<PAGE> 1
JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
TAX-EXEMPT
INCOME
FUND
SEMI-ANNUAL REPORT
June 30, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Bayard Henry*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Thomas C. Goggins
Senior Vice President
James K. Ho
Senior Vice President
Andrew F. St. Pierre
Senior Vice President
John A. Morin
Vice President
Susan S. Newton
Vice President, Assistant Secretary and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Educating shareholders has always been one of the most important
responsibilities of a mutual fund company. But that challenge has taken on new
significance in the past several years. Looking at the most recent statistics,
you can see why. According to the Investment Company Institute, the mutual fund
industry now manages more than $2.3 trillion for investors. More than half of
that money has come into mutual funds in just the last four years. Today, there
are more than 95 million mutual fund shareholder accounts. That's up from 12
million in 1980. These are people, like you, who are investing in mutual funds
to save for a home, to send their children to college or to build a nest egg for
a comfortable retirement. This explosive growth, coupled with the growing
complexity of the financial landscape, has made all of us in the mutual fund
industry work harder to inform our shareholders.
At John Hancock Funds, we strive to educate you about all aspects of your
fund: the performance, the strategies and the holdings. We want you to fully
understand what you own. We want you to have realistic expectations of the
potential rewards as well as the potential risks of your investment. These
shareholder reports -- which we send you twice a year -- are the best way to
give you the most in-depth and up-to-date information.
In the message that follows, the portfolio manager gives a candid commentary
on the market environment; the factors that affected performance; the Fund's
current investment strategies; and the outlook for the months ahead.
The ensuing financial statements provide a comprehensive look at the fund's
statistics and holdings.
We hope you find these shareholder reports a useful tool in evaluating your
investments. Of course, if you have any questions or need more information, feel
free to call one of our customer service representatives on our toll-free line
at 1-800-225-5291, from 8:00 a.m. to 8:00 p.m. eastern time, Monday through
Friday.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY THOMAS C. GOGGINS, SENIOR VICE PRESIDENT AND
PORTFOLIO MANAGER
JOHN HANCOCK
TAX-EXEMPT INCOME FUND
MUNICIPAL BOND MARKET BUOYED BY FALLING INTEREST RATES,
STRONGER DEMAND; DIMINISHED SUPPLY COULD HELP EXTEND RALLY
In May 1995, Thomas C. Goggins became portfolio manager of John Hancock
Tax-Exempt Income Fund. Mr. Goggins is senior vice president at John Hancock
Funds and heads up the company's team of municipal bond portfolio managers and
analysts. He is also a member of the portfolio management team of John Hancock
Tax-Free Bond Fund.
[A 2 1/4" x 3" photo of Thomas C. Goggins at bottom right. Caption reads:
"Thomas C. Goggins, Portfolio Manager."]
After being battered by higher interest rates and weak demand during most of
1994, municipal bonds reversed course during the first half of 1995 and enjoyed
one of their strongest periods of the decade. Beginning in January, the economy
appeared to be slowing and inflation was low. As a result, investors became less
worried that the Federal Reserve Board would continue its 1994 policy of raising
short-term interest rates. An added positive was that demand for municipal bonds
started to strengthen, bucking up against limited supply. All in all, municipals
were the top performing fixed-income category during the first quarter of this
year.
In the second quarter, however, municipals hit a few bumps. One was talk of a
flat tax in April, which if enacted, would eliminate the tax-free advantage
municipals now enjoy. In our view, however, it's unlikely that a flat tax will
ever be enacted, and the market appears to have overreacted. Later in the
quarter, voters in Orange County, California failed to pass a tax
[CAPTION]
"...MUNICIPAL BONDS REVERSED
COURSE DURING THE FIRST HALF OF 1995..."
3
<PAGE> 4
John Hancock Funds - Tax-Exempt Income Fund
[Chart with heading "Top Five Sectors" at top of left hand column. The chart
has five listings: 1) Electric Utilities 19% 2) Transportation 16% 3) Health
Care 13% 4) Pollution Control 11% 5) Industrial Revenue 10%. Footnote below
reads "As a percentage of net assets on June 30, 1995".]
bill intended to pay for the county's 1994 investment losses. These events
cast a slight pall over the municipal market, but not enough to eliminate its
earlier gains.
A LOOK AT PERFORMANCE
For the six months ended June 30, 1995, John Hancock Tax-Exempt Income Fund's
Class A and Class B shares posted returns of 8.29% and 7.76%, respectively, at
net asset value. That was a shade below the average general municipal bond
fund's return of 9.01% for the same period, according to Lipper Analytical
Services.(1)
The primary factor in the Fund's performance was its duration. Duration
measures a fund's price volatility for a given change in interest rates. The
longer a fund's duration, the more sensitive its share price is to interest rate
changes. For most of the period, the Fund's duration was largely similar to that
of many other funds of its type.
Toward the end of the period, there wasn't much difference in yield between
short- and long-term bonds. In other words, the yield curve was relatively flat.
So there was little incentive for investors to take on the added interest-rate
risk of longer-term bonds. For this reason we sold some longer-term bonds and
replaced them with shorter-term bonds. The net effect was a shorter duration for
the Fund. Going forward, we will actively manage duration, shortening and
lengthening as market conditions warrant.
FOCUS ON SECTORS
During the period, we built up our weighting in health-care bonds to nearly 13%.
While the health-care industry has recently been faced with a number of
competitive and cost pressures, we continue to like health-care bonds because of
their attractive yields. Using careful analysis and research, we look for
hospitals with strong participation from health-maintenance organizations and
low cost structures. We think that these are the key to finding the hospitals
which will be the winners in this more competitive environment.
More recently, we've found opportunities in electric utility bonds, which
make up the Fund's largest sector concentration at about 19% of assets. Many
investors shunned these bonds last year due to worries about increased
competition in the utility industry. After they had fallen to quite attractive
levels, we stepped in and start buying these bonds. In our view, true
competition is a lot farther off than the municipal market has taken into
account. North Carolina Eastern Municipal Power Agency was one addition to this
sector.
[Table entitled "Municipal Snapshot" at bottom of left hand column. The header
for the left column is "Category"; the header for the right hand column is
"Trend....and what's driving it." The first listing is "Long Maturity bonds"
followed by an up arrow and the phrase "Falling interest rates in first
quarter." The second listing is "Health care bonds" followed by a down arrow and
the phrase "Competition and cost pressure." The third listing is "Market
conditions" followed by an up arrow and the phrase "Decreased bond supply;
constant demand." Footnote below reads "See "Schedule of Investments."
Investment holdings are subject to change."]
[CAPTION]
"...WE'VE FOUND OPPORTUNITIES IN ELECTRIC UTILITY BONDS..."
4
<PAGE> 5
John Hancock Funds - Tax-Exempt Income Fund
[Bar chart with heading "Fund Performance" at the top of the left hand column.
Under the heading is the footnote "For the six months ended June 30, 1995." The
chart is scaled in increments of 2% from bottom to top, with 10% at the top and
0% at the bottom. Within the chart, there are three solid bars. The first
represents the 8.29% total return for John Hancock Tax-Exempt Income Fund: Class
A. The second represents the 7.76% total return for John Hancock Tax-Exempt
Income Fund: Class B. The third represents the 9.01% total return for the
average general municipal bond fund. Footnote below reads: "Total returns for
John Hancock Tax-Exempt Income Fund are at net asset value with all
distributions reinvested. The average general municipal bond fund is tracked by
Lipper Analytical Services.(1) See following page for historical performance
information."]
