The latest report from your
Fund's management team
ANNUAL REPORT
Tax-Free
Bond Fund
AUGUST 31, 2000
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion*
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment 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
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years,
the financial markets have brought investors back down to earth in 2000.
Volatility ruled during the spring, as rising interest rates and
prospects of a slowing economy finally caught up to pricey growth
stocks. As a result, the tech-heavy NASDAQ Composite Index advanced by
only 3.37% through the end of August, while the Dow Jones Industrial
Average lost 1.46% and the Standard & Poor's 500 Index was up 4.12%.
But there is a silver lining. Investors have finally turned their
attention to broader swaths of the market, including both blue chip and
old economy stocks in sectors like financials, health care and energy,
that combined both strong fundamentals and less frothy valuation levels.
As for bonds, rising interest rates have kept the broader bond market in
flux, but pockets of strength have emerged there, as well, including
municipal bonds and longer-maturity Treasury bonds. The 30-year bond,
for instance, has returned 14.28% since January.
Between now and year end, we expect the market's focus to be on
Washington, as it usually is in an election year. While the presidential
election is important, what warrants more attention is the Federal
Reserve Board. The November election will generate more ink, but won't
have anywhere near the impact on financial markets that further Fed
action could. So we'll be watching the economic data to see whether the
Fed has truly wound down its string of interest-rate hikes.
The market's shifts in leadership so far this year highlight one of the
key investment tenets that we can't emphasize enough: investing should
be a marathon, not a sprint. If your portfolio is diversified and you
have an up-to-date financial plan crafted with an investment
professional to meet your goals, it becomes easier to ride out the
market's short-term ups and downs. It could also provide you with a
greater chance of success over time.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY DIANNE SALES, CFA, BARRY H. EVANS, CFA, AND
FRANK A. LUCIBELLA, CFA, PORTFOLIO MANAGERS
[A 3" x 2" photo at bottom right side of page of John Hancock
Tax-Free Bond Fund. Caption below reads "Fund management team
members (l-r): Dianne Sales, Barry Evans and Frank Lucibella."]
John Hancock
Tax-Free Bond Fund
Municipal bonds rebound as economy slows
Fixed-income markets struggled over the past year, as the Federal
Reserve attempted to put the brakes on inflationary pressures and a
robust economy by raising interest rates. Municipal bonds also suffered
as investor demand flagged. Beginning in May, however, economic
indicators began to soften -- and the tide started to turn for municipal
bonds. Hopes that the Fed's tightening cycle was nearing an end fueled a
rally in bonds, and municipals rebounded as investor worries about
inflation pressures eased.
Municipal performance was also boosted by the increasingly favorable
supply/demand situation. With state and local governments issuing, on
average, about 20% less debt this year, supply wasn't able to keep pace
with the demand surge that occurred as the market rallied. This
phenomenon drove prices higher in the municipal market.
"Municipal
performance
was also
boosted by the
increasingly
favorable
supply/demand
situation."
Despite their recent turnaround, however, municipal bonds weren't able
to keep pace with their taxable counterparts. This was particularly
evident in comparing municipals to U.S. Treasury performance. A
shrinking supply of 30-year Treasuries drove prices up and yields down
on the long end of the yield curve, while interest rates rose on the
short end. The end result was a rare inversion of the yield curve --
when short-term bonds pay higher interest rates than long-term bonds.
Against this backdrop, municipals lagged, causing the
Treasury-to-municipal yield ratio to reach some of the cheapest levels
in the past decade. Municipal performance suffered as crossover buyers
exited the tax exempts to seek the improved returns available in long
Treasuries.
[Pie chart at top left hand column with heading "Portfolio
Diversification." The chart is divided into ten sections
(from top to left): Housing 2%, Transportation 20%, Other
18%, Pollution Control 14%, Electric 13%, Health 12%, General
Obligation 8%, Industrial Revenue 7%, Water & Sewer 3% and
Education 3%. A note below the chart reads "As a percentage
of net assets on August 31, 2000."]
"...we've
continued to
focus on
adding more
call protec-
tion..."
A look at performance
Although municipal bonds didn't fare as well as their taxable
counterparts, they still posted solid returns for the period. For the 12
months ended August 31, 2000, John Hancock Tax-Free Bond Fund's Class A,
Class B and Class C shares returned 5.09%, 4.31% and 4.19%,
respectively, at net asset value. By comparison, the average general
municipal bond fund returned 5.10% 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 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 historical performance information.
[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 Health-care bonds
followed by a down arrow with the phrase "Reimbursement
reductions, HMO difficulties." The second listing is Call-
protected bonds followed by an up arrow with the phrase
"Decreased availability boosts value." The third listing is
Top-tier credits (AA or better) followed by an up arrow with
the phrase "Investors sought quality over yield increase." A
note below the table reads "See 'Schedule of Investments.'
Investment holdings are subject to change."]
While the Fund turned in respectable returns for the year, a couple of
things held performance back. In anticipation of further interest-rate
increases, we kept the Fund positioned relatively defensively with a
shorter duration. Duration measures the Fund's sensitivity to
interest-rate changes. The shorter the duration, the less the Fund's net
asset value will fluctuate with these changes. While the shorter
duration definitely helped to protect the Fund early in the period when
rates were rising, it held back our performance when munis rebounded
this spring. In addition, we had a sizeable position in lower-quality
credits, which underperformed during the period. As interest rates rose
in the past year, many investors deserted lower-grade bonds for higher
credit quality, resulting in widening credit spreads. As a result,
lower-rated bonds lagged and our position in this arena hampered
performance.
Responding to market dynamics
With market dynamics shifting throughout the period, we responded by
shifting the portfolio strategy. As we discussed above, we decreased the
Fund's interest-rate sensitivity by shortening our duration early in the
period when interest rates were climbing. While in hindsight we waited
too long to lengthen our duration, we have recently begun to increase
the Fund's interest-rate sensitivity. Evidence of a slowing economy is
gradually building, and we believe the Fed is at or near the end of the
tightening cycle. With this outlook, there is substantial upside
potential in the municipal market, and an increased sensitivity to rate
changes will prepare the Fund to take advantage of this change.
While our lower-quality holdings did detract somewhat from our total
return performance this year, we plan to maintain our stake in these
names. This sector has provided an important source of total return and
interest income to the Fund. Once interest rates decline again, we
expect this sector to return to its position as a major contributor to
performance.
[Bar chart at top of left hand column with heading "Fund
Performance". Under the heading is a note that reads "For the
year ended August 31, 2000." The chart is scaled in
increments of 1% with 0% at the bottom and 6% at the top. The
first bar represents the 5.09% total return for John Hancock
Tax-Free Bond Fund Class A. The second bar represents the
4.31% total return for John Hancock Tax-Free Bond Fund Class
B. The third bar represents the 4.19% total return for John
Hancock Tax-Free Bond Fund Class C. The fourth bar represents
the 5.10% 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, Inc.1 See the following two pages
for historical performance information."]
Finally, as we've discussed in past reports, we've continued to focus on
adding more call protection to the Fund. Call protection guards against
a bond being redeemed by its issuer for a certain period of time. Good
call protection is especially important in periods when interest rates
are falling because issuers often try to refinance their bonds at lower
interest rates. If a bond gets "called," investors are forced to
reinvest their money in bonds with lower yields. With the economy
slowing, we believe that interest rates are at some point likely to
resume their decline. When that happens, the Fund's strong call
protection will serve to protect shareholders' coupon payment stream.
A look ahead
Evidence is mounting that the U.S. economy is beginning to slow. Clearly
the Federal Reserve is aiming for a soft landing, and it has been
successful in achieving this with its past tightening cycles. However,
after six rate increases, the Fed is likely approaching the tail end of
this cycle. This should bode well for bonds over the next six to 12
months. We have always felt that the latter part of 2000 would bring an
improved scenario for bonds. Indeed, the recent volatility in the equity
markets has led many investors to reconsider their asset allocation and
to increase their bond holdings in order to add more stability to their
portfolios.
"We intend
to gradually
increase
our rate
sensitivity into
the end of
the year..."
Market turns tend to occur rapidly, one reason why it is difficult to
successfully "time" the markets. We intend to gradually increase our
rate sensitivity into the end of the year, thereby positioning the Fund
for the next turn. Once the cycle does turn, we expect tax-free
investors to once again pursue higher yield levels in the lower-grade
credits. While the very narrow credit spreads experienced in early 1999
will probably not return, there is clearly room for spread narrowing. As
spreads do narrow, lower quality credits should outperform.
------------------------------------------------------------------------
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.
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 an up-front 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). Class C performance includes an up-front sales charge of 1%
and a contingent deferred sales charge (1% declining to 0% after one
year).
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 June 30, 2000
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
Cumulative Total Returns (3.14%) 25.84% 89.72%
Average Annual Total Returns(1) (3.14%) 4.70% 6.61%
CLASS B
For the period ended June 30, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
----- ----- -----
Cumulative Total Returns (4.10%) 24.90% 57.82%
Average Annual Total Returns(1) (4.10%) 4.55% 5.52%
CLASS C
For the period ended June 30, 2000
SINCE
ONE INCEPTION
YEAR (4/1/99)
--------- ---------
Cumulative Total Returns (1.41%) (2.51%)
Average Annual Total Returns(1) (1.41%) (2.02%)
YIELDS
As of August 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock Tax-Free Bond Fund: Class A(1) 4.84%
John Hancock Tax-Free Bond Fund: Class B(1) 4.32%
John Hancock Tax-Free Bond Fund: Class C(1) 4.17%
Note to Performance
(1) The Adviser voluntarily reduced a portion of the management fee, the
Distributor reduced the distribution and service fees and the custodian
fee was offset with balance credits during the period. Without the
reduction of expenses and the offset, the average annual total returns
for the one-year, five-year and ten-year periods for Class A shares
would have been (3.27%), 4.61% and 6.42%, respectively. The average
annual total returns for the one-year, five-year and since inception
periods for Class B shares would have been (4.23%), 4.46% and 5.39%,
respectively. The average annual returns for the one-year period and
since inception for Class C shares would have been (1.44%) and (2.05%),
respectively. Without the reduction of expenses and the offset, the
yields for Class A, Class B and Class C shares would have been 4.80%,
4.28% and 4.13%, respectively.
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. It is not possible to
invest in an index. Past performance is not indicative of future
results.
*No contingent deferred sales charge applicable.
Line chart with the 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 on August 31, 1990, before sales charge, and
is equal to $20,524 as of August 31, 2000. The second line
represents the Lehman Brothers Municipal Bond Index and is
equal to $20,375 as of August 31, 2000. The third line
represents the value of the same hypothetical investment made
in the John Hancock Tax-Free Bond Fund, after sales charge,
and is equal to $19,600 as of August 31, 2000.
Line chart with the 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 $17,408 as of August 31,
2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Tax-
Free Bond Fund on December 31, 1991, before sales charge, and
is equal to $16,228 as of August 31, 2000.
Line chart with the heading John Hancock Tax-Free Bond Fund
Class C*, 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 Lehman Brothers
Municipal Bond Index and is equal to $10,443 as of August 31,
2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Tax-
Free Bond Fund on April 1, 1999, before sales charge, and is
equal to $10,121 as of August 31, 2000. The third line
represents the value of the same hypothetical investment made
in the John Hancock Tax-Free Bond Fund, after sales charge,
and is equal to $10,020 as of August 31, 2000.
FINANCIAL STATEMENTS
John Hancock Funds -- Tax-Free Bond Fund
<TABLE>
<CAPTION>
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 August 31,
2000. You'll also find the net asset value and the maximum offering
price per share as of that date.
Statement of Assets and Liabilities
August 31, 2000
--------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Tax-exempt long-term bonds
(cost -- $577,082,163) $614,624,486
Cash 6,107,372
Receivable for shares sold 20,803
Interest receivable 8,098,286
Other assets 192,075
-----------------
Total Assets 629,043,022
-----------------
Liabilities:
Payable for investments purchased 8,079,284
Payable for shares repurchased 352,633
Dividend payable 67,379
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B 331,906
Accounts payable and accrued expenses 306,695
-----------------
Total Liabilities 9,137,897
-----------------
Net Assets:
Capital paid-in 599,218,314
Accumulated net realized loss on
investments and financial futures
contracts (17,982,525)
Net unrealized appreciation of
investments 37,542,323
Undistributed net investment income 1,127,013
-----------------
Net Assets $619,905,125
=================
Net Asset Value Per Share:
(Based on net asset values and shares
of beneficial interest outstanding
unlimited number of shares
authorized with no par value)
Class A -- $521,831,273/50,663,082 $10.30
==============================================================
Class B -- $96,874,202/9,405,235 $10.30
==============================================================
Class C -- $1,199,650/116,471 $10.30
==============================================================
Maximum Offering Price Per Share
Class A* -- ($10.30/0.955) $10.79
==============================================================
Class C -- ($10.30/0.99) $10.40
==============================================================
* 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.
