JOHN HANCOCK MANAGED TAX-EXEMPT FUND
101 Huntington Avenue
Boston, Massachusetts 02199
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 14, 1996
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of John Hancock Managed Tax-Exempt Fund ("Managed Tax-Exempt Fund"),
a series of Freedom Investment Trust (the "Trust"), a Massachusetts business
trust, will be held at 101 Huntington Avenue, Boston, Massachusetts 02199 on
Thursday, November 14, 1996 at 9:00 a.m., Boston time, and at any adjournment of
the Meeting, for the following purposes:
1. To consider and act upon a proposal to approve an Agreement and Plan of
Reorganization between Managed Tax-Exempt Fund and John Hancock Tax-Free Bond
Fund ("Tax-Free Bond Fund"), a series of a Massachusetts business trust,
providing for Tax-Free Bond Fund's acquisition of all of Managed Tax-Exempt
Fund's assets in exchange solely for the assumption of Managed Tax-Exempt Fund's
liabilities, and the issuance of Class A and Class B shares of Tax-Free Bond
Fund to Managed Tax-Exempt Fund for distribution to its shareholders.
2. To consider and act upon any other matters that may properly come before
the Meeting or any adjournment of the Meeting.
The Board of Trustees has fixed the close of business on September 20, 1996
as the record date to determine the shareholders who are entitled to receive
this notice and to vote at the Meeting and any adjournment of the Meeting.
If you cannot attend the Meeting in person, please complete, date and sign
the enclosed proxy and return it to John Hancock Investor Services Corporation,
101 Huntington Avenue, Boston, Massachusetts 02199 in the enclosed envelope. It
is important that you exercise your right to vote. THE ENCLOSED PROXY IS BEING
SOLICITED BY THE BOARD OF TRUSTEES OF JOHN HANCOCK MANAGED TAX-EXEMPT FUND.
By order of the Board of Trustees,
SUSAN S. NEWTON, Secretary
Boston, Massachusetts
September 30, 1996
<PAGE>
JOHN HANCOCK MANAGED TAX-EXEMPT FUND
PROXY STATEMENT
----------------------
JOHN HANCOCK TAX-FREE BOND FUND
PROSPECTUS
----------------------
This Proxy Statement and Prospectus sets forth the information you should
know before voting on the proposed reorganization of John Hancock Managed
Tax-Exempt Fund ("Managed Tax-Exempt Fund") into John Hancock Tax-Free Bond Fund
("Tax-Free Bond Fund"). Please read it carefully and retain it for future
reference.
This Proxy Statement and Prospectus is accompanied by the Prospectus of
Tax-Free Bond Fund dated September 30, 1996 (included as EXHIBIT A). Information
about Managed Tax-Exempt Fund's shares is incorporated by reference from the
Managed Tax-Exempt Fund Prospectus which is available at no charge upon request
to Managed Tax-Exempt Fund at 1-800-225-5291.
A Statement of Additional Information, dated September 30, 1996, relating
to this Proxy Statement and Prospectus, and containing additional information
about each of Tax-Free Bond Fund and Managed Tax-Exempt Fund, including
historical financial statements, is on file with the Securities and Exchange
Commission ("SEC"). It is available at no charge from Tax-Free Bond Fund upon
telephone request at the toll-free number stated above. The Statement of
Additional Information is incorporated by reference into this Prospectus.
This Proxy Statement and Prospectus relates to Class A and Class B shares
of beneficial interest, no par value (collectively, the "Tax-Free Bond Fund
Shares"), of Tax-Free Bond Fund which will be issued in exchange for all of
Managed Tax-Exempt Fund's assets. In exchange for these assets, Tax-Free Bond
Fund will also assume all of the liabilities of Managed Tax-Exempt Fund.
The Tax-Free Bond Fund Class A Shares issued to Managed Tax-Exempt Fund for
distribution to Managed Tax-Exempt Fund's Class A shareholders will have an
aggregate net asset value equal to the aggregate net asset value of Managed
Tax-Exempt Fund's Class A shares. The Tax-Free Bond Fund Class B Shares issued
to Managed Tax-Exempt Fund for distribution to Managed Tax-Exempt Fund's Class B
shareholders will have an aggregate net asset value equal to the aggregate net
asset value of Managed Tax-Exempt Fund's Class B Shares. The asset values of
Managed Tax-Exempt Fund and Tax-Free Bond Fund will be determined at the close
of business (4:00 p.m. Eastern Time) on the Closing Date (as defined below) for
purposes of the proposed reorganization.
Following the receipt of Tax-Free Bond Fund Shares (1) Managed Tax-Exempt
Fund will be liquidated, (2) the Tax-Free Bond Fund Shares will be distributed
to Managed Tax-Exempt Fund's shareholders pro rata in exchange for their shares
of Managed Tax-Exempt Fund and (3) Managed Tax-Exempt Fund will be terminated as
a series of the Trust. Consequently, Class A Managed Tax-Exempt Fund
shareholders will become Class A shareholders of Tax-Free Bond Fund, and Class B
Managed Tax-Exempt Fund shareholders will become Class B shareholders of
Tax-Free Bond Fund. These transactions are collectively referred to in this
- ------------------------
continued on next page)
Shares of Tax-Free Bond Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank or other depository institution, and the
shares of Tax-Free Bond Fund are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other government agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
(continued)
- ------------------
Proxy Statement and Prospectus as the "Reorganization." The Reorganization is
being structured as a tax-free reorganization so that, in the opinion of tax
counsel, no gain or loss will be recognized by Tax-Free Bond Fund, Managed
Tax-Exempt Fund or the shareholders of Managed Tax-Exempt Fund. The terms and
conditions of the Reorganization are more fully described in this Proxy
Statement and Prospectus, and in the Agreement and Plan of Reorganization that
is attached as EXHIBIT B.
Tax-Free Bond Fund is a diversified series of John Hancock Tax-Free Bond
Trust (the "Bond Trust"), an open-end management investment company organized as
a Massachusetts business trust in 1989. Tax-Free Bond Fund seeks as high a level
of current income exempt from federal income tax as is consistent with
preservation of capital. Tax-Free Bond Fund seeks to obtain this objective by
investing primarily in municipal obligations, including bonds, notes and
commercial paper, the interest on which is exempt from federal income taxes.
The principal place of business of both Tax-Free Bond Fund and Managed
Tax-Exempt Fund is at 101 Huntington Avenue, Boston, Massachusetts 02199. Their
toll-free telephone number is 1-800-225-5291.
The date of this Proxy Statement and Prospectus is September 30, 1996.
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION............................................................ 1
SUMMARY ............................................................... 2
RISK FACTORS AND SPECIAL CONSIDERATIONS................................. 18
INFORMATION CONCERNING THE MEETING...................................... 19
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION................ 21
CAPITALIZATION.......................................................... 28
COMPARATIVE PERFORMANCE INFORMATION..................................... 29
BUSINESS OF MANAGED TAX-EXEMPT FUND..................................... 3
General........................................................ 33
Investment Objective and Policies.............................. 33
Trustees....................................................... 33
Investment Adviser and Distributor............................. 33
Expenses....................................................... 34
Custodian and Transfer Agent................................... 34
Managed Tax-Exempt Fund Shares................................. 34
Purchase of Managed Tax-Exempt Fund Shares..................... 34
Redemption of Managed Tax-Exempt Fund Shares................... 34
Dividends, Distributions and Taxes............................. 34
BUSINESS OF TAX-FREE BOND FUND.......................................... 34
Investment Objective and Policies.............................. 35
Trustees....................................................... 35
Investment Adviser and Distributor............................. 35
Expenses....................................................... 35
Custodian and Transfer Agent................................... 35
Tax-Free Bond Fund Shares...................................... 35
Purchase of Tax-Free Bond Fund Shares.......................... 35
Redemption of Tax-Free Bond Fund Shares........................ 35
Dividends, Distributions and Taxes............................. 36
EXPERTS ............................................................... 36
AVAILABLE INFORMATION................................................... 36
AGREEMENT AND PLAN OF REORGANIZATION.................................... B-1
-i-
<PAGE>
EXHIBITS
A - Prospectus of John Hancock Tax-Free Bond Fund, dated September 30, 1996
(included with this document).
B - Agreement and Plan of Reorganization by and between John Hancock Managed
Tax-Exempt Fund and John Hancock Tax-Free Bond Fund (attached to this
document).
C - Annual Report to Shareholders of John Hancock Tax-Free Bond Fund, dated
December 31, 1995 (included with this document).
D - Semi-annual Report to Shareholders of John Hancock Tax-Free Bond Fund,
dated June 30, 1996 (included with this document).
-ii-
<PAGE>
PROXY STATEMENT AND PROSPECTUS
FOR SPECIAL MEETING OF SHAREHOLDERS OF
JOHN HANCOCK MANAGED TAX-EXEMPT FUND
TO BE HELD ON NOVEMBER 14, 1996
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies by the Board of Trustees of Freedom Investment Trust
(the "Trust") on behalf of Managed Tax-Exempt Fund (the "Board of Trustees").
The proxies will be voted at the Special Meeting of Shareholders (the "Meeting")
of Managed Tax-Exempt Fund to be held at 101 Huntington Avenue, Boston,
Massachusetts 02199 on Thursday, November 14, 1996 at 9:00 a.m., Boston time,
and at any adjournment or adjournments of the Meeting. The purposes of the
Meeting are set forth in the accompanying Notice of Special Meeting of
Shareholders.
This Proxy Statement and Prospectus incorporates by reference the
Prospectus of Managed Tax-Exempt Fund, dated March 1, 1996, as supplemented
August 27, 1996 (the "Managed Tax-Exempt Fund Prospectus"). It includes the
prospectus of Tax-Free Bond Fund, dated September 30, 1996 (the "Tax-Free Bond
Fund Prospectus"). The Managed Tax-Exempt Fund Prospectus is available upon
request. The Annual Report to Shareholders of Tax-Free Bond Fund, dated December
31, 1995, and the Semi-annual Report to Shareholders of John Hancock Tax-Free
Bond Fund, dated June 30, 1996, are included with this Proxy Statement and
Prospectus. These materials will be mailed to shareholders of Managed Tax-Exempt
Fund on or after September 30, 1996. Managed Tax-Exempt Fund's Annual Report to
Shareholders and Semi-annual Report to Shareholders were previously sent to
shareholders of Managed Tax-Exempt Fund on or about December 31, 1995 and June
30, 1996, respectively.
As of September 20, 1996, 17,148,718 shares of beneficial interest of
Managed Tax-Exempt Fund were outstanding. Shareholders of record on September
20, 1996 (the "Record Date") are entitled to notice of and to vote at the
Meeting.
All properly executed proxies received by management prior to the Meeting,
unless revoked, will be voted at the Meeting according to the instructions on
the proxies. If no instructions are given, shares of Managed Tax-Exempt Fund
represented by proxies will be voted FOR the proposal (the "Proposal") to
approve the Agreement and Plan of Reorganization (the "Agreement") between
Managed Tax-Exempt Fund and Tax-Free Bond Fund.
The Board of Trustees knows of no business to be presented for
consideration at the Meeting other than that mentioned in the immediately
preceding paragraph. If other business is properly brought before the Meeting,
proxies will be voted according to the best judgment of the persons named as
proxies.
1
<PAGE>
In addition to the mailing of these proxy materials, proxies may be
solicited in person or by telephone by Trustees, officers and employees of
Managed Tax-Exempt Fund; by personnel of Managed Tax-Exempt Fund's investment
adviser, John Hancock Advisers, Inc. (the "Adviser") and its transfer agent,
John Hancock Investor Services Corporation ("Investor Services"); or by
broker-dealer firms. Investor Services, together with a third party solicitation
firm, has agreed to provide proxy solicitation services to Managed Tax-Exempt
Fund at a cost of approximately $10,000.
Managed Tax-Exempt Fund and Tax-Free Bond Fund (each, a "Fund" and
collectively, the "Funds") will each bear its own fees and expenses in
connection with the Reorganization discussed in this Proxy Statement and
Prospectus.
The information concerning Managed Tax-Exempt Fund in this Proxy Statement
and Prospectus has been supplied by Managed Tax-Exempt Fund. The information
concerning Tax-Free Bond Fund in this Proxy Statement and Prospectus has been
supplied by Tax-Free Bond Fund.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus. The summary is qualified by reference to
the more complete information contained in this Proxy Statement and Prospectus,
and in the EXHIBITS attached to or included with this document. Please read this
entire Proxy Statement and Prospectus carefully.
REASONS FOR THE PROPOSED REORGANIZATION
The Trust's Board of Trustees, on behalf of Managed Tax-Exempt Fund, has
determined that the proposed Reorganization is in the best interests of Managed
Tax-Exempt Fund and its shareholders. In making this determination, the Trustees
considered several relevant factors, including (i) the fact that Tax-Free Bond
Fund is more widely recognized in the broker community as John Hancock's primary
national tax-exempt fund, making it increasingly difficult to attract assets to
Managed Tax-Exempt Fund, (ii) the fact that the investment objectives and
policies of the Funds are substantially similar, (iii) the fact that combining
the Funds' assets into a single portfolio will enable Tax-Free Bond Fund to
achieve greater diversification than either Fund is now able to achieve, (iv)
the fact that the Tax-Free Bond Fund Shares received in the Reorganization will
provide existing Managed Tax-Exempt Fund shareholders with substantially the
same investment advantages that they currently enjoy at a comparable level of
risk, and (v) the fact that there is a reasonable likelihood that the
2
<PAGE>
Reorganization may result in improved economies of scale over time and a
corresponding decrease in the total expenses borne by Managed Tax-Exempt Fund's
shareholders. For a more detailed discussion of the reasons for the proposed
Reorganization, see "Proposal to Approve the Agreement and Plan of
Reorganization--Reasons for the Proposed Reorganization."
THE FUNDS' EXPENSES
Both Funds and their shareholders are subject to various fees and expenses.
The two tables set forth below show the shareholder transaction and operating
expenses of Class A and Class B shares of the Funds and the effect of applicable
expense limitations. These expenses are based on fees and expenses incurred
during each Fund's most recently completed fiscal year and with respect to
Managed Tax-Exempt Fund adjusted to reflect operating expenses to June 30, 1996
and with respect to Tax-Free Bond Fund (Pro Forma) adjusted to reflect changes
to fees and expenses effective December 23, 1996.
Managed Tax-Exempt Fund
Class A Class B
Shares Shares
------ ------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(As a percentage of offering price)................. 4.50% None
Maximum sales charge imposed on reinvested
dividends........................................... None None
Maximum deferred sales charge........................... None(1) 5.00%
Redemption fee (2)...................................... None None
Exchange fee............................................ None None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management fee (after expense limitation) (3)........... 0.55% 0.55%
12b-1 fee (4)........................................... 0.30% 1.00%
Other expenses.......................................... 0.21% 0.21%
Total Fund operating expenses (after expense
limitation)(3)...................................... 1.06% 1.76%
(1) No sales charge is payable at the time of purchase on investments in Class
A shares of $1 million or more, but for these investments a contingent
deferred sales charge may be imposed in the event of certain redemption
transactions within one year of purchase.
(2) Does not include wire redemption fee (currently $4.00).
3
<PAGE>
(3) Reflects the Adviser's temporary agreement to limit expenses. Without this
limitation, management fees would be 0.60% for each class and total Fund
operating expenses would be 1.11% for Class A and 1.81% for Class B.
(4) The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average daily net assets, and the remaining portion
will be used to cover distribution expenses.
Tax-Free Bond Fund
Class A Class B
Shares Shares
------ ------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(As a percentage of offering price)................. 4.50% None
Maximum sales charge imposed on reinvested
dividends........................................... None None
Maximum deferred sales charge........................... None(1) 5.00%
Redemption fee (2)...................................... None None
Exchange fee............................................ None None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management fee ......................................... 0.55% 0.55%
12b-1 fee (3)........................................... 0.25% 1.00%
Other expenses.......................................... 0.29% 0.29%
Total Fund operating expenses (4)....................... 1.09% 1.84%
(1) No sales charge is payable at the time of purchase on investments in Class
A shares of $1 million or more, but for these investments a contingent
deferred sales charge may be imposed in the event of certain redemption
transactions within one year of purchase.
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
(4) Until December 23, 1996, the Adviser has agreed to limit total fund
operating expenses to 0.85% for Class A and 1.60% for Class B. Prior to
December 23, 1996, total Fund operating expenses are 0.99% for Class A and
1.74% for Class B. Effective December 23, 1996, the 12b-1 fee will be
increased from 0.15% to 0.25% for Class A and from 0.90% to 1.00% for Class
B and total fund operating expenses are those shown in the table above.
4
<PAGE>
Tax-Free Bond Fund (Pro Forma)
The table set forth below shows the pro forma operating expenses of Class A
and Class B shares of Tax-Free Bond Fund which assumes (i) that the
Reorganization took place on June 30, 1996; (ii) that the Rule 12b-1 fee for
Class A shares is 0.25%; and (iii) that the Fund's distributor is paid the
entire amount of the Class B Rule 12b-1 fee. These expenses are based on fees
and expenses incurred during Tax-Free Bond Fund's most recently completed fiscal
year.
<PAGE>
Class A Class B
Shares Shares
------ ------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(As a percentage of offering price)................. 4.50% None
Maximum sales charge imposed on reinvested
dividends........................................... None None
Maximum deferred sales charge........................... None(1) 5.00%
Redemption fee (2)...................................... None None
Exchange fee............................................ None None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management fee (3)...................................... 0.53% 0.53%
12b-1 fee (4)........................................... 0.25% 1.00%
Other expenses.......................................... 0.24% 0.24%
Total Fund operating expenses (5)....................... 1.02% 1.77%
(1) No sales charge is payable at the time of purchase on investments in Class
A shares of $1 million or more, but for these investments a contingent
deferred sales charge may be imposed in the event of certain redemption
transactions within one year of purchase.
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects lower management fee rate applicable to the Fund's average daily
net assets in excess of $500,000,000 as of June 30, 1996.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
(5) Until December 23, 1996, the Adviser has agreed to limit total fund
operating expenses to 0.85% for Class A and 1.60% for Class B. Effective
December 23, 1996, the 12b-1 fee will be increased from 0.15% to 0.25% for
Class A and from 0.90% to 1.00% for Class B. Prior to the increase, total
Fund operating expenses would be 0.92% for Class A and 1.67% for Class B.
5
<PAGE>
If the Reorganization is consummated, the actual total operating expenses
of Class A and Class B shares of Tax-Free Bond Fund may vary from the pro forma
operating expenses indicated above due to changes in the net asset values of
Managed Tax-Exempt Fund and/or Tax-Free Bond Fund between June 30, 1996 and the
Closing Date (defined below).
Example
The following example illustrates the expenses you would pay on a $1,000
investment under the existing fees for Class A and Class B shares of each of
Managed Tax-Exempt Fund and Tax-Free Bond Fund and under the pro forma fees if
the Reorganization had occurred on June 30, 1996. The example assumes (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares Class A Class B Pro Pro
Managed Managed Shares Shares Forma Forma
Tax-Exempt Tax-Exempt Tax-Free Tax-Free Class A Class B
Fund Fund Bond Bond Shares Shares
---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year $ 55 $ 68 $ 56 $ 69 $ 55 $ 68
3 years 77 85 78 88 76 86
5 years 101 115 102 120 99 116
10 years 169 189 172 196 164 189
</TABLE>
Assuming there is no redemption at the end of each time period, the
expenses you would pay on the same investment would be as follows:
<TABLE>
<CAPTION>
Class B
Shares Class B Pro
Managed Shares Forma
Tax-Exempt Tax-Free Class B
Fund Bond Fund Shares
---- --------- ------
<S> <C> <C> <C>
1 year $ 18 $ 19 $ 18
3 years 55 58 56
5 years 95 100 96
10 years 189 196 189
</TABLE>
The purpose of this example and the tables set forth above is to help
you understand the various costs and expenses of investing in each of the Funds
and what the costs would be had the Reorganization already occurred. The example
above should not be considered a representation of future expenses of the Funds
or of Tax-Free Bond Fund after the Reorganization. Actual expenses may vary from
year to year and may be higher or lower than those shown above.
