N-CSRS 1 a_munisectrust.htm JOHN HANCOCK MUNICIPAL SECURITIES TRUST a_munisectrust.htm
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
 
FORM N-CSR 
 
CERTIFIED SHAREHOLDER REPORT OF REGISTERED 
 
MANAGEMENT INVESTMENT COMPANIES 
 
Investment Company Act file number 811-5968 
 
John Hancock Municipal Securities Trust 
(Exact name of registrant as specified in charter) 
 
601 Congress Street, Boston, Massachusetts 02210 
(Address of principal executive offices) (Zip code) 
 
Salvatore Schiavone
Treasurer
 
601 Congress Street 
 
Boston, Massachusetts 02210 
 
(Name and address of agent for service) 
 
Registrant's telephone number, including area code: 617-663-4497 
 
Date of fiscal year end:  May 31 
 
Date of reporting period:  November 30, 2011 

 

Item 1. Schedule of Investments.




A look at performance

Total returns for the period ended November 30, 2011

                  SEC 30-day 
  Average annual total returns (%)  Cumulative total returns (%)    SEC 30-day  yield (%) 
  with maximum sales charge    with maximum sales charge    yield (%)  unsubsidized1 
                as of  as of 
  1-year  5-year  10-year  6-months  1-year  5-year  10-year  11-30-11  11-30-11 
Class A  1.18  2.78  3.89  –0.27  1.18  14.68  46.50  3.08  2.98 
Class B  0.15  2.61  3.75  –0.93  0.15  13.77  44.53  2.47  2.37 
Class C  4.26  2.96  3.60  3.07  4.26  15.68  42.37  2.47  2.37 


Performance figures assume all distributions are reinvested. Figures reflect maximum sales charges on Class A shares of 4.5% and the applicable contingent deferred sales charge (CDSC) on Class B shares and Class C shares. The returns for Class C shares have been adjusted to reflect the elimination of the front-end sales charge effective 7-15-04. The Class B shares’ CDSC declines annually between years 1 to 6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC.

The expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectus for the Fund and may differ from those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least until 9-30-12 for Class A, Class B and Class C shares. Had the fee waivers and expense limitations not been in place gross expenses would apply. The expense ratios are as follows:

  Class A  Class B  Class C 
Net (%)  0.86  1.61  1.61 
Gross (%)  0.96  1.71  1.71 

 

The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For current to the most recent month end performance data, please call 1–800–225–5291 or visit the Fund’s Web site at www.jhfunds.com.

The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on the redemption of fund shares. 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. The Fund’s performance results reflect any applicable fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.

6  Tax-Free Bond Fund | Semiannual report 

 


 
 

 
    Without  With maximum   
  Start date  sales charge  sales charge  Index 
Class B2  11-30-01  $14,453  $14,453  $16,411 
Class C2  11-30-01  14,237  14,237  16,411 


Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.

The Class C shares investment with maximum sales charge has been adjusted to reflect the elimination of the front-end sales charge effective 7-15-04.

Barclays Capital Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.

It is not possible to invest directly in an index. Index figures do not reflect sales charges or direct expenses, which would have resulted in lower values if they did.

1 Unsubsidized yield reflects what the yield would have been without the effect of reimbursements and waivers.

2 No contingent deferred sales charge is applicable.

Semiannual report | Tax-Free Bond Fund  7 

 


Your expenses

These examples are intended to help you understand your ongoing operating expenses.

Understanding fund expenses

As a shareholder of the Fund, you incur two types of costs:

▪ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.

▪ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.

We are going to present only your ongoing operating expenses here.

Actual expenses/actual returns

This example is intended to provide information about the Fund’s actual ongoing operating expenses, and is based on the Fund’s actual return. It assumes an account value of $1,000.00 on June 1, 2011 with the same investment held until November 30, 2011.

  Account value  Ending value  Expenses paid during 
  on 6-1-11  on 11-30-11  period ended 11-30-111 
Class A  $1,000.00  $1,044.60  $4.45 
Class B  1,000.00  1,040.70  8.26 
Class C  1,000.00  1,040.70  8.26 


Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at November 30, 2011, by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:

 

 

 

 
 

 
8  Tax-Free Bond Fund | Semiannual report 

 


Hypothetical example for comparison purposes

This table allows you to compare the Fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not the Fund’s actual return). It assumes an account value of $1,000.00 on June 1, 2011, with the same investment held until November 30, 2011. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.

  Account value  Ending value  Expenses paid during 
  on 6-1-11  on 11-30-11  period ended 11-30-111 
Class A  $1,000.00  $1,020.70  $4.40 
Class B  1,000.00  1,016.90  8.17 
Class C  1,000.00  1,016.90  8.17 


Remember, these examples do not include any transaction costs, therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.

1 Expenses are equal to the Fund’s annualized expense ratio of 0.87%, 1.62% and 1.62% for Class A, Class B and Class C shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period).

Semiannual report | Tax-Free Bond Fund  9 

 


Portfolio summary

Top 10 Holdings (23.3% of Net Assets on 11-30-11)1,2   
Foothill Eastern Transportation Corridor Agency, Zero Coupon, 1-1-19  5.6% 
Madera County Certificates of Participation, 6.500%, 3-15-15  2.5% 
Massachusetts Water Resources Authority, 5.000%, 8-1-40  2.5% 
Commonwealth of Massachusetts, 5.500%, 12-1-24  2.2% 
San Joaquin Hills Transportation Corridor Agency, 5.650%, 1-15-17  2.0% 
South Carolina State Public Service Authority, 5.000%, 1-1-40  1.8% 
New York City Municipal Water Finance Authority, 5.000%, 6-15-39  1.8% 
Port Authority of New York & New Jersey, 6.750%, 10-1-19  1.7% 
New York State Dormitory Authority, 5.000%, 7-1-35  1.6% 
San Bernardino County, 5.500%, 8-1-17  1.6% 

 

Sector Composition1,3       
General Obligation Bonds  6.9%  Tobacco  5.9% 
Revenue Bonds    Education  5.8% 
Transportation  18.8%  Airport  4.5% 
Utilities  17.2%  Pollution  4.2% 
Water & Sewer  7.0%  Facilities  1.3% 
Health Care  6.5%  Other Revenue  13.9% 
Development  5.9%  Short-Term Investments & Other  2.1% 

 

Quality Composition1,4   
AAA  13.4% 
AA  33.9% 
A  29.5% 
BBB  10.0% 
BB  1.1% 
B  3.1% 
CCC & Below  1.0% 
Not Rated  5.9% 
Short-Term Investments & Other  2.1% 

 


1 As a percentage of net assets on 11-30-11.

2 Cash and cash equivalents not included.

3 Investments focused on one sector may fluctuate more widely than investments across multiple sectors. Because the Fund may focus on particular sectors, its performance may depend on the performance of those sectors.

4 Ratings are from Moody’s Investors Service, Inc. If not available, we have used Standard & Poor’s Corporation ratings. In the absence of ratings from these agencies, we have used Fitch, Inc. ratings. “Not Rated” securities are those with no ratings available from these agencies. All ratings are as of 11-30-11 and do not reflect subsequent downgrades or upgrades, if any.

10  Tax-Free Bond Fund | Semiannual report 

 


Fund’s investments

As of 11-30-11 (unaudited)

    Maturity     
  Rate (%)  date  Par value  Value 
Municipal Bonds 97.86%        $455,582,341 
 
(Cost $419,592,984)         
 
Alabama 0.45%        2,116,260 
Birmingham Special Care Facilities         
Financing Authority Childrens Hospital  6.125  06-01-34  $2,000,000  2,116,260 
 
Arizona 0.47%        2,171,532 
Arizona Health Facilities Authority         
Phoenix Memorial Hospital (H)  8.200  06-01-21  2,150,000  22 
Maricopa County Pollution Control Corp.         
El Paso Electric Company Project, Series B  7.250  04-01-40  1,000,000  1,141,280 
Phoenix Civic Improvement Corp. District,         
Series B (Zero Coupon steps up to         
5.500% on 7-1-13) (D)(Z)  Zero  07-01-28  1,000,000  1,030,230 
 
California 16.28%        75,806,322 
Foothill Eastern Transportation Corridor Agency         
Highway Revenue Tolls (Z)  Zero  01-15-25  5,000,000  2,150,750 
Foothill Eastern Transportation Corridor Agency         
Highway Revenue Tolls, Escrowed to         
Maturity, Series A (Z)  Zero  01-01-19  30,000,000  26,164,200 
M-S-R Energy Authority         
Natural Gas Revenue, Series B  7.000  11-01-34  2,500,000  2,895,350 
Madera County Certificates of Participation         
Valley Children’s Hospital (D)  6.500  03-15-15  10,870,000  11,517,200 
San Bernardino County         
Medical Center Financial Project, Series B (D)  5.500  08-01-17  7,205,000  7,502,206 
San Bernardino County         
Medical Center Financing Project  5.500  08-01-22  2,500,000  2,697,725 
San Diego Redevelopment Agency         
City Heights, Series A  5.750  09-01-23  25,000  24,999 
San Joaquin Hills Transportation Corridor Agency         
Highway Revenue Tolls, Escrowed to Maturity (Z)  Zero  01-01-14  5,000,000  4,922,500 
San Joaquin Hills Transportation Corridor Agency         
Highway Revenue Tolls, Escrowed to Maturity (Z)  Zero  01-01-17  4,900,000  4,550,532 
San Joaquin Hills Transportation Corridor Agency         
Highway Revenue Tolls, Escrowed to Maturity (Z)  Zero  01-01-20  2,000,000  1,674,340 
San Joaquin Hills Transportation Corridor Agency         
Highway Revenue Tolls, Series A  5.650  01-15-17  10,000,000  9,491,900 
Santa Ana Financing Authority         
Police Administration & Holdings Facility,         
Series A (D)  6.250  07-01-19  2,000,000  2,214,620 

 

See notes to financial statements  Semiannual report | Tax-Free Bond Fund  11 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Colorado 3.53%        $16,433,846 
Colorado Springs Utilities Revenue, Series A  5.000  11-15-33  $2,000,000  2,154,400 
Colorado Springs Utilities Revenue, Series C  5.250  11-15-42  2,825,000  3,012,863 
Denver, Colorado City & County         
Airport Revenue, Series A  5.250  11-15-36  5,250,000  5,568,518 
Public Authority for Colorado Energy         
Natural Gas Revenue  6.250  11-15-28  3,500,000  3,668,665 
Regional Transportation District         
Denver Transit Partners  6.000  01-15-41  2,000,000  2,029,400 
 
Connecticut 0.69%        3,213,540 
Connecticut State Health & Educational         
Facility Authority Yale University, Series Z3  5.050  07-01-42  3,000,000  3,213,540 
 
District of Columbia 3.49%        16,226,564 
District of Columbia Tobacco Settlement         
Financing Corp.  6.500  05-15-33  5,000,000  5,200,700 
Metropolitan Washington DC Airports Authority         
Highway Revenue Tolls, Series A  5.250  10-01-44  4,500,000  4,657,410 
Metropolitan Washington DC Airports Authority         
Highway Revenue Tolls, Series B (D)(Z)  Zero  10-01-33  6,565,000  1,790,276 
Metropolitan Washington DC Airports Authority         
Highway Revenue Tolls, Series B (D)(Z)  Zero  10-01-35  6,470,000  1,548,400 
Metropolitan Washington DC Airports Authority         
Highway Revenue Tolls, Series B (D)(Z)  Zero  10-01-36  7,250,000  1,595,145 
Metropolitan Washington DC Airports Authority         
Highway Revenue Tolls, Series C (Zero Coupon         
steps up to 6.500% on 10-1-16) (D)(Z)  Zero  10-01-41  1,750,000  1,434,633 
 
Florida 4.67%        21,739,350 
Bonnet Creek Resort Community         
Development District  7.250  05-01-18  1,000,000  984,370 
Bonnet Creek Resort Community         
Development District  7.375  05-01-34  1,500,000  1,431,300 
Capital Trust Agency Seminole Tribe Convention,         
Prerefunded to 10-1-12, Series A (S)  8.950  10-01-33  3,000,000  3,274,800 
Crossings at Fleming Island Community         
Development District Recreation Facilities         
Improvements, Series C  7.100  05-01-30  1,000,000  933,930 
Hernando County, Criminal Justice (D)  7.650  07-01-16  500,000  598,835 
JEA Electric System Revenue Series Three — D-2  5.000  10-01-38  7,000,000  7,309,890 
Orange County School Board         
School Improvements, Series A (D)(Z)  Zero  08-01-13  5,000,000  4,912,350 
Orlando Utilities Commission Electric, Power &         
Light Revenues, Escrowed to Maturity, Series D  6.750  10-01-17  1,945,000  2,293,875 
 
Georgia 2.49%        11,594,651 
Atlanta Tax Allocation Eastside Project, Series B  5.600  01-01-30  1,000,000  997,690 
Georgia Municipal Electric Authority         
Electric, Power & Light Revenues, Escrowed         
to Maturity, Series Y (D)  6.500  01-01-17  145,000  166,736 
Georgia Municipal Electric Authority         
Electric, Power & Light Revenues, Escrowed         
to Maturity, Series Z (D)  5.500  01-01-20  150,000  168,474 

 

12  Tax-Free Bond Fund | Semiannual report  See notes to financial statements 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Georgia (continued)         
Georgia Municipal Electric Authority         
Electric, Power & Light Revenues,         
Prerefunded to 1-1-14, Series 2005 (D)  6.500  01-01-17  $60,000  $67,475 
Georgia Municipal Electric Authority         
Electric, Power & Light Revenues, Series BB  5.700  01-01-19  905,000  1,037,682 
Georgia Municipal Electric Authority         
Electric, Power & Light Revenues, Series C (D)  5.700  01-01-19  4,765,000  5,467,504 
Georgia Municipal Electric Authority         
Electric, Power & Light Revenues, Series EE (D)  7.250  01-01-24  2,000,000  2,684,460 
Monroe County Development Authority         
Oglethorpe Power Corp., Series A  6.800  01-01-12  1,000,000  1,004,630 
 
