John Hancock Funds
John Hancock
Managed Tax-Exempt
Fund
Final Report
December 6, 1996
<PAGE>
John Hancock Funds - Managed Tax-Exempt Fund
Trustees
Edward J. Boudreau, Jr.
Dennis S. Aronowitz *
Richard P. Chapman, Jr. *
William J. Cosgrove *
Douglas M. Costle *
Leland O. Erdahl *
Richard A. Farrell *
Gail D. Fosler
William F. Glavin *
Anne C. Hodsdon
Dr. John A. Moore *
Patti McGill Peterson *
John W. Pratt *
Richard S. Scipione
Edward J. Spellman *
* Members of the Audit Committee
Officers
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
Custodian
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
<PAGE>
John Hancock Funds - Managed Tax-Exempt Fund
Statement of Assets and Liabilities
Final Report December 6, 1996* (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $174,795,316) $187,808,349
Interest receivable 2,584,030
Other assets 18,019
------------------
Total Assets 190,410,398
--------------------------------------------
Liabilities:
Due to Custodian 1,670,045
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 95,241
Accounts payable and accrued expenses 85,085
------------------
Total Liabilities 1,850,371
--------------------------------------------
Net Assets:
Capital paid-in 176,742,465
Accumulated net realized loss on investments and financial
futures contracts (1,196,137)
Net unrealized appreciation of investments 13,013,699
------------------
Net Assets $188,560,027
============================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $38,514,684 / 3,376,434 $11.41
================================================================================
Class B - $150,045,343 / 13,138,378 $11.42
================================================================================
Maximum Offering Price Per Share**
Class A - ($11.41 x 104.71%) $11.95
================================================================================
* The net assets of the John Hancock Managed Tax-Exempt Fund ("the Fund") were
merged into the John Hancock Tax-Free Bond Fund as of the close of business on
December 6, 1996, and the Fund was subsequently terminated. The Statement of
Assets and Liabilities reflects the Fund's position prior to the transfer of the
net assets of and termination of the Fund. (See Note A to the Notes to Financial
Statements)
** On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - Managed Tax-Exempt Fund
Statement of Operations
For the period November 1, 1996 to
December 6, 1996* (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest $1,237,017
-----------------
Expenses:
Distribution/service fee - Note B
Class A 11,747
Class B 150,446
Investment management fee - Note B 104,282
Transfer agent fee - Note B 22,394
Custodian fee 11,134
Financial services fee - Note B 3,555
Trustees' fees 1,280
Legal fees 1,039
Miscellaneous 125
Printing 120
Registration and filing fees 32
-----------------
Total Expenses 306,154
-----------------
Net Investment Income 930,863
-----------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold (84,657)
Change in net unrealized appreciation/depreciation
of investments 1,109,552
-----------------
Net Realized and Unrealized Gain
on Investments 1,024,895
-----------------
Net Increase in Net Assets
Resulting from Operations $1,955,758
=======================================================
* The net assets of the John Hancock Managed Tax-Exempt Fund ("the Fund") were
merged into the John Hancock Tax-Free Bond Fund as of the close of business on
December 6, 1996, and the Fund was subsequently terminated. The Statement of
Operations reflects the Fund's position prior to the transfer of the net assets
of and termination of the Fund. (See Note A to the Notes to Financial
Statements)
See Notes to Financial Statements.
<PAGE>
John Hancock Funds - Managed Tax-Exempt Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED NOVEMBER 1, 1996
OCTOBER 31, TO DECEMBER 6, 1996
1996 (UNAUDITED)**
---------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $10,071,017 $930,863
Net realized gain (loss) on investments sold 1,821,398 (84,657)
Change in net unrealized appreciation/depreciation of investments (815,778) 1,109,552
---------------------------------------
Net Increase in Net Assets Resulting from Operations 11,076,637 1,955,758
---------------------------------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6221 and $0.0643 per share, respectively) (2,211,308) (214,079)
Class B - ($0.5441 and $0.0560 per share, respectively) (7,828,156) (716,784)
Distributions from net realized gain on investments sold
and financial futures contracts
Class A - ($0.1114 and $0.1519 per share, respectively) (401,231) (508,329)
Class B - ($0.1114 and $0.1519 per share, respectively) (1,673,817) (1,978,759)
---------------------------------------
Total Distributions to Shareholders (12,114,512) (3,417,951)
---------------------------------------
From Fund Share Transactions - Net* (25,209,527) (4,116,366)
---------------------------------------
Net Assets:
Beginning of period 220,385,988 194,138,586
---------------------------------------
End of period (including undistributed net investment income
of $200,311 and none, respectively) $194,138,586 $188,560,027
=======================================
<CAPTION>
* Analysis of Fund Share Transactions: FOR THE PERIOD
YEAR ENDED NOVEMBER 1, 1996
OCTOBER 31, TO DECEMBER 6, 1996
1996 (UNAUDITED)**
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 232,661 $2,662,765 17,105 $163,437
Shares issued to shareholders in reinvestment of
distributions 131,368 1,512,353 40,314 462,658
-------------------------------------------------------------
364,029 4,175,118 57,419 626,095
Less shares repurchased (498,225) (5,731,458) (212,606) (2,458,373)
-------------------------------------------------------------
Net decrease (134,196) ($1,556,340) (155,187) ($1,832,278)
=============================================================
CLASS B
Shares sold 566,925 $6,533,314 17,001 $187,567
Shares issued to shareholders in reinvestment
of distributions 421,365 4,854,886 134,782 1,547,489
-------------------------------------------------------------
988,290 11,388,200 151,783 1,735,056
Less shares repurchased (3,045,657) (35,041,387) (347,283) (4,019,144)
-------------------------------------------------------------
Net decrease (2,057,367) ($23,653,187) (195,500) ($2,284,088)
=============================================================
</TABLE>
* The net assets of the John Hancock Managed Tax-Exempt Fund ("the Fund") were
merged into the John Hancock Tax-Free Bond Fund as of the close of business on
December 6, 1996, and the Fund was subsequently terminated. The Statement of
Changes in Net Assets reflects the Fund's position prior to the transfer of the
net assets of and termination of the Fund. (See Note A to the Notes to Financial
Statements)
See Notes to Financial Statements.
