John Hancock Funds
Massachusetts
Tax-Free
Income Fund
SEMI-ANNUAL REPORT
February 28, 1997
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way Ste 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at least one
group has already studied the problem, and experts and politicians alike
have weighed in with a slew of prescriptions.
The problem stems from demographic and societal changes. The number of
retirees collecting Social Security is growing rapidly, while the number
of workers supporting the system is shrinking. Consider this: in 1950,
there were 16 workers paying into the Social Security system for each
retiree collecting benefits. Today, there are three workers for each
retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect to use
their own savings or employer-sponsored pensions for their retirement.
Yet, remarkably, another EBRI survey revealed that only slightly more
than half of America's current workers are saving money for retirement.
Fewer than half own IRAs or participate in employer-sponsored pension or
savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
Sincerely,
/S/EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY DIANNE SALES-SINGER, CFA, PORTFOLIO MANAGER
John Hancock
Massachusetts Tax-Free
Income Fund
Inflation fears keep bond market choppy in the last six
months; munis outperform U.S. Treasuries
At the start of the Fund's six month period last September, bonds were
recovering from several months in which inflationary fears had held down
returns. But bonds rallied as the period progressed, only to run into
resistance again at year end. In January, attention focused on reports
of strong economic growth and tight labor markets, and bonds fell back
as the market grew wary of potential new inflationary pressures. Even
though inflation has remained at bay and many predict a more modest
growth scenario later in the year, investor caution prevailed and bonds
remained in a holding pattern through the end of February.
While municipals felt the effects of the bond market's shifts over the
last six months, they managed to outperform U.S. Treasuries primarily
because the supply and demand story for tax-exempt securities continues
to be so favorable. The supply of municipal bonds has shrunk
consistently over the last several years, especially in Massachusetts,
due in part to the reluctance of taxpayers to fund new projects. What's
more, many existing bonds have been called away from the market. Despite
an increase in the amount of municipal bonds issued in 1996, growing
demand easily absorbed the new supply. Demand has been fueled by more
investors -- both individuals and insurance companies -- seeking some
tax shelter for their rising incomes. Waning flat-tax fears have also
sparked greater interest in tax-exempt securities.
"The supply of
municipal
bonds has
shrunk
consistently
over the last
several
years..."
A 2 1/4" x 3 1/4" photo of Fund management team at bottom right. Caption
reads: "Dianne Sales-Singer (seated) and Fund management team members (l-r)
Michael Roye, Holly Morris and Frank Lucibella.
Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into 10 sections. Going from left to right:
Water & Sewer 10%, General Obligation 14%, Electric 9%, Other 3%, Education
18%, Industrial Development 10%, Cash 2%, Health 17%, Housing 9%,
Transportation 8%. A footnote below states "As a percentage of net assets on
February 28, 1997."
"Some of the
strongest
performance
came from
the Fund's
uninsured...
bonds..."
The John Hancock Massachusetts Tax-Free Income Fund produced solid
results and outperformed its peers during the period. For the six months
ended February 28, 1997, the Fund's Class A shares posted a total return
of 5.67% at net asset value. By comparison, the average Massachusetts
municipal bond fund returned 4.70% according to Lipper Analytical
Services, Inc.1 The Fund's Class B shares, which began on October 3,
1996, returned 3.36% at net asset value for the four months from
inception through February 28, 1997. Please see pages six and seven for
longer-term performance information.
Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers." The first listing is Uninsured
bonds followed by an up arrow and the phrase "Shrinking supply." The second
listing is Lowell General Hospital followed by an up arrow and the phrase
"Credit upgrade." The third listing is Short-call bonds followed by a down
arrow and the phrase "Heightened exposure to call risk." Footnote below reads:
"See "Schedule of Investments." Investment holdings are subject to change."
Performance and strategy review
With a backdrop of limited issuance, and with almost 50% of issuance now
coming as insured, opportunities to capitalize on undervalued credit
situations have been dampened. However, with the volatility of the bond
market, we have focused on adding value by carefully managing the Fund's
duration. Duration is a measure of how sensitive a bond's price is to
changes in interest rates. The shorter the duration, the less a bond's
price moves as rates change. When the period began, the Fund's duration
was slightly longer than average, at 7.6 years, which allowed us to
capture the full benefit of the market's rally in October and November.
Since then, we have moved to a more neutral duration, which has stood
the Fund in good stead as the bond market stalled in early 1997.
Some of the strongest performance during the period came from the Fund's
uninsured, lower-quality investment grade bonds rated BBB. Demand for
these higher-yielding bonds has spiked as their supply has diminished
due to bond calls and the growing number of bonds coming to market with
bond insurance. Municipal bond insurance guarantees that investors will
receive timely payments of principal and interest regardless of the
quality of the underlying bonds. Insured bonds, therefore, receive a
higher credit rating and their yield is typically lower than that of
uninsured bonds.
As uninsured bonds have become rare, investors searching for higher
yields have gravitated to them, causing their prices to rise and yields
to fall. That was particularly true in the last six months, when credit
spreads -- the difference in yield between higher- and lower-quality
bonds -- narrowed significantly and caused the lower-quality bonds to
outperform their insured counterparts.
Bar chart with heading "Fund Performance" at top of left hand column. The
chart is scaled in increments of 2% from bottom to top, with 6% at the top and
0% at the bottom. Within the chart, there are three solid bars. The first
represents the 5.67% total return for John Hancock Massachusetts Tax-Free
Income Fund: Class A. The second represents the 3.36% total return for John
Hancock Massachusetts Tax-Free Income Fund: Class B. The third represents the
4.70% total return for the average Massachusetts municipal bond fund. The
footnote below states: "Total returns for John Hancock Massachusetts Tax-Free
Income Fund are at net asset value with all distributions reinvested. The
average Massachusetts municipal bond fund is tracked by Lipper Analytical
Services. (1) See the following two pages for historical performance
information. For Class A shares and the average Massachusetts municipal bond
fund, returns are for the six months ended February 28, 1997. For Class B
shares, return is from October 3, 1996 through February 28, 1997"
At the same time, this narrowing credit spread meant higher-quality
bonds became more attractive. So we selectively added to our insured
bonds without sacrificing much yield compared to lower-quality issues. A
perfect example was our purchase of AAA-rated insured Massport Authority
bonds for USAir facilities. When we bought them, the difference between
their yield and that of the Ba-rated uninsured USAir bonds was only
about 40 basis points (0.40%).
Another sector that performed particularly well was our health-care
group, where our tradition of detailed credit analysis continues to pay
off. For example, our holdings in Lowell General Hospital were boosted
during the period by a credit upgrade. That was especially significant
in an environment of generally narrowing hospital profit margins.
A look ahead
The outlook for the Massachusetts municipal bond market remains
favorable. The state's economy continues to grow at the same steady
pace. In this environment, we expect the various state agencies to
increase their borrowing to finance some of the larger infrastructure
projects underway, particularly in Boston. But since we expect capital
improvements to be spread over several years, any yearly increases in
new issues should be easily absorbed. A growing pent-up demand for
Massachusetts municipal bonds should keep the favorable supply and
demand fundamentals in place.
"The outlook
for the
Massachusetts
municipal
bond market
remains
favorable."
The Fund's lower-rated, higher-yielding bonds should continue to be
strong contributors to both yield and price performance. As insurers
become even more competitive, the universe of insured municipal bonds
will grow larger, making higher-yielding uninsured municipal bonds even
harder to come by and therefore more valuable. We will keep our focus on
call protection and increasing the Fund's competitive yield, at the same
time searching for bonds that represent good value as a way to enhance
overall return.
- ------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
1 Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Massachusetts Tax-Free
Income Fund. Total return is a performance measure that equals the sum
of all income and capital gains dividends, assuming reinvestment of
these distributions, and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 4.5%
for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six
years) is included in Class B performance. Performance is affected by a
12b-1 plan. Remember that all figures represent past performance and are
no guarantee of how the Fund will perform in the future. Also, keep in
mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
Please note that a portion of the Fund's income may be subject to taxes,
and some investors may be subject to the Alternative Minimum Tax. Also
note that capital gains are taxable when distributed to shareholders.
CUMULATIVE TOTAL RETURNS
For the period ended December 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
--------- --------- ----------
John Hancock Massachusetts
Tax-Free
Income Fund: Class A (0.36%) 35.12% 104.10%(1)
John Hancock Massachusetts
Tax-Free
Income Fund: Class B (2.58%)(2) N/A N/A
AVERAGE ANNUAL TOTAL RETURNS
For the period ended December 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
--------- --------- ----------
John Hancock
Massachusetts Tax-Free
Income Fund: Class A(3) (0.36%) 6.21% 7.95%(1)
John Hancock
Massachusetts Tax-Free
Income Fund: Class B(3) (2.58%)(2) N/A N/A
YIELDS
As of February 28, 1997
SEC 30-DAY
YIELD
-----------
John Hancock Massachusetts Tax-Free
Income Fund: Class A 4.84%
John Hancock Massachusetts Tax-Free
Income Fund: Class B 4.36%
Notes to Performance
(1) Class A shares started on September 3, 1987.
(2) Class B shares started on October 3, 1996.
(3) The Adviser has voluntarily reduced a portion of the management fee
and a portion of the custodian fees during the period. Without the
limitation of expenses, the average annual total returns for the one-
year, five-year, and since inception for Class A shares would have been
(0.79%), 5.56% and 6.97%, respectively. The average annual total return
for the period for Class B shares would have been (2.69%).
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in John
Hancock Massachusetts Tax-Free Income Fund would be worth on February
28, 1997. They assume that you invested on the day each class of shares
started. They also assume that you have reinvested all distributions.
