HANCOCK JOHN TAX EXEMPT SERIES FUND, N-30B-2, 1995-10-25

HANCOCK JOHN TAX EXEMPT SERIES FUND
N-30B-2, 1995-10-25

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<PAGE> 1
JOHN HANCOCK FUNDS
- --------------------------------------------------------------------------------

TAX-EXEMPT
SERIES FUND

ANNUAL REPORT

August 31, 1995

<PAGE> 2

TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Bayard Henry*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee

OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Michael P. DiCarlo
Senior Vice President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
James K. Ho
Senior Vice President
Andrew St. Pierre
Senior Vice President
John A. Morin
Vice President
Susan S. Newton
Vice President, Assistant Secretary and Compliance Officer
James J. Stokowski
Vice President and Treasurer

CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111

TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116

INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603

PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603

LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110

Chairman's Message

DEAR FELLOW SHAREHOLDERS:

[A 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief Executive Officer,
flush right, next to second paragraph.]

Investors around the world have been watching Wall Street in awe for the better
part of 1995. Through August, the Dow Jones Industrial Average has reached
record highs and has grown, along with the Standard & Poor's 500-Stock Index, by
more than 20%. Investors who stayed in the market after a disappointing 1994
have been rewarded.

On another street, Pennsylvania Avenue, one of the hot topics many people are
watching is Medicare reform. While the Congressional rhetoric is just beginning
to heat up, today's Medicare debate should serve as another wake-up call to all
Americans about the need to have a financial plan and to save for retirement.
Whether or not the government changes the way health-care benefits are allotted
to senior citizens, the message is clear: your future security and well-being
lies in your own hands -- not Uncle Sam's.

We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them will
perhaps scare you or make you think that the task of saving for retirement is
just too daunting. But take heart. We don't believe that and neither do many
financial experts.

Yet retirement planning is not to be taken lightly. To live the way you want
to -- the way you deserve to after all those years of hard work -- you need to
plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.

Building a secure nest egg is indeed doable. Talk to your financial adviser
about establishing your retirement planning roadmap, if you haven't already. And
educate yourself by reading some of the many articles about how to save for
retirement. Take control of your future by saving today. That way, when it comes
time for retirement, you shouldn't have to think about any street but Easy
Street.

Sincerely,

/s/ EDWARD J. BOUDREAU, JR.
- ---------------------------

EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER

2
<PAGE> 3

BY DIANNE SALES-SINGER AND FRANK LUCIBELLA,
PORTFOLIO MANAGERS

JOHN HANCOCK
TAX-EXEMPT SERIES FUND

Municipal bond market buoyed by falling interest rates,
low supply: diminished supply could help extend rally

Frank Lucibella has taken over as manager of the New York Portfolio. Mr.
Lucibella, second vice president, joined John Hancock Funds in 1988. He is also
the portfolio manager of John Hancock Tax-Exempt Fund and John Hancock
High-Yield Tax Free Bond Fund.

On September 15, 1995 the California portfolio of the John Hancock
Tax-Exempt Series Fund was merged into the John Hancock California Tax-Free
Income Fund. California shareholders are now receiving that Fund's reports.

During the first eight months of 1995, municipal bonds made up most of the
ground they lost in 1994. In hindsight, it's evident that the municipal bond
market reached a bottom late last year after suffering from rising interest
rates and relatively weak demand, but this year, the opposite held true. Falling
interest rates and positive supply/demand fundamentals ignited a healthy rebound
for the municipal bond market.

While municipals outperformed Treasury securities in the first quarter of
1995, a flurry of media coverage about various flat tax proposals in the second
quarter gave the market an excuse to consolidate. The market hit another hurdle
in late June, when Orange County, California voters failed to approve a sales
tax increase that would have assisted in dealing with the county's substantial
investment losses. And even though the Federal Reserve Board cut interest rates
in July, the euphoria was somewhat short-lived because investors worried that
there wouldn't be more of the same to come. All in all, municipals gave up some
ground versus Treasuries in the summer. But the overall environment continued to
be positive for bonds, as evidence of a slowing economy and muted inflation
pushed fixed-income markets higher.

The municipal market's strong performance was reflected in John Hancock
Tax-Exempt Series Fund's performance. For the year ended August 31, 1995, the
Massachusetts and New York portfolios posted total returns of 7.66% and 7.19%,
respectively, at net asset value. By comparison, the average Massachusetts
municipal bond fund had a total return of 7.16%; and the average New York
municipal bond fund, 6.62%, according to Lipper Analytical Services.(1)

[CAPTION]
"...the overall environment continued to be positive for bonds..."

3
<PAGE> 4

John Hancock Funds - Tax-Exempt Series Fund

STRATEGY

At the beginning of the year, as the bond market improved, we moved to a more
aggressive strategy by lengthening the duration of both funds. Duration is a
measure of how much a fund's share price will vary in response to changing
interest rates. In general, the longer the fund's duration, the more sensitive
its share price. In late 1994, our defensive, short duration posture helped us
when muni bond prices were falling. Conversely, lengthening our duration in 1995
allowed the Fund to participate in the market rally.

We also worked to improve the call protection for both funds. We did that by
adding non-callable bonds, which can't be redeemed by their issuer before their
scheduled maturity date. Non-callable bonds offer the advantages of a
predictable stream of income and the ability to outperform the market. What's
more, because they are relatively scarce, non-callables are generally more
easily traded, or liquid. In the paragraphs that follow, we'll discuss in more
detail our strategy and holdings in each portfolio.

[A 2 1/2" x 2 1/2" photo of Dianne Sales-Singer, bottom center. Caption reads:
"Dianne Sales-Singer, Portfolio Manager.]

MASSACHUSETTS

The Massachusetts economy continues to show gradual improvement, led by the
growth in the technology sector. As long as the nation's economy remains in a
growth pattern, the health of the technology industry could continue to improve
and benefit the state's economic position. In addition, several significant
public works projects, such as Boston's Third Harbor Tunnel and the re-routing
of the city's central artery, should sustain the recent improvement in the
state's construction industry. However, as we've mentioned before, cutbacks in
the health-care industry could still hold back this segment of the economy. On
the fiscal front, the state is reaping the rewards of the cost cutting and
restrained spending programs that it has implemented during the past couple of
years.

Although there weren't many new Massachusetts bonds issued during the period,
we did find some opportunities to add income through the addition of
higher-yielding transportation and industrial revenue bonds. We also boosted
yield by increasing our exposure to Alternative Minimum Tax bonds when the yield
spread (or the difference in yield) between AMT and non-AMT bonds was
particularly wide. AMT bonds are so named because they are potentially subject
to the Alternative Minimum Tax, and therefore provide a higher yield than
non-AMT bonds. As the lack of new bond issuance in Massachusetts creates
additional investor demand, we anticipate

[CAPTION]
"...we switched our strategy from the defense to the offense..."

4
<PAGE> 5

John Hancock Funds - Tax-Exempt Series Fund
- --------------------------------------------------------------------------------

[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended August 31, 1995." The chart is
scaled in increments of 2% from bottom to top, with 8% at the top and 0% at the
bottom. Within the chart there are four solid bars. The first represents the
7.66% total return for the John Hancock Tax-Exempt Series Fund: Massachusetts
Portfolio. The second represents the 7.16% total return for the average
Massachusetts muni bond fund. The third represents the 7.19% total return for
the John Hancock Tax-Exempt Series Fund: New York Portfolio. The fourth
represents the 6.62% return for the average New York muni bond bond. A footnote
below reads: "The total returns for the Massachusetts and New York portfolios
are at net asset value with all distributions reinvested. Total returns for the
average peer funds are tracked by Lipper Analytical Services. (1) See page seven
for historical performance information."]
- --------------------------------------------------------------------------------

that the AMT yield spread will narrow, providing the Fund not only with
attractive yield, but also greater potential for price appreciation.

Over the past six months, some of our best performers were our hospital
holdings, which made up 23% of the Fund's holdings. We had purchased many of
these bonds last year when they became cheap due to concerns about proposed
federally-mandated health-care reform. Our strategy of focusing on hospitals
with low cost structures and healthy managed-care contracts, such as Boston's
Deaconess Hospital, has translated into stable profit margins and strong
performance from our health-care group.

[A 2 1/2" x 3" photo of Frank Lucibella, bottom center. Caption reads: "Frank
Lucibella, Portfolio Manager."]

NEW YORK

Supply was the central issue that dominated the New York municipal market. As
the state hassled over its new budget, there was a dearth of supply. This lack
of supply caused the yield spread between high quality bonds and lower quality
bonds to collapse. In other words, investors weren't rewarded with much
additional yield by purchasing bonds with lower-credit quality. We took
advantage of that opportunity to upgrade the overall credit quality of the Fund
by selling some lower-quality bonds and replacing them with higher-quality
issues. Because yield spreads were tight, we weren't forced to leave behind much
of the Fund's income. Predictably, after the state's budget was enacted, the
various state agencies rushed to issue bonds. The spate of new supply widened
credit spreads and enabled us to buy back at cheaper levels the bonds we had
previously sold. This improved both the Fund's yield and total return.

In the spring we reduced our holdings in New York City bonds because we
anticipated that Standard & Poor's, one of the major municipal bond

[CAPTION]
"We're more optimistic about New York State's economy..."

5
<PAGE> 6

John Hancock Funds - Tax-Exempt Series Fund

[Two pie charts, one next to the other, at top of right and left hand columns.
The chart on the left is entitled "Portfolio Diversification, New York
Portfolio." It is divided into nine sections. Going from top left to right:
Industrial Development/Pollution Control 19%, General Obligation 10%, Short-Term
Investments/Other 1%, Other Bonds 16%, Utilities 7%, Education 18%,
Transportation 6%, Housing 11%, Healthcare 12%. The chart on the top right
column is entitled "Portfolio Diversification, Massachusetts Portfolio." It is
divided into 10 sections. Going from top left to right: Industrial
Development/Pollution Control 9%, General Obligation 14%, Short-Term
Investments/Other 3%, Education 13%, Other Bonds 2%, Transportation 13%,
Utilities 12%, Certificate of Participation 2%, Housing 9%, Healthcare 23%.
Footnote below reads: "As a percentage of total net assets on August 31, 1995."]

credit rating services, would downgrade the credit quality of those bonds. After
that occurred, the bonds became cheap. We saw this as an opportunity to add to
our core New York City holdings once again. Having said that, though, we
continue to monitor this position.

