John Hancock Funds
New York
Tax-Free
Income Fund
ANNUAL REPORT
August 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward 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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
A 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic
in the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that
prospectuses are often overloaded with technical detail and are hard
for most investors to understand. Many industry observers agreed,
and rightly so.
So it is my pleasure to let you know that after being under
development for a year, John Hancock Funds has introduced new
simplified and consolidated prospectuses. The prospectuses feature
shorter, clearer language with a streamlined design, and they
incorporate several funds with similar investment objectives into
one document. They cover our income, growth, growth and income, tax-
free income, international/global and money market funds. We are
gratified at the favorable reviews that our new prospectuses have
received from shareholders, financial advisers, industry analysts
and the press. We believe they are a bold but sensible step forward.
And while they are easier to read, they still comply with all
federal and state guidelines.
We have taken the initiative to create a prospectus that
dramatically departs from the norm. Among its most innovative
features is a two-page spread highlighting each fund's goals and
investment strategy, the types of securities it buys, its portfolio
management and risk factors, all in plainer language. Fund expenses
and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other
features include a better presentation of fund services, a new
glossary of investment risks and a discussion about how funds are
organized, including a diagram showing the connection of the various
players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive
toward better mutual fund prospectuses. We hope you will agree
because in the end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY FRANK LUCIBELLA, CFA, PORTFOLIO MANAGER
John Hancock
New York Tax-Free
Income Fund
Signs of economic strength roil bonds in 1996;
munis outperform in last six months
Effective July 1, 1996, John Hancock Tax-Exempt Series Fund's name
changed to John Hancock New York Tax-Free Income Fund and John
Hancock Massachusetts Tax-Free Income Fund. What follows is the
report for the New York Tax-Free Income Fund.
Municipal bonds turned in a good performance over the last 12 months
considering the see-saw environment for bonds during that time. At
the beginning of the Fund's fiscal year in September 1995, the bond
market was in the midst of a strong rally due to slow economic growth,
mild inflation and falling interest rates. While municipals performed
well during that time, they lagged their taxable brethren somewhat.
But starting in early 1996, bond prices pulled back and yields rose as
signs emerged of an economy growing faster than had been expected. That
sparked fears of inflation, a bondholder's nemesis because of its corrosive
effect on a bond's income stream.
A 2 1/4" x 3 1/2" photo of the Fund management team. Caption reads: "New
York Tax-Free Income Fund management team members: (l-r) Tom Goggins,
Frank Lucibella, Dianne Sales-Singer".
During this time period, the relative value of muni bonds was
somewhat volatile. Early in 1996, concerns about fundamental changes
in the U.S.Tax Code weighed on the muni market, causing them to
underperform. But as supply dwindled, investors began to again
recognize the value of tax-free income. As a result, the last few
months saw munis reverse course, and they dramatically outperformed
their taxable counterparts.
Pie chart with the heading "Portfolio Diversification" at top of left
hand column. The chart is divided into 9 sections. Going from top left
to right; Cash 1%; General Obligation 10%; Industrial Development 10%;
Education 14%; Health 16%; Housing 13%; Other 17%; Transportation 10%;
Water & Sewer 9%. A footnote below states "As a percentage of net assets
on August 31, 1996."
Performance and strategy review
For the year ending August 31, 1996, the Fund posted a total return
of 5.21% at net asset value, which was better than the average New
York municipal bond fund's 4.47% return for the same period,
according to Lipper Analytical Services.1 Please see pages six and
seven for longer-term performance information. We attribute the
Fund's outperformance to how we managed the Fund's duration.
Duration measures how sensitive a bond's price -- and therefore the
Fund's share price -- is to changes in interest rates. The longer
the duration, the more a bond's price will rise when interest rates
fall and fall when rates rise. At the beginning of the period, the
Fund's duration was a fairly long 8.3 years, where we kept it as the
market rode up and interest rates fell through January. At that
point, just as the economy showed signs of perking up, we became
more defensive, and shortened duration at one point to an average
7.4 years. That served us well as rates rose and then stayed in a
tight range. By the end of August, the Fund's duration was still a
bit shorter than average at 7.9 years. We'll stay in this range
until we have some clearer idea of where the economy is headed.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left column is "Investment"; the header for the right column is
"Recent performance ... and what's behind the numbers". The first
listing is Islip Community Development Agency followed by an up arrow
and the phrase "Attractive yield". The second listing is New York
Dormitory Authority followed by an up arrow and the phrase "Good
credit". The third listing is Long Island Lighting Company followed by a
down arrow and the phrase "Restructuring concerns". A footnote below
states "See 'Schedule of Investments'. Investment holdings are subject
to change".
Port Authority in, LILCO out
Several of the Fund's stronger performers were bonds we bought
within the last six months. One was Islip Community Development
Agency bonds for the New York Institute of Technology to allow the
college to consolidate campuses and restructure debt. In addition to
their good yield, these bonds allow us to take part in the college's
restructuring and in an improving credit. We also bought bonds
issued by the Port Authority of New York and New Jersey for a joint
venture that runs a natural gas-fired electric generating facility
and also provides energy and electrical services to JFK
International Airport. The bonds carry a favorable rate structure
and ample revenue security, including a guarantee from the joint-
venture operator.
We bought the Port Authority bonds with the proceeds from the sale
of our Long Island Lighting Company (LILCO) bonds. While this
electric utility company had been a good source of income for the
Fund, its long-pending buyout remains stalled, and uncertainty about
its prospects caused us to re-evaluate our position. In comparison,
the Port Authority bonds represented an opportunity to own an
equivalent coupon, yield, maturity and rating, without having the
uncertainty that surrounded the LILCO bonds. With no concrete plans
emerging around a LILCO buyout and a certain amount of doubt that it
would occur at all, we didn't want to run the risk that the bonds'
prices would fall if no deal came through. On a risk-return basis,
the Port Authority bonds made more sense, so we made the swap.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended August 31, 1996."
The chart is scaled in increments of 5% from bottom to top, with 10% at
the top and 0% at the bottom. Within the chart there are two solid bars.
the first represents the 5.21% total return for John Hancock New York
Tax-Free Income Fund. The second represents the 4.47% total return for
the average New York municipal bond fund. A footnote below states "The
total return for John Hancock New York Tax-Free Income Fund is at net
asset value with all distributions reinvested. The total return for the
average New York municipal bond fund is tracked by Lipper Analytical
Services.(1) See following two pages for historical performance
information."
City and state
Our New York City bond holdings, which represent another 4% of the
Fund's net assets, also continued to perform well. The city's job
growth was strong over the last six months, an important element in
maintaining a favorable credit rating.
As for New York State, we remain encouraged by the state's efforts
to improve its financial condition. While we do not believe a credit
upgrade is imminent, it could happen in the near future if the state
makes more progress. For now, New York remains a stable credit, with
all state appropriated debt holding its own in the market. In fact,
our state agency bonds rated BBB, the lowest of the investment-grade
bonds, such as the Urban Development Corporation and State and City
universities, performed well throughout the fiscal year.
A look ahead
In our view, election year politics will play a big role in framing
the shape of the bond markets in the near term. Efforts by President
Clinton to portray the economy in its best light could lead to signs
of more strength this fall, which could cause some concern for a
bond market already worried about the possibility of inflation. The
municipal market, which finally overcame its flat-tax fears, could
be temporarily sidetracked by fears of a Dole/Kemp tax cut that
could deepen the federal budget deficit. For the moment the market
is discounting that possibility. But depending on the outcome of the
election, the municipal market could be in for some short-term
turmoil. From a fundamental standpoint, however, we remain
optimistic about municipal bonds. The overall supply of municipal
bonds continues to decrease, while demand remains healthy and
constant. In that environment, municipals remain attractive.
- --------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through
the end of the Fund's period discussed in this report. Of course,
the manager's views are subject to change as market and other
conditions warrant.
1Figures from Lipper Analytical Services include reinvested
dividends and do not take into account sales charges. Actual load-
adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock New York Tax-Free
Income 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 distributed to shareholders as taxable income,
and some investors may be subject to the Alternative Minimum Tax.
Also note that capital gains are taxable when distributed to shareholders.
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
---------- --------- -----------
John Hancock New York
Tax-Free Income Fund 1.59% 39.42% 95.78%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended June 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
---------- --------- -----------
John Hancock New York
Tax-Free Income Fund (2) 1.59% 6.87% 7.93%(1)
YIELDS
As of August 31, 1996
SEC 30-DAY
YIELD
----------
John Hancock New York
Tax-Free Income Fund 4.94%
Notes to Performance
(1) Operations commenced on September 13, 1987.
(2) The Advisor has voluntarily waived a portion of the management
fee and reduced a portion of the custodian fees during the
period. Without the waiver of expenses, the average annual
total returns for the one-year, five-year, and since inception
periods would have been 1.14%, 6.17%, and 6.84%, respectively.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The chart on the right shows how much a $10,000 investment in John
Hancock New York Tax-Free Income Fund would be worth on August 31,
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 --
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 distributions for this Fund may be taxable, and some
investors may be subject to the alternative minimum tax.
New York Tax-Free Income Fund
Line chart with the heading New York Tax-Free Income Fund, 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 Lehman Brothers Municipal
Bond Index and is equal to $20,966 as of August 31, 1996. The second
line represents the value of the hypothetical $10,000 investment made in
the New York Tax-Free Income Fund on September 13, 1987, before sales
charge, and is equal to $20,694 as of August 31, 1996. The third line
represents the New York Tax-Free Income Fund after sales charge and is
equal to $19,765 as of August 31, 1996.
