The latest report from your
Fund's management team
ANNUAL REPORT
California
Tax-Free
Income Fund
AUGUST 31, 2000
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS".]
TRUSTEES
Stephen L. Brown
James F. Carlin*
William H. Cunningham
Ronald R. Dion*
Maureen R. Ford
Charles L. Ladner
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan
*Members of the Audit Committee
OFFICERS
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman, President and
Chief Executive Officer
Osbert M. Hood
Executive Vice President and
Chief Financial Officer
William L. Braman
Executive Vice President and
Chief Investment Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank and Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman, President
and Chief Executive Officer, flush right next to second
paragraph.]
DEAR FELLOW SHAREHOLDERS:
After providing investors with sky-high returns for the last five years,
the financial markets have brought investors back down to earth in 2000.
Volatility ruled during the spring, as rising interest rates and
prospects of a slowing economy finally caught up to pricey growth
stocks. As a result, the tech-heavy NASDAQ Composite Index advanced by
only 3.37% through the end of August, while the Dow Jones Industrial
Average lost 1.46% and the Standard & Poor's 500 Index was up 4.12%.
But there is a silver lining. Investors have finally turned their
attention to broader swaths of the market, including both blue chip and
old economy stocks in sectors like financials, health care and energy,
that combined both strong fundamentals and less frothy valuation levels.
As for bonds, rising interest rates have kept the broader bond market in
flux, but pockets of strength have emerged there, as well, including
municipal bonds and longer-maturity Treasury bonds. The 30-year bond,
for instance, has returned 14.28% since January.
Between now and year end, we expect the market's focus to be on
Washington, as it usually is in an election year. While the presidential
election is important, what warrants more attention is the Federal
Reserve Board. The November election will generate more ink, but won't
have anywhere near the impact on financial markets that further Fed
action could. So we'll be watching the economic data to see whether the
Fed has truly wound down its string of interest-rate hikes.
The market's shifts in leadership so far this year highlight one of the
key investment tenets that we can't emphasize enough: investing should
be a marathon, not a sprint. If your portfolio is diversified and you
have an up-to-date financial plan crafted with an investment
professional to meet your goals, it becomes easier to ride out the
market's short-term ups and downs. It could also provide you with a
greater chance of success over time.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY DIANNE SALES, CFA, BARRY H. EVANS, CFA, AND
FRANK LUCIBELLA, CFA, PORTFOLIO MANAGERS
[A 3" x 2" photo at bottom right side of page of John Hancock
California Tax-Free Income Fund. Caption below reads "Fund
management team members (l-r): Dianne Sales, Barry Evans and
Frank Lucibella."]
John Hancock California
Tax-Free Income Fund
Municipal bonds rebound as economy slows
For much of the period, municipal bonds struggled under the weight of
rising interest rates as the Federal Reserve attempted to put the brakes
on inflationary pressures and the robust U.S. economy. In May, however,
with preliminary signs that the economy could be headed for a soft
landing and inflation was under control, the tide started to turn for
municipal bonds. Hopes that the Fed's tightening was coming to an end
fueled a rally in municipal bonds.
Another positive factor boosting munis was the increasingly favorable
supply/demand situation. With state and local government issuing, on
average, about 20% less debt this year, supply hasn't been able to keep
pace with the demand surge that occurred as the market rallied. This
phenomenon has driven prices higher in the municipal market, especially
in recent months.
Despite their recent turnaround, municipal bonds weren't able to keep
pace with their taxable counterparts. A shrinking supply of 30-year U.S.
Treasuries drove prices up and yields down on the long end of the yield
curve while interest rates rose on the short end. The end result was a
rare inversion of the yield curve -- when short-term bonds pay higher
interest rates than long-term bonds. As a result, long-term Treasuries
became more attractive than munis.
"Another
positive factor
boosting
munis was the
increasingly
favorable
supply/demand
situation."
A look at performance
Although municipal bonds didn't fare as well as their taxable
counterparts, they still posted solid returns for the period. For the
year ended August 31, 2000, John Hancock California Tax-Free Income
Fund's Class A, Class B and Class C shares returned 5.93%, 5.14% and
5.03%, respectively, at net asset value. By comparison, the average
California municipal bond fund returned 6.47% for the same period,
according to Lipper, Inc.1 Keep in mind that your net asset value return
will be different from the Fund's performance if you were not invested
in the Fund for the entire period and did not reinvest all
distributions. Please see pages six and seven for historical performance
information.
[Pie chart at top left hand column with heading "Portfolio
Diversification." The chart is divided into eleven sections
(from top to left): Facility 2%, Housing 4%, Authority 4%,
General Obligation 5%, Correctional Facility 5%, Electric 6%,
Education 7%, Transportation 10%, Water & Sewer 11%, Health
13% and Other 33%. A note below the chart reads "As a
percentage of net assets on August 31, 2000."]
"...we have
recently
begun to
increase the
Fund's
interest-rate
sensitivity..."
While the Fund turned in respectable returns for the year, a couple of
things held performance back. In anticipation of further interest-rate
increases, we kept the Fund positioned relatively defensively with a
shorter duration. Duration measures the Fund's sensitivity to
interest-rate changes. The shorter the duration, the less the Fund's net
asset value will fluctuate with interest-rate changes. While the shorter
duration definitely helped to protect the Fund early in the period when
rates were rising, it held back our performance when munis rebounded
this spring. In addition, we had a sizeable position in lower-quality
credits, which underperformed during the period. As interest rates rose
in the past year, many investors deserted lower-grade bonds for higher
credit quality, resulting in widening credit spreads. As a result,
lower-rated bonds lagged and our position in this arena hampered
performance. Finally, one of our holdings -- Safety Kleen -- defaulted
on its bond payments. In March, the company announced several accounting
irregularities and was forced to move into bankruptcy.
[Table at bottom of left hand column entitled "Scorecard".
The header for the left column is "Investment" and the header
for the right column is "Recent Performance...and What's
Behind the Numbers". The first listing is Health-care bonds
followed by a down arrow with the phrase "Reimbursement
reductions, HMO difficulties." The second listing is Top-tier
credits (AA or better) followed by an up arrow with the
phrase "Investors sought quality over yield." The third
listing is Call-protected bonds followed by an up arrow with
the phrase "Decreased availability boosts value." A note
below the table reads "See 'Schedule of Investments.'
Investment holdings are subject to change."]
Responding to market dynamics
With market dynamics shifting throughout the period, we responded by
shifting the portfolio strategy. As we discussed above, we decreased the
Fund's interest-rate sensitivity by shortening our duration early in the
period, when interest rates were climbing. While in hindsight we waited
too long to lengthen our duration, we have recently begun to increase
the Fund's interest-rate sensitivity at the longer end of the market.
Evidence of a slowing economy is gradually building, and we believe the
Fed is at or near the end of the tightening cycle. With this outlook,
there is substantial upside potential in the municipal market, and an
increased sensitivity to rate changes will prepare the Fund to take
advantage of this change.
While our lower-quality holdings did detract somewhat from our total
return performance this year, we plan to maintain our stake in these
names. This sector has provided an important source of total return and
interest income to the Fund. As interest rates decline again, we expect
this sector to return to its position as a major contributor to
performance.