OUTLOOK
Continued debate about various tax reform proposals could add volatility to the
municipal market in the months to come. But as we mentioned earlier, we don't
believe that the flat tax proposal -- the one which would most negatively impact
municipal bonds -- is likely to be enacted.
Looking foward, we remain optimistic about the municipal bond market. One
reason is the long-term trend toward diminished supply of municipal bonds.
That's because municipalities aren't planning as many capital projects as voters
become more reluctant to pay for them with higher taxes. What's more, many of
the municipalities that could refinance their borrowings of the high-flying
'80's at lower rates have already done so. Let's take a look at the numbers. In
1993, municipal bond supply stood at $292 billion. By 1994, supply had fallen
off by about half the previous year's level and it's expected to be about $120
billion by the end of 1995. Decreasing supply and constant demand should be a
positive for the municipal bond market. In addition, municipal bonds continue to
offer a relatively attractive after-tax yield, which may attract new investors.
In our view, the economy is growing slowly but steadily. It's not in any real
danger of overheating or dipping into a recession. Therefore, we believe that
inflation will stay low and interest rates will stabilize. As a result, the bulk
of the municipal bond market's performance will come from income, rather than
big price gains. So we'll continue to look for opportunities to improve and
enhance the Fund's yield.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is lower.
[CAPTION]
"DECREASING SUPPLY AND CONSTANT DEMAND SHOULD BE A POSITIVE..."
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for John Hancock Tax-Exempt Income Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the fund's shares, expressed as a percentage of the fund's share.
Performance figures include the maximum applicable sales charge of 4.5% for
Class A shares. The effect of the maximum contingent deferred sales charge for
Class B shares (maximum 5% and declining to 0% over six years) is included in
Class B performance. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, keep in mind
that the total return and share price of the Fund's investments will fluctuate.
As a result, your Fund's shares may be worth more or less than their original
cost depending on when you sell them.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS(1) TEN YEARS
---- -------- -----------
<S> <C> <C> <C>
Tax-Exempt Income Fund: Class A(2) 2.07% 37.01% 123.36%
Tax-Exempt Income Fund: Class B(2) 1.08% (2.97%) N/A
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS(1)
---- ----- -----------
<S> <C> <C> <C>
Tax-Exempt Income Fund: Class A(2) 2.07% 6.50% 8.37%
Tax-Exempt Income Fund: Class B(2) 1.08% (2.00%) N/A
</TABLE>
YIELDS
AS OF JUNE 30, 1995
<TABLE>
<CAPTION>
SEC 30-DAY
YIELD
----------
<S> <C>
Tax-Exempt Income Fund: Class A 4.58%
Tax-Exempt Income Fund: Class B 3.86%
</TABLE>
NOTES TO PERFORMANCE
(1) Class B shares started on January 3, 1994.
(2) Performance is affected by a 12b-1 plan, which commenced on March 24, 1987
and January 3, 1994 for both Class A and Class B shares, respectively.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Tax-Exempt Income Fund would be worth on June 30, 1995, assuming you have been
invested for the past ten years or since the day each class of shares started
and have reinvested all distributions. For comparison, we've shown the same
$10,000 investment in the Lehman Brothers Municipal Bond Index -- an unmanaged
index that includes approximately 15,000 bonds and is commonly used as a measure
of bond performance.
[John Hancock Tax-Exempt Income Fund
Class A shares
Line chart with the heading John Hancock Tax-Exempt Income Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the Lehman Brothers Municipal Bond Index
and is equal to $24,053 as of June 30, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the John Hancock Tax-Exempt
Income Fund on June 30, 1985, before sales charge, and is equal to $23,398 as
of June 30, 1995. The third line represents the John Hancock Tax-Exempt Income
Fund after sales charge and is equal to $22,336 as of June 30, 1995.
John Hancock Tax-Exempt Income Fund
Class B shares
Line chart with the heading John Hancock Tax-Exempt Income Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the Lehman Brothers Municipal Bond Index
and is equal to $10,398 as of June 30, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the John Hancock Tax-
Exempt Income Fund on January 3, 1994, before contingent deferred sales charge,
and is equal to $10,103 as of June 30, 1995. The third line represents the
John Hancock Tax-Exempt Income Fund after contingent deferred sales charge and
is equal to $9,703 as of June 30, 1995.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income 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 JUNE 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Tax-exempt long-term bonds
(cost - $472,996,737) ................................ $ 490,523,151
Receivable for shares sold ............................... 12,993
Receivable for investments sold .......................... 28,264,238
Interest receivable ...................................... 9,785,142
Segregated assets for financial futures contracts ........ 240,000
-------------
Total Assets .......................... 528,825,524
------------------------------------------------------------
LIABILITIES:
Temporary overdraft of cash .............................. 3,639,215
Dividend payable ......................................... 75,420
Payable for shares repurchased ........................... 349
Payable for investments purchased ........................ 35,925,371
Payable for variation margin ............................. 47,525
Payable to John Hancock Advisers, Inc. ...................
