---------------------------
The latest report from your
Fund's management team
---------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Tax-Free
Bond Fund
FEBRUARY 29, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-------------------------------------
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion*
Maureen R. Ford
Anne C. Hodsdon
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 and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
---------------------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, the market's advances were restricted to an
increasingly select group of stocks - primarily in the technology and
communications areas. Even those gains were accompanied by tremendous levels of
daily volatility. But many other stocks, including the household blue-chip
names, fell in response to a tough combination of investor apathy, rising
interest rates and earnings concerns.
In this same period, bonds struggled through one of their worst years in more
than two decades, as the strength of the U.S. economy and the rebound of many
others around the world provoked inflation fears. Though their longer-term
outlook looks brighter, in many instances bond mutual fund investors have
actually lost a little ground or made only slight advances lately.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to second paragraph.]
- --------------------------------------------------------------------------------
While we expect the market to broaden eventually, we also expect more
volatility. More than ever, this type of environment calls for investment
diversification. Since not all parts of your portfolio will perform equally well
all the time, we believe it is important to allocate your assets among different
types of investments and funds that target a variety of market segments. This
strategy, executed under the guidance of a seasoned investment professional,
could provide you with a better chance of both realizing results and weathering
the market's changing conditions.
The market's disappointingly narrow focus has created a widening gap in
investment performance. Keep that in mind as you read the report from your
fund's portfolio management team on the following pages. It's all too easy to
get caught up in the headlines and miss what lies underneath.
Sincerely,
/s/Maureen R. Ford
- ------------------
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Dianne Sales, CFA, Barry H. Evans, CFA, and
Frank A. Lucibella, CFA, Portfolio Managers
John Hancock
Tax-Free Bond Fund
Climbing interest rates put a damper on municipal bonds
-------------------------------------------------------
It has been a rough road for municipal bonds over the last six months, as the
Federal Reserve continued to raise interest rates in an attempt to put the
brakes on inflationary pressures and an overheating economy. Although some
commodity prices such as oil have spiked up, overall inflation still appears to
be under control. Nonetheless, the Federal Reserve's preemptive interest-rate
hikes drove bond prices down during the period.
Also adding to the downward pressure on municipal bonds was lack of
liquidity in the market. Cash flow into municipal bonds virtually dried up as
investors became disenchanted with falling bond prices and were enticed into the
stock market by higher returns.
Fund performance
Given the market backdrop, municipal bond funds produced disappointing returns
for the period. For the six months ended February 29, 2000, John Hancock
Tax-Free Bond Fund's Class A, Class B and Class C shares returned -0.96%, -1.32%
and -1.38%, respectively, at net asset value. That compared to the -1.31% return
of the average general municipal bond fund, 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.
Performance scorecard
In this difficult environment, the Fund benefited from managing the
interest-rate sensitivity - or
- --------------------------------------------------------------------------------
[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."]
- --------------------------------------------------------------------------------
"...municipal bond funds produced disappointing returns for the period."
3
<PAGE>
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John Hancock Funds - Tax-Free Bond Fund
"...history has demonstrated that rising rates eventually fall."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into eleven sections (from top to left): Authority 2%, Housing
2%, Water & Sewer 3%, Education 3%, General Obligation 8%, Industrial Revenue
8%, Other 13%, Health 13%, Pollution Control 13%, Electric 16% and
Transportation 19%. A note below the chart reads "As a percentage of net assets
on February 29, 2000."]
- --------------------------------------------------------------------------------
duration - of the portfolio. The shorter the duration, the less sensitive the
Fund will be to interest-rate changes. From September through December, we
shortened the Fund's duration, which protected the Fund when rates climbed in
the back half of the year. We began to cautiously push out the Fund's duration
to a neutral position at the start of this year, since, although there likely
are still more rate hikes to come, a goodly portion is already priced into the
bond market.
On the negative side, the Fund's health-care holdings were a
disappointment. Federal reductions in Medicare and Medicaid reimbursements
turned out to be more severe than industry experts - and even the government -
had anticipated. That has put considerable pressure on the earnings in the
health-care sector - particularly for hospitals, nursing homes and assisted
living centers.
- --------------------------------------------------------------------------------
[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 "Cuts in government
reimbursements." The second listing is Industrial development bonds followed by
a down arrow with the phrase "Profit margin concerns." The third listing is
High-grade bonds followed by a sideways arrow with the phrase "Losses contained
by strong demand." A note below the table reads "See `Schedule of Investments.'
Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
Restructuring the portfolio
It's important to remember, especially in a tough market, that bond prices will
eventually turn around. So it's critical to maintain a long-term investment
perspective and to focus consistently on positioning the Fund for the future.
Given that, we've taken advantage of rising interest rates and the downturn in
the municipal bond market to gradually reshape the portfolio.
To start, the jump in interest rates allowed us to trade some of our
lower-yielding bonds for higher-yielding ones, improving the overall yield of
the portfolio. Second, we've boosted activity in our ongoing strategy to improve
the Fund's call protection. Call protection guards against a bond's being
redeemed by the issuer for a certain period of time. Good call protection is
important when interest rates are falling, because issuers often try to
refinance their bonds at lower interest rates. If a bond gets "called away," or
redeemed early, then investors are forced to reinvest their money in bonds with
lower yields. Weak bond markets are good for the disciplined investor, because
negative price action often diverts attention from factors like coupon structure
and call protection. It is the perfect time to add long-term value at
inexpensive levels.
Interest rates move in cyclical phases, and history has demonstrated
that rising rates eventually fall. While rates have recently been on the rise,
overall inflation is still very contained by historical standards. A proactive
Fed has proven to be a boon to bond investors over time. As they say, what goes
up, comes back down. When rates do, the Fund will be well positioned with strong
call protection.
Looking ahead
In the short term, bond investors could be in for a bumpy ride. The Federal
Reserve has clearly
4
<PAGE>
================================================================================
John Hancock Funds - Tax-Free Bond Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended February 29, 2000." The
chart is scaled in increments of 1% with -2% at the bottom and 0% at the top.
The first bar represents the -0.96% total return for John Hancock Tax-Free Bond
Fund Class A. The second bar represents the -1.32% total return for John Hancock
Tax-Free Bond Fund Class B. The third bar represents the -1.38% total return for
John Hancock Tax-Free Bond Fund Class C. The fourth bar represents the -1.31%
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."]
- --------------------------------------------------------------------------------
indicated that it is concerned about an overheating economy and budding
inflation. Given that, we believe that the Federal Reserve is likely to stay
focused on interest rates. Concerns about rising rates are likely to keep
investors nervous and the bond market volatile in the near term.
As for municipal bonds, the technical conditions are improving. For
starters, the supply/demand factors in the municipal market are improving.
Higher rates have reduced overall supply, putting the market in a favorable
technical position. In 1999, new issuance dropped 25%. So far in 2000, it's down
roughly 40%. As demand for municipal bonds begins to pick up, municipal bonds
will be harder to come by, and that is likely to drive prices higher.
In addition, higher interest rates will eventually put a damper on the
economy's strong growth. When that happens, we are likely to see interest rates
resume their decline. Our discipline is to stay fully invested, and we will also
continue to restructure the portfolio so that it is well positioned when the
market does turn the corner. For now, we plan to continue looking for
opportunities to improve the portfolio's yield and call protection.
- --------------------------------------------------------------------------------
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.
1Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
"...the supply/demand factors in the municipal market are improving."
5
<PAGE>
================================================================================
John Hancock Funds - Tax-Free Bond Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Tax-Free Bond Fund. Total return measures the
change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.50%. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes 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 the
Alternative Minimum Tax (AMT). Also note that capital gains are taxable.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/5/90)
------- ------- --------
Cumulative Total Returns (7.88%) 33.73% 88.63%
Average Annual Total Returns(1) (7.88%) 5.99% 6.56%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
------- ------- --------
Cumulative Total Returns (8.80%) 32.99% 52.84%
Average Annual Total Returns(1) (8.80%) 5.87% 5.45%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (5.50%)
Average Annual Total Return(1) (5.50%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of February 29, 2000
SEC 30-DAY
YIELD
--------
John Hancock Tax-Free Bond Fund: Class A(1) 5.14%
John Hancock Tax-Free Bond Fund: Class B(1) 4.63%
John Hancock Tax-Free Bond Fund: Class C(1) 4.53%
Notes 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 return for the one-year, five-year and since inception periods
for Class A shares would have been (7.98%), 5.91% and 6.34%,
respectively. The average annual total returns for the one-year,
five-year and since inception periods for Class B shares would have
been (8.91%), 5.79% and 5.32%, respectively.The cumulative return since
inception for Class C shares would have been (5.55%). Without the
reductions of expenses and the offset, the yield for Class A, Class B
and Class C shares would have been 5.00%, 4.49% and 4.49%,
respectively.
(2) Not annualized.
6
<PAGE>
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John Hancock Funds - Tax-Free Bond Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Tax-Free Bond Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Lehman Brothers Municipal Bond Index - an unmanaged index that
includes approximately 15,000 bonds and is commonly used as a measure of bond
performance. It is not possible to invest in an index. Past performance is no
guarantee of future results.
- --------------------------------------------------------------------------------
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 January 5, 1990, before sales charge, and is equal to $19,855 as of
February 29, 2000. The second line represents the Lehman Brothers Municipal Bond
Index and is equal to $19,613 as of February 29, 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 $18,963 as of February 29, 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 $16,301 as of February 29, 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 $15,351 as of February 29, 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 $9,778 as of February 29, 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 $9,580 as of February 29, 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 $9,484 as of February 29, 2000.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on February 29, 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
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $603,740,040) ............... $624,217,603
Cash ............................................................ 6,488,748
Receivable for shares sold ...................................... 1,311,539
Interest receivable ............................................. 8,958,022
Other assets .................................................... 138,079
-------------
Total Assets .......................... 641,113,991
----------------------------------------------------
Liabilities:
Payable for shares repurchased .................................. 218,008
Payable for investments purchased ............................... 5,409,080