[Bar chart at top of left hand column with heading "Fund
Performance". Under the heading is a note that reads "For the
year ended August 31, 2000." The chart is scaled in
increments of 1% with 0% at the bottom and 7% at the top. The
first bar represents the 5.93% total return for John Hancock
California Tax-Free Income Fund Class A. The second bar
represents the 5.14% total return for John Hancock California
Tax-Free Income Fund Class B. The third bar represents the
5.03% total return for John Hancock California Tax-Free
Income Fund Class C. The fourth bar represents the 6.47%
total return for Average California municipal bond fund. A
note below the chart reads "Total returns for John Hancock
California Tax-Free Income Fund are at net asset value with
all distributions reinvested. The average California
municipal bond fund is tracked by Lipper, Inc.1 See the
following two pages for historical performance information."]
Finally, as we've discussed in past reports, we've continued to focus on
adding more call protection to the Fund. Call protection guards against
a bond being redeemed by its issuer for a certain period of time. Good
call protection is especially important in periods when interest rates
are falling because issuers often try to refinance their bonds at lower
interest rates. If a bond gets "called away" or redeemed early,
investors are forced to reinvest their money in bonds with lower yields.
With the economy slowing, we believe that interest rates are at some
point likely to resume their decline. When that happens, the Fund will
be well positioned with strong call protection.
California market
The California municipal market has outperformed the national tax-free
market as its higher tax rates have fueled strong demand for munis.
What's more, the state's economy is in excellent shape. In fact, Fitch
IBCA upgraded its credit rating to AA during the period. Looking ahead,
we expect to see economic growth start to taper off, especially given
the difficulties in some of the state's technology and dot-com
companies. However, because the state's economy is so strong and
diverse, we do not expect to see the economy fall into a recession, but
rather pull back slowly from its robust levels.
"The California
municipal
market has
outperformed
the national
tax-free
market..."
A look ahead
On a national level, evidence is mounting that the U.S. economy is
beginning to slow. Clearly the Federal Reserve is aiming for a soft
landing, and it has been successful in achieving this with its past
tightening cycles. However, after six rate increases, the Fed is likely
approaching the tail end of this cycle. This should bode well for bonds
over the next six to 12 months. We have always felt that the latter part
of 2000 would bring an improved scenario for bonds. Indeed, the recent
volatility in the equity markets has led many investors to reconsider
their asset allocation and to increase their bond holdings in order to
add more stability to their portfolios.
------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock California Tax-Free
Income Fund. Total return measures the change in value of an investment
from the beginning to the end of a period, assuming all distributions
were reinvested.
For Class A shares, total return figures include an up-front maximum
applicable sales charge of 4.50%. Class B performance reflects a maximum
contingent deferred sales charge (maximum 5% and declining to 0% over
six years). Class C performance includes an up-front sales charge of 1%
and a contingent deferred sales charge (1% declining to 0% after one
year).
All figures represent past performance and are no guarantee of future
results. Keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may
be worth more or less than their original cost, depending on when you
sell them. Please read your prospectus carefully before you invest or
send money.
Please note that a portion of the Fund's income may be subject to taxes,
and some investors may be subject to the Alternative Minimum Tax (AMT).
Also note that capital gains are taxable.
CLASS A
For the period ended June 30, 2000
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
Cumulative Total Returns (2.40%) 29.26% 90.27%
Average Annual Total Returns(1) (2.40%) 5.27% 6.64%
CLASS B
For the period ended June 30, 2000
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
----- ----- ---------
Cumulative Total Returns (3.39%) 28.30% 59.62%
Average Annual Total Returns(1) (3.39%) 5.11% 5.66%
CLASS C
For the period ended June 30, 2000
SINCE
ONE INCEPTION
YEAR (4/1/99)
----- ---------
Cumulative Total Returns (0.65%) (1.77%)
Average Annual Total Returns(1) (0.65%) (1.42%)
YIELDS
As of August 31, 2000
SEC 30-DAY
YIELD
----------
John Hancock California Tax-Free Income Fund: Class A(1) 4.41%
John Hancock California Tax-Free Income Fund: Class B(1) 3.88%
John Hancock California Tax-Free Income Fund: Class C(1) 3.73%
Note to Performance
(1) The Adviser voluntarily reduced a portion of the management fee, the
Distributor reduced the distribution and service fees applicable to
Class B shares and the custodian fees were offset with balance credits
during the periods shown. Without the reduction of expenses and the
offset, the average annual total returns for the one-year, five-year and
ten-year periods for Class A shares would have been (2.49%), 5.19% and
6.46%, respectively. Without the reduction of expenses and the offset,
the average annual total returns for the one-year, five-year and since
inception periods for Class B shares would have been (3.57%), 5.00% and
5.51%, respectively. Without the reduction of expenses and the offset,
the average annual total return for the one-year and since inception
periods for Class C shares would have been (0.73%) and (1.50%),
respectively. Without the reduction of expenses and the offset, the
yield for Class A, Class B and Class C shares would have been 4.32%,
3.79% and 3.64%, 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, assuming all
distributions were reinvested for the period indicated. For comparison,
we've shown the same $10,000 investment in the Lehman Brothers Municipal
Bond Index -- an unmanaged index that includes approximately 15,000
bonds and is commonly used as a measure of bond performance. It is not
possible to invest in an index. Past performance is not indicative of
future results.
Line chart with the heading John Hancock California Tax-Free
Income Fund Class A, representing the growth of a
hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines. The first line represents
the value of the hypothetical $10,000 investment made in the
John Hancock California Tax-Free Income Fund on August 31,
1990, before sales charge, and is equal to $20,712 as of
August 31, 2000. The second line represents the Lehman
Brothers Municipal Bond Index and is equal to $20,375 as of
August 31, 2000. The third line represents the value of the
same hypothetical investment made in the John Hancock
California Tax-Free Income Fund, after sales charge, and is
equal to $19,780 as of August 31, 2000.
Line chart with the heading John Hancock California Tax-Free
Income Fund Class B*, representing the growth of a
hypothetical $10,000 investment over the life of the fund.
Within the chart are two lines. The first line represents the
Lehman Brothers Municipal Bond Index and is equal to $17,408
as of August 31, 2000. The second line represents the value
of the hypothetical $10,000 investment made in the John
Hancock California Tax-Free Income Fund on December 31, 1991,
before sales charge, and is equal to $16,406 as of August 31,
2000.
Line chart with the heading John Hancock California Tax-Free
Income Fund Class C*, representing the growth of a
hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines. The first line represents
the Lehman Brothers Municipal Bond Index and is equal to
$10,443 as of August 31, 2000. The second line represents the
value of the hypothetical $10,000 investment made in the John
Hancock California Tax-Free Income Fund on April 1, 1999,
before sales charge, and is equal to $10,213 as of August 31,
2000. The third line represents the value of the same
hypothetical investment made in the John Hancock California
Tax-Free Income Fund, after sales charge, and is equal to
$10,111 as of August 31, 2000.
*No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
John Hancock Funds -- California Tax-Free Income Fund
<TABLE>
<CAPTION>
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 August 31,
2000. You'll also find the net asset value and the maximum offering
price per share as of that date.
