---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Massachusetts
Tax-Free
Income Fund
FEBRUARY 29, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
---------------------------------------------
TRUSTEES
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.
William J. Cosgrove*
Leland O. Erdahl
Richard A. Farrell
Maureen R. Ford
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
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
--------------------------------------------
=================================CEO CORNER=====================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, the market's advances were restricted to an
increasingly select group of stocks - primarily in the technology and
communications areas. Even those gains were accompanied by tremendous levels of
daily volatility. But many other stocks, including the household blue-chip
names, fell in response to a tough combination of investor apathy, rising
interest rates and earnings concerns.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to first paragraph.]
- --------------------------------------------------------------------------------
In this same period, bonds struggled through one of their worst years in more
than two decades, as the strength of the U.S. economy and the rebound of many
others around the world provoked inflation fears. Though their longer-term
outlook looks brighter, in many instances bond mutual fund investors have
actually lost a little ground or made only slight advances lately.
While we expect the market to broaden eventually, we also expect more
volatility. More than ever, this type of environment calls for investment
diversification. Since not all parts of your portfolio will perform equally well
all the time, we believe it is important to allocate your assets among different
types of investments and funds that target a variety of market segments. This
strategy, executed under the guidance of a seasoned investment professional,
could provide you with a better chance of both realizing results and weathering
the market's changing conditions.
The market's disappointingly narrow focus has created a widening gap in
investment performance. Keep that in mind as you read the report from your
fund's portfolio management team on the following pages. It's all too easy to
get caught up in the headlines and miss what lies underneath.
Sincerely,
/s/Maureen R. Ford
- ------------------
MAUREEN R. FORD, VICE 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
Climbing interest rates hurt municipal bonds
--------------------------------------------
It has been a rough road for municipal bonds over the last six months as the
Federal Reserve continued to raise interest rates in an attempt to put the
brakes on inflationary pressures and an overheating economy. Although some
commodity prices such as oil have spiked up, overall inflation still appears to
be under control. Nonetheless, the Federal Reserve's preemptive interest-rate
hikes drove bond prices down during the period.
Also adding to the downward pressure on municipal bonds was the lack of
liquidity in the market. Cash flow into municipal bonds virtually dried up as
investors became disenchanted with falling bond prices and were enticed into the
stock market by higher returns.
Fund performance
Given the market backdrop, municipal bonds posted disappointing returns for the
period. For the six months ended February 29, 2000, John Hancock Massachusetts
Tax-Free Income Fund's Class A, Class B and Class C shares returned -1.13%,
- -1.48% and -1.48%, respectively, at net asset value. By comparison, the average
Massachusetts municipal bond fund returned -1.21% for the same period, according
to Lipper, Inc.1 Keep in mind that your net asset value return will be different
from the Fund's performance if
- --------------------------------------------------------------------------------
[A 3" x 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):
"Dianne Sales, Barry Evans and Frank Lucibella."]
- --------------------------------------------------------------------------------
"...municipal bonds posted disappointing returns for the period."
3
<PAGE>
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John Hancock Funds - Massachusetts Tax-Free Income Fund
"... the Fund's health-care holdings were a disappointment."
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[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into ten sections (from top to left): Industrial Development
2%, Housing 6%, Electric 7%, Water & Sewer 8%, Industrial Revenue 8%, General
Obligation 8%, Other 10%, Transportation 13%, Education 18% and Health 20%. A
note below the chart reads "As a percentage of net assets on February 29,
2000."]
- --------------------------------------------------------------------------------
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.
Performance scorecard
In this difficult environment, the Fund benefited from managing the
interest-rate sensitivity - or duration - of the portfolio. The shorter the
duration, the less sensitive the Fund will be to interest-rate changes. From
September through December, we shortened the Fund's duration, which protected
the Fund when rates climbed in the back half of the year. We began to cautiously
push out the Fund's duration to a neutral position at the start of this year
since, although there are still more rate hikes to come, a goodly portion is
already priced into the market.
On the negative side, the Fund's health-care holdings were a
disappointment. Federal reductions
- --------------------------------------------------------------------------------
[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 Health-care
bonds followed by a down arrow with the phrase "Cuts in government
reimbursements." The second listing is Industrial development bonds followed by
a down arrow with the phrase "Profit margin concerns." The third listing is
High-grade bonds followed by a sideways arrow with the phrase "Losses contained
by strong demand." A note below the table reads "See `Schedule of Investments.'
Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
in Medicare and Medicaid reimbursements turned out to be more severe than
industry experts - and even the government - had anticipated. In fact,
Massachusetts' largest HMO, Harvard Pilgrim Health (HPH) shocked the market in
December by reporting significantly higher-than-expected losses, due to
accounting problems. As a result, the state put HPH into protective receivership
to enable a workout plan to be developed. This development had a negative impact
on the state's health-care names. While the Fund does own HPH, our holdings were
insured and carried a AAA rating. Therefore, even if the issuer were to default,
full and timely payment of the debt is insured by a AAA-rated insurance agency.
Restructuring the portfolio
It's important to remember, especially in a tough market, that bond prices will
eventually turn around. So it's critical to maintain a long-term investment
perspective and to consistently focus on positioning the Fund for the future.
Given that, we've taken advantage of rising interest rates and the downturn in
the municipal bond market to begin gradually restructuring the portfolio.
To start, the jump in interest rates has allowed us to trade some of
our lower-yielding bonds for higher-yielding ones, improving the overall yield
of the portfolio. Second, we've also continued to improve the Fund's call
protection. Call protection guards against a bond's being redeemed by the issuer
for a certain period of time. Good call protection is important when interest
rates are falling, because issuers often try to refinance their bonds at lower
interest rates. If a bond gets "called away," or redeemed early, then investors
are forced to reinvest their money in bonds with lower yields. Weak bond markets
are good for the disciplined investor, because negative price
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 six months ended February 29, 2000." The
chart is scaled in increments of 1% with -2% at the bottom and 0% at the top.
The first bar represents the -1.13% total return for John Hancock Massachusetts
Tax-Free Income Fund Class A. The second bar represents the -1.48% total return
for John Hancock Massachusetts Tax-Free Income Fund Class B. The third bar
represents the -1.48% total return for John Hancock Massachusetts Tax-Free
Income Fund Class C. The fourth bar represents the -1.21% 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."]
- --------------------------------------------------------------------------------
action often diverts attention from factors like coupon structure and call
protection. It is the perfect time to add long-term value at inexpensive levels.
While rates have recently been on the rise, overall inflation is still
very contained by historical standards. A proactive Fed has proven to be a boon
to bond investors over time. As they say, what goes up, comes back down. When
rates do, the Fund will be well positioned with strong call protection.
State status
The Massachusetts economy is still growing strongly and the state has built a
nice surplus. However, Massachusetts is now facing some fiscal challenges. As
mentioned earlier, health-care reimbursements remain under pressure, and
legislators are starting to look at ways to provide additional relief. What's
more, the state's highway and tunnel project, known as the "Big Dig," has
recently encountered budget overruns. The state has until late March to develop
a financing plan acceptable to the federal government, or face the prospect of
reduced federal funding for transportation needs.
Bond outlook
In the short-term, bond investors could be in for a bumpy ride. The Federal
Reserve has clearly indicated that it is concerned about an overheating economy
and budding inflation. Given that, we believe that the Federal Reserve is likely
to stay focused on interest rates. Concerns about rising rates are likely to
keep investors nervous and the bond market volatile in the near term.
As for municipal bonds, the technical conditions are improving. For
starters, the supply/demand factors in the municipal market are improving. In
1999, new issuance dropped 25%. So far in 2000, it's down roughly 40%. As demand
for municipal bonds begins to pick up, they will be harder to come by and that
is likely to drive prices higher.
In addition, higher interest rates will eventually put a damper on the
economy's strong growth. When that happens, we are likely to see interest rates
peak and eventually resume their decline. Our discipline is to stay fully
invested, and we will continue to restructure the portfolio so that it is well
positioned when the market does turn the corner.
- --------------------------------------------------------------------------------
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.
"...the supply/demand factors in the municipal market are improving."
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 December 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (8.53%) 29.88% 79.58%
Average Annual Total Returns(1) (8.53%) 5.37% 6.03%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
ONE INCEPTION
YEAR (10/3/96)
------- --------
Cumulative Total Returns (9.46%) 9.50%
Average Annual Total Returns(1) (9.46%) 2.84%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (6.04%)
Average Annual Total Return(1) (6.04%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of February 29, 2000
SEC 30-DAY
YIELD
--------
John Hancock Massachusetts Tax-Free Income Fund: Class A(1) 5.02%
John Hancock Massachusetts Tax-Free Income Fund: Class B(1) 4.56%
John Hancock Massachusetts Tax-Free Income Fund: Class C(1) 4.56%
Notes to Performance
(1) The Adviser has voluntarily reduced a portion of the management fee
and a portion of the custodian fee has 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 (8.84%), 4.99% and 5.37%,
respectively. The average annual total returns for the one-year period
and since inception for Class B shares would have been (9.76%) and
2.48%, respectively. The total return since inception for Class C
shares would have been (6.37%). Without the reductions of expenses, the
yield for Class A, Class B and Class C shares would have been 4.67%,
4.21% and 4.21%, respectively.
