UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811- 5979
John Hancock California Tax-Free Income Fund
(Exact name of registrant as specified in charter)
601 Congress Street, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip code)
Salvatore Schiavone
Treasurer
601 Congress Street
Boston, Massachusetts 02210
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-663-4497
Date of fiscal year end: | May 31 |
Date of reporting period: | May 31, 2016 |
ITEM 1. REPORT TO STOCKHOLDERS.
John Hancock
California Tax-Free Income Fund
Annual report 5/31/16
A message to shareholders
Dear shareholder,
The past 12 months marked a challenging stretch for all investors, and the fixed-income markets offered no exception. Three themes dominated headlines for the majority of the period and continue to be sources of concern for investors: global growth, commodity prices, and the direction of interest rates. On the economic front, worries about a slowdown in China pushed the United States to center stage as investors increasingly looked to domestic demand to fuel global growth. Energy prices were highly volatile, plummeting in January to multi-year lows before rebounding to finish at more sustainable levels. As for interest rates, the U.S. Federal Reserve (Fed) finally began in December the long process of normalizing monetary policy by increasing the federal funds rate for the first time in nine years. More rate hikes may be on the horizon, but the United States' position as the one major economy tightening in this environment makes the Fed's job that much more difficult.
Against this backdrop, investors tended to dial down their risk exposure, selling out of equities, high-yield bonds, and emerging markets in favor of the safety of U.S. Treasuries and other less-volatile assets. That trend abruptly reversed course in February, as attractive valuations eventually lured investors back into riskier assets. After period end, the United Kingdom's vote to leave the European Union set off more volatility as investors turned back to safe-haven assets.
These kinds of market swings can be unsettling. We believe the global economy will continue to make gains, but that periods of heightened volatility could likely persist. At John Hancock Investments, portfolio risk management is a critical part of our role as an asset manager and our dedicated risk team is focused on these issues every day. We continually strive for new ways to analyze potential risks and have liquidity tools in place to meet the needs of our fund shareholders. However, your best resource is your financial advisor, who can help ensure your portfolio is sufficiently diversified to meet your long-term objectives and to withstand the inevitable bumps along the way.
On behalf of everyone at John Hancock Investments, I'd like to take this opportunity to thank you for the continued trust you've placed in us.
Sincerely,
Andrew G. Arnott
President and Chief Executive Officer
John Hancock Investments
This commentary reflects the CEO's views as of May 31, 2016. They are subject to change at any time. All investments entail risks, including the possible loss of principal. Diversification does not guarantee a profit or eliminate the risk of a loss. For more up-to-date information, you can visit our website at jhinvestments.com.
John Hancock
California Tax-Free Income Fund
INVESTMENT OBJECTIVE
The fund seeks a high level of current income, consistent with preservation of capital, that is exempt from federal and California personal income taxes.
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/16 (%)
The Barclays California Municipal Bond Index is an unmanaged index comprising California investment-grade municipal bonds.
It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would result in lower returns.
Figures from Morningstar, Inc. include reinvested distributions and do not take into account sales charges. Actual load-adjusted performance is lower.
The past performance shown here reflects reinvested distributions and the beneficial effect of any expense reductions, and does not guarantee future results. Performance of the other share classes will vary based on the difference in the fees and expenses of those classes. Shares will fluctuate in value and, when redeemed, may be worth more or less than their original cost. Current month-end performance may be lower or higher than the performance cited, and can be found at jhinvestments.com or by calling 800-225-5291. For further information on the fund's objectives, risks, and strategy, see the fund's prospectus.
PERFORMANCE HIGHLIGHTS OVER THE LAST TWELVE MONTHS
Municipal bonds rallied
Municipal bonds advanced for the reporting period, benefiting from strong investor demand amid financial market volatility and an uncertain economic environment.
The fund outperformed its benchmark
The fund posted a solid gain and outpaced its benchmark, the Barclays California Municipal Bond Index.
Longer duration and security selection added value
The fund's duration positioning, which gave the fund greater interest-rate sensitivity, and individual security selection contributed to its outperformance of its benchmark.
PORTFOLIO COMPOSITION AS OF 5/31/16 (%)
A note about risks
Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if a creditor, grantor, or counterparty is unable or unwilling to make principal, interest, or settlement payments. Investments in higher-yielding, lower-rated securities are subject to a higher risk of default. Municipal bond prices can decline due to fiscal mismanagement or tax shortfalls, or if related projects become unprofitable. A portfolio concentrated in one sector or that holds a limited number of securities may fluctuate more than a fund that invests in a wider variety of sectors. Investing heavily in any one state or region increases exposure to losses in that state or region. Factors that may affect performance include economic or political changes, tax base erosion, state constitutional limits on tax increases, budget deficits and other financial difficulties, and changes in credit ratings. This risk is magnified for a fund that invests mainly in bonds from a single state. Liquidity—the extent to which a security may be sold or a derivative position closed without negatively affecting its market value, if at all—may be impaired by reduced trading volume, heightened volatility, rising interest rates, and other market conditions. Adverse events affecting a particular issuer may magnify losses for non-diversified funds. Hedging, derivatives, and other strategic transactions may increase a fund's volatility and could produce disproportionate losses, potentially more than the fund's principal investment. Fund distributions generally depend on income from underlying investments and may vary or cease altogether in the future. Please see the fund's prospectus for additional risks.
An interview with Portfolio Manager Cynthia M. Brown, John Hancock Asset Management a division of Manulife Asset Management (US) LLC
Cynthia M. Brown
Portfolio Manager
John Hancock Asset Management
How did the municipal bond market perform over the past 12 months?
Municipal bonds posted solid gains for the reporting period as the Barclays Municipal Bond Index returned 5.87%. By comparison, the Barclays U.S. Aggregate Bond Index, a broad taxable bond market measure, returned 2.99%. California municipal bonds performed in line with the broad municipal bond market as the fund's benchmark, the Barclays California Municipal Bond Index, returned 5.94%.
Favorable supply-and-demand trends continued to drive the rally in municipal bonds during the past year. Investor demand for municipal bonds remained strong as equity market volatility, global economic concerns, and a lack of appetite for risk led to a steady inflow of cash into the municipal bond market. As of the end of the reporting period, municipal bond mutual funds had experienced inflows for 34 consecutive weeks, according to Thomson Reuters Lipper.
On the supply side, municipal bond issuance declined modestly during the period compared with the prior 12-month period. Much of the new issuance in the municipal bond market over the past year involved refinancing existing bonds in anticipation of a series of short-term interest-rate increases by the U.S. Federal Reserve (Fed). Although the Fed raised its short-term interest-rate target in December 2015—its first rate hike in nine years—the Fed made no further moves through the end of the reporting period as economic data so far in 2016 has been uneven.
Speaking of the economic backdrop, how did that affect municipal bond market performance?
The U.S. economy produced mixed results over the past 12 months as some segments of the economy fared better than others. For example, job growth remained healthy as the unemployment rate dipped below 5%—its lowest level since November 2007—and sales in the automotive and housing markets were robust. However, overall consumer spending remained weak despite the positive impact of lower fuel costs, and industrial production contracted during the 12-month period.
For the municipal bond market, the most significant factor was investor expectations for the Fed's interest-rate increases. The Fed's December rate hike and expectations of more to come in 2016 resulted in slightly higher short-term municipal bond yields, while strong investor demand was pushing intermediate- and long-term municipal bond yields lower. As a result, the municipal yield curve—a graphic display of municipal bond yields at various maturities—flattened during the period as the gap between short- and long-term yields narrowed.
What about municipal credit quality in California?
Credit quality remained solid and steady throughout the state during the past year. The financial distress stemming from the 2008 credit crisis, which led to significant deterioration in the state's credit ratings, fueled the political drive and will to pursue prudent budgetary spending measures. The end result has been a restoration of the state's credit rating and renewed confidence in the fiscal management of both state and local governments. While the California economy has been vibrant, the governor and legislature recognize that the economic expansion will not continue in this manner indefinitely, and they have been appropriately prudent with regard to budgetary spending.
Turning to the fund, what factors contributed to its outperformance of the benchmark?
The fund had a longer duration (a measure of interest-rate sensitivity) than the index throughout the 12-month period. This positioning was beneficial for fund performance as the municipal bond
QUALITY COMPOSITION AS OF 5/31/16 (%)
What detracted from the fund's performance during the reporting period?
The fund's small exposure to bonds issued by the Commonwealth of Puerto Rico weighed on performance. Puerto Rico has been struggling with a stagnant economy and fiscal difficulties that have left the Commonwealth unable to meet its debt obligations. Unable to file for bankruptcy protection, Puerto Rico's government has been negotiating with some of its creditors to restructure its debt, while the U.S. Congress is working on legislation to create a financial oversight board.
When the reporting period began, the fund held 0.9% of its assets in Puerto Rico securities. We gradually eliminated most of the fund's holdings during the latter half of 2015, and the fund had 0.2% exposure to the Commonwealth of Puerto Rico at the end of the period.
What themes do you see developing in the municipal bond market over the next several months?
The pace of economic growth and how the Fed will adjust its policy stance will remain key influences on all segments of the fixed-income market. After the Fed's rate hike in late 2015, it was widely assumed that the Fed would raise interest rates four more times in 2016. However, the mixed
SECTOR COMPOSITION AS OF 5/31/16 (%)
economic data and a lack of global inflationary pressure have tempered these expectations. It would likely require evidence of stronger economic growth and/or rising inflation for the Fed to shift away from its current deliberate approach to interest-rate policy.
From a credit perspective, state and local governments face challenges to address rising pension liabilities, healthcare expenses, and education as demographics shift. Pension funding can no longer be ignored or deferred, especially now that the issue has become more transparent because state and local governments must disclose pension and postretirement liabilities on their balance sheets. On the healthcare front, Medicaid expenses as a percentage of overall state budgets are ballooning as enrollment expands for states participating in the Affordable Care Act (ACA). ACA subsidies from the federal government will begin to decrease over the next year, and states will face higher expenses to insure their residents.
The state of California was an early adopter of pension reform, passing legislation that raised the retirement age, lowered benefits for new employees, and adjusted how pensions are calculated. Furthermore, the state established a formula that requires revenue received from capital gains taxes and a percentage of general revenue to be deposited in the state's rainy day fund, which may be used to pay for unfunded pension obligations. With regard to the ACA, California restructured its managed care organization tax so that all health insurers in the state will pay the tax in exchange for selected tax credits elsewhere. This legislation meets new federal government funding rules and will preserve more than $1 billion in tax revenues that would have been phased out in 2017. In particular, the legislation secures future funding to improve healthcare services for disabled and elderly residents.
