SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
High Yield
Tax-Free
Fund
FEBRUARY 28, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*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 AND TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
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 LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
----------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The stock market astounded many in 1997 by producing a record-breaking third
straight year of 20%-plus returns. Bond investors also enjoyed the benefits of a
strong economy with no inflation. After such a remarkable performance, many are
wondering what the markets will do for an encore in 1998.
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page 2 [A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.]
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Within the first two months of the year, we saw two different sides of the
market. In January, the market underwent rapid mood swings and barely advanced
at all. While news on the domestic inflation and economic fronts remained good,
investors were still trying to determine how much of the Asian financial crisis
would filter through the U.S. economy and corporate profits. Each week, it
seemed, investors either had on their rose-colored glasses or had taken them
off. Then in February, fears apparently dissipated, and the market rallied to
new all-time highs by the month's end.
In the face of such fluctuations, a trusted investment professional can be your
best ally. Now, more than ever, your investment professional can help you take
the emotion out of investment decisions. At a time when your instincts might
have you react to the heat of the market's moment, your investment professional
can serve as an objective voice to put current events in a longer-term
perspective. He or she can also help you evaluate your investments in any market
environment to ensure that they fit your risk tolerance and time horizons. On an
ongoing basis, your investment professional is there for you to check out new
investment ideas or to get an informed opinion about current economic and market
conditions.
We encourage you to take advantage of this important resource. Working together,
you can draw up a detailed road map to help reach your financial destination
regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
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BY FRANK LUCIBELLA, CFA, BARRY EVANS, CFA AND DIANNE SALES, CFA,
CO-PORTFOLIO MANAGERS
John Hancock High Yield
Tax-Free Fund
Strong six months for bonds, including
high-yielding municipals
Waning fears of inflation, the currency and economic crisis in Southeast Asia
and yield-hungry investors helped drive high-yield municipal bond prices higher
during the past six months. At the beginning of the period, U.S. economic growth
proved to be quite strong, causing investors to grow more concerned that
inflation could be on the upswing. Bond investors dislike inflation because it
cuts into the value of their fixed-income payments. In light of their
inflationary concerns, investors kept bond yields stubbornly high in the late
summer and early fall of 1997. But absent any evidence that consumer prices and
wages -- two main inflationary ingredients -- were on the rise, investors began
to reward bonds by pushing their yields lower and their prices higher in
October. From the end of that month through the end of 1997, bonds got an added
boost from the expanding economic crisis in Southeast Asia. With continued
economic growth in that region in doubt, investors not only fled the region's
equity and bond markets, but many also pulled money away from U.S. companies
doing business in Asia. This so-called "flight to safety" brought more money
into the U.S. bond market, further pushing bond prices higher.
Faced with ever-shrinking yields over the past six months, investors
increasingly sought out high-yielding investments -- including high-yield
municipal bonds. Because this strong
"...`flight to safety' brought more money into the U.S. bond market..."
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[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: Fund management
team members (l-r) Barry Evans, Mike Roye, Dianne Sales, Frank Lucibella and
Holly Morris.]
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3
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John Hancock Funds - High Yield Tax-Free Fund
"...bonds that combined good call protection with high coupons...were
particularly strong..."
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PORTFOLIO DIVERSIFICATION
[GRAPHIC OMITTED]
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["Pie chart with the heading "Portfolio Diversification" at the top left hand
column. The chart is divided into 11 sections. Going from top left to right
Health 17%; Housing 6%; Industrial Development 10%; Other 16%; Pollution Control
21%; Transportation 15%; Water and Sewer 2%; General Obligation 5%; Airport 3%;
Economic Development 2%; Education 3%. Footnote below states "As a percentage of
net assets on February 28, 1998."]
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demand for high-yield municipals came at a time when the available supply of
them was relatively low, their yields generally fell more and their prices
typically rose higher than their lower-yielding, higher-quality counterparts.
Performance review
During the past six months, John Hancock High Yield Tax-Free Fund's performance
was strong on both an absolute and relative basis. For the six-month period
ended February 28, 1998, the Fund's Class A and Class B shares posted total
returns of 6.03% and 5.64%, respectively, at net asset value. Keep in mind that
your net asset value return will be different from this if you were not invested
for the entire period and did not reinvest all distributions. Those returns
outpaced the 5.39% return for the average high-yield municipal bond fund for the
same period, according to Lipper Analytical Services, Inc.(1) Longer-term
performance information can be found on pages six and seven.
One of the key reasons why the Fund's performance was better than its peers
was our slightly longer duration -- a measurement of how sensitive the Fund's
share price is to changes in interest rates. The longer the Fund's duration, the
more its share price will rise as interest rates fall and vice versa. Part of
our longer duration was due to our stake in bonds with good call protection.
Bond issuers, like homeowners with mortgages, often like the option of
refinancing -- or "calling" -- their debt when interest rates fall as a way to
reduce their debt service costs. Although calling a bond is good for the issuer,
it can be bad for the bond holder who may be forced to reinvest the proceeds at
lower interest rates. Non-callable bonds, on the other hand, can't be redeemed
by their issuer before maturity. Not only do non-callable bonds generally fare
better than callable bonds when interest rates are falling, they typically
perform no worse than callable securities when interest rates rise. Bonds with
good call protection have relatively long call dates -- meaning they can't be
redeemed for a relatively long period -- and they performed well compared to
their callable counterparts during the period.
Our stake in bonds that combined good call protection with high coupons -- or
the interest rate the borrower promises to pay -- were particularly strong
during the past six months. As we mentioned earlier, falling bond yields
prompted yield-hungry investors to seek out bonds with relatively high coupons,
especially those with attractive call protection.
Leaders and laggards
General obligation bonds issued by New York City were among the Fund's and the
municipal market's
- --------------------------------------------------------------------------------
["Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance...and what's behind the numbers. The first listing is New York City
followed by a up arrow with the phrase "Strengthening economy, fiscal health."
The second listing is Non-callable bonds followed by a up arrow with the phrase
"Strong demand" . The third listing is Housing bonds followed by a down arrrow
with the phrase "Short duration". The footnote at the bottom states See
"Schedule of Investments." Investment holdings are subject to change."]
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4
<PAGE>
================================================================================
John Hancock Funds - High Yield Tax-Free Fund
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FUND PERFORMANCE
For the six months ended February 28, 1998
- --------------------------------------------------------------------------------
["Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance...and what's behind the numbers. The first listing is New York City
followed by a up arrow with the phrase "Strengthening economy, fiscal health."
The second listing is Non-callable bonds followed by a up arrow with the phrase
"Strong demand" . The third listing is Housing bonds followed by a down arrrow
with the phrase "Short duration". The footnote at the bottom states See
"Schedule of Investments." Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
best performers during the period. Thanks largely to a booming economy buoyed by
the record-breaking profits on Wall Street, the city's fiscal situation has
improved dramatically over the past decade. That, coupled with the current
administration's efforts to reduce spending, helped to boost the city's image
among bond investors. As a reflection of that fiscal improvement and economic
strength, one of the major municipal bond credit rating agencies recently
upgraded New York City's general obligation debt.
Some of the Fund's other standouts were bonds issued by municipalities on
behalf of corporations for the purposes of pollution control or other reasons
deemed to be in the economic good of that municipality. Pollution control bonds
issued by Toole County (UT) for Laidlaw Corp. and Spokane County (WA) Industrial
Development Corp. for Kaiser Aluminum were among our largest and best-performing
bonds in this group.
Even in periods as strong as the past six months, there were disappointments.
Advance-refunded bonds didn't perform well and we cut back our stake in them. In
an advance-refunding, an issuer with existing bonds will issue a second set of
bonds. Proceeds from this sale are then invested in U.S. Treasury securities,
and the Treasuries then secure the original bonds until their call date. In this
case, our advance-refunded bonds were backed by short-term high-quality U.S.
Treasury securities. Because short-maturity securities didn't fare nearly as
well as intermediate- and long-maturity bonds during the past six months, our
advance-refunded holdings proved to be disappointing.
Outlook
Our outlook for municipal bonds is reasonably optimistic based on the fact that
we don't see interest rates rising over the near term. Inflation -- which will
be the impetus for the Federal Reserve to raise rates -- continues to remain
subdued, with no evidence that it will be a problem over the short term.
Furthermore, we think that the problems in Southeast Asia will translate into
slower growth here in the United States, helping to keep a lid on any brewing
inflationary pressures. As long as inflation stays in check, we believe that
investors will continue to seek out high-yielding municipal bonds as a way to
combat low or even falling interest rates.
"Our outlook for municipal bonds is reasonably optimistic..."
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This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
See the prospectus for a discussion of the risks of investing in high-yield
bonds.
(1)Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
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John Hancock Funds - High Yield Tax-Free Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock High Yield Tax-Free Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.50%. (Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 4.75%.) Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
Please note that a portion of the Fund's income may be subject to taxes, and
some investors may be subject to the Alternative Minimum Tax (AMT). Also note
that capital gains are taxable.
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CLASS A
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For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (12/31/93)
------- ------------
Cumulative Total Returns 4.68% 20.72%
Average Annual Total Returns 4.68% 4.82%
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CLASS B
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For the period ended December 31, 1997
ONE FIVE TEN
YEAR YEARS YEARS
------ ------- --------
Cumulative Total Returns 3.81% 34.92% 110.89%
Average Annual Total Returns 3.81% 6.17% 7.75%
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YIELDS
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As of February 28, 1998
SEC 30-DAY
YIELD
--------------
John Hancock High Yield Tax-Free Fund: Class A 4.54%
John Hancock High Yield Tax-Free Fund: Class B 4.00%
6
<PAGE>
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John Hancock Funds - High Yield Tax-Free Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
High Yield Tax-Free Fund
Class A shares
Line chart with the heading High Yield Tax-Free Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Lehman Brothers Municipal Bond Index
and is equal to $12,836 as of February 28, 1998. The second line represents the
value of the hypothetical $10,000 investment made in the High Yield Tax-Free
Fund on December 31, 1993, before sales charge, and is equal to $12,797 as of
February 28, 1998. The third line represents the High Yield Tax-Free Fund after
sales charge and is equal to $12,221 as of February 28, 1998.
High Yield Tax-Free Fund
Class B shares*
Line chart with the heading High Yield Tax-Free Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Lehman Brothers Municipal Bond Index
and is equal to $23,223 as of February 28, 1998. The second line represents the
value of the hypothetical $10,000 investment made in the High Yield Tax-Free
Fund on August 29, 1986, before contingent deferred sales charge, and is equal
to $20,764 as of February 28, 1998.
*No contingent deferred sales charge applicable.
