June 24, 2004
EDGAR
United States Securities and
Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form N-CSR
John Hancock Patriot Premium Dividend Fund II (the "Registrant")
File Nos. 811-05908
Ladies and Gentlemen:
Enclosed herewith for filing pursuant to the Investment Company Act of 1940
and the Securities Exchange Act of 1934 is the Registrant's Form N-CSR filing
for the period ending April 30, 2004.
If you have any questions or comments regarding this filing, please contact
the undersigned at (617) 375-1513.
Sincerely,
/s/Alfred P. Ouellette
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Patriot Premium Dividend Fund II
4.30.2004
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chairman, President and Chief Executive
Officer, flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
Fund's investments
page 6
Financial statements
page 10
For your information
page 25
To Our Shareholders,
I am pleased to be writing to you as Chairman, President and Chief
Executive Officer of John Hancock Funds, LLC.
As you may know, John Hancock Financial Services, Inc. -- the parent
company of John Hancock Funds -- was acquired by Manulife Financial
Corporation on April 28, 2004. The merger combines two exceptionally strong
companies into a single, integrated, global market leader whose scale and
capital will create an industry pacesetter strengthening our company's
leadership in markets around the world.
Although this change has no impact on the mutual funds you have invested
in, it did bring with it some changes in the executive-level management of
John Hancock Funds. Specifically, Maureen Ford Goldfarb has decided to step
down as chairman, president and chief executive officer in order to pursue
personal interests. Since her appointment in January 2000, Maureen has
provided John Hancock Funds with strong leadership and steady guidance
through several years of extremely turbulent market and industry
conditions.
Effective May 12, 2004, I have also been appointed by your Board of
Trustees to the roles of Trustee, President and Chief Executive Officer of
your fund. I have been in the investment business for over 25 years, most
recently as President of Retirement Services at John Hancock Financial
Services. In that role, my responsibilities included developing and
directing the sale of John Hancock's variable and fixed annuity businesses
through a diverse distribution network of banks and broker-dealers --
including wirehouses, regional brokerage houses and financial planners.
Prior to joining John Hancock, I served as Co-Chief Executive Officer of
MetLife Investors Group, a subsidiary of MetLife, Inc. In that capacity my
responsibilities included the design, manufacture and distribution of
MetLife's annuity and life insurance products sold through third-party
channels.
Although there has been a change in executive-level management, the one
thing that never wavers is John Hancock Funds' commitment to placing the
needs of our shareholders above all else. We are all dedicated to the task
of working with you and your financial advisors to help you reach your
long-term financial goals.
Sincerely,
/S/ JAMES A. SHEPHERDSON,
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of April 30, 2004.
They are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
to provide high
current income,
consistent with
modest growth
of capital, for
holders of its
common shares
by investing at
least 80% of its
assets in dividend-
paying securities.
Over the last six months
* A dividend tax cut and bond rally helped buoy demand for preferred and
utility common stocks, but the last month of the period saw a sell-off on
fears of higher interest rates.
* The Fund benefited from advantageous security selection among preferred
stocks.
* A significant stake in utility common stocks also aided performance.
[Bar chart with heading "John Hancock Patriot Premium Dividend Fund II."
Under the heading is a note that reads "Fund performance for the six months
ended April 30, 2004." The chart is scaled in increments of 4% with 0% at
the bottom and 8% at the top. The bar represents the 6.58% total return
for John Hancock Patriot Premium Dividend Fund II. A note below the chart
reads "The total return for the Fund is at net asset value with all
distributions reinvested."]
Top 10 issuers
4.3% Bear Stearns Cos., Inc.
3.7% Citigroup, Inc.
3.4% Lehman Brothers Holdings, Inc.
3.3% El Paso Tennessee Pipeline Co.
3.2% CH Energy Group, Inc.
2.9% Energy East Corp.
2.8% DTE Energy Co.
2.8% KeySpan Corp.
2.6% Monongahela Power Co.
2.5% NSTAR
As a percentage of net assets plus the value of preferred shares on April
30, 2004.
1
BY GREGORY K. PHELPS AND MARK T. MALONEY FOR THE PORTFOLIO MANAGEMENT TEAM
MANAGERS'
REPORT
JOHN HANCOCK
Patriot Premium
Dividend Fund II
Preferred stocks -- which are the primary emphasis of John Hancock Patriot
Premium Dividend Fund II -- posted positive returns during the six-month
period ended April 30, 2004. An increasing number of companies that issued
preferred stocks in years when interest rates were higher redeemed those
older preferred stocks to take advantage of the lower interest rates that
prevailed during much of the period. While the preferred market was also
helped by a Treasury market rally in early March, a string of
stronger-than-expected monthly economic reports in April resulted in one of
the largest sell-offs in Treasuries in eight years, hurting preferred stock
prices.