<PAGE>
John Hancock Managed Tax-Exempt Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
------------------------------------------- -----------------
Year ended October 31, For the period
------------------------------------------- November 1, 1996
to December 6, 1996
1993 1994 1995 1996 (Unaudited)
------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Class A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.12 $ 12.13 $ 10.79 $ 11.56 $ 11.51
------- ------- ------- ------- -------
Net Investment Income 0.70 0.64 0.63 0.62(e) 0.06(e)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts 1.05 (1.25) 0.77 0.06 0.05
------- ------- ------- ------- -------
Total from Investment Operations 1.75 (0.61) 1.40 0.68 0.11
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.70) (0.64) (0.63) (0.62) (0.06)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts (0.04) (0.09) -- (0.11) (0.15)
------- ------- ------- ------- -------
Total Distributions (0.74) (0.73) (0.63) (0.73) (0.21)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.13 $ 10.79 $ 11.56 $ 11.51 $ 11.41(f)
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(c) 16.10% (5.22%) 13.30% 6.11% 0.99%
Total Adjusted Investment Return at Net Asset Value(c)(d) 15.77% (5.29%) 13.28% 6.06% --
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $14,244 $20,098 $42,384 $40,643 $38,515
Ratio of Expenses to Average Net Assets 0.70% 0.95% 1.06% 1.06% 1.05%
Ratio of Adjusted Expenses to Average Net Assets(b) 1.03% 1.02% 1.11% 1.11% --
Ratio of Net Investment Income to Average Net Assets 5.98% 5.52% 5.53% 5.43% 5.43%
Ratio of Adjusted Net Investment Income to Average Net
Assets(b) 5.65% 5.42% 5.48% 5.38% --
Portfolio Turnover Rate 23% 59% 104% 69% 0%
Expense Reimbursement per share $ 0.04 $ 0.01 $ 0.01 $ 0.01 --
</TABLE>
* On an annualized basis.
** Not annualized.
(a) Class A shares commenced operations on January 3, 1992.
(b) On an unreimbursed basis. (Unaudited)
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the Adviser during the periods shown. (e)
On average month end shares outstanding.
(f) Net asset value per share before the merger of assets to the John Hancock
Tax-Free Bond Fund and the termination of the Fund (See Note A to the Notes
to Financial Statements.)
See Notes to Financial Statements.
<PAGE>
John Hancock Managed Tax-Exempt Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
--------------------------------------------- -------------------
Year ended October 31, For the period
--------------------------------------------- November 1, 1996
to December 6, 1996
1993 1994 1995 1996 (Unaudited)
------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Class B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.12 $ 12.13 $ 10.79 $ 11.57 $ 11.51
------- ------- ------- ------- -------
Net Investment Income 0.64 0.56 0.55 0.55(d) 0.05
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts 1.05 (1.25) 0.78 0.04 0.06
------- ------- ------- ------- -------
Total from Investment Operations 1.59 (0.69) 1.33 0.59 0.12
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.64) (0.56) (0.55) (0.54) (0.05)
Distributions from Net Realized Gain on Investments Sold
and Financial Futures Contracts (0.04) (0.09) -- (0.11) (0.15)
------- ------- ------- ------- -------
Total Distributions (0.68) (0.65) (0.55) (0.65) (0.20)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 12.13 $ 10.79 $ 11.57 $ 11.51 $ 11.42(e)
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(b) 15.51% (5.85%) 12.63% 5.30% 1.01%
Total Adjusted Investment Return at Net Asset Value(b)(c) 15.18% (5.92%) 12.61% 5.25% --
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $256,342 $217,006 $178,002 $153,496 $150,045
Ratio of Expenses to Average Net Assets 1.23% 1.62% 1.73% 1.73% 1.76%
Ratio of Adjusted Expenses to Average Net Assets(a) 1.56% 1.69% 1.78% 1.78% --
Ratio of Net Investment Income to Average Net Assets 5.49% 4.84% 4.92% 4.75% 4.77%
Ratio of Adjusted Net Investment Income to Average Net
Assets(a) 5.16% 4.77% 4.87% 4.70% --
Portfolio Turnover Rate 23% 59% 104% 69% 0%
Expense Reimbursement per share $ 0.04 $ 0.01 $ 0.01 $ 0.01 --
</TABLE>
(a) On an unreimbursed basis. (Unaudited)
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the Adviser during the periods shown.
