-----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, KK1Rp2VOa/x5JI51/RIJVQDHDirtaiTUJqQNM5/BpKglRnKYq2QYBMwsoVd1SdlS 2sNoLvOz7kFQmIBn2XeWeg== 0000856671-04-000002.txt : 20040430 0000856671-04-000002.hdr.sgml : 20040430 20040430145336 ACCESSION NUMBER: 0000856671-04-000002 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040229 FILED AS OF DATE: 20040430 EFFECTIVENESS DATE: 20040430 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: 04769376 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 californiataxfree.txt JH CALIFORNIA TAX-FREE INCOME FUND April 26, 2004 EDGAR United States Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Form N-CSR John Hancock California Tax-Free Income Fund (the "Registrant") File Nos. 33-31675; 811-5979 Ladies and Gentlemen: Enclosed herewith for filing pursuant to the Investment Company Act of 1940 and the Securities Exchange Act of 1934 is the Registrant's Form N-CSR filing for the period ending February 29, 2004. If you have any questions or comments regarding this filing, please contact the undersigned at (617) 375-1513. Sincerely, /s/Alfred P. Ouellette Alfred P. Ouellette Senior Attorney and Assistant Secretary ITEM 1. REPORT TO STOCKHOLDERS. JOHN HANCOCK California Tax-Free Income Fund 2.29.2004 Semiannual Report [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower, center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."] [A photo of Maureen Ford Goldfarb, Chairman and Chief Executive Officer, flush left next to first paragraph.] WELCOME Table of contents Your fund at a glance page 1 Managers' report page 2 A look at performance page 6 Growth of $10,000 page 7 Fund's investments page 8 Financial statements page 18 For your information page 29 Dear Fellow Shareholders, The stock market continued its advance in the first two months of 2004, prolonging last year's strong rebound after three down years. The same factors that produced double-digit returns in a broad-based rally in 2003 were still at work in the new year: a rebounding economy, fueled by historically low interest rates and tax cuts, and improving corporate earnings. However, the market staged a correction in March that took back the year's advances and left many wondering what the market would do next. Bonds, which had their fourth straight year of gains in 2003, albeit on a more modest scale, also started 2004 on the right foot, producing positive total returns. No matter what this year brings, one thing is certain: the stock market has just experienced nine straight years of very extreme returns. From 1995 through 1999, we saw double-digit returns in excess of 20% per year, only to have 2000 through 2002 produce ever-increasing negative results, followed by another 20%-plus gain last year. After such a performance, we could be in for a more modest, less exciting year. But history also shows that this pattern is typical. The market, as measured by the Standard & Poor's 500 Index, has produced average annual results of 10.4% since 1926. However, that "normal" return is rare in any given year. In fact, since 1926, the S&P 500 has produced returns of 10%-12% in only three calendar years, according to Ibbotson. The stock market is indeed a market of extremes. Although the past in no way predicts the future, we have learned at least one lesson from history: expect highs and lows in the short term, but always invest for the long term. Equally important: work with your financial adviser to maintain a diversified portfolio, spread out among not only different asset classes -- stocks, bonds and cash -- but also among various investment styles. It's the best way we know of to benefit from, and weather, the market's extremes. Sincerely, /S/ MAUREEN FORD GOLDFARB Maureen Ford Goldfarb, Chairman and Chief Executive Officer This commentary reflects the chairman's views as of February 29, 2004. They are subject to change at any time. YOUR FUND AT A GLANCE The Fund seeks a high level of current income, consistent with preservation of capital, that is exempt from fed- eral and California personal income taxes. In pursu- ing this goal, the fund normally invests at least 80% of its assets in securities of any maturity exempt from federal and California personal income tax. Over the last six months * The U.S. bond market rallied despite better economic conditions; municipal bonds outperformed the major taxable bond sectors. * The Fund outperformed its benchmark index and peer group average thanks to favorable results from its tobacco and essentialservices bonds. * The Fund also benefited from the strong performance of its longer-term bonds. [Bar chart with heading "John Hancock California Tax-Free Income Fund." Under the heading is a note that reads "Fund performance for the six moths ended February 29, 2004." The chart is scaled in increments of 4% with 0% at the bottom and 8% at the top. The first bar represents the 7.63% total return for Class A. The second bar represents the 7.18% total return for Class B. The third bar represents the 7.18% total return for Class C. A note below the chart reads "Total returns for Fund are at net asset value with all distributions reinvested."] Top 10 holdings 4.4% Foothill/Eastern Trans. Corridor Agency, 1-1-34, 6.000% 3.3% Sacramento Power Auth., 7-1-22, 6.000% 3.2% Santa Ana Financing Auth., 7-1-24, 6.250% 2.8% Puerto Rico Aqueduct and Sewer Auth., 7-1-11, 10.710% 2.7% San Bernardino, County of, 8-1-17, 5.500% 2.0% Puerto Rico, Commonwealth of, 7-1-15, 6.500% 1.8% Santa Clara County Finance Auth., 5-15-17, 5.500% 1.6% California, State of, 4-1-29, 4.750% 1.5% California State Public Works Board, 1-1-15, 5.500% 1.5% California State Public Works Board, 12-1-19, 5.000% As a percentage of net assets on February 29, 2004. 1 BY DIANNE SALES, CFE, AND JAMES T. COLBY III, PORTFOLIO MANAGERS MANAGERS' REPORT JOHN HANCOCK California Tax-Free Income Fund The U.S. bond market, and municipal bonds in particular, posted solid gains during the six months ended February 29, 2004. Contrary to expectations, bond yields fell amid evidence of a firm economic recovery. A rebound in manufacturing activity and increased capital spending by corporate America provided a boost to the economy, which grew at an 8% annual rate in the third quarter of 2003 -- its strongest quarter in nearly 20 years -- and a 4% annual rate in the fourth quarter. The notable exception to the generally rosy economic environment was persistent weakness in the labor market. The lack of job growth cast some doubt on the sustainability of the recovery and was one reason the Federal Reserve held short-term interest rates steady at their lowest levels in 45 years. The combination of a "jobless recovery" and stable Fed interest rate policy led investors to push bond yields lower and bond prices higher during the six-month period. Municipal bonds outperformed the major taxable segments of the domestic bond market. "The U.S. bond market, and municipal bonds in particular, posted solid gains during the six months ended February 29, 2004." CALIFORNIA'S FISCAL WOES The six-month period was an eventful one for the state of California. The legislature struggled to pass a 2004 budget, Governor Gray Davis was recalled and Arnold Schwarzenegger elected to replace him. And despite a ballooning budget deficit, the state failed to make any meaningful spending cuts. As a result, the state of California was downgraded by the major rating agencies and now has the worst credit rating of any state in the country. To pay off $14 billion in short-term debt that matures this summer, the state recently received voter approval to issue $15 billion in longer-term bonds. 