---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Patriot Preferred
Dividend Fund
MAY 31, 2000
[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
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, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment 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
The Bank of New York
100 Church Street
New York, New York 10286
LEGAL COUNSEL
Hale and Dorr llp
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Deloitte & Touche llp
200 Berkeley Street
Boston, Massachusetts 02116
Listed New York Stock Exchange Symbol: PPF
For shareholder assistance, refer to page 15
----------------------------------------------------
==================================CEO CORNER====================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, New Economy technology stocks dominated the
business-news headlines and the stock market's performance. Red-hot tech stocks
pushed the NASDAQ Composite Index to the stratosphere, as investors
single-mindedly pursued anything technology related. But after setting a new
high on March 10 amid significantly heightened volatility, the tables started to
turn rapidly. Concerns about Microsoft's antitrust ruling and out-of-sight
valuation levels finally triggered waves of selling that sent the index down 32%
from its March high by the end of May.
In this same period, fixed-income-type securities, including bonds and
preferred stocks, struggled as interest rates rose on fears that the roaring
U.S. economy and the rebound of many others around the world would spark an
inflation outbreak.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
While the battle between old and new rages on, a couple of things are clear:
More than ever, diversification and a long-term investment perspective are two
of an investor's best allies. Since not all parts of your portfolio will perform
equally well all the time, we believe it is important to allocate your assets
among different types of investments and funds that target a variety of stock-
and bond-market segments. This strategy, executed under the guidance of a
seasoned investment professional, could provide you with a better chance of both
realizing longer-term results and weathering the market's changing conditions.
Sincerely,
/s/Maureen R. Ford
------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Gregory K. Phelps for the Portfolio Management Team
John Hancock Patriot
Preferred Dividend Fund
Preferred and utility common stocks tumble
------------------------------------------
as interest-rate fears persist
------------------------------
Preferred stocks and utility common stocks - the Fund's two main asset classes -
came under significant pressure in response to rising interest rates during the
past 12 months. Investors were concerned about how many more times the Federal
Reserve would raise interest rates after its first hike at the end of June 1999.
Throughout the remainder of last year, continued signs of strong economic growth
fanned fears of inflation, dreaded because it eats into the returns of
income-paying securities. As expected, the Fed raised rates five more times
through the end of May 2000. Because of their high - sometimes fixed -
dividends, preferred and utility common stocks tend to be quite sensitive to
interest-rate movements, and their prices fell significantly as interest rates
climbed.
As if rising interest rates weren't trouble enough, preferred and
utility common stocks faced other challenges. In order to lock in relatively low
rates before they moved higher, and to sidestep potential market disruptions
stemming from Y2K problems, corporations issued near-record levels of debt and
preferred stock in the summer and early fall of 1999. Demand, however, didn't
keep pace with supply. In late 1999, preferreds unsuccessfully battled an
unprecedented deluge of tax-loss selling. Simply put, investors were dumping
1999's poorest performers at a loss to offset capital gains incurred elsewhere
in their portfolios. Furthermore, utility common and preferred stocks struggled
to gain the attention of investors who were almost
--------------------------------------------------------------------------------
[A 3" x 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."]
--------------------------------------------------------------------------------
"The losses suffered by preferred stocks... resulted in disappointing returns
for the year."
3
<PAGE>
================================================================================
John Hancock Funds - Patriot Preferred Dividend Fund
"...we've been adding more utility common stocks to the Fund's portfolio."
--------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into six sections (from top to left): Media 2%, Oil & Gas 6%,
Short-Term Investments & Other 7%, Preferred-Stock Utilities 15%, Common-Stock
Utilities 18 and Financials 52%. A note below the chart reads "As a percentage
of net assets on May 31, 2000."]
--------------------------------------------------------------------------------
exclusively focused on high-flying growth and technology stocks. Although that
year-end tax-loss selling eventually dissipated and the technology sector
suffered a significant sell-off, preferreds still languished as investors
shunned virtually all fixed-income-type investments, with the sole exception of
long-term Treasuries. Utility common stocks have had their share of ups and
downs so far this year, but ended on a high note, when investors returned to the
sector as tech volatility grew. But for the 12-month period, utility common
stocks produced somewhat muted returns.