(d) On average month end shares outstanding.
(e) Net asset value per share before the merger of assets to the John Hancock
Tax-Free Bond Fund and the termination of the Fund (See Note A to the Notes
to Financial Statements.)
See Notes to Financial Statements.
<PAGE>
John Hancock Managed Tax-Exempt Fund
Schedule of Investments
December 6,1996 (Unaudited)
- ---------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY S&P*** PAR VALUE YIELD AT
ISSUER DESCRIPTION RATE DATE RATING (000'S OMITTED) MARKET VALUE MARKET +
- --------------------------- ------- -------- ------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
Alabama (2.69%)
Birmingham, City of,
GO Iss of 1989 7.350% 03-01-14 AA* $ 750 $ 800,842 6.88%
Citronelle Industrial Development Board,
Poll Control Rev Stauffer Chemical Co Proj 1982 8.000 12-01-12 A1* 500 554,145 7.22
Mobile Industrial Development Board,
Solid Waste Disp Rev Ref Mobile Energy Serv Co Proj 1995 6.950 01-01-20 BBB- 3,500 3,718,470 6.54
-----------
5,073,457
-----------
Alaska (1.73%)
Alaska Housing Finance Corp,
Coll Home Mtg Ser B-1 GNMA Coll 7.650 06-01-24 AAA 2,000 2,109,720 7.25
Coll Home Mtg Ser B-2 GNMA Coll 7.875 06-01-24 AAA 50 50,195 7.84
Valdez Alaska Marine Terminal,
Rev Ref Sohio Pipe Line Co Proj Ser 1985 7.125 12-01-25 AA 1,000 1,110,560 6.42
-----------
3,270,475
-----------
Arizona (1.26%)
Arizona Municipal Financing Program,
Cert of Part Ser 25 7.875 08-01-14 AAA 1,000 1,279,830 6.15
Pima, County of,
Swr Rev Ref Ser 1991 PreRef 6.750 07-01-15 AAA 460 508,259 6.11
Swr Rev Ref Ser 1991 Unref Bal 6.750 07-01-15 AAA 540 589,156 6.19
-----------
2,377,245
-----------
Arkansas (.33%)
Arkansas Develpment Finance Auth,
Single Family Mtg Rev Ref Ser 1991 A 8.000 08-15-11 AA 575 620,172 7.42
-----------
California (8.23%)
California, State of,
GO Ser 1995 5.900 03-01-25 AAA 2,490 2,527,972 5.81
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice Gen Proj Ser 1993 6.200 07-01-20 BBB- 2,000 2,014,400 6.16
Sacramento Cogeneration Auth,
Cogeneration Proj Rev Proctor & Gamble Proj 6.500 07-01-21 BBB- 4,500 4,652,640 6.29
Sacramento Municipal Utilities District,
Ind'l Devel Rev Ref San Diego Gas & Electric Ser C Inflos 8.919# 08-15-18 AAA 1,000 1,102,500 8.04
San Joaquin Hills Transportation Corridor Agency,
Toll Road Rev Sr Lien Cap Apprec Zero 01-01-19 BBB* 5,000 1,271,900 6.30
Toll Road Rev Sr Lien Cap Apprec Zero 01-01-14 BBB* 5,000 1,748,800 6.25
Santa Ana Financing Auth,
Lease Rev Police Admin & Holding Facil Ser A 6.250 07-01-19 AAA 2,000 2,203,480 5.67
-----------
15,521,692
-----------
Colorado (5.02%)
Arapahoe County Capital Improvement Trust Fund,
Highway Rev Current Ser E-470 Remarketed 8-31-95 6.950 08-31-20 BAA* 6,000 6,576,120 6.34
Colorado Housing Finance Auth,
Single Family Prog Sr Iss A-2 7.625 08-01-17 AA 890 934,384 7.26
Single Family Residential Rev Ser C 8.750 09-01-17 AA* 370 386,398 8.38
Douglas County School District No. Re. 1,
Douglas and Elbert Counties Imp Ser 1994A 6.400 12-15-11 AAA 1,400 1,571,206 5.70
-----------
9,468,108
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Delaware (1.17%)
Delaware State Economic Development Auth,
Rev Ref Poll Control Delmarva Pwr Proj Ser B 6.750% 05-01-19 AAA $2,000 $2,214,520 6.10%
-----------
Florida (7.33%)
Broward, County of,
Resource Recovery Rev Ser 1984 Ses Broward Co.