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on August 31, 1996. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
August 31, 1996
- ----------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds
(cost - $52,706,595) $54,674,401
-----------
Cash 500,480
Receivable for investments sold 250,954
Receivable for shares sold 47,186
Interest receivable 757,877
Receivable for futures variation margin -- Note A 17,031
Segregated assets for financial futures contracts 47,000
Other assets 2,044
-----------
56,296,973
-----------
Liabilities:
Dividend payable 8,447
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 22,152
Accounts payable and accrued expenses 37,623
-----------
68,222
-----------
Net Assets:
Capital paid-in 54,779,835
Accumulated net realized loss on investments and
financial futures contracts (572,855)
Net unrealized appreciation of investments and
financial futures contracts 2,006,351
Undistributed net investment income 15,420
-----------
$56,228,751
-----------
Net Asset Value Per Share:
(Based on 4,753,390 shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value) $11.83
============================================================================
Maximum Offering Price Per Share*
(11.83 x 104.71%) $12.39
============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended August 31, 1996
- ----------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $3,519,678
-----------
Expenses:
Investment management fee - Note B 282,847
Distribution/service fee - Note B 169,708
Transfer agent fee - Note B 57,521
Custodian fee 55,748
Printing 27,880
Auditing fee 21,030
Legal fees 9,443
Financial services fee - Note B 7,059
Registration and filing fees 6,320
Trustees' fees 5,154
Miscellaneous 3,989
-----------
Less Management Fee
Reduction -- Note B (234,770)
- ----------------------------------------------------------------------------
Total Expenses 411,929
- ----------------------------------------------------------------------------
Less Expense
Reductions -- Note B (16,231)
- ----------------------------------------------------------------------------
Net Expenses 395,698
- ----------------------------------------------------------------------------
Net Investment Income 3,123,980
- ----------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts:
Net realized loss on investments sold (58,421)
Net realized loss on financial futures contracts (142,311)
Change in net unrealized appreciation/depreciation
of investments (79,341)
Change in net unrealized appreciation/depreciation
of financial futures contracts 38,344
-----------
Net Realized and Unrealized
Loss on Investments and
Financial Futures
Contracts (241,729)
- ----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from
Operations $2,882,251
============================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
YEAR ENDED AUGUST 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $3,068,658 $3,123,980
Net realized loss on investments sold and
financial futures contracts (238,444) (200,732)
Change in net unrealized appreciation/
depreciation of investments and financial
futures contracts 869,661 (40,997)
----------- -----------
Net Increase in Net Assets Resulting
from Operations 3,699,875 2,882,251
----------- -----------
Distributions to Shareholders:
Dividends from net investment income
($0.6533 and $0.6609 per share,
respectively) (3,068,658) (3,123,980)
----------- -----------
From Fund Share Transactions*: (568,548) 717,513
----------- -----------
Net Assets:
Beginning of period 55,690,298 55,752,967
----------- -----------
End of period (including undistributed
net investment income of $8,092, and $15,420,
respectively) $55,752,967 $56,228,751
=========== ===========
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
-----------------------------------------------------------
1995 1996
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Shares sold 628,844 $7,226,005 555,889 $6,667,694
Shares issued to shareholders in
reinvestment of distributions 205,702 2,366,589 188,248 2,255,924
----------- ----------- ----------- -----------
834,546 9,592,594 744,137 8,923,618
Less shares repurchased (889,508) (10,161,142) (685,056) (8,206,105)
----------- ----------- ----------- -----------
Net increase (decrease) (54,962) ($568,548) 59,081 $717,513
=========== =========== =========== ===========
The Statement of Changes in Net Assets shows how the value of net assets 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 the Fund. The footnotes
illustrate the number of Fund shares sold, reinvested and redeemed during the last two periods, along with the
per share amount of distributions made to shareholders of the Fund for the period indicated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment
returns, key ratios and supplemental data are listed as follows:
YEAR ENDED AUGUST 31,
-------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $11.29 $11.90 $12.63 $11.73 $11.88
------- ------- ------- ------- -------
Net Investment Income 0.72 0.68 0.64 0.65 0.66
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts 0.63 0.87 (0.77) 0.15 (0.05)
------- ------- ------- ------- -------
Total from Investment Operations 1.35 1.55 (0.13) 0.80 0.61
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.72) (0.68) (0.64) (0.65) (0.66)
Distributions from Net Realized Gain on Investments Sold (0.02) (0.14) (0.13) -- --
------- ------- ------- ------- -------
Total Distributions (0.74) (0.82) (0.77) (0.65) (0.66)
------- ------- ------- ------- -------
Net Asset Value, End of Period $11.90 $12.63 $11.73 $11.88 $11.83
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) 12.17% 13.70% (1.05%) 7.19% 5.21%
Total Adjusted Investment Return and Net Asset Value (2)(3) 11.09% 12.83% (1.58%) 6.74% 4.77%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $33,806 $52,444 $55,690 $55,753 $56,229
Ratio of Expenses to Average Net Assets 0.60% 0.67% 0.70% 0.70% 0.73%(4)
Ratio of Adjusted Expenses to Average Net Assets (1) 1.68% 1.54% 1.23% 1.15% 1.14%
Ratio of Net Investment Income to Average Net Assets 6.22% 5.63% 5.28% 5.67% 5.51%
Ratio of Adjusted Net Investment Income to Average Net Assets (1) 5.14% 4.76% 4.75% 5.22% 5.07%
Portfolio Turnover Rate 48% 56% 23% 70% 76%
Expense and Fee Reduction Per Share $0.13 $0.11 $0.06 $0.05 $0.05
(1) Unreimbursed, without fee reduction.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) An estimated total return calculation that does not take into consideration fee reductions by the Adviser during
the period.
(4) For the year ended August 31, 1996, the Ratio of Expenses to Average Net Assets for the fund excludes the effect of
balance credits described in Note B. If these expense reductions were included, the Ratio of Expenses to Average Net
Assets would be 0.70%.
The Financial Highlights summarizes the impact of the following factors on a single share for each
period indicated: net investment income, gains (losses), dividends and total investment return of
the Fund. It shows how the Fund's net asset value for a share has changed since the end of the previous
period. Additionally, important relationships between some items presented in the financial statements
are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
August 31, 1996
- ----------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the New York Tax-Free Income Fund on
August 31, 1996. The 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 Fund.
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 (88.17%)
Albany, County of,
Ref Ser 1993 5.000% 10/01/12 AAA $600 $560,916 5.35%
Dutchess County Resource Recovery Agency,
Solid Waste Mgmt Sys Rev Ser 1990 A 7.500 01/01/09 AAA 250 272,073 6.89
Islip Community Development Agency,
Dev Rev NY Institute of Technology Proj 7.500 03/01/26 BB-* 1,500 1,502,970 7.49
Metropolitan Transportation Auth,
Commuter Facil 1987 Serv Contract Ser 3 7.375 07/01/08 BBB 1,000 1,122,720 6.57
Commuter Facil 1992 Serv Contract Ser N 7.125 07/01/09 BBB 1,000 1,080,580 6.59
Transit Facil Rev Ser J 6.500 07/01/18 AAA 1,000 1,066,810 6.09
New York City Housing Development Corp,
Multi-Family Mtg Rev FHA Ins Mtg Ln 1993 Ser A 6.550 10/01/15 AAA 1,000 1,033,710 6.34
New York City Industrial Development Agency,
Solid Waste Disposal Rev 1995 Visy Paper
NY Inc Proj 7.950 01/01/28 BB* 1,000 1,046,400 7.60
Spec Facil Rev 1990 American
Airlines Inc Proj 8.000 07/01/20 BB+ 400 422,292 7.58
New York City Municipal Water
Finance Auth,
Wtr & Swr Sys Rev Ser 1992 A 5.500 06/15/20 A- 1,000 914,570 6.01
Wtr & Swr Sys Rev Ser 1996 6.250 06/15/20 A- 1,000 1,014,780 6.16
New York Local Government
Assistance Corp,
Ser 1991 A Pub Benefit Corp 7.250 04/01/18 AAA 1,000 1,125,470 6.44
Ser 1992 A Pub Benefit Corp 6.875 04/01/19 A 2,000 2,190,520 6.28
Ser 1993 E Pub Benefit Corp 5.250 04/01/16 A 500 466,370 5.63
New York State Dormitory
Auth,
City Univ Rev Iss Ser U 6.375 07/01/08 BBB 500 512,790 6.22
City Univ Sys Consol Rev Ser
1990A 7.625 07/01/20 BBB 485 545,625 6.78
Cornell Univ Rev Ser 1996 5.400 07/01/14 AA 1,000 972,920 5.55
Court Facil Lease Rev Ser 1993A 5.375 05/15/16 BBB+ 1,500 1,338,255 6.02
Genessee Valley Presbyterian
Nursing Center FHA-Ins
Mtg Rev Ser 1992B 6.850 08/01/16 AA 250 267,158 6.41
KMH Homes Inc FHA-Ins Mtg Rev
Ser 1991 6.950 08/01/31 AA 1,200 1,272,060 6.56
Manhattanville College Ins Rev
Ser 1990 7.500 07/01/22 AAA 305 341,795 6.69
Nyack Hosp Rev Ser 1996 6.250 07/01/13 Baa* 500 488,915 6.39
State Univ Ed Facil Rev Ser
1990A 7.700 05/15/12 Aa* 300 337,290 6.85
State Univ Ed Facil Rev Ser
1993A 5.500 05/15/19 A* 1,000 918,630 5.99
United Hlth Serv Inc FHA-Ins Mtg
Rev Ser 1989 7.350 08/01/29 AAA 200 214,506 6.85
Univ of Rochester Rev Ser 1987 6.500 07/01/09 A+ 625 645,256 6.30%
Upstate Community Colleges 1988A
Iss 7.750 07/01/18 Baa1* 300 323,721 7.18
Vassar College Rev Ser 1990 7.250 07/01/15 AAA 250 277,982 6.52
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+ 200 204,934 7.32
Elec Facil Rev Ser 1989 A Consol
Edison Co of NY Inc Proj 7.750 01/01/24 A+ 200 209,798 7.39
