<PAGE> 1
JOHN HANCOCK FUNDS
- --------------------------------------------------------------------------------
PATRIOT
PREFERRED
DIVIDEND
FUND
SEMI-ANNUAL REPORT
November 30, 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
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
John A. Morin
Vice President and Compliance Officer
James J. Stokowski
Vice President and Treasurer
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
AND TRANSFER AGENT FOR
COMMON SHAREHOLDERS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT FOR AUCTION RATE
PREFERRED SHARES
Chemical Bank
450 West 33rd Street
New York, New York 10001
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
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.]
Investors around the world have been watching Wall Street in awe for the
better part of 1995. Through November, the Standard & Poor's 500-Stock Index,
a widely-used barometer of stock performance, had grown by 32%. Investors who
stayed in the market after a disappointing 1994 have been rewarded.
On another street, Pennsylvania Avenue, one of the hot topics many
people are watching is Medicare reform. While there's no clear-cut solution
on the horizon, today's Medicare debate should serve as another wake-up call to
all Americans about the need to have a financial plan and to save for
retirement. Whether or not the government changes the way health-care benefits
are allotted to senior citizens, the message is clear: your future security and
well-being lies in your own hands - not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them
will perhaps scare you or make you think that the task of saving for retirement
is just too daunting. But take heart. We don't believe that and neither do many
financial experts.
Yet retirement planning is not to be taken lightly. To live the way you
want to - the way you deserve to after all those years of hard work - you need
to plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial
adviser about establishing your retirement planning roadmap, if you haven't
already. And educate yourself by reading some of the many articles about how
to save for retirement. Take control of your future by saving today. That way,
when it comes time for retirement, you shouldn't have to think about any street
but Easy Street.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY GREGORY K. PHELPS, FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
PATRIOT PREFERRED
DIVIDEND FUND
Slow-growth economy sparks Treasury rally, boosts
-------------------------------------------------
income-producing stocks; investors flock to electric utilities
--------------------------------------------------------------
The favorable investment climate that made for such a strong performance by
the Fund during the first half of 1995 carried over into the second half of
the year, producing more double-digit returns. Three factors combined to lift
the Fund. The first was the continuation of the rally in Treasury securities
that began late last winter. Despite a brief retreat in August, long-term
Treasuries were up by more than 30% year-to-date through the end of November.
Because most preferred stocks pay fixed dividends, they're heavily influenced
by the bond market, and that's been a plus for the Fund all year. The second
factor was the surge in electric utilities, which made up nearly 25% of the
Fund's net assets at the end of November. In late May, California regulators
announced they were backing off their accelerated timetable for bringing
competition to the electric utility industry, a decision welcomed by investors.
Third, preferred stocks eligible for the dividends received deduction (DRD)
continued to be taken out of the market. DRD-eligible preferreds offer
distinct advantages to corporate investors by reducing their tax
[A 2 1/2" x 3 1/2" photo of the Patriot management team, bottom right. Caption
reads: "THE PATRIOT MANAGEMENT TEAM (L-R): LAURA PROVOST, GREG PHELPS, ANDREW
ST. PIERRE."]
[CAPTION]
"THE FAVORABLE INVESTMENT CLIMATE... CARRIED OVER INTO THE SECOND HALF OF THE
YEAR..."
3
<PAGE> 4
John Hancock Funds - Patriot Preferred Dividend Fund
[A 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:
Industrials 26%, Banks 28%, Utilities 24%, Financial Services/Insurance 21%,
Short-Term Investments & Other 1%. A footnotes states: "As a percentage of
net assets on November 30, 1995."]
"MUCH OF THE FUND'S YIELD OF LATE HAS COME FROM SO-CALLED CUSHION PREFERREDS..."
liability. As they've become less commonly available, they've become
more valuable (and top performers for the Fund.) Almost 90% of the Fund's
investments are DRD-eligible preferreds.
The upshot was a gratifying six months for investors in John Hancock
Patriot Preferred Dividend Fund. The Fund's total return for the six months
ended November 30, 1995 was 8.46% at net asset value, compared to 8.80%
for the average income-oriented, closed-end equity fund, according to
Lipper Analytical Services. A second benchmark, the Merrill Lynch 30-year
Treasury Index, rose 9.90% during the same period.
