April 26, 2004
EDGAR
United States Securities and
Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form N-CSR
John Hancock California Tax-Free Income Fund (the "Registrant")
File Nos. 33-31675; 811-5979
Ladies and Gentlemen:
Enclosed herewith for filing pursuant to the Investment Company Act of 1940 and
the Securities Exchange Act of 1934 is the Registrant's Form N-CSR filing for
the period ending February 29, 2004.
If you have any questions or comments regarding this filing, please contact the
undersigned at (617) 375-1513.
Sincerely,
/s/Alfred P. Ouellette
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
ITEM 1. REPORT TO STOCKHOLDERS.
JOHN HANCOCK
California Tax-Free
Income Fund
2.29.2004
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of 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
For your information
page 29
Dear Fellow Shareholders,
The stock market continued its advance in the first two months of 2004,
prolonging last year's strong rebound after three down years. The same
factors that produced double-digit returns in a broad-based rally in 2003
were still at work in the new year: a rebounding economy, fueled by
historically low interest rates and tax cuts, and improving corporate
earnings. However, the market staged a correction in March that took back the
year's advances and left many wondering what the market would do next. Bonds,
which had their fourth straight year of gains in 2003, albeit on a more
modest scale, also started 2004 on the right foot, producing positive total
returns.
No matter what this year brings, one thing is certain: the stock market has
just experienced nine straight years of very extreme returns. From 1995
through 1999, we saw double-digit returns in excess of 20% per year, only
to have 2000 through 2002 produce ever-increasing negative results,
followed by another 20%-plus gain last year. After such a performance, we
could be in for a more modest, less exciting year. But history also shows
that this pattern is typical. The market, as measured by the Standard &
Poor's 500 Index, has produced average annual results of 10.4% since 1926.
However, that "normal" return is rare in any given year. In fact, since
1926, the S&P 500 has produced returns of 10%-12% in only three calendar
years, according to Ibbotson. The stock market is indeed a market of
extremes.
Although the past in no way predicts the future, we have learned at least
one lesson from history: expect highs and lows in the short term, but
always invest for the long term. Equally important: work with your
financial adviser to maintain a diversified portfolio, spread out among not
only different asset classes -- stocks, bonds and cash -- but also among
various investment styles. It's the best way we know of to benefit from,
and weather, the market's extremes.
Sincerely,
/S/ MAUREEN FORD GOLDFARB
Maureen Ford Goldfarb,
Chairman and Chief Executive Officer
This commentary reflects the chairman's views as of February 29, 2004. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
a high level of
current income,
consistent with
preservation of
capital, that is
exempt from fed-
eral and California
personal income
taxes. In pursu-
ing this goal, the
fund normally
invests at least
80% of its assets
in securities of any
maturity exempt
from federal and
California personal
income tax.
Over the last six months
* The U.S. bond market rallied despite better economic conditions;
municipal bonds outperformed the major taxable bond sectors.
* The Fund outperformed its benchmark index and peer group average thanks
to favorable results from its tobacco and essentialservices bonds.
* The Fund also benefited from the strong performance of its longer-term bonds.
[Bar chart with heading "John Hancock California Tax-Free Income Fund."
Under the heading is a note that reads "Fund performance for the six moths
ended February 29, 2004." The chart is scaled in increments of 4% with 0%
at the bottom and 8% at the top. The first bar represents the 7.63% total
return for Class A. The second bar represents the 7.18% total return for
Class B. The third bar represents the 7.18% 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
4.4% Foothill/Eastern Trans. Corridor Agency, 1-1-34, 6.000%
3.3% Sacramento Power Auth., 7-1-22, 6.000%
3.2% Santa Ana Financing Auth., 7-1-24, 6.250%
2.8% Puerto Rico Aqueduct and Sewer Auth., 7-1-11, 10.710%
2.7% San Bernardino, County of, 8-1-17, 5.500%
2.0% Puerto Rico, Commonwealth of, 7-1-15, 6.500%
1.8% Santa Clara County Finance Auth., 5-15-17, 5.500%
1.6% California, State of, 4-1-29, 4.750%
1.5% California State Public Works Board, 1-1-15, 5.500%
1.5% California State Public Works Board, 12-1-19, 5.000%
As a percentage of net assets on February 29, 2004.
1
BY DIANNE SALES, CFE, AND JAMES T. COLBY III, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
California Tax-Free Income Fund
The U.S. bond market, and municipal bonds in particular, posted solid gains
during the six months ended February 29, 2004. Contrary to expectations,
bond yields fell amid evidence of a firm economic recovery. A rebound in
manufacturing activity and increased capital spending by corporate America
provided a boost to the economy, which grew at an 8% annual rate in the
third quarter of 2003 -- its strongest quarter in nearly 20 years -- and a
4% annual rate in the fourth quarter.
The notable exception to the generally rosy economic environment was
persistent weakness in the labor market. The lack of job growth cast some
doubt on the sustainability of the recovery and was one reason the Federal
Reserve held short-term interest rates steady at their lowest levels in 45
years. The combination of a "jobless recovery" and stable Fed interest rate
policy led investors to push bond yields lower and bond prices higher
during the six-month period. Municipal bonds outperformed the major taxable
segments of the domestic bond market.
"The U.S. bond market,
and municipal bonds in
particular, posted solid
gains during the six
months ended February
29, 2004."
CALIFORNIA'S FISCAL WOES
The six-month period was an eventful one for the state of California. The
legislature struggled to pass a 2004 budget, Governor Gray Davis was
recalled and Arnold Schwarzenegger elected to replace him. And despite a
ballooning budget deficit, the state failed to make any meaningful spending
cuts. As a result, the state of California was downgraded by the major
rating agencies and now has the worst credit rating of any state in the
country. To pay off $14 billion in short-term debt that matures this
summer, the state recently received voter approval to issue $15 billion in
longer-term bonds.
2
[Photos of Dianne Sales and James Colby flush right next to first
paragraph.]
We believe this is a sensible solution to California's short-term financial
predicament, though it is likely to take several more years for the state
to work through all of its fiscal problems and get its budget back in
order. While the state's fiscal recovery will lag behind that of other
states, the economic recovery in California has kept pace with the rest of
the nation. California is home to the fifth-largest economy in the world,
and we believe the size, breadth and diversity of this economy will ensure
its long-term success.
FUND PERFORMANCE
For the six months ended February 29, 2004, John Hancock California
Tax-Free Income Fund's Class A, Class B and Class C shares posted total
returns of 7.63%, 7.18% and 7.18%, respectively, at net asset value. The
average California municipal debt fund returned 6.90%, according to Lipper,
Inc.,1 while the return of the Lehman Brothers Municipal Bond Index was
6.52%. Keep in mind that your net asset value return will be different from
the Fund's performance if you were not invested in the Fund for the entire
period and did not reinvest all distributions. See pages six and seven for
historical performance information.
