ITEM 1. REPORT TO STOCKHOLDERS
John Hancock
California
Tax-Free Income
Fund
ANNUAL
REPORT
8.31.03
Sign up for electronic delivery at
www.jhancock.com/funds/edelivery
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen Ford Goldfarb, Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Fund's investments
page 8
Financial statements
page 18
Trustees & officers
page 32
For your information
page 37
Dear Fellow Shareholders,
The stock market has made a strong recovery in 2003. Historically low
interest rates, improving corporate earnings and government stimulus in the
form of tax cuts gave investors hope that the economy would soon begin to
strengthen. The market's move up began in April and the breadth of the rally
was enormous. As a result, the major indexes were able to wipe out their
first-quarter losses and post solid gains for the first eight months of the
year. With technology leading the way, the tech-heavy Nasdaq Composite Index
rose 35.56% through August, while the Dow Jones Industrial Average was up
14.68% and the Standard & Poor's 500 Index returned 15.94%. With falling
interest rates, bonds also did well, although they began to reverse course in
July. High yield bonds led the pack, returning 18.53% through August, as
measured by the Lehman Brothers High Yield Index.
In other news, we are pleased to inform you that on September 28, 2003, the
Boards of Directors of Canada-based Manulife Financial Corporation and
Boston-based John Hancock Financial Services, Inc., the parent company of
John Hancock Funds, unanimously voted to merge the two companies.
Please be assured that the completion of the merger -- anticipated to occur
in the first half of 2004 -- will have no effect on your investment in our
John Hancock mutual funds. Your fund's adviser and board of trustees will
remain the same, as will your relationship with your financial adviser.
The merger is subject to customary closing conditions, including receipt of
required regulatory approvals and approval by John Hancock stockholders. If
you only own shares in a John Hancock mutual fund, you are not affected and
will not receive a proxy.
Additional information on this transaction is available on our Web site:
www.jhfunds.com. If you have questions about the merger, you may also call
1-800-732-5543. Separately, for information about your investments in John
Hancock mutual funds, please contact your financial adviser or our Customer
Service representatives at 1-800-225-5291.
Sincerely,
/S/ MAUREEN FORD GOLDFARB
Maureen Ford Goldfarb,
Chairman and Chief Executive Officer
This commentary reflects the chairman's views as of August 31, 2003. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
a high level of
current income
exempt from fed-
eral and California
personal income
taxes, consistent
with preservation
of capital.
Over the last twelve months
* The bond markets were volatile in response to changing views on the
direction of inflation, interest rates and the economy.
* The California muni market lagged due to heavy bond issuance, a state
budget stalemate and the gubernatorial recall election.
* The Fund benefited from holdings in the utilities sector, but tobacco
bond holdings proved disappointing.
[Bar chart with heading "John Hancock California Tax-Free Income Fund."
Under the heading is a note that reads "Fund performance for the year
ended August 31, 2003." The chart is scaled in increments of 1% with -1%
at the bottom and 1% at the top. The first bar represents the 0.48%
total return for Class A. The second bar represents the -0.37% total
return for Class B. The third bar represents the -0.37% total return for
Class C. A note below the chart reads "Total returns for Fund are at net
asset value with all distributions reinvested."]
Top 10 holdings
4.5% Foothill/Eastern Trans. Corridor Agency, 1-1-34, 6.000%
3.3% Sacramento Power Auth., 7-1-22, 6.000%
3.1% Santa Ana Financing Auth., 7-1-24, 6.250%
2.6% Puerto Rico Aqueduct and Sewer Auth., 7-1-11, 10.755%
2.6% San Bernardino, County of, 8-1-17, 5.500%
1.9% Puerto Rico, Commonwealth of, 7-1-15, 6.500%
1.8% Santa Clara County Finance Auth., 5-15-17, 5.500%
1.5% California, State of, 4-1-29, 4.750%
1.5% California State Public Works Board, 1-1-15, 5.500%
1.4% Sacramento City Financing Auth., 1-1-30, 6.250%
As a percentage of net assets on August 31, 2003.
MANAGERS'
REPORT
BY DIANNE SALES, CFA, AND JAMES T. COLBY, III, PORTFOLIO MANAGERS
John Hancock
California Tax-Free Income Fund
James T. Colby joined John Hancock Fund's tax-exempt management team in
July 2003. A vice president, he has 23 years of investment experience.
After three consecutive years of strong gains, municipal bonds turned in
lackluster results for the 12-month period ending August 31, 2003. During much
of the period, munis rallied in response to interest-rate cuts by the Federal
Reserve Board, continued strong demand for fixed-income investments and
disappointingly slow economic growth -- which kept a lid on inflationary
pressures. But by late-spring 2003, demand for bonds began to cool when the
Iraq-related uncertainties that had weighed on the economy eased. In early
summer, signs of domestic and global economic improvement,
better-than-expected corporate earnings, and a growing sense that the Fed's
next move would be to raise, rather than lower, interest rates, dramatically
lessened the demand for bonds and caused an unexpectedly abrupt selloff. From
mid-June through the end of July, municipal bonds suffered one of their worst
six-week periods ever, more than erasing the gains they had enjoyed earlier in
the period. In August, the bond markets recovered, boosted by low inflation
numbers and comments from the Fed supporting continued low interest rates.
"After three consecutive
years of strong gains,
municipal bonds turned
in lackluster results..."
California munis encountered additional challenges during the year, causing
them to lag the national municipal market overall. The weak economic
conditions that gripped the nation during much of the period were mirrored
- -- and magnified -- in California. That economic weakness, coupled with the
state's inability to balance its budget for several years running prompted
the major rating agencies to downgrade California's credit rating for its
general-obligation and state-appropriated debt. Further troubling investors
was the state's decision to finance the deficit by raiding reserve funds
and increasing borrowing rather than cutting spending. On top of all this
was the uncertainty surrounding the recall election of Governor Gray Davis.
While these economic and fiscal challenges have tarnished the state, we
firmly believe its fundamentals provide a compelling investment case over
the long term. California is home to one of the nation's most diverse and
deep economies, along with a well-educated, highly paid workforce. We see
very little chance that California will default on any state debt, and view
its long-term economic prospects very favorably.
[Photos of Dianne Sales and James Colby flush right next to first
paragraph.]
PERFORMANCE REVIEW
For the 12 months ended August 31, 2003, John Hancock California Tax-Free
Income Fund's Class A, Class B and Class C shares returned 0.48%, -0.37% and
- -0.37%, respectively, at net asset value. For the same one-year period, the
average California municipal bond fund returned 1.36%, according to Lipper,
Inc.1, and the Lehman Brothers Municipal Bond Index returned 3.14%. Keep in
mind that your net asset value return will be different from the Fund's
performance if you were not invested in the Fund for the entire period and did
not reinvest all distributions. Please see pages six and seven for historical
performance information.
The Fund's recent performance lag can be attributed in part to our holdings in
long-duration bonds, which suffered in the dramatic backup that occurred in
June and July. Duration is a measure of how sensitive a bond's price is to
interest-rate changes. The longer the duration, the more sensitive the bond's
price. When rates were declining, and prices rising, these long-duration bonds
performed well. But when rates and bond yields moved higher in the summer,
they underperformed. Given the dramatic shift in investor sentiment and the
direction of the bond market, we've shortened the portfolio's duration,
selling some of those long-duration bonds in the process.
"Some of our best perform-
ers during the period
included seasoned land
development bonds..."
LEADERS AND LAGGARDS
Some of our best performers during the period included seasoned land
development bonds, which benefited from high housing demand and lower
interest rates. The market increasingly rewarded the types of projects we
favored, which were those in well-built-out areas with limited competition.
The favorable environment boosted buildout rates on the projects, as homes
sold quickly, bringing better-than-expected performance and dramatically
improved credit quality to these names.
[Table at top left-hand side of page entitled "Top five sectors." The
first listing is General obligation 13%, the second is Health 9%, the
third Authority 9%, the fourth Water & sewer 7% and the fifth
Transportation 6%.]
Sector and security selection also helped performance. Our holdings in
essential-services bonds -- such as water, sewer and electric utilities --
and our decision to underweight bonds issued by the state worked in the
Fund's favor. Bonds issued by utilities enjoyed more stable revenues amid
weak economic conditions because of the essential nature of their services.
In contrast, state-issued general-obligation and appropriated debt remained
under pressure throughout the period due to the state's ongoing budget
imbalance.
