UNITED STATES | |
SECURITIES AND EXCHANGE COMMISSION | |
Washington, D.C. 20549 | |
FORM N-CSR | |
CERTIFIED SHAREHOLDER REPORT OF REGISTERED | |
MANAGEMENT INVESTMENT COMPANIES | |
Investment Company Act file number 811-5079 | |
John Hancock Tax-Exempt Series Fund | |
(Exact name of registrant as specified in charter) | |
601 Congress Street, Boston, Massachusetts 02210 | |
(Address of principal executive offices) (Zip code) | |
Salvatore Schiavone | |
Treasurer | |
601 Congress Street | |
Boston, Massachusetts 02210 | |
(Name and address of agent for service) | |
Registrant's telephone number, including area code: 617-663-4497 | |
Date of fiscal year end: | May 31 |
Date of reporting period: | May 31, 2013 |
ITEM 1. REPORTS TO STOCKHOLDERS.
A look at performance
Total returns for the period ended May 31, 2013
Tax- | |||||||||
Average annual total | Cumulative total | SEC 30-day | SEC 30-day | equivalent | |||||
returns (%) | returns (%) | yield (%) | yield (%) | subsidized | |||||
with maximum sales charge | with maximum sales charge | subsidized | unsubsidized1 | yield (%)2 | |||||
as of | as of | as of | |||||||
1-year | 5-year | 10-year | 1-year | 5-year | 10-year | 5-31-13 | 5-31-13 | 5-31-13 | |
Class A | –1.50 | 4.44 | 3.77 | –1.50 | 24.27 | 44.80 | 2.01 | 1.87 | 3.62 |
Class B | –2.63 | 4.33 | 3.67 | –2.63 | 23.58 | 43.36 | 1.35 | 1.25 | 2.42 |
Class C | 1.34 | 4.66 | 3.52 | 1.34 | 25.59 | 41.27 | 1.35 | 1.25 | 2.42 |
Index 1† | 2.64 | 5.43 | 4.56 | 2.64 | 30.24 | 56.23 | — | — | — |
Index 2† | 3.05 | 5.70 | 4.68 | 3.05 | 31.93 | 58.00 | — | — | — |
Performance figures assume all distributions have been reinvested. Figures reflect maximum sales charges on Class A shares of 4.5% and the applicable contingent deferred sales charge (CDSC) on Class B shares and Class C shares. The returns for Class C shares have been adjusted to reflect the elimination of the front-end sales charge effective 7-15-04. The Class B shares’ CDSC declines annually between years 1 to 6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC.
The expense ratios of the fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectus for the fund and may differ from those disclosed in the Financial highlights tables in this report. For all classes the expense ratios are as follows:
Class A* | Class B* | Class C* | |
Net (%) | 0.91% | 1.66% | 1.66% |
Gross (%) | 1.06% | 1.76% | 1.76% |
* The fund’s distributor has contractually agreed to waive 0.15%, 0.10% and 0.10% of Rule 12b-1 fees for Class A, Class B and Class C shares, respectively. The current waiver agreement will remain in effect through 9-30-13.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the fund’s current performance may be higher or lower than the performance shown. For current to the most recent month end performance data, please call 800-225-5291 or visit the fund’s website at jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on the redemption of fund shares. 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. The fund’s performance results reflect any applicable fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index 1 is the Barclays New York Municipal Bond Index. Index 2 is the Barclays Municipal Bond Index.
See the following page for footnotes.
6 | New York Tax-Free Income Fund | Annual report |
With maximum | Without | ||||
Start date | sales charge | sales charge | Index 1 | Index 2 | |
Class B3 | 5-31-03 | $14,336 | $14,336 | $15,623 | $15,800 |
Class C3 | 5-31-03 | 14,127 | 14,127 | 15,623 | 15,800 |
Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.
The Class C shares investment with maximum sales charge has been adjusted to reflect the elimination of the front-end sales charge effective 7-15-04.
Barclays New York Municipal Bond Index in an unmanaged index composed of New York investment-grade municipal bonds.
Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.
Prior to December 14, 2012, the fund compared its performance solely to the Barclays Municipal Bond Index. After this date, the fund added the Barclays New York Municipal Bond Index as the primary benchmark index and retained the Barclays Municipal Bond Index as the secondary benchmark index to which the fund compares its performance to better reflect the universe of investment opportunities based on the fund’s investment strategy.
It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would have resulted in lower values if they did.
Footnotes related to performance pages
1 Unsubsidized yield reflects what the yield would have been without the effect of reimbursements and waivers.
2 Tax-equivalent yield is based on the maximum federal income tax rate of 43.4% and a state tax rate of 8.82%. Share classes will differ due to varying expenses.
3 The contingent deferred sales charge is not applicable.
Annual report | New York Tax-Free Income Fund | 7 |
Management’s discussion of
Fund performance
John Hancock Asset Management a division of Manulife Asset Management (US) LLC
Effective June 28, 2013, Frank Lucibella, CFA, retired from our municipal bond portfolio management team. His responsibilities are being assumed by the fund’s existing portfolio manager, Dianne Sales, CFA, who has been with John Hancock since 1989 and has 29 years of investment experience.
Municipal bonds posted positive returns for the year ended May 31, 2013. The municipal bond market’s advance occurred primarily in the first half of the reporting period, fueled by robust demand and limited supply in the municipal market. Over the last six months of the period, the municipal market gave back some ground as demand tapered off. Improving economic conditions led investors to shift toward higher-risk assets, such as stocks and higher-yielding bonds. For the 12-month period, longer-term municipal securities generated the highest returns, while lower-quality municipal bonds outperformed higher-rated municipal securities.
A combination of improving tax revenues and reforms implemented by the governor and state legislature has created a more stable budgetary situation for New York. One challenge for the state was the damage to the New York City metropolitan area resulting from Superstorm Sandy in the fall of 2012. Short-term costs were addressed by the availability of federal aid, but uncertainty over the long-term costs of repairing and rebuilding essential services such as utilities, transportation and healthcare could impact New York credit in the future.
For the year ended May 31, 2013, John Hancock New York Tax-Free Income Fund’s Class A shares posted a total return of 3.11%, excluding sales charges. By comparison, Morningstar, Inc.’s muni New York long fund category produced an average return of 3.58%,† while the fund’s benchmark, the Barclays New York Municipal Bond Index, returned 2.64%. Some of the best contributors to fund performance included lower-quality securities, which benefited from healthy investor demand for yield. Examples included industrial development bonds, higher education bonds, and bonds financing special projects. The fund’s interest-rate sensitivity detracted from performance during the reporting period. The fund began the period with limited exposure to longer-term New York municipal bonds. As some of the fund’s bonds were called away in late 2012, however, we shifted the proceeds into longer-term bonds, which have greater interest-rate sensitivity. This positioning left the fund more vulnerable to rising municipal bond yields in 2013, negatively impacting returns. The fund’s holdings of bonds from Puerto Rico also detracted from fund results amid a persistent fiscal deficit and weaker economic growth.
This commentary reflects the views of the portfolio manager through the end of the period discussed in this report. As such, they are in no way guarantees of future events and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant.
Past performance is no guarantee of future results.
† Figures from Morningstar, Inc. include reinvested distributions and do not take into account sales charges. Actual load-adjusted performance is lower.
8 | New York Tax-Free Income Fund | Annual report |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
Understanding fund expenses
As a shareholder of the fund, you incur two types of costs:
■ Transaction costs, which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses, including management fees, distribution and service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on December 1, 2012, with the same investment held until May 31, 2013.
Account value | Ending value | Expenses paid during | |
on 12-1-12 | on 5-31-13 | period ended 5-31-131 | |
Class A | $1,000.00 | $982.40 | $4.40 |
Class B | 1,000.00 | 977.90 | 8.09 |
Class C | 1,000.00 | 977.90 | 8.09 |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at May 31, 2013, by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
Annual report | New York Tax-Free Income Fund | 9 |
Your expenses
Hypothetical example for comparison purposes
This table allows you to compare the fund’s ongoing operating expenses with those of any other fund. It provides an example of the fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not the fund’s actual return). It assumes an account value of $1,000.00 on December 1, 2012, with the same investment held until May 31, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 12-1-12 | on 5-31-13 | period ended 5-31-131 | |
Class A | $1,000.00 | $1,020.50 | $4.48 |
Class B | 1,000.00 | 1,016.80 | 8.25 |
Class C | 1,000.00 | 1,016.80 | 8.25 |
Remember, these examples do not include any transaction costs, therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the fund’s annualized expense ratio of 0.89%, 1.64%, and 1.64% for Class A, Class B, and Class C shares, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
10 | New York Tax-Free Income Fund | Annual report |
Portfolio summary
Top 10 Holdings (29.9% of Net Assets on 5-31-13)1,2 | |
Oneida County Industrial Development Agency, Step Coupon, 7-1-29 | 4.2% |
New York State Dormitory Authority, 5.500%, 5-15-19 | 3.6% |
Puerto Rico Sales Tax Financing Corp., Step Coupon, 8-1-32 | 3.2% |
Triborough Bridge & Tunnel Authority, 6.125%, 1-1-21 | 3.0% |
Metropolitan Transportation Authority, 5.000%, 11-15-34 | 3.0% |
New York City Municipal Water Finance Authority, Step Coupon, 6-15-20 | 2.8% |
Upper Mohawk Valley Regional Water Finance Authority, Step Coupon, 4-1-22 | 2.7% |
Long Island Power Authority, 5.750%, 4-1-39 | 2.7% |
New York State Dormitory Authority, 5.000%, 7-1-42 | 2.6% |
New York Local Assistance Corp., 5.500%, 4-1-17 | 2.1% |
Sector Composition1,3 | ||||
General Obligation Bonds | 4.2% | Development | 7.7% | |
Revenue Bonds | Health Care | 7.0% | ||
Other Revenue | 23.9% | Airport | 5.6% | |
Education | 16.7% | Pollution | 2.1% | |
Water & Sewer | 11.4% | Tobacco | 1.6% | |
Transportation | 9.7% | Short-Term Investments & Other | 2.4% | |
Utilities | 7.7% | |||
Quality Composition1,3,4 | ||||
AAA | 5.3% | |||
AA | 41.0% | |||
A | 24.2% | |||
BBB | 18.6% | |||
BB | 4.4% | |||
B | 1.3% | |||
Not Rated | 2.8% | |||
Short-Term Investments & Other | 2.4% | |||
1As a percentage of net assets on 5-31-13.
2 Cash and cash equivalents not included.
3 Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if the creditor is unable or unwilling to make principal or interest payments. Investments in higher-yielding, lower-rated securities involve additional risks as these securities include a higher risk of default and loss of principal. Municipal bond prices can decline due to fiscal mismanagement or tax shortfalls, or if related projects become unprofitable. If the Fund invests heavily in any one state or region, performance could be disproportionately affected by factors particular to that state or region. Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors and investments focused in one sector may fluctuate more widely than investments diversified across sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
4 Ratings are from Moody’s Investors Service, Inc. If not available, we have used ratings from Standard & Poor’s Ratings Services. In the absence of ratings from these agencies, we have used Fitch Ratings, Inc. ratings. “Not Rated” securities are those with no ratings available from these agencies. All ratings are as of 5-31-13 and do not reflect subsequent downgrades or upgrades, if any.
Annual report | New York Tax-Free Income Fund | 11 |
Fund’s investments
As of 5-31-13
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Municipal Bonds 97.6% | $63,368,863 | ||||
(Cost $57,470,399) | |||||
New York 87.1% | 56,560,993 | ||||
Brooklyn Arena Local Development Corp. | |||||
Barclays Center Project | 6.375 | 07-15-43 | $1,000,000 | 1,166,010 | |
Chautauqua Asset Securitization Corp. | |||||
Tobacco Settlement | 6.750 | 07-01-40 | 1,000,000 | 979,840 | |
City of New York, Series D-1 | 5.000 | 10-01-36 | 1,000,000 | 1,120,610 | |
City of New York, Series E-1 | 6.250 | 10-15-28 | 500,000 | 612,305 | |
Herkimer County Industrial | |||||
Development Agency | |||||
Folts Adult Home, Series A (D) | 5.500 | 03-20-40 | 945,000 | 1,051,757 | |
Hudson Yards Infrastructure Corp. | |||||
Series A | 5.750 | 02-15-47 | 1,000,000 | 1,153,470 | |
Long Island Power Authority | |||||
Electric, Power & Light Revenues, Series A | 5.750 | 04-01-39 | 1,500,000 | 1,724,220 | |
Long Island Power Authority | |||||
Electric, Power & Light Revenues, Series A | 6.000 | 05-01-33 | 1,000,000 | 1,187,930 | |
Metropolitan Transportation Authority | |||||
Transit Revenue, Series A | 5.250 | 11-15-28 | 1,000,000 | 1,136,840 | |
Metropolitan Transportation Authority | |||||
Transit Revenue, Series B | 5.000 | 11-15-34 | 1,750,000 | 1,929,165 | |
Metropolitan Transportation Authority | |||||
Transit Revenue, Series C (C) | 5.000 | 11-15-38 | 1,000,000 | 1,081,240 | |
Metropolitan Transportation Authority | |||||
Transit Revenue, Series E | 5.000 | 11-15-42 | 1,000,000 | 1,079,710 | |
Metropolitan Transportation Authority | |||||
Transit Revenue, Series H | 5.000 | 11-15-42 | 1,000,000 | 1,079,710 | |
Monroe County Industrial Development Corp., | |||||
Series A | 5.000 | 07-01-41 | 1,000,000 | 1,090,810 | |
Monroe Newpower Corp. | |||||
Electric, Power & Light Revenues | 5.100 | 01-01-16 | 1,000,000 | 1,019,760 | |
New York City Industrial Development Agency | |||||
Brooklyn Navy Yard Cogeneration | |||||
Partners AMT | 5.650 | 10-01-28 | 1,000,000 | 846,290 | |
New York City Industrial Development Agency | |||||
Lycee Francais De NY Project, Series A (D) | 5.375 | 06-01-23 | 1,000,000 | 1,021,620 | |
New York City Industrial Development Agency | |||||
Polytechnic University Project (D) | 5.250 | 11-01-27 | 1,000,000 | 1,078,650 | |
New York City Industrial Development Agency | |||||
Terminal One Group Association Project | |||||
AMT (P) | 5.500 | 01-01-21 | 1,000,000 | 1,098,830 |
12 | New York Tax-Free Income Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
New York (continued) | |||||
New York City Municipal Water | |||||
Finance Authority | |||||
Water Revenue, Series A | 5.750 | 06-15-40 | $1,000,000 | $1,172,990 | |
New York City Municipal Water | |||||
Finance Authority | |||||
Water Revenue, Series D (Z) | Zero | 06-15-20 | 2,000,000 | 1,787,880 | |
New York City Municipal Water | |||||
Finance Authority | |||||
Water Revenue, Series FF-2 | 5.000 | 06-15-40 | 1,000,000 | 1,092,640 | |
New York City Municipal Water | |||||
Finance Authority | |||||
Water Revenue, Series GG-1 | 5.000 | 06-15-39 | 1,000,000 | 1,095,720 | |
New York City Transitional Finance Authority | |||||
Government Fund/Grant Revenue, | |||||
Series S-4 (D) | 5.500 | 01-15-39 | 1,000,000 | 1,157,000 | |
New York Liberty Development Corp. | |||||
4 World Trade Center Project | 5.000 | 11-15-44 | 500,000 | 537,420 | |
New York Liberty Development Corp. | |||||
7 World Trade Center, Class 2 | 5.000 | 09-15-43 | 1,000,000 | 1,071,900 | |
New York Liberty Development Corp. | |||||
Bank of America Tower, Class 2 | 5.625 | 07-15-47 | 1,000,000 | 1,133,440 | |
New York Local Assistance Corp. | |||||
Sales Tax Revenue, Series C | 5.500 | 04-01-17 | 1,225,000 | 1,386,700 | |
New York State Dormitory Authority | |||||
General Purpose, Series E | 5.000 | 02-15-35 | 1,000,000 | 1,133,140 | |
New York State Dormitory Authority | |||||
Mount Sinai School of Medicine | 5.125 | 07-01-39 | 1,000,000 | 1,080,920 | |
New York State Dormitory Authority | |||||
North Shore Long Island Jewish Group, | |||||
Series A | 5.000 | 05-01-41 | 1,000,000 | 1,083,480 | |
New York State Dormitory Authority | |||||
Orange Regional Medical Center | 6.125 | 12-01-29 | 750,000 | 832,673 | |
New York State Dormitory Authority | |||||
Rockefeller University, Series A | 5.000 | 07-01-37 | 1,000,000 | 1,152,810 | |
New York State Dormitory Authority | |||||
Rockefeller University, Series A | 5.000 | 07-01-41 | 1,000,000 | 1,116,610 | |
New York State Dormitory Authority | |||||
Series B | 5.000 | 07-01-42 | 1,500,000 | 1,671,270 | |
New York State Dormitory Authority | |||||
State University Educational Facilities, | |||||
Series A (D) | 5.250 | 05-15-15 | 1,000,000 | 1,055,680 | |
New York State Dormitory Authority | |||||
State University Educational Facilities, Series A | 5.500 | 05-15-19 | 2,000,000 | 2,359,760 | |
New York State Environmental Facilities Corp. | |||||
Water Revenue, Series A | 5.000 | 06-15-34 | 1,000,000 | 1,150,630 | |
New York State Urban Development Corp. | |||||
Series A–1 | 5.000 | 03-15-43 | 1,000,000 | 1,114,590 | |
Niagara Area Development Corp. AMT | |||||
Covanta Energy Project, Series A | 5.250 | 11-01-42 | 500,000 | 509,795 | |
Oneida County Industrial Development Agency | |||||
Hamilton College Project, Series A (D)(Z) | Zero | 07-01-29 | 5,330,000 | 2,700,338 | |
Onondaga Civic Development Corp. | |||||
St. Joseph’s Hospital Health Center | 5.000 | 07-01-42 | 1,000,000 | 1,002,849 |
See notes to financial statements | Annual report | New York Tax-Free Income Fund | 13 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
New York (continued) | |||||
Orange County Industrial Development Agency | |||||
Arden Hill Care Center, Series C | 7.000 | 08-01-31 | $500,000 | $500,425 | |
Port Authority of New York & New Jersey | |||||
5th Installment Special Project AMT | 6.750 | 10-01-19 | 1,350,000 | 1,346,544 | |
Port Authority of New York & New Jersey | |||||
JFK International Airport Terminal | 6.000 | 12-01-36 | 1,000,000 | 1,164,380 | |
Triborough Bridge & Tunnel Authority | |||||
Highway Revenue Tolls, Escrowed to | |||||
Maturity, Series Y | 6.125 | 01-01-21 | 1,500,000 | 1,949,280 | |
Upper Mohawk Valley Regional Water | |||||
Finance Authority | |||||
Water Revenue (D)(Z) | Zero | 04-01-22 | 2,230,000 | 1,741,362 | |
Puerto Rico 7.9% | 5,097,845 | ||||
Commonwealth of Puerto Rico | |||||
Public Improvement, Series A | 5.750 | 07-01-41 | 1,000,000 | 1,024,600 | |
Puerto Rico Aqueduct & Sewer Authority | |||||
Water Revenue, Series A | 5.125 | 07-01-37 | 500,000 | 473,835 | |
Puerto Rico Sales Tax Financing Corp. | |||||
Sales Tax Revenue, Series A (Zero coupon | |||||
steps up to 6.750% on 8-1-16) | Zero | 08-01-32 | 2,000,000 | 2,046,920 | |
Puerto Rico Sales Tax Financing Corp., Series C | 5.000 | 08-01-35 | 1,000,000 | 1,025,350 | |
Puerto Rico Sales Tax Financing Corp., Series C | 5.375 | 08-01-38 | 500,000 | 527,140 | |
Virgin Islands 1.8% | 1,163,070 | ||||
Virgin Islands Public Finance Authority, Series A | 6.750 | 10-01-37 | 1,000,000 | 1,163,070 | |
Guam 0.8% | 546,955 | ||||
Guam Government, Series A | 5.750 | 12-01-34 | 500,000 | 546,955 | |
Par value | Value | ||||
Short-Term Investments 3.2% | $2,110,000 | ||||
(Cost $2,110,000) | |||||
Repurchase Agreement 3.2% | 2,110,000 | ||||
Repurchase Agreement with State Street Corp. dated 5-31-13 at | |||||
0.010% to be repurchased at $2,110,000 on 6-3-13, collateralized | |||||
by $2,055,000 U.S. Treasury Note, 2.625% due 12-31-14 (valued at | |||||
$2,155,181 including interest) | $2,110,000 | 2,110,000 | |||
Total investments (Cost $59,580,399)† 100.8% | $65,478,863 | ||||
Other assets and liabilities, net (0.8%) | ($531,421) | ||||
Total net assets 100.0% | $64,947,442 | ||||
The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the Fund.
