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.
<TABLE>
<CAPTION>
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)
- -----------------------------------------------------------------
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
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)
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
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)
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
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)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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.
<CAPTION>
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)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
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+
- -------------------------- -------- -------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
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:
- ------------------- ---------------
<S> <C>
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.
</TABLE>
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.
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