Although we are comfortable with the city's ability to service its debt, its
fiscal health is tied to job creation. The city's employment base hasn't
increased much during the economic expansion, thus pressuring its sales and
income tax base. Meanwhile, the level of state support has been declining,
forcing the city to reduce services and improve efficiencies to maintain its
balanced budget.

We're more optimistic about New York State's economy, which seems to be
performing in line with the nation as a whole.

OUTLOOK

Worry about the future of tax reform and its effect on municipal bonds could
cause some volatility in the market, as it did briefly in the spring when the
idea was first introduced. However, we don't believe that any major tax reform
will be enacted before 1997. By the end of August, municipal bond prices looked
relatively cheap compared to U.S. Treasury securities. The municipal market has
done quite well so far this year. In light of that, it's not unreasonable to
believe that eventually the market will pause and take a period to decide what
it will do from here. That depends on the economy's strength over the next
several months. Also, demand for municipals is relatively stable and supply is
limited. That should bode well for municipal bond prices over the next six
months.

- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.

6
<PAGE> 7
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------

The tables on the right show the cumulative total returns and the average annual
total returns for John Hancock Tax-Exempt Series Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's shares.
Performance figures include the maximum applicable sales charge of 4.5% for Fund
shares. Performance is affected by a 12b-1 plan. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost depending on when you sell them.

- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30, 1995

<TABLE>
<CAPTION>
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- -------
<S> <C> <C> <C>
Massachusetts Portfolio 3.32% 41.63% 82.68%(1)
New York Portfolio 2.58% 42.24% 84.10%(1)
</TABLE>

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30, 1995

<TABLE>
<CAPTION>
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- -------
<S> <C> <C> <C>
Massachusetts Portfolio 3.32% 7.21% 8.00%(1)
New York Portfolio 2.58% 7.30% 8.14%(1)
</TABLE>

- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
AS OF AUGUST 31, 1995

<TABLE>
<CAPTION>
SEC 30-DAY
YIELD
-----
<S> <C>
Massachusetts Portfolio 5.07%
New York Portfolio 5.04%
</TABLE>

NOTES TO PERFORMANCE
(1) The Massachusetts Portfolio and New York Portfolio commenced operations on
September 3, 1987, and September 13, 1987, respectively.

<PAGE> 8
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT . . .
- --------------------------------------------------------------------------------

The charts on the right show how much a $10,000 investment in the Massachusetts
Portfolio and the New York Portfolio would be worth on August 31, 1995, assuming
you invested on the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Lehman Brothers Municipal Bond Index -- an unmanaged index that includes
approximately 15,000 bonds and is commonly used as a measure of bond
performance. Please remember that a portion of the income for this Fund may be
taxable, and some investors may be subject to the alternative minimum tax.

[Tax-Exempt Series Fund: Massachusetts

Line chart with the heading Tax-Exempt Series Fund: Massachusetts, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines.

The first line represents the value of the hypothetical $10,000 investment made
in the Tax-Exempt Series Fund: Massachusetts on September 3, 1987, before sales
charge, and is equal to $19,501 as of August 31, 1995. The second line
represents the value of the Lehman Brothers Municipal Bond Index and is equal to
$19,188 as of August 31, 1995. The third line represents the Tax-Exempt Series
Fund: Massachusetts after sales charge and is equal to $18,626 as of August 31,
1995.

Tax-Exempt Series Fund: New York

Line chart with the heading Tax-Exempt Series Fund: New York, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.

The first line represents the value of the hypothetical $10,000 investment made
in the Tax-Exempt Series Fund: New York on September 13, 1987, before sales
charge, and is equal to $19,668 as of August 31, 1995. The second line
represents the value of the Lehman Brothers Municipal Bond Index and is equal
to $19,188 as of August 31, 1995. The third line represents the John Hancock
Tax-Exempt Series Fund: New York after sales charge and is equal to $18,786 as
of August 31, 1995.]

8
<PAGE> 9

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund

<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $43,938,622, $50,866,573
and $52,675,229, respectively) ..................................... $ 45,753,821 $ 52,827,111 $ 54,722,577
Joint repurchase agreement (cost - none, none and $1,512,000,
respectively) ...................................................... -- -- 1,512,000
Corporate savings account ........................................... -- -- 660
------------ ------------ ------------
45,753,821 52,827,111 56,235,237
Cash ................................................................. 1,809,147 815,155 --
Receivable for shares sold ........................................... 46,258 -- --
Receivable for investments sold ...................................... 45,286 -- 1,724,216
Interest receivable .................................................. 764,158 821,711 757,682
Receivable from John Hancock Advisers, Inc. - Note B ................. 15,662 14,199 19,319
------------ ------------ ------------
Total Assets ....................................... 48,434,332 54,478,176 58,736,454
----------------------------------------------------------------------------------------------------------------

LIABILITIES:
Dividend payable ..................................................... 6,286 8,342 8,286
Payable for investments purchased .................................... 788,832 -- 2,921,276
Payable to John Hancock Advisers, Inc. and affiliates - Note B ....... 21,849 28,082 29,692
Accounts payable and accrued expenses ................................ 68,557 26,057 24,233
------------ ------------ ------------
Total Liabilities .................................. 885,524 62,481 2,983,487
----------------------------------------------------------------------------------------------------------------

NET ASSETS:
Capital paid-in ...................................................... 45,776,502 53,147,400 54,062,322
Accumulated net realized loss on investments and financial
futures contracts ................................................... (45,654) (694,237) (364,795)
Net unrealized appreciation of investments ........................... 1,815,199 1,960,538 2,047,348
Undistributed net investment income .................................. 2,761 1,994 8,092
------------ ------------ ------------
Net Assets ......................................... $ 47,548,808 $ 54,415,695 $ 55,752,967
================================================================================================================

NET ASSET VALUE PER SHARE ($NAV)
(based on 4,089,010, 4,627,583 and 4,694,309 shares,
respectively, of beneficial interest outstanding -
unlimited number of shares authorized with no par value) ............ $ 11.63 $ 11.76 $ 11.88
====================================================================================================================================

MAXIMUM OFFERING PRICE PER SHARE*
($NAV x 104.71%) ..................................................... $ 12.18 $ 12.31 $ 12.44
====================================================================================================================================
</TABLE>

* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.

THE STATEMENT OF ASSETS AND LIABILITIES IS THE PORTFOLIO'S BALANCE SHEET AND
SHOWS THE VALUE OF WHAT THE PORTFOLIO OWNS, IS DUE AND OWES AS OF AUGUST 31,
1995. YOU'LL ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER
SHARE AS OF THAT DATE.

SEE NOTES TO FINANCIAL STATEMENTS.

9
<PAGE> 10

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended August 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------

CALIFORNIA MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................................................... $ 2,967,124 $ 3,386,143 $ 3,447,241
----------- ----------- -----------

Expenses:
Investment management fee - Note B ........................................ 236,251 265,892 270,417
Distribution/service fee - Note B ......................................... 141,751 159,535 162,250
Transfer agent fee - Note B ............................................... 67,396 84,239 96,927
Custodian fee ............................................................. 52,828 54,714 53,387
Auditing fee .............................................................. 20,435 20,435 20,435
Printing .................................................................. 8,160 7,938 7,298
Trustees' fees ............................................................ 5,646 6,433 6,587
Legal fees ................................................................ 4,863 1,231 1,325
Miscellaneous ............................................................. 3,769 3,869 3,522
Registration and filing fees .............................................. 2,307 4,747 2,267
----------- ----------- -----------
Total Expenses ........................................... 543,406 609,033 624,415
Less Expense Reimbursements and Reductions - Note B ...... (212,654) (236,784) (245,832)
----------- ----------- -----------
Net Expenses ............................................. 330,752 372,249 378,583
----------------------------------------------------------------------------------------------------------------
Net Investment Income .................................... 2,636,372 3,013,894 3,068,658
----------------------------------------------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FINANCIAL
FUTURES CONTRACTS:
Net realized gain (loss) on investments sold ............................... 258,603 (218,685) 9,105
Net realized loss on financial futures contracts ........................... (224,847) (215,439) (247,549)
Change in net unrealized appreciation/depreciation of investments .......... 970,039 1,280,641 848,255
Change in net unrealized appreciation/depreciation of financial futures
contracts ................................................................. 21,406 21,406 21,406
----------- ----------- -----------
Net Realized and Unrealized Gain on Investments and
Financial Futures Contracts ............................ 1,025,201 867,923 631,217
----------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ..... $ 3,661,573 $ 3,881,817 $ 3,699,875
================================================================================================================
</TABLE>

THE STATEMENT OF OPERATIONS SUMMARIZES FOR EACH OF THE PORTFOLIOS, THE
INVESTMENT INCOME EARNED AND EXPENSES INCURRED IN OPERATING THE PORTFOLIO. IT
ALSO SHOWS NET GAINS (LOSSES) FOR THE PERIOD STATED.

THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF NET ASSETS FOR
EACH PORTFOLIO OF THE FUND HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE
DIFFERENCE REFLECTS NET INVESTMENT INCOME, ANY INVESTMENT GAINS AND LOSSES,
DISTRIBUTIONS PAID TO SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY
SHAREHOLDERS INVESTED IN EACH PORTFOLIO. THE FOOTNOTES ILLUSTRATE THE NUMBER OF
PORTFOLIO SHARES SOLD, REINVESTED AND REDEEMED DURING THE LAST TWO PERIODS,
ALONG WITH THE PER SHARE AMOUNT OF DISTRIBUTIONS MADE TO SHAREHOLDERS OF EACH
PORTFOLIO FOR THE PERIOD INDICATED.

SEE NOTES TO FINANCIAL STATEMENTS.

