-----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, Gq6NRddWuCSobfrBRr1ZnR5SVXcx3bzE25rqt+aH4IKHrUrBjqQLaKy2h8VSqYqi 6CdZ4eaDs9UWSNw+mEe+pA== 0001010521-02-000234.txt : 20020725 0001010521-02-000234.hdr.sgml : 20020725 20020725085507 ACCESSION NUMBER: 0001010521-02-000234 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20020725 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: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-12947 FILM NUMBER: 02710348 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 497 1 txexsres.txt JOHN HANCOCK TAX-EXEMPT SERIES Sign up for electronic delivery at www.jhancock.com/funds/edelivery JOHN HANCOCK Prospectus 7.24.02 Tax-free income funds California Tax-Free Income Fund High Yield Municipal Bond Fund formerly High Yield Tax Free Fund Massachusetts Tax-Free Income Fund New York Tax-Free Income Fund Tax-Free Bond Fund [LOGO](R) - ------------------ JOHN HANCOCK FUNDS As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these funds or determined whether the information in this prospectus is adequate and accurate. Anyone who indicates otherwise is committing a federal crime. Contents - -------------------------------------------------------------------------------- A fund-by-fund summary California Tax-Free Income Fund 4 of goals, strategies, risks, performance and expenses. High Yield Municipal Bond Fund 6 Massachusetts Tax-Free Income Fund 8 New York Tax-Free Income Fund 10 Tax-Free Bond Fund 12 Policies and instructions for Your account opening, maintaining and closing an account in any Choosing a share class 14 tax-free income fund. How sales charges are calculated 14 Sales charge reductions and waivers 15 Opening an account 15 Buying shares 16 Selling shares 17 Transaction policies 19 Dividends and account policies 19 Additional investor services 20 Further information on the Fund details tax-free income funds. Business structure 21 Management biographies 22 Financial highlights 23 For more information back cover Overview - -------------------------------------------------------------------------------- JOHN HANCOCK TAX-FREE INCOME FUNDS These funds seek to offer income that is exempt from federal and, in some cases, state and local income tax. Each fund has its own strategy and its own risk profile. Each fund invests primarily in municipal securities exempt from federal (and in some funds, state) income tax as well as the federal alternative minimum tax. However, a portion of a tax-free fund's income may be subject to these taxes. WHO MAY WANT TO INVEST These funds may be appropriate for investors who: o are in higher income brackets o want regular monthly income o are interested in lowering their income tax burden o pay California, Massachusetts or New York income tax (state-specific funds) Tax-free income funds may NOT be appropriate if you: o are not subject to a high level of state or federal income tax o are seeking an investment for a tax-deferred retirement account o are investing for maximum return over a long time horizon o require absolute stability of your principal RISKS OF MUTUAL FUNDS Mutual funds are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Because you could lose money by investing in these funds, be sure to read all risk disclosure carefully before investing. THE MANAGEMENT FIRM All John Hancock tax-free income funds are managed by John Hancock Advisers, LLC. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock Financial Services, Inc. and as of March 31, 2002 managed approximately $29 billion in assets. FUND INFORMATION KEY Concise fund-by-fund descriptions begin on the next page. Each description provides the following information: [Clip Art] Goal and strategy The fund's particular investment goals and the strategies it intends to use in pursuing those goals. [Clip Art] Main risks The major risk factors associated with the fund. [Clip Art] Past performance The fund's total return, measured year-by-year and over time. [Clip Art] Your expenses The overall costs borne by an investor in the fund, including sales charges and annual expenses. 3 California Tax-Free Income Fund GOAL AND STRATEGY [Clip Art] The fund seeks a high level of current income, consistent with preservation of capital, that is exempt from federal and California personal income taxes. In pursuing this goal, the fund normally invests at least 80% of its assets in securities of any maturity exempt from federal and California personal income taxes. Most of these securities are investment-grade when purchased, but the fund may invest up to 20% of assets in junk bonds rated BB/Ba and their unrated equivalents. In managing the portfolio, the management team uses top-down research to assess general credit trends and identify promising market sectors. To select securities for long-term investment, the team uses a strategy designed to find undervalued bonds, based on research into specific municipal issuers, their creditworthiness and the structure of their bonds. The management team commonly seeks out revenue bonds, which are repaid from income tied to specific facilities such as power plants. The team also favors bonds with limitations on whether they can be called, or redeemed, by the issuer before maturity. This enables the team to minimize the effect of declining interest rates on the fund's income. The fund may make limited use of certain derivatives (investments whose value is based on indexes or other securities), especially in managing its exposure to interest rate risk. In abnormal circumstances, the fund may temporarily invest more than 20% of its assets in taxable investment-grade short-term securities. In these and other cases, the fund might not achieve its goal. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. The average annual figures reflect sales charges; the year-by-year and index figures do not, and would be lower if they did. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Class A, total returns 2002 return as of 6-30-02: 3.34% Best quarter: Q1 '95, 9.25% Worst quarter: Q1 '94, -6.58% After-tax returns After-tax returns are shown for Class A shares only and would be different for the other classes. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Lehman Brothers Municipal Bond Index, an unmanaged index of municipal bonds. - -------------------------------------------------------------------------------- Class A calendar year total returns (without sales charges) - -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 9.05% 13.59% -9.29% 21.91% 4.48% 10.13% 6.65% -2.84% 11.26% 3.87% - -------------------------------------------------------------------------------- Average annual total returns (including sales charge) for periods ending 12-31-01 - -------------------------------------------------------------------------------- 1 year 5 year 10 year Life of Class C Class A before tax -0.77% 4.72% 6.07% -- Class A after tax on distributions -0.77% 4.71% 5.92% -- Class A after tax on distributions, with sale 1.40% 4.80% 5.90% -- Class B before tax -1.85% 4.57% 5.77% -- Class C before tax (began 4-1-99) 0.98% -- -- 2.74% - -------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index 5.13% 5.98% 6.63% 4.87% 4 MAIN RISKS [Clip Art] The major factor in this fund's performance is interest rates. When interest rates rise, bond prices generally fall. Generally, an increase in the fund's average maturity will make it more sensitive to interest rate risk. There is no limit on the fund's average maturity. Because the fund invests primarily in California issuers, its performance is affected by local, state and regional factors. These may include economic or policy changes, erosion of the tax base, state legislative changes (especially those regarding taxes) and the possibility of credit problems. The fund could lose money if any bonds it owns are downgraded in credit rating or go into default. In general, lower-rated bonds have higher credit risks. If certain sectors or investments do not perform as the fund expects, it could under-perform its peers or lose money. To the extent that the fund makes investments with additional risks, these risks could increase volatility or reduce performance: o Revenue bonds could be downgraded or go into default if revenues from their underlying facilities decline, causing the fund to lose money. o Junk bonds could make the fund more sensitive to market or economic shifts. o Certain derivatives could produce disproportionate losses. o In a down market, certain securities and derivatives could become harder to value or to sell at a fair price. ================================================================================ YOUR EXPENSES [Clip Art] Transaction expenses are charged directly to your account. Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. - -------------------------------------------------------------------------------- Shareholder transaction expenses(1) Class A Class B Class C - -------------------------------------------------------------------------------- Maximum sales charge (load) 4.50% 5.00% 2.00% Maximum front-end sales charge (load) on purchases as a % of purchase price 4.50% none 1.00% Maximum deferred sales charge (load) as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00% - -------------------------------------------------------------------------------- Annual operating expenses(3) Class A Class B Class C - -------------------------------------------------------------------------------- Management fee 0.55% 0.55% 0.55% Distribution and service (12b-1) fees 0.15% 1.00% 1.00% Other expenses 0.12% 0.12% 0.12% Total fund operating expenses 0.82% 1.67% 1.67% The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- Class A $530 $700 $885 $1,418 Class B with redemption $670 $826 $1,107 $1,750 Class B without redemption $170 $526 $907 $1,750 Class C with redemption $367 $621 $998 $2,056 Class C without redemption $268 $621 $998 $2,056 (1) A $4.00 fee will be charged for wire redemptions. (2) Except for investments of $1 million or more; see "How sales charges are calculated." (3) Voluntary reduction of distribution and service (12b-1) fees was terminated 12-31-01. ================================================================================ PORTFOLIO MANAGERS Barry H. Evans, CFA Joined fund team in 1998 Dianne Sales, CFA Joined fund team in 1995 Cynthia M. Brown Joined fund team in 2000 See page 22 for the management biographies. FUND CODES Class A Ticker TACAX CUSIP 41014R108 Newspaper CATxFA SEC number 811-5979 JH fund number 53 Class B Ticker TSCAX CUSIP 41014R207 Newspaper CATxFB SEC number 811-5979 JH fund number 153 Class C Ticker TCCAX CUSIP 41014R306 Newspaper -- SEC number 811-5979 JH fund number 553 5 High Yield Municipal Bond Fund GOAL AND STRATEGY [Clip Art] The fund seeks a high level of current income that is largely exempt from federal income tax consistent with preservation of capital. In pursuing this goal, the fund normally invests at least 80% of its assets in municipal bonds of any maturity with credit ratings from A to BB/Ba and their unrated equivalents. The fund may also invest up to 5% of assets in bonds rated as low as CC/Ca and their unrated equivalents. Bonds that are in or below the BB/Ba category are considered junk bonds. In managing the portfolio, the management team uses top-down research to assess general credit trends and identify promising market sectors. To select securities for long-term investment, the team uses a strategy designed to find undervalued bonds, based on research into specific municipal issuers, their creditworthiness and the structure of their bonds. The management team commonly seeks out revenue bonds, which are repaid from income tied to specific facilities such as power plants. The team also favors bonds with limitations on whether they can be called, or redeemed, by the issuer before maturity. This enables the team to minimize the effect of declining interest rates on the fund's income. The fund may make limited use of certain derivatives (investments whose value is based on indexes or other securities), especially in managing its exposure to interest rate risk. In abnormal circumstances, the fund may temporarily invest more than 20% of its assets in taxable investment-grade short-term securities. In these and other cases, the fund might not achieve its goal. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. The average annualfigures reflect sales charges; the year-by-year and index figures do not, and would be lower if they did. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Class B, total returns 2002 total return as of 6-30-02: 3.09% Best quarter: Q1 '95, 7.64% Worst quarter: Q1 '94, -4.18% After-tax returns After-tax returns are shown for Class B shares only and would be different for the other classes. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Lehman Brothers Municipal Bond Index, an unmanaged index of municipal bonds. - -------------------------------------------------------------------------------- Class B calendar year total returns (without sales charges) - -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 8.35% 11.57% -5.70% 18.89% 0.60% 8.81% 4.69% -4.84% 4.60% 3.70% - -------------------------------------------------------------------------------- Average annual total returns (including sales charge) for periods ending 12-31-01 - -------------------------------------------------------------------------------- 1 year 5 year 10 year Life of Life of Class A Class C Class A before tax (began 12-31-93) -0.20% 3.09% -- 3.76% -- Class B before tax -1.22% 2.97% 4.83% -- -- Class B after tax on distributions -1.22% 2.97% 4.78% -- -- Class B after tax on distributions, with sale 1.38% 3.42% 5.00% -- -- Class C before tax (began 4-1-99) 1.63% -- -- -- 0.67% - -------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index 5.13% 5.98% 6.63% 5.67% 4.87% 6 MAIN RISKS [Clip Art] The major factors in this fund's performance are interest rates and credit risk. When interest rates rise, bond prices generally fall. Generally, an increase in the fund's average maturity will make it more sensitive to interest rate risk. There is no limit on the fund's average maturity. Because their issuers are often in relatively weak financial health, junk bonds could make the fund more sensitive to market or economic shifts, and to the risk of default of a particular bond. In general, investors should expect fluctuations in share price, yield and total return that are above average for bond funds. The fund could lose money if any bonds it owns are downgraded in credit rating or go into default. If certain sectors or investments do not perform as the fund expects, it could underperform its peers or lose money. To the extent that the fund invests in securities with additional risks, these risks could increase volatility or reduce performance: o Revenue bonds could be downgraded or go into default if revenues from their underlying facilities decline, causing the fund to lose money. o If the fund invests heavily in securities from a given state or region, its performance could be disproportionately affected by political or demographic factors in that state or region. o Certain derivatives could produce disproportionate losses. o In a down market, certain securities and derivatives could become harder to value or to sell at a fair price. ================================================================================ YOUR EXPENSES [Clip Art] Transaction expenses are charged directly to your account. Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. - -------------------------------------------------------------------------------- Shareholder transaction expenses(1) Class A Class B Class C - -------------------------------------------------------------------------------- Maximum sales charge (load) 4.50% 5.00% 2.00% Maximum front-end sales charge (load) on purchases as a % of purchase price 4.50% none 1.00% Maximum deferred sales charge (load) as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00% - -------------------------------------------------------------------------------- Annual operating expenses Class A Class B Class C - -------------------------------------------------------------------------------- Management fee 0.60% 0.60% 0.60% Distribution and service (12b-1) fees 0.25% 1.00% 1.00% Other expenses 0.23% 0.23% 0.23% Total fund operating expenses 1.08% 1.83% 1.83% The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- Class A $555 $778 $1,019 $1,708 Class B with redemption $686 $876 $1,190 $1,951 Class B without redemption $186 $576 $990 $1,951 Class C with redemption $383 $670 $1,080 $2,226 Class C without redemption $284 $670 $1,080 $2,226 (1) A $4.00 fee will be charged for wire redemptions. (2) Except for investments of $1 million or more; see "How sales charges are calculated." ================================================================================ PORTFOLIO MANAGERS Barry H. Evans, CFA Joined fund team in 1998 Dianne Sales, CFA Joined fund team in 1995 Cynthia M. Brown Joined fund team in 2000 See page 22 for the management biographies. FUND CODES Class A Ticker JHTFX CUSIP 41013Y302 Newspaper HiYTxFA SEC number 811-5968 JH fund number 59 Class B Ticker TSHTX CUSIP 41013Y401 Newspaper HiYTxFB SEC number 811-5968 JH fund number 159 Class C Ticker JCTFX CUSIP 41013Y500 Newspaper -- SEC number 811-5968 JH fund number 559 7 Massachusetts Tax-Free Income Fund GOAL AND STRATEGY [Clip Art] The fund seeks a high level of current income, consistent with preservation of capital, that is exempt from federal and Massachusetts personal income taxes. In pursuing this goal, the fund normally invests at least 80% of its assets in securities of any maturity exempt from federal and Massachusetts personal income taxes. Most of these securities have credit ratings of A or higher when purchased, but the fund may invest up to 33.3% of assets in securities rated as low as BB/Ba and their unrated equivalents. Bonds that are in or below the BB/Ba category are considered junk bonds. In managing the portfolio, the management team uses top-down research to assess general credit trends and identify promising market sectors. To select securities for long-term investment, the team uses a strategy designed to find undervalued bonds, based on research into specific municipal issuers, their creditworthiness and the structure of their bonds. The management team commonly seeks out revenue bonds, which are repaid from income tied to specific facilities such as power plants. The team also favors bonds with limitations on whether they can be called, or redeemed, by the issuer before maturity. This enables the team to minimize the effect of declining interest rates on the fund's income. The fund is non-diversified and may invest more than 5% of assets in securities of a single issuer. The fund may make limited use of certain derivatives (investments whose value is based on indexes or other securities), especially in managing its exposure to interest rate risk. In abnormal circumstances, the fund may temporarily invest more than 20% of its assets in taxable investment-grade short-term securities. In these and other cases, the fund might not achieve its goal. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. The average annual figures reflect sales charges; the year-by-year and index figures do not, and would be lower if they did. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Class A, total returns 2002 total return as of 6-30-02: 4.28% Best quarter: Q1 '95, 6.69% Worst quarter: Q1 '94, -6.07% After-tax returns After-tax returns are shown for Class A shares only and would be different for the other classes. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Lehman Brothers Municipal Bond Index, an unmanaged index of municipal bonds. *As of 9-30-96. - -------------------------------------------------------------------------------- Class A calendar year total returns (without sales charges) - -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 9.50% 12.71% -5.51% 16.36% 4.27% 9.34% 7.06% -4.24% 11.74% 4.35% - -------------------------------------------------------------------------------- Average annual total returns (including sales charge) for periods ending 12-31-01 - -------------------------------------------------------------------------------- 1 year 5 year 10 year Life of Life of Class B Class C Class A before tax -0.35% 4.54% 5.85% -- -- Class A after tax on distributions -0.35% 4.53% 5.78% -- -- Class A after tax on distributions, with sale 1.58% 4.66% 5.76% -- -- Class B before tax (began 10-3-96) -1.36% 4.43% -- 4.86% -- Class C before tax (began 4-1-99) 1.62% -- -- -- 2.83% - -------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index 5.13% 5.98% 6.63% 5.98%* 4.87% 8 MAIN RISKS [Clip Art] The major factor in this fund's performance is interest rates. When interest rates rise, bond prices generally fall. Generally, an increase in the fund's average maturity will make it more sensitive to interest rate risk. There is no limit on the fund's average maturity. Because the fund invests primarily in Massachusetts issuers, its performance is affected by local, state and regional factors. These may include economic or policy changes, erosion of the tax base, state legislative changes (especially those affecting taxes) and the possibility of credit problems. The fund could lose money if any bonds it owns are downgraded in credit rating or go into default. In general, lower-rated bonds have higher credit risks. If certain sectors or investments do not perform as the fund expects, it could underperform its peers or lose money. To the extent that the fund invests in securities with additional risks, these risks could increase volatility or reduce performance: o Revenue bonds could be downgraded or go into default if revenues from their underlying facilities decline, causing the fund to lose money. o If the fund invests heavily in a single issuer, its performance could suffer significantly from adverse events affecting that issuer. o Junk bonds could make the fund more sensitive to market or economic shifts. o Certain derivatives could produce disproportionate losses. o In a down market, certain securities and derivatives could become harder to value or to sell at a fair price. ================================================================================ YOUR EXPENSES [Clip Art] Transaction expenses are charged directly to your account. Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. - -------------------------------------------------------------------------------- Shareholder transaction expenses(1) Class A Class B Class C - -------------------------------------------------------------------------------- Maximum sales charge (load) 4.50% 5.00% 2.00% Maximum front-end sales charge (load) on purchases as a % of purchase price 4.50% none 1.00% Maximum deferred sales charge (load) as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00% - -------------------------------------------------------------------------------- Annual operating expenses Class A Class B Class C - -------------------------------------------------------------------------------- Management fee 0.50% 0.50% 0.50% Distribution and service (12b-1) fees 0.30% 1.00% 1.00% Other expenses 0.25% 0.25% 0.25% Total fund operating expenses 1.05% 1.75% 1.75% The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- Class A $552 $769 $1,003 $1,675 Class B with redemption $678 $851 $1,149 $1,878 Class B without redemption $178 $551 $949 $1,878 Class C with redemption $375 $646 $1,039 $2,142 Class C without redemption $276 $646 $1,039 $2,142 (1) A $4.00 fee will be charged for wire redemptions. (2) Except for investments of $1 million or more; see "How sales charges are calculated." ================================================================================ PORTFOLIO MANAGERS Barry H. Evans, CFA Joined fund team in 1998 Dianne Sales, CFA Joined fund team in 1995 Cynthia M. Brown Joined fund team in 2000 See page 22 for the management biographies. FUND CODES Class A Ticker JHMAX CUSIP 410229207 Newspaper MATxFA SEC number 811-5079 JH fund number 77 Class B Ticker JHMBX CUSIP 410229405 Newspaper -- SEC number 811-5079 JH fund number 177 Class C Ticker JMACX CUSIP 410229603 Newspaper -- SEC number 811-5079 JH fund number 577 9 New York Tax-Free Income Fund GOAL AND STRATEGY [Clip Art] The fund seeks a high level of current income consistent with preservation of capital that is exempt from federal, New York State and New York City personal income taxes. In pursuing this goal, the fund normally invests at least 80% of its assets in securities of any maturity exempt from federal and New York personal income taxes. Most of these securities have credit ratings of A or higher when purchased, but the fund may invest up to 33.3% of assets in bonds rated as low as BB/Ba and their unrated equivalents. Bonds that are in or below the BB/Ba category are considered junk bonds. In managing the portfolio, the management team uses top-down research to assess general credit trends and identify promising market sectors. To select securities for long-term investment, the team uses a strategy designed to find undervalued bonds, based on research into specific municipal issuers, their creditworthiness and the structure of their bonds. The management team commonly seeks out revenue bonds, which are repaid from income tied to specific facilities such as power plants. The team also favors bonds with limitations on whether they can be called, or redeemed, by the issuer before maturity. This enables the team to minimize the effect of declining interest rates on the fund's income. The fund is non-diversified and may invest more than 5% of assets in securities of a single issuer. The fund may make limited use of certain derivatives (investments whose value is based on indexes or other securities), especially in managing its exposure to interest rate risk. In abnormal circumstances, the fund may temporarily invest more than 20% of its assets in taxable investment-grade short-term securities. In these and other cases, the fund might not achieve its goal. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. The average annual figures reflect sales charges; the year-by-year and index figures do not, and would be lower if they did. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Class A, total returns 2002 total return as of 6-30-02: 4.42% Best quarter: Q1 '95, 6.65% Worst quarter: Q1 '94, -5.54% After-tax returns After-tax returns are shown for Class A shares only and would be different for the other classes. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Lehman Brothers Municipal Bond Index, an unmanaged index of municipal bonds. *As of 9-30-96. - -------------------------------------------------------------------------------- Class A calendar year total returns (without sales charges) - -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 9.45% 13.78% -6.48% 17.09% 3.65% 9.50% 6.28% -4.39% 13.10% 3.80% - -------------------------------------------------------------------------------- Average annual total returns (including sales charge) for periods ending 12-31-01 - -------------------------------------------------------------------------------- 1 year 5 year 10 year Life of Life of Class B Class C Class A before tax -0.84% 4.52% 5.84% -- -- Class A after tax on distributions -0.84% 4.47% 5.75% -- -- Class A after tax on distributions, with sale 1.27% 4.62% 5.74% -- -- Class B before tax (began 10-3-96) -1.89% 4.41% -- 4.73% -- Class C before tax (began 4-1-99) 1.08% -- -- -- 3.06% - -------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index 5.13% 5.98% 6.63% 5.98%* 4.87% 10 MAIN RISKS [Clip Art] The major factor in this fund's performance is interest rates. When interest rates rise, bond prices generally fall. Generally, an increase in the fund's average maturity will make it more sensitive to interest rate risk. There is no limit on the fund's average maturity. Because the fund invests primarily in New York issuers, its performance is affected by local, state and regional factors. These may include economic or policy changes, erosion of the tax base, state legislative changes (especially those affecting taxes) and the legacy of past credit problems of New York City and other issuers. The fund could lose money if any bonds it owns are downgraded in credit rating or go into default. In general, lower-rated bonds have higher credit risks. If certain sectors or investments do not perform as the fund expects, it could under-perform its peers or lose money. To the extent that the fund invests in securities with additional risks, these risks could increase volatility or reduce performance: o Revenue bonds could be downgraded or go into default if revenues from their underlying facilities decline, causing the fund to lose money. o Junk bonds could make the fund more sensitive to market or economic shifts. o If the fund invests heavily in a single issuer, its performance could suffer significantly from adverse events affecting that issuer. o Certain derivatives could produce disproportionate losses. o In a down market, certain securities and derivatives could become harder to value or to sell at a fair price. ================================================================================ YOUR EXPENSES [Clip Art] Transaction expenses are charged directly to your account. Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. - -------------------------------------------------------------------------------- Shareholder transaction expenses(1) Class A Class B Class C - -------------------------------------------------------------------------------- Maximum sales charge (load) 4.50% 5.00% 2.00% Maximum front-end sales charge (load) on purchases as a % of purchase price 4.50% none 1.00% Maximum deferred sales charge (load) as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00% - -------------------------------------------------------------------------------- Annual operating expenses Class A Class B Class C - -------------------------------------------------------------------------------- Management fee 0.50% 0.50% 0.50% Distribution and service (12b-1) fees 0.30% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% Total fund operating expenses 1.11% 1.81% 1.81% The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- Class A $558 $787 $1,034 $1,741 Class B with redemption $684 $869 $1,180 $1,943 Class B without redemption $184 $569 $980 $1,943 Class C with redemption $381 $664 $1,070 $2,205 Class C without redemption $282 $664 $1,070 $2,205 (1) A $4.00 fee will be charged for wire redemptions. (2) Except for investments of $1 million or more; see "How sales charges are calculated." ================================================================================ PORTFOLIO MANAGERS Barry H. Evans, CFA Joined fund team in 1998 Dianne Sales, CFA Joined fund team in 1995 Cynthia M. Brown Joined fund team in 2000 See page 22 for the management biographies. FUND CODES Class A Ticker JHNYX CUSIP 410229306 Newspaper NYTxFA SEC number 811-5079 JH fund number 76 Class B Ticker JNTRX CUSIP 410229504 Newspaper -- SEC number 811-5079 JH fund number 176 Class C Ticker JNYCX CUSIP 410229702 Newspaper -- SEC number 811-5079 JH fund number 576 11 Tax-Free Bond Fund GOAL AND STRATEGY [Clip Art] The fund seeks as high a level of interest income exempt from federal income tax as is consistent with preservation of capital. In pursuing this goal, the fund normally invests at least 80% of its assets in tax-exempt debt obligations of any maturity. Most of these bonds are investment-grade when purchased, but the fund may also invest up to 35% of assets in junk bonds rated BB/Ba or B and their unrated equivalents. In managing the portfolio, the management team uses top-down research to assess general credit trends and identify promising market sectors. To select securities for long-term investment, the management team uses a strategy designed to find undervalued bonds, based on research into specific municipal issuers, their creditworthiness and the structure of their bonds. The management team commonly seeks out revenue bonds, which are repaid from income tied to specific facilities such as power plants. The fund may invest up to 25% of assets in private activity bonds. The management team also favors bonds with limitations on whether they can be called, or redeemed by the issuer before maturity. This enables the team to minimize the effect of declining interest rates on the fund's income. The fund may make limited use of certain derivatives (investments whose value is based on indexes or other securities), especially in managing its exposure to interest rate risk. In abnormal circumstances, the fund may temporarily invest more than 20% of its assets in taxable investment-grade short-term securities. In these and other cases, the fund might not achieve its goal. ================================================================================ PAST PERFORMANCE [Clip Art] The graph shows how the fund's total return has varied from year to year, while the table shows performance over time (along with a broad-based market index for reference). This information may help provide an indication of the fund's risks. The average annual figures reflect sales charges; the year-by-year and index figures do not, and would be lower if they did. All figures assume dividend reinvestment. Past performance before and after taxes does not indicate future results. Class A, total returns 2002 total return as of 6-30-02: 4.15% Best quarter: Q1 '95, 8.83% Worst quarter: Q1 `94, -7.06% After-tax returns After-tax returns are shown for Class A shares only and would be different for the other classes. They are calculated using the historical highest individual federal marginal income-tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. Index (reflects no fees or taxes) Lehman Brothers Municipal Bond Index, an unmanaged index of municipal bonds. - -------------------------------------------------------------------------------- Class A calendar year total returns (without sales charges) - -------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 10.94% 15.13% -9.26% 20.22% 4.15% 9.81% 5.50% -3.50% 10.40% 2.54% - -------------------------------------------------------------------------------- Average annual total returns (including sales charge) for periods ending 12-31-01 - -------------------------------------------------------------------------------- 1 year 5 year 10 year Life of Class C Class A before tax -2.06% 3.87% 5.78% -- Class A after tax on distributions -2.08% 3.86% 5.59% -- Class A after tax on distributions, with sale 0.76% 4.15% 5.69% -- Class B before tax -3.09% 3.71% 5.48% -- Class C before tax (began 4-1-99) -0.35% -- -- 1.83% - -------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index 5.13% 5.98% 6.63% 4.87% 12 MAIN RISKS [Clip Art] The major factors in this fund's performance are interest rates and credit risk. When interest rates rise, bond prices generally fall. Generally, an increase in the fund's average maturity will make it more sensitive to interest rate risk. There is no limit on the fund's average maturity. Junk bonds may make the fund more sensitive to market or economic shifts. The fund could lose money if any bonds it owns are downgraded in credit rating or go into default. If certain sectors or investments do not perform as the fund expects, it could underperform its peers or lose money. To the extent that the fund invests in other securities with additional risks, these risks could increase volatility or reduce performance: o If the fund invests heavily in securities from a given state or region, its performance could be disproportionately affected by political or demographic factors in that state or region. o Revenue bonds could be downgraded or go into default if revenues from their underlying facilities decline, causing the fund to lose money. o Certain derivatives could produce disproportionate losses. o In a down market, certain securities and derivatives could become harder to value or to sell at a fair price. ================================================================================ YOUR EXPENSES [Clip Art] Transaction expenses are charged directly to your account. Operating expenses are paid from the fund's assets, and therefore are paid by shareholders indirectly. - -------------------------------------------------------------------------------- Shareholder transaction expenses(1) Class A Class B Class C - -------------------------------------------------------------------------------- Maximum sales charge (load) 4.50% 5.00% 