</TABLE>
<TABLE>
<CAPTION>
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
Year ended August 31, 2000
--------------------------------------------------------------
<S> <C>
Investment Income:
Interest $41,256,893
-----------------
Expenses:
Investment management fee -- Note B 3,481,117
Distribution and service fee -- Note B
Class A 1,327,667
Class B 1,140,013
Class C 11,555
Transfer agent fee -- Note B 728,881
Custodian fee 156,382
Interest expense -- Note A 154,529
Accounting and legal services fee --
Note B 124,452
Registration and filing fees 60,558
Miscellaneous 39,547
Auditing fee 36,330
Printing 35,466
Trustees' fees 32,963
Legal fees 5,825
Less: Management fee reduction -- Note B (222,640)
Distribution and service fee
reduction -- Note B
Class A (531,067)
Class B (114,002)
-----------------
Total Expenses 6,467,576
-----------------
Less Expense Reductions -- Note B (103,554)
-----------------
Net Expenses 6,364,022
-----------------
Net Investment Income 34,892,871
-----------------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain on investments sold 2,128,068
Change in net unrealized
appreciation/depreciation of
investments (7,988,812)
-----------------
Net Realized and Unrealized Loss on
Investments (5,860,744)
-----------------
Net Increase in Net Assets Resulting
from Operations $29,032,127
=================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
----------------- -----------------
1999 2000
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $37,896,720 $34,892,871
Net realized gain on investments
sold and financial futures
contracts 849,981 2,128,068
Change in net unrealized
appreciation/depreciation of
investments (46,040,722) (7,988,812)
----------------- -----------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (7,294,021) 29,032,127
----------------- -----------------
Distributions to Shareholders:
Distributions from net investment income
Class A -- ($0.5574 and $0.5593
per share, respectively) (30,376,771) (29,385,949)
Class B -- ($0.4762 and $0.4836
per share, respectively) (7,517,041) (5,453,942)
Class C** -- ($0.1924 and $0.4722
per share, respectively) (2,908) (52,981)
Distributions from net realized gain on investments sold
Class A -- (none and $0.0014 per
share, respectively) -- (75,045)
Class B -- (none and $0.0014 per
share, respectively) -- (16,923)
Class C** -- (none and $0.0014
per share, respectively) -- (88)
----------------- -----------------
Total Distributions to
Shareholders (37,896,720) (34,984,928)
----------------- -----------------
From Fund Share Transactions -- Net:* (30,737,583) (83,204,163)
----------------- -----------------
Net Assets:
Beginning of period 784,990,413 709,062,089
----------------- -----------------
End of period (including
undistributed net investment
income of $1,119,232 and
$1,127,013, respectively) $709,062,089 $619,905,125
================= =================
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.
<CAPTION>
Statement of Changes in Net Assets (continued)
---------------------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------------
1999 2000
--------------------------------------- ---------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 29,957,288 $323,426,503 51,897,501 $522,332,414
Shares reinvested 2,025,165 21,893,127 2,049,818 20,665,913
----------------- ----------------- ----------------- -----------------
31,982,453 345,319,630 53,947,319 542,998,327
Less shares repurchased (32,044,727) (345,890,290) (57,798,491) (581,930,466)
----------------- ----------------- ----------------- -----------------
Net decrease (62,274) ($570,660) (3,851,172) ($38,932,139)
================= ================= ================= =================
CLASS B
Shares sold 2,216,028 $24,165,631 967,087 $9,770,637
Shares reinvested 393,735 4,252,442 283,738 2,861,689
----------------- ----------------- ----------------- -----------------
2,609,763 28,418,073 1,250,825 12,632,326
Less shares repurchased (5,448,577) (58,948,184) (5,726,132) (57,743,585)
----------------- ----------------- ----------------- -----------------
Net decrease (2,838,814) ($30,530,111) (4,475,307) ($45,111,259)
================= ================= ================= =================
CLASS C**
Shares sold 34,495 $366,449 4,763,155 $47,723,739
Shares reinvested 170 1,789 2,330 23,511
----------------- ----------------- ----------------- -----------------
34,665 368,238 4,765,485 47,747,250
Less shares repurchased (479) (5,050) (4,683,200) (46,908,015)
----------------- ----------------- ----------------- -----------------
Net increase 34,186 $363,188 82,285 $839,235
================= ================= ================= =================
**Class C shares commenced operations on April 1, 1999.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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:
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31,
DECEMBER 31, AUGUST 31, -------------------------------------------------------------
1995 1996(1) 1997 1998 1999 2000
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $9.39 $10.67 $10.27 $10.63 $11.01 $10.36
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income 0.57(2) 0.40 0.59 0.56(2) 0.56(2) 0.56(2)
Net Realized and Unrealized
Gain (Loss) on Investments 1.28 (0.41) 0.36 0.38 (0.65) (0.06)
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 1.85 (0.01) 0.95 0.94 (0.09) 0.50
------------- ------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.57) (0.39) (0.59) (0.56) (0.56) (0.56)
Distributions from Net Realized
Gain on Investments -- -- -- -- -- --(3)
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions (0.57) (0.39) (0.59) (0.56) (0.56) (0.56)
------------- ------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $10.67 $10.27 $10.63 $11.01 $10.36 $10.30
============= ============= ============= ============= ============= =============
Total Investment Return at
Net Asset Value(4) 20.20% (0.01%)(5 9.44% 9.08% (0.93%) 5.09%
Total Adjusted Investment
Return at Net Asset Value
(4,6) 20.08% (0.09%)(5 9.38% 9.06% (1.04%) 4.94%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $118,797 $560,863 $590,185 $600,905 $564,877 $521,831
Ratio of Expenses to Average
Net Assets 0.85% 0.85%(7) 0.85% 0.85% 0.86%(10) 0.86%(10)
Ratio of Adjusted Expenses
to Average Net Assets(8) 0.97% 0.98%(7) 0.91% 0.87% 0.96% 1.00%
Ratio of Net Investment
Income to Average Net
Assets 5.67% 5.75%(7) 5.61% 5.16% 5.14% 5.53%
Ratio of Adjusted Net
Investment Income to
Average Net Assets(8) 5.55% 5.62%(7) 5.55% 5.14% 5.03% 5.38%
Portfolio Turnover Rate 113% 116%(9) 46%(9) 24% 13% 12%
Fee Reduction Per Share $0.01(2) $0.01(2) $0.01 $0.01(2) --(2,3) --(2,3)
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.
<CAPTION>
Financial Highlights (continued)
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31,
DECEMBER 31, AUGUST 31, -----------------------------------------------------------
1995 1996(1) 1997 1998 1999 2000
------------- ------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $9.38 $10.67 $10.27 $10.63 $11.01 $10.36
------------- ------------- ----------- ------------- ------------- -----------
Net Investment Income 0.50(2) 0.34 0.51 0.48(2) 0.48(2) 0.48(2)
Net Realized and Unrealized
Gain (Loss) on Investments 1.28 (0.40) 0.36 0.38 (0.65) (0.06)
------------- ------------- ----------- ------------- ------------- -----------
Total from Investment
Operations 1.78 (0.06) 0.87 0.86 (0.17) 0.42
------------- ------------- ----------- ------------- ------------- -----------
Less Distributions:
Dividends from Net
Investment Income (0.49) (0.34) (0.51) (0.48) (0.48) (0.48)
Distributions from Net
Realized Gain on Investments -- -- -- -- -- --(3)
------------- ------------- ----------- ------------- ------------- -----------
Total Distributions (0.49) (0.34) (0.51) (0.48) (0.48) (0.48)
------------- ------------- ----------- ------------- ------------- -----------
Net Asset Value, End of
Period $10.67 $10.27 $10.63 $11.01 $10.36 $10.30
============= ============= =========== ============= ============= ===========
Total Investment Return at
Net Asset Value(4) 19.41% (0.51%)(5) 8.63% 8.27% (1.67%) 4.31%
Total Adjusted Investment
Return at Net Asset Value
(4,6) 19.29% (0.59%)(5) 8.57% 8.25% (1.78%) 4.16%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $76,824 $81,177 $204,621 $184,085 $143,830 $96,874
Ratio of Expenses to Average
Net Assets 1.60% 1.60%(7) 1.60% 1.60% 1.61%(10) 1.61%(10)
Ratio of Adjusted Expenses
to Average Net Assets(8) 1.72% 1.73%(7) 1.66% 1.62% 1.71% 1.75%
Ratio of Net Investment
Income to Average Net
Assets 4.90% 4.91%(7) 4.85% 4.41% 4.39% 4.78%
Ratio of Adjusted Net
Investment Income to
Average Net Assets(8) 4.78% 4.78%(7) 4.79% 4.39% 4.28% 4.63%
Portfolio Turnover Rate 113% 116%(9) 46%(9) 24% 13% 12%
Fee Reduction Per Share $0.01(2) $0.01(2) $0.01 $0.01(2) --(2,3) --(2,3)
<CAPTION>
Financial Highlights (continued)
-----------------------------------------------------------------
PERIOD ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1999(11) 2000
------------- -------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.86 $10.36
------------- -------------
Net Investment Income(2) 0.19 0.47
Net Realized and Unrealized
Loss on Investments (0.50) (0.06)
------------- -------------
Total from Investment
Operations (0.31) 0.41
------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.19) (0.47)
Distributions from Net Realized
Gain on Investments -- --(3)
------------- -------------
Total Distributions (0.19) (0.47)
------------- -------------
Net Asset Value, End of
Period $10.36 $10.30
============= =============
Total Investment Return at
Net Asset Value(4) (2.86%)(5) 4.19%
Total Adjusted Investment
Return at Net Asset Value
(4,6) (2.86%)(5) 4.14%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $354 $1,200
Ratio of Expenses to Average
Net Assets 1.71%(7,10) 1.71%(10)
Ratio of Adjusted Expenses
to Average Net Assets(8) 1.71%(7) 1.75%
Ratio of Net Investment
Income to Average Net
Assets 4.29%(7) 4.60%
Ratio of Adjusted Net
Investment Income to
Average Net Assets(8) 4.28%(7) 4.55%
Portfolio Turnover Rate 13% 12%
Fee Reduction Per Share (2) --(3) --(3)
(1) Effective August 31, 1996, the fiscal period end changed from
December 31 to August 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment and does not reflect the effect of
sales charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Portfolio turnover excludes merger activity.
(10) For the periods or years ended August 31, 1999 and 2000, the ratio
of expenses to average net assets for the Fund excludes the effect of
balance credits described in Note B. If this expense reduction were
included, the ratio of expenses to average net assets would have been
0.85%, 1.60% and 1.70% for Class A, Class B and Class C, respectively.
(11) Class C shares began operations on April 1, 1999.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
August 31, 2000
------------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by Tax-Free Bond Fund on August 31, 2000. It has one main category:
tax-exempt long-term bonds. The tax-exempt long-term bonds are broken
down by state or territory. Under each state or territory is a list of
the securities owned by the Fund.