Performance review
The losses suffered by preferred stocks - which made up 82% of John Hancock
Patriot Preferred Dividend Fund at the end of the period - resulted in
disappointing returns for the year. For the 12 months ended May 31, 2000, the
Fund returned -7.88% at net asset value. By
--------------------------------------------------------------------------------
[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 TDS Capital
followed by an up arrow with the phrase "Upgraded to investment-grade status."
The second listing is LG&E Energy followed by an up arrow with the phrase
"Acquisition target." The third listing is Western Resources followed by a down
arrow with the phrase "Credit rating downgraded." A note below the table reads
"See `Schedule of Investments.' Investment holdings are subject to change."]
--------------------------------------------------------------------------------
comparison, the average income and preferred stock closed-end fund returned
-7.73%, according to Lipper, Inc. The Merrill Lynch 30-Year Treasury Index
returned 0.32%.
Individual standouts in difficult market
Although the backdrop was difficult for much of the year, some of our energy and
utility holdings actually performed reasonably well. For example, the common
stock of LG&E Energy got a significant boost when it was announced that the
company would be acquired by U.K-based PowerGen. Other good performers included
the preferred stock of Avista, formerly known as Washington Water Power. It rose
in response to its successful Internet business. In addition, the company is a
leader in fuel cells, which produce low-cost electricity without pollution and
are generating a lot of excitement. More recently, the company announced that it
would convert its outstanding preferred stock to common stock by the end of
March, which it did. In contrast, Western Resources drastically underperformed
the utility group due to its inability to complete a planned merger and problems
with its Protection One home security business. The company's credit rating was
downgraded in response.
Most of our preferreds performed poorly, but there were a couple of
bright spots. One was Telephone and Data Systems (TDS Capital), which was
upgraded to investment-grade status during the period. The higher rating came in
recognition of the strength of TDS' wireless telephone business. Another good
performer was Shaw Communications, which was also upgraded to investment-grade
status during the period. The higher rating came in recognition of the strength
of Shaw's fiber-optic, broadband and Internet businesses.
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 year ended May 31, 2000." The chart is
scaled in increments of 1% with -9.0% at the bottom and 1.0% at the top. The
first bar represents the -8.67% total return for John Hancock Patriot Preferred
Dividend Fund. The second bar represents the -7.73% total return for Average
income and preferred stock closed-end fund. The third bar represents the 0.32%
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."]
--------------------------------------------------------------------------------
Growing biz lines = opportunities
Because they were cheap relative to their historic value, we've been adding more
utility common stocks to the Fund's portfolio. We continued to place an emphasis
on utilities pursuing high-growth fiber-optic and broadband businesses as a way
to boost their earnings. These included NSTAR, Potomac Electric Power and Kansas
City Power & Light. We also favored Alliant Energy, due to its large holdings in
a competitive local exchange carrier that has been grabbing small-company phone
business away from bigger competitors. On occasion, we also looked for utility
stocks that offered the potential for strong returns resulting from being taken
over or merging.
Financials stay
Anticipated merger and acquisition activity, coupled with relatively high
yields, were the main reasons why we continued to hold onto preferreds in the
financial sector, such as Lehman Brothers and Bear Stearns. With the repeal of
the Glass Steagall Act, which once prevented banks, insurers and securities
brokers from merging, we believe the stage is set for many of our
financial-services holdings to be merged or acquired.
Outlook
We believe that the Federal Reserve may be nearing the end of its tightening
activities. That viewpoint is based on the fact that we're beginning to see
evidence that the economy is slowing. New-home sales have leveled off,
existing-home sales have declined, auto sales have flattened and employment
growth recently slowed. To the extent that investors recognize the value that
preferred stocks now offer relative to U.S. Treasury securities, preferreds will
benefit. We began to see evidence of this at the end of the period.
As for utility common stocks, we're optimistic. We anticipate continued
consolidation in the industry, which will likely be favorable for the group. We
are particularly bullish on the companies that offer unregulated services like
broadband and fiber optics. We believe that investors may find these companies
increasingly attractive alternatives to some of the much more expensive
telecommunications and technology companies.