Statement of Assets and Liabilities
August 31, 2000
--------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Tax-exempt long-term bonds
(cost -- $350,522,983) $372,957,365
Joint repurchase agreement
(cost -- $6,141,000) 6,141,000
-----------------
379,098,365
Cash 335
Receivable for investments sold 5,477,600
Receivable for shares sold 186,643
Interest receivable 5,022,080
Other assets 108,186
-----------------
Total Assets 389,893,209
-----------------
Liabilities:
Payable for shares repurchased 405,105
Dividend payable 26,468
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B 191,271
Accounts payable and accrued expenses 131,173
-----------------
Total Liabilities 754,017
-----------------
Net Assets:
Capital paid-in 377,474,915
Accumulated net realized loss on
investments and financial futures
contracts (10,818,633)
Net unrealized appreciation of
investments 22,434,382
Undistributed net investment income 48,528
-----------------
Net Assets $389,139,192
=================
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 -- $305,754,361/28,609,351 $10.69
==============================================================
Class B -- $80,632,778/7,544,787 $10.69
==============================================================
Class C -- $2,752,053/257,509 $10.69
==============================================================
Maximum Offering Price Per Share
Class A * -- ($10.69/0.955) $11.19
==============================================================
Class C -- ($10.69/0.99) $10.80
==============================================================
* 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
Year ended August 31, 2000
--------------------------------------------------------------
<S> <C>
Investment Income:
Interest $23,271,088
-----------------
Expenses:
Investment management fee -- Note B 2,084,812
Distribution and service fee -- Note B
Class A 438,750
Class B 850,722
Class C 14,847
Transfer agent fee -- Note B 221,578
Custodian fee 102,301
Legal and accounting services fee -- Note B 72,978
Auditing fee 35,830
Miscellaneous 23,798
Printing 19,861
Trustees' fees 18,995
Registration and filing fees 9,446
Interest expense -- Note A 9,357
Legal fees 3,274
Less: Management Fee Reduction -- Note B (323,402)
Distribution and Service Fee
Reduction -- Note B
Class B (85,072)
-----------------
Total Expenses 3,498,075
-----------------
Less Expense Reductions -- Note B (867)
-----------------
Net Expenses 3,497,208
-----------------
Net Investment Income 19,773,880
-----------------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized loss on investments sold (799,211)
Change in net unrealized
appreciation/depreciation of
investments 1,419,502
-----------------
Net Realized and Unrealized Gain on
Investments 620,291
-----------------
Net Increase in Net Assets Resulting
from Operations $20,394,171
=================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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.
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------
1999 2000
---------------------------------------------------------------------------------------------------------------------------
<S>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $20,023,767 $19,773,880
Net realized loss on investments
sold and financial futures
contracts (115,392) (799,211)
Change in net unrealized
appreciation/depreciation of
investments (20,298,117) 1,419,502
----------------- -----------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (389,742) 20,394,171
----------------- -----------------
Distributions to Shareholders:
Distributions from net
investment income
Class A -- ($0.5609 and $0.5622
per share, respectively) (15,529,991) (15,772,201)
Class B -- ($0.4778 and $0.4840
per share, respectively) (4,487,984) (3,935,224)
Class C** -- ($0.1843 and $0.4731
per share, respectively) (5,792) (66,455)
----------------- -----------------
Total Distributions to
Shareholders (20,023,767) (19,773,880)
----------------- -----------------
From Fund Share Transactions -- Net:* 27,533,302 (17,656,587)
----------------- -----------------
Net Assets:
Beginning of period 399,055,695 406,175,488
----------------- -----------------
End of period (including
undistributed net investment
income of $47,553 and $48,528,
respectively) $406,175,488 $389,139,192
================= =================
<CAPTION>
Statement of Changes in Net Assets (continued)
---------------------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------------
1999 2000
--------------------------------------- ---------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 4,985,184 $55,160,981 4,749,637 $49,524,647
Shares reinvested 667,420 7,379,055 681,546 7,098,714
----------------- ----------------- ----------------- -----------------
5,652,604 62,540,036 5,431,183 56,623,361
Less shares repurchased (3,703,124) (40,923,038) (5,614,981) (58,440,883)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) 1,949,480 $21,616,998 (183,798) ($1,817,522)
================= ================= ================= =================
CLASS B
Shares sold 2,523,120 $28,092,730 1,107,617 $11,560,941
Shares reinvested 218,896 2,402,251 162,583 1,694,262
----------------- ----------------- ----------------- -----------------
2,742,016 30,494,981 1,270,200 13,255,203
Less shares repurchased (2,300,517) (25,454,751) (2,972,879) (30,940,197)
----------------- ----------------- ----------------- -----------------
Net increase (decrease) 441,499 $5,040,230 (1,702,679) ($17,684,994)
================= ================= ================= =================
CLASS C**
Shares sold 80,521 $874,475 190,830 $1,990,965
Shares reinvested 148 1,599 1,617 16,908
----------------- ----------------- ----------------- -----------------
80,669 876,074 192,447 2,007,873
Less shares repurchased -- -- (15,607) (161,944)
----------------- ----------------- ----------------- -----------------
Net increase 80,669 $876,074 176,840 $1,845,929
================= ================= ================= =================
** Class C shares commenced operations on April 1, 1999.
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:
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31,
DECEMBER 31, AUGUST 31, -----------------------------------------------------------
1995 1996(1) 1997 1998 1999 2000
------------- ------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning
of Period $9.28 $10.69 $10.36 $10.77 $11.19 $10.65
------------- ------------- ----------- ------------- ------------- -----------
Net Investment Income(2) 0.57 0.39 0.57 0.56 0.56 0.56
Net Realized and Unrealized
Gain (Loss) on Investments
and Financial Futures
Contracts 1.41 (0.33) 0.41 0.42 (0.54) 0.04
------------- ------------- ----------- ------------- ------------- -----------
Total from Investment
Operations 1.98 0.06 0.98 0.98 0.02 0.60
------------- ------------- ----------- ------------- ------------- -----------
Less Distributions:
Dividends from Net
Investment Income (0.57) (0.39) (0.57) (0.56) (0.56) (0.56)
------------- ------------- ----------- ------------- ------------- -----------
Net Asset Value, End of
Period $10.69 $10.36 $10.77 $11.19 $10.65 $10.69
============= ============= =========== ============= ============= ===========
Total Investment Return at
Net Asset Value(3) 21.88% 0.61%(4) 9.71% 9.32% 0.11% 5.93%
Total Adjusted Investment
Return at Net Asset Value(3,5) 21.73% 0.55%(4) 9.64% 9.26% 0.04% 5.84%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $309,305 $291,072 $291,167 $300,483 $306,786 $305,754
Ratio of Expenses to Average
Net Assets 0.75% 0.76%(6,7) 0.75% 0.77%(7) 0.76%(7) 0.75%
Ratio of Adjusted Expenses
to Average Net Assets(8) 0.90% 0.84%(6) 0.82% 0.83% 0.82% 0.84%
Ratio of Net Investment
Income to Average Net
Assets 5.76% 5.57%(6) 5.42% 5.05% 5.06% 5.39%
Ratio of Adjusted Net
Investment Income to
Average Net Assets(8) 5.61% 5.48%(6) 5.35% 4.99% 4.99% 5.30%
Portfolio Turnover Rate 37%(9) 30% 15% 10% 3% 11%
Fee Reduction Per Share(2) $0.01 $0.01 $0.01 $0.01 $0.01 $0.01
The Financial Highlights summarizes the impact of the following factors
on a single share for each period indi cated: 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 rela tionships
between some items presented in the financial statements are expressed
in ratio form.
