0000950135-95-001832.txt : 19950824 0000950135-95-001832.hdr.sgml : 19950824 ACCESSION NUMBER: 0000950135-95-001832 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950823 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: 95566202 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVENUE CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 7137512400 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVENUE STREET 2: 1000 LOUISIANA, SUITE 6100 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 A/R 1 JOHN HANCOCK FUNDS ------------------------------------------------------------------------------- CALIFORNIA TAX-FREE INCOME FUND SEMI-ANNUAL REPORT June 30, 1995 2 TRUSTEES Edward J. Boudreau, Jr. James F. Carlin* William H. Cunningham* Charles L. Ladner* Leo E. Linbeck, Jr.* Patricia P. McCarter* Steven R. Pruchansky* 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 Thomas H. Drohan Senior Vice President and Secretary James B. Little Senior Vice President and Chief Financial Officer Thomas C. Goggins Senior Vice President James K. Ho Senior Vice President Andrew F. St. Pierre Senior Vice President B.J. Willingham Senior Vice President Frank Lucibella Vice President John A. Morin Vice President Susan S. Newton Vice President and Compliance Officer James J. Stokowski Vice President and Treasurer CUSTODIAN Investors Bank & Trust Company 89 South Street Boston, Massachusetts 02111 TRANSFER AGENT John Hancock Investor Services Corporation P.O. Box 9116 Boston, Massachusetts 02205-9116 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 60 State Street Boston, Massachusetts 02109 CHAIRMAN'S MESSAGE DEAR FELLOW SHAREHOLDERS: [A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive Officer, flush right, next to second paragraph.] Educating shareholders has always been one of the most important responsibilities of a mutual fund company. But that challenge has taken on new significance in the past several years. Looking at the most recent statistics, you can see why. According to the Investment Company Institute, the mutual fund industry now manages more than $2.3 trillion for investors. More than half of that money has come into mutual funds in just the last four years. Today, there are more than 95 million mutual fund shareholder accounts. That's up from 12 million in 1980. These are people, like you, who are investing in mutual funds to save for a home, to send their children to college or to build a nest egg for a comfortable retirement. This explosive growth, coupled with the growing complexity of the financial landscape, has made all of us in the mutual fund industry work harder to inform our shareholders. At John Hancock Funds, we strive to educate you about all aspects of your fund: the performance, the strategies and the holdings. We want you to fully understand what you own. We want you to have realistic expectations of the potential rewards as well as the potential risks of your investment. These shareholder reports -- which we send you twice a year -- are the best way to give you the most in-depth and up-to-date information. In the message that follows, the portfolio manager gives a candid commentary on the market environment; the factors that affected performance; the fund's current investment strategies; and the outlook for the months ahead. The ensuing financial statements provide a comprehensive look at the fund's statistics and holdings. We've included explanations of what each financial statement shows and how it is used. We hope you find these shareholder reports a useful tool in evaluating your investments. Of course, if you have any questions or need more information, feel free to call one of our customer service representatives on our toll-free line at 1-800-225-5291, from 8:00 a.m. to 8:00 p.m. eastern time, Monday through Friday. Sincerely, /s/ Edward J. Boudreau, Jr. --------------------------- EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER 2 3 BY DIANNE SALES-SINGER, FOR THE PORTFOLIO MANAGEMENT TEAM JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND FALLING INTEREST RATES FUEL MUNICIPAL BONDS IN FIRST HALF OF 1995; FAVORABLE SUPPLY/DEMAND SITUATION AND SLOW GROWTH BODE WELL FOR SECOND HALF Dianne Sales-Singer is a member of the portfolio management team of John Hancock California Tax-Free Income Fund. Ms. Sales-Singer, who joined John Hancock in 1989, also manages John Hancock Tax-Exempt Series Fund: California Portfolio and Massachusetts Portfolio. Prior to becoming a portfolio manager, she was a senior research officer following all sectors of the municipal bond market. [A 2 3/4" x 2 1/2" photo of Dianne Sales-Singer at bottom center. Caption reads: "Dianne Sales-Singer."] Falling interest rates and positive supply/ demand fundamentals drove municipal bond prices higher during the first six months of 1995. By late last year, the municipal bond market had reached a bottom after suffering from rising interest rates and relatively weak demand through most of 1994. However, beginning in January, municipals made a rapid recovery, buoyed by the prospect of lower interest rates, rising demand and limited supply of new municipal bonds. While municipals outperformed Treasury securities in the first quarter, a flurry of press coverage about various flat tax proposals in the second quarter gave the market an excuse to consolidate. In late June, Orange County regained the market's attention as voters failed to approve a sales tax increase that would have assisted the County in dealing with its substantial investment losses. While municipals [CAPTION] "...BEGINNING IN JANUARY, MUNICIPALS MADE A RAPID RECOVERY..." 3 4 John Hancock Funds - California Tax-Free Income Fund gave up some ground versus Treasuries, the overall environment continued to be positive for bonds, as evidence of a slowing economy and muted inflation pushed fixed-income markets higher. A LOOK AT PERFORMANCE For the six months ended June 30, 1995, John Hancock California Tax-Free Income Fund's Class A and Class B shares posted returns of 11.81% and 11.40%, respectively, at net asset value. Those returns outpaced the average tax-exempt California fund's return of 9.70% for the same period, according to Lipper Analytical Services.