SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
High Yield
Tax-Free
Fund
FEBRUARY 28, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
EDWARD J. BOUDREAU, JR.
STEPHEN L. BROWN
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
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
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
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[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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But there was one clear lesson from 1998: that sticking out the tough times
paid off. After reaching new highs last July, stocks plunged in August in one of
their worst sell-offs in years. The average U.S. diversified-equity mutual fund
fell 16.8% in the month of August alone. For many mutual fund investors, it was
the largest one-month loss they had ever experienced, since the average equity
fund had only had three such double-digit monthly losses in the previous 20
years, most recently in October 1987. But, in a dramatic reversal of fortune,
the market staged a stunning rebound in the fourth quarter. The average U.S.
diversified-equity fund made up all its August lost ground and then some,
returning 18.8% between October and December. The final result for the year: an
average 14.52% return, as calculated by Lipper, Inc.
Given the dramatic swings, investors who tried to time the market's ups and
downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during last summer's
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
In the first two months of 1999, the financial markets showed more stability
and the Dow Jones Industrial Average approached record highs. While volatility
remains on many investors' minds, at this time of year thoughts also turn to
more taxing matters. In our view, now is a perfect time to focus on how much of
your hard-earned money you are able to keep. Part of a good tax-planning
strategy should involve a review of your portfolio to ensure that you are taking
advantage of all available ways to minimize and defer your tax payments -- in an
effort to maximize investment returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY FRANK A. LUCIBELLA, CFA, BARRY H. EVANS, CFA, AND
DIANNE SALES, CFA, PORTFOLIO MANAGERS
John Hancock High Yield
Tax-Free Fund
High-yield municipals hit by strong supply,
weak demand and flight to quality
Municipal bonds struggled during the past six months, although they gained some
ground on U.S. Treasuries later in the period. But at the beginning,
expectations of deflation, slower U.S. growth and a flight to safety from global
economic turmoil caused U.S. Treasury bond prices to rise and their yields,
which move in the opposite direction of their prices, to fall to 30-year lows.
To prevent global economic woes from worsening and infecting the U.S. economy,
the Federal Reserve Board cut interest rates three times in the fall. Throughout
this period, U.S. Treasuries were the only investment of choice for global
investors seeking safe harbor from the economic storms overseas; most other
fixed-income investments -- like corporate and municipal bonds -- were left out
in the cold. Furthermore, the benefits municipals derived from falling interest
rates were offset by strong municipal supply and weak investor demand. The
supply of municipal bonds expanded significantly when issuers rushed to
refinance old debt and issue new debt at low rates before year end. But since
the typical municipal bond offered yields that were lower than 5%, demand for
them was rather weak. As a result of too much supply overwhelming weak demand,
municipal bonds became as cheap relative to Treasuries by the end of 1998 as
they had been in more than a decade.
"Municipal bonds struggled during the past six months..."
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[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock High Yield
Tax-Free Fund. Caption below 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
"We also placed increasing emphasis on diversifying the Fund's holdings..."
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[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into eleven sections (from top to left): Other 22%, Industrial
Development 2%, Water & Sewer 2%, Education 3%, Airport 4%, General Obligation
5%, Housing 6%, Industrial Revenue 8%, Transportation 12%, Health 17% and
Pollution Control 19%. A note below the chart reads "As a percentage of net
assets on February 28, 1999."]
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By December, the interest-rate environment had begun to weaken on evidence
that the economy was growing at a much healthier-than-expected pace. The news
caused a rather abrupt change in sentiment, with investors worrying that
inflation and interest-rate hikes were in the offing. In response, they sent
bond yields higher and their prices lower. Municipals suffered less than
Treasuries, in large part because they were already so inexpensive compared to
their government counterparts. The high-yield municipal market weakened slightly
relative to the overall municipal market because investors worried that higher
interest rates and a potential slowdown in the economy in late 1999 might cause
problems for the lower-quality issuers.
Performance and strategy review
For the six-month period that ended February 28, 1999, John Hancock High Yield
Tax-Free Fund's Class A and Class B shares posted total returns of 1.41% and
1.07%, respectively, at net asset value. Those returns were in line with the
1.46% return for the average high-yield municipal bond fund for the same period,
according to Lipper, Inc.(1) Keep in mind that your net asset value return will
be different from the Fund's if you were not invested in the Fund for the entire
period and did not reinvest all distributions. Longer-term performance
information can be found on pages six and seven.
Throughout the period, we negotiated the changing environment by actively
managing the Fund's duration, which measures its interest-rate sensitivity. The
longer the Fund's duration, the more its share price will fall when interest
rates rise, and rise when rates fall. For example, the Fund was well-positioned
with a shorter-than-average duration in the final months of 1998 when interest
rates rose and longer-duration funds suffered as a result. However, some of our
holdings that had either very long durations or below-investment-grade credit
ratings -- or a combination of both -- detracted somewhat from performance in
the last several months of the period. When a large number of high-yield
municipal bonds came to market, investors gravitated toward the shorter-term,
higher-quality bonds, causing weak prices for those with the highest coupons.
We also placed increasing emphasis on diversifying the Fund's holdings across
a larger number of issuers. The near-record supply we saw toward the end of 1998
afforded us a somewhat rare opportunity to do so at fairly attractive prices. We
started our diversification process by paring back our holdings in bonds that
had short "call" dates. A call is a covenant that allows municipal bond issuers
to redeem their bonds before maturity, which they most often
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[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is City of
Chicago for O'Hare followed by an up arrow with the phrase "Strong economy
boosts airline profits." The second listing is Non-callable bonds followed by an
up arrow with the phrase "Insulated from redemption as rates fall." The third
listing is Health-care bonds followed by a down arrow with the phrase
"Philadelphia hospital bankruptcy taints sector." A note below the table reads
"See `Schedule of Investments.' Investment holdings are subject to change."]
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See "Schedule of Investments." Investment holdings are subject to change.
4
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John Hancock Funds - High Yield Tax-Free Fund
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended February 28, 1999." The
chart is scaled in increments of .5% with 0% at the bottom and 2.0% at the top.
The first bar represents the 1.41% Total return for John Hancock High Yield
Tax-Free Fund Class A. The second bar represents the 1.07% total return for John
Hancock High Yield Tax-Free Fund Class B. The third bar represents the 1.46%
total return for Average high-yield municipal bond fund. A note below the chart
reads "Total returns for John Hancock High Yield Tax-Free Fund are at net asset
value with all distributions reinvested. The average high-yield municipal bond
fund is tracked by Lipper Analytical Services, Inc. See the following two pages
for historical performance information."]
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do when interest rates are falling and they can reduce their financing costs.
While a call is good news for issuers, it's often bad news for bond holders
because they must forfeit their relatively high-yielding bonds and potentially
invest the proceeds at lower interest rates. When we spotted attractive
opportunities to buy bonds with longer call dates or non-callable bonds -- which
can't be redeemed before maturity -- we took them.
Based on our view that the economy will slow sometime later this year, we
reduced our holdings in cyclical industry sectors, such as paper and steel. We
redeployed some of the proceeds into a larger number of relatively inexpensive
bonds that we thought offered good total return potential -- current income plus
price appreciation -- such as utility and airline bonds. We also concentrated on
finding liquid, or easily traded, names.
Leaders and laggards
Among our best performers during the past six months were bonds issued by
municipalities on behalf of airlines to finance projects such as expanding
airport facilities. Bonds issued by the City of Chicago for American Airlines
and others performed well as the airlines themselves continued to post strong
corporate earnings and profits.
The laggards during the period were health-care bonds, which suffered when
Philadelphia hospital system AHERF declared bankruptcy. That event cast a pall
over even the strongest hospital and health-care facility bonds. Fortunately, we
didn't own any bonds issued by AHERF.
Outlook
We're cautiously optimistic about the high-yield municipal market. We believe
that interest rates could resume their decline sometime later this year,
although we could see continued market volatility as countervailing economic
indicators temporarily sway investors in one direction or another. With that
outlook in mind, we're likely to keep the Fund's duration relatively neutral in
the coming months, not becoming too long or too short until there are more
definitive signs about where rates ultimately are headed. As for the high-yield
market, we believe that it currently offers much more attractive yields relative
to higher-quality bonds than it did six months ago, and should eventually
attract more investor attention as a result.
"...we're likely to keep the Fund's duration relatively neutral in the coming
months..."
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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, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
5
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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, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/93)
---- ----- ----------
Cumulative Total Returns 0.73% 27.32% 27.35%
Average Annual Total Returns 0.73% 4.95% 4.95%
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CLASS B
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For the period ended December 31, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (0.30%) 26.52% 94.61%
Average Annual Total Returns (0.30%) 4.82% 6.88%
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YIELDS
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As of February 28, 1999
SEC 30-DAY
YIELD
----------
John Hancock High Yield Tax-Free Fund: Class A 4.37%
John Hancock High Yield Tax-Free Fund: Class B 3.87%
6
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John Hancock Funds - High Yield Tax-Free Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
High Yield Tax-Free 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 no guarantee of future results.
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Line chart with the heading John Hancock High Yield Tax-Free Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. With in the chart are three lines. The first line represents the
Lehman Brothers Municipal Bond Index and is equal to $13,685 as of February 28,
1999. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock High Yield Tax-Free Fund, before sales
charge, on December 31, 1993, and is equal to $13,380, as of February 28, 1999.
The third line represents the same hypothetical investment made in the John
Hancock High Yield Tax-Free Fund, after sales charge, and is equal to $12,783 as
of February 28, 1999.
Line chart with the heading John Hancock 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 Lehman
Brothers Municipal Bond Index and is equal to $23,114 as of February 28, 1999.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock High Yield Tax-Free Fund on August 31, 1988, before sales
charge, and is equal to $20,576 as of February 28, 1999.