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7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on February 28, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $154,501,181) ........ $170,858,507
Receivable for investments sold .......................... 1,546,810
Receivable for shares sold ............................... 100,539
Interest receivable ...................................... 2,659,960
Other assets ............................................. 29,880
-------------
Total Assets ........................... 175,195,696
-----------------------------------------------------------
Liabilities:
Payable for investments purchased ........................ 3,576,560
Due to custodian ......................................... 404,190
Payable for shares repurchased ........................... 33,609
Dividend payable ......................................... 8,535
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................. 126,084
Accounts payable and accrued expenses .................... 63,080
-------------
Total Liabilities ...................... 4,212,058
-----------------------------------------------------------
Net Assets:
Capital paid-in .......................................... 166,488,497
Accumulated net realized loss on investments and
financial futures contracts ............................. (11,858,115)
Net unrealized appreciation of investments and
financial futures contracts ............................. 16,359,040
Distributions in excess of net investment income ......... (5,784)
-------------
Net Assets ............................. $170,983,638
===========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding -
125,000,000 shares authorized with $0.01 per share par value)
Class A - $36,647,658/3,804,801 .......................... $9.63
=============================================================================
Class B - $134,335,980/13,946,914 ........................ $9.63
=============================================================================
Maximum Offering Price Per Share*
Class A - ($9.63 x 104.71%) .............................. $10.08
=============================================================================
* 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.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended February 28, 1998 (Unaudited)
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Investment Income:
Interest ................................................. $5,735,141
-------------
Expenses:
Investment management fee - Note B ...................... 496,296
Distribution and service fee - Note B
Class A ............................................... 42,247
Class B ............................................... 678,308
Transfer agent fee - Note B ............................. 74,135
Custodian fee ........................................... 32,025
Auditing fee ............................................ 19,685
Financial services fee - Note B ......................... 15,241
Printing ................................................ 8,956
Registration and filing fees ............................ 8,463
Trustees' fees .......................................... 6,766
Miscellaneous ........................................... 2,818
Legal fees .............................................. 991
-------------
Total Expenses ......................... 1,385,931
-----------------------------------------------------------
Less Expense Reductions -
Note B ................................. (8,390)
-----------------------------------------------------------
Net Expenses ........................... 1,377,541
-----------------------------------------------------------
Net Investment Income .................. 4,357,600
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts:
Net realized loss on investments sold .................... (1,015,338)
Net realized loss on financial futures contracts ......... (68,999)
Change in net unrealized appreciation/depreciation
of investments .......................................... 6,289,324
Change in net unrealized appreciation/depreciation
of financial futures contracts .......................... 15,000
-------------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts ............ 5,219,987
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .............. $9,577,587
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1998
AUGUST 31, 1997 (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ...................................................................... $9,270,118 $4,357,600
Net realized loss on investments sold and financial futures contracts ...................... (3,771,741) (1,084,337)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts .............................................................. 7,271,339 6,304,324
------------- -------------
Net Increase in Net Assets Resulting from Operations ...................................... 12,769,716 9,577,587
------------- -------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5587 and $0.2671 per share, respectively) ................................... (1,692,115) (957,925)
Class B - ($0.4905 and $0.2323 per share, respectively) ................................... (7,657,642) (3,366,913)
------------- -------------
Total Distributions to Shareholders ..................................................... (9,349,757) (4,324,838)
------------- -------------
From Fund Share Transactions - Net:* ......................................................... (3,167,486) (5,853,585)
------------- -------------
Net Assets:
Beginning of period ........................................................................ 171,332,001 171,584,474
------------- -------------
End of period (including distributions in excess of net investment income of $38,546
and $5,784, respectively) ................................................................ $171,584,474 $170,983,638
============= =============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1998
AUGUST 31, 1997 (UNAUDITED)
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 1,578,539 $14,597,255 712,755 $6,774,501
Shares issued to shareholders in reinvestment of distributions .. 84,834 785,117 47,287 450,653
------------ ------------ ------------ ------------
1,663,373 15,382,372 760,042 7,225,154
Less shares repurchased ......................................... (801,201) (7,400,978) (401,911) (3,812,198)
------------ ------------ ------------ ------------
Net increase .................................................... 862,172 $7,981,394 358,131 $3,412,956
============ ============ ============ ============
CLASS B
Shares sold ..................................................... 2,646,041 $24,449,200 985,925 $9,338,867
Shares issued to shareholders in reinvestment of distributions .. 277,587 2,569,048 117,384 1,119,642
------------ ------------ ------------ ------------
2,923,628 27,018,248 1,103,309 10,458,509
Less shares repurchased ......................................... (4,127,421) (38,167,128) (2,076,354) (19,725,050)
------------ ------------ ------------ ------------
Net decrease .................................................... (1,203,793) ($11,148,880) (973,045) ($9,266,541)
============ ============ ============ ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 31, 1993
(COMMENCEMENT OF PERIOD FROM
OPERATIONS) TO YEAR ENDED NOVEMBER 1, 1995 TO
OCTOBER 31, 1994 OCTOBER 31, 1995(2) AUGUST 31, 1996(6)
---------------- ------------------- ------------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $9.85 $8.82 $9.47
------- ------- -------
Net Investment Income ..................................... 0.48(1) 0.57 0.49(1)
Net Realized and Unrealized Gain (Loss) on Investments Sold
and Financial Futures Contracts ......................... (0.94) 0.70 (0.30)
------- ------- -------
Total from Investment Operations ...................... (0.46) 1.27 0.19
------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................... (0.48) (0.58) (0.50)
Distributions in Excess of Net Investment Income ........ (0.09) (0.04) --
------- ------- -------
Total Distributions ................................... (0.57) 0.62 (0.50)
------- ------- -------
Net Asset Value, End of Period ............................ $8.82 $9.47 $9.16
======= ======= =======
Total Investment Return at Net Asset Value (3) ............ 4.96%(4) 14.85% 1.96%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $15,401 $14,225 $23,663
Ratio of Expenses to Average Net Assets ................... 1.15%(5) 1.06% 1.10%(5)
Ratio of Net Investment Income to Average Net Assets ...... 6.08%(5) 6.36% 6.39%(5)
Portfolio Turnover Rate ................................... 62% 64% 38%
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1998
AUGUST 31, 1997 (UNAUDITED)
--------------- -----------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $9.16 $9.34
------- -------
Net Investment Income ..................................... 0.56(1) 0.27(1)
Net Realized and Unrealized Gain (Loss) on Investments Sold
and Financial Futures Contracts ......................... 0.18 0.29
------- -------
Total from Investment Operations ...................... 0.74 0.56
------- -------
Less Distributions:
Dividends from Net Investment Income .................... (0.56) (0.27)
Distributions in Excess of Net Investment Income ........ -- --
------- -------
Total Distributions ................................... (0.56) (0.27)
------- -------
Net Asset Value, End of Period ............................ $9.34 $9.63
======= =======
Total Investment Return at Net Asset Value (3) ............ 8.29% 6.03%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $32,199 $36,648
Ratio of Expenses to Average Net Assets ................... 1.06% 1.02%(5)
Ratio of Net Investment Income to Average Net Assets ...... 6.00% 5.63%(5)
Portfolio Turnover Rate ................................... 51% 17%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------
1992 1993 1994 1995(2)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ......... $9.31 $9.39 $9.98 $8.82
-------- -------- -------- --------
Net Investment Income ........................ 0.55 0.53 0.48 0.51
Net Realized and Unrealized Gain (Loss)
on Investments Sold and Financial Futures
Contracts .................................. 0.17 0.72 (0.90) 0.69
-------- -------- -------- --------
Total from Investment Operations ......... 0.72 1.25 (0.42) 1.20
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ....... (0.55) (0.56) (0.48) (0.51)
Distributions in Excess of Net Investment
Income ................................... -- -- (0.07) (0.04)
Distributions from Net Realized Gain on
Investments Sold ......................... (0.09) (0.10) (0.19) --
-------- -------- -------- --------
Total Distributions ...................... (0.64) (0.66) (0.74) (0.55)
-------- -------- -------- --------
Net Asset Value, End of Period ............... $9.39 $9.98 $8.82 $9.47
======== ======== ======== ========
Total Investment Return at Net Asset Value (3) 7.89% 13.69% (4.44%) 13.99%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..... $65,933 $113,442 $151,069 $155,234
Ratio of Expenses to Average Net Assets ...... 2.17% 2.06% 1.85% 1.79%
Ratio of Net Investment Income to Average
Net Assets ................................ 5.78% 5.23% 5.36% 5.61%
Portfolio Turnover Rate ...................... 40% 100% 62% 64%
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
NOVEMBER 1, 1995 TO YEAR ENDED FEBRUARY 28, 1998
AUGUST 31, 1996(6) AUGUST 31, 1997 (UNAUDITED)
------------------ --------------- -----------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ......... $9.47 $9.16 $9.34
-------- -------- --------
Net Investment Income ........................ 0.44(1) 0.49(1) 0.23(1)
Net Realized and Unrealized Gain (Loss)
on Investments Sold and Financial Futures
Contracts .................................. (0.31) 0.18 0.29
-------- -------- --------
Total from Investment Operations ......... 0.13 0.67 0.52
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ....... (0.44) (0.49) (0.23)
Distributions in Excess of Net Investment
Income ................................... -- -- --
Distributions from Net Realized Gain on
Investments Sold ......................... -- -- --
-------- -------- --------
Total Distributions ...................... (0.44) (0.49) (0.23)
-------- -------- --------
Net Asset Value, End of Period ............... $9.16 $9.34 $9.63
======== ======== ========
Total Investment Return at Net Asset Value (3) 1.36%(4) 7.51% 5.64%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..... $147,669 $139,385 $134,336
Ratio of Expenses to Average Net Assets ...... 1.81%(5) 1.81% 1.76%(5)
Ratio of Net Investment Income to Average
Net Assets ................................ 5.65%(5) 5.28% 4.89%(5)
Portfolio Turnover Rate ...................... 38% 51% 17%
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Effective August 31, 1996, the fiscal period end changed from October 31 to
August 31.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
Schedule of Investments
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by High
Yield Tax-Free Fund on February 28, 1998. It has one main category: tax-exempt
long-term bonds. The tax-exempt bonds are broken down by state. Under each state
is a list of the securities owned by the Fund.
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
California (15.00%)
ABAG Finance Auth for Nonprofit Corps,
Cert of Part Nat'l Ctr for Int'l Schools Proj ................ 7.375% 05-01-18 BB+ $1,000 $1,050,670 7.02%
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Sr Lien Cap Apprec Ser A ......................... Zero 01-01-18 BBB- 7,950 2,734,959 5.45
Los Angeles Community Facilities District,
Spec Tax No 3 Cascades Business Park Proj .................... 6.400 09-01-22 BB+ 1,000 1,025,380 6.24
Millbrae, City of,
Residential Facil Rev Ser A Magnolia of Millbrae Proj ........ 7.375 09-01-27 BB 1,000 1,031,330 7.15
San Bernardino, County of,
Cert of Part Ser 1994 Medical Center Fin Proj ................ 5.500 08-01-17 A- 4,500 4,658,085 5.31
San Diego County Water Auth,
Wtr Rev Cert of Part Reg RITES ............................... 7.647# 04-23-08 AAA 1,000 1,210,000 6.31
San Francisco, City of,
Resid Facil Ser A Coventry Park Proj ......................... 8.500 12-01-26 BB 2,000 2,239,700 7.59
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Conv Cap Apprec Ser A ............................ Zero 01-15-19 BBB- 3,000 2,015,910 5.11
Toll Rd Rev Sr Lien .......................................... 5.000 01-01-33 BBB- 1,000 952,470 5.25
South Orange County Public Financing Auth,
Spec Tax Rev Levrrs Inflows .................................. 8.070# 08-15-17 AAA 7,500 8,746,875 6.92
-----------
25,665,379
-----------
Colorado (6.36%)
Arapahoe County Capital Improvement Trust Fund,
Highway Rev Current Ser E-470 ................................ 6.950 08-31-20 AAA 3,500 4,172,070 5.83
Black Hawk,
Device Tax Rev ............................................... 5.625 12-01-21 BB+ 1,000 964,990 5.83
Denver, City and County of,
Airport Sys Rev Ser 1992A Preref ............................. 7.250 11-15-25 AAA 1,410 1,618,609 6.32
Airport Sys Rev Ser 1992A Unref Bal .......................... 7.250 11-15-25 AAA 3,590 4,121,140 6.32
-----------
10,876,809
-----------
Connecticut (0.63%)
Connecticut State Development Auth,
Aquarium Proj Rev Ser A Mystic MarineLife Aquarium Proj ...... 7.000 12-01-27 BB+ 1,000 1,068,730 6.55
-----------
District Of Columbia (2.38%)
District of Columbia,
Cert of Part Ser 1993 ........................................ 7.300 01-01-13 B- 1,000 1,094,500 6.67
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
District Of Columbia (continued)
District of Columbia (continued),
GO 1996 Ser A ................................................ 6.375% 06-01-16 B $1,780 $1,906,469 5.95%
GO 1996 Ser A ................................................ 6.375 06-01-26 B 1,000 1,067,000 5.97
-----------
4,067,969
-----------
Florida (7.29%)
Grand Haven Community Development District,
Spec Assessment Ser B ........................................ 6.900 05-01-19 BB+ 750 772,057 6.70
Hillsborough County Aviation Auth,
Rev Special Purpose Facility Imp US Air Proj ................. 8.600 01-15-22 B- 3,900 4,425,876 7.58
Homestead, City of,
Ind'l Development Rev Ser A Community Rehab Proj ............. 7.950 11-01-18 BB 3,735 4,082,990 7.27
North Springs Improvement Dist,
Spec Assessment Rev Parkland Isles Proj Ser B ................ 6.250 05-01-05 BB+ 1,000 1,015,870 6.15
South Indian River Water Control District,
Rev Egret Landing Proj Section 15 Phase 1 .................... 7.500 11-01-18 BB+ 2,000 2,162,960 6.93
-----------
12,459,753
-----------
Illinois (8.04%)
Bedford Park, City of,
Tax Increment Rev Ref 71st & Cicero Proj ..................... 7.000 01-01-06 BBB- 650 693,394 6.56
Tax Increment Rev Ref 71st & Cicero Proj ..................... 7.375 01-01-12 BBB- 1,000 1,084,070 6.80
Tax Increment Rev Sr Lien Mark IV Proj ....................... 9.750 03-01-12 AAA 980 1,180,283 8.10
Chicago, City of,
Chicago-O'Hare Int'l Airport Spec Facil Rev Ref
American Airlines, Inc. .................................... 8.200 12-01-24 BBB- 1,500 1,835,580 6.70
Illinois Health Facilities Auth,
Rev Ser A Fairview Obligated Group Proj ...................... 9.500 10-01-22 BB 2,500 3,084,200 7.70
Rev Ser B Fairview Obligated Group Proj ...................... 9.000 10-01-22 BB 1,500 1,820,580 7.42
Robbins, County of,
Res Recovery Rev Ser 1994 A Robbins Res Recovery Partners .... 8.375 10-15-16 BB 1,750 1,864,538 7.86
Round Lake Beach, City of,
Tax Increment Rev Ref ........................................ 7.500 12-01-13 BBB- 2,000 2,184,160 6.87
-----------
13,746,805
-----------
Indiana (1.31%)
Wabash, County of,
Solid Waste Disp Rev Jefferson Smurfit Corp Proj ............. 7.500 06-01-26 BB 2,000 2,232,740 6.72
-----------
Iowa (0.16%)
Iowa Finance Auth,
Hlth Care Facil Rev Ref Care Initiatives Proj ................ 9.250 07-01-25 BB 200 265,948 6.96
-----------
Kansas (1.32%)
Prairie Village, City of,
Rev Ser A Claridge Court Proj ................................ 8.750 08-15-23 BBB- 2,000 2,256,040 7.76
-----------
Kentucky (3.19%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Inc Ser 1985 .................. 7.800 12-01-15 BB+ 2,500 2,685,475 7.26
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Kentucky (continued)
Kenton County Airport Board (continued),
Rev Spec Facil Delta Airlines Proj Ser B ..................... 7.250% 02-01-22 BBB- $2,500 $2,765,850 6.55%
-----------
5,451,325
-----------
Maryland (1.31%)
Baltimore, County of,
Poll Control Rev Ref Bethlehem Steel Corp Proj ............... 7.500 06-01-15 B+ 2,000 2,242,800 6.69
-----------
Massachusetts (3.30%)
Massachusetts Industrial Finance Agency,
Rev Ser A Southeastern Mass Proj ............................. 9.000 07-01-15 BB 2,800 3,157,112 7.98
Massachusetts Port Auth,
Spec Proj Rev Harborside Hyatt Hotel ......................... 10.000 03-01-26 BBB- 2,200 2,480,500 8.87
-----------
5,637,612
-----------
Michigan (4.29%)
Waterford Township Economic Development Corp,
Rev Ltd Oblig Canterbury Hlth Care ........................... 8.375 07-01-23 BB- 3,500 3,902,885 7.51
Wayne Charter, County of,
Spec Airport Facil Rev Ref Ser 1995 Northwest Airlines, Inc. . 6.750 12-01-15 BB+ 3,120 3,436,181 6.13
-----------
7,339,066
-----------
Missouri (0.63%)
Lees Summit Industrial Development Auth,
Hlth Facil Rev Ref & Imp John Knox Vlg Proj .................. 7.125 08-15-12 A- 1,000 1,070,440 6.66
-----------
Nevada (1.21%)
Las Vegas, City of,
Local Imp Ser 07-01-96 Spec Imp Dist 707 (Summerlin Area) .... 7.100 06-01-16 BB+ 2,000 2,067,980 6.87
-----------
New Hampshire (1.64%)