2.00% Maximum front-end sales charge (load) on purchases as a % of purchase price 4.50% none 1.00% Maximum deferred sales charge (load) as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00% - -------------------------------------------------------------------------------- Annual operating expenses(3) Class A Class B Class C - -------------------------------------------------------------------------------- Management fee 0.54% 0.54% 0.54% Distribution and service (12b-1) fees 0.25% 1.00% 1.00% Other expenses 0.20% 0.20% 0.20% Total fund operating expenses 0.99% 1.74% 1.74% The hypothetical example below shows what your expenses would be if you invested $10,000 over the time frames indicated, assuming you reinvested all distributions and that the average annual return was 5%. The example is for comparison only, and does not represent the fund's actual expenses and returns, either past or future. - -------------------------------------------------------------------------------- Expenses Year 1 Year 3 Year 5 Year 10 - -------------------------------------------------------------------------------- Class A $546 $751 $972 $1,608 Class B with redemption $677 $848 $1,144 $1,853 Class B without redemption $177 $548 $944 $1,853 Class C with redemption $374 $643 $1,034 $2,131 Class C without redemption $275 $643 $1,034 $2,131 (1) A $4.00 fee will be charged for wire redemptions. (2) Except for investments of $1 million or more; see "How sales charges are calculated." (3) Voluntary reduction of distribution and service (12b-1) fees was terminated 12-31-01. ================================================================================ PORTFOLIO MANAGERS Barry H. Evans, CFA Joined fund team in 1998 Dianne Sales, CFA Joined fund team in 1995 Cynthia M. Brown Joined fund team in 2000 See page 22 for the management biographies. FUND CODES Class A Ticker TAMBX CUSIP 41013Y104 Newspaper TFBdA SEC number 811-5968 JH fund number 52 Class B Ticker TSMBX CUSIP 41013Y203 Newspaper TFBdB SEC number 811-5968 JH fund number 152 Class C Ticker TBMBX CUSIP 41013Y609 Newspaper -- SEC number 811-5968 JH fund number 552 13 Your account - -------------------------------------------------------------------------------- CHOOSING A SHARE CLASS Each share class has its own cost structure, including a Rule 12b-1 plan that allows it to pay fees for the sale, distribution and service of its shares. Your financial representative can help you decide which share class is best for you. - -------------------------------------------------------------------------------- Class A - -------------------------------------------------------------------------------- o A front-end sales charge, as described below. o Distribution and service (12b-1) fees of 0.15% for California Tax-Free Income, 0.25% for High Yield Municipal Bond and Tax-Free Bond, and 0.30% for Massachusetts Tax-Free Income and New York Tax-Free Income. - -------------------------------------------------------------------------------- Class B - -------------------------------------------------------------------------------- o No front-end sales charge; all your money goes to work for you right away. o Distribution and service (12b-1) fees of 1.00%. o A deferred sales charge, as described at right. o Automatic conversion to Class A shares after eight years, thus reducing future annual expenses. - -------------------------------------------------------------------------------- Class C - -------------------------------------------------------------------------------- o A front-end sales charge, as described at right. o Distribution and service (12b-1) fees of 1.00%. o A 1.00% contingent deferred sales charge on shares sold within one year of purchase. o No automatic conversion to Class A shares, so annual expenses continue at the Class C level throughout the life of your investment. For actual past expenses of each share class, see the fund-by-fund information earlier in this prospectus. Because 12b-1 fees are paid on an ongoing basis, they may cost shareholders more than other types of sales charges. Investors purchasing $1 million or more of Class B or Class C shares may want to consider the lower operating expenses of Class A shares. Your broker/dealer receives a percentage of these sales charges and fees. In addition, John Hancock Funds may pay significant compensation out of its own resources to your broker/dealer. Your broker/dealer or agent may charge you a fee to effect transactions in fund shares. - -------------------------------------------------------------------------------- HOW SALES CHARGES ARE CALCULATED Class A and Class C Sales charges are as follows: - -------------------------------------------------------------------------------- Class A sales charges - -------------------------------------------------------------------------------- As a % of As a % of your Your investment offering price investment Up to $99,999 4.50% 4.71% $100,000 - $249,999 3.75% 3.90% $250,000 - $499,999 3.00% 3.09% $500,000 - $999,999 2.00% 2.04% $1,000,000 and over See next column - -------------------------------------------------------------------------------- Class C sales charges - -------------------------------------------------------------------------------- As a % of As a % of your Your investment offering price investment Up to $1,000,000 1.00% 1.01% $1,000,000 and over none Investments of $1 million or more Class A and Class C shares are available with no front-end sales charge. However, there is a contingent deferred sales charge (CDSC) on any Class A shares sold within one year of purchase, as follows: - -------------------------------------------------------------------------------- CDSC on $1 million+ investments - -------------------------------------------------------------------------------- CDSC on shares Your investment being sold First $1M - $4,999,999 1.00% Next $1 - $5M above that 0.50% Next $1 or more above that 0.25% For purposes of this CDSC, all purchases made during a calendar month are counted as having been made on the first day of that month. The CDSC is based on the lesser of the original purchase cost or the current market value of the shares being sold, and is not charged on shares you acquired by reinvesting your dividends. To keep your CDSC as low as possible, each time you place a request to sell shares, we will first sell any shares in your account that are not subject to a CDSC. Class B Shares are offered at their net asset value per share, without any initial sales charge. Class B and Class C A CDSC may be charged if you sell Class B or Class C shares within a certain time after you bought them, as described in the tables below. There is no CDSC on shares acquired through reinvestment of dividends. The CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. The CDSCs are as follows: - -------------------------------------------------------------------------------- Class B deferred charges - -------------------------------------------------------------------------------- Years after CDSC on shares purchase being sold 1st year 5.00% 2nd year 4.00% 3rd year 3.00% 4th year 3.00% 5th year 2.00% 6th year 1.00% After 6th year none - -------------------------------------------------------------------------------- Class C deferred charges - -------------------------------------------------------------------------------- Years after purchase CDSC 1st year 1.00% After 1st year none For purposes of these CDSCs, all purchases made during a calendar month are counted as having been made on the first day of that month. 14 YOUR ACCOUNT CDSC calculations are based on the number of shares involved, not on the value of your account. To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that carry no CDSC. If there are not enough of these to meet your request, we will sell those shares that have the lowest CDSC. - -------------------------------------------------------------------------------- SALES CHARGE REDUCTIONS AND WAIVERS Reducing your Class A sales charges There are several ways you can combine multiple purchases of Class A shares of John Hancock funds to take advantage of the breakpoints in the sales charge schedule. The first three ways can be combined in any manner. o Accumulation Privilege -- lets you add the value of any Class A shares you already own to the amount of your next Class A investment for purposes of calculating the sales charge. Retirement plans investing $1 million in Class B shares may add that value to Class A purchases to calculate charges. o Letter of Intention -- lets you purchase Class A shares of a fund over a 13-month period and receive the same sales charge as if all shares had been purchased at once. o Combination Privilege -- lets you combine Class A shares of multiple funds for purposes of calculating the sales charge. To utilize: complete the appropriate section of your application, or contact your financial representative or Signature Services, or consult the SAI (see the back cover of this prospectus). Group Investment Program A group may be treated as a single purchaser under the accumulation and combination privileges. Each investor has an individual account, but the group's investments are lumped together for sales charge purposes, making the investors potentially eligible for reduced sales charges. There is no charge or obligation to invest (although initial investments must total at least $250), and individual investors may close their accounts at any time. To utilize: contact your financial representative or Signature Services to find out how to qualify, or consult the SAI (see the back cover of this prospectus). CDSC waivers As long as Signature Services is notified at the time you sell, the CDSC for each share class will generally be waived in the following cases: o to make payments through certain systematic withdrawal plans o to make certain distributions from a retirement plan o because of shareholder death or disability To utilize: if you think you may be eligible for a CDSC waiver, contact your financial representative or Signature Services, or consult the SAI (see the back cover of this prospectus). Reinstatement privilege If you sell shares of a John Hancock fund, you may reinvest some or all of the proceeds in the same share class of any John Hancock fund within 120 days without a sales charge, as long as Signature Services is notified before you reinvest. If you paid a CDSC when you sold your shares, you will be credited with the amount of the CDSC. All accounts involved must have the same registration. To utilize: contact your financial representative or Signature Services. Waivers for certain investors Class A shares may be offered without front-end sales charges or CDSCs to various individuals and institutions, including: o selling brokers and their employees and sales representatives o financial representatives utilizing fund shares in fee-based investment products under signed agreement with John Hancock Funds o fund trustees and other individuals who are affiliated with these or other John Hancock funds o individuals transferring assets from an employee benefit plan into a John Hancock fund o participants in certain retirement plans with at least 100 eligible employees (one-year CDSC applies) Class C shares may be offered without front-end sales charges to various individuals and institutions. To utilize: if you think you may be eligible for a sales charge waiver, contact Signature Services or consult the SAI (see the back cover of this prospectus). - -------------------------------------------------------------------------------- OPENING AN ACCOUNT 1 Read this prospectus carefully. 2 Determine how much you want to invest. The minimum initial investments for the John Hancock funds are as follows: o non-retirement account: $1,000 o group investments: $250 o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at least $25 a month o fee-based clients of selling brokers who have placed at least $2 billion in John Hancock funds: $250 3 Complete the appropriate parts of the account application, carefully following the instructions. You must submit additional documentation when opening a trust, corporate or power of attorney accounts. You must notify your financial representative or Signature Services if this information changes. For more details, please contact your financial representative or call Signature Services at 1-800-225-5291. 