Utility common stocks -- the Fund's other area of focus -- also performed
well during the period. Part of investors' renewed optimism was in reaction
to efforts by utilities to reduce debt, improve their financing and shed
money-losing unregulated subsidiaries. Like many preferreds, most utility
common stocks also benefited from increased investor interest in response
to federal dividend tax relief enacted in May 2003. Utilities traditionally
have offered consistently high dividends over the years.
"Preferred stocks...posted
positive returns during
the six-month period
ended April 30, 2004."
PERFORMANCE
For the six months ended April 30, 2004, John Hancock Patriot Premium
Dividend Fund II returned 6.58% at net asset value. By comparison, the
average income and preferred stock closed-end fund returned 4.53%,
according to Lipper, Inc. In the same six-month period, the Dow Jones
Utility Average -- which tracks the performance of 15 electric and natural
gas utilities --
2
returned 10.34%, and the broader stock market, as measured
by the Standard & Poor's 500 Index, returned 6.27%.
[Photos of Greg Phelps and Mark Maloney flush right next to first
paragraph.]
LEADERS AND LAGGARDS
Within the preferred-stock category, some of our best-performing holdings
were those issued by financial services companies. Lehman Brothers, for
example, performed quite well, fueled by strength in bond trading and
underwriting, stock sales and mergers. Merrill Lynch also performed well,
thanks to its strong credit rating compared with its brokerage services
group peers and enhanced earnings consistency resulting from what the
company termed "a diversity of revenues from multiple asset classes, client
segments and geographic regions." Bear Stearns benefited from increased
revenues and cost controls, which resulted in substantial improvement in
the company's profitability.
ENERGY STRONG
Preferred stocks issued by oil and natural gas companies also posted
positive returns during the period. In the post-September 11 era, energy
prices stayed high and, late in the period, began to climb, in part because
of a so-called "risk premium" for potential attacks both here and abroad.
Those high energy prices, in turn, helped boost the fortunes of holdings
such as Anadarko Petroleum, Apache, Devon Energy and Nexen.
"Within the preferred-stock
category, some of our best-
performing holdings were
those issued by financial
services companies."
High energy prices also helped some of our utility common stocks,
particularly Dominion Resources, which has significant oil and gas
operations. It also enjoyed strong results from its regulated electric
operation. The common stock of electric utility Alliant Energy also
performed well, boosted in large part by investors' enthusiasm over the
company's back-to-basics approach.
A disappointment during the period was Kansas City-based Aquila, a
multinational energy provider that has been trying to regain financial
stability after retreating from the wholesale
3
energy-trading markets that caused so many utilities pain in 2002.
Despite these problems, we continued to hold onto our stake in Aquila
because we believe the company is making positive steps toward reducing
its debt, strengthening its balance sheet and putting its energy-trading
problems behind it.
[Table at top left-hand side of page entitled "Top five industry groups 1."
The first listing is Utilities 69%, the second is Broker services 8%, the
third Oil & gas 6%, the fourth Banks - United States 6%, and the fifth
Finance 6%.
[Pie chart in middle of page with heading "Portfolio diversification 1."
The chart is divided into three sections (from top to left): Preferred
stock 64%, Common stock 34%, and Short-term investments & other 2%.]
OUTLOOK
April's Treasury market sell-off roiled all fixed-income markets,
including preferred stocks and so-called interest-rate-sensitive common
stocks such as utilities. Although the economy has heated up, we don't
think that the Federal Reserve Board will raise interest rates much
until the current recovery deepens and sustains itself for a bit longer
period of time. Granted, longer-term bond yields have risen as investors
worried about the prospects of future inflation, but the expected lack
of a significant near-term interest-rate hike should keep short-term
interest rates historically low, thereby making preferred stocks an
attractive alternative to shorter-term, lower-yielding money market and
Treasury securities. We believe the panic-driven sell-off in the
fixed-income markets in April should abate as the bargains it has
created slowly become apparent against the backdrop of a gradual- versus
aggressive-moving Federal Reserve. This should eventually help to
support tax-advantaged preferred stock values, as well as high
dividend-yielding commons, such as utilities. Utility common stocks have
other factors working in their favor as well, such as the potential for
more stable credit ratings and dividend payments.
4
[Table at top of page entitled "SCORECARD." The header for the left column
is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Lehman
Brothers followed by an up arrow with the phrase "Solid performer amid
strong earnings growth." The second listing is Dominion Resources followed
by an up arrow with the phrase "High energy prices help boost profits." The
third listing is Aquila followed by a down arrow with the phrase "Lingering
problems with energy trading causes concern."]
This commentary reflects the views of the portfolio management team through
the end of the Fund's period discussed in this report. The team's
statements reflect their own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as investment
advice or a recommendation regarding any specific security. They are also
subject to change at any time as market and other conditions warrant.
