<PAGE> 1
John Hancock Funds
JOHN HANCOCK
TAX-EXEMPT SERIES FUND
-CALIFORNIA PORTFOLIO
FINAL REPORT
September 15, 1995
<PAGE> 2
John Hancock Funds - Tax-Exempt Series Fund - California Portfolio
DIRECTORS
Edward J. Boudreau, Jr.
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
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
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
<PAGE> 3
John Hancock Funds - Tax-Exempt Series Fund - California Portfolio
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
FINAL REPORT September 15, 1995* (Unaudited)
- ---------------------------------------------- ------------------------------------ ---------------
<S> <C>
ASSETS:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $43,911,764) $46,165,176
Cash 1,056,148
Receivable for shares sold 998,260
Interest receivable 738,893
Receivable from John Hancock Advisers, Inc. - Note B 20,356
-----------
Total Assets 48,978,833
----------------------------------------------------
LIABILITIES:
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 39,298
Accounts payable and accrued expenses 65,898
-----------
Total Liabilities 105,196
----------------------------------------------------
NET ASSETS:
Capital paid-in 46,662,279
Accumulated net realized loss on investments and financial
futures contracts (44,815)
Net unrealized appreciation of investments 2,253,412
Undistributed net investment income 2,761
-----------
Net Assets $48,873,637
====================================================
NET ASSET VALUE PER SHARE
(Based on 4,164,370 shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value) $11.74
===================================================================================================
MAXIMUM OFFERING PRICE PER SHARE**
$(11.74 x 104.71%) $12.29
===================================================================================================
<FN>
* The net assets of the John Hancock Tax Exempt Series Fund - California
Portfolio ("the Portfolio") were merged into the John Hancock California
Tax-Free Income Fund as of the close of business on September 15, 1995 and
the Portfolio was subsequently terminated. The Statement of Assets and
Liabilities reflects the Portfolio's position prior to the transfer of net
assets and the termination of the Portfolio. (See Note A to the Notes to
Financial Statements).
** On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
</TABLE>
See notes to financial statements.
<PAGE> 4
John Hancock Funds - Tax-Exempt Series Fund - California Portfolio
<TABLE>
STATEMENT OF OPERATIONS
For the period September 1, 1995 to
September 15, 1995* (Unaudited)
- -------------------------------- ----------------------------- ---------------------
<S> <C>
INVESTMENT INCOME:
Interest $111,915
--------
Expenses:
Investment management fee - Note B 9,803
Distribution/service fee - Note B 5,882
Transfer agent fee - Note B 1,764
Registration and filing fees 980
--------
Total Expenses 18,429
Less Expense Reductions - Note B (4,693)
--------
Net Expenses 13,736
--------
Net Investment Income 98,179
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold 839
Change in net unrealized appreciation/depreciation
of investments 438,213
--------
Net Realized and Unrealized Gain
on Investments 439,052
--------
Net Increase in Net Assets
Resulting from Operations $537,231
================================================
<FN>
* The net assets of the John Hancock Tax Exempt Series Fund - California
Portfolio ("the Portfolio") were merged into the John Hancock California
Tax-Free Income Fund as of the close of business on September 15, 1995 and
the Portfolio was subsequently terminated. The Statement of Operations
reflects the Portfolio's position prior to the transfer of net assets and
the termination of the Portfolio. (See Note A to the Notes to Financial
Statements).
</TABLE>
See notes to financial statements.