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ........................................ 1,039,037
Accounts payable and accrued expenses ........................... 158,414
-------------
Total Liabilities ..................... 6,824,539
----------------------------------------------------
Net Assets:
Capital paid-in ................................................. 633,538,081
Accumulated net realized loss on investments and
financial futures contracts .................................... (20,845,422)
Net unrealized appreciation of investments ...................... 20,477,563
Undistributed net investment income ............................. 1,119,230
-------------
Net Assets ............................ $634,289,452
====================================================
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 - $523,053,994/52,436,355 ............................... $9.98
==============================================================================
Class B - $109,220,764/10,949,422 ............................... $9.98
==============================================================================
Class C - $2,014,694/201,974 .................................... $9.98
==============================================================================
Maximum Offering Price Per Share*
Class A - ($9.98 x 104.71%) ..................................... $10.45
==============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ........................................................ $21,251,559
-------------
Expenses:
Investment management fee - Note B ............................. 1,788,438
Distribution and service fee - Note B
Class A ....................................................... 673,714
Class B ....................................................... 629,504
Class C ....................................................... 3,879
Transfer agent fee - Note B .................................... 379,816
Custodian fee .................................................. 96,585
Accounting and legal services fee - Note B ..................... 66,359
Registration and filing fees ................................... 30,113
Interest expense - Note B ...................................... 27,895
Trustees' fees ................................................. 21,978
Auditing fee ................................................... 19,393
Printing ....................................................... 17,033
Miscellaneous .................................................. 15,188
Legal fees ..................................................... 3,306
Less: Management fee reduction - Note B ........................ (96,371)
Distribution and service fee reduction - Note B
Class A ................................................. (269,485)
Class B ................................................. (62,950)
--------------
Total Expenses ........................ 3,344,395
----------------------------------------------------
Less Expense Reductions -
Note B ................................ (41,325)
----------------------------------------------------
Net Expenses .......................... 3,303,070
----------------------------------------------------
Net Investment Income ................. 17,948,489
----------------------------------------------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments sold ........................... (725,799)
Change in net unrealized appreciation/depreciation
of investments ................................................. (25,053,572)
-------------
Net Realized and Unrealized
Loss on Investments ................... (25,779,371)
----------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ............. ($7,830,882)
====================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
--------------------- ---------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ......................................................... $37,896,720 $17,948,489
Net realized gain (loss) on investments sold and financial futures contracts .. 849,981 (725,799)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts .................................................. (46,040,722) (25,053,572)
---------------- -----------------
Net Decrease in Net Assets Resulting from Operations ........................ (7,294,021) (7,830,882)
---------------- -----------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5574 and $0.2787 per share, respectively) ...................... (30,376,771) (14,921,812)
Class B - ($0.4762 and $0.2411 per share, respectively) ...................... (7,517,041) (3,008,482)
Class C** - ($0.1924 and $0.2337 per share, respectively) .................... (2,908) (18,197)
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) (18,040,547)
---------------- -----------------
From Fund Share Transactions - Net:* ........................................... (30,737,583) (48,901,208)
---------------- -----------------
Net Assets:
Beginning of period ........................................................... 784,990,413 709,062,089
---------------- -----------------
End of period (including undistributed net investment income
of $1,119,232 and $1,119,230, respectively) .................................. $709,062,089 $634,289,452
================ =================
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
------------------------------ --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................. 29,957,288 $323,426,503 23,775,551 $240,273,416
Shares reinvested ...................... 2,025,165 21,893,127 1,055,875 10,635,279
------------ -------------- ------------ --------------
31,982,453 345,319,630 24,831,426 250,908,695
Less shares repurchased ................ (32,044,727) (345,890,290) (26,909,325) (271,941,614)
------------ -------------- ------------ --------------
Net decrease ........................... (62,274) ($570,660) (2,077,899) ($21,032,919)
============ ============== ============ ==============
CLASS B
Shares sold ............................ 2,216,028 $24,165,631 478,683 $4,854,317
Shares reinvested ...................... 393,735 4,252,442 160,107 1,613,867
------------ -------------- ------------ --------------
2,609,763 28,418,073 638,790 6,468,184
Less shares repurchased ................ (5,448,577) (58,948,184) (3,569,910) (36,024,170)
------------ -------------- ------------ --------------
Net decrease ........................... (2,838,814) ($30,530,111) (2,931,120) ($29,555,986)
============ ============== ============ ==============
CLASS C**
Shares sold ............................ 34,495 $366,449 1,521,561 $15,201,924
Shares reinvested ...................... 170 1,789 908 9,151
------------ -------------- ------------ --------------
34,665 368,238 1,522,469 15,211,075
Less shares repurchased ................ (479) (5,050) (1,354,681) (13,523,378)
------------ -------------- ------------ --------------
Net increase ........................... 34,186 $363,188 167,788 $1,687,697
============ ============== ============ ==============
**Class C commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
YEAR ENDED PERIOD FROM SIX MONTHS
DECEMBER 31, JANUARY 1, ENDED
-------------------- 1996 TO YEAR ENDED AUGUST 31, FEBRUARY 29,
AUGUST 31, ------------------------- 2000
1994(1) 1995 1996(9) 1997 1998 1999 (UNAUDITED)
---------- --------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period................ $10.96 $9.39 $10.67 $10.27 $10.63 $11.01 $10.36
-------- -------- -------- -------- -------- -------- --------
Net Investment Income .............................. 0.58 0.57(2) 0.40 0.59 0.56(2) 0.56(2) 0.28(2)
Net Realized and Unrealized Gain (Loss) on Investments (1.58) 1.28 (0.41) 0.36 0.38 (0.65) (0.38)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations .................. (1.00) 1.85 (0.01) 0.95 0.94 (0.09) (0.10)
-------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ............... (0.57) (0.57) (0.39) (0.59) (0.56) (0.56) (0.28)
Distributions from Net Realized
Gains on Investments .............................. - - - - - - (0.00)(10)
-------- -------- -------- -------- -------- -------- --------
Total Distributions ............................... (0.57) (0.57) (0.39) (0.59) (0.56) (0.56) (0.28)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ..................... $9.39 $10.67 $10.27 $10.63 $11.01 $10.36 $9.98
======== ======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (3) ..... (9.28%) 20.20% (0.01%)(4) 9.44% 9.08% (0.93%) (0.96%)(4)
Total Adjusted Investment Return at
Net Asset Value (3,5) ............................. (9.39%) 20.08% (0.09%)(4) 9.38% 9.06% (1.04%) (1.03%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........... $114,539 $118,797 $560,863 $590,185 $600,905 $564,877 $523,054
Ratio of Expenses to Average Net Assets ............ 0.85% 0.85% 0.85%(7) 0.85% 0.85% 0.86%(11) 0.86%(7,11)
Ratio of Adjusted Expenses to Average Net Assets (6) 0.96% 0.97% 0.98%(7) 0.91% 0.87% 0.96% 0.99%(7)
Ratio of Net Investment Income to Average Net Assets 5.72% 5.67% 5.75%(7) 5.61% 5.16% 5.14% 5.52%(7)
Ratio of Adjusted Net Investment Income
to Average Net Assets (6) .......................... 5.61% 5.55%(7) 5.62% 5.55% 5.14% 5.03% 5.38%(7)
Portfolio Turnover Rate ............................ 107% 113% 116%(9) 46%(9) 24% 13% 4%
Fee Reduction Per Share ............................ $0.01 $0.01(2) $0.01(2) $0.01 $0.01(2) $0.00(10) $0.00(10)
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
YEAR ENDED PERIOD FROM SIX MONTHS
DECEMBER 31, JANUARY 1, ENDED
-------------------- 1996 TO YEAR ENDED AUGUST 31, FEBRUARY 29,
AUGUST 31, ------------------------- 2000
1994(1) 1995 1996(9) 1997 1998 1999 (UNAUDITED)
---------- --------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................ $10.96 $9.38 $10.67 $10.27 $10.63 $11.01 $10.36
-------- -------- --------- ------- -------- -------- --------
Net Investment Income ............................... 0.50 0.50(2) 0.34 0.51 0.48(2) 0.48(2) 0.24(2)
Net Realized and Unrealized Gain (Loss) on Investments (1.58) 1.28 (0.40) 0.36 0.38 (0.65) (0.38)
-------- -------- --------- ------- -------- -------- --------
Total from Investment Operations ................... (1.08) 1.78 (0.06) 0.87 0.86 (0.17) (0.14)
-------- -------- --------- ------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................ (0.50) (0.49) (0.34) (0.51) (0.48) (0.48) (0.24)
Distributions from Net Realized
Gains on Investments ............................... - - - - - - (0.00)(10)
-------- -------- --------- ------- -------- -------- --------
Total Distributions ................................ (0.50) (0.49) (0.34) (0.51) (0.48) (0.48) (0.24)
-------- -------- --------- ------- -------- -------- --------
Net Asset Value, End of Period ...................... $9.38 $10.67 $10.27 $10.63 $11.01 $10.36 $9.98
======== ======== ========= ======= ======== ======== ========
Total Investment Return at Net Asset Value (3) ......(10.05%) 19.41% (0.51%)(4) 8.63% 8.27% (1.67%) (1.32%)(4)
Total Adjusted Investment Return at
Net Asset Value (3,5) ..............................(10.16%) 19.29% (0.59%)(4) 8.57% 8.25% (1.78%) (1.39%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............$70,243 $76,824 $81,177 $204,621 $184,085 $143,830 $109,221
Ratio of Expenses to Average Net Assets ............. 1.60% 1.60% 1.60%(7) 1.60% 1.60% 1.61%(11) 1.61%(7,11)
Ratio of Adjusted Expenses to Average Net Assets (6) 1.71% 1.72% 1.73%(7) 1.66% 1.62% 1.71% 1.74%(7)
Ratio of Net Investment Income to Average Net Assets 4.97% 4.90% 4.91%(7) 4.85% 4.41% 4.39% 4.77%(7)
Ratio of Adjusted Net Investment Income
to Average Net Assets (6) ........................... 4.86% 4.78% 4.78%(7) 4.79% 4.39% 4.28% 4.63%(7)
Portfolio Turnover Rate ............................. 107% 113% 116%(9) 46%(9) 24% 13% 4%
Fee Reduction Per Share ............................. $0.01 $0.01(2) $0.01(2) $0.01 $0.01(2) $0.00(10) $0.00(10)
SEENOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
APRIL 1, 1999 SIX MONTHS
(COMMENCEMENT OF ENDED
OPERATIONS) FEBRUARY 29, 2000
TO AUGUST 31, 1999 (UNAUDITED)
------------------ -----------------
<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 0.23
Net Realized and Unrealized Loss on Investments .............................. (0.50) (0.38)
-------- --------
Total from Investment Operations ............................................ (0.31) (0.15)
-------- --------
Less Distributions:
Dividends from Net Investment Income ......................................... (0.19) (0.23)
Distributions from Net Realized
Gains on Investments ........................................................ - (0.00)(10)
-------- --------
Total Distributions ......................................................... (0.19) (0.23)
-------- --------
Net Asset Value, End of Period ............................................... $10.36 $9.98
======== ========
Total Investment Return at Net Asset Value (3) ............................... (2.86%)(4) (1.38%)(4)
Total Adjusted Investment Return at Net Asset Value (3,5) .................... (2.86%)(4) (1.40%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................................... $354 $2,015
Ratio of Expenses to Average Net Assets ...................................... 1.71%(7,11) 1.71%(7,11)
Ratio of Adjusted Expenses to Average Net Assets (6) ......................... 1.71%(7) 1.74%(7)
Ratio of Net Investment Income to Average Net Assets ......................... 4.29%(7) 4.67%(7)
Ratio of Adjusted Net Investment Income to Average Net Assets (6) ............ 4.28%(7) 4.63%(7)
Portfolio Turnover Rate ...................................................... 13% 4%
Fee Reduction Per Share ...................................................... $0.00(10) $0.00(10)
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
(7) Annualized.
(8) Effective August 31, 1996, the fiscal period end changed from December 31 to August 31.
(9) Portfolio turnover excludes merger activity.
(10) Less than $0.01 per share.
