- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Tax-Exempt
Series Fund
SEMI-ANNUAL REPORT
February 29, 1996
<PAGE>
================================================================================
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
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
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
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
2
<PAGE>
================================================================================
BY DIANNE SALES-SINGER AND FRANK LUCIBELLA,
PORTFOLIO MANAGERS
John Hancock
Tax-Exempt Series Fund
Municipal bonds' performance strong as supply contracts
further and flat-tax fears abate
During the last six months, municipal bonds continued to turn in one of their
best performances in years as falling interest rates, slow economic growth and
muted inflation boosted the overall bond market. Last year, municipals
underperformed Treasury securities as various flat-tax proposals created
headlines and market jitters. But the tables started to turn in the first two
months of 1996. Flat tax fears subsided, although they haven't vanished, and the
supply of municipal bonds kept shrinking while deman d remained steady. That
caused municipal bond prices to stabilize even as the broad bond market grew
more cautious. Mixed economic data prompted fears that revived economic growth
and inflation would keep the Federal Reserve Board from lowering interest rates
beyond the two quarter-percentage point cuts it made in December and January.
These concerns put a damper on the bond market's rally, whose strength during
1995 was based on the assumption that the Fed would continue to lower interest
rates an d that Washington would come up with a credible budget deficit
solution. As investors began to question that premise, the bond market pulled
back in February. Municipals however, supported by technicals, ended the period
outperforming Treasuries.
John Hancock Tax-Exempt Series Fund's performance mirrored this favorable
environment. For the six months ended February 29, 1996, the Massachusetts and
New York portfolios posted total returns of 4.76% and 5.37% respectively, at net
asset value. By comparison, the average Massachusetts municipal bond fund had a
total return of 4.92% and the average New York municipal bond fund had a total
return of 4.80%, according to Lipper Analytical Services.1
"...municipal bonds continued to turn in one of their best performances in
years..."
Strategy
As the bond market's rally showed no signs of cooling in the second half of
1995, we kept our basic strategies in place to take advantage of the rally. We
continued to lengthen 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
3
<PAGE>
================================================================================
John Hancock Funds - Tax-Exempt Series Fund
a fund's duration, the more sensitive its share price. So a longer duration
served us well as interest rates continued falling during the period.
We also worked to further improve the call protection for both funds by
adding more non-callable bonds, which can't be redeemed by their issuer before
their scheduled maturity date. They were strong performers during the period. By
emphasizing non-callable bonds, we helped to protect the Fund's income stream.
If interest rates stay low or decline further, many issuers may want to
refinance their older, more expensive debt at lower rates. That leaves investors
holding the callable bonds with money to reinvest at lower interest rates.
"The Massachusetts econimy continues to move along at a sustainable pace..."
By the end of February, we had increased our stake in non-callable bonds to
approximately 14% of the Massachusetts portfolio and 15% of the New York
portfolio. In the paragraphs that follow, we'll discuss in more detail our
strategy and holdings in each portfolio.
Massachusetts
The Massachusetts economy continues to move along at a sustainable pace and the
state's fiscal house remains in order. Despite the upcoming presidential and
Massachusetts U.S. Senate elections this year, we feel confident that the
current conservative policies of the state's administration will remain in
effect for the foreseeable future.
During the period, changes in our sector allocations reflect adjustments to
take advantage of attractive investment opportunities. For example, we reduced
our industrial development and health-care holdings to invest in some new
opportunities such as American Hingham Water Company. A private water company in
Hingham, the bonds provide the Fund with a competitive yield and appealing
credit fundamentals.
In the health-care sector, one of the Fund's major holdings, Charlton
Memorial Hospital, turned in a strong performance after it was upgraded. The
hospital's results are especially significant as they come at a time when many
hospitals are coming under increasing pressure to perform while holding down
costs.
A word about utilities
As many states, including Massachusetts, wrestle with the prospect of growing
competition in the utility industry, deregulation has moved to the forefront of
many Public Utility Commission (PUC) agendas. In Massachusetts, the PUC is in
the process of determining how best to foster a more competitive environment.
We're watching these developments closely for any potential impact on state
municipal utilities. As we get a clearer idea of what lies ahead, we will
re-evaluate investment opportunities in the utility sector.
[A 2 3/4" x 2 1/4" photo of Dianne Sales-Singer centered at bottom. Caption
reads: "Dianne Sales-Singer, Portfolio Manager."]
4
<PAGE>
================================================================================
John Hancock Funds - Tax-Exempt Series Fund
[Bar chart with heading "Fund Performance" at top of left hand column. The chart
is scaled in increments of 2% from bottom to top, with 6% at the top and 0% at
the bottom. Within the chart, there are four solid bars. The first represents
the 4.76% total return for John Hancock Tax-Exempt Series Fund: MA Portfolio.
The second represents the 4.92% total return for the average MA muni bond fund.
The third represents the 5.37% total return for John Hancock Tax-Exempt Series
Fund: NY Portfolio. The fourth represents the 4.80% total return for the average
NY muni bond fund. The footnote below states: "Total returns for the John
Hancock Tax-Exempt Series Fund are at net asset value with all distributions
reinvested. Total returns for the average Massachusetts and New York municipal
bond funds are tracked by Lipper Analytical Services. (1) See page seven for
historical performance information."]
New York
The state's economy appears somewhat soft now, but we're cautiously optimistic
about the state's prospects because we believe that Governor Pataki's
administration is working hard to address the issues. As we've come to expect,
the state's proposed budget faces delays in getting approved. That always
heightens market concerns, although the delays are usually more political than
substantive in nature.
Over the last six months, we found our best opportunities among New York
State agency bonds rated BBB, the lowest of the investment-grade bonds. At the
end of last year, their yields were particularly high, and their prices
therefore cheap, compared to higher-quality investment-grade state issues. As a
result, we increased our holdings in such state agency bonds as State and City
universities and the Urban Development Corporation. That provided the Fund with
a higher yield, plus a shot at price appreciation as the yield gap between
agency bonds and insured bonds narrowed, as it did later in the period. In our
further quest for yield, we also bought an industrial revenue bond for a paper
recycling plant on Staten Island that has a 7.95% coupon.
"...there are several reasons why we're optimistic about 1996."
