John Hancock Funds
High Yield
Tax-Free
Fund
ANNUAL REPORT
August 31, 1996
DIRECTORS
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
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
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic
in the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that
prospectuses are often overloaded with technical detail and are hard
for most investors to understand. Many industry observers agreed,
and rightly so.
So it is my pleasure to let you know that after being under
development for a year, John Hancock Funds has introduced new
simplified and consolidated prospectuses. The prospectuses feature
shorter, clearer language with a streamlined design, and they
incorporate several funds with similar investment objectives into
one document. They cover our income, growth, growth and income, tax-
free income, international/global and money market funds. We are
gratified at the favorable reviews that our new prospectuses have
received from shareholders, financial advisers, industry analysts
and the press. We believe they are a bold but sensible step forward.
And while they are easier to read, they still comply with all
federal and state guidelines.
We have taken the initiative to create a prospectus that
dramatically departs from the norm. Among its most innovative
features is a two-page spread highlighting each fund's goals and
investment strategy, the types of securities it buys, its portfolio
management and risk factors, all in plainer language. Fund expenses
and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other
features include a better presentation of fund services, a new
glossary of investment risks and a discussion about how funds are
organized, including a diagram showing the connection of the various
players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive
toward better mutual fund prospectuses. We hope you will agree
because in the end, we did it for you, our shareholders.
Sincerely,
/S/EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY FRANK LUCIBELLA, CFA, PORTFOLIO MANAGER
John Hancock
High Yield Tax-Free Fund
Bonds stumble as economy gathers steam;
high-yield securities not immune
Recently, the Fund's fiscal year end changed from October to August.
What follows is a discussion of the Fund's performance for the 12
months ended August 31, 1996.
The 12 months covered by this report span a volatile period in the
bond market. Last November, bond prices were still climbing steadily
as market participants anticipated the next rate cut by the Federal
Reserve. Those expectations were fulfilled in mid-December when the
Fed lowered the rate banks charge each other for overnight loans --
known as the federal funds rate -- one-quarter percentage point.
Another quarter-point reduction -- the third since July 1995 --
followed in January 1996. At the time, many analysts confidently
predicted that the Fed would go on cutting interest rates into the
spring. Then came the February employment report, which showed jobs
expanding at a rate about four times greater than expectations, and
suddenly all bets were off. In the months that followed, evidence
accumulated that the economy was indeed on the rebound, fueling
speculation that the Fed would soon have to raise rates. The
expected Fed action had yet to occur by the end of August, despite
strong upward pressure on interest rates by market participants. The
upshot, for high-yield bond investors, was a period in which
interest payments compensated for declining bond prices, but just
barely.
The bond
market has
turned volatile
in 1996.
A 2 1/4" x 3 1/2" photo of the Fund management team. Caption reads:
"Frank Lucibella (seated) and members of the Fund management team: (l-r)
Mike Roye, Tom Goggins, Dianne Sales-Singer, Holly Morris".
Pie Chart entitled "Portfolio Diversification" at top left hand column.
The chart is divided into 9 sections. Going from left to right: General
Obligation 1%; Industrial Development Bonds 15%; Certificates of
Participation 4%; Electric 3%; Health 9%; Housing 5%; Pollution Control
27%; Transportation 15%; Other 20%; Water & Sewer 1%. A footnote below
states "As a percentage of net assets on August 31, 1996".
"...we took
steps to
shorten the
Fund's
average
duration."
John Hancock High Yield Tax-Free Fund produced total returns for the
12 months ended August 31, 1996 of 3.25% and 2.52% for its Class A
and Class B shares, respectively, at net asset value. That lagged
the average high-yield municipal bond fund, which had a total return
of 5.43% during the same period, according to Lipper Analytical
Services. 1 Please see pages six and seven for longer-term
performance information. Two factors prevented the Fund from keeping
pace with its competitors: One, losses suffered on bonds issued by
the Illinois Development Finance Authority for the Ford Heights
Waste Tire Project, which went into bankruptcy this past spring; and
two, falling prices for wood pulp, which undermined the Fund's
holdings in several municipally financed de-inking facilities,
including one in Marion County, West Virginia.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left column is "Investment"; the header for the right column is
"Recent performance ... and what's behind the numbers. The first listing
is San Jaoquin Transportation Corridor Agency followed by an up arrow
and the phrase "Project nearing completion". The second listing is
Cleveland Parking Facilities followed by an up arrow and the phrase
"Bonds defeased with Treasuries". The third listing is Marion County
followed by a down arrow and the phrase "Lower pulp prices". A footnote
below states "See 'Schedule of Investments.' Investment holdings are
subject to change".
Sector and strategy review
Even before the problems with the Ford Heights Incinerator project
surfaced, the Fund was beginning to de-emphasize those kinds of
project-specific municipal securities. Our preference lately has
been for the broad class of securities known as industrial
development bonds. These are tax-free securities issued by corporate
borrowers for public purposes such as pollution control and economic
development. Industrial development bonds, in which the underlying
credit is backed by a private-sector corporation, tend to have
stronger capital structures and more secure financing. During the
period, industrial development bonds rose from about one-third of
the Fund's net assets to about one-half. Top performers included
bonds issued on behalf of several airlines, most notably
Hillsborough County (Florida) Aviation Authority for USAir. The
airlines have bounced back lately from their most recent earnings
trough, thanks to improvements in cost control, employee relations
and passenger yields.
Two other strategic choices we made during the period are worth
noting. One, we broadened the Fund's individual holdings, aiming for
a "basket approach." That meant diversifying among more issuers,
more types of credits and more sectors. Second, as interest rates
bottomed out during the first quarter of 1996, we took steps to
shorten the Fund's average duration. Duration is an indicator of how
much a bond's price will vary in response to changes in interest
rates. At the end of 1995, the Fund's average duration was still
fairly aggressive, about 8.5 years. Since then, we've adopted a more
conservative stance by bringing the Fund's average duration back
down to give us more flexibility in the face of rising rates. It
stood at 7.6 years at the end of August.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the year ended August 31, 1996."
