John Hancock Funds
John Hancock
Managed Tax-Exempt
Fund
October 31, 1996
<PAGE>
John Hancock Funds - Managed Tax-Exempt Fund
Trustees
Edward J. Boudreau, Jr.
Dennis S. Aronowitz *
Richard P. Chapman, Jr. *
William J. Cosgrove *
Douglas M. Costle *
Leland O. Erdahl *
Richard A. Farrell *
Gail D. Fosler
William F. Glavin *
Anne C. Hodsdon
Dr. John A. Moore *
Patti McGill Peterson *
John W. Pratt *
Richard S. Scipione
Edward 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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
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
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
<PAGE>
John Hancock Funds - Managed Tax-Exempt Fund
Statement of Assets and Liabilities
October 31, 1996
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $179,768,424) $191,671,905
Receivable for shares sold 4,226
Receivable for investments sold 6,707,633
Interest receivable 3,957,041
Other assets 17,986
------------
Total Assets 202,358,791
-------------------------------------------
Liabilities:
Dividend payable 27,795
Due to Custodian 1,605,316
Payable for shares repurchased 49,642
Payable for investments purchased 6,368,789
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 128,915
Accounts payable and accrued expenses 39,748
------------
Total Liabilities 8,220,205
-------------------------------------------
Net Assets:
Capital paid-in 180,858,831
Accumulated net realized gain on investments and financial
futures contracts 1,175,297
Net unrealized appreciation of investments 11,904,147
Undistributed net investment income 200,311
------------
Net Assets $194,138,586
===========================================
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 - $40,642,521 / 3,531,621 $ 11.51
================================================================================
Class B - $153,496,065 / 13,333,878 $ 11.51
================================================================================
Maximum Offering Price Per Share*
Class A - ($11.51 x 104.71%) $ 12.05
================================================================================
* 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.
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - Managed Tax-Exempt Fund
Statement of Operations
Year ended October 31, 1996
- --------------------------------------------------------------------------------
Investment Income:
Interest $ 13,369,037
------------
Expenses:
Distribution/service fee - Note B
Class A 122,366
Class B 1,617,565
Investment management fee - Note B 1,236,303
Transfer agent fee - Note B 158,070
Custodian fee 106,679
Auditing fee 41,700
Trustees' fees 33,618
Financial services fee - Note B 11,960
Printing 32,471
Registration and filing fees 29,865
Legal fees 2,383
Miscellaneous 8,065
Less Management Fee Reductions - Note B (103,025)
------------
Total Expenses 3,298,020
------------
Net Investment Income 10,071,017
------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized gain on investments sold 1,773,003
Net realized gain on financial futures contracts 48,395
Change in net unrealized appreciation/depreciation
of investments (815,778)
------------
Net Realized and Unrealized Gain
on Investments and Financial
Futures Contracts 1,005,620
---------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 11,076,637
===================================================
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - Managed Tax-Exempt Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------
1995 1996
-----------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 11,372,882 $ 10,071,017
Net realized gain on investments sold and financial
futures contracts 2,418,782 1,821,398
Change in net unrealized appreciation/depreciation
of investments 13,159,135 (815,778)
-----------------------------
Net Increase in Net Assets Resulting
from Operations 26,950,799 11,076,637
-----------------------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6282 and $0.6221 per share, respectively) (1,545,018) (2,211,308)
Class B - ($0.5516 and $0.5441 per share, respectively) (9,827,864) (7,828,156)
Distributions from net realized gain on investments sold
and financial futures contracts
Class A - (none and $0.1114 per share, respectively) -- (401,231)
Class B - (none and $0.1114 per share, respectively) -- (1,673,817)
-----------------------------
Total Distributions to Shareholders (11,372,882) (12,114,512)
-----------------------------
From Fund Share Transactions - Net* (33,226,056) (25,209,527)
-----------------------------
Net Assets:
Beginning of period 238,034,127 220,385,988
=============================
End of period (including undistributed net investment
income $70,529 and $200,311, respectively) $ 220,385,988 $ 194,138,586
=============================
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1995 1996
-------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 2,334,618 $ 26,534,395 232,661 $ 2,662,765