The Fund normally will invest more than 65% of its managed assets in
securities of companies in the utilities industry. Such an investment
concentration makes the Fund more susceptible than a more broadly
diversified fund to factors adversely affecting the utilities industry.
Sector investing is subject to greater risks than the market as a whole.
1 As a percentage of the Fund's portfolio on April 30, 2004.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
April 30, 2004
(unaudited)
This schedule is divided into three main categories: preferred stocks,
common stocks and short-term investments. The stocks are further broken
down by industry group. Short-term investments, which represent
the Fund's cash position, are listed last.
CREDIT
ISSUER, DESCRIPTION RATING** SHARES VALUE
PREFERRED STOCKS 102.16% $173,347,085
(Cost $169,932,271)
Agricultural Operations 1.96% 3,318,750
Ocean Spray Cranberries, Inc., 6.25%, (R) BB+ 44,250 3,318,750
Banks -- Foreign 2.09% 3,546,400
Royal Bank of Scotland Group Plc, 5.75%,
Ser B (United Kingdom) A1 155,000 3,546,400
Banks -- United States 9.05% 15,362,565
Bank America Corp., 6.75%, Ser VI A- 93,800 5,093,340
HSBC USA, Inc., $2.8575 A1 93,900 4,953,225
J.P. Morgan Chase & Co., 6.625%,
Depositary Shares, Ser H A- 100,000 5,316,000
Broker Services 12.99% 22,052,189
Bear Stearns Cos., Inc., 5.49%, Ser G A3 50,650 2,499,578
Bear Stearns Cos., Inc., 5.72%, Ser F A3 95,300 4,645,875
Bear Stearns Cos., Inc., 6.15%, Ser E BBB 84,000 4,460,400
Lehman Brothers Holdings, Inc., 5.67%,
Depositary Shares, Ser D BBB+ 124,800 6,308,640
Lehman Brothers Holdings, Inc., 5.94%, Ser C BBB+ 53,000 2,750,700
Merrill Lynch & Co., Inc., 9.00%, Depositary Shares, Ser A A- 52,300 1,386,996
Finance 8.88% 15,073,040
Citigroup, Inc., 6.213%, Ser G Aa3 96,000 5,053,440
Citigroup, Inc., 6.231%, Depositary Shares, Ser H Aa3 64,500 3,357,225
Citigroup, Inc., 6.365%, Depositary Shares, Ser F Aa3 28,500 1,491,975
SLM Corp., 6.97%, Ser A BBB+ 92,000 5,170,400
Leasing Companies 0.85% 1,441,000
AMERCO, 8.50%, Ser A D*** 55,000 1,441,000
Media 0.66% 1,114,145
Shaw Communications, Inc., 8.50% (Canada) B+ 44,300 1,114,145
See notes to
financial statements.
6
FINANCIAL STATEMENTS
CREDIT
ISSUER, DESCRIPTION RATING** SHARES VALUE
Oil & Gas 10.12% $17,166,305
Anadarko Petroleum Corp., 5.46%, Depositary Shares Baa3 47,700 4,674,600
Apache Corp., 5.68%, Depositary Shares, Ser B Baa2 51,500 5,188,625
Devon Energy Corp., 6.49%, Ser A BB+ 50,645 5,267,080
Nexen, Inc., 7.35% (Canada) BBB- 80,000 2,036,000
Telecommunications 0.71% 1,200,000
Touch America Holdings, Inc., $6.875 * BBB--*** 50,000 1,200,000
Utilities 54.85% 93,072,691
Alabama Power Co., 5.20% BBB+ 229,475 5,732,285
Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 30,000 3,210,000
Baltimore Gas & Electric Co., 6.70%, Ser 1993 BBB- 20,250 2,109,165
BGE Capital Trust II, 6.20% A3 191,000 4,620,290
Boston Edison Co., 4.78% A3 67,342 5,769,189
Carolina Power & Light Co., $4.20 Baa3 41,151 2,991,163
Carolina Power & Light Co., $5.44 Baa3 9,960 931,260
Coastal Finance I, 8.375% CCC- 165,000 3,506,250
Conectiv, Inc., 3.70% BBB- 13,109 893,870
Duquesne Light Co., 6.50% BB+ 32,000 1,587,200
El Paso Tennessee Pipeline Co., 8.25%, Ser A CCC- 186,000 8,805,947
Energy East Capital Trust I, 8.25% BBB- 180,700 4,772,287
Georgia Power Co., 6.00%, Ser R A 34,900 821,895
Idaho Power Co., 7.07% Baa2 14,000 1,452,500
Interstate Power & Light Co., 7.10%, Ser C BBB- 48,300 1,322,213
Monongahela Power Co., $6.28, Ser D CCC+ 24,931 1,994,480
Monongahela Power Co., $7.73, Ser L CCC+ 55,500 5,064,375
PPL Electric Utilities Corp., 4.40% BBB 22,040 1,809,484
PSI Energy, Inc., 6.875% BBB- 49,260 5,098,410
Public Service Electric & Gas Co., 4.18%, Ser B BB+ 10,587 831,080
Public Service Electric & Gas Co., 6.92% BB+ 47,998 5,017,293
Sierra Pacific Power Co., 7.80%, Ser 1 (Class A) CCC+ 200,986 4,421,692
South Carolina Electric & Gas Co., 6.52% Baa1 55,000 5,790,471
Southern Union Co., 7.55% Ba2 145,200 3,876,840
Virginia Electric & Power Co., $4.80 Baa2 5,438 457,132
Virginia Electric & Power Co., $6.98 BBB 35,000 3,664,062
Virginia Electric & Power Co., $7.05 BBB 10,000 1,047,500
Wisconsin Public Service Corp., 6.76% A 35,883 3,725,104
Xcel Energy, Inc., $4.08, Ser B BB+ 8,610 583,328
Xcel Energy, Inc., $4.11, Ser D BB+ 8,470 599,676
Xcel Energy, Inc., $4.16, Ser E BB+ 7,500 566,250
See notes to
financial statements.
