---------------------------
The latest report from your
Fund's management team
---------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
California
Tax-Free
Income Fund
FEBRUARY 29, 2000
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-------------------------------------
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion*
Maureen R. Ford
Anne C. Hodsdon
Charles L. Ladner
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
---------------------------------------------
=================================CEO CORNER=====================================
DEAR FELLOW SHAREHOLDERS:
Over the last 12 months, the market's advances were restricted to an
increasingly select group of stocks - primarily in the technology and
communications areas. Even those gains were accompanied by tremendous levels of
daily volatility. But many other stocks, including the household blue-chip
names, fell in response to a tough combination of investor apathy, rising
interest rates and earnings concerns.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to first paragraph.]
- --------------------------------------------------------------------------------
In this same period, bonds struggled through one of their worst years in more
than two decades, as the strength of the U.S. economy and the rebound of many
others around the world provoked inflation fears. Though their longer-term
outlook looks brighter, in many instances bond mutual fund investors have
actually lost a little ground or made only slight advances lately.
While we expect the market to broaden eventually, we also expect more
volatility. More than ever, this type of environment calls for investment
diversification. Since not all parts of your portfolio will perform equally well
all the time, we believe it is important to allocate your assets among different
types of investments and funds that target a variety of market segments. This
strategy, executed under the guidance of a seasoned investment professional,
could provide you with a better chance of both realizing results and weathering
the market's changing conditions.
The market's disappointingly narrow focus has created a widening gap in
investment performance. Keep that in mind as you read the report from your
fund's portfolio management team on the following pages. It's all too easy to
get caught up in the headlines and miss what lies underneath.
Sincerely,
/s/Maureen R. Ford
- ------------------
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Dianne Sales, CFA, Barry H. Evans, CFA, and
Frank Lucibella, CFA, Portfolio Managers
John Hancock California
Tax-Free Income Fund
Climbing interest rates hurt municipal bonds
--------------------------------------------
It has been a rough road for municipal bonds over the last six months as the
Federal Reserve continued to raise interest rates in an attempt to put the
brakes on inflationary pressures and an overheating economy. Although some
commodity prices such as oil have spiked up, overall inflation still appears to
be under control. Nonetheless, the Federal Reserve's preemptive interest-rate
hikes drove bond prices down during the period.
Also adding to the downward pressure on municipal bonds was the lack of
liquidity in the market. Cash flow into muni bonds virtually dried up as
investors became disenchanted with falling bond prices and were enticed into the
stock market by higher returns.
Fund performance
Given the market backdrop, municipal bonds posted disappointing returns for the
period. For the six months ended February 29, 2000, John Hancock California
Tax-Free Income Fund's Class A, Class B and Class C shares returned -0.62%,
- -0.99% and -1.05%, respectively, at net asset value. However, those returns did
outpace the average California municipal bond fund's return of -1.40% for the
same period, 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.
- --------------------------------------------------------------------------------
[A 3" x 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):
"Dianne Sales, Barry Evans and Frank Lucibella."]
- --------------------------------------------------------------------------------
"...municipal bonds posted disappointing returns..."
3
<PAGE>
================================================================================
John Hancock Funds - California Tax-Free Income Fund
"The Fund's health-care holdings were a disappoint-ment."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into thirteen sections (from top to left): Pollution Control
2%, Lease 2%, Facility 2%, General Obligation 3%, Housing 4%, Authority 4%,
Electric 5%, Correction Facility 5%, Education 8%, Water & Sewer 10%,
Transportation 10%, Health 19% and Other 26%. A note below the chart reads "As a
percentage of net assets on February 29, 2000."]
- --------------------------------------------------------------------------------
Performance scorecard
In this difficult environment, the Fund benefited from managing the
interest-rate sensitivity - or duration - of the portfolio. The shorter the
duration, the less sensitive the Fund will be to interest-rate changes. From
September through December, we shortened the Fund's duration, which protected
the Fund when rates climbed in the back half of the year. We began to cautiously
push out the Fund's duration to a neutral position at the start of this year
since, although there are still more rate hikes to come, a goodly portion is
already priced into the market.
The Fund's construction/development holdings also performed well, which
was not surprising given the strong economic growth of the state. The Bonita
Canyon project, for example, is ahead of schedule and demand for the space
continues to exceed expectations. Unfortunately, because of the lackluster
demand for municipal
- --------------------------------------------------------------------------------
[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 Health-care
bonds followed by a down arrow with the phrase "Cuts in government
reimbursements." The second listing is Land development bonds followed by a down
arrow with the phrase "Lack of investor demand." The third listing is
State-related bonds followed by an up arrow with the phrase "California debt
rating upgrade." A note below the table reads "See `Schedule of Investments.'
Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
bonds in the last several months, the strength of these construction/development
credits has not been fully reflected in their prices. So we expect more upside
potential as investors begin to recognize the true value of these credits.
On the negative side, the Fund's health-care holdings were a
disappointment. Federal reductions in Medicare and Medicaid reimbursements
turned out to be more severe than industry experts - and even the government -
had anticipated. And that has put considerable pressure on the earnings in the
health-care sector, particularly hospitals, nursing homes and assisted living
centers.
Restructuring the portfolio
It's important to remember, especially in a tough market, that bond prices will
eventually turn around. So it's critical to maintain a long-term investment
perspective and to consistently focus on positioning the Fund for the future.
Given that, we've taken advantage of rising interest rates and the downturn in
the municipal bond market to begin to gradually restructure the portfolio.
To start, the jump in interest rates has allowed us to trade some of
our lower-yielding bonds for higher-yielding ones, improving the overall yield
of the portfolio. Second, we've boosted activity in our ongoing strategy to
improve the Fund's call protection. Call protection guards against a bond's
being redeemed by the issuer for a certain period of time. Good call protection
is important when interest rates are falling, because issuers often try to
refinance their bonds at lower interest rates. If a bond gets "called away," or
redeemed early, then investors are forced to reinvest their money in bonds with
lower yields. Weak bond markets are good for the disciplined investor, because
negative price action often
4
<PAGE>
================================================================================
John Hancock Funds - California Tax-Free Income Fund
- --------------------------------------------------------------------------------
[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 29, 2000." The
chart is scaled in increments of 1% with -2% at the bottom and 0% at the top.
The first bar represents the -0.62% total return for John Hancock California
Tax-Free Income Fund Class A. The second bar represents the -0.99% total return
for John Hancock California Tax-Free Income Fund Class B. The third bar
represents the -1.05% total return for John Hancock California Tax-Free Income
Fund Class C. The fourth bar represents the -1.40% 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, Inc. 1 See the following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
diverts attention from factors like coupon structure and call protection. It is
the perfect time to add long-term value at inexpensive levels.
While rates have recently been on the rise, overall inflation is still
very contained by historical standards. A proactive Fed has proven to be a boon
to bond investors over time. As they say, what goes up, comes back down. When
rates do, the Fund will be well positioned with strong call protection.
