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)
101 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Susan S. Newton, Secretary
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-375-1702
Date of fiscal year end: August 31
Date of reporting period: February 28, 2005
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Massachusetts Tax-Free Income Fund
2.28.2005
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chief Executive Officer, flush left next
to first paragraph.]
CEO CORNER
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Your expenses
page 8
Fund's investments
page 10
Financial statements
page 14
For more information
page 29
Dear Fellow Shareholders,
After advancing for a second straight year in 2004, the stock market pulled
back in the first two months of 2005. For much of 2004 the market had been
in the doldrums as investors fretted about rising oil prices, higher
interest rates, the war in Iraq and a closely contested presidential race.
But the year ended on a high note with a sharp rally sparked by a definitive
end to the U.S. presidential election and moderating oil prices.
Investors were brought back down to earth in January, however, as the market
declined in three of the four weeks and produced negative results for the
month in a broad-based move downward. Rising oil prices and interest rates,
and concerns about less robust corporate earnings growth were among the
culprits that kept investors on the sidelines. Investors began to re-enter
the market in February, reversing January's decline. But as the month
progressed investors again grew concerned about further spikes in oil prices
and rising interest rates. As a result, the first two months of 2005 ended
with the major indexes either flat or slightly negative. By the end of
February, the Dow Jones Industrial Average was essentially flat at 0.25%, as
was the S&P 500 Index at -0.38%, while the Nasdaq Composite Index fell by
5.59%. Bonds were also flat in January and February, with the Lehman
Brothers Aggregate Bond Index returning 0.03% in the first two months of
2005.
In October, you may recall we requested your vote on a proposal regarding
the election of your fund's Board of Trustees. We are pleased to report that
shareholders overwhelmingly approved the proposal, which became effective
January 1, 2005. As a result, all open-end John Hancock funds now have the
same Board of Trustees, comprised of 11 members -- ten of them, including
the Chairman, are independent Trustees with no direct or indirect interest
in John Hancock Advisers, LLC, your fund's investment adviser. We believe
this move is a way to improve the effectiveness of the Trustees' oversight
of the funds, and we are grateful for your support.
Sincerely,
/S/ James A. Shepherdson
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of February 28, 2005. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks a
high level of current
income, consistent
with preservation of
capital, that is
exempt from federal
and Massachusetts
personal income
taxes. In pursuing
this goal, the Fund
normally invests at
least 80% of its
assets in securities
of any maturity
exempt from federal
and Massachusetts
personal income
taxes.
Over the last six months
* Municipal bonds gained ground and outperformed the broad taxable bond
market.
* The Fund's emphasis on credit research and individual security selection
helped it outperform its benchmark index and peer group average.
* Higher-yielding sectors of the portfolio, including electric utility and
pollution control bonds, contributed the most to Fund performance.
[Bar chart with heading "John Hancock Massachusetts Tax-Free Income Fund."
Under the heading is a note that reads "Fund performance for the six moths
ended February 28, 2005." The chart is scaled in increments of 2% with 0%
at the bottom and 4% at the top. The first bar represents the 2.42% total
return for Class A. The second bar represents the 2.06% total return for
Class B. The third bar represents the 2.06% total return for Class C. A
note below the chart reads "Total returns for Fund are at net asset value
with all distributions reinvested. These returns do not reflect the
deduction of the maximum sales charge, which would reduce the performance
shown above."]
Top 10 holdings
4.4% Massachusetts Turnpike Auth., 1-1-23, 5.125%
3.5% Holyoke Gas and Electric Department, 12-1-31, 5.000%
3.4% Route 3 North Transit Improvement Assoc., 6-15-29, 5.375%
3.0% Massachusetts Development Finance Agency, 11-1-28, 5.450%
2.8% Massachusetts Industrial Finance Agency, 12-1-20, 6.750%
2.5% Puerto Rico Aqueduct and Sewer Auth., 7-1-11, 9.770%
2.3% Massachusetts Housing Finance Agency, 12-1-16, 4.700%
2.3% Massachusetts Development Finance Agency, 12-15-24, 5.000%
2.3% Massachusetts, Commonwealth of, 12-1-24, 5.500%
2.3% Massachusetts Health and Educational Facilities Auth.,
12-15-31, 9.200%
As a percentage of net assets on February 28, 2005.
1
BY DIANNE SALES, CFA, AND BARRY EVANS, CFA, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
Massachusetts Tax-Free
Income Fund
Recently, Barry Evans rejoined the portfolio management team following the
departure from the company of former team member James Colby.
Municipal bonds gained ground during the six months ended February 28, 2005,
and outperformed the broad taxable bond market. The economy continued to
grow at a moderate pace, with steady consumer spending and erratic but
improving job growth. To keep the economy from overheating and sparking
higher inflation, the Federal Reserve raised short-term interest rates four
times during the six-month period, increasing the federal funds rate from
1.5% to 2.5% -- its highest level since September 2001.
"Municipal bonds gained ground
during the six months ended
February 28, 2005, and
outperformed the broad taxable
bond market."
As a result, the yield curve flattened during the period as the gap between
the yields of short-term and longer-term bonds narrowed. While short-term
bond yields rose in lockstep with the Fed rate hikes, long-term bond yields
- -- which are most sensitive to inflation expectations -- declined slightly,
as the Fed's actions boosted investor confidence that inflation was under
control. Longer-term municipal bonds performed especially well as
taxable-bond investors crossed over to the municipal market to find
attractively valued, high-quality long-term bonds.
Another noteworthy trend in the municipal market was the outperformance of
lower-quality securities. Low interest rates and reduced municipal issuance
left investors hunting for yield and they flocked to the relatively high
yields of lower-rated bonds. The strong performance of these securities
caused the spread between the yields of high-quality and lower-quality
municipal bonds to narrow considerably.
In Massachusetts, the state remained in good financial shape thanks to its
continued fiscal discipline. The economy's strength
2
contributed favorably to increased tax revenues, which allowed the state to
make progress on rebuilding its reserve fund. The challenge for the state in
the coming year will be the implementation of a modest income tax cut, which
was approved almost five years ago but delayed because of the past few years
of fiscal stress. Although the tax cut is less than a half-percent, the
state will still need to make up for the loss of tax revenue in some way.
[Photos of Dianne Sales and Barry Evans, flush right next to first
paragraph.]
Fund performance
For the six months ended February 28, 2005, John Hancock Massachusetts
Tax-Free Income Fund's Class A, Class B and Class C shares posted total
returns of 2.42%, 2.06% and 2.06%, respectively, at net asset value. The
average general municipal debt fund returned 2.08%, according to Lipper,
Inc.,1 while the return of the Lehman Brothers Municipal Bond Index was
2.40%. Keep in mind that your net asset value return will be different from
the Fund's performance if you were not invested in the Fund for the entire
period and did not reinvest all distributions. See pages six and seven for
historical performance information.
The Fund's outperformance of both the Lipper group average and the index
resulted from two main factors. The portfolio's longer-maturity and
deep-discount bonds outperformed as the municipal yield curve flattened, and
our focus on individual credit research and security selection contributed
favorably to performance.
"Most sectors within the portfolio
posted similarly positive returns,
but the best performers were the
higher-yielding securities..."
Higher-yielding bonds lead the way
Most sectors within the portfolio posted similarly positive returns, but the
best performers were the higher-yielding securities, which benefited from
strong demand for yield in a relatively low interest rate environment. These
sectors included electric utility, pollution control and other dedicated
revenue bonds.
One of the best individual performers in the portfolio was a water pollution
abatement bond that was pre-refunded during the period. Pre-refunding is a
way for municipalities to refinance older, higher-yielding debt before the
maturity or call date. Typically, new bonds are issued, and the proceeds are
invested in Treasury securities until the old bonds can
3
be paid off. The high-quality Treasury backing often boosts the value of the
old bonds, and this occurred with the water pollution abatement bonds in the
portfolio.
[Table at top left-hand side of page entitled "Sector distribution." The
first listing is Revenue bonds - All other - 21%, the second listing is
Revenue bonds - Transportation - 20%, the third listing is Revenue bonds -
Health - 14%, the fourth listing is Revenue bonds - Education - 13%, the
fifth listing is General obligation - 13%, the sixth listing is Revenue
bonds - Electric - 5%, the seventh listing is Revenue bonds - Industrial
development - 4%, the eighth listing is Revenue bonds - Water & sewer - 4%,
the ninth listing is Revenue bonds - Pollution - 3% and the tenth listing
is Revenue bonds - Resource recovery - 2%.]
Health care fares well
The portfolio's health care bonds also posted solid results during the
period. In particular, some of our assisted-living facility bonds performed
very well. We have been watching the health care sector because we believe
that the state may choose to reduce funding to health and human services to
offset the income tax cut. We are confident that our health care holdings
can withstand any changes of this nature.
GO and infrastructure bonds lag
With higher-yielding, lower-quality municipal bonds outperforming, bonds at
the opposite end of the quality spectrum trailed the rest of the municipal
market. These higher-quality bonds included general obligation (GO) bonds
and essential-service bonds, such as those backed by water and sewer
services. In particular, GO bonds lagged despite higher tax revenues because
the good news was already priced into the bonds.
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 2-28-05." The chart is divided into three
sections (from top to right): Revenue bonds 86%, General obligation bonds
13% and Short-term investments & other 1%.]
One of the only individual issues in the portfolio to decline during the
six-month period was our position in Florida Seminole casino bonds, which
comprised less than 1% of the portfolio. The IRS challenged the bonds'
issuance, although no final determination has been made and appeals are in
progress. Despite the strong financial underpinnings of the Seminole bonds,
the IRS challenge had a negative impact on their value.
4
[Table at top of page entitled "Scorecard." The header for the left column
is "Investment" and the header for the right column is "Period's
performance...and what's behind the numbers." The first listing is
Higher-yielding bonds followed by an up arrow with the phrase "Benefited
from strong demand for yield in low rate environment." The second listing
is Longer-term bonds followed by an up arrow with the phrase "Continued low
inflation boosted long-term securities." The third listing is Seminole
casino bonds followed by a down arrow with the phrase "Declined after IRS
challenge."]
Outlook
In our view, economic conditions remain fairly positive for bonds. The U.S.
economy is experiencing steady growth, but not vigorously enough to ratchet
up domestic inflation significantly. Although the Fed has raised short-term
rates six times since June 2004 and indicated it will continue to do so in
the coming months, the federal funds rate remains low by historical
standards. Eventually, we expect long-term rates to trend higher, but it's
unclear when this may occur.
"Reduced supply should provide
some support for the municipal
market..."
In the municipal market, supply is waning -- issuance of new municipal bonds
decreased in 2004 and is expected to decline further in 2005. Reduced supply
should provide some support for the municipal market, and municipal bond
yields remain attractive relative to other types of bonds.
In this environment, we will continue to pursue our current strategy --
structuring the portfolio to protect shareholders' capital from rising
interest rates, while focusing on credit research and individual security
selection to identify bonds that provide above-average yield and strong
total-return prospects.
This commentary reflects the views of the portfolio managers through the end
of the Fund's period discussed in this report. The managers' statements
reflect their own opinions. 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.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
5
A LOOK AT
PERFORMANCE
For the period ended
February 28, 2005
Class A Class B Class C
Inception date 9-3-87 10-3-96 4-1-99
Average annual returns with maximum sales charge (POP)
One year -1.89% -2.91% 1.02%
Five years 6.19 6.12 6.43
Ten years 5.76 -- --
Since inception -- 5.34 4.58
Cumulative total returns with maximum sales charge (POP)
Six months -2.19 -2.94 1.06
One year -1.89 -2.91 1.02
Five years 35.04 34.59 36.59
Ten years 75.01 -- --
Since inception -- 54.83 30.33
SEC 30-day yield as of February 28, 2005
3.78 3.25 3.25
Performance figures assume all distributions are reinvested. Returns with
maximum sales charge reflect a sales charge on Class A shares of 4.50%, 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 July 15, 2004. The Class
B shares' CDSC declines annually between years 1-6 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 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
performance data current to the most recent month-end, please call
1-800-225-5291 or visit the Fund's Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect
the deduction of taxes that a shareholder would pay on fund distributions or
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 expense reductions,
without which the expenses would increase and results would have been less
favorable.
