SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Patriot Preferred
Dividend Fund
NOVEMBER 30, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
CUSTODIAN AND TRANSFER AGENT FOR
COMMON SHAREHOLDERS
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TRANSFER AGENT FOR AUCTION RATE
PREFERRED SHARES
IBJSCHRODER BANK AND TRUST COMPANY
ONE STATE STREET PLAZA
NEW YORK, NEW YORK 10004
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
LISTED NEW YORK STOCK EXCHANGE SYMBOL: PPF
JOHN HANCOCK FUNDS: 1-800-843-0090
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CHAIRMAN'S MESSAGE
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DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 have been anything but dull. Bond investors have
enjoyed the benefits of a strong economy with no inflation. Stock investors have
been treated to record-breaking performance by the Dow Jones Industrial Average,
but with record-breaking volatility. After two years of strong advances with
relatively minor swings, the stock market's recent sharp drops and enormous
rebounds have caused a fair share of investor concern.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The latest round came in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had stabilized, yet many markets remained edgy as investors sorted
out the Asian turmoil and its implications on economic growth, interest rates
and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY GREGORY K. PHELPS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock Patriot
Preferred Dividend Fund
Bond prices surge on tame inflation, moderate growth data
During the past six months, a U.S. bond market rally provided a favorable
backdrop for preferred stocks - which make up about 90% of John Hancock Patriot
Preferred Dividend Fund. The relationship between bonds and preferred stocks
hinges on the fact that preferreds pay fixed dividends, and, as a result, tend
to react to rising and falling interest rates in much the same fashion as
fixed-income-paying bonds. With inflation fears on the decline and U.S. economic
growth moderating, bond yields fell and bond prices rose in June and July. That
rally was briefly interrupted in August and September when a national survey of
purchasing managers indicated that economic growth could be stronger than
expected and as a consequence, higher inflation wasn't out of the question. The
bond market rally reconvened in mid-September when other economic indicators
came in relatively weak, suggesting that inflation was subdued after all.
Currency and market problems in Southeast Asia further fueled the bond market's
progress in late October and throughout November as investors from across the
globe sought out the "safe haven" of U.S. Treasury bonds. For the six month
period, bond prices rose substantially as the yield on the benchmark 30-year
U.S. Treasury fell from just below 7.0% to just over 6.0%.
Performance and strategy review
For the six month period that ended November 30, 1997, John Hancock Patriot
Preferred Dividend Fund had a total return of 8.30% at net asset value. By
comparison, the average preferred stock closed-end equity fund returned
"...a U.S. bond market rally provided a favorable backdrop for preferred
stocks..."
[A 2 1/4" x 3 1/2" photo of the Patriot management team, bottom right. Caption
reads: "Gregory K. Phelps."]
3
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John Hancock Funds - Patriot Preferred Dividend Fund
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PORTFOLIO DIVERSIFICATION
[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:
Short-Term Investments & Other 1%; Utilities 34%; Financials 46%; Oil & Gas 4%;
Industrials 15%. A footnote states: "As a percentage of net assets on November
30, 1997."]
As a percentage of net assets on November 30, 1997
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9.60% for the same period, according to Lipper Analytical Services, Inc. A
second benchmark, the Merrill Lynch 30-year Treasury Index, rose 14.45%. The
difference between our performance and that of the average is attributable to
our emphasis on cushion-preferred stocks. These securities have above-average
yields that tend to "cushion" them against price swings. As a result, our
cushions generally did not participate fully when the bond market rallied.
However, cushion preferreds offer two important benefits. First, they carry
relatively high levels of income. Second, many have good call protection. Call
protection protects investors from having to surrender their high-yielding
securities to issuers prematurely, and replace them with lower-yielding
securities.
We also continued to emphasize DRD-eligible securities. DRD stands for
"dividends-received deduction", and they offer major tax advantages for the
corporations that invest in them. Throughout the past several years, the supply
of DRD-eligible securities has dwindled while demand for them remained firm. The
favorable supply/demand scenario provided a boost for most of our DRD holdings.