2 [Photos of Dianne Sales and James Colby flush right next to first paragraph.] We believe this is a sensible solution to California's short-term financial predicament, though it is likely to take several more years for the state to work through all of its fiscal problems and get its budget back in order. While the state's fiscal recovery will lag behind that of other states, the economic recovery in California has kept pace with the rest of the nation. California is home to the fifth-largest economy in the world, and we believe the size, breadth and diversity of this economy will ensure its long-term success. FUND PERFORMANCE For the six months ended February 29, 2004, John Hancock California Tax-Free Income Fund's Class A, Class B and Class C shares posted total returns of 7.63%, 7.18% and 7.18%, respectively, at net asset value. The average California municipal debt fund returned 6.90%, according to Lipper, Inc.,1 while the return of the Lehman Brothers Municipal Bond Index was 6.52%. Keep in mind that your net asset value return will be different from the Fund's performance if you were not invested in the Fund for the entire period and did not reinvest all distributions. See pages six and seven for historical performance information. TOBACCO AND ESSENTIAL SERVICES LEAD Favorable security selection in key market sectors contributed to the Fund's outperformance of the index and its peer group average. In particular, the portfolio's tobacco-related municipal bonds gained nearly 18% during the six-month period. Tobacco bonds, which are backed by the proceeds from a legal settlement between 46 states -- including California - -- and tobacco companies, rebounded sharply after pending litigation involving one of the major tobacco companies was temporarily resolved. Unenhanced tobacco bonds comprised about 5% of the portfolio throughout the period, and we expect to maintain this position going forward. "Favorable security selec- tion in key market sectors contributed to the Fund's outperformance..." The portfolio's essential-purpose bonds continued to produce solid results. With general tax revenues still sluggish, investors flocked to securities with relatively stable revenue streams, and 3 municipal bonds backed by essential services -- such as water, sewer and electric utilities -- benefited from this demand. Land-development bonds also fared well thanks to low mortgage rates and higher real estate prices. [Table at top left-hand side of page entitled "Top five industry groups2." The first listing is General obligation 14%, the second is Authority 11%, the third is Health 8%, the fourth is Transportation 7% and the fifth is Water & sewer 7%.] LONG-TERM BONDS BOOST PERFORMANCE The strong returns of the portfolio's long-term bonds also enhanced Fund performance. Bonds with longer maturities experience greater price fluctuations when interest rates move up or down, and the general decline in yields during the six-month period produced healthy price gains among longer-term municipal bonds. The portfolio had a sizable position in long-term bonds for most of 2003, but we have been gradually reducing this position in recent months. For example, the Fund's exposure to bonds maturing in 25 years or more declined from 25% of the portfolio at the beginning of the period to 21% by the end of February. With bond yields hovering near historic lows, we believe the next major interest rate move is likely to be higher, so we are reducing the portfolio's volatility by selling some of its longer-term securities. [Pie chart at middle of page with heading "Portfolio diversification As a percentage of net assets on 2-29-04." The chart is divided into three sections (from top to left): Revenue bonds 84%, General obligation bonds 14% and Short-term investments and other 2%.] FINDING VALUE IN GENERAL OBLIGATION BONDS California's general obligation (GO) bonds generally lagged the performance of other bonds, largely because of the state's recent credit rating downgrade. However, we selectively added California state GO bonds to the portfolio at a time when prices were especially attractive, and we were rewarded when they increased in value. We sold most of the portfolio's state GOs at a 4 tidy profit during a seasonal period of strong demand for municipal bonds in early 2004. [Table at top of page entitled "SCORECARD." The header for the left column is "INVESTMENT" and the header for the right column is "PERIOD'S PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is Longer-term bonds followed by an up arrow with the phrase "Benefited the most from falling rates." The second listing is Tobacco-related bonds followed by an up arrow with the phrase "Litigation issues were favorably resolved." The third listing is Essential-services bonds followed by an up arrow with the phrase "Stable, dedicated revenue stream."] OUTLOOK The economy's recent strength suggests that interest rates will eventually rise, but the timing of an uptick in rates is less clear. The lack of job creation, combined with other potential pitfalls such as rising oil prices, could weaken the pace of economic recovery. As a result, we wouldn't be surprised to see bond yields remain in a fairly narrow range for much of 2004. "...we wouldn't be surprised to see bond yields remain in a fairly narrow range for much of 2004." We believe the deterioration in California's credit quality has bottomed, and we expect to see higher tax revenues and improving fiscal conditions going forward. The state's fiscal challenges are far from over, but we view the state's upcoming bond issuance -- including $15 billion in recovery bonds and $12 billion in school construction bonds -- as a last best opportunity to pick up California GO bonds at bargain prices. In the portfolio, we intend to continue following our current strategy of reducing the portfolio's overall interest-rate sensitivity and price volatility. This will allow us to focus on what we believe is our competitive advantage: individual security selection. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. The managers' statements reflect their own opinions. As such, they are in no way guarantees of future events, and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant. 1 Figures from Lipper, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. 2 Source: J.J. Kenny. 5 A LOOK AT PERFORMANCE For the period ended February 29, 2004 Class A Class B Class C Inception date 12-29-89 12-31-91 4-1-99 Average annual returns with maximum sales charge (POP) One year 0.88% -0.27% 2.71% Five years 4.11% 3.91% -- Ten years 5.39% 5.25% -- Since inception -- -- 4.00% Cumulative total returns with maximum sales charge (POP) Six months 2.78% 2.18% 5.09% One year 0.88% -0.27% 2.71% Five years 22.29% 21.13% -- Ten years 69.12% 66.75% -- Since inception -- -- 21.25% SEC 30-day yield as of February 29, 2004 4.04% 3.39% 3.36% Performance figures assume all distributions are reinvested. Returns with maximum sales charge reflect a sales charge on Class A shares of 4.50% and Class C shares of 1%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. The return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than the original cost. The returns reflect past results and should not be considered indicative of future performance. The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Please note that a portion of the Fund's income may be subject to taxes, and some investors may be subject to the Alternative Minimum Tax (AMT). Also note that capital gains are taxable. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. 6 GROWTH OF $10,000 This chart shows what happened to a hypothetical $10,000 investment in Class A shares for the period indicated. For comparison, we've shown the same investment in the Lehman Brothers Municipal Bond Index. Line chart with the heading "GROWTH OF $10,000." Within the chart are three lines. The first line represents the Lehman Brothers Municipal Bond Index and is equal to $18,600 as of February 29, 2004. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock California Tax-Free Income Fund, without sales charge (NAV), and is equal to $17,709 as of February 29, 2004. The third line represents the value of the same hypothetical investment made in the John Hancock California Tax-Free Income Fund, with maximum sales charge (POP), and is equal to $16,912 as of February 29, 2004. Cum Value of $10K Cum Value of $10K Lehman Municipal Plot Date (No Load) (w/Load) Bond Index 2/28/94 $10,000 $ 9,500 $10,000 6/30/94 9,505 9,078 9,698 12/31/94 9,196 8,782 9,625 6/30/95 10,281 9,818 10,554 12/31/95 11,212 10,707 11,305 6/30/96 11,119 10,619 11,255 12/31/96 11,715 11,188 11,806 6/30/97 12,116 11,571 12,184 12/31/97 12,902 12,321 12,891 6/30/98 13,254 12,658 13,238 12/31/98 13,760 13,140 13,726 6/30/99 13,608 12,996 13,571 12/31/99 13,368 12,767 13,444 6/30/00 13,910 13,284 13,998 12/31/00 14,874 14,204 15,015 6/30/01 15,093 14,414 15,448 12/31/01 15,449 14,754 15,785 6/30/02 15,965 15,246 16,516 12/31/02 16,684 15,934 17,301 6/30/03 17,107 16,337 17,960 12/31/03 17,342 16,562 18,220 2/29/04 17,709 16,912 18,600 Class B 1 Class C 1 Period beginning 2-28-94 4-1-99 Without sales charge $16,675 $12,244 With maximum sales charge $16,675 $12,125 Index $18,600 $13,432 Lehman Brothers Municipal Bond Index is an unmanaged index that includes municipal bonds and is commonly used as a measure of bond performance. It is not possible to invest directly in an index. Index figures do not reflect sales charges and would be lower if they did. Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund's Class B and Class C shares, respectively, as of February 29, 2004. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes. 1 No contingent deferred sales charge applicable. 7 FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on February 29, 2004 (unaudited) This schedule is divided into two main categories: tax-exempt long-term bonds and short-term investments. Tax-exempt long-term bonds are broken down by state or territory. Under each state or territory is a list of securities owned by the Fund. Short-term investments, which represent the Fund's cash position, are listed last.
STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE TAX-EXEMPT LONG-TERM BONDS 97.99% $375,478,672 (Cost $338,407,226) California 86.96% 333,202,215 ABAG Finance Authority for Nonprofit Corps, Cert of Part Nat'l Center for Int'l Schools Proj, 05-01-18 7.375% BB+** $4,300 4,575,845 Rev San Diego Hosp Assoc Ser 2001A, 08-15-20 6.125 BBB+ 2,000 2,152,700 Anaheim, City of, Cert of Part Ref Reg Convention Ctr, 07-16-23 11.170# AAA 2,000 2,621,600 Anaheim Public Financing Auth, Sub Lease Rev Cap Apprec Ser 1997C Anaheim Pub Imp Proj, 09-01-18 Zero AAA 3,000 1,566,120 Antioch Public Financing Authority, Reassessment Rev Ser B, 09-02-15 5.850 BB+** 1,410 1,511,915 Belmont Community Facilities District, Spec Tax Dist No. 2000-1 Library Proj-A, 08-01-24 5.750 Aaa 1,000 1,195,770 California County Tobacco Securitization Agency, Tobacco Settlement Asset Backed Bond Fresno County Funding Corp, 06-01-35 6.000 BBB 1,765 1,592,860 Tobacco Settlement Asset Backed Bond Kern County Corp Ser 2002A, 06-01-43 6.125 BBB 2,000 1,827,720 Tobacco Settlement Asset Backed Bond Stanislaus County Funding Corp Ser 2002 A, 06-01-33 5.500 Baa2 1,000 894,810 California Department of Water Resources, Pwr Supply Rev Ser 2002A, 05-01-21 5.375 BBB+ 4,000 4,266,720 California Educational Facilities Auth, Rev 1993 Ser B Pooled College & Univ Proj, 06-01-09 6.125 Baa2 305 311,893 Rev 2002 Ser A Univ of San Diego, 10-01-32 5.500 A2 1,435 1,549,341 See notes to financial statements. 8 FINANCIAL STATEMENTS STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE California (continued) California Health Facilities Financing Auth, Ins Rev Ref Ser A Catholic Healthcare West Obligated Group, 07-01-15 5.750% AAA $2,000 $2,154,680 Ins Rev Ref Ser B Hlth Facil Small Facil, 04-01-22 7.500 BBB 2,000 2,152,420 Rev Ser 1994A Scripps Research Institute, 07-01-09 6.300 Aa3 500 515,950 California Infrastructure & Economic Development Bank, Rev Bay Area Toll Bridges 1st Lien Ser 2003A, 07-01-29 5.000 AAA 3,000 3,157,680 Rev J David Gladstone Inst Proj, 10-01-34 5.250 A- 1,000 1,043,510 Rev Kaiser Hosp Asst I LLC Ser 2001A, 08-01-31 5.550 A 3,000 3,158,670 California Pollution Control Financing Auth, Poll Control Rev 1991 Southern Calif Edison Co, 12-01-17 6.900 BBB 500 500,485 Poll Control Rev 1992 Ser A Pacific Gas & Elec Co, 06-01-09 6.625 CCC 500 499,900 Poll Control Rev Ref 1996 Ser A Pacific Gas & Electric Co, 12-01-16 5.350 AAA 1,000 1,093,500 Solid Waste Disposal Rev Keller Canyon Landfill Co Proj, 11-01-27 6.875 BB- 2,000 2,003,340 California Rural Home Mortgage Finance Auth, Single Family Mtg Rev Ser A Mtg Backed Sec's Prog, 11-01-26 7.550 AAA 85 87,790 Single Family Mtg Rev Ser A Mtg Backed Sec's Prog Step Coupon, 05-01-27 7.750# AAA 90 93,037 California, State of, GO Unltd, 11-01-24 5.125 BBB 3,500 3,581,550 GO, 04-01-29 4.750 AAA 6,000 6,063,000 California State Public Works Board, Lease Rev 1996 Ser A Dept of Corrections, 01-01-15 5.500 AAA 5,145 5,598,120 Lease Rev Dept Corrections Ten Admin Ser 2002A, 03-01-27 5.000 AAA 2,000 2,087,140 Lease Rev Ref 1993 Ser A California State Univ Various Univ Proj, 06-01-21 5.500 A+ 1,250 1,278,600 Lease Rev Ref 1993 Ser A Depart of Corrections Various State Prisons, 12-01-19 5.000 AAA 5,000 5,556,300 Lease Rev Ser 2003C Dept of Corrections, 06-01-18 5.500 BBB- 5,000 5,440,550 Lease Rev Ser A Dept of Corrections, 01-01-21 5.250 AAA 4,500 4,760,055 See notes to financial statements. 9 FINANCIAL STATEMENTS STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE California (continued) California Statewide Communities Development Auth, Ins Rev Cert of Part Statewide Auxiliary Univ Corp CA State Univ, 04-01-26 6.000% AAA $1,620 $1,773,398 Cert of Part Catholic Healthcare West, 07-01-20 6.500 BBB 4,365 4,808,746 Student Hsg Rev Ser 2002A Stonehaven Apartments Proj, 07-01-26 5.625 A 1,500 1,577,205 Student Hsg Rev Ser 2002A Stonehaven Apartments Proj, 07-01-32 5.875 A 1,000 1,064,610 California Statewide Financing Auth, Tobacco Settlement Rev Asset Backed Bond Pooled Tobacco Sec 2002A, 05-01-29 5.625 Baa2 2,425 2,222,294 Tobacco Settlement Rev Asset Backed Bond Pooled Tobacco Sec 2002A, 05-01-37 6.000 Baa2 2,500 2,252,025 Tobacco Settlement Rev Asset Backed Bond Pooled Tobacco Sec 2002B, 05-01-37 6.000 Baa2 4,000 3,603,240 Capistrano Unified School District, Spec Tax of Community Facil Dist 90-2, 09-01-23 5.875 BB** 500 512,995 Spec Tax of Community Facil Dist 90-2, 09-01-33 6.000 BB** 750 766,890 Spec Tax of Community Facil Dist 92-1, 09-01-21 7.100 AA** 2,150 2,532,958 Spec Tax of Community Facil Dist 98-2, 09-01-29 5.750 BB+** 2,470 2,524,315 Carson, City of, Imp Bond Act of 1915 Assessment District No. 2001-1, 09-02-31 6.375 BB+** 1,375 1,418,739 Center Unified School District, GO Cap Apprec Ser C, 09-01-16 Zero AAA 2,145 1,261,239 Contra Costa County Public Financing Auth, Lease Rev Ref Various Cap Facs Projs Ser 1999A, 06-01-28 5.000 AAA 3,000 3,120,300 Corona Community Facilities District 97-2, Special Tax Rev, 09-01-23 5.875 BB+** 1,425 1,468,035 Costa Mesa Public Financing Auth, 1991 Local Agency Rev Ser A, 08-01-21 7.100 BBB** 210 212,272 Culver City Redevelopment Finance Auth, Rev Ref Sub Tax Alloc Ser 1999B, 11-01-18 6.200 BBB-** 2,000 2,054,760 Del Mar Race Track Auth, Rev Ref Ser 1996, 08-15-06 6.000 BBB** 1,645 1,718,433 Rev Ref Ser 1996, 08-15-11 6.200 BBB** 1,865 2,022,126 See notes to financial statements. 10 FINANCIAL STATEMENTS STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE California (continued) Fairfield Public Financing Auth, 1995 Rev Ser A Pennsylvania Ave Storm Drainage Proj, 08-01-21 6.500% A $1,085 $1,141,507 Foothill/Eastern Transportation Corridor Agency, Toll Rd Rev Fixed Rate Current Int Ser 1995A, 01-01-32 6.500 AAA 1,665 1,899,432 Toll Rd Rev Fixed Rate Current Int Ser 1995A, 01-01-34 6.000 AAA 14,775 16,650,243 Toll Rd Rev Ref Cap Apprec, 01-15-25 Zero BBB- 6,615 1,981,060 Toll Rd Rev Ref Cap Apprec, 01-15-36 Zero BBB- 30,000 4,562,700 Toll Rd Rev Ref Conv Cap Apprec, 01-15-26 Zero BBB- 5,000 3,850,600 Fresno, City of, Sewer Rev Ser A-1, 09-01-19 5.250 AAA 1,000 1,158,540 Fresno Joint Powers Financing Auth, Rev Ser A, 09-02-12 6.550 BBB+ 2,000 2,067,820 Fullerton Community Facilities District No. 1, Spec Tax Amerige Heights, 09-01-32 6.200 BB** 1,000 1,042,440 Golden State Tobacco Securitization Corp, Tobacco Settlement Rev Enhanced Asset Backed Bond, 06-01-21 5.750 BBB- 2,685 2,887,905 Tobacco Settlement Rev Enhanced Asset Backed Bond, 06-01-28 5.375 BBB- 5,000 5,080,250 Tobacco Settlement Rev Ser 2003-A-1, 06-01-33 6.250 BBB 3,000 2,883,060 Irvine, City of, Imp Bond Act of 1915 Assessment Dist 95-12 Ser B, 09-02-21 6.550 AA** 1,000 1,047,680 Imp Bond Act of 1915 Assessment Dist 00-18-GRP 3, 09-02-26 5.550 BB+** 1,000 1,000,720 Mobile Home Park Rev Ser A Meadows Mobile Home Park, 03-01-28 5.700 BBB-** 4,000 3,751,840 Irvine Ranch Water District, GO Unltd, 06-01-15 0.920# AAA 2,000 2,000,000 Irwindale Community Redevelopment Agency, Sub Lien Tax Allocation Industrial Devel Proj, 06-01-26 7.050 BBB** 2,750 2,954,820 Laguna Salada Union School District, GO Ser 2000C, 08-01-26 Zero AAA 1,000 324,620 Lancaster School District, Cert of Part Cap Apprec Ref, 04-01-19 Zero AAA 1,730 864,394 Cert of Part Cap Apprec Ref, 04-01-22 Zero AAA 1,380 565,662 Lee Lake Water District Community Facilities District No. 2, Spec Tax Montecito Ranch, 09-01-27 6.125 BB** 1,200 1,239,312 See notes to financial statements. 