FILE NO. 33-12947
FILE NO. 811-5079
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 12 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 13 (X)
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JOHN HANCOCK TAX-EXEMPT SERIES FUND
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (617) 375-1700
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SUSAN S. NEWTON
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
(X) on January 1, 1997 pursuant to paragraph (b) of Rule 485
( ) 75 days after filing pursuant to paragraph (a) of Rule 485
( ) on (date) pursuant to paragraph (a) of Rule 485
Calculation of Registration Fees Under the Securities Act of 1933
<TABLE>
<CAPTION>
Proposed Maximum Proposed Aggregate
Title of Securities Amount of Shares Offering Price Maximum Amount of
Being Registered Being Registered Per Share Offering Price Registration Fee
---------------- ---------------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Indefinite N/A N/A N/A
Shares of Beneficial Interest 219,152 12.00 330,000 $100.00
</TABLE>
1. Registrant continues its election to register an indefinite number of
shares of beneficial interest pursuant to Rule 24E-2 under the investment
Company Act of 1940, as amended.
2. Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24F-2. 1,421,309 shares were redeemed during the fiscal
year ended August 31, 1996. 1,229,657 shares were used for reductions
pursuant to Paragraph (c) of Rule 24F-2 during the current fiscal year.
191,652 shares is the amount of redeemed shares used for reduction in this
Amendment. Pursuant to Rule 457(c) under the Securities Act of 1933, the
Maximum public offering price of $12.00 per share on December 17, 1996 is
the price used as the basis for calculating the registration fee. While no
fee is required for the 191,652 shares, the Registrant has elected to
register, for $100, an additional $330,000 shares (approximately 27,500
shares at $12.00 per share).
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
The Registrant filed the notice required by Rule 24F-2NT for its most recent
fiscal year on or about October 29, 1996.
<PAGE>
<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
------ ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Overview; Investor Expenses; *
3 Financial Highlights *
4 Overview; Goal and Strategy; Portfolio *
Securities; Risk Factors; Business
Structure; More About Risk
5 Overview; Business Structure; *
Manager/Subadviser; Investor Expenses
6 Choosing a Share Class; Buying Shares; *
Selling Shares; Transaction Policies;
Dividends and Account Policies;
Additional Investor Services
7 Choosing a Share Class; How Sales Charges *
are Calculated; Sales Charge Deductions
and Waivers; Opening an Account; Buying
Shares; Transaction Policies; Additional
Investor Services
8 Selling Shares; Transaction Policies; *
Dividends and Account Policies
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Practices;
Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; Subadvisory
and Other Services; Distribution
Contract; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Fund's Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
TAX-FREE
INCOME FUNDS
[John Hancock's graphic logo. A circle,
diamond, triangle, and a cube.]
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PROSPECTUS CALIFORNIA TAX-FREE INCOME FUND
JANUARY 1, 1997
HIGH YIELD TAX-FREE FUND
MASSACHUSETTS TAX-FREE
INCOME FUND
NEW YORK TAX-FREE INCOME FUND
TAX-FREE BOND FUND
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest and keep it on hand for future
reference.
Please note that these funds:
- - are not bank deposits
- - are not federally insured
- - are not endorsed by any bank or government agency
- - are not guaranteed to achieve their goal(s)
High Yield Tax-Free Fund may invest up to 85% in junk bonds; read risk
information carefully.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
[John Hancock's graphic logo. A circle, diamond, triangle, and a cube.]
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue, Boston,
Massachusetts 02199-7603
<PAGE>
CONTENTS
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A fund-by-fund look at goals, CALIFORNIA TAX-FREE INCOME FUND 4
strategies, risks, expenses and
financial history. HIGH YIELD TAX-FREE FUND 6
MASSACHUSETTS TAX-FREE INCOME FUND 8
NEW YORK TAX-FREE INCOME FUND 10
TAX-FREE BOND FUND 12
Policies and instructions for YOUR ACCOUNT
opening, maintaining and closing CHOOSING A SHARE CLASS 14
an account in any HOW SALES CHARGES ARE CALCULATED 14
tax-free income fund. SALES CHARGE REDUCTIONS AND WAIVERS 15
OPENING AN ACCOUNT 15
BUYING SHARES 16
SELLING SHARES 17
TRANSACTION POLICIES 19
DIVIDENDS AND ACCOUNT POLICIES 19
ADDITIONAL INVESTOR SERVICES 20
Details that apply to the tax-free FUND DETAILS
income funds as a group. BUSINESS STRUCTURE 21
SALES COMPENSATION 22
MORE ABOUT RISK 24
FOR MORE INFORMATION BACK COVER
<PAGE>
OVERVIEW
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND
STRATEGY The fund's particular investment goals and the strategies it intends to
use in pursuing those goals.
[A graphic image of a black folder that contains a couple sheets of paper.]
PORTFOLIO SECURITIES The primary types of securities in which the fund invests.
Secondary investments are described in "More about risk" at the end of the
prospectus.
[A graphic image of a line chart with a single line that depicts some peaks
and valleys.] RISK FACTORS The major risk factors associated with the fund.
[A graphic image of a generic person.] PORTFOLIO MANAGEMENT The individual or
group designated by the investment adviser to handle the fund's day-to-day
management.
[A graphic image of a percent symbol.] EXPENSES The overall costs borne by an
investor in the fund, including sales charges and annual expenses.
[A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the
fund's financial performance for up to ten years, by share class. A bar chart
showing total return allows you to compare the fund's historical risk level to
those of other funds.
GOAL OF THE TAX-FREE INCOME FUNDS
John Hancock tax-free income funds seek to offer income that is exempt from
federal and, in some cases, state and local income tax. Each fund has its own
strategy and its own risk/reward profile. Each fund invests at least 80% of
assets in municipal securities exempt from federal (and in some funds, state)
income tax as well as the federal alternative minimum tax. However, a portion of
a tax-free fund's income may be subject to these taxes. Because you could lose
money by investing in these funds, be sure to read all risk disclosure carefully
before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
- - are in higher income brackets
- - want regular monthly income
- - are interested in lowering their income tax burden
- - pay California, Massachusetts or New York income tax
(state-specific funds)
Tax-free income funds may NOT be appropriate if you:
- - are not subject to a high level of state or federal income tax
- - are seeking an investment for a tax-deferred retirement account
- - are investing for maximum return over a long time horizon
- - require absolute stability of your principal
THE MANAGEMENT FIRM
All John Hancock tax-free income funds are managed by John Hancock Advisers,
Inc. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Mutual Life Insurance Company and manages more than $19 billion in
assets.
<PAGE>
CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND TICKER SYMBOL CLASS A: TACAX CLASS B: TSCAX
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks income that is exempt from federal and California personal income taxes.
The fund seeks to provide the maximum current income that is consistent with
preservation of capital. To pursue this goal, the fund invests primarily in
municipal securities exempt from these taxes.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund's municipal securities may include bonds, notes and commercial paper of any
maturity. Under normal circumstances, the fund invests at least 80% of assets in
California municipal securities, particularly bonds. These are primarily
investment grade, although up to 20% of assets may be invested in junk bonds
rated BB/Ba and their unrated equivalents. No more than 25% of assets may be
invested in unrated securities.
For liquidity and flexibility, the fund may place up to 20% of assets in taxable
investment-grade short-term securities. For defensive purposes, it may invest
more assets in these securities. The fund also may invest in private activity
bonds and certain higher-risk investments, and may engage in other investment
practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with most income funds, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including municipal
securities).
Although the fund is diversified, it concentrates in securities of California
issuers and its performance is largely dependent on factors that may
disproportionately affect these issuers. Factors may include:
- - local economic or policy changes
- - tax base erosion
- - state constitutional limits on tax increases
- - changes in the ratings assigned to the state's municipal issuers
- - the possibility of credit problems, such as the 1994 bankruptcy of Orange
County
To the extent that the fund invests in bonds rated BBB/Baa or lower, it takes on
higher risks of volatility and default. Issuers of these bonds are typically in
weaker financial health and their ability to pay interest and principal is less
certain. Before you invest, please read "More about risk" starting on page 24.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Dianne Sales-Singer, CFA, leader of the
fund's portfolio management team since April 1995, is a second vice president of
the adviser. Ms. Sales-Singer joined John Hancock Funds in 1989 and has been in
the investment business since 1984.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses, either
directly or indirectly. The figures below show the expenses for the past year,
adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee (after expense limitation)(3) 0.45% 0.45%
12b-1 fee (net of reduction)(4) 0.15% 0.90%
Other expenses 0.15% 0.15%
Total fund operating expenses (after limitation)(3) 0.75% 1.50%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends and
that the average annual return was 5%.
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $ 52 $ 68 $ 85 $134
Class B shares
Assuming redemption
at end of period $ 65 $ 77 $102 $159
Assuming no redemption $ 15 $ 47 $ 82 $159
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses. Without this
limitation, management fees would be 0.55% for each class and total fund
operating expenses would be 0.85% for Class A and 1.60% for Class B.
(4) Without the reduction, 12b-1 fees would be 1.00% for Class B shares. Because of
the 12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 CALIFORNIA TAX-FREE INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
(scale varies from fund to fund) (Bar Graph)
<CAPTION>
==============================================================================================================================
CLASS A - PERIOD ENDED: 12/90 12/91 12/92 12/93 12/94(1) 12/95 8/96(2)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 9.91 $ 10.32 $ 10.41 $ 10.85 $ 9.28 $ 10.69
Net investment income 0.74 0.69 0.66(3) 0.62 0.58 0.57(3) 0.39(3)
Net realized and unrealized gain (loss) on
investments (0.16) 0.47 0.25 0.76 (1.57) 1.41 (0.33)
Total from investment operations 0.58 1.16 0.91 1.38 (0.99) 1.98 0.06
Less distributions:
Dividends from net investment income (0.67) (0.70) (0.67) (0.62) (0.58) (0.57) (0.39)
Distributions from net realized gain on
investments sold -- (0.05) (0.15) (0.32) -- -- --
Total distributions (0.67) (0.75) (0.82) (0.94) (0.58) (0.57) (0.39)
Net asset value, end of period $ 9.91 $ 10.32 $ 10.41 $ 10.85 $ 9.28 $ 10.69 $ 10.36
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(4)(%) 6.13 12.26 9.15 13.60 (9.31) 21.88 0.61(5)
Total adjusted investment return at net
asset value(4,6)(%) 5.29 11.86 8.90 13.42 (9.45) 21.73 0.55(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 80,200 163,693 217,014 279,692 241,583 309,305 291,072
Ratio of expenses to average net assets(%) 0.00 0.40 0.58 0.69 0.75 0.75 0.76(7,8)
Ratio of adjusted expenses to average net
assets(9)(%) 0.84 0.80 0.83 0.87 0.89 0.90 0.84(7)
Ratio of net investment income (loss) to
average net assets(%) 7.11 6.75 6.36 5.69 5.85 5.76 5.57(7)
Ratio of adjusted net investment income
(loss) to average net assets(9)(%) 6.27 6.35 6.11 5.51 5.71 5.61 5.48(7)
Portfolio turnover rate (%) 62 45 34 51 62 37(10) 30
Fee reduction per share ($) 0.09 0.04 0.03(3) 0.02 0.01 0.01(3) 0.01(3)
<CAPTION>
=========================================================================================================
CLASS B - PERIOD ENDED: 12/92 12/93 12/94(1) 12/95 8/96(2)
=========================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.32 $ 10.41 $ 10.85 $ 9.28 $ 10.68
Net investment income 0.58(3) 0.54 0.51 0.50(3) 0.33(3)
Net realized and unrealized gain (loss) on
investments 0.25 0.76 (1.57) 1.40 (0.31)
Total from investment operations 0.83 1.30 (1.06) 1.90 (0.02)
Less distributions:
Dividends from net investment income (0.59) (0.54) (0.51) (0.50) (0.34)
Distributions from net realized gain on
investments sold (0.15) (0.32) -- -- --
Total distributions (0.74) (0.86) (0.51) (0.50) (0.34)
Net asset value, end of period $ 10.41 $ 10.85 $ 9.28 $ 10.68 $ 10.36
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(4)(%) 8.35 12.76 (9.99) 20.87 0.20(5)
Total adjusted investment return at net asset
value(4,6)(%) 8.10 12.58 (10.13) 20.72 0.14(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 26,595 65,437 77,365 84,673 83,253
Ratio of expenses to average net assets(%) 1.35 1.44 1.50 1.50 1.52(7,8)
Ratio of adjusted expenses to average net
assets(9)(%) 1.60 1.62 1.64 1.65 1.59(7)
Ratio of net investment income (loss) to average
net assets(%) 5.43 4.82 5.10 4.97 4.81(7)
Ratio of adjusted net investment income (loss) to
average net assets(9)(%) 5.18 4.64 4.96 4.82 4.72(7)
Portfolio turnover rate(%) 34 51 62 37(10) 30
Fee reduction per share($) 0.03(3) 0.02 0.01 0.01(3) 0.01(3)
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the fund.
(2) Effective August 31, 1996, the fiscal period changed from December 31 to August 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration fee reductions by the
adviser during the periods shown.
(7) Annualized.
(8) For the period ended August 31, 1996, the Ratio of Expenses to Average Net Assets for the Fund
excludes the effect of expense offsets. If expense offsets were included, the Ratio of Expenses to
Average Net Assets would be 0.75% for Class A and 1.50% for Class B.
(9) Unreimbursed, without fee reduction.
(10) Portfolio turnover excludes merger activity.
</TABLE>
CALIFORNIA TAX-FREE INCOME FUND 5
<PAGE>
HIGH YIELD TAX-FREE FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK TAX-FREE BOND TRUST TICKER SYMBOL CLASS A: JHTFX CLASS B: TSHTX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks a high level of current income that is largely exempt from federal income
tax and is consistent with preservation of capital. To pursue this goal, the
fund invests primarily in a diversified portfolio of tax-exempt municipal debt
securities.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund's municipal securities may include bonds, notes and commercial paper of any
maturity. Under normal circumstances, the fund invests at least 80% of assets in
municipal bonds rated A, BBB/Baa or BB/Ba and their unrated equivalents. Up to
5% of assets may be invested in bonds rated B, CCC/Caa or CC/Ca. Bonds rated
BB/Ba or lower are considered junk bonds.
For liquidity and flexibility, the fund may place up to 20% of assets in taxable
investment-grade short-term securities. For defensive purposes, it may invest
more assets in these securities. The fund also may invest in private activity
bonds and certain higher-risk investments, including various derivative
securities primarily used in the fund's capital preservation strategies, and may
engage in other investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with most income funds, the value of your investment will fluctuate
with changes in interest rates. Typically, a rise in interest rates causes a
decline in the market value of debt securities (including municipal securities).
Investors should expect greater fluctuations in share price, yield and total
return compared to less aggressive tax-free income funds. These fluctuations,
whether positive or negative, may be sharp and unanticipated.
Issuers of BBB/Baa rated bonds and junk bonds are typically in weaker financial
health than issuers of high quality bonds, and their ability to pay interest and
principal is less certain. These issuers are more likely to encounter financial
difficulties and to be materially affected by these difficulties when they do
encounter them. Junk bond markets may react strongly to adverse news about an
issuer or the economy, or to the perception of adverse news.
Before you invest, please read "More about risk" starting on page 24.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Frank A. Lucibella, CFA, leader of the
fund's portfolio management team since April 1995, is a second vice president of
the adviser. Mr. Lucibella joined John Hancock Funds in 1988 and has been in the
investment business since 1982.
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee 0.58% 0.58%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.26% 0.26%
Total fund operating expenses 1.09% 1.84%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends and
that the average annual return was 5%.
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $ 56 $ 78 $102 $172
Class B shares
Assuming redemption
at end of period $ 69 $ 88 $119 $196
Assuming no redemption $ 19 $ 58 $100 $196
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more than
the equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 HIGH YIELD TAX-FREE FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) (Bar Graph)
(scale varies from fund to fund)
<CAPTION>
=============================================================================================
CLASS A - PERIOD ENDED: 10/94(1) 10/95(2) 8/96(3)
=============================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.85 $ 8.82 $ 9.47
Net investment income 0.48(4) 0.57 0.49(4)
Net realized and unrealized gain (loss) on investments
sold and financial futures contracts (0.94) 0.70 (0.30)
Total from investment operations (0.46) 1.27 0.19
Less distributions:
Dividends from net investment income (0.48) (0.58) (0.50)
Distributions in excess of net investment income (0.09) (0.04) --
Total distributions (0.57) (0.62) (0.50)
Net asset value, end of period $ 8.82 $ 9.47 $ 9.16
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5)(%) 4.96(6) 14.85 1.96(6)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 15,401 14,225 23,663
Ratio of expenses to average net assets(%) 1.15(7) 1.06 1.10(7)
Ratio of net investment income (loss) to average net assets(%) 6.08(7) 6.36 6.39(7)
Portfolio turnover rate(%) 62 64 38
<CAPTION>
=========================================================================================================================
CLASS B - PERIOD ENDED: 4/87(8) 10/87(9) 10/88 10/89 10/90
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 9.49 $ 8.62 $ 9.25 $ 9.29
Net investment income 0.53 0.37 0.62 0.55 0.55
Net realized and unrealized gain (loss) on
investments sold and financial futures
contracts (0.51) (0.87) 0.70 0.13 (0.14)
Total from investment operations 0.02 (0.50) 1.32 0.68 0.41
Less distributions:
Dividends from net investment income (0.53) (0.37) (0.66) (0.51) (0.55)
Distributions in excess of net investment
income -- -- -- -- --
Distributions from net realized gain on
investments sold -- -- (0.03) -- --
Distributions from capital paid-in -- -- -- (0.13) (0.08)
Total distributions (0.53) (0.37) (0.69) (0.64) (0.63)
Net asset value, end of period $ 9.49 $ 8.62 $ 9.25 $ 9.29 $ 9.07
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(5)(%) 0.12(6) (5.13)(6) 15.88 7.54 4.60
Total adjusted investment return at net
asset value(5,10)(%) (0.39)(6) (5.34)(6) -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 15,753 15,026 24,278 29,841 35,820
Ratio of expenses to average net assets(%) 0.56(6) 0.61(6) 2.05 2.32 2.20
Ratio of adjusted expenses to average net
assets(11)(%) 1.07(6) 0.82(6) -- -- --
Ratio of net investment income to
average net assets(%) 4.96(6) 4.05(6) 6.66 5.79 5.96
Ratio of adjusted net investment income
(loss) to average net assets(11)(%) 4.45(6) 3.84(6) -- -- --
Portfolio turnover rate(%) 153 42 82 29 41
Fee reduction per share($) 0.05 0.02 -- -- --
<CAPTION>
================================================================================================================================
CLASS B - PERIOD ENDED: 10/91 10/92 10/93 10/94 10/95(2) 8/96(3)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.07 $ 9.31 $ 9.39 $ 9.98 $ 8.82 $ 9.47
Net investment income 0.54 0.55 0.53 0.48 0.51 0.44(4)
Net realized and unrealized gain (loss) on
investments sold and financial futures
contracts 0.34 0.17 0.72 (0.90) 0.69 (0.31)
Total from investment operations 0.88 0.72 1.25 (0.42) 1.20 0.13
Less distributions:
Dividends from net investment income (0.54) (0.55) (0.56) (0.48) (0.51) (0.44)
Distributions in excess of net investment
income -- -- -- (0.07) (0.04) --
Distributions from net realized gain on
investments sold -- (0.09) (0.10) (0.19) -- --
Distributions from capital paid-in (0.10) -- -- -- -- --
Total distributions (0.64) (0.64) (0.66) (0.74) (0.55) (0.44)
Net asset value, end of period $ 9.31 $ 9.39 $ 9.98 $ 8.82 $ 9.47 $ 9.16
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(5)(%) 10.07 7.89 13.69 (4.44) 13.99 1.36(6)
Total adjusted investment return at net
asset value(5,10)(%) -- -- -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 51,467 65,933 113,442 151,069 155,234 147,669
Ratio of expenses to average net assets(%) 2.36 2.17 2.06 1.85 1.79 1.81(7)
Ratio of adjusted expenses to average net
assets(11)(%) -- -- -- -- -- --
Ratio of net investment income to
average net assets(%) 5.61 5.78 5.23 5.36 5.61 5.65(7)
Ratio of adjusted net investment income
(loss) to average net assets(11)(%) -- -- -- -- -- --
Portfolio turnover rate(%) 83 40 100 62 64 38
Fee reduction per share($) -- -- -- -- -- --
(1) Class A shares commenced operations on December 31, 1993.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the fund.
(3) Effective August 31, 1996, the fiscal period end changed from October 31 to August 31.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(6) Not annualized.
(7) Annualized.
(8) For the period August 25, 1986 to April 30, 1987.
(9) For the period May 1, 1987 to October 31, 1987.
(10)An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(11)Unreimbursed, without fee reduction.
</TABLE>
HIGH YIELD TAX-FREE FUND 7
<PAGE>
MASSACHUSETTS TAX-FREE INCOME FUND
<TABLE>
<S> <C> <C>
REGISTRANT NAME: JOHN HANCOCK TAX-EXEMPT SERIES FUND TICKER SYMBOL CLASS A: JHMAX CLASS B: N/A
</TABLE>
- -------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks income that is exempt from federal and Massachusetts personal income
taxes. The fund seeks to provide the maximum current income that is consistent
with preservation of capital. To pursue this goal, the fund invests primarily in
municipal securities exempt from these taxes.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund's municipal securities may include bonds, notes and commercial paper of any
maturity. Under normal circumstances, the fund invests at least 80% of net
assets in Massachusetts municipal securities. Up to 33.3% of assets may be
invested in municipal securities rated BBB/Baa or BB/Ba and their unrated
equivalents. The balance of the fund's investments must be rated at least A or
be of equivalent quality. Bonds rated BB/Ba are considered junk bonds.
For liquidity and flexibility, the fund may place up to 20% of net assets in
taxable investment-grade short-term securities. For defensive purposes, it may
invest more assets in these securities. The fund also may invest in private
activity bonds and certain higher-risk investments, and may engage in other
investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with most income funds, the value of your investment will fluctuate
with changes in interest rates. Typically, a rise in interest rates causes a
decline in the market value of debt securities (including municipal securities).
Because the fund is not diversified and because it concentrates in
securities of Massachusetts issuers, its performance is largely dependent on
factors that may disproportionately affect its investments.
These factors may include:
- - local economic or policy changes
- - tax base erosion
- - state constitutional limits on tax increases
- - changes in the ratings assigned to the state's municipal issuers
To the extent that the fund invests in bonds rated BBB/Baa or lower, it takes on
higher risks of volatility and default. Issuers of these bonds are typically in
weaker financial health and their ability to pay interest and principal is less
certain. Before you invest, please read "More about risk" starting on page 24.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Dianne Sales-Singer, CFA, leader of the
fund's portfolio management team since April 1995, is a second vice president of
the adviser. Ms. Sales-Singer joined John Hancock Funds in 1989 and has been in
the investment business since 1984.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below are based on Class A expenses
for the past year, adjusted to reflect any changes. There were no Class B shares
issued or outstanding during the last fiscal year. Future expenses may be
greater or less.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee (after expense limitation)(3) 0.07% 0.07%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.33% 0.33%
Total fund operating expenses (after limitation)(3) 0.70% 1.40%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $52 $66 $82 $128
Class B shares
Assuming redemption
at end of period $64 $74 $97 $149
Assuming no redemption $14 $44 $77 $149
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses. Without this
limitation and the effect of expense offsets, management fees would be
0.50% for each class and total fund operating expenses would be 1.18% for
Class A and 1.88% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 MASSACHUSETTS TAX-FREE INCOME FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below have been audited by the fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [Bar Graph]
(scale varies from fund to fund)
<CAPTION>
===============================================================================================================================
CLASS A - PERIOD ENDED: 8/88(1) 8/89 8/90 8/91 8/92 8/93 8/94 8/95 8/96
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $10.63 $10.94 $10.63 $11.15 $11.75 $12.43 $11.56 $11.76
Net investment income 0.65 0.70 0.69 0.73 0.71 0.67 0.63 0.65 0.65
Net realized and unrealized gain (loss)
on investments 0.63 0.31 (0.31) 0.53 0.60 0.82 (0.75) 0.20 (0.10)
Total from investment operations 1.28 1.01 0.38 1.26 1.31 1.49 (0.12) 0.85 0.55
Less distributions:
Dividends from net investment income (0.65) (0.70) (0.69) (0.73) (0.71) (0.67) (0.63) (0.65) (0.65)
Distributions from net realized gain on
investments sold -- -- -- (0.01) -- (0.14) (0.12) -- --
Total distributions (0.65) (0.70) (0.69) (0.74) (0.71) (0.81) (0.75) (0.65) (0.65)
Net asset value, end of period $10.63 $10.94 $10.63 $11.15 $11.75 $12.43 $11.56 $11.76 $11.66
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(2) (%) 13.13(3) 9.67 3.49 12.10 12.11 13.29 (0.97) 7.66 4.78
Total adjusted investment return at net asset
value(2,4) (%) 10.38(3) 9.16 2.72 10.66 10.93 12.38 (1.50) 7.21 4.30
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 4,757 9,138 9,968 15,015 29,113 50,019 54,122 54,416 55,169
Ratio of expenses to average net assets (%) 1.00(3) 1.00 1.00 0.60 0.60 0.67 0.70 0.70 0.75(5)
Ratio of adjusted expenses to average net
assets(6) (%) 3.75(3) 1.51 1.77 2.04 1.78 1.58 1.23 1.15 1.18
Ratio of net investment income (loss) to
average net assets (%) 6.28(3) 6.35 6.31 6.64 6.18 5.61 5.28 5.67 5.53
Ratio of adjusted net investment income
(loss) to average net assets(6) (%) 3.53(3) 5.84 5.54 5.20 5.00 4.70 4.75 5.22 5.05
Portfolio turnover rate (%) 20 2 2 29 56 79 29 24 36
Fee reduction per share ($) 0.28 0.11 0.08 0.16 0.14 0.11 0.06 0.05 0.06
<CAPTION>
==================================================================================================================================
CLASS B - PERIOD ENDED: 8/96(1)
==================================================================================================================================
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period --
Net investment income --
Net realized and unrealized gain (loss) on investments --
Total from investment operations --
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold --
Total distributions --
Net asset value, end of period --
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2) (%) --
Total adjusted investment return at net asset value(2,4) (%) --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) --
Ratio of expenses to average net assets (%) --
Ratio of adjusted expenses to average net assets(6) (%) --
Ratio of net investment income (loss) to average net assets (%) --
Ratio of adjusted net investment income (loss) to average
net assets(6) (%) --
Portfolio turnover rate (%) --
Fee reduction per share ($) --
(1) Class A shares commenced operations on September 3, 1987. Class B shares
commenced operations on September 30, 1996.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Annualized.
(4) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(5) For the year ended August 31, 1996, the Ratio of Expenses to Average Net
Assets for the fund excludes the effect of expense offsets. If expense
offsets were included, the Ratio of Expenses to Average Net Assets would be
0.70%.
(6) Unreimbursed, without fee reduction.
</TABLE>
MASSACHUSETTS TAX-FREE INCOME FUND 9
<PAGE>
NEW YORK TAX-FREE INCOME FUND
<TABLE>
<S> <C> <C>
REGISTRANT NAME: JOHN HANCOCK TAX-EXEMPT SERIES FUND TICKER SYMBOL CLASS A: JHNYX CLASS B: N/A
</TABLE>
- -------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks income that is exempt from federal income taxes as well as New York State
and New York City personal income taxes. The fund seeks to provide the maximum
current income that is consistent with preservation of capital. To pursue this
goal, the fund invests primarily in municipal securities exempt from these
taxes.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund's municipal securities may include bonds, notes and commercial paper of any
maturity. Under normal circumstances, the fund invests at least 80% of net
assets in New York municipal securities. Up to 33.3% of assets may be invested
in municipal securities rated BBB/Baa or BB/Ba and their unrated equivalents.
The balance of the fund's investments must be rated at least A or be of
equivalent quality. Bonds rated BB/Ba are considered junk bonds.
For liquidity and flexibility, the fund may place up to 20% of net assets in
taxable investment-grade short-term securities. For defensive purposes, it may
invest more assets in these securities. The fund also may invest in private
activity bonds and certain higher-risk investments, and may engage in other
investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with most income funds, the value of your investment in the fund
will fluctuate with changes in interest rates. Typically, a rise in interest
rates causes a decline in the market value of debt securities (including
municipal securities).
Because the fund is not diversified and because it concentrates in securities of
New York issuers, certain factors may disproportionately affect the fund's
investments. These factors may include:
- - local economic or policy changes
- - tax base erosion
- - limited flexibility to raise taxes
- - changes in the ratings assigned to the state's municipal issuers
- - the legacy of past credit problems of New York City and other issuers
To the extent that the fund invests in bonds rated BBB/Baa or lower, it takes on
higher risks of volatility and default. Issuers of these bonds are typically in
weaker financial health and their ability to pay interest and principal is less
certain. Before you invest, please read "More about risk" starting on page 24.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Frank A. Lucibella, CFA, leader of the
fund's portfolio management team since April 1995, is a second vice president of
the adviser. He joined John Hancock Funds in 1988 and has been in the investment
business since 1982.
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below are based on Class A expenses
for the past year, adjusted to reflect any changes. There were no Class B shares
issued or outstanding during the last fiscal year. Future expenses may be
greater or less.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee (after expense limitation)(3) 0.09% 0.09%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.31% 0.31%
Total fund operating expenses (after limitation)(3) 0.70% 1.40%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $52 $66 $82 $128
Class B shares
Assuming redemption
at end of period $64 $74 $97 $149
=======================================================================================================================
Assuming no redemption $14 $44 $77 $149
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses. Without this limitation and the effect of expense
offseet, management fees would be 0.50% for each class and total fund operating expenses would be 1.14% for
Class A and 1.84% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
10 NEW YORK TAX-FREE INCOME FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below have been audited by the fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [Bar Graph]
(scale varies from fund to fund)
<CAPTION>
==============================================================================================================================
CLASS A - PERIOD ENDED: 8/88(1) 8/89 8/90 8/91 8/92 8/93 8/94 8/95 8/96
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $10.48 $11.01 $10.74 $11.29 $11.90 $12.63 $11.73 $11.88
Net investment income 0.61 0.68 0.67 0.72 0.72 0.68 0.64 0.65 0.66
Net realized and unrealized gain (loss)
on investments 0.48 0.55 (0.25) 0.55 0.63 0.87 (0.77) 0.15 (0.05)
Total from investment operations 1.09 1.23 0.42 1.27 1.35 1.55 (0.13) 0.80 0.61
Less distributions:
Dividends from net investment income (0.61) (0.68) (0.67) (0.72) (0.72) (0.68) (0.64) (0.65) (0.66)
Distributions from net realized gain
on investments sold -- (0.02) (0.02) -- (0.02) (0.14) (0.13) -- --
Total distributions (0.61) (0.70) (0.69) (0.72) (0.74) (0.82) (0.77) (0.65) (0.66)
Net asset value, end of period $10.48 $11.01 $10.74 $11.29 $11.90 $12.63 $11.73 $11.88 $11.83
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(2) (%) 11.40(3) 11.87 3.74 12.24 12.17 13.70 (1.05) 7.19 5.21
Total adjusted investment return at net
asset value(2,4) (%) 7.56(3) 11.22 3.05 11.02 11.09 12.83 (1.58) 6.74 4.77
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 4,306 8,795 13,357 20,878 33,806 52,444 55,690 55,753 56,229
Ratio of expenses to average net assets (%) 1.00(3) 1.00 1.00 0.60 0.60 0.67 0.70 0.70 0.73(5)
Ratio of adjusted expenses to average net
assets(6) (%) 4.84(3) 1.65 1.69 1.82 1.68 1.54 1.23 1.15 1.14
Ratio of net investment income (loss) to
average net assets (%) 6.11(3) 6.30 6.17 6.57 6.22 5.63 5.28 5.67 5.51
Ratio of adjusted net investment income
(loss) to average
net assets(6) (%) 2.27(3) 5.65 5.48 5.35 5.14 4.76 4.75 5.22 5.07
Portfolio turnover rate (%) 16 10 10 12 48 56 23 70 76
Fee reduction per share ($) 0.38 0.13 0.08 0.13 0.13 0.11 0.06 0.05 0.05
<CAPTION>
==================================================================================================================================
CLASS B - PERIOD ENDED: 8/96 (1)
==================================================================================================================================
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period --
Net investment income --
Net realized and unrealized gain (loss) on investments --
Total from investment operations --
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold
Total distributions --
Net asset value, end of period --
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2) (%) --
Total adjusted investment return at net asset value(2,4) (%) --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) --
Ratio of expenses to average net assets (%) --
Ratio of adjusted expenses to average net assets(6) (%) --
Ratio of net investment income (loss) to average net assets (%) --
Ratio of adjusted net investment income (loss) to average
net assets(6) (%) --
Portfolio turnover rate (%) --
Fee reduction per share ($) --
(1) Class A shares commenced operations on September 11, 1987. Class B shares
commenced operations on September 30, 1996.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Annualized.
(4) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(5) For the year ended August 31, 1996, the Ratio of Expenses to Average Net
Assets for the fund excludes the effect of expense offsets. If expense
offsets were included, the Ratio of Expenses to Average Net Assets would be
0.70%.
(6) Unreimbursed, without fee reduction.
</TABLE>
NEW YORK TAX-FREE INCOME FUND 11
<PAGE>
TAX-FREE BOND FUND
<TABLE>
<S> <C> <C>
REGISTRANT NAME: JOHN HANCOCK TAX-FREE BOND TRUST TICKER SYMBOL CLASS A: TAMBX CLASS B: TSMBX
</TABLE>
- ------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks as high a level of interest income exempt from federal income tax as is
consistent with preservation of capital. To pursue this goal, the fund invests
in a diversified portfolio of municipal securities. Under normal circumstances,
the fund will place at least 80% of assets in municipal bonds.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund's municipal bonds may include investment-grade bonds, notes and commercial
paper of any maturity. Less than 35% of assets may be invested in municipal
bonds rated BB/Ba or B (junk bonds) and their unrated equivalents. The fund may
not invest more than 25% of assets in private activity bonds of issuers in any
one industry. There is no limit on the fund's investments in issuers located in
any one state.
For liquidity and flexibility, the fund may place up to 20% of
assets in taxable investment-grade short-term securities. For defensive
purposes, it may invest more assets in these securities. The fund also may
invest in private activity bonds and certain higher-risk investments, and may
engage in other investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with most income investments, the value of your investment will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities (including
municipal securities). Bonds with longer maturities are especially sensitive to
interest rate movements.
To the extent that the fund invests in bonds rated BBB/Baa or lower, it takes on
higher risks of volatility and default. Issuers of these bonds are typically in
weaker financial health and their ability to pay interest and principal is less
certain. Before you invest, please read "More about risk" starting on page 24.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Thomas C. Goggins has been the leader of
the fund's portfolio management team since joining John Hancock Funds in April
1995. A senior vice president of the adviser, Mr. Goggins has been in the
investment business since 1986.
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee 0.41% 0.41%
12b-1 fee(3,4) 0.15% 0.90%
Other expenses 0.29% 0.29%
Total fund operating expenses(4) 0.85% 1.60%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $53 $71 $ 90 $145
Class B shares
Assuming redemption
at end of period $66 $81 $107 $170
Assuming no redemption $16 $51 $ 87 $170
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
(4) The adviser has agreed to limit total fund operating expenses to 0.85% for
Class A and 1.60% for Class B. Without this limitation, management fees
would be 0.54% for each class and total fund operating expenses would be
0.98% for Class A and 1.73% for Class B.
