---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Massachusetts
Tax-Free
Income Fund
AUGUST 31, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
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
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 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 02109-1803
INDEPENDENT AUDITORS
PricewaterhouseCoopers llp
160 Federal Street
Boston, Massachusetts 02110
-------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to third paragraph.]
- --------------------------------------------------------------------------------
These modifications and replacements for all mission-critical systems are done
and successfully compliance tested. The rest of 1999 will be spent completing
the few remaining non mission-critical systems, testing with our business
partners and continuing to participate in industry testing. We have also
established additional contingency plans beyond our regular ones to prepare for
any challenges that the Year 2000 might present. In the end, John Hancock will
spend approximately $90-$95 million to ensure we make a successful transition to
the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although we
cannot make any ironclad assurances, we are confident that the steps we have
taken will provide shareholders with as smooth a transition as possible. Once
that occurs, we will happily raise our glasses to toast the New Year, future
prosperity and our hopes to serve you well into the 2000's.
Sincerely,
/s/Edward J. Boudreau, Jr.
- --------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Dianne Sales, CFA, Barry H. Evans, CFA, and
Frank A. Lucibella, CFA, Portfolio Managers
John Hancock
Massachusetts Tax-Free
Income Fund
Municipal bonds come under pressure as interest rates rise
----------------------------------------------------------
Continued strength in the U.S. economy led to growing inflationary fears and
rising interest rates, which muted municipal bond returns over the last 12
months. While significant price rises have yet to appear, the fear of inflation
has engineered a turnaround in interest rates since last August. Although the
period began amid a favorable interest-rate environment, late 1998 signaled a
change in both investor sentiment and the bond market's direction. Three
interest-rate cuts by the Federal Reserve last fall appeared to have worked as
intended: U.S. economic growth re-bounded, while much of Asia and Latin America
started to show signs of life. But then, better-than-expected global economic
growth, combined with occasional spikes in commodity prices and a tight labor
market, fanned fears that inflation was on the rise. Nervous investors pushed
bond yields higher and bond prices lower in response. To help choke off
inflation and calm the bond markets, the Fed reversed course by raising
short-term interest rates in June and again in August.
Performance recap
For the 12 months ended August 31, 1999, John Hancock Massachusetts Tax-Free
Income Fund's
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock
Massachusetts Tax-Free Income Fund. Caption below reads "Fund management team
members (l-r): "Barry Evans, Mike Roye, Dianne Sales, Frank Lucibella and Holly
Morris."]
- --------------------------------------------------------------------------------
"...the fear of inflation has engineered a turnaround in interest rates since
last August."
3
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
"Bonds that offered high amounts of current income... held up relatively
well..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into nine sections (from top to left): Housing 6%, Electric 7%,
Water & Sewer 8%, Other 8%, General Obligation 10%, Transportation 11%,
Industrial Development 11%, Education 18% and Health 21%. A note below the chart
reads "As a percentage of net assets on August 31, 1999."]
- --------------------------------------------------------------------------------
Class A and Class B shares returned -0.96% and 1.66%, respectively, at net asset
value. By comparison, the average Massachusetts municipal bond fund returned
- -1.53%, according to Lipper, Inc.1 Class C shares, which were introduced on
April 1, 1999, returned -3.23% from inception through August 31, 1999. Keep in
mind that your net asset value return will be different from the Fund's
performance if you were not invested in the Fund for the entire period and did
not reinvest all distributions. Please see pages six and seven for longer-term
performance information.
Bonds that offered high amounts of current income - and were therefore
somewhat cushioned from price declines as rates rose - held up relatively well,
and our focus on them helped the Fund's performance. In contrast, one sector
that underperformed was health care. Recent reductions in Medicare and Medicaid
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is High-coupon
bonds followed by an up arrow with the phrase "Income cushioned price declines
as rates rose." The second listing is Non-callable bonds followed by a sideways
arrow with the phrase "Lukewarm demand in rising rate environment." The third
listing is Hospital bonds followed by a down arrow with the phrase "Margins
pressured by government cutbacks." A note below the table reads "See `Schedule
of Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
reimbursements, along with rising labor costs, have reduced operating margins,
casting a pall over the entire health-care sector.
Managing interest-rate sensitivity
The Fund was also well served by our opportune shifts in duration throughout the
year. Duration measures a bond's sensitivity to interest-rate changes. The
longer the duration, the more a bond's price rises when rates fall and falls
when rates rise. From September through December 1998, we maintained a somewhat
longer duration posture, which provided gains as interest rates fell. When
interest rates began to rise in early 1999, we recognized that a change in
strategy was warranted and began to trim back duration gradually. During most of
the spring and summer, we maintained a more defensive posture, keeping the
Fund's duration neutral to slightly shorter-than- average based on our view that
interest rates were headed higher.
Market shift presents opportunities
As always, when interest rates rise the market presents ripe opportunities.
Recent months have facilitated our weeding out holdings with lower yields or
unattractive structures and replacing them with comparably rated, but
higher-yielding, securities, and occasionally upgrading credit without
sacrificing yield.
We have also continued to focus attention on call protection, adding
bonds with attractive call structures. Call protection guards against a bond
being redeemed by its issuer for a certain period of time. While good call
protection is especially important when interest rates are falling, it is often
overlooked when rates rise because investors focus more on yield. In a rising
interest-rate environment, call protection can often be
4
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended August 31, 1999." The chart is
scaled in increments of .5% with -3.5% at the bottom and 0% at the top. The
first bar represents the -0.96% total return for John Hancock Massachusetts
Tax-Free Income Fund Class A. The second bar represents the -1.66% total return
for John Hancock Massachusetts Tax-Free Income Fund Class B. The third bar
represents the -3.23%* total return for John Hancock Massachusetts Tax-Free
Income Fund Class C. The fourth bar represents the -1.53% total return for
Average Massachusetts municipal bond fund. A note below the chart reads "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, Inc.1 See the following two pages for historical
performance information. * From inception April 1, 1999 through August 31,
1999."]
- --------------------------------------------------------------------------------
purchased inexpensively - adding real value to the Fund's structure.
Massachusetts strong
The Massachusetts economy continues to be quite strong and stable, characterized
by tight labor markets, rising real estate values and state tax collections in
excess of projections. That said, we are keeping a close eye on developments in
the health-care industry, since it is a significant contributor to the state's
economy. We expect continued cost cutting in the health-care sector in response
to cutbacks in federal reimbursements.
Bigger picture
The macro environment is somewhat murky. Although the Fed raised interest rates
to rein in the U.S. economy, the intended slowdown hasn't yet materialized. Our
view is that inflationary risks have indeed increased, as demonstrated by rising
commodity prices and tight labor markets. However, in a more global environment,
these pressures have not been able to bloom, due to the negative impact of large
amounts of excess capacity and weak foreign economies. Without definitive signs
of a domestic slowdown, there is still a chance that the Fed could raise
interest rates again.
Beyond that, we're more optimistic. We feel it's reasonable to assume
that higher interest rates and mandated cutbacks in capital investments as Y2K
approaches will slow economic growth by year end. However, slower U.S. growth
may be offset by strong growth overseas. So for now, we plan to keep the Fund's
duration a bit shorter than average and emphasize bonds with high coupons that
provide a cushion against price declines when rates are on the rise. As for the
municipal market, technical factors continue to be favorable. Overall bond
supply will be substantially lower than in 1998. In Massachusetts, we expect the
supply to maintain its decline of approximately 25% this year compared to last.
At the same time, generally speaking, tax revenues are up and municipal credits
improving. In addition, municipal bonds still offer attractive values relative
to U.S. Treasuries, as well as one of the few remaining ways to keep tax bills
down. Savvy investors, recognizing the solid fundamentals in tax-free
investments, are likely to find plenty of opportunity between now and year end
to benefit from this value.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant
1Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
"...municipal bonds still offer attractive values... as well as one of the few
remaining ways to keep tax bills down."
5
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
- --------------------------------------------------------------------------------
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 measures the change in value of an investment from the beginning to the
end of a period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.50%. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
All figures represent past performance and are no guarantee of future results.
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 read your
prospectus carefully before you invest or send money.
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 (AMT). Also note
that capital gains are taxable.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (2.62%) 32.84% 88.61%
Average Annual Total Returns(1) (2.62%) 5.84% 6.55%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
SINCE
ONE INCEPTION
YEAR (10/3/96)
------- --------
Cumulative Total Returns (3.58%) 13.15%
Average Annual Total Returns(1) (3.58%) 4.61%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (2.89%)
Average Annual Total Return(1) (2.89%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of August 31, 1999
SEC 30-DAY
YIELD
--------
John Hancock Massachusetts Tax-Free Income Fund: Class A 4.59%
John Hancock Massachusetts Tax-Free Income Fund: Class B 4.10%
John Hancock Massachusetts Tax-Free Income Fund: Class C 4.07%
Notes to Performance
(1) The Adviser has voluntarily reduced a portion of the management
fee, and a portion of the custodian fees have been reduced by balance
credits during the period. Without the reductions of expenses, the
average annual total returns for the one-year, five-year and ten-year
periods for Class A shares would have been (2.97%), 5.43% and 5.86%,
respectively. Without the reductions of expenses, the average annual
total returns for the one-year period and since inception for Class B
shares would have been (3.93%) and 4.23%, respectively. Without the
reductions of expenses, the average annual total return since inception
for Class C shares would have been (2.97%).
(2) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Massachusetts Tax-Free Income Fund would be worth, assuming all distributions
were reinvested for the period indicated. 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. Past performance is not indicative of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 Lehman Brothers Municipal Bond Index and is equal to $20,307 as of August
31, 1999. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Massachusetts Tax-Free Income Fund on August
31, 1989, before sales charge, and is equal to $19,673 as of August 31, 1999.