Winners and laggards
Many of our best performers came from the electric utility sector, which we had
increased to 34% of net assets by the end of the period. In the first half of
1997, the electric utility sector had come under pressure over uncertainties
surrounding increased competition in the industry. In June, we began to add to
our holdings in electric stocks based on our view that some were very
attractively-priced given their business prospects. That strategy was rewarded
because electric utility stocks moved higher during the period. There were two
broad-based reasons for their better fortunes. First, the regulatory environment
improved. In a desire to bring on more competition and force electricity rates
lower, many state governments have been struggling with the issue of "stranded
costs." Simply put, the issue is: How much, if any, of the costs incurred from
government-mandated expansions taken on years ago can the utilities recoup? The
fear is that competition will drive electric utility rates lower, thereby
curtailing utilities' ability to recoup these costs. During the period, however,
a number of states offered up plans to allow competition without "stranding"
utilities with these costs. Furthermore, our electric utility holdings got an
added boost late in the period when problems in Southeast Asia caused some
investors to seek out companies -- including electric utilities -- with little
foreign business exposure.
"Many of our best performers came from the electric utility sector..."
[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 "Florida
Progress" followed by an up arrow and the phrase "Rebounds from nuclear plant
shut-down". The second listing is "Salomon, Inc." followed by an up arrow and
the phrase "Merger with Travelers Group". The third listing is "AMERICO"
followed by a horizontal arrow and the phrase "Erratic earnings". Footnote below
reads: "See `"Schedule of Investments." Investment holdings are subject to
change."]
4
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John Hancock Funds - Patriot Preferred Dividend Fund
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FUND PERFORMANCE
For the six months ended November 30, 1997
[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, 1997." The chart
is scaled in increments of 5% from top to bottom with 20% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 8.30% total return for John Hancock Patriot Preferred Dividend Fund. The
second represents the 9.60% total return for the average preferred stock
closed-end equity fund. The third represents the 14.45% 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 preferred stock closed-end equity fund is
tracked by Lipper Analytical Services, Inc. The Merrill Lynch 30-Year Treasury
Index is an unmanaged index which measures the performance of the 30-year
Treasury Bond.]
The total return for John Hancock Patriot Preferred Dividend Fund is at net
asset value with all distributions reinvested. The average preferred stock
closed-end equity fund is tracked by Lipper Analytical Services, Inc. The
Merrill Lynch 30-Year Treasury Index is an unmanaged index which measures the
performance of the 30-year Treasury bond.
- --------------------------------------------------------------------------------
One of our best performers during the period was Florida Progress
Corporation. We added to our holdings in this electric utility company after its
stock cheapened when it was forced to close its nuclear plant because of safety
concerns. Given the company's strong balance sheet, impressive service
territory, and commitment to a relatively high dividend, we thought the Florida
Progress stock was attractive relative to its prospects. That proved to be the
case, since the Nuclear Regulatory Commission recently has applauded the company
for its clean-up efforts and the stock has rebounded.
We enjoyed winners in the financial sector as well. Our holdings in
Salomon, Inc. performed well as its merger with Travelers Group materialized,
while our Lehman Brothers holdings were fueled by takeover speculation.
Fortunately, our disappointments were limited. AMERCO, the parent company
of U-Haul, posted only slight gains based on uncertainty over the company's
future earnings. Another laggard was Commonwealth Edison, the electric company
that serves the metropolitan Chicago area. It suffered early in the period due
to concerns about the safety of its nuclear plants, its relatively high costs
and a less-than-favorable regulatory environment. However, the stock has shown
recent strength, retracing much of its earlier losses.
Outlook
Our outlook is reasonably optimistic. Recent developments suggest that the
economy may be slowing. We believe a slower U.S. economy, coupled with continued
uncertainty surrounding the Southeast Asian currency crisis and its potential
impact on global growth, eliminates the impetus for the Federal Reserve Board to
raise interest rates. On the other hand, we think the U.S. economic growth --
although slowing -- will remain healthy enough that the Fed won't feel
comfortable lowering interest rates either. Stable interest rates, of course,
would be a positive for the bond market and, ultimately, preferred stocks. As a
result, we expect that dividends -- not capital appreciation -- will likely make
up the bulk of our preferred stocks' total return during the first part of 1998.
"Our outlook is reasonably optimistic."
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This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
5
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FINANCIAL STATEMENTS
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John Hancock Funds - Patriot Preferred Dividend Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on November 30, 1997. You'll
also find the net asset value as of that date.