and affiliates - Note B ................................ 329,777
Accounts payable and accrued expenses .................... 62,363
-------------
Total Liabilities ..................... 40,080,020
------------------------------------------------------------
NET ASSETS:
Capital paid-in .......................................... 479,123,013
Accumulated net realized loss on investments
and financial futures contracts ........................ (7,876,719)
Net unrealized appreciation of investments and
financial futures contracts ............................ 17,496,414
Undistributed net investment income ...................... 2,796
-------------
Net Assets ............................ $ 488,745,504
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $482,569,978/46,017,696 ....................... $ 10.49
=============================================================================
Class B - $6,175,526/589,097 ............................ $ 10.48
=============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($10.49 x 104.71%) ............................ $ 10.98
=============================================================================
<FN>
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
</TABLE>
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.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest ................................................. $ 16,171,176
------------
Expenses:
Investment management fee - Note B ..................... 1,335,649
Distribution/service fee - Note B
Class A ............................................... 720,925
Class B ............................................... 25,495
Transfer agent fee - Note B
Class A ............................................... 401,343
Class B ............................................... 7,221
Custodian fee .......................................... 70,892
Registration and filing fees ........................... 33,031
Printing ............................................... 25,297
Trustees' fees ......................................... 23,310
Auditing fee ........................................... 21,379
Legal fees ............................................. 4,232
Miscellaneous .......................................... 5,942
------------
Total Expenses ........................ 2,674,716
------------------------------------------------------------
Less Expense Reductions -
Note B ................................ (24,573)
------------------------------------------------------------
Net Expenses .......................... 2,650,143
------------------------------------------------------------
Net Investment Income ................. 13,521,033
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FINANCIAL FUTURES CONTRACTS:
Net realized loss on investments sold .................... (388,762)
Net realized loss on financial futures contracts ......... (4,014,075)
Change in net unrealized appreciation/depreciation
of investments ......................................... 28,211,528
Change in net unrealized appreciation/depreciation
of financial futures contracts ......................... 965,312
------------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts ........... 24,774,003
------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............. $ 38,295,036
============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............................................................... $ 13,521,033 $ 27,304,035
Net realized loss on investments sold and financial futures contracts ............... (4,402,837) (3,466,027)
Change in net unrealized appreciation/depreciation of investments ................... 29,176,840 (55,445,616)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................... 38,295,036 (31,607,608)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.2879 and $0.5664 per share, respectively) ........................... (13,400,143) (27,204,549)
Class B** - ($0.2461 and $0.4918 per share, respectively) ......................... (120,890) (99,486)
Distributions from net realized gain on investments sold
and financial futures contracts
Class A - (none and $0.0296 per share, respectively) .............................. -- (1,428,226)
Class B** - (none and $0.0296 per share, respectively) ............................ -- (2,933)
------------ ------------
Total Distributions to Shareholders ............................................... (13,521,033) (28,735,194)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* ................................................. (7,477,289) (9,489,468)
------------ ------------
NET ASSETS:
Beginning of period ................................................................. 471,448,790 541,281,060
------------ ------------
End of period (including undistributed net investment income of $2,796, applicable
for both periods) ................................................................. $488,745,504 $471,448,790
============ ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS A ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold..................................................... 2,062,703 $21,719,394 3,878,999 $40,763,217
Shares issued to shareholders in reinvestment of distributions.. 1,018,721 10,638,868 2,197,798 22,752,848
---------- ------------ ---------- ------------
3,081,424 32,358,262 6,076,797 63,516,065
Less shares repurchased......................................... (4,009,709) (41,814,439) (7,437,864) (77,172,631)
---------- ------------ ---------- ------------
Net decrease.................................................... (928,285) ($ 9,456,177) (1,361,067) ($13,656,566)
========== ============ ========== =============
CLASS B**
Shares sold..................................................... 198,803 $ 2,072,701 423,780 $ 4,427,932
Shares issued to shareholders in reinvestment of distributions.. 8,200 85,754 8,004 81,368
---------- ------------ ---------- ------------
207,003 2,158,455 431,784 4,509,300
Less shares repurchased......................................... (17,111) (179,567) (32,579) (342,202)
---------- ------------ ---------- ------------
Net increase.................................................... 189,892 $ 1,978,888 399,205 $ 4,167,098
========== ============ ========== ============
<FN>
** Class B shares commenced operations on January 3, 1994.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
periods indicated, investment returns, key ratios, and supplemental data are as
follows:
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 -----------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
---------------- -------- -------- -------- -------- --------
CLASS A
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........... $ 9.96 $ 11.21 $ 10.96 $ 11.01 $ 10.59 $ 10.68
-------- -------- -------- -------- -------- --------
Net Investment Income .......................... 0.29 0.57 0.58 0.63 0.68 0.68
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts .. 0.53 (1.22) 0.66 0.26 0.57 (0.05)
-------- -------- -------- -------- -------- --------
Total from Investment Operations ............ 0.82 (0.65) 1.24 0.89 1.25 0.63
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ......... (0.29) (0.57) (0.58) (0.63) (0.68) (0.68)
Distributions from Net Realized Gain on
Investments Sold and Financial Futures
Contracts .................................. -- (0.03) (0.41) (0.31) (0.15) (0.04)
-------- -------- -------- -------- -------- --------
Total Distributions ......................... (0.29) (0.60) (0.99) (0.94) (0.83) (0.72)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ................. $ 10.49 $ 9.96 $ 11.21 $ 10.96 $ 11.01 $ 10.59
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value ..... 8.29%(b) (5.90%) 11.53% 8.35% 12.18% 6.15%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's Omitted) ...... $482,570 $467,475 $541,281 $481,730 $422,311 $377,738
Ratio of Expenses to Average Net Assets ........ 1.08%* 1.11% 1.27% 1.28% 1.21% 1.23%
Ratio of Net Investment Income to Average
Net Assets ................................... 5.58%* 5.43% 5.06% 5.71% 6.23% 6.43%
Portfolio Turnover Rate ........................ 76% 74% 81% 93% 56% 59%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: 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.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
Financial Highlights (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1994
(COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS)
JUNE 30, 1995 TO DECEMBER 31,
(UNAUDITED) 1994
CLASS B ---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........................................................ $ 9.95 $ 11.17(a)
------ ------
Net Investment Income ....................................................................... 0.25 0.49
Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts ...... 0.53 (1.19)
------ ------
Total from Investment Operations ......................................................... 0.78 (0.70)
------ ------
Less Distributions:
Dividends from Net Investment Income ...................................................... (0.25) (0.49)
Distributions from Net Realized Gain on Investments Sold and Financial Futures Contracts... -- (0.03)
------ ------
Total Distributions ...................................................................... (0.25) (0.52)
------ ------
Net Asset Value, End of Period .............................................................. $ 10.48 $ 9.95
====== ======
Total Investment Return at Net Asset Value .................................................. 7.76%(b) (6.23%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's Omitted) ................................................... $6,176 $ 3,974
Ratio of Expenses to Average Net Assets ..................................................... 1.90%* 1.83%*
Ratio of Net Investment Income to Average Net Assets ........................................ 4.75%* 4.88%*
Portfolio Turnover Rate ..................................................................... 76% 74%
<FN>
* On an annualized basis.
(a) Initial price to commence operations.
(b) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
TAX-EXEMPT INCOME FUND ON JUNE 30, 1995. THE TAX-EXEMPT LONG-TERM BONDS ARE
FURTHER BROKEN DOWN BY STATE. UNDER EACH STATE IS A LIST OF THE SECURITIES OWNED
BY THE FUND.