<PAGE> 5
John Hancock Funds - Tax-Exempt Series Fund - California Portfolio
<TABLE>
Statement of Changes in Net Assets
- -------------------- -------------------------------------- ---------------- ----------------- ------------------ ----------------
<CAPTION>
FOR THE PERIOD
SEPTEMBER 1, 1995 TO YEAR ENDED
SEPTEMBER 15, 1995 AUGUST 31,
(UNAUDITED)** 1995
-----------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 98,179 $ 2,636,372
Net realized gain on investments sold 839 33,756
Change in net unrealized appreciation/depreciation of investments 438,213 991,445
-----------------------------------
Net Increase in Net Assets Resulting from Operations 537,231 3,661,573
-----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income $(0.0256 and $0.6283 per share, respectively) (98,179) (2,636,372)
-----------------------------------
FROM FUND SHARE TRANSACTIONS - NET* 885,777 (2,518,023)
-----------------------------------
NET ASSETS:
Beginning of period 47,548,808 49,041,630
-----------------------------------
End of period (including undistributed net investment income of $2,761
and $2,761, respectively) $48,873,637 $47,548,808
===================================
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 1, 1995 TO YEAR ENDED
SEPTEMBER 15, 1995 AUGUST 31,
(UNAUDITED)** 1995
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 87,424 $1,027,278 414,708 $ 4,671,968
Shares issued to shareholders in reinvestment of distributions 5,605 65,864 155,996 1,753,168
----------------------------------------------------------------
93,029 1,093,142 570,704 6,425,136
Less shares repurchased (17,669) (207,365) (791,874) (8,943,159)
----------------------------------------------------------------
Net increase (decrease) 75,360 $ 885,777 (221,170) $(2,518,023)
================================================================
<FN>
** The net assets of the John Hancock Tax Exempt Series Fund - California Portfolio ("the Portfolio") were merged into
the John Hancock California Tax-Free Income Fund as of the close of business on September 15, 1995 and the Portfolio
was subsequently terminated. The Statement of Changes in Net Assets reflects the Portfolio's position prior to the
transfer of net assets and the termination of the Portfolio. (See Note A to the Notes to Financial Statements).
</TABLE>
See notes to financial statements.
<PAGE> 6
John Hancock Funds - Tax-Exempt Series Fund - California Portfolio
<TABLE>
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:
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
SEPTEMBER 1, 1995 TO
SEPTEMBER 15, 1995 YEAR ENDED AUGUST 31,
-----------------------------------------------
(UNAUDITED) 1995 1994 1993
----------- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $ 11.63 $ 11.38 $ 12.36 $ 11.68
------- ------- ------- -------
Net Investment Income 0.03 0.63 0.62 0.67
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts 0.11 0.25 (0.76) 0.82
------- ------- ------- -------
Total from Investment Operations 0.14 0.88 (0.14) 1.49
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.03) (0.63) (0.62) (0.67)
Distributions from Net Realized Gain on Investments Sold -- -- (0.22) (0.14)
------- ------- ------- -------
Total Distributions (0.03) (0.63) (0.84) (0.81)
------- ------- ------- -------
Net Asset Value, End of Period $ 11.74 (c) $ 11.63 $ 11.38 $ 12.36
======= ======= ======= =======
Total Investment Return at Net Asset Value 1.17% (b) 8.06% (1.13%) 13.36%
Total Adjusted Investment Return at Net Asset Value (a) 0.93% (b) 7.61% (1.69%) 12.48%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $48,874 $47,549 $49,042 $47,624
Ratio of Expenses to Average Net Assets 0.70%* 0.70% 0.70% 0.67%
Ratio of Adjusted Expenses to Average Net Assets (a) 0.94%* 1.15% 1.26% 1.55%
Ratio of Net Investment Income to Average Net Assets 4.99%* 5.58% 5.27% 5.62%
Ratio of Adjusted Net Investment Income to Average Net Assets (a) 4.75%* 5.13% 4.71% 4.74%
Portfolio Turnover Rate 0% 35% 38% 93%
Expense Reimbursement Per Share $0.00 $0.05 $0.07 $0.10
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------
1992 1991
---- ----
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $ 11.25 $ 10.72
------- -------
Net Investment Income 0.70 0.70
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts 0.43 0.53
------- -------
Total from Investment Operations 1.13 1.23
------- -------
Less Distributions:
Dividends from Net Investment Income (0.70) (0.70)
Distributions from Net Realized Gain on Investments Sold -- --
------- -------
Total Distributions (0.70) (0.70)
------- -------
Net Asset Value, End of Period $ 11.68 $ 11.25
======= =======
Total Investment Return at Net Asset Value 10.34% 11.83%
Total Adjusted Investment Return at Net Asset Value (a) 9.30% 10.71%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $33,896 $25,914
Ratio of Expenses to Average Net Assets 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net Assets (a) 1.64% 1.72%
Ratio of Net Investment Income to Average Net Assets 6.09% 6.35%
Ratio of Adjusted Net Investment Income to Average Net Assets (a) 5.05% 5.23%
Portfolio Turnover Rate 50% 7%
Expense Reimbursement Per Share $0.12 $0.12
<FN>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) Not annualized.
(c) Net asset value per share, before the merger of assets to the John Hancock California Tax-Free Income Fund,
and the termination of the Portfolio. (See Note A to the Notes to Financial Statements).
</TABLE>
See notes to financial statements.