10
<PAGE> 11

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO MASSACHUSETTS PORTFOLIO
--------------------------- ---------------------------
YEAR ENDED AUGUST 31, YEAR ENDED AUGUST 31,
--------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............................... $ 2,636,372 $ 2,521,862 $ 3,013,894 $ 2,763,249
Net realized gain (loss) on investments sold and
financial futures contracts ........................ 33,756 49,982 (434,124) (258,100)
Change in net unrealized appreciation/depreciation
of investments and financial futures contracts ..... 991,445 (3,123,300) 1,302,047 (3,052,218)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations .................................... 3,661,573 (551,456) 3,881,817 (547,069)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS: *
Dividends from net investment income ................ (2,636,372) (2,521,862) (3,013,894) (2,763,249)
Distributions from net realized gain on
investments sold and financial futures contracts ... -- (881,280) -- (524,451)
------------ ------------ ------------ ------------
Total Distributions to Shareholders ................ (2,636,372) (3,403,142) (3,013,894) (3,287,700)
------------ ------------ ------------ ------------

FROM PORTFOLIO SHARE TRANSACTIONS: **
Shares sold ......................................... 4,671,968 11,239,290 6,835,830 15,050,941
Shares issued to shareholders in reinvestment
of distributions ................................... 1,753,168 2,175,583 2,120,129 2,294,219
------------ ------------ ------------ ------------
6,425,136 13,414,873 8,955,959 17,345,160
Less shares repurchased ............................. (8,943,159) (8,042,576) (9,530,624) (9,407,294)
------------ ------------ ------------ ------------
Net Capital Increase (Decrease) ..................... (2,518,023) 5,372,297 (574,665) 7,937,866
------------ ------------ ------------ ------------

NET ASSETS:
Beginning of period ................................. 49,041,630 47,623,931 54,122,437 50,019,340
------------ ------------ ------------ ------------
End of period (including undistributed net investment
income of $2,761, none, $1,994, none, $8,092
and none, respectively) ............................ $ 47,548,808 $ 49,041,630 $ 54,415,695 $ 54,122,437
=========================================================

* DISTRIBUTIONS TO SHAREHOLDERS:
Per share dividends from net investment income ...... $ 0.6283 $ 0.6241 $ 0.6469 $ 0.6315
------------ ------------ ------------ ------------
Per share distributions from net realized gain on
investments sold and financial futures contracts ... -- $ 0.2232 -- $ 0.1246
------------ ------------ ------------ ------------

** ANALYSIS OF PORTFOLIO SHARE TRANSACTIONS:
Shares sold ......................................... 414,708 956,177 595,309 1,234,833
Shares issued to shareholders in reinvestment
of distributions ................................... 155,996 183,733 186,027 216,441
------------ ------------ ------------ ------------
570,704 1,139,910 781,336 1,451,274
Less shares repurchased ............................. (791,874) (683,714) (836,966) (791,757)
------------ ------------ ------------ ------------
Net increase (decrease) ............................. (221,170) 456,196 (55,630) 659,517
=========================================================
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
---------------------------
YEAR ENDED AUGUST 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............................... $ 3,068,658 $ 2,906,252
Net realized gain (loss) on investments sold and
financial futures contracts ........................ (238,444) (40,700)
Change in net unrealized appreciation/depreciation
of investments and financial futures contracts ..... 869,661 (3,532,063)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations .................................... 3,699,875 (666,511)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS: *
Dividends from net investment income ................ (3,068,658) (2,906,252)
Distributions from net realized gain on
investments sold and financial futures contracts ... -- (580,857)
------------ ------------
Total Distributions to Shareholders ................ (3,068,658) (3,487,109)

------------ ------------

FROM PORTFOLIO SHARE TRANSACTIONS: **
Shares sold ......................................... 7,226,005 13,602,510
Shares issued to shareholders in reinvestment
of distributions ................................... 2,366,589 2,650,147
------------ ------------
9,592,594 16,252,657
Less shares repurchased ............................. (10,161,142) (8,852,991)
------------ ------------
Net Capital Increase (Decrease) ..................... (568,548) 7,399,666
------------ ------------

NET ASSETS:
Beginning of period ................................. 55,690,298 52,444,252
------------ ------------
End of period (including undistributed net investment
income of $2,761, none, $1,994, none, $8,092
and none, respectively) ............................ $ 55,752,967 $ 55,690,298
===========================

* DISTRIBUTIONS TO SHAREHOLDERS:
Per share dividends from net investment income ...... $ 0.6533 $ 0.6421
------------ ------------
Per share distributions from net realized gain on
investments sold and financial futures contracts ... -- $ 0.1319
------------ ------------

** ANALYSIS OF PORTFOLIO SHARE TRANSACTIONS:
Shares sold ......................................... 628,844 1,112,508
Shares issued to shareholders in reinvestment
of distributions ................................... 205,702 217,546
------------ ------------
834,546 1,330,054
Less shares repurchased ............................. (889,508) (732,616)
------------ ------------
Net increase (decrease) ............................. (54,962) 597,438
===========================
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

11
<PAGE> 12

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- California Portfolio

FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........ $ 11.38 $ 12.36 $ 11.68 $ 11.25 $ 10.72
---------- ---------- ---------- ---------- ----------
Net Investment Income ....................... 0.63 0.62 0.67 0.70 0.70
Net Realized and Unrealized Gain (Loss)
on Investments and Financial
Futures Contracts .......................... 0.25 (0.76) 0.82 0.43 0.53
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ......... 0.88 (0.14) 1.49 1.13 1.23
---------- ---------- ---------- ---------- ----------

Less Distributions:
Dividends from Net Investment Income ....... (0.63) (0.62) (0.67) (0.70) (0.70)
Distributions from Net Realized Gain on
Investments Sold .......................... -- (0.22) (0.14) -- --
---------- ---------- ---------- ---------- ----------
Total Distributions ...................... (0.63) (0.84) (0.81) (0.70) (0.70)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .............. $ 11.63 $ 11.38 $ 12.36 $ 11.68 $ 11.25
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value .. 8.06% (1.13%) 13.36% 10.34% 11.83%
Total Adjusted Investment Return at Net
Asset Value (a)(b) ......................... 7.61% (1.69%) 12.48% 9.30% 10.71%

RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ... $ 47,549 $ 49,042 $ 47,624 $ 33,896 $ 25,914
Ratio of Expenses to Average Net Assets ..... 0.70% 0.70% 0.67% 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net
Assets (a) ................................. 1.15% 1.26% 1.55% 1.64% 1.72%
Ratio of Net Investment Income to Average Net
Assets ..................................... 5.58% 5.27% 5.62% 6.09% 6.35%
Ratio of Adjusted Net Investment Income to
Average Net Assets (a) ..................... 5.13% 4.71% 4.74% 5.05% 5.23%
Portfolio Turnover Rate ..................... 35% 38% 93% 50% 7%
Expense Reimbursement Per Share ............. $ 0.05 $ 0.07 $ 0.10 $ 0.12 $ 0.12
</TABLE>

(a) On an unreimbursed basis without expense reduction.
(b) Unaudited.

THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, DIVIDENDS,
GAINS (LOSSES) AND TOTAL INVESTMENT RETURN OF THE PORTFOLIO. IT SHOWS HOW THE
PORTFOLIO'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE
PREVIOUS PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS
PRESENTED IN THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.

SEE NOTES TO FINANCIAL STATEMENTS.

12
<PAGE> 13

Financial Statements

John Hancock Funds - Tax-Exempt Series Fund -- Massachusetts Portfolio

FINANCIAL HIGHLIGHTS

Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ..... $ 11.56 $ 12.43 $ 11.75 $ 11.15 $ 10.63
---------- ---------- ---------- ---------- ----------
Net Investment Income .................... 0.65 0.63 0.67 0.71 0.73
Net Realized and Unrealized Gain (Loss)
on Investments and Financial Futures
Contracts ............................... 0.20 (0.75) 0.82 0.60 0.53
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ...... 0.85 (0.12) 1.49 1.31 1.26
---------- ---------- ---------- ---------- ----------

Less Distributions:
Dividends from Net Investment Income .... (0.65) (0.63) (0.67) (0.71) (0.73)
Distributions from Net Realized Gain on
Investments Sold ....................... -- (0.12) (0.14) -- (0.01)
---------- ---------- ---------- ---------- ----------
Total Distributions ................... (0.65) (0.75) (0.81) (0.71) (0.74)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........... $ 11.76 $ 11.56 $ 12.43 $ 11.75 $ 11.15
========== ========== ========== ========== ==========
Total Investment Return at Net
Asset Value ............................. 7.66% (0.97%) 13.29% 12.11% 12.10%
Total Adjusted Investment Return at Net
Asset Value (a)(b) ...................... 7.21% (1.50%) 12.38% 10.93% 10.66%

RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's
omitted) ................................ $ 54,416 $ 54,122 $ 50,019 $ 29,113 $ 15,015
Ratio of Expenses to Average Net Assets .. 0.70% 0.70% 0.67% 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net
Assets (a) .............................. 1.15% 1.23% 1.58% 1.78% 2.04%
Ratio of Net Investment Income to Average
Net Assets .............................. 5.67% 5.28% 5.61% 6.18% 6.64%
Ratio of Adjusted Net Investment Income to
Average Net Assets (a) .................. 5.22% 4.75% 4.70% 5.00% 5.20%
Portfolio Turnover Rate .................. 24% 29% 79% 56% 29%
Expense Reimbursement Per Share .......... $ 0.05 $ 0.06 $ 0.11 $ 0.14 $ 0.16
</TABLE>

(a) On an unreimbursed basis without expense reduction.
(b) Unaudited.

SEE NOTES TO FINANCIAL STATEMENTS.