<TABLE>
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
ALABAMA (0.41%)
Birmingham, City of,
GO Ref Ser 1985............................................... 9.800% 10/01/11 AA $ 1,920 $ 1,983,629 9.49%
------------
ALASKA (1.04%)
Alaska Housing Finance Corp,
Ins Mtg Prog 1990 1St Ser..................................... 7.750 12/01/14 A+ 1,000 1,062,870 7.29
Ins Mtg Prog 1990 1St Ser..................................... 7.800 12/01/30 A+ 1,380 1,447,813 7.43
Alaska, State of,
Cert of Part in Rent 1995 Ser A............................... 9.700 10/01/07 AA+ 2,500 2,587,125 9.37
------------
5,097,808
------------
ARIZONA (1.13%)
Phoenix, City of,
GO Ref Ser A.................................................. 6.250 07/01/16 NR *2,700 2,828,250 5.97
Salt River Project Agricultural Improvement And Power District,
Salt River Proj Elec Sys Rev Ref Ser 1993C.................... 5.250 01/01/19 AA 3,000 2,701,020 5.83
-----------
5,529,270
-----------
CALIFORNIA (10.78%)
California Statewide Community Development Auth,
Rev Cert of Part Ref Ins'd Hlth Facil Eskaton Inc............. 5.800 05/01/13 A *2,700 2,550,771 6.14
Rev Cert of Part Ref Ins'd Hlth Facil Eskaton Inc............. 5.875 05/01/20 A *5,000 4,640,000 6.33
Central Valley Financing Auth,
Rev Cogeneration Proj Carson Ice-Gen Proj Ser 1993............ 6.200 07/01/20 BBB- 5,000 4,727,500 6.56
Duarte, City of,
Cert of Part City of Hope National Medical Center Proj........ 6.250 04/01/23 BAA1*** *1,500 1,364,580 6.87
Foothill/Eastern Transportation Corridor Agency,
Calif Toll Rd Rev Cap Apprec Sr Lien Ser A.................... Zero 01/01/19 BBB- *36,600** 6,941,922 --
Calif Toll Rd Rev Cap Apprec Sr Lien Ser A.................... Zero 01/01/20 BBB- *10,000 1,767,200 --
Calif Toll Rd Rev Cap Apprec Sr Lien Ser A.................... Zero 01/01/23 BBB- *750 106,628 --
Calif Toll Rd Rev Cap Apprec Sr Lien Ser A.................... Zero 01/01/28 BBB- *900 89,469 --
Calif Toll Rd Rev Conv Cap Apprec Sr Lien Ser A............... Zero 01/01/13 BBB- *200 106,508 --
Calif Toll Rd Rev Sr Lien Ser A............................... 5.000 01/01/35 BBB- *1,015 776,505 6.54
Rev Calif Toll Rd Sr Lien Ser A............................... 6.500 01/01/32 BBB- *600 578,250 6.74
Rev Calif Toll Rd Sr Lien Ser A............................... 6.000 01/01/34 BBB- *1,200 1,095,000 6.58
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Hawaiian Gardens Redevelopment Agency,
Tax Alloc Ref Proj No. 1...................................... 6.200% 12/01/23 BBB $*3,000 $ 2,685,210 6.93%
Los Angeles, County of,
Cert of Part Civic Center Heating & Refrigeration Plant Proj.. 8.000 06/01/10 A 1,000 1,118,390 7.15
Pittsburg Redevelopment Agency,
Tax Alloc Ser B Los Medanos Area Proj......................... 5.700 08/01/32 AAA *10,000 9,290,100 6.14
Sacramento City Financing Auth,
Lease Rev Ref Ser B........................................... 5.000 11/01/14 A+ *4,020 3,538,123 5.68
San Bernardino, County of,
Cert of Part Medical Center Fin Proj.......................... 5.500 08/01/17 A- *4,130 3,605,407 6.30
Cert of Part Medical Center Fin Proj.......................... 5.500 08/01/22 A- *1,500 1,281,255 6.44
Cert of Part Medical Center Fin Proj.......................... 5.000 08/01/26 A- *2,270 1,782,744 6.37
San Jose Financing Auth,
Rev Community Facil Proj Ser B................................ 5.625 11/15/18 A+ *2,500 2,269,250 6.20
University of California, The Regents of,
Rev Ref Ser C Multiple Purpose Proj........................... 5.000 09/01/23 AAA *2,750 2,354,935 5.84
-----------
52,669,747
-----------
COLORADO (2.30%)
Colorado Housing Finance Auth,
Single-Family Rev 1985 Ser C.................................. 9.375 03/01/12 AAA 190 198,223 8.99
Colorado Springs, City of,
Util Sys Rev Ser 1991C........................................ 6.750 11/15/21 AA 2,665 2,849,072 6.31
Dawson Ridge Metropolitan District No 1,
GO Ref Ser A.................................................. Zero 10/01/22 NR *5,880 913,399 --
Denver, City and County of,
Airport Sys Rev Ser 1985...................................... 8.875 08/01/15 BB 1,000 1,011,810 8.77
Airport Sys Rev Ser 1985...................................... 9.250 08/01/20 BB 1,000 1,014,620 9.12
Airport Sys Rev Ser 1992A..................................... 7.250 11/15/25 BB *5,000 5,270,400 6.88
-----------
11,257,524
-----------
CONNECTICUT (0.35%)
Connecticut State Health and Educational Facilities Auth,
Rev Ser D Quinnipiac College Iss.............................. 6.000 07/01/23 BBB- 2,000 1,699,960 7.06
-----------
DELAWARE (0.98%)
Delaware State Economic Development Auth,
Rev Ref Poll Control Ser B Delmarva Pwr Proj.................. 6.750 05/01/19 AAA *4,500 4,785,525 6.35
-----------
FLORIDA (9.35%)
Broward, County of,
Resource Recovery Rev Ser 1984 Ses Broward Co.
L.P. South Proj.............................................. 7.950 12/01/08 A 4,590 5,035,000 7.25
Citrus, County of,
Poll Control Ref Rev Ser 1992A Florida Pwr Corp
Crystal River Pwr Plant Proj................................. 6.625 01/01/27 A+ 6,180 6,434,307 6.36
Dade, County of,
Rev Ref Cap Apprec Ser A Gtd Entitlement...................... Zero 02/01/10 AAA *13,065 5,508,073 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
FLORIDA (CONTINUED)
Florida, State of,
Sunshine Skyway Rev Ser of 1984............................ 10.250% 06/01/10 AAA $ 1,250 $ 1,415,550 9.05%
Hillsborough, County of,
Ref Util Rev Ser 1991A..................................... 7.000 08/01/14 BBB+ 1,245 1,313,562 6.63
Jacksonville, County of,
Sales Tax Rev River City Renaissance Proj.................. 5.375 10/01/18 AAA *4,500** 4,154,355 5.82
Ocala, County of,
Rev Ref Cap Imp Cert of Part............................... 5.000 10/01/18 AAA *1,200 1,060,044 5.66
Orlando Utilities Commission,
Wtr & Elec Sub Rev Ser 1989D............................... 6.750 10/01/17 AA- 2,200 2,444,376 6.08
Wtr & Elec Sub Rev Ser 1993A............................... 5.250 10/01/23 AA- *4,000 3,573,800 5.88
Wtr & Elec Sub Rev Ser 1994A............................... 5.000 10/01/20 AA- *1,750 1,515,535 5.77
Palm Beach, County of,
Solid Waste Ind'L Dev Rev Ser 1993A Okeelanta Pwr
Lp Proj.................................................. 6.850 02/15/21 NR 5,500 5,331,810 7.07
Solid Waste Ind'L Dev Rev Ser 1994A Osceola Pwr
Lp Proj.................................................. 6.850 01/01/14 NR 3,500 3,463,810 6.92
Reedy Creek Improvement District,
Util Rev Ref Ser 1......................................... 5.000 10/01/14 AAA *3,000 2,697,810 5.56
