John Hancock Funds
Patriot
Premium
Dividend
Fund I
SEMI-ANNUAL REPORT
March 31, 1997
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
Listed: New York Stock Exchange Symbol:PDF
John Hancock Closed-End Funds:
1-800-843-0900
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
After two years of spectacular performance, the stock market has
recently given investors its starkest reminder in some time of one of
investing's basic tenets: markets move down, as well as up. It's
understandable if investors had lost sight of that fact. The bull market
that began six years ago has given investors annual double-digit returns
and more modest price declines than usual. And in the two years
encompassing 1995 and 1996, the S&P 500 Index gained more than 50%. This
Pollyanna environment has tracked along with a sustained economic
recovery, now entering its seventh year, that has been marked by
moderate growth, low interest rates and tame inflation.
But recently, many have begun to wonder if the bull market is running
out of steam. Since reaching new highs in early March, the Dow Jones
Industrial Average tumbled by more than 7% at the end of March and wiped
out nearly all the market had gained since the start of the year. It was
the worst decline that the market had seen since 1990. In early April,
the Dow was down by 9.8% for the year, within shouting distance of a 10%
correction.
As the market continues to fret over possible interest-rate hikes and
the potential for an inflation spike, investors should be prepared for
more volatility. It also makes sense to do something we've always
advocated: set realistic expectations. Keep in mind that the stock
market's historic yearly average has been about 10%, not the 20%-plus
annual average of the last two years or even the 16% annual average over
the last 10 years. Remember that the kind of market volatility we've
seen lately is more like the way the market really works. Fluctuations
go with the territory. And market corrections can be healthy, serving to
bring inflated stock prices down to more reasonable levels, thereby
reducing some of the market's risk.
If you use this time of heightened volatility as an opportunity to
review your portfolio's asset allocations with your investment
professional, some long-term gain will come from the market's recent
short-term pain. Make sure that your investment strategies reflect your
individual time horizons, objectives and risk tolerance, and that they
are based upon your needs. Despite turbulence, one thing remains
constant. A well-constructed plan and a cool head can be the best tools
for reaching your financial goals.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY GREGORY K. PHELPS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Patriot Premium
Dividend Fund I
Defensive strategy buffers Fund in volatile market
"Tail winds
turned into
head winds
in the bond
market..."
Tail winds turned into head winds in the bond market during the last six
months. With moderate growth and tame inflation, bonds had the wind at
their backs from September 1996 to January 1997. Prices rose steadily,
while yields on the 30-year Treasury bond dropped to a low of 6.40% on
December 2, 1996. With stronger economic indicators once again
rekindling fears of inflation in early February, however, market
currents reversed direction, sending bond prices falling and yields
rising. Things got worse when the Federal Reserve Bank raised the
federal funds rate -- the rate which banks lend to each other overnight
- -- from 5.25% to 5.50% on March 25. Yields shot up even further, with
the 30-year Treasury bond passing the psychologically important 7%
threshold.
As shareholders know, utility stocks are the primary focus of the Fund's
investments. Because of their high yields, utility stocks tend to act as
bond surrogates -- that is, they follow the bond market's ups and downs
closely. As a result, we always keep a close eye on movements in the
bond market. Early on, the bond market's tail winds certainly boosted
utilities. But the market's recent head winds, coupled with increasing
regulatory concerns, have weighed heavily on the group. The Nuclear
Regulatory Commission placed a record number of utility companies on its
troubled "watch" list in January. What's more, negative regulatory
developments in Texas, New Hampshire and New Mexico reverberated through
the utility market.
A 2 1/4" x 3 1/2" photo of the Patriot management team. Caption reads "The
Patriot management team (l-r): Beverly Cleathero, Gregory Phelps and
Laura Provost."
Pie chart with the heading "Portfolio Diversification" at top of left
hand column. The chart is divided into five sections. Going from top
clockwise: Short-Term Investments & Other 3%; Common Stock Utilities
14%; Preferred Stock Utilities 49%; Financials 22%; and Industrials 12%.