11 FINANCIAL STATEMENTS STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE California (continued) Long Beach, City of, Harbor Rev Ref Ser A, 05-15-18 6.000% AAA $2,660 $3,200,219 Spec Tax Cmty Facil District No. 6 Pike, 10-01-26 6.250 BB-** 2,500 2,590,525 Los Angeles Community Facilities District, Spec Tax No. 3 Cascades Business Park Proj, 09-01-22 6.400 BB+** 1,000 1,057,400 Los Angeles Community Redevelopment Financing Auth, Rev Multi-Family Ser A Grand Central Square, 12-01-26 5.850 BBB- 2,000 1,955,520 Los Angeles Public Works Financing Auth, Rev Regional Park & Open Space Dist A, 10-01-15 6.000 Aa3 3,750 3,937,237 Los Angeles Unified School District, GO Election of 1997 Ser E, 07-01-17 5.500 AAA 1,500 1,720,770 Metropolitan Water District of Southern California, Wtr Rev Ser 1997A, 07-01-30 5.000 AAA 2,000 2,264,920 Midpeninsula Regional Open Space District, Cap Apprec, 09-01-30 Zero AAA 3,670 893,645 Millbrae, City of, Residential Facil Rev Ser 1997A Magnolia of Millbrae Proj, 09-01-27 7.375 BB** 2,500 2,563,250 New Haven Unified School District, Cap Apprec Ser B, 08-01-22 Zero AAA 14,200 5,424,258 Northern California Transmission Agency, Rev 1990 Ser A Calif-Oregon Transm Proj, 05-01-13 7.000 AAA 100 127,325 Oakland, Port of, Spec Facil Rev 1992 Ser A Mitsui O.S.K. Lines Ltd Proj, 01-01-19 6.800 BBB 330 331,706 Orange Cove Irrigation District, Cert of Part Ref Rehab Proj, 02-01-17 5.000 AAA 2,045 2,203,283 Orange, County of, Cert of Part Recovery Ref Ser A, 07-01-16 5.800 AAA 2,000 2,227,800 Cmty Facil Dist 1 Spec Tax Ladera Ranch Ser 2000A, 08-15-30 6.250 BB+** 1,000 1,034,910 Cmty Facil Dist Spec Tax No. 02-1 Ladera Ranch Ser 2003A, 08-15-33 5.550 BB+** 1,000 1,012,980 Impt Bond Act 1915 Ltd Oblig-Phase IV- No. 01-1-B, 09-02-33 5.750 BB+** 1,570 1,584,632 Paramount Redevelopment Agency, Tax Allocation Redevel Proj Area No. 1, 08-01-23 5.000 AAA 250 264,830 See notes to financial statements. 12 FINANCIAL STATEMENTS STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE California (continued) Paramount Unified School District, GO Cap Apprec Ser 2001B, 09-01-25 Zero AAA $4,735 $1,606,017 Pasadena, City of, Cert of Part Ref Old Pasadena Parking Facil Proj, 01-01-18 6.250% AA- 1,155 1,407,460 Poway, City of, Community Facil Dist No. 88-1 Spec Tax Ref Pkwy Business Ctr, 08-15-15 6.750 BB** 1,000 1,104,150 Rancho Santa Fe Community Services District, Cmty Facil Dist No. 1 Spec Tax, 09-01-30 6.700 BB** 1,000 1,058,760 Redondo Beach Public Financing Auth, Rev South Bay Center Redevel Proj, 07-01-16 7.000 BBB+** 950 1,020,205 Riverside County Asset Leasing Corp, Leasehold Rev 1993 Ser A Riverside County Hosp Proj, 06-01-12 6.500 A+ 1,000 1,201,850 Riverside Redevelopment Agency, Ref Tax Allocation Merged Proj Area, 08-01-23 5.250 AAA 1,905 2,068,601 Sacramento City Financing Auth, Rev Convention Ctr Hotel Ser 1999A, 01-01-30 6.250 BB+** 5,500 5,512,925 Sacramento, County of, Cert of Part Juvenile Courthouse Proj, 12-01-28 4.250 AAA 1,000 959,670 Sacramento County Sanitation District Finance Auth, Rev Ser 2000A, 12-01-27 5.875 AA 1,500 1,614,690 Sacramento Municipal Utility District, Rev Ref Ser 2001P, 08-15-21 5.250 AAA 1,000 1,095,140 Sacramento Power Auth, Cogeneration Proj Rev Light & Pwr Imp, 07-01-22 6.000 BBB- 12,000 12,559,560 San Bernardino, County of, Cert of Part Ref Med Ctr Fin Proj, 08-01-17 5.500 AAA 8,750 10,191,913 Cert of Part Ser B Cap Facil Proj, 08-01-24 6.875 AAA 350 462,826 San Bruno Park School District, Cap Apprec Ref Ser 2000B, 08-01-21 Zero AAA 1,015 439,566 Cap Apprec Ref Ser 2000B, 08-01-23 Zero AAA 1,080 412,970 San Diego County Regional Transportation Commission, Sales Tax Rev Refunded Bal Ser 1991A, 04-01-06 7.000 AA- 35 35,173 San Diego County Water Auth, Water Rev Cert of Part Reg, 04-23-08 10.221# AAA 1,000 1,286,780 Water Rev Cert of Part Reg, 04-22-09 10.221# AAA 400 528,800 San Diego Redevelopment Agency, Tax Allocation Cap Apprec Ser 1999B, 09-01-17 Zero BB** 1,600 797,536 Tax Allocation Cap Apprec Ser 1999B, 09-01-18 Zero BB** 1,700 786,386 See notes to financial statements. 13 FINANCIAL STATEMENTS STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE California (continued) Tax Allocation City Heights Proj Ser 1999A, 09-01-23 5.750% BB** $1,000 $1,024,300 Tax Allocation City Heights Proj Ser 1999A, 09-01-28 5.800 BB** 1,395 1,428,508 San Diego Unified School District, GO Cap Apprec Ser 1999A, 07-01-21 Zero AAA 2,500 1,087,000 GO Election of 1998 Ser 2000B, 07-01-25 5.000 AAA 2,450 2,556,649 San Diego, County of, Cert of Part Inmate Reception Ctr & Cooling Plant, 08-01-19 6.750 AAA 3,000 3,134,400 San Francisco City & County Airports Commission, Int'l Arpts Rev Ref Second Ser-Issue 30, 05-01-17 4.000 AAA 1,000 1,015,020 San Francisco, Redevelopment Agency of the City & County, Cmty Facil District No. 6 Mission Bay South Pub Imp Spec Tax Ser 2001-South, 08-01-25 6.000 BB** 2,500 2,575,250 San Francisco State Building Auth, Lease Rev Ref 1993 Ser A Dept of Gen Serv, 10-01-13 5.000 BBB- 2,145 2,341,246 San Joaquin Hills Transportation Corridor Agency, Toll Rd Rev Ref Conv Cap Apprec Ser A, 01-15-21 Zero BB 5,000 4,169,400 Toll Rd Rev Sr Lien Cap Apprec, 01-01-14 Zero AAA 5,000 3,438,350 Toll Rd Rev Sr Lien Cap Apprec, 01-01-22 Zero AAA 6,500 2,768,805 San Marcos Public Facilities Auth, Rev Tax Incr Proj Area 3-A, 08-01-31 6.000 BB** 1,305 1,337,103 San Mateo County Joint Powers Financing Auth, Lease Rev Ref Cap Proj Prog, 07-01-21 5.000 AAA 1,815 2,023,435 San Mateo County Transportation District, Sales Tax Rev Ser 1993A, 06-01-19 5.250 AAA 4,000 4,661,680 Santa Ana Financing Auth, Lease Rev Ser A Police Admin & Holding Facil, 07-01-19 6.250 AAA 1,790 2,241,349 Lease Rev Ser A Police Admin & Holding Facil, 07-01-24 6.250 AAA 10,000 12,380,000 Rev Ref Ser D Mainplace Proj, 09-01-19 5.600 BBB-** 1,000 1,084,740 Santa Clara County Finance Auth, Lease Rev Ser 2000B Mult Facil Proj, 05-15-17 5.500 AAA 6,000 6,856,740 Santa Margarita Water District, Spec Tax Cmty Facil Dist No. 99-1, 09-01-30 6.000 BB+** 500 507,590 Santaluz Community Facilities District No. 2, Spec Tax Imp Area No. 1, 09-01-30 6.375 BB** 1,500 1,544,505 Spec Tax Impt Area No. 4 Ser 2004A, 09-01-24 5.400 BB** 1,370 1,353,601 See notes to financial statements. 