<CAPTION>
Financial Highlights (continued)
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED AUGUST 31,
DECEMBER 31, AUGUST 31, -----------------------------------------------------------
1995 1996(1) 1997 1998 1999 2000
------------- ------------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $9.28 $10.68 $10.36 $10.77 $11.19 $10.65
------------- ------------- ----------- ------------- ------------- -----------
Net Investment Income(2) 0.50 0.33 0.49 0.47 0.48 0.48
Net Realized and Unrealized
Gain (Loss) on Investments
and Financial Futures
Contracts 1.40 (0.31) 0.41 0.42 (0.54) 0.04
------------- ------------- ----------- ------------- ------------- -----------
Total from Investment
Operations 1.90 0.02 0.90 0.89 (0.06) 0.52
------------- ------------- ----------- ------------- ------------- -----------
Less Distributions:
Dividends from Net
Investment Income (0.50) (0.34) (0.49) (0.47) (0.48) (0.48)
------------- ------------- ----------- ------------- ------------- -----------
Net Asset Value, End of
Period $10.68 $10.36 $10.77 $11.19 $10.65 $10.69
============= ============= =========== ============= ============= ===========
Total Investment Return at
Net Asset Value(3) 20.87% 0.20%(4) 8.88% 8.50% (0.63%) 5.14%
Total Adjusted Investment
Return at Net Asset Value(3,5) 20.72% 0.14%(4) 8.81% 8.44% (0.80%) 4.95%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $84,673 $83,253 $89,493 $98,572 $98,530 $80,633
Ratio of Expenses to Average
Net Assets 1.50% 1.52%(6,7) 1.50% 1.52%(7) 1.51%(7) 1.50%
Ratio of Adjusted Expenses
to Average Net Assets(8) 1.65% 1.59%(6) 1.57% 1.58% 1.67% 1.69%
Ratio of Net Investment
Income to Average Net
Assets 4.97% 4.81%(6) 4.66% 4.29% 4.31% 4.64%
Ratio of Adjusted Net
Investment Income to
Average Net Assets(8) 4.82% 4.72%(6) 4.59% 4.23% 4.14% 4.45%
Portfolio Turnover Rate 37%(9) 30% 15% 10% 3% 11%
Fee Reduction Per Share(2) $0.01 $0.01 $0.01 $0.01 $0.01 $0.01
<CAPTION>
Financial Highlights (continued)
-----------------------------------------------------------------
PERIOD ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1999(11) 2000
------------- -------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning
of Period $11.14 $10.65
------------- -------------
Net Investment Income(2) 0.18 0.47
Net Realized and Unrealized
Gain (Loss) on Investments
and Financial Futures
Contracts (0.49) 0.04
------------- -------------
Total from Investment
Operations (0.31) 0.51
------------- -------------
Less Distributions:
Dividends from Net
Investment Income (0.18) (0.47)
------------- -------------
Net Asset Value, End of
Period $10.65 $10.69
============= =============
Total Investment Return at
Net Asset Value(3) (2.77%)(4) 5.03%
Total Adjusted Investment
Return at Net Asset Value(3,5) (2.80%)(4) 4.94%
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $860 $2,752
Ratio of Expenses to Average
Net Assets 1.61%(6,7) 1.60%
Ratio of Adjusted Expenses
to Average Net Assets(8) 1.67%(6) 1.69%
Ratio of Net Investment
Income to Average Net Assets 4.20%(6) 4.54%
Ratio of Adjusted Net
Investment Income to
Average Net Assets(8) 4.13%(6) 4.45%
Portfolio Turnover Rate 3% 11%
Fee Reduction Per Share(2) $0.01 $0.01
(1) Effective August 31, 1996, the fiscal period end changed from
December 31 to August 31.
(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) Not annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
(6) Annualized.
(7) For the periods or years ended on or after August 31, 1996, the
ratio of expenses to average net assets for the Fund excludes the effect
of balance credits described in Note B. If these expense reductions were
included, the ratio of expenses to average net assets would have been
0.75% for Class A, 1.50% for Class B and 1.60% for Class C for the
periods or years ending from August 31, 1996 to August 31, 1999. For the
year ended August 31, 2000, the ratio of expenses to average net assets
for the Fund also includes the effect of balance credits, which would
have been less than 0.01% for Class A, Class B and Class C.
(8) Unreimbursed, without fee reduction.
(9) Portfolio turnover excludes merger activity.
(10) Class C shares began operations on April 1, 1999.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
August 31, 2000
-----------------------------------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by California Tax-Free Income Fund on August 31, 2000. It has two main
categories: tax-exempt long-term bonds and short-term investments. The
tax-exempt long-term bonds are broken down by state or territory. Under
each state or territory is a list of the securities owned by the Fund.
Short-term investments, which represent the Fund's "cash" position, are
listed last.
PAR VALUE YIELD
INTEREST MATURITY CREDIT (000s MARKET AT
STATE, ISSUER, DESCRIPTION RATE DATE RATING* OMITTED) VALUE MARKET +
-------------------------- --------- -------- ------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT LONG-TERM BONDS
California (88.04%)
ABAG Finance Auth for Nonprofit Corps., Cert of
Part Peninsula Family YMCA Ser A 6.800% 10-01-11 A3 $940 $984,575 6.49%
Cert of Part Nat'l Center for Int'l Schools Proj 7.375 05-01-18 BB+ 4,300 4,565,052 6.95
Alameda, County of, Cert of Part Cap Projs 6.750 06-01-16 A2 500 532,305 6.34
Anaheim Public Financing Auth, Sub Lease Rev 1997
Cap Apprec Ser C
Anaheim Pub Imp Proj Zero 09-01-18 AAA 3,000 1,141,680 5.44
Anaheim, City of, Cert of Part Ref Reg Rites
Convention Ctr 8.070# 07-16-23 AAA 2,000 2,152,500 7.50
Antioch Public Financing Auth, Reassessment Rev
Ser B 5.850 09-02-15 BB+ 1,475 1,490,502 5.79