Another good performer during the period was our holding in the state's
Local Government Assistance Corp (LGAC). Created to help the state fund its
budget deficit, LGAC's credit has become one of the strongest in the state as
its effectiveness has been recogni zed. What's more, the bond prices have risen
now that LGAC has stopped issuing new bonds.
The Fund continues to have approximately 8% of its portfolio in New York
City bonds and another 5% in Long Island Lighting Company, an electric utility
which has been a good source of income for the Fund and a subject of discussion
lately as a possible buyout
[A 2 1/4" by 3" photo of Frank Lucibella centered at bottom of page. Caption
reads: "Frank Lucibella, Portfolio Manager."]
5
<PAGE>
================================================================================
John Hancock Funds - Tax-Exempt Series Fund
[Pie chart with heading "Portfolio Diversification New York Portfolio "at top
left hand column. The chart is divided into 10 sections. Going from left to
right: Industrial Development 16%; Water & Sewer 6%; Healthcare 10%; Housing
10%; Transportation 9%; Education 11%; Electric Utilities 4%; Other Bonds 16%;
Short-Term Investments 1%; General Obligation 15%. The footnote below states:
"As a percent of total net assets on February 29, 1996."]
[Pie chart with heading "Portfolio Diversification Massachusetts Portfolio" at
top right hand column. The chart id divided into 10 sections. Going from left to
right: Industrial Development 10%; Healthcare 20%; Housing 9%; Water & Sewer
12%; Electric Utilities 12%; Transportation 9%; Other Bonds 2%; Education 14%;
Short-term Investments & Other 2%; General Obligation 14%. The footnote states:
"As a percent of total net assets on February 29, 1996.]
target. The city, like the state, is contending with a soft economy and tough
issues. But we're still comfortable with our holdings there and with the city's
credit rating, although there has been talk of a possible downgrade. We're not
concerned, however, because we think the bonds are currently priced to reflect
that possibility.
What's ahead
It may be difficult for municipals to achieve the same exceptional gains they
made in 1995. However, there are several reasons why we're optimistic about
1996. We expect the supply of municipal bonds to continue to shrink during the
year, with demand remaining fairly constant. We don't foresee anything changing
those positive fundamentals in 1996, barring a sharp drop in interest rates.
Despite continued discussion about the flat tax, which could still cause some
additional volatility, we don't anticipate any changes in the near term. As more
investors become comfortable with that notion, munis could do well. What's more,
municipals still have room to advance since they are still an attractive value
compared to their historic price relationship to Treasury securities.
1 Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the managers'
views are subject to change as market and other conditions
warrant.
6
<PAGE>
================================================================================
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annu
al total returns for the 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 net asset
value per share. Performance figures include the maximum applicable sales charge
of 4.5% for Fund shares. 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. Please note that a portion of
the Fund's income may be subject to taxes, and some investors may be subject to
the Alternative Minimum Tax. Also note that capital gains are taxable.
CUMULATIVE TOTAL RETURNS
For the period ended December 31, 1995
ONE FIVE LIFE OF
YEAR YEARS FUND
Massachusetts Portfolio(1) 11.10% 47.07% 95.68%
New York Portfolio(2) 11.79% 47.97% 98.00%
AVERAGE ANNUAL TOTAL RETURNS
For the period ended December 31, 1995
ONE FIVE LIFE OF
YEAR YEARS FUND
Massachusetts Portfolio(1) 11.10% 8.02% 8.39%
New York Portfolio(2) 11.79% 8.14% 8.58%
YIELDS
As of February 29, 1996
SEC30-DAY
YIELD
Massachusetts Portfolio 4.84%
New York Portfolio 4.67%
Notes to Performance
(1) The Massachusetts Portfolio commenced operations on September 3, 1987.
(2) The New York Portfolio commenced operations on September 13, 1987.
7
<PAGE>
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in John Hancock
Tax-Exempt Series Fund would be worth on February 29, 1996, assuming you
invested on the day shares started and have reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Lehman Brothers
Municipal Bond Index N 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.
[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 $20,426 as of February 29, 1996. The second line
represents the value of the Lehman Brothers Municipal Bond Index and is equal to
$20,122 as of February 29, 1996. The third line represents the Tax-Exempt Series
Fund: Massachusetts after sales charge and is equal to $19,510 as of February
29, 1996.]
[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 contingent
deferred sales charge, and is equal to $20,722 as of February 29, 1996. The
second line represents the value of the Lehman Brothers Municipal Bond Index and
is equal to $20,122 as of February 29, 1996. The third line represents the
Tax-Exempt Series Fund: New York after contingent deferred sales charge and is
equal to $19,792 as of February 29, 1996.]
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund
Statement of Assets and Liabilities
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $54,368,139 and $53,802,889, respectively).. $57,161,141 $56,955,828
Corporate savings account...................................................... ... 67,482
----------- -----------
57,161,141 57,023,310
Receivable for shares sold....................................................... 419 5,342
Interest receivable.............................................................. 839,016 811,058
Receivable from John Hancock Advisers, Inc. - Note B............................. 107,137 114,059
Other assets..................................................................... 1,776 1,804
----------- -----------
Total Assets.................................................... 58,109,489 57,955,573
------------------------------------------------------------------------------------------------------
Liabilities:
Dividend payable................................................................. 7,181 9,193
Temporary overdraft of cash...................................................... 112,473 ...
Payable for investments purchased................................................ 960,558 ...
Payable to John Hancock Advisers, Inc. and affiliates - Note B................... 21,776 ...