6
<PAGE>
THE FUNDS' INVESTMENT ADVISER
John Hancock Advisers, Inc. acts as investment adviser to both Funds.
BUSINESS OF MANAGED TAX-EXEMPT FUND
Managed Tax-Exempt Fund is a diversified open-end management investment
company organized as a series of the Trust, a Massachusetts business trust.
Managed Tax-Exempt Fund commenced operations in 1987. As of June 30, 1996,
Managed Tax-Exempt Fund's net assets were $198,981,567. Frank A. Lucibella has
been leader of the Fund's portfolio management team since joining the Adviser in
1988.
BUSINESS OF TAX-FREE BOND FUND
Tax-Free Bond Fund is a diversified open-end management investment company
organized as a series of Bond Trust, a Massachusetts business trust. Tax-Free
Bond Fund commenced operations in 1989. As of June 30, 1996, Tax-Free Bond
Fund's net assets were $650,489,968. Thomas C. Goggins has been leader of the
Fund's portfolio management team since joining the Adviser in April 1995. A
senior vice president of the Adviser, Mr. Goggins has been in the investment
business since 1986.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES OF MANAGED TAX-EXEMPT FUND AND
TAX-FREE BOND FUND
Each Fund's investment objective is fundamental and may not be changed
without shareholder approval.
In considering whether to approve the Reorganization, you should consider
any differences between the two Funds' investment policies. For a discussion of
the risks associated with an investment in the Funds, see "Risk Factors and
Special Considerations."
Managed Tax-Exempt Fund Tax-Free Bond Fund
----------------------- ------------------
Investment Objective: The Fund seeks to The Fund seeks as
provide as high a high a level of current
level of current income exempt from
income exempt from federal income tax as
federal income tax is consistent with
as is consistent preservation of capital.
with preservation
of capital, by
investing primarily
in municipal securities.
7
<PAGE>
Primary Investments: The types of The types of
securities in which securities in which
the Fund may invest the Fund may invest
include: include:
(1) municipal securities (1) municipal bonds,
with varying maturities, notes and commercial
the interest from which paper, the interest on
is, in the opinion of which is exempt from
bond counsel for the federal income taxes,
issuer, exempt from including debt
federal income tax, obligations issued by or
including general on behalf of the states,
obligation and revenue territories and
bonds ("Municipal possessions of the United
Securities") and States; the District of
short-term municipal Columbia; and the
securities consisting of political subdivisions,
short-term municipal agencies or
notes and short-term instrumentalities thereof
municipal loans and ("Municipal Bonds"); and
obligations, including
municipal paper, master
demand notes and variable
rate demand notes
("Short-Term
Municipals"); and
(2) cash, receivables and (2) private activity
short-term taxable bonds (the interest on
investments such as (a) which may be treated as a
U.S. Treasury tax preference item under
obligations, (b) the federal alternative
obligations of agencies minimum tax) and in
and instrumentalities of taxable and tax-free
the U.S. Government and investment grade
(c) money market short-term securities
instruments ("Short-Term ("Short-Term
Taxable Investments"). Securities").
8
<PAGE>
Investment Policies: (1) At least 80% of the (1) At least 80% of the
Fund's total assets will Fund's total assets will
consist of Municipal be invested in Municipal
Securities. Bonds.
(2) At least 65% of the (2) At least 65% of the
Fund's investments in (a) Fund's assets will
Municipal Securities will normally be invested in
be rated investment grade Municipal Bonds rated at
by Moody's Investors least investment grade by
Service, Inc. an NRSRO or, if not
("Moody's"), by Standard rated, determined by the
and Poor's Ratings Group Adviser to be of
("S&P") or by Fitch comparable quality.
Investor Services, Inc.
("Fitch") (each, an
"NRSRO") or, if not
rated, determined by the
Adviser to be of
comparable quality and
(b) Short-Term Municipals
will be rated within the
three highest ratings by
an NRSRO.
(3) No more than 20% of (3) No more than 20% of
the Fund's total assets the Fund's total assets
will consist of will be invested in
Short-Term Taxable Short-Term Securities
Investments; and no more (except that, for
than 25% of the Fund's temporary defensive
total assets will be purposes, up to 100% of
invested in Short-Term the Fund's total assets
Municipals. may be invested in
Short-Term Securities).
(4) Up to 35% of the (4) Up to 35% of the
Fund's total assets may Fund's total assets may
(subject to Trustee be invested in Municipal
approval) be invested Bonds rated B or better
by
9
<PAGE>
in Tax-Exempt Bonds rated an NRSRO or, if unrated,
B or better by an NRSRO. determined by the Adviser
to be of comparable
quality.
(5) The Fund reserves the (5) No more than 25% of
right to invest more than the Fund's total assets
25% of its assets in may be invested in
industrial development industrial development or
bonds or in issuers pollution control bonds
located in any particular which are dependent,
state. directly or indirectly,
on the revenues or credit
of private entities in
any one industry.
(6) There is no limit on (6) There is no limit on
the Fund's average the Fund's average
portfolio maturity. portfolio maturity.
Investment The investment restrictions applicable to Tax-Free Bond
Restrictions: Fund are substantially similar to or more restrictive
than those of Managed Tax-Exempt Fund, except as noted
below:
(1) The Fund may not (1) The Fund may not
borrow money, except from borrow money, except from
banks as a temporary banks as a temporary or
measure and not to exceed emergency measure and not
10% of the Fund's total to exceed 15% of the
assets. Fund's total assets.
(2) The Fund may not lend (2) The Fund may lend
portfolio securities. portfolio securities in
an amount not exceeding
33 1/3% of the Fund's
total assets.
10
<PAGE>
Other Investments: The Fund may purchase The Fund may purchase
restricted and illiquid tax-exempt participation
securities, enter into interests and municipal
repurchase agreements, lease obligations, lend
purchase securities on a its portfolio securities,
forward commitment or enter into repurchase
when-issued basis, agreements and reverse
acquire stand-by repurchase agreements,
commitments, write listed purchase restricted and
and over-the-counter illiquid securities,
covered call and put purchase securities on a
options on securities, when-issued or forward
securities indices and commitment basis, buy and
currency up to 100% of sell futures contracts
its net assets and and related options and
purchase listed and purchase options on
over-the-counter call and securities and securities
put options on indices, invest in
securities, securities variable and floating
indices and currency, rate instruments, swaps,
invest in variable rate caps, floors and collars
and floating rate and engage in short-term
obligations and engage in trading.
short-term trading.
FORM OF ORGANIZATION
Managed Tax-Exempt Fund is a series of the Trust, a Massachusetts business
trust organized in 1984. Tax-Free Bond Fund is a series of Bond Trust, a
Massachusetts business trust organized in 1989. Both Funds have authorized and
outstanding Class A and Class B shares. After the Reorganization, Managed
Tax-Exempt Fund's Class A and Class B shareholders will become Class A and Class
B shareholders, respectively, of Tax-Free Bond Fund.
Each share of a class of each Fund represents an equal proportionate
interest in the assets belonging to that class of such Fund. The shares of each
Fund's classes represent an interest in the same portfolio of investments of
that Fund. Except as stated below, each Fund's classes have equal rights as to
voting, redemption, dividends and liquidation. Each class bears different
distribution fees and may bear other expenses properly attributable to that
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class. Shareholders of each Fund's classes have exclusive voting rights with
respect to the Rule 12b-1 distribution plan relating to their respective class
of shares.
SALES CHARGES AND DISTRIBUTION AND SERVICE FEES
Sales Charges. Both Funds impose an initial sales charge on Class A shares
as described above in the table under the caption "The Funds' Expenses." An
initial sales charge does not apply to Class A shares acquired through the
reinvestment of dividends from net investment income or capital gain
distributions.
Tax-Free Bond Fund Class A Shares acquired by Managed Tax-Exempt Fund's
Class A shareholders pursuant to the Reorganization will not be subject to any
initial sales charge or contingent deferred sales charge ("CDSC") at the time of
the Reorganization.
Tax-Free Bond Fund and Managed Tax-Exempt Fund do not impose an initial
sales charge on Class B shares. However, Class B shares redeemed within six
years of purchase will be subject to a CDSC at the rates set forth below. This
CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the Class B shares being redeemed.
Accordingly, Class B shareholders will not be assessed a CDSC on an increase in
account value above the initial purchase price, including shares derived from
reinvested dividends. The amount of the CDSC, if any, will vary depending on the
number of years from the time the Class B shares were purchased until the time
they are redeemed, as follows:
Year in Which Class B The CDSC as a Percentage
Shares Redeemed of Dollar Amount
Following Purchase Subject to CDSC
------------------ ---------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
Class B shares of Tax-Free Bond Fund acquired by Managed Tax-Exempt Fund's
Class B shareholders pursuant to the Reorganization will not be subject to any
CDSC at the time of the Reorganization, but will remain subject to any CDSC
applicable upon redemption of these shares. For purposes of computing the CDSC
payable upon redemption of Class B shares of Tax-Free Bond Fund acquired
pursuant to the Reorganization and the schedule for automatic conversion of
Class B shares into Class A shares, the holding period of the Managed Tax-Exempt
Fund Class B shares will be added to that of the Tax-Free Bond Fund Class B
shares acquired in the Reorganization.
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Distribution and Service Fees. Both Funds have adopted distribution plans
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Under these plans, each Fund may pay fees to John
Hancock Funds, Inc. ("John Hancock Funds") to reimburse distribution and service
expenses incurred in connection with the Funds' Class A shares. With respect to
Managed Tax-Exempt Fund Class A shares, these fees are payable at an annual rate
of up to 0.30% of the average daily net assets of the Fund attributable to Class
A shares. With respect to Tax-Free Bond Fund Class A shares, these fees are
payable at an annual rate of up to 0.15% of the average daily net assets of the
Fund attributable to Class A shares. Of the fee payable by each Fund, up to
0.25% and 0.15%, respectively, of the net assets of Managed Tax-Exempt Fund and
Tax-Free Bond Fund attributable to Class A shares may be used for service
expenses and any remainder for distribution expenses. The fee with respect to
Tax-Free Bond Fund Class A shares will increase to 0.25% on December 23, 1996,
as approved by the shareholders of Tax-Free Bond Fund at their June 1996 special
meeting of shareholders.
In addition, under the plans, each Fund may pay fees to John Hancock Funds
to reimburse it for distribution and service expenses incurred in connection
with Class B shares. With respect to Managed Tax-Exempt Fund's Class B shares,
these fees are payable at an annual rate of up to 1.00% of the average daily net
assets of the Fund attributable to Class B shares. With respect to Tax-Free Bond
Fund Class B shares, these fees are also payable at an annual rate of up to
1.00% of the average daily net assets of the Fund attributable to Class B
shares; however, the Fund and John Hancock Funds have agreed to limit the
payment of expenses pursuant to the Tax-Free Bond Fund's Class B plan to 0.90%.
Of the fee payable by each Fund, up to 0.25% of the net assets of each Fund
attributable to Class B shares may be used for service expenses and the
remainder for distribution expenses. The agreement with John Hancock Funds to
limit the payment of Class B Rule 12b-1 fees to 0.90% will terminate on December
23, 1996, after which the fee with respect to Tax-Free Bond Fund Class B shares
will increase to 1.00%.
PURCHASES AND EXCHANGES
Shares of each Fund may be purchased through certain broker-dealers and
through John Hancock Funds at the public offering price, which is based on the
next determined net asset value per share, plus any applicable sales charge. The
minimum initial investment in shares of each Fund is $1,000 ($250 for group
investments and retirement plans). In anticipation of the Reorganization, after
the Record Date, no new accounts may be opened in Managed Tax-Exempt Fund,
except for participants in existing Qualified Retirement Plans. Existing
shareholders of Managed Tax-Exempt Fund may continue to acquire shares
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of the Fund after the Record Date by direct purchase, through a monthly
automatic accumulation plan or through the reinvestment of dividends and
distributions.
Shareholders of each Fund may exchange their shares at net asset value for
shares of the same class, if applicable, of other John Hancock funds. For this
purpose, the shares of John Hancock funds with only one class of shares are
treated as Class A shares whether or not they have been so designated. Shares of
any fund acquired by exchange that are subject to a CDSC will incur the CDSC
upon redemption. The rate of this charge will be the rate in effect for the
exchanged shares at the time of the exchange (except that exchanges into John
Hancock Short-Term Strategic Fund, John Hancock Limited Term Government Fund and
John Hancock Intermediate Maturity Government Fund will be subject to the
initial fund's CDSC). The exchange privilege is available only in states where
the exchange can be made legally.
MANAGEMENT FEES
Managed Tax-Exempt Fund pays management fees to the Adviser as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250,000,000 0.60%
Next $500,000,000 0.50%
Amount over $750,000,000 0.45%
<PAGE>
During the fiscal year ended October 31, 1995, Managed Tax-Exempt Fund paid
investment management fees of $1,247,519 to the Adviser.
Tax-Free Bond Fund pays management fees to the Adviser as follows:
Net Asset Value Annual Rate
--------------- -----------
First $500,000,000 0.55%
Next $500,000,000 0.50%
Amount over $1,000,000,000 0.45%
During the fiscal year ended December 31, 1995, Tax-Free Bond Fund paid
investment management fees of $839,913 to the Adviser. After the Reorganization
is completed, the assets of Tax-Free Bond Fund attributable to Managed
Tax-Exempt Fund will be subject to a lower management fee rate, although the
Fund asset breakpoints will be higher. At the projected asset size of Tax-Free
Bond Fund after the Reorganization, the management fees attributable to Managed
Tax-Exempt Fund will be very slightly decreased.
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<PAGE>
DISTRIBUTION PROCEDURES
It is the policy of both Funds to declare dividends daily and to pay
dividends monthly from net investment income. Each Fund also distributes
annually all of its other net income, including any net short-term and long-term
capital gains it has realized. Managed Tax-Exempt Fund will make, immediately
prior to the Closing Date (as defined below), a distribution of any net income
and net realized capital gains it has not yet distributed.
REINVESTMENT OPTIONS
Unless an election is made to receive cash, the shareholders of both Funds
automatically reinvest all of their respective dividends and capital gain
distributions in additional shares of the same class of the same Fund. These
reinvestments are made at the net asset value per share and are not subject to
any sales charge.
REDEMPTION PROCEDURES
Shares of both Funds may be redeemed on any business day at a price equal
to the net asset value of the shares next determined after receipt of a
redemption request in good order, less any applicable CDSC. Alternatively,
shareholders of both Funds may sell their shares through securities dealers, who
may charge a fee. Redemptions and repurchases of Class B shares and certain
Class A shares of each Fund are subject to the applicable CDSC, if any. Class A
and Class B shares of Managed Tax-Exempt Fund may be redeemed up to and
including the Closing Date (as defined below).
REORGANIZATION
Effect of the Reorganization. Pursuant to the terms of the Agreement, the
proposed Reorganization will consist of the acquisition by Tax-Free Bond Fund of
all the assets of Managed Tax-Exempt Fund in exchange solely for (i) the
assumption by Tax-Free Bond Fund of all the liabilities of Managed Tax-Exempt
Fund and (ii) the issuance of Tax-Free Bond Fund Class A and Class B Shares
equal to the value of these assets, less the amount of these liabilities, to
Managed Tax-Exempt Fund. As part of the liquidation process, Managed Tax-Exempt
Fund will immediately distribute to its shareholders these Tax-Free Bond Fund
Shares in exchange for their shares of Managed Tax-Exempt Fund. Consequently,
Class A shareholders of Managed Tax-Exempt Fund will become Class A shareholders
of Tax-Free Bond Fund and Class B shareholders of Managed Tax-Exempt Fund will
become Class B shareholders of Tax-Free Bond Fund. After completion of the
Reorganization, the existence of Managed Tax-Exempt Fund as a series of the
Trust will be terminated.
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The Reorganization will become effective as of 5:00 p.m. on the closing
date, scheduled for December 6, 1996, or another date on or before June 30, 1997
as authorized representatives of the Funds may agree (the "Closing Date"). The
Tax-Free Bond Fund Class A shares issued to Managed Tax-Exempt Fund for
distribution to Managed Tax-Exempt Fund's Class A shareholders will have an
aggregate net asset value equal to the aggregate net asset value of Managed
Tax-Exempt Fund's Class A shares. Similarly, the Tax-Free Bond Fund Class B
shares issued to Managed Tax-Exempt Fund for distribution to Managed Tax-Exempt
Fund's Class B shareholders will have an aggregate net asset value equal to the
aggregate net asset value of Managed Tax-Exempt Fund's Class B shares. For
purposes of the Reorganization, the Funds' respective asset values will be
determined as of the close of business (4:00 p.m. Eastern Time) on the Closing
Date.
The Board of Trustees of the Trust on behalf of Managed Tax-Exempt Fund,
including the trustees who are not "interested persons" of either Fund or the
Adviser (the "Independent Trustees"), approved the Reorganization, and
determined that it was in the best interests of Managed Tax-Exempt Fund and that
the interests of Managed Tax-Exempt Fund's shareholders would not be diluted as
a result of the Reorganization. Similarly, the Board of Trustees of Bond Trust,
on behalf of Tax-Free Bond Fund, including the Trustees not affiliated with
either Fund or the Adviser, approved the Reorganization, and determined that it
was in the best interests of Tax-Free Bond Fund and that the interests of
Tax-Free Bond Fund's shareholders would not be diluted as a result of the
Reorganization.
TAX CONSIDERATIONS
The consummation of the Reorganization is subject to the receipt of an
opinion of Hale and Dorr, counsel to the Funds, satisfactory to each Fund, which
will provide generally (as more specifically set forth in the Agreement) that
with respect to the transfers and exchanges comprising the Reorganization:
(a) The acquisition by Tax-Free Bond Fund of all of the assets of Managed
Tax-Exempt Fund will constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and
Managed Tax-Exempt Fund and Tax-Free Bond Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) no gain or loss will be recognized by Managed Tax-Exempt Fund upon (i)
the transfer of all of its assets to Tax-Free Bond Fund and (ii) the
distribution by Managed Tax-Exempt Fund of the Tax-Free Bond Fund Shares
received in exchange for these assets to the shareholders of Managed Tax-Exempt
Fund;
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<PAGE>
(c) no gain or loss will be recognized by Tax-Free Bond Fund upon the
receipt of Managed Tax-Exempt Fund's assets;
(d) the basis of the assets of Managed Tax-Exempt Fund acquired by Tax-Free
Bond Fund will remain the same as immediately prior to the transfer;
(e) the tax holding period of the assets of Managed Tax-Exempt Fund in the
hands of Tax-Free Bond Fund will include Managed Tax-Exempt Fund's tax holding
period for those assets;
(f) the shareholders of Managed Tax-Exempt Fund will not recognize gain or
loss upon the exchange of their shares of Managed Tax-Exempt Fund solely for
Tax-Free Bond Fund Shares in the Reorganization;
(g) the basis of the Tax-Free Bond Fund Shares received by Managed
Tax-Exempt Fund shareholders in the Reorganization will be the same as the basis
of their Managed Tax-Exempt Fund shares; and
(h) the tax holding period of the Tax-Free Bond Fund Shares received by
Managed Tax-Exempt Fund shareholders will include the tax holding period of
their Managed Tax-Exempt Fund shares that were held as capital assets.
THE MEETING
Time, Place and Date. The Meeting will be held on Thursday, November 14,
1996, at 101 Huntington Avenue, Boston, Massachusetts 02199, at 9:00 a.m.,
Boston time.
RECORD DATE
The Record Date for determining shareholders entitled to notice of and to
vote at the Meeting is September 20, 1996.