The third line represents the value of the same hypothetical investment made in
the John Hancock Massachusetts Tax-Free Income Fund, after sales charge, and is
equal to $18,780 as of August 31, 1999.
Line chart with the heading John Hancock 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 Lehman Brothers Municipal Bond Index and is equal to $11,764 as of August
31, 1999. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Massachusetts Tax-Free Income Fund on
December 3, 1996, before sales charge, and is equal to $11,474 as of August 31,
1999. The third line represents the value of the same hypothetical investment
made in the John Hancock Massachusetts Tax-Free Income Fund, after sales charge,
and is equal to $11,174 as of August 31, 1999.
Line chart with the heading John Hancock Massachusetts Tax-Free Income Fund
Class C, 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 Lehman Brothers Municipal Bond Index and is equal to $9,780 as of August 31,
1999. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Massachusetts Tax-Free Income Fund on April
1, 1999, before sales charge, and is equal to $9,685 as of August 31, 1999. The
third line represents the value of the same hypothetical investment made in the
John Hancock Massachusetts Tax-Free Income Fund, after sales charge, and is
equal to $9,588 as of August 31, 1999.
- --------------------------------------------------------------------------------
7
<PAGE>
=============================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 August 31, 1999. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
August 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $70,060,047)................ $71,290,795
Receivable for investments sold ................................ 5,092
Receivable for shares sold ..................................... 123
Interest receivable ............................................ 1,116,754
Other assets ................................................... 4,191
------------
Total Assets .......................... 72,416,955
----------------------------------------------------
Liabilities:
Payable for investments purchased .............................. 964,130
Due to custodian ............................................... 66,355
Dividend payable ............................................... 3,354
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ....................................... 30,497
Accounts payable and accrued expenses .......................... 30,849
------------
Total Liabilities ..................... 1,095,185
----------------------------------------------------
Net Assets:
Capital paid-in ................................................ 70,504,155
Accumulated net realized loss on investments and
financial futures contracts ................................... (416,010)
Net unrealized appreciation of investments
and financial futures contracts ............................... 1,230,748
Undistributed net investment income ............................ 2,877
------------
Net Assets ............................ $71,321,770
====================================================
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 - $58,176,822/4,909,149 ................................ $11.85
=============================================================================
Class B - $12,967,316/1,094,224 ................................ $11.85
=============================================================================
Class C * - $177,632/14,989 .................................... $11.85
=============================================================================
Maximum Offering Price Per Share**
Class A - ($11.85 x 104.71%) ................................... $12.41
=============================================================================
* Class C shares commenced operations on April 1, 1999.
** On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended August 31, 1999
- --------------------------------------------------------------------------------
Investment Income:
Interest ....................................................... $4,075,691
------------
Expenses:
Investment management fee - Note B ............................ 347,533
Distribution and service fee - Note B
Class A ...................................................... 178,008
Class B ...................................................... 101,463
Class C ...................................................... 251
Transfer agent fee - Note B ................................... 67,301
Custodian fee ................................................. 47,168
Auditing fee .................................................. 21,196
Registration and filing fees .................................. 12,271
Accounting and legal services fee - Note B .................... 10,866
Printing ...................................................... 9,920
Trustees' fees ................................................ 3,449
Miscellaneous ................................................. 3,038
Legal fees .................................................... 1,023
Less management fee reduction - Note B ........................ (217,794)
------------
Total Expenses ........................ 585,693
----------------------------------------------------
Less Expense Reductions -
Note B ................................ (27,812)
----------------------------------------------------
Net Expenses .......................... 557,881
----------------------------------------------------
Net Investment Income ................. 3,517,810
----------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized gain on investments sold .......................... 51,074
Net realized loss on financial futures contracts ............... (175,528)
Change in net unrealized appreciation/depreciation
of investments ................................................ (4,293,403)
Change in net unrealized appreciation/depreciation
of financial futures contracts ................................ (17,344)
------------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts ........... (4,435,201)
----------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ............. ($917,391)
====================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
1998 1999
---------------- ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .............................................................. $3,095,586 $3,517,810
Net realized gain (loss) on investments sold and financial futures contracts ....... 335,961 (124,454)
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ....................................................... 2,017,216 (4,310,747)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................... 5,448,763 (917,391)
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.6589 and $0.6422 per share, respectively) ........................... (2,934,706) (3,064,390)
Class B - ($0.5717 and $0.5545 per share, respectively) ........................... (179,625) (452,344)
Class C ** - (none and $0.2115 per share, respectively) ........................... - (1,076)
-------------- --------------
Total Distributions to Shareholders ............................................... (3,114,331) (3,517,810)
-------------- --------------
From Fund Share Transactions - Net : * .............................................. 5,328,172 11,423,344
-------------- --------------
Net Assets:
Beginning of period ................................................................ 56,671,023 64,333,627
-------------- --------------
End of period (including undistributed net investment income
of $2,838 and $2,877, respectively) ............................................... $64,333,627 $71,321,770
============== ==============
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 corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
1998 1999
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
CLASS A
Shares sold...................................................... 697,518 $8,640,665 718,299 $8,970,412
Shares issued to shareholders in reinvestment of distributions .. 155,305 1,923,826 170,062 2,084,619
---------- ------------ ---------- -------------
852,823 10,564,491 888,361 11,055,031
Less shares repurchased ......................................... (716,685) (8,867,549) (592,309) (7,348,607)
---------- ------------ ---------- -------------
Net increase .................................................... 136,138 $1,696,942 296,052 $3,706,424
========== ============ ========== =============
CLASS B
Shares sold ..................................................... 323,749 $4,023,426 626,140 $7,828,428
Shares issued to shareholders in reinvestment of distributions .. 9,129 113,319 23,627 292,218
---------- ------------ ---------- -------------
332,878 4,136,745 649,767 8,120,646
Less shares repurchased ......................................... (40,691) (505,515) (47,239) (585,739)
---------- ------------ ---------- -------------
Net increase .................................................... 292,187 $3,631,230 602,528 $7,534,907
========== ============ ========== =============
CLASS C**
Shares sold ..................................................... - - 14,977 $181,866
Shares issued to shareholders in reinvestment of distributions .. - - 12 147
---------- ------------ ---------- -------------
Net increase .................................................... - - 14,989 $182,013
========== ============ ========== =============
** Class C shares commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
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,
---------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $11.56 $11.76 $11.66 $12.12 $12.60
---------- ---------- ---------- ---------- ----------
Net Investment Income ..................................... 0.65 0.65 0.66 0.66(7) 0.64(7)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .............................. 0.20 (0.10) 0.46 0.48 (0.75)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ........................ 0.85 0.55 1.12 1.14 (0.11)
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ..................... (0.65) (0.65) (0.66) (0.66) (0.64)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................ $11.76 $11.66 $12.12 $12.60 $11.85
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value (2) ............ 7.66% 4.78% 9.85% 9.66% (0.96%)
Total Adjusted Investment Return at Net Asset Value (2,3) . 7.21% 4.30% 9.45% 9.27% (1.31%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $54,416 $55,169 $54,253 $58,137 $58,177
Ratio of Expenses to Average Net Assets ................... 0.70% 0.75%(4) 0.71%(4) 0.71%(4) 0.74%(4)
Ratio of Adjusted Expenses to Average Net Assets (1) ...... 1.15% 1.18% 1.11% 1.10% 1.05%
Ratio of Net Investment Income to Average Net Assets ...... 5.67% 5.53% 5.59% 5.28% 5.16%
Ratio of Adjusted Net Investment Income to
Average Net Assets (1) ................................... 5.22% 5.05% 5.19% 4.89% 4.81%
Portfolio Turnover Rate ................................... 24% 36% 12% 6% 6%
Expense and Fee Reduction Per Share ....................... $0.05 $0.06 $0.05 $0.05(7) $0.04(7)
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions 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.
11
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
OCTOBER 3, 1996 YEAR ENDED AUGUST 31,
(COMMENCEMENT OF OPERATIONS) ---------------------------
TO AUGUST 31, 1997 1998 1999
---------------------------- ---------- ----------
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period........................... $11.84 $12.12 $12.60
---------- ---------- ----------
Net Investment Income ......................................... 0.54 0.57(7) 0.55(7)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .................................. 0.28 0.48 (0.75)
---------- ---------- ----------
Total from Investment Operations ............................. 0.82 1.05 (0.20)
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .......................... (0.54) (0.57) (0.55)
---------- ---------- ----------
Net Asset Value, End of Period ................................ $12.12 $12.60 $11.85
========== ========== ==========
Total Investment Return at Net Asset Value (2) ................ 7.08%(6) 8.89% (1.66%)
Total Adjusted Investment Return at Net Asset Value (2,3) ..... 6.72%(6) 8.50% (2.01%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $2,418 $6,197 $12,967
Ratio of Expenses to Average Net Assets ....................... 1.41%(4,5) 1.41%(4) 1.44%(4)
Ratio of Adjusted Expenses to Average Net Assets (1) .......... 1.81%(5) 1.80% 1.75%
Ratio of Net Investment Income to Average Net Assets .......... 4.82%(5) 4.58% 4.46%
Ratio of Adjusted Net Investment Income to Average Net Assets (1) 4.42%(5) 4.19% 4.11%
Portfolio Turnover Rate ....................................... 12% 6% 6%
Expense and Fee Reduction Per Share ........................... $0.04 $0.05(7) $0.04(7)
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
APRIL 1, 1999
(COMMENCEMENT OF
OPERATIONS) TO
AUGUST 31, 1999
---------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................... $12.46
----------
Net Investment Income (7) .......................................................... 0.21
Net Realized and Unrealized Loss on Investments and Financial Futures Contracts .... (0.61)
----------
Total from Investment Operations ............................................... (0.40)
----------
Less Distributions:
Dividends from Net Investment Income ............................................... (0.21)
----------
Net Asset Value, End of Period ..................................................... $11.85
==========
Total Investment Return at Net Asset Value (2) ..................................... (3.23%)(6)
Total Adjusted Investment Return at Net Asset Value (2,3) .......................... (3.38%)(6)
Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ............... $178
Ratio of Expenses to Average Net Assets ............................................ 1.44%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) ............................... 1.75%(5)
Ratio of Net Investment Income to Average Net Assets ............................... 4.30%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) .................. 3.95%(5)
Portfolio Turnover Rate 6% Expense and Fee Reduction Per Share (7) ................. $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 Class A and 1.40% for Class B and Class C.