For comparison, we've shown the same $10,000 investment in the Lehman
Brothers Municipal Bond Index -- an unmanaged index that includes
approximately 15,000 bonds and is commonly used as a measure of bond
performance.
Massachusetts Tax-Free Income Fund
Class A shares
First line chart has the heading Massachusetts Tax-Free Income Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the Massachusetts Tax-Free
Income Fund on September 3, 1987, before sales charge, and is equal to $22,043
as of February 28, 1997. The second line represents the Massachusetts Tax-Free
Income Fund after sales charge and is equal to $21,588 as of February 28, 1997.
The third line represents the value of the Lehman Brothers Municipal Bond Index
and is equal to $20,619 as of February 28, 1997.
Massachusetts Tax-Free Income Fund
Class B shares
The second line chart has the heading Massachusetts Tax-Free Income Fund:
Class B, representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines. The first line represents
the represents the value of the Lehman Brothers Municipal Bond Index and is
equal to $10,336 as of February 28, 1997. The second line represents the value
of the hypothetical $10,000 investment made in the Massachusetts Tax-Free Income
Fund on October 3, 1996, before sales charge, and is equal to $10,253 as of
February 28, 1997. The third line represents Massachusetts Tax-Free Income Fund
after sales charge and is equal to $9,836 as of February 28, 1997.
FINANCIAL STATEMENTS
John Hancock Funds - Massachusetts Tax-Free Income Fund
The Statement of Assets and Liabilities is the Fund's balance
sheet and shows the value of what the Fund owns, is due and
owes on February 28, 1997. You'll also find the net asset value
and the maximum offering price per share as of that date.
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
February 28, 1997 (Unaudited)
- ----------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $52,909,010) $ 55,706,599
Interest receivable 816,968
Other assets 2,012
-------------
Total Assets 56,525,579
- ----------------------------------------------------------------------------------
Liabilities:
Due to custodian 182,208
Dividend payable 8,621
Payable to John Hancock Advisers, Inc. and
affiliates - Note B 20,008
Accounts payable and accrued expenses 23,132
-------------
Total Liabilities 233,969
- ----------------------------------------------------------------------------------
Net Assets:
Capital paid-in 54,028,898
Accumulated net realized loss on investments and
financial futures contracts ( 539,264)
Net unrealized appreciation of investments 2,797,787
Undistributed net investment income 4,189
-------------
Net Assets $ 56,291,610
==================================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $55,600,061 / 4,642,176 $ 11.98
==================================================================================
Class B - $691,549 / 57,739 $ 11.98
==================================================================================
Maximum Offering Price Per Share*
Class A - ($11.98 x 104.71%) $ 12.54
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment
income earned and expenses incurred in operating the Fund. It
also shows net gains (losses) for the period stated.
Statement of Operations
Six months ended February 28, 1997 (Unaudited)
- ----------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 1,775,969
-----------
Expenses:
Investment management fee - Note B 140,333
Distribution and service fee - Note B
Class A 83,869
Class B 1,102
Transfer agent fee - Note B 31,835
Custodian fee 23,170
Auditing fee 10,753
Printing 6,320
Financial services fee - Note B 5,262
Registration and filing fees 3,321
Trustees' fees 1,979
Less Management Fee Reduction - Note B ( 106,945)
------------
Total Expenses 200,999
- ----------------------------------------------------------------------------------
Less Expense Reductions -
Note B ( 3,762)
- ----------------------------------------------------------------------------------
Net Expenses 197,237
- ----------------------------------------------------------------------------------
Net Investment Income 1,578,732
- ----------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments
Net realized gain on investments sold 79,011
Change in net unrealized appreciation/depreciation
of investments 1,410,809
------------
Net Realized and Unrealized
Gain on Investments 1,489,820
- ----------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 3,068,552
==================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1997
AUGUST 31, 1996 (UNAUDITED)
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 3,094,690 $ 1,578,732
Net realized gain on investments sold and financial futures contracts 79,113 79,011
Change in net unrealized appreciation/depreciation of investments ( 573,560) 1,410,809
------------ ------------
Net Increase in Net Assets Resulting from Operations 2,600,243 3,068,552
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6543 and $0.3340 per share, respectively) ( 3,094,690) ( 1,573,965)
Class B - (none and $0.2529 per share, respectively) -- (5,723)
------------ ------------
Total Distributions to Shareholders ( 3,094,690) ( 1,579,688)
------------ ------------
From Fund Share Transactions - Net* 1,247,514 (366,016)
------------ ------------
Net Assets:
Beginning of period 54,415,695 55,168,762
------------ ------------
End of period (including undistributed net investment income of
$5,145 and $4,189, respectively) $ 55,168,762 $ 56,291,610
============ ============
* Analysis of Fund Share Transactions: SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1997
AUGUST 31, 1996 (UNAUDITED)
------------------------------ ---------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- -----------
CLASS A
Shares sold 664,442 $ 7,865,907 299,955 $ 3,570,197
Shares issued to shareholders in reinvestment
of distributions 175,838 2,080,462 88,008 1,049,441
------------ ------------ ------------ ------------
840,280 9,946,369 387,963 4,619,638
Less shares repurchased ( 736,253) ( 8,698,855) ( 477,397) ( 5,676,415)
------------ ------------ ------------ ------------
Net Increase (Decrease) 104,027 $ 1,247,514 (89,434) ($ 1,056,777)
============ ============ ============ ============
CLASS B **
Shares sold 57,546 $ 688,452
Shares issued to shareholders in reinvestment
of distributions 369 4,409
------------ ------------
57,915 692,861
Less shares repurchased ( 176) ( 2,100)
------------ ------------
Net Increase 57,739 $ 690,761
============ ============
** Class B commenced operations on October 3, 1996.
The Statement of Changes in Net Assets shows how the value of net assets of the Fund has changed since the end of the previous
period. The difference reflects net investment income, any investment gains and losses, distributions paid to shareholders,
and any increase or decrease in money shareholders invested in the Fund. The footnote illustrates the number of Fund shares
sold, reinvested and repurchased during the last two periods, along with the per share amount of distributions made to
shareholders of the Fund for the period indicated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment
returns, key ratios and supplemental data are listed as follows:
- -------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, SIX MONTHS ENDED
---------------------------------------------- FEBRUARY 28, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.15 $ 11.75 $ 12.43 $ 11.56 $ 11.76 $ 11.66
-------- -------- -------- -------- -------- --------
Net Investment Income 0.71 0.67 0.63 0.65 0.65 0.33
Net Realized and Unrealized Gain
(Loss) on Investments and
Financial Futures Contracts 0.60 0.82 ( 0.75) 0.20 ( 0.10) 0.32
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.31 1.49 ( 0.12) 0.85 0.55 0.65
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment
Income ( 0.71)( 0.67)( 0.63)( 0.65) (0.65) ( 0.33)
Distributions from Net Realized
Gain on Investments Sold -- ( 0.14)( 0.12) -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions ( 0.71)( 0.81)( 0.75)( 0.65)( 0.65) ( 0.33)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 11.75 $ 12.43 $ 11.56 $ 11.76 $ 11.66 $ 11.98
======== ======== ======== ======== ======== ========
Total Investment Return at
Net Asset Value (2) 12.11% 13.29%( 0.97%) 7.66% 4.78% 5.67%(6)
Total Adjusted Investment
Return at Net Asset Value (2,3) 10.93% 12.38%( 1.50%) 7.21% 4.30% 5.48%(6)
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $29,113 $50,019 $54,122 $54,416 $55,169 $55,600
Ratio of Expenses to Average
Net Assets 0.60% 0.67% 0.70% 0.70% 0.75%(4) 0.71%(4,5)
Ratio of Adjusted Expenses
to Average Net Assets (1) 1.78% 1.58% 1.23% 1.15% 1.18% 1.09%(5)
Ratio of Net Investment
Income to Average Net Assets 6.18% 5.61% 5.28% 5.67% 5.53% 5.63%(5)
Ratio of Adjusted Net Investment
Income to Average Net Assets (1) 5.00% 4.70% 4.75% 5.22% 5.05% 5.25%(5)
Portfolio Turnover Rate 56% 79% 29% 24% 36% 8%
Expense and Fee Reduction Per Share $ 0.14 $ 0.11 $ 0.06 $ 0.05 $ 0.06 $ 0.02
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- ----------------------------------------------------------------------------------------------------
FOR THE PERIOD FROM OCTOBER 3, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
(UNAUDITED)
------------------------------------
<S> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.84
-----------
Net Investment Income 0.25
Net Realized and Unrealized Gain on Investments 0.14
-----------
Total from Investment Operations 0.39
-----------
Less Distributions:
Dividends from Net Investment Income ( 0.25)
-----------
Net Asset Value, End of Period $ 11.98
===========
Total Investment Return at Net Asset Value (2) 3.36%(6)
Total Adjusted Investment Return at Net Asset Value (2,3) 3.20%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 692
Ratio of Expenses to Average Net Assets 1.41%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) 1.79%(5)
Ratio of Net Investment Income to Average Net Assets 5.18%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) 4.80%(5)
Portfolio Turnover Rate 8%
Expense and Fee Reduction Per Share $ 0.02
(1) Unreimbursed, without fee reduction.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) An estimated total return calculation that does not take into consideration fee
reductions by the adviser during the periods shown.
(4) The Ratio of Expenses to Average Net Assets for the periods ending on or after
August 31, 1996 excludes the effect of balance credits described in Note B. If
these expense reductions were included, the Ratio of Expenses to Average Net
Assets would have been 0.70% for both periods for Class A and 1.40% for Class B.