TOBACCO AND ESSENTIAL SERVICES LEAD
Favorable security selection in key market sectors contributed to the
Fund's outperformance of the index and its peer group average. In
particular, the portfolio's tobacco-related municipal bonds gained nearly
18% during the six-month period. Tobacco bonds, which are backed by the
proceeds from a legal settlement between 46 states -- including California
- -- and tobacco companies, rebounded sharply after pending litigation
involving one of the major tobacco companies was temporarily resolved.
Unenhanced tobacco bonds comprised about 5% of the portfolio throughout the
period, and we expect to maintain this position going forward.
"Favorable security selec-
tion in key market sectors
contributed to the Fund's
outperformance..."
The portfolio's essential-purpose bonds continued to produce solid results.
With general tax revenues still sluggish, investors flocked to securities
with relatively stable revenue streams, and
3
municipal bonds backed by essential services -- such as water, sewer and
electric utilities -- benefited from this demand. Land-development bonds also
fared well thanks to low mortgage rates and higher real estate prices.
[Table at top left-hand side of page entitled "Top five industry groups2."
The first listing is General obligation 14%, the second is Authority 11%,
the third is Health 8%, the fourth is Transportation 7% and the fifth is
Water & sewer 7%.]
LONG-TERM BONDS BOOST PERFORMANCE
The strong returns of the portfolio's long-term bonds also enhanced Fund
performance. Bonds with longer maturities experience greater price
fluctuations when interest rates move up or down, and the general decline
in yields during the six-month period produced healthy price gains among
longer-term municipal bonds.
The portfolio had a sizable position in long-term bonds for most of 2003,
but we have been gradually reducing this position in recent months. For
example, the Fund's exposure to bonds maturing in 25 years or more declined
from 25% of the portfolio at the beginning of the period to 21% by the end
of February. With bond yields hovering near historic lows, we believe the
next major interest rate move is likely to be higher, so we are reducing
the portfolio's volatility by selling some of its longer-term securities.
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 2-29-04." The chart is divided into three
sections (from top to left): Revenue bonds 84%, General obligation bonds
14% and Short-term investments and other 2%.]
FINDING VALUE IN GENERAL OBLIGATION BONDS
California's general obligation (GO) bonds generally lagged the performance
of other bonds, largely because of the state's recent credit rating
downgrade. However, we selectively added California state GO bonds to the
portfolio at a time when prices were especially attractive, and we were
rewarded when they increased in value. We sold most of the portfolio's
state GOs at a
4
tidy profit during a seasonal period of strong demand for
municipal bonds in early 2004.
[Table at top of page entitled "SCORECARD." The header for the left column
is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Longer-term bonds followed by an up arrow with the phrase "Benefited the
most from falling rates." The second listing is Tobacco-related bonds
followed by an up arrow with the phrase "Litigation issues were favorably
resolved." The third listing is Essential-services bonds followed by an up
arrow with the phrase "Stable, dedicated revenue stream."]
OUTLOOK
The economy's recent strength suggests that interest rates will eventually
rise, but the timing of an uptick in rates is less clear. The lack of job
creation, combined with other potential pitfalls such as rising oil prices,
could weaken the pace of economic recovery. As a result, we wouldn't be
surprised to see bond yields remain in a fairly narrow range for much of
2004.
"...we wouldn't be surprised
to see bond yields remain
in a fairly narrow range for
much of 2004."
We believe the deterioration in California's credit quality has bottomed,
and we expect to see higher tax revenues and improving fiscal conditions
going forward. The state's fiscal challenges are far from over, but we view
the state's upcoming bond issuance -- including $15 billion in recovery
bonds and $12 billion in school construction bonds -- as a last best
opportunity to pick up California GO bonds at bargain prices.
In the portfolio, we intend to continue following our current strategy of
reducing the portfolio's overall interest-rate sensitivity and price
volatility. This will allow us to focus on what we believe is our
competitive advantage: individual security selection.
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. The managers' statements
reflect their own opinions. As such, they are in no way guarantees of
future events, and are not intended to be used as investment advice or a
recommendation regarding any specific security. They are also subject to
change at any time as market and other conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
2 Source: J.J. Kenny.
5
A LOOK AT
PERFORMANCE
For the period ended
February 29, 2004
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 0.88% -0.27% 2.71%
Five years 4.11% 3.91% --
Ten years 5.39% 5.25% --
Since inception -- -- 4.00%
Cumulative total returns with maximum sales charge (POP)
Six months 2.78% 2.18% 5.09%
One year 0.88% -0.27% 2.71%
Five years 22.29% 21.13% --
Ten years 69.12% 66.75% --
Since inception -- -- 21.25%
SEC 30-day yield as of February 29, 2004
4.04% 3.39% 3.36%
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.
6
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown the
same investment in the Lehman Brothers Municipal Bond Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are three
lines. The first line represents the Lehman Brothers Municipal Bond Index
and is equal to $18,600 as of February 29, 2004. 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 $17,709 as of February 29, 2004. 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
$16,912 as of February 29, 2004.
Cum Value of $10K Cum Value of $10K Lehman Municipal
Plot Date (No Load) (w/Load) Bond Index
2/28/94 $10,000 $ 9,500 $10,000
6/30/94 9,505 9,078 9,698
12/31/94 9,196 8,782 9,625
6/30/95 10,281 9,818 10,554
12/31/95 11,212 10,707 11,305
6/30/96 11,119 10,619 11,255
12/31/96 11,715 11,188 11,806
6/30/97 12,116 11,571 12,184
12/31/97 12,902 12,321 12,891
6/30/98 13,254 12,658 13,238
12/31/98 13,760 13,140 13,726
6/30/99 13,608 12,996 13,571
12/31/99 13,368 12,767 13,444
6/30/00 13,910 13,284 13,998
12/31/00 14,874 14,204 15,015
6/30/01 15,093 14,414 15,448
12/31/01 15,449 14,754 15,785
6/30/02 15,965 15,246 16,516
12/31/02 16,684 15,934 17,301
6/30/03 17,107 16,337 17,960
12/31/03 17,342 16,562 18,220
2/29/04 17,709 16,912 18,600
Class B 1 Class C 1
Period beginning 2-28-94 4-1-99
Without sales charge $16,675 $12,244
With maximum sales charge $16,675 $12,125
Index $18,600 $13,432
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 February 29, 2004. Performance of
the classes will vary based on the difference in sales charges paid by
shareholders investing in the different classes and the fee structure of
those classes.