Avalon Community Improvement Agency, Tax Alloc
Community Imp Proj Ser B 6.400 08-01-22 A- 1,795 1,906,918 6.02
Bakersfield Memorial Hospital, Hosp Rev Ser A 6.500 01-01-22 Baa1 2,000 2,100,760 6.19
Beaumont Unified School District, Cert of Part
Cap Imp Proj 7.700 01-01-21 AA 1,000 1,031,600 7.46
Beverly Hills Public Financing Auth, Lease Rev
INFLOS 6.520# 06-01-15 AAA 2,500 2,590,625 6.29
Bonita Canyon Public Facilities Financing Auth,
Spec Tax Community Facil Dist No 98-1 5.375 09-01-28 BB+ 2,470 2,234,066 5.94
Brentwood Redevelopment Agency, Tax Alloc
Brentwood Redevel Proj Ser A 7.700 11-01-08 BBB 135 138,131 7.53
Burbank Redevelopment Agency, Tax Alloc Golden
State Redevel Proj Ser A 6.000 12-01-23 A- 2,750 2,815,588 5.86
California Educational Facilities Auth, Rev 1993
Ser B Pooled College & Univ Proj 6.125 06-01-09 Baa2 1,000 1,050,960 5.83
California Health Facilities Financing Auth, Hosp
Rev 1991 Ser A San Diego Hosp Assoc 6.950 10-01-21 Baa1 250 262,550 6.62
Ins Rev Ref Ser A Catholic Healthcare West
Obligated Group 5.750 07-01-15 AAA 2,000 2,099,920 5.48
Ins Rev Ser A San Diego Christian Foundation 6.250 07-01-12 AA- 1,135 1,187,539 5.97
Ins Rev Ser B Hlth Facil Small Facil 7.500 04-01-22 AA- 2,000 2,236,080 6.71
Rev 1990 Ser A Kaiser Permanente 7.000 12-01-10 AAA 600 616,218 6.82
Rev Ser 1994A Scripps Research Institute 6.300 07-01-09 A1 500 534,635 5.89
California Housing Finance Agency, Home Mtg Rev
1991 Ser A 7.375 08-01-17 AA- 150 154,400 7.16
Home Mtg Rev 1994 Ser C 6.650 08-01-14 AA- 1,000 1,021,940 6.51
Home Mtg Rev 1994 Ser G 7.250 08-01-17 AA- 2,580 2,638,979 7.09
Home Mtg Rev 1999 Ser L Zero 02-01-18 AAA 9,100 3,174,717 6.14
Hsg Rev 1991 Ser E 7.000 08-01-26 AAA 525 542,808 6.77
California Pollution Control Financing Auth, Poll
Control Rev 1991 Ser Southern Calif Edison Co 6.900 12-01-17 A+ 500 522,535 6.60
Poll Control Rev 1992 Ser A Pacific Gas & Elec Co 6.625 06-01-09 AA- 500 526,415 6.29
Poll Control Rev 1997 Ser A Laidlow Environmental
Proj 6.700 07-01-07 D 2,000 76,400 0.00
Solid Waste Disposal Rev Keller Canyon Landfill
Co Proj 6.875 11-01-27 BB- 2,000 1,979,120 6.95
California Rural Home Mortgage Finance Auth,
Single Family Mtg Rev Ser A Mtg Backed Sec's
Prog 7.550 11-01-26 AAA 560 600,102 7.05
Single Family Mtg Rev Ser A Mtg Backed Sec's Prog
Step Coupon 7.750# 05-01-27 AAA 550 594,105 7.17
California State Public Works Board, Lease Rev
1993 Ser A California State Univ Various
Community College Proj 5.625 12-01-18 A+ 3,700 3,938,169 5.28
Lease Rev 1994 Ser A Dept of Corrections Calif
State Prison Monterey County (Soledad II) 6.875 11-01-14 A+ 500 562,390 6.11
Lease Rev 1996 Ser A Dept of Corrections 5.500 01-01-15 AAA 5,145 5,348,948 5.29
Lease Rev Ref 1993 Ser A California State Univ
Various Univ Proj 5.500 06-01-21 A+ 1,250 1,257,138 5.47
Lease Rev Ref 1993 Ser A Dept of Corrections
Various State Prisons 5.000 12-01-19 AAA 5,000 4,890,750 5.11
Lease Rev Ser A Dept of Corrections 5.250 01-01-21 AAA 4,500 4,471,875 5.28
California Statewide Communities Development
Auth, Ins Rev Ref Cert of Part Triad Healthcare
Hosp 6.500 08-01-22 A+ 11,000 11,705,980 6.11
Ins Cert of Part United Western Medical Centers 6.750 12-01-21 AA- 3,500 3,682,420 6.42
Ins Ref Cert of Part Statewide Univ Northridge
Proj 6.000 04-01-26 AAA 1,620 1,691,782 5.75
Cert of Part Catholic Healthcare West 6.500 07-01-20 BBB+ 1,750 1,771,508 6.42
Cert of Part The Internext Group 5.375 04-01-30 BBB 2,500 2,177,875 6.17
Ins Rev Cert of Part Hlth Facil Eskaton
Properties 6.700 05-01-11 AAA 1,250 1,327,213 6.31
Ins Rev Cert of Part Hlth Facil AIDS Proj Los
Angeles 6.250 08-01-22 AA- 2,000 2,073,440 6.03
California, State of, General Obligation 4.750 04-01-29 AA- 3,000 2,681,490 5.31
Campbell, City of, 1991 Cert of Part Prefef Civic
Ctr Proj (Campbell Calif CTFS Parth) 6.750 10-01-17 AAA 155 162,556 6.44
1991 Cert of Part Unref Bal Civic Ctr Proj 6.750 10-01-17 A2 1,565 1,640,949 6.44
Capistrano Unified School District, Spec Tax of
Community Facil Dist 92-1 7.100 09-01-21 AA 2,250 2,633,873 6.07
Spec Tax of Community Facil Dist 92-1 7.000 09-01-18 AA 1,500 1,646,850 6.38
Carson Redevelopment Agency, Tax Alloc Ser 1992
Area No 1 Redevel Proj 6.375 10-01-12 BBB+ 500 522,540 6.10
Center Unified School District,
GO Cap Apprec Ser C Zero 09-01-16 AAA 2,145 928,849 5.30
Central Coast Water Auth, Rev State Wtr Proj
Regional Facil Ser 1992 6.600 10-01-22 AAA 3,700 3,959,999 6.17
Central Valley Financing Auth, Cogeneration Proj
Rev Carson Ice-Gen Proj Ser 1993 6.200 07-01-20 AAA 1,000 1,074,230 5.77
Cogeneration Proj Rev Carson Ice-Gen Proj Ser
1993 6.100 07-01-13 AAA 3,300 3,536,214 5.69
Clearlake Redevelopment Agency, Tax Alloc
Highlands Park Community Devel Proj 6.400 10-01-23 BBB- 500 510,725 6.27
Contra Costa County Public Financing Auth, Lease
Rev Ref Various Cap Facs Ser 1999A 5.000 06-01-28 AAA 3,000 2,815,890 5.33
Corona Community Facilities District 97-2,
Special Tax Rev 5.875 09-01-23 BB+ 1,500 1,456,755 6.05
Costa Mesa Public Financing Auth, 1991 Local
Agency Rev Ser A 7.100 08-01-21 BBB 220 225,414 6.93
Culver City Redevelopment Finance Auth, Rev Ref
Sub Tax Alloc Ser 1999B 6.200 11-01-18 BBB- 2,000 2,038,720 6.08
Davis Redevelopment Agency, Tax Alloc Ref Davis
Redevel Proj 7.000 09-01-24 AAA 5,115 5,583,841 6.41
Del Mar Race Track Auth, Rev Ref Ser 1996 6.000 08-15-06 BBB 2,240 2,302,451 5.84
Rev Ref Ser 1996 6.200 08-15-11 BBB 1,865 1,920,073 6.02
Delano, City of, Cert of Part 7.000 04-01-10 A- 2,000 2,043,340 6.85
Duarte, City of, Cert of Part City of Hope Nat'l