7
FINANCIAL STATEMENTS
ISSUER, SHARES VALUE
COMMON STOCKS 54.55% $92,569,897
(Cost $97,262,362)
Telecommunications 0.00% 285
Touch America Holdings, Inc.* 57,000 285
Utilities 54.55% 92,569,612
Alliant Energy Corp. 199,900 4,969,514
Ameren Corp. 70,000 3,060,400
Aquila, Inc.* 247,500 1,051,875
CH Energy Group, Inc. 186,200 8,621,060
Cinergy Corp. 40,000 1,517,600
Consolidated Edison, Inc. 78,000 3,214,380
Dominion Resources, Inc. 79,700 5,085,657
DTE Energy Co. 193,500 7,550,370
Duke Energy Corp. 90,000 1,895,400
Energy East Corp. 330,000 7,771,500
KeySpan Corp. 205,700 7,436,055
National Fuel Gas Co. 70,700 1,731,443
NiSource, Inc. 133,550 2,692,368
Northeast Utilities 248,550 4,560,892
NSTAR 138,000 6,679,200
OGE Energy Corp. 137,632 3,310,050
Peoples Energy Corp. 70,200 2,934,360
Progress Energy, Inc. 79,000 3,378,830
Progress Energy, Inc. (Contingent Value Obligation) (A)* 176,250 51,113
Puget Energy, Inc. 130,400 2,863,584
Sierra Pacific Resources * 369,000 2,612,520
TECO Energy, Inc. 196,750 2,504,627
Vectren Corp. 30,000 724,500
WPS Resources Corp. 55,400 2,537,874
Xcel Energy, Inc. 228,000 3,814,440
See notes to
financial statements.
8
FINANCIAL STATEMENTS
INTEREST CREDIT PAR VALUE
ISSUER, MATURITY DATE RATE RATING** (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 2.42% $4,105,820
(Cost $4,105,820)
Commercial Paper 2.42%
ChevronTexaco Corp., 05-03-04 0.79% A-1+ $4,106 4,105,820
TOTAL INVESTMENTS 159.13% $270,022,802
OTHER ASSETS AND LIABILITIES, NET (59.13%) ($100,335,916)
TOTAL NET ASSETS 100.00% $169,686,886
* Non-income-producing security.
** Credit ratings are unaudited and rated by Standard & Poor's or Moody's Investors Service where Standard & Poor's
ratings are not available, unless indicated otherwise.
*** Security rated internally by John Hancock Advisers, LLC.
(A) This security is valued in good faith under procedures established by the Board of Trustees.
(R) This security is exempt from registration under rule 144A of the Securities Act of 1933. Such security may be
resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A security
amounted to $3,318,750 or 1.96% of the Fund's net assets as of April 30, 2004.
Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer.
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.
9
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
April 30, 2004
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes.
You'll also find
the net asset
value for each
common share.
ASSETS
Investments at value (cost $271,300,453) $270,022,802
Cash 546
Dividends receivable 931,235
Other assets 54,681
Total assets 271,009,264
LIABILITIES
Common shares dividend payable 978,025
Payable to affiliates
Management fees 179,097
Other 22,562
Other payables and accrued expenses 78,408
Total liabilities 1,258,092
Dutch Auction Rate Transferable Securities preferred
shares (DARTS) Series A, at value, unlimited number
of shares of beneficial interest authorized with no
par value, 500 shares issued, liquidation preference
of $100,000 per share 50,041,143
DARTS Series B, at value, unlimited number of shares of
beneficial interest authorized with no par value, 500
shares issued, liquidation preference of $100,000
per share 50,023,143
NET ASSETS
Common shares capital paid-in 168,429,346
Accumulated net realized gain on investments 178,885
Net unrealized depreciation of investments (1,277,651)
Accumulated net investment income 2,356,306
Net assets applicable to common shares $169,686,886
NET ASSET VALUE PER COMMON SHARE
Based on 15,046,539 shares of beneficial interest
outstanding -- unlimited number of shares
authorized with no par value $11.28
See notes to
financial statements.