6
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in Class
A shares for the period indicated. For comparison, we've shown the same
investment in the Lehman Brothers Municipal Bond Index.
[Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the Lehman Brothers Municipal Bond
Index and is equal to $18,796 as of February 28, 2005. The second line
represents the value of the hypothetical $10,000 investment made in the
John Hancock Massachusetts Tax-Free Income Fund, without sales charge
(NAV), and is equal to $18,320 as of February 28, 2005. The third line
represents the value of the same hypothetical investment made in the John
Hancock Massachusetts Tax-Free Income Fund, with maximum sales charge
(POP), and is equal to $17,501 as of February 28, 2005.]
Class B 1 Class C 1
Period beginning 10-3-96 4-1-99
Massachusetts Tax-Free Income Fund $15,483 $13,033
Index 16,634 13,829
Assuming all distributions were reinvested for the period indicated, the
table above shows the value of a $10,000 investment in the Fund's Class B
and Class C shares, respectively, as of February 28, 2005. The Class C
shares investment with maximum sales charge has been adjusted to reflect the
elimination of the front-end sales charge effective July 15, 2004.
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.
Lehman Brothers Municipal Bond Index is an unmanaged index that includes
municipal bonds and is commonly used as a measure of bond performance. It is
not possible to invest directly in an index. Index figures do not reflect
sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
7
YOUR
EXPENSES
These examples are intended to help you understand your
ongoing operating expenses.
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 your fund's actual
ongoing operating expenses, and is based on your fund's actual return. It
assumes an account value of $1,000.00 on August 31, 2004, with the same
investment held until February 28, 2005.
Account value Expenses paid
$1,000.00 Ending value during period
on 8-31-04 on 2-28-05 ended 2-28-05 1
Class A $1,024.20 $5.06
Class B 1,020.60 8.59
Class C 1,020.60 8.59
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 February 28, 2005 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:
Example
-- -- -- --
| My account value / | | "expenses paid" | My
| / $1,000.00 = 8.6 | X $| | = actual
| $8,600.00 / | | from table | expenses
-- -- -- --
8
Hypothetical example for comparison purposes
This table allows you to compare your 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% annual return before expenses (which is not
your fund's actual return). It assumes an account value of $1,000.00 on
August 31, 2004, with the same investment held until February 28, 2005. Look
in any other fund shareholder report to find its hypothetical example and
you will be able to compare these expenses.
Account value Expenses paid
$1,000.00 Ending value during period
on 8-31-04 on 2-28-05 ended 2-28-05 1
Class A $1,019.80 $5.05
Class B 1,016.30 8.57
Class C 1,016.30 8.57
Remember, these examples do not include any transaction costs, such as sales
charges; 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 1.01%, 1.71%
and 1.71% for Class A, Class B and Class C, respectively, multiplied by the
average account value over the period, multiplied by number of days in most
recent fiscal half-year/365 or 366 (to reflect the one-half year period).
9
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
February 28, 2005
(unaudited)
This schedule is divided into two main categories: tax-exempt long-term
bonds and short-term investments. Tax-exempt long-term bonds are broken down
by state or territory. Under each state or territory is a list of securities
owned by the Fund. Short-term investments, which represent the Fund's cash
position, are listed last.
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
Tax-exempt long-term bonds 98.65% $100,926,569
(Cost $93,500,488)
Florida 0.55% 563,755
Capital Trust Agency,
Rev Seminole Tribe Convention
Ser 2002A (G) 10.000% 10-01-33 BB $500 563,755
Massachusetts 89.87% 91,943,336
Boston City Industrial Development
Financing Auth,
Rev Ref Swr Facil Harbor
Electric Energy Co Proj 7.375 05-15-15 BBB 240 240,871
Boston Water and Sewer Commission,
Rev Ref Sr Ser 1992A 5.750 11-01-13 AA 500 562,980
Freetown Lakeville Regional School District,
Gen Oblig Unltd 5.000 07-01-23 AAA 1,000 1,066,900
Holyoke Gas and Electric Department,
Rev Ser 2001A 5.000 12-01-31 Aaa 3,410 3,529,418
Massachusetts Bay Transportation Auth,
Rev Ref Sales Tax Sr Ser 2004B 5.250 07-01-20 AAA 1,000 1,132,390
Rev Ref Ser 1994A 7.000 03-01-14 AA 1,000 1,224,370
Rev Ser 1997D 5.000 03-01-27 AAA 1,000 1,056,300
Rev Spec Assessment Ser 2000A 5.250 07-01-30 AAA 1,000 1,086,570
Rev Spec Assessment Ser 2004A 5.250 07-01-18 AAA 500 564,930
Rev Spec Assessment Ser 2004A 5.000 07-01-34 AAA 1,000 1,040,050
Massachusetts College Building Auth,
Rev Ref Cap Apprec Ser 2003B Zero 05-01-19 AAA 1,000 524,840
Massachusetts Development
Finance Agency,
Rev Belmont Hill School 5.000 09-01-31 A 1,000 1,030,030
Rev Boston Univ Ser 2002R (P) 1.790 10-01-42 AAA 950 950,000
Rev Boston Univ Ser 2002R (P) 1.790 10-01-42 AAA 1,100 1,100,000
Rev Plantation Apts Hsg Prog Ser 2004A 5.000 12-15-24 AAA 2,320 2,330,533
Rev Ref Combined Jewish Philanthropies
Ser 2002A 5.250 02-01-22 Aa3 1,875 2,035,631
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
Massachusetts (continued)
Massachusetts Industrial
Finance Agency (continued),
Rev Ref Resource Recovery
Southeastern MA Sys Ser 2001A 5.625% 01-01-16 AAA $500 $551,995
Rev Resource Recovery Ogden
Haverhill Proj Ser 1998B 5.500 12-01-19 BBB 1,500 1,529,040
Rev Volunteers of America Concord
Ser 2000A 6.900 10-20-41 AAA 1,000 1,118,480
Rev YMCA Greater Boston Iss 5.450 11-01-28 BBB 3,000 3,076,770
Rev YMCA Greater Boston Iss 5.350 11-01-19 BBB 1,000 1,031,380
Massachusetts Health and Educational
Facilities Auth,
Rev Civic Investments Inc Ser 2002B (G) 9.200 12-15-31 BB 2,000 2,303,600
Rev Dana Farber Cancer Proj Ser 1995G 6.250 12-01-22 A 500 524,475
Rev Harvard Univ Iss Ser 2000W 6.000 07-01-35 Aaa 1,000 1,150,190
Rev Jordan Hosp Ser 2003E 6.750 10-01-33 BBB- 1,500 1,595,250
Rev Ref Boston College Iss Ser 1998L 5.000 06-01-26 AA- 1,000 1,023,390
Rev Ref Boston College Iss Ser 1998L 4.750 06-01-31 AA- 1,000 1,006,060
Rev Ref Harvard Pilgrim Health
Ser 1998A 5.000 07-01-18 AAA 1,000 1,031,450
Rev Ref Melrose Wakefield Hosp
Ser 1992B 6.350 07-01-06 AAA 500 506,100
Rev Ref New England Med Ctr Hosp
Ser 2002H 5.000 05-15-25 AAA 1,000 1,040,130
Rev Ref Partners Healthcare Sys Ser 2001C 5.750 07-01-32 AA- 1,000 1,094,590
Rev Ref South Shore Hosp Ser 1999F 5.750 07-01-29 A 1,000 1,037,540
Rev Ref Tufts Univ Ser 2002J 5.500 08-15-17 AA- 500 576,765
Rev Ref Williams College Ser 2003H 5.000 07-01-33 AA+ 1,500 1,554,765
Rev Simmons College Ser 2000D 6.150 10-01-29 AAA 1,000 1,161,070
Rev Univ of Mass Worcester Campus
Ser 2001B 5.250 10-01-31 AAA 1,500 1,593,705
Rev Wheelock College Ser 2000B 5.625 10-01-30 Aaa 1,000 1,101,170
Massachusetts Housing Finance Agency,
Rev Rental Mtg Ser 2001A 5.800 07-01-30 AAA 1,000 1,040,330
Rev Ser 2003B 4.700 12-01-16 AA- 2,310 2,378,561
Massachusetts Industrial Finance Agency,
Rev Assisted Living Facil Newton
Group Properties (G) 8.000 09-01-27 BB 2,000 2,120,360
Rev Assisted Living Facil TNG Marina
Bay LLC Proj (G) 7.500 12-01-27 BB 1,000 1,054,750
Rev Assumption College 6.000 07-01-26 AAA 1,000 1,065,340
Rev Dana Hall School Iss 5.800 07-01-17 Baa2 1,090 1,184,514
Rev Glenmeadow Retirement
Community Ser 1996C (G) 8.375 02-15-18 AA 1,000 1,071,130
Rev Ref Resource Recovery Ogden
Haverhill Proj Ser 1998A 5.600 12-01-19 BBB 500 511,645
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
Massachusetts (continued)
Massachusetts Industrial
Finance Agency (continued),
Rev Ref Resource Recovery
Refusetech Inc Proj Ser 1993A 6.300% 07-01-05 BBB+ $870 $877,143
Rev Wtr Treatment American
Hingham Proj 6.900 12-01-29 A 1,210 1,267,548
Rev Wtr Treatment American
Hingham Proj 6.750 12-01-20 A 2,780 2,908,686
Massachusetts Municipal Wholesale
Electric Co,
Rev Pwr Supply Sys (P) 8.670 07-01-18 AAA 1,000 1,034,560
Massachusetts Port Auth,
Rev Ser 1999C 5.750 07-01-29 AAA 1,250 1,384,175
Rev Spec Facil US Air Proj Ser 1996A 5.750 09-01-16 AAA 1,000 1,035,390
Massachusetts Special Obligation
Dedicated Tax,
Rev 5.250 01-01-26 AAA 1,000 1,079,130
Massachusetts Turnpike Auth,
Rev Ref Metro Hwy Sys Sr Ser 1997A 5.125 01-01-23 AAA 4,300 4,523,041
Rev Ref Metro Hwy Sys Sr Ser 1997C Zero 01-01-20 AAA 1,000 509,160
Massachusetts Water Pollution
Abatement Trust,
Rev Preref Pool Prog Ser 7 5.125 02-01-31 AAA 645 713,028
Rev Unref Bal Pool Prog Ser 7 5.125 02-01-31 AAA 1,775 1,845,787
Rev Ref Pool Prog Ser 9 5.250 08-01-18 AAA 1,500 1,673,415
Massachusetts Water Resource Auth,
Rev Ref Ser 1993C 4.750 12-01-23 AA 1,000 1,000,800
Massachusetts, Commonwealth of,
Gen Oblig Ltd Ref 5.500 11-01-17 AAA 1,000 1,149,020
Gen Oblig Ltd Ref Ser 2001C 5.375 12-01-19 AA- 1,000 1,113,640
Gen Oblig Ltd Ref Ser 2002C 5.500 11-01-15 AA- 1,000 1,138,840
Gen Oblig Ltd Ref Ser 2004B 5.250 08-01-20 AA- 1,000 1,124,360
Gen Oblig Unltd Ref Ser 2004C 5.500 12-01-24 AAA 2,000 2,320,100
Narragansett Regional School District,
Gen Oblig Unltd 5.375 06-01-18 Aaa 1,000 1,109,320
Pittsfield, City of,
Gen Oblig Ltd 5.000 04-15-19 AAA 1,000 1,070,210
Plymouth, County of,
Rev Ref Cert of Part Correctional Facil Proj 5.000 04-01-22 AAA 1,000 1,049,370
Rail Connections, Inc.,
Rev Cap Apprec Rte 128 Pkg Ser 1999B Zero 07-01-18 Aaa 1,750 874,860
Rev Cap Apprec Rte 128 Pkg Ser 1999B Zero 07-01-19 Aaa 2,415 1,130,292
Route 3 North Transit
Improvement Associates,
Rev Lease 5.375 06-15-29 AAA 3,100 3,439,853
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
Massachusetts (continued)
University of Massachusetts,
Rev Bldg Auth Facil Gtd Ser 2000A 5.125% 11-01-25 AAA $1,000 $1,061,250
New York 0.49% 500,000
New York City Municipal Water Finance Auth,
Rev Wtr & Swr Sys Ser 2000C (P) 1.810 06-15-33 AA+ 500 500,000
Puerto Rico 7.74% 7,919,478
Puerto Rico Aqueduct and Sewer Auth,
Rev Ref Inverse Floater (Gtd) (P) 9.770 07-01-11 AAA 2,000 2,581,240
Puerto Rico Highway & Transportation Auth,
Rev Preref Hwy Ser 1996Y 6.250 07-01-14 A 955 1,154,204
Rev Unref Bal Hwy Ser 1996Y 6.250 07-01-14 A 45 53,249
Puerto Rico Public Buildings Auth,
Rev Gov't Facils Ser 1997B (Gtd) 5.000 07-01-27 AAA 1,000 1,069,210
Puerto Rico, Commonwealth of,
Gen Oblig Unltd Ser 975 (P) 7.890 07-01-18 Aaa 1,500 1,766,055
Rev Inverse Floater (P) 9.595 07-01-11 AAA 1,000 1,295,520
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 0.08% $89,000
(Cost $89,000)
Joint Repurchase Agreement 0.08% 89,000
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. --
Dated 2-28-05, due 03-01-05 (secured by
U.S. Treasury Inflation Indexed Bond
2.375%, due 01-15-25 and U.S. Treasury
Inflation Indexed Notes 2.000% thru
3.500%, due 01-15-11 thru 07-15-14) 2.620% $89 89,000
Total investments 98.73% $101,015,569
Other assets and liabilities, net 1.27% $1,295,869
Total net assets 100.00% $102,311,438
(A) Credit ratings are unaudited and are rated by Moody's Investors Service
or Fitch where Standard & Poor's ratings are not available, unless
indicated otherwise.