14 | New York Tax-Free Income Fund | Annual report | See notes to financial statements |
Notes to Schedule of Investments
AMT Interest earned from these securities may be considered a tax preference item for purpose of the Federal Alternative Minimum Tax.
(C) Security purchased on a when-issued or delayed delivery basis.
(D) Bond is insured by one of these companies:
Insurance coverage | As a % of total investments | ||
ACA Financial Guaranty Corp. | 3.2% | ||
Ambac Financial Group, Inc. | 2.7% | ||
Federal Housing Administration | 1.6% | ||
National Public Finance Guarantee Corp. | 5.7% |
(P) Variable rate obligation. The coupon rate shown represents the rate at period end.
(Z) Zero coupon bonds are issued at a discount from their principal amount in lieu of paying interest periodically.
† At 5-31-13, the aggregate cost of investment securities for federal income tax purposes was $59,458,030. Net unrealized appreciation aggregated $6,020,833 of which $6,220,106 related to appreciated investment securities and $199,273 related to depreciated investment securities.
The Fund had the following sector composition as a percentage of total net assets on 5-31-13:
General Obligation Bonds | 4.2% | |
Revenue Bonds | ||
Other Revenue | 23.9% | |
Education | 16.7% | |
Water & Sewer | 11.4% | |
Transportation | 9.7% | |
Utilities | 7.7% | |
Development | 7.7% | |
Health Care | 7.0% | |
Airport | 5.6% | |
Pollution | 2.1% | |
Tobacco | 1.6% | |
Short-Term Investments & Other | 2.4% |
See notes to financial statements | Annual report | New York Tax-Free Income Fund | 15 |
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 5-31-13
This Statement of assets and liabilities is the fund’s balance sheet. It shows the value of what the fund owns, is due and owes. You’ll also find the net asset value and the maximum offering price per share.
Assets | |
Investments, at value (Cost $59,580,399) | $65,478,863 |
Cash | 108 |
Receivable for fund shares sold | 8,309 |
Interest receivable | 745,421 |
Receivable from affiliates | 861 |
Other receivables and prepaid expenses | 6,845 |
Total assets | 66,240,407 |
Liabilities | |
Payable for delayed delivery securities purchased | 1,081,240 |
Payable for fund shares repurchased | 121,394 |
Distributions payable | 25,979 |
Payable to affiliates | |
Accounting and legal services fees | 2,171 |
Transfer agent fees | 3,313 |
Distribution and service fees | 8,613 |
Trustees’ fees | 2,371 |
Other liabilities and accrued expenses | 47,884 |
Total liabilities | 1,292,965 |
Net assets | $64,947,442 |
Net assets consist of | |
Paid-in capital | $58,857,859 |
Undistributed net investment income | 69,368 |
Accumulated net realized gain (loss) on investments | 121,751 |
Net unrealized appreciation (depreciation) on investments | 5,898,464 |
Net assets | $64,947,442 |
Net asset value per share | |
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($52,864,379 ÷ 4,156,378 shares)1 | $12.72 |
Class B ($2,263,808 ÷ 177,967 shares)1 | $12.72 |
Class C ($9,819,255 ÷ 771,891 shares)1 | $12.72 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95.5%)2 | $13.32 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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.
16 | New York Tax-Free Income Fund | Annual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
Statement of operations For the year ended 5-31-13
This 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.
Investment income | |
Interest | $2,890,265 |
Expenses | |
Investment management fees | 326,740 |
Distribution and service fees | 281,215 |
Accounting and legal services fees | 10,714 |
Transfer agent fees | 39,716 |
Trustees’ fees | 3,811 |
State registration fees | 9,162 |
Printing and postage | 10,948 |
Professional fees | 45,211 |
Custodian fees | 12,249 |
Registration and filing fees | 22,512 |
Other | 4,880 |
Total expenses | 767,158 |
Less expense reductions | (91,939) |
Net expenses | 675,219 |
Net investment income | 2,215,046 |
Realized and unrealized gain (loss) | |
Net realized gain on Investments | 154,736 |
Change in net unrealized appreciation (depreciation) of Investments | (463,629) |
Net realized and unrealized loss | (308,893) |
Increase in net assets from operations | $1,906,153 |
See notes to financial statements | Annual report | New York Tax-Free Income Fund | 17 |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of changes in net assets show how the value of the fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of fund share transactions.
Year | Year | |
ended | ended | |
5-31-13 | 5-31-12 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $2,215,046 | $2,378,527 |
Net realized gain | 154,736 | 142,970 |
Change in net unrealized appreciation (depreciation) | (463,629) | 4,346,005 |
Increase in net assets resulting from operations | 1,906,153 | 6,867,502 |
Distributions to shareholders | ||
From net investment income | ||
Class A | (1,868,234) | (2,034,067) |
Class B | (62,518) | (67,551) |
Class C | (273,301) | (264,603) |
From net realized gain | ||
Class A | (173,051) | (37,821) |
Class B | (7,277) | (1,492) |
Class C | (33,390) | (5,975) |
Total distributions | (2,417,771) | (2,411,509) |
From Fund share transactions | 1,196,453 | (204,711) |
Total increase | 684,835 | 4,251,282 |
Net assets | ||
Beginning of year | 64,262,607 | 60,011,325 |
End of year | $64,947,442 | $64,262,607 |
Undistributed net investment income | $69,368 | $23,929 |
18 | New York Tax-Free Income Fund | Annual report | See notes to financial statements |
Financial highlights
The Financial highlights show how the fund’s net asset value for a share has changed during the period.
CLASS A SHARES Period ended | 5-31-13 | 5-31-12 | 5-31-11 | 5-31-10 | 5-31-091 | 8-31-08 |
Per share operating performance | ||||||
Net asset value, beginning of period | $12.82 | $11.94 | $12.20 | $11.60 | $11.96 | $12.03 |
Net investment income2 | 0.46 | 0.48 | 0.52 | 0.51 | 0.38 | 0.51 |
Net realized and unrealized gain (loss) | ||||||
on investments | (0.06) | 0.89 | (0.28) | 0.60 | (0.36) | (0.07) |
Total from investment operations | 0.40 | 1.37 | 0.24 | 1.11 | 0.02 | 0.44 |
Less distributions | ||||||
From net investment income | (0.46) | (0.48) | (0.50) | (0.51) | (0.38) | (0.51) |
From net realized gain | (0.04) | (0.01) | — | — | — | — |
Total distributions | (0.50) | (0.49) | (0.50) | (0.51) | (0.38) | (0.51) |
Net asset value, end of period | $12.72 | $12.82 | $11.94 | $12.20 | $11.60 | $11.96 |
Total return (%)3,4 | 3.11 | 11.71 | 2.04 | 9.71 | 0.285 | 3.73 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $53 | $53 | $50 | $54 | $46 | $44 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.04 | 1.06 | 1.08 | 1.10 | 1.196,7 | 1.04 |
Expenses net of fee waivers | 0.89 | 0.93 | 0.96 | 1.10 | 1.196,7 | 1.04 |
Net investment income | 3.53 | 3.92 | 4.31 | 4.27 | 4.506 | 4.28 |
Portfolio turnover (%) | 8 | 16 | 9 | 7 | 22 | 25 |
1 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
2 Based on the average daily shares outstanding.
3 Does not reflect the effect of sales charges, if any.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Annualized.
7 Includes proxy fees. The impact of this expense to the gross and net expense ratios was 0.04%.
See notes to financial statements | Annual report | New York Tax-Free Income Fund | 19 |
CLASS B SHARES Period ended | 5-31-13 | 5-31-12 | 5-31-11 | 5-31-10 | 5-31-091 | 8-31-08 |
Per share operating performance | ||||||
Net asset value, beginning of period | $12.82 | $11.94 | $12.21 | $11.60 | $11.96 | $12.03 |
Net investment income2 | 0.36 | 0.39 | 0.43 | 0.42 | 0.32 | 0.43 |
Net realized and unrealized gain (loss) | ||||||
on investments | (0.06) | 0.89 | (0.28) | 0.61 | (0.36) | (0.07) |
Total from investment operations | 0.30 | 1.28 | 0.15 | 1.03 | (0.04) | 0.36 |
Less distributions | ||||||
From net investment income | (0.36) | (0.39) | (0.42) | (0.42) | (0.32) | (0.43) |
From net realized gain | (0.04) | (0.01) | — | — | — | — |
Total distributions | (0.40) | (0.40) | (0.42) | (0.42) | (0.32) | (0.43) |
Net asset value, end of period | $12.72 | $12.82 | $11.94 | $12.21 | $11.60 | $11.96 |
Total return (%)3,4 | 2.34 | 10.90 | 1.25 | 9.03 | (0.24)5 | 3.01 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $2 | $2 | $2 | $3 | $6 | $8 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.74 | 1.76 | 1.77 | 1.80 | 1.896,7 | 1.74 |
Expenses net of fee waivers | 1.64 | 1.66 | 1.66 | 1.80 | 1.896,7 | 1.74 |
Net investment income | 2.78 | 3.18 | 3.59 | 3.57 | 3.806 | 3.57 |
Portfolio turnover (%) | 8 | 16 | 9 | 7 | 22 | 25 |
1 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
2 Based on the average daily shares outstanding.
3 Does not reflect the effect of sales charges, if any.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Annualized.
7 Includes proxy fees. The impact of this expense to the gross and net expense ratios was 0.04%.
CLASS C SHARES Period ended | 5-31-13 | 5-31-12 | 5-31-11 | 5-31-10 | 5-31-091 | 8-31-08 |
Per share operating performance | ||||||
Net asset value, beginning of period | $12.82 | $11.94 | $12.21 | $11.60 | $11.96 | $12.03 |
Net investment income2 | 0.36 | 0.39 | 0.43 | 0.43 | 0.32 | 0.43 |
Net realized and unrealized gain (loss) | ||||||
on investments | (0.06) | 0.89 | (0.28) | 0.60 | (0.36) | (0.07) |
Total from investment operations | 0.30 | 1.28 | 0.15 | 1.03 | (0.04) | 0.36 |
Less distributions | ||||||
From net investment income | (0.36) | (0.39) | (0.42) | (0.42) | (0.32) | (0.43) |
From net realized gain | (0.04) | (0.01) | — | — | — | — |
Total distributions | (0.40) | (0.40) | (0.42) | (0.42) | (0.32) | (0.43) |
Net asset value, end of period | $12.72 | $12.82 | $11.94 | $12.21 | $11.60 | $11.96 |
Total return (%)3,4 | 2.34 | 10.90 | 1.25 | 9.04 | (0.24)5 | 3.01 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $10 | $9 | $8 | $8 | $6 | $3 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.74 | 1.76 | 1.78 | 1.80 | 1.896,7 | 1.74 |
Expenses net of fee waivers | 1.64 | 1.66 | 1.66 | 1.80 | 1.896,7 | 1.74 |
Net investment income | 2.78 | 3.19 | 3.61 | 3.56 | 3.796 | 3.57 |
Portfolio turnover (%) | 8 | 16 | 9 | 7 | 22 | 25 |
1 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
2 Based on the average daily shares outstanding.
3 Does not reflect the effect of sales charges, if any.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Annualized.
7 Includes proxy fees. The impact of this expense to the gross and net expense ratios was 0.04%.
20 | New York Tax-Free Income Fund | Annual report | See notes to financial statements |
Notes to financial statements
Note 1 — Organization
John Hancock New York Tax-Free Income Fund (the Fund) is series of John Hancock Tax-Exempt Series Fund (the Trust), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek a high level of current income, consistent with preservation of capital, that is exempt from federal, New York State and New York City personal income taxes.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of assets and liabilities. Class A and Class C shares are offered to all investors. Class B shares are closed to new investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.