</TABLE>
12 TAX-FREE BOND FUND
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
(scale varies from fund to fund) [Bar Graph]
===============================================================================================================================
CLASS A - PERIOD ENDED: 12/90(1) 12/91 12/92 12/93 12/94(2) 12/95 8/96(3)
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $9.90 $10.24 $10.47 $10.96 $9.39 $10.67
Net investment income 0.71 0.69 0.67 0.62 0.58 0.57(4) 0.40
Net realized and unrealized gain (loss) on investments (0.13) 0.72 0.42 0.93 (1.58) 1.28 (0.41)
Total from investment operations 0.58 1.41 1.09 1.55 (1.00) 1.85 (0.01)
Less distributions:
Dividends from net investment income (0.68) (0.68) (0.68) (0.62) (0.57) (0.57) (0.39)
Distributions from net realized gain on investments
sold -- (0.39) (0.18) (0.44) -- -- --
Total distributions (0.68) (1.07) (0.86) (1.06) (0.57) (0.57) (0.39)
Net asset value, end of period $9.90 $10.24 $10.47 $10.96 $9.39 $10.67 $10.27
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 6.04(6) 14.78 10.97 15.15 (9.28) 20.20 (0.01)(6)
Total adjusted investment return at net asset value
(5,7) (%) 5.19(6) 14.40 10.67 14.98 (9.39) 20.08 (0.09)(6)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 45,437 73,393 99,523 136,521 114,539 118,797 560,863
Ratio of expenses to average net assets (%) 0.40(6) 0.60 0.66 0.78 0.85 0.85 0.85(8)
Ratio of adjusted expenses to average net assets(9) (%) 1.25(6) 0.98 0.96 0.95 0.96 0.97 0.98(8)
Ratio of net investment income (loss) to average net
assets (%) 7.09(6) 6.86 6.46 5.57 5.72 5.67 5.75(8)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) 6.24(6) 6.48 6.16 5.40 5.61 5.55 5.62(8)
Portfolio turnover rate (%) 64 123 79 116 107 113 116(10)
Fee reduction per share ($) 0.08 0.04 0.03 0.02 0.01 0.01(4) 0.01(4)
<CAPTION>
=======================================================================================================================
CLASS B - PERIOD ENDED: 12/92 12/93 12/94(2) 12/95 8/96(3)
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.24 $10.47 $10.96 $9.38 $10.67
Net investment income 0.59(4) 0.54 0.50 0.50(4) 0.34
Net realized and unrealized gain (loss) on investments 0.42 0.93 (1.58) 1.28 (0.40)
Total from investment operations 1.01 1.47 (1.08) 1.78 (0.06)
Less distributions:
Dividends from net investment income (0.60) (0.54) (0.50) (0.49) (0.34)
Distributions from net realized gain on investments sold (0.18) (0.44) -- -- --
Total distributions (0.78) (0.98) (0.50) (0.49) (0.34)
Net asset value, end of period $10.47 $10.96 $9.38 $10.67 $10.27
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 10.15 14.30 (10.05) 19.41 (0.51)(6)
Total adjusted investment return at net asset value(5,7) (%) 9.85 14.13 (10.16) 19.29 (0.59)(6)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 18,272 56,384 70,243 76,824 81,177
Ratio of expenses to average net assets (%) 1.43 1.53 1.60 1.60 1.60(8)
Ratio of adjusted expenses to average net assets(9) (%) 1.73 1.70 1.71 1.72 1.73(8)
Ratio of net investment income (loss) to average net assets (%) 5.57 4.66 4.97 4.90 4.91(8)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) 5.27 4.49 4.86 4.78 4.78(8)
Portfolio turnover rate (%) 79 116 107 113 116(10)
Fee reduction per share ($) 0.03(4) 0.02 0.01 0.01(4) 0.01(4)
(1) Class A shares commenced operations on January 5, 1990.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the fund.
(3) Effective August 31, 1996, the fiscal period changed from December 31 to August 31.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(6) Not annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Annualized.
(9) Unreimbursed, without fee reduction.
(10)Portfolio turnover excludes merger activity.
</TABLE>
TAX-FREE BOND FUND 13
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock tax-free income funds offer two classes of shares, Class A and
Class B. Each class has its own cost structure, allowing you to choose the one
that best meets your requirements. Your financial representative can help you
decide.
- --------------------------------------------------------------------------------
CLASS A CLASS B
- --------------------------------------------------------------------------------
- - Front-end sales charges, as - No front-end sales charge; all your
described below. There are money goes to work for you right away.
several ways to reduce these
charges, also described below. - Higher annual expenses than Class A
shares.
- - Lower annual expenses than
Class B shares. - A deferred sales charge on shares
you sell within six years of
purchase, as described below.
- Automatic conversion to Class A
shares after eight years, thus
reducing future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
<CAPTION>
================================================================================
CLASS A SALES CHARGES
================================================================================
<S> <C> <C>
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
Up to $99,999 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 3.00% 3.09%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
<TABLE>
<CAPTION>
================================================================================
CDSC ON $1 MILLION+ INVESTMENTS
================================================================================
<S> <C>
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
<TABLE>
<CAPTION>
================================================================================
CLASS B DEFERRED CHARGES
================================================================================
<S> <C>
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
14 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
================================================================================
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
- - Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
- - Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services to add these options (see
the back cover of this prospectus).
GROUP INVESTMENT PROGRAM Allows established groups of four or more investors to
invest as a group. Each investor has an individual account, but for sales charge
purposes the group's investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250) and you may terminate the program at any time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify.
CDSC WAIVERS As long as Signature Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
- - to make payments through certain systematic withdrawal plans
- - to make certain distributions from a retirement plan
- - because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
REINSTATEMENT PRIVILEGE If you sell shares of a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Signature Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities that are prohibited from paying mutual fund sales charges
- - financial institutions or common trust funds investing $1 million or more for
non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock tax-free fund from an
employee benefit plan that has John Hancock funds
- - members of an approved affinity group financial services program
- - certain insurance company contract holders (one-year CDSC usually applies)
- - participants in certain retirement plans with at least 100 members (one-year
CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
your financial representative or Signature Services, or consult the SAI.
================================================================================
OPENING AN ACCOUNT
================================================================================
1 Read this prospectus carefully.
2 Determine how much you want to invest. The
minimum initial investments for the John Hancock funds are as follows:
- non-retirement account: $1,000
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at
least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to add
privileges later.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
15 YOUR ACCOUNT
<PAGE>
<TABLE>
================================================================================
BUYING SHARES
================================================================================
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
BY CHECK
[A graphic image of a blank check.] - Make out a check for the
- - Make out a check for the investment amount, payable to
investment amount, payable to "John Hancock Signature
"John Hancock Signature Services, Inc."
Services, Inc."
- - Deliver the check and your - Fill out the detachable
completed application to your investment slip from an account
financial representative, or mail statement. If no slip is available,
them to Signature Services include a note specifying the fund
(address on next page). name, your share class, your
account number and the name(s) in
which the account is registered.
- Deliver the check and your
investment slip or note to your
financial representative, or mail
them to Signature Services
(address on next page).
BY EXCHANGE
[A graphic image of a white arrow outlined
in black that points to the right above
a black that points to the left.]
- - Call your financial representative - Call Signature Services to request
or Signature Services to request an an exchange.
exchange.
BY WIRE
[A graphic image of a jagged white arrow
outlined in black that points upwards
at a 45 degree angle.]
- - Deliver your completed application
to your financial representative,
or mail it to Signature Services.
- - Obtain your account number by
calling your financial
representative or Signature
Services.
- - Instruct your bank to wire the - Instruct your bank to wire the
amount of your investment to: amount of your investment to:
First Signature Bank & Trust First Signature Bank & Trust
Account # 900000260 Account # 900000260
Routing # 211475000 Routing # 211475000
Specify the fund name, your Specify the fund name, your share
choice of share class, the new class, your account number and
account number and the name(s) in the name(s) in which the account
which the account is registered. is registered. Your bank may
Your bank may charge a fee to charge a fee to wire funds.
wire funds.
BY PHONE
[A graphic image of a telephone.]
- - See "By wire" and "By exchange." - Verify that your bank or credit
union is a member of the
Automated Clearing House (ACH)
system.
- Complete the "Invest-By-Phone"
and "Bank Information" sections
on your account application.
- Call Signature Services to verify
that these features are in place
on your account.
- Tell the Signature Services
representative the fund name,
your share class, your account
number, the name(s) in which the
account is registered and the
amount of your investment.
</TABLE>
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
16 YOUR ACCOUNT
<PAGE>
<TABLE>
================================================================================
SELLING SHARES
================================================================================
<CAPTION>
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
<S> <C>
BY LETTER
[A graphic image of the back of an
envelope.]
- - Accounts of any type. - Write a letter of instruction or
complete a stock power indicating
- - Sales of any amount. the fund name, your share class,
your account number, the name(s)
in which the account is
registered and the dollar value
or number of shares you wish to
sell.
- Include all signatures and any
additional documents that may be
required (see next page).
- Mail the materials to Signature
Services.
- A check will be mailed to the
name(s) and address in which the
account is registered, or
otherwise according to your
letter of instruction.
BY PHONE
[A graphic image of a telephone.]
- - Most accounts. - For automated service 24 hours a
day using your touch-tone phone,
- - Sales of up to $100,000. call the EASI-Line at 1-800-338-
8080.
- To place your order with a
representative at John Hancock
Funds, call Signature Services
between 8 A.M. and 4 P.M. Eastern
Time on most business days.
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
[A graphic image of a jagged white arrow
outlined in black that points upwards
at a 45 degree angle.]
- - Requests by letter to sell any - Fill out the "Telephone
amount (accounts of any type). Redemption" section of your new
account application.
- - Requests by phone to sell up to
$100,000 (accounts with telephone - To verify that the telephone
redemption privileges). redemption privilege is in place
on an account, or to request the
forms to add it to an existing
account, call Signature Services.
- Amounts of $1,000 or more will be
wired on the next business day. A
$4 fee will be deducted from your
account.
- Amounts of less than $1,000 may
be sent by EFT or by check. Funds
from EFT transactions are
generally available by the second
business day. Your bank may
charge a fee for this service.
BY EXCHANGE
[A graphic image of a white arrow outlined
in black that points to the right
above a black that points to the left.]
- - Accounts of any type. - Obtain a current prospectus for
the fund into which you are
- - Sales of any amount. exchanging by calling your
financial representative or
Signature Services.
- Call Signature Services to
request an exchange.
</TABLE>
- --------------------------------------------------------------------------------
Address
John Hancock Signature Services, Inc.
P.O. Box 9116 Boston, MA 02205-9116
Phone
1-800-225-5291
Or contact your financial representative for instructions and assistance.
- --------------------------------------------------------------------------------
To sell shares through a systematic withdrawal plan,
see "Additional investor services."
YOUR ACCOUNT 17
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer
- - a federal savings, cooperative or other type of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
<TABLE>
=========================================================[A graphic image of the
back of an envelope.]
<CAPTION>
SELLER REQUIREMENTS FOR WRITTEN REQUESTS
=========================================================
<S> <C>
Owners of individual, joint, sole - Letter of instruction.
proprietorship, UGMA/UTMA
(custodial accounts for minors) or - On the letter, the signatures and
general partner accounts. titles of all persons authorized
to sign for the account, exactly
as the account is registered.
- Signature guarantee if applicable
(see above).
Owners of corporate or association - Letter of instruction.
accounts.
- Corporate resolution, certified
within the past 90 days.
- On the letter and the resolution,
the signature of the person(s)
authorized to sign for the
account.
- Signature guarantee if applicable
(see above).
Owners or trustees of trust accounts. - Letter of instruction.
- On the letter, the signature(s)
of the trustee(s).
- If the names of all trustees are
not registered on the account,
please also provide a copy of the
trust document certified within
the past 60 days.
- Signature guarantee if applicable
(see above).
Joint tenancy shareholders whose - Letter of instruction signed by
co-tenants are deceased. surviving tenant.
- Copy of death certificate.
- Signature guarantee if applicable
(see above).
Executors of shareholder estates. - Letter of instruction signed by
executor.
- Copy of order appointing
executor.
- Signature guarantee if applicable
(see above).
Administrators, conservators, guardians - Call 1-800-225-5291 for
and other sellers or account types not instructions.
listed above.
</TABLE>
18 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Signature Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, Signature Services is
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
EXCHANGES You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
Class B shares will continue to age from the original date and will retain the
same CDSC rate as they had before the exchange, except that the rate will change
to that of the new fund if the new fund's rate is higher. A CDSC rate that has
increased will drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- - after every transaction (except a dividend reinvestment) that affects your
account balance
- - after any changes of name or address of the registered owner(s)
- - in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally declare dividends daily and pay them monthly.
Short- and long-term capital gains, if any, are distributed annually, typically
after the end of a fund's fiscal year. Your dividends begin accruing the day
after payment is received by the fund and continue through the day your shares
are actually sold.
YOUR ACCOUNT 19
<PAGE>
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
The fund intends to meet certain federal tax requirements so that distributions
of the tax-exempt interest it earns may be treated as "exempt-interest
dividends." However, any portion of exempt-interest dividends attributable to
interest on private activity bonds may increase certain shareholders'
alternative minimum tax.
Dividends from a fund's short- and long-term capital gains are taxable. Taxable
dividends paid in January may be taxable as if they had been paid the previous
December.
The state tax-free income funds intend to comply with certain state tax
requirements so that their income dividends will be exempt from state and local
personal income taxes in the applicable state. Dividends of the other tax-free
income funds are not exempt from state and local income taxes.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
- - Complete the appropriate parts of your account application.
- - If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
SYSTEMATIC WITHDRAWAL PLAN This plan may be used for routine bill payment or
periodic withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
- - Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
- - Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
- - Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, 401(k) plans, 403(b) plans (including TSAs) and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund (except tax-free income funds) with a low minimum investment
of $250 or, for some group plans, no minimum investment at all. To find out
more, call Signature Services at 1-800-225-5291.
20 YOUR ACCOUNT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock tax-free income fund is an
open-end management investment company or a series of such a company.
Each fund is supervised by a board of trustees, an independent body that has
ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others (see diagram). The board has the right, and
the obligation, to terminate the fund's relationship with any of these companies
and to retain a different company if the board believes it is in the
shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock tax-free income funds may
include individuals who are affiliated with the investment adviser. However, the
majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[A flow chart that contains 7 rectangular-shaped boxes and illustrates the
hierarchy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal shaded lines. This is meant to highlight tiers
two and three which focus on Financial Service Firms and Distribution and
Shareholder Services.
Principal Distributor and Transfer Agent are shown on the third tier.
Investment Advisor and Custodian are shown on the fourth tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in the Asset Management. The arrow has arrowheads on both
ends and is contained within two horizontal, shaded lines.
The fifth tier includes the Trustees.]
YOUR ACCOUNT 21
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation is not expected to exceed
0.02% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
INVESTMENT GOALS AND POLICIES Except for Massachusetts and New York Tax-Free
Income Funds, each fund's investment goal is fundamental and may only be changed
with shareholder approval. Each fund's policy of investing at least 80% in
municipal securities is fundamental and may not be changed without shareholder
approval. The High Yield Tax-Free Fund's 80% credit policy is also fundamental.
DIVERSIFICATION Except for the Massachusetts and New York Tax-Free Income Funds,
all of the tax-free income funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets ("12b-1" refers to the federal
securities regulation authorizing annual fees of this type). The 12b-1 fee rates
vary by fund and by share class, according to Rule 12b-1 plans adopted by the
funds. The sales charges and 12b- 1 fees paid by investors are detailed in the
fund-by-fund information. The portions of these expenses that are reallowed to
financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
<TABLE>
- --------------------------------------------------------------------------------
CLASS B UNREIMBURSED DISTRIBUTION EXPENSES(1)
- --------------------------------------------------------------------------------
<CAPTION>
UNREIMBURSED AS A % OF
FUND EXPENSES NET ASSETS
<S> <C> <C>
California Tax-Free Income $3,990,001 4.84%
High Yield Tax-Free $6,664,822 4.32%
Massachusetts Tax-Free Income N/A N/A
New York Tax-Free Income N/A N/A
Tax-Free Bond $3,773,863 4.84%
</TABLE>
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock Funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
22 FUND DETAILS
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM
SALES CHARGE REALLOWANCE FIRST YEAR MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Up to $99,999 4.50% 3.76% 0.25% 4.00%
$100,000 - $249,999 3.75% 3.01% 0.25% 3.25%
$250,000 - $499,999 3.00% 2.26% 0.25% 2.50%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
REGULAR INVESTMENTS OF
$1 MILLION OR MORE
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 and more above that -- 0.00% 0.25% 0.25%
WAIVER INVESTMENTS(2) -- 0.00% 0.25% 0.25%
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM
REALLOWANCE FIRST YEAR MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION
(% of offering price) (% of net investment) (% of offering price)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
FUND DETAILS 23
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's
primary securities and investment practices. You may find the most concise
description of each fund's risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any bond fund, there is no guarantee that a John Hancock tax-free income
fund will earn income or show a positive return over any period of time -- days,
months or years.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. Common to all debt securities.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable. Common to all municipal securities.
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
- - Hedged When a derivative (a security whose value is based on another security
or index) is used as a hedge against an opposite position that the fund also
holds, any loss generated by the derivative should be substantially offset by
gains on the hedged investment, and vice versa. While hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
- - Speculative To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
MANAGEMENT RISK The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole. Common to all stocks and bonds and the
mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters, such as
earthquakes and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
POLITICAL RISK The risk of losses attributable to government or political
actions of any sort.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
24 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
HIGHER-RISK SECURITIES AND PRACTICES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
This table shows each fund's investment CALIFORNIA TAX- HIGH YIELD MASSACHUSETTS TAX- NEW YORK TAX- TAX-FREE
limitations as a percentage of portfolio FREE INCOME TAX-FREE FREE INCOME FREE INCOME BOND
assets. In each case the principal types --------------- ---------- ------------------ ------------- --------
of risk are listed (see previous page
for definitions). Numbers in this table
show allowable usage only; for actual
usage, consult the fund's
annual/semi-annual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
+ No policy limitation on usage; fund
may be using currently
* Permitted, but has not typically been
used
- -- Not permitted
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PRACTICES CALIFORNIA TAX- HIGH YIELD MASSACHUSETTS TAX- NEW YORK TAX- TAX-FREE
FREE INCOME TAX-FREE FREE INCOME FREE INCOME BOND
BORROWING; REVERSE REPURCHASE AGREEMENTS --------------- ---------- ------------------ ------------- --------
The borrowing of money from banks or
through reverse repurchase agreements.
Leverage, credit risks. 15 33.3(1) 33.3 33.3 15
REPURCHASE AGREEMENTS The purchase of a
security that must later be sold back to
the issuer at the same price plus
interest. Credit risk. + + + + +
SECURITIES LENDING The lending of
securities to financial institutions,
which provide cash or government
securities as collateral. Credit risk.
33.3 -- 33.3 33.3 33.3
SHORT-TERM TRADING Selling a security
soon after purchase. A portfolio
engaging in short-term trading will have
higher turnover and transaction
expenses. Market risk. + + + + +
WHEN-ISSUED SECURITIES AND FORWARD
COMMITMENTS The purchase or sale of
securities for delivery at a future
date; market value may change before
delivery. Market, opportunity, leverage
risks. + + + + +
CONVENTIONAL SECURITIES
NON-INVESTMENT-GRADE DEBT SECURITIES
Debt securities rated below BBB/Baa are
considered junk bonds. Credit, market,
interest rate, liquidity, valuation,
information risks. 20 85 33.3 33.3 35
PRIVATE ACTIVITY BONDS Municipal debt
obligations that are backed primarily by
revenues from non-governmental entities.
Credit, information, interest rate,
political, natural event risks. + + + + +
RESTRICTED AND ILLIQUID SECURITIES
Securities not traded on the open
market. May include illiquid Rule 144A
securities. Liquidity, valuation, market
risks. 10 10 15 15 10
- -----------------------------------------------------------------------------------------------------------------------------------
UNLEVERAGED DERIVATIVE SECURITIES
PARTICIPATION INTERESTS Securities
representing an interest in another
security, often a municipal lease
obligation (MLO). MLOs are not backed by
the full faith and credit of the issuing
municipality. Credit, information,
interest rate, liquidity, valuation
risks. + + + + +
- -----------------------------------------------------------------------------------------------------------------------------------
LEVERAGED DERIVATIVE SECURITIES
FINANCIAL FUTURES AND OPTIONS;
SECURITIES AND INDEX OPTIONS Contracts
involving the right or obligation to
deliver or receive assets or money
depending on the performance of one or
more assets or an economic index.
- - Futures and related options. Interest
rate, market, hedged or speculative
leverage, correlation, liquidity,
opportunity risks. + + + + +
- - Options on securities and indices.
Interest rate, market, hedged or
speculative leverage, correlation,
liquidity, credit, opportunity risks. * * * * *
STRUCTURED SECURITIES Leveraged and/or
indexed debt securities, including
principal-only and interest-only
securities, leveraged floating rate
securities and others. These securities
tend to be highly sensitive to interest
rate movements and their performance may
not correlate to such movements in a
conventional fashion. Credit, interest
rate, market, speculative leverage,
liquidity, valuation risks. + + + + +
SWAPS, CAPS, FLOORS, COLLARS OTC
contracts involving the right or
obligation to receive or make payments
based on two different income streams.
Correlation, credit, currency, interest
rate, hedged or speculative leverage,
liquidity, valuation risks. * * * * *
</TABLE>
(1) Applies to reverse repurchase agreements. Other borrowings are limited to
15% of total assets.
FUND DETAILS 25
<PAGE>
ANALYSIS OF FUNDS WITH 5% OR MORE IN JUNK BONDS(1)
<TABLE>
<CAPTION>
QUALITY RATING
(S&P/MOODY'S)(2) HIGH YIELD TAX-FREE FUND TAX-FREE BOND FUND
- ---------------- ------------------------ ------------------
<S> <C> <C>
INVESTMENT-GRADE BONDS
AAA/Aaa 5.4% 24.5%
AA/Aa 0.0% 6.1%
A/A 3.6% 18.2%
BBB/Baa 32.8% 38.2%
- ----------------------------------------------------------------------------
JUNK BONDS
BB/Ba 51.5% 11.9%
B/B 6.7% 1.1%
CCC/Caa 0.0% 0.0%
CC/Ca 0.0% 0.0%
C/C 0.0% 0.0%
% OF PORTFOLIO IN BONDS 100.0 100.0
</TABLE>
[ ] Rated by Standard & Poor's or Moody's [ ] Rated by the adviser
(1) Data as of fund's last fiscal year end.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
26 FUND DETAILS
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
tax-free income funds:
ANNUAL/SEMI-ANNUAL
REPORT TO SHAREHOLDERS
Includes financial statements, detailed
performance information, portfolio
holdings, a statement from portfolio
management and the auditor's report.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI contains more detailed
information on all aspects of the funds.
The current annual/ semi-annual report
is included in the SAI.
A current SAI has been filed with the
Securities and Exchange Commission and
is incorporated by reference (is legally
a part of this prospectus).
To request a free copy of the current
annual/semi-annual report or SAI, please
write or call:
John Hancock Signature Services, Inc.
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
[JOHN HANCOCK LOGO]
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
<PAGE>
JOHN HANCOCK
TAX-EXEMPT SERIES FUND
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Class A and Class B Shares
Statement of Additional Information
January 1, 1997
This Statement of Additional Information provides information about
John Hancock Tax-Exempt Series Fund (the "Trust") and its two series, the
Massachusetts Tax-Free Income Fund and the New York Tax-Free Income Fund (each a
"Fund" and together, the "Funds"), in addition to the information that is
contained in the combined Tax-Free Income Funds' Prospectus (the "Prospectus").
The Funds are non-diversified series of the Trust.
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus, a copy of which can be obtained free
of charge by writing or telephoning:
John Hancock Signature Services, Inc.
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Trust ............................................. 2
Investment Objective and Policies ..................................... 2
Special Risks ......................................................... 13
Ratings................................................................ 18
Investment Restrictions ............................................... 20
Those Responsible For Management ...................................... 23
Investment Advisory And Other Services ................................ 33
Distribution Contracts ................................................ 35
Net Asset Value ....................................................... 37
Initial Sales Charge on Class A Shares ................................ 38
Deferred Sales Charge on Class B Shares ............................... 40
Special Redemptions ................................................... 42
Additional Services And Programs ...................................... 43
Description Of The Fund's Shares ...................................... 44
Tax Status ............................................................ 45
State Income Tax Information .......................................... 49
Calculation Of Performance ............................................ 51
Brokerage Allocation .................................................. 53
Transfer Agent Services ............................................... 55
Custody Of Portfolios ................................................. 55
Independent Accountants ............................................... 55
Appendix............................................................... A-1
Financial Statements .................................................. F-1
1
<PAGE>
ORGANIZATION OF THE TRUST
The Trust is an open-end management investment company presently
consisting of two non-diversified series which are described below.
The Trust was organized in March 1987 by John Hancock Advisers, Inc.
(the "Adviser") as a Massachusetts business trust under the laws of The
Commonwealth of Massachusetts. Prior to January 2, 1991, when the Trust changed
its name, it was known as John Hancock Tax-Exempt Series Fund. Prior to July 1,
1996, the Massachusetts Tax-Free Income Fund (the "Massachusetts Fund") and the
New York Tax-Free Income Fund (the "New York Fund") were known as the
Massachusetts Portfolio and the New York Portfolio, respectively. The Adviser is
an indirect wholly-owned subsidiary of John Hancock Mutual Life Insurance
Company (the "Life Company"), a Massachusetts life insurance company chartered
in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
Massachusetts Fund. The Massachusetts Fund is intended to provide
investors with current income excludable from gross income for Federal income
tax purposes and exempt from the personal income tax of Massachusetts. The
Massachusetts Fund seeks to provide the maximum level of tax-exempt income that
is consistent with preservation of capital.
New York Fund. The New York Fund is intended to provide investors with
current income excludable from gross income for Federal income tax purposes and
exempt from the personal income tax of New York State and New York City. The New
York Fund seeks to provide the maximum level of tax-exempt income that is
consistent with preservation of capital.
There is no assurance that the Funds will achieve their respective
investment objectives.
As defined in this Statement of Additional Information, "Tax-Exempt
Bonds" and tax- exempt securities refer to debt securities issued by or on
behalf of states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is excludable from gross income for
Federal income tax purposes, without regard to whether the interest income
thereon is exempt from the personal income tax of any state.
General. Municipal bonds generally are classified as either general obligation
bonds or revenue bonds. General obligation bonds are backed by the credit of an
issuer having taxing power and are payable from the issuer's general
unrestricted revenues. Their payment may depend on an appropriation of the
issuer's legislative body. Revenue bonds, by contrast, are payable only from the
revenues derived from a particular project, facility or a specific revenue
source. They are not generally payable from the unrestricted revenues of the
issuer.
All of the investments of each Fund will be made in:
(1) Tax-Exempt Bonds which at the time of purchase are rated A or
better by Standard & Poor's Ratings Group ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's") or Fitch
Investors Services, Inc. ("Fitch"). Alternatively, the bonds
may be unrated but considered by the Adviser to be of
comparable quality, and issued by issuers which have other
securities rated not lower than A by Standard & Poor's,
Moody's or Fitch.
2
<PAGE>
(2) Tax-Exempt Bonds which are rated BBB or BB by Standard &
Poor's or by Fitch or Baa or Ba by Moody's, or which are
unrated but are considered by the Adviser to be of comparable
quality. Not more than one-third of a Fund's total assets will
be invested in Tax-Exempt Bonds rated lower than A or
determined to be of comparable quality.
(3) Notes of issuers having an issue of outstanding Tax-Exempt
Bonds rated not lower than A by Standard & Poor's, Moody's or
by Fitch, or notes which are guaranteed by the U.S. Government
or rated MIG-1 or MIG-2 by Moody's, or unrated notes which are
determined to be of comparable quality by the Adviser.
(4) Obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Some obligations issued by an
agency or instrumentality may be supported by the full faith
and credit of the U.S. Treasury, while others may be supported
only by the credit of the particular Federal agency or
instrumentality.
(5) Commercial paper which is rated A-1 or A-2 by Standard &
Poor's, P-1 or P-2 by Moody's, or at least F-1 by Fitch, or
which is not rated, but is considered by the Adviser to be of
comparable quality; obligations of banks with $1 billion of
assets and cash equivalents, including certificates of
deposit, bankers acceptances and repurchase agreements.
Ratings of A-2 or P-2 on commercial paper indicate a strong
capacity for timely payment, although the relative degree of
safety is not as high as for issuers designated A-1 or P-1.
Tax-Exempt Bonds. Tax-Exempt Bonds are issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, housing, hospitals, mass transportation, schools, streets
and water and sewer works. Other public purposes for which Tax-Exempt Bonds may
be issued include the refunding of outstanding obligations or obtaining funds
for general operating expenses.
In addition, certain types of "private activity bonds" may be issued by
public authorities to finance privately operated housing facilities and certain
local facilities for water supply, gas, electricity, or sewage or solid waste
disposal, student loans, or the obtaining of funds to lend to public or private
institutions for the construction of facilities such as educational, hospital
and housing facilities. Such private activity bonds are included within the term
Tax-Exempt Bonds if the interest paid thereon is excluded from gross income for
Federal income tax purposes.
The interest income on certain private activity bonds (including each
Fund's distributions to its shareholders attributable to such interest) may be
treated as a tax preference item under the Federal alternative minimum tax. The
Funds will not include tax-exempt bonds generating this income for purposes of
measuring compliance with the 80% fundamental investment policy described in the
Prospectus.
Other types of private activity bonds, the proceeds of which are used
for the construction, equipment, repair or improvement of privately operated
industrial or commercial facilities, may also constitute Tax-Exempt Bonds, but
current Federal tax law places substantial limitations on the size of such
issues.
Notes. Tax-Exempt Notes generally are used to provide for short-term capital
needs and generally have maturities of one year or less. Tax-Exempt Notes
include:
3
<PAGE>
1. Project Notes. Project notes are backed by an agreement
between a local issuing agency and the Federal Department of
Housing and Urban Development ("HUD") and carry a United
States Government guarantee. These notes provide financing for
a wide range of financial assistance programs for housing,
redevelopment, and related needs (such as low-income housing
programs and urban renewal programs). Although they are the
primary obligations of the local public housing agencies or
local urban renewal agencies, the HUD agreement provides for
the additional security of the full faith and credit of the
United States Government. Payment by the United States
pursuant to its full faith and credit obligation does not
impair the tax-exempt character of the income from Project
Notes.
2. Tax-Anticipation Notes. Tax Anticipation Notes are issued to
finance working capital needs of municipalities. Generally,
they are issued in anticipation of various tax revenues, such
as income, sales, use and business taxes, and are specifically
payable from these particular future tax revenues.
3. Revenue Anticipation Notes. Revenue Anticipation Notes are
issued in expectation of receipt of specific types of revenue,
other than taxes, such as federal revenues available under
Federal Revenue Sharing Programs.
4. Bond Anticipation Notes. Bond Anticipation Notes are issued to
provide interim financing until long-term bond financing can
be arranged. In most cases, the long-term bonds then provide
the funds for the repayment of the Notes.
5. Construction Loan Notes. Construction Loan Notes are sold to
provide construction financing. Permanent financing, the
proceeds of which are applied to the payment of Construction
Loan Notes, is sometimes provided by a commitment by the
Government National Mortgage Association to purchase the loan,
accompanied by a commitment by the Federal Housing
Administration to insure mortgage advances thereunder. In
other instances, permanent financing is provided by the
commitments of banks to purchase the loan.
Commercial Paper. Issues of commercial paper typically represent short-term,
unsecured, negotiable promissory notes. These obligations are issued by agencies
of state and local governments to finance seasonal working capital needs of
municipalities or to provide interim construction financing and are paid from
general revenues of municipalities or are refinanced with long-term debt. In
most cases, tax- exempt commercial paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions.
Yields. The yields on Tax-Exempt Bonds depend on a variety of factors, including
general money market conditions, effective marginal tax rates, the financial
condition of the issuer, general conditions of the Tax-Exempt Bond market, the
size of a particular offering, the maturity of the obligation and the rating (if
any) of the issue. The ratings of Moody's , Fitch and Standard & Poor's
represent their opinions as to the quality of various Tax-Exempt Bonds which
they undertake to rate. It should be emphasized, however, that ratings are not
absolute standards of quality. Consequently, Tax-Exempt Bonds with the same
maturity and interest rate with different ratings may have the same yield. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, due to such
factors as changes in the overall demand or supply of various types of
Tax-Exempt Bonds or changes in the investment objectives of investors.
4
<PAGE>
"Moral Obligation" Bonds. Neither Fund currently intends to invest in so-called
"moral obligation" bonds, where repayment is backed by a moral commitment of an
entity other than the issuer, unless the credit of the issuer itself, without
regard to the "moral obligation," meets the investment criteria established for
investments by the Fund.
Lower Rated High Yield "High Risk" Debt Obligations. Each Fund may invest in
high yielding, fixed income securities rated below Baa by Moody's or BBB by
Standard & Poor's or Fitch or which are unrated but are considered by the
Adviser to be of comparable quality. Ratings are based largely on the historical
financial condition of the issuer. Consequently, the rating assigned to any
particular security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating would
indicate. Bonds rated BB or Ba are generally referred to as junk bonds. See the
"Appendix" attached hereto.
The values of lower-rated securities and those which are unrated but
which are considered by the Adviser to be of comparable quality generally
fluctuate more than those of high-rated securities. These securities involve
greater price volatility and risk of loss of principal and income. In addition,
the lower rating reflects a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The market price and liquidity of lower-rated securities
generally respond to short-term market developments to a greater extent than for
higher rated securities, because these developments are perceived to have a more
direct relationship to the issuer's ability to meet its ongoing debt
obligations. Although the Adviser seeks to minimize these risks through
diversification, investment analysis and attention to current developments in
interest rates and economic conditions, there can be no assurance that the
Adviser will be successful in limiting a Fund's exposure to the risks associated
with lower rated securities. Because each Fund invests in securities in the
lower rated categories, the achievement of each Fund's goals is more dependent
on the Adviser's ability than would be the case if each Fund were investing in
securities in the higher rated categories.
The market value of debt securities which carry no equity participation
usually reflects yields generally available on securities of similar quality and
type. When such yields decline, the market value of a portfolio already invested
at higher yields can be expected to rise if such securities are protected
against early call. In general, in selecting securities, the portfolio manager
of each Fund intends to seek protection against early call. Similarly, when such
yields increase, the market value of a portfolio already invested at lower
yields can be expected to decline. Each Fund may invest in debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, during periods of high interest rates, because of their lower acquisition
cost tend to sell on a yield basis approximating current interest rates.
Additional Risks. Securities in which a Fund may invest are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or, as the case may be, the Massachusetts or
New York legislature extending the time for payment of principal or interest, or
both, or imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other conditions, the
power or ability of any one or more issuers to pay when due principal of and
interest on their Tax- Exempt Bonds may be materially affected.
From time to time, proposals have been introduced before Congress which
would adversely affect the Federal income tax consequences of holding Tax-Exempt
Bonds. Federal tax legislation enacted primarily during the 1980's limits the
types and amounts of Tax-Exempt Bonds issuable for certain purposes, especially
for industrial development bonds and other types of so-called "private activity"
bonds. Such limits may affect the future supply and yields of these types of
Tax-Exempt Bonds. Further proposals limiting the issuance of Tax-Exempt Bonds
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may well be introduced in the future. If it appeared that the availability of
Tax-Exempt Bonds for investment by a Fund and the value of the Fund's
investments could be materially affected by such changes in law, the Trustees
would reevaluate such Fund's investment objective and policies and consider
changes in the structure of the Fund or its dissolution.
Short-Term Trading and Portfolio Turnover. Each Fund may attempt to maximize
current income through short-term portfolio trading. This will involve selling
portfolio instruments and purchasing different instruments to take advantage of
yield disparities in different segments of the market for government
obligations. Short- term trading may have the effect of increasing portfolio
turnover rate. The portfolio turnover rate for a Fund is calculated by dividing
the lower of that Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of all securities whose maturities at the time
of acquisition were 1 year or less) by the monthly average value of the
securities in the Fund during the year. A high rate of portfolio turnover (100%
or greater) involves corresponding higher transaction expenses and may make it
more difficult for a Fund to qualify as a regulated investment company for
Federal income tax purposes.
Non-Diversification. Each Fund has registered as a "non-diversified" investment
company, permitting the Adviser to invest more than 5% of the assets of each
Fund in the obligations of any one issuer. Since a relatively high percentage of
a Fund's assets may be invested in the obligations of a limited number of
issuers, the value of Fund shares may be more susceptible to any single
economic, political or regulatory event than the shares of a diversified
investment company.
Ratings. Ratings for Bonds issued by various jurisdictions are noted herein.
Such ratings reflect only the respective views of such organizations, and an
explanation of the significance of such ratings may be obtained from the rating
agency furnishing the same. There is no assurance that a rating will continue
for any given period of time or that a rating will not be revised or withdrawn
entirely by any or all of such rating agencies, if, in its or their judgment,
circumstances so warrant. Any downward revision or withdrawal of a rating could
have an adverse effect on the market prices of any of the bonds described
herein.