The chart is scaled in increments of 2%, with 6% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first
represents the 3.25% total return for the John Hancock High Yield Tax-
Free Fund: Class A. The second represents the 2.52% total return for the
John Hancock High Yield Tax-Free Fund: Class B. The third represents the
5.43% total return for the average high-yield municipal bond fund. A
footnote below states " Total returns for John Hancock High Yield Tax-
Free fund are at net asset value with all distributions reinvested. The
average high-yield municipal bond fund is tracked by Lipper Analytical
Services (1). See following two pages for historical performance
information."
Other sectors in which the Fund had significant stakes included
transportation, mainly toll roads such as one soon to be completed
by the San Joaquin (California) Transportation Corridor Agency;
utilities, the best example being Farmington County (New Mexico) for
Public Service Company of New Mexico, which is experiencing strong
earnings growth; and health care, a sector which has benefited
recently from a wave of mergers and acquisitions.
Outlook
The Fund is emerging from a difficult period marked by losses
suffered from our investment in the Ford Heights incinerator
project. That credit was finally sold in June. During the final
months of the current reporting period, the Fund performed more in
line with other funds in its competitive universe, which bodes well
for the future. We've taken steps to adapt to a changing
environment. Strong credit analysis and diversification continue to
underscore our portfolio strategy. And our continuing shift away
from project financing in favor of tax-exempt corporate issues
should improve the Fund's liquidity. Moreover, an expanding economy
should work in our favor, as improving business conditions tend to
strengthen credit quality. While there are concerns that too much
growth could trigger inflation, as yet we've seen no evidence of
this. That said, we maintain a cautious approach, mindful that the
upcoming election and the possibility of Fed action may add an
element of volatility to fixed-income markets. As we monitor the
strength of the economy, we can make appropriate adjustments to the
Fund's duration.
"...we
maintain a
cautious a
approach..."
- --------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through
the end of the Fund's period discussed in this report. Of course,
the manager's views are subject to change as market and other
conditions warrant.
See the prospectus for a detailed discussion of the risks of
investing in high-yield bonds.
1Figures from Lipper Analytical Services include reinvested
dividends and do not take into account sales charges. Actual load-
adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock High Yield Tax-
Free Fund. Total return is a performance measure that equals the sum
of all income and capital gain distributions, assuming reinvestment
of these distributions and the change in the price of the Fund's
shares, expressed as a percentage of the Fund's net asset value per
share. Performance figures include the maximum applicable sales
charge of 4.50% for Class A shares. (Prior to May 15, 1995, the
maximum applicable sales charge for Class A shares was 4.75%.) The
effect of the maximum contingent deferred sales charge for Class B
shares (maximum 5% and declining to 0% over six years) is included
in Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the
future. Also, keep in mind that the total return and share price of
the Fund's investments will fluctuate. As a result, your Fund's
shares may be worth more or less than their original cost, depending
on when you sell them.
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
---------- ---------- ------------
John Hancock High Yield
Tax-Free Fund: Class A (0.25%) 5.41%(1) N/A
John Hancock High Yield
Tax-Free Fund: Class B (1.39%) 38.84% 82.48%(2)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended June 30, 1996
ONE FIVE LIFE OF
YEAR YEARS FUND
---------- ---------- ------------
John Hancock High Yield
Tax-Free Fund: Class A (0.25%) 2.13%(1) N/A
John Hancock High Yield
Tax-Free Fund: Class B (1.39%) 6.78% 6.30%(2)
YIELDS
As of August 31, 1996
SEC 30-DAY
YIELD
--------------
John Hancock High Yield Tax-Free Fund: Class A 6.12%
John Hancock High Yield Tax-Free Fund: Class B 5.65%
Notes to Performance
(1) Class A shares started on December 31, 1993.
(2) Class B shares started on August 29, 1986.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in John
Hancock High Yield Tax-Free Fund would be worth on August 31, 1996,
assuming you had invested on the day each class of shares started
and reinvested all distributions. For comparison, we've shown the
same $10,000 investment in the Lehman Brothers Municipal Bond Index
- -- an unmanaged index that includes approximately 15,000 bonds and
is commonly used as a measure of municipal bond performance.
High Yield Tax-Free Fund
Class A shares
Line chart with the heading High Yield Tax-Free Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines.
The first line represents the value of the Lehman Brothers Municipal
Bond Index and is equal to $11,186 as of August 31, 1996. The second
line represents the value of the hypothetical $10,000 investment made in
the High Yield Tax-Free Fund on December 31, 1993, before sales charge,
and is equal to $11,145 as of August 31, 1996. The third line
represents the High Yield Tax-Free Fund after sales charge and is equal
to $10,647 as of August 31, 1996.
High Yield Tax-Free Fund
Class B shares
Line chart with the heading High Yield Tax-Free Fund: Class B*,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are two lines.
The first line represents the value of the Lehman Brothers Municipal
Bond Index and is equal to $22,075 as of August 31, 1996. The second
line represents the value of the hypothetical $10,000 investment made in
the High Yield Tax-Free Fund on August 29, 1986, and is equal to $18,935
as of August 31, 1996.