Accounts payable and accrued expenses............................................ 155,080 176,603
----------- -----------
Total Liabilities............................................... 1,257,068 185,796
------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in.................................................................. 54,482,461 54,662,099
Accumulated net realized loss on investments and financial futures contracts..... ( 425,036) ( 53,353)
Net unrealized appreciation of investments....................................... 2,793,002 3,152,939
Undistributed net investment income.............................................. 1,994 8,092
----------- -----------
Net Assets...................................................... $56,852,421 $57,769,777
======================================================================================================
Net Asset Value Per Share ($NAV)
(based on 4,740,016 and 4,743,948 shares, respectively, of beneficial interest
outstanding -
unlimited number of shares authorized with no par value)......................... $ 11.99 $ 12.18
========================================================================================================================
Maximum Offering Price Per Share*
($NAV x 104.71%)................................................................. $ 12.55 $ 12.75
========================================================================================================================
</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 February 29,
1996. 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>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund
Statement of Operations
Six months ended February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Investment Income:
Interest......................................................................... $1,725,964 $1,758,956
---------- ----------
Expenses:
Investment management fee - Note B............................................. 140,605 142,189
Distribution/service fee - Note B.............................................. 84,363 85,314
Transfer agent fee - Note B.................................................... 33,202 30,212
Custodian fee.................................................................. 29,858 29,626
Printing....................................................................... 14,213 14,072
Auditing fee................................................................... 10,443 10,443
Legal fees..................................................................... 4,586 3,607
Trustees' fees................................................................. 2,743 2,633
Registration and filing fees................................................... 2,123 1,257
Miscellaneous.................................................................. 1,598 1,691
Less Management Fee Reduction - Note B......................................... ( 107,137) ( 113,180)
---------- ----------
Total Expenses.................................................. 216,597 207,864
Less Expense Reductions - Note B................................ ( 19,552) ( 8,787)
---------- ----------
Net Expenses.................................................... 197,045 199,077
------------------------------------------------------------------------------------------------------
Net Investment Income........................................... 1,528,919 1,559,879
------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Financial Futures
Contracts:
Net realized gain on investments sold............................................ 299,079 404,267
Net realized loss on financial futures contracts................................. ( 29,878) ( 92,825)
Change in net unrealized appreciation/depreciation of investments................ 832,464 1,105,591
---------- ----------
Net Realized and Unrealized Gain on Investments and Financial
Futures Contracts ............................................ 1,101,665 1,417,033
------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $2,630,584 $2,976,912
======================================================================================================
</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.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MASSACHUSETTS PORTFOLIO NEW YORK PORTFOLIO
----------------------- ------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, FEBRUARY 29, 1996 AUGUST 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income........................................... $ 1,528,919 $ 3,013,894 $ 1,559,879 $ 3,068,658
Net realized gain (loss) on investments sold and financial
futures contracts ............................................ 269,201 ( 434,124) 311,442 ( 238,444)
Change in net unrealized appreciation/depreciation of ----------- ----------- ----------- -----------
investments .................................................. 832,464 1,302,047 1,105,591 869,661
----------- ----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations ......... 2,630,584 3,881,817 2,976,912 3,699,875
Distributions to Shareholders: *
Dividends from net investment income............................ ( 1,528,919) ( 3,013,894) ( 1,559,879) ( 3,068,658)
----------- ----------- ----------- -----------
From Portfolio Share Transactions: **
Shares sold..................................................... 4,220,224 6,835,830 3,447,266 7,226,005
Shares issued to shareholders in reinvestment of distributions . 1,027,940 2,120,129 1,130,288 2,366,589
----------- ----------- ----------- -----------
5,248,164 8,955,959 4,577,554 9,592,594
Less shares repurchased......................................... ( 3,913,103) ( 9,530,624) ( 3,977,777) ( 10,161,142)
----------- ----------- ----------- -----------
Net Capital Increase (Decrease)............................... 1,335,061 ( 574,665) 599,777 ( 568,548)
----------- ----------- ----------- -----------
Net Assets:
Beginning of period............................................. 54,415,695 54,122,437 55,752,967 55,690,298
----------- ----------- ----------- -----------
End of period (including undistributed net investment income
of $1,994 applicable for both periods and $8,092 applicable
for both periods, respectively) ............................. $56,852,421 $54,415,695 $57,769,777 $55,752,967
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income.................. $ 0.3242 $ 0.6469 $ 0.3310 $ 0.6533
----------- ----------- ----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold.................................................... 353,001 595,309 284,549 628,844
Shares issued to shareholders in reinvestment of distributions. 85,765 186,027 93,235 205,702
----------- ----------- ----------- -----------
438,766 781,336 377,784 834,546
Less shares repurchased..................................... ( 326,333) ( 836,966) ( 328,145) ( 889,508)
----------- ----------- ----------- -----------
Net increase (decrease)..................................... 112,433 ( 55,630) 49,639 ( 54,962)
=========== =========== =========== ===========
</TABLE>
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.
11
<PAGE>
================================================================================
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>
SIX MONTHS ENDED
FEBRUARY 29, 1996 YEAR ENDED AUGUST 31
(UNAUDITED) 1995 1994 1993 1992 1991
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 11.76 $ 11.56 $ 12.43 $ 11.75 $ 11.15 $ 10.63
------- ------- ------- ------- ------- -------
Net Investment Income ........................................ 0.32 0.65 0.63 0.67 0.71 0.73
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ................................ 0.23 0.20 ( 0.75) 0.82 0.60 0.53
------- ------- ------- ------- ------- -------
Total from Investment Operations ......................... 0.55 0.85 ( 0.12) 1.49 1.31 1.26
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ....................... ( 0.32) ( 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 ...................................... ( 0.32) ( 0.65) ( 0.75) ( 0.81) ( 0.71) ( 0.74)
Net Asset Value, End of Period ............................... $ 11.99 $ 11.76 $ 11.56 $ 12.43 $ 11.75 $ 11.15
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (a) ............... 4.76%(c) 7.66% ( 0.97%) 13.29% 12.11% 12.10%
Total Adjusted Investment Return at Net Asset Value (a)(b) ... 4.38%(c) 7.21% ( 1.50%) 12.38% 10.93% 10.66%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .................... $56,852 $54,416 $54,122 $50,019 $29,113 $15,015
Ratio of Expenses to Average Net Assets ...................... 0.76%* 0.70% 0.70% 0.67% 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net Assets (d) ......... 1.15%* 1.15% 1.23% 1.58% 1.78% 2.04%
Ratio of Net Investment Income to Average Net Assets ......... 5.42%* 5.67% 5.28% 5.61% 6.18% 6.64%
Ratio of Adjusted Net Investment Income to Average
Net Assets (d) ............................................. 5.04%* 5.22% 4.75% 4.70% 5.00% 5.20%
Portfolio Turnover Rate ...................................... 24% 24% 29% 79% 56% 29%
</TABLE>
* On an annualized basis.