A footnote below states "As a percentage of net assets on March 31,
1997."
"...utility
common
stocks offer
some of
the best
yield oppor-
tunities..."
Strategy review
The story hasn't changed much since the annual report six months ago.
Our defensive strategy proved appropriate, given the volatile market. In
particular, our strong focus on preferred stocks paid off. Because of
their above-average yields, preferred stocks have weathered the market's
volatility better than common stocks and U.S. Treasuries.
Once again, our preferred stocks eligible for the dividends-received
deduction (DRD) stood out as the Fund's best performers. As you may
remember from reading previous reports, DRD-eligible securities offer
special tax advantages to corporations. In recent months, the supply of
DRDs has become increasingly limited, while demand has remained
unusually strong. The result has been rapidly rising prices. And after
the Federal Reserve's October announcement giving banks more flexibility
to issue non-DRD securities, we're likely to see that upward trend
continue.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left column is "Investment"; the header for the right column is
"Recent Performance...and What's Behind the Numbers." The first listing
is "El Paso Tennessee Pipeline Co." followed by an up arrow and the
phrase "DRD-eligibility/good call protection. The second listing is
"Salomon Brothers" followed by and up arrow and the phrase "Attractive
dividend yield. The third listing is "Public Service Co. of New
Hampshire" followed by a down arrow and the phrase "Unfavorable
regulatory climate." Footnote below reads "See "Schedule of
Investments." Investment holdings are subject to change."
El Paso Tennessee Pipeline Co. was among the Fund's best performers. Not
only is the issue DRD-eligible, but it offers an attractive 8.25% coupon
and five years of call protection. Of course, not all of our holdings
have fared as well. For example, we've sold our position in Public
Service Company of New Hampshire, which has suffered from unfavorable
regulatory developments.
Overall, our defensive strategy helped John Hancock Patriot Premium
Dividend Fund I post solid gains even in a volatile market environment,
although our required emphasis on utilities held us back compared with
our peers. For the six months ended March 31, 1997, John Hancock Patriot
Premium Dividend Fund I had a total return of 7.72% at net asset value.
By comparison, the Dow Jones Utility Average had a total return of 3.46%
and the average preferred stock closed-end fund a return of 9.44%,
according to Lipper Analytical Services.
Selected opportunities in utility
common stocks
Utility common stocks have fallen sharply in the market's recent
downdraft. At their current levels, they not only offer good value, but
also boast attractive dividend yields. With many of the Fund's higher-
yielding preferred stocks being called out of the market -- or redeemed
- -- by issuers, utility common stocks offer some of the best yield
opportunities in the market.
Bar chart with heading "Fund Performance" at top left hand column. Under
the heading is the footnote: "For the six months ended March 31, 1997."
The chart is scaled in increments of 4% from bottom to top, with 12% at
the top and 0% at the bottom. Within the chart there are three solid
bars. The first represents the 7.72% total return for John Hancock
Patriot Premium Dividend Fund I. The second represents the 3.46% total
return for the Dow Jones Utility Average. The third represents the 9.44%
total return for the average preferred stock closed-end 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 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.
Given that, we've begun to add more utility common stocks to the
portfolio in the past several months. Nevada Power is a recent common
stock purchase. The stock's dividend yield is an attractive 8%. More
importantly, Nevada Power is benefiting from a low cost structure and a
rapidly growing customer base. Washington Water Power has a similar
story. This combined electric and gas utility sports an attractive
dividend yield of 7%. And like Nevada Power, it's a low-cost provider
with above-average customer growth prospects.
A word about dividends
A key influence on the bond market has been the recent increase in
short-term interest rates. As you know, the Fund is leveraged with
auction-rate preferred stocks. Since the dividends on preferred stocks
are based on short-term interest rates, the recent increases have
directly impacted the dividend rates paid on the preferred shares. As a
result, there has been less dividend income available to common stock
shareholders. In order to maintain the Fund's conservative approach of
only paying income earned, the Fund recently declared a $0.0084 per
share reduction in monthly dividends to $0.0583 per share. It is
important to note that even with the increased cost of funding the
auction rate preferred stocks, the Fund is still able to pay a higher
dividend on its common stock than it would with a non-leveraged
portfolio.