14 FINANCIAL STATEMENTS STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE California (continued) South Gate Public Financing Auth, Tax Allocation Rev South Gate Redevel Proj No. 1, 09-01-19 5.250% AAA $1,000 $1,110,600 Southern California Home Financing Auth, Single-Family Mtg Rev GNMA & FNMA Mtg Backed Ser A, 09-01-22 6.750 AAA 110 110,075 Southern California Public Power Auth, Rev Ref Southern Transm Proj, 07-01-13 Zero AAA 4,400 3,140,940 Tahoe-Truckee Unified School District, GO Cap Apprec Imp District No. 1-A, 08-01-21 Zero AAA 3,430 1,486,425 Tobacco Securitization Auth, Northern CA Tobacco Settlement Rev Asset Backed Bond Ser 2001A, 06-01-41 5.375 BBB 1,000 824,910 Torrance, City of, Hosp Rev Torrance Memorial Medical Ctr Ser 2001A, 06-01-31 5.500 A+ 3,500 3,636,150 Tustin Unified School District, Community Facil Dist No. 97-1, 09-01-35 6.375 BBB-** 1,000 1,216,600 University of California, Ref Gen Ser 2003A, 05-15-33 5.000 AAA 1,000 1,049,630 Rev Gen Ser 2003B, 05-15-12 5.000 AAA 2,000 2,293,220 Upland Unified School District, Cap Apprec Election of 2000, 08-01-25 5.125 AAA 1,000 1,069,760 Vallejo Sanitation and Flood Control District, Cert of Part, 07-01-19 5.000 AAA 2,500 2,809,000 West Covina Redevelopment Agency, Ref Community Facil Dist Spec Tax Fashion Plaza Proj, 09-01-22 6.000 AA 3,000 3,616,290 Florida 1.12% 4,285,800 Capital Trust Agency, Rev Seminole Tribe Convention & Resort Facil Ser 2002A, 10-01-33 10.000 BB** 2,500 3,109,150 Rev Seminole Tribe Convention & Resort Facil Ser 2003A, 10-01-33 8.950 BB** 1,000 1,176,650 Puerto Rico 9.91% 37,990,657 Childrens Trust Fund (The), Tobacco Settlement Asset Backed Bond, 05-15-33 5.375 BBB 980 941,574 Tobacco Settlement Asset Backed Bond, 05-15-39 5.500 BBB 1,000 934,980 Puerto Rico Aqueduct and Sewer Auth, Rev Parts & Inflos Ser 1995 Gtd by the Commonwealth of Puerto Rico, 07-01-11 10.710# AAA 7,500 10,533,450 See notes to financial statements. 15 FINANCIAL STATEMENTS STATE, ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE Puerto Rico (continued) Puerto Rico, Commonwealth of, GO Pub Imp Ser 1996, 07-01-15 6.500% A- $6,000 $7,500,240 GO Ref Pub Imp, 07-01-30 5.125 AAA 2,000 2,122,640 Puerto Rico Highway & Transportation Auth, Highway Rev Ref 1996 Ser Z, 07-01-14 6.250 AAA 3,250 4,097,308 Ser A-MBIA IBC, 07-01-38 5.000 AAA 5,000 5,194,750 Trans Rev Ser 2000B, 07-01-26 6.000 A 1,000 1,065,830 Puerto Rico Ind'l, Tourist, Ed'l, Medical & Environmental, Ctl Facs, Hospital de La Concepcion-A, 11-15-20 6.500 AA 500 594,210 Puerto Rico Infrastructure Financing Auth, Spec Oblig Bond Ser 2000A, 10-01-32 5.500 AAA 2,000 2,245,800 Puerto Rico Public Finance Corp, Commonwealth Approp Ser 2002E, 08-01-25 5.700 BBB+ 2,500 2,759,875 INTEREST PAR VALUE ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 0.93% $3,537,000 (Cost $3,537,000) Joint Repurchase Agreement 0.93% Investment in a joint repurchase agreement transaction with Barclays Capital, Inc. -- Dated 02-27-04, due 03-01-04 (Secured by U.S. Treasury Inflation Indexed Bond, 3.875% due 04-15-29 and U.S. Treasury Inflation Indexed Note, 2.000% due 01-15-14) 1.000% 3,537 3,537,000 TOTAL INVESTMENTS 98.92% $379,015,672 OTHER ASSETS AND LIABILITIES, NET 1.08% $4,151,135 TOTAL NET ASSETS 100.00% $383,166,807
* Credit ratings are unaudited and rated by Standard & Poor's, Moody's Investors Service, or Fitch, unless indicated otherwise. ** Security rated internally by John Hancock Advisers, LLC. # Represents rate in effect on February 29, 2004. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements. 16 FINANCIAL STATEMENTS PORTFOLIO CONCENTRATION February 29, 2004 (unaudited) This table shows the percentages of the Fund's investments aggregated by various industries. VALUE AS A PERCENTAGE INDUSTRY DISTRIBUTION 1 OF NET ASSETS - ----------------------------------------------------------- General Obligation 13.77% Revenue Bonds -- Airport 0.26 Revenue Bonds -- Authority 11.03 Revenue Bonds -- Bond Anticipation Note 0.72 Revenue Bonds -- Bridge & Toll Road 1.09 Revenue Bonds -- Building 3.25 Revenue Bonds -- Correctional Facility 4.15 Revenue Bonds -- Economic Development 2.05 Revenue Bonds -- Education 4.01 Revenue Bonds -- Electric 4.71 Revenue Bonds -- Facility 0.68 Revenue Bonds -- Harbor/Channel 0.84 Revenue Bonds -- Health 7.94 Revenue Bonds -- Highway 3.25 Revenue Bonds -- Housing 0.67 Revenue Bonds -- Improvement 1.35 Revenue Bonds -- Industrial Development 0.16 Revenue Bonds -- Industrial Revenue 0.09 Revenue Bonds -- Lease 1.65 Revenue Bonds -- Multi-Family 1.49 Revenue Bonds -- Other 6.34 Revenue Bonds -- Pollution Control 1.07 Revenue Bonds -- Power 0.82 Revenue Bonds -- Recreational Facility 0.41 Revenue Bonds -- Special Tax 4.49 Revenue Bonds -- Roadway/Street 2.71 Revenue Bonds -- Sanitation District 0.42 Revenue Bonds -- School 0.37 Revenue Bonds -- Single-Family 0.08 Revenue Bonds -- Special Assessment 0.67 Revenue Bonds -- Special Obligation 0.59 Revenue Bonds -- Tax Allocation 2.62 Revenue Bonds -- Tax Increment 0.35 Revenue Bonds -- Transportation 7.14 Revenue Bonds -- Water and Sewer 6.75 Total tax-exempt long-term bonds 97.99% 1 Source J.J. Kenny. See notes to financial statements. 17 FINANCIAL STATEMENTS ASSETS AND LIABILITIES February 29, 2004 (unaudited) This Statement of Assets and Liabilities is the Fund's balance sheet. It shows the value of what the Fund owns, is due and owes. You'll also find the net asset value and the maximum offering price per share. ASSETS Investments at value (cost $341,944,226) $379,015,672 Cash 414 Receivable for shares sold 98,213 Interest receivable 4,640,743 Other assets 117,309 Total assets 383,872,351 LIABILITIES Payable for shares repurchased 176,176 Dividends payable 177,683 Payable to affiliates Management fee 160,154 Distribution and service fee 11,821 Other 32,016 Other payables and accrued expenses 147,694 Total liabilities 705,544 NET ASSETS Capital paid-in 352,446,021 Accumulated net realized loss on investments (6,483,801) Net unrealized appreciation of investments 37,071,446 Accumulated net investment income 133,141 Net assets $383,166,807 NET ASSET VALUE PER SHARE Based on net asset values and shares outstanding Class A ($323,265,215 [DIV] 28,991,736 shares) $11.15 Class B ($51,789,172 [DIV] 4,644,994 shares) $11.15 Class C ($8,112,420 [DIV] 727,574 shares) $11.15 MAXIMUM OFFERING PRICE PER SHARE Class A 1 ($11.15 [DIV] 95.5%) $11.68 Class C ($11.15 [DIV] 99%) $11.26 1 On single retail sales of less than $100,000. On sales of $100,000 or more and on group sales the offering price is reduced. See notes to financial statements. 18 FINANCIAL STATEMENTS OPERATIONS For the period ended February 29, 2004 (unaudited) 1 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in oper- ating the Fund. It also shows net gains (losses) for the period stated. INVESTMENT INCOME Interest $10,404,247 Total investment income 10,404,247 EXPENSES Investment management fee 1,038,429 Class A distribution and service fee 236,567 Class B distribution and service fee 268,979 Class C distribution and service fee 41,960 Transfer agent fee 103,535 Accounting and legal services fee 56,642 Custodian fee 52,092 Auditing fee 18,985 Miscellaneous 15,185 Trustees' fee 9,826 Printing 8,406 Registration and filing fee 7,441 Legal fee 3,610 Total expenses 1,861,657 Net investment income 8,542,590 REALIZED AND UNREALIZED GAIN Net realized gain on investments 653,860 Change in unrealized appreciation (depreciation) of investments 18,349,176 Net realized and unrealized gain 19,003,036 Increase in net assets from operations $27,545,626 1 Semiannual period from 9-1-03 through 2-29-04. See notes to financial statements. 19 FINANCIAL STATEMENTS CHANGES IN NET ASSETS These Statements of Changes in Net Assets show how the value of the Fund's net assets has changed during the last two periods. The dif- ference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and any increase or decrease in money share- holders invested in the Fund. YEAR PERIOD ENDED ENDED 8-31-03 2-29-04 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $18,859,478 $8,542,590 Net realized gain (loss) (700,785) 653,860 Change in net unrealized appreciation (depreciation) (15,942,310) 18,349,176 Increase in net assets from operations 2,216,383 27,545,626 Distributions to shareholders From net investment income Class A (15,776,720) (7,285,107) Class B (2,420,927) (1,015,165) Class C (372,022) (158,375) (18,569,669) (8,458,647) From Fund share transactions (31,917,119) (7,657,720) NET ASSETS Beginning of period 420,007,953 371,737,548 End of period 2 $371,737,548 $383,166,807 1 Semiannual period from 9-1-03 through 2-29-04. Unaudited. 2 Includes accumulated net investment income of $49,198 and $133,141, respectively. See notes to financial statements. 20 FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS CLASS A SHARES The Financial Highlights show how the Fund's net asset value for a share has changed since the end of the previous period.