VOTE REQUIRED
Approval of the Agreement by the shareholders of Managed Tax-Exempt Fund
requires the affirmative vote of a majority of the shares of Managed Tax-Exempt
Fund outstanding and entitled to vote. For this purpose, a majority of the
outstanding shares of Managed Tax-Exempt Fund means the vote of the lesser of
(i) 67% or more of the shares present at the Meeting, if the holders of more
than 50% of the shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The Reorganization does not
require the approval of Tax-Free Bond Fund's shareholders. See "Proposal to
Approve the Agreement and Plan of Reorganization--Voting Rights and Required
Vote."
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<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Please see the Tax-Free Bond Fund Prospectus and the Managed Tax-Exempt
Fund Prospectus for a more complete description of each Fund's investment
objectives and policies, as well as their risk factors. In deciding whether to
approve the Reorganization, you should consider the similarities and differences
between the Funds' investment objectives, policies and risk factors.
The investment objectives and policies of the Funds are substantially
similar. For this reason, the risks associated with an investment in the Funds
are substantially similar. Each Fund invests primarily in municipal bonds and
other securities whose interest is exempt from Federal income taxes. Under
normal circumstances, at least 80% of each Fund's total assets will be invested
in these securities.
At least 65% of Tax-Free Bond Fund's total assets will normally be invested
in municipal bonds rated at least investment grade by an NRSRO. Municipal notes
and municipal commercial paper must be similarly rated by an NRSRO. Up to 35% of
Tax-Free Bond Fund's total assets may be invested in municipal bonds rated B or
better by an NRSO. If the Fund's investments are unrated, the Adviser must
determine that they are of comparable credit quality to the ratings described
above. The Fund may retain any of these instruments if their ratings are
downgraded below permissible ratings until the Adviser determines that disposing
of them is in the Fund's best interests. Municipal bonds that are rated at the
lowest level of investment grade have some speculative characteristics and may
pose greater risks involving the issuer's ability to make interest and principal
payments than those associated with higher rated securities.
Under normal circumstances, at least 65% of Managed Tax-Exempt Fund's total
assets will be invested in (i) municipal securities rated at least investment
grade by an NRSRO or (ii) short-term municipal securities rated within the three
highest rating categories of an NRSRO. If these investments are unrated, the
Adviser must determine that they are of equivalent quality. Up to 35% of Managed
Tax-Exempt Fund's total assets may (subject to Trustee approval) be invested in
tax-exempt bonds rated B or better by an NRSRO.
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<PAGE>
INFORMATION CONCERNING THE MEETING
SOLICITATION, REVOCATION AND USE OF PROXIES
A majority of Managed Tax-Exempt Fund's outstanding shares that are
entitled to vote will be considered a quorum for the transaction of business. A
Managed Tax-Exempt Fund shareholder executing and returning a proxy has the
power to revoke it at any time before it is exercised, by filing a written
notice of revocation with Managed Tax-Exempt Fund's transfer agent, Investor
Services, P.O. Box 9116, Boston, Massachusetts 02205-9116, or by returning a
duly executed proxy with a later date before the time of the Meeting. Any
shareholder who has executed a proxy but is present at the Meeting and wishes to
vote in person may revoke his or her proxy by notifying the Secretary of Managed
Tax-Exempt Fund (without complying with any formalities) at any time before it
is voted. Presence at the Meeting alone will not serve to revoke a previously
executed and returned proxy.
If a quorum is not present in person or by proxy at the time any session of
the Meeting is called to order, the persons named as proxies may vote those
proxies that have been received to adjourn the Meeting to a later date. If a
quorum is present but there are not sufficient votes in favor of the Proposal,
the persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies with respect to the Proposal. Any
adjournment will require the affirmative vote of a majority of the shares of
Managed Tax-Exempt Fund, represented in person or by proxy, at the session of
the Meeting to be adjourned. If an adjournment of the Meeting is proposed
because there are not sufficient votes in favor of the Reorganization, the
persons named as proxies will vote those proxies in favor of the Reorganization
in favor of adjournment, and will vote those proxies against the Reorganization
against adjournment.
In addition to the solicitation of proxies by mail or in person, Managed
Tax-Exempt Fund may also arrange to have votes recorded by telephone by officers
and employees of the Fund or by personnel of the Adviser or Investor Services.
Investor Services may engage a proxy solicitation firm to assist in the
solicitation of votes. The telephone voting procedure is designed to
authenticate a shareholder's identity, to allow a shareholder to authorize the
voting of shares in accordance with the shareholder's instructions and to
confirm that the voting instructions have been properly recorded. If these
procedures were subject to a successful legal challenge, these telephone votes
would not be counted at the Meeting. The Fund has not sought to obtain an
opinion of counsel on this matter and is unaware of any challenge at this time.
A shareholder will be called on a recorded line at the telephone number in the
Fund's account records and will be asked the shareholder's Social Security
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<PAGE>
number or other identifying information. The shareholder will then be given an
opportunity to authorize proxies to vote his or her shares at the Meeting in
accordance with the shareholder's instructions. To ensure that the shareholder's
instructions have been recorded correctly, the shareholder will also receive a
confirmation of the voting instructions in the mail. A special toll-free number
will be available in case the voting information contained in the confirmation
is incorrect. If the shareholder decides after voting by telephone to attend the
Meeting, the shareholder can revoke the proxy at that time and vote the shares
at the Meeting.
OUTSTANDING SHARES
At the close of business on September 20, 1996, 3,503,385 Class A and
13,645,332 Class B shares of beneficial interest of Managed Tax-Exempt Fund were
outstanding and entitled to vote. Only Managed Tax-Exempt Fund shareholders of
record at the close of business on September 20, 1996 (the "Record Date") are
entitled to notice of and to vote at the Meeting and any adjournment of the
Meeting. As of September 20, 1996, 54,163,591 Class A and 7,856,959 Class B
shares of beneficial interest of Tax-Free Bond Fund were outstanding.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF MANAGED
TAX-EXEMPT FUND AND TAX-FREE BOND FUND
To the knowledge of Managed Tax-Exempt Fund, as of September 20, 1996, no
persons owned of record or beneficially 5% or more of the outstanding Class A
and Class B shares of beneficial interest of Managed Tax-Exempt Fund.
To the knowledge of Tax-Free Bond Fund, as of September 20, 1996, the
following person owned of record or beneficially 5% or more of the outstanding
Class B shares of beneficial interest of Tax-Free Bond Fund: Merrill Lynch
Pierce Fenner & Smith, Inc., 4800 Deer Lake Drive East, Jacksonville, FL
32246-6484 (803,527 shares (10.23%)).
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<PAGE>
As of September 20, 1996, the Trustees and officers of Managed Tax-Exempt
Fund, as a group, owned in the aggregate less than 1% of the outstanding shares
of beneficial interest of Managed Tax-Exempt Fund. As of September 20, 1996, the
Trustees and officers of Tax-Free Bond Fund, as a group, owned in the aggregate
less than 1% of the outstanding Class A and Class B shares of beneficial
interest of Tax-Free Bond Fund.
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
GENERAL
The shareholders of Managed Tax-Exempt Fund are being asked to approve the
Agreement, a copy which is attached as EXHIBIT B. The Reorganization will
consist of: (a) the transfer of all of Managed Tax-Exempt Fund's assets to
Tax-Free Bond Fund, in exchange solely for the issuance of Tax-Free Bond Fund
Shares to Managed Tax-Exempt Fund and the assumption of Managed Tax-Exempt
Fund's liabilities by Tax-Free Bond Fund, (b) the subsequent distribution by
Managed Tax-Exempt Fund, as part of its liquidation, of the Tax-Free Bond Fund
Shares to Managed Tax-Exempt Fund's shareholders and (c) the termination of
Managed Tax-Exempt Fund's existence as a series of the Trust. The Tax-Free Bond
Fund Class A shares issued upon the consummation of the Reorganization will have
an aggregate net asset value equal to the aggregate net asset value of the
assets attributable to Managed Tax-Exempt Fund's Class A shares, less
liabilities attributable to Managed Tax-Exempt Fund's Class A shares. Similarly,
the Tax-Free Bond Fund Class B shares issued upon the consummation of the
Reorganization will have an aggregate net asset value equal to the aggregate net
asset value of the assets attributable to Managed Tax-Exempt Fund's Class B
shares, less liabilities attributable to Managed Tax-Exempt Fund's Class B
shares. As noted above, the asset values of Managed Tax-Exempt Fund and Tax-Free
Bond Fund will be determined at the close of business (4:00 p.m. Eastern Time)
on the Closing Date for purposes of the Reorganization. See "Description of
Agreement" below.
Pursuant to the Agreement, Managed Tax-Exempt Fund will liquidate and
distribute the Tax-Free Bond Fund Shares received, as described above, pro rata
to the shareholders of record of each class determined as of the close of
regular trading on the New York Stock Exchange on the Closing Date. The result
of the transfer of assets will be that Tax-Free Bond Fund will add to its
portfolio the net assets of Managed Tax-Exempt Fund. Class A shareholders of
Managed Tax-Exempt Fund will become Class A shareholders of Tax-Free Bond Fund,
and Class B shareholders of Managed Tax-Exempt Fund will become Class B
shareholders of Tax-Free Bond Fund.
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<PAGE>
The Agreement and the Reorganization were approved by the Board of Trustees
of the Trust on behalf of Managed Tax-Exempt Fund at a meeting held on August
27, 1996. The Agreement and the Reorganization were approved by the Board of
Trustees of Bond Trust on behalf of Tax-Free Bond Fund at a meeting held on
September 10, 1996. In connection with their approval of the Reorganization, the
Boards of Trustees considered several matters described in greater detail below
under the caption "Reasons for the Proposed Reorganization."
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees of the Trust on behalf of Managed Tax-Exempt Fund
believes that the proposed Reorganization will be advantageous to the
shareholders of Managed Tax-Exempt Fund in several respects. The Board of
Trustees considered the following matters, among others, in approving the
Proposal.
First, the Board of Trustees considered the fact that Tax-Free Bond Fund is
more widely recognized in the broker community as John Hancock's primary
national tax-exempt fund, making it increasingly difficult to attract assets to
Managed Tax-Exempt Fund.
Second, the Board of Trustees believes that it is not advantageous to
operate and market Managed Tax-Exempt Fund separately from Tax-Free Bond Fund
because their investment objectives and policies are substantially similar. By
being offered simultaneously, each Fund hinders the other Fund's potential for
asset growth. For a complete description of Tax-Free Bond Fund's investment
objectives and policies, see the Tax-Free Bond Fund Prospectus included as
EXHIBIT A.
Third, the Board of Trustees considered that shareholders may be better
served by a fund offering greater diversification. To the extent that the Funds'
assets are combined into a single portfolio and a larger asset base is created
as a result of the Reorganization, greater diversification of Tax-Free Bond
Fund's investment portfolio can be achieved than is currently possible in either
Fund. Greater diversification is expected to be beneficial to shareholders of
both Funds because it may reduce the negative effect which the adverse
performance of any one security may have on the performance of the entire
portfolio.
Fourth, the Board of Trustees believes that the Tax-Free Bond Fund Shares
received in the Reorganization will provide existing Managed Tax-Exempt Fund
shareholders with substantially the same investment advantages that they
currently enjoy at a comparable level of risk. The Board of Trustees also
considered the performance history of each Fund.
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<PAGE>
Fifth, a combined fund offers economies of scale that may have a positive
effect on the expenses currently borne by Managed Tax-Exempt Fund, and hence,
indirectly, its shareholders. Both Funds incur substantial costs for accounting,
legal, transfer agency services, insurance, and custodial and administrative
services. However, the Board also noted that Managed Tax-Exempt Fund has been
unable recently to attract investors and this may result over time in a decrease
of economies of scale and an increase in the Fund's total operating expenses.
The Board of Trustees reasonably concluded that the Reorganization may produce
economies of scale for the surviving fund that could result in a decrease over
time in the expenses borne indirectly by all of Managed Tax-Exempt Fund's
shareholders. See expense information in "Summary--the Funds' Expenses."
The Board of Trustees of Tax-Free Bond Fund considered the fact that, from
the perspective of Tax-Free Bond Fund, the Reorganization presents an excellent
opportunity to acquire assets without the obligation to pay commissions or other
similar costs that are normally associated with the purchase of securities. This
opportunity provides an economic benefit to Tax- Free Bond Fund and its
shareholders.
The Boards of Trustees of both Boards also considered the fact that the
Adviser and John Hancock Funds will receive certain benefits from the
Reorganization. The consolidated portfolio management effort might result in
time savings for the Adviser and the preparation of fewer prospectuses, reports
and regulatory filings. The Trustees, however, believe that this consideration
will not amount to a significant economic benefit.
CAPITAL LOSS CARRYOVERS
As of October 31, 1995, Managed Tax-Exempt Fund had no capital loss
carryovers.
UNREIMBURSED DISTRIBUTION AND SHAREHOLDER SERVICE EXPENSES
The Board of Trustees of Tax-Free Bond Fund has determined that, if the
Reorganization is consummated, distribution and shareholder service expenses
incurred in connection with shares of Managed Tax-Exempt Fund, and not
reimbursed under Managed Tax-Exempt Fund's Rule 12b-1 Plans or through CDSCs,
will be reimbursable expenses under Tax-Free Bond Fund's Rule 12b-1 Plans (the
"assumption"). However, the maximum aggregate amounts payable during any fiscal
year under Tax-Free Bond Fund's Rule 12b-1 Plans (0.25% of average daily net
assets attributable to Class A shares (0.15% until December 23, 1996) and 1.00%
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<PAGE>
of average daily net assets attributable to Class B shares (0.90% until December
23,1996)) will not be affected by the assumption.
With respect to Tax-Free Bond Fund's Class A and Class B shares, the
percentage of net assets on a pro forma combined basis that the unreimbursed
expenses represent will not increase as a result of the Reorganization and the
assumption. As of June 30, 1996 the unreimbursed distribution and shareholder
service expenses of Tax-Free Bond Fund attributable to Class A and Class B
shares were $774,023 (0.14%) of Tax-Free Bond Fund's net assets attributable to
Class A shares and $3,712,548 (4.58%) of Tax-Free Bond Fund's net assets
attributable to Class B shares. As of the same date, the unreimbursed
distribution and shareholder service expenses of Managed Tax-Exempt Fund
attributable to Class A and Class B shares were $58,226 (0.15%) of Managed
Tax-Exempt Fund's net assets attributable to Class A shares and $6,422,292
(4.03%) of Managed Tax-Exempt Fund's net assets attributable to Class B shares.
After the Reorganization on a pro forma combined basis, the unreimbursed
distribution and shareholder service expenses of Tax-Free Bond Fund attributable
to Class A and Class B shares will be $832,249 (0.14% of Tax-Free Bond Fund's
pro forma net assets attributable to Class A shares) and $10,134,840 (4.22% of
Tax-Free Bond Fund's pro forma net assets attributable to Class B shares),
respectively.
The assumption will have no immediate effect upon the payments made under
Tax-Free Bond Fund's Rule 12b-1 Plans. While John Hancock Funds hopes to recover
unreimbursed distribution and shareholder service expenses over an extended
period of time, Tax-Free Bond Fund is not obligated to assure that these amounts
are recouped by John Hancock Funds.
Unreimbursed distribution and shareholder service expenses do not currently
appear as an expense or liability in the financial statements of either Fund,
nor will they appear in the financial statements of Tax-Free Bond Fund after the
Reorganization until paid or accrued. Even in the event of termination or
noncontinuance of Tax-Free Bond Fund's Rule 12b-1 Plans, Tax- Free Bond Fund is
not legally committed, and is not required to commit, to the payment of any
unreimbursed distribution and shareholder service expenses. For this reason,
unreimbursed expenses do not enter into the calculation of a Fund's net asset
value or the formula for calculating Rule 12b-1 payments. The staff of the SEC
has not approved or disapproved the treatment of the unreimbursed distribution
and shareholder service expenses described in this Proxy Statement.
24
<PAGE>
BOARDS' EVALUATION AND RECOMMENDATION
On the basis of the factors described above and other factors, the Board of
Trustees of the Trust on behalf of Managed Tax-Exempt Fund, including a majority
of the Trustees who are not "interested persons" (as defined in the Investment
Company Act) of the Funds, determined that the Reorganization is in the best
interests of Managed Tax-Exempt Fund and that the interests of Managed
Tax-Exempt Fund's shareholders will not be diluted as a result of the
Reorganization. On the same basis, the Board of Trustees of Bond Trust, on
behalf of Tax-Free Bond Fund, including a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act) of the Funds,
determined that the Reorganization is in the best interests of Tax-Free Bond
Fund and that the interests of Tax-Free Bond Fund's shareholders will not be
diluted as a result of the Reorganization.
THE TRUSTEES OF JOHN HANCOCK MANAGED TAX-EXEMPT FUND RECOMMEND THAT THE
SHAREHOLDERS OF JOHN HANCOCK MANAGED TAX-EXEMPT FUND VOTE FOR THE PROPOSAL TO
APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
DESCRIPTION OF AGREEMENT
The following description of the Agreement is a summary, does not purport
to be complete, and is subject in all respects to the provisions of the
Agreement, and is qualified in its entirety by reference to the Agreement. A
copy of the Agreement is attached to this Proxy Statement and Prospectus as
EXHIBIT B and should be read in its entirety. Paragraph references are to
appropriate provisions of the Agreement.
Method of Carrying Out Reorganization. If Managed Tax-Exempt Fund
shareholders approve the Agreement, the Reorganization will be consummated
promptly after the various conditions to the obligations of each of the parties
are satisfied (see Agreement, paragraphs 1 through 3). The Reorganization will
be completed on the Closing Date (as defined above).
On the Closing Date, Managed Tax-Exempt Fund will transfer all of its
assets to Tax-Free Bond Fund in exchange for Tax-Free Bond Fund Shares with an
aggregate net asset value equal to the value of the assets delivered, less the
liabilities of Managed Tax-Exempt Fund assumed, as of the close of business on
the Closing Date (see Agreement, paragraphs 1 and 2).
The value of Managed Tax-Exempt Fund's assets and Tax-Free Bond Fund's net
asset values per Class A share and per Class B share will be determined
according to the valuation procedures set forth in the Trust's Declaration of
Trust and By-Laws and in the Tax-Free Bond Fund Prospectus, respectively (see
"Your Account; Transaction Policies--Valuation of Shares" in the Tax-Free Bond
25
<PAGE>
Fund Prospectus). No initial sales charge or CDSC will be imposed upon delivery
of the Tax-Free Bond Fund Shares in exchange for the assets of Managed
Tax-Exempt Fund.
Surrender of Share Certificates. Managed Tax-Exempt Fund shareholders whose
shares are represented by one or more share certificates should, prior to the
Closing Date, either surrender their certificates to Managed Tax-Exempt Fund or
deliver to Managed Tax-Exempt Fund an affidavit with respect to lost
certificates, in the form and accompanied by the surety bonds that Managed
Tax-Exempt Fund may require (collectively, an "Affidavit"). On the Closing Date,
all certificates which have not been surrendered will be deemed to be cancelled,
will no longer evidence ownership of Managed Tax-Exempt Fund's shares and will
evidence ownership of Tax-Free Bond Fund Shares. Shareholders may not redeem or
transfer Tax-Free Bond Fund Shares received in the Reorganization until they
have surrendered their Managed Tax-Exempt Fund share certificates or delivered
an Affidavit relating to them. Tax-Free Bond Fund will not issue share
certificates in the Reorganization.
Conditions Precedent to Closing. The obligation of Managed Tax-Exempt Fund
to consummate the Reorganization is subject to the satisfaction of certain
conditions precedent, including the performance by Tax-Free Bond Fund of all
acts and undertakings required under the Agreement and the receipt of all
consents, orders and permits necessary to consummate the Reorganization (see
Agreement, paragraph 3).
The obligation of Tax-Free Bond Fund to consummate the Reorganization is
subject to the satisfaction of certain conditions precedent, including Managed
Tax-Exempt Fund's performance of all acts and undertakings to be performed under
the Agreement, the receipt of certain documents and financial statements from
Managed Tax-Exempt Fund, and the receipt of all consents, orders and permits
necessary to consummate the Reorganization (see Agreement, paragraph 3).
