-----------------------------
The latest report from your
Fund's management team
-----------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[PHOTO]
Patriot Preferred
Dividend Fund
NOVEMBER 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
--------------------------------------------
TRUSTEES
STEPHEN L. BROWN
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
MAUREEN R. FORD
ANNE C. HODSDON
CHARLES L. LADNER
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
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
IBJ SCHRODER 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
FOR SHAREHOLDER ASSISTANCE, REFER TO PAGE 14
--------------------------------------------
===================================CEO CORNER===================================
As the decade ends and a new millennium dawns, John Hancock Funds (JHF) welcomes
a new leader. Effective December 31, 1999, Maureen R. Ford becomes vice chairman
and chief executive officer, succeeding Edward J. Boudreau, Jr., who retires
after 32 years at John Hancock, the last 11 at the helm of JHF.
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy. Keep in mind that the
estimated benefits are precisely that, and that rules and regulations may change
by the time you retire. Also remember that they are not inflation adjusted, so
it would be unrealistic to expect them to have the same purchasing power in the
future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/ Maureen R. Ford
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY GREGORY K. PHELPS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock Patriot
Preferred Dividend Fund
Preferred stocks lose ground as interest rates
rise and supply grows
Rising U.S. interest rates weighed heavily on preferred stocks over the past six
months. Because they pay fixed dividends, preferred stocks generally are quite
sensitive to interest-rate changes, falling in price when rates rise and vice
versa. Interest rate jitters hampered preferred stocks from the outset of the
period. Investors were on edge, anticipating that the Federal Reserve would
raise interest rates at its June 30 meeting. As expected, the Fed raised
short-term interest rates one-quarter of a percentage point in an effort to stem
potential inflationary pressures that might be caused by stronger-than-expected
economic growth. Continued signs of strong economic growth prompted the Fed to
raise interest rates two more times for an additional one-half of a percentage
point by November.
While rate fears were the main bugaboo for preferred stocks, they faced
another, more insidious challenge. To lock in relatively low interest rates and
to sidestep potential market-related problems resulting from the Y2K bug,
corporations issued near-record levels of debt and preferred stock in the summer
and early fall. The massive expansion of supply added more pressure to the
already strained preferred-stock market. Later in the period, the preferred
market unsuccessfully battled an earlier-than-normal wave of "tax-loss" selling,
whereby investors sell some poor-performing investments at a loss for the
purpose of using those losses to offset capital gains incurred elsewhere in
their portfolios.
"The poor performance of preferred stocks...resulted in disappointing returns."
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Patriot
Preferred Dividend Fund. Caption below reads "Fund management team members
(l-r): Sylvester Marquardt, Mark Maloney, Beverly Cleathero and Gregory
Phelps."]
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3
<PAGE>
================================================================================
John Hancock Funds - Patriot Preferred Dividend Fund
"A wave of merger and acquisition activity boosted several of our holdings."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into five sections (from top to left): Media 2%, Oil & Gas 8%,
Short-Term Investments & Other 12%, Utilities 31% and Financials 47%. A note
below the chart reads "As a percentage of net assets on November 30, 1999."]
- --------------------------------------------------------------------------------
Utility common stocks -- which made up about 15% of the Fund's net assets
at the end of the period -- didn't fare much better. They, too, dimmed in
response to rising interest rates and persistent inflationary worries.
Performance and strategy review
The poor performance of preferred stocks -- which made up 84% of John Hancock
Patriot Preferred Dividend Fund -- resulted in disappointing returns. For the
six-month period ended November 30, 1999, the Fund had a total return of -7.73%
at net asset value. That performance compared to the average income and
preferred stock closed-end fund's return of -6.68% for the same period,
according to Lipper, Inc. The Merrill Lynch 30-Year Treasury Index was also
down, returning -4.62%.
Generally speaking, our preferred-stock holdings performed in line with
the overall preferred-stock segment of the market, meaning most of them lost
significant ground. As we mentioned earlier, preferreds' problems stemmed for
the most part from rising rates and supply glut, rather than from fundamental
issues with the underlying companies. Given the strength of the economy, most of
the Fund's holdings continued to post positive financial results. That said, the
negative investment backdrop overwhelmed the companies' strong fundamentals.
One exception to that rule was Republic New York, which crumpled over
allegations about a customer's security fraud investigation. Western Resources
also stumbled when questions surfaced about its accounting procedures.