1 No contingent deferred sales charge applicable.
7
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
February 29, 2004
(unaudited)
This schedule is divided into two main categories: tax-exempt long-term
bonds and short-term investments. Tax-exempt long-term bonds are broken
down by state or territory. Under each state or territory is a list of
securities owned by the Fund. Short-term investments, which represent the
Fund's cash position, are listed last.
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
TAX-EXEMPT LONG-TERM BONDS 97.99% $375,478,672
(Cost $338,407,226)
California 86.96% 333,202,215
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 4,575,845
Rev San Diego Hosp Assoc Ser 2001A,
08-15-20 6.125 BBB+ 2,000 2,152,700
Anaheim, City of,
Cert of Part Ref Reg Convention Ctr, 07-16-23 11.170# AAA 2,000 2,621,600
Anaheim Public Financing Auth,
Sub Lease Rev Cap Apprec Ser 1997C
Anaheim Pub Imp Proj, 09-01-18 Zero AAA 3,000 1,566,120
Antioch Public Financing Authority,
Reassessment Rev Ser B, 09-02-15 5.850 BB+** 1,410 1,511,915
Belmont Community Facilities District,
Spec Tax Dist No. 2000-1 Library Proj-A,
08-01-24 5.750 Aaa 1,000 1,195,770
California County Tobacco Securitization Agency,
Tobacco Settlement Asset Backed Bond Fresno
County Funding Corp, 06-01-35 6.000 BBB 1,765 1,592,860
Tobacco Settlement Asset Backed Bond Kern
County Corp Ser 2002A, 06-01-43 6.125 BBB 2,000 1,827,720
Tobacco Settlement Asset Backed Bond
Stanislaus County Funding Corp Ser 2002 A,
06-01-33 5.500 Baa2 1,000 894,810
California Department of Water Resources,
Pwr Supply Rev Ser 2002A, 05-01-21 5.375 BBB+ 4,000 4,266,720
California Educational Facilities Auth,
Rev 1993 Ser B Pooled College & Univ Proj,
06-01-09 6.125 Baa2 305 311,893
Rev 2002 Ser A Univ of San Diego, 10-01-32 5.500 A2 1,435 1,549,341
See notes to
financial statements.
8
FINANCIAL STATEMENTS
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
California (continued)
California Health Facilities Financing Auth,
Ins Rev Ref Ser A Catholic Healthcare West
Obligated Group, 07-01-15 5.750% AAA $2,000 $2,154,680
Ins Rev Ref Ser B Hlth Facil Small Facil, 04-01-22 7.500 BBB 2,000 2,152,420
Rev Ser 1994A Scripps Research Institute,
07-01-09 6.300 Aa3 500 515,950
California Infrastructure & Economic
Development Bank,
Rev Bay Area Toll Bridges 1st Lien Ser 2003A,
07-01-29 5.000 AAA 3,000 3,157,680
Rev J David Gladstone Inst Proj, 10-01-34 5.250 A- 1,000 1,043,510
Rev Kaiser Hosp Asst I LLC Ser 2001A, 08-01-31 5.550 A 3,000 3,158,670
California Pollution Control Financing Auth,
Poll Control Rev 1991 Southern Calif
Edison Co, 12-01-17 6.900 BBB 500 500,485
Poll Control Rev 1992 Ser A Pacific Gas &
Elec Co, 06-01-09 6.625 CCC 500 499,900
Poll Control Rev Ref 1996 Ser A Pacific Gas &
Electric Co, 12-01-16 5.350 AAA 1,000 1,093,500
Solid Waste Disposal Rev Keller Canyon
Landfill Co Proj, 11-01-27 6.875 BB- 2,000 2,003,340
California Rural Home Mortgage Finance Auth,
Single Family Mtg Rev Ser A Mtg Backed
Sec's Prog, 11-01-26 7.550 AAA 85 87,790
Single Family Mtg Rev Ser A Mtg Backed
Sec's Prog Step Coupon, 05-01-27 7.750# AAA 90 93,037
California, State of,
GO Unltd, 11-01-24 5.125 BBB 3,500 3,581,550
GO, 04-01-29 4.750 AAA 6,000 6,063,000
California State Public Works Board,
Lease Rev 1996 Ser A Dept of Corrections,
01-01-15 5.500 AAA 5,145 5,598,120
Lease Rev Dept Corrections Ten Admin Ser
2002A, 03-01-27 5.000 AAA 2,000 2,087,140
Lease Rev Ref 1993 Ser A California State
Univ Various Univ Proj, 06-01-21 5.500 A+ 1,250 1,278,600
Lease Rev Ref 1993 Ser A Depart of Corrections
Various State Prisons, 12-01-19 5.000 AAA 5,000 5,556,300
Lease Rev Ser 2003C Dept of Corrections,
06-01-18 5.500 BBB- 5,000 5,440,550
Lease Rev Ser A Dept of Corrections, 01-01-21 5.250 AAA 4,500 4,760,055
See notes to
financial statements.
9
FINANCIAL STATEMENTS
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
California (continued)
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 $1,773,398
Cert of Part Catholic Healthcare West, 07-01-20 6.500 BBB 4,365 4,808,746
Student Hsg Rev Ser 2002A Stonehaven
Apartments Proj, 07-01-26 5.625 A 1,500 1,577,205
Student Hsg Rev Ser 2002A Stonehaven
Apartments Proj, 07-01-32 5.875 A 1,000 1,064,610
California Statewide Financing Auth,
Tobacco Settlement Rev Asset Backed Bond
Pooled Tobacco Sec 2002A, 05-01-29 5.625 Baa2 2,425 2,222,294
Tobacco Settlement Rev Asset Backed Bond
Pooled Tobacco Sec 2002A, 05-01-37 6.000 Baa2 2,500 2,252,025
Tobacco Settlement Rev Asset Backed Bond
Pooled Tobacco Sec 2002B, 05-01-37 6.000 Baa2 4,000 3,603,240
Capistrano Unified School District,
Spec Tax of Community Facil Dist 90-2,
09-01-23 5.875 BB** 500 512,995
Spec Tax of Community Facil Dist 90-2,
09-01-33 6.000 BB** 750 766,890
Spec Tax of Community Facil Dist 92-1,
09-01-21 7.100 AA** 2,150 2,532,958
Spec Tax of Community Facil Dist 98-2,
09-01-29 5.750 BB+** 2,470 2,524,315
Carson, City of,
Imp Bond Act of 1915 Assessment District
No. 2001-1, 09-02-31 6.375 BB+** 1,375 1,418,739
Center Unified School District,
GO Cap Apprec Ser C, 09-01-16 Zero AAA 2,145 1,261,239
Contra Costa County Public Financing Auth,
Lease Rev Ref Various Cap Facs Projs Ser 1999A,
06-01-28 5.000 AAA 3,000 3,120,300
Corona Community Facilities District 97-2,
Special Tax Rev, 09-01-23 5.875 BB+** 1,425 1,468,035
Costa Mesa Public Financing Auth,
1991 Local Agency Rev Ser A, 08-01-21 7.100 BBB** 210 212,272
Culver City Redevelopment Finance Auth,
Rev Ref Sub Tax Alloc Ser 1999B, 11-01-18 6.200 BBB-** 2,000 2,054,760
Del Mar Race Track Auth,
Rev Ref Ser 1996, 08-15-06 6.000 BBB** 1,645 1,718,433
Rev Ref Ser 1996, 08-15-11 6.200 BBB** 1,865 2,022,126
See notes to
financial statements.