STRATEGY
Our main goal during the period was to maintain the Fund's high current yield
while limiting price volatility. Much of the Fund's yield of
[Table entitled "Scorecard" at bottom 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 "Baltimore
Gas & Electric" followed by an up arrow and the phase "DRG-eligible/10-year
call protection". The second listing is "Texas Utilities" followed by an up
arrow and the phase "Cash tender offer/credit upgrade". The third listing is
"Ford Holdings" followed by a down arrow and the phrase "Called when issuer
reorganized". Footnote below reads "See ""Schedule of Investments." Investment
holdings are subject to change."]
late has come from so-called cushion preferreds, many of them DRD-eligible,
whose high yields cushion them against sharp price fluctuations. Owning so
many of them may have cost the Fund slightly in terms of total return during
the past six months. On the other hand, they're valuable long-term holdings.
Had we sold them we might not have been able to get them back at reasonable
prices once the bond market rally cooled off. The other characteristic we look
for is call protection, which protects the investor from having to surrender
the security - usually a high-yielding one - to its issuer prematurely.
Whenever possible, we look for at least two years of call protection.
UTILITIES
The decision by California regulators to move more slowly in implementing
the competitive goals established by the National Energy Policy Act of 1992
lifted a cloud that had hovered over the sector for more than a year. It
helped spark a wave of merger activity, which had the effect of further
increasing investor interest in electric utility stocks. Still others were
drawn to the sector as a perceived safe haven, given the sharp rise over the
summer in the broader market. Among the Fund's best utility investments was a
Baltimore Gas & Electric preferred issued in August with DRD eligibility, 10
years of call protection and a 6.99% yield. These days it's highly unusual for
a security to come to market with DRD eligibility. This particular $60 million
offering sold out in 10 minutes, and its price had risen 5% by the end of the
period. Another favorite was Texas Utilities, a 7.5%, DRD-eligible preferred
with six years of call
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 six months ended November 30, 1995." The
chart is scaled in increments of 2% from top to bottom with 10% at the top and
0% at the bottom. Within the chart, there are three solid bars. The first
represents the 8.46% total return for John Hancock Patriot Preferred Dividend
Fund. The second represents the 8.80% total return for the average
income-oriented, closed-end equity fund. The third represents the 9.90% 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."]
protection. This combination of features -- attractive yield, tax advantage and
call protection -- has sparked the Fund's utility holdings.
FINANCIALS
We had mixed success with the Fund's financial holdings, which totaled almost
50% of the Fund's net assets. Shawmut National, a 9.35%, DRD-eligible
preferred with five years remaining call protection, benefited from a credit
upgrade following its merger with Fleet Bank. The Fund took a hit, however,
from its investment in Ford Holdings preferred stock, a financing subsidiary
of Ford Motor Company. The securities were non-callable for life, except in
the event of a reorganization. When Ford liquidated Ford Holdings, it enabled
them to redeem our holdings at par. As a result, we lost the premium we had
accumulated since our initial investment a year earlier.
INDUSTRIALS
The remaining 26% of the Fund's net assets were in various industrial stocks.
Bowater, a forest products company, rose on strong earnings, a credit
upgrade, and a cash tender offer. We like the company's long-term prospects
and value the security's 8.4% coupon, DRD eligibility and four years of call
protection.
OUTLOOK
Given the returns we've enjoyed during the past 12 months, it might not be a
bad idea to lower expectations somewhat. That's not to say we expect
conditions to take a sudden turn for the worse, far from it. Inflation
remains low, demand for DRD-eligible securities remains high, and many market
participants believe it's only a matter of time before the Federal Reserve
chooses to lower interest rates again, possibly adding fuel to the bond
market rally. A balanced budget agreement in Congress, which seems likely,
would only improve market conditions. On the other hand, it's hard to see how
things can keep getting better at the rate they did during 1995. A large
component of the Fund's total return during the year was price appreciation.
That may be less of a factor going forward, especially given the Fund's large
stake in higher-coupon cushion preferreds.
[CAPTION]
"...IT MIGHT NOT BE A BAD IDEA TO LOWER EXPECTATIONS SOMEWHAT."