Older, higher-yielding preferreds held up best
On the flip side, older securities -- such as AMERCO, Merrill Lynch, Household
International and Ford Motor Co.-- actually held in pretty well. Issued years
ago when rates were higher, these securities carry high coupons -- between 8%
and 9.5% -- that helped cushion them against price declines. On the utility
common-stock side, NSTAR, the new parent company of Boston Edison, performed
reasonably well. The company is partnering with RCN to build out a fiber-optics
network. Of all the unregulated operations electric utilities are pursuing as a
way to boost their earnings growth, we think fiber optics offers the biggest
potential. That helps explain why we favor companies such as Avista, NSTAR,
Potomac Electric Power and Telephone and Data Systems (TDS Capital).
M&A activity boosts returns
A wave of merger and acquisition activity boosted several of our holdings.
Florida Progress, for example, staged a sizable rally on news that it was to be
taken over by Carolina Light and
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Preferred
stocks followed by a down arrow with the phrase "Rising rates; too much supply."
The second listing is Western Resources followed by a down arrow with the phrase
"Questions surround accounting procedures." The third listing is EL Paso
Tennessee Pipeline followed by an up arrow with the phrase "Merger makes it
largest U.S. pipeline company." A note below the table reads "See `Schedule of
Investments.' Investment holdings are subject to change."]
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4
<PAGE>
================================================================================
John Hancock Funds - Patriot Preferred Dividend Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended November 30, 1999." The
chart is scaled in increments of 2% with -10% at the bottom and 0% at the top.
The first bar represents the -7.73% total return for John Hancock Patriot
Preferred Dividend Fund. The second bar represents the -6.68% total return for
Average income and preferred stock closed-end fund. The third bar represents the
- -4.62% total return for Merrill Lynch 30-Year Treasury Index. A note below the
chart reads "The total return for John Hancock Patriot Preferred Dividend Fund
is at net asset value with all distributions reinvested. The average income and
preferred stock closed-end fund is tracked by Lipper, Inc. The Merrill Lynch
30-year Treasury Index is an unmanaged index that measures the performance of
the 30-year Treasury bond."]
- --------------------------------------------------------------------------------
Power. Our holdings in El Paso Tennessee Pipeline preferred stock got a credit
upgrade to investment grade, and thus performed well, on the completion of the
company's merger with Sonat in October. The combined entity, which is now the
Fund's largest holding, ranks as the nation's largest natural gas pipeline
company.
Focus on call protection and DRD eligibility
Throughout the period, we maintained our long-term focus on preferred stocks
eligible for the dividends received deduction (DRD) and on those that carry good
call protection. DRD- eligible preferred stocks offer distinct tax advantages to
corporate investors, and as such, remain in fairly constant demand. Call
protection means issuers can't redeem their preferred stocks before a specified
date, as they often do when interest rates fall. Even though rates appear to be
on the rise now, we think they eventually will resume their long-term downward
trend and that call protection will be an important contributor to our
performance.
Bulking up yield
Rising interest rates held a silver lining of sorts. As rates moved higher, so
did the yields on most preferred and utility common stocks. When we found
attractive opportunities to do so, we replaced lower-yielding utility common
stocks with higher-yielding utility commons and higher-yielding preferred
stocks. In addition, we were able to add preferreds with good call protection.
Outlook
We believe that preferred stocks, already attractively priced after their
underperformance, are poised to come into a reasonably good period. Supply and
demand conditions in the preferred market should turn more favorable for several
reasons. Companies have already curtailed their new issuance activity in late
1999, with no indications that issuance will pick up anytime soon. From a demand
standpoint, we expect that investors will eventually look to preferred stocks as
relatively cheap, high-yielding investments. We also remain optimistic about the
prospects for utility stocks. To the extent that investors become concerned
about the sustainability of corporate earnings growth for the stock market as a
whole, utility stocks could benefit. Utility stocks also look very attractive
from an historical basis, selling at a low relative price-to-earnings ratio not
seen in 20 years or so. Evidence of a slowing U.S. economy -- which could emerge
later this year if interest rates keep rising -- would likely stir demand for
economically resistant utility stocks and interest-rate-sensitive preferred
stocks.
"Supply and demand conditions in the preferred market should turn more
favorable..."