Elec Facil Rev Ser 1989 B Consol
Edison Co of NY Inc Proj 7.375 07/01/24 A+ 200 210,024 7.02
Elec Facil Rev Ser 1990 A Consol
Edison Co of NY Inc Proj 7.500 07/01/25 A+ 260 278,122 7.01
Elec Facil Rev Ser 1991 A Consol
Edison Co of NY Inc Proj 7.500 01/01/26 A+ 420 451,332 6.98
New York State Environmental Facilities
Corp,
State Wtr Poll Control Revolving Fund
Rev Ser 1990 A 7.500 06/15/12 A 630 694,052 6.81
State Wtr Poll Control Revolving Fund
Rev Ser 1991 E 6.875 06/15/10 A 400 436,000 6.31
New York State Housing Finance Agency,
Ins Multi-Family Mtg Hsg 1992 Ser C 6.450 08/15/14 AAA 500 514,055 6.27
Ins Multi-Family Mtg Hsg 1994 Ser B 6.250 08/15/14 AAA 750 765,008 6.13
Ins Multi-Family Mtg Hsg 1994 Ser C 6.450 08/15/14 Aa* 1,000 1,029,910 6.26
New York State Medical Care Facilities
Finance Auth,
Hosp & Nursing Home FHA-Ins Mtg Rev
1988 Ser C 7.700 02/15/22 AAA 450 487,287 7.11
Hosp & Nursing Home Ins Mtg Rev 1992
Ser B 6.950 02/15/32 AA 1,000 1,063,820 6.53
Mental Hlth Serv Facil Imp Rev 1990
Ser B Preref 7.875 08/15/20 AAA 150 170,387 6.93
Mental Hlth Serv Facil Imp Rev 1990
Ser B Unref Bal 7.875 08/15/20 BBB+ 90 100,459 7.06
Mental Hlth Serv Facil Imp Rev 1991
Ser A Preref 7.750 08/15/11 AAA 165 188,382 6.79
Mental Hlth Serv Facil Imp Rev 1991
Ser A Unref Bal 7.750 08/15/11 BBB+ 60 66,869 6.95
Mental Hlth Serv Facil Imp Rev 1991
Ser B 7.625 08/15/17 BBB+ 245 272,305 6.86
Mental Hlth Serv Facil Imp Rev 1991
Ser C Preref 7.300 02/15/21 AAA 300 340,041 6.44
Mental Hlth Serv Facil Imp Rev 1991
Ser C Unref Bal 7.300 02/15/21 BBB+ 100 108,744 6.71
Mental Hlth Serv Facil Imp Rev 1993
Ser F 5.375 02/15/14 AAA 1,000 945,310 5.69
Mental Hlth Serv Facil Imp Rev 1994
Ser E 6.250 08/15/19 AAA 1,500 1,541,340 6.08
Sec Hosp Rev 1991 Ser A 7.350 08/15/11 BBB 250 267,255 6.88
New York State Mortgage Agency,
Homeowner Mtg Rev Ser 27 6.900 04/01/15 Aa* 1,175 1,234,960 6.56
Homeowner Mtg Rev Ser 28 7.050 10/01/23 Aa* 500 521,385 6.76
Homeowner Mtg Rev Ser 53 5.900 10/01/17 Aa* 500 488,770 6.04
Homeowner Mtg Rev Ser 57 6.300 10/01/17 Aa* 500 504,095 6.25
Homeowner Mtg Rev Ser BB-2 7.950 10/01/15 Aa* 230 239,975 7.62
Homeowner Mtg Rev Ser EE-4 7.800 10/01/13 Aa* 300 319,059 7.33
Homeowner Mtg Rev Ser JJ 7.500 10/01/17 Aa* 330 347,417 7.12
Homeowner Mtg Rev Ser VV 7.375 10/01/11 Aa* 195 206,636 6.96
New York State Power Auth,
Gen Purpose Ser W 6.500 01/01/08 AA- 250 274,402 5.92
Gen Purpose Ser Y 6.500 01/01/11 AA- 250 264,550 6.14
Gen Purpose Ser Y 6.750 01/01/18 AA- 250 268,850 6.28
New York State Thruway Auth,
Local Highway & Bridge Serv
Contract
Ser 1991 7.250 01/01/10 BBB 300 334,824 6.50
New York State Urban Development
Corp,
Rev Correctional Facil Ser 1993 5.500 01/01/15 A* 2,500 2,274,000 6.05
Rev Ser 1990 Onondaga County Convention
Center Proj 7.875 01/01/20 BBB 250 285,935 6.89
New York, City of,
GO Fiscal 1991 Ser B 8.250 06/01/07 A-* 200 232,742 7.09
GO Fiscal 1991 Ser D 8.000 08/01/04 A-* 250 277,532 7.21
GO Fiscal 1991 Ser F 8.200 11/15/03 A-* 250 280,950 7.30
GO Fiscal 1992 Ser A 7.750 08/15/12 A-* 250 275,720 7.03
GO Fiscal 1992 Ser B 7.000 10/01/13 A-* 500 522,195 6.70
GO Fiscal 1992 Ser C Subseries C-1 7.500 08/01/21 A-* 250 275,410 6.81
GO Fiscal 1992 Ser H 7.000 02/01/22 A-* 620 642,029 6.76
GO Fiscal 1996 Ser G 5.750 02/01/17 A-* 1,000 917,920 6.26
New York, State of,
GO Environmental Quality Fiscal 1994 6.500 12/01/14 A- 1,000 1,065,360 6.10
North Country Development Auth,
Solid Waste Mgt Sys Rev Preref Ser
1992 A 6.750 07/01/12 Baa* 265 285,583 6.26
Solid Waste Mgt Sys Rev Unref Bal
Ser 1992 A 6.750 07/01/12 Baa* 225 231,239 6.57
Onondaga County Industrial Development
Agency,
Civic Facil Rev 1993 Ser B Community
Gen Hosp of
Greater Syracuse Proj 6.625 01/01/18 BBB 1,000 992,890 6.67
Port Auth of New York and New Jersey,
Spec Proj Ser 4 KIAC Partners Proj 6.750 10/01/19 BBB* 2,500 2,488,225 6.78
Triborough Bridge and Tunnel Auth,
Gen Purpose Rev Zero 01/01/21 AAA 1,500 361,785 5.93
Spec Oblig Ref Ser 1991B 6.875 01/01/15 A- 500 540,095 6.36
-----------
49,577,051
-----------
Puerto Rico (9.07%)
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 2,167,500 7.58
Puerto Rico Electric Power Auth,
Rev Ref Ser U 6.000 07/01/14 BBB+ 250 248,353 6.04
Puerto Rico Highway and
Transportation Auth,
Highway Rev Ref Ser X 5.500 07/01/15 A 1,000 961,380 5.72
Puerto Rico Public Building Auth,
Rev Gtd Govt Facil Ser A 6.250 07/01/12 AAA 1,110 1,197,157 5.79
Puerto Rico, Commonwealth of,
GO Pub Imp Unltd Ref Ser 1994 6.400 07/01/11 A 500 522,960 6.12
-----------
5,097,350
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $52,706,595) (97.24%) $54,674,401
======= ===========
* Credit ratings are rated by Moody's Investors Services, Fitch or John Hancock Advisers, Inc. where
Standard & Poors ratings are not available.
** Credit ratings are unaudited.
+ The yield is not calculated in accordance with guidelines established by the U.S. Securities Exchange
Commission and is unaudited. Zero coupon yields are at yield to maturity.
# Represents rate in effect on August 31, 1996.
The percentage shown for each investment category is the total value of that category as a percentage
of the net assets of the Fund.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Portfolio Concentration
August 31, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------
The New York Tax-Free Income Fund invests primarily in securities issued by the state of
New York and its various political subdivisions. The performance of the Fund is closely
tied to the economic conditions within the 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 the Fund are shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various sector categories.
The table below shows the percentages of the Fund's investments at August 31, 1996 assigned
to the various sector categories.
MARKET VALUE AS A PERCENTAGE OF
SECTOR DISTRIBUTIONS THE FUND'S NET ASSETS
- -----------------------------------------------------------------------------------------
<S> <C>
General Obligation 9.91%
Revenue Bonds -- Education 13.73
Revenue Bonds -- Electric Power 1.88
Revenue Bonds -- Health 15.63
Revenue Bonds -- Housing 12.81
Revenue Bonds -- Industrial Development Bond 10.36
Revenue Bonds -- Other 13.89
Revenue Bonds -- Transportation 9.73
Revenue Bonds -- Water & Sewer 9.30
-------
TOTAL TAX-EXEMPT LONG-TERM BONDS 97.24%
=======
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - New York Tax-Free Income Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock New York Tax-Free Income Fund (the "Fund") is a
diversified open-end management investment 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 July 1, 1996 the Fund was known as the John Hancock Tax Exempt
Series Fund -- New York Portfolio. The investment objective of the Fund
is to provide as high a level of current income exempt from both federal
income taxes and New York personal income taxes as is consistent with
preservation of capital.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are
valued on the basis of market quotations, valuations provided by
independent pricing services or, at fair value as determined in good
faith in accordance with procedures approved by the Trustees. Short-
term debt investments maturing within 60 days are valued at
amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with
John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned
subsidiary of The Berkeley Financial Group, may participate in a
joint repurchase agreement. Aggregate cash balances are invested in
one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for
the joint account on the Fund's behalf. The Adviser is responsible
for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of
the date of purchase, sale or maturity. Net realized gains and
losses on sales of investments are determined on the identified cost
basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investments, to its
shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $347,989 of
capital loss carryforwards available, to the extent provided by
regulations, to offset future net realized capital gains. If such
carryforwards are used by the Fund, no capital gains distribution
will be made. The carryforwards expire as follows: August 31, 2003 -
- - $77,663 and August 31, 2004 -- $270,326. Additionally, net capital
losses of $184,658 attributable to security transactions occurring
after October 31, 1995 are treated as arising on the first day
(September 1, 1996) of the Fund's next taxable year.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment
securities is recorded on the accrual basis. The Fund records all
distributions to shareholders from net investment income and
realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. The Fund
records dividends from net investment income daily and distributes
monthly.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the
amount paid in excess of par value on securities purchased from
either the date of purchase or date of issue to date of sale,
maturity or to next call date, if applicable. The Fund accretes
original issue discount from par value on securities purchased from
either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code. The Fund
records market discount on bonds purchased after April 30, 1993 at
time of disposition.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles
incorporates estimates made by management in determining the
reported amounts of assets, liabilities, revenues, and expenses of
the Fund. Actual results could differ from these estimates.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial
futures contracts to hedge against the effects of fluctuations in
interest rates and other market conditions. At the time the Fund
enters into a financial futures contract, it will be required to
deposit with its custodian a specified amount of cash or U.S.
government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being
traded. Each day, the futures contract is valued at the official
settlement price on the board of trade or U.S. commodities exchange.
