlights excludes these adjustments.
12
<PAGE>
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John Hancock Funds - Patriot Premium Dividend Fund I
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of John Hancock Patriot Premium
Dividend Fund I:
We have audited the accompanying statement of assets and liabilities of John
Hancock Patriot Premium Dividend Fund I (the Fund), including the schedule of
investments, as of September 30, 1997, the related statements of operations and
changes in net assets, and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
statements of the Fund for the year ended September 30, 1996 and the financial
highlights for the four years then ended were audited by other auditors whose
report, dated November 1, 1996, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of
September 30, 1997, the results of its operations, the changes in its net
assets, and its financial highlights for the year then ended in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 7, 1997
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the taxable distributions of the Fund during its fiscal year ended
September 30, 1997.
The Board of Trustees of the Fund declared dividends on the Common Shares
from undistributed net investment income amounting to $0.75 per share for the
year ended September 30, 1997. Distributions to preferred and common
shareholders were 94.4% qualified for the dividends received deductions.
Shareholders will be mailed a 1997 U.S. Treasury Department Form 1099-DIV in
January 1998 representing their proportionate share.
SHAREHOLDER MEETING (UNAUDITED)
On March 6, 1997, the Annual Meeting of John Hancock Patriot Premium Dividend
Fund I (the "Fund") was held to elect four 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
FOR AUTHORITY
--- ---------
Charles L. Ladner 12,762,395 246,897
Leo E. Linbeck, Jr. 12,682,109 327,183
Patricia P. McCarter 12,723,810 285,482
The preferred shareholders elected Richard S. Scipione to serve until his
successor is duly elected and qualified, with the votes tabulated as follows:
419 FOR and 0 WITHHELD AUTHORITY.
The shareholders also ratified the Trustees' selection of Deloitte & Touche
LLP as the Fund's independent auditors for the Fund for the fiscal year ending
September 30, 1997, with the votes tabulated as follows: 12,764,481 FOR, 75,117
AGAINST and 170,113 ABSTAINING.
13
<PAGE>
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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 participants' accounts. Such purchases will be made promptly
after the payable date for such dividend and, in any event, prior to the next
ex-dividend date, after such date except where necessary to comply with federal
securities laws. If, before the Plan Agent has completed its purchases, the
market price exceeds the net asset value of the Common Shares, the average per
share purchase price paid by the Plan Agent may exceed the net asset value of
the Common Shares, resulting in the acquisition of fewer shares than if the
dividend had been paid in shares issued by the Fund.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to a dividend record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant withdraws
from the Plan or upon termination of the Plan as provided below, certificates
for whole Common Shares credited to his or her account under the Plan will be
issued and a cash payment will be made for any fraction of a Share credited to
such account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the accounts,
including information needed by the shareholders for personal and tax records.
Common Shares in the account of each Plan participant will be held by the Plan
Agent in non-certificated form in the name of the participant. Proxy material
relating to the shareholders' meetings of the Fund will include those shares
purchased as well as shares held pursuant to the Plan.
There will be no brokerage charges with respect to Common Shares issued
directly by the Fund. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends and distributions. In
each case, the cost per share of the shares purchased for each participant's
account will be the average cost, including brokerage commissions, of any shares
purchased on the open market plus the cost of any shares issued by the Fund.
There are no other charges to participants for reinvesting dividends or capital
gain distributions, except for certain brokerage commissions, as described
above.
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable or required to be
withheld on such dividends or distributions. Participants under the Plan will
receive tax information annually. The amount of dividend to be reported on Form
1099-DIV should be (1) in the case of shares issued by the Fund, the fair market
value of such shares on the dividend payment date; and (2) in the case of shares
purchased by the
14
<PAGE>
================================================================================
John Hancock Funds - Patriot Premium Dividend Fund I
Plan Agent in the open market, the amount of cash used to purchase them
(including the amount of cash allocated to brokerage commissions paid on such
purchases).
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Fund at least 90 days before the record
date for the dividend or distribution. The Plan may be amended or terminated by
the Plan Agent after at least 90 days written notice to all shareholders of the
Fund. All correspondence or additional information concerning the Plan should be
directed to the Plan Agent, State Street Bank and Trust Company, at P.O. Box
8209, Boston, Massachusetts 02266-8209 (telephone 1-800-426-5523).
15
<PAGE>
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