[Pie chart at middle of page with heading "Portfolio diversification As
a percentage of net assets on 8-31-03." The chart is divided into three
sections (from top to left): Revenue bonds 85%, General obligation bonds
13% and Short-term investments and other 2%.]
Detracting from performance were our holdings in tobacco asset-securitized
bonds. These bonds initially came under pressure due to an increase in supply,
and were further depressed by concerns about unresolved litigation against
Philip Morris, a major participant in the tobacco company settlement with the
states. Although we trimmed our tobacco holdings in order to side-step these
near-term challenges, we held onto the bulk of our position because we believe
they offer a good combination of value and yield.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "RECENT
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Longer-duration bonds followed by a down arrow with the phrase "Rising
interest rates pressure prices." The second listing is Utility bonds
followed by an up arrow with the phrase "Steady revenues amid economic
weakness." The third listing is Tobacco bonds followed by a down arrow
with the phrase "Litigation concerns and heavy supply."]
OUTLOOK
We believe that the economy will continue to improve through the end of 2003,
although the extent of that improvement is debatable. Arguing in favor of very
strong economic growth is the massive economic stimulus resulting from tax
cuts and the Federal Reserve Board's stated commitment to keeping the economy
growing. However, we think it's more likely that the pace of growth will be
gradual because higher mortgage rates and a weak job market could dampen
consumer spending, keeping a lid on inflation. As for California municipal
bonds, fiscal weakness, combined with increased supply, have caused spreads to
widen, providing values we haven't seen in more than a decade. Over the next
year, we believe that periods of weakness resulting from macroeconomic and
California-specific issues should be viewed as times to add to our
state-related holdings.
"We believe that the
economy will continue to
improve through the end
of 2003..."
This commentary reflects the views of the portfolio managers through the end
of the Fund's period discussed in this report. The managers' statements
reflect their own opinions. As such, they are in no way guarantees of future
events, and are not intended to be used as investment advice or a
recommendation regarding any specific security. They are also subject to
change at any time as market and other conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT
PERFORMANCE
For the period ended
August 31, 2003
Class A Class B Class C
Inception date 12-29-89 12-31-91 4-1-99
Average annual returns with maximum sales charge (POP)
One year -4.03% -5.16% -2.30%
Five years 3.05% 2.86% --
Ten years 4.75% 4.60% --
Since inception -- -- 2.83%
Cumulative total returns with maximum sales charge (POP)
One year -4.03% -5.16% -2.30%
Five years 16.19% 15.14% --
Ten years 58.99% 56.76% --
Since inception -- -- 13.13%
SEC 30-day yield as of August 31, 2003
4.62% 3.99% 3.95%
Performance figures assume all distributions are reinvested. Returns with
maximum sales charge reflect a sales charge on Class A shares of 4.50% and
Class C shares of 1%, and the applicable contingent deferred sales charge
(CDSC) on Class B and Class C shares. The Class B shares' CDSC declines
annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2,
1%. No sales charge will be assessed after the sixth year. Class C shares held
for less than one year are subject to a 1% CDSC. The return and principal
value of an investment in the Fund will fluctuate, so that shares, when
redeemed, may be worth more or less than the original cost.
The returns reflect past results and should not be considered indicative of
future performance. The performance table above and the chart on the next
page do not reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Please note that a
portion of the Fund's income may be subject to taxes, and some investors
may be subject to the Alternative Minimum Tax (AMT). Also note that capital
gains are taxable.
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future. See the
prospectus for details.
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown the
same investment in the Lehman Brothers Municipal Bond Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the Lehman Brothers Municipal
Bond Index and is equal to $17,644 as of August 31, 2003. The second
line represents the value of the hypothetical $10,000 investment made in
the John Hancock California Tax-Free Income Fund, without sales charge
(NAV), and is equal to $16,647 as of August 31, 2003. The third line
represents the value of the same hypothetical investment made in the
John Hancock California Tax-Free Income Fund, with maximum sales charge
(POP), and is equal to $15,901 as of August 31, 2003.
Cum Value Cum Value Lehman
of $10K of $10K Municipal
Plot Date (No Load) (w/Load) Bond Index
8/31/1993 $10,000 $ 9,500 $10,000
2/28/1994 10,116 9,663 10,105
8/31/1994 9,879 9,436 10,014
2/28/1995 10,014 9,565 10,295
8/31/1995 10,604 10,129 10,902
2/29/1996 11,285 10,780 11,432
8/31/1996 11,408 10,897 11,473
2/28/1997 11,960 11,424 12,062
8/31/1997 12,516 11,956 12,533
2/28/1998 13,183 12,593 13,164
8/31/1998 13,679 13,066 13,617
2/28/1999 13,986 13,360 13,974
8/31/1999 13,694 13,081 13,695
2/29/2000 13,609 12,999 13,663
8/31/2000 14,507 13,857 14,608
2/28/2001 15,158 14,479 15,371
8/31/2001 15,850 15,140 16,102
2/28/2002 15,972 15,257 16,422
8/31/2002 16,567 15,825 17,107
2/28/2003 16,963 16,204 17,681
8/31/2003 16,647 15,901 17,644
Class B 1 Class C 1
Period beginning 8-31-93 4-1-99
Without sales charge $15,676 $11,425
With maximum sales charge -- $11,313
Index $17,644 $12,609
Lehman Brothers Municipal Bond Index is an unmanaged index that includes
municipal bonds and is commonly used as a measure of bond performance. It is
not possible to invest directly in an index. Index figures do not reflect
sales charges and would be lower if they did.
Assuming all distributions were reinvested for the period indicated, the
table above shows the value of a $10,000 investment in the Fund's Class B
and Class C shares, respectively, as of August 31, 2003. Performance of the
classes will vary based on the difference in sales charges paid by
shareholders investing in the different classes and the fee structure of
those classes.
1 No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
August 31, 2003
This schedule is divided into two main categories: tax-exempt long-term
bonds and short-term investments. Tax-exempt long-term bonds are broken
down by state or territory. Under each state or territory is a list of
securities owned by the Fund. Short-term investments, which represent the
Fund's cash position, are listed last.