(5) Annualized.
(6) Not annualized.
(7) Based on the average of the shares outstanding at the end of each month.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Schedule of Investments
August 31, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Massachusetts Tax-Free Income Fund on August 31, 1999. It has one main category:
tax-exempt long-term bonds. The tax-exempt bonds are 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 CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- -------- -------- ------- --------- ------ --------
TAX-EXEMPT LONG-TERM BONDS
Guam (1.25%)
Guam Power Authority,
Rev Ser 1999A ...................................... 5.125% 10-01-29 BBB $1,000 $894,010 5.73%
-----------
Massachusetts (90.78%)
Boston City Industrial Development Financing Auth,
Sewage Facil Rev 1991 Ser Harbor Elec Energy Co Proj 7.375 05-15-15 BBB 250 262,625 7.02
Boston Water and Sewer Commission,
Gen Rev 1991 Sr Ser A .............................. 7.000 11-01-18 AAA 500 539,000 6.49
Gen Rev 1991 Sr Ser A .............................. 5.750 11-01-13 A+ 500 518,660 5.54
Boston, City of,
GO 1990 Ser A ...................................... 7.375 02-01-10 A+ 200 206,990 7.13
GO 1991 Ser A MBIA ................................. 6.750 07-01-11 AAA 350 372,757 6.34
GO 1992 Ser A AMBAC ................................ 6.500 07-01-12 AAA 500 538,990 6.03
Rev Boston City Hosp FHA-Ins Mtg Ser A ............. 7.625 02-15-21 AAA 500 526,275 7.24
Rev Deutsches Altenheim 1998 Ser A ................. 5.950 10-01-18 AAA 1,000 994,300 5.98
Brockton, City of,
State Qualified Municipal Purpose Ln of 1993 ....... 6.125 06-15-18 A 2,000 2,099,420 5.83
Holyoke, City of,
GO School Proj Ln Act of 1948 ...................... 7.650 08-01-09 AA 1,000 1,082,090 7.07
Massachusetts Bay Transportation Auth,
Gen Trans Sys Rev Ref Ser 1994A .................... 7.000 03-01-14 AA- 1,000 1,160,710 6.03
Gen Trans Sys Rev Ser 1997D ........................ 5.000 03-01-22 AA- 2,250 2,038,478 5.52
Massachusetts Development Finance Agency,
Concord-Assabet Family Servs Rev Ref ............... 6.000 11-01-28 Ba2 1,000 934,880 6.42
Rev Boston Univ Ser 1999P .......................... 5.450 05-15-59 BBB+ 2,000 1,798,360 6.06
Rev Lasell Village Proj Ser 1998A .................. 6.375 12-01-25 BBB- 1,000 927,050 6.88
Rev YMCA Greater Boston Iss ........................ 5.450 11-01-28 BBB+ 1,000 895,620 6.09
Massachusetts Educational Financing Auth,
Ed Ln Rev Iss D Ser 1991A .......................... 7.250 01-01-09 AAA 385 402,895 6.93
Massachusetts Health and Educational Facilities Auth,
Rev Anna Jaques Hosp Iss Ser B ..................... 6.875 10-01-12 Ba1 1,250 1,310,675 6.56
Rev Bentley College Iss Ser H ...................... 6.875 07-01-12 AAA 250 266,800 6.44
Rev Boston College Iss Ser J Preref ................ 6.625 07-01-21 AAA 965 1,024,396 6.24
Rev Boston College Iss Ser J Unref Bal ............. 6.625 07-01-21 AAA 35 36,956 6.27
Rev Brandeis Univ Iss Ser I ........................ 4.750 10-01-28 AAA 1,000 840,960 5.65
Rev Brandeis Univ Iss Ser J** ...................... 5.000 10-01-26 AAA 1,000 883,810 5.66
Rev Charlton Memorial Hosp Iss Ser B ............... 7.250 07-01-13 AA 2,250 2,411,393 6.76
Rev Community Colleges Prog Iss Ser A .............. 6.600 10-01-22 AAA 250 271,380 6.08
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- -------- -------- ------- --------- ------ --------
Massachusetts (continued)
Massachusetts Health and
Educational Facilities Auth (cont.),
Rev Dana-Farber Cancer Institute Ser G-1 ........... 6.250% 12-01-22 A $500 $510,265 6.12%
Rev Lowell Gen Hosp Iss Ser A ...................... 8.400 06-01-11 A3 600 652,920 7.72
Rev Melrose-Wakefield Hosp Iss Ser B ............... 6.350 07-01-06 AAA 500 536,315 5.92
Rev New England Baptist Hosp Iss Ser B ............. 7.350 07-01-17 AAA 250 268,693 6.84
Rev New England Deaconess Hosp Iss Ser D ........... 6.875 04-01-22 AAA 2,210 2,389,496 6.36
Rev Northeastern Univ Iss Ser E .................... 6.550 10-01-22 AAA 1,000 1,070,700 6.12
Rev Ref Harvard Pilgrim Health Ser A ............... 5.000 07-01-18 AAA 1,000 916,490 5.46
Rev Ref Worcester Polytechnic Institute Iss Ser E .. 6.625 09-01-17 AAA 250 270,650 6.12
Rev Smith College Iss Ser D ........................ 5.750 07-01-24 AA- 500 493,450 5.83
Rev Wellesley College Ser F ........................ 5.125 07-01-39 AA+ 1,000 881,520 5.81
Massachusetts Housing Finance Agency,
Rev Insured Rental Hsg 1994 Ser A .................. 6.600 07-01-14 AAA 1,045 1,101,137 6.26
Rev Residential Devel FNMA Coll Ser C .............. 6.875 11-15-11 AAA 2,000 2,133,320 6.45
Rev Residential Devel FNMA Coll Ser D .............. 6.800 11-15-12 AAA 500 531,645 6.40
Single Family Hsg Rev Ser 18 ....................... 7.350 12-01-16 A+ 525 544,588 7.09
Massachusetts Industrial Finance Agency,
Assisted Living Facil Rev
Newton Group Properties LLC Proj .................. 8.000 09-01-27 BB 1,000 1,083,030 7.39
Assisted Living Facil Rev TNG Marina Bay LLC Proj .. 7.500 12-01-27 BB 1,000 1,045,460 7.17
Resource Recovery Rev Ref Ogden Haverhill Proj
Ser 1998A ......................................... 5.600 12-01-19 BBB 1,000 930,140 6.02
Resource Recovery Rev Ref Ser 1993 A
Mass Refusetech Inc Proj .......................... 6.300 07-01-05 BBB+ 1,825 1,917,436 6.00
Rev Assumption College Iss 1996 .................... 6.000 07-01-26 AAA 1,000 1,013,580 5.92
Rev Dana Hall School Iss ........................... 5.800 07-01-17 BBB- 1,090 1,057,180 5.98
Rev Glenmeadow Retirement Community Ser C .......... 8.375 02-15-18 AA 1,000 1,205,670 6.95
Rev Ref Emerson College Iss Ser 1991A .............. 8.900 01-01-18 AA 250 269,725 8.25
Rev Ref Holy Cross College Iss 1996 ................ 5.500 03-01-20 AAA 500 489,180 5.62
Rev Ref Holy Cross College Iss II Ser 1992 ......... 6.375 11-01-15 AA- 500 539,625 5.91
Rev St Johns High School ........................... 5.350 06-01-28 BBB+ 1,000 891,390 6.00
Rev Wtr Treatment American Hingham Proj ............ 6.750 12-01-20 BBB 2,000 2,110,480 6.40
Rev Wtr Treatment American Hingham Proj ............ 6.900 12-01-29 BBB 1,310 1,391,364 6.50
Massachusetts Municipal Wholesale Electric Co.,
Pwr Supply Sys Rev 1992 Ser B Pub Corp of the
Commonwealth of Mass .............................. 6.750 07-01-05 BBB+ 500 533,145 6.33
Pwr Supply Sys Rev 1992 Ser B Pub Corp of the
Commonwealth of Mass .............................. 6.750 07-01-06 BBB+ 1,500 1,599,435 6.33
Pwr Supply Sys Rev 1992 Ser B Pub Corp of the
Commonwealth of Mass .............................. 6.750 07-01-17 BBB+ 400 418,484 6.45
Pwr Supply Sys Rev 1992 Ser C Pub Corp of the
Commonwealth of Mass .............................. 6.625 07-01-10 AAA 1,000 1,072,660 6.18
Pwr Supply Sys Rev 1993 Reg Inverse Floater ........ 7.170# 07-01-18 AAA 1,300 1,207,375 7.72
Massachusetts Port Auth,
Rev Ref Ser 1992 A ................................. 6.000 07-01-23 AA- 1,370 1,384,618 5.94
Rev Special Facil Ser A USAir Proj ................. 5.750 09-01-16 AAA 1,000 1,002,780 5.73
Massachusetts State Health and
Educational Facilities Auth, Rev St Lukes Hospital . 7.650# 08-15-23 AAA 500 496,875 7.70
South Shore Hospital Series F ...................... 5.750 07-01-29 A 1,000 949,460 6.06
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- -------- -------- ------- --------- ------ --------
Massachusetts (continued)
Massachusetts Turnpike Auth,
Metro Highway Sys Rev Sr Lien Cap Apprec Ser 1997C.. Zero 01-01-20 AAA $1,000 $313,920 5.78%
Massachusetts Water Pollution Abatement Trust,
Wtr Poll Abatement Rev New Bedford Prog Ser A ...... 4.750% 02-01-26 Aaa 1,000 846,990 5.61
Massachusetts Water Resource Auth,
Gen Rev Ref 1993 Ser B ............................. 5.500 03-01-17 A+ 400 386,916 5.69
Gen Rev Ref 1993 Ser B ............................. 5.000 03-01-22 A+ 360 317,077 5.68
Gen Rev Ref 1993 Ser C ............................. 4.750 12-01-23 A+ 1,000 835,670 5.68
Massachusetts, Commonwealth of,
GO Consol Ln of 1991 Ser D ......................... 6.875 07-01-10 AA- 500 533,600 6.44
GO Consol Ln Ser 1998C ............................. Zero 08-01-18 AA- 1,000 344,090 5.72
Nantucket, Town of,
GO Municipal Purpose Ln of 1991 .................... 6.800 12-01-11 AAA 450 482,827 6.34
Plymouth, County of,
Cert of Part Correctional Facil Proj ............... 5.000 04-01-22 AAA 1,000 896,470 5.58
Cert of Part Ser A Correctional Facil Proj ......... 7.000 04-01-22 AA- 750 821,812 6.39
Rail Connections Inc Mass Rev,
Cap Appreciation - Rte 128 Pkg Ser B ............... Zero 07-01-18 BBB- 1,750 508,603 6.67
Cap Appreciation - Rte 128 Pkg Ser B ............... Zero 07-01-19 BBB- 2,415 654,779 6.69
Springfield, City of,
GO School Proj Ln Act of 1992 Ser B ................ 7.100 09-01-11 AA 500 547,920 6.48
-----------
64,746,425
-----------
Puerto Rico (7.92%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inlfos Ser 1995 Gtd by the
Commonwealth of Puerto Rico ....................... 8.270# 07-01-11 AAA 2,000 2,307,500 7.17
Puerto Rico Highway and Transportation Auth,
Highway Rev Cap Rites Ser Y ........................ 6.250 07-01-14 A 1,000 1,088,040 5.74
Puerto Rico, Commonwealth of,
GO Pub Imp Inverse Rate Securities Ser 1996 ........ 8.270# 07-01-11 AAA 1,000 1,153,750 7.17
GO Ref Pub Imp Ser 1994 ............................ 6.400 07-01-11 AAA 1,000 1,101,070 5.81
-----------
5,650,360
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $70,060,047) (99.95%) 71,290,795
------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.05%) 30,975
------- -----------
TOTAL NET ASSETS (100.00%) $71,321,770
======== ===========
</TABLE>
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service, Fitch or John Hancock
Advisers, Inc. where Standard & Poor's ratings are not available.
