---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
New York
Tax-Free
Income Fund
AUGUST 31, 2000
[LOGO] John Hancock
------------------
JOHN HANCOCK FUNDS
<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
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, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
-----------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years, the
financial markets have brought investors back down to earth in 2000. Volatility
ruled during the spring, as rising interest rates and prospects of a slowing
economy finally caught up to pricey growth stocks. As a result, the tech-heavy
NASDAQ Composite Index advanced by only 3.37% through the end of August, while
the Dow Jones Industrial Average lost 1.46% and the Standard & Poor's 500 Index
was up 4.12%.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
But there is a silver lining. Investors have finally turned their attention to
broader swaths of the market, including both blue chip and old economy stocks in
sectors like financials, health care and energy, that combined both strong
fundamentals and less frothy valuation levels. As for bonds, rising interest
rates have kept the broader bond market in flux, but pockets of strength have
emerged there, as well, including municipal bonds and longer-maturity Treasury
bonds. The 30-year bond, for instance, has returned 14.28% since January.
Between now and year end, we expect the market's focus to be on Washington, as
it usually is in an election year. While the presidential election is important,
what warrants more attention is the Federal Reserve Board. The November election
will generate more ink, but won't have anywhere near the impact on financial
markets that further Fed action could. So we'll be watching the economic data to
see whether the Fed has truly wound down its string of interest-rate hikes.
The market's shifts in leadership so far this year highlight one of the key
investment tenets that we can't emphasize enough: investing should be a
marathon, not a sprint. If your portfolio is diversified and you have an
up-to-date financial plan crafted with an investment professional to meet your
goals, it becomes easier to ride out the market's short-term ups and downs. It
could also provide you with a greater chance of success over time.
Sincerely,
/s/Maureen R.Ford
-----------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Frank A. Lucibella, CFA, Barry H. Evans, CFA, and
Dianne Sales, CFA, Portfolio Managers
John Hancock New York
Tax-Free Income Fund
Municipals recover as inflationary worries and
----------------------------------------------
rate fears subside
------------------
After being battered and bruised last fall and winter, municipals rebounded
handsomely this spring and summer. A year ago, investors were spooked by fears
of inflation and rising interest rates. Continually tight labor markets and
strong economic growth continued to fan inflationary fears and the Federal
Reserve Board raised interest rates to cool off the economy - six times from
June 1999 through August 2000. In response, investors pushed bond yields higher
and their prices - which move in the opposite direction of yields - lower.
Rising interest rates also translated into flagging demand for municipals and
most other fixed-income investments, which put further pressure on bond prices.
But beginning in the spring, the municipal market began to take what
proved to be a sustained turn for the better. The market rallied on expectations
that the Fed might be at or near the end of its nearly 15-month-long campaign to
fight inflation with interest-rate hikes. Most of that optimism stemmed from the
fact that a few key economic indicators - including new and existing home sales,
retails sales and manufacturing activity - appeared to level off after posting
strong gains during most of 1999. Furthermore, significantly increased demand
for municipals from individual investors - many of whom were provoked by stock
market volatility - gave the municipal market a much-needed shot in the arm. The
strong
--------------------------------------------------------------------------------
[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."]
--------------------------------------------------------------------------------
"...significantly increased demand... gave the municipal market a much-needed
shot in the arm."
3
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
"Our timely management of the Fund's duration, or interest-rate sensitivity,
also paid off."
--------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into twelve sections (from top to left): Highway 4%, Water &
Sewer 5%, General Purpose 5%, Authority 5%, Electric 7%, Combined 7%, Health 8%,
General Obligation 8%, Transportation 10%, Other 13%, Education 14% and Housing
14%. A note below the chart reads "As a percentage of net assets on August 31,
2000."]
--------------------------------------------------------------------------------
demand for municipals easily absorbed a diminished supply of them. Flush with
burgeoning tax coffers, state and local governments issued less debt, roughly
20% less than they had from January through August of 1999. Higher interest
rates also acted to curtail issuance because it drove up borrowing and
refinancing costs for issuers. In the end, these factors and others helped
municipal bond returns top stocks during 2000.
The New York municipal market had other reasons to cheer. Some bonds
issued by the state and New York City agencies received a credit upgrade
recently, helping to boost their gains.
Fund performance
For the year ended August 31, 2000, John Hancock New York Tax-Free Income Fund's
Class A, Class B and Class C shares posted total returns of
--------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is New York City
Municipal Water followed by an up arrow with the phrase "Credit upgrade boosts
prices." The second listing is Discount bonds followed by an up arrow with the
phrase "Boosted by rally." The third listing is Health-care bonds followed by a
down arrow with the phrase "Reimbursement cuts cause concern." A note below the
table reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
--------------------------------------------------------------------------------
5.95%, 5.21% and 5.21%, respectively, at net asset value. By comparison, the
average New York municipal bond fund returned 5.29%, according to Lipper, Inc.1
Keep in mind that your net asset value 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.
Performance review
The Fund's performance was aided by two factors. First, it was well positioned
in some of the bonds that received a credit upgrade during the year, such as
state-issued securities and New York City Municipal Water Finance Authority
bonds. They posted better-than-average gains as a result of the positive credit
development.
Our timely management of the Fund's duration, or interest-rate
sensitivity, also paid off. Throughout periods when interest rates were on the
rise and the municipal market was in retreat - such as last fall, the
December-January period and the March-April span - we shortened the Fund's
duration. By doing so during those downdrafts, the Fund's share price losses
were curtailed when interest rates rose. We also benefited from increasing the
Fund's interest-rate sensitivity when the market rallied, as it has since May.
Lengthening the Fund's duration meant that it more fully benefited from the rise
in bond prices.
On the flip side, our weighting in health-care bonds, although small,
detracted from performance. As they have for some time now, health-care issues
remained under pressure due to increasingly competitive conditions and cutbacks
in medical cost reimbursement by Medicare, HMOs and other payers.
4
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
--------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended August 31, 2000." The chart is
scaled in increments of 1% with 0% at the bottom and 7% at the top. The first
bar represents the 5.95% total return for John Hancock New York Tax-Free Income
Fund Class A. The second bar represents the 5.21% total return for John Hancock
New York Tax-Free Income Fund Class B. The third bar represents the 5.21% total
return for John Hancock New York Tax-Free Income Fund Class C. The fourth bar
represents the 5.29% 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."]
--------------------------------------------------------------------------------
Coupon strategy
One of the most important things we evaluate when selecting bonds for the Fund
is their structure, including such elements as their maturity, how much interest
they pay and whether or not they are redeemable before maturity. The past year
was a good illustration of how structural characteristics can determine a bond's
performance.
In the first half of the year, we emphasized premium coupon bonds,
which pay interest rates above prevailing rates. That proved to be a plus
because their relatively high coupons helped cushion them against price declines
caused by rising interest rates. In addition, many municipal bond prices fell so
much that they started to lose eligibility for the more favorable tax treatment
known as "de minimus." A difficult market environment exposed more and more
bonds to this obscure tax law and placed a lot of pressure on bonds that fell
outside of "de minimus." Premium coupon bonds, however, were mostly immune to
that problem.
In the second half of the period, we began to add more discount bonds.
Because these bonds paid interest rates below prevailing rates in a rising rate
environment, they were selling at a relatively deep discount to their face value
at the time. We viewed that as an opportunity to pick up some very attractively
priced discount bonds that also offered the benefit of helping to extend our
duration.
Outlook
Over the very short term, we think interest rates can hold steady at current
levels. It would be quite surprising to see the Fed cut or hike interest rates
prior to the November presidential election. Beyond that point, however,
anything can happen. While the economy has shown some signs of a slowdown, it
may not be enough to prevent the Fed from raising interest rates further by year
end. Some observers are speculating that the slowing has been significant enough
to warrant a rate cut, something we believe is unlikely given that economic
growth remains strong. With that outlook in mind, we plan to keep the Fund's
duration neutral. As for the municipal market, we think the technical aspects of
supply and demand will remain favorable.
--------------------------------------------------------------------------------
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 think the technical aspects of supply and demand will remain favorable."
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 an up-front 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 an up-front sales charge of 1% and a contingent deferred
sales charge (1% declining to 0% after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Please read your prospectus carefully before you invest or send money. Please
note that a portion of the Fund's income may be subject to taxes, and some
investors may be subject to the Alternative Minimum Tax (AMT). Also note that
capital gains are taxable.
--------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------
For the period ended June 30, 2000
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- -------
Cumulative Total Returns (2.98%) 24.04% 84.04%
Average Annual Total Returns(1) (2.98%) 4.40% 6.29%
--------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------------
For the period ended June 30, 2000
SINCE
ONE INCEPTION
YEAR (10/3/96)
------- --------
Cumulative Total Returns (3.90%) 12.77%
Average Annual Total Returns(1) (3.90%) 3.27%
--------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------
For the period ended June 30, 2000
SINCE
ONE INCEPTION
YEAR (4/1/99)
------- --------
Cumulative Total Returns (1.04%) (2.13%)
Average Annual Total Returns(1) (1.04%) (1.71%)
--------------------------------------------------------------------------------
YIELDS
--------------------------------------------------------------------------------
As of August 31, 2000
SEC 30-DAY
YIELD
--------
John Hancock New York Tax-Free Income Fund: Class A(1) 4.55%
John Hancock New York Tax-Free Income Fund: Class B(1) 4.07%
John Hancock New York Tax-Free Income Fund: Class C(1) 4.03%
Note to Performance
(1) The Adviser has voluntarily reduced a portion of the management fee and a
portion of the custodian fee has been offset by balance credits during the
period. Without the reduction of expenses and the offset, the average annual
total returns for the one-year, five-year and ten-year periods for Class A
shares would have been (3.30%), 4.02% and 5.68%, respectively. The average
annual total returns for the one-year and since inception periods for Class B
shares would have been (4.23%) and 2.90%, respectively. The average annual total
returns for the one-year and since inception periods for Class C shares would
have been (1.36%) and (2.04%), respectively. Without the reduction of expenses,
the yields for Class A, Class B and Class C shares would have been 4.23%, 3.75%
and 3.71%, respectively.