--------------------------------------------------------------------------------
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.
"We believe that the Federal Reserve may be nearing the end of its tightening
activities."
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 May 31, 2000. You'll also
find the net asset value as of that date.
Statement of Assets and Liabilities
May 31, 2000
--------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Preferred stocks (cost - $126,250,455)...................... $112,696,526
Common stocks (cost - $24,539,083) ......................... 24,681,269
Short-term investments (cost - $912,294) ................... 912,294
---------------
138,290,089
Receivable for investments sold ............................. 701,889
Dividends receivable ........................................ 315,477
Other assets ................................................ 23,777
---------------
Total Assets .................... 139,331,232
-------------------------------------------------
Liabilities:
Auction Rate Preferred Shares
dividend payable - Note A .................................. 289,905
Payable for investments purchased ........................... 977,500
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 152,480
Accounts payable and accrued expenses ....................... 99,646
---------------
Total Liabilities ............... 1,519,531
-------------------------------------------------
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 .................... 99,302,971
Accumulated net realized loss on investments ................ (1,153,411)
Net unrealized depreciation of investments .................. (13,411,743)
Undistributed net investment income ......................... 573,884
---------------
Net Assets Applicable to Common Shares
($11.76 per share based on 7,257,200
shares outstanding) ........................................ 85,311,701
---------------
Net Assets ...................... $137,811,701
=================================================
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
Year ended May 31, 2000
--------------------------------------------------------------------------------
Investment Income:
Dividends ................................................... $10,703,472
Interest .................................................... 112,503
---------------
10,815,975
---------------
Expenses:
Investment management fee - Note B ......................... 1,144,975
Administration fee - Note B ................................ 214,683
Auction rate preferred shares and auction fees ............. 140,802
Auditing fee ............................................... 77,800
Federal excise tax ......................................... 53,038
Custodian fee .............................................. 48,431
Printing ................................................... 35,612
Transfer agent fee ......................................... 29,720
Miscellaneous .............................................. 24,468
Trustees' fees ............................................. 4,913
Legal fees ................................................. 3,547
---------------
Total Expenses .................. 1,777,989
-------------------------------------------------
Net Investment Income ........... 9,037,986
-------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ....................... 1,186,865
Change in net unrealized appreciation/depreciation
of investments ............................................. (16,830,402)
---------------
Net Realized and Unrealized
Loss on Investments ............. (15,643,537)
-------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ....... (6,605,551)
=================================================
Distribution to Auction Rate
Preferred Shares ................ (2,232,125)
-------------------------------------------------
Net Decrease in Net Assets
Applicable to Common
Shareholders Resulting from
Operations Less Auction Rate
Preferred Shares Distributions .. ($8,837,676)
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Patriot Preferred Dividend Fund
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------
1999 2000
------------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................ $8,893,883 $9,037,986
Net realized gain on investments sold ............................................ 2,209,544 1,186,865
Change in net unrealized appreciation/depreciation of investments ................ (6,598,442) (16,830,402)
---------------- ----------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................. 4,504,985 (6,605,551)
---------------- ----------------
Distributions to Shareholders:
Auction Rate Preferred Shares ($4,008 and $4,252 per share, respectively) - Note A (2,104,344) (2,232,125)
Common Shares - Note A
Dividends from net investment income ($1.0290 and $0.8639 per share, respectively) (7,467,748) (6,269,401)
Distributions in excess of net investment income ($0.0046 and