Illinois 4.05%        18,849,096 
Chicago Board of Education, Series A (D)  5.500  12-01-30  3,650,000  4,014,307 
Chicago Tax Increment Revenue         
Pilsen Redevelopment, Series B  6.750  06-01-22  3,000,000  3,058,530 
City of Chicago IL, Series A  5.750  01-01-39  3,200,000  3,473,120 
Illinois Development Finance Authority         
Edison Project (D)  5.850  01-15-14  3,000,000  3,234,750 
Illinois Finance Authority         
Rush University Medical Center, Series A  7.250  11-01-38  1,500,000  1,649,295 
Lake County Community Consolidated School         
District No: 24 (D)(Z)  Zero  01-01-22  2,440,000  1,492,987 
Round Lake Lakewood Grove Special Service         
Area No: 1 Prerefunded to 3-1-13  6.700  03-01-33  979,000  1,065,974 
Will County Community Unit School District         
No: 365 (D)(Z)  Zero  11-01-21  1,130,000  860,133 
 
Indiana 0.71%        3,295,050 
Indiana Finance Authority         
Duke Energy, Series B  6.000  08-01-39  3,000,000  3,295,050 
 
Kentucky 1.38%        6,405,356 
Kentucky Economic Development         
Finance Authority Louisville Arena,         
Series A–1 (D)  6.000  12-01-33  1,000,000  1,061,770 
Kentucky Economic Development         
Finance Authority Norton Healthcare,         
Prerefunded to 10-1-13, Series C (D)  6.100  10-01-21  1,770,000  1,966,718 
Kentucky Economic Development         
Finance Authority Norton Healthcare,         
Series C (D)  6.100  10-01-21  3,230,000  3,376,868 
 
Louisiana 0.90%        4,168,050 
Louisiana Local Government         
Environmental Facilities         
Westlake Chemical Corp. Projects  6.750  11-01-32  2,500,000  2,606,100 
Louisiana Local Government         
Environmental Facilities         
Westlake Chemical Corp. Projects, Series A–1  6.500  11-01-35  1,500,000  1,561,950 

 

See notes to financial statements  Semiannual report | Tax-Free Bond Fund  13 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Massachusetts 9.51%        $44,277,641 
Commonwealth of Massachusetts, Series C (D)  5.500  12-01-24  $8,000,000  10,142,240 
Massachusetts Bay Transportation Authority         
Sales Tax Revenue, Series A–2 (Z)  Zero  07-01-26  13,595,000  7,098,901 
Massachusetts Development Finance Agency         
Harvard University, Series B  5.000  10-15-40  2,500,000  2,743,850 
Massachusetts Health & Educational         
Facilities Authority Civic Investments,         
Prerefunded to 12-15-12, Series B  9.200  12-15-31  3,500,000  3,882,550 
Massachusetts Health & Educational         
Facilities Authority         
Partners HealthCare, Series C  5.750  07-01-32  85,000  85,638 
Massachusetts State Department of         
Transportation Highway Revenue Tolls,         
Series B  5.000  01-01-37  5,000,000  5,167,700 
Massachusetts Water Pollution Abatement,         
Series A  6.375  02-01-15  75,000  75,370 
Massachusetts Water Resources Authority         
Water Revenue, Series A  5.000  08-01-40  10,775,000  11,427,534 
Metropolitan Boston Transit Parking Corp.  5.250  07-01-36  3,475,000  3,653,858 
 
Michigan 0.25%        1,179,530 
Detroit Water Supply System Revenue         
Water Revenue, Series B (D)  7.000  07-01-36  1,000,000  1,179,530 
 
Nebraska 2.27%        10,565,986 
Central Plains Energy Project Revenue         
Natural Gas Revenue, Series A  5.250  12-01-20  4,970,000  4,917,318 
Omaha Public Power District Electric, Power &         
Light Revenues, Escrowed to Maturity, Series B  6.200  02-01-17  1,200,000  1,385,508 
Omaha Public Power District         
Electric, Power & Light Revenues, Series B  5.000  02-01-36  4,000,000  4,263,160 
 
New Hampshire 0.27%        1,264,463 
New Hampshire Health & Education         
Facilities Authority Exeter Project  6.000  10-01-24  1,250,000  1,264,463 
 
New Jersey 4.47%        20,821,583 
New Jersey State Turnpike Authority         
Highway Revenue Tolls, Series I  5.000  01-01-35  5,250,000  5,473,073 
New Jersey Transportation Trust Fund Authority,         
Series B  5.000  06-15-42  2,500,000  2,496,050 
Tobacco Settlement Financing Corp.         
Prerefunded to 6-1-13  6.250  06-01-43  4,000,000  4,348,080 
Tobacco Settlement Financing Corp.         
Prerefunded to 6-1-13  6.750  06-01-39  5,000,000  5,472,500 
Tobacco Settlement Financing Corp., Series 1A  4.500  06-01-23  3,355,000  3,031,880 
 
New York 16.14%        75,119,344 
Brooklyn Arena Local Development Corp.         
Barclays Center Project  6.250  07-15-40  1,000,000  1,038,910 
Hudson Yards Infrastructure Corp., Series A  5.750  02-15-47  3,500,000  3,702,125 
Long Island Power Authority         
Electric, Power & Light Revenues, Series C (D)  5.250  09-01-29  2,000,000  2,226,160 
New York City Industrial Development Agency         
Liberty-7 World Trade Center, Series A  6.250  03-01-15  2,000,000  2,004,080 

 

14  Tax-Free Bond Fund | Semiannual report  See notes to financial statements 

 


    Maturity     
  Rate (%)  date  Par value  Value 
New York (continued)         
New York City Industrial Development Agency         
Terminal One Group Association Project         
AMT (P)  5.500  01-01-24  $1,500,000  $1,549,140 
New York City Municipal Water Finance Authority         
Water Revenue, Series 2009-EE  5.250  06-15-40  5,000,000  5,339,600 
New York City Municipal Water Finance Authority         
Water Revenue, Series GG-1  5.000  06-15-39  8,000,000  8,399,360 
New York City Transitional Finance Authority         
Government Fund/Grant Revenue, Series S-4  5.500  01-15-39  3,725,000  4,027,470 
New York City Transitional Finance Authority         
Income Tax Revenue, Series S-3  5.250  01-15-39  3,000,000  3,186,390 
New York City Transitional Finance Authority         
Income Tax Revenue, Series S-3  5.375  01-15-34  3,000,000  3,216,870 
New York Liberty Development Corp.         
4 World Trade Center Project  5.000  11-15-31  5,000,000  5,170,350 
New York Liberty Development Corp.         
Goldman Sachs Headquarters  5.250  10-01-35  3,000,000  3,024,240 
New York State Dormitory Authority         
Income Tax Revenue, Series A  5.000  02-15-39  2,500,000  2,610,475 
New York State Dormitory Authority         
State University Dormitory, Series A  5.000  07-01-35  7,250,000  7,650,853 
New York State Dormitory Authority         
State University Educational Facilities, Series A  5.500  05-15-19  1,000,000  1,173,730 
Port Authority of New York & New Jersey         
144th Construction Project  5.000  10-01-29  3,500,000  3,721,690 
Port Authority of New York & New Jersey         
5th Installment Special Project AMT  6.750  10-01-19  8,700,000  8,082,648 
Port Authority of New York & New Jersey         
JFK International Airport Terminal  6.000  12-01-42  2,000,000  2,090,180 
Triborough Bridge & Tunnel Authority         
Highway Revenue Tolls  5.000  11-15-33  4,025,000  4,304,013 
Westchester Tobacco Asset Securitization Corp.         
Public Improvements, Prerefunded to 7-15-17  6.950  07-15-39  2,000,000  2,601,060 
 
Ohio 0.60%        2,804,737 
Buckeye Ohio Tobacco Settlement Financing         
Authority, Series A–2  5.125  06-01-24  2,325,000  1,756,607 
Ohio Air Quality Development Authority         
FirstEnergy Solutions Corp., Series C AMT (P)  7.250  11-01-32  1,000,000  1,048,130 
 
Oklahoma 1.21%        5,648,600 
Grand River Dam Authority, Series A  5.250  06-01-40  4,000,000  4,253,600 
Tulsa Airport Improvement Trust,         
Series A AMT (H)(P)  7.750  06-01-35  2,000,000  1,395,000 
 
Oregon 1.54%        7,158,039 
Clackamas County School District No. 12,         
Series B (D)  5.000  06-15-28  5,630,000  6,066,663 
Western Generation Agency         
Wauna Cogeneration Project, Series B AMT  5.000  01-01-14  1,100,000  1,091,376 

 

See notes to financial statements  Semiannual report | Tax-Free Bond Fund  15 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Pennsylvania 2.78%        $12,917,738 
Allegheny County Hospital         
Development Authority         
West Penn Health Systems, Series A  5.000  11-15-28  $3,500,000  2,936,675 
Allegheny County Redevelopment Authority         
Pittsburgh Mills Project  5.600  07-01-23  1,000,000  958,030 
Carbon County Industrial Development Authority         
Panther Creek Partners Project AMT  6.700  05-01-12  600,000  600,150 
Pennsylvania Turnpike Commission, Series C (Z)  Zero  12-01-38  4,000,000  841,320 
Philadelphia Authority for Industrial Development         
Commercial Development AMT  7.750  12-01-17  3,250,000  3,252,763 
Philadelphia School District, Series E  6.000  09-01-38  4,000,000  4,328,800 
 
Puerto Rico 3.79%        17,654,335 
Commonwealth of Puerto Rico         
Public Improvement, Series A  5.750  07-01-41  5,000,000  5,136,900 
Puerto Rico Electric Power Authority         
Electric, Power & Light Revenues, Series XX  5.250  07-01-40  2,500,000  2,505,025 
Puerto Rico Public Buildings Authority         
Government Facilities, Series P (D)  6.750  07-01-36  3,000,000  3,335,910 
Puerto Rico Sales Tax Financing Corp.         
Sales Tax Revenue, Series A (Zero Coupon         
steps up to 6.750% on 8-1-16) (Z)  Zero  08-01-32  4,000,000  3,618,120 
Puerto Rico Sales Tax Financing Corp.         
Sales Tax Revenue, Series C  5.250  08-01-41  3,000,000  3,058,380 
 
Rhode Island 0.18%        840,310 
Town of Tiverton         
Mount Hope Bay Village, Series A  6.875  05-01-22  850,000  840,310 
 
South Carolina 3.95%        18,389,430 
Richland County International Paper         
Company AMT  6.100  04-01-23  3,325,000  3,416,670 
South Carolina State Public Service Authority         
Santee Cooper, Series A  5.500  01-01-38  6,000,000  6,515,640 
South Carolina State Public Service Authority         
Santee Cooper, Series E  5.000  01-01-40  8,000,000  8,457,120 
 
South Dakota 1.09%        5,089,300 
Educational Enhancement Funding Corp.,         
Series B  6.500  06-01-32  5,000,000  5,089,300 
 
Texas 8.58%        39,958,818 
Bexar County Health Facilities Development Corp.         
Army Retirement Residence Project,         
Prerefunded to 7-1-12  6.300  07-01-32  1,000,000  1,043,200 
Brazos River Authority         
TXU Energy Company, Series A AMT  8.250  10-01-30  2,000,000  519,320 
City of San Antonio         
Electric & Gas, Series A  5.000  02-01-34  4,330,000  4,589,021 
Dallas Waterworks & Sewer System Revenue  5.000  10-01-35  5,000,000  5,384,250 
Dallas Waterworks & Sewer System Revenue  5.000  10-01-36  5,000,000  5,344,250 

 

16  Tax-Free Bond Fund | Semiannual report  See notes to financial statements 

 


    Maturity     
Rate (%)  date  Par value  Value 
Texas (continued)         
Houston Independent School District Public         
Financing Corp. Cesar Chavez Project,         
Series A (D)(Z)  Zero  09-15-16  $570,000  $513,507 
Lower Colorado River Authority         
Prerefunded to 5-15-19  5.625  05-15-39  15,000  18,946 
Lower Colorado River Authority  5.625  05-15-39  3,985,000  4,240,319 
Lower Colorado River Authority         
Electric, Power & Light Revenues  5.000  05-15-40  5,000,000  5,068,750 
Lower Colorado River Authority         
Transmission Services Corp., Series A  5.000  05-15-41  2,500,000  2,541,400 
Mission Economic Development Corp.         
Allied Waste, Inc. Project, Series A AMT  5.200  04-01-18  1,000,000  1,007,100 
North Texas Tollway Authority         
Highway Revenue Tolls, Series K-2  6.000  01-01-38  3,250,000  3,469,700 
Texas Municipal Power Agency Revenue  5.000  09-01-40  6,000,000  6,219,055 
 
Utah 0.12%        556,250 
Salt Lake City IHC Hospital, Inc., Escrowed to         
Maturity, Series A  8.125  05-15-15  500,000  556,250 
 
Washington 0.40%        1,878,390 
Washington Public Power Supply Systems         
Electric, Power & Light Revenues, Series B  7.125  07-01-16  1,500,000  1,878,390 
 
Wyoming 0.91%        4,229,580 
Campbell County Solid Waste Facilities Revenue         
Basin Electric Power Company, Series A  5.750  07-15-39  3,000,000  3,239,610 
Sweetwater County FMC Corp. Project AMT  5.600  12-01-35  1,000,000  989,970 
 
Other 0.69%        3,208,650 
Centerline Equity Issuer Trust, Series A-4-1 (S)  5.750  05-15-15  3,000,000  3,208,650 
 
      Par value  Value 
Short-Term Investments 0.72%        $3,357,000 
(Cost $3,357,000)         
 
Repurchase Agreement 0.72%        3,357,000 
Repurchase Agreement with State Street Corp. dated 11-30-11 at     
0.010% to be repurchased at $3,357,001 on 12-1-11, collateralized     
by $3,420,000 Federal Home Loan Mortgage Corp., 0.500% due     
8-23-13 (valued at $3,424,275, including interest)      $3,357,000  3,357,000 
 
Total investments (Cost $422,949,984)† 98.58%      $458,939,341 
 
Other assets and liabilities, net 1.42%        $6,596,362 
 
Total net assets 100.00%        $465,535,703 

 

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  Semiannual report | Tax-Free Bond Fund  17 

 


Notes to Schedule of Investments

AMT Interest earned from these securities may be considered a tax preference item for purpose of the Federal Alternative Minimum Tax.