13
<PAGE> 14

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- New York Portfolio

YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .......... $ 11.73 $ 12.63 $ 11.90 $ 11.29 $ 10.74
---------- ---------- ---------- ---------- ----------
Net Investment Income ......................... 0.65 0.64 0.68 0.72 0.72
Net Realized and Unrealized Gain (Loss)
on Investments and Financial Futures
Contracts .................................... 0.15 (0.77) 0.87 0.63 0.55
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ........... 0.80 (0.13) 1.55 1.35 1.27
---------- ---------- ---------- ---------- ----------

Less Distributions:
Dividends from Net Investment Income ......... (0.65) (0.64) (0.68) (0.72) (0.72)
Distributions from Net Realized Gain on
Investments Sold ............................ -- (0.13) (0.14) (0.02) --
---------- ---------- ---------- ---------- ----------
Total Distributions ........................ (0.65) (0.77) (0.82) (0.74) (0.72)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ................ $ 11.88 $ 11.73 $ 12.63 $ 11.90 $ 11.29
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value .... 7.19% (1.05%) 13.70% 12.17% 12.24%
Total Adjusted Investment Return at Net Asset
Value (a)(b) ................................. 6.74% (1.58%) 12.83% 11.09% 11.02%

RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ..... $ 55,753 $ 55,690 $ 52,444 $ 33,806 $ 20,878
Ratio of Expenses to Average Net Assets ....... 0.70% 0.70% 0.67% 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net
Assets (a) ................................... 1.15% 1.23% 1.54% 1.68% 1.82%
Ratio of Net Investment Income to Average
Net Assets ................................... 5.67% 5.28% 5.63% 6.22% 6.57%
Ratio of Adjusted Net Investment Income to
Average Net Assets (a) ....................... 5.22% 4.75% 4.76% 5.14% 5.35%
Portfolio Turnover Rate ....................... 70% 23% 56% 48% 12%
Expense Reimbursement Per Share ............... $ 0.05 $ 0.06 $ 0.11 $ 0.13 $ 0.13
</TABLE>

(a) On an unreimbursed basis without expense reduction.
(b) Unaudited.

SEE NOTES TO FINANCIAL STATEMENTS.

14
<PAGE> 15

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- California Portfolio

SCHEDULE OF INVESTMENTS
August 31, 1995
- --------------------------------------------------------------------------------

THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY EACH
PORTFOLIO OF THE TAX-EXEMPT SERIES FUND ON AUGUST 31, 1995. EACH SCHEDULE
CONSISTS OF ONE MAIN CATEGORY: TAX-EXEMPT LONG-TERM BONDS. THE TAX-EXEMPT BONDS
ARE FURTHER BROKEN DOWN BY STATE. UNDER EACH STATE IS A LIST OF THE SECURITIES
OWNED BY THE PORTFOLIO. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S
"CASH" POSITION, ARE LISTED LAST.

<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING*** OMITTED) VALUE MARKET+
- -------------------------- -------- -------- --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
CALIFORNIA (95.15%)
Alameda, County of,
Cert of Part 1992 Cap Proj ......................... 6.750% 06-01-16 A $ 500 $ 517,945 6.52%
California Educational Facilities Auth,
Rev 1993 Ser B Pooled College & Univ Proj .......... 6.125 06-01-09 Baa** 1,000 1,000,970 6.12
California Health Facilities Financing Auth,
Hosp Rev 1991 Ser A San Diego Hosp Assoc ........... 6.950 10-01-21 A 250 262,405 6.62
Ins Hosp Rev Ser 1990 Children's Hosp San Diego .... 6.500 07-01-20 AAA 500 515,485 6.30
Rev 1990 Ser A Kaiser Permanente ................... 7.000 12-01-10 AA 600 645,948 6.50
Rev Ser 1994A Scripps Research Institute ........... 6.300 07-01-09 A** 500 512,170 6.15
Sec Rev 1991 Ser Hosp of the Good Samaritan ........ 7.000 09-01-21 A- 250 258,013 6.78
California Housing Finance Agency,
Home Mtg Rev 1986 Ser A ............................ 8.100 08-01-16 AA- 75 78,141 7.77
Home Mtg Rev 1988 Ser B ............................ 8.600 08-01-19 AA- 40 42,378 8.12
Home Mtg Rev 1988 Ser D ............................ 8.000 08-01-19 AA- 90 96,407 7.47
Home Mtg Rev 1989 Ser A ............................ 7.625 08-01-09 AA- 35 37,259 7.16
Home Mtg Rev 1989 Ser B ............................ 8.000 08-01-29 AA- 100 106,626 7.50
Home Mtg Rev 1989 Ser D ............................ 7.500 08-01-29 AA- 150 157,482 7.14
Home Mtg Rev 1990 Ser D ............................ 7.875 08-01-31 AA- 15 15,658 7.54
Home Mtg Rev 1991 Ser A ............................ 7.375 08-01-17 AA- 155 165,707 6.90
Home Mtg Rev 1991 Ser C ............................ 7.450 08-01-11 AA- 65 69,340 6.98
Home Mtg Rev 1994 Ser C ............................ 6.650 08-01-14 AA- 1,000 1,029,640 6.46
Hsg Rev 1991 Ser E ................................. 7.000 08-01-26 AAA 525 549,024 6.69
California Pollution Control Financing Auth,
Poll Control Rev 1991 Ser Southern Calif Edison Co.. 6.900 12-01-17 A+ 500 523,580 6.59
Poll Control Rev 1992 Ser A Pacific Gas & Elec Co... 6.625 06-01-09 A 500 518,560 6.39
California State Public Works Board,
Lease Rev 1994 Ser A Depart of Corrections
Calif State Prison-Monterey County (Soledad II)... 6.875 11-01-14 A- *500 531,825 6.46
Lease Rev Ref Ser A Various Univ Proj .............. 5.500 06-01-21 A- *1,250 1,123,250 6.12
Campbell, City of,
1991 Cert of Part Civic Center Proj ................ 6.750 10-01-17 A- 155 176,271 5.94
1991 Cert of Part Civic Center Proj ................ 6.750 10-01-17 A- 1,565 1,611,950 6.55
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

15
<PAGE> 16

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- California Portfolio

<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING*** OMITTED) VALUE ARKET+
- -------------------------- -------- -------- --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>

CALIFORNIA (CONTINUED)
Carson Redevelopment Agency,
Tax Alloc Ser 1992 Area No. 1 Redevel Proj ......................... 6.375% 10-01-12 BBB+ $ 500 $ 500,810 6.36%
Tax Alloc Ser 1993B Area No. 1 Redevel Proj ........................ 6.000 10-01-16 BBB+ 500 467,685 6.41
Castaic Lake Water Agency,
Cert of Part Ser 1990 Wtr Sys Imp Proj ............................. 7.350 08-01-20 A** 200 227,618 6.46
Central California Joint Powers Health Financing Auth,
Cert of Part Ser 1993 Community Hosp of Central Calif Proj ......... 5.250 02-01-13 A** 750 671,040 5.87
Central Coast Water Auth,
Rev State Wtr Proj Regional Facil Ser 1992 ......................... 6.600 10-01-22 AAA 500 525,015 6.29
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice-Gen Proj 1993 Ser ................. 6.100 07-01-13 BBB- 2,300 2,231,713 6.29
Cogeneration Proj Rev Carson Ice-Gen Proj 1993 Ser ................. 6.200 07-01-20 BBB- 1,000 957,230 6.48
Contra Costa Water District,
Wtr Treatment Rev Ser E ............................................ 6.250 10-01-12 AAA 1,000 1,070,820 5.84
Costa Mesa Public Financing Auth,
1991 Local Agency Rev Ser A ........................................ 7.100 08-01-21 NR 220 220,504 7.08
Desert Hospital District,
Hosp Rev Cert of Part Ser 1990 Desert Hosp Corp Proj ............... 8.000 07-01-10 AAA 300 351,753 6.82
Fairfield Public Financing Auth,
1995 Rev Ser A Pennsylvania Ave Storm Drainage Proj ................ 6.500 08-01-21 A- *1,085 1,060,989 6.65
Fontana Public Financing Auth,
Sub Lien Tax Alloc Rev 1991 Ser A North Fontana Redevel Proj ....... 7.750 12-01-20 BBB 195 230,597 6.55
Tax Alloc Rev Ser 1990 Ser A North Fontana Redevel Proj ............ 7.250 09-01-20 A 325 343,577 6.86
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Current Int Ser 1995A ....................... 6.500 01-01-32 BBB- *1,490 1,464,327 6.61
Toll Rd Rev Fixed Rate Current Int Ser 1995A ....................... 6.000 01-01-34 BBB- *1,000 911,380 6.58
Fresno, City of,
Hlth Facil Rev Ser 1991 Saint Agnes Medical Center ................. 6.625 06-01-21 AA- 250 258,082 6.42
Los Angeles City Department of Water and Power,
Elec Plant Ref Rev Second Iss of 1993 .............................. 5.400 11-15-12 AA- 1,000 932,000 5.79
Los Angeles County Health Facilities Auth,
Lease Rev Ref Olive View Medical Center Proj ....................... 7.500 03-01-08 NR 450 493,119 6.84
Metropolitan Water District,
Waterworks Ref Rev Iss of 1986 ...................................... 6.750 06-01-22 AA+ 155 159,955 6.54
Wtr Rev Iss of 1991 ................................................. 6.625 07-01-12 AA 750 796,665 6.24
Moreno Valley, City of,
Cert of Part Ser 1995 City Hall Proj ............................... 6.500 11-01-16 Baa1** *1,500 1,502,880 6.49
Mount Diablo Hospital District,
Hosp Rev Ser A ..................................................... 6.000 12-01-05 AAA 1,640 1,756,538 5.60
Mountain View City Capital Improvements Financing Auth,
1992 Rev City Hall/Community Theatre Complex & Shoreline Regional Park
Community Tax Alloc Refinancing .................................. 6.500 08-01-16 AAA 600 622,854 6.26