** This security having an aggregate value of $883,810 or 1.24% of the
Fund's net assets, has been purchased as a forward commitment -- that
is, the Fund has agreed on trade date to take delivery of and make
payment for such security on a delayed basis subsequent to the date of
this schedule. The purchase price and interest rate of such security
are fixed at trade date, although the Fund does not earn any interest
on such security until settlement date.
+ The yield is not calculated in accordance with guidelines established
by the U.S. Securities & Exchange Commission and is unaudited. Zero
coupon yields are at yield to maturity.
# Represents rate in effect on August 31, 1999.
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.
16
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Portfolio Concentration (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 the schedule of
investments. In addition, concentration of investments can be aggregated by
various categories.
The table below shows the Fund's investments at August 31, 1999 assigned to
various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ----------------
General Obligation ...................................... 9.67%
Revenue Bonds - Correctional Facility ................... 1.26
Revenue Bonds - Education ............................... 18.49
Revenue Bonds - Electric ................................ 6.77
Revenue Bonds - Facility ................................ 1.15
Revenue Bonds - Health .................................. 20.84
Revenue Bonds - Highway ................................. 0.44
Revenue Bonds - Hospital ................................ 1.47
Revenue Bonds - Housing ................................. 6.04
Revenue Bonds - Industrial Development .................. 10.52
Revenue Bonds - Other ................................... 4.24
Revenue Bonds - Transportation .......................... 10.99
Revenue Bonds - Water & Sewer ........................... 8.07
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 99.95%
==========
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Massachusetts Tax-Free Income Fund
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 (the "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, Class B and Class C shares. The Trustees
authorized the issuance of Class C shares effective April 1, 1999. 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.
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,
Inc., 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 $185,328 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 - $41,406, August 31, 2004 - $137,277 and August 31,
2005 - $6,645. Additionally, net capital losses of $179,708 attributable to
security transactions incurred after October 31, 1998 are treated as arising on
the first day of the Fund's next taxable year (September 1, 1999).
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
18
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Massachusetts Tax-Free Income Fund
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 the 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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowings. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the year ended August 31, 1999.
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's gains and/or losses can be affected as a result of futures contracts.
There were no open positions in financial futures contracts for the
year ended August 31, 1999.
OPTIONS The Fund may purchase or sell option contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Over-the-counter options are valued at the mean between the
last bid and asked prices. 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 options contracts to manage its exposure to the price
volatility of financial instruments. Writing puts and buying calls will tend to
increase the Fund's exposure to the underlying instrument,
19
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Massachusetts Tax-Free Income Fund
and buying puts and writing calls will tend to decrease the Fund's exposure to
the underlying instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contract's terms ("credit risk"), or if the Fund is unable to offset a contract
with a counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties to each
transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter options
contracts, the Fund will continuously monitor the creditworthiness of all its
counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written options transactions for year ended August 31,
1999.
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%, 1.40% and 1.40%
of the average net assets attributable to Class A, Class B and Class C,
respectively. Accordingly, for the year ended August 31, 1999, 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 $217,794. This limitation may
be discontinued at any time.
The Fund has an agreement with its custodian bank under which $27,812
of custodian fees have been reduced by balance credits applied during the year
ended August 31, 1999. If the Fund had not entered into this agreement, the
assets not invested, on which these balance credits were earned, could have
produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the year ended
August 31, 1999, net sales charges received with regard to sales of Class A
shares amounted to $204,621. Out of this amount, $27,189 was retained and used
for printing prospectuses, advertising, sales literature and other purposes,
$102,506 was paid as sales commissions to unrelated broker-dealers and $74,926
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Signator Investors.
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 5.00% 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 year ended August 31, 1999
the contingent deferred sales charges received by JH Funds amounted to $12,337.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% 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 C shares. For the year ended
August 31, 1999, the contingent deferred
20
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Massachusetts Tax-Free Income Fund
sales charges received by JH Funds amounted to $161.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C shares 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 and Class C
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,
accounting and legal services for the Funds. The compensation for the year was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon
and Mr. Richard S. Scipione are trustees and/or officers of the Adviser and/or
its affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. 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. The investment had no
impact on the operations of the Fund.
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 year
ended August 31, 1999, aggregated $15,587,509 and $3,807,252, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended August 31, 1999.
The cost of investments owned at August 31, 1999 for federal income tax
purposes was $70,060,047. Gross unrealized appreciation and depreciation of
investments aggregated $2,877,514 and $1,646,766 respectively, resulting in net
unrealized appreciation of $1,230,748.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended August 31, 1999, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments and finacial
futures contracts of $75, an increase in undistributed net investment income of
$39 and a decrease in capitial paid-in of $114. This represents the amount
necessary to report balances on a tax basis, excluding certain temporary
differences, as of August 31, 1999. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains under
federal tax rules versus generally accepted accounting principles. The
calculation of net investment income per share in the financial highlights
excludes these adjustments.
21
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
John Hancock Massachusetts Tax-Free Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments (except for credit ratings and yields at market),
and the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of John Hancock Massachusetts Tax-Free Income Fund (the "Fund") at
August 31, 1999, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/PricewaterhouseCoopers LLP
- -----------------------------
Boston, Massachusetts
October 15, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended August 31,
1999.
None of the 1999 income dividends qualify for the corporate dividends
received deduction. Shareholders, who are not subject to the alternative minimum
tax, received income dividends which are 99.98% tax-exempt for federal and state
purposes. The percentage of income dividends from the Fund subject to the
alternative minimum tax is 17.18%.
None of the income dividends were derived from U.S. Treasury Bills.
For specific information on exception provisions in your state, consult
your local state tax office or your tax advisor.
Shareholders will receive a 1999 U.S. Treasury Department Form 1099-DIV
in January 2000. This will reflect the total of all distributions, which are
taxable for calendar year 1999.
22
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
23
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS -----------------
A Global Investment Management Firm Bulk Rate
U.S. Postage
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA
INTERNET: www.jhfunds.com 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.
[LOGO] Printed on Recycled Paper 7700A 8/99
10/99
<PAGE>
---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
New York
Tax-Free
Income Fund
AUGUST 31, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
---------------------------------
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
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
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 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 02109-1803
INDEPENDENT AUDITORS
PricewaterhouseCoopers llp
160 Federal Street
Boston, Massachusetts 02110
----------------------------------------
==============================CHAIRMAN'S MESSAGE================================
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to third paragraph.]
- --------------------------------------------------------------------------------
These modifications and replacements for all mission-critical systems are done
and successfully compliance tested. The rest of 1999 will be spent completing
the few remaining non mission-critical systems, testing with our business
partners and continuing to participate in industry testing. We have also
established additional contingency plans beyond our regular ones to prepare for
any challenges that the Year 2000 might present. In the end, John Hancock will
spend approximately $90-$95 million to ensure we make a successful transition to
the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although we
cannot make any ironclad assurances, we are confident that the steps we have
taken will provide shareholders with as smooth a transition as possible. Once
that occurs, we will happily raise our glasses to toast the New Year, future
prosperity and our hopes to serve you well into the 2000's.
