SEMIANNUAL REPORT
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[Graphic Omitted]
California
Tax-Free
Income Fund
FEBRUARY 28, 1999
[Logo] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
Edward J. Boudreau, Jr.
Stephen L. Brown
James F. Carlin
William H. Cunningham*
Ronald R. Dion*
Harold R. Hiser, Jr.
Anne C. Hodsdon
Charles L. Ladner
Leo E. Linbeck, Jr.
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
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================================CHAIRMAN'S MESSAGE==============================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial
market investors pause - and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds - considered a safer alternative to stocks - went on a roller coaster
ride.
But there was one clear lesson from 1998: that sticking out the tough
times paid off. After reaching new highs last July, stocks plunged in August in
one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. But, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The final result for
the year: an average 14.52% return, as calculated by Lipper, Inc.
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[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Given the dramatic swings, investors who tried to time the market's ups
and downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during last summer's
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
In the first two months of 1999, the financial markets showed more
stability and the Dow Jones Industrial Average approached record highs. While
volatility remains on many investors' minds, at this time of year thoughts also
turn to more taxing matters. In our view, now is a perfect time to focus on how
much of your hard-earned money you are able to keep. Part of a good tax-planning
strategy should involve a review of your portfolio to ensure that you are taking
advantage of all available ways to minimize and defer your tax payments - in an
effort to maximize investment returns.
We encourage you to work with your investment professional to consider
the various options. These include focusing on tax-exempt funds, contributing
the maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/Edward J. Boudreau, Jr.
- --------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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By Dianne Sales, CFA, Barry H. Evans, CFA, and
Frank A. Lucibella, CFA, Portfolio Managers
John Hancock California
Tax-Free Income Fund
Supply pressures hold municipals back,
then ease at end of six-month period
Supply and demand were once again the primary factors affecting municipal bond
performance during the past six months. From September through year end, a glut
of municipal bonds flooded the market - a trend that characterized much of 1998.
In fact, the supply of new municipal bonds increased more than 40% in 1998
versus 1997, making it the second strongest year of municipal bond issuance on
record. This heavy influx of new bonds, due to continued low interest rates, put
downward pressure on prices. The net result was that municipal bonds
underperformed U.S. Treasuries for most of 1998 and reached their most
attractive price levels versus Treasuries in almost five years. The one bright
spot was that many non-traditional buyers crossed over into the tax-exempt
market to take advantage of these incredible values. These so-called "crossover"
buyers provided an important source of demand for the flood of new issuance.
With the start of 1999, however, the tables turned and municipal bonds
began to outperform U.S. Treasuries. First, emerging-market concerns faded,
taking the "flight to quality" premium out of Treasuries. At the same time,
worries about stronger-than-expected U.S. economic growth pushed interest rates
up and bond prices down. In contrast, municipal bonds were already at such low
price levels that they had much less downside risk than Treasuries.
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[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock California
Tax-Free Income Fund. Caption below reads "Fund management team members (l-r):
Barry Evans, Mike Roye, Dianne Sales, Frank Lucibella and Holly Morris."]
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"...heavy influx of new bonds...put downward pressure on prices."
3
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John Hancock Funds - California Tax-Free Income Fund
"...we've maintained a strong emphasis on call protection..."
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[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into eleven sections (from top to left): Water & Sewer 11%,
Education 11%, Health 19%, Other 27%, Lease 2%, General Obligation 3%, Authority
4%, Housing 4%, Electric Power 5%, Correctional Facility 5% and Transportation
9%. A note below the chart reads "As a percentage of net assets on February 28,
1999."]
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Finally, municipal-bond issuance declined dramatically in January and February,
eliminating the supply pressures experienced in 1998. As a result, municipal
investors saw their holdings handily outperform in early 1999.
Performance scorecard
For the six months ended February 28, 1999, John Hancock California Tax-Free
Income Fund's Class A and Class B shares returned 2.21% and 1.84%, respectively,
at net asset value. By comparison, the average California municipal bond fund
returned 2.09%, according to Lipper, Inc.1 Keep in mind that your net asset
value return will be different from the Fund's performance if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. Please see pages six and seven for longer-term performance
information.
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[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is San Joaquin
Trans. Agency followed by an up arrow with the phrase "Credit upgrade." The
second listing is Zero coupon bonds followed by an up arrow with the phrase
"High sensitivity to falling interest rates." The third listing is Hospital
bonds followed by a down arrow with the phrase "Reimbursement levels flat in the
face of rising costs." A note below the table reads "See `Schedule of
Investments.' Investment holdings are subject to change."]
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The Fund's performance benefited from excellent credit selection as
strong economic growth generated stronger-than-expected revenues, often
resulting in credit upgrades. Performance in the first four months of the period
also benefited from a somewhat longer duration posture, which provided gains as
interest rates fell. Duration measures a fund's sensitivity to interest-rate
changes. The longer the duration, the more sensitive the fund's share price.
Throughout the period, we kept the Fund's duration relatively long in
order to take advantage of falling interest rates. However, when rates increased
suddenly in the first two months of 1999, our relatively long duration was a
slight disadvantage.
Focus on call protection, credit analysis
As we've discussed in past reports, we've maintained a strong emphasis on call
protection, which guards a bond from being redeemed by its issuer for a certain
period of time. Strong call protection is especially important in periods of
falling interest rates, when issuers often try to refinance their bonds at lower
interest rates. If a bond gets "called away" or redeemed early, investors are
forced to reinvest their money in bonds with lower yields. By focusing on issues
with strong call protection, we have been able to maintain the Fund's
competitive yield in a falling interest-rate environment.
Applying our in-depth credit analysis, we continued to search for
lower-quality bonds with both attractive yields and improving credit profiles.
This strategy served us well, as the gap between yields on higher- and
lower-quality bonds continued to narrow. Against this backdrop, several of our
lower-quality holdings were big winners. A perfect example was our bonds issued
by the San Joaquin Hills Transportation Corridor Agency. This toll-road project
took the opportunity to refinance debt, thereby reducing the amount of its
interest payments. The Fund benefited as our holdings received a credit upgrade
from a rating of BBB to AAA, the highest rating possible. Since our San Joaquin
holdings were primarily non-callable, the upgrade occurred without suffering the
risk of a bond call.
4
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John Hancock Funds - California Tax-Free Income Fund
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended February 28, 1999." The
chart is scaled in increments of 1% with 0% at the bottom and 3% at the top. The
first bar represents the 2.21% Total return for John Hancock California Tax-Free
Income Fund Class A. The second bar represents the 1.84% total return for John
Hancock California Tax-Free Income Fund Class B. The third bar represents the
2.09% total return for Average California municipal bond fund. A note below the
chart reads "Total returns for John Hancock California Tax-Free Income Fund are
at net asset value with all distributions reinvested. The average California
municipal bond fund is tracked by Lipper Analytical Services, Inc. See the
following two pages for historical performance information."]
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Outlook
Looking ahead, we expect that California's economy will continue to be strong.
The state has weathered the Asian financial crisis well, especially given that
approximately one third of U.S. exports to Asia come from California. With a new
governor in office, we are keeping a close eye on the budget to make sure that
the state's strong fiscal situation remains intact. The proposed budget assumes
continued strong economic growth and a spend-down of reserves.