Statement of Assets and Liabilities
November 30, 1997 (Unaudited)
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Assets:
Investments at value - Note C:
Preferred stocks (cost - $131,958,691) ..................... $138,864,043
Common stocks (cost - $12,960,153) ......................... 14,728,189
Short-term investments (cost - $485,900) ................... 485,900
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154,078,132
Cash ....................................................... 62,580
Dividends receivable ....................................... 717,907
Deferred organizational expense - Note A ................... 12,257
Other assets ............................................... 11,926
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Total Assets ................................. 154,882,802
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Liabilities:
Auction Rate Preferred Shares dividend payable
- Note A .................................................. 72,450
Common shares dividend payable ............................. 62,750
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 136,832
Accounts payable and accrued expenses ...................... 78,432
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Total Liabilities ............................ 350,464
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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
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Common Shares - Without par value, unlimited number
of shares of beneficial interest authorized,
7,257,200 shares issued and outstanding 99,512,018
Accumulated net realized loss on investments ............... (7,119,069)
Net unrealized appreciation of investments ................. 8,674,980
Undistributed net investment income ........................ 964,409
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Net Assets Applicable to Common Shares
($14.06 per share based on 7,257,200
shares outstanding) ...................................... 102,032,338
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Net Assets ................................... $154,532,338
===============================================================
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 Operations
Six months ended November 30, 1997 (Unaudited)
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Investment Income:
Dividends
(net of foreign withholding taxes of $26,623) .............. $5,932,770
Interest .................................................... 64,131
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5,996,901
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Expenses:
Investment management fee - Note B ......................... 610,732
Administration fee - Note B ................................ 114,512
Auction rate preferred shares and auction fees ............. 69,327
Auditing fee ............................................... 30,730
Custodian fee .............................................. 26,633
Printing ................................................... 24,172
Transfer agent fee ......................................... 15,337
Organization Expense - Note A .............................. 12,395
Miscellaneous .............................................. 11,853
Trustees' fees ............................................. 5,520
Legal fees ................................................. 892
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Total Expenses ................................ 922,103
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Net Investment Income ......................... 5,074,798
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Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold ....................... (1,094,399)
Change in net unrealized appreciation/depreciation
of investments ............................................. 5,047,662
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Net Realized and Unrealized
Gain on Investments ........................... 3,953,263
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Net Increase in Net Assets
Resulting from Operations ..................... 9,028,061
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Distribution to Auction Rate
Preferred Shares .............................. (1,103,609)
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Net Increase in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less Auction Rate
Preferred Shares Distributions ................ $7,924,452
===============================================================
SEE NOTES TO FINANCIAL TATEMENTS.
6
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FINANCIAL STATEMENTS
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John Hancock Funds - Patriot Preferred Dividend Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1997
MAY 31, 1997 (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................................. $10,288,481 $5,074,798
Net realized gain (loss) on investments sold .......................................... 201,916 (1,094,399)
Change in net unrealized appreciation/depreciation of investments ..................... 4,071,613 5,047,662
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ................................ 14,562,010 9,028,061
--------------- ---------------
Distributions to Shareholders:
Auction Rate Preferred Shares ($4,060 and $2,102 per share, respectively) - Note A .... (2,131,341) (1,103,609)
Common Shares - Note A
Dividends from net investment income ($1.16 and $0.58 per share, respectively) ...... (8,382,002) (4,190,134)
--------------- ---------------
Total Distributions to Shareholders ................................................. (10,513,343) (5,293,743)
--------------- ---------------
Net Assets:
Beginning of period ................................................................... 146,749,353 150,798,020
--------------- ---------------
End of period (including undistributed net investment income
of $1,183,354 and $964,409, respectively) ........................................... $150,798,020 $154,532,338
=============== ===============
Analysis of Common Shareholder Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1997
MAY 31, 1997 (UNAUDITED)
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning of period............................. 7,257,200 $99,542,066 7,257,200 $99,512,018
Reclassification of capital accounts............ -- (30,048) -- --
---------- ----------- ---------- -----------
End of period................................... 7,257,200 $99,512,018 7,257,200 $99,512,018
========== =========== ========== ===========
</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 reclassification 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
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FINANCIAL STATEMENTS
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John Hancock Funds - Patriot Preferred Dividend Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM JUNE 1, 1993 YEAR ENDED MAY 31, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ------------------------------ NOVEMBER 30, 1997
TO NOVEMBER 30, 1994 1995 1996 1997 (UNAUDITED)
-------------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Common Shares
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $13.95(1) $12.25 $12.96 $12.99 $13.54
-------- -------- -------- -------- --------
Net Investment Income .................................. 1.13 1.52 1.46 1.42 0.70
Net Realized and Unrealized Gain (Loss) on Investments . (1.48) 0.65 0.05 0.58 0.55
-------- -------- -------- -------- --------
Total from Investment Operations ................... (0.35) 2.17 1.51 2.00 1.25
-------- -------- -------- -------- --------
Less Distributions:
Dividends to Auction Rate Preferred Shareholders ..... (0.18) (0.30) (0.32) (0.29) (0.15)
Dividends from Net Investment Income
to Common Shareholders ............................. (0.95) (1.16) (1.16) (1.16) (0.58)
Distributions in Excess of Net Investment Income
to Common Shareholders ............................. (0.01) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions ................................ (1.14) (1.46) (1.48) (1.45) (0.73)
-------- -------- -------- -------- --------
Preferred and Common Shares Offering Costs ............. (0.08) -- -- -- --
-------- -------- -------- -------- --------
Preferred Shares Underwriting Discounts ................ (0.13) -- -- -- --
-------- -------- -------- -------- --------
Net Asset Value, End of Period ......................... $12.25 $12.96 $12.99 $13.54 $14.06
======== ======== ======== ======== ========
Per Share Market Value, End of Period .................. $12.625 $12.250 $12.500 $13.750 $14.375
Total Investment Return at Market Value ................ (9.68%) 7.18% 11.58% 19.87% 6.00%
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of Period
(000s omitted) ....................................... $88,902 $94,023 $94,249 $98,298 $102,032
Ratio of Expenses to Average Net Assets (2) ............ 1.24% 1.30% 1.29% 1.27% 1.21%(6)
Ratio of Net Investment Income to Average Net Assets (2) 5.81% 7.93% 7.19% 6.91% 6.65%(6)
Portfolio Turnover Rate ................................ 90% 88% 33% 38% 27%
Average Broker Commission Rate (5) ..................... N/A N/A N/A $0.0550 $0.0478
Senior Securities
Total Auction Rate Preferred Shares (000s omitted) ..... $52,500 $52,500 $52,500 $52,500 $52,500
Asset Coverage per Unit (3) ............................ $266,908 $274,463 $277,555 $283,817 $292,969
Involuntary Liquidation Preference per Unit (4) ........ $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit (4) .................. $100,000 $100,000 $100,000 $100,000 $100,000
</TABLE>
(1) Initial price to commence operations.
(2) 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.
(3) 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.
(4) Plus accumulated and unpaid dividends.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) Annualized.
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indi cated: the net investment income 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
rela tionships between some items presented in the financial statements are
expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
8
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----------------------------
FINANCIAL STATEMENTS
----------------------------
John Hancock Funds - Patriot Preferred Dividend Fund
Schedule of Investments
November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Patriot Preferred Dividend Fund on November 30, 1997. It's divided into three
main categories: preferred stocks, common stocks and short-term investments.