L.P. South Proj 7.950 12-01-08 A- 4,265 4,691,500 7.23
Citrus, County of,
Poll Control Ref Rev Ser 1992A Florida
Pwr Corp Crystal Rvr Pwr Plant Proj 6.625 01-01-27 A+ 1,250 1,337,575 6.19
Hernando, County of,
Criminal Justice Complex Rev Ser 1986 7.650 07-01-16 AAA 500 637,000 6.00
Lee, County of,
Hosp Board of Directors Hosp Rev Inflos 9.418# 04-01-20 AAA 2,000 2,257,500 8.48
Orange County Health Facilities Auth,
Hosp Rev Orlando Regional Medical Center 9.121# 10-29-21 AAA 1,000 1,200,000 7.58
Tampa, City of,
Cap Imp Prog Rev Ser B Iss of 1988 8.375 10-01-18 BBB 3,500 3,701,355 7.92
-----------
13,824,930
-----------
Illinois (4.01%)
Illinois Health Facilities Auth,
Rev Methodist Hlth Serv Corp Ser 1991 B, RIB 9.943# 05-18-21 AAA 1,000 1,157,500 8.58
Rev Swedish-American Hosp 7.400 04-01-20 AAA 750 831,945 6.67
Metropolitan Pier and Exposition Auth,
Dedicated State Tax Rev Ref Ser 1996A
McCormick Place Exposition Proj 5.250 06-15-27 AAA 1,500 1,406,970 5.60
Hosp Facil Rev Ser 1996A McCormick Place
Convention Complex 7.000 07-01-26 BBB- 3,750 4,155,188 6.32
-----------
7,551,603
-----------
Kansas (1.07%)
Sedgwick, County of,
GNMA Coll Mtg Ln Rev Ser C 8.625 11-01-18 AAA 1,930 2,013,743 8.27
-----------
Louisiana (3.31%)
Calcasieu Parish Public Trust Auth,
Mtg Rev Ref 1991 Ser A 7.750 06-01-12 A1- 450 477,837 7.30
De Soto, Parish of,
Rev Environ Impt Rev Int'l Paper Co Proj Ser A 7.700 11-01-18 A- 2,750 3,141,517 6.74
Rev Environ Impt Rev Int'l Paper Co Proj Ser B 6.550 04-01-19 A- 2,500 2,616,950 6.26
-----------
6,236,304
-----------
Maine (.69%)
Maine State Housing Auth,
Mtg Purchase Ser A-3 7.800 11-15-15 AA- 1,250 1,302,425 7.49
-----------
Massachusetts (5.82%)
Massachusetts Health and Educational
Facilities Auth,
Rev St. Elizabeth's Hosp of Boston Ser E 9.943# 08-12-21 AAA 1,000 1,152,500 8.48
Rev Worcester Polytechnic Institute Ser E 6.750 09-01-11 A+ 1,840 2,005,195 6.19
Massachusetts Housing Finance Agency,
Hsg Rev Insured Rental Ser A 6.650 07-01-19 AAA 5,500 5,704,435 6.41
Single Family Hsg Ser 8 7.700 06-01-17 A+ 1,000 1,053,580 7.31
Massachusetts State Water Pollution Abatement Trust,
Wtr Poll Rev South Essex Swr District Loan Proj
1994 Ser A 6.375 02-01-15 AA- 1,000 1,066,990 5.97
-----------
10,982,700
-----------
Michigan (2.33%)
Detroit, City of,
GO Unltd Ser 1995 A 6.800 04-01-15 BBB 1,315 1,491,736 5.99
Michigan Housing Development Auth,
Single Family Mtg Rev Ser A 7.500 06-01-15 AA+ 1,415 1,491,552 7.12
Michigan State Hospital Finance Auth,
Hosp Rev Ref Ser 1995A Genesys Hlth Sys Oblig Group 8.100 10-01-13 BBB 1,250 1,401,638 7.22
-----------
4,384,926
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Minnesota (.14%)
Minnesota Housing Finance Agency,
Single Family Mtg 1990 Ser C 7.700% 07-01-14 AA+ $ 250 $ 264,200 7.29%
-----------
Nevada (1.37%)
Nevada Housing Division,
Single Family Proj Sr Rev Ser 1989 Iss A-1 7.350 04-01-16 AA 890 924,069 7.08
Single Family Proj Sr Rev Ser 1990 Iss C-1 7.850 10-01-15 AA 330 346,262 7.48
Nevada, State of,
GO Ltd Tax Municipal Bond Bank Proj No. 38
Ser A Unref Bal 6.750 07-01-09 AA 25 27,318 6.18
Reno, City of,
Hosp Rev St. Mary's Regional Medical Center
Ser A Preref Bal 7.750 07-01-07 AAA 720 772,920 7.22
Hosp Rev St. Mary's Regional Medical Center
Ser A Unref Bal 7.750 07-01-07 AAA 480 513,754 7.24
-----------
2,584,323
-----------
New Jersey (.60%)
New Jersey Turnpike Auth,
Turnpike Rev 1991 Ser C 6.500 01-01-16 AAA 1,000 1,131,200 5.75