(1) The Fund's historic emphasis on long-term results returned large benefits to shareholders in the first half of 1995. In 1994, a long average duration made the Fund more vulnerable to rising interest rates. However, as rates fell in 1995, our heightened interest-rate sensitivity -- or duration -- allowed our holdings to appreciate more rapidly than funds with shorter durations. Duration is a measure of the interest-rate sensitivity of a portfolio, taking into account maturity, coupon structure and call risk. The longer a fund's duration, the more its share price will rise when interest rates fall, or fall when interest rates rise. The Fund's longer-than-average duration at the close of 1994 was the primary reason for its outperformance in the first half of this year. STRATEGY CHANGES Recently, however, we've used the market's strength to shorten the Fund's duration. The tremendous rally in the first quarter caused the municipal yield curve (or the difference between short- and long-term yields) to flatten. Generally, when the yield curve is flat, investors aren't rewarded with much additional yield for buying longer-term bonds. As a result, we shifted some of our holdings out of longer-term bonds and into shorter-term bonds. That move trimmed the Fund's duration slightly. We also continued to improve the Fund's call protection, which simply means we focused on bonds that the issuer can't redeem before their terms expire. That helps to protect the Fund's income stream. The market's rally also provided us with a great opportunity to improve the Fund's credit quality. Credit spreads (or the difference in yields between low- and high-quality bonds) compressed. That meant lower-quality bonds didn't offer much additional yield over higher-quality bonds. As a result, we sold some lower-rated bonds and replaced them with higher-quality holdings. By making this exchange when we did, we were able to upgrade the Fund's credit quality without sacrificing much income. ORANGE COUNTY The Fund has a small investment in revenue bonds issued by municipalities that were participants in the Orange County investment [Table entitled "Municipal Snapshot" at bottom of left hand column. The header for the left hand column is "Category"; the header for the right hand column is "Trend...and what's driving it." The first listing is "Discount, non-callable bonds" followed by an up arrow and the phrase "fall in interest rates provides price gains." The second listing is "Revenue bonds" followed by an up arrow and the phrase "Securities benefit from defined revenue sources." The third listing is "Health-care bonds" followed by a down arrow and the phrase "Continued competition and cost pressure." Footnote below reads: "See "Schedule of Investments." Investment holdings are subject to change."] [CAPTION] "...WE'VE USED THE MARKET'S STRENGTH TO SHORTEN THE FUND'S DURATION." 4 5 John Hancock Funds - California Tax-Free Income Fund [Bar chart with heading "Fund Performance" at top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1995." The chart is scaled in increments of 4% from bottom to top, with 12% at the top and 0% at the bottom. Within the chart, there are three solid bars. The first represents the 11.81% total return for John Hancock California Tax-Free Income Fund: Class A. The second represents the 11.40% total return for John Hancock California Tax-Free Income Fund: Class B. The third represents the 9.70% total return for the average California municipal bond fund. Footnote below reads: "Total return 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. See following page for historical performance information."] pool. However, these bonds have a specific source of repayment separate and distinct from the County's funds. The market has recognized the value of these bonds, making them some of our best performers so far this year. OUTLOOK AND STRATEGY There's evidence that the national economy is growing at a moderate pace. But in our view, the slowdown isn't enough to throw the nation back into a recession. With slow, but steady growth, we believe interest rates will be more stable and municipal bonds could remain in a fairly narrow trading range for the balance of the year. If that's the case, it's important for shareholders to realize that the municipal bond market's performance will most likely be less dependent on bond prices rising than it was in the first half of the year. So to add value, we'll continue to apply careful credit research to identify bonds that offer the potential for appreciation based on improving credit fundamentals. We'll also continue to look for situations that will provide the Fund with an attractive level of income. California's economy seems to have bottomed, and some areas of the state have shown signs of improvement. That has helped state revenues come more in line with expenses, which is a positive. Many California counties, on the other hand, will continue to be challenged by rising costs, so more restructuring may be needed on this level. Going forward, worry about the future of tax reform and its effect on municipal bonds could cause some volatility in the market, as it did briefly in April when the idea was first introduced. However, we don't believe that any major tax reform will be enacted before 1997. In our view, there are several reasons to be optimistic about the municipal market. By the end of June, municipal bonds looked relatively cheap compared to U.S. Treasury securities. When that last occurred -- at the end of 1994 -- municipal bonds rallied. Also, demand for municipals is relatively stable and supply is limited. That should bode well for municipal bond prices for the rest of the year. -------------------------------------------------------------------------------- (1) Figures from Lipper Analytical Services include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower. A portion of the Fund's income may be taxable. Some investors may be subject to the Alternative Minimum Tax. [CAPTION] "CALIFORNIA'S ECONOMY SEEMS TO HAVE BOTTOMED..." 5 6 A LOOK AT PERFORMANCE The tables on the right show the cumulative total returns and the average annual total returns for John Hancock California Tax-Free Income Fund. Total return is a performance measure that equals the sum of all income and capital gains dividends, assuming reinvestment of these distributions, and the change in the price of the fund's shares, expressed as a percentage of the fund's 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. 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. CUMULATIVE TOTAL RETURNS FOR THE PERIOD ENDED JUNE 30, 1995
ONE FIVE LIFE OF YEAR YEARS(1) FUND(1) ---- -------- ------- California Tax-Free Income Fund: Class A(2) 3.23% 40.65% 43.09% California Tax-Free Income Fund: Class B(2) 2.34% 19.51% N/A
