<PAGE> 1
JOHN HANCOCK FUNDS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
GROWTH
FUND
SEMI - ANNUAL REPORT
June 30, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Bayard Henry*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Michael P. DiCarlo
Senior Vice President
James K. Ho
Senior Vice President
John A. Morin
Vice President
Susan S. Newton
Vice President, Assistant Secretary and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investors Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Educating shareholders has always been one of the most important
responsibilities of a mutual fund company. But that challenge has taken on new
significance in the past several years. Looking at the most recent statistics,
you can see why. According to the Investment Company Institute, the mutual fund
industry now manages more than $2.3 trillion for investors. More than half of
that money has come into mutual funds in just the last four years. Today, there
are more than 95 million mutual fund shareholder accounts. That's up from 12
million in 1980. These are people, like you, who are investing in mutual funds
to save for a home, to send their children to college or to build a nest egg for
a comfortable retirement. This explosive growth, coupled with the growing
complexity of the financial landscape, has made all of us in the mutual fund
industry work harder to inform our shareholders.
At John Hancock Funds, we strive to educate you about all aspects of your
fund: the performance, the strategies and the holdings. We want you to fully
understand what you own. We want you to have realistic expectations of the
potential rewards as well as the potential risks of your investment. These
shareholder reports -- which we send you twice a year -- are the best way to
give you the most in-depth and up-to-date information.
In the message that follows, the portfolio manager gives a candid commentary
on the market environment; the factors that affected performance; the Fund's
current investment strategies; and the outlook for the months ahead.
The ensuing financial statements provide a comprehensive look at the fund's
statistics and holdings. We hope you find these shareholder reports a useful
tool in evaluating your investments. Of course, if you have any questions or
need more information, feel free to call one of our customer service
representatives on our toll-free line at 1-800-225-5291, from 8:00 a.m. to 8:00
p.m. eastern time, Monday through Friday.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.,
- ----------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY BERNICE S. BEHAR, FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
GROWTH FUND
STOCK MARKET GAINS CONSIDERABLE STRENGTH IN FIRST HALF;
PICTURE FOR GROWTH STOCKS LOOKS BRIGHT IN SECOND HALF
On July 1, 1995, a portfolio management team took over as manager of John
Hancock Growth Fund from Benjamin J. Williams, Jr. What follows is Mr. Williams'
review of the Fund's performance during the past six months, followed by the
team's outlook and strategy for the remainder of the year.
Falling interest rates, slower but steady economic growth and stronger corporate
earnings sent the stock market on an impressive winning streak during the first
six months of 1995. Decidedly dominating the market rally were technology
stocks, which generally posted strong returns as their earnings outpaced the
overall market. But the stock market's rise didn't extend to all industry
groups. Portions of the health-care sector, for example, were mired in fears of
how government-sponsored health-care benefits may be reduced. That ultimately
caused many stocks in this sector to underperform the market as a whole.
[A 2 1/2" x 3 3/4" photo of Bernice S. Behar at bottom center. Caption reads
"Bernice S. Behar."]
A LOOK AT PERFORMANCE
Against that backdrop, John Hancock Growth Fund turned in impressive gains. For
the six months ended June 30, 1995, the Fund's Class A and Class B shares
returned 17.62% and 17.06%, respectively, at net asset value. Those returns were
in line with the average growth
[CAPTION]
"DECIDEDLY DOMINATING THE MARKET RALLY WERE TECHNOLOGY STOCKS..."
3
<PAGE> 4
John Hancock Funds - Growth Fund
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Adaptec 3.7% 2) HBO & Co. 3.7% 3) McDonald's
3.4% 4) Motorola 3.2% 5) Paychex 3.0%. A footnote below reads "As a percentage
of net assets on June 30, 1995."]
fund's return of 17.47%, according to Lipper Analytical Services.(1)
The Fund's strong performance during the past six months is due in large part
to the fact that we sold some smaller, unrecognized stocks and replaced them
with larger, more familiar names. During much of this year's rally, particularly
in the first quarter, these larger stocks were among the first to rise. Going
forward, this strategy should help to buffer the Fund against market volatility.
TECHNOLOGY AND HEALTH-CARE STOCKS REMAIN CORE HOLDINGS
At about 28% of the Fund's assets, technology stocks remained our largest sector
concentration throughout the period. Though many growth funds increased their
technology weightings to as high as 50%, we believe it's prudent to take a more
balanced approach. That way, the performance of the Fund isn't overly dependent
on one sector of the market. Also, after such a quick run-up, technology stocks
may be ready for a breather.
That said, some of our largest technology holdings did quite well during the
past six months, especially Adaptec and Computer Associates International.
Unfortunately, Motorola, which we continue to like longer term, ended up flat
for the six-month period. Demand for the company's cellular phones didn't keep
up with supply, and Motorola was left with excessive inventory. We believe this
imbalance will be corrected and the stock will resume its upward trend.
As we mentioned, many health-care stocks, which make up 18% of the Fund, got
hurt by the perception that diminishing reimbursements from the government would
cut into profits. Hospital management company Health Management Associates and
nursing home provider Manor Care were among our biggest disappointments.
However, we think these companies are relatively immune to the potential
negative effects of these policy changes. In our view, companies that specialize
in cost containment and alternative care will be winners over the long term.
Given that, we're still holding them. On the flip side, drug companies such as
Pfizer and Johnson & Johnson were among the Fund's strongest performers, buoyed
by strong earnings and takeover activity.
BULKING UP ON FOOD AND MEDIA; SHIFT IN RETAILERS
During the period, we fed our stake in food companies. We initiated positions in
Nabisco and Kellogg, while adding to our holdings in
[Table entitled "Scorecard" at bottom left hand column. The heading for the left
column is "Investment"; the heading for the center column is "Recent
performance.. and what's behind the numbers". The first listing is "Kellogg"
followed by an up arrow and the phrase "Strong management improves bottom line".
The second listing is "Motorola" followed by a sideways arrow and the phrase
"Heavy inventory of cellular phones." The third listing is "Manor Care" followed
by a down arrow and the phrase "Caught up in concerns over reimbursements."
