-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H96YBxfz4CPguZoYmOBZAFg9fqUzuaaOt+2bDQ4gfFlzS3H8GbMS9yDTk17SeEWi 1xmO91B7qo1RkIwlK72aaw== 0000928816-97-000121.txt : 19970423 0000928816-97-000121.hdr.sgml : 19970423 ACCESSION NUMBER: 0000928816-97-000121 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970422 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN CALIFORNIA TAX FREE INCOME FUND CENTRAL INDEX KEY: 0000856671 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05979 FILM NUMBER: 97584817 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 7137512400 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: TRANSAMERICA CALIFORNIA TAX FREE INCOME FUND DATE OF NAME CHANGE: 19920703 N-30D 1 JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND John Hancock Funds California Tax-Free Income Fund SEMI-ANNUAL REPORT February 28, 1997 TRUSTEES Edward J. Boudreau, Jr. James F. Carlin* William H. Cunningham* Charles F. Fretz* Harold R. Hiser, Jr.* Anne C. Hodsdon Charles L. Ladner* Leo E. Linbeck, Jr.* Patricia P. McCarter* 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 Robert G. Freedman Vice Chairman and Chief Investment Officer Anne C. Hodsdon President James B. Little Senior Vice President and Chief Financial Officer Susan S. Newton Vice President and Secretary James J. Stokowski Vice President and Treasurer Thomas H. Connors Second Vice President and Compliance Officer CUSTODIAN Investors Bank and Trust Company 89 South Street Boston, Massachusetts 02111 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way Ste 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 A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive Officer, flush right, next to second paragraph. CHAIRMAN'S MESSAGE DEAR FELLOW SHAREHOLDERS: Most analysts agree that the Social Security system will run out of money by the year 2030 unless Congress makes some changes. Although it seems a long way off, the issue is serious enough that at least one group has already studied the problem, and experts and politicians alike have weighed in with a slew of prescriptions. The problem stems from demographic and societal changes. The number of retirees collecting Social Security is growing rapidly, while the number of workers supporting the system is shrinking. Consider this: in 1950, there were 16 workers paying into the Social Security system for each retiree collecting benefits. Today, there are three workers for each retiree and by 2019 there will be two. Starting then, the Social Security Administration estimates that the amount paid out in Social Security benefits will start to be greater than the amount collected in Social Security taxes. Compounding the issue is the fact that people are retiring earlier and living longer. The state of the system has already left many people, especially younger and middle-aged workers, feeling insecure about Social Security. A recent survey by the Employee Benefits Research Institute (EBRI) found that 79% of current workers polled had little confidence in the ability of Social Security to maintain the same level of benefits as those received by today's retirees. Instead, they said they expect to use their own savings or employer-sponsored pensions for their retirement. Yet, remarkably, another EBRI survey revealed that only slightly more than half of America's current workers are saving money for retirement. Fewer than half own IRAs or participate in employer-sponsored pension or savings plans. No matter how Social Security's problems get solved, one thing is clear. Americans need to rely on themselves for accumulating the bulk of their retirement savings. There's no law that says you should have to reduce your standard of living once you stop working. So we encourage you to save all that you can now, so you can live the way you'd like to later. Sincerely, /S/EDWARD J. BOUDREAU, JR. EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER BY DIANNE SALES-SINGER, CFA, PORTFOLIO MANAGER John Hancock California Tax-Free Income Fund Choppy bond market during the last six months At the start of the Fund's six month period last September, bonds were recovering from several months in which inflationary fears had held down returns. But bonds rallied as the period progressed, only to run into resistance again at year end. In January, attention focused on reports of strong economic growth and tight labor markets and bonds fell back as the market again grew wary of potential new inflationary pressures. Even though inflation has remained at bay and many predict a more modest growth scenario later in the year, investor caution prevailed and bonds remained in a holding pattern through the end of the period. While municipals felt the effects of the bond market's shifts over the last six months, they managed to outperform U.S. Treasuries primarily because the supply and demand story for tax-exempt securities continues to be so favorable. The supply of municipal bonds has shrunk consistently over the last several years due in part to the reluctance of municipalities to ask taxpayers to fund new projects. What's more, many existing bonds have been called away from the market. Even though there was an increase in the amount of municipal bonds issued in 1996, the growing demand easily absorbed the new supply. Demand has been fueled by more investors -- both individuals and insurance companies -- seeking to shelter their incomes, which have been on the rise, especially in California with its rebounding economy. Waning flat-tax fears have also sparked greater interest in tax-exempt securities. Municipal bonds outperformed U.S. Treasuries in the last six months. A 2 1/4" x 3 1/4" photo of Fund management team at bottom right. Caption reads: "Dianne Sales-Singer (seated) and Fund management team members (l-r) Michael Roye, Holly Morris and Frank Lucibella. Pie chart with the heading "Portfolio Diversification" at top of left hand column. The chart is divided into 10 sections. Going from left to right: Water & Sewer 10%, General Obligation 2%, Health 2%, Education 9%, Electric 6%, Certificates of Participation 13%, Pollution Control 1%, Other 23%, Housing 5%, Transportation 9%. A footnote below states "As a percentage of net assets on February 28, 1997." Some of the strongest performance came from the Fund's uninsured bonds. The John Hancock California Tax-Free Income Fund produced solid results during the period. For the six months ended February 28, 1997, the Fund's Class A and Class B shares posted total returns of 4.85% and 4.46% respectively, at net asset value. That was in line with the 4.76% return of the average California municipal bond fund, according to Lipper Analytical Services, Inc.1 Please see pages six and seven for longer term