-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FnvTE9WSGO7NnTaC1jCzclludscVgKBKHYFUoyMOUNtzwt8c3GiYvIFUCQSjYzYX sakFtrsk0k5s+4tsxGmHrA== 0000928816-02-000333.txt : 20020425 0000928816-02-000333.hdr.sgml : 20020425 ACCESSION NUMBER: 0000928816-02-000333 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020228 FILED AS OF DATE: 20020425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN TAX EXEMPT SERIES FUND CENTRAL INDEX KEY: 0000811921 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05079 FILM NUMBER: 02620547 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02199-7603 BUSINESS PHONE: 6173751702 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: HANCOCK JOHN TAX EXEMPT SERIES TRUST DATE OF NAME CHANGE: 19901023 N-30D 1 tes.txt JOHN HANCOCK TAX-EXEMPT SERIES John Hancock New York Tax-Free Income Fund SEMI ANNUAL REPORT 2.28.02 [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 Maureen R. Ford, Chairman and Chief Executive Officer, flush left next to first paragraph.] WELCOME 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 Fund's investments page 8 Financial statements page 13 For your information page 25 Dear Fellow Shareholders, The uncertainty and volatility that marked the year 2001 carried over into the first two months of 2002. Questions about the economy, combined with the taint of Enron and concerns about corporate accounting, caused growing investor uncertainty that kept the stock market volatile. February ended with two of the major indexes losing a bit of ground year to date, with the Standard & Poor's 500 Index returning -3.36% and the Nasdaq Composite Index off by -11.22%, while the Dow Jones Industrial Average returned 1.17%. Bond results were more muted than last year, but for the most part were positive in the first two months of 2002. Essentially the same scenario occurred last year, when bonds beat stocks for the second straight year and bond investors realized positive results, while 83% of U.S. stock funds posted negative returns, according to Lipper, Inc. These last two years couldn't have provided a more vivid example of the importance of being well diversified, not only among different asset classes, such as stocks, bonds and cash, but also among various types of each, such as growth or value stocks of different capitalizations. Two disappointing years of stock performance could also be a reason to re-evaluate with your investment professional whether you are still on track to meet your long-term financial goals. It's possible that downsized results, and modified expectations, could foster some changes in your investing strategies. And now is certainly a good time to perform this review, given the increased opportunities for retirement and college savings offered in President Bush's major tax-cut legislation enacted in June 2001. While the stock market remains choppy, it is becoming increasingly clear that the economic and corporate profit cycles have begun to turn. So we remain encouraged, and confident in the resilience of the economy, the financial markets and the nation. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer YOUR FUND AT A GLANCE The Fund seeks a high level of current income, exempt from federal, New York State and New York City personal income taxes, consistent with preservation of capital. Over the last six months * Despite significant challenges, the New York muni market kept pace with the nation. * The Fund's airline- and airport-backed bonds detracted from performance. * The Fund's reduced interest-rate sensitivity helped offset rising bond yields. [Bar chart with heading "John Hancock New York Tax-Free Income Fund." Under the heading is a note that reads "Fund performance for the six months ended February 28, 2002." The chart is scaled in increments of 0.5% with 0.0% at the bottom and 1.0% at the top. The first bar represents the 0.38% total return for Class A. The second bar represents the 0.03% total return for Class B. The third bar represents the 0.03% total return for Class C. A note below the chart reads "Total returns for the Fund are at net asset value with all distributions reinvested."] Top 10 holdings 3.7% New York City Municipal Water Finance Auth., 6-15-33, 5.500% 3.7% Puerto Rico Aqueduct and Sewer Auth., 7-1-11, 10.120% 3.1% New York State Dormitory Auth., 5-15-19, 5.500% 2.9% Port Auth of New York and New Jersey, 10-1-19, 6.750% 2.6% Islip Community Development Agency, 3-1-26, 7.500% 2.5% Triborough Bridge & Tunnel Auth., 1-1-21, 6.125% 2.2% Puerto Rico Public Finance Corp., 8-1-29, 5.500% 2.2% New York, City of, 12-1-17, 5.250% 2.2% New York State Dormitory Auth., 7-1-31, 5.250% 2.1% Virgin Islands Public Finance Auth., 10-1-18, 5.875% As a percentage of net assets on February 28, 2002. BY CYNTHIA M. BROWN, PORTFOLIO MANAGEMENT TEAM LEADER, AND BARRY H. EVANS, CFA, AND DIANNE SALES, CFA, PORTFOLIO MANAGERS John Hancock New York Tax-Free Income Fund MANAGERS' REPORT Recently, Cynthia Brown assumed the role of portfolio management team leader. Ms. Brown has been a member of the team since joining John Hancock Funds in 2000. Previously, she served as chief investment officer of Riccardi Group and was a senior vice president and portfolio manager at MFS Investment Management. "...the New York munici pal market, remarkably, performed in line with the national municipal market..." Despite weak economic conditions, a sharp decline in tax receipts and the tragic events of September 11, 2001, the New York municipal market, remarkably, performed in line with the national municipal market during the six-month period ended February 28, 2002. And that was no easy feat. From a macroeconomic standpoint, the relative softness of the U.S. economy prior to the terrorist attacks of September 11 had already eaten away at the revenues collected by municipal issuers across the nation. Virtually every region of the country was dealing with tighter budgets caused by declining revenues and rising spending pressures on items such as health care. New York muni bond issuers shared those challenges, but were also hit hard by a more significant slowdown in personal income tax receipts and rising unemployment. Furthermore, weakness in the stock and capital markets curtailed large revenue windfalls from Wall Street bonuses as well as capital gains taxes. September 11 created new, more serious challenges. Amid the uncertainty and economic downturn in the weeks following the attacks, personal income tax collections came in well below forecasts and sales tax collections fell as people delayed purchases and tourism declined. Business and corporate taxes also dropped as profits sank. At the same time, there was an exponentially larger need for spending associated with the cleanup of the World Trade Center site, increased public assistance and public protection. In the immediate days and weeks after the terrorist attacks, New York muni bond prices slumped. More recently, however, they've regained some lost ground, thanks in large measure to federal government aid and investors' recognition of the resiliency of New Yorkers. That said, there was a bump in the road back: the interest-rate environment turned less favorable. During the final months of 2001, investors increasingly began to factor in the possibility that the worst of the economy's downturn, and the positive effects of lower interest rates, were behind us. Bond prices slipped a bit as their yields rose and investors reduced their bond holdings in favor of stocks. In January and February, however, investment-grade munis posted decent returns as skittish stock and corporate bond investors sought haven in munis. [A photo of Team leader Cynthia Brown flush right next to first paragraph.] FUND PERFORMANCE REVIEW For the six-month period ended February 28, 2002, John Hancock New York Tax-Free Income Fund's Class A, Class B and Class C shares posted total returns of 0.38%, 0.03% and 0.03%, respectively, at net asset value. By comparison, the average New York municipal bond fund returned 0.87%, according to Lipper, Inc.1 Keep in mind that your net asset value return will be different from the Fund's performance if you were not invested in the Fund the entire period and did not reinvest all distributions. Please see pages six and seven for longer-term performance information. "Our holdings in education bonds held up well amid the uncertainty." The Fund's relative underperformance was due in large part to our airline- and airport-backed holdings, such as those issued by the New York City Industrial Development Agency. Bonds to finance construction of airline projects -- such as hangars or baggage facilities -- weakened as the economy softened. Prior to the beginning of the period, we had built up a stake in airline and airport bonds based on our view that the economy would eventually take a turn for the better. Then in an obviously unforeseen development, the September 11 attacks led to a sharp reduction in air travel, sending prices of such bonds significantly lower. We chose to hang on to our airline and airport positions in anticipation of a stronger economy in 2002. [Table at top left-hand side