none per share, respectively) .................................................. (33,554) -
---------------- ----------------
Total Distributions to Shareholders ............................................. (9,605,646) (8,501,526)
---------------- ----------------
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 $573,884, respectively) ...... $152,918,778 $137,811,701
================ ================
Analysis of Common Shareholder Transactions:
YEAR ENDED MAY 31,
--------------------------------------------------------------
1999 2000
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ------------ -----------
Shares outstanding, beginning of period ................ 7,257,200 $99,374,474 7,257,200 $99,356,009
Reclassification of capital accounts - Note D............ - (18,465) - (53,038)
----------- ------------- ----------- -------------
Shares outstanding, end of period ....................... 7,257,200 $99,356,009 7,257,200 $99,302,971
=========== ============= =========== =============
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:
--------------------------------------------------------------------------------
YEAR ENDED MAY 31,
-----------------------------------------------------------
1996 1997 1998 1999 2000
--------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Common Shares
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................. $12.96 $12.99 $13.54 $14.54 $13.84
-------- -------- -------- -------- --------
Net Investment Income ................................................ 1.46 1.42 1.37 1.23 1.25
Net Realized and Unrealized Gain (Loss) on Investments ............... 0.05 0.58 1.08 (0.61) (2.16)
-------- -------- -------- -------- --------
Total from Investment Operations ..................................... 1.51 2.00 2.45 0.62 (0.91)
-------- -------- -------- -------- --------
Less Distributions:
Dividends to Auction Rate Preferred Shareholders ..................... (0.32) (0.29) (0.30) (0.29) (0.31)
Dividends from Net Investment Income to Common Shareholders .......... (1.16) (1.16) (1.15) (1.03) (0.86)
Distributions in Excess of Net Investment Income to Common Shareholders - - - (0.00)(1) -
-------- -------- -------- -------- --------
Total Distributions ................................................... (1.48) (1.45) (1.45) (1.32) (1.17)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ........................................ $12.99 $13.54 $14.54 $13.84 $11.76
======== ======== ======== ======== ========
Per Share Market Value, End of Period ................................. $12.500 $13.750 $14.563 $11.500 $10.250
Total Investment Return at Market Value ............................... 11.58% 19.87% 14.72% (14.79%) (3.37%)
Ratios and Supplemental Data
Net Assets Applicable to Common Shares, End of Period (000s omitted) . $94,249 $98,298 $105,519 $100,419 $85,312
Ratio of Expenses to Average Net Assets(2) ........................... 1.99% 1.96% 1.89% 1.84% 1.96%
Ratio of Net Investment Income to Average Net Assets(3) .............. 11.14% 10.67% 9.72% 8.66% 9.97%
Portfolio Turnover Rate .............................................. 33% 38% 64% 30% 22%
Senior Securities
Total Auction Rate Preferred Shares (000s omitted) ................... $52,500 $52,500 $52,500 $52,500 $52,500
Asset Coverage per Unit(4) ........................................... $277,555 $283,817 $296,903 $290,113 $260,212
Involuntary Liquidation Preference per Unit(5) ....................... $100,000 $100,000 $100,000 $100,000 $100,000
Approximate Market Value per Unit(5) ................................. $100,000 $100,000 $100,000 $100,000 $100,000
(1) Less than $0.01 per share.
(2) 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 1.29%, 1.27%, 1.25%,
1.22% and 1.24%, respectively.
(3) 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 7.19%, 6.91%, 6.42%, 5.73% and 6.31%, respectively.
(4) 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. (5) Plus accumulated and unpaid dividends.
</TABLE>
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
May 31, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Patriot Preferred Dividend Fund on May 31, 2000. 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 (3.11%)
Ocean Spray Cranberries, Inc.,
6.25% (R) .................................... 60,000 $4,290,000
----------
Automobile/Trucks (2.03%)
Ford Motor Co., 8.25%,
Depositary Shares, Ser B .................... 30,100 786,363
General Motors Corp., 9.12%,
Depositary Shares, Ser G .................... 74,700 2,012,231
----------
2,798,594
----------
Banks - Foreign (1.19%)
Banco Bilbao Vizcaya International Ltd.,
9.75% (Spain) ............................... 65,750 1,635,531
----------
Banks - United States (13.79%)
ABN AMRO North America, Inc.,
8.75%, Ser A (R) ............................ 1,900 1,976,000
Chase Manhattan Corp., 10.84%, Ser C ......... 119,500 3,286,250
FleetBoston Financial Corp.,