-----------
New York (18.74%)
Metropolitan Transportation Auth,
Commuter Facil Rev Ser A 6.100 07-01-26 AAA 2,500 2,622,650 5.81
Transit Facil Rev Ser J 6.500 07-01-18 AAA 1,000 1,097,020 5.93
New York Local Government Assistance Corp,
Rev Ser 1991C 7.000 04-01-10 A 2,000 2,241,400 6.25
Ser 1992 A Pub Benefit Corp 6.875 04-01-19 A 2,000 2,257,960 6.09
New York State Dormitory Auth,
City Univ Sys Consol Rev 2nd Generation Ser 1993A 5.750 07-01-09 BBB 1,000 1,009,760 5.69
City Univ Sys Consol Rev 2nd Generation Ser 1993A 6.000 07-01-20 BBB 1,000 1,028,070 5.84
State Univ Ed Facil Rev Ser 1990B 7.000 05-15-16 BBB+ 5,000 5,358,950 6.53
State Univ Ed Facil Rev Ser 1993A 5.500 05-15-13 BBB+ 3,000 2,914,590 5.66
State Univ Ed Facil Rev Ser 1993A 5.500 05-15-19 BBB+ 1,000 965,000 5.70
New York State Environmental Facilities Corp,
State Wtr Poll Control Revolving Fund Rev Ser 1990 A 7.500 06-15-12 A 600 663,858 6.78
New York State Mortgage Agency,
Homeowner Mtg Rev Ser BB-2 7.950 10-01-15 AA* 560 581,890 7.65
New York State Urban Development Corp,
Rev Ref Correctional Facil Proj Ser A 5.500 01-01-14 BBB 2,800 2,721,432 5.66
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 6.750 10-01-19 BBB* 4,500 4,602,420 6.60
Triborough Bridge and Tunnel Auth,
Rev Ref Ser 1987 L 8.000 01-01-07 A+ 500 530,295 7.54
Gen Purpose Rev Ser 1993 Zero 01-01-21 AAA 3,985 1,042,356 5.65
Gen Purpose Rev Ser X 6.500 01-01-19 A+ 1,250 1,351,675 6.01
Gen Purpose Rev Ser Y 6.125 01-01-21 A+ 4,000 4,353,760 5.63
-----------
35,343,086
-----------
Ohio (4.44%)
Cleveland Ohio Public Power System,
Elec Sys Rev First Mtg Ser 1994A 7.000 11-15-16 AAA 5,860 6,695,226 6.13
Cuyahoga, County of,
Hosp Imp Rev Deaconess Hosp of Cleveland Proj
Ser 1985 B 7.450 10-01-18 A1* 750 851,175 6.56
Hosp Rev Meridia Hlth Sys Ser 1991 7.000 08-15-23 A 750 817,935 6.42
-----------
8,364,336
-----------
Pennsylvania (5.23%)
Northumberland County Auth,
Commonwealth Lease Rev Ser 1991 6.250 10-15-09 AAA 1,000 1,079,160 5.79
Pennsylvania Economic Development Financing Auth,
Rev Ser D Colver Proj 7.150 12-01-18 BBB- 5,000 5,254,700 6.80
Pennsylvania Turnpike Commission,
Turnpike Rev Ser K 7.625 12-01-09 AAA 500 555,910 6.86
Philadelphia Hospitals and Higher Education
Facilities Auth,
Hosp Rev Children's Hosp Philadelphia Proj Ser A 7.875 07-01-08 AA 500 519,025 7.59
Hosp Rev Ser 1993A Temple Univ Hosp Proj 6.625 11-15-23 A- 2,375 2,456,534 6.41
-----------
9,865,329
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Puerto Rico (.61%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico 8.220#% 07-01-11 AAA $ 1,000 $ 1,148,750 7.16%
-----------
South Carolina (3.34%)
James Island Public Service District,
Charleston County Swr Sys Ref 7.500 06-01-18 AAA 1,250 1,370,300 6.84
Lexington County School District No. 1,
Cert of Part 1989 Ser B Pelion High School Proj 7.650 09-01-09 AAA 1,145 1,252,309 6.99
Richland, County of,
Poll Control Rev Union Camp Corp Proj Ser 1992 B 6.625 05-01-22 A* 2,460 2,604,058 6.26
Poll Control Rev Union Camp Corp Proj Ser C 6.550 11-01-20 A- 1,000 1,064,520 6.15
-----------
6,291,187
-----------
South Dakota (.58%)
South Dakota Health and Educational Facilities Auth,
Rev Ser 1989 Sioux Valley Hosp Iss 7.625 11-01-13 AA- 75 81,716 7.0
Rev Ser 1989 Sioux Valley Hosp Iss 7.625 11-01-13 AA- 925 1,003,005 7.03
-----------
1,084,721
-----------
Tennessee (5.77%)