State status
We're optimistic about the prospects for California. Because of its strong
economic growth, the state's credit rating was recently upgraded to AA by
Fitch/IBCA. Fiscally, California is in excellent shape.
Stronger-than-anticipated revenue growth has allowed the state to rebuild
reserve funds. Plus, the sheer strength and diversity of the state's economy
places it in a strong position to withstand any sort of economic slowdown.
Bond outlook
In the short-term, bond investors could be in for a bumpy ride. The Federal
Reserve has clearly indicated that it is concerned about an overheating economy
and budding inflation. Given that, we believe that the Federal Reserve is likely
to boost interest rates at least one more time this year. Concerns about rising
rates are likely to keep investors nervous and the bond market volatile in the
near term.
As for municipal bonds, the technical conditions are improving. For
starters, the supply/demand factors in the municipal market are improving. In
1999, new issuance dropped 25%. So far in 2000, it's down roughly 40%. As demand
for municipal bonds begins to pick up, municipal bonds will be harder to come by
and that is likely to drive prices higher.
In addition, higher interest rates will eventually put a damper on the
economy's strong growth. When that happens, we are likely to see interest rates
peak and eventually resume their decline. Our discipline is to stay fully
invested, and we will also continue to restructure the portfolio so that it is
well positioned when the market does turn the corner.
- --------------------------------------------------------------------------------
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.
1Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
"We're optimistic about the prospects for California."
5
<PAGE>
================================================================================
John Hancock Funds - California Tax-Free Income Fund
- --------------------------------------------------------------------------------
LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
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). Class C
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
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.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- ------- --------
Cumulative Total Returns (7.23%) 38.80% 85.91%
Average Annual Total Returns(1) (7.23%) 6.78% 6.40%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
------- ------- --------
Cumulative Total Returns (8.18%) 38.03% 53.98%
Average Annual Total Returns(1) (8.18%) 6.66% 5.54%
- --------------------------------------------------------------------------------
CLASS C
-------------------------------------------------------------------------------
For the period ended December 31, 1999
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (5.18%)
Average Annual Total Return(1) (5.18%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of February 29, 2000
SEC 30-DAY
YIELD
--------
John Hancock California Tax-Free Income Fund: Class A(1) 4.80%
John Hancock California Tax-Free Income Fund: Class B(1) 4.28%
John Hancock California Tax-Free Income Fund: Class C(1) 4.18%
Notes to Performance
(1) The Adviser voluntarily reduced a portion of the management fee, the
Distributor reduced the distribution and service fees applicable to
Class B shares and custodian fees were offset with balance credits
during the period. Without the reduction of expenses, and the offset,
the average annual total return for the one-year, five-year and
ten-year periods for Class A shares would have been (7.30%), 6.70% and
6.18%, respectively. Without the reduction of expenses and the offset,
the average annual total returns for the one-year, five-year and since
inception periods for Class B shares would have been (8.35%), 6.55% and
5.40%, respectively. Without the reduction of expenses and the offset,
the cumulative total return for Class C shares since inception would
have been (5.27%). Without the reductions of expenses and the offset,
the yield for Class A, Class B and Class C shares would have been
4.71%, 4.09% and 4.09%, respectively.
(2) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - California Tax-Free Income Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
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. It is not possible to invest in an index. Past performance
is no guarantee of future results.
- --------------------------------------------------------------------------------
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 Lehman
Brothers Municipal Bond Index and is equal to $19,613 as of February 29, 2000.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock California Tax-Free Income Fund on December 29, 1989, before
sales charge, and is equal to $19,606 as of February 29, 2000. The third line
represents the value of the same hypothetical investment made in the John
Hancock California Tax-Free Income Fund, after sales charge, and is equal to
$18,724 as of February 29, 2000.
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 $16,301 as of February 29,
2000. 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 $15,477 as of February 29, 2000.
Line chart with the heading John Hancock California Tax-Free Income Fund Class
C, 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 Lehman
Brothers Municipal Bond Index and is equal to $9,778 as of February 29, 2000.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock California Tax-Free Income Fund on April 1, 1999, before
sales charge, and is equal to $9,622 as of February 29, 2000. The third line
represents the value of the same hypothetical investment made in the John
Hancock California Tax-Free Income Fund, after sales charge, and is equal to
$9,525 as of February 29, 2000.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
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 29, 2000. 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 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Tax-exempt long-term bonds (cost - $360,628,292).............. $369,627,156
Joint repurchase agreement (cost - $81,000) .................. 81,000
--------------
369,708,156
Cash .......................................................... 50
Receivable for investments sold ............................... 5,000
Receivable for shares sold .................................... 348,461
Interest receivable ........................................... 5,392,519
Other assets .................................................. 96,882
--------------
Total Assets ........................ 375,551,068
---------------------------------------------------
Liabilities:
Payable for shares repurchased ................................ 191,450
Payable for investments purchased ............................. 6,097,620
Dividend payable .............................................. 17,817
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 552,845
Accounts payable and accrued expenses ......................... 64,052
--------------
Total Liabilities ................... 6,923,784
---------------------------------------------------
Net Assets:
Paid-in capital ............................................... 370,714,860
Accumulated net realized loss on investments and
financial futures contracts .................................. (11,133,993)
Net unrealized appreciation of investments .................... 8,998,864
Undistributed net investment income ........................... 47,553
--------------
Net Assets .......................... $368,627,284
===================================================
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 - $285,174,938/27,676,101 ............................. $10.30
=============================================================================
Class B - $82,360,309/7,993,031 ............................... $10.30
=============================================================================
Class C - $1,092,037/105,982 .................................. $10.30
=============================================================================
Maximum Offering Price Per Share*
Class A - ($10.30 x 104.71%) .................................. $10.79
=============================================================================
* 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 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ...................................................... $11,898,340
--------------
Expenses:
Investment management fee - Note B ........................... 1,055,821
Distribution and service fee - Note B
Class A ..................................................... 220,007
Class B ..................................................... 447,934
Class C ..................................................... 5,027