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the Adviser during the periods shown.
(c) Not annualized.
(d) On an unreimbursed basis without expense reduction.
The FINANCIAL HIGHLIGHTS summarizes the impact of the following factors
on a single share for the period indicated: net investment income, gains
(losses), dividends and total investment return of the Portfolio. It shows how
the Portfolio's net asset value for a share has changed since the commencement
of operations. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund -- New York 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>
SIX MONTHS ENDED
FEBRUARY 29, 1996 YEAR ENDED AUGUST 31
(UNAUDITED) 1995 1994 1993 1992 1991
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 11.88 $ 11.73 $ 12.63 $ 11.90 $ 11.29 $ 10.74
------- ------- ------- ------- ------- -------
Net Investment Income ........................................ 0.33 0.65 0.64 0.68 0.72 0.72
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ................................ 0.30 0.15 ( 0.77) 0.87 0.63 0.55
------- ------- ------- ------- ------- -------
Total from Investment Operations ......................... 0.63 0.80 ( 0.13) 1.55 1.35 1.27
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ....................... ( 0.33) ( 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 ...................................... ( 0.33) ( 0.65) ( 0.77) ( 0.82)( 0.74) ( 0.72)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ............................... $ 12.18 $ 11.88 $ 11.73 $ 12.63 $ 11.90 $ 11.29
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (a) ............... 5.37%(c) 7.19% ( 1.05%) 13.70% 12.17% 12.24%
Total Adjusted Investment Return at Net Asset Value (a)(b) ... 4.97%(c) 6.74% ( 1.58%) 12.83% 11.09% 11.02%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .................... $57,770 $55,753 $55,690 $52,444 $33,806 $20,878
Ratio of Expenses to Average Net Assets ...................... 0.73%* 0.70% 0.70% 0.67% 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net Assets (d) ......... 1.13%* 1.15% 1.23% 1.54% 1.68% 1.82%
Ratio of Net Investment Income to Average Net Assets ......... 5.47%* 5.67% 5.28% 5.63% 6.22% 6.57%
Ratio of Adjusted Net Investment Income to Average Net
Assets (d) ................................................. 5.07%* 5.22% 4.75% 4.76% 5.14% 5.35%
Portfolio Turnover Rate .................................. 30% 70% 23% 56% 48% 12%
</TABLE>
* On an annualized basis.
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the Adviser during the periods shown.
(c) Not annualized.
(d) On an unreimbursed basis without expense reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund -- Massachusetts Portfolio
Schedule of Investments
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by each
Portfolio of the Tax-Exempt Series Fund on February 29, 1996. 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.
<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
Massachusetts (89.92%)
Boston City Industrial Development Financing Auth,
Sewage Facil Rev 1991 Ser Harbor Elec Energy Co Proj ........... 7.375% 05-15-15 BBB $ 250 $ 271,760 6.78%
Boston Water and Sewer Commission,
Gen Rev 1991 Ser A Sr Ser ...................................... 7.000 11-01-18 AAA 500 575,950 6.08
Gen Rev 1992 Ser A Sr Ser ...................................... 5.750 11-01-13 A 500 516,840 5.56
Boston, City of,
GO 1990 Ser A .................................................. 7.375 02-01-10 A+ 350 395,867 6.52
GO 1991 Ser A MBIA ............................................. 6.750 07-01-11 AAA 350 396,610 5.96
GO 1992 Ser A AMBAC ............................................ 6.500 07-01-12 AAA 500 551,035 5.90
Rev Boston City Hosp FHA-Ins Mtg Ser A ......................... 7.625 02-15-21 Aaa* 500 571,360 6.67
Brockton, City of,
State Qualified Municipal Purpose Ln of 1993 ................... 6.125 06-15-18 A- 2,000 2,030,200 6.03
Holyoke, City of,
GO School Proj Ln Act of 1948 .................................. 7.650 08-01-09 Baa* 1,000 1,119,970 6.83
Massachusetts Bay Transportation Auth,
Gen Trans Sys Rev Ref 1994 Ser A ............................... 7.000 03-01-14 A+ 1,000 1,182,770 5.92
Gen Trans Sys Rev Ref 1995 Ser A ............................... 5.750 03-01-18 A+ 1,000 998,760 5.76
Massachusetts Educational Financing Auth,
Ed Ln Rev Iss D Ser 1991A ...................................... 7.250 01-01-09 AAA 495 536,946 6.68
Massachusetts Health and Educational Facilities Auth,
Rev Anna Jaques Hosp Iss Ser B ................................. 6.875 10-01-12 Baa1* 1,250 1,294,088 6.64
Rev Bentley College Iss Ser H .................................. 6.875 07-01-12 AAA 250 278,665 6.17
Rev Boston College Iss Ser J ................................... 6.625 07-01-21 AAA 1,000 1,096,030 6.04
Rev Charlton Memorial Hosp Iss Ser B ........................... 7.250 07-01-13 A 2,250 2,416,905 6.75
Rev Community Colleges Prog Iss Ser A .......................... 6.600 10-01-22 AAA 250 270,532 6.10
Rev Dana Farber Cancer Institute Ser G-1 ....................... 6.250 12-01-22 A 1,000 1,016,540 6.15
Rev Faulkner Hosp Iss Ser C .................................... 6.000 07-01-13 Baa1* 750 718,012 6.27
Rev Faulkner Hosp Iss Ser C .................................... 6.000 07-01-23 Baa1* 1,000 932,740 6.43
Rev Lowell Gen Hosp Iss Ser A .................................. 8.400 06-01-11 Baa1* 600 660,378 7.63
Rev Melrose-Wakefield Hosp Iss Ser B ........................... 6.350 07-01-06 A- 500 521,285 6.09
Rev New England Baptist Hosp Iss Ser B ......................... 7.350 07-01-17 BBB+ 250 261,992 7.01
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund -- Massachusetts Portfolio
PAR VALUE YIELD
INTEREST MATURITY S&P (000's MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- -------
Massachusetts (continued)