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 (0.31%)
Alaska Housing Finance Corp, Coll Home Mtg Ser
B-1 GNMA Coll 7.650% 06-01-24 AAA $855 $883,215 7.41%
Valdez Alaska Marine Terminal, Rev Ref Sohio Pipe
Line Co Proj Ser 1985 7.125 12-01-25 AA+ 1,000 1,054,680 6.76
------------
1,937,895
------------
Arizona (2.80%)
Arizona Health Facilities Auth, Hosp Sys Rev Ref
Phoenix Memorial Hosp Proj 8.200 06-01-21 BB 2,150 2,038,221 8.65
Arizona Municipal Financing Program, Cert of Part
Ser 25 7.875 08-01-14 AAA 1,000 1,264,850 6.23
Maricopa County Pollution Control Corp, Poll
Control Rev Ref Ser A El Paso Elec Co 6.375 08-01-15 BB+ 2,500 2,502,025 6.37
Poll Control Rev Ref Ser A Public Service Co Palo
Verde Proj 6.375 08-15-23 BBB- 8,550 8,463,303 6.44
Navajo County Industrial Development Auth, Ind'l
Devel Rev Stone Container Corp Proj 7.200 06-01-27 B 1,000 973,280 7.40
Phoenix Civic Improvment Corp, Wastewater Sys Rev
Jr Lien 6.000 07-01-24 AAA 2,000 2,105,660 5.70
------------
17,347,339
------------
Arkansas (0.04%)
Arkansas Development Finance Auth, Single Family
Mtg Rev Ref Ser 1991A 8.000 08-15-11 AA 235 244,783 7.68
------------
California (18.12%)
Anaheim Public Financing Auth, Sub Lease Rev 1997
Cap Apprec Ser C Pub Imp Proj Zero 09-01-22 AAA 5,150 1,531,249 5.59
California Statewide Communities Development
Auth, Lease Rev Spec Facil Ser A United Airlines 5.700 10-01-33 BB+ 3,000 2,723,910 6.28
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Cap Apprec Ser 1995A Zero 01-01-19 AAA 36,600 13,535,778 5.50
Toll Rd Rev Fixed Rate Cap Apprec Ser 1995A Zero 01-01-20 AAA 10,000 3,483,200 5.53
Toll Rd Rev Fixed Rate Current Int Ser 1995A 6.000 01-01-16 AAA 19,800 22,250,646 5.34
Toll Road Rev Ref Cap Apprec Zero 01-15-25 BBB- 5,000 1,156,000 6.10
Madera, County of, Cert of Part Valley Children's
Hosp 6.500 03-15-15 AAA 13,185 15,405,222 5.56
Millbrae, City of, Residential Facil Rev Ser
1997A Magnolia of Millbrae Proj 7.375 09-01-27 BB 1,000 982,780 7.50
Sacramento City Financing Auth, Rev Convention
Ctr Hotel Ser 1999A 6.250 01-01-30 BB+ 4,000 3,859,120 6.48
Sacramento Municipal Utilities District, Ind'l
Devel Rev Ref San Diego Gas & Electric Ser C
Inflos 8.564# 08-15-18 AAA 1,000 1,097,500 7.80
San Bernardino, County of, Cert of Part Ref
Medical Center Fin Proj 5.500 08-01-17 AAA 9,130 9,582,574 5.24
Cert of Part Ref Medical Center Fin Proj 5.500 08-01-22 A-p 2,500 2,434,700 5.65
San Diego Redevelopment Agency, Tax Alloc City
Heights Proj Ser 1999A 5.750 09-01-23 BB 1,025 979,736 6.02
San Diego, City of, Cert Undivided Int Wtr Util
Fund Net Sys Rev 4.750 08-01-28 AAA 3,000 2,688,570 5.30
San Francisco, City of, Resid Facil Ser A
Coventry Park Proj 8.500 12-01-26 BB 2,000 2,030,840 8.37
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Jr Lien Cap Apprec Zero 01-01-10 AAA 6,250 4,069,625 4.65
Toll Rd Rev Ref Conv Cap Apprec Ser 1997A Zero 01-15-17 BBB- 10,000 6,492,100 6.21
Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-14 AAA 5,000 2,551,450 5.11
Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-17 AAA 4,900 2,062,067 5.37
Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-19 AAA 15,510 5,736,063 5.50
Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-20 AAA 2,000 696,640 5.53
Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-23 AAA 7,500 2,175,150 5.62
San Jose Financing Auth, Rev Ser B Community
Facil Proj 5.625 11-15-18 A+ 2,500 2,531,000 5.56
Santa Ana Financing Auth, Lease Rev Ser A Police
Admin & Holding Facil Ser A 6.250 07-01-19 AAA 2,000 2,265,660 5.52
------------
112,321,580
------------
Colorado (1.87%)
Denver, City and County of, Airport Sys Rev Ser
1992A Preref 7.250 11-15-25 AAA 1,980 2,134,480 6.73
Airport Sys Rev Ser 1994A Preref 7.500 11-15-23 A 535 604,694 6.64
Airport Sys Rev Ser 1994A Unref Bal 7.500 11-15-23 A 2,565 2,812,035 6.84
Douglas County School District No. Re. 1, Douglas
and Elbert Counties Imp Ser 1994A 6.400 12-15-11 AAA 1,400 1,518,720 5.90
E-470 Public Highway Auth, Rev Cap Apprec Sr Ser
2000B Zero 09-01-34 BBB- 7,000 561,330 7.22
Metropolitan Football Stadium, Dist Sales Tax Rev
Cap Apprec Ser 1999A Zero 01-01-10 AAA 5,250 3,302,145 5.03
Dist Sales Tax Rev Cap Apprec Ser 1999A Zero 01-01-12 AAA 1,125 626,670 5.23
------------
11,560,074
------------
Connecticut (0.16%)
Connecticut Health and Educational Facilities
Auth, Rev Ser D Univ of Hartford 6.800 07-01-22 BBB- 1,000 1,013,560 6.71
------------
Delaware (1.10%)
Delaware State Economic Development Auth, Rev Ref
Poll Control Ser B Delmarva Pwr Proj 6.750 05-01-19 AAA 6,500 6,825,910 6.43
------------
Florida (5.25%)
Capital Projects Finance Auth, Student Hsg Rev
Cap Projs Ln Prog Ser A Univ of Florida 7.850 08-15-31 BBB- 3,500 3,443,895 7.98
Crossings at Fleming Island Community Development
District, Spec Assessment Rev Ref Ser 2000C 7.100 05-01-30 BBB- 1,000 1,018,570 6.97
Dade, County of, Professional Sports Franchise
Facil Tax Rev Cap Apprec Zero 10-01-27 AAA 5,500 1,211,760 5.66
Hernando County Industrial Development Auth, Rev
Ref 2nd Fla Crushed Stone Co 8.500 12-01-14 BBB- 200 212,740 7.99
Hernando, County of, Rev Criminal Justice Complex
Fin Proj 7.650 07-01-16 AAA 500 629,580 6.08
Hillsborough County Aviation Auth, Rev Ser B
Tampa International Airport 6.000 10-01-17 AAA 5,880 6,359,220 5.55
Jacksonville Electric Auth, Elec Sys Rev Ser 3-A 5.250 10-01-28 AA 9,000 8,606,520 5.49
Lee, County of, Hosp Board of Directors Hosp Rev
Inflos 8.708# 04-01-20 AAA 2,000 2,125,000 8.20
Orange County Health Facilities Auth, Hosp
Orlando Regional Medical Center Rev Inflos 8.239# 10-29-21 AAA 1,000 1,080,000 7.63
Orange County School Board, Cert of Part Ref Ser
1997A Zero 08-01-13 Aaa 10,365 5,313,825 5.24
Orlando Utilities Commission, Wtr & Elec Sub Rev
Ser 1989D 6.750 10-01-17 AA- 2,200 2,546,412 5.83
------------
32,547,522
------------
Georgia (3.87%)
Georgia Municipal Electric Auth, Pwr Rev Ref Ser BB 5.700 01-01-19 A 1,000 1,026,210 5.55
Pwr Rev Ser C 5.700 01-01-19 AAA 5,000 5,196,500 5.48
Pwr Rev Ser EE 7.250 01-01-24 AAA 2,000 2,485,800 5.83
Pwr Rev Ser Y 6.500 01-01-17 AAA 3,500 3,950,800 5.76
Pwr Rev Ser Z 5.500 01-01-20 AAA 5,840 5,923,103 5.42
Monroe County Development Auth, Poll Control Rev
Ser A Oglethorpe Pwr Corp Scherer Proj 6.800 01-01-12 A 1,000 1,128,300 6.03
Savannah Hospital Auth, Rev Ref & Imp Candler
Hosp Proj 7.000 01-01-23 BB 4,000 4,295,560 6.52
------------
24,006,273
------------
Illinois (2.94%)
Chicago, City of, Chicago-O'Hare Int'l Airport
Gen Airport Rev 1990 Ser A 7.500 01-01-16 A+ 1,035 1,058,401 7.33
Chicago-O'Hare Int'l Airport Int'l Terminal Spec
Rev Ser 1992 6.750 01-01-12 AAA 3,000 3,118,860 6.49
Chicago-O'Hare Int'l Airport Spec Facil Rev Ser
1990A American Airlines Proj 7.875 11-01-25 BBB- 3,000 3,067,080 7.70
Skyway Toll Bridge Rev Ref Ser 1994 6.750 01-01-17 AAA 2,000 2,176,740 6.20
Godfrey, City of, United Methodist Village Rev
Ser 1999A 5.875 11-15-29 BB+ 1,825 1,459,215 7.35
Illinois Development Finance Auth, Poll Control
Rev Ref Commonwealth Edison Co Proj 5.850 01-15-14 BBB+ 3,000 2,925,180 6.00
Illinois Health Facilities Auth, Rev Methodist
Hlth Serv Corp Ser 1991B 9.162# 05-01-21 AAA 1,000 1,068,750 8.57
Rev Ref Friendship Vlg Schamburg 6.750 12-01-08 A- 1,640 1,650,184 6.71
Rev Ref Ser 1992 Mercy Hosp & Medical Center Proj 7.000 01-01-07 B+ 1,500 1,202,460 8.73
Illinois Industrial Pollution Control Financing
Auth, Rev Great Lakes Carbon Corp Proj 7.125 10-01-01 BB+ 510 510,031 7.12
------------
18,236,901
------------
Indiana (0.32%)
Wabash, County of, Solid Waste Disp Rev Jefferson
Smurfit Corp Proj 7.500 06-01-26 B 2,000 2,010,940 7.46
------------
Iowa (0.13%)
Iowa Finance Auth, Health Care Facil Rev Ref Care
Initiatives Proj Ser B 5.750 07-01-18 BB 1,000 834,470 6.89
------------
Kentucky (0.91%)
Kenton County Airport Board, Rev Spec Facil Delta
Airlines Proj Ser 1992A 7.500 02-01-12 BBB- 2,000 2,074,580 7.23
Rev Spec Facil Delta Airlines Proj Ser 1992A 7.125 02-01-21 BBB- 2,000 2,060,360 6.92
Newport Public Properties, Corp Rev 1st Mtg Pub
Prkg & Plaza Ser 2000A-1 8.500 01-01-27 BB 1,500 1,486,935 8.57
------------
5,621,875
------------
Louisiana (2.79%)
Calcasieu Parish Industrial Development Board,
Poll Control Rev Ref Ser 1992 Gulf States Util
Co Proj 6.750 10-01-12 BB+ 2,975 2,986,900 6.72
De Soto, Parish of, Rev Environ Imp Rev Int'l
Paper Co Proj Ser A 7.700 11-01-18 BBB+ 2,750 2,982,898 7.10
Louisiana Local Government Environmental
Facilities Community Development Auth,
Rev Cap Proj & Equip Acquisition Prog** 6.550 09-01-25 A 3,000 3,124,740 6.29
Louisiana Public Facilities Auth, Progressive
Hlthcare Rev Ser 1998B 6.375 10-01-20 BB- 1,245 1,067,488 7.44
Rev Ser B Alton Ochsner Medical Funding Proj 6.500 05-15-22 AAA 2,000 2,070,080 6.28
St. Charles, Parish of, Poll Control Rev Ser 1991
Louisiana Pwr & Light Co Proj 7.500 06-01-21 BBB 4,000 4,116,680 7.29
West Feliciana, Parish of, Poll Control Rev Ser D
Gulf States Utilities Co 5.800 12-01-15 BB+ 1,000 953,220 6.08
------------
17,302,006
------------
Maryland (0.64%)
Municipal Mortgage & Equity, LLC, Ser A (R) 6.875 06-30-09 BBB- 4,000 3,988,040 6.90
------------
Massachusetts (3.71%)
Massachusetts Bay Transportation Auth, Rev
Assessment Ser 2000A 5.250 07-01-30 AAA 1,500 1,424,175 5.53
Massachusetts Development Finance Agency,
Concord-Assabet Family Servs Rev Ref 6.000 11-01-28 Ba2 2,000 1,583,220 7.58
Rev Boston Univ Ser 1999P 6.000 05-15-59 BBB+ 2,000 2,029,500 5.91
Massachusetts Health and Educational Facilities
Auth, Rev Lowell Gen Hosp Iss Ser A 8.400 06-01-11 A3 1,100 1,153,240 8.01
Rev New England Deaconess Hosp Iss Ser D 6.625 04-01-12 AAA 3,500 3,687,985 6.29
Rev St Elizabeth's Hosp of Boston Ser E 8.852# 08-15-21 AAA 1,000 1,072,500 8.25
Rev Worcester Polytechnic Institute Ser E 6.750 09-01-11 AAA 3,840 4,089,754 6.34
Massachusetts Municipal Wholesale Electric Co,
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the
Commonwealth of Mass 6.750 07-01-17 BBB+ 4,405 4,564,857 6.51
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 1,066,370 5.98
Route 3 North Transit Improvement Associates,
Lease Rev 5.375 06-15-29 AAA 2,400 2,323,008 5.55
------------
22,994,609
------------
Michigan (1.46%)
Detroit, City of, GO Unltd Ser 1995A 6.800 04-01-15 A- 1,315 1,451,852 6.16
Michigan State Hospital Finance Auth, Hosp Rev
Ref Ser 1995A Genesys Hlth Sys Oblig Group 8.100 10-01-13 AAA 3,000 3,536,550 6.87
Midland County Economic Development Corp, Rev Ref
Ser 2000A Sub Ltd Oblig 6.875 07-23-09 BB+ 4,000 4,044,880 6.80
------------
9,033,282
------------
Minnesota (1.15%)
Minneapolis, City of, Rev Ref Walker Methodist Sr
Servs Ser 1998A 5.875 11-15-18 BB+ 1,000 872,100 6.74
Southern Minnesota Municipal Power Agency, Pwr
Supply Sys Rev Cap Apprec Ser A Zero 01-01-23 AAA 15,000 4,229,100 5.75
St. Cloud, City of, St Cloud Health Care Rev St
Cloud Hosp Oblig Group
Ser 2000A 5.875 05-01-30 Aaa 2,000 2,037,880 5.77
------------
7,139,080
------------
Mississippi (1.18%)
Mississippi Home Corp, Single Family Sr Rev Ref
Ser 1990A 9.250 03-01-12 AAA 55 56,714 8.97
Mississippi Hospital Equipment and Facilities
Auth, Rev Ser A Rush Memorial Foundation Proj 8.750 01-01-16 Baa3 2,000 2,067,420 8.46
Washington, County of, Poll Control Rev Ref
Mississippi Pwr & Light Co Proj 7.000 04-01-22 Baa3 5,000 5,163,450 6.78
------------
7,287,584
------------
Nebraska (0.21%)
Omaha Public Power District, Elec Sys Rev 1992
Ser B 6.200 02-01-17 Aa2 1,200 1,313,160 5.67
------------
Nevada (1.69%)
Clark, County of, Ind'l Development Rev Ser A
Southwest Gas Corp Proj 6.500 12-01-33 BBB- 10,000 9,811,900 6.62
Nevada Housing Division, Single Family Proj Sr
Rev Ser 1989 Iss A-1 7.350 04-01-16 AA 430 432,378 7.31
Single Family Proj Sr Rev Ser 1990 Iss C-1 7.850 10-01-15 AA- 175 178,357 7.70
Nevada, State of, GO Ltd Tax Municipal Bond Bank
Proj No. 38 Ser A Unref Bal 6.750 07-01-09 AA 25 26,208 6.44
------------
10,448,843
------------
New Jersey (1.46%)
Camden County Improvement Auth, Lease Rev Ser A
Holt Hauling & Warehousing Proj 9.875 01-01-21 CCC+ 1,100 1,088,791 9.98
New Jersey Economic Development Auth, 1st Mtg Rev
Ser A Winchester Gardens 8.500 11-01-16 BB+ 100 105,478 8.06
Rev Ref Ind'l Development Newark Airport Marriott
Hotel Proj 7.000 10-01-14 BBB- 4,000 4,085,600 6.85
Rev Ref Ser J Holt Hauling Proj 8.500 11-01-23 BBB 2,500 2,437,900 8.72
New Jersey Health Care Facilities Financing Auth,
Rev Care Institute Inc Cherry Hill Proj 8.000 07-01-27 BB+ 1,370 1,302,486 8.41
------------
9,020,255
------------
New Mexico (0.33%)
Farmington, City of, Poll Control Rev 1997 Ser A
Tucson Elec Pwr Co San Juan Proj 6.950 10-01-20 B+ 2,000 2,022,620 6.87
------------
New York (11.12%)
Dutchess County Resource Recovery Agency, Rev
Solid Waste Sys Ser A 5.350 01-01-12 AAA 710 732,990 5.18
Islip Community Development Agency, Community Dev
Rev Ref NY Institute of Technology Proj 7.500 03-01-26 BB- 2,500 2,607,000 7.19
Long Island Power Auth, Elec Sys Rev Cap Apprec
Ser 1998A Zero 12-01-17 AAA 585 228,296 5.53
Metropolitan Transportation Auth, Commuter Facil
Rev Ser 1998B 4.750 07-01-26 AAA 4,000 3,518,520 5.40