(11) For the periods ended August 31, 1999, and February 29, 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 was 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.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
Schedule of Investments
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Tax-Free Bond Fund on February 29, 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 (0.32%)
Alaska Housing Finance Corp,
Coll Home Mtg Ser B-1 GNMA Coll..................... 7.650% 06-01-24 AAA $945 $977,385 7.40%
Valdez Alaska Marine Terminal,
Rev Ref Sohio Pipe Line Co Proj Ser 1985 ........... 7.125 12-01-25 AA+ 1,000 1,054,880 6.75
----------
2,032,265
----------
Arizona (2.24%)
Arizona Health Facilities Auth,
Hosp Sys Rev Ref Phoenix Memorial Hosp Proj ........ 8.200 06-01-21 BB 2,150 2,072,320 8.51
Arizona Municipal Financing Program,
Cert of Part Ser 25 ................................ 7.875 08-01-14 AAA 1,000 1,215,410 6.48
Coconino County Pollution Control Corp,
Poll Control Rev 1997 Ser B Tucson Elec
Pwr Co Navajo Proj ................................ 7.000 10-01-32 B+ 2,000 1,973,300 7.09
Maricopa County Pollution Control Corp,
Poll Control Rev Ref Ser A Public Service Co
Palo Verde Proj ................................... 6.375 08-15-23 BBB- 8,550 7,989,376 6.82
Navajo County Industrial Development Auth,
Ind'l Devel Rev Stone Container Corp Proj .......... 7.200 06-01-27 B 1,000 956,850 7.52
----------
14,207,256
----------
Arkansas (0.05%)
Arkansas Development Finance Auth,
Single Family Mtg Rev Ref Ser 1991A ................ 8.000 08-15-11 AA 280 294,101 7.62
----------
California (18.06%)
California Statewide Communities Development Auth,
Ins Rev Ref Cert of Part Hlth Facil Eskaton, Inc. .. 5.875 05-01-20 AAA 4,000 4,190,840 5.61
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993 . 6.200 07-01-20 AAA 6,000 6,390,900 5.82
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Cap Apprec Ser 1995A ........ Zero 01-01-19 BBB- 36,600 11,907,810 6.05
Toll Rd Rev Fixed Rate Cap Apprec Ser 1995A ........ Zero 01-01-20 BBB- 10,000 3,059,400 6.06
Toll Rd Rev Fixed Rate Current Int Ser 1995A ....... 6.000 01-01-16 BBB- 19,800 21,068,982 5.64
Toll Rd Rev Ref Cap Apprec ......................... Zero 01-15-25 BBB- 5,000 984,500 6.64
Madera, County of,
Cert of Part Valley Children's Hosp ................ 6.500 03-15-15 AAA 13,185 14,579,182 5.88
Millbrae, City of,
Residential Facil Rev Ser 1997A Magnolia of
Millbrae Proj ..................................... 7.375 09-01-27 BB 1,000 972,510 7.58
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
California (continued)
Sacramento City Financing Auth,
Rev Convention Ctr Hotel Ser 1999A ................. 6.250% 01-01-30 BB+ $4,000 $3,593,040 6.96%
Sacramento Cogeneration Auth,
Cogeneration Proj Rev Procter & Gamble Proj ........ 6.500 07-01-21 BBB- 3,750 4,101,300 5.94
Sacramento Municipal Utilities District,
Ind'l Devel Rev Ref San Diego Gas &
Electric Ser C Inflos ............................. 8.894# 08-15-18 AAA 1,000 1,052,500 8.45
San Bernardino, County of,
Cert of Part Ref Medical Center Fin Proj ........... 5.500 08-01-17 AAA 9,130 8,959,178 5.60
Cert of Part Ref Medical Center Fin Proj ........... 5.500 08-01-22 A- 2,500 2,250,350 6.11
San Diego Redevelopment Agency,
Tax Alloc City Heights Proj Ser 1999A .............. 5.750 09-01-23 BB 1,025 880,383 6.69
San Diego, City of,
Cert Undivided Int Wtr Util Fund Net Sys Rev ....... 4.750 08-01-28 AAA 3,000 2,450,040 5.82
San Francisco, City of,
Resid Facil Ser A Coventry Park Proj ............... 8.500 12-01-26 BB 2,000 2,077,400 8.18
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Jr Lien Cap Apprec ..................... Zero 01-01-10 AAA 6,250 3,721,313 5.34
Toll Rd Rev Ref Conv Cap Apprec Ser 1997A .......... Zero 01-15-17 BBB- 10,000 6,146,000 6.38
Toll Rd Rev Sr Lien Cap Apprec ..................... Zero 01-01-14 AAA 5,000 2,290,950 5.72
Toll Rd Rev Sr Lien Cap Apprec ..................... Zero 01-01-17 AAA 4,900 1,822,653 5.96
Toll Rd Rev Sr Lien Cap Apprec ..................... Zero 01-01-19 AAA 15,510 5,046,179 6.05
Toll Rd Rev Sr Lien Cap Apprec ..................... Zero 01-01-20 AAA 2,000 611,880 6.06
Toll Rd Rev Sr Lien Cap Apprec ..................... Zero 01-01-23 AAA 7,500 1,888,725 6.13
San Jose Financing Auth,
Rev Ser B Community Facil Proj ..................... 5.625 11-15-18 A+ 2,500 2,403,325 5.85
Santa Ana Financing Auth,
Lease Rev Police Admin & Holding Facil Ser A ....... 6.250 07-01-19 AAA 2,000 2,110,800 5.92
----------
114,560,140
-----------
Colorado (1.77%)
Colorado Housing Finance Auth,
Single Family Prog Sr Iss A-2 ...................... 7.625 08-01-17 AAA 240 243,720 7.51
Denver, City and County of,
Airport Sys Rev Ser 1992A Preref ................... 7.250 11-15-25 AAA 1,980 2,137,252 6.72
Airport Sys Rev Ser 1994A Preref ................... 7.500 11-15-23 BBB+ 535 597,868 6.71
Airport Sys Rev Ser 1994A Unref Bal ................ 7.500 11-15-23 BBB+ 2,565 2,742,985 7.01
Douglas County School District No. Re. 1,
Douglas and Elbert Counties Imp Ser 1994A .......... 6.400 12-15-11 AAA 1,400 1,496,768 5.99
Metropolitan Football Stadium,
Dist Sales Tax Rev Cap Apprec Ser 1999A ............ Zero 01-01-10 AAA 5,250 3,028,672 5.67
Dist Sales Tax Rev Cap Apprec Ser 1999A ............ Zero 01-01-12 AAA 2,000 1,012,900 5.83
----------
11,260,165
----------
Connecticut (0.16%)
Connecticut Health and Educational Facilities Auth,
Rev Ser D Univ of Hartford ......................... 6.800 07-01-22 BBB- 1,000 1,002,770 6.78
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
Delaware (1.07%)
Delaware State Economic Development Auth,
Rev Ref Poll Control Ser B Delmarva Pwr Proj ....... 6.750% 05-01-19 AAA $6,500 $6,785,935 6.47%
----------
Florida (4.98%)
Dade, County of,
Professional Sports Franchise Facil Tax Rev Cap Apprec Zero 10-01-27 AAA 5,500 1,029,490 6.17
Florida State Board of Education,
Cap Outlay Rev Ref Pub Ed Ser 2000A ** ............. 5.750 06-01-22 AA+ 4,000 3,925,760 5.86
Hernando County Industrial Development Auth,
Rev Ref 2nd Fla Crushed Stone Co ................... 8.500 12-01-14 BBB- 200 212,914 7.98
Hernando, County of,
Rev Criminal Justice Complex Fin Proj .............. 7.650 07-01-16 AAA 500 605,535 6.32
Hillsborough County Aviation Auth,
Rev Ser B Tampa International Airport .............. 6.000 10-01-17 AAA 5,880 6,067,337 5.81
Hillsborough, County of,
Ref Util Rev Ser 1991A ............................. 7.000 08-01-14 BBB+ 1,245 1,279,051 6.81
Jacksonville Electric Auth,
Elec Sys Rev Ser 3-A ............................... 5.250 10-01-28 AA 9,000 7,905,690 5.98
Lee, County of,
Hosp Board of Directors Hosp Rev Inflos ............ 9.063# 04-01-20 AAA 2,000 2,167,500 8.36
Orange County Health Facilities Auth,
Hosp Orlando Regional Medical Center Rev Inflos .... 8.492# 10-29-21 AAA 1,000 1,101,250 7.71
Orange County School Board,
Cert of Part Ref Ser 1997A ......................... Zero 08-01-13 AAA 10,365 4,824,078 5.78
Orlando Utilities Commission,
Wtr & Elec Sub Rev Ser 1989D ....................... 6.750 10-01-17 AA- 2,200 2,452,626 6.05
----------
31,571,231
----------
Georgia (3.63%)
Georgia Municipal Electric Auth,
Pwr Rev Ref Ser BB ................................. 5.700 01-01-19 A 1,000 981,170 5.81
Pwr Rev Ser C ...................................... 5.700 01-01-19 AAA 5,000 4,933,700 5.78
Pwr Rev Ser EE ..................................... 7.250 01-01-24 AAA 2,000 2,334,420 6.21
Pwr Rev Ser Y ...................................... 6.500 01-01-17 AAA 3,500 3,792,285 6.00
Pwr Rev Ser Z ...................................... 5.500 01-01-20 AAA 5,840 5,621,292 5.71
Monroe County Development Auth,
Poll Control Rev Ser A Oglethorpe Pwr Corp Scherer Proj 6.800 01-01-12 A 1,000 1,088,450 6.25
Savannah Hospital Auth,
Rev Ref & Imp Candler Hosp Proj .................... 7.000 01-01-23 BB 4,000 4,288,360 6.53
----------
23,039,677
----------
Illinois (3.04%)
Chicago, City of,
Chicago-O'Hare Int'l Airport Gen Airport Rev 1990 Ser A 7.500 01-01-16 A+ 1,035 1,058,339 7.33
Chicago-O'Hare Int'l Airport Int'l Terminal Spec Rev
Ser 1992 .......................................... 6.750 01-01-12 AAA 3,000 3,128,940 6.47
Chicago-O'Hare Int'l Airport Spec Facil Rev Ser 1990A
American Airlines Proj ............................ 7.875 11-01-25 BBB- 3,000 3,079,950 7.67
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
Illinois (continued)
Chicago, City of (continued),
Skyway Toll Bridge Rev Ref Ser 1994 ................ 6.750% 01-01-17 AAA $2,000 $2,157,440 6.26%
Godfrey, City of,
United Methodist Village Rev Ser 1999A ............. 5.875 11-15-29 BB+ 1,825 1,446,823 7.41
Illinois Development Finance Auth,
Poll Control Rev Ref Commonwealth Edison Co Proj ... 5.850 01-15-14 BBB+ 3,000 2,869,380 6.12
Illinois Health Facilities Auth,
Rev Methodist Hlth Serv Corp Ser 1991B ............. 9.770# 05-01-21 AAA 1,000 1,093,750 8.93
Rev Ref Friendship Vlg Schamburg ................... 6.750 12-01-08 A- 1,640 1,648,380 6.72
Rev Ref Ser 1992 Mercy Hosp & Medical Center Proj .. 7.000 01-01-07 BBB 1,500 1,549,560 6.78
Rev Swedish-American Hosp .......................... 7.400 04-01-20 AAA 750 767,070 7.24
Illinois Industrial Pollution Control Financing Auth,
Rev Great Lakes Carbon Corp Proj ................... 7.125 10-01-01 BB+ 510 509,944 7.13
----------
19,309,576
----------
Indiana (0.31%)
Wabash, County of,
Solid Waste Disp Rev Jefferson Smurfit Corp Proj ... 7.500 06-01-26 BB 2,000 1,985,600 7.55
----------
Iowa (0.13%)
Iowa Finance Auth,
Health Care Facil Rev Ref Care Initiatives Proj Ser B 5.750 07-01-18 BB 1,000 824,440 6.97
----------
Kentucky (1.20%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Proj Ser 1992A ....... 6.750 02-01-02 BBB- 2,000 2,030,700 6.65
Rev Spec Facil Delta Airlines Proj Ser 1992A ....... 7.500 02-01-12 BBB- 2,000 2,054,920 7.30
Rev Spec Facil Delta Airlines Proj Ser 1992A ....... 7.125 02-01-21 BBB- 2,000 2,020,660 7.05
Newport Public Properties,
Corp Rev 1st Mtg Pub Prkg & Plaza Ser 2000A-1 *** .. 8.500 01-01-27 BB 1,500 1,496,250 8.52
----------
7,602,530
----------
Louisiana (2.44%)
Calcasieu Parish Industrial Development Board,
Poll Control Rev Ref Ser 1992 Gulf States Util Co Proj 6.750 10-01-12 BB+ 2,975 2,960,065 6.78
De Soto, Parish of,
Rev Environ Imp Rev Int'l Paper Co Proj Ser A ...... 7.700 11-01-18 BBB+ 2,750 2,968,322 7.13
Louisiana Public Facilities Auth,
Progressive Hlthcare Rev Ser 1998B ................. 6.375 10-01-20 BB- 1,245 1,074,149 7.39
Rev Ser B Alton Ochsner Medical Funding Proj ....... 6.500 05-15-22 AAA 3,405 3,456,279 6.40
St. Charles, Parish of,
Poll Control Rev Ser 1991 Louisiana Pwr & Light Co Proj 7.500 06-01-21 BBB 4,000 4,131,000 7.26
West Feliciana, Parish of,
Poll Control Rev Ser D Gulf States Utilities Co .... 5.800 12-01-15 BB+ 1,000 882,520 6.57
----------
15,472,335
----------
Maryland (0.62%)
Municipal Mortgage & Equity, LLC, Ser A (R) ......... 6.875 06-30-09 BBB- 4,000 3,911,240 7.03
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
Massachusetts (4.21%)
Massachusetts Development Finance Agency,
Concord-Assabet Family Servs Rev Ref ................ 6.000% 11-01-28 Ba2 $2,000 $1,614,600 7.43%
Rev Boston Univ Ser 1999P .......................... 6.000 05-15-59 BBB+ 2,000 1,864,900 6.43
Massachusetts Health and Educational Facilities Auth,
Rev Brigham & Women's Hosp Iss Ser D ............... 6.750 07-01-24 AAA 2,450 2,568,139 6.44
Rev Lowell Gen Hosp Iss Ser A ...................... 8.400 06-01-11 A3 1,100 1,171,335 7.89
Rev New England Deaconess Hosp Iss Ser D ........... 6.625 04-01-12 AAA 3,500 3,694,460 6.28
Rev St Elizabeth's Hosp of Boston Ser E ............ 9.341# 08-15-21 AAA 1,000 1,066,250 8.76
Rev Worcester Polytechnic Institute Ser E .......... 6.750 09-01-11 AAA 3,840 4,091,712 6.33
Massachusetts Municipal Wholesale Electric Co,
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the
Commonwealth of Mass .............................. 6.750 07-01-17 BBB+ 4,405 4,510,544 6.59
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 1,045,100 6.10
Massachusetts, Commonwealth of,
GO Consol Ln of 1994 Ser B ......................... 6.000 08-01-14 AA- 2,000 2,113,560 5.68
Plymouth, County of,
Cert of Part Ser A ................................. 7.000 04-01-22 AA- 2,750 2,947,258 6.53
----------
26,687,858
----------
Michigan (2.03%)
Detroit, City of,
GO Unltd Ser 1995A ................................. 6.800 04-01-15 A- 1,315 1,428,498 6.26
Michigan Housing Development Auth,
Single Family Mtg Rev Ser A ........................ 7.500 06-01-15 AA+ 790 803,074 7.38
Michigan State Hospital Finance Auth,
Hosp Rev Ref Ser 1990A Bay Medical Center Hosp Proj 8.250 07-01-12 A3 2,160 2,230,826 7.99
Hosp Rev Ref Ser 1995A Genesys Hlth Sys Oblig Group 8.100 10-01-13 AAA 3,000 3,479,250 6.98
Wayne Charter, County of,
Spec Airport Facil Rev Ref Ser 1995
Northwest Airlines Inc. ........................... 6.750 12-01-15 BB+ 4,970 4,919,008 6.82
----------
12,860,656
----------
Minnesota (0.71%)
Minneapolis, City of,
Rev Ref Walker Methodist Sr Servs Ser 1998A ........ 5.875 11-15-18 BB+ 1,000 825,650 7.12
Southern Minnesota Municipal Power Agency,
Pwr Supply Sys Rev Cap Apprec Ser A ................ Zero 01-01-23 AAA 15,000 3,711,150 6.21
----------
4,536,800
----------
Mississippi (1.15%)
Mississippi Home Corp,
Single Family Sr Rev Ref Ser 1990A ................. 9.250 03-01-12 AAA 55 57,049 8.92
Mississippi Hospital Equipment and Facilities Auth,
Rev Ser A Rush Memorial Foundation Proj ............ 8.750 01-01-16 Baa3 2,000 2,109,020 8.30
Washington, County of,
Poll Control Rev Ref Mississippi Pwr & Light Co Proj 7.000 04-01-22 Baa3 5,000 5,124,900 6.83
----------
7,290,969
----------
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
Nebraska (0.20%)
Omaha Public Power District,
Elec Sys Rev 1992 Ser B ............................ 6.200% 02-01-17 Aa2 $1,200 $1,262,292 5.89%
----------
Nevada (1.59%)
Clark, County of,
Ind'l Development Rev Ser A Southwest Gas Corp Proj 6.500 12-01-33 BBB- 10,000 9,378,800 6.93
Nevada Housing Division,