<PAGE> 7
JOHN HANCOCK FUNDS - TAX EXEMPT SERIES FUND - CALIFORNIA PORTFOLIO
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
September 15, 1995 (Unaudited) 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 (93.41%)
Alameda, County of,
Cert of Part 1992 Cap Proj 6.750% 06-01-16 A+ $ 500 $ 520,275 6.40%
California Educational Facilities Auth,
Rev 1993 Ser B Pooled College & Univ Proj 6.125 06-01-09 Baa** 1,000 1,006,060 6.00
California Health Facilities Financing Auth,
Hosp Rev 1991 Ser A San Diego Hosp Assoc 6.950 10-01-21 A 250 263,827 6.50
Ins Hosp Rev Ser 1990 Children's Hosp San Diego 6.500 07-01-20 AAA 500 520,220 6.20
Rev 1990 Ser A Kaiser Permanente 7.000 12-01-10 AA 600 648,984 6.40
Rev Ser 1994A Scripps Research Institute 6.300 07-01-09 A** 500 518,575 6.00
Sec Rev 1991 Ser Hosp of the Good Samaritan 7.000 09-01-21 A 250 259,388 6.70
California Housing Finance Agency,
Home Mtg Rev 1986 Ser A 8.100 08-01-16 AA- 75 78,215 7.70
Home Mtg Rev 1988 Ser B 8.600 08-01-19 AA- 40 42,477 8.10
Home Mtg Rev 1988 Ser D 8.000 08-01-19 AA- 90 96,353 7.40
Home Mtg Rev 1989 Ser A 7.625 08-01-09 AA- 35 36,925 7.20
Home Mtg Rev 1989 Ser B 8.000 08-01-29 AA- 100 106,940 7.40
Home Mtg Rev 1989 Ser D 7.500 08-01-29 AA- 150 157,976 7.10
Home Mtg Rev 1990 Ser D 7.875 08-01-31 AA- 15 15,714 7.50
Home Mtg Rev 1991 Ser A 7.375 08-01-17 AA- 155 166,175 6.80
Home Mtg Rev 1991 Ser C 7.450 08-01-11 AA- 65 69,555 6.90
Home Mtg Rev 1994 Ser C 6.650 08-01-14 AA- 1,000 1,036,730 6.40
Hsg Rev 1991 Ser E 7.000 08-01-26 AAA 525 552,431 6.60
California Pollution Control Financing Auth,
Poll Control Rev 1991 Ser Southern Calif Edison Co 6.900 12-01-17 A+ 500 526,790 6.50
Poll Control Rev 1992 Ser A Pacific Gas & Elec Co 6.625 06-01-09 A 500 521,585 6.30
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- * 500 534,680 6.40
Lease Rev Ref Ser A Various Univ Proj 5.500 06-01-21 A- * 1,250 1,135,112 6.00
Campbell, City of,
1991 Cert of Part Civic Center Proj 6.750 10-01-17 A- 155 177,239 5.90
1991 Cert of Part Civic Center Proj 6.750 10-01-17 A- 1,565 1,618,805 6.50
Carson Redevelopment Agency,
Tax Alloc Ser 1992 Area No. 1 Redevel Proj 6.375 10-01-12 BBB+ 500 503,215 6.30
Tax Alloc Ser 1993B Area No. 1 Redevel Proj 6.000 10-01-16 BBB+ 500 471,520 6.30
Castaic Lake Water Agency,
Cert of Part Ser 1990 Wtr Sys Imp Proj 7.350 08-01-20 A 200 228,582 6.40
Central California Joint Powers Health Financing Auth,
Cert of Part Ser 1993 Community Hosp of Central Calif Proj 5.250 02-01-13 A** 750 678,495 5.80
Central Coast Water Auth,
Rev State Wtr Proj Regional Facil Ser 1992 6.600 10-01-22 AAA 500 532,160 6.20
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice-Gen Proj 1993 Ser 6.100 07-01-13 BBB- 2,300 2,248,503 6.20
Cogeneration Proj Rev Carson Ice-Gen Proj 1993 Ser 6.200 07-01-20 BBB- 1,000 965,550 6.40
</TABLE>
See notes to financial statements.