Has there been a management change?
Yes, effective March 1, 2016, co-portfolio manager Dianne M. Sales retired. I will continue to manage the fund.
MANAGED BY
Cynthia M. Brown On the fund since 2015 Investing since 1984 |
TOTAL RETURNS FOR THE PERIOD ENDED MAY 31, 2016
Average annual total returns (%) with maximum sales charge | Cumulative total returns (%) with maximum sales charge | SEC 30-day yield (%) subsidized | SEC 30-day yield (%) unsubsidized1 | Tax- equivalent subsidized yield (%)2 | |||||||||
1-year | 5-year | 10-year | 5-year | 10-year | as of 5-31-16 | as of 5-31-16 | as of 5-31-16 | ||||||
Class A | 2.40 | 5.58 | 4.48 | 31.17 | 54.97 | 1.56 | 1.55 | 3.18 | |||||
Class B | 0.93 | 5.34 | 4.23 | 29.72 | 51.26 | 0.88 | 0.77 | 1.79 | |||||
Class C | 4.83 | 5.65 | 4.07 | 31.60 | 49.03 | 0.88 | 0.77 | 1.79 | |||||
Index 1† | 5.94 | 5.88 | 5.18 | 33.08 | 65.67 | — | — | — | |||||
Index 2† | 5.87 | 5.07 | 4.93 | 28.07 | 61.74 | — | — | — |
Performance figures assume all distributions have been reinvested. Figures reflect maximum sales charges on Class A shares of 4.0% and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The returns for Class A shares have been adjusted to reflect the reduction in the maximum sales charge from 4.5% to 4.0%, effective 2-3-14. The Class B shares' CDSC declines annually between years 1 to 6 according to the following schedule: 5%, 4%, 3%, 3%, 2%, 1%. No sales charge will be assessed after the sixth year. Class C shares sold within one year of purchase are subject to a 1% CDSC.
The expense ratios of the fund, both net (including any fee waivers and/or expense limitations) and gross (excluding any fee waivers and/or expense limitations), are set forth according to the most recent publicly available prospectus for the fund and may differ from those disclosed in the Financial highlights tables in this report. Had the fee waivers and expense limitations not been in place, gross expenses would apply. The expense ratios are as follows:
Class A | Class B | Class C | |
Gross (%) | 0.83 | 1.68 | 1.68 |
Net (%) | 0.83 | 1.58 | 1.58 |
Please refer to the most recent prospectus and annual or semiannual report for more information on expenses and any expense limitation arrangements for each class.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility and other factors, the fund's current performance may be higher or lower than the performance shown. For current to the most recent month-end performance data, please call 800-225-5291 or visit the fund's website at jhinvestments.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The fund's performance results reflect any applicable fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† | Index 1 is the Barclays California Municipal Bond Index; Index 2 is the Barclays Municipal Bond Index. |
See the following page for footnotes.
This chart and table show what happened to a hypothetical $10,000 investment in John Hancock California Tax-Free Income Fund for the share classes and periods indicated, assuming all distributions were reinvested. For comparison, we've shown the same investment in two separate indexes.
Start date | With maximum sales charge ($) | Without sales charge ($) | Index 1 ($) | Index 2 ($) | |
Class B3 | 5-31-06 | 15,126 | 15,126 | 16,567 | 16,174 |
Class C3 | 5-31-06 | 14,903 | 14,903 | 16,567 | 16,174 |
The values shown in the chart for Class A shares with maximum sales charge have been adjusted to reflect the reduction in the Class A shares' maximum sales charge from 4.5% to 4.0%, which became effective on 2-3-14.
Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.
The Barclays California Municipal Bond Index is an unmanaged index composed of California investment-grade municipal bonds.
The Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.
It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would result in lower returns.
Footnotes related to performance pages
1 | Unsubsidized yield reflects what the yield would have been without the effect of reimbursements and waivers. |
2 | Tax-equivalent yield is based on the maximum federal income tax rate of 43.4% and a state tax rate of 13.3%. |
3 | The contingent deferred sales charge is not applicable. |
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
Understanding fund expenses
As a shareholder of the fund, you incur two types of costs:
• | Transaction costs, which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc. |
• | Ongoing operating expenses, including management fees, distribution and service fees (if applicable), and other fund expenses. |
We are presenting only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about the fund's actual ongoing operating expenses, and is based on the fund's actual return. It assumes an account value of $1,000.00 on December 1, 2015, with the same investment held until May 31, 2016.
Account value on 12-1-2015 | Ending value on 5-31-2016 | Expenses paid during period ended 5-31-20161 | Annualized expense ratio | |
Class A | $1,000.00 | $1,042.10 | $4.29 | 0.84% |
Class B | 1,000.00 | 1,039.10 | 8.11 | 1.59% |
Class C | 1,000.00 | 1,038.20 | 8.10 | 1.59% |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at May 31, 2016, by $1,000.00, then multiply it by the "expenses paid" for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
Hypothetical example for comparison purposes
This table allows you to compare the fund's ongoing operating expenses with those of any other fund. It provides an example of the fund's hypothetical account values and hypothetical expenses based on each class's actual expense ratio and an assumed 5% annualized return before expenses (which is not the fund's actual return). It assumes an account value of $1,000.00 on December 1, 2015, with the same investment held until May 31, 2016. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value on 12-1-2015 | Ending value on 5-31-2016 | Expenses paid during period ended 5-31-20161 | Annualized expense ratio | |
Class A | $1,000.00 | $1,020.80 | $4.24 | 0.84% |
Class B | 1,000.00 | 1,017.10 | 8.02 | 1.59% |
Class C | 1,000.00 | 1,017.10 | 8.02 | 1.59% |
Remember, these examples do not include any transaction costs, therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 | Expenses are equal to the fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). |
Fund's investments
As of 5-31-16 | ||||||||||||||||||||
Rate (%) | Maturity date | Par value^ | Value | |||||||||||||||||
Municipal bonds 96.3% | $281,241,023 | |||||||||||||||||||
(Cost $254,463,490) | ||||||||||||||||||||
California 96.1% | 280,731,308 | |||||||||||||||||||
ABAG Finance Authority for Nonprofit Corps. Institute on Aging (D) | 5.650 | 08-15-38 | 1,000,000 | 1,099,500 | ||||||||||||||||
ABAG Finance Authority for Nonprofit Corps. Sharp Healthcare | 6.250 | 08-01-39 | 1,000,000 | 1,157,790 | ||||||||||||||||
ABAG Finance Authority for Nonprofit Corps. Sharp HealthCare, Series A | 5.000 | 08-01-43 | 2,000,000 | 2,340,440 | ||||||||||||||||
Anaheim Public Financing Authority Public Improvement Project, Series C (D) | 1.208 (Z | ) | 09-01-18 | 3,000,000 | 2,918,760 | |||||||||||||||
Anaheim Public Financing Authority Series A | 5.000 | 05-01-46 | 1,000,000 | 1,179,320 | ||||||||||||||||
Belmont Community Facilities Library Project, Series A (D) | 5.750 | 08-01-24 | 1,000,000 | 1,281,150 | ||||||||||||||||
California County Tobacco Securitization Agency Fresno County Funding Corp. | 6.000 | 06-01-35 | 1,765,000 | 1,765,777 | ||||||||||||||||
California County Tobacco Securitization Agency Kern County Tobacco Funding Corp., Series 2014 | 5.000 | 06-01-40 | 1,500,000 | 1,660,230 | ||||||||||||||||
California County Tobacco Securitization Agency Public Improvements | 5.250 | 06-01-21 | 3,425,000 | 3,493,466 | ||||||||||||||||
California County Tobacco Securitization Agency Stanislaus Funding, Series A | 5.500 | 06-01-33 | 430,000 | 433,143 | ||||||||||||||||
California Educational Facilities Authority Pepperdine University | 5.000 | 10-01-49 | 2,550,000 | 3,069,971 | ||||||||||||||||
California Educational Facilities Authority Prerefunded College and University Funding Program | 5.000 | 02-01-26 | 1,130,000 | 1,163,674 | ||||||||||||||||
California Educational Facilities Authority University of Redlands | 5.000 | 10-01-35 | 1,000,000 | 1,164,890 | ||||||||||||||||
California Health Facilities Financing Authority Lucile Packard Stanford Hospital, Series B | 5.000 | 08-15-55 | 1,000,000 | 1,184,220 | ||||||||||||||||
California Health Facilities Financing Authority Lucile Salter Packard Children | 5.000 | 08-15-43 | 1,000,000 | 1,169,030 | ||||||||||||||||
California Health Facilities Financing Authority Providence Health and Services, Series C | 6.500 | 10-01-33 | 1,000,000 | 1,133,480 | ||||||||||||||||
California Health Facilities Financing Authority Scripps Health, Series A | 5.000 | 11-15-36 | 1,000,000 | 1,125,710 | ||||||||||||||||
California Health Facilities Financing Authority Sutter Health, Series A | 5.000 | 08-15-43 | 3,000,000 | 3,542,880 | ||||||||||||||||
California Health Facilities Financing Authority Sutter Health, Series A | 5.000 | 11-15-46 | 2,500,000 | 2,973,200 | ||||||||||||||||
California Municipal Finance Authority Wineville School Project, Series A (D) | 5.000 | 10-01-42 | 2,000,000 | 2,306,620 |
Rate (%) | Maturity date | Par value^ | Value | |||||||||||||||||
California (continued) | ||||||||||||||||||||
California Pollution Control Financing Authority Waste Management Inc., Series A3, AMT | 4.300 | 07-01-40 | 1,500,000 | $1,581,885 | ||||||||||||||||
California School Finance Authority Aspire Public Schools (S) | 5.000 | 08-01-41 | 1,700,000 | 1,925,488 | ||||||||||||||||
California School Finance Authority Aspire Public Schools (S) | 5.000 | 08-01-46 | 1,025,000 | 1,154,909 | ||||||||||||||||
California State Public Works Board Department of Corrections, Series A (D) | 5.000 | 12-01-19 | 3,870,000 | 4,162,146 | ||||||||||||||||
California State Public Works Board Trustees California State University, Series D | 6.250 | 04-01-34 | 2,000,000 | 2,301,380 | ||||||||||||||||
California State Public Works Board Various Capital Projects, Series A | 5.000 | 04-01-37 | 1,000,000 | 1,157,810 | ||||||||||||||||