The macroenvironment remains favorable for municipal bonds. Most
important, we anticipate that new municipal bond issuance will decline roughly
20% in 1999 as refunding opportunities become more scarce. We've already seen
this trend start to take hold in the first two months of this year. Lighter
supply should help firm demand from traditional buyers. What's more, municipal
bonds still offer very attractive values relative to U.S. Treasuries, meaning
they still have plenty of upside potential.
Despite stronger-than-expected growth in the first few months of this
year, there are still no concrete signs of inflation on the horizon. And with
most world economies still sluggish, we believe that pricing power will remain
limited and, therefore, inflation will stay in check for the foreseeable future.
A continued low-inflation environment should provide a positive backdrop for
municipal bonds.
While the bulk of the interest-rate declines are probably over, we
don't expect rates to increase significantly in the months ahead, given the
positive inflation outlook. However, should economic performance continue to
exceed expectations, we will look to trim our duration to a more neutral
position. In addition, we will keep a close eye on credit developments in
sectors such as electric utilities and health care where we have been
selectively weeding out weaker names. Overall, our focus will remain on our
tried-and-true investment strategy - looking for value and attractive yield
opportunities, thinning exposure to sectors that are vulnerable to widening
credit spreads and finally, continuing to maintain strong call protection.
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This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change 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.
"...we expect that California's economy will continue to be strong."
5
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John Hancock Funds - California Tax-Free Income Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock California Tax-Free Income Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.50%. Class B performance reflects a maximum contingent deferred
sales charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
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.
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CLASS A
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For the period ended December 31, 1998
SINCE
One Five INCEPTION
Year Years (12/29/89)
------- ------- --------
Cumulative Total Returns 1.85% 29.61% 91.46%
Average Annual Total Returns (1) 1.85% 5.32% 7.48%
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CLASS B
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For the period ended December 31, 1998
SINCE
One Five INCEPTION
Year Years (12/31/91)
------- ------- --------
Cumulative Total Returns 0.85% 28.71% 59.67%
Average Annual Total Returns (1) 0.85% 5.18% 6.91%
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YIELDS
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As of February 28, 1999
SEC 30-DAY
YIELD
-------
John Hancock California Tax-Free Income Fund: Class A 3.76%
John Hancock California Tax-Free Income Fund: Class B 3.18%
Notes to Performance
(1) The Adviser has voluntarily reduced a portion of the management fee and
offset the custodian fees with balance credits during the period. Without the
waiver of expenses, the average annual total returns for the one-year, five-year
and since inception periods for Class A shares would have been 1.79%, 5.22% and
7.24%, respectively. Without the limitation of expenses, the average annual
total returns for one-year, five-year and since inception periods for Class B
shares would have been 0.80%, 5.09% and 6.78%, respectively.
6
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John Hancock Funds - California Tax-Free Income Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT
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The charts on the right show how much a $10,000 investment in the John Hancock
California Tax-Free Income Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Lehman Brothers Municipal Bond Index-an unmanaged
index that includes approximately 15,000 bonds and is commonly used as a measure
of bond performance. Past performance is no guarantee of future results.
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Line chart with the heading John Hancock California Tax-Free Income Fund Class
A, representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock California
Tax-Free Income Fund, before sales charge, on December 29, 1989, and is equal to
$20,136 as of February 28, 1999. The second line represents the Lehman Brothers
Municipal Bond Index and is equal to $20,117 as of February 28, 1999. The third
line represents the same hypothetical investment made in the John Hancock
California Tax-Free Income Fund, after sales charge, and is equal to $19,232 as
of February 28, 1999.
Line chart with the heading John Hancock California Tax-Free Income Fund Class
B*, representing the growth of a hypothetical $10,000 investment over the life
of the fund. Within the chart are two lines. The first line represents the
Lehman Brothers Municipal Bond Index and is equal to $16,720 as of February 28,
1999. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock California Tax-Free Income Fund on December
31, 1991, before sales charge, and is equal to $16,020 as of February 28, 1999.
*No contingent deferred sales charge applicable.
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7
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - California Tax-Free Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on February 28, 1999. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
February 28, 1999 (Unaudited)
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Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $373,151,800) ............ $ 413,575,331
Joint repurchase agreement (cost - $3,291,000) .............. 3,291,000
-------------
416,866,331
Cash .......................................................... 622
Receivable for investments sold ............................... 40,000
Receivable for shares sold .................................... 312,566
Interest receivable ........................................... 5,676,269
Receivable for futures variation margin - Note A .............. 55,781
Other assets .................................................. 85,080
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Total Assets ......................... 423,036,649
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Liabilities:
Payable for investments purchased ............................ 8,490,045
Payable for shares repurchased ............................... 532,916
Dividend payable ............................................. 123,671
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ..................................... 240,554
Accounts payable and accrued expenses ........................ 47,390
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Total Liabilities .................... 9,434,576
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Net Assets:
Capital paid-in .............................................. 383,466,630
Accumulated net realized loss on investments and
financial futures contracts ................................. (10,091,275)
Net unrealized appreciation of investments and
financial futures contracts ................................. 40,253,858
Distributions in excess of net investment income ............. (27,140)
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Net Assets ........................... $ 413,602,073
=======================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding -- unlimited number of shares
authorized with no par value)
Class A -- $307,522,333/27,547,555........................... $11.16
==============================================================================
Class B -- $106,079,740/9,502,521 ........................... $11.16
==============================================================================
Maximum Offering Price Per Share*
Class A - ($11.16 x 104.71%) ................................. $11.69
==============================================================================
* 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.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended February 28, 1999 (Unaudited)
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Investment Income:
Interest ...................................................... $ 11,765,498
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Expenses:
Investment management fee - Note B ........................... 1,120,831
Distribution and service fee - Note B
Class A ..................................................... 227,705
Class B ..................................................... 467,859
Transfer agent fee - Note B .................................. 106,695
Custodian fee ................................................ 55,888
Financial services fee - Note B .............................. 29,366
Auditing fee ................................................. 18,767
Trustees' fees ............................................... 12,565
Registration and filing fees ................................. 9,611
Printing ..................................................... 7,617
Miscellaneous ................................................ 5,125
Legal fees ................................................... 2,107
Less management fee reduction - Note B........................ (113,548)
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Total Expenses .............................. 1,950,588