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
TAX-EXEMPT LONG-TERM BONDS 97.87% $363,801,005
(Cost $345,078,735)
California 87.80% 326,388,178
ABAG Finance Authority for Nonprofit Corps,
Cert of Part Nat'l Center for Int'l Schools Proj,
05-01-18 7.375 BB+ 4,300 4,553,012
Rev San Diego Hosp Assoc Ser 2001A, 08-15-20 6.125 BBB+ 2,000 2,058,800
ABC Unified School District,
Gen Oblig Cap Apprec, 08-01-33 Zero AAA 5,365 966,773
Anaheim, City of,
Cert of Part Ref Reg Convention Ctr, 07-16-23 11.511# AAA 2,000 2,513,120
Anaheim Public Financing Auth,
Sub Lease Rev Cap Apprec Ser 1997C Anaheim
Pub Imp Proj, 09-01-18 Zero AAA 3,000 1,372,440
Sub Lease Rev Cap Apprec Ser 1997C Anaheim
Pub Imp Proj, 09-01-36 Zero AAA 9,545 1,415,428
Antioch Public Financing Authority,
Reassessment Rev Ser B, 09-02-15 5.850 BB+ 1,410 1,459,505
California County Tobacco Securitization Agency,
Tobacco Settlement Asset Backed Bond Fresno
County Funding Corp, 06-01-35 6.000 BBB 1,765 1,328,092
Tobacco Settlement Asset Backed Bond Kern County
Corp Ser 2002A, 06-01-43 6.125 BBB 2,000 1,514,340
Tobacco Settlement Asset Backed Bond Stanislaus
County Funding Corp Ser 2002A, 06-01-33 5.500 BBB 1,000 717,650
California Department of Water Resources,
Pwr Supply Rev Ser 2002A, 05-01-21 5.375 BBB+ 4,000 4,055,400
California Educational Facilities Auth,
Rev 1993 Ser B Pooled College & Univ Proj, 06-01-09 6.125 Baa2 305 311,692
California Health Facilities Financing Auth,
Ins Rev Ref Ser A Catholic Healthcare West
Obligated Group, 07-01-15 5.750 AAA 2,000 2,156,140
Ins Rev Ref Ser B Hlth Facil Small Facil, 04-01-22 7.500 BBB 2,000 2,172,100
Rev Adventist Health System Ser 2003A, 03-01-28 5.000 A 2,500 2,270,425
Rev Ser 1994A Scripps Research Institute, 07-01-09 6.300 Aa3 500 520,745
Rev Stanford Hosp & Clinics Ser 2003A, 11-15-23 5.000 A- 2,500 2,398,775
California Infrastructure & Economic Development Bank,
Rev Bay Area Toll Bridges 1st Lien Ser 2003A,
07-01-29 5.000 AAA 3,000 2,952,750
Rev J David Gladstone Inst Proj, 10-01-34 5.250 A- 1,000 962,040
Rev Kaiser Hosp Asst I LLC Ser 2001A, 08-01-31 5.550 A 3,000 2,964,600
California Pollution Control Financing Auth,
Poll Control Rev 1991 Southern Calif Edison Co,
12-01-17 6.900 BB 500 490,000
Poll Control Rev 1992 Ser A Pacific Gas & Electric Co,
06-01-09 6.625 CCC 500 492,490
Poll Control Rev Ref 1996 Ser A Pacific Gas &
Electric Co, 12-01-16 5.350 AAA 1,000 1,052,670
Solid Waste Disposal Rev Keller Canyon
Landfill Co Proj, 11-01-27 6.875 BB- 2,000 1,879,980
California Rural Home Mortgage Finance Auth,
Single Family Mtg Rev Ser A Mtg Backed Sec's Prog,
11-01-26 7.550 AAA 120 126,660
Single Family Mtg Rev Ser A Mtg Backed Sec's Prog
Step Coupon, 05-01-27 7.750# AAA 120 126,848
California, State of,
Gen Oblig, 04-01-29 4.750 AAA 6,000 5,596,020
California State Public Works Board,
Lease Rev 1993 Ser A California State Univ Various
Community College Proj, 12-01-18 5.625 BBB- 3,700 3,817,512
Lease Rev 1996 Ser A Dept of Corrections, 01-01-15 5.500 AAA 5,145 5,565,861
Lease Rev Dept Corrections Ten Admin Ser 2002A,
03-01-27 5.000 AAA 2,000 1,964,180
Lease Rev Ref 1993 Ser A California State Univ
Various Univ Proj, 06-01-21 5.500 A+ 1,250 1,256,937
Lease Rev Ref 1993 Ser A Depart of Corrections
Various State Prisons, 12-01-19 5.000 AAA 5,000 5,168,800
Lease Rev Ser A Dept of Corrections, 01-01-21 5.250 AAA 4,500 4,618,575
California Statewide Communities Development Auth,
Ins Rev Cert of Part Statewide Auxiliary Univ Corp
CA State Univ, 04-01-26 6.000 AAA 1,620 1,771,292
Cert of Part Catholic Healthcare West, 07-01-20 6.500 BBB 4,365 4,611,099
Student Hsg Rev Ser 2002A Stonehaven
Apartments Proj, 07-01-26 5.625 A 1,500 1,507,185
Student Hsg Rev Ser 2002A Stonehaven
Apartments Proj, 07-01-32 5.875 A 1,000 1,015,960
California Statewide Financing Auth,
Tobacco Settlement Rev Asset Backed Bond
Pooled Tobacco Sec 2002A, 05-01-29 5.625 Baa2 2,445 1,902,968
Tobacco Settlement Rev Asset Backed Bond
Pooled Tobacco Sec 2002A, 05-01-37 6.000 Baa2 2,500 1,873,725
Tobacco Settlement Rev Asset Backed Bond
Pooled Tobacco Sec 2002B, 05-01-37 6.000 Baa2 4,000 2,997,960
Capistrano Unified School District,
Spec Tax of Community Facil Dist 92-1, 09-01-18 7.000 AA 1,500 1,530,480
Spec Tax of Community Facil Dist 92-1, 09-01-21 7.100 AA 2,205 2,579,563
Spec Tax of Community Facil Dist 98-2, 09-01-29 5.750 BB+ 2,470 2,395,505
Carson, City of,
Imp Bond Act of 1915 Assessment District No.
2001-1, 09-02-31 6.375 BB+ 1,375 1,383,264
Center Unified School District,
Gen Oblig Cap Apprec Ser C, 09-01-16 Zero AAA 2,145 1,129,900
Clearlake Redevelopment Agency,
Tax Alloc Highlands Park Community Devel Proj,
10-01-23 6.400 AA 470 481,534
Contra Costa County Public Financing Auth,
Lease Rev Ref Various Cap Facs Projs Ser 1999A,
06-01-28 5.000 AAA 3,000 2,945,430
Contra Costa Water District,
Wtr Rev Ref Ser 2001K, 10-01-31 4.500 AAA 3,000 2,687,460
Corona Community Facilities District 97-2,
Special Tax Rev, 09-01-23 5.875 BB+ 1,465 1,469,996
Costa Mesa Public Financing Auth,
1991 Local Agency Rev Ser A, 08-01-21 7.100 BBB 210 211,791
Culver City Redevelopment Finance Auth,
Rev Ref Sub Tax Alloc Ser 1999B, 11-01-18 6.200 BBB- 2,000 2,038,900
Davis Redevelopment Agency,
Tax Allocation Ref Davis Redevel Proj, 09-01-24 7.000 AAA 5,115 5,238,732
Del Mar Race Track Auth,
Rev Ref Ser 1996, 08-15-11 6.200 BBB 1,865 2,005,434
Rev Ref Ser 1996, 08-15-06 6.000 BBB 1,645 1,731,313
Fairfield Public Financing Auth,
1995 Rev Ser A Pennsylvania Ave Storm Drainage
Proj, 08-01-21 6.500 A 1,085 1,134,563
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Current Int Ser 1995A,
01-01-32 6.500 AAA 1,665 1,894,770
Toll Rd Rev Fixed Rate Current Int Ser 1995A,
01-01-34 6.000 AAA 14,775 16,577,402
Toll Road Rev Ref Cap Apprec, 01-15-25 Zero BBB- 6,615 1,808,210
Toll Road Rev Ref Cap Apprec, 01-15-36 Zero BBB- 30,000 4,077,300
Toll Road Rev Ref Conv Cap Apprec, 01-15-26 Zero BBB- 5,000 3,358,750
Fresno, City of,
Sewer Rev Ser A-1, 09-01-19 5.250 AAA 1,000 1,068,370
Fresno Joint Powers Financing Auth,
Rev Ser A, 09-02-12 6.550 BBB+ 2,000 2,074,840
Fullerton Community Facilities District No. 1,
Spec Tax Amerige Heights, 09-01-32 6.200 BB 1,000 1,012,850
Golden State Tobacco Securitization Corp,
Tobacco Settlement Rev Ser 2003-A-1, 06-01-33 6.250 BBB 3,000 2,421,090
Tobacco Settlement Rev Ser 2003-A-1, 06-01-39 6.750 BBB 1,720 1,416,042
Irvine, City of,
Imp Bond Act of 1915 Assessment Dist 95-12 Ser B,
09-02-21 6.550 AA 1,000 1,073,030
Imp Bond Act of 1915 Assessment Dist 00-18-GRP 3
09-02-26 5.550 BB+ 1,000 962,320
Mobile Home Park Rev Ser A Meadows Mobile
Home Park, 03-01-28 5.700 BBB- 4,000 3,688,320