(5) Annualized.
(6) Not Annualized.
The Financial Highlights summarizes the impact of the following factors on a single share
for each period indicated: net investment income, gains (losses), dividends and total
investment return of the Fund. It shows how the Fund's net asset value for a share has
changed since the end of the previous period. Additionally, important relationships
between some items presented in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
February 28, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Massachusetts Tax-Free Income Fund on February 28,
1997. It has one main category: tax-exempt long-term bonds. The tax-exempt bonds are further broken down by state and
territory. Under each state or territory is a list of the securities owned by the Fund.
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT
Massachusetts (88.15%)
Boston City Industrial
Development Financing Auth,
Sewage Facil Rev 1991 Ser
Harbor Elec Energy Co Proj 7.375% 05-15-15 BBB $ 250 $ 268,422 6.87%
Boston Water and Sewer
Commission, Gen Rev 1991
Ser A Sr Ser 7.000 11-01-18 AAA 500 563,415 6.21
Gen Rev 1992 Ser A Sr Ser 5.750 11-01-13 A 500 516,250 5.57
Boston, City of,
GO 1990 Ser A 7.375 02-01-10 A+ 350 385,858 6.69
GO 1991 Ser A MBIA 6.750 07-01-11 AAA 350 388,542 6.08
GO 1992 Ser A AMBAC 6.500 07-01-12 AAA 500 547,605 5.93
Rev Boston City Hosp
FHA-Ins Mtg Ser A 7.625 02-15-21 Aaa* 500 561,940 6.78
Brockton, City of,
State Qualified Municipal
Purpose Ln of 1993 6.125 06-15-18 A- 2,000 2,058,040 5.95
Holyoke, City of,
GO School Proj Ln Act of
1948 7.650 08-01-09 Baa* 1,000 1,111,610 6.88
Massachusetts Bay
Transportation Auth,
Gen Trans Sys Rev Ref
1994 Ser A 7.000 03-01-14 A+ 1,000 1,179,040 5.94
Massachusetts Educational
Financing Auth,
Ed Ln Rev Iss D Ser 1991A 7.250 01-01-09 AAA 460 489,063 6.82
Massachusetts Health and
Educational Facilities Auth,
Rev Anna Jaques Hosp Iss Ser B 6.875 10-01-12 Baa1* 1,250 1,298,462 6.62
Rev Bentley College Iss Ser H 6.875 07-01-12 AAA 250 275,405 6.24
Rev Boston College Iss Ser J 6.625 07-01-21 AAA 1,000 1,090,250 6.08
Rev Charlton Memorial
Hosp Iss Ser B 7.250 07-01-13 A 2,250 2,451,982 6.65
Rev Community Colleges
Prog Iss Ser A 6.600 10-01-22 AAA 250 270,025 6.11
Rev Dana-Farber Cancer
Institute Ser G-1 6.250 12-01-22 A 500 515,745 6.06
Rev Lowell Gen Hosp Iss Ser A 8.400 06-01-11 A-* 600 701,976 7.18
Rev Melrose-Wakefield Hosp
Iss Ser B 6.350 07-01-06 A- 500 524,420 6.05
Rev New England Baptist
Hosp Iss Ser B 7.350 07-01-17 BBB+ 250 263,968 6.96
Rev New England Deaconess
Hosp Iss Ser D 6.875 04-01-22 A 2,210 2,376,745 6.39
Rev Northeastern Univ
Iss Ser E 6.550 10-01-22 AAA 1,000 1,094,020 5.99
Rev Ref Worcester Polytechnic
Institute Iss Ser E 6.625 09-01-17 A+ 250 269,267 6.15
Rev Reg Inverse Floater Ser 1993 7.500# 08-15-23 AAA 500 495,625 7.57
Rev Saint Elizabeth's Hosp of
Boston Iss Ser B FHA-Ins Proj 7.750 08-01-27 AA-* 350 363,034 7.47
Rev Smith College Iss Ser D 5.750 07-01-24 AA- 560 558,421 5.77
Rev Tufts Univ Iss Ser C Preref 7.400 08-01-18 Aaa* 430 459,924 6.92
Rev Tufts Univ Iss Ser C Unref Bal 7.400 08-01-18 A+ 90 95,584 6.97
Massachusetts Housing Finance
Agency,Rev Insured Rental Hsg
1994 Ser A 6.600 07-01-14 AAA 1,100 1,148,158 6.32
Rev Residential Devel FNMA
Coll Ser C 6.875 11-15-11 AAA 2,000 2,125,940 6.47
Rev Residential Devel FNMA
Coll Ser D 6.800 11-15-12 AAA 500 529,380 6.42
Single Family Hsg Rev Ser 5 8.375 06-01-15 A+ 50 51,398 8.15
Single Family Hsg Rev Ser 7 8.400 12-01-16 A+ 100 103,843 8.09
Single Family Hsg Rev Ser 7 8.100 06-01-20 A+ 80 83,122 7.80
Single Family Hsg Rev Ser 9 8.100 12-01-21 A+ 100 103,277 7.84
Single Family Hsg Rev Ser 13 7.950 06-01-23 A+ 185 197,521 7.45
Single Family Hsg Rev Ser 16 7.900 06-01-14 A+ 80 86,346 7.32
Single Family Hsg Rev Ser 18 7.350 12-01-16 A+ 550 582,395 6.94
Massachusetts Industrial
Finance Agency,Resource
Recovery Rev Ref Ser 1993 A Mass
Refusetech Inc Proj 6.300 07-01-05 BBB 1,825 1,916,104 6.00
Rev Assumption College Iss 1996 6.000 07-01-26 AAA 1,000 1,014,700 5.91
Rev Ref Emerson College Iss Ser
1991A 8.900 01-01-18 BBB-* 250 276,582 8.04
Rev Ref Holy Cross College Iss 1996 5.500 03-01-20 AAA 1,000 974,530 5.64
Rev Ref Holy Cross College Iss II
Ser 1992 6.375 11-01-15 A+ 500 554,755 5.75
Rev Ser A Babson College Proj 5.375 10-01-17 A3* 1,000 973,840 5.52
Rev Ser C Glenmeadow Retirement
Community 8.375 02-15-18 BB+* 1,000 1,003,350 8.35
Rev Wtr Treatment American Hingham
Proj 6.900 12-01-29 BBB* 1,310 1,377,688 6.56
Rev Wtr Treatment American Hingham
Proj 6.750 12-01-20 BBB* 2,000 2,085,180 6.47
Massachusetts Municipal Wholesale
Electric Co,Pwr Supply Sys Rev 1992
Ser B A Pub Corp of the
Commonwealth of Mass 6.750 07-01-05 BBB+ 500 550,940 6.13
Pwr Supply Sys Rev 1992 Ser
B A Pub Corp of the
Commonwealth of Mass 6.750 07-01-06 BBB+ 1,500 1,649,100 6.14
Pwr Supply Sys Rev 1992 Ser
B A Pub Corp of the
Commonwealth of Mass 6.750 07-01-17 BBB+ 400 427,092 6.32
Pwr Supply Sys Rev 1992 Ser
C A Pub Corp of the
Commonwealth of Mass 6.625 07-01-10 AAA 1,000 1,101,040 6.02
Pwr Supply Sys Rev 1993 Reg
Inverse Floater 7.020# 07-01-18 AAA 1,300 1,163,500 7.84
Massachusetts Port Auth,
Rev Ref Ser 1992 A 6.000 07-01-23 AA- 1,370 1,380,590 5.95
Rev Special Facil Ser A USAir Proj 5.750 09-01-16 AAA 1,000 991,890 5.80
Massachusetts Water Resource Auth,
Gen Rev Ref 1993 Ser B 5.500 03-01-17 A 400 385,900 5.70
Gen Rev Ref 1993 Ser B 5.000 03-01-22 A 360 320,922 5.61
Gen Rev Ref 1993 Ser C 4.750 12-01-23 A 1,000 850,880 5.58
Gen Rev Ref 1995 Ser B 4.750 12-01-21 AAA 1,000 871,120 5.45
Massachusetts, the Commonwealth of,
GO Consol Ln of 1991 Ser D 6.875 07-01-10 A+ 1,500 1,672,515 6.17
Nantucket, Town of,
GO Municipal Purpose Ln of 1991 6.800 12-01-11 A* 450 493,002 6.21
Plymouth, County of,
Cert of Part Ser A Plymouth
County Correctional Facil Proj 7.000 04-01-22 A- 750 831,007 6.32
Springfield, City of,
GO School Proj Ln Act of 1992
Ser B 7.100 09-01-11 Baa* 500 569,205 6.24
----------
49,621,450
----------
Puerto Rico (10.81%)
Puerto Rico Aqueduct and Sewer
Auth, Ref Pars & Inflos Ser 1995
Gtd by the Commonwealth
of Puerto Rico 8.276# 07-01-11 AAA 2,000 2,302,500 7.14
Puerto Rico Highway and
Transportation Auth,
Highway Rev Cap Rites Ser Y 6.250 07-01-14 A 1,000 1,088,930 5.74
Puerto Rico Infrastructure
Financing Auth,
Spec Tax Rev Ser 1988A 7.750 07-01-08 BBB+ 450 479,349 7.28
Puerto Rico, Commonwealth of,
GO Pub Imp Inverse Rate Securities
Ser 1996 8.220# 07-01-11 AAA 1,000 1,151,250 7.01
GO Pub Imp Unltd Ref Ser 1994 6.400 07-01-11 A 1,000 1,063,120 6.02
----------
6,085,149
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $52,909,010) (98.96%) $ 55,706,599
====== ============
* Credit ratings are rated by Moody's Investors Services, Fitch or John Hancock Advisers, Inc.
where Standard & Poors ratings are not available.
