<PAGE> 1
JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PATRIOT
PREFERRED
DIVIDEND
FUND
ANNUAL REPORT
May 31, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
Thomas W.L. Cameron
James F. Carlin*
William H. Cunningham
Charles F. Fretz*
Harold R. Hiser, Jr.*
Charles L. Ladner*
Leo E. Linbeck, Jr.
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman J. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Andrew F. St. Pierre
President
Anne C. Hodsdon
Executive Vice President
Michael P. DiCarlo
Senior Vice President
Thomas H. Drohan
Senior Vice President and Secretary
James K. Ho
Senior Vice President
James B. Little
Senior Vice President and
Chief Financial Officer
John A. Morin
Vice President and Compliance Officer
Susan S. Newton
Vice President and Assistant Secretary
James J. Stokowski
Vice President and Treasurer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN AND TRANSFER AGENT FOR COMMON SHAREHOLDERS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT FOR DARTS
Chemical Bank
450 West 33rd Street
New York, New York 10001
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen llp
One International Place
Boston, Massachusetts 02110-2604
LISTED NEW YORK STOCK EXCHANGE SYMBOL: PPF
JOHN HANCOCK FUNDS: 1-800-843-0090
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.]
Educating shareholders has always been one of the most important
responsibilities of an investment company. But that challenge has taken on new
significance in the past several years. Looking at the most recent statistics,
you can see why. According to the Investment Company Institute, the mutual fund
industry now manages more than $2.3 trillion for investors. More than half of
that money has come into mutual funds in just the last four years. Today, there
are more than 95 million mutual fund shareholder accounts. That's up from 12
million in 1980. These are people, perhaps like you, who are investing in mutual
funds to save for a home, to send their children to college or to build a nest
egg for a comfortable retirement. This explosive growth, coupled with the
growing complexity of the financial landscape, has made all of us in the mutual
fund industry work harder to inform our shareholders.
At John Hancock Funds, we strive to educate you about all aspects of your
fund: the performance, the strategies and the holdings. We want you to fully
understand what you own. We want you to have realistic expectations of the
potential rewards as well as the potential risks of your investment. These
shareholder reports -- which we send you twice a year -- are the best way to
give you the most in-depth and up-to-date information.
In the message that follows, the portfolio managers give a candid commentary
on the market environment; the factors that affected performance; the fund's
current investment strategies; and the outlook for the months ahead. The ensuing
financial statements provide a comprehensive look at the fund's statistics and
holdings. We've included explanations of what each financial statement shows and
how it is used.
We hope you find these shareholder reports a useful tool in evaluating your
investments. Of course, if you have any questions or need more information, feel
free to call us toll-free at 1-800-843-0090, from 8:30 a.m. to 5:00 p.m. eastern
time, Monday through Friday.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
- -----------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY ANDREW F. ST. PIERRE, PRESIDENT AND PORTFOLIO MANAGER
JOHN HANCOCK
PATRIOT PREFERRED
DIVIDEND FUND
Lower interest rates and a better regulatory outlook for
utilities make for impressive second-half returns
A strong showing so far in 1995 has more than made up for disappointing
performance in 1994, resulting in double-digit returns for the Fund's fiscal
year. Last year at this time, John Hancock Patriot Preferred Dividend Fund was
struggling in the midst of a gloomy investment climate. Interest rates had been
climbing since February 1994, when the Federal Reserve reversed direction and
began raising interest rates. All in all, there have been seven rate increases
by the Fed during this latest cycle -- four before the period began and three
more during the Fund's fiscal year. As interest rates rose, bond prices fell.
And because preferred stocks tend to track Treasury securities, the Fund found
itself operating under extremely difficult conditions. Those difficulties were
exacerbated during the year as frustrated investors increasingly unloaded their
preferred stock holdings, flooding the market and further depressing prices.
Moreover, utility stocks -- which ranged from one-fifth to one-quarter of the
Fund's net assets during the period -- came under intense pressure following the
announcement
[A 2 1/2" x 3 1/2" photo of the Patriot management team at bottom right.
Caption reads: The Patriot management team (l-r) "Laura Provost, Greg Phelps
and Andrew St. Pierre."]
[CAPTION]
"PREFERRED STOCKS... HAVE BEEN AMONG THE BIGGEST BENEFICIARIES OF FALLING
RATES."