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED JUNE 30, 1995
ONE FIVE LIFE OF YEAR YEARS(1) FUND(1) ---- -------- ------- California Tax-Free Income Fund: Class A(2) 3.23% 7.06% 6.73% California Tax-Free Income Fund: Class B(2) 2.34% 5.23% N/A
YIELDS AS OF JUNE 30, 1995
SEC 30-DAY YIELD ---------- California Tax-Free Income Fund: Class A 5.45% California Tax-Free Income Fund: Class B 4.93%
NOTES TO PERFORMANCE (1) Class A shares started on December 29, 1989. Class B shares started on December 31, 1991. (2) Performance is affected by a 12b-1 Plan. Note: Participant-directed defined-contribution plans with at least 100 eligible employees at inception of the Fund account may purchase Class A shares without an initial sales charge as of March 15, 1995. If those shares are redeemed, however, during the year following the calendar year end during which they were purchased, a contingent deferred sales charge will be assessed. 6 7 WHAT HAPPENED TO A $10,000 INVESTMENT... The charts on the right show how much a $10,000 investment in John Hancock California Tax-Free Income Fund would be worth on June 30, 1995, assuming you invested on the day each class of shares started and reinvested all distributions. For comparison, we've shown the same $10,000 investment in the Lehman Bros. 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 Fund Class A shares [Line chart with the heading California Tax-Free Fund: Class A, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are three lines. The first line represents the value of the hypothetical $10,000 investment made in the California Tax-Free Fund on January 5, 1990 before sales charge, and is equal to $15,541 as of June 30, 1995. The second line represents the value of the Lehman Brothers Municipal Bond Index and is equal to $14,982 as of June 30, 1995. The third line represents the California Tax-Free Fund after sales charge and is equal to $14,309 as of June 30, 1995.] California Tax-Free Fund Class B shares [Line chart with the heading California Tax-Free 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 $12,704 as of June 30, 1995. The second line represents the value of the hypothetical $10,000 investment made in the California Tax- Free Fund on December 31, 1991, before contingent deferred sales charge, and is equal to $12,251 as of June 30, 1995. The third line represents the California Tax-Free Fund after contingent deferred sales charge and is equal to $11,951 as of June 30, 1995.] 7 8 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 JUNE 30, 1995. YOU'LL ALSO FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE. STATEMENT OF ASSETS AND LIABILITIES June 30, 1995 (Unaudited) -------------------------------------------------------------------------------- ASSETS: Investments at value - Note C: Tax-exempt long-term bonds (cost - $330,286,540) ...... $ 325,016,836 ------------- Cash .................................................... 5,242,888 Receivable for shares sold .............................. 169,820 Receivable for investments sold ......................... 2,156,467 Interest receivable ..................................... 6,533,415 Receivable from John Hancock Advisers Inc. - Note B ..... 94,540 Miscellaneous assets .................................... 314,188 ------------- Total Assets ......................... 339,528,154 ------------------------------------------------------------ LIABILITIES: Dividend payable ........................................ 50,837 Payable for shares repurchased .......................... 103,708 Payable for investments purchased ....................... 5,217,776 Payable for variation margin ............................ 44,062 Payable to John Hancock Advisers, Inc. .................. and affiliates - Note B ............................... 169,507 ------------- Total Liabilities .................... 5,585,890 ------------------------------------------------------------ NET ASSETS: Capital paid-in ......................................... 343,946,116 Accumulated net realized loss on investments and financial futures contracts ....................... (4,714,857) Net unrealized depreciation of investments and financial futures contracts ....................... (5,321,891) Undistributed net investment income ..................... 32,896 ------------- Net Assets ........................... $ 333,942,264 ============================================================ 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, respectively) Class A - $251,911,456/24,986,878 ..................... $ 10.08 ================================================================================ Class B - $82,030,808/8,137,179 ....................... $ 10.08 ================================================================================ MAXIMUM OFFERING PRICE PER SHARE* Class A - ($10.08 x 104.71%) ............................ $ 10.55 ================================================================================
* 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 June 30, 1995 (Unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest ................................................ $ 10,954,466 ------------ Expenses: Investment management fee - Note B .................... 912,281 Distribution/service fee - Note B Class A .............................................. 188,009 Class B .............................................. 364,771 Transfer agent fee - Note B ........................... 151,327 Custodian fee ......................................... 28,772 Auditing fee .......................................... 23,979 Miscellaneous ......................................... 21,095 Registration and filing fees .......................... 20,018 Printing .............................................. 19,853 Advisory board ........................................ 17,960 Trustees' fees ........................................ 17,924 Legal fees ............................................ 13,062 ------------ Total Expenses ....................... 1,779,051 ------------------------------------------------------------ Less Expense Reductions - Note B ............................... (223,994) ------------------------------------------------------------ Net Expenses ......................... 1,555,057 ------------------------------------------------------------ Net Investment Income ................ 9,399,409 ------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FINANCIAL FUTURES CONTRACTS: Net realized gain on investments sold ................... 755,403 Net realized loss on financial futures contracts ........ (1,346,331) Change in net unrealized appreciation/depreciation of investments ........................................ 28,029,466 Change in net unrealized appreciation/depreciation of financial futures contracts ........................ (52,187) ------------ Net Realized and Unrealized Gain on Investments and Financial Futures Contracts .......... 27,386,351 ------------------------------------------------------------ Net Increase in Net Assets Resulting from Operations ............ $ 36,785,760 ============================================================