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Less Expense Reductions -
Note B ...................................... (32,300)
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Net Expenses ................................ 1,918,288
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Net Investment Income ....................... 9,847,210
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Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts:
Net realized gain on investments sold ......................... 26,358
Net realized loss on financial futures contracts............... (209,567)
Change in net unrealized appreciation/depreciation
of investments................................................ (812,177)
Change in net unrealized appreciation/depreciation
of financial futures contracts................................ (246,962)
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Net Realized and Unrealized
Loss on Investments and
Financial Futures Contracts ..... (1,242,348)
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Net Increase in Net Assets
Resulting from Operations........ $8,604,862
=================================================
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
================================FINANCIAL STATEMENTS============================
John Hancock Funds - California Tax-Free Income fund
Statement of Changes in Net Assets
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SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1999
AUGUST 31, 1998 (UNAUDITED)
----------------- ------------------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................. $18,938,054 $9,847,210
Net realized gain (loss) on
investments sold and
financial futures contracts........... 2,038,263 (183,209)
Change in net unrealized appreciation/
depreciation of investments and
financial futures contracts........... 12,987,820 (1,059,139)
------------ -------------
Net Increase in Net Assets
Resulting from Operations.......... 33,964,137 8,604,862
------------ -------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5575 and $0.2795 per
share, respectively)................ (14,988,439) (7,625,643)
Class B - ($0.4749 and $0.2377 per
share, respectively)................ (4,023,289) (2,221,567)
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Total Distributions to Shareholders.. (19,011,728) (9,847,210)
------------- -------------
From Fund Share Transactions - Net:*.... 3,443,098 15,788,726
------------- -------------
Net Assets:
Beginning of period.................... 380,660,188 399,055,695
------------- -------------
End of period (including distributions
in excess of net investment income of
$27,140 and $27,140, respectively).... $399,055,695 $413,602,073
============= =============
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 28, 1999
AUGUST 31, 1998 (UNAUDITED)
------------------- --------------------
SHARRES AMOUNT SHARES AMOUNT
------- ------ ------ ------
CLASS A
Shares sold................. 2,280,061 $25,129,803 1,866,663 $20,990,142
Shares issued to
shareholders in reinvestmen
of distributions........... 612,940 6,744,970 309,473 3,470,279
--------- ---------- --------- -----------
2,893,001 31,874,773 2,176,136 24,460,421
Less shares repurchased .... (3,083,700) (33,902,668) (1,472,250) (16,510,845)
----------- ------------ ----------- ------------
Net increase (decrease)..... (190,699) ($2,027,895) 703,886 $7,949,576
=========== ============ =========== ============
CLASS B
Shares sold................. 1,962,836 $21,603,294 1,558,423 $17,499,244
Shares issued to shareholders
in reinvestment of
distributions ............. 167,576 1,844,388 89,083 998,818
--------- ---------- --------- -----------
2,130,412 23,447,682 1,647,506 18,498,062
Less shares repurchased..... (1,633,760) (17,976,689) (950,952) (10,658,912)
----------- ------------ ---------- ------------
Net increase................ 496,652 $5,470,993 696,554 $7,839,150
=========== ============ ========== ============
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
===============================FINANCIAL STATEMENTS=============================
John Hancock Funds - California Tax-Free Income Fund
Financial Highlights
Selected data for each share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
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<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED AUGUST 31,
---------------------------- JANUARY 1, 1996 TO ------------------- FEBRUARY 28, 1999
1993 1994(1) 1995 AUGUST 31, 1996(9) 1997 1998 (UNAUDITED)
---- ------- ---- ------------------ ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period.... $10.41 $10.85 $9.28 $10.69 $10.36 $10.77 $11.19
------- ------- ------ ------- ------- ------- -------
Net Investment Income 0.62 0.58 0.57(2) 0.39(2) 0.57(2) 0.56(2) 0.28(2)
Net Realized and Unrealized Gain (Loss)
on Investments and Financial Futures
Contracts............................. 0.76 (1.57) 1.41 (0.33) 0.41 0.42 (0.03)
------- ------- ------ ------- ------- ------- -------
Total from Investment Operations...... 1.38 (0.99) 1.98 0.06 0.98 0.98 0.25
------- ------- ------ ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income..... (0.62) (0.58) (0.57) (0.39) (0.57) (0.56) (0.28)
Distributions from Net Realized Gain on
Investments Sold and Financial Futures
Contracts............................... (0.32) - - - - - -
------- ------- -------- -------- ------- ------- --------
Total Distributions..................... (0.94) (0.58) (0.57) (0.39) (0.57) (0.56) (0.28)
------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period.......... $10.85 $9.28 $10.69 $10.36 $10.77 $11.19 $11.16
======= ======= ======== ======== ======== ======= =======
Total Investment Return at
Net Asset Value (3).................... 13.60% (9.31%) 21.88% 0.61%(7) 9.71% 9.32% 2.21%(7)
Total Adjusted Investment Return at
Net Asset Value (3,4).................. 13.42% (9.45%) 21.73% 0.55%(7) 9.64% 9.26% 2.17%(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $279,692 $241,583 $309,305 $291,072 $291,167 $300,483 $307,522
Ratio of Expenses to Average Net Assets. 0.69% 0.75% 0.75% 0.76%(8,10) 0.75% 0.77%(10) 0.76%(8,10)
Ratio of Adjusted Expenses to
Average Net Assets (5)................. 0.87% 0.89% 0.90% 0.84%(8) 0.82% 0.83% 0.82%(8)
Ratio of Net Investment Income to
Average Net Assets 5.69% 5.85% 5.76% 5.57%(8) 5.42% 5.05% 5.02%(8)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5).............. 5.51% 5.71% 5.61% 5.48%(8) 5.35% 4.99% 4.95%(8)
Portfolio Turnover Rate................. 51% 62% 37%(6) 30% 15% 10% 0%
Fee Reduction Per Share................. $0.02 $0.01 $0.01(2) $0.01(2) $0.01(2) $0.01(2) $0.00(2,11)
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
================================FINANCIAL STATEMENTS============================
John Hancock Funds - California Tax-Free Income Fund
Financial Highlights (continued)
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<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED AUGUST 31,
---------------------------- JANUARY 1, 1996 TO ------------------- FEBRUARY 28, 1999
1993 1994(1) 1995 AUGUST 31, 1996(9) 1997 1998 (UNAUDITED)
---- ------- ---- ------------------ ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period...... $10.41 $10.85 $9.28 $10.68 $10.36 $10.77 $11.19
-------- -------- ------- -------- -------- -------- --------
Net Investment Income..................... 0.54 0.51 0.50(2) 0.33(2) 0.49(2) 0.47(2) 0.24(2)
Net Realized and Unrealized Gain (Loss)
on Investments and Financial Futures
Contracts................................ 0.76 (1.57) 1.40 (0.31) 0.41 0.42 (0.03)
-------- -------- ------- -------- -------- -------- --------
Total from Investment Operations......... 1.30 (1.06) 1.90 0.02 0.90 0.89 0.21
-------- -------- ------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income...... (0.54) (0.51) (0.50) (0.34) (0.49) (0.47) (0.24)
Distributions from Net Realized Gain on
Investments Sold and Financial Futures
Contracts................................ (0.32) - - - - - -
-------- -------- ------- -------- -------- -------- --------
Total Distributions...................... (0.86) (0.51) (0.50) (0.34) (0.49) (0.47) (0.24)
-------- -------- ------- -------- -------- -------- --------
Net Asset Value, End of Period............ $10.85 $9.28 $10.68 $10.36 $10.77 $11.19 $11.16
======== ======== ======= ======== ======== ======== ========
Total Investment Return at
Net Asset Value (3)...................... 12.76% (9.99%) 20.87% 0.20%(7) 8.88% 8.50% 1.84%(7)
Total Adjusted Investment Return at
Net Asset Value (3,4).................... 12.58% (10.13%) 20.72% 0.14%(7) 8.81% 8.44% 1.80%(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted).. $65,437 $77,365 $84,673 $83,253 $89,493 $98,572 $106,080
Ratio of Expenses to Average Net Assets... 1.44% 1.50% 1.50% 1.52%(8,10) 1.50% 1.52%(10) 1.51%(8,10)
Ratio of Adjusted Expenses to
Average Net Assets (5)................... 1.62% 1.64% 1.65% 1.59%(8) 1.57% 1.58% 1.57%(8)
Ratio of Net Investment Income to
Average Net Assets....................... 4.82% 5.10% 4.97% 4.81%(8) 4.66% 4.29% 4.27%(8)
Ratio of Adjusted Net Investment
Income to Average Net Assets (5)......... 4.64% 4.96% 4.82% 4.72%(8) 4.59% 4.23% 4.20%(8)
Portfolio Turnover Rate................... 51% 62% 37%(6) 30% 15% 10% 0%
Fee Reduction Per Share................... $0.02 $0.01 $0.01(2) $0.01(2) $0.01(2) $0.01(2) $0.00(2,11)
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc., became the investment
adviser of the Fund.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Portfolio turnover excludes merger activity.