Single Family Proj Sr Rev Ser 1989 Iss A-1 ......... 7.350 04-01-16 AA 515 519,238 7.29
Single Family Proj Sr Rev Ser 1990 Iss C-1 ......... 7.850 10-01-15 AA 175 178,617 7.69
Nevada, State of,
GO Ltd Tax Municipal Bond Bank Proj No. 38
Ser A Unref Bal ................................... 6.750 07-01-09 AA 25 26,277 6.42
----------
10,102,932
----------
New Jersey (1.48%)
Camden County Improvement Auth,
Lease Rev Ser A Holt Hauling & Warehousing Proj .... 9.875 01-01-21 BB- 1,100 1,229,624 8.83
New Jersey Economic Development Auth,
1st Mtg Rev Ser A Winchester Gardens ............... 8.500 11-01-16 BB+ 100 107,034 7.94
Rev Ref Ind'l Development Newark Airport Marriott
Hotel Proj ........................................ 7.000 10-01-14 BBB- 4,000 4,040,160 6.93
Rev Ref Ser J Holt Hauling Proj .................... 8.500 11-01-23 BBB 2,500 2,682,225 7.92
New Jersey Health Care Facilities Financing Auth,
Rev Care Institute Inc Cherry Hill Proj ............ 8.000 07-01-27 BB+ 1,370 1,348,121 8.13
----------
9,407,164
----------
New Mexico (0.31%)
Farmington, City of,
Poll Control Rev 1997 Ser A Tucson Elec Pwr Co
San Juan Proj ..................................... 6.950 10-01-20 B+ 2,000 1,956,000 7.11
----------
New York (11.80%)
Dutchess County Resource Recovery Agency,
Rev Solid Waste Sys Ser A .......................... 5.350 01-01-12 AAA 1,235 1,211,362 5.45
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj 7.500 03-01-26 BB- 2,500 2,589,050 7.24
Long Island Power Auth,
Elec Sys Rev Cap Apprec Ser 1998A .................. Zero 12-01-17 AAA 865 301,236 6.03
Metropolitan Transportation Auth,
Commuter Facil Rev Ser 1998B ....................... 4.750 07-01-26 AAA 4,000 3,255,960 5.84
New York City Industrial Development Agency,
Rev Ref LaGuardia Assoc LP Proj .................... 6.000 11-01-28 BB+ 2,500 2,128,575 7.05
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev Ref Cap Apprec Fiscal 1998 Ser D . Zero 06-15-19 A 5,000 1,530,700 6.23
Wtr & Swr Sys Rev Ser 1999A ........................ 5.500 06-15-32 AAA 2,000 1,835,280 5.99
New York Local Government Assistance Corp,
Rev Ref Cap Apprec Ser 1993C ....................... Zero 04-01-14 AAA 7,210 3,195,472 5.86
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
New York (continued)
New York State Dormitory Auth,
City Univ Sys Consol Rev 2nd Generation Ser 1993A .. 5.750% 07-01-09 A- $1,000 $1,010,710 5.69%
Cornell Univ Rev Ser 1990A ......................... 7.375 07-01-30 AA 1,000 1,029,070 7.17
State Univ Ed Facil Rev Iss Ser 1990B .............. 7.500 05-15-11 A 500 565,385 6.63
State Univ Ed Facil Rev Ser 1993A .................. 5.500 05-15-19 A 1,000 946,600 5.81
New York State Energy Research and Development Auth,
Elec Facil Rev Ser 1990A Preref .................... 7.150 06-01-20 A- 1,370 1,459,762 6.71
New York State Environmental Facilities Corp,
State Wtr Poll Control Rev Rites Ser PA-174 ........ 9.816# 06-15-11 AAA 2,000 2,352,500 8.35
State Wtr Poll Control Revolving Fund Rev Ser 1990A 7.500 06-15-12 AA 2,370 2,437,735 7.29
New York State Housing Finance Agency,
State Univ Construction Ref 1986 Ser A ............. 8.000 05-01-11 AAA 2,000 2,384,200 6.71
New York State Medical Care Facilities Finance Agency,
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref ... 7.875 08-15-08 AAA 345 357,699 7.60
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref ... 7.875 08-15-20 AAA 420 435,460 7.60
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal 7.875 08-15-08 AAA 155 160,441 7.61
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal 7.875 08-15-20 AAA 35 36,184 7.62
Mental Hlth Serv Facil Imp Rev 1991 Ser A Preref ... 7.750 08-15-11 AAA 1,795 1,888,681 7.37
Mental Hlth Serv Facil Imp Rev 1991 Ser A Unref Bal 7.750 08-15-11 A3 205 214,705 7.40
New York, City of,
GO Cap Apprec Ref Fiscal 1998 Ser G ................ Zero 08-01-08 A- 6,000 3,768,180 5.60
GO Fiscal 1991 Ser D Preref ........................ 8.000 08-01-04 A- 185 196,490 7.53
GO Fiscal 1991 Ser D Unref Bal ..................... 8.000 08-01-04 A- 10 10,570 7.57
GO Fiscal 1991 Ser F Preref ........................ 8.200 11-15-03 AAA 1,145 1,229,146 7.64
GO Fiscal 1991 Ser F Unref Bal ..................... 8.200 11-15-03 A- 105 112,095 7.68
GO Fiscal 1992 Ser A Preref ........................ 7.750 08-15-12 A- 2,000 2,119,860 7.31
GO Fiscal 1992 Ser D Preref ........................ 7.700 02-01-09 A- 985 1,052,207 7.21
GO Fiscal 1992 Ser D Unref Bal ..................... 7.700 02-01-09 A- 15 15,946 7.24
GO Fiscal 1992 Ser H Preref ........................ 7.000 02-01-08 A- 1,840 1,941,366 6.63
GO Fiscal 1992 Ser H Unref Bal ..................... 7.000 02-01-08 A- 160 168,059 6.66
GO Fiscal 1995 Ser B Preref ........................ 7.000 08-15-16 A- 3,000 3,270,660 6.42
GO Fiscal 1996 Ser J ............................... 5.500 02-15-26 A- 2,000 1,820,400 6.04
GO Rev Ref Ad Valorem Property Tax Ser D ........... 5.750 08-15-13 A- 3,170 3,164,040 5.76
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 ................. 6.750 10-01-19 BBB 11,000 11,023,870 6.74
Triborough Bridge and Tunnel Auth,
Gen Purpose Rev Ser 1993 ........................... Zero 01-01-22 AAA 20,755 5,528,509 6.15
Gen Purpose Rev Ser X .............................. 6.500 01-01-19 A+ 1,250 1,299,563 6.25
Spec Oblig Ref Ser 1991B ........................... 6.875 01-01-15 A- 2,300 2,382,018 6.64
TSASC, Inc,
TFABS Ser 1 ........................................ 6.250 07-15-34 A 3,500 3,393,985 6.45
Westchester Tobacco Asset Securitization Corp,
Rev Cap Apprec ..................................... Zero 07-15-39 A 2,000 1,053,860 6.95
----------
74,877,591
----------
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
North Carolina (1.91%)
North Carolina Municipal Power Agency Number 1,
Catawba Elec Rev Ser 1992 .......................... 5.750% 01-01-15 AAA $7,410 $7,365,540 5.78%
Catawba Elec Rev Ser 1993 .......................... 5.000 01-01-15 AAA 5,220 4,725,718 5.52
----------
12,091,258
----------
Ohio (4.17%)
Akron, City of,
Cert of Part Akron Municipal Baseball Stadium Proj . Zero 12-01-16 BBB 1,000 894,770 6.83
Cleveland Public Power System,
Elec Sys Rev 1st Mtg Ser 1994A ..................... 7.000 11-15-16 AAA 5,860 6,453,091 6.36
Elec Sys Rev 1st Mtg Ser A ......................... 7.000 11-15-24 AAA 4,200 4,625,082 6.36
Franklin, County of,
Hosp Facil Ref & Imp Rev Ser 1990B Riverside United
Methodist Hosp Proj ............................... 7.600 05-15-20 AAA 1,000 1,027,080 7.40
Lorain, County of,
Rev 1st Mtg Ser A Kendal At Oberlin Proj ........... 8.625 02-01-22 AA 3,865 4,191,631 7.95
Ohio State Air Quality Development Auth,
Rev Adj Ser B Columbus & South Proj ................ 6.250 12-01-20 Baa1 4,500 4,216,815 6.67
Ohio State Water Development Auth,
Poll Control Facil Rev Ref Ser 1995
Cleveland Elec Co Proj ........................... 7.700 08-01-25 BB+ 2,800 2,955,596 7.29
Ohio, State of,
Solid Waste Rev Ref CSC Ltd Proj ................... 8.500 08-01-22 BB 1,825 1,725,775 8.99
Student Loan Funding Corp,
Sub Rev Ser B Cincinnati Ohio Student Loan ......... 8.875 08-01-08 BBB- 340 345,018 8.75
----------
26,434,858
----------
Oklahoma (0.32%)
Tulsa Municipal Airport Trust, Trustees of,
Rev Ser 1988 American Airlines Inc ................. 7.375 12-01-20 BBB- 2,000 2,028,660 7.27
----------
Oregon (0.55%)
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj ............. 7.125 01-01-21 BBB- 3,400 3,459,908 7.00
----------
Pennsylvania (7.74%)
Allegheny County Hospital Development Auth,
Rev Hlth & Ed Rehab Institute of Pitt .............. 7.000 06-01-22 AA 1,500 1,593,660 6.59
Allegheny County Industrial Development Auth,
Rev Ref Ser 1994A Environmental Imp USX Corp Proj .. 6.700 12-01-20 BBB- 10,000 9,909,100 6.76
Beaver County Industrial Development Auth,
Coll Poll Control Rev Ref Ser 1995A Toledo Edison Co
Beaver Valley Proj ................................ 7.750 05-01-20 BB+ 2,200 2,337,192 7.30
Delaware County Auth,
1st Mtg Rev Riddle Village Proj .................... 7.000 06-01-26 BBB- 1,250 1,173,100 7.46
Northumberland County Auth,
Commonwealth Lease Rev Ser 1991 .................... 6.250 10-15-09 AAA 1,000 1,027,120 6.08
Pennsylvania Convention Center Auth,
Rev Ref Ser 1994A .................................. 6.700 09-01-14 BBB 4,950 5,104,292 6.50
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
Pennsylvania (continued)
Pennsylvania Economic Development Finance Auth,
Resource Recovery Rev Ser 1994D Colver Proj ........ 7.125% 12-01-15 BBB- $7,000 $7,235,200 6.89%
Resource Recovery Rev Ser 1994D Colver Proj ........ 7.150 12-01-18 BBB- 1,500 1,528,245 7.02
Pennsylvania State Turnpike Commission,
Turnpike Rev Ser N ................................. 6.500 12-01-13 AA- 2,840 2,967,942 6.22
Philadelphia Hospitals and Higher Education Facilities Auth,
Hosp Rev 1991 Ser A Philadelphia Protestant Home Proj 8.625 07-01-21 AA 2,700 2,885,625 8.07
Hosp Rev 1992 Ser A Children's Seashore House Proj . 7.000 08-15-12 A+ 1,250 1,308,550 6.69
Philadelphia Industrial Development Auth,
Commercial Devel Rev Ref Ser A Doubletree Proj ..... 6.500 10-01-27 BB+ 1,000 948,990 6.85
Commercial Devel Rev Ser 1995 Philadelphia Airport
Hotel Proj ........................................ 7.750 12-01-17 B+ 3,250 3,408,243 7.39
Philadelphia, City of,
Wtr & Swr Rev 16th Ser ............................. 7.500 08-01-10 AAA 3,000 3,180,390 7.07
Scranton-Lackawanna Health and Welfare Auth,
Rev Ser A Allied Services Rehabilitation Hosp Proj . 7.600 07-15-20 BBB- 3,525 3,638,294 7.36
Westmoreland County Industrial Development Auth,
Rev Valley Landfill Proj ........................... 5.100 05-01-18 BBB 1,000 849,880 6.00
----------
49,095,823
----------
Puerto Rico (6.68%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of
Puerto Rico ....................................... 6.000 07-01-11 AAA 200 211,280 5.68
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of
Puerto Rico ....................................... 7.845# 07-01-11 AAA 6,500 7,231,250 7.05
Puerto Rico Highway and Transportation Auth,
Highway Rev Ser Y Res Int Tax-Exempt Sec Rec'ts
Ser PA-114 (r) .................................... 8.587# 07-01-11 A- 13,130 14,817,862 7.61
Puerto Rico, Commonwealth of,
GO Cap Apprec Ref Pub Imp Ser 1998 ................. Zero 07-01-14 A 4,000 1,737,640 5.90
GO Pub Imp Inverse Rate Floater 1992A .............. 7.812# 07-01-08 AAA 2,700 2,828,250 7.46
GO Pub Imp Inverse Rate Securities Ser 1996 ........ 7.672# 07-01-11 AAA 14,000 15,575,000 6.90
----------
42,401,282
----------
South Carolina (1.27%)
Florence, County of,
Ind'l Dev Rev Stone Container Proj ................. 7.375 02-01-07 BB- 3,460 3,474,982 7.34
Richland, County of,
Poll Control Rev Union Camp Corp Proj Ser 1992B .... 6.625 05-01-22 BBB+ 2,000 2,005,880 6.61
South Carolina Jobs-Economic Development Auth,
Solid Waste Recycling Rev
Santee River Rubber Proj Ser A .................... 8.000 12-01-14 BB- 2,750 2,555,465 8.61
----------
8,036,327
----------
Tennessee (3.72%)
Chattanooga Tenn Ind'l Dev Brd Ind'l Rev,
Ref-Dev-Market Str Ltd PJ .......................... 7.000 12-15-12 BBB 2,750 2,701,187 7.13
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
Tennessee (continued)
Eastside Utility District of Hamilton,
Waterworks Rev Iss ................................. 6.750% 11-01-11 A $1,000 $1,054,670 6.40%
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 6,721,000 6.48
Maury County Industrial Development Board,
Multi-Modal Interchangeable Rate Poll Control
Ref Rev Saturn Corp Proj .......................... 6.500 09-01-24 A 9,000 8,945,370 6.54
Memphis-Shelby County Airport Auth,
Rev Ref Federal Express Corp ....................... 6.750 09-01-12 BBB 4,000 4,188,240 6.45
----------
23,610,467
----------
Texas (4.03%)
Austin, City of,
Combined Util Sys Rev Ref Ser 1998 ................. 6.750 11-15-10 AAA 3,125 3,477,875 6.07
Corpus Christi Housing Finance Corp,
Single Family Mtg Sr Rev Ref Ser 1991A ............. 7.700 07-01-11 AAA 320 332,941 7.40
Dallas-Fort Worth International Airport
Facility Improvement,
Rev American Airlines Inc .......................... 7.250 11-01-30 BBB- 10,250 10,414,307 7.14
Rev Delta Air Lines Inc ............................ 7.600 11-01-11 BBB- 3,000 3,077,400 7.41
El Paso Housing Finance Corp,
Single Family Mtg Rev Ref Bonds 1991 Ser A ......... 8.750 10-01-11 A2 310 330,376 8.21
El Paso International Airport,
Rev Ref Spec Facil Marriott Corp Proj .............. 7.750 03-01-12 A2 1,410 1,437,058 7.60
Houston Independent School District,
Pub Facil Corp Lease Rev Cap Apprec Ser A Cesar E Chavez Zero 09-15-16 AAA 1,000 367,090 6.15
Houston, City of,
Spec Facil Rev Ser C Continental Airline Inc ....... 6.125 07-15-27 BB 4,000 3,463,000 7.07
Wtr & Swr Sys Rev Ref Prior Lien Ser B Preref ...... 6.750 12-01-08 A+ 180 189,824 6.40
Wtr & Swr Sys Rev Ref Prior Lien Ser B Unref Bal ... 6.750 12-01-08 A+ 1,320 1,382,053 6.45
North Central Texas Health Facilities Development Corp,
Hospital Rev Baylor Univ Medical Center Ser 1991A .. 10.480# 05-15-16 AA 1,000 1,095,000 9.57
----------
25,566,924
----------
Utah (0.36%)
Carbon, County of,
Solid Waste Disp Rev Ref Ser A
East Carbon Development Corp ...................... 9.000 07-01-12 BBB- 1,000 1,038,750 8.66
Salt Lake City Hospital,
Rev Ref Ser A ...................................... 8.125 05-15-15 AAA 1,000 1,200,720 6.77
Utah Housing Finance Agency,
Single Family Mtg Sr 1990 Iss B-2 .................. 7.700 07-01-15 AAA 20 20,185 7.63
Single Family Mtg Sr 1991 Iss B-1 .................. 7.500 07-01-16 AAA 25 25,564 7.33
----------
2,285,219
----------
Virgin Islands (0.49%)
Virgin Islands Public Finance Auth,
Rev Sub Lien Fund Ln Notes Ser 1998E ............... 5.875 10-01-18 BB+ 2,500 2,231,275 6.58
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond 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>
Virgin Islands (continued)
Virgin Islands Water & Power Auth,
Wtr Sys Rev Ref .................................... 5.500% 07-01-17 BB+ $1,000 $866,860 6.34%
----------