Transfer agent fee - Note B .................................. 116,631
Custodian fee ................................................ 53,888
Legal and accounting services fee - Note B ................... 39,968
Auditing fee ................................................. 18,563
Trustees' fees ............................................... 12,308
Miscellaneous ................................................ 8,973
Printing ..................................................... 8,268
Interest expense - Note A .................................... 8,075
Registration and filing fees ................................. 4,697
Legal fees ................................................... 2,343
Less: Management Fee Reduction - Note B ...................... (176,988)
Distribution and Service Fee Reduction - Note B
Class B ............................................... (44,793)
--------------
Total Expenses ...................... 1,780,722
---------------------------------------------------
Less Expense Reductions -
Note B .............................. (739)
---------------------------------------------------
Net Expenses ........................ 1,779,983
---------------------------------------------------
Net Investment Income ............... 10,118,357
---------------------------------------------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments sold ......................... (1,111,930)
Change in net unrealized appreciation/(depreciation)
of investments ............................................... (12,016,016)
--------------
Net Realized and Unrealized
Loss on Investments ................. ( 13,127,946)
---------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ........... ($3,009,589)
===================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - California Tax-Free Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
--------------------- ---------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income.................................................. $20,023,767 $10,118,357
Net realized loss on investments sold and financial futures contracts . (115,392) (1,111,930)
Change in net unrealized appreciation/(depreciation) of investments and
financial futures contracts .......................................... (20,298,117) (12,016,016)
------------------- --------------------
Net Decrease in Net Assets Resulting from Operations ................ (389,742) (3,009,589)
------------------- --------------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5609 and $0.2828 per share, respectively) .............. (15,529,991) (7,993,217)
Class B - ($0.4778 and $0.2440 per share, respectively) .............. (4,487,984) (2,102,116)
Class C** - ($0.1843 and $0.2359 per share, respectively) ............ (5,792) (23,024)
------------------- --------------------
Total Distributions to Shareholders .................................. (20,023,767) (10,118,357)
------------------- --------------------
From Fund Share Transactions - Net: * .................................. 27,533,302 (24,420,258)
------------------- --------------------
Net Assets:
Beginning of period ................................................... 399,055,695 406,175,488
------------------- --------------------
End of period (including undistributed net investment income
of $47,553 and $47,553, respectively) ................................ $406,175,488 $368,627,284
=================== ====================
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
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED FEBRUARY 29, 2000
AUGUST 31, 1999 (UNAUDITED)
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................ 4,985,184 $55,160,981 2,135,468 $22,228,687
Shares reinvested ..................... 667,420 7,379,055 350,743 3,644,553
------------ --------------- ------------ ---------------
5,652,604 62,540,036 2,486,211 25,873,240
Less shares repurchased ............... (3,703,124) (40,923,038) (3,603,259) (37,537,126)
------------ --------------- ------------ ---------------
Net increase (decrease) ............... 1,949,480 $21,616,998 (1,117,048) ($11,663,886)
============ =============== ============ ===============
CLASS B
Shares sold ........................... 2,523,120 $28,092,730 627,570 $6,558,776
Shares reinvested ..................... 218,896 2,402,251 90,909 945,493
------------ --------------- ------------ ---------------
2,742,016 30,494,981 718,479 7,504,269
Less shares repurchased ............... (2,300,517) (25,454,751) (1,972,914) (20,527,533)
------------ --------------- ------------ ---------------
Net increase (decrease) ............... 441,499 $5,040,230 (1,254,435) ($13,023,264)
============ =============== ============ ===============
CLASS C**
Shares sold ........................... 80,521 $874,475 34,966 $366,981
Shares reinvested ..................... 148 1,599 458 4,758
------------ --------------- ------------ ---------------
80,669 876,074 35,424 371,739
Less shares repurchased ............... - - (10,111) (104,847)
------------ --------------- ------------ ---------------
Net increase .......................... 80,669 $876,074 25,313 $266,892
============ =============== ============ ===============
**Class C commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<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:
- --------------------------------------------------------------------------------
YEAR ENDED PERIOD FROM SIX MONTHS
DECEMBER 31, JANUARY 1, ENDED
-------------------- 1996 TO YEAR ENDED AUGUST 31, FEBRUARY 29,
AUGUST 31, ------------------------- 2000
1994(1) 1995 1996(9) 1997 1998 1999 (UNAUDITED)
---------- --------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $10.85 $9.28 $10.69 $10.36 $10.77 $11.19 $10.65
-------- -------- -------- -------- -------- -------- --------
Net Investment Income .............................. 0.58 0.57(2) 0.39(2) 0.57(2) 0.56(2) 0.56(2) 0.28(2)
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts ....... (1.57) 1.41 (0.33) 0.41 0.42 (0.54) (0.35)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations .................. (0.99) 1.98 0.06 0.98 0.98 0.02 (0.07)
-------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ............... (0.58) (0.57) (0.39) (0.57) (0.56) (0.56) (0.28)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ..................... $9.28 $10.69 $10.36 $10.77 $11.19 $10.65 $10.30
======== ======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (3) ..... (9.31%) 21.88% 0.61%(7) 9.71% 9.32% 0.11% (0.62%)(7)
Total Adjusted Investment Return at
Net Asset Value (3,4) ............................. (9.45%) 21.73% 0.55%(7) 9.64% 9.26% 0.04% (0.67%)(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........... $241,583 $309,305 $291,072 $291,167 $300,483 $306,786 $285,175
Ratio of Expenses to Average Net Assets ............ 0.75% 0.75% 0.76%(8,10) 0.75% 0.77%(10) 0.76%(10) 0.75%(8,10)
Ratio of Adjusted Expenses to Average Net Assets (5) 0.89% 0.90% 0.84%(8) 0.82% 0.83% 0.82% 0.84%(8)
Ratio of Net Investment Income to Average Net Assets 5.85% 5.76% 5.57%(8) 5.42% 5.05% 5.06% 5.43%(8)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) ......................... 5.71% 5.61% 5.48%(8) 5.35% 4.99% 4.99% 5.34%(8)
Portfolio Turnover Rate ............................ 62% 37%(6) 30% 15% 10% 3% 5%
Fee Reduction Per Share ............................ $0.01 $0.01(2) $0.01(2) $0.01(2) $0.01(2) $0.01(2) $0.00(2,11)
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.
11
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - California Tax-Free Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
YEAR ENDED PERIOD FROM SIX MONTHS
DECEMBER 31, JANUARY 1, ENDED
-------------------- 1996 TO YEAR ENDED AUGUST 31, FEBRUARY 29,
AUGUST 31, ------------------------- 2000
1994(1) 1995 1996(9) 1997 1998 1999 (UNAUDITED)
---------- --------- ----------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $10.85 $9.28 $10.68 $10.36 $10.77 $11.19 $10.65
-------- -------- --------- ------- -------- -------- --------
Net Investment Income .............................. 0.51 0.50(2) 0.33(2) 0.49(2) 0.47(2) 0.48(2) 0.24(2)
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures Contracts ....... (1.57) 1.40 (0.31) 0.41 0.42 (0.54) (0.35)
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations .................. (1.06) 1.90 0.02 0.90 0.89 (0.06) (0.11)
-------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ............... (0.51) (0.50) (0.34) (0.49) (0.47) (0.48) (0.24)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ..................... $9.28 $10.68 $10.36 $10.77 $11.19 $10.65 $10.30
======== ======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (3) ..... (9.99%) 20.87% 0.20%(7) 8.88% 8.50% (0.63%) (0.99%)(7)
Total Adjusted Investment Return at (10.13%) 20.72% 0.14%(7) 8.81% 8.44% (0.80%) (1.09%)(7)
Net Asset Value (3,4) .............................