10
FINANCIAL STATEMENTS
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
California (continued)
Fairfield Public Financing Auth,
1995 Rev Ser A Pennsylvania Ave Storm
Drainage Proj, 08-01-21 6.500% A $1,085 $1,141,507
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Current Int Ser 1995A,
01-01-32 6.500 AAA 1,665 1,899,432
Toll Rd Rev Fixed Rate Current Int Ser 1995A,
01-01-34 6.000 AAA 14,775 16,650,243
Toll Rd Rev Ref Cap Apprec, 01-15-25 Zero BBB- 6,615 1,981,060
Toll Rd Rev Ref Cap Apprec, 01-15-36 Zero BBB- 30,000 4,562,700
Toll Rd Rev Ref Conv Cap Apprec, 01-15-26 Zero BBB- 5,000 3,850,600
Fresno, City of,
Sewer Rev Ser A-1, 09-01-19 5.250 AAA 1,000 1,158,540
Fresno Joint Powers Financing Auth,
Rev Ser A, 09-02-12 6.550 BBB+ 2,000 2,067,820
Fullerton Community Facilities District No. 1,
Spec Tax Amerige Heights, 09-01-32 6.200 BB** 1,000 1,042,440
Golden State Tobacco Securitization Corp,
Tobacco Settlement Rev Enhanced Asset
Backed Bond, 06-01-21 5.750 BBB- 2,685 2,887,905
Tobacco Settlement Rev Enhanced Asset
Backed Bond, 06-01-28 5.375 BBB- 5,000 5,080,250
Tobacco Settlement Rev Ser 2003-A-1,
06-01-33 6.250 BBB 3,000 2,883,060
Irvine, City of,
Imp Bond Act of 1915 Assessment Dist 95-12
Ser B, 09-02-21 6.550 AA** 1,000 1,047,680
Imp Bond Act of 1915 Assessment
Dist 00-18-GRP 3, 09-02-26 5.550 BB+** 1,000 1,000,720
Mobile Home Park Rev Ser A Meadows
Mobile Home Park, 03-01-28 5.700 BBB-** 4,000 3,751,840
Irvine Ranch Water District,
GO Unltd, 06-01-15 0.920# AAA 2,000 2,000,000
Irwindale Community Redevelopment Agency,
Sub Lien Tax Allocation Industrial Devel Proj,
06-01-26 7.050 BBB** 2,750 2,954,820
Laguna Salada Union School District,
GO Ser 2000C, 08-01-26 Zero AAA 1,000 324,620
Lancaster School District,
Cert of Part Cap Apprec Ref, 04-01-19 Zero AAA 1,730 864,394
Cert of Part Cap Apprec Ref, 04-01-22 Zero AAA 1,380 565,662
Lee Lake Water District Community Facilities
District No. 2,
Spec Tax Montecito Ranch, 09-01-27 6.125 BB** 1,200 1,239,312
See notes to
financial statements.
11
FINANCIAL STATEMENTS
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
California (continued)
Long Beach, City of,
Harbor Rev Ref Ser A, 05-15-18 6.000% AAA $2,660 $3,200,219
Spec Tax Cmty Facil District No. 6 Pike, 10-01-26 6.250 BB-** 2,500 2,590,525
Los Angeles Community Facilities District,
Spec Tax No. 3 Cascades Business Park Proj,
09-01-22 6.400 BB+** 1,000 1,057,400
Los Angeles Community Redevelopment
Financing Auth,
Rev Multi-Family Ser A Grand Central Square,
12-01-26 5.850 BBB- 2,000 1,955,520
Los Angeles Public Works Financing Auth,
Rev Regional Park & Open Space Dist A,
10-01-15 6.000 Aa3 3,750 3,937,237
Los Angeles Unified School District,
GO Election of 1997 Ser E, 07-01-17 5.500 AAA 1,500 1,720,770
Metropolitan Water District of Southern
California,
Wtr Rev Ser 1997A, 07-01-30 5.000 AAA 2,000 2,264,920
Midpeninsula Regional Open Space District,
Cap Apprec, 09-01-30 Zero AAA 3,670 893,645
Millbrae, City of,
Residential Facil Rev Ser 1997A Magnolia of
Millbrae Proj, 09-01-27 7.375 BB** 2,500 2,563,250
New Haven Unified School District,
Cap Apprec Ser B, 08-01-22 Zero AAA 14,200 5,424,258
Northern California Transmission Agency,
Rev 1990 Ser A Calif-Oregon Transm Proj,
05-01-13 7.000 AAA 100 127,325
Oakland, Port of,
Spec Facil Rev 1992 Ser A Mitsui O.S.K.
Lines Ltd Proj, 01-01-19 6.800 BBB 330 331,706
Orange Cove Irrigation District,
Cert of Part Ref Rehab Proj, 02-01-17 5.000 AAA 2,045 2,203,283
Orange, County of,
Cert of Part Recovery Ref Ser A, 07-01-16 5.800 AAA 2,000 2,227,800
Cmty Facil Dist 1 Spec Tax Ladera Ranch
Ser 2000A, 08-15-30 6.250 BB+** 1,000 1,034,910
Cmty Facil Dist Spec Tax No. 02-1 Ladera
Ranch Ser 2003A, 08-15-33 5.550 BB+** 1,000 1,012,980
Impt Bond Act 1915 Ltd Oblig-Phase IV-
No. 01-1-B, 09-02-33 5.750 BB+** 1,570 1,584,632
Paramount Redevelopment Agency,
Tax Allocation Redevel Proj Area No. 1,
08-01-23 5.000 AAA 250 264,830
See notes to
financial statements.