The obligations of both parties are subject to the receipt of approval and
authorization of the Agreement by the requisite vote of the holders of the
outstanding shares of beneficial interest of Managed Tax-Exempt Fund in
accordance with the provisions of the Trust's Declaration of Trust, as amended,
and By-Laws and the receipt of a favorable opinion of Hale and Dorr as to the
federal income tax consequences of the Reorganization. (See Agreement, paragraph
3).
Termination of Agreement. Either the Board of Trustees of the Trust on
behalf of Managed Tax-Exempt Fund or the Board of Trustees of Bond Trust, on
behalf of Tax-Free Bond Fund may terminate the Agreement, notwithstanding
approval thereof by the shareholders of Managed Tax-Exempt Fund at any time
26
<PAGE>
prior to the Closing, if circumstances should develop that, in their judgment,
make proceeding with the Reorganization inadvisable.
Expenses of the Reorganization. Tax-Free Bond Fund and Managed Tax-Exempt
Fund will each be responsible for its own expenses incurred in connection with
entering into and carrying out the provisions of the Agreement, whether or not
the Reorganization is consummated.
Tax Considerations. The consummation of the Reorganization is subject to
the receipt of a favorable opinion of Hale and Dorr, counsel to the Funds,
satisfactory to Managed Tax-Exempt Fund and Tax-Free Bond Fund and described
above under the caption "Summary--Reorganization-Tax Considerations."
VOTING RIGHTS AND REQUIRED VOTE
Each Managed Tax-Exempt Fund share is entitled to one vote. Approval of the
Proposal requires the affirmative vote of a majority of the shares of Managed
Tax-Exempt Fund outstanding and entitled to vote. For this purpose, a majority
of the outstanding shares of Managed Tax-Exempt Fund means the vote of the
lesser of (i) 67% or more of the shares present at the Meeting, if the holders
of more than 50% of the shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding shares of the Fund.
Shares of beneficial interest of Managed Tax-Exempt Fund represented in
person or by proxy, including shares which abstain or do not vote with respect
to the Proposal, will be counted for purposes of determining whether a quorum is
present at the Meeting. Accordingly, an abstention from voting has the same
effect as a vote against the Proposal. However, if a broker or nominee holding
shares in "street name" indicates on the proxy card that it does not have
discretionary authority to vote on the Proposal, those shares will not be
considered as present and entitled to vote with respect to the Proposal.
Accordingly, a "broker non-vote" has no effect on the voting in determining
whether the Proposal has been adopted pursuant to clause (i) in the immediately
preceding paragraph, provided that the holders of more than 50% of the
outstanding shares (excluding the "broker non-votes") are present or
represented. However, for purposes of determining whether the Agreement has been
adopted pursuant to clause (ii) in the immediately preceding paragraph, a
"broker non-vote" has the same effect as a vote against the Proposal because
shares represented by a "broker non-vote" are considered to be outstanding
shares.
If the requisite approval of shareholders is not obtained, Managed
Tax-Exempt Fund will continue to engage in business as a registered open-end
management investment company and the Board of Trustees will consider what
further action may be appropriate.
27
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of June
30, 1996, and the pro forma combined capitalization of both Funds as if the
Reorganization had occurred on such date. The table reflects pro forma exchange
ratios of approximately 1.104 Class A Tax-Free Bond Fund Shares being issued for
each Class A share of Managed Tax-Exempt Fund and approximately 1.104 Class B
Tax-Free Bond Fund Shares being issued for each Class B share of Managed
Tax-Exempt Fund. If the Reorganization is consummated, the actual exchange
ratios on the Closing Date may vary from the exchange ratios indicated due to
changes in the market value of the portfolio securities of both Tax-Free Bond
Fund and Managed Tax-Exempt Fund between June 30, 1996 and the Closing Date,
changes in the amount of undistributed net investment income and net realized
capital gains of Tax-Free Bond Fund and Managed Tax-Exempt Fund during that
period resulting from income and distributions, and changes in the accrued
liabilities of Tax Free Bond Fund and Managed Tax-Exempt Fund during the same
period.
Managed Tax- Tax-Free Pro Forma
Exempt Fund Bond Fund Combined
----------- --------- --------
Net Assets $198,981,567 $650,489,968 $849,471,535
Net Asset Value
Per Share
---------
Class A $11.31 $10.24 $10.24
Class B $11.31 $10.24 $10.24
Shares
Outstanding
- -----------
Class A 3,518,903 55,582,256 59,466,944
Class B 14,072,611 7,918,992 23,458,462
If the Reorganization had taken place on June 30, 1996, Managed Tax-Exempt Fund
would have received 3,884,688 Class A shares and 15,539,470 Class B shares of
Tax-Free Bond Fund which would have been available for distribution to
shareholders of the applicable class of Managed Tax-Exempt Fund. No assurance
can be given as to the number of Class A shares or Class B shares of Tax-Free
Bond Fund that will be received by Managed Tax-Exempt Fund on the Closing Date.
The foregoing is merely an example of what Managed Tax-Exempt Fund would have
received and distributed had the Reorganization been consummated on June 30,
1996, and should not be relied upon to reflect the amount that will actually be
received on the Closing Date.
28
<PAGE>
COMPARATIVE PERFORMANCE INFORMATION
TOTAL RETURN
The average annual total return at public offering price on Managed
Tax-Exempt Fund's Class A shares for the one-year and life-of-class period ended
June 30, 1996 was 1.51% and 5.49%, respectively. The average annual total return
on Managed Tax-Exempt Fund's Class B shares for the one-year, 5-year and
life-of-class periods ended June 30, 1996 was 0.55%, 6.50% and 7.90%,
respectively. Total returns on Class B shares reflect the applicable contingent
deferred sales charge.
The average annual total return at public offering price on Tax-Free Bond
Fund's Class A shares for the one-year, five-year and life-of-class periods
ended June 30, 1996 was 2.92%, 7.28%, and 7.51%, respectively. The average
annual total return at public offering price on Tax-Free Bond Fund's Class B
shares for the one-year and life-of-class periods ended June 30, 1996 was 1.94%
and 6.19%, respectively. Total returns on Class B shares reflect the applicable
contingent deferred sales charge.
The average annual total return of each class of the Funds is determined by
multiplying a hypothetical initial investment of $1,000 in a class by the
average annual compound rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and reinvested)
attributable to that class for the stated period and annualizing the result.
The table below indicates the total return (capital changes plus
reinvestment of all dividends and distributions ) on a hypothetical investment
of $1,000 in each class of each Fund covering the indicated periods ending June
30, 1996. The data below represent historical performance which should not be
considered indicative of future performance of either Fund. Each Fund's
performance and net asset value will fluctuate such that shares, when redeemed,
may be worth more or less than their original cost.
29
<PAGE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK MANAGED TAX-EXEMPT FUND
(UNAUDITED)
<TABLE>
<CAPTION>
Value of
Investment on
June 30, 1996 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- ---- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares:
1 year ended
June 30, 1996 6/30/95 $1,000 $1,015.13 1.51% 1.51% 6.26% 6.26%
From inception (January 3, 1992)
to June 30, 1996 1/3/92 $1,000 $1,271.07 27.11% 5.49% 33.10% 6.57%
Class B Shares:
1 year ended
June 30, 1996 6/30/95 $1,000 $1,005.52 0.55% 0.55% 5.55% 5.55%
5 years ended
June 30, 1996 6/30/91 $1,000 $1,370.04 37.00% 6.50% 39.00% 6.81%
From inception (April 22, 1987)
to June 30, 1996 4/22/87 $1,000 $2,011.72 101.17% 7.90% 101.17% 7.90%
31
<PAGE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK TAX-FREE BOND FUND
(UNAUDITED)
Value of
Investment on
June 30, 1996 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- ---- ---------- ------------ ---------- ---------- ---------- ----------
Class A Shares:
1 year ended
June 30, 1996 6/30/95 $1,000 $1,029.24 2.92% 2.92% 7.73% 7.73%
5 years ended
June 30, 1996 6/30/91 $1,000 $1,420.90 42.09% 7.28% 48.82% 8.28%
From inception (January 5, 1990)
to June 30, 1996 1/5/90 $1,000 $1,599.23 59.92% 7.51% 67.44% 8.27%
Class B Shares:
1 year ended
June 30, 1996 6/30/95 $1,000 $1,019.35 1.94% 1.94% 6.93% 6.93%
From inception (December 31, 1991)
to June 30, 1996 12/31/91 $1,000 $1,310.12 31.01% 6.19% 33.01% 6.54%
</TABLE>
32
<PAGE>
YIELD AND EFFECTIVE YIELD
The following table shows the average yield and tax equivalent yield
achieved assuming a federal income tax rate of 39.6% by each Fund for the thirty
day period ended June 30, 1996. These figures are computed in accordance with
the SEC's standard formula.
Average Yield Tax Equivalent Yield
Thirty Days Ended Thirty days Ended
Fund June 30, 1996 June 30, 1996
- ---- ----------------- ---------------
Managed Tax-Exempt Fund
Class A Shares 4.92% 8.15%
Class B Shares 4.45% 7.37%
Tax-Free
Bond Fund
Class A Shares 5.47% 9.06%
Class B Shares 4.99% 8.26%
BUSINESS OF MANAGED TAX-EXEMPT FUND
GENERAL
For a discussion of the organization and operation of Managed Tax-Exempt
Fund, see "Investment Objectives and Policies" and "Organization and Management
of the Fund" in the Managed Tax-Exempt Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Managed Tax-Exempt Fund's investment objective and
policies, see "Investment Objectives and Policies" in the Managed Tax-Exempt
Fund Prospectus.
TRUSTEES
For a discussion of the responsibilities of the Board of Trustees, see
"Organization and Management of the Fund" in the Managed Tax-Exempt Fund
Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Managed Tax-Exempt Fund's investment adviser and
distributor, see "Organization and Management of the Fund," "How to Buy Shares"
and "Share Price" in the Managed Tax-Exempt Fund Prospectus.
33
<PAGE>
EXPENSES
For a discussion of Managed Tax-Exempt Fund's expenses, see "Expense
Information" and "The Fund's Expenses" in the Managed Tax-Exempt Fund
Prospectus.
CUSTODIAN AND TRANSFER AGENT
Managed Tax-Exempt Fund's custodian is Investors Bank & Trust Company.
Managed Tax-Exempt Fund's transfer agent is John Hancock Investor Services
Corporation.
MANAGED TAX-EXEMPT FUND SHARES
For a discussion of Managed Tax-Exempt Fund's shares of beneficial
interest, see "Organization and Management of the Fund" in the Managed
Tax-Exempt Fund Prospectus.
PURCHASE OF MANAGED TAX-EXEMPT FUND SHARES
For a discussion of how Class A and Class B shares of Managed Tax-Exempt
Fund may be purchased or exchanged, see "How to Buy Shares" and "Additional
Services and Programs" in the Managed Tax-Exempt Fund Prospectus. In
anticipation of the Reorganization, after the Record Date, no new accounts may
be opened in Managed Tax-Exempt Fund except for participants in existing
Qualified Retirement Plans. Existing shareholders of Managed Tax-Exempt Fund may
continue to acquire shares of the Fund after the Record Date by direct purchase,
through a monthly automatic accumulation plan and through reinvestment of
dividends and distributions.
REDEMPTION OF MANAGED TAX-EXEMPT FUND SHARES
For a discussion of how Class A and Class B shares of Managed Tax-Exempt
Fund may be redeemed (other than in the Reorganization), see "How to Redeem
Shares" in the Managed Tax-Exempt Fund Prospectus. Managed Tax-Exempt Fund
shareholders whose shares are represented by share certificates will be required
to surrender their certificates for cancellation or deliver an affidavit of loss
accompanied by an adequate surety bond to Investor Services in order to redeem
Tax-Free Bond Fund Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Managed Tax-Exempt Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Taxes" in the Managed
Tax-Exempt Fund Prospectus.
BUSINESS OF TAX-FREE BOND FUND
For a discussion of the organization and current operation of Tax-Free Bond
Fund, see "TAX FREE BOND FUND--Goal and Strategy" and "FUND DETAILS--Business
34
<PAGE>
Structure" in the Tax-Free Bond Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Tax-Free Bond Fund's investment objective and policies,
see "TAX FREE BOND FUND--Goal and Strategy" in the Tax-Free Bond Fund
Prospectus.
TRUSTEES
For a discussion of the responsibilities of the Board of Trustees, see
"FUND DETAILS--Business Structure" in the Tax-Free Bond Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Tax-Free Bond Fund's investment adviser and
distributor, see "FUND DETAILS--Business Structure," "YOUR ACCOUNT -- Buying
Shares" and "--Transaction Policies" in the Tax-Free Bond Fund Prospectus.
EXPENSES
For a discussion of Tax-Free Bond Fund's expenses, see "TAX FREE BOND
FUND--Investor Expenses" in the Tax-Free Bond Fund Prospectus.
CUSTODIAN AND TRANSFER AGENT
Tax-Free Bond Fund's custodian is Investors Bank & Trust Company. Tax-Free
Bond Fund's transfer agent is John Hancock Investor Services Corporation.
TAX-FREE BOND FUND SHARES
For a discussion of Tax-Free Bond Fund Shares, see "YOUR
ACCOUNT--Transaction Policies" in the Tax-Free Bond Fund Prospectus.
PURCHASE OF TAX-FREE BOND FUND SHARES
For a discussion of how Class A and Class B shares of Tax-Free Bond Fund
may be purchased or exchanged, see "YOUR ACCOUNT--Buying Shares," "-- Dividends
and Account Policies" and "--Additional Investor Services" in the Tax-Free Bond
Fund Prospectus.
REDEMPTION OF TAX-FREE BOND FUND SHARES
For a discussion of how Class A and Class B shares of Tax-Free Bond Fund
may be redeemed, see "YOUR ACCOUNT--Selling Shares" in the Tax-Free Bond Fund
Prospectus. Former shareholders of Managed Tax-Exempt Fund whose shares are
35
<PAGE>
represented by share certificates will be required to surrender their
certificates for cancellation or deliver an affidavit of loss accompanied by an
adequate surety bond to Investor Services in order to redeem Tax-Free Bond Fund
Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Tax-Free Bond Fund's policy with respect to dividends,
distributions and taxes, see "YOUR ACCOUNT--Dividends and Account Policies" in
the Tax-Free Bond Fund Prospectus.
EXPERTS
The financial statements and the financial highlights of Tax-Free Bond Fund
as of December 31, 1995 and Managed Tax-Exempt Fund as of October 31, 1995 and
for the years then ended, incorporated by reference into the Proxy Statement and
Prospectus, have been independently audited by Ernst & Young LLP and Price
Waterhouse LLP, respectively, as set forth in their respective reports thereon
appearing in the Statement of Additional Information, and are included in
reliance upon such reports of each firm given upon the authority of each firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act, and in accordance therewith
files reports, proxy statements and other information with the SEC. These
reports, proxy statements and other information filed by Managed Tax-Exempt Fund
and Tax-Free Bond Fund, can be inspected and copied (at prescribed rates) at the
public reference facilities of the SEC at 450 Fifth Street, N.W., Washington,
D.C., and at the following regional office: New York (7 World Trade Center,
Suite 1300, New York, New York). Copies of such material can also be obtained by
mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
36
<PAGE>
EXHIBIT B
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 29th
day of August, 1996, by and between John Hancock Tax-Free Bond Fund (the
"Acquiring Fund"), a series of John Hancock Tax-Free Bond Trust, a Massachusetts
business trust (the "Trust II"), and John Hancock Managed Tax-Exempt Fund (the
"Acquired Fund"), a series of Freedom Investment Trust, a Massachusetts business
trust (the "Trust") each with their principal place of business at 101
Huntington Avenue, Boston, Massachusetts 02199. The Acquiring Fund and the
Acquired Fund are sometimes referred to collectively herein as the "Funds" and
individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A and Class B shares of beneficial interest of the Acquiring
Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by
the distribution by the Acquired Fund, on or promptly after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation and termination of the Acquired Fund as provided
herein, all upon the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and interest
receivables, cash and other assets), as set forth in the statement of
assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement
of Assets and Liabilities"), to the Acquiring Fund free and clear of all
liens and encumbrances, except as otherwise provided herein, in exchange
for (i) the assumption by the Acquiring Fund of the known and unknown
liabilities of the Acquired Fund, including the liabilities set forth in
the Statement of Assets and Liabilities (the "Acquired Fund Liabilities"),
which shall be assigned and transferred to the Acquiring Fund by the
Acquired Fund and assumed by the Acquiring Fund, and (ii) delivery by the
Acquiring Fund to the Acquired Fund, for distribution pro rata by the
Acquired Fund to its shareholders in proportion to their respective
ownership of Class A and/or Class B shares of beneficial interest of the
Acquired Fund, as of the close of business on December 6, 1996 (the
"Closing Date"), of a number of the Acquiring Fund Shares having an
aggregate net asset value equal, in the case of each class of Acquiring
Fund Shares, to the value of the assets, less such liabilities (herein
<PAGE>
referred to as the "net value of the assets") attributable to the
applicable class, assumed, assigned and delivered, all determined as
provided in Paragraph 2.1 hereof and as of a date and time as specified
therein. Such transactions shall take place at the closing provided for in
Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by
Investors Bank & Trust Company (the "Custodian"), as custodian and pricing
agent for the Acquiring Fund and the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to sell
any of these securities (except to the extent sales may be limited by
representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses
in connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record (the "Acquired Fund shareholders"),
determined as of the close of regular trading on the New York Stock
Exchange on the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund, to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund shareholders and representing the
respective pro rata number and class of Acquiring Fund Shares due such
shareholders. Acquired Fund shareholders who own Class A shares of the
Acquired Fund will receive Class A Acquiring Fund Shares and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will receive Class
B Acquiring Fund Shares. The Acquiring Fund shall not issue certificates
representing Acquiring Fund Shares in connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to lost
certificates in such form and accompanied by such surety bonds as the
Acquired Fund may require (collectively, an "Affidavit"), to John Hancock
Investor Services Corporation prior to the Closing Date. Any Acquired Fund
share certificate which remains outstanding on the Closing Date shall be
deemed to be canceled, shall no longer evidence ownership of shares of
beneficial interest of the Acquired Fund and shall evidence ownership of
Acquiring Fund Shares. Unless and until any such certificate shall be so
surrendered or an Affidavit relating thereto shall be delivered, dividends
and other distributions payable by the Acquiring Fund subsequent to the
Liquidation Date with respect to Acquiring Fund Shares shall be paid to the
holder of such certificate(s), but such shareholders may not redeem or
2
<PAGE>
transfer Acquiring Fund Shares received in the Reorganization. The
Acquiring Fund will not issue share certificates in the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name
other than the registered holder of the Acquired Fund Shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance
and transfer, be paid by the person to whom such Acquiring Fund Shares are
to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust, including, but not limited to,
the responsibility for filing of regulatory reports, tax returns, or other
documents with the Securities and Exchange Commission (the "Commission"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Trust.
2. VALUATION
2.1 The net asset values of the Class A and Class B Acquiring Fund Shares and
the net values of the assets and liabilities of the Acquired Fund
attributable to its Class A and Class B shares to be transferred shall, in
each case, be determined as of the close of business (4:00 p.m. Boston
time) on the Closing Date. The net asset values of the Class A and Class B
Acquiring Fund Shares shall be computed by the Custodian in the manner set
forth in the Acquiring Fund's Declaration of Trust as amended and restated
(the "Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be computed in
each case to not fewer than four decimal places. The net values of the
assets of the Acquired Fund attributable to its Class A and Class B shares
to be transferred shall be computed by the Custodian by calculating the
value of the assets of each class transferred by the Acquired Fund and by
subtracting therefrom the amount of the liabilities of each class assigned
and transferred to and assumed by the Acquiring Fund on the Closing Date,
said assets and liabilities to be valued in the manner set forth in the
Acquired Fund's then current prospectus and statement of additional
information and shall be computed in each case to not fewer than four
decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund's
assets attributable to a class, less the liabilities attributable to that
class assumed by the Acquiring Fund, by the Acquiring Fund's net asset
value per share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance with
its regular practice as pricing agent for the Funds.