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........... $77,365 $84,673 $83,253 $89,493 $98,572 $98,530 $82,360
Ratio of Expenses to Average Net Assets ............ 1.50% 1.50% 1.52%(8,10) 1.50% 1.52%(10) 1.51%(10) 1.50%(8,10)
Ratio of Adjusted Expenses to Average Net Assets (5) 1.64% 1.65% 1.59%(8) 1.57% 1.58% 1.67% 1.69%(8)
Ratio of Net Investment Income to Average Net Assets 5.10% 4.97% 4.81%(8) 4.66% 4.29% 4.31% 4.69%(8)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) ......................... 4.96% 4.82% 4.72%(8) 4.59% 4.23% 4.14% 4.50%(8)
Portfolio Turnover Rate ............................ 62% 37%(6) 30% 15% 10% 3% 5%
Fee Reduction Per Share ............................ $0.01 $0.01(2) $0.01(2) $0.01(2) $0.01(2) $0.01(2) $0.00(2,11)
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - California Tax-Free Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM APRIL 1, 1999 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) FEBRUARY 29, 2000
TO AUGUST 31, 1999 (UNAUDITED)
--------------------------- ------------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................ $11.14 $10.65
-------- --------
Net Investment Income (2) ....................................................... 0.18 0.24
Net Realized and Unrealized Loss on Investments and Financial Futures Contracts . (0.49) (0.35)
-------- --------
Total from Investment Operations ............................................... (0.31) (0.11)
-------- --------
Less Distributions:
Dividends from Net Investment Income ............................................ (0.18) (0.24)
-------- --------
Net Asset Value, End of Period .................................................. $10.65 $10.30
======== ========
Total Investment Return at Net Asset Value (3) .................................. (2.77%)(7) (1.05%)(7)
Total Adjusted Investment Return at Net Asset Value (3,4) ....................... (2.80%)(7) (1.10%)(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................................ $860 $1,092
Ratio of Expenses to Average Net Assets ......................................... 1.61%(8,10) 1.60%(8,10)
Ratio of Adjusted Expenses to Average Net Assets (5) ............................ 1.67%(8) 1.69%(8)
Ratio of Net Investment Income to Average Net Assets ............................ 4.20%(8) 4.59%(8)
Ratio of Adjusted Net Investment Income to Average Net Assets (5) ............... 4.13%(8) 4.50%(8)
Portfolio Turnover Rate ......................................................... 3% 5%
Fee Reduction Per Share (2) ..................................................... $0.01 $0.00(11)
(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 and the years ended August
31, 1998 and 1999, the ratio of expenses to average net assets for the
Fund excludes the effect of balance credits described in Note B. If
these expense reductions were included, the ratio of expenses to
average net assets would have been 0.75% for Class A, 1.50% for Class B
and 1.60% for Class C. For the period ended February 29, 2000, the
ratio of expenses to average net assets for the Fund also excludes the
effect of balance credits, which would have been less than 0.01% for
Class A, Class B and Class C.
(11) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - California Tax-Free Income Fund
Schedule of Investments
February 29, 2000 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
California Tax-Free Income Fund on February 29, 2000. 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 or territory. Under each
state or territory is a list of the securities owned by the Fund. Short-term
investments, which represent the Fund's "cash" position, are listed last.
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 (94.77%)
ABAG Finance Authority for Nonprofit Corps.,
Cert of Part Peninsula Family YMCA Ser A............ 6.800% 10-01-11 A3 $1,000 $1,054,740 6.45%
Cert of Part Nat'l Center for Int'l Schools Proj ... 7.375 05-01-18 BB+ 4,300 4,412,703 7.19
Alameda, County of,
Cert of Part Cap Projs ............................. 6.750 06-01-16 A2 500 533,465 6.33
Anaheim Public Financing Auth,
Sub Lease Rev 1997 Cap Apprec Ser C
Anaheim Pub Imp Proj .............................. Zero 09-01-18 AAA 3,000 995,640 6.05
Anaheim, City of,
Cert of Part Ref Reg Rites Convention Ctr .......... 8.520# 07-16-23 AAA 2,000 2,037,500 8.36
Antioch Public Financing Authority,
Reassessment Rev Ser B ............................. 5.850 09-02-15 BB+ 1,490 1,354,827 6.43
Arcadia, County of,
Hosp Rev Methodist Hosp of Southern California ..... 6.625 11-15-22 A 1,205 1,216,942 6.56
Avalon Community Improvement Agency,
Tax Alloc Community Imp Proj Ser B ................. 6.400 08-01-22 A- 1,830 1,943,552 6.03
Bakersfield Memorial Hospital,
Hosp Rev Ser A ..................................... 6.500 01-01-22 Baa1 2,000 2,107,640 6.17
Beaumont Unified School District,
Cert of Part Cap Imp Proj .......................... 7.700 01-01-21 AA 1,000 1,048,810 7.34
Beverly Hills Public Financing Auth,
Lease Rev INFLOS ................................... 5.650# 06-01-15 AAA 2,500 2,478,125 5.70
Bonita Canyon Public Facilities Financing Auth,
Spec Tax Community Facils Dist No 98-1 ............. 5.375 09-01-28 BB+ 2,000 1,589,720 6.76
Brentwood Redevelopment Agency,
Tax Alloc Brentwood Redevel Proj Ser A ............. 7.700 11-01-08 BBB 135 138,033 7.53
Burbank Redevelopment Agency,
Tax Alloc Golden State Redevel Proj Ser A .......... 6.000 12-01-23 A- 2,750 2,685,100 6.15
California Educational Facilities Auth,
Rev 1993 Ser B Pooled College & Univ Proj .......... 6.125 06-01-09 Baa2 1,000 1,016,690 6.02
Univ of San Diego Rev Cap Apprec ................... Zero 10-01-19 Aaa 1,510 466,243 6.09
California Health Facilities Financing Auth,
Hosp Rev 1991 Ser A San Diego Hosp Assoc ........... 6.950 10-01-21 Baa1 250 264,770 6.56
Ins Hosp Rev Ser 1990 Children's Hosp San Diego .... 6.500 07-01-20 AAA 500 514,255 6.32
Ins Rev Ref Ser A Catholic Healthcare
West Obligated Group .............................. 5.750 07-01-15 AAA 2,000 2,014,100 5.71
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)
California Health Facilities Financing Auth (continued),
Ins Rev Ser A San Diego Christian Foundation......... 6.250% 07-01-12 AA- $1,135 $1,166,042 6.08%