+ The yield is not calculated in accordance with guidelines established by the U.S. Securities
Exchange Commission.
# Represents rate in effect on February 28, 1997.
The percentage shown for each investment category is the total value of that category as a
percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
Portfolio Concentration
February 28, 1997 (Unaudited)
- ------------------------------------------------------------------------
The Massachusetts Tax-Free Income Fund invests primarily in securities
issued in the state of Massachusetts and its various political
subdivisions. The performance of this Fund is closely tied to the
economic conditions within the state and the financial condition of the
state and its agencies and municipalities. The concentration of
investments by states and credit ratings for individual securities held
by the Fund are shown in theschedule of investments. In addition,
concentration of investments can be aggregated by various categories.
The table below shows the Fund's investment at February 28, 1997
assigned to various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTIONS NET ASSETS
- -------------------- ---------------
General Obligations 13.92%
Revenue Bonds - Certificate of Participation 1.48
Revenue Bonds - Education 17.77
Revenue Bonds - Electric Power 8.69
Revenue Bonds - Health 16.88
Revenue Bonds - Housing 8.90
Revenue Bonds - Industrial Development Bond 10.03
Revenue Bonds - Other 2.73
Revenue Bonds - Transportation 8.24
Revenue Bonds - Water & Sewer 10.32
------
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.96%
======
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Tax-Exempt Series Fund (the "Trust") is a diversified open-
end management investment company, registered under the Investment
Company Act of 1940. The Trust consists of two series: John Hancock
Massachusetts Tax-Free Income Fund and John Hancock New York Tax-Free
Income Fund. The other series of the Trust is reported in separate
financial statements. The investment objective of the Fund is to provide
as high a level of current income exempt from both federal income taxes
and Massachusetts personal income taxes as is consistent with
preservation of capital.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses subject to the approval of the
Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan, have exclusive voting rights to that distribution
plan. On October 3, 1996, Class B shares of beneficial interest were
sold to commence class activity.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of
The Berkeley Financial Group, may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. Government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investment, to its
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $567,282 of capital loss
carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. If such carryforwards are used
by the Fund, no capital gains distribution will be made. The
carryforwards expire as follows: August 31, 2002 -- $2,465, August 31,
2003 -- $396,511 and August 31, 2004 -- $168,306.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment
securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the
amount paid in excess of par value on securities purchased from either
the date of purchase or date of issue to date of sale, maturity or to
next call date, if applicable. The Fund accretes original issue discount
from par value on securities purchased from either the date of issue or
the date of purchase over the life of the security, as required by the
Internal Revenue Code. The Fund records market discount on bonds
purchased after April 30, 1993 at time of disposition.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates
and other market conditions. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures
contract, it will be required to deposit with its custodian a specified
amount of cash or U.S. Government securities, known as "initial margin",
equal to a certain percentage of the value of the financial futures
contract being traded. Each day, the futures contract is valued at the
official settlement price on the board of trade or U.S. commodities
exchange on which it trades. Subsequent payments, known as "variation
margin", to and from the broker are made on a daily basis as the market
price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded
by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there
may be an illiquid market and/or that a change in the value of the
contracts may not correlate with changes in the value of the underlying
securities. In addition, the Fund could be prevented from opening or
realizing the benefits of closing out futures positions because of
position limits or limits on daily price fluctuation imposed by an
exchange.
For Federal income tax purposes, the amount, character and timing of the
Fund gains and/or losses can be affected as a result of futures
contracts.
At February 28, 1997, there were no open positions in financial futures
contracts.
OPTIONS The Fund may purchase options contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Purchased put or call over-the-counter options will be
valued at the average of the "bid" prices obtained from two independent
brokers. Written put or call over-the-counter options will be valued at
the average of the "asked" prices obtained from two independent brokers.
Upon the writing of a call or put option, an amount equal to the premium
received by the Fund will be included in the Statement of Assets and
Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current
market value of the written option.
The Fund may use option contracts to manage its exposure to changing
security prices. Writing puts and buying calls will tend to increase the
Fund exposure to the underlying instrument and buying puts and writing
calls will tend to decrease the Fund exposure to the underlying
instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the
face (or "notional") amount of each contract at value will reflect the
maximum exposure of the Fund in these contracts, but the actual exposure
will be limited to the change in value of the contract over the period
the contract remains open.
Risks may also arise if counterparties do not perform under the
contract's terms, or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties
to each transaction, and only present liquidity risk in highly unusual
market conditions. To minimize credit and liquidity risks in over-the-
counter option contracts, the Fund will continuously monitor the
creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's
Statement of Assets and Liabilities.
For the period ended February 28, 1997, there were no open written
options contracts.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.500% of the
first $250,000,000 of the Fund's average daily net asset value,
(b) 0.450% of the next $250,000,000, (c) 0.425% of the next
$500,000,000, (d) 0.400% of the next $250,000,000 and (e) 0.300% of the
Fund's average daily net asset value in excess of $1,250,000,000. The
Adviser has voluntarily agreed to limit the Fund's expenses further to
the extent required to prevent expenses from exceeding 0.70% and 1.40%
of the average net assets attributable to Class A and Class B,
respectively. Accordingly, for the period ended February 28, 1997, the
reduction in the Adviser's fee collectively with any additional amounts
not borne by the Fund by virtue of the expense limit amounted to
$106,945. This limitation may be discontinued at any time.
The Fund has an agreement with its custodian bank under which $3,762 of
custodian fees have been reduced by balance credits applied during the
period ended February 28, 1997. If the Fund had not entered into this
agreement, the assets not invested, on which these balance credits were
earned, could have produced income.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
February 28, 1997, net sales charges received with regard to sales of
Class A shares amounted to $96,892. Out of this amount, $12,687 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $11,359 was paid as sales commissions to
unrelated broker-dealers and $72,846 was paid as sales commissions to
sales personnel of John Hancock Distributors, Inc. ("Distributors"),
Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc.
("Sutro"), all of which are broker dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the
indirect sole shareholder of Distributors and was the indirect
shareholder until November 29, 1996 of John Hancock Freedom Securities
Corporation and its subsidiaries, which include Tucker Anthony and
Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended February 28, 1997, there were no contingent
deferred sales charges paid to JH Funds.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Class A and
Class B Distribution Plans pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 1.00% of Class B
average daily net assets, to reimburse JH Funds for its distribution and
service costs. Up to a maximum of 0.25% of such payments may be service
fees as defined by the amended Rules of Fair Practice of the National
Association of Securities Dealers. Under the amended Rules of Fair
Practice, curtailment of a portion of the Fund's 12b-1 payments could
occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the
period was at an annual rate of 0.01875% of the average net assets of
the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as a Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid
for 1995, the unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
February 28, 1997 the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $198.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. Government and its agencies and short-term securities,
during the period ended February 28, 1997, aggregated $4,571,613 and
$4,291,280, respectively. There were no purchases or sales of
obligations of the U.S. Government and its agencies during the period
ended February 28, 1997.
The cost of investments owned at February 28, 1997 for federal income
tax purposes was $52,909,010. Gross unrealized appreciation and
depreciation of investments aggregated $3,074,599 and $277,010
respectively, resulting in net unrealized appreciation of $2,797,589.
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page.
A box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
Internet: www.jhancock.com/funds
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Massachusetts Tax-Free Income Fund. It may be used as sales literature
when preceded or accompanied by the current prospectus, which details
charges, investment objectives and operating policies.
A recycled logo in lower left hand corner with the caption
"Printed on Recycled Paper." 770SA 2/97
4/97
John Hancock Funds
New York
Tax-Free
Income Fund
SEMI-ANNUAL REPORT
February 28, 1997
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way Ste 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at least one
group has already studied the problem, and experts and politicians
alike have weighed in with a slew of prescriptions.
The problem stems from demographic and societal changes. The number of
retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people
are retiring earlier and living longer.
The state of the system has already left many people, especially
younger and middle-aged workers, feeling insecure about Social
Security. A recent survey by the Employee Benefits Research Institute
(EBRI) found that 79% of current workers polled had little confidence
in the ability of Social Security to maintain the same level of
benefits as those received by today's retirees. Instead, they said they
expect to use their own savings or employer-sponsored pensions for
their retirement. Yet, remarkably, another EBRI survey revealed that
only slightly more than half of America's current workers are saving
money for retirement. Fewer than half own IRAs or participate in
employer-sponsored pension or savings plans.
No matter how Social Security's problems get solved, one thing is
clear. Americans need to rely on themselves for accumulating the bulk
of their retirement savings. There's no law that says you should have
to reduce your standard of living once you stop working. So we
encourage you to save all that you can now, so you can live the way
you'd like to later.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY FRANK LUCIBELLA, CFA, PORTFOLIO MANAGER
John Hancock
New York Tax-Free
Income Fund
Municipals outperform Treasuries in past six months
The municipal bond market was beset by changes in investor expectations
over the six- month period from September 1, 1996 through February 28,
1997. Just two months before the period began, investors were concerned
that the economy was growing at too quick a pace to keep inflation and
interest rates at the low levels they had maintained for some time.
Those worries forced bond yields to a 1996-peak in July. But with the
onset of fall, investors began to accept that steady economic growth
and full employment wouldn't necessarily translate into higher
inflation and rising interest rates. A late fall rally steadily brought
bond yields back down. Although municipals performed well in the fall,
especially in October and November, year-end nervousness limited their
gains. In the first two months of 1997, muni prices remained in a
fairly tight range as investors took a "wait-and-see" attitude.