*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, 1999. 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, 1999 (Unaudited)
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Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $161,373,837) ......... $174,248,419
Cash ...................................................... 2,812,880
Receivable for investments sold ........................... 20,000
Receivable for shares sold ................................ 113,646
Interest receivable ....................................... 2,855,256
Other assets .............................................. 36,845
------------
Total Assets ............................ 180,087,046
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Liabilities:
Payable for investments purchased ......................... 3,678,470
Payable for shares repurchased ............................ 38,247
Dividend payable .......................................... 35,461
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 141,089
Accounts payable and accrued expenses ..................... 48,059
------------
Total Liabilities ....................... 3,941,326
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Net Assets:
Capital paid-in ........................................... 173,767,159
Accumulated net realized loss on investments and
financial futures contracts .............................. (10,488,168)
Net unrealized appreciation of investments ................ 12,876,296
Distributions in excess of net investment income .......... (9,567)
------------
Net Assets .............................. $176,145,720
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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 - $47,748,828/5,016,498 ........................... $9.52
=============================================================================
Class B - $128,396,892/13,489,394 ......................... $9.52
=============================================================================
Maximum Offering Price Per Share*
Class A - ($9.52 x 104.71%) ............................... $9.97
=============================================================================
* 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, 1999 (Unaudited)
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Investment Income:
Interest .................................................... $5,767,614
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Expenses:
Investment management fee - Note B ......................... 504,758
Distribution and service fee - Note B
Class A .................................................. 54,640
Class B .................................................. 618,913
Transfer agent fee - Note B ................................ 69,417
Custodian fee .............................................. 27,162
Auditing fee ............................................... 20,191
Registration and filing fees ............................... 13,185
Financial services fee - Note B ............................ 12,537
Trustees' fees ............................................. 5,772
Printing ................................................... 4,719
Miscellaneous .............................................. 2,059
Legal fees ................................................. 863
----------
Total Expenses ............................ 1,334,216
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Less Expense Reductions -
Note B .................................... (16,667)
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Net Expenses .............................. 1,317,549
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Net Investment Income ..................... 4,450,065
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Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts:
Net realized gain on investments sold ....................... 1,074,391
Net realized loss on financial futures contracts ............ (226,508)
Change in net unrealized appreciation/depreciation
of investments ............................................. (3,351,017)
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Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts ............... (2,503,134)
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Net Increase in Net Assets
Resulting from Operations ................. $1,946,931
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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, 1999
AUGUST 31, 1998 (UNAUDITED)
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .......................................................... $8,691,204 $4,450,065
Net realized gain (loss) on investments sold and financial futures contracts ... (554,208) 847,883
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts .................................................. 6,172,597 (3,351,017)
------------ ------------
Net Increase in Net Assets Resulting from Operations ......................... 14,309,593 1,946,931
------------ ------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5394 and $0.2684 per share, respectively) ...................... (2,047,191) (1,231,579)
Class B - ($0.4683 and $0.2352 per share, respectively) ...................... (6,610,696) (3,218,486)
------------ ------------
Total Distributions to Shareholders .......................................... (8,657,887) (4,450,065)
------------ ------------
From Fund Share Transactions - Net:* .............................................. (5,014,174) 6,426,848
------------ ------------
Net Assets:
Beginning of period ............................................................ 171,584,474 172,222,006
------------ ------------
End of period (including distributions in excess of net investment income of
$9,567 and $9,567, respectively) ............................................. $172,222,006 $176,145,720
============ ============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1999
AUGUST 31, 1998 (UNAUDITED)
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................... 1,426,741 $13,621,218 1,123,260 $10,785,814
Shares issued to shareholders in reinvestment
of distributions .............................. 96,914 926,475 56,732 543,965
------------ ------------ ------------ ------------
1,523,655 14,547,693 1,179,992 11,329,779
Less shares repurchased ......................... (752,160) (7,173,035) (381,659) (3,659,178)
------------ ------------ ------------ ------------
Net increase .................................... 771,495 $7,374,658 798,333 $7,670,601
============ ============ ============ ============
CLASS B
Shares sold ..................................... 2,165,723 $20,660,628 1,202,194 $11,551,425
Shares issued to shareholders in reinvestment
of distributions .............................. 228,203 2,182,260 109,799 1,052,578
------------ ------------ ------------ ------------
2,393,926 22,842,888 1,311,993 12,604,003
Less shares repurchased ......................... (3,693,711) (35,231,720) (1,442,773) (13,847,756)
------------ ------------ ------------ ------------
Net decrease .................................... (1,299,785) ($12,388,832) (130,780) ($1,243,753)
============ ============ ============ ============
</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:
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<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>
YEAR ENDED AUGUST 31, SIX MONTHS ENDED
----------------------------- FEBRUARY 28, 1999
1997 1998 (UNAUDITED)
------- ------- -----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ....... $9.16 $9.34 $9.65
------- ------- -------
Net Investment Income ...................... 0.56(1) 0.54(1) 0.27(1)
Net Realized and Unrealized Gain (Loss)
on Investments Sold and Financial
Futures Contracts ........................ 0.18 0.31 (0.13)
------- ------- -------
Total from Investment Operations ....... 0.74 0.85 0.14
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ..... (0.56) (0.54) (0.27)
Distributions in Excess of Net
Investment Income ...................... -- -- --
------- ------- -------
Total Distributions .................... (0.56) (0.54) (0.27)
------- ------- -------
Net Asset Value, End of Period ............. $9.34 $9.65 $9.52
======= ======= =======
Total Investment Return at Net
Asset Value (3) .......................... 8.29% 9.34% 1.41%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ... $32,199 $40,725 $47,749
Ratio of Expenses to Average Net Assets .... 1.06% 1.00%(7) 0.99%(5,8)
Ratio of Net Investment Income to
Average Net Assets ....................... 6.00% 5.66% 5.64%(5)
Portfolio Turnover Rate .................... 51% 35% 21%
</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, PERIOD FROM
---------------------------------- NOVEMBER 1, 1995 TO
1993 1994 1995(2) AUGUST 31, 1996(6)
-------- -------- -------- --------------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........ $9.39 $9.98 $8.82 $9.47
-------- -------- -------- --------
Net Investment Income ....................... 0.53 0.48 0.51 0.44(1)
Net Realized and Unrealized Gain (Loss)
on Investments Sold and Financial
Futures Contracts ......................... 0.72 (0.90) 0.69 (0.31)
-------- -------- -------- --------
Total from Investment Operations ........ 1.25 (0.42) 1.20 0.13
-------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...... (0.56) (0.48) (0.51) (0.44)
Distributions in Excess of Net
Investment Income ....................... -- (0.07) (0.04) --
Distributions from Net Realized Gain on
Investments Sold ........................ (0.10) (0.19) -- --
-------- -------- -------- --------
Total Distributions ..................... (0.66) (0.74) (0.55) (0.44)
-------- -------- -------- --------
Net Asset Value, End of Period .............. $9.98 $8.82 $9.47 $9.16
======== ======== ======== ========
Total Investment Return at Net
Asset Value (3) ........................... 13.69% (4.44%) 13.99% 1.36%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .... $113,442 $151,069 $155,234 $147,669
Ratio of Expenses to Average Net Assets ..... 2.06% 1.85% 1.79% 1.81%(5)
Ratio of Net Investment Income to Average
Net Assets ................................ 5.23% 5.36% 5.61% 5.65%(5)
Portfolio Turnover Rate ..................... 100% 62% 64% 38%
<CAPTION>
YEAR ENDED AUGUST 31, SIX MONTHS ENDED
----------------------- FEBRUARY 28, 1999
1997 1998 (UNAUDITED)
-------- -------- -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........ $9.16 $9.34 $9.65
-------- -------- --------
Net Investment Income ....................... 0.49(1) 0.47(1) 0.24(1)
Net Realized and Unrealized Gain (Loss)
on Investments Sold and Financial
Futures Contracts ......................... 0.18 0.31 (0.13)
-------- -------- --------
Total from Investment Operations ........ 0.67 0.78 0.11
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...... (0.49) (0.47) (0.24)
Distributions in Excess of Net
Investment Income ....................... -- -- --
Distributions from Net Realized Gain on
Investments Sold ........................ -- -- --
-------- -------- --------
Total Distributions ..................... (0.49) (0.47) (0.24)
-------- -------- --------
Net Asset Value, End of Period .............. $9.34 $9.65 $9.52
======== ======== ========
Total Investment Return at Net
Asset Value (3) ........................... 7.51% 8.53% 1.07%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .... $139,385 $131,497 $128,397
Ratio of Expenses to Average Net Assets ..... 1.81% 1.75%(7) 1.69%(5,8)
Ratio of Net Investment Income to Average
Net Assets ................................ 5.28% 4.92% 4.94%(5)
Portfolio Turnover Rate ..................... 51% 35% 21%
</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.
(7) The ratio of expenses to average net assets for the year ended August 31,
1998 excludes the effect of balance credits described in Note B. If these
expense reductions were included, the effect to the ratio of expenses to
average net assets would have been less than 0.01% for Class A and Class B
shares.
(8) The ratio of expenses to average net assets for the period ended February
28, 1999 excludes the effect of balance credits described in Note B. If
these expense reductions were included, the effect to the ratio of
expenses to average net assets would have been 0.98% for Class A and 1.68%
for Class B.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
Schedule of Investments
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by High
Yield Tax-Free Fund on February 28, 1999. 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
Alaska (0.56%)
Anchorage, City of,
Ice Rink Rev ................................................ 6.375% 01-01-20 BB+ $1,000 $994,760 6.41%
----------
California (14.99%)
ABAG Finance Authority for Nonprofit Corps.,
Cert of Part Nat'l Center for Int'l Schools Proj ............ 7.375 05-01-18 BB+ 1,000 1,073,230 6.87
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Sr Lien Cap Apprec Ser A ........................ Zero 01-01-18 BBB- 7,950 2,939,115 5.35
Los Angeles Community Facilities District,
Spec Tax No 3 Cascades Business Park Proj ................... 6.400 09-01-22 BB+ 1,000 1,044,800 6.13
Millbrae, City of,
Residential Facil Rev Ser 1997A Magnolia of Millbrae Proj ... 7.375 09-01-27 BB 1,000 1,075,190 6.86
San Bernardino, County of,
Cert of Part Ref Medical Ctr Fin Proj ....................... 5.500 08-01-17 A- 4,500 4,718,745 5.25
San Diego County Water Auth,
Water Rev Cert of Part Reg RITES ............................ 8.191# 04-23-08 AAA 1,000 1,228,750 6.67
San Francisco, City of,
Resid Facil Ser A Coventry Park Proj ........................ 8.500 12-01-26 BB 2,000 2,295,640 7.41
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Conv Cap Apprec Ser A ........................... Zero 01-15-19 BBB- 3,000 2,148,750 5.98
Toll Rd Rev Sr Lien ......................................... 5.000 01-01-33 BBB- 1,000 949,950 5.26
South Orange County Public Financing Auth,
Spec Tax Rev Levrrs Inflows ................................. 8.730# 08-15-17 AAA 7,500 8,925,000 7.34
----------
26,399,170
----------
Colorado (5.50%)
Arapahoe County Capital Improvement Trust Fund,
Highway Rev Current Ser E-470 ............................... 6.950 08-31-20 AAA 2,500 2,989,825 5.81
Black Hawk, City of,
Device Tax Rev .............................................. 5.625 12-01-21 BB+ 1,000 989,780 5.68
Denver, City and County of,
Airport Sys Rev Ser 1992A Preref ............................ 7.250 11-15-25 AAA 1,410 1,609,064 6.35
Airport Sys Rev Ser 1992A Unref Bal ......................... 7.250 11-15-25 AAA 3,590 4,096,836 6.35
----------
9,685,505
----------
</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>
Connecticut (1.44%)
Connecticut State Development Auth,
Aquarium Proj Rev Ser A Mystic MarineLife Aquarium Proj ..... 7.000% 12-01-27 BB+ $1,000 $1,060,250 6.60%
Mashantucket (Western) Pequot Tribe,
Spec Rev Sub Ser A .......................................... 5.500 09-01-28 BBB- 1,500 1,469,955 5.61
----------
2,530,205
----------
District Of Columbia (1.77%)
District of Columbia,
Cert of Part Ser 1993 ....................................... 7.300 01-01-13 BB- 1,000 1,068,080 6.83
GO 1996 Ser A ............................................... 6.375 06-01-16 AAA 1,780 2,054,885 5.52
----------
3,122,965
----------
Florida (5.62%)
Grand Haven Community Development District,
Spec Assessment Ser B ....................................... 6.900 05-01-19 BB+ 750 775,973 6.67
Hillsborough County Aviation Auth,
Rev Special Purpose Facility Imp US Air Proj ................ 8.600 01-15-22 B+ 2,000 2,215,520 7.76
Homestead, City of,
Ind'l Development Rev Ser A Community Rehab Proj ............ 7.950 11-01-18 BB 3,470 3,754,089 7.35
Orlando, City of,
Spec Assessment Rev Conroy Rd Interchange Proj Ser 1998A .... 5.800 05-01-26 BB+ 1,000 989,110 5.86
South Indian River Water Control District,
Rev Egret Landing Proj Section 15 Phase 1 ................... 7.500 11-01-18 BB+ 2,000 2,157,580 6.95
----------
9,892,272
----------
Illinois (7.67%)
Bedford Park, City of,
Tax Increment Rev Ref 71st & Cicero Proj .................... 7.000 01-01-06 BBB- 650 698,659 6.51
Tax Increment Rev Ref 71st & Cicero Proj .................... 7.375 01-01-12 BBB- 1,000 1,084,990 6.80
Tax Increment Rev Sr Lien Mark IV Proj ...................... 9.750 03-01-12 AAA 960 1,127,885 8.30
Chicago Board of Education,
Chicago School Reform Board of Trustees GO Cap Apprec Ref
Ser 1999A ................................................. Zero 12-01-31 AAA 5,000 873,100 5.40
Chicago, City of,
Chicago-O'Hare Int'l Airport Spec Facil Rev Ref
Ser 1999A United Air Lines Inc Proj ....................... 5.350 09-01-16 BB+ 1,000 995,490 5.37
Chicago-O'Hare Int'l Airport Spec Facil Rev Ref American
Airlines Inc. ............................................. 8.200 12-01-24 BBB- 1,500 1,762,260 6.98
Illinois Health Facilities Auth,
Rev Ser A Fairview Obligated Group Proj ..................... 9.500 10-01-22 BB 2,500 3,012,300 7.88