* No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
August 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Bonds (cost - $166,134,893) $168,836,638
------------
Receivable for shares sold 396,985
Receivable for investments sold 90,000
Receivable for futures variation margin - Note A 58,813
Interest receivable 3,127,666
Segregated assets for financial futures contracts 164,600
Other assets 28,012
-------------
Total Assets 172,702,714
- ------------------------------------------------------------------------------------------------------
Liabilities:
Temporary overdraft of cash 72,615
Payable for investments purchased 1,000,000
Payable for shares repurchased 112,961
Dividend payable 26,640
Payable to John Hancock Advisers, Inc. and affiliates - Note B 108,586
Accounts payable and accrued expenses 49,911
------------
Total Liabilities 1,370,713
- -----------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 175,504,798
Accumulated net realized loss on investments and financial futures contracts ( 7,002,496)
Net unrealized appreciation of investments and financial futures contracts 2,783,377
Undistributed net investment income 46,322
-------------
Net Assets $171,332,001
======================================================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding - 125,000,000
shares authorized with $0.01 per share par
value, respectively)
Class A - $23,662,639/2,584,498 $ 9.16
======================================================================================================
Class B - $147,669,362/16,123,752 $ 9.16
======================================================================================================
Maximum Offering Price Per Share*
Class A - ($9.16 x 104.71%) $ 9.59
======================================================================================================
* 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 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, 1996. You'll also find the net asset value and the maximum
offering price per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- ------------------------------------------------------------------------------------------------------
PERIOD FROM
NOVEMBER 1, 1995
YEAR ENDED OCTOBER 31, TO AUGUST 31,
1995 1996(a)
------------------- --------------------
<S> <C> <C>
Investment Income:
Interest $12,608,702 $10,692,315
----------- -----------
Expenses:
Investment management fee - Note B 991,659 833,609
Distribution/service fee - Note B
Class A 37,440 37,919
Class B 1,519,671 1,235,834
Transfer agent fee - Note B 160,834 112,044
Custodian fee 48,182 73,141
Registration and filing fees 46,326 52,364
Auditing fee 40,910 33,913
Printing 30,961 33,146
Trustees' fees 22,735 20,990
Advisory board fee 17,219 13,041
Financial services fee - Note B -- 21,582
Miscellaneous 13,260 4,337
Legal fees 12,158 11,628
----------- -----------
Total Expenses 2,941,355 2,483,548
- -------------------------------------------------------------------------------------------------
Net Investment Income 9,667,347 8,208,767
- -------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts
Net realized loss on investments sold ( 808,622) ( 3,029,831)
Net realized gain (loss) on financial futures contracts ( 1,254,931) 53,235
Change in net unrealized appreciation/depreciation of
investments 15,034,119 ( 3,000,900)
Change in net unrealized appreciation/depreciation of
financial futures contracts N/A 80,844
----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts 12,970,566 ( 5,896,652)
- -------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $22,637,913 $ 2,312,115
=================================================================================================
(a) Effective August 31, 1996, the fiscal period end changed from October 31 to August 31.
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.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED OCTOBER 31, NOVEMBER 1, 1995
------------------------- TO AUGUST 31,
1994 1995 1996(a)
---------- ---------- ----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 8,040,548 $ 9,667,347 $ 8,208,767
Net realized loss on investments sold and financial
futures contracts ( 1,459,716) ( 2,063,553) ( 2,976,596)
Change in net unrealized appreciation/depreciation of
investments and financial futures contracts ( 14,473,003) 15,034,119 ( 2,920,056)
------------ ------------ ------------
Net Increase (decrease) in Net Assets Resulting from Operations ( 7,892,171) 22,637,913 2,312,115
------------ ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A** - ($0.4800, $0.5780, and $0.4958
per share, respectively) ( 369,015) ( 952,176) ( 965,509)
Class B - ($0.4800, $0.5130, and $0.4401 per share,
respectively) ( 7,671,533) ( 8,715,173) ( 7,210,525)
Distributions from net realized gain on investments
Class B - ($0.19, none and none per share, respectively) ( 1,980,359) -- --
Distributions in excess of net investment income
Class A** - ($0.0900, $0.0384 and none per share, respectively) ( 67,471) ( 63,196) --
Class B - ($0.0700, $0.0340 and none per share,
respectively) ( 1,136,918) ( 578,424) --
------------ ------------ ------------
Total Distributions to Shareholders ( 11,225,296) ( 10,308,969) ( 8,176,034)
------------ ------------ ------------
From Fund Share Transactions -- Net* 72,145,259 ( 9,338,914) 7,736,188
------------ ------------ ------------
Net Assets:
Beginning of period 113,441,910 166,469,702 169,459,732
------------ ------------ ------------
End of period (including undistributed net investment
income of zero, zero and $46,322, respectively) $166,469,702 $169,459,732 $171,332,001
============ ============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31
----------------------------------- PERIOD FROM NOVEMBER 1, 1995
1994 1995 TO AUGUST 31, 1996(a)
------------- ----------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A **
Shares sold 1,811,428 $16,937,949 471,510 $ 4,304,187 1,391,142 $12,993,351
Shares issued to shareholders
in reinvestment of distributions 14,913 136,310 40,880 373,017 43,404 405,043
--------- ----------- --------- ------------ --------- -----------
1,826,341 17,074,259 512,390 4,677,204 1,434,546 13,398,394
Less shares repurchased (80,893) (741,733) ( 755,291) ( 6,954,380) ( 352,595) (3,288,775)
--------- ----------- --------- ------------ --------- -----------
Net increase (decrease) 1,745,448 $16,332,526 ( 242,901) ($ 2,277,176) 1,081,951 $10,109,619
========= =========== ========= =========== ========= ===========
CLASS B
Shares sold 7,988,008 $76,547,531 2,984,185 $26,948,744 2,138,726 $20,159,232
Shares issued to shareholders in
reinvestment of distributions 446,841 4,233,508 341,251 3,125,237 266,206 2,501,301
--------- ----------- --------- ----------- --------- -----------
8,434,849 80,781,039 3,325,436 30,073,981 2,404,932 22,660,533
Less shares repurchased (2,671,603) (24,968,306) (4,059,955) ( 37,135,719) (2,673,804) ( 25,033,964)
--------- ---------- --------- ----------- --------- -----------
Net increase (decrease) 5,763,246 $55,812,733 ( 734,519) ($ 7,061,738) ( 268,872) ($ 2,373,431)
========= =========== ========= =========== ========= ===========
** Class A shares commenced operations on December 31, 1993.
(a) Effective August 31, 1996, the fiscal period end changed from October 31 to August 31.