Shares issued to shareholders in reinvestment
of distributions 84,320 947,287 131,368 1,512,353
------------------------------------------------------
2,418,938 27,481,682 364,029 4,175,118
Less shares repurchased (695,912) (7,619,563) (498,225) (5,731,458)
======================================================
Net increase (decrease) 1,723,026 $ 19,862,119 (134,196) $ (1,556,340)
======================================================
CLASS B
Shares sold 1,012,904 $ 11,296,871 566,925 $ 6,533,314
Shares issued to shareholders in reinvestment
of distributions 444,432 4,959,344 421,365 4,854,886
------------------------------------------------------
1,457,336 16,256,215 988,290 11,388,200
Less shares repurchased (6,179,061) (69,344,390) (3,045,657) (35,041,387)
======================================================
Net decrease (4,721,725) ($53,088,175) (2,057,367) $(23,653,187)
======================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
John Hancock Managed Tax-Exempt Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Year ended October 31,
------------------------------------------------------------------
Class A 1992 (a) 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.25 $ 11.12 $ 12.13 $ 10.79 $ 11.56
---------- ---------- ---------- ---------- ----------
Net Investment Income 0.55 0.70 0.64 0.63 0.62 (e)
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts (0.11) 1.05 (1.25) 0.77 0.06
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.44 1.75 (0.61) 1.40 0.68
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income (0.53) (0.70) (0.64) (0.63) (0.62)
Distributions from Net Realized Gain on Investments
Sold and Financial Futures Contracts (0.04) (0.04) (0.09) -- (0.11)
---------- ---------- ---------- ---------- ----------
Total Distributions (0.57) (0.74) (0.73) (0.63) (0.73)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 11.12 $ 12.13 $ 10.79 $ 11.56 $ 11.51
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value (c) 4.7*% 16.10% (5.22%) 13.30% 6.11%
Total Adjusted Investment Return at Net Asset Value (b) (d) 4.5*% 15.77% (5.29%) 13.28% 6.06%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 9,589 $ 14,244 $ 20,098 $ 42,384 $ 40,643
Ratio of Expenses to Average Net Assets 0.7*% 0.70% 0.95% 1.06% 1.06%
Ratio of Adjusted Expenses to Average Net Assets (b) 1.0*% 1.03% 1.02% 1.11% 1.11%
Ratio of Net Investment Income to Average Net Assets 6.2*% 5.98% 5.52% 5.53% 5.43%
Ratio of Adjusted Net Investment Income to Average
Net Assets (b) 6.0*% 5.65% 5.42% 5.48% 5.38%
Portfolio Turnover Rate 23% 23% 59% 104% 69%
Expense Reimbursement per share $ 0.02 $ 0.04 $ 0.01 $ 0.01 $ 0.01
</TABLE>
* On an annualized basis.
** Not annualized.
(a) Class A shares commenced operations on January 3, 1992.
(b) On an unreimbursed basis. (Unaudited)
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the Adviser during the periods shown. (e)
On average month end shares outstanding.
See Notes To Financial Statements.
<PAGE>
John Hancock Managed Tax-Exempt Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Year ended October 31,
-----------------------------------------------------------------------
Class B 1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.12 $ 11.12 $ 12.13 $ 10.79 $ 11.57
----------- ----------- ----------- ----------- -----------
Net Investment Income 0.66 0.64 0.56 0.55 0.55 (d)
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts 0.04 1.05 (1.25) 0.78 0.04
----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.70 1.69 (0.69) 1.33 0.59
----------- ----------- ----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income (0.64) (0.64) (0.56) (0.55) (0.54)
Distributions from Net Realized Gain on
Investments Sold and Financial Futures
Contracts (0.06) (0.04) (0.09) -- (0.11)
----------- ----------- ----------- ----------- -----------
Total Distributions (0.70) (0.68) (0.65) (0.55) (0.65)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 11.12 $ 12.13 $ 10.79 $ 11.57 $ 11.51
=========== =========== =========== =========== ===========
Total Investment Return at Net Asset Value (b) 6.39% 15.51% (5.85%) 12.63% 5.30%
Total Adjusted Investment Return at Net Asset
Value (a) (c) 6.20% 15.18% (5.92%) 12.61% 5.25%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 226,943 $ 256,342 $ 217,006 $ 178,002 $ 153,496
Ratio of Expenses to Average Net Assets 1.35% 1.23% 1.62% 1.73% 1.73%
Ratio of Adjusted Expenses to Average Net
Assets (a) 1.54% 1.56% 1.69% 1.78% 1.78%
Ratio of Net Investment Income to Average
Net Assets 5.74% 5.49% 4.84% 4.92% 4.75%
Ratio of Adjusted Net Investment Income to
Average Net Assets (a) 5.55% 5.16% 4.77% 4.87% 4.70%
Portfolio Turnover Rate 23% 23% 59% 104% 69%
Expense Reimbursement per share $ 0.02 $ 0.04 $ 0.01 $ 0.01 $ 0.01
</TABLE>
(a) On an unreimbursed basis. (Unaudited)
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the Adviser during the periods shown. (d)
On average month end shares outstanding.