Sincerely,
/s/Edward J. Boudreau, Jr.
- --------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Frank A. Lucibella, CFA, Barry H. Evans, CFA, and
Dianne Sales, CFA, Portfolio Managers
John Hancock New York
Tax-Free Income Fund
Municipals decline, troubled by inflation worries
-------------------------------------------------
Municipal bonds posted weak returns over the last 12 months, as investors became
increasingly more concerned that the strength of the U.S. economy would
eventually translate into inflationary pressures and higher interest rates. At
the beginning of the period last fall, the environment looked rather rosy. Many
observers forecasted at the time that protracted economic problems overseas -
namely in Asia and Latin America - would nip inflationary pressures in the bud.
Because the Federal Reserve Board was worried that the problems in
recession-wracked Asia and parts of Latin America would spill over into the
U.S., it cut short-term interest rates on three separate occasions last fall as
stimulative measures.
At the end of 1998 and early 1999, however, the Fed's stance and
investor sentiment began to shift. Rather than slowing as originally
anticipated, the U.S. economy continued to grow at a healthy pace, while much of
Asia and Latin America started to show signs of life. In response, the Fed
signaled that it was no longer inclined to lower interest rates. In the months
that followed, there was more and more evidence that inflationary pressures were
building. Oil prices pushed against an important barrier of $20 per barrel,
while key supplies for economic growth, such as copper and lumber, moved higher.
Labor markets were extremely tight and the housing markets were on fire during
the spring. It's important to note, however, that investors reacted to their
fears of
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock New York
Tax-Free Income Fund. Caption below reads "Fund management team members (l-r):
"Barry Evans, Mike Roye, Dianne Sales, Frank Lucibella and Holly Morris."]
- --------------------------------------------------------------------------------
"Municipal bonds posted weak returns over the last 12 months..."
3
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
"The Fund's performance benefited from its holdings in bonds issued by New York
City..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into eleven sections (from top to left): Authority 2%, General
Purpose 3%, Industrial Development 7%, Other 7%, Electric 8%, Transportation 8%,
Water & Sewer 9%, General Obligation 12%, Housing 13%, Education 13% and Health
18%. A note below the chart reads "As a percentage of net assets on August 31,
1999."]
- --------------------------------------------------------------------------------
inflation, more than to the reality of it. To pull the reins in on potential
inflation, the Fed raised interest rates in June and again in August.
Against this deteriorating interest-rate environment, municipals fared
better than their taxable counterparts. Early on, municipals underperformed U.S.
Treasuries due to investors' general distaste for all bonds except "safe haven"
Treasuries. Further impeding municipals' progress was an overabundance of supply
stemming from issuers' appetite for issuing new, and refinancing old, debt at
low interest rates. The tide turned more favorable in 1999, in large part
because municipals were priced so attractively relative to Treasuries and
attracted buyers as a result. Furthermore, municipal supply fell by about 25%
compared to 1998, providing them with additional price support. Thanks to the
ongoing strength of the state's economy, the New
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and 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 with the phrase "Credit upgrade." The second listing is
High-coupon bonds followed by an up arrow with the phrase "Income helps cushion
against price declines." The third listing is Health care followed by a down
arrow with the phrase "Federal reimbursement cutbacks." A note below the table
reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
- --------------------------------------------------------------------------------
York municipal market performed slightly better than the national municipal
market during the period, although it still was unable to post positive results
over the last year.
Performance
For the 12 months ended August 31, 1999, John Hancock New York Tax-Free Income
Fund's Class A and Class B shares posted total returns of -1.08% and -1.77%,
respectively, at net asset value. By comparison, the average New York municipal
bond fund returned -1.64%, according to Lipper, Inc.1 Class C shares, which were
introduced on April 1, 1999, returned -3.24% from inception through August 31,
1999. Keep in mind that your net asset value return will be different from the
Fund's performance if you were not invested in the Fund for the entire period
and did not reinvest all distributions. Please see pages six and seven for
longer-term performance information.
Strategy review
The Fund was well served by its conservative stance on credit quality. This
helped us avoid the hardest-hit issues in the troubled health-care area. Another
major positive for performance was our active management of duration, which
measures a bond's sensitivity to interest-rate changes. The longer the duration,
the more a bond's price rises when rates fall and falls when rates rise. From
September through December of 1998, we maintained a somewhat longer duration
posture, which provided gains as interest rates fell. Based on our view that
interest rates were potentially headed higher, we shortened our duration
beginning about six months ago. We maintained that more defensive posture
through the end of the period, keeping the Fund's duration slightly shorter than
the average fund.
4
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended August 31, 1999." The chart is
scaled in increments of .5% with -3.5% at the bottom and 0% at the top. The
first bar represents the -1.08% total return for John Hancock New York Tax-Free
Income Fund Class A. The second bar represents the -1.77% total return for John
Hancock New York Tax-Free Income Fund Class B. The third bar represents the
- -3.24%* total return for John Hancock New York Tax-Free Income Fund Class C. The
fourth bar represents the -1.64% total return for Average New York municipal
bond fund. A note below the chart reads "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, Inc.1 See the
following two pages for historical performance information. * From inception
April 1, 1999 through August 31, 1999."]
- --------------------------------------------------------------------------------
Having a shorter duration as interest rates rose was a definite plus for
performance.
Leaders and laggards
The Fund's performance benefited from its holdings in bonds issued by New York
City, which refinanced some of its debt, and our holdings received a credit
upgrade to AAA, the highest rating possible.
Bonds that offered high amounts of current income - and were somewhat
cushioned from price declines as rates rose - held up relatively well. In
contrast, many of the Fund's health-care holdings were disappointments. The
recent reduction in Medicare and Medicaid reimbursements and a large municipal
bond insurer's refusal to continue insuring lower-quality health-care bonds
caused the health-care sector to languish.
Outlook
Our outlook calls for continued expansion of the U.S. economy over the next six
months, although at a slower rate of growth. In our view, a moderate slowdown
should keep inflation in check and interest rates locked into a rather tight
range. From a technical market standpoint, we think municipals are poised to
gain further ground on their Treasury counterparts. Municipals still offer
attractive values relative to Treasuries, which should eventually foster
stronger demand. Better demand, coupled with the drop off in supply we've
experienced in 1999, should provide firmer footing for the municipal market.
We'll continue to stay focused on bonds with good call protection, so that if
rates reverse course and begin to fall again we'll be insulated from having to
surrender higher-yielding bonds. As always, we'll be on the lookout for
opportunities to improve the Fund's diversification, yield and credit quality.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
1Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
"Municipals still offer attractive values..."
5
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
- --------------------------------------------------------------------------------
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
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.50%. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
All figures represent past performance and are no guarantee of future results.
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 read your
prospectus carefully before you invest or send money.
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 (AMT). Also note
that capital gains are taxable.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (2.62%) 30.68% 88.19%
Average Annual Total Returns(1) (2.62%) 5.50% 6.53%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
SINCE
ONE INCEPTION
YEAR (10/3/96)
------- --------
Cumulative Total Returns (3.53%) 11.61%
Average Annual Total Returns(1) (3.53%) 4.09%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (2.97%)
Average Annual Total Return(1) (2.97%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of August 31, 1999
SEC 30-DAY
YIELD
--------
John Hancock New York Tax-Free Income Fund: Class A 4.63%
John Hancock New York Tax-Free Income Fund: Class B 4.13%
John Hancock New York Tax-Free Income Fund: Class C 4.12%
Notes to Performance
(1) The Adviser has voluntarily reduced a portion of the management fee
and a portion of the custodian fee has been offset by balance credits
during the period. Without the reduction of expenses and the offset,
the average annual total returns for the one-year, five-year and
ten-year periods for Class A shares would have been (2.97%), 5.09% and
5.89%, respectively. Without the reduction of expenses and the offset,
the average annual total returns for the one-year period and since
inception for Class B shares would have been (3.88%) and 3.71%,
respectively. Without the reduction of expenses and the offset,the
average annual total return since inception for Class C shares would
have been (3.06%).
(2) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
New York Tax-Free Income Fund would be worth, assuming all distributions were
reinvested for the period indicated. 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. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 Lehman
Brothers Municipal Bond Index and is equal to $20,307 as of August 31, 1999. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock New York Tax-Free Income Fund on August 31, 1989, before sales
charge, and is equal to $19,551 as of August 31, 1999. The third line represents
the value of the same hypothetical investment made in the John Hancock New York
Tax-Free Income Fund, after sales charge, and is equal to $18,669 as of August
31, 1999.
Line chart with the heading John Hancock 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 Lehman
Brothers Municipal Bond Index and is equal to $11,764 as of August 31, 1999. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock New York Tax-Free Income Fund on October 3, 1996, before sales
charge, and is equal to $11,317 as of August 31, 1999. The third line represents
the value of the same hypothetical investment made in the John Hancock New York
Tax-Free Income Fund, after sales charge, and is equal to $11,017 as of August
31, 1999.
