UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5079
John Hancock Tax-Exempt Series Fund
(Exact name of registrant as specified in charter)
601 Congress Street, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip code)
Alfred E. Ouellette
Senior Attorney & Assistant Secretary
601 Congress Street
Boston, Massachusetts 02210
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-663-4324
Date of fiscal year end: August 31
Date of reporting period: August 31, 2005
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Massachusetts
Tax-Free
Income Fund
8.31.2005
Annual 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 Keith F. Hartstein, President and 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
Trustees & officers
page 31
For more information
page 37
To Our Shareholders,
I am pleased to be writing to you as the new President and Chief Executive
Officer of John Hancock Funds, LLC, following the departure of James A.
Shepherdson to pursue other opportunities. In addition, on July 25, 2005,
your fund's Board of Trustees appointed me to the roles of President and
Chief Executive Officer of your fund.
As a means of introduction, I have been involved in the mutual fund industry
since 1985. I have been with John Hancock Funds for the last 15 years, most
recently as executive vice president of retail sales and marketing and a
member of the company's executive and investment committees. In my former
capacity, I was responsible for all aspects of the distribution and
marketing of John Hancock Funds' open-end and closed-end funds. Outside of
John Hancock, I have served as Chairman of the Investment Company Institute
(ICI) Sales Force Marketing Committee since September 2003.
It is an exciting time to be at John Hancock Funds, and I am grateful for
the opportunity to lead and shape its future growth. With the acquisition of
John Hancock by Manulife Financial Corporation in April 2004, we are
receiving broad support toward the goal of providing our shareholders with
excellent investment opportunities and a more complete lineup of choices for
the discerning investor.
As you may have read, John Hancock recently entered into an agreement with
GMO, a Boston-based institutional money manager, to acquire eight of its
mutual funds. In addition, we are in the process of adding five "Lifestyle
Portfolio" funds-of-funds that blend multiple fund offerings from internal
and external money managers to create a broadly diversified asset allocation
portfolio. Look for more information about these exciting additions to the
John Hancock family of funds in the near future.
Although there has been a change in executive-level management, rest assured
that the one thing that never wavers is John Hancock Funds' commitment to
placing the needs of shareholders above all else. We are all dedicated to
the task of working with you and your financial advisors to help you reach
your long-term financial goals.
Sincerely,
/S/ KEITH F. HARTSTEIN
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO's views as of August 31, 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 twelve months
* Municipal bonds rallied, outpacing the broad taxable bond market.
* The Fund's performance was due to favorable security selection and greater
interest rate sensitivity.
* Top-performing sectors included economic development and health care
bonds.
[Bar chart with heading "John Hancock Massachusetts Tax-Free Income Fund."
Under the heading is a note that reads "Fund performance for the year ended
August 31, 2005." The chart is scaled in increments of 4% with 0% at the
bottom and 8% at the top. The first bar represents the 5.21% total return
for Class A. The second bar represents the 4.48% total return for Class B.
The third bar represents the 4.48% 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
4.3% Massachusetts Turnpike Auth, 1-1-23, 5.125%
3.4% Holyoke Gas and Electric Department, 12-1-31, 5.000%
3.3% Route 3 North Transit Improvement Assoc, 6-15-29, 5.375%
3.1% Massachusetts Development Finance Agency, 11-1-28, 5.450%
2.8% Massachusetts Industrial Finance Agency, 12-1-20, 6.750%
2.7% Massachusetts Water Pollution Abatement Trust, 8-1-18, 5.250%
2.4% Puerto Rico Aqueduct and Sewer Auth, 7-1-11, 9.120%
2.3% Massachusetts Health and Educational Facilities Auth, 12-15-31, 9.200%
2.3% Massachusetts, Commonwealth of, 12-1-24, 5.500%
2.3% Puerto Rico, Commonwealth of, 7-1-18, 5.500%
As a percentage of net assets on August 31, 2005.
1
BY DIANNE SALES, CFA, AND BARRY EVANS, CFA, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
Massachusetts Tax-Free
Income Fund
Municipal bonds continued to perform well during the year ended August 31,
2005, outpacing the broad taxable bond market. The Lehman Brothers Municipal
Bond Index returned 5.31% for the 12-month period, while the broad Lehman
Brothers U.S. Aggregate Bond Index returned 4.15%.
The U.S. economy grew at a solid rate over the past year, reflecting
resilient consumer spending, increasing capital expenditures and improving
job growth. In view of this steady growth, the Federal Reserve raised
short-term interest rates eight times during the 12-month period, increasing
its federal funds rate target from 1.5% to 3.5%. Short-term bond yields rose
in concert with the Fed rate hikes, but longer-term yields remained
relatively low. Despite a dramatic swing in oil prices, long-term bond
investors grew confident that the Fed's measured approach would keep
inflation in check.
"Municipal bonds continued
to perform well during the year
ended August 31, 2005,
outpacing the broad taxable
bond market."
Lower-rated municipal bonds outperformed higher-quality issues during the
one-year period. A combination of strong demand from yield-hungry investors,
improving credit quality and a declining supply of lower-grade bonds
contributed to their outperformance. As a result, the gap between the yields
of high-quality and lower-quality bonds compressed significantly during the
12-month period.
Financial conditions in the state of Massachusetts remained strong during
the period. The state continued to produce a budget surplus and make further
progress on rebuilding its reserve funds, which resulted in a credit-rating
upgrade from two of the three major rating agencies. A healthy economy
boosted sales and income tax revenues, and local property tax revenues also
remained strong. In addition, the state reduced its interest costs by
2
refinancing some of its higher-yielding debt. An increase in debt
issuance by the state over the past year was primarily used to finance
government debt restructurings, such as creating a new funding mechanism for
the Massachusetts Bay Transportation Authority that gives the MBTA greater
independence while removing the state's need to back MBTA debt payments.
[Photos of Dianne Sales and Barry Evans flush right next to first
paragraph.]
Fund performance
For the year ended August 31, 2005, John Hancock Massachusetts Tax-Free
Income Fund's Class A, Class B and Class C shares posted total returns of
5.21%, 4.48% and 4.48%, respectively, at net asset value. By comparison, the
average Massachusetts municipal debt fund returned 4.54%, according to
Lipper Inc.1 and the Lehman Brothers Municipal Bond Index returned 5.31%.
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 key to the Fund's performance was our continued emphasis on yield and
individual security selection. Diligent credit research enabled us to
identify attractively valued securities with above-average yields and strong
total-return prospects. Greater interest rate sensitivity also proved
valuable as longer-term bonds rallied during the period.
Lower-grade bonds outperformed
Reflecting the trend in the broader municipal market, the portfolio's
lower-grade credits posted the best results. The top performers included the
portfolio's industrial development and pollution control bonds, which are
tied to corporate projects. They benefited as the robust economic
environment helped strengthen corporate balance sheets and improve credit
quality.
"Reflecting the trend in the broader
municipal market, the portfolio's
lower-grade credits posted the
best results."
Other lower-rated bonds that performed well during the one-year period
included non-profits and other dedicated revenue bonds.
3
Health care bonds rallied
Many of the lower-quality bonds in the Massachusetts municipal market come
from the health care sector, and this portion of the portfolio also produced
solid gains during the period. In particular, bonds financing
assisted-living facilities were among the best-performing health care
holdings in the portfolio. However, we have been cautiously selective in the
health care segment of the market because health and human services funding
is a frequent target when budgets grow tight. We have focused on health care
securities that are well positioned to withstand any state funding cuts.
[Table at top left-hand side of page entitled "Sector Distribution2." The
first listing is Revenue bonds - Other 22%, the second is Revenue bonds -
Transportation 17%, the third General obligation 15%, the fourth Revenue
bonds - Education 13%, the fifth Revenue bonds - Health 13%, the sixth
Revenue bonds - Electric 4%, the seventh Revenue bonds - Industrial
development 4%, the eighth Revenue bonds - Pollution 4%, the ninth Revenue
bonds - Water & sewer 3%, the tenth Revenue bonds - Economic development
1%, the eleventh Revenue bonds - Resource recovery 1%, the twelfth Revenue
bonds - Correctional facility 1%, the thirteenth Revenue bonds - Public
facility 1%, and the fourteenth Revenue bonds - Housing 1%.]
Essential-purpose and sales-tax bonds lagged
With lower-rated and longer-term bonds providing the best results during the
one-year period, the laggards tended to be higher-quality bonds with stable
revenue streams that did not benefit as much from the general improvement in
credit quality. A typical example was essential-purpose bonds, which are
backed by revenues from basic services like water and sewer.
Sales-tax revenue bonds also posted modest results over the past 12 months.
A significant increase in the supply of sales-tax bonds, along with their
high credit quality, muted the gains in this sector of the Massachusetts
municipal market.
[Pie chart at middle of page with heading "Portfolio diversification2." The
chart is divided into three sections (from top to left): Revenue bonds 84%,
General obligation bonds 15% and Short-term investments & other 1%.]
Outlook
The aftereffects of Hurricane Katrina are likely to dampen economic growth
in the coming months, which could lead the Fed to slow the pace of its rate
hikes. However, we would also expect a
4
slower economy to restrain overall inflation, despite potential increases in
the prices of oil and other commodities. These are all factors that bode
well for the bond market.
[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
Lower-quality bonds followed by an up arrow with the phrase "Boosted by
improving credit quality and increased demand." The second listing is
Corporate-related bonds followed by an up arrow with the phrase "Benefited
from robust economy and improving corporate balance sheets." The third
listing is Shorter-term bonds followed by a down arrow with the phrase
"Declined as the Fed raised short-term interest rates."]
Municipal bonds are attractively valued relative to other segments of the
bond market. As of August 31, 2005, the yield on a 30-year, AAA-rated
general obligation bond was 99% of the yield on a Treasury bond of
comparable maturity. This relative yield relationship provides strong value
for the tax-exempt investor and could sustain the healthy demand for
municipal securities by attracting non-traditional investors to the
municipal market.
"Municipal bonds are attractively
valued relative to other segments of
the bond market."
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.
2 As a percentage of net assets on August 31, 2005.
5
A LOOK AT
PERFORMANCE
For the period ended
August 31, 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 0.48% -0.52% 3.48%
Five years 5.45 5.37 5.69
Ten years 5.55 -- --
Since inception -- 5.35 4.60
Cumulative total returns with maximum sales charge (POP)
One year 0.48 -0.52 3.48
Five years 30.41 29.91 31.91
Ten years 71.64 -- --
Since inception -- 59.05 33.42
SEC 30-day yield as of August 31, 2005
3.69 3.17 3.17
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.
Lehman
Brothers
Cum Value Cum Value Municipal
of $10K of $10K Bond
Plot Date (No Load) (W/Load) Index
8-31-95 $10,000 $9,500 $10,000
9-30-95 10,071 9,621 10,063
2-29-96 10,475 10,007 10,487
8-31-96 10,479 10,011 10,524
2-28-97 11,070 10,576 11,064
8-31-97 11,512 10,997 11,497
2-28-98 12,136 11,594 12,076
8-31-98 12,620 12,056 12,491
2-28-99 12,875 12,300 12,818
8-31-99 12,508 11,949 12,563
2-29-00 12,366 11,814 12,533
8-31-00 13,154 12,567 13,399
2-28-01 13,859 13,240 14,100
8-31-01 14,528 13,879 14,770
2-28-02 14,670 14,015 15,064
8-31-02 15,333 14,648 15,692
2-28-03 15,882 15,172 16,219
8-31-03 15,881 15,171 16,184
2-29-04 17,028 16,268 17,240
8-31-04 17,079 16,316 17,335
2-28-05 17,492 16,710 17,750
8-31-05 17,967 17,164 18,255
[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 $18,255 as of August 31, 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 $17,967 as of August 31, 2005. The third line
represents the value of the same hypothetical investment made in the John
Hancock Massachusetts Tax-Free Income Fund, with sales charge (POP), and is
equal to $17,164 as of August 31, 2005.]
Class B 1 Class C 1
Period beginning 10-3-96 4-1-99
Massachusetts Tax-Free Income Fund $15,905 $13,342
Index 17,108 14,222
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 August 31, 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 February 28, 2005, with the same
investment held until August 31, 2005.