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 not indicative 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 $20,375 as of August 31, 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, 1990, before sales
charge, and is equal to $19,956 as of August 31, 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 $19,058 as of August
31, 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 $12,561 as of August 31, 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 $11,907 as of August 31, 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 $11,607 as of August
31, 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 $10,443 as of August 31, 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 $10,180 as of August 31, 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 $10,078 as of August
31, 2000.
*No contingent deferred sales charge applicable.
--------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on August 31, 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
August 31, 2000
--------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $49,124,227)............. $51,171,263
Cash ........................................................ 1,072,437
Interest receivable ......................................... 701,090
Other assets ................................................ 5,278
-------------
Total Assets ......................... 52,950,068
------------------------------------------------------
Liabilities:
Payable for investments purchased ........................... 1,036,860
Dividend payable ............................................ 3,446
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 30,661
Accounts payable and accrued expenses ....................... 39,206
-------------
Total Liabilities .................... 1,110,173
------------------------------------------------------
Net Assets:
Capital paid-in ............................................. 50,744,113
Accumulated net realized loss on investments and
financial futures contracts ................................ (970,688)
Net unrealized appreciation of investments .................. 2,047,036
Undistributed net investment income ......................... 19,434
-------------
Net Assets ........................... $51,839,895
======================================================
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 - $43,498,166/3,679,400 ............................. $11.82
=============================================================================
Class B - $8,219,190/695,241 ................................ $11.82
=============================================================================
Class C - $122,539/10,365 ................................... $11.82
=============================================================================
Maximum Offering Price Per Share
Class A * - ($11.82/0.955) .................................. $12.38
=============================================================================
Class C - ($11.82/0.99) ..................................... $11.94
=============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended August 31, 2000
--------------------------------------------------------------------------------
Investment Income:
Interest .................................................... $3,212,686
-------------
Expenses:
Investment management fee - Note B ......................... 265,913
Distribution and service fee - Note B
Class A ................................................... 134,316
Class B ................................................... 83,365
Class C ................................................... 742
Transfer agent fee - Note B ................................ 59,074
Auditing fee ............................................... 21,764
Custodian fee .............................................. 53,244
Printing ................................................... 13,376
Accounting and legal services fee - Note B ................. 10,238
Registration and filing fees ............................... 5,842
Miscellaneous .............................................. 3,926
Trustees' fees ............................................. 3,282
Legal fees ................................................. 606
Less: Management fee reduction - Note B .................... (156,359)
-------------
Total Expenses ....................... 499,329
------------------------------------------------------
Less Expense Reductions -
Note B ............................... (33,258)
------------------------------------------------------
Net Expenses ......................... 466,071
------------------------------------------------------
Net Investment Income ................ 2,746,615
------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments sold ....................... (742,990)
Change in net unrealized appreciation/depreciation
of investments ............................................. 859,047
-------------
Net Realized and Unrealized
Gain on Investments .................. 116,057
------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............ $2,862,672
======================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1999 2000
------------------- --------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .......................................................... $2,955,197 $2,746,615
Net realized gain (loss) on investments sold and financial futures contracts ... 211,488 (742,990)
Change in net unrealized appreciation/depreciation of investments .............. (3,825,308) 859,047
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations ............... (658,623) 2,862,672
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.6302 and $0.6065 per share, respectively) ....................... (2,599,041) (2,361,927)
Class B - ($0.5429 and $0.5261 per share, respectively) ....................... (355,174) (381,387)
Class C** - ($0.2214 and $0.5259 per share, respectively) ..................... (982) (3,316)
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) (2,746,630)
-------------- --------------
From Fund Share Transactions - Net:* ............................................ 2,714,666 (5,025,493)
-------------- --------------
Net Assets:
Beginning of period ............................................................ 58,196,759 56,749,346
-------------- --------------
End of period (including undistributed net investment income
of $18,019 and $19,434, respectively) ......................................... $56,749,346 $51,839,895
============== ==============
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Statement of Changes in Net Assets (continued)
--------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1999 2000
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........................................................ 384,092 $4,752,469 620,896 $7,102,679
Shares issued to shareholders in reinvestment of distributions ..... 185,055 2,288,715 144,258 1,656,524
---------- ------------ ---------- ------------
569,147 7,041,184 765,154 8,759,203
Less shares repurchased ............................................ (620,426) (7,661,895) (1,183,467) (13,568,642)
---------- ------------ ---------- ------------
Net decrease ....................................................... (51,279) ($620,711) (418,313) ($4,809,439)
========== ============ ========== ============
CLASS B
Shares sold ........................................................ 463,911 $5,768,182 392,244 $4,485,400
Shares issued to shareholders in reinvestment of distributions ..... 19,903 245,877 15,325 176,162
---------- ------------ ---------- ------------
483,814 6,014,059 407,569 4,661,562
Less shares repurchased ............................................ (226,140) (2,776,325) (431,377) (4,905,225)
---------- ------------ ---------- ------------
Net increase (decrease) ............................................ 257,674 $3,237,734 (23,808) ($243,663)
========== ============ ========== ============
CLASS C**
Shares sold ........................................................ 8,927 $108,412 27,403 $317,193
Shares issued to shareholders in reinvestment of distributions ..... 8 89 154 1,769
---------- ------------ ---------- ------------
8,935 108,501 27,557 318,962
Less shares repurchased ............................................ (921) (10,858) (25,206) (291,353)
---------- ------------ ---------- ------------
Net increase ....................................................... 8,014 $97,643 2,351 $27,609
========== ============ ========== ============
** Class C shares commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period...................... $11.88 $11.83 $12.25 $12.62 $11.76
--------- --------- --------- --------- ---------
Net Investment Income .................................... 0.66 0.67 0.66(1) 0.63(1) 0.61(1)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ......................... (0.05) 0.42 0.37 (0.75) 0.06
--------- --------- --------- --------- ---------
Total from Investment Operations ....................... 0.61 1.09 1.03 (0.12) 0.67
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income .................... (0.66) (0.67) (0.66) (0.63) (0.61)
Distributions from Net Realized Gain on Investments Sold - - - (0.11) -
Distributions in Excess of Net Realized Gain on
Investments Sold ....................................... - - - -(2) -
--------- --------- --------- --------- ---------
Total Distributions .................................... (0.66) (0.67) (0.66) (0.74) (0.61)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ........................... $11.83 $12.25 $12.62 $11.76 $11.82
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value (3) ........... 5.21% 9.48% 8.64% (1.08%) 5.95%
Total Adjusted Investment Return at Net Asset Value (3,4) 4.77% 9.08% 8.24% (1.46%) 5.59%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $56,229 $54,086 $52,373 $48,198 $43,498
Ratio of Expenses to Average Net Assets .................. 0.73%(5) 0.71%(5) 0.70% 0.74%(5) 0.83%(5)
Ratio of Adjusted Expenses to Average Net Assets (6) ..... 1.14% 1.11% 1.10% 1.08% 1.13%
Ratio of Net Investment Income to Average Net Assets ..... 5.51% 5.61% 5.26% 5.06% 5.28%
Ratio of Adjusted Net Investment Income to
Average Net Assets (6) .................................. 5.07% 5.21% 4.86% 4.68% 4.92%
Portfolio Turnover Rate .................................. 76% 46% 46% 58% 63%
Expense and Fee Reduction Per Share ...................... $0.05 $0.05 $0.05(1) $0.04(1) $0.04(1)
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
PERIOD ENDED -----------------------------------
AUGUST 31, 1997(7) 1998 1999 2000
------------------ ---------- ---------- -----------
<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(1) 0.54(1) 0.53(1)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .............................................. 0.26 0.37 (0.75) 0.06
--------- --------- --------- ---------
Total from Investment Operations ........................................ 0.80 0.94 (0.21) 0.59
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ..................................... (0.54) (0.57) (0.54) (0.53)
Distributions from Net Realized Gain on Investments Sold ................. - - (0.11) -
Distributions in Excess of Net Realized Gain on Investments Sold ......... - - -(2) -
--------- --------- --------- ---------
Total Distributions ..................................................... (0.54) (0.57) (0.65) (0.53)
--------- --------- --------- ---------
Net Asset Value, End of Period ............................................ $12.25 $12.62 $11.76 $11.82
========= ========= ========= =========
Total Investment Return at Net Asset Value (3) ............................ 6.82%(8) 7.88% (1.77%) 5.21%
Total Adjusted Investment Return at Net Asset Value (3,4) ................. 6.46%(8) 7.48% (2.15%) 4.85%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................................. $2,414 $5,824 $8,458 $8,219
Ratio of Expenses to Average Net Assets ................................... 1.41%(5,9) 1.40% 1.44%(5) 1.53%(5)
Ratio of Adjusted Expenses to Average Net Assets (6) ...................... 1.81%(9) 1.80% 1.78% 1.83%
Ratio of Net Investment Income to Average Net Assets ...................... 4.79%(9) 4.56% 4.36% 4.58%
Ratio of Adjusted Net Investment Income to Average Net Assets (6) ......... 4.39%(9) 4.16% 3.98% 4.22%
Portfolio Turnover Rate ................................................... 46% 46% 58% 63%
Expense and Fee Reduction Per Share ....................................... $0.04 $0.05(1) $0.04(1) $0.04(1)
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED
AUGUST 31, 1999(7) AUGUST 31, 2000
------------------- ---------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................................................... $12.39 $11.76
-------- --------
Net Investment Income (1) ................................................................. 0.22 0.53
Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts .... (0.63) 0.06
-------- --------
Total from Investment Operations ......................................................... (0.41) 0.59
-------- --------
Less Distributions:
Dividends from Net Investment Income ...................................................... (0.22) (0.53)
-------- --------
Net Asset Value, End of Period ............................................................ $11.76 $11.82
======== ========
Total Investment Return at Net Asset Value (3) ............................................ (3.24%)(8) 5.21%
Total Adjusted Investment Return at Net Asset Value (3,4) ................................. (3.40%)(8) 4.85%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................................................. $94 $123
Ratio of Expenses to Average Net Assets(5) ................................................ 1.44%(9) 1.53%
Ratio of Adjusted Expenses to Average Net Assets (6) ...................................... 1.78%(9) 1.83%
Ratio of Net Investment Income to Average Net Assets ...................................... 4.23%(9) 4.58%
Ratio of Adjusted Net Investment Income to Average Net Assets (6) ......................... 3.85%(9) 4.22%
Portfolio Turnover Rate ................................................................... 58% 63%
Expense and Fee Reduction Per Share (1) ................................................... $0.04 $0.04
(1) Based on the average of the shares outstanding at the end of each month.