(G) Security rated internally by John Hancock Advisers, LLC.
(P) Represents rate in effect on February 28, 2005.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
See notes to
financial statements.
13
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
February 28, 2005
(unaudited)
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 $93,589,488) $101,015,569
Cash 540
Receivable for shares sold 168,011
Interest receivable 1,265,791
Other assets 7,216
Total assets 102,457,127
Liabilities
Payable for shares repurchased 24,131
Dividends payable 33,376
Unrealized depreciation of swap contracts 10,436
Payable to affiliates
Management fees 37,109
Distribution and service fees 6,975
Other 3,403
Other payables and accrued expenses 30,259
Total liabilities 145,689
Net assets
Capital paid-in 94,954,899
Accumulated net realized loss on investments (96,987)
Net unrealized appreciation of investments
and swap contracts 7,415,645
Accumulated net investment income 37,881
Net assets $102,311,438
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 ($73,269,872 [DIV] 5,729,673 shares) $12.79
Class B ($21,058,532 [DIV] 1,646,786 shares) $12.79
Class C ($7,983,034 [DIV] 624,274 shares) $12.79
Maximum offering price per share
Class A 1 ($12.79 [DIV] 95.5%) $13.39
1 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.
See notes to
financial statements.
14
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
February 28, 2005
(unaudited) 1
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 $2,646,870
Total investment income 2,646,870
Expenses
Investment management fees 251,672
Class A distribution and service fees 106,670
Class B distribution and service fees 108,576
Class C distribution and service fees 39,200
Transfer agent fees 31,584
Custodian fees 19,661
Miscellaneous 13,253
Professional fees 11,785
Accounting and legal services fees 11,414
Printing 9,153
Registration and filing fees 6,243
Trustees' fees 2,552
Interest 157
Total expenses 611,920
Less expense reductions (85)
Net expenses 611,835
Net investment income 2,035,035
Realized and unrealized gain (loss)
Net realized loss on investments (32,881)
Change in net unrealized appreciation (depreciation) of
Investments 331,550
Swap contracts (10,436)
Net realized and unrealized gain 288,233
Increase in net assets from operations $2,323,268
1 Semiannual period from 9-1-04 through 2-28-05.
See notes to
financial statements.
15
FINANCIAL STATEMENTS
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 Period
ended ended
8-31-04 2-28-05 1
Increase (decrease) in net assets
From operations
Net investment income $4,133,220 $2,035,035
Net realized gain (loss) 58,667 (32,881)
Change in net unrealized
appreciation (depreciation) 2,657,656 321,114
Increase in net assets resulting
from operations 6,849,543 2,323,268
Distributions to shareholders
From net investment income
Class A (2,961,505) (1,488,768)
Class B (837,561) (378,612)
Class C (269,816) (136,580)
(4,068,882) (2,003,960)
From Fund share transactions 2,139,369 801,066
Net assets
Beginning of period 96,271,034 101,191,064
End of period 2 $101,191,064 $102,311,438
1 Semiannual period from 9-1-04 through 2-28-05. Unaudited.
2 Includes accumulated net investment income of $6,806 and
$37,881, respectively.
See notes to
financial statements.
16
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share has
changed since the end of the previous period.
Period ended 8-31-00 8-31-01 8-31-02 1 8-31-03 8-31-04 2-28-05 2
Per share operating performance
Net asset value,
beginning of period $11.85 $11.80 $12.41 $12.50 $12.38 $12.75
Net investment income 3 0.64 0.59 0.58 0.57 0.56 0.27
Net realized and unrealized
gain (loss) on investments (0.05) 0.61 0.08 (0.13) 0.36 0.04
Total from
investment operations 0.59 1.20 0.66 0.44 0.92 0.31
Less distributions
From net investment income (0.64) (0.59) (0.57) (0.56) (0.55) (0.27)
Net asset value, end of period $11.80 $12.41 $12.50 $12.38 $12.75 $12.79
Total return 4 (%) 5.16 5 10.44 5 5.54 3.57 7.55 2.42 6
Ratios and supplemental data
Net assets, end of period
(in millions) $60 $63 $65 $66 $71 $73
Ratio of expenses
to average net assets (%) 0.77 0.97 1.03 1.02 1.01 1.01 7
Ratio of adjusted expenses
to average net assets 8 (%) 1.09 1.05 -- -- -- --
Ratio of net investment income
to average net assets (%) 5.54 4.90 4.72 4.54 4.40 4.25 7
Portfolio turnover (%) 19 17 15 13 44 15
See notes to
financial statements.
17
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 8-31-00 8-31-01 8-31-02 1 8-31-03 8-31-04 2-28-05 2
Per share operating performance
Net asset value,
beginning of period $11.85 $11.80 $12.41 $12.50 $12.38 $12.75
Net investment income 3 0.56 0.51 0.50 0.49 0.47 0.22
Net realized and unrealized
gain (loss) on investments (0.05) 0.61 0.08 (0.13) 0.36 0.04
Total from
investment operations 0.51 1.12 0.58 0.36 0.83 0.26
Less distributions
From net investment income (0.56) (0.51) (0.49) (0.48) (0.46) (0.22)
Net asset value, end of period $11.80 $12.41 $12.50 $12.38 $12.75 $12.79
Total return 4 (%) 4.43 5 9.67 5 4.80 2.85 6.80 2.06 6
Ratios and supplemental data
Net assets, end of period
(in millions) $14 $19 $23 $23 $23 $21
Ratio of expenses
to average net assets (%) 1.47 1.67 1.73 1.72 1.71 1.71 7
Ratio of adjusted expenses
to average net assets 8 (%) 1.79 1.75 -- -- -- --
Ratio of net investment income
to average net assets (%) 4.84 4.20 4.02 3.83 3.70 3.55 7
Portfolio turnover (%) 19 17 15 13 44 15
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 8-31-00 8-31-01 8-31-02 1 8-31-03 8-31-04 2-28-05 2
Per share operating performance
Net asset value,
beginning of period $11.85 $11.80 $12.41 $12.50 $12.38 $12.75
Net investment income 3 0.56 0.51 0.50 0.48 0.47 0.22
Net realized and unrealized
gain (loss) on investments (0.05) 0.61 0.08 (0.12) 0.36 0.04
Total from
investment operations 0.51 1.12 0.58 0.36 0.83 0.26
Less distributions
From net investment income (0.56) (0.51) (0.49) (0.48) (0.46) (0.22)
Net asset value, end of period $11.80 $12.41 $12.50 $12.38 $12.75 $12.79
Total return 4 (%) 4.43 5 9.67 5 4.80 2.85 6.80 2.06 6
Ratios and supplemental data
Net assets, end of period
(in millions) $1 $2 $4 $7 $8 $8
Ratio of expenses
to average net assets (%) 1.47 1.67 1.73 1.72 1.71 1.71 7
Ratio of adjusted expenses
to average net assets 8 (%) 1.79 1.75 -- -- -- --
Ratio of net investment income
to average net assets (%) 4.84 4.20 4.02 3.81 3.69 3.54 7
Portfolio turnover (%) 19 17 15 13 44 15
1 As required, effective 9-1-01, the Fund has adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies, as revised,
relating to the amortization of premiums and accretion of discounts on debt
securities. The effect of this change on per share amounts for the year
ended 8-31-02 was to increase net investment income per share by $0.01,
decrease net realized and unrealized gain per share by $0.01 and, had the
Fund not made these changes to amortization and accretion, the ratio of net
investment income to average net assets would have been 4.68%, 3.98% and
3.98%, for Class A, Class B and Class C shares, respectively. Per share
ratios and supplemental data for periods prior to 9-1-01, have not been
restated to reflect this change in presentation.
2 Semiannual period from 9-1-04 through 2-28-05. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
5 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
6 Not annualized.
7 Annualized.
8 Does not take into consideration expense reductions during the periods
shown.
See notes to
financial statements.
19
NOTES TO
STATEMENTS
Unaudited
Note A
Accounting policies
John Hancock Massachusetts Tax-Free Income Fund (the "Fund") is a
non-diversified series of John Hancock Tax-Exempt Series Fund, an open-end
management investment company registered under the Investment Company Act of
1940. The Fund seeks a high level of current income, consistent with the
preservation of capital, that is exempt from federal and Massachusetts
personal income taxes. Since the Fund invests primarily in Massachusetts
issuers, the Fund may be affected by political, economic or regulatory
developments in the state of Massachusetts.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B, and Class C shares. The shares of
each class represent an interest in the same portfolio of investments of the
Fund and have equal rights as to voting, redemptions, dividends and
liquidation, except that certain expenses, subject to the approval of the
Trustees, may be applied differently to each class of shares in accordance
with current regulations of the Securities and Exchange Commission and the
Internal Revenue Service. Shareholders of a class that bears distribution
and service expenses under the terms of a distribution plan have exclusive
voting rights to that distribution plan.
Significant accounting policies
of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at fair
value as determined in good faith in accordance with procedures approved by
the Trustees. Short-term debt investments which have a remaining maturity of
60 days or less may be valued at amortized cost, which approximates market
value.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of John Hancock Financial Services,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
20
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
Discount and premium
on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over the
life of the security.
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 appropriate net asset value of the respective classes.
Distribution and service fees, if any, are calculated daily at the class
level based on the appropriate net asset value of each class and the
specific expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual fund.
Expenses that are not readily identifiable to a specific fund are allocated
in such a manner as deemed equitable, taking into consideration, among other
things, the nature and type of expense and the relative size of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Fund has entered into a
syndicated line of credit agreement with various banks. This agreement
enables the Fund to participate with other funds managed by the Adviser, in
an unsecured line of credit with banks, which permits borrowings of up to
$250 million, collectively. Interest is charged to each fund based on its
borrowing. In addition, a commitment fee is charged to each fund based on
the average daily unused portion of the line of credit, and is allocated
among the participating funds. The Fund had no borrowing activity under the
line of credit during the period ended February 28, 2005.