Note 2 — Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. In order to value the securities, the Fund uses the following valuation techniques: Debt obligations are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, taking into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Certain securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost. Other portfolio securities and assets, for which reliable market quotations are not readily available, are valued at fair value as determined in good faith by the Fund’s Pricing Committee following procedures established by the Board of Trustees, which include price verification procedures. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. Factors used in determining value may include
Annual report | New York Tax-Free Income Fund | 21 |
market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
As of May 31, 2013, all investments are categorized as Level 2 under the hierarchy described above.
Repurchase agreements. The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the Fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the Fund’s custodian agreement, the custodian may loan money to the Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian may have a lien, security interest or security entitlement in any Fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis and is reflected in other expenses on the Statement of operations. Prior to March 27, 2013, the Fund participated in a $100 million unsecured line of credit, also with Citibank, with terms otherwise similar to the existing agreement. Commitment fees for the year ended May 31, 2013, were $764. For the year ended May 31, 2013, the Fund had no borrowings under either line of credit.
Expenses. Within the John Hancock Funds complex, expenses that are directly attributable to an individual fund are allocated to such fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative net assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
Class allocations. Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the net assets of the class. Class-specific expenses, such as distribution and service fees, if any, and transfer agent fees, are calculated daily for each class, based on the net asset value of the class and the applicable specific expense rates.
22 | New York Tax-Free Income Fund | Annual report |
Federal income taxes. The Fund intends to continue to qualify 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 that is distributed to shareholders. Therefore, no federal income tax provision is required.
Net capital losses of $618 that are the result of security transactions occurring after October 31, 2012, are treated as occurring on June 1, 2013, the first day of the Fund’s next taxable year.
As of May 31, 2013, the Fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares dividends daily and pays them monthly. Capital gain distributions, if any, are distributed at least annually. The tax character of distributions for the years ended May 31, 2013 and May 31, 2012 was as follows:
MAY 31, 2013 | MAY 31, 2012 | |||
Ordinary Income | $35,685 | $3,176 | ||
Exempt Interest | $2,168,411 | $2,363,045 | ||
Long-Term Capital Gain | $213,675 | $45,288 |
Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and in the same amount, except for the effect of class level expenses that may be applied differently to each class. As of May 31, 2013, the components of distributable earnings on a tax basis consisted of $96,343 of undistributed exempt interest.
Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Capital accounts within the financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to distributions payable and accretion on debt securities.
New accounting pronouncements. In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-11 (ASU 2011-11), Disclosures about Offsetting Assets and Liabilities and in January 2013, Accounting Standards Update No. 2013-1, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. These updates create new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. These updates may result in additional disclosure relating to the presentation of derivatives and certain other financial instruments.
Note 3 — Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service
Annual report | New York Tax-Free Income Fund | 23 |
providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 4 — Fees and transactions with affiliates
John Hancock Advisers, LLC (the Advisor) serves as investment advisor for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Fund. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Advisor under which the Fund pays a daily management fee to the Advisor 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 assets, (b) 0.450% of the next $250,000,000 of the Fund’s average daily net assets, (c) 0.425% of the next $500,000,000 of the Fund’s average daily net assets, (d) 0.400% of the next $250,000,000 of the Fund’s average daily net assets, and (e) 0.300% of the Fund’s average daily net assets in excess of $1,250,000,000. The Advisor has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Advisor. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the year ended May 31, 2013 were equivalent to a net effective rate of 0.50% of the Fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to the Fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. These accounting and legal services fees incurred for the year ended May 31, 2013 amounted to an annual rate of 0.02% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund pays the following contractual rates of distribution fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
CLASS | 12b–1 FEE | ||
Class A | 0.30% | ||
Class B | 1.00% | ||
Class C | 1.00% |
The Distributor has contractually agreed to waive 0.15% of Rule 12b-1 fees for Class A shares and 0.10% of Rule 12b-1 fees for Class B and Class C shares. The current waiver agreement expires on September 30, 2013, unless renewed by mutual agreement of the fund and the Distributor based upon a determination that is appropriate under the circumstances at the time.
Accordingly, these fee limitations amounted to $79,771, $2,265 and $9,903 for Class A, Class B and Class C shares, respectively, for the year ended May 31, 2013.
24 | New York Tax-Free Income Fund | Annual report |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $151,032 for the year ended May 31, 2013. Of this amount, $23,646 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $121,489 was paid as sales commissions to broker-dealers and $5,897 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Class A, Class B and Class C shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. Class B shares that are redeemed within six years of purchase are subject to CDSCs, at declining rates, beginning at 5.00%. Class C shares that are redeemed within one year of purchase are subject to a 1.00% CDSC. CDSCs are applied to the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the year ended May 31, 2013, CDSCs received by the Distributor amounted to $6,697 and $74 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. The transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain fees that Signature Services receives in connection with retirement and small accounts. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. Within each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the year ended May 31, 2013 were:
DISTRIBUTION AND | TRANSFER | |||
CLASS | SERVICE FEES | AGENT FEES | ||
Class A | $159,543 | $32,312 | ||
Class B | 22,649 | 1,378 | ||
Class C | 99,023 | 6,026 | ||
Total | $281,215 | $39,716 |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Advisor or its affiliates. Under the John Hancock Group of Funds Deferred Compensation Plan (the Plan) which was terminated in November 2012, certain Trustees could have elected, for tax purposes, to defer receipt of this compensation. Any deferred amounts were invested in various John Hancock funds. The investment of deferred amounts and the offsetting liability are included within Other receivables and prepaid expenses and Payable to affiliates — Trustees’ fees, respectively, in the accompanying Statement of assets and liabilities. Plan assets will be liquidated in accordance with the Plan documents.
Annual report | New York Tax-Free Income Fund | 25 |
Note 5 — Fund share transactions
Transactions in Fund shares for the years ended May 31, 2013 and 2012 were as follows:
Year ended 5-31-13 | Year ended 5-31-12 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 578,225 | $7,472,175 | 528,795 | $6,514,026 |
Distributions reinvested | 136,227 | 1,760,207 | 137,351 | 1,698,349 |
Repurchased | (690,645) | (8,948,446) | (714,084) | (8,831,901) |
Net increase (decrease) | 23,807 | $283,936 | (47,938) | ($619,526) |
Class B shares | ||||
Sold | 57,293 | $742,493 | 40,733 | $505,065 |
Distributions reinvested | 4,095 | 52,928 | 3,701 | 45,757 |
Repurchased | (50,809) | (656,479) | (56,644) | (699,651) |
Net increase (decrease) | 10,579 | $138,942 | (12,210) | ($148,829) |
Class C shares | ||||
Sold | 201,474 | $2,606,705 | 142,903 | $1,774,380 |
Distributions reinvested | 20,488 | 264,805 | 16,233 | 201,053 |
Repurchased | (162,435) | (2,097,935) | (114,251) | (1,411,789) |
Net increase | 59,527 | $773,575 | 44,885 | $563,644 |
Net increase (decrease) | 93,913 | $1,196,453 | (15,263) | ($204,711) |
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $5,961,305 and $5,035,000, respectively, for the year ended May 31, 2013.
26 | New York Tax-Free Income Fund | Annual report |
Auditor’s report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Tax-Exempt Series Fund and
Shareholders of John Hancock New York Tax-Free Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock New York Tax-Free Income Fund (the “Fund”) at May 31, 2013, the results of its operations, for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2013 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where securities purchased confirmations had not been received, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 25, 2013
Annual report | New York Tax-Free Income Fund | 27 |
Tax information
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended May 31, 2013.
98.49% of dividends from net investment income are exempt-interest dividends.
The Fund paid $213,675 in capital gain dividends.
Eligible shareholders will be mailed a 2013 Form 1099-DIV in early 2014. This will reflect the tax character of all distributions paid in calendar year 2013.
Please consult a tax advisor regarding the tax consequences of your investment in the Fund.
28 | New York Tax-Free Income Fund | Annual report |
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Tax-Exempt Series Fund (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with John Hancock Asset Management a division of Manulife Asset Management (US) LLC (the Subadvisor) for John Hancock New York Tax-Free Income Fund (the Fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16-17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the Fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the Fund, the Advisor and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for relevant indexes; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts; and other information provided by the Advisor and the Subadvisor regarding the nature, extent and quality of services provided by the Advisor and the Subadvisor under their respective Agreement, as well as information regarding the Advisor’s revenues and costs of providing services to the Fund and compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning Fund performance, comparability of fees and total expenses and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the Fund, including quarterly performance reports prepared by management containing reviews of investment results, and periodic presentations from the Subadvisor with respect to the Fund. The Board noted the affiliation of the Subadvisor with the Advisor, noting any potential conflicts of interest. The Board also considered the nature, quality and extent of the services to be provided to John Hancock Fund portfolios by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the Fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets and the industry) and does not treat any single factor as determinative, and each Trustee may attribute different weights to different factors. The Board’s conclusions may be based in part on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of Fund performance and operations throughout the year.
Annual report | New York Tax-Free Income Fund | 29 |
Nature, extent and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent and quality of services provided to the Fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the Fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and other third-party service providers.
In considering the nature, extent and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties, through Board meetings, discussions and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationships, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objective(s), review of brokerage matters, including with respect to trade allocation and best execution and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the Fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the Fund; and
(f) the Advisor’s reputation and experience in serving as an investment advisor to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the Fund.
Investment performance. In considering the Fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
(a) reviewed information prepared by management regarding the Fund’s performance;
(b) considered the comparative performance of the Fund’s benchmark;
30 | New York Tax-Free Income Fund | Annual report |
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the Fund’s ranking within a smaller group of peer funds and the Fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the Fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted that the Fund had outperformed its benchmark index for the one- and three-year periods ended December 31, 2012 and had underperformed the benchmark index for the five-year period ended December 31, 2012. The Board also noted that the Fund had outperformed the peer group average for the one-, three- and five-year periods ended December 31, 2012. The Board noted the Fund’s performance relative to the benchmark index for the one- and three-year periods and relative to the peer group average for the one-, three- and five-year periods.
The Board concluded that the performance of the Fund has generally been in line with or outperformed the historical performance of comparable funds and the Fund’s benchmark.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data including, among other data, the Fund’s contractual and actual advisory fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the Fund. The Board considered the Fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the Fund’s ranking within broader groups of funds. In comparing the Fund’s actual and contractual management fee to that of comparable funds, the Board noted that such fee includes both advisory and administrative costs.
The Board noted that net management fees and total expenses for this Fund are higher than the peer group medians. The Board took into account management’s discussion of the Fund’s expenses and noted that the Fund waived a portion of its 12b-1 fees and that the full impact of the waiver was not reflected in the expense comparison.
The Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the Fund, which is discussed further below. The Board reviewed information provided by the Advisor concerning investment advisory fees charged by the Advisor or one of its advisory affiliates to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the Fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the Fund is reasonable.
Profitability/Indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates (including the Subadvisor) from the Advisor’s relationship with the Trust, the Board:
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates of the Fund;
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
Annual report | New York Tax-Free Income Fund | 31 |
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
(e) considered that the Advisor also provides administrative services to the Fund at cost pursuant to an administrative services agreement;
(f) noted that the Fund’s Subadvisor is an affiliate of the Advisor;
(g) noted that affiliates of the Advisor provide transfer agency services and distribution services to the Fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the Fund;
(h) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the Fund;
(i) noted that the subadvisory fees for the Fund are paid by the Advisor; and
(j) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates (including the Subadvisor) from their relationship with the Fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the Fund grows and whether fee levels reflect these economies of scale for the benefit of Fund shareholders, the Board:
(a) with respect to each fund in the John Hancock fund complex, including the Fund (except those listed below), considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the Fund and each of the open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock Fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement): The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The John Hancock Funds that are not Participating Portfolios as of the date of this annual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the Fund’s fee structure contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the Fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the Fund to benefit from economies of scale if the Fund grows. The Board also took into account management’s discussion of the Fund’s advisory fee structure; and
(c) the Board also considered the effect of the Fund’s growth in size on its performance and fees. The Board also noted that if the Fund’s assets increase over time, the Fund may realize other economies of scale.
32 | New York Tax-Free Income Fund | Annual report |
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the Fund and comparative performance information relating to the Fund’s benchmark and comparable funds; and
(3) the subadvisory fee for the Fund, including any breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data.
Nature, extent and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the Fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by them to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the Fund, which is consistent with the Fund’s investment objectives, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the Fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the Fund.
The Board also received information and took into account any other potential conflicts of interests the Advisor might have in connection with the Subadvisory Agreement.
In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the Fund, such as the opportunity to provide advisory services to additional portfolios of the Trust and reputational benefits.
Annual report | New York Tax-Free Income Fund | 33 |
Subadvisory fees. The Board considered that the Fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fees paid by the Advisor to fees charged by the Fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the Fund’s performance as compared to the Fund’s peer group and benchmark and noted that the Board reviews information about the Fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the Fund generally has been in line with or outperformed the historical performance of comparable funds and the Fund’s benchmark and the Fund’s overall performance is satisfactory;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the Fund in order to permit shareholders to benefit from economies of scale if the Fund grows.
* * * |
Based on their evaluation of all factors that they deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the Fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
34 | New York Tax-Free Income Fund | Annual report |
Trustees and Officers
This chart provides information about the Trustees and Officers who oversee your John Hancock fund as of December 1, 2012. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.