New Hampshire Business Finance Auth,
Poll Control & Solid Waste Ref Crown Paper Co Proj ........... 7.750 01-01-22 BB- 1,500 1,737,960 6.69
New Hampshire Higher Educational and Health Facilities Auth,
Rev New Hampshire College .................................... 6.375 01-01-27 BBB- 1,000 1,067,300 5.97
-----------
2,805,260
-----------
New Jersey (5.66%)
Camden County Improvement Auth,
Lease Rev Ser A Holt Hauling & Warehousing Proj .............. 9.875 01-01-21 BB+ 1,500 1,822,830 8.13
New Jersey Economic Development Auth,
Rev Ref Ind'l Development Newark Airport Marriott Hotel Proj . 7.000 10-01-14 BBB- 2,500 2,758,825 6.34
Rev Ref Ser J Holt Hauling Proj .............................. 8.500 11-01-23 BBB 2,500 2,884,650 7.37
New Jersey Health Care Facilities Financing Auth,
Rev Care Institute Inc Cherry Hill Proj ...................... 8.000 07-01-27 BB+ 2,000 2,205,640 7.25
-----------
9,671,945
-----------
New Mexico (2.18%)
Farmington, County of,
Poll Control Rev Ref Ser A
Pub Serv Co of New Mexico San Juan Proj .................... 6.400 08-15-23 BB+ 3,500 3,721,480 6.02
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
New York (5.05%)
Glen Cove Housing Auth,
Rev Sr Living Facil The Mayfair Proj ......................... 8.250% 10-01-26 BB+ $1,425 $1,590,670 7.39%
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj ........ 7.500 03-01-26 BB- 2,000 2,217,560 6.76
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev Ser D Cap Apprec ........................... Zero 06-15-19 A- 2,000 664,580 5.23
New York, City of,
GO Fiscal 1994 Ser B1 Preref ................................. 7.300 08-15-11 BBB+ 950 1,117,779 6.20
GO Fiscal 1997 Ser J ......................................... 6.000 08-01-17 BBB+ 2,000 2,138,000 5.61
GO Fiscal 1998 Cap Apprec Ref Ser G .......................... Zero 08-01-08 BBB+ 1,500 913,395 4.81
-----------
8,641,984
-----------
Ohio (5.08%)
Bedford, County of,
Rev Ref Community Hosp Bedford Inc. .......................... 8.500 05-15-09 AA 1,345 1,480,442 7.72
Cleveland, City of,
Parking Facil Imp Rev ........................................ 8.000 09-15-12 BBB 1,000 1,172,870 6.82
Parking Facil Imp Rev ........................................ 8.100 09-15-22 BBB 2,000 2,353,960 6.88
Lorain, County of,
Rev 1st Mtg Ser A Kendal At Oberlin Proj ..................... 8.625 02-01-22 BBB- 3,300 3,684,417 7.73
-----------
8,691,689
-----------
Oklahoma (1.32%)
Tulsa Municipal Airport Trust, Trustees of,
Rev American Airlines, Inc. .................................. 7.350 12-01-11 BBB- 2,000 2,257,900 6.51
-----------
Oregon (2.51%)
Oregon, State of,
Economic Development Rev Ref Ser 183
Georgia-Pacific Corp Proj .................................. 5.700 12-01-25 BAA2 1,000 1,035,250 5.51
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj ....................... 7.125 01-01-21 BBB- 3,000 3,259,440 6.56
-----------
4,294,690
-----------
Pennsylvania (9.12%)
Beaver County Industrial Development Auth,
Coll Poll Control Rev Ref Ser 1995A Toledo Edison Co
Beaver Valley Proj ......................................... 7.750 05-01-20 BB+ 2,500 2,908,525 6.66
Poll Control Rev Ref Cleveland Elec Proj ..................... 7.625 05-01-25 BB+ 1,600 1,832,192 6.66
Chester County Industrial Development Auth,
Rev 1st Mtg Rha/Pa Nursing Home .............................. 10.125 05-01-19 B- 196 182,368 10.88
Montgomery County Redevelopment Auth,
Multifamily Hsg Rev Ser A KBF Assoc L.P. Proj ................ 6.500 07-01-25 BBB+ 2,500 2,594,150 6.26
Northampton County Industrial Development Auth,
Poll Control Rev Ref Bethlehem Steel Proj .................... 7.550 06-01-17 B+ 2,000 2,248,040 6.72
Pennsylvania Economic Development Finance Auth,
Ser B Qualified Residential RSI Properties/Greensburg LLC Proj 8.000 09-01-27 BB 1,000 1,023,560 7.82
Philadelphia Hospitals and Higher Education Facilities Auth,
Hosp Rev 1991 Ser A Philadelphia Protestant Home Proj ........ 8.625 07-01-21 AA 2,300 2,656,638 7.47
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania (continued)
Philadelphia Industrial Development Auth,
Commercial Devel Rev Ref Ser A Doubletree Proj ............... 6.500% 10-01-27 BB+ $2,000 $2,148,920 6.05%
-----------
15,594,393
-----------
Puerto Rico (0.62%)
Puerto Rico, Commonwealth of,
Pub Imp GO Ref ............................................... 5.500 07-01-13 A 1,000 1,066,350 5.16
-----------
Rhode Island (1.39%)
Providence Redevelopment Agency,
Cert of Part Ser A ........................................... 8.000 09-01-24 BBB- 2,160 2,381,508 7.26
-----------
Texas (1.20%)
Gulf Coast Waste Disp Auth Tex Rev,
Waste Disp-Valero Energy Corp.** ............................. 5.600 04-01-32 BBB- 1,000 1,000,000 5.60
Harris County Health Facilities Development Corp,
Hosp Rev Memorial Hermann Hosp Sys Proj ** .................. 5.500 06-01-15 AAA 1,000 1,056,090 5.21
-----------
2,056,090
-----------
Utah (2.92%)
Carbon, County of,
Solid Waste Disp Rev Ref Ser A East Carbon Development Corp .. 9.000 07-01-12 BBB- 2,000 2,194,580 8.20
Solid Waste Disp Rev Ref Sunnyside Cogeneration Proj ......... 9.250 07-01-18 B 1,900 1,140,380 15.41
Toole, County of,
Poll Control Rev Ref Ser A Laidlaw Environmental Proj ........ 7.550 07-01-27 BBB- 1,500 1,660,695 6.82
-----------
4,995,655
-----------
Virginia (2.92%)
Hopewell Industrial Development Auth,
Resource Recovery Rev Ref Stone Container Corp Proj .......... 8.250 06-01-16 BB 4,400 4,987,136 7.28
-----------
Washington (0.83%)
Spokane County Industrial Development Corp,
Solid Waste Disp Rev Kaiser Alum & Chem Corp Proj ............ 7.600 03-01-27 BB- 1,250 1,412,613 6.73
-----------
West Virginia (1.07%)
Marion, County of,
Community Solid Waste Disp Facil Rev Ref Ser A
Adirondack Recycling ....................................... 8.000 12-01-25 BB- 1,646 1,608,493 8.18
Community Solid Waste Disp Facil Rev Ref Ser B
Adirondack Recycling ....................................... 10.000 12-01-25 BB- 230 221,925 10.36
-----------
1,830,418
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $154,501,181) (99.93%) 170,858,507
-------- ------------
TOTAL INVESTMENTS (99.93%) 170,858,507
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.07%) 125,131
-------- ------------
TOTAL NET ASSETS (100.00%) $170,983,638
======== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
NOTES TO SCHEDULE OF INVESTMENTS
* Credit ratings are unaudited and rated by Moody's Investors Service, Fitch or
John Hancock Advisers, Inc. where Standard & Poor's ratings are not
available.
** These securities having an aggregate value $2,056,090 or 1.20% of the Fund's
net asset value, have been purchased as forward commitments -- that is, the
Fund has agreed on trade date, to take delivery of and make payment for such
securities on a delayed basis subsequent to this schedule. The purchase price
and interest rate of such security is fixed at trade date, although the Fund
does not earn any interest on such security until settlement date. The Fund
has instructed its Custodian Bank to segregate assets with a current value at
least equal to the amount of the forward commitment. Accordingly, the market
value of $2,367,750 of Massachusetts Port Auth, Spec Proj Rev Harborside
Hyatt Hotel, 10.00%, 03-01-26, has been segregated to cover the forward
commitment.
+ The yield is not calculated in accordance with guidelines established by the
U.S. Securities & Exchange Commission and is unaudited. Zero Coupon yields
are at yield to maturity.
# Represents rate in effect on February 28, 1998.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The High Yield Tax-Free 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 February 28,
1998, assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ----------
General Obligations............................................ 4.80%
Revenue Bonds - Airport........................................ 3.36
Revenue Bonds - Economic Development........................... 1.79
Revenue Bonds - Education...................................... 2.54
Revenue Bonds - Health......................................... 16.70
Revenue Bonds - Housing........................................ 6.52
Revenue Bonds - Industrial Development Bond.................... 9.57
Revenue Bonds - Other.......................................... 16.24
Revenue Bonds - Pollution Control Facilities................... 21.41
Revenue Bonds - Transportation................................. 14.64
Revenue Bonds - Water & Sewer.................................. 2.36
-----
TOTAL TAX-EXEMPT LONG-TERM BONDS 99.93%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - High Yield Tax-Free Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Tax Free Bond Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940. The Trust consists of two series: John Hancock High Yield Tax-Free Fund
(the "Fund") and John Hancock Tax-Free Bond Fund. The other series of the Trust
is reported in separate financial statements. The investment objective of the
Fund is to provide as high a level of interest income exempt from federal income
taxes as is consistent with the preservation of capital by investing primarily
in municipal bonds, notes and commercial paper, the interest on which is exempt
from federal income taxes.
The Board of Trustees have authorized the issuance of multiple classes of
shares of the Fund, designated as Class A and Class B shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses subject to the approval of the Board of Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission. Shareholders of a class
which bears distribution and service expenses under terms of a distribution plan
have exclusive voting rights regarding that distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Board of 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,
Inc., may participate in a joint repurchase agreement. Aggregate cash balances
are invested in one or more repurchase agreements, whose underlying securities
are obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $6,916,129 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent such carryforward is used by
the Fund, no capital gains distribution will be made. The carryforwards will
expire as follows: August 31, 2002 -- $2,785,979, August 31, 2003 -- $205,838,
August 31, 2004 -- $3,207,633 and August 31, 2005 -- $716,679. Additionally, net
capital losses of $2,602,569 attributable to security transactions incurred
after October 1, 1996 are treated as arising on the first day (September 1,
1997) of the Fund's current taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the amount paid
in excess of par value on securities purchased from either the date of purchase
or date of issue to date of sale, maturity or
19
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - High Yield Tax-Free Fund
to next call date, if applicable. The Fund accretes original issue discount from
par value on securities purchased from either the date of issue or the date of
purchase over the life of the security, as required by the Internal Revenue
Code. The Fund records market discount on bonds purchased after April 30, 1993
at time of disposition.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other Funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $600 million,
collectively. Interest is charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a
rate of 0.075% per annum based on the average daily unused portion of the line
of credit, is allocated among the participating Funds. The Fund had no borrowing
activity for the period ended February 28, 1998.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates and other market conditions. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instrument or hedge
other Fund instruments. At the time the Fund enters into a financial futures
contract, it will be required to deposit with its custodian a specified amount
of cash or U.S. government securities, known as "initial margin," equal to a
certain percentage of the value of the financial futures contract being traded.
Each day, the futures contract is valued at the official settlement price on the
board of trade or U.S. commodities exchange on which it trades. Subsequent
payments, known as "variation margin," to and from the broker are made on a
daily basis as the market price of the financial futures contract fluctuates.
Daily variation margin adjustments, arising from this "mark to market," will be
recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At February 28, 1998 there were no open positions in financial futures
contracts.
OPTIONS The Fund may purchase options contracts. Listed options will be valued
at the last quoted sales price on the exchange on which they are primarily
traded. Purchased put or call over-the-counter options will be valued at the
average of the "bid" prices obtained from two independent brokers. Written put
or call over-the-counter options will be valued at the average of the "asked"
prices obtained from two independent brokers. Upon the writing of a call or put
option, an amount equal to the premium received by the Fund will be included in
the Statement of Assets and Liabilities as an asset and corresponding liability.
The amount of the liability will be subsequently marked to market to reflect the
current market value of the written option.
20
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - High Yield Tax-Free Fund
The Fund may use option contracts to manage its exposure to changing security
prices. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Funds in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Funds are unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Funds will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's Statement of
Assets and Liabilities.
At February 28, 1998, there were no open written options contracts.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.625% of the first $75,000,000 of the Fund's
average daily net asset value, (b) 0.5625% of the next $75,000,000 and (c) 0.50%
of the Fund's average daily net asset value in excess of $150,000,000.
The Fund has an agreement with its custodian bank under which $8,390 of
custodian fees have been reduced by balance credits applied during the period
ended February 28, 1998. If the Fund had not entered into this agreement, the
assets not invested, on which these balance credits earned, could have produced
taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended February
28, 1998, net sales charges received with regard to sales of Class A shares
amounted to $78,268. Out of this amount, $9,129 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $63,749
was paid as sales commissions to unrelated broker-dealers and $5,390 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended February 28,
1998, contingent deferred sales charges paid to JH Funds amounted to $212,488.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.25% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution and service costs. The Fund has
temporarily agreed to limit the distribution and service fees pursuant to Class
A to 0.25% of the average daily net assets. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair Practice of
the National Association of Securities Dealers. Under the amended Rules of Fair
Practice, curtailment of a portion of the Fund's 12b-1 payments could occur
under certain circumstances.
21
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - High Yield Tax-Free Fund
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an an annual rate of less than 0.02% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipone
are trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At February 28, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $1,714.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the fiscal
period ended February 28, 1998, aggregated $29,844,237 and $33,041,219,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the fiscal period ended February 28, 1998.
The cost of investments owned at February 28, 1998 for federal income tax
purposes was $154,501,181. Gross unrealized appreciation and depreciation of
investments aggregated $19,121,317 and $2,763,991 respectively, resulting in net
unrealized appreciation of $16,357,326.
22
<PAGE>
===================================== NOTES ====================================
John Hancock Funds - High Yield Tax-Free Fund
23
<PAGE>
================================================================================
--------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds --------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock High
Yield Tax-Free Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 590SA 2/98
4/98
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Tax-Free
Bond Fund
FEBRUARY 28, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*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 AND TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
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 LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
----------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The stock market astounded many in 1997 by producing a record-breaking third
straight year of 20%-plus returns. Bond investors also enjoyed the benefits of a
strong economy with no inflation. After such a remarkable performance, many are
wondering what the markets will do for an encore in 1998.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
- --------------------------------------------------------------------------------
Within the first two months of the year, we saw two different sides of the
market. In January, the market underwent rapid mood swings and barely advanced
at all. While news on the domestic inflation and economic fronts remained good,
investors were still trying to determine how much of the Asian financial crisis
would filter through the U.S. economy and corporate profits. Each week, it
seemed, investors either had on their rose-colored glasses or had taken them
off. Then in February, fears apparently dissipated, and the market rallied to
new all-time highs by the month's end.
In the face of such fluctuations, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY DIANNE SALES, CFA, BARRY EVANS, CFA, AND FRANK LUCIBELLA, CFA,
CO-PORTFOLIO MANAGERS
John Hancock
Tax-Free Bond Fund
Falling interest rates boost municipal bonds
Recently, Dianne Sales, Frank Lucibella and Barry Evans took over leadership of
the Fund's management team. Ms. Sales and Mr. Lucibella have been management
team members for several years. Mr. Evans, who has been with John Hancock Funds
since 1986, is a senior vice president and head of the company's government and
municipal fixed-income departments.
Municipal bonds staged an impressive rally over the past six months, boosted by
a lack of inflationary pressures and falling interest rates. Although the period
got off to somewhat of a slow start, municipals quickly gathered steam when
various economic statistics proved that inflation wasn't a threat. Bond
investors dislike inflation because it eats away at their fixed-income payments.
Bonds got an added boost in late October from the expanding economic crisis in
Southeast Asia. Since investors often view U.S. bonds as a safe haven in
uncertain markets, they flocked to them and bid their prices even higher. As a
measure of the bond market's rally, the yield on the bellwether 30-year U.S.
Treasury bond, which moves in the opposite direction of a bond's price, fell to
5.92% at the end of the period from 6.61% six months earlier. Municipals
participated in the bond market rally and also benefited from continued economic
strength in the United States, helping municipal issuers substantially improve
their fiscal and financial condition.