3,098,135
----------
Virginia (1.43%)
Arlington County Industrial Development Auth,
Hosp Facil Rev Arlington Hosp Ser 1991A ............ 7.125 09-01-21 AAA 500 528,295 6.74
Fairfax County Industrial Development Auth,
Rev RITES .......................................... 3.800# 08-29-23 AA 1,000 1,103,750 3.44
Fredericksburg Industrial Auth,
Hosp Facil Rev ..................................... 9.114# 08-15-23 AAA 1,500 1,648,125 8.29
Pittsylvania County Industrial Development Auth,
Rev Ser A Exempt Facil ............................. 7.550 01-01-19 BB 3,500 3,599,680 7.34
Pocahontas Parkway Assn,
Toll Road Rev Cap Apprec 1st Tier Sub Ser C ........ Zero 08-15-24 Ba1 4,800 735,072 7.82
Toll Road Rev Cap Apprec 1st Tier Sub Ser C ........ Zero 08-15-25 Ba1 5,000 709,150 7.82
Toll Road Rev Cap Apprec 1st Tier Sub Ser C ........ Zero 08-15-26 Ba1 5,500 722,480 7.82
----------
9,046,552
----------
Washington (1.55%)
Seattle, City of,
Municipal Light & Pwr Rev 1994 ..................... 6.625 07-01-16 AA 3,600 3,884,904 6.14
Spokane County Industrial Development Corp,
Solid Waste Disp Rev Kaiser Alum & Chem Corp Proj .. 7.600 03-01-27 BB- 1,250 1,292,488 7.35
Tacoma Electric System,
Rev VRDN/RIBS Iss of 1991 .......................... 8.891# 01-02-15 AAA 1,000 1,072,500 8.29
Washington Public Power Supply System,
Nuclear Proj No. 1 Ref Rev Ser 1989B ............... 7.125 07-01-16 AA- 1,500 1,700,505 6.28
Washington, State of,
GO Ser A of 1990 ................................... 6.750 02-01-15 AA+ 1,000 1,114,150 6.06
Washington, University of,
Hsg & Dining Rev Preref ............................ 7.000 12-01-21 AAA 35 37,056 6.61
Hsg & Dining Rev Preref ............................ 7.000 12-01-21 AAA 595 629,956 6.61
Hsg & Dining Rev Unref Bal ......................... 7.000 12-01-21 AAA 120 126,577 6.64
----------
9,858,136
----------
Wisconsin (0.69%)
Sturgeon Bay Combined Utilities,
Door County Combined Util Mtg Rev Ser 1990 Unref Bal 7.500 01-01-10 AAA 230 239,251 7.21
Wisconsin Public Power,
Pwr Supply Sys Rev Ser 1990A ....................... 7.400 07-01-20 AAA 4,000 4,123,280 7.18
----------
4,362,531
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $603,740,040) (98.41%) 624,217,603
------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.59%) 10,071,849
------- -----------
TOTAL NET ASSETS (100.00%) $634,289,452
========= ============
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
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 FEBRUARY 29, 2000
- ------------------- ----------- ----------- ---------- -----------------
<S> <C> <C> <C> <C>
Puerto Rico Highway and Transportation Auth,
Highway Rev Ser Y Res Int Tax-Exempt Sec Rec'ts Ser PA-114
8.587%, 07-01-11.................................................... 04-02-96 $14,925,160 2.34% $14,817,862
</TABLE>
(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 $3,911,240 or 0.62% of
net assets as of February 29, 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 $3,925,760 or 0.62% 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
$3,983,863 of Commonwealth of Puerto Rico, 7.672%, 07-01-11, has been
segregated to cover the when-issued commitment.
*** This security having an aggregate value of $1,496,250 or 0.24% of
the Fund's net assets, 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 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 the forward commitment. Accordingly,
the market value of $1,557,500 of Commonwealth of Puerto Rico, 7.672%,
07-01-11, has been segregated to cover the forward commitment.
+ The yield is not calculated in accordance with guidelines established
by the U.S. Securities & Exchange Commission and is unaudited. Zero
coupon yields are at yield to maturity.
# Represents rate in effect on February 29, 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.
25
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Tax-Free Bond Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Tax-Free Bond Fund invests primarily in securities issued by the various
states and their various political subdivisions. The performance of the Fund is
closely tied to economic conditions within the applicable states and the
financial 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
February 29, 2000 assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ---------------
General Obligation ......................................... 7.64%
Revenue Bonds - Airport .................................... 0.86
Revenue Bonds - Authority .................................. 1.75
Revenue Bonds - Bridge & Toll Road ......................... 0.97
Revenue Bonds - Building ................................... 0.10
Revenue Bonds - Combined ................................... 0.67
Revenue Bonds - Education .................................. 3.27
Revenue Bonds - Electric ................................... 15.57
Revenue Bonds - Environment ................................ 0.37
Revenue Bonds - Facility ................................... 0.98
Revenue Bonds - Financial .................................. 0.19
Revenue Bonds - Health ..................................... 13.34
Revenue Bonds - Highway .................................... 0.34
Revenue Bonds - Housing .................................... 2.32
Revenue Bonds - Industrial Development ..................... 0.90
Revenue Bonds - Industrial Revenue ......................... 7.68
Revenue Bonds - Lease ...................................... 0.14
Revenue Bonds - Other ...................................... 4.09
Revenue Bonds - Parking Garage/Authority ................... 0.24
Revenue Bonds - Pollution Control .......................... 12.61
Revenue Bonds - Recreational Facility ...................... 0.64
Revenue Bonds - School ..................................... 0.82
Revenue Bonds - Solid Waste Disposal ....................... 0.59
Revenue Bonds - Transportation ............................. 19.07
Revenue Bonds - Water & Sewer .............................. 3.26
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.41%
==========
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Tax-Free Bond Fund
(Unaudited)
NOTE A -
ACCOUNTING POLICIES
John Hancock Tax-Free Bond Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940. The Trust consists of two series: John Hancock Tax-Free Bond Fund (the
"Fund") and John Hancock High Yield Tax-Free Fund. The other series of the Trust
is reported in separate financial statements. The investment objective of the
Fund is to provide as high a level of interest income exempt from federal income
taxes as is consistent with preservation of capital, by investing primarily in
municipal bonds, notes and commercial paper, the interest on which is exempt
from federal income taxes.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The 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 $12,097,340 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 - $6,941,707 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
27
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Tax-Free Bond Fund
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 of up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee based on the average daily unused portion of the line
of credit is allocated among the participating funds. The maximum loan balance
outstanding during the period amounted to $10,964,000. The annualized interest
rate charged during the period ranged from 5.7500% to 6.3125%. At February 29,
2000, there were no outstanding borrowings.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract is
valued at the official settlement price on the board of trade or U.S.
commodities exchange on which it trades. Subsequent payments to and from the
broker, known as "variation margin," are made on a daily basis as the market
price of the financial futures contract fluctuates. Daily variation margin
adjustments, arising from this "mark to market," will be recorded by the Fund as
unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures contracts.
There were no open positions in financial futures contracts for the
period ended February 29, 2000.
OPTIONS The Fund may buy and sell options contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Over-the-counter options will be 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 the price
volatility of financial instruments. Writing puts and buying calls will tend to
increase the Fund's exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
28
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Tax-Free Bond Fund
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 year-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended February
29, 2000.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent on
an annual basis to the sum of (a) 0.55% of the first $500,000,000 of the Fund's
average daily net asset value, (b) 0.50% of the next $500,000,000 and (c) 0.45%
of the Fund's average daily net asset value in excess of $1,000,000,000.
The Adviser has voluntarily agreed to limit the Fund's expenses further
to the extent required to prevent expenses from exceeding 0.85%, 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
$96,371 for the period ended February 29, 2000. This limitation may not be
discontinued until December 31, 2000.
The Fund has an agreement with its custodian bank under which $41,325
of custodian fees have been reduced by balance credits applied during the period
ended February 29, 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 period ended
February 29, 2000, net sales charges received with regard to sales of Class A
shares amounted to $130,263. Out of this amount, $4,985 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 $98,107
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock 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 period ended February 29,
2000, the contingent deferred sales charges received by JH Funds amounted to
$192,505.
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 for providing distribution related services to
the Fund in connection with the sale of Class C shares. There were no contingent
deferred sales changes received by JH Funds for the period ended February 29,
2000.
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 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
29
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Tax-Free Bond Fund
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 $269,485 and $62,950 for Class A and B,
respectively, for the period ended February 29, 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 period 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, Ms. Anne C. Hodsdon and Mr.
Richard S. Scipione are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for
tax purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. 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 period
ended February 29, 2000, aggregated $24,105,440 and $73,210,665, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended February 29, 2000.
The cost of investments owned at February 29, 2000, for federal income
tax purposes was $603,740,040. Gross unrealized appreciation and depreciation of
investments aggregated $30,172,139 and $9,694,576, respectively, resulting in
net unrealized appreciation of $20,477,563.
30
<PAGE>
=====================================NOTES======================================
JohnHancock Funds - Tax-Free Bond Fund
31
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS ------------------
A Global Investment Management Firm Bulk Rate
U.S. Postage
101 HUNTINGTO AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA
INTERNET: www.jhfunds.com 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.
[LOGO] Printed on Recycled Paper 520SA 2/00
4/00
<PAGE>
--------------------------
The latest report from you
Fund's management team
--------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
High Yield
Tax-Free Fund
FEBRUARY 29, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-----------------------------------
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion*
Mauren R. Ford
Anne C. Hodsdon
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 and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
---------------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, the market's advances were restricted to an
increasingly select group of stocks - primarily in the technology and
communications areas. Even those gains were accompanied by tremendous levels of
daily volatility. But many other stocks, including the household blue-chip
names, fell in response to a tough combination of investor apathy, rising
interest rates and earnings concerns.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to first paragraph.]
- --------------------------------------------------------------------------------
In this same period, bonds struggled through one of their worst years in more
than two decades, as the strength of the U.S. economy and the rebound of many
others around the world provoked inflation fears. Though their longer-term
outlook looks brighter, in many instances bond mutual fund investors have
actually lost a little ground or made only slight advances lately.
While we expect the market to broaden eventually, we also expect more
volatility. More than ever, this type of environment calls for investment
diversification. Since not all parts of your portfolio will perform equally well
all the time, we believe it is important to allocate your assets among different
types of investments and funds that target a variety of market segments. This
strategy, executed under the guidance of a seasoned investment professional,
could provide you with a better chance of both realizing results and weathering
the market's changing conditions.
The market's disappointingly narrow focus has created a widening gap in
investment performance. Keep that in mind as you read the report from your
fund's portfolio management team on the following pages. It's all too easy to
get caught up in the headlines and miss what lies underneath.