performance information. Duration moves, uninsured bonds help performance With a backdrop of limited issuance, and with almost 50% of issuance now coming as insured, opportunities to capitalize on undervalued credit situations have been dampened. However, with the volatility of the bond market, we have focused on adding value by carefully managing the Fund's duration. Duration is a measure of how sensitive a bond's price is to changes in interest rates. The shorter the duration, the less a bond's price moves as rates change. As the period began, we were extending the Fund's duration to slightly longer than average, which helped us reap the full benefit of the rally in October and November. With the new year, we moved back to a relatively neutral duration. Table entitled "Scorecard" at bottom of left hand column. The header for the left column is "Investment"; the header for the right column is "Recent performance ... and what's behind the numbers." The first listing is Uninsured bonds followed by an up arrow and the phrase "Shrinking supply." The second listing is Sacramento Municipal Utilities followed by an up arrow and the phrase "Strong competitive position." The third listing is Short-call bonds followed by a down arrow and the phrase "Heightened exposure to call risk." Footnote below reads: "See "Schedule of Investments." Investment holdings are subject to change." During the period, some of the strongest performance came from the Fund's uninsured, lower quality investment-grade bonds, those rated BBB. Demand for these higher-yielding bonds has spiked as their supply has diminished due to bond calls and the growing number of bonds coming to market with bond insurance. Municipal bond insurance guarantees that investors will receive timely payments of principal and interest regardless of the quality of the underlying bonds. Insured bonds, therefore, receive a higher credit rating and their yield is typically lower than that of uninsured bonds. As uninsured bonds have become rare, investors searching for higher yields have gravitated to them, causing their price to rise and their yields to fall. That was particularly true in the last six months, when credit spreads -- the difference in yield between higher and lower- quality bonds -- narrowed significantly and caused the lower-quality bonds to outperform their higher-rated counterparts. Our best example was one of our largest holdings, Foothills/Eastern Transportation Corridor Agency bonds. When we bought them two years ago, their yield was nearly 100 basis points (1.00%) higher than that of insured AAA bonds. By January, their strong performance had narrowed the spread to approximately 50 basis points (0.50%) and they ended the period trading at only a 25 basis point (0.25%) spread to that of insured California bonds. Even though they have gained so much ground, we're hanging onto them. We believe that the trend toward more insured bonds is continuing, as insurance companies become more competitive and insurance remains quite cheap. That should benefit uninsureds like Foothills. What's more, we could not replace their 6.70% yield today. So they continue to give the Fund both strong current yield and price appreciation. Bar chart with heading "Fund Performance" at top of left hand column. Under the heading is the footnote: "For the six months ended February 28, 1997." The chart is scaled in increments of 1% from bottom to top, with 5% at the top and 0% at the bottom. Within the chart, there are three solid bars. The first represents the 4.85% total return for John Hancock California Tax-Free Income Fund: Class A. The second represents the 4.46% total return for John Hancock California Tax-Free Income Fund: Class B. The third represents the 4.76% total return for the average California municipal bond fund. The footnote below states: "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. (1) See the following two page for historical performance information." As utility deregulation heated up in 1996, our bonds for several Sacramento Municipal Utilities co-generation projects continued to perform well. Of all the municipal utilities in California, only Sacramento Municipal Utilities maintains a positive rating outlook from the rating agencies. Their competitive positioning bodes well for bondholders. Portfolio moves While there weren't many dramatic changes to the Fund's makeup during the period, we selectively added positions we thought represented good value. For example, recently we bought bonds issued by the Los Angeles Community Redevelopment Financing Authority for the Grand Central project. Initial construction delays and market concerns about the slow pace of downtown development had caused the credit to be downgraded to BB. But we believe that an attractive 6.90% yield, the recent pickup in development in southern California, along with an extra layer of security provided by a pledge of sales tax revenue, combine to make these bonds a real value. "We remain encouraged by the rebounding California economy." Outlook We remain encouraged by the rebounding California economy. It continues to grow at a moderate and sustainable pace, employment is rising and so are commercial rents. With a strengthened economy, we expect the state to begin addressing the backlog of projects left undone in the lean years. But the combination of resistance to higher taxes and restrictive legislation should keep new issuance at a level that's both manageable and healthy. As a result, the favorable supply and demand fundamentals remain for California municipal bonds. Going forward, we will keep our focus on increasing the Fund's competitive yield, strengthening our call protection -- the length of time during which a security cannot be redeemed prior to its maturity -- as a way to stabilize yield. We'll also keep searching for bonds that are good values as a way to enhance overall return. - ----------------------------------------------------------------------- This commentary reflects the views of the portfolio manager through the end of the Fund's period discussed in this report. Of course, the manager's views are subject to change as market and other conditions warrant. 