-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UfomfIPvVML6cHM1Fk3FIFPUXsiX7s+CYJVvJOMi28wx9oglGxyR+cUEI7y91G/k ws8G/TVCspFO1KZAmwlaMQ== 0000856671-03-000003.txt : 20031030 0000856671-03-000003.hdr.sgml : 20031030 20031030131740 ACCESSION NUMBER: 0000856671-03-000003 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031030 EFFECTIVENESS DATE: 20031030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN CALIFORNIA TAX FREE INCOME FUND CENTRAL INDEX KEY: 0000856671 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05979 FILM NUMBER: 03966010 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199-7603 BUSINESS PHONE: 7137512400 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: TRANSAMERICA CALIFORNIA TAX FREE INCOME FUND DATE OF NAME CHANGE: 19920703 N-CSR 1 caltxfre.txt JH CALIFORNIA TAX-FREE INCOME FUND 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 Now available from John Hancock Funds Instead of sending annual and semiannual reports and prospectuses through the U.S. mail, we'll notify you by e-mail when these documents are available for online viewing. How does electronic delivery benefit you? * No more waiting for the mail to arrive; you'll receive an e-mail notification as soon as the document is ready for online viewing. * Reduces the amount of paper mail you receive from John Hancock Funds. * Reduces costs associated with printing and mailing. Sign up for electronic delivery today at www.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 EX-99.906 CERT 3 certification906.txt 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the attached Report of John Hancock California Tax-Free Income Fund (the "registrant") on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify that, to the best of such officer's knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. - -------------------------------- Maureen Ford Goldfarb Chairman, President and Chief Executive Officer Dated: October 29, 2003 - ----------------------- Richard A. Brown Senior Vice President and Chief Financial Officer Dated: October 29, 2003 A signed original of this written statement, required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.CERT 4 certification.txt CERTIFICATION CERTIFICATION I, Maureen Ford Goldfarb, certify that: 1. I have reviewed this report on Form N-CSR of the John Hancock California Tax-Free Income Fund (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change 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 has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: _____________ _________________________ Maureen Ford Goldfarb Chairman, President and Chief Executive Officer CERTIFICATION I, Richard A. Brown, certify that 1. I have reviewed this report on Form N-CSR of the John Hancock California Tax-Free Income Fund (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change 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 has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: _____________ _________________________ Richard A. Brown Senior Vice President and Chief Financial Officer EX-99.CODE ETH 5 codeofethics.txt CODE OF ETHICS [J1]JOHN HANCOCK FUNDS CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS General Principles The Trustees of the registered investment companies (the "Funds" or each a "Fund") managed by John Hancock Advisers, LLC (the "Adviser") have adopted this code of ethics (this "Code") setting forth standards of ethics for the 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") of each Fund. All Senior Financial Officers are charged with the duty to maintain the standards set forth below. No Code can address every situation that a Senior Financial Officer might face. As a guiding principle, Senior Financial Officers should strive to implement the spirit as well as the letter of applicable laws, rules and regulations, and to provide the type of clear and complete disclosure and information that Fund shareholders have a right to expect. Honest and Ethical Conduct Each Senior Financial Officer owes a duty to each Fund to act with integrity and honesty in the conduct of his or her duties and responsibilities. Each Senior Financial Officer shall comply with all applicable laws and accounting standards, while adhering to a high standard of business ethics. Avoidance of Conflicts of Interest Senior Financial Officers shall avoid any actual or apparent conflict of interest, direct or indirect, between personal and professional relationships. A Senior Financial Officer should not engage in personal, business or professional relationships or dealings which would impair his or her independence of judgment or adversely affect the performance of his or her duties in the best interests of each Fund and its shareholders. Any relationship or dealing that would present a conflict for a Senior Financial Officer could also present a conflict if it is related to a member of his or her immediate family. Disclosure Senior Financial Officers have a supervisory role with respect to the financial information included in reports filed with regulatory agencies and public disclosures by each Fund, and therefore have particular responsibilities in connection with those communications. * Each Senior Financial Officer shall familiarize himself or herself with the disclosure requirements applicable to each Fund, as well as the business and financial operations of each Fund. * Each Senior Financial Officer shall ensure that reasonable steps are taken within his or her areas of responsibility to promote full, fair, accurate, timely and understandable disclosure in all regulatory filings, as well as when communicating with each Fund's shareholders or the general public, in accordance with applicable law. * No Senior Financial Officer shall violate his or her responsibility to a Fund by knowingly and willfully misrepresenting, or causing others to misrepresent, facts about a Fund to others, including a Fund's independent auditors, governmental regulators or self-regulatory organizations. Compliance with Applicable Law It is each Fund's policy to comply with all applicable laws and governmental rules and regulations. It is the personal responsibility of each Senior Financial Officer to take reasonable steps to adhere to the standards and restrictions imposed by those laws, rules and regulations, including those relating to accounting and auditing matters. Compliance Procedures All Senior Financial Officers are responsible for ensuring that their own conduct complies with this Code. If a Senior Financial Officer is aware of any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest or which might be viewed as potentially affecting his or her performance of Fund responsibilities, the Senior Financial Officer shall notify the Fund's Chief Legal Officer of this transaction or relationship. In addition, any Senior Financial Officer who becomes aware of any existing or potential violation of this Code shall notify the Chief Legal Officer promptly, who shall conduct an appropriate investigation. The Chief Legal Officer shall report any violation of this Code to the Audit Committee of the Fund. If a Senior Financial Officer believes that his or her responsibilities as an officer or employee of the Adviser are likely to materially compromise his or her objectivity or ability to perform the duties of his or her role as an officer of the Funds, he or she should consult with the Adviser's Chief Legal Officer, the Fund's Chief Legal Officer or outside counsel, or counsel to the independent Trustees of the Funds. Under appropriate circumstances, a Senior Financial Officer should also consider whether to present the matter to the Trustees of the Funds or a committee thereof. Anyone who violates the provisions of this Code, fails to report a known violation or refuses to cooperate in the investigation of any potential violation will be subject to disciplinary action, up to and including dismissal. Subject to applicable law, the Audit Committee may waive provisions of this Code. Other Policies and Procedures This Code does not supplant or supercede any other Fund, John Hancock Advisers, LLC or John Hancock Funds, LLC policy or procedure currently in effect or adopted in the future relating to conflicts of interest or business practices. Those policies and procedures are separate requirements applying to the Funds, John Hancock Advisers, LLC or John Hancock Funds, LLC associates generally, including Senior Financial Officers among others, and are not part of this Code. The Trustees of the Funds recognize that the Senior Financial Officers are also officers or employees of the Adviser. Furthermore, the Trustees of the Funds recognize that, subject to the Adviser's fiduciary duties to the Funds, the Senior Financial Officers will in the normal course of their duties (whether formally for the Funds or for the adviser, or for both) be involved in establishing policies and implementing decisions that will have different effects on the Adviser and the Funds. The Trustees of the Funds recognize that the participation of the Senior Financial Officers in such activities is inherent in the contract relationship between the Funds and the Adviser, and is consistent with the expectation of the Trustees of the performance by the Senior Financial Officers of their duties as officers of the Funds. Each Senior Financial Officer recognizes that, as an officer of a Fund, he or she has a duty to act in the best interests of the Fund and its shareholders. Date: May 20, 2003 Compliance 2003/compliance procedures/code of ethics for financial officer 4-03 [J1] 3 1 -----END PRIVACY-ENHANCED MESSAGE-----