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", will be recorded
by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into futures contracts include the possibility
that there may be an illiquid market and/or that a change in the
value of the contracts may not correlate with changes in the value
of the underlying securities. In addition, the Fund could be
prevented from opening or realizing the benefits of closing out
futures positions because of position limits or limits on daily
price fluctuations imposed by an exchange.
For federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of
futures contracts.
At August 31, 1996, open positions in financial futures were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION APPRECIATION
- ----------- ---------------------- -------- ------------
SEPT 96 10 Muni Notes SHORT $ 12,562
DEC 96 15 U.S. Treasury Bonds SHORT $ 25,782
---------
$ 38,344
OPTIONS Listed options will be valued at the last quoted sales price
on the exchange on which they are primarily traded. Purchased put or
call over-the-counter options will be valued at the average of the
"bid" prices obtained from two independent brokers. Written put or
call over-the-counter options will be valued at the average of the
"asked" prices obtained from two independent brokers. Upon the
writing of a call or put option, an amount equal to the premium
received by the Fund will be included in the Statement of Assets and
Liabilities as an asset and corresponding liability. The amount of
the liability will be subsequently marked-to-market to reflect the
current market value of the written option.
The Fund may use option contracts to manage its exposure to the
stock market. Writing puts and buying calls will tend to increase
the Fund's exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be
limited to the premium initially paid for the option. In all other
cases, the face (or "notional") amount of each contract at value
will reflect the maximum exposure of the Fund in these contracts,
but the actual exposure will be limited to the change in value of
the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contract's terms ("credit risk"), or if the Fund is unable to offset
a contract with a counterparty on a timely basis ("liquidity risk").
Exchange-traded options have minimal credit risk as the exchanges
act as counterparties to each transaction, and only present
liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the
Fund will continuously monitor the creditworthiness of all its
counterparties.
At any particular time, except for purchased options, market or
credit risk may involve amounts in excess of those reflected in the
Fund's period-end Statement of Assets and Liabilities.
There were no written option transactions for the period ended
August 31, 1996.
NOTE B --
MANAGEMENT FEE, AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.500% of
the first $250,000,000 of the Fund'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 Fund's average daily net asset value in excess of
$1,250,000,000.
In the event normal operating expenses of the Fund exclusive of
certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund is registered to sell shares,
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 Fund'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 the Fund's expenses
further to the extent required to prevent expenses from exceeding
0.70% of the Fund's average daily net asset value, exclusive of
certain expenses prescribed by state law. Accordingly, for the
period ended August 31, 1996, the reduction in the Adviser's fee
collectively with any additional amounts not borne by the Fund by
virtue of the expense limit amounted to $234,770. This limitation
may be discontinued at any time.
The Fund has an agreement with its custodian bank under which
$16,231 of custodian fees have been reduced by balance credits
applied during the period ended August 31, 1996. If the Fund had not
entered into this agreement, the assets not invested, on which these
balance credits were earned, could have produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the
period ended August 31, 1996, net sales charges received with regard
to sales of shares amounted to $222,608. Out of this amount, $25,703
was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $49,878 was paid as sales commissions
to unrelated broker-dealers and $147,027 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.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds at an annual rate not to exceed 0.30% of average daily net
assets to reimburse JH Funds for its distribution and service costs.
Up to a maximum of 0.25% of such payments may be service fees as
defined by the amended Rules of Fair Practice of the National
Association of Securities Dealers. Under the amended Rules of Fair
Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly-owned
subsidiary of The Berkeley Financial Group. The Fund pays Investor
Services a fee based on the number of shareholder accounts and
certain out-of-pocket expenses.
On March 5, 1996, the Board of Trustees approved retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary
tax and financial management services for the Funds. The
compensation for 1996 is estimated to be at an annual rate of
0.01875% of the average net assets for each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione, and Ms. Anne
C. Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. 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 Fund makes
investments into other John Hancock funds, as applicable, to cover
its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the
Fund's books as an other asset. The deferred compensation liability
and the related other asset are always equal and are marked to
market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. At August 31,
1996 the Fund's investments to cover the deferred compensation
liability had unrealized appreciation of $201.
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 August 31, 1996, aggregated
$42,082,444 and $42,485,180, respectively. There were no purchases
or sales of obligations of the U.S. government and its agencies
during the period ended August 31, 1996.
The cost of investments owned at August 31, 1996 for federal income
tax purposes was $52,706,595. Gross unrealized appreciation and
depreciation of investments aggregated $2,286,534 and $318,728
respectively, resulting in net unrealized appreciation of
$1,967,806
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended August 31, 1996 the Fund has reclassified
amounts to reflect an increase in accumulated net investment income
and accumulated net realized loss on investments of $7,328. This
represents the cumulative amount necessary to report these balances
on a tax basis, excluding certain temporary differences, as of
August 31, 1996. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to
certain differences in the computation of distributable income and
capital gains under federal income tax rules versus generally
accepted accounting principles. The calculation of net investment
income per share in the financial highlights excludes these
adjustments.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
John Hancock New York Tax-Free Income Fund,
formerly John Hancock Tax-Exempt Series Fund - New York Portfolio
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, (except for
Moody's and Standard & Poor's ratings and yields at market), and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of the New York Tax-Free Income Fund (the
"Fund"), formerly John Hancock Tax-Exempt Series Fund -- New York
Portfolio, at August 31, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included
confirmation of securities owned at August 31, 1996 by
correspondence with the custodian and brokers provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
October 9, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is
furnished with respect to the distributions of the Fund for its
fiscal year ended August 31, 1996.
None of the 1996 income dividends qualify for the corporate
dividends received deduction. Shareholders, who are not subject to
the alternative minimum tax, received income dividends from the
Fund, which are 99.57% tax-exempt. The percentage of income
dividends from the Fund subject to the alternative minimum tax is
12.72%.
None of the income dividends were derived from U.S. Treasury Bills.
For specific information on exception provisions in your state,
consult your local state tax office or your tax adviser.
Shareholders will receive a 1996 U.S. Treasury Department Form 1099-
DIV in January, 1997.
SHAREHOLDER MEETING (UNAUDITED)
On June 26, 1996, a special meeting of John Hancock New York Tax-
Free Income Fund, formerly John Hancock Tax-Exempt Series Fund - New
York Portfolio (the "Fund") was held.
Specifically, shareholders approved an Amended and Restated
Declaration of Trust. The shareholder votes tallied were 2,410,212
FOR, 28,552 AGAINST and 260,823 ABSTAINING.
The shareholders next approved a new investment management contract
between John Hancock Advisers, Inc. and the Fund to conform it to
the investment management contracts of other funds in the John
Hancock fund complex. The shareholder votes tallied were 2,425,948
FOR, 33,917 AGAINST and 258,575 ABSTAINING.
Next, the shareholders approved an amendment to redesignate as
nonfundamental the Fund's investment objective, certain investment
policies and certain investment restrictions. The shareholder votes
tallied were 7,070,423 FOR, 240,554 AGAINST and 787,783 ABSTAINING.
In addition the shareholders voted to approve an amendment to the
Fund's fundamental investment restriction regarding senior
securities to allow multiple classes of shares and transactions in
options and futures contracts. The shareholder votes tallied were
2,376,070 FOR, 57,953 AGAINST and 265,564 ABSTAINING.
The shareholders also voted to approve amendments to the Fund's
fundamental investment restrictions regarding: (i) borrowing, (ii)
lending portfolio securities and (iii) transactions in commodities
and commodity contracts. The shareholder votes tallied were (i)
2,350,116 FOR, 71,215 AGAINST and 278,255 ABSTAINING, (ii) 2,353,016
FOR, 70,570 AGAINST and 276,001 ABSTAINING and (iii) 2,340,840 FOR,
76,054 AGAINST and 282,693 ABSTAINING.
Lastly, the following trustees were elected to serve until their
respective successors shall become duly elected and qualified, with
the votes tabulated as indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------- ----------- -------------
Dennis S. Arnowitz 2,723,759 90,860
Edward J. Boudreau, Jr. 2,722,824 91,795
Richard P. Chapman, Jr. 2,724,224 90,395
William J. Cosgrove 2,724,224 90,395
Douglas M. Costle 2,721,960 92,659
Leland O. Erdahl 2,723,810 90,809
Richard A. Farrell 2,724,150 90,469
Gail D. Fosler 2,724,549 90,070
William F. Glavin 2,721,960 92,659
Anne C. Hodsdon 2,724,100 90,519
Dr. John A. Moore 2,724,564 90,055
Patti McGill Peterson 2,724,564 90,055
John W. Pratt 2,724,564 90,055
Richard S. Scipione 2,720,079 94,540
Edward J. Spellman 2,724,224 90,395
NOTES
John Hancock Funds - New York Tax-Free Income Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - New York Tax-Free Income Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - New York Tax-Free Income Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John
Hancock New York Tax-Free Income Fund. It may be used as sales
literature when preceded or accompanied by the current prospectus,
which details charges, investment objectives and operating policies.