(2) Less than $0.01 per share.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) The Ratio of Expenses to Average Net Assets for the periods or years 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 or years ending from August 31, 1996 through August 31,
1999. For the year ended August 31, 2000, the Ratio of Expenses to Average Net
Assets was 0.77% for Class A and 1.47% for Class B and Class C.
(6) Unreimbursed, without fee reduction.
(7) Class B and Class C shares began operations on October 3, 1996 and April 1,
1999, respectively.
(8) Not annualized.
(9) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Schedule of Investments
August 31, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
New York Tax-Free Income Fund on August 31, 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 (84.79%)
Albany Municipal Water Finance Auth,
Wtr & Swr Sys Rev Cap Apprec Ser 2000A............... Zero 12-01-22 AAA $540 $156,654 5.64%
Dutchess County Industrial Development Agency,
Bard College Civic Facil ............................ 5.750% 08-01-30 A3 1,000 995,700 5.77
Glen Cove Housing Auth,
Rev Sr Living Facil The Mayfair Proj ................ 8.250 10-01-26 BB+ 1,000 1,055,390 7.82
Islip Community Development Agency,
Community Dev Rev Ref NY Institute of Technology Proj 7.500 03-01-26 BB- 1,500 1,564,200 7.19
Long Island Power Auth,
Elec Sys Rev Cap Apprec Ser 1998A ................... Zero 12-01-16 AAA 2,250 936,135 5.47
Elec Sys Rev Cap Apprec ............................. Zero 06-01-27 AAA 1,000 219,270 5.75
Metropolitan Transportation Auth,
Commuter Facil Rev 1987 Serv Contract Ser 3 ......... 7.375 07-01-08 Baa1 1,000 1,116,350 6.61
Commuter Facil Rev 1992 Serv Contract Ser N ......... 7.125 07-01-09 A 1,000 1,058,950 6.73
Monroe TOB Asset Securitization Corp,
TOB Settlement Rev Asset Backed Bonds ............... 6.375 06-01-35 A 1,000 1,008,780 6.32
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 1,047,970 6.25
New York City Industrial Development Agency,
Rev Ref LaGuardia Assoc LP Proj ..................... 6.000 11-01-28 BB+ 500 428,505 7.00
New York City Municipal Water Finance Auth,
Wtr & Swr Sys Rev Ser 1996A ......................... 5.375 06-15-26 AAA 1,000 968,080 5.55
Wtr & Swr Sys Rev Ser 1997C ......................... 5.000 06-15-21 AAA 400 372,564 5.37
Wtr & Swr Sys Rev Ser 1999A ......................... 5.500 06-15-32 AAA 750 736,118 5.60
Wtr & Swr Sys Rev Ser 2000B ......................... 6.000 06-15-33 AA 1,200 1,246,236 5.78
New York City Trans Auth,
Metropolitan Transportation Auth Triborough ......... 5.750 01-01-20 AAA 1,000 1,024,970 5.61
Metropolitan Transportation Auth Triborough ......... 5.250 01-01-29 AAA 1,000 949,130 5.53
New York City Transitional Finance Auth,
Rev Future Tax Sec Bond Ser B ....................... 6.000 11-15-29 AA 1,000 1,044,400 5.74
New York Local Government Assistance Corp,
Rev Ref 1993 Ser C .................................. 5.500 04-01-17 AA- 1,000 1,024,060 5.37
Rev Ref Cap Apprec Ser 1993 C ....................... Zero 04-01-14 AAA 1,100 544,819 5.24
New York State Twy Auth,
Svc Contract Rev Loc Hwy & Brdg** ................... 5.750 04-01-17 AAA 1,000 1,040,150 5.53
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
-------------------------- ----------- ------------ ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
New York (continued)
New York State Dormitory Auth,
City Univ Rev Iss Ser U Unref Bal................... 6.375% 07-01-08 BBB+ $210 $219,458 6.10%
Concord Nursing Home Inc Rev ....................... 6.500 07-01-29 A1 500 526,825 6.17
Genessee Valley Presbyterian Nursing Center
FHA-Ins Mtg Rev Ser 1992B ......................... 6.850 08-01-16 AA 245 255,165 6.58
KMH Homes Inc FHA-Ins Mtg Rev Ser 1991 ............. 6.950 08-01-31 AA 1,200 1,244,244 6.70
Lease Rev State Univ Dorm Facil Ser A .............. 6.000 07-01-30 A 1,000 1,033,130 5.81
Miriam Osborn Mem Home Rev Ser B ................... 6.875 07-01-25 A 750 828,990 6.22
Nyack Hosp Rev Ser 1996 ............................ 6.250 07-01-13 Baa2 500 477,220 6.55
State Univ Ed Facil Rev Ser 1993A .................. 5.250 05-15-15 AAA 1,000 1,010,140 5.20
State Univ Ed Facil Rev Ser 1993A .................. 5.500 05-15-19 A 2,000 2,039,760 5.39
Univ of Rochester Rev Ser 1987 Unref Bal ........... 6.500 07-01-09 A+ 20 20,132 6.46
Univ of Rochester Rev Ser B ........................ 5.625 07-01-24 A+ 1,000 994,070 5.66
Univ of Rochester Ser 2000A, Step Coupon
(6.05%, 07-01-10) .................................. Zero 07-01-25 AAA 1,000 580,910 5.83
New York State Environmental Facil Corp,
State Wtr Poll Control Rev Rites-PA 174 ............ 7.397 06-15-11 AAA 500 650,000 5.69
State Wtr Poll Control Revolving Fund Rev Ser 1991E
Unref Bal ......................................... 6.875 06-15-10 AAA 40 41,502 6.63
New York State Housing Finance Agency,
Ins Multi-Family Mtg Hsg 1992 Ser C ................ 6.450 08-15-14 AAA 500 514,340 6.27
Ins Multi-Family Mtg Hsg 1994 Ser B ................ 6.250 08-15-14 AAA 735 760,387 6.04
Ins Multi-Family Mtg Hsg 1994 Ser C ................ 6.450 08-15-14 Aa1 1,000 1,042,790 6.19
New York State Medical Care Facilities Finance Agency,
Hosp & Nursing Home Ins Mtg Rev 1992 Ser B Preref .. 6.950 02-15-32 AA 170 179,561 6.58
Hosp & Nursing Home Ins Mtg Rev 1992 Ser B Unref Bal 6.950 02-15-32 AA 830 876,679 6.58
Mental Hlth Serv Facil Imp Rev 1990 Ser B Unref Bal 7.875 08-15-20 AAA 60 61,370 7.70
Mental Hlth Serv Facil Imp Rev 1991 Ser A Unref Bal 7.750 08-15-11 A3 20 20,660 7.50
Mental Hlth Serv Facil Imp Rev 1991 Ser B Preref ... 7.625 08-15-17 A 80 83,735 7.28
Mental Hlth Serv Facil Imp Rev 1991 Ser B Unref Bal 7.625 08-15-17 A 165 173,295 7.26
Mental Hlth Serv Facil Imp Rev 1991 Ser C Unref Bal 7.300 02-15-21 A 35 36,529 6.99
Rev Mental Hlth 1994 Ser E Unref Bal ............... 6.250 08-15-19 AAA 30 31,470 5.96
New York State Mortgage Agency,
Homeowner Mtg Rev Ser 27 ........................... 6.900 04-01-15 Aa2 1,175 1,230,801 6.59
Homeowner Mtg Rev Ser 28 ........................... 7.050 10-01-23 Aa2 500 515,370 6.84
Homeowner Mtg Rev Ser 57 ........................... 6.300 10-01-17 Aa2 500 523,385 6.02
Homeowner Mtg Rev Ser EE-4 ......................... 7.800 10-01-13 Aa2 300 306,270 7.64
New York State Power Auth,
Gen Purpose Ser W .................................. 6.500 01-01-08 AAA 250 274,175 5.93
New York State Urban Development Corp,
Correctional Cap Facil Proj Rev Ser 7 .............. 5.700 01-01-16 A- 400 406,004 5.62
Correctional Facil Serv Contract Rev Ser 1998A ..... 5.000 01-01-28 AAA 1,000 915,150 5.46
New York, City of,
GO Fiscal 1991 Ser B ............................... 8.250 06-01-07 A- 200 239,526 6.89
GO Fiscal 1991 Ser D Preref ........................ 8.000 08-01-04 A- 245 256,765 7.63
GO Fiscal 1991 Ser D Unref Bal ..................... 8.000 08-01-04 A- 5 5,223 7.66
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 (cont.),
GO Fiscal 1991 Ser F Preref ........................ 8.200 11-15-03 AAA 230 243,883 7.73
GO Fiscal 1991 Ser F Unref Bal ..................... 8.200% 11-15-03 A- $20 $21,119 7.77%
GO Fiscal 1992 Ser A Preref ........................ 7.750 08-15-12 A- 5 5,235 7.40
GO Fiscal 1992 Ser B Preref ........................ 7.000 10-01-13 A- 10 10,673 6.56
GO Fiscal 1992 Ser C Preref ........................ 7.500 08-01-21 A- 20 21,456 6.99
GO Fiscal 1992 Ser H Unref Bal ..................... 7.000 02-01-22 A- 25 26,149 6.69
New York, State of,
GO Environmental Quality Fiscal 1994 ............... 6.500 12-01-14 A+ 1,000 1,098,770 5.92
Port Auth of New York and New Jersey,
Spec Proj KIAC Partners Proj Ser 4 ................. 6.750 10-01-19 BBB 2,000 2,023,780 6.67
Triborough Bridge & Tunnel Auth,
Gen Purpose Rev Ser 1993 ........................... Zero 01-01-21 AAA 1,500 483,150 5.65
Gen Purpose Rev Ref Ser 1997A ...................... 5.250 01-01-28 A+ 650 614,829 5.55
Gen Purpose Rev Ser 1999B .......................... 5.375 01-01-19 A+ 2,000 1,975,740 5.44
Spec Oblig Ref Ser 1991B ........................... 6.875 01-01-15 A- 500 513,870 6.69
----------
43,952,116
----------
Puerto Rico (11.01%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico ....................... 7.370 07-01-11 AAA 2,000 2,435,000 6.05
Puerto Rico Highway & Transportation Auth,
Trans Rev Ser B .................................... 6.000 07-01-26 A 1,000 1,034,650 5.80
Puerto Rico Public Building Auth,
Rev Gtd Govt Facil Ser A ........................... 6.250 07-01-12 AAA 1,110 1,259,306 5.51
Puerto Rico, Commonwealth of,
GO Cap Apprec Ref Pub Imp Ser 1998 ................. Zero 07-01-14 A 2,000 980,500 5.22
----------
5,709,456
----------
Virgin Islands (2.91%)
Virgin Islands Pub Fin Auth Rev,
Rcpts Taxes Ln Ser A ............................... 6.500 10-01-24 BBB- 535 554,201 6.27
Virgin Islands Public Finance Auth,
Rev Sub Lien Fund Ln Notes Ser 1998E ............... 5.875 10-01-18 BB+ 1,000 955,490 6.15
----------
1,509,691
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $49,124,227) (98.71%) 51,171,263
------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.29%) 668,632
------- ----------
TOTAL NET ASSETS (100.00%) $51,839,895
======== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
NOTES TO SCHEDULE OF INVESTMENTS
* Credit ratings are unaudited and rated by Standard & Poor's where available,
or Moody's Investors Service, Fitch or John Hancock Advisers, Inc. where
Standard & Poor's ratings are not available.