Ins Rev Ser B Hlth Facil Small Facil ................ 7.500 04-01-22 AA- 2,000 2,201,920 6.81
Rev 1990 Ser A Kaiser Permanente .................... 7.000 12-01-10 A 600 625,038 6.72
Rev Ser 1994A Scripps Research Institute ............ 6.300 07-01-09 A1 500 517,875 6.08
Sec Rev 1991 Ser Hosp of the Good Samaritan ......... 7.000 09-01-21 BBB 2,250 2,070,293 7.61
California Housing Finance Agency,
Home Mtg Rev 1990 Ser D ............................. Zero 08-01-20 AA- 1,335 273,755 6.19
Home Mtg Rev 1991 Ser A ............................. 7.375 08-01-17 AA- 200 204,788 7.20
Home Mtg Rev 1994 Ser C ............................. 6.650 08-01-14 AA- 1,000 1,013,450 6.56
Home Mtg Rev 1994 Ser G ............................. 7.250 08-01-17 AA- 3,180 3,264,842 7.06
Home Mtg Rev 1999 Ser L ............................. Zero 02-01-18 AAA 9,100 2,886,702 6.51
Hsg Rev 1991 Ser E .................................. 7.000 08-01-26 AAA 525 542,519 6.77
California Pollution Control Financing Auth,
Poll Control Rev 1991 Ser Southern Calif Edison Co .. 6.900 12-01-17 A+ 500 523,120 6.60
Poll Control Rev 1992 Ser A Pacific Gas & Elec Co ... 6.625 06-01-09 AA- 500 527,565 6.28
Poll Control Rev 1997 Ser A Laidlow Environmental Proj 6.700 07-01-07 BBB- 2,000 1,969,480 6.80
Solid Waste Disposal Rev Keller Canyon Landfill Co Proj 6.875 11-01-27 BB- 2,000 1,912,980 7.19
California Rural Home Mortgage Finance Auth,
Single Family Mtg Rev Ser A Mtg Backed Sec's Prog ... 7.550 11-01-26 AAA 575 611,725 7.10
Single Family Mtg Rev Ser A Mtg Backed Sec's Prog
Step Coupon ........................................ 7.750# 05-01-27 AAA 570 611,513 6.01
California State Public Works Board,
Lease Rev 1993 Ser A California State Univ Various
Community College Proj ............................. 5.625 12-01-18 A+ 3,700 3,894,176 5.34
Lease Rev 1994 Ser A Dept of Corrections Calif State
Prison Monterey County (Soledad II) ................ 6.875 11-01-14 A+ 500 554,865 6.20
Lease Rev 1996 Ser A Dept of Corrections ............ 5.500 01-01-15 AAA 5,145 5,098,283 5.55
Lease Rev Ref 1993 Ser A California State Univ
Various Univ Proj .................................. 5.500 06-01-21 A+ 1,250 1,179,650 5.83
Lease Rev Ref 1993 Ser A Dept of Corrections
Various State Prisons .............................. 5.000 12-01-19 AAA 5,000 4,430,650 5.64
Lease Rev Ser A Dept of Corrections ................. 5.250 01-01-21 AAA 4,500 4,161,600 5.68
California Statewide Communities Development Auth,
Ins Rev Ref Cert of Part Triad Healthcare Hosp ...... 6.500 08-01-22 AA 13,000 13,836,160 6.11
Ins Cert of Part United Western Medical Centers ..... 6.750 12-01-21 AA- 7,500 7,942,125 6.37
Ins Rev Cert of Part Statewide Univ Northridge Proj . 6.000 04-01-26 AAA 1,620 1,624,001 5.99
Cert of Part Catholic Healthcare West ............... 6.500 07-01-20 BBB+ 1,750 1,692,408 6.72
Cert of Part The Internext Group .................... 5.375 04-01-30 BBB 2,500 1,925,425 6.98
Ins Rev Cert of Part Hlth Facil Eskaton Properties .. 6.700 05-01-11 AAA 1,250 1,330,425 6.29
Ins Rev Cert of Part Hlth Facil AIDS Proj Los Angeles 6.250 08-01-22 AA- 2,590 2,603,701 6.22
Ins Rev Cert of Part Hlth Facil AIDS Proj Los Angeles 6.200 08-01-12 AA- 1,250 1,282,388 6.04
California, State of,
General Obligation .................................. 4.750 04-01-29 AA- 3,000 2,437,620 5.85
Campbell, City of,
1991 Cert of Part Prefef Civic Ctr Proj ............. 6.750 10-01-17 AAA 155 163,810 6.39
1991 Cert of Part Unref Bal Civic Ctr Proj .......... 6.750 10-01-17 A2 1,565 1,653,203 6.39
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)
Capistrano Unified School District,
Spec Tax of Community Facil Dist 87-1 ............... 8.375% 10-01-20 AAA $3,000 $3,135,870 8.01%
Spec Tax of Community Facil Dist 92-1 ............... 7.100 09-01-21 AA 2,250 2,552,513 6.26
Spec Tax of Community Facil Dist 92-1 ............... 7.000 09-01-18 AA 1,500 1,637,835 6.41
Carson Redevelopment Agency,
Tax Alloc Ser 1992 Area No 1 Redevel Proj ........... 6.375 10-01-12 BBB+ 500 512,315 6.22
Castaic Lake Water Agency,
Cert of Part Ser 1990 Wtr Sys Imp Proj .............. 7.350 08-01-20 AAA 200 206,832 7.11
Center Unified School District,
GO Cap Apprec Ser C ................................. Zero 09-01-16 AAA 2,145 820,205 5.91
Central Coast Water Auth,
Rev State Wtr Proj Regional Facil Ser 1992 .......... 6.600 10-01-22 AAA 3,700 3,959,777 6.17
Central Valley Financing Auth,
Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993 .. 6.200 07-01-20 AAA 1,000 1,065,150 5.82
Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993 .. 6.100 07-01-13 AAA 3,300 3,504,897 5.74
Clearlake Redevelopment Agency,
Tax Alloc Highlands Park Community Devel Proj ....... 6.400 10-01-23 BBB- 500 484,720 6.60
Contra Costa County Public Financing Auth,
Lease Rev Ref Various Cap Facs Ser 1999A ............ 5.000 06-01-28 AAA 3,000 2,569,590 5.84
Corona Community Facilities District 97-2,
Special Tax Rev ..................................... 5.875 09-01-23 BB+ 1,500 1,314,540 6.70
Costa Mesa Public Financing Auth,
1991 Local Agency Rev Ser A ......................... 7.100 08-01-21 BBB 220 224,851 6.95
Culver City Redevelopment Finance Auth,
Rev Ref Sub Tax Alloc Ser 1999B ..................... 6.200 11-01-18 BBB- 2,000 1,916,680 6.47
Davis Redevelopment Agency,
Tax Alloc Ref Davis Redevel Proj .................... 7.000 09-01-24 AAA 5,115 5,526,246 6.48
Del Mar Race Track Auth,
Rev Ref Ser 1996 .................................... 6.000 08-15-06 BBB 2,240 2,273,421 5.91
Rev Ref Ser 1996 .................................... 6.200 08-15-11 BBB 1,865 1,889,786 6.12
Delano, City of,
Cert of Part ........................................ 7.000 04-01-10 A- 2,000 2,043,900 6.85
Desert Hospital District,
Hosp Rev Cert of Part Ser 1990 Desert Hosp Corp Proj 8.000 07-01-10 AAA 300 310,038 7.74
Duarte, City of,
Cert of Part City of Hope Nat'l Medical Center Proj . 6.250 04-01-23 AAA 6,500 6,925,945 5.87
Cert of Part City of Hope Nat'l Medical Center Proj
Ser 1999A .......................................... 5.250 04-01-24 BBB+ 2,000 1,564,340 6.71
East Bay Municipal Utility District,
Wastewater Treatment Sys Rev Ref .................... 6.720# 06-01-20 AAA 6,000 5,512,500 7.31
Elk Grove Unified School District,
Community Facil Dist 1 Spec Tax Cap Apprec .......... Zero 12-01-16 AAA 2,580 959,708 5.99