- --------------------------------------------------------------------------------
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>
==============================FINANCIAL STATEMENTS==============================
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, 1999. You'll
also find the net asset value as of that date.
Statement of Assets and Liabilities
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Preferred stocks (cost - $126,602,324) ................... $ 119,427,804
Common stocks (cost - $21,972,510) ....................... 21,038,841
Short-term investments (cost - $580,830) ................. 580,830
-------------
141,047,475
Receivable for investments sold ............................ 517,500
Dividends receivable ....................................... 333,100
Other assets ............................................... 23,776
-------------
Total Assets ....................... 141,921,851
-----------------------------------------------------
Liabilities:
Auction Rate Preferred Shares
dividend payable - Note A ................................ 45,413
Common shares dividend payable ............................. 32,156
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 161,290
Accounts payable and accrued expenses ...................... 75,819
-------------
Total Liabilities .................. 314,678
-----------------------------------------------------
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 .................. 99,356,009
Accumulated net realized loss on investments ............... (2,381,921)
Net unrealized depreciation of investments ................. (8,108,189)
Undistributed net investment income ........................ 241,274
-------------
Net Assets Applicable to Common Shares
($12.28 per share based on 7,257,200
shares outstanding) ...................................... 89,107,173
-------------
Net Assets ......................... $ 141,607,173
=====================================================
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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends .................................................. $ 5,303,233
Interest (including stock loan income of $10,199) .......... 50,909
------------
5,354,142
------------
Expenses:
Investment management fee - Note B ....................... 592,130
Administration fee - Note B .............................. 111,024
Auction rate preferred shares and auction fees ........... 74,306
Auditing fee ............................................. 30,489
Custodian fee ............................................ 26,138
Printing ................................................. 21,612
Transfer agent fee ....................................... 16,638
Miscellaneous ............................................ 16,336
Trustees' fees ........................................... 3,222
Legal fees ............................................... 1,754
------------
Total Expenses ..................... 893,649
-----------------------------------------------------
Net Investment Income .............. 4,460,493
-----------------------------------------------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments sold ...................... (41,645)
Change in net unrealized appreciation/depreciation
of investments ........................................... (11,526,848)
------------
Net Realized and Unrealized
Loss on Investments ................ (11,568,493)
-----------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations .......... ($ 7,108,000)
-----------------------------------------------------
Distribution to Auction Rate
Preferred Shares ................... (1,068,678)
-----------------------------------------------------
Net Decrease in Net Assets
Applicable to Common
Shareholders Resulting
from Operations Less Auction
Rate Preferred Shares
Distributions ...................... ($ 8,176,678)
=====================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Patriot Preferred Dividend Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ......................................................................... $8,893,883 $4,460,493
Net realized gain (loss) on investments sold .................................................. 2,209,544 (41,645)
Change in net unrealized appreciation/depreciation of investments ............................. (6,598,442) (11,526,848)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations ............................ 4,504,985 (7,108,000)
------------- -------------
Distributions to Shareholders:
Auction Rate Preferred Shares ($4,008 and $2,036 per share, respectively) - Note A ............ (2,104,344) (1,068,678)
Common Shares - Note A
Dividends from net investment income ($1.0290 and $0.4320 per share, respectively) ......... (7,467,748) (3,134,927)
Distributions in excess of net investment income ($0.0046 and none per share, respectively) (33,554) --
------------- -------------
Total Distributions to Shareholders ........................................................ (9,605,646) (4,203,605)
------------- -------------
Net Assets:
Beginning of period ........................................................................... 158,019,439 152,918,778
------------- -------------
End of period (including distributions in excess of net investment income of $15,614 and
undistributed net investment income of $241,274, respectively) ............................. $152,918,778 $141,607,173
============= =============
<CAPTION>
Analysis of Common Shareholder Transactions:
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period ............... 7,257,200 $99,374,474 7,257,200 $99,356,009