SEE NOTES TO FINANCIAL STATEMENTS. 8 9 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund STATEMENT OF CHANGES IN NET ASSETS ------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1995 YEAR ENDED (UNAUDITED) DECEMBER 31, 1994 ---------------- ----------------- FROM OPERATIONS: Net investment income ............................................... $ 9,399,409 $ 19,825,410 Net realized loss on investments sold and financial futures contracts (590,928) (4,180,216) Change in net unrealized appreciation/depreciation of investments ... 27,977,279 (51,218,323) -------------- -------------- Net Increase (Decrease) in Net Assets Resulting from Operations ... 36,785,760 (35,573,129) -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income Class A - ($0.2892 and $0.5800 per share, respectively) ........... (7,406,148) (15,737,105) Class B - ($0.2523 and $0.5100 per share, respectively) ........... (2,087,592) (3,992,716) -------------- -------------- Total Distributions to Shareholders .............................. (9,493,740) (19,729,821) -------------- -------------- From Fund Share Transactions-- Net* .................................. (12,297,909) 29,122,142 -------------- -------------- Net Assets: Beginning of period ................................................. 318,948,153 345,128,961 -------------- -------------- End of period (Including undistributed net investment income of $32,896 and $127,227, respectively) .............................. $ 333,942,264 $ 318,948,153 ============== ==============
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED JUNE 30, 1995 YEAR ENDED (UNAUDITED) DECEMBER 31, 1994 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ CLASS A Shares sold .................................................. 863,757 $ 8,593,469 5,288,858 $ 54,343,070 Shares issued to shareholders in reinvestment of distributions 309,055 3,077,672 669,253 6,642,113 ---------- ------------ ---------- ------------ 1,172,812 11,671,141 5,958,111 60,985,183 Less shares repurchased ...................................... (2,220,220) (21,981,280) (5,712,088) (56,313,131) ---------- ------------ ---------- ------------ Net increase (decrease) ...................................... (1,047,408) ($10,310,139) 246,023 $ 4,672,052 ========== ============ ========== ============ CLASS B Shares sold .................................................. 459,010 $ 4,587,030 3,496,364 $ 36,145,744 Shares issued to shareholders in reinvestment of distributions 99,482 990,664 200,879 1,988,933 ---------- ------------ ---------- ------------ 558,492 5,577,694 3,697,243 38,134,677 Less shares repurchased ...................................... (760,418) (7,565,464) (1,391,946) (13,684,587) ---------- ------------ ---------- ------------ Net increase (decrease) ...................................... (201,926) ($ 1,987,770) 2,305,297 $ 24,450,090 ========== ============ ========== ============
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 OUTSTANDING AT THE BEGINNING OF THE PERIOD, REINVESTED AND REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE CORRESPONDING DOLLAR VALUE. SEE NOTES TO FINANCIAL STATEMENTS. 9 10 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund Selected data for each share of beneficial interest outstanding throughout the period indicated, investment returns, key ratios, and supplemental data are as follows: FINANCIAL HIGHLIGHTS ---------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1995 ------------------------------------------------------ (UNAUDITED) 1994(e) 1993 1992 1991 1990 --------- -------- -------- -------- -------- ------- CLASS A PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period.................. $ 9.28 $ 10.85 $ 10.41 $ 10.32 $ 9.91 $ 10.00(b) -------- -------- -------- -------- -------- ------- Net Investment Income................................. 0.28 0.58 0.62 0.66 0.69 0.74(d) Net Realized and Unrealized Gain (Loss) on Investments......................................... 0.81 (1.57) 0.76 0.25 0.47 (0.16) -------- -------- -------- -------- -------- ------- Total from Investment Operations.................... 1.09 (0.99) 1.38 0.91 1.16 0.58 -------- -------- -------- -------- -------- ------- Less Distributions: Dividends from Net Investment Income.................. (0.29) (0.58) (0.62) (0.67) (0.70) (0.67) Distributions from Net Realized Gains on Investments Sold and Financial Futures Contracts................ - - (0.32) (0.15) (0.05) - -------- -------- -------- -------- -------- ------- Total Distributions................................. (0.29) (0.58) (0.94) (0.82) (0.75) (0.67) -------- -------- -------- -------- -------- ------- Net Asset Value, End of Period........................ $ 10.08 $ 9.28 $ 10.85 $ 10.41 $ 10.32 $ 9.91 ======== ======== ======== ======== ======== ======= Total Investment Return at Net Asset Value............ 11.81%(c) (9.31%) 13.60% 9.15% 12.26% 6.13% Total Adjusted Investment Return at Net Asset Value (a)........................................... 11.67%(c) (9.45%) 13.42% 8.90% 11.86% 5.29% RATIOS AND SUPPLEMENTAL DATA Net Assets, End of Period (000's omitted)............. $251,911 $241,583 $279,692 $217,014 $163,693 $80,200 Ratio of Expenses to Average Net Assets............... 0.75%* 0.75% 0.69% 0.58% 0.40% 0.00% Ratio of Adjusted Expenses to Average Net Assets (a).. 0.89%* 0.89% 0.87% 0.83% 0.80% 0.84% Ratio of Net Investment Income to Average Net Assets.. 5.85%* 5.85% 5.69% 6.36% 6.75% 7.11% Ratio of Adjusted Net Investment Income to Average Net Assets (a)...................................... 5.71%* 5.71% 5.51% 6.11% 6.35% 6.27% Portfolio Turnover Rate............................... 17% 62% 51% 34% 45% 62%