Account value Expenses paid
$1,000.00 Ending value during period
on 2-28-05 on 8-31-05 ended 8-31-05 1
Class A $1,027.30 $5.47
Class B 1,023.70 9.01
Class C 1,023.70 9.01
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 August 31, 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
February 28, 2005, with the same investment held until August 31, 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 2-28-05 on 8-31-05 ended 8-31-05 1
Class A $1,019.80 $5.45
Class B 1,016.30 8.97
Class C 1,016.30 8.97
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 1.07%, 1.77%
and 1.77% 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
August 31, 2005
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 99.45% $103,954,248
(Cost $95,932,992)
Florida 0.53% 550,280
Capital Trust Agency,
Rev Seminole Tribe Convention
Ser 2002A (G) 10.000% 10-01-33 BB $500 550,280
Massachusetts 89.14% 93,179,829
Boston City Industrial Development
Financing Auth,
Rev Ref Swr Facil Harbor Electric
Energy Co Proj 7.375 05-15-15 BBB 225 225,711
Boston Water and Sewer Commission,
Rev Ref Sr Ser 1992A 5.750 11-01-13 AA 500 560,410
Freetown Lakeville Regional School District,
Gen Oblig Unltd 5.000 07-01-23 AAA 1,000 1,080,380
Holyoke Gas and Electric Department,
Rev Ser 2001A 5.000 12-01-31 Aaa 3,410 3,587,490
Massachusetts Bay Transportation Auth,
Rev Preref Spec Assessment Ser 2000A 5.250 07-01-30 AAA 780 853,242
Rev Ref Ser 1994A 7.000 03-01-14 AA 1,000 1,220,360
Rev Ref Spec Assessment Ser 2005A (N) 5.000 07-01-21 AAA 1,000 1,088,220
Rev Ser 1997D 5.000 03-01-27 AAA 1,000 1,040,140
Rev Spec Assessment Ser 2004A 5.000 07-01-34 AAA 1,000 1,061,510
Rev Unref Bal Spec Assessment
Ser 2000A 5.250 07-01-30 AAA 220 235,961
Massachusetts College Building Auth,
Rev Ref Cap Apprec Ser 2003B Zero 05-01-19 AAA 1,000 559,090
Massachusetts Development
Finance Agency,
Rev Belmont Hill School 5.000 09-01-31 A 1,000 1,044,960
Rev Boston Univ Ser 2002R-2 (P) 2.240 10-01-42 AAA 970 970,000
Rev Boston Univ Ser 2002R-4 (P) 2.240 10-01-42 AAA 400 400,000
Rev Boston Univ Ser 2005T-1 5.000 10-01-35 AAA 500 532,590
Rev Curry College Ser 2005A 4.500 03-01-25 A 1,000 972,160
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 Development
Rev Plantation Apts Hsg Prog
Ser 2004A 5.000% 12-15-24 AAA $2,320 $2,343,873
Rev Ref Combined Jewish
Philanthropies Ser 2002A 5.250 02-01-22 Aa3 1,875 2,050,500
Rev Ref Resource Recovery
Southeastern MA Sys Ser 2001A 5.625 01-01-16 AAA 500 552,470
Rev Resource Recovery Ogden
Haverhill Proj Ser 1998B 5.500 12-01-19 BBB 1,500 1,537,185
Rev Volunteers of America Concord
Ser 2000A 6.900 10-20-41 AAA 1,000 1,129,240
Rev YMCA Greater Boston Iss (G) 5.450 11-01-28 AA 3,000 3,249,510
Rev YMCA Greater Boston Iss (G) 5.350 11-01-19 AA 1,000 1,080,180
Massachusetts Health and Educational
Facilities Auth,
Rev Civic Investments Inc Ser 2002B (G) 9.200 12-15-31 BB 2,000 2,432,840
Rev Dana Farber Cancer Proj Ser 1995G 6.250 12-01-22 A 500 514,225
Rev Harvard Univ Iss Ser 2000W 6.000 07-01-35 Aaa 1,000 1,136,850
Rev Jordan Hosp Ser 2003E 6.750 10-01-33 BBB- 1,500 1,664,295
Rev Ref Amherst College Ser 2005I (P) 2.370 11-01-28 AAA 100 100,000
Rev Ref Boston College Iss Ser 1998L 5.000 06-01-26 AA- 1,000 1,032,330
Rev Ref Boston College Iss Ser 1998L 4.750 06-01-31 AA- 1,000 1,010,190
Rev Ref Emerson Hosp Ser 2005E 5.000 08-15-35 AA 1,000 1,036,490
Rev Ref Harvard Pilgrim Health
Ser 1998A 5.000 07-01-18 AAA 1,000 1,033,250
Rev Ref New England Med Ctr Hosp
Ser 2002H 5.000 05-15-25 AAA 1,000 1,064,300
Rev Ref Partners Healthcare Sys
Ser 2001C 5.750 07-01-32 AA- 1,000 1,108,580
Rev Ref South Shore Hosp Ser 1999F 5.750 07-01-29 A 1,000 1,047,250
Rev Ref Williams College Ser 2003H 5.000 07-01-33 AA+ 1,500 1,583,415
Rev Simmons College Ser 2000D 6.150 10-01-29 AAA 1,000 1,144,850
Rev Univ of Mass Worcester Campus
Ser 2001B 5.250 10-01-31 AAA 1,500 1,625,565
Rev Wheelock College Ser 2000B 5.625 10-01-30 Aaa 1,000 1,096,680
Massachusetts Housing Finance Agency,
Rev Rental Mtg Ser 2001A 5.800 07-01-30 AAA 1,000 1,050,130
Rev Ser 2003B 4.700 12-01-16 AA- 2,310 2,344,442
Massachusetts Industrial Finance Agency,
Rev Assisted Living Facil Newton Group
Properties (G) 8.000 09-01-27 BB 2,000 2,129,220
Rev Assisted Living Facil TNG Marina
Assumption College 6.000 07-01-26 AAA 1,000 1,045,670
Rev Dana Hall School Iss 5.800 07-01-17 Baa2 1,090 1,162,812
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 Glenmeadow Retirement Community
Ser 1996C (G) 8.375% 02-15-18 AA $1,000 $1,042,560
Rev Ref Resource Recovery Ogden
Haverhill Proj Ser 1998A 5.600 12-01-19 BBB 500 514,220
Rev Wtr Treatment American Hingham Proj 6.900 12-01-29 A 1,210 1,264,462
Rev Wtr Treatment American Hingham Proj 6.750 12-01-20 A 2,780 2,899,846
Massachusetts Municipal Wholesale
Electric Co,
Rev Pwr Supply Sys (P) 8.868 07-01-18 AAA 1,000 1,023,940
Massachusetts Port Auth,
Rev Ser 1999C 5.750 07-01-29 AAA 1,250 1,393,700
Rev Spec Facil US Air Proj Ser 1996A 5.750 09-01-16 AAA 1,000 1,033,410
Massachusetts Special Obligation
Dedicated Tax, Rev 5.250 01-01-26 AAA 1,000 1,117,070
Massachusetts Turnpike Auth,
Rev Ref Metro Hwy Sys Sr Ser 1997A 5.125 01-01-23 AAA 4,300 4,484,814
Rev Ref Metro Hwy Sys Sr Ser 1997A 5.000 01-01-37 AAA 300 311,127
Rev Ref Metro Hwy Sys Sr Ser 1997C Zero 01-01-20 AAA 1,000 541,940
Massachusetts Water Pollution
Abatement Trust,
Rev Preref Pool Prog Ser 7 5.125 02-01-31 AAA 645 709,126
Rev Ref Pool Prog Ser 9 5.250 08-01-18 AAA 2,500 2,812,500
Rev Unref Bal Pool Prog Ser 7 5.125 02-01-31 AAA 1,775 1,868,134
Massachusetts, Commonwealth of,
Gen Oblig Ltd Ref 5.500 11-01-17 AAA 1,000 1,167,520
Gen Oblig Ltd Ref Ser 2001C 5.375 12-01-19 AA 1,000 1,115,670
Gen Oblig Ltd Ref Ser 2002C 5.500 11-01-15 AA 1,000 1,153,790
Gen Oblig Ltd Ref Ser 2004B 5.250 08-01-20 AA 1,000 1,150,330
Gen Oblig Unltd Ref Ser 2004C 5.500 12-01-24 AAA 2,000 2,409,000
Narragansett Regional School District,
Gen Oblig Unltd 5.375 06-01-18 Aaa 1,000 1,098,580
Pittsfield, City of,
Gen Oblig Ltd 5.000 04-15-19 AAA 1,000 1,084,470
Plymouth, County of,
Rev Ref Cert of Part Correctional Facil Proj 5.000 04-01-22 AAA 1,000 1,063,200
Rail Connections, Inc.,
Rev Cap Apprec Rte 128 Pkg Ser 1999B Zero 07-01-18 Aaa 1,750 881,703
Rev Cap Apprec Rte 128 Pkg Ser 1999B Zero 07-01-19 Aaa 2,415 1,139,131
Route 3 North Transit Improvement Associates,
Rev Lease 5.375 06-15-29 AAA 3,100 3,405,970
Rev Ref Lease Ser 2002B (P) 2.360 06-15-33 AAA 600 600,000
University of Massachusetts,
Rev Bldg Auth Facil Gtd Ser 2000A 5.125 11-01-25 AAA 1,000 1,093,100
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
Puerto Rico 9.78% $10,224,139
Puerto Rico Aqueduct and Sewer Auth,
Rev Ref Inverse Floater (Gtd) (P) 9.120% 07-01-11 AAA $2,000 2,541,360
Puerto Rico Highway & Transportation Auth,
Rev Preref Hwy Ser 1996Y 6.250 07-01-14 A 955 1,149,801
Rev Unref Bal Hwy Ser 1996Y 6.250 07-01-14 A 45 53,353
Puerto Rico Public Buildings Auth,
Rev Gov't Facils Ser 1997B (Gtd) 5.000 07-01-27 AAA 1,000 1,052,530
Puerto Rico, Commonwealth of,
Gen Oblig Unltd Ref Ser 2001A 5.500 07-01-18 AAA 2,000 2,356,080
Gen Oblig Unltd Ser 975 (P) 7.300 07-01-18 Aaa 1,500 1,795,815
Rev Inverse Floater (P) 8.970 07-01-11 AAA 1,000 1,275,200
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 0.36% $379,000
(Cost $379,000)
Joint Repurchase Agreement 0.36% 379,000
Investment in a joint repurchase agreement transaction
with Morgan Stanley -- Dated 8-31-05, due 9-1-05
(secured by U.S. Treasury Inflation Indexed Note 1.875%,
due 7-15-13) 3.550% $379 379,000
Total investments 99.81% $104,333,248
Other assets and liabilities, net 0.19% $202,750
Total net assets 100.00% $104,535,998
(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.
(N) This security having an aggregate value of $1,088,220 or 1.04% of the
Fund's net assets, has been purchased on a when-issued basis. The purchase
price and the interest rate of such securities are fixed at trade date,
although the Fund does not earn any interest on such securities until
settlement date. The Fund has instructed its custodian bank to segregate
assets with a current value at least equal to the amount of its when-issued
commitment. Accordingly, the market value of $1,105,559 of Massachusetts
Turnpike Auth, 5.125%, 1-1-23 has been segregated to cover the when-issued
commitment.
(P) Represents rate in effect on August 31, 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
August 31, 2005
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 $96,311,992) $104,333,248
Cash 302
Receivable for shares sold 164,956
Interest receivable 1,285,398
Other assets 6,324
Total assets 105,790,228
Liabilities
Payable for investments purchased 1,077,920
Payable for shares repurchased 49,378
Dividends payable 10,715
Payable to affiliates
Management fees 46,550
Distribution and service fees 6,994
Other 7,370
Other payables and accrued expenses 55,303
Total liabilities 1,254,230
Net assets
Capital paid-in 96,534,600
Accumulated net realized loss on investments
and swap contracts (27,200)
Net unrealized appreciation of investments 8,021,256
Accumulated net investment income 7,342
Net assets $104,535,998
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 ($75,910,536 [DIV] 5,897,180 shares) $12.87
Class B ($20,227,728 [DIV] 1,571,448 shares) $12.87
Class C ($8,397,734 [DIV] 652,403 shares) $12.87
Maximum offering price per share
Class A 1 ($12.87 [DIV] 95.5%) $13.48
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 year ended
August 31, 2005
This Statement
of Operations
summarizes the
Fund's investment
income earned and
expenses incurred
in operating the
Fund. It also shows
net gains (losses)
for the period
stated.