of page entitled "Top five sectors." The first listing is Education 15%, the second is Health 11%, the third Combined 10%, the fourth Industrial development 8% and the fifth Authority 8%.] EDUCATION BONDS PERFORM WELL Our holdings in education bonds held up well amid the uncertainty. Demographic trends -- including a growing population of college-aged students and a return to school by laid off workers -- continued to favor the sector, and such issuers as the New York State Dormitory Authority. [Pie chart at middle of page with heading "Portfolio diversification As a percentage of net assets on 2-28-02." The chart is divided into two sections (from top to left): Revenue bonds 93%, and General obligation bonds 7%.] TERRITORIAL BONDS To counter the lack of issuance of New York bonds in the wake of the terrorist attacks, we occasionally turned to bonds issued by Puerto Rico and the Virgin Islands. As territories of the United States, bonds issued on those two islands are free from state taxes in all 50 states. We purchased many of our territorial holdings at very attractive prices in December and January, when the supply of them was heavy. As supply patterns returned to normal, their prices firmed. [Table at top of page entitled "SCORECARD." The header for the left column is "INVESTMENT" and the header for the right column is "RECENT PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Airline/airport bonds followed by a down arrow with the phrase "Dramatic decline in air travel after 9/11." The second listing is NYACK Hospital followed by a down arrow with the phrase "Poor financial performance." The third listing is Puerto Rico Bonds followed by an up arrow with the phrase "Bond prices firm as supply patterns come back to normal."] DURATION MANAGEMENT HELPS Our timely management of the Fund's duration, or interest-rate sensitivity, generally was a plus for performance during the period. Throughout much of the past six months, the Fund's duration was a bit short relative to the market overall, meaning it had less interest-rate sensitivity. By maintaining this stance, the Fund's share price was more stable as bond yields drifted higher, and prices declined, in the final calendar quarter of 2001. OUTLOOK In our view, it's unlikely that municipal bond yields will continue to decline as much as they did during 2001, if at all. Each passing day brings more evidence that the economy is on the mend. Given that, we've positioned the Fund to benefit from a revival of the economy, emphasizing sectors that have the most to gain if the economy turns. "...we've positioned the Fund to benefit from a revival of the economy..." As for the New York municipal market, the serious challenges that issuers face aren't about to disappear anytime soon. So far, the major municipal credit rating agencies have chosen not to downgrade either the credit outlook or the credit rating of New York State or New York City, in part because of their ability to draw from large reserves built up in the 1990s. But given all the uncertainty that surrounds New York over the short term, our credit research team will closely monitor developments and focus on bonds with a balance of good long-term fundamentals and attractive yields. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. 1 Figures from Lipper, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. A LOOK AT PERFORMANCE For the period ended February 28, 2002 The index used for comparison is the Lehman Brothers Municipal Bond Index, an unmanaged index that includes approximately 8,000 bonds and is commonly used as a measure of bond performance. It is not possible to invest directly in an index. Class A Class B Class C Index Inception date 9-13-87 10-3-96 4-1-99 -- Average annual returns with maximum sales charge (POP) One year 0.65% -0.33% 2.67% 6.84% Five years 4.91% 4.81% -- 6.37% Ten years 6.16% -- -- 6.91% Since inception -- 5.11% 3.85% -- Cumulative total returns with maximum sales charge (POP) Six months -4.12% -4.87% -1.96% 1.99% One year 0.65% -0.33% 2.67% 6.84% Five years 27.10% 26.48% -- 36.15% Ten years 81.85% -- -- 95.13% Since inception -- 30.92% 11.62% -- SEC 30-day yield as of February 28, 2002 4.47% 3.99% 3.94% -- Performance figures assume all distributions are reinvested. Returns with maximum sales charge reflect a sales charge on Class A shares of 4.50% and Class C shares of 1%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. 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 return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than the original cost. Index figures do not reflect sales charges and would be lower if they did. The returns reflect past results and should not be considered indicative of future performance. 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. These reductions can be terminated in the future. See the prospectus for details. GROWTH OF $10,000 This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we've shown the same investment in the Lehman Brothers Municipal Bond Index. Line chart with the heading "GROWTH OF $10,000." Within the chart are three lines. The first line represents the Index and is equal to $19,513 as of February 28, 2002. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock New York Tax-Free Income Fund, before sales charge, and is equal to $19,052 as of February 28, 2002. The third line represents the value of the same hypothetical investment made in the John Hancock New York Tax-Free Income Fund, after sales charge, and is equal to $18,191 as of February 28, 2002. Class B Class C 1 Period beginning 10-3-96 4-1-99 Without sales charge $13,195 $11,282 With maximum sales charge $13,095 $11,169 Index $14,117 $11,736 Assuming all distributions were reinvested for the period indicated, the chart above shows the value of a $10,000 investment in the Fund's Class B and Class C shares, respectively, as of February 28, 2002. 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. 1 No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on February 28, 2002 (unaudited). This schedule has one main category: tax-exempt long-term bonds. The tax-exempt long-term bonds are broken down by state or territory. Under each state or territory is a list of the securities owned by the Fund. STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE TAX-EXEMPT LONG-TERM BONDS 99.76% $69,618,029 (Cost $65,255,519) New York 82.74% $57,736,674 Albany Parking Auth, Rev Ref Ser 2001 A, 07-15-25 5.625% BBB+ 750 765,015 Chautauqua TOB Asset Securitization Corp, TOB Settlement Rev Asset Backed Bonds, 07-01-40 6.750 A+ 1,000 1,104,530 Glen Cove Housing Auth, Rev Sr Living Facil The Mayfair Proj, 10-01-26 8.250 BB+ 1,000 1,075,460 Islip Community Development Agency, Community Dev Rev Ref NY Institute of Technology Proj, 03-01-26 7.500 AAA 1,500 1,793,460 Long Island Power Auth, Elec Sys Rev Cap Apprec, 06-01-27 Zero AAA 1,000 272,240 Metropolitan Transportation Auth, Commuter Facil Rev 1987 Serv Contract Ser 3, 07-01-08 7.375 A- 1,000 1,142,760 Commuter Facil Rev 1992 Serv Contract Ser N, 07-01-09 7.125 AA- 1,000 1,038,600 Monroe TOB Asset Securitization Corp, TOB Settlement Rev Asset Backed Bonds, 06-01-35 6.375 A 1,000 1,085,220 Nassau County Industrial Development Agency, Civic Facil Rev Ser 2001A North Shore Hlth Sys Proj, 11-01-21 6.250 BB+ 300 293,985 Civic Facil Rev Ser 2001B North Shore Hlth Sys Proj, 11-01-11 5.875 BB+ 500 494,585 New York City Housing Development Corp, Multi-Family Mtg Rev FHA Ins Mtg Ln 1993 Ser A, 10-01-15 6.550 AAA 1,000 1,035,490 New York City Industrial Development Agency, Civic Facil Rev Polytechnic Univ Proj, 11-01-30 6.125 BBB- 1,000 1,035,560 Civic Facil Rev YMCA of Greater NY Proj, 08-01-21 5.250 A- 1,000 998,750 Rev Brooklyn Navy Yard Cogeneration Partners, 10-01-28 5.650 BBB- 1,000 974,440 Rev Airis JFK I LLC Ser 2001A Proj, 07-01-28 5.500 BBB- 1,000 901,250 Rev Ref LaGuardia Assoc LP Proj, 11-01-28 6.000 BB+ 750 585,532 New York City Municipal Water Finance Auth, Wtr & Swr Sys Rev Ref, 06-15-33 5.500 AA 2,500 2,588,075 Wtr & Swr Sys Rev Ref Cap Apprec Ser 2001D, 06-15-20 Zero AA 2,000 800,140 Wtr & Swr Sys Rev Ref Ser 2000 B, 06-15-33 6.000 AA 460 532,643 Wtr & Swr Sys Rev Ref Ser 2000 B Preref, 06-15-33 6.000 AA 740 868,375 Wtr & Swr Sys Rev Ser 1996A, 06-15-26 5.375 AAA 1,000 1,016,720 New York City Transitional Finance Auth, Rev Future Tax Sec Bond Ser B, 02-01-17 5.500 AA+ 1,000 1,071,030 Rev Future Tax Sec Bond Ser B, 11-15-29 6.000 AA+ 1,000 1,100,230 Rev Future Tax Sec Bond Ser C, 02-01-17 5.375 AA+ 1,000 1,055,450 New York Local Government Assistance Corp, Rev Ref 1993 Ser C, 04-01-17 5.500 AA- 1,225 1,339,758 Rev Ref Cap Apprec 1993 Ser C, 04-01-14 Zero AAA 1,100 642,246 New York State Dormitory Auth, Catholic Hlth Servs Rev Ser 2000A, 07-01-30 6.000 BBB+ 1,000 1,059,280 City Univ Rev Iss Ser U Unref Bal, 07-01-08 6.375 BBB 210 217,432 City Univ Rev Sys Cons 4th Gen Ser 2001A, 07-01-31 5.250 AA- 1,500 1,510,905 Concord Nursing Home Inc Rev, 07-01-29 6.500 A1 500 548,535 KMH Homes Inc FHA-Ins Mtg Rev Ser 1991, 08-01-31 6.950 AA 1,150 1,178,416 Lease Rev State Univ Dorm Facil Ser A, 07-01-30 6.000 