Rev Ser B Fairview Obligated Group Proj ..................... 9.000 10-01-22 BB 1,500 1,783,260 7.57
Round Lake Beach, City of,
Tax Increment Rev Ref ....................................... 7.500 12-01-13 BBB- 2,000 2,176,940 6.89
----------
13,514,884
----------
</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>
Indiana (1.27%)
Wabash, County of,
Solid Waste Disp Rev Jefferson Smurfit Corp Proj ............ 7.500% 06-01-26 BB $2,000 $2,233,080 6.72%
----------
Iowa (0.55%)
Iowa Finance Auth,
Health Care Facil Rev Ref Care Initiatives Proj Ser B ....... 5.750 07-01-18 BB 715 702,659 5.85
Hlth Care Facil Rev Ref Care Initiatives Proj ............... 9.250 07-01-25 BB 200 265,514 6.97
----------
968,173
----------
Kansas (1.82%)
Kansas Development Finance Auth,
Multifamily Hsg Rev Ref Ser Y ............................... 6.125 12-01-28 BBB- 1,000 990,420 6.18
Prairie Village, City of,
Rev Ser A Claridge Court Proj ............................... 8.750 08-15-23 BBB- 2,000 2,221,440 7.88
----------
3,211,860
----------
Kentucky (3.02%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Inc Ser 1985 ................. 7.800 12-01-15 BBB- 2,500 2,614,175 7.46
Rev Spec Facil Delta Airlines Proj Ser B .................... 7.250 02-01-22 BBB- 2,500 2,697,925 6.72
----------
5,312,100
----------
Louisiana (1.40%)
Calcasieu Parish Industrial Development Board,
Poll Control Rev Ref Entergy Gulf States Inc Proj ........... 5.450 07-01-10 BB+ 1,000 994,160 5.48
Louisiana Public Facilities Auth,
Progressive Hlthcare Rev .................................... 6.375 10-01-20 BB- 1,000 966,410 6.60
West Feliciana, Parish of,
Poll Control Rev Ser D Gulf States Utilities Co ............. 5.800 12-01-15 BB+ 500 499,415 5.81
----------
2,459,985
----------
Maryland (0.62%)
Baltimore, County of,
Poll Control Rev Ref Bethlehem Steel Corp Proj .............. 7.500 06-01-15 B+ 1,000 1,087,560 6.90
----------
Massachusetts (4.08%)
Massachusetts Development Finance Agency,
Rev Lasell Village Proj Ser 1998A ........................... 6.375 12-01-25 BBB- 1,000 987,360 6.46
Rev Ref Clark Univ Iss ...................................... 5.000 07-01-28 A- 750 719,872 5.21
Massachusetts Industrial Finance Agency,
Rev Ser A Southeastern Mass Proj ............................ 9.000 07-01-15 BB 2,800 3,077,228 8.19
Massachusetts Port Auth,
Spec Proj Rev Harborside Hyatt Hotel ........................ 10.000 03-01-26 BBB- 2,200 2,404,336 9.15
----------
7,188,796
----------
Michigan (2.70%)
Waterford, Township of,
Economic Dev Corp Rev Ref Canterbury Hlth ................... 6.000 01-01-39 BB- 3,620 3,529,500 6.15
Wayne Charter, County of,
Spec Airport Facil Rev Ref Ser 1995 Northwest Airlines Inc... 6.750 12-01-15 BB+ 1,120 1,217,899 6.21
----------
4,747,399
----------
</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>
Minnesota (0.57%)
Minneapolis, City of,
Rev Ref Walker Methodist Sr Servs Ser 1998A ................. 6.000% 11-15-28 BB+ $1,000 $1,009,110 5.95%
----------
Mississippi (1.76%)
Mississippi Business Finance Corp.,
Mississippi Poll Control Rev Ref Sys Energy Resources
Inc Proj ................................................... 5.875 04-01-22 BBB- 3,115 3,099,581 5.90
----------
Missouri (0.60%)
Lees Summit Industrial Development Auth,
Hlth Facil Rev Ref & Imp John Knox Vlg Proj ................. 7.125 08-15-12 A- 1,000 1,063,350 6.70
----------
New Hampshire (2.02%)
New Hampshire Business Finance Auth,
Poll Control Rev Ref Ser D Pub Serv Co. ..................... 6.000 05-01-21 BB- 1,000 1,002,160 5.99
New Hampshire Higher Educational and Health
Facilities Auth,
Rev Littleton Hosp Assn-Ser A ............................... 5.900 05-01-18 BB- 1,500 1,502,895 5.89
Rev New Hampshire College ................................... 6.375 01-01-27 BBB- 1,000 1,048,700 6.08
----------
3,553,755
----------
New Jersey (5.46%)
Camden County Improvement Auth,
Lease Rev Ser A Holt Hauling & Warehousing Proj ............. 9.875 01-01-21 BB- 1,500 1,849,875 8.01
New Jersey Economic Development Auth,
Rev Ref Ind'l Development Newark Airport Marriott
Hotel Proj ................................................. 7.000 10-01-14 BBB- 2,500 2,740,900 6.38
Rev Ref Ser J Holt Hauling Proj ............................. 8.500 11-01-23 BBB 2,500 2,850,325 7.46
New Jersey Health Care Facilities Financing Auth,
Rev Care Institute Inc Cherry Hill Proj ..................... 8.000 07-01-27 BB+ 2,000 2,176,260 7.35
----------
9,617,360
----------
New Mexico (0.89%)
Farmington, County of,
Poll Control Rev Ref Ser A Pub Serv Co of New Mexico
San Juan Proj ............................................. 6.400 08-15-23 BB+ 1,500 1,568,070 6.12
----------
New York (5.23%)
Glen Cove Housing Auth,
Rev Sr Living Facil The Mayfair Proj ........................ 8.250 10-01-26 BB+ 1,425 1,611,718 7.29
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj ....... 7.500 03-01-26 BB- 2,000 2,194,420 6.84
New York City Industrial Development Agency,
Rev Ref LaGuardia Assoc LP Proj ............................. 6.000 11-01-28 BB+ 1,000 985,450 6.09
New York State Energy Research and Development Auth,
Poll Control Rev Ser 1985B Long Island LIght Co Proj ........ 5.150 03-01-16 A- 2,225 2,212,518 5.18
New York, City of,
GO Fiscal 1994 Ser B1 Preref ................................ 7.300 08-15-11 A- 950 1,117,437 6.21
GO Fiscal 1997 Ser J ........................................ 6.000 08-01-17 A- 1,000 1,089,790 5.51
----------
9,211,333
----------
</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>
Ohio (5.45%)
Bedford, County of,
Rev Ref Community Hosp Bedford Inc. ......................... 8.500% 05-15-09 AA $1,275 $1,360,081 7.97%
Cleveland, City of,
Parking Facil Imp Rev ....................................... 8.000 09-15-12 AAA 1,000 1,156,910 6.91
Parking Facil Imp Rev ....................................... 8.100 09-15-22 AAA 2,000 2,320,340 6.98
Franklin, County of,
Doctors Hospital Rev Ohio Health Corp Ser 1998A ............. 5.600 12-01-28 Baa3 1,000 962,120 5.82
Lorain, County of,
Rev 1st Mtg Ser A Kendal At Oberlin Proj .................... 8.625 02-01-22 AA 3,300 3,795,594 7.50
----------
9,595,045
----------
Oklahoma (1.26%)
Tulsa Municipal Airport Trust, Trustees of,
Rev American Airlines, Inc. ................................. 7.350 12-01-11 BBB- 2,000 2,221,600 6.62
----------
Oregon (2.41%)
Oregon, State of,
Economic Development Rev Ref Ser 183
Georgia-Pacific Corp Proj ................................. 5.700 12-01-25 Baa2 1,000 1,021,700 5.58
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj ...................... 7.125 01-01-21 BBB- 3,000 3,224,820 6.63
----------
4,246,520
----------
Pennsylvania (8.91%)
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 2,866,650 6.76
Poll Control Rev Ref Cleveland Elec Proj .................... 7.625 05-01-25 BB+ 1,600 1,811,344 6.74
Chester County Industrial Development Auth,
Rev 1st Mtg Rha/Pa Nursing Home ............................. 10.125 05-01-19 B- 193 179,181 10.91
Lehigh County General Purpose Auth,
Rev Ref KidsPeace Oblig Group ............................... 6.000 11-01-18 BB 1,000 1,004,070 5.98
Montgomery County Redevelopment Auth,
Multifamily Hsg Rev Ser A KBF Assoc L.P. Proj ............... 6.500 07-01-25 BBB+ 2,500 2,607,725 6.23
Pennsylvania Economic Development Finance Auth,
Ser B Qualified Residential RSI Properties/Greensburg
LLC Proj ................................................... 8.000 09-01-27 BB 1,000 1,018,260 7.86
Pennsylvania Economic Development Financing Auth,
Exempt Facils Rev Nat'l Gypsum Co Ser B ..................... 6.125 11-01-27 BBB- 1,500 1,470,465 6.25
Philadelphia Hospitals and Higher Education Facilities
Auth, Hosp Rev 1991 Ser A Philadelphia Protestant
Home Proj ................................................... 8.625 07-01-21 BBB 2,300 2,599,690 7.63
Philadelphia Industrial Development Auth,
Commercial Devel Rev Ref Ser A Doubletree Proj .............. 6.500 10-01-27 BB+ 2,000 2,134,020 6.09
----------
15,691,405
----------
Rhode Island (1.33%)
Providence Redevelopment Agency,
Cert of Part Ser 1994A ...................................... 8.000 09-01-24 BBB- 2,160 2,352,953 7.34
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<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>
Texas (0.85%)
Houston Independent School District,
GO Cap Apprec Ref Ser 1999A ................................. Zero% 02-15-13 AAA $3,000 $1,494,660 5.03%
------------
Utah (3.63%)
Carbon, County of,
Solid Waste Disp Rev Ref Ser A East Carbon Development
Corp ....................................................... 9.000 07-01-12 BBB- 2,000 2,149,340 8.37
Solid Waste Disp Rev Ref Sunnyside Cogeneration Proj ........ 9.250 07-01-18 B 1,900 1,140,380 15.41
Intermountain Power Agency,
Pwr Supply Rev Ref Ser A .................................... 5.000 07-01-19 AAA 1,500 1,469,610 5.10
Tooele, County of,
Poll Control Rev Ref Ser A Laidlaw Environmental Proj ....... 7.550 07-01-27 BBB- 1,500 1,644,435 6.89
------------
6,403,765
------------
Virgin Islands (0.59%)
Virgin Islands Public Finance Auth,
Rev Sub Lien Fund Ln Notes Ser E ............................ 6.000 10-01-22 BB+ 1,000 1,038,910 5.78
------------
Virginia (2.71%)
Hopewell Industrial Development Auth,
Resource Recovery Rev Ref Stone Container Corp Proj ......... 8.250 06-01-16 BB 2,400 2,632,056 7.52
Pocahontas Parkway Association,
Toll Rd Rev Cap Apprec-1st Tier-Sub-Ser C ................... Zero 08-15-20 Ba1 4,000 1,094,160 6.13
Toll Rd Rev Cap Apprec-1st Tier-Sub-Ser C ................... Zero 08-15-21 Ba1 4,100 1,055,791 6.13
------------
4,782,007
------------
Washington (0.78%)
Spokane County Industrial Development Corp,
Solid Waste Disp Rev Kaiser Alum & Chem Corp Proj ........... 7.600 03-01-27 BB- 1,250 1,366,713 6.95
------------
West Virginia (1.46%)
Marion, County of,
Community Solid Waste Disposal Facil Rev Ref Ser A
Adirondack Recycling ...................................... 8.000 12-01-25 BB- 1,646 1,398,689 9.41
Community Solid Waste Disposal Facil Rev Ref Ser B
Adirondack Recycling ...................................... 10.000 12-01-25 BB- 230 188,579 12.20
South Charleston, City of,
Poll Control Rev Ref Union Carbide Corp Proj ................ 5.100 01-01-12 BBB 1,000 996,300 5.12
------------
2,583,568
------------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $161,373,837) (98.92%) 174,248,419
------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.08%) 1,897,301
------- ------------
TOTAL NET ASSETS (100.00%) $176,145,720
======= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Tax-Free Fund
NOTES TO THE SCHEDULE OF INVESTMENTS
* Credit ratings are unaudited and rated by Standard & Poor's where available,
or Moody's Investors Service, Fitch or John Hancock Advisers, Inc. where
Standard & Poor's ratings are not available.
+ 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, 1999.
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.
18
<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,
1999, assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ---------------
General Obligation .............................................. 4.60%
Revenue Bonds - Airport ......................................... 3.80
Revenue Bonds - Authority ....................................... 1.54
Revenue Bonds - Economic Development ............................ 1.99
Revenue Bonds - Education ....................................... 2.86
Revenue Bonds - Facility ........................................ 1.34
Revenue Bonds - General Purpose ................................. 0.57
Revenue Bonds - Health .......................................... 16.72
Revenue Bonds - Highway ......................................... 1.22
Revenue Bonds - Housing ......................................... 6.46
Revenue Bonds - Industrial Development .......................... 2.02
Revenue Bonds - Industrial Revenue .............................. 8.16
Revenue Bonds - Lease ........................................... 0.61
Revenue Bonds - Multi-Family .................................... 0.56
Revenue Bonds - Other ........................................... 11.12
Revenue Bonds - Pollution Control Facilities .................... 18.51
Revenue Bonds - Power ........................................... 0.83
Revenue Bonds - Recreation Facility ............................. 0.56
Revenue Bonds - Special Assessment .............................. 1.00
Revenue Bonds - Tax & Revenue Anticipation ...................... 0.56
Revenue Bonds - Transportation .................................. 11.94
Revenue Bonds - Water & Sewer ................................... 1.95
-----
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.92%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
19
<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 has authorized the issuance of multiple classes of
shares of the Fund, designated as Class A, Class B and Class C shares. The Fund
issued Class C shares for the first time on April 1, 1999. 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
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $9,957,299 of capital
loss carry-forwards 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 -- $2,785,979, August 31, 2003 -- $205,838, August
31, 2004 -- $3,207,633, August 31, 2005 -- $716,668 and August 31, 2006 --
$3,041,181.
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
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Tax-Free 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 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. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowing. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the period ended February 28, 1999.
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, 1999, 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. Over-the-counter options are valued at the mean between the last bid and
asked prices. 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.
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
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Tax-Free Fund
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 options 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 Statement of
Assets and Liabilities.
At February 28, 1999, there were no open written option 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 $16,667 of
custodian fees have been reduced by balance credits applied during the period
ended February 28, 1999. 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, 1999, net sales charges received with regard to sales of Class A shares
amounted to $142,407. Out of this amount, $14,615 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$115,116 was paid as sales commissions to unrelated broker-dealers and $12,676
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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,
1999, contingent deferred sales charges paid to JH Funds amounted to $131,691.
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. 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
22
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Tax-Free Fund
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 an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon and Mr.
Richard Scipione 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, 1999, 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, 1999, aggregated $39,096,888 and $37,053,394,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the fiscal period ended February 28, 1999.
The cost of investments owned at February 28, 1999 for federal income tax
purposes was $161,373,837. Gross unrealized appreciation and depreciation of
investments aggregated $16,032,800 and $3,158,218, respectively, resulting in
net unrealized appreciation of $12,874,582.
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 2/99
4/99
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Tax-Free
Bond Fund
FEBRUARY 28, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
---------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
STEPHEN L. BROWN
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
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:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
But there was one clear lesson from 1998: that sticking out the tough times
paid off. After reaching new highs last July, stocks plunged in August in one of
their worst sell-offs in years. The average U.S. diversified-equity mutual fund
fell 16.8% in the month of August alone. For many mutual fund investors, it was
the largest one-month loss they had ever experienced, since the average equity
fund had only had three such double-digit monthly losses in the previous 20
years, most recently in October 1987. But, in a dramatic reversal of fortune,
the market staged a stunning rebound in the fourth quarter. The average U.S.
diversified-equity fund made up all its August lost ground and then some,
returning 18.8% between October and December. The final result for the year: an
average 14.52% return, as calculated by Lipper, Inc.