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3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 6, 1996 or such other date on or before
June 30, 1997 as the parties may agree. The Closing shall be held as of
5:00 p.m. at the offices of the Trust II and the Trust, 101 Huntington
Avenue, Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name of
the Custodian as record holder for the Acquired Fund shall be presented by
the Acquired Fund to the Custodian for examination no later than three
business days preceding the Closing Date. Portfolio securities which are
not held in book-entry form shall be delivered by the Acquired Fund to the
Custodian for the account of the Acquiring Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute
good delivery thereof in accordance with the custom of brokers, and shall
be accompanied by all necessary federal and state stock transfer stamps or
a check for the appropriate purchase price thereof. Portfolio securities
held of record by the Custodian in book-entry form on behalf of the
Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by
recording the transfer of beneficial ownership thereof on its records. The
cash delivered shall be in the form of currency or by the Custodian
crediting the Acquiring Fund's account maintained with the Custodian with
immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange shall
be closed to trading or trading thereon shall be restricted or (b) trading
or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored;
provided that if trading shall not be fully resumed and reporting restored
on or before June 30, 1997, this Agreement may be terminated by the
Acquiring Fund or by the Acquired Fund upon the giving of written notice to
the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding
and nonresident alien withholding status of the Acquired Fund shareholders
and the number of outstanding shares of each class of beneficial interest
of the Acquired Fund owned by each such shareholder, all as of the close of
business on the Closing Date, certified by its Treasurer, Secretary or
other authorized officer (the "Shareholder List"). The Acquiring Fund shall
issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
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4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of the Acquired Fund represents, warrants and covenants
to the Acquiring Fund as follows:
(a) The Trust is a business trust, duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and, subject to
approval by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust nor the
Acquired Fund is required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to
qualify would subject it to any material liability or disability. The
Trust has all necessary federal, state and local authorizations to own
all of its properties and assets and to carry on its business as now
being conducted;
(b) The Trust is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), is in full force and effect. The Acquired
Fund is a diversified series of the Trust;
(c) The Trust and the Acquired Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not
result, in violation of any provision of the Trust's Declaration of
Trust, as amended and restated (the "Trust's Declaration") or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust or the Acquired Fund is a party or by
which it is bound;
(d) Except as otherwise disclosed in writing and accepted by the Acquiring
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquired Fund or any of
the Acquired Fund's properties or assets. The Trust knows of no facts
which might form the basis for the institution of such proceedings,
and neither the Trust nor the Acquired Fund is a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the Acquired
Fund's business or its ability to consummate the transactions herein
contemplated;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of
securities entered into in the ordinary course of business and
consistent with its obligations under this Agreement) which will not
be terminated without liability to the Acquired Fund at or prior to
the Closing Date;
(f) The unaudited statement of assets and liabilities, including the
schedule of investments, of the Acquired Fund as of April 30, 1996 and
the related statement of operations (copies of which have been
furnished to the Acquiring Fund) present fairly in all material
respects the financial condition of the Acquired Fund as of April 30,
1996 and the results of its operations for the period then ended in
accordance with generally accepted accounting principles consistently
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<PAGE>
applied, and there were no known actual or contingent liabilities of
the Acquired Fund as of the respective dates thereof not disclosed
therein;
(g) Since April 30, 1996, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such
return is currently under audit and no assessment has been asserted
with respect to such returns or reports;
(i) The Acquired Fund has elected to be treated as a regulated investment
company for federal income tax purposes, has qualified as such for
each taxable year of its operation and will qualify as such as of the
Closing Date with respect to its final taxable year ending on the
Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust. All of the
issued and outstanding shares of beneficial interest of the Acquired
Fund will, at the time of Closing, be held by the persons and in the
amounts and classes set forth in the Shareholder List submitted to the
Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund
does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares of beneficial interest,
nor is there outstanding any security convertible into any of its
shares of beneficial interest;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant
to Paragraph 1.1 hereof, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the
Securities Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Trust on
behalf of the Acquired Fund, and this Agreement constitutes a valid
and binding obligation of the Trust and the Acquired Fund enforceable
in accordance with its terms, subject to the approval of the Acquired
Fund's shareholders;
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(m) The information to be furnished by the Acquired Fund to the Acquiring
Fund for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate
and complete and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable
thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund
for inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the Registration
Statement, on the date of the meeting of the Acquired Fund
shareholders and on the Closing Date, shall not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of the
Acquired Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws;
(q) The prospectus of the Acquired Fund, dated March 1, 1996 (the
"Acquired Fund Prospectus"), previously furnished to the Acquiring
Fund, does not contain any untrue statements of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
4.2 The Trust II on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust II is a business trust duly organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts
and has the power to own all of its properties and assets and to carry
out the Agreement. Neither the Trust II nor the Acquiring Fund is
required to qualify to do business in any jurisdiction in which it is
not so qualified or where failure to qualify would subject it to any
material liability or disability. The Trust II has all necessary
federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted;
(b) The Trust II is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect. The
Acquiring Fund is a non-diversified series of the Trust II;
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<PAGE>
(c) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information for Class A and Class B shares of the Acquiring
Fund, each dated September 30, 1996, and any amendments or supplements
thereto on or prior to the Closing Date, and the Registration
Statement on Form N-14 to be filed in connection with this Agreement
(the "Registration Statement") (other than written information
furnished by the Acquired Fund for inclusion therein, as covered by
the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform
in all material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the Commission
thereunder, the Acquiring Fund Prospectus does not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and the Registration Statement will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(d) At the Closing Date, the Trust II on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust II and the Acquiring Fund are not, and the execution,
delivery and performance of their obligations under this Agreement
will not result, in violation of any provisions of the Trust II's
Declaration, or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Trust II or the
Acquiring Fund is a party or by which the Trust II or the Acquiring
Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust II or the Acquiring Fund or
any of the Acquiring Fund's properties or assets. The Trust II knows
of no facts which might form the basis for the institution of such
proceedings, and neither the Trust II nor the Acquiring Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely
affects the Acquiring Fund's business or its ability to consummate the
transactions herein contemplated;
(g) The unaudited statement of assets and liabilities, including the
schedule of investments, of the Acquiring Fund as of June 30, 1996 and
the related statement of operations (copies of which have been
furnished to the Acquired Fund), present fairly in all material
respects the financial condition of the Acquiring Fund as of June 30,
1996 and the results of its operations for the period then ended in
accordance with generally accepted accounting principles consistently
applied, and there were no known actual or contingent liabilities of
the Acquiring Fund as of the respective dates thereof not disclosed
herein;
(h) Since June 30, 1996, there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Trust II on behalf of the Acquiring
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Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed to and accepted by the
Acquired Fund;
(i) The Acquiring Fund has elected to be treated as a regulated investment
company for federal income tax purposes, has qualified as such for
each taxable year of its operation and will qualify as such as of the
Closing Date;
(j) The authorized capital of the Trust II consists of an unlimited number
of shares of beneficial interest, no par value per share. All issued
and outstanding shares of beneficial interest of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust II. The
Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of its shares of
beneficial interest, nor is there outstanding any security convertible
into any of its shares of beneficial interest;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Trust II on
behalf of the Acquiring Fund, and this Agreement constitutes a valid
and binding obligation of the Acquiring Fund enforceable in accordance
with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial
interest of the Acquiring Fund and will be fully paid and
nonassessable by the Trust II;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and
other laws and regulations applicable thereto; and
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by the Agreement,
except for the registration of the Acquiring Fund Shares under the
1933 Act, the 1940 Act and under state securities laws.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Trust on
behalf of the Acquired Fund and the Trust II on behalf of Acquiring Fund,
will operate their respective businesses in the ordinary course between the
date hereof and the Closing Date, it being understood that such ordinary
course of business will include customary dividends and distributions and
any other distributions necessary or desirable to avoid federal income or
excise taxes.
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5.2 The Trust will call a meeting of the Acquired Fund shareholders to consider
and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of
making any distribution thereof other than in accordance with the terms of
this Agreement.
5.4 The Trust on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as the Trust II on behalf of
the Acquiring Fund requests concerning the beneficial ownership of the
Acquired Fund's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Trust on behalf of the Acquired Fund shall furnish to the Trust II on
behalf of the Acquiring Fund on the Closing Date the Statement of Assets
and Liabilities of the Acquired Fund as of the Closing Date, which
statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by the
Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust II, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes and of any
capital loss carryovers and other items that will be carried over to the
Acquiring Fund as a result of Section 381 of the Code, and which statement
will be certified by the President of the Acquired Fund.
5.7 The Trust II on behalf of the Acquiring Fund will prepare and file with the
Commission the Registration Statement in compliance with the 1933 Act and
the 1940 Act in connection with the issuance of the Acquiring Fund Shares
as contemplated herein.
5.8 The Trust on behalf of the Acquired Fund will prepare a Proxy Statement, to
be included in the Registration Statement in compliance with the 1933 Act,
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
1940 Act and the rules and regulations thereunder (collectively, the
"Acts") in connection with the special meeting of shareholders of the
Acquired Fund to consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRED
FUND
The obligations of the Trust on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust II on behalf of the Acquiring Fund of all the
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obligations to be performed by it hereunder on or before the Closing Date, and,
in addition thereto, the following further conditions:
6.1 All representations and warranties of the Trust II on behalf of the
Acquiring Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date;
and
6.2 The Trust II on behalf of the Acquiring Fund shall have delivered to the
Acquired Fund a certificate executed in its name by the Trust II's
President or Vice President and its Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties of the
Trust II on behalf of the Acquiring Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as the Trust on behalf of the Acquired Fund shall reasonably
request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE
ACQUIRING FUND
The obligations of the Trust II on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Acquired Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date;
7.2 The Trust on behalf of the Acquired Fund shall have delivered to the Trust
II on behalf of the Acquiring Fund the Statement of Assets and Liabilities
of the Acquired Fund, together with a list of its portfolio securities
showing the federal income tax bases and holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of the Trust;
7.3 The Trust on behalf of the Acquired Fund shall have delivered to the Trust
II on behalf of the Acquiring Fund on the Closing Date a certificate
executed in the name of the Acquired Fund by a President or Vice President
and a Treasurer or Assistant Treasurer of the Trust, in form and substance
satisfactory to the Trust II on behalf of the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties
of the Acquired Fund in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Trust
II on behalf of the Acquiring Fund shall reasonably request; and
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7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or
an affiliate thereof, shall have made all payments, or applied all credits,
to the Acquired Fund required by any applicable contractual or
state-imposed expense limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE TRUST II
The obligations hereunder of the Trust II on behalf of the Acquiring Fund and
the Trust on behalf of the Acquired Fund are each subject to the further
conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Acquired Fund in accordance with the provisions
of the Trust's Declaration and By-Laws, and certified copies of the
resolutions evidencing such approval by the Acquired Fund's shareholders
shall have been delivered by the Acquired Fund to the Trust II on behalf of
the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities, including
"no-action" positions of such federal or state authorities) deemed
necessary by the Trust or the Trust II to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may waive any such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933 Act
and the 1940 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act or the 1940 Act;
8.5 The Acquired Fund shall have distributed to its shareholders all of its
investment company taxable income (as defined in Section 852(b)(2) of the
Code) for its taxable year ending on the Closing Date, all of the excess of
(i) its interest income excludable from gross income under Section 103(a)
of the Code over (ii) its deductions disallowed under Sections 265 and
171(a)(2) of the Code for its taxable year ending on the Closing Date, and
all of its net capital gain (as such term is used in Section 852(b)(3)(C)
of the Code), after reduction by any available capital loss carryforward,
for its taxable year ending on the Closing Date; and
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8.6 The parties shall have received an opinion of Messrs. Hale and Dorr,
satisfactory to the Trust on behalf of the Acquired Fund and the Trust II
on behalf of the Acquiring Fund, substantially to the effect that for
federal income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund
Shares to the Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by the Acquiring Fund, followed by the distribution
by the Acquired Fund, in liquidation of the Acquired Fund, of
Acquiring Fund Shares to the shareholders of the Acquired Fund in
exchange for their shares of beneficial interest of the Acquired Fund
and the termination of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and
the Acquired Fund and the Acquiring Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i) the
transfer of all of its assets to the Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund; and (ii) the distribution by the Acquired Fund of such Acquiring
Fund Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
issuance of the Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund;
(d) The basis of the assets of the Acquired Fund acquired by the Acquiring
Fund will be, in each instance, the same as the basis of those assets
in the hands of the Acquired Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will, in each instance, include the Acquired
Fund's tax holding period for those assets;
(f) The shareholders of the Acquired Fund will not recognize gain or loss
upon the exchange of all of their shares of beneficial interest of the
Acquired Fund solely for Acquiring Fund Shares as part of the
transaction;
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the
shares of beneficial interest of the Acquired Fund surrendered in
exchange therefor; and
(h) The tax holding period of the Acquiring Fund Shares received by the
Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the shares of the Acquired Fund surrendered in
exchange therefor, provided that the Acquired Fund shares were held as
capital assets on the date of the exchange.
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The Trust II and the Trust agree to make and provide representations with
respect to the Acquiring Fund and the Acquired Fund, respectively, which are
reasonably necessary to enable Hale and Dorr to deliver an opinion substantially
as set forth in this Paragraph 8.6. Notwithstanding anything herein to the
contrary, neither the Trust nor the Trust II may waive the conditions set forth
in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund, each represent and warrant to the other, that there are
no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying out
the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein or referred to in Paragraph 4
hereof and that this Agreement constitutes the entire agreement between the
parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust II,
on behalf of the Acquiring Fund, and the Trust on behalf of the Acquired
Fund. In addition, either party may at its option terminate this Agreement
at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and which
reasonably appears will not or cannot be met;
(c) by resolution of the Trust II's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquiring Fund's shareholders; or
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(d) by resolution of the Trust's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquired Fund's
shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust II, the Acquiring Fund, the Trust, or
the Acquired Fund, or the Trustees or officers of the Trust II or the
Trust, but each party shall bear the expenses incurred by it incidental
to the preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust and the Trust II.
However, following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions regarding the method for determining the
number of Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109, Attention: Pamela J.
Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
15
<PAGE>
14.5 All persons dealing with the Trust or the Trust II must look solely to the
property of the Trust or the Trust II, respectively, for the enforcement of
any claims against the Trust or the Trust II as the Trustees, officers,
agents and shareholders of the Trust or the Trust II assume no personal
liability for obligations entered into on behalf of the Trust or the Trust
II, respectively. None of the other series of the Trust or the Trust II
shall be responsible for any obligations assumed by on or behalf of the
Acquired Fund or the Acquiring Fund, respectively, under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK TAX-FREE BOND TRUST on behalf of
JOHN HANCOCK TAX-FREE BOND FUND
By: /s/ Anne C. Hodsdon
---------------------------
Anne C. Hodsdon
President
FREEDOM INVESTMENT TRUST on behalf of
JOHN HANCOCK MANAGED TAX-EXEMPT FUND
By: /s/ Susan S. Newton
---------------------------
Susan S. Newton
Vice President and Secretary
16
<PAGE>
John Hancock High Yield Tax-Free Fund
John Hancock Tax-Free Bond Fund
(together, the "funds")
Supplement to Class A and B Prospectus
(to be distributed to investors in the State of Maryland)
The funds' goal, strategy and primary investment policies are described on page
6 and page 12 of the prospectus. The funds may also use additional investment
practices which have specific risks associated with them. Particularly, please
note that the funds may engage in transactions in some or all of the following
derivative instruments: financial futures and related options, securities and
index options, participation interests, swaps, caps, floors and collars. The
risks associated with their use include: interest rate risk, market risk, hedged
or speculative leverage risk, correlation risk, liquidity risk, credit risk,
information risk, valuation risk and opportunity risk. These instruments and
other "higher-risk securities and practices" (and their associated risks) are
described on pages 24 and 25 of the prospectus.
For John Hancock High Yield Tax-Free Fund, the description of the fund's goal,
strategy and primary investment policies on page 6 is supplemented as follows:
In seeking a high level of current income that is largely exempt from
federal income tax and is consistent with reasonable safety of capital, the
adviser will evaluate the level of risk inherent to particular securities
when considering the level of income offered by these securities. The risks
associated with these securities are defined under the heading "More About
Risk" on page 26 of the prospectus. There is no assurance that the fund will
achieve its goal.
<PAGE>
JOHN HANCOCK
TAX-FREE INCOME FUNDS
PROSPECTUS
SEPTEMBER 30, 1996
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest and keep it on hand for future
reference.
Please note that these funds:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed to achieve their goal(s)
High Yield Tax-Free Fund may invest up to 85% in junk bonds; read risk
information carefully.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
[JOHN HANCOCK LOGO]
CALIFORNIA TAX-FREE INCOME FUND
HIGH YIELD TAX-FREE FUND
MASSACHUSETTS TAX-FREE
INCOME FUND
NEW YORK TAX-FREE INCOME FUND
TAX-FREE BOND FUND
[JOHN HANCOCK LOGO]
JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
A fund-by-fund look at goals, strategies, risks, expenses and financial history.
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA TAX-FREE INCOME FUND 4
HIGH YIELD TAX-FREE FUND 6
MASSACHUSETTS TAX-FREE INCOME FUND 8
NEW YORK TAX-FREE INCOME FUND 10
TAX-FREE BOND FUND 12
Policies and instructions for opening, maintaining and closing an account in any
tax-free income fund.
YOUR ACCOUNT
Choosing a share class 14
How sales charges are calculated 14
Sales charge reductions and waivers 15
Opening an account 15
Buying shares 16
Selling shares 17
Transaction policies 19
Dividends and account policies 19
Additional investor services 20
Details that apply to the tax-free income funds as a group.
FUND DETAILS
Business structure 21
Sales compensation 22
More about risk 24
FOR MORE INFORMATION BACK COVER
</TABLE>
<PAGE>
OVERVIEW
GOAL OF THE TAX-FREE INCOME FUNDS
John Hancock tax-free income funds seek to offer income that is exempt from
federal and, in some cases, state and local income tax. Each fund has its own
strategy and its own risk/reward profile. Each fund invests at least 80% of
assets in municipal securities exempt from federal (and in some funds, state)
income tax as well as the federal alternative minimum tax. However, a portion of
a tax-free fund's income may be subject to these taxes. Because you could lose
money by investing in these funds, be sure to read all risk disclosure carefully
before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o are in higher income brackets
o want regular monthly income
o are interested in lowering their income tax burden
o pay California, Massachusetts or New York income tax (state-specific funds)
Tax-free income funds may NOT be appropriate if you:
o are not subject to a high level of state or federal income tax
o are seeking an investment for a tax-deferred retirement account
o are investing for maximum return over a long time horizon
o require absolute stability of your principal
THE MANAGEMENT FIRM
All John Hancock tax-free income funds are managed by John Hancock Advisers,
Inc. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Mutual Life Insurance Company and manages more than $19 billion in
assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[TARGET ICON]
GOAL AND STRATEGY The fund's particular investment goals and the strategies it
intends to use in pursuing those goals.
[FOLDER ICON]
PORTFOLIO SECURITIES The primary types of securities in which the fund invests.
Secondary investments are described in "More about risk" at the end of the
prospectus.
[RISK ICON]
RISK FACTORS The major risk factors associated with the fund.
[INDIVIDUAL ICON]
PORTFOLIO MANAGEMENT The individual or group designated by the investment
adviser to handle the fund's day-to-day management.
[PERCENT ICON]
EXPENSES The overall costs borne by an investor in the fund, including sales
charges and annual expenses.
[DOLLAR SIGN ICON]
FINANCIAL HIGHLIGHTS A table showing the fund's financial performance for up to
ten years, by share class. A bar chart showing total return allows you to
compare the fund's historical risk level to those of other funds.