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment returns, key ratios and
supplemental data are listed as follows:
- --------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
DECEMBER 31, 1993
(COMMENCEMENT OF PERIOD FROM
OPERATIONS) TO YEAR ENDED NOVEMBER 1, 1995
OCTOBER 31, OCTOBER 31, TO AUGUST 31,
1994 1995(2) 1996(5)
------------ ------------ ----------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.85 $ 8.82 $ 9.47
------- ------- -------
Net Investment Income 0.48(1) 0.57 0.49(1)
Net Realized and Unrealized Gain (Loss) on Investments Sold
and Financial Futures Contracts ( 0.94) 0.70 ( 0.30)
------- ------- -------
Total from Investment Operations ( 0.46) 1.27 0.19
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.48) ( 0.58) ( 0.50)
Distributions in Excess of Net Investment Income ( 0.09) ( 0.04) --
------- ------- -------
Total Distributions ( 0.57) 0.62 ( 0.50)
------- ------- -------
Net Asset Value, End of Period $ 8.82 $ 9.47 $ 9.16
======= ======= =======
Total Investment Return at Net Asset Value(3) 4.96%(4) 14.85% 1.96%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $15,401 $14,225 $23,663
Ratio of Expenses to Average Net Assets 1.15%* 1.06% 1.10%*
Ratio of Net Investment Income to Average Net Assets 6.08%* 6.36% 6.39%*
Portfolio Turnover Rate 62% 64% 38%
The Financial Highlights summarizes the impact of the following factors on a single share for the 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.
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD FROM
--------------------------------------------------------- NOVEMBER 1, 1995
1991 1992 1993 1994 1995(2) TO AUGUST 31, 1996(5)
-------- --------- --------- -------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.07 $ 9.31 $ 9.39 $ 9.98 $ 8.82 $ 9.47
------- ------- -------- ------- ------- -------
Net Investment Income 0.54 0.55 0.53 0.48 0.51 0.44(1)
Net Realized and Unrealized Gain (Loss)
on Investments Sold
and Financial Futures Contracts 0.34 0.17 0.72 ( 0.90) 0.69 ( 0.31)
------- ------- -------- ------- ------- -------
Total from Investment Operations 0.88 0.72 1.25 ( 0.42) 1.20 0.13
------- ------- -------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.54) ( 0.55) ( 0.56) ( 0.48) ( 0.51) ( 0.44)
Distributions in Excess of Net
Investment Income -- -- -- ( 0.07) ( 0.04) --
Distributions from Net Realized Gain on
Investments Sold -- ( 0.09) ( 0.10) ( 0.19) -- --
Distributions from Capital Paid-in ( 0.10) -- -- -- -- --
------- ------- -------- ------- ------- -------
Total Distributions ( 0.64) ( 0.64) ( 0.66) ( 0.74) ( 0.55) ( 0.44)
------- ------- -------- ------- ------- -------
Net Asset Value, End of Period $ 9.31 $ 9.39 $ 9.98 $ 8.82 $ 9.47 $ 9.16
======= ======= ======== ======= ======= =======
Total Investment Return at Net Asset
Value(3) 10.07% 7.89% 13.69% ( 4.44%) 13.99% 1.36%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $51,467 $65,933 $113,442 $151,069 $155,234 $147,669
Ratio of Expenses to Average Net Assets 2.36% 2.17% 2.06% 1.85% 1.79% 1.81%*
Ratio of Net Investment Income to Average
Net Assets 5.61% 5.78% 5.23% 5.36% 5.61% 5.65%*
Portfolio Turnover Rate 83% 40% 100% 62% 64 38%
* On an annualized basis.
(1) On average month end shares outstanding.
(2) On December 22, 1994, John Hancock Advisers, Inc, became the investment adviser of the Fund.
(3) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) Effective August 31, 1996, the fiscal period end changed from October 31 to August 31.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
August 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the High Yield Tax-Free Fund on August 31, 1996. It
consists of one main category: Tax-Exempt Long-Term Bonds. The bonds are broken down by states. Under each state is a list of
the securities owned by the Fund.
INTEREST MATURITY S&P PAR VALUE YIELD AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING (000'S OMITTED) MARKET VALUE MARKET+
- -------------------------- -------- -------- ------ ------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
California (12.64%)
Del Mar Race Track Auth,
Rev Ref Ser 1996 6.450% 08/15/13 BBB** $2,500 $ 2,454,475 6.57%
Fontana, County of,
Special Tax Rev Community Facility District No 90-3
Empire Center 8.500 04/01/21 B+** 5,275 4,523,312 9.92
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Sr Lien Cap Apprec Ser A Zero 01/01/18 BBB- 7,950 1,889,158 7.00
San Bernardino, County of,
Cert of Part Ser 1994 Medical Center Fin Proj 5.500 08/01/17 A- 4,500 4,143,195 5.97
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Sr Lien Cap Apprec Zero 01/01/22 BBB** 6,500 1,191,385 6.65
South Orange County Public Financing Auth,