See Notes To Financial Statements.
<PAGE>
John Hancock Managed Tax-Exempt Fund
<TABLE>
<CAPTION>
Schedule of Investments
October 31,1996
- ----------------------------------
INTEREST MATURITY S&P*** PAR VALUE YIELD AT
ISSUER DESCRIPTION RATE DATE RATING (000'S OMITTED) MARKET VALUE MARKET +
- ------------------ ---- ---- ------ --------------- ------------ --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
Alabama (2.61%)
Birmingham, City of,
GO Iss of 1989 7.35% 03-01-14 AA* $ 750 $ 800,565 6.89%
Citronelle Industrial Development Board,
Poll Control Rev Stauffer Chemical Co Proj 1982 8.000 12-01-12 A1 * 500 554,535 7.21
Mobile Industrial Development Board,
Solid Waste Disp Rev Ref Mobile Energy Serv Co
Proj 1995 6.950 01-01-20 BBB- 3,500 3,706,220 6.56
-----------
5,061,320
-----------
Alaska (1.80%)
Alaska Housing Finance Corp,
Coll Home Mtg Ser A-3 GNMA/FNMA Coll 7.700 12-01-13 AAA 150 150,982 7.65
Coll Home Mtg Ser B-1 GNMA Coll 7.650 06-01-24 AAA 2,000 2,109,620 7.25
Coll Home Mtg Ser B-2 GNMA Coll 7.875 06-01-24 AAA 130 130,930 7.82
Valdez Alaska Marine Terminal,
Rev Ref Sohio Pipe Line Co Proj Ser 1991 7.125 12-01-25 AA 1,000 1,103,660 6.46
-----------
3,495,192
-----------
Arizona (1.22%)
Arizona Municipal Financing Program,
Cert of Part Ser 25 7.875 08-01-14 AAA 1,000 1,276,710 6.17
Pima, County of,
Swr Rev Ref Ser 1991 PreRef 6.750 07-01-15 AAA 460 507,854 6.11
Swr Rev Ref Ser 1991 Unref Bal 6.750 07-01-15 AAA 540 592,823 6.15
-----------
2,377,387
-----------
Arkansas (.32%)
Arkansas Development Finance Auth,
Single Family Mtg Rev Ref Ser 1991 A 8.000 08-15-11 AA 575 620,419 7.41
----------
California (7.93%)
California, State of,
GO Ser 1995 ** 5.900 03-01-25 AAA 2,490 2,514,701 5.84
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice Gen Proj Ser 1993 6.200 07-01-20 BBB- 2,000 2,005,100 6.18
Sacramento Cogeneration Auth,
Cogeneration Proj Rev Proctor & Gamble Proj 6.500 07-01-21 BBB- 4,500 4,649,850 6.29
Sacramento Municipal Utilities District,
Ind'l Devel Rev Ref San Diego Gas & Electric Ser C
Inflos 8.868# 08-15-18 AAA 1,000 1,075,250 8.25
San Joaquin Hills Transportation Corridor Agency,
Toll Road Rev Sr Lien Cap Apprec Zero 01-01-19 BBB* 5,000 1,237,400 6.40
Toll Road Rev Sr Lien Cap Apprec Zero 01-01-14 BBB* 5,000 1,709,650 6.69
Santa Ana Financing Auth,
Lease Rev Police Admin & Holding Facil Ser A 6.250 07-01-19 AAA 2,000 2,198,320 5.69
-----------
15,390,271
-----------
Colorado (4.80%)
Arapahoe County Capital Improvement Trust Fund,
Highway Rev Current Ser E-470 Remarketed 8-31-95 6.950 08-31-20 BAA* 6,000 6,472,080 6.44
Colorado Housing Finance Auth,
Single Family Prog Sr Iss A-2 7.625 08-01-17 AA 890 934,838 7.26
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Single Family Residential Rev Ser C 8.750 09-01-17 AA* 370 387,039 8.36
Douglas County School District No. Re. 1,
Douglas and Elbert Counties Imp Ser 1994A 6.400 12-15-11 AAA 1,400 1,513,470 5.92
----------
9,307,427
-----------
Delaware (1.14%)
Delaware State Economic Development Auth,
Rev Ref Poll Control Delmarva Pwr Proj Ser B 6.750 05-01-19 AAA 2,000 2,208,180 6.11
-----------
Florida (7.21%)
Broward, County of,
Resource Recovery Rev Ser 1984 Ses Broward Co.