Given the dramatic swings, investors who tried to time the market's ups and
downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during last summer's
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
In the first two months of 1999, the financial markets showed more stability
and the Dow Jones Industrial Average approached record highs. While volatility
remains on many investors' minds, at this time of year thoughts also turn to
more taxing matters. In our view, now is a perfect time to focus on how much of
your hard-earned money you are able to keep. Part of a good tax-planning
strategy should involve a review of your portfolio to ensure that you are taking
advantage of all available ways to minimize and defer your tax payments -- in an
effort to maximize investment returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY DIANNE SALES, CFA, BARRY H. EVANS, CFA, AND
FRANK A. LUCIBELLA, CFA, PORTFOLIO MANAGERS
John Hancock
Tax-Free Bond Fund
Supply pressures hold municipals back, then ease at end of six-month period
Supply and demand were once again the primary factors affecting municipal bond
performance during the past six months. From September through year end, a glut
of municipal bonds flooded the market -- a trend that had characterized much of
1998. In fact, the supply of new municipal bonds increased more than 40% in 1998
versus 1997, making it the second strongest year of municipal bond issuance on
record. This hefty influx of new bonds, due to continued low interest rates, put
downward pressure on prices, as demand was not strong enough to absorb this
overwhelming supply. The net result was that municipal bonds underperformed U.S.
Treasuries for most of 1998 and reached their most attractive price levels
versus Treasuries in almost five years. The one bright spot was that many
non-traditional buyers crossed over into the tax-exempt market to take advantage
of these incredible values. These so-called "crossover" buyers provided an
important source of demand for this flood of new issuance.
With the start of 1999, however, the tables turned and municipal bonds began
to outperform U.S. Treasuries. First, emerging-market concerns receded --
eliminating the "flight to quality" premium in the Treasury market. At the same
time, worries about stronger-than-
"...hefty influx of new bonds... put downward pressure on prices..."
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Tax-Free
Bond Fund. Caption below reads "Fund management team members (l-r): Barry Evans,
Mike Roye, Dianne Sales, Frank Lucibella and Holly Morris."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Tax-Free Bond Fund
"...we've maintained a strong emphasis on call protection..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into nine sections (from top to left): Other 27%, Education 3%,
Housing 3%, Water & Sewer 3%, General Obligation 7%, Industrial Development 8%,
Electric 15%, Health 15% and Transportation 19%. A note below the chart reads
"As a percentage of net assets on February 28, 1999."]
- --------------------------------------------------------------------------------
expected economic growth forced interest rates up and bond prices down. In
contrast, municipal bonds were already at such low price levels that they had
much less downside risk than Treasuries. Finally, municipal-bond issuance
declined dramatically in January and February, eliminating the supply pressures
felt in 1998. As a result, municipal investors saw their holdings strongly
outperform in early 1999.
Performance scorecard
For the six months ended February 28, 1999, John Hancock Tax-Free Bond Fund's
Class A and Class B shares returned 1.60% and 1.22%, respectively, at net asset
value. By comparison, the average general municipal bond fund returned 1.76%,
according to Lipper, Inc.1 Keep in mind that your net asset value return will be
different from the Fund's performance if you were not invested in the Fund for
the entire period and did not reinvest all distributions. Please see pages six
and seven for longer-term performance information.
The Fund's slight difference in performance from its peer group can be
explained by our longer duration in the first two months of 1999. Duration
measures how sensitive the Fund's share price is to interest-rate changes. The
longer the duration, the more sensitive the Fund's share price. That means if
interest rates fall, the Fund's share price will rise more with a longer
duration. The reverse is also true. If interest rates rise, the Fund's share
price will fall more with a longer duration.
Throughout the period, we've kept the Fund's duration relatively long in
order to take advantage of falling interest rates. However, when rates increased
suddenly in the first two months of 1999, our relatively long duration was a
disadvantage.
Focus on call protection, credit analysis
As we've discussed in past reports, we've maintained a strong emphasis on call
protection, which guards a bond from being redeemed by its issuer for a certain
period of time. Strong call protection is especially important in periods of
falling interest rates, when issuers often try to refinance their bonds at lower
interest rates. If a bond gets "called away" or redeemed early, investors are
forced to reinvest their money in bonds with lower yields. By focusing on issues
with strong call protection, we have been able to maintain the Fund's
competitive yield in a falling interest-rate environment.
Applying our in-depth credit analysis, we also continued to search for
lower-quality bonds with both attractive yields and improving credit profiles.
These bonds performed well as credit spreads -- the difference in yield between
bonds
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is San Joaquin
Trans. Agency followed by an up arrow with the phrase "Received credit upgrade."
The second listing is Zero coupon bonds followed by an up arrow with the phrase
"High sensitivity to falling interest rates." The third listing is Hospital
bonds followed by a down arrow with the phrase "Reimbursement levels flat in the
face of rising costs." A note below the table reads "See `Schedule of
Investments.' Investment holdings are subject to change."]
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4
<PAGE>
================================================================================
John Hancock Funds - Tax-Free Bond Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended February 28, 1999." The
chart is scaled in increments of 1% with 0% at the bottom and 3% at the top. The
first bar represents the 1.60% Total return for John Hancock Tax-Free Bond Fund
Class A. The second bar represents the 1.22% total return for John Hancock
Tax-Free Bond Fund Class B. The third bar represents the 1.76% total return for
Average general municipal bond fund. A note below the chart reads "Total 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. See the following two pages for historical
performance information."]
- --------------------------------------------------------------------------------
with different credit ratings -- continued to narrow in the municipal market.
Against this backdrop, several of our lower-quality holdings were big winners. A
perfect example is the San Joaquin Hills Transportation Corridor Agency. This
California toll-road project took the opportunity to refinance and lower
interest-rate costs. As a result, our holdings received a credit upgrade from a
rating of BBB to AAA, the highest rating possible. At the same time, since most
of our holdings were non-callable, the upgrade was obtained without suffering
the risk of an early redemption.
Outlook
Looking ahead, we anticipate that new municipal bond issuance will decline
roughly 20% in 1999 as refunding opportunities become more scarce. We've already
seen this trend start to take hold in the first two months of this year. Lighter
supply should help firm demand from traditional buyers. What's more, municipal
bonds still offer very attractive values relative to U.S. Treasuries, meaning
they still have plenty of upside potential.
The macroenvironment is also favorable for municipal bonds. Despite
stronger-than-expected growth in the first few months of this year, there are
still no concrete signs of inflation on the horizon. And with most world
economies still sluggish, we believe that pricing power will remain limited and,
therefore, inflation will stay in check for the foreseeable future. A continued
low-inflation environment should provide a positive backdrop for municipal
bonds.
While the bulk of the interest-rate declines are probably over, we don't
expect rates to increase significantly in the months ahead, given the positive
inflation outlook. However, should the economy continue to outpace expectations,
we will look to trim our duration to a more neutral position. In addition, we
will keep a close eye on credit developments in sectors such as electric
utilities and healthcare where we have been selectively weeding out weaker
names. Overall, our focus will remain on our tried-and-true investment strategy
- -- looking for value and attractive yield opportunities, thinning exposure to
sectors that are vulnerable to widening credit spreads and finally, continuing
to maintain strong call protection.
"...we anticipate that new municipal bond issuance will decline... in 1999..."
- --------------------------------------------------------------------------------
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, 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 - 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, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/5/90)
------ ------- ---------
Cumulative Total Returns 0.80% 25.66% 95.47%
Average Annual Total Returns(1) 0.80% 4.67% 7.74%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
------ ------- ---------
Cumulative Total Returns (0.28%) 24.77% 59.57%
Average Annual Total Returns(1) (0.28%) 4.53% 6.90%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of February 28, 1999
SEC 30-DAY
YIELD
------------
John Hancock Tax-Free Bond Fund: Class A 3.90%
John Hancock Tax-Free Bond Fund: Class B 3.33%
Notes to Performance
(1) The Adviser voluntarily waived a portion of the management fee and offset
the custodian fees with balance credits during the period. Without the
waiver of expenses, the average annualized total returns for the one-year,
five-year and since inception periods for Class A shares would have been
0.79%, 4.59% and 7.51%, respectively. The average annualized total returns
for the one-year, five-year and since inception periods for Class B shares
would have been (0.29%), 4.45% and 6.77%, 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 no guarantee of future results.
- --------------------------------------------------------------------------------
Line chart with heading John Hancock 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 John Hancock Tax-Free Bond Fund,
before sales charge, on January 5, 1990, and is equal to $20,558 as of February
28, 1999. The second line represents the Lehman Brothers Municipal Bond Index
and is equal to $20,117 as of February 28, 1999. The third line represents the
same hypothetical investment made in the John Hancock Tax-Free Bond Fund, after
sales charge, and is equal to $19,636 as of February 28, 1999.
Line chart with heading John Hancock 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 Lehman Brothers
Municipal Bond Index and is equal to $16,720 as of February 28, 1999. The second
line represents the value of the hypothetical $10,000 investment made in the
John Hancock Tax-Free Bond Fund, before sales charge, on December 31, 1991, and
is equal to $16,010 as of February 28, 1999.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
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, 1999. 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $685,754,697) .......... $770,257,282
Cash ....................................................... 1,558,455
Receivable for investments sold ............................ 985,502
Receivable for shares sold ................................. 149,367
Interest receivable ........................................ 10,773,918
Receivable for futures variation margin - Note A ........... 114,844
Other assets ............................................... 115,910
-------------
Total Assets ............................. 783,955,278
-----------------------------------------------------------
Liabilities:
Payable for investments purchased .......................... 6,568,790
Payable for shares repurchased ............................. 152,961
Dividend payable ........................................... 310,176
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 530,722
Accounts payable and accrued expenses . .................... 95,830
-------------
Total Liabilities ........................ 7,658,479
-----------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 711,549,850
Accumulated net realized loss on investments and
financial futures contracts ............................... (20,521,703)
Net unrealized appreciation of investments and
financial futures contracts ............................... 84,150,315
Undistributed net investment income ........................ 1,118,337
-------------
Net Assets ............................... $776,296,799
===========================================================
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 - $603,138,653/55,274,134 .......................... $10.91
=============================================================================
Class B - $173,158,146/15,868,933 .......................... $10.91
=============================================================================
Maximum Offering Price Per Share*
Class A - ($10.91 x 104.71%) ............................... $11.42