1Figures from Lipper Analytical Services include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. A LOOK AT PERFORMANCE The tables on the right show the cumulative total returns for the John Hancock California Tax-Free Income Fund. Total return is a performance measure that equals the sum of all income and capital gain distributions, assuming reinvestment of these distributions and the change in the price of the Fund's shares expressed as a percentage of the Fund's net asset value per share. Performance figures include the maximum applicable sales charge of 4.5% for Class A shares. The effect of the maximum contingent deferred sales charge for Class B shares (maximum 5% and declining to 0% over six years) is included in Class B performance. Performance is affected by a 12b-1 plan. Remember that all figures represent past performance and are no guarantee of how the Fund will perform in the future. Also, 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 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. Also note that capital gains are taxable. CUMULATIVE TOTAL RETURNS For the period ended December 31, 1996 ONE FIVE LIFE OF YEAR YEARS FUND ------ ------- ------- John Hancock California Tax-Free Income Fund: Class A (0.14%) 36.78% 63.04%(1) John Hancock California Tax-Free Income Fund: Class B (1.16%) 36.04%(2) N/A AVERAGE ANNUAL TOTAL RETURNS For the period ended December 31, 1996 ONE FIVE LIFE OF YEAR YEARS FUND ------ ------- ------- John Hancock California Tax-Free Income Fund: Class A(3) (0.14%) 6.46% 7.23%(1) John Hancock California Tax-Free Income Fund: Class B(3) (1.16%) 6.35%(2) N/A YIELDS As of February 28, 1997 SEC 30-DAY YIELD -------- John Hancock California Tax-Free Income Fund: Class A 4.87% John Hancock California Tax-Free Income Fund: Class B 4.34% Notes to Performance (1) Class A shares started on December 29, 1989. (2) Class B shares started on December 31, 1991. (3) The Advisor voluntarily reduced a portion of the management fee and a portion of the custodian fees during the period. Without the limitation of expenses, the average annualized total return for the one-year, five-year periods and since inception for Class A shares would have been (0.22%), 6.30% and 6.95%, respectively. The average annualized total returns for the one-year period and since inception for Class B shares would have been (1.24%) and 6.19%, respectively. 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 on February 28, 1997. They assume that you invested on the day each class of shares started. They also assume that you have reinvested all distributions. 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. California Tax-Free Income Fund: Class A shares Line chart with the heading 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 Lehman Brothers Municipal Bond Index and is equal to $17,288 as of February 28, 1997. The second line represents the value of the hypothetical $10,000 investment made in the California Tax-Free Income Fund on December 29, 1989, before sales charge, and is equal to $17,227 as of February 28, 1997. The third line represents the California Tax-Free Income Fund after sales charge and is equal to $16,454 as of February 28, 1997. California Tax-Free Income Fund Class B shares Line chart with the heading 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 three lines. The first line represents the value of the Lehman Brothers Municipal Bond Index and is equal to $14,369 as of February 28, 1997. The second line represents the value of the hypothetical $10,000 investment made in the California Tax-Free Income Fund on December 31, 1991, before contingent deferred sales charge, and is equal to $13,967 as of February 28, 1997. The third line represents the California Tax-Free Income Fund after contingent deferred sales charge and is equal to $13,867 as of February 28, 1997.
Financial Statements 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, 1997. 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, 1997 (Unaudited) - ----------------------------------------------------------------- Assets: Investments at value - Note C: Tax-exempt long-term bonds (cost - $355,137,906) $374,816,183 Receivable for shares sold 893,768 Receivable for investments sold 4,011,550 Interest receivable 5,902,449 Other assets 63,066 Receivable for variation margin - Note A 4,688 ------------- Total Assets 385,691,704 - ----------------------------------------------------------------- Liabilities: Due to Custodian 4,824,754 Dividend payable 59,451 Payable for shares repurchased 229,032 Payable for investments purchased 978,848 Payable to John Hancock Advisers, Inc. and affiliates - Note B 217,113 Accounts payable and accrued expenses 60,442 ------------- Total Liabilities 6,369,640 - ----------------------------------------------------------------- Net Assets: Capital paid-in 369,922,317 Accumulated net realized loss on investments and financial futures contracts (10,322,865) Net unrealized appreciation of investments and financial futures contracts 19,665,720 Undistributed net investment income 56,892 ------------- Net Assets $379,322,064 ================================================================= 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 - $294,287,504 / 27,833,098 $10.57 ================================================================= Class B - $85,034,560 / 8,042,378 $10.57 ================================================================= Maximum Offering Price Per Share* Class A - ($10.57 x 104.71%) $11.07 ================================================================= * 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, 1997 (Unaudited) Investment Income: Interest $11,777,788 ------------- Expenses: Investment management fee - Note B 1,040,805 Distribution and service fee - Note B Class A 220,369 Class B 380,920 Transfer agent fee - Note B 115,239 Custodian fee 51,152 Financial services fee - Note B 35,482 Trustees' fees 17,710 Printing 15,060 Registration and filing fees 9,994 Legal fees 8,262 Auditing fee 6,573 Miscellaneous 5,920 Less Management Fee Reduction - Note B (141,839) ------------- Total Expenses 1,765,647 - ----------------------------------------------------------------- Less Expense Reductions - Note B (28,935) - ----------------------------------------------------------------- Net Expenses 1,736,712 - ----------------------------------------------------------------- Net Investment Income 10,041,076 - ----------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts: Net realized loss on investments sold (249,913) Net realized loss on financial futures contracts) (1,782,383) Change in net unrealized appreciation/depreciation of investments 10,363,965 Change in net unrealized appreciation/depreciation of financial futures contracts (513,906) ------------- Net Realized and Unrealized Gain on Investments and Financial Futures Contracts 7,817,763 - ----------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations $17,858,839 ================================================================= See notes to financial statements.