California State Public Works Board Various Correctional Facilities, Series A | 5.000 | 09-01-39 | 2,500,000 | 2,979,650 | ||||||||||||||||
California State University College and University Revenue, Series A | 5.000 | 11-01-44 | 2,000,000 | 2,404,260 | ||||||||||||||||
California State University College and University Revenue, Series A | 5.250 | 11-01-34 | 1,000,000 | 1,126,280 | ||||||||||||||||
California Statewide Communities Development Authority American Baptist Homes West | 6.250 | 10-01-39 | 2,000,000 | 2,292,220 | ||||||||||||||||
California Statewide Communities Development Authority CHF Irvine LLC | 5.000 | 05-15-40 | 2,880,000 | 3,402,432 | ||||||||||||||||
California Statewide Communities Development Authority Enloe Medical Center (D) | 4.000 | 08-15-38 | 400,000 | 434,152 | ||||||||||||||||
California Statewide Communities Development Authority Infrastructure Program Revenue, Series B | 5.000 | 09-02-44 | 1,000,000 | 1,081,570 | ||||||||||||||||
California Statewide Communities Development Authority Kaiser Permanente, Series A | 5.000 | 04-01-42 | 3,500,000 | 4,035,710 | ||||||||||||||||
California Statewide Communities Development Authority Los Angeles Jewish Homes, Series S (D) | 5.000 | 08-01-44 | 2,250,000 | 2,626,493 | ||||||||||||||||
California Statewide Communities Development Authority Redwoods Project (D) | 5.375 | 11-15-44 | 1,500,000 | 1,813,770 | ||||||||||||||||
California Statewide Communities Development Authority Senior Living of Southern California (S) | 7.250 | 11-15-41 | 1,700,000 | 1,979,820 | ||||||||||||||||
California Statewide Communities Development Authority University of California - Irvine | 5.750 | 05-15-32 | 1,230,000 | 1,352,656 | ||||||||||||||||
California Statewide Financing Authority Tobacco Settlement, Series A | 6.000 | 05-01-37 | 2,500,000 | 2,532,450 |
Rate (%) | Maturity date | Par value^ | Value | |||||||||||||||||
California (continued) | ||||||||||||||||||||
California Statewide Financing Authority Tobacco Settlement, Series B | 6.000 | 05-01-37 | 3,000,000 | $3,049,650 | ||||||||||||||||
Center Unified School District, Series C, GO (D) | 0.735 (Z | ) | 09-01-16 | 2,145,000 | 2,140,946 | |||||||||||||||
City of Irvine Community Facilities District | 5.000 | 09-01-49 | 2,000,000 | 2,254,620 | ||||||||||||||||
City of La Verne Brethren Hillcrest Homes | 5.000 | 05-15-36 | 750,000 | 819,480 | ||||||||||||||||
City of Long Beach Alamitos Bay Marina Project, Series 2015 | 5.000 | 05-15-45 | 1,000,000 | 1,129,210 | ||||||||||||||||
City of Marin Healthcare District, Series B, GO | 4.000 | 08-01-45 | 2,000,000 | 2,199,580 | ||||||||||||||||
City of San Clemente Community Facilities District | 5.000 | 09-01-46 | 2,000,000 | 2,265,340 | ||||||||||||||||
City of San Francisco Public Utilities Commission Water Revenue, Series A | 5.000 | 11-01-45 | 1,500,000 | 1,780,890 | ||||||||||||||||
City of San Mateo Community Facilities District | 5.500 | 09-01-44 | 2,000,000 | 2,257,800 | ||||||||||||||||
East Side Union High School District-Santa Clara County, GO (D) | 5.250 | 09-01-24 | 2,500,000 | 3,200,300 | ||||||||||||||||
Eastern Municipal Water District Series A | 5.000 | 07-01-45 | 3,000,000 | 3,649,830 | ||||||||||||||||
Folsom Public Financing Authority, Series B | 5.125 | 09-01-26 | 965,000 | 981,434 | ||||||||||||||||
Foothill-Eastern Transportation Corridor Agency Highway Revenue Tolls, Series A | 5.750 | 01-15-46 | 5,000,000 | 5,882,050 | ||||||||||||||||
Fresno Sewer System Revenue, Series A-1 (D) | 5.250 | 09-01-19 | 770,000 | 809,678 | ||||||||||||||||
Golden State Tobacco Securitization Corp. Series A | 5.000 | 06-01-40 | 8,250,000 | 9,778,890 | ||||||||||||||||
Inland Valley Development Agency Series A | 5.000 | 09-01-44 | 7,500,000 | 8,541,150 | ||||||||||||||||
Kern County, Capital Improvements Project, Series A (D) | 5.750 | 08-01-35 | 1,000,000 | 1,117,100 | ||||||||||||||||
Laguna Salada Union School District, Series C, GO (D) | 2.816 (Z | ) | 08-01-26 | 1,000,000 | 750,870 | |||||||||||||||
Lancaster School District School Improvements (D) | 1.230 (Z | ) | 04-01-19 | 1,730,000 | 1,670,229 | |||||||||||||||
Lancaster School District School Improvements (D) | 1.540 (Z | ) | 04-01-22 | 1,380,000 | 1,260,616 | |||||||||||||||
Long Beach Harbor Revenue, Series A, AMT (D) | 6.000 | 05-15-18 | 2,660,000 | 2,915,839 | ||||||||||||||||
Long Beach Special Tax Community Facilities District 6-Pike Project | 6.250 | 10-01-26 | 2,480,000 | 2,485,853 | ||||||||||||||||
Los Angeles Community College District 2008 Election, Series A, GO | 6.000 | 08-01-33 | 4,000,000 | 4,632,200 | ||||||||||||||||
Los Angeles Community Facilities District No: 3 Cascades Business Park | 6.400 | 09-01-22 | 500,000 | 505,350 |
Rate (%) | Maturity date | Par value^ | Value | |||||||||||||||||
California (continued) | ||||||||||||||||||||
Los Angeles County Public Works Financing Authority Series D | 5.000 | 12-01-45 | 3,000,000 | $3,580,320 | ||||||||||||||||
Los Angeles County Regional Financing Authority Montecedro Incorporated Project, Series A (D) | 5.000 | 11-15-44 | 1,355,000 | 1,567,139 | ||||||||||||||||
Los Angeles Department of Water & Power Power Systems, Series D | 5.000 | 07-01-44 | 1,000,000 | 1,198,110 | ||||||||||||||||
Los Angeles Unified School District Election 2008, Series A, GO | 4.000 | 07-01-40 | 1,000,000 | 1,099,850 | ||||||||||||||||
Los Angeles Unified School District Election 2008, Series A, GO | 5.000 | 07-01-40 | 1,000,000 | 1,202,000 | ||||||||||||||||
M-S-R Energy Authority Natural Gas Revenue, Series B | 6.500 | 11-01-39 | 3,500,000 | 5,033,000 | ||||||||||||||||
Metropolitan Water District of Southern California Authorization, Series A | 5.000 | 07-01-40 | 1,745,000 | 2,113,282 | ||||||||||||||||
Morgan Hill Redevelopment Agency Successor Agency Series A | 5.000 | 09-01-33 | 1,750,000 | 2,049,793 | ||||||||||||||||
Oakland Unified School District/Alameda County Election of 2012, GO | 6.625 | 08-01-38 | 1,000,000 | 1,221,710 | ||||||||||||||||
Oakland Unified School District/Alameda County Series A, GO | 5.000 | 08-01-40 | 1,500,000 | 1,747,965 | ||||||||||||||||
Orange County Improvement Bond Act 1915, Series B | 5.750 | 09-02-33 | 1,365,000 | 1,374,760 | ||||||||||||||||
Paramount Unified School District, Series B, GO (D) | 2.638 (Z | ) | 09-01-25 | 4,735,000 | 3,708,215 | |||||||||||||||
Pasadena California Certificates Participation Refunding Old Pasadena Parking Facility Project | 6.250 | 01-01-18 | 230,000 | 241,551 | ||||||||||||||||
Port of Los Angeles Series A, AMT | 5.000 | 08-01-44 | 2,000,000 | 2,327,080 | ||||||||||||||||
River Islands Public Financing Authority Community Facilities District, 2003-1 | 5.500 | 09-01-45 | 2,000,000 | 2,198,120 | ||||||||||||||||
Riverside County Transportation Commission, Series A | 5.750 | 06-01-48 | 1,000,000 | 1,172,510 | ||||||||||||||||
San Bernardino County Capital Facilities Project, Escrowed to Maturity, Series B | 6.875 | 08-01-24 | 350,000 | 459,953 | ||||||||||||||||
San Bernardino County Medical Center Financing Project, Series B (D) | 5.500 | 08-01-17 | 2,560,000 | 2,624,000 | ||||||||||||||||
San Bruno Park Elementary School District School Improvements, Series B, GO (D) | 1.700 (Z | ) | 08-01-21 | 1,015,000 | 929,111 | |||||||||||||||
San Diego County Regional Airport Authority, Series A | 5.000 | 07-01-44 | 4,925,000 | 5,634,840 | ||||||||||||||||
San Diego County Regional Transportation Commission Sales & Use Tax, Series A | 5.000 | 04-01-44 | 3,000,000 | 3,568,050 | ||||||||||||||||
San Diego Public Facilities Financing Authority Lease Revenue | 5.250 | 03-01-40 | 1,000,000 | 1,143,450 | ||||||||||||||||
San Diego Public Facilities Financing Authority Series A | 5.000 | 10-15-44 | 1,000,000 | 1,196,620 |
Rate (%) | Maturity date | Par value^ | Value | |||||||||||||||||
California (continued) | ||||||||||||||||||||
San Diego Unified School District Series I, GO | 3.811 (Z | ) | 07-01-39 | 1,250,000 | $520,575 | |||||||||||||||
San Diego Unified School District, Election of 1998, Series A, GO (D) | 1.732 (Z | ) | 07-01-21 | 2,500,000 | 2,288,075 | |||||||||||||||
San Francisco City & County Airports Commission San Francisco International Airport, Series B | 5.000 | 05-01-44 | 7,890,000 | 9,193,901 | ||||||||||||||||
San Francisco City & County Redevelopment Agency Department of General Services Lease, No. 6, Mission Bay South, Series A | 5.150 | 08-01-35 | 1,250,000 | 1,252,938 | ||||||||||||||||
San Francisco City & County Redevelopment Agency Mission Bay South Redevelopment Project, Series B (D) | 5.000 | 08-01-43 | 570,000 | 685,858 | ||||||||||||||||
San Francisco City & County Redevelopment Agency Mission Bay South Redevelopment Project, Series C (D) | 5.000 | 08-01-41 | 500,000 | 605,590 | ||||||||||||||||
San Francisco City & County Redevelopment Agency Mission Bay South Redevelopment, Series D | 7.000 | 08-01-41 | 1,000,000 | 1,263,980 | ||||||||||||||||
San Francisco City & County Redevelopment Financing Authority Mission Bay South Redevelopment, Series D | 6.625 | 08-01-39 | 1,000,000 | 1,179,230 | ||||||||||||||||
San Francisco City & County Redevelopment Financing Authority San Francisco Redevelopment Projects, Series B | 6.625 | 08-01-39 | 700,000 | 817,299 | ||||||||||||||||
San Joaquin Hills Transportation Corridor Agency Highway Revenue Tolls, Escrowed to Maturity | 1.483 (Z | ) | 01-01-22 | 6,500,000 | 5,979,675 | |||||||||||||||
San Joaquin Hills Transportation Corridor Agency Series A | 5.000 | 01-15-44 | 2,500,000 | 2,814,575 | ||||||||||||||||
San Mateo County Joint Power Authority (D) | 5.000 | 07-01-21 | 1,815,000 | 2,127,688 | ||||||||||||||||
San Mateo Foster City School District Election 2015, Series A, GO | 4.000 | 08-01-40 | 1,405,000 | 1,553,607 | ||||||||||||||||
San Mateo Foster City School District Election 2015, Series A, GO | 4.000 | 08-01-45 | 1,875,000 | 2,066,906 | ||||||||||||||||
Santa Ana Financing Authority Police Administration & Holding Facility (D) | 6.250 | 07-01-19 | 895,000 | 1,024,363 | ||||||||||||||||
Santa Ana Financing Authority Police Administration & Holding Facility (D) | 6.250 | 07-01-24 | 5,000,000 | 6,316,000 | ||||||||||||||||
Santa Ana Financing Authority Prerefunded, Police Administration & Holding Facility (D) | 6.250 | 07-01-19 | 895,000 | 1,034,942 | ||||||||||||||||