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper." 7600A 8/96
10/96
John Hancock Funds
Massachusetts
Tax-Free
Income Fund
ANNUAL REPORT
August 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward 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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
A 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that
prospectuses are often overloaded with technical detail and are hard
for most investors to understand. Many industry observers agreed,
and rightly so.
So it is my pleasure to let you know that after being under
development for a year, John Hancock Funds has introduced new
simplified and consolidated prospectuses. The prospectuses feature
shorter, clearer language with a streamlined design, and they
incorporate several funds with similar investment objectives into
one document. They cover our income, growth, growth and income, tax-
free income, international/global and money market funds. We are
gratified at the favorable reviews that our new prospectuses have
received from shareholders, financial advisers, industry analysts
and the press. We believe they are a bold but sensible step forward.
And while they are easier to read, they still comply with all
federal and state guidelines.
We have taken the initiative to create a prospectus that
dramatically departs from the norm. Among its most innovative
features is a two-page spread highlighting each fund's goals and
investment strategy, the types of securities it buys, its portfolio
management and risk factors, all in plainer language. Fund expenses
and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other
features include a better presentation of fund services, a new
glossary of investment risks and a discussion about how funds are
organized, including a diagram showing the connection of the various
players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive
toward better mutual fund prospectuses. We hope you will agree
because in the end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY DIANNE SALES-SINGER, CFA, PORTFOLIO MANAGER
John Hancock
Massachusetts Tax-Free
Income Fund
Strengthening economy thwarts bonds in 1996;
municipals outperform U.S. Treasuries
Effective July 1, 1996, John Hancock Tax-Exempt Series Fund's name
changed to John Hancock Massachusetts Tax-Free Income Fund and John
Hancock New York Tax-Free Income Fund. What follows is the report
for the Massachusetts Tax-Free Income Fund.
Municipal bonds performed well over the last 12 months considering
the see-saw environment for bonds during that time. At the beginning
of the Fund's fiscal year in September 1995, the bond market was in
the midst of a strong rally due to slow economic growth, muted
inflation and falling interest rates. While municipals performed
well in that time, they lagged their taxable brethren as various
flat-tax proposals created headlines. But starting in early 1996,
bond prices pulled back and yields rose as signs emerged of an
economy growing faster than had been expected. That sparked fears of
inflation, a bondholder's nemesis because of its corrosive effect on
a bond's income stream. While inflation hasn't surfaced to date, the
numbers through August portrayed an economy growing at a healthy
clip. That kept the bond market concerned about the specter of
inflation through the Fund's year end.
"Municipal
bonds
performed
well over
the last 12
months..."
A 2" x 3 3/4" photo of Fund management team. Caption reads: "Dianne
Sales-Singer (seated) and Fund management team members (l-r); Mike Roye,
Holly Morris and Frank Lucibella".
Even with the upward pressure on rates this year, municipal bonds
felt the impact to a lesser degree than taxable bonds and
outperformed Treasuries in the second half of the Fund's fiscal
year. That's because municipals began the year with prices that were
relatively cheap compared to Treasuries because of earlier flat-tax
fears. Those fears dissipated in early 1996 and investors began to
realize municipals' value. In addition, municipal bonds were boosted
by a growing imbalance between supply and demand. There was a
limited supply of new municipal bonds in the last six months, while
demand remained constant, if not growing.
Pie chart with the heading "Portfolio Diversification" at top of left
hand column. The chart is divided into 9 sections. Going from top left
to right; Other 5%; General Obligation 14%; Industrial Revenue 10%;
Education 18%; Electric 9%; Health 17%; Housing 9%; Transportation 8%;
Water & Sewer 10%. Footnote below states "As a percentage of net assets
on August 31, 1996"
"...our focus
has been on
maintaining
and improving
the Fund's
competitive
yield."
Table entitled "Scorecard" at bottom of left hand column. The header for
the left column is "Investments"; the header for the right column is
"Recent performance ... and what's behind the numbers." The first
listing is Premium coupon bonds followed by an up arrow and the phrase
"Lower interest rate sensitivity". The second listing is Non-
callable/good-call bonds followed by an up arrow and the phrase "Scarce
supply boosts value." The third listing is Electric utilities followed
by a down arrow and the phrase "Increased competition/deregulation". A
footnote below states "See 'Schedule of Investments.' Investment
holdings are subject to change."
Performance review
For the 12 months ended August 31, 1996, John Hancock Massachusetts
Tax-Free Income posted a total return of 4.78% at net asset value,
compared to the 4.92% total return for the average Massachusetts
municipal bond fund, according to Lipper Analytical Services.1 The
Fund's sizable stake in premium coupon bonds (which provide a higher
coupon income and therefore less price volatility) caused the Fund
to lag its peers when interest rates were falling and prices on more
interest-rate sensitive bonds rose more rapidly. This year, however,
these holdings have helped the Fund when rates backed up. In fact,
from the beginning of the year through the end of August, the Fund
has outperformed its peers in terms of total return and distribution
income.
Focus on income
In 1996, our focus has been on maintaining and improving the Fund's
competitive yield. As shareholders know, a bond fund's total return
is made up of two components: income and changes in share price,
which reflect changes in individual bonds within the Fund. As we had
anticipated, coupon income has become a more significant contributor
to total return this year than rising bond prices. Our premium bonds
figure in here as they provide a stable income base. What's more, we
have maintained this income level without taking on a high degree of
credit risk. The Fund's average credit rating remains A1.
We also worked on further extending the Fund's call protection to
its current eight-year average as a way of providing greater income
stability. Bond issuers often maintain the right to redeem a bond
prior to its maturity, which may force bondholders to reinvest those
proceeds at much lower yields. Call protection refers to the length
of time during which a security cannot be redeemed by the issuer.
The Fund also owns bonds that are non-callable, which means they
can't be redeemed before their scheduled maturity date. By ensuring
a high degree of call protection, we have minimized our reinvestment
risk, and with the decline in bond supply, those with greater levels
of call protection have become more scarce and more valuable.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended August 31, 1996."
The chart is scaled in increments of 5% from bottom to top, with 5% at
the top and 0% at the bottom. Within the chart there are two solid bars.
The first represents the 4.78% total return for the John Hancock
Massachusetts Tax-Free Income Fund. The second represents the 4.92%
total return for the average Massachusetts muni bond fund. A footnote
below reads: "The total return for John Hancock Massachusetts Tax-Free
Income Fund is at net asset value with all distributions reinvested. The
average Massachusetts municipal bond fund is tracked by Lipper
Analytical Services. (1) See following two pages for historical
performance information."
Utilities update
Over the past year, Massachusetts has continued on its slow-but-
stable economic growth pattern, while governmental revenues and
expenditures continue to be managed in a satisfactory manner. One
ongoing credit development has occurred in the utility sector. As we
discussed in our last report, the move toward deregulation in the
utilities industry and the prospects of greater competition have
caused rating agencies to be more focused than ever on updating
utilities' credit ratings based on this new competitive landscape.
As part of this review, one of our holdings, the Massachusetts
Municipal Wholesale Electric Company (MMWEC), was downgraded. While
we had anticipated the downgrade, we chose to retain our holdings
for several reasons. First, we initially purchased these bonds at a
time of higher overall interest rates, and we would have been unable
to replace their income stream with bonds of comparable yield.
Second, all of our MMWEC bonds are premium coupon bonds with
generally shorter duration. Duration measures how sensitive a bond's
price is to changes in interest rates. The shorter the bond, the
less its price moves with changes in interest rates. Given their
positioning on the shorter end of the yield curve, their prices were
less impacted by the downgrade. Therefore, even with the downgrade,
the value of our holdings has remained stable. Overall, our exposure
to the utilities sector remains quite light. But with all the change
afoot in the electric utility sector, we're keeping our eyes open
for new investment opportunities.
"We remain
optimistic
about
municipal
bonds..."
What's ahead
In the short term, we believe the bond market will continue to be
volatile as long as signs of a strengthening economy fuel inflation
fears and the market waits for the Federal Reserve to raise interest
rates to keep inflation in check. Such a Fed move would help slow
the economy and eventually lead to lower rates. But until that time,
we will continue to stay on the defensive, keeping the Fund's
duration in a fairly neutral position, which is shorter than it had
been in 1995. As for municipal bonds, we remain optimistic about
their prospects because the supply continues to diminish, especially
in Massachusetts, while demand remains healthy. With such strong
fundamentals in place, we believe that municipal bonds in general,
and Massachusetts municipals in particular, continue to represent
attractive values.
- --------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through
the end of the Fund's period discussed in this report. Of course,
the managers' views are subject to change as market and other
conditions warrant.
1Figures from Lipper Analytical Services include reinvested
dividends and do not take into account sales charges. Actual load-
adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Massachusetts Tax-
Free Income 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 distributed to
shareholders as taxable income. Some investors may be subject to the
Alternative Minimum Tax. Also note that capital gains are taxable when
distributed to shareholders.
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
---------- --------- -----------
John Hancock Massachusetts
Tax-Free Income Fund 1.12% 37.66% 93.45%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended June 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
---------- --------- -----------
John Hancock Massachusetts
Tax-Free Income Fund (2) 1.12% 6.60% 7.76%(1)
As of August 31, 1996
YIELDS
SEC 30-DAY
YIELD
-------------
John Hancock Massachusetts
Tax-Free Income Fund 5.08%
Notes to Performance
(1) Operations commenced on September 3, 1987.
(2) The Advisor voluntarily waived a portion of the management fee
and reduced a portion of the custodian fees during the period.