Statement of Changes in Net Assets - ------------------------------------------------------------------------------------------------------------------------------- PERIOD FROM SIX MONTHS JANUARY 1, ENDED YEAR ENDED 1996 TO FEBRUARY 28, DECEMBER 31, AUGUST 31, 1997 1995 1996(1) (UNAUDITED) ------------ ------------ ------------ From Operations: Net investment income $19,253,594 $13,676,394 $10,041,076 Net realized loss on investments sold and financial futures contracts (2,245,541) (1,771,705) (2,032,296) Change in net unrealized appreciation/ depreciation of investments 51,125,949 (10,264,530) 9,850,059 ------------ ------------ ------------ Net Increase in Net Assets Resulting from Operations 68,134,002 1,640,159 17,858,839 ------------ ------------ ------------ Distributions to Shareholders: Dividends from net investment income Class A - ($0.5743, $0.3875 and $0.2883 per share, respectively) (15,185,497) (11,033,084) (8,082,388) Class B - ($0.4988, $0.3353 and $0.2489 per share, respectively) (4,060,951) (2,654,650) (2,008,926) ------------ ------------ ------------ Total Distributions to Shareholders (19,246,448) (13,687,734) (10,091,314) ------------ ------------ ------------ From Fund Share Transactions - Net* 26,141,459 (7,604,371) (2,770,681) ------------ ------------ ------------ Net Assets: Beginning of period 318,948,153 393,977,166 374,325,220 ------------ ------------ ------------ End of period (including undistributed net investment income of $147,647, $107,130 and $56,892, respectively) $393,977,166 $374,325,220 $379,322,064 ============ ============ ============ * Analysis of Fund Share Transactions: PERIOD FROM SIX MONTHS ENDED YEAR ENDED JANUARY 1, 1996 TO FEBRUARY 28, 1997 DECEMBER 31, 1995 AUGUST 31, 1996 (1) (UNAUDITED) -------------------------- -------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ ------------ ------------ CLASS A Shares sold 2,339,818 $18,225,155 1,252,548 $13,030,082 6,409,622 $67,493,281 Shares issued in reorganization - Note D 4,164,385 48,873,637 -- -- -- -- Shares issued to shareholders in reinvestment of distributions 694,275 6,453,478 481,285 4,994,844 343,045 3,614,686 ------------ ------------ ------------ ------------ ------------ ------------ 7,198,478 73,552,270 1,733,833 18,024,926 6,752,667 71,107,967 Less shares repurchased (4,285,570) (43,261,363) (2,582,406) (26,795,066) (7,018,190) (73,920,415) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) 2,912,908 $30,290,907 (848,573) ($8,770,140) (265,523) ($2,812,448) ============ ============ ============ ============ ============ ============ CLASS B** Shares sold 861,939 $8,918,797 874,963 $9,083,702 532,403 $5,601,216 Shares issued to shareholders in reinvestment of distributions 208,712 1,924,315 120,687 1,252,034 91,492 963,828 ------------ ------------ ------------ ------------ ------------ ------------ 1,070,651 $10,843,112 995,650 10,335,736 623,895 $6,565,044 Less shares repurchased (1,484,859) (14,992,560) (882,160) (9,169,967) (619,804) (6,523,277) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) (414,208) ($4,149,448) 113,490 $1,165,769 4,091 $41,767 ============ ============ ============ ============ ============ ============ (1) Effective August 31, 1996, the fiscal period end changed from December 31 to August 31. 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.
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: SIX MONTHS PERIOD FROM ENDED YEAR ENDED DECEMBER 31, JANUARY 1, 1996 FEBRUARY 28, ------------------------------------------------------------ TO AUGUST 31, 1997 1991 1992 1993 1994(1) 1995 1996(9) (UNAUDITED) -------- -------- -------- -------- -------- -------- -------- CLASS A Per Share Operating Performance Net Asset Value, Beginning of Period $9.91 $10.32 $10.41 $10.85 $9.28 $10.69 $10.36 -------- -------- -------- -------- -------- -------- -------- Net Investment Income 0.69 0.66(2) 0.62 0.58 0.57(2) 0.39(2) 0.29(2) Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts 0.47 0.25 0.76 (1.57) 1.41 (0.33) 0.21 -------- -------- -------- -------- -------- -------- -------- Total from Investment Operations 1.16 0.91 1.38 (0.99) 1.98 0.06 0.50 -------- -------- -------- -------- -------- -------- -------- Less Distributions: Dividends from Net Investment Income (0.70) (0.67) (0.62) (0.58) (0.57) (0.39) (0.29) Distributions from Net Realized Gains on Investments Sold and Financial Futures Contracts (0.05) (0.15) (0.32) -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Total Distributions (0.75) (0.82) (0.94) (0.58) (0.57) (0.39) (0.29) -------- -------- -------- -------- -------- -------- -------- Net Asset Value, End of Period $10.32 $10.41 $10.85 $9.28 $10.69 $10.36 $10.57 ======== ======== ======== ======== ======== ======== ======== Total Investment Return at Net Asset Value (3) 12.26% 9.15% 13.60% (9.31%) 21.88% 0.61%(7) 4.85%(7) Total Adjusted Investment Return at Net Asset Value (3,4) 11.86% 8.90% 13.42% (9.45%) 21.73% 0.55%(7) 4.81%(7) Ratios and Supplemental Data Net Assets, End of Period (000's omitted) $163,693 $217,014 $279,692 $241,583 $309,305 $291,072 $294,288 Ratio of Expenses to Average Net Assets 0.40% 0.58% 0.69% 0.75% 0.75% 0.76%(8,10) 0.75%(8,10) Ratio of Adjusted Expenses to Average Net Assets (5) 0.80% 0.83% 0.87% 0.89% 0.90% 0.84%(8) 0.84%(8) Ratio of Net Investment Income to Average Net Assets 6.75% 6.36% 5.69% 5.85% 5.76% 5.57%(8) 5.47%(8) Ratio of Adjusted Net Investment Income to Average Net Assets (5) 6.35% 6.11% 5.51% 5.71% 5.61% 5.48%(8) 5.38%(8) Portfolio Turnover Rate 45.00% 34.00% 51.00% 62.00% 37%(6) 30.00% 8.00% Fee Reduction per Share $0.04 $0.03(2) $0.02 $0.01 $0.01(2) $0.01(2) $0.00(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. Financial Highlights (continued) SIX MONTHS PERIOD FROM ENDED YEAR ENDED DECEMBER 31, JANUARY 1, 1996 FEBRUARY 28, ----------------------------------------------- TO AUGUST 31, 1997 1992 1993 1994(1) 1995 1996(9) (UNAUDITED) -------- -------- -------- -------- -------- -------- CLASS B Per Share Operating Performance Net Asset Value, Beginning of Period $10.32 $10.41 $10.85 $9.28 $10.68 $10.36 -------- -------- -------- -------- -------- -------- Net Investment Income 0.58(2) 0.54 0.51 0.50(2) 0.33 0.25(2) Net Realized and Unrealized Gain (Loss) on Investments and Financial Futures Contracts 0.25 0.76 (1.57) 1.40 (.31) 0.21 -------- -------- -------- -------- -------- -------- Total from Investment Operations 0.83 1.30 (1.06) 1.90 (.02) 0.46 -------- -------- -------- -------- -------- -------- Less Distributions: Dividends from Net Investment Income (0.59) (0.54) (0.51) (0.50) (0.34) (0.25) Distributions from Net Realized Gains on Investments Sold and Financial Futures Contracts (0.15) (0.32) -- -- -- -- -------- -------- -------- -------- -------- -------- Total Distributions (0.74) (0.86) (0.51) (0.50) (0.34) (0.25) Net Asset Value, End of Period $10.41 $10.85 $9.28 $10.68 $10.36 $10.57 ======== ======== ======== ======== ======== ======== Total