Footnote below reads "See "Schedule of Investments." Investment holdings are
subject to change."]
[CAPTION]
"...WE FED OUR STAKE IN FOOD COMPANIES."
4
<PAGE> 5
John Hancock Funds - Growth Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended June 30, 1995." The chart is
scaled in increments of 5% from bottom to top, with 20% at the top and 0% at the
bottom. Within the chart there are three solid bars. The first represents the
17.62% total return for the John Hancock Growth Fund: Class A. The second
represents the 17.06% total return for the John Hancock Growth Fund: Class B.
The third represents the 17.47% total return for the average growth fund. A
footnote below reads: "Total returns for John Hancock Growth Fund are at net
asset value with all distributions reinvested. The average growth fund is
tracked by Lipper Analytical Services.(1) See following page for historical
performance information."]
Coca-Cola and others. These companies typify what we look for when buying a
stock: dynamic companies with above-average earnings and strong management
teams. But there are other reasons we like them. The stock price of Kellogg, for
instance, dropped to cheap levels during 1994's cereal price wars. However,
Kellogg's management survived the battle quite well and the stock has rebounded
nicely this year.
We also made several additions to our broadcast, media and entertainment
holdings. Cap Cities/ABC got a boost from the strong economy, which ultimately
translated into higher advertising revenues. As the exclusive network
broadcaster of the 1996 Olympics, that trend is likely to continue for Cap
Cities. Improving advertising revenues also attracted us to New World
Communications and News Corporation.
In the retail area, we eliminated holdings in apparel retailers in favor of
more specialized retailers. Two examples are Pet Smart, the nation's leading pet
supply store, and Walgreen's, the rapidly expanding drugstore chain. Again,
these companies meet our criterion of fast-growing companies with strong
management teams.
STRATEGY AND OUTLOOK
Going forward, we will continue to emphasize larger, high-quality companies with
above-average earnings. Since stock prices tend to follow earnings over the long
haul, strong earnings growth should translate into higher stock prices. In the
months ahead, we may make some minor changes in holdings and sector weightings,
but the Fund's underlying investment philosophy won't change.
Looking out to the second half of 1995, we believe that interest rates will
remain relatively stable, which should provide a continued favorable environment
for the stock market. What's more, the economy will continue to grow, albeit at
a slower pace. But at this point, we're not worried about dipping into a
recession. Against a backdrop of stable interest rates, slow growth and solid
corporate earnings, growth stocks should continue do well in the second half. A
note of caution, though. While they may turn in attractive returns, growth
stocks are not likely to repeat the robust gains seen in the first half. So
investors would do well to temper their expectations.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
[CAPTION]
"...GROWTH STOCKS SHOULD CONTINUE TO DO WELL IN THE SECOND HALF."
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for John Hancock Growth Fund. Total return is a performance
measure that equals the sum of all income and capital gains dividends, assuming
reinvestment of these distributions, and the change in the price of the fund's
shares, expressed as a percentage of the fund's share. Performance figures
include the maximum applicable sales charge of 5% for Class A shares. The effect
of the maximum contingent deferred sales charge for Class B shares (maximum 5%
and declining to 0% over six years) is included in Class B performance. Remember
that all figures represent past performance and are no guarantee of how the Fund
will perform in the future. Also, keep in mind that the total return and share
price of the fund's investments will fluctuate. As a result, your Fund's shares
may be worth more or less than their original cost depending on when you sell
them.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS(1) TEN YEARS
---- -------- ---------
<S> <C> <C> <C>
Growth Fund: Class A(2) 21.48% 53.13% 215.51%
Growth Fund: Class B(2) 21.88% 5.38% N/A
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS(1) TEN YEARS
---- -------- ---------
<S> <C> <C> <C>
Growth Fund: Class A(2) 21.48% 8.90% 12.18%
Growth Fund: Class B(2) 21.88% 3.58% N/A
</TABLE>
NOTES TO PERFORMANCE
(1) Class B shares started on January 3, 1994.
(2) Performance is affected by a 12b-1 plan, which commenced on January 1, 1990
and January 3, 1994 for Class A and Class B shares, respectively.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the Growth Fund
would be worth on June 30, 1995, assuming you have been invested for the past
ten years or since the day each class of shares started and have reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index -- an unmanaged index that includes 500 widely
traded common stocks and is an often used measure of stock market performance.
Growth Fund Class A shares
[Line chart with the heading Growth Fund: Class A, representing the growth of a
hypothetical $10,000 investment over the life of the fund (or most recent 10
years). Within the chart are three lines. The first line represents the value
of the Standard & Poor's 500 Stock Index and is equal to $39,246 as of June 30,
1995. The second line represents the value of the hypothetical $10,000
investment made in the Growth Fund on June 30, 1985, before sales charge, and is
equal to $33,212 as of June 30, 1995. The third line represents the Growth Fund
after sales charge and is equal to $31,550 as of June 30, 1995.]
Growth Fund Class B shares
[Line chart with the heading Growth Fund: Class B, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
three lines. The first line represents the value of the Standard & Poor's 500
Stock Index and is equal to $12,176 as of June 30, 1995. The second line
represents the value of the hypothetical $10,000 investment made in the Growth
Fund on January 3, 1994, before contingent deferred sales charge, and is equal
to $10,938 as of June 30, 1995. The third line represents the Growth Fund after
contingent deferred sales charge and is equal to $10,538 as of June 30, 1995.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON JUNE 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common and other investments
(cost - $99,670,064)........................................ $160,091,093
Publicly traded convertible bonds (cost - $650,000)........... 723,125
Joint repurchase agreement (cost - $9,692,000)................ 9,692,000
Corporate savings account..................................... 922
-----------
170,507,140
Receivable for shares sold...................................... 279,671
Interest receivable............................................. 6,678
Dividends receivable............................................ 101,314
-----------
Total Assets................................. 170,894,803
-----------------------------------------------------------
LIABILITIES:
Payable for shares repurchased.................................. 269,424
Payable to John Hancock Advisers, Inc.