Without the waiver of expenses, the average annual total return
for the one-year, five-year, and since inception periods would
have been 0.67%, 5.87%, and 6.75%, respectively.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The chart on the right shows how much a $10,000 investment in the
John Hancock Massachusetts Tax-Free Income Fund would be worth on
August 31, 1996, assuming you invested on the day the shares started
and have reinvested all distributions. For comparison, we've shown
the same $10,000 investment in the Lehman Brothers Municipal Bond
Index -- an unmanaged index that includes approximately 15,000 bonds
and is commonly used as a measure of bond performance. Please
remember that a portion of the distributions for this Fund may be
taxable, and some investors may be subject to the alternative minimum tax.
Massachusetts Tax-Free Income Fund
Line chart with the heading Massachusetts Tax-Free Income Fund,
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 Lehman Brothers Municipal
Bond Index and is equal to $20,966 as of August 31, 1996. The second
line represents the value of the hypothetical $10,000 investment made in
the Massachusetts Tax-Free Income Fund on September 3, 1987, before
sales charge, and is equal to $20,432 as of August 31, 1996. The third
line represents the Massachusetts Tax-Free Income Fund after sales
charge and is equal to $19,515 as of August 31, 1996.
<TABLE>
<CAPTION>
John Hancock Funds - Massachusetts Tax-Free Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on August 31,
1996. You'll also find the net asset value and the maximum offering
price per share as of that date.
Statement of Assets and Liabilities
August 31, 1996
- -----------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds
(cost - $52,628,922) $54,016,028
Options (cost - $576) 250
-----------
54,016,278
Cash 377,765
Receivable for shares sold 4,103
Interest receivable 833,086
Receivable for investments sold 49
Other assets 2,011
-----------
Total Assets 55,233,292
- -----------------------------------------------------------------------
Liabilities:
Dividend payable 8,532
Payable for investments purchased 576
Payable to John Hancock Advisers, Inc. and
affiliates - Note B 16,616
Accounts payable and accrued expenses 38,806
-----------
Total Liabilities 64,530
- -----------------------------------------------------------------------
Net Assets:
Capital paid-in 54,394,914
Accumulated net realized loss on investments and
financial futures contracts (618,275)
Net unrealized appreciation of investments 1,386,978
Undistributed net investment income 5,145
-----------
Net Assets $55,168,762
=======================================================================
Net Asset Value Per Share:
(Based on 4,731,610 shares of
beneficial interest outstanding - unlimited
number of shares authorized with no par value) $11.66
=======================================================================
Maximum Offering Price Per Share*
($11.66 x 104.71%) $12.21
=======================================================================
* On single retail sales of less than $100,000. On sales of $100,000
or more and on group sales the offering price is reduced.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains (losses)
for the period stated.
Statement of Operations
Year Ended August 31, 1996
- -----------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $3,485,882
-----------
Expenses:
Investment management fee - Note B 279,114
Distribution/service fee - Note B 167,468
Transfer agent fee - Note B 66,046
Custodian fee 54,348
Printing 27,920
Auditing fee 21,030
Registration and filing fees 14,036
Legal fees 12,769
Financial services fee - Note B 6,958
Trustees' fees 5,079
Miscellaneous 3,892
Less Management Fee Reduction - Note B (240,050)
-----------
Total Expenses 418,610
- -----------------------------------------------------------------------
Less Expense Reductions -
Note B (27,418)
- -----------------------------------------------------------------------
Net Expenses 391,192
- -----------------------------------------------------------------------
Net Investment Income 3,094,690
- -----------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts:
Net realized gain on investments sold 140,617
Net realized loss on financial futures contracts (61,504)
Change in net unrealized appreciation/depreciation
of investments (573,560)
-----------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts (494,447)
- -----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $2,600,243
=======================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
YEAR ENDED AUGUST 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) In Net Assets:
From Operations:
Net investment income $3,013,894 $3,094,690
Net realized gain (loss) on investments sold and
financial futures contracts (434,124) 79,113
Change in net unrealized appreciation/depreciation
of investments and financial futures contracts 1,302,047 (573,560)
----------- -----------
Net Increase in Net Assets Resulting from
Operations 3,881,817 2,600,243
----------- -----------
Distributions to Shareholders:
Dividends from net investment income ($0.6469
and $0.6543 per share, respectively) (3,013,894) (3,094,690)
----------- -----------
From Fund Share Transactions - Net* (574,665) 1,247,514
----------- -----------
Net Assets:
Beginning of period 54,122,437 54,415,695
----------- -----------
End of period (including undistributed net
investment income of $1,994 and $5,145,
respectively) $54,415,695 $55,168,762
=========== ===========
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
--------------------------------------------------------
1995 1996
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
Shares sold 595,309 $6,835,830 664,442 $7,865,907
Shares issued to shareholders in reinvestment
of distributions 186,027 2,120,129 175,838 2,080,462
----------- ----------- ----------- -----------
781,336 8,955,959 840,280 9,946,369
Less shares repurchased (836,966) (9,530,624) (736,253) (8,698,855)
----------- ----------- ----------- -----------
Net increase (decrease) (55,630) ($574,665) 104,027 $1,247,514
=========== =========== =========== ===========
The Statement of Changes in Net Assets shows how the value of net assets 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 the Fund. The footnotes illustrate
the number of Fund shares sold, reinvested and redeemed during the last two periods,
along with the per share amount of distributions made to shareholders of the Fund for the
period indicated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period
indicated, investment returns, key ratios and supplemental data are listed as follows:
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $11.15 $11.75 $12.43 $11.56 $11.76
------- ------- ------- ------- -------
Net Investment Income 0.71 0.67 0.63 0.65 0.65
Net Realized and Unrealized Gain (Loss)
on Investments and
Financial Futures Contracts 0.60 0.82 (0.75) 0.20 (0.10)
------- ------- ------- ------- -------
Total from Investment Operations 1.31 1.49 (0.12) 0.85 0.55
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income (0.71) (0.67) (0.63) (0.65) (0.65)
Distributions from Net Realized Gain on
Investments Sold -- (0.14) (0.12) -- --
------- ------- ------- ------- -------
Total Distributions (0.71) (0.81) (0.75) (0.65) (0.65)
------- ------- ------- ------- -------
Net Asset Value, End of Period $11.75 $12.43 $11.56 $11.76 $11.66
======= ======= ======= ======= =======
Total Investment Return at Net Asset
Value (2) 12.11% 13.29% (0.97%) 7.66% 4.78%
Total Adjusted Investment Return at
Net Asset Value (2)(3) 10.93% 12.38% (1.50%) 7.21% 4.30%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $29,113 $50,019 $54,122 $54,416 $55,169
Ratio of Expenses to Average Net Assets 0.60% 0.67% 0.70% 0.70% 0.75%(4)
Ratio of Adjusted Expenses to Average Net
Assets (1) 1.78% 1.58% 1.23% 1.15% 1.18%
Ratio of Net Investment Income to Average
Net Assets 6.18% 5.61% 5.28% 5.67% 5.53%
Ratio of Adjusted Net Investment Income
to Average Net Assets (1) 5.00% 4.70% 4.75% 5.22% 5.05%
Portfolio Turnover Rate 56% 79% 29% 24% 36%
Expense and Fee Reduction Per Share $0.14 $0.11 $0.06 $0.05 $0.06
(1) Unreimbursed without fee reduction.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) An estimated total return calculation that does not take into consideration fee
reductions by the adviser during the periods shown.
(4) For the year ended August 31, 1996, the Ratio of Expenses to Average Net Assets
for the fund excludes the effect of balance credits described in Note B. If these
expense reductions were included, the Ratio of Expenses to Average Net Assets
would be 0.70%.
The Financial Highlights summarizes the impact of the following factors on a single
share for each period indicated: net investment income, gains (losses), dividends and
total investment return of the Fund. It shows how the Fund's net asset value for a
share has changed since the end of the previous period. Additionally, important
relationships between some items presented in the financial statements are expressed
in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
August 31,1996
- ------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Massachusetts Tax-Free Income Fund on
August 31, 1996. It has 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 Fund.