Line chart with the heading John Hancock New York Tax-Free Income Fund Class C,
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 Lehman
Brothers Municipal Bond Index and is equal to $9,780 as of August 31, 1999. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock New York Tax-Free Income Fund on April 1, 1999, before sales
charge, and is equal to $9,676 as of August 31, 1999. The third line represents
the value of the same hypothetical investment made in the John Hancock New York
Tax-Free Income Fund, after sales charge, and is equal to $9,579 as of August
31, 1999.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================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 August 31, 1999. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
August 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $55,988,865)............... $57,176,854
Cash .......................................................... 654,527
Receivable for investments sold ............................... 128,841
Receivable for shares sold .................................... 35,513
Interest receivable ........................................... 799,926
Other assets .................................................. 4,228
--------------
Total Assets .................... 58,799,889
------------------------------------------------
Liabilities:
Payable for investments purchased ............................. 1,984,454
Payable for shares repurchased ................................ 10,858
Dividend payable .............................................. 1,539
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 18,464
Accounts payable and accrued expenses ......................... 35,228
--------------
Total Liabilities ............... 2,050,543
------------------------------------------------
Net Assets:
Capital paid-in ............................................... 55,763,284
Accumulated net realized loss on investments and
financial futures contracts .................................. (219,946)
Net unrealized appreciation of investments .................... 1,187,989
Undistributed net investment income ........................... 18,019
--------------
Net Assets ...................... $56,749,346
================================================
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 - $48,197,582/4,097,713 ............................... $11.76
===============================================================================
Class B - $8,457,508/719,049 .................................. $11.76
===============================================================================
Class C * - $94,256/8,014 ..................................... $11.76
===============================================================================
Maximum Offering Price Per Share **
Class A - ($11.76 x 104.71%) .................................. $12.31
===============================================================================
* Class C shares commenced operations on April 1, 1999.
** On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended August 31, 1999
- --------------------------------------------------------------------------------
Investment Income:
Interest ...................................................... $3,429,258
-------------
Expenses:
Investment management fee - Note B ........................... 297,667
Distribution and service fee - Note B
Class A ..................................................... 154,081
Class B ..................................................... 81,499
Class C ..................................................... 232
Transfer agent fee - Note B .................................. 61,747
Custodian fee ................................................ 50,156
Auditing fee ................................................. 20,950
Printing ..................................................... 10,510
Accounting and legal services fee - Note B ................... 9,263
Registration and filing fees ................................. 6,993
Trustees' fees ............................................... 3,091
Miscellaneous ................................................ 2,840
Legal fees ................................................... 890
Less management fee reduction - Note B ....................... (200,539)
-------------
Total Expenses .................. 499,380
-----------------------------------------------
Less Expense Reductions -
Note B .......................... (25,319)
-----------------------------------------------
Net Expenses .................... 474,061
-----------------------------------------------
Net Investment Income ........... 2,955,197
-----------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized gain on investments sold ......................... 277,344
Net realized loss on financial futures contracts .............. (65,856)
Change in net unrealized appreciation/depreciation
of investments ............................................... (3,825,308)
-------------
Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts ..... (3,613,820)
-----------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ....... ($658,623)
===============================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1998 1999
---------------- ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................................ $2,985,176 $2,955,197
Net realized gain on investments sold and financial futures contracts ........ 614,815 211,488
Change in net unrealized appreciation/depreciation of investments ............ 1,108,414 (3,825,308)
---------------- ------------------
Net Increase (Decrease) in Net Assets Resulting from Operations ............. 4,708,405 (658,623)
---------------- ------------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.6593 and $0.6302 per share, respectively) ..................... (2,827,611) (2,599,041)
Class B - ($0.5715 and $0.5429 per share, respectively) ..................... (173,645) (355,174)
Class C** - (none and $0.2214 per share, respectively) ...................... - (982)
Distributions from net realized gain on investments sold
Class A - (none and $0.1058 per share, respectively) ........................ - (439,098)
Class B - (none and $0.1058 per share, respectively) ........................ - (69,123)
Distributions in excess of net realized gain on investments sold
Class A - (none and $0.0081 per share, respectively) ........................ - (34,592)
Class B - (none and $0.0081 per share, respectively) ........................ - (5,446)
---------------- ------------------
Total Distributions to Shareholders ......................................... (3,001,256) (3,503,456)
---------------- ------------------
From Fund Share Transactions - Net:* .......................................... (10,091) 2,714,666
---------------- ------------------
Net Assets:
Beginning of period .......................................................... 56,499,701 58,196,759
---------------- ------------------
End of period (including undistributed net investment income
of $15,483 and $18,019, respectively) ....................................... $58,196,759 $56,749,346
================ ==================
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 corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
1998 1999
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
CLASS A
Shares sold ...................................................... 459,988 $5,734,004 384,092 $4,752,469
Shares issued to shareholders in reinvestment of distributions ... 164,528 2,048,356 185,055 2,288,715
------------ ------------- ---------- -------------
624,516 7,782,360 569,147 7,041,184
Less shares repurchased .......................................... (891,788) (11,085,177) (620,426) (7,661,895)
------------ ------------- ---------- -------------
Net decrease ..................................................... (267,272) ($3,302,817) (51,279) ($620,711)
============ ============= ========== =============
CLASS B
Shares sold ...................................................... 286,752 $3,574,224 463,911 $5,768,182
Shares issued to shareholders in reinvestment of distributions ... 8,420 104,922 19,903 245,877
------------ ------------- ---------- -------------
295,172 3,679,146 483,814 6,014,059
Less shares repurchased .......................................... (30,917) (386,420) (226,140) (2,776,325)
------------ ------------- ---------- -------------
Net increase ..................................................... 264,255 $3,292,726 257,674 $3,237,734
============ ============= ========== =============
CLASS C**
Shares sold ...................................................... - - 8,927 $108,412
Shares issued to shareholders in reinvestment of distributions ... - - 8 89
------------ ------------- ---------- -------------
.................................................................. - - 8,935 108,501
Less shares repurchased .......................................... - - (921) (10,858)
------------ ------------- ---------- -------------
Net increase ..................................................... - - 8,014 $97,643
============ ============= ========== =============
** Class C shares commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
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,
-----------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period........................ $11.73 $11.88 $11.83 $12.25 $12.62
---------- ---------- ---------- ---------- ----------
Net Investment Income ...................................... 0.65 0.66 0.67 0.66(7) 0.63(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ........................... 0.15 (0.05) 0.42 0.37 (0.75)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ......................... 0.80 0.61 1.09 1.03 (0.12)
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ...................... (0.65) (0.66) (0.67) (0.66) (0.63)
Distributions from Net Realized Gain on Investments Sold .. - - - - (0.11)
Distributions in Excess of Net Realized Gain on
Investments Sold ......................................... - - - - (0.00)(8)
---------- ---------- ---------- ---------- ----------
Total Distributions ...................................... ((0.65) (0.66) (0.67) (0.66) (0.74)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................. $11.88 $11.83 $12.25 $12.62 $11.76
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value (2) ............. 7.19% 5.21% 9.48% 8.64% (1.08%)
Total Adjusted Investment Return at Net Asset Value (2,3) .. 6.74% 4.77% 9.08% 8.24% (1.46%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $55,753 $56,229 $54,086 $52,373 $48,198
Ratio of Expenses to Average Net Assets .................... 0.70% 0.73%(4) 0.71%(4) 0.70% 0.74%(4)
Ratio of Adjusted Expenses to Average Net Assets (1) ....... 1.15% 1.14% 1.11% 1.10% 1.08%
Ratio of Net Investment Income to Average Net Assets ....... 5.67% 5.51% 5.61% 5.26% 5.06%
Ratio of Adjusted Net Investment Income to Average Net Assets (1) 5.22% 5.07% 5.21% 4.86% 4.68%
Portfolio Turnover Rate .................................... 70% 76% 46% 46% 58%
Expense and Fee Reduction Per Share ........................ $0.05 $0.05 $0.05 $0.05(7) $0.04(7)
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions 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.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
OCTOBER 3, 1996 YEAR ENDED AUGUST 31,
(COMMENCEMENT OF OPERATIONS) -----------------------
TO AUGUST 31, 1997 1998 1999
---------------------------- ---------- ----------
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period................................... $11.99 $12.25 $12.62
---------- ---------- ----------
Net Investment Income ................................................. 0.54 0.57(7) 0.54(7)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .......................................... 0.26 0.37 (0.75)
---------- ---------- ----------
Total from Investment Operations .................................... 0.80 0.94 (0.21)
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ................................. (0.54) (0.57) (0.54)
Distributions from Net Realized Gain on Investments Sold ............. - - (0.11)
Distributions in Excess of Net Realized Gain on Investments Sold ..... - - (0.00)(8)
---------- ---------- ----------
Total Distributions ................................................. (0.54) (0.57) (0.65)
---------- ---------- ----------
Net Asset Value, End of Period ........................................ $12.25 $12.62 $11.76
========== ========== ==========
Total Investment Return at Net Asset Value (2) ........................ 6.82%(6) 7.88% (1.77%)
Total Adjusted Investment Return at Net Asset Value (2,3) ............. 6.46%(6) 7.48% (2.15%)
Ratios and Supplemental Data Net Assets, End of Period (000s omitted) .. $2,414 $5,824 $8,458
Ratio of Expenses to Average Net Assets ............................... 1.41%(4,5) 1.40% 1.44%(4)
Ratio of Adjusted Expenses to Average Net Assets (1) .................. 1.81%(5) 1.80% 1.78%
Ratio of Net Investment Income to Average Net Assets .................. 4.79%(5) 4.56% 4.36%
Ratio of Adjusted Net Investment Income to Average Net Assets (1) ..... 4.39%(5) 4.16% 3.98%
Portfolio Turnover Rate ............................................... 46% 46% 58%
Expense and Fee Reduction Per Share ................................... $0.04 $0.05(7) $0.04(7)
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
APRIL 1, 1999
(COMMENCEMENT OF
OPERATIONS)
TO AUGUST 31, 1999
------------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................................................... $12.39
----------
Net Investment Income (7) .................................................................. 0.22
Net Realized and Unrealized Loss on Investments and Financial Futures Contracts ............ (0.63)
----------
Total from Investment Operations ......................................................... (0.41)
----------
Less Distributions:
Dividends from Net Investment Income ...................................................... (0.22)
----------
Net Asset Value, End of Period ............................................................. $11.76
==========
Total Investment Return at Net Asset Value (2) ............................................. (3.24%)(6)
Total Adjusted Investment Return at Net Asset Value (2,3) .................................. (3.40%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................................... $94
Ratio of Expenses to Average Net Assets .................................................... 1.44%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) ....................................... 1.78%(5)
Ratio of Net Investment Income to Average Net Assets ....................................... 4.23%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) .......................... 3.85%(5)
Portfolio Turnover Rate .................................................................... 58%
Expense and Fee Reduction Per Share (7) .................................................... $0.04
(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 Class A and 1.40% for Class B and Class C.