** This security having an aggregate value of $1,040,150 or 2.01% of the Fund's
net asset value, has been purchased as a forward commitment - that is, the Fund
has agreed on trade date to take delivery of and to make payment for this
security on a delayed basis subsequent to the date of this schedule. The
purchase price and interest rate of such security is fixed at trade date,
although the Fund does not earn any interest on such security until settlement
date. The Fund has instructed its Custodian Bank to segregate assets with a
current value at least equal to the amount of the forward commitment.
Accordingly, the market value of $1,066,900 of Triborough Bridge & Tunnel Auth,
5.375%, 01-01-19, has been segregated to cover the forward commitment.
+ The yield is not calculated in accordance with guidelines established by The
U.S. Securities & Exchange Commission and is unaudited. Zero coupon yields are
at yield to maturity.
# Represents rate in effect on August 31, 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.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - New York Tax-Free Income Fund
Portfolio Concentration (Unaudited)
--------------------------------------------------------------------------------
The New York Tax-Free Income Fund invests primarily in securities issued by the
state of New York and its various political subdivisions. The performance of the
Fund is closely tied to the economic conditions within the state and the
financial condition of the state and its agencies and municipalities. The
concentration of investments by states and credit ratings for individual
securities held by the Fund are shown in the schedule of investments. In
addition, the concentration of investments can be aggregated by various sector
categories.
The table below shows the Fund's investments at August 31, 2000, assigned to the
various sector categories. MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
------------------- ---------------
General Obligation ............................................ 8.04%
Revenue Bonds - Authority ..................................... 4.93
Revenue Bonds - Building ...................................... 1.77
Revenue Bonds - Combined ...................................... 6.79
Revenue Bonds - Education ..................................... 14.38
Revenue Bonds - Electric ...................................... 6.66
Revenue Bonds - Environment ................................... 1.25
Revenue Bonds - General Purpose ............................... 5.00
Revenue Bonds - Health ........................................ 8.23
Revenue Bonds - Highway ....................................... 4.00
Revenue Bonds - Housing ....................................... 13.50
Revenue Bonds - Industrial Development ........................ 2.75
Revenue Bonds - Industrial Revenue ............................ 1.02
Revenue Bonds - Other ......................................... 3.81
Revenue Bonds - Transportation ................................ 9.93
Revenue Bonds - Various Purpose ............................... 1.95
Revenue Bonds - Water & Sewer ................................. 4.70
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 98.71%
==========
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - New York Tax-Free Income Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock New York Tax-Free Income Fund (the "Fund") is a diversified series
of John Hancock Tax-Exempt Series Fund (the "Trust"), an open-end management
investment company registered under the Investment Company Act of 1940. 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $763,997 of a capital loss
carryforward available to the extent provided by regulations, to offset future
net realized capital gains. To the extent that such carryforwards are used by
the Fund, no capital gain distributions will be made. The entire amount of the
loss carryforward expires August 31, 2008. Additionally, net capital losses of
$142,510 attributable to security transactions occurring after October 31, 1999
are treated as arising on the first day (September 1, 2000) of the Fund's next
taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the amount paid
in excess of par value on securities purchased from either the date of purchase
or date of issue to date of sale, maturity or to next call date, if applicable.
The Fund accretes original issue discount from par value on securities purchased
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code. The Fund records market
discount on bonds purchased after April 30, 1993 at time of disposition.
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - New York 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
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 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 an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowings. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the year ended August 31, 2000.
OPTIONS The Fund may purchase or sell option contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Over-the-counter options 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 option 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.
Risks may also arise if counterparties do not perform under the
contract's terms ("credit risk"), or if the Fund is unable to offset a contract
with a counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties to each
transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter option
contracts, the Fund will continuously monitor the creditworthiness of all its
counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's year-end
Statement of Assets and Liabilities.
At August 31, 2000, there were no written option transactions.
NOTE B -
MANAGEMENT FEE AND TRANSACTION
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.
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - New York Tax-Free Income Fund
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 year ended August 31,
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
$156,359. This limitation may not be discontinued until December 31, 2000.
The Fund has an agreement with its custodian bank under which $33,258
of custodian fees have been reduced by balance credits applied during the year
ended August 31, 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 year ended
August 31, 2000, net sales charges received with regard to sales of Class A
shares amounted to $22,309. Out of this amount, $2,100 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $4,314
was paid as sales commissions to unrelated broker-dealers and $15,895 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 year ended August 31, 2000,
the CDSCs amounted to $36,505.
Effective May 1, 2000, all Class C retail purchases are assessed a
1.00% up-front sales charge. For the year ended August 31, 2000, up-front sales
charges received with regard to sales of Class C shares amounted to $2,755. Out
of this amount, $2,735 was paid as sales commissions to unrelated broker-dealers
and $20 was paid as sales commissions to sales personnel of Signator Investors.
Class C shares which are redeemed within one year of purchase will be subject to
a CDSC at a rate of 1.00% of the lesser of the current market value at the time
of redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of Class C shares. For the year ended August
31, 2000, the CDSCs 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 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 and Mr. Richard S. Scipione
are directors and/or officers of the Adviser and/or its affiliates, as well as
Trusteesof the Fund. The compensation of unaffiliated Trustees is
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - New York Tax-Free Income Fund
borne by the Fund. The unaffiliated Trustees may elect to defer, for tax
purposes, their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. The investment had no impact on the operations
of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the year
ended August 31, 2000, aggregated $32,998,093 and $39,271,303, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended August 31, 2000.
The cost of investments owned at August 31, 2000 for federal income tax
purposes was $49,124,227. Gross unrealized appreciation and depreciation of
investments aggregated $2,233,362 and $186,326, respectively, resulting in net
unrealized appreciation of $2,047,036.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended August 31, 2000, the Fund has reclassified amounts to
reflect an increase in accumulated net realized loss on investments of $7,752,
an increase in undistributed net investment income of $1,430 and an increase in
capital paid-in of $6,322. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of August
31, 2000. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
22
<PAGE>
================================================================================
John Hancock Funds - New York Tax-Free Income Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of
Trustees of John Hancock New York Tax-Free Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments (except for Moody's and Standard & Poor's ratings
and yields at market), and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the John Hancock New York Tax-Free Income
Fund (the "Fund") at August 31, 2000, the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at August 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
-----------------------------
Boston, Massachusetts
October 6, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended August 31,
2000.
None of the 2000 income dividends qualify for the corporate dividends
received deduction. Shareholders who are not subject to the alternative minimum
tax earned income dividends which are 99.56% tax-exempt. The percentage of
income dividends from the Fund subject to the alternative minimum tax is 10.27%.
None of the income dividends were derived from U.S. Treasury Bills.
For specific information on exception provisions in your state, consult
your local state tax office or your tax advisor.
Shareholders will receive a 2000 U.S. Treasury Department Form 1099-DIV
in January 2001. This will reflect the total of all distributions which are
taxable for calendar year 2000.