Encinitas Public Finance Auth,
Cert of Part Ser A Civic Ctr Proj ................... 6.750 12-01-11 A- 1,300 1,376,934 6.37
Fairfield Public Financing Auth,
1995 Rev Ser A Pennsylvania Ave Storm Drainage Proj . 6.500 08-01-21 A- 1,085 1,104,703 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)
Fontana Public Financing Auth,
Tax Alloc Rev 1990 Ser A North Fontana Redevel Proj . 7.250% 09-01-20 BBB $325 $329,618 7.15%
Tax Alloc Rev Sub Lien 1991 Ser A North Fontana
Redevel Proj ....................................... 7.750 12-01-20 AA 195 209,685 7.21
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Current Int Ser 1995A ........ 6.500 01-01-32 BBB- 1,665 1,824,157 5.93
Toll Rd Rev Fixed Rate Current Int Ser 1995A ........ 6.000 01-01-34 BBB- 14,775 15,761,674 5.62
Toll Road Rev Ref Cap Apprec ........................ Zero 01-15-25 BBB- 6,615 1,302,494 6.64
Toll Road Rev Ref Conv Cap Apprec ................... Zero 01-15-26 BBB- 5,000 2,528,100 6.59
Fresno Joint Powers Financing Auth,
Rev Ser A ........................................... 6.550 09-02-12 BBB 2,000 2,043,120 6.41
Fresno, City of,
Hlth Facil Rev Ser 1991 Saint Agnes Medical Center .. 6.625 06-01-21 AA 250 266,070 6.22
Industry Urban-Development Agency,
Tax Alloc Ref Trans Dist Proj 3 ..................... 6.900 11-01-16 A- 1,020 1,068,297 6.59
Inglewood, City of,
Cert of Part Civic Ctr Imp Proj ..................... 7.000 08-01-19 BBB- 1,000 1,055,320 6.63
Irvine, City of,
Imp Board Act of 1915 Assessment Dist 95-12 Ser B ... 6.550 09-02-21 BB+ 1,000 1,083,920 6.04
Mobile Home Park Rev Ser A Meadows Mobile Home Park . 5.700 03-01-28 BBB- 3,680 3,096,058 6.78
Irwindale Community Redevelopment Agency,
Sub Lien Tax Alloc Industrial Devel Proj ............ 7.050 06-01-26 BBB 2,750 2,860,055 6.78
Lincoln Redevelopment Agency,
Tax Alloc Lincoln Redevel Proj ...................... 7.650 08-01-17 BBB+ 680 724,370 7.18
Long Beach, City of,
Harbor Rev Ref Ser A ................................ 6.000 05-15-18 AAA 2,660 2,713,040 5.88
Los Alamitos Unified School District,
Spec Tax of Community Facil Dist 90-1 ............... 7.150 08-15-21 Baa1 6,005 6,362,538 6.75
Los Angeles Community Facilities District,
Spec Tax No 3 Cascades Business Park Proj ........... 6.400 09-01-22 BB+ 1,000 948,950 6.74
Los Angeles Community Redevelopment Financing Auth,
Rev MultiFamily Ser A Grand Central Square .......... 5.850 12-01-26 BB 2,000 1,807,860 6.47
Los Angeles Department of Water and Power,
Elec Plant Rev Ref 2nd Iss of 1993 .................. 5.400 11-15-12 A+ 1,000 999,000 5.41
Los Angeles Public Works Financing Auth,
Rev Regional Park & Open Space Dist A ............... 6.000 10-01-15 AA 3,750 4,015,988 5.60
Los Angeles, County of,
Cert of Part Disney Parking Proj .................... 6.500 03-01-23 BBB+ 2,000 2,142,760 6.07
Cert of Part Reg Linked SAVRS & RIBS Ref Proj ....... 6.708 06-01-15 BBB+ 1,200 1,259,052 6.39
Metropolitan Water District,
Wtr Rev Iss of 1991 ................................. 6.625 07-01-12 AA 750 787,373 6.31
Wtr Rev Iss of 1992 ................................. 5.000 07-01-20 AA 7,500 6,641,100 5.65
Millbrae, City of,
Residential Facil Rev Ser 1997A Magnolia of Millbrae Proj 7.375 09-01-27 BB 1,000 972,510 7.58
Modesto Irrigation District,
Cert of Part Ref & Cap Imps Proj Ser 1999B .......... 5.300 07-01-22 A+ 965 895,356 5.71
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)
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 $625,218 6.24%
Northern California Transmission Agency,
Rev 1990 Ser A Calif-Oregon Transm Proj ............. 7.000 05-01-13 AAA 100 115,755 6.05
Rev 1992 Ser A Calif-Oregon Transm Proj ............. 6.500 05-01-16 AAA 1,000 1,048,390 6.20
Oakland, Port of,
Spec Facil Rev 1992 Ser A Mitsui O.S.K. Lines Ltd Proj 6.800 01-01-19 BBB+ 500 502,540 6.77
Oceanside, City of,
Ref Cert of Part Ser A .............................. 6.375 04-01-12 A3 3,000 3,110,250 6.15
Orange County Development Agency,
Tax Alloc Santa Ana Heights Proj .................... 6.125 09-01-23 BBB 5,000 4,664,800 6.57
Orange Cove Irrigation District,
Cert of Part Rehab Proj ............................. 7.250 02-01-12 AA 2,000 2,096,740 6.92
Cert of Part Rehab Proj ............................. 7.000 02-01-15 AA 2,500 2,615,475 6.69
Orange, County of,
Cert of Part Civic Ctr Exp Proj ..................... 6.700 08-01-18 AAA 1,000 1,052,790 6.36
Cert of Part Recovery Ref Ser A ..................... 5.800 07-01-16 AAA 2,000 2,020,880 5.74
Ser A of 1990 Spec Tax of Community Facil Dist 87-3
Mission Viego ...................................... 7.800 08-15-15 AA 350 363,083 7.52
Ser A of 1992 Spec Tax of Community Facil Dist 88-1
Aliso Viego ........................................ 7.350 08-15-18 AAA 1,000 1,085,260 6.77
Pasadena, City of,
Cert of Part Ref Old Pasadena Pkg Facil Proj ........ 6.250 01-01-18 A+ 1,205 1,285,542 5.86
Pittsburg Redevelopment Agency,
Spec Tax of Community Facil Dist 90-1 California Ave 7.400 08-15-20 BBB 3,040 3,222,430 6.98
Poway, City of,
Community Facil Dist No 88-1 Spec Tax Ref
Pkwy Business Ctr .................................. 6.750 08-15-15 BB 1,000 1,010,410 6.68
Rancho Mirage, City of, Joint Powers Finance Auth,
Cert of Part Eisenhower Memorial Hosp ............... 7.000 03-01-22 A2 4,500 4,801,140 6.56
Civic Center Rev Ref Ser 1991A Preref ............... 7.500 04-01-17 BBB 195 205,840 7.11
Civic Center Rev Ref Ser 1991A Unref Bal ............ 7.500 04-01-17 BBB 55 57,133 7.22
Redondo Beach Public Financing Auth,
Rev South Bay Center Redevel Proj ................... 7.000 07-01-16 BBB+ 950 980,096 6.79
Richmond Joint Powers Financing Auth,
Rev Ser A ........................................... 7.700 10-01-10 AA 1,645 1,712,478 7.40
Richmond, County of,
Imp Bd Act of 1915 Ref Reassessment District No 855 . 6.600 09-02-19 BBB- 3,000 3,005,190 6.59
Riverside County Asset Leasing Corp,
Leasehold Rev 1993 Ser A Riverside County Hosp Proj . 6.500 06-01-12 A 1,000 1,061,590 6.12
Sacramento City Financing Auth,
Rev Convention Ctr Hotel Ser 1999A .................. 6.250 01-01-30 BB+ 3,000 2,694,780 6.96
Sacramento Power Auth,
Cogeneration Proj Rev Light & Pwr Imp ............... 6.000 07-01-22 BBB- 12,000 11,019,600 6.53
SEE NOTES TO FINANCIAL STATEMENTS.