and affiliates - Note B....................................... 204,702
Accounts payable and accrued expenses........................... 76,696
-----------
Total Liabilities............................ 550,822
-----------------------------------------------------------
NET ASSETS:
Capital paid-in................................................. 110,655,017
Accumulated net realized loss on investments.................... (638,327)
Net unrealized appreciation of investments...................... 60,494,154
Accumulated net investment loss................................. (166,863)
-----------
Net Assets................................... $170,343,981
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest
outstanding - unlimited number of shares authorized with no
par value, respectively)
Class A - $164,846,192/8,822,315................................ $ 18.69
==============================================================================
Class B - $5,497,789/296,677.................................... $ 18.53
==============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($18.69 x 105.26%).................................... $ 19.67
==============================================================================
<FN>
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
** All Class C shares were redeemed on March 31, 1995.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended June 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest........................................................ $ 569,958
Dividends (net of foreign withholding taxes of $14,143)......... 555,081
----------
1,125,039
----------
Expenses:
Investment management fee - Note B............................ 631,310
Transfer agent fee - Note B
Class A...................................................... 277,042
Class B...................................................... 14,538
Class C**.................................................... 408
Distribution/service fee - Note B
Class A...................................................... 228,799
Class B...................................................... 22,396
Registration and filing fees.................................. 26,409
Printing...................................................... 26,022
Custodian fee................................................. 21,333
Auditing fee.................................................. 18,392
Miscellaneous................................................. 10,167
Trustees' fees................................................ 10,162
Legal fees.................................................... 4,924
----------
Total Expenses............................... 1,291,902
-----------------------------------------------------------
Net Investment Loss.......................... (166,863)
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold........................... (486,922)
Change in net unrealized appreciation/depreciation
of investments................................................ 26,642,263
----------
Net Realized and Unrealized
Gain on Investments.......................... 26,155,341
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations.................... $25,988,478
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
---------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss................................................................... $ (166,863) $ (986,780)
Net realized gain (loss) on investments sold.......................................... (486,922) 1,529,276
Change in net unrealized appreciation/depreciation of investments..................... 26,642,263 (13,091,731)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations..................... 25,988,478 (12,549,235)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments sold
Class A - (none and $0.2020 per share, respectively)................................ - (1,850,208)
Class B** - (none and $0.2020 per share, respectively).............................. - (43,984)
Class C*** - (none and $0.2020 per share, respectively)............................. - (18,255)
------------ ------------
Total Distributions to Shareholders................................................ - (1,912,447)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*................................................... (7,491,961) 2,086,820
NET ASSETS:
Beginning of period................................................................... 151,847,464 164,222,326
------------ ------------
End of period (including accumulated net investment loss of $166,863 and none,
respectively)....................................................................... $170,343,981 $151,847,464
============ ============
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995
(UNAUDITED) YEAR ENDED DECEMBER 31, 1994
------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold..................................................... 335,912 $ 5,703,485 4,198,071 $ 71,177,794
Shares issued to shareholders in reinvestment of distributions.. - - 110,953 1,738,305
--------- ------------ ------------ ------------
335,912 5,703,485 4,309,024 72,916,099
Less shares repurchased......................................... (731,759) (12,500,154) (4,457,375) (75,094,698)
--------- ------------ ------------ ------------
Net decrease.................................................... (395,847) $ (6,796,669) (148,351) $ (2,178,599)
========= ============ ============ ============
CLASS B **
Shares sold..................................................... 107,313 $ 1,834,506 259,658 $ 4,192,534
Shares issued to shareholders in reinvestment of distributions.. - - 2,737 42,721
--------- ------------ ------------ ------------
107,313 1,834,506 262,395 4,235,255
Less shares repurchased......................................... (51,083) (877,156) (21,948) (347,495)
--------- ------------ ------------ ------------
Net increase.................................................... 56,230 $ 957,350 240,447 $ 3,887,760
========= ============ ============ ============
CLASS C ***
Shares sold..................................................... 841 $ 59,499 30,518 $ 480,690
Shares issued to shareholders in reinvestment of distributions.. - - 1,121 17,646
--------- ------------ ------------ ------------
841 59,499 31,639 498,336
Less shares repurchased......................................... (99,061) (1,712,141) (7,014) (120,677)
--------- ------------ ------------ ------------
Net increase (decrease)......................................... (98,220) $ (1,652,642) 24,625 $ 377,659
========= ============ ============ ============
<FN>
** Class B shares commenced operations on January 3, 1994.
*** All Class C shares were redeemed on March 31, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated: investment returns, key ratios and supplemental data are as
follows:
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1995 ----------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 15.89 $ 17.40 $ 17.32 $ 17.48 $ 12.93 $ 15.18
-------- -------- -------- -------- -------- --------
Net Investment Income (Loss).............................. (0.02) (0.10) (0.11) (0.06) 0.04 0.16
Net Realized and Unrealized Gain (Loss) on Investments.... 2.82 (1.21) 2.33 1.10 5.36 (1.47)
-------- -------- -------- -------- -------- --------
Total from Investment Operations........................ 2.80 (1.31) 2.22 1.04 5.40 (1.31)
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income...................... - - - - (0.04) (0.16)
Distributions from Net Realized Gain on Investments Sold.. - (0.20) (2.14) (1.20) (0.81) (0.78)
-------- -------- -------- -------- -------- --------
Total Distributions..................................... - (0.20) (2.14) (1.20) (0.85) (0.94)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period............................ $ 18.69 $ 15.89 $ 17.40 $ 17.32 $ 17.48 $ 12.93
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value................ 17.62% (f) (7.50%) 13.03% 6.06% 41.68% (8.34%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $164,846 $146,466 $162,937 $153,057 $145,287 $102,416
Ratio of Expenses to Average Net Assets................... 1.61% (d) 1.65% 1.56% 1.60% 1.44% 1.46%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (0.19%)(d) (0.64%) (0.67%) (0.36%) 0.27% 1.12%
Portfolio Turnover Rate................................... 39% 52% 68% 71% 82% 102%
CLASS B (a)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period................ $ 15.83 $17.16 (b)
-------- ------
Net Investment Loss................................. (0.09) (0.20)(c)
Net Realized and Unrealized Loss on Investments..... 2.79 (0.93)
-------- ------
Total from Investment Operations.................. 2.70 (1.13)
-------- ------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold - (0.20)
-------- ------
Net Asset Value, End of Period...................... $ 18.53 $15.83
======== ======
Total Investment Return at Net Asset Value.......... 17.06% (f) (6.56%)(f)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (OOO's omitted)........... $ 5,498 $3,807
Ratio of Expenses to Average Net Assets............. 2.60% (d) 2.38% (d)
Ratio of Net Investment Loss to Average Net Assets.. (1.17%)(d) (1.25%)(d)
Portfolio Turnover Rate............................. 39% 52%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED
MARCH 31, 1995 DECEMBER 31, PERIOD ENDED
(UNAUDITED) 1994 DECEMBER 31, 1993
-------------- ------------ -----------------
<S> <C> <C> <C>
CLASS C (e)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................................. $ 16.02 $ 17.46 $ 17.05 (b)
-------- -------- --------
Net Investment Income (Loss)..................................................... 0.02 (0.01) (0.02)
Net Realized and Unrealized Gain (Loss) on Investments........................... 1.28 (1.23) 2.57
-------- -------- --------
Total from Investment Operations............................................... 1.30 (1.24) 2.55
-------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold......................... - (0.20) (2.14)
-------- -------- --------
Net Asset Value, End of Period................................................... $ 17.32 $ 16.02 $ 17.46
======== ======== ========
Total Investment Return at Net Asset Value....................................... 8.11%(f) (7.07%) (15.18%)(f)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (OOO's omitted)........................................ $ 1,672 $ 1,574 $ 1,285
Ratio of Expenses to Average Net Assets.......................................... 0.54%(d) 1.12% 1.05% (d)
Ratio of Net Investment Income (Loss) to Average Net Assets...................... 0.23%(d) (0.08%) (0.17%)(d)
Portfolio Turnover Rate.......................................................... 39% 52% 68%
<FN>
(a) Class B shares commenced operations on January 3, 1994.
(b) Initial price at commencement of operations.
(c) On average month end shares outstanding.
(d) On an annualized basis.
(e) Class C shares commenced operations on May 7, 1993. Net asset value and net
assets at the end of the period reflect amounts prior to the redemption of
all shares on March 31, 1995.
(f) Not annualized.
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES),
DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET
ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
GROWTH FUND ON JUNE 30, 1995. IT'S DIVIDED INTO FOUR MAIN CATEGORIES: COMMON
STOCKS, OTHER INVESTMENTS, PUBLICLY TRADED CONVERTIBLE BONDS AND SHORT-TERM
INVESTMENTS. THE INVESTMENTS ARE FURTHER BROKEN DOWN BY INDUSTRY GROUPS.
SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE LISTED
LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
BEVERAGES (2.99%)
Coca-Cola Co. (The)....................... 80,000 $ 5,100,000
-------------
BROADCASTING (2.64%)
Capital Cities /ABC, Inc.................. 10,000* 1,080,000
Gaylord Entertainment Co. (Class A)....... 52,500 1,325,625
New World Communications Group. **........ 100,000* 2,087,500
------------
4,493,125
------------
COMMERCIAL SERVICES (1.05%)
Loewen Group, Inc......................... 50,000* 1,781,250
------------
COMPUTERS (9.01%)
Adaptec, Inc. **.......................... 170,000 6,290,000
America Online, Inc. **................... 60,000 2,640,000
cisco Systems, Inc. **.................... 60,000 3,033,750
Computer Associates International, Inc.... 50,000 3,387,500
------------
15,351,250
------------
COSMETICS & TOILETRIES (2.88%)
Gillette Co. (The)........................ 110,000 4,908,750
------------
DRUGS (4.21%)
Pfizer, Inc............................... 30,000 2,771,250
Johnson & Johnson......................... 65,000 4,395,625
------------
7,166,875
------------
ELECTRONICS (8.75%)
Cypress Semiconductor Corp. **............ 60,000* 2,430,000
Duracell International, Inc............... 5,000* 216,250
General Motors Corp. (Class H)............ 25,000* 987,500
Molex, Inc................................ 40,000* 1,550,000
Molex, Inc. (Class A)..................... 75,000 2,737,500
Scientific-Atlanta, Inc................... 100,000 2,200,000
Vishay Intertechnology, Inc. **........... 132,300 4,779,337
------------
14,900,587
------------
FINANCIAL/BUSINESS SERVICES (6.41%)
First Data Corp........................... 30,000* 1,706,250
MBNA Corp................................. 120,000 4,050,000
Paychex, Inc.............................. 142,500 5,165,625
------------
10,921,875
------------
FOOD PROCESSING (3.70%)
ConAgra, Inc.............................. 40,000* 1,395,000
Kellogg Co................................ 50,000* 3,568,750
Nabisco Holdings Corp. (Class A).......... 50,000* 1,350,000
------------
6,313,750
------------
HEALTHCARE (7.57%)
HBO & Co.................................. 115,000 $ 6,267,500
Health Management Associates, Inc.