PERIOD ENDED 8-31-99 1 8-31-00 1 8-31-01 1 8-31-02 1,2 8-31-03 2-29-04 3 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $11.19 $10.65 $10.69 $11.11 $11.06 $10.60 Net investment income 4 0.56 0.56 0.54 0.54 0.53 0.25 Net realized and unrealized gain (loss) on investments (0.54) 0.04 0.42 (0.06) (0.47) 0.55 Total from investment operations 0.02 0.60 0.96 0.48 0.06 0.80 Less distributions From net investment income (0.56) (0.56) (0.54) (0.53) (0.52) (0.25) Net asset value, end of period $10.65 $10.69 $11.11 $11.06 $10.60 $11.15 Total return 5 (%) 0.11 6 5.93 6 9.26 6 4.52 6 0.48 7.63 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $307 $306 $331 $347 $308 $323 Ratio of expenses to average net assets (%) 0.75 0.75 0.80 0.84 0.84 0.85 8 Ratio of adjusted expenses to average net assets 9 (%) 0.82 0.84 0.82 0.84 -- -- Ratio of net investment income to average net assets (%) 5.06 5.39 5.01 4.95 4.79 4.66 8 Portfolio turnover (%) 3 11 14 15 18 11
See notes to financial statements. 21 FINANCIAL HIGHLIGHTS CLASS B SHARES
PERIOD ENDED 8-31-99 1 8-31-00 1 8-31-01 1 8-31-02 1,2 8-31-03 2-29-04 3 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $11.19 $10.65 $10.69 $11.11 $11.06 $10.60 Net investment income 4 0.48 0.48 0.46 0.45 0.44 0.21 Net realized and unrealized gain (loss) on investments (0.54) 0.04 0.42 (0.06) (0.47) 0.54 Total from investment operations (0.06) 0.52 0.88 0.39 (0.03) 0.75 Less distributions From net investment income (0.48) (0.48) (0.46) (0.44) (0.43) (0.20) Net asset value, end of period $10.65 $10.69 $11.11 $11.06 $10.60 $11.15 Total return 5 (%) (0.63) 6 5.14 6 8.45 6 3.67 6 (0.37) 7.18 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $99 $81 $80 $65 $55 $52 Ratio of expenses to average net assets (%) 1.50 1.50 1.55 1.65 1.69 1.70 8 Ratio of adjusted expenses to average net assets 9 (%) 1.67 1.69 1.67 1.69 -- -- Ratio of net investment income to average net assets (%) 4.31 4.64 4.26 4.14 3.95 3.81 8 Portfolio turnover (%) 3 11 14 15 18 11
See notes to financial statements. 22 FINANCIAL HIGHLIGHTS CLASS C SHARES
PERIOD ENDED 8-31-99 1,10 8-31-00 1 8-31-01 1 8-31-02 1,2 8-31-03 2-29-04 3 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $11.14 $10.65 $10.69 $11.11 $11.06 $10.60 Net investment income 4 0.18 0.47 0.45 0.45 0.43 0.21 Net realized and unrealized gain (loss) on investments (0.49) 0.04 0.42 (0.06) (0.47) 0.54 Total from investment operations (0.31) 0.51 0.87 0.39 (0.04) 0.75 Less distributions From net investment income (0.18) (0.47) (0.45) (0.44) (0.42) (0.20) Net asset value, end of period $10.65 $10.69 $11.11 $11.06 $10.60 $11.15 Total return 5 (%) (2.77) 6,7 5.03 6 8.34 6 3.64 6 (0.37) 7.18 7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $3 $4 $8 $9 $8 Ratio of expenses to average net assets (%) 1.60 8 1.60 1.65 1.69 1.69 1.70 8 Ratio of adjusted expenses to average net assets 9 (%) 1.67 8 1.69 1.67 1.69 -- -- Ratio of net investment income to average net assets (%) 4.20 8 4.54 4.16 4.10 3.93 3.81 8 Portfolio turnover (%) 3 11 14 15 18 11
1 Audited by previous auditor. 2 As required, effective 9-1-01 the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and accretion of discounts on debt securities. The effect of this change on per share amounts for the year ended 8-31-02 was to increase net investment income per share by $0.01, increase net realized and unrealized losses per share by $0.01 and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 4.88%, 4.07% and 4.03%, for Class A, Class B and Class C shares, respectively. Per share ratios and supplemental data for periods prior to 9-1-01 have not been restated to reflect this change in presentation. 3 Semiannual period from 9-1-03 through 2-29-04. Unaudited. 4 Based on the average of the shares outstanding. 5 Assumes dividend reinvestment and does not reflect the effect of sales charges. 6 Total returns would have been lower had certain expenses not been reduced during the periods shown. 7 Not annualized. 8 Annualized. 9 Does not take into consideration expense reductions during the periods shown. 10 Class C shares began operations on 4-1-99. See notes to financial statements. 23 NOTES TO STATEMENTS Unaudited NOTE A Accounting policies John Hancock California Tax-Free Income Fund (the "Fund") is a diversified open-end management investment company registered under the Investment Company Act of 1940. The Fund seeks a high level of current income, consistent with the preservation of capital, that is exempt from federal and California personal income taxes. Since the Fund invests primarily in California issuers, the Fund may be affected by political, economic or regulatory developments in the state of California. The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B and Class C shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares, in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value, as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Discount and premium on securities The Fund accretes discount and amortizes premium from par 24 value on securities from either the date of issue or the date of purchase over the life of the security. Class allocations Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class. Expenses The majority of expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate, with other funds managed by the Adviser, in an unsecured line of credit with banks, which permits borrowings of up to $250 million, collectively. Interest is charged to each fund based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit, and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended February 29, 2004. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $5,304,234 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforward expires as follows: August 31, 2004 -- $2,378,578, August 31, 2005 -- $7,774, August 31, 2006 -- $679,515, August 31, 2008 -- $968,588 and August 31, 2011 -- $1,269,779. Interest and distributions Interest income on investment securities is recorded on the accrual basis. The Fund records distributions to shareholders from net investment income and net realized gains on the ex-dividend date. The Fund's net investment income is declared daily as dividends to shareholders of record as of the close of business on the preceding day, and distributed monthly. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. 25 NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.55% of the first $500,000,000 of the Fund's average daily net asset value and (b) 0.50% of the Fund's average daily net asset value in excess of $500,000,000. The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B and Class C, pursuant to Rule 12b-1 under the Investment Company Act of 1940, to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.15% of Class A average daily net asset value and 1.00% of Class B and Class C average daily net asset value. A maximum of 0.25% of such payments may be service fees, as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. Class A and Class C shares are assessed up-front sales charges. During the period ended February 29, 2004, JH Funds received net up-front sales charges of $117,280 with regard to sales of Class A shares. Of this amount, $15,443 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $88,861 was paid as sales commissions to unrelated broker-dealers and $12,976 was paid as sales commissions to sales personnel of Signator Investors, Inc. ("Signator Investors"), a related broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance Company ("JHLICo"), is the indirect sole shareholder of Signator Investors. During the period ended February 29, 2004, JH Funds received net up-front sales charges of $2,925 with regard to sales of Class C shares, which was paid as sales commissions to unrelated broker-dealers. Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge ("CDSC") at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended February 29, 2004, CDSCs received by JH Funds amounted to $56,638 for Class B shares and $1,733 for Class C shares. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a monthly transfer agent fee at an annual rate of 0.01% of the Fund's average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses, aggregated and allocated to each class on the basis of its relative net asset value. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of approximately 0.03% of the average daily net asset value of the Fund. The Fund also paid the Adviser the amount of $468 for certain publishing services, included in the printing fees. Ms. Maureen Ford Goldfarb is a director and/or officer of 26 the Adviser and/or its affiliates, as well as Trustee of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer, for tax purposes, their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investments, as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value.
YEAR ENDED 8-31-03 YEAR ENDED 2-29-04 1 SHARES AMOUNT SHARES AMOUNT CLASS A SHARES Sold 3,225,987 $35,445,018 1,501,940 $16,324,729 Distributions reinvested 747,678 8,205,314 368,037 4,031,161 Repurchased (6,314,433) (69,193,527) (1,907,925) (20,809,670) Net decrease (2,340,768) ($25,543,195) (37,948) ($453,780) CLASS B SHARES Sold 408,022 $4,509,993 126,143 $1,364,990 Distributions reinvested 117,508 1,290,283 52,213 571,099 Repurchased (1,203,179) (13,155,596) (739,774) (8,088,709) Net decrease (677,649) ($7,355,320) (561,418) ($6,152,620) CLASS C SHARES Sold 353,398 $3,894,916 27,039 $294,912 Distributions reinvested 24,409 268,074 10,489 114,528 Repurchased (290,012) (3,181,594) (134,422) (1,460,760) Net increase (decrease) 87,795 $981,396 (96,894) ($1,051,320) NET DECREASE (2,930,622) ($31,917,119) (696,260) ($7,657,720) 1 Semiannual period from 9-1-03 through 2-29-04. Unaudited.