<PAGE> 8
JOHN HANCOCK FUNDS - TAX EXEMPT SERIES FUND - CALIFORNIA PORTFOLIO
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
September 15, 1995 (Unaudited) 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)
Contra Costa Water District,
Wtr Treatment Rev Ser E 6.250 10-01-12 AAA 1,000 1,083,390 5.70
Costa Mesa Public Financing Auth,
1991 Local Agency Rev Ser A 7.100 08-01-21 NR 220 221,419 7.00
Desert Hospital District,
Hosp Rev Cert of Part Ser 1990 Desert Hosp Corp Proj 8.000 07-01-10 AAA 300 353,208 6.70
Fairfield Public Financing Auth,
1995 Rev Ser A Pennsylvania Ave Storm Drainage Proj 6.500 08-01-21 A- * 1,085 1,070,179 6.50
Fontana Public Financing Auth,
Sub Lien Tax Alloc Rev 1991 Ser A North Fontana Redevel Proj 7.750 12-01-20 BBB 195 232,220 6.50
Tax Alloc Rev Ser 1990 Ser A North Fontana Redevel Proj 7.250 09-01-20 A 325 344,740 6.80
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Current Int Ser 1995A 6.500 01-01-32 BBB- * 1,490 1,495,722 6.40
Toll Rd Rev Fixed Rate Current Int-Ser 1995A 6.000 01-01-34 BBB- * 1,000 942,980 6.30
Fresno, City of,
Hlth Facil Rev Ser 1991 Saint Agnes Medical Center 6.625 06-01-21 AA- 250 259,592 6.30
Los Angeles City Department of Water and Power,
Elec Plant Ref Rev Second Iss of 1993 5.400 11-15-12 AA- 1,000 950,530 5.60
Los Angeles County Health Facilities Auth,
Lease Rev Ref Olive View Medical Center Proj 7.500 03-01-08 NR 450 492,935 6.80
Metropolitan Water District,
Waterworks Ref Rev Iss of 1986 6.750 06-01-22 AA+ 155 160,135 6.50
Wtr Rev Iss of 1991 6.625 07-01-12 AA 750 799,882 6.20
Moreno Valley, City of,
Cert of Part Ser 1995 City Hall Proj 6.500 11-01-16 Baa1** * 1,500 1,510,095 6.40
Mount Diablo Hospital District,
Hosp Rev Ser A 6.000 12-01-05 AAA 1,640 1,776,579 5.50
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 600 629,292 6.20
Northern California Transmission Agency,
Rev 1990 Ser A Calif-Oregon Transm Proj 7.000 05-01-13 AAA 100 116,287 6.00
Rev 1992 Ser A Calif-Oregon Transm Proj 6.500 05-01-16 AAA 1,000 1,055,220 6.10
Oakland, Port of,
Port Rev Ser E 6.400 11-01-07 AAA 1,000 1,083,260 5.90
Spec Facil Rev 1992 Ser A Mitsui O.S.K. Lines Ltd Proj 6.800 01-01-19 A+ 500 512,890 6.60
Orange, County of,
Ser A of 1990 Spec Tax of Community Facil Dist No. 87-3 Mission Viejo 7.800 08-15-15 A** 350 407,222 6.70
Ser A of 1992 Spec Tax of Community Facil Dist No. 88-1 Aliso Viejo 7.350 08-15-18 NR 1,000 1,188,360 6.10
Pasadena, City of,
1993 Ref Cert of Part Old Pasadena Parking Facil Proj 6.250 01-01-18 A+ 1,000 1,048,070 5.90
Rancho Mirage, City of, Joint Powers Financing Auth,
Civic Center Rev Ref Ser 1991A 7.500 04-01-17 BBB 195 226,779 6.40
Civic Center Rev Unref Ser 1991A 7.500 04-01-17 BBB 55 58,337 7.00
Riverside County Asset Leasing Corp,
Leasehold Rev 1993 Ser A County of Riverside Hosp Proj 6.500 06-01-12 A 1,000 1,038,220 6.20
Sacramento City Financing Auth,
Lease Rev Ref Ser A 5.375 11-01-14 AAA 500 484,010 5.50
</TABLE>
See notes to financial statements.