Eastside Utility District of Hamilton,
Waterworks Rev Iss 6.750 11-01-11 BBB+ 1,000 1,025,080 6.58
Humphreys County Industrial Development Board,
Solid Waste Disposal Rev E.I. Dupont Denemours
and Co Proj 6.700 05-01-24 AA- 6,500 6,985,745 6.23
Metropolitan Nashville and Davidson County
Health and Facility Board,
Rev Ref Vanderbilt Univ Ser A 7.625 05-01-16 AA 1,750 1,848,438 7.22
Tennessee Housing Development Agency,
Homeownership Program Proj J 7.750 07-01-17 AA 1,000 1,015,440 7.63
-----------
10,874,703
-----------
Texas (5.65%)
Austin, City of,
Utility Sys Rev Ref Ser B 7.800 11-15-12 A 1,000 1,077,640 7.24
Corpus Christi Housing Finance Corp,
Single Family Mtg Sr Rev Ref Ser 1991 A 7.700 07-01-11 AAA 650 696,767 7.18
El Paso Housing Finance Corp,
Single Family Mtg Rev Ref Bonds 1991 Ser A 8.750 10-01-11 A* 575 621,690 8.09
Harris County Health Facilities Development Corp,
Hosp Rev Ser 1988A Saint Luke's Episcopal Hosp Proj 8.250 02-15-08 AAA 1,475 1,646,189 7.39
Harris, County of,
Criminal Justice Center 5.625 10-01-23 AAA 1,500 1,478,415 5.71
Toll Road Untld Tax & Sub Lien Ref 8.100 08-01-08 AAA 250 271,173 7.47
Toll Road Untld Tax & Sub Lien Ref 8.125 08-01-15 AAA 250 271,268 7.49
Houston, City of,
Wtr and Swr Sys Rev Ref Prior Lien Ser B 6.750 12-01-08 A 1,500 1,632,465 6.20
North Central Texas Health Facilitities Development,
Hospital Rev Baylor Univ Medical Center Ser 1991A 9.918# 05-15-16 AA 1,000 1,212,500 8.21
Texas, State of,
Veterans' Land Board GO 7.125 12-01-09 AA 1,000 1,073,500 6.64
Veterans' Land Board GO Preref 8.250 12-01-10 AAA 610 678,491 7.42
-----------
10,660,098
-----------
Utah (3.99%)
Intermountain Power Agency,
Pwr Supply Rev Ref Ser B 5.000 07-01-16 A+ 1,935 1,774,260 5.45
Pwr Supply Rev Ref Ser A 5.000 07-01-21 A+ 2,000 1,794,160 5.57
Salt Lake City Hospital,
Ref Ref IHC Hosp Inc VRDN/RIB 9.515# 05-15-20 AAA 1,500 1,732,500 8.35
Rev Ref IHC Hosp Inc Ser B 8.000 05-15-07 AA 350 374,535 7.48
Rev Ref Ser A 8.125 05-15-15 AAA 1,000 1,203,880 6.75
Utah Housing Finance Agency,
Single Family Mtg Sr 1990 Iss B-2 7.700 07-01-15 AA 320 332,816 7.40
Single Family Mtg Sr 1991 Iss B-1 7.500 07-01-16 AA 300 315,594 7.13
-----------
7,527,745
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Virginia (1.90%)
Arlington County Industrial Development Auth,
Hosp Facil Rev Arlington Hosp Ser 1991 A 7.125% 09-01-21 AAA* $ 500 $ 564,850 6.31%
Fairfax County Industrial Develpment Auth,
Rev RITES 9.827# 08-29-23 AA 1,000 1,216,250 8.04
Fredericksburg Industrial Auth,
Hosp Facil Rev 9.468# 08-15-23 AAA 1,500 1,807,500 7.86
-----------
3,588,600
-----------
Washington (1.66%)
Tacoma Electric System,
Rev VRDN/RIBS Iss of 1991 8.942# 01-02-15 AAA 1,000 1,128,750 8.05
University of Washington,
Housing & Dining Sys Rev Ser 1991 7.000 12-01-21 AAA 750 837,420 6.27
Washington, State of,
GO Ser A of 1990 6.750 02-01-15 AA 1,000 1,156,140 5.84
-----------
3,122,310
-----------
Wisconsin (.59%)
Sturgeon Bay Combined Utilities,
Door County Combined Util Mtg Rev Prerefunded Ser 1990 7.500 01-01-10 AAA 770 860,860 6.71
Door County Combined Util Mtg Rev Unrefunded Ser 1990 7.500 01-01-10 AAA 230 254,601 6.78
-----------
1,115,461
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $174,795,316) (99.60%) $187,808,349
======== ============
</TABLE>
* Credit Ratings are rated by Moody's Investor Services, Fitch or John Hancock
Advisers, Inc. where Standard & Poor's ratings are not available.