Independent Trustees
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
James M. Oates,2 Born: 1946 | 2012 | 233 |
Managing Director, Wydown Group (financial consulting firm) (since 1994); Chairman and Director, | ||
Emerson Investment Management, Inc. (since 2000); Independent Chairman, Hudson Castle Group, Inc. | ||
(formerly IBEX Capital Markets, Inc.) (financial services company) (1997–2011); Director, Stifel Financial | ||
(since 1996); Director, Investor Financial Services Corporation (1995–2007); Director, Connecticut River | ||
Bancorp (since 1998); Director, Virtus Funds (formerly Phoenix Mutual Funds) (since 1988). Trustee | ||
and Chairperson of the Board, John Hancock retail funds (since 2012); Trustee (2005–2006 and since | ||
2012) and Chairperson of the Board (since 2012), John Hancock Funds III; Trustee (since 2004) and | ||
Chairperson of the Board (since 2005), John Hancock Variable Insurance Trust; Trustee and Chairperson | ||
of the Board (since 2005), John Hancock Funds II. | ||
Charles L. Bardelis,2,3 Born: 1941 | 2012 | 233 |
Director, Island Commuter Corp. (marine transport). Trustee, John Hancock retail funds (since 2012); | ||
Trustee, John Hancock Funds III (2005–2006 and since 2012); Trustee, John Hancock Variable Insurance | ||
Trust (since 1988); Trustee, John Hancock Funds II (since 2005). | ||
Peter S. Burgess,2,3 Born: 1942 | 2012 | 233 |
Consultant (financial, accounting and auditing matters) (since 1999); Certified Public Accountant; | ||
Partner, Arthur Andersen (independent public accounting firm) (prior to 1999); Director, Lincoln | ||
Educational Services Corporation (since 2004); Director, Symetra Financial Corporation (since 2010); | ||
former Director, PMA Capital Corporation (2004–2010). Trustee, John Hancock retail funds (since 2012); | ||
Trustee, John Hancock Funds III (2005–2006 and since 2012); Trustee, John Hancock Variable Insurance | ||
Trust and John Hancock Funds II (since 2005). | ||
William H. Cunningham, Born: 1944 | 1987 | 233 |
Professor, University of Texas, Austin, Texas (since 1971); former Chancellor, University of Texas | ||
System and former President of the University of Texas, Austin, Texas; Director, LIN Television (since | ||
2009); Chairman (since 2009) and Director (since 2006), Lincoln National Corporation (insurance); | ||
Director, Resolute Energy Corporation (since 2009); Director, Southwest Airlines (since 2000); former | ||
Director, Introgen (manufacturer of biopharmaceuticals) (until 2008); former Director, Hicks Acquisition | ||
Company I, Inc. (until 2007); former Director, Texas Exchange Bank, SSB (formerly Bank of Crowley) | ||
(until 2009); former Advisory Director, JP Morgan Chase Bank (formerly Texas Commerce Bank–Austin) | ||
(until 2009). Trustee, John Hancock retail funds (since 1986); Trustee, John Hancock Variable Insurance | ||
Trust (since 2012); Trustee, John Hancock Funds II (since 2012 and 2005–2006). | ||
Grace K. Fey,2 Born: 1946 | 2012 | 233 |
Chief Executive Officer, Grace Fey Advisors (since 2007); Director and Executive Vice President, | ||
Frontier Capital Management Company (1988–2007); Director, Fiduciary Trust (since 2009). | ||
Trustee, John Hancock retail funds (since 2012); Trustee, John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2008). |
Annual report | New York Tax-Free Income Fund | 35 |
Independent Trustees (continued)
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
Theron S. Hoffman,2,3 Born: 1947 | 2012 | 233 |
Chief Executive Officer, T. Hoffman Associates, LLC (consulting firm) (since 2003); Director, The Todd | ||
Organization (consulting firm) (2003–2010); President, Westport Resources Management (investment | ||
management consulting firm) (2006–2008); Senior Managing Director, Partner and Operating Head, | ||
Putnam Investments (2000–2003); Executive Vice President, The Thomson Corp. (financial and | ||
legal information publishing) (1997–2000). Trustee, John Hancock retail funds (since 2012); Trustee, | ||
John Hancock Variable Insurance Trust and John Hancock Funds II (since 2008). | ||
Deborah C. Jackson, Born: 1952 | 2008 | 233 |
President, Cambridge College, Cambridge, Massachusetts (since 2011); Chief Executive Officer, | ||
American Red Cross of Massachusetts Bay (2002–2011); Board of Directors of Eastern Bank Corporation | ||
(since 2001); Board of Directors of Eastern Bank Charitable Foundation (since 2001); Board of Directors | ||
of American Student Assistance Corporation (1996–2009); Board of Directors of Boston Stock Exchange | ||
(2002–2008); Board of Directors of Harvard Pilgrim Healthcare (health benefits company) (2007–2011). | ||
Trustee, John Hancock retail funds (since 2008); Trustee of John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2012). | ||
Hassell H. McClellan,2 Born: 1945 | 2012 | 233 |
Associate Professor, The Wallace E. Carroll School of Management, Boston College (since 1984); | ||
Trustee, Virtus Variable Insurance Trust (formerly Phoenix Edge Series Funds) (since 2008); Director, | ||
The Barnes Group (since 2010). Trustee, John Hancock retail funds (since 2012); Trustee, John Hancock | ||
Funds III (2005–2006 and since 2012); Trustee, John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2005). | ||
Steven R. Pruchansky, Born: 1944 | 1994 | 233 |
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. (since 2000); Director | ||
and President, Greenscapes of Southwest Florida, Inc. (until 2000); Member, Board of Advisors, First | ||
American Bank (until 2010); Managing Director, Jon James, LLC (real estate) (since 2000); Director, | ||
First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, | ||
Maxwell Building Corp. (until 1991). Trustee (since 1992) and Chairperson of the Board (2011–2012), | ||
John Hancock retail funds; Trustee and Vice Chairperson of the Board, John Hancock retail funds, | ||
John Hancock Variable Insurance Trust and John Hancock Funds II (since 2012). | ||
Gregory A. Russo, Born: 1949 | 2008 | 233 |
Director and Audit Committee Chairman (since 2012) and Member, Audit Committee and Finance | ||
Committee (since 2011), NCH Healthcare System, Inc. (holding company for multi-entity healthcare | ||
system); Director and Member of Finance Committee, The Moorings, Inc. (nonprofit continuing care | ||
community) (since 2012); Vice Chairman, Risk & Regulatory Matters, KPMG LLP (KPMG) (2002–2006); | ||
Vice Chairman, Industrial Markets, KPMG (1998–2002); Chairman and Treasurer, Westchester | ||
County, New York, Chamber of Commerce (1986–1992); Director, Treasurer and Chairman of | ||
Audit and Finance Committees, Putnam Hospital Center (1989–1995); Director and Chairman of | ||
Fundraising Campaign, United Way of Westchester and Putnam Counties, New York (1990–1995). | ||
Trustee, John Hancock retail funds (since 2008); Trustee, John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2012). |
36 | New York Tax-Free Income Fund | Annual report |
Non-Independent Trustees4
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
James R. Boyle,2 Born: 1959 | 2012 | 233 |
Senior Executive Vice President, John Hancock Financial Services (1999–2012, including prior positions); | ||
Chairman and Director, John Hancock Advisers, LLC, John Hancock Funds, LLC and John Hancock | ||
Investment Management Services, LLC (2005–2010). Trustee, John Hancock retail funds (since 2012 and | ||
2005–2010), Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2005). | ||
Craig Bromley,2 Born: 1966 | 2012 | 233 |
President, John Hancock Financial Services (since 2012); Senior Executive Vice President and General | ||
Manager, U.S. Division, John Hancock Financial Services (since 2012); President and Chief Executive | ||
Officer, Manulife Insurance Company (Manulife (Japan) (2005–2012), including prior positions). | ||
Trustee, John Hancock retail funds (since 2012); Trustee, John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2012). | ||
Warren A. Thomson,2 Born: 1955 | 2012 | 233 |
Senior Executive Vice President and Chief Investment Officer, Manulife Financial Corporation and The | ||
Manufacturers Life Insurance Company (since 2009); Chairman and Chief Executive Officer, Manulife | ||
Asset Management (since 2001, including prior positions); Director (since 2006), and President and | ||
Chief Executive Officer of Manulife Asset Management Limited (since 2013); Director and Chairman, | ||
Hancock Natural Resources Group, Inc. (since 2013). |
Principal officers who are not Trustees
Name, Year of Birth | Officer | |
Position(s) held with Fund | of the | |
Principal occupation(s) and other | Trust | |
directorships during past 5 years | since | |
Hugh McHaffie, Born: 1959 | 2012 | |
President | ||
Executive Vice President, John Hancock Financial Services (since 2006, including prior positions); | ||
Chairman and Director, John Hancock Advisers, LLC, John Hancock Investment Management Services, | ||
LLC and John Hancock Funds, LLC (since 2010); President, John Hancock Advisers, LLC (since 2012); | ||
President, John Hancock Investment Management Services, LLC (since 2010). President (since 2012) and | ||
former Trustee (2010–2012), John Hancock retail funds; President, John Hancock Variable Insurance | ||
Trust and John Hancock Funds II (since 2009). | ||
Andrew G. Arnott, Born: 1971 | 2009 | |
Executive Vice President | ||
Senior Vice President, John Hancock Financial Services (since 2009); Executive Vice President, | ||
John Hancock Advisers, LLC (since 2005); Executive Vice President, John Hancock Investment | ||
Management Services, LLC (since 2006); President, John Hancock Funds, LLC (since 2004, including | ||
prior positions); Executive Vice President, John Hancock retail funds (since 2007, including prior | ||
positions); Executive Vice President, John Hancock Variable Insurance Trust and John Hancock Funds II | ||
(since 2007, including prior positions). | ||
Thomas M. Kinzler, Born: 1955 | 2006 | |
Secretary and Chief Legal Officer | ||
Vice President, John Hancock Financial Services (since 2006); Secretary and Chief Legal Counsel, | ||
John Hancock Funds, LLC (since 2007); Secretary and Chief Legal Officer, John Hancock retail funds, | ||
John Hancock Variable Insurance Trust and John Hancock Funds II (since 2006). |
Annual report | New York Tax-Free Income Fund | 37 |
Principal officers who are not Trustees (continued)
Name, Year of Birth | Officer | |
Position(s) held with Fund | of the | |
Principal occupation(s) and other | Trust | |
directorships during past 5 years | since | |
Francis V. Knox, Jr., Born: 1947 | 2005 | |
Chief Compliance Officer | ||
Vice President, John Hancock Financial Services (since 2005); Chief Compliance Officer, John Hancock | ||
retail funds, John Hancock Variable Insurance Trust, John Hancock Funds II, John Hancock Advisers, | ||
LLC and John Hancock Investment Management Services, LLC (since 2005); Vice President and Chief | ||
Compliance Officer, John Hancock Asset Management a division of Manulife Asset Management (US) | ||
LLC (2005–2008). | ||
Charles A. Rizzo, Born: 1957 | 2007 | |
Chief Financial Officer | ||
Vice President, John Hancock Financial Services (since 2008); Senior Vice President, John Hancock | �� | |
Advisers, LLC and John Hancock Investment Management Services, LLC (since 2008); Chief Financial | ||
Officer, John Hancock retail funds, John Hancock Variable Insurance Trust and John Hancock Funds II | ||
(since 2007). | ||
Salvatore Schiavone, Born: 1965 | 2010 | |
Treasurer | ||
Assistant Vice President, John Hancock Financial Services (since 2007); Vice President, John Hancock | ||
Advisers, LLC and John Hancock Investment Management Services, LLC (since 2007); Treasurer, | ||
John Hancock retail funds (since 2007, including prior positions); Treasurer, John Hancock Variable | ||
Insurance Trust and John Hancock Funds II (since 2010 and 2007–2009, including prior positions). |
John Hancock retail funds is comprised of John Hancock Funds III and 34 other John Hancock funds consisting of 24 series of other John Hancock trusts and 10 closed-end funds.
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Trust and is available without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee holds office until his or her successor is elected and qualified, or until the Trustee’s death, retirement, resignation or removal.
2 Became a Trustee of the Trust effective December 1, 2012.
3 Member of Audit Committee.
4 Because Messrs. Bromley and Thomson are senior executives or directors and Mr. Boyle held prior positions as a senior executive and director of the Advisor and/or its affiliates, each of them is considered an “interested person,” as defined in the Investment Company Act of 1940, of the Trust.
38 | New York Tax-Free Income Fund | Annual report |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Advisers, LLC |
Steven R. Pruchansky, Vice Chairman | |
Charles L. Bardelis* | Subadvisor |
James R. Boyle† | John Hancock Asset Management a division of |
Craig Bromley† | Manulife Asset Management (US) LLC |
Peter S. Burgess* | |
William H. Cunningham | Principal distributor |
Grace K. Fey | John Hancock Funds, LLC |
Theron S. Hoffman* | |
Deborah C. Jackson | Custodian |
Hassell H. McClellan | State Street Bank and Trust Company |
Gregory A. Russo | |
Warren A. Thomson† | Transfer agent |
John Hancock Signature Services, Inc. | |
Officers | |
Hugh McHaffie | Legal counsel |
President | K&L Gates LLP |
Andrew G. Arnott | Independent registered |
Executive Vice President | public accounting firm |
PricewaterhouseCoopers LLP | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer |
*Member of the Audit Committee
†Non-Independent Trustee
The fund’s proxy voting policies and procedures, as well as the fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) website at sec.gov or on our website.
The fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The fund’s Form N-Q is available on our website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our website at jhfunds.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 55913 | Mutual Fund Image Operations | |
Boston, MA 02205-5913 | 30 Dan Road | |
Canton, MA 02021 |
Annual report | New York Tax-Free Income Fund | 39 |
800-225-5291
800-554-6713 TDD
800-338-8080 EASI-Line
jhfunds.com
This report is for the information of the shareholders of John Hancock New York Tax-Free Income Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 76A 5/13 |
MF146657 | 7/13 |
A look at performance
Total returns for the period ended May 31, 2013
Tax- | |||||||||||||
Average annual total | Cumulative total | SEC 30-day | SEC 30-day | equivalent | |||||||||
returns (%) | returns (%) | yield (%) | yield (%) | subsidized | |||||||||
with maximum sales charge | with maximum sales charge | subsidized | unsubsidized1 | yield (%)2 | |||||||||
as of | as of | as of | |||||||||||
1-year | 5-year | 10-year | 1-year | 5-year | 10-year | 5-31-13 | 5-31-13 | 5-31-13 | |||||
Class A | –2.66 | 4.02 | 3.71 | –2.66 | 21.80 | 43.97 | 2.06 | 1.92 | 3.84 | ||||
Class B | –3.75 | 3.89 | 3.61 | –3.75 | 21.01 | 42.56 | 1.41 | 1.31 | 2.44 | ||||
Class C | 0.19 | 4.23 | 3.46 | 0.19 | 23.01 | 40.46 | 1.41 | 1.31 | 2.44 | ||||
Index† | 3.05 | 5.70 | 4.68 | 3.05 | 31.93 | 58.00 | — | — | — | ||||
Performance figures assume all distributions have been reinvested. Figures reflect maximum sales charges on Class A shares of 4.5% and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The returns for Class C shares have been adjusted to reflect the elimination of the front-end sales charge effective 7-15-04. The Class B shares’ CDSC declines annually between years 1 to 6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC.
The expense ratios of the fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectus for the fund and may differ from those disclosed in the Financial highlights tables in this report. For all classes, the net expenses equal the gross expenses. The expense ratios are as follows:
Class A* | Class B* | Class C* | ||||||||
Net (%) | 0.85 | 1.60 | 1.60 | |||||||
Gross (%) | 1.00 | 1.70 | 1.70 |
* The fund’s distributor has contractually agreed to waive 0.15% of Rule 12b-1 fees for Class A shares and 0.10% of Rule 12b-1 fees for Class B and Class C shares. The current waiver agreement will remain in effect through 9-30-13.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the fund’s current performance may be higher or lower than the performance shown. For current to the most recent month end performance data, please call 800-225-5291 or visit the fund’s website at jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on the redemption of fund shares. 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. The fund’s performance results reflect any applicable fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index is the Barclays Municipal Bond Index.
See the following page for footnotes.
6 | Massachusetts Tax-Free Income Fund | Annual report |
With maximum | Without | |||
Start date | sales charge | sales charge | Index | |
Class B3 | 5-31-03 | $14,256 | $14,256 | $15,800 |
Class C3 | 5-31-03 | 14,046 | 14,046 | 15,800 |
Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.
The Class C shares investment with maximum sales charge has been adjusted to reflect the elimination of the front-end sales charge effective 7-15-04.
Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.
Barclays Massachusetts Municipal Bond Index is an unmanaged index composed of Massachusetts investment grade municipal bonds. Total return for this index is not available for the 10-year period.
Prior to December 14, 2012, the fund compared its performance solely to the Barclays Municipal Bond Index. After this date, the fund added the Barclays Massachusetts Municipal Bond Index as the primary benchmark index and retained the Barclays Municipal Bond Index as the secondary benchmark index to which the fund compares its performance to better reflect the universe of investment opportunities based on the fund’s investment strategy.
It is not possible to invest directly in an index. Index figures do not reflect sales charges or direct expenses, which would have resulted in lower values if they did.
Footnotes related to performance pages
1 Unsubsidized yield reflects what the yield would have been without the effect of reimbursements and waivers.
2 Tax-equivalent yield is based on the maximum federal income tax rate of 43.4% and state tax rate of 5.25%. Share classes will differ due to varying expenses.
3 The contingent deferred sales charge is not applicable.
Annual report | Massachusetts Tax-Free Income Fund | 7 |
Management’s discussion of
Fund performance
John Hancock Asset Management a division of Manulife Asset Management (US) LLC
Effective June 28, 2013, Frank Lucibella, CFA, retired from our municipal bond portfolio management team. His responsibilities are being assumed by the fund’s existing portfolio manager, Dianne Sales, CFA, who has been with John Hancock since 1989 and has 29 years of investment experience.
Municipal bonds posted positive returns for the year ended May 31, 2013. The municipal bond market’s advance occurred primarily in the first half of the reporting period, fueled by robust demand and limited supply in the municipal market. Over the last six months of the period, the municipal market gave back some ground as demand tapered off; improving economic conditions led investors to shift toward higher-risk assets, such as stocks and higher-yielding bonds. For the 12-month period, longer-term municipal securities generated the highest returns, while lower-quality municipal bonds outperformed higher-rated municipal securities.