23
<PAGE>
================================================================================
[LOGO] John Hancock --------------------
Bulk Rate
John Hancock Funds, Inc. U.S. Postage
Member NASD PAID
101 Huntington Avenue Randolph, MA
Boston, MA 02199-7603 Permit No. 75
--------------------
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
--------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
New York Tax-Free Income Fund. It may be used as sales literature when preceded
or accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[LOGO] Printed on Recycled Paper 7600A 8/00
10/00
<PAGE>
---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Massachusetts
Tax-Free
Income Fund
AUGUST 31, 2000
[LOGO] John Hancock
------------------
JOHN HANCOCK FUNDS
<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
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, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
PricewaterhouseCoopers llp
160 Federal Street
Boston, Massachusetts 02110
----------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years, the
financial markets have brought investors back down to earth in 2000. Volatility
ruled during the spring, as rising interest rates and prospects of a slowing
economy finally caught up to pricey growth stocks. As a result, the tech-heavy
NASDAQ Composite Index advanced by only 3.37% through the end of August, while
the Dow Jones Industrial Average lost 1.46% and the Standard & Poor's 500 Index
was up 4.12%.
--------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President and Chief
Executive Officer, flush right next to second paragraph.]
--------------------------------------------------------------------------------
But there is a silver lining. Investors have finally turned their attention to
broader swaths of the market, including both blue chip and old economy stocks in
sectors like financials, health care and energy, that combined both strong
fundamentals and less frothy valuation levels. As for bonds, rising interest
rates have kept the broader bond market in flux, but pockets of strength have
emerged there, as well, including municipal bonds and longer-maturity Treasury
bonds. The 30-year bond, for instance, has returned 14.28% since January.
Between now and year end, we expect the market's focus to be on Washington, as
it usually is in an election year. While the presidential election is important,
what warrants more attention is the Federal Reserve Board. The November election
will generate more ink, but won't have anywhere near the impact on financial
markets that further Fed action could. So we'll be watching the economic data to
see whether the Fed has truly wound down its string of interest-rate hikes.
The market's shifts in leadership so far this year highlight one of the key
investment tenets that we can't emphasize enough: investing should be a
marathon, not a sprint. If your portfolio is diversified and you have an
up-to-date financial plan crafted with an investment professional to meet your
goals, it becomes easier to ride out the market's short-term ups and downs. It
could also provide you with a greater chance of success over time.
Sincerely,
/s/Maureen R. Ford
------------------
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Dianne Sales, CFA, Barry H. Evans, CFA, and
Frank A. Lucibella, CFA, Portfolio Managers
John Hancock
Massachusetts Tax-Free
Income Fund
Municipal bonds rebound as economy slows
----------------------------------------
Fixed-income markets, including municipal bonds, struggled last fall and winter,
as the Federal Reserve attempted to put the brakes on inflationary pressures and
a robust economy by raising interest rates. Municipal bonds also suffered as
investor demand flagged. Beginning in May, however, economic indicators began to
soften - and the tide started to turn for municipal bonds. Hopes that the Fed's
tightening cycle was nearing an end fueled a rally in bonds, and municipals
rebounded as investor worries about inflation pressures eased.
Municipal performance was also boosted by the increasingly favorable
supply/demand situation. With state and local governments issuing, on average,
about 20% less debt this year, supply wasn't able to keep pace with the demand
surge that occurred as the market rallied. This phenomenon drove prices higher
in the municipal market.
Despite their recent turnaround, however, municipal bonds weren't able
to keep pace with their taxable counterparts. A shrinking supply of 30-year
Treasuries drove prices up and yields down on the long end of the yield curve,
while interest rates rose at the short end. The end result was a rare inversion
of the yield curve - that is, short-term bonds paid higher yields than long-term
bonds. Against this backdrop, municipal performance lagged, causing the
Treasury-
--------------------------------------------------------------------------------
[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 performance was also boosted by the increasingly favorable
supply/demand situation."
3
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
"...we have recently begun to increase the Fund's interest-rate sensitivity."
--------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into ten sections (from top to left): Housing 5%, Highway 5%,
Electric 6%, Industrial Revenue 7%, General Obligation 7%, Water & Sewer 8%,
Health 12%, Transportation 15%, Other 17% and Education 18%. A note below the
chart reads "As a percentage of net assets on August 31, 2000."]
--------------------------------------------------------------------------------
to-municipal yield ratio to reach some of the cheapest levels in the past
decade. Municipal performance suffered as crossover buyers exited the
tax-exempts to seek the improved returns available in long Treasuries.
A look at performance
Although municipal bonds didn't fare as well as their taxable counterparts, they
still posted solid returns for the period. For the year ended August 31, 2000,
John Hancock Massachusetts Tax-Free Income Fund's Class A, Class B and Class C
shares returned 5.16%, 4.43% and 4.43%, respectively, at net asset value. By
comparison, the average Massachusetts municipal bond fund returned 5.15% 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 you were not invested in
the Fund for the entire period and did not reinvest all
--------------------------------------------------------------------------------
[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 "Reimbursement reductions, HMO
difficulties." The second listing is Top-tier credits (AA or better) followed by
an up arrow with the phrase "Investors sought quality over yield." The third
listing is Call-protected bonds followed by an up arrow with the phrase
"Decreased availability boosts value." A note below the table reads "See
`Schedule of Investments.' Investment holdings are subject to change."]
--------------------------------------------------------------------------------
distributions. Please see pages six and seven for historical performance
information.
While the Fund turned in respectable returns for the year, a couple of
things held performance back. In anticipation of further interest-rate
increases, we kept the Fund positioned relatively defensively with a shorter
duration. Duration measures the Fund's sensitivity to interest-rate changes. The
shorter the duration, the less the Fund's net asset value will fluctuate with
interest-rate changes. While the shorter duration definitely helped to protect
the Fund early in the period when rates were rising, it held back our
performance when munis rebounded this spring. In addition, we had a sizeable
position in lower-quality credits, which underperformed during the period. As
interest rates rose in the past year, many investors deserted lower-grade bonds
for higher credit quality, resulting in widening credit spreads. As a result,
lower-rated bonds lagged and our position in this arena hampered performance.
Responding to market dynamics
With market dynamics shifting throughout the period, we responded by shifting
the portfolio strategy. As we discussed above, we decreased the Fund's
interest-rate sensitivity by shortening our duration early in the period when
interest rates were climbing. While in hindsight we waited too long to lengthen
duration, we have recently begun to increase the Fund's interest-rate
sensitivity. Evidence of a slowing economy is gradually building, and we believe
the Fed is at or near the end of the tightening cycle. With this outlook, there
is substantial upside potential in the municipal market, and an increased
sensitivity to rate changes will prepare the Fund to take advantage of this
change.
While our lower-quality holdings did detract somewhat from our total
return performance
4
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
--------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended August 31, 2000." The chart is
scaled in increments of 1% with 0% at the bottom and 6% at the top. The first
bar represents the 5.16% total return for John Hancock Massachusetts Tax-Free
Income Fund Class A. The second bar represents the 4.43% total return for John
Hancock Massachusetts Tax-Free Income Fund Class B. The third bar represents the
4.43% total return for John Hancock Massachusetts Tax-Free Income Fund Class C.
The fourth bar represents the 5.15% 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."]
--------------------------------------------------------------------------------
this year, we plan on maintaining our stake in these names. This sector has
provided an important source of both total return and interest income to the
Fund. Once interest rates decline again, we expect this sector to return to its
position as a major contributor to performance.
Finally, as we've discussed in past reports, we've continued to focus
on adding more call protection to the Fund. Call protection guards against a
bond being redeemed by its issuer for a certain period of time. Good call
protection is especially important in periods 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, investors are forced to reinvest
their money in bonds with lower yields. With the economy slowing, we believe
that interest rates are at some point likely to resume their decline. When that
happens, the Fund's strong call protection will serve to protect shareholders'
coupon payment stream.
Massachusetts market
Looking ahead, we're likely to see bond issuance increase in Massachusetts
toward the latter part of the year. Much of this spending will be at the state
level, with major transportation projects like the Central Artery Project and
the widening of Route 3 leading the pack. However, much of this debt will be
issued as revenue bonds, thus protecting the state's general obligation rating.
This will also add some new "names" to the Massachusetts market. Though the
influx of supply may put some temporary pressure on the Massachusetts market, it
should be looked at as a buying opportunity to add attractive credits rather
than as a long-term negative.
A look ahead
Evidence is mounting that the U.S. economy is beginning to slow. Clearly the
Federal Reserve is aiming for a soft landing, a strategy that has been
successfully implemented in recent years. However, after six rate increases, the
Fed is likely approaching the tail end of this cycle. This should bode well for
bonds over the next six to 12 months. We have always felt that the latter part
of 2000 would bring an improved scenario for bonds. Indeed, the recent
volatility in the equity markets has led many investors to reconsider their
asset allocation and to increase their bond holdings in order to add more
stability to their portfolios.
--------------------------------------------------------------------------------
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're likely to see bond issuance increase in Massachusetts..."
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 an up-front 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 an up-front sales charge of 1% and a contingent deferred
sales charge (1% declining to 0% after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Please read your prospectus carefully before you invest or send money. Please
note that a portion of the Fund's income may be subject to taxes, and some
investors may be subject to the Alternative Minimum Tax (AMT). Also note that
capital gains are taxable.