(7) Not annualized.
(8) Annualized.
(9) Effective August 31, 1996, the fiscal period end changed from December 31
to August 31.
(10) For the period ended August 31, 1996, the year ended August 31, 1998 and
the six months ended February 28, 1999, the ratio of expenses to average
net assets for the Fund excludes the effect of expense offsets. If expense
offsets were included, the ratio of expenses to average net assets would
have been 0.75% for Class A and 1.50% for Class B.
(11) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - California Tax-Free Income Fund
Schedule of Investments
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
California Tax-Free Income Fund on February 28, 1999. It has two main
categories: tax-exempt long-term bonds and short-term investments. The
tax-exempt long-term bonds are broken down by state. Under each state is a list
of the securities owned by the Fund.
<TABLE>
<CAPTION>
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
California (94.46%)
ABAG Finance Authority for Nonprofit Corps.,
Cert of Part Nat'l Center for Int'l Schools Proj..... 7.375% 05-01-18 BB+ $4,300 $4,614,889 6.87%
Cert of Part Peninsula Family YMCA Ser A............. 6.800 10-01-11 A3 1,000 1,057,850 6.43
Alameda Corridor Transportation Auth,
Rev Ser 1999 A....................................... Zero 10-01-32 AAA 5,000 876,650 5.25
Alameda, County of,
Cert of Part Cap Projs............................... 6.750 06-01-16 A 500 558,935 6.04
Anaheim Public Financing Auth,
Sub Lease Rev 1997 Cap Apprec Ser C
Anaheim Pub Imp Proj................................ Zero 09-01-18 AAA 3,000 1,112,220 5.15
Anaheim, City of,
Cert of Part Ref Reg Rites Convention Ctr............ 9.070# 07-16-23 AAA 2,000 2,340,000 7.75
Antioch Public Financing Authority,
Reassessment Rev Ser B............................... 5.850 09-02-15 BB+ 1,500 1,498,410 5.86
Arcadia, County of,
Hosp Rev Methodist Hosp of Southern California....... 6.625 11-15-22 A 1,205 1,307,353 6.11
Avalon Community Improvement Agency,
Tax Alloc Community Imp Proj Ser B................... 6.400 08-01-22 A- 1,865 2,066,327 5.78
Bakersfield Memorial Hospital,
Hosp Rev Ser A....................................... 6.500 01-01-22 Baa1 2,000 2,193,360 5.93
Beaumont Unified School District,
Cert of Part Cap Imp Proj............................ 7.700 01-01-21 BBB+ 1,000 1,095,080 7.03
Beverly Hills Public Financing Auth,
Lease Rev INFLOS..................................... 7.320# 06-01-15 AAA 2,500 2,750,000 6.65
Bonita Canyon Public Facilities Financing Auth,
Spec Tax Community Facils Dist No 98-1............... 5.375 09-01-28 BB+ 4,000 3,885,920 5.53
Brentwood Redevelopment Agency,
Tax Alloc Brentwood Redevel Proj Ser A............... 7.700 11-01-08 BBB 135 140,820 7.38
Burbank Redevelopment Agency,
Tax Alloc Golden State Redevel Proj Ser A............ 6.000 12-01-23 A- 2,750 2,907,548 5.67
California Educational Facilities Auth,
Ref Rev Standford Univ Ser O......................... 5.125 01-01-31 AAA 2,000 2,008,300 5.10
Rev 1993 Ser B Pooled College & Univ Proj............. 6.125 06-01-09 Baa2 1,000 1,067,590 5.74
Univ of San Diego Rev Cap Apprec..................... Zero 10-01-19 Aaa 1,510 527,700 5.17
California Health Facilities Financing Auth,
Hosp Rev 1991 Ser A San Diego Hosp Assoc............. 6.950 10-01-21 A 250 276,717 6.28
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
California (continued)
California Health Facilities Financing Auth (cont.),
Ins Hosp Rev Ser 1990 Children's Hosp San Diego....... 6.500% 07-01-20 AAA $500 $531,970 6.11%
Ins Rev Ref Ser A Catholic Healthcare
West Obligated Group................................. 5.750 07-01-15 AAA 2,000 2,142,060 5.37
Ins Rev Ser A San Diego Christian Foundation.......... 6.250 07-01-12 A 1,135 1,210,432 5.86
Ins Rev Ser B Hlth Facil Small Facil.................. 7.500 04-01-22 A 2,000 2,341,360 6.41
Rev 1990 Ser A Kaiser Permanente...................... 7.000 12-01-10 A 600 651,000 6.45
Rev Ser 1994A Scripps Research Institute.............. 6.300 07-01-09 A1 500 551,960 5.71
Sec Rev 1991 Ser Hosp of the Good Samaritan........... 7.000 09-01-21 BBB+ 2,250 2,388,195 6.59
California Housing Finance Agency,
Home Mtg Rev 1989 Ser A............................... 7.625 08-01-09 AA- 10 10,244 7.44
Home Mtg Rev 1989 Ser B............................... 8.000 08-01-29 AA- 55 56,610 7.77
Home Mtg Rev 1989 Ser D............................... 7.500 08-01-29 AA- 80 82,386 7.28
Home Mtg Rev 1990 Ser D............................... Zero 08-01-20 AA- 5,555 1,071,837 6.15
Home Mtg Rev 1991 Ser A............................... 7.375 08-01-17 AA- 300 314,484 7.04
Home Mtg Rev 1994 Ser C............................... 6.650 08-01-14 AA- 1,000 1,067,230 6.23
Home Mtg Rev 1994 Ser G............................... 7.250 08-01-17 AA- 3,500 3,781,260 6.71
Hsg Rev 1991 Ser E.................................... 7.000 08-01-26 AAA 525 556,295 6.61
California Pollution Control Financing Auth,
Poll Control Rev 1991 Ser Southern Calif Edison Co.... 6.900 12-01-17 A+ 500 546,425 6.31
Poll Control Rev 1992 Ser A Pacific Gas & Elec Co..... 6.625 06-01-09 AA- 500 549,715 6.03
Poll Control Rev 1997 Ser A Laidlaw Environmental Proj 6.700 07-01-07 BBB- 2,000 2,086,400 6.42
Solid Waste Disposal Rev Keller Canyon Landfill Co Proj 6.875 11-01-27 A- 2,000 2,183,260 6.30
California Rural Home Mortgage Finance Auth,
Single Family Mtg Rev Ser A Mtg Backed Sec's Prog..... 7.550 11-01-26 AAA 720 807,854 6.73
Single Family Mtg Rev Ser A Mtg Backed Sec's Prog Step
Coupon .............................................. 7.750# 05-01-27 AAA 725 821,686 6.84
California State Public Works Board,
Lease Rev 1992 Ser A Calif State Univ
Various Univ Projs................................... 6.700 10-01-17 AAA 1,500 1,690,605 5.94
Lease Rev 1993 Ser A
California State Univ Various Community College Proj. 5.625 12-01-18 A 3,700 3,893,880 5.34
Lease Rev 1994 Ser A