***Credit ratings are unaudited.
+ The yield is not calculated in accordance with guidelines established by the
U.S. Securities Exchange Commission. Zero coupon yields are at yield to
maturity.
# Represents rate in effect on December 06, 1996.
The percentages shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
RIB - Residual Interest Bond.
VRDN - Variable Rate Demand Note.
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Portfolio Concentration (Unaudited)
The Managed Tax-Exempt Fund invests primarily in securities issued by the
various states and their various political subdivisions. The performance of
the Fund is closely tied to economic conditions within the applicable
states and the financial condition of the states and their agencies and
municipalities. The concentration of investments by states and credit
ratings for individual securities held by the Fund are shown in the
schedule of investments. In addition, the concentration of investments can
be aggregated by various sector categories.
The table below shows the percentages of the Fund's investments at December
6, 1996 assigned to the various sector categories.
MARKET VALUE AS A PERCENTAGE OF
SECTOR DISTRIBUTION THE FUND'S NET ASSETS:
-------------------- -------------------------------
General Obligation.......................... 4.28%
Revenue Bonds - Education................... 7.92
Revenue Bonds - Electric Power.............. 10.71
Revenue Bonds - Health...................... 15.18
Revenue Bonds - Housing..................... 12.71
Revenue Bonds - Industrial Development Bond 4.76
Revenue Bonds - Other....................... 13.14
Revenue Bonds - Pollution Control Facilities 13.96
Revenue Bonds - Transportation.............. 12.10
Revenue Bonds - Water & Sewer............... 4.84
-------
TOTAL TAX-EXEMPT LONG-TERM BONDS 99.60%
=======
See Notes to Financial Statements.
<PAGE>
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust (the "Trust") is a diversified open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of four series: John Hancock Managed Tax-Exempt Fund (the
"Fund"), John Hancock Regional Bank Fund, John Hancock Disciplined Growth Fund,
and John Hancock Financial Industries Fund. The other three series of the Trust
are reported in separate financial statements. The investment objective of the
Fund was to seek as high a level of current income exempt from Federal income
tax as was consistent with preservation of capital, by investing primarily in
municipal securities.
The Trustees authorized the issuance of multiple classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represented an interest in the same portfolio of investments of the Fund and had
equal rights to voting, redemptions, dividends, and liquidation, except that
certain expenses, subject to the approval of the Trustees, may have been applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bore distribution and service expenses under terms
of a distribution plan had exclusive voting rights to that distribution plan.
On November 14, 1996 shareholders approved a vote on a proposed merger
between the Fund and the John Hancock Tax-Free Bond Fund ("Tax-Free Bond Fund").
The reorganization provided for a transfer of substantially all the assets and
liabilities of the Fund to the Tax-Free Bond Fund in exchange soley for shares
of beneficial interest of Tax-Free Bond Fund. After the transaction and as of
the close of business on December 6, 1996, the Fund was terminated. The
financial statements presented herein reflect the position of the Fund prior to
the exchange of net assets and termination of the Fund. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio were valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances were
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank received delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser was responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions were recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments were determined on the identified cost basis. FEDERAL INCOME TAXES
The Fund's policy was to comply with the requirements of the Internal Revenue
Code that are applicable to regulated investment companies and to distribute all
of its taxable income, including any net realized gain on investment, to its
shareholders. Therefore, no federal income tax provision is required as of
December 6,1996, the Fund's final tax year end. For federal income tax purposes,
the Fund has $85,435 of a capital loss carryforward available, to the extent
provided by regulations, to offset future net realized capital gains. If such
carryforward is used by the Fund, no capital gains distributions will be made.
The carryforward expires on August 31, 2004. The unused capital loss
carryforward as of December 6, 1996 was transferred to the John Hancock Tax-Free
Bond Fund. These capital loss carryforward will be available, to the extent
provided by regulations, to offset future net capital gains of the John Hancock
Tax-Free Bond Fund. Expired capital loss carryforwards are reclassed to capital
paid-in, on the year of expiration.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
was recorded on the accrual basis.