Investment income
Interest $5,355,318
Total investment income 5,355,318
Expenses
Investment management fees 510,595
Class A distribution and service fees 218,616
Class B distribution and service fees 211,648
Class C distribution and service fees 80,822
Transfer agent fees 70,596
Custodian fees 45,269
Professional fees 30,351
Miscellaneous 29,834
Printing 25,550
Accounting and legal services fees 24,360
Registration and filing fees 14,567
Trustees' fees 4,874
Interest 1,846
Total expenses 1,268,928
Less expense reductions (206)
Net expenses 1,268,722
Net investment income 4,086,596
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments 119,472
Swap contracts (93,916)
Change in net unrealized appreciation
(depreciation) of investments 926,725
Net realized and unrealized gain 952,281
Increase in net assets from operations $5,038,877
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 Year
ended ended
8-31-04 8-31-05
Increase (decrease) in net assets
From operations
Net investment income $4,133,220 $4,086,596
Net realized gain 58,667 25,556
Change in net unrealized
appreciation (depreciation) 2,657,656 926,725
Increase in net assets resulting
from operations 6,849,543 5,038,877
Distributions to shareholders
From net investment income
Class A (2,961,505) (3,022,337)
Class B (837,561) (729,933)
Class C (269,816) (278,232)
(4,068,882) (4,030,502)
From Fund share transactions 2,139,369 2,336,559
Net assets
Beginning of period 96,271,034 101,191,064
End of period 1 $101,191,064 $104,535,998
1 Includes accumulated net investment income of $6,806 and $7,342,
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 8-31-01 8-31-02 1 8-31-03 8-31-04 8-31-05
Per share operating performance
Net asset value,
beginning of period $11.80 $12.41 $12.50 $12.38 $12.75
Net investment income 2 0.59 0.58 0.57 0.56 0.54
Net realized and unrealized
gain (loss) on investments 0.61 0.08 (0.13) 0.36 0.11
Total from
investment operations 1.20 0.66 0.44 0.92 0.65
Less distributions
From net investment income (0.59) (0.57) (0.56) (0.55) (0.53)
Net asset value, end of period $12.41 $12.50 $12.38 $12.75 $12.87
Total return 3 (%) 10.44 4 5.54 3.57 7.55 5.21
Ratios and supplemental data
Net assets, end of period
(in millions) $63 $65 $66 $71 $76
Ratio of expenses
to average net assets (%) 0.97 1.03 1.02 1.01 1.04
Ratio of adjusted expenses
to average net assets 5 (%) 1.05 -- -- -- --
Ratio of net investment income
to average net assets (%) 4.90 4.72 4.54 4.40 4.20
Portfolio turnover (%) 17 15 13 44 26
See notes to
financial statements.
17
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 8-31-01 8-31-02 1 8-31-03 8-31-04 8-31-05
Per share operating performance
Net asset value,
beginning of period $11.80 $12.41 $12.50 $12.38 $12.75
Net investment income 2 0.51 0.50 0.49 0.47 0.45
Net realized and unrealized
gain (loss) on investments 0.61 0.08 (0.13) 0.36 0.11
Total from
investment operations 1.12 0.58 0.36 0.83 0.56
Less distributions
From net investment income (0.51) (0.49) (0.48) (0.46) (0.44)
Net asset value, end of period $12.41 $12.50 $12.38 $12.75 $12.87
Total return 3 (%) 9.67 4 4.80 2.85 6.80 4.48
Ratios and supplemental data
Net assets, end of period
(in millions) $19 $23 $23 $23 $20
Ratio of expenses
to average net assets (%) 1.67 1.73 1.72 1.71 1.74
Ratio of adjusted expenses
to average net assets 5 (%) 1.75 -- -- -- --
Ratio of net investment income
to average net assets (%) 4.20 4.02 3.83 3.70 3.50
Portfolio turnover (%) 17 15 13 44 26
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 8-31-01 8-31-02 1 8-31-03 8-31-04 8-31-05
Per share operating performance
Net asset value,
beginning of period $11.80 $12.41 $12.50 $12.38 $12.75
Net investment income 2 0.51 0.50 0.48 0.47 0.45
Net realized and unrealized
gain (loss) on investments 0.61 0.08 (0.12) 0.36 0.11
Total from
investment operations 1.12 0.58 0.36 0.83 0.56
Less distributions
From net investment income (0.51) (0.49) (0.48) (0.46) (0.44)
Net asset value, end of period $12.41 $12.50 $12.38 $12.75 $12.87
Total return 3 (%) 9.67 4 4.80 2.85 6.80 4.48
Ratios and supplemental data
Net assets, end of period
(in millions) $2 $4 $7 $8 $8
Ratio of expenses
to average net assets (%) 1.67 1.73 1.72 1.71 1.74
Ratio of adjusted expenses
to average net assets 5 (%) 1.75 -- -- -- --
Ratio of net investment income
to average net assets (%) 4.20 4.02 3.81 3.69 3.49
Portfolio turnover (%) 17 15 13 44 26
1 As required, effective 9-1-01, the Fund 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 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
4 Total return would have been lower had certain expenses not been reduced
during the period shown.
5 Does not take into consideration expense reductions during the period
shown.
See notes to
financial statements.
19
NOTES TO
STATEMENTS
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
state 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.
Investment transactions
Investment transactions are recorded as of the date of
20
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Some securities may
be purchased on a "when-issued" or "forward commitment" basis, which means
that the securities will be delivered to the Fund at a future date, usually
beyond the customary settlement date.
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 sizes 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 year ended August 31, 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 no interest rate swap contracts open on August 31, 2005.
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.
21
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.
During the year ended August 31, 2005, the tax character of distributions
paid was as follows: ordinary income $14,051 and exempt income $4,016,451.
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.
As of August 31, 2005, the components of distributable earnings on a tax
basis included $22,256 of undistributed exempt income and $31,060 of
undistributed long-term gain.
Such distributions and distributable earnings, on a tax basis, are
determined in conformity with income tax regulations, which may differ from
accounting principles generally accepted in the United States of America.
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 year. Accordingly, the
expense reductions related to custody fee offsets amounted to $206 which had
no impact on the Fund's ratio of expenses to average net assets, for the
year ended August 31, 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.
22
Class A shares are assessed up-front sales charges. During the year ended
August 31, 2005, JH Funds received net up-front sales charges of $201,390
with regard to sales of Class A shares. Of this amount, $25,930 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $127,635 was paid as sales commissions to unrelated broker-dealers
and $47,825 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 year
ended August 31, 2005, CDSCs received by JH Funds amounted to $37,563 for
Class B shares and $542 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 monthly 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 year ended August 31, 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 year
amounted to $24,360. The Fund also paid the Adviser the amount of $456 for
certain publishing services, included in the printing fees and the amount of
$1,509 for certain compliance costs, included in the miscellaneous expenses.
Mr. James R. Boyle is an officer of certain affiliates of the Adviser, as
well as an affiliated Trustee of the Fund, and is compensated by the Adviser
and/or its affiliates. The compensation of other 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 Year ended 8-31-05
Shares Amount Shares Amount
Class A shares
Sold 827,723 $10,482,174 1,007,973 $12,886,558
Distributions reinvested 168,113 2,128,254 162,256 2,075,588
Repurchased (749,433) (9,428,790) (823,719) (10,538,080)
Net increase 246,403 $3,181,638 346,510 $4,424,066
Class B shares
Sold 156,152 $1,983,330 110,647 $1,414,629
Distributions reinvested 44,634 565,032 33,671 430,661
Repurchased (318,196) (4,019,229) (345,491) (4,417,029)
Net decrease (117,410) ($1,470,867) (201,173) ($2,571,739)
Class C shares
Sold 152,291 $1,934,096 132,445 $1,693,309
Distributions reinvested 13,706 173,431 14,229 182,007
Repurchased (131,799) (1,678,929) (108,776) (1,391,084)
Net increase 34,198 $428,598 37,898 $484,232
Net increase 163,191 $2,139,369 183,235 $2,336,559
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
year ended August 31, 2005, aggregated $29,138,367 and $26,442,372,
respectively.
The cost of investments owned on August 31, 2005, including short-term
investments, for federal income tax purposes, was $96,165,471. Gross
unrealized appreciation and depreciation of investments aggregated
$8,167,777 and zero, respectively, resulting in net unrealized appreciation
of $8,167,777. The difference between book basis and tax basis net
unrealized appreciation of investments is attributable primarily to the tax
deferral of losses on certain sales of securities and accretion of discounts
on debt securities.
Note E
Reclassification of accounts
During the year ended August 31, 2005, the Fund reclassified amounts to
reflect an accumulated net realized loss on investments of $11,350, a
decrease in accumulated net investment income of $55,558 and an increase in
capital paid-in of $44,208. This represents the amount necessary to report
these balances on a tax basis, excluding certain temporary differences, as
of August 31, 2005. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on the net
asset value of the Fund, are primarily attributable to certain differences
in the computation of distributable income and capital gains under federal
tax rules versus accounting principles generally accepted in the United
States of America, book and tax differences in accounting for deferred
compensation and accretion of market discount tax adjustment. The
calculation of net investment income per share in the Fund's Financial
Highlights excludes these adjustments.
24
Shareholder meeting (unaudited)
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
* Mr. James A. Shepherdson resigned effective July 15, 2005.
25
AUDITORS'
REPORT
Report of
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of
John Hancock Massachusetts Tax-Free Income Fund,
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of John Hancock
Massachusetts Tax-Free Income Fund (the "Fund") at August 31, 2005, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 11, 2005
26
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund, if any, paid during its taxable
year ended August 31, 2005.
None of the 2005 income dividends qualify for the corporate
dividends-received deduction. Shareholders, who are not subject to the
alternative minimum tax, received income dividends that are 99.65%
tax-exempt. The percentage of income dividends from the Fund subject to the
alternative minimum tax is 14.02%. None of the income dividends were derived
from U.S. Treasury Bills.
For specific information on exception provisions in your state, consult your
local state tax officer or your tax adviser.
Shareholders will be mailed a 2005 U.S. Treasury Department Form 1099-DIV in
January 2006. This will reflect the total of all distributions that are
taxable for calendar year 2005.
27
Board Consideration
of and Continuation
of Investment
Advisory Agreement:
John Hancock
Massachusetts Tax-
Free Income Fund
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act")
requires the Board of Trustees (the "Board") of John Hancock Tax-Exempt
Series Fund (the "Trust"), including a majority of the Trustees who have no
direct or indirect interest in the investment advisory agreement and are not
"interested persons" of the Trust, as defined in the 1940 Act (the
"Independent Trustees"), annually to review and consider the continuation of
the investment advisory agreement (the "Advisory Agreement") with John
Hancock Advisers, LLC (the "Adviser") for the John Hancock Massachusetts
Tax-Free Income Fund (the "Fund").
At meetings held on May 19-20 and June 6-7, 2005, the Board, including the
Independent Trustees, considered the factors and reached the conclusions
described below relating to the selection of the Adviser and the
continuation of the Advisory Agreement. During such meetings, the Board's
Contracts/Operations Committee and the Independent Trustees also met in
executive sessions with their independent legal counsel. In evaluating the
Advisory Agreement, the Board, including the Contracts/Operations Committee
and the Independent Trustees, reviewed a broad range of information
requested for this purpose by the Independent Trustees, including but not
limited to the following: (i) the investment performance of the Fund and a
broader universe of relevant funds (the "Universe") selected by Lipper Inc.
("Lipper"), an independent provider of investment company data, for a range
of periods, (ii) advisory and other fees incurred by, and the expense ratios
of, the Fund and a peer group of comparable funds selected by Lipper (the
"Peer Group"), (iii) the advisory fees of comparable portfolios of other
clients of the Adviser, (iv) the Adviser's financial results and condition,
including its and certain of its affiliates' profitability from services
performed for the Fund, (v) breakpoints in the Fund's and the Peer Group's
fees and a study undertaken at the direction of the Independent Trustees as
to the allocation of the benefits of economies of scale between the Fund and
the Adviser, (vi) the Adviser's record of compliance with applicable laws
and regulations, with the Fund's investment policies and restrictions, and
with the Fund's Code of Ethics and the structure and responsibilities of the
Adviser's compliance department, (vii) the background and experience of
senior management and investment professionals, and (viii) the nature, cost
and character of advisory and non-investment management services provided by
the Adviser and its affiliates.
Nature, extent and quality
of services
The Board considered the ability of the Adviser, based on its resources,
reputation and other attributes, to attract and retain qualified investment
professionals, including research, advisory, and supervisory personnel. The
Board further considered the compliance programs and compliance records of
the Adviser. In addition, the Board took into account the administrative
services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board
concluded that, within the context of its full deliberations, the nature,
extent and quality of the investment advisory services provided to the Fund
by the Adviser were sufficient to support renewal of the Advisory Agreement.