L.P. South Proj 7.950 12-01-08 A- 4,430 4,880,753 7.22
Citrus, County of,
Poll Control Ref Rev Ser 1992A Florida Pwr Corp
Crystal Rvr Pwr Plant Proj 6.625 01-01-27 A+ 1,250 1,335,638 6.20
Hernando, County of,
Criminal Justice Complex Rev Ser 1986 7.650 07-01-16 AAA 500 635,220 6.02
Lee, County of,
Hosp Board of Directors Hosp Rev Inflos 9.570# 04-01-20 AAA 2,000 2,238,000 8.55
Orange County Health Facilities Auth,
Hosp Rev Orlando Regional Medical Center 9.101# 10-29-21 AAA 1,000 1,201,500 7.57
Tampa, City of,
Cap Imp Prog Rev Ser B Iss of 1988 8.375 10-01-18 BBB 3,500 3,708,530 7.90
-----------
13,999,641
-----------
Illinois (3.87%)
Illinois Health Facilities Auth,
Rev Methodist Hlth Serv Corp Ser 1991 B RIB 9.927# 05-18-21 AAA 1,000 1,149,000 8.64
Rev Swedish-American Hosp 7.400 04-01-20 AAA 750 832,380 6.67
Metropolitan Pier and Exposition Auth,
Dedicated State Tax Rev Ref Ser 1996A McCormick
Place Exposition Proj 5.250 06-15-27 AAA 1,500 1,392,450 5.66
Hosp Facil Rev Ser 1996A McCormick Place Convention
Complex 7.000 07-01-26 BBB- 3,750 4,128,150 6.36
-----------
7,501,980
-----------
Kansas (1.04%)
Sedgwick, County of,
GNMA Coll Mtg Ln Rev Ser C 8.625 11-01-18 AAA 1,940 2,026,931 8.26
-----------
Louisiana (3.22%)
Calcasieu Parish Public Trust Auth,
Mtg Rev Ref 1991 Ser A 7.750 06-01-12 A1 * 480 516,120 7.21
De Soto, Parish of,
Rev Environ Impt Rev Int'l Paper Co Proj Ser A 7.700 11-01-18 A- 2,750 3,135,468 6.75
Rev Environ Impt Rev Int'l Paper Co Proj Ser B 6.550 04-01-19 A- 2,500 2,607,600 6.28
-----------
6,259,188
-----------
Maine (.67%)
Maine State Housing Auth,
Mtg Purchase Ser A-3 7.800 11-15-15 AA- 1,250 1,305,075 7.47
-----------
Massachusetts (7.39%)
Massachusetts Health and Educational Facilities Auth,
Rev St. Elizabeth's Hosp of Boston Ser E 9.770# 08-12-21 AAA 1,000 1,132,750 8.63
Rev Worcester Polytechnic Institute Ser E 6.750 09-01-11 A+ 1,840 2,004,165 6.20
Massachusetts Housing Finance Agency,
Hsg Rev Insured Rental Ser A 6.650 07-01-19 AAA 5,500 5,697,560 6.42
Single Family Hsg Ser 8 7.700 06-01-17 A+ 1,000 1,054,870 7.30
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Massachusetts State Water Pollution Abatement Trust,
Wtr Poll Rev South Essex Swr District Loan Proj
1994 Ser A 6.375 02-01-15 AA- 1,000 1,058,210 6.02
Massachusetts Water Resource Auth,
Gen Rev Ref 1995 Ser B 6.250 12-01-12 AAA 3,105 3,403,701 5.70
-----------
14,351,256
-----------
Michigan (2.20%)
Detroit, City of,
GO Unltd Ser 1995 A 6.800 04-01-15 BBB 1,315 1,385,392 6.45
Michigan Housing Development Auth,
Single Family Mtg Rev Ser A 7.500 06-01-15 AA+ 1,415 1,492,188 7.11
Michigan State Hospital Finance Auth,
Hosp Rev Ref Ser 1995A Genesys Hlth Sys Oblig Group 8.100 10-01-13 BBB 1,250 1,397,775 7.24
-----------
4,275,355
-----------
Minnesota (.14%)
Minnesota Housing Finance Agency,
Single Family Mtg 1990 Ser C 7.700 07-01-14 AA+ 250 264,325 7.28
-----------
Nevada (1.33%)
Nevada Housing Division,
Single Family Proj Sr Rev Ser 1989 Iss A-1 7.350 04-01-16 AA 890 924,434 7.08
Single Family Proj Sr Rev Ser 1990 Iss C-1 7.850 10-01-15 AA 330 346,701 7.47
Nevada, State of,
GO Ltd Tax Municipal Bond Bank Proj No. 38 Ser A
Unref Bal 6.750 07-01-09 AA 25 27,284 6.19
Reno, City of,
Hosp Rev St. Mary's Regional Medical Center Ser A
Preref Bal 7.750 07-01-07 AAA 720 774,454 7.22
Hosp Rev St. Mary's Regional Medical Center Ser A
Unref Bal 7.750 07-01-07 AAA 480 515,501 7.22