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 (87.35%)
Boston City Industrial Development
Financing Auth,
Sewage Facil Rev 1991 Ser Harbor
Elec Energy Co Proj 7.375% 05/15/01 BBB $250 $266,577 6.92%
Boston Water and Sewer Commission,
Gen Rev 1991 Ser A Sr Ser 7.000 11/01/18 AAA 500 560,055 6.25
Gen Rev 1992 Ser A Sr Ser 5.750 11/01/13 A 500 496,830 5.79
Boston, City of,
GO 1990 Ser A 7.375 02/01/10 A+ 350 386,428 6.68
GO 1991 Ser A MBIA 6.750 07/01/11 AAA 350 386,277 6.12
GO 1992 Ser A AMBAC 6.500 07/01/12 AAA 500 536,585 6.06
Rev Boston City Hosp FHA-Ins Mtg
Ser A 7.625 02/15/21 Aaa* 500 561,730 6.79
Brockton, City of,
State Qualified Municipal Purpose
Ln of 1993 6.125 06/15/18 A- 2,000 2,009,900 6.09
Holyoke, City of,
GO School Proj Ln Act of 1948 7.650 08/01/09 Baa* 1,000 1,103,170 6.93
Massachusetts Bay Transportation
Auth,
Gen Trans Sys Rev Ref 1994 Ser A 7.000 03/01/14 A+ 1,000 1,141,580 6.13
Ref Gen Trans Sys 1992 Ser B 5.500 03/01/21 AAA 700 654,521 5.88
Massachusetts Educational Financing
Auth,
Ed Ln Rev Iss D Ser 1991A 7.250 01/01/09 AAA 480 513,216 6.78
Massachusetts Health and Educational
Facilities Auth,
Rev Anna Jaques Hosp Iss Ser B 6.875 10/01/12 Baa1* 1,250 1,267,513 6.78
Rev Bentley College Iss Ser H 6.875 07/01/12 AAA 250 274,285 6.27
Rev Boston College Iss Ser J 6.625 07/01/21 AAA 1,000 1,070,870 6.19
Rev Charlton Memorial Hosp Iss Ser B 7.250 07/01/13 A 2,250 2,377,192 6.86
Rev Community Colleges Prog Iss Ser A 6.600 10/01/22 AAA 250 265,730 6.21
Rev Dana-Farber Cancer Institute Ser G-1 6.250 12/01/22 A 500 501,545 6.23
Rev Lowell Gen Hosp Iss Ser A 8.400 06/01/11 A-* 600 650,958 7.74
Rev Melrose-Wakefield Hosp Iss Ser B 6.350 07/01/06 A- 500 514,855 6.17
Rev New England Baptist Hosp Iss Ser B 7.350 07/01/17 BBB+ 250 258,390 7.11
Rev New England Deaconess Hosp Iss Ser D 6.875 04/01/22 A 2,210 2,309,892 6.58
Rev Northeastern Univ Iss Ser E 6.550 10/01/22 AAA 1,000 1,077,170 6.08
Rev Ref Worcester Polytechnic Institute
Iss Ser E 6.625 09/01/17 A+ 250 263,875 6.28
Rev Reg Inverse Floater Ser 1993 7.500# 08/15/23 AAA 500 465,625 8.05
Rev Saint Elizabeth's Hosp of Boston Iss
Ser B FHA-Ins Proj 7.750 08/01/27 AA 350 368,606 7.36
Rev Smith College Iss Ser D 5.750 07/01/24 AA- 560 538,922 5.97
Massachusetts (continued)
Rev Tufts Univ Iss Ser C Preref 7.400 08/01/18 Aaa* 430 462,925 6.87
Rev Tufts Univ Iss Ser C Unref Bal 7.400 08/01/18 A+ 90 96,034 6.94
Rev Wellesley College Ser D 5.375 07/01/19 AA+ 1,000 933,330 5.76
Massachusetts Housing Finance Agency,
Rev Insured Rental Hsg 1994 Ser A 6.600 07/01/14 AAA 1,100 1,127,038 6.44
Rev Residential Devel FNMA Coll Ser C 6.875 11/15/11 AAA 2,000 2,100,220 6.55
Rev Residential Devel FNMA Coll Ser D 6.800 11/15/12 AAA 500 522,770 6.50
Single Family Hsg Rev Ser 5 8.375 06/01/15 A+ 50 52,105 8.04
Single Family Hsg Rev Ser 7 8.400 12/01/16 A+ 100 104,192 8.06
Single Family Hsg Rev Ser 7 8.100 06/01/20 A+ 80 83,264 7.78
Single Family Hsg Rev Ser 9 8.100 12/01/21 A+ 100 103,451 7.83
Single Family Hsg Rev Ser 13 7.950 06/01/23 A+ 190 199,696 7.56
Single Family Hsg Rev Ser 16 7.900 06/01/14 A+ 90 95,098 7.48
Single Family Hsg Rev Ser 18 7.350 12/01/16 A+ 550 580,058 6.97
Massachusetts Industrial Finance Agency,
Resource Recovery Rev Ref Ser
1993 A Mass Refusetech Inc Proj 6.300 07/01/05 BBB 1,825 1,881,502 6.11
Rev Assumption College Iss 1996 6.000 07/01/26 AAA 1,000 964,970 6.22
Rev Ref Emerson College Iss Ser 1991A 8.900 01/01/18 BBB-* 250 276,407 8.05
Rev Ref Holy Cross College Iss 1996 5.500 03/01/20 AAA 1,000 945,850 5.81
Rev Ref Holy Cross College Iss II
Ser 1992 6.375 11/01/15 A+ 500 549,750 5.80
Rev Ser C Glenmeadow Retirement
Community 8.375 02/15/18 BB+* 1,000 971,700 8.62
Rev Wtr Treatment American Hingham Proj 6.900 12/01/29 BBB 1,310 1,314,375 6.88
Rev Wtr Treatment American Hingham Proj 6.750 12/01/20 BBB 2,000 2,006,760 6.73
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+ 500 544,890 6.19
Pwr Supply Sys Rev 1992 Ser B A Pub
Corp of the Commonwealth of Mass 6.750 07/01/06 BBB+ 1,500 1,630,710 6.21
Pwr Supply Sys Rev 1992 Ser B A Pub
Corp of the Commonwealth of Mass 6.750 07/01/17 BBB+ 400 416,972 6.48
Pwr Supply Sys Rev 1992 Ser C A Pub
Corp of the Commonwealth of Mass 6.625 07/01/10 AAA 1,000 1,079,890 6.13
Pwr Supply Sys Rev 1993 Reg Inverse
Floater 7.020# 07/01/18 AAA 1,300 1,105,000 8.26
Massachusetts Port Auth,
Rev Ref Ser 1992 A 6.000 07/01/23 AA- 1,370 1,339,504 6.14
Massachusetts Water Resource Auth,
Gen Rev Ref 1993 Ser B 5.500 03/01/17 A 400 377,036 5.83
Gen Rev Ref 1993 Ser B 5.000 03/01/22 A 360 312,862 5.75
Gen Rev Ref 1993 Ser C 4.750 12/01/23 A 1,000 829,690 5.73
Gen Rev Ref 1995 Ser B 4.750 12/01/21 AAA 1,000 845,260 5.62
Massachusetts, the Commonwealth of,
GO Consol Ln of 1991 Ser D 6.875 07/01/10 A+ 1,500 1,663,500 6.20
Nantucket, Town of,
GO Municipal Purpose Ln of 1991 6.800 12/01/11 A 450 487,818 6.27
Plymouth, County of,
Cert of Part Ser A Plymouth County
Correctional Facil Proj 7.000 04/01/22 A- 750 824,805 6.37
Springfield, City of,
GO School Proj Ln Act of 1992 Ser B 7.100 09/01/11 Baa* 500 536,230 6.62
-----------
48,187,959
-----------
Puerto Rico (10.56%)
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 2,167,500 7.58
Puerto Rico Highway and
Transportation Auth, Highway Rev Cap
Rites Ser Y 6.250 07/01/14 A 1,000 1,047,230 5.97
Puerto Rico Infrastructure
Financing Auth,
Spec Tax Rev Ser 1988A 7.750 07/01/08 BBB+ 450 483,669 7.21
Puerto Rico, Commonwealth of, GO Pub
Imp Inverse Rate Securities Ser 1996 8.070# 07/01/11 AAA 1,000 1,083,750 7.45
GO Pub Imp Unltd Ref Ser 1994 6.400 07/01/11 A 1,000 1,045,920 6.12
-----------
5,828,069
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $52,628,922) (97.91%) $54,016,028
======= ===========
<CAPTION>
NUMBER
OF EXPIRATION MARKET
CONTRACTS DATE VALUE
-------- ---------- -----------
<S> <C> <C> <C>
OPTIONS (0.00%)
U.S. Treasury Bond Option 112 USV6C 8 9/21/96 250
-----------
TOTAL OPTIONS
(Cost $576) (0.00%) 250
------- -----------
TOTAL INVESTMENTS (97.91%) $54,016,278
======= ===========
* Credit ratings are rated by Moody's Investors Services, Fitch or John Hancock
Advisers, Inc. where Standard & Poors ratings are not available.
** Credit ratings are unaudited.
+ The yield is not calculated in accordance with guidelines established by the U.S.
Securities Exchange Commission and is unaudited. Zero coupon yields are at yield to maturity.
# Represents rate in effect on August 31, 1996.
The percentage shown for each investment category is the total value of that category as a percentage
of the net assets of the Fund.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Portfolio Concentration
August 31, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------
The Massachusetts Tax-Free Income Fund invests primarily in securities issued by the state
of Massachusetts and its various political subdivisions. The performance of the Fund is
closely tied to economic conditions within the 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 the Fund are shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various sector categories.
The table below shows the percentages of the Fund's investments at August 31, 1996 assigned
to the various sector categories.
MARKET VALUE AS A PERCENTAGE
SECTOR DISTRIBUTIONS OF THE FUND'S NET ASSETS
- -----------------------------------------------------------------------------------------
<S> <C>
General Obligation 13.86%
Revenue Bonds - Certificate of Participation 1.50
Revenue Bonds - Education 17.77
Revenue Bonds - Electric Power 8.66
Revenue Bonds - Health 16.71
Revenue Bonds - Housing 9.01
Revenue Bonds - Industrial Development Bond 9.91
Revenue Bonds - Other 2.78
Revenue Bonds - Transportation 7.58
Revenue Bonds - Water & Sewer 10.13
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 97.91%
==========
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Massachusetts Tax-Free Income Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Massachusetts Tax-Free Income Fund (the "Fund") is a
diversified open-end management investment 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 July 1, 1996 the Fund was known as the John
Hancock Tax-Exempt Series Fund --Massachusetts Portfolio. The
investment objective of the Fund is to provide as high a level of
current income exempt from both federal income taxes and Massachusetts
personal income taxes as is consistent with preservation of capital.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are
valued on the basis of market quotations, valuations provided by
independent pricing services or, at fair value as determined in good
faith in accordance with procedures approved by the Trustees. Short-
term debt investments maturing within 60 days are valued at
amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with
John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned
subsidiary of The Berkeley Financial Group, may participate in a
joint repurchase agreement. Aggregate cash balances are invested in
one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for
the joint account on the Fund's behalf. The Adviser is responsible
for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of
the date of purchase, sale or maturity. Net realized gains and
losses on sales of investments are determined on the identified cost
basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investments, to its
shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $567,282 of
capital loss carryforwards available, to the extent provided by
regulations, to offset future net realized capital gains. If such
carryforwards are used by the Fund, no capital gains distribution
will be made. The carryforwards expire as follows: August 31, 2002 -
- - $2,465, August 31, 2003 -- $396,511 and August 31, 2004 --
$168,306.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment
securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such
distributions are determined in conformity with income tax
regulations, which may differ from generally accepted accounting
principles. The Fund records dividends from net investment income
daily and distributes monthly.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the
amount paid in excess of par value on securities purchased from
either the date of purchase or date of issue to date of sale,
maturity or to next call date, if applicable. The Fund accretes
original issue discount from par value on securities purchased from
either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code. The Fund
records market discount on bonds purchased after April 30, 1993 at
time of disposition.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles
incorporates estimates made by management in determining the
reported amounts of assets, liabilities, revenues, and expenses of
the Fund. Actual results may differ from these estimates.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial
futures contracts to hedge against the effects of fluctuations in
interest rates and other market conditions. At the time the Fund
enters into a financial futures contract, it will be required to
deposit with its custodian a specified amount of cash or U.S.
government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being
traded. Each day, the futures contract is valued at the official
settlement price on the board of trade or U.S. commodities exchange.