"Municipal bonds staged an impressive rally..."
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: (l-r)
Barry Evans, Mike Roye, Dianne Sales, Frank Lucibella and Holly Morris.]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Tax-Free Bond Fund
New York City general obligation bonds were top performers.
- --------------------------------------------------------------------------------
["Pie chart with the heading "Portfolio Diversification" at the top left hand
column. The chart is divided into 11 sections. Going from top left to right
Health 17%; Housing 6%; Industrial Development 10%; Other 16%; Pollution Control
21%; Transportation 15%; Water and Sewer 2%; General Obligation 5%; Airport 3%;
Economic Development 2%; Education 3%. Footnote below states "As a percentage of
net assets on February 28, 1998."]
- --------------------------------------------------------------------------------
Performance review
Against that backdrop, John Hancock Tax-Free Bond Fund turned in a solid
performance. For the six months ended February 28, 1998, the Fund's Class A and
Class B shares posted total returns of 5.81% and 5.42%, respectively, at net
asset value. Keep in mind that your net asset value return will be different
from this result if you were not invested in the Fund for the entire period and
did not reinvest all distributions. The Fund's returns compared favorably to the
average general municipal bond fund's return of 4.99% for the same six month
period, according to Lipper Analytical Services, Inc.(1) Please see pages six
and seven for longer-term performance information.
A number of factors contributed to the Fund's better performance relative to
its peers. First was our stake in general obligation bonds issued by New York
City, which were upgraded by Moody's Investors Service at the end of the period.
Not only were these relatively high-yielding bonds in strong demand, but they
also benefited from the city's booming economy and improved fiscal situation.
Another factor that helped the Fund's performance was our relatively large
weighting in investment-grade BBB-rated bonds. These securities generally
performed better than their higher-rated counterparts, thanks to a combination
of high demand and low supply. As interest rates fell, increasing numbers of
yield-hungry investors sought out these credits to maintain their income. At the
same time, the supply of them was rather low. Among our best-performing holdings
rated BBB or below were bonds issued by the New York Institute of Technology and
the International School in San Francisco, which we sold during the period.
Our stake in bonds with good call protection also benefited our performance.
Bond issuers, like homeowners with mortgages, often like the option of
refinancing -- or "calling" -- their debt when interest rates fall as a way to
reduce their debt service costs. Although calling a bond is good for the issuer,
it can be bad for the bond holder who may be forced to reinvest the proceeds at
lower interest rates. Non-callable bonds, on the other hand, can't be redeemed
by their issuer before maturity. Not only do non-callable bonds generally fare
better than callable bonds when interest rates are falling, they typically
perform no worse than callable securities when interest rates rise. Bonds with
good call protection have comparatively long call dates, meaning they can't be
redeemed for a relatively long period. In contrast, bonds with little call
protection were laggards during the period. Housing bonds fall under this
category and they were
- --------------------------------------------------------------------------------
["Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance...and what's behind the numbers. The first listing is New York City
followed by a up arrow with the phrase "Upgraded on improved local economy,
fiscal condition. The second listing is Non-callable bonds followed by a up
arrow with the phrase "Call protection provides greater sensitivity in rally".
The third listing is Housing bonds followed by a down arrrow with the phrase
Declining interest rates increase likelihood of early calls". The footnote at
the bottom states See "Schedule of Investments." Investment holdings are subject
to change."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - Tax-Free Bond Fund
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended February 28, 1998."
The chart is scaled in increments of 1% with the 6% at the top and 0% at the
bottom. The first represents the 5.81% total return for John Hancock Tax-Free
Bond Fund: Class A. The second represents the 5.42% total return for John
Hancock Tax-Free Bond Fund: Class B. The third represent the 4.99% total return
for Average general municipal bond fund. A Footnote below reads "The returns for
John Hancock Tax-Free Bond Fund are at net asset value with all distributions
reinvested. The average general municipal bond fund is tracked by Lipper
Analytical Services, Inc. (1) See the following two pages for historical
performance information."]
- --------------------------------------------------------------------------------
underperformers during the period, although the Fund had only a modest stake in
them.
Finally, the Fund's duration -- which measures how sensitive the Fund's share
price is to changing interest rates -- was slightly long and proved to be a plus
for performance. The longer a fund's duration, the more sensitive its share
price is to changes in interest rates, and the more its share price rises when
interest rates fall (or falls when rates rise).
Outlook
In our view, the outlook for municipal bonds is favorable. Inflation continues
to remain subdued despite a relatively strong economy, and there are no signs
that it is in any immediate danger of rising. Furthermore, real interest rates
- -- that is, current interest rates minus actual inflation -- are high on a
historical basis. To us that suggests that rates have room to decline further
and extend the bond market's recent rally. Of course, we'll be keeping a
watchful eye out for any signals that inflation is on the rise, and make
appropriate strategy modifications in response. But until we see tangible proof
that inflationary pressures are building, we'll stick to our current strategy.
We'll likely keep the Fund's duration slightly long and continue to emphasize
bonds with good call protection. Additionally, we'll continue our search for
bonds that offer good value by uncovering bonds with credit and structural
elements that are currently overlooked by the market.
"...the outlook for municipal bonds is favorable."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
(1)Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
John Hancock Funds - Tax-Free Bond Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Tax-Free Bond Fund. Total return measures the
change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.50%. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
Please note that a portion of the Fund's income may be subject to taxes, and
some investors may be subject to the Alternative Minimum Tax (AMT). Also note
that capital gains are taxable.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended December 31, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/5/90)
------ ------- ------------
Cumulative Total Returns 4.87% 37.19% 85.30%
Average Annual Total Returns(1) 4.87% 6.53% 8.03%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
------ ------- ------------
Cumulative Total Returns 4.00% 36.37% 51.41%
Average Annual Total Returns(1) 4.00% 6.40% 7.16%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of February 28, 1998
SEC 30-DAY
YIELD
------------
John Hancock Tax-Free Bond Fund: Class A 4.10%
John Hancock Tax-Free Bond Fund: Class B 3.54%
Notes to Performance
(1) The Adviser voluntarily waived a portion of the management fee during the
period. Without the waiver of expenses, the average annual total return
for the one-year, five-year and since inception periods for Class A shares
would have been 4.82%, 6.42% and 7.77%, respectively. The average annual
total returns for the one-year, five-year and since inception periods for
Class B shares would have been 3.95%, 6.29% and 7.01%, respectively.
6
<PAGE>
================================================================================
John Hancock Funds - Tax-Free Bond Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Tax-Free Bond Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Lehman Brothers Municipal Bond Index -- an unmanaged index
that includes approximately 15,000 bonds and is commonly used as a measure of
bond performance. Past performance is not indicative of future results.
- --------------------------------------------------------------------------------
Tax-Free Bond Fund
Class A shares
Line chart with the heading Tax-Free Bond Fund: Class A, representing the growth
of a hypothetical $10,000 investment over the life of the fund. Within the chart
are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Tax-Free Bond Fund on January 5, 1990, before sales charge, and is equal
to $19,699 as of February 28, 1998. The second line represents the value of the
Lehman Brothers Municipal Bond Index and is equal to $18,869 as of February 28,
1998. The third line represents the Tax-Free Bond Fund after sales charge and is
equal to $18,812 as of February 28, 1998.
Tax-Free Bond Fund
Class B shares
Line chart with the heading Tax-Free Bond Fund: Class B, representing the growth
of a hypothetical $10,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Lehman Brothers Municipal Bond Index
and is equal to $15,683 as of as of February 28, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the Tax-Free
Bond Fund on December 31, 1991, before contingent deferred sales charge, and is
equal to $15,410 as of as of February 28, 1998.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on February 28, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $748,579,031) ........ $ 839,805,684
Cash ..................................................... 199,768
Receivable for investments sold .......................... 1,851,964
Receivable for shares sold ............................... 224,358
Interest receivable ...................................... 11,573,468
Receivable for variation margin .......................... 84,375
Other assets ............................................. 79,295
-------------
Total Assets ........................... 853,818,912
--------------------------------------------------------
Liabilities:
Payable for investments purchased ........................ 54,217,731
Payable for shares repurchased ........................... 140,225
Dividend payable ......................................... 204,289
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................. 503,375
Accounts payable and accrued expenses .................... 22,754
-------------
Total Liabilities ...................... 55,088,374
--------------------------------------------------------
Net Assets:
Capital paid-in .......................................... 723,676,380
Accumulated net realized loss on investments and
financial futures contracts ............................. (15,621,398)
Net unrealized appreciation of investments and
financial futures contracts ............................. 90,884,201
Distributions in excess of net investment income ......... (208,645)
-------------
Net Assets ............................. $ 798,730,538
========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with $0.01 per share par value)
Class A - $601,910,440/54,883,873 ........................ $10.97
==========================================================================
Class B - $196,820,098/17,946,606 ........................ $10.97
==========================================================================
Maximum Offering Price Per Share*
Class A - ($10.97 x 104.71%) ............................. $11.49
==========================================================================
* 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.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ................................................. $ 24,097,082
-------------
Expenses:
Investment management fee - Note B ...................... 2,104,115
Distribution and service fee - Note B
Class A ............................................... 444,526
Class B ............................................... 897,101
Transfer agent fee - Note B ............................. 446,898
Custodian fee ........................................... 117,961
Financial services fee - Note B ......................... 69,978
Registration and filing fees ............................ 43,165
Trustees' fees .......................................... 28,327
Printing ................................................ 21,828
Auditing fee ............................................ 19,836
Miscellaneous ........................................... 11,585
Legal fees .............................................. 7,264
Less Management Fee Reduction - Note B .................. (97,039)
-------------
Total Expenses ......................... 4,115,545
--------------------------------------------------------
Less Expense Reduction -
Note B ................................. (1,324)
--------------------------------------------------------
Net Expenses ........................... 4,114,221
--------------------------------------------------------
Net Investment Income .................. 19,982,861
--------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts:
Net realized gain on investments sold .................... 801,250
Net realized gain on financial futures contracts ......... 342,824
Change in net unrealized appreciation/depreciation
of investments .......................................... 24,394,915
Change in net unrealized appreciation/depreciation
of financial futures contracts .......................... (464,063)
-------------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts ............ 25,074,926
--------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .............. $ 45,057,787
========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1998
AUGUST 31, 1997 (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................................................... $ 41,842,397 $ 19,982,861
Net realized gain (loss) on investments sold and financial
futures contracts ..................................................................... (2,378,086) 1,144,074
Change in net unrealized appreciation/depreciation of
investments and financial futures contracts ........................................... 26,195,799 23,930,852
--------------- ---------------
Net Increase in Net Assets Resulting from Operations .................................... 65,660,110 45,057,787
--------------- ---------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5859 and $0.2835 per share, respectively) ................................. (33,144,713) (15,544,436)
Class B - ($0.5073 and $0.2429 per share, respectively) ................................. (8,723,112) (4,477,826)