The Fund recorded all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions were
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each
<PAGE>
class of shares were be calculated in the same manner, at the same time and will
be in the same amount, except for the effect of expenses that may be applied
differently to each class as explained below.
EXPENSES The majority of the expenses of the Trust were directly identifiable to
an individual fund. Expenses which were not readily identifiable to a specific
fund were allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) were calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, were calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortized the amount paid
in excess of par value on securities purchased from either the date of purchase
or date of issue to date of sale, maturity or to next call date, if applicable.
The Fund accreted original issue discount from par value on securities purchased
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code. The Fund recorded market
discount on bonds purchased after April 30, 1993 at time of disposition.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from these estimates.
FINANCIAL FUTURES CONTRACTS The Fund may have bought and sold financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund entered into a financial futures contract, it was be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin", equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract was
valued at the official settlement price on the board of trade or U.S.
commodities exchange on which it traded. Subsequent payments, known as
"variation margin", to and from the broker were made on a daily basis as the
market price of the financial futures contract fluctuated. Daily variation
margin adjustments, arising from this "mark to market", were recorded by the
Fund as unrealized gains or losses.
When the contracts were closed, the Fund recognized a gain or loss. Risks
of entering into futures contracts included the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could have been prevented from opening or realizing the benefits of
closing out futures positions because of position limits or limits on daily
price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses could have been affected as a result of futures
contracts.
At December 6, 1996, there were no open positions in financial futures
contracts.
NOTE B-
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund paid a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.60% of the first $250,000,000 of the Fund's
average daily net asset value, (b) 0.50% of the next $500,000,000, and (c) 0.45%
of the Fund's average daily net asset value in excess of $750,000,000.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") acted as Co-Distributors
for shares of the Fund. For the period ended December 6, 1996, net sales charges
received with regard to sales of Class A shares amounted to $603. Of this
amount, $73 was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $33 was paid as sales commissions to unrelated
broker-dealers and $497 was paid as sales commissions to sales personnel of John
Hancock Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which are broker
dealers. The Adviser's indirect parent, John Hancock Mutual Life Insurance
Company, is the indirect sole shareholder
<PAGE>
of Distributors and John Hancock Freedom Securities Corporation and its
subsidiaries, which include FDC, Tucker Anthony and Sutro.
Class B shares which were redeemed within six years of purchase were
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC were paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended December 6,
1996, the contingent deferred sales charges paid to JH Funds amounted to
$30,737.
In addition, to reimburse the Co-Distibutors for the services they provided
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund made payments to the Co-Distributors
for distribution and service expenses, at an annual rate which did not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B average daily net
assets to reimburse the Co-Distibutors for their distribution and service costs.
Up to a maximum of 0.25% of such payments could have been service fees as
defined by the amended Rules of Fair Practice of the National Association of
Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain circumstances.
The Fund had a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund paid Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
On August 27, 1996, the Board of Trustees approved retroactively to July 1,
1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Fund. The compensation for 1996 was estimated to be
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees was
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Trustees could elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund made investments into other John Hancock funds, as applicable, to cover
its liability for the deferred compensation. Investments to cover the Fund's
deferred compensation liability were recorded on the Fund's books as an other
asset. The deferred compensation liability and the related other asset were
always equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At December
6, 1996, the Fund's investments to cover the deferred compensation liability had
unrealized appreciation of $666.
NOTE C-
INVESTMENT TRANSACTIONS
There were no purchases of long-term securities during the period ended
December 6, 1996. Proceeds from sales of securities, other than obligations of
the U.S. government and its agencies and short-term securities, during the
period ended December 6, 1996, aggregated $4,901,893. There were no sales of
obligations of the U.S. government and its agencies during the period ended
December 6, 1996.
The cost of investments owned at December 6, 1996, for federal income tax
purposes was $174,795,316. Gross unrealized appreciation and depreciation of
investments aggregated $13,087,662 and $74,629, respectively, resulting in net
unrealized appreciation of $13,013,033.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the period ended December 6, 1996, the Fund has reclassified
$200,311 from undistributed net investment income to accumulated net realized
loss on investment sold. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of December
6, 1996. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
<PAGE>
TAX INFORMATION NOTICE (Unaudited)
For Federal income tax purposes, the following is furnished with respect to
the distributions of the Fund during its fiscal year ended December 6,1996.
The Fund distributed to shareholders of record on December 5, 1996 and paid
on December 5, 1996, a long term capital gain dividend of $639,742. Shareholders
will receive a 1996 U.S. Treasury Department form 1099-DIV in January 1997
representing their proportionate share.
Income dividends for the Fund were 99.62% tax-exempt.