10
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
April 30, 2004
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in operat-
ing the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends $7,803,290
Interest 24,649
Total investment income 7,827,939
EXPENSES
Investment management fees 1,069,745
DARTS auction fees 134,689
Administration fees 136,361
Federal excise tax 90,228
Custodian fees 30,439
Printing 23,927
Professional fees 23,151
Transfer agent fees 22,189
Registration and filing fees 15,975
Miscellaneous 14,294
Trustees' fees 8,608
Total expenses 1,569,606
Net investment income 6,258,333
REALIZED AND UNREALIZED GAIN
Net realized gain on investments 743,570
Change in net unrealized appreciation (depreciation)
of investments 4,135,298
Net realized and unrealized gain 4,878,868
Distributions to DARTS Series A (274,656)
Distributions to DARTS Series B (271,176)
Increase in net assets from operations $10,591,369
1 Semiannual period from 11-1-03 through 4-30-04.
See notes to
financial statements.
11
FINANCIAL STATEMENTS
CHANGES
IN NET ASSETS
These Statements
of Changes in
Net Assets show
how the value
of the Fund's
net assets has
changed during
the last two
periods. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses,
distributions, if
any, paid to
shareholders and
any increase or
decrease due
to the sales of
common shares.
YEAR PERIOD
ENDED ENDED
10-31-03 4-30-04 1
INCREASE IN NET ASSETS
From operations
Net investment income $13,096,281 $6,258,333
Net realized gain (loss) (21,584) 743,570
Change in net unrealized
appreciation (depreciation) 18,227,481 4,135,298
Distributions to DARTS Series A and B (1,260,360) (545,832)
Increase in net assets resulting
from operations 30,041,818 10,591,369
Distributions to common shareholders
From net investment income (15,322,365) (6,319,333)
From Fund share transactions 372,565 73,246
NET ASSETS
Beginning of period 150,249,586 165,341,604
End of period 2 $165,341,604 $169,686,886
1 Semiannual period from 11-1-03 through 4-30-04. Unaudited.
2 Includes accumulated net investment income of $2,963,138 and
$2,356,306, respectively.
See notes to
financial statements.
12
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
COMMON SHARES
The Financial Highlights show how the Fund's net asset value for a
share has changed since the end of the previous period.
PERIOD ENDED 10-31-99 10-31-00 10-31-01 10-31-02 10-31-03 4-30-04 1
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $13.23 $12.09 $12.24 $12.06 $10.01 $10.99
Net investment income 2 1.07 1.06 1.05 0.99 0.87 0.42
Net realized and unrealized
gain (loss) on investments (1.10) 0.21 (0.20) (2.14) 1.21 0.33
Distributions to DARTS
Series A and B (0.26) (0.31) (0.25) (0.12) (0.08) (0.04)
Total from
investment operations (0.29) 0.96 0.60 (1.27) 2.00 0.71
Less distributions to
common shareholders
From net investment income (0.85) (0.81) (0.78) (0.78) (1.02) (0.42)
Net asset value,
end of period $12.09 $12.24 $12.06 $10.01 $10.99 $11.28
Per share market value,
end of period $9.75 $10.13 $10.93 $9.40 $11.14 $10.05
Total return at
market value 3 (%) (13.16) 12.56 15.22 (7.55) 30.87 (6.32) 4
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to common
shares, end of period (in millions) $181 $184 $181 $150 $165 $170
Ratio of expenses
to average net assets 5 (%) 1.74 1.85 1.78 1.91 1.91 1.81 6
Ratio of net investment income
to average net assets 7 (%) 8.29 9.13 8.46 8.66 8.45 7.22 6
Portfolio turnover (%) 26 18 27 10 9 7
SENIOR SECURITIES
Total DARTS Series A outstanding
(in millions) $50 $50 $50 $50 $50 $50
Total DARTS Series B outstanding
(in millions) $50 $50 $50 $50 $50 $50
Involuntary liquidation preference
DARTS Series A per unit
(in thousands) $100 $100 $100 $100 $100 $100
Involuntary liquidation preference
DARTS Series B per unit
(in thousands) $100 $100 $100 $100 $100 $100
Average market value
per unit (in thousands) $100 $100 $100 $100 $100 $100
Asset coverage per unit 8 $286,177 $283,629 $283,166 $247,689 $264,239 $276,932
See notes to
financial statements.