Santa Ana Financing Authority Prerefunded, Police Administration & Holding Facility (D) | 6.250 | 07-01-24 | 5,000,000 | 6,304,200 | ||||||||||||||||
Santa Clara Valley Water District, Series A | 5.000 | 06-01-46 | 2,000,000 | 2,416,720 | ||||||||||||||||
Santa Fe Springs Community Development Commission Construction Redevelopment Project, Series A (D) | 2.158 (Z | ) | 09-01-20 | 1,275,000 | 1,162,749 |
Rate (%) | Maturity date | Par value^ | Value | |||||||||||||||||
California (continued) | ||||||||||||||||||||
Santa Margarita Water District Community Facilities District | 5.625 | 09-01-43 | 775,000 | $885,112 | ||||||||||||||||
South Orange County Public Financing Authority Series A | 5.000 | 08-15-33 | 1,000,000 | 1,145,210 | ||||||||||||||||
South Orange County Public Financing Authority Series A | 5.000 | 08-15-34 | 450,000 | 513,437 | ||||||||||||||||
Southern California Public Power Authority Natural Gas Revenue, Series A | 5.250 | 11-01-26 | 2,000,000 | 2,474,700 | ||||||||||||||||
Southern California Public Power Authority Series A | 5.000 | 07-01-38 | 1,000,000 | 1,203,830 | ||||||||||||||||
State of California, GO | 5.000 | 04-01-43 | 6,500,000 | 7,675,785 | ||||||||||||||||
State of California, GO | 5.000 | 11-01-43 | 2,000,000 | 2,390,320 | ||||||||||||||||
State of California, GO | 5.000 | 03-01-45 | 1,000,000 | 1,193,610 | ||||||||||||||||
State of California, GO | 6.500 | 04-01-33 | 5,000,000 | 5,784,550 | ||||||||||||||||
Stockton Public Financing Authority Delta Water Supply Project, Series A | 6.250 | 10-01-40 | 1,150,000 | 1,440,778 | ||||||||||||||||
Successor Agency To The San Francisco City & County Redevelopment Agency Mission Bay Project, Series A | 5.000 | 08-01-43 | 1,000,000 | 1,153,260 | ||||||||||||||||
Sweetwater Union High School District Election of 2006, Series 2016 B, GO | 4.000 | 08-01-42 | 500,000 | 543,860 | ||||||||||||||||
Temecula Valley Unified School District 2012 Election, Series B, GO (D) | 4.000 | 08-01-45 | 1,750,000 | 1,911,210 | ||||||||||||||||
Torrance Hospital Revenue Torrance Memorial Medical Center, Series A | 5.500 | 06-01-31 | 2,000,000 | 2,032,380 | ||||||||||||||||
Tuolumne Wind Project Authority Tuolumne County Project, Series A | 5.625 | 01-01-29 | 1,000,000 | 1,115,880 | ||||||||||||||||
University of California Series AM | 5.000 | 05-15-44 | 4,000,000 | 4,739,515 | ||||||||||||||||
West Covina Redevelopment Agency Fashion Plaza | 6.000 | 09-01-22 | 3,390,000 | 3,940,334 | ||||||||||||||||
Puerto Rico 0.2% | 509,715 | |||||||||||||||||||
Puerto Rico Industrial Tourist Education Medical & Environment Authority Hospital de la Concepcion | 6.500 | 11-15-20 | 500,000 | 509,715 | ||||||||||||||||
Yield* (%) | Maturity date | Par value^ | Value | |||||||||||||||||
Short-term investments 1.9% | $5,633,000 | |||||||||||||||||||
(Cost $5,633,000) | ||||||||||||||||||||
U.S. Government Agency 0.5% | 1,389,000 | |||||||||||||||||||
Federal Home Loan Bank Discount Note | 0.150 | 06-01-16 | 1,389,000 | 1,389,000 |
Par value^ | Value | |||||||||||||||||||
Repurchase agreement 1.4% | $4,244,000 | |||||||||||||||||||
Barclays Tri-Party Repurchase Agreement dated 5-31-16 at 0.290% to be repurchased at $3,775,030 on 6-1-16, collateralized by $1,794,200 U.S. Treasury Notes, 1.750% due 9-30-22 (valued at $1,816,675, including interest) and $1,670,300 U.S. Treasury Inflation Indexed Notes, 0.625% - 2.375% due 1-15-17 to 1-15-26 (valued at $2,033,891, including interest) | 3,775,000 | 3,775,000 | ||||||||||||||||||
Repurchase Agreement with State Street Corp. dated 5-31-16 at 0.030% to be repurchased at $469,000 on 6-1-16, collateralized by $480,000 U.S. Treasury Notes, 1.375% due 10-31-20 (valued at $480,600, including interest) | 469,000 | 469,000 | ||||||||||||||||||
Total investments (Cost $260,096,490)† 98.2% | $286,874,023 | |||||||||||||||||||
Other assets and liabilities, net 1.8% | $5,359,688 | |||||||||||||||||||
Total net assets 100.0% | $292,233,711 |
The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the fund. | ||||||||||||||||||||
^All par values are denominated in U.S. dollars unless otherwise indicated. | ||||||||||||||||||||
Key to Security Abbreviations and Legend | ||||||||||||||||||||
AMT | Interest earned from these securities may be considered a tax preference item for purpose of the Federal Alternative Minimum Tax. | |||||||||||||||||||
GO | General Obligation | |||||||||||||||||||
(D) | Bond is insured by one or more of the companies listed in the insurance coverage table below. | |||||||||||||||||||
Insurance coverage | As a % of total investments | |||||||||||||||||||
National Public Finance Guarantee Corp. | 10.8 | |||||||||||||||||||
Assured Guaranty Municipal Corp. | 5.1 | |||||||||||||||||||
California Mortgage Insurance | 2.6 | |||||||||||||||||||
Ambac Financial Group, Inc. | 2.2 | |||||||||||||||||||
Build America Mutual Assurance Company | 0.8 | |||||||||||||||||||
Assured Guaranty Corp. | 0.4 | |||||||||||||||||||
Total | 21.9 | |||||||||||||||||||
(S) | These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration. | |||||||||||||||||||
(Z) | Zero coupon bonds are issued at a discount from their principal amount in lieu of paying interest periodically. Rate shown is the effective yield at period end. | |||||||||||||||||||
* | Yield represents either the annualized yield at the date of purchase, the stated coupon rate or, for floating rate securities, the rate at period end. | |||||||||||||||||||
† | At 5-31-16, the aggregate cost of investment securities for federal income tax purposes was $258,262,922. Net unrealized appreciation aggregated to $28,611,101, of which $28,611,101 related to appreciated investment securities and $0 related to depreciated investment securities. |
Financial statements
STATEMENT OF ASSETS AND LIABILITIES 5-31-16
Assets | ||||||||||||||||||||||||||||||
Investments, at value (Cost $260,096,490) | $286,874,023 | |||||||||||||||||||||||||||||
Cash | 132,145 | |||||||||||||||||||||||||||||
Receivable for investments sold | 1,770,420 | |||||||||||||||||||||||||||||
Receivable for fund shares sold | 1,211,437 | |||||||||||||||||||||||||||||
Interest receivable | 3,006,195 | |||||||||||||||||||||||||||||
Other receivables and prepaid expenses | 8,492 | |||||||||||||||||||||||||||||
Total assets | 293,002,712 | |||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||
Payable for fund shares repurchased | 371,700 | |||||||||||||||||||||||||||||
Distributions payable | 126,237 | |||||||||||||||||||||||||||||
Payable to affiliates | ||||||||||||||||||||||||||||||
Accounting and legal services fees | 9,337 | |||||||||||||||||||||||||||||
Transfer agent fees | 12,702 | |||||||||||||||||||||||||||||
Distribution and service fees | 32,087 | |||||||||||||||||||||||||||||
Investment management fees | 135,129 | |||||||||||||||||||||||||||||
Other liabilities and accrued expenses | 81,809 | |||||||||||||||||||||||||||||
Total liabilities | 769,001 | |||||||||||||||||||||||||||||
Net assets | $292,233,711 | |||||||||||||||||||||||||||||
Net assets consist of | ||||||||||||||||||||||||||||||
Paid-in capital | $267,496,168 | |||||||||||||||||||||||||||||
Undistributed net investment income | 330,423 | |||||||||||||||||||||||||||||
Accumulated net realized gain (loss) on investments | (2,370,413 | ) | ||||||||||||||||||||||||||||
Net unrealized appreciation (depreciation) on investments | 26,777,533 | |||||||||||||||||||||||||||||
Net assets | $292,233,711 | |||||||||||||||||||||||||||||
Net asset value per share | ||||||||||||||||||||||||||||||
Based on net asset values and shares outstanding-the fund has an unlimited number of shares authorized with no par value | ||||||||||||||||||||||||||||||
Class A ($254,486,887 ÷ 22,672,758 shares)1 | $11.22 | |||||||||||||||||||||||||||||
Class B ($1,582,790 ÷ 140,943 shares)1 | $11.23 | |||||||||||||||||||||||||||||
Class C ($36,164,034 ÷ 3,221,855 shares)1 | $11.22 | |||||||||||||||||||||||||||||
Maximum offering price per share | ||||||||||||||||||||||||||||||
Class A (net asset value per share ÷ 96%)2 | $11.69 |
1 | Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. | ||||||||||||||||
2 | 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. |
STATEMENT OF OPERATIONS For the year ended 5-31-16
Investment income | ||||||||||||||||||||||||
Interest | $12,082,926 | |||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Investment management fees | 1,523,876 | |||||||||||||||||||||||
Distribution and service fees | 728,527 | |||||||||||||||||||||||
Accounting and legal services fees | 53,940 | |||||||||||||||||||||||
Transfer agent fees | 153,660 | |||||||||||||||||||||||
Trustees' fees | 4,129 | |||||||||||||||||||||||
State registration fees | 17,058 | |||||||||||||||||||||||
Printing and postage | 37,315 | |||||||||||||||||||||||
Professional fees | 62,523 | |||||||||||||||||||||||
Custodian fees | 34,632 | |||||||||||||||||||||||
Registration and filing fees | 17,046 | |||||||||||||||||||||||
Other | 11,674 | |||||||||||||||||||||||
Total expenses | 2,644,380 | |||||||||||||||||||||||
Less expense reductions | (57,387 | ) | ||||||||||||||||||||||
Net expenses | 2,586,993 | |||||||||||||||||||||||
Net investment income | 9,495,933 | |||||||||||||||||||||||
Realized and unrealized gain (loss) | ||||||||||||||||||||||||
Net realized gain (loss) on | ||||||||||||||||||||||||
Investments | 788,481 | |||||||||||||||||||||||
788,481 | ||||||||||||||||||||||||
Change in net unrealized appreciation (depreciation) of | ||||||||||||||||||||||||
Investments | 7,506,532 | |||||||||||||||||||||||
7,506,532 | ||||||||||||||||||||||||
Net realized and unrealized gain | 8,295,013 | |||||||||||||||||||||||
Increase in net assets from operations | $17,790,946 |
STATEMENTS OF CHANGES IN NET ASSETS
Year ended 5-31-16 | Year ended 5-31-15 | ||||||||||||||||||||||||||||||||||||||||||||
Increase (decrease) in net assets | |||||||||||||||||||||||||||||||||||||||||||||
From operations | |||||||||||||||||||||||||||||||||||||||||||||
Net investment income | $9,495,933 | $9,715,940 | |||||||||||||||||||||||||||||||||||||||||||
Net realized gain | 788,481 | 474,045 | |||||||||||||||||||||||||||||||||||||||||||
Change in net unrealized appreciation (depreciation) | 7,506,532 | (1,521,216 | ) | ||||||||||||||||||||||||||||||||||||||||||