3
<PAGE> 4
John Hancock Funds - Patriot Preferred Dividend Fund
[Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into five sections. Going from left to right:
Industrials 26%; Banks 27%; Utilities 25%; Financial Services/Insurance 20%; and
Short-Term Investments & Other 2%. A footnote below states "As a percentage of
net assets on May 31, 1995."]
[CAPTION]
". . . WE BEGAN REPOSITIONING THE FUND TO BENEFIT FROM A FALLING RATE
ENVIRONMENT."
by California regulators in April 1994 that they planned to move quickly toward
implementing retail competition among electricity providers. The upshot was that
the Fund lost money almost from the time the period began through the end of
1994.
But what a difference a year makes. Ever since the last Fed increase in
February 1995, interest rates have been trending downward, boosting bonds and
stocks alike. Preferred stocks, because they're more sensitive than other stocks
to interest rates, have been among the biggest beneficiaries of falling rates.
And when California's regulatory initiative stalled this past spring, investors
embraced utilities again, sparking a strong sector rally. For the year ended May
31, 1995, John Hancock Patriot Preferred Dividend Fund had a total return of
16.59% at net asset value. By comparison, the average income-oriented,
closed-end equity fund had a total return of 11.00% and the Merrill Lynch
30-year Treasury Index had a total return of 16.34%.
[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 Public
Service Electric & Gas followed by an up arrow and the phrase "Good call
protection." The second listing is Bowater followed by an up arrow and the
phrase "Higher prices for forest products." The third listing is Sumitomo Bank
of California followed by a down arrow and the phrase "Tainted by parent
company." Footnote below reads: "See "Schedule of Investments." Investment
holdings are subject to change."
THE TURNING POINT
In late January 1995, we began repositioning the Fund to benefit from a falling
rate environment. That included boosting the Fund's stake in preferred stocks.
Preferreds had declined to as little as 85% of net assets while interest rates
were rising. But as rates were peaking, we began buying them again. By the end
of May, almost 87% of the Fund's net assets were preferred stocks. Also, we took
advantage of depressed values and abundant supply to add numerous high-quality
securities at bargain prices. In choosing securities, we looked for two
characteristics. The first is call protection, which simply means the issuer
can't redeem the security before its term expires. The second is DRD
eligibility. DRD stands for dividend received deduction. Securities that are
DRD-eligible offer distinct tax advantages to corporate investors. Because
they're not as common as they used to be, they've become more valuable. In
January, with the market still languishing, we were able to acquire certain
DRD-eligible securities that have since been top performers.
- - UTILITIES. The California regulatory initiative sent a chill through the
electric utility industry in 1994, leading rating agencies to downgrade utility
securities and sending investors fleeing. But after much bickering among
lawmakers, environmentalists, consumers and the utilities themselves, the
regulators adopted a more moderate stance. That, combined with lower
4
<PAGE> 5
John Hancock Funds - Patriot Preferred Dividend Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended May 31, 1995." The chart is scaled
in increments of 5% from bottom to top, with 20% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
16.59% total return for John Hancock Patriot Preferred Dividend Fund. The second
represents the 11.00% total return for the average income-oriented, closed-end
equity fund. The third bar represents the 16.34% total return for the Merrill
Lynch 30-Year Treasury Index. Footnote below reads: "The total return for John
Hancock Patriot Preferred Dividend Fund is at net asset value with all
distributions reinvested. The average income-oriented, closed-end equity fund is
tracked by Lipper Analytical Services. The Merrill Lynch 30-Year Treasury Index
is an unmanaged index, which measures the performance of the 30-year Treasury
bond."]
interest rates, ignited a strong utility rally, not only in California but
across the country. We added electric-utility preferred stocks during the early
stages of the rally, increasing the Fund's stake from about 19% six months ago
to almost 25% at the end of May. PSI Energy -- which used to be Public Service
of Indiana but is now a wholly-owned subsidiary of Cinergy Corp. -- was among
the Fund's top holdings. We bought PSI Energy preferreds with ten- and
three-year call protection in late January and early February. They've since
done quite well. We also bought Public Service Electric & Gas -- a preferred
offering carrying DRD eligibility and 10-year call protection -- at a
substantial discount.