Irwindale Community Redevelopment Agency,
Sub Lien Tax Allocation Industrial Devel Proj,
06-01-26 7.050 BBB 2,750 2,935,240
Laguna Salada Union School District,
Gen Oblig Ser 2000C, 08-01-26 Zero AAA 1,000 275,740
Lancaster School District,
Cert of Part Cap Apprec Ref, 04-01-19 Zero AAA 1,730 755,024
Cert of Part Cap Apprec Ref, 04-01-22 Zero AAA 1,380 489,859
Lee Lake Water District Community Facilities
District No. 2,
Spec Tax Montecito Ranch, 09-01-27 6.125 BB 1,200 1,202,052
Long Beach, City of,
Harbor Rev Ref Ser A, 05-15-18 6.000 AAA 2,660 3,027,107
Spec Tax Cmty Facil District No. 6 Pike, 10-01-26 6.250 BB- 2,500 2,513,575
Los Angeles Community Facilities District,
Spec Tax No. 3 Cascades Business Park Proj, 09-01-22 6.400 BB+ 1,000 1,039,390
Los Angeles Community Redevelopment Financing Auth,
Rev MultiFamily Ser A Grand Central Square,
12-01-26 5.850 BB 2,000 1,869,900
Los Angeles Public Works Financing Auth,
Rev Regional Park & Open Space Dist A, 10-01-15 6.000 Aa3 3,750 4,024,987
Los Angeles Unified School District,
Gen Oblig Election of 1997 Ser E, 07-01-17 5.500 AAA 1,500 1,625,370
Metropolitan Water District of Southern California,
Wtr Rev Ser 1997A, 07-01-30 5.000 AAA 2,000 1,956,480
Midpeninsula Regional Open Space District,
Cap Apprec, 09-01-30 Zero AAA 3,670 747,469
Millbrae, City of,
Residential Facil Rev Ser 1997A Magnolia of
Millbrae Proj, 09-01-27 7.375 BB 2,500 2,540,725
New Haven Unified School District,
Cap Apprec Ser A, 08-01-21 Zero AAA 7,405 2,566,721
Cap Apprec Ser B, 08-01-22 Zero AAA 14,200 4,866,624
Northern California Transmission Agency,
Rev 1990 Ser A Calif-Oregon Transm Proj, 05-01-13 7.000 AAA 100 122,473
Oakland, Port of,
Spec Facil Rev 1992 Ser A Mitsui O.S.K. Lines Ltd
Proj, 01-01-19 6.800 BBB 330 332,119
Orange County Development Agency,
Tax Allocation Santa Ana Heights Proj, 09-01-23 6.125 BBB 5,000 5,103,850
Orange Cove Irrigation District,
Cert of Part Ref Rehab Proj, 02-01-17 5.000 AAA 2,045 2,103,426
Orange, County of,
Cert of Part Recovery Ref Ser A, 07-01-16 5.800 AAA 2,000 2,211,140
Cmty Facil Dist 1 Spec Tax Ladera Ranch Ser 2000A,
08-15-30 6.250 BB+ 1,000 1,019,130
Cmty Facil Dist Spec Tax No. 02-1 Ladera Ranch
Ser 2003A, 08-15-33 5.550 BB+ 1,000 947,550
Impt Bond Act 1915 Ltd Oblig-Phase IV-No. 01-1-B,
09-02-33 5.750 BB+ 1,570 1,494,342
Paramount Redevelopment Agency,
Tax Allocation Redevel Proj Area No. 1, 08-01-23 5.000 AAA 250 250,182
Paramount Unified School District,
Gen Oblig Cap Apprec Ser 2001B, 09-01-25 Zero AAA 4,735 1,365,858
Pasadena, City of,
Cert of Part Ref Old Pasadena Parking Facil Proj,
01-01-18 6.250 AA- 1,205 1,389,775
Poway, City of,
Community Facil Dist No. 88-1 Spec Tax Ref Pkwy
Business Ctr, 08-15-15 6.750 BB 1,000 1,073,620
Rancho Mirage Redevelopment Agency,
Tax Allocation Redevelopment Plan 1984 Proj Ser
2001A-1, 04-01-33 5.000 AAA 2,000 1,963,540
Rancho Santa Fe Community Services District,
Cmty Facil Dist No. 1 Spec Tax, 09-01-30 6.700 BB 2,500 2,587,350
Redondo Beach Public Financing Auth,
Rev South Bay Center Redevel Proj, 07-01-16 7.000 BBB+ 950 1,013,783
Richmond, County of,
Imp Bond Act of 1915 Ref Reassessment District
No. 855, 09-02-19 6.600 BBB- 2,400 2,473,032
Riverside County Asset Leasing Corp,
Leasehold Rev 1993 Ser A Riverside County Hosp
Proj, 06-01-12 6.500 A+ 1,000 1,147,460
Riverside Redevelopment Agency,
Ref Tax Allocation Merged Proj Area, 08-01-23 5.250 AAA 1,905 1,946,300
Sacramento City Financing Auth,
Rev Convention Ctr Hotel Ser 1999A, 01-01-30 6.250 BB+ 5,500 5,365,635
Sacramento, County of,
Cert of Part Juvenile Courthouse Proj, 12-01-28 4.250 AAA 2,000 1,721,820
Sacramento County Sanitation District Finance Auth,
Rev Ser 2000A, 12-01-27 5.875 AA 1,500 1,654,020
Sacramento Municipal Utility District,
Rev Ref Ser 2001P, 08-15-21 5.250 AAA 1,000 1,030,580
Sacramento Power Auth,
Cogeneration Proj Rev Light & Pwr Imp, 07-01-22 6.000 BBB- 12,000 12,410,280
San Bernardino, County of,
Cert of Part Ref Med Ctr Fin Proj, 08-01-17 5.500 AAA 8,750 9,571,625
Cert of Part Ser B Cap Facil Proj, 08-01-24 6.875 AAA 350 430,517
San Bruno Park School District,
Cap Apprec Ref Ser 2000B, 08-01-21 Zero AAA 1,015 381,173
Cap Apprec Ref Ser 2000B, 08-01-23 Zero AAA 1,080 355,234
San Diego County Regional Transportation Commission,
Sales Tax Rev Refunded Bal Ser 1991A, 04-01-06 7.000 AA- 35 35,084
San Diego County Water Auth,
Water Rev Cert of Part Reg, 04-23-08 10.292# AAA 1,000 1,242,560
Water Rev Cert of Part Reg, 04-22-09 10.292# AAA 400 498,728
San Diego Redevelopment Agency,
Tax Allocation Cap Apprec Ser 1999B, 09-01-17 Zero BB 1,600 713,504
Tax Allocation Cap Apprec Ser 1999B, 09-01-18 Zero BB 1,700 708,985
Tax Allocation City Heights Proj Ser 1999A, 09-01-23 5.750 BB 1,000 990,620
Tax Allocation City Heights Proj Ser 1999A, 09-01-28 5.800 BB 1,395 1,381,915
San Diego Unified School District,
Gen Oblig Cap Apprec Ser 1999A, 07-01-21 Zero AAA 2,500 943,125
Gen Oblig Election of 1998 Ser 2000B, 07-01-25 5.000 AAA 2,450 2,427,337
San Diego, County of,
Cert of Part Inmate Reception Ctr & Cooling Plant,
08-01-19 6.750 AAA 3,000 3,217,560
San Francisco, Redevelopment Agency of the
City & County, Cmty Facil District No. 6 Mission Bay
South Pub Imp Spec Tax Ser 2001-South, 08-01-25 6.000 BB 2,500 2,437,425
San Francisco State Building Auth,
Lease Rev Ref 1993 Ser A Dept of Gen Serv, 10-01-13 5.000 BBB- 2,145 2,232,881
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Ref Conv Cap Apprec Ser A, 01-15-21 Zero BB 5,000 3,702,750
Toll Rd Rev Sr Lien Cap Apprec, 01-01-14 Zero AAA 5,000 3,156,100
Toll Rd Rev Sr Lien Cap Apprec, 01-01-22 Zero AAA 6,500 2,481,635
San Marcos Public Facilities Auth,
Rev Tax Incr Proj Area 3-A, 08-01-31 6.000 BB 1,305 1,308,184
San Marino Unified School District,
Gen Oblig Ser 2000A, 07-01-24 Zero AAA 5,820 1,804,142
San Mateo County Joint Powers Financing Auth,
Lease Rev Ref Cap Proj Prog, 07-01-21 5.000 AAA 1,815 1,871,283
Santa Ana Financing Auth,
Lease Rev Ser A Police Admin & Holding Facil,
07-01-19 6.250 AAA 1,790 2,089,664
Lease Rev Ser A Police Admin & Holding Facil,
07-01-24 6.250 AAA 10,000 11,627,400
Rev Ref Ser D Mainplace Proj, 09-01-19 5.600 BBB- 1,000 1,023,190
Santa Clara County Finance Auth,
Lease Rev Ser 2000B Mult Facil Proj, 05-15-17 5.500 AAA 6,000 6,486,960
Santa Margarita Water District,
Spec Tax Cmty Facil Dist No. 99-1, 09-01-30 6.000 BB+ 500 483,160
Santaluz Community Facilities District No. 2,
Spec Tax Imp Area No. 1, 09-01-30 6.375 BB 1,500 1,525,620
South Gate Public Financing Auth,
Tax Allocation Rev South Gate Redevel Proj
No. 1, 09-01-19 5.250 AAA 1,000 1,037,260