--------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------
For the period ended June 30, 2000
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (3.48%) 24.45% 83.92%
Average Annual Total Returns(1) (3.48%) 4.47% 6.28%
--------------------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------------------
For the period ended June 30, 2000
SINCE
ONE INCEPTION
YEAR (10/3/96)
------- --------
Cumulative Total Returns (4.42%) 13.64%
Average Annual Total Returns(1) (4.42%) 3.48%
--------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------
For the period ended June 30, 2000
SINCE
ONE INCEPTION
YEAR (4/1/99)
-------- --------
Cumulative Total Returns (1.60%) (2.61%)
Average Annual Total Returns(1) (1.60%) (2.10%)
--------------------------------------------------------------------------------
YIELDS
--------------------------------------------------------------------------------
As of August 31, 2000
SEC 30-DAY
YIELD
--------
John Hancock Massachusetts Tax-Free Income Fund: Class A(1) 4.70%
John Hancock Massachusetts Tax-Free Income Fund: Class B(1) 4.22%
John Hancock Massachusetts Tax-Free Income Fund: Class C(1) 4.18%
Note 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 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 (3.78%), 4.10% and 5.64%,
respectively. The average annual total return for the one-year period
and since inception for Class B shares would have been (4.72%) and
3.12%, respectively. The average annual total return for the one-year
period and since inception for Class C shares would have been (1.90%)
and (2.40%), respectively. Without the reductions of expenses, the
yield for Class A, Class B and Class C shares would have been 4.38%,
3.90% and 3.86%, respectively.
6
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
--------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
--------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Massachusetts Tax-Free Income Fund would be worth, assuming all distributions
were reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Lehman Brothers Municipal Bond Index - an unmanaged
index that includes approximately 15,000 bonds and is commonly used as a measure
of bond performance. 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 $20,375 as of August
31, 2000. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Massachusetts Tax-Free Income Fund on
September 31, 1990, before sales charge, and is equal to $20,005 as of August
31, 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 $19,104 as of August 31, 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 $12,561 as of August
31, 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 $11,982 as of August 31,
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 $11,682 as of August 31, 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 $10,443 as of August
31, 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 $10,114 as of August 31, 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 $10,013 as of August 31, 2000.
*No contingent deferred sales charge applicable.
-------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on August 31, 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
August 31, 2000
--------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $71,060,476)................ $72,048,622
Joint repurchase agreement (cost - $2,288,000) ................ 2,288,000
------------
74,336,622
Cash ........................................................... 134
Receivable for shares sold ..................................... 10,996
Interest receivable ............................................ 1,046,462
Other assets ................................................... 5,315
------------
Total Assets ............................. 75,399,529
-------------------------------------------------------
Liabilities:
Dividend payable ............................................... 4,573
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ....................................... 23,720
Accounts payable and accrued expenses .......................... 44,306
------------
Total Liabilities ........................ 72,599
-------------------------------------------------------
Net Assets:
Capital paid-in ................................................ 74,732,603
Accumulated net realized loss on investments and
financial futures contracts ................................... (400,679)
Net unrealized appreciation of investments ..................... 988,146
Undistributed net investment income ............................ 6,860
------------
Net Assets ............................... $75,326,930
=======================================================
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 - $60,179,519/5,101,466 ................................ $11.80
=============================================================================
Class B - $14,215,304/1,205,043 ................................ $11.80
=============================================================================
Class C - $932,107/79,015 ...................................... $11.80
=============================================================================
Maximum Offering Price Per Share
Class A* - ($11.80/0.955) ...................................... $12.36
=============================================================================
Class C - ($11.80/0.99) ........................................ $11.92
=============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended August 31, 2000
--------------------------------------------------------------------------------
Investment Income:
Interest ....................................................... $4,398,169
------------
Expenses:
Investment management fee - Note B ............................ 348,651
Distribution and service fee - Note B
Class A ...................................................... 167,637
Class B ...................................................... 132,246
Class C ...................................................... 6,266
Transfer agent fee - Note B ................................... 71,723
Custodian fee ................................................. 55,541
Auditing fee .................................................. 21,764
Printing ...................................................... 15,669
Registration and filing fees .................................. 14,252
Accounting and legal services fee - Note B .................... 13,411
Miscellaneous ................................................. 4,969
Trustees' fees ................................................ 4,185
Legal fees .................................................... 1,172
Less: Management fee reduction - Note B ....................... (221,420)
------------
Total Expenses ........................... 636,066
-------------------------------------------------------
Less Expense Reductions -
Note B ................................... (4,249)
-------------------------------------------------------
Net Expenses ............................. 631,817
-------------------------------------------------------
Net Investment Income .................... 3,766,352
-------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold .......................... 15,080
Change in net unrealized appreciation/depreciation
of investments ................................................ (242,602)
------------
Net Realized and Unrealized
Loss on Investments ...................... (227,522)
-------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................ $3,538,830
=======================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1999 2000
------------------- --------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................................... $3,517,810 $3,766,352
Net realized gain (loss) on investments sold and financial futures contracts .... (124,454) 15,080
Change in net unrealized appreciation/depreciation of investments ............... (4,310,747) (242,602)
------------- ---------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................ (917,391) 3,538,830
------------- ---------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.6422 and $0.6404 per share, respectively) ........................ (3,064,390) (3,095,916)
Class B - ($0.5545 and $0.5595 per share, respectively) ........................ (452,344) (640,586)
Class C ** - ($0.2115 and $0.5592 per share, respectively) ..................... (1,076) (29,850)
------------- ---------------
Total Distributions to Shareholders ............................................ (3,517,810) (3,766,352)
------------- ---------------
From Fund Share Transactions - Net:* ............................................. 11,423,344 4,232,682
------------- ---------------
Net Assets:
Beginning of period ............................................................. 64,333,627 71,321,770
------------- ---------------
End of period (including undistributed net investment income
of $2,877 and $6,860, respectively) ............................................. $71,321,770 $75,326,930
============= ===============
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Statement of Changes in Net Assets (continued)
--------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
------------------------------------------------------------
1999 2000
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ......................................................... 718,299 $8,970,412 938,760 $10,779,775
Shares issued to shareholders in reinvestment of distributions ...... 170,062 2,084,619 177,146 2,043,098
---------- ------------- ----------- -------------
..................................................................... 888,361 11,055,031 1,115,906 12,822,873
Less shares repurchased ............................................. (592,309) (7,348,607) (923,589) (10,628,251)
---------- ------------- ----------- -------------
Net increase ........................................................ 296,052 $3,706,424 192,317 $2,194,622
========== ============= =========== =============
CLASS B
Shares sold ......................................................... 626,140 $7,828,428 293,396 $3,395,910
Shares issued to shareholders in reinvestment of distributions ...... 23,627 292,218 29,933 345,237
---------- ------------- ----------- -------------
..................................................................... 649,767 8,120,646 323,329 3,741,147
Less shares repurchased ............................................. (47,239) (585,739) (212,510) (2,446,642)
---------- ------------- ----------- -------------
Net increase ........................................................ 602,528 $7,534,907 110,819 $1,294,505
========== ============= =========== =============
CLASS C **
Shares sold ......................................................... 14,977 $181,866 66,039 $766,432
Shares issued to shareholders in reinvestment of distributions ...... 12 147 165 1,917
---------- ------------- ----------- -------------
..................................................................... 14,989 182,013 66,204 768,349
Less shares repurchased - - (2,178) (24,794)
---------- ------------- ----------- -------------
Net increase ........................................................ 14,989 $182,013 64,026 $743,555
========== ============= =========== =============
** Class C shares commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $11.76 $11.66 $12.12 $12.60 $11.85
-------- -------- -------- -------- --------
Net Investment Income ........................................... 0.65 0.66 0.66(1) 0.64(1) 0.64(1)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts .................................... (0.10) 0.46 0.48 (0.75) (0.05)
-------- -------- -------- -------- --------
Total from Investment Operations .............................. 0.55 1.12 1.14 (0.11) 0.59
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ........................... (0.65) (0.66) (0.66) (0.64) (0.64)
-------- -------- -------- -------- --------
Net Asset Value, End of Period .................................. $11.66 $12.12 $12.60 $11.85 $11.80
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (2) .................. 4.78% 9.85% 9.66% (0.96%) 5.16%
Total Adjusted Investment Return at Net Asset Value (2,3) ....... 4.30% 9.45% 9.27% (1.31%) 4.84%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $55,169 $54,253 $58,137 $58,177 $60,180
Ratio of Expenses to Average Net Assets (4) ..................... 0.75% 0.71% 0.71% 0.74% 0.78%
Ratio of Adjusted Expenses to Average Net Assets (5) ............ 1.18% 1.11% 1.10% 1.05% 1.09%
Ratio of Net Investment Income to Average Net Assets ............ 5.53% 5.59% 5.28% 5.16% 5.54%
Ratio of Adjusted Net Investment Income to Average Net Assets (5) 5.05% 5.19% 4.89% 4.81% 5.22%
Portfolio Turnover Rate ......................................... 36% 12% 6% 6% 19%
Expense and Fee Reduction Per Share ............................. $0.06 $0.05 $0.05(1) $0.04(1) $0.04(1)
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
PERIOD ENDED ---------------------------------------
AUGUST 31, 1997(6) 1998 1999 2000
------------------ ---------- ---------- ----------
<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(1) 0.55(1) 0.56(1)
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ..................................... 0.28 0.48 (0.75) (0.05)
---------- ---------- ---------- ----------
Total from Investment Operations ................................ 0.82 1.05 (0.20) 0.51
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ............................ (0.54) (0.57) (0.55) (0.56)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ................................... $12.12 $12.60 $11.85 $11.80
========== ========== ========== ==========
Total Investment Return at Net Asset Value (2) ................... 7.08%(7) 8.89% (1.66%) 4.43%
Total Adjusted Investment Return at Net Asset Value (2,3) ........ 6.72%(7) 8.50% (2.01%) 4.11%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......................... $2,418 $6,197 $12,967 $14,215
Ratio of Expenses to Average Net Assets (4) ...................... 1.41%(8) 1.41% 1.44% 1.48%
Ratio of Adjusted Expenses to Average Net Assets (5) ............. 1.81%(8) 1.80% 1.75% 1.79%
Ratio of Net Investment Income to Average Net Assets ............. 4.82%(8) 4.58% 4.46% 4.84%
Ratio of Adjusted Net Investment Income to Average Net Assets (5) 4.42%(8) 4.19% 4.11% 4.52%
Portfolio Turnover Rate .......................................... 12% 6% 6% 19%
Expense and Fee Reduction Per Share .............................. $0.04 $0.05(1) $0.04(1) $0.04(1)
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Financial Highlights (continued)
--------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED
AUGUST 31, 1999(6) AUGUST 31, 2000
------------------ ---------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................ $12.46 $11.85
-------- --------
Net Investment Income (1) ....................................................... 0.21 0.56
Net Realized and Unrealized Loss on Investments and
Financial Futures Contracts .................................................... (0.61) (0.05)
-------- --------
Total from Investment Operations .............................................. (0.40) 0.51
-------- --------
Less Distributions:
Dividends from Net Investment Income ............................................ (0.21) (0.56)
-------- --------
Net Asset Value, End of Period .................................................. $11.85 $11.80
======== ========
Total Investment Return at Net Asset Value (2) .................................. (3.23%)(7) 4.43%
Total Adjusted Investment Return at Net Asset Value (2,3) ....................... (3.38%)(7) 4.11%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................................ $178 $932
Ratio of Expenses to Average Net Assets (4) ..................................... 1.44%(8) 1.48%
Ratio of Adjusted Expenses to Average Net Assets (5) ............................ 1.75%(8) 1.79%
Ratio of Net Investment Income to Average Net Assets ............................ 4.30%(8) 4.84%
Ratio of Adjusted Net Investment Income to Average Net Assets (5) ............... 3.95%(8) 4.52%
Portfolio Turnover Rate ......................................................... 6% 19%
Expense and Fee Reduction Per Share (1) ......................................... $0.02 $0.04
(1) Based on the average of the shares outstanding at the end of each month.