"Uncertainty
seems likely
to plague
the bond
market in
the months
ahead..."
What's ahead
Uncertainty seems likely to plague the bond market in the months ahead,
especially as investors worry about the Federal Reserve's next moves.
Most Wall Street analysts agree that the Fed probably isn't through
raising interest rates this year. The big question is how much further
and how fast will the Fed increase rates? With this uncertainty looming
over the market, investors will be constantly looking over their
shoulders for the next Fed move and volatility will likely persist in
the bond market. Given that, we will maintain our defensive posture,
with a continued focus on higher-yielding preferred stocks and selected
utility common stocks. This defensive strategy should allow the Fund to
maximize yield, while working to preserve its net asset value in a
continued volatile market.
- -----------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Premium Dividend Fund I
The Statement of Assets and Liabilities is the Fund's balance sheet on
March 31, 1997. You'll also find the net asset value per share, for each
Common Share, as of that date.
Statement of Assets and Liabilities
March 31, 1997 (Unaudited)
- --------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Preferred stocks (cost - $168,221,808) $173,134,654
Common stocks (cost - $31,799,976) 29,537,586
Short-term investments (cost - $4,857,967) 4,857,967
------------
207,530,207
Dividends receivable 993,406
Other assets 14,529
------------
Total Assets 208,538,142
- --------------------------------------------------------------------------
Liabilities:
DARTS dividend payable 264,068
Common Share dividend payable 177,855
Payable to John Hancock Advisers, Inc. and
affiliates - Note B 238,035
Accounts payable and accrued expenses 7,114
------------
Total Liabilities 687,072
- --------------------------------------------------------------------------
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, 14,960,527 shares
issued and outstanding 139,070,736
Accumulated net realized loss on investments (1,626,868)
Net unrealized appreciation of investments 2,651,532
Distributions in excess of net investment income (744,330)
------------
Net Assets Applicable to
Common Shares ($9.31 per
share based on 14,960,527
shares outstanding) 139,351,070
------------
Net Assets $207,851,070
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
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, 1997 (Unaudited)
- --------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes
of $17,267) $8,256,702
Interest 77,056
------------
8,333,758
Expenses:
Investment management fee - Note B 935,819
Administration fee - Note B 103,654
DARTS and auction fees 94,885
Printing and postage 36,431
Transfer agent fee 31,531
Custodian fee 30,166
Auditing fee 25,286
Miscellaneous 19,992
Trustees' fees 9,674
Legal fees 3,378
------------
Total Expenses 1,290,816
- --------------------------------------------------------------------------
Net Investment Income 7,042,942
- --------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold 62,880
Change in net unrealized appreciation/depreciation
of investments 4,545,903
------------
Net Realized and Unrealized
Gain on Investments 4,608,783
- --------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 11,651,725
==========================================================================
Distributions to DARTS (1,351,655)
- --------------------------------------------------------------------------
Net Increase in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less DARTS
Distributions $10,300,070
==========================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31, 1997
1996 (UNAUDITED)
------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $13,885,984 $7,042,942
Net realized gain on investments
sold 1,608,570 62,880
Change in net unrealized appreciation/
depreciation of investments (2,986,883) 4,545,903
------------ ------------
Net Increase in Net Assets Resulting
from Operations 12,507,671 11,651,725
------------ ------------
Distributions to Shareholders:
DARTS ($4,160 and $1,973 per share,
respectively ) - Note A (2,849,681) (1,351,655)
Common Shares - Note A
Dividends from net investment
income ($0.7442 and $0.3815) per share,
respectively) (11,036,303) (5,691,287)