Swap contracts
The Fund may enter into swap transactions in order to hedge the value of the
Fund's portfolio against interest rate fluctuations or to enhance the Fund's
income. Interest rate swaps represent an agreement between two
counterparties to exchange cash flows based on the difference in the two
interest rates, applied to the notional principal amount for a specified
period. The payment flows are usually netted against each other, with the
difference being paid by one party to the other. The Fund settles accrued
net receivable or payable under the swap contracts on a periodic basis.
The Fund records changes in the value of the swaps as unrealized gains or
losses on swap contracts. Accrued interest receivable or payable on the swap
contracts, if any, is recorded as realized gain (loss).
Swap contracts are subject to risks related to the counterparty's ability to
perform under the contract, and may decline in value if the counterparty's
creditworthiness deteriorates. The risks may arise from unanticipated
movement in interest rates. The Fund may also suffer losses if it is unable
to terminate outstanding swap contracts or reduce its exposure through
offsetting transactions.
21
The Fund had the following interest rate swap contracts open on February 28,
2005:
RATE TYPE
---------------------------
PAYMENTS
NOTIONAL MADE PAYMENTS RECEIVED TERMINATION UNREALIZED
AMOUNT BY FUND BY FUND DATE DEPRECIATION
- ------------------------------------------------------------------------
$6,200,000 3.80%(a) Weekly Muni Swap Index August 2015 ($10,436)
(a) Fixed rate
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with the
applicable provisions of the Internal Revenue Code and will not be subject
to federal income tax on taxable income that is distributed to shareholders.
Therefore, no federal income tax provision is required. For federal income
tax purposes, the Fund has $5,846 of a capital loss carryforward available,
to the extent provided by regulations, to offset future net realized capital
gains. To the extent that such carryforward is used by the Fund, no capital
gain distributions will be made. The entire amount of the loss carryforward
expires August 31, 2008.
Interest and distributions
Interest income on investment securities is recorded on the accrual basis.
The Fund records distributions to shareholders from net investment income
and net realized gains, if any, on the ex-dividend date. The Fund's net
investment income is declared daily as dividends to shareholders of record
as of the close of business on the preceding day, and distributed monthly.
During the year ended August 31, 2004, the tax character of distributions
paid was as follows: ordinary income $13,349 and exempt income $4,055,533.
Distributions paid by the Fund with respect to each class of shares are
calculated in the same manner, at the same time and are in the same amount,
except for the effect of expenses that may be applied differently to each
class.
Such distributions, 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. Distributions in excess of tax
basis earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with accounting
principles generally accepted in the United States of America, incorporates
estimates made by management in determining the reported amount of assets,
liabilities, revenues and expenses of the Fund. Actual results could differ
from these estimates.
Note B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under the
investment management contract, the Fund pays a monthly management fee to
the Adviser equivalent, on an annual basis, to the sum of: (a) 0.50% of the
first $250,000,000 of the Fund's average daily net asset value, (b) 0.45% of
the next $250,000,000, (c) 0.425% of the next $500,000,000, (d) 0.40% of the
next $250,000,000 and (e) 0.30% of the Fund's average daily net asset value
in excess of $1,250,000,000.
The Fund has an agreement with its custodian bank, under which custody fees
are reduced by balance credits
22
applied during the period. Accordingly, the expense reductions related to
custody fee offsets amounted to $85, which had no impact on the Fund's
annualized ratio of expenses to average net assets, for the period ended
February 28, 2005. If the Fund had not entered into this agreement, the
assets not invested, on which these balance credits were earned, could have
produced taxable income.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"), a
wholly owned subsidiary of the Adviser. The Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C, pursuant to Rule 12b-1
under the Investment Company Act of 1940, to reimburse JH Funds for the
services it provides as distributor of shares of the Fund. Accordingly, the
Fund makes monthly payments to JH Funds at an annual rate not to exceed
0.30% of Class A average daily net asset value and 1.00% of Class B and
Class C average daily net asset value. A maximum of 0.25% of such payments
may be service fees, as defined by the Conduct Rules of the National
Association of Securities Dealers. Under the Conduct Rules, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain
circumstances.
Class A shares are assessed up-front sales charges. During the period ended
February 28, 2005, JH Funds received net up-front sales charges of $109,013
with regard to sales of Class A shares. Of this amount, $14,194 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $59,707 was paid as sales commissions to unrelated broker-dealers
and $35,112 was paid as sales commissions to sales personnel of Signator
Investors, Inc. ("Signator Investors"), a related broker-dealer. The
Adviser's indirect parent, John Hancock Life Insurance Company ("JHLICo"),
is the indirect sole shareholder of Signator Investors.
Class B shares that are redeemed within six years of purchase are subject to
a contingent deferred sales charge ("CDSC") at declining rates, beginning at
5.00% of the lesser of the current market value at the time of redemption or
the original purchase cost of the shares being redeemed. Class C shares that
are redeemed within one year of purchase are subject to a CDSC at a rate of
1.00% of the lesser of the current market value at the time of redemption or
the original purchase cost of the shares being redeemed. Proceeds from the
CDSCs are paid to JH Funds and are used, in whole or in part, to defray its
expenses for providing distribution-related services to the Fund in
connection with the sale of Class B and Class C shares. During the period
ended February 28, 2005, CDSCs received by JH Funds amounted to $25,100 for
Class B shares and $442 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo. The
Fund pays a monthly transfer agent fee at an annual rate of 0.01% of each
class's average daily net asset values, plus a fee based on the number of
shareholder accounts and reimbursement for certain out-of-pocket expenses,
aggregated and allocated to each class on the basis of its relative net
asset value. Signature Services agreed to voluntarily reduce the Fund's
asset-based portion of the transfer agent fee if the total transfer agent
fee exceeds the Lipper, Inc. median transfer agency fee for comparable
mutual funds by 0.05%. There were no transfer agent fee reductions during
the period ended February 28, 2005. Signature Services reserves the right to
terminate this limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the period
amounted to $11,414. The Fund also paid the Adviser the amount of $127 for
certain publishing services, included in the printing fees.
23
Mr. James Shepherdson is a director and officer of the Adviser, as well as
affiliated Trustee of the Fund, and is compensated by the Adviser. The
compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated
Trustees may elect to defer, for tax purposes, their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are recorded
on the Fund's books as an other asset. The deferred compensation liability
and the related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investments, as well as
any unrealized gains or losses. The Deferred Compensation Plan investments
had no impact on the operations of the Fund.
Note C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
Year ended 8-31-04 Period ended 2-28-05 1
Shares Amount Shares Amount
Class A shares
Sold 827,723 $10,482,174 456,701 $5,843,302
Distributions reinvested 168,113 2,128,254 80,331 1,027,890
Repurchased (749,433) (9,428,790) (358,029) (4,585,027)
Net increase 246,403 $3,181,638 179,003 $2,286,165
Class B shares
Sold 156,152 $1,983,330 31,053 $396,529
Distributions reinvested 44,634 565,032 18,052 230,955
Repurchased (318,196) (4,019,229) (174,940) (2,237,980)
Net decrease (117,410) ($1,470,867) (125,835) ($1,610,496)
Class C shares
Sold 152,291 $1,934,096 23,273 $489,364
Distributions reinvested 13,706 173,431 22,049 91,479
Repurchased (131,799) (1,678,929) (35,553) (455,446)
Net increase 34,198 $428,598 9,769 $125,397
Net increase 163,191 $2,139,369 62,937 $801,066
1 Semiannual period from 9-1-04 through 2-28-05. Unaudited.
Note D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other than
short-term securities and obligations of the U.S. government, during the
period ended February 28, 2005, aggregated $15,407,325 and $14,952,327,
respectively.
The cost of investments owned on February 28, 2005, including short-term
investments, for federal income tax purposes, was $93,456,733. Gross
unrealized appreciation and depreciation of investments aggregated
$7,566,167 and $7,331, respectively, resulting in net unrealized
appreciation of $7,558,836. The difference between book basis and tax basis
net unrealized appreciation of
24
investments is attributable primarily to the tax deferral of losses on
certain sales of securities and accretion of discounts on debt securities.
Note E
Shareholder meeting
On December 1, 2004, a special meeting of shareholders of the Fund was held
to elect nine Trustees effective January 1, 2005.
Proxies covering 5,524,095 shares of beneficial interest were voted at the
meeting.
The shareholders elected the following Trustees to serve until their
respective successors are duly elected and qualified, with the votes
tabulated as follows:
WITHHELD
FOR AUTHORITY
- --------------------------------------------------------------
James F. Carlin 5,471,506 52,589
Richard P. Chapman Jr. 5,469,687 54,408
William H. Cunningham 5,463,210 60,885
Ronald R. Dion 5,472,090 52,005
Charles L. Ladner 5,472,463 51,632
Dr. John A. Moore 5,472,463 51,632
Patti McGill Peterson 5,465,059 59,036
Steven R. Pruchansky 5,469,528 54,567
James A. Shepherdson 5,467,709 56,386
25
OUR FAMILY
OF FUNDS
- ----------------------------------------------------------
Equity Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Growth Trends Fund
International Fund
Large Cap Equity Fund
Large Cap Select Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Fund
Small Cap Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
- ----------------------------------------------------------
Sector Biotechnology Fund
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
- ----------------------------------------------------------
Income Bond Fund
Government Income Fund
High Income Fund
High Yield Fund
Investment Grade Bond Fund
Strategic Income Fund
- ----------------------------------------------------------
Tax-Free Income California Tax-Free Income Fund
High Yield Municipal Bond Fund
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Tax-Free Bond Fund
- ----------------------------------------------------------
Money Market Money Market Fund
U.S. Government Cash Reserve
A fund's investment objectives, risks, charges and expenses are included in
the prospectus and should be considered carefully before investing. For a
prospectus, call your financial professional, call John Hancock Funds at
1-800-225-5291 or visit our Web site at www.jhfunds.com. Please read the
prospectus carefully before investing or sending money.
26
ELECTRONIC
DELIVERY
Now available from
John Hancock Funds
Instead of sending annual and semiannual reports and prospectuses through
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27
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28
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Trustees
Charles L. Ladner, Chairman*
James F. Carlin
Richard P. Chapman, Jr.*
William H. Cunningham
Ronald R. Dion
Dr. John A. Moore*
Patti McGill Peterson*
Steven R. Pruchansky
James A. Shepherdson
Lt. Gen. Norman H. Smith,
USMC (Ret.)
* Members of the Audit Committee
Officers
James A. Shepherdson
President and
Chief Executive Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President and Treasurer
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Principal distributor
John Hancock Funds, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
The Fund's investment objective, risks, charges and expenses are included in
the prospectus and should be considered carefully before investing. For a
prospectus, call your financial professional, call John Hancock Funds at
1-800-225-5291, or visit the Fund's Web site at www.jhfunds.com. Please read
the prospectus carefully before investing or sending money.
How to contact us
Internet www.jhfunds.com
Mail Regular mail: Express mail:
John Hancock John Hancock
Signature Services, Inc. Signature Services, Inc.
1 John Hancock Way, Suite 1000 Mutual Fund Image Operations
Boston, MA 02217-1000 529 Main Street
Charlestown, MA 02129
Phone Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available on
a quarterly basis 60 days after the fiscal quarter on our Web site or upon
request by calling 1-800-225-5291, or on the Securities and Exchange
Commission's Web site, www.sec.gov.
29
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
This report is for the information of
the shareholders of John Hancock
Massachusetts Tax-Free Income Fund.
770SA 2/05
4/05
JOHN HANCOCK
New York Tax-Free Income Fund
2.28.2005
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chief Executive Officer, flush left next
to first paragraph.]