6.75%, Depositary Shares, Ser IV ............ 100,000 4,900,000
HSBC USA, Inc., $2.8575 ...................... 98,700 3,948,000
J.P. Morgan & Company Inc.,
6.625%, Depositary Shares, Ser H ............ 100,000 4,900,000
----------
19,010,250
----------
Broker Services (15.70%)
Bear Stearns Companies, Inc.,
5.72%, Ser F ................................ 40,000 1,580,000
Bear Stearns Companies, Inc.,
6.15%, Ser E ................................ 100,600 4,162,325
Lehman Brothers Holdings, Inc.,
5.67%, Depositary Shares, Ser D ............. 48,000 1,794,000
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
------------------- ---------------- ------
Broker Services (continued)
Lehman Brothers Holdings, Inc.,
5.94%, Ser C ................................ 100,000 $3,900,000
Merrill Lynch & Co., Inc., 9.00%,
Depositary Shares, Ser A .................... 180,700 5,059,600
Morgan Stanley Group, Inc., 7.75%,
Depositary Shares ........................... 100,000 5,137,500
----------
21,633,425
----------
Conglomerates (0.84%)
Grand Metropolitan Delaware, L.P.,
9.42%, Gtd Ser A ............................ 45,000 1,150,313
----------
Equipment Leasing (3.93%)
AMERCO, 8.50%, Ser A ......................... 220,000 5,417,500
----------
Finance (17.60%)
Citigroup, Inc., 6.213%, Ser G ............... 52,000 2,249,000
Citigroup, Inc., 6.231%,
Depositary Shares, Ser H .................... 88,700 3,858,450
Citigroup, Inc., 8.40%,
Depositary Shares, Ser K .................... 156,000 4,026,750
Coastal Finance I, 8.375% .................... 199,800 4,545,450
Household International Inc., 8.25%,
Dep Shares, Ser 92-A ........................ 124,200 3,182,625
SI Financing Trust I, 9.50%,
Gtd Pfd Sec & Purchase Contract ............. 70,000 1,789,375
SLM Holding Corp., 6.97%, Ser A .............. 99,000 4,603,500
----------
24,255,150
----------
Media (2.16%)
Shaw Communications Inc., 8.45%,
Ser A (Canada) .............................. 145,500 2,982,750
----------
Oil & Gas (6.35%)
Anadarko Petroleum Corp., 5.46%,
Depositary Shares ........................... 60,139 4,435,251
Devon Energy Corp., 6.49%, Ser A ............. 50,000 4,312,500
----------
8,747,751
----------
Utilities (15.08%)
Alabama Power Co., 5.20% ..................... 240,000 4,380,000
Baltimore Gas & Electric Co., 6.99%,
Ser 1995 .................................... 20,000 1,940,000
El Paso Tennessee Pipeline Co., 8.25%,
Ser A ....................................... 136,600 7,103,200
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Patriot Preferred Dividend Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
------------------- ---------------- ------
Utilities (continued)
Entergy London Capital, L.P., 8.625%,
Ser A ....................................... 40,000 $895,000
Massachusetts Electric Co., 6.99% ............ 10,500 1,002,750
MidAmerican Energy Co., $7.80 ................ 9,125 917,063
PSI Energy, Inc., 6.875% ..................... 14,350 1,313,025
Public Service Electric & Gas Co., 6.92% ..... 19,000 1,783,624
TDS Capital Trust II, 8.04% .................. 68,600 1,440,600
----------
20,775,262
----------
TOTAL PREFERRED STOCKS
(Cost $126,250,455) (81.78%) 112,696,526
-------- -----------
COMMON STOCKS
Utilities (17.91%)
Alliant Energy Corp. ......................... 60,000 1,661,250
Conectiv, Inc. (Class A) ..................... 35,850 824,550
Dominion Resources, Inc. ..................... 32,000 1,464,000
Florida Progress Corp. ....................... 62,000 3,076,750
Kansas City Power & Light Co. ................ 35,000 829,063
KeySpan Corp. ................................ 63,000 1,921,500
LG&E Energy Corp. ............................ 43,000 1,018,563
NSTAR ........................................ 50,000 2,153,125
OGE Energy Corp. ............................. 82,000 1,599,000
Potomac Electric Power Co. ................... 95,000 2,464,062
Puget Sound Energy, Inc. ..................... 73,500 1,695,094
Reliant Energy, Inc. ......................... 46,000 1,311,000
Sierra Pacific Resources ..................... 132,000 1,905,750
UtiliCorp United, Inc. ....................... 39,000 765,375
Western Resources, Inc. ...................... 67,500 1,054,687
WPS Resources Corp. .......................... 30,000 937,500
----------
24,681,269
----------
TOTAL COMMON STOCKS
(Cost $24,539,083) (17.91%) 24,681,269
-------- ----------
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
------------------- ----------- ------------ --------
SHORT-TERM INVESTMENTS
Commercial Paper (0.66%)
Chevron USA, Inc.,
06-01-00 ................... 6.45% $912 $912,294
-----------
TOTAL SHORT-TERM INVESTMENTS (0.66%) 912,294
-------- -----------
TOTAL INVESTMENTS (100.35%) 138,290,089
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.35%) (478,388)
-------- -----------
TOTAL NET ASSETS (100.00%) $137,811,701
======== ============
(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 $6,266,000 or 4.55% of
net assets as of May 31, 2000.