(Class A) **............................ 130,000 3,802,500
Humana, Inc. **........................... 160,000 2,820,000
------------
12,890,000
------------
LEISURE & RECREATION (6.03%)
Disney (Walt) Co., (The).................. 70,000 3,893,750
PolyGram N.V. American Depositary
Receipt, (ADR).......................... 75,000 4,434,375
Promus Cos., Inc. (The) **................ 50,000 1,950,000
------------
10,278,125
------------
LINEN SUPPLY (1.88%)
Cintas Corp............................... 90,000 3,195,000
------------
MEDICAL/DENTAL (2.29%)
Cardinal Health, Inc...................... 82,500 3,898,125
------------
NURSING HOMES (4.11%)
Health Care & Retirement **............... 130,000 3,802,500
Manor Care, Inc........................... 110,000 3,203,750
------------
7,006,250
------------
PUBLISHING (3.11%)
News Corp. Ltd. (The) (ADR)............... 125,000 2,828,125
Time Warner, Inc.......................... 60,000 2,467,500
------------
5,295,625
------------
RESTAURANTS (3.44%)
McDonald's Corp........................... 150,000 5,868,750
------------
RETAIL (14.06%)
Albertson's, Inc.......................... 105,000 3,123,750
Borders Group Inc. **..................... 125,000* 1,796,875
CUC International, Inc. **................ 95,000 3,990,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
Retail (continued)
Dollar General Corp....................... 162,500 $ 5,139,063
Home Depot, Inc. (The).................... 65,000 2,640,625
PetSmart, Inc. **......................... 100,000* 2,875,000
Wal-Mart Stores, Inc...................... 70,000 1,872,500
Walgreen Co............................... 50,000* 2,506,250
------------
23,944,063
------------
TELECOMMUNICATIONS (9.85%)
Airtouch Communications, Inc. **.......... 90,000 2,565,000
A T & T Corp.............................. 65,000* 3,453,125
Motorola, Inc............................. 80,400 5,396,850
Nokia Corp. (ADR)......................... 80,000* 4,770,000
Telefonos de Mexico, S.A., (ADR).......... 20,000 592,500
------------
16,777,475
------------
TOTAL COMMON STOCKS
(Cost $99,599,190) (93.98%) 160,090,875
------------
<CAPTION>
NUMBER OF UNITS
---------------
<S> <C> <C>
OTHER INVESTMENTS
Drugs (0.00%)
Lilly (Eli) & Co., Contingent
Payment Units **........................ 14,000 218
------------
TOTAL OTHER INVESTMENT
(Cost $70,874) (0.00%) 218
------ ------------
TOTAL COMMON STOCKS,
AND OTHER INVESTMENTS
(Cost $99,670,064) (93.98%) 160,091,093
------ ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST S&P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING (000'S OMITTED) VALUE
- ------------------- ---- ------ --------------- -----
<S> <C> <C> <C> <C>
PUBLICLY TRADED CONVERTIBLE BONDS
TOYS/GAMES/HOBBY PRODUCTS (0.43%)
Hasbro, Inc.
Conv. Sub.
Note 11-15-98................. 6.00% A - $ 650 $ 723,125
------------
TOTAL PUBLICLY TRADED
CONVERTIBLE BONDS
(Cost $650,000) (0.43%) 723,125
----- ------------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (5.69%)
Investment in a joint
repurchase agreement
transaction with
Lehman Bros., Inc.,
Dated 06-30-95,
due 07-03-95
(Secured by U.S.
Treasury Bill,
5.45% due 12-28-95,
and U.S. Treasury
Note, 6.875%
due 12-28-95)
- Note A..................... 6.18% 9,692 9,692,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%............ 922
------------
TOTAL SHORT-TERM INVESTMENTS (5.69%) 9,692,922
------- ------------
TOTAL INVESTMENTS (100.10%) $170,507,140
======= ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio
during the six months ended June 30, 1995.
** Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Capital Series (the "Trust"), is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of two series portfolios: John Hancock Growth Fund (the "Fund") and John Hancock
Special Value Fund.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B shares. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemptions, dividends and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under terms of a distribution plan,
have exclusive voting rights regarding such distribution plan. Class C shares
were outstanding in the current fiscal year during the period from January 1,
1995 through March 31, 1995, but were abolished by the Trustees on May 1, 1995.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. Net capital losses of $151,430 attributable to security transactions
occurring after October 31, 1994 are treated as arising on the first day
(January 1, 1995) of the Fund's current taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, and at the same time and will be
in the same amount, except for the effect of expenses that may be applied
differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
at the class level based on the appropriate net assets of each class and the
specific expense rate(s) applicable to each class.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.80% of the first $250,000,000 of the Fund's
average daily net asset value, (b) 0.75% of the next $250,000,000 and (c) 0.70%
of the Fund's average daily net asset value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000, and 1.5% of
the remaining average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended June 30,
1995, JH Funds received net sales charges of $100,491. Out of this amount,
$15,422 was retained and used for printing prospectuses, advertising, sales
literature, and other purposes, $11,414 was paid as sales commissions to
unrelated broker-dealers, and $73,655 was paid as sales commissions to personnel
of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"). The Adviser's
indirect parent, John Hancock Mutual Life Insurance Company, is the indirect
sole shareholder of Distributors and John Hancock Freedom Securities Corporation
and its subsidiaries, which include Tucker Anthony and Sutro, all of which are
broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended June 30, 1995
contingent deferred sales charges received by JH Funds amounted to $7,440.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses at an annual rate not to exceed 0.30% of Class
A average daily net assets and 1.00% of Class B average daily net assets to
reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of these payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation, ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Class A and Class B shares pay transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors and/or
officers of the Adviser, and/or its affiliates as well as Trustees of the Fund.
John Hancock Mutual Life Insurance Company owns 400,000 Class A shares of
beneficial interest of the Fund. The compensation of unaffiliated Trustees is
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Trustees may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The Fund will
make investments into other John Hancock funds, as applicable,
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
to cover its liability with regard to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as an other asset. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1995, aggregated $56,138,632 and $55,204,348, respectively. There
were no purchases or sales of long-term obligations of the U.S. government and
its agencies during the period ended June 30, 1995.
The cost of investments owned at June 30, 1995 (excluding the corporate
savings account) for federal income tax purposes was $110,012,064. Gross
unrealized appreciation and depreciation of investments aggregated $61,937,699
and $1,443,545, respectively, resulting in net unrealized appreciation of
$60,494,154.
16
<PAGE> 17
NOTES
John Hancock Funds - Growth Fund
17
<PAGE> 18
NOTES
John Hancock Funds - Growth Fund
18
<PAGE> 19
NOTES
John Hancock Funds - Growth Fund
19
<PAGE> 20
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle inupper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Growth
Fund. It may be used as sales literature when preceded or accompanied by the
current prospectus, which details charges, investment objectives and operating
policies.
[A recycled logo in lower left hand corner with caption " Printed on Recycled
Paper."]
<PAGE> 21
JOHN HANCOCK FUNDS
- --------------------------------------------------------------------------------
SPECIAL
VALUE
FUND
SEMI-ANNUAL REPORT
June 30, 1995
<PAGE> 22
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Bayard Henry*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Michael P. DiCarlo
Senior Vice President
James K. Ho
Senior Vice President
John A. Morin
Vice President
Susan S. Newton
Vice President, Assistant Secretary
and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
INVESTMENT SUB-ADVISER
NM Capital Management, Inc.