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

16
<PAGE> 17

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- California Portfolio

<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING*** OMITTED) VALUE MARKET+
- -------------------------- -------- -------- --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Northern California Transmission Agency,
Rev 1990 Ser A Calif-Oregon Transm Proj .......................... 7.000% 05-01-13 AAA $ 100 $ 115,259 6.07%
Rev 1992 Ser A Calif-Oregon Transm Proj .......................... 6.500 05-01-16 AAA 1,000 1,043,580 6.23
Oakland, Port of,
Port Rev Ser E ................................................... 6.400 11-01-07 AAA 1,000 1,068,480 5.99
Spec Facil Rev 1992 Ser A Mitsui O.S.K. Lines Ltd Proj ........... 6.800 01-01-19 A+ 500 509,895 6.67
Orange, County of,
Ser A of 1990 Spec Tax of Community Facil Dist No. 87-3
Mission Viejo .................................................. 7.800 08-15-15 NR 350 405,549 6.73
Ser A of 1992 Spec Tax of Community Facil Dist No. 88-1
Aliso Viejo .................................................... 7.350 08-15-18 AAA 1,000 1,179,940 6.23
Pasadena, City of,
1993 Ref Cert of Part Old Pasadena Parking Facil Proj ............ 6.250 01-01-18 A+ 1,000 1,031,670 6.06
Rancho Mirage, City of, Joint Powers Financing Auth,
Civic Center Rev Ref Ser 1991A ................................... 7.500 04-01-17 BBB 195 225,580 6.48
Civic Center Rev Unref Ser 1991A ................................. 7.500 04-01-17 BBB 55 58,112 7.10
Riverside County Asset Leasing Corp,
Leasehold Rev 1993 Ser A County of Riverside Hosp Proj ........... 6.500 06-01-12 A 1,000 1,028,750 6.32
Sacramento City Financing Auth,
Lease Rev Ref Ser A .............................................. 5.375 11-01-14 AAA 500 475,565 5.65
San Bernardino, County of,
Cert of Part Medical Center Fin Proj ............................. 5.500 08-01-17 A- *1,000 885,010 6.21
Cert of Part Ser B Cap Facil Proj ................................ 6.875 08-01-24 AAA 350 407,361 5.91
Trans Auth Sales Tax Rev Ser A ................................... 5.400 03-01-10 AAA 1,000 972,580 5.55
San Diego County Regional Transportation Commission,
Sales Tax Rev 1991 Ser A ......................................... 7.000 04-01-06 AA- 90 97,484 6.46
San Diego County Water Auth,
Wtr Rev Cert of Part Reg ......................................... 5.681 04-22-09 AAA *800 803,712 5.65
San Diego, City of,
Ind'l Dev Rev 1986 Ser A San Diego Gas & Elec Co. ................ 7.625 07-01-21 A+ 300 312,126 7.33
San Francisco State Building Auth,
Lease Ref Rev 1993 Ser A Dept of Gen Serv ........................ 5.000 10-01-13 A- 2,245 1,974,365 5.69
San Jose Financing Auth,
Reassessment Rev 1994 Ser C ...................................... 6.750 09-02-11 NR 980 1,001,423 6.61
San Jose, City of,
1986 Cert of Part Convention Center Proj ......................... 7.875 09-01-10 NR 300 317,691 7.44
San Mateo County Joint Powers Financing Auth,
Lease Rev 1994 Ser A San Mateo County Hlth Center ................ 6.125 07-15-14 AAA 250 251,650 6.08
Santa Barbara, County of,
1990 Cert of Part ................................................ 7.50 02-01-11 A+ 250 282,098 6.65
1991 Cert of Part ................................................ 6.400 02-01-11 A+ 250 255,895 6.25
Santa Rosa, City of,
Wastewater Rev 1992 Ser A Subregional Wastewater Proj ............ 6.500 09-01-22 AAA 500 519,650 6.25
Southern California Home Financing Auth,
Single Family Mtg Rev 1990 Iss B ................................. 7.750 03-01-24 AAA 45 47,632 7.32

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

17
<PAGE> 18

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- California Portfolio

CALIFORNIA (CONTINUED)
Southern California Public Power Auth,
Pwr Proj Rev 1987 Ref Ser A Palo Verde Proj ..................... 6.875% 07-01-15 AA- $ 215 $ 221,729 6.67%
Torrance City Redevelopment Agency,
Tax Alloc Ref Ser 1992 Downtown Redevel Proj .................... 7.125 09-01-21 BBB 500 515,175 6.92
University of California, The Regents of,
1993 Ref Cert of Part UCLA Central Chiller/Cogeneration Facil ... 5.400 11-01-11 Aa** *1,000 934,440 5.78
-----------
45,245,586
-----------
GUAM (1.07%)
Guam Airport Auth,
Gen Rev 1993 Ser B .............................................. 6.600 10-01-10 BBB 500 508,235 6.49
-----------
TOTAL TAX-EXEMPT LONG TERM BONDS
(Cost $ 43,938,622) (96.22%) $45,753,821
======= ===========
</TABLE>

*Securities, other than short term investments, newly added to the portfolio
during the period ended August 31, 1995.
**Rated by Moody's Investors Services, Fitch or John Hancock Adviser's, Inc.
where Standard & Poors ratings are not available. NR not rated.
***Credit Ratings are unaudited.
+The yield is unaudited and not calculated in accordance with guidelines
established by the U.S. Securities and Exchange Commission.
The percentage shown for each category is the total value of that category
as a percentage of the net assets of the Portfolio.

SEE NOTES TO FINANCIAL STATEMENTS.

18
<PAGE> 19

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- Massachusetts Portfolio

<TABLE>
SCHEDULE OF INVESTMENTS
August 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING*** OMITTED) VALUE MARKET+
- -------------------------- -------- -------- --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
MASSACHUSETTS (88.90%)
Boston City Industrial Development Financing Auth,
Sewage Facil Rev 1991 Ser Harbor Elec Energy Co Proj ................ 7.375% 05-15-15 BBB $ 250 $ 262,750 7.02%
Boston Water and Sewer Commission,
Gen Rev 1991 Ser A Sr Ser ........................................... 7.000 11-01-18 AAA 500 572,470 6.11
Gen Rev 1992 Ser A Sr Ser ........................................... 5.750 11-01-13 A 500 496,060 5.80
Boston, City of,
GO 1990 Ser A ....................................................... 7.375 02-01-10 A 350 395,479 6.53
GO 1991 Ser A MBIA .................................................. 6.750 07-01-11 AAA 350 394,604 5.99
GO 1992 Ser A AMBAC ................................................. 6.500 07-01-12 AAA 500 530,070 6.13
Rev Boston City Hosp FHA Ins Mtg Ser A .............................. 7.625 02-15-21 Aaa** 500 572,145 6.66
Brockton, City of,
State Qualified Municipal Purpose Ln of 1993 ........................ 6.125 06-15-18 A- 1,000 999,880 6.13
Greater New Bedford Regional Refuse Management District,
Ma GO Landfill ...................................................... 5.875 05-01-13 Baa** 915 884,201 6.08
Holyoke, City of,
GO School Proj Ln Act of 1948 ....................................... 7.650 08-01-09 Baa** *1,000 1,099,380 6.96
Massachusetts Bay Transportation Auth,
Gen Trans Sys Rev Ref 1993 MBIA Ser A ............................... 5.500 03-01-22 AAA 985 918,818 5.90
Gen Trans Sys Rev Ref 1994 Ser A .................................... 7.000 03-01-14 A+ *1,000 1,137,510 6.15
Gen Trans Sys Rev Ref 1995 Ser A .................................... 5.750 03-01-18 A+ *1,000 968,150 5.94
Massachusetts Educational Financing Auth,
Ed Ln Rev Iss D Ser 1991A ........................................... 7.250 01-01-09 AAA 510 551,947 6.70
Massachusetts Health and Educational Facilities Auth,
Rev Anna Jaques Hosp Iss Ser B ...................................... 6.875 10-01-12 Baa1** 1,250 1,264,587 6.80
Rev Bentley College Iss Ser H ....................................... 6.875 07-01-12 AAA 250 269,792 6.37
Rev Boston College Iss Ser J ........................................ 6.625 07-01-21 AAA 1,000 1,049,960 6.31
Rev Charlton Memorial Hosp Iss Ser B ................................ 7.250 07-01-13 A- 2,250 2,360,430 6.91
Rev Community Colleges Prog Iss Ser A ............................... 6.600 10-01-22 AAA 250 258,073 6.39
Rev Dana Farber Cancer Institute Ser G-1 ............................ 6.250 12-01-22 A *1,000 988,260 6.32
Rev Faulkner Hosp Iss Ser C ......................................... 6.000 07-01-13 Baa1** 750 697,958 6.45
Rev Faulkner Hosp Iss Ser C ......................................... 6.000 07-01-23 Baa1** 1,000 878,070 6.83
Rev Lowell Gen Hosp Iss Ser A ....................................... 8.400 06-01-11 Baa1** 600 655,218 7.69
Rev Melrose-Wakefield Hosp Iss Ser B ................................ 6.350 07-01-06 A- 500 514,570 6.17
Rev Melrose-Wakefield Hosp Iss Ser B ................................ 5.875 07-01-18 A- 1,000 923,820 6.36
Rev New England Baptist Hosp Iss Ser B .............................. 7.350 07-01-17 BBB+ 250 257,293 7.14
Rev New England Deaconess Hosp Iss Ser D ............................ 6.875 04-01-22 A 2,710 2,793,766 6.67
Rev New England Medical Center Hosp Iss Ser D ....................... 7.200 07-01-10 A1** 280 293,376 6.87
Rev Northeastern Univ Iss Ser E ..................................... 6.550 10-01-22 AAA 1,000 1,050,140 6.24
Rev Ref Worcester Polytechnic Institute Iss Ser E ................... 6.625 09-01-17 A+ 250 264,300 6.27
Rev Saint Elizabeth's Hosp of Boston Iss Ser B FHA Ins Proj ......... 7.750 08-01-27 AA 350 380,656 7.13
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 20