- - FINANCIALS. The financial sector remained the Fund's largest at approximately
47% of net assets. Significant holdings included Bank of America, which
announced plans during the first quarter of 1995 to call $500 million worth of
its preferreds. The prospect of reduced supply, coupled with continuing
improvements in the bank's credit rating, helped boost returns. Ford Holdings, a
foreign financing subsidiary of Ford Motor Company, benefited indirectly from
the decision by General Motors to try to buy back all of its preference stock,
which is similar to preferred stock. Many former GM shareholders, who wanted
exposure to the auto industry and could benefit from DRD eligibility, found an
attractive alternative in Ford Holdings. The stock rallied as a result. Another
noteworthy performer was a Merrill Lynch preferred offering that came to market
at the end of 1994 with DRD eligibility and 10-year call protection.
- - INDUSTRIALS. Our stake in industrial preferred stocks stood at 26% at the end
of May. Rising prices for lumber, liner board and other forest products boosted
profits for Bowater, making it a likely candidate for an eventual upgrade by the
credit-rating agencies and a top performer during the period. Higher commodity
prices have also played a part in the recent success of Lasmo, a British oil and
gas company, whose preferred stock offers an attractive double-digit yield.
OUTLOOK REMAINS FAVORABLE
We've had a pretty good run so far in 1995. By the end of May, the Fund's total
return year-to-date was about 18% at net asset value. It would be prudent to
temper our expectations somewhat in light of the strong move we've seen
recently. Still, numerous positive factors remain in place, including the
likelihood of stable or falling interest rates in the months ahead, an
"...THE PROSPECTS FOR INCOME INVESTORS ARE STILL ATTRACTIVE..."
5
<PAGE> 6
John Hancock Funds - Patriot Preferred Dividend Fund
improved regulatory outlook for utilities, and continued strong demand for
DRD-eligible preferreds. Overall, the prospects for income investors are still
attractive and seem likely to remain so in the months ahead.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET ON MAY 31,
1995. YOU'LL ALSO FIND THE NET ASSET VALUE PER SHARE, FOR EACH COMMON SHARE, AS
OF THAT DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value - Note C:
Preferred stocks (cost - $126,757,935) ................. $127,401,521
Common stocks (cost - $6,661,830) ....................... 7,045,037
Capital securities (cost - $9,071,125) ................. 8,743,750
Short-term investments (cost - $671,000) ................ 671,000
------------
143,861,308
Cash ...................................................... 541
Receivable for investments sold ........................... 4,943,591
Dividends receivable ...................................... 891,800
Deferred organization expenses - Note A ................... 49,743
Other assets .............................................. 24,420
------------
Total Assets ........................... 149,771,403
-----------------------------------------------------------
LIABILITIES:
Auction Rate Preferred Shares dividend payable -
Note A .................................................. 201,688
Payable for investments purchased ......................... 2,880,750
Payable to John Hancock Advisers, Inc. - Note B ........... 124,233
Accounts payable and accrued expenses ..................... 41,463
------------
Total Liabilities ...................... 3,248,134
-----------------------------------------------------------
NET ASSETS:
Auction Rate Preferred Shares - Without par value,
unlimited number of shares of beneficial interest
authorized, 525 shares issued, liquidation preference
of $100,000 per share - Note A .......................... 52,500,000
------------
Common Shares - Without par value, unlimited number
of shares of beneficial interest authorized, 7,257,200
shares issued and outstanding ........................... 99,634,694
Accumulated net realized loss on investments .............. ( 6,789,225)
Net unrealized appreciation of investments ................ 699,418
Undistributed net investment income ....................... 478,382
------------
Net Assets Applicable to
Common Shares ($12.96
per share based on 7,257,200
shares outstanding) .................... 94,023,269
-----------------------------------------------------------
Net Assets ............................. $146,523,269
===========================================================
</TABLE>
STATEMENT OF OPERATIONS
Year ended May 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $49,309) .... $12,449,232
Interest ................................................... 379,618
-----------
12,828,850
-----------
Expenses:
Investment management fee - Note B ....................... 1,112,941
Administration fee - Note B .............................. 208,677
Auction rate preferred shares and auction fees ........... 144,879
Auditing fee ............................................. 58,725
Custodian fee ............................................ 51,973
Federal excise tax ....................................... 47,004
Printing ................................................. 40,962
Transfer agent fee ....................................... 38,868
Miscellaneous ............................................ 38,180
Trustees' fees ........................................... 29,831
Organization expense - Note A ............................ 16,581
Legal fees ............................................... 14,596
-----------
Total Expenses .......................... 1,803,217
-----------------------------------------------------------
Net Investment Income ................... 11,025,633
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold ...................... ( 6,490,992)
Change in net unrealized appreciation/depreciation
of investments ........................................... 11,148,363
-----------
Net Realized and Unrealized
Gain on Investments ..................... 4,657,371
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............... $15,683,004
-----------------------------------------------------------
Distributions to Auction Rate
Preferred Shares ........................ ( 2,179,847)
-----------------------------------------------------------
Net Increase in Net Assets Applicable
to Common Shareholders Resulting
from Operations Less Auction Rate
Preferred Shares Distributions .......... $13,503,157
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
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 SALE OF COMMON SHARES AND AUCTION RATE
PREFERRED SHARES. THE FOOTNOTE ILLUSTRATES THE NUMBER OF COMMON SHARES SOLD AND
OUTSTANDING AT THE END OF THE PERIOD.