Distributions in excess of net
investment income ($0.0562 and $0.0185
per share, respectively) (832,797) (276,569)
------------ ------------
Total Distributions to Shareholders (14,718,781) (7,319,511)
------------ ------------
From Fund Share Transactions
Value of shares issued to common
shareholders in reinvestment of
distributions * 196,359 1,094,267
------------ ------------
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 $744,330, respectively) $202,424,589 $207,851,070
============ ============
* Analysis of Common Shareholder Transactions:
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31, 1997
1996 (UNAUDITED)
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
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 21,915 196,359 117,471 1,094,267
------------ ------------ ------------ ------------
Shares outstanding end of period 14,843,056 $137,976,469 14,960,527 $139,070,736
============ ============ ============ ============
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.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a Common Share outstanding throughout the periods indicated,
investment returns, key ratios, and supplemental data are listed as follows:
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
------------------------------------------------------------- MARCH 31, 1997
1992(a) 1993 1994 1995 1996 (UNAUDITED)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Common Shares
Per Share Operating Performance
Net Asset Value, Beginning of Period $9.54 $10.47 $11.29 $7.93 $9.17 $9.02
--------- --------- --------- --------- --------- ---------
Net Investment Income 0.92 0.90 0.89 0.95 0.94 0.47
Net Realized and Unrealized Gain
(Loss) on Investments 0.95 1.25 (2.86) 1.30 (0.10) 0.31
--------- --------- --------- --------- --------- ---------
Total from Investment Operations 1.87 2.15 (1.97) 2.25 0.84 0.78
--------- --------- --------- --------- --------- ---------
Less Distributions:
Dividends to DARTS Shareholders (0.14) (0.13) (0.14) (0.21) (0.19) (0.09)
Dividends from Accumulated Net
Investment Income to
Common Shareholders (0.54) (0.64) (1.00) (0.80) (0.74) (0.38)
Distributions in Excess of Accumulated
Net Investment Income
to Common Shareholders -- -- -- -- (0.06) (0.02)
Distributions from Net Realized
Short-term Capital Gains on
Investments to Common Shareholders (0.26) (0.56) (0.25) -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions (0.94) (1.33) (1.39) (1.01) (0.99) (0.49)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $10.47 $11.29 $7.93 $9.17 $9.02 $9.31
========= ========= ========= ========= ========= =========
Per Share Market Value, End of
Period $10.50 $10.875 $8.00 $9.00 $9.125 $9.375
Total Investment Return at
Market Value 26.52% 15.66% (16.05%) 23.68% 10.58% 7.21%(e)
Ratios and Supplemental Data
Net Assets Applicable to Common
Shares, End of Period (000's omitted) $151,459 $163,683 $116,123 $135,939 $133,925 $139,351
Ratio of Expenses to Average
Net Assets* 1.37% 1.40% 1.29% 1.32% 1.24% 1.25%(f)
Ratio of Net Investment Income
to Average Net Assets* 6.46% 5.62% 6.42% 7.29% 6.75% 6.79%(f)
Portfolio Turnover Rate 100% 69% 56% 74% 57% 23%
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) $318,829 $342,383 $271,736 $290,238 $294,044 $301,382
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
Average Brokerage Commission
Rate (d) N/A N/A N/A N/A $0.0580 $0.0632
* 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) Per portfolio share traded. Required for fiscal years that began September 1, 1995, or later.
(e) Not annualized.
(f) Annualized.
The Financial Highlights summarizes the impact of the following factors on a single share for
each period indicated: net investment income, gains (losses), dividends, and total investment
return of the Fund. It shows how the Fund's net asset value for a share has changed since the
end of the previous period. Additionally, important relationships between some items presented
in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
March 31, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the Fund on
March 31, 1997. It's divided into three main categories: preferred stocks, common stocks,
and short-term investments. The stocks are further broken down by industry 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.