(2) Not annualized.
6
<PAGE>
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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. It is not possible to invest in an index. 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 $20,303 as of February
29, 2000. 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 $19,473 as of February
29, 2000. 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 $18,597 as of February 29, 2000.
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 $11,762 as of February
29, 2000. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Massachusetts Tax-Free Income Fund on
October 3, 1996, before sales charge, and is equal to $11,304 as of February 29,
2000. 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 $11,004 as of February 29, 2000.
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 $9,778 as of February
29, 2000. 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 $9,542 as of February 29, 2000.
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 $9,446 as of February 29, 2000.
- --------------------------------------------------------------------------------
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 February 29, 2000. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $67,401,948).............. $66,183,235
Joint repurchase agreement (cost - $354,000) ................ 354,000
--------------
66,537,235
Interest receivable .......................................... 1,092,485
Other assets ................................................. 4,195
--------------
Total Assets ..................... 67,633,915
-------------------------------------------------
Liabilities:
Payable for shares repurchased ............................... 41,507
Dividend payable ............................................. 2,670
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ..................................... 48,941
Accounts payable and accrued expenses ........................ 34,452
--------------
Total Liabilities ................ 127,570
-------------------------------------------------
Net Assets:
Capital paid-in .............................................. 69,431,126
Accumulated net realized loss on investments
and financial futures contracts ............................. (708,945)
Net unrealized depreciation of investments ................... (1,218,713)
Undistributed net investment income .......................... 2,877
--------------
Net Assets ....................... $67,506,345
=================================================
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 - $53,671,876/4,709,440 .............................. $11.40
=============================================================================
Class B - $13,147,134/1,153,595 .............................. $11.40
=============================================================================
Class C - $687,335/60,310 .................................... $11.40
=============================================================================
Maximum Offering Price Per Share*
Class A - ($11.40 x 104.71%) ................................. $11.93
=============================================================================
* 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
Six months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ..................................................... $2,196,658
--------------
Expenses:
Investment management fee - Note B .......................... 172,221
Distribution and service fee - Note B
Class A .................................................... 83,117
Class B .................................................... 65,105
Class C .................................................... 2,282
Transfer agent fee - Note B ................................. 36,996
Custodian fee ............................................... 28,787
Auditing fee ................................................ 9,455
Registration and filing fees ................................ 6,435
Accounting and legal services fee - Note B .................. 6,860
Printing .................................................... 4,673
Trustees' fees .............................................. 1,153
Miscellaneous ............................................... 1,538
Legal fees .................................................. 593
Less management fee reduction - Note B ...................... (115,598)
--------------
Total Expenses ................... 303,617
-------------------------------------------------
Less Expense Reductions -
Note B ........................... (4,221)
-------------------------------------------------
Net Expenses ..................... 299,396
-------------------------------------------------
Net Investment Income ............ 1,897,262
-------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold ........................ (292,935)
Change in net unrealized appreciation/(depreciation)
of investments .............................................. (2,449,461)
--------------
Net Realized and Unrealized
Loss on Investments .............. (2,742,396)
-------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ........ ($845,134)
=================================================
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>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
--------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income....................................................................... $3,517,810 $1,897,262
Net realized loss on investments sold and financial futures contracts ...................... (124,454) (292,935)
Change in net unrealized appreciation/(depreciation) of investments ........................ (4,310,747) (2,449,461)
------------- -------------
Net Decrease in Net Assets Resulting from Operations ...................................... (917,391) (845,134)
------------- -------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.6422 and $0.3245 per share, respectively) ................................... (3,064,390) (1,564,304)
Class B - ($0.5545 and $0.2841 per share, respectively) ................................... (452,344) (321,935)
Class C ** - ($0.2115 and $0.2836 per share, respectively) ................................ (1,076) (11,023)
------------- -------------
Total Distributions to Shareholders ....................................................... (3,517,810) (1,897,262)
------------- -------------
From Fund Share Transactions - Net: * ....................................................... 11,423,344 (1,073,029)
------------- -------------
Net Assets:
Beginning of period ........................................................................ 64,333,627 71,321,770
------------- -------------
End of period (including undistributed net investment income
of $2,877 and $2,877, respectively) ....................................................... $71,321,770 $67,506,345
============= =============
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:
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ....................................................... 718,299 $8,970,412 270,463 $3,111,895
Shares issued to shareholders in reinvestment of distributions .... 170,062 2,084,619 89,890 1,034,063
---------- ------------ ---------- -------------
888,361 11,055,031 360,353 4,145,958
Less shares repurchased ........................................... (592,309) (7,348,607) (560,062) (6,438,092)
---------- ------------ ---------- -------------
Net increase (decrease) ........................................... 296,052 $3,706,424 (199,709) ($2,292,134)
========== ============ ========== =============
CLASS B
Shares sold ....................................................... 626,140 $7,828,428 172,240 $1,988,350
Shares issued to shareholders in reinvestment of distributions .... 23,627 292,218 15,745 181,103
---------- ------------ ---------- -------------
649,767 8,120,646 187,985 2,169,453
Less shares repurchased ........................................... (47,239) (585,739) (128,614) (1,476,978)
---------- ------------ ---------- -------------
Net increase ...................................................... 602,528 $7,534,907 59,371 $692,475
========== ============ ========== =============
CLASS C **
Shares sold ....................................................... 14,977 $181,866 46,971 $545,316
Shares issued to shareholders in reinvestment of distributions .... 12 147 44 508
---------- ------------ ---------- -------------
14,989 182,013 47,015 545,824
Less shares repurchased ........................................... - - (1,694) (19,194)
---------- ------------ ---------- -------------
Net increase ...................................................... 14,989 $182,013 45,321 $526,630
========== ============ ========== =============
** 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:
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED AUGUST 31, FEBRUARY 29, 2000
------------------------------------------------------ -----------------
1995 1996 1997 1998 1999 (UNAUDITED)
---------- ---------- ---------- -------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $11.56 $11.76 $11.66 $12.12 $12.60 $11.85
--------- --------- --------- --------- --------- ---------
Net Investment Income ................................... 0.65 0.65 0.66 0.66(7) 0.64(7) 0.32(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ........................ 0.20 (0.10) 0.46 0.48 (0.75) (0.45)
--------- --------- --------- --------- --------- ---------
Total from Investment Operations ...................... 0.85 0.55 1.12 1.14 (0.11) (0.13)
--------- --------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income .................... (0.65) (0.65) (0.66) (0.66) (0.64) (0.32)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period .......................... $11.76 $11.66 $12.12 $12.60 $11.85 $11.40
========= ========= ========= ========= ========= =========
Total Investment Return at Net Asset Value (2) .......... 7.66% 4.78% 9.85% 9.66% (0.96%) (1.13%)(6)
Total Adjusted Investment Return at Net Asset Value (2,3) 7.21% 4.30% 9.45% 9.27% (1.31%) (1.31%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $54,416 $55,169 $54,253 $58,137 $58,177 $53,672
Ratio of Expenses to Average Net Assets ................. 0.70% 0.75%(4) 0.71%(4) 0.71%(4) 0.74%(4) 0.74%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) .... 1.15% 1.18% 1.11% 1.10% 1.05% 1.08%(5)
Ratio of Net Investment Income to Average Net Assets .... 5.67% 5.53% 5.59% 5.28% 5.16% 5.63%(5)
Ratio of Adjusted Net Investment Income to
Average Net Assets (1) ................................. 5.22% 5.05% 5.19% 4.89% 4.81% 5.28%(5)
Portfolio Turnover Rate ................................. 24% 36% 12% 6% 6% 4%
Expense and Fee Reduction Per Share ..................... $0.05 $0.06 $0.05 $0.05(7) $0.04(7) $0.02(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
(COMMENCEMENT YEAR ENDED AUGUST 31, SIX MONTHS ENDED
OF OPERATIONS) ---------------------- FEBRUARY 29, 2000
TO AUGUST 31, 1997 1998 1999 (UNAUDITED)
------------------ ---------- ---------- -----------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $11.84 $12.12 $12.60 $11.85
---------- ---------- ---------- ----------
Net Investment Income ......................................... 0.54 0.57(7) 0.55(7) 0.28(7)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .................................. 0.28 0.48 (0.75) (0.45)
---------- ---------- ---------- ----------
Total from Investment Operations ............................ 0.82 1.05 (0.20) (0.17)
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .......................... (0.54) (0.57) (0.55) (0.28)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ................................ $12.12 $12.60 $11.85 $11.40
========== ========== ========== ==========
Total Investment Return at Net Asset Value (2) ................ 7.08%(6) 8.89% (1.66%) (1.48%)(6)
Total Adjusted Investment Return at Net Asset Value (2,3) ..... 6.72%(6) 8.50% (2.01%) (1.66%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $2,418 $6,197 $12,967 $13,147
Ratio of Expenses to Average Net Assets ....................... 1.41%(4,5) 1.41%(4) 1.44%(4) 1.44%(4)
Ratio of Adjusted Expenses to Average Net Assets (1) .......... 1.81%(5) 1.80% 1.75% 1.78%(5)
Ratio of Net Investment Income to Average Net Assets ........ 4.82%(5) 4.58% 4.46% 4.93%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) 4.42%(5) 4.19% 4.11% 4.58%(5)
Portfolio Turnover Rate ....................................... 12% 6% 6% 4%
Expense and Fee Reduction Per Share ........................... $0.04 $0.05(7) $0.04(7) $0.02(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 SIX MONTHS ENDED
OPERATIONS) TO FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
--------------- -------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period................................. $12.46 $11.85
---------- ----------
Net Investment Income (7) ........................................... 0.21 0.28
Net Realized and Unrealized Loss on Investments and
Financial Futures Contracts ........................................ (0.61) (0.45)
---------- ----------
Total from Investment Operations .................................. (0.40) (0.17)
---------- ----------
Less Distributions:
Dividends from Net Investment Income ............................... (0.21) (0.28)
---------- ----------
Net Asset Value, End of Period ...................................... $11.85 $11.40
========== ==========
Total Investment Return at Net Asset Value (2) ...................... (3.23%)(6) (1.48%)(6)
Total Adjusted Investment Return at Net Asset Value (2,3) ........... (3.38%)(6) (1.66%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................ $178 $687
Ratio of Expenses to Average Net Assets ............................. 1.44%(4,5) 1.44%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) ................ 1.75%(5) 1.78%(5)
Ratio of Net Investment Income to Average Net Assets ................ 4.30%(5) 4.93%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) ... 3.95%(5) 4.58%(5)
Portfolio Turnover Rate 6% 4%
Expense and Fee Reduction Per Share (7) ............................. $0.02 $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,
for the periods ended August 31, 1996 through August 31, 1999. The Ratio of
Expenses to Average Net Assets would have been 0.73% for Class A and 1.43% for
Class B and Class C shares for the period ended February 29, 2000.