For the year ended May 31, 2013, John Hancock Massachusetts Tax-Free Income Fund’s Class A shares posted a total return of 1.94%, excluding sales charges. By comparison, Morningstar, Inc.’s muni Massachusetts fund category produced an average return of 2.41%,† while the Barclays Municipal Bond Index returned 3.05% and the fund’s benchmark, the Barclays Massachusetts Municipal Bond Index, returned 2.07%. Limited municipal issuance in Massachusetts during the period provided few attractive investment opportunities, so we chose to maintain a larger cash position. This was a drag on performance early in the period, but contributed favorably to performance when the municipal market stumbled in early 2013. The fund’s holdings of bonds from Puerto Rico detracted from fund results amid a persistent fiscal deficit and weaker economic growth. The fund’s lower-quality securities generated the best returns during the period, benefiting from strong investor demand for yield. Examples included healthcare bonds, selected higher-education bonds, and bonds financing special projects.
This commentary reflects the views of the portfolio manager through the end of the period discussed in this report. As such, they are in no way guarantees of future events and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant.
Past performance is no guarantee of future results.
† Figures from Morningstar, Inc. include reinvested distributions and do not take into account sales charges. Actual load-adjusted performance is lower.
8 | Massachusetts Tax-Free Income Fund | Annual report |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
Understanding fund expenses
As a shareholder of the fund, you incur two types of costs:
▪ Transaction costs, which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
▪ Ongoing operating expenses, including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on December 1, 2012, with the same investment held until May 31, 2013.
Account value | Ending value | Expenses paid during | |
on 12-1-12 | on 5-31-13 | period ended 5-31-131 | |
Class A | $1,000.00 | $975.40 | $4.04 |
Class B | 1,000.00 | 971.80 | 7.72 |
Class C | 1,000.00 | 971.80 | 7.72 |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at May 31, 2013, by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
Annual report | Massachusetts Tax-Free Income Fund | 9 |
Your expenses
Hypothetical example for comparison purposes
This table allows you to compare the fund’s ongoing operating expenses with those of any other fund. It provides an example of the fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not the fund’s actual return). It assumes an account value of $1,000.00 on December 1, 2012, with the same investment held until May 31, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 12-1-12 | on 5-31-13 | period ended 5-31-131 | |
Class A | $1,000.00 | $1,020.80 | $4.13 |
Class B | 1,000.00 | 1,017.10 | 7.90 |
Class C | 1,000.00 | 1,017.10 | 7.90 |
Remember, these examples do not include any transaction costs, therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the fund’s prospectus for details regarding transaction costs.
1 Expenses are equal to the fund’s annualized expense ratio of 0.82%, 1.57%, and 1.57% for Class A, Class B, and, Class C shares, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
10 | Massachusetts Tax-Free Income Fund | Annual report |
Portfolio summary
Top 10 Holdings (26.0% of Net Assets on 5-31-13)1,2 | ||||
Massachusetts Housing Finance Agency, 3.450%, 12-1-37 | 3.8% | |||
Massachusetts School Building Authority, 5.000%, 10-15-41 | 3.6% | |||
Boston Housing Authority, 5.000%, 4-1-27 | 2.8% | |||
Massachusetts State Department of Transportation, 5.000%, 1-1-37 | 2.6% | |||
Massachusetts Water Resources Authority, 5.250%, 8-1-29 | 2.5% | |||
Massachusetts Bay Transportation Authority, 5.250%, 7-1-33 | 2.5% | |||
Puerto Rico Sales Tax Financing Corp., Step Coupon, 8-1-32 | 2.4% | |||
Commonwealth of Massachusetts, 5.500%, 12-1-24 | 2.0% | |||
Massachusetts Bay Transportation Authority, 5.000%, 7-1-31 | 1.9% | |||
Massachusetts Development Finance Agency, 5.000%, 12-15-24 | 1.9% | |||
Sector Composition1,3 | ||||
General Obligation Bonds | 7.3% | Development | 3.0% | |
Revenue Bonds | Facilities | 1.7% | ||
Education | 20.7% | Pollution | 1.6% | |
Health Care | 12.6% | Industrial Development | 0.1% | |
Transportation | 11.9% | Other Revenue | 14.0% | |
Housing | 11.2% | Short-Term Investments & Other | 5.0% | |
Water & Sewer | 10.9% | |||
Quality Composition1,4 | ||||
AAA | 4.9% | |||
AA | 45.9% | |||
A | 19.3% | |||
BBB | 19.7% | |||
BB | 3.4% | |||
Not Rated | 1.8% | |||
Short-Term Investments & Other | 5.0% | |||
1 As a percentage of net assets on 5-31-13.
2 Cash and cash equivalents not included.
3 Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if the creditor is unable or unwilling to make principal or interest payments. Investments in higher-yielding, lower-rated securities involve additional risks as these securities include a higher risk of default and loss of principal. Municipal bond prices can decline due to fiscal mismanagement or tax shortfalls, or if related projects become unprofitable. If the fund invests heavily in any one state or region, performance could be disproportionately affected by factors particular to that state or region. The use of hedging and derivatives transactions could produce disproportionate gains or losses and may increase volatility and costs. Sector investing is subject to greater risks than the market as a whole. Because the fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors and investments focused in one sector may fluctuate more widely than investments diversified across sectors. For additional information on these and other risk considerations, please see the fund’s prospectus.
4 Ratings are from Moody’s Investors Service, Inc. If not available, we have used ratings from Standard & Poor’s Ratings Services. In the absence of ratings from these agencies, we have used Fitch Ratings, Inc. ratings. “Not Rated” securities are those with no ratings available from these agencies. All ratings are as of 5-31-13 and do not reflect subsequent downgrades or upgrades, if any.
Annual report | Massachusetts Tax-Free Income Fund | 11 |
Fund’s investments
As of 5-31-13
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Municipal Bonds 95.0% | $119,878,426 | ||||
(Cost $112,259,907) | |||||
Massachusetts 79.5% | 100,234,420 | ||||
Boston Housing Authority | |||||
Capital Program Revenue (D) | 5.000 | 04-01-27 | $3,255,000 | 3,473,963 | |
Boston Housing Authority | |||||
Capital Program Revenue (D) | 5.000 | 04-01-28 | 2,000,000 | 2,124,020 | |
Boston Industrial Development | |||||
Financing Authority | |||||
Harbor Electric Energy Company Project AMT | 7.375 | 05-15-15 | 70,000 | 70,344 | |
Boston Water & Sewer Commission | |||||
Sewer Revenue, Series A | 5.750 | 11-01-13 | 95,000 | 97,192 | |
Commonwealth of Massachusetts | |||||
Public Improvements (D) | 5.500 | 11-01-17 | 1,000,000 | 1,202,420 | |
Commonwealth of Massachusetts | |||||
Public Improvements, Series C | 5.500 | 11-01-15 | 1,000,000 | 1,122,180 | |
Commonwealth of Massachusetts | |||||
Series C (D) | 5.500 | 12-01-24 | 2,000,000 | 2,585,240 | |
Commonwealth of Massachusetts, Series E (D) | 5.000 | 11-01-25 | 1,000,000 | 1,238,260 | |
Massachusetts Bay Transportation Authority | |||||
Assessment, Series A | 5.000 | 07-01-41 | 1,360,000 | 1,523,146 | |
Massachusetts Bay Transportation Authority | |||||
Sales Tax Revenue, Series A | 5.000 | 07-01-31 | 2,000,000 | 2,408,400 | |
Massachusetts Bay Transportation Authority | |||||
Sales Tax Revenue, Series A | 5.250 | 07-01-35 | 1,310,000 | 1,635,011 | |
Massachusetts Bay Transportation Authority | |||||
Sales Tax Revenue, Series A–2 (Z) | Zero | 07-01-26 | 2,500,000 | 1,465,875 | |
Massachusetts Bay Transportation Authority | |||||
Transit Revenue, Series A | 7.000 | 03-01-14 | 190,000 | 199,553 | |
Massachusetts Bay Transportation Authority | |||||
Transit Revenue, Series B | 5.250 | 07-01-33 | 2,500,000 | 3,094,275 | |
Massachusetts Development Finance Agency | |||||
Brandeis University, Series 0-1 | 5.000 | 10-01-40 | 1,000,000 | 1,089,760 | |
Massachusetts Development Finance Agency | |||||
Carleton Willard Village | 5.625 | 12-01-30 | 450,000 | 493,920 | |
Massachusetts Development Finance Agency | |||||
Covanta Energy Project, Series C | 5.250 | 11-01-42 | 1,000,000 | 1,019,590 | |
Massachusetts Development Finance Agency | |||||
Curry College, Series A (D) | 4.500 | 03-01-25 | 1,000,000 | 1,014,230 | |
Massachusetts Development Finance Agency | |||||
Curry College, Series A (D) | 5.250 | 03-01-26 | 1,000,000 | 1,067,760 |
12 | Massachusetts Tax-Free Income Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Massachusetts (continued) | |||||
Massachusetts Development Finance Agency | |||||
Dominion Energy Brayton Point AMT (P) | 5.000 | 02-01-36 | $2,000,000 | $2,078,740 | |
Massachusetts Development Finance Agency | |||||
Draper Laboratory | 5.875 | 09-01-30 | 2,000,000 | 2,331,860 | |
Massachusetts Development Finance Agency | |||||
Emerson College, Series A | 5.000 | 01-01-40 | 2,000,000 | 2,101,680 | |
Massachusetts Development Finance Agency | |||||
Harvard University, Series B | 5.000 | 10-15-40 | 1,190,000 | 1,343,950 | |
Massachusetts Development Finance Agency | |||||
Linden Ponds, Inc., Series A1 | 5.500 | 11-15-46 | 56,460 | 45,027 | |
Massachusetts Development Finance Agency | |||||
Linden Ponds, Inc., Series A1 | 6.250 | 11-15-39 | 1,057,748 | 963,905 | |
Massachusetts Development Finance Agency | |||||
Linden Ponds, Inc., Series B (Z) | Zero | 11-15-56 | 280,825 | 1,977 | |
Massachusetts Development Finance Agency | |||||
Massachusetts College of Pharmacy, | |||||
Series E (D) | 5.000 | 07-01-37 | 1,000,000 | 1,065,390 | |
Massachusetts Development Finance Agency | |||||
Massachusetts College of Pharmacy, Series F | 4.000 | 07-01-32 | 500,000 | 517,630 | |
Massachusetts Development Finance Agency | |||||
Merrimack College, Series A | 5.250 | 07-01-42 | 1,000,000 | 1,066,130 | |
Massachusetts Development Finance Agency | |||||
New England Conservatory of Music | 5.250 | 07-01-38 | 2,000,000 | 2,112,020 | |
Massachusetts Development Finance Agency | |||||
Olin College, Series E | 5.000 | 11-01-38 | 1,000,000 | 1,098,790 | |
Massachusetts Development Finance Agency | |||||
Orchard Cove | 5.250 | 10-01-26 | 1,000,000 | 1,015,400 | |
Massachusetts Development Finance Agency | |||||
Partners Healthcare, Series L | 5.000 | 07-01-36 | 1,000,000 | 1,112,230 | |
Massachusetts Development Finance Agency | |||||
Plantation Apartments, Series A AMT | 5.000 | 12-15-24 | 2,320,000 | 2,373,058 | |
Massachusetts Development Finance Agency | |||||
Southcoast Health System Obligated Group, | |||||
Series F | 5.000 | 07-01-37 | 500,000 | 550,735 | |
Massachusetts Development Finance Agency | |||||
The Groves in Lincoln, Series A | 7.750 | 06-01-39 | 700,000 | 329,028 | |
Massachusetts Development Finance Agency | |||||
Williams College, Series P | 5.000 | 07-01-38 | 2,000,000 | 2,280,360 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Emerson Hospital, Series E (D) | 5.000 | 08-15-35 | 1,000,000 | 986,720 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Harvard Pilgrim Health Care, Series A (D) | 5.000 | 07-01-18 | 1,000,000 | 1,002,760 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Lahey Clinic Medical Center, Series C (D) | 5.000 | 08-15-23 | 1,000,000 | 1,073,120 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Mass Eye & Ear Infirmary | 5.375 | 07-01-35 | 2,000,000 | 2,151,500 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Partners HealthCare System | 5.000 | 07-01-22 | 1,000,000 | 1,156,760 |
See notes to financial statements | Annual report | Massachusetts Tax-Free Income Fund | 13 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Massachusetts (continued) | |||||
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Partners HealthCare, Series J1 | 5.000 | 07-01-34 | $1,000,000 | $1,091,990 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
South Shore Hospital | 5.750 | 07-01-29 | 365,000 | 366,387 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Springfield College | 5.625 | 10-15-40 | 2,000,000 | 2,154,300 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Sterling & Francine Clark, Series A | 5.000 | 07-01-36 | 1,000,000 | 1,055,020 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Suffolk University, Series A | 6.250 | 07-01-30 | 1,000,000 | 1,152,430 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Tufts University | 5.375 | 08-15-38 | 350,000 | 405,839 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Williams College, Series H | 5.000 | 07-01-33 | 1,500,000 | 1,505,940 | |
Massachusetts Health & Educational | |||||
Facilities Authority | |||||
Woods Hole Oceanographic, Series B | 5.375 | 06-01-30 | 1,000,000 | 1,133,300 | |
Massachusetts Housing Finance Agency, | |||||
Series 162 | 3.450 | 12-01-37 | 5,055,000 | 4,756,047 | |
Massachusetts Port Authority | |||||
Boston Fuel Project AMT (D) | 5.000 | 07-01-32 | 1,770,000 | 1,894,236 | |
Massachusetts Port Authority | |||||
Conrac Project, Series A | 5.125 | 07-01-41 | 500,000 | 544,270 | |
Massachusetts Port Authority | |||||
US Airways Project, Series A AMT (D) | 5.750 | 09-01-16 | 825,000 | 827,054 | |
Massachusetts School Building Authority | |||||
Senior, Series B | 5.000 | 08-15-30 | 2,000,000 | 2,323,080 | |
Massachusetts School Building Authority | |||||
Senior, Series B | 5.000 | 10-15-41 | 4,000,000 | 4,484,440 | |
Massachusetts State College Building Authority | |||||
College & University Revenue, Series A | 5.500 | 05-01-49 | 1,000,000 | 1,116,780 | |
Massachusetts State College Building Authority | |||||
College & University Revenue, Series B (D)(Z) | Zero | 05-01-19 | 1,000,000 | 899,080 | |
Massachusetts State Department | |||||
of Transportation | |||||
Highway Revenue Tolls, Escrowed to | |||||
Maturity, Series A (D) | 5.125 | 01-01-23 | 445,000 | 549,677 | |
Massachusetts State Department | |||||
of Transportation | |||||
Highway Revenue Tolls, Series B | 5.000 | 01-01-37 | 3,000,000 | 3,275,370 | |
Massachusetts State Department | |||||
of Transportation | |||||
Highway Revenue Tolls, Series C (D)(Z) | Zero | 01-01-20 | 1,000,000 | 878,920 | |
Massachusetts Water Pollution | |||||
Abatement Trust | |||||
Government Fund/Grant Revenue | 5.000 | 08-01-28 | 1,000,000 | 1,165,630 |
14 | Massachusetts Tax-Free Income Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Massachusetts (continued) | |||||
Massachusetts Water Pollution | |||||
Abatement Trust | |||||
Series 9 | 5.250 | 08-01-18 | $60,000 | $66,125 | |
Massachusetts Water Pollution | |||||
Abatement Trust | |||||
Unrefunded 2012 Pooled Loan Program, | |||||
Series 7 | 5.125 | 02-01-31 | 785,000 | 787,685 | |
Massachusetts Water Pollution | |||||
Abatement Trust | |||||
Water Revenue, Series 13 | 5.000 | 08-01-28 | 1,000,000 | 1,125,880 | |
Massachusetts Water Pollution | |||||
Abatement Trust | |||||
Water Revenue, Series 14 | 5.000 | 08-01-32 | 1,000,000 | 1,151,890 | |
Massachusetts Water Resources Authority | |||||
Water Revenue, Series A | 5.000 | 08-01-40 | 1,600,000 | 1,798,336 | |
Massachusetts Water Resources Authority | |||||
Water Revenue, Series B | 5.000 | 08-01-39 | 1,000,000 | 1,107,050 | |
Massachusetts Water Resources Authority | |||||
Water Revenue, Series B (D) | 5.250 | 08-01-29 | 2,500,000 | 3,103,325 | |
Metropolitan Boston Transit Parking Corp. | 5.000 | 07-01-41 | 2,000,000 | 2,175,780 | |
University of Massachusetts Building Authority | |||||
College & University Revenue, Series 1 | 5.000 | 05-01-39 | 1,500,000 | 1,654,650 | |
Puerto Rico 13.8% | 17,413,661 | ||||
Commonwealth of Puerto Rico | |||||
Public Improvement, Series A | 5.500 | 07-01-39 | 2,000,000 | 2,018,400 | |
Commonwealth of Puerto Rico | |||||
Public Improvement, Series A | 5.750 | 07-01-41 | 1,000,000 | 1,024,600 | |
Puerto Rico Aqueduct & Sewer Authority | |||||
Water Revenue, Series A | 5.125 | 07-01-37 | 1,500,000 | 1,421,505 | |
Puerto Rico Aqueduct & Sewer Authority | |||||
Water Revenue, Series A | 6.125 | 07-01-24 | 1,750,000 | 1,866,725 | |
Puerto Rico Highway & | |||||
Transportation Authority | |||||
Fuel Sales Tax Revenue, Escrowed to | |||||
Maturity, Series Y | 6.250 | 07-01-14 | 955,000 | 1,016,082 | |
Puerto Rico Highway & | |||||
Transportation Authority | |||||
Fuel Sales Tax Revenue, Series Y | 6.250 | 07-01-14 | 45,000 | 46,831 | |
Puerto Rico Highway & | |||||
Transportation Authority | |||||
Prerefunded, Series AA (D) | 5.500 | 07-01-19 | 1,640,000 | 2,052,001 | |
Puerto Rico Highway & | |||||
Transportation Authority | |||||
Unrefunded, Series AA (D) | 5.500 | 07-01-19 | 360,000 | 386,788 | |
Puerto Rico Highway & | |||||
Transportation Authority | |||||
Unrefunded, Series H | 5.450 | 07-01-35 | 285,000 | 287,819 | |
Puerto Rico Housing Finance Authority | |||||
Subordinated Capital Fund Modernization | 5.125 | 12-01-27 | 1,000,000 | 1,058,170 | |
Puerto Rico Sales Tax Financing Corp. | |||||
Sales Tax Revenue, Series A | 5.500 | 08-01-42 | 1,000,000 | 1,055,800 |
See notes to financial statements | Annual report | Massachusetts Tax-Free Income Fund | 15 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Puerto Rico (continued) | |||||
Puerto Rico Sales Tax Financing Corp. | |||||
Sales Tax Revenue, Series A (Zero coupon | |||||
steps up to 6.750% on 8-1-16) | Zero | 08-01-32 | $3,000,000 | $3,070,380 | |
Puerto Rico Sales Tax Financing Corp., Series C | 5.375 | 08-01-38 | 2,000,000 | 2,108,560 | |
Virgin Islands 1.3% | 1,683,390 | ||||
Virgin Islands Public Finance Authority, Series A | 6.750 | 10-01-37 | 1,000,000 | 1,163,070 | |
Virgin Islands Public Finance Authority, | |||||
Series A1 | 5.000 | 10-01-39 | 500,000 | 520,320 | |
Guam 0.4% | 546,955 | ||||
Guam Government, Series A | 5.750 | 12-01-34 | 500,000 | 546,955 | |
Par value | Value | ||||
Short-Term Investments 3.9% | $4,936,000 | ||||
(Cost $4,936,000) | |||||
Repurchase Agreement 3.9% | 4,936,000 | ||||
Repurchase Agreement with State Street Corp. dated 5-31-13 at | |||||
0.010% to be repurchased at $4,936,004 on 6-3-13, collateralized | |||||
by $5,060,000 U.S. Treasury Notes, 0.625% due 5-31-17 (valued at | |||||
$5,035,095, including interest) | $4,936,000 | 4,936,000 | |||
Total investments (Cost $117,195,907)† 98.9% | $124,814,426 | ||||
Other assets and liabilities, net 1.1% | $1,368,698 | ||||
Total net assets 100.0% | $126,183,124 | ||||
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
AMT Interest earned from these securities may be considered a tax preference item for purpose of the Federal Alternative Minimum Tax.