13
Notes to Financial Highlights
1 Semiannual period from 11-1-03 through 4-30-04. Unaudited.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment.
4 Not annualized.
5 Ratios calculated on the basis of expenses relative to the average net
assets for common shares. Without the exclusion of preferred shares, the
ratio of expenses would have been 1.14%, 1.17%, 1.16%, 1.20%, 1.16% and
1.15%, respectively.
6 Annualized.
7 Ratios calculated on the basis of net investment income relative to the
average net assets of common shares. Without the exclusion of preferred
shares, the ratio of net investment income would have been 5.46%, 5.80%,
5.50%, 5.46%, 5.14% and 4.59%, respectively.
8 Calculated by subtracting the Fund's total liabilities from the Fund's total
assets and dividing that amount by the number of DARTS outstanding as of the
applicable 1940 Act Evaluation Date, which may differ from the financial
reporting date.
See notes to
financial statements.
14
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Patriot Premium Dividend Fund II (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.
Discount and premium
on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over
the life of the security.
Expenses
The majority of expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund are
allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
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 that is distributed to
shareholders. Therefore, no federal income tax provision is required.
The Fund paid $90,228 of federal excise tax due to calendar year
distribution requirements. For federal income tax purposes, the Fund has
$555,078 of a capital loss carryforward available, to the extent
provided by regulations, to offset future net realized capital gains. To
the extent that such carryforward is used by the Fund, no capital gain
distributions will be made. The loss carryforward expires as follows:
October 31, 2010 -- $533,811 and October 31, 2011 -- $21,267.
Dividends, interest
and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
15
The Fund records distributions to common and preferred shareholders from
net investment income and realized gains on the ex-dividend date.
Such distributions, on a tax basis, are determined in conformity with
income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Distributions in
excess of tax basis earnings and profits, if any, are reported in the
Fund's financial statements as a return of capital.
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 amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with John Hancock
Advisers, LLC (the "Adviser"), a wholly owned subsidiary of John Hancock
Financial Services, Inc. Under the investment management contract, the
Fund pays a monthly management fee to the Adviser at an annual rate of
0.50% of the Fund's average weekly net assets and the value attributable
to the DARTS, plus 5.00% of the Fund's weekly gross income. The
Adviser's total fee is limited to a maximum amount equal to 1.00%
annually of the Fund's average weekly net assets and the value
attributable to the DARTS. For the period ended April 30, 2004 the
advisory fee incurred did not exceed the maximum advisory fee allowed.
The Fund has an administrative agreement with the Adviser under which
the Adviser oversees the custodial, auditing, valuation, accounting,
legal, stock transfer and dividend disbursing services and maintains
Fund communications with the shareholders. The Fund pays the Adviser a
monthly administration fee at an annual rate of 0.10% of the Fund's
average weekly net assets plus the value attributable to the preferred
shares.
Mr. James A. Shepherdson is a director and/or officer of the Adviser
and/or its affiliates, as well as Trustee 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 Deferred Compensation Plan
investments had no impact on the operations of the Fund.
16
NOTE C
Fund share transactions
Common shares
This listing illustrates the dividend reinvestments, the
reclassification of the Fund's capital accounts and the number of common
shares outstanding at the beginning and end of the last two periods,
along with the corresponding dollar value.
YEAR ENDED 10-31-03 PERIOD ENDED 4-30-04 1
SHARES AMOUNT SHARES AMOUNT
Beginning of period 15,002,724 $168,078,401 15,039,985 $168,356,100
Distributions reinvested 37,261 372,565 6,554 73,246
Reclassification of
capital accounts -- (94,866) -- --
End of period 15,039,985 $168,356,100 15,046,539 $168,429,346
1 Semiannual period from 11-1-03 through 4-30-04. Unaudited.
Dutch Auction Rate
Transferable Securities
preferred shares Series A
and Series B
The Fund issued Dutch Auction Rate Transferable Securities preferred
shares ("DARTS"), 598 shares of Series A and 598 shares of Series B in a
public offering. The underwriting discount was recorded as a reduction
of the capital of common shares. During the year ended October 31, 1990,
the Fund retired 98 shares of DARTS from both Series A and Series B.
Dividends on the DARTS, which accrue daily, are cumulative at a rate
that was established at the offering of the DARTS and has been reset
every 49 days thereafter by an auction. Dividend rates on DARTS Series A
and B ranged from 1.07% to 1.14% and from 1.00% to 1.17%, respectively,
during the period ended April 30, 2004. Accrued dividends on DARTS are
included in the value of DARTS on the Fund's Statement of Assets and
Liabilities.
The DARTS 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 DARTS 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 DARTS, as defined in the
Fund's by-laws. If the dividends on the DARTS shall remain unpaid in an
amount equal to two full years' dividends, the holders of the DARTS, as
a class, have the right to elect a majority of the Board of Trustees. In
general, the holders of the DARTS and the common shareholders have equal
voting rights of one vote per share, except that the holders of the
DARTS, 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 DARTS and common shareholders.