Fund performance
The Board considered the performance results for the Fund over various time
periods. The Board also
28
considered these results in comparison to the performance of the Universe,
as well as the Fund's benchmark indexes. Lipper determined the Universe for
the Fund. The Board reviewed with a representative of Lipper the methodology
used by Lipper to select the funds in the Universe and the Peer Group.
The Board noted that the performance of the Fund was consistently higher
than the median and average performance of its Universe and was higher than
or not appreciably lower than the performance of its benchmark indexes, the
Lipper Massachusetts Municipal Debt Funds Index and the Lehman Municipal
Bond Index, for the time periods under review.
Investment advisory fee
rates and expenses
The Board reviewed and considered the contractual investment advisory fee
rate payable by the Fund to the Adviser for investment advisory services
(the "Advisory Agreement Rate"). The Board received and considered
information comparing the Advisory Agreement Rate with the advisory fees for
the Peer Group. The Board noted that the Advisory Agreement Rate was equal
to the median rate of the Peer Group. The Board concluded that the Advisory
Agreement Rate was reasonable in relation to the services provided.
The Board received and considered information regarding the Fund's total
operating expense ratio and its various components, including contractual
advisory fees, actual advisory fees, non-management fees, Rule 12b-1 and
non-Rule 12b-1 service fees, transfer agent fees and custodian fees,
including and excluding Rule 12b-1 and non-Rule 12b-1 service fees. The
Board also considered comparisons of these expenses to the expense
information for the Peer Group and the Universe. The Board noted that the
total operating expense ratio of the Fund was higher than the Peer Group's
and Universe's median total operating expense ratio. The Board also noted
that the most significant contributors to such difference were the Fund's
other non-management fees, Rule 12b-1 and non-Rule 12b-1 service fees, and
transfer agency expense. The Board favorably considered the Adviser's and
transfer agent's commitment to developing initiatives designed to reduce
their overall fees and expenses.
The Adviser also discussed the Lipper data and rankings, and other relevant
information, for the Fund. Based on the above-referenced considerations and
other factors, the Board concluded that the Fund's overall performance and
plans to reduce the Fund's overall fees and expenses supported the
re-approval of the Advisory Agreement.
Profitability
The Board received and considered a detailed profitability analysis of the
Adviser based on the Advisory Agreement, as well as on other relationships
between the Fund and the Adviser and its affiliates. The Board concluded
that, in light of the costs of providing investment management and other
services to the Fund, the profits and other ancillary benefits reported by
the Adviser were not unreasonable.
Economies of scale
The Board received and considered general information regarding economies of
scale with respect to the management of the Fund, including the Fund's
ability to appropriately benefit from economies of scale under the Fund's
fee structure. The Board recognized the inherent limitations of any analysis
of economies of scale, stemming largely from the Board's understanding that
most of the Adviser's costs are not specific to individual Funds, but rather
are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or
potential economies of scale from Fund-specific or allocated expenses, in
order to ensure
29
that any such economies continue to be reasonably shared with the Fund as
its assets increase, the Adviser and the Board agreed to continue the
existing breakpoints.
Information about
services to other clients
The Board also received information about the nature, extent and quality of
services and fee rates offered by the Adviser to its other clients,
including other registered investment companies, institutional investors and
separate accounts. The Board concluded that the Advisory Agreement Rate was
not unreasonable, taking into account fee rates offered to others by the
Adviser and giving effect to differences in services covered by such fee
rates.
Other benefits to
the Adviser
The Board received information regarding potential "fall-out" or ancillary
benefits received by the Adviser and its affiliates as a result of the
Adviser's relationship with the Fund. Such benefits could include, among
others, benefits directly attributable to the relationship of the Adviser
with the Fund and benefits potentially derived from an increase in the
business of the Adviser as a result of its relationship with the Fund (such
as the ability to market to shareholders other financial products offered by
the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser's and the Fund's
policies and procedures for complying with the requirements of the federal
securities laws, including those relating to best execution of portfolio
transactions and brokerage allocation.
Other factors and
broader review
As discussed above, the Board reviewed detailed materials received from the
Adviser as part of the annual re-approval process under Section 15(c) of the
1940 Act. The Board also regularly reviews and assesses the quality of the
services that the Fund receives throughout the year. In this regard, the
Board reviews reports of the Adviser at least quarterly, which include,
among other things, a detailed portfolio review, detailed fund performance
reports and compliance reports. In addition, the Board meets with portfolio
managers and senior investment officers at various times throughout the
year.
After considering the above-described factors and based on its deliberations
and its evaluation of the information described above, the Board concluded
that approval of the continuation of the Advisory Agreement for the Fund was
in the best interest of the Fund and its shareholders. Accordingly, the
Board unanimously approved the continuation of the Advisory Agreement.
30
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who oversee
your John Hancock fund. Officers elected by the Trustees manage the
day-to-day operations of the Fund and execute policies formulated by the
Trustees.
Independent Trustees
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
Ronald R. Dion, Born: 1946 2005 53
Independent Chairman (since 2005); Chairman and Chief Executive Officer,
R.M. Bradley & Co., Inc.; Director, The New England Council and Massachusetts
Roundtable; Trustee, North Shore Medical Center; Director, Boston Stock
Exchange; Director, BJ's Wholesale Club, Inc. and a corporator of the Eastern
Bank; Trustee, Emmanuel College; Director, Boston Municipal Research Bureau;
Member of the Advisory Board, Carroll Graduate School of Management at
Boston College.
James F. Carlin, Born: 1940 2005 53
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since 1985);
Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995);
Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc.
(since 1996); Director and Treasurer, Rizzo Associates (engineering) (until 2000);
Chairman and CEO, Carlin Consolidated, Inc. (management/investments) (since
1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee,
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of
the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance)
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until
1999), Carlin Insurance Agency, Inc. (until 1999); Chairman, Massachusetts
Board of Higher Education (until 1999).
Richard P. Chapman, Jr., 2 Born: 1935 1987 53
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William H. Cunningham, Born: 1944 2005 148
Former Chancellor, University of Texas System and former President of the
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies
(until 2001); Director of the following: The University of Texas Investment
Management Company (until 2000), Hire.com (until 2004), STC Broadcasting,
Inc. and Sunrise Television Corp. (electronic manufacturing) (until 2001),
Symtx, Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology,
Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius (Internet
31
Independent Trustees (continued)
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
William H. Cunningham, Born: 1944 (continued) 2005 148
service) (until 2003), Jefferson-Pilot Corporation (diversified life insurance
company) (since 1985), New Century Equity Holdings (formerly Billing Concepts)
(until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures
(until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc.
(until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001),
Southwest Airlines (since 2000) and Introgen (since 2000); Advisory Director,
Q Investments (until 2003); Advisory Director, Chase Bank (formerly Texas
Commerce Bank -- Austin) (since 1988), LIN Television (since 2002), WilTel
Communications (until 2003) and Hayes Lemmerz International, Inc.
(diversified automotive parts supply company) (since 2003).
Charles L. Ladner, 2 Born: 1938 2004 148
Chairman and Trustee, Dunwoody Village, Inc. (retirement services) (until 2003);
Senior Vice President and Chief Financial Officer, UGI Corporation (public utility
holding company) (retired 1998); Vice President and Director for AmeriGas, Inc.
(retired 1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution);
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association
(since 2001).
John A. Moore, 2 Born: 1939 1996 53
President and Chief Executive Officer, Institute for Evaluating Health Risks,
(nonprofit institution) (until 2001); Chief Scientist, Sciences International (health
research) (until 2003); Principal, Hollyhouse (consulting) (since 2000); Director,
CIIT (nonprofit research) (since 2002).
Patti McGill Peterson, 2 Born: 1943 1996 53
Executive Director, Council for International Exchange of Scholars and Vice
President, Institute of International Education (since 1998); Senior Fellow, Cornell
Institute of Public Affairs, Cornell University (until 1998); Former President of
Wells College and St. Lawrence University; Director, Niagara Mohawk Power
Corporation (until 2003); Director, Ford Foundation, International Fellowships
Program (since 2002); Director, Lois Roth Endowment (since 2002); Director,
Council for International Educational Exchange (since 2003).
Steven R. Pruchansky, Born: 1944 2005 53
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc.
(since 2000); Director and President, Greenscapes of Southwest Florida, Inc.
(until 2000); Managing Director, JonJames, LLC (real estate) (since 2001);
Director, First Signature Bank & Trust Company (until 1991); Director, Mast
Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991).
Non-Independent Trustee 3
James R. Boyle, Born: 1959 2005 148
President, John Hancock Annuities; Executive Vice President, John Hancock
Life Insurance Company (since June, 2004); President U.S. Annuities; Senior
Vice President, The Manufacturers Life Insurance Company (U.S.A.) (prior
to 2004).
32
Principal officers who are not Trustees
Name, age
Position(s) held with Fund Officer
Principal occupation(s) and of Fund
directorships during past 5 years since
Keith F. Hartstein, Born: 1956 2005
President and Chief Executive Officer
Senior Vice President, Manulife Financial Corporation (since 2004); Director,
President and Chief Executive Officer, John Hancock Advisers, LLC (the
"Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group")
(holding company); Director, President and Chief Executive Officer, John
Hancock Funds, LLC ("John Hancock Funds"); Director, President and Chief
Executive Officer, Sovereign Asset Management Corporation ("SAMCorp.");
Director, John Hancock Signature Services, Inc.; President, John Hancock Trust;
Chairman and President, NM Capital Management, Inc. (NM Capital) (since
2005); Chairman, Investment Company Institute Sales Force Marketing
Committee (since 2003); Executive Vice President, John Hancock Funds
(until 2005).
William H. King, Born: 1952 1988
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer
of each of the John Hancock funds; Assistant Treasurer of each of the John
Hancock funds (until 2001).
Francis V. Knox, Jr., Born: 1947 2005
Vice President and Chief Compliance Officer
Vice President and Chief Compliance Officer for John Hancock Investment
Company, John Hancock Life Insurance Company (U.S.A.), John Hancock Life
Insurance Company and John Hancock Funds (since 2005); Fidelity Investments --
Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004);
Fidelity Investments -- Vice President and Ethics & Compliance Officer (until 2001).
John G. Vrysen, Born: 1955 2005
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Financial Officer, the Adviser, Sovereign Asset
Management Corp., the Berkeley Financial Group, LLC and John Hancock Funds,
LLC (since 2005); Vice President and General Manager, Fixed Annuities, U.S.
Wealth Management (until 2005); Vice President, Operations, Manulife Wood
Logan (July 2000 thru September 2004).
The business address for all Trustees and Officers is 601 Congress Street,
Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or her
successor is elected.
2 Member of Audit Committee.
3 Non-independent Trustees hold positions with the Fund's investment
adviser, underwriter and certain other affiliates.
33
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 Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
- ---------------------------------------------------------
Allocation Allocation Growth + Value Portfolio
Allocation Core Portfolio
- ---------------------------------------------------------
Sector 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
- ---------------------------------------------------------
For more complete information on any John Hancock Fund and a prospectus,
which includes charges and expenses, call your financial professional, or
John Hancock Funds at 1-800-225-5291. Please read the prospectus carefully
before investing or sending money.
34
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
35
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.
- ------------------------------------------------
36
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
Investment adviser
John Hancock Advisers, LLC
601 Congress Street
Boston, MA 02210-2805
Principal distributor
John Hancock Funds, LLC
601 Congress Street
Boston, MA 02210-2805
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
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
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 380 Stuart Street
Boston, MA 02116
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.
37
[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.
7700A 8/05
10/05
JOHN HANCOCK
New York Tax-Free
Income Fund
8.31.2005
Annual 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 Keith F. Hartstein, President and 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
Trustees & officers
page 31
For more information
page 37
To Our Shareholders,
I am pleased to be writing to you as the new President and Chief Executive
Officer of John Hancock Funds, LLC, following the departure of James A.
Shepherdson to pursue other opportunities. In addition, on July 25, 2005,
your fund's Board of Trustees appointed me to the roles of President and
Chief Executive Officer of your fund.
As a means of introduction, I have been involved in the mutual fund industry
since 1985. I have been with John Hancock Funds for the last 15 years, most
recently as executive vice president of retail sales and marketing and a
member of the company's executive and investment committees. In my former
capacity, I was responsible for all aspects of the distribution and
marketing of John Hancock Funds' open-end and closed-end funds. Outside of
John Hancock, I have served as Chairman of the Investment Company Institute
(ICI) Sales Force Marketing Committee since September 2003.