Monroe TOB Asset Securitization Corp, TOB
Settlement Rev Asset Backed Bonds 6.375 06-01-35 A 2,000 2,017,560 6.32
New York City Industrial Development Agency, Rev
Ref LaGuardia Assoc LP Proj 6.000 11-01-28 BB+ 2,500 2,142,525 7.00
New York City Municipal Water Finance Auth, Wtr &
Swr Sys Rev Ser 1999A 5.500 06-15-32 AAA 2,000 1,962,980 5.60
Wtr & Swr Sys Rev Ser 2000B 6.000 06-15-33 AA 1,000 1,038,530 5.78
New York City Transitional Finance Auth, Rev
Future Tax Secd Ser 2000C 5.500 11-01-29 AA 2,000 1,962,800 5.60
New York Local Government Assistance Corp, Rev
Ref Cap Apprec Ser 1993C Zero 04-01-14 AAA 7,210 3,571,041 5.24
New York State Dormitory Auth, City Univ Sys
Consol Rev 2nd Generation Ser 1993A 5.750 07-01-09 A 1,000 1,052,950 5.46
State Univ Ed Facil Rev Iss Ser 1990B 7.500 05-15-11 A 500 585,225 6.41
State Univ Ed Facil Rev Ser 1993A 5.500 05-15-19 A 1,000 1,019,880 5.39
New York State Energy Research and Development
Auth, Elec Facil Rev Ser 1990A Preref 7.150 06-01-20 A- 1,370 1,455,447 6.73
New York State Environmental Facilities Corp,
State Wtr Poll Control Rev Rites Ser PA-174 7.397# 06-15-11 AAA 2,000 2,600,000 5.69
New York State Housing Finance Agency, State Univ
Construction Ref 1986 Ser A 8.000 05-01-11 AAA 2,000 2,462,740 6.50
New York State Medical Care Facilities Finance
Agency, Rev 1990 Unref Bal 7.875 08-15-08 A- 150 153,368 7.70
Rev 1990 Unref Bal 7.875 08-15-20 A- 35 35,799 7.70
Rev 1991 Ref 7.750 08-15-11 A3 205 211,769 7.50
New York, City of, GO Cap Apprec Ref Fiscal 1998
Ser G Zero 08-01-08 A- 6,000 4,067,820 4.97
GO Fiscal 1991 Ser D Preref 8.000 08-01-04 A- 185 193,884 7.63
GO Fiscal 1991 Ser D Unref Bal 8.000 08-01-04 A- 10 10,446 7.66
GO Fiscal 1991 Ser F Preref 8.200 11-15-03 A 1,145 1,214,112 7.73
GO Fiscal 1991 Ser F Unref Bal 8.200 11-15-03 A- 105 110,876 7.77
GO Fiscal 1992 Ser A Preref 7.750 08-15-12 A- 2,000 2,094,200 7.40
GO Fiscal 1992 Ser D Preref 7.700 02-01-09 A- 985 1,045,154 7.26
GO Fiscal 1992 Ser D Unref Bal 7.700 02-01-09 A- 15 15,825 7.30
GO Fiscal 1992 Ser H Preref 7.000 02-01-08 A- 1,840 1,934,318 6.66
GO Fiscal 1992 Ser H Unref Bal 7.000 02-01-08 A- 160 167,286 6.70
GO Fiscal 1995 Ser B Preref 7.000 08-15-16 A- 3,000 3,312,420 6.34
GO Fiscal 1996 Ser J 5.500 02-15-26 A- 2,000 1,943,920 5.66
GO Rev Ref Ad Valorem Property Tax Ser D 5.750 08-15-13 A- 3,170 3,254,956 5.60
Port Auth of New York and New Jersey, Spec Proj
KIAC Partners Proj Ser 4 6.750 10-01-19 BBB 9,000 9,107,010 6.67
Triborough Bridge and Tunnel Auth, Gen Purpose
Rev Ser 1993 Zero 01-01-22 AAA 20,755 6,296,652 5.67
Gen Purpose Rev Ser X 6.500 01-01-19 A+ 1,250 1,297,100 6.26
Spec Oblig Ref Ser 1991B 6.875 01-01-15 A- 2,300 2,363,802 6.69
Westchester Tobacco Asset Securitization Corp,
Rev Cap Apprec Zero 07-15-39 A 2,000 1,146,840 6.71
------------
68,936,041
------------
North Carolina (2.03%)
North Carolina Municipal Power Agency Number 1,
Catawba Elec Rev Ser 1992 5.750 01-01-15 AAA 7,410 7,492,992 5.69
Catawba Elec Rev Ser 1993 5.000 01-01-15 AAA 5,220 5,058,650 5.16
------------
12,551,642
------------
Ohio (3.38%)
Akron, City of, Cert of Part Akron Municipal
Baseball Stadium Proj Zero 12-01-16 BBB 1,000 979,120 6.30
Cleveland Public Power System, Elec Sys Rev 1st
Mtg Ser 1994A 7.000 11-15-16 AAA 2,640 2,943,574 6.28
Elec Sys Rev 1st Mtg Ser A 7.000 11-15-24 AAA 4,200 4,682,958 6.28
Lorain, County of, Rev 1st Mtg Ser A Kendal At
Oberlin Proj 8.625 02-01-22 AA 3,865 4,150,508 8.03
Ohio State Air Quality Development Auth, Rev Adj
Ser B Columbus & South Proj 6.250 12-01-20 Baa1 4,500 4,339,440 6.48
Ohio State Water Development Auth, Poll Control
Facil Rev Ref Ser 1995 Cleveland Elec Co Proj 7.700 08-01-25 BB+ 2,800 2,983,792 7.23
Ohio, State of, Solid Waste Rev Ref CSC Ltd Proj (B) 8.500 08-01-22 C 1,825 538,375 28.81
Student Loan Funding Corp, Sub Rev Ser B
Cincinnati Ohio Student Loan 8.875 08-01-08 BBB- 340 343,981 8.77
------------
20,961,748
------------
Oklahoma (0.33%)
Tulsa Municipal Airport Trust, Trustees of, Rev
Ser 1988 American Airlines Inc 7.375 12-01-20 BBB- 2,000 2,044,560 7.21
------------
Oregon (0.56%)
Western Generation Agency, Rev 1994 Ser A Wauna
Cogeneration Proj 7.125 01-01-21 BBB- 3,400 3,480,546 6.96
------------
Pennsylvania (8.31%)
Allegheny County Hospital Development Auth, Rev
Hlth & Ed Rehab Institute of Pitt 7.000 06-01-22 AA 1,500 1,589,775 6.60
Allegheny County Industrial Development Auth, Rev
Ref Ser 1994A Environmental Imp USX Corp Proj 6.700 12-01-20 BBB 10,000 10,198,800 6.57
Beaver County Industrial Development Auth, Coll
Poll Control Rev Ref Ser 1995A Toledo Edison Co
Poll Control Rev Ref Ser 1995A Toledo Edison Co
Beaver Valley Proj 7.750 05-01-20 BB+ 2,200 2,361,414 7.22
Carbon County Industrial Development Auth, Rev
Ref Panther Creek Partners Proj 6.700 05-01-12 BBB- 2,960 2,999,338 6.61
Delaware County Auth, 1st Mtg Rev Riddle Village
Proj 7.000 06-01-26 BBB- 1,250 1,222,138 7.16
Northumberland County Auth, Commonwealth Lease
Rev Ser 1991 6.250 10-15-09 AAA 1,000 1,021,490 6.12
Pennsylvania Convention Center Auth, Rev Ref Ser
1994A 6.700 09-01-14 BBB 4,950 5,182,749 6.40
Pennsylvania Economic Development Finance Auth,
Resource Recovery Rev Ser 1994D Colver Proj 7.125 12-01-15 BBB- 7,000 7,191,590 6.94
Resource Recovery Rev Ser 1994D Colver Proj 7.150 12-01-18 BBB- 1,500 1,536,090 6.98
Pennsylvania State Turnpike Commission, Turnpike
Rev Ser N 6.500 12-01-13 AA- 2,840 2,960,359 6.24
Philadelphia Hospitals and Higher Education
Facilities Auth, Hosp Rev 1991 Ser A
Philadelphia Protestant Home Proj 8.625 07-01-21 AA 2,700 2,842,236 8.19
Hosp Rev 1992 Ser A Children's Seashore House
Proj 7.000 08-15-12 A+ 1,250 1,310,313 6.68
Philadelphia Industrial Development Auth,
Commercial Devel Rev Ser 1995 Philadelphia
Airport Hotel Proj 7.750 12-01-17 B+ 3,250 3,431,058 7.34
Philadelphia, City of, Wtr & Swr Rev 16th Ser 7.500 08-01-10 AAA 3,000 3,144,420 7.16
Scranton-Lackawanna Health and Welfare Auth, Rev
Ser A Allied Services Rehabilitation Hosp Proj 7.600 07-15-20 BBB- 3,525 3,642,911 7.35
Westmoreland County Industrial Development Auth,
Rev Valley Landfill Proj 5.100 05-01-18 BBB 1,000 892,360 5.72
------------
51,527,041
------------
Puerto Rico (7.34%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico 6.000 07-01-11 AAA 200 221,866 5.41
Ref Pars & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico 7.370# 07-01-11 AAA 6,500 7,913,750 6.05
Puerto Rico Electric Power Auth, Rev Ser HH 5.250 07-01-29 AAA 1,500 1,460,775 5.39
Puerto Rico Highway and Transportation Auth,
Highway Rev Ser Y Res Int Tax-Exempt Sec Rec'ts
Highway Rev Ser Y Res Int Tax-Exempt Sec Rec'ts
Ser PA-114 (r) 7.146# 07-01-11 A 13,130 16,000,875 5.86
Puerto Rico, Commonwealth of, GO Pub Imp Inverse
Rate Floater 1992A 7.504# 07-01-08 AAA 2,700 2,885,625 7.02
GO Pub Imp Inverse Rate Securities Ser 1996 7.672# 07-01-11 AAA 14,000 17,045,000 6.30
------------
45,527,891
------------
South Carolina (1.29%)
Florence, County of, Ind'l Dev Rev Stone
Container Proj 7.375 02-01-07 BB- 3,460 3,473,909 7.35
Richland, County of, Poll Control Rev Union Camp
Corp Proj Ser 1992B 6.625 05-01-22 BBB+ 2,000 2,028,580 6.53
South Carolina Jobs-Economic Development Auth,
Solid Waste Recycling Rev Santee River Rubber
Proj Ser A 8.000 12-01-14 BB- 2,750 2,512,538 8.76
------------
8,015,027
------------
Tennessee (3.39%)
Chattanooga Industrial Development Board, Ind'l
Rev Ref Dev Market Str Ltd Proj 7.000 12-15-12 BBB 2,750 2,685,347 7.17
Eastside Utility District of Hamilton, Waterworks
Rev Iss 6.750 11-01-11 A 1,000 1,047,050 6.45
Humphreys County Industrial Development Board,
Solid Waste Disposal Rev E.I. Du Pont de Nemours
and Co Proj 6.700 05-01-24 AA- 6,500 6,964,880 6.25
Maury County Industrial Development Board,
Multi-Modal Interchangeable Rate Poll Control Ref
Rev Saturn Corp Proj 6.500 09-01-24 A 9,000 9,297,090 6.29
Memphis-Shelby County Airport Auth, Rev Ref
Federal Express Corp 6.750 09-01-12 BBB 1,000 1,042,480 6.47
------------
21,036,847
------------
Texas (4.43%)
Austin, City of, Combined Util Sys Rev Ref Ser
1998 6.750 11-15-10 AAA 3,125 3,609,125 5.84
Corpus Christi Housing Finance Corp, Single
Family Mtg Sr Rev Ref Ser 1991A 7.700 07-01-11 AAA 280 297,802 7.24
Dallas-Fort Worth International Airport Facility
Improvement, Rev American Airlines Inc 7.250 11-01-30 BBB- 10,250 10,668,815 6.97
Rev Delta Air Lines Inc 7.600 11-01-11 BBB- 3,000 3,106,200 7.34
El Paso Housing Finance Corp, Single Family Mtg
Rev Ref Bonds 1991 Ser A 8.750 10-01-11 A2 280 293,622 8.34
El Paso International Airport, Rev Ref Spec Facil
Marriott Corp Proj 7.750 03-01-12 B 1,410 1,442,768 7.57
Houston Independent School District, Pub Facil
Corp Lease Rev Cap Apprec Ser A Cesar E Chavez Zero 09-15-16 AAA 900 369,396 5.63
Houston, City of, Spec Facil Rev Ser C
Continental Airline Inc 6.125 07-15-27 BB 4,000 3,565,080 6.87
Wtr & Swr Sys Rev Ref Prior Lien Ser B Preref 6.750 12-01-08 A+ 180 188,597 6.44
Wtr & Swr Sys Rev Ref Prior Lien Ser B Unref Bal 6.750 12-01-08 A+ 1,320 1,376,932 6.47
North Central Texas Health Facilities Development
Corp, Hospital Rev Baylor Univ Medical Center
Ser 1991A 9.137# 05-15-16 AA- 1,000 1,070,000 8.54
Sabine River Auth, Poll Control Rev Ref TXU
Electric Proj Ser A 6.450 06-01-21 BBB 1,500 1,501,995 6.44
------------
27,490,332
------------
Utah (0.36%)
Carbon, County of,
Solid Waste Disp Rev Ref Ser A East Carbon
Development Corp 9.000 07-01-12 BBB- 900 917,649 8.83
Salt Lake City Hospital, Rev Ref Ser A 8.125 05-15-15 AAA 1,000 1,246,150 6.52
Utah Housing Finance Agency, Single Family Mtg Sr
1990 Iss B-2 7.700 07-01-15 AAA 15 15,158 7.62
Single Family Mtg Sr 1991 Iss B-1 7.500 07-01-16 AAA 20 20,457 7.33
------------
2,199,414
------------
Virgin Islands (0.54%)
Virgin Islands Public Finance Auth, Rev Sub Lien
Fund Ln Notes Ser 1998E 5.875 10-01-18 BB+ 2,500 2,388,725 6.15
Virgin Islands Water & Power Auth, Wtr Sys Rev Ref 5.500 07-01-17 BB+ 1,000 932,340 5.90
------------
3,321,065
------------
Virginia (1.48%)
Arlington County Industrial Development Auth,
Hosp Facil Rev Arlington Hosp Ser 1991A 7.125 09-01-21 AAA 500 523,450 6.81
Fairfax County Industrial Develpment Auth, Rev
RITES 9.027# 08-29-23 AA 1,000 1,080,000 8.36
Fredericksburg Industrial Auth, Hosp Facil Rev 8.455# 08-15-23 AAA 1,500 1,614,375 7.86
Pittsylvania County Industrial Development Auth,
Rev Ser A Exempt Facil 7.550 01-01-19 BB 3,500 3,630,970 7.28
Pocahontas Parkway Assn, Toll Road Rev Cap Apprec
1st Tier Sub Ser C Zero 08-15-24 Ba1 4,800 796,512 7.64
Toll Road Rev Cap Apprec 1st Tier Sub Ser C Zero 08-15-25 Ba1 5,000 769,800 7.64
Toll Road Rev Cap Apprec 1st Tier Sub Ser C Zero 08-15-26 Ba1 5,500 785,565 7.64
------------
9,200,672
------------
Washington (1.61%)
Seattle, City of, Municipal Light & Pwr Rev 1994 6.625 07-01-16 AA 3,600 3,933,684 6.06
Spokane County Industrial Development Corp, Solid
Waste Disp Rev Kaiser Alum & Chem Corp Proj 7.600 03-01-27 BB- 1,250 1,245,625 7.63
Tacoma Electric System, Rev VRDN/RIBS Iss of 1991 8.437# 01-02-15 AAA 1,000 1,051,250 8.03
Washington Public Power Supply System, Nuclear
Proj No. 1 Ref Rev Ser 1989B 7.125 07-01-16 AA- 1,500 1,774,140 6.02
Washington, State of, GO Ser A of 1990 6.750 02-01-15 AA+ 1,000 1,156,920 5.83
Washington, University of, Hsg & Dining Rev
Preref 7.000 12-01-21 AAA 595 625,428 6.66
Hsg & Dining Rev Preref 7.000 12-01-21 AAA 35 36,790 6.66
Hsg & Dining Rev Unref Bal 7.000 12-01-21 AAA 120 125,857 6.67
------------
9,949,694
------------
West Virginia (0.50%)
West Virginia State Hospital Finance Auth, Hosp
Rev Charleston Area Medical Center Ser 2000A 6.750 09-01-22 A2 3,000 3,084,390 6.57
------------
Wisconsin (0.04%)
Sturgeon Bay Combined Utilities, Door County
Combined Util Mtg Rev Ser 1990 Unref Bal 7.500 01-01-10 AAA 230 238,975 7.22
------------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $577,082,163) (99.15%) 614,624,486
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.85%) 5,280,639
-------- ------------
TOTAL NET ASSETS (100.00%) $619,905,125
======== ============
NOTES TO SCHEDULE OF INVESTMENTS
(r) Direct placement security is restricted as to resale. This security
has been valued in accordance with procedures approved by the Trustees
after consideration of restrictions as to resale, financial condition
and prospects of the issuer, general market conditions and pertinent
information in accordance with the Fund's bylaws 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:
MARKET
VALUE AS A MARKET
PERCENTAGE VALUE
ACQUISITION ACQUISITION OF FUND'S AS OF
ISSUER, DESCRIPTION DATE COST NET ASSETS AUGUST 31, 2000
------------------- ---- ---- ---------- ---------------
Puerto Rico Highway and Transportation Auth,
Highway Rev Ser Y Res Int Tax-Exempt
Sec Rec'ts Ser PA-114
7.146%, 07-01-11 04-02-96 $14,925,160 2.58% $16,000,875
(B) Non-income producing issuer, filed for protection under the Federal
Bankruptcy Code or is in default on interest payment.
(R) This security is exempt from registration under rule 144A of the
Securities Act of 1933. Such security may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $3,988,040 or 0.64% of