27 NOTE D Investment transactions Purchases and proceeds from sales or maturities of securities, other than short-term securities and obligations of the U.S. government, during the period ended February 29, 2004, aggregated $40,495,626 and $48,991,814, respectively. The cost of investments owned on February 29, 2004, including short-term investments, for federal income tax purposes, was $340,953,078. Gross unrealized appreciation and depreciation of investments aggregated $39,111,769 and $1,049,175, respectively, resulting in net unrealized appreciation of $38,062,594. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to amortization of premiums and accretion of discounts on debt securities. 28 FOR YOUR INFORMATION TRUSTEES James F. Carlin William H. Cunningham Ronald R. Dion Maureen Ford Goldfarb Charles L. Ladner* Steven R. Pruchansky Lt. Gen. Norman H. Smith, USMC (Ret.) John P. Toolan* *Members of the Audit Committee OFFICERS Maureen Ford Goldfarb Chairman, President and Chief Executive Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 PRINCIPAL DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhfunds.com By regular mail John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, MA 02217-1000 By express mail John Hancock Signature Services, Inc. Attn: Mutual Fund Image Operations 529 Main Street Charlestown, MA 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 TDD line 1-800-554-6713 The Fund's voting policies and procedures are available without charge, upon request: By phone 1-800-225-5291 On the Fund's Web site www.jhfunds.com/proxy On the SEC's Web site www.sec.gov 29 [A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner. A tag line below reads "JOHN HANCOCK FUNDS."] 1-800-225-5291 1-800-554-6713 (TDD) 1-800-338-8080 EASI-Line www.jhfunds.com Now available: electronic delivery www.jhancock.com/funds/edelivery This report is for the information of the shareholders of the John Hancock California Tax-Free Income Fund. 530SA 2/04 4/04 ITEM 2. CODE OF ETHICS. Not applicable at this time. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable at this time. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable at this time. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds - Administration Committee Charter". ITEM 10. CONTROLS AND PROCEDURES. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's principal executive officer and principal financial officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a)(1) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (b)(1) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The certifications furnished pursuant to this paragraph are not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference. (c)(1) Submission of Matters to a Vote of Security Holders is attached. See attached "John Hancock Funds - Administration Committee Charter". (c)(2) Approval of Audit, Audit-related, Tax and Other Services is attached. (c)(3) Contact person at the registrant. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: - ------------------------------ Maureen Ford Goldfarb Chairman, President and Chief Executive Officer Date: April 26, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: - ------------------------------- Maureen Ford Goldfarb Chairman, President and Chief Executive Officer Date: April 26, 2004 By: - ----------------------- Richard A. Brown Senior Vice President and Chief Financial Officer Date: April 26, 2004 EX-99.CERT 2 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: April 26, 2004 - ------------------------- 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: April 26, 2004 _________________________ Richard A. Brown Senior Vice President and Chief Financial Officer EX-99.906 CERT 3 californiataxfree906.txt CERTIFICATION 906 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: April 26, 2004 - ----------------------- Richard A. Brown Senior Vice President and Chief Financial Officer Dated: April 26, 2004 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 4 auditpolicy.txt AUDIT POLICY John Hancock Funds Approval of Audit, Audit-Related, Tax and Other Services Policy Statement December 2003 Table of Contents ----------------- Approval of Audit, Audit-Related, Tax and Other Services Provided by the Independent Auditor Section I - Policy Purpose and Applicability Section II - Policy Summary Section III - Policy Detail John Hancock Funds Approval of Audit, Audit-Related, Tax and Other Services Provided by the Independent Auditor Section I - Policy Purpose and Applicability John Hancock Funds recognize the importance of maintaining the independence of our outside auditors. We believe that maintaining independence is a shared responsibility involving management, the audit committee and the independent auditors. The Funds recognize that the independent audit firm: 1) possesses knowledge of the Funds, 2) is able to incorporate certain services into the scope of its audit, thereby avoiding redundant work, cost and disruption of Fund personnel and processes, and 3) has expertise that has value to the Funds. As a result, there are situations where it is desirable to utilize the audit firm for services in addition to the annual audit. Consequently, this policy, which is intended to comply with Rule 210.2-01(C)(7), sets forth guidelines and procedures to be followed by the Funds when retaining the independent audit firm to perform audit, audit-related tax and other services under those circumstances, while also maintaining independence. Approval of a service in accordance with these policies for a Fund shall also constitute approval for any other Fund whose pre-approval is required pursuant to Rule 210.2-01(c)(7)(ii). In addition to the procedures set forth in this policy, any non-audit services that may be provided consistently with Rule 210.2-01 may be approved by the Audit Committee itself and any pre-approval that may be waived in accordance with Rule 210.2-01(c)(7)(i)(C) is hereby waived. John Hancock Funds Approval of Audit, Audit-Related, Tax and Other Services Provided by the Independent Auditor Section II - Policy Summary Four categories of services have been defined by the Funds within the policy to provide a consistent, efficient and practical framework for assessment, decision-making, approval and reporting. Following is a summary of the key provisions of the policy (see Section III for the Policy Detail): I. Audit Services - specified services directly related to performing the independent audit of the Funds. o Consistent with current practice, management will submit to the Audit Committee for pre-approval the scope and estimated fees associated with the current year audit at the appropriate Audit Committee meeting. II. Audit-Related Services - specified services that are related extensions of audit services and are logically performed by the auditors. o Individual project/services included on the pre-approved list (see Section III) are pre-approved in an amount per year/per Fund up to $50,000. o Additional services exceeding the specified pre-approved limits, or adding service types to the pre-approved list, require specific Audit Committee approval. III. Tax Services - specified services related to tax matters. Using PwC & D&T for these matters creates efficiencies, minimizes disruption, or preserves confidentiality. o Individual project/service included on the pre-approved list are pre-approved in an amount per year/per Fund up to $50,000 for individual projects. o Additional services exceeding the specified pre-approved limits, or adding service types to the pre-approved list, requires specific Audit Committee approval. IV. Other Services - (a) "Synergistic": specified services for which utilizing PwC and D&T creates efficiencies, minimizes disruption, or preserves confidentiality, or (b) "Unique Qualifications": specified services for which management has determined that PwC and D&T possesses unique or superior qualifications to provide these services. o Individual project/service included on the pre-approved list) are pre-approved in an amount per year/per Fund up to $10,000 for individual projects. o Additional services exceeding the specified pre-approved limits, or adding service types to the pre-approved list, requires specific Audit Committee approval. "Restricted" Non-Audit Services - includes nine specific restricted services identified in Rule 210.2-01(c)(4). o These services may not be performed by PwC and D&T, with the exception of the certain services (see prohibited services on page 7) that may be permitted if they would not be subject to audit at the Fund's level by the firm providing the service. John Hancock Funds Approval of Audit, Audit-Related, Tax and Other Services Provided by the Independent Auditor Section III - Policy Detail
- ------------------------------------------------------------------------------------------------------------------------------------ Service Service Category Specific Pre-Approved Audit Committee Audit Committee Category Description Service Subcategories Approval Policy Reporting Policy - ------------------------------------------------------------------------------------------------------------------------------------ I. Audit Services Services that are directly o Accounting research o "One-time" pre-approval o A summary of all such related to performing the assistance (e.g. new for the audit period for services and related independent audit of the products, securities, all pre-approved fees reported at each Funds and investment specific service regularly scheduled strategies) subcategories Audit Committee meeting. o SEC consultation, registration statements, and reporting o Tax accrual related matters (e.g. review of tax qualifications and distributions) o Implementation of new accounting standards o Compliance letters (e.g. rating agency letters) o Regulatory reviews and assistance regarding financial matters o Semi-annual reviews (if requested) o Comfort letters for closed end offerings - ------------------------------------------------------------------------------------------------------------------------------------ II. Audit-Related Services which are not o AICPA attest and o "One-time" pre-approval o A summary of all such Services prohibited under Rule agreed-upon procedures for the fund fiscal year services and related 210.2-01(C)(4) (the (e.g. fund mergers, within a specified fees (including "Rule")and are related liquidation procedures dollar limit of $50,000 comparison to specified extensions of the audit and related comfort for all pre-approved dollar limits) reported services support the letters and review of specific service at each regularly audit, or use the preferred Shares' Basic subcategories scheduled Audit knowledge/expertise gained Maintenance Report) Committee meeting. from the audit procedures o Specific approval is as a foundation to o Technology control needed to exceed the complete the project. In assessments pre-approved dollar most cases, if the limit for these services Audit-Related Services are o Financial reporting (see general Audit not performed by the Audit control assessments Committee approval firm, the scope of the policy below for details Audit Services would o Enterprise security on obtaining specific likely increase. The architecture assessment approvals) Services are typically well-defined and governed o Attestation related to o Specific approval is by accounting professional compliance under needed to utilize PwC & standards (AICPA, SEC, (AIMR-PPS) standards. D&T for Audit-Related etc.) Services not denoted as "pre-approved" to the left, or to add a specific service subcategory as "pre-approved" - ------------------------------------------------------------------------------------------------------------------------------------
Section III - Policy Detail, continued
- ------------------------------------------------------------------------------------------------------------------------------------ Service Service Category Specific Pre-Approved Audit Committee Audit Committee Category Description Service Subcategories Approval Policy Reporting Policy - ------------------------------------------------------------------------------------------------------------------------------------ III. Tax Services Services which are not o Tax planning and support o "One-time" pre-approval o A summary of all such prohibited by the Rule, if for the fund fiscal year services and related fund management determines o Tax controversy within a specified fees (including that utilizing PwC and D&T assistance dollar limit of $50,000 comparison to specified to provide these services for individual projects dollar limits) reported creates significant o Tax compliance, tax at each regularly synergy in the form of returns, excise tax o Specific approval is scheduled Audit efficiency, minimized returns and support needed to exceed the Committee meeting disruption, or the ability pre-approved dollar to maintain a desired o Tax opinions limits for these level of confidentiality. services (see general o Tax research assistance Audit Committee approval (e.g. new products, policy below for details securities and on obtaining specific investment strategies) approvals) o Withholding tax filing o Specific approval is needed to utilize PwC & D&T for tax services not denoted as pre-approved to the left, or to add a specific service subcategory as "pre-approved" - ------------------------------------------------------------------------------------------------------------------------------------
Section III - Policy Detail, continued