Spec Tax Rev Levrrs Inflows 8.131# 08/15/17 AAA** 7,500 7,471,875 8.16
------------
21,673,400
------------
Colorado (6.31%)
Arapahoe County Capital Improvement Trust Fund,
Highway Rev Ser E-470 Remarketed 8-31-1995 6.950 08/31/20 Baa** 5,000 5,227,950 6.66
Denver, City and County of,
Airport Sys Rev Ser 1992A Preref 7.250 11/15/25 AAA** 1,410 1,603,819 6.37
Airport Sys Rev Ser 1992A Unref Bal 7.250 11/15/25 BBB 3,590 3,981,525 6.54
------------
10,813,294
------------
District Of Columbia (0.60%)
District Of Columbia,
Cert of Part 7.300 01/01/13 B- 1,000 1,024,270 7.13
------------
Florida (8.11%)
Florida Housing Finance Agency,
Southlake Apartments Proj Ser D Remarketed 6/1/1993 8.400 10/01/12 BBB-** 3,300 3,388,935 8.18
Hillsborough County Aviation Auth,
Rev Special Purpose Facility Improv US Air Proj 8.600 01/15/22 B- 3,900 4,223,466 7.94
Homestead, City of,
Ind'l Development Rev Community Rehab Proj Ser A 7.950 11/01/18 BB** 4,200 4,232,634 7.89
South Indian River Water Control District,
Rev Egret Landing Proj Section 15 Phase 1 7.500 11/01/18 BB+** 2,000 2,051,740 7.31
------------
13,896,775
------------
Illinois (8.07%)
Bedford Park, City of,
Tax Increment Rev Sr Lien Mark Iv Proj 9.750% 03/01/12 BB** $1,000 $ 1,146,250 8.51%
Chicago, City of,
Chicago-O'Hare Int'l Airport Spec Facil Rev Ref
American Airlines Inc. 8.200 12/01/24 BB+ 1,500 1,724,700 7.13
Chicago-O'Hare Int'l Airport Spec Facil Rev Ser 1992
Delta Airlines Inc. 6.450 05/01/18 BB+ 1,000 994,920 6.48
Illinois Health Facilities Auth,
Rev Fairview Obligated Group Proj Ser A 9.500 10/01/22 BB** 2,500 3,101,500 7.66
Rev Fairview Obligated Group Proj Ser B 9.000 10/01/22 BB** 1,500 1,823,880 7.40
Metropolitan Pier and Exposition Auth,
Hosp Facil Rev McCormick Place Convention Proj 6.250 07/01/17 BBB- 3,000 2,982,420 6.29
Round Lake Beach, City of,
Tax Increment Rev Ref 7.500 12/01/13 BB+** 2,000 2,045,660 7.33
------------
13,819,330
------------
Indiana (1.17%)
Wabash, County of, Solid Waste Disp Rev Jefferson
Smurfit Corp Proj 7.500 06/01/26 BB** 2,000 2,012,220 7.45
------------
Iowa (0.13%)
Iowa Finance Auth, Hlth Care Facil Rev Ref Care
Initiatives Proj 9.250 07/01/25 BB 200 229,306 8.07
------------
Kansas (1.23%)
Prairie Village, City of,
Rev Ser A Claridge Court Proj 8.750 08/15/23 BBB-** 2,000 2,109,280 8.30
------------
Kentucky (3.09%)
Kenton County Airport Board,
Rev Spec Facil Delta Airlines Inc Ser 1985 7.800 12/01/15 BB 2,500 2,648,250 7.36
Rev Spec Facil Delta Airlines Proj Ser B 7.250 02/01/22 BB 2,500 2,647,500 6.85
------------
5,295,750
------------
Maryland (1.20%)
Baltimore, County of,
Poll Control Rev Ref Bethlehem Steel Corp Proj 7.500 06/01/15 BB-** 2,000 2,047,520 7.33
------------
Massachusetts (3.25%)
Massachusetts Industrial Finance Agency,
Rev Ser A Southeastern Mass Proj 9.000 07/01/15 BB** 2,800 3,104,500 8.12
Massachusetts Port Auth,
Spec Proj Rev Harborside Hyatt Hotel Remarketed
06/20/1991 10.000 03/01/26 BB** 2,200 2,457,708 8.95
------------
5,562,208
------------
Michigan (5.84%)
Michigan State Strategic Fund Ltd,
Resource Recovery Rev Great Lakes Pulp & Fibre Proj 10.250% 12/01/16 B** $3,000 $ 2,262,900 13.59%
Waterford Township Economic Development Corp,
Rev Ltd Oblig Canterbury Hlth Care 8.375 07/01/23 BB+** 3,500 3,593,205 8.16
Wayne Charter County of,
Spec Airport Facil Rev Ref Ser 1995 Northwest
Airlines Inc. 6.750 12/01/15 BB+** 4,125 4,147,027 8.95
------------
10,003,132
------------
Missouri (0.61%)
Lees Summit Industrial Development Auth,
Hlth Facil Ref Rev & Imp John Knox Vlg Proj 7.125 08/15/12 A-** 1,000 1,047,750 6.80
------------
Nevada (1.17%)
Las Vegas, City of, Spec Imp District No. 707
Summerlin Area Local Imp Ser 7 7.100 06/01/16 BB+** 2,000 2,006,180 7.08
------------
New Hampshire (2.72%)
New Hampshire Business Finance Auth,
Poll Control & Solid Waste Ref Crown Paper Co Proj 7.750 01/01/22 BB- 1,500 1,510,845 7.69
New Hampshire Industrial Development Auth,
Rev Ref Poll Control Central Maine Pwr 7.375 05/01/14 BB 3,000 3,145,500 7.03
------------
4,656,345
------------
New Jersey (4.95%)
Camden County Improvement Auth,
Lease Rev Ser A Holt Hauling & Warehousing Proj 9.875 01/01/21 BB+ 1,500 1,499,880 9.88
New Jersey Economic Development Auth,
First Mtg Rev Ser A Winchester Gardens 8.500 11/01/16 BB+** 2,000 1,992,540 8.53
Rev Ref Ind'l Development Newark Airport
Marriott Hotel Proj 7.000 10/01/14 BBB-** 2,500 2,492,425 7.02
Rev Ref Ser J Holt Hauling Proj 8.500 11/01/23 BBB-** 2,500 2,502,175 8.49
------------
8,487,020
------------
New Mexico (2.83%)
Farmington, County of,
Poll Control Rev Ref Ser A Pub Serv Co of New Mexico
San Juan Proj 6.400 08/15/23 BB 5,000 4,847,100 6.60