"The municipal
bond market
was beset by
changes in
investor
expectations..."
A 2 1/4" x 3 1/2" photo of Fund management team at bottom right. Caption
reads: "Frank Lucibella (seated) and Fund management team members (l-r):
Michael Roye, Tom Goggins, Dianne Sales-Singer, Holly Morris.
Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into 9 sections. Going from left to right: Water
& Sewer 10%, General Obligation 11%, Industrial Development 7%, Education 15%,
Electric 6%, Health 14%, Housing 14%, Other 7%, Transportation 6%. A footnote
below states "As a percentage of net assets on February 28, 1997."
Buoyed by a favorable supply and demand environment, municipals bested
Treasuries during the past six months. The lack of municipal supply was
partly due to the reluctance of government entities to ask taxpayers to
fund new projects. But also contributing to the lack of supply was the
fact that some traditional municipal issuers -- including airlines and
hospitals -- reduced their appetite for borrowing as they entered a
period of consolidation. While demand increased only slightly as fears
of a flat tax waned, it proved to be enough to easily absorb the new
issues that did come to market.
"New York
City bonds
and state-
appropriated
securities
were two of
our best
performers..."
For the six months ended February 28, 1997, the Fund's Class A shares
posted a total return of 4.86% at net asset value, which was slightly
ahead of the average New York municipal bond fund's 4.76% return for
the same period, according to Lipper Analytical Services.1 The Fund's
Class B shares, which began on October 3, 1996, had a total return of
2.68% at net asset value for the four months from inception through
February 28, 1997. Please see pages six and seven for longer-term
performance information.
NYC, state-appropriated bonds
Our holdings in New York City bonds and state-appropriated securities
were two of our best performers during the period. Both were boosted by
an improving economy -- due in large part to the strength of Wall
Street firms -- and more favorable fiscal results. But the primary
reason for their strong performance was that the supply of high-
yielding uninsured municipal bond offerings dropped dramatically while
demand continued to rise. As a result, these lower-quality, higher-
yielding bonds performed better than their high-quality counterparts.
About half of all muni bond offerings now coming to market are backed
by an independent insurance guarantee, about twice the proportion
before 1994. In addition, many other bonds that originally were issued
as uninsured later picked up insurance. Muni bond insurance guarantees
that investors will receive timely principal and interest payments
regardless of the quality of the underlying bonds. Because insured
bonds carry these guarantees, their yield is typically lower and their
credit ratings higher than uninsured bonds, which need to offer higher
yields to compensate investors for their added risk.
Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers." The first listing is New York
City followed by an up arrow and the phrase "Higher yields = strong demand."
The second listing is State-appropriated bonds followed by an up arrow and the
phrase "Strength in state's creditworthiness." The third listing is FHA-
insured hospitals followed by a down arrow and the phrase "Cuts in Medicare,
Medicaid." Footnote below reads: "See "Schedule of Investments." Investment
holdings are subject to change."
Strategy overview
Throughout the period we continued to emphasize non-callable
securities, which can't be redeemed by their issuer before their stated
maturity. The upside to non-callable securities is that they tend to
perform better than callable securities (which can be redeemed prior to
maturity) when interest rates fall, and generally do no worse than
callable bonds when rates rise. Their downside: they generally offer
less yield. During the period, non-callables offered about 10 basis
points (0.10%) less in yield on average than callable securities.
However, we believed that on a total return basis, non-callables were
more attractive.
Bar chart with heading "Fund Performance" at top of left hand column. The
chart is scaled in increments of 1% from bottom to top, with 5% at the top and
0% at the bottom. Within the chart, there are three solid bars. The first
represents the 4.86% total return for John Hancock New York Tax-Free Income
Fund: Class A. The second represents the 2.68% total return for John Hancock
New York Tax-Free Income Fund: Class B. The third represents the 4.76% total
return for the average New York municipal bond fund. The footnote below
states: "Total returns for John Hancock New York Tax-Free Income Fund are at
net asset value with all distributions reinvested. The average New York
municipal bond fund is tracked by Lipper Analytical Services, Inc. (1) See the
following two pages for historical performance information. For Class A shares
and the average New York municipal bond fund, returns are for the six months
ended February 28, 1997. For Class B shares, return is from October 3, 1996
through February 28, 1997"
We also focused on bonds with maturities of between 15 and 20 years.
Throughout the period, yield spreads -- the difference in yields
between bonds of various maturities -- were quite tight. In our view,
bonds with longer-maturities didn't offer enough additional yield to
compensate for their added interest-rate sensitivity. So we chose
intermediate maturity bonds where we thought the risk/return payoff was
most attractive. It was in the intermediate range that the muni market
saw its strongest demand, and therefore best performance compared to
longer-maturity bonds.
Disappointments
While all of our hospital holdings are insured by the Federal Housing
Authority (FHA), cutbacks in Medicare and Medicaid have put pressure on
some of the weaker hospitals. And while we have thoroughly reviewed our
holdings and are comfortable with their underlying creditworthiness,
they have underperformed the market because the amount of FHA insurance
is limited to the principal amount of the bonds, and many of these
traded above their face value.
Outlook
In our view, the U.S. economy remains on its moderate growth path
without any increase in inflationary pressures, and that provides a
favorable climate for interest rates and bond prices. But we could be
in for some more volatility as the Federal Reserve Board continues to
closely monitor economic data in its drive to ward off inflation. If
economic growth continues to accelerate, the Fed is prepared to raise
interest rates in the near-term. But we would view any such moves as a
positive, because in the long run, such actions should enable the
economy to continue its slow, steady growth. Even with a rate hike,
municipals can continue to perform well, since the favorable supply and
demand fundamentals for tax-exempt securities can help insulate them
from much market volatility and allow them to continue to outperform
their taxable counterparts.
Favorable
supply/demand
fundamentals
remain for
municipals.
- --------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through
the end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
1 Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock New York Tax-Free
Income Fund. Total return is a performance measure that equals the sum
of all income and capital gains dividends, assuming reinvestment of
these distributions, and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 4.5%
for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximun 5% and declining to 0% over six
years) is included in Class B performance. Performance is affected by a
12-b1 plan. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, keep
in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
Please note that a portion of the Fund's income may be subject to
taxes, and some investors may be subject to the Alternative Minimum
Tax. Also note that capital gains are taxable when distributed to
shareholders.
CUMULATIVE TOTAL RETURNS
For the period ended December 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
--------- --------- ----------
John Hancock New York
Tax-Free Income Fund: Class A (0.98%) 35.28% 105.29%(1)
John Hancock New York
Tax-Free Income Fund: Class B (3.16%)(2) N/A N/A
AVERAGE ANNUAL TOTAL RETURNS
For the period ended December 31, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
--------- --------- ----------
John Hancock New York
Tax-Free Income Fund: Class A(3) (0.98%) 6.23% 8.04%(1)
John Hancock New York
Tax-Free Income Fund: Class B(3) (3.16%)(2) N/A N/A
YIELDS
As of February 28, 1997
SEC 30-DAY
YIELD
-----------
John Hancock New York
Tax-Free Income Fund: Class A 4.81%
John Hancock New York
Tax-Free Income Fund: Class B 4.30%
Notes to Performance
(1) Class A shares started on September 13, 1987.
(2) Class B shares started on October 3, 1996.
(3) The Adviser has voluntarily reduced a portion of the management fee
and a portion of the custodian fees during the period. Without the
limitation of expenses, the average annual total returns for the
one-year, five-year, and since inception periods for Class A shares
would have been (1.39%), 5.61% and 6.99%, respectively. The average
annual total return for the period for Class B shares would have
been (3.26%).
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in John
Hancock New York Tax-Free Income Fund would be worth on February 28,
1997. They assume that you invested on the day each class of shares
started. They also assume that you have reinvested all distributions.
For comparison, we've shown the same $10,000 investment in the Lehman
Brothers Municipal Bond Index -- an unmanaged index that includes
approximately 15,000 bonds and is commonly used as a measure of bond
performance.
New York Tax-Free Income Fund
Class A shares
Line chart with the heading New York Tax-Free Income Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the
value of the Lehman Brothers Municipal Bond Index and is equal to $22,043 as
of February 28, 1997. The second line represents the value of the hypothetical
$10,000 investment made in the New York Tax-Free Income Fund on September 13,
1987, before contingent deferred sales charge, and is equal to $21,696 as of
February 28, 1997. The third line represents the New York Tax-Free Income
Fund, after contingent deferred sales charge and is equal to $20,722 as of
February 28, 1997.
New York Tax-Free Income Fund
Class B shares
The second line chart with the heading New York Tax-Free Income Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines: The first line represents the value
of the Lehman Brothers Municipal Bond Index and is equal to $10,267 as of
February 28, 1997. The second line represents the value of the hypothetical
$10,000 investment made in the New York Tax-Free Income Fund on October 3, 1996,
before contingent deferred sales charge, and is equal to $10,253 as of February
28, 1997. The third line represents the New York Tax-Free Income Fund after
contingent deferred sales charge and is equal to $9,767 as of February 28, 1997.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
John Hancock Funds - New York Tax-Free Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows the
value of what the Fund owns, is due and owes on February 28, 1997. You'll also find
the net asset value and the maximum offering price per share as of that date.