Forward Commitment and When-Issued Securities. The Funds may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. A Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, a Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When a Fund engages in forward commitment and when-issued transactions,
it relies on the seller to consummate the transaction. The failure of the issuer
or seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities equal in value to the Fund's commitment. These
assets will be valued daily at market, and additional cash or securities will be
segregated in a separate account to the extent that the total value of the
assets in the account declines below the amount of the when-issued commitments.
Alternatively, the Fund may enter into offsetting contracts for the forward sale
of other securities that it owns.
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Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Funds will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Funds enter into repurchase agreements.
Each Fund has established a procedure providing that the securities
serving as collateral for each repurchase agreement must be delivered to the
Fund's custodian either physically or in book-entry form and that the collateral
must be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, a Fund could experience delays in liquidating
the underlying securities during the period in which the Fund seeks to enforce
its rights thereto, possible subnormal levels of income decline in value of the
underlying securities or lack of access to income during this period as well as
the expense of enforcing its rights. It is a non-fundamental policy of each Fund
not to invest more than 15% of its net assets in illiquid securities, including
repurchase agreements maturing in more than 7 days.
Reverse Repurchase Agreements. A Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by a Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. A Fund will not enter into reverse repurchase
agreements and other borrowings exceeding in the aggregate 33 1/3% of the market
value of its total assets. To minimize various risks associates with reverse
repurchase agreements, the Fund will establish and maintain with the Funds
custodian a separate account consisting of highly liquid, marketable securities
in an amount at least equal to the repurchase prices of these securities (plus
accrued interest thereon) under such agreements. In addition, the Fund will not
purchase additional securities while all borrowings are outstanding. The Funds
will enter into reverse repurchase agreements only with federally insured banks
or savings and loan associations which are approved in advance as being
creditworthy by the Trustees. Under procedures established by the Trustees, the
Adviser will monitor the creditworthiness of the banks involved.
Options on Securities and Securities Indices. Each Fund may purchase
and write (sell) call and put options on any securities in which it may invest
on any securities index based on securities in which it may invest. These
options may be listed on national domestic securities exchanges or traded in the
over-the-counter market. Each Fund may write covered put and call options and
purchase put and call options to enhance total return, as a substitute for the
purchase or sale of securities, or to protect against declines in the value of
portfolio securities and against increases in the cost of securities to be
acquired.
Writing Covered Options. A call option on securities written by a Fund
obligates a Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. A put option on securities written by a Fund obligates the Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
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securities or segment of the securities market rather than price fluctuations in
a single security. Writing covered call options may deprive a Fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive a Fund of the opportunity
to profit from a decrease in the market price of the securities to be acquired
for its portfolio.
All call and put options written by each Fund are covered. A written
call option or put option may be covered by (i) maintaining cash or liquid
securities in a segregated account maintained by a Fund's custodian with a value
at least equal to the Fund's obligation under the option, (ii) entering into an
offsetting forward commitment and/or (iii) purchasing an offsetting option or
any other option which, by virtue of its exercise price or otherwise, reduces
the Fund's net exposure on its written option position. A written call option on
securities is typically covered by maintaining the securities that are subject
to the option in a segregated account. A Fund may cover call options on a
securities index by owning securities whose price changes are expected to be
similar to those of the underlying index.
A Fund may terminate its obligations under an exchange traded call or
put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions."
Purchasing Options. Each Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities of the type in which it
may invest. A Fund may also sell call and put options to close out its purchased
options.
The purchase of a call option would entitle a Fund, in return for the
premium paid, to purchase specified securities at a specified price during the
option period. A Fund would ordinarily realize a gain on the purchase of a call
option if, during the option period, the value of such securities or currency
exceeded the sum of the exercise price, the premium paid and transaction costs;
otherwise the Fund would realize either no gain or a loss on the purchase of the
call option.
The purchase of a put option would entitle a Fund, in exchange for the
premium paid, to sell specified securities at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of a Fund's portfolio securities. Put
options may also be purchased by a Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. A
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
a Fund's portfolio securities. Under certain circumstances, the Fund may not be
treated as the tax owner of a security if the Fund has purchased a put option on
the same security. If this occurred, the interest on the security would be
taxable.
Each Fund's options transactions will be subject to limitations
established by each of the exchanges, boards of trade or other trading
facilities on which such options are traded. These limitations govern the
maximum number of options in each class which may be written or purchased by a
single investor or group of investors acting in concert, regardless of whether
the options are written or purchased on the same or different exchanges, boards
of trade or other trading facilities or are held or written in one or more
accounts or through one or more brokers. Thus, the number of options which a
Fund may write or purchase may be affected by options written or purchased by
other investment advisory clients of the Adviser. An exchange, board of trade or
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other trading facility may order the liquidation of positions found to be in
excess of these limits, and it may impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that
a liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it would have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
A Fund's ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities markets.
Futures Contracts and Options on Futures Contracts. To seek to increase
total return or hedge against changes in interest rates or securities prices,
each Fund may purchase and sell various kinds of futures contracts, and purchase
and write call and put options on these futures contracts. Each Fund may also
enter into closing purchase and sale transactions with respect to any of these
contracts and options. The futures contracts may be based on various securities
(such as U.S. Government securities), securities indices, and any other
financial instruments and indices. All futures contracts entered into by a Fund
are traded on U.S. exchanges or boards of trade that are licensed, regulated or
approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While futures contracts on securities will usually
be liquidated in this manner, a Fund may instead make, or take, delivery of the
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underlying securities whenever it appears economically advantageous to do so. A
clearing corporation associated with the exchange on which futures contracts are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with
more certainty than would otherwise be possible the effective price or rate of
return on portfolio securities or securities that a Fund proposes to acquire.
When interest rates are rising or securities prices are falling, a Fund can seek
to offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, a Fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases.
A Fund may, for example, take a "short" position in the futures market
by selling futures contracts in an attempt to hedge against an anticipated rise
in interest rates or a decline in market prices that would adversely affect the
value of the Fund's portfolio securities. Such futures contracts may include
contracts for the future delivery of securities held by the Fund or securities
with characteristics similar to those of the Fund's portfolio securities.
If, in the opinion of the Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any differential by
having the Fund enter into a greater or lesser number of futures contracts or by
attempting to achieve only a partial hedge against price changes affecting the
Fund's portfolio securities.
When a short hedging position is successful, any depreciation in the
value of portfolio securities will be substantially offset by appreciation in
the value of the futures position. On the other hand, any unanticipated
appreciation in the value of a Fund's portfolio securities would be
substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available. A Fund may also purchase futures
contracts as a substitute for transactions in securities to alter the investment
characteristics of portfolio securities or to gain or increase its exposure to a
particular securities market.
Options on Futures Contracts. A Fund may purchase and write options on
futures for the same purposes as its transactions in futures contracts. The
purchase of put and call options on futures contracts will give a Fund the right
(but not the obligation) for a specified price to sell or to purchase,
respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, a Fund obtains the
benefit of the futures position if prices move in a favorable direction but
limits its risk of loss in the event of an unfavorable price movement to the
loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By writing
a call option, a Fund becomes obligated, in exchange for the premium (upon
exercise of the option) to sell a futures contract if the option is exercised,
which may have a value higher than the exercise price. Conversely, the writing
of a put option on a futures contract generates a premium which may partially
offset an increase in the price of securities that a Fund intends to purchase.
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However, the Fund becomes obligated (upon exercise of the option) to purchase a
futures contract if the option is exercised, which may have a value lower than
the exercise price. The loss incurred by a Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. A Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. Each Fund will engage in futures and related
options transactions either for bona fide hedging purposes or to seek to
increase total return as permitted by the CFTC. To the extent that a Fund is
using futures and related options for hedging purposes, futures contracts will
be sold to protect against a decline in the price of securities that the Fund
owns or futures contracts will be purchased to protect the Fund against an
increase in the price of securities it intends to purchase. Each Fund will
determine that the price fluctuations in the futures contracts and options on
futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, each Fund expects
that on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for a Fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
To the extent that a Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. Each Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualifications as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities, require the Fund to establish
with the custodian a segregated account consisting of cash or liquid securities
in an amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may
reduce certain risks, these transactions themselves entail certain other risks.
For example, unanticipated changes in interest rates or securities prices may
result in a poorer overall performance for the Fund than if it had not entered
into any futures contracts or options transactions.
Perfect correlation between a Fund's futures positions and portfolio
positions will be impossible to achieve. There are no futures contracts based
upon individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge each Fund's portfolio are various futures
on U.S. Government securities and securities indices. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
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Some futures contracts or options on futures may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit trading in a futures contract or related
option, which may make the instrument temporarily illiquid and difficult to
price. Commodity exchanges may also establish daily limits on the amount that
the price of a futures contract or related option can vary from the previous
day's settlement price. Once the daily limit is reached, no trades may be made
that day at a price beyond the limit. This may prevent a Fund from closing out
positions and limiting its losses.
Restricted Securities. Each Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. However, a Fund will not invest more than 15% of its
net assets in illiquid investments, which include repurchase agreements maturing
in more than seven days, securities that are not readily marketable and
restricted securities. However, if the Trustees determines, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, then such securities may be purchased
without regard to the 15% limit. The Trustees may adopt guidelines and delegate
to the Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor each Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in a Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Each Fund may acquire other restricted securities including securities
for which market quotations are not readily available. These securities may be
sold only in privately negotiated transactions or in public offerings with
respect to which a registration statement is in effect under the 1933 Act. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
fair market value as determined in good faith by the Fund's Trustees.
Lending of Securities. Each Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. Each
Fund may reinvest any cash collateral in short-term securities or money market
funds. When a Fund lends portfolio securities, there is a risk that the borrower
may fail to return the securities involved in the transaction. As a result, the
Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund
may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of each Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Participation Interests. Participation interests, which may take the form of
interests in, or assignments of certain loans, are acquired from banks who have
made these loans or are members of a lending syndicate. Each Fund's investments
in participation interests are subject to its 15% of net assets limitation on
investments in illiquid securities. A Fund may purchase only those participation
interest that mature in 60 days or less, or, if maturing in more than 60 days,
that have a floating rate that is automatically adjusted at least once every 60
days.
The investment objective and policies described above under the caption
"Investment Objective and Policies" are not fundamental and may be changed by
the Trustees without shareholder approval. The policy of each Fund requiring
that under normal circumstances at least 80% of the Fund's net assets consist of
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Tax-Exempt Bonds is fundamental and may not be changed by the Trustees without
shareholder approval.
SPECIAL RISKS
The following information as to certain special risks associated with
investing in Massachusetts and New York constitutes only a brief summary and
does not purport to be a complete description of the considerations associated
with such investments. The information is based in part on information from
official statements related to securities offerings of Massachusetts and New
York issuers and is believed to be accurate.
MASSACHUSETTS TAX-EXEMPT BONDS
The economy of the Commonwealth of Massachusetts (the "Commonwealth")
has recently stabilized with unemployment falling to 5.4% for 1995, while the
national unemployment rate was 5.6%. In September unemployment rate in the
Commonwealth was 4.2% while the national unemployment rate was 5.2%.
The financial condition of the Commonwealth has improved over the last
five years. This improvement reflects the combination of implementing more
conservative fiscal policy and budgetary practices, as well as increasing tax
revenues through a combination of tax increases and the slowly rebounding state
economy. Since Fiscal 1992, the state revenues have increased from $9.48 billion
to an estimated $11.16 billion in Fiscal 1995, an annual gain of 5.6%. For
Fiscal 1996, tax revenues to increased by 7.9% to approximately $12 billion.
In connection with his proposal to reorganize state government,
Governor Weld filed legislation on January 23, 1996 that would reduce the
personal income tax rate on earned income from 5.95% to 5.45% over two calendar
years. The bill would reduce the rate to 5.70% for calendar year 1997, followed
by a reduction to 5.45% in calendar year 1998. The Executive Office for
Administration and Finance of the Commonwealth estimates that this cut in the
personal income tax rate would reduce base tax revenues by approximately $133
million in fiscal 1997, an additional $265 million in fiscal 1998 and a further
$132 million in fiscal 1999, at which time the proposed tax reduction would be
fully implemented.
Prior Fiscal Years
Fiscal 1993. The Commonwealth ended Fiscal 1993 with an operating surplus of $13
million and aggregate ending operating fund balance of approximately $562
million, including a Stabilization Fund balance of $309 million. Budget revenues
increased by 4.7% to over $14.7 billion in Fiscal 1992. Budgeted expenditures in
Fiscal 1993 totaled approximately $14.7 billion, approximately 9.6% higher than
the Fiscal 1992 expenditures.
Fiscal 1994. The Commonwealth ended Fiscal 1994 with an operating surplus of
approximately $27 million and aggregate ending operating fund balance of
approximately $589 million, including a Stabilization Fund balance of $383
million. For the year, budgeted revenues totaled $15.5 billion, representing an
increase of 5.7% over Fiscal 1993. The Commonwealth budgeted expenditures in
Fiscal 1994 totaled $15.523 billion, approximately 5.6% higher than the Fiscal
1993 budgeted expenditures.
Fiscal 1995. Fiscal 1995 tax revenue collections totaled $11.163 billion.
Budgeted revenues and other sources, including non-tax revenue collected in
fiscal 1995 totaled $16.387 billion, approximately $837 million, or 5.4%, above
1994 budgeted revenues of $15.550 billion. Budgeted expenditures and other uses
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of funds in fiscal 1995 were approximately $16.251 billion, approximately $728
million, or 4.7% above fiscal 1994 budgeted expenditures and uses of $15.523
billion. The Commonwealth ended fiscal 1995 with an operating gain of $137
million and an ending fund balance of $726 million.
During Fiscal 1995, a modification was enacted creating a formula for
assigning certain year-end surpluses to the Stabilization Fund. The new
allocations called for sharing funds between the Stabilization Fund and the
newly created Cost Stabilization Fund. Amounts in the Cost Relief Fund can be
appropriated for the following purposes: 1) to subsidize costs of the
Massachusetts Water Pollution Abatement Trust projects; 2) finance homeowner
loans to facilitate compliance with sanitary waste regulations; 3) mitigate
sewer rate increases; and 4) unanticipated obligations or extraordinary
expenditures of the Commonwealth. As calculated by the Comptroller, the amount
of surplus funds (as described above) for fiscal 1995 was approximately $94.9
million, of which $55.9 million was available to be carried forward as an
initial balance for Fiscal 1996; $27.9 million was deposited in the
Stabilization Fund; and approximately $11.1 million was deposited to the Cost
Relief Fund.
Fiscal 1996. On June 21, 1995, the Governor signed into law the Fiscal 1996
Budget totaling $16.8 billion in appropriations. A final supplemental budget
passed for Fiscal 1995 added $71 million in continuing appropriations to the
Fiscal Budget. Overall, the Commonwealth expects the Fiscal 1996 budget to total
approximately $16.9 billion, a $684 million, or 4.5% increase over Fiscal 1995
spending. Comprehensive educational reform funding with a $233 million addition
represented the largest individual expenditure increase. Budgeted revenues are
estimated to equal approximately $16.8 billion in Fiscal 1996. The fiscal 1996
forecast for federal reimbursements has decreased by approximately $7 million
primarily due to lower reimbursable spending in public assistance programs.
The Commonwealth ended Fiscal Year 1996 showing a gain of 5.5% in total
revenues and an operating surplus of 2.8%. An unexpected increase in income tax
revenues accounted produced sufficient revenues to fully fund the Stabilization
Reserve to $543 million, a threshold set equal to 5% of tax revenues less debt
service, and establish a tax reduction reserve equal to $234 million. Monies in
the tax reduction reserve will be applied as one-time tax credit for Fiscal Year
1997.
Current Fiscal Year
Fiscal 1997. On June 30, 1996, the Governor enacted the Fiscal Year 1997 budget
into law. The 1997 budget provides for expenditures of $17.7 billion, an
increase of 4.8% over Fiscal 1996. This budget incorporates an expected decline
in income tax revenues and projects to maintain balance through the use of
reserves.
The Fiscal 1997 budget centers on numerous projections for spending requirements
of specific programs and expected generation of revenue from individual taxes or
fees; however, achievement of these estimates cannot be assured. During the
first quarter of Fiscal 1997, tax collections were running about 2.6% above the
same period in Fiscal 1996 or close to the mid-range forecast for the
Commonwealth.
The reserves of the Massachusetts Unemployment Compensation Trust Fund
had been exhausted by September 1991 due to persistently high levels of
unemployment. To compensate for this shortfall, benefit payments in excess of
contributions were financed through repayable advances from the federal
unemployment loan account. Legislation enacted in September 1992 significantly
increased employer contributions in order to reduce advances from the federal
loan account with 1993 contributions exceeding outlays by $200 million. Since
September 1994 when all federal advances and related interest were repaid, the
Fund has remained solvent. As of December 31, 1995, the Trust Fund had a surplus
of $514 million.
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Credit Factors
Commonwealth-funded local aid represents an important component of the
operating budgets of cities and towns, and decreases in this funding could
negatively impact their ratings. Changes in local aid funding could also
negatively impact a locality's ability to pay assessments from certain
Commonwealth agencies, including the Massachusetts Bay Transportation Authority
and the Massachusetts Water Resources Authority. In the event that a locality
incurs substantial financial difficulties, the Commonwealth may intervene and
place the locality under State receivership.
The fiscal viability of the authorities and municipalities in
Massachusetts is inextricably linked to the financial health of the Commonwealth
as well as to the guarantee of the debt of several authorities, most notably,
the Massachusetts Bay Transportation Authority and the University of
Massachusetts Building Authority. These agency ratings are based on this
guarantee and can be expected to follow any changes in the Commonwealth's
rating. In addition, Massachusetts statutes which limit the taxing authority of
the Commonwealth or certain governmental entities may impair the ability of
issuers to maintain debt service on their obligations.
The tax on personal property and real estate is virtually the only
source of local tax revenues available to the Commonwealth's cities and towns to
meet local costs. "Proposition 2 1/2", an initiative adopted by the voters in
November 1980, limits the power of Massachusetts cities and towns and certain
tax-supported districts to raise revenue from property taxes to support their
operations, including the payment of debt service. Proposition 2 1/2 required
many cities and towns to reduce their property tax levies to a stated percentage
of full and fair cash value of taxable property and real estate, and limited the
amount that all cities and towns might increase their property tax from year to
year.
Growth of tax revenues in the Commonwealth is limited by law. Effective
July 1, 1990, the amount of direct bonds the Commonwealth could have outstanding
in any fiscal year was limited, and the total appropriation for any fiscal year
for general obligation debt service was limited to 10%. Moreover, Massachusetts
local government entities are subject to certain limitations on their taxing
power. These limits could affect their ability, or the ability of the
Commonwealth, to meet their respective financial obligations.
If either Massachusetts or any of its local government entities is
unable to meet its financial obligations, the income derived by a Fund, a Fund's
net asset value, a Fund's ability to preserve or realize capital appreciation or
a Fund's liquidity could be impaired.
The rating agencies have assigned the following long term credit
ratings to the Commonwealth: "A1" from Moody's; "A+" from Standard and Poor's,
and "A+" from Fitch.
New York Tax-Exempt Bonds
The following section provides only a brief summary of the complex
factors affecting the financial situation in New York and is based on
information obtained from New York State (the "State" or "New York State")
certain of its authorities and New York City (the "City" or "New York City") as
publicly available on the date of this Statement of Additional Information. The
information contained in such publicly available documents has not been
independently verified. It should be noted that the creditworthiness of
obligations issued by local issuers may be unrelated to the creditworthiness of
the State, and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default in the absence of a
specific guarantee of pledge provided by the State. It should also be noted that
the fiscal stability of New York State is related to the fiscal stability of New
York City and of the State's Authorities. New York State's experience has been
15
<PAGE>
that if New York City or any other major political subdivision or any of the
State's Authorities suffers serious financial difficulty, the ability of New
York State, New York State's political subdivisions (including New York City)
and the State's Authorities to obtain financing in the public credit markets is
adversely affected. This results in part from the expectation that to the extent
that any Authority or local government experiences financial difficulty, it will
seek and receive New York State financial assistance. Moreover, New York City
accounts for approximately 40 percent of New York State's population and tax
receipts, so New York City's financial integrity in particular affects New York
State directly. Accordingly, if there should be a default by New York City or
any other major political subdivision or any of the State's Authorities, the
market value and marketability of all New York Tax-Exempt Bonds issued by New
York State, its political subdivisions and Authorities ("New York Tax-Exempt
Bonds") could be adversely affected. This would have an adverse effect on the
asset value and liquidity of the New York Fund, even though securities of the
defaulting entity may not be held by the Fund.
Regional Economy
The New York State economy continues its slow recovery from the
national recession of 1990. Based upon forecasts for the national economy, the
State's Budget Division projects continuation of modest employment, wage and
income growth throughout the remainder of 1996 and the first half of 1997.
Employment should increase by 0.8% in 1996, representing a 0.2% improvement or
net expansion of 60,000 jobs over the 1995. The unemployment rate forecast calls
for 1996 to remain at about 6.4% or more than 1% above the national average.
This modest increase reflects an expected slowdown in the national economy,
restrained government spending, and restructuring in the health care and
financial sectors. Compared with the peak rate of 9.3% recorded in 1992, the
expected rate for 1996 and 1997 represent favorable improvements. Mirroring
national trends, personal income should grow by over 5% in 1996 with a slightly
lower rate expected for 1997. In part, the more robust 1996 growth stems from
increases in expected financial sector bonus payments.
1996-1997 Fiscal Year. On July 13, 1996, the Legislature enacted the State
Budget encompassing the 1996-1997 Fiscal Year extending from April 1, 1996 to
March 30, 1997. The Governor released the State's Financial Plan for Fiscal Year
1996-1997 on July 25, 1996. The Plan calls for General Fund revenues to increase
by $80 million or 0.25% over Fiscal 1996 representing a decline of 1.5% over
Fiscal 1995. Overall, State expenditures are anticipated to increase by 4.1%.
General Fund receipts are anticipated to total $33.1 billion and all state
revenues including Federal Funds should exceed $66 billion. The Financial Plan
continues tax reduction programs enacted in Fiscal 1995-1996 and includes a
repeal of the property gains tax. These programs project to reduce state tax
receipts by over $511 million during the current fiscal years which would be
partially offset by the transfer of sales tax receipts no longer needed to
agency debt service requirements, receipts from tax amnesty programs and
increased user fee revenues.
General Fund disbursements and transfers to other governmental funds,
combined, are estimated to total $33.1 billion in Fiscal Year 1996-97, a 2.5%
increase over the previous year. Expenditures for education, public protection,
and economic affairs project noteworthy increases over the previous year. These
increases are expected to partially offset by reductions for health and human
services, environmental affairs, transportation, general government and capital
expenditures. The expenditure program incorporates a $15 million deposit to the
Tax Stabilization Reserve Fund and $85 million to the Contingency Reserve Fund
which would bring the total General Fund balance to $337 million or 1% of
expenditures.
Borrowings for capital purposes are anticipated to total approximately
$2.7 billion in general obligation and contractual obligation debt. Of this
issuance, general obligations will total only $411 million or 15%. Major
projects to be undertaken with these funds include highway and bridge
16
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improvements, mental hygiene facilities, university building improvements,
housing programs and prison facilities.
During the first two quarters of Fiscal Year 1996-1997, tax receipts
exceeded expectations by $276 million. The majority of this improvement have
stemmed from increases in personal income taxes and business taxes. These
additional revenues have more than offset lower than expected user fee
collections to date. Disbursements over this period have been $415 million less
than planned, principally due to processing delays caused by the delayed
enactment of the State budget.
1995-1996 Fiscal Year. The State ended the 1995-1996 Fiscal Year with a surplus
of $129 million or 0.4% or expenditures. The closing fund balance of $287
million reflects balances of about $237 million in Tax Stabilization Reserve and
$50 million in the Contingency Reserve Fund.
General Fund receipts totaled $32.8 billion during the Fiscal Year.
Although revenues missed the targeted amounts by over $300 million, program cuts
enabled the state to generate an operating surplus. Reductions in personal
income tax and business tax rates lowered revenues by over $600 million, an
amount in line with projections. This shortfall in revenues was partially offset
by transfers which increased by about $200 million over Fiscal Year 1994-1995.
Disbursements from the General Fund declined by about $800 million or
2.4% over the previous fiscal year. The major shift in expenditures stemmed from
a $768 million reduction in Grants to local governments attributed primarily to
staff reductions and the implementation of program efficiencies in social
welfare programs. In addition, state operations fell by $355 million or 5.6%
compared with Fiscal Year 1994-1995.
1994-1995 Fiscal Year. The State ended the 1994-95 Fiscal Year with the General
Fund in balance. The closing fund balance of $158 million reflects $157 million
in the Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve
Fund.
General Fund receipts fell short of projections by $1.163 billion.
Personal income tax collections reflected weak estimated tax collections and
lower withholding due to reduced wage and salary growth, weakness in the
brokerage industry, and deferral of capital gains realizations in anticipation
of Federal tax changes. Business taxes fell short by $373 million, reflecting
lower bank payments as substantial overpayments of the 1993 liability depressed
net collections. Offsetting these shortfalls were user taxes and fees, which
exceeded projections by $210 million.
Disbursements of the General Fund were lower than original projections
by $848 million. Educational costs fell short of projections by $188 million in
part due to the availability of $110 million in additional lottery proceeds and
the use of LGAC bond proceeds. The spending reductions also reflect measures
taken by the Governor to avert a gap in the 1994-95 State Financial Plan in
January 1995. These actions included a hiring freeze, halting the development of
certain services, and the suspension of non-essential capital projects.
1993-1994 Fiscal Year. The State of New York completed its 1993-1994 fiscal year
(ending March 30, 1994) with an accumulated surplus of $370 million from
combined Governmental Funds. This includes a General Fund accumulated deficit of
$1.637 billion, a Capital Fund accumulated deficit of $622 million, and
accumulated surpluses in the Special Revenue and Debt Service Funds. On an
operating basis, the State reported an operating surplus of $1.051 billion from
combined Governmental Funds.
General Fund operations completed Fiscal Year 1993-1994 with a surplus
of $914 million reported on GAAP-basis. The surplus reflects several major
factors including the use of $671 million of the 1992-1993 operating surplus to
fund 1993-1994 expenditures, $575 million in net Local Government Assistance
17
<PAGE>
Corporation ("LGAL") bond proceeds, and the accumulation of a $265 million
balance in the Contingency Reserve.
Receipts of the General Fund increased $800 million or 2.5% over the
prior fiscal year. Primarily, the increase stemmed from gains of over $1 billion
in personal income and business taxes. This 10% growth was driven by the changes
in Federal business laws and the strong performance of the banking and
securities firms in 1993. Expenditures increased $1.05 billion or 3.2% over the
prior year. The growth in expenditures primarily consisted of $850 million in
additional social service costs. The majority of these costs related to Medicaid
and Income Maintenance programs. In addition, the settlement of outstanding
labor contracts and unfavorable judicial decisions caused another $240 million
in departmental operations expenditures. On a cash basis the state closed
1993-1994 with a surplus of $332 million based upon receipts of $32.2 billion
and disbursements of $31.9 billion.
Ratings
The current General Obligation ratings for the State of New York are A
by Moody's, A- by Standard & Poor's and A+ by Fitch Investors Services.
Current Budget. The Fiscal Year 1996-1997 budget which projects to generate a
slight surplus contains certain risks related to the underlying assumptions of
the budget. These risks relate primarily to the economy and tax collections over
the second half of the fiscal year. In the event that increases in interest
rates, changes in the health care industry, or other sectors could result in
slower economic growth and a deterioration in State revenues.
The recent enactment of Federal Welfare reform also could impact the
ability of the state to maintain budget balance. This new legislation places
additional performance burdens upon the state regarding caseload and work
activity compliance. Development of a suitable implementation plan strategy may
require the state to invest additional funds in anticipation of new
administrative responsibilities for the new programs. Failure by the state to
adopt appropriate legislation and develop an acceptable implementation plan by
July 1, 1997 could jeopardize the receipt of $2.3 billion in Federal block grant
funding available to the state.
Authorities The fiscal stability of New York is related, at least in part, to
the fiscal stability of its localities and Authorities. Authorities are not
subject to the constitutional restrictions on the incurrence of debt which apply
to New York itself and may issue bonds and notes within the amounts of, and as
otherwise restricted by, their legislative authorization.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls, mass transportation and rentals for dormitory rooms and housing. In
recent years, however, New York has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain Authorities for
operating and other expenses and, in fulfillment of its commitments on moral
obligation indebtedness or otherwise, for debt service. This assistance is
expected to continue to be required in future years. Failure of New York to
appropriate necessary amounts or to take other action to permit the Authorities
to meet their obligations could result in a default by one or more of the
Authorities. If a default were to occur, it would likely have a significant
adverse effect on the market price of obligations of the State and its
Authorities.
As of March 31, 1996, there was outstanding a $38.2 billion aggregate
principal amount of bonds and notes issued by Authorities which were either
guaranteed by the State or supported by the State through lease-purchase and
contractual-obligation arrangements or moral obligation provisions. Debt service
on outstanding Authority obligations is normally paid out of revenues generated
by the Authorities' projects or programs, but in recent years the State has
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provided special financial assistance, in some cases of a recurring nature, for
operating capital and debt service expenses.
Agencies and Localities Beginning in 1975 (in part as a result of the then
current New York City and UDC financial crises), various localities of New York
State began experiencing difficulty in marketing their securities. As a result,
certain localities, in addition to New York City, have experienced financial
difficulties leading to requests for State assistance. If future financial
difficulties cause agencies or localities to seek special State assistance, this
could adversely affect New York State's ability to pay its obligations.
Similarly, if financial difficulties of New York State result in New York City's
inability to meet its regular aid commitments or to provide further emergency
financing, issuers may default on their outstanding obligations, which would
affect the marketability of debt obligations of New York, its agencies and
municipalities such as the New York Municipal Obligations held by the Fund.
Reductions in Federal spending could materially and adversely affect
the financial condition and budget projections of New York State's localities.
Should localities be adversely affected by Federal cutbacks, they may seek
additional assistance from the State which might, in turn, have an adverse
impact on New York State's ability to maintain a balanced budget.
New York City and the Municipal Assistance Corporation In 1975, New York City
encountered severe financial difficulties which impaired the borrowing ability
of New York City, New York State, and the Authorities. New York City lost access
to public credit markets and was not able to sell debt to the public until 1979.
As a result of the City's financial difficulties, certain organizations
were established to provide financial assistance and oversee and review the
City's financing. These organizations continue to exercise various monitoring
functions relating to the City's financial position.
New York City has maintained a balanced since 1981, and has retired all
of its federally guaranteed debt. As a result of the City's success in balancing
its budget, certain restrictions imposed on the City by the New York Financial
Control Board (the "Control Board"), which was created in response to the City's
1975 fiscal crises, have been suspended. Those restrictions, including the
Control Board's power to approve or disapprove certain contracts, long-term and
short-term borrowings and the four-year financial plan of the City, will remain
suspended unless and until, among other things, there is a substantial threat of
an actual failure by New York City to pay debt service on its notes and bonds or
to keep its operating deficits below $100 million. Although the City has
maintained a balanced budget in recent years, the ability to balance future
budgets is contingent upon accrual versus expected levels of Federal and State
Aid and the effects of the economy on City revenues and services.
The City requires certain amounts of financing for seasonal and capital
spending purposes. The City has issued $2.4 billion in notes to finance the
City's current estimate of its seasonal financing needs during its 1995 fiscal
year. The City's capital financing program projects long-term financing
requirements of approximately $17.3 billion for the City's fiscal years 1995
through 1998 for the construction and rehabilitation of the City's
infrastructure and other fixed assets. The major capital requirements include
expenditures for the City's water supply system, sewage and waste disposal
systems, roads, bridges, mass transit, schools and housing.
New York cities and towns have experienced financial stress due to the
slow rate of recovery from the recession of 1992 and from cutbacks to local
assistance. The 1996-1997 State Financial Plan projects total receipts of the
State's General Fund to be $33.1 billion, an increase of $81 million from the
prior fiscal year. State General Fund disbursements and transfers will be $597
million above the level of disbursements in 1995-1996. Grants to local
governments anticipated to increase include school aid and are projected to
increase $640 million from the prior fiscal year. Social services, including
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Medicaid, welfare and other social services, will be cut $50 million, largely
due to a reduction in Medicaid spending.
Certain localities in addition to the City could have financial
problems which, if significant, could lead to requests for additional State
assistance during the State's 1996-97 fiscal years and thereafter. Fiscal
difficulties experienced by the City of Troy, for example, could result in State
actions to allocate State resources in amounts that cannot yet be determined. To
the extent the State is constrained by its financial condition, State assistance
to localities may be further reduced, compounding the serious fiscal constraints
already experienced by many local governments. Localities also face anticipated
and potential problems resulting from pending litigation (including challenges
to local property tax assessments), judicial decisions and socio-economic
trends.
The total indebtedness of all localities in the State, other than New
York City, was approximately $15.9 billion as of the localities' fiscal year
ending during 1994. Certain counties and other local governments have
encountered significant financial difficulties, including Nassau County and
Suffolk County (which each received approval by the legislature to issue deficit
notes). The State has imposed financial control on the City of New York from
1977 to 1986 and on the City of Yonkers in 1984, 1988 and 1989, and the City of
Troy commencing in 1995, under an appointed control board in response to fiscal
crises encountered by these municipalities.
Litigation Certain litigation pending against New York State, its subdivisions
and their officers and employees could have a substantial or long-term adverse
effect on State finances. Among the more significant of these lawsuits are those
that involve: (i) the validity and fairness of certain eighteenth century
agreements and treaties by which Oneida and Cayuga Indian tribes transferred
title to the State of approximately five million acres of land in central New
York; (ii) certain aspects of the State's Medicaid rates and regulations,
including reimbursements to providers of mandatory and optional Medicaid
services; (iii) the care and housing for individuals released from State mental
health facilities; (iv) the treatment provided at several State mental hygiene
facilities; (v) computation of reimbursement for services to disabled students;
(vi) education accommodations for learning-disabled students at a State
University; (vii) alleged employment discrimination by the State and its
agencies; (viii) the State's practice of reimbursing certain mental hygiene
patient-care expenses with the client's Social Security benefits; (ix) contract
and tort claims; (xi) retirement benefits payable to certain State and municipal
employees; (xii) State reimbursement of local governments for Medicaid
expenditures made for certain mentally disturbed patients; (xiii) the State's
possession of certain assets taken pursuant to the State's Abandoned Property
Law; (xiv) alleged responsibility of New York State officials to assist in
remedying racial segregation in the City of Yonkers; and (xv) liability for
maintenance of erosion barriers constructed along Long Island's shorelines.
INVESTMENT RESTRICTIONS
The Funds observe the following fundamental restrictions. The Funds may
not:
(1) Issue senior securities, except as permitted by paragraphs (2)
and (7) below. For purposes of this restriction, the issuance
of shares of beneficial interest in multiple classes or
series, the purchase or sale of options, futures contracts and
options on futures contracts, forward commitments, and
repurchase agreements entered into in accordance with the
Funds' investment policies, and the pledge, mortgage or
hypothecation of the Funds' assets within the meaning of
paragraph (3) below are not deemed to be senior securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed
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33-1/3% of the Fund's total assets (including the amount
borrowed) taken at market value. The Fund will not purchase
securities while borrowings are outstanding.
(3) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if
such pledging, mortgaging or hypothecating does not exceed 10%
of the Fund's total assets taken at market value.
(4) Act as an underwriter, except to the extent that in connection
with the disposition of Fund securities, the Fund may be
deemed to be an underwriter for purposes of the Securities Act
of 1933. A Fund may also participate as part of a group in
bidding for the purchase of Tax- Exempt Bonds directly from an
issuer in order to take advantage of the lower purchase price
available to members of such groups.
(5) Purchase or sell real estate or any interest therein, but this
restriction shall not prevent a Fund from investing in
Tax-Exempt Bonds secured by real estate or interests therein.
(6) Make loans, except that the Fund (1) may lend portfolio
securities in accordance with the Fund's investment policies
in an amount up to 33 1/3% of the Fund's total assets taken at
market value, (2) enter into repurchase agreements, and (3)
purchase all or a portion of an issue of debt securities, bank
loan participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities.