Investment Return at Net Asset Value (3) 8.35% 12.76% (9.99%) 20.87% 0.20%(7) 4.46%(7) Total Adjusted Investment Return at Net Asset Value (3,4) 8.10% 12.58% (10.13%) 20.72% 0.14%(7) 4.42%(7) Ratios and Supplemental Data Net Assets, End of Period (000's omitted) $26,595 $65,437 $77,365 $84,673 $83,253 $85,035 Ratio of Expenses to Average Net Assets 1.35% 1.44% 1.50% 1.50% 1.52%(8,10) 1.50%(8,10) Ratio of Adjusted Expenses to Average Net Assets (5) 1.60% 1.62% 1.64% 1.65% 1.59%(8) 1.59%(8) Ratio of Net Investment Income to Average Net Assets 5.43% 4.82% 5.10% 4.97% 4.81%(8) 4.72%(8) Ratio of Adjusted Net Investment Income to Average Net Assets (5) 5.18% 4.64% 4.96% 4.82% 4.72%(8) 4.63%(8) Portfolio Turnover Rate 34% 51% 62% 37%(6) 30% 8% Fee Reduction per Share $0.03(2) $0.02 $0.01 $0.01(2) $0.01(2) $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 changed from December 31 to August 31. (10) The Ratio of Expenses to Average Net Assets for the Fund excludes the effect of expense offsets. If expenses offsets were included, the Ratio of Expenses to Average Net Assets would be 0.75% for Class A and 1.50% for Class B for the period ended August 31, 1996. (11) Less than a cent per share. See notes to financial statements.
Schedule of Investments February 28, 1997 (Unaudited) - ---------------------------------------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the California Tax-Free Income Fund on February 28, 1997. It has one main category: tax-exempt long-term bonds. The tax-exempt long-term bonds are broken down by state. Under each state is a list of the securities owned by the Fund. PAR VALUE YIELD INTEREST MATURITY S&P (000'S MARKET AT STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+ - -------------------------- -------- -------- ------ --------- ------ ------- TAX-EXEMPT LONG-TERM BONDS California (93.28%) ABAG Finance Auth for Nonprofit Corps, Cert of Part Nat'l Center for Int'l Schools Proj 7.375% 05-01-18 BB+* $3,000 $2,906,970 7.61% Cert of Part Peninsula Family YMCA Ser A 6.800 10-01-11 Baa1* 1,000 1,039,100 6.54 Alameda, County of, Cert of Part 1992 Cap Proj 6.750 06-01-16 A 500 544,045 6.20 Anaheim Public Financing Auth, Sub Lease Rev 1997 Ser C Anaheim Pub Imp Proj 6.000 09-01-16 AAA 2,600 2,754,336 5.66 Sub Lease Rev 1997 Ser C Cap Apprec Anaheim Pub Imp Proj Zero 09-01-18 AAA 3,000 862,560 5.88 Anaheim, City of, Ref Cert of Part Reg Rites Convention Center 8.620# 07-16-23 AAA 2,000 2,137,500 7.97 Arcadia, County of, Hosp Rev Methodist Hosp of Southern California 6.625 11-15-22 A 1,205 1,287,639 6.20 Avalon Community Improvement Agency, Tax Alloc Community Imp Proj Ser B 6.400 08-01-22 A- 1,925 1,984,425 6.21 Bakersfield Central District Development Agency, Tax Alloc Ref Downtown Bakersfield Redevel Proj 6.625 04-01-15 BBB+ 4,000 4,200,360 6.31 Bakersfield Memorial Hospital, Hosp Rev Ser A 6.500 01-01-22 A- 2,000 2,085,960 6.23 Beaumont Unified School District, Cert of Part Cap Imp Proj 7.700 01-01-21 BBB+* 1,000 1,057,130 7.28 Brentwood Redevelopment Agency, Tax Alloc Brentwood Redevel Proj Ser A 7.700 11-01-08 BBB* 135 141,885 7.33 Burbank Redevelopment Agency, Tax Alloc Golden State Redevel Proj Ser A 6.000 12-01-23 A- 2,750 2,764,575 5.97 California Educational Facilities Auth, Rev 1993 Ser B Pooled College & Univ Proj 6.125 06-01-09 Baa3* 1,000 1,019,010 6.01 Rev Ref Ser A Univ of Southern California** 5.700 10-01-15 AA 1,000 989,540 5.76 California Health Facilities Financing Auth, Hosp Rev 1991 Ser A San Diego Hosp Assoc 6.950 10-01-21 A 250 269,472 6.45 Ins Hosp Rev Ser 1990 Children's Hosp San Diego 6.500 07-01-20 AAA 500 544,010 5.97 Ins Rev Ref Ser A Catholic Healthcare West Obligated Group 5.750 07-01-15 AAA 2,000 2,018,440 5.70 Ins Rev Ser A San Diego Christian Foundation 6.250 07-01-12 A+ 1,135 1,185,054 5.99 Ins Rev Ser B Hlth Facil Small Facil 7.500 04-01-22 A+ 2,000 2,298,260 6.53 Rev 1990 Ser A Kaiser Permanente 7.000 12-01-10 AA 600 657,930 6.38 Rev Ser 1994A Scripps Research Institute 6.300 07-01-09 A2* 500 529,620 5.95 Sec Rev 1991 Ser Hosp of the Good Samaritan 7.000 09-01-21 BBB+ 2,250 2,349,833 6.70 California Housing Finance Agency, Home Mtg Rev 1988 Ser B 8.600 08-01-19 AA- 40 41,747 8.24 Home Mtg Rev 1988 Ser D 8.000 08-01-19 AA- 75 79,026 7.59 Home Mtg Rev 1989 Ser A 7.625 08-01-09 AA- 30 30,805 7.43 Home Mtg Rev 1989 Ser B 8.000 08-01-29 AA- 75 78,322 7.66 Home Mtg Rev 1989 Ser D 7.500 08-01-29 AA- 115 119,898 7.19 Home Mtg Rev 1990 Ser D Zero 08-01-20 AA- 8,500 1,401,140 7.17 Home Mtg Rev 1991 Ser A 7.375 08-01-17 AA- 395 418,131 6.97 Home Mtg Rev 1991 Ser C 7.450 08-01-11 AA- 30 31,540 7.09 Home Mtg Rev 1994 Ser C 6.650 08-01-14 AA- 1,000 1,044,020 6.37 Home Mtg Rev 1994 Ser G 7.250 08-01-17 AA- 3,500 3,756,550 6.75 Hsg Rev 1991 Ser E 7.000 08-01-26 AAA 525 551,029 6.67 California Pollution Control Financing Auth, Poll Control Rev 1991 Ser Southern Calif Edison Co 6.900 12-01-17 A+ 500 533,025 6.47 Poll Control Rev 1992 Ser A Pacific Gas & Elec Co 6.625 06-01-09 A 500 529,680 6.25 Solid Waste Disposal Rev Keller Canyon Landfill Co Proj 6.875 11-01-27 A 2,000 2,154,980 6.38 California Rural Home Mortgage Finance Auth, Single Family Mtg Rev Ser A Mtg Backed Sec's Prog 7.550 11-01-26 AAA 1,000 1,122,130 6.73 Single Family Mtg Rev Ser A Step Coupon Mtg Backed Sec's Prog 6.450 05-01-27 AAA 1,000 1,122,000 5.75 California State Public Works Board, Lease Rev 1992 Ser A The Trustees of the Calif State Univ Various Univ Projs 6.700 10-01-17 A 1,500 1,698,570 5.92 Lease Rev 1994 Ser A Dept of Corrections Calif State Prison Monterey County (Soledad II) 6.875 11-01-14 A 500 584,305 5.88 Lease Rev 1996 Ser A Dept of Corrections 5.500 01-01-15 AAA 5,145 5,098,438 5.55 Lease Rev Ref 1993 Ser A Dept of Correction Various State Prison 5.000 12-01-19 AAA 7,970 7,358,382 5.42 Lease Rev Ref Ser A Various Univ Proj 5.500 06-01-21 A+ 1,250 1,184,262 5.81 Lease Rev Ser A Dept of Corrections 5.250 01-01-21 AAA 4,500 4,259,835 5.55 Lease Rev Ser A Various Community College Proj 5.625 12-01-18 A 3,700 3,571,425 5.83 California Statewide Communities Development Auth, Ins Cert of Part United Western Medical Centers 6.750 12-01-21 A+ 7,500 8,401,500 6.03 Ins Rev Cert of Part Hlth Facil Aids Proj Los Angeles 6.200 08-01-12 A+ 1,250 1,278,238 6.06 Ins Rev Cert of Part Hlth Facil Aids Proj Los Angeles 6.250 08-01-22 A+ 2,590 2,646,851 6.12 Ins Rev Cert of Part Hlth Facil Eskaton Properties 6.700 05-01-11 A+ 1,250 1,328,538 6.30 Ins Rev Cert of Part Statewide Univ Northridge Proj 6.000 04-01-26 AAA 1,620 1,668,859 5.82 Ins Rev Ref Cert of Part Triad Healthcare Hosp 6.500 08-01-22 A+ 13,000 13,734,370 6.15 Campbell, City of, 1991 Cert of Part Civic Center Proj 6.750 10-01-17 Aaa* 155 173,628 6.03 1991 Cert of Part Civic