CEO CORNER
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Your expenses
page 8
Fund's investments
page 10
Financial statements
page 14
For more information
page 29
Dear Fellow Shareholders,
After advancing for a second straight year in 2004, the stock market pulled
back in the first two months of 2005. For much of 2004 the market had been
in the doldrums as investors fretted about rising oil prices, higher
interest rates, the war in Iraq and a closely contested presidential race.
But the year ended on a high note with a sharp rally sparked by a definitive
end to the U.S. presidential election and moderating oil prices.
Investors were brought back down to earth in January, however, as the market
declined in three of the four weeks and produced negative results for the
month in a broad-based move downward. Rising oil prices and interest rates,
and concerns about less robust corporate earnings growth were among the
culprits that kept investors on the sidelines. Investors began to re-enter
the market in February, reversing January's decline. But as the month
progressed investors again grew concerned about further spikes in oil prices
and rising interest rates. As a result, the first two months of 2005 ended
with the major indexes either flat or slightly negative. By the end of
February, the Dow Jones Industrial Average was essentially flat at 0.25%, as
was the S&P 500 Index at -0.38%, while the Nasdaq Composite Index fell by
5.59%. Bonds were also flat in January and February, with the Lehman
Brothers Aggregate Bond Index returning 0.03% in the first two months of
2005.
In October, you may recall we requested your vote on a proposal regarding
the election of your fund's Board of Trustees. We are pleased to report that
shareholders overwhelmingly approved the proposal, which became effective
January 1, 2005. As a result, all open-end John Hancock funds now have the
same Board of Trustees, comprised of 11 members -- ten of them, including
the Chairman, are independent Trustees with no direct or indirect interest
in John Hancock Advisers, LLC, your fund's investment adviser. We believe
this move is a way to improve the effectiveness of the Trustees' oversight
of the funds, and we are grateful for your support.
Sincerely,
/S/ James A. Shepherdson
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of February 28, 2005. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks a
high level of current
income, consistent
with preservation of
capital, that is
exempt from fed
eral, New York State
and New York City
personal income
taxes. In pursuing
this goal, the fund
normally invests at
least 80% of its
assets in securities of
any maturity exempt
from federal and
New York personal
income taxes.
Over the last six months
* Municipal bonds gained ground and outperformed the broad taxable bond
market.
* The Fund's emphasis on credit research and individual security selection
helped it outperform its benchmark index and peer group average.
* Tobacco-related municipal bonds and industrial development bonds
contributed positively to Fund performance.
[Bar chart with heading "John Hancock New York Tax-Free Income Fund."
Under the heading is a note that reads "Fund performance for the six moths
ended February 28, 2005." The chart is scaled in increments of 2% with 0%
at the bottom and 4% at the top. The first bar represents the 2.50% total
return for Class A. The second bar represents the 2.15% total return for
Class B. The third bar represents the 2.14% total return for Class C. A
note below the chart reads "Total returns for Fund are at net asset value
with all distributions reinvested. These returns do not reflect the
deduction of the maximum sales charge, which would reduce the performance
shown above."]
Top 10 holdings
3.9% Puerto Rico Aqueduct and Sewer Auth., 7-1-11, 9.770%
3.5% New York State Dormitory Auth., 5-15-19, 5.500%
3.4% Port Auth. of New York and New Jersey, 7-15-18, 5.500%
3.3% New York State Dormitory Auth., 11-15-23, 5.250%
2.8% Triborough Bridge & Tunnel Auth., 1-1-21, 6.125%
2.5% Puerto Rico Public Finance Corp., 8-1-29, 5.500%
2.5% New York City Municipal Water Finance Auth., 6-15-33, 5.500%
2.4% New York, City of, 12-1-17, 5.250%
2.4% Islip Community Development Agency, 3-1-26, 7.500%
2.4% Port Auth. of New York and New Jersey, 10-0-19, 6.750%
As a percentage of net assets on February 28, 2005.
1
BY DIANNE SALES, CFA, AND BARRY EVANS, CFA, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
New York Tax-Free
Income Fund
Recently, Barry Evans rejoined the portfolio management team following the
departure from the company of former team member James Colby.
Municipal bonds gained ground during the six months ended February 28, 2005,
and outperformed the broad taxable bond market. The economy continued to
grow at a moderate pace, with steady consumer spending and erratic but
improving job growth. To keep the economy from overheating and sparking
higher inflation, the Federal Reserve raised short-term interest rates four
times during the six-month period, increasing the federal funds rate from
1.5% to 2.5% -- its highest level since September 2001.
"Municipal bonds gained ground
during the six months ended
February 28, 2005, and
outperformed the broad taxable
bond market."
As a result, the yield curve flattened during the period as the gap between
the yields of short-term and longer-term bonds narrowed. While short-term
bond yields rose in lockstep with the Fed rate hikes, long-term bond yields
- -- which are most sensitive to inflation expectations -- declined slightly
as the Fed's actions boosted investor confidence that inflation was under
control. Longer-term municipal bonds performed especially well as
taxable-bond investors crossed over to the municipal market to find
attractively valued, high-quality long-term bonds.
Another noteworthy trend in the municipal market was the outperformance of
lower-quality securities. Low interest rates and reduced municipal issuance
left investors hunting for yield and they flocked to the relatively high
yields of lower-rated bonds. The strong performance of these securities
caused the spread between the yields of high-quality and lower-quality
municipal bonds to narrow considerably.
In New York, the state's fiscal situation improved during the past six
months. Thanks to the strength of the economy and financial markets, tax
revenues met budget estimates, surprising investors
2
and easing budget concerns. In response, the major credit rating agencies
shifted their view of New York's credit rating from negative to stable.
Despite these positive developments, however, the state still faces some
budget challenges going forward.
[Photos of Dianne Sales and Barry Evans, flush right next to first
paragraph.]
Fund performance
For the six months ended February 28, 2005, John Hancock New York Tax-Free
Income Fund's Class A, Class B and Class C shares posted total returns of
2.50%, 2.15% and 2.14%, respectively, at net asset value. The average New
York municipal debt fund returned 2.24%, according to Lipper, Inc.,1 while
the return of the Lehman Brothers Municipal Bond Index was 2.40%. Keep in
mind that your net asset value return will be different from the Fund's
performance if you were not invested in the Fund for the entire period and
did not reinvest all distributions. See pages six and seven for historical
performance information.
The Fund's outperformance of both the Lipper group average and the index
resulted from two main factors. The portfolio's longer-maturity and
deep-discount bonds outperformed as the municipal yield curve flattened, and
our focus on individual credit research and security selection contributed
favorably to performance.
"Tobacco-related municipal bonds
continued to be the performance
leaders in the portfolio..."
Tobacco bonds lead the way
Tobacco-related municipal bonds continued to be the performance leaders in
the portfolio, gaining nearly 8% as a group during the six-month period.
These securities are backed by the proceeds from a legal settlement between
the major tobacco companies and the state of New York (as well as 45 other
states). A favorable ruling in a federal court case and the addition of
another tobacco company to the settlement agreement in late 2004 were the
primary reasons for the strong performance of tobacco-related bonds.
Although tobacco bonds have performed very well over the past 18 months, we
still believe they represent good value and intend to maintain a position in
these securities.
3
Airlines fare well
Another segment of the portfolio that posted solid results was industrial
development bonds, specifically those issued to finance airport-related
projects. Because airports are reliant on the fiscal health of airlines,
these bonds often fluctuate in value along with the prices of airline bonds.
Declining oil prices in late 2004 provided a big lift to airlines as the
cost of jet fuel dropped and airport-related bonds responded positively.
[Table at top left-hand side of page entitled "Sector distribution." The
first listing is Revenue bonds - All other - 17%, the second listing is
Revenue bonds - Education - 17%, the third listing is Revenue bonds - Water
& sewer - 14%, the fourth listing is Revenue bonds - Health - 11%, the
fifth listing is Revenue bonds - Public facility - 9%, the sixth listing is
Revenue bonds - Industrial development - 8%, the seventh listing is General
obligation - 8%, the eighth listing is Revenue bonds - Sales tax - 6%, the
ninth listing is Revenue bonds - Transportation - 6% and the tenth listing
is Revenue bonds - Tobacco - 3%.]
The Fund also benefited from the pre-refunding of several of its bonds.
Pre-refunding is a way for municipalities to refinance older,
higher-yielding debt before the maturity or call date. Typically, new bonds
are issued, and the proceeds are invested in Treasury securities until the
old bonds can be paid off. The high-quality Treasury backing often boosts
the value of the old bonds, and this occurred with several of the Fund's
holdings during the period.
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 2-28-05." The chart is divided into three
sections (from top to right): Revenue bonds 91%, General obligation bonds
8% and Other 1%.]
GO and infrastructure bonds lag
With higher-yielding, lower-quality municipal bonds outperforming, bonds at
the opposite end of the quality spectrum trailed the rest of the municipal
market. These higher-quality bonds included general obligation (GO) bonds
and essential-service bonds, such as those backed by water and sewer
services. In particular, GO bonds lagged despite higher tax revenues because
the good news was already priced into the bonds.
One of the only individual issues in the portfolio to decline during the
six-month period was our position in Florida Seminole casino bonds, which
comprised less than 1% of the portfolio. The IRS
4
[Table at top of page entitled "Scorecard." The header for the left column
is "Investment" and the header for the right column is "Period's
performance...and what's behind the numbers." The first listing is
Tobacco-related bonds followed by an up arrow with the phrase "Rallied in
the wake of a favorable federal court ruling." The second listing is
Longer-term bonds followed by an up arrow with the phrase "Continued low
inflation boosted long-term securities." The third listing is Seminole
casino bonds followed by a down arrow with the phrase "Declined after IRS
challenge."]
challenged the bonds' issuance, although no final determination has been
made and appeals are in progress. Despite the strong financial underpinnings
of the Seminole bonds, the IRS challenge had a negative impact on their
value.
Outlook
In our view, economic conditions remain fairly positive for bonds. The U.S.
economy is experiencing steady growth, but not vigorously enough to ratchet
up domestic inflation significantly. Although the Fed has raised short-term
rates six times since June 2004 and indicated it will continue to do so in
the coming months, the federal funds rate remains low by historical
standards. Eventually, we expect long-term rates to trend higher, but it's
unclear when this may occur.
"Reduced supply should provide
some support for the municipal
market..."
In the municipal market, supply is waning -- issuance of new municipal bonds
decreased in 2004 and is expected to decline further in 2005. Reduced supply
should provide some support for the municipal market, and municipal bond
yields remain attractive relative to other types of bonds.
In this environment, we will continue to pursue our current strategy --
structuring the portfolio to protect shareholders' capital from rising
interest rates, while focusing on credit research and individual security
selection to identify bonds that provide above-average yield and strong
total-return prospects.
This commentary reflects the views of the portfolio managers through the end
of the Fund's period discussed in this report. The managers' statements
reflect their own opinions. 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.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
5
A LOOK AT
PERFORMANCE
For the period ended
February 28, 2005
Class A Class B Class C
Inception date 9-13-87 10-3-96 4-1-99
Average annual returns with maximum sales charge (POP)
One year -1.73% -2.72% 1.22%
Five years 5.79 5.70 6.02
Ten years 5.49 -- --
Since inception -- 4.95 4.26
Cumulative total returns with maximum sales charge (POP)
Six months -2.14 -2.85 1.14
One year -1.73 -2.72 1.22
Five years 32.51 31.94 33.94
Ten years 70.59 -- --
Since inception -- 50.12 28.00
SEC 30-day yield as of February 28, 2005
3.77 3.24 3.24
Performance figures assume all distributions are reinvested. Returns with
maximum sales charge reflect a sales charge on Class A shares of 4.50%, 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 July 15, 2004. The Class
B shares' CDSC declines annually between years 1-6 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 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
performance data current to the most recent month-end, please call
1-800-225-5291 or visit the Fund's Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect
the deduction of taxes that a shareholder would pay on fund distributions or
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 expense reductions,
without which the expenses would increase and results would have been less
favorable.