Rev New England Deaconess Hosp Iss Ser D ............................ 6.875% 04-01-22 A $ 2,210 $2,335,241 6.51%
Rev New England Medical Center Hosp Iss Ser D ....................... 7.200 07-01-10 A1* 280 289,162 6.97
Rev Northeastern Univ Iss Ser E ..................................... 6.550 10-01-22 AAA 1,000 1,101,080 5.95
Rev Ref Worcester Polytechnic Institute Iss Ser E ................... 6.625 09-01-17 A+ 250 270,578 6.12
Rev Saint Elizabeth's Hosp of Boston Iss Ser B FHA-Ins Proj ......... 7.750 08-01-27 AA 350 376,855 7.20
Rev Saint Luke's Hosp Iss 1993 Inverse Floater ...................... 7.400 08-15-23 AAA 500 506,250 7.31
Rev Smith College Iss Ser D ......................................... 5.750 07-01-24 AA- 560 561,680 5.73
Rev Tufts Univ Iss Ser C Preref ..................................... 7.400 08-01-18 Aaa* 430 473,439 6.72
Rev Tufts Univ Iss Ser C Unref Bal .................................. 7.400 08-01-18 A+ 90 97,995 6.80
Rev Wellesley College Ser D ......................................... 5.375 07-01-19 AA+ 1,000 973,350 5.52
Massachusetts Housing Finance Agency,
Rev Insured Rental Hsg 1994 Ser A ................................... 6.600 07-01-14 AAA 1,100 1,157,981 6.27
Rev Residential Devel FNMA Coll Ser C ............................... 6.875 11-15-11 AAA 2,000 2,152,180 6.39
Rev Residential Devel FNMA Coll Ser D ............................... 6.800 11-15-12 AAA 500 530,900 6.40
Single Family Hsg Rev Ser 5 ......................................... 8.375 06-01-15 A+ 50 53,001 7.90
Single Family Hsg Rev Ser 7 ......................................... 8.400 12-01-16 A+ 100 105,207 7.98
Single Family Hsg Rev Ser 7 ......................................... 8.100 06-01-20 A+ 80 84,054 7.71
Single Family Hsg Rev Ser 9 ......................................... 8.100 12-01-21 A+ 100 104,551 7.75
Single Family Hsg Rev Ser 13 ........................................ 7.950 06-01-23 A+ 190 201,827 7.48
Single Family Hsg Rev Ser 16 ........................................ 7.900 06-01-14 A+ 90 96,174 7.39
Single Family Hsg Rev Ser 18 ........................................ 7.350 12-01-16 A+ 550 586,058 6.90
Massachusetts Industrial Finance Agency,
Resource Recovery Rev Ref Ser 1993 A Mass Refusetech Inc Proj ....... 6.300 07-01-05 BBB 1,825 1,912,691 6.01
Rev Ref Emerson College Iss Ser 1991A ............................... 8.900 01-01-18 NR 250 281,255 7.91
Rev Ref Holy Cross College Iss II Ser 1992 .......................... 6.375 11-01-15 A+ 500 526,635 6.05
Rev Wtr Treatment American Hingham Proj ............................. 6.750 12-01-20 BBB 2,000 2,047,000 6.60
Rev Wtr Treatment American Hingham Proj ............................. 6.900 12-01-29 BBB 1,310 1,340,536 6.74
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+ 500 554,305 6.09
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the Commonwealth of Mass 6.750 07-01-06 BBB+ 1,500 1,655,145 6.12
Pwr Supply Sys Rev 1992 Ser B A Pub Corp of the Commonwealth of Mass 6.750 07-01-17 BBB+ 400 432,536 6.24
Pwr Supply Sys Rev 1992 Ser C A Pub Corp of the Commonwealth of Mass 6.625 07-01-10 AAA 1,000 1,114,620 5.94
Pwr Supply Sys Rev 1993 Reg Inverse Floater ......................... 6.720# 07-01-18 AAA 1,300 1,200,875 7.27
Massachusetts Port Auth,
Rev Ref Ser 1992 A .................................................. 6.000 07-01-23 AA- 1,620 1,625,589 5.98
Rev Ref Ser 1993 B .................................................. 5.000 07-01-13 AA- 500 476,545 5.25
Massachusetts Water Resource Auth,
Gen Rev Ref 1993 Ser B .............................................. 5.500 03-01-17 A 400 385,064 5.71
Gen Rev Ref 1993 Ser B .............................................. 5.000 03-01-22 A 360 323,345 5.57
Gen Rev Ref 1993 Ser C .............................................. 4.750 12-01-23 A 1,000 862,060 5.51
Gen Rev Ref 1995 Ser B .............................................. 4.750 12-01-21 AAA 1,000 889,720 5.34
Massachusetts, the Commonwealth of,
GO Consol Ln of 1991 Ser D .......................................... 6.875 07-01-10 A+ 1,750 1,993,390 6.04
Nantucket, Town of,
GO Municipal Purpose Ln of 1991 ..................................... 6.800 12-01-11 A* 450 496,809 6.16
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund -- Massachusetts Portfolio
PAR VALUE YIELD
INTEREST MATURITY S&P (000's MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- -------
Massachusetts (continued)
Plymouth, County of,
Cert of Part Ser A Plymouth County Correctional Facil Proj ........ 7.000% 04-01-22 A- $ 750 $ 832,927 6.30%
South Essex Sewer District,
GO 1996 Ser A ..................................................... 5.250 06-15-24 AAA 1,000 950,510 5.52
Springfield, City of,
GO School Proj Ln Act of 1992 Ser B ............................... 7.100 09-01-11 Baa* 500 549,705 6.46
-----------
51,124,060
-----------
Puerto Rico (10.62%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of Puerto Rico . 8.220# 07-01-11 AAA 2,000 2,315,000 7.10
Puerto Rico Highway and Transportation Auth,
Highway Rev Ref Ser W ............................................. 5.500 07-01-13 A 1,000 994,390 5.53
Puerto Rico Infrastructure Financing Auth,
Spec Tax Rev Ser 1988A ............................................ 7.75 07-01-08 BBB+ 450 492,831 7.08
Puerto Rico, Commonwealth of,
GO Pub Imp Inverse Rate Securities Ser 1996 ....................... 8.220 07-01-11 A 1,000 1,157,500 7.10
GO Pub Imp Unltd Ref Ser 1994 ..................................... 6.400 07-01-11 A 1,000 1,077,360 5.94
-----------
6,037,081
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $54,368,139) (100.54%) $57,161,141
======= ===========
</TABLE>
* Credit Ratings are rated by Moody's Investors Services, Fitch or John
Hancock Advisers, Inc. where Standard & Poors ratings are not available. NR
not rated.