12
FINANCIAL STATEMENTS
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
California (continued)
Paramount Unified School District,
GO Cap Apprec Ser 2001B, 09-01-25 Zero AAA $4,735 $1,606,017
Pasadena, City of,
Cert of Part Ref Old Pasadena Parking Facil Proj,
01-01-18 6.250% AA- 1,155 1,407,460
Poway, City of,
Community Facil Dist No. 88-1 Spec Tax Ref
Pkwy Business Ctr, 08-15-15 6.750 BB** 1,000 1,104,150
Rancho Santa Fe Community Services District,
Cmty Facil Dist No. 1 Spec Tax, 09-01-30 6.700 BB** 1,000 1,058,760
Redondo Beach Public Financing Auth,
Rev South Bay Center Redevel Proj, 07-01-16 7.000 BBB+** 950 1,020,205
Riverside County Asset Leasing Corp,
Leasehold Rev 1993 Ser A Riverside County
Hosp Proj, 06-01-12 6.500 A+ 1,000 1,201,850
Riverside Redevelopment Agency,
Ref Tax Allocation Merged Proj Area, 08-01-23 5.250 AAA 1,905 2,068,601
Sacramento City Financing Auth,
Rev Convention Ctr Hotel Ser 1999A, 01-01-30 6.250 BB+** 5,500 5,512,925
Sacramento, County of,
Cert of Part Juvenile Courthouse Proj, 12-01-28 4.250 AAA 1,000 959,670
Sacramento County Sanitation District
Finance Auth,
Rev Ser 2000A, 12-01-27 5.875 AA 1,500 1,614,690
Sacramento Municipal Utility District,
Rev Ref Ser 2001P, 08-15-21 5.250 AAA 1,000 1,095,140
Sacramento Power Auth,
Cogeneration Proj Rev Light & Pwr Imp,
07-01-22 6.000 BBB- 12,000 12,559,560
San Bernardino, County of,
Cert of Part Ref Med Ctr Fin Proj, 08-01-17 5.500 AAA 8,750 10,191,913
Cert of Part Ser B Cap Facil Proj, 08-01-24 6.875 AAA 350 462,826
San Bruno Park School District,
Cap Apprec Ref Ser 2000B, 08-01-21 Zero AAA 1,015 439,566
Cap Apprec Ref Ser 2000B, 08-01-23 Zero AAA 1,080 412,970
San Diego County Regional Transportation
Commission,
Sales Tax Rev Refunded Bal Ser 1991A, 04-01-06 7.000 AA- 35 35,173
San Diego County Water Auth,
Water Rev Cert of Part Reg, 04-23-08 10.221# AAA 1,000 1,286,780
Water Rev Cert of Part Reg, 04-22-09 10.221# AAA 400 528,800
San Diego Redevelopment Agency,
Tax Allocation Cap Apprec Ser 1999B, 09-01-17 Zero BB** 1,600 797,536
Tax Allocation Cap Apprec Ser 1999B, 09-01-18 Zero BB** 1,700 786,386
See notes to
financial statements.
13
FINANCIAL STATEMENTS
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
California (continued)
Tax Allocation City Heights Proj Ser 1999A,
09-01-23 5.750% BB** $1,000 $1,024,300
Tax Allocation City Heights Proj Ser 1999A,
09-01-28 5.800 BB** 1,395 1,428,508
San Diego Unified School District,
GO Cap Apprec Ser 1999A, 07-01-21 Zero AAA 2,500 1,087,000
GO Election of 1998 Ser 2000B, 07-01-25 5.000 AAA 2,450 2,556,649
San Diego, County of,
Cert of Part Inmate Reception Ctr & Cooling
Plant, 08-01-19 6.750 AAA 3,000 3,134,400
San Francisco City & County Airports Commission,
Int'l Arpts Rev Ref Second Ser-Issue 30,
05-01-17 4.000 AAA 1,000 1,015,020
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 2,575,250
San Francisco State Building Auth,
Lease Rev Ref 1993 Ser A Dept of Gen Serv,
10-01-13 5.000 BBB- 2,145 2,341,246
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Ref Conv Cap Apprec Ser A,
01-15-21 Zero BB 5,000 4,169,400
Toll Rd Rev Sr Lien Cap Apprec, 01-01-14 Zero AAA 5,000 3,438,350
Toll Rd Rev Sr Lien Cap Apprec, 01-01-22 Zero AAA 6,500 2,768,805
San Marcos Public Facilities Auth,
Rev Tax Incr Proj Area 3-A, 08-01-31 6.000 BB** 1,305 1,337,103
San Mateo County Joint Powers Financing Auth,
Lease Rev Ref Cap Proj Prog, 07-01-21 5.000 AAA 1,815 2,023,435
San Mateo County Transportation District,
Sales Tax Rev Ser 1993A, 06-01-19 5.250 AAA 4,000 4,661,680
Santa Ana Financing Auth,
Lease Rev Ser A Police Admin & Holding Facil,
07-01-19 6.250 AAA 1,790 2,241,349
Lease Rev Ser A Police Admin & Holding Facil,
07-01-24 6.250 AAA 10,000 12,380,000
Rev Ref Ser D Mainplace Proj, 09-01-19 5.600 BBB-** 1,000 1,084,740
Santa Clara County Finance Auth,
Lease Rev Ser 2000B Mult Facil Proj, 05-15-17 5.500 AAA 6,000 6,856,740
Santa Margarita Water District,
Spec Tax Cmty Facil Dist No. 99-1, 09-01-30 6.000 BB+** 500 507,590
Santaluz Community Facilities District No. 2,
Spec Tax Imp Area No. 1, 09-01-30 6.375 BB** 1,500 1,544,505
Spec Tax Impt Area No. 4 Ser 2004A, 09-01-24 5.400 BB** 1,370 1,353,601
See notes to
financial statements.