(7) Purchase or sell commodities or commodity contracts or puts,
calls or combinations of both, except options on securities,
securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency
and other financial instruments and options on such futures
contracts, forward commitments, interest rate swaps, caps and
floors, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's
investment policies.
(8) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after
such purchase, the value of its investments in such industry
would exceed 25% of its total assets taken at market value at
the time of each investment. (Tax- Exempt Bonds and securities
issued or guaranteed by the United States Government and its
agencies and instrumentalities are not subject to this
limitation.)
(9) Purchase securities of an issuer (other than the U.S.
Government, its agencies or instrumentalities), if such
purchase would cause more than 10 percent of the outstanding
voting securities of such issuer to be held by the Fund.
The Funds observe the following non-fundamental restrictions. The Funds
may not:
(1) Except as permitted by fundamental investment restriction (4)
above, participate on a joint or joint-and-several basis in
any securities trading account. The "bunching" of orders for
the sale or purchase of marketable Fund securities with other
accounts under the management of the Adviser to save
commissions or to average prices among them is not deemed to
result in a joint securities trading account.
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(2) Purchase securities on margin or make short sales unless by
virtue of its ownership of other securities, the Fund has the
right to obtain securities equivalent in kind and amount to
the securities sold short and, if the right is conditional,
the sale is made upon the same conditions, except that the
Fund may obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities.
(3) Purchase securities of an issuer (other than the U.S.
Government, its agencies or instrumentalities), if to the
Fund's knowledge, one or more of the Trustees or officers of
the Trust or directors or officers of the Adviser or any
investment management subsidiary of the Adviser individually
owns beneficially more than 0.5 percent and together own
beneficially more than 5 percent of the securities of such
issuer, nor will the Fund hold the securities of any such
issuer. For the purposes of this paragraph (3), each
government unit (state, county, city, for example) and each
subdivision, agency or instrumentality thereof, and each
multimember agency of which any of them is a member, shall be
considered a separate issuer.
(4) Purchase a security if, as a result, (i) more than 10% of the
Fund's total assets would be invested in the securities of
other investment companies, (ii) the Fund would hold more than
3% of the total outstanding voting securities of any one
investment company, or (iii) more than 5% of the Fund's total
assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the
investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in
the securities of open-end investment companies or (b) the
purchase of shares of any investment company in connection
with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company.
Subject to the above percentage limitations, the Fund may, in
connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John
Hancock Group of Funds. The Fund may not purchase the shares
of any closed-end investment company except in the open market
where no commission or profit to a sponsor or dealer results
from the purchase, other than customary brokerage fees.
(5) Except for investments which, in the aggregate, taken at cost
do not exceed 5 percent of the Fund's total assets taken at
market value, purchase securities unless the issuer thereof,
together with any predecessors, has a record of at least 3
years' continuous operation prior to the purchase. (This
limitation does not apply to securities that are issued or
guaranteed by the United States government and its agencies or
instrumentalities or are secured by the pledge of the faith,
credit, and taxing power of any entity authorized to issue
Tax-Exempt Bonds.)
(6) Purchase any security, including any repurchase agreement
maturing in more than seven days, which is subject to legal or
contractual delays in or restrictions on resale, or which is
not readily marketable, if more than 15% of the net assets of
the Fund, taken at market value, would be invested in such
securities.
In order to permit the sale of the Funds in certain states the Trustees
may, in their sole discretion, adopt restrictions on investment policies more
restrictive than those described above. Should the Trustees determine that a
restrictive policy is no longer in the best interest of a Fund and its
shareholders, the Fund may cease offering shares in the state involved and the
Trustees may revoke the restrictive policy. Moreover, if the states involved no
longer require any such restrictive policy, the Trustees may, at their
discretion, revoke the policy.
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The fundamental restrictions of a Fund may not be changed without
approval of a majority of the outstanding voting securities of the respective
Fund. As used in the Prospectus and this Statement of Additional Information,
such approval means the approval of the lesser of (i) the holders of 67 percent
or more of the shares represented at the meeting if the holders of more than 50
percent of the outstanding shares of the affected Fund are present in person or
by proxy, or (ii) the holders of more than 50 percent of the outstanding shares.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Trust is managed by the Trustees of the Trust who
elect officers who are responsible for the day-to-day operations of the Trust
and the Funds and who execute policies formulated by the Trustees. Several of
the officers and Trustees of the Trust are also officers and directors of the
Adviser or officers and Trustees of the Funds' principal distributor, John
Hancock Funds, Inc. ("John Hancock Funds").
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<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer (1, 2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("Berkeley
October 1944 Group"); Chairman, NM Capital
Management, Inc. ("NM Capital") and
John Hancock Advisers International
Limited ("Advisers International");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds"), John
Hancock Signature Services, Inc.
("Signature Services"), First
Signature Bank and Trust Company and
Sovereign Asset Management
Corporation ("SAMCorp."); Director,
John Hancock Freedom Securities
Corporation, John Hancock Insurance
Agency, Inc. ("Insurance Agency,
Inc."), John Hancock Capital
Corporation and New England/Canada
Business Council; Member, Investment
Company Institute Board of
Governors; Director, Asia Strategic
Growth Fund, Inc.; Trustee, Museum
of Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April,
1994).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
24
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law, Emeritus, Boston
Boston University University School of Law; Trustee,
Boston, Massachusetts Brookline Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, MA 02147 Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
25
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, VT 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director, Santa Fe Ingredients
8046 Mackenzie Court Company of California, Inc. and
Las Vegas, NV 89129 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing companies),
Uranium Resources, Inc.; President,
Stolar, Inc. (1987-1991); President,
Albuquerque Uranium Corporation
(1985-1992); Director,
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mines, Inc.
(1984-1987 and 1991-1995)
(management consultant).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
26
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell, Healer & Co.,
Venture Capital Partners (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD 20815 economic and business research);
December 1947 Director, Unisys Corp. and H.B.
Fuller Company.
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994) and Inco
March 1931 Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Director,
Boston, MA 02199 The Berkeley Group, John Hancock
April 1953 Funds, Signature Services (since
October 1996); Director, Advisers
International; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
27
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
Patti McGill Peterson Trustee (3) Cornell Institute of Public Affairs,
Cornell University Cornell University (since August
Institute of Public Affairs 1996); President Emeritus of Wells
364 Upson Hall College and St. Lawrence University;
Ithica, NY 14853 Director, Niagara Mohawk Power
May 1943 Corporation (electric utility) and
Security Mutual Life (insurance).
John W. Pratt Trustee (3) Professor of Business Administration
2 Gray Gardens East at Harvard University Graduate
Cambridge, MA 02138 School of Business Administration
September 1931 (since 1961).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
28
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, Signature Services, John
August 1937 Hancock Distributors, Inc.,
Insurance Agency, Inc., John Hancock
Subsidiaries, Inc., SAMCorp. and NM
Capital; Trustee, The Berkeley
Group; Director, JH Networking
Insurance Agency, Inc.; Director,
John Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993)
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bldg. (retired June 1990).
Lauderdale, FL 33308
November 1932
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, Signature
Services, SAMCorp., Insurance
Agency, Inc., Southeastern Thrift &
Bank Fund and NM Capital; Senior
Vice President, The Berkeley Group;
President, the Adviser (until
December 1994);
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
29
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds and Signature Services.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Counsel, John Hancock Mutual
Life Insurance Company.
Susan S. Newton Vice President and Secretary Vice President and Assistant
101 Huntington Avenue Secretary, the Adviser; Vice
Boston, MA 02199 President, John Hancock Funds,
March 1950 Signature Services; Secretary,
SAMCorp; Vice President, The
Berkeley Group, John Hancock
Distributors, Inc. (until 1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
</TABLE>
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
30
<PAGE>
As of November 29, 1996, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the outstanding shares of the Fund. On
such date, the following shareholders were the only record holders and
beneficial owners of 5% or more of the Fund:
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers or
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
<TABLE>
<CAPTION>
Class Number of shares Percentage of total
of beneficial interest outstanding shares of the
Name and Address of Shareholder Shares owned class of the Fund
- ------------------------------- ------ ----- -----------------
<S> <C> <C> <C>
Massachusetts
Wexford Clearing Corp FBO B 2,781.4680 46.40%
Eleanor Fiorello
7 Hampshire Circle
Woburn, MA 01801-5314
Nathaniel Rochester B 1,683.1950 28.08%
313 Washington St.
Duxbury, MA 02332-4543
Edward P. Boland B 1,194.0120 19.92%
Mary E. Boland JT Ten
87 Ridgeway Circle
Springfield, MA 01118-1129
Leonard Bono B 333.4240 5.56%
Patricia Bono JT Ten
7 Harold Street
Brockton, MA 02402-3439
New York B
Wexford Clearing Services Corp FBO B 8,596.9560 39.43%
Judith Ann Phetteplace
Box 162
Tribes Hill, NY 12177-0162
Wexford Clearing Services Corp FBO B 3,045.4140 13.97%
Ellison L. Elmer &
Phyllis H. Elmer JT Ten
226 Midland Ave.
Buffalo, NY 14223-2539
Wexford Clearing Services Corp FBO B 2,660.8720 12.20%
Mr. Louis I. Papineau &
Mrs. Dorothea L. Papineau JT Ten
424 College Heights, Apt. 3
Watertown, NY 13601-1847
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Class Number of shares Percentage of total
of beneficial interest outstanding shares of the
Name and Address of Shareholder Shares owned class of the Fund
- ------------------------------- ------ ----- -----------------
<S> <C> <C> <C>
New York
Bertram B. Campbell B 2,522.6040 11.57%
Delores A. Campbell JT Ten
2 Colonial Woods Lane
Building 2, Apt. A
Guilderland, NY 12084-3601
John Savello B 1,750.6970 8.03%
84-47 127th St
Kew Gardens, NY 11415-2826
Wexford Clearing Services Corp FBO B 1,444.9170 6.63%
Joseph Saborowski DPM &
Patricia Saborowski JT Ten
442 Guy Park Ave.
Amsterdam, NY 12010-1005
Laura Markowitz B 1,244.2410 5.71%
68 East Seamen
Freemont, NY 11580
</TABLE>
The following table provides information regarding the compensation
paid by the Funds and the other investment companies in the John Hancock Fund
Complex to the Independent Trustees for their services. The three
non-Independent Trustees, Messrs. Boudreau, Scipione and Ms. Hodsdon, and each
of the officers of the Trust are interested persons of the Adviser, are
compensated by the Adviser and receive no compensation from the Funds for their
services. The Trustees not listed below were not Trustees of the Fund during its
fiscal year ended August 31, 1996.
32
<PAGE>
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation From the
From the Funds1 funds and John Hancock Funds
Independent Trustees MA NY Complex to Trustees2
- -------------------- -- -- --------------------
<S> <C> <C> <C>
Dennis S. Aronowitz $ 811 $ 823 $ 72,450
Richard P. Chapman+ 830 842 75,200
William J. Cosgrove+ 811 823 72,450
Douglas Costle 29 30 75,350
Leland Erdahl 25 25 72,350
Richard Farrell 29 30 75,350
Gail D. Fosler 766 778 68,450
William Glavin+ 25 25 72,250
Bayard Henry* 751 762 23,700
Dr. John Moore 25 25 68,350
Patti McGill Peterson 25 25 72,100
John Pratt 25 25 72,350
Edward J. Spellman 816 828 73,950
------ ------ --------
TOTAL $4,968 $5,041 $894,300
</TABLE>
1 Compensation for the fiscal year ended August 31, 1996.
2 The total compensation paid by the John Hancock Funds Complex to the
Independent Trustees is as of December 31, 1996. As of this date there were
sixty-eight funds in the John Hancock Fund Complex, of which each of the
Independent Trustees served 36.
* Mr. Henry retired from his position as a Trustee effective April 26, 1996.
+ As of November 30, 1996, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for
Mr. Chapman was $63,475, Mr. Cosgrove was $132,535 and for Mr. Glavin was
$108,590 under the John Hancock Group of Funds Deferred Compensation Plan
for Independent Trustees.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and presently has more than $19 billion in
assets under management in its capacity as investment adviser to the Funds and
other mutual funds and publicly traded investment companies in the John Hancock
group of funds having a combined total of approximately 1,080,000 shareholders.
The Adviser is an affiliate of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries high ratings from Standard
and Poor's and A.M. Best's. Founded in 1862, the Life Company has been serving
clients for over 130 years.
33
<PAGE>
Securities held by a Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Securities may be held by, or be appropriate investments for, a Fund as
well as such other clients or funds. Because of different investment objectives
or other factors, a particular security may be bought for one or more funds or
clients when one or more are selling the same security. If opportunities for
purchase or sale of securities by the Adviser for a Fund or for other funds or
clients for which the Adviser renders investment advice arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser or its affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
The Trust, on behalf of each Fund, has entered into investment advisory
agreements (collectively, the "Advisory Agreements"), each dated as of July 1,
1996, between the Trust and the Adviser. Pursuant to the respective Advisory
Agreements, the Adviser agreed to act as investment adviser and manager to the
Funds. As manager and investment adviser, the Adviser will: (a) furnish
continuously an investment program for the Funds and determine, subject to the
overall supervision and review of the Board of Trustees, which investments
should be purchased, held, sold or exchanged, and (b) provide supervision over
all aspects of the Funds' operations except those which are delegated to a
custodian, transfer agent or other agent.
As compensation for its services under the Advisory Agreements, the
Adviser receives from each Fund a fee computed and paid monthly based on a
stated percentage of the respective Fund's average daily net assets as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250 million 0.500%
Next $250 million 0.450%
Next $500 million 0.425%
Next $250 million 0.400%
Amounts over $1,250,000,000 0.300%
Each Fund bears all costs of its organization and operation, including
expenses of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plans of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Funds (including an allocable portion of the cost of the
Adviser's employees rendering such services to the subject Fund); the
compensation and expenses of Trustees who are not otherwise affiliated with the
Trust, the Funds, the Adviser or any of their affiliates; expenses of Trustees'
and shareholders' meetings; trade association memberships; insurance premiums;
and any extraordinary expenses.
The Advisory Agreements were approved on March 5, 1996 by all of the
Trustees, including all of the Trustees who are not parties to the Advisory
Agreements or "interested persons" of any such party. The shareholders of the
Funds also approved their respective Fund's Advisory Agreement on June 26, 1996.
Each Advisory Agreement will continue in effect from year to year, provided that
34
<PAGE>
continuance is approved annually both (i) by the holders of a majority of the
outstanding voting securities of each Fund or by the
Trustees, and (ii) by a majority of the Trustees who are not parties to the
Advisory Agreements or "interested persons" of any such party. Each Advisory
Agreement may be terminated on 60 days written notice by any party and will
terminate automatically if assigned.
From time to time, the Adviser may reduce its fee or make other
arrangements to limit a Fund's expenses to a specified percentage of its average
daily net assets. The Adviser retains the right to re-impose a fee and recover
any other payments to the extent that, at the end of any fiscal year, a Fund's
annual expenses fall below this limit.
For the year ended August 31, 1994 as a result of the expense
limitations described in the Prospectus, the Adviser did not receive a fee from
either Fund. For the year ended August 31, 1995, the management fee paid by the
Massachusetts and New York Funds to the Adviser amounted to $62,994 and $57,450,
respectively. For the year ended August 31, 1996, the management fee paid by the
Massachusetts and New York Funds to the Adviser amounted to $39,064 and $48,077
respectively.
Pursuant to the Advisory Agreements, the Adviser is not liable to the
Trust or its shareholders for any error of judgment or mistake of law or for any
loss suffered by the Trust in connection with the matters to which the contract
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
reckless disregard by the Adviser of its obligations and duties under the
management contract.
Under the investment management contract, the Trust and each Fund may
use the name "John Hancock" or any name derived from or similar to it only for
so long as the contract or any extension, renewal or amendment thereof remains
in effect. If the contract is no longer in effect, the Trust (to the extent that
it lawfully can) will cease to use such a name or any other name indicating that
it is advised by or otherwise connected with the Adviser. In addition, the
Adviser or the Life Company may grant the non-exclusive right to use the name
"John Hancock" or any similar name to any other corporation or entity, including
but not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
Accounting and Legal Services Agreement The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Funds with certain tax, accounting
and legal services. For the fiscal year ended August 31, 1996, the Massachusetts
Tax Free Income and New York Tax Free Income Fund paid the Adviser $6,958 and
$7,059, for services respectively.
DISTRIBUTION CONTRACT
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares, at the time of sale or, in the case of Class B shares, on a
deferred basis. The sales charges are discussed further in the Prospectus.
35
<PAGE>
The Fund's Trustees adopted Distribution Plans with respect to Class A
and Class B shares (the "Plans") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% and 1.00%, respectively, of the
Fund's daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. In each case, up to 0.25% is for service
expenses and the remaining amount is for distribution expenses. The distribution
fees will be used to reimburse John Hancock Funds for their distribution
expenses, including but not limited to: (i) initial and ongoing sales
compensation to Selling Brokers and others (including affiliates of John Hancock
Funds) engaged in the sale of Fund shares; (ii) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund shares;
and (iii) with respect to Class B shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers for providing personal and account maintenance services to shareholders.
In the event the John Hancock Funds is not fully reimbursed for payments or
expenses they incur under the Class A Plan, these expenses will not be carried
beyond twelve months from the date they were incurred. Unreimbursed expenses
under the Class B Plan will be carried forward together with interest on the
balance of these unreimbursed expenses. The Fund does not treat unreimbursed
expenses under the Class B Plan as a liability of the Fund because the Trustees
may terminate Class B Plan at any time. For the fiscal year ended August 31,
1996, an aggregate of $938,714 of distribution expenses or 3.59% of the average
net assets of the Class B shares of the Fund, was not reimbursed or recovered by
John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1
fees in prior periods.
The Plans were approved by a majority of the voting securities of the
Fund. The Plans and all amendments were approved by the Trustees, including a
majority of the Trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (the
"Independent Trustees"), by votes cast in person at meetings called for the
purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provide
the Fund with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as
their continuance is approved at least annually by a majority of both the
Trustees and Independent Trustees. The Plans provide that they may be terminated
without penalty, (a) by vote of a majority of the Independent Trustees, (b) by a
vote of a majority of the Fund's outstanding shares of the applicable class upon
60 days' written notice to John Hancock Funds, and (c) automatically in the
event of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each plan provides, that
no material amendment to the Plans will, in any event, be effective unless it is
approved by a vote of a majority of the Trustees and the Independent Trustees of
the Fund. The holders of Class A and Class B shares have exclusive voting rights
with respect to the Plan applicable to their respective class of shares. In
adopting the Plans, the Trustees concluded that, in their judgment, there is a
reasonable likelihood that the Plans will benefit the holders of the applicable
class of shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund
will not be used to pay the expenses incurred with respect to any other class of
shares of the Fund; provided, however, that expenses attributable to the Fund as
a whole will be allocated, to the extent permitted by law, according to a
formula based upon gross sales dollars and/or average daily net assets of each
such class, as may be approved from time to time by vote of a majority of
36
<PAGE>
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the fiscal year ended August 31, 1996, the Funds paid John
Hancock Funds the following amounts of expenses with respect to the Class A and
Class B shares of the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Interest Carrying
Prospectuses to Compensation to Expense of or Other Finance
Advertising New Shareholders Selling Brokers Distributors Charges
----------- ---------------- --------------- ------------ -------
<S> <C> <C> <C> <C> <C>
New York Fund $21,596 $2,245 $107,395 $38,470 $0
Massachusetts Fund $22,099 $2,605 $105,406 $37,358 $0
</TABLE>
Each of the Plans provides that it will continue in effect only so long
as its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans provides that it may be
terminated as to any Fund without penalty (a) by vote of a majority of the
Independent Trustees, (b) upon 60 days' written notice to John Hancock Funds of
the affected Fund and (c) automatically in the event of assignment. They further
provide that they may not be amended to increase the maximum amount of the fees
for the services described therein without the approval of a majority of the
outstanding voting securities of the subject class of the affected Fund. Each of
the Plans also provides that no material amendment to the Plan will, in any
event, be effective unless it is approved by a vote of a majority of the
Trustees and of the Independent Trustees of the Trust. The holders of Class A
and Class B shares of each Fund have exclusive voting rights with respect to the
Plan applicable to their respective class of shares. In adopting the Plans the
Trustees concluded that, in their judgment, there is a reasonable likelihood
that each Plan will benefit the holders of the applicable class of shares of the
applicable Fund.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of Fund shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations
furnished by a principal market maker or a pricing service, both of which
generally utilize electronic data processing techniques to determine valuations
for normal institutional size trading units of debt securities without exclusive
reliance upon quoted prices. Short-term debt investments which have a remaining
maturity of 60 days or less are generally valued at amortized cost which
approximates market value. If market quotations are not readily available or if
in the opinion of the Adviser any quotation or price is not representative of
true market value, the fair value of the security may be determined in good
faith in accordance with procedures approved by the Trustees.
The NAV for each fund and class is determined each business day at the
close of regular trading on the New York Stock Exchange (typically 4:00 p.m.
Eastern Time) by dividing a class' net assets by the number of its shares
outstanding.
37
<PAGE>
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charge applicable to purchases of Class A shares of a Fund is
described in the Prospectus. Methods of obtaining a reduced sales charge with
respect to purchases of Class A shares referred to generally in the Prospectus
are described in detail below.
Combined Purchases. For each Fund, in calculating the sales charge applicable to
purchases of Class A shares made at one time, the purchases will be combined if
made by (a) an individual, his spouse and their children under the age of 21,
purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account, and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from either a
representative of John Hancock Signature Services, Inc. ("Signature Services")
or a representative of a Selling Broker.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o Any state, county or any instrumentality, department,
authority, or agency of these entities that is prohibited by
applicable investment laws from paying a sales charge or
commission when it purchases shares of any registered
investment management company.
o A bank, trust company, credit union, savings institution or
other depository institution, its trust department or common
trust funds if it is purchasing $1 million or more for
non-discretionary customers or accounts.
o A Trustee or officer of the Trust; a Director or officer of
the Adviser and its affiliates or Selling Brokers; employees
or sales representatives of any of the foregoing; retired
officers, employees or Directors of any of the foregoing; a
member of the immediate family (spouse, children,
grandchildren, mother, father, sister, brother, mother-in-law,
father-in-law) of any of the foregoing; or any fund, pension,
profit sharing or other benefit plan for the individuals
described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with
John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products or services made
available to their clients.
o A former participant in an employee benefit plan with John
Hancock Funds, when he or she withdraws from his or her plan
and transfers any or all of his or her plan distributions
directly to a Fund.
o A member of an approved affinity group financial services
plan.
o A member of a class action lawsuit against insurance companies
who is investing settlement proceeds.
o Existing full service clients of the Life Company who were
group annuity contract holders as of September 1, 1994, and
participant directed defined contribution plans with at least
100 eligible employees at the inception of the Fund account,
may purchase shares with no initial sales charge. However, if
38
<PAGE>
the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be
imposed at the following rate:
Amount Invested CDSC Rate
- --------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares of a Fund may also be purchased without an initial sales
charge in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding companies.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of a reduced sales
charge by taking into account not only the amount then being invested but also
the purchase price or current account value of the Class A shares already held
by such person.
Combination Privilege. For each Fund reduced sales charges (according to the
schedule set forth in the Prospectus) also are available to an investor based on
the aggregate amount of his concurrent and prior investments in Class A shares
of the Fund and shares of all other John Hancock funds which carry a sales
charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
Such an investment (including accumulations and combinations) must aggregate
$100,000 or more invested during a period of thirteen months from the date of
the LOI or from a date within ninety days prior thereto, upon written request to
Signature Services. The sales charge applicable to all amounts invested under
the LOI is computed as if the aggregate amount intended to be invested had been
invested immediately. If such aggregate amount is not actually invested, the
difference in the sales charge actually paid and the sales charge payable had
the LOI not been in effect is due from the investor. However, for the purchases
actually made within the specified period the sales charge applicable will not
be higher than that which would have applied (including accumulations and
combinations) had the LOI been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient
Class A shares (approximately 5% of the aggregate) to make up any difference in
sales charges on the amount intended to be invested and the amount actually
invested, until such investment is completed within the specified period, at
which time the escrow shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. An LOI does not constitute a binding commitment by an
investor to purchase or by the subject Fund to sell any additional Class A
shares and may be terminated at any time.
39
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per
share without the imposition of an initial sales charge so that the Funds will
receive the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a CDSC at the rates set forth in the
Prospectus as a percentage of the dollar amount subject to the CDSC. The charge
will be assessed on an amount equal to the lesser of the current market value or
the original purchase cost of the Class B shares being redeemed. Accordingly, no
CDSC will be imposed on increases in account value above the initial purchase
prices, including increases in account value derived from reinvestment of
dividends or capital gains distributions. No CDSC will be imposed on shares
derived from reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution
plans administered by Investor Services or the Life Company that had more than
100 eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. Solely for purposes of determining this number,
all payments during a month will be aggregated and deemed to have been made on
the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation
will be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six-year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the six-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. However, you cannot redeem appreciation value only in order to
avoid a CDSC.
When requesting a redemption for a specific dollar amount please
indicate if you require the proceeds to equal the dollar amount requested. If
not indicated, only the specified dollar amount will be redeemed from your
account and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares of a Fund at $10 per share. The second
year after your purchase, your investment's net asset value per share has
increased by $2 to $12, and you have gained 10 additional shares through
dividend reinvestment. If you redeem 50 shares at this time your CDSC will be
calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
40
<PAGE>
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Funds in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees enables each Fund to sell its Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares of each Fund that are
subject to a CDSC, unless indicated otherwise, in the circumstances defined
below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Investor
Services. (Please note, this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b),
401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other qualified
plans as described in the Code) unless otherwise noted.
* Redemptions made to effect mandatory distributions under the Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under Section
401(a) of the Code (such as 401(k), Money Purchase Pension Plans and
Profit-Sharing Plans).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
41
<PAGE>
<TABLE>
<CAPTION>
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Type of Distribution 401(a) Plan 403(b) 457 IRA, IRA Non-Retirement
(401(k), MPP, Rollover
PSP)
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account value
distributions annually in
or 12% of periodic
account value payments
annually in
periodic
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of
and 70 1/2 Expectancy or account value
12% of account annually in
value annually periodic
in periodic payments
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of
annuity annuity annuity account value
payments (72t) payments (72t) payments (72t) annually in
or 12% of or 12% of or 12% of periodic
account value account value account value payments
annually in annually in annually in
periodic periodic periodic
payments. payments. payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Loans Waived Waived N/A N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Hardships Waived Waived Waived N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Return of Excess Waived Waived Waived Waived N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you
must notify Investor Services at the time you make your redemption. The waiver
will be granted once Investor Services has confirmed that you are entitled to
the waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, each Fund has the right to pay
the redemption price of its shares in whole or in part in portfolio securities
as prescribed by the Trustees of the Trust. When the shareholder sells portfolio
securities received in this fashion the shareholder would incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Funds
have, however, elected to be governed by Rule 18f-1 under the Investment Company
Act. Under that rule, each Fund must redeem its shares for cash except to the
extent that the redemption payments to any shareholder during any 90-day period
would exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
42
<PAGE>
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. Each Fund permits exchanges of its shares of any class for
shares of the same class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. Each of the Funds permits the establishment of a
Systematic Withdrawal Plan. Payments under this plan represent proceeds arising
from the redemption of a Fund's shares. Since the redemption price of the shares
of a Fund may be more or less than the shareholder's cost, depending upon the
market value of the securities owned by the Fund at the time of redemption, the
distribution of cash pursuant to this plan may result in recognition of gain or
loss for purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional Class A or
Class B shares of the Fund could be disadvantageous to a shareholder because of
the initial sales charge payable on such purchases of Class A shares and the
CDSC imposed on redemptions of Class B shares and because redemptions are
taxable events. Therefore, a shareholder should not purchase Fund shares at the
same time as a Systematic Withdrawal Plan is in effect. The Funds reserve the
right to modify or discontinue the Systematic Withdrawal Plan of any shareholder
on 30 days' prior written notice to such shareholder, or to discontinue the
availability of such plan in the future. The shareholder may terminate the plan
at any time by giving proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). The program, as it relates to
automatic investment checks, is subject to the following conditions:
The investment will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Signature Services without prior notice
if any check is not honored by your bank. The bank shall be under no obligation
to notify the shareholder as to the non-payment of any check.
The program may be discontinued by the shareholder either by calling
Signature Services or upon written notice to Signature Services which is
received at least five (5) business days prior to the due date of any
investment.
Reinvestment Privilege. A shareholder who has redeemed shares of a Fund may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
that Fund or in any of the other John Hancock mutual funds, subject to the
minimum investment limit in any fund. Each of the Funds may modify or terminate
the reinvestment privilege at any time.
No sales charge will apply to proceeds from the redemption of Class A
shares of a Fund reinvested in Class A shares of any of the other John Hancock
funds which are otherwise subject to a sales charge. If a CDSC was paid upon a
redemption, you may reinvest in the same class of shares from which the
redemption was made within 120 days at net asset value. Your account will be
credited with the amount of the CDSC previously charged and the reinvested
shares will continue to be subject to the CDSC. For the purpose of calculating
the CDSC, the holding period of the shares acquired through reinvestment will
include the holding period of the redeemed shares.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of shares will be treated as described under the heading "Tax
Status."
43
<PAGE>
DESCRIPTION OF THE FUNDS' SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Funds. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Funds, without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized the issuance of two
series of shares -- the Massachusetts Fund and the New York Fund. In addition,
the Trustees have authorized the issuance of two classes of shares of each
series, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregate net assets attributable to that class of the Fund.
Holders of Class A shares and Class B shares have certain exclusive voting
rights on matters relating to their respective distribution plans. The different
classes of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Funds, if any, with respect to each class of
shares will be calculated in the same manner, at the same time and on the same
day and will be in the same amount, except for differences resulting from the
facts that (i) the distribution and service fees relating to Class A and Class B
shares will be borne exclusively by that class (ii) Class B shares will pay
higher distribution and service fees than Class A shares and (iii) each of Class
A and Class B shares will bear any other class expenses properly allocable to
that class of shares, subject to the conditions the Internal Revenue Service
imposes with respect to the multiple- class structures. Similarly, the net asset
value per share may vary depending on whether Class A or Class B shares are
purchased.
In the event of liquidation, shareholders of each class are entitled to
share pro rata in the net assets of the subject Fund available for distribution
to these shareholders. Shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
When issued, shares are fully paid and non-assessable by the Trust, except as
set forth below.
Unless otherwise required by the Investment Company Act or the
Declaration of Trust, the Trust has no intention of holding annual meetings of
shareholders. Trust shareholders may remove a Trustee by the affirmative vote of
at least two-thirds of the Trust's outstanding shares and the Trustees shall
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. However, the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Funds. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder of that Fund held
personally liable by reason of being or having been a shareholder. The
Declaration of Trust also provides that no series of the Trust shall be liable
for the liabilities of any other series. Furthermore, no fund included in the
Fund's prospectus shall be liable for the liabilities of any other John Hancock
Fund. Liability is therefor limited to circumstances in which the subject Fund
itself would be unable to meet its obligations, and the possibility of this
occurrence is remote.
44
<PAGE>
In order to avoid conflicts with portfolio trades for the Funds, the
Adviser and the Trust have adopted extensive restrictions on personal securities
trading by personnel of the Adviser and its affiliates. Some of these
restrictions are: pre- clearance for all personal trades and a ban on the
purchase of initial public offerings, as well as contributions to specified
charities of profits on securities held for less than 91 days. These
restrictions are a continuation of the basic principle that the interests of the
Funds and their shareholders come first.
A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
TAX STATUS
Federal Income Taxation. Each Fund is treated as a separate entity for
accounting and tax purposes and each has qualified and elected to be treated as
a "regulated investment company" under Subchapter M of the Code and intends to
so qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, each Fund will not be
subject to Federal income tax on taxable and tax-exempt income (including net
realized capital gains, if any) which is distributed to shareholders in
accordance with the timing requirements of the Code.
Each Fund will be subject to a four percent non-deductible Federal
excise tax on certain taxable amounts not distributed (and not treated as having
been distributed) on a timely basis in accordance with annual minimum
distribution requirements. Each Fund intends under normal circumstances to seek
to avoid or minimize liability for such tax by satisfying such distribution
requirements.
Each Fund expects to qualify to pay "exempt-interest dividends," as
defined in the Code. To qualify to pay exempt-interest dividends, a Fund must,
at the close of each quarter of its taxable year, have at least 50% of the value
of its total assets invested in municipal securities whose interest is excluded
from gross income under Section 103(a) of the Code. In purchasing municipal
securities, the Funds intend to rely on opinions of nationally recognized bond
counsel for each issue as to the excludability of interest on such obligations
from gross income for federal income tax purposes. A Fund will not undertake
independent investigations concerning the tax-exempt status of such obligations,
nor does it guarantee or represent that bond counsels' opinions are correct.
Bond counsels' opinions will generally be based in part upon covenants by the
issuers and related parties regarding continuing compliance with federal tax
requirements. Tax laws enacted principally during the 1980's not only had the
effect of limiting the purposes for which tax-exempt bonds could be issued and
reducing the supply of such bonds, but also increased the number and complexity
of requirements that must be satisfied on a continuing basis in order for bonds
to be and remain tax-exempt. If the issuer of a bond or a user of a
bond-financed facility fails to comply with such requirements at any time,
interest on the bond could become taxable, retroactive to the date the
obligations was issued. In that event, a portion of a Fund's distributions
attributable to interest the Fund received on such bond for the current year and
for prior years could be characterized or recharacterized as taxable income. The
availability of tax-exempt obligations and the value of a Fund's portfolio may
be affected by restrictive federal income tax legislation enacted in recent
years or by similar future legislation.
If a Fund satisfies the applicable requirements, dividends paid by the
Fund which are attributable to tax exempt interest on municipal securities and
designated by the Fund as exempt-interest dividends in a written notice mailed
to its shareholders within sixty days after the close of its taxable year may be
treated by shareholders as items of interest excludable from their gross income
under Section 103(a) of the Code. The recipient of tax-exempt income is required
to report such income on his federal income tax return. However, a shareholder
is advised to consult his tax adviser with respect to whether exempt-interest
dividends retain the exclusion under Section 103(a) if such shareholder would be
treated as a "substantial user" under Section 147(a)(1) with respect to some or
45
<PAGE>
all of the tax-exempt obligations held by a Fund. The Code provides that
interest on indebtedness incurred or continued to purchase or carry shares of a
Fund is not deductible to the extent it is deemed related to the Fund's
exempt-interest dividends. Pursuant to published guidelines, the Internal
Revenue Service may deem indebtedness to have been incurred for the purpose of
purchasing or carrying shares of a Fund even though the borrowed money may not
be directly traceable to the purchase of shares.
Although all or a substantial portion of the dividends paid by a Fund
may be excluded by the Fund's shareholders from their gross income for federal
income tax purposes, each Fund may purchase specified private activity bonds,
the interest from which (including the Portfolio's distributions attributable to
such interest) may be a preference item for purposes of the federal alternative
minimum tax (both individual and corporate). All exempt-interest dividends from
a Fund, whether or not attributable to private activity bond interest, may
increase a corporate shareholder's liability, if any, for corporate alternative
minimum tax and will be taken into account in determining the extent to which a
shareholder's Social Security or certain railroad retirement benefits are
taxable.
Distributions other than exempt-interest dividends from a Fund's
current or accumulated earnings and profits ("E&P") will be taxable under the
Code for investors who are subject to tax. Taxable distributions include
distributions from a Fund that are attributable to (i) taxable income, including
but not limited to taxable bond interest, recognized market discount income,
original issue discount income accrued with respect to taxable bonds, income
from repurchase agreements, income from securities lending, income from dollar
rolls, income from interest rate swaps, caps, floors and collars, and a portion
of the discount from certain stripped tax- exempt obligations or their coupons
or (ii) capital gains from the sale of securities or other investments
(including from the disposition of rights to when-issued securities prior to
issuance) or from options and futures contracts. If these distributions are paid
from a Fund's "investment company taxable income," they will be taxable as
ordinary income; and if they are paid from a Fund's "net capital gain," they
will be taxable as long-term capital gain. (Net capital gain is the excess (if
any) of net long-term capital gain over net short-term capital loss, and
investment company taxable income is all taxable income and capital gains or
losses, other than those gains and losses included in computing net capital
gain, after reduction by deductible expenses.) Some distributions from
investment company taxable income and/or net capital gain may be paid in January
but may be taxable to shareholders as if they had been received on December 31
of the previous year. The tax treatment described above will apply without
regard to whether distributions are received in cash or reinvested in additional
shares of a Fund.