Medical Center Proj 6.250 04-01-23 AAA 5,000 5,361,050 5.83
East Bay Municipal Utility District, Wastewater
Treatment Sys Rev Ref 6.720# 06-01-20 AAA 6,000 6,037,500 6.68
Encinitas Public Finance Auth, Cert of Part Ser A
Civic Ctr Proj 6.750 12-01-11 A- 1,300 1,368,406 6.41
Fairfield Public Financing Auth, 1995 Rev Ser A
Pennsylvania Ave Storm Drainage Proj 6.500 08-01-21 A- 1,085 1,155,482 6.10
Fontana Public Financing Auth, Tax Alloc Rev 1990
Ser A North Fontana Redevel Proj 7.250 09-01-20 BBB 325 331,789 7.10
Tax Alloc Rev Sub Lien 1991 Ser A North Fontana
Redevel Proj 7.750 12-01-20 AA 195 207,515 7.28
Foothill/Eastern Transportation Corridor Agency,
Toll Rd Rev Fixed Rate Current Int Ser 1995A 6.500 01-01-32 AAA 1,665 1,878,869 5.76
Toll Rd Rev Fixed Rate Current Int Ser 1995A 6.000 01-01-34 AAA 14,775 16,265,354 5.45
Toll Road Rev Ref Cap Apprec Zero 01-15-25 BBB- 6,615 1,529,388 6.10
Toll Road Rev Ref Conv Cap Apprec Zero 01-15-26 BBB- 5,000 2,865,350 6.10
Fresno Joint Powers Financing Auth, Rev Ser A 6.550 09-02-12 BBB 2,000 2,117,680 6.19
Fresno, City of, Hlth Facil Rev Ser 1991 Saint
Agnes Medical Center 6.625 06-01-21 AA 250 265,630 6.24
Industry Urban-Development Agency, Tax Alloc Ref
Trans Dist Proj 3 6.900 11-01-16 A- 1,020 1,073,122 6.56
Inglewood, City of, Cert of Part Ref Civic Ctr
Imp Proj 7.000 08-01-19 BBB- 1,000 1,045,610 6.69
Irvine, City of, Imp Board Act of 1915 Assessment
Dist 95-12 Ser B 6.550 09-02-21 BB+ 1,000 1,099,970 5.95
Imp Board Act of 1915 Assessment
Dist 97-16-Group 4 6.375 09-02-22 BBB 1,200 1,215,924 6.29
Mobile Home Park Rev Ser A Meadows Mobile Home
Park 5.700 03-01-28 BBB- 4,000 3,550,600 6.42
Irwindale Community Redevelopment Agency, Sub
Lien Tax Alloc Industrial Devel Proj 7.050 06-01-26 BBB 2,750 2,969,203 6.53
Laguna Salada Union School District, Ser C Zero 08-01-26 AAA 1,000 231,270 5.73
Lincoln Redevelopment Agency, Tax Alloc Lincoln
Redevel Proj 7.650 08-01-17 BBB+ 610 641,860 7.27
Long Beach, City of, Harbor Rev Ref Ser A 6.000 05-15-18 AAA 2,660 2,900,836 5.50
Los Alamitos Unified School District, Spec Tax of
Community Facil Dist 90-1 7.150 08-15-21 Baa1 6,005 6,299,005 6.82
Los Angeles Community Facilities District, Spec
Tax No 3 Cascades Business Park Proj 6.400 09-01-22 BB+ 1,000 1,020,960 6.27
Los Angeles Community Redevelopment Financing
Auth, Rev MultiFamily Ser A Grand Central Square 5.850 12-01-26 BB 2,000 1,851,240 6.32
Los Angeles Department of Water and Power, Elec
Plant Rev Ref 2nd Iss of 1993 5.400 11-15-12 A+ 1,000 1,031,450 5.24
Los Angeles Public Works Financing Auth, Rev
Regional Park & Open Space Dist A 6.000 10-01-15 AA 3,750 4,086,187 5.51
Los Angeles, County of, Cert of Part Disney
Parking Proj 6.500 03-01-23 BBB+ 2,000 2,153,080 6.04
Cert of Part Reg Linked SAVRS & RIBS Ref Proj 6.708 06-01-15 BBB+ 1,200 1,244,868 6.47
Metropolitan Water District, Wtr Rev Iss of 1991 6.625 07-01-12 AA 750 780,757 6.36
Wtr Rev Iss of 1992 5.000 07-01-20 AA 7,500 7,216,425 5.20
Millbrae, City of, Residential Facil Rev Ser
1997A Magnolia of Millbrae Proj 7.375 09-01-27 BB 1,000 982,780 7.50
Modesto Irrigation District, Cert of Part Ref &
Cap Imps Proj Ser 1999B 5.300 07-01-22 A+ 960 926,237 5.49
Mountain View Capital Improvements Financing
Auth, 1992 Rev City Hall/Community Theatre
Complex and Shoreline Regional Park Comm Tax
Alloc Refin 6.500 08-01-16 AAA 600 623,862 6.25
New Haven Unified School District,
Cap Apprec-Ser A Zero 08-01-21 AAA 7,405 2,227,572 5.73
Northern California Transmission Agency, Rev 1990
Ser A Calif-Oregon Transm Proj 7.000 05-01-13 AAA 100 122,081 5.73
Rev 1992 Ser A Calif-Oregon Transm Proj 6.500 05-01-16 AAA 1,000 1,053,580 6.17
Oakland, Port of, Spec Facil Rev 1992 Ser A
Mitsui O.S.K. Lines Ltd Proj 6.800 01-01-19 BBB+ 500 505,630 6.72
Oceanside, City of, Ref Cert of Part Ser A 6.375 04-01-12 A3 3,000 3,177,750 6.02
Orange County Development Agency, Tax Alloc Santa
Ana Heights Proj 6.125 09-01-23 BBB 5,000 5,045,950 6.07
Orange Cove Irrigation District, Cert of Part
Ref-Rehab Proj 5.000 02-01-17 AAA 2,045 2,029,090 5.04
Cert of Part Rehab Proj 7.250 02-01-12 AA 2,000 2,066,220 7.02
Cert of Part Rehab Proj 7.000 02-01-15 AA 2,500 2,580,200 6.78
Orange, County of, Cert of Part Civic Ctr Exp
Proj 6.700 08-01-18 AAA 1,000 1,043,960 6.42
Cert of Part Recovery Ref Ser A 5.800 07-01-16 AAA 2,000 2,117,120 5.48
Ser A of 1992 Spec Tax of Community Facil Dist
88-1 Aliso Viego 7.350 08-15-18 AAA 1,000 1,081,090 6.80
Pasadena, City of, Cert of Part Ref Old Pasadena
Pkg Facil Proj 6.250 01-01-18 A+ 1,205 1,345,756 5.60
Pittsburg Redevelopment Agency, Spec Tax of
Community Facil Dist 90-1 California Ave 7.400 08-15-20 BBB 3,040 3,189,720 7.05
Poway, City of, Community Facil Dist No 88-1
Spec Tax Ref Pkwy Business Ctr 6.750 08-15-15 BB 1,000 1,069,490 6.31
Rancho Mirage, City of, Joint Powers Financing
Auth, Civic Center Rev Ref Ser 1991A Preref 7.500 04-01-17 BBB 195 202,755 7.21
Civic Center Rev Ref Ser 1991A Unref Bal 7.500 04-01-17 BBB 55 56,769 7.27
Redondo Beach Public Financing Auth, Rev South
Bay Center Redevel Proj 7.000 07-01-16 BBB+ 950 1,023,169 6.50
Richmond, County of, Imp Bd Act of 1915 Ref
Reassessment District No 855 6.600 09-02-19 BBB- 2,405 2,484,076 6.39
Riverside County Asset Leasing Corp, Leasehold
Rev 1993 Ser A Riverside County Hosp Proj 6.500 06-01-12 A 1,000 1,110,340 5.85
Sacramento City Financing Auth, Rev Convention
Ctr Hotel Ser 1999A 6.250 01-01-30 BB+ 5,500 5,306,290 6.48
Sacramento County Sanitation District Finance
Authority, Rev Ser A 5.875 12-01-27 AA 1,500 1,546,290 5.70
Sacramento Power Auth, Cogeneration Proj Rev