14
FINANCIAL STATEMENTS
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
California (continued)
South Gate Public Financing Auth,
Tax Allocation Rev South Gate Redevel Proj
No. 1, 09-01-19 5.250% AAA $1,000 $1,110,600
Southern California Home Financing Auth,
Single-Family Mtg Rev GNMA & FNMA Mtg
Backed Ser A, 09-01-22 6.750 AAA 110 110,075
Southern California Public Power Auth,
Rev Ref Southern Transm Proj, 07-01-13 Zero AAA 4,400 3,140,940
Tahoe-Truckee Unified School District,
GO Cap Apprec Imp District No. 1-A, 08-01-21 Zero AAA 3,430 1,486,425
Tobacco Securitization Auth,
Northern CA Tobacco Settlement Rev Asset
Backed Bond Ser 2001A, 06-01-41 5.375 BBB 1,000 824,910
Torrance, City of,
Hosp Rev Torrance Memorial Medical Ctr
Ser 2001A, 06-01-31 5.500 A+ 3,500 3,636,150
Tustin Unified School District,
Community Facil Dist No. 97-1, 09-01-35 6.375 BBB-** 1,000 1,216,600
University of California,
Ref Gen Ser 2003A, 05-15-33 5.000 AAA 1,000 1,049,630
Rev Gen Ser 2003B, 05-15-12 5.000 AAA 2,000 2,293,220
Upland Unified School District,
Cap Apprec Election of 2000, 08-01-25 5.125 AAA 1,000 1,069,760
Vallejo Sanitation and Flood Control District,
Cert of Part, 07-01-19 5.000 AAA 2,500 2,809,000
West Covina Redevelopment Agency,
Ref Community Facil Dist Spec Tax Fashion
Plaza Proj, 09-01-22 6.000 AA 3,000 3,616,290
Florida 1.12% 4,285,800
Capital Trust Agency,
Rev Seminole Tribe Convention & Resort Facil
Ser 2002A, 10-01-33 10.000 BB** 2,500 3,109,150
Rev Seminole Tribe Convention & Resort Facil
Ser 2003A, 10-01-33 8.950 BB** 1,000 1,176,650
Puerto Rico 9.91% 37,990,657
Childrens Trust Fund (The),
Tobacco Settlement Asset Backed Bond,
05-15-33 5.375 BBB 980 941,574
Tobacco Settlement Asset Backed Bond,
05-15-39 5.500 BBB 1,000 934,980
Puerto Rico Aqueduct and Sewer Auth,
Rev Parts & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico, 07-01-11 10.710# AAA 7,500 10,533,450
See notes to
financial statements.
15
FINANCIAL STATEMENTS
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Puerto Rico (continued)
Puerto Rico, Commonwealth of,
GO Pub Imp Ser 1996, 07-01-15 6.500% A- $6,000 $7,500,240
GO Ref Pub Imp, 07-01-30 5.125 AAA 2,000 2,122,640
Puerto Rico Highway & Transportation Auth,
Highway Rev Ref 1996 Ser Z, 07-01-14 6.250 AAA 3,250 4,097,308
Ser A-MBIA IBC, 07-01-38 5.000 AAA 5,000 5,194,750
Trans Rev Ser 2000B, 07-01-26 6.000 A 1,000 1,065,830
Puerto Rico Ind'l, Tourist, Ed'l, Medical &
Environmental,
Ctl Facs, Hospital de La Concepcion-A, 11-15-20 6.500 AA 500 594,210
Puerto Rico Infrastructure Financing Auth,
Spec Oblig Bond Ser 2000A, 10-01-32 5.500 AAA 2,000 2,245,800
Puerto Rico Public Finance Corp,
Commonwealth Approp Ser 2002E, 08-01-25 5.700 BBB+ 2,500 2,759,875
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 0.93% $3,537,000
(Cost $3,537,000)
Joint Repurchase Agreement 0.93%
Investment in a joint repurchase agreement
transaction with Barclays Capital, Inc. --
Dated 02-27-04, due 03-01-04 (Secured by
U.S. Treasury Inflation Indexed Bond, 3.875%
due 04-15-29 and U.S. Treasury Inflation
Indexed Note, 2.000% due 01-15-14) 1.000% 3,537 3,537,000
TOTAL INVESTMENTS 98.92% $379,015,672
OTHER ASSETS AND LIABILITIES, NET 1.08% $4,151,135
TOTAL NET ASSETS 100.00% $383,166,807
* Credit ratings are unaudited and rated by Standard & Poor's, Moody's
Investors Service, or Fitch, unless indicated otherwise.
** Security rated internally by John Hancock Advisers, LLC.
# Represents rate in effect on February 29, 2004.
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.
16
FINANCIAL STATEMENTS
PORTFOLIO
CONCENTRATION
February 29, 2004
(unaudited)
This table shows
the percentages
of the Fund's
investments
aggregated
by various
industries.
VALUE AS A PERCENTAGE
INDUSTRY DISTRIBUTION 1 OF NET ASSETS
- -----------------------------------------------------------
General Obligation 13.77%
Revenue Bonds -- Airport 0.26
Revenue Bonds -- Authority 11.03
Revenue Bonds -- Bond Anticipation Note 0.72
Revenue Bonds -- Bridge & Toll Road 1.09
Revenue Bonds -- Building 3.25
Revenue Bonds -- Correctional Facility 4.15
Revenue Bonds -- Economic Development 2.05
Revenue Bonds -- Education 4.01
Revenue Bonds -- Electric 4.71
Revenue Bonds -- Facility 0.68
Revenue Bonds -- Harbor/Channel 0.84
Revenue Bonds -- Health 7.94
Revenue Bonds -- Highway 3.25
Revenue Bonds -- Housing 0.67
Revenue Bonds -- Improvement 1.35
Revenue Bonds -- Industrial Development 0.16
Revenue Bonds -- Industrial Revenue 0.09
Revenue Bonds -- Lease 1.65
Revenue Bonds -- Multi-Family 1.49
Revenue Bonds -- Other 6.34
Revenue Bonds -- Pollution Control 1.07
Revenue Bonds -- Power 0.82
Revenue Bonds -- Recreational Facility 0.41
Revenue Bonds -- Special Tax 4.49
Revenue Bonds -- Roadway/Street 2.71
Revenue Bonds -- Sanitation District 0.42
Revenue Bonds -- School 0.37
Revenue Bonds -- Single-Family 0.08
Revenue Bonds -- Special Assessment 0.67
Revenue Bonds -- Special Obligation 0.59
Revenue Bonds -- Tax Allocation 2.62
Revenue Bonds -- Tax Increment 0.35
Revenue Bonds -- Transportation 7.14
Revenue Bonds -- Water and Sewer 6.75
Total tax-exempt long-term bonds 97.99%
1 Source J.J. Kenny.
See notes to
financial statements.