+ The yield is not calculated with the guidelines established by the U.S.
Securities Exchange Commission.
# Represents rate in effect on February 29, 1996.
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.
16
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund -- New York Portfolio
Schedule of Investments
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<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
New York (86.31%)
34th Street Partnership, Inc,
34th Street Business Imp Dist Cap Imp Bonds Ser 1993 ................ 5.500% 01-01-23 A1* $ 500 $ 475,760 5.78%
Albany Housing Auth Ltd,
Rev Ser 1995 ........................................................ 6.250 10-01-12 Baa1* 1,000 1,023,110 6.11
Albany, County of,
Ref Ser 1993 ........................................................ 5.000 10-01-12 AAA 600 582,204 5.15
Battery Park City Auth,
Jr Rev Ref Ser 1993A ................................................ 5.000 11-01-13 AA 2,500 2,298,650 5.44
Dutchess County Resource Recovery Agency,
Solid Waste Mgmt Sys Rev Ser 1990 A ................................. 7.500 01-01-09 AAA 250 276,995 6.77
Grand Central District Management Association Inc,
Business Imp District Cap Imp Ser 1994 .............................. 5.125 01-01-14 A 500 463,280 5.53
Metropolitan Transportation Auth,
Commuter Facil 1987 Serv Contract Ser 3 ............................. 7.375 07-01-08 BBB 1,000 1,167,240 6.32
Commuter Facil 1992 Serv Contract Ser N ............................. 7.125 07-01-09 BBB 1,000 1,108,010 6.43
Transit Facil Rev Ser J ............................................. 6.500 07-01-18 AAA 1,000 1,102,640 5.89
New York City Housing Development Cor
Multi-Family Mtg Rev FHA Ins Mtg Ln 1993 Ser A. ..................... 6.550 10-01-15 AAA 1,000 1,045,160 6.27
New York City Industrial Development Agency,
Solid Waste Disposal Rev 1995 Visy Paper NY Inc Proj ................ 7.950 01-01-28 BB* 1,000 1,029,600 7.72
Spec Facil Rev 1990 American Airlines Inc Proj ...................... 8.000 07-01-20 BB+ 400 431,668 7.41
New York Local Government Assistance Corp,
Ser 1991 A Pub Benefit Corp ......................................... 7.250 04-01-18 A 1,000 1,154,080 6.28
Ser 1992 A Pub Benefit Corp ......................................... 6.87 04-01-19 A 2,000 2,224,260 6.18
Ser 1993 E Pub Benefit Corp ......................................... 5.250 04-01-16 A 500 485,480 5.41
New York State Dormitory Auth,
City Univ Rev Iss Ser U ............................................. 6.375 07-01-08 BBB 500 527,535 6.04
City Univ Sys Consol Rev Construction 2nd Generation Ser 1993A ...... 6.000 07-01-20 BBB 1,000 1,035,110 5.80
City Univ Sys Consol Rev Ser 1990A .................................. 7.625 07-01-20 BBB 485 560,209 6.60
Court Facil Lease Rev Ser 1993A ..................................... 5.375 05-15-16 BBB+ 1,500 1,405,920 5.73
Genessee Valley Presbyterian Nursing Center FHA-Ins Mtg Rev Ser 1992B 6.850 08-01-16 AA 250 273,265 6.27
KMH Homes Inc FHA-Ins Mtg Rev Ser 1991 .............................. 6.950 08-01-31 AA 1,200 1,287,324 6.48
Manhattanville College Ins Rev Ser 1990 ............................. 7.500 07-01-22 AAA 305 350,796 6.52
State Univ Ed Facil Rev Ser 1990A ................................... 7.70 05-15-12 A* 300 346,284 6.67
State Univ Ed Facil Rev Ser 1993A ................................... 5.500 05-15-19 A* 1,000 969,330 5.67
United Hlth Serv Inc FHA-Ins Mtg Rev Ser 1989 ....................... 7.350 08-01-29 AAA 200 218,116 6.74
Univ of Rochester Rev Ser 1987 ...................................... 6.500 07-01-09 A+ 625 650,881 6.24
Upstate Community Colleges 1988A Iss ................................ 7.750 07-01-18 Baa1* 300 331,251 7.02
Vassar College Rev Ser 1990 ......................................... 7.250 07-01-15 AAA 250 284,435 6.37
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund -- New York Portfolio
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>
New York (continued)
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 $ 207,476 7.23%
Elec Facil Rev Ser 1989 A Consol Edison Co of NY Inc Proj ......... 7.750 01-01-24 A+ 200 212,814 7.28
Elec Facil Rev Ser 1989 A Long Island Lighting Co Proj ............ 7.150 09-01-19 BB+ 500 517,410 6.91
Elec Facil Rev Ser 1989 B Consol Edison Co of NY Inc Proj ......... 7.375 07-01-24 A+ 200 212,808 6.93
Elec Facil Rev Ser 1990 A Consol Edison Co of NY Inc Proj ......... 7.500 07-01-25 A+ 260 282,357 6.91
Elec Facil Rev Ser 1990 A Long Island Lighting Co Proj ............ 7.150 06-01-20 BB+ 1,000 1,034,820 6.91
Elec Facil Rev Ser 1991 A Consol Edison Co of NY Inc Proj ......... 7.500 01-01-26 A+ 420 458,317 6.87
Elec Facil Rev Ser 1992 B Long Island Lighting Co Proj ............ 7.150 02-01-22 BB+ 1,000 1,034,820 6.91
Elec Facil Rev Ser 1992 C Long Island Lighting Co Proj ............ 6.900 08-01-22 BB+ 500 510,430 6.76
New York State Environmental Facilities Corp,
State Wtr Poll Control Revolving Fund Rev Ser 1990 A .............. 7.500 06-15-12 A 630 703,301 6.72
State Wtr Poll Control Revolving Fund Rev Ser 1991 E .............. 6.875 06-15-10 A 400 441,912 6.22
New York State Housing Finance Agency,
Ins Multi-Family Mtg Hsg 1992 Ser C .............................. 6.450 08-15-14 AAA 500 517,085 6.24
Ins Multi-Family Mtg Hsg 1994 Ser C .............................. 6.450 08-15-14 Aa* 1,000 1,037,900 6.21
New York State Medical Care Facilities Finance Agency,
Hosp & Nursing Home FHA-Ins Mtg Rev 1988 Ser C ................... 7.700 02-15-22 AAA 450 499,734 6.93