<PAGE> 9
JOHN HANCOCK FUNDS - TAX EXEMPT SERIES FUND - CALIFORNIA PORTFOLIO
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
September 15, 1995 (Unaudited) 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)
San Bernardino, County of,
Cert of Part Medical Center Fin Proj 5.500 08-01-17 A- * 1,000 882,960 6.20
Cert of Part Ser B Cap Facil Proj 6.875 08-01-24 AAA 350 414,050 5.80
Trans Auth Sales Tax Rev Ser A 5.400 03-01-10 AAA 1,000 989,100 5.40
San Diego County Regional Transportation Commission,
Sales Tax Rev 1991 Ser A 7.000 04-01-06 AA- 90 98,133 6.40
San Diego County Water Auth,
Wtr Rev Cert of Part Reg Fixed 5.681 04-22-09 AAA * 800 816,688 5.50
San Diego, City of,
Ind'l Dev Rev 1986 Ser A San Diego Gas & Elec Co 7.625 07-01-21 A+ 300 312,486 7.30
San Francisco State Building Auth,
Lease Ref Rev 1993 Ser A Dept of Gen Serv 5.000 10-01-13 A- 2,245 2,001,799 5.60
San Jose Financing Auth,
Reassessment Rev 1994 Ser C 6.750 09-02-11 NR 960 981,466 6.60
San Jose, City of,
1986 Cert of Part Convention Center Proj 7.875 09-01-10 A+ 300 317,091 7.40
San Mateo County Joint Powers Financing Auth,
Lease Rev 1994 Ser A San Mateo County Hlth Center 6.125 07-15-14 AAA 250 254,830 6.00
Santa Barbara, County of,
1990 Cert of Part 7.500 02-01-11 A+ 250 283,138 6.60
1991 Cert of Part 6.400 02-01-11 A+ 250 256,915 6.20
Santa Rosa, City of,
Wastewater Rev 1992 Ser A Subregional Wastewater Proj 6.500 09-01-22 AAA 500 528,655 6.10
Southern California Home Financing Auth,
Single Family Mtg Rev 1990 Iss B 7.750 03-01-24 AAA 45 47,761 7.30
Southern California Public Power Auth,
Pwr Proj Rev 1987 Ref Ser A Palo Verde Proj 6.875 07-01-15 AA- 215 221,990 6.60
Torrance City Redevelopment Agency,
Tax Alloc Ref Ser 1992 Downtown Redevel Proj 7.125 09-01-21 BBB 500 517,275 6.80
University of California, The Regents of,
1993 Ref Cert of Part UCLA Central Chiller/Cogeneration Facil 5.400 11-01-11 Aa** * 1,000 947,350 5.70
----------
45,652,296
----------
GUAM (1.05%)
Guam Airport Auth,
Gen Rev 1993 Ser B 6.600 10-01-10 BBB 500 512,880 6.40
TOTAL TAX-EXEMPT LONG TERM BONDS
(Cost $ 43,911,764) 94.46% 46,165,176
===== ==========
<FN>
*Securities, other than short term investments, newly added to the portfolio during the period ended September 15, 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
Commissions.
The percentage shown for each category is the total value of that category as a percetnage of the net assets of the Portfolio.
</TABLE>
See notes to financial statements.
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - JOHN HANCOCK TAX-EXEMPT SERIES FUND -
CALIFORNIA PORTFOLIO
(UNAUDITED)
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. Prior to September 15, 1995, the Fund
consisted of three separate portfolios: the California Portfolio (the
"Portfolio"), the Massachusetts Portfolio, and the New York Portfolio. The
Trustees may authorize the creation of additional portfolios from time to time
to satisfy various investment objectives.
On September 8, 1995, the shareholders of the California Portfolio
approved a plan of reorganization between the Portfolio and John Hancock
California Tax-Free Income Fund ("California Tax-Free Income Fund") providing
for the transfer of substantially all of the assets and liabilities of the
Portfolio to California Tax-Free Income Fund in exchange solely for shares of
beneficial interest of California Tax-Free Income Fund. After this transaction
and as of the close of business on September 15, 1995, the Portfolio was
terminated. The financial statements presented herein reflect the position of
the Portfolio prior to the exchange of net assets and termination of the
Portfolio. Significant accounting policies of the Portfolio were as follows:
VALUATION OF INVESTMENTS Securities in the Portfolio were 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
were valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Portfolio, 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 were invested in one or more repurchase agreements, whose underlying
securities were obligations of the U.S. government and/or its agencies. The
Portfolio's custodian bank received delivery of the underlying securities for
the joint account on the Portfolio's behalf. The Adviser was responsible for
ensuring that the agreement was fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions were recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments were determined on the identified cost basis.
FEDERAL INCOME TAXES The Portfolio's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies. It will not be subject to Federal income tax on taxable earnings
which are distributed to shareholders. As of September 15, 1995, the
Portfolio's final tax year end, for Federal income tax purposes, the Portfolio
had $34,998 of capital loss carryforward available, expiring in 2003. To the
extent that such carryforward was used by the Portfolio, no capital gains
distributions were made. The unused capital loss carryforward as of September
15, 1995 was transferred to the John Hancock California Tax-Free Income Fund.