Statement of Assets and Liabilities
February 28, 1997 (Unaudited)
- ----------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $52,378,148) $ 55,438,884
Receivable for investments sold 983,112
Receivable for shares sold 50,420
Interest receivable 801,526
Other assets 2,044
-------------
Total Assets 57,275,986
- ----------------------------------------------------------------------------------
Liabilities:
Due to custodian 257,406
Dividend payable 8,871
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 17,596
Accounts payable and accrued expenses 23,189
-------------
Total Liabilities 307,062
- ----------------------------------------------------------------------------------
Net Assets:
Capital paid-in 54,437,211
Accumulated net realized loss on investments
and financial futures contracts ( 546,825)
Net unrealized appreciation of investments 3,060,937
Undistributed net investment income 17,601
-------------
Net Assets $ 56,968,924
==================================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $56,118,779 / 4,654,311 $ 12.06
==================================================================================
Class B - $850,145 / 70,499 $ 12.06
==================================================================================
Maximum Offering Price Per Share*
($12.06 x 104.71%) $ 12.63
==================================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and on
group sales the offering price is reduced.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment income
earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
Statement of Operations
Six months ended February 28, 1997 (Unaudited)
- ----------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $ 1,817,492
-----------
Expenses:
Investment management fee - Note B 143,038
Distribution and service fee - Note B
Class A 85,412
Class B 1,371
Transfer agent fee - Note B 33,969
Custodian fee 24,353
Auditing fee 11,240
Printing 5,850
Financial services fee - Note B 5,364
Trustees' fees 2,104
Registration and filing fees 2,065
Less Management Fee Reduction - Note B ( 111,347)
-----------
Total Expenses 203,419
- ----------------------------------------------------------------------------------
Less Expense Reductions - Note B ( 2,297)
Net Expenses 201,122
Net Investment Income 1,616,370
- ----------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts:
Net realized gain on investments sold 39,151
Net realized loss on financial futures contracts ( 13,121)
Change in net unrealized appreciation/depreciation
of investments 1,092,930
Change in net unrealized appreciation/depreciation
of financial futures contracts ( 38,344)
-----------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts 1,080,616
- ----------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 2,696,986
==================================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28,1997
AUGUST 31,1996 (UNAUDITED)
-------------- -----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 3,123,980 $ 1,616,370
Net realized gain (loss) on investments sold and financial futures contracts ( 200,732) 26,030
Change in net unrealized appreciation/depreciation of investments ( 40,997) 1,054,586
------------ ------------
Net Increase in Net Assets Resulting from Operations 2,882,251 2,696,986
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.6609 and $0.3385 per share, respectively) ( 3,123,980) ( 1,607,421)
Class B - (none and $0.2483 per share, respectively) -- ( 6,768)
------------ ------------
Total Distributions to Shareholders ( 3,123,980) ( 1,614,189)
------------ ------------
From Portfolio Share Transactions: 717,513 ( 342,624)
------------ ------------
Net Assets:
Beginning of period 55,752,967 56,228,751
------------ ------------
End of period (including undistributed net investment income of $15,420 and $17,601) $ 56,228,751 $ 56,968,924
============ ============
Analysis of Portfolio Share Transactions:
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1997
AUGUST 31, 1996 (UNAUDITED)
------------------------------ ---------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- -----------
CLASS A
Shares sold 555,889 $ 6,667,694 299,756 $ 3,600,933
Shares issued to shareholders in reinvestment
of distributions 188,248 2,255,924 95,602 1,150,612
---------- ----------- --------- -----------
744,137 8,923,618 395,358 4,751,545
Less shares repurchased ( 685,056) ( 8,206,105) ( 494,437) ( 5,943,993)
---------- ----------- --------- -----------
Net Increase (Decrease) 59,081 $ 717,513 ( 99,079) ($ 1,192,448)
========== =========== ========= ===========
SHARES AMOUNT
--------- -----------
CLASS B **
Shares sold 71,181 858,099
Shares issued to shareholders in reinvestment
of distributions 433 5,218
--------- -----------
71,614 863,317
Less shares repurchased ( 1,115) ( 13,493)
--------- -----------
Net Increase 70,499 $ 849,824
========= ===========
** Class B commenced operations on October 3, 1996.
The Statement of Changes in Net Assets shows how the value of net assets of the Fund's has changed since the end of the previous
period. The difference reflects net investment income, any investment gains and losses, distributions paid to shareholders, and any
increase or decrease in money shareholders invested in the Fund. The footnote illustrates the number of Fund shares sold,
reinvested and repurchased during the last two periods, along with the per share amount of distributions made to shareholders of
the Fund for the period indicated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns, key ratios and
supplemental data are listed as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, SIX MONTHS ENDED
------------------------------------------------------------------------- FEBRUARY 28, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.29 $ 11.90 $ 12.63 $ 11.73 $ 11.88 $ 11.83
-------- -------- -------- -------- -------- --------
Net Investment Income 0.72 0.68 0.64 0.65 0.66 0.34
Net Realized and Unrealized Gain
(Loss) on Investments
and Financial Futures Contracts 0.63 0.87 ( 0.77) 0.15 ( 0.05) 0.23
-------- -------- -------- -------- -------- --------
Total from Investment Operations 1.35 1.55 ( 0.13) 0.80 0.61 0.57
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net
Investment Income ( 0.72) ( 0.68) ( 0.64) ( 0.65) ( 0.66) ( 0.34)
Distributions from Net Realized Gain
on Investments Sold ( 0.02) ( 0.14) ( 0.13) -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions ( 0.74) ( 0.82) ( 0.77) ( 0.65) ( 0.66) ( 0.34)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 11.90 $ 12.63 $ 11.73 $ 11.88 $ 11.83 $ 12.06
======== ======== ======== ======== ======== ========
Total Investment Return
at Net Asset Value (2) 12.17% 13.70% ( 1.05%) 7.19% 5.21% 4.86%(6)
Total Adjusted Investment Return
and Net Asset Value (2,3) 11.09% 12.83% ( 1.58%) 6.74% 4.77% 4.67%(6)
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $ 33,806 $ 52,444 $ 55,690 $ 55,753 $ 56,229 $ 56,119
Ratio of Expenses to Average
Net Assets 0.60% 0.67% 0.70% 0.70% 0.73%(4) 0.71%(4,5)
Ratio of Adjusted Expenses to
Average Net Assets (1) 1.68% 1.54% 1.23% 1.15% 1.14% 1.10%(5)
Ratio of Net Investment Income
to Average Net Assets 6.22% 5.63% 5.28% 5.67% 5.51% 5.65%(5)
Ratio of Adjusted Net Investment
Income to Average Net Assets (1) 5.14% 4.76% 4.75% 5.22% 5.07% 5.26%(5)
Portfolio Turnover Rate 48% 56% 23% 70% 76% 24%
Expense and Fee Reduction
Per Share $ 0.13 $ 0.11 $ 0.06 $ 0.05 $ 0.05 $ 0.02
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net investment
income, gains (losses), dividends and total investment return of the Fund. It shows how the Fund's net asset value for a share has
changed since the end of the previous period. Additionally, important relationships between some items presented in the financial
statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- --------------------------------------------------------------------------------------
FOR THE PERIOD
FROM OCTOBER 3, 1996
(COMMENCEMENT OF
OPERATIONS) TO
FEBRUARY 28, 1997
(UNAUDITED)
-----------------------
<S> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.99
-------
Net Investment Income 0.25
Net Realized and Unrealized Gain on Investments 0.07
-------
Total from Investment Operations 0.32
-------
Less Distributions:
Dividends from Net Investment Income ( 0.25)
-------
Net Asset Value, End of Period $ 12.06
=======
Total Investment Return at Net Asset Value (2) 2.68%(6)
Total Adjusted Investment Return at Net Asset Value (2,3) 2.52%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 850
Ratio of Expenses to Average Net Assets 1.41%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) 1.80%(5)
Ratio of Net Investment Income to Average Net Assets 4.96%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) 4.57%(5)
Portfolio Turnover Rate 24%
Expense and Fee Reduction Per Share $ 0.02
(1) Unreimbursed, without fee reduction.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) An estimated total return calculation that does not take into consideration fee
reductions by the Adviser during the period.
(4) The Ratio of Expenses to Average Net Assets for the periods ending on or after
August 31, 1996 excludes the effect of balance credits described in Note B. If
these expense reductions were included, the Ratio of Expenses to Average Net
Assets would have been 0.70% for both periods for Class A and 1.40% for Class B.
(5) Annualized.
(6) Not annualized.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the New York Tax-Free Income Fund on February 28, 1997.
The schedule consists of one main category: tax-exempt long-term bonds. The tax-exempt bonds are further broken down by state or
territory. Under each state or territory is a list of the securities owned by the Fund.