(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 or years 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 or years ending from August 31, 1996 to August 31, 1999.
For the year ended August 31, 2000, the Ratio of Expenses to Average Net Assets
was 0.77% for Class A and 1.47% for Class B and Class C.
(5) Unreimbursed, without fee reduction.
(6) Class B and Class C shares began operations on October 3, 1996 and April 1, 1999,
respectively.
(7) Not annualized.
(8) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Schedule of Investments
August 31, 2000
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Massachusetts Tax-Free Income Fund on August 31, 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 (88.06%)
Boston City Industrial Development Financing Auth,
Sewage Facil Rev 1991 Ser Harbor Elec Energy Co Proj 7.375% 05-15-15 BBB $250 $256,927 7.18%
Boston Water and Sewer Commission,
Gen Rev 1991 Sr Ser A .............................. 7.000 11-01-18 AAA 500 524,990 6.67
Gen Rev 1992 Sr Ser A .............................. 5.750 11-01-13 A+ 500 532,330 5.40
Brockton, City of,
State Qualified Municipal Purpose Ln of 1993 ....... 6.125 06-15-18 A 2,000 2,054,340 5.96
Holyoke, City of,
GO School Proj Ln Act of 1948 ...................... 7.650 08-01-09 AA 1,000 1,049,040 7.29
Massachusetts Bay Transportation Auth,
Gen Trans Rev Ser 1997D MBIA IBC ................... 5.000 03-01-27 AAA 1,000 916,100 5.46
Gen Trans Sys Rev Ref Ser 1994A .................... 7.000 03-01-14 AA 1,000 1,179,520 5.93
Gen Trans Sys Rev Ser 1997D ........................ 5.000 03-01-22 AA 2,250 2,082,465 5.40
Rev Assessment Ser 2000A ........................... 5.250 07-01-30 AAA 2,000 1,898,900 5.53
Massachusetts Development Finance Agency,
Concord-Assabet Family Servs Rev Ref ............... 6.000 11-01-28 Ba2 1,000 791,610 7.58
Rev Boston Univ Ser 1999P .......................... 5.450 05-15-59 BBB+ 2,000 1,844,380 5.91
Rev Lasell Village Proj Ser 1998A .................. 6.375 12-01-25 BBB- 1,000 862,280 7.39
Rev GNMA Coll VOA Concord Ser 2000A ................ 6.900 10-20-41 AAA 1,000 1,100,320 6.27
Rev YMCA Greater Boston Iss ........................ 5.450 11-01-28 BBB+ 1,000 899,870 6.06
Massachusetts Educational Financing Auth,
Ed Ln Rev Iss D Ser 1991A .......................... 7.250 01-01-09 AAA 305 313,137 7.06
Massachusetts Health and Educational Facilities Auth,
Rev Anna Jaques Hosp Iss Ser B ..................... 6.875 10-01-12 Ba1 50 50,233 6.84
Rev Bentley College Iss Ser H ...................... 6.875 07-01-12 AAA 250 260,168 6.61
Rev Boston College Iss Ser J Preref ................ 6.625 07-01-21 AAA 965 1,001,805 6.38
Rev Boston College Iss Ser J Unref Bal ............. 6.625 07-01-21 AAA 35 36,307 6.39
Rev Charlton Memorial Hosp Iss Ser B ............... 7.250 07-01-13 A 2,250 2,345,108 6.96
Rev Community Colleges Prog Iss Ser A .............. 6.600 10-01-22 AAA 250 265,957 6.20
Rev Dana-Farber Cancer Institute Ser G-1 ........... 6.250 12-01-22 A 500 501,095 6.24
Rev Harvard Univ Iss Ser W ......................... 6.000 07-01-35 AAA 1,000 1,059,840 5.66
Rev Lowell Gen Hosp Iss Ser A ...................... 8.400 06-01-11 A3 600 629,040 8.01
Rev Melrose-Wakefield Hosp Iss Ser B ............... 6.350 07-01-06 AAA 500 524,830 6.05
Rev New England Baptist Hosp Iss Ser B ............. 7.350 07-01-17 AAA 250 261,087 7.04
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
Educational Facilities Auth (cont.),
Rev Northeastern Univ Iss Ser E .................... 6.550% 10-01-22 AAA $1,000 $1,053,390 6.22%
Rev Ref Boston College Iss Ser L ................... 4.750 06-01-31 AA- 1,000 856,180 5.55
Rev Ref Brandeis Univ Iss Ser J .................... 5.000 10-01-26 Aaa 1,000 916,900 5.45
Rev Ref Harvard Pilgrim Health Ser A ............... 5.000 07-01-18 AAA 1,000 911,750 5.48
Rev Ref Worcester Polytechnic Institute Iss Ser E .. 6.625 09-01-17 AAA 250 265,320 6.24
Rev Simmons College Ser 2000D ...................... 6.150 10-01-29 AAA 1,000 1,059,570 5.80
Rev South Shore Hosp Ser F ......................... 5.750 07-01-29 A 1,000 903,960 6.36
Rev St Luke's Hosp ................................. 6.950 08-15-23 AAA 500 498,125 6.98
Rev Wheelock College Ser 2000B ..................... 5.625 10-01-30 Aaa 1,000 1,000,330 5.62
Massachusetts Housing Finance Agency,
Rev Insured Rental Hsg 1994 Ser A .................. 6.600 07-01-14 AAA 960 1,000,819 6.33
Rev Residential Devel FNMA Coll Ser C .............. 6.875 11-15-11 AAA 2,000 2,097,480 6.56
Rev Residential Devel FNMA Coll Ser D .............. 6.800 11-15-12 AAA 500 522,535 6.51
Massachusetts Industrial Finance Agency,
Assisted Living Facil Rev Newton Group
Properties LLC Proj ............................... 8.000 09-01-27 BB 1,000 1,042,950 7.67
Assisted Living Facil Rev TNG Marina Bay LLC Proj .. 7.500 12-01-27 BB 1,000 998,670 7.51
Resource Recovery Rev Ref Ogden Haverhill Proj
Ser 1998A ......................................... 5.600 12-01-19 BBB 1,000 883,840 6.34
Resource Recovery Rev Ref Ser 1993A Refusetech Inc Proj 6.300 07-01-05 BBB+ 1,825 1,910,136 6.02
Rev Assumption College Iss 1996 .................... 6.000 07-01-26 AAA 1,000 1,032,670 5.81
Rev Dana Hall School Iss ........................... 5.800 07-01-17 BBB- 1,090 1,051,349 6.01
Rev Glenmeadow Retirement Community Ser C .......... 8.375 02-15-18 AA 1,000 1,189,790 7.04
Rev Ref Emerson College Iss Ser 1991A .............. 8.900 01-01-18 AA 250 258,615 8.60
Rev St John's High School .......................... 5.350 06-01-28 BBB+ 1,000 886,060 6.04
Rev Wtr Treatment American Hingham Proj ............ 6.900 12-01-29 BBB 1,310 1,347,728 6.71
Rev Wtr Treatment American Hingham Proj ............ 6.750 12-01-20 BBB 2,000 2,045,300 6.60
Massachusetts Municipal Wholesale Electric Co,
Pwr Supply Sys Rev 1992 Ser B ...................... 6.750 07-01-05 BBB+ 500 523,875 6.44
Pwr Supply Sys Rev 1992 Ser B ...................... 6.750 07-01-06 BBB+ 1,500 1,571,625 6.44
Pwr Supply Sys Rev 1992 Ser B ...................... 6.750 07-01-17 BBB+ 400 414,516 6.51
Pwr Supply Sys Rev 1992 Ser C ...................... 6.625 07-01-10 AAA 1,000 1,053,900 6.29
Pwr Supply Sys Rev 1993 Reg Inverse Floater ........ 6.270 07-01-18 AAA 1,300 1,241,500 6.57
Massachusetts Port Auth,
Rev Ref Ser 1992A .................................. 6.000 07-01-23 AA- 1,370 1,391,071 5.91
Rev Ser 1999C ...................................... 5.750 07-01-29 AA- 1,250 1,267,388 5.67
Rev Special Facil Ser A USAir Proj ................. 5.750 09-01-16 AAA 1,000 1,014,710 5.67
Massachusetts Turnpike Auth,
Metro Highway Sys Rev Sr Lien Cap Apprec Ser 1997C . Zero 01-01-20 AAA 1,000 341,190 5.64
Massachusetts Water Pollution Abatement Trust,
Wtr Poll Abatement Rev Ref Sub New Bedford Prog Ser A 4.750 02-01-26 Aaa 1,000 875,780 5.42
Massachusetts Water Resource Auth,
Gen Rev Ref 1993 Ser B ............................. 5.500 03-01-17 A+ 400 400,156 5.50
Gen Rev Ref 1993 Ser B ............................. 5.000 03-01-22 A+ 360 329,411 5.46
Gen Rev Ref 1993 Ser C ............................. 4.750 12-01-23 A+ 1,000 873,710 5.44
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, Commonwealth of,
GO Consol Ln Ser 1998C ............................. Zero 08-01-18 AA- $1,000 $369,810 5.63%
Nantucket, Town of,
GO Municipal Purpose Ln of 1991 .................... 6.800% 12-01-11 AAA 450 472,041 6.48
Narragansett Regional School District,
GO Unltd ........................................... 5.375 06-01-18 Aaa 1,000 995,950 5.40
Plymouth, County of,
Cert of Part Correctional Facil Proj ............... 5.000 04-01-22 AAA 1,000 919,470 5.44
Rail Connections, Inc.,
Rev Cap Apprec Rte 128 Pkg Ser 1999B ............... Zero 07-01-18 BBB- 1,750 560,438 6.48
Rev Cap Apprec Rte 128 Pkg Ser 1999B ............... Zero 07-01-19 BBB- 2,415 722,858 6.50
Route 3 North Transit Improvement Associates,
Lease Rev .......................................... 5.375 06-15-29 AAA 3,600 3,484,512 5.55
Springfield, City of,
GO School Proj Ln Act of 1992 Ser B ................ 7.100 09-01-11 AA 500 535,045 6.63
----------
66,334,102
----------
Puerto Rico (7.59%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth
of Puerto Rico .................................... 7.370 07-01-11 AAA 2,000 2,435,000 6.05
Puerto Rico Highway and Transportation Auth,
Highway Rev Cap Rites Ser Y ........................ 6.250 07-01-14 A 1,000 1,120,460 5.58
Puerto Rico Public Buildings Auth,
Rev Gtd Govt Facils Ser 1997B ...................... 5.000 07-01-27 AAA 1,000 941,560 5.31
Puerto Rico, Commonwealth of,
GO Pub Imp Inverse Rate Securities Ser 1996 ........ 7.216# 07-01-11 AAA 1,000 1,217,500 5.93
----------
5,714,520
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $71,060,476) (95.65%) 72,048,622
------- -----------
ISSUER, DESCRIPTION
-------------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.04%)
Investment in a joint repurchase agreement transaction with
UBS Warburg, Inc. - Dated 08-31-00, due 09-01-00
(Secured by U.S. Treasury Bonds, 7.250% thru 9.250%,
due 02-15-16 thru 02-15-19) - Note A............... 6.610 2,288 2,288,000
-----------
TOTAL SHORT-TERM INVESTMENTS (3.04%) 2,288,000
------- -----------
TOTAL INVESTMENTS (98.69%) 74,336,622
------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.31%) 990,308
------- -----------
TOTAL NET ASSETS (100.00%) $75,326,930
======== ===========