Preferred stocks and common stocks are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
PREFERRED STOCKS
Automobile / Trucks (8.13%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B .......................... 185,100 $5,321,625
General Motors Corp., 9.12%,
Depositary Shares, Ser G .......................... 74,700 2,133,619
General Motors Corp., 9.125%,
Depositary Shares, Ser B .......................... 192,400 5,110,625
-------------
12,565,869
-------------
Banks - United States (19.66%)
ABN AMRO North America, Inc., 6.59%,
Ser H, (R) ....................................... 5,000 5,262,500
ABN AMRO North America, Inc., 8.75%,
Ser A, (R) ....................................... 1,900 2,242,000
Ahmanson, H.F. & Co., 8.40%,
Depositary Shares, Ser C .......................... 100,500 2,543,906
Chase Manhattan Corp., 8.40%, Ser M ................ 94,000 2,426,375
Chase Manhattan Corp., 9.76%, Ser B ................ 88,900 2,483,644
Chase Manhattan Corp., 10.84%, Ser C ............... 119,500 3,719,438
Citicorp, 7.75%,
Depositary Shares, Ser 22 ......................... 25,000 668,750
Fleet Financial Group, Inc., 6.75%, Ser VI ......... 51,000 2,805,000
Fleet Financial Group, Inc., 9.35%,
Depositary Shares ................................. 177,000 4,922,813
J.P. Morgan & Company Inc., 6.625%,
Depositary Shares, Ser H .......................... 60,000 3,300,000
-------------
30,374,426
-------------
Conglomerates (0.83%)
Grand Metropolitan Delaware, L.P., 9.42%,
Gtd Ser A ......................................... 45,000 1,279,688
-------------
Equipment Leasing (3.66%)
AMERCO, 8.50%, Ser A ............................... 220,000 5,651,250
-------------
Financial Services (17.78%)
ARM Financial Group, Inc., 9.50% ................... 169,441 $4,416,056
Lehman Brothers Holdings, Inc., 5.00% .............. 40,000 1,287,200
MBNA Corp., 7.50%, Ser A ........................... 79,439 2,134,923
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A .......................... 160,700 5,041,963
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares ................................. 95,000 5,106,250
Salomon, Inc., 8.08%,
Depositary Shares, Ser D .......................... 59,757 1,535,008
Salomon, Inc., 8.40%,
Depositary Shares, Ser E .......................... 156,000 4,368,000
SI Financing Trust I, 9.50%,
Gtd Pfd Sec & Purchase Contract ................... 70,000 1,898,750
Source One Mortgage Services Corp.,
8.42%, Ser A ...................................... 65,300 1,681,475
-------------
27,469,625
-------------
Insurance (5.26%)
Provident Companies, Inc., 8.10%,
Depositary Shares ................................. 40,000 1,015,000
Travelers Group, Inc. 6.231%,
Depositary Shares, Ser H .......................... 88,700 4,501,525
Travelers Group, Inc., 6.213% ...................... 52,000 2,613,000
-------------
8,129,525
-------------
Oil & Gas (4.06%)
Elf Overseas Ltd., 8.50%, Gtd Ser A
(Cayman Islands) .................................. 57,000 1,499,813
Lasmo PLC, 10.00%, Ser A,
American Depository Receipts, (ADR )
(United Kingdom) .................................. 142,000 3,771,875
Phillips 66 Capital I, 8.240% ...................... 38,500 1,001,000
-------------
6,272,688
-------------
Paper Products & Containers (6.47%)
Boise Cascade Corp., 9.40%,
Depositary Shares, Ser F .......................... 178,000 4,583,500
Bowater Inc., 8.40%,
Depositary Shares, Ser C .......................... 204,900 5,417,044
-------------
10,000,544
-------------
Utilities - Electric Power (12.88%)
Baltimore Gas & Electric Co., 6.99%,
Ser 1995 .......................................... 10,000 1,121,250
SEE NOTES TO FINANCIAL STATEMENTS.
9
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----------------------------
FINANCIAL STATEMENTS
----------------------------
John Hancock Funds - Patriot Preferred Dividend Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Utilities - Electric Power (continued)
Commonwealth Edison Co., $8.40, Ser A ......... 30,850 $3,133,203
Consumers Energy Co., $2.08 (Class A) ......... 161,500 4,269,655
Massachusetts Electric Co., 6.99% ............. 10,500 1,267,665
New England Power Co., 6.08% .................. 21,312 2,202,382
PSI Energy, Inc., 6.875% ..................... 14,350 1,571,324
PSI Energy, Inc., 7.44% ....................... 60,000 1,507,500
Public Service Electric & Gas Co., 6.92% ...... 19,000 2,106,624
South Carolina Electric & Gas Co., 6.52% ...... 25,000 2,728,124
-------------
19,907,727
-------------
Utilities - Gas Distribution (1.63%)
Southern California Gas Co., 7.75% ............ 99,313 2,520,067
-------------
Utilities - Other (9.50%)
Coastal Corp., $2.125, Ser H .................. 198,735 5,018,059
El Paso Tennessee Pipeline Co.,
8.25%, Ser A ................................. 122,600 6,865,600
Phillips Gas Co., 9.32%, Ser A ................ 111,800 2,808,975
-------------
14,692,634
-------------
TOTAL PREFERRED STOCKS
(Cost $131,958,691) ..................... (89.86%) 138,864,043
------------- -------------
COMMON STOCKS
Utilities - Electric Power (9.53%)
Boston Edison Co. ............................. 50,000 1,750,000
Delmarva Power & Light Co. .................... 92,500 1,954,063
Dominion Resources, Inc. ...................... 27,000 1,049,625
Florida Progress Corp. ........................ 67,000 2,374,313
Houston Industries, Inc. ...................... 46,000 1,089,625
MidAmerican Energy Holdings Co. ............... 90,000 1,794,375
Nevada Power Co. .............................. 30,000 695,625
Potomac Electric Power Co. .................... 45,000 1,113,750
Public Service Enterprise Group, Inc. ......... 57,000 1,663,688
Puget Sound Energy, Inc. ...................... 45,000 1,243,125
------------- -------------
TOTAL COMMON STOCKS
(Cost $12,960,153) ..................... (9.53%) 14,728,189
------------- -------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- --------- -------------- --------
SHORT-TERM INVESTMENTS
Commercial Paper (0.31%)
General Electric Capital Corp.,
12-01-97 .......................... 5.55% $486 $485,900
-------------
TOTAL SHORT-TERM INVESTMENTS (0.31%) 485,900
------------- -------------
TOTAL INVESTMENTS (99.70%) $154,078,132
============= =============
(R) These securities 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 $7,504,500 or 4.86% of net assets as of
November 30, 1997.