6501 Americas Parkway Suite 950
Albuquerque, NM 87110-5372
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Educating shareholders has always been one of the most important
responsibilities of a mutual fund company. But that challenge has taken on new
significance in the past several years. Looking at the most recent statistics,
you can see why. According to the Investment Company Institute, the mutual fund
industry now manages more than $2.3 trillion for investors. More than half of
that money has come into mutual funds in just the last four years. Today, there
are more than 95 million mutual fund shareholder accounts. That's up from 12
million in 1980. These are people, like you, who are investing in mutual funds
to save for a home, to send their children to college or to build a nest egg for
a comfortable retirement. This explosive growth, coupled with the growing
complexity of the financial landscape, has made all of us in the mutual fund
industry work harder to inform our shareholders.
At John Hancock Funds, we strive to educate you about all aspects of your
fund: the performance, the strategies and the holdings. We want you to fully
understand what you own. We want you to have realistic expectations of the
potential rewards as well as the potential risks of your investment. These
shareholder reports -- which we send you twice a year -- are the best way to
give you the most in-depth and up-to-date information.
In the message that follows, the portfolio manager gives a candid commentary
on the market environment; the factors that affected performance; the Fund's
current investment strategies; and the outlook for the months ahead.
The ensuing financial statements provide a comprehensive look at the fund's
statistics and holdings.
We hope you find these shareholder reports a useful tool in evaluating your
investments. Of course, if you have any questions or need more information, feel
free to call one of our customer service representatives on our toll-free line
at 1-800-225-5291, from 8:00 a.m. to 8:00 p.m. eastern time, Monday through
Friday.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 23
BY ANGELA BRISTOW, CFA,
FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
SPECIAL VALUE FUND
STRATEGIC PATIENCE - THE CALM ENDURANCE OF DELAY
Have you noticed? People aren't patient. This is no new phenomenon. The
ancient Chinese required students seeking wisdom to place patience at the very
beginning of their quest, making them stand still for hours in uncomfortable
positions, sometimes barefoot in the snow. Fortunately, modern investors don't
have to brave such demanding physical perils in order to achieve the wisdom we
hope will lead us to realizing above-average returns. But the mental and
emotional discipline required to successfully implement a long-term value
strategy in the midst of today's accelerated desire for instant gratification is
just as hard to come by.
[A 2 1/2" x 3 1/2" photo of the Special Value portfolio management team at
bottom right. Caption reads: "The Special Value Portfolio Management Team:
Charles Womack (left), Thomas Christopher (middle) and Angela Bristow (right)."]
Strategic patience does not imply a willingness to simply buy a bunch of
statistically cheap stocks and wait for the proverbial cows to come home. We're
willing to wait a long time, sometimes a very long time, to realize the value in
our stocks. But we also remain proactively alert to all the possibilities
offered by the current market. Using tools such as our proprietary ranking
model, we constantly assess our stocks in terms of both total return and
downside risk over a four-year investment horizon.
MARGIN OF SAFETY
The factors we focus on are profoundly different from those which drive the
investment
[CAPTION]
"WE'RE WILLING TO WAIT A LONG TIME...TO REALIZE THE VALUE IN OUR STOCKS."
3
<PAGE> 24
John Hancock Funds - Special Value Fund
[Chart with heading "Top Five Common Stock Holdings" at the top of the left hand
column. The chart lists five holdings: 1) Russ Berrie & Co. 4.8%; 2) Calgon
Carbon 4.8%; 3) Overseas Shipholding 4.7%; 4) Times Mirror Co. 4.6% and 5) Brown
Group Inc. 4.4%. Footnote below reads "As a percentage of net assets on June 30,
1995."]
decisions of the majority of today's equity managers. One of the most important
is the "margin of safety." This phrase was coined by the legendary value
investor Benjamin Graham. In his classic text Security Analysis, Graham wrote
that margin of safety is "... the most fundamental quantitative concept in
security analysis." At the end of his career, he cited it as the single most
important contributing factor to an entire lifetime of investment success. No
single formula can be used to calculate margin of safety. Only diligent,
comprehensive analysis of a company's unique circumstance can yield insight into
the elements that underwrite its highly specific margin of safety.
Having a margin of safety does not mean that bad news will never negatively
impact a stock. Earnings disappointments, dividend cuts, reduced expectations
for business prospects and a wide variety of unexpected events will often reduce
a stock to levels well below a reasonable assessment of its margin of safety.
Such declines can be weathered with impunity by investors who understand that
the more enduring economic realities indicated by margin of safety will, under
normal circumstances, eventually prevail.
This "safety first" approach to investing may seem boring, especially in the
midst of a bull market. And it often means that more conservative funds like
Special Value Fund will trail during a big sector-specific rally, as we've seen
during the first half of this year. For the six months ended June 30, 1995, the
Fund's Class A and Class B shares had total returns of 11.89% and 11.32%,
respectively, at net asset value. By comparison, the average growth and income
fund returned 16.75%, according to Lipper Analytical Services.(1) Because of our
long-term approach, however, we don't believe that six-month returns are a good
barometer of future performance. The true test is a long-term horizon of at
least four to five years. The margin of safety concept has stood the test of
time and remains a substantial foundation for superior long-term investment
results.
TWO STOCK PICKS
Garan, which we added to the Fund during the period, is a perfect example of our
approach to investing. The shares are not only selling at a low 93% of book
value but are also selling at around 1.1 times net current asset value. This is
a classic Ben Graham stock. At roughly $17 a share today, the stock sold as high
as $36 a share in 1993 when investors were excited by Garan's success in the
sports licensing apparel business. Now, as that fad has faded, investors have
thrown out the stock.
What they're really throwing out is one of the better managed firms in the
apparel industry with a long history of successfully reinventing itself.
Management is also extremely shareholder-oriented. The stock has an attractive
[CAPTION]
"THE MARGIN OF SAFETY CONCEPT HAS STOOD THE TEST OF TIME..."