Center Proj 6.750 10-01-17 A- 1,565 1,670,356 6.32 Capistrano Unified School District, Spec Tax of Community Facil Dist 87-1 7.500 09-01-07 Aaa* 3,500 3,854,760 6.81 Spec Tax of Community Facil Dist 87-1 8.375 10-01-20 Aaa* 3,000 3,462,090 7.26 Spec Tax of Community Facil Dist 92-1 7.000 09-01-18 BBB-* 1,500 1,524,930 6.89 Spec Tax of Community Facil Dist 92-1 7.100 09-01-21 BBB-* 2,250 2,270,385 7.04 Carson Redevelopment Agency, Tax Alloc Ser 1992 Area No 1 Redevel Proj 6.375 10-01-12 BBB+ 500 511,265 6.23 Castaic Lake Water Agency, Cert of Part Ser 1990 Wtr Sys Imp Proj 7.350 08-01-20 AAA* 200 223,910 6.57 Central Coast Water Auth, Rev State Wtr Proj Regional Facil Ser 1992 6.600 10-01-22 AAA 3,700 4,172,416 5.85 Central Valley Financing Auth, Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993 6.100 07-01-13 BBB- 3,300 3,338,346 6.03 Cogeneration Proj Rev Carson Ice-Gen Proj Ser 1993 6.200 07-01-20 BBB- 1,000 1,010,270 6.14 Clearlake Redevelopment Agency, Tax Alloc Highlands Park Community Devel Proj 6.400 10-01-23 BBB 500 504,230 6.35 Costa Mesa Public Financing Auth, 1991 Local Agency Rev Ser A 7.100 08-01-21 BBB* 220 226,222 6.90 Covina Hospital, Rev Cert of Part Intercommunity Hlth Serv Inc 7.000 03-01-17 BBB+ 925 940,401 6.89 Cucamonga School District, Cert of Part 7.600 12-01-15 Baa* 1,000 1,113,090 6.83 Davis Redevelopment Agency, Tax Alloc Ref Davis Redevel Proj 7.000 09-01-24 AAA 5,115 5,791,254 6.18 Del Mar Race Track Auth, Rev Ref Ser 1996 6.000 08-15-06 BBB* 2,240 2,265,715 5.93 Rev Ref Ser 1996 6.200 08-15-11 BBB* 1,865 1,907,970 6.06 Delano, City of, Cert of Part 7.000 04-01-10 BBB+ 2,000 2,090,940 6.70 Delta, County of, Home Mtg Finance Auth Prog Ser A 6.750 12-01-25 AAA 5,000 5,184,750 6.51 Desert Hospital District, Hosp Rev Cert of Part Ser 1990 Desert Hosp Corp Proj 8.000 07-01-10 AAA 300 340,494 7.05 Duarte, City of, Cert of Part City of Hope National Medical Center Proj 6.250 04-01-23 Baa1* 15,960 16,104,917 6.19 Elk Grove Unified School District, Spec Tax of Community Facil Dist 1 7.125 12-01-24 AAA 1,000 1,171,340 6.08 Encinitas Public Finance Auth, Cert of Part Ser A Civic Center Proj 6.750 12-01-11 A- 1,300 1,391,117 6.31 Fairfield Public Financing Auth, 1995 Rev Ser A Pennsylvania Ave Storm Drainage Proj 6.500 08-01-21 A- 1,085 1,113,004 6.34 Fontana Public Financing Auth, Tax Alloc Rev 1990 Ser A North Fontana Redevel Proj 7.250 09-01-20 BB+ 325 332,072 7.10 Tax Alloc Rev Sub Lien 1991 Ser A North Fontana Redevel Proj 7.750 12-01-20 BB* 195 226,288 6.68 Fontana, County of, Spec Tax of Community Facil Dist 90-3 Empire Center 8.375 04-01-11 B* 5,800 4,640,000 10.47 Spec Tax of Community Facil Dist 90-3 Empire Center 8.400 04-01-15 B* 940 752,000 10.50 Foothill-Eastern Transportation Corridor Agency, Toll Rd Rev Fixed Rate Current Int Ser 1995A 6.500 01-01-32 BBB- 1,665 1,738,610 6.22 Toll Rd Rev Fixed Rate Current Int Ser 1995A 6.000 01-01-34 BBB- 14,775 14,621,931 6.06 Fresno Joint Powers Financing Auth, Rev Ser A 6.550 09-02-12 BBB 2,000 2,086,180 6.28 Fresno, City of, Hlth Facil Rev Ser 1991 Saint Agnes Medical Center 6.625 06-01-21 AA 250 268,680 6.16 Industry Urban-Development Agency, Tax Alloc Ref Civic Recreational Proj 1-A 7.375 05-01-12 A+* 910 934,151 7.18 Tax Alloc Ref Trans Dist Proj 3 6.900 11-01-16 A- 1,020 1,089,972 6.46 Tax Alloc Unref Bal Civic Recreational Proj 1-B 7.375 05-01-15 A+* 235 241,237 7.18 Inglewood, City of, Cert of Part Civic Center Imp Proj 7.000 08-01-19 BBB 1,000 1,064,540 6.58 Irvine, City of, Imp Board Act of 1915 Assessment Dist 95-12 Ser B 6.550 09-02-21 BB* 1,000 991,560 6.61 Irwindale Community Redevelopment Agency, Sub Lien Tax Alloc Industrial Devel Proj 7.050 06-01-26 BBB* 2,750 2,890,388 6.71 Lincoln Redevelopment Agency, Tax Alloc Lincoln Redevel Proj 7.650 08-01-17 BBB+ 860 982,799 6.69 Los Alamitos Unified School District, Spec Tax of Community Facil Dist 90-1 7.150 08-15-21 Baa1* 6,005 6,422,468 6.69 Los Angeles Community Redevelopment Financing Auth, Rev MultiFamily Ser A Grand Central Square 5.850 12-01-26 BB 2,000 1,827,140 6.40 Los Angeles County Health Facilities Auth, Lease Rev Ref Olive View Medical Center Proj 7.500 03-01-08 A* 450 475,780 7.09 Los Angeles County Metropolitan Transportation Auth, Prop A 2nd Tier Sales Tax Rev Ref 5.750 07-01-18 AAA 2,000 2,013,080 5.71 Los Angeles Department of Airports, Airport Rev AMT Ser A Ontario Int'l Airport Proj 6.000 05-15-26 AAA 2,000 2,013,440 5.96 Los Angeles Department of Water and Power, Elec Plant Rev Ref 2nd Iss of 1993 5.400 11-15-12 A+ 1,000 985,960 5.48 Los Angeles Public Works Financing Auth, Rev Regional Park & Open Space Dist A 6.000 10-01-15 AA 3,750 3,854,325 5.84 Los Angeles, City of, Rev Ser B AMT Harbor Proj 6.000 08-01-15 AA 2,000 2,051,460 5.85 Los Angeles, County of, Cert of Part Disney Pkg Proj 6.500 03-01-23 BBB 2,000 2,033,620 6.39 Metropolitan Water District, Wtr Rev Iss of 1991 6.625 07-01-12 AA 750 831,600 5.97 Wtr Rev Iss of 1992 5.000 07-01-20 AA 7,500 6,728,475 5.57 Mountain View Capital Improvements Financing Auth, 1992 Rev City Hall/Community Theatre Complex & Shoreline Regional Park Comm Tax Alloc Refin 6.500 08-01-16 AAA 600 651,684 5.98 Newport-Mesa Unified School District, Community Facil Dist 90-1 Spec Tax Ser 1996 6.750 09-01-21 BBB-* 3,000 3,090,120 6.55 Northern California Transmission Agency, Rev 1990 Ser A Calif-Oregon Transm Proj 7.000 05-01-13 AAA 100 118,061 5.93 Rev 1992 Ser A Calif-Oregon Transm Proj 6.500 05-01-16 AAA 1,000 1,085,920 5.99 Oakland, Port of, Spec Facil Rev 1992 Ser A Mitsui O.S.K. Lines Ltd Proj 6.800 01-01-19 A 500 527,665 6.44 Oceanside, City of, Ref Cert of Part Ser A 6.375 04-01-12 A* 3,000 3,139,500 6.09 Orange Cove Irrigation District, Cert of Part Rehab Proj 7.250 02-01-12 BBB 2,000 2,238,580 6.48 Cert of Part Rehab Proj 7.000 02-01-15 BBB 2,500 2,786,500 6.28 Orange County Development Agency, Tax Alloc Santa Ana Heights Proj 6.125 09-01-23 BBB 5,000 5,001,600 6.12 Orange, County of, 1996 Ser A Recovery Cert of Part 5.800 07-01-16 AAA 2,000 2,013,040 5.76 Cert of Part Civic Center Exp Proj 6.700 08-01-18 AAA 1,000 1,114,960 6.01 Ser A of 1990 Spec Tax of Community Facil Dist 87-3 Mission Viego 7.800 08-15-15 BBB* 350 395,115 6.91 Ser A of 1992 Spec Tax of Community Facil Dist 88-1 Aliso Viego 7.350 08-15-18 AAA 1,000 1,160,820 6.33 Pasadena, City of, 1993 Ref Cert of Part Old Pasadena Parking Facil Proj 6.250 01-01-18 A+ 1,205 1,285,120 5.86 Pittsburgh Redevelopment Agency, Spec Tax of Community Facil Dist 90-1 California Ave 7.400 08-15-20 BBB 3,040 3,453,318 6.51 Rancho Mirage Joint Powers Financing Auth, Cert of Part Eisenhower Memorial Hosp 7.000 03-01-22 A2* 4,500 5,073,615 6.21 Civic Center Rev Ref Ser 1991A 7.500 04-01-17 BBB 195 221,292 6.61 Civic