(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
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Massachusetts Tax-Free Income Fund on February 29, 2000. It has two main
categories: tax-exempt long-term bonds and short-term investments. 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. Short-term investments,
which represent the Fund's "cash" position, are listed last.
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- --------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
Massachusetts (89.92%)
Boston City Industrial Development Financing Auth,
Sewage Facil Rev 1991 Ser Harbor Elec Energy Co Proj... 7.375% 05-15-15 BBB $250 $257,670 7.16%
Boston Water and Sewer Commission,
Gen Rev 1991 Sr Ser A ................................. 7.000 11-01-18 AAA 500 529,160 6.61
Gen Rev 1992 Sr Ser A ................................. 5.750 11-01-13 A+ 500 510,820 5.63
Boston, City of,
Rev Boston City Hosp FHA-Ins Mtg Ser A ................ 7.625 02-15-21 AAA 500 516,275 7.38
Rev Deutsches Altenheim 1998 Ser A .................... 5.950 10-01-18 AAA 985 965,428 6.07
Brockton, City of,
State Qualified Municipal Purpose Ln of 1993 .......... 6.125 06-15-18 A 2,000 2,012,780 6.09
Holyoke, City of,
GO School Proj Ln Act of 1948 ......................... 7.650 08-01-09 AA 1,000 1,061,430 7.21
Massachusetts Bay Transportation Auth,
Gen Trans Sys Rev Ref Ser 1994A ....................... 7.000 03-01-14 AA- 1,000 1,134,270 6.17
Gen Trans Sys Rev Ser 1997D ........................... 5.000 03-01-22 AA- 2,250 1,935,360 5.81
Massachusetts Development Finance Agency,
Concord-Assabet Family Servs Rev Ref .................. 6.000 11-01-28 Ba2 1,000 807,300 7.43
Rev Boston Univ Ser 1999P ............................. 5.450 05-15-59 BBB+ 2,000 1,677,640 6.50
Rev Lasell Village Proj Ser 1998A ..................... 6.375 12-01-25 BBB- 1,000 852,450 7.48
Rev YMCA Greater Boston Iss ........................... 5.450 11-01-28 BBB+ 1,000 820,330 6.64
Massachusetts Educational Financing Auth,
Ed Ln Rev Iss D Ser 1991A .............................. 7.250 01-01-09 AAA 355 366,289 7.03
Massachusetts Health and Educational Facilities Auth,
Rev Anna Jaques Hosp Iss Ser B ........................ 6.875 10-01-12 Ba1 1,250 1,247,812 6.89
Rev Bentley College Iss Ser H ......................... 6.875 07-01-12 AAA 250 262,522 6.55
Rev Boston College Iss Ser J Preref ................... 6.625 07-01-21 AAA 965 1,009,593 6.33
Rev Boston College Iss Ser J Unref Bal ................ 6.625 07-01-21 AAA 35 36,371 6.38
Rev Charlton Memorial Hosp Iss Ser B .................. 7.250 07-01-13 A 2,250 2,368,102 6.89
Rev Community Colleges Prog Iss Ser A ................. 6.600 10-01-22 AAA 250 265,777 6.21
Rev Dana-Farber Cancer Institute Ser G-1 .............. 6.250 12-01-22 A 500 474,965 6.58
Rev Lowell Gen Hosp Iss Ser A ......................... 8.400 06-01-11 A3 600 638,910 7.89
Rev Melrose-Wakefield Hosp Iss Ser B .................. 6.350 07-01-06 AAA 500 525,865 6.04
Rev New England Baptist Hosp Iss Ser B ................ 7.350 07-01-17 AAA 250 263,983 6.96
Rev New England Deaconess Hosp Iss Ser D .............. 6.875 04-01-22 AAA 2,210 2,343,661 6.48
Rev Northeastern Univ Iss Ser E ....................... 6.550 10-01-22 AAA 1,000 1,035,870 6.32
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 +
- -------------------------- ----------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Massachusetts (continued)
Massachusetts Health and Educationa
Facilities Auth (cont.),
Rev Ref Boston College Iss Ser L ........................ 4.750% 06-01-31 AA- $1,000 $792,460 5.99%
Rev Ref Brandeis Univ Iss Ser J ......................... 5.000 10-01-26 Aaa 1,000 849,160 5.89
Rev Ref Harvard Pilgrim Health Ser A .................... 5.000 07-01-18 AAA 1,000 821,950 6.08
Rev Ref Worcester Polytechnic Institute Iss Ser E ....... 6.625 09-01-17 AAA 250 265,230 6.24
Rev Simmons College Ser 2000D ........................... 6.150 10-01-29 AAA 1,000 1,007,930 6.10
Massachusetts Housing Finance Agency,
Rev Insured Rental Hsg 1994 Ser A ....................... 6.600 07-01-14 AAA 960 989,904 6.40
Rev Residential Devel FNMA Coll Ser C ................... 6.875 11-15-11 AAA 2,000 2,101,620 6.54
Rev Residential Devel FNMA Coll Ser D ................... 6.800 11-15-12 AAA 500 524,020 6.49
Single Family Hsg Rev Ser 18 ............................ 7.350 12-01-16 A+ 325 327,834 7.29
Massachusetts Industrial Finance Agency,
Assisted Living Facil Rev Newton Group
Properties LLC Proj .................................... 8.000 09-01-27 BB 1,000 1,031,870 7.75
Assisting Living Facil Rev TNG Marina Bay LLC Proj ...... 7.500 12-01-27 BB 1,000 988,330 7.59
Resource Recovery Rev Ref Ogden Haverhill Proj
Ser 1998A .............................................. 5.600 12-01-19 BBB 1,000 850,300 6.59
Resource Recovery Rev Ref Ser 1993 A Mass
Refusetech Inc Proj ..................................... 6.300 07-01-05 BBB+ 1,825 1,871,592 6.14
Rev Assumption College Iss 1996 ......................... 6.000 07-01-26 AAA 1,000 988,170 6.07
Rev Dana Hall School Iss ................................ 5.800 07-01-17 BBB- 1,090 985,207 6.42
Rev Glenmeadow Retirement Community Ser C ............... 8.375 02-15-18 BBB+ 1,000 1,167,510 7.17
Rev Ref Emerson College Iss Ser 1991A ................... 8.900 01-01-18 AA 250 264,063 8.43
Rev Ref Holy Cross College Iss II Ser 1992 .............. 6.375 11-01-15 AA- 500 528,765 6.03
Rev St John's High School ............................... 5.350 06-01-28 BBB+ 1,000 826,430 6.47
Rev Wtr Treatment American Hingham Proj ................. 6.750 12-01-20 BBB 2,000 2,029,460 6.65
Rev Wtr Treatment American Hingham Proj ................. 6.900 12-01-29 BBB 1,310 1,337,759 6.76
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+ 500 523,875 6.44
Pwr Supply Sys Rev 1992 Ser B Pub Corp of the
Commonwealth of Mass ................................... 6.750 07-01-06 BBB+ 1,500 1,571,625 6.44
Pwr Supply Sys Rev 1992 Ser B Pub Corp of the
Commonwealth of Mass ................................... 6.750 07-01-17 BBB+ 400 409,584 6.59
Pwr Supply Sys Rev 1992 Ser C Pub Corp of the
Commonwealth of Mass ................................... 6.625 07-01-10 AAA 1,000 1,055,460 6.28
Pwr Supply Sys Rev 1993 Reg Inverse Floater ............. 6.245# 07-01-18 AAA 1,300 1,087,125 7.47
Massachusetts Port Auth,
Rev Ref Ser 1992 A ...................................... 6.000 07-01-23 AA- 1,370 1,356,300 6.06
Rev Ser 1999C ........................................... 5.750 07-01-29 AA- 1,250 1,202,000 5.98
Rev Special Facil Ser A USAir Proj ...................... 5.750 09-01-16 AAA 1,000 986,380 5.83
Massachusetts State Health and Educational Facilities Auth,
Rev St Luke's Hospital .................................. 7.650# 08-15-23 AAA 500 454,375 8.42
South Shore Hospital Series F ........................... 5.750 07-01-29 A 1,000 852,690 6.74
Massachusetts Turnpike Auth,
Metro Highway Sys Rev Sr Lien Cap Apprec Ser 1997C ...... Zero 01-01-20 AAA 1,000 296,090 6.23
Massachusetts Water Pollution Abatement Trust,
Wtr Poll Abatement Rev New Bedford Prog Ser A ........... 4.750 02-01-26 Aaa 1,000 814,120 5.83
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 +
- -------------------------- ----------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Massachusetts (continued)
Massachusetts Water Resource Auth,
Gen Rev Ref 1993 Ser B ............................. 5.500% 03-01-17 A+ $400 $381,732 5.76%
Gen Rev Ref 1993 Ser B ............................. 5.000 03-01-22 A+ 360 305,824 5.89
Gen Rev Ref 1993 Ser C ............................. 4.750 12-01-23 A+ 1,000 805,010 5.90
Massachusetts, Commonwealth of,
GO Consol Ln Ser 1998C ............................. Zero 08-01-18 AA- 1,000 330,560 6.10
Nantucket, Town of,
GO Municipal Purpose Ln of 1991 .................... 6.800 12-01-11 AAA 450 474,804 6.44
Plymouth, County of,
Cert of Part Correctional Facil Proj ............... 5.000 04-01-22 AAA 1,000 853,430 5.86