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- --------------------- ------------- ------------
<S> <C> <C>
PREFERRED STOCKS
Automobile / Trucks (2.16%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B 60,000 $1,680,000
General Motors Corp., 9.12%,
Depositary Shares, Ser G 100,000 2,812,500
------------
4,492,500
------------
Banks - U.S. (12.49%)
ABN AMRO North America Inc.,
6.59% (R) 4,000 3,880,000
Ahmanson, H.F. & Co., 8.40%,
Depositary Shares, Ser C 45,000 1,164,375
Bank of Boston Corp., 8.60%,
Depositary Shares, Ser E 168,654 4,321,759
Chase Manhattan Corp.,
8.40%, Ser M 21,000 540,750
Chase Manhattan Corp., 10.84%, Ser C 58,775 1,814,678
Fleet Financial Group, Inc.,
6.75%, Ser VI 59,000 3,023,750
Fleet Financial Group, Inc.,
9.35%, Depositary Shares 140,000 3,902,500
J.P. Morgan & Company Inc.,
6.625%, Depositary Shares, Ser H 80,000 4,160,000
LaSalle National Corp.,
8.75%, Ser K, (R) 60,000 3,150,000
------------
25,957,812
------------
Conglomerates (0.47%)
Grand Metropolitan Delaware, L.P.,
9.42%, Gtd Ser A 35,420 982,905
------------
Equipment Leasing (3.03%)
AMERCO, 8.50%, Ser A 90,000 2,227,500
Capita Preferred Trust, 9.06% 130,000 3,282,500
Comdisco, Inc., 8.75%, Ser A 30,900 787,950
------------
6,297,950
------------
Financial Services (5.73%)
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A 40,000 1,180,000
Morgan Stanley Group Inc., 7.75%,
Depositary Shares 15,000 808,125
Salomon Inc., 8.40%, Depositary
Shares, Ser E 175,000 4,637,500
Source One Mortgage Services Corp.,
8.42%, Ser A 56,800 1,476,800
SunAmerica, Inc., 9.25%, Ser B 150,000 3,806,250
------------
11,908,675
------------
Insurance (0.52%)
Provident Companies, Inc., 8.10%,
Depositary Shares 41,500 1,073,813
------------
Oil & Gas (7.40%)
Coastal Corp., $2.125, Ser H 211,900 5,403,450
El Paso Tennessee Pipeline Co.,
8.25%, Ser A 100,000 5,300,000
Lasmo PLC, 10.00%, Ser A,
ADR (United Kingdom) 79,500 2,027,250
Phillips Gas Co., 9.32%, Ser A 101,100 2,641,238
------------
15,371,938
------------
Paper (2.48%)
Boise Cascade Corp., 9.40%,
Depositary Shares, Ser F 79,700 2,032,350
Bowater Inc., 8.40%, Depositary
Shares, Ser C 120,000 3,120,000
------------
5,152,350
------------
Utilities (49.02%)
Alabama Power Capital Trust II, 7.60% 35,000 840,000
Appalachian Power Co., 8.25%, Ser A 96,721 2,405,935
Baltimore Gas & Electric Co., 6.99% 34,000 3,497,750
Boston Edison Co. 4.25% 37,172 2,137,390
Columbus Southern Power Co.,
7.92%, Ser B 60,000 1,455,000
Columbus Southern Power Co.,
8.375%, Ser A 66,000 1,658,250
Commonwealth Edison Co., $7.24 47,270 4,342,930
Commonwealth Edison Co.,
$8.40, Ser A 51,103 5,097,524
Detroit Edison Co., 7.75%,
Depositary Shares 60,000 1,522,500
Entergy Gulf States, Inc., ARP,
Depositary Shares, Ser B 38,460 1,817,235
Florida Power & Light Co.,
6.75%, Ser U 42,000 4,294,500
GTE Florida, Inc., 8.16% 25,000 2,543,750
GTE North Inc., $7.60, Ser IND 11,000 1,100,000
Hawaiian Electric Industries,
Inc., 8.36% 100,000 2,500,000
Idaho Power Co., 7.07% 13,000 1,355,250
Indianapolis Power & Light Co., 8.20% 8,000 808,000
MCN Michigan, Limited Partnership,
9.375%, Ser A 148,800 3,906,000
MP&L Capital I, 8.05% 41,725 1,017,047
Massachusetts Electric Co., 6.84% 134,900 3,288,188
Massachusetts Electric Co., 6.99% 13,500 1,393,875
Monongahela Power Co., 7.73%, Ser L 34,500 3,665,625
Montana Power Capital I, 8.45%, Ser A 40,000 1,025,000
Montana Power Co., $6.875 22,500 2,306,250
NIPSCO Capital Markets, Inc., 7.75% 196,110 4,706,640