Center Rev Unref Ser 1991A 7.500 04-01-17 BBB 55 59,480 6.94 Redondo Beach Public Financing Auth, Rev South Bay Center Redevel Proj 7.000 07-01-16 BBB-* 950 996,920 6.67 Richmond Joint Powers Financing Auth, Rev Ser A 7.700 10-01-10 BBB* 1,745 1,846,175 7.28 Riverside County Asset Leasing Corp, Leasehold Rev 1993 Ser A Riverside County Hosp Proj 6.500 06-01-12 A+ 1,000 1,093,570 5.94 Leasehold Rev 1997 Riverside County Hosp Proj Zero 06-01-16 AAA 1,500 489,510 5.90 Sacramento Power Auth, Cogeneration Proj Rev Light & Pwr Imp 6.000 07-01-22 BBB- 12,000 12,018,360 5.99 Sacramento Unified School District, Spec Tax of Community Facil Dist 1 Ser B 7.300 09-01-13 Baa* 760 878,750 6.31 Saddleback Valley Unified School District, Spec Tax of Community Facil Dist 89-3 Ser A 7.750 09-01-16 BBB* 3,200 3,531,104 7.02 San Bernardino, County of, Cert of Part Ser 1994 Medical Center Fin Proj 5.500 08-01-17 A- 3,750 3,629,250 5.68 Cert of Part Ser 1994 Medical Center Fin Proj 5.500 08-01-17 AAA 5,000 4,987,600 5.51 Cert of Part Ser A Medical Center Fin Proj 5.500 08-01-15 AAA 5,875 5,807,731 5.56 Cert of Part Ser B Cap Facil Proj 6.875 08-01-24 AAA 350 421,120 5.71 San Diego County Regional Transportation Commission, Sales Tax Rev 1991 Ser A 7.000 04-01-06 AA- 90 101,877 6.18 San Diego County Water Auth, Wtr Rev Cert of Part Reg Fixed 5.681# 04-22-09 AAA 800 832,056 5.46 San Diego, County of, Cert of Part Inmate Reception Center & Cooling 6.750 08-01-19 AAA 3,000 3,347,880 6.05 San Francisco State Building Auth, Lease Rev Ref 1993 Ser A Dept of Gen Serv 5.000 10-01-13 A 2,145 2,011,388 5.33 San Francisco, City and County of, Resid Facil Ser A Coventry Park Proj 8.500 12-01-26 BB* 2,000 2,007,280 8.47 San Joaquin Hills Transportation Corridor Agency, Toll Rd Rev Jr Lien Cap Apprec Zero 01-01-03 BBB* 5,000 3,503,950 6.18 Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-14 BBB* 5,000 1,782,200 6.69 Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-22 BBB* 6,500 1,388,920 7.75 San Jose Financing Auth, Reassessment Rev 1994 Ser C 6.750 09-02-11 BBB+* 870 889,514 6.60 San Mateo County Joint Powers Financing Auth, Lease Rev Ref Cap Proj Prog 5.000 07-01-21 AAA 1,815 1,671,089 5.43 Santa Ana Financing Auth, Lease Rev Ser A Police Admin & Holding Facil 6.250 07-01-19 AAA 1,790 1,954,000 5.73 Lease Rev Ser A Police Admin & Holding Facil 6.250 07-01-24 AAA 10,000 11,008,100 5.68 Santa Barbara, County of, 1990 Cert of Part 7.500 02-01-11 AAA 250 275,415 6.81 1991 Cert of Part 6.400 02-01-11 A+ 250 260,847 6.13 Santa Clarita Community Facilities, Spec Tax of Community Facil Dist 92-1 Ser A 7.450 11-15-10 BBB* 3,600 3,824,568 7.01 Santa Cruz Public Financing Auth, Rev Tax Alloc Ser B 6.200 09-01-23 A- 2,000 2,019,960 6.14 Santa Rosa, City of, Wastewater Rev 1992 Ser A Subregional Wastewater Proj 6.500 09-01-22 AAA 500 558,850 5.82 Saugus Unified School District, Cert of Part 7.500 08-01-09 BBB+ 700 748,062 7.02 Southern California Home Financing Auth, Single Family Mtg Rev GNMA & FNMA Mtg Backed Ser A 6.750 09-01-22 AAA 835 862,213 6.54 Single Family Mtg Rev GNMA & FNMA Mtg Backed Ser B 7.750 03-01-24 AAA 45 47,647 7.32 Southern California Public Power Auth, Rev Ref Southern Transmission Proj Zero 07-01-13 AAA 4,400 1,764,620 7.30 Stanislaus Waste to Energy Financing Agency, Solid Waste Rev Ref Ogden Martin Sys Inc Proj 7.625 01-01-10 BBB+ 940 1,010,660 7.09 Suisun Redevelopment Agency, Tax Alloc Suisun City Redevel Agency 7.250 10-01-20 AAA 415 459,168 6.55 Torrance Redevelopment Agency, Tax Alloc Ref Ser 1992 Downtown Redevel Proj 7.125 09-01-21 BBB 500 529,795 6.72 Turlock Irrigation District, Cert of Part 7.300 01-01-11 AAA 4,165 4,376,457 6.95 University of California, The Regents of, 1993 Ref Cert of Part UCLA Central Chiller/ Cogeneration Facil 5.400 11-01-11 Aa3* 1,000 970,350 5.57 Upland Housing Auth, Rev Iss A 7.500 07-01-03 BBB* 190 198,286 7.19 Rev Iss A 7.850 07-01-20 BBB* 1,280 1,327,526 7.57 Vallejo Sanitation and Flood Control District, Cert of Part 5.000 07-01-19 AAA 5,000 4,584,150 5.45 Victor Valley Unified High School District, Cert of Part 7.875 11-01-12 A* 1,255 1,429,909 6.91 West Covina Redevelopment Agency, Ref Community Facil Dist Spec Tax Fashion Plaza Proj 6.000 09-01-22 A 3,000 3,079,380 5.85 ------------ 353,853,403 ------------ Puerto Rico (5.53%) Puerto Rico Aqueduct and Sewer Auth, Ref Pars & Inflos Ser 1995 Gtd by the Commonwealth of Puerto Rico 8.276# 07-01-11 AAA 7,500 8,634,375 7.14 Puerto Rico Highway and Transportation Auth, Highway Rev Ref 1996 Ser Z 6.250 07-01-14 AAA 3,250 3,608,865 5.63 Puerto Rico Ports Auth, Spec Facil Rev 1996 Ser A American Airlines Inc Proj 6.250 06-01-26 BB+ 2,000 2,054,620 6.08 Puerto Rico, Commonwealth of, GO Pub Imp Ser 1996 6.500 07-01-15 A 6,000 6,664,920 5.85 ------------ 20,962,780 ------------ TOTAL TAX-EXEMPT LONG-TERM BONDS (Cost $355,137,906) (98.81%) $374,816,183 ======= ============ * Credit Ratings are rated by Moody's Investors Services, Fitch or John Hancock Advisers, Inc. where Standard & Poor's ratings are not available. ** This security has been purchased as a forward commitment -- that is, the Fund has agreed on the trade date to take delivery of and make payment for such securities on a delayed basis subsequent to the date of this schedule. The purchase price and interest rate of such security is 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 the current value at least equal to the amount of its forward commitment. Accordingly, the market value of $1,122,130 of California Rural Home Mortgage Finance Auth, Single Family Mtg Rev Ser A Mtg Backed Sec's Prog, 7.55%, 11/01/26, has been segregated to cover the forward commitment. + The yield is not calculated with guidelines established by the U.S. Securities Exchange Commission. Zero coupon yields are at yield to maturity. # Represents the rate in effect on February 28, 1997. The percentages shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements.