- ------------------------------------------------------------------------------------------------------------------------------------ Service Service Category Specific Pre-Approved Audit Committee Audit Committee Category Description Service Subcategories Approval Policy Reporting Policy - ------------------------------------------------------------------------------------------------------------------------------------ IV. Other Services Services which are not o Business Risk Management o "One-time" pre-approval o A summary of all such prohibited by the Rule, if support for the fund fiscal year services and related a. Synergistic, Fund management determines within a specified fees (including unique that utilizing PwC or D&T o Other control and dollar limit ($10,000 comparison to specified qualifications to provide these services regulatory compliance for individual projects dollar limits) reported creates significant projects for all pre-approved at each regularly synergy in the form of specific service scheduled Audit efficiency, minimized subcategories Committee meeting disruption, the ability to maintain a desired level o Specific approval is of confidentiality, or needed to exceed the where PwC or D&T posses pre-approved dollar unique or superior limits for these qualifications to provide services (see general these services, resulting Audit Committee approval in superior value and policy below for details results for the Fund. on obtaining specific approvals) o Specific approval is needed to utilize PwC or D&T for "Synergistic" or "Unique Qualifications" Other Services not denoted as pre-approved to the left, or to add a specific service subcategory as "pre-approved" - ------------------------------------------------------------------------------------------------------------------------------------
Section III - Policy Detail, continued
- ------------------------------------------------------------------------------------------------------------------------------------ Service Service Category Specific Prohibited Audit Committee Audit Committee Category Description Service Subcategories Approval Policy Reporting Policy - ------------------------------------------------------------------------------------------------------------------------------------ Prohibited Services which result in 1. Bookkeeping or other o These services are not o A summary of all Services the auditors losing services related to the to be performed with the services and related independence status under accounting records or exception of the (*) fees reported at each the Rule. financial statements of services (see regularly scheduled the audit client* subcategories 1 through Audit Committee meeting 5 on the left), that may will serve as continual 2. Financial information be permitted if they confirmation that has systems design and would not be subject to not provided any implementation* audit procedures at the restricted services. audit client (as defined 3. Appraisal or valuation in Rule 2-01(f)(4)) services, fairness* level by the firm opinions, or providing the service. contribution-in-kind reports 4. Actuarial services (i.e., setting actuarial reserves versus actuarial audit work)* 5. Internal audit outsourcing services* 6. Management functions or human resources 7. Broker or dealer, investment advisor, or investment banking services 8. Legal services and expert services unrelated to the audit 9. Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- General Audit Committee Approval Policy: o Management will continue to evaluate all individual projects on a monthly basis, and all individual projects greater than $50,000 are evaluated and approved by the Fund's CFO prior to the engagement letter being signed and the project starting o For all projects, management and PwC and D&T will each make an assessment to determine that any proposed projects will not impair independence. o Potential services will be classified into the four non-restricted service categories and the "Approval of Audit, Audit-Related, Tax and Other Services" Policy above will be applied. Any services outside the specific pre-approved service subcategories set forth above must be specifically approved by the Audit Committee. o At each regularly scheduled Audit Committee meeting, the Audit Committee shall review a report summarizing the services by service category, including fees, provided by the Audit firm as set forth in the above policy. - -------------------------------------------------------------------------------- EX-99 5 admincommitteecharter.txt ADMIN. COMMITTEE CHARTER JOHN HANCOCK FUNDS ADMINISTRATION COMMITTEE CHARTER A. Composition. The Administration Committee shall be composed of all Trustees who are both "independent" as defined in the rules of the New York Stock Exchange and are not "interested persons" as defined in the Investment Company Act of 1940 of John Hancock Adviser LLC or of the Trust (the "Independent Trustees"). B. Overview. The overall charter of the Administration Committee is: (i) to review and comment on complex-wide matters to facilitate uniformity among the funds; (ii) to select and nominate Independent Trustees to be added to the Board; (iii) to oversee liaison between management and the Independent Trustees; (iv) to review the performance of the Independent Trustees as appropriate; (v) to review matters relating to the Independent Trustees, such as compensation, retirement arrangements, Committee assignments and the like; (vi) to consider matters of general corporate governance applicable to the Independent Trustees, and (vii) when appropriate, to oversee the assignment of tasks to other Committees. C. Nomination of Independent Trustees 1. Selection of Trustee Nominees. Except where the funds are legally required to provide third parties with the ability to nominate trustees, the Administration Committee shall be responsible for (i) identifying individuals qualified to become Independent Trustees and (ii) recommending to the Board of Trustees the persons to be nominated for election as Independent Trustees at any meeting of stockholders and the persons to be elected by the Board to fill any vacancies on the Board by the death, resignation or removal of an Independent Trustee. Persons to serve as Trustees who are not Independent Trustees shall be nominated by the Board. 2. Criteria for Selecting Trustees. The Administration Committee shall use the criteria and the principles set forth on Annex A, as revised from time to time, to guide its trustee selection process. The Administration Committee shall periodically review the requisite skills and criteria for Independent Trustees as well as the composition of the Board as a whole. The Committee shall adopt, and periodically review and revise as it deems appropriate, procedures regarding trustee candidates recommended by shareholders. The current policy is attached as Annex A. D. Other Specific Responsibilities. The Administration Committee shall have the following duties and powers, to be exercised at such times and in such manner as the Committee shall deem necessary or appropriate: 1. To consider the allocation of activities among the various Committees and the full Board, to suggest to the Committees the degree of detail in their reports to the full Board, and to establish membership and rotation policies for Committees. 2. To consider the number of funds under supervision by the Independent Trustees and the ability of the Independent Trustees to discharge successfully their fiduciary duties and to pursue self-education in mutual fund matters. 3. To propose the amount of compensation to be paid by the funds to the Independent Trustees and to address compensation-related matters, such as expense reimbursement policies. 4. To evaluate, from time to time, the time, energy, expertise, knowledge, judgment and personal skills which Independent Trustees brings to the Board and to consider retirement policies for the Independent Trustees. 5. To participate in the development of agendas for Board and Committee meetings. 6. To consider, evaluate and make recommendations regarding the type and amount of fidelity bond, and director and officer and/or errors and omission insurance coverage, for the funds, the Board and the Independent Trustees, as applicable. 7. To consider, evaluate and make recommendations and necessary findings regarding independent legal counsel and any other advisers, experts or consultants, that may be engaged from time to time, other than as may be engaged directly by another Committee. 8. To evaluate feedback from shareholders as appropriate. Annex A includes procedures for shareholders to communicate with the members of the Administration Committee. E. Additional Responsibilities. The Committee will also perform other tasks assigned to it from time to time by full Board, and will report findings and recommendations to the full Board, as appropriate. F. Governance. One member of the Committee shall be appointed as chair. The chair shall be responsible for leadership of the Committee, including scheduling meetings or reviewing and approving the schedule for them, preparing agendas or reviewing and approving them before meetings, presiding over meetings, and making reports to the full Board, as appropriate. G. Miscellaneous. The Committee shall meet as often as it deems appropriate, with or without management, as circumstances require. The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain special counsel and other advisers, experts or consultants, at the funds' expense, as it determines necessary to carry out its duties. The Committee shall have direct access to such officers of and service providers to the funds as it deems desirable. H. Review. The Committee shall review this Charter periodically and recommend such changes to the full Board as it deems desirable. ANNEX A General Criteria 1. Nominees should have a reputation for integrity, honesty and adherence to high ethical standards. 2. Nominees should have demonstrated business acumen, experience and ability to exercise sound judgments in matters that relate to the current and long-term objectives of the Fund(s) and should be willing and able to contribute positively to the decision-making process of the Fund(s). 3. Nominees should have a commitment to understand the Fund(s), and the responsibilities of a Trustee/Director of an investment company and to regularly attend and participate in meetings of the Board and its committees. 4. Nominees should have the ability to understand the sometimes conflicting interests of the various constituencies of the Fund, including shareholders and the management company, and to act in the interests of all shareholders. 5. Nominees should not have, nor appear to have, a conflict of interest that would impair the nominee's ability to represent the interests of all the shareholders and to fulfill the responsibilities of a director /trustee. 6. Nominees shall not be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability or any other basis proscribed by law. The value of diversity on the Board should be considered. Application of Criteria to Existing The renomination of existing Trustees should not be viewed as automatic, but should be based on continuing qualification under the criteria set forth above. In addition, the Administrative Committee shall consider the existing trustees' performance on the Board and any committee. Review of Shareholder Nominations Any shareholder recommendation must be submitted in compliance with all of the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934 to be considered by the Administration Committee. In evaluating a nominee recommended by a shareholder, the Administration Committee, in addition to the criteria discussed above, may consider the objectives of the shareholder in submitting that nomination and whether such objectives are consistent with the interests of all shareholders. If the Board determines to include a shareholder's candidate among the slate of nominees, the candidate's name will be placed on the Fund's proxy card. If the Administration Committee or the Board determines not to include such candidate among the Board's designated nominees and the shareholder has satisfied the requirements of Rule 14a-8, the shareholder's candidate will be treated as a nominee of the shareholder who originally nominated the candidate. In that case, the candidate will not be named on the proxy card dis tributed with the Fund's proxy statement. As long as an existing Independent Trustee continues, in the opinion of the Administration Committee, to satisfy the criteria listed above, the Committee generally would favor the re-nomination of an existing Trustee rather than a new candidate. Consequently, while the Administration Committee will consider nominees recommended by shareholders to serve as trustees, the Administration Committee may only act upon such recommendations if there is a vacancy on the Board or the Administration Committee determines that the selection of a new or additional Independent Trustee is in the best interests of the Fund. In the event that a vacancy arises or a change in Board membership is determined to be advisable, the Administration Committee will, in addition to any shareholder recommendations, consider candidates identified by other means, including candidates proposed by members of the Administration Committee. While it has not done so in the past, the Administration Committee may retain a consultant to assist the Committee in a search for a qualified candidate Communications from shareholders Shareholders may communicate with the members of the Board as a group or individually. Any such communication should be sent to the Board or an individual Trustee c/o the secretary of the Fund at the address on the notice of this meeting. The Secretary may determine not to forward any letter to the members of the Board that does not relate to the business of the Fund. s/corpsec/meetings/committeecharters/Admincommitteecharter04Feb - -5- 2/13/04 -----END PRIVACY-ENHANCED MESSAGE-----