- -------------------------------------------------------------------------------
This commentary reflects the views of the portfolio management team through
the end of the Fund's period discussed in this report. Of course, the team's
views are subject to change as market and other conditions warrant.
5
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET ON NOVEMBER
30, 1995. YOU'LL ALSO FIND THE NET ASSET VALUE PER SHARE, FOR EACH COMMON
SHARE, AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
ASSETS:
Investments at value - Note C:
Preferred stocks (cost - $136,589,482)............ $139,752,970
Common stocks (cost - $4,017,720)................. 4,390,350
Capital Securities (cost - $4,396,750)............ 4,321,250
Short-term investments (cost - $2,204,000)........ 2,204,000
-----------
150,668,570
Cash................................................ 512
Dividends receivable................................ 761,306
Deferred organization expenses - Note A............. 41,452
Other assets........................................ 20,316
-----------
Total Assets..................... 151,492,156
-----------------------------------------------------
LIABILITIES:
Auction Rate Preferred Shares dividend payable -
Note A............................................ 107,373
Payable for investments purchased................... 1,120,250
Payable to John Hancock Advisers, Inc. - Note B..... 116,295
Accounts payable and accrued expenses............... 57,216
-----------
Total Liabilities................ 1,401,134
-----------------------------------------------------
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........ (6,049,939)
Net unrealized appreciation of investment........... 3,460,618
Undistributed net investment income................. 545,649
-----------
Net Assets Applicable to
Common Shares ($13.45
per share based on 7,257,200
shares outstanding).............. 97,591,022
-----------------------------------------------------
Net Assets....................... $150,091,022
=====================================================
</TABLE>
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.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended November 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes
of $43,403)....................................... $ 6,304,017
Interest............................................ 100,151
-----------
6,404,168
-----------
Expenses:
Investment management fee - Note B................ 589,869
Administration fee - Note B....................... 110,600
Auction rate preferred shares and auction fees.... 69,808
Custodian fee..................................... 28,176
Auditing fee...................................... 26,268
Printing.......................................... 23,432
Miscellaneous..................................... 17,149
Transfer agent fee................................ 14,638
Trustees' fees.................................... 8,485
Organization expense - Note A..................... 8,291
Legal fees........................................ 5,206
-----------
Total Expenses................... 901,922
-----------------------------------------------------
Net Investment Income............ 5,502,246
-----------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold............... 739,286
Change in net unrealized appreciation/depreciation
of investments.................................... 2,761,200
-----------
Net Realized and Unrealized
Gain on Investments.............. 3,500,486
-----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations........ $ 9,002,732
-----------------------------------------------------
Distributions to Auction Rate
Preferred Shares................. (1,244,173)
-----------------------------------------------------
Net Increase in Net Assets Applicable
to Common Shareholders Resulting
from Operations Less Auction Rate
Preferred Shares Distributions... $ 7,758,559
=====================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, 1995 YEAR ENDED
(UNAUDITED) MAY 31, 1995
----------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.......................................................... $ 5,502,246 $ 11,025,633
Net realized gain (loss) on investments sold................................... 739,286 (6,490,992)
Change in net unrealized appreciation/depreciation of investments.............. 2,761,200 11,148,363