Increase in net assets resulting from operations | 17,790,946 | 8,668,769 | |||||||||||||||||||||||||||||||||||||||||||
Distributions to shareholders | |||||||||||||||||||||||||||||||||||||||||||||
From net investment income | |||||||||||||||||||||||||||||||||||||||||||||
Class A | (8,698,763 | ) | (8,772,571 | ) | |||||||||||||||||||||||||||||||||||||||||
Class B | (45,971 | ) | (63,207 | ) | |||||||||||||||||||||||||||||||||||||||||
Class C | (1,012,198 | ) | (1,028,466 | ) | |||||||||||||||||||||||||||||||||||||||||
Total distributions | (9,756,932 | ) | (9,864,244 | ) | |||||||||||||||||||||||||||||||||||||||||
From fund share transactions | 13,446,719 | 24,937,069 | |||||||||||||||||||||||||||||||||||||||||||
Total increase | 21,480,733 | 23,741,594 | |||||||||||||||||||||||||||||||||||||||||||
Net assets | |||||||||||||||||||||||||||||||||||||||||||||
Beginning of year | 270,752,978 | 247,011,384 | |||||||||||||||||||||||||||||||||||||||||||
End of year | $292,233,711 | $270,752,978 | |||||||||||||||||||||||||||||||||||||||||||
Undistributed net investment income | $330,423 | $462,966 |
Financial highlights
Class A Shares Period ended | 5-31-16 | 5-31-15 | 5-31-14 | 5-31-13 | 5-31-12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Per share operating performance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $10.91 | $10.95 | $11.06 | $11.02 | $10.07 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income1 | 0.39 | 0.42 | 0.46 | 0.46 | 0.48 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.32 | (0.04 | ) | (0.11 | ) | 0.04 | 0.94 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total from investment operations | 0.71 | 0.38 | 0.35 | 0.50 | 1.42 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less distributions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
From net investment income | (0.40 | ) | (0.42 | ) | (0.46 | ) | (0.46 | ) | (0.47 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, end of period | $11.22 | $10.91 | $10.95 | $11.06 | $11.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total return (%)2,3 | 6.63 | 3.53 | 3.46 | 4.55 | 14.43 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratios and supplemental data | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $254 | $235 | $214 | $241 | $243 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratios (as a percentage of average net assets): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses before reductions | 0.84 | 0.83 | 0.86 | 0.84 | 0.86 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses including reductions | 0.83 | 0.82 | 0.86 | 0.84 | 0.86 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income | 3.53 | 3.78 | 4.40 | 4.15 | 4.56 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Portfolio turnover (%) | 20 | 19 | 19 | 7 | 9 |
1 | Based on average daily shares outstanding. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2 | Does not reflect the effect of sales charges, if any. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3 | Total returns would have been lower had certain expenses not been reduced during the applicable periods. |
Class B Shares Period ended | 5-31-16 | 5-31-15 | 5-31-14 | 5-31-13 | 5-31-12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Per share operating performance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $10.91 | $10.95 | $11.07 | $11.03 | $10.07 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income1 | 0.31 | 0.34 | 0.39 | 0.38 | 0.40 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.33 | (0.04 | ) | (0.12 | ) | 0.03 | 0.95 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total from investment operations | 0.64 | 0.30 | 0.27 | 0.41 | 1.35 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less distributions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
From net investment income | (0.32 | ) | (0.34 | ) | (0.39 | ) | (0.37 | ) | (0.39 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, end of period | $11.23 | $10.91 | $10.95 | $11.07 | $11.03 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total return (%)2,3 | 5.93 | 2.76 | 2.60 | 3.76 | 13.67 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratios and supplemental data | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $2 | $2 | $2 | $3 | $2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratios (as a percentage of average net assets): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses before reductions | 1.69 | 1.68 | 1.71 | 1.69 | 1.71 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses including reductions | 1.58 | 1.58 | 1.61 | 1.59 | 1.62 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income | 2.78 | 3.04 | 3.65 | 3.40 | 3.79 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Portfolio turnover (%) | 20 | 19 | 19 | 7 | 9 |
1 | Based on average daily shares outstanding. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2 | Does not reflect the effect of sales charges, if any. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3 | Total returns would have been lower had certain expenses not been reduced during the applicable periods. |
Class C Shares Period ended | 5-31-16 | 5-31-15 | 5-31-14 | 5-31-13 | 5-31-12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Per share operating performance | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $10.91 | $10.95 | $11.06 | $11.02 | $10.07 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income1 | 0.31 | 0.33 | 0.39 | 0.38 | 0.40 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.32 | (0.03 | ) | (0.11 | ) | 0.03 | 0.94 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total from investment operations | 0.63 | 0.30 | 0.28 | 0.41 | 1.34 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less distributions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
From net investment income | (0.32 | ) | (0.34 | ) | (0.39 | ) | (0.37 | ) | (0.39 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value, end of period | $11.22 | $10.91 | $10.95 | $11.06 | $11.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total return (%)2,3 | 5.83 | 2.76 | 2.69 | 3.77 | 13.56 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratios and supplemental data | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $36 | $34 | $31 | $33 | $29 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratios (as a percentage of average net assets): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses before reductions | 1.69 | 1.68 | 1.71 | 1.69 | 1.71 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses including reductions | 1.58 | 1.57 | 1.61 | 1.59 | 1.62 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income | 2.78 | 3.03 | 3.65 | 3.40 | 3.79 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Portfolio turnover (%) | 20 | 19 | 19 | 7 | 9 |
1 | Based on average daily shares outstanding. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2 | Does not reflect the effect of sales charges, if any. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3 | Total returns would have been lower had certain expenses not been reduced during the applicable periods. |
Note 1 — Organization
John Hancock California Tax-Free Income Fund (the fund) is the sole series of John Hancock California Tax-Free Income Fund (the Trust), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the fund is to seek a high level of current income, consistent with preservation of capital, that is exempt from federal and California personal income taxes.
The fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of assets and liabilities. Class A and Class C shares are offered to all investors. Class B shares are closed to new investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.
Note 2 — Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP), which require management to make certain estimates and assumptions as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. The fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of US GAAP.
Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the fund:
Security valuation. Investments are stated at value as of the scheduled close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. In case of emergency or other disruption resulting in the NYSE not opening for trading or the NYSE closing at a time other than the regularly scheduled close, the net asset value (NAV) may be determined as of the regularly scheduled close of the NYSE pursuant to the fund's Valuation Policies and Procedures. The time at which shares and transactions are priced and until which orders are accepted may vary to the extent permitted by the Securities and Exchange Commission (SEC) and applicable regulations.
In order to value the securities, the fund uses the following valuation techniques: Debt obligations are valued based on the evaluated prices provided by an independent pricing vendor or from broker-dealers. Independent pricing vendors utilize matrix pricing which takes into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, as well as broker supplied prices.
Other portfolio securities and assets, for which reliable market quotations are not readily available, are valued at fair value as determined in good faith by the fund's Pricing Committee following procedures established by the Board of Trustees. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
The fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the fund's own assumptions in determining the fair value of investments. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques and related inputs may result in transfers into or out of an assigned level within the disclosure hierarchy.
As of May 31, 2016, all investments are categorized as Level 2 under the hierarchy described above.
Repurchase agreements. The fund may enter into repurchase agreements. When the fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the fund's custodian, or for tri-party repurchase agreements, collateral is held at a third-party custodian bank in a segregated account for the benefit of the fund. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. Collateral received by the fund for repurchase agreements is disclosed in the Fund's investments as part of the caption related to the repurchase agreement.