Hosp & Nursing Home Ins Mtg Rev 1992 Ser B ....................... 6.950 02-15-32 AA 1,000 1,072,500 6.48
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref. ................ 7.875 08-15-20 AAA 150 175,305 6.74
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal .............. 7.875 08-15-20 BBB+ 90 101,635 6.97
Mental Hlth Serv Facil Imp Rev 1991 Ser A ........................ 7.750 08-15-11 BBB+ 60 67,797 6.86
Mental Hlth Serv Facil Imp Rev 1991 Ser A ........................ 7.750 08-15-11 AAA 165 193,586 6.61
Mental Hlth Serv Facil Imp Rev 1991 Ser B ........................ 7.625 08-15-17 BBB+ 245 276,127 6.77
Mental Hlth Serv Facil Imp Rev 1991 Ser C Preref ................. 7.300 02-15-21 AAA 300 349,578 6.26
Mental Hlth Serv Facil Imp Rev 1991 Ser C Unref Bal .............. 7.300 02-15-21 BBB+ 100 110,877 6.58
Sec Hosp Rev 1991 Ser A .......................................... 7.350 08-15-11 BBB 250 270,882 6.78
New York State Mortgage Agency,
Homeowner Mtg Rev Ser 27 ......................................... 6.900 04-01-15 Aa* 1,175 1,253,525 6.47
Homeowner Mtg Rev Ser 28 ......................................... 7.050 10-01-23 Aa* 500 528,630 6.67
Homeowner Mtg Rev Ser 53 ......................................... 5.900 10-01-17 Aa* 500 502,070 5.88
Homeowner Mtg Rev Ser BB-2 ....................................... 7.950 10-01-15 Aa* 230 244,343 7.48
Homeowner Mtg Rev Ser EE-4 ....................................... 7.800 10-01-13 Aa* 300 322,926 7.25
Homeowner Mtg Rev Ser JJ ......................................... 7.500 10-01-17 Aa* 330 350,863 7.05
Homeowner Mtg Rev Ser VV ......................................... 7.375 10-01-11 Aa* 195 207,860 6.92
New York State Power Auth,
Gen Purpose Ser W ................................................ 6.500 01-01-08 AA- 250 283,420 5.73
Gen Purpose Ser Y ................................................ 6.500 01-01-11 AA- 250 271,095 5.99
Gen Purpose Ser Y ................................................ 6.750 01-01-18 AA- 250 276,958 6.09
Gen Purpose Ser Y ................................................ 6.000 01-01-20 AAA 250 257,255 5.83
New York State Thruway Auth,
Local Highway & Bridge Serv Contract Ser 1991 ..................... 7.250 01-01-10 BBB 300 342,444 6.35
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund -- New York Portfolio
PAR VALUE YIELD
INTEREST MATURITY S&P (000's MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---- ---- ------- -------- ----- -------
New York (continued)
New York State Urban Development Corp,
Rev Correctional Facil Ser 1993 ................................... 5.500% 01-01-15 A* $2,900 $2,772,052 5.75%
Rev Ser 1990 Onondaga County Convention Center Proj ............... 7.875 01-01-20 BBB 250 293,080 6.72
New York, City of,
GO Fiscal 1991 Ser B .............................................. 8.250 06-01-07 BBB+ 200 243,410 6.78
GO Fiscal 1991 Ser D .............................................. 8.000 08-01-04 BBB+ 250 282,742 7.07
GO Fiscal 1991 Ser F .............................................. 8.200 11-15-03 BBB+ 250 287,543 7.13
GO Fiscal 1992 Ser A .............................................. 7.750 08-15-12 BBB+ 250 280,010 6.92
GO Fiscal 1992 Ser B .............................................. 7.000 10-01-13 BBB+ 500 543,020 6.45
GO Fiscal 1992 Ser C .............................................. 7.500 08-01-21 BBB+ 250 279,665 6.70
GO Fiscal 1992 Ser H .............................................. 7.000 02-01-22 BBB+ 620 669,581 6.48
GO Fiscal 1995 Ser A-1 ............................................ 6.500 08-01-14 BBB+ 1,000 1,043,370 6.23
GO Fiscal 1995 Ser E .............................................. 6.000 02-15-12 A-* 1,000 979,880 6.12
New York, State of,
GO Environmental Quality Fiscal 1994 .............................. 6.500 12-01-14 A- 1,000 1,087,650 5.98
GO Rev Fiscal 1995 ................................................ 5.800 10-01-12 A- 750 774,248 5.62
North Country Development Auth,
Solid Waste Mgt Sys Rev Ser 1992A ................................. 6.750 07-01-12 Baa* 490 519,679 6.36
Onondaga County Industrial Development Agency,
Civic Facil Rev 1993 Ser B Community Gen Hosp of Greater
Syracuse Proj .................................................... 6.625 01-01-18 BBB 1,000 1,009,860 6.56
Triborough Bridge and Tunnel Auth,
Spec Oblig Ref Ser 1991B .......................................... 6.875 01-01-15 A- 500 555,445 6.19
----------
49,860,688
----------
Puerto Rico (12.28%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of Puerto Rico . 8.220# 07-01-11 AAA 2,000 2,315,000 7.10
Puerto Rico Electric Power Auth,
Pwr Rev Ser X ..................................................... 6.000 07-01-15 A- 1,000 1,030,610 5.82
Puerto Rico Highway and Transportation Auth,
Highway Rev Ref Ser X ............................................. 5.500 07-01-15 A 1,000 1,001,100 5.49
Puerto Rico Public Building Auth,
Gtd Rev Gov't Facil Ser A ......................................... 6.250 07-01-15 AAA 1,110 1,237,950 5.60
Puerto Rico, Commonwealth of,
GO Pub Imp Ser 1996 ............................................... 5.500 07-01-17 A 1,000 971,800 5.66
GO Pub Imp Unltd Ref Ser 1994 ..................................... 6.400 07-01-11 A 500 538,680 5.94
----------
7,095,140
----------
TOTAL TAX EXEMPT LONG-TERM BONDS
(Cost $ 53,802,889) ( 98.59%) $56,955,828
======= ===========
</TABLE>
* Credit Ratings are rated by Moody's Investors Services, Fitch or John
Hancock Adviser's, Inc. where Standard & Poors ratings are not available.