------------
New York (1.78%)
Islip Community Development Agency,
Community Development Rev Ref NY Institute of
Technology Proj 7.500 03/01/26 BB-** 2,000 2,003,960 7.49
New York, City of,
GO Ser B 7.300 08/15/11 A-** 950 1,040,079 6.67
------------
3,044,039
------------
Ohio (5.68%)
Bedford, County of,
Rev Ref Community Hosp Bedford Inc 8.500% 05/15/09 AA** $1,410 $ 1,592,680 7.53%
Cleveland, City of,
Parking Facil Imp Rev 8.000 09/15/12 BBB** 1,000 1,186,900 6.74
Parking Facil Imp Rev 8.100 09/15/22 BBB** 2,000 2,384,200 6.79
Dayton, County of,
Spec Facil Rev Ser D Air Freight Proj * 6.200 10/01/09 BBB- 1,000 992,420 6.25
Lorain, County of,
Rev 1st Mtg Kendal At Oberlin Proj Ser A 8.625 02/01/22 BBB-** 3,300 3,565,419 7.98
------------
9,721,619
------------
Oklahoma (2.11%)
Tulsa Municipal Airport Trust, Trustees of,
Rev American Airlines Inc 7.350 12/01/11 BB+ 2,000 2,144,440 6.85
Rev Ser 1988 American Airlines Inc 6.250 06/01/20 BB+ 1,500 1,475,235 6.35
------------
3,619,675
------------
Oregon (2.57%)
Western Generation Agency,
Rev 1994 Ser A Wauna Cogeneration Proj 7.125 01/01/21 BBB-** 4,300 4,400,018 6.96
------------
Pennsylvania (11.00%)
Beaver County Industrial Development Auth,
Coll Poll Control Rev Ref Toledo Edison Co
Beaver Valley
Proj Ser 1995A 7.750 05/01/20 BB 2,500 2,551,425 7.59
Poll Control Rev Ref Cleveland Elec Proj 7.625 05/01/25 BB 1,600 1,617,408 7.54
Chester County Industrial Development Auth,
Rev First Mtg Rha/Pa Nursing Home 10.125 05/01/19 BB** 198 213,593 9.39
Montgomery County Higher Education and Health Auth,
Hosp Rev Ser A Utd Hosp Original Iss 7.500 11/01/14 Ba1** 1,055 1,143,409 6.92
Hosp Rev Ser B Utd Hosp Original Iss 7.500 11/01/13 Ba1** 3,030 3,283,914 6.92
Montgomery County Redevelopment Auth,
Multifamily Hsg Rev Ser A KBF Assoc L.P. Proj 6.500 07/01/25 BBB+** 3,500 3,363,360 6.51
Multifamily Hsg Rev Ser A KBF Assoc L.P. Proj 6.375 07/01/12 BBB+** 2,000 1,957,900 6.76
Northampton County Industrial Development Auth,
Poll Control Rev Ref Bethlehem Steel Proj 7.550 06/01/17 BB-** 2,000 2,058,700 7.33
Philadelphia Auth For Industrial Development,
Rev 1st Mtg Rha Care Pavilion Proj 10.250 02/01/18 BB** 285 294,320 9.93
Philadelphia Hospitals and Higher Education
Facilities Auth,
Hosp Rev 1991 Ser A Philadelphia Protestant
Home Proj 8.625 07/01/21 BB** 2,300 2,370,863 8.37
------------
18,854,892
------------
Rhode Island (1.34%)
Providence Redevelopment Agency,
Cert of Part Ser A 8.000 09/01/24 BB-** 2,160 2,291,198 7.54
------------
South Carolina (0.65%)
Florence, County of,
Ind'l Dev Rev Stone Container Proj 7.375% 02/01/07 BB $1,000 $ 1,017,200 7.25%
McCormick, County of,
Hosp Facil Rev McCormick County Nursing Center Proj 10.500 03/01/18 BB** 100 103,018 10.19
------------
1,120,218
------------
Texas (0.21%)
Houston Housing Finance Corp,
Single Family Mtg Rev 9.750 09/15/03 B 360 361,300 9.71
------------
Utah (2.01%)
Carbon, County of,
Solid Waste Disposal Rev Ref East Carbon Development
Corp Ser A 9.000 07/01/12 BBB-** 2,000 2,088,900 8.62
Solid Waste Disposal Rev Ref Sunnyside
Cogeneration Proj 9.250 07/01/18 BBB-** 1,900 1,348,069 13.04
------------
3,436,969
------------
Virginia (3.44%)
Hopewell Industrial Development Auth,
Poll Control Rev Stone Container Corp Proj 8.250 05/01/10 BB** 1,000 1,071,340 7.70
Resource Recovery Rev Ref Stone Container Corp Proj 8.250 06/01/16 BB** 4,500 4,823,190 7.70
------------
5,894,530
------------
Washington (2.70%)
Port of Walla Walla Public Corp,
Solid Waste Recycling Rev Ser 1995 Ponderosa
Fibres Proj 9.125 01/01/26 BB-** 5,000 4,621,500 9.87
------------
West Virginia (1.13%)
Marion, County of,
Community Solid Waste Disposal Rev American Pwr
Paper Recycling Proj 7.750 12/01/11 B** 4,000 1,939,800 15.98
------------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $166,134,893)
TOTAL INVESTMENTS (98.54%) $168,836,638
===== ============
* This security having an aggregate value of $992,420 or .58% 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 make payment for such security
on a delayed basis subsequent to this schedule. The purchase price and interest rate of such security is fixed at trade
rate, 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 $1,510,845 of New Hampshire Business Finance Auth, Poll Control & Solid Waste Ref Crown
Paper Co Proj, 7.75%, 01/01/22, has been segregated to cover the forward commitment.
** Credit Ratings are rated by Moody's Investors Services, Fitch or John Hancock Advisers, Inc. where Standard & Poor's
ratings are not available.
+ The yield is not calculated with guidelines established by The U.S. Securities Exchange Commissions and is unaudited.