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.
SEE NOTES TO FINANCIAL STATEMENTS.
10
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--------------------------------------
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
$5,857,383 of a capital loss carryforward available, to the extent provided by
regulations, to offset future net realized capital gains. If such carryforward
is used by the Fund, no capital gains distributions will be made. The
carryforward expires May 31, 2003.
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 May 31, 1997, 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.
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.
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 4.03% to 4.32%, during
the period ended November 30, 1997.
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
11
<PAGE>
================================================================================
--------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------
John Hancock Funds - Patriot Preferred Dividend Fund
Shares and Common Shares. The Preferred Shares have a liquidation preference of
$100,000 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 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 the Fund's average weekly
net asset value. Advantage Advisers, Inc., a subsidiary of CIBC Oppenheimer
Corp., was the Fund's sub-adviser (the "Sub-Adviser") until November 3, 1997.
The Sub-Adviser provided the Adviser with access on a continuous basis to
economic, financial and political information, research and assistance. The
Adviser paid the Sub-Adviser a monthly fee computed at the annual rate of 0.05%
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 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.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are directors and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At November 30, 1997, the Fund's investment to cover the deferred
compensation liability had unrealized appreciation of $1,592.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities during the period ended November
30, 1997, aggregated $35,208,825 and $34,138,672, respectively.
The cost of investments owned at November 30, 1997 (including the
short-term investments) for federal income tax purposes was $145,404,744. Gross
unrealized appreciation and depreciation of investments aggregated $9,303,322
and $629,934 respectively, resulting in net unrealized appreciation of
$8,673,388.
12
<PAGE>
================================================================================
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>
================================================================================
John Hancock Funds - Patriot Preferred Dividend Fund
SHAREHOLDER MEETING
On March 6, 1997, the Annual Meeting of John Hancock Patriot Preferred Dividend
Fund (the "Fund") was held to elect four Trustees and to ratify the action of
the Trustees in selecting independent auditors for the Fund.
The common shareholders elected the following Trustees to serve until
their respective successors are duly elected and qualified, with the votes
tabulated as follows:
WITHHELD
FOR AUTHORITY
--- ---------
Charles L. Ladner 6,708,111 79,213
Leo E. Linbeck, Jr. 6,694,830 92,494
Patricia P. McCarter 6,705,206 82,119
The preferred shareholders elected Mr. Richard S. Scipione to serve until his
successor is duly elected and qualified, with the votes tabulated as follows:
470 FOR and 0 WITHHELD AUTHORITY.
The shareholders also ratified the Trustees' selection of Deloitte & Touche,
LLP as the Fund's independent auditors for the Fund for the fiscal year ending
May 31, 1997, with the votes tabulated as follows: 6,645,345 FOR, 56,994 AGAINST
and 85,456 ABSTAINING.
14
<PAGE>
================================================================================
--------------------
NOTES
--------------------
John Hancock Funds - Patriot Preferred Dividend Fund
15
<PAGE>
================================================================================
-------------------
JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 S. Hackensack, NJ
1-800-843-0090 Permit No. 750
INTERNET: www.jhancock.com/funds -------------------
[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."]
P70SA 11/97
1/98