Repurchase agreements are typically governed by the terms and conditions of the Master Repurchase Agreement and/or Global Master Repurchase Agreement (collectively, MRA). Upon an event of default, the non-defaulting party may close out all transactions traded under the MRA and net amounts owed. Absent an event of default, assets and liabilities resulting from repurchase agreements are not offset in the Statement of assets and liabilities. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline or the counterparty may have insufficient assets to pay back claims resulting from close-out of the transactions.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily NAV calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Line of credit. The fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the fund's custodian agreement, the custodian may loan money to the fund to make properly authorized payments. The fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the extent of any overdraft, and to the maximum extent permitted by law.
The fund and other affiliated funds have entered into a syndicated line of credit agreement with Citibank, N.A. (Citibank) as the administrative agent, that enables them to participate in a $750 million unsecured committed line of credit. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis and is reflected in Other expenses on the Statement of operations. Prior to June 30, 2015, the fund and other affiliated funds had an agreement with Citibank that enabled them to participate in a $300 million unsecured committed line of credit. Commitment fees for the year ended May 31, 2016 were $1,768. For the year ended May 31, 2016, the fund had no borrowings under either line of credit.
Expenses. Within the John Hancock group of funds complex, expenses that are directly attributable to an individual fund are allocated to such fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund's relative net assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
Class allocations. Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the net assets of the class. Class-specific expenses, such as distribution and service fees, if any, and transfer agent fees, for all classes, are calculated daily at the class level based on the net assets of each class and the specific expense rates applicable to each class.
Federal income taxes. The fund intends to continue to qualify 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 that is distributed to shareholders. Therefore, no federal income tax provision is required.
Under the Regulated Investment Company Modernization Act of 2010, the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Any losses incurred during those taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
For federal income tax purposes, as of May 31, 2016, the fund has a capital loss carryforward of $4,203,981 available to offset future net realized capital gains.
The following table details the capital loss carryforward available as of May 31, 2016:
Capital loss carryforward expiring at May 31 | No expiration date | ||
2017 | 2018 | Short-term | Long-term |
$731,359 | $206,417 | $1,833,295 | $1,432,910 |
As of May 31, 2016, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund's federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The fund generally declares dividends daily and pays them monthly. Capital gain distributions, if any, are distributed at least annually. The tax character of distributions for the years ended May 31, 2016 and 2015 was as follows:
May 31, 2016 | May 31, 2015 | |
Ordinary Income | $255,540 | $214,530 |
Exempt Income | 9,501,392 | 9,649,714 |
Total | $9,756,932 | $9,864,244 |
Distributions paid by the fund with respect to each class of shares are calculated in the same manner, at the same time and in the same amount, except for the effect of class level expenses that may be applied differently to each class. As of May 31, 2016, the components of distributable earnings on a tax basis consisted of $456,659 of undistributed exempt interest.
Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from US GAAP. Distributions in excess of tax basis earnings and profits, if any, are reported in the fund's financial statements as a return of capital.
Capital accounts within the financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to amortization and accretion on debt securities.
Note 3 — Guarantees and indemnifications
Under the Trust's organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including the fund. Additionally, in the normal course of business, the fund enters into contracts with service providers that contain general indemnification clauses. The fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 4 — Fees and transactions with affiliates
John Hancock Advisers, LLC (the Advisor) serves as investment advisor for the fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the fund. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The fund has an investment management agreement with the Advisor under which the fund pays a monthly management fee to the Advisor, equivalent on an annual basis, to the sum of: (a) 0.550% of the first $500 million of the fund's average daily net assets, (b) 0.500% of the next $500 million of the fund's average daily net assets, (c) 0.475% of the next $1 billion of the fund's average daily net assets; and (d) 0.450% of the fund's average daily net assets in excess of $2 billion. The Advisor has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Advisor. The fund is not responsible for payment of the subadvisory fees.
The Advisor has contractually agreed to waive a portion of its management fee and/or reimburse expenses for certain funds of the John Hancock group of funds complex, including the fund (the participating portfolios). This waiver is based upon aggregate net assets of all the participating portfolios. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each fund. During the year ended May 31, 2016, this waiver amounted to 0.01% of the fund's average net assets. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.
The expense reductions described above amounted to the following for the year ended May 31, 2016:
Class | Expense reduction | Class | Expense reduction | |
Class A | $17,836 | Class C | $2,617 | |
Class B | 119 | Total | $20,572 |
Expenses waived or reimbursed in the current fiscal period are not subject to recapture in future fiscal periods.
The investment management fees including the impact of waivers and reimbursements as described above, incurred for the year ended May 31, 2016 were equivalent to a net annual effective rate of 0.54% of the fund's average daily net assets.
Accounting and legal services. Pursuant to the Accounting and Legal Services Agreement the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to the fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. These accounting and legal services fees incurred for the year ended May 31, 2016 amounted to an annual rate of 0.02% of the fund's average daily net assets.
Distribution and service plans. The fund has a distribution agreement with the Distributor. The fund has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the fund. The fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the fund's shares.
Class | Rule 12b-1 fee |
Class A | 0.15% |
Class B | 1.00% |
Class C | 1.00% |
The fund's Distributor has contractually agreed to waive 0.10% of Rule 12b-1 fees for Class B and Class C shares. The current waiver agreement expires on September 30, 2016, unless renewed by mutual agreement of the fund and the Distributor based upon a determination that this is appropriate under the circumstances at the time. This contractual waiver amounted to $1,600 and $35,215 for Class B and Class C shares, respectively, for the year ended May 31, 2016.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $303,403 for the year ended May 31, 2016. Of this amount, $42,422 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $240,381 was paid as sales commissions to broker-dealers
and $20,600 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Class A, Class B and Class C shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. Class B shares that are redeemed within six years of purchase are subject to CDSCs, at declining rates, beginning at 5.00%. Class C shares that are redeemed within one year of purchase are subject to a 1.00% CDSC. CDSCs are applied to the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the year ended May 31, 2016, CDSCs received by the Distributor amounted to $4, $3,211 and $6,325 for Class A, Class B and Class C shares, respectively.
Transfer agent fees. The fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. The transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. It also includes out-of-pocket expenses, including payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain fees that Signature Services receives in connection with retirement and small accounts. Signature Services Cost is calculated monthly and allocated, as applicable, to five categories of share classes: Retail Share and Institutional Share Classes of Non-Municipal Bond Funds, Class R6 Shares, Retirement Share Classes and Municipal Bond Share Classes. Within each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the year ended May 31, 2016 were:
Class | Distribution and service fees | Transfer agent fees |
Class A | $360,380 | $133,233 |
Class B | 15,998 | 892 |
Class C | 352,149 | 19,535 |
Total | $728,527 | $153,660 |
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. The costs of paying Trustee compensation and expenses are allocated to each fund based on its net assets relative to other funds within the John Hancock group of funds complex.
Note 5 — Fund share transactions
Transactions in fund shares for the years ended May 31, 2016 and 2015 were as follows:
Year ended 5-31-16 | Year ended 5-31-15 | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||
Class A Shares | ||||||||||||||||||||||||||
Sold | 3,220,855 | $35,491,892 | 3,700,956 | $40,874,237 | ||||||||||||||||||||||
Distributions reinvested | 665,582 | 7,327,789 | 647,076 | 7,145,114 | ||||||||||||||||||||||
Repurchased | (2,713,642 | ) | (29,817,036 | ) | (2,389,633 | ) | (26,368,480 | ) | ||||||||||||||||||
Net increase | 1,172,795 | $13,002,645 | 1,958,399 | $21,650,871 | ||||||||||||||||||||||
Class B Shares | ||||||||||||||||||||||||||
Sold | 13,085 | $145,178 | 8,315 | $92,451 | ||||||||||||||||||||||
Distributions reinvested | 3,310 | 36,420 | 4,651 | 51,356 | ||||||||||||||||||||||
Repurchased | (40,414 | ) | (441,340 | ) | (42,783 | ) | (472,755 | ) | ||||||||||||||||||
Net decrease | (24,019 | ) | ($259,742 | ) | (29,817 | ) | ($328,948 | ) |
Year ended 5-31-16 | Year ended 5-31-15 | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||
Class C Shares | ||||||||||||||||||||||||||
Sold | 816,453 | $9,001,543 | 593,586 | $6,541,632 | ||||||||||||||||||||||
Distributions reinvested | 64,307 | 708,123 | 60,353 | 666,299 | ||||||||||||||||||||||
Repurchased | (816,677 | ) | (9,005,850 | ) | (326,321 | ) | (3,592,785 | ) | ||||||||||||||||||
Net increase | 64,083 | $703,816 | 327,618 | $3,615,146 | ||||||||||||||||||||||
Total net increase | 1,212,859 | $13,446,719 | 2,256,200 | $24,937,069 |
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term investments, amounted to $61,084,900 and $54,603,208, respectively, for the year ended May 31, 2016.
Note 7 — State or region risk
The fund invests heavily in California tax-exempt bonds, and its performance could be disproportionately affected by factors particular to that state or region. These factors may include economic or political changes, tax-base erosion, possible state constitutional limits on tax increases, detrimental budget deficits and other financial difficulties, and changes to the credit ratings assigned to those states' municipal issuers.
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of John Hancock California Tax-Free Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the fund's investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock California Tax-Free Income Fund (the "Fund") at May 31, 2016, 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 of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2016 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 15, 2016
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the fund, if any, paid during its taxable year ended May 31, 2016.
97.59% of dividends from net investment income are exempt-interest dividends.
Eligible shareholders will be mailed a 2016 Form 1099-DIV in early 2017. This will reflect the tax character of all distributions paid in calendar year 2016.
Please consult a tax advisor regarding the tax consequences of your investment in the fund.
This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the fund and execute policies formulated by the Trustees.