# Represents the rate in effect on August 31, 1996.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the
Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
Portfolio Concentration
- -----------------------------------------------------------------------------------------
The High Yield Tax-Free Fund invests primarily in securities issued by the variously states and
their various political subdivisions. The performance of the Portfolio is closely tied to the
economic conditions within the applicable states and the financial condition of the state and
their 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 percentages of the Fund's investments at August 31, 1996 assigned to
the various sector categories.
MARKET VALUE AS A PERCENTAGE OF
SECTOR DISTRIBUTION THE FUND'S NET ASSETS:
- ------------------- --------------------------
<S> <C>
General Obligation 0.61%
Revenue Bonds -- Certificate of Participation 4.35
Revenue Bonds -- Electric Power 2.57
Revenue Bonds -- Health 9.75
Revenue Bonds -- Housing 5.29
Revenue Bonds -- Industrial Development Bond 14.44
Revenue Bonds -- Other 19.30
Revenue Bonds -- Pollution Control Facilities 26.28
Revenue Bonds -- Transportation 14.75
Revenue Bonds -- Water & Sewer 1.20
------
TOTAL TAX EXEMPT LONG-TERM BONDS 98.54%
======
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - High Yield Tax-Free Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified,
open-end management investment company, registered under the
Investment Company Act of 1940. As of August 31, the Corporation
consists of four series portfolios: John Hancock High Yield Tax-Free
Fund (the "Fund"), John Hancock Emerging Growth Fund, John Hancock
Money Market Fund, and John Hancock Global Resources Fund
(collectively, the "Funds"). The investment objective of the Fund is
to obtain a high level of current income that is largely exempt from
federal income taxes and is consistent with the preservation of
capital.
The Board of Directors have authorized the issuance of multiple
classes of shares of the Fund, designated as Class A and Class B
shares. The shares of each class represent an interest in the same
portfolio of investments of the Fund and have equal rights to
voting, redemptions, dividends, and liquidation, except that certain
expenses subject to the approval of the Board of Directors, may be
applied differently to each class of shares in accordance with
current regulations of the Securities and Exchange Commission.
Shareholders of a class which bears distribution/service expenses
under terms of a distribution plan, have exclusive voting rights
regarding such distribution plan.
On June 25, 1996, the Board of Directors voted to change the fiscal
period end from October 31 to August 31. This change is effective
August 31, 1996.
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 Board of
Directors. Short-term debt investments maturing within 60 days are
valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by
the Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with
John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned
subsidiary of The Berkeley Financial Group, may participate in a
joint repurchase agreement. Aggregate cash balances are invested in
one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's
custodian bank receives delivery of the underlying securities for
the joint account on the Fund's behalf. The Adviser is responsible
for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of
the date of purchase, sale or maturity. Net realized gains and
losses on sales of investments are determined on the identified cost
basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investment, to its
shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $6,199,451
of capital loss carryforwards available, to the extent provided by
regulations, to offset future net realized capital gains. If such
carryforward is used by the Fund, no capital gains distribution will
be made. The carryforwards expire as follows: August 31, 2002 --
$2,785,979, August 31, 2003 -- $205,838, and, August 31, 2004 --
$3,207,634. Additionally, net capital losses of $3,207,634
attributable to security transactions incurred after October 1, 1995
are treated as arising on the first day (September 1, 1996) of the
Fund's current taxable year. Effective August 31, 1996, the Fund
changed its tax year end from December 31 to August 31.
DISTRIBUTIONS, DIVIDENDS 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 as explained previously.
EXPENSES The majority of the expenses of the Corporation 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 the relative sizes of the
Funds.
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 appropriate net
assets of the respective classes. Distribution/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.
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.
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 those estimates.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial
futures contracts to hedge against the effects of fluctuations in
interest rates and other market conditions. At the time the Fund
enters into a financial futures contract, it will be required to
deposit with its custodian a specified amount of cash or U.S.
government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being
traded. Each day, the futures contract is valued at the official
settlement price on the board of trade or U.S. commodities exchange.
Subsequent payments, known as "variation margin", to and from the
broker are made on a daily basis as the market price of the
financial futures contract fluctuates. Daily variation margin
adjustments, arising from this "mark to market", will be recorded by
the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into futures contracts include the possibility
that there may be an illiquid market and/or that a change in the
value of the contracts may not correlate with changes in the value
of the underlying securities. In addition, the Fund could be
prevented from opening or realizing the benefits of closing out
futures positions because of position limits or limits on daily
price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of
futures contracts.
At August 31, 1996, open positions in financial futures contracts were
as follows:
UNREALIZED
APPRECIATION
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
- ---------- -------------- -------- -------------
SEPT 1996 50 U.S. Treasury Bonds SHORT $ 85,938
SEPT 1996 38 Muni Bond Index SHORT $ (5,094)
---------
$ 80,844
At August 31, 1996, the Fund has deposited in a segregated account
$164,600 to cover margin requirements on open financial futures
contracts.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.625% of
the first $75,000,000 of the Fund's average daily net asset value,
(b) 0.5625% of the next $75,000,000 and (c) 0.50% of the Fund's
average daily net asset value in excess of $150,000,000.
In the event normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of the most
restrictive state limit where the Fund is registered to sell shares,
the fee payable to the Adviser will be reduced to the extent of such
excess, and the Adviser will make additional arrangements necessary
to eliminate any remaining excess expenses. The current limits are
2.5% of the first $30,000,000 of the Fund's average daily net asset
value, 2.0% of the next $70,000,000, and 1.5% of the remaining
average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the
period ended August 31, 1996, net sales charges received with regard
to sales of Class A shares amounted to $217,313. Out of this amount,
$21,579 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $129,747 was paid
as sales commissions to unrelated broker-dealers and $65,987 was
paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which are
broker dealers. The Adviser's indirect parent, John Hancock Mutual
Life Insurance Company, is the indirect sole shareholder of
Distributors and John Hancock Freedom Securities Corporation and its
subsidiaries, which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will
be subject to a contingent deferred sales charge ("CDSC") at
declining rates beginning at 5.0% of the lesser of the current
market value at the time of redemption or the original purchase cost
of the shares being redeemed. Proceeds from the CDSC are paid to JH
Funds and are used in whole or in part to defray its expenses
related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended
August 31, 1996, contingent deferred sales charges paid to JH Funds
amounted to $289,505.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a
Distribution Plan with respect to Class A and Class B pursuant to
Rule 12b-1 under the Investment Company Act of 1940. Accordingly,
the Fund will make payments to JH Funds at an annual rate not to
exceed 0.25% of Class A average daily net assets and 1.00% of Class
B average daily net assets to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under
the amended Rules of Fair Practice, curtailment of a portion of the
Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly-owned
subsidiary of The Berkeley Financial Group. The Fund pays Investor
Services a fee based on the number of shareholder accounts and
certain out-of-pocket expenses.