Dept of Corrections Calif State Prison Monterey County
(Soledad II) ...................................... 6.875 11-01-14 A 500 590,445 5.82
Lease Rev 1996 Ser A Dept of Corrections.............. 5.500 01-01-15 AAA 5,145 5,451,282 5.19
Lease Rev Ref 1993 Ser A California State Univ
Various Univ Proj.................................... 5.500 06-01-21 A+ 1,250 1,296,075 5.30
Lease Rev Ref 1993 Ser A Depart of Corrections
Various State Prisons................................ 5.000 12-01-19 AAA 5,000 5,077,400 4.92
Lease Rev Ser A Dept of Corrections................... 5.250 01-01-21 AAA 4,500 4,559,040 5.18
California Statewide Communities Development Auth,
Ins Cert of Part United Western Medical Centers....... 6.750 12-01-21 A+ 7,500 8,314,725 6.09
Ins Rev Cert of Part Hlth Facil AIDS Proj Los Angeles. 6.200 08-01-12 A+ 1,250 1,326,762 5.84
Ins Rev Cert of Part Hlth Facil AIDS Proj Los Angeles. 6.250 08-01-22 A+ 2,590 2,749,699 5.89
Ins Rev Cert of Part Hlth Facil Eskaton Properties.... 6.700 05-01-11 A 1,250 1,364,612 6.14
Ins Rev Cert of Part Statewide Univ Northridge Proj... 6.000 04-01-26 AAA 1,620 1,757,408 5.53
Ins Rev Ref Cert of Part Triad Healthcare Hosp........ 6.500 08-01-22 A+ 13,000 14,471,860 5.84
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
California (continued)
California, State of,
GO Ser 1998 .......................................... 4.500% 12-01-21 AAA $2,000 $1,862,280 4.83%
California, University of,
Cert of Part Ref UCLA Central Chiller/
Cogeneration Proj.................................... 5.400 11-01-11 Aa3 1,000 1,028,690 5.25
Campbell, City of,
1991 Cert of Part Preref Civic Ctr Proj .............. 6.750 10-01-17 A 155 171,334 6.11
1991 Cert of Part Unref Bal Civic Ctr Proj .......... 6.750 10-01-17 A 1,565 1,728,683 6.11
Capistrano Unified School District,
Spec Tax of Community Facil Dist 87-1................. 7.500 09-01-07 AAA 3,500 3,652,460 7.19
Spec Tax of Community Facil Dist 87-1................. 8.375 10-01-20 AAA 3,000 3,303,270 7.61
Spec Tax of Community Facil Dist 92-1................. 7.000 09-01-18 BBB- 1,500 1,728,105 6.08
Spec Tax of Community Facil Dist 92-1................. 7.100 09-01-21 BBB- 2,250 2,752,965 5.80
Carlsbad, City of,
Imp Bond Act of 1915 Assessment Dist No 96-1.......... 5.500 09-02-28 BB+ 1,200 1,186,176 5.56
Carson Redevelopment Agency,
Tax Alloc Ser 1992 Area No 1 Redevel Proj............. 6.375 10-01-12 BBB+ 500 532,255 5.99
Castaic Lake Water Agency,
Cert of Part Ser 1990 Wtr Sys Imp Proj................ 7.350 08-01-20 AAA 200 215,738 6.81
Center Unified School District,
GO Cap Apprec Ser C................................... Zero 09-01-16 AAA 2,145 901,672 5.01
Central Coast Water Auth,
Rev State Wtr Proj Regional Facil Ser 1992............ 6.600 10-01-22 AAA 3,700 4,157,727 5.87
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993.... 6.100 07-01-13 BBB- 3,300 3,674,253 5.48
Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993.... 6.200 07-01-20 BBB- 1,000 1,117,400 5.55
Clearlake Redevelopment Agency,
Tax Alloc Highlands Park Community Devel Proj......... 6.400 10-01-23 BBB 500 531,910 6.02
Corona Community Facilities District 97-2,
Special Tax Rev....................................... 5.875 09-01-23 BB+ 1,500 1,493,235 5.90
Costa Mesa Public Financing Auth,
1991 Local Agency Rev Ser A........................... 7.100 08-01-21 BBB 220 234,225 6.67
Cucamonga School District,
Cert of Part.......................................... 7.600 12-01-15 Baa 1,000 1,055,380 7.20
Davis Redevelopment Agency,
Tax Alloc Ref Davis Redevel Proj...................... 7.000 09-01-24 AAA 5,115 5,830,793 6.14
Del Mar Race Track Auth,
Rev Ref Ser 1996...................................... 6.000 08-15-06 BBB 2,240 2,381,030 5.64
Rev Ref Ser 1996...................................... 6.200 08-15-11 BBB 1,865 2,019,105 5.73
Delano, City of,
Cert of Part.......................................... 7.000 04-01-10 BBB+ 2,000 2,106,200 6.65
Desert Hospital District,
Hosp Rev Cert of Part Ser 1990 Desert Hosp Corp Proj.. 8.000 07-01-10 AAA 300 325,155 7.38
Duarte, City of,
Cert of Part City of Hope Nat'l Medical Center Proj... 6.250 04-01-23 Baa1 14,000 14,901,180 5.87
East Bay Municipal Utility District,
Wastewater Treatment Sys Rev Ref...................... 7.270# 06-01-20 AAA 6,000 6,472,500 6.74
Elk Grove Unified School District,
Community Facil Dist 1 Spec Tax Cap Apprec............ Zero% 12-01-16 AAA $2,780 1,111,083 5.23
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
California (continued)
Encinitas Public Finance Auth,
Cert of Part Ser A Civic Ctr Proj..................... 6.750 12-01-11 A- 1,300 1,441,219 6.09%
Fairfield Public Financing Auth,
1995 Rev Ser A Pennsylvania Ave Storm Drainage Proj... 6.500 08-01-21 A- 1,085 1,180,545 5.97
Fontana Public Financing Auth,
Tax Alloc Rev 1990 Ser A North Fontana Redevel Proj... 7.250 09-01-20 BBB 325 342,443 6.88
Tax Alloc Rev Sub Lien 1991 Ser A North Fontana
Redevel Proj......................................... 7.750 12-01-20 AA 195 220,902 6.84
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Current Int Ser 1995A.......... 6.500 01-01-32 BBB- 1,665 1,857,341 5.83
Toll Rd Rev Fixed Rate Current Int Ser 1995A.......... 6.000 01-01-34 BBB- 14,775 15,782,507 5.62
Fremont Public Finance Auth,
Rev Ser A ............................................ 5.500 09-02-10 BB+ 2,905 2,936,025 5.44
Fresno Joint Powers Financing Auth,
Rev Ser A ............................................ 6.550 09-02-12 BBB 2,000 2,171,220 6.03
Fresno, City of,
Hlth Facil Rev Ser 1991 Saint Agnes Medical Center.... 6.625 06-01-21 AA 250 278,510 5.95
Industry Urban-Development Agency,
Tax Alloc Ref Trans Dist Proj 3....................... 6.900 11-01-16 A- 1,020 1,112,157 6.33
Inglewood, City of,
Cert of Part Civic Ctr Imp Proj....................... 7.000 08-01-19 BBB- 1,000 1,067,920 6.55
Irvine, City of,