AA- 1,000 1,102,850 Lenox Hill Hosp Oblig Group Rev, 07-01-30 5.500 A3 1,000 1,015,690 Miriam Osborn Mem Home Rev Ser B, 07-01-25 6.875 A 750 847,133 St. Luke's-Roosevelt Hospital Center Rev Ser 2000B, 08-15-40 Zero AAA 3,000 287,280 State Univ Ed Facil Rev Ser 2000B, 05-15-23 5.375 AA- 1,000 1,028,020 State Univ Ed Facil Rev Ser 1993A, 05-15-19 5.500 AA- 2,000 2,162,600 State Univ Ed Facil Rev Ser 1993A, 05-15-15 5.250 AAA 1,000 1,083,370 Univ of Rochester Rev Ser 1987 Unref Bal, 07-01-09 6.500 A+ 20 20,090 Univ of Rochester Ser 2000A, Step Coupon (6.05%, 07-01-10), 07-01-25 Zero AAA 1,000 654,020 New York State Environmental Facil Corp, State Wtr Poll Control Rev Rites-PA 174, 06-15-11 15.959# AAA 500 730,625 State Wtr Poll Control Revolving Fund Rev Ser 1991E Unref Bal, 06-15-10 6.875 AAA 40 42,642 New York State Housing Finance Agency, Ins Multi-Family Mtg Hsg 1992 Ser C, 08-15-14 6.450 AAA 500 513,300 Ins Multi-Family Mtg Hsg 1994 Ser B, 08-15-14 6.250 AAA 735 774,837 Ins Multi-Family Mtg Hsg 1994 Ser C, 08-15-14 6.450 Aa1 1,000 1,046,730 New York State Medical Care Facilities Finance Agency, Hosp & Nursing Home Ins Mtg Rev 1992 Ser B Unref Bal, 02-15-32 6.950 AA 830 850,069 Rev Mental Hlth 1994 Ser E Unref Bal, 08-15-19 6.250 AAA 30 32,728 New York State Mortgage Agency, Homeowner Mtg Rev Ser 57, 10-01-17 6.300 AA1 500 534,455 Homeowner Mtg Rev Ser 94, 10-01-30 5.900 Aa1 500 517,445 New York State Power Auth, Gen Purpose Ser W, 01-01-08 6.500 AAA 250 287,230 New York, City of, GO Fiscal 1991 Ser B, 06-01-07 8.250 A 200 241,840 GO Fiscal 1991 Ser D Unref Bal, 08-01-04 8.000 A 5 5,170 GO Fiscal 1991 Ser F Unref Bal, 11-15-03 8.200 A 20 20,575 GO Fiscal 1992 Ser B Preref, 10-01-13 7.000 A- 10 10,478 GO Fiscal 1992 Ser C Preref, 08-01-21 7.500 A 20 20,815 GO Ser 2001B, 12-01-17 5.250 A 1,500 1,530,885 New York, State of, GO Environmental Quality Fiscal 1994, 12-01-14 6.500 AA 1,000 1,138,930 Orange County Industrial Development Agency, Civic Facil Rev Ser 2001C Arden Hill Care Ctr, Newburgh, 08-01-31 7.000 BB+ 500 486,020 Port Auth of New York and New Jersey, Spec Proj KIAC Partners Proj Ser 4, 10-01-19 6.750 BBB 2,000 2,049,400 Rockland TOB Asset Securitization Corp, TOB Settlement Rev Asset Backed Bonds, 08-15-25 5.500 A 740 752,351 Suffolk County Industrial Development Agency, Continuing Care Retirement Rev Peconic Landing Ser 2000A, 10-01-30 8.000 BB+ 500 502,950 Triborough Bridg & Tunnel Auth, Gen Purpose Rev Ser 1992Y, 01-01-21 6.125 AA- 1,500 1,736,385 Gen Purpose Rev Ser 1993, 01-01-21 Zero AAA 1,500 579,690 Trust for Cultural Resources of the City of New York, Museum of American Folk Art Rev, 07-01-30 6.125 A 500 523,665 Ulster TOB Asset Securitization Corp, TOB Settlement Rev Asset Backed Bonds, 06-01-40 Zero A1 1,000 612,500 Upper Mohawk Valley Regional Water Finance Auth, Wtr Sys Rev Cap Apprec, 04-01-22 Zero Aaa 2,230 810,717 Westchester County Healthcare Corp, Rev Ref Sr Lien Ser 2000A, 11-01-30 6.000 A 1,150 1,196,380 Yonkers Industrial Development Agency, Civic Facil Rev Ser 2001A Community Development Properties, 02-01-26 6.625 BBB- 1,000 1,056,930 Civic Facil Rev Ser 2001B St. John's Riverside Hosp, 07-01-31 7.125 BBB- 780 803,767 Puerto Rico 14.06% 9,811,672 Puerto Rico Aqueduct and Sewer Auth, Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of Puerto Rico, 07-01-11 10.120# A 2,000 2,562,500 Puerto Rico Commonwealth, Ref-Pub Imp, 07-01-27 5.250 AAA 500 511,190 Puerto Rico Highway & Transportation Auth, Trans Rev Ser B, 07-01-26 6.000 A 1,000 1,060,040 Trans Rev Ser D, 07-01-38 5.250 A 1,000 999,930 Puerto Rico Indl Med & Environmental Pollution Control Auth, Spl Facil-Amern Airls-Ser A, 12-01-25 6.450 BB 1,000 818,050 Puerto Rico Public Building Auth, Rev Gtd Govt Facil Ser A, 07-01-12 6.250 AAA 1,110 1,319,757 Rev Gtd Govt Facil Ser D, 07-01-27 5.250 A 1,000 1,005,720 Puerto Rico Public Finance Corp, Commonwealth Approp Ser 2002E, 08-01-29 5.500 A- 1,500 1,534,485 Virgin Islands 2.96% 2,069,683 Virgin Islands Public Finance Auth Rev, Rcpts Taxes Ln Ser A, 10-01-24 6.500 BBB- 535 576,853 Virgin Islands Public Finance Auth, Rev Sub Lien Fund Ln Notes Ser 1998E, 10-01-18 5.875 BB+ 1,500 1,492,830 TOTAL INVESTMENTS 99.76% $69,618,029 OTHER ASSETS AND LIABILITIES, NET 0.24% $164,021 TOTAL NET ASSETS 100.00% $69,782,050 * Credit ratings are unaudited and rated by Standard & Poor's where available, or Moody's Investors Service, Fitch or John Hancock Advisers, LLC where Standard & Poor's are not available. # Represents rate in effect on February 28, 2002. 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.
FINANCIAL STATEMENTS PORTFOLIO CONCENTRATION February 28, 2002 (unaudited) This table shows the percentages of the Fund's investments aggregated by various industries. VALUE AS A PERCENTAGE INDUSTRY DISTRIBUTION OF NET ASSETS General Obligation 6.88% Revenue Bonds -- Authority 7.50 Revenue Bonds -- Anticipation Not 3.28 Revenue Bonds -- Bridge & Toll Ro 2.49 Revenue Bonds -- Building 0.75 Revenue Bonds -- Combined 9.92 Revenue Bonds -- Education 15.20 Revenue Bonds -- Electric 3.74 Revenue Bonds -- Environment 1.05 Revenue Bonds -- Health 11.09 Revenue Bonds -- Highway 2.95 Revenue Bonds -- Housing 7.14 Revenue Bonds -- Industrial Devel 8.34 Revenue Bonds -- Industrial Reven 0.79 Revenue Bonds -- Other 5.30 Revenue Bonds -- Parking Garage/A 1.10 Revenue Bonds -- Pollution Contro 1.17 Revenue Bonds -- Single Family 0.74 Revenue Bonds -- Transportation 3.95 Revenue Bonds -- Various Purpose 1.55 Revenue Bonds -- Water & Sewer 4.83 Total tax-exempt long-term bonds 99.76% See notes to financial statements. FINANCIAL STATEMENTS ASSETS AND LIABILITIES February 28, 2002 (unaudited) This Statement of Assets and Liabilities is the Fund's balance sheet. It shows the value of what the Fund owns, is due and owes. You'll also find the net asset value and the maximum offering price per share. ASSETS Investments at value (cost $65,255,519) $69,618,029 Receivable for investments sold 1,039,700 Receivable for shares sold 33,780 Dividends and interest receivable 892,875 Other assets 5,001 Total assets 71,589,385 LIABILITIES Due to custodian 4,948 Payable for bank loan 1,220,000 Payable for investments purchased 510,565 Dividends payable 13,301 Payable to affiliates 23,741 Other payables and accrued expenses 34,780 Total liabilities 1,807,335 NET ASSETS Capital paid-in 66,373,587 Accumulated net realized loss on investments (985,650) Net unrealized appreciation of investments 4,362,510 Undistributed net investment income 31,603 Net assets $69,782,050 NET ASSET VALUE PER SHARE Based on net asset values and shares outstanding Class A ($47,306,877 [DIV] 3,835,617 shares) $12.33 Class B ($21,443,506 [DIV] 1,738,626 shares) $12.33 Class C ($1,031,667 [DIV] 83,646 shares) $12.33 MAXIMUM OFFERING PRICE PER SHARE Class A 1 ($12.33 [DIV] 95.5%) $12.91 Class C ($12.33 [DIV] 99%) $12.45 1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. See notes to financial statements. OPERATIONS For the period ended February 28, 2002 (unaudited) 1 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in oper- ating the Fund. It also shows net gains (losses) for the period stated. INVESTMENT INCOME Interest $1,924,475 Total investment income 1,924,475 EXPENSES Investment management fee 169,341 Class A distribution and service fee 71,512 Class B distribution and service fee 96,479 Class C distribution and service fee 3,817 Transfer agent fee 38,795 Auditing fee 10,130 Custodian fee 9,308 Accounting and legal services fee 7,169 Printing 6,484 Registration and filing fee 4,305 Trustees' fee 1,893 Miscellaneous 1,837 Legal fee 444 Interest expense 213 Total expenses 421,727 Less expense reductions (1,629) Net expenses 420,098 Net investment income 1,504,377 REALIZED AND UNREALIZED GAIN (LOSS) Net realized loss on investments (507,463) Change in net unrealized depreciation of investments (738,215) Net realized and unrealized loss (1,245,678) Increase in net assets from operations $258,699 1 Semiannual period from 9-1-01 through 2-28-02. See notes to financial statements. CHANGES IN NET ASSETS This Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous period. The dif- ference reflects earnings less expenses, any investment gains and losses, distri- butions paid to shareholders, if any, and any increase or decrease in money share- holders invested in the Fund. YEAR PERIOD ENDED ENDED 8-31-01 2-28-02 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $2,606,540 $1,504,377 Net realized gain (loss) 492,334 (507,463) Change in net unrealized appreciation (depreciation) 3,069,578 (738,215) Increase in net assets resulting from operations 6,168,452 258,699 Distributions to shareholders From net investment income Class A (2,132,587) (1,132,851) Class B (463,535) (355,891) Class C (10,418) (19,265) (2,606,540) (1,508,007) From fund share transactions 10,283,721 5,345,830 NET ASSETS Beginning of period 51,839,895 65,685,528 End of period 2 $65,685,528 $69,782,050 1 Semiannual period from 9-1-01 through 02-28-02. Unaudited. 2 Includes undistributed net investment income of $19,344 and $31,603, respectively. See notes to financial statements.