It is an exciting time to be at John Hancock Funds, and I am grateful for
the opportunity to lead and shape its future growth. With the acquisition of
John Hancock by Manulife Financial Corporation in April 2004, we are
receiving broad support toward the goal of providing our shareholders with
excellent investment opportunities and a more complete lineup of choices for
the discerning investor.
As you may have read, John Hancock recently entered into an agreement with
GMO, a Boston-based institutional money manager, to acquire eight of its
mutual funds. In addition, we are in the process of adding five "Lifestyle
Portfolio" funds-of-funds that blend multiple fund offerings from internal
and external money managers to create a broadly diversified asset allocation
portfolio. Look for more information about these exciting additions to the
John Hancock family of funds in the near future.
Although there has been a change in executive-level management, rest assured
that the one thing that never wavers is John Hancock Funds' commitment to
placing the needs of shareholders above all else. We are all dedicated to
the task of working with you and your financial advisors to help you reach
your long-term financial goals.
Sincerely,
/S/ KEITH F. HARTSTEIN
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO's views as of August 31, 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 twelve months
* Municipal bonds rallied, outpacing the broad taxable bond market.
* The Fund performed in line with its peer group average thanks to favorable
security selection and greater interest rate sensitivity.
* Top-performing sectors included tobacco, education and transportation
bonds.
[Bar chart with heading "John Hancock New York Tax-Free Income Fund." Under
the heading is a note that reads "Fund performance for the year ended
August 31, 2005." The chart is scaled in increments of 3% with 0% at the
bottom and 6% at the top. The first bar represents the 5.50% total return
for Class A. The second bar represents the 4.77% total return for Class B.
The third bar represents the 4.77% 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, 9.120%
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%
3.4% New York State Dormitory Auth, 11-15-23, 5.250%
2.9% Triborough Bridge & Tunnel Auth, 1-1-21, 6.125%
2.5% New York City Municipal Water Finance Auth, 6-15-33, 5.500%
2.5% New York, City of, 12-1-17, 5.250%
2.4% Virgin Islands Public Finance Auth, 10-1-18, 5.875%
2.4% Port Auth of New York and New Jersey, 10-1-19, 6.750%
2.4% Islip Community Development Agency, 3-1-26, 7.500%
As a percentage of net assets on August 31, 2005.
1
BY DIANNE SALES, CFA, AND BARRY EVANS, CFA, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
New York Tax-Free
Income Fund
Municipal bonds continued to perform well during the year ended August 31,
2005, outpacing the broad taxable bond market. The Lehman Brothers Municipal
Bond Index returned 5.31% for the 12-month period, while the broad Lehman
Brothers U.S. Aggregate Bond Index returned 4.15%.
The U.S. economy grew at a solid rate over the past year, reflecting
resilient consumer spending, increasing capital expenditures and improving
job growth. In view of this steady growth, the Federal Reserve raised
short-term interest rates eight times during the 12-month period, increasing
its federal funds rate target from 1.5% to 3.5%. Short-term bond yields rose
in concert with the Fed rate hikes, but longer-term yields remained
relatively low. Despite a dramatic swing in oil prices, long-term bond
investors grew confident that the Fed's measured approach would keep
inflation in check.
"Municipal bonds continued
to perform well during the
year ended August 31, 2005,
outpacing the broad taxable
bond market."
Lower-rated municipal bonds outperformed higher-quality issues during the
one-year period. A combination of strong demand from yield-hungry investors,
improving credit quality and a declining supply of lower-grade bonds
contributed to their outperformance. As a result, the gap between the yields
of high-quality and lower-quality bonds compressed significantly during the
12-month period.
Overall, municipal credit quality improved during the past year. In New
York, tax revenues -- including sales, property and individual income taxes
- -- all benefited from the healthy economy, enabling both the state and New
York City to meet seemingly aggressive budget projections. In addition, the
state and city governments reduced interest costs by proactively refinancing
some of their higher-yielding debt.
2
Fund performance
For the year ended August 31, 2005, John Hancock New York Tax-Free Income
Fund's Class A, Class B and Class C shares posted total returns of 5.50%,
4.77% and 4.77%, respectively, at net asset value. By comparison, the
average New York municipal debt fund returned 4.96%, according to Lipper,
Inc.,1 and the Lehman Brothers Municipal Bond Index returned 5.31%. 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.
[Photos of Dianne Sales and Barry Evans flush right next to first
paragraph.]
The key to the Fund's performance was our continued emphasis on yield and
individual security selection. Diligent credit research enabled us to
identify attractively valued securities with above-average yields and strong
total-return prospects. Greater interest rate sensitivity also proved
valuable as longer-term bonds rallied during the period.
Tobacco bonds smoked
The best-performing sector in the portfolio was tobacco bonds backed by the
proceeds from a legal settlement between the state of New York (in concert
with 45 other states) and the major tobacco companies. The Fund's tobacco
holdings, which gained more than 14% as a group, comprised about 5% of the
portfolio throughout the one-year period.
"The best-performing sector in the
portfolio was tobacco bonds..."
Tobacco bonds benefited from a series of favorable litigation outcomes and
the addition of another tobacco company to the settlement agreement. In
addition, as their yields declined, tobacco bonds became candidates for
refinancing. Some New York issuers pre-refunded existing tobacco bonds
during the period, further elevating the sector's returns. In a
pre-refunding, a municipality issues new bonds and invests the proceeds in
Treasury securities until needed to pay off the older bonds. The
Treasury-bond backing typically enhances the credit quality of the old
bonds, which in turn has a positive impact on their value.
3
Tobacco bonds have been the performance leaders in the portfolio for the
past two years. Despite continued litigation in the New York courts, we
believe that these securities continue to provide attractive relative value,
and we plan to maintain exposure to this segment of the municipal market.
[Table at top left-hand side of page entitled "Sector Distribution2." The
first listing is Revenue bonds - Other 18%, the second is Revenue bonds -
Education 17%, the third Revenue bonds - Water & sewer 13%, the fourth
Revenue bonds - Health 10%, the fifth Revenue bonds - Industrial
development 8%, the sixth General obligation 8%, the seventh Revenue bonds
- - Sales tax 6%, the eighth Revenue bonds - Tobacco 6%, the ninth Revenue
bonds - Public facility 4%, the tenth Revenue bonds - Transportation 4%,
the eleventh Revenue bonds - Pollution 2%, the twelfth Revenue bonds -
Electric 2%, and the thirteenth Revenue bonds - Housing 1%.]
Economic development bonds posted strong gains
Reflecting the trend in the broader municipal market, the portfolio's
lower-grade credits fared well during the period. The better performers
included the portfolio's industrial development and pollution control bonds,
which are generally tied to corporate projects. They benefited as the
healthy economy helped strengthen revenues and improve credit quality.
Special-tax bonds, which typically finance land-based development, also
posted solid gains as real estate remained a driving force in the economy.
[Pie chart at middle of page with heading "Portfolio diversification2." The
chart is divided into three sections (from top to left): Revenue bonds 91%,
General obligation bonds 8% and Short-term investments & other 1%. ]
Essential-purpose and short-term bonds lagged
With lower-rated and longer-term bonds providing the best results during the
one-year period, the laggards tended to be higher-quality bonds with stable
revenue streams that did not benefit as much from the general improvement in
credit quality. Good examples included essential-purpose bonds, which are
backed by revenues from basic services like water and sewer, and education
bonds.
In addition, bonds that are expected to be called away within the next few
years produced modest returns. Because these securities trade like
shorter-term bonds, they were held in check by the Fed's series of
short-term interest rate hikes.
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 "Benefited
from favorable litigation outcomes and refinancing." The second listing is
Lower-quality bonds followed by an up arrow with the phrase "Boosted by
improving credit quality and increased demand." The third listing is
Shorter-term bonds followed by a down arrow with the phrase "Declined as
the Fed raised short-term interest rates."]
Outlook
The aftereffects of Hurricane Katrina are likely to dampen economic growth
in the coming months, which could lead the Fed to slow the pace of its rate
hikes. However, we would also expect a slower economy to restrain overall
inflation despite potential increases in the prices of oil and other
commodities. These are all factors that bode well for the bond market.
"Municipal bonds are attractively
valued relative to other segments of
the bond market."
Municipal bonds are attractively valued relative to other segments of the
bond market. As of August 31, 2005, the yield on a 30-year, AAA-rated
general obligation bond was 99% of the yield on a Treasury bond of
comparable maturity. This relative yield relationship provides strong value
for the tax-exempt investor and could sustain the healthy demand for
municipal securities by attracting non-traditional investors to the
municipal market.
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.
2 As a percentage of net assets on August 31, 2005.
5
A LOOK AT
PERFORMANCE
For the period ended
August 31, 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 0.73% -0.23% 3.77%
Five years 4.98 4.89 5.22
Ten years 5.28 -- --
Since inception -- 5.01 4.33
Cumulative total returns with maximum sales charge (POP)
One year 0.73 -0.23 3.77
Five years 27.51 26.96 28.97
Ten years 67.24 -- --
Since inception -- 54.52 31.28
SEC 30-day yield as of August 31, 2005 3.70 3.18 3.18
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.
Lehman
Brothers
Cum Value Cum Value Municipal
of $10K of $10K Bond
Plot Date (No Load) (W/Load) Index
8-31-95 $10,000 $9,500 $10,000
9-30-95 10,055 9,602 10,063
2-29-96 10,535 10,061 10,487
8-31-96 10,523 10,049 10,524
2-28-97 11,031 10,534 11,064
8-31-97 11,521 11,002 11,497
2-28-98 12,109 11,564 12,076
8-31-98 12,513 11,950 12,491
2-28-99 12,774 12,199 12,818
8-31-99 12,378 11,821 12,563
2-29-00 12,268 11,716 12,533
8-31-00 13,114 12,524 13,399
2-28-01 13,930 13,303 14,100
8-31-01 14,628 13,970 14,770
2-28-02 14,684 14,023 15,064
8-31-02 15,219 14,534 15,692
2-28-03 15,642 14,938 16,219
8-31-03 15,436 14,742 16,184
2-29-04 16,533 15,789 17,240
8-31-04 16,601 15,854 17,335
2-28-05 17,016 16,250 17,750
8-31-05 17,513 16,724 18,255
[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 $18,255 as of August 31, 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, and is
equal to $17,513 as of August 31, 2005. The third line represents the value
of the same hypothetical investment made in the John Hancock New York
Tax-Free Income Fund, with sales charge, and is equal to $16,724 as of
August 31, 2005.]
Class B 1 Class C 1
Period beginning 10-3-96 4-1-99
New York Tax-Free Income Fund $15,452 $13,128
Index 17,108 14,222
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 August 31, 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 February 28, 2005, with the same
investment held until August 31, 2005.