Imp Board Act of 1915 Assessment Dist 95-12 Ser B..... 6.550 09-02-21 BB+ 1,000 1,062,280 6.17
Mobile Home Park Rev Ser A Meadows Mobile Home Park... 5.700 03-01-28 BBB- 1,930 1,940,962 5.67
Irwindale Community Redevelopment Agency,
Sub Lien Tax Alloc Industrial Devel Proj.............. 7.050 06-01-26 BBB 2,750 3,053,820 6.35
Lincoln Redevelopment Agency,
Tax Alloc Lincoln Redevel Proj ....................... 7.650 08-01-17 BBB+ 745 832,523 6.85
Long Beach, City of,
Harbor Rev Ref Ser A ................................. 6.000 05-15-18 AAA 2,660 3,007,103 5.31
Los Alamitos Unified School District,
Spec Tax of Community Facil Dist 90-1................. 7.150 08-15-21 Baa1 6,005 6,649,637 6.46
Los Angeles Community Facilities District,
Spec Tax No 3 Cascades Business Park Proj............. 6.400 09-01-22 BB+ 1,000 1,044,800 6.13
Los Angeles Community Redevelopment Financing Auth,
Rev Multi-Family Ser A Grand Central Square........... 5.850 12-01-26 BB 2,000 2,008,100 5.83
Los Angeles Department of Airports,
Airport Rev AMT Ser A
Ontario International Airport Proj................... 6.000 05-15-26 AAA 2,000 2,159,000 5.56
Los Angeles Department of Water and Power,
Elec Plant Rev Ref 2nd Iss of 1993.................... 5.400 11-15-12 A+ 1,000 1,047,250 5.16
Los Angeles Public Works Financing Auth,
Rev Regional Park & Open Space Dist A................. 6.000 10-01-15 AA 3,750 4,247,475 5.30
Los Angeles, County of,
Cert of Part Disney Parking Proj...................... 6.500 03-01-23 BBB 2,000 2,243,220 5.80
Los Angeles, County of (cont.),
Cert of Part Reg Linked SAVRS & RIBS Ref Proj......... 6.708%# 06-01-15 BBB $1,200 $1,297,452 6.20
Rev Ser B AMT Harbor Proj.............................. 6.000 08-01-15 AA 2,000 2,162,500 5.55
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
California (continued)
Metropolitan Water District,
Wtr Rev Iss of 1991................................... 6.625 07-01-12 AA 750 820,448 6.06%
Wtr Rev Iss of 1992................................... 5.000 07-01-20 AA 7,500 7,407,450 5.06
Millbrae, City of,
Residential Facil Rev Ser 1997A
Magnolia of Millbrae Proj............................ 7.375 09-01-27 BB 1,000 1,075,190 6.86
Modesto Irrigation District,
Cert of Part Ref & Cap Imps Proj Ser 1999B............ 5.300 07-01-22 A+ 1,000 1,000,500 5.30
Mountain View Capital Improvements Financing Auth,
1992 Rev City Hall/Community Theatre Complex and
Shoreline Regional Park Comm Tax Alloc Refin......... 6.500 08-01-16 AAA 600 649,668 6.00
Northern California Transmission Agency,
Rev 1990 Ser A Calif-Oregon Transm Proj............... 7.000 05-01-13 AAA 100 125,147 5.59
Rev 1992 Ser A Calif-Oregon Transm Proj............... 6.500 05-01-16 AAA 1,000 1,095,000 5.94
Oakland, Port of,
Spec Facil Rev 1992 Ser A Mitsui O.S.K. Lines Ltd Proj 6.800 01-01-19 A- 500 529,495 6.42
Oceanside, City of,
Ref Cert of Part Ser A ............................... 6.375 04-01-12 A 3,000 3,290,160 5.81
Orange County Development Agency,
Tax Alloc Santa Ana Heights Proj...................... 6.125 09-01-23 BBB 5,000 5,266,850 5.81
Orange Cove Irrigation District,
Cert of Part Rehab Proj............................... 7.250 02-01-12 BBB 2,000 2,181,580 6.65
Cert of Part Rehab Proj............................... 7.000 02-01-15 AA 2,500 2,715,875 6.44
Orange, County of,
Cert of Part Recovery Ref Ser A....................... 5.800 07-01-16 AAA 2,000 2,169,120 5.35
Cert of Part Civic Ctr Exp Proj....................... 6.700 08-01-18 AAA 1,000 1,098,960 6.10
Ser A of 1990 Spec Tax of Community Facil Dist 87-3
Mission Viejo........................................ 7.800 08-15-15 AA 350 379,701 7.19
Ser A of 1992 Spec Tax of Community Facil Dist 88-1
Aliso Viejo.......................................... 7.350 08-15-18 AAA 1,000 1,144,240 6.42
Pasadena, City of,
Cert of Part Ref Old Pasadena Pkg Facil Proj.......... 6.250 01-01-18 A+ 1,205 1,388,509 5.42
Pittsburg Redevelopment Agency,
Spec Tax of Community Facil Dist 90-1 California Ave.. 7.400 08-15-20 BBB 3,040 3,383,885 6.65
Poway, City of,
Community Facil Dist No 88-1
Spec Tax Ref Pkwy Business Ctr....................... 6.750 08-15-15 BB 1,000 1,090,440 6.19
Rancho Mirage Joint Powers Financing Auth,
Cert of Part Eisenhower Memorial Hosp................. 7.000 03-01-22 A2 4,500 5,025,510 6.27
Civic Center Rev Ref Ser 1991A Preref................. 7.500 04-01-17 BBB 195 214,802 6.81
Civic Center Rev Ref Ser 1991A Unref Bal.............. 7.500 04-01-17 BBB 55 59,162 6.97
Redondo Beach Public Financing Auth,
Rev South Bay Center Redevel Proj..................... 7.000 07-01-16 BBB+ 950 1,053,940 6.31
Richmond Joint Powers Financing Auth,
Rev Ser A............................................. 7.700 10-01-10 BBB- 1,645 1,789,892 7.08
Richmond, County of,
Imp Bd Act of 1915 Ref Reassessment District No 855... 6.600% 09-02-19 BBB- 3,000 3,103,860 6.38
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
California (continued)
Riverside County Asset Leasing Corp,
Leasehold Rev 1993 Ser A Riverside County Hosp Proj... 6.500 06-01-12 A 1,000 1,179,340 5.51%
Sacramento Power Auth,
Cogeneration Proj Rev Light & Pwr Imp ................ 6.000 07-01-22 BBB- 12,000 12,794,160 5.63
Sacramento Unified School District,
Spec Tax of Community Facil Dist 1 Ser B.............. 7.300 09-01-13 BAA 760 870,747 6.37
Saddleback Valley Unified School District,
Spec Tax of Community Facil Dist 89-3 Ser A........... 7.750 09-01-16 AA 3,200 3,341,408 7.42
San Bernardino, County of,
Cert of Part Ref Medical Ctr Fin Proj................. 5.500 08-01-17 A- 3,750 3,932,288 5.25
Cert of Part Ref Medical Ctr Fin Proj................. 5.500 08-01-17 AAA 5,000 5,380,150 5.11
Cert of Part Ref Medical Ctr Fin Proj Ser A........... 5.500 08-01-15 AAA 5,875 6,521,426 4.95
Cert of Part Ser B Cap Facil Proj..................... 6.875 08-01-24 AAA 350 441,242 5.45
San Diego County Regional Transportation Commission,
Sales Tax Rev 1991 Ser A.............................. 7.000 04-01-06 AA- 90 103,010 6.12