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", will be recorded by
the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into futures contracts include the possibility
that there may be an illiquid market and/or that a change in the
value of the contracts may not correlate with changes in the value
of the underlying securities. In addition, the Fund could be
prevented from opening or realizing the benefits of closing out
futures positions because of position limits or limits on daily
price fluctuations imposed by an exchange.
For federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of
futures contracts.
At August 31, 1996 there were no open positions in financial futures
contracts.
OPTIONS Listed options will be valued at the last quoted sales price
on the exchange on which they are primarily traded. Purchased put or
call over-the-counter options will be valued at the average of the
"bid" prices obtained from two independent brokers. Written put or
call over-the-counter options will be valued at the average of the
"asked" prices obtained from two independent brokers. Upon the
writing of a call or put option, an amount equal to the premium
received by the Fund will be included in the Statement of Assets and
Liabilities as an asset and corresponding liability. The amount of
the liability will be subsequently marked-to-market to reflect the
current market value of the written option.
The Fund may use option contracts to manage its exposure to the
stock market. Writing puts and buying calls will tend to increase
the Fund's exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be
limited to the premium initially paid for the option. In all other
cases, the face (or "notional") amount of each contract at value
will reflect the maximum exposure of the Fund in these contracts,
but the actual exposure will be limited to the change in value of
the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contract's terms ("credit risk"), or if the Fund is unable to offset
a contract with a counterparty on a timely basis ("liquidity risk").
Exchange-traded options have minimal credit risk as the exchanges
act as counterparties to each transaction, and only present
liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the
Fund will continuously monitor the creditworthiness of all its
counterparties.
At any particular time, except for purchased options, market or
credit risk may involve amounts in excess of those reflected in the
Fund's period-end Statement of Assets and Liabilities.
There were no written option transactions for the period ended
August 31, 1996.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.500% of
the first $250,000,000 of the Fund'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 Fund's average daily net asset value in excess of
$1,250,000,000.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund is registered to sell shares,
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 Fund'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 the Fund's expenses
further to the extent required to prevent expenses from exceeding
0.70% of the Fund's average daily net asset value, exclusive of
certain expenses prescribed by state law. Accordingly, for the
period ended August 31, 1996, the reduction in the Adviser's fee
collectively with any additional amounts not borne by the Fund by
virtue of the expense limit for the Fund amounted to $240,050. This
waiver may be discontinued at any time.
The Fund has an agreement with its custodian bank under which
$27,418 of custodian fees have been reduced by balance credits
applied during the period ended August 31, 1996. If the Fund had not
entered into this agreement the assets not invested, on which these
balance credits were earned, could have produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the
period ended August 31, 1996, net sales charges received with regard
to sales of shares amounted to $219,862. Out of this amount, $25,097
was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $46,061 was paid as sales commissions
to unrelated broker-dealers and $148,704 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.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not
to exceed 0.30% of average daily net assets, to reimburse JH Funds
for its distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under
the amended Rules of Fair Practice, curtailment of a portion of the
Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly-owned
subsidiary of The Berkeley Financial Group. The Fund pays Investor
Services a fee based on the number of shareholder accounts and
certain out-of-pocket expenses.
On March 5, 1996, the Board of Trustees approved retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary
tax and financial management services for the Funds. The
compensation for 1996 is estimated to be at an annual rate of
0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione, and Ms. Anne
C. Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. 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 Fund makes
investments into other John Hancock funds, as applicable, to cover
its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the
Fund's books as an other asset. The deferred compensation liability
and the related other asset are always equal and are marked to
market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. At August 31,
1996 the Fund's investments to cover the deferred compensation
liability had unrealized appreciation of $198.
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 August 31, 1996, aggregated
$21,506,666 and $19,865,207, respectively. There were no purchases
or sales of obligations of the U.S. government and its agencies
during the period ended August 31, 1996.
The cost of investments owned at August 31, 1996 for federal income
tax purposes was $52,629,498. Gross unrealized appreciation and
depreciation of investments aggregated $2,100,613 and $713,833
respectively, resulting in net unrealized appreciation of
$1,386,780.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended August 31, 1996, the Fund has reclassified
amounts to reflect an increase in accumulated net investment income
and accumulated net realized loss on investments of $3,151. This
represents the cumulative amount necessary to report these balances
on a tax basis, excluding certain temporary differences, as of August
31, 1996. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset
value of the Fund, are primarily attributable to certain differences in
the computation of distributable income and capital gains under federal
tax rules versus generally accepted accounting principles. The calculation
of net investment income per share in the financial highlights excludes
these adjustments.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
John Hancock Massachusetts Tax-Free Income Fund,
formerly John Hancock Tax Exempt Series Fund -
Massachusetts Portfolio
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments (except for
Moody's and Standard & Poor's ratings and yields at market), and the
related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects,
the financial position of the Massachusetts Tax-Free Income Fund
(the "Fund"), formerly John Hancock Tax Exempt Series Fund --
Massachusetts Portfolio, at August 31, 1996, the results of its
operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
includes confirmation of securities owned at August 31, 1996 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
October 9, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is
furnished with respect to the distributions of the Fund for its
fiscal year ended August 31, 1996.
None of the 1996 income dividends qualify for the corporate
dividends received deduction. Shareholders, who are not subject to
the alternative minimum tax, received income dividends which are
99.68% tax-exempt. The percentage of income dividends from the Fund
subject to the alternative minimum tax is 14.62%.
None of the income dividends were derived from U.S. Treasury Bills.
For specific information on exception provisions in your state,
consult your local state tax office or your tax adviser.
Shareholders will receive a 1996 U.S. Treasury Department Form 1099-
DIV in January, 1997.
SHAREHOLDER MEETING (UNAUDITED)
On June 26, 1996, a special meeting of John Hancock Massachusetts
Tax-Free Income Fund, formerly John Hancock Tax-Exempt Series Fund -
Massachusetts Portfolio (the "Fund") was held.
Shareholders approved an Amended and Restated Declaration of Trust.
The shareholder votes tallied were 2,572,224 FOR, 42,012 AGAINST and
159,096 ABSTAINING.
The shareholders next approved a new investment management contract
between John Hancock Advisers, Inc. and the Fund to conform it to
the investment management contracts of other funds in the John
Hancock fund complex. The shareholder votes tallied were 2,575,671
FOR, 57,398 AGAINST and 144,918 ABSTAINING.
Next, the shareholders approved an amendment to redesignate as
nonfundamental the Fund's investment objective, certain investment
policies and certain investment restrictions. The shareholder votes
tallied were 7,513,326 FOR, 272,784 AGAINST and 533,886 ABSTAINING.
In addition the shareholders voted to approve an amendment to the
Fund's fundamental investment restriction regarding senior
securities to allow multiple classes of shares and transactions in
options and futures contracts. The shareholder votes tallied were
2,512,868 FOR, 95,706 AGAINST and 164,758 ABSTAINING.
The shareholders also voted to approve amendments to the Fund's
fundamental investment restrictions regarding: (i) borrowing, (ii)
lending portfolio securities and (iii) transactions in commodities
and commodity contracts. The shareholder votes tallied were (i)
2,488,511 FOR, 125,993 AGAINST and 158,828 ABSTAINING, (ii)
2,457,409 FOR, 140,335 AGAINST and 175,588 ABSTAINING and (iii)
2,494,577 FOR, 105,512 AGAINST and 173,242 ABSTAINING.
Lastly, the following trustees were elected to serve until their
respective successors shall become duly elected and qualified, with
the votes tabulated as indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------- --------- ------------
Dennis S. Arnowitz 2,835,745 29,012
Edward J. Boudreau, Jr. 2,829,520 35,237
Richard P. Chapman, Jr. 2,837,279 27,478
William J. Cosgrove 2,837,433 27,324
Douglas M. Costle 2,837,433 27,324
Leland O. Erdahl 2,837,433 27,324
Richard A. Farrell 2,837,433 27,324
Gail D. Fosler 2,833,151 31,606
William F. Glavin 2,835,585 29,172
Anne C. Hodsdon 2,829,760 34,997
Dr. John A. Moore 2,835,899 28,858
Patti McGill Peterson 2,835,585 29,172
John W. Pratt 2,837,433 27,324
Richard S. Scipione 2,832,796 31,961
Edward J. Spellman 2,837,433 27,324
NOTES
John Hancock Funds - Massachusetts Tax-Free Income Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - Massachusetts Tax-Free Income Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - Massachusetts Tax-Free Income Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
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circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
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PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John
Hancock Massachusetts Tax-Free Income Fund. It may be used as sales
literature when preceded or accompanied by the current prospectus,
which details charges, investment objectives and operating policies.
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