6
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in Class
A shares for the period indicated. For comparison, we've shown the same
investment in the Lehman Brothers Municipal Bond Index.
[Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the Lehman Brothers Municipal Bond
Index and is equal to $18,796 as of February 28, 2005. The second line
represents the value of the hypothetical $10,000 investment made in the
John Hancock New York Tax-Free Income Fund, without sales charge (NAV), and
is equal to $17,866 as of February 28, 2005. The third line represents the
value of the same hypothetical investment made in the John Hancock New York
Tax-Free Income Fund, with maximum sales charge (POP), and is equal to
$17,059 as of February 28, 2005.]
Class B 1 Class C 1
Period beginning 10-3-96 4-1-99
New York Tax-Free Income Fund $15,012 $12,800
Index 16,634 13,829
Assuming all distributions were reinvested for the period indicated, the
table above shows the value of a $10,000 investment in the Fund's Class B
and Class C shares, respectively, as of February 28, 2005. The Class C
shares investment with maximum sales charge has been adjusted to reflect the
elimination of the front-end sales charge effective July 15, 2004.
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.
Lehman Brothers Municipal Bond Index is an unmanaged index that includes
municipal bonds and is commonly used as a measure of bond performance. It is
not possible to invest directly in an index. Index figures do not reflect
sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
7
YOUR
EXPENSES
These examples are intended to help you understand your ongoing operating
expenses.
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 your fund's actual
ongoing operating expenses, and is based on your fund's actual return. It
assumes an account value of $1,000.00 on August 31, 2004, with the same
investment held until February 28, 2005.
Account value Expenses paid
$1,000.00 Ending value during period
on 8-31-04 on 2-28-05 ended 2-28-05 1
Class A $1,025.00 $5.16
Class B 1,021.50 8.69
Class C 1,021.40 8.69
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 February 28, 2005 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:
Example
-- -- -- --
| My account value / | | "expenses paid" | My
| / $1,000.00 = 8.6 | X $| | = actual
| $8,600.00 / | | from table | expenses
-- -- -- --
8
Hypothetical example for comparison purposes
This table allows you to compare your 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% annual return before expenses (which is not
your fund's actual return). It assumes an account value of $1,000.00 on
August 31, 2004, with the same investment held until February 28, 2005. Look
in any other fund shareholder report to find its hypothetical example and
you will be able to compare these expenses.
Account value Expenses paid
$1,000.00 Ending value during period
on 8-31-04 on 2-28-05 ended 2-28-05 1
Class A $1,019.70 $5.15
Class B 1,016.20 8.67
Class C 1,016.20 8.67
Remember, these examples do not include any transaction costs, such as sales
charges; 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 1.04%, 1.74%
and 1.74% for Class A, Class B, and Class C shares, respectively, multiplied
by the average account value over the period, multiplied by number of days
in most recent fiscal half-year/365 or 366 (to reflect the one-half year
period).
9
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
February 28, 2005
(unaudited)
This schedule has one main category, tax-exempt long-term bonds, which is
broken down by state or territory. Under each state or territory is a list
of securities owned by the Fund.
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
Tax-exempt long-term bonds 98.83% $65,033,848
(Cost $59,805,978)
Florida 0.86% 563,755
Capital Trust Agency,
Rev Seminole Tribe Convention
Ser 2002A (G) 10.000% 10-01-33 BB $500 563,755
New York 83.80% 55,144,174
Albany Parking Auth,
Rev Ref Ser 2001A 5.625 07-15-25 BBB+ 750 800,235
Chautauqua Tobacco Asset
Securitization Corp,
Rev Ref Tobacco Settlement 6.750 07-01-40 BBB 1,000 1,056,490
Hempstead Town Industrial
Development Agency,
Rev Civic Facil Hofstra Univ 5.250 07-01-19 A 1,000 1,073,190
Islip Community Development Agency,
Rev Ref NY Institute of Technology 7.500 03-01-26 AAA 1,500 1,604,115
Jay Street Development Corp,
Rev Lease Public Improvements
Ser A-2 (P) 1.780 05-01-20 AA+ 250,000 250,000
Metropolitan Transportation Auth,
Rev Serv Contract Commuter Facil Ser 3 7.375 07-01-08 A3 705 762,401
Monroe Newpower Corp,
Rev Ref Pwr Facil 5.100 01-01-16 BBB 1,000 1,054,550
Nassau County Industrial
Development Agency,
Rev Ref Civic Facil North Shore Hlth
Sys Projs Ser 2001A 6.250 11-01-21 A3 275 301,964
Rev Ref Civic Facil North Shore Hlth
Sys Projs Ser 2001B 5.875 11-01-11 A3 330 361,000
New York, City of,
Gen Oblig Unltd Ser 1990B 8.250 06-01-07 A 200 223,092
Gen Oblig Unltd Ser 2001B 5.250 12-01-17 A 1,500 1,606,680
Gen Oblig Unltd Ser 2004J 5.000 05-15-23 A 1,000 1,044,210
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
New York (continued)
New York City Industrial
Development Agency,
Rev Civic Facil Lycee Francais de
NY Proj Ser 2002A 5.375% 06-01-23 A $1,000 $1,034,840
Rev Civic Facil Polytechnic Univ Proj 6.125 11-01-30 BB+ 1,000 953,360
Rev Ref Brooklyn Navy Yard
Cogen Partners 5.650 10-01-28 BBB- 1,000 976,270
Rev Spec Airport Facil Airis JFK I LLC
Proj Ser 2001A 5.500 07-01-28 BBB- 1,000 1,005,870
New York City Municipal Water
Finance Auth,
Rev Preref Wtr & Swr Sys Ser 2000B 6.000 06-15-33 AA+ 740 851,400
Rev Ref Wtr & Swr Sys 5.500 06-15-33 AA+ 1,500 1,622,370
Rev Ref Wtr & Swr Sys Cap Apprec
Ser 2001D Zero 06-15-20 AA+ 2,000 1,027,740
Rev Ref Wtr & Swr Sys Ser 1996A 5.375 06-15-26 AAA 1,000 1,038,270
Rev Unref Bal Wtr & Swr Sys Ser 2000B 6.000 06-15-33 AA+ 460 528,080
Rev Wtr & Swr Sys Ser F Subser F-2 (P) 1.810 06-15-35 AA+ 700 700,000
New York City Transitional Finance Auth,
Rev Future Tax Sec Ser 2000B 6.000 11-15-29 AA+ 1,000 1,149,230
Rev Ref Future Tax Sec Ser 2002A
(Zero to 11-01-11 then 14.000%) (O) Zero 11-01-29 AA+ 1,000 776,290
New York City Trust For Cultural Resources,
Rev Ref American Museum of Natural
History Ser 2004A 5.000 07-01-36 AAA 1,000 1,043,160
New York Local Government Assistance Corp,
Rev Ref Ser 1993C 5.500 04-01-17 AA 1,225 1,397,235
New York Mortgage Agency,
Rev Ref Homeowner Mtg Ser 94 5.900 10-01-30 Aa1 495 516,542
New York State Dormitory Auth,
Rev Cap Apprec FHA Insd Mtg Ser 2000B Zero 08-15-40 AAA 3,000 360,030
Rev Lease State Univ Dorm Facil Ser 2000A 6.000 07-01-30 AA- 1,000 1,151,260
Rev Lease State Univ Dorm Facil Ser 2004A 5.000 07-01-19 AAA 500 540,660
Rev Miriam Osborn Mem Home Ser 2000B 6.875 07-01-25 A 750 845,130
Rev North Shore L I Jewish Grp 5.375 05-01-23 A3 1,000 1,053,640
Rev Ref Concord Nursing Home Inc 6.500 07-01-29 Aa1 500 547,925
Rev Ref Lenox Hill Hosp Oblig Group 5.500 07-01-30 Baa2 1,000 1,032,510
Rev Ref Ser 2002B 5.250 11-15-23 AA- 2,000 2,200,580
Rev Ref State Univ Edl Facil Ser 1993A 5.500 05-15-19 AA- 2,000 2,279,880
Rev Ref State Univ Edl Facil Ser 1993A 5.250 05-15-15 AAA 1,000 1,113,550
Rev Ref Univ of Rochester Defd Income
Ser 2000A (Zero to 07-01-10 then
6.05%) (O) Zero 07-01-25 AAA 1,000 814,420
Rev State Univ Adl Facil Ser 2000B 5.375 05-15-23 AA- 1,000 1,119,320
Rev Unref City Univ 4th Ser 2001A 5.250 07-01-31 AA- 130 144,629
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
New York (continued)
New York State Environmental Facilities Corp,
Rev Ref Poll Control (P) 14.671% 06-15-11 AAA $500 $723,530
Rev Unref Bal Poll Control Ser 1991E 6.875 06-15-10 AAA 40 41,187
New York State Power Auth,
Rev Ref Gen Purpose Ser 1990W 6.500 01-01-08 AAA 250 265,308
Onondaga County Industrial
Development Agency,
Rev Sr Air Cargo 6.125 01-01-32 Baa3 1,000 1,020,470
Orange County Industrial
Development Agency,
Rev Civic Facil Arden Hill Care Ctr
Newburgh Ser 2001C (G) 7.000 08-01-31 BB 500 500,215
Port Auth of New York and New Jersey,
Rev Cons Thirty Seventh Ser 2004 5.500 07-15-18 AAA 2,000 2,239,760
Rev Ref Spec Proj KIAC Partners Ser 4 (G) 6.750 10-01-19 BBB 1,500 1,593,480
Sales Tax Asset Receivables Corp,
Rev Ser 2004A 5.250 10-15-27 AAA 1,000 1,081,590
Rev Ser 2004A 5.000 10-15-32 AAA 1,050 1,095,612
Suffolk County Industrial
Development Agency,
Rev Civic Facil Huntington Hosp
Proj Ser 2002B 6.000 11-01-22 BBB 1,000 1,069,580
Triborough Bridge & Tunnel Auth,
Rev Ref Gen Purpose Ser 1992Y 6.125 01-01-21 AAA 1,500 1,857,720
TSASC, Inc,
Rev Tobacco Settlement Asset Backed
Bond Ser 1 5.500 07-15-24 BBB 890 911,066
Upper Mohawk Valley Regional Water
Finance Auth,
Rev Wtr Sys Cap Apprec Zero 04-01-22 Aaa 2,230 1,042,280
Westchester County Healthcare Corp,
Rev Ref Sr Lien Ser 2000A 6.000 11-01-30 BB 1,150 1,159,326
Williamsville Central School District,
Gen Oblig Unltd Ref 5.000 06-15-17 Aaa 1,390 1,506,482
Yonkers Industrial Development Agency,
Rev Community Dev Pptys Yonkers Inc
Ser 2001A 6.625 02-01-26 BBB- 1,000 1,074,450
Puerto Rico 10.88% 7,159,984
Puerto Rico Aqueduct and Sewer Auth,
Rev Ref Inverse Floater (Gtd) (P) 9.770 07-01-11 AAA 2,000 2,581,240
Puerto Rico, Commonwealth of,
Gen Oblig Unltd Ser 975 (P) 7.890 07-01-18 Aaa 500 588,685
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
Puerto Rico (continued)
Puerto Rico Highway & Transportation Auth,
Rev Preref Ser 2000B 6.000% 07-01-26 A $1,000 $1,023,090
Puerto Rico Public Building Auth,
Rev Govt Facil Ser 1995A (Gtd) 6.250 07-01-12 AAA 1,110 1,312,364
Puerto Rico Public Finance Corp,
Rev Commonwealth Approp Ser 2002E 5.500 08-01-29 BBB+ 1,500 1,654,605
Virgin Islands 3.29% 2,165,935
Virgin Islands Public Finance Auth,
Rev Ref Gross Receipts Tax Ln Note
Ser 1999A 6.500 10-01-24 BBB 535 613,795
Rev Sub Lien Fund Ln Notes
Ser 1998E (G) 5.875 10-01-18 BB+ 1,500 1,552,140
Total investments 98.83% $65,033,848
Other assets and liabilities, net 1.17% $767,513
Total net assets 100.00% $65,801,361
(A) Credit ratings are unaudited and are rated by Moody's Investors Service
or Fitch where Standard & Poor's ratings are not available, unless indicated
otherwise.