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 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 2-28-02 1,2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $11.83 $12.25 $12.62 $11.76 $11.82 $12.57 Net investment income 0.67 0.66 3 0.63 3 0.61 3 0.58 3 0.29 3 Net realized and unrealized gain (loss) on investments 0.42 0.37 (0.75) 0.06 0.75 (0.25) Total from investment operations 1.09 1.03 (0.12) 0.67 1.33 0.04 Less distributions From net investment income (0.67) (0.66) (0.63) (0.61) (0.58) (0.28) From realized gain -- -- (0.11) -- -- -- In excess of realized gain -- -- -- 4 -- -- -- (0.67) (0.66) (0.74) (0.61) (0.58) (0.28) Net asset value, end of period $12.25 $12.62 $11.76 $11.82 $12.57 $12.33 Total return 5,6 (%) 9.48 8.64 (1.08) 5.95 11.54 0.38 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $54 $52 $48 $43 $48 $47 Ratio of expenses to average net assets (%) 0.70 0.70 0.70 0.77 0.97 1.03 8 Ratio of adjusted expenses to average net assets 9 (%) 1.11 1.10 1.08 1.13 1.12 1.03 8 Ratio of net investment income to average assets (%) 5.61 5.26 5.06 5.28 4.77 4.74 8 Portfolio turnover (%) 46 46 58 63 54 33 See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS B SHARES PERIOD ENDED 8-31-97 10 8-31-98 8-31-99 8-31-00 8-31-01 2-28-02 1,2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $11.99 $12.25 $12.62 $11.76 $11.82 $12.57 Net investment income 0.54 0.57 3 0.54 3 0.53 3 0.49 3 0.22 3 Net realized and unrealized gain (loss) on investments 0.26 0.37 (0.75) 0.06 0.75 (0.22) Total from investment operations 0.80 0.94 (0.21) 0.59 1.24 -- Less distributions From net investment income (0.54) (0.57) (0.54) (0.53) (0.49) (0.24) From realized gain -- -- (0.11) -- -- -- In excess of realized gain -- -- -- 4 -- -- -- (0.54) (0.57) (0.65) (0.53) (0.49) (0.24) Net asset value, end of period $12.25 $12.62 $11.76 $11.82 $12.57 $12.33 Total return 5,6 (%) 6.82 7 7.88 (1.77) 5.21 10.76 0.03 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $2 $6 $8 $8 $17 $21 Ratio of expenses to average net assets (%) 1.40 8 1.40 1.40 1.47 1.67 1.73 8 Ratio of adjusted expenses to average net assets 9 (%) 1.81 8 1.80 1.78 1.83 1.82 1.73 8 Ratio of net investment income to average net assets (%) 4.79 8 4.56 4.36 4.58 4.07 3.68 8 Portfolio turnover (%) 46 46 58 63 54 33 See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS C SHARES PERIOD ENDED 8-31-99 10 8-31-00 8-31-01 2-28-02 1,2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $12.39 $11.76 $11.82 $12.57 Net investment income 3 0.22 0.53 0.50 0.30 Net realized and unrealized gain (loss) on investments (0.63) 0.06 0.75 (0.30) Total from investment operations (0.41) 0.59 1.25 -- Less distributions From net investment income (0.22) (0.53) (0.50) (0.24) Net asset value, end of period $11.76 $11.82 $12.57 $12.33 Total return 5,6 (%) (3.24) 7 5.21 10.77 0.03 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) -- 11 -- 11 $1 $1 Ratio of expenses to average net assets (%) 1.40 8 1.47 1.67 1.73 8 Ratio of adjusted expenses to average net assets 9 (%) 1.78 8 1.83 1.82 1.73 8 Ratio of net investment income to average net assets (%) 4.23 8 4.58 4.07 5.04 8 Portfolio turnover (%) 58 63 54 33 1 Semiannual period from 9-1-01 through 2-28-02. Unaudited. 2 As required, effective 9-1-01 the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and discounts on debt securities. This change had no effect on per-share amounts for the period ended 2-28-02 and, had the Fund not made these changes to amortization, the annualized ratio of net investment income to average net assets would have been 4.75%, 3.69% and 5.05% 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. 3 Based on the average of the shares outstanding at the end of each month. 4 Less than $0.01 per share. 5 Assumes dividend reinvestment and does not reflect the effect of sales charges. 6 Total returns would have been lower had certain expenses not been reduced during the periods shown. 7 Not annualized 8 Annualized. 9 Does not take into consideration expense reductions during the periods shown. 10 Class B and Class C shares began operations on 10-3-96 and 4-1-99, respectively. 11 Less than $500,000. See notes to financial statements.
NOTES TO STATEMENTS Unaudited NOTE A Accounting policies John Hancock New York Tax-Free Income Fund (the "Fund") is a diversified series of John Hancock Tax-Exempt Series Trust, an open-end investment management company registered under the Investment Company Act of 1940. The investment objective of the Fund is to provide as high a level of current income exempt from both federal income taxes and New York personal income taxes as is consistent with preservation of capital. The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B and Class C shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights to that distribution plan. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, 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 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 assets of the respective classes. Distribution and service fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be 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 permit borrowings of up to $475 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 average daily loan balance during the period for which loans were outstanding amounted to $1,220,000, and the weighted average interest rate was 2.375%. Interest expense includes $79 paid under the line of credit. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income which is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $414,500 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The entire amount of the loss carryforward expires August 31, 2008. Interest and distributions Interest income on investment securities is recorded on the accrual basis. The Fund records distributions to shareholders from net investment income and realized gains on the ex- dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions paid by the Fund with respect to each class of shares will be calculated in the same manner, at the same time and will be in the same amount, except for the effect of expenses that may be applied differently to each class. 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 custodian fees are reduced by balance credits applied during the period. Accordingly, the custody expense reduction amounted to $1,629, or less than 0.01% of the Fund's average net assets, for the period ended February 28, 2002. 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 payments to JH Funds at an annual rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class B and Class C average daily net assets. A maximum of 0.25% of such payments may be service fees as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. Class A and Class C shares are assessed up-front sales charges. During the period ended February 28, 2002, JH Funds received net up-front sales charges of $108,300 with regard to sales of Class A shares. Of this amount, $11,056 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $79,655 was paid as sales commissions to unrelated broker-dealers and $17,589 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. During the period ended February 28, 2002, JH Funds received net up-front sales charges of $8,829 with regard to sales of Class C shares. Of this amount, $8,650 was paid as sales commissions to unrelated broker-dealers and $179 was paid as sales commissions to sales personnel of Signator Investors. Class B shares which 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 which 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. For the period ended February 28, 2002, CDSCs received by JH Funds amounted to $12,719 for Class B shares and $42 for Class C shares. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a monthly transfer agent fee based on the number of shareholder accounts, plus certain out-of-pocket expenses. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of 0.02% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value. YEAR ENDED 8-31-01 PERIOD ENDED 2-28-02 1 SHARES AMOUNT SHARES AMOUNT CLASS A SHARES Sold 853,340 $10,382,507 317,270 $3,892,349 Distributions reinvested 121,953 1,480,504 60,072 736,258 Repurchased (817,340) (9,903,599) (379,078) (4,660,514) Net increase (decrease) 157,953 $1,959,412 (1,736) ($31,907) CLASS B SHARES Sold 729,680 $8,898,030 449,300 $5,553,383 Distributions reinvested 16,836 205,225 16,366 200,527 Repurchased (99,284) (1,202,875) (69,513) (851,709) Net increase 647,232 $7,900,380 396,153 $4,902,201 CLASS C SHARES Sold 39,988 $487,811 48,976 $601,712 Distributions reinvested 322 3,938 278 3,399 Repurchased (5,651) (67,820) (10,632) (129,575) Net increase 34,659 $423,929 38,622 $475,536 NET INCREASE 839,844 $10,283,721 433,039 $5,345,830 1 Semiannual period from 9-1-01 through 02-28-02. Unaudited.
NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the period ended February 28, 2002, aggregated $31,320,513 and $22,373,533, respectively. The cost of investments owned at February 28, 2002, including short-term investments, for federal income tax purposes was $65,244,423. Gross unrealized appreciation and depreciation of investments aggregated $4,584,390 and $210,784, respectively, resulting in net unrealized appreciation of $4,373,606. The difference between book basis and tax basis net unrealized appreciation depreciation of investments is attributable primarily to the tax deferral of losses on wash sales. NOTE E Change in accounting principle Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and discounts on debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in a $15,889 increase in the cost of investments and a corresponding decrease in net unrealized appreciation of investments, based on securities held as of August 31, 2001. The effect of this change for the period ended February 28, 2002, was to decrease net investment income by $3,630, increase unrealized appreciation on investments by $4,793 and increase net realized loss on investments by $1,163. The statement of changes in net assets and the financial highlights for prior periods have not been restated to reflect this change in presentation. FOR YOUR INFORMATION TRUSTEES Dennis S. Aronowitz Richard P. Chapman, Jr. William J. Cosgrove John M. DeCiccio Richard A. Farrell* Maureen R. Ford Gail D. Fosler* William F. Glavin Dr. John A. Moore* Patti McGill Peterson John W. Pratt *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 PRINCIPAL DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhfunds.com By Regular Mail John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By Express Mail John Hancock Signature Services, Inc. Attn: Mutual Fund Image Operations 529 Main Street Charlestown, MA 02129 Customer Service Representatives 1-800-225-5291 24-hour Automated Information 1-800-338-8080 TDD Line 1-800-554-6713 [A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner. A tag line below reads "JOHN HANCOCK FUNDS."] 101 Huntington Avenue Boston, MA 02199-7603 1-800-225-5291 1-800-554-6713 (TDD) 1-800-338-8080 EASI-Line www.jhfunds.com Now available: electronic delivery www.jhancock.com/funds/edelivery This report is for the information of the shareholders of the John Hancock New York Tax-Free Income Fund. 760SA 2/02 4/02 John Hancock Massachusetts Tax-Free Income Fund SEMI ANNUAL REPORT 2.28.02 Sign up for electronic delivery at www.jhancock.com/funds/edelivery [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 Maureen R. Ford, Chairman and Chief Executive Officer, flush left next to first paragraph.] WELCOME 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 Fund's investments page 8 Financial statements page 13 For your information page 25 Dear Fellow Shareholders, The uncertainty and volatility that marked the year 2001 carried over into the first two months of 2002. Questions about the economy, combined with the taint of Enron and concerns about corporate accounting, caused growing investor uncertainty that kept the stock market volatile. February ended with two of the major indexes losing a bit of ground year to date, with the Standard & Poor's 500 Index returning -3.36% and the Nasdaq Composite Index off by -11.22%, while the Dow Jones Industrial Average returned 1.17%. Bond results were more muted than last year, but for the most part were positive in the first two months of 2002. Essentially the same scenario occurred last year, when bonds beat stocks for the second straight year and bond investors realized positive results, while 83% of U.S. stock funds posted negative returns, according to Lipper, Inc. These last two years couldn't have provided a more vivid example of the importance of being well diversified, not only among different asset classes, such as stocks, bonds and cash, but also among various types of each, such as growth or value stocks of different capitalizations. Two disappointing years of stock performance could also be a reason to re-evaluate with your investment professional whether you are still on track to meet your long-term financial goals. It's possible that downsized results, and modified expectations, could foster some changes in your investing strategies. And now is certainly a good time to perform this review, given the increased opportunities for retirement and college savings offered in President Bush's major tax-cut legislation enacted in June 2001. While the stock market remains choppy, it is becoming increasingly clear that the economic and corporate profit cycles have begun to turn. So we remain encouraged, and confident in the resilience of the economy, the financial markets and the nation. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer YOUR FUND AT A GLANCE The Fund seeks a high level of current income exempt from federal and Massachusetts personal income taxes, consistent with preservation of capital. Over the last six months * Municipal bonds entered an extremely volatile period following the events of September 11. * Massachusetts has weathered the economic downturn relatively well. * In this difficult market, the Fund stayed the course with our long-term investment strategy. [Bar chart with heading "John Hancock Massachusetts Tax-Free Income Fund." Under the heading is a note that reads "Fund performance for the six months ended February 28, 2002." The chart is scaled in increments of 0.5% with 0.0% at the bottom and 1.0% at the top. The first bar represents the 0.98% total return for Class A. The second bar represents the 0.63% total return for Class B. The third bar represents the 0.63% total return for Class C. A note below the chart reads "Total returns for the Fund are at net asset value with all distributions reinvested."] Top 10 holdings 4.9% Massachusetts Turnpike Auth., 1-1-23, 5.125% 4.8% Route 3 North Transit Improvement Assoc., 6-15-29, 5.375% 3.5% Massachusetts Industrial Finance Agency, 12-1-20, 6.750% 2.9% Puerto Rico Aqueduct and Sewer Auth., 7-1-11, 8.930% 2.6% Mass. Water Pollution Abatement Trust, 2-1-31, 5.125% 2.4% Brockton, City of, 6-15-18, 6.125% 2.3% Mass. Health and Educ. Facilities Auth., 12-15-31, 9.200% 2.2% Mass. Development Finance Agency, 5-15-59, 5.450% 2.2% Mass. Development Finance Agency, 11-1-28, 5.450% 2.2% Mass. Industrial Finance Agency, 7-1-05, 6.300% As a percentage of net assets on February 28, 2002. MANAGERS' REPORT BY DIANNE SALES, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND BARRY H. EVANS, CFA, AND CYNTHIA M. BROWN, PORTFOLIO MANAGERS John Hancock Massachusetts Tax-Free Income Fund Following nearly three quarters of strong performance due to falling interest rates, bond markets entered an extremely volatile period following the events of September 11. In the wake of the terrorist attacks on the U.S., the economy headed deeper into the recession that had begun in early 2001. In an effort to halt the economy's decline, the Federal Reserve responded quickly and aggressively, cutting interest rates four times from September 11 through the end of the year. However, with recent economic numbers indicating an economic recovery, the Fed has remained in a holding pattern so far this year. "...bond markets entered an extremely volatile period following the events of September 11." Although activity in the municipal bond market was initially reduced in the post--September 11 period, it had come roaring back by November. Issuance increased dramatically, as governments moved to take advantage of lower interest rates, while short-term investors looked further out the yield curve to fill their need for coupon income. While higher-grade bonds performed well, lower-rated paper lagged due to uncertainty about the economy. Not surprisingly, transportation-related sectors -- such as airlines, airports, hotels and convention centers -- were hit hardest in this period. These credits dragged down performance of the higher-yielding sectors of the tax-exempt market. PERFORMANCE REVIEW For the six months ended February 28, 2002, John Hancock Massachusetts Tax-Free Income Fund's Class A, Class B and Class C shares returned 0.98%, 0.63% and 0.63%, respectively, at net asset value. For the same period, the average Massachusetts municipal bond fund returned 0.93%, according to Lipper, Inc.1 Keep in mind that your net asset value return will be different from the Fund's performance if you were not invested in the Fund for the entire period and did not reinvest all distributions. Please see pages six and seven for historical performance information. [A photo of Team leader Dianne Sales flush right next to first paragraph.] The Fund's performance reflected our minimal exposure to the transportation sectors impacted by the events of September 11. The Fund benefited from its high-quality holdings in essential services -- such as electric, water and sewer utilities and higher- education bonds -- which were solid performers. Finally, our health-care holdings turned in a good performance. Over the past year, many health-care credits have exhibited stable returns, and with their higher coupon income they have been attractive to investors looking to refocus away from the transportation sector. "The Fund benefited from its high-quality holdings in essential services..." On the flip side, our holdings in Massachusetts Port Authority bonds (the Authority that runs Logan Airport) suffered during the period due to the aftermath of September 11. Although we were able to insure part of the position early on, the stigma attached to the