Sincerely,
/s/Maureen R. Ford
- ------------------
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Frank A. Lucibella, CFA, Barry H. Evans, CFA, and
Dianne Sales, CFA, Portfolio Managers
John Hancock
High Yield Tax-Free Fund
Inflation fears and rate worries roil bonds
-------------------------------------------
Municipal bonds, like most bonds, slumped during the past six months in response
to rising interest rates, inflation fears and flagging demand. Prior to the
beginning of the period, the Federal Reserve had raised interest rates on two
separate occasions to fight potential inflationary pressures resulting from very
strong U.S. economic growth and recovering economies overseas. While inflation
remained virtually non-existent throughout the fall of 1999, inflation concerns
and the prospects for further interest-rate hikes continued to worry bond
investors. They reacted to these worries by pushing bond prices lower and their
yields - which move in the opposite direction from their prices - higher.
Throughout the period, there weren't any conclusive signs that
inflation was on the rise. But the global economy's increasing strength and
rising oil prices sparked fears that the Fed would continue to push interest
rates a lot higher to contain inflation. Those fears proved warranted when the
Fed did raise interest rates in November 1999 and again in February 2000.
Municipal-bond yields rose accordingly and their prices fell. High-yield bonds
held up relatively well early on, but eventually succumbed to rising-rate
pressures.
In addition to rising interest rates, bonds faced another challenge. They held
little appeal for many investors who were bent on finding fast revenue growth
among high-flying technology stocks. Furthermore, municipals experienced
relatively heavy selling in late 1999 when some
- --------------------------------------------------------------------------------
[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."]
- --------------------------------------------------------------------------------
"Municipal bonds, like most bonds, slumped during the past six months..."
3
<PAGE>
================================================================================
John Hancock Funds - High Yield Tax-Free Fund
"Virtually all of our holdings came under pressure from rising interest
rates..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into eleven sections (from top to left): Economic Development
2%, Water & Sewer 2%, Education 2%, Authority 2%, Industrial Development 3%,
Housing 8%, Industrial Revenue 11%, Transportation 12%, Pollution Control 18%,
Other 20% and Health 20%. A note below the chart reads "As a percentage of net
assets on February 29, 2000."]
- --------------------------------------------------------------------------------
institutional investors, who routinely seek out the most attractive values among
various fixed-income investments, shunned municipals in favor of beaten-down
corporate bonds.
As bad as it was, the period did contain a silver lining or two. First,
the strong U.S. economy helped boost the tax collections and revenues of
municipal issuers across the country. Second, rising municipal bond yields began
to attract individual investors. For an investor in the top federal tax bracket
(39.6%), a 30-year high-yield municipal bond that yielded 6.5% on February 29,
2000, offered a tax-equivalent yield of approximately 10.7%.
Fund performance
For the six-month period ended February 29, 2000, John Hancock High Yield
Tax-Free Fund's Class A, Class B and Class C shares posted total returns of
- -2.09%, -2.45% and -2.46%,
- --------------------------------------------------------------------------------
[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
Premium-coupon bonds followed by a sideways arrow with the phrase "Losses
contained by high coupons." The second listing is City of Cleveland Parking
Facility followed by a down arrow with the phrase "Despite declines, credit
quality boosted." The third listing is Health-care bonds followed by a down
arrow with the phrase "Cuts in Medicare; lack of muni insurance." A note below
the table reads "See `Schedule of Investments.' Investment holdings are subject
to change."]
- --------------------------------------------------------------------------------
respectively, at net asset value. By comparison, the average high-yield
municipal bond fund returned -2.90%, according to Lipper, Inc.1 Keep in mind
that your net asset value return will be different from the Fund's performance
if you were not invested in the Fund for the entire period and did not reinvest
all distributions. Please see pages six and seven for longer-term performance
information.
Defensive stance
The Fund's relative outperformance can be attributed to our somewhat defensive
posture during this difficult period. Throughout the period, we maintained a
relatively short duration - a measure of the Fund's sensitivity to interest-rate
changes - that enabled the Fund's share price to fall less when interest rates
rose. In addition, the Fund had a somewhat defensive credit-quality positioning,
with a larger exposure to higher-quality, more liquid high-yielding bonds than
many of its competitors. Many of the lowest-quality, less liquid, high-yielding
bonds proved to be especially vulnerable to unfavorable market conditions.
Finally, our diversified approach worked in our favor. For several years we have
worked to expand the number of holdings within the Fund, so that its performance
isn't overly reliant on the fortunes of one type of bond or a specific security.
Our focus on premium-coupon bonds was also a plus. Premium coupons pay
interest rates above prevailing market rates and trade at prices that are above
their face - or par - value. Their high levels of income helped cushion them
against price declines caused by rising interest rates. This was especially
helpful in a period when municipal bond prices fell so much that many of them
started to lose eligibility for the more favorable capital gains tax treatment
known
4
<PAGE>
================================================================================
John Hancock Funds - High Yield Tax-Free Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended February 29, 2000." The
chart is scaled in increments of 1% with -3% at the bottom and 0% at the top.
The first bar represents the -2.09% total return for John Hancock High Yield
Tax-Free Fund Class A. The second bar represents the -2.45% total return for
John Hancock High Yield Tax-Free Fund Class B. The third bar represents the
- -2.46% total return for John Hancock High Yield Tax-Free Fund Class C. The
fourth bar represents the -2.90% 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."]
- --------------------------------------------------------------------------------
as de minimis. As market conditions subjected more and more bonds to this
obscure tax pitfall it placed further pressure on these bonds that fell outside
of de minimis.
Leaders and laggards
Virtually all of our holdings came under pressure from rising interest rates,
although some hung in better than others. In addition to premium-coupon bonds,
pre-refunded bonds withstood the pressure rather well, although they, too,
posted losses for the period. Pre-refunded bonds have their payments guaranteed
by the funds from a second bond issue, which is usually invested in U.S.
Treasury bonds. On the flip side, health-care bonds as a group were among the
municipal market's worst performers. Concerns about cutbacks in federal Medicare
and Medicaid payments in response to the Balanced Budget Act of 1997 raised
questions about the industry's long-term profitability. In addition, the refusal
of municipal bond insurers to insure lower-quality tiers of the hospital sector
also weighed heavily on the group.
Outlook
In our view, the Federal Reserve policymakers will probably need to push
short-term interest rates higher to contain inflation. Inflation and
interest-rate prospects are likely to worry bond investors. Even though broad
gauges of inflation so far have remained relatively stable, the economy remains
quite strong and the price of oil has risen rapidly. Furthermore, the Fed has
warned about the impact surging stock prices are having on the economy. That's
why we plan to maintain the Fund's current defensive posture, maintaining a
somewhat short duration in the near term.
Ultimately, however, we believe that investors will begin to anticipate
the final rate hike. When that occurs - probably in the second half of this year
- - we expect that market conditions will improve and bonds will be poised for
better performance. Once we're comfortable that that's the case, we will
consider extending the Fund's duration in order to take advantage of stable or
falling interest rates. We also plan to stay committed to emphasizing the more
liquid, higher-quality bonds within the high-yield market.
- --------------------------------------------------------------------------------
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 riskd 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.
"...we plan to maintain the Fund's current defensive posture..."
5
<PAGE>
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John Hancock Funds - High Yield Tax-Free Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock High Yield Tax-Free Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.50%. (Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 4.75%.) Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes 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 December 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/93)
------- ------- --------
Cumulative Total Returns (8.43%) 28.43% 22.09%
Average Annual Total Returns(1) (8.43%) 5.13% 3.38%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (9.36%) 27.67% 72.31%
Average Annual Total Returns(1) (9.36%) 5.01% 5.59%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (5.98%)
Average Annual Total Return(1) (5.98%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of February 29, 2000
SEC 30-DAY
YIELD
--------
John Hancock High Yield Tax-Free Fund: Class A(1) 5.59%
John Hancock High Yield Tax-Free Fund: Class B(1) 5.10%
John Hancock High Yield Tax-Free Fund: Class C(1) 5.11%
Notes to Performance
(1) The custodian fee was offset with balance credits during the period
ended February 29, 2000. Without the balance credits, the average
annual total return for the one-year period for Class A and Class B
shares would have been (8.44%) and (9.37%), respectively. The effect to
the average annual return for the since inception period for Class C
shares would have been less than 0.01%. Without the balance credits,
the yields for Class A, Class B and Class C shares would have been
5.57%, 5.08% and 5.09%, respectively.
(2) Not annualized.
6
<PAGE>
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John Hancock Funds - High Yield Tax-Free Fund
- --------------------------------------------------------------------------------
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 no guarantee 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 $13,341 as of February 29, 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 $12,790 as of February 29, 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 $12,214 as
of February 29, 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 $20,303 as of February 29, 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, 1989, before sales
charge, and is equal to $17,570 as of February 29, 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 $9,778 as of February 29, 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 $9,491 as of February 29, 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 $9,396 as
of February 29, 2000.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on February 29, 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
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $138,312,313)............. $138,186,093
Cash ......................................................... 265,127
Interest receivable .......................................... 2,352,488
Other assets ................................................. 69,288
---------------
Total Assets ................. 140,872,996
---------------------------------------------
Liabilities:
Payable for shares repurchased ............................... 179,334
Payable for investments purchased ............................ 1,451,950
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ..................................... 108,787
Accounts payable and accrued expenses ........................ 17,920
---------------
Total Liabilities ............ 1,757,991
---------------------------------------------
Net Assets:
Capital paid-in .............................................. 153,287,593
Accumulated net realized loss on investments and
financial futures contracts ................................. (14,039,460)
Net unrealized depreciation of investments ................... (126,220)
Distributions in excess of net investment income ............. (6,908)
---------------
Net Assets ................... $139,115,005
=============================================
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 - $45,830,215/5,338,942 .............................. $8.58
=============================================================================
Class B - $93,002,231/10,834,195 ............................. $8.58
=============================================================================
Class C - $282,559/32,916 .................................... $8.58
=============================================================================
Maximum Offering Price Per Share*
Class A - ($8.58 x104.71%) ................................... $8.99
=============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ..................................................... $5,265,814
---------------
Expenses:
Investment management fee - Note B .......................... 443,848
Distribution and service fee - Note B
Class A .................................................... 57,924
Class B .................................................... 516,628
Class C .................................................... 1,309
Transfer agent fee - Note B ................................. 59,032
Custodian fee ............................................... 23,607
Registration and filing fees ................................ 18,790
Auditing fee ................................................ 15,280
Accounting and legal services fee - Note B .................. 14,958
Printing .................................................... 5,527
Trustees' fees .............................................. 4,538
Miscellaneous ............................................... 3,189
Legal fees .................................................. 982
---------------
Total Expenses ............... 1,165,612
---------------------------------------------
Less Expense Reductions -
Note B ....................... (14,296)
---------------------------------------------
Net Expenses ................. 1,151,316
---------------------------------------------
Net Investment Income ........ 4,114,498
---------------------------------------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments sold ........................ (462,683)
Change in net unrealized appreciation/depreciation
of investments .............................................. (7,302,679)