This capital loss carryforward will be available, to the extent provided by
regulations, to offset future net capital gains of the John Hancock California
Tax-Free Income Fund. Expired capital loss carryforward is reclassified to
capital paid-in, in the year of expiration
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
was recorded on the accrual basis.
The Portfolio recorded all distributions to shareholders from net
investment income and realized gains on the ex-dividend date. The Portfolio
recorded dividends from net investment income daily and distributed monthly.
EXPENSES The majority of the expenses of the Fund were directly identifiable to
an individual Portfolio. Expenses which were not identifiable to a specific
Portfolio were 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.
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - JOHN HANCOCK TAX-EXEMPT SERIES FUND -
CALIFORNIA PORTFOLIO
PREMIUM AND DISCOUNT For tax-exempt issues, the Portfolio amortized 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 Portfolio accreted 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
Portfolio recorded market discount on bonds purchased after April 30, 1993 at
the time of disposition.
FINANCIAL FUTURES CONTRACTS The Portfolio may have bought and sold 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 entered into a financial futures contract, it was 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 was
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 were 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", were recorded by the Portfolio as unrealized gains
or losses.
When the contracts were closed, the Portfolio recognized a gain or loss.
Risks of entering into futures contracts included the possibility that there may
have been an illiquid market and/or that a change in the value of the contract
may not have correlated with changes in the value of the underlying securities.
In addition, the Portfolio could have been 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 could have been affected as a result of futures
transactions.
At September 15, 1995 there were no open positions in financial futures
contracts.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
Under the investment management contract, the Portfolio paid 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 the 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 the Portfolio's average daily net asset value in
excess of $1,250,000,000.
In the event normal operating expenses of the Portfolio, exclusive of
certain expenses prescribed by state law, were in excess of the most restrictive
state limit where the Portfolio was registered to sell shares of beneficial
interest, the fee payable to the Adviser was reduced to the extent of such
excess and the Adviser made additional arrangements necessary to eliminate any
remaining excess expenses. The limits were 2.5% of the first $30,000,000 of the
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 agreed to limit the Portfolio's expenses further to the
extent required to prevent expenses from exceeding 0.70% of the Portfolio's
average daily net asset value, exclusive of certain expenses prescribed by state
law. Accordingly, for the period ended September 15, 1995, the reduction in the
Adviser's fee collectively with any additional amounts not borne by the
Portfolio by virtue of the expense limit for the Portfolio amounted to $4,693.
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - JOHN HANCOCK TAX-EXEMPT SERIES FUND -
CALIFORNIA PORTFOLIO
The Portfolio had a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly-owned subsidiary of the Adviser. For the period ended
September 15, 1995, JH Funds received net sales charges of $104,518 with regard
to sales of shares. Out of this amount, $12,994 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, and
$50,249 was paid as sales commissions to unrelated broker-dealers and $41,275
was paid as sales commissions to sales personnel of John Hancock Distributors,
Inc. ("Distributors"), Tucker Anthony Incorporated ("Tucker Anthony") and Sutro
& Co., Inc. ("Sutro"), all of which are broker dealers. The Adviser's indirect
parent, John Hancock 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.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Portfolio, the Portfolio had adopted a Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940.
Accordingly, the Portfolio made 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 have been 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 have occurred under certain
circumstances.
The Portfolio had a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly- owned subsidiary of The
Berkeley Financial Group. The Portfolio paid transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors
and/or officers of the Adviser, and/or its affiliates. The compensation of
unaffiliated Trustees was borne by the 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. The Portfolio made investments into other John Hancock Funds,
as applicable, to cover its liability with regard to the deferred compensation.
Investments to cover the Portfolio's deferred compensation liability were
recorded on each Portfolio's books as an other asset.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended September 15, 1995, aggregated none and $20,400, respectively. There
were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended September 15, 1995.
The cost of investments owned at September 15, 1995 for Federal income
tax purposes was $43,911,764. Gross unrealized appreciation and depreciation of
investments aggregated $2,275,174 and $21,762, respectively, resulting in net
unrealized appreciation of $2,253,412.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the fiscal period ended September 15, 1995, the Portfolio has
reclassified amounts to reflect an increase in undistributed net investment
income of $42,500 and a decrease in capital paid-in of $42,500. This represents
the amount necessary to report these balances on a tax basis, excluding
certain temporary differences, as of September 15, 1995. 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.