San Diego County Water Auth,
Water Rev Cert of Part Reg RITES ..................... 8.191# 04-23-08 AAA 1,000 1,228,750 6.67
Water Rev Cert of Part Reg RITES ..................... 8.191# 04-22-09 AAA 400 494,500 6.63
San Diego, County of,
Cert of Part Inmate Reception Ctr & Cooling Plant Fin. 6.750 08-01-19 AAA 3,000 3,505,200 5.78
San Francisco Bay Area Rapid Transit District,
Sales Tax Rev Ref..................................... 5.000 07-01-28 AAA 3,000 2,976,960 5.04
San Francisco State Building Auth,
Lease Rev Ref 1993 Ser A Dept of Gen Serv............. 5.000 10-01-13 A 2,145 2,226,124 4.82
San Francisco, City of,
Resid Facil Ser A Coventry Park Proj.................. 8.500 12-01-26 BB 2,000 2,295,640 7.41
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Jr Lien Cap Apprec........................ Zero 01-01-03 AAA 5,000 4,334,050 3.75
Toll Rd Rev Ref Conv Cap Apprec Ser A ................ Zero 01-15-21 BBB- 5,000 3,567,100 6.02
Toll Rd Rev Sr Lien Cap Apprec ....................... Zero 01-01-14 AAA 5,000 2,468,800 4.81
Toll Rd Rev Sr Lien Cap Apprec ....................... Zero 01-01-22 AAA 6,500 2,063,360 5.09
San Marcos Public Facilities Auth,
Rev Ref .............................................. 5.800 09-01-27 BB+ 1,000 1,000,820 5.80
San Mateo County Joint Powers Financing Auth,
Lease Rev Ref Cap Proj Prog .......................... 5.000 07-01-21 AAA 1,815 1,836,907 4.94
Santa Ana Financing Auth,
Lease Rev Ser A Police Admin & Holding Facil.......... 6.250 07-01-19 AAA 1,790 2,103,966 5.32
Lease Rev Ser A Police Admin & Holding Facil.......... 6.250 07-01-24 AAA 10,000 11,881,300 5.26
Rev Ref Ser B South Harbor Blvd....................... 5.125 09-01-19 AAA 2,500 2,476,750 5.17
Rev Ref Ser D Mainplace Proj.......................... 5.600 09-01-19 BBB- 1,000 997,570 5.61
Santa Barbara, County of,
1990 Cert of Part..................................... 7.500 02-01-11 AAA 250 262,710 7.14
1991 Cert of Part..................................... 6.400 02-01-11 A+ 250 269,100 5.95
Santa Clara County Finance Auth,
Lease Rev Ser 2000B Mult Facil Projs.................... 5.500% 05-15-17 AAA $6,000 $5,987,940 5.51
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
- -------------------------- ---- ---- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
California (continued)
Santa Clarita Community Facilities,
Spec Tax of Community Facil Dist 92-1 Ser A........... 7.450 11-15-10 BBB 3,600 3,904,704 6.87%
Santa Rosa, City of,
Imp Board Act of 1915 Ref Fountaingrove Parkway Ser A. 5.700 09-02-19 BB+ 1,000 996,390 5.72
Wastewater Rev 1992 Ser A Subregional Wastewater Proj. 6.500 09-01-22 AAA 500 556,885 5.84
Saugus Unified School District,
Cert of Part.......................................... 7.500 08-01-09 BBB+ 700 727,468 7.22
Southern California Home Financing Auth,
Single Family Mtg Rev GNMA & FNMA Mtg Backed Ser A.... 6.750 09-01-22 AAA 705 741,138 6.42
Single Family Mtg Rev GNMA & FNMA Mtg Backed Ser B.... 7.750 03-01-24 AAA 35 36,570 7.42
Southern California Public Power Auth,
Rev Ref Southern Transmission Proj.................... Zero 07-01-13 AAA 4,400 2,243,604 4.75
Stanislaus Waste to Energy Financing Agency,
Solid Waste Rev Ref Ogden Martin Sys Inc Proj......... 7.625 01-01-10 BBB+ 880 916,397 7.32
Suisun Redevelopment Agency,
Tax Alloc Suisun City Redevel Agency.................. 7.250 10-01-20 AAA 405 429,543 6.84
Torrance Redevelopment Agency,
Tax Alloc Ref Ser 1992 Downtown Redevel Proj.......... 7.125 09-01-21 BBB 500 554,145 6.43
Upland Housing Auth,
Rev Iss A ............................................ 7.500 07-01-03 BBB 190 195,704 7.28
Rev Iss A ............................................ 7.850 07-01-20 BBB 1,280 1,316,506 7.63
Vallejo Sanitation and Flood Control District,
Cert of Part ......................................... 5.000 07-01-19 AAA 2,500 2,528,575 4.94
Victor Valley Unified School District,
Cert of Part ......................................... 7.875 11-01-12 AA 1,255 1,374,250 7.19
West Covina Redevelopment Agency,
Ref Community Facil Dist Spec Tax Fashion Plaza Proj.. 6.000 09-01-22 A 3,000 3,345,330 5.38
-----------
390,671,751
-----------
Puerto Rico (5.53%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the
Commonwealth of Puerto Rico ......................... 8.220# 07-01-11 AAA 7,500 9,787,500 6.30
Puerto Rico Highway and Transportation Auth,
Highway Rev Ref 1996 Ser Z............................ 6.250 07-01-14 AAA 3,250 3,819,660 5.32
Puerto Rico Ports Auth,
Spec Facil Rev 1996 Ser A American Airlines Inc Proj.. 6.250 06-01-26 BBB- 2,000 2,158,100 5.79
Puerto Rico, Commonwealth of,
GO Pub Imp Ser 1996................................... 6.500 07-01-15 A 6,000 7,138,320 5.46
----------
22,903,580
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $373,151,800) (99.99%) 413,575,331
------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - California Tax-Free Income Fund
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED VALUE
- ------------------- ---- ------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.80%)
Investment in a joint repurchase agreement transaction with
ABN AMRO, Inc. - Dated 02-26-99, due 03-01-99
(Secured by U.S. Treasury Bonds, 8.750% and 11.875%,
due 11-15-03 and 5-15-20, and U.S. Treasury Notes, 5.500%
thru 7.875%, due 05-31-02 thru 08-15-07) - Note A............. 4.750% $3,291 $3,291,000
---------- ------------
TOTAL SHORT-TERM INVESTMENTS (0.80%) 3,291,000
---------- ------------
TOTAL INVESTMENTS (100.79%) 416,866,331
---------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.79%) (3,264,258)
---------- ------------
TOTAL NET ASSETS (100.00%) $413,602,073
========== =============
</TABLE>
* Credit ratings are unaudited and rated by Standard & Poor's where available,
or Moody's Investors Service, Fitch or John Hancock Advisers, Inc. where
Standard & Poor's ratings are not available.