Cert of Part Ser A Plymouth County
Correctional Facil Proj ........................... 7.000 04-01-22 AA- 750 803,798 6.53
Rail Connections Inc Mass Rev,
Cap Appreciation - Rte 128 Pkg Ser B ............... Zero 07-01-18 BBB- 1,750 496,405 6.99
Cap Appreciation - Rte 128 Pkg Ser B ............... Zero 07-01-19 BBB- 2,415 635,966 7.02
Springfield, City of,
GO School Proj Ln Act of 1992 Ser B ................ 7.100 09-01-11 AA 500 535,955 6.62
----------
60,703,305
----------
Puerto Rico (8.12%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of
Puerto Rico ....................................... 7.845# 07-01-11 AAA 2,000 2,225,000 7.05
Puerto Rico Highway and Transportation Auth,
Highway Rev Cap Rites Ser Y ........................ 6.250 07-01-14 A 1,000 1,063,400 5.88
Puerto Rico, Commonwealth of,
GO Pub Imp Inverse Rate Securities Ser 1996 ........ 7.672# 07-01-11 AAA 1,000 1,112,500 6.90
GO Ref Pub Imp Ser 1994 ............................ 6.400 07-01-11 AAA 1,000 1,079,030 5.93
----------
5,479,930
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $67,401,948) (98.04%) 66,183,235
------- ----------
INTEREST
ISSUER, DESCRIPTION RATE
- ------------------- --------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.52%)
Investment in a joint repurchase agreement transaction with Barclay's, Inc. -
Dated 02-29-00, due 03-01-00 (Secured by U.S. Treasury Bonds,
7.500% thru 10.000% due 05-15-10 thru 02-15-25, and U.S. Treasury Notes,
5.125% thru 6.250% due 07-31-00 thru 08-15-07 - Note A......................... 5.790% 354 354,000
-----------
TOTAL SHORT-TERM INVESTMENTS (0.52%) 354,000
------- -----------
TOTAL INVESTMENTS (98.56%) 66,537,235
------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.44%) 969,110
------- -----------
TOTAL NET ASSETS (100.00%) $67,506,345
======== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - Massachusetts 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.
+ 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 February 29, 2000.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the 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 February 29, 2000 assigned to
various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ---------------
General Obligation ........................................... 7.51%
Revenue Bonds - Correctional Facility ........................ 1.26
Revenue Bonds - Education .................................... 17.56
Revenue Bonds - Electric ..................................... 6.88
Revenue Bonds - Facility ..................................... 1.19
Revenue Bonds - Health ....................................... 19.77
Revenue Bonds - Highway ...................................... 0.44
Revenue Bonds - Hospital ..................................... 1.46
Revenue Bonds - Housing ...................................... 5.84
Revenue Bonds - Industrial Development ....................... 2.48
Revenue Bonds - Industrial Revenue ........................... 8.14
Revenue Bonds - Other ........................................ 4.19
Revenue Bonds - Transportation ............................... 13.05
Revenue Bonds - Water & Sewer ................................ 8.27
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.04%
==========
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Massachusetts Tax - Free Income Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Tax-Exempt Series Fund (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940. The Trust consists of two series: John Hancock Massachusetts Tax-Free
Income Fund (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 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.
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 the time of disposition.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Massachusetts Tax - Free Income Fund
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. The Fund has entered into
a syndicated line of credit agreement with various banks. 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 period ended February 29, 2000.
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
period ended February 29, 2000.
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 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, 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,
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Massachusetts Tax - Free Income Fund
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 period ended February
29, 2000.
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.
Effective January 1, 2000, the Adviser has voluntarily agreed to limit
the Fund's expenses to the extent required to prevent expenses from exceeding
0.80%, 1.50% and 1.50% of the average net assets attributable to Class A, Class
B and Class C, respectively. Prior to January 1, 2000, the expense limitations
were 0.80%, 1.50% and 1.50% of the average net assets attributable to Class A,
Class B and Class C, respectively. Prior to January 1, 2000, the expense
limitations were 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 period ended
February 29, 2000, 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 $115,598. This limitation may not be discontinued until December 31,
2000.
The Fund has an agreement with its custodian bank under which $4,221 of
custodian fees have been reduced by balance credits applied during the period
ended February 29, 2000. If the Fund had not entered into this agreement the
assets not invested, on which these balance credits were earned, could have
produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the period ended
February 29, 2000, net sales charges received with regard to sales of Class A
shares amounted to $40,570. Out of this amount, $8,461 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $1,762
was paid as sales commissions to unrelated broker-dealers and $30,347 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 Life Insurance Company ("JHLICo"), 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 period ended February 29,
2000 the contingent deferred sales charges received by JH Funds amounted to
$20,861.
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
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Massachusetts Tax - Free Income Fund
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. There were no contingent deferred sales charges received by JH Funds for
the period ended February 29, 2000.
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. A maximum of 0.25% of such payments may be service fees as defined by the
Conduct Rules of the National Association of Securities Dealers. Under the
Conduct Rules, 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 JHLICo. 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. Stephen L. Brown, Ms. Maureen R. Ford, 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 operation 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 period
ended February 29, 2000, aggregated $3,020,958 and $5,427,731, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended February 29, 2000.
The cost of investments owned at February 29, 2000 for federal income
tax purposes was $67,755,948. Gross unrealized appreciation and depreciation of
investments aggregated $1,649,264 and $2,867,977, respectively, resulting in net
unrealized depreciation of $1,218,713.
21
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Massachusetts Tax - Free Income Fund
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 HUNTINGTO 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 770SA 2/00
4/00
<PAGE>
---------------------------
The latest report from your
Fund's management team
---------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
New York
Tax-Free
Income Fund
FEBRUARY 29, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
---------------------------------------
TRUSTEES
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.