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- Massachusetts Portfolio

<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING*** OMITTED) VALUE MARKET+
- -------------------------- -------- -------- --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
Rev Smith College Iss Ser D ......................................... 5.750% 07-01-24 AA- $ 560 $ 541,598 5.95%
Rev Tufts Univ Iss Ser C ............................................ 7.400 08-01-18 A+ 90 98,896 6.73
Rev Tufts Univ Iss Ser C ............................................ 7.400 08-01-18 AAA 430 476,126 6.68
Massachusetts Housing Finance Agency,
Rev Insured Rental Hsg 1994 Ser A ................................... 6.600 07-01-14 AAA 1,100 1,129,832 6.43
Rev Residential Devel FNMA Coll Ser C ............................... 6.875 11-15-11 AAA 2,000 2,108,760 6.52
Rev Residential Devel FNMA Coll Ser D ............................... 6.800 11-15-12 AAA 500 522,450 6.51
Single Family Hsg Rev Ser 5 ......................................... 8.375 06-01-15 A+ 50 53,530 7.82
Single Family Hsg Rev Ser 7 ......................................... 8.40 12-01-16 A+ 100 108,016 7.78
Single Family Hsg Rev Ser 7 ......................................... 8.100 06-01-20 A+ 85 90,873 7.58
Single Family Hsg Rev Ser 9 ......................................... 8.100 12-01-21 A+ 100 107,261 7.55
Single Family Hsg Rev Ser 13 ........................................ 7.950 06-01-23 A+ 195 207,925 7.46
Single Family Hsg Rev Ser 16 ........................................ 7.900 06-01-14 A+ 95 101,467 7.40
Single Family Hsg Rev Ser 18 ........................................ 7.350 12-01-16 A+ 550 587,592 6.88
Massachusetts Industrial Finance Agency,
Resource Recovery Rev Ref Ser 1993 A Mass Refusetech Inc Proj ....... 6.300 07-01-05 BBB 1,825 1,889,678 6.08
Rev Phillips Academy ................................................ 5.375 09-01-23 AA 695 639,956 5.84
Rev Ref Emerson College Iss Ser 1991A ............................... 8.900 01-01-18 NR 250 275,083 8.09
Rev Ref Holy Cross College Iss II Ser 1992 .......................... 6.375 11-01-15 A+ 500 512,310 6.22
Massachusetts Municipal Wholesale Electric Co,
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the Commonwealth of Mass. 6.750 07-01-05 BBB+ 500 545,345 6.19
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the Commonwealth of Mass. 6.750 07-01-06 BBB+ 1,500 1,627,050 6.22
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the Commonwealth of Mass. 6.750 07-01-17 BBB+ 400 422,536 6.39
Pwr Supply Sys Rev Ser C A Pub Corp of the Commonwealth of Mass ..... 6.625 07-01-10 AAA 1,000 1,075,290 6.16
Pwr Supply Sys Rev Ser D A Pub Corp of the
Commonwealth of Mass AMBAC.......................................... 6.000 07-01-06 AAA 1,000 1,069,150 5.61
Massachusetts Port Auth,
Rev Ref Ser 1992 A .................................................. 6.000 07-01-13 AA- 1,000 994,490 6.03
Rev Ref Ser 1992 A .................................................. 6.000 07-01-23 AA- *1,620 1,596,121 6.09
Rev Ref Ser 1993 B .................................................. 5.000 07-01-13 AA- 500 444,650 5.62
Massachusetts Water Resource Auth,
Gen Rev Ref 1993 Ser B .............................................. 5.500 03-01-17 A 400 374,640 5.87
Gen Rev Ref 1993 Ser B .............................................. 5.000 03-01-22 A *360 310,392 5.80
Massachusetts, the Commonwealth of,
GO Consol Ln of 1991 Ser D .......................................... 6.87 07-01-10 A+ 1,750 1,983,170 6.07
GO Consol Ln of 1995 Ser C .......................................... 5.625 08-01-14 AAA *1,000 971,060 5.79
Spec Oblig Rev 1994 Ser A ........................................... 5.800 06-01-14 AA- 1,000 989,750 5.86
Nantucket, Town of,
GO Municipal Purpose Ln of 1991 ..................................... 6.800 12-01-11 A** 450 485,208 6.31
Plymouth, County of,
Cert of Part Ser A Plymouth County Correctional Facil Proj .......... 7.000 04-01-22 A- 750 816,645 6.43
Springfield, City of,
GO School Proj Ln Act of 1992 Ser B ................................. 7.100 09-01-11 Baa** 500 537,675 6.60
-----------
$48,378,258
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE> 21

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- Massachusetts Portfolio

*Securities other than short-term investments newly added to the portfolio
during the period ended August 31, 1995.
**Rated by Moody's Investors Services, Fitch or John Hancock Advisers, Inc.
where Standard & Poor's ratings are not available. NR not rated.
***Credit ratings are unaudited.
+The yield is unaudited and not calculated in accordance with the guidelines
established by the U.S. Securities and Exchange Commission.
The percentage shown for each investment category is the total of that
category as a percentage of the net assets of the Portfolio.

SEE NOTES TO FINANCIAL STATEMENTS.

21
<PAGE> 22

FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- New York Portfolio

<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
August 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------

PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING*** OMITTED) VALUE MARKET+
- -------------------------- -------- -------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
NEW YORK (91.79%)
34th Street Partnership, Inc,
34th Street Business Imp Dist Cap Imp Bonds Ser 1993 ...... 5.500% 01-01-23 A1** $ 500 $ 455,360 6.04%
Albany, County of,
Ref Ser 1993 .............................................. 5.000 10-01-12 AAA 600 552,036 5.43
Battery Park City Auth,
Jr Rev Ref Ser 1993A ...................................... 5.000 11-01-13 AA 2,500 2,210,300 5.66
Dutchess County Resource Recovery Agency,
Solid Waste Mgmt Sys Rev Ser 1990 A ....................... 7.500 01-01-09 AAA 250 279,235 6.71
Grand Central District Management Association Inc,
Business Imp District Cap Imp Ser 1994 .................... 5.125 01-01-14 A 500 447,105 5.73
Metropolitan Transportation Auth,
Commuter Facil 1987 Serv Contract Ser 3 ................... 7.375 07-01-08 BBB 1,000 1,133,760 6.50
Commuter Facil 1992 Serv Contract Ser N ................... 7.125 07-01-09 BBB 1,000 1,080,800 6.59
New York City Housing Development Corp,
Multi-Family Mtg Rev FHA Ins Mtg Ln 1993 Ser A ............ 6.550 10-01-15 AAA 1,000 1,035,140 6.33
New York City Industrial Development Agency,
Spec Facil Rev 1990 American Airlines Inc Proj ............ 8.000 07-01-20 BB+ 400 426,604 7.50
Spec Facil Rev 1994 Terminal One Group Assn L.P. Proj ..... 6.000 01-01-19 A *1,000 957,590 6.27
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev 1994 Ser B .............................. 5.500 06-15-19 A- 1,000 922,140 5.96
Wtr & Swr Sys Rev 1994 Ser F MBIA ......................... 5.500 06-15-23 AAA *1,000 937,810 5.86
New York Local Government Assistance Corp,
Ser 1991 A Pub Benefit Corp. .............................. 7.250 04-01-18 A 1,000 1,152,120 6.29
Ser 1992 A Pub Benefit Corp. .............................. 6.875 04-01-19 A *2,000 2,169,920 6.34
Ser 1993 E Pub Benefit Corp. .............................. 5.250 04-01-16 A 500 457,630 5.74
New York State Dormitory Auth,
City Univ Rev Iss Ser U ................................... 6.375 07-01-08 BBB 500 508,375 6.27
City Univ Sys Consol Rev Construction
2nd Generation Ser 1993A................................... 6.000 07-01-20 BBB 1,000 987,180 6.08
City Univ Sys Consol Rev Ser 1990A ........................ 7.625 07-01-20 BBB+ 485 560,825 6.59
Court Facil Lease Rev Ser 1993A ........................... 5.500 05-15-10 BBB+ *1,000 941,260 5.84
Court Facil Lease Rev Ser 1993A ........................... 5.375 05-15-16 BBB+ *2,000 1,793,800 5.99
Court Facil Lease Rev Ser 1993A ........................... 5.500 05-15-23 BBB+ *1,000 900,480 6.11
Genessee Valley Presbyterian Nursing Center FHA-Ins Mtg
Rev Ser 1992B ........................................... 6.850 08-01-16 AAA 250 269,020 6.37
KMH Homes Inc FHA-Ins Mtg Rev Ser 1991 .................... 6.950 08-01-31 AAA 1,200 1,263,192 6.60
Manhattanville College Ins Rev Ser 1990 ................... 7.500 07-01-22 AAA 305 351,040 6.52
Skidmore College Rev Ser 1993 ............................. 5.250 07-01-13 AAA 1,000 942,470 5.57
State Univ Ed Facil Rev Ser 1990A ......................... 7.700 05-15-12 BBB+ 300 346,869 6.66
State Univ Ed Facil Rev Ser 1993A ......................... 5.500 05-15-19 BBB+ *1,000 920,500 5.98
United Hlth Serv Inc FHA-Ins Mtg Rev Ser 1989 ............. 7.350 08-01-29 AAA 200 215,914 6.81
Univ of Rochester Rev Ser 1987 ............................ 6.500 07-01-09 A+ 625 650,344 6.25
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

22
<PAGE> 23
FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- New York Portfolio