-----------
2,588,374
-----------
New Jersey (.58%)
New Jersey Turnpike Auth,
Turnpike Rev 1991 Ser C 6.500 01-01-16 AAA 1,000 1,125,100 5.78
-----------
New York (18.06%)
Metropolitan Transportation Auth,
Commuter Facil Rev Ser A 6.100 07-01-26 AAA 2,500 2,592,775 5.88
Transit Facil Rev Ser J 6.500 07-01-18 AAA 1,000 1,085,160 5.99
New York Local Government Assistance Corp,
Rev Ser 1991C 7.000 04-01-10 A 2,000 2,210,640 6.33
Ser 1992 A Pub Benefit Corp 6.875 04-01-19 A 2,000 2,212,560 6.21
New York State Dormitory Auth,
City Univ Sys Consol Rev 2nd Generation Ser 1993A 5.750 07-01-09 BBB 1,000 999,020 5.76
City Univ Sys Consol Rev 2nd Generation Ser 1993A 6.000 07-01-20 BBB 1,000 1,016,420 5.90
State Univ Ed Facil Rev Ser 1990B 7.000 05-15-16 BBB+ 5,000 5,350,600 6.54
State Univ Ed Facil Rev Ser 1993A 5.500 05-15-13 BBB+ 3,000 2,898,840 5.69
State Univ Ed Facil Rev Ser 1993A 5.500 05-15-19 BBB+ 1,000 954,050 5.76
New York State Environmental Facilities Corp,
State Wtr Poll Control Revolving Fund Rev Ser 1990 A 7.500 06-15-12 A 600 664,074 6.78
New York State Mortgage Agency,
Homeowner Mtg Rev Ser BB-2 7.950 10-01-15 AA * 560 583,111 7.63
New York State Urban Development Corp,
Rev Ref Correctional Facil Proj Ser A 5.500 01-01-14 BBB 2,800 2,700,348 5.70
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 6.750 10-01-19 BBB * 4,500 4,558,815 6.66
Triborough Bridge and Tunnel Auth,
Rev Ref Ser 1987 L 8.000 01-01-07 A+ 500 531,605 7.52
Gen Purpose Rev Ser 1993 Zero 01-01-21 AAA 3,985 1,012,628 5.75
Gen Purpose Rev Ser X 6.500 01-01-19 A+ 1,250 1,348,275 6.03
Gen Purpose Rev Ser Y 6.125 01-01-21 A+ 4,000 4,342,960 5.64
-----------
35,061,881
-----------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ohio (4.33%)
Cleveland Ohio Public Power System,
Elec Sys Rev First Mtg Ser 1994A 7.000 11-15-16 AAA 5,860 6,727,749 6.10
Cuyahoga, County of,
Hosp Imp Rev Deaconess Hosp of Cleveland Proj Ser
1985 B 7.450 10-01-18 A1 * 750 849,832 6.57
Hosp Rev Meridia Hlth Sys Ser 1991 7.000 08-15-23 A 750 817,897 6.42
-----------
8,395,478
-----------
Pennsylvania (5.08%)
Northumberland County Auth,
Commonwealth Lease Rev Ser 1991 6.250 10-15-09 AAA 1,000 1,077,850 5.80
Pennsylvania Economic Development Financing Auth,
Rev Ser D Colver Proj 7.150 12-01-18 BBB- 5,000 5,237,250 6.83
Pennsylvania Turnpike Commission,
Turnpike Rev Ser K 7.625 12-01-09 AAA 500 556,765 6.85
Philadelphia Hospitals and Higher Education Facilities
Auth, Hosp Rev Children's Hosp Philadelphia Proj Ser A 7.875 07-01-08 AA 500 520,845 7.56
Hosp Rev Ser 1993A Temple Univ Hosp Proj 6.625 11-15-23 A- 2,375 2,472,280 6.36
-----------
9,864,990
-----------
Puerto Rico (.58%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth
of Puerto Rico 8.220# 07-01-11 AAA 1,000 1,121,250 7.33
-----------
South Carolina (3.24%)
James Island Public Service District,
Charleston County Swr Sys Ref 7.500 06-01-18 AAA 1,250 1,373,000 6.83
Lexington County School District No. 1,
Cert of Part 1989 Ser B Pelion High School Proj 7.650 09-01-09 AAA 1,145 1,254,473 6.98
Richland, County of,
Poll Control Rev Union Camp Corp Proj Ser 1992 B 6.625 05-01-22 A- 2,460 2,598,080 6.27
Poll Control Rev Union Camp Corp Proj Ser C 6.550 11-01-20 A- 1,000 1,061,910 6.17
-----------
6,287,463
-----------
South Dakota (.56%)
South Dakota Health and Educational Facilities Auth,
Rev Ser 1989 Sioux Valley Hosp Iss 7.625 11-01-13 AA- 75 80,990 7.06