William J. Cosgrove*
Leland O. Erdahl
Richard A. Farrell
Maureen R. Ford
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
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
-------------------------------------------
==================================CEO CORNER====================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, the market's advances were restricted to an
increasingly select group of stocks - primarily in the technology and
communications areas. Even those gains were accompanied by tremendous levels of
daily volatility. But many other stocks, including the household blue-chip
names, fell in response to a tough combination of investor apathy, rising
interest rates and earnings concerns.
In this same period, bonds struggled through one of their worst years in more
than two decades, as the strength of the U.S. economy and the rebound of many
others around the world provoked inflation fears. Though their longer-term
outlook looks brighter, in many instances bond mutual fund investors have
actually lost a little ground or made only slight advances lately.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to second paragraph.]
- --------------------------------------------------------------------------------
While we expect the market to broaden eventually, we also expect more
volatility. More than ever, this type of environment calls for investment
diversification. Since not all parts of your portfolio will perform equally well
all the time, we believe it is important to allocate your assets among different
types of investments and funds that target a variety of market segments. This
strategy, executed under the guidance of a seasoned investment professional,
could provide you with a better chance of both realizing results and weathering
the market's changing conditions.
The market's disappointingly narrow focus has created a widening gap in
investment performance. Keep that in mind as you read the report from your
fund's portfolio management team on the following pages. It's all too easy to
get caught up in the headlines and miss what lies underneath.
Sincerely,
/s/Maureen R. Ford
- ------------------
MAUREEN R. FORD, VICE 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
Inflation fears and rate worries roil bonds
-------------------------------------------
Municipal bonds, like most bonds, slumped during the past six months in response
to rising interest rates, inflation fears and flagging demand. Prior to the
beginning of the period, the Federal Reserve had raised interest rates on two
separate occasions to fight potential inflationary pressures resulting from very
strong U.S. economic growth and recovering economies overseas. While inflation
remained virtually non-existent throughout the fall of 1999, inflation concerns
and the prospects for further interest- rate hikes continued to worry bond
investors. They reacted to these worries by pushing bond yields higher and their
prices - which move in the opposite direction of yields - lower.
Throughout the period, there weren't any conclusive signs that
inflation was on the rise. But the global economy's increasing strength and
rising oil prices sparked fears that the Fed would continue to push interest
rates a lot higher to contain inflation. Those fears proved warranted when the
Fed raised interest rates in November 1999 and again in February 2000. Municipal
bond yields rose accordingly, and their prices fell.
In addition to rising interest rates, bonds faced another challenge.
They held little appeal for many investors who were bent on finding fast revenue
growth among high-flying technology stocks. Furthermore, municipals experienced
relatively heavy selling in late 1999 when some institutional investors, who
routinely seek out the most attractive values among various
- --------------------------------------------------------------------------------
[A 3" x 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): "Dianne
Sales, Barry Evans and Frank Lucibella."]
- --------------------------------------------------------------------------------
"Municipal bonds, like most bonds, slumped during the past six months..."
3
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
"Virtually all of our holdings came under pressure from rising interest
rates..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into twelve sections (from top to left): Building 3%, Authority
5%, Water & Sewer 6%, General Purpose 6%, Electric 7%, Other 8%, Transportation
8%, General Obligation 8%, Combined 10%, Health 10%, Education 14% and Housing
15%. A note below the chart reads "As a percentage of net assets on February 29,
2000."]
- --------------------------------------------------------------------------------
fixed-income investments, shunned municipals in favor of beaten-down corporate
bonds.
As difficult as it was, the period did contain a silver lining or two.
First, the strong U.S. economy helped boost the tax collections and revenues of
municipal issuers across the state. Second, rising municipal bond yields began
to attract individual investors. For an investor in the top combined state and
federal tax bracket of roughly 50%, a 30-year AAA-rated municipal bond issued in
New York that yielded 5.95% on February 29, 2000, offered a tax-equivalent yield
of approximately 11.9%.
Fund performance
For the six-month period ended February 29, 2000, John Hancock New York Tax-Free
Income Fund's Class A, Class B and Class C shares posted total returns of
- -0.89%, -1.23% and -1.23%, respectively, at net asset value. By comparison, the
average New York municipal bond fund
- --------------------------------------------------------------------------------
[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
Premium-coupon bonds followed by a sideways arrow with the phrase "Losses
contained by high coupons." The second listing is NYC Transit Authority followed
by an up arrow with the phrase "Strong demand helps boost short-term prices."
The third listing is Health-care bonds followed by a down arrow with the phrase
"Cuts in Medicare, lack of muni insurance." A note below the table reads "See
`Schedule of Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
returned -1.27%, according to Lipper, Inc.1 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.
Defensive stance
Our somewhat defensive posture aided performance during this difficult period.
Throughout much of the past six months, we maintained a relatively short
duration, which helped the Fund's share price fall less when interest rates
rose. In addition, the Fund had a somewhat defensive credit-quality positioning,
with a larger exposure to higher-quality bonds than many of its competitors.
Many of the lowest-quality, less liquid bonds proved to be especially vulnerable
to unfavorable market conditions.
Our focus on premium-coupon bonds was also a plus. Premium coupons pay
interest rates above prevailing market rates and trade at prices that are above
their face - or par - value. Their high levels of income helped cushion them
against price declines caused by rising interest rates. This was especially
helpful in a period when many municipal bonds' prices fell so much that they
started to lose eligibility for the more favorable capital gains tax treatment
known as de minimis. As market conditions subjected more and more bonds to this
obscure tax pitfall, it placed further pressure on these bonds that fell outside
of de minimis.
Leaders and laggards
Virtually all of our holdings came under pressure from rising interest rates,
although some hung in better than others. For instance, we saw good performance
from bonds issued by the New York Transitional Funding Authority, which
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 six months ended February 29, 2000." The
chart is scaled in increments of 1% with -2% at the bottom and 0% at the top.
The first bar represents the -0.89% total return for John Hancock New York
Tax-Free Income Fund Class A. The second bar represents the -1.23% total return
for John Hancock New York Tax-Free Income Fund Class B. The third bar represents
the -1.23% total return for John Hancock New York Tax-Free Income Fund Class C.
The fourth bar represents the -1.27% 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."]
- --------------------------------------------------------------------------------
we purchased at very attractive prices and were helped by relatively strong
demand. On the flip side, health-care bonds as a group were among the municipal
market's worst performers. Concerns about cutbacks in federal Medicare and
Medicaid payments in response to the Balanced Budget Act of 1997 raised
questions about the industry's long-term profitability. In addition, the refusal
of municipal-bond insurers to insure lower-quality tiers of the hospital sector
also weighed heavily on the group.
Shift toward economically resilient bonds
As the period wore on, we added more bonds from issuers that are less
economically sensitive, such as essential services including water and sewer. In
our view, the economy will eventually slow, which might put pressure on general
obligation bonds and others backed by tax revenues. Since economically sensitive
bonds offered only slight amounts, if any, of additional yield, we weren't
penalized for getting some measure of protection in the event of an economic
slowdown.
Outlook
In our view, the Federal Reserve policymakers will probably need to push
short-term interest rates even higher to contain inflation. Inflation and
interest-rate prospects are likely to continue to worry bond investors. Even
though broad gauges of inflation so far have remained relatively stable, the
economy remains quite strong and the price of oil has risen rapidly.
Furthermore, the Fed has warned about the impact surging stock prices are having
on the economy. That's why we plan to maintain the Fund's current defensive
posture of a somewhat short duration in the near term.
Ultimately, however, we believe that investors will begin to anticipate
the end of the Fed's campaign to keep inflation in check. When that occurs -
probably in the second half of this year - we expect that market conditions will
improve and bonds will be poised for better performance. Once we're comfortable
that that's the case, we will consider extending the Fund's duration in order to
take advantage of stable or falling interest rates. As for New York City, while
its fiscal and economic fortunes presently are quite good, it is still highly
dependent on the health of Wall Street and the general economy. The state has
enjoyed a series of credit upgrades in recognition of its strong economy and
prudent fiscal management. With that in mind, we'll continue to seek out
opportunities to buy economically resilient types of bonds that offer attractive
yields and insulation from a slower economy.
- --------------------------------------------------------------------------------
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.
"...we plan to maintain the Fund's current defensive posture of a somewhat short
duration..."
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 December 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (8.70%) 29.02% 78.88%
Average Annual Total Returns(1) (8.70%) 5.23% 5.99%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
ONE INCEPTION
YEAR (10/3/96)
------- --------
Cumulative Total Returns (9.59%) 8.07%
Average Annual Total Returns(1) (9.59%) 2.42%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (6.08%)
Average Annual Total Return(1) (6.08%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of February 29, 2000
SEC 30-DAY
YIELD
--------
John Hancock New York Tax-Free Income Fund: Class A(1) 4.99%
John Hancock New York Tax-Free Income Fund: Class B(1) 4.53%
John Hancock New York Tax-Free Income Fund: Class C(1) 4.53%
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, the average
annual total returns for the one-year, five-year and ten-year periods
for Class A shares would have been (9.03%), 4.84% and 5.36%,
respectively. The average annual total returns for the one-year period
and since inception for Class B shares would have been (9.92%) and
2.04%, respectively. The total return since inception for Class C
shares would have been (6.44%). Without the reduction of expenses, the
yield for Class A, Class B and Class C shares would have been 4.61%,
4.15% and 4.15%, respectively.