17
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
February 29, 2004
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
ASSETS
Investments at value (cost $341,944,226) $379,015,672
Cash 414
Receivable for shares sold 98,213
Interest receivable 4,640,743
Other assets 117,309
Total assets 383,872,351
LIABILITIES
Payable for shares repurchased 176,176
Dividends payable 177,683
Payable to affiliates
Management fee 160,154
Distribution and service fee 11,821
Other 32,016
Other payables and accrued expenses 147,694
Total liabilities 705,544
NET ASSETS
Capital paid-in 352,446,021
Accumulated net realized loss on investments (6,483,801)
Net unrealized appreciation of investments 37,071,446
Accumulated net investment income 133,141
Net assets $383,166,807
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($323,265,215 [DIV] 28,991,736 shares) $11.15
Class B ($51,789,172 [DIV] 4,644,994 shares) $11.15
Class C ($8,112,420 [DIV] 727,574 shares) $11.15
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($11.15 [DIV] 95.5%) $11.68
Class C ($11.15 [DIV] 99%) $11.26
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.
18
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
February 29, 2004
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in oper-
ating the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Interest $10,404,247
Total investment income 10,404,247
EXPENSES
Investment management fee 1,038,429
Class A distribution and service fee 236,567
Class B distribution and service fee 268,979
Class C distribution and service fee 41,960
Transfer agent fee 103,535
Accounting and legal services fee 56,642
Custodian fee 52,092
Auditing fee 18,985
Miscellaneous 15,185
Trustees' fee 9,826
Printing 8,406
Registration and filing fee 7,441
Legal fee 3,610
Total expenses 1,861,657
Net investment income 8,542,590
REALIZED AND UNREALIZED GAIN
Net realized gain on investments 653,860
Change in unrealized appreciation
(depreciation) of investments 18,349,176
Net realized and unrealized gain 19,003,036
Increase in net assets from operations $27,545,626
1 Semiannual period from 9-1-03 through 2-29-04.
See notes to
financial statements.
19
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 PERIOD
ENDED ENDED
8-31-03 2-29-04 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $18,859,478 $8,542,590
Net realized gain (loss) (700,785) 653,860
Change in net unrealized
appreciation (depreciation) (15,942,310) 18,349,176
Increase in net assets from operations 2,216,383 27,545,626
Distributions to shareholders
From net investment income
Class A (15,776,720) (7,285,107)
Class B (2,420,927) (1,015,165)
Class C (372,022) (158,375)
(18,569,669) (8,458,647)
From Fund share transactions (31,917,119) (7,657,720)
NET ASSETS
Beginning of period 420,007,953 371,737,548
End of period 2 $371,737,548 $383,166,807
1 Semiannual period from 9-1-03 through 2-29-04. Unaudited.
2 Includes accumulated net investment income of $49,198 and $133,141,
respectively.
See notes to
financial statements.
20
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share has
changed since the end of the previous period.
PERIOD ENDED 8-31-99 1 8-31-00 1 8-31-01 1 8-31-02 1,2 8-31-03 2-29-04 3
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.19 $10.65 $10.69 $11.11 $11.06 $10.60
Net investment income 4 0.56 0.56 0.54 0.54 0.53 0.25
Net realized and unrealized
gain (loss) on investments (0.54) 0.04 0.42 (0.06) (0.47) 0.55
Total from
investment operations 0.02 0.60 0.96 0.48 0.06 0.80
Less distributions
From net investment income (0.56) (0.56) (0.54) (0.53) (0.52) (0.25)
Net asset value,
end of period $10.65 $10.69 $11.11 $11.06 $10.60 $11.15
Total return 5 (%) 0.11 6 5.93 6 9.26 6 4.52 6 0.48 7.63 7
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $307 $306 $331 $347 $308 $323
Ratio of expenses
to average net assets (%) 0.75 0.75 0.80 0.84 0.84 0.85 8
Ratio of adjusted expenses
to average net assets 9 (%) 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 4.66 8
Portfolio turnover (%) 3 11 14 15 18 11
See notes to
financial statements.
21
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 2-29-04 3
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.19 $10.65 $10.69 $11.11 $11.06 $10.60
Net investment income 4 0.48 0.48 0.46 0.45 0.44 0.21
Net realized and unrealized
gain (loss) on investments (0.54) 0.04 0.42 (0.06) (0.47) 0.54
Total from
investment operations (0.06) 0.52 0.88 0.39 (0.03) 0.75
Less distributions
From net investment income (0.48) (0.48) (0.46) (0.44) (0.43) (0.20)
Net asset value,
end of period $10.65 $10.69 $11.11 $11.06 $10.60 $11.15
Total return 5 (%) (0.63) 6 5.14 6 8.45 6 3.67 6 (0.37) 7.18 7
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $99 $81 $80 $65 $55 $52
Ratio of expenses
to average net assets (%) 1.50 1.50 1.55 1.65 1.69 1.70 8
Ratio of adjusted expenses
to average net assets 9 (%) 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 3.81 8
Portfolio turnover (%) 3 11 14 15 18 11
See notes to
financial statements.
22
FINANCIAL HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 8-31-99 1,10 8-31-00 1 8-31-01 1 8-31-02 1,2 8-31-03 2-29-04 3
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.14 $10.65 $10.69 $11.11 $11.06 $10.60
Net investment income 4 0.18 0.47 0.45 0.45 0.43 0.21
Net realized and unrealized
gain (loss) on investments (0.49) 0.04 0.42 (0.06) (0.47) 0.54
Total from
investment operations (0.31) 0.51 0.87 0.39 (0.04) 0.75
Less distributions
From net investment income (0.18) (0.47) (0.45) (0.44) (0.42) (0.20)
Net asset value,
end of period $10.65 $10.69 $11.11 $11.06 $10.60 $11.15
Total return 5 (%) (2.77) 6,7 5.03 6 8.34 6 3.64 6 (0.37) 7.18 7
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1 $3 $4 $8 $9 $8
Ratio of expenses to
average net assets (%) 1.60 8 1.60 1.65 1.69 1.69 1.70 8
Ratio of adjusted expenses
to average net assets 9 (%) 1.67 8 1.69 1.67 1.69 -- --
Ratio of net investment income
to average net assets (%) 4.20 8 4.54 4.16 4.10 3.93 3.81 8
Portfolio turnover (%) 3 11 14 15 18 11
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 of premiums and accretion of discounts on debt
securities. The effect of this change on per share amounts for the year
ended 8-31-02 was to increase net investment income per share by $0.01,
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, Class B and Class C shares, respectively. Per share
ratios and supplemental data for periods prior to 9-1-01 have not been
restated to reflect this change in presentation.
3 Semiannual period from 9-1-03 through 2-29-04. Unaudited.
4 Based on the average of the shares outstanding.
5 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
6 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
7 Not annualized.
8 Annualized.
9 Does not take into consideration expense reductions during the periods
shown.
10 Class C shares began operations on 4-1-99.
See notes to
financial statements.
23
NOTES TO
STATEMENTS
Unaudited
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.