net assets as of August 31, 2000.
* 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 an aggregate value of $3,124,740 or 0.50% of
the Fund's net assets, has been purchased on a when-issued basis. The
purchase price and the interest rate of this security are fixed at trade
date, although the Fund does not earn any interest on this security
until settlement date. The Fund has instructed its Custodian Bank to
segregate assets with a current value at least equal to the amount of
its when-issued commitment. Accordingly, the market value of $3,205,678
of Commonwealth of Puerto Rico, 7.672%, 07-01-11, has been segregated to
cover the when-issued 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 August 31, 2000.
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.
</TABLE>
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 conditions 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
August 31, 2000 assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
------------------- ----------
General Obligation 7.57%
Revenue Bonds - Airport 0.90
Revenue Bonds - Authority 1.75
Revenue Bonds - Bridge & Toll Road 1.05
Revenue Bonds - Building 0.10
Revenue Bonds - Combined 0.63
Revenue Bonds - Economic Development 0.65
Revenue Bonds - Education 2.60
Revenue Bonds - Electric 12.62
Revenue Bonds - Environment 0.92
Revenue Bonds - Excise Tax 0.32
Revenue Bonds - Facility 0.57
Revenue Bonds - Financial 0.20
Revenue Bonds - Health 11.77
Revenue Bonds - Highway 0.84
Revenue Bonds - Hospital 0.50
Revenue Bonds - Housing 2.16
Revenue Bonds - Industrial Development 1.41
Revenue Bonds - Industrial Revenue 7.24
Revenue Bonds - Lease 0.16
Revenue Bonds - Other 4.39
Revenue Bonds - Parking Garage/Authority 0.24
Revenue Bonds - Pollution Control 13.79
Revenue Bonds - Power 0.47
Revenue Bonds - Recreational Facility 1.05
Revenue Bonds - School 0.92
Revenue Bonds - Solid Waste Disposal 0.52
Revenue Bonds - Student Loan 0.56
Revenue Bonds - Transportation 19.70
Revenue Bonds - Various Purpose 0.33
Revenue Bonds - Water & Sewer 3.22
-------
TOTAL TAX-EXEMPT LONG-TERM BONDS 99.15%
=======
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Tax-Free Bond Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Tax-Free Bond Fund (the "Fund") is a diversified series of
John Hancock Tax-Free Bond Trust (the "Trust"), an open-end management
investment company, registered under the Investment Company Act of 1940.
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
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 qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to 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.
Availability of a certain amount of these loss carryforwards which were
acquired on December 6, 1996 in a merger with John Hancock Managed
Tax-Exempt Fund, may be limited in a given year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment
securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the
amount paid in excess of par value on securities purchased from either
the date of purchase or date of issue to date of sale, maturity or to
next call date, if applicable. The Fund accretes original issue discount
from par value on securities purchased from either the date of issue or
the date of purchase over the life of the security, as required by the
Internal Revenue Code. The Fund records market discount on bonds
purchased after April 30, 1993 at time of disposition.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the fund level and allocated daily to
each class of shares based on the relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund has entered into a syndicated line of credit
agreement with various banks. This agreement enables the Fund to
participate with other funds managed by the Adviser in an unsecured line
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 to each fund based on the
average daily unused portion of the line of credit and is allocated
among the participating funds. The maximum loan balance outstanding
during the year amounted to $22,246,000. The annualized interest rate
charged during the year ranged from 5.75% to 7.63%. At August 31, 2000,
there were no outstanding borrowings.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
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%, 1.60%
and 1.70% of the average net assets attributable to Class A,
Class B and Class C, respectively. Accordingly, the reduction in the
Advisor's fee amounted to $222,640 for the year ended August 31, 2000.
This limitation may not be discontinued until December 31, 2000.
The Fund has an agreement with its custodian bank under which $103,554
of custodian fees have been reduced by balance credits applied during
the year ended August 31, 2000. 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 year ended
August 31, 2000, net sales charges received with regard to sales of
Class A shares amounted to $245,143. Out of this amount, $28,759 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $27,171 was paid as sales commissions to
unrelated broker-dealers and $189,213 was paid as sales commissions to
sales personnel of Signator Investors, Inc. ("Signator Investors"), a
related broker-dealer. The Adviser's indirect parent, John Hancock Life
Insurance Company ("JHLICo"), 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 5.00% 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 year ended August 31, 2000, CDSCs amounted to $304,475.
Effective May 1, 2000, all Class C retail purchases are assessed a 1.00%
up-front sales charge. For the year ended August 31, 2000, up-front
sales charges received with regard to sales of Class C shares amounted
to $23,826. Out of this amount $23,076 was paid as sales commissions to
unrelated broker-dealers and $750 was paid as sales commissions to sales
personnel of Signator Investors. Class C shares which are redeemed
within one year of purchase will be subject to a CDSC at a rate of 1.00%
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 C shares. For the year ended
August 31, 2000, CDSCs amounted to $832.
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, Class B and Class C shares 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 and Class C 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.
Accordingly, the reduction in the distribution and service fee amounted
to $531,067 and $114,002 for Class A and Class B, respectively, for the
year ended August 31, 2000. This limitation may not be discontinued
until December 31, 2000. A maximum of 0.25% of such payments may be
service fees as defined by the Conduct Rules of the National Association
of Securities Dealers. Under the Conduct Rules, 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 JHLICo.
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,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford 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. The investment had no impact on the
operations of the Fund.
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 year ended August 31, 2000, aggregated $78,980,423 and
$159,625,700, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the year
ended August 31, 2000.
The cost of investments owned at August 31, 2000 for federal income tax
purposes was $577,082,163. Gross unrealized appreciation and
depreciation of investments aggregated $43,473,456 and $5,931,133,
respectively, resulting in net unrealized appreciation of $37,542,323.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended August 31, 2000, the Fund has reclassified amounts
to reflect a decrease in accumulated net realized loss on investments of
$9,030, an increase in undistributed net investment income of $7,782 and
a decrease in capital paid-in of $16,812. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of August 31, 2000. Additional adjustments may
be needed in subsequent reporting periods. These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to certain differences in the computation of distributable
income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income
per share in the financial highlights excludes these adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees
John Hancock Tax-Free Bond Trust --
and Shareholders of
John Hancock Tax-Free Bond Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock Tax-Free Bond Fund (the "Fund"), one of the port-folios
constituting John Hancock Tax-Free Bond Trust, including the schedule of
investments, as of August 31, 2000, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of August 31,
2000, by correspondence with the custodian and brokers, or other
appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock Tax-Free Bond Fund of the John
Hancock Tax-Free Bond Trust at August 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
October 12, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund during its fiscal year
ended August 31, 2000.
None of the 2000 income dividends qualify for the corporate
dividends-received deduction. Shareholders who are not subject to the
alternative minimum tax received income dividends which are 99.73%
tax-exempt. The percentage of income dividends from the Fund subject to
the alternative minimum tax is 17.28%.
None of the income dividends were derived from the U.S. Treasury Bills.
For specific information on exemption provisions in your state, consult
your local state tax office or your tax advisor.
Shareholders will be mailed a 2000 U.S. Treasury Department Form
1099-DIV in January 2001. This will reflect the total of all
distributions which are taxable for calendar year 2000.
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
Member NASD
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Tax-Free Bond Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."]
5200A 8/00
10/00
The latest report from your
Fund's management team
ANNUAL REPORT
High Yield
Tax-Free Fund
AUGUST 31, 2000
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion*
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment 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
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President
and Chief Executive Officer, flush right next to second
paragraph.]
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years,
the financial markets have brought investors back down to earth in 2000.
Volatility ruled during the spring, as rising interest rates and
prospects of a slowing economy finally caught up to pricey growth
stocks. As a result, the tech-heavy NASDAQ Composite Index advanced by
only 3.37% through the end of August, while the Dow Jones Industrial
Average lost 1.46% and the Standard & Poor's 500 Index was up 4.12%.
But there is a silver lining. Investors have finally turned their
attention to broader swaths of the market, including both blue chip and
old economy stocks in sectors like financials, health care and energy,
that combined both strong fundamentals and less frothy valuation levels.
As for bonds, rising interest rates have kept the broader bond market in
flux, but pockets of strength have emerged there, as well, including
municipal bonds and longer-maturity Treasury bonds. The 30-year bond,
for instance, has returned 14.28% since January.
Between now and year end, we expect the market's focus to be on
Washington, as it usually is in an election year. While the presidential
election is important, what warrants more attention is the Federal
Reserve Board. The November election will generate more ink, but won't
have anywhere near the impact on financial markets that further Fed
action could. So we'll be watching the economic data to see whether the
Fed has truly wound down its string of interest-rate hikes.
The market's shifts in leadership so far this year highlight one of the
key investment tenets that we can't emphasize enough: investing should
be a marathon, not a sprint. If your portfolio is diversified and you
have an up-to-date financial plan crafted with an investment
professional to meet your goals, it becomes easier to ride out the
market's short-term ups and downs. It could also provide you with a
greater chance of success over time.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY FRANK A. LUCIBELLA, CFA, BARRY H. EVANS, CFA, AND
DIANNE SALES, CFA, PORTFOLIO MANAGERS
[A 3" x 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): Dianne Sales, Barry Evans and
Frank Lucibella."]
John Hancock
High Yield Tax-Free Fund
High-yield municipals languish, even while
overall market rallies
Despite growing optimism about inflation and the direction of interest
rates, the past year proved to be a difficult one for high-yield
municipal bonds. A year ago, investors were spooked by fears of
inflation and rising interest rates. Persistently tight labor markets
and strong economic growth continued to fan inflationary fears and the
Federal Reserve Board raised interest rates to cool off the economy --
six times from June 1999 through August 2000. In response, investors
pushed bond yields higher and their prices -- which move in the opposite
direction of yields -- lower.