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD FROM
JUNE 1, 1993 (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
MAY 31, 1995 MAY 31, 1994
------------- --------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............................................................. $ 11,025,633 $ 8,206,949
Net realized loss on investments sold ............................................. ( 6,490,992) ( 298,233)
Change in net unrealized appreciation/depreciation of investments ................. 11,148,363 ( 10,448,945)
------------- ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................. 15,683,004 ( 2,540,229)
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Auction Rate Preferred Shares ($4,152 and $2,442 per share,
respectively) - Note A .......................................................... ( 2,179,847) ( 1,282,132)
Common Shares - Note A
Dividends from net investment income ($1.16 and $0.95 per share,
respectively) ................................................................. ( 8,381,752) ( 6,924,817)
Distributions in excess of net investment income (none and $0.01
per share, respectively) ...................................................... -- ( 60,141)
------------- ------------
Total Distributions to Shareholders ............................................. ( 10,561,599) ( 8,267,090)
------------- ------------
FROM FUND SHARE TRANSACTIONS:*
Common Shares sold (proceeds from sale of common shares, net of
$1,528,757 of offering costs for the Auction Rate Preferred
Shares and Common Shares and underwriting discount on the Auction
Rate Preferred Shares) .......................................................... -- 99,608,743
Auction Rate Preferred Shares sold ................................................ -- 52,500,000
============ ============
NET ASSETS:
Beginning of Period ............................................................... 141,401,864 100,440
------------ ------------
End of period (including undistributed net investment income and
distributions in excess of net investment income of $478,382 and
($32,656), respectively) ........................................................ $146,523,269 $141,401,864
------------ ------------
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM JUNE 1, 1993
YEAR ENDED MAY 31, 1995 (COMMENCEMENT OF OPERATIONS) TO MAY 31, 1994
-------------------------- --------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Initial investment in Common Shares by John
Hancock Advisers, Inc ..................... -- -- 7,200 $ 100,440
Shares outstanding, beginning of period ..... 7,257,200 $99,681,698 -- --
Common Shares sold .......................... 7,250,000 99,608,743
Reclassification of Capital Accounts -
Note D....................................... -- ( 47,004) -- ( 27,485)
--------- ----------- --------- -----------
Common Shares outstanding, end of period .... 7,257,200 $99,634,694 7,257,200 $99,681,698
========= =========== ========= ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED FOR THE PERIOD FROM JUNE 1, 1993
MAY 31, (COMMENCEMENT OF OPERATIONS)
1995 TO MAY 31, 1994
---------- --------------------------------
<S> <C> <C>
COMMON SHARES
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ................................... $ 12.25 $ 13.95(a)
----------- -----------
Net Investment Income .................................................. 1.52 1.13
Net Realized and Unrealized Gain (Loss) on Investments ................. 0.65 ( 1.48)
----------- -----------
Total from Investment Operations .................................... 2.17 ( 0.35)
----------- -----------
Less Distributions:
Dividends to Auction Rate Preferred Shareholders ...................... ( 0.30) ( 0.18)
Dividends from Net Investment Income to Common Shareholders ........... ( 1.16) ( 0.95)
Distributions in Excess of Net Investment Income to Common
Shareholders.......................................................... -- ( 0.01)
----------- -----------
Total Distributions ................................................. ( 1.46) ( 1.14)
----------- -----------
Preferred and Common Shares Offering Costs ............................. -- ( 0.08)