--------------- ---------------
Total Distributions to Shareholders ................................................... (41,867,825) (20,022,262)
--------------- ---------------
From Fund Share Transactions - Net:* ....................................................... 128,973,479 (21,111,211)
--------------- ---------------
Net Assets:
Beginning of period ...................................................................... 642,040,460 794,806,224
--------------- ---------------
End of period (including distributions in excess of net investment
income of $169,244 and $208,645, respectively) ........................................ $ 794,806,224 $ 798,730,538
=============== ===============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1998
AUGUST 31, 1997 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ............................................... 45,295,498 $ 471,394,805 3,647,163 $ 39,642,616
Shares issued in reorganization - Note D .................. 3,663,041 38,514,684 -- --
Shares issued to shareholders in
reinvestment of distributions ........................... 2,401,808 25,169,422 1,050,371 11,405,169
------------- ------------- ------------- -------------
51,360,347 535,078,911 4,697,534 51,047,785
Less shares repurchased ................................... (50,443,895) (525,552,293) (5,344,562) (58,024,358)
------------- ------------- ------------- -------------
Net increase (decrease) ................................... 916,452 $ 9,526,618 (647,028) $ (6,976,573)
============= ============= ============= =============
CLASS B
Shares sold ............................................... 1,491,837 $ 15,614,797 748,296 $ 8,145,654
Shares issued in reorganization - Note D .................. 14,270,326 150,045,343 -- --
Shares issued to shareholders in reinvestment
of distributions ........................................ 441,650 4,628,530 220,115 2,390,022
------------- ------------- ------------- -------------
16,203,813 170,288,670 968,411 10,535,676
Less shares repurchased ................................... (4,854,334) (50,841,809) (2,274,754) (24,670,314)
------------- ------------- ------------- -------------
Net increase (decrease) ................................... 11,349,479 $ 119,446,861 (1,306,343) $ (14,134,638)
============= ============= ============= =============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last three periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1992 1993 1994(1) 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................. $ 10.24 $ 10.47 $ 10.96 $ 9.39
-------- -------- -------- --------
Net Investment Income ................................................ 0.67 0.62 0.58 0.57(2)
Net Realized and Unrealized Gain (Loss) on Investments ............... 0.42 0.93 (1.58) 1.28
-------- -------- -------- --------
Total from Investment Operations .................................... 1.09 1.55 (1.00) 1.85
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................................. (0.68) (0.62) (0.57) (0.57)
Distributions from Net Realized Gains on Investments Sold ............ (0.18) (0.44) -- --
-------- -------- -------- --------
Total Distributions ................................................. (0.86) (1.06) (0.57) (0.57)
-------- -------- -------- --------
Net Asset Value, End of Period ....................................... $ 10.47 $ 10.96 $ 9.39 $ 10.67
======== ======== ======== ========
Total Investment Return at Net Asset Value (3) ...................... 10.97% 15.15% (9.28%) 20.20%
Total Adjusted Investment Return at Net Asset Value (3,5) ............ 10.67% 14.98% (9.39%) 20.08%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................. $ 99,523 $136,521 $114,539 $118,797
Ratio of Expenses to Average Net Assets .............................. 0.66% 0.78% 0.85% 0.85%
Ratio of Adjusted Expenses to Average Net Assets (6) ................. 0.96% 0.95% 0.96% 0.97%
Ratio of Net Investment Income to Average Net Assets ................. 6.46% 5.57% 5.72% 5.67%
Ratio of Adjusted Net Investment Income to Average Net Assets (6) .... 6.16% 5.40% 5.61% 5.55%
Portfolio Turnover Rate .............................................. 79% 116% 107% 113%
Fee Reduction Per Share .............................................. $ 0.03 $ 0.02 $ 0.01 $ 0.01(2)
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
JANUARY 1, 1996 TO YEAR ENDED FEBRUARY 28, 1998
AUGUST 31, 1996(8) AUGUST 31, 1997 (UNAUDITED)
----------------- --------------- -----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................... $ 10.67 $ 10.27 $ 10.63
-------- -------- --------
Net Investment Income .............................................. 0.40 0.59 0.28(2)
Net Realized and Unrealized Gain (Loss) on Investments ............. (0.41) 0.36 0.34
-------- -------- --------
Total from Investment Operations .................................. (0.01) 0.95 0.62
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ............................... (0.39) (0.59) (0.28)
Distributions from Net Realized Gains on Investments Sold .......... -- -- --
-------- -------- --------
Total Distributions ............................................... (0.39) (0.59) (0.28)
-------- -------- --------
Net Asset Value, End of Period ..................................... $ 10.27 $ 10.63 $ 10.97
======== ======== ========
Total Investment Return at Net Asset Value (3) .................... (0.01%)(4) 9.44% 5.81%(4)
Total Adjusted Investment Return at Net Asset Value (3,5) .......... (0.09%)(4) 9.38% 5.80%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................... $560,863 $590,185 $601,910
Ratio of Expenses to Average Net Assets ............................ 0.85%(7) 0.85% 0.85%(7)
Ratio of Adjusted Expenses to Average Net Assets (6) ............... 0.98%(7) 0.91% 0.87%(7)
Ratio of Net Investment Income to Average Net Assets ............... 5.75%(7) 5.61% 5.24%(7)
Ratio of Adjusted Net Investment Income to Average Net Assets (6) .. 5.62%(7) 5.55% 5.22%(7)
Portfolio Turnover Rate ............................................ 116%(9) 46%(9) 16%
Fee Reduction Per Share ............................................ $ 0.01(2) $ 0.01 $ 0.00(2,10)
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1992 1993 1994(1) 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $ 10.24 $ 10.47 $ 10.96 $ 9.38
------- ------- ------- -------
Net Investment Income ................................. 0.59(2) 0.54 0.50 0.50(2)
Net Realized and Unrealized Gain (Loss) on
Investments ........................................ 0.42 0.93 (1.58) 1.28
------- ------- ------- -------
Total from Investment Operations ..................... 1.01 1.47 (1.08) 1.78
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................. (0.60) (0.54) (0.50) (0.49)
Distributions from Net Realized Gains on
Investments Sold ................................... (0.18) (0.44) -- --
------- ------- ------- -------
Total Distributions .................................. (0.78) (0.98) (0.50) (0.49)
------- ------- ------- -------
Net Asset Value, End of Period ........................ $ 10.47 $ 10.96 $ 9.38 $ 10.67
======= ======= ======= =======
Total Investment Return at Net Asset Value (3) ....... 10.15% 14.30% (10.05%) 19.41%
Total Adjusted Investment Return at Net Asset
Value (3,5) ........................................ 9.85% 14.13% (10.16%) 19.29%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $18,272 $56,384 $70,243 $76,824
Ratio of Expenses to Average Net Assets ............... 1.43% 1.53% 1.60% 1.60%
Ratio of Adjusted Expenses to Average Net Assets (6) .. 1.73% 1.70% 1.71% 1.72%
Ratio of Net Investment Income to Average Net Assets .. 5.57% 4.66% 4.97% 4.90%
Ratio of Adjusted Net Investment Income to Average
Net Assets (6) ..................................... 5.27% 4.49% 4.86% 4.78%
Portfolio Turnover Rate ............................... 79% 116% 107% 113%
Fee Reduction per Share ............................... $ 0.03(2) $ 0.02 $ 0.01 $ 0.01(2)
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
JANUARY 1, 1996 TO YEAR ENDED FEBRUARY 28, 1998
AUGUST 31, 1996(8) AUGUST 31, 1997 (UNAUDITED)
------------------ --------------- -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $ 10.67 $ 10.27 $ 10.63
------- -------- --------
Net Investment Income ................................. 0.34 0.51 0.24(2)
Net Realized and Unrealized Gain (Loss) on
Investments ........................................ (0.40) 0.36 0.34
------- -------- --------
Total from Investment Operations ..................... (0.06) 0.87 0.58
------- -------- --------
Less Distributions:
Dividends from Net Investment Income .................. (0.34) (0.51) (0.24)
Distributions from Net Realized Gains on
Investments Sold ................................... -- -- --
------- -------- --------
Total Distributions .................................. (0.34) (0.51) (0.24)
------- -------- --------
Net Asset Value, End of Period ........................ $ 10.27 $ 10.63 $ 10.97
======= ======== ========
Total Investment Return at Net Asset Value (3) ....... (0.51%)(4) 8.63% 5.42%(4)
Total Adjusted Investment Return at Net Asset
Value (3,5) ........................................ (0.59%)(4) 8.57% 5.41%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $81,177 $204,621 $196,820
Ratio of Expenses to Average Net Assets ............... 1.60%(7) 1.60% 1.60%(7)
Ratio of Adjusted Expenses to Average Net Assets (6) .. 1.73%(7) 1.66% 1.62%(7)
Ratio of Net Investment Income to Average Net Assets .. 4.91%(7) 4.85% 4.48%(7)
Ratio of Adjusted Net Investment Income to Average
Net Assets (6) ..................................... 4.78%(7) 4.79% 4.46%(7)
Portfolio Turnover Rate ............................... 116%(9) 46%(9) 16%
Fee Reduction per Share ............................... $ 0.01(2) $ 0.01 $ 0.00(2,10)
</TABLE>
(1) On December 22, 1994 John Hancock Advisers, Inc. became the investment
adviser of the fund.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
(7) Annualized.
(8) Effective August 31, 1996, the fiscal period changed from December 31 to
August 31.
(9) Portfolio turnover excludes merger activity.
(10) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
Schedule of Investments
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Tax-Free Bond Fund on February 28, 1998. It has one main category: tax-exempt
long-term bonds. The tax-exempt long-term bonds are broken down by state. Under
each state is a list of the securities owned by the Fund.
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
Alabama (2.05%)
Alabama State Docks Department,
Docks Facil Rev Ref Ser 1998** ......................... 5.250% 10-01-12 AAA $4,245 $4,361,483 5.11%
Docks Facil Rev Ref Ser 1998** ......................... 5.375 10-01-15 AAA 3,835 3,928,574 5.25
Citronelle Industrial Development Board,
Poll Control Rev Stauffer Chemical Co Proj 1982 ........ 8.000 12-01-12 A1 500 544,770 7.34
Mobile Industrial Development Board,
Solid Waste Disp Rev Ref Mobile Energy Serv
Co Proj 1995 ......................................... 6.950 01-01-20 BBB- 6,750 7,583,963 6.19
-----------
16,418,790
-----------
Alaska (0.38%)
Alaska Housing Finance Corp,
Coll Home Mtg Ser B-1 GNMA Coll ........................ 7.650 06-01-24 AAA 1,780 1,904,600 7.15
Valdez Alaska Marine Terminal,
Rev Ref Sohio Pipe Line Co Proj Ser 1985 ............... 7.125 12-01-25 AA 1,000 1,122,240 6.35
-----------
3,026,840
-----------
Arizona (2.63%)
Arizona Health Facilities Auth,
Hosp Sys Rev Ref Phoenix Memorial Hosp Proj ............ 8.200 06-01-21 BBB 2,150 2,365,559 7.45
Arizona Municipal Financing Program,
Cert of Part Ser 25 .................................... 7.875 08-01-14 AAA 1,000 1,341,170 5.87
Chandler, City of,
GO Cap Apprec Ref ...................................... Zero 07-01-07 AAA 5,700 3,750,486 4.53
Coconino County Pollution Control Corp,
Poll Control Rev 1997 Ser B Tucson Elec Pwr Co
Navajo Proj .......................................... 7.000 10-01-32 B 2,000 2,291,920 6.11
Maricopa County Pollution Control Corp,
Poll Control Rev Ref Ser A Public Service Co
Palo Verde Proj ...................................... 6.375 08-15-23 BB+ 8,550 9,109,598 5.98
Navajo County Industrial Development Auth,
Ind'l Devel Rev Stone Container Corp Proj .............. 7.200 06-01-27 B 1,000 1,123,170 6.41
Pima, County of,
Swr Rev Ref Ser 1991 PreRef ............................ 6.750 07-01-15 AAA 460 503,383 6.17
Swr Rev Ref Ser 1991 Unref Bal ......................... 6.750 07-01-15 AAA 540 583,697 6.24
-----------
21,068,983
-----------
Arkansas (0.33%)
Arkansas Development Finance Auth,
Single Family Mtg Rev Ref Ser 1991 A ................... 8.000 08-15-11 AA 440 472,331 7.45
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Arkansas (continued)
Jefferson, County of,
Poll Control Rev Ref Entergy Arkansas Proj ............. 5.600% 10-01-17 BBB- $2,150 $2,167,114 5.56%
------------
2,639,445
------------
California (15.30%)
California Housing Finance Agency,
Single Family Mtg Ser 1998C-4-Class I** ................ 4.950 08-01-05 AAA 2,765 2,824,254 4.85
California State Department of Water Resources,
Wtr Sys Rev Ser T Central Valley Proj** ................ 5.000 12-01-11 AA 2,000 2,058,880 4.86
California Statewide Community Development Auth,
Rev Cert of Part Ref Ins'd Hlth Facil Eskaton Inc. ..... 5.875 05-01-20 A+ 4,000 4,147,560 5.67
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993 ..... 6.200 07-01-20 BBB- 7,000 7,422,240 5.85
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Cap Apprec Ser 1995A ............ Zero 01-01-19 BBB- 36,600 11,883,654 5.47
Toll Rd Rev Fixed Rate Cap Apprec Ser 1995A ............ Zero 01-01-20 BBB- 10,000 3,069,800 5.48
Toll Rd Rev Fixed Rate Current Int Ser 1995A ........... 6.000 01-01-16 BBB- 20,500 21,972,720 5.60
Madera, County of,
Cert of Part Valley Children's Hosp Proj ............... 6.500 03-15-15 AAA 13,185 15,671,691 5.47
Millbrae, City of,
Residential Facil Rev Ser 1997A Magnolia of
Millbrae Proj ........................................ 7.375 09-01-27 BB 1,000 1,031,330 7.15
Sacramento Cogeneration Auth,
Cogeneration Proj Rev Procter & Gamble Proj ........... 6.500 07-01-21 BBB- 3,750 4,100,400 5.94
Sacramento Municipal Utilities District,
Ind'l Devel Rev Ref San Diego Gas & Electric
Ser C Inflos ......................................... 8.970# 08-15-18 AAA 1,000 1,178,750 7.22
San Bernardino, County of,
Cert of Part Ser 1994 Medical Center Fin Proj .......... 5.500 08-01-17 A- 9,130 9,450,737 5.31
Cert of Part Ser 1994 Medical Center Fin Proj .......... 5.500 08-01-22 A- 2,500 2,547,250 5.40
San Diego County Water Auth,
Water Rev Cert of Part Ref Ser 1997A ................... 5.750 05-01-12 AA- 4,610 5,096,447 5.20
San Francisco, City of,
Resid Facil Ser A Coventry Park Proj ................... 8.500 12-01-26 BB 2,000 2,239,700 7.59
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Jr Lien Cap Apprec ......................... Zero 01-01-10 AAA 6,250 3,588,375 4.74