PAR VALUE YIELD
INTEREST MATURITY S&P (000'S MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET+
- -------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT
New York (90.17%)
Dutchess County Resource Recovery Agency,
Solid Waste Mgmt Sys Rev Ser 1990 A 7.500% 01-01-09 AAA $ 25 $ 271,590 6.90%
Glen Cove Housing Auth,
Rev Sr Living Facil The Mayfair Proj 8.250 10-01-26 BB* 1,000 1,009,230 8.17
Islip Community Development Agency,
Dev Rev NY Institute of Technology Proj 7.500 03-01-26 BB-* 1,500 1,562,730 7.20
Metropolitan Transportation Auth,
Commuter Facil 1987 Serv Contract Ser 3 7.375 07-01-08 BBB 1,000 1,124,130 6.56
Commuter Facil 1992 Serv Contract Ser N 7.125 07-01-09 BBB 1,000 1,093,090 6.52
Transit Facil Rev Ser J 6.500 07-01-18 AAA 1,000 1,095,210 5.93
New York City Housing Development Corp,
Multi-Family Mtg Rev FHA Ins Mtg Ln
1993 Ser A 6.550 10-01-15 AAA 1,000 1,042,580 6.28
New York City Industrial Development Agency,
Civic Facil Rev Ser 1997 YMCA of
Greater NY Proj 5.800 08-01-16 BBB* 500 487,250 5.95
Solid Waste Disposal Rev 1995 Visy Paper
NY Inc Proj 7.950 01-01-28 BB* 1,000 1,078,220 7.37
Spec Facil Rev 1990 American Airlines
Inc Proj 8.000 07-01-20 BB+ 400 426,664 7.50
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev Fiscal 1997 Ser A 5.500 06-15-24 A- 1,100 1,047,717 5.77
Wtr & Swr Sys Rev Ser 1996 6.250 06-15-20 A- 1,000 1,051,840 5.94
New York Local Government Assistance Corp,
Rev Ref Cap Apprec Ser 1993 C Zero 04-01-14 AAA 1,100 440,264 5.43
Ser 1991 A Pub Benefit Corp 7.250 04-01-18 AAA 1,000 1,126,350 6.44
Ser 1992 A Pub Benefit Corp 6.875 04-01-19 A 2,000 2,245,780 6.12
Ser 1992C A Pub Benefit Corp 6.000 04-01-12 A 200 213,548 5.62
New York State Dormitory Auth,
City Univ Rev Iss Ser U 6.375 07-01-08 BBB 500 520,880 6.12
City Univ Sys Consol Rev Ser 1990A 7.625 07-01-20 BBB 485 544,529 6.79
City Univ Sys Consol Rev Ser 1993A 5.750 07-01-18 AAA 1,000 1,028,550 5.59
Genessee Valley Presbyterian Nursing Center
FHA-Ins Mtg Rev Ser 1992B 6.850 08-01-16 AA 250 269,553 6.35
KMH Homes Inc FHA-Ins Mtg Rev Ser 1991 6.950 08-01-31 AA 1,200 1,282,416 6.50
Manhattanville College Ins Rev Ser 1990 7.500 07-01-22 AAA 305 341,258 6.70
Nyack Hosp Rev Ser 1996 6.250 07-01-13 Baa2* 500 508,810 6.14
State Univ Ed Facil Rev Ser 1990A 7.700 05-15-12 Aa* 300 336,387 6.87
State Univ Ed Facil Rev Ser 1993A 5.250 05-15-15 BBB+ 1,000 940,690 5.58
State Univ Ed Facil Rev Ser 1993A 5.500 05-15-19 A* 2,000 1,923,000 5.72
United Hlth Serv Inc FHA-Ins Mtg Rev Ser 1989 7.350 08-01-29 AAA 200 215,072 6.83
Univ of Rochester Rev Ser 1987 6.500 07-01-09 A+ 625 641,419 6.33
Upstate Community Colleges 1988A Iss 7.750 07-01-18 Baa1* 300 320,835 7.25
Vassar College Rev Ser 1990 7.250 07-01-15 AAA 250 277,792 6.52
New York State Energy Research and
Development Auth,
Elec Facil Rev Ser 1986 A Consol Edison Co
of NY Inc Proj 7.500 11-15-21 A+ 200 204,450 7.34
Elec Facil Rev Ser 1989 A Consol Edison Co
of NY Inc Proj 7.750 01-01-24 A+ 200 207,458 7.47
Elec Facil Rev Ser 1989 B Consol Edison Co
of NY Inc Proj 7.375 07-01-24 A+ 200 207,868 7.10
Elec Facil Rev Ser 1990 A Consol Edison Co
of NY Inc Proj 7.500 07-01-25 A+ 260 276,944 7.04
Elec Facil Rev Ser 1991 A Consol Edison Co
of NY Inc Proj 7.500 01-01-26 A+ 420 449,631 7.01
New York State Environmental Facilities Corp,
State Wtr Poll Control Revolving Fund Rev
Ser 1990 A 7.500 06-15-12 A 630 692,868 6.82
State Wtr Poll Control Revolving Fund Rev
Ser 1991 E 6.875 06-15-10 A 400 438,240 6.28
New York State Housing Finance Agency,
Ins Multi-Family Mtg Hsg 1992 Ser C 6.450 08-15-14 AAA 500 518,835 6.22
Ins Multi-Family Mtg Hsg 1994 Ser B 6.250 08-15-14 AAA 750 778,718 6.02
Ins Multi-Family Mtg Hsg 1994 Ser C 6.450 08-15-14 Aa* 1,000 1,042,780 6.19
New York State Medical Care Facilities
Finance Agency,
Hosp & Nursing Home FHA-Ins Mtg Rev 1988
Ser C 7.700 02-15-22 AAA 450 483,570 7.17
Hosp & Nursing Home Ins Mtg Rev 1992 Ser B 6.950 02-15-32 AA 1,000 1,072,080 6.48
Mental Hlth Serv Facil Imp Rev 1990
Ser B Preref 7.875 08-15-20 AAA 150 170,062 6.95
Mental Hlth Serv Facil Imp Rev 1990
Ser B Unref Bal 7.875 08-15-20 BBB+ 90 100,199 7.07
Mental Hlth Serv Facil Imp Rev 1991
Ser A Preref 7.750 08-15-11 AAA 165 188,067 6.80
Mental Hlth Serv Facil Imp Rev 1991
Ser A Unref Bal 7.750 08-15-11 BBB+ 60 67,128 6.93
Mental Hlth Serv Facil Imp Rev 1991
Ser B Preref 7.625 08-15-17 BBB+ 80 88,069 6.93
Mental Hlth Serv Facil Imp Rev 1991
Ser B Unref Bal 7.625 08-15-17 BBB+ 165 188,706 6.67
Mental Hlth Serv Facil Imp Rev 1991
Ser C Preref 7.300 02-15-21 AAA 300 340,107 6.44
Mental Hlth Serv Facil Imp Rev 1991
Ser C Unref Bal 7.300 02-15-21 BBB+ 100 109,690 6.66
Rev Mental Hlth Serv Ser E 6.250 08-15-19 AAA 1,500 1,590,045 5.90
Sec Hosp Rev 1991 Ser A 7.350 08-15-11 BBB 250 273,042 6.73
New York State Mortgage Agency,
Homeowner Mtg Rev Ser 27 6.900 04-01-15 Aa* 1,175 1,268,753 6.39
Homeowner Mtg Rev Ser 28 7.050 10-01-23 Aa* 500 528,450 6.67
Homeowner Mtg Rev Ser 57 6.300 10-01-17 Aa* 500 525,615 5.99
Homeowner Mtg Rev Ser BB-2 7.950 10-01-15 Aa* 230 237,792 7.69
Homeowner Mtg Rev Ser EE-4 7.800 10-01-13 Aa* 300 319,338 7.33
Homeowner Mtg Rev Ser JJ 7.500 10-01-17 Aa* 330 349,150 7.09
Homeowner Mtg Rev Ser VV 7.375 10-01-11 Aa* 195 207,691 6.92
New York State Power Auth,
Gen Purpose Ser W 6.500 01-01-08 AA- 250 279,515 5.81
Gen Purpose Ser Y 6.500 01-01-11 AA- 250 268,257 6.06
Gen Purpose Ser Y 6.750 01-01-18 AA- 250 272,355 6.20
New York State Thruway Auth,
Local Highway & Bridge Serv
Contract Ser 1991 7.250 01-01-10 BBB 300 334,857 6.50
New York State Urban Development Corp,
Rev Correctional Facil Ser 1993 5.500 01-01-15 A* 2,000 1,893,300 5.81
Rev Ser 1990 Onondaga County
Convention Center Proj 7.875 01-01-20 BBB 250 285,420 6.90
New York, City of,
GO Fiscal 1991 Ser B 8.250 06-01-07 A-* 200 240,786 6.85
GO Fiscal 1991 Ser D Preref 8.000 08-01-04 A-* 55 63,488 6.93
GO Fiscal 1991 Ser D Unref Bal 8.000 08-01-04 A-* 195 219,726 7.10
GO Fiscal 1991 Ser F 8.200 11-15-03 A-* 250 285,378 7.18
GO Fiscal 1992 Ser A Preref 7.750 08-15-12 A-* 60 68,806 6.76
GO Fiscal 1992 Ser A Unref Bal 7.750 08-15-12 A-* 190 211,261 6.97
GO Fiscal 1992 Ser B 7.000 10-01-13 A-* 500 535,450 6.54
GO Fiscal 1992 Ser C 7.500 08-01-21 A-* 250 277,822 6.75
GO Fiscal 1992 Ser H 7.000 02-01-22 A-* 620 660,381 6.57
GO Fiscal 1996 Ser F 6.000 08-01-16 A-* 1,000 984,180 6.10
GO Fiscal 1996 Ser G 5.750 02-01-17 A-* 1,000 955,460 6.02
New York, State of,
GO Environmental Quality Fiscal 1994 6.500 12-01-14 A- 1,000 1,088,750 5.97
North Country Development Auth,
Solid Waste Mgt Sys Rev Preref
Ser 1992 A 6.750 07-01-12 Baa* 265 285,018 6.28
Solid Waste Mgt Sys Rev Unref Bal
Ser 1992 A 6.750 07-01-12 Baa* 225 233,296 6.51
Onondaga County Industrial Development Agency,
Civic Facil Rev 1993 Ser B Community Gen Hosp
of Greater Syracuse Proj 6.625 01-01-18 BBB 1,000 1,024,600 6.47
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 6.750 10-01-19 BBB* 2,500 2,560,775 6.59
Triborough Bridge and Tunnel Auth,
Gen Purpose Rev Ser 1993 Zero 01-01-21 AAA 1,500 401,070 5.61
Spec Oblig Ref Ser 1991B 6.875 01-01-15 A- 500 546,325 6.29
-----------
51,369,006
-----------
Puerto Rico (7.14%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by
the Commonwealth of Puerto Rico 8.276# 07-01-11 AAA 2,000 2,302,500 7.14
Puerto Rico Public Building Auth,
Rev Gtd Govt Facil Ser A 6.250 07-01-12 AAA 1,110 1,235,818 5.61
Puerto Rico, Commonwealth of,
GO Pub Imp Unltd Ref Ser 1994 6.400 07-01-11 A 500 531,560 6.02
-----------
4,069,878
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
Cost ($52,378,148) ( 97.31%) $ 55,438,884
======= ============
* Credit ratings are rated by Moody's Investors Services, Fitch or John Hancock Advisers, Inc. where Standard & Poors ratings are
not available.