Portfolio Concentration (Unaudited) - ---------------------------------------------------------------------------- The California Tax-Free Income Fund invests primarily in securities issued in the state of California and its various political subdivisions. The performance of this Fund is closely tied to the 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, 1997, assigned to the various sector categories. MARKET VALUE AS A PERCENTAGE OF THE FUND'S SECTOR DISTRIBUTION NET ASSETS: - ------------------- --------------- General Obligation 1.76% Revenue Bonds - Certificates of Participation 13.36 Revenue Bonds - Education 8.58 Revenue Bonds - Electric Power 5.84 Revenue Bonds - Health 21.60 Revenue Bonds - Housing 5.07 Revenue Bonds - Industrial Development Bond 0.68 Revenue Bonds - Other 22.60 Revenue Bonds - Pollution Control Facilities 1.12 Revenue Bonds - Transportation 8.65 Revenue Bonds - Water & Sewer 9.55 ------- TOTAL TAX-EXEMPT LONG-TERM BONDS 98.81% ======= See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- ACCOUNTING POLICIES John Hancock California Tax-Free Income Fund (the "Fund") is a diversified open-end management investment company, registered under the Investment Company Act of 1940. The 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 and Class B 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, 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 investment, to its shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $7,860,974 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: December 31, 2001 -- $44,815, December 31, 2002 -- $267,864, December 31, 2003 -- $5,169,717 and December 31, 2004 -- $2,378,578. The unused capital loss carryforward of $44,815 expiring in 2001 was transferred from the John Hancock Tax-Exempt Series Fund -- California Portfolio as of September 15, 1995. 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 the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class EXPENSES The majority of the expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and relative sizes of the funds. 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. 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, 1997, open positions in financial futures contracts were as follows: UNREALIZED EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION - ---------- ---------------------- -------- ------------ JUN 97 25 U.S. Treasury Bonds LONG ($14,062) At February 28, 1997, the Fund has deposited in a segregated account $5,115,000 par value of City of Davis Redevelopment Agency, 7.00%, 09- 01-24, 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. Purchased put or call over-the-counter options will be valued at the average of the "bid" prices obtained from two independent brokers. Written put or call over-the-counter options will be valued at the average of the "asked" prices obtained from two independent brokers. 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 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, 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. For the period ended February 28, 1997, there were no open written options contracts. 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 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 expenses further to the extent required to prevent expenses from exceeding 0.75% and 1.50% of the average net assets attributable to Class A and Class B, respectively. Accordingly, for the period ended February 28, 1997, the reduction in the Adviser's fee collectively with any additional amounts not borne by the Fund by virtue of the expense limit amounted to $141,839. This limitation may be discontinued at any time. The Fund has an agreement with its custodian bank under which $28,935 of custodian fees have been reduced by balance credits applied during the period ended February 28, 1997. 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, 1997, net sales charges received with regard to sales of Class A shares amounted to $347,103. Out of this amount, $43,518 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $254,870 was paid as sales commissions to unrelated broker-dealers and $48,715 was paid as sales commissions to sales personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which are broker dealers. The Adviser's indirect parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole shareholder of Distributors and was the indirect shareholder until November 29, 1996 of John Hancock Freedom Securities Corporation and its subsidiaries, which include Tucker Anthony and Sutro. Class B shares which are redeemed within six years of purchase are subject to a contingent deferred sales charge ("CDSC") at declining rates beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to defray its expenses for providing distribution related services to the Fund in connection with the sale of Class B shares. For the period ended February 28, 1997, the contingent deferred sales charge received by JH Funds amounted to $84,961. 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 plan to 0.90% of the average daily net assets. Up to a maximum of 0.15% for Class A and 0.25% for Class B 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. 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 Funds. The compensation for the year was at an annual rate of 0.01875% of the average net assets of the Fund. Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C. Hodsdon are directors and/or officers of the Adviser and/or its affiliates, as well as a Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. Effective with the fees paid for 1995, 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, 1997 the Fund's investments to cover the deferred compensation liability had unrealized appreciation of $1,505. 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, 1997, aggregated $29,278,680 and $28,265,484, respectively. There were no purchases or sales of obligations of the U.S. Government and its agencies during the period ended February 28, 1997. The cost of investments owned at February 28, 1997 for federal income tax purposes was $355,137,906. Gross unrealized appreciation and depreciation of investments aggregated $21,695,864 and $2,017,587 respectively, resulting in net unrealized appreciation of $19,678,277. NOTE D -- REORGANIZATION On September 8, 1995, the shareholders of the John Hancock Tax-Exempt Series Fund -- California Portfolio ("JHCP") voted to approve a plan of reorganization between JHCP and the Fund providing for the transfer of substantially all of the assets and liabilities of JHCP to the Fund in exchange solely for Class A shares of the Fund. The acquisition was accounted for as a tax free exchange of 4,164,385 Class A shares of John Hancock California Tax-Free Income Fund for the net assets of JHCP, which amounted to $48,873,637, including $2,253,412 of unrealized appreciation, after the close of business at September 15, 1995. A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page. A box sectioned in quadrants with a triangle in upper left, a circle in upper right, a cube in lower left and a diamond in lower right. A tag line below reads: "A Global Investment Management Firm." 101 Huntington Avenue, Boston, MA 02199-7603 1-800-225-5291 1-800-554-6713 (TDD) Internet: www.jhancock.com/funds Bulk Rate U.S. Postage PAID Randolph, MA 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. A recycled logo in lower left hand corner with the caption "Printed on Recycled Paper." 530SA 2/97 4/97 -----END PRIVACY-ENHANCED MESSAGE-----