NEW YORK (CONTINUED)
Upstate Community Colleges 1988A Iss ......................... 7.750% 07-01-18 Baa1** $ 300 $ 333,558 6.97%
Vassar College Rev Ser 1990 .................................. 7.250 07-01-15 AA- 250 273,562 6.63
New York State Energy Research and Development Auth,
Elec Facil Rev Ser 1986 A Consol Edison Co of NY Inc Proj .... 7.500 11-15-21 A+ 200 208,946 7.18
Elec Facil Rev Ser 1989 A Consol Edison Co of NY Inc Proj .... 7.750 01-01-24 A+ 200 215,264 7.20
Elec Facil Rev Ser 1989 A Long Island Lighting Co Proj ....... 7.150 09-01-19 BB+ 500 505,760 7.07
Elec Facil Rev Ser 1989 B Consol Edison Co of NY Inc Proj .... 7.375 07-01-24 A+ 200 212,380 6.95
Elec Facil Rev Ser 1990 A Consol Edison Co of NY Inc Proj .... 7.500 07-01-25 A+ 260 280,582 6.95
Elec Facil Rev Ser 1990 A Long Island Lighting Co Proj ....... 7.150 06-01-20 BB+ 1,000 1,011,520 7.07
Elec Facil Rev Ser 1991 A Consol Edison Co of NY Inc Proj .... 7.500 01-01-26 A+ 420 453,755 6.94
Elec Facil Rev Ser 1992 B Long Island Lighting Co Proj ....... 7.150 02-01-22 BB+ 1,000 1,011,520 7.07
Elec Facil Rev Ser 1992 C Long Island Lighting Co Proj ....... 6.900 08-01-22 BB+ 500 500,630 6.89
Elec Facil Rev Ser 1993 Consol Edison Co of NY Inc Proj ...... 6.000 03-15-28 A+ 500 490,865 6.11
New York State Environmental Facilities Corp,
State Wtr Poll Control Revolving Fund Rev Ser 1990 A ......... 7.500 06-15-12 A 630 703,634 6.72
State Wtr Poll Control Revolving Fund Rev Ser 1991 E ......... 6.875 06-15-10 A 400 435,664 6.31
New York State Housing Finance Agency,
Ins Multi-Family Mtg Hsg 1992 Ser C .......................... 6.450 08-15-14 AAA 500 513,645 6.28
Ins Multi-Family Mtg Hsg 1994 Ser C .......................... 6.450 08-15-14 AAA 1,000 1,030,610 6.26
State Univ Construction 1986 Ser A ........................... 8.000 11-01-16 AAA 250 262,075 7.63
New York State Medical Care Facilities Finance Agency,
FHA-Ins Mtg St Lukes Roosevelt Rev Ser A ..................... 5.600 08-15-13 AAA 815 801,390 5.70
Hosp & Nursing Home FHA-Ins Mtg Rev 1988 Ser C ............... 7.700 02-15-22 AAA 450 503,703 6.88
Hosp & Nursing Home Ins Mtg Rev 1992 Ser B ................... 6.950 02-15-32 AAA 1,000 1,053,430 6.60
Mental Hlth Serv Facil Imp Rev 1990 Ser B .................... 7.875 08-15-20 BBB+ 90 98,562 7.19
Mental Hlth Serv Facil Imp Rev 1990 Ser B .................... 7.875 08-15-20 AAA 150 175,578 6.73
Mental Hlth Serv Facil Imp Rev 1991 Ser A .................... 7.750 08-15-11 BBB+ 60 65,778 7.07
Mental Hlth Serv Facil Imp Rev 1991 Ser A .................... 7.750 08-15-11 AAA 165 193,619 6.60
Mental Hlth Serv Facil Imp Rev 1991 Ser B .................... 7.625 08-15-17 BBB+ 245 268,640 6.95
Mental Hlth Serv Facil Imp Rev 1991 Ser C Preref ............. 7.300 02-15-21 AAA 300 348,732 6.28
Mental Hlth Serv Facil Imp Rev 1991 Ser C Unref Bal .......... 7.300 02-15-21 A 100 107,363 6.80
Sec Hosp Rev 1991 Ser A ...................................... 7.350 08-15-11 BBB 250 263,660 6.97
New York State Mortgage Agency,
Homeowner Mtg Rev Ser 27 ..................................... 6.900 04-01-15 Aa** *1,175 1,234,596 6.57
Homeowner Mtg Rev Ser 28 ..................................... 7.050 10-01-23 Aa** 500 519,495 6.79
Homeowner Mtg Rev Ser 31A .................................... 5.375 10-01-17 Aa** 500 450,155 5.97
Homeowner Mtg Rev Ser BB-2 ................................... 7.950 10-01-15 Aa** *230 246,026 7.43
Homeowner Mtg Rev Ser EE-4 ................................... 7.800 10-01-13 Aa** 300 321,363 7.28
Homeowner Mtg Rev Ser JJ ..................................... 7.500 10-01-17 Aa** 330 350,259 7.07
Homeowner Mtg Rev Ser VV ..................................... 7.375 10-01-11 Aa** 195 208,627 6.89
New York State Power Auth,
Gen Purpose Ser W ............................................ 6.500 01-01-08 AA- 250 275,690 5.89
Gen Purpose Ser Y ............................................ 6.500 01-01-11 AA- 250 264,430 6.15
Gen Purpose Ser Y ............................................ 6.750 01-01-18 AA- 250 267,630 6.31
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

23
<PAGE> 24
FINANCIAL STATEMENTS

John Hancock Funds - Tax-Exempt Series Fund -- New York Portfolio

SEE NOTES TO FINANCIAL STATEMENTS.

24
<PAGE> 25
Financial Statements

John Hancock Funds - Tax-Exempt Series Fund -- New York Portfolio

<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
STATE, ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- -------------------------- -------- -------- ---------- ------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (2.71%)
Investment in a joint repurchase agreement transaction with
UBS Securities Inc., Dated 08-31-95, due 09-01-95
(secured by U.S. Treasury Bill, 5.540% due 05-30-96,
by U.S. Treasury Bonds, 12.50% thru 14.00% due 11-15-10
thru 08-15-14, and by U.S. Treasury Notes, 4.375% thru 7.25%
due 08-15-96 thru 12-31-98) - Note A........................................... 5.800% 09-01-95 $ 1,512 $ 1,512,000
-----------

CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%............................................................. 660
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,512,660) ( 2.71%) 1,512,660
-------- -----------
TOTAL INVESTMENTS (100.86%) $56,235,237
======== ===========
</TABLE>

* Securities, other than short term investments, newly added to the portfolio
during the period ended August 31, 1995.
** Rated by Moody's Investors Services, Fitch or John Hancock Adviser's, Inc.
where Standard & Poors ratings are not available. NR not rated.
*** Credit ratings are unaudited.
+ The yield is not calculated in accordance with guidelines established by
the U.S. Securities and Exchange Commission.
The percentage shown for each category is the total value of that category
as a percentage of the net assets of the Portfolio.

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE> 26
Financial Statements

John Hancock Funds - Tax-Exempt Series Fund

PORTFOLIO CONCENTRATION (UNAUDITED)
- -------------------------------------------------------------------------------

THE CALIFORNIA, MASSACHUSETTS, AND NEW YORK PORTFOLIOS INVEST PRIMARILY IN
SECURITIES ISSUED BY THE STATES OF CALIFORNIA, MASSACHUSETTS AND NEW YORK
RESPECTIVELY, AND THEIR VARIOUS POLITICAL SUBDIVISIONS. THE PERFORMANCE OF THESE
PORTFOLIOS IS CLOSELY TIED TO ECONOMIC CONDITIONS WITHIN THE APPLICABLE STATE
AND THE FINANCIAL CONDITION OF THE STATE AND ITS AGENCIES AND MUNICIPALITIES.
THE CONCENTRATION OF INVESTMENTS BY STATES AND CREDIT RATINGS FOR INDIVIDUAL
SECURITIES HELD BY EACH PORTFOLIO ARE SHOWN IN THE SCHEDULE OF INVESTMENTS. IN
ADDITION, THE CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS SECTOR
CATEGORIES.

THE TABLE BELOW SHOWS THE PERCENTAGES OF EACH PORTFOLIO'S INVESTMENTS AT AUGUST
31, 1995 ASSIGNED TO THE VARIOUS SECTOR CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE AS A PERCENTAGE OF EACH
PORTFOLIO'S NET ASSETS:
---------------------------------
CALIFORNIA MASSACHUSETTS NEW YORK
SECTOR DISTRIBUTION PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------- ---------- ------------- ---------
<S> <C> <C> <C>
General Obligation......................................................................... - % 14.40% 10.14%
Revenue Bonds - Certificate of Participation............................................... 16.97 1.50 -
Revenue Bonds - Education.................................................................. 4.47 13.02 18.16
Revenue Bonds - Electric Power............................................................. 10.20 8.71 1.45
Revenue Bonds - Health..................................................................... 14.43 23.12 11.86
Revenue Bonds - Housing.................................................................... 5.04 9.22 11.07
Revenue Bonds - Industrial Development Bond................................................ 1.73 7.57 16.61
Revenue Bonds - Other...................................................................... 22.21 1.81 15.76
Revenue Bonds - Pollution Control Facilities............................................... 2.19 1.63 2.21
Revenue Bonds - Transportation............................................................. 10.56 12.88 5.51
Revenue Bonds - Water & Sewer.............................................................. 8.42 3.22 5.38
----- ----- -----
TOTAL TAX-EXEMPT LONG-TERM BONDS 96.22% 97.08% 98.15%
===== ===== =====
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE> 27

Notes to Financial Statements
John Hancock Funds - Tax-Exempt Series Fund

NOTE A --
ACCOUNTING POLICIES
John Hancock Tax-Exempt Series Fund (the "Fund") is an
open-end non-diversified investment management company, registered under the
Investment Company Act of 1940. The Fund is organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts. As of August
31, 1995, the Fund consisted of three separate series portfolios: the California
Portfolio, the Massachusetts Portfolio, and the New York Portfolio (the
"Portfolios"). The Trustees may authorize the creation of additional portfolios
from time to time to satisfy various investment objectives. Significant
accounting policies of each portfolio are as follows:

VALUATION OF INVESTMENTS Securities in the Fund's portfolios are valued on the
basis of market quotations, valuations provided by independent pricing services,
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.

JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.

INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.

FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net gains on investments, to
its shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes and to the extent provided by regulations, to offset
future net realized capital gains, the California Portfolio has a capital loss
carryforward available of $35,841 expiring August 31, 2003, the Massachusetts
Portfolio has capital loss carryforwards available of $2,465 expiring August 31,
2002 and $396,511 expiring August 31, 2003 and the New York Portfolio has a
capital loss carryforward available of $77,663 expiring August 31, 2003. To the
extent that such carryforwards are used by the Portfolios, no capital gain
distribution will be made. Expired capital loss carryforwards are reclassified
to capital paid-in, in the year of expiration.