Util Rev Ref Ser 1......................................... 5.000 10/01/19 AAA *2,000 1,762,160 5.67
-----------
45,710,192
-----------
GEORGIA (0.80%)
Atlanta, City of,
Spec Facil Rev Ser 1989B Delta Airlines Proj............... 7.900 12/01/18 BB 2,075 2,194,063 7.47
Colquitt County Development Auth,
Rev Zero Coupon 1st Mtg Conv 6/1/92........................ Zero 12/01/21 NR *3,850 641,256 --
Georgia Municipal Electric Auth,
Pwr Rev Ser M.............................................. 8.375 01/01/20 A+ 1,000 1,072,130 7.81
-----------
3,907,449
-----------
HAWAII (0.32%)
Hawaii, State of,
Airport Sys Rev Second Ser of 1991......................... 7.000 07/01/18 A- 1,500 1,559,490 6.73
-----------
ILLINOIS (5.16%)
Chicago, City of,
Chicago-O'Hare Int'L Airport Gen Airport Rev 1990 Ser A.... 7.500 01/01/16 A+ 2,000 2,168,980 6.92
Chicago-O'Hare Int'L Airport Int'L Terminal Spec Rev
Ser 1992................................................. 6.750 01/01/12 AAA 3,000 3,173,730 6.38
Chicago-O'Hare Int'L Airport Spec Facil Rev Ser 1990
Lufthansa German Airlines Proj........................... 7.125 05/01/18 AAA 1,000 1,039,020 6.86
Chicago-O'Hare Int'L Airport Spec Facil Rev Ser 1990A
American Airlines Proj................................... 7.875 11/01/25 BB+ 3,000 3,183,450 7.42
Chicago-O'Hare Int'L Airport Spec Facil Rev Delta
Airlines Proj............................................ 6.450 05/01/18 BB *2,000 1,943,980 6.64
Skyway Toll Bridge Rev Ref Ser 1994........................ 6.750 01/01/14 BBB- 5,400 5,432,130 6.71
Skyway Toll Bridge Rev Ref Ser 1994........................ 6.750 01/01/17 BBB- 4,000 4,008,880 6.74
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
Illinois Development Finance Auth,
Poll Control Rev Ref Commonwealth Edison Co Proj............ 5.850% 01/15/14 BBB $*3,000 $ 2,725,500 6.44%
Illinois Health Facilities Auth,
Rev Ref Ser 1992 Mercy Hosp & Medical Center Proj........... 7.000 01/01/07 A- 1,500 1,555,320 6.75
-----------
25,230,990
-----------
KANSAS (0.49%)
Johnson County Water District No. 1,
Wtr Rev Ref Ser 1984........................................ 10.500 12/01/08 AAA 2,000 2,390,960 8.78
-----------
KENTUCKY (1.27%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Proj Ser 1992A................ 6.750 02/01/02 BB 2,000 2,064,040 6.54
Rev Spec Facil Delta Airlines Proj Ser 1992A................ 7.500 02/01/12 BB 2,000 2,091,080 7.17
Rev Spec Facil Delta Airlines Proj Ser 1992A................ 7.125 02/01/21 BB *2,000 2,042,860 6.98
-----------
6,197,980
-----------
LOUISIANA (0.84%)
St. Charles, Parish of,
Poll Control Rev Ser 1991 Louisiana Pwr & Light Co Proj..... 7.500 06/01/21 BBB+ 4,000 4,117,200 7.29
-----------
MARYLAND (0.53%)
Maryland State Health and Higher Educational Facilities Auth,
Ref Rev Frederick Memorial Hosp............................. 5.000 07/01/18 AAA *3,000 2,604,720 5.76
-----------
MASSACHUSETTS (11.70%)
Massachusetts Bay Transportation Auth,
Gen Trans Sys 1990 Ser B.................................... 7.875 03/01/21 AAA 2,000 2,342,260 6.72
Massachusetts Health and Educational Facilities Auth,
Rev Brigham & Women's Hosp Iss Ser D........................ 6.750 07/01/24 A+ 2,450 2,526,195 6.55
Rev Harvard Univ Iss Ser P.................................. 5.375 11/01/32 AAA *6,000 5,378,040 6.00
Rev Lowell Gen Hosp Iss Ser A............................... 8.400 06/01/11 BAA1*** 1,100 1,195,953 7.73
Rev New England Deaconess Hosp Iss Ser D.................... 6.625 04/01/12 A 3,500 3,537,660 6.55
Rev New England Deaconess Hosp Iss Ser D.................... 6.875 04/01/22 A 7,960 8,139,816 6.72
Rev New England Medical Center Hosp Iss Ser E............... 7.875 07/01/11 A- 1,950 2,174,055 7.06
Rev Worcester Polytechnic Institute Ser E................... 6.750 09/01/11 A+ 2,000 2,148,160 6.28
Massachusetts Housing Finance Agency,
Multi-Family Mtg Rev 1985 Ser A............................. 9.125 12/01/20 AAA 980 1,024,717 8.73
Residential Dev 1992 Ser A.................................. 6.900 11/15/24 AAA 2,700 2,816,046 6.62
Single Family Hsg Ser 8..................................... 7.700 06/01/17 A+ 1,500 1,609,920 7.17
Single Family Mtg Purchase 1985 Ser A....................... 9.500 12/01/16 A+ 275 284,086 9.20
Massachusetts Municipal Wholesale Electric Co,
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the Commonwealth
of Mass................................................... 6.750 07/01/17 BBB+ 4,405 4,593,358 6.47
Pwr Supply Sys Rev 1994 Ser A A Pub Corp of the Commonwealth
of Mass................................................... 5.000 07/01/13 AAA *1,580 1,401,128 5.64
Pwr Supply Sys Rev 1994 Ser B A Pub Corp of the Commonwealth
of Mass................................................... 5.000 07/01/13 AAA *1,715 1,538,201 5.57
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
Massachusetts Water Resource Auth,
Gen Rev Ref Ser 1992B....................................... 5.500% 11/01/15 AAA $ 3,000 $ 2,821,500 5.85%
Gen Rev Ref Ser 1993B....................................... 5.000 03/01/22 AAA *3,015 2,591,091 5.82
Gen Rev Ref Ser 1993C....................................... 5.250 12/01/20 AAA *6,900 6,138,654 5.90
Massachusetts, Commonwealth of,
GO Consol Loans Ser B....................................... 6.000 08/01/14 A+ 2,000 1,981,940 6.05
Plymouth, County of,
Cert of Part Ser A Plymouth County Correctional Facil Proj.. 7.000 04/01/22 A- 2,750 2,958,807 6.51
-----------
57,201,587
-----------
MICHIGAN (2.83%)
Michigan State Hospital Financing Auth,
Rev Ref 1993 Ser P The Sisters of Mercy Proj................ 5.250 08/15/21 AAA *7,500 6,609,600 5.96
Rev Ref 1995 Ser A Genesys Hlth Sys Hosp Proj............... 8.100 10/01/13 BBB *4,250 4,521,533 7.61
Michigan, State of,
GO Environmental Protection Proj............................ 5.400 11/01/19 AA *2,975 2,712,397 5.92
-----------
13,843,530
-----------
MISSISSIPPI (0.03%)
Mississippi Home Corp,
Single Family Sr Rev Ref Ser 1990A.......................... 9.250 03/01/12 AAA 140 152,425 8.50
-----------
Missouri (0.36%)
Missouri Housing Development Commission,
Single Family Mtg Rev 1991 Ser A............................ 7.375 08/01/23 AAA 1,415 1,484,660 7.03
Missouri State Environmental Improvement and Energy Resource,
Floating/Fixed Rate Poll Control Rev Ser 1984G-4 Assoc Elec
Coop Proj................................................. 8.250 11/15/14 A+ 265 281,165 7.78
-----------
1,765,825
-----------
NEBRASKA (1.16%)
Omaha Public Power District,