4
<PAGE> 25
John Hancock Funds - Special Value Fund
[Bar chart with heading "Fund Performance" top of the left hand column. Under
the heading is the footnote: "For the six months ended June 30, 1995". Within
the chart there are three solid bars. The first represents the 11.89% total
return for John Hancock Special Value Fund: Class A. The second represents the
11.32% total return for John Hancock Special Value Fund: Class B. The third
represents the 16.75% total return for the average growth and income fund.
Footnote below reads: "Total returns for John Hancock Special Value Fund are at
net asset value with all distributions reinvested. The average growth and income
fund is tracked by Lipper Analytical Services(1). See following page for
historical performance information.]
yield, which management supplements with special payouts when excess cash is
available. With no debt and a strong core business in children's clothing, Garan
has both the means and determination to survive and prosper when the next mass
merchandising opportunity comes along. We have no idea when that will happen,
and we don't need to know. It's always the bus you don't see coming that hits
you. Similarly, it's the unexpected positive change that provides the largest
gains in a stock.
Another addition is Tejon Ranch, a land development company in Southern
California. In 1989, the stock was trading at $56 a share. Today, it's at $13.
Tejon's primary asset is 270,000 acres of contiguous range and agricultural land
located about 60 miles north of Los Angeles in an area most likely to
participate in the region's next wave of residential development. At the current
stock price, the land is valued around $500 an acre. That's more or less as if
it were range land in Texas in the "middle of nowhere." Clearly that's not the
case.
When you invest in real estate, you often have to wait a very long time --
often longer than our four- to five-year horizon. But we see a possibility that
current circumstances could accelerate the development of this land. For
example, Times Mirror (TMC) owns 30% of the company. And given its restructuring
mode, TMC could be interested in seeing Tejon's potential realized sooner rather
than later. We think that Tejon provides an excellent investment opportunity.
CRYSTAL BALL REMAINS MURKY
An acquaintance of ours recently remarked, "I understand the value part of your
investment strategy, but how come you can't just wait and buy these stocks right
before they go up?" As all of the crystal balls we have peered into have proven
notoriously unreliable, we cannot accommodate our friend's request. We will,
however, patiently continue to invest as we always have in out-of-favor,
undervalued stocks with a strong margin of safety. Good things come to those who
know how to gather undervalued assets and patiently wait. Fortunately, neither
we, nor our shareholders, will be required to learn the benefits of this wisdom
by standing outside an ancient monastery, barefoot in the snow.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance would be
lower.
[CAPTION]
"GOOD THINGS COME TO THOSE WHO KNOW HOW TO GATHER UNDERVALUED ASSETS
AND PATIENTLY WAIT."
5
<PAGE> 26
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for John Hancock Special Value Fund. Total return is a performance
measure that equals the sum of all income and capital gains dividends, assuming
reinvestment of these distributions, and the change in the price of the fund's
shares, expressed as a percentage of the fund's share. Performance figures
include the maximum applicable sales charge of 5% for Class A shares. The effect
of the maximum contingent deferred sales charge for Class B shares (maximum 5%
and declining to 0% over six years) is included in Class B performance. Remember
that all figures represent past performance and are no guarantee of how the Fund
will perform in the future. Also, keep in mind that the total return and share
price of the Fund's investments will fluctuate. As a result, your Fund's shares
may be worth more or less than their original cost depending on when you sell
them.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ONE FIVE LIFE OF
YEAR YEARS(1) FUND(1)
---- -------- -------
<S> <C> <C> <C>
Special Value Fund: Class A(2) 12.54% N/A 14.56%
Special Value Fund: Class B(2) 12.45% N/A 14.28%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ONE FIVE LIFE OF
YEAR YEARS(1) FUND(1)
---- -------- -------
<S> <C> <C> <C>
Special Value Fund: Class A(2) 12.54% N/A 9.54%
Special Value Fund: Class B(2) 12.45% N/A 9.36%
</TABLE>
NOTES TO PERFORMANCE
(1) Class A shares and Class B shares started on January 3, 1994. The Adviser
has undertaken voluntarily to limit the Fund's expenses to the extent
required to prevent expenses from exceeding 0.40% of the Fund's daily net
asset value. Without the limitation of expenses, the average annualized
total returns for the one-year period and since inception for Class A shares
would have been 11.37% and 4.83%, respectively. The average annualized total
returns for the one-year period and since inception for Class B shares would
have been 11.28% and 4.69%, respectively.
(2) Performance is affected by a 12b-1 plan, which commenced on January 3, 1994
for both Class A shares and Class B shares.
6
<PAGE> 27
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Special Value Fund would be worth on June 30, 1995, assuming you invested on the
day each class of shares started and reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Standard & Poor's 500
Stock Index -- an unmanaged index that includes 500 widely traded common stocks
and is an often used measure of stock market performance.
John Hancock Special Value Fund Class A shares
[Line chart with the heading John Hancock Special Value Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $12,176 as of June 30, 1995. The second line represents the value of
the hypothetical $10,000 investment made in the John Hancock Special Value Fund
on January 3, 1994, before sales charge, and is equal to $12,062 as of June 30,
1995. The third line represents the John Hancock Special Value Fund after sales
charge and is equal to $11,456 as of June 30, 1995.]
John Hancock Special Value Fund Class B shares
[Line chart with the heading John Hancock Special Value Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $12,176 as of June 30, 1995. The second line represents the value of
the hypothetical $10,000 investment made in the John Hancock Special Value Fund
on January 3, 1994, before contingent deferred sales charge, and is equal to
$11,928 as of June 30, 1995. The third line represents the John Hancock Special
Value Fund after contingent deferred sales charge and is equal to $11,428 as of
June 30, 1995.]