Southern California Home Financing Auth,
Single Family Mtg Rev GNMA & FNMA Mtg Backed
Ser A, 09-01-22 6.750 AAA 205 205,672
Southern California Public Power Auth,
Rev Ref Southern Transm Proj, 07-01-13 Zero AAA 4,400 2,879,800
Tahoe-Truckee Unified School District,
Gen Oblig Cap Apprec Imp District No. 1-A, 08-01-21 Zero AAA 3,430 1,288,994
Tobacco Securitization Auth,
Northern CA Tobacco Settlement Rev Asset Backed
Bond Ser 2001A, 06-01-41 5.375 BBB 1,000 676,060
Torrance, City of,
Hosp Rev Torrance Memorial Medical Ctr
Ser 2001A, 06-01-31 5.500 A+ 3,500 3,475,045
Tustin Unified School District,
Community Facil Dist No. 97-1, 09-01-35 6.375 AAA 1,000 1,189,150
University of California,
Cert of Part Ref UCLA Central Chiller-Cogeneration
Proj, 11-01-11 5.400 Aa2 1,000 1,027,570
Ref Gen Ser 2003A, 05-15-33** 5.000 AAA 2,500 2,454,250
Upland Unified School District,
Cap Apprec Election of 2000, 08-01-25 5.125 AAA 1,000 1,003,430
Vallejo Sanitation and Flood Control District,
Cert of Part, 07-01-19 5.000 AAA 2,500 2,600,000
West Covina Redevelopment Agency,
Ref Community Facil Dist Spec Tax Fashion Plaza
Proj, 09-01-22 6.000 AA 3,000 3,361,350
Florida 1.09% 4,032,785
Capital Trust Agency,
Rev Seminole Tribe Convention & Resort Facil
Ser 2003A, 10-01-33 8.950 BB 1,000 1,100,960
Rev Seminole Tribe Convention & Resort Facil
Ser 2002A, 10-01-33 10.000 BB 2,500 2,931,825
Puerto Rico 8.98% 33,380,042
Childrens Trust Fund (The),
Tobacco Settlement Asset Backed Bond, 05-15-33 5.375 BBB 990 795,010
Tobacco Settlement Asset Backed Bond, 05-15-39 5.500 BBB 1,000 806,150
Puerto Rico Aqueduct and Sewer Auth,
Rev Parts & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico, 07-01-11 10.755# AAA 7,500 9,658,050
Puerto Rico, Commonwealth of,
Gen Oblig Pub Imp Ser 1996, 07-01-15 6.500 A- 6,000 7,037,280
Gen Oblig Ref Pub Imp, 07-01-30 5.125 AAA 2,000 2,021,340
Puerto Rico Highway & Transportation Auth,
Highway Rev Ref 1996 Ser Z, 07-01-14 6.250 AAA 3,250 3,862,592
Ser A-MBIA IBC, 07-01-38 5.000 AAA 5,000 5,002,550
Trans Rev Ser 2000B, 07-01-26 6.000 A 1,000 1,052,430
Puerto Rico Ind'l, Tourist, Ed'l, Medical & Environmental,
Ctl Facs, Hospital de La Concepcion-A, 11-15-20 6.500 AA 500 553,515
Puerto Rico Public Finance Corp,
Commonwealth Approp Ser 2002E, 08-01-25 5.700 BBB+ 2,500 2,591,125
ISSUER, DESCRIPTION, INTEREST PAR VALUE
MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 1.71% $6,359,000
(Cost $6,359,000)
Joint Repurchase Agreement 1.71%
Investment in a joint repurchase agreement transaction with
Barclays Capital, Inc. -- Dated 08-29-03, due 09-02-03
(Secured by U.S. Treasury Inflation Indexed Bonds, 3.625%
thru 3.875% due 04-15-28 thru 04-15-29) 1.01% $6,359 6,359,000
TOTAL INVESTMENTS 99.58% $370,160,005
OTHER ASSETS AND LIABILITIES, NET 0.42% $1,577,543
TOTAL NET ASSETS 100.00% $371,737,548
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service, Fitch or John Hancock Advisers,
LLC, where Standard & Poor's ratings are not available.
** This security having an aggregate value of $2,454,250 or 0.66% of the
Fund's net assets, has been purchased as forward commitments-- that is,
the Fund has agreed on trade date to take delivery of and to make
payment for this security on a delayed basis subsequent to the date of
this schedule. The purchase price and interest rate of these securities
are fixed at trade date, although the Fund does not earn any interest on
these securities until settlement date. The Fund has instructed its
custodian bank to segregate assets with a current value at least equal
to the amount of the forward commitments. Accordingly, the market value
of $2,580,577 of Foothill/Eastern Transportation Corridor Agency, 6.00%,
01-01-34 has been segregated to cover the forward commitments.
# Represents rate in effect on August 31, 2003.
The percentage shown for each investment category is the total value
of that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
PORTFOLIO
CONCENTRATION
August 31, 2003
(unaudited)
This table shows
the percentages
of the Fund's
investments
aggregated
by various
industries.
VALUE AS A PERCENTAGE
INDUSTRY DISTRIBUTION OF NET ASSETS
General Obligation 12.71%
Revenue Bonds -- Authority 8.69
Revenue Bonds -- Bond Anticipation Note 0.70
Revenue Bonds -- Bridge & Toll Road 1.00
Revenue Bonds -- Building 1.80
Revenue Bonds -- Correctional Facility 4.13
Revenue Bonds -- Economic Development 2.01
Revenue Bonds -- Education 5.14
Revenue Bonds -- Electric 4.74
Revenue Bonds -- Facility 0.68
Revenue Bonds -- Harbor/Channel 0.81
Revenue Bonds -- Health 9.09
Revenue Bonds -- Highway 3.15
Revenue Bonds -- Housing 0.68
Revenue Bonds -- Improvement 1.35
Revenue Bonds -- Industrial Development 0.15
Revenue Bonds -- Industrial Revenue 0.09
Revenue Bonds -- Lease 1.92
Revenue Bonds -- Multi-Family 1.50
Revenue Bonds -- Other 8.89
Revenue Bonds -- Pollution Control 1.05
Revenue Bonds -- Power 0.77
Revenue Bonds -- Recreational Facility 0.75
Revenue Bonds -- Roadway/Street 2.49
Revenue Bonds -- Sanitation District 0.44
Revenue Bonds -- School 0.33
Revenue Bonds -- Single-Family 0.12
Revenue Bonds -- Special Assessment 0.66
Revenue Bonds -- Special Tax 4.59
Revenue Bonds -- Tax Allocation 4.00
Revenue Bonds -- Tax Increment 0.88
Revenue Bonds -- Transportation 6.02
Revenue Bonds -- Water and Sewer 6.54
Total tax-exempt long-term bonds 97.87%
See notes to
financial statements.
ASSETS AND
LIABILITIES
August 31, 2003
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
ASSETS
Investments at value (cost $351,437,735) $370,160,005
Cash 499
Receivable for shares sold 63,858
Interest receivable 4,850,009
Other assets 115,458
Total assets 375,189,829
LIABILITIES
Payable for investments purchased 2,450,525
Payable for shares repurchased 449,303
Dividends payable 183,363
Payable to affiliates
Management fee 163,062
Distribution and service fee 12,054
Other 23,332
Other payables and accrued expenses 170,642
Total liabilities 3,452,281
NET ASSETS
Capital paid-in 360,103,741
Accumulated net realized loss on investments and
financial futures contracts (7,137,661)
Net unrealized appreciation of investments 18,722,270
Accumulated net investment income 49,198
Net assets $371,737,548
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($307,796,343 [DIV] 29,029,684 shares) $10.60
Class B ($55,199,978 [DIV] 5,206,412 shares) $10.60
Class C ($8,741,227 [DIV] 824,468 shares) $10.60
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($10.60 [DIV] 95.5%) $11.10
Class C ($10.60 [DIV] 99%) $10.71
1 On single retail sales of less than $100,000. On sales of $100,000 or
more and on group sales the offering price is reduced.
See notes to
financial statements.