----------- -----------
Preferred Shares Underwriting Discounts ................................ -- ( 0.13)
----------- -----------
Net Asset Value, End of Period ......................................... $ 12.96 $ 12.25
=========== ===========
Per Share Market Value, End of Period .................................. $ 12.250 $ 12.625
Total Investment Return at Market Value ................................ 7.18% ( 9.68%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets Applicable to Common Shares, End of Period .................. $94,023,269 $88,901,864
Ratio of Expenses to Average Net Assets * .............................. 1.30% 1.24%
Ratio of Net Investment Income to Average Net Assets * ................. 7.93% 5.81%
Portfolio Turnover Rate ................................................ 88% 90%
SENIOR SECURITIES
Total Auction Rate Preferred Shares Outstanding ........................ $52,500,000 $52,500,000
Asset Coverage per Unit (b) ............................................ $ 274,463 $ 266,908
Involuntary Liquidation Preference per Unit (c) ........................ $ 100,000 $ 100,000
Approximate Market Value per Unit (c) .................................. $ 100,000 $ 100,000
<FN>
* 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) Initial price to commence operations.
(b) Calculated by subtracting the Fund's total liabilities (not including the
Auction Rate Preferred Shares) from the Fund's total assets and dividing
such amount by the number of Auction Rate Preferred Shares outstanding, as
of the applicable 1940 Act Evaluation Date.
(c) Plus accumulated and unpaid dividends.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
FUND ON MAY 31, 1995. IT'S DIVIDED INTO FOUR MAIN CATEGORIES: PREFERRED STOCKS,
COMMON STOCKS, CAPITAL SECURITIES 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.
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----------
<S> <C> <C>
PREFERRED STOCKS
AUTO/TRUCK (3.81%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B ................. 85,000 $ 2,263,125
General Motors Corp., 9.125%,
Depositary Shares, Ser B ................. 122,400* 3,320,100
-----------
5,583,225
-----------
BANKS - FOREIGN (1.43%)
Banesto Holdings Ltd., 10.50%, Gtd Ser A
(Guernsey) (R) ........................... 77,140 2,092,423
-----------
BANKS - U.S. (19.93%)
Ahmanson, H.F. & Co., 9.60%,
Depositary Shares, Ser B ................. 79,000* 2,044,125
Bank of Boston Corp., 8.60%,
Depositary Shares, Ser E ................. 44,000 1,127,500
BankAmerica Corp., 9.625%, Ser F ........... 85,000* 2,188,750
BankAmerica Corp., 9.00%, Ser H ............ 30,000 776,250
Chase Manhattan Corp., 9.76%, Ser H ........ 100,000* 2,825,000
Chase Manhattan Corp., ARP, Ser N .......... 40,000 900,000
Chase Manhattan Corp., 8.40%, Ser M ........ 25,000* 650,000
Chase Manhattan Corp., 9.08%, Ser J ........ 25,000* 656,250
Citicorp, 7.75%, Ser 22 .................... 25,000 628,125
Citicorp, 9.08%, Ser 14 .................... 34,000* 892,500
First Interstate Bancorp., 9.00%,
Depositary Shares, Ser G ................. 100,000 2,637,500
First Interstate Bancorp., 9.875%,
Depositary Shares, Ser F ................. 119,000 3,198,125
Keycorp, 10.00%, Depositary Shares,
Ser A .................................... 37,500 1,007,812
Mellon Bank Corp., 9.60%, Ser I ............ 80,000* 2,100,000
Shawmut National Corp., 9.35%,
Depositary Shares ........................ 177,000* 4,801,125
Sumitomo Bank of CA, 8.125%,
Depositary Shares, Ser A ................. 70,000 1,706,250
Wells Fargo & Co., 9.00%,
Depositary Shares, Ser C ................. 40,500 1,058,063
-----------
29,197,375
-----------
COMPUTER SERVICES (1.90%)
Comdisco, Inc., 8.75%, Ser A ............... 110,000 2,777,500
-----------
CONGLOMERATE/DIVERSIFIED (0.84%)
Grand Metropolitan Delaware, 9.42%,
Gtd Ser A ................................ 45,000* 1,226,250
-----------
EQUIPMENT LEASING (3.30%)
AMERCO, 8.50%, Ser A ....................... 220,000 $ 4,840,000
-----------
FINANCIAL SERVICES (12.52%)
Ford Holdings, Inc., 8.10%, Depositary
Shares, Ser D ............................ 80,500* 2,093,000