"...the past
year proved
to be a
difficult one
for high-yield
municipal
bonds."
Rising interest rates also translated into flagging demand for
municipals and most other fixed-income investments, which put further
pressure on bond prices. That was especially true for high-yield bonds.
Instead of seeking better returns, investors increasingly steered clear
of lower-rated issuers. High-yield bonds also were troubled by a number
of technical factors. High-yield issuers swamped the market with new
securities at the end of 1999. At the same time, the high-yield segment
of the market bore much of the brunt of tax-loss selling in late 1999
and early 2000. Investors sold some high-yield municipal holdings to
lock in losses and offset capital gains incurred elsewhere in their
portfolios. Additionally, concerns about the future profitability of the
health-care sector -- which accounts for a good-sized portion of the
high-yield market -- cast a pall over the entire market.
[Pie chart at top left hand column with heading "Portfolio
Diversification." The chart is divided into eleven sections
(from top to left): Facility 2%, Education 2%, Economic
Development 3%, Water & Sewer 2%, Transportation 11%,
Pollution Control 17%, Industrial Revenue 7%, Industrial
Development 5%, Housing 8%, Health 18% and Other 25%. A note
below the chart reads "As a percentage of net assets on
August 31, 2000."]
"We...bene-
fited from
many of our
positions in
the utility
sector..."
Even though the overall municipal market enjoyed a spring rally prompted
by expectations that the Fed might be at or near the end of its nearly
15-month-long campaign to raise interest rates, high-yield bonds
continued to struggle. While higher-rated, lower-yielding bonds
benefited from significantly increased demand from individual investors,
high-yielding securities of all types -- such as high-yield corporate
and municipal bonds -- remained decidedly out of favor.
[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 Foothill Corridor
Agency followed by an up arrow with the phrase "Strong demand
for California bonds." The second listing is Mississippi
Entergy followed by an up arrow with the phrase "Proposed
merger generates enthusiasm." The third listing is Safety
Kleen followed by a down arrow with the phrase "Bonds hurt
by bankruptcy filing." A note below the table reads "See
'Schedule of Investments.' Investment holdings are subject to
change."]
Fund performance
For the 12-month period ended August 31, 2000, John Hancock High Yield
Tax-Free Fund's Class A, Class B and Class C shares posted total returns
of 1.24%, 0.49% and 0.48%, respectively, at net asset value. By
comparison, the average high-yield municipal bond fund returned 0.90%,
according to Lipper, Inc.1 Keep in mind that your net asset value 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.
Leaders and laggards
Despite the difficult investment backdrop, there were a number of bright
spots for the Fund. First, it was well positioned in some of the bonds
that were expected to receive, or had received, a credit upgrade during
the year. We also benefited from many of our positions in the utility
sector, including Mississippi Entergy, which is scheduled to be bought
out by higher-rated Florida Power, and Connecticut Light & Power, which
was recently upgraded.
Our holdings in California also performed well since the state was among
the municipal market's best-performing states in light of very strong
demand. Bonds issued by Foothill/Eastern Transportation Corridor Agency
were some of our best performers because of that strong demand and
because their relatively high interest-rate sensitivity boosted their
performance during the spring and summer rally.
On the flip side, our holdings in bonds issued by the County of Tooele,
Utah, in conjunction with the hazardous waste clean-up efforts of the
company Safety Kleen, performed poorly when the company filed for
bankruptcy protection. Our holdings in health-care bonds also performed
poorly in response to continued concerns about the sector's
profitability.
Duration management works
Our timely management of the Fund's duration, or interest-rate
sensitivity, paid off. Throughout periods when interest rates were on
the rise and the municipal market was in retreat -- such as last fall,
the December-January period and the March-April span -- we shortened
the Fund's duration. By doing so during those downdrafts, the Fund's
share price losses were curtailed when interest rates rose. We also
benefited from increasing the Fund's interest-rate sensitivity when the
market rallied, as it has since May. Lengthening the Fund's duration
meant that it more fully benefited from the rise in bond prices.
[Bar chart at top of left hand column with heading "Fund
Performance". Under the heading is a note that reads "For the
year ended August 31, 2000." The chart is scaled in
increments of 0.5% with 0% at the bottom and 1.5% at the top.
The first bar represents the 1.24% total return for John
Hancock High Yield Tax-Free Fund Class A. The second bar
represents the 0.49% total return for John Hancock High Yield
Tax-Free Fund Class B. The third bar represents the 0.48%
total return for John Hancock High Yield Tax-Free Fund Class
C. The fourth bar represents the 0.90% 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, Inc. 1 See the following two pages for
historical performance information."]
Opportunities
The rise in interest rates and bond yields afforded us an opportune time
to do a bit of restructuring to the Fund. We undertook a program to
replace -- whenever the market provided us with attractive opportunities
to do so -- less well-known and less well-traded names with more
high-profile and better trading names. Thanks to rising rates, we were
often able to add to our existing names or bring in new names with
strong risk/return profiles.
"...we think
the technical
aspects of
supply and
demand will
turn more
positive."
Outlook
Over the very short term, we think interest rates can hold steady at
current levels. It would be quite surprising to see the Fed cut or hike
interest rates prior to the November presidential election. Beyond that
point, however, anything can happen. While the economy has shown some
signs of a slowdown, it may not be enough to prevent the Fed from
raising interest rates further by year end. Some observers are
speculating that the slowing has been significant enough to warrant a
rate cut, something we believe is unlikely given that economic growth
remains strong. With that outlook in mind, we plan to keep the Fund's
duration neutral. As for the high-yield municipal market, we think the
technical aspects of supply and demand will turn more positive. Supply
has already abated and we believe that investors will eventually start
looking at the compelling yields that high-yield bonds currently offer.
------------------------------------------------------------------------
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 Fund's 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.
A LOOK AT PERFORMANCE
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 an up-front 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). Class C performance includes an
up-front sales charge of 1% and a contingent deferred sales charge (1%
declining to 0% after one year).
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 June 30, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/93)
----- ----- -----
Cumulative Total Returns (6.43%) 16.82% 23.47%
Average Annual Total Returns(1) (6.43%) 3.16% 3.30%
CLASS B
For the period ended June 30, 2000
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
Cumulative Total Returns (7.40%) 16.00% 68.99%
Average Annual Total Returns(1) (7.40%) 3.01% 5.39%
CLASS C
For the period ended June 30, 2000
SINCE
ONE INCEPTION
YEAR (4/1/99)
----- --------
Cumulative Total Returns (4.66%) (5.34%)
Average Annual Total Returns(1) (4.66%) (4.31%)
YIELDS
As of August 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock High Yield Tax-Free Fund: Class A(1) 5.58%
John Hancock High Yield Tax-Free Fund: Class B(1) 5.14%
John Hancock High Yield Tax-Free Fund: Class C(1) 5.04%
Note to Performance
(1) The custodian fee was offset with balance credits during the year
ended August 31, 2000. Without the balance credits, the average annual
total return for the one-year period for Class A, Class B and Class C
shares would have been (6.46%), (7.43%) and (4.69%), respectively.
Without the balance credits, the effect on the five- and ten-year
periods and since inception for Class A, Class B and Class C shares
would have been less than 0.01%. The yields for Class A, Class B
and Class C shares, without the balance credits, would have been
5.55%, 5.11% and 5.01%, respectively.
WHAT HAPPENED TO A $10,000 INVESTMENT...
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. It is not
possible to invest in an index. Past performance is not indicative of
future results.
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. Within the
chart are three lines. The first line represents the Lehman
Brothers Municipal Bond Index and is equal to $14,248 as of
August 31, 2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock High
Yield Tax-Free Fund on December 31, 1993, before sales
charge, and is equal to $13,225 as of August 31, 2000. The
third line represents the value of the same hypothetical
investment made in the John Hancock High Yield Tax-Free Fund,
after sales charge, and is equal to $12,630 as of August 31,
2000.
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 $20,375 as of
August 31, 2000. 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, 1990, before sales charge,
and is equal to $17,269 as of August 31, 2000.
Line chart with the heading John Hancock High Yield Tax-Free
Fund Class C*, 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 Lehman
Brothers Municipal Bond Index and is equal to $10,443 as of
August 31, 2000. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock High
Yield Tax-Free Fund on April 1, 1999, before sales charge,
and is equal to $9,777 as of August 31, 2000. The third line
represents the value of the same hypothetical investment made
in the John Hancock High Yield Tax-Free Fund, after sales
charge, and is equal to $9,679 as of August 31, 2000.
*No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Tax-Free Fund
<TABLE>
<CAPTION>
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 August 31,
2000. You'll also find the net asset value and the maximum offering
price per share as of that date.
Statement of Assets and Liabilities
August 31, 2000
--------------------------------------------------------------
Assets:
<S> <C>
Investments at value -- Note C:
Tax-exempt long-term bonds (cost --
$126,502,983) $126,624,863
Cash 853,143
Receivable for investments sold 45,000
Receivable for shares sold 61,011
Interest receivable 2,123,098
Other assets 47,648
-----------------
Total Assets 129,754,763
-----------------
Liabilities:
Payable for shares repurchased 14,017
Payable for investments purchased 1,002,867
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B 85,728
Accounts payable and accrued expenses 87,991
-----------------
Total Liabilities 1,190,603
-----------------
Net Assets:
Capital paid-in 142,535,314
Accumulated net realized loss on
investments and financial futures
contracts (14,086,514)
Net unrealized appreciation of
investments 121,880
Distributions in excess of net
investment income (6,520)
-----------------
Net Assets $128,564,160
=================
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 -- $46,651,723/5,422,688 $8.60
==============================================================
Class B -- $81,208,165/9,439,449 $8.60
==============================================================
Class C -- $704,272/81,863 $8.60
==============================================================
Maximum Offering Price Per Share
Class A* -- ($8.60/0.955) $9.01
==============================================================
Class C -- ($8.60/0.99) $8.69
==============================================================
* 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.
</TABLE>
<TABLE>
<CAPTION>
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
Year ended August 31, 2000
--------------------------------------------------------------
<S> <C>
Investment Income:
Interest $10,089,484
-----------------
Expenses:
Investment management fee -- Note B 839,252
Distribution and service fee -- Note B
Class A 115,553
Class B 938,102
Class C 3,380
Transfer agent fee -- Note B 132,298
Custodian fee 52,635
Registration and filing fees 44,270
Auditing fee 32,664
Accounting and legal services fee --
Note B 27,205
Printing 19,324
Miscellaneous 15,320
Trustees' fees 7,379
Legal fees 1,465
Interest expense -- Note A 570
-----------------
Total Expenses 2,229,417
-----------------
Less Expense Reductions -- Note B (38,635)
-----------------
Net Expenses 2,190,782
-----------------
Net Investment Income 7,898,702
-----------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments sold (510,771)
Change in net unrealized
appreciation/depreciation of
investments (7,054,579)
-----------------
Net Realized and Unrealized Loss on
Investments (7,565,350)
-----------------
Net Increase in Net Assets Resulting
from Operations $333,352
=================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
----------------- -----------------
1999 2000
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $8,824,386 $7,898,702
Net realized loss on investments
sold and financial futures
contracts (2,241,320) (510,771)
Change in net unrealized
appreciation/depreciation of
investments (9,050,854) (7,054,579)
----------------- -----------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (2,467,788) 333,352
----------------- -----------------
Distributions to Shareholders:
Distributions from net investment income
Class A -- ($0.5346 and $0.5278
per share, respectively) (2,592,579) (2,834,765)
Class B -- ($0.4663 and $0.4637
per share, respectively) (6,228,402) (5,045,957)
Class C** -- ($0.1838 and $0.4631
per share, respectively) (3,404) (17,980)
----------------- -----------------
Total Distributions to
Shareholders (8,824,385) (7,898,702)
----------------- -----------------
From Fund Share Transactions --
Net:* 1,013,866 (25,814,189)
----------------- -----------------
Net Assets:
Beginning of period 172,222,006 161,943,699
----------------- -----------------
End of period (including
distributions in excess of net
investment income of $6,908 and
$6,520, respectively) $161,943,699 $128,564,160
================= =================
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.