(D) Bond is insured by one or more of the following companies:
Insurance coverage | As a % of total investments | ||
ACA Financial Guaranty Corp. | 1.7% | ||
Ambac Financial Group, Inc. | 3.1% | ||
Assured Guaranty Corp. | 0.9% | ||
Assured Guaranty Municipal Corp. | 8.7% | ||
Financial Guaranty Insurance Company | 0.4% | ||
National Public Finance Guarantee Corp. | 5.7% | ||
Radian Asset Assurance, Inc. | 0.8% | ||
XL Capital Assurance, Inc. | 0.7% |
(P) Variable rate obligation. The coupon rate shown represents the rate at period end.
(Z) Zero coupon bonds are issued at a discount from their principal amount in lieu of paying interest periodically.
† At 5-31-13, the aggregate cost of investment securities for federal income tax purposes was $116,915,936. Net unrealized appreciation aggregated $7,898,490, of which $9,293,105 related to appreciated investment securities and $1,394,615 related to depreciated investment securities.
16 | Massachusetts Tax-Free Income Fund | Annual report | See notes to financial statements |
Notes to Schedule of Investments
The Fund had the following sector composition as a percentage of total net assets on 5-31-13:
General Obligation Bonds | 7.3% | |||
Revenue Bonds | ||||
Education | 20.7% | |||
Health Care | 12.6% | |||
Transportation | 11.9% | |||
Housing | 11.2% | |||
Water & Sewer | 10.9% | |||
Development | 3.0% | |||
Facilities | 1.7% | |||
Pollution | 1.6% | |||
Industrial Development | 0.1% | |||
Other Revenue | 14.0% | |||
Short-Term Investments & Other | 5.0% |
See notes to financial statements | Annual report | Massachusetts Tax-Free Income Fund | 17 |
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 5-31-13
This Statement of assets and liabilities is the fund’s balance sheet. It shows the value of what the fund owns, is due and owes. You’ll also find the net asset value and the maximum offering price per share.
Assets | |
Investments, at value (Cost $117,195,907) | $124,814,426 |
Cash | 414 |
Receivable for fund shares sold | 76,861 |
Interest receivable | 1,724,678 |
Receivable from affiliates | 1,702 |
Other receivables and prepaid expenses | 10,534 |
Total assets | 126,628,615 |
Liabilities | |
Payable for fund shares repurchased | 307,254 |
Distributions payable | 59,853 |
Payable to affiliates | |
Accounting and legal services fees | 4,258 |
Transfer agent fees | 6,481 |
Distribution and service fees | 17,015 |
Trustees’ fees | 3,677 |
Other liabilities and accrued expenses | 46,953 |
Total liabilities | 445,491 |
Net assets | $126,183,124 |
Net assets consist of | |
Paid-in capital | $117,886,083 |
Undistributed net investment income | 244,761 |
Accumulated net realized gain (loss) on investments | 433,761 |
Net unrealized appreciation (depreciation) on investments | 7,618,519 |
Net assets | $126,183,124 |
Net asset value per share | |
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($103,325,309 ÷ 7,976,886 shares)1 | $12.95 |
Class B ($3,201,828 ÷ 247,230 shares)1 | $12.95 |
Class C ($19,655,987 ÷ 1,517,493 shares)1 | $12.95 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95.5%)2 | $13.56 |
1 Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
2 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.
18 | Massachusetts Tax-Free Income Fund | Annual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
Statement of operations For the year ended 5-31-13
This 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.
Investment income | |
Interest | $5,362,844 |
Total investment income | 5,362,844 |
Expenses | |
Investment management fees | 647,344 |
Distribution and service fees | 551,820 |
Accounting and legal services fees | 21,031 |
Transfer agent fees | 78,703 |
Trustees’ fees | 7,563 |
State registration fees | 18,303 |
Printing and postage | 10,128 |
Professional fees | 49,408 |
Custodian fees | 19,378 |
Registration and filing fees | 23,163 |
Other | 6,834 |
Total expenses | 1,433,675 |
Less expense reductions | (182,531) |
Net expenses | 1,251,144 |
Net investment income | 4,111,700 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments | 253,622 |
253,622 | |
Change in net unrealized appreciation (depreciation) of | |
Investments | (1,976,254) |
(1,976,254) | |
Net realized and unrealized loss | (1,722,632) |
Increase in net assets from operations | $2,389,068 |
See notes to financial statements | Annual report | Massachusetts Tax-Free Income Fund | 19 |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of changes in net assets show how the value of the fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of fund share transactions.
Year | Year | |
ended | ended | |
5-31-13 | 5-31-12 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $4,111,700 | $4,365,914 |
Net realized gain | 253,622 | 30,787 |
Change in net unrealized appreciation (depreciation) | (1,976,254) | 8,465,998 |
Increase in net assets resulting from operations | 2,389,068 | 12,862,699 |
Distributions to shareholders | ||
From net investment income | ||
Class A | (3,498,903) | (3,695,861) |
Class B | (88,721) | (102,377) |
Class C | (505,315) | (542,889) |
From net realized gain | ||
Class A | (8,479) | (65,672) |
Class B | (275) | (2,260) |
Class C | (1,592) | (12,064) |
Total distributions | (4,103,285) | (4,421,123) |
From Fund share transactions | (124,316) | 6,490,689 |
Total increase (decrease) | (1,838,533) | 14,932,265 |
Net assets | ||
Beginning of year | 128,021,657 | 113,089,392 |
End of year | $126,183,124 | $128,021,657 |
Undistributed net investment income | $244,761 | $97,967 |
20 | Massachusetts Tax-Free Income Fund | Annual report | See notes to financial statements |
Financial highlights
The Financial highlights show how the fund’s net asset value for a share has changed during the period.
CLASS A SHARES Period ended | 5-31-13 | 5-31-12 | 5-31-11 | 5-31-10 | 5-31-091 | 8-31-08 |
Per share operating performance | ||||||
Net asset value, beginning of period | $13.13 | $12.22 | $12.53 | $12.10 | $12.28 | $12.37 |
Net investment income2 | 0.44 | 0.49 | 0.50 | 0.49 | 0.38 | 0.51 |
Net realized and unrealized gain (loss) | ||||||
on investments | (0.18) | 0.91 | (0.30) | 0.46 | (0.17) | (0.08) |
Total from investment operations | 0.26 | 1.40 | 0.20 | 0.95 | 0.21 | 0.43 |
Less distributions | ||||||
From net investment income | (0.44)�� | (0.48) | (0.49) | (0.49) | (0.39) | (0.50) |
From net realized gain | —3 | (0.01) | (0.02) | (0.03) | —3 | (0.02) |
Total distributions | (0.44) | (0.49) | (0.51) | (0.52) | (0.39) | (0.52) |
Net asset value, end of period | $12.95 | $13.13 | $12.22 | $12.53 | $12.10 | $12.28 |
Total return (%)4,5 | 1.94 | 11.67 | 1.67 | 8.04 | 1.846 | 3.55 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $103 | $105 | $92 | $105 | $95 | $97 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 0.98 | 1.00 | 1.00 | 1.00 | 1.097,8 | 0.98 |
Expenses net of fee waivers and credits | 0.83 | 0.87 | 0.95 | 1.00 | 1.097,8 | 0.97 |
Net investment income | 3.31 | 3.82 | 4.04 | 4.00 | 4.398 | 4.08 |
Portfolio turnover (%) | 16 | 11 | 17 | 10 | 17 | 22 |
1 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
2 Based on the average daily shares outstanding.
3 Less than $0.005 per share.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
8 Annualized.
See notes to financial statements | Annual report | Massachusetts Tax-Free Income Fund | 21 |
CLASS B SHARES Period ended | 5-31-13 | 5-31-12 | 5-31-11 | 5-31-10 | 5-31-091 | 8-31-08 |
Per share operating performance | ||||||
Net asset value, beginning of period | $13.13 | $12.22 | $12.53 | $12.09 | $12.28 | $12.37 |
Net investment income2 | 0.34 | 0.39 | 0.41 | 0.41 | 0.32 | 0.42 |
Net realized and unrealized gain (loss) | ||||||
on investments | (0.18) | 0.92 | (0.29) | 0.46 | (0.19) | (0.08) |
Total from investment operations | 0.16 | 1.31 | 0.12 | 0.87 | 0.13 | 0.34 |
Less distributions | ||||||
From net investment income | (0.34) | (0.39) | (0.41) | (0.40) | (0.32) | (0.41) |
From net realized gain | —3 | (0.01) | (0.02) | (0.03) | —3 | (0.02) |
Total distributions | (0.34) | (0.40) | (0.43) | (0.43) | (0.32) | (0.43) |
Net asset value, end of period | $12.95 | $13.13 | $12.22 | $12.53 | $12.09 | $12.28 |
Total return (%)4,5 | 1.18 | 10.85 | 0.96 | 7.37 | 1.226 | 2.83 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $3 | $3 | $3 | $5 | $7 | $10 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.68 | 1.70 | 1.70 | 1.70 | 1.797,8 | 1.68 |
Expenses net of fee waivers and credits | 1.58 | 1.62 | 1.65 | 1.70 | 1.797,8 | 1.67 |
Net investment income | 2.56 | 3.08 | 3.33 | 3.29 | 3.698 | 3.39 |
Portfolio turnover (%) | 16 | 11 | 17 | 10 | 17 | 22 |
1 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
2 Based on the average daily shares outstanding.
3 Less than $0.005 per share.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
8 Annualized.
CLASS C SHARES Period ended | 5-31-13 | 5-31-12 | 5-31-11 | 5-31-10 | 5-31-091 | 8-31-08 |
Per share operating performance | ||||||
Net asset value, beginning of period | $13.13 | $12.22 | $12.53 | $12.10 | $12.28 | $12.37 |
Net investment income2 | 0.34 | 0.39 | 0.41 | 0.41 | 0.32 | 0.42 |
Net realized and unrealized gain (loss) | ||||||
on investments | (0.18) | 0.92 | (0.29) | 0.45 | (0.18) | (0.08) |
Total from investment operations | 0.16 | 1.31 | 0.12 | 0.86 | 0.14 | 0.34 |
Less distributions | ||||||
From net investment income | (0.34) | (0.39) | (0.41) | (0.40) | (0.32) | (0.41) |
From net realized gain | —3 | (0.01) | (0.02) | (0.03) | —3 | (0.02) |
Total distributions | (0.34) | (0.40) | (0.43) | (0.43) | (0.32) | (0.43) |
Net asset value, end of period | $12.95 | $13.13 | $12.22 | $12.53 | $12.10 | $12.28 |
Total return (%)4,5 | 1.18 | 10.85 | 0.96 | 7.29 | 1.316 | 2.83 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $20 | $19 | $17 | $19 | $14 | $12 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.68 | 1.70 | 1.70 | 1.70 | 1.797,8 | 1.68 |
Expenses net of fee waivers and credits | 1.58 | 1.62 | 1.65 | 1.70 | 1.797,8 | 1.67 |
Net investment income | 2.56 | 3.07 | 3.34 | 3.30 | 3.678 | 3.38 |
Portfolio turnover (%) | 16 | 11 | 17 | 10 | 17 | 22 |
1 For the nine-month period ended 5-31-09. The Fund changed its fiscal year end from August 31 to May 31.
2 Based on the average daily shares outstanding.
3 Less than $0.005 per share.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
8 Annualized.
22 | Massachusetts Tax-Free Income Fund | Annual report | See notes to financial statements |
Notes to financial statements
Note 1 — Organization
John Hancock Massachusetts Tax-Free Income Fund (the Fund) is a series of John Hancock Tax-Exempt Series Fund (the Trust), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek a high level of current income, consistent with preservation of capital, that is exempt from federal and Massachusetts personal income taxes.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of assets and liabilities. Class A and C shares are offered to all investors. Class B shares are closed to new investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.
Note 2 — Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. In order to value the securities, the Fund uses the following valuation techniques: Debt obligations are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, taking into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Certain securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost. Other portfolio securities and assets, for which reliable market quotations are not readily available, are valued at fair value as determined in good faith by the Fund’s Pricing Committee following procedures established by the Board of Trustees, which include price verification procedures. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. Factors used in determining value may include
Annual report | Massachusetts Tax-Free Income Fund | 23 |
market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
As of May 31, 2013, all investments are categorized as Level 2 under the hierarchy described above.