Household International, Inc., 9.50%,
Depositary Shares, Ser 89-A .............. 50,000 1,325,000
Merrill Lynch & Company, Inc., 9.00%,
Depositary Shares, Ser A ................. 30,000* 836,250
Salomon Inc., 8.08%, Depositary
Shares, Ser D ............................ 80,257 1,986,360
Salomon Inc., 9.50%, Depositary
Shares, Ser C ............................ 94,300 2,428,225
Santander Finance, 7.375%, Gtd Ser A ....... 74,700* 1,652,738
Santander Finance Ltd., 7.90%, Gtd Ser B ... 116,000* 2,726,000
SunAmerica Inc., 9.25%, Ser B .............. 198,000 5,296,500
-----------
18,344,073
-----------
INSURANCE (7.27%)
American Life Holding Co., $2.16 ........... 75,000 1,800,000
Aon Corporation, 8.00% ..................... 70,000 1,776,250
Progressive Corp., 9.375%, Ser A ........... 95,300 2,489,713
Travelers Group, Inc., 8.125%, Ser A ....... 40,000* 1,015,000
Travelers Inc., 9.25%, Depositary
Shares, Ser D ............................ 136,100 3,572,625
-----------
10,653,588
-----------
OIL & GAS (11.45%)
Coastal Corp., $2.125, Ser H ............... 168,000 4,263,000
Elf Overseas Ltd., 8.50%, Gtd Ser A
(Cayman Islands) ......................... 95,000* 2,458,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------------
<S> <C> <C>
OIL & GAS (CONTINUED)
Enterprise Oil PLC, 10.50%, American
Depositary Receipt ("ADR"), Ser A
(United Kingdom) ........................ 30,000 $ 757,500
Lasmo PLC, 10.00%, ADR, Ser A
(United Kingdom) ........................ 200,000 4,875,000
Phillips Gas Co., 9.32%, Ser A ............ 167,800 4,425,725
------------
16,779,350
------------
PAPER (4.37%)
Boise Cascade Corp., 9.40%, Ser F ......... 43,000 1,134,125
Bowater, Inc., 8.40%, Depositary Shares,
Ser C ................................... 204,900* 5,276,175
------------
6,410,300
------------
PUBLISHING (0.69%)
Newscorp Overseas Ltd., 8.625%, Gtd
Ser A (Cayman Islands) .................. 40,225 1,005,625
------------
UTILITIES (19.44%)
Central Maine Power Co., 7.999%, Ser A .... 10,000 900,000
Central Maine Power Co., 8.875% (R) ....... 16,000 1,520,000
Columbus Southern Power Co., 9.50%,
Ser 2/1/15 .............................. 20,000* 2,145,000
Consolidated Edison of NY, Inc., 6.20%,
Ser F ................................... 17,000* 1,487,500
Gulf States Utilities Co., $9.96 .......... 6,800* 697,956
Houston Lighting & Power Co., $7.52 ....... 13,752* 1,388,952
Idaho Power Co., 8.375% ................... 25,500* 2,712,945
MCN Michigan Limited Partnership,
9.375%, Ser A ........................... 25,000* 668,750
New England Power Co., 6.08% .............. 20,112 1,669,296
Northern States Power Co. of MN, $6.80 .... 20,000 1,800,000
Ohio Power Co., 8.04% ..................... 20,000 2,000,000
PSI Energy Inc., 6.875% ................... 15,800 1,493,100
PSI Energy Inc., 7.44% .................... 60,000* 1,492,500
Public Service Co. of NH, 10.60%, Ser A ... 52,000 1,378,000
Public Service Electric & Gas Co., 6.92% .. 25,000* 2,350,000
Public Service Electric & Gas Co., 6.80% .. 24,000* 2,208,000
Public Service Electric & Gas Co., 7.40% .. 12,400* 1,190,400
Southern California Gas Co., 7.75% ........ 55,300 1,389,413
------------
28,491,812
------------
TOTAL PREFERRED STOCKS
(Cost $126,757,935) (86.95%) 127,401,521
------- ------------
COMMON STOCKS
UTILITIES (4.81%)
Central & South West Corp. ................ 33,400* $ 860,050
CINergy Corp. (formerly PSI
Resources, Inc.) ........................ 102,300 2,723,737
Houston Industries, Inc. .................. 30,000* 1,293,750
Texas Utilities Co. ....................... 60,000 2,167,500
----------
TOTAL COMMON STOCKS
(Cost $6,661,830) (4.81%) 7,045,037
------- ----------
CAPITAL SECURITIES
BANKS - FOREIGN (5.97%)
A/S Eksportfinans, 8.70%, Capital
Securities (Norway) ..................... 100,000 2,575,000
Australia and New Zealand Banking
Group Ltd., 9.125%, Capital
Securities (Australia) .................. 235,000 6,168,750
----------
TOTAL CAPITAL SECURITIES
(Cost $9,071,125) (5.97%) 8,743,750
------- ----------
INTEREST PAR VALUE
RATE (000's OMITTED)
-------- ---------------
SHORT-TERM INVESTMENTS
COMMERCIAL PAPER (0.45%)
Prudential Funding Corp.