(5) Annualized.
(6) Not annualized.
(7) Based on the average of the shares outstanding at the end of each month.
(8) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Schedule of Investments
August 31, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
New York Tax-Free Income Fund on August 31, 1999. The schedule consists of one
main category: tax-exempt long-term bonds. The tax-exempt bonds are 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 CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- -------- -------- ------- --------- ------ --------
AX-EXEMPT LONG-TERM BONDS
Guam (1.57%)
Guam Power Authority,
Rev Ser 1999A .......................................... 5.125% 10-01-29 BBB $1,000 $894,010 5.73%
-----------
New York (89.65%)
Albany NY Industrial Dev Agency,
Albany Med Ctr Proj. .................................. 6.000 05-01-29 BBB- 1,000 952,129 6.30
Cattaraugus County Industrial Development Agency,
Civic Facil Rev Ref St Bonaventure Univ Proj Ser 1998A 5.000 09-15-13 BBB 660 600,870 5.49
Dutchess County Resource Recovery Agency,
Resource Recovery Rev Solid Waste Sys Ser A *** ....... 5.450 01-01-14 AAA 1,000 989,610 5.51
Solid Waste Mgmt Sys Rev Ser 1990 A ................... 7.500 01-01-09 AAA 250 258,150 7.26
Glen Cove Housing Auth,
Rev Sr Living Facil The Mayfair Proj .................. 8.250 10-01-26 BB+ 1,000 1,096,060 7.53
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj . 7.500 03-01-26 BB- 1,500 1,603,544 7.02
Long Island Power Auth,
Elec Sys Rev Ser 1998A ................................ Zero 12-01-16 AAA 2,250 860,557 5.65
Metropolitan Transportation Auth,
Commuter Facil Rev 1987 Serv Contract Ser 3 ........... 7.375 07-01-08 Baa1 1,000 1,122,810 6.57
Commuter Facil Rev 1992 Serv Contract Ser N ........... 7.125 07-01-09 BBB+ 1,000 1,077,750 6.61
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 1,054,480 6.21
New York City Industrial Development Agency,
Brooklyn Navy Yard Cogen Partners ..................... 6.200 10-01-22 BBB- 1,000 1,013,480 6.12
Civic Facil Rev College of New Rochelle Proj .......... 5.750 09-01-17 Baa2 1,000 981,330 5.86
Rev Ref LaGuardia Assoc LP Proj ....................... 6.000 11-01-28 BB+ 500 476,264 6.30
Spec Facil Rev 1990 American Airlines Inc Proj ........ 5.400 07-01-19 BBB- 250 230,812 5.85
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev Fiscal 1996 Ser B ................... 6.250 06-15-20 AAA 1,000 1,098,250 5.69
Wtr & Swr Sys Rev Ref Ser 1997B ....................... 5.250 06-15-29 AAA 1,000 933,060 5.63
Water & Swr Sys Rev Ref Ser 1997B ..................... 5.250 06-15-29 A 300 276,305 5.70
New York City Trans Authority,
Metropolitan Transportation Auth Triborough ........... 5.250 01-01-29 AAA 1,750 1,633,554 5.62
New York Local Government Assistance Corp,
Rev Ref 1993 Ser C .................................... 5.500 04-01-17 A+ 1,000 1,001,070 5.49
Rev Ref Cap Apprec Ser 1993 C ......................... Zero 04-01-14 AAA 1,100 496,485 5.53
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- -------- -------- ------- --------- ------ --------
New York (continued)
New York State Dormitory Auth,
City Univ Rev Iss Ser U Unref Bal ..................... 6.375% 07-01-08 BBB+ $210 $222,493 6.02%
Genessee Valley Presbyterian Nursing Center
FHA-Ins Mtg Rev Ser 1992B ............................ 6.850 08-01-16 AA 250 263,833 6.49
KMH Homes Inc FHA-Ins Mtg Rev Ser 1991 ................ 6.950 08-01-31 AA 1,200 1,258,176 6.63
Manhattanville College Ins Rev Ser 1990 ............... 7.500 07-01-22 AAA 305 320,424 7.14
Muni Health Facil Imp Prog Lease Rev Ser 1 ............ 4.750 01-15-29 AAA 2,000 1,702,840 5.58
Nyack Hosp Rev Ser 1996 ............................... 6.250 07-01-13 Baa 500 504,640 6.19
State Univ Ed Facil Rev Ser 1990A ..................... 7.700 05-15-12 A- 300 314,211 7.35
State Univ Ed Facil Rev Ser 1993A ..................... 5.500 05-15-19 A- 2,000 1,965,220 5.60
State Univ Ed Facil Rev Ser 1993A ..................... 5.250 05-15-15 AAA 1,000 983,130 5.34
United Hlth Serv Inc FHA-Ins Mtg Rev Ser 1989 ......... 7.350 08-01-29 AAA 200 206,868 7.11
Univ of Rochester Rev Ser 1987 Unref Bal .............. 6.500 07-01-09 A+ 20 20,241 6.42
Univ of Rochester Rev Ser B ** ........................ 5.625 07-01-24 A+ 1,000 977,030 5.76
New York State Energy Research and Development Auth,
Elec Facil Rev Ser 1994A Long Island Lighting Co ...... 5.300 10-01-24 A- 1,000 917,020 5.78
New York State Environmental Facilities Corp,
State Wtr Poll Control Rev Rites Ser PA-174 ........... 9.920# 06-15-11 AAA 500 613,750 8.08
State Wtr Poll Control Revolving Fund Rev Ser 1990A ... 7.500 06-15-12 AA 630 658,778 7.17
State Wtr Poll Control Revolving Fund Rev Ser 1991E
Unref Bal ............................................ 6.875 06-15-11 AA+ 40 42,422 6.48
New York State Housing Finance Agency,
Ins Multi-Family Mtg Hsg 1992 Ser C ................... 6.450 08-15-14 AAA 500 521,225 6.19
Ins Multi-Family Mtg Hsg 1994 Ser B ................... 6.250 08-15-14 AAA 735 776,204 5.92
Ins Multi-Family Mtg Hsg 1994 Ser C ................... 6.450 08-15-14 Aa1 1,000 1,058,870 6.09
New York State Medical Care Facilities Finance Agency,
Hosp & Nursing Home Ins Mtg Rev 1992 Ser B Preref ..... 6.950 02-15-32 AA 170 183,513 6.44
Hosp & Nursing Home Ins Mtg Rev 1992 Ser B Unref Bal .. 6.950 02-15-32 AA 830 895,977 6.44
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref ...... 7.875 08-15-20 AAA 175 185,084 7.45
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal ... 7.875 08-15-20 A- 65 68,357 7.49
Mental Hlth Serv Facil Imp Rev 1991 Ser A Unref Bal ... 7.750 08-15-11 A3 20 21,241 7.30
Mental Hlth Serv Facil Imp Rev 1991 Ser B Preref ...... 7.625 08-15-17 A- 80 85,810 7.11
Mental Hlth Serv Facil Imp Rev 1991 Ser B Unref Bal ... 7.625 08-15-17 A- 165 178,672 7.04
Mental Hlth Serv Facil Imp Rev 1991 Ser C Unref Bal ... 7.300 02-15-21 A3 35 37,332 6.84
Rev Mental Hlth Serv 1994 Ser E Preref ................ 6.250 08-15-19 AAA 1,470 1,608,048 5.71
Rev Mental Hlth Serv 1994 Ser E Unref Bal ............ 6.250 08-15-19 AAA 30 30,953 6.06
New York State Mortgage Agency,
Homeowner Mtg Rev Ser 27 .............................. 6.900 04-01-15 Aa2 1,175 1,255,300 6.46
Homeowner Mtg Rev Ser 28 .............................. 7.050 10-01-23 Aa2 500 522,160 6.75
Homeowner Mtg Rev Ser 57 .............................. 6.300 10-01-17 Aa2 500 522,665 6.03
Homeowner Mtg Rev Ser EE-4 ............................ 7.800 10-01-13 Aa2 300 310,551 7.53
Homeowner Mtg Rev Ser JJ .............................. 7.500 10-01-17 Aa2 330 337,168 7.34
Homeowner Mtg Rev Ser VV .............................. 7.375 10-01-11 Aa2 70 73,077 7.06
New York State Power Auth,
Gen Purpose Ser W ..................................... 6.500 01-01-08 AAA 250 272,748 5.96
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- -------- -------- ------- --------- ------ --------
New York (continued)
New York State Urban Development Corp,
Rev Ser 7 Correctional Cap Facil Proj.................. 5.700% 01-01-16 BBB+ $500 $498,380 5.72%
New York, City of,
GO Fiscal 1991 Ser B .................................. 8.250 06-01-07 A- 200 240,674 6.86
GO Fiscal 1991 Ser D Preref ........................... 8.000 08-01-04 A- 245 265,781 7.37
GO Fiscal 1991 Ser D Unref Bal ........................ 8.000 08-01-04 A- 5 5,387 7.43
GO Fiscal 1991 Ser F Preref ........................... 8.200 11-15-03 AAA 230 252,754 7.46
GO Fiscal 1991 Ser F Unref Bal ........................ 8.200 11-15-03 A- 20 21,807 7.52
GO Fiscal 1992 Ser A Preref ........................... 7.750 08-15-12 A- 5 5,410 7.16
GO Fiscal 1992 Ser B Unref Bal ........................ 7.000 10-01-13 A- 10 10,762 6.50
GO Fiscal 1992 Ser C Preref ........................... 7.500 08-01-21 A- 20 22,046 6.80
GO Fiscal 1992 Ser H Unref Bal ........................ 7.000 02-01-22 A- 25 26,592 6.58
GO Fiscal 1996 Ser C .................................. 5.875 02-01-16 A- 1,000 1,017,640 5.77
GO Fiscal 1996 Ser G .................................. 5.750 02-01-17 A- 1,000 1,005,910 5.72
GO Fiscal 1998 Ser J .................................. 5.300 08-01-24 A- 1,000 925,810 5.72
New York, State of,
GO Environmental Quality Fiscal 1994 .................. 6.500 12-01-14 A 1,000 1,109,330 5.86
Onondaga County Industrial Development Agency,
Civic Facil Rev 1993 Ser B Community Gen Hosp of
Greater Syracuse Proj ................................ 6.625 01-01-18 BBB 895 912,354 6.50
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 .................... 6.750 10-01-19 BBB 2,500 2,691,800 6.27
Rensselaer County Industrial Development Agency,
Civic Fac Rev Polytechnic Institute Dormitory Proj
Ser 1999 A ........................................... 5.125 08-01-29 A+ 1,000 905,920 5.66
Suffolk County Industrial Development Agency,
Rev Ref Nissequogue Cogen Partners Facil .............. 5.500 01-01-23 BBB- 500 465,225 5.91
Triborough Bridge & Tunnel Auth,
Gen Purpose Rev Ref Ser 1993A ......................... 5.125 01-01-22 A+ 1,000 921,870 5.56
Gen Purpose Rev Ser 1993 ............................. Zero 01-01-21 AAA 1,500 447,585 5.75
Gen Purpose Rev Ref Ser 1997A ......................... 5.250 01-01-28 A+ 1,000 925,160 5.67
Spec Oblig Ref Ser 1991B .............................. 6.875 01-01-15 A- 500 524,915 6.55
-----------
50,875,713
-----------
Puerto Rico (7.78%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth
of Puerto Rico ....................................... 8.270# 07-01-11 AAA 2,000 2,307,500 7.17
Puerto Rico Public Building Auth,
Rev Gtd Govt Facil Ser A .............................. 6.250 07-01-12 AAA 1,110 1,223,531 5.67
Puerto Rico, Commonwealth of,
GO Cap Apprec Ref Pub Imp Ser 1998 ..................... Zero 07-01-14 A 2,000 884,080 5.58
-----------
4,415,111
-----------
Virgin Islands (1.75%)
Virgin Islands Public Finance Auth,
Rev Sub Lien Fund Ln Notes Ser 1998E .................. 5.875 10-01-18 BB+ 1,000 992,020 5.92
-----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $55,988,865) (100.75%) 57,176,854
------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.75%) (427,508)
------- -----------
TOTAL NET ASSETS (100.00%) $56,749,346
======== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
NOTES TO SCHEDULE OF INVESTMENTS
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service, Fitch or John Hancock