Account value Expenses paid
$1,000.00 Ending value during period
on 2-28-05 on 8-31-05 ended 8-31-05 1
Class A $1,029.30 $5.58
Class B 1,025.70 9.12
Class C 1,025.70 9.12
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 August 31, 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
February 28, 2005, with the same investment held until August 31, 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 2-28-05 on 8-31-05 ended 8-31-05 1
Class A $1,019.70 $5.55
Class B 1,016.20 9.07
Class C 1,016.20 9.07
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 1.09%, 1.78%
and 1.79% 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
August 31, 2005
This schedule has 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 98.80% $64,634,616
(Cost $59,032,238)
Florida 0.84% 550,280
Capital Trust Agency,
Rev Seminole Tribe Convention
Ser 2002A (G) 10.000% 10-01-33 BB $500 550,280
New York 85.27% 55,784,768
Albany Parking Auth,
Rev Ref Ser 2001A 5.625 07-15-25 BBB+ 750 807,697
Chautauqua Tobacco Asset Securitization Corp,
Rev Ref Asset Backed Bond 6.750 07-01-40 BBB 1,000 1,086,590
Erie County Tobacco Asset Securitization Corp,
Rev Ref Asset Backed Bond Ser 2005A 5.000 06-01-38 BBB 1,000 993,380
Herkimer County Industrial
Development Agency,
Rev Ref Folts Adult Home Ser 2005A 5.500 03-20-40 Aaa 1,000 1,102,370
Islip Community Development Agency,
Rev Ref NY Institute of Technology 7.500 03-01-26 AAA 1,500 1,564,425
Jay Street Development Corp,
Rev Lease Jay Street Proj Ser 2001A-2 (P) 2.240 05-01-20 AA+ 100 100,000
Metropolitan Transportation Auth,
Rev Serv Contract Commuter Facil Ser 3 7.375 07-01-08 A3 550 590,541
Monroe Newpower Corp,
Rev Ref Pwr Facil 5.100 01-01-16 BBB 1,000 1,053,359
Nassau County Industrial
Development Agency,
Rev Ref Civic Facil North Shore Hlth
Sys Projs Ser 2001A 6.250 11-01-21 A3 275 303,913
Rev Ref Civic Facil North Shore Hlth
Sys Projs Ser 2001B 5.875 11-01-11 A3 330 361,515
New York, City of,
Gen Oblig Unltd Preref Ser 1990B 8.250 06-01-07 A+ 180 196,148
Gen Oblig Unltd Ser 2001B 5.250 12-01-17 A+ 1,500 1,613,850
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)
Gen Oblig Unltd Ser 2004J 5.000% 05-15-23 A+ $1,000 $1,058,520
Gen Oblig Unltd Unref Bal Ser 1990B 8.250 06-01-07 A+ 20 21,736
New York City Industrial Development Agency,
Rev Civic Facil Lycee Francais de NY Proj
Ser 2002A 5.375 06-01-23 A 1,000 1,049,760
Rev Civic Facil Polytechnic Univ Proj 6.125 11-01-30 BB+ 1,000 1,000,180
Rev Liberty 7 World Trade Ctr
Ser 2005A (G) 6.250 03-01-15 BB 1,000 1,062,660
Rev Ref Brooklyn Navy Yard Cogen Partners 5.650 10-01-28 BBB- 1,000 1,003,840
Rev Spec Airport Facil Airis JFK I LLC Proj
Ser 2001A 5.500 07-01-28 BBB- 1,000 1,016,710
New York City Municipal Water Finance Auth,
Rev Preref Wtr & Swr Sys Ser 2000B 6.000 06-15-33 AA+ 740 840,884
Rev Ref Wtr & Swr Sys 5.500 06-15-33 AA+ 1,500 1,638,285
Rev Ref Wtr & Swr Sys Cap Apprec
Ser 2001D Zero 06-15-20 AA+ 2,000 1,095,800
Rev Unref Bal Wtr & Swr Sys Ser 2000B 6.000 06-15-33 AA+ 460 518,811
Rev Wtr & Swr Sys Ser 2000C (P) 2.260 06-15-33 AA+ 100 100,000
New York City Transitional Finance Auth,
Rev Future Tax Sec Ser 2000B 6.000 11-15-29 AAA 1,000 1,134,430
Rev Ref Future Tax Sec Ser 2002A
(Zero to 11-01-11, then 14.000%) (O) Zero 11-01-29 AAA 1,000 801,040
New York City Trust For Cultural Resources,
Rev Ref American Museum of Natural
History Ser 2004A 5.000 07-01-36 AAA 1,000 1,065,240
New York Local Government Assistance Corp,
Rev Ref Ser 1993C 5.500 04-01-17 AA 1,225 1,407,464
New York Mortgage Agency,
Rev Ref Homeowner Mtg Ser 94 5.900 10-01-30 Aa1 495 520,215
New York State Dormitory Auth,
Rev Cap Apprec FHA Insd Mtg Ser 2000B Zero 08-15-40 AAA 3,000 368,670
Rev Lease State Univ Dorm Facil Ser 2000A 6.000 07-01-30 AA- 1,000 1,136,850
Rev Lease State Univ Dorm Facil Ser 2004A 5.000 07-01-19 AAA 500 547,965
Rev Miriam Osborn Mem Home Ser 2000B 6.875 07-01-25 A 750 854,108
Rev North Shore L I Jewish Grp 5.375 05-01-23 A3 1,000 1,064,810
Rev Ref Concord Nursing Home Inc 6.500 07-01-29 Aa1 500 550,200
Rev Ref Ser 2002B 5.250 11-15-23 AA- 2,000 2,192,200
Rev Ref State Univ Edl Facil Ser 1993A 5.500 05-15-19 AA- 2,000 2,315,760
Rev Ref State Univ Edl Facil Ser 1993A 5.250 05-15-15 AAA 1,000 1,123,740
Rev Ref Univ of Rochester Defd Income
Ser 2000A (Zero to 07-01-10, then
6.050%) (O) Zero 07-01-25 AAA 1,000 842,380
Rev State Univ Edl Facil Ser 2000B 5.375 05-15-23 AA- 1,000 1,106,810
Rev Unref City Univ 4th Ser 2001A 5.250 07-01-31 AA- 130 144,145
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) 11.533% 06-15-11 AAA $500 $709,460
Rev Unref Bal Poll Control Ser 1991E 6.875 06-15-10 AAA 40 40,524
New York State Power Auth,
Rev Ref Gen Purpose Ser 1990W 6.500 01-01-08 AAA 250 259,668
Onondaga County Industrial
Development Agency,
Rev Sr Air Cargo 6.125 01-01-32 Baa3 1,000 1,032,950
Orange County Industrial
Development Agency,
Rev Civic Facil Arden Hill Care Ctr
Newburgh Ser 2001C (G) 7.000 08-01-31 BB 500 533,930
Port Auth of New York and New Jersey,
Rev Cons Thirty Seventh Ser 2004 5.500 07-15-18 AAA 2,000 2,252,160
Rev Ref Spec Proj KIAC Partners Ser 4 (G) 6.750 10-01-19 BBB 1,500 1,578,135
Sales Tax Asset Receivables Corp,
Rev Ser 2004A 5.250 10-15-27 AAA 1,000 1,101,940
Rev Ser 2004A 5.000 10-15-32 AAA 1,000 1,066,460
Suffolk County Industrial
Development Agency,
Rev Civic Facil Huntington Hosp Proj
Ser 2002B 6.000 11-01-22 BBB 1,000 1,088,400
Triborough Bridge & Tunnel Auth,
Rev Ref Gen Purpose Ser 1992Y 6.125 01-01-21 AAA 1,500 1,879,725
TSASC, Inc.,
Rev Tobacco Settlement Asset Backed
Bond Ser 1 5.500 07-15-24 BBB 850 894,846
Upper Mohawk Valley Regional Water
Finance Auth,
Rev Wtr Sys Cap Apprec Zero 04-01-22 Aaa 2,230 1,121,133
Westchester County Healthcare Corp,
Rev Ref Sr Lien Ser 2000A 6.000 11-01-30 B 1,150 1,154,945
Westchester Tobacco Asset
Securitization Corp,
Rev Ref Asset Backed Bond 5.000 06-01-26 BBB 1,000 1,014,580
Williamsville Central School District,
Gen Oblig Unltd Ref 5.000 06-15-17 Aaa 1,390 1,527,791
Yonkers Industrial Development Agency,
Rev Community Dev Pptys Yonkers Inc
Ser 2001A 6.625 02-01-26 BBB- 1,000 1,171,120
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
State, issuer, description rate date rating (A) (000) Value
Puerto Rico 9.34% $6,110,392
Puerto Rico Aqueduct and Sewer Auth,
Rev Ref Inverse Floater (Gtd) (P) 9.120% 07-01-11 AAA $2,000 2,541,360
Puerto Rico, Commonwealth of,
Gen Oblig Unltd Ser 975 (P) 7.300 07-01-18 Aaa 500 598,605
Puerto Rico Public Building Auth,
Rev Govt Facil Ser 1995A (Gtd) 6.250 07-01-12 AAA 1,110 1,307,314
Puerto Rico Public Finance Corp,
Rev Preref Commonwealth Approp
Ser 2002E 5.500 08-01-29 BBB- 1,005 1,126,766
Rev Unref Bal Commonwealth Approp
Ser 2002E 5.500 08-01-29 BBB- 495 536,347
Virgin Islands 3.35% 2,189,176
Virgin Islands Public Finance Auth,
Rev Ref Gross Receipts Tax Ln Note
Ser 1999A 6.500 10-01-24 BBB 535 605,866
Rev Sub Lien Fund Ln Notes Ser 1998E (G) 5.875 10-01-18 BB+ 1,500 1,583,310
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 0.08% $55,000
(Cost $55,000)
Joint Repurchase Agreement 0.08% 55,000
Investment in a joint repurchase agreement transaction with
Morgan Stanley -- Dated 8-31-05, due 9-1-05 (secured by
U.S. Treasury Inflation Indexed Note 1.875%, due 7-15-13) 3.550% $55 55,000
Total investments 98.88% $64,689,616
Other assets and liabilities, net 1.12% $734,091
Total net assets 100.00% $65,423,707
(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 August 31, 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
August 31, 2005
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 $59,087,238) $64,689,616
Cash 236
Receivable for shares sold 986
Interest receivable 842,536
Other assets 5,162
Total assets 65,538,536
Liabilities
Payable for shares repurchased 15,477
Dividends payable 6,562
Payable to affiliates
Management fees 29,396
Distribution and service fees 4,738
Other 5,259
Other payables and accrued expenses 53,397
Total liabilities 114,829
Net assets
Capital paid-in 60,569,395
Accumulated net realized loss on investments
and swap contracts (767,138)
Net unrealized appreciation of investments 5,602,378
Accumulated net investment income 19,072
Net assets $65,423,707
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 ($43,675,006 [DIV] 3,463,576 shares) $12.61
Class B ($17,232,456 [DIV] 1,366,590 shares) $12.61
Class C ($4,516,245 [DIV] 358,156 shares) $12.61
Maximum offering price per share
Class A 1 ($12.61 [DIV] 95.5%) $13.20
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 year ended
August 31, 2005
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 $3,467,310
Total investment income 3,467,310
Expenses
Investment management fees 330,990
Class A distribution and service fees 129,187
Class B distribution and service fees 184,717
Class C distribution and service fees 46,639
Transfer agent fees 51,593
Custodian fees 29,704
Professional fees 28,341
Printing 23,451
Miscellaneous 20,870
Accounting and legal services fees 15,708
Trustees' fees 3,128
Interest 1,365
Registration and filing fees 783
Total expenses 866,476
Less expense reductions (2,520)
Net expenses 863,956
Net investment income 2,603,354
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments 388,216
Swap contracts (93,916)
Change in net unrealized appreciation
(depreciation) of investments 482,944
Net realized and unrealized gain 777,244
Increase in net assets from operations $3,380,598
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 Year
ended ended
8-31-04 8-31-05
Increase (decrease) in net assets
From operations
Net investment income $2,886,629 $2,603,354
Net realized gain 309,089 294,300
Change in net unrealized
appreciation (depreciation) 1,811,987 482,944
Increase in net assets resulting
from operations 5,007,705 3,380,598
Distributions to shareholders
From net investment income
Class A (1,946,203) (1,795,694)
Class B (760,239) (641,513)
Class C (176,133) (161,892)
(2,882,575) (2,599,099)
From Fund share transactions (6,137,757) (3,433,083)
Net assets
Beginning of period 72,087,918 68,075,291
End of period 1 $68,075,291 $65,423,707
1 Includes accumulated net investment income of $19,071, and $19,072,
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 8-31-01 8-31-02 1 8-31-03 8-31-04 8-31-05
Per share operating performance
Net asset value,
beginning of period $11.82 $12.57 $12.48 $12.10 $12.46
Net investment income 2 0.58 0.58 0.56 0.54 0.52
Net realized and unrealized
gain (loss) on investments 0.75 (0.09) (0.38) 0.36 0.15
Total from
investment operations 1.33 0.49 0.18 0.90 0.67
Less distributions
From net investment income (0.58) (0.58) (0.56) (0.54) (0.52)
Net asset value, end of period $12.57 $12.48 $12.10 $12.46 $12.61
Total return 3 (%) 11.54 4 4.04 4 1.43 4 7.54 4 5.50
Ratios and supplemental data
Net assets, end of period
(in millions) $48 $49 $46 $44 $44
Ratio of expenses
to average net assets (%) 0.97 1.05 1.00 1.01 1.06
Ratio of adjusted expenses
to average net assets 5 (%) 1.12 1.06 1.02 1.02 --
Ratio of net investment income
to average net assets (%) 4.77 4.71 4.55 4.35 4.18
Portfolio turnover (%) 54 36 17 43 25
See notes to
financial statements.