4 Complete the appropriate parts of the account privileges application. By applying for privileges now, you can avoid the delay and inconvenience of having to file an additional application if you want to add privileges later. 5 Make your initial investment using the table on the next page. You and your financial representative can initiate any purchase, exchange or sale of shares. YOUR ACCOUNT 15 - -------------------------------------------------------------------------------- Buying shares - -------------------------------------------------------------------------------- Opening an account Adding to an account By check [Clip Art] o Make out a check for the o Make out a check for the investment amount, payable to investment amount payable to "John Hancock Signature "John Hancock Signature Services, Inc." Services, Inc." o Deliver the check and your o Fill out the detachable completed application to your investment slip from an financial representative, or account statement. If no slip mail them to Signature is available, include a note Services (address below). specifying the fund name, your share class, your account number and the name(s) in which the account is registered. o Deliver the check and your investment slip or note to your financial representative, or mail them to Signature Services (address below). By exchange [Clip Art] o Call your financial o Log on to www.jhfunds.com to representative or Signature process exchanges between Services to request an funds. exchange. o Call EASI-Line for automated service 24 hours a day using your touch tone phone at 1-800-338-8080. o Call your financial representative or Signature Services to request an exchange. By wire [Clip Art] o Deliver your completed o Instruct your bank to wire the application to your financial amount of your investment to: representative, or mail it to First Signature Bank & Trust Signature Services. Account # 900000260 Routing # 211475000 o Obtain your account number by calling your financial Specify the fund name, your representative or Signature share class, your account number Services. and the name(s) in which the account is registered. Your bank o Instruct your bank to wire may charge a fee to wire funds. the amount of your investment to: First Signature Bank & Trust Account # 900000260 Routing # 211475000 Specify the fund name, your choice of share class, the new account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds. By Internet [Clip Art] See "By exchange" and "By o Verify that your bank or wire." credit union is a member of the Automated Clearing House (ACH) system. o Complete the "Bank Information" section on your account application. o Log on to www.jhfunds.com to initiate purchases using your authorized bank account. By phone [Clip Art] See "By exchange" and "By o Verify that your bank or wire." credit union is a member of the Automated Clearing House (ACH) system. o Complete the "Bank Information" section on your account application. o Call EASI-Line for automated service 24 hours a day using your touch-tone phone at 1-800-338-8080. o Call your financial representative or Signature Services between 8 A.M. and 4 P.M. Eastern Time on most business days. To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services." - --------------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 Phone Number: 1-800-225-5291 Or contact your financial representative for instructions and assistance. - --------------------------------------------- 16 YOUR ACCOUNT - -------------------------------------------------------------------------------- Selling shares - -------------------------------------------------------------------------------- Designed for To sell some or all of your shares By letter [Clip Art] o Accounts of any type. o Write a letter of instruction or complete a stock power o Sales of any amount. indicating the fund name, your share class, your account number, the name(s) in which the account is registered and the dollar value or number of shares you wish to sell. o Include all signatures and any additional documents that may be required (see next page). o Mail the materials to Signature Services. o A check will be mailed to the name(s) and address in which the account is registered, or otherwise according to your letter of instruction. By Internet [Clip Art] o Most accounts. o Log on to www.jhfunds.com to initiate redemptions from your o Sales of up to $100,000. funds. By phone [Clip Art] o Most accounts. o Call EASI-Line for automated service 24 hours a day using o Sales of up to $100,000. your touch tone phone at 1-800-338-8080. o Call your financial representative or Signature Services between 8 A.M. and 4 P.M. Eastern Time on most business days. By wire or electronic funds transfer (EFT) [Clip Art] o Requests by letter to sell o To verify that the Internet or any amount. telephone redemption privilege is in place on an account, or to o Requests by Internet or request the form to add it to an phone to sell up to existing account, call Signature $100,000. Services. o Amounts of $1,000 or more will be wired on the next business day. A $4 fee will be deducted from your account. o Amounts of less than $1,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service. By exchange [Clip Art] o Accounts of any type. o Obtain a current prospectus for the fund into which you are o Sales of any amount. exchanging by Internet or by calling your financial representative or Signature Services. o Log on to www.jhfunds.com to process exchanges between your funds. o Call EASI-Line for automated service 24 hours a day using your touch tone phone at 1-800-338-8080. o Call your financial representative or Signature Services to request an exchange. YOUR ACCOUNT 17 Selling shares in writing In certain circumstances, you will need to make your request to sell shares in writing. You may need to include additional items with your request, unless they were previously provided to Signature Services and are still accurate. These items are shown in the table below. You may also need to include a signature guarantee, which protects you against fraudulent orders. You will need a signature guarantee if: o your address of record has changed within the past 30 days o you are selling more than $100,000 worth of shares o you are requesting payment other than by a check mailed to the address of record and payable to the registered owner(s) You will need to obtain your signature guarantee from a member of the Signature Guarantee Medallion Program. Most brokers and securities dealers are members of this program. A notary public CANNOT provide a signature guarantee. - -------------------------------------------------------------------------------- Seller Requirements for written requests - -------------------------------------------------------------------------------- [Clip Art] Owners of individual, joint or o Letter of instruction. UGMA/UTMA accounts (custodial accounts for minors). o On the letter, the signatures of all persons authorized to sign for the account, exactly as the account is registered. o Signature guarantee if applicable (see above). Owners of corporate, sole o Letter of instruction. proprietorship, general partner or association accounts. o Corporate business/organization resolution, certified within the past 12 months, or a John Hancock Funds business/organization certification form. o On the letter and the resolution, the signature of the person(s) authorized to sign for the account. o Signature guarantee if applicable (see above). Owners or trustees of trust o Letter of instruction. accounts. o On the letter, the signature(s) of the trustee(s). o Copy of the trust document certified within the past 12 months or a John Hancock Funds trust certification form. o Signature guarantee if applicable (see above). Joint tenancy shareholders with o Letter of instruction signed by surviving rights of survivorship whose tenant. co-tenants are deceased. o Copy of death certificate. o Signature guarantee if applicable (see above). Executors of shareholder o Letter of instruction signed by executor. estates. o Copy of order appointing executor, certified within the past 12 months. o Signature guarantee if applicable (see above). Administrators, conservators, o Call 1-800-225-5291 for instructions. guardians and other sellers or account types not listed above. To sell shares through a systematic withdrawal plan, see "Additional investor services." - --------------------------------------------- Address: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 Phone Number: 1-800-225-5291 Or contact your financial representative for instructions and assistance. - --------------------------------------------- 18 YOUR ACCOUNT - -------------------------------------------------------------------------------- TRANSACTION POLICIES Valuation of shares The net asset value (NAV) per share for each fund and class is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4 P.M. Eastern Time). The funds use market prices in valuing portfolio securities, but may use fair-value estimates if reliable market prices are unavailable. Buy and sell prices When you buy shares, you pay the NAV plus any applicable sales charges, as described earlier. When you sell shares, you receive the NAV minus any applicable deferred sales charges. Execution of requests Each fund is open on those days when the New York Stock Exchange is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after Signature Services receives your request in good order. At times of peak activity, it may be difficult to place requests by phone. During these times, consider using EASI-Line, accessing www.jhfunds.com, or sending your request in writing. In unusual circumstances, any fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to three business days or longer, as allowed by federal securities laws. Telephone transactions For your protection, telephone requests may be recorded in order to verify their accuracy. Also for your protection, telephone redemption transactions are not permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from telephone transactions can only be mailed to the address of record. Exchanges You may exchange shares of one John Hancock fund for shares of the same class of any other, generally without paying any additional sales charges. The registration for both accounts involved must be identical. Class B and Class C shares will continue to age from the original date and will retain the same CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will increase. A CDSC rate that has increased will drop again with a future exchange into a fund with a lower rate. To protect the interests of other investors in the fund, a fund may cancel the exchange privileges of any parties who, in the opinion of the fund, are using market timing strategies or making more than seven exchanges per owner or controlling party per calendar year. A fund may also refuse any exchange order. A fund may change or cancel its exchange policies at any time, upon 60 days' notice to its shareholders. Certificated shares The funds no longer issue share certificates. Shares are electronically recorded. Any existing certificated shares can only be sold by returning the certificated shares to Signature Services, along with a letter of instruction or a stock power and a signature guarantee. Sales in advance of purchase payments When you place a request to sell shares for which the purchase money has not yet been collected, the request will be executed in a timely fashion, but the fund will not release the proceeds to you until your purchase payment clears. This may take up to ten business days after the purchase. Eligibility by state You may only invest in, or exchange into, fund shares legally available in your state. - -------------------------------------------------------------------------------- DIVIDENDS AND ACCOUNT POLICIES Account statements In general, you will receive account statements as follows: o after every transaction (except a dividend reinvestment) that affects your account balance o after any