<PAGE>
CALIFORNIA TAX-FREE INCOME FUND
REGISTRANT NAME: JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
TICKER SYMBOL CLASS A: TACAX CLASS B: TSCAX
[TARGET ICON]
GOAL AND STRATEGY
The fund seeks income that is exempt from federal and California personal income
taxes. The fund seeks to provide the maximum current income that is consistent
with preservation of capital. To pursue this goal, the fund invests primarily in
municipal securities exempt from these taxes.
[FOLDER ICON]
PORTFOLIO SECURITIES
The fund's municipal securities may include bonds, notes and commercial paper of
any maturity. Under normal circumstances, the fund invests at least 80% of
assets in California municipal securities, particularly bonds. These are
primarily investment grade, although up to 20% of assets may be invested in junk
bonds rated BB/Ba and their unrated equivalents. No more than 25% of assets may
be invested in unrated securities.
For liquidity and flexibility, the fund may place up to 20% of assets in taxable
investment-grade short-term securities. For defensive purposes, it may invest
more assets in these securities. The fund also may invest in private activity
bonds and certain higher-risk investments, and may engage in other investment
practices.
[RISK ICON]
RISK FACTORS
As with most income funds, the value of your investment will fluctuate with
changes in interest rates. Typically, a rise in interest rates causes a decline
in the market value of debt securities (including municipal securities).
Although the fund is diversified, it concentrates in securities of California
issuers and its performance is largely dependent on factors that may
disproportionately affect these issuers. Factors may include:
o local economic or policy changes
o tax base erosion
o state constitutional limits on tax increases
o changes in the ratings assigned to the state's municipal issuers
o the possibility of credit problems, such as the 1994 bankruptcy of Orange
County
To the extent that the fund invests in bonds rated BBB/Baa or lower, it takes on
higher risks of volatility and default. Issuers of these bonds are typically in
weaker financial health and their ability to pay interest and principal is less
certain. Before you invest, please read "More about risk" starting on page 24.
[INDIVIDUAL ICON]
PORTFOLIO MANAGEMENT
Dianne Sales-Singer, CFA, leader of the fund's portfolio management team since
April 1995, is a senior portfolio officer of the adviser. Ms. Sales-Singer
joined John Hancock Funds in 1989 and has been in the investment business since
1984.
INVESTOR EXPENSES
[PERCENT ICON]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee (after expense limitation)(3) 0.38% 0.38%
12b-1 fee (net of reduction)(4) 0.15% 0.90%
Other expenses 0.22% 0.22%
Total fund operating expenses (after limitation)(3) 0.75% 1.50%
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $52 $68 $85 $134
Class B shares
Assuming redemption
at end of period $65 $77 $102 $159
Assuming no redemption $15 $47 $82 $159
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses. Without this
limitation, management fees would be 0.55% for each class and total fund
operating expenses would be 0.92% for Class A and 1.77% for Class B.
(4) Without the reduction, 12b-1 fees would be 1.00% for Class B shares. Because
of the 12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
4 CALIFORNIA TAX-FREE INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS
[DOLLAR SIGN ICON]
The figures below have been audited by the fund's independent auditors, Ernst &
Young LLP.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
VOLATILITY, AS INDICATED BY CLASS A 6.13 12.26 9.15 13.60 (9.31) 21.88 (0.82)
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED DECEMBER 31, 1990 1991 1992 1993 1994(1)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $9.91 $10.32 $10.41 $10.85
Net investment income 0.74 0.69 0.66 0.62 0.58
Net realized and unrealized gain (loss) on investments (0.16) 0.47 0.25 0.76 (1.57)
Total from investment operations 0.58 1.16 0.91 1.38 (0.99)
Less distributions:
Dividends from net investment income (0.67) (0.70) (0.67) (0.62) (0.58)
Distributions from net realized gain on investments sold -- (0.05) (0.15) (0.32) --
Total distributions (0.67) (0.75) (0.82) (0.94) (0.58)
Net asset value, end of period $9.91 $10.32 $10.41 $10.85 $9.28
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 6.13 12.26 9.15 13.60 (9.31)
Total adjusted investment return at net asset value(4,6) (%) 5.29 11.86 8.90 13.42 (9.45)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 80,200 163,693 217,014 279,692 241,583
Ratio of expenses to average net assets (%) 0.00 0.40 0.58 0.69 0.75
Ratio of adjusted expenses to average net assets(8) (%) 0.84 0.80 0.83 0.87 0.89
Ratio of net investment income (loss) to average net assets (%) 7.11 6.75 6.36 5.69 5.85
Ratio of adjusted net investment income (loss) to average net assets(8)(%) 6.27 6.35 6.11 5.51 5.71
Portfolio turnover rate (%) 62 45 34 51 62
Fee reduction per share ($) 0.09 0.04 0.03(3) 0.02 0.01
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED DECEMBER 31, 1995 1996(2)
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.28 $10.69
Net investment income 0.57(3) 0.29
Net realized and unrealized gain (loss) on investments 1.41 (0.38)
Total from investment operations 1.98 (0.09)
Less distributions:
Dividends from net investment income (0.57) (0.29)
Distributions from net realized gain on investments sold -- --
Total distributions (0.57) (0.29)
Net asset value, end of period $10.69 $10.31
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 21.88 (0.82)(5)
Total adjusted investment return at net asset value(4,6) (%) 21.73 (0.92)(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 309,305 290,996
Ratio of expenses to average net assets (%) 0.75 0.75(7)
Ratio of adjusted expenses to average net assets(8) (%) 0.90 0.85(7)
Ratio of net investment income (loss) to average net assets (%) 5.76 5.57(7)
Ratio of adjusted net investment income (loss) to average net assets(8)(%) 5.61 5.47(7)
Portfolio turnover rate (%) 37(9) 25
Fee reduction per share ($) 0.01(3) 0.01
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED DECEMBER 31, 1992 1993 1994(1) 1995 1996(2)
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.32 $10.41 $10.85 $9.28 $10.68
Net investment income 0.58(3) 0.54 0.51 0.50(3) 0.25
Net realized and unrealized gain (loss) on investments 0.25 0.76 (1.57) 1.40 (0.37)
Total from investment operations 0.83 1.30 (1.06) 1.90 (0.12)
Less distributions:
Dividends from net investment income (0.59) (0.54) (0.51) (0.50) (0.25)
Distributions from net realized gain on investments sold (0.15) (0.32) -- -- --
Total distributions (0.74) (0.86) (0.51) (0.50) (0.25)
Net asset value, end of period $10.41 $10.85 $9.28 $10.68 $10.31
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 8.35 12.76 (9.99) 20.87 (1.09)(5)
Total adjusted investment return at net asset value(4,6) (%) 8.10 12.58 (10.13) 20.72 (1.19)(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 26,595 65,437 77,365 84,673 81,906
Ratio of expenses to average net assets (%) 1.35 1.44 1.50 1.50 1.50(7)
Ratio of adjusted expenses to average net assets(8) (%) 1.60 1.62 1.64 1.65 1.60(7)
Ratio of net investment income (loss) to average net assets (%) 5.43 4.82 5.10 4.97 4.82(7)
Ratio of adjusted net investment income (loss) to average net assets(8)(%) 5.18 4.64 4.96 4.82 4.72(7)
Portfolio turnover rate (%) 34 51 62 37(9) 25
Fee reduction per share ($) 0.03(3) 0.02 0.01 0.01(3) 0.01
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(2) Six months ended June 30, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Portfolio turnover excludes merger activity.
CALIFORNIA TAX-FREE INCOME FUND 5
<PAGE>
HIGH YIELD TAX-FREE FUND
REGISTRANT NAME: JOHN HANCOCK TAX-FREE BOND TRUST
TICKER SYMBOL CLASS A: JHTFX CLASS B: TSHTX
[TARGET ICON]
GOAL AND STRATEGY
The fund seeks a high level of current income that is largely exempt from
federal income tax and is consistent with preservation of capital. To pursue
this goal, the fund invests primarily in a diversified portfolio of tax-exempt
municipal debt securities.
[FOLDER ICON]
PORTFOLIO SECURITIES
The fund's municipal securities may include bonds, notes and commercial paper of
any maturity. Under normal circumstances, the fund invests at least 80% of
assets in municipal bonds rated A, BBB/Baa or BB/Ba and their unrated
equivalents. Up to 5% of assets may be invested in bonds rated B, CCC/Caa or
CC/Ca. Bonds rated BB/Ba or lower are considered junk bonds.
For liquidity and flexibility, the fund may place up to 20% of assets in taxable
investment-grade short-term securities. For defensive purposes, it may invest
more assets in these securities. The fund also may invest in private activity
bonds and certain higher-risk investments, including various derivative
securities primarily used in the fund's capital preservation strategies, and may
engage in other investment practices.
[RISK ICON]
RISK FACTORS
As with most income funds, the value of your investment will fluctuate with
changes in interest rates. Typically, a rise in interest rates causes a decline
in the market value of debt securities (including municipal securities).
Investors should expect greater fluctuations in share price, yield and total
return compared to less aggressive tax-free income funds. These fluctuations,
whether positive or negative, may be sharp and unanticipated. Issuers of BBB/Baa
rated bonds and junk bonds are typically in weaker financial health than issuers
of high quality bonds, and their ability to pay interest and principal is less
certain. These issuers are more likely to encounter financial difficulties and
to be materially affected by these difficulties when they do encounter them.
Junk bond markets may react strongly to adverse news about an issuer or the
economy, or to the perception of adverse news. Before you invest, please read
"More about risk" starting on page 24.
[INDIVIDUAL ICON]
PORTFOLIO MANAGEMENT
Frank A. Lucibella, CFA, leader of the fund's portfolio management team since
April 1995, is a second vice president of the adviser. Mr. Lucibella joined John
Hancock Funds in 1988 and has been in the investment business since 1982.
INVESTOR EXPENSES
[PERCENT ICON]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee 0.58% 0.58%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.25% 0.25%
Total fund operating expenses 1.08% 1.83%
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $56 $78 $102 $171
Class B shares
Assuming redemption
at end of period $69 $88 $119 $195
Assuming no redemption $19 $58 $99 $195
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 HIGH YIELD TAX-FREE FUND
<PAGE>
FINANCIAL HIGHLIGHTS
[DOLLAR SIGN ICON]
The figures below have been audited by the fund's independent auditors, Ernst &
Young LLP.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VOLATILITY, AS INDICATED BY CLASS B 0.12(6) (5.13)(6) 15.88 7.54 4.60 10.07 7.89 13.69 (4.44) 13.99 (.22(6)
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED OCTOBER 31, 1994(1) 1995(2) 1996(3)
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.85 $8.82 $9.47
Net investment income 0.48(4) 0.57 0.30
Net realized and unrealized gain (loss) on investments
sold and financial futures contracts (0.94) 0.70 (0.24)
Total from investment operations (0.46) 1.27 0.06
Less distributions:
Dividends from net investment income (0.48) (0.58) (0.30)
Distributions in excess of net investment income (0.09) (0.04) --
Total distributions (0.57) (0.62) (0.30)
Net asset value, end of period $8.82 $9.47 $9.23
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 4.96(6) 14.85 0.56(6)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 15,401 14,225 20,896
Ratio of expenses to average net assets (%) 1.15(7) 1.06 1.09(7)
Ratio of net investment income (loss) to average net assets (%) 6.08(7) 6.36 6.27(7)
Portfolio turnover rate (%) 62 64 25
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED OCTOBER 31, 1987(8) 1987(9) 1988 1989 1990 1991 1992
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.00 $9.49 $8.62 $9.25 $9.29 $9.07 $9.31
Net investment income 0.53 0.37 0.62 0.55 0.55 0.54 0.55
Net realized and unrealized gain (loss) on
investments sold and financial futures contracts (0.51) (0.87) 0.70 0.13 (0.14) 0.34 0.17
Total from investment operations 0.02 (0.50) 1.32 0.68 0.41 0.88 0.72
Less distributions:
Dividends from net investment income (0.53) (0.37) (0.66) (0.51) (0.55) (0.54) (0.55)
Distributions in excess of net investment income -- -- -- -- -- -- --
Distributions from net realized gain on investments sold -- -- (0.03) -- -- -- (0.09)
Distributions from capital paid-in -- -- -- (0.13) (0.08) (0.10) --
Total distributions (0.53) (0.37) (0.69) (0.64) (0.63) (0.64) (0.64)
Net asset value, end of period $9.49 $8.62 $9.25 $9.29 $9.07 $9.31 $9.39
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 0.12(6) (5.13)(6) 15.88 7.54 4.60 10.07 7.89
Total adjusted investment return at net asset value(5,10)(%) (0.39)(6) (5.34)(6) -- -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 15,753 15,026 24,278 29,841 35,820 51,467 65,933
Ratio of expenses to average net assets (%) 0.56(6) 0.61(6) 2.05 2.32 2.20 2.36 2.17
Ratio of adjusted expenses to average net assets(11) (%) 1.07(6) 0.82(6) -- -- -- -- --
Ratio of net investment income to
average net assets (%) 4.96(6) 4.05(6) 6.66 5.79 5.96 5.61 5.78
Ratio of adjusted net investment income (loss)
to average net assets(11) (%) 4.45(6) 3.84(6) -- -- -- -- --
Portfolio turnover rate (%) 153 42 82 29 41 83 40
Fee reduction per share ($) 0.05 0.02 -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED OCTOBER 31, 1993 1994 1995(2) 1996(3)
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.39 $9.98 $8.82 $9.47
Net investment income 0.53 0.48 0.51 0.27
Net realized and unrealized gain (loss) on
investments sold and financial futures contracts 0.72 (0.90) 0.69 (0.24)
Total from investment operations 1.25 (0.42) 1.20 0.03
Less distributions:
Dividends from net investment income (0.56) (0.48) (0.51) (0.27)
Distributions in excess of net investment income -- (0.07) (0.04) --
Distributions from net realized gain on investments sold (0.10) (0.19) -- --
Distributions from capital paid-in -- -- -- --
Total distributions (0.66) (0.74) (0.55) (0.27)
Net asset value, end of period $9.98 $8.82 $9.47 $9.23
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 13.69 (4.44) 13.99 0.22(6)
Total adjusted investment return at net asset value(5,10)(%) -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 113,442 151,069 155,234 151,312
Ratio of expenses to average net assets (%) 2.06 1.85 1.79 1.78(7)
Ratio of adjusted expenses to average net assets(11) (%) -- -- -- --
Ratio of net investment income to
average net assets (%) 5.23 5.36 5.61 5.57(7)
Ratio of adjusted net investment income (loss)
to average net assets(11) (%) -- -- -- --
Portfolio turnover rate (%) 100 62 64 25
Fee reduction per share ($) -- -- -- --
</TABLE>
(1) Class A shares commenced operations on December 31, 1993.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Six months ended April 30, 1996. (Unaudited).
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) Annualized.
(8) For the period August 25, 1986 to April 30, 1987.
(9) For the period May 1, 1987 to October 31, 1987.
(10) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(11) Unreimbursed, without fee reduction.
HIGH YIELD TAX-FREE FUND 7
<PAGE>
MASSACHUSETTS TAX-FREE INCOME FUND
REGISTRANT NAME: JOHN HANCOCK TAX-EXEMPT SERIES FUND
TICKER SYMBOL CLASS A: JHMAX CLASS B: N/A
GOAL AND STRATEGY
[TARGET ICON]
The fund seeks income that is exempt from federal and Massachusetts personal
income taxes. The fund seeks to provide the maximum current income that is
consistent with preservation of capital. To pursue this goal, the fund invests
primarily in municipal securities exempt from these taxes.
PORTFOLIO SECURITIES
[FOLDER ICON]
The fund's municipal securities may include bonds, notes and commercial paper
of any maturity. Under normal circumstances, the fund invests at least 80% of
net assets in Massachusetts municipal securities. Up to 33.3% of assets may be
invested in municipal securities rated BBB/Baa or BB/Ba and their unrated
equivalents. The balance of the fund's investments must be rated at least A or
be of equivalent quality. Bonds rated BB/Ba are considered junk bonds.
For liquidity and flexibility, the fund may place up to 20% of net assets in
taxable investment-grade short-term securities. For defensive purposes, it may
invest more assets in these securities. The fund also may invest in private
activity bonds and certain higher-risk investments, and may engage in other
investment practices.
RISK FACTORS
[RISK ICON]
As with most income funds, the value of your investment will fluctuate with
changes in interest rates. Typically, a rise in interest rates causes a decline
in the market value of debt securities (including municipal securities).
Because the fund is not diversified and because it concentrates in
securities of Massachusetts issuers, its performance is largely dependent on
factors that may disproportionately affect its investments.
These factors may include:
o local economic or policy changes
o tax base erosion
o state constitutional limits on tax increases
o changes in the ratings assigned to the state's municipal issuers
To the extent that the fund invests in bonds rated BBB/Baa or lower, it takes on
higher risks of volatility and default. Issuers of these bonds are typically in
weaker financial health and their ability to pay interest and principal is less
certain. Before you invest, please read "More about risk" starting on page 24.
PORTFOLIO MANAGEMENT
[INDIVIDUAL ICON]
Dianne Sales-Singer, CFA, leader of the fund's portfolio management team since
July 1993, is a senior portfolio officer of the adviser. Ms. Sales-Singer joined
John Hancock Funds in 1989 and has been in the investment business since 1984.
INVESTOR EXPENSES
[PERCENT ICON]
Fund investors pay various expenses, either directly or indirectly. The figures
below are based on Class A expenses for the past year, adjusted to reflect any
changes. There were no Class B shares issued or outstanding during the last
fiscal year. Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.40% 0.40%
Total fund operating expenses (after limitation)(3) 0.70% 1.40%
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $52 $66 $82 $128
Class B shares
Assuming redemption
at end of period $64 $74 $97 $149
Assuming no redemption $14 $44 $77 $149
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses. Without this
limitation, management fees would be 0.50% for each class and total fund
operating expenses would be 1.20% for Class A and 1.90% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
8 MASSACHUSETTS TAX-FREE INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS
[DOLLAR ICON]
The figures below have been audited by the fund's
independent auditors, Price Waterhouse LLP.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VOLATILITY, AS INDICATED BY CLASS A 13.13(4) 9.67 3.49 12.10 12.11 13.29 (0.97) 7.66 4.76(3)
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A -- YEAR ENDED AUGUST 31, 1988(1) 1989 1990 1991 1992
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $10.63 $10.94 $10.63 $11.15
Net investment income 0.65 0.70 0.69 0.73 0.71
Net realized and unrealized gain (loss) on investments 0.63 0.31 (0.31) 0.53 0.60
Total from investment operations 1.28 1.01 0.38 1.26 1.31
Less distributions:
Dividends from net investment income (0.65) (0.70) (0.69) (0.73) (0.71)
Distributions from net realized gain on investments sold -- -- -- (0.01) --
Total distributions (0.65) (0.70) (0.69) (0.74) (0.71)
Net asset value, end of period $10.63 $10.94 $10.63 $11.15 $11.75
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 13.13(4) 9.67 3.49 12.10 12.11
Total adjusted investment return at net asset value(3,6) (%) 10.38(4) 9.16 2.72 10.66 10.93
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 4,757 9,138 9,968 15,015 29,113
Ratio of expenses to average net assets (%) 1.00(4) 1.00 1.00 0.60 0.60
Ratio of adjusted expenses to average net assets(7) (%) 3.75(4) 1.51 1.77 2.04 1.78
Ratio of net investment income (loss) to average net assets (%) 6.28(4) 6.35 6.31 6.64 6.18
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 3.53(4) 5.84 5.54 5.20 5.00
Portfolio turnover rate (%) 20 2 2 29 56
Fee reduction per share ($) 0.28 0.11 0.08 0.16 0.14
</TABLE>
<TABLE>
<CAPTION>
CLASS A -- YEAR ENDED AUGUST 31, 1993 1994 1995 1996(2)
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.75 $12.43 $11.56 $11.76
Net investment income 0.67 0.63 0.65 0.32
Net realized and unrealized gain (loss) on investments 0.82 (0.75) 0.20 0.23
Total from investment operations 1.49 (0.12) 0.85 0.55
Less distributions:
Dividends from net investment income (0.67) (0.63) (0.65) (0.32)
Distributions from net realized gain on investments sold (0.14) (0.12) -- --
Total distributions (0.81) (0.75) (0.65) (0.32)
Net asset value, end of period $12.43 $11.56 $11.76 $11.99
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 13.29 (0.97) 7.66 4.76(5)
Total adjusted investment return at net asset value(3,6) (%) 12.38 (1.50) 7.21 4.38(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 50,019 54,122 54,416 56,852
Ratio of expenses to average net assets (%) 0.67 0.70 0.70 0.76(4)
Ratio of adjusted expenses to average net assets(7) (%) 1.58 1.23 1.15 1.15(4)
Ratio of net investment income (loss) to average net assets (%) 5.61 5.28 5.67 5.42(4)
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 4.70 4.75 5.22 5.04(4)
Portfolio turnover rate (%) 79 29 24 24
Fee reduction per share ($) 0.11 0.06 0.05 0.04
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
CLASS B -- YEAR ENDED AUGUST 31, 1996(1)
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period --
Net investment income --
Net realized and unrealized gain (loss) on investments --
Total from investment operations --
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold --
Total distributions --
Net asset value, end of period --
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) --
Total adjusted investment return at net asset value(3,6) (%) --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) --
Ratio of expenses to average net assets (%) --
Ratio of adjusted expenses to average net assets(7) (%) --
Ratio of net investment income (loss) to average net assets (%) --
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) --
Portfolio turnover rate (%) --
Fee reduction per share ($) --
</TABLE>
(1) Class A shares commenced operations on September 3, 1987. Class B shares
commenced operations on September 30, 1996.