Elec Sys Rev 1989 Ser A..................................... 6.800 02/01/17 AA 4,000 4,394,680 6.19
Elec Sys Rev 1992 Ser B..................................... 6.200 02/01/17 AA 1,200 1,254,036 5.93
-----------
5,648,716
-----------
NEW JERSEY (0.90%)
Cape May County Municipal Utilities Auth,
Swr Rev Ref Ser 1985........................................ 9.000 01/01/16 AAA 2,000 2,083,900 8.64
New Jersey Turnpike Auth,
Turnpike Rev Ser 1984....................................... 10.375 01/01/03 AAA 1,900 2,301,375 8.57
-----------
4,385,275
-----------
NEW YORK (15.28%)
Metropolitan Transportation Auth,
Commuter Facil Serv Contract 1993 Ser P..................... 5.750 07/01/15 BBB *7,100 6,538,319 6.24
Transit Facil 1987 Serv Contract Ser 1...................... 8.500 07/01/17 AAA 1,000 1,103,430 7.70
New York Local Government Assistance Corp,
Ser 1992 A Pub Benefit Corp................................. 6.875 04/01/19 A 8,700 9,374,337 6.38
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
New York State Dormitory Auth,
City Univ Ref 1988B Iss..................................... 8.125% 07/01/08 BBB $ 1,000 $ 1,115,260 7.29%
City Univ Rev 1993 Ser F.................................... 5.000 07/01/14 BBB *4,700 3,986,916 5.89
Cornell Univ Rev Ser 1990A.................................. 7.375 07/01/30 AA 1,000 1,105,110 6.67
State Univ Ed Facil Rev Ser 1990B........................... 7.500 05/15/11 BBB+ 500 566,650 6.62
New York State Energy Research and Development Auth,
Elec Facil Rev Ser 1990 A Long Island Lighting Co Proj...... 7.150 06/01/20 BB+ 6,000 6,003,540 7.15
Elec Facil Rev Ser 1991 A Consol Edison Co of NY Inc Proj... 7.500 01/01/26 A+ 2,000 2,133,840 7.03
New York State Environmental Facilities Corp.,
State Wtr Poll Control Revolving Fund Rev Ser 1990 A........ 7.500 06/15/12 A 3,770 4,183,984 6.76
New York State Housing Finance Agency,
State Univ Construction Ref 1986 Ser A...................... 8.000 05/01/11 AAA 2,000 2,430,800 6.58
New York State Medical Care Facilities Finance Agency,
Mental Hlth Serv Facil Imp Rev 1990 Ser B................... 7.875 08/15/08 BBB+ 500 543,335 7.25
Mental Hlth Serv Facil Imp Rev 1990 Ser B................... 7.875 08/15/20 BBB+ 460 498,806 7.26
Mental Hlth Serv Facil Imp Rev 1991 Ser A................... 7.750 08/15/11 BBB+ 540 593,617 7.05
Mental Hlth Serv Facil Imp Rev 1991 Ser A................... 7.750 08/15/11 AAA 1,460 1,705,762 6.63
New York State Mortgage Agency,
Rev Homeownership Ser BB-2.................................. 7.950 10/01/15 AA 1,135 1,210,035 7.46
New York State Power Auth,
Gen Purpose Ser V........................................... 7.875 01/01/13 AAA 2,400 2,654,952 7.12
Gen Purpose Ser V........................................... 8.000 01/01/17 AA 1,850 2,048,209 7.23
New York, City of,
GO Fiscal 1991 Ser D........................................ 8.000 08/01/04 A- 250 281,180 7.11
GO Fiscal 1991 Ser F........................................ 8.200 11/15/03 A- 1,250 1,424,462 7.20
GO Fiscal 1992 Ser A........................................ 7.750 08/15/12 A- 2,000 2,188,240 7.08
GO Fiscal 1992 Ser A........................................ 7.750 08/15/17 A- 400 435,716 7.11
GO Fiscal 1992 Ser D........................................ 7.700 02/01/09 A- 1,000 1,084,980 7.10
GO Fiscal 1992 Ser H........................................ 7.000 02/01/08 A- 2,000 2,095,660 6.68
GO Fiscal 1993 Ser B........................................ 5.750 08/15/14 A- *2,000 1,822,680 6.31
GO Fiscal 1995 Ser B........................................ 7.000 08/15/16 A- 3,000 3,102,750 6.77
GO Rev Ref Ad Valorem Property Tax Ser D.................... 5.750 08/15/13 A- *3,170 2,902,896 6.28
New York, State of,
GO Fiscal 1991.............................................. 6.700 11/01/11 A- 590 637,418 6.20
Port Authority of New York & New Jersey,
Rev Ser 1R Delta Airlines Inc Proj.......................... 6.950 06/01/08 BB *4,500 4,665,870 6.70
Triborough Bridge and Tunnel Auth,
Gen Purpose Rev Ser L....................................... 8.125 01/01/12 A+ 1,750 1,947,260 7.30
Gen Purpose Rev Ser R....................................... 7.375 01/01/16 AAA 1,600 1,801,040 6.55
Spec Oblig Ref Ser 1991B.................................... 6.875 01/01/15 A- 2,300 2,475,743 6.39
-----------
74,662,797
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 18
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
NORTH CAROLINA (4.95%)
North Carolina Eastern Municipal Power Agency,
Pwr Sys Rev Ref Ser 1991A................................... 5.750% 01/01/19 A- $*4,000 $ 3,566,240 6.45%
Pwr Sys Rev Ref Ser 1993C................................... 5.000 01/01/21 A- *5,000 4,013,950 6.23
Pwr Sys Rev Ref Ser 1993D................................... 5.875 01/01/13 A- *2,500 2,315,900 6.34
North Carolina Municipal Power Agency Number 1,
Catawba Elec Rev Ser 1992................................... 5.750 01/01/15 A *7,410 6,808,012 6.26
Catawba Elec Rev Ser 1993................................... 5.000 01/01/15 A *5,220 4,396,858 5.94
Catawba Elec Rev Ser 1993................................... 5.000 01/01/18 AAA *3,500 3,082,590 5.68
-----------
24,183,550
-----------
OHIO (2.56%)
Cleveland Public Power System,
Elec Sys Rev 1st Mtg Ser A.................................. 7.000 11/15/24 AAA 6,200 7,101,046 6.11
Franklin, County of,
Hosp Facil Ref & Imp Rev Ser 1990B Riverside United
Methodist Hosp Proj....................................... 7.600 05/15/20 AA- 1,000 1,143,730 6.64
Ohio State Air Quality Development Auth,
Rev Adj Ser B Columbus & South Proj......................... 6.250 12/01/20 NR *4,500 4,243,590 6.63
-----------
12,488,366
-----------
OKLAHOMA (1.48%)
Oklahoma Turnpike Auth,
Turnpike Sys 1st Sr Rev Ser 1989............................ 7.875 01/01/21 A+ 55 61,536 7.04
Turnpike Sys 1st Sr Rev Ser 1989............................ 7.875 01/01/21 A+ 1,745 1,960,124 7.01
Tulsa Municipal Airport Trust, Trustees of,
Rev Ser 1985 American Airlines Inc.......................... 9.500 06/01/20 BB+ 3,000 3,125,010 9.12
Rev Ser 1988 American Airlines Inc.......................... 7.375 12/01/20 BB+ 2,000 2,068,340 7.13
-----------
7,215,010
-----------
OREGON (1.00%)
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj...................... 7.125 01/01/21 NR 4,800 4,904,496 6.97
-----------
PENNSYLVANIA (7.95%)
Allegheny County Industrial Development Auth,
Rev Ref Ser 1994A Environmental Imp USX Corp Proj........... 6.700 12/01/20 BB+ 5,000 5,014,900 6.68
Delaware County Industrial Development Auth,