17
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 8-31-01 8-31-02 1 8-31-03 8-31-04 8-31-05
Per share operating performance
Net asset value,
beginning of period $11.82 $12.57 $12.48 $12.10 $12.46
Net investment income 2 0.49 0.49 0.47 0.45 0.43
Net realized and unrealized
gain (loss) on investments 0.75 (0.09) (0.38) 0.36 0.15
Total from
investment operations 1.24 0.40 0.09 0.81 0.58
Less distributions
From net investment income (0.49) (0.49) (0.47) (0.45) (0.43)
Net asset value, end of period $12.57 $12.48 $12.10 $12.46 $12.61
Total return 3 (%) 10.76 4 3.31 4 0.72 4 6.80 4 4.77
Ratios and supplemental data
Net assets, end of period
(in millions) $17 $23 $22 $20 $17
Ratio of expenses
to average net assets (%) 1.67 1.75 1.70 1.71 1.76
Ratio of adjusted expenses
to average net assets 5 (%) 1.82 1.76 1.72 1.72 --
Ratio of net investment income
to average net assets (%) 4.07 4.01 3.85 3.65 3.48
Portfolio turnover (%) 54 36 17 43 25
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 8-31-01 8-31-02 1 8-31-03 8-31-04 8-31-05
Per share operating performance
Net asset value,
beginning of period $11.82 $12.57 $12.48 $12.10 $12.46
Net investment income 2 0.50 0.49 0.47 0.45 0.43
Net realized and unrealized
gain (loss) on investments 0.75 (0.09) (0.38) 0.36 0.15
Total from
investment operations 1.25 0.40 0.09 0.81 0.58
Less distributions
From net investment income (0.50) (0.49) (0.47) (0.45) (0.43)
Net asset value, end of period $12.57 $12.48 $12.10 $12.46 $12.61
Total return 3 (%) 10.77 4 3.31 4 0.72 4 6.80 4 4.77
Ratios and supplemental data
Net assets, end of period
(in millions) $1 $3 $5 $5 $5
Ratio of expenses
to average net assets (%) 1.67 1.75 1.70 1.71 1.76
Ratio of adjusted expenses
to average net assets 5 (%) 1.82 1.76 1.72 1.72 --
Ratio of net investment income
to average net assets (%) 4.07 4.01 3.81 3.65 3.48
Portfolio turnover (%) 54 36 17 43 25
1 As required, effective 9-1-01 the Fund 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 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
4 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
5 Does not take into consideration expense reductions during the periods
shown.
See notes to
financial statements.
19
NOTES TO
STATEMENTS
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.
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.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net
20
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 year ended August 31, 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 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 no interest rate swap contracts open on August 31, 2005.
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 re quired. For federal income
tax purposes, the Fund has $717,524 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
21
Fund, no capital gain dis tributions will be made. The loss carry forward
expires as follows: August 31, 2008 -- $119,641, 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.
During the year ended August 31, 2005, the tax character of distributions
paid was as follows: ordinary income $2,692 and exempt income $2,596,407.
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.
As of August 31, 2005, the components of distributable earnings on a tax
basis in cluded $29,608 of undistributed exempt income.
Such distributions and distributable earnings, on a tax basis, are
determined in conformity with income tax regulations, which may differ from
accounting principles generally accepted in the United States of America.
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 year. Accordingly, the
expense reductions related to custody fee offsets amounted to $2,520, which
had no impact on the Fund's ratio of expenses to average net assets, for the
year ended August 31, 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
22
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 year ended
August 31, 2005, JH Funds received net up-front sales charges of $63,633
with regard to sales of Class A shares. Of this amount, $8,384 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $43,268 was paid as sales commissions to unrelated broker-dealers
and $11,981 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 year
ended August 31, 2005, CDSCs received by JH Funds amounted to $48,005 for
Class B shares and $1 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 monthly 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 year ended August 31, 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 year
amounted to $15,708. The Fund also paid the Adviser the amount of $333 for
certain publishing services, included in the printing fees and the amount of
$926 for certain compliance costs, included in the miscellaneous expenses.
Mr. James R. Boyle is an officer of certain affiliates of the Adviser, as
well as an affiliated Trustee of the Fund, and is compensated by the Adviser
and/or its affiliates. The compensation of other 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 another 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 Year ended 8-31-05
Shares Amount Shares Amount
Class A shares
Sold 261,614 $3,225,240 275,656 $3,450,163
Distributions reinvested 108,586 1,341,333 99,529 1,245,508
Repurchased (638,810) (7,903,509) (411,025) (5,140,957)
Net decrease (268,610) ($3,336,936) (35,840) ($445,286)
Class B shares
Sold 88,132 $1,094,355 76,183 $951,422
Distributions reinvested 37,194 459,459 29,637 370,864
Repurchased (339,246) (4,186,969) (322,709) (4,037,119)
Net decrease (213,920) ($2,633,155) (216,889) ($2,714,833)
Class C shares
Sold 40,987 $512,456 29,713 $371,933
Distributions reinvested 7,971 98,301 8,575 107,317
Repurchased (62,813) (778,423) (60,071) (752,214)
Net decrease (13,855) ($167,666) (21,783) ($272,964)
Net decrease (496,385) ($6,137,757) (274,512) ($3,433,083)
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
year ended August 31, 2005, aggregated $16,093,296 and $19,779,133,
respectively.
The cost of investments owned on August 31, 2005, including short-term
investments, for federal income tax purposes, was $59,059,390. Gross
unrealized appreciation and depreciation of investments aggregated
$5,630,226 and zero, respectively, resulting in net unrealized appreciation
of $5,630,226. The difference between book basis and tax basis net
unrealized appreciation of investments is attributable primarily to
accretion of discounts on debt securities.
Note E
Reclassification
of accounts
During the year ended August 31, 2005, the Fund reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $64, a
decrease in accumulated net investment income of $4,254 and an increase in
capital paid-in of $4,190. This represents the amount necessary to report
these balances on a tax basis, excluding certain temporary differences, as
of August 31, 2005. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on the net
asset value of the Fund, are primarily attributable to certain differences
in the computation of distributable income and capital gains under federal
tax rules versus accounting principles generally accepted in the United
States of America, book and tax differences in accounting for deferred
compensation and accretion of market discount tax adjustment. The
calculation of net investment income per share in the Fund's Financial
Highlights excludes these adjustments.
24
Shareholder meeting (unaudited)
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
* Mr. James A. Shepherdson resigned effective July 15, 2005.
25
AUDITORS'
REPORT
Report of
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of John Hancock
New York Tax-Free Income Fund,
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of John Hancock New
York Tax-Free Income Fund (the "Fund") at August 31, 2005, the results of
its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 2005 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 11, 2005
26
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund, if any, paid during its taxable
year ended August 31, 2005.
None of the 2005 income dividends qualify for the corporate
dividends-received deduction. Shareholders who are not subject to the
alternative minimum tax received income dividends that are 99.90%
tax-exempt. The percentage of income dividends from the Fund subject to the
alternative minimum tax is 11.76%. None of the income dividends were derived
from U.S. Treasury Bills.
For specific information on exception provisions in your state, consult your
local state tax officer or your tax adviser.
Shareholders will be mailed a 2005 U.S. Treasury Department Form 1099-DIV in
January 2006. This will reflect the total of all distributions that are
taxable for calendar year 2005.
27
Board Consideration
of and Continuation
of Investment
Advisory Agreement:
John Hancock New
York Tax-Free
Income Fund
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act")
requires the Board of Trustees (the "Board") of John Hancock Tax-Exempt
Series Fund (the "Trust"), including a majority of the Trustees who have no
direct or indirect interest in the investment advisory agreement and are not
"interested persons" of the Trust, as defined in the 1940 Act (the
"Independent Trustees"), annually to review and consider the continuation of
the investment advisory agreement (the "Advisory Agreement") with John
Hancock Advisers, LLC (the "Adviser") for the John Hancock New York Tax-Free
Income Fund (the "Fund").
At meetings held on May 19-20 and June 6-7, 2005, the Board, including the
Independent Trustees, considered the factors and reached the conclusions
described below relating to the selection of the Adviser and the
continuation of the Advisory Agreement. During such meetings, the Board's
Contracts/Operations Committee and the Independent Trustees also met in
executive sessions with their independent legal counsel. In evaluating the
Advisory Agreement, the Board, including the Contracts/Operations Committee
and the Independent Trustees, reviewed a broad range of information
requested for this purpose by the Independent Trustees, including but not
limited to the following: (i) the investment performance of the Fund and a
broader universe of relevant funds (the "Universe") selected by Lipper Inc.
("Lipper"), an independent provider of investment company data, for a range
of periods, (ii) advisory and other fees incurred by, and the expense ratios
of, the Fund and a peer group of comparable funds selected by Lipper (the
"Peer Group"), (iii) the advisory fees of comparable portfolios of other
clients of the Adviser, (iv) the Adviser's financial results and condition,
including its and certain of its affiliates' profitability from services
performed for the Fund, (v) breakpoints in the Fund's and the Peer Group's
fees and a study undertaken at the direction of the Independent Trustees as
to the allocation of the benefits of economies of scale between the Fund and
the Adviser, (vi) the Adviser's record of compliance with applicable laws
and regulations, with the Fund's investment policies and restrictions, and
with the Fund's Code of Ethics and the structure and responsibilities of the
Adviser's compliance department, (vii) the background and experience of
senior management and investment professionals, and (viii) the nature, cost
and character of advisory and non-investment management services provided by
the Adviser and its affiliates.
Nature, extent and quality
of services
The Board considered the ability of the Adviser, based on its resources,
reputation and other attributes, to attract and retain qualified investment
professionals, including research, advisory, and supervisory personnel. The
Board further considered the compliance programs and compliance records of
the Adviser. In addition, the Board took into account the administrative
services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board
concluded that, within the context of its full deliberations, the nature,
extent and quality of the investment advisory services provided to the Fund
by the Adviser were sufficient to support renewal of the Advisory Agreement.
Fund performance
The Board considered the performance results for the Fund over various time
periods. The Board also considered these results in comparison to the
28
performance of the Universe, as well as the Fund's benchmark indexes. Lipper
determined the Universe for the Fund. The Board reviewed with a
representative of Lipper the methodology used by Lipper to select the funds
in the Universe and the Peer Group.
The Board noted that the performance of the Fund was consistently higher
than the median and average performance of its Universe, and was higher than
or not appreciably lower than the performance of its benchmark indexes, the
Lipper New York Municipal Debt Funds Index and the Lehman Municipal Bond
Index, for the time periods under review.
Investment advisory
fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee
rate payable by the Fund to the Adviser for investment advisory services
(the "Advisory Agreement Rate"). The Board received and considered
information comparing the Advisory Agreement Rate with the advisory fees for
the Peer Group. The Board noted that the Advisory Agreement Rate was equal
to the median rate of the Peer Group. The Board concluded that the Advisory
Agreement Rate was reasonable in relation to the services provided.
The Board received and considered information regarding the Fund's total
operating expense ratio and its various components, including contractual
advisory fees, actual advisory fees, non-management fees, Rule 12b-1 and
non-Rule 12b-1 service fees, transfer agent fees and custodian fees,
including and excluding Rule 12b-1 and non-Rule 12b-1 service fees. The
Board also considered comparisons of these expenses to the expense
information for the Peer Group and the Universe. The Board noted that the
total operating expense ratio of the Fund was higher than the Peer Group's
and Universe's median total operating expense ratio. The Board also noted
that contributors to such difference were the Fund's transfer agency, Rule
12b-1 and non-Rule 12b-1 service fees and custodian expenses. The Board
favorably considered the Adviser's and transfer agent's commitment to
developing initiatives designed to reduce their overall fees and expenses.
The Adviser also discussed the Lipper data and rankings, and other relevant
information, for the Fund. Based on the above-referenced considerations and
other factors, the Board concluded that the Fund's overall performance and
plans to reduce the Fund's overall fees and expenses supported the
re-approval of the Advisory Agreement.
Profitability
The Board received and considered a detailed profitability analysis of the
Adviser based on the Advisory Agreement, as well as on other relationships
between the Fund and the Adviser and its affiliates. The Board concluded
that, in light of the costs of providing investment management and other
services to the Fund, the profits and other ancillary benefits reported by
the Adviser were not unreasonable.
Economies of scale
The Board received and considered general information regarding economies of
scale with respect to the management of the Fund, including the Fund's
ability to appropriately benefit from economies of scale under the Fund's
fee structure. The Board recognized the inherent limitations of any analysis
of economies of scale, stemming largely from the Board's understanding that
most of the Adviser's costs are not specific to individual Funds, but rather
are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or
potential economies of scale from Fund-specific or allocated expenses, in
order to ensure
29
that any such economies continue to be reasonably shared with the Fund as
its assets increase, the Adviser and the Board agreed to continue the
existing breakpoints.