Independent Trustees
Name, year of birth Position(s) held with fund Principal occupation(s) and other directorships during past 5 years | Trustee of the Trust since1 | Number of John Hancock funds overseen by Trustee |
James M. Oates, Born: 1946 | 2012 | 230 |
Trustee and Chairperson of the Board Managing Director, Wydown Group (financial consulting firm) (since 1994); Chairman and Director, Emerson Investment Management, Inc. (since 2000); Independent Chairman, Hudson Castle Group, Inc. (formerly IBEX Capital Markets, Inc.) (financial services company) (1997-2011); Director, Stifel Financial (since 1996); Director, Investor Financial Services Corporation (1995-2007); Director, Connecticut River Bancorp (1998-2014); Director, Virtus Funds (formerly Phoenix Mutual Funds) (since 1988). Trustee and Chairperson of the Board, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015); Trustee and Chairperson of the Board, John Hancock retail funds3 (since 2012); Trustee (2005-2006 and since 2012) and Chairperson of the Board (since 2012), John Hancock Funds III; Trustee (since 2004) and Chairperson of the Board (since 2005), John Hancock Variable Insurance Trust; Trustee and Chairperson of the Board, John Hancock Funds II (since 2005). |
Charles L. Bardelis,2 Born: 1941 | 2012 | 230 |
Trustee Director, Island Commuter Corp. (marine transport). Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015); Trustee, John Hancock retail funds3 (since 2012); Trustee, John Hancock Funds III (2005-2006 and since 2012); Trustee, John Hancock Variable Insurance Trust (since 1988); Trustee, John Hancock Funds II (since 2005). |
Peter S. Burgess,2 Born: 1942 | 2012 | 230 |
Trustee Consultant (financial, accounting, and auditing matters) (since 1999); Certified Public Accountant; Partner, Arthur Andersen (independent public accounting firm) (prior to 1999); Director, Lincoln Educational Services Corporation (since 2004); Director, Symetra Financial Corporation (2010-2016); Director, PMA Capital Corporation (2004-2010). Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015); Trustee, John Hancock retail funds3 (since 2012); Trustee, John Hancock Funds III (2005-2006 and since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2005). |
William H. Cunningham, Born: 1944 | 1989 | 230 |
Trustee Professor, University of Texas, Austin, Texas (since 1971); former Chancellor, University of Texas System and former President of the University of Texas, Austin, Texas; Chairman (since 2009) and Director (since 2006), Lincoln National Corporation (insurance); Director, Southwest Airlines (since 2000); former Director, LIN Television (2009-2014). Trustee, John Hancock retail funds3 (since 1986); Trustee, John Hancock Variable Insurance Trust (since 2012); Trustee, John Hancock Funds II (2005-2006 and since 2012); Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
Grace K. Fey, Born: 1946 | 2012 | 230 |
Trustee Chief Executive Officer, Grace Fey Advisors (since 2007); Director and Executive Vice President, Frontier Capital Management Company (1988-2007); Director, Fiduciary Trust (since 2009). Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015); Trustee, John Hancock retail funds3 (since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2008). |
Independent Trustees (continued)
Name, year of birth Position(s) held with fund Principal occupation(s) and other directorships during past 5 years | Trustee of the Trust since1 | Number of John Hancock funds overseen by Trustee |
Theron S. Hoffman,2 Born: 1947 | 2012 | 230 |
Trustee Chief Executive Officer, T. Hoffman Associates, LLC (consulting firm) (since 2003); Director, The Todd Organization (consulting firm) (2003-2010); President, Westport Resources Management (investment management consulting firm) (2006-2008); Senior Managing Director, Partner, and Operating Head, Putnam Investments (2000-2003); Executive Vice President, The Thomson Corp. (financial and legal information publishing) (1997-2000). Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015); Trustee, John Hancock retail funds3 (since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2008). |
Deborah C. Jackson, Born: 1952 | 2008 | 230 |
Trustee President, Cambridge College, Cambridge, Massachusetts (since 2011); Chief Executive Officer, American Red Cross of Massachusetts Bay (2002-2011); Board of Directors of Eastern Bank Corporation (since 2001); Board of Directors of Eastern Bank Charitable Foundation (since 2001); Board of Directors of American Student Assistance Corporation (1996-2009); Board of Directors of Boston Stock Exchange (2002-2008); Board of Directors of Harvard Pilgrim Healthcare (health benefits company) (2007-2011). Trustee, John Hancock retail funds3 (since 2008); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2012); Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
Hassell H. McClellan, Born: 1945 | 2012 | 230 |
Trustee Trustee, Virtus Variable Insurance Trust (formerly Phoenix Edge Series Funds) (since 2008); Director, The Barnes Group (since 2010); Associate Professor, The Wallace E. Carroll School of Management, Boston College (retired 2013). Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015); Trustee, John Hancock retail funds3 (since 2012); Trustee, John Hancock Funds III (2005-2006 and since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2005). |
Steven R. Pruchansky, Born: 1944 | 1994 | 230 |
Trustee and Vice Chairperson of the Board Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. (since 2000); Director and President, Greenscapes of Southwest Florida, Inc. (until 2000); Member, Board of Advisors, First American Bank (until 2010); Managing Director, Jon James, LLC (real estate) (since 2000); Partner, Right Funding, LLC (since 2014); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). Trustee (since 1992) and Chairperson of the Board (2011-2012), John Hancock retail funds3; Trustee and Vice Chairperson of the Board, John Hancock retail funds3 John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2012); Trustee, and Vice Chairperson of the Board, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
Independent Trustees (continued)
Name, year of birth Position(s) held with fund Principal occupation(s) and other directorships during past 5 years | Trustee of the Trust since1 | Number of John Hancock funds overseen by Trustee |
Gregory A. Russo, Born: 1949 | 2009 | 230 |
Trustee Director and Audit Committee Chairman (since 2012), and Member, Audit Committee and Finance Committee (since 2011), NCH Healthcare System, Inc. (holding company for multi-entity healthcare system); Director and Member (since 2012) and Finance Committee Chairman (since 2014), The Moorings, Inc. (nonprofit continuing care community); Vice Chairman, Risk & Regulatory Matters, KPMG LLP (KPMG) (2002-2006); Vice Chairman, Industrial Markets, KPMG (1998-2002); Chairman and Treasurer, Westchester County, New York, Chamber of Commerce (1986-1992); Director, Treasurer, and Chairman of Audit and Finance Committees, Putnam Hospital Center (1989-1995); Director and Chairman of Fundraising Campaign, United Way of Westchester and Putnam Counties, New York (1990-1995). Trustee, John Hancock retail funds3 (since 2008); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2012); Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
Non-Independent Trustees4
Name, year of birth Position(s) held with fund Principal occupation(s) and other directorships during past 5 years | Trustee of the Trust since1 | Number of John Hancock funds overseen by Trustee |
James R. Boyle, Born: 1959 | 2015 | 230 |
Non-Independent Trustee Chairman and Chief Executive Officer, Zillion Group, Inc. (formerly HealthFleet, Inc.) (healthcare) (since 2014); Executive Vice President and Chief Executive Officer, U.S. Life Insurance Division of Genworth Financial, Inc. (insurance) (January 2014-July 2014); Senior Executive Vice President, Manulife Financial Corporation, President and Chief Executive Officer, John Hancock (1999-2012); Chairman and Director, John Hancock Advisers, LLC, John Hancock Funds, LLC, and John Hancock Investment Management Services, LLC (2005-2010). Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015); Trustee, John Hancock retail funds3 (2005-2010; 2012-2014 and since 2015); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (2005-2014 and since 2015). |
Craig Bromley, Born: 1966 | 2012 | 230 |
Non-Independent Trustee President, John Hancock Financial Service (since 2012); Senior Executive Vice President and General Manager, U.S. Division, Manulife Financial Corporation (since 2012); President and Chief Executive Officer, Manulife Insurance Company (Manulife Japan) (2005-2012, including prior positions). Trustee, John Hancock retail funds,3 John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2012); Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
Warren A. Thomson, Born: 1955 | 2012 | 230 |
Non-Independent Trustee Senior Executive Vice President and Chief Investment Officer, Manulife Financial Corporation and The Manufacturers Life Insurance Company (since 2009); Chairman, Manulife Asset Management (since 2001, including prior positions); Director and Chairman, Manulife Asset Management Limited (since 2006); Director and Chairman, Hancock Natural Resources Group, Inc. (since 2013). Trustee, John Hancock retail funds,3 John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2012); Trustee, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
Principal officers who are not Trustees
Name, year of birth Position(s) held with fund Principal occupation(s) during past 5 years | Officer of the Trust since |
Andrew G. Arnott, Born: 1971 | 2009 |
President Senior Vice President, John Hancock Financial Services (since 2009); Director and Executive Vice President, John Hancock Advisers, LLC (since 2005, including prior positions); Director and Executive Vice President, John Hancock Investment Management Services, LLC (since 2006, including prior positions); President, John Hancock Funds, LLC (since 2004, including prior positions); President, John Hancock retail funds,3 John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2007, including prior positions); President, John Hancock Collateral Trust (since 2015); President, John Hancock Exchange-Traded Fund Trust (since 2014). |
John J. Danello, Born: 1955 | 2006 |
Senior Vice President, Secretary, and Chief Legal Officer Vice President and Chief Counsel, John Hancock Wealth Management (since 2005); Senior Vice President (since 2007) and Chief Legal Counsel (2007-2010), John Hancock Funds, LLC and The Berkeley Financial Group, LLC; Senior Vice President (since 2006, including prior positions) and Chief Legal Officer and Secretary (since 2014), John Hancock retail funds,3 John Hancock Funds II and John Hancock Variable Insurance Trust; Senior Vice President, Chief Legal Officer and Secretary, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015); Vice President, John Hancock Life & Health Insurance Company (since 2009); Vice President, John Hancock Life Insurance Company (USA) and John Hancock Life Insurance Company of New York (since 2010); and Senior Vice President, Secretary, and Chief Legal Counsel (2007-2014, including prior positions) of John Hancock Advisers, LLC and John Hancock Investment Management Services, LLC. |
Francis V. Knox, Jr., Born: 1947 | 2005 |
Chief Compliance Officer Vice President, John Hancock Financial Services (since 2005); Chief Compliance Officer, John Hancock retail funds,3 John Hancock Variable Insurance Trust, John Hancock Funds II, John Hancock Advisers, LLC, and John Hancock Investment Management Services, LLC (since 2005); Chief Compliance Officer, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
Charles A. Rizzo, Born: 1957 | 2007 |
Chief Financial Officer Vice President, John Hancock Financial Services (since 2008); Senior Vice President, John Hancock Advisers, LLC and John Hancock Investment Management Services, LLC (since 2008); Chief Financial Officer, John Hancock retail funds,3 John Hancock Variable Insurance Trust and John Hancock Funds II (since 2007); Chief Financial Officer, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
Salvatore Schiavone, Born: 1965 | 2010 |
Treasurer Assistant Vice President, John Hancock Financial Services (since 2007); Vice President, John Hancock Advisers, LLC and John Hancock Investment Management Services, LLC (since 2007); Treasurer, John Hancock retail funds3 (since 2007, including prior positions); Treasurer, John Hancock Variable Insurance Trust and John Hancock Funds II (2007-2009 and since 2010, including prior positions); Treasurer, John Hancock Collateral Trust and John Hancock Exchange-Traded Fund Trust (since 2015). |
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the fund includes additional information about members of the Board of Trustees of the Trust and is available without charge, upon request, by calling 800-225-5291.