Toll Rd Rev Ref Conv Cap Apprec Ser 1997A .............. Zero 01-15-17 BBB- 10,000 6,696,700 2.14
Toll Rd Rev Sr Lien Cap Apprec ......................... Zero 01-01-19 AAA 15,510 5,363,203 5.16
Toll Rd Rev Sr Lien Cap Apprec ......................... Zero 01-01-14 AAA 5,000 2,289,900 4.99
Toll Rd Rev Sr Lien Cap Apprec ......................... Zero 01-01-17 AAA 4,900 1,896,888 5.10
Toll Rd Rev Sr Lien Cap Apprec ......................... Zero 01-01-20 AAA 2,000 657,220 5.16
Toll Rd Rev Sr Lien Cap Apprec ......................... Zero 01-01-23 AAA 7,500 2,115,300 5.16
San Jose Financing Auth,
Rev Ser B Community Facil Proj ......................... 5.625 11-15-18 A+ 2,500 2,567,925 5.48
Santa Ana Financing Auth,
Lease Rev Police Admin & Holding Facil Ser A ........... 6.250 07-01-19 AAA 2,000 2,321,820 5.38
------------
122,192,744
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Colorado (2.52%)
Arapahoe County Capital Improvement Trust Fund,
Highway Rev Current Ser E-470 .......................... 6.950% 08-31-20 AAA $5,000 $5,960,100 5.83%
Colorado Housing Finance Auth,
Single Family Prog Sr Iss A-2 .......................... 7.625 08-01-17 AA+ 665 694,526 7.30
Single Family Residential Rev Ser C .................... 8.750 09-01-17 AA1 270 275,883 8.56
Denver, City and County of,
Airport Sys Rev Ser 1992A Preref ....................... 7.250 11-15-25 AAA 1,980 2,272,941 6.32
Airport Sys Rev Ser 1992A Unref Bal .................... 7.250 11-15-25 AAA 5,020 5,762,709 6.32
Airport Sys Rev Ser 1994A Preref ....................... 7.500 11-15-23 BBB 535 641,946 6.25
Airport Sys Rev Ser 1994A Unref Bal .................... 7.500 11-15-23 BBB 2,565 2,955,624 6.51
Douglas County School District No. Re. 1,
Douglas and Elbert Counties Imp Ser 1994A .............. 6.400 12-15-11 AAA 1,400 1,590,106 5.63
------------
20,153,835
------------
Connecticut (0.13%)
Connecticut Health and Educational Facilities Auth,
Rev Ser D Univ of Hartford ............................. 6.800 07-01-22 BBB- 1,000 1,067,740 6.37
------------
Delaware (0.90%)
Delaware State Economic Development Auth,
Rev Ref Poll Control Ser B Delmarva Pwr Proj ........... 6.750 05-01-19 AAA 6,500 7,158,775 6.13
------------
Florida (4.17%)
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 1,359,625 6.09
Dade, County of,
Professional Sports Franchise Facil Tax Rev Cap Apprec . Zero 10-01-27 AAA 5,500 1,197,240 5.22
Hernando County Industrial Development Auth,
Rev Ref 2nd Fla Crushed Stone Co. ...................... 8.500 12-01-14 BBB- 200 228,890 7.43
Hernando, County of,
Rev Criminal Justice Complex Fin Proj .................. 7.650 07-01-16 AAA 500 657,345 5.82
Hillsborough County Aviation Auth,
Rev Ser B Tampa International Airport .................. 6.000 10-01-17 AAA 5,880 6,600,947 5.34
Hillsborough, County of,
Ref Util Rev Ser 1991A ................................. 7.000 08-01-14 BBB+ 1,245 1,352,556 6.44
Jacksonville Electric Auth,
Elec Sys Rev Ser 3-A ................................... 5.250 10-01-28 AA 9,000 8,972,370 5.27
Lee, County of,
Hosp Board of Directors Hosp Rev Inflos ................ 9.418# 04-01-20 AAA 2,000 2,375,000 7.93
Orange County Health Facilities Auth,
Hosp Orlando Regional Medical Center Rev Inflos ........ 8.857# 10-29-21 AAA 1,000 1,201,250 7.37
Orange County School Board,
Cert of Part Ref Ser 1997A ............................. Zero 08-01-13 AAA 10,365 4,896,737 4.92
Orlando Utilities Commission,
Wtr & Elec Sub Rev Ser 1989D ........................... 6.750 10-01-17 AA- 2,200 2,689,830 5.52
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Florida (continued)
Tampa, City of,
Health Sys Rev Ref Ser 1998A-1
Catholic Health East Oblig Group ..................... 5.500% 11-15-14 AAA $1,615 $1,739,953 5.11%
------------
33,271,743
------------
Georgia (5.38%)
Georgia Municipal Electric Auth,
Power Rev Ser Y ........................................ 6.500 01-01-17 AAA 3,500 4,128,565 5.51
Pwr Rev Ref Ser BB ..................................... 5.700 01-01-19 A 1,000 1,057,840 5.39
Pwr Rev Ser C .......................................... 5.700 01-01-19 AAA 5,000 5,408,850 5.27
Pwr Rev Ser EE ......................................... 7.250 01-01-24 AAA 2,000 2,615,960 5.54
Pwr Rev Ser Z .......................................... 5.500 01-01-20 AAA 5,840 6,176,910 5.20
Georgia, State of,
GO Fiscal 1997 Ser A ................................... 6.000 04-01-15 AAA 16,000 18,140,640 5.29
Monroe County Development Auth,
Poll Control Rev Ser A Oglethorpe Pwr Corp
Scherer Proj ......................................... 6.800 01-01-12 A 1,000 1,178,640 5.77
Savannah Hospital Auth,
Rev Ref & Imp Candler Hosp Proj ........................ 7.000 01-01-23 BB 4,000 4,299,800 6.51
------------
43,007,205
------------
Illinois (3.12%)
Chicago, City of,
Chicago-O'Hare Int'l Airport Gen Airport Rev
1990 Ser A ........................................... 7.500 01-01-16 A+ 2,000 2,147,660 6.98
Chicago-O'Hare Int'l Airport Int'l Terminal Spec
Rev Ser 1992 ......................................... 6.750 01-01-12 AAA 3,000 3,263,940 6.20
Chicago-O'Hare Int'l Airport Spec Facil Rev
Ser 1990A American Airlines Proj ..................... 7.875 11-01-25 BBB- 3,000 3,292,110 7.18
Skyway Toll Bridge Rev Ref Ser 1994 .................... 6.750 01-01-17 AAA 2,000 2,289,740 5.90
Illinois Development Finance Auth,
Poll Control Rev Ref Commonwealth Edison Co Proj ....... 5.850 01-15-14 BBB 3,000 3,161,580 5.55
Rev Ref Ser A Columbus Cuneo Cabrini Proj .............. 8.500 02-01-15 BAA2 2,150 2,369,644 7.71
Illinois Health Facilities Auth,
Rev Methodist Hlth Serv Corp Ser 1991 B ................ 9.687# 05-01-21 AAA 1,000 1,181,250 8.21
Rev Ref Friendship Vlg Schamburg ....................... 6.750 12-01-08 A- 1,640 1,746,895 6.34
Rev Ref Ser 1992 Mercy Hosp & Medical Center Proj ...... 7.000 01-01-07 A- 1,500 1,632,840 6.43
Rev Swedish-American Hosp .............................. 7.400 04-01-20 AAA 750 815,460 6.81
Illinois Industrial Pollution Control Financing Auth,
Rev Great Lakes Carbon Corp Proj ....................... 7.125 10-01-01 BB- 900 902,457 7.11
Robbins, County of,
Res Recovery Rev Ser A Robbins Res Recovery
Partners ............................................. 8.375 10-15-16 BB 2,000 2,130,900 7.86
------------
24,934,476
------------
Indiana (0.28%)
Wabash, County of,
Solid Waste Disp Rev Jefferson Smurfit Corp Proj ....... 7.500 06-01-26 BB 2,000 2,232,740 6.72
------------
Kansas (0.17%)
Kansas Turnpike Auth,
Turnpike Rev Ref** ..................................... 5.500 09-01-07 AAA 1,250 1,342,775 5.12
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Kentucky (0.82%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Proj Ser 1992A ........... 6.750% 02-01-02 BBB- $2,000 $2,150,960 6.28%
Rev Spec Facil Delta Airlines Proj Ser 1992A ........... 7.500 02-01-12 BBB- 2,000 2,235,020 6.71
Rev Spec Facil Delta Airlines Proj Ser 1992A ........... 7.125 02-01-21 BBB- 2,000 2,196,260 6.49
------------
6,582,240
------------
Louisiana (1.82%)
Calcasieu Parish Industrial Development Board,
Poll Control Rev Ref Ser 1992 Gulf States Util
Co Proj .............................................. 6.750 10-01-12 BB+ 2,975 3,197,024 6.28
De Soto, Parish of,
Rev Environ Imp Rev Int'l Paper Co Proj Ser A .......... 7.700 11-01-18 A- 2,750 3,243,103 6.53
Louisiana Public Facilities Auth,
Rev Ser B Alton Ochsner Medical Funding Proj ........... 6.500 05-15-22 AAA 3,405 3,713,187 5.96
St. Charles, Parish of,
Poll Control Rev Ser 1991 Louisiana Pwr & Light
Co Proj .............................................. 7.500 06-01-21 BBB 4,000 4,392,080 6.83
------------
14,545,394
------------
Maryland (1.56%)
Baltimore, County of,
GO Ref Pension Funding Proj** .......................... 5.125 08-01-13 AAA 7,535 7,761,879 4.98
GO Ref Pension Funding Proj** .......................... 5.125 08-01-14 AAA 3,140 3,222,676 4.99
Maryland Health & Higher Educational Facilities Auth,
Rev Ref John Hopkins Univ** ............................ 5.125 07-01-20 AA- 1,500 1,490,790 5.16
------------
12,475,345
------------
Massachusetts (5.89%)
Massachusetts Bay Transportation Auth,
Gen Trans Sys 1990 Ser B ............................... 7.875 03-01-21 AAA 2,000 2,251,280 7.00
Massachusetts Health and Educational Facilities Auth,
Rev Brigham & Women's Hosp Iss Ser D ................... 6.750 07-01-24 AAA 2,450 2,697,646 6.13
Rev Lowell Gen Hosp Iss Ser A .......................... 8.400 06-01-11 A3 1,100 1,261,084 7.33
Rev New England Deaconess Hosp Iss Ser D ............... 6.625 04-01-12 AAA 3,500 3,886,295 5.97
Rev New England Deaconess Hosp Iss Ser D ............... 6.875 04-01-22 AAA 7,960 8,909,628 6.14
Rev St. Elizabeth's Hosp of Boston Ser E ............... 9.920# 08-15-21 AAA 1,000 1,180,000 8.41
Rev Worcester Polytechnic Institute Ser E .............. 6.750 09-01-11 AAA 3,840 4,310,707 6.01
Massachusetts Housing Finance Agency,
Hsg Rev Insured Rental Ser A ........................... 6.650 07-01-19 AAA 5,500 5,834,015 6.27
Residential Dev 1992 Ser A ............................. 6.900 11-15-24 AAA 2,700 2,938,599 6.34
Single Family Hsg Ser 8 ................................ 7.700 06-01-17 A+ 2,500 2,572,775 7.48
Massachusetts Municipal Wholesale Electric Co,
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the
Commonwealth of Mass ................................. 6.750 07-01-17 BBB+ 4,405 4,782,420 6.22
Massachusetts State Water Pollution Abatement Trust,
Wtr Poll Rev 1994 South Essex Swr District Loan
Proj Ser A ........................................... 6.375 02-01-15 AA+ 1,000 1,097,650 5.81
Massachusetts, Commonwealth of,
GO Consol Ln of 1994 Ser B ............................. 6.000 08-01-14 AA- 2,000 2,223,120 5.40
Plymouth, County of,
Cert of Part Ser A ..................................... 7.000 04-01-22 AA- 2,750 3,091,825 6.23
------------
47,037,044
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Michigan (1.82%)
Detroit, City of,
GO Unltd Ser 1995 A .................................... 6.800% 04-01-15 BBB+ $1,315 $1,525,242 5.86%
Michigan Housing Development Auth,
Single Family Mtg Rev Ser A ............................ 7.500 06-01-15 AA+ 1,415 1,481,378 7.16
Michigan State Hospital Finance Auth,
Hosp Rev Ref Ser 1990A Bay Medical Center Hosp Proj .... 8.250 07-01-12 A3 2,250 2,493,135 7.45
Hosp Rev Ref Ser 1995A Genesys Hlth Sys Oblig Group .... 8.100 10-01-13 BBB 3,000 3,566,970 6.81
Wayne Charter, County of,
Spec Airport Facil Rev Ref Ser 1995 Northwest
Airlines Inc. ........................................ 6.750 12-01-15 BB+ 4,985 5,490,180 6.13
------------
14,556,905
------------
Minnesota (0.56%)
Minnesota Housing Finance Agency,
Single Family Mtg 1990 Ser C ........................... 7.700 07-01-14 AA+ 230 241,847 7.32
Southern Minnesota Municipal Power Agency,
Pwr Supply Sys Rev Cap Apprec Ser A .................... Zero 01-01-23 AAA 15,000 4,200,000 5.19
------------
4,441,847
------------
Mississippi (0.99%)
Mississippi Home Corp,
Single Family Sr Rev Ref Ser 1990A ..................... 9.250 03-01-12 AAA 80 85,526 8.65
Mississippi Hospital Equipment and Facilities Auth,
Rev Ser A Rush Memorial Foundation Proj ................ 8.750 01-01-16 BAA3 2,000 2,282,180 7.67
Washington, County of,
Poll Control Rev Ref Mississippi Pwr & Light Co Proj ... 7.000 04-01-22 BAA3 5,000 5,522,000 6.34
------------
7,889,706
------------
Nebraska (0.17%)
Omaha Public Power District,
Elec Sys Rev 1992 Ser B ................................ 6.200 02-01-17 AA2 1,200 1,341,384 5.55
------------
Nevada (1.56%)
Clark, County of,
Ind'l Development Rev Ser A Southwest Gas Corp Proj .... 6.500 12-01-33 BBB- 10,000 10,768,600 6.04
Nevada Housing Division,
Single Family Proj Sr Rev Ser 1989 Iss A-1 ............. 7.350 04-01-16 AA 820 847,429 7.11
Single Family Proj Sr Rev Ser 1990 Iss C-1 ............. 7.850 10-01-15 AA 315 331,027 7.47
Nevada, State of,
GO Ltd Tax Municipal Bond Bank Proj No. 38 Ser A
Unref Bal ............................................ 6.750 07-01-09 AA 25 27,547 6.13
Reno, City of,
Hosp Rev St. Mary's Regional Medical Center Ser A
Unref Bal ............................................ 7.750 07-01-07 AAA 480 495,950 7.50
------------
12,470,553
------------
New Jersey (1.70%)
Camden County Improvement Auth,
Lease Rev Ser A Holt Hauling & Warehousing Proj ........ 9.875 01-01-21 BB+ 1,100 1,336,742 8.13
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
New Jersey (continued)
New Jersey Economic Development Auth,
1st Mtg Rev Ser A Winchester Gardens ................... 8.500% 11-01-16 BB+ $100 $110,442 7.70%
Rev Ref Ind'l Development Newark Airport Marriott
Hotel Proj ........................................... 7.000 10-01-14 BBB- 4,000 4,414,120 6.34
Rev Ref Ser J Holt Hauling Proj ........................ 8.500 11-01-23 BBB 2,500 2,884,650 7.37
New Jersey Health Care Facilities Financing Auth,
Rev Care Institute Inc Cherry Hill Proj ................ 8.000 07-01-27 BB+ 1,370 1,510,863 7.25
Rev Ref Ser 1998B Kennedy Hlth Sys Oblig Group** ....... 5.250 07-01-15 AAA 700 712,859 5.16
New Jersey Turnpike Auth,
Turnpike Rev Ser 1984 .................................. 10.375 01-01-03 AAA 1,360 1,593,811 8.85
Union County Utilities Auth,
Rev Solid Waste Ser A .................................. 7.150 06-15-09 BB 1,000 1,001,650 7.14
------------
13,565,137
------------
New Mexico (0.29%)
Farmington, City of,
Poll Control Rev 1997 Ser A Tucson Elec Pwr Co
San Juan Proj ........................................ 6.950 10-01-20 B 2,000 2,284,440 6.08
------------
New York (13.65%)
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj .. 7.500 03-01-26 BB- 2,500 2,771,950 6.76
New York City Industrial Development Agency,
Solid Waste Disposal Rev 1995 Visy Paper NY Inc Proj ... 7.950 01-01-28 BB 2,000 2,307,240 6.89
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev Ref Cap Apprec Fiscal 1998 Ser D ..... Zero 06-15-19 A- 5,000 1,661,450 5.24
New York Local Government Assistance Corp,
Rev Ref Cap Apprec Ser 1993 C .......................... Zero 04-01-14 AAA 7,210 3,282,136 4.95
Rev Ser 1991C .......................................... 7.000 04-01-10 A+ 2,000 2,208,300 6.34
Ser 1992 A Pub Benefit Corp. ........................... 6.875 04-01-19 A+ 10,700 12,011,071 6.12
New York State Dormitory Auth,
City Univ Ref Iss 1988B ................................ 8.125 07-01-08 BBB+ 1,000 1,034,140 7.86
City Univ Sys Consol Rev 2nd Generation Ser 1993A ...... 5.750 07-01-09 BBB+ 1,000 1,090,520 5.27
Cornell Univ Rev Ser 1990A ............................. 7.375 07-01-30 AA 1,000 1,089,900 6.77
State Univ Ed Facil Rev Iss Ser 1990B .................. 7.500 05-15-11 A- 500 619,785 6.05
State Univ Ed Facil Rev Ser 1990B ...................... 7.000 05-15-16 A- 5,000 5,375,300 6.51
State Univ Ed Facil Rev Ser 1993A ...................... 5.500 05-15-19 A- 1,000 1,058,090 5.20
New York State Energy Research and Development Auth,
Elec Facil Rev Ser 1990 A Long Island Lighting Co Proj . 7.150 06-01-20 BB+ 5,250 5,723,602 6.56
Elec Facil Rev Ser 1991 A Consol Edison Co of NY