=============================================================================
* 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ................................................... $23,052,226
------------
Expenses:
Investment management fee - Note B ........................ 2,061,459
Distribution and service fee - Note B
Class A ................................................. 445,001
Class B ................................................. 817,471
Transfer agent fee - Note B ............................... 451,838
Custodian fee ............................................. 110,181
Financial services fee - Note B ........................... 55,838
Trustees' fees ............................................ 23,321
Auditing fee .............................................. 19,988
Printing .................................................. 17,316
Registration and filing fees .............................. 15,832
Miscellaneous ............................................. 9,346
Legal fees ................................................ 3,004
Less management fee reduction - Note B .................... (1,641)
------------
Total Expenses ........................... 4,028,954
-----------------------------------------------------------
Less Expense Reduction -
Note B ................................... (53,994)
-----------------------------------------------------------
Net Expenses ............................. 3,974,960
-----------------------------------------------------------
Net Investment Income .................... 19,077,266
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts:
Net realized gain on investments sold ...................... 789,953
Net realized loss on financial futures contracts ........... (431,463)
Change in net unrealized appreciation/depreciation
of investments ............................................ (6,913,091)
Change in net unrealized appreciation/depreciation
of financial futures contracts ............................ (508,451)
------------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts .............. (7,063,052)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................ $12,014,214
===========================================================
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, 1999
AUGUST 31, 1998 (UNAUDITED)
--------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................................................... $39,308,327 $19,077,266
Net realized gain on investments sold and financial futures contracts .................... 3,421,148 358,490
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ............................................................ 24,618,507 (7,421,542)
------------- -------------
Net Increase in Net Assets Resulting from Operations ................................... 67,347,982 12,014,214
------------- -------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5609 and $0.2778 per share, respectively) ................................ (30,751,765) (15,129,031)
Class B - ($0.4794 and $0.2369 per share, respectively) ................................ (8,591,825) (3,948,235)
------------- -------------
Total Distributions to Shareholders .................................................... (39,343,590) (19,077,266)
------------- -------------
From Fund Share Transactions - Net:* ........................................................ (37,820,203) (1,630,562)
------------- -------------
Net Assets:
Beginning of period ...................................................................... 794,806,224 784,990,413
------------- -------------
End of period (including undistributed net investment income of
$1,118,337 and $1,118,337, respectively) ............................................... $784,990,413 $776,296,799
============= =============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1999
AUGUST 31, 1998 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ................................................ 9,452,430 $102,833,221 11,851,722 $130,122,158
Shares issued to shareholders in reinvestment
of distributions ......................................... 2,056,575 22,345,666 981,299 10,773,886
------------- ------------- ------------- -------------
11,509,005 125,178,887 12,833,021 140,896,044
Less shares repurchased .................................... (12,463,378) (135,519,593) (12,135,415) (133,252,183)
------------- ------------- ------------- -------------
Net increase (decrease) .................................... (954,373) ($10,340,706) 697,606 $7,643,861
============= ============= ============= =============
CLASS B
Shares sold ................................................ 1,812,250 $19,737,401 1,418,170 $15,619,440
Shares issued to shareholders in reinvestment
of distributions ......................................... 419,825 4,561,374 189,399 2,079,375
------------- ------------- ------------- -------------
2,232,075 24,298,775 1,607,569 17,698,815
Less shares repurchased .................................... (4,765,668) (51,778,272) (2,457,992) (26,973,238)
------------- ------------- ------------- -------------
Net decrease ............................................... (2,533,593) ($27,479,497) (850,423) ($9,274,423)
============= ============= ============= =============
</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 - 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, PERIOD FROM
------------------------------------------- JANUARY 1, 1996 TO
1993 1994(1) 1995 AUGUST 31, 1996(8)
----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $10.47 $10.96 $9.39 $10.67
----------- ----------- ----------- -----------
Net Investment Income ....................................... 0.62 0.58 0.57(2) 0.40
Net Realized and Unrealized Gain (Loss) on Investments ...... 0.93 (1.58) 1.28 (0.41)
----------- ----------- ----------- -----------
Total from Investment Operations ........................... 1.55 (1.00) 1.85 (0.01)
----------- ----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income ........................ (0.62) (0.57) (0.57) (0.39)
Distributions from Net Realized Gain on Investments Sold .... (0.44) -- -- --
----------- ----------- ----------- -----------
Total Distributions ........................................ (1.06) (0.57) (0.57) (0.39)
----------- ----------- ----------- -----------
Net Asset Value, End of Period .............................. $10.96 $9.39 $10.67 $10.27
=========== =========== =========== ===========
Total Investment Return at Net Asset Value (3) ............. 15.15% (9.28%) 20.20% (0.01%)(4)
Total Adjusted Investment Return at Net Asset Value (3,5) ... 14.98% (9.39%) 20.08% (0.09%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $136,521 $114,539 $118,797 $560,863
Ratio of Expenses to Average Net Assets ..................... 0.78% 0.85% 0.85% 0.85%(7)
Ratio of Adjusted Expenses to Average Net Assets (6) ........ 0.95% 0.96% 0.97% 0.98%(7)
Ratio of Net Investment Income to Average Net Assets ........ 5.57% 5.72% 5.67% 5.75%(7)
Ratio of Adjusted Net Investment Income to Average
Net Assets (6) ............................................ 5.40% 5.61% 5.55% 5.62%(7)
Portfolio Turnover Rate ..................................... 116% 107% 113% 116%(9)
Fee Reduction Per Share ..................................... $0.02 $0.01 $0.01(2) $0.01(2)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, SIX MONTHS ENDED
------------------------------ FEBRUARY 28, 1999
1997 1998 (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $10.27 $10.63 $11.01
----------- ----------- -----------
Net Investment Income ........................................... 0.59 0.56(2) 0.28(2)
Net Realized and Unrealized Gain (Loss) on Investments .......... 0.36 0.38 (0.10)
----------- ----------- -----------
Total from Investment Operations ............................... 0.95 0.94 0.18
----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income ............................ (0.59) (0.56) (0.28)
Distributions from Net Realized Gain on Investments Sold ........ -- -- --
----------- ----------- -----------
Total Distributions ............................................ (0.59) (0.56) (0.28)
----------- ----------- -----------
Net Asset Value, End of Period .................................. $10.63 $11.01 $10.91
=========== =========== ===========
Total Investment Return at Net Asset Value (3) ................. 9.44% 9.08% 1.60%(4)
Total Adjusted Investment Return at Net Asset Value (3,5) ....... 9.38% 9.06% 1.59%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $590,185 $600,905 $603,139
Ratio of Expenses to Average Net Assets ......................... 0.85% 0.85% 0.86%(7,11)
Ratio of Adjusted Expenses to Average Net Assets (6) ............ 0.91% 0.87% 0.87%(7)
Ratio of Net Investment Income to Average Net Assets ............ 5.61% 5.16% 5.10%(7)
Ratio of Adjusted Net Investment Income to Average
Net Assets (6) ................................................ 5.55% 5.14% 5.09%(7)
Portfolio Turnover Rate ......................................... 46%(9) 24% 5%
Fee Reduction Per Share ......................................... $0.01 $0.01(2) $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, PERIOD FROM
------------------------------------------- JANUARY 1, 1996 TO
1993 1994(1) 1995 AUGUST 31, 1996(8)
----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $10.47 $10.96 $9.38 $10.67
----------- ----------- ----------- -----------
Net Investment Income ....................................... 0.54 0.50 0.50(2) 0.34
Net Realized and Unrealized Gain (Loss) on Investments ...... 0.93 (1.58) 1.28 (0.40)
----------- ----------- ----------- -----------
Total from Investment Operations ........................... 1.47 (1.08) 1.78 (0.06)
----------- ----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income ........................ (0.54) (0.50) (0.49) (0.34)
Distributions from Net Realized Gain on Investments Sold .... (0.44) -- -- --
----------- ----------- ----------- -----------
Total Distributions ........................................ (0.98) (0.50) (0.49) (0.34)
----------- ----------- ----------- -----------
Net Asset Value, End of Period .............................. $10.96 $9.38 $10.67 $10.27
=========== =========== =========== ===========
Total Investment Return at Net Asset Value (3) ............. 14.30% (10.05%) 19.41% (0.51%)(4)
Total Adjusted Investment Return at Net Asset Value (3,5) ... 14.13% (10.16%) 19.29% (0.59%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $56,384 $70,243 $76,824 $81,177
Ratio of Expenses to Average Net Assets ..................... 1.53% 1.60% 1.60% 1.60%(7)
Ratio of Adjusted Expenses to Average Net Assets (6) ........ 1.70% 1.71% 1.72% 1.73%(7)
Ratio of Net Investment Income to Average Net Assets ........ 4.66% 4.97% 4.90% 4.91%(7)
Ratio of Adjusted Net Investment Income to Average
Net Assets (6) ............................................ 4.49% 4.86% 4.78% 4.78%(7)
Portfolio Turnover Rate ..................................... 116% 107% 113% 116%(9)
Fee Reduction Per Share ..................................... $0.02 $0.01 $0.01(2) $0.01(2)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, SIX MONTHS ENDED
------------------------------ FEBRUARY 28, 1999
1997 1998 (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $10.27 $10.63 $11.01
----------- ----------- -----------
Net Investment Income ....................................... 0.51 0.48(2) 0.24(2)
Net Realized and Unrealized Gain (Loss) on Investments ...... 0.36 0.38 (0.10)
----------- ----------- -----------
Total from Investment Operations ........................... 0.87 0.86 0.14
----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income ........................ (0.51) (0.48) (0.24)
Distributions from Net Realized Gain on Investments Sold .... -- -- --
----------- ----------- -----------
Total Distributions ........................................ (0.51) (0.48) (0.24)
----------- ----------- -----------
Net Asset Value, End of Period .............................. $10.63 $11.01 $10.91
=========== =========== ===========
Total Investment Return at Net Asset Value (3) ............. 8.63% 8.27% 1.22%(4)
Total Adjusted Investment Return at Net Asset Value (3,5) ... 8.57% 8.25% 1.21%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $204,621 $184,085 $173,158
Ratio of Expenses to Average Net Assets ..................... 1.60% 1.60% 1.61%(7,11)
Ratio of Adjusted Expenses to Average Net Assets (6) ........ 1.66% 1.62% 1.62%(7)
Ratio of Net Investment Income to Average Net Assets ........ 4.85% 4.41% 4.35%(7)
Ratio of Adjusted Net Investment Income to Average
Net Assets (6) ............................................ 4.79% 4.39% 4.34%(7)
Portfolio Turnover Rate ..................................... 46%(9) 24% 5%
Fee Reduction Per Share ..................................... $0.01 $0.01(2) $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 end changed from December 31
to August 31.
(9) Portfolio turnover excludes merger activity.
(10) Less than $0.01 per share.
(11) For the period ended February 28, 1999, the ratio of expenses to average
net assets for the Fund excludes the effect of expense reductions. If
expense reductions were included, the ratio of expenses to average net
assets would have been 0.85% for Class A and 1.60% for Class B.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Tax-Free Bond Fund
Schedule of Investments
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Tax-Free Bond Fund on February 28, 1999. 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 (1.16%)
Alabama State Docks Department,
Docks Facil Rev Ref Ser 1998 ................................. 5.250% 10-01-12 AAA $4,245 $4,486,753 4.97%
Docks Facil Rev Ref Ser 1998 ................................. 5.375 10-01-15 AAA 3,835 4,022,225 5.12
Citronelle Industrial Development Board,