On March 26, 1996, the Board of Directors approved retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary
tax and financial management services for the Funds. The
compensation for 1996 is estimated to be at an annual rate of
0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau Jr., Mr. Richard Scipione, and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as Directors of the Fund. The compensation of
unaffiliated Directors is borne by the Fund. Effective with the fees
paid for 1995, the unaffiliated Directors may elect to defer for tax
purposes their receipt of this compensation under the John Hancock
Group of Funds Deferred Compensation Plan. The Fund makes
investments into other John Hancock funds, as applicable, to cover
its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the
Fund's books as an other asset. The deferred compensation liability
and the related other asset are always equal and are marked to
market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. At August 31,
1996, the Fund's investments to cover the deferred compensation
liability had unrealized appreciation of $788.
The Fund has an independent advisory board composed of certain
retired Directors who provide advice to the current Board of
Directors in order to facilitate a smooth management transition. The
Fund pays the advisory board and its counsel a fee.
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 fiscal period ended August 31, 1996,
aggregated $65,049,957 and $60,894,694, respectively. There were no
purchases or sales of obligations of the U.S. government and its
agencies during the fiscal period ended August 31, 1996.
The cost of investments owned at August 31, 1996 for federal income
tax purposes was $166,134,893. Gross unrealized appreciation and
depreciation of investments aggregated $7,970,352 and $5,268,607
respectively, resulting in net unrealized appreciation of
$2,701,745.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended August 31, 1996, the Fund has reclassified
amounts to reflect an increase in accumulated net realized loss on
investments of $42,653, an increase in accumulated net investment
income of $13,589 and an increase in capital paid-in of $29,064.
This represents the amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of August 31,
1996. 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.
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
John Hancock Series, Inc.--
John Hancock High Yield Tax-Free Fund
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of the John
Hancock High Yield Tax-Free Fund (the "Fund"), one of the portfolios
constituting John Hancock Series, Inc. (the "Corporation"), as of
August 31, 1996, and the related statements of operations for the
period from November 1, 1995 to August 31, 1996 and for the year
ended October 31, 1995, the statements of changes in net assets for
the period from November 1, 1995 to August 31, 1996 and for each of
the two years in the period ended October 31, 1995, and the
financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of
August 31, 1996, by correspondence with the custodian and brokers,
and other appropriate auditing procedures when replies from brokers
were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock High Yield Tax-Free Fund of
John Hancock Series, Inc. at August 31, 1996, the results of its
operations for the period from November 1, 1995 to August 31, 1996
and the year ended October 31, 1995, the changes in its net assets
for the period from November 1, 1995 to August 31, 1996 and for each
of the two years in the period ended October 31, 1995, and the
financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
/S/Ernst & Young LLP
Boston, Massachusetts
October 9, 1996
ADDITIONAL INFORMATION
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is
furnished with respect to the distributions of the Fund during its
fiscal year ended August 31, 1996.
For specific information on exemption provisions in your state,
consult your local state tax office or your tax adviser.
Income dividends are 99.8% tax-exempt. Approximately 20% of the 1995
income dividends are subject to the alternative minimum tax. None of
the income was derived from U.S. Treasury obligations, or qualify
for the corporate dividends received deductions. Shareholders will
receive a 1996 U.S. Treasury Department Form 1099-DIV in January
1997 representing their proportionate share.
SHAREHOLDER MEETING
On July 2, 1996, a special meeting of John Hancock High Yield Tax-
Free Fund (the "Fund") was held.
Shareholders approved an Agreement and Plan of Reorganization
whereby the Fund would become a series fund of John Hancock Tax-Free
Bond Trust, to take effect on September 30, 1996. The shareholder
votes tallied were 9,659,671 FOR, 284,196 AGAINST and 790,883
ABSTAINING.
The shareholders next approved an amendment to redesignate as
nonfundamental the Fund's fundamental investment restriction on
investing in other investment companies. The shareholder votes
tallied were 9,155,050 FOR, 377,677 AGAINST and 849,779 ABSTAINING.
Lastly, the following trustees were elected, with the votes
tabulated as indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------- ---------- ---------------
Edward J. Boudreau, Jr. 11,891,507 273,909
James F. Carlin 11,887,682 277,734
William H. Cunningham 11,884,019 281,397
Charles F. Fretz 11,885,414 280,002
Harold R. Hiser, Jr. 11,885,544 279,872
Anne C. Hodsdon 11,888,391 277,025
Charles L. Ladner 11,887,432 277,984
Leo E. Linbeck, Jr. 11,887,682 277,734
Patricia P. McCarter 11,887,682 277,734
Steven R. Pruchansky 11,887,682 277,734
Richard S. Scipione 11,888,280 277,136
Norman H. Smith 11,885,928 279,488
John P. Toolan 11,885,544 279,872
NOTES
John Hancock Funds - High Yield Tax-Free Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - High Yield Tax-Free Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - High Yield Tax-Free Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John
Hancock High Yield Tax-Free Fund. It may be used as sales literature
when preceded or accompanied by the current prospectus, which
details charges, investment objectives and operating policies.
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper." 5900A 8/96
10/96