(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. It is not possible to invest in an index. 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 $20,303 as of February 29, 2000.
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 $19,404 as of February 29, 2000. 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
$18,531 as of February 29, 2000.
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 $11,762 as of February 29, 2000.
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 $11,177 as of February 29, 2000. 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
$10,877 as of February 29, 2000.
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 $9,778 as of February 29, 2000.
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 $9,556 as of February 29, 2000. 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
$9,461 as of February 29, 2000.
- --------------------------------------------------------------------------------
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 February 29, 2000. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $50,999,728)............... $51,035,559
Cash .......................................................... 879,420
Interest receivable ........................................... 771,502
Other assets .................................................. 4,227
-------------
Total Assets ......................... 52,690,708
----------------------------------------------------
Liabilities:
Payable for investments purchased ............................. 909,657
Payable for shares repurchased ................................ 27
Dividend payable .............................................. 934
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 48,856
Accounts payable and accrued expenses ......................... 30,390
-------------
Total Liabilities .................... 989,864
----------------------------------------------------
Net Assets:
Capital paid-in ............................................... 52,730,340
Accumulated net realized loss on investments and
financial futures contracts .................................. (1,083,346)
Net unrealized appreciation of investments .................... 35,831
Undistributed net investment income ........................... 18,019
-------------
Net Assets ........................... $51,700,844
====================================================
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 - $43,869,226/3,866,706 ............................... $11.35
=============================================================================
Class B - $7,771,811/685,020 .................................. $11.35
=============================================================================
Class C - $59,807/5,271 ....................................... $11.35
=============================================================================
Maximum Offering Price Per Share *
Class A - ($11.35 x 104.71%) .................................. $11.88
=============================================================================
* 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
Six months ended February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ...................................................... $1,647,457
-------------
Expenses:
Investment management fee - Note B ........................... 135,936
Distribution and service fee - Note B
Class A ..................................................... 68,459
Class B ..................................................... 43,275
Class C ..................................................... 399
Transfer agent fee - Note B .................................. 31,187
Custodian fee ................................................ 30,014
Auditing fee ................................................. 9,455
Accounting and legal services fee - Note B ................... 5,418
Printing ..................................................... 4,009
Registration and filing fees ................................. 2,905
Miscellaneous ................................................ 1,224
Trustees' fees ............................................... 915
Legal fees ................................................... 553
Less: Management Fee Reduction - Note B ..................... (90,887)
-------------
Total Expenses ....................... 242,862
----------------------------------------------------
Less Expense Reductions -
Note B ............................... (13,333)
----------------------------------------------------
Net Expenses ......................... 229,529
----------------------------------------------------
Net Investment Income ................ 1,417,928
----------------------------------------------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments sold ......................... (863,400)
Change in net unrealized appreciation/depreciation
of investments ............................................... (1,152,158)
-------------
Net Realized and Unrealized
Loss on Investments .................. (2,015,558)
----------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ............ ($597,630)
====================================================
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>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
--------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income................................................................... $2,955,197 $1,417,928
Net realized gain (loss) on investments sold ........................................... 211,488 (863,400)
Change in net unrealized appreciation/depreciation of investments ...................... (3,825,308) (1,152,158)
-------------- --------------
Net Decrease in Net Assets Resulting from Operations .................................. (658,623) (597,630)
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.6302 and $0.3038 per share, respectively) ............................... (2,599,041) (1,216,019)
Class B - ($0.5429 and $0.2640 per share, respectively) ............................... (355,174) (200,155)
Class C** - ($0.2214 and $0.2635 per share, respectively) ............................. (982) (1,754)
Distributions from net realized gain on investments sold
Class A - ($0.1058 and none per share, respectively) .................................. (439,098) -
Class B - ($0.1058 and none per share, respectively) .................................. (69,123) -
Distributions in excess of net realized gain on investments sold
Class A - ($0.0081 and none per share, respectively) .................................. (34,592) -
Class B - ($0.0081 and none per share, respectively) .................................. (5,446) -
-------------- --------------
Total Distributions to Shareholders ................................................... (3,503,456) (1,417,928)
-------------- --------------
From Fund Share Transactions - Net:* .................................................... 2,714,666 (3,032,944)
-------------- --------------
Net Assets:
Beginning of period .................................................................... 58,196,759 56,749,346
-------------- --------------
End of period (including undistributed net investment income
of $18,019 and $18,019, respectively) .................................................. $56,749,346 $51,700,844
============== ==============
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:
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ...................................................... 384,092 $4,752,469 309,305 $3,514,165
Shares issued to shareholders in reinvestment of distributions ... 185,055 2,288,715 75,699 864,415
------------ -------------- ------------ --------------
569,147 7,041,184 385,004 4,378,580
Less shares repurchased .......................................... (620,426) (7,661,895) (616,011) (7,019,049)
------------ -------------- ------------ --------------
Net decrease ..................................................... (51,279) ($620,711) (231,007) ($2,640,469)
============ ============== ============ ==============
CLASS B
Shares sold ...................................................... 463,911 $5,768,182 296,796 $3,386,941
Shares issued to shareholders in reinvestment of distributions ... 19,903 245,877 8,381 95,778
------------ -------------- ------------ --------------
483,814 6,014,059 305,177 3,482,719
Less shares repurchased .......................................... (226,140) (2,776,325) (339,206) (3,843,191)
------------ -------------- ------------ --------------
Net increase (decrease) .......................................... 257,674 $3,237,734 (34,029) ($360,472)
============ ============== ============ ==============
CLASS C**
Shares sold ...................................................... 8,927 $108,412 20,419 $235,901
Shares issued to shareholders in reinvestment of distributions ... 8 89 83 941
------------ -------------- ------------ --------------
8,935 108,501 20,502 236,842
Less shares repurchased .......................................... (921) (10,858) (23,245) (268,845)
------------ -------------- ------------ --------------
Net increase (decrease) .......................................... 8,014 $97,643 (2,743) ($32,003)
============ ============== ============ ==============
** 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:
- --------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 29,
YEAR ENDED AUGUST 31, 2000
------------------------------------------------ ------------
1995 1996 1997 1998 1999 (UNAUDITED)
------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $11.73 $11.88 $11.83 $12.25 $12.62 $11.76
--------- -------- -------- -------- -------- --------
Net Investment Income ............................................. 0.65 0.66 0.67 0.66(7) 0.63(7) 0.30(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts .................................. 0.15 (0.05) 0.42 0.37 (0.75) (0.41)
--------- -------- -------- -------- -------- --------
Total from Investment Operations ................................ 0.80 0.61 1.09 1.03 (0.12) (0.11)
--------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ............................. (0.65) (0.66) (0.67) (0.66) (0.63) (0.30)
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) (0.30)