Poll Control Rev Stauffer Chemical Co Proj 1982 .............. 8.000 12-01-12 A1 500 528,335 7.57
------------
9,037,313
------------
Alaska (0.44%)
Alaska Energy Auth,
Pwr Rev Ref Bradley Lake Proj 5th Ser ** ..................... 5.000 07-01-21 AAA 1,000 971,250 5.15
Alaska Housing Finance Corp,
Coll Home Mtg Ser B-1 GNMA Coll .............................. 7.650 06-01-24 AAA 1,255 1,333,111 7.20
Valdez Alaska Marine Terminal,
Rev Ref Sohio Pipe Line Co Proj Ser 1985 ..................... 7.125 12-01-25 AA+ 1,000 1,106,690 6.44
------------
3,411,051
------------
Arizona (2.04%)
Arizona Health Facilities Auth,
Hosp Sys Rev Ref Phoenix Memorial Hosp Proj .................. 8.200 06-01-21 BBB 2,150 2,291,190 7.69
Arizona Municipal Financing Program,
Cert of Part Ser 25 .......................................... 7.875 08-01-14 AAA 1,000 1,318,910 5.97
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 2,212,280 6.33
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 8,921,754 6.11
Navajo County Industrial Development Auth,
Ind'l Devel Rev Stone Container Corp Proj .................... 7.200 06-01-27 B 1,000 1,098,450 6.55
------------
15,842,584
------------
Arkansas (0.32%)
Arkansas Development Finance Auth,
Single Family Mtg Rev Ref Ser 1991 A ......................... 8.000 08-15-11 AA 340 358,323 7.59
Jefferson, County of,
Poll Control Rev Ref Entergy Arkansas Proj ................... 5.600 10-01-17 BBB- 2,150 2,156,300 5.58
------------
2,514,623
------------
</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>
California (15.05%)
California Statewide Communities Development Auth,
Ins Rev Ref Cert of Part Hlth Facil Eskaton Inc ............ 5.875% 05-01-20 A+ $4,000 $4,205,480 5.59%
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993 ......... 6.200 07-01-20 BBB- 7,000 7,821,800 5.55
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Cap Apprec Ser 1995A ................ Zero 01-01-19 BBB- 36,600 12,687,024 5.41
Toll Rd Rev Fixed Rate Cap Apprec Ser 1995A ................ Zero 01-01-20 BBB- 10,000 3,279,500 5.42
Toll Rd Rev Fixed Rate Current Int Ser 1995A ............... 6.000 01-01-16 BBB- 20,500 22,414,495 5.49
Madera, County of,
Cert of Part Valley Childrens Hosp ......................... 6.500 03-15-15 AAA 13,185 15,805,519 5.42
Millbrae, City of,
Residential Facil Rev Ser 1997A Magnolia of Millbrae Proj .. 7.375 09-01-27 BB 1,000 1,075,190 6.86
Sacramento Cogeneration Auth,
Cogeneration Proj Rev Procter & Gamble Proj ................ 6.500 07-01-21 BBB- 3,750 4,356,600 5.59
Sacramento Municipal Utilities District,
Ind'l Devel Rev Ref San Diego Gas & Electric Ser C Inflos .. 8.458# 08-15-18 AAA 1,000 1,185,000 7.14
San Bernardino, County of,
Cert of Part Ref Medical Center Finance Project ............ 5.500 08-01-17 AAA 9,130 9,824,154 5.11
Cert of Part Ref Medical Center Finance Project ............ 5.500 08-01-22 A- 2,500 2,611,225 5.27
San Francisco, City of,
Resid Facil Ser A Coventry Park Proj ....................... 8.500 12-01-26 BB 2,000 2,295,640 7.41
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Jr Lien Cap Apprec ............................. Zero 01-01-10 AAA 6,250 3,881,563 4.44
Toll Rd Rev Ref Conv Cap Apprec Ser 1997A .................. Zero 01-15-17 BBB- 10,000 7,201,400 4.93
Toll Rd Rev Sr Lien Cap Apprec ............................. Zero 01-01-14 AAA 5,000 2,468,800 4.81
Toll Rd Rev Sr Lien Cap Apprec ............................. Zero 01-01-17 AAA 4,900 2,026,101 5.01
Toll Rd Rev Sr Lien Cap Apprec ............................. Zero 01-01-19 AAA 15,510 5,752,969 5.06
Toll Rd Rev Sr Lien Cap Apprec ............................. Zero 01-01-20 AAA 2,000 704,240 5.07
Toll Rd Rev Sr Lien Cap Apprec ............................. Zero 01-01-23 AAA 7,500 2,261,025 5.09
San Jose Financing Auth,
Rev Ser B Community Facil Proj ............................. 5.625 11-15-18 A+ 2,500 2,617,150 5.37
Santa Ana Financing Auth,
Lease Rev Police Admin & Holding Facil Ser A ............... 6.250 07-01-19 AAA 2,000 2,350,800 5.32
------------
116,825,675
------------
Colorado (1.78%)
Arapahoe County Capital Improvement Trust Fund,
Highway Rev Current Ser E-470 .............................. 6.950 08-31-20 AAA 5,000 5,979,650 5.81
Colorado Housing Finance Auth,
Single Family Prog Sr Iss A-2 .............................. 7.625 08-01-17 AA+ 405 418,596 7.38
Denver, City and County of,
Airport Sys Rev Ser 1992A Preref ........................... 7.250 11-15-25 AAA 1,980 2,259,536 6.35
Airport Sys Rev Ser 1994A Preref ........................... 7.500 11-15-23 BBB+ 535 641,417 6.26
Airport Sys Rev Ser 1994A Unref Bal ........................ 7.500 11-15-23 BBB+ 2,565 2,941,080 6.54
Douglas County School District No. Re. 1,
Douglas and Elbert Counties Imp Ser 1994A .................. 6.400 12-15-11 AAA 1,400 1,598,324 5.61
------------
13,838,603
------------
</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>
Connecticut (0.30%)
Connecticut Development Auth,
Poll Control Rev Ref Ser 1993A Connecticut Light & Pwr ..... 5.850% 09-01-28 B+ $1,250 $1,251,075 5.84%
Connecticut Health and Educational Facilities Auth,
Rev Ser D Univ of Hartford ................................. 6.800 07-01-22 BBB- 1,000 1,056,460 6.44
------------
2,307,535
------------
Delaware (0.92%)
Delaware State Economic Development Auth,
Rev Ref Poll Control Ser B Delmarva Pwr Proj ............... 6.750 05-01-19 AAA 6,500 7,124,585 6.16
------------
District of Columbia (0.50%)
District of Columbia,
Rev Nat'l Academy of Science Proj Ser A .................... 5.000 01-01-28 AAA 4,000 3,886,680 5.15
------------
Florida (4.47%)
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 1,349,163 6.14
Dade, County of,
Professional Sports Franchise Facil Tax Rev Cap Apprec ..... Zero 10-01-27 AAA 5,500 1,287,330 5.14
Hernando County Industrial Development Auth,
Rev Ref 2nd Fla Crushed Stone Co. .......................... 8.500 12-01-14 BBB- 200 224,664 7.57
Hernando, County of,
Rev Criminal Justice Complex Fin Proj ...................... 7.650 07-01-16 AAA 500 664,315 5.76
Hillsborough County Aviation Auth,
Rev Ser B Tampa International Airport ...................... 6.000 10-01-17 AAA 5,880 6,678,680 5.28
Hillsborough, County of,
Ref Util Rev Ser 1991A ..................................... 7.000 08-01-14 BBB+ 1,245 1,334,316 6.53
Jacksonville Electric Auth,
Elec Sys Rev Ser 3-A ....................................... 5.250 10-01-28 AA 9,000 9,090,900 5.20
Lee, County of,
Hosp Board of Directors Hosp Rev Inflos .................... 9.823# 04-01-20 AAA 2,000 2,305,000 8.52
Orange County Health Facilities Auth,
Hosp Orlando Regional Medical Center Rev Inflos ............ 9.465# 10-29-21 AAA 1,000 1,173,750 8.06
Orange County School Board,
Cert of Part Ref Ser 1997A ................................. Zero 08-01-13 AAA 10,365 5,212,869 4.82
Orlando Utilities Commission,
Wtr & Elec Sub Rev Ser 1989D ............................... 6.750 10-01-17 AA- 2,200 2,675,200 5.55
Orlando, City of,
Spec Assessment Rev Conroy Rd Interchange Proj
Ser 1998A ................................................ 5.800 05-01-26 BB+ 1,000 989,110 5.86
Tampa, City of,
Health Sys Rev Ref Ser 1998A-1 Catholic Health East
Oblig Group .............................................. 5.500 11-15-14 AAA 1,615 1,751,694 5.07
------------
34,736,991
------------
</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>
Georgia (4.14%)
Georgia Municipal Electric Auth,
Power Rev Ser Y ............................................ 6.500% 01-01-17 AAA $3,500 $4,142,355 5.49%
Pwr Rev Ref Ser BB ......................................... 5.700 01-01-19 A 1,000 1,072,970 5.31
Pwr Rev Ser C .............................................. 5.700 01-01-19 AAA 5,000 5,450,200 5.23
Pwr Rev Ser EE ............................................. 7.250 01-01-24 AAA 2,000 2,632,520 5.51
Pwr Rev Ser Z .............................................. 5.500 01-01-20 AAA 5,840 6,244,887 5.14
Georgia, State of,
GO Fiscal 1997 Ser A ....................................... 6.000 04-01-15 AAA 6,000 6,873,600 5.24
Monroe County Development Auth,
Poll Control Rev Ser A Oglethorpe Pwr Corp Scherer Proj .... 6.800 01-01-12 A 1,000 1,198,160 5.68
Savannah Hospital Auth,
Rev Ref & Imp Candler Hosp Proj ............................ 7.000 01-01-23 BB 4,000 4,507,720 6.21
------------
32,122,412
------------
Illinois (3.81%)
Chicago, City of,
Chicago-O'Hare Int'l Airport Spec Facil Rev United Air Lines, Inc.
Proj Ser A ............................................... 5.350 09-01-16 BB+ 2,170 2,160,213 5.37
Chicago-O'Hare Int'l Airport Gen Airport Rev 1990 Ser A .... 7.500 01-01-16 A+ 2,000 2,095,580 7.16
Chicago-O'Hare Int'l Airport Int'l Terminal Spec Rev
Ser 1992 ................................................. 6.750 01-01-12 AAA 3,000 3,248,760 6.23
Chicago-O'Hare Int'l Airport Spec Facil Rev Ser 1990A
American Airlines Proj ................................... 7.875 11-01-25 BBB- 3,000 3,227,670 7.32
Skyway Toll Bridge Rev Ref Ser 1994 ........................ 6.750 01-01-17 AAA 2,000 2,286,400 5.90
Godfrey, City of,
United Methodist Village Rev Ser 1999A ..................... 5.875 11-15-29 BB+ 1,825 1,734,206 6.18
Illinois Development Finance Auth,
Poll Control Rev Ref Commonwealth Edison Co Proj ........... 5.850 01-15-14 BBB 3,000 3,093,240 5.67
Rev Ref Ser A Columbus Cuneo Cabrini Proj .................. 8.500 02-01-15 Baa2 2,150 2,294,179 7.97
Illinois Health Facilities Auth,
Alexian Brothers Hlth Sys Rev Ref .......................... 5.000 01-01-25 AAA 3,000 2,894,370 5.18
Rev Methodist Hlth Serv Corp Ser 1991 B .................... 10.277# 05-01-21 AAA 1,000 1,170,000 8.78
Rev Ref Friendship Vlg Schamburg ........................... 6.750 12-01-08 A- 1,640 1,728,380 6.40
Rev Ref Ser 1992 Mercy Hosp & Medical Center Proj .......... 7.000 01-01-07 Baa2 1,500 1,638,570 6.41
Rev Swedish-American Hosp .................................. 7.400 04-01-20 AAA 750 797,895 6.96
Illinois Industrial Pollution Control Financing Auth,
Rev Great Lakes Carbon Corp Proj ........................... 7.125 10-01-01 BB+ 705 705,811 7.12
Robbins, County of,
Res Recovery Rev Ser A Robbins Res Recovery Partners ....... 8.375 10-15-16 BB 1,000 540,000 15.51
------------
29,615,274
------------
Indiana (0.29%)
Wabash, County of,
Solid Waste Disp Rev Jefferson Smurfit Corp Proj ........... 7.500 06-01-26 BB 2,000 2,233,080 6.72
------------
Iowa (0.13%)
Iowa Finance Auth,
Health Care Facil Rev Ref Care Initiatives Proj Ser B ...... 5.750 07-01-18 BB 1,000 982,740 5.85
------------
</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 (0.83%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Proj Ser 1992A ............... 6.750% 02-01-02 BBB- $2,000 $2,115,700 6.38%
Rev Spec Facil Delta Airlines Proj Ser 1992A ............... 7.500 02-01-12 BBB- 2,000 2,182,720 6.87
Rev Spec Facil Delta Airlines Proj Ser 1992A ............... 7.125 02-01-21 BBB- 2,000 2,149,880 6.63
------------
6,448,300
------------
Louisiana (2.32%)
Calcasieu Parish Industrial Development Board,
Poll Control Rev Ref Entergy Gulf States Inc Proj .......... 5.450 07-01-10 BB+ 1,500 1,491,240 5.48
Poll Control Rev Ref Ser 1992 Gulf States Util Co Proj ..... 6.750 10-01-12 BB+ 2,975 3,157,308 6.36
De Soto, Parish of,
Rev Environ Imp Rev Int'l Paper Co Proj Ser A .............. 7.700 11-01-18 BBB+ 2,750 3,153,040 6.72
Louisiana Public Facilities Auth,
Progressive Hlthcare Rev Ser 1998B ......................... 6.375 10-01-20 BB- 1,245 1,203,180 6.60
Rev Ser B Alton Ochsner Medical Funding Proj ............... 6.500 05-15-22 AAA 3,405 3,704,299 5.97
St. Charles, Parish of,
Poll Control Rev Ser 1991 Louisiana Pwr & Light Co Proj .... 7.500 06-01-21 BBB 4,000 4,288,880 6.99
West Feliciana, Parish of,
Poll Control Rev Ser D Gulf States Utilities Co ............ 5.800 12-01-15 BB+ 1,000 998,830 5.81
------------
17,996,777
------------
Massachusetts (4.76%)
Massachusetts Development Finance Agency,
Concord-Assabet Family Servs Rev Ref ....................... 6.000 11-01-28 Ba2 2,000 1,972,780 6.08
Massachusetts Health and Educational Facilities Auth,
Rev Brigham & Women's Hosp Iss Ser D ....................... 6.750 07-01-24 AAA 2,450 2,674,714 6.18
Rev Lowell Gen Hosp Iss Ser A .............................. 8.400 06-01-11 A3 1,100 1,234,750 7.48
Rev New England Deaconess Hosp Iss Ser D ................... 6.625 04-01-12 AAA 3,500 3,864,770 6.00
Rev New England Deaconess Hosp Iss Ser D ................... 6.875 04-01-22 AAA 5,960 6,624,361 6.19
Rev St. Elizabeth's Hosp of Boston Ser E ................... 10.520# 08-15-21 AAA 1,000 1,162,500 9.05
Rev Wellesley College Ser F ................................ 5.125 07-01-39 AA+ 1,000 984,010 5.21
Rev Worcester Polytechnic Institute Ser E .................. 6.750 09-01-11 AAA 3,840 4,302,298 6.02
Massachusetts Housing Finance Agency,
Residential Dev 1992 Ser A ................................. 6.900 11-15-24 AAA 2,700 2,936,196 6.34
Massachusetts Municipal Wholesale Electric Co,
Pwr Supply Sys Rev 1992 Ser B Pub Corp of the
Commonwealth of Mass ..................................... 6.750 07-01-17 BBB+ 4,405 4,778,192 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 1,111,740 5.73
Massachusetts, Commonwealth of,
GO Consol Ln of 1994 Ser B ................................. 6.000 08-01-14 AA- 2,000 2,240,320 5.36
Plymouth, County of,
Cert of Part Ser A ......................................... 7.000 04-01-22 AA- 2,750 3,057,670 6.30
------------
36,944,301
------------
</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 $1,528,161 5.85%
Michigan Housing Development Auth,
Single Family Mtg Rev Ser A .................................. 7.500 06-01-15 AA+ 995 1,032,223 7.23
Michigan State Hospital Finance Auth,
Hosp Rev Ref Ser 1990A Bay Medical Center Hosp Proj .......... 8.250 07-01-12 A3 2,250 2,432,700 7.63