(D) Bond is insured by one of these companies:

Insurance Coverage  As a % of total investments 
Ambac Financial Group, Inc.  3.78% 
Assured Guaranty Corp.  1.62% 
Assured Guaranty Municipal Corp.  1.77% 
CIFG Holding Ltd.  0.49% 
Commonwealth Gtd.  0.73% 
Financial Guaranty Insurance Corp.  1.23% 
National Public Finance Guarantee Corp.  8.30% 


(H) Non-income producing — Issuer is in default.

(P) Variable rate obligation. The coupon rate shown represents the rate at period end.

(S) These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration.

(Z) Zero coupon bonds are issued at a discount from their principal amount in lieu of paying interest periodically.

† At 11-30-11, the aggregate cost of investment securities for federal income tax purposes was $419,782,674. Net unrealized appreciation aggregated $39,156,667, of which $44,667,213 related to appreciated investment securities and $5,510,546 related to depreciated investment securities.

The portfolio had the following sector composition as a percentage of total net assets on 11-30-11:

General Obligation Bonds  6.9% 
Revenue Bonds   
Transportation  18.8% 
Utilities  17.2% 
Water & Sewer  7.0% 
Health Care  6.5% 
Development  5.9% 
Tobacco  5.9% 
Education  5.8% 
Airport  4.5% 
Pollution  4.2% 
Facilities  1.3% 
Other Revenue  13.9% 
Short-Term Investments & Other  2.1% 

 

18  Tax-Free Bond Fund | Semiannual report  See notes to financial statements 

 


F I N A N C I A L  S T A T E M E N T S

Financial statements

Statement of assets and liabilities 11-30-11 (unaudited)

This Statement of assets and liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum offering price per share.

Assets   
Investments, at value (Cost $422,949,984)  $458,939,341 
Cash  4,756,247 
Receivable for investments sold  2,116,265 
Receivable for fund shares sold  988,824 
Interest receivable  6,459,302 
Other receivables and prepaid expenses  69,838 
 
Total assets  473,329,817 
 
Liabilities   
Payable for investments purchased  6,738,435 
Payable for fund shares repurchased  560,816 
Distributions payable  326,622 
Payable to affiliates   
Accounting and legal services fees  8,359 
Transfer agent fees  26,063 
Distribution and service fees  28,914 
Trustees’ fees  40,414 
Other liabilities and accrued expenses  64,491 
 
Total liabilities  7,794,114 
 
Net assets   
Paid-in capital  $446,883,551 
Undistributed net investment income  1,032,089 
Accumulated net realized loss on investments  (18,369,294) 
Net unrealized appreciation (depreciation) on investments  35,989,357 
 
Net assets  $465,535,703 
 
Net asset value per share   
Based on net asset values and shares outstanding — the Fund has an   
unlimited number of shares authorized with no par value   
Class A ($419,446,844 ÷ 42,320,990 shares)  $9.91 
Class B ($6,638,035 ÷ 669,725 shares)1  $9.91 
Class C ($39,450,824 ÷ 3,980,891 shares)1  $9.91 
Maximum offering price per share   
Class A (net asset value per share ÷ 95.5%)2  $10.38 


1 Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
2 On single retail sales of less than $100,000. On sales of $100,000 or more and on group sales the offering price is reduced.





See notes to financial statements  Semiannual report | Tax-Free Bond Fund  19 

 


F I N A N C I A L  S T A T E M E N T S

Statement of operations For the six-month period ended 11-30-11
(unaudited)

This 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.

Investment income   
Interest  $12,213,448 
 
Expenses   
Investment management fees (Note 4)  1,266,499 
Distribution and service fees (Note 4)  741,772 
Accounting and legal services fees (Note 4)  32,041 
Transfer agent fees (Note 4)  154,678 
Trustees’ fees (Note 4)  17,858 
State registration fees  17,945 
Printing and postage  17,884 
Professional fees  31,438 
Custodian fees  30,545 
Registration and filing fees  10,340 
Other  9,031 
 
Total expenses  2,330,031 
Less expense reductions (Note 4)  (154,612) 
 
Net expenses  2,175,419 
 
Net investment income  10,038,029 
 
Realized and unrealized gain   
Net realized gain on investments  680,753 
Change in net unrealized appreciation (depreciation) of investments  8,923,464 
 
Net realized and unrealized gain  9,604,217 
 
Increase in net assets from operations  $19,642,246 

 

20  Tax-Free Bond Fund | Semiannual report  See notes to financial statements 

 


F I N A N C I A L  S T A T E M E N T S

Statements of changes in net assets

These Statements of changes in net assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.

  Six months   
  ended  Year 
  11-30-11  ended 
  (Unaudited)  5-31-11 
 
Increase (decrease) in net assets     
 
From operations     
Net investment income  $10,038,029  $21,300,666 
Net realized gain (loss)  680,753  (3,371,671) 
Change in net unrealized appreciation (depreciation)  8,923,464  (11,228,996) 
 
Increase in net assets resulting from operations  19,642,246  6,699,999 
 
Distributions to shareholders     
From net investment income     
Class A  (9,264,126)  (19,411,609) 
Class B  (121,518)  (313,857) 
Class C  (698,124)  (1,506,294) 
 
Total distributions  (10,083,768)  (21,231,760) 
 
From Fund share transactions (Note 5)  2,641,173  (19,153,135) 
 
Total increase (decrease)  12,199,651  (33,684,896) 
 
Net assets     
Beginning of period  453,336,052  487,020,948 
 
End of period  $465,535,703  $453,336,052 
 
Undistributed net investment income  $1,032,089  $1,077,828 

 

See notes to financial statements  Semiannual report | Tax-Free Bond Fund  21 

 


Financial highlights

The Financial highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.

CLASS A SHARES Period ended  11-30-111  5-31-11  5-31-10  5-31-092  8-31-08  8-31-07  8-31-06 
 
Per share operating performance               
Net asset value, beginning               
of period  $9.70  $9.97  $9.53  $9.82  $9.95  $10.24  $10.41 
Net investment income3  0.22  0.44  0.45  0.35  0.45  0.45  0.47 
Net realized and unrealized gain               
(loss) on investments  0.21  (0.27)  0.44  (0.30)  (0.13)  (0.29)  (0.18) 
Total from investment operations  0.43  0.17  0.89  0.05  0.32  0.16  0.29 
Less distributions               
From net investment income  (0.22)  (0.44)  (0.45)  (0.34)  (0.45)  (0.45)  (0.46) 
Net asset value, end of period  $9.91  $9.70  $9.97  $9.53  $9.82  $9.95  $10.24 
Total return (%)4  4.465,6  1.79  9.565  0.666  3.255  1.555  2.875 
 
Ratios and supplemental data               
Net assets, end of period               
(in millions)  $419  $411  $440  $411  $417  $434  $459 
Ratios (as a percentage of average               
net assets):               
Expenses before reductions  0.947  0.96  0.98  1.027,8  0.96  0.95  0.96 
Interest and fees9  —  —  —  —  0.06  0.08  — 
Expenses net of fee waivers  0.877  0.96  0.98  1.027,8  1.02  1.03  0.96 
Net investment income  4.437  4.54  4.64  5.057  4.53  4.45  4.54 
Portfolio turnover (%)  14  20  28  36  36  40  54 
 


 

1 Semiannual period from 6-1-11 to 11-30-11. Unaudited.
2 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes proxy fees. The impact of this expense to the gross and net expense ratios was 0.04%.
9 Interest expenses and fees are related to the Fund’s investment in inverse floater rate investments. Under accounting rules, the Fund recognizes additional income in an amount equal to these expenses.

 

 

 

22  Tax-Free Bond Fund | Semiannual report  See notes to financial statements 

 


CLASS B SHARES Period ended  11-30-111  5-31-11  5-31-10  5-31-092  8-31-08  8-31-07  8-31-06 
 
Per share operating performance               
Net asset value, beginning               
of period  $9.70  $9.97  $9.53  $9.82  $9.95  $10.24  $10.41 
Net investment income3  0.18  0.37  0.38  0.29  0.38  0.38  0.39 
Net realized and unrealized gain               
(loss) on investments  0.21  (0.27)  0.44  (0.29)  (0.14)  (0.30)  (0.18) 
Total from investment operations  0.39  0.10  0.82  —  0.24  0.08  0.21 
Less distributions               
From net investment income  (0.18)  (0.37)  (0.38)  (0.29)  (0.37)  (0.37)  (0.38) 
Net asset value, end of period  $9.91  $9.70  $9.97  $9.53  $9.82  $9.95  $10.24 
Total return (%)4  4.075,6  1.04  8.745  0.106  2.475  0.805  2.105 
 
Ratios and supplemental data               
Net assets, end of period               
(in millions)  $7  $7  $10  $11  $13  $16  $21 
Ratios (as a percentage of average               
net assets):               
Expenses before reductions  1.697  1.71  1.74  1.777,8  1.71  1.70  1.71 
Interest and fees9  —  —  —  —  0.06  0.08  — 
Expenses net of fee waivers  1.627  1.71  1.73  1.777,8  1.77  1.78  1.71 
Net investment income  3.687  3.78  3.89  4.297  3.77  3.69  3.79 
Portfolio turnover (%)  14  20  28  36  36  40  54 
 



1 Semiannual period from 6-1-11 to 11-30-11. Unaudited.
2 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes proxy fees. The impact of this expense to the gross and net expense ratios was 0.04%.
9 Interest expenses and fees are related to the Fund’s investment in inverse floater rate investments. Under accounting rules, the Fund recognizes additional income in an amount equal to these expenses.

 

 

 

 

 

 

See notes to financial statements  Semiannual report | Tax-Free Bond Fund  23 

 
CLASS C SHARES Period ended  11-30-111  5-31-11  5-31-10  5-31-092  8-31-08  8-31-07  8-31-06 
 
Per share operating performance               
Net asset value, beginning               
of period  $9.70  $9.97  $9.53  $9.82  $9.95  $10.24  $10.41 
Net investment income3  0.18  0.37  0.38  0.29  0.38  0.37  0.39 
Net realized and unrealized gain               
(loss) on investments  0.21  (0.27)  0.44  (0.29)  (0.14)  (0.29)  (0.18) 
Total from               
investment operations  0.39  0.10  0.82  —  0.24  0.08  0.21 
Less distributions               
From net investment income  (0.18)  (0.37)  (0.38)  (0.29)  (0.37)  (0.37)  (0.38) 
Net asset value, end of period  $9.91  $9.70  $9.97  $9.53  $9.82  $9.95  $10.24 
Total return (%)4  4.075,6  1.04  8.745  0.106  2.475  0.805  2.105 
 
Ratios and supplemental data               
Net assets, end of period               
(in millions)  $39  $36  $38  $27  $13  $7  $7 
Ratios (as a percentage of average               
net assets):               
Expenses before reductions  1.697  1.71  1.73  1.777,8  1.71  1.70  1.71 
Interest and fees9  —  —  —  —  0.06  0.08  — 
Expenses net of fee waivers  1.627  1.71  1.73  1.777,8  1.77  1.78  1.71 
Net investment income  3.687  3.78  3.88  4.317  3.78  3.70  3.79 
Portfolio turnover (%)  14  20  28  36  36  40  54 
 



1 Semiannual period from 6-1-11 to 11-30-11. Unaudited.
2 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes proxy fees. The impact of this expense to the gross and net expense ratios was 0.04%.
9 Interest expenses and fees are related to the Fund’s investment in inverse floater rate investments. Under accounting rules, the Fund recognizes additional income in an amount equal to these expenses.

 

 

 

 

 

 

 

24  Tax-Free Bond Fund | Semiannual report  See notes to financial statements 

 

Notes to financial statements
(unaudited)

Note 1 — Organization

John Hancock Tax-Free Bond Fund (the Fund) is a diversified series of John Hancock Municipal Securities Trust (the Trust), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek as high a level of interest income exempt from federal income tax as consistent with preservation of capital.

The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of assets and liabilities. Class A, Class B and Class C shares are offered to all investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.

Note 2 — Significant accounting policies

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:

Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. Factors used in determining value may include market or issuer specific events, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities.

As of November 30, 2011, all investments are categorized as Level 2 under the hierarchy described above. Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. During the six months ended November 30, 2011, there were no significant transfers into or out of Level 1, Level 2 or Level 3 assets.

In order to value the securities, the Fund uses the following valuation techniques. Debt obligations are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, taking into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Certain securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost. Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as

Semiannual report | Tax-Free Bond Fund  25 

 


determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees.

Repurchase agreements. The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement, it receives collateral which is held in a segregated account by the Fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline.

Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.

Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to the Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.

In addition, the Fund and other affiliated funds have entered into an agreement with Citibank N.A. which enables them to participate in a $100 million unsecured committed line of credit. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis and is reflected in other expenses on the Statement of operations. For the six months ended November 30, 2011, the Fund had no borrowings under the line of credit.

Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.

Class allocations. Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the net assets of the class. Class-specific expenses, such as distribution and service fees, if any, and transfer agent fees, are calculated daily for each class, based on the net asset value of the class and the applicable specific expense rates.

Federal income taxes. The Fund intends to continue to qualify 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 that is distributed to shareholders. Therefore, no federal income tax provision is required.

For federal income tax purposes, the Fund has a capital loss carryforward of $16,677,353 available to offset future net realized capital gains as of May 31, 2011. The following table details the capital loss carryforward available as of May 31, 2011:

26  Tax-Free Bond Fund | Semiannual report 

 


CAPITAL LOSS CARRYFORWARD EXPIRING AT MAY 31       
2012  2015  2016  2017  2018  2019 
$6,837,618  $257,214  $209,653  $5,383,181  $3,499,079  $490,608 

 

Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

As of May 31, 2011, the Fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.

Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares dividends daily and pays them monthly. Capital gain distributions, if any, are distributed annually.

Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and in the same amount, except for the effect of class level expenses that may be applied differently to each class.

Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America.