18
<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)
Sacramento Unified School District,
Spec Tax of Community Facil Dist 1 Ser B ............ 7.300% 09-01-13 Baa $760 $829,023 6.69%
San Bernardino, County of,
Cert of Part Ref Medical Ctr Fin Proj ............... 5.500 08-01-17 AAA 5,000 4,906,450 5.60
Cert of Part Ref Medical Ctr Fin Proj ............... 5.500 08-01-17 A- 3,750 3,534,413 5.84
Cert of Part Ref Medical Ctr Fin Proj Ser A ......... 5.500 08-01-15 AAA 4,000 4,205,760 5.23
Cert of Part Ser B Cap Facil Proj ................... 6.875 08-01-24 AAA 350 394,328 6.10
San Diego, County of,
Cert of Part Reception Ctr & Cooling Plant Fin ...... 6.750 08-01-19 AAA 3,000 3,302,730 6.13
San Diego County Regional Transportation Commission,
Sales Tax Rev Refunded Bal Ser 1991A ................ 7.000 04-01-06 AA- 90 94,913 6.64
San Diego County Water Auth,
Water Rev Cert of Part Reg RITES .................... 7.585# 04-23-08 AAA 1,000 1,067,500 7.10
Water Rev Cert of Part Reg RITES .................... 7.585# 04-22-09 AAA 400 426,000 7.12
San Diego Redevelopment Agency,
Tax Alloc Cap Apprec Ser 1999B ...................... Zero 09-01-17 BB 1,600 480,592 6.99
Tax Alloc Cap Apprec Ser 1999B ...................... Zero 09-01-18 BB 1,700 471,631 7.05
Tax Alloc City Heights Proj Ser 1999A ............... 5.800 09-01-28 BB 1,395 1,188,289 6.81
San Diego Unified School District,
GO Cap Apprec Ser 1999A ............................. Zero 07-01-21 AAA 2,500 687,825 6.14
San Francisco State Building Auth,
Lease Rev Ref 1993 Ser A Dept of Gen Serv ........... 5.000 10-01-13 A+ 2,145 2,045,150 5.24
San Francisco, City of,
Resid Facil Ser A Coventry Park Proj ................ 8.500 12-01-26 BB- 2,000 2,077,400 8.18
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Jr Lien Cap Apprec ...................... Zero 01-01-03 AAA 5,000 4,389,500 4.64
Toll Rd Rev Ref Conv Cap Apprec Ser A ............... Zero 01-15-21 BBB- 5,000 2,962,450 6.58
Toll Rd Rev Sr Lien Cap Apprec ...................... Zero 01-01-14 AAA 5,000 2,290,950 5.72
Toll Rd Rev Sr Lien Cap Apprec ...................... Zero 01-01-22 AAA 6,500 1,742,455 6.12
San Marcos Public Facilities Auth,
Rev Tax Incr Proj Area 3-A .......................... 6.000 08-01-31 BB 1,305 1,142,606 6.85
San Mateo County Joint Powers Financing Auth,
Lease Rev Ref Cap Proj Prog ......................... 5.000 07-01-21 AAA 1,815 1,594,060 5.69
Santa Ana Financing Auth,
Lease Rev Ser A Police Admin & Holding Facil ........ 6.250 07-01-19 AAA 1,790 1,889,166 5.92
Lease Rev Ser A Police Admin & Holding Facil ........ 6.250 07-01-24 AAA 10,000 10,514,700 5.94
Rev Ref Ser B South Harbor Blvd ..................... 5.125 09-01-19 AAA 2,500 2,279,925 5.62
Rev Ref Ser D Mainplace Proj ........................ 5.600 09-01-19 BBB- 1,000 870,050 6.44
Santa Barbara, County of,
1991 Cert of Part ................................... 6.400 02-01-11 A+ 250 260,205 6.15
Santa Clara County Finance Auth,
Lease Rev Ser 2000B Mult Facil Projs** .............. 5.500 05-15-17 AAA 6,000 5,736,060 5.75
Santa Clarita Community Facilities,
Spec Tax of Community Facil Dist 92-1 Ser A ......... 7.450 11-15-10 BBB 3,600 3,742,704 7.17
Southern California Home Financing Auth,
Single Family Mtg Rev GNMA & FNMA Mtg Backed Ser A .. 6.750 09-01-22 AAA 655 664,367 6.65
SEE NOTES TO FINANCIAL STATEMENTS.