management at Logan and the possibility for increased security costs held back the performance of these bonds. However, we chose to maintain our positions in this name, knowing that the dramatic economic stimulus released by the Fed would clearly induce stronger economic growth. Indeed, since late 2001 the economic news has continued to brighten, and we have seen improved levels for these bonds in 2002. MASSACHUSETTS MARKET Because of its diverse economy and wealthy population, Massachusetts has weathered the economic downturn relatively well. Unfortunately, however, the gradual tax rollback passed two years ago, combined with the recent downturn in tax revenues, has put considerable pressure on the state's fiscal situation. The result is a fierce debate on how to balance the upcoming budget in June. With a gubernatorial election approaching, the budget debate is likely to become even more heated. If this atmosphere results in a failure to balance the budget effectively and on time, the state's credit rating could be negatively impacted. We will, of course, be monitoring the situation closely and looking carefully at our exposure to the state, particularly in uninsured agency bonds. We will be watching the impact of any budget cuts very closely. [Table at top left-hand side of page entitled "Top five sectors." The first listing is Education 21%, the second is Highway 11%, the third Health 10%, the fourth General obligation 8% and the fifth Industrial revenue 8%.] STAYING THE COURSE In this volatile market environment, we have stayed the course with our long-term investment strategy, making only minor adjustments during the period. Throughout the portfolio, we've also looked for opportunities to improve the Fund's overall yield. We haven't made major changes to the Fund's sector weightings. Instead, within each sector, we've taken advantage of opportunities to sell older bonds with lower yields and replace them with newer, higher-yielding issues. [Pie chart at middle of page with heading "Portfolio diversification As a percentage of net assets on 2-28-02." The chart is divided into three sections (from top to left): General obligation bonds 8%, Revenue bonds 91% and Short-term investments and other 1%.] OUTLOOK Despite the recent volatility in the market, we believe the outlook for municipal bonds remains positive. Given that we're just starting to see the initial signs of a recovery, we don't expect the Federal Reserve to raise interest rates anytime soon. With economic growth still modest and very little pricing power in the market, inflation doesn't pose an imminent threat. What's more, the Fed historically waits at least 12 months after the first sign of a recovery before implementing any rate hikes. That way it can give its economic stimulus a chance to build a strong base of economic growth. With the Fed likely to hold rates at their current levels for at least the next several months, we expect bond prices to trade in a relatively narrow range. [Table at top of page entitled "SCORECARD." The header for the left column is "INVESTMENT" and the header for the right column is "RECENT PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Essential service revenue bonds followed by an up arrow with the phrase "Stable revenue streams." The second listing is Health-care bonds followed by an up arrow with the phrase "Attractive yield/risk profile." The third listing is Mass. Port Authority followed by a down arrow with the phrase "Negative aftermath of 9/11."] "...as the economy improves, we're likely to see the income streams from revenue bonds pick up too." In anticipation of this trading-range environment, we will maintain a neutral interest-rate stance. We will also keep our focus on revenue bonds as opposed to general obligation bonds. Tax revenues tend to lag the economy by about 12 months. So while the economy is now starting to turn the corner, we're still seeing tax revenues decline in most states. Given that, we're likely to see spending cuts as states attempt to balance their budgets under the pressure of shrinking tax revenues. The result could be downward pressure on general obligation issues, which are most directly affected by spending cuts. Revenue bonds, on the other hand, are dependent on the revenues from their particular projects, and therefore tend to be more economically sensitive. So as the economy improves, we're likely to see the income streams from revenue bonds pick up too. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. 1 Figures from Lipper, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. A LOOK AT PERFORMANCE For the period ended February 28, 2002 The index used for comparison is the Lehman Brothers Municipal Bond Index, an unmanaged index that includes approximately 8,000 bonds and is commonly used as a measure of bond performance. It is not possible to invest directly in an index. Class A Class B Class C Index Inception date 9-3-87 10-3-96 4-1-99 -- Average annual returns with maximum sales charge (POP) One year 1.10% 0.11% 3.09% 6.84% Five years 4.83% 4.72% -- 6.37% Ten years 6.10% -- -- 6.91% Since inception -- 5.16% 3.48% -- Cumulative total returns with maximum sales charge (POP) Six months -3.53% -4.31% -1.39% 1.99% One year 1.10% 0.11% 3.09% 6.84% Five years 26.59% 25.94% -- 36.15% Ten years 80.70% -- -- 95.13% Since inception -- 31.23% 10.47% -- SEC 30-day yield as of February 28, 2002 4.51% 4.02% 3.99% -- Performance figures assume all distributions are reinvested. Returns with maximum sales charge reflect a sales charge on Class A shares of 4.50% and Class C shares of 1%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. 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 return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than the original cost. Index figures do not reflect sales charges and would be lower if they did. The returns reflect past results and should not be considered indicative of future performance. 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. These reductions can be terminated in the future. See the prospectus for details. GROWTH OF $10,000 This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we've shown the same investment in the Lehman Brothers Municipal Bond Index. Line chart with the heading "GROWTH OF $10,000." Within the chart are three lines. The first line represents the Index and is equal to $19,513 as of February 28, 2002. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock Massachusetts Tax-Free Income Fund, before sales charge, and is equal to $18,920 as of February 28, 2002. The third line represents the value of the same hypothetical investment made in the John Hancock Massachusetts Tax-Free Income Fund, after sales charge, and is equal to $18,076 as of February 28, 2002. Class B Class C 1 Period beginning 10-3-96 4-1-99 Without sales charge $13,227 $11,165 With maximum sales charge $13,127 $11,054 Index $14,117 $11,736 Assuming all distributions were reinvested for the period indicated, the chart above shows the value of a $10,000 investment in the Fund's Class B and Class C shares, respectively, as of February 28, 2002. 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. 1 No contingent deferred sales charge applicable. FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on February 28, 2002 (unaudited) This schedule is divided into two main categories: tax-exempt long-term bonds and short-term investments. Tax-exempt long-term bonds are broken down by state or territory. Under each state or territory is a list of the securities owned by the Fund. Short-term investments, which represent the Fund's cash position, are listed last.
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE TAX-EXEMPT LONG-TERM BONDS 98.49% $86,463,114 (Cost $82,644,939) Massachusetts 91.64% $80,450,834 Boston City Industrial Development Financing Auth, Sewage Facil Rev 1991 Harbor Elec Energy Co Proj, 05-15-15 7.375% BBB 250 $256,110 Boston Water and Sewer Commission, Gen Rev 1992 Sr Ser A, 11-01-13 5.750 AA- 500 557,695 Brockton, City of, State Qualified Municipal Purpose Ln of 1993, 06-15-18 6.125 A+ 2,000 2,071,160 Massachusetts Bay Transportation Auth, Gen Trans Rev Ser 1997D MBIA IBC, 03-01-27 5.000 AAA 1,000 988,460 Gen Trans Sys Rev Ref Ser 1994A, 03-01-14 7.000 AA 1,000 1,229,440 Rev Assessment Ser 2000A, 07-01-30 5.250 AAA 1,000 1,010,020 Massachusetts, Commonwealth of, GO Consol Ln Ser 2001C, 12-01-19 5.375 AA- 1,000 1,041,930 GO Consol Ln Ser 2001D, 11-01-21 5.000 AAA 1,000 1,001,450 Massachusetts Development Finance Agency, Concord-Assabet Family Servs Rev Ref, 11-01-28 6.000 Caa3 870 602,379 Resource Recovery Rev Southeastern MA Sys Ser 2001A, 01-01-16 5.625 AAA 500 544,605 Rev Belmont Hill School, 09-01-31 5.000 A 1,000 969,990 Rev Boston Univ Ser 1999P, 05-15-59 5.450 BBB+ 2,000 1,943,840 Rev GNMA Coll VOA Concord Ser 2000A, 10-20-41 6.900 AAA 1,000 1,151,780 Rev Lasell Village Proj Ser 1998A, 12-01-25 6.375 BBB- 1,000 878,930 Massachusetts Development Finance Agency, (cont.) Rev YMCA Greater Boston Iss, 11-01-19 5.350 BBB+ 1,000 980,000 Rev YMCA Greater Boston Iss, 11-01-28 5.450 BBB+ 2,000 1,925,340 Massachusetts Educational Financing Auth, Ed Ln Rev Iss D Ser 1991A, 01-01-09 7.250 AAA 215 219,281 Massachusetts Health and Educational Facilities Auth, Rev Boston College Iss Ser J Unref Bal, 07-01-21 6.625 AAA 35 35,836 Rev Boston College Iss Ser L, 06-01-26 5.000 AA- 1,500 1,468,920 Rev Civic Investments Ser 2002B, 12-15-31 9.200 BB 2,000 2,005,460 Rev Community Colleges Prog Iss Ser A, 10-01-22 6.600 AAA 250 262,617 Rev Dana-Farber Cancer Institute Ser G-1, 12-01-22 6.250 