Poll Control Rev Ref 1991 Ser A Philadelphia Elec Co Proj... 7.375 04/01/21 BBB+ 6,095 6,343,432 7.09
Montgomery County Redevelopment Auth,
Multifamily Hsg Rev Ser A KBF Assoc L.P. Proj............... 6.400 07/01/14 NR 2,000 1,923,580 6.65
Pennsylvania Convention Center Auth,
Rev Ref Ser 1994A........................................... 6.700 09/01/14 BB 4,950 5,019,251 6.61
Pennsylvania Economic Development Finance Auth,
Resource Recovery Rev Ser 1994D Colver Proj................. 7.125 12/01/15 BBB- 7,000 7,127,960 7.00
Pennsylvania State Turnpike Commission,
Turnpike Rev Ser N.......................................... 6.500 12/01/13 A 2,840 2,963,114 6.23
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 19
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Philadelphia Hospitals and Higher Education Facilities
Auth, Hosp Rev Ser 1993A Temple Univ Hosp Proj.............. 6.625% 11/15/23 A- $ 7,000 $ 7,022,680 6.60%
Philadelphia, City of,
Wtr & Wastewater Rev Ser 1993............................... 5.500 06/15/15 AAA *2,500 2,325,400 5.91
York County Solid Waste and Refuse Auth,
Adj Tender Ind'l Dev Rev Ser of 1985 Resource
Recovery Proj.............................................. 8.200 12/01/14 AA- 1,000 1,096,040 7.48
-----------
38,836,357
-----------
PUERTO RICO (2.10%)
Puerto Rico Public Building Auth,
Gtd Rev Gov't Facil Ser A................................... 6.250 07/01/14 AAA *1,100 1,165,703 5.90
Puerto Rico, Commonwealth of,
GO Imp Unltd Ref Ser 1995................................... 5.375 07/01/22 AAA *2,500 2,317,425 5.80
GO Sales Tax Rev Ser 1995................................... 5.650 07/01/15 AAA *2,500 2,467,575 5.72
University of Puerto Rico,
Univ Sys Rev Ser M.......................................... 5.250 06/01/25 AAA *4,725 4,307,830 5.76
-----------
10,258,533
-----------
SOUTH CAROLINA (0.67%)
South Carolina Public Service Auth,
Santee Cooper Elec Sys Exp Rev Ref 1988 Ser A............... 7.875 07/01/21 A+ 550 572,159 7.57
Santee Cooper Elec Sys Exp Rev Ref 1988 Ser A............... 7.875 07/01/21 A+ 2,615 2,717,639 7.58
-----------
3,289,798
-----------
SOUTH DAKOTA (0.23%)
South Dakota Health and Educational Facilities Auth,
Rev Ser 1989 Sioux Valley Hosp Iss.......................... 7.625 11/01/13 AA- 75 79,869 7.16
Rev Ser 1989 Sioux Valley Hosp Iss.......................... 7.625 11/01/13 AA- 925 1,035,908 6.81
-----------
1,115,777
-----------
TENNESSEE (2.28%)
Memphis-Shelby County Airport Auth,
Rev Ref Federal Express Corp................................ 6.750 09/01/12 BBB 4,000 4,070,520 6.63
Metropolitan Nashville Airport Auth,
Spec Facil Rev Ser 1985 American Airlines Inc Proj.......... 9.875 10/01/05 BB+ 1,000 1,037,500 9.52
Maury County Industrial Development Board,
Multi-Modal Interchangeable Rate Poll Control Ref Rev
Saturn Corp Proj.......................................... 6.500 09/01/24 BBB+ 6,000 6,056,160 6.44
-----------
11,164,180
-----------
TEXAS (2.64%)
Brazos River Auth,
Coll Rev Ref Ser 1988B Houston Lighting & Pwr Co Proj....... 8.250 05/01/15 A 2,000 2,193,980 7.52
Dallas-Fort Worth International Airport,
Rev Delta Air Lines Inc..................................... 7.600 11/01/11 BB 3,000 3,150,420 7.24
Spec Facil Rev American Airlines Inc........................ 7.250 11/01/12 BB+ *1,900 1,866,674 7.38
Grapevine Industrial Developmental Corp,
Airport Rev Facil Imp American Airlines Inc Proj............ 9.250 12/01/12 BB+ 3,025 3,147,785 8.89
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 20
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
Harris County Health Facilities Development Corp,
Hosp Rev Ser 1988A Saint Luke's Episcopal Hosp Proj..... 8.250% 02/15/08 AAA $ 1,000 $ 1,148,630 7.18%
Montgomery County Health Facilities Development Corp,
Hlth Facil Rev Ser 1990................................. Zero 07/15/23 AAA *10,000 1,417,400 --
------------
12,924,889
------------
VIRGINIA (2.11%)
Hanover County Industrial Development Auth,
Memorial Regional Medical Center Proj................... 5.500 08/15/25 AAA *9,500 8,705,515 6.00
Lynchburg City Industrial Development Auth,
Hosp Facil Rev Ref Central Hlth Inc Ser 1988 Lynchburg
Gen Hosp & Virginia Baptist Hosp...................... 8.125 01/01/16 A+ 500 548,335 7.41
Virginia Housing Development Auth,
Commonwealth Mtg 1988 Ser C-2........................... 8.000 01/01/38 A+ 1,000 1,059,080 7.55
------------
10,312,930
------------
WASHINGTON (3.45%)
Seattle, City of,
Municipal Light & Pwr Rev 1994.......................... 6.625 07/01/16 AA 3,600 3,779,316 6.31
Washington Public Power Supply System,
Nuclear Proj No. 1 Ref Rev Ser 1989A.................... 7.500 07/01/15 AA 1,455 1,581,192 6.90
Nuclear Proj No. 1 Ref Rev Ser 1989B.................... 7.125 07/01/16 AA 1,500 1,631,970 6.55
Nuclear Proj No. 1 Ref Rev Ser 1991A.................... 6.875 07/01/17 AA 1,250 1,307,413 6.57
Nuclear Proj No. 2 Ref Rev Ser 1990C.................... 7.625 07/01/10 AAA 5,000 5,776,650 6.60
Nuclear Proj No. 3 Ref Rev Ser 1989B.................... 7.250 07/01/15 AA 2,500 2,798,725 6.48
------------
16,875,266
------------
WISCONSIN (0.93%)
Wisconsin Public Power Inc,
Pwr Supply Sys Rev Ser 1990A............................ 7.400 07/01/20 AAA 4,000 4,551,400 6.50
------------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $472,996,737) (100.36%) $490,523,151
======= ============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
* Securities, other than short-term investments, newly added to the portfolio,
during the period ended June 30, 1995.
** All or a portion of these securities, having an aggregate value of
$8,896,105 or 1.82% of the Fund's net asset value, have been purchased as
forward commitments -- that is, the Fund has agreed, on trade date, to take
delivery of and make payment for such securities on a delayed basis
subsequent to the date of this schedule. The purchase price and interest
rate of such securities is fixed at trade date, although the Fund does not
earn any interest on such securities until settlement date. The Fund has
instructed its Custodian Bank to segregate assets with a current value at
least equal to the amount of its forward commitment. Accordingly, the market
value of $4,340,248 of Maury County Industrial Development Board,
Multi-Modal Interchangeable Rate Poll Control Ref Rev Saturn Corp Proj,
6.500%, 09-01-24, and the market value of $5,512,560 of North Carolina
Municipal Power Agency Number 1, Catawba Elec Rev Ser 1992, 5.750%,
01-01-15, has been segregated to cover the forward commitments.