NOTE D
Investment
transactions
Purchases and proceeds from sales and maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the period ended April 30, 2004, aggregated $29,124,818 and
$18,784,139, respectively.
The cost of investments owned on April 30, 2004, including short-term
investments, for federal income tax
17
purposes was $271,310,009. Gross unrealized appreciation and
depreciation of investments aggregated $21,916,691 and $23,203,898
respectively, resulting in net unrealized depreciation of $1,287,207.
The difference between book basis and tax basis net unrealized
depreciation of investments is attributable primarily to the tax
deferral of losses on certain sales of securities.
18
INVESTMENT OBJECTIVE AND POLICY
The Fund's investment objective is to provide a high current income
consistent with modest growth of capital for holders of its common
shares of beneficial interest. The Fund will pursue its objective by
investing in a diversified portfolio of dividend paying preferred and
common stocks.
The Fund's non-fundamental investment policy, with respect to the
quality of ratings of its portfolio investments, was changed by a vote
of the Fund's Trustees on September 13, 1994. The policy, which became
effective October 15, 1994, stipulates that preferred stocks and debt
obligations in which the Fund will invest will be rated investment-grade
(at least "BBB" by S&P or "Baa" by Moody's) at the time of investment or
will be preferred stocks of issuers of investment grade senior debt,
some of which may have speculative characteristics, or, if not rated,
will be of comparable quality as determined by the Adviser. The Fund
will invest in common stocks of issuers whose senior debt is rated
investment-grade or, in the case of issuers that have no rated senior
debt outstanding, whose senior debt is considered by the Adviser to be
of comparable quality. The policy supersedes the requirement that at
least 80% of the Fund's total assets consist of preferred stocks and
debt obligations rated "A" or higher and dividend-paying common stocks
whose issuers have senior debt rated "A" or higher.
On November 20, 2001, the Fund's Trustees approved the following
investment policy investment restriction change, effective December 15,
2001. Under normal circumstances the Fund will invest at least 80% of
its assets in dividend-paying securities. The "Assets" are defined as
net assets including the liquidation preference amount of the DARTS plus
borrowings for investment purposes. The Fund will notify shareholders at
least 60 days prior to any change in this 80% investment policy.
BY-LAWS
In November 2002, the Board of Trustees adopted several amendments to
the Fund's by-laws, including provisions relating to the calling of a
special meeting and requiring advance notice of shareholder proposals or
nominees for Trustee. The advance notice provisions in the by-laws
require shareholders to notify the Fund in writing of any proposal that
they intend to present at an annual meeting of share- holders, including
any nominations for Trustee, between 90 and 120 days prior to the first
anniversary of the mailing date of the notice from the prior year's
annual meeting of shareholders. The notification must be in the form
prescribed by the by-laws. The advance notice provisions provide the
Fund and its Trustees with the opportunity to thoughtfully consider and
address the matters proposed before the Fund prepares and mails its
proxy statement to shareholders. Other amendments set forth the
procedures that must be followed in order for a shareholder to call a
special meeting of shareholders. Please contact the Secretary of the
Fund additional information about the advance notice requirements or the
other amendments to the by-laws.
Effective December 16, 2003, the Trustees approved additional changes to
the Fund's by-laws. The changes included updating the leveraged rating
agency requirements, in keeping with recent changes to the agencies'
basic maintenance reporting requirements for leveraged closed-end funds.
In addition, changes were made to reflect recent updates that Moody's
made to some of their eligible asset and discount factors. These
revisions bring the Fund's by-laws in line with current rating agency
requirements.
DIVIDEND
REINVESTMENT PLAN
The Fund offers its shareholders a Dividend Reinvestment Plan (the
19
"Plan"), which offers the opportunity to earn compounded yields. Each
holder of common shares may elect to have all distributions of dividends
and capital gains reinvested by Mellon Investor Services, as plan agent
for the common shareholders (the "Plan Agent"). Holders of common shares
who do not elect 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 may join the Plan by filling out and mailing an
authorization card, by notifying the Plan Agent by telephone, or by
visiting the Plan Agent's Web site at www.melloninvestor.com.
Shareholders must indicate an election to reinvest all or a portion of
dividend payments. If received in proper form by the Plan Agent before
the record date of a dividend, the election will be effective with
respect to all dividends paid after such record date. 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.