Reclassification of capital accounts .................. -- (18,465) -- --
------------ ------------ ------------ ------------
Shares outstanding, end of period ..................... 7,257,200 $99,356,009 7,257,200 $99,356,009
============ ============ ============ ============
</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 and the number of Common Shares outstanding at the beginning and the end
of the period for the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
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:
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<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------
1995 1996 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common Shares
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................. $12.25 $12.96 $12.99 $13.54
-------- -------- -------- --------
Net Investment Income ................................................ 1.52 1.46 1.42 1.37
Net Realized and Unrealized Gain (Loss) on Investments ............... 0.65 0.05 0.58 1.08
-------- -------- -------- --------
Total from Investment Operations ................................. 2.17 1.51 2.00 2.45
-------- -------- -------- --------
Less Distributions:
Dividends to Auction Rate Preferred Shareholders ................... (0.30) (0.32) (0.29) (0.30)
Dividends from Net Investment Income to Common Shareholders ........ (1.16) (1.16) (1.16) (1.15)
Distributions in Excess of Net Investment Income to
Common Shareholders .............................................. -- -- -- --
-------- -------- -------- --------
Total Distributions .............................................. (1.46) (1.48) (1.45) (1.45)
-------- -------- -------- --------
Net Asset Value, End of Period ....................................... $12.96 $12.99 $13.54 $14.54
======== ======== ======== ========
Per Share Market Value, End of Period ................................ $12.250 $12.500 $13.750 $14.563
Total Investment Return at Market Value .............................. 7.18% 11.58% 19.87% 14.72%
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of Period (000s omitted) . $94,023 $94,249 $98,298 $105,519
Ratio of Expenses to Average Net Assets(1) ........................... 2.08% 1.99% 1.96% 1.89%
Ratio of Net Investment Income to Average Net Assets(2) .............. 12.73% 11.14% 10.67% 9.72%
Portfolio Turnover Rate .............................................. 88% 33% 38% 64%
Senior Securities
Total Auction Rate Preferred Shares (000s omitted) ................... $52,500 $52,500 $52,500 $52,500
Asset Coverage per Unit(3) ........................................... $274,463 $277,555 $283,817 $296,903
Involuntary Liquidation Preference per Unit(4) ....................... $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit(4) ................................. $100,000 $100,000 $100,000 $100,000
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
------------------ NOVEMBER 30, 1999
1999 (UNAUDITED)
-------- -----------
<S> <C> <C>
Common Shares
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................. $14.54 $13.84
-------- --------
Net Investment Income ................................................ 1.23 0.61
Net Realized and Unrealized Gain (Loss) on Investments ............... (0.61) (1.59)
-------- --------
Total from Investment Operations ................................. 0.62 (0.98)
-------- --------
Less Distributions:
Dividends to Auction Rate Preferred Shareholders ................... (0.29) (0.15)
Dividends from Net Investment Income to Common Shareholders ........ (1.03) (0.43)
Distributions in Excess of Net Investment Income to
Common Shareholders .............................................. (0.00)(5) --
-------- --------
Total Distributions .............................................. (1.32) (0.58)
-------- --------
Net Asset Value, End of Period ....................................... $13.84 $12.28
======== ========
Per Share Market Value, End of Period ................................ $11.500 $10.375
Total Investment Return at Market Value .............................. (14.79%) (6.18%)(6)
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of Period (000s omitted) . $100,419 $89,107
Ratio of Expenses to Average Net Assets(1) ........................... 1.84% 1.87%(7)
Ratio of Net Investment Income to Average Net Assets(2) .............. 8.66% 9.33%(7)
Portfolio Turnover Rate .............................................. 30% 6%
Senior Securities
Total Auction Rate Preferred Shares (000s omitted) ................... $52,500 $52,500
Asset Coverage per Unit(3) ........................................... $290,113 $277,037
Involuntary Liquidation Preference per Unit(4) ....................... $100,000 $100,000
Approximate Market Value per Unit(4) ................................. $100,000 $100,000
</TABLE>
(1) Ratios calculated on the basis of expenses applicable to common shares
relative to the average net assets of common shares. Without the exclusion
of preferred shares, the ratio of expenses would have been 1.30%, 1.29%,
1.27%, 1.25%, 1.22% and 1.21%, respectively.
(2) Ratios calculated on the basis of net investment income applicable to common
shares relative to the average net assets of common shares. Without the
exclusion of preferred shares, the ratio of net investment income would have
been 7.93%, 7.19%, 6.91%, 6.42%, 5.73% and 6.02%, respectively.
(3) Calculated by subtracting the Fund's total liabilities (not including the
Auction Rate Preferred Shares) from the Fund's total assets and dividing
that 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) Less than $0.01 per share.
(6) Not annualized.
(7) Annualized.