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES), DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM. SEE NOTES TO FINANCIAL STATEMENTS. 10 11 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund FINANCIAL HIGHLIGHTS (continued) --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1995 --------------------------- (UNAUDITED) 1994(e) 1993 1992 --------- ------- ------- ------- CLASS B PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period..................................... $ 9.28 $ 10.85 $ 10.41 $ 10.32(b) ------- ------- ------- ------- Net Investment Income.................................................... 0.25 0.51 0.54 0.58(d) Net Realized and Unrealized Gain (Loss) on Investments................... 0.80 (1.57) 0.76 0.25 ------- ------- ------- ------- Total from Investment Operations....................................... 1.05 (1.06) 1.30 0.83 ------- ------- ------- ------- Less Distributions: Dividends from Net Investment Income..................................... (0.25) (0.51) (0.54) (0.59) Distributions from Net Realized Gains on Investments Sold and Financial Futures Contracts...................................................... - - (0.32) (0.15) ------- ------- ------- ------- Total Distributions.................................................... (0.25) (0.51) (0.86) (0.74) ------- ------- ------- ------- Net Asset Value, End of Period........................................... $ 10.08 $ 9.28 $ 10.85 $ 10.41 ======= ======= ======= ======= Total Investment Return at Net Asset Value............................... 11.40%(c) (9.99%) 12.76% 8.35% Total Adjusted Investment Return at Net Asset Value (a).................. 11.26%(c) (10.13%) 12.58% 8.10% RATIOS AND SUPPLEMENTAL DATA Net Assets, End of Period (000's omitted)................................ $82,031 $77,365 $65,437 $26,595 Ratio of Expenses to Average Net Assets.................................. 1.50%* 1.50% 1.44% 1.35% Ratio of Adjusted Expenses to Average Net Assets (a)..................... 1.64%* 1.64% 1.62% 1.60% Ratio of Net Investment Income to Average Net Assets..................... 5.09%* 5.10% 4.82% 5.43% Ratio of Adjusted Net Investment Income to Average Net Assets (a)........ 4.95%* 4.96% 4.64% 5.18% Portfolio Turnover Rate.................................................. 17% 62% 51% 34% * On an annualized basis. (a) Net of any fee reductions. (b) Initial price to commence operations. (c) Not annualized. (d) On average month end shares outstanding. (e) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS. 11 12 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY CALIFORNIA TAX-FREE INCOME FUND ON JUNE 30, 1995. SCHEDULE OF INVESTMENTS June 30, 1995 (Unaudited) -------------------------------------------------------------------------------------------------------------------------------
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 (96.76%) Abag Finance Auth For Nonprofit Corps, Cert of Part Peninsula Family YMCA Ser A.................. 6.800% 10-01-11 A3** $ 1,000 $ 1,031,020 6.60% Anaheim, City of, Ref Cert of Part Reg Ritess Convention Center............. 8.680 07-16-23 AAA *2,000 2,032,500 8.54 Apple Valley Water District, Assmt District No. 2-B Ser A.............................. 7.875 09-02-11 BBB** 2,425 2,510,215 7.61 Arcadia Hospital, Methodist Hosp Rev of Southern Calif...................... 6.625 11-15-22 A 1,205 1,206,952 6.61 Avalon Community Improvement Agency, Tax Alloc Community Imp Proj Ser B........................ 6.400 08-01-22 A- 1,950 1,939,880 6.43 Azusa Redevelopment Agency, Tax Alloc Merged Proj..................................... 7.000 08-01-22 Baa** 2,000 2,035,480 6.88 Bakersfield Central District Development Agency, Tax Alloc Ref Downtown Bakersfield Redevel Proj........... 6.625 04-01-15 BBB+ 4,000 3,953,920 6.70 Bakersfield Memorial Hospital, Hosp Rev Ser A............................................ 6.500 01-01-22 A- 2,000 2,002,560 6.49 Beaumont Unified School District, Cert of Part Cap Imp Proj................................. 7.700 01-01-21 BBB+** 1,000 1,044,470 7.37 Brentwood Redevelopment Agency, Tax Alloc Brentwood Redevel Proj Ser A.................... 7.700 11-01-08 BBB** 135 141,021 7.37 Burbank Redevelopment Agency, Tax Alloc Golden State Redevel Proj Ser A................. 6.000 12-01-23 A- 2,750 2,549,222 6.47 California Department of Water Resources, Wtr Sys Rev Central Valley Proj Ser L..................... 5.500 12-01-23 AA 6,000 5,441,640 6.06 California Health Facilities Financing Auth, Ins Rev Ref Ser A Catholic Hlthcare West Obligated Group.. 5.750 07-01-15 AAA *2,000 1,904,200 6.04 Ins Rev Ser A Mercy Sr Hsg................................ 5.800 12-01-18 A 3,140 2,930,719 6.21 Ins Rev Ser A San Diego Christian......................... 6.250 07-01-12 A 1,135 1,131,459 6.27 Ins Rev Ser B Hlth Facil Small Facil...................... 7.500 04-01-22 A 2,000 2,208,380 6.79 Rev Ser C Kaiser Permanente............................... 5.600 05-01-33 AA 3,800 3,388,004 6.28
SEE NOTES TO FINANCIAL STATEMENTS. 12 13 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD INTEREST MATURITY S&P (000'S MARKET AT STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+ -------------------------- ---- ---- ------ -------- ----- ------- CALIFORNIA (CONTINUED) California Housing Finance Agency, Home Mtg Rev 1991 Ser A................................... 7.375% 08-01-17 AA- $ 335 $ 357,103 6.92% Home Mtg Rev 1994 Ser G................................... 7.250 08-01-17 AA- 3,500 3,779,580 6.71 California Pollution Control Financing Auth, Poll Control Rev 1993 Ser B Pacific Gas & Elec Co......... 5.850 12-01-23 A 500 466,640 6.27 Solid Waste Disposal Rev Keller Canyon Landfill Co Proj... 6.875 11-01-27 A 2,000 2,065,780 6.66 California State Public Works Board, Lease Rev 1992 Ser A The Trustees of The Calif State Univ Various University Projs................................ 6.700 10-01-17 A- 1,500 1,537,155 6.54 Lease Rev Ref Depart of Correction 1993 Ser A Calif State Prison............................................ 5.000 12-01-19 AAA 7,970 6,973,112 5.71 California Statewide Communities Development Auth, Ins Cert of Part United Western Medical Centers........... 6.750 12-01-21 A 7,500 7,692,750 6.58 Ins Rev Cert of Part Hlth Facil Aids Proj Los Angeles..... 6.200 08-01-12 A 1,250 1,227,325 6.31 Ins Rev Cert of Part Hlth Facil Aids Proj Los Angeles..... 6.250 08-01-22 A 2,590 2,507,793 6.45 Ins Rev Cert of Part Hlth Facil Eskaton Properties........ 6.700 05-01-11 A 1,250 1,280,800 6.54 Ins Rev Ref Cert of Part Triad Hlthcare Hosp Proj......... 6.500 08-01-22 A 13,000 12,739,480 6.63 Rev Cert of Part California Lutheran Homes................ 