+ The yield is not calculated in accordance with guidelines established by the
U.S. Securities and Exchange Commission and is unaudited. Zero coupon yields
are at yield to maturity.
# Represents the rate in effect on February 28, 1999.
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
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - California Tax-Free Income Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The California Tax-Free Income Fund invests primarily in securities issued by
the state of California and its various political subdivisions. The performance
of the Fund is closely tied to economic conditions within California and the
financial condition of the state and its agencies and municipalities. The
concentration of investments by states and credit ratings for individual
securities held by the Fund are shown in the schedule of investments. In
addition, the concentration of investments can be aggregated by various sector
categories.
The table below shows the percentages of the Fund's investments at February 28,
1999 assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF THE FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ----------------
General Obligation........................................ 2.73%
Revenue Bonds - Authority................................. 3.60
Revenue Bonds - Correctional Facility..................... 5.15
Revenue Bonds - Education................................. 10.96
Revenue Bonds - Electric Power............................ 4.80
Revenue Bonds - Excise Tax................................ 0.72
Revenue Bonds - Facility.................................. 2.22
Revenue Bonds - Harbor/Channel............................ 0.73
Revenue Bonds - Health.................................... 19.19
Revenue Bonds - Housing................................... 3.93
Revenue Bonds - Improvement............................... 1.01
Revenue Bonds - Industrial Development.................... 0.86
Revenue Bonds - Lease..................................... 2.00
Revenue Bonds - Multi-Family.............................. 0.47
Revenue Bonds - Other..................................... 18.00
Revenue Bonds - Parking Garage/Authority.................. 0.34
Revenue Bonds - Pollution Control Facilities.............. 1.52
Revenue Bonds - Tax....................................... 1.56
Revenue Bonds - Transportation............................ 9.26
Revenue Bonds - Various Purpose........................... 0.31
Revenue Bonds - Water & Sewer............................. 10.63
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS 99.99%
==========
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - California Tax-Free Income Fund
(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 investment objective of the Fund is to
provide as high a level of current income exempt from both federal income taxes
and California personal income taxes as is consistent with preservation of
capital.
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 Fund issued
Class C shares for the first time on April 1, 1999. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights 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 which bears distribution and service expenses under
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,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement. Aggregate cash balances
are invested in one or more 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.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $8,548,263 of capital
loss carryforwards available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforwards are used by the Fund,
no capital gains distribution will be made. The carryforwards expire as follows:
August 31, 2001 - $35,453, August 31, 2002 - $277,226, August 31, 2003 -
$5,169,717, August 31, 2004 - $2,378,578, August 31, 2005 - $7,774 and August
31, 2006 - $679,515.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
PREMIUM AND DISCOUNT For tax-exempt issues, the Fund amortizes the amount paid
in excess of par value on securities purchased from either the date of purchase
or date of issue to date of sale, maturity or to next call date, if applicable.
The Fund accretes original issue discount from par value on securities purchased
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code. The Fund records market
discount on bonds purchased after April 30, 1993 at time of disposition.
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - California Tax-Free Income Fund
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
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. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowing. In
addition, a commitment fee is charged 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 for the period ended February 28, 1999.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin," equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract is
valued at the official settlement price on the board of trade or U.S.
commodities exchange on which it trades. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market," will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of futures contracts.
At February 28, 1999, open positions in financial futures
contracts were as follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
JUN 99 85 U.S. Treasury Notes LONG $173,251
========
At February 28, 1999, the Fund has deposited $500,000 par value of City
of Davis Redevelopment Agency, 7.00%, 09-01-24, in a segregated account to cover
margin requirements on open financial futures contracts.
OPTIONS The Fund may purchase options contracts. Listed options will be valued
at the last quoted sales price on the exchange on which they are primarily
traded. Over-the-counter options are valued at the mean between the last bid and
asked prices. Upon the writing of a call or put option, an amount equal to the
premium received by the Fund will be included in the Statement of Assets and
Liabilities as an asset and corresponding liability. The amount of the liability
will be subsequently marked to market to reflect the current market value of the
written option.
The Fund may use options contracts to manage its exposure to changing
security prices. Writing puts and buying calls will tend to increase the Fund's
exposure to the underlying instrument and buying puts and writing calls will
tend to decrease the Fund's exposure to the underlying instrument, or hedge
other Fund investments.
22
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - California Tax-Free Income Fund
The maximum exposure to loss for any purchased options will be limited
to the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the
contract's terms ("credit risk"), or if the Fund is unable to offset a contract
with a counterparty on a timely basis ("liquidity risk"). Exchange-traded
options have minimal credit risk as the exchanges act as counterparties to each
transaction and only present liquidity risk in highly unusual market conditions.
To minimize credit and liquidity risks in over-the-counter option contracts, the
Fund will continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's Statement of
Assets and Liabilities.
There were no written option transactions for the period ended February
28, 1999.
NOTE B
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent on
an annual basis to 0.55% of the Fund's average daily net asset value.
The Adviser has voluntarily agreed to limit the Fund's operating
expenses to 0.75% and 1.50% of the average net assets attributable to Class A
and Class B, respectively. Accordingly, the reduction in the Adviser's fee
amounted to $113,548 for the period ended February 28, 1999. This limitation may
not be discontinued until at least January 1, 2000.
The Fund has an agreement with its custodian bank under which $32,300
of custodian fees have been reduced by balance credits applied during the period
ended February 28, 1999. If the Fund had not entered into this agreement, the
assets not invested, on which these balance credits were earned, could have
produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the period ended
February 28, 1999, net sales charges received with regard to sales of Class A
shares amounted to $350,453. Out of this amount, $26,201 was retained and used
for printing prospectuses, advertising, sales literature and other purposes,
$291,113 was paid as sales commissions to unrelated broker-dealers and $33,139
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% 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 CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended February 28,
1999, contingent deferred sales charges paid to JH Funds amounted to $86,706.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds at an
annual rate not to exceed 0.15% of Class A average daily net assets and 1.00% of
Class B average daily net assets to reimburse JH Funds for its distribution and
service costs. JH Funds has temporarily agreed to limit the distribution and
service fees pursuant to the Class B plans to 0.90% of the average daily net
assets. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
23
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - California Tax-Free Income Fund
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon
and Mr. Richard S. Scipione are directors and/or officers of the Adviser and/or
its affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect
to defer for tax purposes their receipt of this compensation under the John
Hancock Group of Funds Deferred 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
investment as well as any unrealized gains or losses. At February 28, 1999 the
Fund's investments to cover the deferred compensation liability had unrealized
appreciation of $3,578.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended February 28, 1999, aggregated $41,324,694 and $38,873,119, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended February 28, 1999.
The cost of investments owned at February 28, 1999 (including the joint
repurchase agreement) for federal income tax purposes was $376,442,800. Gross
unrealized appreciation and depreciation of investments aggregated $40,660,654
and $237,123, respectively, resulting in net unrealized appreciation of
$40,423,531.
24
<PAGE>
=====================================NOTES======================================
John Hancock Funds - California Tax-Free Income Fund
25
<PAGE>
=====================================NOTES======================================
John Hancock Funds - California Tax-Free Income Fund
26
<PAGE>
=====================================NOTES======================================
John Hancock Funds - California Tax-Free Income Fund
27
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS ---------------------
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---------------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
California Tax-Free Income Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
[LOGO] Printed on Recycled Paper 530SA 2/99
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