Distributions, if any, in excess of E&P will constitute a return of
capital under the Code, which will first reduce an investor's federal tax basis
in Fund shares and then, to the extent such basis is exceeded, will generally
give rise to capital gains. Amounts that are not allowable as a deduction in
computing taxable income, including expenses associated with earning tax-exempt
interest income, do not reduce a Fund's current earnings and profits for these
purposes. Consequently, the portion, if any, of a Fund's distributions from
gross tax-exempt interest income that exceeds its net tax-exempt interest would
be taxable as ordinary income to the extent of such disallowed deductions even
though such excess portion may represent an economic return of capital.
Shareholders who have chosen automatic reinvestment of their distributions will
have a federal tax basis in each share received pursuant to such a reinvestment
equal to the amount of cash they would have received had they elected to receive
the distribution in cash, divided by the number of shares received in the
reinvestment.
After the close of each calendar year, each Fund will inform
shareholders of the federal income tax status of its dividends and distributions
for such year, including the portion of such dividends that qualifies as
tax-exempt and the portion, if any, that should be treated as a tax preference
item for purposes of the federal alternative minimum tax. Shareholders who have
46
<PAGE>
not held shares of a Fund for its full taxable year may have designated as
tax-exempt or as a tax preference item a percentage of distributions which is
not equal to the actual amount of tax-exempt income or tax preference item
income earned by the Fund during the period of their investment in the Fund.
The amount of a Fund's realized capital gains, if any, in any given
year will vary depending upon the Adviser's current investment strategy and
whether the Adviser believes it to be in the best interest of the Fund to
dispose of Fund securities and/or engage in options or futures transactions that
will generate capital gains. At the time of an investor's purchase of a Fund's
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's holdings. Consequently, subsequent
distributions of these shares from such appreciation may be taxable to such
investor even if the net asset value of the investor's shares is, as a result of
the distributions, reduced below the investor's cost for such shares, and the
distributions (or portions thereof) in reality represent a return of a portion
of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of the
exchange privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing shares of a Fund cannot be taken into account for purposes of
determining gain or loss on the redemption or exchange of such shares within 90
days after their purchase to the extent shares of the Fund or another John
Hancock Trust are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This charge will result in
an increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the same Fund
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to automatic dividend reinvestments. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Any loss realized upon the redemption of shares with a tax holding
period of six months or less will be disallowed to the extent of all
exempt-interest dividends paid with respect to such shares and, to the extent in
excess of the amount disallowed, will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares. Although its present intention is to distribute, at
least annually, all net capital gain, if any, each Fund reserves the right to
retain and reinvest all or any portion of the excess of net capital gain over
net short-term capital loss in any year. A Fund will not, in any event,
distribute net capital gain realized in any year to the extent that a capital
loss is carried forward from prior years against such gain. To the extent such
excess was retained and not exhausted by the carryforward of prior year capital
losses, it would be subject to federal income tax in the hands of the Fund. Upon
proper designation of this amount by the Fund, each shareholder would be treated
for federal income tax purposes as if the Fund had distributed to him on the
last day of its taxable year his pro rata share of such excess, and he had paid
his pro rata share of the taxes paid by the Fund and reinvested the remainder in
the Fund. Accordingly, each shareholder would (a) include his pro rata share of
such excess as long-term capital gain in his return for his taxable year in
which the last day of the Fund's taxable year falls, (b) be entitled either to a
tax credit on his return for, or to a Trust of, his pro rata share of the taxes
paid by the Fund and (c) be entitled to increase the adjusted tax basis for his
shares in the Fund by the difference between his pro rata share of each excess
and his pro rata share of such taxes.
For Federal income tax purposes, each of the Funds is permitted to
carryforward a net capital loss in any year to offset its own net capital gains,
if any, during the eight years following the year of the loss. To the extent
subsequent capital gains are offset by such losses, they would not result in
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federal income tax liability to the Fund and, as noted above, would not be
distributed to shareholders. The Massachusetts Fund has a realized capital loss
carryforward of $567,282, of this amount $2,465 expires August 31, 2002,
$396,511 expires August 31, 2003 and $168,306 expires August 31, 2004. The New
York Fund has a realized capital loss carryforward of $347,989 of this amount
$77,663 expires August 31, 2003 and $270,326 expires August 31, 2004.
Each Fund is required to accrue income on any debt securities that have
more than a de minimis amount of original issue discount (or debt securities
acquired at a market discount, if the Fund elects to include market discount in
income currently) prior to the receipt of the corresponding cash payments. The
mark to market rules applicable to certain options and futures contracts may
also require a Fund to recognize gain without a concurrent receipt of cash.
However, each Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, a Fund may have to dispose of its
Fund securities under disadvantageous circumstances to generate cash, or may
have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
Each Fund will be required to report to the Internal Revenue Service
(the "IRS") all taxable distributions to shareholders, as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt recipients, i.e., corporations and certain other investors distributions
to which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. However, a Fund's
taxable distributions may not be subject to backup withholding if the Fund can
reasonably estimate that at least 95% of its distributions for the year will be
exempt-interest dividends. The Funds may refuse to accept an application that
does not contain any required taxpayer identification number or certification
that the number provided is correct. If the backup withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in shares, will be reduced by the amounts required to be withheld.
Any amounts withheld may be credited against a shareholder's U.S. federal income
tax liability. Investors should consult their tax advisers about the
applicability of the backup withholding provisions.
The Funds may invest in debt obligations that are in the lower rating
categories or are unrated, including debt obligations of issuers not currently
paying interest as well as issuers who are in default. Investments in debt
obligations that are at risk of or in default present special tax issues for the
Funds. Tax rules are not entirely clear about issues such as when the Funds may
cease to accrue interest, original issue discount, or market discount, when and
to what extent deductions may be taken for bad debts or worthless securities,
how payments received on obligations in default should be allocated between
principal and income, and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by the Funds, in
the event they invest in such securities, in order to seek to ensure that they
distribute sufficient income to preserve their status as regulated investment
companies and seek to avoid becoming subject to Federal income or excise tax.
Dividends and capital gain distributions from a Fund will not qualify
for the dividends-received deduction for corporate shareholders.
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Limitations imposed by the Code on regulated investment companies like
the Funds may restrict each Fund's ability to enter into futures and options
transactions.
Certain options and futures transactions undertaken by a Fund may cause
the Fund to recognize gains or losses from marking to market even though its
positions have not been sold or terminated and affect the character as long-term
or short-term and timing of some capital gains and losses realized by the Fund.
Also, certain of a Fund's losses on its transactions involving options or
futures contracts and/or offsetting or successor Fund positions may be deferred
rather than being taken into account currently in calculating the Fund's gains.
Some of these transactions may also cause a Fund to dispose of investments
sooner than would otherwise have occurred. These transactions may therefore
affect the amount, timing and character of the Fund's distributions to
shareholders. The Funds will take into account the special tax rules (including
consideration of available elections) applicable to options and futures
contracts in order to seek to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. Dividends (including exempt-interest dividends), capital gain
distributions, and ownership of or gains realized on the redemption (including
an exchange) of Fund shares may also be subject to state and local taxes, except
as described below under "State Income Tax Information." The discussion does not
address special tax rules applicable to certain types of investors, such as
banks, insurance companies, or tax-exempt entities. Shareholders should always
consult their own tax advisers as to the Federal, state or local tax
consequences of ownership of shares of a Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their Fund investment is effectively connected will be subject to U.S. Federal
income tax treatment different from that described above. These investors may be
subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from a Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from a
Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in a Fund.
STATE INCOME TAX INFORMATION
MASSACHUSETTS TAXES
The Funds are not subject to Massachusetts corporate excise or
franchise taxes. Provided that each Fund qualifies as a regulated investment
company under the Code, it will also not be required to pay any Massachusetts
income tax.
To the extent that exempt-interest dividends paid to shareholders by
the Massachusetts Fund are derived from interest on tax-exempt bonds of the
Commonwealth of Massachusetts and its political subdivisions or Puerto Rico, the
U.S. Virgin Islands or Guam and are properly designated as such, these
distributions will be exempt from Massachusetts personal income tax. For
Massachusetts personal income tax purposes, dividends from the Fund's taxable
net investment income, tax-exempt income from obligations not described in the
preceding sentence, and short-term capital gains, if any, will generally be
taxable as ordinary income, whether received in cash or additional shares.
However, any dividends that are properly designated as attributable to interest
the Fund receives on direct U.S. Government obligations will not be subject to
Massachusetts personal income tax. Dividends properly designated as from net
capital gain are generally taxable as long-term capital gains, regardless of how
long shareholders have held their Fund shares. However, a portion of such a
long-term capital gains distribution will be exempt from Massachusetts personal
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income tax if it is properly designated as attributable to gains realized on the
sale of certain tax-exempt bonds issued pursuant to Massachusetts statutes that
specifically exempt such gains from Massachusetts taxation. Dividends from
investment income (including exempt- interest dividends) and from capital gains
will be subject to, and shares of the Fund will be included in the net worth of
intangible property corporations for purposes of, the Massachusetts corporation
excise tax if received by a corporation subject to such tax. Long-term capital
gains from the sale of a capital asset are generally taxed on a sliding scale at
rates ranging from 5% to 0%, with the applicable tax rate declining as the tax
holding period of the asset (beginning on the later of January 1, 1995 or the
date of actual acquisition) increases from more than one year to more than six
years. Massachusetts resident individuals, as well as estates or personal trusts
subject to Massachusetts income taxation, are subject to this tax structure with
respect to redemption, exchanges or other dispositions of their shares of the
Massachusetts Fund in their taxable years beginning after 1995, assuming that
they hold their shares of the Massachusetts Fund as capital assets for purposes
of the Act. The Act does not address the Massachusetts tax treatment of
dividends paid by the Massachusetts Fund that are designated and treated as
long-term capital gains for Federal income tax purposes, and it is accordingly
not clear what tax rate applies to such dividends for Massachusetts tax purposes
for taxable years beginning after 1995.
NEW YORK TAXES
Exempt-interest dividends derived from interest on tax-exempt bonds of
New York State and its political subdivisions and authorities and certain other
governmental entities (for example, U.S. possessions), paid by the New York Fund
to New York resident individuals, estates and trusts otherwise subject to these
taxes, will not be subject to New York State and New York City personal income
taxes and certain municipal tax surcharges.
Dividends, whether received in cash or additional shares, derived from
the New York Fund's other investment income (including interest on Tax-Exempt
Bonds other than those described in the preceding paragraph), and from the
Fund's net realized short-term capital gains, are taxable for New York State and
New York City personal income tax purposes as ordinary income. Tax surcharges
will also apply. Dividends derived from net realized long-term capital gains of
the Fund are taxable as long-term capital gains for New York State and New York
City personal income tax purposes regardless of the length of time shareholders
have held their shares.
Dividends derived from investment income and capital gains, including
exempt- interest dividends, will be subject to the New York State franchise tax
and the New York City General Corporation Tax if received by a corporation
subject to those taxes. Certain distributions may, however, be eligible for a
50% dividend subtraction. Shares of the Fund will be included in a corporate
shareholder's investment capital in determining its liability, if any, for these
taxes.
New York State and New York City personal income taxes are imposed on
"New York taxable income," which is defined, in the case of New York resident
individuals, estates and trusts as "New York adjusted gross income" minus the
New York deductions and New York exemptions. "New York adjusted gross income",
in the case of a New York resident individual, estate or trust, is federal
adjusted gross income with certain modifications Because distributions that
qualify as exempt- interest dividends under IRC ss. 852(b) (5) will be excluded
from Federal gross income and adjusted gross income, such distributions will
also be excluded from New York adjusted gross income, unless specifically
modified by New York law.
New York law requires that New York resident individuals, estates and
trusts add certain items to their federal adjusted gross income. One such
modification is the addition, to the extent not properly includible in Federal
adjusted gross income, of interest income on obligations of any state (or
political subdivision of any state) other than New York and its political
subdivisions.
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Distributions that are taxable under the IRC, including distributions
properly designated as capital gain dividends pursuant to IRC ss.852(b)(3) and
distributions derived from interest on U.S. Government obligations, will be
includible in New York adjusted gross income, as there is no provision in the
New York tax law that permits their subtraction from federal adjusted gross
income. New York tax law does not currently contain any special provisions that
would impose differing rates of tax on capital gain and ordinary income in the
hands of individual taxpayers.
Under New York tax law, New York resident individuals, estates and
trusts are subject to a minimum income tax (sometimes referred to as the "New
York alternate minimum tax") at the rate of six percent of "New York minimum
taxable income." This tax is imposed in addition to the regular personal income
tax imposed by the State of New York. For purposes of this minimum tax, New York
minimum taxable income is, prior to certain reductions, equal to the sum of the
federal items of tax preference defined in IRC ss.57, with certain modifications
and adjustments, but excludes from New York minimum taxable income "the federal
item of tax preference with respect to tax-exempt interest". Distributions by
the Fund of exempt-interest dividends (including any portion of such dividends
derived from interest on private activity bonds, the interest on which is a tax
preference item enumerated in IRC ss.57) thus will not be included in income
subject to the New York State or New York City minimum income tax on New York
resident individuals, estates and trusts.
Distributions that are properly designated as exempt-interest dividends
under IRC ss.852 (b) (5) made by the Fund to corporations, will be included in
entire net income in the computation of the New York State franchise tax and New
York City business taxes and shares of the Fund will be included in investment
capital for purposes of these taxes. If such distributions increase a corporate
shareholder's liability, they will also result in an increased liability for tax
surcharges. However, distributions that are taxable under the IRC, with the
possible exception of distributions properly treated as capital gain dividends
pursuant to IRC ss.852(b) (3), may be eligible for a 50% dividend subtraction.
Under New York tax law, a portion of interest on indebtedness incurred
or continued to purchase or carry shares of an investment company paying
dividends which are exempt from the New York State and New York City personal
income taxes, such as the New York Fund, will not be deductible by the investor
for New York State and New York City personal income tax purposes.
CALCULATION OF PERFORMANCE
For the 30-day period ended August 31, 1996, the Funds' annualized
yield and tax-equivalent yields for Class A shares at the maximum tax rates were
5.08% and ____% for Massachusetts and 4.94% and ____% for New York,
respectively. The average annual total returns of the Funds' Class A shares for
the 1 year, 5 years and the life-of-fund periods ended August 31 were
respectively 0.09%, 6.24% and 7.72% for Massachusetts and 0.48%, 6.37% and 7.90%
for New York.
The Funds advertise yield, where appropriate. Each Fund's yield is
computed by dividing net investment income per share determined for a 30-day
period by the maximum offering price per share (which includes the full sales
charge) on the last day of the period, according to the following standard
formula:
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Yield = 2 ([(a - b) + 1] 6 - 1)
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued during the period (net of fee reductions and expense
limitation payments, if any).
c = the average daily number of fund shares outstanding during the period
that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
Each Fund's total return is computed by finding the average annual
compounded rate of return over the 1 year, 5 years and life-of-fund period that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1 year, 5 years and life-of-fund periods.
Because each share has its own sales charge and fee structures, the
classes have different performance results. In the case of Class A shares or
Class B shares, this calculation assumes the maximum sales charge is included in
the initial investment or the CDSC applied at the end of the period. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the subject Fund during the period stated by the maximum offering price or net
asset value at the end of the period. Excluding the Fund's sales load from the
distribution rate produces a higher rate.
In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of interest is
used in lieu of the yield to maturity. Where, in the case of a tax-exempt
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obligation with original issue discount, the discount based on the current
market value exceeds the then-remaining portion or original issue discount
(market discount), the yield to maturity is the imputed rate based on the
original issue discount calculation. Where, in the case of a tax-exempt
obligation with original issue discount, the discount based on the current
market value is less than the then-remaining portion of original issue discount
(market premium), the yield to maturity is based on the market value.
In addition to average annual total returns, each Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's sales charge on
Class A shares or the CDSC on Class B shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B shares from a total
return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, a Fund's
yield and total return will be compared to indices of mutual funds and bank
deposit vehicles such as Lipper Analytical Services, Inc.'s "Lipper - Fixed
Income Fund Performance Analysis," a monthly publication which tracks net
assets, total return, and yield on fixed income mutual funds in the United
States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used
for comparison purposes as well as the Russell and Wilshire Indices. Comparisons
may also be made to bank certificates of deposit, ("CDs") which differ from
mutual funds, such as the Funds, in several ways. The interest rate established
by the sponsoring bank is fixed for the term of a CD, there are penalties for
early withdrawal from CDs, and the principal on a CD is insured.
Performance rankings and ratings reported periodically in national
financial publication such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S, BARRON'S, ETC., AS WELL
AS LIPPER, may be utilized. The Fund's promotional and sales literature may make
reference to the fund's "beta". Beta is a reflection of the market-related risk
of the Fund by showing how responsive the Fund is to the market.
The performance of a Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of a
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of securities held by a Fund
and the allocation of brokerage commissions are made by the officers of the
Adviser pursuant to recommendations made by an investment committee of the
Adviser, which consists of officers and directors of the Adviser and affiliates,
and officers and Trustees who are interested persons of the Trust. For each
Fund, orders for purchases and sales of securities are placed in a manner which,
in the opinion of the officers of the Adviser, will offer the best price and
market for the execution of each such transaction. Purchases from underwriters
of portfolio securities may include a commission or commissions paid by the
issuer and transactions with dealers serving as market maker reflect a "spread."
Debt securities are generally traded on a net basis through dealers acting for
their own account as principals and not as brokers; no brokerage commissions are
payable on such transactions.
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The primary policy of each Fund is to execute all purchases and sales
of portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of a Fund as a factor in the selection of
broker-dealers to execute the Funds' portfolio transactions.
To the extent consistent with the foregoing, the Funds will be governed
in the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser of the
Funds, and their value and expected contribution to the performance of the
Funds. It is not possible to place a dollar value on information and services to
be received from brokers and dealers, since it is only supplementary to the
research efforts of the Adviser. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Life Company or other advisory clients of the Adviser, and,
conversely, brokerage commissions and spreads paid by other advisory clients of
the Adviser may result in research information and statistical assistance
beneficial to the Trust. The Funds will make no commitment to allocate portfolio
transactions upon any prescribed basis. While the Adviser's officers will be
primarily responsible for the allocation of the Trust's brokerage business, the
policies in this regard must be consistent with the foregoing and will at all
times be subject to review by the Trustees. For the years ended on August 31,
1994 the Trust paid no brokerage commissions. For the year ended August 31, 1995
and 1996, the Massachusetts Tax Free Fund paid negotiated brokerage commissions
in the amount of $2,470 and 5,721, respectively and the New York Tax Free Fund
paid negotiated brokerage commissions in the amount of $3,267 and $4,655,
respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Funds may pay to a broker which provides brokerage and research services to
the Funds an amount of disclosed commission in excess of the commission which
another broker would have charged for effecting that transaction. This practice
is subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended August 31,
1996, neither Fund paid commissions as compensation to any brokers for research
services such as industry, economic and company reviews and evaluations of
securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors" or Affiliated
Broker"). Pursuant to procedures determined by the Trustees and consistent with
the above policy of obtaining best net results, each Fund may execute portfolio
transactions with or through Affiliated Brokers. During the year ending August
31, 1996, neither Fund executed any portfolio transactions with Affiliated
Brokers.
Any of the Affiliated Brokers may act as broker for the Funds on
exchange transactions, subject, however, to the general policy of the Trust set
forth above and the procedures adopted by the Trustees pursuant to the
Investment Company Act. Commissions paid to an Affiliated Broker must be at
least as favorable as those which the Trustees believe to be contemporaneously
charged by other brokers in connection with comparable transactions involving
similar securities being purchased or sold. A transaction would not be placed
with an Affiliated Broker if the Trust would have to pay a commission rate less
favorable than the Affiliated Broker's contemporaneous charges for comparable
transactions for its other most favored, but unaffiliated, customers except for
accounts for which the Affiliated Broker acts as clearing broker and comparable
to the Trust as determined by a majority of the Trustees who are not interested
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persons (as defined in the Investment Company Act) of the Trust, the Adviser or
the Affiliated Broker. Because the Adviser, which is affiliated with the
Affiliated Brokers, has, as an investment adviser to the Trust, the obligation
to provide investment management services, which includes elements of research
and related investment skills, such research and related skills will not be used
by the Affiliated Brokers as a basis for negotiating commissions at a rate
higher than that determined in accordance with the above criteria.
Other investment advisory clients advised by the Adviser may also
invest in the same securities and the Fund. When these clients buy or sell the
same securities at substantially the same time, the Adviser may average the
transaction as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtainable for
it. On the other hand, to the extent permitted by law, the adviser may aggregate
the securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., P.O. Box 9116, Boston, MA
02205-9116, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Funds. The Funds pay Signature
Services an annual fee of $20.00 for each Class A shareholder and $22.50 for
each Class B shareholder, plus certain out-of-pocket expenses. These expenses
are aggregated and charged to the Funds on the basis of the relative net asset
value.
CUSTODY OF PORTFOLIOS
Securities of each Fund are held pursuant to a custodian agreement
between the Trust and Investors Bank & Trust Company, 89 South Street, Boston,
MA 02111. Under the custodian agreement, Investors Bank & Trust Company performs
custody, portfolio and fund accounting services.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Funds are Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts 02110. Price Waterhouse LLP audits and
renders an opinion on each Fund's annual financial statements and reviews each
Fund's annual Federal income tax return.
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APPENDIX
RATINGS
Moody's describes its ratings for Tax-Exempt Bonds as follows:
Bonds. "Bonds which are rated 'Aaa' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Bonds which are rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of grater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities.
"Bonds which are rated 'A' possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Bonds which are rated 'Baa' are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position,
characterizes bonds in this class.
"Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
"Bonds which are rated 'Caa' are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
"Bonds which are rated 'Ca' represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
"Bonds which are rated 'C' are the lowest rated classes of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever obtaining any
real investment standing."
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
A-1
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Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's describes its ratings for Tax-Exempt Bonds as follows:
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," "B," "CCC," or "CC" is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and pay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major risk exposures to adverse
conditions.
Unrated. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Fitch describes its rating for Tax-Exempt Bonds as follows:
AAA. Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA. Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and the 'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated 'F-1+'.
A. Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB. Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
A-2
<PAGE>
BB. Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
Notes. Ratings for state and municipal notes and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance on bond risk are of lesser importance in the short run.
Symbols will be used as follows:
"MIG-1 Notes bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
"MIG-2 Notes bearing this designation are of high quality with margins of
protection ample although not so large as in the preceding group."
Commercial Paper. As described in the Prospectus, the Fund may invest in
commercial paper which is rated A-1 or A-2 by Standard & Poor's, P-1 or P-2 by
Moody's or F-1+ or f1 by Fitch.
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subjective to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained."
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
Fitch's short-term ratings are as follows:
A-3
<PAGE>
F-1+ Exceptionally strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+"
Massachusetts Fund
Quality Distribution. The average weighted quality distribution of the
securities in the portfolio for the year ended August 31, 1996.
<TABLE>
<CAPTION>
Rating Rating
% of Assigned by % of Assigned by % of
Security Ratings Average Value Portfolio Adviser Portfolio Service Portfolio
- ---------------- ------------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
AAA $15,820,131 28.8% 0 0.0% $15,820,131 28.8%
AA 5,035,902 9.2% 0 0.0% 5,035,902 9.2%
A 22,830,002 41.5% 0 0.0% 22,830,002 41.5%
BBB 11,276,807 20.5% 727,274 1.3% 10,549,533 19.2%
BB 0 0.0% 0 0.0% 0 0.0
B 0 0.0% 0 0.0% 0 0.0
Debt-Unrated 0 0.0% 0 0.0% 0 0.0
----------- ------- -----------
Debt Securities 54,962,842 100.0% 727,274 1.3% $54,235,568 98.7%
Options Securities 530 0.0%
Short-Term Securities 0 0.0%
-----------
Total Portfolio 54,963,373 100.0%
Other Assets -- Net 1,076,513
-----------
Net Assets 56,039,887
===========
</TABLE>
The ratings are described in the Statement of Additional Information.
A-4
<PAGE>
New York Fund
Quality Distribution. The average weighted quality distribution of the
securities in the portfolio for the year ended August 31, 1996.
<TABLE>
<CAPTION>
Rating Rating
% of Assigned by % of Assigned by % of
Security Ratings Average Value Portfolio Adviser Portfolio Service Portfolio
- ---------------- ------------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
AAA $12,758,268 23.6% 0 0.0% $12,758,268 23.6%
AA 12,247,873 22.6% 0 0.0% 12,247,873 22.6%
A 13,161,753 24.3% 0 0.0% 13,161,753 24.3%
BBB 13,502,309 24.9% 575,154 1.0% 13,502,309 24.9%
BB 2,197,921 4.1% 1,173,104 2.2% 1,024,817 1.9%
B 0 0.0% 0 0.0% 0 0.0%
CCC 0 0.0% 0 0.0% 0 0.0%
CC 0 0.0% 0 0.0% 0 0.0%
C 0 0.0% 0 0.0% 0 0.0%
Debt-Unrated 0 0.0% 0 0.0% 0 0.0%
----------- --------- -----------
Debt-Securities 53,868,124 99.5% 1,748,258 3.2% $52,695,021 97.3%
Options Securities 0 0.0%
Short-Term Securities 257,385 0.5%
-------
Total Portfolio 54,125,509 100.0%
Other Assets -- Net 913,805
-------
Net Assets $55,039,315
===========
</TABLE>
The ratings are described in the Statement of Additional Information.
A-5
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the 1995 Annual
Report to Shareholders for John Hancock Tax-Exempt Series Fund for the year
ended August 31, 1996 (filed electronically on October 21, 1996 file nos.
811-5079 and 33-12947; accession number 0000928816-96-000307.
John Hancock Massachusetts Tax-Free Fund
John Hancock New York Tax-Free Fund
Statement of Assets and Liabilities as of August 31, 1996.
Statement of Operations from the year ended August 31, 1996.
Statement of Changes in Net Assets for each of the two years in the
period ended December 31.
Financial Highlights for each of the periods indicated therein.
Notes to Financial Statements.
Schedule of Investments as of August 31, 1996.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibits
Index hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
C-1
<PAGE>
Item 26. Number of Holders of Securities
As of November 29, 1996 the number of record holders of shares of
Registrant was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
(Shares of Beneficial Interest,
without par value)
John Hancock Tax-Exempt Series Fund-
Massachusetts Tax-Free
Class A Shares 2,589
Class B Shares 6
New York Tax-Free
Class A Shares 2,766
Class B Shares 12
Item 27. Indemnification
(a) Under Registrant's Declaration of Trust. Sections 4.1, 4.2 and 4.3 of
Article VI of the Registrant's Amended and Restated Declaration of Trust provide
for indemnification of the Registrant's Trustees and Officers under certain
circumstances. A copy of the Registrant's Amended and Restated Declaration of
Trust is attached as Exhibit 1 to this Post-Effective Amendment No. 10 to the
Registration Statement of the Registrant.
(b) Under the Distribution Agreement. Under Section 12 of the Distribution
Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to
indemnify the Registrant and its Trustees, officers and controlling persons
against claims arising out of certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of the Insurance Company provides, in effect,
that the Insurance Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the of the Insurance
Company who serves as a Trustee or officer of the Registrant at the direction or
request of the Insurance Company against litigation expenses and liabilities
incurred while acting as such, except that such indemnification does not cover
any expense or liability incurred or imposed in connection with any matter as to
which such person shall be finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Insurance Company. In addition, no such person will be indemnified by the
Insurance Company in respect of any liability or expense incurred in connection
with any matter settled without final adjudication unless such settlement shall
have been approved as in the best interests of the Insurance Company either by
vote of the Board of Directors at a meeting composed of directors who have no
interest in the outcome of such vote, or by vote of the policyholders. The
Insurance Company may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an undertaking by the
person indemnified to repay such payment if he should be determined to be
entitled to indemnification.
C-2
<PAGE>
Article IX of the respective By-Laws of John Hancock Funds and the Adviser
provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and the liability was not
incurred by reason of gross negligence or reckless disregard of the duties
involved in the conduct of his office, and expenses in connection therewith may
be advanced by the Corporation, all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such as person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation, Article 10.1 of the Registrant's By-Laws, The underwriting
Agreement, the By-Laws of Distributors, the Adviser, or the Insurance Company or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Investment
Adviser, reference is made to Forms ADV (801-8124) filed under the Investment
Advisers Act of 1940, herein incorporated by reference.
Item 29. Principal Underwriters
The Registrant's sole principal underwriter is JH Funds, Inc., which also
acts as principal underwriter for the following investment companies: John
Hancock Institutional Series Trust, John Hancock Sovereign Bond Fund, John
Hancock Special Equities Fund,
C-3
<PAGE>
John Hancock Strategic Series, John Hancock Tax-Exempt Series Fund, John
Hancock Limited-Term Government Fund, John Hancock World Fund, Freedom
Investment Trust, Freedom Investment Trust II, John Hancock Investment
Trust IV, John Hancock Bond Fund, John Hancock California Tax-Free Income
Fund, John Hancock Cash Reserve, Inc., John Hancock Current Interest, John
Hancock Investment Trust, John Hancock Series Trust and John Hancock
Tax-Free Bond Trust.
(b) The following table lists, for each director and officer of JH Funds,
Inc., the information indicated.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. Director, Chairman, President and Trustee, Chairman and Chief
101 Huntington Avenue Chief Executive Officer Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Chief Compliance
P.O. Box 111 Officer
Boston, Massachusetts
Robert G. Freedman Director Chairman and Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Director None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
C-4
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President and Secretary Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President Vice President
101 Huntington Avenue and Secretary
Boston, Massachusetts
Christopher M. Meyer Second Vice President and None
101 Huntington Avenue Treasurer
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-5
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington avenue
Boston, Massachusetts
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
Keith Harstein Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Karen Walsh Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
(c) None.
C-6
<PAGE>
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under Rules
31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company Act of 1940 as
its principal executive offices at 101 Huntington Avenue, Boston Massachusetts
02199-7603. Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main office of Registrant's Transfer Agent and
Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable
(c) The Registrant on behalf of each of its each of its series undertakes
to furnish each person to whom a prospectus is delivered with a copy of such
series' annual report to shareholders, upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
20th day of December, 1996.
JOHN HANCOCK TAX EXEMPT SERIES FUND
By: /s/ Edward J. Boudreau, Jr.
---------------------------
Edward J. Boudreau, Jr.*
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
- ------------------------ Chairman
Edward J. Boudreau, Jr.* (Principal Executive Officer)
/s/James B. Little
- ------------------------ Senior Vice President and Chief
James B. Little Financial Officer (Principal December 20, 1996
Financial and Accounting Officer)
- ------------------------ Trustee
Dennis S. Aronowitz*
- ------------------------ Trustee
Richard P. Chapman, Jr.*
- ------------------------ Trustee
William J. Cosgrove*
- ------------------------ Trustee
Douglas M. Costle*
- ------------------------ Trustee
Leland O. Erdahl*
- ------------------------ Trustee
Richard A. Farrell*
- ------------------------ Trustee
Gail D. Fosler*
- ------------------------ Trustee
William F. Glavin*
- ------------------------ Trustee
Anne C. Hodsdon*
C-8
<PAGE>
- ------------------------ Trustee
John A. Moore
- ------------------------ Trustee
Patti McGill Peterson*
- ------------------------ Trustee
John W. Pratt*
- ------------------------ Trustee
Richard S. Scipione*
- ------------------------ Trustee
Edward J. Spellman*
*By: /s/Susan S. Newton December 20, 1996
------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
May 21, 1996, filed herewith
</TABLE>
C-9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.B1 Amended and Restated Declaration of Trust dated July 1, 1996.+
99.B1.2 Establishment and Designation of Class A Shares and Class B
Shares of Beneficial Interest dated July 1, 1996.+
99.B2 Amended and Restated By-Laws dated March 6, 1996.+
99.B3 None.
99.B4 Specimen share certificate for John Hancock Tax-Exempt Series
Fund, New York Portfolio.*
.
99.B4.1 Specimen share certificate for John Hancock Tax-Exempt Series
Fund, Massachusetts Portfolio.*
99.B5 Investment Management Contract between the New York Tax-Free
Income Fund and John Hancock Advisers, Inc. dated July 1,
1996.+
99.B5.1 Investment Management Contract between the Massachusetts
Tax-Free Income Fund and John Hancock Advisers, Inc. dated
July 1, 1996.+
99.B6 Distribution Agreement with John Hancock Broker Distribution
Services, Inc. dated August 1, 1991.*
99.B6.1 Form of Soliciting Dealer Agreement between John Hancock Broker
Distribution Services, Inc. and Selected Dealers.*
99.B7 None.
99.B8 Master Custodian Agreement with Registrant and Investors Bank
and Trust Company.*
99.B9 Transfer Agency and Service Agreement between Registrant and
John Hancock Fund Services, Inc. dated January 1, 1991.*
99.B10 Rule 24(e) Opinion.+
99.B11 Auditors Consent+
99.B12 None
99.B13 Subscription Agreement between Registrant and John Hancock
Advisers, Inc.*
C-10
<PAGE>
Exhibit No. Description
- ----------- -----------
99.B14 None
99.B15 Amended and Restated Distribution Plan for Class A shares
between John Hancock Tax-Exempt Series Fund and John Hancock
Funds, Inc. dated July 1, 1996.+
99.B15.1 Amended and Restated Distribution Plan for Class B shares
between John Hancock Tax-Exempt Series Fund and John Hancock
Funds, Inc. dated July 1, 1996.+
99.B16 Working papers showing yield calculation for yield and total
return.*
99.27 Massachusetts Tax-Free Income Fund
99.27 New York Tax-Free Income Fund
* Previously filed electronically with post-effective amendment number 10
(file nos. 811-5079 and 33-12947) on December 25, 1995, accession number
0000950156-95-000881.
+ Filed herewith.
C-11
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
JOHN HANCOCK TAX-EXEMPT SERIES FUND
101 Huntington Avenue
Boston, Massachusetts 02199
Dated July 1, 1996
DECLARATION OF TRUST made this 1st day of July, 1996 by the undersigned
(together with all other persons from time to time duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, the
"Trustees");
WHEREAS, pursuant to a declaration of trust executed and delivered on
March 24, 1987 (the "Original Declaration"), the Trustees established a trust
for the investment and reinvestment of funds contributed thereto;
WHEREAS, the Trustees divided the beneficial interest in the trust
assets into transferable shares of beneficial interest, as provided therein;
WHEREAS, the Trustees declared that all money and property contributed
to the trust established thereunder be held and managed in trust for the benefit
of the holders, from time to time, of the shares of beneficial interest issued
thereunder and subject to the provisions thereof;
WHEREAS, the Trustees desire to amend and restate the Original
Declaration;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the Trustees of the
trust, hereby amend and restate the Original Declaration as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is "John
Hancock Tax-Exempt Series Fund" (the "Trust").
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "Administrator" means the party, other than the Trust, to the
contract described in Section 3.3 hereof.
(b) "By-laws" means the By-laws referred to in Section 2.8 hereof, as
amended from time to time.
<PAGE>
(c) "Class" means any division of shares within a Series in accordance
with the provisions of Article V.
(d) The terms "Commission" and "Interested Person" have the meanings
given them in the 1940 Act. Except as such term may be otherwise defined by the
Trustees in conjunction with the establishment of any Series, the term "vote of
a majority of the Outstanding Shares entitled to vote" shall have the same
meaning as is assigned to the term "vote of a majority of the outstanding voting
securities" in the 1940 Act.
(e) "Custodian" means any Person other than the Trust who has custody
of any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(f) "Declaration" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(g) "Distributor" means the party, other than the Trust, to the
contract described in Section 3.1 hereof.
(h) "Fund" or "Funds" individually or collectively, means the separate
Series of the Trust, together with the assets and liabilities assigned thereto.
(i) "Fundamental Restrictions" means the investment restrictions set
forth in the Prospectus and Statement of Additional Information for any Series
and designated as fundamental restrictions therein with respect to such Series.
(j) "His" shall include the feminine and neuter, as well as the
masculine, genders.
(k) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
(l) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(m) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(n) "Prospectus" means the Prospectuses and Statements of Additional
Information included in the Registration Statement of the Trust under the
Securities Act of 1933, as amended, as such Prospectuses and Statements of
Additional Information may be amended or supplemented and filed with the
Commission from time to time.