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indicated: the net investment income, gains
(losses), dividends and total investment return of the Fund. It shows how the
Fund's net asset value for a share has changed since the end of the previous
period. Additionally, important relationships between some items presented in
the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Patriot Preferred Dividend Fund
Schedule of Investments
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Patriot Preferred Dividend Fund on November 30, 1999. 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
Agricultural Operations (3.85%)
Ocean Spray Cranberries, Inc.,
6.25% (R)............................ 60,000 $5,453,520
------------
Automobile/Trucks (1.98%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B............. 30,100 823,988
General Motors Corp., 9.12%,
Depositary Shares, Ser G............. 74,700 1,984,219
------------
2,808,207
------------
Banks - Foreign (1.21%)
Banco Bilbao Vizcaya International Ltd.,
9.75% (Spain)........................ 65,750 1,709,500
------------
Banks - United States (13.64%)
ABN AMRO North America, Inc.,
6.59%, Ser H (R)..................... 1,000 942,890
ABN AMRO North America, Inc.,
8.75%, Ser A (R)..................... 1,900 2,098,607
Chase Manhattan Corp., 10.84%, Ser C.... 119,500 3,375,875
FleetBoston Financial Corp., 6.75%,
Depositary Shares, Ser IV............ 51,000 2,550,000
FleetBoston Financial Corp., 9.35%,
Depositary Shares.................... 177,000 4,502,438
J.P. Morgan & Company, Inc., 6.625%,
Depositary Shares, Ser H............. 30,000 1,548,750
Republic New York Corp., $2.8575........ 98,700 4,293,450
------------
19,312,010
------------
Broker Services (15.86%)
Bear Stearns Companies, Inc., 5.72%,
Ser F................................ 40,000 1,655,000
Bear Stearns Companies, Inc., 6.15%,
Ser E................................ 100,600 4,363,525
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D............. 48,000 1,898,437
Lehman Brothers Holdings, Inc., 5.94%,
Ser C................................ 100,000 4,125,000
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A............. 180,700 5,567,819
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares.................... 95,000 4,845,000
------------
22,454,781
------------
Conglomerates (0.83%)
Grand Metropolitan Delaware, L.P., 9.42%,
Gtd Ser A............................ 45,000 1,175,625
------------
Equipment Leasing (3.92%)
AMERCO, 8.50%, Ser A.................... 220,000 5,555,000
------------
Financial Services (16.29%)
Citigroup, Inc., 6.213%, Ser G.......... 52,000 2,379,000
Citigroup, Inc., 6.231%,
Depositary Shares, Ser H............. 88,700 4,179,987
Citigroup, Inc., 8.40%,
Depositary Shares, Ser K............. 156,000 4,143,750
Household International, Inc., 8.25%,
Depositary Shares, Ser 92-A.......... 124,200 3,337,875
SI Financing Trust I, 9.50%,
Gtd Pfd Sec & Purchase Contract...... 70,000 1,824,375
SLM Holding Corp., 6.97%................ 50,000 2,456,250
------------
18,321,237
------------
Media (2.01%)
Shaw Communications, Inc., 8.45%,
Ser A (Canada)....................... 145,500 2,855,438
------------
Oil & Gas (8.20%)
Anadarko Petroleum Corp., 5.46%,
Depositary Shares.................... 60,139 4,863,801
Coastal Finance I, 8.375%............... 199,800 4,745,250
Devon Energy Corp., 6.49%, Ser A........ 50,000 4,576,350
Lasmo America Ltd., 8.15% (R)........... 20,000 2,167,860
------------
16,353,261
------------
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Patriot Preferred Dividend Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Utilities (16.54%)
Alabama Power Co., 5.20%................ 240,000 $5,160,000
Avista Corp., $1.24, Ser L, Conv........ 103,700 1,594,388
Baltimore Gas & Electric Co., 6.99%,
Ser 1995............................. 10,000 1,075,370
El Paso Tennessee Pipeline Co., 8.25%,
Ser A................................ 136,600 7,205,650
Entergy London Capital, L.P., 8.625%,
Ser A................................ 40,000 982,500
Massachusetts Electric Co., 6.99%....... 10,500 1,119,793
MidAmerican Energy Co., $7.80........... 9,125 949,492
PSI Energy, Inc., 6.875%................ 14,350 1,514,470
Public Service Electric & Gas Co., 6.92% 19,000 2,035,337
South Carolina Electric & Gas Co., 6.52% 5,000 525,000
TDS Capital Trust II, 8.04%............. 58,600 1,267,225
------------
23,429,225
------------
TOTAL PREFERRED STOCKS
(Cost $126,602,324) (84.33%) 119,427,804
------- ------------
COMMON STOCKS
Utilities (14.86%)
Alliant Energy Corp. ................... 60,000 1,623,750
Conectiv, Inc. (Class A)................ 35,850 1,091,184
Dominion Resources, Inc. ............... 42,000 1,905,750
Florida Progress Corp. ................. 67,000 2,864,250
Kansas City Power & Light Co. .......... 35,000 807,188
KeySpan Corp. .......................... 43,000 1,104,563
NSTAR................................... 50,000 2,075,000