Capital accounts within the financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to expiration of capital loss carryforward, accretion on debt securities, distributions payable and straddle loss deferrals.

New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.

Note 3 — Guarantees and indemnifications

Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.

Semiannual report | Tax-Free Bond Fund  27 

 


Note 4 — Fees and transactions with affiliates

John Hancock Advisers, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).

Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.550% of the first $500,000,000 of the Fund’s average daily net assets, (b) 0.500% of the next $500,000,000, (c) 0.450% of the next $2,000,000,000 and (d) 0.425% of the Fund’s average daily net assets in excess of $3,000,000,000. The Adviser has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Adviser. The Fund is not responsible for payment of the subadvisory fees.

The investment management fees including the impact of the waivers and reimbursements described above incurred for the six months ended November 30, 2011 were equivalent to an annual effective rate of 0.55% of the Fund’s average daily net assets.

Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to the Fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. These accounting and legal services fees incurred for the six months ended November 30, 2011 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.

Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.

CLASS  12b-1 FEE 
Class A  0.25% 
Class B  1.00% 
Class C  1.00% 

 

Effective August 1, 2011, the Distributor has contractually agreed to limit distribution and service fees to 0.15%, 0.90% and 0.90% of the average daily net assets of Class A, Class B and Class C shares, respectively, until at least September 30, 2012.

Accordingly, these fee limitations amounted to $139,601, $2,172 and $12,839 for Class A, Class B and Class C shares, respectively, for the six months ended November 30, 2011.

Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $212,272 for the six months ended November 30, 2011. Of this amount, $7,991 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $158,607 was paid as sales commissions to broker-dealers and $45,674 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Adviser.

28  Tax-Free Bond Fund | Semiannual report 

 


Class B and Class C shares are subject to contingent deferred sales charges (CDSCs). Class B shares that are redeemed within six years of purchase are subject to CDSCs, 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. Class C shares that are redeemed within one year of purchase are subject to a 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended November 30, 2011, CDSCs received by the Distributor amounted to $8,909 and $834 for Class B and Class C shares, respectively.

Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. The transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain fees that Signature Services receives in connection with retirement and small accounts. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. Within each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.

Class level expenses. Class level expenses for the six months ended November 30, 2011 were:

  DISTRIBUTION AND  TRANSFER 
CLASS  SERVICE FEES  AGENT FEES 
Class A  $520,318  $139,793 
Class B  32,880  2,206 
Class C  188,574  12,679 
Total  $741,772  $154,678 

 

Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the fund until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within Other receivables and prepaid expenses and Payable to affiliates — Trustees’ fees, respectively, in the accompanying Statement of assets and liabilities.

Semiannual report | Tax-Free Bond Fund  29 

 


Note 5 — Fund share transactions

Transactions in Fund shares for the six months ended November 30, 2011 and for the year ended May 31, 2011 were as follows:

  Six months ended 11-30-11  Year ended 5-31-11 
  Shares  Amount  Shares  Amount 
Class A shares         
Sold  2,115,562  $20,967,784  4,057,513  $39,893,917 
Distributions reinvested  733,938  7,246,787  1,464,515  14,304,570 
Repurchased  (2,828,162)  (27,933,267)  (7,329,786)  (70,678,683) 
 
Net increase (decrease)  21,338  $281,304  (1,807,758)  ($16,480,196) 
 
Class B shares         
Sold  94,201  $932,148  160,206  $1,584,707 
Distributions reinvested  9,044  89,292  21,135  206,637 
Repurchased  (125,478)  (1,234,669)  (448,184)  (4,336,862) 
 
Net decrease  (22,233)  ($213,229)  (266,843)  ($2,545,518) 
 
Class C shares         
Sold  507,671  $5,020,977  1,448,783  $14,303,287 
Distributions reinvested  50,587  499,409  93,740  914,321 
Repurchased  (299,190)  (2,947,288)  (1,606,411)  (15,345,029) 
 
Net increase (decrease)  259,068  $2,573,098  (63,888)  ($127,421) 
 
Net increase (decrease)  258,173  $2,641,173  (2,138,489)  ($19,153,135) 

 

Note 6 — Purchase and sale of securities

Purchases and sales of securities, other than short-term securities, aggregated $63,514,013 and $63,785,730, respectively, for the six months ended November 30, 2011.

30  Tax-Free Bond Fund | Semiannual report 

 


Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement

The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock Tax-Free Bond Fund (the Fund), a series of John Hancock Municipal Securities Trust (the Trust), met in-person on May 1–3 and June 5–7, 2011 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) among the Adviser, Manulife Asset Management (US) LLC (the Subadviser) and the Trust on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.

Activities and composition of the Board

The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are not employed by or have any significant business or professional relationship with the Adviser or the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have hired independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committee A is a standing committee of the Board that is composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee A oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated an Independent Trustee as Vice Chairperson to serve in the absence of the Chairperson. The Board also designates working groups or ad hoc committees as it deems appropriate.

The approval process

Under the 1940 Act, the Board is required to consider the continuation of the Agreements each year. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. The Board reviews reports of the Adviser at least quarterly, which include Fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.

Prior to the May 1–3, 2011 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a Category and a subset of the Category referred to as the Peer Group, each as determined by Morningstar, and with the Fund’s benchmark index. The Category includes all funds that invest similarly to the way the Fund invests. The Peer Group represents funds of similar size, excluding passively managed funds and funds-of-funds. The Fund’s benchmark index is an unmanaged index of securities that is provided as a basis for comparison with the Fund’s performance. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser or Subadviser or their affiliates that result from being the Adviser or Subadviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, having similar investment mandates, as well as the performance of those other clients and a

Semiannual report | Tax-Free Bond Fund  31 

 


comparison of the services provided to those other clients and the services provided to the Fund; (c) the impact of economies of scale; (d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.

At an in-person meeting held on May 1–3, 2011, the Board reviewed materials relevant to its consideration of the Agreements. As a result of the discussions that occurred during the May 1–3, 2011 meeting, the Board asked the Adviser for additional information on certain matters. The Adviser provided the additional information and the Board also considered this information as part of its consideration of the Agreements.

At an in-person meeting held on June 5–7, 2011, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement among the Fund, the Adviser and the Subadviser, each for an additional one-year term. The Board considered what it believed were key relevant factors that are described under separate headings presented below.

The Board also considered other matters important to the approval process, such as payments made to and by the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser and their affiliates from their relationship with the Fund and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review.

Nature, extent and quality of services

The Board reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund.

The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.

The Board considered the Subadviser’s history and experience providing investment services to the Fund. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and its affiliate’s transfer agency operations and considered the Adviser’s and its affiliate’s policies and procedures for assuring compliance with applicable laws and regulations.

32  Tax-Free Bond Fund | Semiannual report 

 


The Board also received information about the nature, extent and quality of services provided by and fee rates charged by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients having similar investment mandates, the services provided to those other clients as compared to the services provided to the Fund, the performance of those other clients as compared to the performance by the Fund and other factors relating to those other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and the services they provide to other clients. For other clients that are not mutual funds, the differences in services relate to the greater share purchase and redemption activity in a mutual fund, the generally higher turnover of mutual fund portfolio holdings, the more burdensome regulatory and legal obligations of mutual funds and the higher marketing costs for mutual funds. When compared to all clients including mutual funds, the Adviser has greater oversight and supervisory responsibility for the Fund and undertakes greater entrepreneurial risk as the sponsor of the Fund.

Fund performance

The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also examined materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category as well as its benchmark index (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category. The Board also considered updated performance information provided by the Adviser at its May and June 2011 meetings. The Board regularly reviews the performance of the Fund throughout the year and attaches more importance to performance over relatively longer periods of time, typically three to five years.

Set forth below is the performance of the Fund over certain time periods ended December 31, 2010 and that of its Category and benchmark index over the same periods:

  1 YEAR  3 YEAR  5 YEAR  10 YEAR 
Tax-Free Bond Fund Class A  1.20%  3.08%  3.22%  3.93% 
Muni National Long Category Average  1.89%  2.95%  3.06%  4.09% 
BarCap Municipal TR Index  2.38%  4.08%  4.09%  4.83% 

 

The Board noted that the Fund had outperformed its Category’s average performance over certain periods shown and had underperformed its Category’s average performance for other periods shown. The Board noted that the Fund had underperformed its benchmark index’s performance over a sustained period. The Board was aware that the Fund’s investment style of investing in securities with shorter duration and higher credit quality in relation to peers may at times contribute to its underperformance. The Board concluded that the steps the Adviser and Subadviser were taking had not yet resulted in outperformance and that the Board would continue to monitor Fund performance for improvement over time.

Expenses and fees

The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other clients with similar investment mandates, including separately managed institutional accounts.

Semiannual report | Tax-Free Bond Fund  33 

 


In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration fees and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio). The Board considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group median. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Fund and the Fund complex.

The Board noted that the Fund’s advisory fee ratio was seven basis points above the Peer Group median advisory fee ratio. The Board noted the following information about the Fund’s Gross and Net Expense Ratios for Class A shares contained in the Fund’s financial statements in relation with the Fund’s Peer Group median provided by Morningstar in April 2011:

  FUND (CLASS A)  PEER GROUP MEDIAN 
Advisory Fee Ratio  0.55%  0.48% 
Gross Expense Ratio  0.96%  0.89% 
Net Expense Ratio  0.96%  0.81% 

 

The Board viewed favorably the new contractual agreement to decrease Rule 12b-1 fees from 0.25% to 0.15% for Class A shares from August 1, 2011 until September 30, 2012. The Board favorably considered the impact of this contractual agreement towards ultimately lowering the Fund’s Gross Expense Ratio. The Board also received and considered information relating to the Fund’s Gross Expense Ratio and Net Expense Ratio that reflected the new methodology for calculating transfer agent fees that was approved by the Trustees at the June 2010 meeting.

The Board received and reviewed statements relating to the Adviser’s financial condition and was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services under the Advisory Agreement, as well as from other relationships between the Fund and the Adviser and its affiliates. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2010 compared to available aggregate profitability data provided for the year ended December 31, 2009. The Board reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products.

The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparability of profitability is somewhat limited.

The Board considered the profitability information with respect to the Subadviser, which is affiliated with the Adviser. In addition, as noted above, the Board considered the assumptions and methodology for allocating expenses in the Subadviser’s profitability analysis.

34  Tax-Free Bond Fund | Semiannual report 

 


Economies of scale

The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase. Possible changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale (e.g., through the use of breakpoints in the advisory fee at higher asset levels) are periodically discussed. The Board also considered the Adviser’s overall operations and its ongoing investment in its business in order to expand the scale of, and improve the quality of, its operations that benefit the Fund.

The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual funds, but rather are incurred across a variety of products and services. To ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the contractual advisory fee rate.

Other benefits to the Adviser and the Subadviser

The Board understands that the Adviser, the Subadviser or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third-party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.

Board determination

The Board unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term. The Subadvisory Agreement among the Fund, the Adviser and the Subadviser was also approved for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board was satisfied that the terms of the Agreements, including the advisory and subadvisory fee rates, were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or any group of factors as all-important or controlling, but considered all factors together. Different Trustees may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by independent legal counsel in making this determination. The Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years and on their ongoing regular review of Fund performance and operations throughout the year.

Semiannual report | Tax-Free Bond Fund  35 

 


More information

Trustees  Investment adviser 
Steven R. Pruchansky, Chairman  John Hancock Advisers, LLC 
James F. Carlin*   
William H. Cunningham  Subadviser 
Deborah C. Jackson  John Hancock Asset Management a division of 
Charles L. Ladner,* Vice Chairman#  Manulife Asset Management (US) LLC 
Stanley Martin*  
Hugh McHaffie† Principal distributor 
Dr. John A. Moore,* Vice Chairman^ John Hancock Funds, LLC 
Patti McGill Peterson*  
Gregory A. Russo Custodian 
John G. Vrysen† State Street Bank and Trust Company 
   
Officers Transfer agent 
Keith F. Hartstein John Hancock Signature Services, Inc. 
President and Chief Executive Officer  
  Legal counsel 
Andrew G. Arnott K&L Gates LLP 
Senior Vice President and Chief Operating Officer   
 
Thomas M. Kinzler   
Secretary and Chief Legal Officer   
 
Francis V. Knox, Jr.   
Chief Compliance Officer   
 
Charles A. Rizzo   
Chief Financial Officer   
 
Salvatore Schiavone   
Treasurer   
 
*Member of the Audit Committee   
†Non-Independent Trustee   
#Retired, effective 12-31-11   
^Effective 1-1-12   

 

The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.

The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.

We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site at www.jhfunds.com or by calling 1-800-225-5291.

You can also contact us:     
1-800-225-5291  Regular mail:  Express mail: 
jhfunds.com  John Hancock Signature Services, Inc.  John Hancock Signature Services, Inc. 
  P.O. Box 55913  Mutual Fund Image Operations 
  Boston, MA 02205-5913  30 Dan Road 
    Canton, MA 02021 

 

36  Tax-Free Bond Fund | Semiannual report 

 



1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com

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This report is for the information of the shareholders of John Hancock Tax-Free Bond Fund.  520SA 11/11 
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus.  1/12 

 




A look at performance

Total returns for the period ended November 30, 2011

                  SEC 30-day 
  Average annual total returns (%)  Cumulative total returns (%)    SEC 30-day  yield (%) 
  with maximum sales charge  with maximum sales charge    yield (%)  unsubsidized1 
                as of  as of 
  1-year  5-year  10-year  6-months  1-year  5-year  10-year  11-30-11  11-30-11 
Class A  0.50  2.13  4.19  –0.17  0.50  11.14  50.82  4.13  4.03 
Class B  –0.49  1.97  4.05  –0.84  –0.49  10.22  48.77  3.58  3.48 
Class C  3.51  2.30  3.89  3.16  3.51  12.04  46.53  3.58  3.48 

 

Performance figures assume all distributions are reinvested. Figures reflect maximum sales charges on Class A shares of 4.5% and the applicable contingent deferred sales charge (CDSC) on Class B shares and Class C shares. The returns for Class C shares have been adjusted to reflect the elimination of the front-end sales charge, effective 7-15-04. The Class B shares’ CDSC declines annually between years 1 to 6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC.

The expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectus for the Fund and may differ from those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least until 9-30-12 for Class A, Class B and Class C shares. Had the fee waivers and expense limitations not been in place gross expenses would apply. The expense ratios are as follows:

  Class A  Class B  Class C 
Net (%)  0.88  1.63  1.63 
Gross (%)  0.98  1.73  1.73 

 

The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For current to the most recent month end performance data, please call 1–800–225–5291 or visit the Fund’s Web site at www.jhfunds.com.

The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on the redemption of fund shares. 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. The Fund’s performance results reflect any applicable fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.

6  High Yield Municipal Bond Fund | Semiannual report 

 



    Without  With maximum   
  Start date  sales charge  sales charge  Index 
Class B2  11-30-01  $14,877  $14,877  $16,411 
Class C2  11-30-01  14,653  14,653  16,411 

 

Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.

The Class C shares investment with maximum sales charge has been adjusted to reflect the elimination of the front-end sales charge, effective 7-15-04.

Barclays Capital Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.

It is not possible to invest directly in an index. Index figures do not reflect sales charges or direct expenses, which would have resulted in lower values if they did.

1 Unsubsidized yield reflects what the yield would have been without the effect of reimbursements and waivers.

2 No contingent deferred sales charge is applicable.

Semiannual report | High Yield Municipal Bond Fund  7 

 


Your expenses

These examples are intended to help you understand your ongoing operating expenses.

Understanding fund expenses

As a shareholder of the Fund, you incur two types of costs:

▪ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.

▪ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.

We are going to present only your ongoing operating expenses here.

Actual expenses/actual returns

This example is intended to provide information about the Fund’s actual ongoing operating expenses, and is based on the Fund’s actual return. It assumes an account value of $1,000.00 on June 1, 2011 with the same investment held until November 30, 2011.

  Account value  Ending value  Expenses paid during 
  on 6-1-11  on 11-30-11  period ended 11-30-111 
Class A  $1,000.00  $1,045.50  $4.65 
Class B  1,000.00  1,041.60  8.47 
Class C  1,000.00  1,041.60  8.47 

 

Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at November 30, 2011, by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:

 

 
8  High Yield Municipal Bond Fund | Semiannual report 

 


Hypothetical example for comparison purposes

This table allows you to compare the Fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not the Fund’s actual return). It assumes an account value of $1,000.00 on June 1, 2011, with the same investment held until November 30, 2011. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.

  Account value  Ending value  Expenses paid during 
  on 6-1-11  on 11-30-11  period ended 11-30-111 
Class A  $1,000.00  $1,020.50  $4.60 
Class B  1,000.00  1,016.70  8.37 
Class C  1,000.00  1,016.70  8.37 

 

Remember, these examples do not include any transaction costs, therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.

1 Expenses are equal to the Fund’s annualized expense ratio of 0.91%, 1.66% and 1.66% for Class A, Class B and Class C shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period).

Semiannual report | High Yield Municipal Bond Fund  9 

 


Portfolio summary

Top 10 Holdings (18.2% of Net Assets on 11-30-11)1,2   
Atlanta Water & Waste Water Revenue, 5.000%, 11-1-19  4.1% 
Foothill Eastern Transportation Corridor Agency, Zero Coupon, 1-1-18  2.8% 
Port Authority of New York & New Jersey, 6.000%, 12-1-42  1.8% 
Golden State Tobacco Securitization Corp., Series A-1, 4.500%, 6-1-27  1.6% 
Pennsylvania Turnpike Commission, Zero Coupon, 12-1-38  1.5% 
Tennessee Energy Acquisition Corp., 5.000%, 2-1-25  1.4% 
Buckeye Ohio Tobacco Settlement Financing Authority, Series A-2, 5.875%, 6-1-30  1.3% 
Chautauqua County Industrial Development Agency, 5.875%, 4-1-42  1.3% 
North Texas Tollway Authority, Series A, 6.250%, 1-1-39  1.2% 
Maricopa County Industrial Development Authority, Series A, 6.000%, 7-1-39  1.2% 

 

Sector Composition1,3
General Obligation Bonds  1.6%  Water & Sewer  6.0% 
  
Revenue Bonds    Airport  6.0% 
 
Development  20.5%  Tobacco  4.9% 
  
Pollution  10.7%  Education  3.2% 
  
Transportation  10.4%  Facilities  0.6% 
  
Health Care  9.9%  Other Revenue  15.7% 
  
Utilities  7.0%  Short-Term Investments & Other  3.5% 
  

 

Quality Composition1,4   
AAA  4.0% 
AA  6.7% 
A  26.3% 
BBB  32.2% 
BB  4.1% 
B  10.5% 
CCC and Below  2.3% 
Not Rated  10.4% 
Short-Term Investments & Other  3.5% 

 


1 As a percentage of net assets on 11-30-11.

2 Cash and cash equivalents not included.

3 Investments focused on one sector may fluctuate more widely than investments across multiple sectors. Because the Fund may focus on particular sectors, its performance may depend on the performance of those sectors.

4 Ratings are from Moody’s Investors Service, Inc. If not available, we have used Standard & Poor’s Corporation ratings. In the absence of ratings from these agencies, we have used Fitch, Inc. ratings. “Not Rated” securities are those with no ratings available from these agencies. All ratings are as of 11-30-11 and do not reflect subsequent downgrades or upgrades, if any.

10  High Yield Municipal Bond Fund | Semiannual report 

 


Fund’s investments

As of 11-30-11 (unaudited)

    Maturity     
  Rate (%)  date  Par value  Value 
Municipal Bonds 96.51%        $251,778,378 
(Cost $235,075,698)         
 
Alabama 2.37%        6,170,240 
Birmingham Special Care Facilities         
Financing Authority         
Childrens Hospital  6.125  06-01-34  $2,000,000  2,116,260 
Courtland Industrial Development Board         
International Paper Company Project,         
Series A AMT  5.200  06-01-25  2,000,000  1,939,640 
Selma Industrial Development Board         
Gulf Opportunity Zone, Series A  6.250  11-01-33  2,000,000  2,114,340 
 
Arizona 2.46%        6,418,310 
Maricopa County Industrial         
Development Authority         
Catholic Healthcare West, Series A  6.000  07-01-39  3,000,000  3,129,630 
Maricopa County Pollution Control Corp.         
El Paso Electric Company Project, Series B  7.250  04-01-40  2,000,000  2,282,560 
Maricopa County Pollution Control Corp.         
Public Service Palo Verde, Series A  6.250  01-01-38  1,000,000  1,006,120 
 
California 8.14%        21,244,234 
California State Public Works Board         
Trustees California State University, Series D  6.250  04-01-34  1,000,000  1,072,090 
California Statewide Communities         
Development Authority         
Thomas Jefferson School of Law, Series A (S)  7.250  10-01-38  1,000,000  1,012,450 
Foothill Eastern Transportation Corridor Agency         
Highway Revenue Tolls (Z)  Zero  01-15-36  4,000,000  770,480 
Foothill Eastern Transportation Corridor Agency         
Highway Revenue Tolls, Escrowed to         
Maturity, Series A (Z)  Zero  01-01-18  7,950,000  7,193,399 
Golden State Tobacco Securitization Corp.,         
Series A-1  4.500  06-01-27  5,405,000  4,295,786 
M-S-R Energy Authority         
Natural Gas Revenue, Series A  6.500  11-01-39  1,500,000  1,644,255 
M-S-R Energy Authority         
Natural Gas Revenue, Series B  7.000  11-01-34  1,500,000  1,737,210 
San Bernardino County         
Medical Center Financial Project, Series B (D)  5.500  08-01-17  1,975,000  2,056,469 
Southern California Public Power Authority         
Natural Gas Revenue, Series A  5.250  11-01-26  1,500,000  1,462,095 

 

See notes to financial statements  Semiannual report | High Yield Municipal Bond Fund  11 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Colorado 2.46%        $6,415,218 
Colorado Health Facilities Authority         
Christian Living Community Project, Series A  5.750  01-01-26  $1,000,000  976,860 
Colorado Health Facilities Authority         
Christian Living Community Project, Series A  9.000  01-01-34  750,000  788,483 
Public Authority for Colorado Energy         
Natural Gas Revenue  6.250  11-15-28  2,500,000  2,620,475 
Regional Transportation District         
Denver Transit Partners  6.000  01-15-41  2,000,000  2,029,400 
 
Connecticut 0.60%        1,557,195 
Hamden Facility Revenue         
Whitney Center Project, Series A  7.750  01-01-43  1,500,000  1,557,195 
 
Delaware 0.39%        1,005,160 
County of Sussex         
NRG Energy, Inc. Indian River Power LLC  6.000  10-01-40  1,000,000  1,005,160 
 
District of Columbia 1.53%        3,996,674 
Metropolitan Washington DC         
Airports Authority         
Highway Revenue Tolls, Metrorail, Series A (Z)  Zero  10-01-37  4,000,000  766,160 
Metropolitan Washington DC         
Airports Authority         
Highway Revenue Tolls, Series B (Z)  Zero  10-01-39  4,600,000  771,144 
Metropolitan Washington DC         
Airports Authority         
Highway Revenue Tolls, Series C (Zero         
Coupon Steps up to 6.500% on 10-1-16) (D)(Z)  Zero  10-01-41  3,000,000  2,459,370 
 
Florida 6.96%        18,161,449 
Bonnet Creek Resort Community         
Development District  7.250  05-01-18  1,445,000  1,422,415 
Bonnet Creek Resort Community         
Development District  7.375  05-01-34  1,055,000  1,006,681 
Capital Trust Agency Seminole         
Tribe Convention,         
Prerefunded to 10-1-12, Series A (S)  8.950  10-01-33  1,000,000  1,091,600 
Crossings at Fleming Island Community         
Development District         
Recreation Facilities Improvements, Series C  7.100  05-01-30  1,000,000  933,930 
Heritage Harbour North Community         
Development District  6.375  05-01-38  1,245,000  1,056,084 
Live Oak Community Development District         
No: 1, Series A  6.300  05-01-34  1,000,000  1,023,830 
Miami-Dade County Aviation Revenue         
Miami International Airport, Series A AMT (D)  5.000  10-01-38  2,000,000  1,876,400 
Orlando Urban Community         
Development District         
Electric Light & Power Improvements  6.000  05-01-20  550,000  516,412 
Orlando Urban Community         
Development District         
Electric Light & Power Improvements  6.250  05-01-34  1,000,000  883,910 
Pensacola Airport Revenue AMT  6.000  10-01-28  2,000,000  2,140,719 
Poinciana Community Development District         
Sewer Improvements, Series A  7.125  05-01-31  1,160,000  1,160,046 

 

12  High Yield Municipal Bond Fund | Semiannual report  See notes to financial statements 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Florida (continued)         
South Kendall Community Development         
District, Series A  5.900  05-01-35  $915,000  $873,669 
Tolomato Community Development District  6.650  05-01-40  1,000,000  519,590 
Tolomato Community Development District         
No: 8  6.450  05-01-23  1,000,000  569,700 
Village Community Development District No 8  6.125  05-01-39  970,000  978,497 
Village Community Development District No 8  6.375  05-01-38  810,000  835,928 
Village Community Development District No: 5,         
Series A  6.500  05-01-33  1,235,000  1,272,038 
 
Georgia 7.18%        18,738,711 
Atlanta Tax Allocation         
Eastside Project, Series B  5.600  01-01-30  1,500,000  1,496,535 
Atlanta Water & Waste Water Revenue (D)  5.000  11-01-19  10,000,000  10,729,000 
Atlanta Water & Waste Water Revenue,         
Series A  6.000  11-01-28  1,000,000  1,134,570 
Clayton County Development Authority         
Delta Air Lines Series B AMT  9.000  06-01-35  1,000,000  1,075,620 
Gainesville & Hall County Development Authority         
ACTS Retirement-Life Communities, Inc.,         
Series A-2  6.625  11-15-39  1,100,000  1,155,011 
Marietta Development Authority         
Life University, Inc. Project  7.000  06-15-30  1,500,000  1,506,165 
Municipal Electric Authority of Georgia         
Electric, Power & Light Revenues, Series D  5.500  01-01-26  1,500,000  1,641,810 
 
Guam 0.79%        2,061,300 
Guam Government, Series A  7.000  11-15-39  2,000,000  2,061,300 
 
Hawaii 0.44%        1,140,050 
Hawaii State Department of Budget & Finance         
15 Craigside Place Project, Series A  9.000  11-15-44  1,000,000  1,140,050 
 
Illinois 3.23%        8,432,638 
Chicago Tax Increment Revenue         
Pilsen Redevelopment, Series B  6.750  06-01-22  2,000,000  2,039,020 
Cook County         
Navistar International, Recovery Zone Facility  6.500  10-15-40  1,000,000  1,031,710 
Illinois Finance Authority         
Central Illinois, Series C1 (P)  5.950  08-15-26  1,000,000  999,890 
Illinois Finance Authority         
Navistar International Recover Facility  6.500  10-15-40  2,100,000  2,162,958 
Illinois Finance Authority         
Rush University Medical Center, Series A  7.250  11-01-38  2,000,000  2,199,060 
 
Indiana 0.74%        1,928,715 
Crown Point Economic Development Revenue         
Wittenberg Village Project, Series A  8.000  11-15-39  1,250,000  1,287,638 
St. Joseph County         
Holy Cross Village at Notre Dame Project,         
Series A  6.000  05-15-26  230,000  218,284 
St. Joseph County         
Holy Cross Village at Notre Dame Project,         
Series A  6.000  05-15-38  475,000  422,793 

 

See notes to financial statements  Semiannual report | High Yield Municipal Bond Fund  13 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Iowa 0.39%        $1,022,640 
Altoona Urban Renewal Tax         
Increment Revenue  6.000  06-01-34  $1,000,000  1,022,640 
 
Kansas 1.03%        2,679,705 
Wyandotte County-Kansas City         
Unified Government         
Sales Tax Revenue, Series B (Z)  Zero  06-01-21  4,500,000  2,679,705 
 