----------- -----------
Net Increase in Net Assets Resulting from Operations......................... 9,002,732 15,683,004
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Auction Rate Preferred Shares ($2,370 and $4,152 per share, respectively) - Note A (1,244,173) (2,179,847)
Common Shares - Note A
Dividends from net investment income ($0.58 and $1.16 per share, respectively) (4,190,806) (8,381,752)
----------- -----------
Total Distributions to Shareholders...................................... (5,434,979) (10,561,599)
----------- -----------
NET ASSETS:
Beginning of Period............................................................ 146,523,269 141,401,864
----------- -----------
End of period (including undistributed net investment income of $545,649
and $478,382, respectively).................................................. $150,091,022 $146,523,269
=========== ===========
</TABLE>
<TABLE>
* ANALYSIS OF COMMON SHAREHOLDER TRANSACTIONS:
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30, 1995 (UNAUDITED) YEAR ENDED MAY 31, 1995
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period............... 7,257,200 $99,634,694 7,257,200 $99,681,698
Reclassification of Capital Accounts.................. ..... ..... ..... (47,004)
--------- ---------- --------- ----------
Shares outstanding, end of period..................... 7,257,200 $99,634,694 7,257,200 $99,634,694
========= ========== ========= ==========
</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 AND
DISTRIBUTIONS PAID TO SHAREHOLDERS. THE FOOTNOTE ILLUSTRATES ANY
RECLASSIFICATIONS OF CAPITAL AMOUNTS, THE NUMBER OF COMMON SHARES OUTSTANDING
AT THE BEGINNING AND END OF THE PERIOD, FOR THE LAST TWO PERIODS, ALONG WITH
THE CORRESPONDING DOLLAR VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a common share outstanding throughout the periods
indicated, investment returns, key ratios and supplemental data are listed as
follows:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FOR THE PERIOD FROM JUNE 1, 1993
NOVEMBER 30, 1995 MAY 31, (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) 1995 TO MAY 31, 1994
----------------- ---------- --------------------------------
<S> <C> <C> <C>
COMMON SHARES
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................... $ 12.96 $ 12.25 $ 13.95(a)
------- ------- -------
Net Investment Income.......................................... 0.76 1.52 1.13
Net Realized and Unrealized Gain (Loss) on Investments......... 0.48 0.65 (1.48)
------- ------- -------
Total from Investment Operations......................... 1.24 2.17 (0.35)
------- ------- -------
Less Distributions:
Dividends to Auction Rate Preferred Shareholders........... (0.17) (0.30) (0.18)
Dividends from Net Investment Income to Common Shareholders (0.58) (1.16) (0.95)
Distributions in Excess of Net Investment Income to
Common Shareholders...................................... ..... ..... (0.01)
------- ------- -------
Total Distributions...................................... (0.75) (1.46) (1.14)
------- ------- -------
Preferred and Common Shares Offering Costs..................... ..... ..... (0.08)
------- ------- -------
Preferred Shares Underwriting Discounts........................ ..... ..... (0.13)
------- ------- -------
Net Asset Value, End of Period................................. $ 13.45 $ 12.96 $ 12.25
======= ======= =======
Per Share Market Value, End of Period.......................... $ 12.875 $ 12.250 $ 12.625
Total Investment Return at Market Value........................ 9.97% 7.18% (9.68%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets Applicable to Common Shares, End of Period
(000's omitted).............................................. $ 97,591 $ 94,023 $ 88,902
Ratio of Expenses to Average Net Assets **..................... 1.22%* 1.30% 1.24%
Ratio of Net Investment Income to Average Net Assets **........ 7.44%* 7.93% 5.81%
Portfolio Turnover Rate........................................ 22% 88% 90%
SENIOR SECURITIES
Total Auction Rate Preferred Shares Outstanding (000's omitted) $ 52,500 $ 52,500 $ 52,500
Asset Coverage per Unit (b).................................... $283,935 $274,463 $266,908
Involuntary Liquidation Preference per Unit (c)................ $100,000 $100,000 $100,000
Approximate Market Value per Unit (c).......................... $100,000 $100,000 $100,000
<FN>
* On an annualized basis.