Information about
services to other clients
The Board also received information about the nature, extent and quality of
services and fee rates offered by the Adviser to its other clients,
including other registered investment companies, institutional investors and
separate accounts. The Board concluded that the Advisory Agreement Rate was
not unreasonable, taking into account fee rates offered to others by the
Adviser and giving effect to differences in services covered by such fee
rates.
Other benefits to
the Adviser
The Board received information regarding potential "fall-out" or ancillary
benefits received by the Adviser and its affiliates as a result of the
Adviser's relationship with the Fund. Such benefits could include, among
others, benefits directly attributable to the relationship of the Adviser
with the Fund and benefits potentially derived from an increase in the
business of the Adviser as a result of its relationship with the Fund (such
as the ability to market to shareholders other financial products offered by
the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser's and the Fund's
policies and procedures for complying with the requirements of the federal
securities laws, including those relating to best execution of portfolio
transactions and brokerage allocation.
Other factors and
broader review
As discussed above, the Board reviewed detailed materials received from the
Adviser as part of the annual re-approval process under Section 15(c) of the
1940 Act. The Board also regularly reviews and assesses the quality of the
services that the Fund receives throughout the year. In this regard, the
Board reviews reports of the Adviser at least quarterly, which include,
among other things, a detailed portfolio review, detailed fund performance
reports and compliance reports. In addition, the Board meets with portfolio
managers and senior investment officers at various times throughout the
year.
After considering the above-described factors and based on its deliberations
and its evaluation of the information described above, the Board concluded
that approval of the continuation of the Advisory Agreement for the Fund was
in the best interest of the Fund and its shareholders. Accordingly, the
Board unanimously approved the continuation of the Advisory Agreement.
30
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who oversee
your John Hancock fund. Officers elected by the Trustees manage the
day-to-day operations of the Fund and execute policies formulated by the
Trustees.
Independent Trustees
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
Ronald R. Dion, Born: 1946 2005 53
Independent Chairman (since 2005); Chairman and Chief Executive Officer,
R.M. Bradley & Co., Inc.; Director, The New England Council and Massachusetts
Roundtable; Trustee, North Shore Medical Center; Director, Boston Stock
Exchange; Director, BJ's Wholesale Club, Inc. and a corporator of the Eastern
Bank; Trustee, Emmanuel College; Director, Boston Municipal Research Bureau;
Member of the Advisory Board, Carroll Graduate School of Management at
Boston College.
James F. Carlin, Born: 1940 2005 53
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since 1985);
Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995);
Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc.
(since 1996); Director and Treasurer, Rizzo Associates (engineering) (until 2000);
Chairman and CEO, Carlin Consolidated, Inc. (management/investments) (since
1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee,
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of
the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance)
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until
1999), Carlin Insurance Agency, Inc. (until 1999); Chairman, Massachusetts
Board of Higher Education (until 1999).
Richard P. Chapman, Jr., 2 Born: 1935 1987 53
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William H. Cunningham, Born: 1944 2005 148
Former Chancellor, University of Texas System and former President of the
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies
(until 2001); Director of the following: The University of Texas Investment
Management Company (until 2000), Hire.com (until 2004), STC Broadcasting,
Inc. and Sunrise Television Corp. (electronic manufacturing) (until 2001),
Symtx, Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology,
Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius (Internet
31
Independent Trustees (continued)
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
William H. Cunningham, Born: 1944 (continued) 2005 148
service) (until 2003), Jefferson-Pilot Corporation (diversified life insurance
company) (since 1985), New Century Equity Holdings (formerly Billing Concepts)
(until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures
(until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc.
(until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001),
Southwest Airlines (since 2000) and Introgen (since 2000); Advisory Director,
Q Investments (until 2003); Advisory Director, Chase Bank (formerly Texas
Commerce Bank -- Austin) (since 1988), LIN Television (since 2002), WilTel
Communications (until 2003) and Hayes Lemmerz International, Inc.
(diversified automotive parts supply company) (since 2003).
Charles L. Ladner, 2 Born: 1938 2004 148
Chairman and Trustee, Dunwoody Village, Inc. (retirement services) (until 2003);
Senior Vice President and Chief Financial Officer, UGI Corporation (public utility
holding company) (retired 1998); Vice President and Director for AmeriGas, Inc.
(retired 1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution);
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association
(since 2001).
John A. Moore, 2 Born: 1939 1996 53
President and Chief Executive Officer, Institute for Evaluating Health Risks,
(nonprofit institution) (until 2001); Chief Scientist, Sciences International (health
research) (until 2003); Principal, Hollyhouse (consulting) (since 2000); Director,
CIIT (nonprofit research) (since 2002).
Patti McGill Peterson, 2 Born: 1943 1996 53
Executive Director, Council for International Exchange of Scholars and Vice
President, Institute of International Education (since 1998); Senior Fellow, Cornell
Institute of Public Affairs, Cornell University (until 1998); Former President of
Wells College and St. Lawrence University; Director, Niagara Mohawk Power
Corporation (until 2003); Director, Ford Foundation, International Fellowships
Program (since 2002); Director, Lois Roth Endowment (since 2002); Director,
Council for International Educational Exchange (since 2003).
Steven R. Pruchansky, Born: 1944 2005 53
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc.
(since 2000); Director and President, Greenscapes of Southwest Florida, Inc.
(until 2000); Managing Director, JonJames, LLC (real estate) (since 2001);
Director, First Signature Bank & Trust Company (until 1991); Director, Mast
Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991).
Non-Independent Trustee 3
James R. Boyle, Born: 1959 2005 148
President, John Hancock Annuities; Executive Vice President, John Hancock
Life Insurance Company (since June, 2004); President U.S. Annuities; Senior
Vice President, The Manufacturers Life Insurance Company (U.S.A.) (prior
to 2004).
32
Principal officers who are not Trustees
Name, age
Position(s) held with Fund Officer
Principal occupation(s) and of Fund
directorships during past 5 years since
Keith F. Hartstein, Born: 1956 2005
President and Chief Executive Officer
Senior Vice President, Manulife Financial Corporation (since 2004); Director,
President and Chief Executive Officer, John Hancock Advisers, LLC (the
"Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group")
(holding company); Director, President and Chief Executive Officer, John
Hancock Funds, LLC ("John Hancock Funds"); Director, President and Chief
Executive Officer, Sovereign Asset Management Corporation ("SAMCorp.");
Director, John Hancock Signature Services, Inc.; President, John Hancock Trust;
Chairman and President, NM Capital Management, Inc. (NM Capital) (since
2005); Chairman, Investment Company Institute Sales Force Marketing
Committee (since 2003); Executive Vice President, John Hancock Funds
(until 2005).
William H. King, Born: 1952 1988
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer
of each of the John Hancock funds; Assistant Treasurer of each of the John
Hancock funds (until 2001).
Francis V. Knox, Jr., Born: 1947 2005
Vice President and Chief Compliance Officer
Vice President and Chief Compliance Officer for John Hancock Investment
Company, John Hancock Life Insurance Company (U.S.A.), John Hancock Life
Insurance Company and John Hancock Funds (since 2005); Fidelity Investments --
Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004);
Fidelity Investments -- Vice President and Ethics & Compliance Officer (until 2001).
John G. Vrysen, Born: 1955 2005
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Financial Officer, the Adviser, Sovereign Asset
Management Corp., the Berkeley Financial Group, LLC and John Hancock Funds,
LLC (since 2005); Vice President and General Manager, Fixed Annuities, U.S.
Wealth Management (until 2005); Vice President, Operations, Manulife Wood
Logan (July 2000 thru September 2004).
The business address for all Trustees and Officers is 601 Congress Street,
Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or her
successor is elected.
2 Member of Audit Committee.
3 Non-independent Trustees hold positions with the Fund's investment
adviser, underwriter and certain other affiliates.
33
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 Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
- ---------------------------------------------------------
Allocation Allocation Growth + Value Portfolio
Allocation Core Portfolio
- ---------------------------------------------------------
Sector 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
- ---------------------------------------------------------
For more complete information on any John Hancock Fund and a prospectus,
which includes charges and expenses, call your financial professional, or
John Hancock Funds at 1-800-225-5291. Please read the prospectus carefully
before investing or sending money.
34
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
35
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.
- -------------------------------------------------
36
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
Investment adviser
John Hancock Advisers, LLC
601 Congress Street
Boston, MA 02210-2805
Principal distributor
John Hancock Funds, LLC
601 Congress Street
Boston, MA 02210-2805
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
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
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 380 Stuart Street
Boston, MA 02116
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.
37
[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.
7600A 8/05
10/05
ITEM 2. CODE OF ETHICS.
As of the end of the period, August 31, 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.
Charles L. Ladner is the audit committee financial expert and is
"independent", pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the
principal accountant(s) for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant(s) in
connection with statutory and regulatory filings or engagements amounted to
$39,000 for the fiscal year ended August 31, 2004 (broken out as follows:
John Hancock Massachusetts Tax-Free Income Fund - $19,500 and John Hancock
New York Tax-Free Income Fund - $19,500) and $40,870 for the fiscal year
ended August 31, 2005 (broken out as follows: John Hancock Massachusetts
Tax-Free Income Fund - $20,435 and John Hancock New York Tax-Free Income
Fund - $20,435). These fees were billed to the registrant and were approved
by the registrant's audit committee.
(b) Audit-Related Services
There were no audit-related fees during the fiscal year ended August 31,
2004 and fiscal year ended August 31, 2005 billed to the registrant or to
the registrant's investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the adviser that provides
ongoing services to the registrant ("control affiliates").
(c) Tax Fees
The aggregate fees billed for professional services rendered by the
principal accountant(s) for the tax compliance, tax advice and tax planning
("tax fees") amounted to $6,400 for the fiscal year ended August 31, 2004
(broken out as follows: John Hancock Massachusetts Tax-Free Income Fund -
$3,200 and John Hancock New York Tax-Free Income Fund - $3,200) and $6,800
for the fiscal year ended August 31, 2005 (broken out as follows: John
Hancock Massachusetts Tax-Free Income Fund - $3,400 and John Hancock New
York Tax-Free Income Fund - $3,400). The nature of the services comprising
the tax fees was the review of the registrant's income tax returns and tax
distribution requirements. These fees were billed to the registrant and
were approved by the registrant's audit committee. There were no tax fees
billed to the control affiliates.
(d) All Other Fees
There were no other fees during the fiscal year ended August 31, 2004 and
fiscal year ended August 31, 2005 billed to the registrant or to the
control affiliates.
(e)(1) See attachment "Approval of Audit, Audit-related, Tax and Other
Services", with the audit committee pre-approval policies and procedures.
(e)(2) There were no fees that were approved by the audit committee
pursuant to the de minimis exception for the fiscal years ended August 31,
2004 and August 31, 2005 on behalf of the registrant or on behalf of the
control affiliates that relate directly to the operations and financial
reporting of the registrant.
(f) According to the registrant's principal accountant, for the fiscal year
ended August 31, 2005, the percentage of hours spent on the audit of the
registrant's financial statements for the most recent fiscal year that were
attributed to work performed by persons who were not full-time, permanent
employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant(s)
for services rendered to the registrant and rendered to the registrant's
control affiliates for each of the last two fiscal years of the registrant
were $11,400 for the fiscal year ended August 31, 2004, and $128,631 for the
fiscal year ended August 31, 2005.
(h) The audit committee of the registrant has considered the non-audit
services provided by the registrant's principal accountant(s) to the
control affiliates and has determined that the services that were not
pre-approved are compatible with maintaining the principal accountant(s)'
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee
comprised of independent trustees. The members of the audit committee are
as follows:
Dr. John A. Moore - Chairman
Richard P. Chapman, Jr.
Charles L. Ladner
Patti McGill Peterson
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.
The registrant has adopted procedures by which shareholders August
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) Code of Ethics for Senior Financial Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company
Act of 1940, are attached.
(b) 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) Approval of Audit, Audit-related, Tax and Other Services is
attached.
(c)(2) 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)(3) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Tax-Exempt Series Fund
By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: October 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: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: October 27, 2005
By: /s/ John G. Vrysen
-------------------------------------
John G. Vrysen
Executive Vice President and Chief Financial Officer
Date: October 27, 2005