(2) Six months ended February 29, 1996. (Unaudited.)
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Annualized.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Unreimbursed, without fee reduction.
MASSACHUSETTS TAX-FREE INCOME FUND 9
<PAGE>
NEW YORK TAX-FREE INCOME FUND
REGISTRANT NAME: JOHN HANCOCK TAX-EXEMPT SERIES FUND
TICKER SYMBOL CLASS A: JHNYX CLASS B: N/A
GOAL AND STRATEGY
[TARGET ICON]
The fund seeks income that is exempt from federal income taxes as well as New
York State and New York City personal income taxes. The fund seeks to provide
the maximum current income that is consistent with preservation of capital. To
pursue this goal, the fund invests primarily in municipal securities exempt from
these taxes.
PORTFOLIO SECURITIES
[FOLDER ICON]
The fund's municipal securities may include bonds, notes and commercial paper of
any maturity. Under normal circumstances, the fund invests at least 80% of net
assets in New York municipal securities. Up to 33.3% of assets may be invested
in municipal securities rated BBB/Baa or BB/Ba and their unrated equivalents.
The balance of the fund's investments must be rated at least A or be of
equivalent quality. Bonds rated BB/Ba are considered junk bonds.
For liquidity and flexibility, the fund may place up to 20% of net assets in
taxable investment-grade short-term securities. For defensive purposes, it may
invest more assets in these securities. The fund also may invest in private
activity bonds and certain higher-risk investments, and may engage in other
investment practices.
RISK FACTORS
[RISK ICON]
As with most income funds, the value of your investment in the fund will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including municipal
securities).
Because the fund is not diversified and because it concentrates in securities of
New York issuers, certain factors may disproportionately affect the fund's
investments. These factors may include:
- - local economic or policy changes
- - tax base erosion
- - limited flexibility to raise taxes
- - changes in the ratings assigned to the state's municipal issuers - the legacy
of past credit problems of New York City and other issuers
To the extent that the fund invests in bonds rated BBB/Baa or lower, it takes on
higher risks of volatility and default. Issuers of these bonds are typically in
weaker financial health and their ability to pay interest and principal is less
certain. Before you invest, please read "More about risk" starting on page 24.
PORTFOLIO MANAGEMENT
[INDIVIDUAL ICON]
Frank A. Lucibella, CFA, leader of the fund's portfolio management team since
April 1995, is a second vice president of the adviser. He joined John Hancock
Funds in 1988 and has been in the investment business since 1982.
INVESTOR EXPENSES
[PERCENT ICON]
Fund investors pay various expenses, either directly or indirectly. The figures
below are based on Class A expenses for the past year, adjusted to reflect any
changes. There were no Class B shares issued or outstanding during the last
fiscal year. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.40% 0.40%
Total fund operating expenses (after limitation)(3) 0.70% 1.40%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
Class A shares $52 $66 $82 $128
Class B shares
Assuming redemption
at end of period $64 $74 $97 $149
Assuming no redemption $14 $44 $77 $149
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses. Without this
limitation, management fees would be 0.50% for each class and total fund
operating expenses would be 1.20% for Class A and 1.90% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 NEW YORK TAX-FREE INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS
[DOLLAR ICON]
The figures below have been audited by the fund's independent auditors, Price
Waterhouse LLP.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VOLATILITY, AS INDICATED BY CLASS A 11.40(4) 11.87 3.74 12.24 12.17 13.70 (1.05) 7.19 5.37(5)
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A -- YEAR ENDED AUGUST 31, 1988(1) 1989 1990 1991 1992
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $10.48 $11.01 $10.74 $11.29
Net investment income 0.61 0.68 0.67 0.72 0.72
Net realized and unrealized gain (loss) on investments 0.48 0.55 (0.25) 0.55 0.63
Total from investment operations 1.09 1.23 0.42 1.27 1.35
Less distributions:
Dividends from net investment income (0.61) (0.68) (0.67) (0.72) (0.72)
Distributions from net realized gain on investments sold -- (0.02) (0.02) -- (0.02)
Total distributions (0.61) (0.70) (0.69) (0.72) (0.74)
Net asset value, end of period $10.48 $11.01 $10.74 $11.29 $11.90
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 11.40(4) 11.87 3.74 12.24 12.17
Total adjusted investment return at net asset value(3,6) (%) 7.56(4) 11.22 3.05 11.02 11.09
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 4,306 8,795 13,357 20,878 33,806
Ratio of expenses to average net assets (%) 1.00(4) 1.00 1.00 0.60 0.60
Ratio of adjusted expenses to average net assets(7) (%) 4.84(4) 1.65 1.69 1.82 1.68
Ratio of net investment income (loss) to average net assets (%) 6.11(4) 6.30 6.17 6.57 6.22
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 2.27(4) 5.65 5.48 5.35 5.14
Portfolio turnover rate (%) 16 10 10 12 48
Fee reduction per share ($) 0.38 0.13 0.08 0.13 0.13
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLASS A -- YEAR ENDED AUGUST 31, 1993 1994 1995 1996(2)
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $11.90 $12.63 $11.73 $11.88
Net investment income 0.68 0.64 0.65 0.33
Net realized and unrealized gain (loss) on investments 0.87 (0.77) 0.15 0.30
Total from investment operations 1.55 (0.13) 0.80 0.63
Less distributions:
Dividends from net investment income (0.68) (0.64) (0.65) (0.33)
Distributions from net realized gain on investments sold (0.14) (0.13) -- --
Total distributions (0.82) (0.77) (0.65) (0.33)
Net asset value, end of period $12.63 $11.73 $11.88 $12.18
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 13.70 (1.05) 7.19 5.37(5)
Total adjusted investment return at net asset value(3,6) (%) 12.83 (1.58) 6.74 4.97(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 52,444 55,690 55,753 57,770
Ratio of expenses to average net assets (%) 0.67 0.70 0.70 0.73(4)
Ratio of adjusted expenses to average net assets(7) (%) 1.54 1.23 1.15
1.13(4)
Ratio of net investment income (loss) to average net assets (%) 5.63 5.28 5.67 5.47(4)
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 4.76 4.75 5.22 5.07(4)
Portfolio turnover rate (%) 56 23 70 30
Fee reduction per share ($) 0.11 0.06 0.05 0.05
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
CLASS B -- YEAR ENDED AUGUST 31, 1996(1)
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period --
Net investment income --
Net realized and unrealized gain (loss) on investments --
Total from investment operations --
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold
Total distributions --
Net asset value, end of period --
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) --
Total adjusted investment return at net asset value(3,6) (%) --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) --
Ratio of expenses to average net assets (%) --
Ratio of adjusted expenses to average net assets(7) (%) --
Ratio of net investment income (loss) to average net assets (%) --
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) --
Portfolio turnover rate (%) --
Fee reduction per share ($) --
</TABLE>
(1) Class A shares commenced operations on September 11, 1987. Class B shares
commenced operations on September 30, 1996.
(2) Six months ended February 29, 1996. (Unaudited.)
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Annualized.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Unreimbursed, without fee reduction.
NEW YORK TAX-FREE INCOME FUND 11
<PAGE>
TAX-FREE BOND FUND
REGISTRANT NAME: JOHN HANCOCK TAX-FREE BOND TRUST
TICKER SYMBOL CLASS A: TAMBX CLASS B: TSMBX
GOAL AND STRATEGY
[TARGET ICON]
The fund seeks as high a level of interest income exempt from federal income tax
as is consistent with preservation of capital. To pursue this goal, the fund
invests in a diversified portfolio of municipal securities. Under normal
circumstances, the fund will place at least 80% of assets in municipal bonds.
PORTFOLIO SECURITIES
[FOLDER ICON]
The fund's municipal bonds may include investment-grade bonds, notes and
commercial paper of any maturity. Less than 35% of assets may be invested in
municipal bonds rated BB/Ba or B (junk bonds) and their unrated equivalents. The
fund may not invest more than 25% of assets in private activity bonds of issuers
in any one industry. There is no limit on the fund's investments in issuers
located in any one state.
For liquidity and flexibility, the fund may place up to 20% of assets in taxable
investment-grade short-term securities. For defensive purposes, it may invest
more assets in these securities. The fund also may invest in private activity
bonds and certain higher-risk investments, and may engage in other investment
practices.
RISK FACTORS
[RISK ICON]
As with most income investments, the value of your investment will fluctuate
with changes in interest rates. Typically, a rise in interest rates causes a
decline in the market value of fixed income securities (including municipal
securities). Bonds with longer maturities are especially sensitive to interest
rate movements.
To the extent that the fund invests in bonds rated BBB/Baa or lower, it takes on
higher risks of volatility and default. Issuers of these bonds are typically in
weaker financial health and their ability to pay interest and principal is less
certain. Before you invest, please read "More about risk" starting on page 24.
PORTFOLIO MANAGEMENT
[INDIVIDUAL ICON]
Thomas C. Goggins has been the leader of the fund's portfolio management team
since joining John Hancock Funds in April 1995. A senior vice president of the
adviser, Mr. Goggins has been in the investment business since 1986.
INVESTOR EXPENSES
[PERCENT ICON]
Fund investors pay various expenses, either directly or indirectly. The figures
below show the expenses for the past year, adjusted to reflect any changes.
Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee 0.55% 0.55%
12b-1 fee(3,4) 0.25% 1.00%
Other expenses 0.29% 0.29%
Total fund operating expenses(4) 1.09% 1.84%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
Class A shares $56 $78 $102 $172
Class B shares
Assuming redemption
at end of period $69 $88 $120 $196
Assuming no redemption $19 $58 $100 $196
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
(4) Until December 23, 1996, the adviser has agreed to limit total fund
operating expenses to 0.85% for Class A and 1.60% for Class B. Effective
December 23, 1996 the 12b-1 fee will be increased from 0.15% to 0.25% for
Class A and from 0.90% to 1.00% for Class B. Prior to the increase, total
fund operating expenses would be 0.99% for Class A and 1.74% for Class B.
12 TAX-FREE BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS
[Dollar Sign Icon]
The figures below have been audited by the fund's
independent auditors, Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 6.04(6) 14.78 10.97 15.15 (9.28) 20.20 (1.27)(6)
(scale varies from fund to fund)
</TABLE>
<TABLE>
CLASS A - YEAR ENDED DECEMBER 31, 1990(1) 1991 1992 1993
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 9.90 $ 10.24 $ 10.47
Net investment income 0.71 0.69 0.67 0.62
Net realized and unrealized gain (loss) on investments (0.13) 0.72 0.42 0.93
Total from investment operations 0.58 1.41 1.09 1.55
Less distributions:
Dividends from net investment income (0.68) (0.68) (0.68) (0.62)
Distributions from net realized gain on investments sold -- (0.39) (0.18) (0.44)
Total distributions (0.68) (1.07) (0.86) (1.06)
Net asset value, end of period $ 9.90 $ 10.24 $ 10.47 $ 10.96
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 6.04(6) 14.78 10.97 15.15
Total adjusted investment return at net asset value(5,7)(%) 5.19(6) 14.40 10.67 14.98
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 45,437 73,393 99,523 136,521
Ratio of expenses to average net assets (%) 0.40(6) 0.60 0.66 0.78
Ratio of adjusted expenses to average net assets(9) (%) 1.25(6) 0.98 0.96 0.95
Ratio of net investment income (loss) to average net assets(%) 7.09(6) 6.86 6.46 5.57
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) 6.24(6) 6.48 6.16 5.40
Portfolio turnover rate (%) 64 123 79 116
Fee reduction per share ($) 0.08 0.04 0.03 0.02
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED DECEMBER 31, 1994 1995 1996(3)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.96 $ 9.39 $ 10.67
Net investment income 0.58 0.57(4) 0.31(4)
Net realized and unrealized gain (loss) on investments (1.58) 1.28 (0.45)
Total from investment operations (1.00) 1.85 (0.14)
Less distributions:
Dividends from net investment income (0.57) (0.57) (0.29)
Distributions from net realized gain on investments sold -- -- --
Total distributions (0.57) (0.57) (0.29)
Net asset value, end of period $ 9.39 $ 10.67 $ 10.24
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) (9.28) 20.20 (1.27)(6)
Total adjusted investment return at net asset value(5,7)(%) (9.39) 20.08 (1.37)(6)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 114,539 118,797 569,367
Ratio of expenses to average net assets (%) 0.85 0.85 0.85(8)
Ratio of adjusted expenses to average net assets(9) (%) 0.96 0.97 1.05(8)
Ratio of net investment income (loss) to average net assets(%) 5.72 5.67 5.81(8)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) 5.61 5.55 5.61(8)
Portfolio turnover rate (%) 107 113 80
Fee reduction per share ($) 0.01 0.01(4) 0.01(4)
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED DECEMBER 31, 1992 1993 1994(2) 1995 1996(3)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.24 $ 10.47 $ 10.96 $ 9.38 $ 10.67
Net investment income 0.59(4) 0.54 0.50 0.50(4) 0.25(4)
Net realized and unrealized gain (loss) on investments 0.42 0.93 (1.58) 1.28 (0.43)
Total from investment operations 1.01 1.47 (1.08) 1.78 (0.18)
Less distributions:
Dividends from net investment income (0.60) (0.54) (0.50) (0.49) (0.25)
Distributions from net realized gain on investments sold (0.18) (0.44) -- -- --
Total distributions (0.78) (0.98) (0.50) (0.49) (0.25)
Net asset value, end of period $ 10.47 $ 10.96 $9.38 $ 10.67 $ 10.24
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 10.15 14.30 (10.05) 19.41 (1.63)(6)
Total adjusted investment return at net asset value(5,7) (%) 9.85 14.13 (10.16) 19.29 (1.73)(6)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 18,272 56,384 70,243 76,824 81,123
Ratio of expenses to average net assets (%) 1.43 1.53 1.60 1.60 1.60(8)
Ratio of adjusted expenses to average net assets(9) (%) 1.73 1.70 1.71 1.72 1.80(8)
Ratio of net investment income (loss) to average net assets (%) 5.57 4.66 4.97 4.90 4.94(8)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) 5.27 4.49 4.86 4.78 4.74(8)
Portfolio turnover rate (%) 79 116 107 113 80
Fee reduction per share ($) 0.03(4) 0.02 0.01 0.01(4) 0.01(4)
</TABLE>
(1) Class A shares commenced operations on January 5, 1990.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Six months ended June 30, 1996 (Unaudited).
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Annualized.
(9) Unreimbursed, without fee reduction.
TAX-FREE BOND FUND 13
<PAGE>
YOUR ACCOUNT
CHOOSING A SHARE CLASS
All John Hancock tax-free income funds offer two classes of shares, Class A and
Class B. Each class has its own cost structure, allowing you to choose the one
that best meets your requirements. Your financial representative can help you
decide.
Class A Class B
- - Front-end sales charges, - No front-end sales charge;
as described below. There are all your money goes to
several ways to reduce these work for you right away.
charges, also described below.
- Higher annual expenses
- - Lower annual expenses than Class A shares.
than Class B shares.
- A deferred sales charge on
shares you sell within six
years of purchase, as
described below.
- Automatic conversion to
Class A shares after eight
years, thus reducing future
annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
HOW SALES CHARGES ARE CALCULATED
CLASS A Sales charges are as follows:
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
<S> <C> <C>
Up to $99,999 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 3.00% 3.09%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
CDSC ON $1 MILLION+ INVESTMENTS
<TABLE>
<CAPTION>
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
<S> <C>
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
CLASS B DEFERRED CHARGES
<TABLE>
<CAPTION>
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
<S> <C>
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
14 YOUR ACCOUNT
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
- - Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
- - Combination Privilege -- lets you combine Class A shares of multiple funds for
purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Investor Services to add these options (see the
back cover of this prospectus).
GROUP INVESTMENT PROGRAM Allows established groups of four or more investors to
invest as a group. Each has an individual account, but for sales charge
purposes, their investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250) and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS As long as Investor Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
- - to make payments through certain systematic withdrawal plans
- - to make certain distributions from a retirement plan
- - because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Investor Services, or consult the SAI (see the back
cover of this prospectus).
REINSTATEMENT PRIVILEGE If you sell shares of a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities that are prohibited from paying mutual fund sales charges
- - financial institutions or common trust funds investing $1 million or more for
non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock tax-free fund from an
employee benefit plan that has John Hancock funds
- - members of an approved affinity group financial services program
- - certain insurance company contract holders (one-year CDSC usually applies)
- - participants in certain retirement plans with at least 100 members (one-year
CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
your financial representative or Investor Services, or consult the SAI.
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The
minimum initial investments for the John Hancock funds are as follows:
- non-retirement account: $1,000
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at
least $25 a month
3 Complete the appropriate parts of the account application, carefully following
the instructions. If you have questions, please contact your financial
representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to add
privileges later.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 15
<PAGE>
BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
BY CHECK
[CHECK ICON]
- - Make out a check for the - Make out a check for the
investment amount, payable to investment amount payable to
"John Hancock Investor Services "John Hancock Investor Services
Corporation." Corporation."
- - Deliver the check and your - Fill out the detachable
completed application to your investment slip from an account
financial representative, or mail statement. If no slip is
them to Investor Services available, include a note
(address on next page). specifying the fund name, your
share class, your account number
and the name(s) in which the
account is registered.
- Deliver the check and your
investment slip or note to your
financial representative, or mail
them to Investor Services
(address on next page).
BY EXCHANGE
[EXCHANGE ICON]
- - Call your financial - Call Investor Services to request
representative or Investor an exchange.
Services to request an exchange.
BY WIRE
[WIRE ICON]
- - Deliver your completed - Instruct your bank to wire the
application to your financial amount of your investment to:
representative, or mail it to First Signature Bank & Trust
Investor Services. Account # 900000260
Routing # 211475000
- - Obtain your account number by Specify the fund name, your share
calling your financial class, your account number and
representative or Investor the name(s) in which the account
Services. is registered. Your bank may
charge a fee to wire funds.
- - Instruct your bank to wire the
amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s) in
which the account is registered.
Your bank may charge a fee to
wire funds.
BY PHONE
[PHONE ICON]
See "By wire" and "By exchange." - Verify that your bank or credit
union is a member of the
Automated Clearing House (ACH)
system.
- Complete the "Invest-By-Phone"
and "Bank Information" sections
on your account application.
- Call Investor Services to verify
that these features are in place
on your account.
- Tell the Investor Services
representative the fund name,
your share class, your account
number, the name(s) in which the
account is registered and the
amount of your investment.