changes of name or address of the registered owner(s) o in all other circumstances, every quarter Every year you should also receive, if applicable, a Form 1099 tax information statement, mailed by January 31. Dividends The funds generally declare dividends daily and pay them monthly. Capital gains, if any, are distributed annually, typically after the end of a fund's fiscal year. Most of these funds' dividends are income dividends. Your dividends begin accruing the day after payment is received by the fund and continue through the day your shares are actually sold. Dividend reinvestments Most investors have their dividends reinvested in additional shares of the same fund and class. If you choose this option, or if you do not indicate any choice, your dividends will be reinvested on the dividend record date. Alternatively, you can choose to have a check for your dividends and capital gains in the amount of more than $10 mailed to you. However, if the check is not deliverable or the combined dividend and capital gains amount is $10 or less, your proceeds will be reinvested. If five or more of your YOUR ACCOUNT 19 dividend or capital gains checks remain uncashed after 180 days, all subsequent dividends and capital gains will be reinvested. Taxability of dividends Each fund intends to meet certain federal tax requirements so that distributions of the tax-exempt interest it earns may be treated as "exempt-interest dividends." However, any portion of exempt-interest dividends attributable to interest on private activity bonds may increase certain shareholders' alternative minimum tax. Dividends from a fund's short-term capital gains are taxable as ordinary income. Dividends from a fund's long-term capital gains are taxable at a lower rate. Whether gains are short-term or long-term depends on the fund's holding period. Taxable dividends paid in January may be taxable as if they had been paid the previous December. The state tax-free income funds intend to comply with certain state tax requirements so that their income dividends will generally be exempt from state and local personal income taxes in the applicable state. Dividends of the other tax-free income funds are generally not exempt from state and local income taxes. The tax information that is mailed to you every January details your dividends and their federal tax category, although you should verify your tax liability with your tax professional. Taxability of transactions Any time you sell or exchange shares, it is considered a taxable event for you. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions. Small accounts (non-retirement only) If you draw down a non-retirement account so that its total value is less than $1,000, you may be asked to purchase more shares within 30 days. If you do not take action, your fund may close out your account and mail you the proceeds. Alternatively, Signature Services may charge you $10 a year to maintain your account. You will not be charged a CDSC if your account is closed for this reason, and your account will not be closed if its drop in value is due to fund performance or the effects of sales charges. - -------------------------------------------------------------------------------- ADDITIONAL INVESTOR SERVICES Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular investments from your paycheck or bank account to the John Hancock fund(s) of your choice. You determine the frequency and amount of your investments, and you can terminate your program at any time. To establish: o Complete the appropriate parts of your account application. o If you are using MAAP to open an account, make out a check ($25 minimum) for your first investment amount payable to "John Hancock Signature Services, Inc." Deliver your check and application to your financial representative or Signature Services. Systematic withdrawal plan This plan may be used for routine bill payments or periodic withdrawals from your account. To establish: o Make sure you have at least $5,000 worth of shares in your account. o Make sure you are not planning to invest more money in this account (buying shares during a period when you are also selling shares of the same fund is not advantageous to you, because of sales charges). o Specify the payee(s). The payee may be yourself or any other party, and there is no limit to the number of payees you may have, as long as they are all on the same payment schedule. o Determine the schedule: monthly, quarterly, semi-annually, annually or in certain selected months. o Fill out the relevant part of the account application. To add a systematic withdrawal plan to an existing account, contact your financial representative or Signature Services. Retirement plans John Hancock Funds offers a range of retirement plans, including traditional, Roth and Education IRAs, SIMPLE plans and SEPs. Using these plans, you can invest in any John Hancock fund (except tax-free income funds) with a low minimum investment of $250 or, for some group plans, no minimum investment at all. Because of certain tax implications, tax-free income funds are not appropriate investments for quali-fied retirement plans. To find out more, call Signature Services at 1-800-225-5291. 20 YOUR ACCOUNT Fund details - -------------------------------------------------------------------------------- BUSINESS STRUCTURE The diagram below shows the basic business structure used by the John Hancock tax-free income funds. Each fund's board of trustees oversees the fund's business activities and retains the services of the various firms that carry out the fund's operations. Management fees The management fees paid to the investment adviser by the John Hancock tax-free income funds last fiscal year are as follows: - -------------------------------------------------------------------------------- Fund % of net assets - -------------------------------------------------------------------------------- California Tax-Free Income Fund 0.53% High Yield Municipal Bond Fund 0.60% Massachusetts Tax-Free Income Fund 0.42% New York Tax-Free Income Fund 0.41% Tax-Free Bond Fund 0.54% ------------ Shareholders ------------ --------------------------------- Distribution and Financial services firms and shareholder services their representatives Advise current and prospective shareholders on their fund investments, often in the context of an overall financial plan. ---------------------------------- --------------------------------------------- Principal distributor John Hancock Funds, LLC Markets the fund and distributes shares through selling brokers, financial planners and other financial representatives. --------------------------------------------- --------------------------------------------- Transfer agent John Hancock Signature Services, Inc. Handles shareholder services, including record-keeping and statements, distribution of dividends and processing of buy and sell requests. --------------------------------------------- --------------------------------------------- Investment adviser Asset management John Hancock Advisers, LLC 101 Huntington Avenue Boston, MA 02199-7603 Manages the fund's business and investment activities. --------------------------------------------- --------------------------------------------- Custodian The Bank of New York One Wall Street New York, NY 10286 Holds the fund's assets, settles all portfolio trades and collects most of the valuation data required for calculating the fund's NAV. --------------------------------------------- --------------------------------------------- Trustees Oversee the fund's activities. --------------------------------------------- FUND DETAILS 21 - -------------------------------------------------------------------------------- MANAGEMENT BIOGRAPHIES Below is an alphabetical list of the portfolio managers for the John Hancock tax-free income funds. It is a brief summary of their business careers over the past five years. Cynthia M. Brown - ------------------------------------- Joined John Hancock Advisers in 2000 Began business career in 1984 Barry H. Evans, CFA - ------------------------------------- Joined John Hancock Advisers in 1986 Senior vice president Began business career in 1986 Dianne Sales, CFA - ------------------------------------- Joined John Hancock Advisers in 1989 Vice president Began business career in 1984 22 FUND DETAILS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS These tables detail the performance of each fund's share classes, including total return information showing how much an investment in the fund has increased or decreased each year. California Tax-Free Income Fund Figures audited by Ernst & Young LLP.
CLASS A SHARES PERIOD ENDED: 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $10.36 $10.77 $11.19 $10.65 $10.69 Net investment income(1) 0.57 0.56 0.56 0.56 0.54 Net realized and unrealized gain (loss) on investments 0.41 0.42 (0.54) 0.04 0.42 Total from investment operations 0.98 0.98 0.02 0.60 0.96 Less distributions From net investment income (0.57) (0.56) (0.56) (0.56) (0.54) Net asset value, end of period $10.77 $11.19 $10.65 $10.69 $11.11 Total return(2,3) (%) 9.71 9.32 0.11 5.93 9.26 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $291 $300 $307 $306 $331 Ratio of expenses to average net assets (%) 0.75 0.75 0.75 0.75 0.80 Ratio of adjusted expenses to average net assets(4) (%) 0.82 0.83 0.82 0.84 0.82 Ratio of net investment income to average net assets (%) 5.42 5.05 5.06 5.39 5.01 Portfolio turnover (%) 15 10 3 11 14
CLASS B SHARES PERIOD ENDED: 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $10.36 $10.77 $11.19 $10.65 $10.69 Net investment income(1) 0.49 0.47 0.48 0.48 0.46 Net realized and unrealized gain (loss) on investments 0.41 0.42 (0.54) 0.04 0.42 Total from investment operations 0.90 0.89 (0.06) 0.52 0.88 Less distributions From net investment income (0.49) (0.47) (0.48) (0.48) (0.46) Net asset value, end of period $10.77 $11.19 $10.65 $10.69 $11.11 Total return(2,3) (%) 8.88 8.50 (0.63) 5.14 8.45 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $89 $99 $99 $81 $80 Ratio of expenses to average net assets (%) 1.50 1.50 1.50 1.50 1.55 Ratio of adjusted expenses to average net assets(4) (%) 1.57 1.58 1.67 1.69 1.67 Ratio of net investment income to average net assets (%) 4.66 4.29 4.31 4.64 4.26 Portfolio turnover (%) 15 10 3 11 14
FUND DETAILS 23 California Tax-Free Income Fund continued
CLASS C SHARES PERIOD ENDED: 8-31-99(5) 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.14 $10.65 $10.69 Net investment income(1) 0.18 0.47 0.45 Net realized and unrealized gain (loss) on investments (0.49) 0.04 0.42 Total from investment operations (0.31) 0.51 0.87 Less distributions From net investment income (0.18) (0.47) (0.45) Net asset value, end of period $10.65 $10.69 $11.11 Total return(2,3) (%) (2.77)(6) 5.03 8.34 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $1 $3 $4 Ratio of expenses to average net assets (%) 1.60(7) 1.60 1.65 Ratio of adjusted expenses to average net assets(4) (%) 1.67(7) 1.69 1.67 Ratio of net investment income to average net assets (%) 4.20(7) 4.54 4.16 Portfolio turnover (%) 3 11 14
(1) Based on the average of the shares outstanding at the end of each month. (2) Assumes dividend reinvestment and does not reflect the effect of sales charges. (3) Total returns would have been lower had certain expenses not been reduced during the periods shown. (4) Does not take into consideration expense reductions during the periods shown. (5) Class C shares began operations on 4-1-99. (6) Not annualized. (7) Annualized. ================================================================================ The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for Class A for the periods or years ended August 31, 1997, 1998, 1999, 2000 and 2001 would have been 9.64%, 9.26%, 0.04%, 5.84% and 9.24%, respectively. For Class B, the returns for the periods or years ended August 31, 1997, 1998, 1999, 2000 and 2001 would have been 8.81%, 8.44%, (0.80%), 4.95% and 8.33%, respectively. For Class C, the returns for the periods or years ended August 31, 1999, 2000 and 2001 would have been (2.80%), 4.94% and 8.32%, respectively. 24 FUND DETAILS High Yield Municipal Bond Fund Figures audited by Ernst & Young LLP.