OPERATIONS
For the year ended
August 31, 2003
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in operat-
ing the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Interest $22,878,553
Total investment income 22,878,553
EXPENSES
Investment management fee 2,232,900
Class A distribution and service fee 500,862
Class B distribution and service fee 624,486
Class C distribution and service fee 96,253
Transfer agent fee 207,847
Accounting and legal services fee 137,986
Custodian fee 90,110
Auditing fee 34,200
Miscellaneous 30,509
Trustees' fee 24,090
Registration and filing fee 18,530
Printing 14,608
Legal fee 6,388
Interest expense 306
Total expenses 4,019,075
Net investment income 18,859,478
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
Investments (720,489)
Financial futures contracts 19,704
Change in unrealized appreciation (depreciation)
of investments (15,942,310)
Net realized and unrealized loss (16,643,095)
Increase in net assets from operations $2,216,383
See notes to
financial statements.
CHANGES IN
NET ASSETS
These Statements
of Changes in
Net Assets show
how the value
of the Fund's
net assets has
changed during
the last two
periods. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses,
distributions, if
any, paid to
shareholders and
any increase or
decrease in
money share-
holders invested
in the Fund.
YEAR YEAR
ENDED ENDED
8-31-02 1 8-31-03
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $19,598,639 $18,859,478
Net realized loss (1,391,387) (700,785)
Change in net unrealized
appreciation (depreciation) (1,005,398) (15,942,310)
Increase in net assets from operations 17,201,854 2,216,383
Distributions to shareholders
From net investment income
Class A (16,176,162) (15,776,720)
Class B (2,871,168) (2,420,927)
Class C (265,020) (372,022)
(19,312,350) (18,569,669)
From Fund share transactions 6,369,418 (31,917,119)
NET ASSETS
Beginning of period 415,749,031 420,007,953
End of period 2 $420,007,953 $371,737,548
1 Audited by previous auditor.
2 Includes accumulated net investment income of $47,035 and $49,198,
respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 8-31-99 1 8-31-00 1 8-31-01 1 8-31-02 1,2 8-31-03
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.19 $10.65 $10.69 $11.11 $11.06
Net investment income 3 0.56 0.56 0.54 0.54 0.53
Net realized and unrealized
gain (loss) on investments (0.54) 0.04 0.42 (0.06) (0.47)
Total from
investment operations 0.02 0.60 0.96 0.48 0.06
Less distributions
From net investment income (0.56) (0.56) (0.54) (0.53) (0.52)
Net asset value,
end of period $10.65 $10.69 $11.11 $11.06 $10.60
Total return 4 (%) 0.11 5 5.93 5 9.26 5 4.52 5 0.48
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $307 $306 $331 $347 $308
Ratio of expenses
to average net assets (%) 0.75 0.75 0.80 0.84 0.84
Ratio of adjusted expenses
to average net assets 6 (%) 0.82 0.84 0.82 0.84 --
Ratio of net investment income
to average net assets (%) 5.06 5.39 5.01 4.95 4.79
Portfolio turnover (%) 3 11 14 15 18
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 8-31-99 1 8-31-00 1 8-31-01 1 8-31-02 1,2 8-31-03
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.19 $10.65 $10.69 $11.11 $11.06
Net investment income 3 0.48 0.48 0.46 0.45 0.44
Net realized and unrealized
gain (loss) on investments (0.54) 0.04 0.42 (0.06) (0.47)
Total from
investment operations (0.06) 0.52 0.88 0.39 (0.03)
Less distributions
From net investment income (0.48) (0.48) (0.46) (0.44) (0.43)
Net asset value,
end of period $10.65 $10.69 $11.11 $11.06 $10.60
Total return 4 (%) (0.63) 5 5.14 5 8.45 5 3.67 5 (0.37)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $99 $81 $80 $65 $55
Ratio of expenses
to average net assets (%) 1.50 1.50 1.55 1.65 1.69
Ratio of adjusted expenses
to average net assets 6 (%) 1.67 1.69 1.67 1.69 --
Ratio of net investment income
to average net assets (%) 4.31 4.64 4.26 4.14 3.95
Portfolio turnover (%) 3 11 14 15 18
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 8-31-99 1,7 8-31-00 1 8-31-01 1 8-31-02 1,2 8-31-03
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.14 $10.65 $10.69 $11.11 $11.06
Net investment income 3 0.18 0.47 0.45 0.45 0.43
Net realized and unrealized
gain (loss) on investments (0.49) 0.04 0.42 (0.06) (0.47)
Total from
investment operations (0.31) 0.51 0.87 0.39 (0.04)
Less distributions
From net investment income (0.18) (0.47) (0.45) (0.44) (0.42)
Net asset value,
end of period $10.65 $10.69 $11.11 $11.06 $10.60
Total return 4 (%) (2.77) 5,8 5.03 5 8.34 5 3.64 5 (0.37)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1 $3 $4 $8 $9
Ratio of expenses
to average net assets (%) 1.60 9 1.60 1.65 1.69 1.69
Ratio of adjusted expenses
to average net assets 6 (%) 1.67 9 1.69 1.67 1.69 --
Ratio of net investment income
to average net assets (%) 4.20 9 4.54 4.16 4.10 3.93
Portfolio turnover (%) 3 11 14 15 18
1 Audited by previous auditor.
2 As required, effective 9-1-01 the Fund has adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies, as revised,
relating to the amortization premiums and accretion of discounts on debt
securities. The effect of this change for the year ended 8-31-02 was to
increase net investment income per share by $0.01, increase net realized
and unrealized losses per share by $0.01, and, had the Fund not made these
changes to amortization and accretion, the ratio of net investment income
to average net assets would have been 4.88%, 4.07% and 4.03%, for Class A,
B and C shares, respectively. Per share ratios and supplemental data for
periods prior to 9-1-01 have not been restated to reflect this change in
presentation.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
5 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
6 Does not take into consideration expense reductions during the periods
shown.
7 Class C shares began operations on 4-1-99.
8 Not annualized.
9 Annualized.
See notes to
financial statements.
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock California Tax-Free Income Fund (the "Fund") is a diversified
open-end management investment company registered under the Investment
Company Act of 1940. The Fund seeks a high level of current income,
consistent with the preservation of capital, that is exempt from federal and
California personal income taxes. Since the Fund invests primarily in
California issuers, the Fund may be affected by political, economic or
regulatory developments in the state of California.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights as to voting, redemptions, dividends and
liquidation, except that certain expenses, subject to the approval of the
Trustees, may be applied differently to each class of shares in accordance
with current regulations of the Securities and Exchange Commission and the
Internal Revenue Service. Shareholders of a class that bears distribution
and service expenses under the terms of a distribution plan have exclusive
voting rights to that distribution plan.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at fair
value as determined in good faith in accordance with procedures approved by
the Trustees. Short-term debt investments maturing within 60 days are
valued at amortized cost, which approximates market value.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies having
a management contract with John Hancock Advisers, LLC (the "Adviser"), a
wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate
in a joint repurchase agreement transaction. Aggregate cash balances are
invested in one or more large repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring
that the agreement is fully collateralized at all times.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis. Some securities may be purchased on
a "when-issued" or "forward commitment" basis, which means that the
securities will be delivered to the Fund at a future date, usually beyond the
customary settlement date.
Discount and premium on securities
The Fund accretes discount and amortizes premium from par value on securities
from either the date of issue or the date of purchase over the life of the
security.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on
the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual fund.
Expenses that are not readily identifiable to a specific fund will be
allocated in such a manner as deemed equitable, taking into consideration,
among other things, the nature and type of expense and the relative sizes
of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Fund has entered into a
syndicated line of credit agreement with various banks. This agreement
enables the Fund to participate with other funds managed by the Adviser in an
unsecured line of credit with banks, which permits borrowings of up to $250
million, collectively. Interest is charged to each fund, based on its
borrowing. In addition, a commitment fee is charged to each fund based on the
average daily unused portion of the line of credit and is allocated among the
participating funds. The Fund had no borrowing activity under the line of
credit during the year ended August 31, 2003.
Financial futures contracts
The Fund may buy and sell financial futures contracts. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instrument or hedge
other Fund's instruments. At the time the Fund enters into a financial
futures contract, it is required to deposit with its custodian a specified
amount of cash or U.S. government securities, known as "initial margin,"
equal to a certain percentage of the value of the financial futures contract
being traded. Each day, the futures contract is valued at the official
settlement price of the board of trade or U.S. commodities exchange on which
it trades. Subsequent payments to and from the broker, known as "variation
margin," are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," are recorded by the Fund as unrealized gains or
losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into financial futures contracts include the possibility that there
may be an illiquid market and/or that a change in the value of the contracts
may not correlate with changes in the value of the underlying securities. In
addition, the Fund could be prevented from opening or realizing the benefits
of closing out financial futures positions because of position limits or
limits on daily price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of financial futures
contracts.