Potomac Electric Power Co. ............. 70,000 1,666,875
Public Service Enterprise Group, Inc. .. 17,000 595,000
Puget Sound Energy, Inc. ............... 68,500 1,404,250
Reliant Energy, Inc. ................... 46,000 1,141,375
Sempra Energy........................... 104,000 1,924,000
UtiliCorp United, Inc. ................. 39,000 784,875
Western Resources, Inc. ................ 67,500 1,261,406
WPS Resources Corp. .................... 30,000 789,375
------------
21,038,841
------------
TOTAL COMMON STOCKS
(Cost $21,972,510) (14.86%) 21,038,841
------- ------------
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
SHORT-TERM INVESTMENTS
Commercial Paper (0.41%)
Chevron USA, Inc.,
12-01-99.................. 5.50% $581 $580,830
------------
TOTAL SHORT-TERM INVESTMENTS (0.41%) 580,830
------- ------------
TOTAL INVESTMENTS (99.60%) 141,047,475
------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.40%) 559,698
------- ------------
TOTAL NET ASSETS (100.00%) $141,607,173
======= ============
(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 $10,662,877 or 7.53% of net assets as of November 30,
1999.
Parenthetical disclosure of a foreign country in the security description
represents country of a 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
<PAGE>
==========================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. The Fund
determines the net asset value of the Common Shares each business day.
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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. For federal income tax purposes, the Fund has $1,828,416 of a
capital loss carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. If such carryforwards are used by the
Fund, no capital gains distributions will be made. The carryforwards expire May
31, 2003. Additionaly, net capital losses of $360,323 attributable to security
transactions incurred after October 31, 1998 are treated as arising on the first
day (June 1, 1999) of the Fund's next taxable year.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all dividends and distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with federal income tax regulations. Due to
permanent book/tax differences in accounting for certain transactions, this has
the potential for treating certain distributions as return of capital as opposed
to distributions of net investment income or realized capital gains. The Fund
has adjusted for the cumulative effect of such permanent book/tax differences
through May 31, 1999, which have no effect on the Fund's net assets, net
investment income or net realized gains.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund.
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 3.576% to 4.360%
during the period ended November 30, 1999.
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 per share, plus accumulated and unpaid
11
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Patriot Preferred Dividend Fund
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, Inc., 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.
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. Stephen L. Brown, Ms. Maureen R. Ford, 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. The investment had no impact on the operations
of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities during the period ended November
30, 1999, aggregated $11,876,389 and $8,035,757, respectively.
The cost of investments owned at November 30, 1999 (including the
short-term investments) for federal income tax purposes was $149,307,201. Gross
unrealized appreciation and depreciation of investments aggregated $3,972,625
and $12,232,351, respectively, resulting in net unrealized depreciation of
$8,259,726.
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 ("Plan Agent"), 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 shareholders' 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
YEAR 2000 COMPLIANCE
The Adviser and the Fund's service providers are taking steps to address any
year 2000-related computer problems. However, there is some risk that these
problems could disrupt the Fund's operations or financial markets generally.
SHAREHOLDER COMMUNICATION AND ASSISTANCE
If you have any questions concerning the John Hancock Patriot Preferred Dividend
Fund, we will be pleased to assist you. If you hold shares in your own name and
not with a brokerage firm, please address all notices, correspondence, questions
or other communications regarding the Fund to the transfer agent at:
State Street Bank & Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
Telephone: (800) 426-5523
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
14
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Patriot Preferred Dividend Fund
15
<PAGE>
================================================================================
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