<CAPTION>
Statement of Changes in Net Assets (continued)
---------------------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------------
1999 2000
--------------------------------------- ---------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 2,239,346 $21,188,954 2,256,797 $19,351,448
Shares reinvested 135,698 1,279,406 125,960 1,085,748
----------------- ----------------- ----------------- -----------------
2,375,044 22,468,360 2,382,757 20,437,196
Less shares repurchased (1,184,256) (11,168,846) (2,369,022) (20,378,199)
----------------- ----------------- ----------------- -----------------
Net increase 1,190,788 $11,299,514 13,735 $58,997
================= ================= ================= =================
CLASS B
Shares sold 1,910,562 $18,155,766 952,207 $8,288,481
Shares reinvested 266,217 2,514,139 187,172 1,616,971
----------------- ----------------- ----------------- -----------------
2,176,779 20,669,905 1,139,379 9,905,452
Less shares repurchased (3,303,908) (31,194,466) (4,192,975) (36,261,381)
----------------- ----------------- ----------------- -----------------
Net decrease (1,127,129) ($10,524,561) (3,053,596) ($26,355,929)
================= ================= ================= =================
CLASS C**
Shares sold 32,620 $305,013 62,365 $533,770
Shares reinvested 213 1,951 1,477 12,694
----------------- ----------------- ----------------- -----------------
32,833 306,964 63,842 546,464
Less shares repurchased (7,431) (68,051) (7,381) (63,721)
----------------- ----------------- ----------------- -----------------
Net increase 25,402 $238,913 56,461 $482,743
================= ================= ================= =================
**Class C shares commenced operations on April 1, 1999.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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:
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31,
OCTOBER 31, AUGUST 31, ----------------------------------------------------------------
1995(1) 1996(2) 1997 1998 1999 2000
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.82 $9.47 $9.16 $9.34 $9.65 $9.03
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income 0.57 0.49(3) 0.56(3) 0.54(3) 0.53(3) 0.53(3)
Net Realized and Unrealized
Gain (Loss) on Investments
Sold and Financial Futures
Contracts 0.70 (0.30) 0.18 0.31 (0.62) (0.43)
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 1.27 0.19 0.74 0.85 (0.09) 0.10
------------- ------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.58) (0.50) (0.56) (0.54) (0.53) (0.53)
Distributions in Excess
of Net Investment Income (0.04) -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions (0.62) (0.50) (0.56) (0.54) (0.53) (0.53)
------------- ------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $9.47 $9.16 $9.34 $9.65 $9.03 $8.60
============= ============= ============= ============= ============= =============
Total Investment Return at
Net Asset Value(4) 14.85% 1.96%(5) 8.29% 9.34% (0.98%) 1.24%
Total Adjusted Investment
Return at Net Asset Value(4,6) -- -- -- -- (1.00%) 1.21%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $14,225 $23,663 $32,199 $40,725 $48,869 $46,652
Ratio of Expenses to Average
Net Assets 1.06% 1.10%(7) 1.06% 1.00%(8) 1.00%(8) 1.08%(8)
Ratio of Net Investment
Income to Average Net
Assets 6.36% 6.39%(7) 6.00% 5.66% 5.65%(9) 6.08%(9)
Portfolio Turnover Rate 64% 38% 51% 35% 39% 31%
The Financial Highlights summarizes the impact of the following factors
on a single share for each period indi cated: 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 rela tionships
between some items presented in the financial statements are expressed
in ratio form.
<CAPTION>
Financial Highlights (continued)
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31,
OCTOBER 31, AUGUST 31, ----------------------------------------------------------------
1995(1) 1996(2) 1997 1998 1999 2000
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $8.82 $9.47 $9.16 $9.34 $9.65 $9.03
------------- ------------- ------------- ------------- ------------- -------------
Net Investment Income 0.51 0.44(3) 0.49(3) 0.47(3) 0.47(3) 0.46(3)
Net Realized and Unrealized
Gain (Loss) on Investments
Sold and Financial Futures
Contracts 0.69 (0.31) 0.18 0.31 (0.62) (0.43)
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment
Operations 1.20 0.13 0.67 0.78 (0.15) 0.03
------------- ------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.51) (0.44) (0.49) (0.47) (0.47) (0.46)
Distributions in Excess of
Net Investment Income (0.04) -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions (0.55) (0.44) (0.49) (0.47) (0.47) (0.46)
------------- ------------- ------------- ------------- ------------- -------------
Net Asset Value, End of
Period $9.47 $9.16 $9.34 $9.65 $9.03 $8.60
============= ============= ============= ============= ============= =============
Total Investment Return at
Net Asset Value(4) 13.99% 1.36%(5) 7.51% 8.53% (1.69%) 0.49%
Total Adjusted Investment
Return at Net Asset Value(4,6) -- -- -- -- (1.71%) 0.46%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $155,234 $147,669 $139,385 $131,497 $112,873 $81,208
Ratio of Expenses to Average
Net Assets 1.79% 1.81%(7) 1.81% 1.75%(8) 1.73%(8) 1.82%(8)
Ratio of Net Investment
Income to Average Net Assets 5.61% 5.65%(7) 5.28% 4.92%(9) 4.93%(9) 5.34%(9)
Portfolio Turnover Rate 64% 38% 51% 35% 39% 31%
<CAPTION>
Financial Highlights (continued)
-----------------------------------------------------------------
PERIOD ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1999(10) 2000
------------- -------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning
of Period $9.47 $9.03
------------- -------------
Net Investment Income(3) 0.18 0.46
Net Realized and Unrealized
Loss on Investments Sold
and Financial Futures
Contracts (0.44) (0.43)
------------- -------------
Total from Investment Operations (0.26) 0.03
------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.18) (0.46)
------------- -------------
Net Asset Value, End of
Period $9.03 $8.60
============= =============
Total Investment Return at
Net Asset Value(4) (2.70%)(5) 0.48%
Total Adjusted Investment
Return at Net Asset Value(4,6) (2.71%)(5) 0.45%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $229 $704
Ratio of Expenses to Average
Net Assets 1.76%(7,8) 1.83%(8)
Ratio of Net Investment
Income to Average Net Assets 4.84%(7,9) 5.33%(9)
Portfolio Turnover Rate 39% 31%
(1) On December 22, 1994, John Hancock Advisers, Inc. became the
investment advisor of the Fund.
(2) Effective August 31, 1996, the fiscal period end changed from
October 31 to August 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of
sales charges.
(5) Not annualized.
(6) An estimated return that does not take into consideration fee
reductions by the Adviser during the periods shown.
(7) Annualized.
(8) The ratio of expenses to average net assets for the periods or years
ended August 31, 1998, 1999 and 2000 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 for the year ended
August 31, 1998; the ratio of expenses to average net assets would have
been 0.98%, 1.71% and 1.74% for Class A, Class B and Class C shares,
respectively, for the period or year ended August 31, 1999; and the
ratio of expenses to average net assets would have been 1.05%, 1.79% and
1.80% for Class A, Class B and Class C shares, respectively, for the
year ended August 31, 2000.
(9) The ratio of net investment income to average net assets includes
the effect of balance credits described in Note B. If the expense
reductions were excluded, the effect to the ratio of net investment
income to average net assets would have been less than 0.01% for Class A
and Class B shares for the year ended August 31, 1998 and the ratio of
net investment income to average net assets would have been 5.63%, 4.91%
and 4.82% for Class A, Class B and Class C shares, respectively, for the
period or year ended August 31, 1999. The ratio of net investment income
to average net assets would have been 6.05%, 5.31% and 5.30% for Class
A, Class B and Class C shares, respectively, for the year ended August
31, 2000.
(10) Class C shares began operations on April 1, 1999.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
August 31, 2000
----------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by High Yield Tax-Free Fund on August 31, 2000. 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.
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 (0.75%)
Anchorage, City of, Ice Rink Rev 6.375% 01-01-20 BB+ $1,000 $965,470 6.60%
------------
Arizona (1.84%)
Maricopa County Pollution Control Corp., Poll
Control Rev Ref El Paso Electric Co. Ser 1985A 6.375 08-01-15 BB+ 1,500 1,501,215 6.37
Peoria Industrial Development Auth, Ind'l Dev Rev
Ref Ser 1999A Sierra Winds Life 6.250 08-15-20 BB+ 1,000 869,780 7.19
------------
2,370,995
------------
Arkansas (0.78%)
Arkansas State Development Finance Auth, Hosp Rev
Washington Regional Medical Ctr 7.375 02-01-29 BBB- 1,000 1,003,270 7.35
------------
California (20.71%)
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 1,061,640 6.95
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Sr Lien Cap Apprec Ser A Zero 01-01-18 AAA 7,950 3,135,639 5.44
Toll Rd Rev Ref Conv Cap Apprec Zero 01-15-23 BBB- 3,000 1,726,080 6.08
Toll Road Rev Ref Conf Cap Apprec Zero 01-15-29 BBB- 2,000 1,132,100 6.15
Millbrae, City of, Residential Facil Rev Ser
1997A Magnolia of Millbrae Proj 7.375 09-01-27 BB 1,000 982,780 7.50
Sacramento City Financing Auth, Rev Convention
Ctr Hotel Ser 1999A 6.250 01-01-30 BB+ 2,000 1,929,560 6.48
San Bernardino, County of, Cert of Part Ref
Medical Ctr Fin Proj 5.500 08-01-17 A- 2,500 2,519,075 5.46
San Diego County Water Auth, Water Rev Cert of
Part Reg RITES 7.129# 04-23-08 AAA 1,000 1,140,000 6.25
San Francisco, City of, Resid Facil Ser A
Coventry Park Proj 8.500 12-01-26 BB- 2,000 2,030,840 8.37
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Conv Cap Apprec Ser A Zero 01-15-19 BBB- 3,000 1,941,840 6.22
Toll Rd Rev Sr Lien 5.000 01-01-33 Baa3 1,000 883,710 5.66
South Orange County Public Financing Auth, Spec
Tax Rev LEVRRS 7.530# 08-15-17 AAA 7,500 8,137,500 6.94
------------
26,620,764
------------
Connecticut (1.48%)
Connecticut State Development Auth, Poll Control
Rev Ref Ser 1993A Connecticut Light & Pwr 5.850 09-01-28 BB+ 2,000 1,897,380 6.17
------------
District of Columbia (0.82%)
District of Columbia, Cert of Part 7.300 01-01-13 BBB- 1,000 1,049,950 6.95
------------
Florida (7.22%)
Capital Projects Finance Auth, Students Hsg Rev
Cap Projs Ln Prog Florida Univ Ser 2000A 7.850 08-15-31 BBB- 2,000 1,967,940 7.98
Crossings at Fleming Island Community Development
District, Spec Assessment Rev Ref Ser 2000C 7.100 05-01-30 BBB- 1,000 1,018,570 6.97
Grand Haven Community Development District, Spec
Assessment Ser B 6.900 05-01-19 BB+ 735 736,610 6.88
Homestead, City of, Ind'l Dev Rev Ser A Community
Rehab Proj 7.950 11-01-18 BB 3,470 3,524,965 7.83
South Indian River Water Control District, Rev
Egret Landing Proj Section 15 Phase 1 7.500 11-01-18 BB+ 1,960 2,035,911 7.22
------------
9,283,996
------------
Georgia (0.70%)
Brunswick & Glynn Country Development Auth, Rev
Ref Georgia-Pacific Corp Proj 5.550 03-01-26 Baa2 1,000 901,930 6.15
-----------
Illinois (6.39%)
Bedford Park, City of, Tax Increment Rev Ref 71st
& Cicero Proj 7.375 01-01-12 BBB- 1,000 1,037,420 7.11
Tax Increment Rev Ref 71st & Cicero Proj 7.000 01-01-06 BBB- 645 664,698 6.79
Tax Increment Rev Sr Lien Mark IV Proj 9.750 03-01-12 AAA 960 1,019,054 8.99
Chicago, City of, Chicago-O'Hare Int'l Airport
Spec Facil Rev Ref
American Airlines, Inc. 8.200 12-01-24 BBB- 1,500 1,643,520 7.48
Illinois Health Facilities Auth, Rev Ser A
Fairview Obligated Group Proj 9.500 10-01-22 AA 2,500 2,794,850 8.50
Round Lake Beach, City of, Tax Increment Rev Ref 7.500 12-01-13 BBB- 1,000 1,049,770 7.14
-----------
8,209,312
-----------
Indiana (0.78%)
Wabash, County of, Solid Waste Disp Rev Jefferson
Smurfit Corp Proj 7.500 06-01-26 BB 1,000 1,005,470 7.46
-----------
Iowa (0.65%)
Iowa Finance Auth, Hlth Care Facil Rev Ref Care
Initiatives Proj Ser B 5.750 07-01-18 BB 715 596,646 6.89
Hlth Care Facil Rev Ref Care Initiatives Proj 9.250 07-01-25 BB 200 239,754 7.72
-----------
836,400
-----------
Kansas (2.35%)
Kansas Development Finance Auth, Multifamily Hsg
Rev Ref Ser Y 6.125 12-01-28 BBB- 1,000 910,970 6.72
Prairie Village, City of, Rev Ser A Claridge
Court Proj 8.750 08-15-23 BBB- 2,000 2,107,560 8.30
-----------
3,018,530
-----------
Kentucky (3.75%)
Jefferson County Student Housing, Ind'l Bldg Rev
Collegiate Hsg Foundation Ser 1999A 7.125 09-01-29 BB+ 1,265 1,284,747 7.02
Kenton County Airport Board, Rev Spec Facil Delta
Airlines, Inc., Ser 1985 7.800 12-01-15 BBB- 2,500 2,550,650 7.65
Newport Public Properties, Corp Rev 1st Mtg Pub
Prkg & Plaza Ser 2000A-1 8.500 01-01-27 BB 1,000 991,290 8.57
-----------
4,826,687
-----------
Louisiana (0.67%)
Louisiana Public Facilities Auth, Progressive
Hlthcare Rev 6.375 10-01-20 BB- 1,000 857,420 7.44
-----------
Massachusetts (4.74%)
Massachusetts Development Finance Agency, Rev
Lasell Village Proj Ser 1998A 6.375 12-01-25 BBB- 1,000 862,280 7.39
Massachusetts Industrial Finance Agency, Rev Ser
A Southeastern Mass Proj 9.000 07-01-15 BB 2,800 2,949,100 8.54
Massachusetts Port Auth, Spec Proj Rev Harborside
Hyatt Hotel 10.000 03-01-26 BBB- 2,200 2,280,278 9.65
-----------
6,091,658
-----------
Michigan (3.62%)
Midland County Economic Development Corp., Poll
Control Ltd Oblig Rev Ref Ser 2000A 6.875 07-23-09 BB+ 1,500 1,516,830 6.80
Waterford, Township of, Economic Dev Corp Rev Ref
Canterbury Hlth 6.000 01-01-39 BB- 3,620 3,140,350 6.92
-----------
4,657,180
-----------
Mississippi (1.02%)
Mississippi Business Finance Corp., Miss Poll
Control Rev Ref Sys Energy Resource Inc Proj 5.900 05-01-22 BBB- 1,400 1,313,746 6.29
-----------
Missouri (0.75%)
Lees Summit Industrial Development Auth, Hlth
Facil Rev Ref & Imp John Knox Vlg Proj 7.125 08-15-12 A- 945 966,574 6.97
-----------
New Hampshire (1.68%)
New Hampshire Business Finance Auth, Poll Control
Rev Ref Ser D Pub Serv Co 6.000 05-01-21 BBB- 1,000 942,400 6.37
New Hampshire Higher Educational & Health
Facilities Auth, Rev Littleton Hosp Assn-Ser A 5.900 05-01-18 BB- 1,500 1,224,030 7.23
-----------
2,166,430
-----------
New Jersey (6.63%)
Camden County Improvement Auth, Lease Rev Ser A
Holt Hauling & Warehousing Proj 9.875 01-01-21 CCC+ 1,500 1,484,715 9.98
New Jersey Economic Development Auth, Economic
Dev Rev Ref Ser 1995J Holt Hauling Proj 8.500 11-01-23 B-- 2,500 2,437,900 8.72
Ind'l Dev Rev Ref Newark Airport Marriott Hotel