The Fund had no open financial futures contracts on August 31, 2003.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income ax provision is required. For
federal income tax purposes, the Fund has $9,082,208 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward is
used by the Fund, no capital gain distributions will be made. The loss
carryforward expires as follows: August 31, 2003 -- $3,777,974, August 31,
2004 -- $2,378,578, August 31, 2005 -- $7,774, August 31, 2006 -- $679,515,
August 31, 2008 -- $968,588 and August 31, 2011 -- $1,269,779. Net capital
losses of $1,382,557 that are attributable to security transactions
incurred after October 31, 2002, are treated as arising on September 1,
2003, the first day of the Fund's next taxable year.
Interest and distributions
Interest income on investment securities is recorded on the accrual basis.
The Fund records distributions to shareholders from net investment income and
net realized gains on the ex-dividend date. The Fund's net investment income
is declared daily as dividends to shareholders of record as of the close of
business on the preceding day, and distributed monthly. During the year ended
August 31, 2003, the tax character of distributions paid was as follows:
ordinary income $124,744 and $18,444,925 of exempt income. Distributions paid
by the Fund with respect to each class of shares are calculated in the same
manner, at the same time and are in the same amount, except for the effect of
expenses that may be applied differently to each class.
As of August 31, 2003, the components of distributable earnings on a tax
basis included $294,730 of undistributed exempt income.
Such distributions and distributable earnings, on a tax basis, are
determined in conformity with income tax regulations, which may differ from
accounting principles generally accepted in the United States of America.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported
amount of assets, liabilities, revenues and expenses of the Fund. Actual
results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under the
investment management contract, until June 30, 2003, the Fund paid a monthly
management fee to the Adviser at an annual rate of 0.55% of the Fund's
average daily net asset value. Effective July 1, 2003, the Fund pays a
monthly management fee to the advisor equivalent, on an annual basis, to the
sum of: (a) 0.55% of the first $500,000,000 of the Fund's average daily net
asset value and (b) 0.50% of the Fund's average daily net asset value in
excess of $500,000,000.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"), a
wholly owned subsidiary of the Adviser. The Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1
under the Investment Company Act of 1940 to reimburse JH Funds for the
services it provides as distributor of shares of the Fund. Accordingly, the
Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.15%
of Class A average daily net assets and 1.00% of Class B and Class C average
daily net assets. A maximum of 0.25% of such payments may be service fees as
defined by the Conduct Rules of the National Association of Securities
Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
Class A and Class C shares are assessed up-front sales charges. During the
year ended August 31, 2003, JH Funds received net up-front sales charges of
$344,225 with regard to sales of Class A shares. Of this amount, $44,422
was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $284,108 was paid as sales commissions to
unrelated broker-dealers and $15,695 was paid as sales commissions to sales
personnel of Signator Investors, Inc. ("Signator Investors"), a related
broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance
Company ("JHLICo"), is the indirect sole shareholder of Signator Investors.
During the year ended August 31, 2003, JH Funds received net up-front sales
charges of $38,251 with regard to sales of Class C shares. Of this amount,
$37,800 was paid as sales commissions to unrelated broker-dealers and $451
was paid as sales commissions to sales personnel of Signator Investors.
Class B shares that are redeemed within six years of purchase are subject
to a contingent deferred sales charge ("CDSC") at declining rates,
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Class C shares that are redeemed within one year of purchase are subject to
a CDSC at a rate of 1.00% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSCs are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution-related
services to the Fund in connection with the sale of Class B and Class C
shares. During the year ended August 31, 2003, CDSCs received by JH Funds
amounted to $96,443 for Class B shares and $5,665 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a monthly
transfer agent fee at an annual rate of 0.01% of the Fund's average daily
net asset value, plus a fee based on the number of shareholder accounts and
reimbursement for certain out-of-pocket expenses, aggregated and allocated
to each class on the basis of its relative net asset value.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the year
was at an annual rate of approximately 0.03% of the average net assets of
the Fund.
Ms. Maureen Ford Goldfarb and Mr. John M. DeCiccio are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of the
Fund. The compensation of unaffiliated Trustees is borne by the Fund. The
unaffiliated Trustees may elect to defer for tax purposes their receipt of
this compensation under the John Hancock Group of Funds Deferred Compen
sation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are
recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to
market on a periodic basis to reflect any income earned by the investments
as well as any unrealized gains or losses. The Deferred Compensation Plan
investments had no impact on the operations of the Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding
dollar value. The Fund has an unlimited number of shares authorized with no
par value.
YEAR ENDED 8-31-02 1 YEAR ENDED 8-31-03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 6,481,257 $70,657,873 3,225,987 $35,445,018
Distributions reinvested 656,541 7,150,009 747,678 8,205,314
Repurchased (5,558,887) (60,491,775) (6,314,433) (69,193,527)
Net increase (decrease) 1,578,911 $17,316,107 (2,340,768) ($25,543,195)
CLASS B SHARES
Sold 916,586 $10,014,136 408,022 $4,509,993
Distributions reinvested 104,107 1,131,811 117,508 1,290,283
Repurchased (2,371,696) (25,893,410) (1,203,179) (13,155,596)
Net decrease (1,351,003) ($14,747,463) (677,649) ($7,355,320)
CLASS C SHARES
Sold 482,735 $5,283,143 353,398 $3,894,916
Distributions reinvested 14,262 155,160 24,409 268,074
Repurchased (151,537) (1,637,529) (290,012) (3,181,594)
Net increase 345,460 $3,800,774 87,795 $981,396
NET INCREASE (DECREASE) 573,368 $6,369,418 (2,930,622) ($31,917,119)
1 Audited by previous auditor.
NOTE D
Investment transactions
Purchases and proceeds from sales or maturities of securities, other than
short-term securities and obligations of the U.S. government, during the
year ended August 31, 2003, aggregated $69,587,909 and $98,754,963,
respectively.
The cost of investments owned on August 31, 2003, including short-term
investments, for federal income tax purposes was $350,440,715. Gross
unrealized appreciation and depreciation of investments aggregated
$25,942,675 and $6,223,385, respectively, resulting in net unrealized
appreciation of $19,719,290. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable primarily
to amortization of premiums and accretion of discounts on debt securities.
NOTE E
Reclassification of accounts
During the year ended August 31, 2003, the Fund reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of
$4,000,375, a decrease in accumulated net investment income of $287,646 and a
decrease in capital paid-in of $3,712,729. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of August 31, 2003. Additional adjustments may be
needed in subsequent reporting periods. These reclassifications, which have
no impact on the net asset value of the Fund, are primarily attributable to
accretion of market discount tax adjustment, certain differences in the
computation of distributable income and capital gains under federal tax rules
versus accounting principles generally accepted in the United States of
America, and book and tax differences in accounting for deferred
compensation. The calculation of net investment income per share in the
Fund's Financial Highlights excludes these adjustments.
NOTE F
Change in Independent Auditor
Based on the recommendation of the Audit Committee of the Fund, the Board of
Trustees has determined not to retain Ernst & Young LLP as the Fund's
independent auditor and voted to appoint Deloitte & Touche LLP for the fiscal
year ended August 31, 2003. During the two most recent fiscal years, Ernst &
Young LLP's audit reports contained no adverse opinion or disclaimer of
opinion; nor were their reports qualified as to uncertainty, audit scope, or
accounting principles. Further, there were no disagreements between the Fund
and Ernst & Young LLP on accounting principles, financial statements
disclosure or audit scope, which, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused them to make reference to the
disagreement in their reports.
AUDITORS'
REPORT
Report of
Deloitte & Touche
LLP, Independent
Auditors
To the Board of Trustees and Shareholders of John Hancock California
Tax-Free Income Fund,
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the John Hancock California
Tax-Free Income Fund (the "Fund") as of August 31, 2003, and the related
statement of operations, the statement of changes in net assets, and the
financial highlights for the year ended August 31, 2003. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of
changes in net assets for the year ended August 31, 2002, and the financial
highlights for each of the years in the four-year period then ended, were
audited by other auditors whose report dated October 4, 2002, expressed an
unqualified opinion on such statement and financial highlights.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of August 31, 2003,
by correspondence with the custodian and brokers or by other appropriate
auditing procedures where replies from brokers were not received. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the Fund as of August 31, 2003, the results of its operations, the
changes in its net assets, and the financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
October 10, 2003
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund, if any, paid during its taxable
year ended August 31, 2003.