Discount and premium on securities
The Fund accretes discount and amortizes premium from par
24
value on securities from either the date of issue or the
date of purchase over the life of the security.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net asset value of the respective classes.
Distribution and service fees, if any, are calculated daily at the class
level based on the appropriate net asset value of each class and the specific
expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual fund.
Expenses that are not readily identifiable to a specific fund are allocated
in such a manner as deemed equitable, taking into consideration, among
other things, the nature and type of expense and the relative sizes of the
funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Fund has entered into a
syndicated line of credit agreement with various banks. This agreement
enables the Fund to participate, with other funds managed by the Adviser,
in an unsecured line of credit with banks, which permits borrowings of up
to $250 million, collectively. Interest is charged to each fund based on
its borrowing. In addition, a commitment fee is charged to each fund based
on the average daily unused portion of the line of credit, and is allocated
among the participating funds. The Fund had no borrowing activity under the
line of credit during the period ended February 29, 2004.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $5,304,234 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, 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.
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.
Distributions paid by the Fund with respect to each class of shares are
calculated in the same manner, at the same time and are in the same amount,
except for the effect of expenses that may be applied differently to each
class.
Such distributions, on a tax basis, are determined in conformity with income
tax regulations, which may differ from accounting principles generally
accepted in the United States of America. Distributions in excess of tax
basis earnings and profits, if any, are reported in the Fund's financial
statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported
amount of assets, liabilities, revenues and expenses of the Fund. Actual
results could differ from these estimates.
25
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under the
investment management contract, the Fund pays a monthly management fee to
the Adviser equivalent, on an annual basis, to the sum of: (a) 0.55% 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 asset value and 1.00% of Class B and
Class C average daily net asset value. A maximum of 0.25% of such payments
may be service fees, as defined by the Conduct Rules of the National
Association of Securities Dealers. Under the Conduct Rules, curtailment of
a portion of the Fund's 12b-1 payments could occur under certain
circumstances.
Class A and Class C shares are assessed up-front sales charges. During the
period ended February 29, 2004, JH Funds received net up-front sales
charges of $117,280 with regard to sales of Class A shares. Of this amount,
$15,443 was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $88,861 was paid as sales commissions to
unrelated broker-dealers and $12,976 was paid as sales commissions to sales
personnel of Signator Investors, Inc. ("Signator Investors"), a related
broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance
Company ("JHLICo"), is the indirect sole shareholder of Signator Investors.
During the period ended February 29, 2004, JH Funds received net up-front
sales charges of $2,925 with regard to sales of Class C shares, which was
paid as sales commissions to unrelated broker-dealers.
Class B shares that are redeemed within six years of purchase are subject
to a contingent deferred sales charge ("CDSC") at declining rates,
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Class C shares that are redeemed within one year of purchase are subject to
a CDSC at a rate of 1.00% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSCs are paid to JH Funds and are used, in
whole or in part, to defray its expenses for providing distribution-related
services to the Fund in connection with the sale of Class B and Class C
shares. During the period ended February 29, 2004, CDSCs received by JH
Funds amounted to $56,638 for Class B shares and $1,733 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 period
was at an annual rate of approximately 0.03% of the average daily net asset
value of the Fund. The Fund also paid the Adviser the amount of $468 for
certain publishing services, included in the printing fees.
Ms. Maureen Ford Goldfarb is a director and/or officer of
26
the Adviser and/or its affiliates, as well as Trustee of the Fund. The
compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated
Trustees may elect to defer, for tax purposes, their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments
to cover the Fund's deferred compensation liability are recorded on the
Fund's books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a periodic
basis to reflect any income earned by the 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 8-31-03 YEAR ENDED 2-29-04 1
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 3,225,987 $35,445,018 1,501,940 $16,324,729
Distributions reinvested 747,678 8,205,314 368,037 4,031,161
Repurchased (6,314,433) (69,193,527) (1,907,925) (20,809,670)
Net decrease (2,340,768) ($25,543,195) (37,948) ($453,780)
CLASS B SHARES
Sold 408,022 $4,509,993 126,143 $1,364,990
Distributions reinvested 117,508 1,290,283 52,213 571,099
Repurchased (1,203,179) (13,155,596) (739,774) (8,088,709)
Net decrease (677,649) ($7,355,320) (561,418) ($6,152,620)
CLASS C SHARES
Sold 353,398 $3,894,916 27,039 $294,912
Distributions reinvested 24,409 268,074 10,489 114,528
Repurchased (290,012) (3,181,594) (134,422) (1,460,760)
Net increase (decrease) 87,795 $981,396 (96,894) ($1,051,320)
NET DECREASE (2,930,622) ($31,917,119) (696,260) ($7,657,720)
1 Semiannual period from 9-1-03 through 2-29-04. Unaudited.
27
NOTE D
Investment transactions
Purchases and proceeds from sales or maturities of securities, other than
short-term securities and obligations of the U.S. government, during the
period ended February 29, 2004, aggregated $40,495,626 and $48,991,814,
respectively.
The cost of investments owned on February 29, 2004, including short-term
investments, for federal income tax purposes, was $340,953,078. Gross
unrealized appreciation and depreciation of investments aggregated
$39,111,769 and $1,049,175, respectively, resulting in net unrealized
appreciation of $38,062,594. 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.
28
FOR YOUR
INFORMATION
TRUSTEES
James F. Carlin
William H. Cunningham
Ronald R. Dion
Maureen Ford Goldfarb
Charles L. Ladner*
Steven R. Pruchansky
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Maureen Ford Goldfarb
Chairman, President
and Chief Executive Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President and Treasurer
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
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
29
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhancock.com/funds/edelivery
This report is for the information of
the shareholders of the John Hancock
California Tax-Free Income Fund.
530SA 2/04
4/04
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The registrant has adopted procedures by which shareholders may recommend
nominees to the registrant's Board of Trustees. A copy of the procedures is
filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds -
Administration Committee Charter".
ITEM 10. 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 11. EXHIBITS.
(a)(1) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule
30a-2(b) under the Investment Company Act of 1940, are attached. The
certifications furnished pursuant to this paragraph are not deemed to be "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section. Such certifications are not deemed to
be incorporated by reference into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that the Registrant
specifically incorporates them by reference.
(c)(1) Submission of Matters to a Vote of Security Holders is attached.
See attached "John Hancock Funds - Administration Committee Charter".
(c)(2) Approval of Audit, Audit-related, Tax and Other Services is attached.
(c)(3) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By:
- ------------------------------
Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Date: April 26, 2004
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: April 26, 2004
By:
- -----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: April 26, 2004