06-01-95 .................6.00% 671 671,000
------------
TOTAL SHORT-TERM INVESTMENTS (0.45%) 671,000
------ ------------
TOTAL INVESTMENTS (98.18%) $143,861,308
====== ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio
during the period ended May 31, 1995.
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer; however, security is U.S. dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
The securities indicated by (R) are exempt from registration under rule 144A of
the Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. See Note A of
the Notes to Financial Statements for valuation policy. Rule 144A securities
amounted to $3,612,423 as of May 31, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Patriot Preferred Dividend Fund (the "Fund") is a diversified,
closed-end management investment company, registered under the Investment
Company Act of 1940. Prior to January 1, 1995, the Fund was known as Patriot
Preferred Dividend Fund. 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. For federal income tax purposes, the Fund has
$6,461,101 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: May 31, 2002 -- $282,233, and May 31, 2003 --
$6,178,868.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all dividends and distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with federal income tax regulations. Due to
permanent book/tax differences in accounting for certain transactions, this has
the potential for treating certain distributions as return of capital as opposed
to distributions of net investment income or realized capital gains. The Fund
has adjusted for the cumulative effect of such permanent book/tax differences
through May 31, 1995, which has no effect on the Fund's net assets, net
investment income or net realized gains.
DEFERRED ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged ratably to
the Fund's operations over a five-year period that began with the commencement
of the investment operations of the Fund.
AUCTION RATE PREFERRED SHARES The Fund issued 525 shares of Auction Rate
Preferred Shares (the "Preferred Shares") on July 29, 1993 in a public offering.
The underwriting discount on the Preferred Shares of $918,750 was recorded as a
reduction of the capital of the Common Shares, and the offering costs associated
with the offering of the Common Shares and Preferred Shares of $610,007 have
been recorded as a reduction of the capital of the Common Shares. Dividends on
the Preferred Shares, which accrue daily, are cumulative at a rate that was
established at the offering of the Preferred Shares and has been reset every 49
days thereafter by an auction. Dividend rates ranged from 3.48% to 4.64% during
the period ended May 31, 1995.
The Preferred Shares 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 Preferred Shares are also subject to
mandatory redemption at a 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 Preferred Shares. If the dividends on the
Preferred Shares shall remain unpaid in an amount equal to two full years'
dividends, the holders of the Preferred Shares, as a class, have the right to
elect a majority of the Board of Trustees. In general, the holders of the
Preferred Shares and the Common Shares have equal voting rights of one vote per
share, except that the holders of the Preferred Shares, 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
Preferred Shares and Common Shares. The Preferred Shares have a liquidation
preference of $100,000 per
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
share, plus accumulated and unpaid dividends. The Fund is required to maintain
certain asset coverage with respect to the Preferred Shares, as defined in the
Fund's By-Laws.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned
subsidiary of The Berkeley Financial Group, for a continuous investment program
equivalent, on an annual basis, to the sum of 0.80 of 1% of the Fund's average
weekly net asset value.