Repurchase agreements. The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the Fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the Fund’s custodian agreement, the custodian may loan money to the Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis and is reflected in other expenses on the Statement of operations. Prior to March 27, 2013, the Fund participated in a $100 million unsecured line of credit, also with Citibank, with terms otherwise similar to the existing agreement. Commitment fees for the year ended May 31, 2013 were $829. For the year ended May 31, 2013, the Fund had no borrowings under either line of credit.
Expenses. Within the John Hancock Funds complex, expenses that are directly attributable to an individual fund are allocated to such fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative net assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
Class allocations. Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the net assets of the class. Class-specific expenses, such as distribution and service fees, if any, and transfer agent fees, are calculated daily for each class, based on the net asset value of the class and the applicable specific expense rates.
24 | Massachusetts Tax-Free Income Fund | Annual report |
Federal income taxes. The Fund intends to continue to qualify 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 that is distributed to shareholders. Therefore, no federal income tax provision is required.
As of, May 31, 2013 the Fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares dividends daily and pays them monthly. Capital gain distributions, if any, are distributed annually. The tax character of distributions for the years ended May 31, 2013 and 2012 was as follows:
MAY 31, 2013 | MAY 31, 2012 | ||||
Ordinary Income | $114,827 | $28,176 | |||
Exempt Interest | $3,978,112 | $4,308,429 | |||
Long-Term Capital Gain | $10,346 | $84,518 |
Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and in the same amount, except for the effect of class level expenses that may be applied differently to each class. As of May 31, 2013, the components of distributable earnings on a tax basis consisted of $306,088 of undistributed exempt interest and $153,790 of long-term capital gains.
Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Capital accounts within the financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to distributions payable and accretion on debt securities.
New accounting pronouncements. In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-11 (ASU 2011-11), Disclosures about Offsetting Assets and Liabilities and in January 2013, Accounting Standards Update No. 2013-1, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. These updates create new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. These updates may result in additional disclosure relating to the presentation of derivatives and certain other financial instruments.
Note 3 — Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Annual report | Massachusetts Tax-Free Income Fund | 25 |
Note 4 — Fees and transactions with affiliates
John Hancock Advisers, LLC (the Advisor) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Fund. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Advisor under which the Fund pays a daily management fee to the Advisor 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 assets, (b) 0.450% of the next $250,000,000 of the Fund’s average daily net assets, (c) 0.425% of the next $500,000,000 of the Fund’s average daily net assets, (d) 0.400% of the next $250,000,000 and (e) 0.300% of the Fund’s average daily net assets in excess of $1,250,000,000. The Advisor has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Advisor. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the year ended May 31, 2013 were equivalent to a net annual effective rate of 0.500% of the Fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to the Fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. These accounting and legal services fees incurred for the year ended May 31, 2013 amounted to an annual rate of 0.02% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund pays the following contractual rates of distribution fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares:
CLASS | RULE 12b–1 FEE | ||||
Class A | 0.30% | ||||
Class B | 1.00% | ||||
Class C | 1.00% |
The Distributor has contractually agreed to waive 0.15% of Rule 12b-1 fees for Class A shares and 0.10% of Rule 12b-1 fees for Class B and Class C shares. The current waiver agreement expires on September 30, 2013, unless renewed by mutual agreement of the Fund and the Distributor based upon a determination that this is appropriate under the circumstances at the time.
Accordingly, these fee limitations amounted to $159,186, $3,482 and $19,863 for Class A, Class B and Class C shares, respectively, for the year ended May 31, 2013.
26 | Massachusetts Tax-Free Income Fund | Annual report |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $194,709 for the year ended May 31, 2013. Of this amount, $31,255 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $142,628 was paid as sales commissions to broker-dealers and $20,826 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Class A, Class B and Class C shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. Class B shares that are redeemed within six years of purchase are subject to CDSCs, at declining rates, beginning at 5.00%. Class C shares that are redeemed within one year of purchase are subject to a 1.00% CDSC. CDSCs are applied to the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the year ended May 31, 2013, CDSCs received by the Distributor amounted to $0, $3,594 and $357 for Class A, Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. The transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain fees that Signature Services receives in connection with retirement and small accounts. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. Within each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the year ended May 31, 2013 were:
DISTRIBUTION AND | TRANSFER | ||||
CLASS | SERVICE FEES | AGENT FEES | |||
Class A | $318,371 | $64,507 | |||
Class B | 34,821 | 2,117 | |||
Class C | 198,628 | 12,079 | |||
Total | $551,820 | $78,703 |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Advisor or its affiliates. Under the John Hancock Group of Funds Deferred Compensation Plan (the Plan), which was terminated in November 2012, certain Trustees could have elected, for tax purposes, to defer receipt of this compensation. Any deferred amounts were invested in various John Hancock funds. The investment of deferred amounts and the offsetting liability are included within Other receivables and prepaid expenses and Payable to affiliates — Trustees’ fees, respectively, in the accompanying Statement of assets and liabilities. Plan assets will be liquidated in accordance with the Plan documents.
Annual report | Massachusetts Tax-Free Income Fund | 27 |
Note 5 — Fund share transactions
Transactions in Fund shares for the years ended May 31, 2013 and 2012 were as follows:
Year ended 5-31-13 | Year ended 5-31-12 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 968,028 | $12,758,934 | 1,097,597 | $14,049,257 |
Distributions reinvested | 209,720 | 2,766,056 | 209,373 | 2,670,749 |
Repurchased | (1,218,206) | (16,078,058) | (839,299) | (10,657,208) |
Net increase (decrease) | (40,458) | ($553,068) | 467,671 | $6,062,798 |
Class B shares | ||||
Sold | 48,013 | $632,987 | 34,239 | $440,045 |
Distributions reinvested | 4,919 | 64,872 | 5,564 | 70,923 |
Repurchased | (70,184) | (924,865) | (53,032) | (670,986) |
Net decrease | (17,252) | ($227,006) | (13,229) | ($160,018) |
Class C shares | ||||
Sold | 211,768 | $2,794,376 | 278,261 | $3,553,172 |
Distributions reinvested | 32,179 | 424,360 | 34,021 | 433,893 |
Repurchased | (194,723) | (2,562,978) | (269,191) | (3,399,156) |
Net increase | 49,224 | $655,758 | 43,091 | $587,909 |
Net increase (decrease) | (8,486) | ($124,316) | 497,533 | $6,490,689 |
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, amounted to $21,923,369 and $19,397,873, respectively, for the year ended May 31, 2013.
28 | Massachusetts Tax-Free Income Fund | Annual report |
Auditor’s report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Tax-Exempt Series Fund and
Shareholders of John Hancock Massachusetts Tax-Free Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock Massachusetts Tax-Free Income Fund (the “Fund”) at May 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 audit. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 25, 2013
Annual report | Massachusetts Tax-Free Income Fund | 29 |
Tax information
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended May 31, 2013.
The Fund paid $10,346 in capital gain dividends.
97.47% of dividends from net investment income are exempt-interest dividends.
Eligible shareholders will be mailed a 2013 Form 1099-DIV in early 2014. This will reflect the tax character of all distributions paid in calendar year 2013.
Please consult a tax advisor regarding the tax consequences of your investment in the Fund.
30 | Massachusetts Tax-Free Income Fund | Annual report |
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Tax-Exempt Series Fund (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with John Hancock Asset Management a division of Manulife Asset Management (US) LLC (the Subadvisor) for John Hancock Massachusetts Tax-Free Income Fund (the Fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16-17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the Fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the Fund, the Advisor and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for relevant indexes; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts; and other information provided by the Advisor and the Subadvisor regarding the nature, extent and quality of services provided by the Advisor and the Subadvisor under their respective Agreement, as well as information regarding the Advisor’s revenues and costs of providing services to the Fund and compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning Fund performance, comparability of fees and total expenses and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the Fund, including quarterly performance reports prepared by management containing reviews of investment results, and periodic presentations from the Subadvisor with respect to the Fund. The Board noted the affiliation of the Subadvisor with the Advisor, noting any potential conflicts of interest. The Board also considered the nature, quality and extent of the services to be provided to John Hancock Fund portfolios by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the Fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets and the industry) and does not treat any single factor as determinative, and each Trustee may attribute different weights to different factors. The Board’s conclusions may be based in part on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of Fund performance and operations throughout the year.
| |
Annual report | Massachusetts Tax-Free Income Fund | 31 |
Nature, extent and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent and quality of services provided to the Fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the Fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and other third-party service providers.
In considering the nature, extent and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties, through Board meetings, discussions and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationships, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objective(s), review of brokerage matters, including with respect to trade allocation and best execution and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the Fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the Fund; and
(f) the Advisor’s reputation and experience in serving as an investment advisor to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the Fund.
Investment performance. In considering the Fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
(a) reviewed information prepared by management regarding the Fund’s performance;
(b) considered the comparative performance of the Fund’s benchmark;
32 | Massachusetts Tax-Free Income Fund | Annual report |
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the Fund’s ranking within a smaller group of peer funds and the Fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the Fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted the Fund outperformed the benchmark index for the one-year period and underperformed the benchmark index for the three- and five-year periods ended December 31, 2012. The Board also noted that the Fund had underperformed the peer group average for the one- and three-year periods and had outperformed the average for the five-year period ended December 31, 2012.
The Board took into account management’s discussion of the Fund’s performance, including the differences between the investment strategies of the Fund and those of the benchmark and peer group.
The Board concluded that such performance is being reasonably addressed and/or monitored.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data including, among other data, the Fund’s contractual and actual advisory fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the Fund. The Board considered the Fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the Fund’s ranking within broader groups of funds. In comparing the Fund’s actual and contractual management fee to that of comparable funds, the Board noted that such fee includes both advisory and administrative costs.
The Board noted that net management fees and total expenses for this Fund are higher than the peer group medians. The Board took into account the Advisor’s discussion of the Fund’s expenses. The Board noted that the Fund had waived a portion of its 12b-1 fees.
The Board also took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the Fund, which is discussed further below. The Board reviewed information provided by the Advisor concerning investment advisory fees charged by the Advisor or one of its advisory affiliates to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the Fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the Fund is reasonable.
Profitability/Indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates (including the Subadvisor) from the Advisor’s relationship with the Trust, the Board:
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates of the Fund;
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
Annual report | Massachusetts Tax-Free Income Fund | 33 |
(e) considered that the Advisor also provides administrative services to the Fund on a cost basis pursuant to an administrative services agreement;
(f) noted that the Fund’s Subadvisor is an affiliate of the Advisor;
(g) noted that affiliates of the Advisor provide transfer agency services and distribution services to the Fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the Fund;
(h) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the Fund;
(i) noted that the subadvisory fees for the Fund are paid by the Advisor; and
(j) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates (including the Subadvisor) from their relationship with the Fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the Fund grows and whether fee levels reflect these economies of scale for the benefit of Fund shareholders, the Board:
(a) with respect to each fund in the John Hancock fund complex, including the Fund (except those listed below), considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the Fund and each of the open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock Fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement): The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The John Hancock Funds that are not Participating Portfolios as of the date of this annual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the Fund’s fee structure contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the Fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the Fund to benefit from economies of scale if the Fund grows. The Board also took into account management’s discussion of the Fund’s advisory fee structure; and
(c) the Board also considered the effect of the Fund’s growth in size on its performance and fees. The Board also noted that if the Fund’s assets increase over time, the Fund may realize other economies of scale.
34 | Massachusetts Tax-Free Income Fund | Annual report |
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the Fund and comparative performance information relating to the Fund’s benchmark and comparable funds; and
(3) the subadvisory fee for the Fund, including any breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data.
Nature, extent and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the Fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by them to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the Fund, which is consistent with the Fund’s investment objectives, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the Fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the Fund.
The Board also received information and took into account any other potential conflicts of interests the Advisor might have in connection with the Subadvisory Agreement.
In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the Fund, such as the opportunity to provide advisory services to additional portfolios of the Trust and reputational benefits.
Annual report | Massachusetts Tax-Free Income Fund | 35 |
Subadvisory fees. The Board considered that the Fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fees paid by the Advisor to fees charged by the Fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the Fund’s performance as compared to the Fund’s peer group and benchmark and noted that the Board reviews information about the Fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the Fund is being reasonably addressed and/or monitored;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the Fund in order to permit shareholders to benefit from economies of scale if the Fund grows.
* * * |
Based on their evaluation of all factors that they deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the Fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
36 | Massachusetts Tax-Free Income Fund | Annual report |
Trustees and Officers
This chart provides information about the Trustees and Officers who oversee your John Hancock fund as of December 1, 2012. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.