</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 August 31, 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.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Massachusetts Tax-Free Income Fund
Portfolio Concentration (Unaudited)
--------------------------------------------------------------------------------
The Massachusetts Tax-Free Income Fund invests primarily in securities issued in
the state of Massachusetts and its various political subdivisions. The
performance of this Fund is closely tied to the economic conditions within the
state and the financial condition of the state and its agencies and
municipalities. The concentration of investments by states and credit ratings
for individual securities held by the Fund are shown in the schedule of
investments. In addition, concentration of investments can be aggregated by
various categories.
The table below shows the Fund's investments at August 31, 2000, assigned to
various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
------------------- ---------------
General Obligation ........................................ 6.87%
Revenue Bonds - Building .................................. 1.25
Revenue Bonds - Combined .................................. 1.22
Revenue Bonds - Correctional Facility ..................... 1.22
Revenue Bonds - Education ................................. 18.35
Revenue Bonds - Electric .................................. 6.38
Revenue Bonds - Financial ................................. 1.46
Revenue Bonds - Health .................................... 12.05
Revenue Bonds - Highway ................................... 5.08
Revenue Bonds - Hospital .................................. 1.33
Revenue Bonds - Housing ................................... 4.81
Revenue Bonds - Industrial Development .................... 2.35
Revenue Bonds - Industrial Revenue ........................ 7.38
Revenue Bonds - Other ..................................... 3.06
Revenue Bonds - Transportation ............................ 14.92
Revenue Bonds - Water & Sewer ............................. 7.92
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 95.65%
==========
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Massachusetts Tax-Free Income Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Massachusetts Tax-Free Income Fund (the "Fund") is a diversified
series of John Hancock Tax-Exempt Series Fund (the "Trust"), an open-end
management investment company, registered under the Investment Company Act of
1940. 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $373,088 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, August 31, 2005 - $6,645 and August
31, 2008 - $187,760.
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.
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
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Massachusetts Tax-Free Income Fund
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 an unsecured
line 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 to each fund based on the average daily
unused portion of the line of credit and is allocated among the participating
funds. The Fund had no borrowing activity for the year ended August 31, 2000.
OPTIONS The Fund may purchase or sell option contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Over-the-counter options are valued at the mean between the
last bid and asked prices. Upon the writing of a call or put option, an amount
equal to the premium received by the Fund will be included in the Statement of
Assets and Liabilities as an asset and corresponding liability. The amount of
the liability will be subsequently marked to market to reflect the current
market value of the written option.
The Fund may use option 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.
Risks may also arise if counterparties do not perform under the
contract's terms ("credit risk"), or if the Fund is unable to offset a contract
with a counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties to each
transaction, and only present liquidity risk in highly unusual market
conditions. To minimize credit and liquidity risks in over-the-counter option
contracts, the Fund will continuously monitor the creditworthiness of all its
counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's year-end
Statement of Assets and Liabilities.
At August 31, 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
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Massachusetts Tax-Free Income Fund
average net assets attributable to Class A, Class B and Class C, respectively.
Accordingly, for the year ended August 31, 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 $221,420. This limitation may not be discontinued
until December 31, 2000.
The Fund has an agreement with its custodian bank under which $4,249 of
custodian fees have been reduced by balance credits applied during the year
ended August 31, 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 year ended
August 31, 2000, net sales charges received with regard to sales of Class A
shares amounted to $63,891. Out of this amount, $8,557 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 $53,572 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 year ended August 31, 2000,
CDSCs amounted to $46,257.
Effective May 1, 2000, all Class C shares retail purchases are assessed
a 1.00% up-front sales charge. For the year ended August 31, 2000, up-front
sales charges received with regard to sales of Class C shares amounted to
$15,436. Out of this amount, $15,050 was paid as sales commissions to unrelated
broker-dealers and $386 was paid as sales commissions to sales personnel of
Signator Investors. Class C shares which are redeemed within one year of
purchase will be subject to a CDSC at a rate of 1.00% of the lesser of the
current market value at the time of redemption or the original purchase cost of
the shares being redeemed. Proceeds from the CDSC are paid to JH Funds and are
used in whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of Class C
shares. For the year ended August 31, 2000, CDSCs amounted to $472.
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 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
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Massachusetts Tax-Free Income Fund
other asset. The deferred compensation liability and the related other asset are
always equal and are marked to market periodically 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 year
ended August 31, 2000, aggregated $14,161,655 and $13,259,000, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended August 31, 2000.
The cost of investments owned at August 31, 2000 for federal income tax
purposes was $73,348,476. Gross unrealized appreciation and depreciation of
investments aggregated $2,238,452 and $1,250,306, respectively, resulting in net
unrealized appreciation of $988,146.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended August 31, 2000, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $251, an
increase in undistributed net investment income of $3,983 and a decrease in
capital paid-in of $4,234. This represents the amount necessary to report
balances on a tax basis, excluding certain temporary differences, as of August
31, 2000. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
22
<PAGE>
================================================================================
John Hancock Funds - Massachusetts Tax-Free Income Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
John Hancock Massachusetts Tax-Free Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments (except for Moody's and Standard & Poor's ratings
and yields at market), and the related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of the John Hancock Massachusetts Tax-Free
Income Fund (the "Fund") at August 31, 2000, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at August 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
-----------------------------
Boston, Massachusetts
October 6, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended August 31,
2000.
None of the 2000 income dividends qualify for the corporate
dividends-received deduction. Shareholders who are not subject to the
alternative minimum tax received income dividends which are 98.80% tax-exempt.
The percentage of income dividends from the Fund subject to the alternative
minimum tax is 15.60%.
None of the income dividends were derived from U.S. Treasury Bills.
For specific information on exception provisions in your state, consult
your local state tax office or your tax advisor.
Shareholders will receive a 2000 U.S. Treasury Department Form 1099-DIV
in January 2001. This will reflect the total of all distributions which are
taxable for calendar year 2000.
23
<PAGE>
================================================================================
[LOGO] John Hancock --------------------
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101 Huntington Avenue Randolph, MA
Boston, MA 02199-7603 Permit No. 75
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1-800-225-5291
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This report is for the information of shareholders of the John Hancock
Massachusetts Tax-Free Income Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
[LOGO] Printed on Recycled Paper 7700A 8/00
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