5.600 11-15-17 A 2,435 2,199,389 6.20 Rev Cert of Part Catholic Hlthcare West Obligated Group... 5.500 07-01-23 AAA 5,000 4,583,950 6.00 Rev Cert of Part St Joseph Hlth Sys....................... 5.500 07-01-23 AA *1,000 890,570 6.18 Rev Cert of Part Sutter Hlth Oblig Group***............... 5.500 08-15-22 AAA *1,250 1,135,700 6.05 Calleguas-Las Virgines Public Financing Auth, Ref Callegues Municipal Wtr Dist Proj..................... 5.125 07-01-21 AAA 4,500 3,947,310 5.84 Capistrano Unified School District, Spec Tax of Community Facil Dist No 87-1.................. 7.500 09-01-07 BBB** 3,500 3,587,745 7.32 Spec Tax of Community Facil Dist No 87-1.................. 8.375 10-01-20 BBB** 3,000 3,209,100 7.83 Spec Tax of Community Facil Dist No 92-1.................. 7.000 09-01-18 BBB** 1,500 1,467,840 7.15 Central Coast Water Auth, Rev State Wtr Proj Regional Facil Ser 1992................ 6.600 10-01-22 AAA 3,200 3,380,992 6.25 Chula Vista, City of, Ref Cert of Part Town Center II Pkg Proj.................. 6.000 09-01-09 A 775 756,168 6.15 Ref Cert of Part Town Center II Pkg Proj.................. 6.000 09-01-12 A 925 884,827 6.27 Clearlake Redevelopment Agency, Tax Alloc Highlands Park Community Devel Proj............. 6.400 10-01-23 BBB 500 476,165 6.72 Concord Redevelopment Agency, Tax Alloc Central Concord Redevel Proj Sub A.............. 5.750 07-01-10 Baa1 1,145 1,052,152 6.26 Concord, City of, Joint Powers Financing Auth, Lease Rev Concord Police Facil Proj....................... 5.250 08-01-19 A 3,520 2,965,318 6.23 Covina Hospital, Rev Cert of Part Intercommunity Hlth Serv Inc............. 7.000 03-01-17 BBB+ 925 932,585 6.94 Cucamonga School District, Cert of Part.............................................. 7.600 12-01-15 Baa 1,000 1,046,790 7.26 Cupertino, City of, Ref Cert of Part Ser A.................................... 5.750 01-01-16 A+ 2,500 2,302,450 6.24
SEE NOTES TO FINANCIAL STATEMENTS. 13 14 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD INTEREST MATURITY S&P (000'S MARKET AT STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+ -------------------------- -------- -------- ------ --------- ------ ------- CALIFORNIA (CONTINUED) Davis, City of, Redevelopment Agency, Tax Alloc Ref Davis Redevel Proj........................ 7.000% 09-01-24 AAA $ 5,115 $ 5,651,103 6.34% Delano,City of, Cert of Part............................................ 7.000 04-01-10 BBB+ 2,000 2,052,600 6.82 Duarte, City of, Cert of Part City of Hope National Medical Center Proj.. 6.250 04-01-23 Baa1** 13,900 12,645,108 6.87 Elk Grove Unified School District, Spec Tax of Community Facil Dist No. 1.................. 7.125 12-01-24 AAA 1,000 1,105,950 6.44 Encinitas, City of, Cert of Part Civic Center Proj Ser A.................... 6.750 12-01-11 A- 1,300 1,332,565 6.59 Fontana, County of, Spec Tax of Community Facil Dist No 90-3 Empire Center.. 8.400 04-01-15 BB 1,000 1,000,000 8.40 Spec Tax of Community Facil Dist No 90-3 Empire Center.. 8.375 04-01-11 BB 9,500 9,500,000 8.38 Foothill/Eastern Transportation Corridor Agency, Rev Calif Toll Rd Sr Lien Ser A......................... 6.500 01-01-32 BBB- *175 168,656 6.74 Rev Calif Toll Rd Sr Lien Ser A......................... 6.000 01-01-34 BBB- *16,275 14,850,938 6.58 Fresno, City of, Joint Powers Financing Auth, Rev Ser A............................................... 6.550 09-02-12 BBB 2,000 1,987,520 6.59 Hawaiian Gardens Redevelopment Agency, Tax Alloc Ref Proj No. 1................................ 6.200 12-01-23 BBB *5,000 4,475,350 6.93 Industry Urban Development Agency, Tax Alloc Ref Civic Recreational Proj 1-A............... 7.375 05-01-12 A** 910 930,794 7.21 Tax Alloc Ref Trans District Proj 3..................... 6.900 11-01-16 A- 1,020 1,059,994 6.64 Tax Alloc Unref Balance Civic Recreational Proj 1-B..... 7.375 05-01-15 A** 235 239,803 7.23 Inglewood Redevelopment Agency, Tax Alloc Century Redevel Proj Ser A.................... 6.125 07-01-13 BBB 1,000 940,370 6.51 Inglewood, City of, Cert of Part Civic Center Imp Proj...................... 7.000 08-01-19 BBB 1,000 1,027,810 6.81 Lincoln Redevelopment Agency, Tax Alloc Lincoln Redevel Proj.......................... 7.650 08-01-17 BBB+ 915 969,571 7.22 Los Alamitos Unified School District, Spec Tax of Community Facil Dist No 90-1................ 7.150 08-15-21 Baa1** 6,005 6,077,901 7.06 Los Angeles City Department of Water and Power, Elec Plant Rev Ref Second Iss........................... 5.250 11-15-26 AAA *2,650 2,346,628 5.93 Los Angeles Public Works Financing Auth, Rev Regional Park & Open Space District A............... 6.000 10-01-15 AA 3,750 3,642,675 6.18 Los Angeles, County of, Cert of Part Disney Pkg Proj............................ 6.500 03-01-23 A- 2,000 1,997,200 6.51 County Imp No 2656-M.................................... 8.375 09-02-18 BBB** 3,865 4,002,478 8.09 Merced Public Financing Auth, Local Agency Tax Alloc Rev Ser A-1...................... 5.500 12-01-15 A- 3,630 3,241,300 6.16 Metropolitan Water District, Wtr Rev Iss of 1992..................................... 5.000 07-01-20 AA 7,500 6,414,300 5.85
SEE NOTES TO FINANCIAL STATEMENTS. 14 15 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD INTEREST MATURITY S&P (000'S MARKET AT STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+ -------------------------- -------- -------- ------ --------- ------ ------- CALIFORNIA (CONTINUED) Oceanside, City of, Ref Cert of Part Ser A................................... 6.375% 04-01-12 A** $ 3,000 $ 2,991,930 6.39% Ref Cert of Part Ser A................................... 6.000 04-01-17 A** 2,875 2,711,671 6.36 Orange Cove Irrigation District, Cert of Part Rehab Proj.................................. 7.250 02-01-12 BBB 2,000 2,058,420 7.04 Cert of Part Rehab Proj.................................. 7.000 02-01-15 BBB 2,500 2,533,475 6.91 Orange Redevelopment Agency, Rev Ref Tax Alloc Northwest Redevel Proj B............... 5.700 10-01-17 A 3,000 2,530,290 6.76 Orange, County of, Cert of Part Civic Center Exp Proj....................... 6.700 08-01-18 AAA 1,000 1,052,100 6.37 Orange, County of, Development Agency, Tax Alloc Santa Ana Heights Proj......................... 6.125 09-01-23 BBB 3,000 2,671,890 6.88 Palm Springs Financing Auth, Local Agency Rev Ser A................................... 6.400 09-01-17 A- 3,000 2,968,140 6.47 Perris Union High School District, Cert of Part 1993 Proj................................... 5.900 09-01-23 Baa1** 2,000 1,784,400 6.61 Pittsburg Redevelopment Agency, Spec Tax of Community Facil Dist 90-1 California Avenue.. 