Rev Ser 1989 Sioux Valley Hosp Iss 7.625 11-01-13 AA- 925 1,004,661 7.02
-----------
1,085,651
-----------
Tennessee (5.59%)
Eastside Utility District of Hamilton,
Waterworks Rev Iss 6.750 11-01-11 BBB+ 1,000 1,023,170 6.60
Humphreys County Industrial Development Board,
Solid Waste Disposal Rev E.I. Dupont Denemours and
Co Proj 6.700 05-01-24 AA- 6,500 6,965,335 6.25
Metropolitan Nashville and Davidson County Health and
Facility Board, Rev Ref Vanderbilt Univ Ser A 7.625 05-01-16 AA 1,750 1,852,025 7.20
Tennessee Housing Development Agency,
Homeownership Program Proj J 7.750 07-01-17 AA 1,000 1,015,250 7.63
-----------
10,855,780
-----------
Texas (5.49%)
Austin, City of,
Utility Sys Rev Ref Ser B 7.800 11-15-12 A 1,000 1,079,800 7.22
Corpus Christi Housing Finance Corp,
Single Family Mtg Sr Rev Ref Ser 1991 A 7.700 07-01-11 AAA 650 696,956 7.18
El Paso Housing Finance Corp,
Single Family Mtg Rev Ref Bonds 1991 Ser A 8.750 10-01-11 A * 575 622,070 8.09
Harris County Health Facilities Development Corp,
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Hosp Rev Ser 1988A Saint Luke's Episcopal Hosp Proj 8.250 02-15-08 AAA 1,475 1,647,634 7.39
Harris, County of,
Criminal Justice Center ** 5.625 10-01-23 AAA 1,500 1,478,445 5.71
Toll Road Untld Tax & Sub Lien Ref 8.100 08-01-08 AAA 250 271,772 7.45
Toll Road Untld Tax & Sub Lien Ref 8.125 08-01-15 AAA 250 271,878 7.47
Houston, City of,
Wtr and Swr Sys Rev Ref Prior Lien Ser B 6.750 12-01-08 A 1,500 1,630,635 6.21
North Central Texas Health Facilitities Development,
Hospital Rev Baylor Univ Medical Center Ser 1991A 9.949# 05-15-16 AA 1,000 1,214,000 8.20
Texas, State of,
Veterans' Land Board GO 7.125 12-01-09 AA 1,000 1,073,570 6.64
Veterans' Land Board GO Preref 8.250 12-01-10 AAA 610 679,577 7.41
-----------
10,666,337
-----------
Utah (3.84%)
Intermountain Power Agency,
Pwr Supply Rev Ref Ser 1995 B 5.000 07-01-16 A+ 1,935 1,758,876 5.50
Pwr Supply Rev Ref Ser A 5.000 07-01-21 A+ 2,000 1,776,940 5.63
Salt Lake City Hospital,
Ref Ref IHC Hosp Inc VRDN/RIB 9.642# 05-15-20 AAA 1,500 1,710,375 8.46
Rev Ref IHC Hosp Inc Ser B 8.000 05-15-07 AA 350 374,815 7.47
Rev Ref Ser A 8.125 05-15-15 AAA 1,000 1,194,460 6.80
Utah Housing Finance Agency,
Single Family Mtg Sr 1990 Iss B-2 7.700 07-01-15 AA 320 332,826 7.40
Single Family Mtg Sr 1991 Iss B-1 7.500 07-01-16 AA 300 315,624 7.13
-----------
7,463,916
-----------
Virginia (1.79%)
Arlington County Industrial Development Auth,
Hosp Facil Rev Arlington Hosp Ser 1991 A 7.125 09-01-21 AAA * 500 564,465 6.31
Fairfax County Industrial Develpment Auth,
Rev RITES 9.777# 08-29-23 AA 1,000 1,219,000 8.02
Fredericksburg Industrial Auth,
Hosp Facil Rev 9.468# 08-15-23 AAA 1,500 1,682,250 8.44
-----------
3,465,715
-----------
Washington (1.59%)
Tacoma Electric System,
Rev VRDN/RIBS Iss of 1991 9.083# 01-02-15 AAA 1,000 1,109,000 8.19
University of Washington,
Housing & Dining Sys Rev Ser 1991 7.000 12-01-21 AAA 750 839,002 6.26
Washington, State of,
GO Ser A of 1990 6.750 02-01-15 AA 1,000 1,147,750 5.88
-----------
3,095,752
-----------
Wisconsin (.58%)
Sturgeon Bay Combined Utilities,
Door County Combined Util Mtg Rev Prerefunded Ser 1990 7.500 01-01-10 AAA 770 861,830 6.70
Door County Combined Util Mtg Rev Unrefunded Ser 1990 7.500 01-01-10 AAA 230 255,401 6.75
-----------
1,117,231
-----------
Wyoming (.53%)
Sweetwater, County of,