Light & Pwr Imp 6.000 07-01-22 BBB- 12,000 12,223,800 5.89
Sacramento Unified School District, Spec Tax of
Community Facil Dist 1 Ser B 7.300 09-01-13 Baa 760 826,903 6.71
San Bernardino, County of, Cert of Part Ref
Medical Ctr Fin Proj 5.500 08-01-17 AAA 5,000 5,247,850 5.24
Cert of Part Ref Medical Ctr Fin Proj 5.500 08-01-17 A- p 3,750 3,778,613 5.46
Cert of Part Ref Medical Ctr Fin Proj Ser A 5.500 08-01-15 AAA 4,000 4,316,160 5.10
Cert of Part Ser B Cap Facil Proj 6.875 08-01-24 AAA 350 414,361 5.81
San Bruno Park School District, Cap Apprec Ser B Zero 08-01-21 AAA 1,015 322,323 5.56
Cap Apprec Ser B Zero 08-01-23 AAA 1,080 303,253 5.62
San Diego, County of, Cert of Part Reception Ctr
& Cooling Plant Fin 6.750 08-01-19 AAA 3,000 3,344,130 6.06
San Diego County Regional Transportation
Commission, Sales Tax Rev Refunded Bal Ser 1991A 7.000 04-01-06 AA- 90 95,145 6.62
San Diego County Water Auth, Water Rev Cert of
Part Reg RITES 7.129# 04-23-08 AAA 1,000 1,140,000 6.25
Water Rev Cert of Part Reg RITES 7.129# 04-24-09 AAA 400 456,000 6.25
San Diego Redevelopment Agency, Tax Alloc Cap
Apprec Ser 1999B Zero 09-01-17 BB 1,600 562,016 6.25
Tax Alloc Cap Apprec Ser 1999B Zero 09-01-18 BB 1,700 555,645 6.31
Tax Alloc City Heights Proj Ser 1999A 5.800 09-01-28 BB 1,395 1,331,960 6.07
San Diego Unified School District, GO Cap Apprec
Ser 1999A Zero 07-01-21 AAA 2,500 797,525 5.56
San Francisco State Building Auth, Lease Rev Ref
1993 Ser A Dept of Gen Serv 5.000 10-01-13 A+ 2,145 2,188,329 4.90
San Francisco, City of, Resid Facil Ser A
Coventry Park Proj 8.500 12-01-26 BB- 2,000 2,030,840 8.37
San Joaquin Hills Transportation Corridor Agency,
Toll Rd Rev Jr Lien Cap Apprec Zero 01-01-03 AAA 5,000 4,534,750 4.23
Toll Rd Rev Ref Conv Cap Apprec Ser A Zero 01-15-21 BBB- 5,000 3,226,350 6.24
Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-14 AAA 5,000 2,551,450 5.11
Toll Rd Rev Sr Lien Cap Apprec Zero 01-01-22 AAA 6,500 2,004,990 5.59
San Marcos Public Facilities Auth, Rev Tax Incr
Proj Area 3-A 6.000 08-01-31 BB 1,305 1,241,538 6.31
San Marino Unified School District, Ser A Zero 07-01-24 AAA 5,820 1,538,924 5.66
San Mateo County Joint Powers Financing Auth,
Lease Rev Ref Cap Proj Prog 5.000 07-01-21 AAA 1,815 1,746,683 5.20
Santa Ana Financing Auth, Lease Rev Ser A Police
Admin & Holding Facil 6.250 07-01-19 AAA 1,790 2,027,766 5.52
Lease Rev Ser A Police Admin & Holding Facil 6.250 07-01-24 AAA 10,000 11,305,700 5.53
Rev Ref Ser D Mainplace Proj 5.600 09-01-19 BBB- 1,000 969,990 5.77
Santa Barbara, County of, 1991 Cert of Part 6.400 02-01-11 A+ 250 257,408 6.22
Santa Clara County Finance Auth, Lease Rev Ser
2000B Mult Facil Proj 5.500 05-15-17 AAA 6,000 6,250,920 5.28
Santa Clarita Community Facilities, Spec Tax of
Community Facil Dist 92-1 Ser A 7.450 11-15-10 BBB 3,600 3,806,712 7.05
Southern California Home Financing Auth, Single
Family Mtg Rev GNMA & FNMA Mtg Backed Ser A 6.750 09-01-22 AAA 570 580,089 6.63
Southern California Public Power Auth, Rev Ref
Southern Transmission Proj Zero 07-01-13 AAA 4,400 2,299,748 5.12
Torrance Redevelopment Agency, Tax Alloc Ref Ser
1992 Downtown Redevel Proj 7.125 09-01-21 Baa2 500 525,035 6.79
Tustin Unified School District, Cmnty Facs Dist
No 97-1 6.375 09-01-35 BBB- 1,000 1,008,160 6.32
University of California, Cert of Part Ref UCLA
Central Chiller/Cogeneration Proj 5.400 11-01-11 Aa3 1,000 1,028,940 5.25
Vallejo Sanitation and Flood Control District,
Cert of Part 5.000 07-01-19 AAA 2,500 2,446,100 5.11
Victor Valley Union High School District, Cert of
Part 7.875 11-01-12 AA 1,255 1,287,743 7.67
West Covina Redevelopment Agency, Ref Community
Facil Dist Spec Tax Fashion Plaza Proj 6.000 09-01-22 A 3,000 3,218,010 5.59
-------------
342,593,988
-------------
Puerto Rico (7.80%)
Puerto Rico Aqueduct and Sewer Auth,
Ref Pars & Inflos Ser 1995 Gtd by
the Commonwealth of
Puerto Rico 7.370# 07-01-11 AAA 7,500 9,131,250 6.05
Puerto Rico Highway and Transportation Auth,
Highway Rev Ref 1996 Ser Z 6.250 07-01-14 AAA 3,250 3,672,792 5.53
Ser A-MBIA IBC 5.000 07-01-38 AAA 5,000 4,633,250 5.40
Ser B 6.000 07-01-26 A 1,000 1,034,650 5.80
Puerto Rico Elec Pwr Auth Pwr Rev , Ser HH 5.250 07-01-29 AAA 2,500 2,434,625 5.39
Puerto Rico Ind'l, Tourist, Ed'l,
Medical & Environmental Ctl Facs
Hospital De La Concepcion-A 6.500 11-15-20 AA 500 544,790 5.97
Puerto Rico Ports Auth, Spec Facil Rev 1996 Ser A
American Airlines Inc Proj 6.250 06-01-26 BBB- 2,000 2,039,080 6.13
Puerto Rico, Commonwealth of, GO Pub Imp Ser 1996 6.500 07-01-15 A 6,000 6,872,940 5.67
-------------
30,363,377
-------------
TOTAL TAX-EXEMPT LONG-TERM BONDS
(Cost $350,522,983) (95.84%) 372,957,365
@ --------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.58%)
Investment in a joint repurchase
agreement transaction with UBS
Warburg, Inc. -- Dated 08-31-00, due
09-01-00 (Secured by U.S. Treasury
Bonds, 7.250% thru 9.250%, due
02-15-16 thru 02-15-19) -- Note A 6.610 6,141 6,141,000
------------
TOTAL SHORT-TERM INVESTMENTS (1.58%) 6,141,000
--------- ------------
TOTAL INVESTMENTS (97.42%) 379,098,365
--------- ------------
OTHER ASSETS AND LIABILITIES, NET (2.58%) 10,040,827
@ --------- ------------
TOTAL NET ASSETS (100.00%) $389,139,192
========= ============
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service, Fitch or John Hancock Advisers,
Inc. where Standard & Poor's ratings are not available.
+ The yield is not calculated in accordance with guidelines established by the
U.S. Securities & Exchange Commission and is unaudited. Zero coupon yields
are at yield to maturity.