Kentucky 1.21%        3,163,560 
Kentucky Economic Development         
Finance Authority         
Owensboro Medical Health System, Series A  6.500  03-01-45  2,000,000  2,106,640 
Owen County Kentucky Waterworks         
System Revenue         
Amern Water Company Project, Series A  6.250  06-01-39  1,000,000  1,056,920 
 
Louisiana 2.94%        7,663,895 
Louisiana Local Government         
Environmental Facilities         
Westlake Chemical Corp. Projects  6.750  11-01-32  3,000,000  3,127,320 
Louisiana Local Government         
Environmental Facilities         
Westlake Chemical Corp., Series A-2  6.500  11-01-35  2,000,000  2,087,100 
St. John Baptist Parish Revenue         
Marathon Oil Corp., Series A  5.125  06-01-37  2,500,000  2,449,475 
 
Maryland 1.30%        3,390,490 
Baltimore County         
East Baltimore Research Park, Series A  7.000  09-01-38  1,000,000  1,026,290 
Maryland Economic Development Corp.         
Potomac Electric Power Company  6.200  09-01-22  2,000,000  2,364,200 
 
Massachusetts 2.70%        7,032,745 
Massachusetts Development Finance Agency         
Dominion Energy Brayton Point AMT (P)  5.000  02-01-36  1,000,000  982,040 
Massachusetts Development Finance Agency         
Ogden Haverhill Project, Series B AMT  5.500  12-01-19  1,700,000  1,701,360 
Massachusetts Health & Educational         
Facilities Authority Civic Investments,         
Prerefunded to 12-15-12, Series B  9.200  12-15-31  2,500,000  2,773,250 
Massachusetts State College Building Authority         
College & University Revenue, Series A  5.500  05-01-49  1,500,000  1,576,095 
 
Michigan 0.43%        1,111,230 
Michigan Strategic Fund Dow Chemical         
Company, Series A-1 AMT (P)  6.750  12-01-28  1,000,000  1,111,230 
 
Minnesota 0.77%        2,010,400 
North Oak Senior Housing Revenue         
Presbyterian Homes North Oaks  6.000  10-01-27  1,000,000  1,004,780 
St. Paul Housing & Redevelopment Authority         
Carondelet Village Project, Series A  6.000  08-01-42  1,000,000  1,005,620 
 
Mississippi 0.39%        1,004,800 
Mississippi Business Finance Corp.         
System Energy Resources, Inc. Project  5.875  04-01-22  1,000,000  1,004,800 

 

14  High Yield Municipal Bond Fund | Semiannual report  See notes to financial statements 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Missouri 0.33%        $863,904 
St. Louis Airport Revenue Lambert St.         
Louis International Airport, Series A-1  6.625  07-01-34  $800,000  863,904 
 
Nevada 0.32%        837,560 
Sparks Tourism Improvement District No: 1         
Sales Tax Revenue, Series A (S)  6.750  06-15-28  1,000,000  837,560 
 
New Hampshire 0.97%        2,536,560 
New Hampshire Business Finance Authority         
Public Service Company Project, Series B         
AMT (D)  4.750  05-01-21  1,500,000  1,527,210 
New Hampshire Business Finance Authority,         
Series A AMT The United Illuminating         
Company, Series A AMT (P)  6.875  12-01-29  1,000,000  1,009,350 
 
New Jersey 3.01%        7,848,500 
New Jersey Economic Development Authority         
Continental Airlines, Inc. Project AMT  6.250  09-15-29  1,300,000  1,225,406 
New Jersey Economic Development Authority         
Continental Airlines, Inc. Project AMT  6.625  09-15-12  2,460,000  2,498,376 
New Jersey State Educational         
Facilities Authority         
University of Medical and Dentistry, Series B  7.500  12-01-32  1,000,000  1,167,060 
Tobacco Settlement Financing Corp.         
Prerefunded to 6-1-13  6.250  06-01-43  1,000,000  1,087,020 
Tobacco Settlement Financing Corp., Series 1A  4.500  06-01-23  2,070,000  1,870,638 
 
New York 10.86%        28,334,769 
Brooklyn Arena Local Development Corp.         
Barclays Center Project  6.375  07-15-43  2,500,000  2,587,475 
Chautauqua County Industrial         
Development Agency         
Dunkirk Power Project  5.875  04-01-42  3,350,000  3,300,722 
Hudson Yards Infrastructure Corp.  5.750  02-15-47  1,000,000  1,057,750 
Long Island Power Authority         
Electric, Power & Light Revenues, Series A  5.750  04-01-39  2,500,000  2,740,675 
Long Island Power Authority         
Electric, Power & Light Revenues, Series C (D)  5.250  09-01-29  1,475,000  1,641,793 
New York City Industrial Development Agency         
American Airlines-JFK Airport AMT (H)  7.500  08-01-16  2,000,000  1,720,000 
New York City Industrial Development Agency         
Liberty 7 World Trade Center, Series A  6.250  03-01-15  1,500,000  1,503,060 
New York Liberty Development Corp.  5.000  11-15-44  2,000,000  1,987,160 
New York Liberty Development Corp.  5.625  07-15-47  2,100,000  2,117,556 
New York Liberty Development Corp.         
Goldman Sachs Headquarters  5.250  10-01-35  2,500,000  2,520,200 
New York State Dormitory Authority  5.000  05-01-41  2,000,000  1,981,660 
Port Authority of New York & New Jersey         
5th Installment Special Project AMT  6.750  10-01-19  555,000  515,617 
Port Authority of New York & New Jersey         
JFK International Airport Terminal  6.000  12-01-42  4,460,000  4,661,101 
 
North Carolina 0.46%        1,189,920 
North Carolina Eastern Municipal         
Power Agency         
Electric, Power & Light Revenues, Series C  6.750  01-01-24  1,000,000  1,189,920 

 

See notes to financial statements  Semiannual report | High Yield Municipal Bond Fund  15 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Ohio 3.59%        $9,362,473 
Buckeye Ohio Tobacco Settlement Financing         
Authority, Series A-2  5.125  06-01-24  $2,865,000  2,164,593 
Buckeye Ohio Tobacco Settlement Financing         
Authority, Series A-2  5.875  06-01-30  4,500,000  3,337,740 
Cleveland Ohio Airport Revenue         
Continental Airlines, Inc. Project AMT  5.375  09-15-27  2,510,000  2,162,340 
Hickory Chase Community Authority         
Hickory Chase Project  7.000  12-01-38  1,000,000  649,670 
Ohio Air Quality Development Authority         
FirstEnergy Solutions Corp., Series C AMT (P)  7.250  11-01-32  1,000,000  1,048,130 
 
Oklahoma 0.63%        1,656,576 
Tulsa Airport Improvement Trust,         
Series A AMT (H)(P)  7.750  06-01-35  1,000,000  697,500 
Tulsa Municipal Airport Trust         
American Airlines Project (H)  6.250  06-01-20  1,375,000  959,076 
 
Oregon 0.60%        1,577,552 
Western Generation Agency         
Wauna Cogeneration Project, Series B AMT  5.000  01-01-14  1,105,000  1,096,337 
Western Generation Agency         
Wauna Cogeneration Project, Series B AMT  5.000  01-01-16  500,000  481,215 
 
Pennsylvania 6.32%        16,487,960 
Allegheny County Hospital         
Development Authority         
West Penn Health Systems, Series A  5.000  11-15-28  1,000,000  839,050 
Allegheny County Industrial         
Development Authority         
Environmental Improvements  5.500  11-01-16  1,000,000  1,008,560 
Allegheny County Industrial         
Development Authority         
Environmental Improvements  6.875  05-01-30  1,000,000  1,030,330 
Bucks County Industrial Development Authority  6.750  06-01-26  1,500,000  1,551,780 
Pennsylvania Economic Development         
Financing Authority         
Allegheny Energy Supply Company  7.000  07-15-39  2,500,000  2,700,750 
Pennsylvania Economic Development         
Financing Authority         
Philadelphia Biosolids Facility  6.250  01-01-32  1,000,000  1,051,030 
Pennsylvania Turnpike Commission  5.250  12-01-41  1,500,000  1,528,050 
Pennsylvania Turnpike Commission         
Highway Revenue Tolls, Series E (Zero         
Coupon Steps up to 6.375% on 12-1-17) (Z)  Zero  12-01-38  5,000,000  3,980,750 
Pennsylvania Turnpike Commission, Series C (Z)  Zero  12-01-38  4,000,000  841,320 
Philadelphia Gas Waterworks Revenue         
Ninth Series  5.250  08-01-40  2,000,000  1,956,340 
 
Puerto Rico 5.72%        14,928,683 
Commonwealth of Puerto Rico, Series B  6.500  07-01-37  2,000,000  2,174,220 
Puerto Rico Aqueduct & Sewer Authority         
Water Revenue, Series A  6.125  07-01-24  1,500,000  1,655,640 
Puerto Rico Aqueduct & Sewer Authority         
Water Revenue, Series A  6.000  07-01-38  1,000,000  1,036,190 
Puerto Rico Electric Power Authority         
Electric, Power & Light Revenues, Series TT  5.000  07-01-32  1,250,000  1,232,563 

 

16  High Yield Municipal Bond Fund | Semiannual report  See notes to financial statements 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Puerto Rico (continued)         
Puerto Rico Electric Power Authority         
Electric, Power & Light Revenues, Series WW  5.500  07-01-38  $1,000,000  $1,016,500 
Puerto Rico Electric Power Authority         
Electric, Power & Light Revenues, Series XX  5.250  07-01-40  3,000,000  3,006,030 
Puerto Rico Sales Tax Financing Corp.         
Sales Tax Revenue, Series A (Z)  Zero  08-01-33  5,000,000  1,320,400 
Puerto Rico Sales Tax Financing Corp.         
Sales Tax Revenue, Series A (D)(Z)  Zero  08-01-41  5,000,000  773,550 
Puerto Rico Sales Tax Financing Corp.         
Sales Tax Revenue, Series A (Zero coupon         
steps up to 6.750% on 8-1-16) (Z)  Zero  08-01-32  3,000,000  2,713,590 
 
Rhode Island 0.17%        431,811 
Tobacco Settlement Financing Corp., Series A  6.000  06-01-23  135,000  135,231 
Town of Tiverton         
Mount Hope Bay Village, Series A  6.875  05-01-22  300,000  296,580 
 
Tennessee 1.77%        4,626,252 
Johnson City Health & Educational Facilities Board         
Mountain States Health Alliance,         
Prerefunded to 7-1-12, Series A  7.500  07-01-33  1,000,000  1,062,380 
Tennessee Energy Acquisition Corp.         
Natural Gas Revenue, Series C  5.000  02-01-25  3,720,000  3,563,872 
 
Texas 10.53%        27,473,824 
Bexar County Health Facilities Development Corp.         
Army Retirement Residence Project,         
Prerefunded to 7-1-12  6.300  07-01-32  150,000  156,480 
Brazos River Authority         
TXU Energy Company, Series A AMT  7.700  04-01-33  2,500,000  624,125 
Central Texas Regional Mobility Authority  6.000  01-01-41  2,000,000  2,011,000 
Central Texas Regional Mobility Authority  6.250  01-01-46  1,000,000  1,018,650 
City Of Houston TX Airport System Revenue  6.625  07-15-38  1,000,000  982,840 
Gulf Coast Industrial Development Authority         
CITGO Petroleum Corp. AMT  8.000  04-01-28  2,100,000  2,107,392 
Gulf Coast Waste Disposal Authority         
International Paper Company, Series A AMT  6.100  08-01-24  1,500,000  1,537,260 
Harris County Health Facilities         
Development Corp.         
Memorial Hermann Healthcare., Series B  7.250  12-01-35  1,000,000  1,122,780 
Love Field Airport Modernization Corp.         
Southwest Airlines Co. Project  5.250  11-01-40  2,825,000  2,719,232 
Mission Economic Development Corp.         
Allied Waste, Inc. Project, Series A AMT  5.200  04-01-18  1,500,000  1,510,650 
Mission Economic Development Corp.         
Waste Management, Inc. Project AMT (P)  6.000  08-01-20  975,000  1,039,467 
North Texas Tollway Authority  5.000  01-01-38  2,000,000  1,974,080 
North Texas Tollway Authority         
Highway Revenue Tolls, Series A  6.250  01-01-39  3,000,000  3,245,430 
North Texas Tollway Authority         
Highway Revenue Tolls, Series F  5.750  01-01-38  1,150,000  1,189,238 
North Texas Tollway Authority         
Highway Revenue Tolls, Series K-2  6.000  01-01-38  1,000,000  1,067,600 

 

See notes to financial statements  Semiannual report | High Yield Municipal Bond Fund  17 

 


    Maturity     
  Rate (%)  date  Par value  Value 
Texas (continued)         
Tarrant County Cultural Education Facilities         
Finance Corp.         
Air Force Retirement Facility  6.375  11-15-44  $2,000,000  $2,024,160 
Texas Municipal Gas Acquisition & Supply Corp.         
Natural Gas Revenue, Series D  6.250  12-15-26  2,000,000  2,099,760 
Travis County Health Facilities Development Corp.         
Westminster Manor  7.000  11-01-30  1,000,000  1,043,680 
 
Virgin Islands 0.41%        1,069,750 
Virgin Islands Public Finance Authority, Series A  6.750  10-01-37  1,000,000  1,069,750 
 
Virginia 0.87%        2,266,020 
Washington County Industrial         
Development Authority         
Mountain States Health Alliance, Series C  7.750  07-01-38  2,000,000  2,266,020 
 
Washington 0.40%        1,047,740 
Washington Health Care Facilities Authority         
Swedish Health Services, Series A  6.500  11-15-33  1,000,000  1,047,740 
 
Wisconsin 0.30%        794,825 
Wisconsin Health & Educational         
Facilities Authority         
St. John’s Community, Inc., Series A  7.625  09-15-39  750,000  794,825 
 
Wyoming 0.38%        989,970 
Sweetwater County         
FMC Corp. Project AMT  5.600  12-01-35  1,000,000  989,970 
 
Other 0.42%        1,104,370 
Centerline Equity Issuer Trust (S)  6.000  05-15-19  1,000,000  1,104,370 
 
      Par value  Value 
Short-Term Investments 0.53%        $1,380,000 
(Cost $1,380,000)         
 
Repurchase Agreement 0.53%        1,380,000 
Repurchase Agreement with State Street Corp. dated 11-30-11 at 0.010%     
to be repurchased at $1,380,000 on 12-1-11, collateralized by $1,410,000     
Federal Home Loan Mortgage Corp., 0.500% due 8-23-13 (valued at     
$1,411,763, including interest)      $1,380,000  1,380,000 
 
Total investments (Cost $236,455,698)† 97.04%      $253,158,378 
 
Other assets and liabilities, net 2.96%      $7,724,913 
 
Total net assets 100.00%        $260,883,291 

 

The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.