7.400 08-15-20 BBB 3,040 3,190,450 7.05 Pomona Public Financing Auth, Rev Ref Tax Alloc Southwest Pomona Redevel Ser L......... 5.750 02-01-20 BBB+ 10,000 8,673,300 6.63 Rancho Mirage, City of, Joint Powers Financing Auth, Cert of Part Eisenhower Memorial Hosp.................... 7.000 03-01-22 A** 4,500 4,622,805 6.81 Richmond, City of, Joint Powers Financing Auth, Rev Ser A................................................ 7.700 10-01-10 BBB** 1,835 1,920,034 7.36 Sacramento Municipal Utility District, Elec Rev Ser E........................................... 5.750 05-15-22 A- 2,700 2,505,249 6.20 Sacramento Unified School District, Spec Tax of Community Facil Dist No. 1 Ser B............. 7.300 09-01-13 Baa 760 798,547 6.95 Saddleback Valley Unified School District, Spec Tax of Community Facil Dist No 89-3 Ser A........... 7.750 09-01-16 BBB** 3,200 3,230,560 7.68 San Bernardino, County of, Cert of Part Medical Center Fin Proj..................... 5.500 08-01-17 A- 10,250 8,948,045 6.30 San Diego, City of, Metropolitan Transit Development Board's Auth, Lease Rev Old Town Light Rail Transit Ext.. 5.375 06-01-23 AA- 2,500 2,230,675 6.02 San Diego, County of, Cert of Part Inmate Reception Center & Cooling........... 6.750 08-01-19 AAA 3,000 3,180,090 6.37 San Gabriel Valley School Financing Auth, Lease Rev Ref Pomona Unified School District............. 5.500 02-01-19 A** 1,500 1,333,365 6.19 San Mateo, County of, Joint Powers Financing Auth, Lease Rev Ref Cap Projs.................................. 5.125 07-01-18 AAA 2,500 2,231,800 5.74 Lease Rev Ref Cap Projs.................................. 5.000 07-01-21 AAA 1,815 1,579,649 5.74
SEE NOTES TO FINANCIAL STATEMENTS. 15 16 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD INTEREST MATURITY S&P (000'S MARKET AT STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+ -------------------------- -------- -------- ------ --------- ------ ------- CALIFORNIA (CONTINUED) Santa Ana Financing Auth, Lease Rev Police Admin & Holding Facil Ser A............ 6.250% 07-01-19 AAA $ 1,790 $ 1,855,818 6.03% Lease Rev Police Admin & Holding Facil Ser A............ 6.250 07-01-24 AAA 10,000 10,383,700 6.02 Santa Clarita Community Facilities, Spec Tax of Community Facil Dist No 92-1 Ser A.......... 7.450 11-15-10 BBB** 3,600 3,729,600 7.19 Santa Cruz Public Financing Auth, Rev Tax Alloc Ser B..................................... 6.200 09-01-23 BBB+ 2,000 1,852,460 6.69 Saugus Unified School District, Cert of Part............................................ 7.500 08-01-09 BBB+ 700 737,555 7.12 Sierra Unified School District, Ref Cert of Part Cap Fin Proj........................... 6.000 03-01-12 Baa** 2,000 1,904,720 6.30 Simi Valley Unified School District, Cert of Part Cap Facil Proj............................. 6.100 08-01-22 A** 3,000 2,847,810 6.43 Southern California Home Financing Auth, Single Family Mtg Rev GNMA & FNMA Mtg Backed Ser A...... 6.750 09-01-22 AAA 850 867,187 6.62 Southern California Public Power Auth, Rev Unref Balance Pwr Proj.............................. 5.500 07-01-20 A 800 716,248 6.14 Stanislaus Waste To Energy Financing Agency, Solid Waste Rev Ref Ogden Martin Sys Inc Proj........... 7.625 01-01-10 BBB+ 985 1,047,400 7.17 Stanislaus, County of, Ref Cert of Part........................................ 7.550 04-01-18 A- 2,295 2,372,020 7.30 Suisun City Redevelopment Agency, Tax Alloc Suisan City Redevel Proj...................... 7.250 10-01-20 A- 425 474,959 6.49 Tracy Community Development Proj, Tax Alloc Community Devel Proj Ser A.................... 6.000 03-01-24 BAA** 5,000 4,526,650 6.63 Turlock Irrigation District, Cert of Part............................................ 7.300 01-01-11 A- 4,165 4,293,282 7.08 University of California, The Regents of, Ref Cert of Part UCLA Central Chiller/ Congeneration Facil................................... 5.600 11-01-20 AA** 6,180 5,556,314 6.23 Ref Cert of Part UCLA Central Chiller/ Congeneration Facil................................... 5.500 11-01-14 AA** 2,000 1,818,200 6.05 Upland Housing Auth, Rev Iss A............................................... 7.500 07-01-03 BBB** 190 198,748 7.17 Rev Iss A............................................... 7.850 07-01-20 BBB** 1,280 1,305,574 7.70 Vallejo Sanitation & Flood Control District, Cert of Part............................................ 5.000 07-01-19 AAA 8,000 6,925,360 5.78 Vallejo, City of, Cert of Part............................................ 8.000 02-01-06 BBB-** 2,000 2,041,340 7.84 Victor Valley Unified High School District, Cert of Part............................................ 7.875 11-01-12 A** 1,255 1,361,901 7.26 ------------ 323,122,556 ------------
SEE NOTES TO FINANCIAL STATEMENTS. 16 17 FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund
PAR VALUE YIELD INTEREST MATURITY S&P (000'S MARKET AT STATE, ISSUER, DESCRIPTION RATE DATE RATING OMITTED) VALUE MARKET+ -------------------------- -------- -------- ------ --------- ------ ------- PUERTO RICO (0.57%) Puerto Rico Public Building Auth, Gtd Rev Govt Facil Ser A................................ 5.500% 07-01-21 AAA $*2,000 $ 1,894,280 5.81% ------------ TOTAL TAX-EXEMPT LONG TERM BONDS (Cost $330,286,540) (97.33%) 325,016,836 ------- ------------ TOTAL INVESTMENTS (97.33%) $325,016,836 ======= ============ NOTES TO SCHEDULE OF INVESTMENTS * Securities, other than short term investments, newly added to the portfolio, during the six months ended June 30, 1995. ** Credit ratings are rated by Moody's Investors Services or John Hancock Advisers, Inc. where Standard & Poor's ratings are not available. NR Not rated. *** This security, having an aggregate value of $1,135.700 or 0.34% of the Fund's net asset value, has been purchased as a forward commitment - that is, the Fund has agreed, on trade date, to take delivery of and make payment for such security 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 a current value at least equal to the amount of its forward committment. Accordingly, the market value of $1,280,800 of California Statewide Communities Development Auth, Ins Rev Cert of Part Hlth Facil Eskaton Properties, 6.700%, 05-01-11, has been segregated to cover the forward committment. + The yield is not calculated with guidelines established by the U.S. Securities Exchange Commission. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS. 17 18 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 JUNE 30, 1995 ASSIGNED TO THE VARIOUS SECTOR CATEGORIES.