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. The Fund pays a monthly
administrative fee to the Adviser equivalent, on an annual basis, to the sum of
0.15 of 1% of the Fund's average weekly net asset value.
Each unaffiliated Trustee is entitled, as compensation for his or her
services, to an annual fee plus remuneration for attendance at various meetings.
Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors and/or
officers of the Adviser and/or affiliates, as well as Trustees of the Fund.
Effective with the fees paid for 1995, the unaffiliated Trustees may elect to
defer for tax purposes their receipt of this compensation under the John Hancock
Group of Funds Deferred Compensation Plan. The Fund will make investments into
other John Hancock funds, as applicable, to cover its liability with regard to
the deferred compensation. Investments to cover the Fund's deferred compensation
liability will be recorded on the Fund's books as an other asset. The deferred
compensation liability will be marked to market on a periodic basis, and income
earned by the investment will be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities during the period ended May 31,
1995 aggregated $115,655,202 and $115,691,958, respectively.
The cost of investments owned at May 31, 1995 (including the short-term
investments) for Federal income tax purposes was $144,116,777. Gross unrealized
appreciation and depreciation of investments aggregated $3,357,900 and
$3,613,369, respectively, resulting in net unrealized depreciation of $255,469.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
In accordance with Statement of Position 93-2, the Fund has recorded several
reclassifications in the capital accounts. These reclassifications have no
impact on the net asset value of the Fund and are designed generally to present
undistributed net investment income or accumulated net realized gains and losses
on a tax basis, which is considered to be more informative to the shareholder.
As of May 31, 1995, the Fund has reclassified $47,004 of Federal excise taxes
from undistributed net investment income to Common Shares capital.
13
<PAGE> 14
John Hancock Funds - Patriot Preferred Dividend Fund
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
John Hancock Patriot Preferred Dividend Fund:
We have audited the accompanying statement of assets and liabilities of John
Hancock Patriot Preferred Dividend Fund (the Fund), including the schedule of
investments, as of May 31, 1995, the related statement of operations for the
year then ended, and the statement of changes in net assets and the financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these statements and financial highlights based on
our audits.
We conducted our audits 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 May
31, 1995 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of John
Hancock Patriot Preferred Dividend Fund as of May 31, 1995, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
July 7, 1995
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
May 31, 1995.
The Board of Trustees of the Fund declared dividends on the Common Shares
from undistributed net investment income amounting to $1.16 per share, for the
year ended May 31, 1995. Distributions to preferred and common shareholders were
87.81% qualified for the dividends received deductions. Shareholders will be
mailed a 1995 U.S. Treasury Department Form 1099-DIV in January 1996
representing their proportionate share.
14
<PAGE> 15
John Hancock Funds - Patriot Preferred Dividend Fund
INVESTMENT OBJECTIVE AND POLICY
The Fund's investment objective is to provide a high level of current income,
consistent with preservation of capital. The Fund seeks to achieve its
investment objective by investing in preferred stocks that, in the opinion of
the Adviser, may be undervalued relative to similar securities in the
marketplace.
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.
The Plan Agent serves as agent for the holders of Common Shares in
administering the Plan. After the Fund declares a dividend or makes a capital
gain distribution, the Plan Agent will, as agent for the participants, receive
the cash payment and use it to buy Common Shares in the open market, on the New
York Stock Exchange or elsewhere, for the participants' accounts. The Fund will
not issue any new shares in connection with the Plan.
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.
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.
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.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Fund at least 90 days before the record
date for the dividend or distribution. The Plan may be amended or terminated by
the Plan Agent at least 90 days after written notice to all shareholders of the
Fund. All correspondence or additional information concerning the Plan should be
directed to the Plan Agent, State Street Bank and Trust Company, at P.O. Box
8209, Boston, Massachusetts 02266-8209 (telephone 1-800-426-5523).
15
<PAGE> 16
A 1/2'" by 1/2" John Hancock Funds logo in upper Bulk Rate
left hand corner of the page. A box sectioned in U.S. Postage
quadrants with a triangle in upper left, a circle PAID
in upper right, a cube in lower left and a diamond S. Hackensack NJ
in lower right. A tag line below reads: "A Global Permit No. 750
Investment Management Firm"]
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603
[A recycled logo in lower left hand corner with the caption "Printed on
Recycled Paper."]
JHD P700A 5/95