Advisers, Inc. where Standard & Poor's ratings are not available.
** This security having an aggregate value of $977,030 or 1.72% of the
Fund's net assets, has been purchased as a forward commitment - that
is, the Fund has agreed on trade date to take delivery of and make
payment for such security on a delayed basis subsequent to the date of
this schedule. The purchase price and interest rate of such security
are fixed at trade date, although the Fund does not earn any interest
on such security until settlement date. The Fund has instructed its
Custodian Bank to segregate assets with a current value at least equal
to the amount of the forward commitment. Accordingly, the market value
of $1,030,876 of Puerto Rico Aqueduct and Sewer Auth, 8.27%, 07-01-11,
has been segregated to cover the forward commitment.
*** This security having an aggregate value of $989,610 or 1.74% of the
Fund's net assets, has been purchased on a when-issued basis. The
purchase price and the interest rate of such security are fixed at
trade date, although the Fund does not earn any interest on such
security until settlement date. The Fund has instructed its Custodian
Bank to segregate assets with a current value at least equal to the
amount of its when-issued commitment. Accordingly, the market value of
$965,689 of Puerto Rico Aqueduct and Sewer Auth, 8.270%, 07-01-11, has
been segregated to cover the when-issued commitment.
+ The yield is not calculated in accordance with guidelines established
by the U.S. Securities & Exchange Commission and is unaudited. Zero
coupon yields are at yield to maturity.
# Represents rate in effect on August 31, 1999.
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.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Portfolio Concentration (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 August 31, 1999 assigned to the
various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ---------------
General Obligation .......................................... 12.36%
Revenue Bonds - Authority ................................... 1.75
Revenue Bonds - Combined .................................... 0.56
Revenue Bonds - Education ................................... 13.02
Revenue Bonds - Electric .................................... 8.36
Revenue Bonds - Environment ................................. 1.08
Revenue Bonds - General Purpose ............................. 3.25
Revenue Bonds - Health ...................................... 17.60
Revenue Bonds - Housing ..................................... 13.26
Revenue Bonds - Industrial Development ...................... 6.51
Revenue Bonds - Other ....................................... 3.52
Revenue Bonds - Solid Waste Disposal ........................ 2.20
Revenue Bonds - Transportation .............................. 8.47
Revenue Bonds - Water & Sewer ............................... 8.81
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 100.75%
==========
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - New York Tax-Free Income Fund
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 (the "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, Class B and Class C shares. The Fund issued
Class C shares for the first time on April 1, 1999. 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.
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,
Inc., 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. Additionally, net capital losses of $121,281 attributable to security
transactions occurring after October 31, 1998 are treated as arising on the
first day (September 1, 1999) of the Fund's next taxable year.
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
19
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - New York Tax-Free Income Fund
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
size 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.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks, which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowings. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the year ended August 31, 1999.
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's gains and/or losses can be affected as a result of futures contracts.
At August 31, 1999, there were no open positions in financial futures
contracts.
OPTIONS The Fund may purchase or sell options contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Over-the-counter options will be valued at the mean between
the last bid and asked prices. 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 options contracts to manage its exposure to the price
volatility of financial instruments. 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
20
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - New York Tax-Free Income Fund
exposure will be limited to the change in value of the contract over the period
the contract remains open.
Risks may also arise if counterparties do not perform under the
contract's terms ("credit risk"), or if the Fund is unable to offset a contract
with a counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties to each
transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter options
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 year-end
Statement of Assets and Liabilities.
There were no written option transactions for the year ended August 31,
1999.
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%, 1.40% and 1.40%
of the average net assets attributable to Class A, Class B and Class C,
respectively. Accordingly, for the year ended August 31, 1999, 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 $200,539. This limitation may be
discontinued at any time.
The Fund has an agreement with its custodian bank under which $25,319
of custodian fees have been reduced by balance credits applied during the year
ended August 31, 1999. If the Fund had not entered into this agreement, the
assets not invested, on which these balance credits were earned, could have
produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the year ended
August 31, 1999, net sales charges received with regard to sales of Class A
shares amounted to $90,254. Out of this amount, $17,861 was retained and used
for printing prospectuses, advertising, sales literature and other purposes,
$32,201 was paid as sales commissions to unrelated broker-dealers and $40,192
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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 5.00% 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 year ended August 31, 1999
the contingent deferred sales charges received by JH Funds amounted to $103,127.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% 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 related to providing distribution related
services to the Fund in connection with the sale of Class C shares. For the year
ended August 31, 1999, there were no contingent deferred sales charges.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C shares 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
21
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - New York Tax-Free Income Fund
expenses, at an annual rate not to exceed 0.30% of Class A average daily net
assets and 1.00% of Class B and Class C 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,
accounting and legal services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon
and Mr. Richard S. Scipione are directors and/or officers of the Adviser and/or
its affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. 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. The investment had no
impact on the operations of the Fund.
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 year
ended August 31, 1999, aggregated $34,920,053 and $33,035,326, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended August 31, 1999.
The cost of investments owned at August 31, 1999 for federal income tax
purposes was $55,988,865. Gross unrealized appreciation and depreciation of
investments aggregated $2,117,196 and $929,207, respectively, resulting in net
unrealized appreciation of $1,187,989.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended August 31, 1999, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $68, an
increase in undistributed net investment income of $2,536 and a decrease in
capital paid-in of $2,604. This represents the amount necessary to report
balances on a tax basis, excluding certain temporary differences, as of August
31, 1999. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
22
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
REPORT OF INDEPENDENT Accountants
To the Shareholders and Board of Trustees of
John Hancock New York Tax-Free Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments (except for credit ratings and yields at market),
and the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of John Hancock New York Tax-Free Income Fund (the "Fund") at August
31, 1999, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at August 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/PricewaterhouseCoopers LLP
- -----------------------------
Boston, Massachusetts
October 8, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended August 31,
1999.
None of the 1999 income dividends qualify for the corporate dividends
received deduction. Shareholders who are not subject to the alternative minimum
tax received income dividends which are 99.99% tax-exempt. The percentage of
income dividends from the Fund subject to the alternative minimum tax is 12.85%.
None of the income dividends were derived from U.S. Treasury Bills.
For specific information on exception provisions in your state, consult
your local state tax office or your tax advisor.
The Fund has designated $468,904 as a long-term capital gain dividend.
These amounts were reported on the 1998 U.S. Treasury Form 1099-DIV.
Shareholders will receive a 1999 U.S. Treasury Department Form 1099-DIV
in January 2000. This will reflect the total of all distributions which are
taxable for calendar year 1999.
23
<PAGE>
================================================================================
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-------------------
- --------------------------------------------------------------------------------
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.
[LOGO] Printed on Recycled Paper 7600A 8/99
10/99