MARKET VALUE AS A PERCENTAGE OF SECTOR DISTRIBUTION THE FUND'S NET ASSETS: ------------------- ----------------------------- Revenue Bonds - Certificate of Participation................................................ 15.26% Revenue Bonds - Education................................................................... 9.44 Revenue Bonds - Electric Power.............................................................. 0.97 Revenue Bonds - Health...................................................................... 22.81 Revenue Bonds - Housing..................................................................... 1.95 Revenue Bonds - Other....................................................................... 33.46 Revenue Bonds - Pollution Control Facilities................................................ 1.07 Revenue Bonds - Transportation.............................................................. 5.17 Revenue Bonds - Water & Sewer............................................................... 7.20 ----- TOTAL TAX-EXEMPT LONG-TERM BONDS 97.33% =====
SEE NOTES TO FINANCIAL STATEMENTS. 18 19 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 investment management company registered under the Investment Company Act of 1940. The Trustees have authorized the issuance of two classes of the Fund, designated as Class A and Class B. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights to voting, redemption, 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/service expenses under the terms of a distribution plan, have exclusive voting rights regarding such distribution plan. Class A shares are subject to an initial sales charge of up to 4.50% and a 12b-1 distribution plan. Prior to May 15, 1995, the maximum sales charge was 4.75%. Class B shares are subject to a contingent deferred sales charge and a separate 12b-1 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 investments, to its shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has approximately $268,000 of capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. If such carryforwards are used by the Fund, no capital gain distribution will be made. The carryforward expires December 31, 2002. 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 as explained previously. CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains (losses) are determined at the Fund level and allocated daily to each class of shares based on the appropriate net assets of the respective classes. Distribution/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 of each class. FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures contracts for speculative purposes and/or to hedge against the effects of fluctuations in interest rates and other market conditions. At the time the Fund enters into a financial futures contract, it is 19 20 NOTES TO FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund required to deposit with its custodian a specified amount of cash or U.S. government securities, known as "initial margin", equal to a certain percentage of the value of the financial futures contract being traded. Each day, the futures contract is valued at the official settlement price of the board of trade or U.S. commodities exchange. 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", are recorded by the Fund as unrealized gains or losses. When the contracts are closed, the Fund recognizes a gain or loss. Risks of entering into futures contracts include the possibility that there may be an illiquid market and/or that a change in the value of the contract 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 fluctuations 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 transactions. At June 30, 1995, open positions in financial futures contracts were as follows:
UNREALIZED APPRECIATION EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION) ---------- -------------- -------- -------------- SEPTEMBER 1995 40 US TREASURY BONDS SHORT ($135,000) SEPTEMBER 1995 90 MUNICIPAL BONDS SHORT 82,813 --------- (52,187) =========
At June 30, 1995, the Fund has deposited in a segregated account $215,000 to cover margin requirements on open financial futures contracts. 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 the time of disposition. 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. In the event normal operating expenses of the Fund, exclusive of certain expenses prescribed by state law, are in excess of the most restrictive state limit where the Fund is registered to sell shares, the fee payable to the Adviser will be reduced to the extent of such excess, and the Adviser will make additional arrangements necessary to eliminate any remaining excess expenses. The current limits are 2.5% of the first $30,000,000 of the Fund's average daily net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average daily net asset value. The Adviser has temporarily agreed to continue to limit the Fund's operating expenses to 0.75% and 1.50% of the average net assets attributable to Class A and Class B, respectively. Accordingly, for the period ended June 30, 1995, the reduction in the Fund's expenses collectively with any additional amounts not borne by the Fund by virtue of the expense limit amounted to $223,994. The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH Funds"), a wholly-owned subsidiary of the Adviser. For the period ended June 30, 1995, JH Funds received net sales charges on sales of Class A shares of the Fund in the amount of $265,595. Out of this amount, $31,330 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $231,015 was paid as sales commissions and service fees to unrelated broker-dealers and $3,250 was paid as sales commissions and service fees to sales personnel of John Hancock Distributors, Inc. 20 21 NOTES TO FINANCIAL STATEMENTS John Hancock Funds - California Tax-Free Income Fund ("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"). Distributors is a wholly-owned subsidiary of John Hancock Funds. The Adviser's indirect parent, John Hancock Mutual Life Insurance Company, is the indirect sole shareholder of Distributors and John Hancock Freedom Securities Corporation and its subsidiaries, which include Tucker Anthony and Sutro, all of which are broker-dealers. Class B shares which are redeemed within six years of purchase will be subject to a contingent deferred sales charge ("CDSC") at declining rates beginning at 5.0% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from 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 June 30, 1995, contingent deferred sales charges received by Broker Services amounted to $348,507. In addition, to compensate JH Funds for the services it provides as distributors of shares of the Fund, the Fund has adopted Distribution Plans with respect to Class A and Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for distribution and service expenses 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. John Hancock 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 these 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 Board of Trustees approved a shareholder servicing agreement between the Fund and John Hancock Investor Services Corporation ("Investor Services"), a wholly owned subsidiary of The Berkeley Financial Group, for the period between December 22, 1994 and May 12, 1995, inclusive under which Investor Services processed telephone transactions on behalf of the Fund. As of May 15, 1995, the Fund entered into a full service transfer agent agreement with Investor Services. Prior to this date The Shareholder Services Group was the transfer agent. The Fund will pay Investor Services a fee based on the number of shareholder accounts and certain out-of-pocket expenses. Mr. Edward J. Boudreau is a director and officer of the Adviser and 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 will make investments into other John Hancock funds, as applicable, to cover its liability with regard to the deferred compensation. Investments to cover the Fund's deferred compensation liability will be recorded on the Fund's books as an other asset. The deferred compensation liability will be marked to market on a periodic basis and income earned by the investment will be recorded on the Fund's books. The Fund has an independent advisory board composed of certain members of the former Transamerica Board of Trustees who provide advice to the current Trustees in order to facilitate a smooth management transition for which the Fund pays the advisory board and its counsel a fee. 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 June 30, 1995, aggregated $55,454,065 and $71,198,195, respectively. There were no purchases or sales of long-term obligations of the U.S. government and its agencies during the period ended June 30, 1995. The cost of investments owned at June 30, 1995 for Federal income tax purposes was $330,286,540. Gross unrealized appreciation and depreciation of investments aggregated $5,268,681 and $10,538,385, respectively, resulting in net unrealized depreciation of $5,269,704. 21 22 NOTES John Hancock Funds - California Tax-Free Income Fund 22 23 NOTES John Hancock Funds - California Tax-Free Income Fund 23 24 Bulk Rate U.S. Postage PAID Brockton, MA Permit No. 582 [A 1/2" x 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 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 caption "Printed on Recycled Paper."] JHD 530SA 6/95