*** Credit ratings are rated by Moody's Investors Services or John Hancock
Advisers, Inc. where Standard and Poor's ratings are not available.
NR Not rated.
+ The yield is not calculated with guidelines established by the U.S.
Securities Exchange Commission and is unaudited.
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.
20
<PAGE> 21
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
PORTFOLIO CONCENTRATION (Unaudited)
- --------------------------------------------------------------------------------
THE TAX-EXEMPT INCOME FUND INVESTS PRIMARILY IN SECURITIES ISSUED BY THE VARIOUS
STATES AND THEIR VARIOUS POLITICAL SUBDIVISIONS. THE PERFORMANCE OF THE FUND IS
CLOSELY TIED TO ECONOMIC CONDITIONS WITHIN THE APPLICABLE STATES AND THE
FINANCIAL CONDITION OF THE STATES AND THEIR AGENCIES AND MUNICIPALITIES. THE
CONCENTRATION OF INVESTMENTS BY STATES AND CREDIT RATINGS FOR INDIVIDUAL
SECURITIES HELD BY THE FUND ARE SHOWN IN THE SCHEDULE OF INVESTMENTS. IN
ADDITION, THE CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS SECTOR
CATEGORIES.
THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS AT JUNE 30, 1995
ASSIGNED TO THE VARIOUS SECTOR CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE AS A PERCENTAGE OF
SECTOR DISTRIBUTION THE FUND'S NET ASSETS:
------------------- -------------------------------
<S> <C>
General Obligation ................................... 6.19%
Revenue Bonds - Certificate of Participation ......... 2.72
Revenue Bonds - Education ............................ 4.20
Revenue Bonds - Electric Power ....................... 18.64
Revenue Bonds - Health ............................... 13.05
Revenue Bonds - Housing .............................. 5.45
Revenue Bonds - Industrial Development Bond .......... 9.57
Revenue Bonds - Other ................................ 7.91
Revenue Bonds - Pollution Control Facilities ......... 10.59
Revenue Bonds - Transportation ....................... 15.76
Revenue Bonds - Water & Sewer ........................ 6.28
------
TOTAL TAX-EXEMPT LONG-TERM BONDS 100.36%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Tax-Exempt Income Fund (the "Fund") is a diversified open-end
investment management company registered under the Investment Company Act of
1940.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under the terms of a distribution
plan, have exclusive voting rights regarding such distribution plan. Class A
shares are subject to an initial sales charge of up to 4.50% and a 12b-1
distribution plan. Class B shares are subject to a contingent deferred sales
charge and a separate 12b-1 distribution plan. 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.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell municipal bond index and
interest rate futures contracts to hedge against changes in securities prices,
interest rates and other market conditions, or for speculative purposes. The
potential loss incurred by the Fund in writing options on futures is unlimited
and may exceed the amount of the premium received. The Fund's ability to hedge
successfully will depend on the Adviser's ability to predict accurately the
future direction of interest rate changes and other market factors.
There is no assurance that a liquid market for futures and options will
always exist. In addition, the Fund could be prevented from opening or realizing
the benefits of closing out futures positions because of position limits or
limits on daily price fluctuations imposed by an exchange. The Fund's futures
contracts and options on futures contracts will be traded on a U.S. commodity
exchange or board of trade. The Fund will not engage in a transaction in futures
or option transaction for speculative purposes, if immediately thereafter, the
sum of the initial margin deposits on existing positions and premiums required
to establish these speculative positions exceed 5% of the Funds net assets.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures transactions.
At June 30, 1995, open positions in financial futures contracts were as
follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
<S> <C> <C> <C>
SEP 1995 120 U.S. Treasury Bond SHORT ($30,000)
========
</TABLE>
At June 30, 1995, the Fund has deposited in a segregated account $240,000 to
cover margin requirements on open financial futures contracts.
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.
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the amount paid
in excess of par value on securities purchased from either the date of purchase
or date of issue to date of sale, maturity or to next call date, if applicable.
The Fund accretes original issue discount from par value on securities purchased
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code. The Fund records market
discount on bonds purchased after April 30, 1993 at the time of disposition.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $2,374,664 of capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforward is used by the Fund, no
capital gain distributions will be made. The carryforward expires December 31,
2002.
Additionally, net capital losses of $858,729 attributable to security
transactions occurring after October 31, 1994 are treated as arising on the
first day (January 1, 1995) of the Fund's current taxable year.
DIVIDENDS, DISTRIBUTIONS, AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund, if any, with respect to each
class of shares will be calculated in the same manner, at the same time and will
be in the same amount, except for the effect of expenses that may be applied
differently to each class as explained previously.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees, if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable of each class.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of: (a) 0.55% of the first $500,000,000 of the
Fund's average daily net asset value, (b) 0.50% of the next $500,000,000, and
(c) 0.45% of the Fund's average daily net asset value in excess of
$1,000,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value. $24,573 of custodian fees have been reduced by balance
credits applied during the period ended June 30, 1995.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended June 30,
1995, JH Funds received net sales charges on sales of Class A shares of the Fund
in the amount of $399,533. Out of this amount, $47,440 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $18,962
was paid as sales commissions and service fees to unrelated broker-dealers and
$333,131 was paid as sales commissions and service fees to sales personnel of
John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"). The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company, is the indirect sole
23
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Income Fund
shareholder of Distributors and John Hancock Freedom Securities Corporation and
its subsidiaries, which include Tucker Anthony and Sutro, all of which are
broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended June 30, 1995,
contingent deferred sales charges received by JH Funds amounted to $4,750.
In addition, to compensate JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B average daily net
assets to reimburse JH Funds for its distribution and service costs. Up to a
maximum of 0.25% of these payments may be service fees as defined by the amended
Rules of Fair Practice of the National Association of Securities Dealers. Under
the amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr. and 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. Effective with
the fees paid for 1995, the unaffiliated Trustees may elect to defer for tax
purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund will make investments into other John
Hancock Funds, as applicable, to cover its liability with regard to the deferred
compensation. Investments to cover the Fund's deferred compensation liability
will be recorded on the Fund's books as an other asset. The deferred
compensation liability will be marked to market on a periodic basis and income
earned by the investment will be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1995, aggregated $362,639,378 and $358,523,340, respectively.
Purchases and proceeds from sales of short-term municipal obligations during the
period ended June 30, 1995, aggregated $50,349,000 and $52,445,000,
respectively. There were no purchases or sales of long-term obligations of the
U.S. government and its agencies during the period ended June 30, 1995.
The cost of investments owned at June 30, 1995 for Federal income tax
purposes was $473,117,050. Gross unrealized appreciation and depreciation of
investments aggregated $20,013,454 and $2,607,353, respectively, resulting in
net unrealized appreciation of $17,406,101.
24
<PAGE> 25
NOTES
John Hancock Funds - Tax-Exempt Income Fund
25
<PAGE> 26
NOTES
John Hancock Funds - Tax-Exempt Income Fund
26
<PAGE> 27
NOTES
John Hancock Funds - Tax-Exempt Income Fund
27
<PAGE> 28
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FUND U.S. Postage
101 Huntington Avenue Boston, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Tax-Exempt Income Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
JHD 230SA 6/95