+ The yield is not calculated in accordance with guidelines established by the U.S. Securities Exchange Commission. Zero coupon
yields are at yield to maturity.
# Represents rate in effect on February 28, 1997.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Portfolio Concentration
February 28, 1997 (Unaudited)
- ------------------------------------------------------------------------------------------------------------
The New York Tax-Free Income Fund invests primarily in securities issued by the state of New York and its
various political subdivisions. The performance of the Fund is closely tied to the economic conditions
within the state and the financial condition of the state and its agencies and municipalities. The
concentration of investments by states and credit ratings for individual securities held by the Fund are
shown in the schedule of investments. In addition, the concentration of investments can be aggregated by
various sector categories.
The table below shows the Fund's investments at February 28, 1997 assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF THE FUND'S
SECTOR DISTRIBUTIONS NET ASSETS
- -------------------- --------------
<S> <C>
General Obligation 10.75%
Revenue Bonds - Education 14.81
Revenue Bonds - Electric Power 5.94
Revenue Bonds - Health 13.99
Revenue Bonds - Housing 13.74
Revenue Bonds - Industrial Development Bond 6.77
Revenue Bonds - Other 15.51
Revenue Bonds - Transportation 6.09
Revenue Bonds - Water & Sewer 9.71
-----
TOTAL TAX-EXEMPT LONG-TERM BONDS 97.31%
=====
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Tax-Exempt Series Fund (the "Trust") is a diversified
open-end management investment company, registered under the Investment
Company Act of 1940. The Trust consists of two series: John Hancock New
York Tax-Free Income Fund and John Hancock Massachusetts Tax-Free
Income Fund. The other series of the Trust is reported in separate
financial statements. The investment objective of the Fund is to
provide as high a level of current income exempt from both federal
income taxes and New York personal income taxes as is consistent with
preservation of capital.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments
of the Fund and have equal rights to voting, redemptions, dividends,
and liquidation, except that certain expenses subject to the approval
of the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan, have exclusive voting rights to that distribution
plan. On October 3, 1996, Class B shares of beneficial interest were
sold to commence class activity.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary
of The Berkeley Financial Group, may participate in a joint
repurchase agreement. Aggregate cash balances are invested in one or
more repurchase agreements, whose underlying securities are obligations
of the U.S. Government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investment, to its
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $347,989 of capital loss
carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent such
carryforwards are used by the Fund, no capital gains distribution will
be made. The carryforwards expire as follows: August 31, 2003 --
$77,663 and August 31, 2004 -- $270,326. Additionally, net capital
losses of $184,658 attributable to security transactions occurring
after October 31, 1995 are treated as arising on the first day
(September 1, 1996) of the Fund's next taxable year.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment
securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except
for the effect of expenses that may be applied differently to each
class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the
amount paid in excess of par value on securities purchased from either
the date of purchase or date of issue to date of sale, maturity or to
next call date, if applicable. The Fund accretes original issue
discount from par value on securities purchased from either the date of
issue or the date of purchase over the life of the security, as
required by the Internal Revenue Code. The Fund records market discount
on bonds purchased after April 30, 1993 at time of disposition.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the relative net assets of the respective
classes. Distribution and service fees, if any, are calculated daily at
the class level based on the appropriate net assets of each class and
the specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as
deemed equitable, taking into consideration, among other things, the
nature and type of expense and relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest
rates and other market conditions. Buying futures tends to increase the
Fund's exposure to the underlying instrument. Selling futures tends to
decrease the Fund's exposure to the underlying instrument or hedge
other Fund instruments. At the time the Fund enters into a financial
futures contract, it will be required to deposit with its custodian a
specified amount of cash or U.S. Government securities, known as
"initial margin", equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract
is valued at the official settlement price on the board of trade or
U.S. commodities exchange on which it trades. Subsequent payments,
known as "variation margin", to and from the broker are made on a daily
basis as the market price of the financial futures contract fluctuates.
Daily variation margin adjustments, arising from this "mark to market",
will be recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into futures contracts include the possibility that
there may be an illiquid market and/or that a change in the value of
the contracts may not correlate with changes in the value of the
underlying securities. In addition, the Fund could be prevented from
opening or realizing the benefits of closing out futures positions
because of position limits or limits on daily price fluctuation imposed
by an exchange.
For Federal income tax purposes, the amount, character and timing of
the Fund gains and/or losses can be affected as a result of futures
contracts.
At February 28, 1997, there were no open positions in financial futures
contracts.
OPTIONS The Fund may purchase options contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Purchased put or call over-the-counter options will
be valued at the average of the "bid" prices obtained from two
independent brokers. Written put or call over-the-counter options will
be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an
amount equal to the premium received by the Fund will be included in
the Statement of Assets and Liabilities as an asset and corresponding
liability. The amount of the liability will be subsequently marked-to-
market to reflect the current market value of the written option.
The Fund may use option contracts to manage its exposure to changing
security prices. Writing puts and buying calls will tend to increase
the Fund's exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the
face (or "notional") amount of each contract at value will reflect the
maximum exposure of the Fund in these contracts, but the actual
exposure will be limited to the change in value of the contract over
the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contract's terms, or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties
to each transaction, and only present liquidity risk in highly unusual
market conditions. To minimize credit and liquidity risks in over-the-
counter option contracts, the Fund will continuously monitor the
creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's
Statement of Assets and Liabilities.
For the period ended February 28, 1997, there were no open written
options contracts.
NOTE B --
MANAGEMENT FEE, AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.500% of the
first $250,000,000 of the Fund's average daily net asset value, (b)
0.450% of the next $250,000,000, (c) 0.425% of the next $500,000,000,
(d) 0.400% of the next $250,000,000 and (e) 0.300% of the Fund's
average daily net asset value in excess of $1,250,000,000.
The Adviser has voluntarily agreed to limit the Fund's expenses further
to the extent required to prevent expenses from exceeding 0.70% and
1.40% of the average net assets attributable to Class A and Class B,
respectively. Accordingly, for the period ended February 28, 1997, the
reduction in the Adviser's fee collectively with any additional amounts
not borne by the Fund by virtue of the expense limit amounted to
$111,347. This limitation may be discontinued at any time.
The Fund has an agreement with its custodian bank under which $2,297 of
custodian fees have been reduced by balance credits applied during the
period ended February 28, 1997. If the Fund had not entered into this
agreement, the assets not invested, on which these balance credits were
earned, could have produced income.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the period
ended February 28, 1997, net sales charges received with regard to
sales of Class A shares amounted to $87,876. Out of this amount,
$11,051 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $30,300 was paid as sales
commissions to unrelated broker-dealers and $46,525 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and
Sutro & Co., Inc. ("Sutro"), all of which are broker dealers. The
Adviser's indirect parent, John Hancock Mutual Life Insurance Company
("JHMLICo"), is the indirect sole shareholder of Distributors and was
the indirect shareholder until November 29, 1996 of John Hancock
Freedom Securities Corporation and its subsidiaries, which include
Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares
being redeemed. Proceeds from the CDSC are paid to JH Funds and are
used in whole or in part to defray its expenses for providing
distribution related services to the Fund in connection with the sale
of Class B shares. For the period ended February 28, 1997, contingent
deferred sales charges paid to JH Funds amounted to $59.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Class A and
Class B Distribution Plans pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 1.00% of Class B
average daily net assets, to reimburse JH Funds for its distribution
and service costs. Up to a maximum of 0.25% of such payments may be
service fees as defined by the amended Rules of Fair Practice of the
National Association of Securities Dealers. Under the amended Rules of
Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the
period was at an annual rate of 0.01875% of the average net assets of
the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as a Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees
paid for 1995, the unaffiliated Trustees may elect to defer for tax
purposes their receipt of this compensation under the John Hancock
Group of Funds Deferred Compensation Plan. The Fund makes investments
into other John Hancock funds, as applicable, to cover its liability
for the deferred compensation. Investments to cover the Fund's deferred
compensation liability are recorded on the Fund's books as an other
asset. The deferred compensation liability and the related other asset
are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized
gains or losses. At February 28, 1997 the Fund's investments to cover
the deferred compensation liability had unrealized appreciation of
$201.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. Government and its agencies and short-term securities,
during the period ended February 28, 1997, aggregated $13,314,926 and
$13,812,033, respectively. There were no purchases or sales of
obligations of the U.S. Government and its agencies during the period
ended February 28, 1997.
The cost of investments owned at February 28, 1997 for federal income
tax purposes was $52,378,148. Gross unrealized appreciation and
depreciation of investments aggregated $3,144,312 and $83,576
respectively, resulting in net unrealized appreciation of $3,060,736.
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Permit No. 75
This report is for the information of shareholders of the John Hancock
New York Tax-Free Income Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details
charges, investment objectives and operating policies.
A recycled logo in lower left hand corner with the caption
"Printed on Recycled Paper." 760SA 2/97
4/97