(o) "Series" individually or collectively means the separately managed
component(s) of the Trust (or, if the Trust shall have only one such component,
then that one) as may be established and designated from time to time by the
Trustees pursuant to Section 5.11 hereof.
2
<PAGE>
(p) "Shareholder" means a record owner of Outstanding Shares.
(q) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all Series or of any Class within any Series (as
the context may require) which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares. "Outstanding" Shares means those
Shares shown from time to time on the books of the Trust or its Transfer Agent
as then issued and outstanding, but shall not include Shares which have been
redeemed or repurchased by the Trust and which are at the time held in the
treasury of the Trust.
(r) "Transfer Agent" means any Person other than the Trust who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(s) "Trust" means John Hancock Tax-Exempt Series Fund.
(t) "Trustees" means the persons who have signed this Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who now serve or may from time to time be duly elected,
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in this capacity or their capacities as trustees hereunder.
(u) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees, including any and all assets of or allocated to any
Series or Class, as the context may require.
ARTICLE II
TRUSTEES
Section 2.1. General Powers. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without The Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers. Such powers of the Trustees may be exercised
without order of or resort to any court.
3
<PAGE>
Section 2.2. Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, cash;
securities, including common, preferred and preference stocks; warrants;
subscription rights; profit-sharing interests or participations and all other
contracts for or evidence of equity interests; bonds, debentures, bills, time
notes and all other evidences of indebtedness; negotiable or non-negotiable
instruments; government securities, including securities of any state,
municipality or other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market instruments
including bank certificates of deposit, finance paper, commercial paper,
bankers' acceptances and all kinds of repurchase agreements, of any corporation,
company, trust, association, firm or other business organization however
established, and of any country, state, municipality or other political
subdivision, or any governmental or quasi-governmental agency or
instrumentality; any other security, instrument or contract the acquisition or
execution of which is not prohibited by any Fundamental Restriction; and the
Trustees shall be deemed to have the foregoing powers with respect to any
additional securities in which the Trust may invest should the Fundamental
Restrictions be amended.
(c) To acquire (by purchase, subscription or otherwise), to hold, to
trade in and deal in, to acquire any rights or options to purchase or sell, to
sell or otherwise dispose of, to lend and to pledge any such securities, to
enter into repurchase agreements, reverse repurchase agreements, firm commitment
agreements, forward foreign currency exchange contracts, interest rate, mortgage
or currency swaps, and interest rate caps, floors and collars, to purchase and
sell options on securities, indices, currency, swaps or other financial assets,
futures contracts and options on futures contracts of all descriptions and to
engage in all types of hedging, risk management or income enhancement
transactions.
(d) To exercise all rights, powers and privileges of ownership or
interest in all securities and repurchase agreements included in the Trust
Property, including the right to vote thereon and otherwise act with respect
thereto and to do all acts for the preservation, protection, improvement and
enhancement in value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash or foreign currency, and any interest therein.
(f) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; and to endorse, guarantee,
or undertake the performance of any obligation or engagement of any other Person
and to lend Trust Property.
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(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) To enter into a plan of distribution and any related agreements
whereby the Trust may finance directly or indirectly any activity which is
primarily intended to result in the distribution and/or servicing of Shares.
(i) To adopt on behalf of the Trust or any Series thereof an
alternative purchase plan providing for the issuance of multiple Classes of
Shares (as authorized herein at Section 5.11).
(j) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or arising out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
Notwithstanding any other provision herein, the Trustees shall have
full power in their discretion as contemplated in Section 8.5, without any
requirement of approval by Shareholders, to invest part or all of the Trust
Property (or part or all of the assets of any Series), or to dispose of part or
all of the Trust Property (or part or all of the assets of any Series) and
invest the proceeds of such disposition, in securities issued by one or more
other investment companies registered under the 1940 Act. Any such other
investment company may (but need not) be a trust (formed under the laws of any
state) which is classified as a partnership or corporation for federal income
tax purposes.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust or any Series of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees in
the Trust Property and the Property of each Series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
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shall automatically cease to have any right, title or interest in any of the
Trust Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VI and VII and Section 5.11 hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust or of the particular
Series with respect to which such Shares are issued, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted by the laws of The
Commonwealth of Massachusetts governing business corporations.
Section 2.5. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or any
Series of the Trust or the names of the Trustees or otherwise as the Trustees
may deem expedient, to the same extent as such delegation is permitted by the
1940 Act.
Section 2.6. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 2.7. Expenses. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided
herein or in the By-laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees, including any
meeting held by means of a conference telephone circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, or by written consents of a majority of Trustees
then in office. The Trustees may adopt By-laws not inconsistent with this
Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
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Section 2.9. Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust or any Series thereof; (b)
enter into joint ventures, partnerships and any other combinations or
associations; (c) remove Trustees, fill vacancies in, add to or subtract from
their number, elect and remove such officers and appoint and terminate such
agents or employees as they consider appropriate, and appoint from their own
number, and terminate, any one or more committees which may exercise some or all
of the power and authority of the Trustees as the Trustees may determine; (d)
purchase, and pay for out of Trust Property or the property of the appropriate
Series of the Trust, insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, administrators, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust or any Series thereof has dealings,
including the Investment Adviser, Administrator, Distributor, Transfer Agent and
selected dealers, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year and taxable year of the Trust or any Series thereof and the method
by which its or their accounts shall be kept; and (i) adopt a seal for the
Trust, but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
Section 2.10. Principal Transactions. Except for transactions not
permitted by the 1940 Act or rules and regulations adopted, or orders issued, by
the Commission thereunder, the Trustees may, on behalf of the Trust, buy any
securities from or sell any securities to, or lend any assets of the Trust or
any Series thereof to any Trustee or officer of the Trust or any firm of which
any such Trustee or officer is a member acting as principal, or have any such
dealings with the Investment Adviser, Distributor or Transfer Agent or with any
Interested Person of such Person; and the Trust or a Series thereof may employ
any such Person, or firm or company in which such Person is an Interested
Person, as broker, legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian upon customary terms.
Section 2.11. Litigation. The Trustees shall have the power to engage
in and to prosecute, defend, compromise, abandon, or adjust by arbitration, or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust, and out of the assets of the Trust or any Series thereof
to pay or to satisfy any debts, claims or expenses incurred in connection
therewith, including those of litigation, and such power shall include without
limitation the power of the Trustees or any appropriate committee thereof, in
the exercise of their or its good faith business judgment, to dismiss any
action, suit, proceeding, dispute, claim, or demand, derivative or otherwise,
brought by any person, including a Shareholder in its own name or the name of
the Trust, whether or not the Trust or any of the Trustees may be named
individually therein or the subject matter arises by reason of business for or
on behalf of the Trust.
Section 2.12. Number of Trustees. The initial Trustees shall be the
persons initially signing the Original Declaration. The number of Trustees
(other than the initial Trustees) shall be such number as shall be fixed from
time to time by vote of a majority of the Trustees, provided, however, that the
number of Trustees shall in no event be less than one (1).
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Section 2.13. Election and Term. Except for the Trustees named herein
or appointed to fill vacancies pursuant to Section 2.15 hereof, the Trustees may
succeed themselves and shall be elected by the Shareholders owning of record a
plurality of the Shares voting at a meeting of Shareholders on a date fixed by
the Trustees. Except in the event of resignations or removals pursuant to
Section 2.14 hereof, each Trustee shall hold office until such time as less than
a majority of the Trustees holding office has been elected by Shareholders. In
such event the Trustees then in office shall call a Shareholders' meeting for
the election of Trustees. Except for the foregoing circumstances, the Trustees
shall continue to hold office and may appoint successor Trustees.
Section 2.14. Resignation and Removal. Any Trustee may resign his trust
(without the need for any prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than one) with cause, by
the action of two-thirds of the remaining Trustees or by action of two-thirds of
the outstanding Shares of the Trust (for purposes of determining the
circumstances and procedures under which any such removal by the Shareholders
may take place, the provisions of Section 16(c) of the 1940 Act (or any
successor provisions) shall be applicable to the same extent as if the Trust
were subject to the provisions of that Section). Upon the resignation or removal
of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust Property held in
the name of the resigning or removed Trustee. Upon the incapacity or death of
any Trustee, his legal representative shall execute and deliver on his behalf
such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 2.15. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of his death, retirement,
resignation, removal, bankruptcy, adjudicated incompetence or other incapacity
to perform the duties of the office of a Trustee. No such vacancy shall operate
to annul the Declaration or to revoke any existing agency created pursuant to
the terms of the Declaration. In the case of an existing vacancy, including a
vacancy existing by reason of an increase in the number of Trustees, subject to
the provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall
fill such vacancy by the appointment of such other person as they in their
discretion shall see fit, made by vote of a majority of the Trustees then in
office. Any such appointment shall not become effective, however, until the
person named in the vote approving the appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.15, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
The vote by a majority of the Trustees in office, fixing the number of Trustees
shall be conclusive evidence of the existence of such vacancy.
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Section 2.16. Delegation of Power to Other Trustees. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall fewer than two (2) Trustees personally exercise the powers granted to
the Trustees under this Declaration except as herein otherwise expressly
provided.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
distribution contract or contracts providing for the sale of the Shares to net
the Trust or the applicable Series of the Trust not less than the amount
provided for in Section 7.1 of Article VII hereof, whereby the Trustees may
either agree to sell the Shares to the other party to the contract or appoint
such other party as their sales agent for the Shares, and in either case on such
terms and conditions, if any, as may be prescribed in the By-laws, and such
further terms and conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article III or of the By-laws; and
such contract may also provide for the repurchase of the Shares by such other
party as agent of the Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts or, if the Trustees establish multiple Series, separate
investment advisory or management contracts with respect to one or more Series
whereby the other party or parties to any such contracts shall undertake to
furnish the Trust or such Series management, investment advisory,
administration, accounting, legal, statistical and research facilities and
services, promotional or marketing activities, and such other facilities and
services, if any, as the Trustees shall from time to time consider desirable and
all upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of the Declaration, the Trustees may
authorize the Investment Advisers, or any of them, under any such contracts
(subject to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales, loans or exchanges of portfolio
securities and other investments of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of such Investment Advisers, or
any of them (and all without further action by the Trustees). Any such
purchases, sales, loans and exchanges shall be deemed to have been authorized by
all of the Trustees. The Trustees may, in their sole discretion, call a meeting
of Shareholders in order to submit to a vote of Shareholders at such meeting the
approval or continuance of any such investment advisory or management contract.
If the Shareholders of any one or more of the Series of the Trust should fail to
approve any such investment advisory or management contract, the Investment
Adviser may nonetheless serve as Investment Adviser with respect to any Series
whose Shareholders approve such contract.
Section 3.3. Administration Agreement. The Trustees may in their
discretion from time to time enter into an administration agreement or, if the
Trustees establish multiple Series or Classes, separate administration
agreements with respect to each Series or Class, whereby the other party to such
agreement shall undertake to manage the business affairs of the Trust or of a
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Series or Class thereof and furnish the Trust or a Series or a Class thereof
with office facilities, and shall be responsible for the ordinary clerical,
bookkeeping and recordkeeping services at such office facilities, and other
facilities and services, if any, and all upon such terms and conditions as the
Trustees may in their discretion determine.
Section 3.4. Service Agreement. The Trustees may in their discretion
from time to time enter into Service Agreements with respect to one or more
Series or Classes thereof whereby the other parties to such Service Agreements
will provide administration and/or support services pursuant to administration
plans and service plans, and all upon such terms and conditions as the Trustees
in their discretion may determine.
Section 3.5. Transfer Agent. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
Section 3.6. Custodian. The Trustees may appoint or otherwise engage
one or more banks or trust companies, each having an aggregate capital, surplus
and undivided profits (as shown in its last published report) of at least two
million dollars ($2,000,000) to serve as Custodian with authority as its agent,
but subject to such restrictions, limitations and other requirements, if any, as
may be contained in the By-laws of the Trust. The Trustees may also authorize
the Custodian to employ one or more sub-custodians, including such foreign banks
and securities depositories as meet the requirements of applicable provisions of
the 1940 Act, and upon such terms and conditions as may be agreed upon between
the Custodian and such sub-custodian, to hold securities and other assets of the
Trust and to perform the acts and services of the Custodian, subject to
applicable provisions of law and resolutions adopted by the Trustees.
Section 3.7. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers of the
Trust or any Series thereof is a shareholder, director, officer,
partner, trustee, employee, manager, adviser or distributor of or for
any partnership, corporation, trust, association or other organization
or of or for any parent or affiliate of any organization, with which a
contract of the character described in Sections 3.1, 3.2, 3.3 or 3.4
above or for services as Custodian, Transfer Agent or disbursing agent
or for providing accounting, legal and printing services or for related
services may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder of
or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in
Sections 3.1, 3.2, 3.3 or 3.4 above or for services as Custodian,
Transfer Agent or disbursing agent or for related services may have
been or may hereafter be made also has any one or more of such
contracts with one or more other partnerships, corporations, trusts,
associations or other organizations, or has other business or
interests,
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shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to the
Trust or its Shareholders.
Section 3.8. Compliance with 1940 Act. Any contract entered into
pursuant to Sections 3.1 or 3.2 shall be consistent with and subject to the
requirements of Section 15 of the 1940 Act (including any amendment thereof or
other applicable Act of Congress hereafter enacted), as modified by any
applicable order or orders of the Commission, with respect to its continuance in
effect, its termination and the method of authorization and approval of such
contract or renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust or any Series thereof. No Trustee, officer, employee or agent of the Trust
or any Series thereof shall be subject to any personal liability whatsoever to
any Person, other than to the Trust or its Shareholders, in connection with
Trust Property or the affairs of the Trust, except to the extent arising from
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties with respect to such Person; and all such Persons shall look solely to
the Trust Property, or to the Property of one or more specific Series of the
Trust if the claim arises from the conduct of such Trustee, officer, employee or
agent with respect to only such Series, for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee, officer, employee, or agent, as such, of the Trust or any Series
thereof, is made a party to any suit or proceeding to enforce any such liability
of the Trust or any Series thereof, he shall not, on account thereof, be held to
any personal liability. The Trust shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities, to which such Shareholder
may become subject by reason of his being or having been a Shareholder, and
shall reimburse such Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) out of
the Trust Property for all legal and other expenses reasonably incurred by him
in connection with any such claim or liability. The indemnification and
reimbursement required by the preceding sentence shall be made only out of
assets of the one or more Series whose Shares were held by said Shareholder at
the time the act or event occurred which gave rise to the claim against or
liability of said Shareholder. The rights accruing to a Shareholder under this
Section 4.1 shall not impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right of the
Trust or any Series thereof to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer,
employee or agent of the Trust or any Series thereof shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, or
agent thereof for any action or failure to act (including without limitation the
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failure to compel in any way any former or acting Trustee to redress any breach
of trust) except for his own bad faith, willful misfeasance, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions
and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee, officer,
employee or agent of the Trust (including any individual who serves at
its request as director, officer, partner, trustee or the like of
another organization in which it has any interest as a shareholder,
creditor or otherwise) shall be indemnified by the Trust, or by one or
more Series thereof if the claim arises from his or her conduct with
respect to only such Series, to the fullest extent permitted by law
against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal, or other, including appeals), actual or threatened; and the
words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof or
the Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust or a
Series thereof;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(ii)
resulting in a payment by a Trustee or officer, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition;
(B) based upon a review of readily available facts
(as opposed to a full trial-type inquiry) by (x) vote of a
majority of the Non-interested Trustees acting on the matter
(provided that a majority of the Non-interested Trustees then
in office act on the matter) or (y) written opinion of
independent legal counsel; or
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(C) by a vote of a majority of the Shares outstanding
and entitled to vote (excluding Shares owned of record or
beneficially by such individual).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors, administrators
and assigns of such a person. Nothing contained herein shall affect any rights
to indemnification to which personnel of the Trust or any Series thereof other
than Trustees and officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust or a Series thereof prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some
other appropriate security provided by the recipient, or the Trust or
Series thereof shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Non-interested Trustees acting on the
matter (provided that a majority of the Non-interested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Non-interested Trustee" is one who (i)
is not an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or order of
the Commission), and (ii) is not involved in the claim, action, suit or
proceeding.
Section 4.4. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments,
Etc. No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust or a Series thereof
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered to
or on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other security of the
Trust or a Series thereof or undertaking, and every other act or thing
whatsoever executed in connection with the Trust shall be conclusively presumed
to have been executed or done by the executors thereof only in their capacity as
Trustees under this Declaration or in their capacity as officers, employees or
agents of the Trust or a Series thereof. Every written obligation, contract,
instrument, certificate, Share, other security of the Trust or a Series thereof
or undertaking made or issued by the Trustees may recite that the same is
executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of the Trust or a Series thereof under any
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such instrument are not binding upon any of the Trustees or Shareholders
individually, but bind only the Trust Property or the Trust Property of the
applicable Series, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property or the Trust Property of the applicable
Series, its Shareholders, Trustees, officers, employees and agents in such
amount as the Trustees shall deem adequate to cover possible tort liability, and
such other insurance as the Trustees in their sole judgment shall deem
advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee, officer or
employee of the Trust or a Series thereof shall, in the performance of his
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or a Series thereof, upon an opinion of
counsel, or upon reports made to the Trust or a Series thereof by any of its
officers or employees or by the Investment Adviser, the Administrator, the
Distributor, Transfer Agent, selected dealers, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees, officers
or employees of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest
without par value. The number of such Shares of beneficial interest authorized
hereunder is unlimited. The Trustees shall have the exclusive authority without
the requirement of Shareholder approval to establish and designate one or more
Series of shares and one or more Classes thereof as the Trustees deem necessary
or desirable. Each Share of any Series shall represent an equal proportionate
Share in the assets of that Series with each other Share in that Series. Subject
to the provisions of Section 5.11 hereof, the Trustees may also authorize the
creation of additional Series of Shares (the proceeds of which may be invested
in separate, independently managed portfolios) and additional Classes of Shares
within any Series. All Shares issued hereunder including, without limitation,
Shares issued in connection with a dividend in Shares or a split in Shares,
shall be fully paid and nonassessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to share or assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration. The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with respect
to any Series or Class of Shares.
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Section 5.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may,
from time to time without a vote of the Shareholders, issue Shares, in addition
to the then issued and outstanding Shares and Shares held in the treasury, to
such party or parties and for such amount and type of consideration, including
cash or property, at such time or times and on such terms as the Trustees may
deem best, except that only Shares previously contracted to be sold may be
issued during any period when the right of redemption is suspended pursuant to
Section 6.9 hereof, and may in such manner acquire other assets (including the
acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares and Shares held in the treasury. The
Trustees may from time to time divide or combine the Shares of the Trust or, if
the Shares be divided into Series or Classes, of any Series or any Class thereof
of the Trust, into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust or in the Trust Property
allocated or belonging to such Series or Class. Contributions to the Trust or
Series thereof may be accepted for, and Shares shall be redeemed as, whole
Shares and/or 1/1000ths of a Share or integral multiples thereof.
Section 5.5. Register of Shares. A register shall be kept at the
principal office of the Trust or an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as provided
herein or in the By-laws, until he has given his address to the Transfer Agent
or such other officer or agent of the Trustees as shall keep the said register
for entry thereon. It is not contemplated that certificates will be issued for
the Shares; however, the Trustees, in their discretion, may authorize the
issuance of share certificates and promulgate appropriate rules and regulations
as to their use.
Section 5.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
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Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 5.8. Treasury Shares. Shares held in the treasury shall, until
resold pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.13; (ii) with
respect to any investment advisory contract entered into pursuant to Section
3.2; (iii) with respect to termination of the Trust or a Series or Class thereof
as provided in Section 8.2; (iv) with respect to any amendment of this
Declaration to the limited extent and as provided in Section 8.3; (v) with
respect to a merger, consolidation or sale of assets as provided in Section 8.4;
(vi) with respect to incorporation of the Trust to the extent and as provided in
Section 8.5; (vii) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or a Series thereof or the Shareholders of either; (viii)
with respect to any plan adopted pursuant to Rule 12b-1 (or any successor rule)
under the 1940 Act, and related matters; and (ix) with respect to such
additional matters relating to the Trust as may be required by this Declaration,
the By-laws or any registration of the Trust as an investment company under the
1940 Act with the Commission (or any successor agency) or as the Trustees may
consider necessary or desirable. As determined by the Trustees without the vote
or consent of shareholders, on any matter submitted to a vote of Shareholders
either (i) each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote or (ii) each dollar of net asset value (number of
Shares owned times net asset value per share of such Series or Class, as
applicable) shall be entitled to one vote on any matter on which such Shares are
entitled to vote and each fractional dollar amount shall be entitled to a
proportionate fractional vote. The Trustees may, in conjunction with the
establishment of any further Series or any Classes of Shares, establish
conditions under which the several Series or Classes of Shares shall have
separate voting rights or no voting rights. There shall be no cumulative voting
in the election of Trustees. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, this
Declaration or the By-laws to be taken by Shareholders. The By-laws may include
further provisions for Shareholders' votes and meetings and related matters.
Section 5.10. Meetings of Shareholders. No annual or regular meetings
of Shareholders are required. Special meetings of the Shareholders, including
meetings involving only the holders of Shares of one or more but less than all
Series or Classes thereof, may be called at any time by the Chairman of the
Board, President, or any Vice-President of the Trust, and shall be called by the
President or the Secretary at the request, in writing or by resolution, of a
majority of the Trustees, or at the written request of the holder or holders of
ten percent (10%) or more of the total number of Outstanding Shares of the Trust
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entitled to vote at such meeting. Meetings of the Shareholders of any Series
shall be called by the President or the Secretary at the written request of the
holder or holders of ten percent (10%) or more of the total number of
Outstanding Shares of such Series of the Trust entitled to vote at such meeting.
Any such request shall state the purpose of the proposed meeting.
Section 5.11. Series or Class Designation. (a) Without limiting the
authority of the Trustees set forth in Section 5.1 to establish and designate
any further Series or Classes, the Trustees hereby establish the following
Series, each of which consists of two Classes of Shares: John Hancock
Massachusetts Tax-Free Income Fund, John Hancock New York Tax-Free Income Fund
and John Hancock Managed Tax-Exempt Fund (the "Existing Series").
(b) The Shares of the Existing Series and Class thereof herein
established and designated and any Shares of any further Series and Classes
thereof that may from time to time be established and designated by the Trustees
shall be established and designated, and the variations in the relative rights
and preferences as between the different Series shall be fixed and determined,
by the Trustees (unless the Trustees otherwise determine with respect to further
Series or Classes at the time of establishing and designating the same);
provided, that all Shares shall be identical except that there may be variations
so fixed and determined between different Series or Classes thereof as to
investment objective, policies and restrictions, purchase price, payment
obligations, distribution expenses, right of redemption, special and relative
rights as to dividends and on liquidation, conversion rights, exchange rights,
and conditions under which the several Series or Classes shall have separate
voting rights, all of which are subject to the limitations set forth below. All
references to Shares in this Declaration shall be deemed to be Shares of any or
all Series or Classes as the context may require.
(c) As to any Existing Series and Classes herein established and
designated and any further division of Shares of the Trust into additional
Series or Classes, the following provisions shall be applicable:
(i) The number of authorized Shares and the number of Shares
of each Series or Class thereof that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Shares or any Shares previously
issued and reacquired of any Series or Class into one or more Series or one or
more Classes that may be established and designated from time to time. The
Trustees may hold as treasury shares (of the same or some other Series or
Class), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any Series or Class reacquired by the Trust at their
discretion from time to time.
(ii) All consideration received by the Trust for the issue or
sale of Shares of a particular Series or Class, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees shall allocate them among any
one or more of the Series established and designated from time to time in such
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manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes. No holder of Shares of any
Series shall have any claim on or right to any assets allocated or belonging to
any other Series.
(iii) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that Series or the
appropriate Class or Classes thereof and all expenses, costs, charges and
reserves attributable to that Series or Class or Classes thereof, and any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the Series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series and Classes for all
purposes. The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items are capital; and each
such determination and allocation shall be conclusive and binding upon the
Shareholders. The assets of a particular Series of the Trust shall under no
circumstances be charged with liabilities attributable to any other Series or
Class thereof of the Trust. All persons extending credit to, or contracting with
or having any claim against a particular Series or Class of the Trust shall look
only to the assets of that particular Series for payment of such credit,
contract or claim.
(iv) The power of the Trustees to pay dividends and make
distributions shall be governed by Section 7.2 of this Declaration. With respect
to any Series or Class, dividends and distributions on Shares of a particular
Series or Class may be paid with such frequency as the Trustees may determine,
which may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Series or Class, from such of the
income and capital gains, accrued or realized, from the assets belonging to that
Series, as the Trustees may determine, after providing for actual and accrued
liabilities belonging to that Series or Class. All dividends and distributions
on Shares of a particular Series or Class shall be distributed pro rata to the
Shareholders of that Series or Class in proportion to the number of Shares of
that Series or Class held by such Shareholders at the time of record established
for the payment of such dividends or distribution.
(v) Each Share of a Series of the Trust shall represent a
beneficial interest in the net assets of such Series. Each holder of Shares of a
Series or Class thereof shall be entitled to receive his pro rata share of
distributions of income and capital gains made with respect to such Series or
Class net of expenses. Upon redemption of his Shares or indemnification for
liabilities incurred by reason of his being or having been a Shareholder of a
Series or Class, such Shareholder shall be paid solely out of the funds and
property of such Series of the Trust. Upon liquidation or termination of a
Series or Class thereof of the Trust, Shareholders of such Series or Class
thereof shall be entitled to receive a pro rata share of the net assets of such
Series. A Shareholder of a particular Series of the Trust shall not be entitled
to participate in a derivative or class action on behalf of any other Series or
the Shareholders of any other Series of the Trust.
(vi) On each matter submitted to a vote of Shareholders, all
Shares of all Series and Classes shall vote as a single class; provided,
however, that (1) as to any matter with respect to which a separate vote of any
Series or Class is required by the 1940 Act or is required by attributes
applicable to any Series or Class or is required by any Rule 12b-1 plan, such
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requirements as to a separate vote by that Series or Class shall apply, (2) to
the extent that a matter referred to in clause (1) above, affects more than one
Class or Series and the interests of each such Class or Series in the matter are
identical, then, subject to clause (3) below, the Shares of all such affected
Classes or Series shall vote as a single Class; (3) as to any matter which does
not affect the interests of a particular Series or Class, only the holders of
Shares of the one or more affected Series or Classes shall be entitled to vote;
and (4) the provisions of the following sentence shall apply. On any matter that
pertains to any particular Class of a particular Series or to any Class expenses
with respect to any Series which matter may be submitted to a vote of
Shareholders, only Shares of the affected Class or that Series, as the case may
be, shall be entitled to vote except that: (i) to the extent said matter affects
Shares of another Class or Series, such other Shares shall also be entitled to
vote, and in such cases Shares of the affected Class, as the case may be, of
such Series shall be voted in the aggregate together with such other Shares; and
(ii) to the extent that said matter does not affect Shares of a particular Class
of such Series, said Shares shall not be entitled to vote (except where
otherwise required by law or permitted by the Trustees acting in their sole
discretion) even though the matter is submitted to a vote of the Shareholders of
any other Class or Series.
(vii) Except as otherwise provided in this Article V, the
Trustees shall have the power to determine the designations, preferences,
privileges, payment obligations, limitations and rights, including voting and
dividend rights, of each Class and Series of Shares. Subject to compliance with
the requirements of the 1940 Act, the Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have the right
to convert or exchange said Shares into Shares of one or more Series or Classes
of Shares in accordance with such requirements, conditions and procedures as may
be established by the Trustees.
(viii) The establishment and designation of any Series or
Classes of Shares shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such establishment and designation
and the relative rights and preferences of such Series or Classes, or as
otherwise provided in such instrument. At any time that there are no Shares
outstanding of any particular Series or Class previously established and
designated, the Trustees may by an instrument executed by a majority of their
number abolish that Series or Class and the establishment and designation
thereof. Each instrument referred to in this section shall have the status of an
amendment to this Declaration.
Section 5.12. Assent to Declaration of Trust. Every Shareholder, by
virtue of having become a Shareholder, shall be held to have expressly assented
and agreed to the terms hereof and to have become a party hereto.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. (a) All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust. The
Trust may require any Shareholder to pay a sales charge to the Trust, the
underwriter, or any other person designated by the Trustees upon redemption or
repurchase of Shares in such amount and upon such conditions as shall be
determined from time to time by the Trustees.
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(b) The Trust shall redeem the Shares of the Trust or any Series or
Class thereof at the price determined as hereinafter set forth, upon the
appropriately verified written application of the record holder thereof (or upon
such other form of request as the Trustees may determine) at such office or
agency as may be designated from time to time for that purpose by the Trustees.
The Trustees may from time to time specify additional conditions, not
inconsistent with the 1940 Act, regarding the redemption of Shares in the
Trust's then effective Prospectus.
Section 6.2. Price. Shares shall be redeemed at a price based on their
net asset value determined as set forth in Section 7.1 hereof as of such time as
the Trustees shall have theretofore prescribed by resolution. In the absence of
such resolution, the redemption price of Shares deposited shall be based on the
net asset value of such Shares next determined as set forth in Section 7.1
hereof after receipt of such application. The amount of any contingent deferred
sales charge or redemption fee payable upon redemption of Shares may be deducted
from the proceeds of such redemption.
Section 6.3. Payment. Payment of the redemption price of Shares of the
Trust or any Series or Class thereof shall be made in cash or in property to the
Shareholder at such time and in the manner, not inconsistent with the 1940 Act
or other applicable laws, as may be specified from time to time in the Trust's
then effective Prospectus(es), subject to the provisions of Section 6.4 hereof.
Notwithstanding the foregoing, the Trustees may withhold from such redemption
proceeds any amount arising (i) from a liability of the redeeming Shareholder to
the Trust or (ii) in connection with any Federal or state tax withholding
requirements.
Section 6.4. Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of
the determination of net asset value with respect to Shares of the Trust or of
any Series or Class thereof, the rights of Shareholders (including those who
shall have applied for redemption pursuant to Section 6.1 hereof but who shall
not yet have received payment) to have Shares redeemed and paid for by the Trust
or a Series or Class thereof shall be suspended until the termination of such
suspension is declared. Any record holder who shall have his redemption right so
suspended may, during the period of such suspension, by appropriate written
notice of revocation at the office or agency where application was made, revoke
any application for redemption not honored and withdraw any Share certificates
on deposit. The redemption price of Shares for which redemption applications
have not been revoked shall be based on the net asset value of such Shares next
determined as set forth in Section 7.1 after the termination of such suspension,
and payment shall be made within seven (7) days after the date upon which the
application was made plus the period after such application during which the
determination of net asset value was suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
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Section 6.6. Redemption of Shareholder's Interest. The Trustees, in
their sole discretion, may cause the Trust to redeem all of the Shares of one or
more Series or Class thereof held by any Shareholder if the value of such Shares
held by such Shareholder is less than the minimum amount established from time
to time by the Trustees.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. (a) If the Trustees shall, at any
time and in good faith, be of the opinion that direct or indirect ownership of
Shares or other securities of the Trust has or may become concentrated in any
Person to an extent which would disqualify the Trust or any Series of the Trust
as a regulated investment company under the Internal Revenue Code of 1986, then
the Trustees shall have the power by lot or other means deemed equitable by them
(i) to call for redemption by any such Person a number, or principal amount, of
Shares or other securities of the Trust or any Series of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust or any Series of the Trust into conformity with the requirements
for such qualification and (ii) to refuse to transfer or issue Shares or other
securities of the Trust or any Series of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust or any Series of the
Trust in question would result in such disqualification. The redemption shall be
effected at the redemption price and in the manner provided in Section 6.1.
(b) The holders of Shares or other securities of the Trust or any
Series of the Trust shall upon demand disclose to the Trustees in writing such
information with respect to direct and indirect ownership of Shares or other
securities of the Trust or any Series of the Trust as the Trustees deem
necessary to comply with the provisions of the Internal Revenue Code of 1986, as
amended, or to comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of outstanding Shares
of the Trust or of any Series of the Trust pursuant to the provisions of Section
7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust or a Series
thereof of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Trust or a Series thereof fairly to determine the
value of its net assets, or (iv) during any other period when the Commission may
for the protection of Shareholders of the Trust by order permit suspension of
the right of redemption or postponement of the date of payment or redemption;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions prescribed in clauses (ii), (iii), or (iv) exist. Such
suspension shall take effect at such time as the Trust shall specify but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment on redemption until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which in the absence of an official ruling by
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the Commission, the determination of the Trust shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The net asset value of each outstanding
Share of the Trust or of each Series or Class thereof shall be determined on
such days and at such time or times as the Trustees may determine. The value of
the assets of the Trust or any Series thereof may be determined (i) by a pricing
service which utilizes electronic pricing techniques based on general
institutional trading, (ii) by appraisal of the securities owned by the Trust or
any Series of the Trust, (iii) in certain cases, at amortized cost, or (iv) by
such other method as shall be deemed to reflect the fair value thereof,
determined in good faith by or under the direction of the Trustees. From the
total value of said assets, there shall be deducted all indebtedness, interest,
taxes, payable or accrued, including estimated taxes on unrealized book profits,
expenses and management charges accrued to the appraisal date, net income
determined and declared as a distribution and all other items in the nature of
liabilities which shall be deemed appropriate, as incurred by or allocated to
the Trust or any Series or Class of the Trust. The resulting amount which shall
represent the total net assets of the Trust or Series or Class thereof shall be
divided by the number of Shares of the Trust or Series or Class thereof
outstanding at the time and the quotient so obtained shall be deemed to be the
net asset value of the Shares of the Trust or Series or Class thereof. The net
asset value of the Shares shall be determined at least once on each business
day, as of the close of regular trading on the New York Stock Exchange or as of
such other time or times as the Trustees shall determine. The power and duty to
make the daily calculations may be delegated by the Trustees to the Investment
Adviser, the Administrator, the Custodian, the Transfer Agent or such other
Person as the Trustees by resolution may determine. The Trustees may suspend the
daily determination of net asset value to the extent permitted by the 1940 Act.
It shall not be a violation of any provision of this Declaration if Shares are
sold, redeemed or repurchased by the Trust at a price other than one based on
net asset value if the net asset value is affected by one or more errors
inadvertently made in the pricing of portfolio securities or in accruing income,
expenses or liabilities.
Section 7.2. Distributions to Shareholders. (a) The Trustees shall from
time to time distribute ratably among the Shareholders of the Trust or of a
Series or Class thereof such proportion of the net profits, surplus (including
paid-in surplus), capital, or assets of the Trust or such Series held by the
Trustees as they may deem proper. Such distributions may be made in cash or
property (including without limitation any type of obligations of the Trust or
Series or Class or any assets thereof), and the Trustees may distribute ratably
among the Shareholders of the Trust or Series or Class thereof additional Shares
of the Trust or Series or Class thereof issuable hereunder in such manner, at
such times, and on such terms as the Trustees may deem proper. Such
distributions may be among the Shareholders of the Trust or Series or Class
thereof at the time of declaring a distribution or among the Shareholders of the
Trust or Series or Class thereof at such other date or time or dates or times as
the Trustees shall determine. The Trustees may in their discretion determine
that, solely for the purposes of such distributions, Outstanding Shares shall
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exclude Shares for which orders have been placed subsequent to a specified time
on the date the distribution is declared or on the next preceding day if the
distribution is declared as of a day on which Boston banks are not open for
business, all as described in the then effective Prospectus under the Securities
Act of 1933. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or a Series or
Class thereof or to meet obligations of the Trust or a Series or Class thereof,
or as they may deem desirable to use in the conduct of its affairs or to retain
for future requirements or extensions of the business. The Trustees may adopt
and offer to Shareholders such dividend reinvestment plans, cash dividend payout
plans or related plans as the Trustees shall deem appropriate. The Trustees may
in their discretion determine that an account administration fee or other
similar charge may be deducted directly from the income and other distributions
paid on Shares to a Shareholder's account in each Series or Class.