CLASS A SHARES PERIOD ENDED: 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $9.16 $9.34 $9.65 $9.03 $8.60 Net investment income(1) 0.56 0.54 0.53 0.53 0.52 Net realized and unrealized gain (loss) on investments 0.18 0.31 (0.62) (0.43) 0.22 Total from investment operations 0.74 0.85 (0.09) 0.10 0.74 Less distributions From net investment income (0.56) (0.54) (0.53) (0.53) (0.52) Net asset value, end of period $9.34 $9.65 $9.03 $8.60 $8.82 Total return(2) (%) 8.29 9.34 (0.98)(3) 1.24(3) 8.88(3) - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $32 $41 $49 $47 $59 Ratio of expenses to average net assets (%) 1.06 1.00 0.98 1.05 1.05 Ratio of adjusted expenses to average net assets(4) (%) -- -- 1.00 1.08 1.08 Ratio of net investment income to average net assets (%) 6.00 5.66 5.65 6.08 6.00 Portfolio turnover (%) 51 35 39 31 49
CLASS B SHARES PERIOD ENDED: 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $9.16 $9.34 $9.65 $9.03 $8.60 Net investment income(1) 0.49 0.47 0.47 0.46 0.46 Net realized and unrealized gain (loss) on investments 0.18 0.31 (0.62) (0.43) 0.22 Total from investment operations 0.67 0.78 (0.15) 0.03 0.68 Less distributions From net investment income (0.49) (0.47) (0.47) (0.46) (0.46) Net asset value, end of period $9.34 $9.65 $9.03 $8.60 $8.82 Total return(2) (%) 7.51 8.53 (1.69)(3) 0.49(3) 8.12(3) - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $139 $131 $113 $81 $65 Ratio of expenses to average net assets (%) 1.81 1.75 1.71 1.79 1.76 Ratio of adjusted expenses to average net assets(4) (%) -- -- 1.73 1.82 1.79 Ratio of net investment income to average net assets (%) 5.28 4.92 4.93 5.34 5.30 Portfolio turnover (%) 51 35 39 31 49
FUND DETAILS 25 High Yield Municipal Bond Fund continued
CLASS C SHARES PERIOD ENDED: 8-31-99(5) 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $9.47 $9.03 $8.60 Net investment income(1) 0.18 0.46 0.45 Net realized and unrealized gain (loss) on investments (0.44) (0.43) 0.22 Total from investment operations (0.26) 0.03 0.67 Less distributions From net investment income (0.18) (0.46) (0.45) Net asset value, end of period $9.03 $8.60 $8.82 Total return(2,3) (%) (2.70)(6) 0.48 8.07 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) --(7) $1 $2 Ratio of expenses to average net assets (%) 1.74(8) 1.80 1.80 Ratio of adjusted expenses to average net assets(4) (%) 1.76(8) 1.83 1.83 Ratio of net investment income to average net assets (%) 4.84(8) 5.33 5.25 Portfolio turnover (%) 39 31 49
(1) Based on the average of the shares outstanding at the end of each month. (2) Assumes dividend reinvestment and does not reflect the effect of sales charges. (3) The total returns would have been lower had certain expenses not been reduced during the periods shown. (4) Does not take into consideration expense reductions during the periods shown. (5) Class C shares began operations on 4-1-99. (6) Not annualized. (7) Less than $500,000. (8) Annualized. ================================================================================ The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for Class A for the periods or years ended August 31, 1999, 2000 and 2001 would have been (1.00%), 1.21% and 8.04%, respectively, and for Class B would have been (1.71%), 0.46% and 8.09%, respectively, and for Class C would have been (2.71%), 0.45% and 8.04%, respectively. 26 FUND DETAILS Massachusetts Tax-Free Income Fund Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.66 $12.12 $12.60 $11.85 $11.80 Net investment income 0.66 0.66(1) 0.64(1) 0.64(1) 0.59(1) Net realized and unrealized gain (loss) on investments 0.46 0.48 (0.75) (0.05) 0.61 Total from investment operations 1.12 1.14 (0.11) 0.59 1.20 Less distributions From net investment income (0.66) (0.66) (0.64) (0.64) (0.59) Net asset value, end of period $12.12 $12.60 $11.85 $11.80 $12.41 Total return(2,3) (%) 9.85 9.66 (0.96) 5.16 10.44 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $54 $58 $58 $60 $63 Ratio of expenses to average net assets (%) 0.70 0.70 0.70 0.77 0.97 Ratio of adjusted expenses to average net assets(4) (%) 1.11 1.10 1.05 1.09 1.05 Ratio of net investment income to average net assets (%) 5.59 5.28 5.16 5.54 4.90 Portfolio turnover (%) 12 6 6 19 17
CLASS B SHARES PERIOD ENDED: 8-31-97(5) 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.84 $12.12 $12.60 $11.85 $11.80 Net investment income 0.54 0.57(1) 0.55(1) 0.56(1) 0.51(1) Net realized and unrealized gain (loss) on investments 0.28 0.48 (0.75) (0.05) 0.61 Total from investment operations 0.82 1.05 (0.20) 0.51 1.12 Less distributions From net investment income (0.54) (0.57) (0.55) (0.56) (0.51) Net asset value, end of period $12.12 $12.60 $11.85 $11.80 $12.41 Total return(2,3) (%) 7.08(6) 8.89 (1.66) 4.43 9.67 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $2 $6 $13 $14 $19 Ratio of expenses to average net assets (%) 1.40(7) 1.40 1.40 1.47 1.67 Ratio of adjusted expenses to average net assets(4) (%) 1.81(7) 1.80 1.75 1.79 1.75 Ratio of net investment income to average net assets (%) 4.82(7) 4.58 4.46 4.84 4.20 Portfolio turnover (%) 12 6 6 19 17
FUND DETAILS 27 Massachusetts Tax-Free Income Fund continued
CLASS C SHARES PERIOD ENDED: 8-31-99(5) 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $12.46 $11.85 $11.80 Net investment income(1) 0.21 0.56 0.51 Net realized and unrealized gain (loss) on investments (0.61) (0.05) 0.61 Total from investment operations (0.40) 0.51 1.12 Less distributions From net investment income (0.21) (0.56) (0.51) Net asset value, end of period $11.85 $11.80 $12.41 Total return(2,3) (%) (3.23)(6) 4.43 9.67 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) --(8) $1 $2 Ratio of expenses to average net assets (%) 1.40(7) 1.47 1.67 Ratio of adjusted expenses to average net assets(4) (%) 1.75(7) 1.79 1.75 Ratio of net investment income to average net assets (%) 4.30(7) 4.84 4.20 Portfolio turnover (%) 6 19 17
(1) Based on the average of the shares outstanding at the end of each month. (2) Assumes dividend reinvestment and does not reflect the effect of sales charges. (3) The total returns would have been lower had certain expenses not been reduced during the periods shown. (4) Does not take into consideration expense reductions during the periods shown. (5) Class B and Class C shares began operations on 10-3-96 and 4-1-99, respectively. (6) Not annualized. (7) Annualized. (8) Less than $500,000. ================================================================================ The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for Class A for the periods or years ended August 31, 1997, 1998, 1999, 2000 and 2001 would have been 9.45%, 9.27%, (1.31%), 4.84% and 10.36%, respectively. For Class B, the returns for the periods or years ended August 31, 1997, 1998, 1999, 2000 and 2001 would have been 6.72%, 8.50%, (2.01%), 4.11% and 9.59%, respectively. For Class C, the returns for the periods or years ended August 31, 1999, 2000 and 2001 would have been (3.38%), 4.11% and 9.59%, respectively. 28 FUND DETAILS New York Tax-Free Income Fund Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.83 $12.25 $12.62 $11.76 $11.82 Net investment income 0.67 0.66(1) 0.63(1) 0.61(1) 0.58(1) Net realized and unrealized gain (loss) on investments 0.42 0.37 (0.75) 0.06 0.75 Total from investment operations 1.09 1.03 (0.12) 0.67 1.33 Less distributions From net investment income (0.67) (0.66) (0.63) (0.61) (0.58) From realized gain -- -- (0.11) -- -- In excess of realized gain -- -- --(2) -- -- (0.67) (0.66) (0.74) (0.61) (0.58) Net asset value, end of period $12.25 $12.62 $11.76 $11.82 $12.57 Total return(3,4) (%) 9.48 8.64 (1.08) 5.95 11.54 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $54 $52 $48 $43 $48 Ratio of expenses to average net assets (%) 0.70 0.70 0.70 0.77 0.97 Ratio of adjusted expenses to average net assets(5) (%) 1.11 1.10 1.08 1.13 1.12 Ratio of net investment income to average net assets (%) 5.61 5.26 5.06 5.28 4.77 Portfolio turnover (%) 46 46 58 63 54