Hosp Rev Ref Ser 1995A Genesys Hlth Sys Oblig Group .......... 8.100 10-01-13 BBB 3,000 3,754,860 6.47
Wayne Charter, County of,
Spec Airport Facil Rev Ref Ser 1995 Northwest Airlines, Inc... 6.750 12-01-15 BB+ 4,975 5,409,865 6.21
------------
14,157,809
------------
Minnesota (0.97%)
Minneapolis, City of,
Rev Ref Walker Methodist Sr Servs Ser 1998A .................. 6.000 11-15-28 BB+ 1,500 1,513,665 5.95
Rev Ref Walker Methodist Sr Servs Ser 1998A .................. 5.875 11-15-18 BB+ 1,500 1,504,260 5.86
Southern Minnesota Municipal Power Agency,
Pwr Supply Sys Rev Cap Apprec Ser A .......................... Zero 01-01-23 AAA 15,000 4,480,050 5.13
------------
7,497,975
------------
Mississippi (1.00%)
Mississippi Home Corp,
Single Family Sr Rev Ref Ser 1990A ........................... 9.250 03-01-12 AAA 60 63,741 8.71
Mississippi Hospital Equipment and Facilities Auth,
Rev Ser A Rush Memorial Foundation Proj ...................... 8.750 01-01-16 Baa3 2,000 2,221,380 7.88
Washington, County of,
Poll Control Rev Ref Mississippi Pwr & Light Co Proj ......... 7.000 04-01-22 Baa3 5,000 5,449,250 6.42
------------
7,734,371
------------
Nebraska (0.18%)
Omaha Public Power District,
Elec Sys Rev 1992 Ser B ...................................... 6.200 02-01-17 Aa2 1,200 1,365,648 5.45
------------
Nevada (1.52%)
Clark, County of,
Ind'l Development Rev Ser A Southwest Gas Corp Proj .......... 6.500 12-01-33 BBB- 10,000 10,728,700 6.06
Nevada Housing Division,
Single Family Proj Sr Rev Ser 1989 Iss A-1 .................. 7.350 04-01-16 AA 755 771,036 7.20
Single Family Proj Sr Rev Ser 1990 Iss C-1 .................. 7.850 10-01-15 AA 245 254,396 7.56
Nevada, State of,
GO Ltd Tax Municipal Bond Bank Proj No. 38 Ser A Unref Bal.... 6.750 07-01-09 AA 25 27,500 6.14
------------
11,781,632
------------
New Jersey (1.48%)
Camden County Improvement Auth,
Lease Rev Ser A Holt Hauling & Warehousing Proj .............. 9.875 01-01-21 BB- 1,100 1,356,575 8.01
New Jersey Economic Development Auth,
1st Mtg Rev Ser A Winchester Gardens ......................... 8.500 11-01-16 BB+ 100 112,355 7.57
</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 (cont.),
Rev Ref Ind'l Development Newark Airport
Marriott Hotel Proj ........................................ 7.000% 10-01-14 BBB- $4,000 $4,385,440 6.38%
Rev Ref Ser J Holt Hauling Proj .............................. 8.500 11-01-23 BBB 2,500 2,850,325 7.46
New Jersey Health Care Facilities Financing Auth,
Rev Care Institute Inc Cherry Hill Proj ...................... 8.000 07-01-27 BB+ 1,370 1,490,738 7.35
New Jersey Turnpike Auth,
Turnpike Rev Ser 1984 ........................................ 10.375 01-01-03 AAA 1,140 1,310,989 9.02
------------
11,506,422
------------
New Mexico (0.28%)
Farmington, City of,
Poll Control Rev 1997 Ser A Tucson Elec Pwr Co San Juan Proj.. 6.950 10-01-20 B 2,000 2,174,040 6.39
------------
New York (13.09%)
Dutchess County Resource Recovery Agency,
Rev Solid Waste Sys Ser A .................................... 5.350 01-01-12 AAA 1,235 1,285,326 5.14
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj ........ 7.500 03-01-26 BB- 2,500 2,743,025 6.84
Long Island Power Auth,
Elec Sys Gen Rev Ser A ....................................... 5.500 12-01-29 A- 2,250 2,319,502 5.34
New York City Industrial Development Agency,
Rev Ref LaGuardia Assoc LP Proj .............................. 6.000 11-01-28 BB+ 2,500 2,463,625 6.09
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 1,739,050 5.27
New York Local Government Assistance Corp,
Rev Ref Cap Apprec Ser 1993 C ................................ Zero 04-01-14 AAA 7,210 3,461,377 4.92
Ser 1992 A Pub Benefit Corp. ................................. 6.875 04-01-19 A+ 10,700 11,906,104 6.18
New York State Dormitory Auth,
City Univ Sys Consol Rev 2nd Generation Ser 1993A ............ 5.750 07-01-09 BBB+ 1,000 1,102,430 5.22
Cornell Univ Rev Ser 1990A ................................... 7.375 07-01-30 AA 1,000 1,068,370 6.90
Memorial Sloan-Kettering Cancer Ctr Rev ...................... Zero 07-01-18 AAA 3,000 1,132,320 5.10
State Univ Ed Facil Rev Iss Ser 1990B ........................ 7.500 05-15-11 A- 500 613,885 6.11
State Univ Ed Facil Rev Ser 1990B ............................ 7.000 05-15-16 A- 5,000 5,291,650 6.61
State Univ Ed Facil Rev Ser 1993A ............................ 5.500 05-15-19 A- 1,000 1,063,070 5.17
New York State Energy Research and Development Auth,
Elec Facil Rev Ser 1990A Preref .............................. 7.150 06-01-20 A- 1,370 1,533,646 6.39
Elec Facil Rev Ser 1990A Unref Bal ........................... 7.150 06-01-20 A- 3,880 4,222,643 6.57
Elec Facil Rev Ser 1991 A Consol Edison Co of NY Inc Proj .... 7.500 01-01-26 A+ 2,000 2,082,920 7.20
New York State Environmental Facilities Corp,
State Wtr Poll Control Rev Rites Ser PA-174 .................. 12.998# 06-15-11 AAA 2,000 2,882,500 9.02
State Wtr Poll Control Revolving Fund Rev Ser 1990A .......... 7.500 06-15-12 AA 4,370 4,679,746 7.00
New York State Housing Finance Agency,
State Univ Construction Ref 1986 Ser A ....................... 8.000 05-01-11 AAA 2,000 2,612,880 6.12
New York State Medical Care Facilities Finance Agency,
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref ............. 7.875 08-15-08 AAA 345 374,332 7.26
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref ............. 7.875 08-15-20 AAA 371 402,542 7.26
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal .......... 7.875 08-15-08 A3 155 167,265 7.30
</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 (cont.),
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal ........ 7.875% 08-15-20 A3 $84 $90,492 7.31%
Mental Hlth Serv Facil Imp Rev 1991 Ser A Preref ........... 7.750 08-15-11 AAA 1,795 1,974,823 7.04
Mental Hlth Serv Facil Imp Rev 1991 Ser A Unref Bal ........ 7.750 08-15-11 A3 205 223,844 7.10
New York, City of,
GO Cap Apprec Ref Fiscal 1998 Ser G ........................ Zero 08-01-08 A- 6,000 3,936,300 4.52
GO Fiscal 1991 Ser D Preref ................................ 8.000 08-01-04 A- 185 207,241 7.14
GO Fiscal 1991 Ser D Unref Bal ............................. 8.000 08-01-04 A- 10 11,113 7.20
GO Fiscal 1991 Ser F Preref ................................ 8.200 11-15-03 AAA 1,100 1,250,942 7.21
GO Fiscal 1991 Ser F Unref Bal ............................. 8.200 11-15-03 A- 150 169,083 7.27
GO Fiscal 1992 Ser A Preref ................................ 7.750 08-15-12 A- 1,970 2,198,500 6.94
GO Fiscal 1992 Ser A Unref Bal ............................. 7.750 08-15-12 A- 30 33,229 7.00
GO Fiscal 1992 Ser D Preref ................................ 7.700 02-01-09 A- 985 1,108,962 6.84
GO Fiscal 1992 Ser D Unref Bal ............................. 7.700 02-01-09 A- 15 16,739 6.90
GO Fiscal 1992 Ser H Preref ................................ 7.000 02-01-08 A- 1,760 1,945,979 6.33
GO Fiscal 1992 Ser H Unref Bal ............................. 7.000 02-01-08 A- 240 263,222 6.38
GO Fiscal 1995 Ser B Preref ................................ 7.000 08-15-16 A- 3,000 3,492,840 6.01
GO Fiscal 1996 Ser J ....................................... 5.500 02-15-26 A- 2,000 2,062,780 5.33
GO Rev Ref Ad Valorem Property Tax Ser D ................... 5.750 08-15-13 A- 3,170 3,340,039 5.46
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 ......................... 6.750 10-01-19 BBB 11,000 12,182,170 6.09
Triborough Bridge & Tunnel Auth,
Gen Purpose Rev Ser 1993 ................................... Zero 01-01-22 AAA 20,755 6,486,353 5.16
Gen Purpose Rev Ser R ...................................... 7.375 01-01-16 AAA 1,600 1,680,192 7.02
Gen Purpose Rev Ser X ...................................... 6.500 01-01-19 A+ 1,250 1,355,613 5.99
Spec Oblig Ref Ser 1991B ................................... 6.875 01-01-15 A- 2,300 2,471,856 6.40
------------
101,650,520
------------
North Carolina (1.68%)
North Carolina Municipal Power Agency Number 1,
Catawba Elec Rev Ser 1992 .................................. 5.750 01-01-15 AAA 7,410 7,829,851 5.44
Catawba Elec Rev Ser 1993 .................................. 5.000 01-01-15 AAA 5,220 5,235,399 4.99
------------
13,065,250
------------
Ohio (3.93%)
Akron, City of,
Cert of Part Akron Municipal Baseball Stadium Proj ......... Zero 12-01-16 BBB 1,000 978,180 6.97
Cleveland Public Power System,
Elec Sys Rev 1st Mtg Ser 1994A ............................. 7.000 11-15-16 AAA 5,860 6,903,256 5.94
Elec Sys Rev 1st Mtg Ser A ................................. 7.000 11-15-24 AAA 4,200 4,947,726 5.94
Franklin, County of,
Hosp Facil Ref & Imp Rev Ser 1990B
Riverside United Methodist Hosp Proj ..................... 7.600 05-15-20 AAA 1,000 1,071,140 7.10
Lorain, County of,
Health Care Fac Rev Ref Ser A Kendal At Oberlin Proj ....... 5.250 02-01-21 BBB 2,000 1,890,440 5.55
Rev 1st Mtg Ser A Kendal At Oberlin Proj ................... 8.625 02-01-22 AA 3,865 4,445,446 7.50
Ohio State Air Quality Development Auth,
Rev Adj Ser B Columbus & South Proj ........................ 6.250 12-01-20 Baa1 4,500 4,678,020 6.01
</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)
Ohio State Water Development Auth,
Poll Control Facil Rev Ref Ser 1995 Cleveland Elec Co Proj..... 7.700% 08-01-25 BB+ $2,800 $3,192,140 6.75%
Ohio, State of,
Solid Waste Rev Ref CSC Ltd Proj .............................. 8.500 08-01-22 BB 1,825 1,893,784 8.19
Student Loan Funding Corp,
Sub Rev Ser B Cincinnati Ohio Student Loan .................... 8.875 08-01-08 BBB- 525 548,153 8.50
------------
30,548,285
------------
Oklahoma (0.28%)
Tulsa Municipal Airport Trust, Trustees of,
Rev Ser 1988 American Airlines Inc. ........................... 7.375 12-01-20 BBB- 2,000 2,140,320 6.89
------------
Oregon (0.47%)
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj ........................ 7.125 01-01-21 BBB- 3,400 3,654,796 6.63
------------
Pennsylvania (8.08%)
Allegheny County Hospital Development Auth,
Rev Hlth & Ed Rehab Institute of Pitt ......................... 7.000 06-01-22 AA 1,500 1,673,925 6.27
Allegheny County Industrial Development Auth,
Environment Imps Rev Ref USX Corp. ............................ 5.600 09-01-30 BBB- 1,000 1,001,370 5.59
Rev Ref Ser 1994A Environmental Imp USX Corp Proj ............. 6.700 12-01-20 BBB- 10,000 10,853,900 6.17
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 2,522,652 6.76
Delaware County Auth,
1st Mtg Rev Riddle Village Proj ............................... 7.000 06-01-26 BBB- 1,250 1,303,537 6.71
Delaware County Industrial Development Auth,
Poll Control Rev Ref 1991 Ser A Philadelphia Elec Co Proj ..... 7.375 04-01-21 BBB+ 5,095 5,430,964 6.92
Lehigh County General Purpose Auth,
Rev KidsPeace Oblig Group ..................................... 6.000 11-01-18 BB 2,000 2,008,140 5.98
Northumberland County Auth,
Commonwealth Lease Rev Ser 1991 ............................... 6.250 10-15-09 AAA 1,000 1,070,710 5.84
Pennsylvania Convention Center Auth,
Rev Ref Ser 1994A ............................................. 6.700 09-01-14 BBB 4,950 5,515,389 6.01
Pennsylvania Economic Development Finance Auth,
Resource Recovery Rev Ser 1994 D Colver Proj .................. 7.150 12-01-18 BBB- 1,500 1,655,145 6.48
Resource Recovery Rev Ser 1994D Colver Proj ................... 7.125 12-01-15 BBB- 7,000 7,704,480 6.47
Pennsylvania State Turnpike Commission,
Turnpike Rev Ser N ............................................ 6.500 12-01-13 A 2,840 3,090,374 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 3,051,810 7.63
Hosp Rev 1992 Ser A Childrens Seashore House Proj ............. 7.000 08-15-12 A- 1,250 1,361,887 6.42
Hosp Rev Ser 1993A Temple Univ Hosp Proj ...................... 6.625 11-15-23 BBB+ 2,375 2,531,465 6.22
Philadelphia Industrial Development Auth,
Commercial Devel Rev Ref Ser A Doubletree Proj ................ 6.500 10-01-27 BB+ 1,000 1,067,010 6.09
Commercial Devel Rev Ser 1995 Philadelphia Airport Hotel Proj.. 7.750 12-01-17 B+ 3,250 3,619,330 6.96
</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)
Philadelphia, City of,
Wtr & Swr Rev 16th Ser ..................................... 7.500% 08-01-10 AAA $3,000 $3,337,560 6.74%
Scranton-Lackawanna Health and Welfare Auth,
Rev Ser A Allied Services Rehabilitation Hosp Proj ......... 7.600 07-15-20 BBB- 3,525 3,893,151 6.88
------------
62,692,799
------------
Puerto Rico (6.97%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico .............................. 6.000 07-01-11 AAA 200 230,596 5.20
Ref Pars & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico .............................. 8.220# 07-01-11 AAA 6,500 8,482,500 6.30
Puerto Rico Highway and Transportation Auth,
Highway Rev Ser Y Res Int Tax-Exempt Sec Rec'ts
Ser PA-114 (r) ........................................... 9.722# 07-01-11 Baa1 13,130 17,147,386 7.44
Puerto Rico, Commonwealth of,
GO Cap Apprec Ref Pub Imp Ser 1998 ......................... Zero 07-01-14 A 4,000 1,905,680 4.89
GO Pub Imp Inverse Floater Ser 1992A ....................... 8.344# 07-01-08 AAA 2,700 3,057,750 7.37
GO Pub Imp Inverse Rate Securities Ser 1996 ................ 8.262# 07-01-11 AAA 14,000 18,270,000 6.33
Puerto Rico Infrastructure Financing Auth,
Spec Tax Rev Ref Ser 1998A ................................. 5.500 07-01-08 AAA 4,495 4,982,977 4.96
------------
54,076,889
------------
South Carolina (1.44%)
Florence, County of,
Ind'l Dev Rev Stone Container Proj ......................... 7.375 02-01-07 BB- 3,915 4,158,787 6.94
James Island Public Service District,
Charleston County Swr Sys Ref .............................. 7.500 06-01-18 AAA 1,250 1,289,663 7.27
Richland, County of,
Poll Control Rev Union Camp Corp Proj Ser 1992 B ........... 6.625 05-01-22 A- 2,460 2,668,042 6.11
Poll Control Rev Union Camp Corp Proj Ser 1992 C ........... 6.550 11-01-20 A- 1,000 1,095,020 5.98
South Carolina Jobs-Economic Development Auth,