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
16 YOUR ACCOUNT
<PAGE>
SELLING SHARES
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
BY LETTER
[LETTER ICON]
- - Accounts of any type. - Write a letter of instruction or
complete a stock power indicating
- - Sales of any amount. the fund name, your share class,
your account number, the name(s)
in which the account is
registered and the dollar value
or number of shares you wish to
sell.
- Include all signatures and any
additional documents that may be
required (see next page).
- Mail the materials to Investor
Services.
- A check will be mailed to the
name(s) and address in which the
account is registered, or
otherwise according to your
letter of instruction.
BY PHONE
[PHONE ICON]
- - Most accounts. - For automated service 24 hours a
day using your touch-tone phone,
- - Sales of up to $100,000. call the EASI-Line at
1-800-338-8080.
- To place your order with a
representative at John Hancock
Funds, call Investor Services
between 8 A.M. and 4 P.M. on most
business days.
BY WIRE OR ELECTRONIC FUNDS
TRANSFER (EFT)
[WIRE ICON]
- - Requests by letter to sell any - Fill out the "Telephone
amount (accounts of any type). Redemption" section of your new
account application.
- - Requests by phone to sell up to
$100,000 (accounts with telephone - To verify that the telephone
redemption privileges). redemption privilege is in place
on an account, or to request the
forms to add it to an existing
account, call Investor Services.
- Amounts of $1,000 or more will be
wired on the next business day. A
$4 fee will be deducted from your
account.
- Amounts of less than $1,000 may
be sent by EFT or by check. Funds
from EFT transactions are
generally available by the second
business day. Your bank may
charge a fee for this service.
BY EXCHANGE
[EXCHANGE ICON]
- - Accounts of any type. - Obtain a current prospectus for
the fund into which you are
- - Sales of any amount. exchanging by calling your
financial representative or
Investor Services.
- Call Investor Services to request
an exchange.
ADDRESS
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
PHONE
1-800-225-5291
Or contact your financial representative for instructions and assistance.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
YOUR ACCOUNT 17
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer
- - a federal savings, cooperative or other type of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
SELLER REQUIREMENTS FOR WRITTEN REQUESTS
[LETTER ICON]
Owners of individual, joint, sole - Letter of instruction.
proprietorship, UGMA/UTMA
(custodial accounts for minors) or - On the letter, the signatures and
general partner accounts. titles of all persons authorized
to sign for the account, exactly
as the account is registered.
- Signature guarantee if applicable
(see above).
Owners of corporate or association - Letter of instruction.
accounts.
- Corporate resolution, certified
within the past 90 days.
- On the letter and the resolution,
the signature of the person(s)
authorized to sign for the
account.
- Signature guarantee if applicable
(see above).
Owners or trustees of trust - Letter of instruction.
accounts.
- On the letter, the signature(s)
of the trustee(s).
- If the names of all trustees are
not registered on the account,
please also provide a copy of the
trust document certified within
the past 60 days.
- Signature guarantee if applicable
(see above).
Joint tenancy shareholders whose - Letter of instruction signed by
co-tenants are deceased. surviving tenant.
- Copy of death certificate.
- Signature guarantee if applicable
(see above).
Executors of shareholder estates. - Letter of instruction signed by
executor.
- Copy of order appointing
executor.
- Signature guarantee if applicable
(see above).
Administrators, conservators, - Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
18 YOUR ACCOUNT
<PAGE>
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Investor Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, Investor Services is
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
EXCHANGES You may exchange shares of your John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
Class B shares will continue to age from the original date and will retain the
same CDSC rate as they had before the exchange, except that the rate will change
to that of the new fund if the new fund's rate is higher. A CDSC rate that has
increased will drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Investor Services. Certificated
shares can only be sold by returning the certificates to Investor Services,
along with a letter of instruction or a stock power and a signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares
legally available in your state.
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- - After every transaction (except a dividend reinvestment) that affects your
account balance.
- - After any changes of name or address of the registered owner(s).
- - In all other circumstances, every quarter.
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally declare dividends daily and pay them monthly.
Short- and long-term capital gains, if any, are distributed annually, typically
after the end of a fund's fiscal year. Your dividends begin accruing the day
after payment is received by the fund and continue through the day your shares
are actually sold.
YOUR ACCOUNT 19
<PAGE>
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
The fund intends to meet certain federal tax requirements so that distributions
of the tax-exempt interest it earns may be treated as "exempt-interest
dividends." However, any portion of exempt-interest dividends attributable to
interest on private activity bonds may increase certain shareholders'
alternative minimum tax.
Dividends from a fund's short- and long-term capital gains are taxable. Taxable
dividends paid in January may be taxable as if they had been paid the previous
December.
The state tax-free income funds intend to comply with certain state tax
requirements so that their income dividends will be exempt from state and local
personal income taxes in the applicable state. Dividends of the other tax-free
income funds are not exempt from state and local income taxes.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Investor Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
ADDITIONAL INVESTOR SERVICES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
- - Complete the appropriate parts of your account application.
- - If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Investor Services
Corporation." Deliver your check and application to your financial
representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN This plan may be used for routine bill payment or
periodic withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
- - Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
- - Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
- - Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Investor Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, 401(k) plans, 403(b) plans (including TSAs) and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund (except tax-free income funds) with a low minimum investment
of $250 or, for some group plans, no minimum investment at all. To find out
more, call Investor Services at 1-800-225-5291.
20 YOUR ACCOUNT
<PAGE>
FUND DETAILS
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock tax-free income fund is an
open-end management investment company or a series of such a company.
Each fund is supervised by a board of trustees, an independent body that has
ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others (see diagram). The board has the right, and
the obligation, to terminate the fund's relationship with any of these companies
and to retain a different company if the board believes it is in the
shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock tax-free income funds may
include individuals who are affiliated with the investment adviser. However, the
majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[THE FOLLOWING CHART IS SET IN PYRAMID STYLE]
SHAREHOLDERS
Distribution and FINANCIAL SERVICES FIRMS AND
shareholder services THEIR REPRESENTATIVES
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
PRINCIPAL DISTRIBUTOR TRANSFER AGENT
John Hancock Funds, Inc. John Hancock Investor Services Corporation
101 Huntington Avenue P.O. Box 9116
Boston, MA 02199-7603 Boston, MA 02205-9116
Markets the funds and distributes Handles shareholder services, including
shares through selling brokers, record-keeping and statements,
financial planners and other distribution of dividends and
financial representatives. processing of buy and sell requests.
INVESTMENT ADVISER CUSTODIAN
John Hancock Advisers, Inc. Investors Bank & Trust Co. Asset
101 Huntington Avenue 89 South Street management
Boston, MA 02199-7603 Boston, MA 02111
Manages the funds' business and Holds the funds' assets, settles all
investment activities. portfolio trades and collects most
of the valuation data required for
calculating each fund's NAV.
TRUSTEES
Supervise the funds' activities.
YOUR ACCOUNT 21
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 will not exceed
0.02% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
INVESTMENT GOALS AND POLICIES Except for Massachusetts and New York Tax-Free
Income Funds, each fund's investment goal is fundamental and may only be changed
with shareholder approval. Each fund's policy of investing at least 80% in
municipal securities is fundamental and may not be changed without shareholder
approval. The High Yield Tax-Free Fund's 80% credit policy is also fundamental.
DIVERSIFICATION Except for the Massachusetts and New York Tax-Free Income Funds,
all of the tax-free income funds are diversified.
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets ("12b-1" refers to the federal
securities regulation authorizing annual fees of this type). The 12b-1 fee rates
vary by fund and by share class, according to Rule 12b-1 plans adopted by the
funds. The sales charges and 12b-1 fees paid by investors are detailed in the
fund-by-fund information. The portions of these expenses that are reallowed to
financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
CLASS B UNREIMBURSED DISTRIBUTION EXPENSES (1)
<TABLE>
<CAPTION>
UNREIMBURSED AS A % OF
FUND EXPENSES NET ASSETS
<S> <C> <C>
California Tax-Free Income $3,275,187 3.99%
High Yield Tax-Free $5,853,826 3.77%
Massachusetts Tax-Free Income N/A N/A
New York Tax-Free Income N/A N/A
Tax-Free Bond $3,009,557 4.07%
</TABLE>
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
To compensate for continuing services, John Hancock Funds will pay Merrill
Lynch, Pierce, Fenner & Smith, Inc. an annual fee equal to 0.15% the value of
Class A shares held by its customers for more than four years.
22 FUND DETAILS
<PAGE>
CLASS A INVESTMENTS
<TABLE>
<CAPTION>
MAXIMUM
SALES CHARGE REALLOWANCE FIRST YEAR MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Up to $99,999 4.50% 3.76% 0.25% 4.00%
$100,000 - $249,999 3.75% 3.01% 0.25% 3.25%
$250,000 - $499,999 3.00% 2.26% 0.25% 2.50%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
REGULAR INVESTMENTS OF
$1 MILLION OR MORE
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 and more above that -- 0.00% 0.25% 0.25%
WAIVER INVESTMENTS(2) -- 0.00% 0.25% 0.25%
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM
REALLOWANCE FIRST YEAR MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1)Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2)Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
FUND DETAILS 23
<PAGE>
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any bond fund, there is no guarantee that a John Hancock tax-free income
fund will earn income or show a positive return over any period of time -- days,
months or years.
TYPES OF INVESTMENT RISK
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Common to all debt securities.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable. Common to all municipal securities.
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
- - HEDGED When a derivative (a security whose value is based on another security
or index) is used as a hedge against an opposite position that the fund also
holds, any loss generated by the derivative should be substantially offset by
gains on the hedged investment, and vice versa. While hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
- - SPECULATIVE To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
MANAGEMENT RISK The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole. Common to all stocks and bonds and the
mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters, such as
earthquakes and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
POLITICAL RISK The risk of losses attributable to government or political
actions of any sort.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
FUND DETAILS 24
<PAGE>
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
Z Percent of total assets (italic type)
10 Percent of net assets (roman type)
l No policy limitation on usage; fund may be using currently
0 Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
CALIFORNIA HIGH MASSACHUSETTS NEW YORK
TAX-FREE YIELD TAX-FREE TAX-FREE TAX-FREE
INCOME TAX-FREE INCOME INCOME BOND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
BORROWING; REVERSE REPURCHASE AGREEMENTS The
borrowing of money from banks or through reverse
repurchase agreements. Leverage, credit risks. 15 33.3(1) 33.3 33.3 15
REPURCHASE AGREEMENTS The purchase of a security that
must later be sold back to the issuer at the same
price plus interest. Credit risk. l l l l l
SECURITIES LENDING The lending of securities to
financial institutions, which provide cash or
government securities as collateral. Credit risk. 33.3 -- 33.3 33.3 33.3
SHORT-TERM TRADING Selling a security soon after
purchase. A portfolio engaging in short-term trading
will have higher turnover and transaction expenses
Market risk. l l l l l
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The
purchase or sale of securities for delivery at a
future date; market value may change before delivery
Market, opportunity, leverage risks. l l l l l
- ------------------------------------------------------------------------------------------------------------------------------
CONVENTIONAL SECURITIES
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities
rated below BBB/Baa are considered junk bonds. Credit,
market, interest rate, liquidity, valuation,
information risks. 20 85 33.3 33.3 35
PRIVATE ACTIVITY BONDS Municipal debt obligations
that are backed primarily by revenues from
non-governmental entities. Credit, information,
interest rate, political, natural event risks. l l l l l
RESTRICTED AND ILLIQUID SECURITIES Securities not
traded on the open market. May include illiquid Rule
144A securities. Liquidity, valuation, market risks. 10 10 15 15 10
- ------------------------------------------------------------------------------------------------------------------------------
UNLEVERAGED DERIVATIVE SECURITIES
PARTICIPATION INTERESTS Securities representing an
interest in another security, often a municipal lease
obligation (MLO). MLOs are not backed by the full
faith and credit of the issuing municipality. Credit,
information, interest rate, liquidity, valuation risks. l l l l l
- ------------------------------------------------------------------------------------------------------------------------------
LEVERAGED DERIVATIVE SECURITIES
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX
OPTIONS Contracts involving the right or obligation to
deliver or receive assets or money depending on the
performance of one or more assets or an economic index.
- - Futures and related options. Interest rate, market,
hedged or speculative leverage, correlation,
liquidity, opportunity risks. l l l l l
- - Options on securities and indices. Interest rate,
market, hedged or speculative leverage, correlation,
liquidity, credit, opportunity risks. 0 0 0 0 0
STRUCTURED SECURITIES Leveraged and/or indexed debt
securities, including principal-only and interest-only
securities, leveraged floating rate securities and
others. These securities tend to be highly sensitive
to interest rate movements and their performance may
not correlate to such movements in a conventional
fashion. Credit, interest rate, market, speculative
leverage, liquidity, valuation risks. l l l l l
SWAPS, CAPS, FLOORS, COLLARS OTC contracts involving
the right or obligation to receive or make payments
based on two different income streams. Correlation,
credit, currency, interest rate, hedged or speculative
leverage, liquidity, valuation risks. 0 0 0 0 0
</TABLE>
(1) Applies to reverse repurchase agreements. Other borrowings are limited to
15% of total assets.
FUND DETAILS 25
<PAGE>
ANALYSIS OF FUNDS WITH 5% OR MORE IN JUNK BONDS(1)
<TABLE>
<CAPTION>
QUALITY RATING
(S&P/MOODY'S)(2) HIGH YIELD TAX-FREE FUND TAX-FREE BOND FUND
<S> <C> <C>
INVESTMENT-GRADE BONDS
AAA/Aaa 10.32% 22.6%
AA/Aa 1.69% 4.8%
A/A 4.76% 14.9%
BBB/Baa 31.42% 51.1%
JUNK BONDS
BB/Ba 45.12% 5.3%
B/B 1.63% 0.9%
CCC/Caa 0.00% 0.00%
CC/Ca 0.00% 0.00%
C/C 0.00% 0.00%
% OF PORTFOLIO IN BONDS 100.0 99.6
</TABLE>
(1) Data as of fund's last fiscal year end.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
26 FUND DETAILS
<PAGE>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
Two documents are available that To request a free copy of the current
offer further information on John annual/semi-annual report or SAI,
Hancock tax-free income funds: please write or call:
ANNUAL/SEMI-ANNUAL John Hancock Investor Services
REPORT TO SHAREHOLDERS Corporation
Includes financial statements, P.O. Box 9116
detailed performance information, Boston, MA 02205-9116
portfolio holdings, a statement from Telephone: 1-800-225-5291
portfolio management and the EASI-Line: 1-800-338-8080
auditor's report. TDD: 1-800-544-6713
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI contains more detailed
information on all aspects of the
funds. The current annual/
semi-annual report is included
in the SAI.
A current SAI has been filed with
the Securities and Exchange
Commission and is incorporated
by reference (is legally a part of this
prospectus).
JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[JOHN HANCOCK LOGO] (C) 1996 John Hancock Funds, Inc.
TEXPN 9/96
<PAGE>
CHURCHILL LETTER
Date
IMPORTANT NOTICE
Dear Shareholder,
Recently you received proxy materials asking for your vote on a proposal
affecting your John Hancock fund investment. If you have already returned your
proxy voting card, we thank you for your attention to this important issue. If
you have not filled out your proxy card, we ask that you take the time now to
either fill out and return the proxy ballot card you received or call in your
vote following the instructions outlined below. your prompt response will help
avoid the cost of additional mailings. The special meeting of the John Hancock
Managed Tax-Exempt Fund will be held on November 14, 1996.
Because your prompt response will save your fund the expense of additional
mailings, we have established a way for you to vote via toll-free ProxyGram. To
be sure your vote is received in time, we urge you to use this ProxyGram
procedure. Simply follow the steps outlined below.
TOLL-FREE OPERATORS WHO ARE INDEPENDENT OF THE COMPANY ARE
AVAILABLE TO ASSIST YOU NOW!!!
INSTRUCTIONS
1. Call Toll-Free 1-800-437-7699 between 8:00 a.m. and 12:00 midnight eastern
time.
2. Tell the operator that you wish to send a collect ProxyGram vote to ID
No.(8833) John Hancock Managed Tax-Exempt Fund.
3. State your name, address and telephone number.
4. State your confidential account number and number of shares as shown below:
Confidential account number :
Number of shares :
<PAGE>
Dear Fellow Managed Tax-Exempt Fund Shareholder,
In June we asked you to approve several proposals designed to increase the
administrative efficiency of your Fund. Since that time, however, we have
determined that the merger of your Fund with John hancock Tax-Free Bond Fund
would be more beneficial to you. Accordingly, we will reimburse your Fund for
the cost of the June proxy.
At a special meeting of shareholders on November 14, 1996 at 9:00 A.M., you will
be asked to approve the merger of your Fund into the Tax-Free Bond Fund.
YOUR BOARD OF TRUSTEES HAS ALREADY UNANIMOUSLY APPROVED THE
PROPOSED MERGER, BELIEVING IT TO BE APPROPRIATE, GIVEN THAT
BOTH FUNDS PURSUE A SIMILAR INVESTMENT OBJECTIVE.
We believe this merger will benefit you in several respects, including:
* Greater Cost Efficiencies. Your Trustees believe that combining these two
Funds may benefit shareholders by allowing for reduced costs in investment
research, operations and other important areas. By creating a larger Fund, the
merger may lead to a reduction in long-term expenses.
* Increased Portfolio Diversification. By combining both Funds' assets into a
single portfolio, the Tax-Free Bond Fund will be able to achieve greater
diversification. Diversification is a known and proven technique in reducing
investment risk.
Your Vote Is Important!
No matter how large or small your investment may be, your vote makes a
difference. We urge you to review the enclosed proxy statement carefully, and to
vote by completing, signing and returning the attached proxy ballot form to us
immediately. Your prompt response will help avoid the cost of additional
mailings. For your convenience, we have enclosed a postage paid envelope.
If you have any questions please call your Customer Service Representative at
1-800-225-5291, Monday through Friday between 8:00 AM and 8:00 PM Eastern time.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and CEO
JOHN HANCOCK MANAGED TAX-EXEMPT FUND
101 HUNTINGTON AVENUE, BOSTON, MASSACHUSETTS 02199
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 14, 1996
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward J.
Boudreau, Jr., Susan S. Newton and James B. Little, with full power of
substitution in each, to vote all the shares of beneficial interest of John
Hancock Managed Tax-Exempt Fund ("Managed Tax-Exempt Fund" or the "Fund") which
the undersigned is (are) entitled to vote at the Special Meeting of Shareholders
(the "Meeting") of Managed Tax-Exempt Fund to be held at 101 Huntington Avenue,
Boston, Massachusetts, on November 14, 1996 at 9:00 a.m., Boston time, and at
any adjournment(s) of the Meeting. All powers may be exercised by a majority of
said proxy holders or substitutes voting or acting, or, if only one votes and
acts, then by that one. Receipt of the Proxy Statement dated September 30, 1996
is hereby acknowledged. If not revoked, this proxy shall be voted:
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date __________________, 1996
NOTE: Signature(s) should agree
with name(s) printed herein. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as
such. If a corporation, please sign
in full corporate name by president
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
-----------------------------------
Signature(s)
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, SAID PROXY OR PROXIES SHALL VOTE IN
ACCORDANCE WITH THEIR BEST JUDGEMENT. PLEASE VOTE BY FILLING IN THE APPROPRIATE
BOX BELOW, AS SHOWN, USING BLUE OR BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
(1) To approve an Agreement and Plan of Reorganization between Managed
Tax-Exempt Fund and John Hancock Tax-Free Bond Fund ("Tax-Free Bond Fund")
providing for Tax-Free Bond Fund's acquisition of all of Managed Tax-Exempt
Fund's assets in exchange solely for the assumption of Managed Tax-Exempt
Fund's liabilities, and the issuance of Class A and Class B shares of
Tax-Free Bond Fund to Managed Tax-Exempt Fund for distribution to its
shareholders.
---- ---- ----
FOR |____| AGAINST |____| ABSTAIN |____|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