(G) Security rated internally by John Hancock Advisers, LLC.
(O) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(P) Represents rate in effect on February 28, 2005.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
See notes to
financial statements.
13
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
February 28, 2005
(unaudited)
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 $59,805,978) $65,033,848
Cash 58,158
Receivable for shares sold 2,085
Interest receivable 813,431
Other assets 5,934
Total assets 65,913,456
Liabilities
Payable for shares repurchased 8,180
Dividends payable 21,372
Unrealized depreciation of swap contracts 10,436
Payable to affiliates
Management fees 23,929
Distribution and service fees 4,922
Other 4,823
Other payables and accrued expenses 38,433
Total liabilities 112,095
Net assets
Capital paid-in 61,471,669
Accumulated net realized loss on investments (910,603)
Net unrealized appreciation of investments and swap contracts 5,217,434
Accumulated net investment income 22,861
Net assets $65,801,361
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 ($42,634,384 [DIV] 3,408,910 shares) $12.51
Class B ($18,481,840 [DIV] 1,477,759 shares) $12.51
Class C ($4,685,137 [DIV] 374,612 shares) $12.51
Maximum offering price per share
Class A 1 ($12.51 [DIV] 95.5%) $13.10
1 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.
See notes to
financial statements.
14
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
February 28, 2005
(unaudited) 1
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 $1,742,182
Total investment income 1,742,182
Expenses
Investment management fees 166,699
Class A distribution and service fees 64,385
Class B distribution and service fees 95,341
Class C distribution and service fees 23,438
Transfer agent fees 25,676
Custodian fees 13,507
Professional fees 11,882
Miscellaneous 9,051
Printing 8,491
Accounting and legal services fees 7,494
Trustees' fees 1,948
Registration and filing fees 373
Interest 270
Total expenses 428,555
Less expense reductions (38)
Net expenses 428,517
Net investment income 1,313,665
Realized and unrealized gain (loss)
Net realized gain on investments 150,899
Change in net unrealized appreciation (depreciation) of
Investments 108,436
Swap contracts (10,436)
Net realized and unrealized gain 248,899
Increase in net assets from operations $1,562,564
1 Semiannual period from 9-1-04 through 2-28-05.
See notes to
financial statements.
15
FINANCIAL STATEMENTS
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 Period
ended ended
8-31-04 2-28-05 1
Increase (decrease) in net assets
From operations
Net investment income $2,886,629 $1,313,665
Net realized gain 309,089 150,899
Change in net unrealized
appreciation (depreciation) 1,811,987 98,000
Increase in net assets resulting
from operations 5,007,705 1,562,564
Distributions to shareholders
From net investment income
Class A (1,946,203) (896,563)
Class B (760,239) (331,804)
Class C (176,133) (81,508)
(2,882,575) (1,309,875)
From Fund share transactions (6,137,757) (2,526,619)
Net assets
Beginning of period 72,087,918 68,075,291
End of period 2 $68,075,291 $65,801,361
1 Semiannual period from 9-1-04 through 2-28-05. Unaudited.
2 Includes accumulated net investment income of $19,071, and
$22,861, respectively.
See notes to
financial statements.
16
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share has
changed since the end of the previous period.
Period ended 8-31-00 8-31-01 8-31-02 1 8-31-03 8-31-04 2-28-05 2
Per share operating performance
Net asset value,
beginning of period $11.76 $11.82 $12.57 $12.48 $12.10 $12.46
Net investment income 3 0.61 0.58 0.58 0.56 0.54 0.26
Net realized and unrealized gain
(loss) on investments 0.06 0.75 (0.09) (0.38) 0.36 0.05
Total from
investment operations 0.67 1.33 0.49 0.18 0.90 0.31
Less distributions
From net investment income (0.61) (0.58) (0.58) (0.56) (0.54) (0.26)
Net asset value, end of period $11.82 $12.57 $12.48 $12.10 $12.46 $12.51
Total return 4 (%) 5.95 5 11.54 5 4.04 5 1.43 5 7.54 5 2.50 6
Ratios and supplemental data
Net assets, end of period
(in millions) $43 $48 $49 $46 $44 $43
Ratio of expenses
to average net assets (%) 0.77 0.97 1.05 1.00 1.01 1.04 7
Ratio of adjusted expenses
to average net assets 8 (%) 1.13 1.12 1.06 1.02 1.02 --
Ratio of net investment income
to average net assets (%) 5.28 4.77 4.71 4.55 4.35 4.19 7
Portfolio turnover (%) 63 54 36 17 43 13
See notes to
financial statements.
17
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 8-31-00 8-31-01 8-31-02 1 8-31-03 8-31-04 2-28-05 2
Per share operating performance
Net asset value,
beginning of period $11.76 $11.82 $12.57 $12.48 $12.10 $12.46
Net investment income 3 0.53 0.49 0.49 0.47 0.45 0.22
Net realized and unrealized
gain (loss) on investments 0.06 0.75 (0.09) (0.38) 0.36 0.05
Total from
investment operations 0.59 1.24 0.40 0.09 0.81 0.27
Less distributions
From net investment income (0.53) (0.49) (0.49) (0.47) (0.45) (0.22)
Net asset value, end of period $11.82 $12.57 $12.48 $12.10 $12.46 $12.51
Total return 4 (%) 5.21 5 10.76 5 3.31 5 0.72 5 6.80 5 2.15 6
Ratios and supplemental data
Net assets, end of period
(in millions) $8 $17 $23 $22 $20 $18
Ratio of expenses to average
net assets (%) 1.47 1.67 1.75 1.70 1.71 1.74 7
Ratio of adjusted expenses to average
net assets 8 (%) 1.83 1.82 1.76 1.72 1.72 --
Ratio of net investment income
to average net assets (%) 4.58 4.07 4.01 3.85 3.65 3.49 7
Portfolio turnover (%) 63 54 36 17 43 13
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 8-31-00 8-31-01 8-31-02 1 8-31-03 8-31-04 2-28-05 2
Per share operating performance
Net asset value,
beginning of period $11.76 $11.82 $12.57 $12.48 $12.10 $12.46
Net investment income 3 0.53 0.50 0.49 0.47 0.45 0.22
Net realized and unrealized
gain (loss) on investments 0.06 0.75 (0.09) (0.38) 0.36 0.05
Total from
investment operations 0.59 1.25 0.40 0.09 0.81 0.27
Less distributions
From net investment income (0.53) (0.50) (0.49) (0.47) (0.45) (0.22)
Net asset value, end of period $11.82 $12.57 $12.48 $12.10 $12.46 $12.51
Total return 4 (%) 5.21 5 10.77 5 3.31 5 0.72 5 6.80 5 2.14 6
Ratios and supplemental data
Net assets, end of period
(in millions) -- 9 $1 $3 $5 $5 $5
Ratio of expenses to average
net assets (%) 1.47 1.67 1.75 1.70 1.71 1.74 7
Ratio of adjusted expenses
to average net assets 8 (%) 1.83 1.82 1.76 1.72 1.72 --
Ratio of net investment income
to average net assets (%) 4.58 4.07 4.01 3.81 3.65 3.49 7
Portfolio turnover (%) 63 54 36 17 43 13
1 As required, effective 9-1-01 the Fund has adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies, as revised,
relating to the amortization of premiums and accretion of discounts on debt
securities. This change had no effect on per share amounts for the year
ended 8-31-02 and, had the Fund not made these changes to amortization and
accretion, the ratio of net investment income to average net assets would
have been 4.69%, 3.99% and 3.99%, for Class A, Class B and Class C shares,
respectively. Per share ratios and supplemental data for periods prior to
9-1-01, have not been restated to reflect this change in presentation.
2 Semiannual period from 9-1-04 through 2-28-05. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
5 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
6 Not annualized.
7 Annualized.
8 Does not take into consideration expense reductions during the periods
shown.
9 Less than $500,000.
See notes to
financial statements.
19
NOTES TO
STATEMENTS
Unaudited
Note A
Accounting policies
John Hancock New York Tax-Free Income Fund (the "Fund") is a non-diversified
series of John Hancock Tax-Exempt Series Fund, an open-end management
investment company registered under the Investment Company Act of 1940. The
Fund seeks a high level of current income, consistent with the preservation
of capital, that is exempt from federal, New York State and New York City
personal income taxes. Since the Fund invests primarily in New York state
issuers, the Fund may be affected by political, economic or regulatory
developments in the state of New York.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B, and Class C shares. The shares of
each class represent an interest in the same portfolio of investments of the
Fund and have equal rights as to voting, redemptions, dividends and
liquidation, except that certain expenses, subject to the approval of the
Trustees, may be applied differently to each class of shares in accordance
with current regulations of the Securities and Exchange Commission and the
Internal Revenue Service. Shareholders of a class that bears distribution
and service expenses under the terms of a distribution plan have exclusive
voting rights to that distribution plan.
Significant accounting policies
of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at fair
value as determined in good faith in accordance with procedures approved by
the Trustees. Short-term debt investments which have a remaining maturity of
60 days or less may be valued at amortized cost, which approximates market
value.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
Discount and premium
on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over the
life of the security.
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 appropriate net asset value of the respective classes.
Distribution and service fees, if any, are calculated daily at the class
level based on the appropriate net asset value of each class and the
specific expense rate(s) applicable to each class.
20
Expenses
The majority of expenses are directly identifiable to an individual fund.
Expenses that are not readily identifiable to a specific fund are allocated
in such a manner as deemed equitable, taking into consideration, among other
things, the nature and type of expense and the relative size of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Fund has entered into a
syndicated line of credit agreement with various banks. This agreement
enables the Fund to participate with other funds managed by John Hancock
Advisers, LLC (the "Adviser"), in an unsecured line of credit with banks,
which permits borrowings of up to $250 million, collectively. The Adviser is
a wholly owned subsidiary of John Hancock Financial Services, Inc. Interest
is charged to each fund based on its borrowing. In addition, a commitment
fee is charged to each fund based on the average daily unused portion of the
line of credit, and is allocated among the participating funds. The Fund had
no borrowing activity under the line of credit during the period ended
February 28, 2005.
Swap contracts
The Fund may enter into swap transactions in order to hedge the value of the
Fund's portfolio against interest rate fluctuations or to enhance the Fund's
income. Interest rate swaps represent an agreement between two
counterparties to exchange cash flows based on the difference in the two
interest rates, applied to the notional principal amount for a specified
period. The payment flows are usually netted against each other, with the
difference being paid by one party to the other. The Fund settles accrued
net receivable or payable under the swap contracts on a periodic basis.
The Fund records changes in the value of the swaps as unrealized gains or
losses on swap contracts. Accrued interest receivable or payable on the swap
contracts, if any, is recorded as realized gain (loss).
Swap contracts are subject to risks related to the counterparty's ability to
perform under the contract, and may decline in value if the counterparty's
creditworthiness deteriorates. The risks may arise from unanticipated
movement in interest rates. The Fund may also suffer losses if it is unable
to terminate outstanding swap contracts or reduce its exposure through
offsetting transactions.
The Fund had the following interest rate swap contracts open on February 28,
2005:
RATE TYPE
------------------------
PAYMENTS
NOTIONAL PAYMENTS MADE RECEIVED TERMINATION UNREALIZED
AMOUNT BY FUND BY FUND DATE DEPRECIATION
- ------------------------------------------------------------------------
$6,200,000 3.80%(a) Weekly Muni August 2015 ($10,436)
Swap Index
(a) Fixed rate
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with the
applicable provisions of the Internal Revenue Code and will not be subject
to federal income tax on taxable income that is distributed to shareholders.