** 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.
8
<PAGE> 9
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 NOVEMBER 30, 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
November 30, 1995 (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
PREFERRED STOCKS
AUTO/TRUCK (3.78%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B............ 85,000 $ 2,326,875
General Motors Corp., 9.125%,
Depositary Shares, Ser B............ 122,400 3,350,700
-----------
5,677,575
-----------
BANKS - FOREIGN (1.48%)
Banesto Holdings Ltd., 10.50%,
Gtd Ser A (Guernsey) (R)............ 77,140 2,217,775
-----------
BANKS - U.S. (24.13%)
Ahmanson, H.F. & Co., 8.40%,
Depositary Shares, Ser C............ 90,000* 2,328,750
Ahmanson, H.F. & Co., 9.60%,
Depositary Shares, Ser B............ 109,000 2,806,750
Bank of Boston Corp., 8.60%,
Depositary Shares, Ser E............ 44,000 1,127,500
BankAmerica Corp., 9.625%, Ser F...... 55,000 1,395,625
Chase Manhattan Corp., 8.40%, Ser M... 137,000 3,613,375
Chase Manhattan Corp., 9.08%, Ser J... 55,000 1,457,500
Chase Manhattan Corp., 9.76%, Ser H... 100,000 2,850,000
Chase Manhattan Corp., 10.84%, Ser I.. 32,000* 988,000
Citicorp, 7.75%, Ser 22............... 25,000 653,125
Citicorp, 9.08%, Ser 14............... 34,000 901,000
First Interstate Bancorp., 9.00%,
Depositary Shares, Ser G............ 100,000 2,650,000
First Interstate Bancorp., 9.875%,
Depositary Shares, Ser F............ 119,000 3,153,500
Keycorp, 10.00%, Depositary Shares,
Ser A............................... 37,500 993,750
Mellon Bank Corp., 9.60%, Ser I....... 80,000 2,070,000
Shawmut National Corp., Adjustable
Rate Preferred...................... 31,250* 1,468,750
Shawmut National Corp., 9.35%,
Depositary Shares................... 177,000 4,956,000
Sumitomo Bank of CA, 8.125%,
Depositary Shares, Ser A............ 70,000 1,741,250
Wells Fargo & Co., 9.00%,
Depositary Shares, Ser C............ 40,500 1,058,062
----------
36,212,937
----------
COMPUTER SERVICES (1.91%)
Comdisco, Inc., 8.75%, Ser A......... 110,000 $ 2,860,000
-----------
CONGLOMERATE/DIVERSIFIED (0.84%)
Grand Metropolitan Delaware, 9.42%,
Gtd Ser A.......................... 45,000 1,265,625
-----------
EQUIPMENT LEASING (3.44%)
AMERCO, 8.50%, Ser A................. 220,000 5,170,000
-----------
FINANCIAL SERVICES (9.95%)
Ford Holdings, Inc., 8.10%,
Depositary Shares, Ser D........... 80,500 2,022,562
Merrill Lynch & Company, Inc., 9.00%,
Depositary Shares, Ser A........... 105,000 3,058,125
Salomon Inc., 8.08%,
Depositary Shares, Ser D........... 80,257 2,056,586
Salomon Inc., 9.50%,
Depositary Shares, Ser C........... 94,300 2,451,800
SunAmerica Inc., 9.25%, Ser B........ 198,000 5,346,000
-----------
14,935,073
-----------
INSURANCE (7.43%)
American Life Holding Co., $2.16..... 75,000 1,828,125
Aon Corporation, 8.00%............... 70,000 1,793,750
Progressive Corp., 9.375%, Ser A..... 112,000 2,912,000
Travelers Group, Inc., 8.125%,
Depositary Shares, Ser A........... 40,000 1,025,000
Travelers Group, Inc., 9.25%,
Depositary Shares, Ser D........... 137,600 3,594,800
-----------
11,153,675
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
OIL & GAS (11.92%)
Coastal Corp., $2.125, Ser H......... 188,835 $ 4,815,293
Elf Overseas Ltd., 8.50%, Gtd Ser A
(Cayman Islands)................... 95,000 2,529,375
Enterprise Oil PLC, 10.50%, American
Depositary Receipt ("ADR"), Ser A
(United Kingdom)................... 30,000 772,500
Lasmo PLC, 10.00%, ADR, Ser A
(United Kingdom)................... 200,000 4,925,000
Phillips Gas Co., 9.32%, Ser A....... 182,800 4,844,200
-----------
17,886,368
-----------
PAPER (6.40%)
Boise Cascade Corp., 9.40%, Ser F.... 153,000 4,073,625
Bowater, Inc., 8.40%,
Depositary Shares, Ser C........... 204,900 5,532,300
-----------
9,605,925
-----------
PUBLISHING (0.68%)
Newscorp Overseas Ltd., 8.625%,
Gtd Ser A (Cayman Islands)......... 40,225 1,020,709
-----------
UTILITIES (21.15%)
Baltimore Gas & Electric Co., 6.99%.. 10,000* 1,063,750
Central Maine Power Co., 7.999%,
Ser A.............................. 10,000 963,750
Central Maine Power Co., 8.875% (R).. 16,000 1,564,000
Columbus Southern Power Co., 9.50%,
Ser 2/1/15......................... 1,988 199,794
Commonwealth Edison Co., $8.40, Ser A 20,000* 2,025,000
Consolidated Edison of NY, Inc.,
6.20%, Ser F....................... 17,000 1,623,500
Gulf States Utilities Co., $9.96..... 17,800 1,824,500
Houston Lighting & Power Co., $8.12.. 14,000* 1,435,000
Idaho Power Co., 8.375%.............. 25,500 2,696,625
New England Power Co., 6.08%......... 20,112 1,870,416
Northern States Power Co.