Solid Waste Recycling Rev Santee River Rubber Proj Ser A .. 8.000 12-01-14 BB- 2,000 1,976,560 8.09
------------
11,188,072
------------
Tennessee (2.96%)
Eastside Utility District of Hamilton,
Waterworks Rev Iss ......................................... 6.750 11-01-11 A 1,000 1,103,620 6.12
Hardeman, County of,
Correctional Facil Rev Ser B Corrections Corp of America ... 7.375 08-01-17 BB 500 545,310 6.76
Humphreys County Industrial Development Board,
Solid Waste Disposal Rev E.I. Dupont Denemours and Co Proj.. 6.700 05-01-24 AA- 6,500 7,244,185 6.01
Maury County Industrial Development Board,
Multi-Modal Interchangeable Rate Poll Control Ref Rev
Saturn Corp Proj ......................................... 6.500 09-01-24 A 9,000 9,735,300 6.01
Memphis-Shelby County Airport Auth,
Rev Ref Federal Express Corp. .............................. 6.750 09-01-12 BBB 4,000 4,366,120 6.18
------------
22,994,535
------------
</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>
Texas (5.14%)
Austin, City of,
Combined Util Sys Rev Ref Ser 1998 ......................... 6.750% 11-15-10 AAA $3,125 $3,794,781 5.56%
Corpus Christi Housing Finance Corp,
Single Family Mtg Sr Rev Ref Ser 1991 A .................... 7.700 07-01-11 AAA 435 474,019 7.07
Dallas-Fort Worth International Airport Facility Improvement,
Rev American Airlines Inc. ................................. 7.250 11-01-30 BBB- 10,250 11,259,215 6.60
Rev Delta Air Lines Inc. ................................... 7.600 11-01-11 BBB- 3,000 3,273,390 6.97
Ector County Hospital District,
Hosp Rev 1992 .............................................. 7.300 04-15-12 AAA 4,000 4,496,280 6.49
El Paso Housing Finance Corp,
Single Family Mtg Rev Ref Bonds 1991 Ser A ................. 8.750 10-01-11 A2 385 422,611 7.97
El Paso International Airport,
Rev Ref Spec Facil Marriott Corp Proj ...................... 7.750 03-01-12 B1 1,410 1,494,882 7.31
Harris County Health Facilities Development Corp,
Hosp Rev Ser 1988A Saint Luke's Episcopal Hosp Proj ........ 8.250 02-15-08 AAA 2,475 2,594,246 7.87
Houston Independent School District,
Pub Facil Corp Lease Rev Cap Apprec Ser A Cesar E Chavez ... Zero 09-15-16 AAA 1,000 406,830 5.19
Houston, City of,
Spec Facil Rev Ser C Continental Airline Inc ............... 6.125 07-15-27 BB 4,000 4,085,600 6.00
Wtr & Swr Sys Rev Ref Prior Lien Ser B Preref .............. 6.750 12-01-08 A 180 198,794 6.11
Wtr & Swr Sys Rev Ref Prior Lien Ser B Unref Bal ........... 6.750 12-01-08 A 1,320 1,441,295 6.18
North Central Texas Health Facilities Development,
Hospital Rev Baylor Univ Medical Center Ser 1991A .......... 10.323# 05-15-16 AA 1,000 1,170,000 8.82
Port of Corpus Christi,
Ind'l Development Corp Rev Ref Ser A Valero Energy Corp .... 5.450 04-01-27 BBB- 2,000 1,956,560 5.57
San Antonio, County of,
GO Ref Gen Imp Ser 1996 .................................... 6.000 08-01-08 AA+ 1,000 1,134,770 5.29
Texas, State of,
Veterans' Land Board GO .................................... 7.125 12-01-09 AA 1,000 1,047,780 6.80
Veterans' Land Board GO Preref ............................. 8.250 12-01-10 AAA 610 634,101 7.94
------------
39,885,154
------------
Utah (0.77%)
Carbon, County of,
Solid Waste Disp Rev Ref Ser A East Carbon
Development Corp. ........................................ 9.000 07-01-12 BBB- 1,000 1,074,670 8.37
Intermountain Power Agency,
Pwr Supply Rev Ref Ser A ................................... 5.000 07-01-19 AAA 3,500 3,429,090 5.10
Salt Lake City Hospital,
Rev Ref Ser A .............................................. 8.125 05-15-15 AAA 1,000 1,312,260 6.19
Utah Housing Finance Agency,
Single Family Mtg Sr 1990 Iss B-2 .......................... 7.700 07-01-15 AAA 70 72,354 7.45
Single Family Mtg Sr 1991 Iss B-1 .......................... 7.500 07-01-16 AAA 80 83,723 7.17
------------
5,972,097
------------
</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>
Virgin Islands (0.46%)
Virgin Islands Public Finance Auth,
Rev Sub Lien Fund Ln Notes Ser 1998E ....................... 5.875% 10-01-18 BB+ $2,500 $2,577,275 5.70%
Virgin Islands Water & Power Auth,
Wtr Sys Rev Ref ............................................ 5.500 07-01-17 BB+ 1,000 989,670 5.56
------------
3,566,945
------------
Virginia (1.33%)
Arlington County Industrial Development Auth,
Hosp Facil Rev Arlington Hosp Ser 1991 A ................... 7.125 09-01-21 AAA 500 553,120 6.44
Fairfax County Industrial Develpment Auth,
Rev RITES .................................................. 10.277# 08-29-23 AA- 1,000 1,181,250 8.70
Fredericksburg Industrial Auth,
Hosp Facil Rev ............................................. 9.975# 08-15-23 AAA 1,500 1,758,750 8.51
Pittsylvania County Industrial Development Auth,
Rev Ser A Exempt Facil ..................................... 7.550 01-01-19 BB 3,500 3,823,890 6.91
Pocahontas Parkway Assn,
Toll Road Rev Cap Apprec 1st Tier Sub Ser C ................ Zero 08-15-24 Ba1 4,800 1,008,576 6.22
Toll Road Rev Cap Apprec 1st Tier Sub Ser C ................ Zero 08-15-25 Ba1 5,000 988,200 6.22
Toll Road Rev Cap Apprec 1st Tier Sub Ser C ................ Zero 08-15-26 Ba1 5,500 1,022,450 6.22
------------
10,336,236
------------
Washington (1.42%)
Seattle, City of,
Municipal Light & Pwr Rev 1994 ............................. 6.625 07-01-16 AA 3,600 4,133,340 5.77
Spokane County Industrial Development Corp,
Solid Waste Disp Rev Kaiser Alum & Chem Corp Proj .......... 7.600 03-01-27 BB- 1,250 1,366,712 6.95
Tacoma Electric System,
Rev VRDN/RIBS Iss of 1991 .................................. 9.565# 01-02-15 AAA 1,000 1,136,250 8.42
Washington Public Power Supply System,
Nuclear Proj No. 1 Ref Rev Ser 1989A Unref Bal ............. 7.500 07-01-15 AA- 455 471,039 7.24
Nuclear Proj No. 1 Ref Rev Ser 1989B ....................... 7.125 07-01-16 AA- 1,500 1,880,580 5.68
Washington, State of,
GO Ser A of 1990 ........................................... 6.750 02-01-15 AA+ 1,000 1,219,160 5.54
Washington, University of,
Hsg & Dining Rev Preref .................................... 7.000 12-01-21 AAA 35 38,913 6.30
Hsg & Dining Rev Preref .................................... 7.000 12-01-21 AAA 595 661,515 6.30
Hsg & Dining Rev Unref Bal ................................. 7.000 12-01-21 AAA 120 131,971 6.37
------------
11,039,480
------------
Wisconsin (0.69%)
Sturgeon Bay Combined Utilities,
Door County Combined Util Mtg Rev Ser 1990 Preref .......... 7.500 01-01-10 AAA 770 820,504 7.04
Door County Combined Util Mtg Rev Ser 1990 Unref Bal ....... 7.500 01-01-10 AAA 230 244,419 7.06
</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 (continued)
Wisconsin Public Power,
Pwr Supply Sys Rev Ser 1990A ............................. 7.400% 07-01-20 AAA $4,000 $4,294,560 6.89%
------------
5,359,483
------------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $685,754,697) (99.22%) 770,257,282
------ ------------
OTHER ASSETS AND LIABILITIES, NET (0.78%) 6,039,517
------ ------------
TOTAL NET ASSETS (100.00%) $776,296,799
====== ============
</TABLE>
(r) Direct placement securities are restricted to resale. The security has
been valued in accordance with procedures approved by the Trustees after
consideration of restrictions 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 this restricted security.
Additional information on this security is as follows:
<TABLE>
<CAPTION>
MARKET
VALUE AS A MARKET
PERCENTAGE VALUE
ACQUISITION ACQUISITION OF FUND'S AS OF
ISSUER, DESCRIPTION DATE COST NET ASSETS FEBRUARY 28, 1999
------------------- ----------- ----------- ---------- -----------------
<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
9.722%, 07-01-11 ...................................... 04-02-96 $14,925,160 2.21% $17,147,386
</TABLE>
* Credit ratings are unaudited and rated by Standard & Poor's where available,
or Moody's Investors Service, Fitch, or John Hancock Advisers, Inc. where
Standard & Poor's ratings are not available.
** This security having a value of $971,250 or 0.13% of the Fund's net assets,
has been purchased as a forward commitment - that is, the Fund has agreed on
the trade date, to take delivery of and make payment for such security on a
delayed basis subsequent to the date of 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 the current value at
least equal to the amount of its forward commitment. Accordingly, the market
value of $1,050,525 of Commonwealth of Puerto Rico, 8.220%, 07-01-11, 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, 1999.
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,
1999 assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ----------
General Obligations................................................ 7.47%
Revenue Bonds - Airport............................................ 1.03
Revenue Bonds - Authority.......................................... 0.61
Revenue Bonds - Bridge & Toll Road................................. 0.93
Revenue Bonds - Building........................................... 0.16
Revenue Bonds - Combined........................................... 0.35
Revenue Bonds - Education.......................................... 2.73
Revenue Bonds - Electric........................................... 14.90
Revenue Bonds - Environment........................................ 0.50
Revenue Bonds - Facility........................................... 0.39
Revenue Bonds - Financial.......................................... 0.17
Revenue Bonds - General Purpose.................................... 0.26
Revenue Bonds - Health............................................. 14.85
Revenue Bonds - Highway............................................ 0.39
Revenue Bonds - Hospital........................................... 0.62
Revenue Bonds - Housing............................................ 2.58
Revenue Bonds - Industrial Development............................. 8.21
Revenue Bonds - Lease.............................................. 0.13
Revenue Bonds - Other.............................................. 5.28
Revenue Bonds - Pollution Control Facilities....................... 12.80
Revenue Bonds - Power.............................................. 0.57
Revenue Bonds - Rev - Special Tax.................................. 0.64
Revenue Bonds - School............................................. 0.72
Revenue Bonds - Solid Waste Disposal............................... 0.42
Revenue Bonds - Special Assessment................................. 0.13
Revenue Bonds - Transportation..................................... 19.25
Revenue Bonds - Water & Sewer...................................... 3.13
-----
TOTAL TAX-EXEMPT LONG-TERM BONDS 99.22%
=====
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, Class B and Class C shares. The Fund issued
Class C shares for the first time on April 1, 1999. 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 $12,768,595 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 -- $7,612,962 and August 31, 2003 -- $5,155,633.
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 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
26
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Tax-Free Bond Fund
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. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowing. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. At
February 28, 1999, 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, 1999, open positions in financial futures contracts were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
JUN 1999 175 U.S. TREASURY BONDS LONG $356,693
========
At February 28, 1999, 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.
Over-the-counter options are valued at the mean between the last bid and asked
prices. 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
27
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Tax-Free Bond Fund
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 Statement of
Assets and Liabilities.
There were no written option transactions for the period ended February 28,
1999.
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, 1999, 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 $1,641. This limitation may not be
discontinued until at least January 1, 2000.
The Fund has an agreement with its custodian bank under which $53,994 of
custodian fees have been reduced by balance credits applied during the period
ended February 28, 1999. 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, 1999, net sales charges received with regard to sales of Class A shares
amounted to $360,767. Out of this amount, $22,785 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$176,405 was paid as sales commissions to unrelated broker-dealers and $161,577
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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,
1999 the contingent deferred sales charges received by JH Funds amounted to
$153,069.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
28
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Tax-Free Bond Fund
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., Mr. Stephen L. Brown, 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, 1999 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, 1999, aggregated $41,994,879 and $43,945,146, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended February 28, 1999.
The cost of investments owned at February 28, 1999 for federal income tax
purposes was $685,754,697. Gross unrealized appreciation and depreciation of
investments aggregated $85,392,525 and $889,940, respectively, resulting in net
unrealized appreciation of $84,502,585.
29
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======================================NOTES=====================================
John Hancock Funds - Tax-Free Bond Fund
30
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Tax-Free Bond Fund
31
<PAGE>
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