--------- -------- -------- -------- -------- --------
Net Asset Value, End of Period .................................... $11.88 $11.83 $12.25 $12.62 $11.76 $11.35
========= ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (2) .................... 7.19% 5.21% 9.48% 8.64% (1.08%) (0.89%)(6)
Total Adjusted Investment Return at Net Asset Value (2,3) ......... 6.74% 4.77% 9.08% 8.24% (1.46%) (1.08%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .......................... $55,753 $56,229 $54,086 $52,373 $48,198 $43,869
Ratio of Expenses to Average Net Assets ........................... 0.70% 0.73%(4) 0.71%(4) 0.70% 0.74%(4) 0.78%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) .............. 1.15% 1.14% 1.11% 1.10% 1.08% 1.11%(5)
Ratio of Net Investment Income to Average Net Assets .............. 5.67% 5.51% 5.61% 5.26% 5.06% 5.28%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) . 5.22% 5.07% 5.21% 4.86% 4.68% 4.90%(5)
Portfolio Turnover Rate ........................................... 70% 76% 46% 46% 58% 36%
Expense and Fee Reduction Per Share ............................... $0.05 $0.05 $0.05 $0.05(7) $0.04(7) $0.02(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
(COMMENCEMENT YEAR ENDED AUGUST 31, SIX MONTHS ENDED
OF OPERATIONS) ----------------------------- FEBRUARY 29, 2000
TO AUGUST 31, 1997 1998 1999 (UNAUDITED)
------------------ ----------- ------------ -----------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $11.99 $12.25 $12.62 $11.76
---------- ---------- ---------- ----------
Net Investment Income ....................................... 0.54 0.57(7) 0.54(7) 0.26(7)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ................................ 0.26 0.37 (0.75) (0.41)
---------- ---------- ---------- ----------
Total from Investment Operations .......................... 0.80 0.94 (0.21) (0.15)
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....................... (0.54) (0.57) (0.54) (0.26)
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) (0.26)
---------- ---------- ---------- ----------
Net Asset Value, End of Period .............................. $12.25 $12.62 $11.76 $11.35
========== ========== ========== ==========
Total Investment Return at Net Asset Value (2) .............. 6.82%(6) 7.88% (1.77%) (1.23%)(6)
Total Adjusted Investment Return at Net Asset Value (2,3) ... 6.46%(6) 7.48% (2.15%) (1.42%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $2,414 $5,824 $8,458 $7,772
Ratio of Expenses to Average Net Assets ..................... 1.41%(4,5) 1.40% 1.44%(4) 1.48%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) ....... 1.81%(5) 1.80% 1.78% 1.81%(5)
Ratio of Net Investment Income to Average Net Assets ...... 4.79%(5) 4.56% 4.36% 4.58%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) 4.39%(5) 4.16% 3.98% 4.20%(5)
Portfolio Turnover Rate ..................................... 46% 46% 58% 36%
Expense and Fee Reduction Per Share ......................... $0.04 $0.05(7) $0.04(7) $0.02(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 SIX MONTHS ENDED
FEBRUARY 29, 2000 FEBRUARY 29, 2000
(UNAUDITED) (UNAUDITED)
----------------- -----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................................ $12.39 $11.76
---------- ----------
Net Investment Income (7) ........................................................... 0.22 0.26
Net Realized and Unrealized Loss on Investments and Financial Futures Contracts ..... (0.63) (0.41)
---------- ----------
Total from Investment Operations ................................................... (0.41) (0.15)
---------- ----------
Less Distributions:
Dividends from Net Investment Income ............................................... (0.22) (0.26)
---------- ----------
Net Asset Value, End of Period ...................................................... $11.76 $11.35
========== ==========
Total Investment Return at Net Asset Value (2) ...................................... (3.24%)(6) (1.23%)(6)
Total Adjusted Investment Return at Net Asset Value (2,3) ........................... (3.40%)(6) (1.42%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................................ $94 $60
Ratio of Expenses to Average Net Assets ............................................. 1.44%(4,5) 1.48%(4,5)
Ratio of Adjusted Expenses to Average Net Assets (1) ................................ 1.78%(5) 1.81%(5)
Ratio of Net Investment Income to Average Net Assets ................................ 1.78%(5) 4.35%(5)
Ratio of Adjusted Net Investment Income to Average Net Assets (1) ................... 1.78%(5) 3.97%(5)
Portfolio Turnover Rate ............................................................. 58% 36%
Expense and Fee Reduction Per Share (7) ............................................. $0.04 $0.02(7)
(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
for the applicable periods ending on August 31, 1996 to August 31, 1999. The
Ratio of Expenses to Average Net Assets would have been 0.73% for Class A and
1.43% for Class B and Class C for the period ended February 29, 2000.
(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
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the New York Tax-Free Income Fund on February 29, 2000. 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 +
- -------------------------- --------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
New York (87.65%)
Albany Municipal Water Finance Auth,
Wtr & Swr Sys Rev Cap Apprec Ser 2000A ............... Zero 12-01-22 AAA $540 $136,372 6.14%
Glen Cove Housing Auth,
Rev Sr Living Facil The Mayfair Proj ................. 8.250% 10-01-26 BB+ 1,000 1,049,130 7.86
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj 7.500 03-01-26 BB- 1,500 1,553,430 7.24
Long Island Power Auth,
Elec Sys Rev Ser 1998A ............................... Zero 12-01-16 AAA 2,250 838,305 5.98
Metropolitan Transportation Auth,
Commuter Facil Rev 1987 Serv Contract Ser 3 .......... 7.375 07-01-08 Baa1 1,000 1,095,310 6.73
Commuter Facil Rev 1992 Serv Contract Ser N .......... 7.125 07-01-09 A- 1,000 1,061,800 6.71
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 1,035,690 6.32
New York City Industrial Development Agency,
Rev Ref LaGuardia Assoc LP Proj ...................... 6.000 11-01-28 BB+ 500 425,715 7.05
Spec Facil Rev 1990 American Airlines Inc Proj ....... 5.400 07-01-19 BBB- 250 214,787 6.29
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev Ser 1999A .......................... 5.500 06-15-32 AAA 2,250 2,064,690 5.99
Wtr & Swr Sys Rev Ref Ser 1996A ...................... 5.375 06-15-26 AAA 1,000 903,120 5.95
Wtr & Swr Rev Ref 1997 Ser C ......................... 5.000 06-15-21 AAA 500 432,200 5.78
Wtr & Swr Sys Rev Ser 1998D .......................... 4.750 06-15-25 AAA 2,000 1,634,100 5.81
New York City Trans Authority,
Metropolitan Transportation Auth Triborough .......... 5.250 01-01-29 AAA 1,000 885,200 5.93
Future Tax Sec Bond Ser 2000B ........................ 6.000 11-15-29 AA 1,000 995,770 6.03
New York Local Government Assistance Corp,
Rev Ref 1993 Ser C ................................... 5.500 04-01-17 AA- 1,000 976,150 5.63
Rev Ref Cap Apprec Ser 1993 C ........................ Zero 04-01-14 AAA 1,100 487,520 5.86
New York State Dormitory Auth,
City Univ Rev Iss Ser U Unref Bal .................... 6.375 07-01-08 BBB+ 210 218,054 6.14
Concord Nursing Home Inc Rev ......................... 6.500 07-01-29 A1 500 503,320 6.46
Genessee Valley Presbyterian Nursing Center
FHA-Ins Mtg Rev Ser 1992B ........................... 6.850 08-01-16 AA 250 258,458 6.63
KMH Homes Inc FHA-Ins Mtg Rev Ser 1991 ............... 6.950 08-01-31 AA 1,200 1,246,320 6.69
Nyack Hosp Rev Ser 1996 .............................. 6.250 07-01-13 Baa2 500 470,820 6.64
State Univ Ed Facil Rev .............................. 5.750 05-15-24 AAA 250 242,667 5.92
State Univ Ed Facil Rev Ser 1990A .................... 7.700 05-15-12 A 300 308,205 7.50
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 +
- -------------------------- --------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
New York (continued)
New York State Dormitory Auth (continued),
State Univ Ed Facil Rev Ser 1993A .................... 5.250% 05-15-15 AAA $1,000 $959,450 5.47%
State Univ Ed Facil Rev Ser 1993A .................... 5.500 05-15-19 A 2,000 1,893,200 5.81
Univ of Rochester Rev Ser 1987 Unref Bal ............. 6.500 07-01-09 A+ 20 20,237 6.42
Univ or Rochester Rev Ser 1998A ...................... 5.000 07-01-23 AAA 1,000 860,620 5.81
Univ Rochester Rev Ser B ............................. 5.625 07-01-24 A+ 1,000 940,080 5.98
New York State Environmental Facilities Corp,
State Wtr Poll Control Rev Rites-PA 174 .............. 9.816# 06-15-11 AAA 500 588,125 8.35
State Wtr Poll Control Revolving Fund Rev Ser 1990A .. 7.500 06-15-12 AA 630 648,005 7.29
State Wtr Poll Control Revolving Fund Rev Ser 1991E
Unref Bal ............................................ 6.875 06-15-10 AA+ 40 41,830 6.57
New York State Housing Finance Agency,
Ins Multi-Family Mtg Hsg 1992 Ser C .................. 6.450 08-15-14 AAA 500 512,205 6.30
Ins Multi-Family Mtg Hsg 1994 Ser B .................. 6.250 08-15-14 AAA 735 754,580 6.09
Ins Multi-Family Mtg Hsg 1994 Ser C .................. 6.450 08-15-14 Aa1 1,000 1,036,410 6.22
New York State Medical Care Facilities Finance Agency,
Hosp & Nursing Home Ins Mtg Rev 1992 Ser B Preref .... 6.950 02-15-32 AA 170 180,022 6.56
Hosp & Nursing Home Ins Mtg Rev 1992 Ser Unref Bal ... 6.950 02-15-32 AA 830 878,929 6.56
Mental Hlth Serv Facil Imp Rev 1990 Ser B Preref ..... 7.875 08-15-20 AAA 175 181,442 7.60
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal .. 7.875 08-15-20 A- 65 67,198 7.62
Mental Hlth Serv Facil Imp Rev 1991 Ser A Unref Bal .. 7.750 08-15-11 A3 20 20,947 7.40
Mental Hlth Serv Facil Imp Rev 1991 Ser B Preref ..... 7.625 08-15-17 A 80 84,478 7.22
Mental Hlth Serv Facil Imp Rev 1991 Ser B Unref Bal .. 7.625 08-15-17 A 165 175,276 7.18
Mental Hlth Serv Facil Imp Rev 1991 Ser C Unref Bal .. 7.300 02-15-21 A3 35 36,801 6.94
Rev Mental Hlth 1994 Ser E Preref .................... 6.250 08-15-19 AAA 1,470 1,568,343 5.86
Rev Mental Hlth 1994 Ser E Unref Bal ................. 6.250 08-15-19 AAA 30 30,396 6.17