Independent Trustees | ||
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
James M. Oates,2 Born: 1946 | 2012 | 233 |
Managing Director, Wydown Group (financial consulting firm) (since 1994); Chairman and Director, | ||
Emerson Investment Management, Inc. (since 2000); Independent Chairman, Hudson Castle Group, Inc. | ||
(formerly IBEX Capital Markets, Inc.) (financial services company) (1997–2011); Director, Stifel Financial | ||
(since 1996); Director, Investor Financial Services Corporation (1995–2007); Director, Connecticut River | ||
Bancorp (since 1998); Director, Virtus Funds (formerly Phoenix Mutual Funds) (since 1988). Trustee | ||
and Chairperson of the Board, John Hancock retail funds (since 2012); Trustee (2005–2006 and since | ||
2012) and Chairperson of the Board (since 2012), John Hancock Funds III; Trustee (since 2004) and | ||
Chairperson of the Board (since 2005), John Hancock Variable Insurance Trust; Trustee and Chairperson | ||
of the Board (since 2005), John Hancock Funds II. | ||
Charles L. Bardelis,2,3 Born: 1941 | 2012 | 233 |
Director, Island Commuter Corp. (marine transport). Trustee, John Hancock retail funds (since 2012); | ||
Trustee, John Hancock Funds III (2005–2006 and since 2012); Trustee, John Hancock Variable Insurance | ||
Trust (since 1988); Trustee, John Hancock Funds II (since 2005). | ||
Peter S. Burgess,2,3 Born: 1942 | 2012 | 233 |
Consultant (financial, accounting and auditing matters) (since 1999); Certified Public Accountant; | ||
Partner, Arthur Andersen (independent public accounting firm) (prior to 1999); Director, Lincoln | ||
Educational Services Corporation (since 2004); Director, Symetra Financial Corporation (since 2010); | ||
former Director, PMA Capital Corporation (2004–2010). Trustee, John Hancock retail funds (since 2012); | ||
Trustee, John Hancock Funds III (2005–2006 and since 2012); Trustee, John Hancock Variable Insurance | ||
Trust and John Hancock Funds II (since 2005). | ||
William H. Cunningham, Born: 1944 | 1987 | 233 |
Professor, University of Texas, Austin, Texas (since 1971); former Chancellor, University of Texas | ||
System and former President of the University of Texas, Austin, Texas; Director, LIN Television (since | ||
2009); Chairman (since 2009) and Director (since 2006), Lincoln National Corporation (insurance); | ||
Director, Resolute Energy Corporation (since 2009); Director, Southwest Airlines (since 2000); former | ||
Director, Introgen (manufacturer of biopharmaceuticals) (until 2008); former Director, Hicks Acquisition | ||
Company I, Inc. (until 2007); former Director, Texas Exchange Bank, SSB (formerly Bank of Crowley) | ||
(until 2009); former Advisory Director, JP Morgan Chase Bank (formerly Texas Commerce Bank–Austin) | ||
(until 2009). Trustee, John Hancock retail funds (since 1986); Trustee, John Hancock Variable Insurance | ||
Trust (since 2012); Trustee, John Hancock Funds II (since 2012 and 2005–2006). | ||
Grace K. Fey,2 Born: 1946 | 2012 | 233 |
Chief Executive Officer, Grace Fey Advisors (since 2007); Director and Executive Vice President, | ||
Frontier Capital Management Company (1988–2007); Director, Fiduciary Trust (since 2009). | ||
Trustee, John Hancock retail funds (since 2012); Trustee, John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2008). |
Annual report | Massachusetts Tax-Free Income Fund | 37 |
Independent Trustees (continued) | ||
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
Theron S. Hoffman,2,3 Born: 1947 | 2012 | 233 |
Chief Executive Officer, T. Hoffman Associates, LLC (consulting firm) (since 2003); Director, The Todd | ||
Organization (consulting firm) (2003–2010); President, Westport Resources Management (investment | ||
management consulting firm) (2006–2008); Senior Managing Director, Partner and Operating Head, | ||
Putnam Investments (2000–2003); Executive Vice President, The Thomson Corp. (financial and | ||
legal information publishing) (1997–2000). Trustee, John Hancock retail funds (since 2012); Trustee, | ||
John Hancock Variable Insurance Trust and John Hancock Funds II (since 2008). | ||
Deborah C. Jackson, Born: 1952 | 2008 | 233 |
President, Cambridge College, Cambridge, Massachusetts (since 2011); Chief Executive Officer, | ||
American Red Cross of Massachusetts Bay (2002–2011); Board of Directors of Eastern Bank Corporation | ||
(since 2001); Board of Directors of Eastern Bank Charitable Foundation (since 2001); Board of Directors | ||
of American Student Assistance Corporation (1996–2009); Board of Directors of Boston Stock Exchange | ||
(2002–2008); Board of Directors of Harvard Pilgrim Healthcare (health benefits company) (2007–2011). | ||
Trustee, John Hancock retail funds (since 2008); Trustee of John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2012). | ||
Hassell H. McClellan,2 Born: 1945 | 2012 | 233 |
Associate Professor, The Wallace E. Carroll School of Management, Boston College (since 1984); | ||
Trustee, Virtus Variable Insurance Trust (formerly Phoenix Edge Series Funds) (since 2008); Director, | ||
The Barnes Group (since 2010). Trustee, John Hancock retail funds (since 2012); Trustee, John Hancock | ||
Funds III (2005–2006 and since 2012); Trustee, John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2005). | ||
Steven R. Pruchansky, Born: 1944 | 1994 | 233 |
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. (since 2000); Director | ||
and President, Greenscapes of Southwest Florida, Inc. (until 2000); Member, Board of Advisors, First | ||
American Bank (until 2010); Managing Director, Jon James, LLC (real estate) (since 2000); Director, | ||
First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, | ||
Maxwell Building Corp. (until 1991). Trustee (since 1992) and Chairperson of the Board (2011–2012), | ||
John Hancock retail funds; Trustee and Vice Chairperson of the Board, John Hancock retail funds, | ||
John Hancock Variable Insurance Trust and John Hancock Funds II (since 2012). | ||
Gregory A. Russo, Born: 1949 | 2008 | 233 |
Director and Audit Committee Chairman (since 2012) and Member, Audit Committee and Finance | ||
Committee (since 2011), NCH Healthcare System, Inc. (holding company for multi-entity healthcare | ||
system); Director and Member of Finance Committee, The Moorings, Inc. (nonprofit continuing care | ||
community) (since 2012); Vice Chairman, Risk & Regulatory Matters, KPMG LLP (KPMG) (2002–2006); | ||
Vice Chairman, Industrial Markets, KPMG (1998–2002); Chairman and Treasurer, Westchester | ||
County, New York, Chamber of Commerce (1986–1992); Director, Treasurer and Chairman of | ||
Audit and Finance Committees, Putnam Hospital Center (1989–1995); Director and Chairman of | ||
Fundraising Campaign, United Way of Westchester and Putnam Counties, New York (1990–1995). | ||
Trustee, John Hancock retail funds (since 2008); Trustee, John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2012). |
38 | Massachusetts Tax-Free Income Fund | Annual report |
Non-Independent Trustees4 | ||
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
James R. Boyle,2 Born: 1959 | 2012 | 233 |
Senior Executive Vice President, John Hancock Financial Services (1999–2012, including prior positions); | ||
Chairman and Director, John Hancock Advisers, LLC, John Hancock Funds, LLC and John Hancock | ||
Investment Management Services, LLC (2005–2010). Trustee, John Hancock retail funds (since 2012 and | ||
2005–2010), Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2005). | ||
Craig Bromley,2 Born: 1966 | 2012 | 233 |
President, John Hancock Financial Services (since 2012); Senior Executive Vice President and General | ||
Manager, U.S. Division, John Hancock Financial Services (since 2012); President and Chief Executive | ||
Officer, Manulife Insurance Company (Manulife (Japan) (2005–2012), including prior positions). | ||
Trustee, John Hancock retail funds (since 2012); Trustee, John Hancock Variable Insurance Trust and | ||
John Hancock Funds II (since 2012). | ||
Warren A. Thomson,2 Born: 1955 | 2012 | 233 |
Senior Executive Vice President and Chief Investment Officer, Manulife Financial Corporation and The | ||
Manufacturers Life Insurance Company (since 2009); Chairman and Chief Executive Officer, Manulife | ||
Asset Management (since 2001, including prior positions); Director (since 2006), and President and | ||
Chief Executive Officer of Manulife Asset Management Limited (since 2013); Director and Chairman, | ||
Hancock Natural Resources Group, Inc. (since 2013). | ||
Principal officers who are not Trustees | ||
Name, Year of Birth | Officer | |
Position(s) held with Fund | of the | |
Principal occupation(s) and other | Trust | |
directorships during past 5 years | since | |
Hugh McHaffie, Born: 1959 | 2012 | |
President | ||
Executive Vice President, John Hancock Financial Services (since 2006, including prior positions); | ||
Chairman and Director, John Hancock Advisers, LLC, John Hancock Investment Management Services, | ||
LLC and John Hancock Funds, LLC (since 2010); President, John Hancock Advisers, LLC (since 2012); | ||
President, John Hancock Investment Management Services, LLC (since 2010). President (since 2012) and | ||
former Trustee (2010–2012), John Hancock retail funds; President, John Hancock Variable Insurance | ||
Trust and John Hancock Funds II (since 2009). | ||
Andrew G. Arnott, Born: 1971 | 2009 | |
Executive Vice President | ||
Senior Vice President, John Hancock Financial Services (since 2009); Executive Vice President, | ||
John Hancock Advisers, LLC (since 2005); Executive Vice President, John Hancock Investment | ||
Management Services, LLC (since 2006); President, John Hancock Funds, LLC (since 2004, including | ||
prior positions); Executive Vice President, John Hancock retail funds (since 2007, including prior | ||
positions); Executive Vice President, John Hancock Variable Insurance Trust and John Hancock Funds II | ||
(since 2007, including prior positions). | ||
Thomas M. Kinzler, Born: 1955 | 2006 | |
Secretary and Chief Legal Officer | ||
Vice President, John Hancock Financial Services (since 2006); Secretary and Chief Legal Counsel, | ||
John Hancock Funds, LLC (since 2007); Secretary and Chief Legal Officer, John Hancock retail funds, | ||
John Hancock Variable Insurance Trust and John Hancock Funds II (since 2006). |
Annual report | Massachusetts Tax-Free Income Fund | 39 |
Principal officers who are not Trustees (continued) | |
Name, Year of Birth | Officer |
Position(s) held with Fund | of the |
Principal occupation(s) and other | Trust |
directorships during past 5 years | since |
Francis V. Knox, Jr., Born: 1947 | 2005 |
Chief Compliance Officer | |
Vice President, John Hancock Financial Services (since 2005); Chief Compliance Officer, John Hancock | |
retail funds, John Hancock Variable Insurance Trust, John Hancock Funds II, John Hancock Advisers, | |
LLC and John Hancock Investment Management Services, LLC (since 2005); Vice President and Chief | |
Compliance Officer, John Hancock Asset Management a division of Manulife Asset Management (US) | |
LLC (2005–2008). | |
Charles A. Rizzo, Born: 1957 | 2007 |
Chief Financial Officer | |
Vice President, John Hancock Financial Services (since 2008); Senior Vice President, John Hancock | |
Advisers, LLC and John Hancock Investment Management Services, LLC (since 2008); Chief Financial | |
Officer, John Hancock retail funds, John Hancock Variable Insurance Trust and John Hancock Funds II | |
(since 2007). | |
Salvatore Schiavone, Born: 1965 | 2010 |
Treasurer | |
Assistant Vice President, John Hancock Financial Services (since 2007); Vice President, John Hancock | |
Advisers, LLC and John Hancock Investment Management Services, LLC (since 2007); Treasurer, | |
John Hancock retail funds (since 2007, including prior positions); Treasurer, John Hancock Variable | |
Insurance Trust and John Hancock Funds II (since 2010 and 2007–2009, including prior positions). |
John Hancock retail funds is comprised of John Hancock Funds III and 34 other John Hancock funds consisting of 24 series of other John Hancock trusts and 10 closed-end funds.
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Trust and is available without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee holds office until his or her successor is elected and qualified, or until the Trustee’s death, retirement, resignation or removal.
2 Became a Trustee of the Trust effective December 1, 2012.
3 Member of Audit Committee.
4 Because Messrs. Bromley and Thomson are senior executives or directors and Mr. Boyle held prior positions as a senior executive and director of the Advisor and/or its affiliates, each of them is considered an “interested person,” as defined in the Investment Company Act of 1940, of the Trust.
40 | Massachusetts Tax-Free Income Fund | Annual report |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Advisers, LLC |
Steven R. Pruchansky, Vice Chairman | |
Charles L. Bardelis* | Subadvisor |
James R. Boyle† | John Hancock Asset Management a division of |
Craig Bromley† | Manulife Asset Management (US) LLC |
Peter S. Burgess* | |
William H. Cunningham | Principal distributor |
Grace K. Fey | John Hancock Funds, LLC |
Theron S. Hoffman* | |
Deborah C. Jackson | Custodian |
Hassell H. McClellan | State Street Bank and Trust Company |
Gregory A. Russo | |
Warren A. Thomson† | Transfer agent |
John Hancock Signature Services, Inc. | |
Officers | |
Hugh McHaffie | Legal counsel |
President | K&L Gates LLP |
Andrew G. Arnott | Independent registered |
Executive Vice President | public accounting firm |
PricewaterhouseCoopers LLP | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†Non-Independent Trustee |
The fund’s proxy voting policies and procedures, as well as the fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) website at sec.gov or on our website.
The fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The fund’s Form N-Q is available on our website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our website at jhfunds.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 55913 | Mutual Fund Image Operations | |
Boston, MA 02205-5913 | 30 Dan Road | |
Canton, MA 02021 |
Annual report | Massachusetts Tax-Free Income Fund | 41 |
800-225-5291
800-554-6713 TDD
800-338-8080 EASI-Line
jhfunds.com
www.jhfunds.com/edelivery
This report is for the information of the shareholders of John Hancock Massachusetts Tax-Free Income Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 77A 5/13 |
MF146656 | 7/13 |
ITEM 2. CODE OF ETHICS.
As of the end of the year, May 31, 2013, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer, Chief Financial Officer and Treasurer (respectively, the principal executive officer, the principal financial officer and the principal accounting officer, the “Covered Officers”). A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Effective December 12, 2012, Peter S. Burgess is the audit committee financial expert and is “independent”, pursuant to general instructions on Form N-CSR Item 3.
Prior to December 12, 2012, Gregory A. Russo was the audit committee financial expert and was “independent”, pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal accountant for the audits of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements amounted to the following for the fiscal years ended May 31, 2013 and 2012. These fees were billed to the registrant and were approved by the registrant’s audit committee.
Fund | May 31, 2013 | May 31, 2012 | ||
John Hancock Massachusetts Tax-Free Income Fund | $ | 31,405 | $ | 30,534 |
John Hancock New York Tax-Free Income Fund | 31,406 | 30,535 | ||
Total | $ | 62,811 | $ | 61,069 |
(b) Audit-Related Services
Audit-related fees for assurance and related services by the principal accountant are billed to the registrant or to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser ("control affiliates") that provides ongoing services to the registrant. The nature of the services provided was affiliated service provider internal controls reviews. Amounts billed to the registrant were as follows:
Fund | May 31, 2013 | May 31, 2012 | ||
John Hancock Massachusetts Tax-Free Income Fund | $ | 738 | $ | 783 |
John Hancock New York Tax-Free Income Fund | 738 | 783 | ||
Total | $ | 1,476 | $ | 1,566 |
Amounts billed to control affiliates were $99,637 and $96,255 for the fiscal years ended May 31, 2013 and 2012, respectively.
(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning (“tax fees”) amounted to the following for the fiscal years ended May 31, 2013 and 2012. The nature of the services comprising the tax fees was the review of the registrant’s tax returns and tax distribution requirements. These fees were billed to the registrant and were approved by the registrant’s audit committee.
Fund | May 31, 2013 | May 31, 2012 | ||
John Hancock Massachusetts Tax-Free Income Fund | $ | 2,942 | $ | 2,856 |
John Hancock New York Tax-Free Income Fund | 2,942 | 2,856 | ||
Total | $ | 5,884 | $ | 5,712 |
(d) All Other Fees
Other fees billed for professional services rendered by the principal accountant to the registrant or to the control affiliates for the fiscal years ended May 31, 2013 and 2012 amounted to the following:
Fund | May 31, 2013 | May 31, 2012 | ||
John Hancock Massachusetts Tax-Free Income Fund | $ | 167 | $ | 199 |
John Hancock New York Tax-Free Income Fund | 167 | 200 | ||
Total | $ | 334 | $ | 399 |
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The trust’s Audit Committee must pre-approve all audit and non-audit services provided by the independent registered public accounting firm (the “Auditor”) relating to the operations or financial reporting of the funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law.
The trust’s Audit Committee has adopted policies and procedures to, among other purposes, provide a framework for the Committee’s consideration of audit-related and non-audit services by the Auditor. The policies and procedures require that any audit-related and non-audit service provided by the Auditor and any non-audit service provided by the Auditor to a fund service provider that relates directly to the operations and financial reporting of a fund are subject to approval by the Audit Committee before such service is provided. Audit-related services provided by the Auditor that are expected to exceed $25,000 per year/per fund are subject to specific pre-approval by the Audit Committee. Tax services provided by the Auditor that are expected to exceed $30,000 per year/per fund are subject to specific pre-approval by the Audit Committee.
All audit services, as well as the audit-related and non-audit services that are expected to exceed the amounts stated above, must be approved in advance of provision of the service by formal resolution of the Audit Committee. At the regularly scheduled Audit Committee meetings, the Committee reviews a report summarizing the services, including fees, provided by the Auditor.
(e)(2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
Audit-Related Fees, Tax Fees and All Other Fees:
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.
(f) According to the registrant’s principal accountant for the fiscal year ended May 31, 2013, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who were not full-time, permanent employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant’s principal accountant for non-audit services rendered to the registrant and rendered to the registrant's control affiliates for the fiscal years ended May 31, 2013 and 2012 amounted to the following:
Trust | May 31, 2013 | May 31, 2012 | ||
John Hancock Tax-Exempt Series Fund | $ | 2,842,141 | $ | 3,337,357 |
(h) The audit committee of the registrant has considered the non-audit services provided by the registrant’s principal accountant to the control affiliates and has determined that the services that were not pre-approved are compatible with maintaining the principal accountant’s independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee comprised of independent trustees. Effective December 12, 2012, the members of the audit committee are as follows:
Peter S. Burgess - Chairman
Charles L. Bardelis
Theron S. Hoffman
Prior to December 12, 2012, the members of the audit committee were as follows:
Gregory A. Russo - Chairman
Dr. John A. Moore
Steven R. Pruchansky
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) Not applicable.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached “John Hancock Funds – Nominating, Governance and Administration Committee Charter”.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's principal executive officer and principal financial officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics for Covered Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The certifications furnished pursuant to this paragraph are not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference.
(c)(1) Submission of Matters to a Vote of Security Holders is attached. See attached “John Hancock Funds – Nominating, Governance and Administration Committee Charter”.
(c)(2) Contact person at the registrant.
SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Tax-Exempt Series Fund
By: | /s/ Hugh McHaffie |
------------------------------ | |
Hugh McHaffie | |
President | |
Date: | July 25, 2013 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Hugh McHaffie |
------------------------------ | |
Hugh McHaffie | |
President | |
Date: | July 25, 2013 |
By: | /s/ Charles A. Rizzo |
-------------------------------- | |
Charles A. Rizzo | |
Chief Financial Officer | |
Date: | July 25, 2013 |