19
<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)
Southern California Home Financing Auth (continued),
Single Family Mtg Rev GNMA & FNMA Mtg Backed Ser B .. 7.750% 03-01-24 AAA $25 $25,619 7.56%
Southern California Public Power Auth,
Rev Ref Southern Transmission Proj .................. Zero 07-01-13 AAA 4,400 2,103,464 5.61
Stanislaus Waste to Energy Financing Agency,
Solid Waste Rev Ref Ogden Martin Sys Inc Proj ....... 7.625 01-01-10 A- 870 889,140 7.46
Suisun Redevelopment Agency,
Tax Alloc Suisun City Redevel Agency ................ 7.250 10-01-20 AAA 395 404,018 7.09
Torrance Redevelopment Agency,
Tax Alloc Ref Ser 1992 Downtown Redevel Proj ........ 7.125 09-01-21 Baa 500 530,105 6.72
University of California,
Cert of Part Ref UCLA Central Chiller/Congeneration Proj 5.400 11-01-11 Aa3 1,000 993,940 5.43
Vallejo Sanitation and Flood Control District,
Cert of Part ........................................ 5.000 07-01-19 AAA 2,500 2,218,575 5.63
Victor Valley Union High School District,
Cert of Part ........................................ 7.875 11-01-12 AA 1,255 1,312,140 7.53
West Covina Redevelopment Agency,
Ref Community Facil Dist Spec Tax Fashion Plaza Proj 6.000 09-01-22 A 3,000 3,014,760 5.97
----------
349,339,086
-----------
Puerto Rico (5.50%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of
Puerto Rico ........................................ 7.845# 07-01-11 AAA 7,500 8,343,750 7.05
Puerto Rico Highway and Transportation Auth,
Highway Rev Ref 1996 Ser Z .......................... 6.250 07-01-14 AAA 3,250 3,506,100 5.79
Puerto Rico Ports Auth,
Spec Facil Rev 1996 Ser A American Airlines Inc Proj 6.250 06-01-26 BBB- 2,000 1,920,180 6.51
Puerto Rico, Commonwealth of,
GO Pub Imp Ser 1996 ................................. 6.500 07-01-15 A 6,000 6,518,040 5.98
----------
20,288,070
----------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $360,628,292) (100.27%) 369,627,156
------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
=============================FINANCIAL STATEMENTS===============================
John Hancock Funds - California Tax-Free Income Fund
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.02%)
Investment in a joint repurchase agreement transaction with Barclay's, Inc. -
Dated 02-29-00, due 03-01-00 (Secured by U.S. Treasury Bonds,
7.500% thru 10.000% due 05-15-10 thru 02-15-25, and U.S. Treasury Notes,
5.125% thru 6.250% due 07-31-00 thru 08-15-07) - Note A ....................... 5.790% $81 $81,000
-----------
TOTAL SHORT-TERM INVESTMENTS (0.02%) 81,000
------- -----------
TOTAL INVESTMENTS (100.29%) 369,708,156
------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 0.29%) (1,080,872)
------- -----------
TOTAL NET ASSETS (100.00%) $368,627,284
======== ============
* 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 are not available.
** This security having an aggregate value of $5,736,060 or 1.56% of the Fund's
net asset value, has been purchased on a when-issued basis. The purchase price
and interest rate of such security are fixed at trade date, although the Fund
does not earn any interest on such security until settlement date. The Fund has
instructed its Custodian Bank to segregate assets with a current value at least
equal to the amount of its when-issued commitments. Accordingly, the market
value of $6,087,910 of California Statewide Communities Development Authority,
6.500%, 08-01-22, has been segregated to cover the when-issued commitment.
+ The yield is not calculated in accordance with guidelines established by the
U.S. Securities & Exchange Commission and is unaudited. Zero coupon yields are
at yield to maturity.
# Represents rate in effect on February 29, 2000
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<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 29, 2000 assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
- ------------------- ----------------
General Obligation ............................................. 3.46%
Revenue Bonds - Authority ...................................... 4.21
Revenue Bonds - Correctional Facility .......................... 5.31
Revenue Bonds - Education ...................................... 8.49
Revenue Bonds - Electric ....................................... 4.82
Revenue Bonds - Facility ....................................... 2.28
Revenue Bonds - Harbor/Channel ................................. 0.74
Revenue Bonds - Health ......................................... 18.71
Revenue Bonds - Housing ........................................ 4.06
Revenue Bonds - Improvement .................................... 0.80
Revenue Bonds - Industrial Revenue ............................. 0.66
Revenue Bonds - Lease .......................................... 2.12
Revenue Bonds - Multi-Family ................................... 0.84
Revenue Bonds - Non-Profit ..................................... 0.52
Revenue Bonds - Other .......................................... 18.63
Revenue Bonds - Parking Garage/Authority ....................... 0.35
Revenue Bonds - Pollution Control .............................. 1.58
Revenue Bonds - Revenue-Special Tax ............................ 1.06
Revenue Bonds - Tax Allocation ................................. 0.52
Revenue Bonds - Tax Increment .................................. 0.31
Revenue Bonds - Transportation ................................. 9.88
Revenue Bonds - Various Purpose ................................ 0.34
Revenue Bonds - Water and Sewer ................................ 10.58
--------
TOTAL TAX-EXEMPT LONG-TERM BONDS 100.27%
========
SEE NOTES TO FINANCIAL STATEMENTS.
22
<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 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 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 which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $8,347,379 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized capital gains. To the extent such carryforwards are used by the
Fund, no capital gains distribution will be made. The carryforwards expire as
follows: August 31, 2002 - $111,795, 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.
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
23
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - California Tax-Free Income Fund
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. 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 permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee based on the average daily unused portion of the line
of credit is allocated among the participating funds. The maximum loan balance
outstanding during the period amounted to $4,595,700. The annualized interest
rate charged during the period ranged from 5.875% to 6.250%. At February 29,
2000, there were no outstanding borrowings.
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 29, 2000, there were no open positions in financial futures
contracts.
OPTIONS The Fund may buy or sell 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 will be 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 option 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.
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 Funds in these contracts, but the actual exposure will be limited to the
change in value of the contract over the year 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
24
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - California Tax-Free Income Fund
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
29, 2000.
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 at an annual
rate of 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%, 1.50% and 1.60% of the average net assets attributable to
Class A, Class B and Class C, respectively. Accordingly, the reduction in the
Adviser's fee amounted to $176,988 for the period ended February 29, 2000. This
limitation may not be discontinued until December 31, 2000.
The Fund has an agreement with its custodian bank under which $739 of
custodian fees have been reduced by balance credits applied during the period
ended February 29, 2000. 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 29, 2000, net sales charges received with regard to sales of Class A
shares amounted to $38,488. Out of this amount, $3,773 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $34,592
was paid as sales commissions to unrelated broker-dealers and $123 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 Life Insurance
Company ("JHLICo"), 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 5.00% 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 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 29,
2000, contingent deferred sales charges paid to JH Funds amounted to $206,552.
Class C shares which are redeemed within one year of purchase will be
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 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 C shares. For the
period ended February 29, 2000, contingent deferred sales charges paid to JH
Funds amounted to $247.
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, Class B and Class C 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 and Class C 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 plan to 0.90% of the
average daily net assets. Accordingly, the reduction in the distribution and
service amounted to $44,793 for the period ended February 29, 2000. This
limitation may not be discontinued until December 31, 2000. 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.
25
<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 JHLICo. 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,
accounting and legal 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. Stephen L. Brown, Ms. Maureen R. Ford, 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 yearly basis to reflect any income earned by the investment as well as any
unrealized gains or losses. The investment had no impact on the operations of
the Fund.
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 29, 2000, aggregated $17,713,814 and $39,319,891, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended February 29, 2000.
The cost of investments owned at February 29, 2000 (including the joint
repurchase agreement) for federal income tax purposes was $360,709,292. Gross
unrealized appreciation and depreciation of investments aggregated $16,354,991
and $7,356,127, respectively, resulting in net unrealized appreciation of
$8,998,864.
26
<PAGE>
====================================NOTES=======================================
John Hancock Funds - California Tax-Free Income Fund
27
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS ------------------
A Global Investment Management Firm Bulk Rate
U.S. Postage
101 HUNTINGTO AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA
INTERNET: www.jhfunds.com Permit No. 75
------------------
- --------------------------------------------------------------------------------
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 2/00
4/00