Additionally, federal income tax regulations require that net capital losses
attributed to security transactions which occurred after October 31, 1994 be
treated as arising on the first day (September 1, 1995) of the Portfolio's next
taxable year. For the Massachusetts Portfolio and the New York Portfolio the
losses amounted to $230,732 and $287,053, respectively.

DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.

Each Portfolio records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Each portfolio records
dividends from net investment income daily and distributes monthly.

EXPENSES The majority of the expenses of the Fund are directly identifiable to
an individual Portfolio. Expenses which are not identifiable to a specific
Portfolio are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Portfolios.

PREMIUM AND DISCOUNT For tax-exempt issues, the Portfolios amortize the amount
paid in excess of par value on securities purchased from either the date of
purchase or date of issue to date of sale, maturity or to next call date, if
applicable. The Portfolios accrete original issue discount from par value on
securities purchased from either the date of issue or the date of purchase over
the life of the security, as required by the Internal Revenue Code. The
portfolios record market discount on bonds purchased after April 30, 1993 at the
time of disposition.

27
<PAGE> 28
Notes to Financial Statements
John Hancock Funds - Tax-Exempt Series Fund

FINANCIAL FUTURES CONTRACTS The Portfolios may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates and other market conditions. At the time the
Portfolio enters into a financial futures contract, it is required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin", equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract is
valued at the official settlement price of the board of trade or U.S.
commodities exchange. Subsequent payments, known as "variation margin", to and
from the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market", are recorded by the Portfolio as unrealized gains or
losses.

When the contracts are closed, the Portfolio recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities. In addition,
the Portfolios could be prevented from opening or realizing the benefits of
closing out futures positions because of position limits or limits on daily
price fluctuations imposed by an exchange.

For federal income tax purposes, the amount, character and timing of the
Portfolio's gains and/or losses can be affected as a result of futures
transactions.

At August 31, 1995 there were no open positions in financial futures
contracts.

NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND
TRANSACTIONS WITH AFFILIATES AND OTHERS

Under the present investment management contract, each Portfolio pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.500% of the first $250,000,000 of such
Portfolio's average daily net asset value, (b) 0.450% of the next $250,000,000,
(c) 0.425% of the next $500,000,000, (d) 0.400% of the next $250,000,000 and (e)
0.300% of each Portfolio's average daily net asset value in excess of
$1,250,000,000.

In the event normal operating expenses of each Portfolio, exclusive of
certain expenses prescribed by state law, are in excess of the most restrictive
state limit where the Portfolio is registered to sell shares of beneficial
interest, the fee payable to the Adviser will be reduced to the extent of such
excess and the Adviser will make additional arrangements necessary to eliminate
any remaining excess expenses. The current limits are 2.5% of the first
$30,000,000 of the California Portfolio's average daily net asset value, 2.0% of
the next $70,000,000 and 1.5% of the remaining average daily net asset value.

The Adviser has agreed to limit each Portfolio's expenses further to the
extent required to prevent expenses from exceeding 0.70% of each Portfolio's
average daily net asset value, exclusive of certain expenses prescribed by state
law. Accordingly, for the period ended August 31, 1995, the reduction in the
Adviser's fee collectively with any additional amounts not borne by each
Portfolio by virtue of the expense limit for the California Portfolio, the
Massachusetts Portfolio, and the New York Portfolio amounted to $178,982,
$202,898, and $212,967, respectively. This waiver may be discontinued at any
time. Furthermore, payments to the custodian have been reduced by balance
credits applied to each portfolio for the period ended August 31, 1995. For the
California Portfolio, the Massachusetts Portfolio, and the New York Portfolio
the reduction amounted to $33,672, $33,886 and $32,865, respectively.

The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. Prior to January 1, 1995, JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended August 31, 1995, the table that follows details for each Portfolio
the amount of net sales charges received by the distributor and dealer of each
portfolio's shares and the amount of commissions paid to sales personnel of
affiliated broker-dealers. John Hancock Distributors, Inc. ("Distributors"),
Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro")
are affiliated broker-dealers. The Adviser's indirect parent, John Hancock

28
<PAGE> 29
Notes to Financial Statements
John Hancock Funds - Tax-Exempt Series Fund

Mutual Life Insurance Company, is the indirect sole shareholder of Distributors
and John Hancock Freedom Securities Corporation and its subsidiaries, which
include Tucker Anthony and Sutro, all of which are broker-dealers. The balance
is either retained and used for printing prospectuses, advertising, sales
literature, and other purposes or paid as sales commissions to sales personnel
of unrelated broker-dealers.

<TABLE>
<CAPTION>
CALIFORNIA MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>

FOR THE YEAR ENDED AUGUST 31, 1995:

Net sales charges received ..... $153,765 $181,355 $205,880
Less commissions paid
to affiliated broker-dealers .. ( 117,079) ( 149,892) ( 162,413)
to unrelated broker-dealers ... ( 16,346) ( 9,113) ( 18,737)
-------- -------- --------
Balance retained .............. $ 20,340 $ 22,350 $ 24,730
======== ======== ========
</TABLE>

In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the three Portfolios, the Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of
1940. Accordingly, each Portfolio makes payments to JH Funds for distribution
and service expenses at an annual rate not to exceed 0.30% of the Portfolio's
average daily net assets to reimburse JH Funds for their distribution/service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.

The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. Effective January 1, 1995, each Portfolio pays
transfer agent fees based on transaction volume and the number of shareholder
accounts. Prior to January 1, 1995, each Portfolio paid Investor Services a
monthly transfer agent fee equivalent, on an annual basis, to 0.25% of each
Portfolio's average daily net asset value, plus out of pocket expenses incurred
by Investor Services on behalf of the Fund for proxy mailings.

Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors and/or
officers of the Adviser, and/or its affiliates as well as Trustees of the Fund.
The compensation of unaffiliated Trustees is borne by each Portfolio. Effective
with the fees paid for 1995, the unaffiliated Trustees may elect to defer for
tax purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. Each Portfolio will make investments into
other John Hancock Funds, as applicable, to cover their liability with regard to
the deferred compensation. Investments to cover each Portfolio's deferred
compensation liability will be recorded on each Portfolio's books as an other
asset. The deferred compensation liability will be marked to market on a
periodic basis and income earned by the investment will be recorded on each
Portfolio's books.

NOTE C --
INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
CALIFORNIA MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
FOR THE YEAR ENDED AUGUST 31, 1995:
LONG-TERM MUNICIPAL OBLIGATIONS

Purchases .................. $16,009,240 $12,210,364 $36,796,584
Proceeds ................... 18,942,975 12,952,082 37,135,539
</TABLE>

There were no purchases or sales of long-term U.S. government and agency
obligations for the period ended August 31, 1995.

<TABLE>

AT AUGUST 31, 1995:

<S> <C> <C> <C>
Cost of investments for
Federal income tax
purposes ................... $43,938,622 $50,866,573 $54,187,229
=========== =========== ===========
Gross unrealized
appreciation of
investments................. $ 2,012,986 $ 2,262,566 $ 2,458,668
Gross unrealized
depreciation of
investments................. ( 197,787) ( 302,028) ( 411,320)
----------- ----------- -----------
Net unrealized
appreciation of
investments................. $ 1,815,199 $ 1,960,538 $ 2,047,348
=========== =========== ===========
</TABLE>

29
<PAGE> 30

Notes to Financial Statements
John Hancock Funds - Tax-Exempt Series Fund

NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended August 31, 1995, the Portfolios have reclassified amounts
to reflect increases in accumulated net investment income and accumulated
realized loss on investments of $2,761 for the California Portfolio, $1,994 for
the Massachusetts Portfolio and $8,092 for the New York Portfolio. These
represent the cumulative amounts necessary to report these balances on a tax
basis, excluding certain temporary differences, as of August 31, 1995.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.

NOTE E --
SUBSEQUENT EVENT
On September 15, 1995 the California Portfolio of the John Hancock Tax-Exempt
Series Fund merged with the John Hancock California Tax-Free Income Fund. The
transaction was approved by the shareholders on September 8, 1995 and was
accounted for as a tax-free business combination.

30
<PAGE> 31

John Hancock Funds - Tax-Exempt Series Fund

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Trustees
John Hancock Tax-Exempt Series Fund

In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments (except for Moody's and Standard & Poor's
ratings and yields at market), and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the three Portfolios (California
Portfolio, Massachusetts Portfolio and New York Portfolio) comprising John
Hancock Tax-Exempt Series Fund (the "Fund") at August 31,1995, the results of
their operations, the changes in their net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at August 31,1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.

Price Waterhouse LLP
Boston, Massachusetts
October 17, 1995

TAX INFORMATION NOTICE (UNAUDITED)

For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended August 31,
1995.

None of the 1995 income dividends qualify for the corporate dividends
received deduction. Shareholders, who are not subject to the alternate minimum
tax, received income dividends from the California, Massachusetts and New York
Portfolios which are 99.7%, 99.8% and 99.8% tax-exempt, respectively. The
percentage of income dividends from the California, Massachusetts and New York
Portfolios subject to the alternative minimum tax is 13.3%, 12.6% and 13.6%,
respectively.

For each quarter of the California Portfolio's taxable year, greater than 50%
of total assets consisted of California tax-exempt obligations.

None of the income dividends were derived from U.S. Treasury Bills.

For specific information on exception provisions in your state, consult your
local state tax office or your tax adviser.

Shareholders will receive a 1995 U.S. Treasury Department Form 1099-DIV in
January, 1996.

SHAREHOLDER MEETING (UNAUDITED)

On September 8, 1995, a Special Meeting of California Portfolio was held to
approve an Agreement and Plan of Reorganization allowing California Portfolio to
be acquired by John Hancock California Tax-Free Income Fund. The votes were:
2,471,338 FOR; 35,023 AGAINST; and 244,193 ABSTAINING.

31
<PAGE> 32

[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FUND U.S. Postage
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Brockton, MA
Permit No. 582

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- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Tax-Exempt Series Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.

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