Narragansett Electric Co., 6.95% 28,500 1,482,000
PECO Energy Co., $7.48 13,000 1,358,500
PSI Energy, Inc., 6.875% 37,000 3,811,000
PSI Energy, Inc., 7.44% 90,580 2,298,468
PacifiCorp 8.375%, Ser A 25,000 625,000
Portland General Electric Co.,
8.25%, Ser A 59,500 1,480,062
Potomac Electric Power Co., $3.82 25,701 1,304,326
Public Service Electric &
Gas Co., 6.92% 25,800 2,605,800
Puget Sound Energy, Inc., 7.45%, Ser II 124,000 3,286,000
Puget Sound Energy, Inc., 8.50%, Ser III 135,836 3,531,736
Sierra Pacific Power Capital I, 8.60% 28,000 714,000
Sierra Pacific Power Co., 7.80%,
Ser 1 (Class A) 50,000 1,337,500
Southern California Gas Co., 7.75% 138,550 3,498,388
Southern Union Financing I, 9.48% 185,000 4,717,500
Texas Utilities Electric Co., $7.98 36,000 3,897,000
Texas Utilities Electric Co.,$1.875,
Depositary Shares, Ser A 55,100 1,487,700
UtiliCorp Capital, Limited Partnership,
8.875%, Ser A 184,256 4,744,592
Virginia Electric & Power Co., $7.05 10,000 1,032,500
------------
101,896,711
------------
TOTAL PREFERRED STOCKS
(Cost $168,221,808) (83.30%) 173,134,654
------- ------------
COMMON STOCKS
Utilities (14.21%)
Boston Edison Co. 175,000 4,571,875
Delmarva Power & Light Co. 140,000 2,572,500
Florida Progress Corp. 45,000 1,366,875
MidAmerican Energy Holdings Co. 126,700 2,169,736
Montana Power Co. 108,300 2,328,450
Nevada Power Co. 50,000 993,750
New England Electric System 97,000 3,334,375
PECO Energy Co. 40,000 815,000
Public Service Enterprise Group, Inc. 128,500 3,373,125
Puget Sound Power & Light Co. 216,900 5,476,725
Washington Water Power Co. 82,600 1,435,175
WPL Holdings Inc. 40,000 1,100,000
------------
TOTAL COMMON STOCKS
(Cost $31,799,976) (14.21%) 29,537,586
------- ------------
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) RATE
- --------------------- -------- --------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Finance (2.34%)
Prudential Funding Corp.,
4/1/97 6.40% $4,858 $4,857,967
TOTAL SHORT-TERM INVESTMENTS (2.34%) 4,857,967
------- ------------
TOTAL INVESTMENTS (99.85%) $207,530,207
======= ============
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 $7,030,000
as of March 31, 1997.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 $1,654,338 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 - $305,896 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
March 31, 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 3.96% during the period ended March 31, 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.
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 March 31, 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., Mr. Richard S. Scipione, and Ms. Anne C.
Hodsdon 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 March 31, 1997, the
Fund's investment to cover the deferred compensation liability had
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, 1997, aggregated $47,740,663 and
$49,403,850, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended March 31, 1997.
The cost of long-term investments owned at March 31, 1997, for Federal
income tax purposes, was $204,879,751. Gross unrealized appreciation and
depreciation of investments aggregated $6,327,064 and $3,676,608,
respectively, resulting in net unrealized appreciation of $2,650,456 for
federal tax purposes.
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
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).
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