A 500 518,740 Rev Harvard Univ Iss Ser W, 07-01-35 6.000 AAA 1,000 1,158,600 Rev Melrose-Wakefield Hosp Iss Ser B, 07-01-06 6.350 AAA 500 518,040 Rev Northeastern Univ Iss Ser E, 10-01-22 6.550 AAA 1,000 1,047,590 Rev Partners Healthcare Sys Ser 2001C, 07-01-32 5.750 AA- 1,000 1,019,440 Rev Ref Boston College Iss Ser L, 06-01-31 4.750 AA- 1,000 938,360 Rev Ref Brandeis Univ Iss Ser J, 10-01-26 5.000 Aaa 1,750 1,730,382 Rev Ref Harvard Pilgrim Health Ser A, 07-01-18 5.000 AAA 1,000 994,410 Rev Ref Harvard Univ Ser 2001DD, 07-15-35 5.000 AAA 1,000 987,460 Rev Ref Univ of Mass Worcester Campus Ser 2001B, 10-01-23 5.125 AAA 1,000 1,007,190 Rev Ref Univ of Mass Worcester Campus Ser 2001B, 10-01-31 5.250 AAA 1,500 1,516,830 Rev Ref Worcester Polytechnic Institute Iss Ser E, 09-01-17 6.625 AAA 250 261,585 Rev Simmons College Ser 2000D, 10-01-29 6.150 AAA 1,000 1,104,600 Rev South Shore Hosp Ser F, 07-01-29 5.750 A 1,000 995,810 Rev St Luke's Hosp, 08-15-23 9.900# AAA 500 522,500 Rev Wheelock College Ser 2000B, 10-01-30 5.625 Aaa 1,000 1,047,440 Massachusetts Housing Finance Agency, Hsg Rev Rental Mtg Ser 2001A, 07-01-30 5.800 AAA 1,000 1,023,230 Rev Insured Rental Hsg 1994 Ser A, 07-01-14 6.600 AAA 960 1,005,821 Massachusetts Industrial Finance Agency, Assisted Living Facil Rev Newton Group Properties LLC Proj, 09-01-27 8.000 BB 1,000 1,080,410 Assisted Living Facil Rev TNG Marina Bay LLC Proj, 12-01-27 7.500 BB 1,000 1,037,130 Resource Recovery Rev Ref Ogden Haverhill Proj Ser 1998A, 12-01-19 5.600 BBB 1,000 802,540 Resource Recovery Rev Ref Ser 1993A Refusetech Inc Proj, 07-01-05 6.300 BBB+ 1,825 1,923,806 Rev Assumption College Iss 1996, 07-01-26 6.000 AAA 1,000 1,055,360 Rev Dana Hall School Iss, 07-01-17 5.800 BBB 1,090 1,092,998 Rev Glenmeadow Retirement Community Ser C, 02-15-18 8.375 AA 1,000 1,199,650 Rev St John's High School, 06-01-28 5.350 BBB+ 1,000 932,480 Rev Wtr Treatment American Hingham Proj, 12-01-20 6.750 BBB 3,000 3,110,760 Rev Wtr Treatment American Hingham Proj, 12-01-29 6.900 BBB 1,310 1,365,885 Massachusetts Municipal Wholesale Electric Co, Pwr Supply Sys Rev 1992 Ser B, 07-01-05 6.750 BBB+ 500 518,985 Pwr Supply Sys Rev 1992 Ser B, 07-01-06 6.750 BBB+ 1,500 1,556,955 Pwr Supply Sys Rev 1992 Ser B, 07-01-17 6.750 BBB+ 400 415,232 Pwr Supply Sys Rev 1992 Ser C, 07-01-10 6.625 AAA 1,000 1,037,690 Pwr Supply Sys Rev 1993 Reg Inverse Floater, 07-01-18 8.920# AAA 1,300 1,343,875 Massachusetts Port Auth, Rev Ref Ser 1992A, 07-01-23 6.000 A+ 1,370 1,395,551 Rev Ser C FSA-CR, 07-01-29 5.750 AAA 1,250 1,315,325 Rev Special Facil Ser A USAir Proj, 09-01-16 5.750 AAA 1,000 1,048,580 Massachusetts Turnpike Auth, Metro Highway Sys Rev Sr Lien Cap Apprec Ser 1997C, 01-01-20 Zero AAA 1,000 393,940 Metro Highway Sys Rev Sr Ser 1997A, 01-01-23 5.125 AAA 4,300 4,306,106 Massachusetts Water Pollution Abatement Trust, Rev Ref Pool Prog Ser 7, 02-01-31 5.125 AAA 2,320 2,318,515 Wtr Poll Abatement Rev Ref Sub New Bedford Prog Ser A, 02-01-26 4.750 Aaa 1,000 946,620 Massachusetts Water Resource Auth, Gen Rev Ref 1993 Ser B, 03-01-17 5.500 AA 400 409,104 Gen Rev Ref 1993 Ser B, 03-01-22 5.000 AA 360 359,096 Gen Rev Ref 1993 Ser C, 12-01-23 4.750 AA 1,000 954,240 Nantucket, Town of, GO Municipal Purpose Ln of 1991, 12-01-11 6.800 AAA 25 25,620 Narragansett Regional School District, GO Unltd, 06-01-18 5.375 Aaa 1,000 1,056,010 Plymouth, County of, Cert of Part Correctional Facil Proj, 04-01-22 5.000 AAA 1,000 1,002,130 Rail Connections, Inc., Rev Cap Apprec Rte 128 Pkg Ser 1999B, 07-01-18 Zero BBB- 1,750 747,250 Rev Cap Apprec Rte 128 Pkg Ser 1999B, 07-01-19 Zero BBB- 2,415 965,420 Route 3 North Transit Improvement Associates, Lease Rev, 06-15-29 5.375 AAA 4,100 4,189,093 Lease Rev, 06-15-33 5.375 AAA 465 474,472 Springfield, City of, GO School Proj Ln Act of 1992 Ser B, 09-01-11 7.100 AA 500 524,235 University of Massachusetts, Bldg Auth Facil Rev Gtd Ser 2000A, 11-01-25 5.125 AAA 1,000 1,002,500 Puerto Rico 6.85% $6,012,280 Puerto Rico Aqueduct and Sewer Auth, Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of Puerto Rico, 07-01-11 10.120# AAA 2,000 2,562,500 Puerto Rico, Commonwealth of, GO Pub Imp Inverse Rate Securities Ser 1996, 07-01-11 9.870# AAA 1,000 1,281,250 Puerto Rico Highway and Transportation Auth, Highway Rev Cap Rites Ser Y, 07-01-14 6.250 A 1,000 1,168,410 Puerto Rico Public Buildings Auth, Rev Gtd Govt Facils Ser 1997B, 07-01-27 5.000 AAA 1,000 1,000,120 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 0.17% $150,000 (Cost $150,000) Joint Repurchase Agreement 0.17% Investment in a joint repurchase agreement transaction with Barclays Capital, Inc. -- Dated 02-28-02, due 03-01-02 (Secured by U.S. Treasury Inflation Index Bonds, 3.375% thru 3.875% due 04-15-28 thru 04-15-32) 1.890% $150 150,000 TOTAL INVESTMENTS 98.66% $86,613,114 OTHER ASSETS AND LIABILITIES, NET 1.34% $1,177,411 TOTAL NET ASSETS 100.00% $87,790,525
* Credit ratings are unaudited and rated by Standard & Poor's where available, or Moody's Investors Service, Fitch or John Hancock Advisers, LLC, where Standard & Poor's ratings are not available. # Represents rate in effect on February 28, 2002. 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. PORTFOLIO CONCENTRATION February 28, 2002 (unaudited) This table shows the percentages of the Fund's investments aggregated by various industries. VALUE AS A PERCENTAGE INDUSTRY DISTRIBUTION OF NET ASSETS General Obligation 7.95% Revenue Bonds -- Building 1.14 Revenue Bonds -- Combined 1.13 Revenue Bonds -- Correctional Facility 1.14 Revenue Bonds -- Education 21.43 Revenue Bonds -- Electric 5.55 Revenue Bonds -- Financial 1.31 Revenue Bonds -- Health 9.86 Revenue Bonds -- Highway 10.67 Revenue Bonds -- Hospital 1.18 Revenue Bonds -- Industrial Development 4.22 Revenue Bonds -- Industrial Revenue 7.58 Revenue Bonds -- Mass Transit 1.15 Revenue Bonds -- Multi-Family 2.31 Revenue Bonds -- Other 1.95 Revenue Bonds -- Pollution Control 2.64 Revenue Bonds -- Port Authority 1.59 Revenue Bonds -- Resource Recovery 0.61 Revenue Bonds -- School 1.10 Revenue Bonds -- Transportation 5.88 Revenue Bonds -- Various Purpose 1.50 Revenue Bonds -- Water & Sewer 6.60 Total tax-exempt long-term bonds 98.49% See notes to financial statements. ASSETS AND LIABILITIES February 28, 2002 (unaudited) This Statement of Assets and Liabilities is the Fund's balance sheet. It shows the value of what the Fund owns, is due and owes. You'll also find the net asset value and the maximum offering price per share. ASSETS Investments at value (cost $82,794,939) $86,613,114 Cash 479 Receivable for shares sold 82,167 Dividends and interest receivable 1,184,334 Other assets 5,307 Total assets 87,885,401 LIABILITIES Dividends payable 18,491 Payable to affiliates 45,177 Other payables and accrued expenses 31,208 Total liabilities 94,876 NET ASSETS Capital paid-in 84,223,513 Accumulated net realized loss on investments (305,143) Net unrealized appreciation of investments 3,818,175 Undistributed net investment income 53,980 Net assets $87,790,525 NET ASSET VALUE PER SHARE Based on net asset values and shares outstanding Class A ($64,097,818 [DIV] 5,230,970 shares) $12.25 Class B ($21,123,211 [DIV] 1,723,862 shares) $12.25 Class C ($2,569,496 [DIV] 209,692 shares) $12.25 MAXIMUM OFFERING PRICE PER SHARE Class A1 ($12.25 [DIV] 95.5%) $12.83 Class C ($12.25 [DIV] 99%) $12.37 1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. See notes to financial statements. OPERATIONS For the period ended February 28, 2002 (unaudited) 1 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in oper- ating the Fund. It also shows net gains (losses) for the period stated. INVESTMENT INCOME Interest $2,406,385 Total investment income 2,406,385 EXPENSES Investment management fee 212,362 Class A distribution and service fee 94,731 Class B distribution and service fee 97,659 Class C distribution and service fee 11,377 Transfer agent fee 46,456 Custodian fee 14,450 Auditing fee 12,240 Registration and filing fee 9,133 Accounting and legal services fee 8,991 Printing 7,502 Trustees' fee 2,817 Miscellaneous 2,314 Legal fee 636 Interest expense 34 Total expenses 520,702 Less expense reductions (232) Net expenses 520,470 Net investment income 1,885,915 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain on investments 18,585 Change in net unrealized depreciation of investments (1,108,496) Net realized and unrealized loss (1,089,911) Increase in net assets from operations $796,004 1 Semiannual period from 9-1-01 through 2-28-02. See notes to financial statements. CHANGES IN NET ASSETS This Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous period. The dif- ference reflects earnings less expenses, any investment gains and losses, distri- butions paid to shareholders, if any, and any increase or decrease in money share- holders invested in the Fund. YEAR PERIOD ENDED ENDED 8-31-01 2-28-02 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $3,768,582 $1,885,915 Net realized gain 76,705 18,585 Change in net unrealized appreciation (depreciation) 3,973,440 (1,108,496) Increase in net assets resulting from operations 7,818,727 796,004 Distributions to shareholders From net investment income Class A (3,032,173) (1,449,283) Class B (682,472) (380,106) Class C (53,937) (44,185) (3,768,582) (1,873,574) From fund share transactions 4,520,091 4,970,929 NET ASSETS Beginning of period 75,326,930 83,897,166 End of period 2 $83,897,166 $87,790,525 1 Semiannual period from 9-1-01 through 02-28-02. Unaudited. 2 Includes undistributed net investment income of $6,724 and $53,980, respectively. See notes to financial statements.