(b) Inasmuch as the computation of net income and gains for Federal
income tax purposes may vary from the computation thereof on the books, the
above provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or a Series or Class thereof to avoid or reduce liability for
taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares. Subject to Section 5.11 hereof, the net income
of the Series and Classes thereof of the Trust shall be determined in such
manner as the Trustees shall provide by resolution. Expenses of the Trust or of
a Series or Class thereof, including the advisory or management fee, shall be
accrued each day. Each Class shall bear only expenses relating to its Shares and
an allocable share of Series expenses in accordance with such policies as may be
established by the Trustees from time to time and as are not inconsistent with
the provisions of this Declaration or of any applicable document filed by the
Trust with the Commission or of the Internal Revenue Code of 1986, as amended.
Such net income may be determined by or under the direction of the Trustees as
of the close of regular trading on the New York Stock Exchange on each day on
which such market is open or as of such other time or times as the Trustees
shall determine, and, except as provided herein, all the net income of any
Series or Class, as so determined, may be declared as a dividend on the
Outstanding Shares of such Series or Class. If, for any reason, the net income
of any Series or Class determined at any time is a negative amount, or for any
other reason, the Trustees shall have the power with respect to such Series or
Class (i) to offset each Shareholder's pro rata share of such negative amount
from the accrued dividend account of such Shareholder, or (ii) to reduce the
number of Outstanding Shares of such Series or Class by reducing the number of
Shares in the account of such Shareholder by that number of full and fractional
Shares which represents the amount of such excess negative net income, or (iii)
to cause to be recorded on the books of the Trust an asset account in the amount
of such negative net income, which account may be reduced by the amount,
provided that the same shall thereupon become the property of the Trust with
respect to such Series or Class and shall not be paid to any Shareholder, of
dividends declared thereafter upon the Outstanding Shares of such Series or
Class on the day such negative net income is experienced, until such asset
account is reduced to zero. The Trustees shall have full discretion to determine
whether any cash or property received shall be treated as income or as principal
and whether any item of expense shall be charged to the income or the principal
account, and their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much if any of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
23
<PAGE>
Section 7.4. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VII, but subject to Section 5.11
hereof, the Trustees may prescribe, in their absolute discretion, such other
bases and times for determining the per Share net asset value of the Shares of
the Trust or a Series or Class thereof or net income of the Trust or a Series or
Class thereof, or the declaration and payment of dividends and distributions as
they may deem necessary or desirable. Without limiting the generality of the
foregoing, the Trustees may establish several Series or Classes of Shares in
accordance with Section 5.11, and declare dividends thereon in accordance with
Section 5.11(d)(iv).
ARTICLE VIII
DURATION; TERMINATION OF TRUST OR A SERIES OR CLASS;
AMENDMENT; MERGERS, ETC.
Section 8.1. Duration. The Trust shall continue without limitation of
time but subject to the provisions of this Article VIII.
Section 8.2. Termination of the Trust or a Series or a Class. The Trust
or any Series or Class thereof may be terminated by (i) the affirmative vote of
the holders of not less than two-thirds of the Outstanding Shares entitled to
vote and present in person or by proxy at any meeting of Shareholders of the
Trust or the appropriate Series or Class thereof, (ii) by an instrument or
instruments in writing without a meeting, consented to by the holders of
two-thirds of the Outstanding Shares of the Trust or a Series or Class thereof;
provided, however, that, if such termination as described in clauses (i) and
(ii) is recommended by the Trustees, the vote or written consent of the holders
of a majority of the Outstanding Shares of the Trust or a Series or Class
thereof entitled to vote shall be sufficient authorization, or (iii) notice to
Shareholders by means of an instrument in writing signed by a majority of the
Trustees, stating that a majority of the Trustees has determined that the
continuation of the Trust or a Series or a Class thereof is not in the best
interest of such Series or a Class, the Trust or their respective shareholders
as a result of factors or events adversely affecting the ability of such Series
or a Class or the Trust to conduct its business and operations in an
economically viable manner. Such factors and events may include (but are not
limited to) the inability of a Series or Class or the Trust to maintain its
assets at an appropriate size, changes in laws or regulations governing the
Series or Class or the Trust or affecting assets of the type in which such
Series or Class or the Trust invests or economic developments or trends having a
significant adverse impact on the business or operations of such Series or Class
or the Trust. Upon the termination of the Trust or the Series or Class,
(i) The Trust, Series or Class shall carry on no business
except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust, Series or Class and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust, Series or
Class shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust, Series or Class, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose
of all or any part of the remaining Trust Property or Trust Property
allocated or belonging to such Series or Class to one or more persons
at public or private sale for consideration which may consist in whole
24
<PAGE>
or in part of cash, securities or other property of any kind, discharge
or pay its liabilities, and do all other acts appropriate to liquidate
its business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property or Trust Property allocated or belonging to such Series or
Class that requires Shareholder approval in accordance with Section 8.4
hereof shall receive the approval so required.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property or the remaining
property of the terminated Series or Class, in cash or in kind or
partly each, among the Shareholders of the Trust or the Series or Class
according to their respective rights.
(b) After termination of the Trust, Series or Class and distribution to
the Shareholders as herein provided, a majority of the Trustees shall execute
and lodge among the records of the Trust and file with the Office of the
Secretary of The Commonwealth of Massachusetts an instrument in writing setting
forth the fact of such termination, and the Trustees shall thereupon be
discharged from all further liabilities and duties with respect to the Trust or
the terminated Series or Class, and the rights and interests of all Shareholders
of the Trust or the terminated Series or Class shall thereupon cease.
Section 8.3. Amendment Procedure. (a) This Declaration may be amended
by a vote of the holders of a majority of the Shares outstanding and entitled to
vote or by any instrument in writing, without a meeting, signed by a majority of
the Trustees and consented to by the holders of a majority of the Shares
outstanding and entitled to vote.
(b) This Declaration may be amended by a vote of a majority of
Trustees, without approval or consent of the Shareholders, except that no
amendment can be made by the Trustees to impair any voting or other rights of
shareholders prescribed by Federal or state law. Without limiting the foregoing,
the Trustees may amend this Declaration without the approval or consent of
Shareholders (i) to change the name of the Trust or any Series, (ii) to add to
their duties or obligations or surrender any rights or powers granted to them
herein; (iii) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein or to make any
other provisions with respect to matters or questions arising under this
Declaration which will not be inconsistent with the provisions of this
Declaration; and (iv) to eliminate or modify any provision of this Declaration
which (a) incorporates, memorializes or sets forth an existing requirement
imposed by or under any Federal or state statute or any rule, regulation or
interpretation thereof or thereunder or (b) any rule, regulation, interpretation
or guideline of any Federal or state agency, now or hereafter in effect,
including without limitation, requirements set forth in the 1940 Act and the
rules and regulations thereunder (and interpretations thereof), to the extent
any change in applicable law liberalizes, eliminates or modifies any such
requirements, but the Trustees shall not be liable for failure to do so.
(c) The Trustees may also amend this Declaration without the approval
or consent of Shareholders if they deem it necessary to conform this Declaration
to the requirements of applicable Federal or state laws or regulations or the
requirements of the regulated investment company provisions of the Internal
25
<PAGE>
Revenue Code of 1986, as amended, or if requested or required to do so by any
Federal agency or by a state Blue Sky commissioner or similar official, but the
Trustees shall not be liable for failing so to do.
(d) Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to permit
assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Trustees or by the
Shareholders as aforesaid or a copy of the Declaration, as amended, and executed
by a majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust or any
Series may merge or consolidate into any other corporation, association, trust
or other organization or may sell, lease or exchange all or substantially all of
the Trust Property or Trust Property allocated or belonging to such Series,
including its good will, upon such terms and conditions and for such
consideration when and as authorized at any meeting of Shareholders called for
the purpose by the affirmative vote of the holders of two-thirds of the Shares
of the Trust or such Series outstanding and entitled to vote and present in
person or by proxy at a meeting of Shareholders, or by an instrument or
instruments in writing without a meeting, consented to by the holders of
two-thirds of the Shares of the Trust or such Series; provided, however, that,
if such merger, consolidation, sale, lease or exchange is recommended by the
Trustees, the vote or written consent of the holders of a majority of the
Outstanding Shares of the Trust or such Series entitled to vote shall be
sufficient authorization; and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished under and
pursuant to Massachusetts law.
Section 8.5. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all or any portion of the Trust Property or the Trust Property
allocated or belonging to such Series or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer all or any portion of the Trust Property or the Trust Property
allocated or belonging to such Series to any such corporation, trust,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust or such Series holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring all or a portion of the Trust Property to such organization or
entities.
26
<PAGE>
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders of
each Series a written financial report of the transactions of the Trust and
Series thereof, including financial statements which shall at least annually be
certified by independent public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Execution and Filing. This Declaration and any amendment
hereto shall be filed in the office of the Secretary of The Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its execution. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and filed with the Secretary of The Commonwealth of
Massachusetts. A restated Declaration shall, upon execution, be conclusive
evidence of all amendments contained therein and may thereafter be referred to
in lieu of the original Declaration and the various amendments thereto.
Section 10.2. Governing Law. This Declaration is executed by the
Trustees and delivered in The Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying (a) the number or identity of Trustees or Shareholders,
(b) the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Shareholders, (d) the fact
that the number of Trustees or Shareholders present at any meeting or executing
any written instrument satisfies the requirements of this Declaration, (e) the
form of any By-laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
27
<PAGE>
Section 10.5. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986 or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 1st of July, 1996.
/s/ Edward J. Boudreau, Jr.
------------------------------------
Edward J. Boudreau, Jr.
as Trustee and not individually,
34 Swan Road
Winchester, Massachusetts 01890
/s/ Dennis S. Aronowitz
------------------------------------
Dennis S. Aronowitz
as Trustee and not individually,
1216 Falls Boulevard
Fort Lauderdale, Florida 33327
/s/ Richard P. Chapman, Jr.
------------------------------------
Richard P. Chapman, Jr.
as Trustee and not individually,
107 Upland Road
Brookline, Massachusetts 02146
/s/ William J. Cosgrove
------------------------------------
William J. Cosgrove
as Trustee and not individually,
20 Buttonwood Place
Saddle River, New Jersey 07458
28
<PAGE>
/s/ Gail D. Fosler
------------------------------------
Gail D. Fosler
as Trustee and not individually,
4104 Woodbine Street
Chevy Chase, Maryland 20815
/s/ Anne C. Hodsdon
------------------------------------
Anne C. Hodsdon
as Trustee and not individually,
135 Woodland Road
Hampton, New Hampshire 03842
/s/ Richard S. Scipione
------------------------------------
Richard S. Scipione
as Trustee and not individually,
4 Sentinel Road
Hingham, Massachusetts 02043
/s/ Edward J. Spellman
------------------------------------
Edward J. Spellman
as Trustee and not individually,
259C Commercial Boulevard
Suite 200
Lauderdale by the Sea, Florida 33308
/s/ Douglas M. Costle
------------------------------------
Douglas M. Costle
as Trustee and not individually,
RR2 Box 480
Woodstock, Vermont 05091
/s/ Leland O. Erdahl
------------------------------------
Leland O. Erdahl
as Trustee and not individually,
8046 MacKenzie Court
Las Vegas, Nevada 89129
29
<PAGE>
/s/ Richard A. Farrell
------------------------------------
Richard A. Farrell
as Trustee and not individually,
50 Beacon Street
Marblehead, Massachusetts 01945
/s/ Dr. John A. Moore
------------------------------------
Dr. John A. Moore
as Trustee and not individually,
P.O. Box 474
Wicomico, Virginia 22579
/s/ William F. Glavin
------------------------------------
William F. Glavin
as Trustee and not individually,
56 Whiting Road
Wellesley, Massachusetts 02181
/s/ Patti McGill Peterson
------------------------------------
Patti McGill Peterson
as Trustee and not individually,
54 E. Main Street
Canton, New York 13617
/s/ John W. Pratt
------------------------------------
John W. Pratt
as Trustee and not individually,
2 Gray Gardens East
Cambridge, Massachusetts 02138
30
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
SUFFOLK COUNTY, MASSACHUSETTS
July 1, 1996
Then personally appeared the above-named persons, Edward J. Boudreau,
Jr., Dennis S. Aronowitz, Richard P. Chapman, Jr., William J. Cosgrove, Gail D.
Fosler, Anne C. Hodsdon, Douglas M. Costle, Leland O. Erdahl, Richard A.
Farrell, William F. Glavin, Patti McGill Peterson and John W. Pratt, who
acknowledged the foregoing instrument to be his free act and deed.
Before me,
/s/ Ann Marie White
-----------------------------------
Notary Public
My commission expires: 10/20/00
31
JOHN HANCOCK TAX-EXEMPT SERIES FUND
Establishment and Designation of
Class A Shares and Class B Shares
of Beneficial Interest of
John Hancock Tax-Exempt Series Fund
- Massachusetts Portfolio
- New York Portfolio
and
Instrument Changing Name of Series of Shares of the Trust
The undersigned, being a majority of the Trustees of John Hancock
Tax-Exempt Series Fund, a Massachusetts business trust (the "Trust"), acting
pursuant to Sections 5.1 and 5.11 of the Declaration of Trust dated March 24,
1987 of the Trust, as amended from time to time (the "Declaration"), do hereby
divide the shares of beneficial interest (the "Shares") of the Massachusetts
Portfolio and the New York Portfolio (each portfolio a "Series") of John Hancock
Tax-Exempt Series Fund to create two classes of Shares of each series of the
Trust effective, July 1, 1996 as follows:
1. The two classes of Shares of each series of the Trust
established and designated hereby are "Class A Shares," and
"Class B Shares," respectively.
2. Class A Shares and Class B Shares shall each be entitled to
all of the rights and preferences accorded to Shares under the
Declaration.
3. The purchase price of Class A Shares and Class B Shares, the
method of determining the net asset value of Class A Shares
and of Class B Shares, and the relative dividend rights of
holders of Class A Shares and of holders of Class B Shares
shall be established by the Trustees of the Trust in
accordance with the provisions of the Declaration and shall be
set forth in the Trust's Registration Statement on Form N-1A
under the Securities Act of 1933 and the Investment Company
Act of 1940, as amended and as in effect at the time of
issuing such shares.
4. All Shares of each series of the Trust issued prior to the
filing of this instrument with the Secretary of State of The
Commonwealth of Massachusetts shall be deemed Class A Shares,
as the case may be, and the Trustees, acting in their sole
discretion, may determine that Shares of either series of the
Trust issued after such time are Class A Shares or Class B
Shares, or Shares of any other class of any series of the
Trust hereafter established and designated by the Trustees.
The undersigned, being a majority of the Trustees of the Trust, do
hereby amend the Trust's Declaration to the extent necessary to reflect the
change of the names of Massachusetts Portfolio to John Hancock Massachusetts
Tax-Free IncomeFund and New York Portfolio to John Hancock New York Tax-Free
Income Fund, effective July 1, 1996.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument this
5th day of March, 1996.
/s/Edward J. Boudreau, Jr.
- -------------------------------- --------------------------------
Edward J. Boudreau, Jr. William J. Cosgrove
as Trustee and not individually as Trustee and not individually
34 Swan Road 20 Buttonwood Place
Winchester, MA 01890 Saddle River, NJ 07458
/s/Dennis S. Aronowitz
- -------------------------------- --------------------------------
Dennis S. Aronowitz Bayard Henry
as Trustee and not individually as Trustee and not individually
1216 Falls Boulevard 214A Allandale Road
Fort Lauderdale, FL 33327 Chestnut Hill, MA 02167-3200
/s/Richard P. Chapman, Jr. /s/Richard S. Scipione
- -------------------------------- --------------------------------
Richard P. Chapman, Jr. Richard S. Scipione
as Trustee and not individually as Trustee and not individually
107 Upland Road 4 Sentinel Road
Brookline, MA 02146 Hingham, MA 02043
/s/ Edward J. Spellman
- -------------------------------- --------------------------------
Gail D. Fosler Edward J. Spellman
as Trustee and not individually as Trustee and not individually
4104 Woodbine Street 259 C Commercial Blvd., Suite 200
Chevy Chase, MD 20815 Lauderdale By the Sea, FL 33308
/s/Douglas M. Costle /s/Leland O. Erdahl
- -------------------------------- --------------------------------
Douglas M. Costle Leland O. Erdahl
as Trustee and not individually as Trustee and not individually
RR2 Box 480 8046 Mackenzie Court
Woodstock, VT 05091 Las Vegas, NV 89129
<PAGE>
/s/Richard A. Farrell /s/William F. Glavin
- -------------------------------- --------------------------------
Richard A. Farrell William F. Glavin
as Trustee and not individually as Trustee and not individually
50 Beacon Street 56 Whiting Road
Marblehead, MA 01945 Wellesley, MA 02181
/s/Patti McGill Peterson /s/John A. Moore
- -------------------------------- --------------------------------
Patti McGill Peterson Dr. John A. Moore
as Trustee and not individually as Trustee and not individually
54 E. Main Street P.O. Box 474
Canton, NY 13617 Wicomico Church, VA 22579
/s/ John W. Pratt
- --------------------------------
John W. Pratt
as Trustee and not individually
2 Gray Gardens East
Cambridge, MA 02138
The Declaration, a copy of which, together with all amendments thereto,
is on file in the office of the Secretary of State of the Commonwealth of
Massachusetts provides that no Trustee, officer, employee or agent of the Fund
or any Series thereof shall be subject to any personal liability whatsoever to
any Person, other than to the Trust or its shareholders, in connection with
Trust Property or the affairs of the Fund, save only that arising from bad
faith, willful misfeasance, gross negligence, or reckless disregard of his/her
duties with respect to such Person; and all such Persons shall look solely to
the Trust Property, or to the Trust Property of one or more specific Series of
the Fund if the claim arises from the conduct of such Trustee, officer, employee
or agent with respect to only such Series, for satisfaction of claims of any
nature arising in connection with the affairs of the Fund.
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
)ss
COUNTY OF SUFFOLK )
Then personally appeared the above-named Edward J. Boudreau, Jr.,
Dennis S. Aronowitz, Richard P. Chapman, Jr., Douglas M. Costle, Richard S.
Scipione, Edward J. Spellman, Leland O. Erdahl, Richard A. Farrell, William F.
Glavin, John A. Moore, Patti McGill Peterson, and John W. Pratt, who each
acknowledged the foregoing instrument to be his or her fee act and deed, before
me, this 5th day of March 1996.
/s/ Ann Marie Kalapinski
-----------------------------
Notary Public
My Commission Expires: 10/20/00
AMENDED AND RESTATED
BY-LAWS
OF
JOHN HANCOCK TAX-EXEMPT SERIES FUND
DECEMBER 3, 1996
<PAGE>
<TABLE>
Table of Contents
Page
<S> <C>
ARTICLE I -- Definitions .........................................................................1
ARTICLE II -- Offices .........................................................................1
Section 2.1 Principal Office.........................................................1
Section 2.2 Other Offices............................................................1
ARTICLE III -- Shareholders .........................................................................1
Section 3.1 Meetings.................................................................1
Section 3.2 Notice of Meetings.......................................................1
Section 3.3 Record Date for Meetings and Other Purposes..............................1
Section 3.4 Proxies..................................................................2
Section 3.5 Abstentions and Broker Non-Votes.........................................2
Section 3.6 Inspection of Records....................................................2
Section 3.7 Action without Meeting...................................................3
ARTICLE IV -- Trustees .........................................................................3
Section 4.1 Meetings of the Trustees.................................................3
Section 4.2 Quorum and Manner of Acting..............................................3
ARTICLE V -- Committees .........................................................................4
Section 5.1 Executive and Other Committees...........................................4
Section 5.2 Meetings, Quorum and Manner of Acting....................................4
-i-
<PAGE>
ARTICLE VI -- Officers .........................................................................4
Section 6.1 General Provisions.......................................................4
Section 6.2 Election, Term of Office and Qualifications..............................5
Section 6.3 Removal..................................................................5
Section 6.4 Powers and Duties of the Chairman........................................5
Section 6.5 Powers and Duties of the Vice Chairman...................................5
Section 6.6 Powers and Duties of the President.......................................5
Section 6.7 Powers and Duties of Vice Presidents.....................................5
Section 6.8 Powers and Duties of the Treasurer.......................................6
Section 6.9 Powers and Duties of the Secretary.......................................6
Section 6.10 Powers and Duties of Assistant Officers..................................6
Section 6.11 Powers and Duties of Assistant Secretaries...............................6
Section 6.12 Compensation of Officers and Trustees and
Members of the Advisory Board........................................6
ARTICLE VII -- Fiscal Year .........................................................................7
ARTICLE VIII -- Seal .........................................................................7
ARTICLE IX -- Sufficiency and Waivers of Notice............................................................7
ARTICLE X -- Amendments .........................................................................7
</TABLE>
-ii-
<PAGE>
ARTICLE I
DEFINITIONS
All capitalized terms have the respective meanings given them in the Amended and
Restated Declaration of Trust of John Hancock Tax-Exempt Series Fund dated July
1, 1996, as amended or restated from time to time.
ARTICLE II
OFFICES
Section 2.1. Principal Office. Until changed by the Trustees, the principal
office of the Trust shall be in Boston, Massachusetts.
Section 2.2. Other Offices. The Trust may have offices in such other places
without as well as within The Commonwealth of Massachusetts as the Trustees may
from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 3.1. Meetings. Meetings of the Shareholders of the Trust or a Series or
Class thereof shall be held as provided in the Declaration of Trust at such
place within or without The Commonwealth of Massachusetts as the Trustees shall
designate. The holders of a majority the Outstanding Shares of the Trust or a
Series or Class thereof present in person or by proxy and entitled to vote shall
constitute a quorum at any meeting of the Shareholders of the Trust or a Series
or Class thereof.
Section 3.2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail or telegraphic means to each Shareholder at his address as
recorded on the register of the Trust mailed at least seven (7) days before the
meeting, provided, however, that notice of a meeting need not be given to a
Shareholder to whom such notice need not be given under the proxy rules of the
Commission under the 1940 Act and the Securities Exchange Act of 1934, as
amended. Any adjourned meeting may be held as adjourned without further notice.
No notice need be given to any Shareholder who shall have failed to inform the
Trust of his current address or if a written waiver of notice, executed before
or after the meeting by the Shareholder or his attorney thereunto authorized, is
filed with the records of the meeting.
1
<PAGE>
Section 3.3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding sixty (60) days, as the Trustees may determine; or without
closing the transfer books the Trustees may fix a date not more than ninety (90)
days prior to the date of any meeting of Shareholders or distribution or other
action as a record date for the determination of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by the Declaration of Trust.
Section 3.4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken. A
proxy shall be deemed signed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting or telegraphic transmission) by the
shareholder or the shareholder's attorney-in-fact. Proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each whole share shall be
entitled to one vote as to any matter on which it is entitled by the Declaration
of Trust to vote and fractional shares shall be entitled to a proportionate
fractional vote. When any Share is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy,
including a photographic or similar reproduction thereof and a telegram,
cablegram, wireless or similar transmission thereof, purporting to be executed
by or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. If the holder of any such Share is a minor or a person of unsound
mind, and subject to guardianship or the legal control of any other person as
regards the charge or management of such Share, he may vote by his guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy. The placing of a Shareholder's name on a proxy pursuant
to telephonic or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such Shareholder shall constitute execution of such proxy by or on
behalf of such Shareholder.
Section 3.5. Abstentions and Broker Non-Votes. Outstanding Shares represented in
person or by proxy (including Shares which abstain or do not vote with respect
to one or more of any proposals presented for Shareholder approval) will be
counted for purposes of determining whether a quorum is present at a meeting.
Abstentions will be treated as Shares that are present and entitled to vote for
purposes of determining the number of Shares that are present and entitled to
vote with respect to any particular proposal, but will not be counted as a vote
in favor of such proposal. If a broker or nominee holding Shares in "street
name" indicates on the proxy that it does not have discretionary authority to
vote as to a particular proposal, those Shares will not be considered as present
and entitled to vote with respect to such proposal.
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Section 3.6. Inspection of Records. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
Section 3.7. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Outstanding Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration of Trust, or the By-laws) consent to the action
in writing and the written consents are filed with the records of the meetings
of Shareholders. Such consents shall be treated for all purposes as a vote taken
at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 4.1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, the Chairman
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be given by telephone, cable, wireless, facsimilie or
electronic means to each Trustee at his business address, or personally
delivered to him at least one day before the meeting. Such notice may, however,
be waived by any Trustee. Notice of a meeting need not be given to any Trustee
if a written waiver of notice, executed by him before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A notice or waiver of notice need not specify the purpose of any meeting.
The Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall be deemed to have been held at a place designated by the Trustees at the
meeting. Participation in a telephone conference meeting shall constitute
presence in person at such meeting. Any action required or permitted to be taken
at any meeting of the Trustees may be taken by the Trustees without a meeting if
a majority of the Trustees consent to the action in writing and the written
consents are filed with the records of the Trustees' meetings. Such consents
shall be treated as a vote for all purposes.
Section 4.2. Quorum and Manner of Acting. A majority of the Trustees shall be
present in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration of Trust or these By-laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
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ARTICLE V
COMMITTEES
Section 5.1. Executive and Other Committees. The Trustees by vote of a majority
of all the Trustees may elect from their own number an Executive Committee to
consist of not less than two (2) members to hold office at the pleasure of the
Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust or a Series thereof, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
them except those powers which by law, the Declaration of Trust or these By-laws
they are prohibited from delegating. The Trustees may also elect from their own
number other Committees from time to time; the number composing such Committees,
the powers conferred upon the same (subject to the same limitations as with
respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation the Committee
may elect its own Chairman.
Section 5.2. Meetings, Quorum and Manner of Acting. The Trustees may (1) provide
for stated meetings of any Committee, (2) specify the manner of calling and
notice required for special meetings of any Committee, (3) specify the number of
members of a Committee required to constitute a quorum and the number of members
of a Committee required to exercise specified powers delegated to such
Committee, (4) authorize the making of decisions to exercise specified powers by
written assent of the requisite number of members of a Committee without a
meeting, and (5) authorize the members of a Committee to meet by means of a
telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
Section 6.1. General Provisions. The officers of the Trust shall be a Chairman,
a President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers or agents.
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Section 6.2. Election, Term of Office and Qualifications. The officers of the
Trust and any Series thereof (except those appointed pursuant to Section 6.10)
shall be elected by the Trustees. Except as provided in Sections 6.3 and 6.4 of
this Article VI, each officer elected by the Trustees shall hold office at the
pleasure of the Trustees. Any two or more offices may be held by the same
person. The Chairman of the Board shall be selected from among the Trustees and
may hold such office only so long as he/she continue to be a Trustee. Any
Trustee or officer may be but need not be a Shareholder of the Trust.
Section 6.3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 6.4. Powers and Duties of the Chairman. The Chairman shall preside at
the meetings of the Shareholders and of the Trustees. He may call meetings of
the Trustees and of any committee thereof whenever he deems it necessary. He
shall be the Chief Executive Officer of the Trust and shall have, with the
President, general supervision over the business and policies of the Trust.
Section 6.5. Powers and Duties of the Vice Chairman. The Trustees may, but need
not, appoint one or more Vice Chairman of the Trust. A Vice Chairman shall be an
executive officer of the Trust and shall have the powers and duties of a Vice
President of the Trust as provided in Section 7 of this Article VI. The Vice
Chairman shall perform such duties as may be assigned to him or her from time to
time by the Trustees or the Chairman.
Section 6.6. Powers and Duties of the President. The President shall preside at
all meetings of the Shareholders in the absence of the Chairman. Subject to the
control of the Trustees and to the control of any Committees of the Trustees,
within their respective spheres as provided by the Trustees, he shall at all
times exercise general supervision over the business and policies of the Trust.
He shall have the power to employ attorneys and counsel for the Trust or any
Series or Class thereof and to employ such subordinate officers, agents, clerks
and employees as he may find necessary to transact the business of the Trust or
any Series or Class thereof. He shall also have the power to grant, issue,
execute or sign such powers of attorney, proxies or other documents as may be
deemed advisable or necessary in furtherance of the interests of the Trust or
any Series thereof. The President shall have such other powers and duties, as
from time to time may be conferred upon or assigned to him by the Trustees.
Section 6.7. Powers and Duties of Vice Presidents. In the absence or disability
of the President, the Vice President or, if there be more than one Vice
President, any Vice President designated by the Trustees, shall perform all the
duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
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Section 6.8. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust or any Series or Class thereof which may come into his hands
to such Custodian as the Trustees may employ. He shall render a statement of
condition of the finances of the Trust or any Series or Class thereof to the
Trustees as often as they shall require the same and he shall in general perform
all the duties incident to the office of a Treasurer and such other duties as
from time to time may be assigned to him by the Trustees. The Treasurer shall
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 6.9. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders in proper books
provided for that purpose; he shall have custody of the seal of the Trust; he
shall have charge of the Share transfer books, lists and records unless the same
are in the charge of a transfer agent. He shall attend to the giving and serving
of all notices by the Trust in accordance with the provisions of these By-laws
and as required by law; and subject to these By-laws, he shall in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Trustees.
Section 6.10. Powers and Duties of Assistant Officers. In the absence or
disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall give a bond for the faithful discharge of his duties, if required so to do
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
Section 6.11. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him by the Trustees.
Section 6.12. Compensation of Officers and Trustees and Members of the Advisory
Board. Subject to any applicable provisions of the Declaration of Trust, the
compensation of the officers and Trustees and members of an advisory board shall
be fixed from time to time by the Trustees or, in the case of officers, by any
Committee or officer upon whom such power may be conferred by the Trustees. No
officer shall be prevented from receiving such compensation as such officer by
reason of the fact that he is also a Trustee.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust and any Series thereof shall be established
by resolution of the Trustees.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have such
inscription thereon as the Trustees may from time to time prescribe but the
absence of a seal shall not impair the validity or execution of any document.
ARTICLE IX
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the Declaration of
Trust or these By-laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been sent by mail, telegraph, cable, wireless, facsimilie or electronic means
for the purposes of these By-laws when it has been delivered to a representative
of any entity holding itself out as capable of sending notice by such means with
instructions that it be so sent.
ARTICLE X
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed, or new
By-laws may be adopted by a vote of a majority of the Trustees, provided,
however, that no By-law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to federal or state law,
the Declaration of Trust or these By-laws, a vote of the Shareholders.
END OF BY-LAWS
7
JOHN HANCOCK NEW YORK TAX-FREE INCOME FUND
(a series of John Hancock Tax-Exempt Series Fund)
101 Huntington Avenue
Boston, Massachusetts 02199
July 1, 1996
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
------------------------------
Ladies and Gentlemen:
John Hancock Tax-Exempt Series Fund (the "Trust"), of which John
Hancock New York Tax-Free Income Fund (the "Fund") is a series, has been
organized as a business trust under the laws of The Commonwealth of
Massachusetts to engage in the business of an investment company. The Trust's
shares of beneficial interest, no par value, may be divided into series, each
series representing the entire undivided interest in a separate portfolio of
assets. This Agreement relates solely to the Fund.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and the Adviser is willing to provide such advice, management
and services under the terms and conditions hereinafter set forth.
Accordingly, the Adviser and the Trust, on behalf of the Fund, agree as
follows:
1. DELIVERY OF DOCUMENTS. The Trust has furnished the Adviser with
copies, properly certified or otherwise authenticated, of each of the following:
(a) Amended and Restated Declaration of Trust dated July 1, 1996,
as amended from time to time (the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as
investment adviser for the Fund and approving the form of this
Agreement;
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states; and
(e) The Trust's Code of Ethics.
<PAGE>
The Trust will furnish to the Adviser from time to time copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
2. INVESTMENT AND MANAGEMENT SERVICES. The Adviser will use its best
efforts to provide to the Fund continuing and suitable investment programs with
respect to investments, consistent with the investment objectives, policies and
restrictions of the Fund. In the performance of the Adviser's duties hereunder,
subject always (x) to the provisions contained in the documents delivered to the
Adviser pursuant to Section 1, as each of the same may from time to time be
amended or supplemented, and (y) to the limitations set forth in the Fund's
then-current Prospectus and Statement of Additional Information included in the
registration statement of the Trust as in effect from time to time under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended (the "1940 Act"), the Adviser will, at its own expense:
(a) furnish the Fund with advice and recommendations, consistent
with the investment objectives, policies and restrictions of
the Fund, with respect to the purchase, holding and
disposition of portfolio securities, alone or in consultation
with any subadviser or subadvisers appointed pursuant to this
Agreement and subject to the provisions of any sub-investment
management contract respecting the responsibilities of such
subadviser or subadvisers;
(b) advise the Fund in connection with policy decisions to be made
by the Trustees or any committee thereof with respect to the
Fund's investments and, as requested, furnish the Fund with
research, economic and statistical data in connection with the
Fund's investments and investment policies;
(c) provide administration of the day-to-day investment operations
of the Fund;
(d) submit such reports relating to the valuation of the Fund's
securities as the Trustees may reasonably request;
(e) assist the Fund in any negotiations relating to the Fund's
investments with issuers, investment banking firms, securities
brokers or dealers and other institutions or investors;
(f) consistent with the provisions of Section 7 of this Agreement,
place orders for the purchase, sale or exchange of portfolio
securities with brokers or dealers selected by the Adviser,
PROVIDED that in connection with the placing of such orders
and the selection of such brokers or dealers the Adviser shall
seek to obtain execution and pricing within the policy
guidelines determined by the Trustees and set forth in the
Prospectus and Statement of Additional Information of the Fund
as in effect from time to time;
(g) provide office space and office equipment and supplies, the
use of accounting equipment when required, and necessary
executive, clerical and secretarial personnel for the
administration of the affairs of the Fund;
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<PAGE>
(h) from time to time or at any time requested by the Trustees,
make reports to the Fund of the Adviser's performance of the
foregoing services and furnish advice and recommendations with
respect to other aspects of the business and affairs of the
Fund;
(i) maintain all books and records with respect to the Fund's
securities transactions required by the 1940 Act, including
subparagraphs (b)(5), (6), (9) and (10) and paragraph (f) of
Rule 31a-1 thereunder (other than those records being
maintained by the Fund's custodian or transfer agent) and
preserve such records for the periods prescribed therefor by
Rule 31a-2 of the 1940 Act (the Adviser agrees that such
records are the property of the Fund and will be surrendered
to the Fund promptly upon request therefor);
(j) obtain and evaluate such information relating to economies,
industries, businesses, securities markets and securities as
the Adviser may deem necessary or useful in the discharge of
the Adviser's duties hereunder;
(k) oversee, and use the Adviser's best efforts to assure the
performance of the activities and services of the custodian,
transfer agent or other similar agents retained by the Fund;
(l) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment
of cash for the account of the Fund; and
(m) appoint and employ one or more sub-advisors satisfactory to
the Fund under sub-investment management agreements.
3. EXPENSES PAID BY THE ADVISER. The Adviser will pay:
(a) the compensation and expenses of all officers and employees of
the Trust;
(b) the expenses of office rent, telephone and other utilities,
office furniture, equipment, supplies and other expenses of
the Fund; and
(c) any other expenses incurred by the Adviser in connection with
the performance of its duties hereunder.
4. EXPENSES OF THE FUND NOT PAID BY THE ADVISER. The Adviser will not
be required to pay any expenses which this Agreement does not expressly make
payable by it. In particular, and without limiting the generality of the
foregoing but subject to the provisions of Section 3, the Adviser will not be
required to pay under this Agreement:
(a) any and all expenses, taxes and governmental fees incurred by
the Trust or the Fund prior to the effective date of this
Agreement;
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<PAGE>
(b) without limiting the generality of the foregoing clause (a),
the expenses of organizing the Trust and the Fund (including
without limitation, legal, accounting and auditing fees and
expenses incurred in connection with the matters referred to
in this clause (b)), of initially registering shares of the
Trust under the Securities Act of 1933, as amended, and of
qualifying the shares for sale under state securities laws for
the initial offering and sale of shares;
(c) the compensation and expenses of Trustees who are not
interested persons (as used in this Agreement, such term shall
have the meaning specified in the 1940 Act) of the Adviser and
of independent advisers, independent contractors, consultants,
managers and other unaffiliated agents employed by the Fund
other than through the Adviser;
(d) legal, accounting, financial management, tax and auditing fees
and expenses of the Fund (including an allocable portion of
the cost of its employees rendering such services to the
Fund);
(e) the fees and disbursements of custodians and depositories of
the Fund's assets, transfer agents, disbursing agents, plan
agents and registrars;
(f) taxes and governmental fees assessed against the Fund's assets
and payable by the Fund;
(g) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders of the
Fund;
(h) brokers' commissions and underwriting fees;
(i) the expense of periodic calculations of the net asset value of
the shares of the Fund; and
(j) insurance premiums on fidelity, errors and omissions and other
coverages.