+ The yield is not calculated with guidelines established by the U.S.
Securities Exchange Commission.
# Represents rate in effect on February 29, 1996.
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.
19
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The MASSACHUSETTS and NEW YORK PORTFOLIOS invest primarily in securities issued
by the states of 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 February 29, 1996
assigned to the various sector categories.
<TABLE>
<CAPTION>
market value as a Percentage of each
Portfolio's net assets:
-----------------------
Massachusetts New York
SECTOR DISTRIBUTION Portfolio Portfolio
- ------------------- --------- ---------
<S> <C> <C>
General Obligation................................................ 14.34% 14.82%
Revenue Bonds - Certificate of Participation...................... 1.47 -
Revenue Bonds - Education......................................... 14.24 11.19
Revenue Bonds - Electric Power.................................... 8.72 3.67
Revenue Bonds - Health............................................ 20.04 10.22
Revenue Bonds - Housing........................................... 8.92 12.18
Revenue Bonds - Industrial Development Bond....................... 9.80 15.63
Revenue Bonds - Other............................................. 1.74 15.76
Revenue Bonds - Transportation.................................... 9.28 9.13
Revenue Bonds - Water & Sewer..................................... 11.99 5.99
------ -----
TOTAL TAX-EXEMPT LONG-TERM BONDS............................... 100.54% 98.59%
====== =====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund
(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. The Fund consists of two separate series
portfolios: the Massachusetts Portfolio and the New York Portfolio (the
"Portfolios"). On September 15, 1995, John Hancock California Portfolio, which
was previously a series portfolio, was merged into John Hancock California
Tax-Free Income Fund in a tax-free reorganization. (See Note D) The investment
objective of the Portfolios is to provide current income that is excludable from
gross income for Federal income tax purposes and for the Massachusetts and New
York Portfolios, respectively, is income that is exempt from the personal income
tax of Massachusetts and New York, and from New York City personal income taxes.
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 underly ing
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 realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, to offset future net realized gains,
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 $77,663 of a capital loss carryforward available expiring in
August 31, 2003. If such carryforwards are used by the respective Portfolios, no
capital gain distributions 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.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund.
EXPENSES The majority of the expenses of the Fund are directly identifiable to
an individual Portfolio. Expenses which are not identifiable
21
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund
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 re quired by the Internal Revenue Code. The
portfolios record market discount on bonds purchased after April 30, 1993 at the
time of disposition.
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 val
ued 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 February 29, 1996 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 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 voluntarily 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 February 29, 1996,
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 Massachusetts
Portfolio and the New York Portfolio amounted to $107,137, and $113,180,
respectively. This waiver may be discontinued at any time. Furthermore,
custodian fees have been reduced by balance credits applied to each portfolio
for the period ended February 29 1996. For the Massachusetts Portfolio
22
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund
and the New York Portfolio the reduction amounted to $19,552 and $8,787,
respectively.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended February
29, 1996, 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 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. 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.
MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO
For the period ended February 29, 1996:
Net sales charges received ............... $79,554 $112,704
Less commissions paid
to affiliated broker-dealers ........... ( 9,391) ( 13,503)
to unrelated broker-dealers ............ ( 12,945) ( 14,720)
------- --------
Balance retained........................ $57,218 $ 84,481
======= ========
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the two Portfolios, the Fund has adopted a Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940.
Accordingly, each Portfolio will make 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 Portfolios have a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly-owned subsidiary of The
Berkeley Financial Group. The Portfolios pay transfer agent fees based on
transaction volume and the number of shareholder accounts.
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 are recorded on each Portfolio's books as an
other asset. The deferred compensation liability and the related other asset are
always equal and are marked to market on a periodic basis to reflect an income
earned by the investment as well as any unrealized gains or losses. The
investment has no impact on the operations of the Portfolios.
NOTE C --
INVESTMENT TRANSACTIONS
MASSACHUSETTS NEW YORK
PORTFOLIO PORTFOLIO
For the period ended February 29, 1996:
Long-term municipal obligations
Purchases ............................. $16,870,166 $17,386,563
Proceeds .............................. 13,663,315 16,661,608
There were no purchases or sales of long-term U.S. government and agency
obligations for the period ended February 29, 1996.
At February 29, 1996:
Cost of investments for Federal income
tax purposes ......................... $54,368,139 $53,802,889
=========== ===========
Gross unrealized appreciation
of investments ........................ $ 3,104,437 $ 3,350,672
Gross unrealized depreciation
of investments ........................ ( 311,435) ( 197,733)
----------- -----------
Net unrealized appreciation
of investments .......................... $ 2,793,002 $ 3,152,939
=========== ===========
23
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Tax-Exempt Series Fund
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of the John Hancock Tax-Exempt Series
Fund - California Portfolio ("JHCP") voted to approve a plan of reorganization
between JHCP and John Hancock California Tax-Free Income Fund ("CTFIF")
providing for the transfer of substantially all of the assets and liabilities of
JHCP to CTFIF in exchange solely for Class A shares of CTFIF which were
distributed to JHCP's Class A shareholders. At that meeting, the votes were
tabulated as follows: 2,471,338 for; 35,023 against; 244,193 abstained. As of
the close of business on September 15, 1995, JHCP was terminated.
24
<PAGE>
================================================================================
NOTES
25
<PAGE>
================================================================================
NOTES
26
<PAGE>
================================================================================
NOTES
27
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 Brockton, MA
Permit No. 582
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.
[RECYCLE LOGO] Printed on Recycled Paper 000SA 2/96
4/96