Inc Proj ............................................. 7.500 01-01-26 A+ 2,000 2,124,040 7.06
New York State Environmental Facilities Corp,
State Wtr Poll Control Rev Rites Ser PA-174 ............ 12.170# 06-15-11 AAA 2,000 2,787,500 8.73
State Wtr Poll Control Revolving Fund Rev Ser 1990A .... 7.500 06-15-12 A 4,370 4,782,309 6.85
New York State Housing Finance Agency,
State Univ Construction Ref 1986 Ser A ................. 8.000 05-01-11 AAA 2,000 2,573,620 6.22
New York State Medical Care Facilities Finance Agency,
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref ....... 7.875 08-15-08 AAA 345 383,391 7.09
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref ....... 7.875 08-15-20 AAA 371 412,285 7.09
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal .... 7.875 08-15-08 A- 155 170,779 7.15
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal .... 7.875 08-15-20 A- 84 92,907 7.12
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
New York (continued)
New York State Medical Care Facilities Finance Agency (continued)
Mental Hlth Serv Facil Imp Rev 1991 Ser A Preref ....... 7.750% 08-15-11 AAA $1,795 $2,012,357 6.91%
Mental Hlth Serv Facil Imp Rev 1991 Ser A Unref Bal .... 7.750 08-15-11 A- 205 227,382 6.99
New York State Metropolitan Transportation Auth,
Commuter Facil Rev Ref Serv Contract Ser R** ........... 5.500 07-01-12 BBB+ 2,380 2,471,963 5.30
New York, City of,
GO Cap Apprec Ref Fiscal 1998 Ser G .................... Zero 08-01-08 BBB+ 6,000 3,653,580 4.81
GO Fiscal 1991 Ser D Preref ............................ 8.000 08-01-04 BBB+ 165 188,098 7.02
GO Fiscal 1991 Ser D Unref Bal ......................... 8.000 08-01-04 BBB+ 30 33,716 7.12
GO Fiscal 1991 Ser F Preref ............................ 8.200 11-15-03 AAA 1,050 1,214,399 7.09
GO Fiscal 1991 Ser F Unref Bal ......................... 8.200 11-15-03 BBB+ 200 227,810 7.20
GO Fiscal 1992 Ser A Preref ............................ 7.750 08-15-12 BBB+ 1,880 2,130,642 6.84
GO Fiscal 1992 Ser A Unref Bal ......................... 7.750 08-15-12 BBB+ 120 134,052 6.94
GO Fiscal 1992 Ser D Preref ............................ 7.700 02-01-09 BBB+ 920 1,052,195 6.73
GO Fiscal 1992 Ser D Unref Bal ......................... 7.700 02-01-09 BBB+ 80 90,034 6.84
GO Fiscal 1992 Ser H Preref ............................ 7.000 02-01-08 BBB+ 1,760 1,963,826 6.27
GO Fiscal 1992 Ser H Unref Bal ......................... 7.000 02-01-08 BBB+ 240 264,120 6.36
GO Fiscal 1995 Ser B Preref ............................ 7.000 08-15-16 BBB+ 1,240 1,443,521 6.01
GO Fiscal 1995 Ser B Unref Bal ......................... 7.000 08-15-16 BBB+ 1,760 2,032,659 6.06
GO Fiscal 1996 Ser J ................................... 5.500 02-15-26 BBB+ 4,000 4,033,480 5.45
GO Fiscal 1998 Ref Ser G ............................... 5.000 08-01-15 BBB+ 5,000 4,874,900 5.13
GO Rev Ref Ad Valorem Property Tax Ser D ............... 5.750 08-15-13 BBB+ 3,170 3,292,584 5.54
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 ..................... 6.750 10-01-19 BBB 11,000 12,264,890 6.05
Triborough Bridge & Tunnel Auth,
Spec Oblig Ref Ser 1991B ............................... 6.875 01-01-15 A- 2,300 2,499,502 6.33
Gen Purpose Rev Ser 1993 ............................... Zero 01-01-22 AAA 20,755 6,260,746 5.09
Gen Purpose Rev Ser R .................................. 7.375 01-01-16 AAA 1,600 1,722,640 6.85
Gen Purpose Rev Ser X .................................. 6.500 01-01-19 A+ 1,250 1,364,650 5.95
------------
109,014,061
------------
North Carolina (1.61%)
North Carolina Municipal Power Agency Number 1,
Catawba Elec Rev Ser 1992 .............................. 5.750 01-01-15 AAA 7,410 7,671,721 5.55
Catawba Elec Rev Ser 1993 .............................. 5.000 01-01-15 AAA 5,220 5,166,913 5.05
------------
12,838,634
------------
Ohio (4.97%)
Akron, County of,
Cert of Part Municipal Baseball Stadium Proj ........... Zero 12-01-16 BBB 1,000 882,020 0.67
Cleveland Public Power System,
Elec Sys Rev 1st Mtg Ser 1994A ......................... 7.000 11-15-16 AAA 5,860 6,769,003 6.06
Elec Sys Rev 1st Mtg Ser A ............................. 7.000 11-15-24 AAA 6,200 7,280,164 5.96
Coshocton, County of,
Solid Waste Disp Rev Stone Container Corp Proj ......... 7.875 08-01-13 BB 1,000 1,122,490 7.02
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Ohio (continued)
Cuyahoga, County of,
Hosp Imp Rev Deaconess Hosp of Cleveland Proj Ser
1985 B ............................................... 7.450% 10-01-18 A+ $750 $833,228 6.71%
Hosp Rev Meridia Hlth Sys Ser 1991 ..................... 7.000 08-15-23 AAA 750 833,415 6.30
Dayton, City of,
Spec Facil Rev Ref Ser A Emery Air Freight** ........... 5.625 02-01-18 BBB 5,500 5,607,250 5.52
Franklin, County of,
Hosp Facil Ref & Imp Rev Ser 1990B
Riverside United Methodist Hosp Proj ................. 7.600 05-15-20 AAA 1,000 1,095,890 6.94
Lorain, County of,
Rev 1st Mtg Ser A Kendal At Oberlin Proj ............... 8.625 02-01-22 BBB- 3,865 4,315,234 7.73
Ohio State Air Quality Development Auth,
Rev Adj Ser B Columbus & South Proj .................... 6.250 12-01-20 BAA2 4,500 4,744,170 5.93
Ohio State Water Development Auth,
Poll Control Facil Rev Ref Ser 1995 Cleveland Elec
Co Proj .............................................. 7.700 08-01-25 BB+ 2,800 3,238,508 6.66
Ohio, State of,
Solid Waste Rev Ref CSC Ltd Proj ....................... 8.500 08-01-22 BB 1,825 1,933,040 8.02
Student Loan Funding Corp,
Sub Rev Ser B Cincinnati Ohio Student Loan ............. 8.875 08-01-08 BBB- 1,000 1,052,930 8.43
------------
39,707,342
------------
Oklahoma (0.27%)
Tulsa Municipal Airport Trust, Trustees of,
Rev Ser 1988 American Airlines Inc. .................... 7.375 12-01-20 BBB- 2,000 2,179,640 6.77
------------
Oregon (0.46%)
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj ................. 7.125 01-01-21 BBB- 3,400 3,694,032 6.56
------------
Pennsylvania (7.81%)
Allegheny County Hospital Development Auth,
Rev Hlth & Ed Rehab Institute of Pitt .................. 7.000 06-01-22 BBB 1,500 1,687,935 6.22
Allegheny County Industrial Development Auth,
Rev Ref Ser 1994A Environmental Imp USX Corp Proj ...... 6.700 12-01-20 BBB- 10,000 11,038,700 6.07
Beaver County Industrial Development Auth,
Coll Poll Control Rev Ref Ser 1995A Toledo Edison Co
Beaver Valley Proj ................................... 7.750 05-01-20 BB+ 2,200 2,559,502 6.66
Delaware County Auth,
1st Mtg Rev Riddle Village Proj ........................ 7.000 06-01-26 BBB- 1,250 1,306,338 6.70
Delaware County Industrial Development Auth,
Poll Control Rev Ref 1991 Ser A Philadelphia Elec
Co Proj .............................................. 7.375 04-01-21 BBB+ 5,095 5,555,486 6.76
Northumberland County Auth,
Commonwealth Lease Rev Ser 1991 ........................ 6.250 10-15-09 AAA 1,000 1,074,630 5.82
Pennsylvania Convention Center Auth,
Rev Ref Ser 1994A ...................................... 6.700 09-01-14 BBB 4,950 5,519,695 6.01
Pennsylvania Economic Development Finance Auth,
Resource Recovery Rev Ser 1994 D Colver Proj ........... 7.150 12-01-18 BBB- 1,500 1,675,950 6.40
Resource Recovery Rev Ser 1994D Colver Proj ............ 7.125 12-01-15 BBB- 7,000 7,811,300 6.38
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania (continued)
Pennsylvania State Turnpike Commission,
Turnpike Rev Ser N ..................................... 6.500% 12-01-13 A $2,840 $3,092,646 5.97%
Philadelphia Hospitals and Higher Education
Facilities Auth,
Hosp Rev 1991 Ser A Philadelphia Protestant Home Proj .. 8.625 07-01-21 BBB 2,700 3,118,662 7.47
Hosp Rev 1992 Ser A Childrens Seashore House Proj ...... 7.000 08-15-12 A- 1,250 1,375,337 6.36
Hosp Rev Ser 1993A Temple Univ Hosp Proj ............... 6.625 11-15-23 A- 2,375 2,594,212 6.07
Philadelphia Industrial Development Auth,
Commercial Devel Rev Ref Ser A Doubletree Proj ......... 6.500 10-01-27 BB+ 1,000 1,074,460 6.05
Commercial Devel Rev Ser 1995 Philadelphia Airport
Hotel Proj ........................................... 7.750 12-01-17 B+ 3,250 3,671,363 6.86
Philadelphia, City of,
Wtr & Swr Rev 16th Ser ................................. 7.500 08-01-10 AAA 3,000 3,381,360 6.65
Schuylkill County Industrial Development Auth,
Res Recovery Rev Ref Schuylkill Energy Resource Inc .... 6.500 01-01-10 BBB- 1,850 1,913,437 6.28
Scranton-Lackawanna Health and Welfare Auth,
Rev Ser A Allied Services Rehabilitation Hosp Proj ..... 7.600 07-15-20 BBB- 3,525 3,940,210 6.80
------------
62,391,223
------------
Puerto Rico (7.27%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995
Gtd by the Commonwealth of Puerto Rico ............... 7.920# 07-01-11 AAA 6,500 8,238,750 6.25
Ref Pars & Inflos Ser 1995
Gtd by the Commonwealth of Puerto Rico ............... 6.000 07-01-11 AAA 200 226,792 5.29
Puerto Rico Highway and Transportation Auth,
Highway Rev Ser Y Res Int Tax-Exempt Sec Rec'ts
Ser PA-114 (r) ....................................... 9.269# 07-01-11 AAA 13,130 16,642,275 7.31
Puerto Rico, Commonwealth of,
GO Cap Apprec Ref Pub Imp Ser 1998 ..................... Zero 07-01-14 A 4,000 1,784,480 5.00
GO Pub Imp Inverse Floater Ser 1992A ................... 7.884# 07-01-08 AAA 2,700 3,074,625 6.92
GO Pub Imp Inverse Rate Securities Ser 1996 ............ 8.140# 07-01-11 AAA 14,000 17,745,000 6.42
Puerto Rico Infrastructure Auth,
Spec Rev Ser A** ....................................... 5.500 07-01-07 AAA 5,000 5,436,000 5.06
Spec Rev Ser A** ....................................... 5.500 07-01-08 AAA 4,495 4,891,010 5.05
------------
58,038,932
------------
South Carolina (1.23%)
Florence, County of,
Ind'l Dev Rev Stone Container Proj ..................... 7.375 02-01-07 BB- 4,330 4,715,630 6.77
James Island Public Service District,
Charleston County Swr Sys Ref .......................... 7.500 06-01-18 AAA 1,250 1,331,700 7.04
Richland, County of,
Poll Control Rev Union Camp Corp Proj Ser 1992 B ....... 6.625 05-01-22 A- 2,460 2,673,159 6.10
Poll Control Rev Union Camp Corp Proj Ser 1992 C ....... 6.550 11-01-20 A- 1,000 1,095,100 5.98
------------
9,815,589
------------
South Dakota (0.24%)
South Dakota Health and Educational Facilities Auth,
Rev Ser 1989 Sioux Valley Hosp Iss Preref .............. 7.625 11-01-13 AA- 1,850 1,936,025 7.29
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Tennessee (2.90%)
Eastside Utility District of Hamilton,
Waterworks Rev Iss ..................................... 6.750% 11-01-11 A $1,000 $1,110,770 6.08%
Hardeman, County of,
Correctional Facil Rev Ser B Corrections Corp of
America .............................................. 7.375 08-01-17 BB 500 550,460 6.70
Humphreys County Industrial Development Board,
Solid Waste Disposal Rev E.I. Dupont Denemours and
Co Proj .............................................. 6.700 05-01-24 AA- 6,500 7,199,400 6.05
Maury County Industrial Development Board,
Multi-Modal Interchangeable Rate Poll Control Ref Rev
Saturn Corp Proj ..................................... 6.500 09-01-24 A 9,000 9,893,970 5.91
Memphis-Shelby County Airport Auth,
Rev Ref Federal Express Corp. .......................... 6.750 09-01-12 BBB 4,000 4,395,200 6.14
------------
23,149,800
------------
Texas (5.36%)
Austin, City of,
Combined Util Sys Rev Ref Ser 1998** ................... 6.750 11-15-10 AAA 3,125 3,689,312 5.72
Utility Sys Rev Ref Ser B .............................. 7.800 11-15-12 A 1,000 1,045,000 7.46
Corpus Christi Housing Finance Corp,
Single Family Mtg Sr Rev Ref Ser 1991 A ................ 7.700 07-01-11 AAA 540 598,072 6.95
Dallas-Fort Worth International Airport Facility
Improvement,
Rev American Airlines Inc. ............................. 7.250 11-01-30 BBB- 10,250 11,514,030 6.45
Rev Delta Air Lines Inc. ............................... 7.600 11-01-11 BBB- 3,000 3,350,730 6.80
Ector County Hospital District,
Hosp Rev 1992 .......................................... 7.300 04-15-12 AAA 4,000 4,542,960 6.43
El Paso Housing Finance Corp,
Single Family Mtg Rev Ref Bonds 1991 Ser A ............. 8.750 10-01-11 A2 500 561,280 7.79
El Paso International Airport,
Rev Ref Spec Facil Marriott Corp Proj .................. 7.750 03-01-12 B 1,410 1,515,651 7.21
Harris County Health Facilities Development Corp,
Hosp Rev Ser 1988A Saint Luke's Episcopal Hosp Proj .... 8.250 02-15-08 AAA 2,475 2,677,109 7.63
Houston, City of,
Spec Facil Rev Ser C Continental Airline Inc. .......... 6.125 07-15-27 BB- 4,000 4,182,560 5.86
Wtr & Swr Sys Rev Ref Prior Lien Ser B Preref .......... 6.750 12-01-08 A 180 199,879 6.08
Wtr & Swr Sys Rev Ref Prior Lien Ser B Unref Bal ....... 6.750 12-01-08 A 1,320 1,453,109 6.13
North Central Texas Health Facilities Development,
Hospital Rev Baylor Univ Medical Center Ser 1991A ...... 10.07# 05-15-16 AA 1,000 1,201,250 8.38
San Antonio, County of,
GO Ref Gen Imp Ser 1996** .............................. 6.000 08-01-08 AA 1,000 1,122,500 5.35
Texas A & M University,
Rev Ref Financing Sys Ser 1997** ....................... 5.500 05-15-02 AA 3,230 3,400,705 5.22
Texas, State of,
Veterans' Land Board GO ................................ 7.125 12-01-09 AA 1,000 1,070,050 6.66
Veterans' Land Board GO Preref ......................... 8.250 12-01-10 AAA 610 656,165 7.67
------------
42,780,362
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Utah (0.61%)
Carbon, County of,
Solid Waste Disp Rev Ref Ser A East
Carbon Development Corp. ............................. 9.000% 07-01-12 BBB- $1,000 $1,097,290 8.20%
Salt Lake City Hospital,
Rev Ref IHC Hosp Inc VRDN/RIBS ......................... 9.718# 05-15-20 AAA 1,500 1,777,500 8.20
Rev Ref IHC Hosp Inc Ser B ............................. 8.000 05-15-07 AA 350 360,006 7.78
Rev Ref Ser A .......................................... 8.125 05-15-15 AAA 1,000 1,291,570 6.29
Utah Housing Finance Agency,
Single Family Mtg Sr 1990 Iss B-2 ...................... 7.700 07-01-15 AAA 195 202,613 7.41
Single Family Mtg Sr 1991 Iss B-1 ...................... 7.500 07-01-16 AAA 175 184,709 7.11
------------
4,913,688
------------
Virginia (0.93%)
Arlington County Industrial Development Auth,
Hosp Facil Rev Arlington Hosp Ser 1991 A ............... 7.125 09-01-21 AAA 500 558,185 6.38
Fairfax County Industrial Develpment Auth,
Rev RITES .............................................. 9.827# 08-29-23 AA- 1,000 1,210,000 8.12
Fredericksburg Industrial Auth,
Hosp Facil Rev ......................................... 9.377# 08-15-23 AAA 1,500 1,796,250 7.83
Pittsylvania County Industrial Development Auth,
Rev Ser A Exempt Facil ................................. 7.550 01-01-19 BB 3,500 3,870,475 6.83
------------
7,434,910
------------
Washington (2.60%)
Seattle, City of,
Municipal Light & Pwr Rev 1994 ......................... 6.625 07-01-16 AA 3,600 4,121,640 5.79
Spokane County Industrial Development Corp,
Solid Waste Disp Rev Kaiser Alum & Chem Corp Proj ...... 7.600 03-01-27 BB- 1,250 1,412,612 6.73
Tacoma Electric System,
Rev VRDN/RIBS Iss of 1991 .............................. 9.043# 01-02-15 AAA 1,000 1,166,250 7.75
Washington Public Power Supply System,