New York State Mortgage Agency,
Homeowner Mtg Rev Ser 27 ............................. 6.900 04-01-15 Aa2 1,175 1,236,053 6.56
Homeowner Mtg Rev Ser 28 ............................. 7.050 10-01-23 Aa2 500 513,835 6.86
Homeowner Mtg Rev Ser 57 ............................. 6.300 10-01-17 Aa2 500 509,350 6.18
Homeowner Mtg Rev Ser 84 ............................. 5.900 04-01-22 Aa1 1,000 954,630 6.18
Homeowner Mtg Rev Ser EE-4 ........................... 7.800 10-01-13 Aa2 300 307,848 7.60
Homeowner Mtg Rev Ser VV ............................. 7.375 10-01-11 Aa2 70 72,197 7.15
New York State Power Auth,
Gen Purpose Ser W .................................... 6.500 01-01-08 AAA 250 267,040 6.09
New York State Urban Development Corp,
Correctional Cap Facil Proj Rev Ser 7 ................ 5.700 01-01-16 A- 500 483,370 5.90
Correctional Facil Serv Contract Rev Ser 1998A ....... 5.000 01-01-28 AAA 1,000 845,220 5.92
Correctional Facil Serv Contract Rev Ser 1998B ....... 4.750 01-01-28 AAA 1,000 808,780 5.87
New York, City of,
GO Fiscal 1991 Ser B ................................. 8.250 06-01-07 A- 200 233,360 7.07
GO Fiscal 1991 Ser D Preref .......................... 8.000 08-01-04 A- 245 260,217 7.53
GO Fiscal 1991 Ser D Unref Bal ....................... 8.000 08-01-04 A- 5 5,285 7.57
GO Fiscal 1991 Ser F Preref .......................... 8.200 11-15-03 AAA 230 246,903 7.64
GO Fiscal 1991 Ser F Unref Bal ....................... 8.200 11-15-03 A- 20 21,351 7.68
GO Fiscal 1992 Ser A Preref .......................... 7.750 08-15-12 A- 5 5,300 7.31
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 +
- -------------------------- --------- ----------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
New York (continued)
New York, City of (continued),
GO Fiscal 1992 Ser B Unref Bal ....................... 7.000% 10-01-13 A- $10 $10,596 6.61%
GO Fiscal 1992 Ser C Preref .......................... 7.500 08-01-21 A- 20 21,531 6.97
GO Fiscal 1992 Ser H Unref Bal ....................... 7.000 02-01-22 A- 25 26,269 6.66
GO Fiscal 1998 Ser J ................................. 5.300 08-01-24 A- 350 309,890 5.99
New York, State of,
GO Environmental Quality Fiscal 1994 ................. 6.500 12-01-14 A+ 1,000 1,079,520 6.02
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 ................... 6.750 10-01-19 BBB 2,500 2,505,425 6.74
Triborough Bridge & Tunnel Auth,
Gen Purpose Rev Ser 1993 ............................. Zero 01-01-21 AAA 1,500 426,225 6.13
Gen Purpose Rev Ref Ser 1997A ........................ 5.250 01-01-28 A+ 1,000 881,880 5.95
Gen Purpose Rev Ser 1999B ............................ 5.375 01-01-19 A+ 2,425 2,249,964 5.79
Spec Oblig Ref Ser 1991B ............................. 6.875 01-01-15 A- 500 517,830 6.64
----------
45,315,576
----------
Puerto Rico (8.31%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico ......................... 7.845# 07-01-11 AAA 2,000 2,225,000 7.05
Puerto Rico Public Building Auth,
Rev Gtd Govt Facil Ser A ............................. 6.250 07-01-12 AAA 1,110 1,204,517 5.76
Puerto Rico, Commonwealth of,
GO Cap Apprec Ref Pub Imp Ser 1998 ................... Zero 07-01-14 A 2,000 868,820 5.90
----------
4,298,337
----------
Virgin Islands (2.75%)
Virgin Islands Pub Fin Auth Rev,
Rcpts Taxes Ln Ser A ................................. 6.500 10-01-24 BBB- 535 529,136 6.57
Virgin Islands Public Finance Auth,
Rev Sub Lien Fund Ln Notes Ser 1998E ................. 5.875 10-01-18 BB+ 1,000 892,510 6.58
----------
1,421,646
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $50,999,728) (98.71%) 51,035,559
------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.29%) 665,285
------- ----------
TOTAL NET ASSETS (100.00%) $51,700,844
======== ===========
* 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 are not available.
+ 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 February 29, 2000. The percentage shown for each
investment category is the total value of that category as a percentage of the
net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<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 February 29, 2000,
assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ---------------
General Obligation .............................................. 8.30%
Revenue Bonds - Authority ....................................... 4.68
Revenue Bonds - Building ........................................ 3.20
Revenue Bonds - Combined ........................................ 10.08
Revenue Bonds - Education ....................................... 13.53
Revenue Bonds - Electric ........................................ 6.98
Revenue Bonds - Environment ..................................... 1.14
Revenue Bonds - General Purpose ................................. 6.06
Revenue Bonds - Health .......................................... 10.06
Revenue Bonds - Housing ......................................... 15.44
Revenue Bonds - Industrial Development .......................... 1.24
Revenue Bonds - Industrial Revenue .............................. 0.97
Revenue Bonds - Other ........................................... 3.76
Revenue Bonds - Transportation .................................. 7.71
Revenue Bonds - Water & Sewer ................................... 5.56
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.71%
==========
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - New York Tax-Free Income Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Tax-Exempt Series Fund (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940. The Trust consists of two series: John Hancock New York Tax-Free Income
Fund (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 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.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the amount paid
in excess of par value on securities purchased from either the date of purchase
or date of issue to date of sale, maturity or to next call date, if applicable.
The Fund accretes original issue discount from par value on securities purchased
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code. The Fund records market
discount on bonds purchased after April 30, 1993, at time of disposition.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
18
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - New York Tax-Free Income Fund
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. The Fund entered into a
syndicated line of credit agreement with various banks. This agreement enables
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks, which permit borrowings of 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 period ended February 29, 2000.
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 to and from the
broker, known as "variation margin," 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 February 29, 2000, 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 exposure will be limited to the
change in value of the contract over the period the contract remains open.
19
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - New York Tax-Free Income Fund
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.
At February 29, 2000, there were no written option transactions.
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.
Effective January 1, 2000, the Adviser has voluntarily agreed to limit
the Fund's expenses to the extent required to prevent expenses from exceeding
0.80%, 1.50% and 1.50% of the average net assets attributable to Class A, Class
B and Class C, respectively. Prior to January 1, 2000, the expense limitations
were 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 period ended February
29, 2000, 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
$90,887. This limitation may not be discontinued until December 31, 2000.
The Fund has an agreement with its custodian bank under which $13,333
of custodian fees have been reduced by balance credits applied during the period
ended February 29, 2000. If the Fund had not entered into this agreement, the
assets not invested, on which these balance credits were earned, could have
produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the period ended
February 29, 2000, net sales charges received with regard to sales of Class A
shares amounted to $14,146. Out of this amount, $2,725 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $4,313
was paid as sales commissions to unrelated broker-dealers and $7,108 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 Life Insurance
Company ("JHLICo"), 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 period ended February 29,
2000, the contingent deferred sales charges received by JH Funds amounted to
$8,191.
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
period ended February 29, 2000, the contingent deferred sales charges received
by JH Funds amounted to $2,657.
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
20
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - New York Tax-Free Income Fund
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. A maximum of 0.25% of such payments may be
service fees as defined by the Conduct Rules of the National Association of
Securities Dealers. Under the Conduct Rules, 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 JHLICo. 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 period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford, 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 period
ended February 29, 2000, aggregated $19,293,933 and $23,484,082, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended February 29, 2000.
The cost of investments owned at February 29, 2000, for federal income
tax purposes was $50,999,728. Gross unrealized appreciation and depreciation of
investments aggregated $1,082,271 and $1,046,440, respectively, resulting in net
unrealized appreciation of $35,831.
21
<PAGE>
=====================================NOTES======================================
John Hancock Funds - New York Tax-Free Income Fund
22
<PAGE>
=====================================NOTES======================================
John Hancock Funds - New York Tax-Free Income Fund
23
<PAGE>
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