---------------
Net Realized and Unrealized
Loss on Investments .......... (7,765,362)
---------------------------------------------
Net Decrease in Net Assets
Resulting from Operations .... ($3,650,864)
=============================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
------------------- -------------------
<S> <C> <C>
Decrease in Net Assets:
From Operations:
Net investment income ........................................................ $8,824,386 $4,114,498
Net realized loss on investments sold and financial futures contracts ........ (2,241,320) (462,683)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ................................................. (9,050,854) (7,302,679)
-------------- --------------
Net Decrease in Net Assets Resulting from Operations ....................... (2,467,788) (3,650,864)
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5346 and $0.2625 per share, respectively) ..................... (2,592,579) (1,391,021)
Class B - ($0.4663 and $0.2298 per share, respectively) ..................... (6,228,402) (2,716,645)
Class C** - ($0.1838 and $0.2299 per share, respectively) ................... (3,404) (6,832)
-------------- --------------
Total Distributions to Shareholders ......................................... (8,824,385) (4,114,498)
-------------- --------------
From Fund Share Transactions - Net:* .......................................... 1,013,866 (15,063,332)
-------------- --------------
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 $6,908, respectively) ......................................... $161,943,699 $139,115,005
============== ==============
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ............................. 2,239,346 $21,188,954 729,249 $6,336,887
Shares reinvested ....................... 135,698 1,279,406 62,785 548,381
------------ -------------- ------------ --------------
2,375,044 22,468,360 792,034 6,885,268
Less shares repurchased ................. (1,184,256) (11,168,846) (862,045) (7,551,864)
------------ -------------- ------------ --------------
Net increase (decrease) ................. 1,190,788 $11,299,514 (70,011) ($666,596)
============ ============== ============ ==============
CLASS B
Shares sold ............................. 1,910,562 $18,155,766 646,800 $5,692,853
Shares reinvested ....................... 266,217 2,514,139 106,593 931,561
------------ -------------- ------------ --------------
2,176,779 20,669,905 753,393 6,624,414
Less shares repurchased ................. (3,303,908) (31,194,466) (2,412,243) (21,087,732)
------------ -------------- ------------ --------------
Net decrease ............................ (1,127,129) ($10,524,561) (1,658,850) ($14,463,318)
============ ============== ============ ==============
CLASS C**
Shares sold ............................. 32,620 $305,013 13,270 $116,295
Shares reinvested ....................... 213 1,951 564 4,913
------------ -------------- ------------ --------------
32,833 306,964 13,834 121,208
Less shares repurchased ................. (7,431) (68,051) (6,320) (54,626)
------------ -------------- ------------ --------------
Net increase ............................ 25,402 $238,913 7,514 $66,582
============ ============== ============ ==============
**Class C commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM SIX MONTHS
DECEMBER 31, 1993 NOVEMBER 1, ENDED
(COMMENCEMENT OF YEAR ENDED 1995 TO YEAR ENDED AUGUST 31, FEBRUARY 29,
OPERATIONS) TO OCTOBER 31, AUGUST 31, -------------------------- 2000
OCTOBER 31, 1994 1995(2) 1996(6) 1997 1998 1999 (UNAUDITED)
---------------- ------------ ------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period.......... $9.85 $8.82 $9.47 $9.16 $9.34 $9.65 $9.03
-------- -------- -------- -------- -------- -------- --------
Net Investment Income ........................ 0.48(1) 0.57 0.49(1) 0.56(1) 0.54(1) 0.53(1) 0.26(1)
Net Realized and Unrealized Gain (Loss)
on Investments Sold and
Financial Futures Contracts .................. (0.94) 0.70 (0.30) 0.18 0.31 (0.62) (0.45)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations ........... (0.46) 1.27 0.19 0.74 0.85 (0.09) (0.19)
-------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ........ (0.48) (0.58) (0.50) (0.56) (0.54) (0.53) (0.26)
Distributions in Excess of
Net Investment Income ...................... (0.09) (0.04) - - - - -
-------- -------- -------- -------- -------- -------- --------
Total Distributions ........................ (0.57) (0.62) (0.50) (0.56) (0.54) (0.53) (0.26)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............... $8.82 $9.47 $9.16 $9.34 $9.65 $9.03 $8.58
======== ======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (3) 4.96%(4) 14.85% 1.96%(4) 8.29% 9.34% (0.98%) (2.09%)(4)
Total Adjusted Investment Return
at Net Asset Value (3,9) .................... - - - - - (1.00%) (2.10%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..... $15,401 $14,225 $23,663 $32,199 $40,725 $48,869 $45,830
Ratio of Expenses to Average Net Assets ...... 1.15%(5) 1.06% 1.10%(5) 1.06% 1.00%(7) 1.00%(7) 1.04%(5,7)
Ratio of Net Investment Income
to Average Net Assets ........................ 6.08%(5) 6.36% 6.39%(5) 6.00% 5.66% 5.65%(8) 5.99%(5,8)
Portfolio Turnover Rate ...................... 62% 64% 38% 51% 35% 39% 18%
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM SIX MONTHS
YEAR ENDED NOVEMBER 1, ENDED
OCTOBER 31, 1995 TO YEAR ENDED AUGUST 31, FEBRUARY 29,
---------------------- AUGUST 31, -------------------------- 2000
1994 1995(2) 1996(6) 1997 1998 1999 (UNAUDITED)
---------- --------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period.................. $9.98 $8.82 $9.47 $9.16 $9.34 $9.65 $9.03
-------- -------- -------- -------- -------- -------- --------
Net Investment Income ................................ 0.48 0.51 0.44(1) 0.49(1) 0.47(1) 0.47(1) 0.23(1)
Net Realized and Unrealized Gain (Loss) on Investments
Sold and Financial Futures Contracts ................ (0.90) 0.69 (0.31) 0.18 0.31 (0.62) (0.45)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations ................... (0.42) 1.20 0.13 0.67 0.78 (0.15) (0.22)
-------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................ (0.48) (0.51) (0.44) (0.49) (0.47) (0.47) (0.23)
Distributions in Excess of Net Investment Income .... (0.07) (0.04) - - - - -
Distributions from Net Realized Gain on Investments Sold (0.19) - - - - - -
-------- -------- -------- -------- -------- -------- --------
Total Distributions ................................ (0.74) (0.55) (0.44) (0.49) (0.47) (0.47) (0.23)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ....................... $8.82 $9.47 $9.16 $9.34 $9.65 $9.03 $8.58
======== ======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (3) ....... (4.44%) 13.99% 1.36%(4) 7.51% 8.53% (1.69%) (2.45%)(4)
Total Adjusted Investment Return at Net Asset Value (3,9) - - - - - (1.71%) (2.46%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $151,069 $155,234 $147,669 $139,385 $131,497 $112,873 $93,002
Ratio of Expenses to Average Net Assets .............. 1.85% 1.79% 1.81%(5) 1.81% 1.75%(7) 1.73%(7) 1.79%(5,7)
Ratio of Net Investment Income to Average Net Assets . 5.36% 5.61% 5.65%(5) 5.28% 4.92% 4.93%(8) 5.24%(5,8)
Portfolio Turnover Rate .............................. 62% 64% 38% 51% 35% 39% 18%
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
APRIL 1, 1999 SIX MONTHS
(COMMENCEMENT OF ENDED
OPERATIONS) FEBRUARY 29, 2000
TO AUGUST 31, 1999 (UNAUDITED)
------------------ -----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $9.47 $9.03
-------- --------
Net Investment Income (1) ...................................................... 0.18 0.23
Net Realized and Unrealized Loss on Investments
Sold and Financial Futures Contracts .......................................... (0.44) (0.45)
-------- --------
Total from Investment Operations ............................................. (0.26) (0.22)
-------- --------
Less Distributions:
Dividends from Net Investment Income .......................................... (0.18) (0.23)
-------- --------
Net Asset Value, End of Period ................................................. $9.03 $8.58
======== ========
Total Investment Return at Net Asset Value (3) ................................. (2.70%)(4) (2.46%)(4)
Total Adjusted Investment Return at Net Asset Value (3,9) ...................... (2.71%)(4) (2.47%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................................... $229 $283
Ratio of Expenses to Average Net Assets ........................................ 1.76%(5,7) 1.79%(5,7)
Ratio of Net Investment Income to Average Net Assets ........................... 39% 18%
(1) Based on the average of the shares outstanding at the end of each month.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) Annualized.
(6) Effective August 31, 1996, the fiscal period end changed from October 31 to August 31.
(7) The ratio of expenses to average net assets for the years ended
August 31, 1998 and 1999 and for the period ended February 29, 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 year
ended August 31, 1999; and the ratio of expenses to average net assets
would have been 1.02%, 1.77% and 1.77% for Class A, Class B and Class C
shares, respectively, for the period ended February 29, 2000.
(8) 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 year ended August 31, 1999. The ratio of net investment income
to average net assets would have been 5.97%, 5.22% and 5.22% for Class
A, Class B and Class C shares, respectively, for the period ended
February 29, 2000.
(9) An estimated return that does not take into consideration fee
reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free Fund
Schedule of Investments
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by High
Yield Tax-Free Fund on February 29, 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 (0.65%)
Anchorage, City of,
Ice Rink Rev ......................................... 6.375% 01-01-20 BB+ $1,000 $910,520 7.00%
----------
Arizona (0.62%)
Peoria Industrial Development Auth,
Ind'l Dev Rev Ref Ser 1999A Sierra Winds Life ........ 6.250 08-15-20 BB+ 1,000 862,780 7.24
----------
California (20.06%)
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 1,026,210 7.19
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Sr Lien Cap Apprec Ser A ................ Zero 01-01-18 BBB- 7,950 2,764,453 6.01
Toll Rd Rev Ref Conv Cap Apprec ..................... Zero 01-15-23 BBB- 3,000 1,526,280 6.59
Toll Road Rev Ref Conf Cap Apprec ................... Zero 01-15-29 BBB- 2,000 983,980 6.69
Los Angeles Community Facilities District,
Spec Tax No 3 Cascades Business Park Proj ........... 6.400 09-01-22 BB+ 1,000 948,950 6.74
Millbrae, City of,
Residential Facil Rev Ser 1997A Magnolia of
Millbrae Proj ...................................... 7.375 09-01-27 BB 1,000 972,510 7.58
Sacramento City Financing Auth,
Rev Convention Ctr Hotel Ser 1999A .................. 6.250 01-01-30 BB+ 1,500 1,347,390 6.96
San Bernardino, County of,
Cert of Part Ref Medical Ctr Fin Proj ............... 5.500 08-01-17 A- 4,500 4,241,295 5.84
San Diego County Water Auth,
Water Rev Cert of Part Reg RITES .................... 7.434# 04-23-08 AAA 1,000 1,067,500 6.96
San Francisco, City of,
Resid Facil Ser A Coventry Park Proj ................ 8.500 12-01-26 BB- 2,000 2,077,400 8.18
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Conv Cap Apprec Ser A ................... Zero 01-15-19 BBB- 3,000 1,810,230 6.48
Toll Rd Rev Sr Lien ................................. 5.000 01-01-33 Baa3 1,000 804,200 6.22
San Jose Unified School District,
GO Cap Apprec Ser 1997A ............................. Zero 08-01-21 AAA 2,830 774,712 6.14
South Orange County Public Financing Auth,
Spec Tax Rev LEVRRS ................................. 7.981# 08-15-17 AAA 7,500 7,556,250 7.92
----------
27,901,360
----------
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free 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>
Connecticut (1.97%)
Connecticut State Development Auth,
Poll Control Rev Ref Ser 1993A Connecticut Light & Pwr 5.850% 09-01-28 BB+ $2,000 $1,759,840 6.65%
Aquarium Proj Rev Ser A Mystic MarineLife Aquarium Proj 7.000 12-01-27 BB+ 1,000 986,480 7.10
----------
2,746,320
----------
District of Columbia (0.75%)
District of Columbia,
Cert of Part ........................................ 7.300 01-01-13 BBB- 1,000 1,045,680 6.98
----------
Florida (4.51%)
Grand Haven Community Development District,
Spec Assessment Ser B ............................... 6.900 05-01-19 BB+ 750 734,317 7.05
Homestead, City of,
Ind'l Dev Rev Ser A Community Rehab Proj ............ 7.950 11-01-18 BB 3,470 3,518,198 7.84
South Indian River Water Control District,
Rev Egret Landing Proj Section 15 Phase 1 ........... 7.500 11-01-18 BB+ 1,960 2,019,153 7.28
----------
6,271,668
----------
Illinois (7.90%)
Bedford Park, City of,
Tax Increment Rev Ref 71st & Cicero Proj ............ 7.375 01-01-12 BBB- 1,000 1,023,830 7.20
Tax Increment Rev Ref 71st & Cicero Proj ............ 7.000 01-01-06 BBB- 645 658,848 6.85
Tax Increment Rev Sr Lien Mark IV Proj .............. 9.750 03-01-12 AAA 960 1,056,682 8.86
Chicago, City of,
Chicago-O'Hare Int'l Airport Spec Facil Rev Ref
American Airlines, Inc. ............................ 8.200 12-01-24 BBB- 1,500 1,635,075 7.52
Illinois Health Facilities Auth,
Rev Ser A Fairview Obligated Group Proj ............. 9.500 10-01-22 AA 2,500 2,838,800 8.37
Rev Ser B Fairview Obligated Group Proj ............. 9.000 10-01-22 AA 1,500 1,673,175 8.07
Round Lake Beach, City of,
Tax Increment Rev Ref ............................... 7.500 12-01-13 BBB- 2,000 2,107,820 7.12
----------
10,994,230
----------
Indiana (1.43%)
Wabash, County of,
Solid Waste Disp Rev Jefferson Smurfit Corp Proj .... 7.500 06-01-26 BB 2,000 1,985,600 7.55
----------
Iowa (0.60%)
Iowa Finance Auth,
Hlth Care Facil Rev Ref Care Initiatives Proj Ser B . 5.750 07-01-18 BB 715 589,475 6.97
Hlth Care Facil Rev Ref Care Initiatives Proj ....... 9.250 07-01-25 BB 200 238,856 7.75
----------
828,331
----------
Kansas (2.16%)
Kansas Development Finance Auth,
Multifamily Hsg Rev Ref Ser Y ....................... 6.125 12-01-28 BBB- 1,000 889,910 6.88
Prairie Village, City of,
Rev Ser A Claridge Court Proj ....................... 8.750 08-15-23 BBB- 2,000 2,110,880 8.29
----------
3,000,790
----------
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free 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>
Kentucky (5.25%)
Jefferson County Student Housing,
Ind'l Bldg Rev Collegiate Hsg Foundation Ser 1999A .. 7.125% 09-01-29 BB+ $1,265 $1,216,475 7.41%
Kenton County Airport Board,
Rev Spec Facil Delta Airlines, Inc., Ser 1985 ....... 7.800 12-01-15 BBB- 2,500 2,544,850 7.66
Rev Spec Facil Delta Airlines, Inc., Proj Ser B ..... 7.250 02-01-22 BBB- 2,500 2,538,825 7.14
Newport Public Properties,
Corp Rev 1st Mtg Pub Prkg & Plaza Ser 2000A-1** ..... 8.500 01-01-27 BB 1,000 997,500 8.52
----------
7,297,650
----------
Louisiana (0.62%)
Louisiana Public Facilities Auth,
Progressive Hlthcare Rev ............................ 6.375 10-01-20 BB- 1,000 862,770 7.39
----------
Maryland (0.73%)
Baltimore, County of,
Poll Control Rev Ref Bethlehem Steel Corp Proj ...... 7.500 06-01-15 B+ 1,000 1,016,490 7.38
----------
Massachusetts (4.42%)
Massachusetts Development Finance Agency,
Rev Lasell Village Proj Ser 1998A ................... 6.375 12-01-25 BBB- 1,000 852,450 7.48