Poll Control Rev Idaho Pwr Co Ser B 7.625 12-01-13 AAA 1,000 1,033,040 7.38
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $179,768,424) (98.73%) 191,671,905
======= ===========
</TABLE>
<PAGE>
* Credit Ratings are rated by Moody's Investor Services, Fitch or John Hancock
Advisers, Inc. where Standard & Poor's ratings are not available.
**These securities having an aggregate value of $3,993,146 or 2.06% of the
Fund's net assets, have been purchased on a delayed delivery basis. The Fund has
instructed its Custodian Bank to segregate assets with a current value at least
equal to its unfunded commitment. Accordingly, the market value of $1,607,385 of
Humphreys County Industrial Development Board 6.70%, 05/01/24, $2,755,392 of
Cleveland Ohio Public Power System 7.00%, 11/15/16, and $2,693,392 of
Massachusetts Housing Finance Agency 6.65%, 07/01/19 have been segregated to
cover the unfunded commitment. The sale of these securities has certain
restrictions.
***Credit ratings are unaudited.
+ The yield is not calculated in accordance with guidelines established by the
U.S. Securities Exchange Commission. Zero coupon yields are at yield to
maturity.
# Represents rate in effect on October 31, 1996.
The percentages shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
RIB - Residual Interest Bond
VRDN - Variable Rate Demand Note
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Portfolio Concentration (Unaudited)
The Managed Tax-Exempt 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 October
31, 1996 assigned to the various sector categories.
MARKET VALUE AS A PERCENTAGE OF
SECTOR DISTRIBUTION THE FUND'S NET ASSETS:
-------------------- ----------------------
General Obligation............................ 3.%3
Revenue Bonds - Education..................... 8.67
Revenue Bonds - Electric Power................ 6.97
Revenue Bonds - Health........................ 16.47
Revenue Bonds - Housing....................... 12.48
Revenue Bonds - Industrial Development Bond... 4.61
Revenue Bonds - Other......................... 14.97
Revenue Bonds - Pollution Control Facilities.. 14.16
Revenue Bonds - Transportation................ 10.63
Revenue Bonds - Water & Sewer................. 6.44
-------
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.73%
=======
<PAGE>
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust (the "Trust") is a diversified open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of four series: John Hancock Managed Tax-Exempt Fund (the
"Fund"), John Hancock Regional Bank Fund, John Hancock Disciplined Growth Fund,
and John Hancock Financial Industries Fund. The other three series of the Trust
are reported in separate financial statements. The investment objective of the
Fund is to seek as high a level of current income exempt from Federal income tax
as is consistent with preservation of capital, by investing primarily in
municipal securities.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, 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 and service expenses under
terms of a distribution plan have exclusive voting rights to that 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. 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.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable and tax-exempt income, including any net
realized gain on investments, to its shareholders. Therefore, no federal income
tax provision is required.