Therefore, no federal income tax provision is required. For federal income
tax purposes, the Fund has $1,011,888 of a capital loss carryforward
available, to the extent provided by regulations, to offset future net
realized
21
capital gains. To the extent that such carryforward is used by the Fund, no
capital gain distributions will be made. The loss carryforward expires as
follows: August 31, 2008 -- $414,005, August 31, 2010 -- $181,898, August
31, 2011 -- $414,533 and August 31, 2012 -- $1,452.
Interest and distributions
Interest income on investment securities is recorded on the accrual basis.
The Fund records distributions to shareholders from net investment income
and net realized gains, if any, on the ex-dividend date. The Fund's net
investment income is declared daily as dividends to shareholders of record
as of the close of business on the preceding day, and distributed monthly.
During the year ended August 31, 2004, the tax character of distributions
paid was as follows: ordinary income $4,797, and exempt income $2,877,778.
Distributions paid by the Fund with respect to each class of shares are
calculated in the same manner, at the same time and are in the same amount,
except for the effect of expenses that may be applied differently to each
class.
Such distributions, 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. Distributions in excess of tax
basis earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with accounting
principles generally accepted in the United States of America, incorporates
estimates made by management in determining the reported amount of assets,
liabilities, revenues and expenses of the Fund. Actual results could differ
from these estimates.
Note B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under the
investment management contract, the Fund pays a monthly management fee to
the Adviser equivalent, on an annual basis, to the sum of: (a) 0.50% of the
first $250,000,000 of the Fund's average daily net asset value, (b) 0.45% of
the next $250,000,000, (c) 0.425% of the next $500,000,000, (d) 0.40% of the
next $250,000,000 and (e) 0.30% of the Fund's average daily net asset value
in excess of $1,250,000,000.
The Fund has an agreement with its custodian bank, under which custody fees
are reduced by balance credits applied during the period. Accordingly, the
expense reductions related to custody fee offsets amounted to $38, which had
no impact on the Fund's annualized ratio of expenses to average net assets,
for the period ended February 28, 2005. If the Fund had not entered into
this agreement, the assets not invested, on which these balance credits were
earned, could have produced taxable income.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"), a
wholly owned subsidiary of the Adviser. The Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C, pursuant to Rule 12b-1
under the Investment Company Act of 1940, to reimburse JH Funds for the
services it provides as distributor of shares of the Fund. Accordingly, the
Fund makes monthly payments to JH Funds at an annual rate not to exceed
0.30% of Class A average daily net asset value and 1.00% of Class B and
Class C average daily net asset values. A maximum of 0.25% of such payments
may be service fees, as defined by the Conduct Rules of the National
Association of Securities Dealers. Under the Conduct Rules, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain
circumstances.
Class A shares are assessed up-front sales charges. During the period ended
22
February 28, 2005, JH Funds received net up-front sales charges of $22,504
with regard to sales of Class A shares. Of this amount, $2,914 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $13,536 was paid as sales commissions to unrelated broker-dealers
and $6,054 was paid as sales commissions to sales personnel of Signator
Investors, Inc. ("Signator Investors"), a related broker-dealer. The
Adviser's indirect parent, John Hancock Life Insurance Company ("JHLICo"),
is the indirect sole shareholder of Signator Investors.
Class B shares that are redeemed within six years of purchase are subject to
a contingent deferred sales charge ("CDSC") at declining rates, beginning at
5.00% of the lesser of the current market value at the time of redemption or
the original purchase cost of the shares being redeemed. Class C shares that
are redeemed within one year of purchase are subject to a CDSC at a rate of
1.00% of the lesser of the current market value at the time of redemption or
the original purchase cost of the shares being redeemed. Proceeds from the
CDSCs are paid to JH Funds and are used, in whole or in part, to defray its
expenses for providing distribution-related services to the Fund in
connection with the sale of Class B and Class C shares. During the period
ended February 28, 2005, CDSCs received by JH Funds amounted to $31,636 for
Class B shares and received no CDSCs with regard to Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo. The
Fund pays a monthly transfer agent fee at an annual rate of 0.01% of each
class's average daily net asset values, plus a fee based on the number of
shareholder accounts and reimbursement for certain out-of-pocket expenses,
aggregated and allocated to each class on the basis of its relative net
asset value. Signature Services agreed to voluntarily reduce the Fund's
asset-based portion of the transfer agent fee if the total transfer agent
fee exceeds the Lipper, Inc. median transfer agency fee for comparable
mutual funds by 0.05%. There were no transfer agent fee reductions during
the period ended February 28, 2005. Signature Services reserves the right to
terminate this limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the period
amounted to $7,494. The Fund also paid the Adviser the amount of $126 for
certain publishing services, included in the printing fees.
Mr. James Shepherdson is a director and officer of the Adviser, as well as
affiliated Trustee of the Fund, and is compensated by the Adviser. The
compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated
Trustees may elect to defer, for tax purposes, their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are recorded
on the Fund's books as an other asset. The deferred compensation liability
and the related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investments, as well as
any unrealized gains or losses. The Deferred Compensation Plan investments
had no impact on the operations of the Fund.
23
Note C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
Year ended 8-31-04 Period ended 2-28-05 1
Shares Amount Shares Amount
Class A shares
Sold 261,614 $3,225,240 93,207 $1,165,134
Distributions reinvested 108,586 1,341,333 49,526 619,645
Repurchased (638,810) (7,903,509) (233,239) (2,919,055)
Net decrease (268,610) ($3,336,936) (90,506) ($1,134,276)
Class B shares
Sold 88,132 $1,094,355 54,228 $685,643
Distributions reinvested 37,194 459,459 15,126 180,168
Repurchased (339,246) (4,186,969) (175,074) (2,191,124)
Net decrease (213,920) ($2,633,155) (105,720) ($1,325,313)
Class C shares
Sold 40,987 $512,456 14,804 $185,838
Distributions reinvested 7,971 98,301 4,295 53,739
Repurchased (62,813) (778,423) (24,426) (306,607)
Net decrease (13,855) ($167,666) (5,327) ($67,030)
Net decrease (496,385) ($6,137,757) (201,553) ($2,526,619)
1 Semiannual period from 9-1-04 through 2-28-05. Unaudited.
Note D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other than
short-term securities and obligations of the U.S. government, during the
period ended February 28, 2005, aggregated $8,618,086 and $11,241,475,
respectively.
The cost of investments owned on February 28, 2005, including short-term
investments, for federal income tax purposes, was $59,778,589. Gross
unrealized appreciation and depreciation of investments aggregated
$5,297,685 and $42,426, respectively, resulting in net unrealized
appreciation of $5,255,259. The difference between book basis and tax basis
net unrealized appreciation of investments is attributable primarily to
accretion of discounts on debt securities.
24
Note E
Shareholder meeting
On December 1, 2004, a special meeting of shareholders of the Fund was held
to elect nine Trustees effective January 1, 2005.
Proxies covering 3,858,905 shares of beneficial interest were voted at the
meeting.
The shareholders elected the following Trustees to serve until their
respective successors are duly elected and qualified, with the votes
tabulated as follows:
WITHHELD
FOR AUTHORITY
- --------------------------------------------------------------------
James F. Carlin 3,829,012 29,893
Richard P. Chapman Jr. 3,829,271 29,634
William H. Cunningham 3,830,174 28,731
Ronald R. Dion 3,829,915 28,990
Charles L. Ladner 3,829,915 28,990
Dr. John A. Moore 3,829,271 29,634
Patti McGill Peterson 3,830,174 28,731
Steven R. Pruchansky 3,829,915 28,990
James A. Shepherdson 3,830,174 28,731
25
OUR FAMILY
OF FUNDS
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Equity Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Growth Trends Fund
International Fund
Large Cap Equity Fund
Large Cap Select Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Fund
Small Cap Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
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Sector Biotechnology Fund
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
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Income Bond Fund
Government Income Fund
High Income Fund
High Yield Fund
Investment Grade Bond Fund
Strategic Income Fund
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Tax-Free Inco California Tax-Free Income Fund
High Yield Municipal Bond Fund
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Tax-Free Bond Fund
- ----------------------------------------------------------
Money Market Money Market Fund
U.S. Government Cash Reserve
A fund's investment objectives, risks, charges and expenses are included in
the prospectus and should be considered carefully before investing. For a
prospectus, call your financial professional, call John Hancock Funds at
1-800-225-5291 or visit our Web site at www.jhfunds.com. Please read the
prospectus carefully before investing or sending money.
26
ELECTRONIC
DELIVERY
Now available from
John Hancock Funds
Instead of sending annual and semiannual reports and prospectuses through
the U.S. mail, we'll notify you by e-mail when these documents are available
for online viewing.
How does electronic delivery benefit you?
* No more waiting for the mail to arrive; you'll receive an e-mail
notification as soon as the document is ready for online viewing.
* Reduces the amount of paper mail you receive from John Hancock Funds.
* Reduces costs associated with printing and mailing.
Sign up for electronic delivery today at
www.jhfunds.com/edelivery
27
OUR WEB SITE
A wealth of information--
www.jhfunds.com
View the latest information for your account.
- ------------------------------------------------
Transfer money from one account to another.
- ------------------------------------------------
Get current quotes for major market indexes.
- ------------------------------------------------
Use our online calculators to help you with your
financial goals.
- ------------------------------------------------
Get up-to-date commentary from John Hancock
Funds investment experts.
- ------------------------------------------------
Access forms, applications and tax information.
- ------------------------------------------------
28
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Trustees
Charles L. Ladner, Chairman*
James F. Carlin
Richard P. Chapman, Jr.*
William H. Cunningham
Ronald R. Dion
Dr. John A. Moore*
Patti McGill Peterson*
Steven R. Pruchansky
James A. Shepherdson
Lt. Gen. Norman H. Smith,
USMC (Ret.)
* Members of the Audit Committee
Officers
James A. Shepherdson
President and
Chief Executive Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President and Treasurer
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Principal distributor
John Hancock Funds, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
The Fund's investment objective, risks, charges and expenses are included in
the prospectus and should be considered carefully before investing. For a
prospectus, call your financial professional, call John Hancock Funds at
1-800-225-5291, or visit the Fund's Web site at www.jhfunds.com. Please read
the prospectus carefully before investing or sending money.
How to contact us
Internet www.jhfunds.com
Mail Regular mail: Express mail:
John Hancock John Hancock
Signature Services, Inc. Signature Services, Inc.
1 John Hancock Way, Suite 1000 Mutual Fund Image Operations
Boston, MA 02217-1000 529 Main Street
Charlestown, MA 02129
Phone Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available on
a quarterly basis 60 days after the fiscal quarter on our Web site or upon
request by calling 1-800-225-5291, or on the Securities and Exchange
Commission's Web site, www.sec.gov.
29
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
This report is for the information of
the shareholders of John Hancock
New York Tax-Free Income Fund.
760SA 2/05
4/05
ITEM 2. CODE OF ETHICS.
As of the end of the period, February 28, 2005, 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 "Senior Financial
Officers"). A copy of the code of ethics is filed as an exhibit to this
Form N-CSR.
The code of ethics was amended effective February 1, 2005 to address new
Rule 204A-1 under the Investment Advisers Act of 1940 and to make other
related changes.
The most significant amendments were:
(a) Broadening of the General Principles of the code to cover compliance
with all federal securities laws.
(b) Eliminating the interim requirements (since the first quarter of 2004)
for access persons to preclear their personal trades of John Hancock mutual
funds. This was replaced by post-trade reporting and a 30 day hold
requirement for all employees.
(c) A new requirement for "heightened preclearance" with investment
supervisors by any access person trading in a personal position worth
$100,000 or more.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
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.
(a) 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 - Administration Committee Charter" and "John Hancock
Funds - Governance 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) 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 - Administration Committee Charter" and "John
Hancock Funds - Governance Committee Charter".
(c)(2) Contact person at the registrant.
(c)(3) Code of Ethics for Senior Financial Officers is attached.
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:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: April 27, 2005
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:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: April 27, 2005
By:
------------------------------
William H. King
Vice President and Treasurer
Date: April 27, 2005