Nuclear Proj No. 1 Ref Rev Ser 1989A Unref Bal ......... 7.500 07-01-15 AA- 455 485,544 7.03
Nuclear Proj No. 1 Ref Rev Ser 1989B ................... 7.125 07-01-16 AA- 1,500 1,858,995 5.75
Nuclear Proj No. 1 Ref Rev Ser 1991A ................... 6.875 07-01-17 AA- 1,250 1,379,537 6.23
Nuclear Proj No. 2 Ref Rev Ser 1990C ................... 7.625 07-01-10 AAA 5,000 5,560,250 6.86
Nuclear Proj No. 3 Ref Rev Ser 1989B ................... 7.250 07-01-15 AAA 2,500 2,693,575 6.73
Washington, State of,
GO Ser A of 1990 ....................................... 6.750 02-01-15 AA+ 1,000 1,212,420 5.57
Washington, University of,
Hsg & Dining Rev Preref ................................ 7.000 12-01-21 AAA 595 666,073 6.25
Hsg & Dining Rev Preref ................................ 7.000 12-01-21 AAA 35 39,181 6.25
Hsg & Dining Rev Unref Bal ............................. 7.000 12-01-21 AAA 120 132,733 6.33
------------
20,728,810
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Wisconsin (0.69%)
Sturgeon Bay Combined Utilities,
Door County Combined Util Mtg Rev Ser 1990 Preref ...... 7.500% 01-01-10 AAA $770 $841,056 6.87%
Door County Combined Util Mtg Rev Ser 1990 Unref Bal ... 7.500 01-01-10 AAA 230 250,054 6.90
Wisconsin Public Power,
Pwr Supply Sys Rev Ser 1990A ........................... 7.400 07-01-20 AAA 4,000 4,385,440 6.75
------------
5,476,550
------------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $748,579,031) (105.14%) 839,805,684
-------- ------------
TOTAL INVESTMENTS (105.14%) 839,805,684
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (5.14%) (41,075,146)
-------- ------------
TOTAL NET ASSETS (100.00%) $798,730,538
======== ============
</TABLE>
(r) Direct placement securities are restricted to resale. They have been
valued in accordance with procedures approved by the Trustees after
consideration of restrictions as to resale, financial condition and
prospects of the issuer, general market conditions and pertinent
information in accordance with the Fund's By-Laws and the Investment
Company Act of 1940, as amended. The Fund has limited rights to
registration under the Securities Act of 1933 with respect to these
restricted securities. Additional information on these securities is as
follows:
<TABLE>
<CAPTION>
MARKET
VALUE AS A
PERCENTAGE
ACQUISITION ACQUISITION OF FUND'S MARKET
ISSUER, DESCRIPTION DATE COST NET ASSETS VALUE
- ------------------- ---- ---- ---------- -----
<S> <C> <C> <C> <C>
Puerto Rico Highway and Transportation Auth,
Highway Rev Ser Y Res Int Tax-Exempt Sec Rec'ts Ser PA-114
9.269%, 07-01-11........................................... 04-02-96 $14,925,160 2.08% $16,642,275
</TABLE>
* Credit Ratings are unaudited and rated by Moody's Investors Service, Fitch
or John Hancock Advisers, Inc. where Standard & Poor's ratings are not
available.
** These securities having an aggregate value of $54,322,910 or 6.80% of the
Fund's net assets, have been purchased as forward commitments, that is,
the Fund has agreed on the trade date, to take delivery of and make
payment for such securities on a delayed basis subsequent to the date of
this schedule. The purchase price and interest rate of such securities are
fixed at trade date, although the Fund does not earn any interest on such
securities until settlement date. The Fund has instructed its Custodian
Bank to segregate assets with the current value at least equal to the
amount of its forward commitment. Accordingly, the market values of
$9,740,700 of Foothill/Eastern Transportation Corridor Agency, zero
coupon, 01-01-19, $3,456,858 of Arapahoe County Capital Improvement Trust
Fund, 6.95%, 08-31-20, $3,016,500 of Triborough Bridge and Tunnel
Authority, zero coupon, 01-01-22, $1,567,790 of City of San Francisco,
8.50%, 12-01-26, $7,877,512 of Commonwealth of Puerto Rico, 8.14%,
07-01-11, $4,348,461 of Port Authority of New York and New Jersey, 6.75%,
10-01-19, $1,580,790 of Illinois Development Finance Authority, 5.85%,
01-15-14, $2,406,972 of Parish of De Soto, 7.70%, 11-01-18, $5,853,191 of
State of Georgia, 6.00%, 04-01-15, $3,816,330 of Delaware County
Industrial Development Authority, 7.375%, 04-01-21, $1,196,470 of County
of Citrus, 6.625%, 01-01-27, $3,992,348 of Cleveland Public Power System
Elec Sys Rev 1st Mtg Ser A, 7.00%, 11-15-24 and $10,537,884 of
Foothill/Eastern Transportation Corridor Agency, 6.00%, 01-00-16, have
been segregated to cover the forward commitments.
+ The yield is not calculated in accordance with guidelines established by
the U.S. Securities & Exchange Commission and is unaudited. Zero coupon
yields are at yield to maturity.
# Represents rate in effect on February 28, 1998.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Tax-Free Bond 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 February 28,
1998 assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ----------
General Obligations ............................................... 11.26%
Revenue Bonds - Airport ........................................... 1.46
Revenue Bonds - Bridge & Toll Road ................................ 0.84
Revenue Bonds - Building .......................................... 0.15
Revenue Bonds - Combined .......................................... 0.21
Revenue Bonds - Education ......................................... 3.35
Revenue Bonds - Electric Power .................................... 15.65
Revenue Bonds - Environment ....................................... 0.35
Revenue Bonds - Facility .......................................... 0.70
Revenue Bonds - Financial ......................................... 0.17
Revenue Bonds - Health ............................................ 14.77
Revenue Bonds - Hospital .......................................... 0.31
Revenue Bonds - Housing ........................................... 3.86
Revenue Bonds - Industrial Development ............................ 7.93
Revenue Bonds - Lease ............................................. 0.11
Revenue Bonds - Other ............................................. 7.10
Revenue Bonds - Pollution Control Facilities ...................... 12.92
Revenue Bonds - School ............................................ 0.61
Revenue Bonds - Single-family ..................................... 0.35
Revenue Bonds - Transportation .................................... 18.67
Revenue Bonds - Turnpike .......................................... 0.17
Revenue Bonds - Water ............................................. 0.64
Revenue Bonds - Water & Sewer ..................................... 3.56
------
TOTAL TAX-EXEMPT LONG-TERM BONDS 105.14%
======
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Tax-Free Bond Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Tax-Free Bond Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940. The Trust consists of two series: John Hancock Tax-Free Bond Fund (the
"Fund") and John Hancock High Yield Tax-Free Fund. The other series of the Trust
is reported in separate financial statements. The investment objective of the
Fund is to provide as high a level of interest income exempt from federal income
taxes as is consistent with preservation of capital by investing primarily in
municipal bonds, notes and commercial paper, the interest on which is exempt
from federal income taxes.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan, have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial
Group, Inc., may participate in a joint repurchase agreement. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $15,598,523 of capital
loss carryforwards available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent such carryforwards are used by
the Fund, no capital gains distribution will be made. The carryforwards expire
as follows: August 31, 2002 -- $4,705,914, August 31, 2003 -- $10,807,174 and
August 31, 2004 -- $85,435. The amount expiring August 31, 2004 was acquired on
December 6, 1996 in the merger with John Hancock Managed Tax-Exempt Fund. The
use of this loss to offset future gains may be limited in a given year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the amount paid
in excess of par value on securities purchased from either the date of purchase
or date of issue to date of sale, maturity or to next call date, if applicable.
The Fund accretes original issue discount
26
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Tax-Free Bond Fund
from par value on securities purchased from either the date of issue or the date
of purchase over the life of the security, as required by the Internal Revenue
Code. The Fund records market discount on bonds purchased after April 30, 1993
at time of disposition.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and relative
sizes of the funds.
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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other Funds managed by the Adviser in an unsecured
line of credit with a bank which permits borrowings up to $600 million,
collectively. Interest is charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a
rate of 0.075% per annum based on the average daily unused portion of the line
of credit, is allocated among the participating Funds. At February 28, 1998,
there were no outstanding borrowings.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract is
valued at the official settlement price on the board of trade or U.S.
commodities exchange on which it trades. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market," will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At February 28, 1998, open positions in financial futures contracts were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
JUN 1998 300 U.S. TREASURY BONDS LONG ($346,875)
==========
At February 28, 1998, the Fund has deposited $1,200,000 par value of County
of Clark, 6.50%, 12-01-33 bonds in a segregated account to cover margin
requirements on open financial futures contracts.
OPTIONS The Fund may buy options contracts. Listed options will be valued at the
last quoted sales price on the exchange on which they are primarily traded.
Purchased put or call over-the-counter options will be valued at the average of
the "bid" prices obtained from two independent brokers. Written put or call
over-the-counter options will be valued at the average of the "asked" prices
obtained from two independent brokers. Upon the writing of a call or put option,
an amount equal to the
27
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Tax-Free Bond Fund
premium received by the Fund will be included in the Statement of Assets and
Liabilities as an asset and corresponding liability. The amount of the liability
will be subsequently marked to market to reflect the current market value of the
written option.
The Fund may use option contracts to manage its exposure to the price
volatility of financial instruments. Writing puts and buying calls will tend to
increase the Fund's exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended February 28,
1998.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent on
an annual basis to the sum of (a) 0.55% of the first $500,000,000 of the Fund's
average daily net asset value, (b) 0.50% of the next $500,000,000 and (c) 0.45%
of the Fund's average daily net asset value in excess of $1,000,000,000.
The Adviser has voluntarily agreed to limit the Fund's expenses further to
the extent required to prevent expenses from exceeding 0.85% and 1.60% of the
average net assets attributable to Class A and Class B, respectively.
Accordingly, for the period ended February 28, 1998, the reduction in the
Adviser's fee collectively with any additional amounts not borne by the Fund by
virtue of the expense limit amounted to $97,039. This limitation may be
discontinued at any time.
The Fund has an agreement with its custodian bank under which $1,324 of
custodian fees have been reduced by balance credits applied during the period
ended February 28, 1998. If the Fund had not entered into this agreement, the
assets not invested, on which these balance credits were earned, could have
produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended February
28, 1998, net sales charges received with regard to sales of Class A shares
amounted to $298,897. Out of this amount, $36,572 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $79,013
was paid as sales commissions to unrelated broker-dealers and $183,312 was paid
as sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended February 28,
1998 the contingent deferred sales charges received by JH Funds amounted to
$137,736.
In addition, to reimburse JH Funds for the services it provides as
28
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Tax-Free Bond Fund
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.25% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution and service costs. JH Funds has
agreed to limit the distribution and service fees pursuant to Class A and Class
B plans to 0.15% and 0.90% of the average daily net assets, respectively. Up to
a maximum of 0.25% of such payments may be service fees as defined by the
amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are directors and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At February 28, 1998 the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $4,423.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended February 28, 1998, aggregated $146,798,276 and $153,830,770, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended February 28, 1998.
The cost of investments owned at February 28, 1998 for federal income tax
purposes was $748,692,123. Gross unrealized appreciation and depreciation of
investments aggregated $91,241,268 and $127,707 respectively, resulting in net
unrealized appreciation of $91,113,561.
NOTE D -
REORGANIZATION
On November 14, 1996, the shareholders of John Hancock Managed Tax-Exempt Fund
("JHMTE") approved a plan of reorganization between JHMTE and the Fund providing
for the transfer of substantially all of the assets and liabilities of JHMTE to
the Fund in exchange solely for Class A and Class B shares of the Fund. The
acquisition was accounted for as a tax free exchange of 3,663,041 Class A shares
and 14,270,326 Class B shares of the Fund for the net assets of JHMTE, which
amounted to $38,514,684 and $150,045,343 for Class A and Class B shares,
respectively, including $13,013,699 of unrealized appreciation, after the close
of business on December 6, 1996.
29
<PAGE>
===================================== NOTES ====================================
John Hancock Funds - Tax-Free Bond Fund
30
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===================================== NOTES ====================================
John Hancock Funds - Tax-Free Bond Fund
31
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[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds --------------
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This report is for the information of shareholders of the John Hancock
Tax-Free Bond Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 520SA 2/98
4/98