# Represents rate in effect on August 31, 2000.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
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
August 31, 2000 assigned to the various sector categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
SECTOR DISTRIBUTION NET ASSETS
------------------- ----------
General Obligation 4.79%
Revenue Bonds -- Authority 4.32
Revenue Bonds -- Correctional Facility 5.31
Revenue Bonds -- Education 7.24
Revenue Bonds -- Electric 5.52
Revenue Bonds -- Facility 2.16
Revenue Bonds -- Harbor/Channel 0.75
Revenue Bonds -- Health 12.77
Revenue Bonds -- Highway 1.46
Revenue Bonds -- Housing 3.64
Revenue Bonds -- Improvement 0.78
Revenue Bonds -- Industrial Redevelopment 0.14
Revenue Bonds -- Industrial Revenue 0.65
Revenue Bonds -- Lease 2.05
Revenue Bonds -- Multi-Family 0.91
Revenue Bonds -- Non-Profit 0.56
Revenue Bonds -- Other 17.60
Revenue Bonds -- Parking Garage/Authority 0.35
Revenue Bonds -- Pollution Control 0.80
Revenue Bonds -- Rev-Special Tax 1.22
Revenue Bonds -- Sanitation District 0.40
Revenue Bonds -- School 0.26
Revenue Bonds -- Tax Allocation 0.52
Revenue Bonds -- Tax Increment 0.32
Revenue Bonds -- Transportation 9.93
Revenue Bonds -- Various Purpose 0.32
Revenue Bonds -- Water and Sewer 11.07
-------
TOTAL TAX-EXEMPT LONG-TERM BONDS 95.84%
=======
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- California Tax-Free Income Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock California Tax-Free Income Fund (the "Fund") is a
diversified open-end management investment company, registered under the
Investment Company Act of 1940. The investment objective of the Fund is
to provide as high a level of current income exempt from both federal
income taxes and California personal income taxes as is consistent with
preservation of capital.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions,
dividends, and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class which bears distribution and service expenses under terms of a
distribution plan, have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost, which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, Inc., may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders. Therefore, no federal
income tax provision is required. For federal income tax purposes, the
Fund has $9,315,967 of capital loss carryforwards available, to the
extent provided by regulations, to offset future net realized capital
gains. To the extent such carryforwards are used by the Fund, no capital
gains distribution will be made. The carryforwards expire as follows:
August 31, 2002 -- $111,795, August 31, 2003 -- $5,169,717, August 31,
2004 -- $2,378,578, August 31, 2005 -- $7,774, August 31, 2006 --
$679,515 and August 31, 2008 -- $968,588. Additionally, net capital
losses of $446,252 attributable to security transactions occurring after
October 31, 1999 are treated as arising on the first day of the Fund's
next taxable year (September 1, 2000).
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.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund has entered into a syndicated line of credit
agreement with various banks. This agreement enables the Fund to
participate with other funds managed by the Adviser in an unsecured line
of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing.
In addition, a commitment fee is charged to each fund based on the
average daily unused portion of the line of credit and is allocated
among the participating funds. The maximum loan balance outstanding
during the year amounted to $4,595,700. The annualized interest rate
charged during the period ranged from 5.88% to 6.63%. At August 31,
2000, there were no outstanding borrowings.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program at an annual rate of 0.55% of the Fund's average daily net asset
value.
The Adviser has voluntarily agreed to limit the Fund's operating
expenses to 0.75%, 1.50% and 1.60% of the average net assets
attributable to Class A, Class B and Class C, respectively. Accordingly,
the reduction in the Adviser's fee amounted to $323,402 for the year
ended August 31, 2000. This limitation may not be discontinued until
December 31, 2000.
The Fund has an agreement with its custodian bank under which $867 of
custodian fees have been reduced by balance credits applied during the
year ended August 31, 2000 . If the Fund had not entered into this
agreement, the assets not invested, on which these balance credits were
earned, could have produced taxable income.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended
August 31, 2000, net sales charges received with regard to sales of
Class A shares amounted to $47,379. Out of this amount, $5,425 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $34,592 was paid as sales commissions to
unrelated broker-dealers and $7,362 was paid as sales commissions to
sales personnel of Signator Investors, Inc. ("Signator Investors"), a
related broker-dealer. The Adviser's indirect parent, John Hancock Life
Insurance Company ("JHLICo"), is the indirect sole shareholder of
Signator Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the year ended August 31, 2000, CDSCs amounted to
$275,005.
Effective May 1, 2000, all Class C retail purchases are assessed a 1.00%
up-front sales charge. For the year ended August 31, 2000, up-front
sales charges received with regard to sales of Class C shares amounted
to $20,873. Out of this amount, $20,853 was paid as sales commissions to
unrelated broker-dealers and $20 was paid as sales commissions to sales
personnel of Signator Investors. Class C shares which are redeemed
within one year of purchase will be subject to a CDSC at a rate of 1.00%
of the lesser of the current market value at the time of redemption or
the original purchase cost of the shares being redeemed. Proceeds from
the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the
Fund in connection with the sale of Class C shares. For the year ended
August 31, 2000, CDSCs amounted to $363.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. Accordingly, the Fund
will make payments to JH Funds at an annual rate not to exceed 0.15% of
Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets to reimburse JH Funds for its distribution and
service costs. JH Funds has temporarily agreed to limit the distribution
and service fees pursuant to the Class B plan to 0.90% of the average
daily net assets. Accordingly, the reduction in the distribution and
service fees amounted to $85,072 for the year ended August 31, 2000.
This limitation may not be discontinued until December 31, 2000. Up to a
maximum of 0.25% of such payments may be service fees as defined by the
Conduct Rules of the National Association of Securities Dealers. Under
the Conduct Rules, 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 JHLICo.
The Fund pays transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford and Mr. Richard S.
Scipione are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market
periodically to reflect any income earned by the investment as well as
any unrealized gains or losses. The investment had no impact on the
operations of the Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the year ended August 31, 2000, aggregated $39,750,984 and
$72,556,684, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the year
ended August 31, 2000 .
The cost of investments owned at August 31, 2000 (including the joint
repurchase agreement) for federal income tax purposes was $356,663,983.
Gross unrealized appreciation and depreciation of investments aggregated
$25,753,210 and $3,318,828 respectively, resulting in net unrealized
appreciation of $22,434,382.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended August 31, 2000, the Fund has reclassified amounts
to reflect a decrease in accumulated net realized loss on investments of
$2,641, an increase in undistributed net investment income of $975 and a
decrease in capital paid-in of $3,616. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of August 31, 2000. Additional adjustments may
be needed in subsequent reporting years. These reclassifications, which
have no impact on the net asset value of the Fund, are primarily
attributable to the certain differences in the computation of
distributable income and capital gains under federal tax rules versus
generally accepted accounting principles. The calculation of net
investment income per share in the financial highlights excludes these
adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock California Tax-Free Income Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock California Tax-Free Income Fund (the "Fund"), including
the schedule of investments, as of August 31, 2000, and the related
statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of August 31,
2000, by correspondence with the custodian and brokers, or other
appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of the John Hancock California Tax-Free Income Fund
at August 31, 2000, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted
in the United States.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
October 12, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund during its fiscal year
ended August 31, 2000.
None of the 2000 income dividends qualify for the corporate
dividends-received deduction. Shareholders who are not subject to the
alternative minimum tax received income dividends which are 99.26%
tax-exempt, of this amount 100% is tax exempt for the State of
California. The percentage of income dividends from the Fund subject to
the alternative minimum tax is 4.63%.
None of the income dividends were derived from the U.S. Treasury Bills.
For specific information on exemption provisions in your state, consult
your local state tax office or your tax advisor.
Shareholders will be mailed a 2000 U.S. Treasury Department Form
1099-DIV in January 2001. This will reflect the total of all
distributions which are taxable for calendar year 2000.
NOTES
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NOTES
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[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.]
John Hancock Funds, Inc.
Member NASD
101 Huntington Avenue
Boston, MA 02199-7603
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
California Tax-Free Income Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper."]
5300A 8/00
10/00