CLASS B SHARES PERIOD ENDED: 8-31-97(6) 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.99 $12.25 $12.62 $11.76 $11.82 Net investment income 0.54 0.57(1) 0.54(1) 0.53(1) 0.49(1) Net realized and unrealized gain (loss) on investments 0.26 0.37 (0.75) 0.06 0.75 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) From realized gain -- -- (0.11) -- -- In excess of realized gain -- -- --(2) -- -- (0.54) (0.57) (0.65) (0.53) (0.49) Net asset value, end of period $12.25 $12.62 $11.76 $11.82 $12.57 Total return(3,4) (%) 6.82(7) 7.88 (1.77) 5.21 10.76 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $2 $6 $8 $8 $17 Ratio of expenses to average net assets (%) 1.40(8) 1.40 1.40 1.47 1.67 Ratio of adjusted expenses to average net assets(5) (%) 1.81(8) 1.80 1.78 1.83 1.82 Ratio of net investment income to average net assets (%) 4.79(8) 4.56 4.36 4.58 4.07 Portfolio turnover (%) 46 46 58 63 54
FUND DETAILS 29 New York Tax-Free Income Fund continued
CLASS C SHARES PERIOD ENDED: 8-31-99(6) 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $12.39 $11.76 $11.82 Net investment income(1) 0.22 0.53 0.50 Net realized and unrealized gain (loss) on investments (0.63) 0.06 0.75 Total from investment operations (0.41) 0.59 1.25 Less distributions From net investment income (0.22) (0.53) (0.50) Net asset value, end of period $11.76 $11.82 $12.57 Total return(3,4) (%) (3.24)(7) 5.21 10.77 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) --(9) --(9) $1 Ratio of expenses to average net assets (%) 1.40(8) 1.47 1.67 Ratio of adjusted expenses to average net assets(5) (%) 1.78(8) 1.83 1.82 Ratio of net investment income to average net assets (%) 4.23(8) 4.58 4.07 Portfolio turnover (%) 58 63 54
(1) Based on the average of the shares outstanding at the end of each month. (2) Less than $0.01 per share. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) The total returns would have been lower had certain expenses not been reduced during the periods shown. (5) Does not take into consideration expense reductions during the periods shown. (6) Class B and Class C shares began operations on 10-3-96 and 4-1-99, respectively. (7) Not annualized. (8) Annualized. (9) Less than $500,000. ================================================================================ The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for Class A for the periods or years ended August 31, 1997, 1998, 1999, 2000 and 2001 would have been 9.08%, 8.24%, (1.46%), 5.59% and 11.39%, respectively. For Class B the returns for the periods or years ended August 31, 1997, 1998, 1999, 2000 and 2001 would have been 6.46%, 7.48%, (2.15%), 4.85% and 10.61%, respectively. For Class C, the returns for the periods or years ended August 31, 1999, 2000 and 2001 would have been (3.40%), 4.85% and 10.62%, respectively. 30 FUND DETAILS Tax-Free Bond Fund Figures audited by Ernst & Young LLP.
CLASS A SHARES PERIOD ENDED: 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $10.27 $10.63 $11.01 $10.36 $10.30 Net investment income 0.59 0.56(1) 0.56(1) 0.56(1) 0.54(1) Net realized and unrealized gain (loss) on investments 0.36 0.38 (0.65) (0.06) 0.44 Total from investment operations 0.95 0.94 (0.09) 0.50 0.98 Less distributions From net investment income (0.59) (0.56) (0.56) (0.56) (0.54) From net realized gain -- -- -- --(2) (0.02) (0.59) (0.56) (0.56) (0.56) (0.56) Net asset value, end of period $10.63 $11.01 $10.36 $10.30 $10.72 Total return(3,4) (%) 9.44 9.08 (0.93) 5.09 9.89 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $590 $601 $565 $522 $548 Ratio of expenses to average net assets (%) 0.85 0.85 0.85 0.85 0.86 Ratio of adjusted expenses to average net assets(5) (%) 0.91 0.87 0.96 1.00 0.98 Ratio of net investment income to average net assets (%) 5.61 5.16 5.14 5.53 5.22 Portfolio turnover (%) 46(6) 24 13 12 24
CLASS B SHARES PERIOD ENDED: 8-31-97 8-31-98 8-31-99 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $10.27 $10.63 $11.01 $10.36 $10.30 Net investment income 0.51 0.48(1) 0.48(1) 0.48(1) 0.47(1) Net realized and unrealized gain (loss) on investments 0.36 0.38 (0.65) (0.06) 0.44 Total from investment operations 0.87 0.86 (0.17) 0.42 0.91 Less distributions From net investment income (0.51) (0.48) (0.48) (0.48) (0.47) From net realized gain -- -- -- --(2) (0.02) (0.51) (0.48) (0.48) (0.48) (0.49) Net asset value, end of period $10.63 $11.01 $10.36 $10.30 $10.72 Total return(3,4) (%) 8.63 8.27 (1.67) 4.31 9.07 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $205 $184 $144 $97 $85 Ratio of expenses to average net assets (%) 1.60 1.60 1.60 1.60 1.61 Ratio of adjusted expenses to average net assets(5) (%) 1.66 1.62 1.71 1.75 1.73 Ratio of net investment income to average net assets (%) 4.85 4.41 4.39 4.78 4.47 Portfolio turnover (%) 46(6) 24 13 12 24
FUND DETAILS 31 Tax-Free Bond Fund continued
CLASS C SHARES PERIOD ENDED: 8-31-99(7) 8-31-00 8-31-01 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $10.86 $10.36 $10.30 Net investment income(1) 0.19 0.47 0.45 Net realized and unrealized gain (loss) on investments (0.50) (0.06) 0.44 Total from investment operations (0.31) 0.41 0.89 Less distributions From net investment income (0.19) (0.47) (0.45) From net realized gain -- --(2) (0.02) (0.19) (0.47) (0.47) Net asset value, end of period $10.36 $10.30 $10.72 Total return(3,4) (%) (2.86)(8) 4.19 8.96 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS AND SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) --(9) $1 $3 Ratio of expenses to average net assets (%) 1.70(10) 1.70 1.71 Ratio of adjusted expenses to average net assets(5) (%) 1.71(10) 1.75 1.73 Ratio of net investment income to average net assets (%) 4.29(10) 4.60 4.37 Portfolio turnover (%) 13 12 24
(1) Based on the average of the shares outstanding at the end of each month. (2) Less than $0.01 per share. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) The total returns would have been lower had certain expenses not been reduced during the periods shown. (5) Does not take into consideration expense reductions during the periods shown. (6) Portfolio turnover excludes merger activity. (7) Class C shares began operations on 4-1-99. (8) Not annualized. (9) Less than $500,000. (10) Annualized. ================================================================================ The following returns are not audited and are not part of the audited financial highlights presented above: Without the expense reductions, returns for Class A for the periods or years ended August 31, 1997, 1998, 1999, 2000 and 2001 would have been 9.38%, 9.06%, (1.04%), 4.94% and 9.74%, respectively. For Class B, the returns for the periods or years ended August 31, 1997, 1998, 1999, 2000 and 2001 would have been 8.57%, 8.25%, (1.78%), 4.16% and 8.95%, respectively. For Class C, the returns for the periods or years ended August 31, 1999, 2000 and 2001 would have been (2.86%), 4.14% and 8.94%, respectively. 32 FUND DETAILS For more information Two documents are available that offer further information on John Hancock tax-free income funds: Annual/Semiannual Report to Shareholders Includes financial statements, a discussion of the market conditions and investment strategies that significantly affected performance, as well as the auditors' report (in annual report only). Statement of Additional Information (SAI) The SAI contains more detailed information on all aspects of the funds. The current annual report is included in the SAI. A current SAI has been filed with the Securities and Exchange Commission and is incorporated by reference into (is legally a part of) this prospectus. To request a free copy of the current annual/semiannual report or the SAI, please contact John Hancock: By mail: John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By phone: 1-800-225-5291 By EASI-Line: 1-800-338-8080 By TDD: 1-800-554-6713 On the Internet: www.jhfunds.com Or you may view or obtain these documents from the SEC: In person: at the SEC's Public Reference Room in Washington, DC. For access to the Reference Room call 1-202-942-8090 By mail: Public Reference Section Securities and Exchange Commission Washington, DC 20549-0102 (duplicating fee required) By electronic request: publicinfo@sec.gov (duplicating fee required) On the Internet: www.sec.gov [LOGO](R) [OLYMPIC LOGO] WORLDWIDE SPONSOR John Hancock Funds, LLC MEMBER NASD 101 Huntington Avenue Boston, MA 02199-7603 www.jhfunds.com Mutual Funds Institutional Services Private Managed Accounts Retirement Plans (C)2002 JOHN HANCOCK FUNDS, INC. TXFPN 7/02 -----END PRIVACY-ENHANCED MESSAGE-----