 

18  High Yield Municipal Bond Fund | Semiannual report  See notes to financial statements 

 


Notes to Schedule of Investments

AMT Interest earned from these securities may be considered a tax preference item for purpose of the Federal Alternative Minimum Tax.

(D) Bond is insured by one of these companies:

Insurance Coverage  As a % of total investments 
Assured Guaranty Corp.  0.97% 
Assured Guaranty Municipal Corp.  4.24% 
CIFG Holding Ltd.  1.39% 
National Public Finance Guarantee Insurance Company  1.72% 

 

(H) Defaulted security. Currently, the issuer is in default with respect to interest payments.

(P) Variable rate obligation. The coupon rate shown represents the rate at period end.

(S) These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration.

(Z) Zero coupon bonds are issued at a discount from their principal amount in lieu of paying interest periodically.

† At 11-30-11, the aggregate cost of investment securities for federal income tax purposes was $234,482,811. Net unrealized appreciation aggregated $18,675,567, of which $22,462,322 related to appreciated investment securities and $3,786,755 related to depreciated investment securities.

The Fund had the following sector composition as a percentage of total net assets on 11-30-11:

General Obligation Bonds  1.6% 
 
Revenue Bonds   
 
Development  20.5% 
Pollution  10.7% 
Transportation  10.4% 
Health Care  9.9% 
Utilities  7.0% 
Water & Sewer  6.0% 
Airport  6.0% 
Tobacco  4.9% 
Education  3.2% 
Facilities  0.6% 
Other Revenue  15.7% 
Short-Term Investments & Other  3.5% 

 

See notes to financial statements  Semiannual report | High Yield Municipal Bond Fund  19 

 


F I N A N C I A L   S T A T E M E N T S

Financial statements

Statement of assets and liabilities 11-30-11 (unaudited)

This Statement of assets and liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum offering price per share.

Assets   
Investments, at value (Cost $236,455,698)  $253,158,378 
Cash  4,049,393 
Receivable for investments sold  127,522 
Receivable for fund shares sold  596,755 
Interest receivable  3,808,187 
Other receivables and prepaid expenses  51,041 
 
Total assets  261,791,276 
 
Liabilities   
Payable for fund shares repurchased  563,358 
Distributions payable  218,788 
Payable to affiliates   
Accounting and legal services fees  4,458 
Transfer agent fees  14,565 
Distribution and service fees  40,233 
Trustees’ fees  10,321 
Other liabilities and accrued expenses  56,262 
 
Total liabilities  907,985 
 
Net assets   
Paid-in capital  $259,858,747 
Undistributed net investment income  363,443 
Accumulated net realized loss on investments  (16,041,579) 
Net unrealized appreciation (depreciation) on investments  16,702,680 
 
Net assets  $260,883,291 
 
Net asset value per share   
Based on net asset values and shares outstanding — the Fund has an   
unlimited number of shares authorized with no par value   
Class A ($197,261,844 ÷ 24,726,257 shares)  $7.98 
Class B ($8,823,237 ÷ 1,105,949 shares)1  $7.98 
Class C ($54,798,210 ÷ 6,869,051 shares)1  $7.98 
 
Maximum offering price per share   
Class A (net asset value per share ÷ 95.5%)2  $8.36 

 

1 Redemption price is equal to net asset value less any applicable contingent deferred sales charge.

2 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.

20  High Yield Municipal Bond Fund | Semiannual report  See notes to financial statements 

 


F I N A N C I A L   S T A T E M E N T S

Statement of operations For the six-month period ended 11-30-11
(unaudited)

This 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.

Investment income   
Interest  $7,598,947 
 
Expenses   
Investment management fees (Note 4)  706,898 
Distribution and service fees (Note 4)  551,021 
Accounting and legal services fees (Note 4)  17,058 
Transfer agent fees (Note 4)  85,495 
Trustees’ fees (Note 4)  10,366 
State registration fees  25,299 
Printing and postage  13,021 
Professional fees  29,861 
Custodian fees  19,592 
Registration and filing fees  10,112 
Other  7,604 
 
Total expenses  1,476,327 
Less expense reductions (Note 4)  (85,307) 
 
Net expenses  1,391,020 
 
Net investment income  6,207,927 
 
Realized and unrealized gain (loss)   
Net realized loss on investments  (103,553) 
 
Change in net unrealized appreciation (depreciation) of investments  4,765,565 
 
Net realized and unrealized gain  4,662,012 
 
Increase in net assets from operations  $10,869,939 

 

See notes to financial statements  Semiannual report | High Yield Municipal Bond Fund  21 

 


F I N A N C I A L   S T A T E M E N T S

Statements of changes in net assets

These Statements of changes in net assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.

  Six months   
  ended  Year 
  11-30-11  ended 
  (Unaudited)  5-31-11 
Increase (decrease) in net assets     
From operations     
Net investment income  $6,207,927  $13,324,578 
Net realized loss  (103,553)  (3,309,833) 
Change in net unrealized appreciation (depreciation)  4,765,565  (7,947,390) 
 
Increase in net assets resulting from operations  10,869,939  2,067,355 
 
Distributions to shareholders     
From net investment income     
Class A  (4,677,379)  (10,156,114) 
Class B  (178,384)  (353,093) 
Class C  (1,096,551)  (2,320,973) 
 
Total distributions  (5,952,314)  (12,830,180) 
 
From Fund share transactions (Note 5)  3,918,970  (12,515,311) 
 
Total increase (decrease)  8,836,595  (23,278,136) 
 
Net assets     
Beginning of period  252,046,696  275,324,832 
 
End of period  $260,883,291  $252,046,696 
 
Undistributed net investment income  $363,443  $107,830 

 

22  High Yield Municipal Bond Fund | Semiannual report  See notes to financial statements 

 


Financial highlights

The Financial highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.

CLASS A SHARES Period ended  11-30-111  5-31-11  5-31-10  5-31-092  8-31-08  8-31-07  8-31-06 
 
Per share operating performance               
Net asset value, beginning               
of period  $7.82  $8.07  $7.43  $7.99  $8.33  $8.68  $8.62 
Net investment income3  0.20  0.39  0.40  0.32  0.41  0.41  0.42 
Net realized and unrealized gain               
(loss) on investments  0.15  (0.26)  0.63  (0.58)  (0.34)  (0.35)  0.05 
Total from investment operations  0.35  0.13  1.03  (0.26)  0.07  0.06  0.47 
Less distributions               
From net investment income  (0.19)  (0.38)  (0.39)  (0.30)  (0.41)  (0.41)  (0.41) 
Net asset value, end of period  $7.98  $7.82  $8.07  $7.43  $7.99  $8.33  $8.68 
Total return (%)4  4.555,6  1.67  14.156  (3.04)5  0.816  0.606  5.616 
 
Ratios and supplemental data               
Net assets, end of period               
(in millions)  $197  $192  $207  $139  $94  $71  $72 
Ratios (as a percentage of average               
net assets):               
Expenses before reductions  0.987  0.99  1.01  1.157,8  1.09  1.13  1.09 
Interest and fees9  —  —  —  —  0.16  0.20  — 
Expenses net of fee waivers  0.917  0.99  1.00  1.157,8  1.25  1.33  1.09 
Net investment income  5.067  4.97  5.16  6.077  4.85  4.77  4.71 
Portfolio turnover (%)  11  32  14  49  75  63  52 

 

1 Semiannual period from 6-1-11 to 11-30-11. Unaudited.
2 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Not annualized.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
9 Interest expenses and fees are related to the Fund’s investment in inverse floater rate investments. Under accounting rules, the Fund recognizes additional income in an amount equal to these expenses.

 

See notes to financial statements  Semiannual report | High Yield Municipal Bond Fund  23 

 


CLASS B SHARES Period ended  11-30-111  5-31-11  5-31-10  5-31-092  8-31-08  8-31-07  8-31-06 
 
Per share operating performance               
Net asset value, beginning               
of period  $7.82  $8.07  $7.43  $7.99  $8.33  $8.68  $8.62 
Net investment income3  0.17  0.33  0.35  0.28  0.35  0.35  0.36 
Net realized and unrealized gain               
(loss) on investments  0.15  (0.26)  0.62  (0.58)  (0.34)  (0.36)  0.04 
Total from investment operations  0.32  0.07  0.97  (0.30)  0.01  (0.01)  0.40 
Less distributions               
From net investment income  (0.16)  (0.32)  (0.33)  (0.26)  (0.35)  (0.34)  (0.34) 
Net asset value, end of period  $7.98  $7.82  $8.07  $7.43  $7.99  $8.33  $8.68 
Total return (%)4  4.165,6  0.91  13.296  (3.59)5  0.066  (0.15)6  4.836 
 
Ratios and supplemental data               
Net assets, end of period               
(in millions)  $9  $8  $9  $8  $8  $11  $16 
Ratios (as a percentage of average               
net assets):               
Expenses before reductions  1.737  1.74  1.76  1.907,8  1.84  1.88  1.84 
Interest and fees9  —  —  —  —  0.16  0.20  — 
Expenses net of fee waivers  1.667  1.74  1.75  1.907,8  2.00  2.08  1.84 
Net investment income  4.317  4.22  4.42  5.347  4.09  4.05  4.11 
Portfolio turnover (%)  11  32  14  49  75  63  52 

 

1 Semiannual period from 6-1-11 to 11-30-11. Unaudited.
2 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Not annualized.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
9 Interest expenses and fees are related to the Fund’s investment in inverse floater rate investments. Under accounting rules, the Fund recognizes additional income in an amount equal to these expenses.

 

24  High Yield Municipal Bond Fund | Semiannual report  See notes to financial statements 

 


CLASS C SHARES Period ended  11-30-111  5-31-11  5-31-10  5-31-092  8-31-08  8-31-07  8-31-06 
 
Per share operating performance               
Net asset value, beginning               
of period  $7.82  $8.07  $7.43  $7.99  $8.33  $8.68  $8.62 
Net investment income3  0.17  0.33  0.34  0.28  0.34  0.34  0.35 
Net realized and unrealized gain               
(loss) on investments  0.15  (0.26)  0.63  (0.58)  (0.33)  (0.35)  0.05 
Total from investment operations  0.32  0.07  0.97  (0.30)  0.01  (0.01)  0.40 
Less distributions               
From net investment income  (0.16)  (0.32)  (0.33)  (0.26)  (0.35)  (0.34)  (0.34) 
Net asset value, end of period  $7.98  $7.82  $8.07  $7.43  $7.99  $8.33  $8.68 
Total return (%)4  4.165,6  0.91  13.306  (3.59)5  0.066  (0.15)6  4.836 
 
Ratios and supplemental data               
Net assets, end of period               
(in millions)  $55  $51  $59  $35  $23  $9  $9 
Ratios (as a percentage of average               
net assets):               
Expenses before reductions  1.737  1.74  1.76  1.907,8  1.84  1.88  1.84 
Interest and fees9  —  —  —  —  0.16  0.20  — 
Expenses net of fee waivers  1.667  1.74  1.75  1.907,8  2.00  2.08  1.84 
Net investment income  4.317  4.22  4.40  5.297  4.11  4.02  4.09 
Portfolio turnover (%)  11  32  14  49  75  63  52 

 

1 Semiannual period from 6-1-11 to 11-30-11. Unaudited.
2 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Not annualized.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
9 Interest expenses and fees are related to the Fund’s investment in inverse floater rate investments. Under accounting rules, the Fund recognizes additional income in an amount equal to these expenses.

 

See notes to financial statements  Semiannual report | High Yield Municipal Bond Fund  25 

 


Notes to financial statements
(unaudited)

Note 1 — Organization

John Hancock High Yield Municipal Bond Fund (the Fund) is a non-diversified series of John Hancock Municipal Securities Trust (the Trust), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek a high level of current income that is largely exempt from federal income tax, consistent with the preservation of capital.

The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of assets and liabilities. Class A, Class B and Class C shares are offered to all investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.

Note 2 — Significant accounting policies

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:

Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. Factors used in determining value may include market or issuer specific events, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities.

As of November 30, 2011, all investments are categorized as Level 2 under the hierarchy described above. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the six months ended November 30, 2011, there were no significant transfers into or out of Level 1, Level 2 or Level 3 assets.

In order to value the securities, the Fund uses the following valuation techniques. Debt obligations are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, taking into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Certain securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost. Other portfolio

26  High Yield Municipal Bond Fund | Semiannual report 

 


securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees.

Repurchase agreements. The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement, it receives collateral which is held in a segregated account by the Fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline.

Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.

Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to the Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.

In addition, the Fund and other affiliated funds have entered into an agreement with Citibank N.A. which enables them to participate in a $100 million unsecured committed line of credit. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis and is reflected in other expenses on the Statement of operations. For the six months ended November 30, 2011, the Fund had no borrowings under the line of credit.

Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative net assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.

Class allocations. Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the net assets of the class. Class-specific expenses, such as distribution and service fees, if any, and transfer agent fees, are calculated daily for each class, based on the net asset value of the class and the applicable specific expense rates.

Federal income taxes. The Fund intends to continue to qualify 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 that is distributed to shareholders. Therefore, no federal income tax provision is required.

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For federal income tax purposes, the Fund has a capital loss carryforward of $14,340,958 available to offset future net realized capital gains as of May 31, 2011. The following table details the capital loss carryforward available as of May 31, 2011:

CAPITAL LOSS CARRYFORWARD EXPIRING AT MAY 31         
2012  2013  2014  2015  2016  2017  2018  2019 
$2,816,241  $1,681,342  $119,574  $1,176,656  $502,278  $3,292,390  $4,265,466  $487,011 

 

Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

As of May 31, 2011, the Fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.

Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares dividends daily and pays them monthly. Capital gain distributions, if any, are distributed annually.

Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of class level expenses that may be applied differently to each class.

Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America.

Capital accounts within financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book tax differences, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to expiration of capital loss carryforwards, accretion on debt securities and distributions payable.

New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.

Note 3 — Guarantees and indemnifications

Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.

28  High Yield Municipal Bond Fund | Semiannual report 

 


Note 4 — Fees and transactions with affiliates

John Hancock Advisers, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).

Management fee. The Fund has an investment management contract with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.6250% of the first $75,000,000 of the Fund’s average daily net assets, (b) 0.5625% of the next $75,000,000, (c) 0.5000% of the next $1,850,000,000, (d) 0.4800% of the next $2,000,000,000 and (e) 0.4500% of the Fund’s average daily net assets in excess of $4,000,000,000. The Adviser has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Adviser. The Fund is not responsible for payment of the subadvisory fees.

The investment management fees incurred for the six months ended November 30, 2011 were equivalent to an annual effective rate of 0.56% of the Fund’s average daily net assets.

Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to the Fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. These accounting and legal services fees incurred for the six months ended November 30, 2011 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.

Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.

CLASS  12b-1 FEE 
Class A  0.25% 
Class B  1.00% 
Class C  1.00% 

 

Effective August 1, 2011, the Distributor has contractually agreed to limit the distribution and service fees to 0.15%, 0.90% and 0.90% of the average daily net assets of Class A, Class B and Class C shares, respectively, until at least September 30, 2012. Accordingly, these fee limitations amounted to $64,400, $2,928 and $17,979 for Class A, Class B and Class C shares, respectively, for the six months ended November 30, 2011.

Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $161,658 for the six months ended November 30, 2011. Of this amount, $347 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $159,338 was paid as sales commissions to broker-dealers and $1,973 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Adviser.

Class B and Class C shares are subject to contingent deferred sales charges (CDSCs). Class B shares that are redeemed within six years of purchase are subject to CDSCs, 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. Class C shares that are redeemed within one year of purchase

Semiannual report | High Yield Municipal Bond Fund  29 

 


are subject to a 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended November 30, 2011, CDSCs received by the Distributor amounted to $11,306 and $2,439 for Class B and Class C shares, respectively.

Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Adviser. The transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain fees that Signature Services receives in connection with retirement and small accounts. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. Within each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.

Class level expenses. Class level expenses for the six months ended November 30, 2011 were:

  DISTRIBUTION AND  TRANSFER 
CLASS  SERVICE FEES  AGENT FEES 
Class A  $240,717  $64,647 
Class B  43,461  2,920 
Class C  266,843  17,928 
Total  $551,021  $85,495 

 

Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within Other receivables and prepaid expenses and Payable to affiliates — Trustees’ fees, respectively, in the accompanying Statement of assets and liabilities.

 

30  High Yield Municipal Bond Fund | Semiannual report 

 


Note 5 — Fund share transactions

Transactions in Fund shares for the six months ended November 30, 2011 and for the year ended May 31, 2011 were as follows:

  Six months ended 11-30-11  Year ended 5-31-11 
  Shares  Amount  Shares  Amount 
Class A shares         
Sold  3,059,507  $24,390,329  9,266,196  $74,232,523 
Distributions reinvested  453,162  3,609,038  885,361  7,004,226 
Repurchased  (3,357,042)  (26,676,835)  (11,232,803)  (87,971,154) 
 
Net increase (decrease)  155,627  $1,322,532  (1,081,246)  ($6,734,405) 
 
Class B shares         
Sold  120,297  $956,017  242,173  $1,945,330 
Distributions reinvested  14,101  112,351  24,493  193,500 
Repurchased  (106,879)  (850,195)  (308,439)  (2,437,028) 
 
Net increase (decrease)  27,519  $218,173  (41,773)  ($298,198) 
 
Class C shares         
Sold  666,086  $5,308,319  1,821,167  $14,599,981 
Distributions reinvested  97,585  777,265  184,772  1,461,553 
Repurchased  (465,650)  (3,707,319)  (2,764,291)  (21,544,242) 
 
Net increase (decrease)  298,021  $2,378,265  (758,352)  ($5,482,708) 
 
Net increase (decrease)  481,167  $3,918,970  (1,881,371)  ($12,515,311) 

 

Note 6 — Purchase and sale of securities

Purchases and sales of securities, other than short-term securities, aggregated $26,957,430 and $26,948,615, respectively, for the six months ended November 30, 2011.

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Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement

The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock High Yield Municipal Bond Fund (the Fund), a series of John Hancock Municipal Securities Trust (the Trust), met in-person on May 1–3 and June 5–7, 2011 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) among the Adviser, Manulife Asset Management (US) LLC (the Subadviser) and the Trust on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.

Activities and composition of the Board

The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are not employed by or have any significant business or professional relationship with the Adviser or the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have hired independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committee A is a standing committee of the Board that is composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee A oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated an Independent Trustee as Vice Chairperson to serve in the absence of the Chairperson. The Board also designates working groups or ad hoc committees as it deems appropriate.

The approval process

Under the 1940 Act, the Board is required to consider the continuation of the Agreements each year. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. The Board reviews reports of the Adviser at least quarterly, which include Fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.

Prior to the May 1–3, 2011 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a Category and a subset of the Category referred to as the Peer Group, each as determined by Morningstar, and with the Fund’s benchmark index. The Category includes all funds that invest similarly to the way the Fund invests. The Peer Group represents funds of similar size, excluding passively managed funds and funds-of-funds. The Fund’s benchmark index is an unmanaged index of securities that is provided as a basis for comparison with the Fund’s performance. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser or Subadviser or their affiliates that result from being the Adviser or Subadviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, having similar investment mandates, as well as the performance of those other clients and a

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comparison of the services provided to those other clients and the services provided to the Fund; (c) the impact of economies of scale; (d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.

At an in-person meeting held on May 1–3, 2011, the Board reviewed materials relevant to its consideration of the Agreements. As a result of the discussions that occurred during the May 1–3, 2011 meeting, the Board asked the Adviser for additional information on certain matters. The Adviser provided the additional information and the Board also considered this information as part of its consideration of the Agreements.

At an in-person meeting held on June 5–7, 2011, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement among the Fund, the Adviser and the Subadviser, each for an additional one-year term. The Board considered what it believed were key relevant factors that are described under separate headings presented below.

The Board also considered other matters important to the approval process, such as payments made to and by the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser and their affiliates from their relationship with the Fund and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review.

Nature, extent and quality of services

The Board reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund.

The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.

The Board considered the Subadviser’s history and experience providing investment services to the Fund. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and its affiliate’s transfer agency operations and considered the Adviser’s and its affiliate’s policies and procedures for assuring compliance with applicable laws and regulations.

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The Board also received information about the nature, extent and quality of services provided by and fee rates charged by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients having similar investment mandates, the services provided to those other clients as compared to the services provided to the Fund, the performance of those other clients as compared to the performance by the Fund and other factors relating to those other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and the services they provide to other clients. For other clients that are not mutual funds, the differences in services relate to the greater share purchase and redemption activity in a mutual fund, the generally higher turnover of mutual fund portfolio holdings, the more burdensome regulatory and legal obligations of mutual funds and the higher marketing costs for mutual funds. When compared to all clients including mutual funds, the Adviser has greater oversight and supervisory responsibility for the Fund and undertakes greater entrepreneurial risk as the sponsor of the Fund.

Fund performance

The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also examined materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category as well as its benchmark index (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category. The Board also considered updated performance information provided by the Adviser at its May and June 2011 meetings. The Board regularly reviews the performance of the Fund throughout the year and attaches more importance to performance over relatively longer periods of time, typically three to five years.

Set forth below is the performance of the Fund over certain time periods ended December 31, 2010 and that of its Category and benchmark index over the same periods:

  1 YEAR  3 YEAR  5 YEAR  10 YEAR 
High Yield Municipal Bond Fund Class A  2.60%  2.83%  2.87%  4.34% 
High Yield Muni Category Average  3.97%  0.67%  1.39%  3.90% 
BarCap Municipal TR Index  2.38%  4.08%  4.09%  4.83% 

 

The Board noted that, although the Fund had underperformed its Category’s average performance over the one-year period, the Fund had outperformed its Category’s average performance over all other periods. The Board noted that, although the Fund had underperformed its benchmark index’s performance over three longer comparison periods, the index was not specifically for high yield municipal securities. The Board concluded that the Adviser and Subadviser were taking steps to address the underperformance which the Board would continue to monitor.

Expenses and fees

The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other clients with similar investment mandates, including separately managed institutional accounts.

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In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration fees and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio). The Board considered information comparing the Gross Expense Ratio and the Net Expense Ratio of the Fund to that of the Peer Group median. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Fund and the Fund complex.

The Board noted that the Fund’s advisory fee ratio was one basis point above the Peer Group median advisory fee ratio. The Board noted the following information about the Fund’s Gross and Net Expense Ratios for Class A shares contained in the Fund’s financial statements in relation with the Fund’s Peer Group median provided by Morningstar in April 2011:

  FUND (CLASS A)  PEER GROUP MEDIAN 
Advisory Fee Ratio  0.55%  0.54% 
Gross Expense Ratio  0.98%  0.99% 
Net Expense Ratio  0.98%  0.89% 

 

The Board viewed favorably the new contractual agreement to decrease Rule 12b-1 fees from 0.25% to 0.15% for Class A shares from August 1, 2011 until September 30, 2012. The Board favorably considered the impact of this contractual agreement towards ultimately lowering the Fund’s Gross Expense Ratio. The Board also received and considered information relating to the Fund’s Gross Expense Ratio that reflected the new methodology for calculating transfer agent fees that was approved by the Trustees at the June 2010 meeting, which had the effect of lowering the expense ratio.

The Board received and reviewed statements relating to the Adviser’s financial condition and was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services under the Advisory Agreement, as well as from other relationships between the Fund and the Adviser and its affiliates. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2010 compared to available aggregate profitability data provided for the year ended December 31, 2009. The Board reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products.

The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparability of profitability is somewhat limited.

The Board considered the profitability information with respect to the Subadviser, which is affiliated with the Adviser. In addition, as noted above, the Board considered the assumptions and methodology for allocating expenses in the Subadviser’s profitability analysis.

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Economies of scale

The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase. Possible changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale (e.g., through the use of breakpoints in the advisory fee at higher asset levels) are periodically discussed. The Board also considered the Adviser’s overall operations and its ongoing investment in its business in order to expand the scale of, and improve the quality of, its operations that benefit the Fund.

The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual funds, but rather are incurred across a variety of products and services. To ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the contractual advisory fee rate.

Other benefits to the Adviser and the Subadviser

The Board understands that the Adviser, the Subadviser or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third-party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.

Board determination

The Board unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term. The Subadvisory Agreement among the Fund, the Adviser and the Subadviser was also approved for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board was satisfied that the terms of the Agreements, including the advisory and subadvisory fee rates, were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or any group of factors as all-important or controlling, but considered all factors together. Different Trustees may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by independent legal counsel in making this determination. The Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years and on their ongoing regular review of Fund performance and operations throughout the year.

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More information

Trustees  Investment adviser 
Steven R. Pruchansky, Chairman  John Hancock Advisers, LLC 
James F. Carlin*   
William H. Cunningham  Subadviser 
Deborah C. Jackson  John Hancock Asset Management a division of 
Charles L. Ladner,* Vice Chairman#  Manulife Asset Management (US) LLC 
Stanley Martin*   
Hugh McHaffie†  Principal distributor 
Dr. John A. Moore,* Vice Chairman^  John Hancock Funds, LLC 
Patti McGill Peterson*   
Gregory A. Russo  Custodian 
John G. Vrysen†  State Street Bank and Trust Company 
 
Officers  Transfer agent 
Keith F. Hartstein  John Hancock Signature Services, Inc. 
President and Chief Executive Officer   
  Legal counsel 
Andrew G. Arnott  K&L Gates LLP 
Senior Vice President and Chief Operating Officer   
 
Thomas M. Kinzler   
Secretary and Chief Legal Officer   
 
Francis V. Knox, Jr.   
Chief Compliance Officer   
 
Charles A. Rizzo   
Chief Financial Officer   
 
Salvatore Schiavone   
Treasurer   
 
*Member of the Audit Committee   
†Non-Independent Trustee   
#Retired, effective 12-31-11   
^Effective 1-1-12   

 

The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.

The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.

We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site at www.jhfunds.com or by calling 1-800-225-5291.

You can also contact us:     
1-800-225-5291  Regular mail:  Express mail: 
jhfunds.com  John Hancock Signature Services, Inc.  John Hancock Signature Services, Inc. 
  P.O. Box 55913  Mutual Fund Image Operations 
  Boston, MA 02205-5913  30 Dan Road 
    Canton, MA 02021 

 

Semiannual report | High Yield Municipal Bond Fund  37 

 



1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com

Now available: electronic delivery
www.jhfunds.com/edelivery

This report is for the information of the shareholders of John Hancock High Yield Municipal Bond Fund.  590SA 11/11 
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus.  1/12 

 


ITEM 2. CODE OF ETHICS.

Not applicable at this time.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable at this time.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable at this time.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable at this time.

ITEM 6. SCHEDULE OF INVESTMENTS.

(a) Not applicable. (b) Not applicable.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 11. CONTROLS AND PROCEDURES.

(a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's principal executive officer and principal financial officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

(b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

ITEM 12. EXHIBITS.


(a) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached.

(b) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The certifications furnished pursuant to this paragraph are not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference.

(c)(1) Contact person at the registrant.


SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

John Hancock Municipal Securities Trust

By: /s/ Keith F. Hartstein
Keith F. Hartstein
President and Chief Executive Officer

Date: January 23, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Keith F. Hartstein
Keith F. Hartstein
President and Chief Executive Officer

Date: January 23, 2012

By: /s/ Charles A. Rizzo
Charles A. Rizzo
Chief Financial Officer

Date: January 23, 2012