Massachusetts Industrial Finance Agency,
Rev Ser A Southeastern Mass Proj .................... 9.000 07-01-15 BB 2,800 2,981,720 8.45
Massachusetts Port Auth,
Spec Proj Rev Harborside Hyatt Hotel ................ 10.000 03-01-26 BBB- 2,200 2,311,364 9.52
----------
6,145,534
----------
Michigan (3.13%)
Waterford, Township of,
Economic Dev Corp Rev Ref Canterbury Hlth ........... 6.000 01-01-39 BB- 3,620 3,248,950 6.69
Wayne Charter, County of,
Spec Airport Facil Rev Ref Ser 1995
Northwest Airlines, Inc. ........................... 6.750 12-01-15 BB+ 1,120 1,108,509 6.82
----------
4,357,459
----------
Minnesota (0.58%)
Minneapolis, City of,
Rev Ref Walker Methodist Sr Servs Ser 1998A ......... 6.000 11-15-28 BB+ 1,000 805,280 7.45
----------
Mississippi (0.87%)
Mississippi Business Finance Corp.,
Miss Poll Control Rev Ref Sys Energy Resource Inc Proj 5.900 05-01-22 BBB- 1,400 1,213,590 6.81
----------
Missouri (0.74%)
Lees Summit Industrial Development Auth,
Hlth Facil Rev Ref & Imp John Knox Vlg Proj ......... 7.125 08-15-12 A- 1,000 1,022,930 6.97
----------
New Hampshire (1.52%)
New Hampshire Business Finance Auth,
Poll Control Rev Ref Ser D Pub Serv Co .............. 6.000 05-01-21 BBB- 1,000 875,880 6.85
New Hampshire Higher Educational & Health Facilities Auth,
Rev Littleton Hosp Assn-Ser A ....................... 5.900 05-01-18 BB- 1,500 1,235,460 7.16
----------
2,111,340
----------
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free 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>
New Jersey (6.72%)
Camden County Improvement Auth,
Lease Rev Ser A Holt Hauling & Warehousing Proj ..... 9.875% 01-01-21 BB- $1,500 $1,676,760 8.83%
New Jersey Economic Development Auth,
Economic Dev Rev Ref Ser 1995J Holt Hauling Proj .... 8.500 11-01-23 BBB 2,500 2,682,225 7.92
Ind'l Dev Rev Ref Newark Airport Marriott Hotel Proj . 7.000 10-01-14 BBB- 2,500 2,525,100 6.93
New Jersey Health Care Facilities Financing Auth,
Rev Care Institute Inc Cherry Hill Proj .............. 8.000 07-01-27 BB- 2,000 1,968,060 8.13
Rev Ref Trinitas Hosp Oblig Group ................... 7.500 07-01-30 BBB- 500 491,125 7.64
----------
9,343,270
----------
New York (4.20%)
Glen Cove Housing Auth,
Rev Sr Living Facil The Mayfair Proj ................ 8.250 10-01-26 BB+ 1,425 1,495,010 7.86
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj 7.500 03-01-26 BB- 2,000 2,071,240 7.24
New York City Industrial Development Agency,
Ind'l Dev Rev Ref LaGuardia Assoc LP Proj ........... 6.000 11-01-28 BB+ 1,000 851,430 7.05
Spec Facil Rev 1990 American Airlines, Inc. Proj .... 5.400 07-01-20 BBB- 1,670 1,428,969 6.31
----------
5,846,649
----------
Ohio (5.03%)
Bedford, County of,
Rev Ref Community Hosp Bedford Inc. ................. 8.500 05-15-09 AA 1,200 1,233,780 8.27
Cleveland, City of,
Parking Facil Imp Rev ............................... 8.100 09-15-22 AAA 2,000 2,188,020 7.40
Lorain, County of,
Rev 1st Mtg Ser A Kendal At Oberlin Proj ............ 8.625 02-01-22 AA 3,300 3,578,883 7.95
----------
7,000,683
----------
Oklahoma (1.49%)
Tulsa Municipal Airport Trust, Trustees of,
Rev American Airlines, Inc. ......................... 7.350 12-01-11 BBB- 2,000 2,077,400 7.08
----------
Oregon (3.52%)
Oregon State Solid Waste Disposal Facilities,
Economic Dev Rev USG Corp Proj Ser 192 .............. 6.400 12-01-29 BBB+ 1,000 975,230 6.56
Oregon, State of,
Economic Dev Rev Ref Ser 183 Georgia-Pacific Corp Proj 5.700 12-01-25 Baa2 1,000 871,370 6.54
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj .............. 7.125 01-01-21 BBB- 3,000 3,052,860 7.00
----------
4,899,460
----------
Pennsylvania (8.02%)
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 1,806,012 7.30
Poll Control Rev Ref Cleveland Elec Proj ............ 7.625 05-01-25 BB+ 1,600 1,683,440 7.25
Chester County Industrial Development Auth,
Rev 1st Mtg Rha/Pa Nursing Home ..................... 10.125 05-01-19 B- 193 153,393 12.74
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free 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>
Pennsylvania (continued)
Montgomery County Redevelopment Auth,
Multifamily Hsg Rev Ser A KBF Assoc L.P. Proj ....... 6.500% 07-01-25 BBB+ $2,500 $2,412,600 6.74%
Pennsylvania Economic Development Finance Auth,
Ser B Qualified Residential RSI Properties/
Greensburg LLC Proj 8.000 09-01-27 BB- 1,000 750,000 10.67
Philadelphia Hospitals and Higher Education Facilities Auth,
Hosp Rev 1991 Ser A Philadelphia Protestant Home Proj 8.625 07-01-21 AA 2,300 2,458,125 8.07
Philadelphia Industrial Development Auth,
Commercial Devel Rev Ref Ser A Doubletree Proj ...... 6.500 10-01-27 BB+ 2,000 1,897,980 6.85
----------
11,161,550
----------
Rhode Island (1.60%)
Providence Redevelopment Agency,
Cert of Part Ser 1994A .............................. 8.000 09-01-24 BBB- 2,135 2,227,979 7.67
----------
Tennessee (2.09%)
Chattanooga Industrial Development Board,
Ind'l Dev Rev Ref Warehouse Row Ltd Proj ............ 7.000 12-15-12 BBB 2,000 1,964,500 7.13
Johnson City Health & Educational Facilities Board,
Hosp Rev Ref 1st Mtg Mtn States Hlth Ser 2000A ...... 7.500 07-01-33 Baa2 1,000 947,440 7.92
----------
2,911,940
----------
Texas (0.33%)
Houston, City of,
Airport Sys Rev Spec Facil Continental
Airlines Ser 1998C ................................ 5.700 07-15-29 BB 575 463,668 7.07
----------
Utah (3.27%)
Carbon, County of,
Solid Waste Disp Rev Ref Ser A
East Carbon Development Corp ......................... 9.000 07-01-12 BBB- 2,000 2,077,500 8.66
Solid Waste Disp Rev Ref
Sunnyside Cogeneration Ser 1999A ..................... 7.100 08-15-23 BB 960 925,738 7.36
Solid Waste Disp Rev Ref Sunnyside Cogeneration
Ser 1999B .......................................... Zero 08-15-24 BB 290 46,606 7.62
Tooele, County of,
Poll Control Rev Ref Ser A Laidlaw Environmental Proj 7.550 07-01-27 BBB- 1,500 1,499,595 7.55
----------
4,549,439
----------
Virginia (2.98%)
Hopewell Industrial Development Auth,
Resource Recovery Rev Ref Stone Container Corp Proj . 8.250 06-01-16 BB 2,400 2,494,968 7.94
Pocahontas Parkway Association,
Toll Road Rev Cap Apprec 1st Tier Sub Ser 1998C ..... Zero 08-15-21 Ba1 4,100 798,557 7.77
Toll Road Rev Cap Apprec 1st Tier Sub Ser 1998C ..... Zero 08-15-20 Ba1 4,000 849,080 7.72
----------
4,142,605
----------
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free 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>
Washington (0.93%)
Spokane County Industrial Development Corp,
Solid Waste Disp Rev Kaiser Alum & Chem Corp Proj ... 7.600% 03-01-27 BB- $1,250 $1,292,488 7.35%
-----------
West Virginia (0.64%)
South Charleston, City of,
Poll Control Rev Ref Union Carbide Corp Proj ....... 5.100 01-01-12 BBB 1,000 888,640 5.74
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $138,313,313) (99.33%) 138,186,093
------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.67%) 928,912
------- -----------
TOTAL NET ASSETS (100.00%) $139,115,005
======== ============
</TABLE>
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service, Fitch or John Hancock
Advisers, Inc. where Standard & Poor's ratings are not available.
** This security having an aggregate value of $997,500 or 0.72% of the
Fund's net asset value, has been purchased as 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
are 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 $1,209,000 of South Orange County Public Financing, 7.981%,
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 February 29, 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.
19
<PAGE>
============================FINANCIAL STATEMENTS================================
John Hancock Funds - High Yield Tax-Free Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The High Yield Tax-Free Fund invests primarily in securities issued by the
various states and their various political subdivisions. The performance of the
Fund is closely tied to economic conditions within the applicable states and the
financial 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 February 29,
2000, assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ---------------
General Obligation ........................................... 0.56%
Revenue Bonds - Airport ...................................... 0.33
Revenue Bonds - Authority .................................... 2.01
Revenue Bonds - Economic Development ......................... 1.87
Revenue Bonds - Education .................................... 2.23
Revenue Bonds - Facility ..................................... 1.60
Revenue Bonds - Health ....................................... 19.88
Revenue Bonds - Highway ...................................... 1.18
Revenue Bonds - Housing ...................................... 7.57
Revenue Bonds - Industrial Development ....................... 2.64
Revenue Bonds - Industrial Revenue ........................... 11.48
Revenue Bonds - Lease ........................................ 0.75
Revenue Bonds - Multi-Family ................................. 0.64
Revenue Bonds - Other ........................................ 11.88
Revenue Bonds - Parking Garage/Authority ..................... 0.72
Revenue Bonds - Pollution Control Facilities ................. 17.70
Revenue Bonds - Recreation Facility .......................... 0.65
Revenue Bonds - Solid Waste Disposal ......................... 0.70
Revenue Bonds - Special Assessment ........................... 0.53
Revenue Bonds - Transportation ............................... 12.19
Revenue Bonds - Water & Sewer ................................ 2.22
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 99.33%
==========
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Tax-Free Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Tax-Free Bond Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940. The Trust consists of two series: John Hancock High Yield Tax-Free Fund
(the "Fund") and John Hancock Tax-Free Bond Fund. The other series of the Trust
is reported in separate financial statements. The investment objective of the
Fund is to provide as high a level of interest income exempt from federal income
taxes as is consistent with the preservation of capital, by investing primarily
in municipal bonds, notes and commercial paper, the interest on which is exempt
from federal income taxes.
The 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 $9,410,341 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 and August 31, 2006 - $3,041,181.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the amount paid
in excess of par value on securities purchased from either the date of purchase
or date of issue to date of sale, maturity or to next call date, if applicable.
The Fund accretes original issue discount 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.
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Tax-Free Fund
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 of up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee based on the average daily unused portion of the line
of credit is allocated among the participating funds. The Fund had no borrowing
activity for the period ended February 29, 2000.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates and other market conditions. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instrument or hedge
other Fund instruments. At the time the Fund enters into a financial futures
contract, it will be required to deposit with its custodian a specified amount
of cash or U.S. government securities, known as "initial margin," equal to a
certain percentage of the value of the financial futures contract being traded.
Each day, the futures contract is valued at the official settlement price on the
board of trade or U.S. commodities exchange on which it trades. Subsequent
payments to and from the broker, known as "variation margin," are made on a
daily basis as the market price of the financial futures contract fluctuates.
Daily variation margin adjustments, arising from this "mark to market," will be
recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures contracts.
At February 29, 2000, there were no open positions in financial futures
contracts.
OPTIONS The Fund may buy or sell options contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Over-the-counter options are valued at the mean between the
last bid and asked prices. Upon the writing of a call or put option, an amount
equal to the premium received by the Fund will be included in the Statement of
Assets and Liabilities as an asset and corresponding liability. The amount of
the liability will be subsequently marked to market to reflect the current
market value of the written option.
The Fund may use option contracts to manage its exposure to changing
security prices. Writing puts and buying calls will tend to increase the Fund's
exposure to the underlying instrument and buying puts and 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
22
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Tax-Free Fund
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 February 29, 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 $14,296
of custodian fees have been reduced by balance credits applied during the period
ended February 29, 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 period ended
February 29, 2000, net sales charges received with regard to sales of Class A
shares amounted to $2,546. Out of this amount, $213 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 $84 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 period ended February 29,
2000, contingent deferred sales charges paid to JH Funds amounted to $152,975.
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
period ended February 29, 2000, contingent deferred sales charges paid to JH
Funds amounted to $742.
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 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.
23
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Tax-Free Fund
The Fund has an agreement with the Adviser to perform necessary tax, accounting
and legal services for the Funds. The compensation for the period was at an an
annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford, Ms. Anne C. Hodsdon and Mr.
Richard Scipone are trustees and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for
tax purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. 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
period ended February 29, 2000, aggregated $27,227,702 and $39,765,543,
respectively. There were no purchases or sales of obligations of the U.S.
government and its agencies during the fiscal period ended February 29, 2000.
The cost of investments owned at February 29, 2000, for federal income
tax purposes was $138,312,313. Gross unrealized appreciation and depreciation of
investments aggregated $5,047,617 and $5,173,837, respectively, resulting in net
unrealized depreciation of $126,220.
24
<PAGE>
====================================NOTES=======================================
John Hancock Funds - High Yield Tax-Free Fund
25
<PAGE>
====================================NOTES=======================================
John Hancock Funds - High Yield Tax-Free Fund
26
<PAGE>
====================================NOTES=======================================
John Hancock Funds - High Yield Tax-Free Fund
27
<PAGE>
================================================================================
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