5. COMPENSATION OF THE ADVISER. For all services to be rendered,
facilities furnished and expenses paid or assumed by the Adviser as herein
provided, the Adviser shall be entitled to a fee, paid monthly in arrears, at an
annual rate equal to (i) 0.500% of the average daily net asset value of the Fund
up to $250,000,000 of average daily net assets, (ii) 0.450% of the next
$250,000,000 of the average daily net asset value of the Fund, (iii) 0.425% of
the next $500,000,000 of the average daily net asset value of the Fund, (iv)
0.400% of the next $250,000,000 of the average daily net asset value of the Fund
and (v) 0.300% of the average daily net asset value of the Fund in excess of
$1,250,000,000.
The "average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's Prospectus or otherwise consistent with the 1940
Act and the regulations promulgated thereunder. The Adviser will receive a pro
4
<PAGE>
rata portion of such monthly fee for any periods in which the Adviser serves as
investment adviser to the Fund for less than a full month. On any day that the
net asset value calculation is suspended as specified in the Fund's Prospectus,
the net asset value for purposes of calculating the advisory fee shall be
calculated as of the date last determined.
In the event that normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any limitation
imposed by the law of a state where the Fund has registered its shares of
beneficial interest, the fee payable to the Adviser will be reduced to the
extent required by law, and the Adviser will make any additional arrangements
that the Adviser is required by law to make.
In addition, the Adviser may agree not to impose all or a portion of
its fee (in advance of the time its fee would otherwise accrue) and/or undertake
to make any other payments or arrangements necessary to limit the Fund's
expenses to any level the Adviser may specify. Any fee reduction or undertaking
shall constitute a binding modification of this Agreement while it is in effect
but may be discontinued or modified prospectively by the Adviser at any time.
6. OTHER ACTIVITIES OF THE ADVISER AND ITS AFFILIATES. Nothing herein
contained shall prevent the Adviser or any affiliate or associate of the Adviser
from engaging in any other business or from acting as investment adviser or
investment manager for any other person or entity, whether or not having
investment policies or portfolios similar to the Fund's; and it is specifically
understood that officers, directors and employees of the Adviser and those of
its parent company, John Hancock Mutual Life Insurance Company, or other
affiliates may continue to engage in providing portfolio management services and
advice to other investment companies, whether or not registered, to other
investment advisory clients of the Adviser or of its affiliates and to said
affiliates themselves.
The Adviser shall have no obligation to acquire with respect to the
Fund a position in any investment which the Adviser, its officers, affiliates or
employees may acquire for its or their own accounts or for the account of
another client, if, in the sole discretion of the Adviser, it is not feasible or
desirable to acquire a position in such investment on behalf of the Fund.
Nothing herein contained shall prevent the Adviser from purchasing or
recommending the purchase of a particular security for one or more funds or
clients while other funds or clients may be selling the same security.
7. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the Adviser
nor any of its investment management subsidiaries, nor any of the Adviser's or
such investment management subsidiaries' directors, officers or employees will
act as principal or agent or receive any commission, except as may be permitted
by the 1940 Act and rules and regulations promulgated thereunder. If any
occasions shall arise in which the Adviser advises persons concerning the shares
of the Fund, the Adviser will act solely on its own behalf and not in any way on
behalf of the Fund. Nothing herein contained shall limit or restrict the Adviser
or any of its officers, affiliates or employees from buying, selling or trading
in any securities for its or their own account or accounts.
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<PAGE>
8. NO PARTNERSHIP OR JOINT VENTURE. Neither the Trust, the Fund nor the
Adviser are partners of or joint venturers with each other and nothing herein
shall be construed so as to make them such partners or joint venturers or impose
any liability as such on any of them.
9. NAME OF THE TRUST AND THE FUND. The Trust and the Fund may use the
name "John Hancock" or any name or names derived from or similar to the names
"John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company"
only for so long as this Agreement remains in effect. At such time as this
Agreement shall no longer be in effect, the Trust and the Fund will (to the
extent that they lawfully can) cease to use such a name or any other name
indicating that the Fund is advised by or otherwise connected with the Adviser.
The Fund acknowledges that it has adopted the name John Hancock New York
Tax-Free Income Fund through permission of John Hancock Mutual Life Insurance
Company, a Massachusetts insurance company, and agrees that John Hancock Mutual
Life Insurance Company reserves to itself and any successor to its business the
right to grant the nonexclusive right to use the name "John Hancock" or any
similar name or names to any other corporation or entity, including but not
limited to any investment company of which John Hancock Mutual Life Insurance
Company or any subsidiary or affiliate thereof shall be the investment adviser.
10. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement. Any person, even
though also employed by the Adviser, who may be or become an employee of and
paid by the Trust shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Trust and
not as the Adviser's employee or agent.
11. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall
remain in force until June 30, 1998, and from year to year thereafter, but only
so long as such continuance is specifically approved at least annually by (a) a
majority of the Trustees who are not interested persons of the Adviser or (other
than as Board members) of the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and (b) either (i) the Trustees or (ii) a
majority of the outstanding voting securities of the Fund. This Agreement may,
on 60 days' written notice, be terminated at any time without the payment of any
penalty by the vote of a majority of the outstanding voting securities of the
Fund, by the Trustees or by the Adviser. Termination of this Agreement shall not
be deemed to terminate or otherwise invalidate any provisions of any contract
between the Adviser and any other series of the Trust. This Agreement shall
automatically terminate in the event of its assignment. In interpreting the
provisions of this Section 11, the definitions contained in Section 2(a) of the
1940 Act (particularly the definitions of "assignment," "interested person" and
"voting security") shall be applied.
12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment, transfer, assignment,
sale, hypothecation or pledge of this Agreement shall be effective until
approved by (a) the Trustees, including a majority of the Trustees who are not
interested persons of the Adviser or (other than as Trustees) of the Fund, cast
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<PAGE>
in person at a meeting called for the purpose of voting on such approval, and
(b) a majority of the outstanding voting securities of the Fund, as defined in
the 1940 Act.
13. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts.
14. SEVERABILITY. The provisions of this Agreement are independent of
and separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be deemed invalid or unenforceable in whole or in part.
15. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The name John Hancock New York Tax-Free Income Fund
is a series designation of the Trustees under the Trust's Declaration of Trust.
The Declaration of Trust has been filed with the Secretary of State of The
Commonwealth of Massachusetts. The obligations of the Fund are not personally
binding upon, nor shall resort be had to the private property of, any of the
Trustees, shareholders, officers, employees or agents of the Trust, but only
upon the Fund and its property. The Fund shall not be liable for the obligations
of any other series of the Trust and no other series shall be liable for the
Fund's obligations hereunder.
Yours very truly,
JOHN HANCOCK TAX-EXEMPT SERIES FUND
on behalf of John Hancock New York
Tax-Free Income Fund
By: /s/ Anne C. Hodsdon
-----------------------------------
Title: President
The foregoing contract is hereby agreed to as of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Robert G. Freedman
------------------------------
Title: Vice Chairman and Chief Investment Officer
7
JOHN HANCOCK MASSACHUSETTS TAX-FREE INCOME FUND
(a series of John Hancock Tax-Exempt Series Fund)
101 Huntington Avenue
Boston, Massachusetts 02199
July 1, 1996
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
------------------------------
Ladies and Gentlemen:
John Hancock Tax-Exempt Series Fund (the "Trust"), of which John
Hancock Massachusetts Tax-Free Income Fund (the "Fund") is a series, has been
organized as a business trust under the laws of The Commonwealth of
Massachusetts to engage in the business of an investment company. The Trust's
shares of beneficial interest, no par value, may be divided into series, each
series representing the entire undivided interest in a separate portfolio of
assets. This Agreement relates solely to the Fund.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and the Adviser is willing to provide such advice, management
and services under the terms and conditions hereinafter set forth.
Accordingly, the Adviser and the Trust, on behalf of the Fund, agree as
follows:
1. DELIVERY OF DOCUMENTS. The Trust has furnished the Adviser with
copies, properly certified or otherwise authenticated, of each of the following:
(a) Amended and Restated Declaration of Trust dated July 1, 1996,
as amended from time to time (the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as
investment adviser for the Fund and approving the form of this
Agreement;
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states; and
(e) The Trust's Code of Ethics.
<PAGE>
The Trust will furnish to the Adviser from time to time copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
2. INVESTMENT AND MANAGEMENT SERVICES. The Adviser will use its best
efforts to provide to the Fund continuing and suitable investment programs with
respect to investments, consistent with the investment objectives, policies and
restrictions of the Fund. In the performance of the Adviser's duties hereunder,
subject always (x) to the provisions contained in the documents delivered to the
Adviser pursuant to Section 1, as each of the same may from time to time be
amended or supplemented, and (y) to the limitations set forth in the Fund's
then-current Prospectus and Statement of Additional Information included in the
registration statement of the Trust as in effect from time to time under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended (the "1940 Act"), the Adviser will, at its own expense:
(a) furnish the Fund with advice and recommendations, consistent
with the investment objectives, policies and restrictions of
the Fund, with respect to the purchase, holding and
disposition of portfolio securities, alone or in consultation
with any subadviser or subadvisers appointed pursuant to this
Agreement and subject to the provisions of any sub-investment
management contract respecting the responsibilities of such
subadviser or subadvisers;
(b) advise the Fund in connection with policy decisions to be made
by the Trustees or any committee thereof with respect to the
Fund's investments and, as requested, furnish the Fund with
research, economic and statistical data in connection with the
Fund's investments and investment policies;
(c) provide administration of the day-to-day investment operations
of the Fund;
(d) submit such reports relating to the valuation of the Fund's
securities as the Trustees may reasonably request;
(e) assist the Fund in any negotiations relating to the Fund's
investments with issuers, investment banking firms, securities
brokers or dealers and other institutions or investors;
(f) consistent with the provisions of Section 7 of this Agreement,
place orders for the purchase, sale or exchange of portfolio
securities with brokers or dealers selected by the Adviser,
PROVIDED that in connection with the placing of such orders
and the selection of such brokers or dealers the Adviser shall
seek to obtain execution and pricing within the policy
guidelines determined by the Trustees and set forth in the
Prospectus and Statement of Additional Information of the Fund
as in effect from time to time;
(g) provide office space and office equipment and supplies, the
use of accounting equipment when required, and necessary
executive, clerical and secretarial personnel for the
administration of the affairs of the Fund;
2
<PAGE>
(h) from time to time or at any time requested by the Trustees,
make reports to the Fund of the Adviser's performance of the
foregoing services and furnish advice and recommendations with
respect to other aspects of the business and affairs of the
Fund;
(i) maintain all books and records with respect to the Fund's
securities transactions required by the 1940 Act, including
subparagraphs (b)(5), (6), (9) and (10) and paragraph (f) of
Rule 31a-1 thereunder (other than those records being
maintained by the Fund's custodian or transfer agent) and
preserve such records for the periods prescribed therefor by
Rule 31a-2 of the 1940 Act (the Adviser agrees that such
records are the property of the Fund and will be surrendered
to the Fund promptly upon request therefor);
(j) obtain and evaluate such information relating to economies,
industries, businesses, securities markets and securities as
the Adviser may deem necessary or useful in the discharge of
the Adviser's duties hereunder;
(k) oversee, and use the Adviser's best efforts to assure the
performance of the activities and services of the custodian,
transfer agent or other similar agents retained by the Fund;
(l) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment
of cash for the account of the Fund; and
(m) appoint and employ one or more sub-advisors satisfactory to
the Fund under sub-investment management agreements.
3. EXPENSES PAID BY THE ADVISER. The Adviser will pay:
(a) the compensation and expenses of all officers and employees of
the Trust;
(b) the expenses of office rent, telephone and other utilities,
office furniture, equipment, supplies and other expenses of
the Fund; and
(c) any other expenses incurred by the Adviser in connection with
the performance of its duties hereunder.
4. EXPENSES OF THE FUND NOT PAID BY THE ADVISER. The Adviser will not
be required to pay any expenses which this Agreement does not expressly make
payable by it. In particular, and without limiting the generality of the
foregoing but subject to the provisions of Section 3, the Adviser will not be
required to pay under this Agreement:
(a) any and all expenses, taxes and governmental fees incurred by
the Trust or the Fund prior to the effective date of this
Agreement;
3
<PAGE>
(b) without limiting the generality of the foregoing clause (a),
the expenses of organizing the Trust and the Fund (including
without limitation, legal, accounting and auditing fees and
expenses incurred in connection with the matters referred to
in this clause (b)), of initially registering shares of the
Trust under the Securities Act of 1933, as amended, and of
qualifying the shares for sale under state securities laws for
the initial offering and sale of shares;
(c) the compensation and expenses of Trustees who are not
interested persons (as used in this Agreement, such term shall
have the meaning specified in the 1940 Act) of the Adviser and
of independent advisers, independent contractors, consultants,
managers and other unaffiliated agents employed by the Fund
other than through the Adviser;
(d) legal, accounting, financial management, tax and auditing fees
and expenses of the Fund (including an allocable portion of
the cost of its employees rendering such services to the
Fund);
(e) the fees and disbursements of custodians and depositories of
the Fund's assets, transfer agents, disbursing agents, plan
agents and registrars;
(f) taxes and governmental fees assessed against the Fund's assets
and payable by the Fund;
(g) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders of the
Fund;
(h) brokers' commissions and underwriting fees;
(i) the expense of periodic calculations of the net asset value of
the shares of the Fund; and
(j) insurance premiums on fidelity, errors and omissions and other
coverages.
5. COMPENSATION OF THE ADVISER. For all services to be rendered,
facilities furnished and expenses paid or assumed by the Adviser as herein
provided, the Adviser shall be entitled to a fee, paid monthly in arrears, at an
annual rate equal to (i) 0.500% of the average daily net asset value of the Fund
up to $250,000,000 of average daily net assets, (ii) 0.450% of the next
$250,000,000 of the average daily net asset value of the Fund, (iii) 0.425% of
the next $500,000,000 of the average daily net asset value of the Fund, (iv)
0.400% of the next $250,000,000 of the average daily net asset value of the Fund
and (v) 0.300% of the average daily net asset value of the Fund in excess of
$1,250,000,000.
The "average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's Prospectus or otherwise consistent with the 1940
Act and the regulations promulgated thereunder. The Adviser will receive a pro
4
<PAGE>
rata portion of such monthly fee for any periods in which the Adviser serves as
investment adviser to the Fund for less than a full month. On any day that the
net asset value calculation is suspended as specified in the Fund's Prospectus,
the net asset value for purposes of calculating the advisory fee shall be
calculated as of the date last determined.
In the event that normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any limitation
imposed by the law of a state where the Fund has registered its shares of
beneficial interest, the fee payable to the Adviser will be reduced to the
extent required by law, and the Adviser will make any additional arrangements
that the Adviser is required by law to make.
In addition, the Adviser may agree not to impose all or a portion of
its fee (in advance of the time its fee would otherwise accrue) and/or undertake
to make any other payments or arrangements necessary to limit the Fund's
expenses to any level the Adviser may specify. Any fee reduction or undertaking
shall constitute a binding modification of this Agreement while it is in effect
but may be discontinued or modified prospectively by the Adviser at any time.
6. OTHER ACTIVITIES OF THE ADVISER AND ITS AFFILIATES. Nothing herein
contained shall prevent the Adviser or any affiliate or associate of the Adviser
from engaging in any other business or from acting as investment adviser or
investment manager for any other person or entity, whether or not having
investment policies or portfolios similar to the Fund's; and it is specifically
understood that officers, directors and employees of the Adviser and those of
its parent company, John Hancock Mutual Life Insurance Company, or other
affiliates may continue to engage in providing portfolio management services and
advice to other investment companies, whether or not registered, to other
investment advisory clients of the Adviser or of its affiliates and to said
affiliates themselves.
The Adviser shall have no obligation to acquire with respect to the
Fund a position in any investment which the Adviser, its officers, affiliates or
employees may acquire for its or their own accounts or for the account of
another client, if, in the sole discretion of the Adviser, it is not feasible or
desirable to acquire a position in such investment on behalf of the Fund.
Nothing herein contained shall prevent the Adviser from purchasing or
recommending the purchase of a particular security for one or more funds or
clients while other funds or clients may be selling the same security.
7. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the Adviser
nor any of its investment management subsidiaries, nor any of the Adviser's or
such investment management subsidiaries' directors, officers or employees will
act as principal or agent or receive any commission, except as may be permitted
by the 1940 Act and rules and regulations promulgated thereunder. If any
occasions shall arise in which the Adviser advises persons concerning the shares
of the Fund, the Adviser will act solely on its own behalf and not in any way on
behalf of the Fund. Nothing herein contained shall limit or restrict the Adviser
or any of its officers, affiliates or employees from buying, selling or trading
in any securities for its or their own account or accounts.
5
<PAGE>
8. NO PARTNERSHIP OR JOINT VENTURE. Neither the Trust, the Fund nor the
Adviser are partners of or joint venturers with each other and nothing herein
shall be construed so as to make them such partners or joint venturers or impose
any liability as such on any of them.
9. NAME OF THE TRUST AND THE FUND. The Trust and the Fund may use the
name "John Hancock" or any name or names derived from or similar to the names
"John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance Company"
only for so long as this Agreement remains in effect. At such time as this
Agreement shall no longer be in effect, the Trust and the Fund will (to the
extent that they lawfully can) cease to use such a name or any other name
indicating that the Fund is advised by or otherwise connected with the Adviser.
The Fund acknowledges that it has adopted the name John Hancock Massachusetts
Tax-Free Income Fund through permission of John Hancock Mutual Life Insurance
Company, a Massachusetts insurance company, and agrees that John Hancock Mutual
Life Insurance Company reserves to itself and any successor to its business the
right to grant the nonexclusive right to use the name "John Hancock" or any
similar name or names to any other corporation or entity, including but not
limited to any investment company of which John Hancock Mutual Life Insurance
Company or any subsidiary or affiliate thereof shall be the investment adviser.
10. LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement. Any person, even
though also employed by the Adviser, who may be or become an employee of and
paid by the Trust shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Trust and
not as the Adviser's employee or agent.
11. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall
remain in force until June 30, 1998, and from year to year thereafter, but only
so long as such continuance is specifically approved at least annually by (a) a
majority of the Trustees who are not interested persons of the Adviser or (other
than as Board members) of the Fund, cast in person at a meeting called for the
purpose of voting on such approval, and (b) either (i) the Trustees or (ii) a
majority of the outstanding voting securities of the Fund. This Agreement may,
on 60 days' written notice, be terminated at any time without the payment of any
penalty by the vote of a majority of the outstanding voting securities of the
Fund, by the Trustees or by the Adviser. Termination of this Agreement shall not
be deemed to terminate or otherwise invalidate any provisions of any contract
between the Adviser and any other series of the Trust. This Agreement shall
automatically terminate in the event of its assignment. In interpreting the
provisions of this Section 11, the definitions contained in Section 2(a) of the
1940 Act (particularly the definitions of "assignment," "interested person" and
"voting security") shall be applied.
12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment, transfer, assignment,
sale, hypothecation or pledge of this Agreement shall be effective until
approved by (a) the Trustees, including a majority of the Trustees who are not
interested persons of the Adviser or (other than as Trustees) of the Fund, cast
6
<PAGE>
in person at a meeting called for the purpose of voting on such approval, and
(b) a majority of the outstanding voting securities of the Fund, as defined in
the 1940 Act.
13. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts.
14. SEVERABILITY. The provisions of this Agreement are independent of
and separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be deemed invalid or unenforceable in whole or in part.
15. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The name John Hancock Massachusetts Tax-Free Income
Fund is a series designation of the Trustees under the Trust's Declaration of
Trust. The Declaration of Trust has been filed with the Secretary of State of
The Commonwealth of Massachusetts. The obligations of the Fund are not
personally binding upon, nor shall resort be had to the private property of, any
of the Trustees, shareholders, officers, employees or agents of the Trust, but
only upon the Fund and its property. The Fund shall not be liable for the
obligations of any other series of the Trust and no other series shall be liable
for the Fund's obligations hereunder.
Yours very truly,
JOHN HANCOCK TAX-EXEMPT SERIES FUND
on behalf of John Hancock Massachusetts
Tax-Free Income Fund
By: /s/ Anne C. Hodsdon
-----------------------------
Title: President
The foregoing contract is hereby agreed to as of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Robert G. Freedman
-----------------------------
Title: Vice Chairman and Chief Investment Officer
7
December 20, 1996
EDGAR FILING
John Hancock Tax-Exempt Series Fund
101 Huntington Avenue
Boston, MA 02199
Re: John Hancock Tax-Exempt Series Fund (the "Trust")
(File Nos.: 33-12947 and 811-5079) (0000811921)
Ladies and Gentlemen:
In connection with the filing of Post-Effective Amendment No. 13 pursuant to
Rule 24e-2 under the Investment Company Act of 1940, as amended, registering by
Post-Effective Amendment No. 13 under the Securities Act of 1933, as amended,
219,152 shares of the John Hancock Massachusetts Tax-Free Income Fund and John
Hancock New York Tax-Free Income Fund (the "Funds") sold in reliance upon Rule
24e-2 during the fiscal year ending August 31, 1996, it is the opinion of the
undersigned that such shares will be legally issued, fully paid and
nonassessable.
In connection with this opinion it should be noted that the Trust is an entity
of the type generally known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of a Massachusetts business trust may be held
personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for obligations of the
Trust and indemnifies any shareholder of the Trust, with this indemnification to
be paid solely out of the assets of the Trust. Therefore, the shareholder's risk
is limited to circumstances in which the assets of the Trust are insufficient to
meet the obligations asserted against Trust assets.
Sincerely,
/s/ Theresa Apruzzese
Theresa Apruzzese
Assistant Secretary
Member of Massachusetts Bar
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting parts of this Post Effective Amendment No. 12 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
October 9, 1996, relating to the financial highlights of the John Hancock
Massachusetts Tax-Free Income Fund and the John Hancock New York Tax-Free Income
Fund, which appear in such Statement of Additional Information, and to the
incorporation by reference of our reports into the Prospectus which constitutes
part of this Registration Statement. We also consent to the references to us
under the headings "Independent Accountants" and "Independent Auditors" in such
Statement of Additional Information and under the heading "Financial Highlights"
in such Prospectus.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 19, 1996
JOHN HANCOCK TAX-EXEMPT SERIES FUND --
MASSACHUSETTS PORTFOLIO
NEW YORK PORTFOLIO
January 3, 1994
Amended and Restated Distribution Plan
As of September 15, 1995
Class A Shares
Article I. This Plan
This amended and restated Distribution Plan (the "Plan") sets forth the
terms and conditions on which John Hancock Tax-Exempt Series Fund (the "Trust"),
on behalf of the Massachusetts Portfolio and New York Portfolio (the
"Portfolios"), two series portfolios of the Trust, on behalf of the Portfolios'
Class A shares, will, after the effective date hereof, pay certain amounts to
John Hancock Funds ("JH Funds") in connection with the provision by JH Funds of
certain services to the Fund and its Class A shareholders, as set forth herein.
Certain of such payments by each Portfolio may, under Rule 12b-1 of the
Securities and Exchange Commission, as from time to time amended (the "Rule"),
under the Investment Company Act of 1940, as amended (the "Act"), be deemed to
constitute the financing of distribution by a Portfolio of its shares. This Plan
describes all material aspects of such financing as contemplated by the Rule and
shall be administered and interpreted, and implemented and continued, in a
manner consistent with the Rule. The Trust and JH Funds heretofore entered into
a Distribution Agreement, dated August 1, 1991 (the "Agreement"), the terms of
which, as heretofore and from time to time continued, are incorporated herein by
reference.
Article II. Distribution and Service Expenses
Each Portfolio shall pay to JH Funds a fee in the amount specified in
Article III hereof. Such fee may be spent by JH Funds on any activities or
expenses primarily intended to result in the sale of Class A shares of a
Portfolio, including, but not limited to the payment of Distribution Expenses
(as defined below) and Service Expenses (as defined below). Distribution
Expenses include but are not limited to, (a) initial and ongoing sales
compensation out of such fee as it is received by JH Funds of a Portfolio or
other broker-dealers ("Selling Brokers") that have entered into an agreement
with Broker Services for the sale of Class A shares of a Portfolio, (b) direct
out-of-pocket expenses incurred in connection with the distribution of Class A
shares of a Portfolio, including expenses related to printing of prospectuses
and reports to other than existing Class A shareholders of a Portfolio, and
preparation, printing and distribution of sales literature and advertising
materials, and (c) an allocation of overhead and other branch office expenses of
JH Funds related to the distribution of Class A shares of a Portfolio.
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class A shareholders of a Portfolio.
Article III. Maximum Expenditures
The expenditures to be made by each Portfolio pursuant to this Plan,
and the basis upon which such expenditures will be made, shall be determined by
each Portfolio, and in no event shall such expenditures exceed 0.30% of the
average daily net asset value of the Class A shares of a Portfolio (determined
in accordance with each Portfolio's prospectus as from time to time in effect)
on an annual basis to cover Distribution Expenses and Service Expenses, provided
that the portion of such fee used to cover service expenses shall not exceed an
annual rate of up to 0.25% of the average daily net asset value of the Class A
shares of the Portfolio. Such expenditures shall be calculated and accrued daily
<PAGE>
and paid monthly or at such other intervals as the Trustees shall determine. In
the event JH Funds is not fully reimbursed for payments made or other expenses
incurred by it under this Plan, such expenses will not be carried beyond one
year from the date such expenses were incurred. Any fees paid to JH Funds under
this Plan during any fiscal year of a Portfolio and not expended or allocated by
JH Funds for actual or budgeted Distribution Expenses and Service Expenses
during such fiscal year will be promptly returned to the Portfolio.
Article IV. Expenses Borne by the Portfolio
Notwithstanding any other provision of this Plan, the Trust, each
Portfolio and its investment adviser, John Hancock Advisers, Inc. (the
"Adviser"), shall bear the respective expenses to be borne by them under the
Investment Management Contract, as amended, dated May 5, 1987, as from time to
time continued and amended (the "Management Contract"), and under the
Portfolios' current prospectus as it is from time to time in effect. Except as
otherwise contemplated by this Plan, the Trust, and as Portfolio shall not,
directly or indirectly, engage in financing any activity which is primarily
intended to or should reasonably result in the sale of shares of the Portfolio.
Article V. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder) of (a) all of the Trustees
of the Portfolios and (b) those Trustees of the Portfolios who are not
"interested persons" of the Portfolios, as such term may be from time to time
defined under the Act, and have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the "Independent
Trustees").
Article VI. Continuance
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article V.
Article VII. Information
JH Funds shall furnish the Portfolio and its Trustees quarterly, or at
such other intervals as the Portfolio shall specify, a written report of amounts
expended or incurred for Distribution Expenses and Service Expenses pursuant to
this Plan and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article VIII. Termination
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Portfolio's outstanding voting Class A shares, or (b) by JH Funds on 60 days'
notice in writing to the Portfolio.
Article IX. Agreements
Each agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
2
<PAGE>
(a) That, with respect to the Portfolio, such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the Portfolio's then outstanding voting
Class A shares.
(b) That such agreement shall terminate automatically in the event of its
assignment.
Article X. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Portfolio hereunder without the approval of a majority of the
outstanding voting Class A shares of the Portfolio. No material amendment to the
Plan shall, in any event, be effective unless it is approved in the same manner
as is provided for approval of this Plan in Article V.
Article XI. Limitation of Liability
The names "John Hancock Tax-Exempt Series Fund -- Massachusetts
Portfolio; New York Portfolio" are the designations of the Trustees under the
Declaration of Trust, dated March 24, 1987, as amended from time to time. The
Declaration of Trust has been filed with the Secretary of State of the
Commonwealth of Massachusetts. The obligations of the Trust and each Portfolio
are not personally binding upon, nor shall resort be had to the private property
of, any of the Trustees, shareholders, officers, employees or agents of the
Portfolio, but only each Portfolio's property shall be bound. No Portfolio of
the Trust shall be responsible for the obligations of any other Portfolio of the
Trust.
IN WITNESS WHEREOF, the Trust has executed this amended and restated
Distribution Plan effective as of the 15th day of September, 1995 in Boston,
Massachusetts.
JOHN HANCOCK TAX-EXEMPT SERIES FUND
- John Hancock Massachusetts Tax-Free Income Fund
- John Hancock New York Tax-Free Income Fund
By /s/ Anne C. Hodsdon
------------------------------------------
President
JOHN HANCOCK FUNDS, INC.
By /s/ Edward J. Boudreau
------------------------------------------
Chairman, President & Chief Executive Officer
JOHN HANCOCK TAX-EXEMPT SERIES FUND
- John Hancock Massachusetts Tax-Free Income Fund
- John Hancock New York Tax-Free Income Fund
July 1, 1996
Class B Shares
Article I. This Plan
This Distribution Plan (the "Plan") sets forth the terms and conditions
on which John Hancock Tax-Exempt Series Fund (the "Trust"), on behalf of the
John Hancock Massachusetts Tax-Free Income Fund and John Hancock New York
Tax-Free Income Fund (the "Funds"), two series Funds of the Trust, on behalf of
the Funds' Class B shares, will, after the effective date hereof, pay certain
amounts to John Hancock Funds, Inc. ("JH Funds") in connection with the
provision by JH Funds of certain services to the Fund and its Class B
shareholders, as set forth herein. Certain of such payments by each Fund may,
under Rule 12b-1 of the Securities and Exchange Commission, as from time to time
amended (the "Rule"), under the Investment Company Act of 1940, as amended (the
"Act"), be deemed to constitute the financing of distribution by a Fund of its
shares. This Plan describes all material aspects of such financing as
contemplated by the Rule and shall be administered and interpreted, and
implemented and continued, in a manner consistent with the Rule. The Trust and
JH Funds heretofore entered into a Distribution Agreement, dated August 1, 1991
(the "Agreement"), the terms of which, as heretofore and from time to time
continued, are incorporated herein by reference.
Article II. Distribution and Service Expenses
Each Fund shall pay to JH Funds a fee in the amount specified in
Article III hereof. Such fee may be spent by JH Funds on any activities or
expenses primarily intended to result in the sale of Class B shares of a Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by JH Funds of a Fund or other broker-dealers ("Selling
Brokers") that have entered into an agreement with Broker Services for the sale
of Class B shares of a Fund, (b) direct out-of-pocket expenses incurred in
connection with the distribution of Class B shares of a Fund, including expenses
related to printing of prospectuses and reports to other than existing Class B
shareholders of a Fund, and preparation, printing and distribution of sales
literature and advertising materials, and (c) an allocation of overhead and
other branch office expenses of JH Funds related to the distribution of Class B
shares of a Fund.
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class B shareholders of a Fund.
Article III. Maximum Expenditures
The expenditures to be made by each Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by each
Fund, and in no event shall such expenditures exceed 0.30% of the average daily
net asset value of the Class B shares of a Fund (determined in accordance with
each Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover service expenses shall not exceed an annual rate of up to
0.25% of the average daily net asset value of the Class B shares of the Fund.
Such expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine. In the event JH Funds is
<PAGE>
not fully reimbursed for payments made or other expenses incurred by it under
this Plan, such expenses will not be carried beyond one year from the date such
expenses were incurred. Any fees paid to JH Funds under this Plan during any
fiscal year of a Fund and not expended or allocated by JH Funds for actual or
budgeted Distribution Expenses and Service Expenses during such fiscal year will
be promptly returned to the Fund.
Article IV. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, each Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment Management
Contract, as amended, dated May 5, 1987, as from time to time continued and
amended (the "Management Contract"), and under the Funds' current prospectus as
it is from time to time in effect. Except as otherwise contemplated by this
Plan, the Trust, and as Fund shall not, directly or indirectly, engage in
financing any activity which is primarily intended to or should reasonably
result in the sale of shares of the Fund.
Article V. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder) of (a) all of the Trustees
of the Funds and (b) those Trustees of the Funds who are not "interested
persons" of the Funds, as such term may be from time to time defined under the
Act, and have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Independent Trustees").
Article VI. Continuance
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article V.
Article VII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Service Expenses pursuant to this Plan
and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article VIII. Termination
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class B shares, or (b) by JH Funds on 60 days' notice
in writing to the Fund.
Article IX. Agreements
Each agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the Independent
Trustees or by vote of a majority of the Fund's then outstanding voting Class B
shares.
2
<PAGE>
(b) That such agreement shall terminate automatically in the event of its
assignment.
Article X. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class B shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article V.
Article XI. Limitation of Liability
The names "John Hancock Tax-Exempt Series Fund -- John Hancock
Massachusetts Tax-Free Income Fund; John Hancock New York Tax-Free Income Fund"
are the designations of the Trustees under the Declaration of Trust, Amended and
Restated as of July 1, 1996, as amended from time to time. The Declaration of
Trust has been filed with the Secretary of State of the Commonwealth of
Massachusetts. The obligations of the Trust and each Fund are not personally
binding upon, nor shall resort be had to the private property of, any of the
Trustees, shareholders, officers, employees or agents of the Fund, but only each
Fund's property shall be bound. No Fund of the Trust shall be responsible for
the obligations of any other Fund of the Trust.
IN WITNESS WHEREOF, the Trust has executed this Distribution Plan
effective as of the 1st day of July, 1996 in Boston, Massachusetts.
JOHN HANCOCK TAX-EXEMPT SERIES FUND
- John Hancock Massachusetts Tax-Free Income Fund
- John Hancock New York Tax-Free Income Fund
By: /s/ Anne C. Hodsdon
-----------------------------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/ Edward J. Boudreau
-----------------------------------------
Chairman, President & Chief Executive Officer
3
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> JOHN HANCOCK MASSACHUSETTS TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 52,629,498
<INVESTMENTS-AT-VALUE> 54,016,278
<RECEIVABLES> 837,238
<ASSETS-OTHER> 379,776
<OTHER-ITEMS-ASSETS> 1,386,780
<TOTAL-ASSETS> 55,233,292
<PAYABLE-FOR-SECURITIES> 576
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,954
<TOTAL-LIABILITIES> 64,530
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,394,914
<SHARES-COMMON-STOCK> 4,731,610
<SHARES-COMMON-PRIOR> 4,627,583
<ACCUMULATED-NII-CURRENT> 5,145
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (618,275)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 55,168,762
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,485,882
<OTHER-INCOME> 0
<EXPENSES-NET> 391,192
<NET-INVESTMENT-INCOME> 3,094,690
<REALIZED-GAINS-CURRENT> 79,113
<APPREC-INCREASE-CURRENT> (573,560)
<NET-CHANGE-FROM-OPS> 2,600,243
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,094,690
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 664,442
<NUMBER-OF-SHARES-REDEEMED> 736,253
<SHARES-REINVESTED> 175,838
<NET-CHANGE-IN-ASSETS> (56,933)
<ACCUMULATED-NII-PRIOR> 1,994
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<GROSS-EXPENSE> 658,660
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<PER-SHARE-NAV-BEGIN> 11.76
<PER-SHARE-NII> 0.65
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<PER-SHARE-DIVIDEND> (0.65)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> JOHN HANCOCK NEW YORK TAX-FREE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 52,706,595
<INVESTMENTS-AT-VALUE> 54,674,401
<RECEIVABLES> 1,073,048
<ASSETS-OTHER> 549,524
<OTHER-ITEMS-ASSETS> 1,967,806
<TOTAL-ASSETS> 56,296,973
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,222
<TOTAL-LIABILITIES> 68,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,779,835
<SHARES-COMMON-STOCK> 4,753,390
<SHARES-COMMON-PRIOR> 4,694,309
<ACCUMULATED-NII-CURRENT> 15,420
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (572,855)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,006,351
<NET-ASSETS> 56,228,751
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,519,678
<OTHER-INCOME> 0
<EXPENSES-NET> 395,698
<NET-INVESTMENT-INCOME> 3,123,980
<REALIZED-GAINS-CURRENT> (200,732)
<APPREC-INCREASE-CURRENT> (40,997)
<NET-CHANGE-FROM-OPS> 2,882,251
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,123,980
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 555,889
<NUMBER-OF-SHARES-REDEEMED> 685,056
<SHARES-REINVESTED> 188,249
<NET-CHANGE-IN-ASSETS> 475,784
<ACCUMULATED-NII-PRIOR> 8,092
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<GROSS-EXPENSE> 646,699
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<PER-SHARE-NII> .66
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</TABLE>