1 | Each Trustee holds office until his or her successor is elected and qualified, or until the Trustee's death, retirement, resignation, or removal. Mr. Boyle has served as Trustee at various times prior to the date listed in the table. |
2 | Member of the Audit Committee. |
3 | "John Hancock retail funds" comprises John Hancock Funds III and 36 other John Hancock funds consisting of 26 series of other John Hancock trusts and 10 closed-end funds. |
4 | The Trustee is a Non-Independent Trustee due to current or former positions with the Advisor and certain affiliates. |
Trustees James M. Oates, Chairperson Officers Andrew G. Arnott John J. Danello Francis V. Knox, Jr. Charles A. Rizzo Salvatore Schiavone | Investment advisor John Hancock Advisers, LLC Subadvisor John Hancock Asset Management a division of Manulife Asset Management (US) LLC Principal distributor John Hancock Funds, LLC Custodian State Street Bank and Trust Company Transfer agent John Hancock Signature Services, Inc. Legal counsel K&L Gates LLP Independent registered public accounting firm PricewaterhouseCoopers LLP |
*Member of the Audit Committee
†Non-Independent Trustee
The fund's proxy voting policies and procedures, as well as the fund proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) website at sec.gov or on our website.
The fund's complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The fund's Form N-Q is available on our website and the SEC's website, sec.gov, and can be reviewed and copied (for a fee) at the SEC's Public Reference Room in Washington, DC. Call 800-SEC-0330 to receive information on the operation of the SEC's Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our website at jhinvestments.com or by calling 800-225-5291.
You can also contact us: | |||
800-225-5291 jhinvestments.com | Regular mail: John Hancock Signature Services, Inc. | Express mail: John Hancock Signature Services, Inc. |
John Hancock family of funds
DOMESTIC EQUITY FUNDS Balanced Blue Chip Growth Classic Value Disciplined Value Disciplined Value Mid Cap Equity Income ESG All Cap Core ESG Large Cap Core Fundamental All Cap Core Fundamental Large Cap Core Fundamental Large Cap Value New Opportunities Small Cap Value Small Company Strategic Growth U.S. Equity U.S. Global Leaders Growth Value Equity GLOBAL AND INTERNATIONAL EQUITY FUNDS Disciplined Value International Emerging Markets Emerging Markets Equity Global Equity Global Shareholder Yield Greater China Opportunities International Core International Growth International Small Company International Value Equity | INCOME FUNDS Bond California Tax-Free Income Core High Yield Emerging Markets Debt Floating Rate Income Focused High Yield Global Income Government Income High Yield Municipal Bond Income Investment Grade Bond Money Market Short Duration Credit Opportunities Spectrum Income Strategic Income Opportunities Tax-Free Bond ALTERNATIVE AND SPECIALTY FUNDS Absolute Return Currency Alternative Asset Allocation Enduring Assets Financial Industries Global Absolute Return Strategies Global Conservative Absolute Return Global Focused Strategies Global Real Estate Natural Resources Redwood Regional Bank Seaport Technical Opportunities |
A fund's investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the fund. To obtain a prospectus, contact your financial professional, call John Hancock Investments at 800-225-5291, or visit our website at jhinvestments.com. Please read the prospectus carefully before investing or sending money.
ASSET ALLOCATION Income Allocation Fund Lifestyle Aggressive Portfolio Lifestyle Balanced Portfolio Lifestyle Conservative Portfolio Lifestyle Growth Portfolio Lifestyle Moderate Portfolio Retirement Choices Portfolios Retirement Living Portfolios Retirement Living II Portfolios EXCHANGE-TRADED FUNDS John Hancock Multifactor Consumer Discretionary ETF John Hancock Multifactor Consumer Staples ETF John Hancock Multifactor Energy ETF John Hancock Multifactor Financials ETF John Hancock Multifactor Healthcare ETF John Hancock Multifactor Industrials ETF John Hancock Multifactor Large Cap ETF John Hancock Multifactor Materials ETF John Hancock Multifactor Mid Cap ETF John Hancock Multifactor Technology ETF John Hancock Multifactor Utilities ETF | CLOSED-END FUNDS Financial Opportunities Hedged Equity & Income Income Securities Trust Investors Trust Preferred Income Preferred Income II Preferred Income III Premium Dividend Tax-Advantaged Dividend Income Tax-Advantaged Global Shareholder Yield |
John Hancock Multifactor ETF shares are bought and sold at market price (not NAV), and are not individually redeemed
from the fund. Brokerage commissions will reduce returns.
John Hancock ETFs are distributed by Foreside Fund Services, LLC, and are subadvised by Dimensional Fund Advisors LP.
Foreside is not affiliated with John Hancock Funds, LLC or Dimensional Fund Advisors LP.
Dimensional Fund Advisors LP receives compensation from John Hancock in connection with licensing rights to the
John Hancock Dimensional indexes. Dimensional Fund Advisors LP does not sponsor, endorse, or sell, and makes no
representation as to the advisability of investing in, John Hancock Multifactor ETFs.
John Hancock Investments
A trusted brand
John Hancock Investments is a premier asset manager representing
one of America's most trusted brands, with a heritage of financial
stewardship dating back to 1862. Helping our shareholders pursue
their financial goals is at the core of everything we do. It's why we
support the role of professional financial advice and operate with the
highest standards of conduct and integrity.
A better way to invest
We build funds based on investor needs, then search the world to find
proven portfolio teams with specialized expertise in those strategies.
As a manager of managers, we apply vigorous oversight to ensure that
they continue to meet our uncompromising standards and serve the
best interests of our shareholders.
Results for investors
Our unique approach to asset management enables us to provide
a diverse set of investments backed by some of the world's best
managers, along with strong risk-adjusted returns across asset classes.
| John Hancock Funds, LLC n Member FINRA, SIPC 601 Congress Street n Boston, MA 02210-2805 800-225-5291 n jhinvestments.com | |
This report is for the information of the shareholders of John Hancock California Tax-Free Income Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | ||
MF298045 | 53A 5/16 7/16 |
ITEM 2. CODE OF ETHICS.
As of the end of the year, May 31, 2016, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer, Chief Financial Officer and Treasurer (respectively, the principal executive officer, the principal financial officer and the principal accounting officer, the “Covered Officers”). A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Peter S. Burgess is the audit committee financial expert and is “independent”, pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal accountant for the audits of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements amounted to the following for the fiscal years ended May 31, 2016 and 2015. These fees were billed to the registrant and were approved by the registrant’s audit committee.
Fund | May 31, 2016 | May 31, 2015 |
John Hancock California Tax-Free Income Fund | $ 37,041 | $ 36,133 |
(b) Audit-Related Services
Audit-related fees for assurance and related services by the principal accountant are billed to the registrant or to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser ("control affiliates") that provides ongoing services to the registrant. The nature of the services provided was affiliated service provider internal controls reviews. Additionally, amounts billed to control affiliates were $103,474 and $103,940 for the fiscal years ended May 31, 2016 and 2015, respectively.
Fund | May 31, 2016 | May 31, 2015 |
John Hancock California Tax-Free Income Fund | $ 525 | $ 519 |
(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning (“tax fees”) amounted to the following for the fiscal years ended May 31, 2016 and 2015. The nature of the services comprising the tax fees was the review of the registrant’s tax returns and tax distribution requirements. These fees were billed to the registrant and were approved by the registrant’s audit committee.
Fund | May 31, 2016 | May 31, 2015 |
John Hancock California Tax-Free Income Fund | $ 3,500 | $ 3,450 |
(d) All Other Fees
Other fees billed for professional services rendered by the principal accountant to the registrant or to the control affiliates for the fiscal years ended May 31, 2016 and 2015 amounted to the following:
Fund | May 31, 2016 | May 31, 2015 |
John Hancock California Tax-Free Income Fund | $ 108 | $ 216 |
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The trust’s Audit Committee must pre-approve all audit and non-audit services provided by the independent registered public accounting firm (the “Auditor”) relating to the operations or financial reporting of the funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law.
The trust’s Audit Committee has adopted policies and procedures to, among other purposes, provide a framework for the Committee’s consideration of audit-related and non-audit services by the Auditor. The policies and procedures require that any audit-related and non-audit service provided by the Auditor and any non-audit service provided by the Auditor to a fund service provider that relates directly to the operations and financial reporting of a fund are subject to approval by the Audit Committee before such service is provided. Audit-related services provided by the Auditor that are expected to exceed $25,000 per year/per fund are subject to specific pre-approval by the Audit Committee. Tax services provided by the Auditor that are expected to exceed $30,000 per year/per fund are subject to specific pre-approval by the Audit Committee.
All audit services, as well as the audit-related and non-audit services that are expected to exceed the amounts stated above, must be approved in advance of provision of the service by formal resolution of the Audit Committee. At the regularly scheduled Audit Committee meetings, the Committee reviews a report summarizing the services, including fees, provided by the Auditor.
(e)(2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
Audit-Related Fees, Tax Fees and All Other Fees:
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.
(f) According to the registrant’s principal accountant for the fiscal year ended May 31, 2016, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who were not full-time, permanent employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant’s principal accountant for non-audit services rendered to the registrant and rendered to the registrant's control affiliates for the fiscal years ended May 31, 2016 and 2015 amounted to the following:
Fund | May 31, 2016 | May 31, 2015 |
John Hancock California Tax-Free Income Fund | $ 5,647,930 | $ 6,615,416 |
(h) The audit committee of the registrant has considered the non-audit services provided by the registrant’s principal accountant to the control affiliates and has determined that the services that were not pre-approved are compatible with maintaining the principal accountant’s independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee comprised of independent trustees. The members of the audit committee are as follows:
Peter S. Burgess - Chairman
Charles L. Bardelis
Theron S. Hoffman
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) | Not applicable. |
(b) | Not applicable. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached “John Hancock Funds – Nominating, Governance and Administration Committee Charter”.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's principal executive officer and principal financial officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics for Covered Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The certifications furnished pursuant to this paragraph are not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into
any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference.
(c)(1) Submission of Matters to a Vote of Security Holders is attached. See attached “John Hancock Funds – Nominating, Governance and Administration Committee Charter”.
(c)(2) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock California Tax-Free Income Fund
By:
/s/ Andrew Arnott
_____________________________
Andrew Arnott
President
Date: July 15, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By:
/s/ Andrew Arnott
_____________________________
Andrew Arnott
President
Date: July 15, 2016
By:
/s/ Charles A. Rizzo
_____________________________
Charles A. Rizzo
Chief Financial Officer
Date: July 15, 2016