None of the 2003 income dividends qualify for the corporate
dividends-received deduction. Shareholders who are not subject to the
alternative minimum tax received income dividends that are 99.21% tax-exempt.
The percentage of income dividends from the Fund subject to the alternative
minimum tax is 3.49%. None of the income dividends were derived from U.S.
Treasury Bills.
For specific information on exception provisions in your state, consult
your local state tax officer or your tax adviser. Shareholders will be
mailed a 2003 U.S. Treasury Department Form 1099-DIV in January 2004. This
will reflect the total of all distributions that are taxable for calendar
year 2003.
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock Fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
James F. Carlin, Born: 1940 1994 32
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since
1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since
1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance
Agency, Inc. (since 1996); Director and Treasurer, Rizzo Associates (until 2000);
Chairman and CEO, Carlin Consolidated, Inc. (management/investments)
(since 1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee,
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director
of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance)
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc.
(until 1999), Carlin Insurance Agency, Inc. (until 1999); Chairman,
Massachusetts Board of Higher Education (until 1999).
William H. Cunningham, Born: 1944 1989 32
Former Chancellor, University of Texas System and former President of the
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies
(until 2001); Director of the following: The University of Texas Investment
Management Company (until 2000), Hire.com (since 2000), STC Broadcasting,
Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. (since 2001), Adorno/
Rogers Technology, Inc. (since 2001), Pinnacle Foods Corporation (since 2001),
rateGenius (since 2001), LaQuinta Motor Inns, Inc. (hotel management company)
(until 1998), Jefferson-Pilot Corporation (diversified life insurance company)
(since 1985), New Century Equity Holdings (formerly Billing Concepts) (until 2001),
eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001),
LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor
Worldwide (until 2000), AskRed.com (until 2001), Southwest Airlines (since 2000)
and Introgen (since 2000); Advisory Director, Q Investments (since 2000); Advisory
Director, Chase Bank (formerly Texas Commerce Bank -- Austin) (since 1988),
LIN Television (since 2002) and WilTel Communications (since 2002).
Ronald R. Dion, Born: 1946 1998 32
Chairman and Chief Executive Officer, R.M. Bradley & Co., Inc.; Director,
The New England Council and Massachusetts Roundtable; Trustee, North
Shore Medical Center; Director, BJ's Wholesale Club, Inc. and a corporator
of the Eastern Bank; Trustee, Emmanuel College.
Charles L. Ladner,2 Born: 1938 1994 32
Chairman and Trustee, Dunwoody Village, Inc. (retirement services);
Senior Vice President and Chief Financial Officer, UGI Corporation
(Public Utility Holding Company) (retired 1998); Vice President and
Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas
Partners, L.P. (until 1997) (gas distribution); Director, EnergyNorth, Inc.
(until 1995); Director, Parks and History Association (since 2001).
Steven Pruchansky, Born: 1944 1994 32
Chairman and Chief Executive Officer, Mast Holdings, Inc. (since 2000);
Director and President, Mast Holdings, Inc. (until 2000); Managing
Director, JonJames, LLC (real estate) (since 2001); Director, First Signature
Bank & Trust Company (until 1991); Director, Mast Realty Trust (until
1994); President, Maxwell Building Corp. (until 1991).
Norman H. Smith, Born: 1933 1994 32
Lieutenant General, United States Marine Corps; Deputy Chief of Staff for
Manpower and Reserve Affairs, Headquarters Marine Corps; Commanding
General III Marine Expeditionary Force/3rd Marine Division (retired 1991).
John P. Toolan,2 Born: 1930 1994 32
Director, The Smith Barney Muni Bond Funds, The Smith Barney Tax-Free
Money Funds, Inc., Vantage Money Market Funds (mutual funds), The
Inefficient-Market Fund, Inc. (closed-end investment company); Chairman,
Smith Barney Trust Company of Florida (retired 1991); Director, Smith
Barney, Inc., Mutual Management Company and Smith Barney Advisers, Inc.
(investment advisers) (retired 1991); Senior Executive Vice President, Director
and member of the Executive Committee, Smith Barney, Harris Upham & Co.,
Incorporated (investment bankers) (until 1991).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 54
Trustee
Executive Vice President and Chief Investment Officer, John Hancock
Financial Services, Inc.; Director, Executive Vice President and Chief
Investment Officer, John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life Insurance Company;
Director, John Hancock Subsidiaries, LLC (Subsidiaries, LLC), Hancock
Natural Resource Group, Independence Investment LLC, Declaration
Management Research LLC, John Hancock Advisers, LLC (the "Adviser"),
The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock
Funds, LLC ("John Hancock Funds") and Massachusetts Business Development
Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance
Agency, Inc.") (until 1999).
Maureen Ford Goldfarb, Born: 1955 2000 54
Trustee, Chairman, President and Chief Executive Officer
Executive Vice President, John Hancock Financial Services, Inc., John
Hancock Life Insurance Company; Chairman, Director, President and
Chief Executive Officer, the Adviser and The Berkeley Group; Chairman,
Director, President and Chief Executive Officer, John Hancock Funds;
Chairman, Director, President and Chief Executive Officer, Sovereign Asset
Management Corporation ("SAMCorp."); Director, Independence
Investment LLC, Subsidiaries, LLC and Signature Services; Senior Vice
President, MassMutual Insurance Co. (until 1999).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock
Funds and The Berkeley Group; Second Vice President and Senior Associate Controller,
Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 1994
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of the John Hancock funds;
Vice President, John Hancock Funds.
William H. King, Born: 1952 1994
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each
of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1994
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each
of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or her
successor is elected.
2 Member of Audit Committee.
3 Interested Trustees hold positions with the Fund's investment adviser,
underwriter and certain other affiliates.
OUR FAMILY
OF FUNDS
- -------------------------------------------------------
Equity Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Growth Trends Fund
International Fund
Large Cap Equity Fund
Large Cap Growth Fund
Large Cap Select Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
- -------------------------------------------------------
Sector Biotechnology Fund
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
Technology Fund
- -------------------------------------------------------
Income Bond Fund
Government Income Fund
High Income Fund
High Yield Bond Fund
Investment Grade Bond Fund
Strategic Income Fund
- -------------------------------------------------------
Tax-Free Income California Tax-Free Income Fund
High Yield Municipal Bond Fund
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Tax-Free Bond Fund
- -------------------------------------------------------
Money Market Money Market Fund
U.S. Government Cash Reserve
For more complete information on any John Hancock Fund and a prospectus,
which includes charges and expenses, call your financial professional, or
John Hancock Funds at 1-800-225-5291. Please read the prospectus carefully
before investing or sending money.
ELECTRONIC
DELIVERY
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John Hancock Funds
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the U.S. mail, we'll notify you by e-mail when these documents are
available for online viewing.
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notification as soon as the document is ready for online viewing.
* Reduces the amount of paper mail you receive from John Hancock Funds.
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Sign up for electronic delivery today at
www.jhancock.com/funds/edelivery
FOR YOUR
INFORMATION
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, Massachusetts 02116-5022
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By express mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
The Fund's voting policies and procedures are available without
charge, upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site www.sec.gov
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhancock.com/funds/edelivery
This report is for the information of
the shareholders of the John Hancock
California Tax-Free Income Fund.
5300A 8/03
10/03
ITEM 2. CODE OF ETHICS.
As of the end of the period, August 31, 2003, the registrant has adopted a code
of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief
Executive Officer, Chief Financial Officer and Treasurer (respectively, the
principal executive officer, the principal financial officer and the principal
accounting officer, the "Senior Financial Officers"). A copy of the code of
ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Charles L. Ladner is the audit committee financial expert and is "independent",
pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's principal executive officer and principal financial officer
have concluded that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics for Senior Financial Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule
30a-2(b) under the Investment Company Act of 1940, are attached. The
certifications furnished pursuant to this paragraph are not deemed to be "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section. Such certifications are not deemed to
be incorporated by reference into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that the Registrant
specifically incorporates them by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By:
------------------------------
Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Date: October 29, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:
-------------------------------
Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Date: October 29, 2003
By:
-----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: October 29, 2003