If the Fund declares a dividend payable either in common shares or in
cash, non-participants will receive cash and participants in the Plan
will receive the equivalent in common shares. If the market price of the
common shares on the payment date of the dividend is equal to or exceeds
their net asset value as determined on the payment date, participants
will be issued common shares (out of authorized but unissued shares) at
a value equal to the higher of net asset value or 95% of the market
price. If the net asset value exceeds the market price of the common
shares at such time, or if the Board of Trustees declares a dividend
payable only in cash, the Plan Agent will, as agent for Plan
participants, buy shares in the open market, on the New York Stock
Exchange or elsewhere, for the participants' accounts. Such purchases
will be made promptly after the payable date for such dividend and, in
any event, prior to the next ex-dividend date after such date, except
where necessary to comply with federal securities laws. If, before the
Plan Agent has completed its purchases, the market price exceeds the net
asset value of the common shares, the average per share purchase price
paid by the Plan Agent may exceed the net asset value of the common
shares, resulting in the acquisition of fewer shares than if the
dividend had been paid in shares issued by the Fund.
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 plus the cost of any shares
issued by the Fund. There will be no brokerage charges with respect to
common shares issued directly by the Fund. There are no other charges to
participants for reinvesting dividends or capital gain distributions.
Participants in the Plan may withdraw from the Plan at any time by
contacting the Plan Agent by telephone, in writing or by visiting the
Plan Agent's Web site at www.melloninvestor.com. 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
20
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. The Plan Agent will hold common shares in the account
of each Plan participant in noncertificated 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.
The 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. Participants under
the Plan will receive tax information annually. The amount of dividend
to be reported on 1099-DIV should be (1) in the case of shares issued by
the Fund, the fair market value of such shares on the dividend payment
date and (2) in the case of shares purchased by the Plan Agent in the
open market, the amount of cash used by the Plan Agent to purchase
shares in the open market, including the amount of cash allocated to
brokerage commissions paid on such purchases.
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 after at least 90 days'
written notice to all shareholders of the Fund. All correspondence or
additional information concerning the Plan should be directed to the
Plan Agent, Mellon Bank, N.A., c/o Mellon Investor Services, P.O. Box
3338, South Hackensack, NJ 07606-1938 (telephone 1-800-852-0218).
SHAREHOLDER
COMMUNICATION
AND ASSISTANCE
If you have any questions concerning the 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:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone 1-800-852-0218
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
21
SHAREHOLDER MEETING
On March 18, 2004, the Annual Meeting of the Fund was held to elect
three Trustees and to ratify the actions of the Trustees in selecting
independent auditors for the Fund.
Proxies covering 14,373,407 shares of beneficial interest were voted at the
meeting. The common shareholders elected the following Trustees to serve
until their respective successors are duly elected and qualified (there
were no current nominees for election by the preferred shareholders), with
the votes tabulated as follows:
WITHHELD
FOR AUTHORITY
-----------------------------------------------------------------------
Patti McGill Peterson 14,204,693 167,879
Steven Pruchansky 14,221,547 151,025
Norman H. Smith 14,204,936 167,636
The common and preferred shareholders ratified the Trustees' selection
of Deloitte & Touche LLP as the Fund's independent auditors for the
fiscal year ending October 31, 2005, with the votes tabulated as
follows: 14,264,629 FOR, 33,128 AGAINST and 75,650 ABSTAINING.
22
23
24
FOR YOUR
INFORMATION
TRUSTEES
James F. Carlin
William H. Cunningham
Ronald R. Dion
Charles L. Ladner*
Dr. John A. Moore*
Patti McGill Peterson*
Steven R. Pruchansky
James A. Shepherdson
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
James A. Shepherdson
President and Chief Executive Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President and Secretary
William H. King
Vice President and Treasurer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND DISBURSER
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
TRANSFER AGENT
FOR DARTS
Deutsche Bank Trust Company Americas
280 Park Avenue
New York, New York 10017
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
STOCK SYMBOL
Listed New York Stock Exchange: PDT
For shareholder assistance refer to page 21
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Customer service
representatives 1-800-852-0218
Portfolio commentary 1-800-344-7054
24-hour automated information 1-800-843-0090
TDD Line 1-800-231-5469
The Fund's voting policies and procedures are available without charge,
upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site www.sec.gov
25
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-852-0218
1-800-843-0090 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
---------------
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
---------------
P20SA 4/04
6/04
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The registrant has adopted procedures by which shareholders may recommend
nominees to the registrant's Board of Trustees. A copy of the procedures is
filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds -
Administration Committee Charter".
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's principal executive officer and principal financial officer
have concluded that those disclosure controls and procedures provide
reasonable assurance that the material information required to be disclosed by
the registrant on this report is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report)
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act
of 1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The
certifications furnished pursuant to this paragraph are not deemed to be
"filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section. Such certifications are
not deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Registrant specifically incorporates them by reference.
(c)(1) Submission of Matters to a Vote of Security Holders is attached. See
attached "John Hancock Funds - Administration Committee Charter".
(c)(2) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Patriot Premium Dividend Fund II
By:
---------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: June 24, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:
---------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: June 24, 2004
By:
---------------------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: June 24, 2004