Proj 7.000 10-01-14 BBB- 1,000 1,021,400 6.85
Spec Facil Rev Continental Airlines, Inc. Proj 6.250 09-15-19 BB 1,230 1,168,365 6.58
New Jersey Health Care Facilities Financing Auth,
Rev Care Institute Inc Cherry Hill Proj 8.000 07-01-27 BB- 2,000 1,901,440 8.41
Rev Ref Trinitas Hosp Oblig Group 7.500 07-01-30 BBB- 500 516,165 7.27
-----------
8,529,985
-----------
New York (3.46%)
Glen Cove Housing Auth, Rev Sr Living Facil The
Mayfair Proj 8.250 10-01-26 BB+ 1,425 1,503,931 7.82
Islip Community Development Agency, Community Dev
Rev Ref NY Institute of Technology Proj 7.500 03-01-26 BB- 2,000 2,085,600 7.19
New York City Industrial Development Agency, Rev
Ref LaGuardia Assoc LP Proj 6.000 11-01-28 BB+ 1,000 857,010 7.00
-----------
4,446,541
-----------
Ohio (4.45%)
Cleveland, City of, Parking Facil Imp Rev 8.100 09-15-22 AAA 2,000 2,177,620 7.44
Lorain, County of, Rev 1st Mtg Ser A Kendal At
Oberlin Proj 8.625 02-01-22 AA 3,300 3,543,771 8.03
-----------
5,721,391
-----------
Oregon (3.06%)
Oregon State Solid Waste Disposal Facilities,
Economic Dev Rev USG Corp Proj Ser 192 6.400 12-01-29 BBB+ 850 858,721 6.34
Western Generation Agency, Rev 1994 Ser A Wauna
Cogeneration Proj 7.125 01-01-21 BBB- 3,000 3,071,070 6.96
-----------
3,929,791
-----------
Pennsylvania (7.46%)
Beaver County Industrial Development Auth,
Coll Poll Control Rev Ref Ser 1995A Toledo Edison
Co Beaver Valley Proj 7.750 05-01-20 BB+ 1,700 1,824,729 7.22
Poll Control Rev Ref Cleveland Elec Proj 7.625 05-01-25 BB+ 1,000 1,064,860 7.16
Carbon County Industrial Development Auth,
Resource Recovery Rev Ref Panther Creek Partners
Proj 6.650 05-01-10 BBB- 1,000 1,013,170 6.56
Chester County Industrial Development Auth, Rev
1st Mtg Rha/Pa Nursing Home (B) 10.125 05-01-19 B- 193 125,834 15.53
Montgomery County Redevelopment Auth, Multifamily
Hsg Rev Ser A KBF Assoc LP Proj 6.500 07-01-25 BBB+ 2,500 2,493,600 6.52
Pennsylvania Economic Development Finance Auth,
Ser B Qualified Residential RSI
Properties/Greensburg LLC Proj (B) 8.000 09-01-27 BB- 1,000 650,000 12.31
Philadelphia Hospitals and Higher Education
Facilities Auth, Hosp Rev 1991 Ser A
Philadelphia Protestant Home Proj 8.625 07-01-21 AA 2,300 2,421,164 8.19
-----------
9,593,357
-----------
Puerto Rico (0.81%)
Puerto Rico Ind'l, Tourist, Ed'l, Medical &
Environmental, Control Facilities Financing Auth
Environmental, Control Facilities Financing Auth
Cogen Fac Rev Ser 2000A AES Proj 6.625 06-01-26 Baa2 1,000 1,042,430 6.36
-----------
Rhode Island (1.68%)
Providence Redevelopment Agency, Cert of Part Ser
1994A 8.000 09-01-24 BBB- 2,090 2,161,081 7.74
-----------
Tennessee (2.27%)
Chattanooga Industrial Development Board, Ind'l
Dev Rev Ref Warehouse Row Ltd Proj 7.000 12-15-12 BBB 2,000 1,952,980 7.17
Johnson City Health & Educational Facilities
Board, Hosp Rev Ref 1st Mtg Mtn States Hlth Ser
2000A 7.500 07-01-33 Baa2 1,000 968,170 7.75
-----------
2,921,150
-----------
Texas (1.30%)
Sabine River Auth, Texas Poll Control Rev Ref TXU
Electric Co. Proj Ser 2000A** 6.450 06-01-21 BBB 1,000 1,001,330 6.44
Southlake, City of, GO Zero 02-15-25 AAA 3,145 665,104 6.01
-----------
1,666,434
-----------
Utah (2.37%)
Carbon, County of,
Solid Waste Disp Rev Ref Ser A East Carbon
Development Corp 9.000 07-01-12 BBB- 2,000 2,039,220 8.83
Solid Waste Disp Rev Ref Sunnyside Cogeneration
Ser 1999A 7.100 08-15-23 BB 940 898,076 7.43
Solid Waste Disp Rev Ref Sunnyside Cogeneration
Ser 1999B Zero 08-15-24 BB 290 47,351 7.71
Tooele, County of, Poll Control Rev Ref Ser A
Laidlaw Environmental Proj (B) 7.550 07-01-27 D 1,500 57,750 0.00
-----------
3,042,397
-----------
Virginia (3.33%)
Hopewell Industrial Development Auth, Resource
Recovery Rev Ref Stone Container Corp Proj 8.250 06-01-16 BB 2,400 2,507,568 7.90
Pocahontas Parkway Association, Toll Road Rev Cap
Apprec 1st Tier Sub Ser 1998C Zero 08-15-21 Ba1 4,100 860,631 7.59
Toll Road Rev Cap Apprec 1st Tier Sub Ser 1998C Zero 08-15-20 Ba1 4,000 913,320 7.54
-----------
4,281,519
-----------
Washington (0.97%)
Spokane County Industrial Development Corp, Solid
Waste Disp Rev Kaiser Alum & Chem Corp Proj 7.600 03-01-27 BB- 1,250 1,245,625 7.63
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $126,502,983) (98.49%) 126,624,863
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.51%) 1,939,297
--------- ------------
TOTAL NET ASSETS (100.00%) 128,564,160
========= ============
* 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 an aggregate value of $1,001,330 or 0.78% of
the Fund's net asset value, has been purchased as a forward commitment
-- that is, the Fund has agreed on trade date to take delivery of and to
make payment for this 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 a current value at least equal
to the amount of the forward commitment. Accordingly, the market value
of $1,085,000 of South Orange County Public Financing Auth, 7.53%,
08-15-17, 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 August 31, 2000.
(B) Non-income producing issuer, filed for protection under the Federal
Bankruptcy Code or is in default on interest payment.
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.
</TABLE>
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 conditions 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
August 31, 2000, assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
------------------- ----------
General Obligation 0.52%
Revenue Bonds -- Authority 2.63
Revenue Bonds -- Economic Development 3.26
Revenue Bonds -- Education 2.45
Revenue Bonds -- Facility 1.68
Revenue Bonds -- Health 17.86
Revenue Bonds -- Highway 1.38
Revenue Bonds -- Housing 8.21
Revenue Bonds -- Industrial Development 5.16
Revenue Bonds -- Industrial Revenue 6.72
Revenue Bonds -- Lease 0.82
Revenue Bonds -- Multi-Family 0.71
Revenue Bonds -- Other 10.96
Revenue Bonds -- Parking Garage/Authority 0.77
Revenue Bonds -- Pollution Control
Facilities 17.44
Revenue Bonds -- Recreation Facility 1.54
Revenue Bonds -- Solid Waste Disposal 0.74
Revenue Bonds -- Special Assessment 0.57
Revenue Bonds -- Student Loan 1.53
Revenue Bonds -- Transportation 11.07
Revenue Bonds -- Water & Sewer 2.47
-------
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.49%
=======
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- High Yield Tax-Free Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock High Yield Tax-Free Fund (the "Fund") is a diversified
series of John Hancock Tax-Free Bond Trust (the "Trust"), an open-end
management investment company, registered under the Investment Company
Act of 1940. 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 Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Board of Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities
and Exchange Commission. Shareholders of a class which bears
distribution and service expenses under terms of a distribution plan
have exclusive voting rights regarding that distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Board of Trustees. Short-term
debt investments maturing within 60 days are valued at amortized cost,
which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders. Therefore, no federal
income tax provision is required. For federal income tax purposes, the
Fund has $13,167,139 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 -- $2,239,021, August 31, 2003 -- $205,838, August 31,
2004 -- $3,207,633, August 31, 2005 -- $716,668, August 31, 2006 --
$3,041,181 and August 31, 2008 -- $3,756,798. Additionally, net capital
losses of $93,859 attributable to security transactions occurring after
October 31, 1999 are treated as arising on the first day (September 1,
2000) of the Fund's next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment
securities is recorded on the accrual basis. The Fund may place a debt
obligation on non-accrual status and reduce related interest income by
ceasing current accruals and writing off interest receivables when the
collection of interest has become doubtful.
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
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. The Fund has entered into a syndicated line of credit
agreement with various banks. This agreement enables the Fund to
participate with other funds managed by the Adviser in an unsecured line
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 to each fund based on the
average daily unused portion of the line of credit and is allocated
among the participating funds. The maximum loan balance outstanding
during the year amounted to $1,050,000. The annualized interest rate
charged during the year was 6.63%. At August 31, 2000, there were no
outstanding borrowings.
OPTIONS The Fund may buy or sell option 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 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.
At August 31, 2000, there were no open written options contracts.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.625% of the
first $75,000,000 of the Fund's average daily net asset value,
(b) 0.5625% of the next $75,000,000 and (c) 0.50% of the Fund's average
daily net asset value in excess of $150,000,000.
The Fund has an agreement with its custodian bank under which $38,635 of
custodian fees have been reduced by balance credits applied during the
year ended August 31, 2000. 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 year ended
August 31, 2000, net sales charges received with regard to sales of
Class A shares amounted to $5,922. Out of this amount, $716 was retained
and used for printing prospectuses, advertising, sales literature and
other purposes, $2,249 was paid as sales commissions to unrelated
broker-dealers and $2,957 was paid as sales commissions to sales
personnel of Signator Investors, Inc. ("Signator Investors"), a related
broker-dealer. The Adviser's indirect parent, John Hancock Life
Insurance Company ("JHLICo"), 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 5.00% 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 year ended August 31, 2000, CDSCs amounted to
$265,273.
Effective May 1, 2000, all Class C retail purchases are assessed a 1.00%
up-front sales charge. For the year ended August 31, 2000, up-front
sales charges received with regard to sales of Class C shares amounted
to $6,350. Out of this amount, $6,007 was paid as sales commissions to
unrelated broker-dealers and $343 was paid as sales commissions to sales
personnel of Signator Investors. Class C shares which are redeemed
within one year of purchase will be subject to a CDSC at a rate of 1.00%
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 C shares. For the year ended
August 31, 2000, CDSCs amounted to $832.
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, Class B and Class C shares 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 and Class C average daily net assets to reimburse
JH Funds for its distribution and service costs. A maximum of 0.25% of
such payments may be service fees as defined by the Conduct Rules of the
National Association of Securities Dealers. Under the Conduct Rules,
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 JHLICo.
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,
accounting and legal services for the Fund. The compensation for the
year was at an an annual rate of less than 0.02% of the average net
assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford 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
periodically to reflect any income earned by the investment as well as
any unrealized gains or losses. The investment had no impact on the
operations of the Fund.
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 year ended August 31, 2000, aggregated $43,571,014 and
$68,274,796, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the fiscal
year ended August 31, 2000.
The cost of investments owned at August 31, 2000 for federal income tax
purposes was $126,502,983. Gross unrealized appreciation and
depreciation of investments aggregated $5,571,868 and $5,449,988,
respectively, resulting in net unrealized appreciation of $121,880.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended August 31, 2000, the Fund has reclassified amounts
to reflect a decrease in accumulated net realized loss on investments of
$1,034, a decrease in distributions in excess of net investment income
of $388 and a decrease in capital paid-in of $1,422. This represents the
amount necessary to report these balances on a tax basis, excluding
certain temporary differences, as of August 31, 2000. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to the certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles. The calculation
of net investment income per share in the financial highlights excludes
these adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees
John Hancock Tax-Free Bond Trust-
and Shareholders of
John Hancock High Yield Tax-Free Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock High Yield Tax-Free Fund (the "Fund"), one of the
portfolios constituting John Hancock Tax-Free Bond Trust, including the
schedule of investments, as of August 31, 2000, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of August 31,
2000, by correspondence with the custodian and brokers, or other
appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock High Yield Tax-Free Fund of the
John Hancock Tax-Free Bond Trust at August 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial
highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
October 12, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund during its fiscal year
ended August 31, 2000.
None of the 2000 income dividends qualify for the corporate dividends
received deduction. Shareholders who are not subject to the alternative
minimum tax received income dividends which are 99.19% tax-exempt. The
percentage of income dividends from the Fund subject to the alternative
minimum tax is 15.29%.
None of the income dividends were derived from the U.S. Treasury Bills.
For specific information on exemption provisions in your state, consult
your local state tax office or your tax adviser.
Shareholders will be mailed a 2000 U.S. Treasury Department Form
1099-DIV in January 2001. This will reflect the total of all
distributions which are taxable for calendar year 2000.
NOTES
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NOTES
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[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
Member NASD
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
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.
[A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."]
5900A 8/00
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