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 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 below.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which 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.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and 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
to each class.
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
<PAGE>
the Internal Revenue Code. The Fund records market discount on bonds purchased
after April 30, 1993 at time of disposition.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from these estimates.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin", equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract is
valued at the official settlement price on the board of trade or U.S.
commodities exchange on which it trades. Subsequent payments, known as
"variation margin", to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. 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
fluctuation imposed by an exchange.
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 contracts.
At October 31, 1996, there were no open positions in financial futures
contracts.
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) 0.60% of the first $250,000,000 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 $750,000,000.
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.
The Adviser has agreed to limit it's management fee to 0.55% of the Fund's
average daily net assets. Accordingly, the reduction in the Adviser's fee
amounted to $103,025 for the period ended October 31, 1996. The Adviser reserves
the right to terminate this limitation in the future.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. For the period ended October 31, 1996, net sales charges
received with regard to sales of Class A shares amounted to $81,958. Of this
amount, $8,135 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $8,051 was paid as sales commissions to
unrelated broker-dealers and $65,772 was paid as sales commissions to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which
are broker dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company, is the indirect sole shareholder of Distributors and John
Hancock Freedom Securities Corporation and its subsidiaries, which include FDC,
Tucker Anthony and Sutro.
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 the CDSC
<PAGE>
are paid to JH Funds and are used in whole or in part to defray its expenses for
providing distribution related services to the Fund in connection with the sale
of Class B shares. For the period ended October 31, 1996, the contingent
deferred sales charges paid to JH Funds amounted to $359,632.
In addition, to reimburse the Co-Distibutors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors 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 the Co-Distibutors for their distribution and
service costs. Up to a maximum of 0.25% of such 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. In
order to comply with this rule, the 12b-1 fee on Class B ranged from 0.90% to
1.00% of average daily net assets throughout the period.
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 Investor Services a fee based on the
number of shareholder accounts and certain out-of-pocket expenses.
On August 27, 1996, the Board of Trustees approved retroactively to July
1, 1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Fund. The compensation for 1996 is estimated to be
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon 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 makes
investments into other John Hancock funds, as applicable, to cover its liability
for the deferred compensation. Investments to cover the Fund's deferred
compensation liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. At October 31, 1996, the
Fund's investments to cover the deferred compensation liability had unrealized
appreciation of $666.
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 October 31, 1996, aggregated $141,536,634 and $168,961,371 respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended October 31, 1996.
The cost of investments owned at October 31, 1996, for federal income tax
purposes was $179,768,424. Gross unrealized appreciation and depreciation of
investments aggregated $12,156,648 and $253,167, respectively, resulting in net
unrealized appreciation of $11,903,481.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1996, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of $29,086 ,
an increase in undistributed net investment income of $98,229, and a decrease in
capital paid-in of $69,143. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1996. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to the treatment of gains on the disposition of
market discount securities in the computation of distributable income and
capital gains under federal tax rules versus generally accepted accounting
principles. The calculation of net investment income per share in the financial
highlights excludes these adjustments.
<PAGE>
NOTE E-
SUBSEQUENT EVENT
On November 14, 1996 shareholders approved a vote on a proposed merger between
the Fund and the John Hancock Tax-Free Bond Fund ("Tax-Free Bond Fund"). The
reorganization provided for a transfer of substantially all the assets and
liabilities of the Fund to the Tax-Free Bond Fund. After the transaction and as
of the close of business on December 6, 1996, the Fund will be terminated.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Managed Tax-Exempt Fund
and the Trustees of Freedom Investment Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments except for the S & P ratings and yield to maturity,
and the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of John Hancock Managed Tax-Exempt Fund (the "Fund") (a series of
Freedom Investment Trust) at October 31, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at October 31, 1996 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
December 12, 1996
<PAGE>
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished
with respect to the taxable distributions of the Fund during its fiscal year
ended October 31, 1996.
The Fund designated distributions to shareholders of $2,075,139 as a
long-term capital gain dividend. These amounts were reported on the 1995 U.S.
Treasury Department Form 1099-DIV. It is anticipated that there will be a
distribution from net realized gains from sales of securities and financial
futures contracts to shareholders of record on December 4, 1996 and payable on
December 5, 1996. Shareholders will receive a 1996 U.S. Treasury Department Form
1099-DIV in January 1997 representing their proportionate share.
Income dividends for the Fund are 98.92% tax-exempt.