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
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Patriot Preferred Dividend Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Patriot Preferred Dividend Fund (the "Fund") is a diversified,
closed-end management investment company, registered under the Investment
Company Act of 1940. 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. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $983,483 of a capital loss
carryforward 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 carryforward expires on 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, 2000, 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 accounting principles generally accepted in the United States of America
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 3.58% to 4.60%, during
the period ended May 31, 2000.
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 dividends. The
Fund is required to maintain certain asset coverage with respect to the
Preferred Shares, as defined in the Fund's By-Laws.
11
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Patriot Preferred Dividend Fund
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 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 year ended May 31,
2000, aggregated $34,731,937 and $31,724,911, respectively.
The cost of investments owned at May 31, 2000 (including the short-term
investments) for federal income tax purposes was $151,871,760. Gross unrealized
appreciation and depreciation of investments aggregated $2,949,393 and
$16,531,064, respectively, resulting in net unrealized depreciation of
$13,581,671.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended May 31, 2000, the Fund has reclassified amounts to reflect
an increase in undistributed net investment income of $53,038 and a decrease in
capital paid-in of $53,038. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of May 31,
2000. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to federal excise taxes. The calculation of net
investment income in the financial highlights excludes these adjustments.
12
<PAGE>
================================================================================
John Hancock Funds - Patriot Preferred Dividend Fund
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
John Hancock Patriot Preferred Dividend Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of John Hancock Patriot Preferred Dividend Fund
(the "Fund") as of May 31, 2000, the related statement of operations for the
year then ended, the statement of changes in net assets for the years ended May
31, 2000 and 1999 and the financial highlights for each of the years in the
five-year period ended May 31, 2000. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at May 31, 2000 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the Fund at
May 31, 2000, the results of its operations, the changes in its net assets, and
its financial highlights for the respective stated periods in conformity with
accounting principles generally accepted in the United States of America.
/s/DELOITTE & TOUCHE LLP
------------------------
Boston, Massachusetts
July 5, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund paid during its taxable year ended May
31, 2000.
All of the dividends paid for the fiscal year are taxable as ordinary
income. Distributions to preferred and common shareholders were 100% qualified
for the dividends received deduction available to corporations.
Shareholders will be mailed a 2000 U.S. Treasury Department Form
1099-DIV in January 2001. This will reflect the tax character of all
distributions for calendar year 2000.
13
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================================================================================
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 to 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).
14
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John Hancock Funds - Patriot Preferred Dividend Fund
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.
SHAREHOLDER MEETING
On March 16, 2000, 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
--- ---------
Maureen R. Ford 6,600,935 119,996
Charles L. Ladner 6,602,685 118,246
The preferred shareholders elected Ronald R. Dion and Richard S.
Scipione to serve until their respective successors are duly elected and
qualified, with the votes tabulated as follows: 400 FOR and 0 WITHHELD
AUTHORITY.
The shareholders also ratified the Trustees' selection of Deloitte &
Touche LLP as the Fund's independent auditors for the fiscal year ending May 31,
2000, with the votes tabulated as follows: 6,628,073 FOR, 59,922 AGAINST and
33,336 ABSTAINING.
15
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