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 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 2-28-02 1,2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $11.66 $12.12 $12.60 $11.85 $11.80 $12.41 Net investment income 0.66 0.66 3 0.64 3 0.64 3 0.59 3 0.28 3 Net realized and unrealized gain (loss) on investments 0.46 0.48 (0.75) (0.05) 0.61 (0.16) Total from investment operations 1.12 1.14 (0.11) 0.59 1.20 0.12 Less distributions From net investment income (0.66) (0.66) (0.64) (0.64) (0.59) (0.28) Net asset value, end of period $12.12 $12.60 $11.85 $11.80 $12.41 $12.25 Total return 4,5 (%) 9.85 9.66 (0.96) 5.16 10.44 0.98 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $54 $58 $58 $60 $63 $64 Ratio of expenses to average net assets (%) 0.70 0.70 0.70 0.77 0.97 1.05 7 Ratio of adjusted expenses to average net assets 8 (%) 1.11 1.10 1.05 1.09 1.05 1.05 7 Ratio of net investment income to average net assets (%) 5.59 5.28 5.16 5.54 4.90 4.62 7 Portfolio turnover (%) 12 6 6 19 17 3
See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS B SHARES PERIOD ENDED 8-31-97 9 8-31-98 8-31-99 8-31-00 8-31-01 2-28-02 1,2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $11.84 $12.12 $12.60 $11.85 $11.80 $12.41 Net investment income 0.54 0.57 3 0.55 3 0.56 3 0.51 3 0.24 3 Net realized and unrealized gain (loss) on investments 0.28 0.48 (0.75) (0.05) 0.61 (0.16) Total from investment operations 0.82 1.05 (0.20) 0.51 1.12 0.08 Less distributions From net investment income (0.54) (0.57) (0.55) (0.56) (0.51) (0.24) Net asset value, end of period $12.12 $12.60 $11.85 $11.80 $12.41 $12.25 Total return 4,5 (%) 7.08 6 8.89 (1.66) 4.43 9.67 0.63 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $2 $6 $13 $14 $19 $21 Ratio of expenses to average net assets (%) 1.40 7 1.40 1.40 1.47 1.67 1.75 7 Ratio of adjusted expenses to average net assets 8 (%) 1.81 7 1.80 1.75 1.79 1.75 1.75 7 Ratio of net investment income to average net assets (%) 4.82 7 4.58 4.46 4.84 4.20 3.92 7 Portfolio turnover (%) 12 6 6 19 17 3
See notes to financial statements.
FINANCIAL HIGHLIGHTS CLASS C SHARES PERIOD ENDED 8-31-99 9 8-31-00 8-31-01 2-28-02 1,2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $12.46 $11.85 $11.80 $12.41 Net investment income 3 0.21 0.56 0.51 0.24 Net realized and unrealized gain (loss) on investments (0.61) (0.05) 0.61 (0.16) Total from investment operations (0.40) 0.51 1.12 0.08 Less distributions From net investment income (0.21) (0.56) (0.51) (0.24) Net asset value, end of period $11.85 $11.80 $12.41 $12.25 Total return 4,5 (%) (3.23) 6 4.43 9.67 0.63 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) -- 10 $1 $2 $3 Ratio of expenses to average net assets (%) 1.40 7 1.47 1.67 1.75 7 Ratio of adjusted expenses to average net assets 8 (%) 1.75 7 1.79 1.75 1.75 7 Ratio of net investment income to average net assets (%) 4.30 7 4.84 4.20 3.92 7 Portfolio turnover (%) 6 19 17 3
1 Semiannual period from 9-1-02 through 2-28-02. Unaudited. 2 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 discounts on debt securities. This change had no effect on per share amounts for the period ended 2-28-02, and, had the Fund not made these changes to amortization, the annualized ratio of net investment income to average net assets would have been 4.59%, 3.89% and 3.89% 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. 3 Based on the average of the shares outstanding at the end of each month. 4 Assumes dividend reinvestment and does not reflect the effect of sales charges. 5 Total returns would have been lower had certain expenses not been reduced during the periods shown. 6 Not annualized. 7 Annualized. 8 Does not take into consideration expense reductions during the periods shown. 9 Class B and Class C shares began operations on 10-3-96 and 4-1-99, respectively. 10 Less than $500,000. See notes to financial statements. NOTES TO STATEMENTS Unaudited NOTE A Accounting policies John Hancock Massachusetts Tax-Free Income Fund (the "Fund") is a diversified series of John Hancock Tax-Exempt Series Trust, an open-end investment management company registered under the Investment Company Act of 1940. The investment objective of the Fund is to provide as high a level of current income exempt from both federal income taxes and Massachusetts personal income taxes as is consistent with preservation of capital. The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B and Class C shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights to that distribution plan. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, 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 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 assets of the respective classes. Distribution and service fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be 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 permit borrowings up to $475 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended February 28, 2002. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income which is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $296,137 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The entire amount of the loss carryforward expires as follows: August 31, 2004 -- $101,732, August 31, 2005 -- $6,645, August 31, 2008 -- $187,760. 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 realized gains on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions paid by the Fund with respect to each class of shares will be calculated in the same manner, at the same time and will be in the same amount, except for the effect of expenses that may be applied differently to each class. 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 Funds average daily net asset value in excess of $1,250,000,000. The Fund has an agreement with its custodian bank under which custodian fees are reduced by balance credits applied during the period. Accordingly, the custody expense reduction amounted to $232, or less than 0.01% of the Fund's average net assets, for the period ended February 28, 2002. 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 payments to JH Funds at an annual rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class B and Class C average daily net assets. A maximum of 0.25% of such payments may be service fees as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. Class A and Class C shares are assessed up-front sales charges. During the period ended February 28, 2002, JH Funds received net up-front sales charges of $73,659 with regard to sales of Class A shares. Of this amount, $9,836 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $47,665 was paid as sales commissions to unrelated broker-dealers and $16,158 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. During the period ended February 28, 2002, JH Funds received net up-front sales charges of $9,349 with regard to sales of Class C shares. The entire amount was paid as sales commissions to unrelated broker-dealers. Class B shares which 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 which 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. For the period ended February 28, 2002, CDSCs received by JH Funds amounted to $12,519 for Class B shares and $21 for Class C shares. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a monthly transfer agent fee based on the number of shareholder accounts, plus certain out-of-pocket expenses. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of 0.02% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value. YEAR ENDED 8-31-01 PERIOD ENDED 2-28-02 1 SHARES AMOUNT SHARES AMOUNT CLASS A SHARES Sold 830,284 $9,980,780 471,834 $5,784,183 Distributions reinvested 166,253 1,998,557 75,767 925,239 Repurchased (993,080) (11,927,526) (421,554) (5,147,836) Net increase 3,457 $51,811 126,047 $1,561,586 CLASS B SHARES Sold 443,801 $5,326,941 273,111 $3,344,330 Distributions reinvested 32,633 392,784 17,605 214,945 Repurchased (173,172) (2,077,606) (75,159) (916,486) Net increase 303,262 $3,642,119 215,557 $2,642,789 CLASS C SHARES Sold 69,788 $843,041 61,463 $756,709 Distributions reinvested 1,460 17,625 1,642 20,045 Repurchased (2,852) (34,505) (824) (10,200) Net increase 68,396 $826,161 62,281 $766,554 NET INCREASE 375,115 $4,520,091 403,885 $4,970,929 1 Semiannual period from 9-1-01 through 2-28-02. Unaudited. NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the period ended February 28, 2002, aggregated $8,720,789 and $2,302,938, respectively. The cost of investments owned at February 28, 2002, including short-term investments, for federal income tax purposes was $82,747,688. Gross unrealized appreciation and depreciation of investments aggregated $4,561,670 and $696,244, respectively, resulting in net unrealized appreciation of $3,865,426. The difference between book basis and tax basis net unrealized appreciation/depreciation of investments is attributable primarily to the tax deferral of losses on wash sales. NOTE E Change in accounting principle Effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and discounts on debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in a $34,915 increase in the cost of investments and a corresponding decrease in net unrealized appreciation of investments, based on securities held as of August 31, 2001. The effect of this change for the period ended February 28, 2002, was to increase net investment income by $12,341, decrease unrealized appreciation on investments by $12,336 and decrease net realized gain on investments by $5. The statement of changes in net assets and the financial highlights for prior periods have not been restated to reflect this change in presentation. OUR FAMILY OF FUNDS - ------------------------------------------------------- Equity Balanced Fund Core Equity Fund Core Growth Fund Core Value Fund Focused Equity Fund Growth Trends Fund Large Cap Equity Fund Large Cap Growth Fund Large Cap Spectrum Fund Mid Cap Growth Fund Multi Cap Growth Fund Small Cap Equity Fund Small Cap Growth Fund Sovereign Investors Fund - ------------------------------------------------------- Sector Biotechnology Fund Financial Industries Fund Health Sciences Fund Real Estate Fund Regional Bank Fund Technology Fund - ------------------------------------------------------- Income Bond Fund Government Income Fund High Income Fund High Yield Bond Fund Investment Grade Bond Fund Strategic Income Fund - ------------------------------------------------------- International European Equity Fund Global Fund International Fund Pacific Basin Equities 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 YOUR INFORMATION TRUSTEES Dennis S. Aronowitz Richard P. Chapman, Jr. William J. Cosgrove John M. DeCiccio Richard A. Farrell* Maureen R. Ford Gail D. Fosler* William F. Glavin Dr. John A. Moore* Patti McGill Peterson John W. Pratt *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 PRINCIPAL DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhfunds.com By Regular Mail John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By Express Mail John Hancock Signature Services, Inc. Attn: Mutual Fund Image Operations 529 Main Street Charlestown, MA 02129 Customer Service Representatives 1-800-225-5291 24-hour Automated Information 1-800-338-8080 TDD Line 1-800-554-6713 [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.jhancock.com/funds/edelivery This report is for the information of the shareholders of the John Hancock Massachusetts Tax-Free Income Fund. 770SA 2/02 4/02 -----END PRIVACY-ENHANCED MESSAGE-----