of MN, $6.80....................... 20,200 2,060,400
PSI Energy Inc., 6.875%.............. 25,350 2,592,038
PSI Energy Inc., 7.44%............... 60,000 1,530,000
Public Service Co. of NH, 10.60%,
Ser A.............................. 77,000 2,040,500
Public Service Electric & Gas
Co., 6.92%......................... 27,000 2,774,250
Public Service Electric & Gas
Co., 6.80%......................... 24,040 2,404,000
Southern California Gas Co., 7.75%... 93,570 2,386,035
Texas Utilities Electric Co., $1.875,
Depositary Shares, Ser A........... 25,000* 693,750
-----------
31,747,308
-----------
TOTAL PREFERRED STOCKS
(Cost $136,589,482) (93.11%) 139,752,970
------ -----------
COMMON STOCKS
UTILITIES (2.92%)
CINergy Corp......................... 102,300 $ 3,017,850
Houston Industries, Inc.............. 30,000 1,372,500
------- -----------
TOTAL COMMON STOCKS
(Cost $4,017,720) ( 2.92%) 4,390,350
------- -----------
CAPITAL SECURITIES
BANKS -- FOREIGN (2.88%)
A/S Eksportfinans, 8.70%, Capital
Securities (Norway)................ 50,000 1,337,500
Australia and New Zealand Banking
Group Ltd., 9.125%, Capital
Securities (Australia)............. 110,000 2,983,750
-----------
TOTAL CAPITAL SECURITIES
(Cost $4,396,750) ( 2.88%) 4,321,250
------- -----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
RATE (000'S OMITTED)
------------ ---------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
COMMERCIAL PAPER (1.47%)
Prudential Funding Corp.
12-01-95................... 5.82% 2,204 2,204,000
------- -----------
TOTAL SHORT-TERM INVESTMENTS (1.47%) 2,204,000
------- -----------
TOTAL INVESTMENTS (100.38%) $150,668,570
======= ===========
<FN>
* Securities, other than short-term investments, newly added to the
portfolio during the period ended November 30, 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 $3,781,775 as of November 30, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
(UNAUDITED)
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. 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 which was established at the offering of the Preferred Shares and
has been reset every 49 days thereafter by an auction. Dividend rates ranged
from 4.24% to 4.61%, during the period ended November 30, 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 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 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
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Patriot Preferred Dividend Fund
per 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 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 assets.
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 assets.
Each unaffiliated Trustee is entitled, as compensation for his or her
services, to an annual fee plus remuneration for attendance at various meetings.
Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors
and/or officers of the Adviser and/or affiliates, as well as Trustees of the
Fund. The compensation of unaffiliated Trustees
is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of
this compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund 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 and the investment to cover the liability will be marked to market
on a periodic basis to reflect income earned by the investment.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities during the period ended
November 30, 1995, aggregated $33,564,497 and $31,790,680, respectively.
The cost of investments owned at November 30, 1995 (including the
short-term investments) for Federal income tax purposes was $148,146,780.
Gross unrealized appreciation and depreciation of investments aggregated
$4,756,309 and $2,234,519, respectively, resulting in net unrealized
appreciation of $2,521,790.
12
<PAGE> 13
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).
13
<PAGE> 14
NOTES
John Hancock Funds - Patriot Preferred Dividend Fund
14
<PAGE> 15
NOTES
John Hancock Funds - Patriot Preferred Dividend Fund
15
<PAGE> 16
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
S. Hackensack NJ
Permit No. 750
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads "A Global Investment Management Firm."]
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
JHD P70SA 11/95
1/96