7
<PAGE> 28
FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON JUNE 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $16,369,793)........................... $17,741,092
Joint repurchase agreement (cost - $2,675,000)............... 2,675,000
Corporate savings account.................................... 1,793
----------
20,417,885
Receivable for shares sold..................................... 112,860
Dividends and interest receivable.............................. 24,353
Receivable from John Hancock Advisers, Inc. - Note B........... 51,994
Deferred organization expenses - Note A........................ 79,307
----------
Total Assets................................ 20,686,399
------------------------------------------------------------
LIABILITIES:
Payable for investments purchased.............................. 817,051
Payable to John Hancock Advisers, Inc.
and affiliates - Note B...................................... 36,885
Accounts payable and accrued expenses.......................... 44,328
----------
Total Liabilities........................... 898,264
------------------------------------------------------------
NET ASSETS:
Capital paid-in................................................ 18,290,578
Accumulated net realized gain on investments................... 125,274
Net unrealized appreciation of investments..................... 1,371,299
Undistributed net investment income............................ 984
----------
Net Assets.................................. $19,788,135
============================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest
outstanding - unlimited number of shares authorized with no
par value, respectively)
Class A - $9,172,059/922,002.................................. $ 9.95
==============================================================================
Class B - $10,616,076/1,067,379............................... $ 9.95
==============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($9.95 x 105.26%)................................... $ 10.47
==============================================================================
<FN>
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS FOR THE PERIOD
STATED.
<TABLE>
STATEMENT OF OPERATIONS
Six months ended June 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $1,260).......... $ 183,841
Interest........................................................ 50,305
----------
234,146
----------
Expenses:
Investment management fee - Note B............................ 47,294
Distribution/service fee - Note B
Class A...................................................... 10,353
Class B...................................................... 33,052
Transfer agent fee - Note B
Class A...................................................... 8,388
Class B...................................................... 11,632
Custodian fee................................................. 16,690
Organization expense - Note A................................. 11,188
Registration and filing fees.................................. 9,818
Printing...................................................... 6,706
Auditing fee.................................................. 3,471
Trustees' fees................................................ 1,811
Miscellaneous................................................. 123
----------
Total Expenses............................... 160,526
Less Expenses Reimbursable by
John Hancock Advisers, Inc. - Note B........ (70,000)
----------
Net Expenses................................. 90,526
-----------------------------------------------------------
Net Investment Income........................ 143,620
-----------------------------------------------------------
UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold........................... 125,274
Change in net unrealized appreciation/depreciation
of investments................................................ 1,314,193
----------
Net Realized and Unrealized
Gain on Investments.......................... 1,439,467
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations.................... $1,583,087
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 29
FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1994
SIX MONTHS ENDED (COMMENCEMENT OF
JUNE 30, 1995 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1994
----------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.......................................................... $ 143,620 $ 51,170
Net realized gain on investments sold.......................................... 125,274 -
Change in net unrealized appreciation/depreciation of investments.............. 1,314,193 57,106
----------- ----------
Net Increase in Net Assets Resulting from Operations......................... 1,583,087 108,276
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.1044 and $0.1687 per share, respectively)...................... (85,535) (49,463)
Class B - ($0.0665 and $0.1050 per share, respectively)...................... (57,101) (18,717)
----------- ----------
Total Distributions to Shareholders......................................... (142,636) (68,180)
----------- ----------
FROM FUND SHARE TRANSACTIONS - NET*............................................. 10,631,617 7,175,971
----------- ----------
NET ASSETS:
Beginning of period............................................................ 7,716,067 -
Initital Investment by John Hancock Advisers, Inc. - Note A.................... - 400,000
Initial Investment by NM Capital Management, Inc. - Note A..................... - 100,000
----------- ----------
End of period (including undistributed net investment income of $984
and none, respectively)...................................................... $19,788,135 $7,716,067
=========== ==========
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE DUE TO REINVESTMENT OF DISTRIBUTIONS IN THE FUND.
THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES OUTSTANDING AT THE BEGINNING
OF THE PERIOD, REINVESTED AND OUTSTANDING AT THE END OF THE PERIOD, FOR THE LAST
TWO PERIODS.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 30
FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- -----------------------------------------------------------------------------------------------------------------------
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1994
SIX MONTHS ENDED (COMMENCEMENT OF
JUNE 30, 1995 OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 1994
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................ 560,978 $ 5,254,391 478,011 $ 4,269,587
Shares issued to shareholders in reinvestment of distributions..... 8,017 77,160 4,403 39,080
------- ----------- ------- -----------
568,995 5,331,551 482,414 4,308,667
Less shares repurchased............................................ (138,445) (1,303,797) (49,786) (445,803)
------- ----------- ------- -----------
430,550 4,027,754 432,628 3,862,864
Initial Investment by John Hancock Advisers, Inc. - Note A......... - - 47,059 400,000
Initial Investment by NM Capital Management, Inc. - Note A......... - - 11,765 100,000
------- ----------- ------- -----------
Net increase....................................................... 430,550 $ 4,027,754 491,452 $ 4,362,864
======= =========== ======= ===========
CLASS B
Shares sold........................................................ 776,639 $ 7,322,002 390,508 $ 3,529,419
Shares issued to shareholders in reinvestment of distributions..... 4,949 47,634 1,918 17,065
------- ----------- ------- -----------
781,588 7,369,636 392,426 3,546,484
Less shares repurchased............................................ (80,645) (765,773) (25,990) (233,377)
------- ----------- ------- -----------
Net increase....................................................... 700,943 $ 6,603,863 366,436 $ 3,313,107
======= =========== ======= ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 31
FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED FOR THE PERIOD JANUARY 3, 1994
JUNE 30, 1995 (COMMENCEMENT OF OPERATIONS)
(UNAUDITED) TO DECEMBER 31, 1994
---------------- ------------------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....................................... $ 8.99 $ 8.50 (c)
------- -------
Net Investment Income...................................................... 0.12(b) 0.18 (b)
Net Realized and Unrealized Gain on Investments............................ 0.94 0.48
------- -------
Total from Investment Operations......................................... 1.06 0.66
------- -------
Less Distributions:
Dividends from Net Investment Income....................................... (0.10) (0.17)
------- -------
Net Asset Value, End of Period............................................. $ 9.95 $ 8.99
=======
Total Investment Return at Net Asset Value .............................. 11.89%(d) 7.81% (d)
Total Adjusted Investment Return at Net Asset Value (a).................. 11.38%(d) 3.82% (d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................................. $ 9,172 $ 4,420
Ratio of Net Expenses to Average Net Assets ............................... 0.94%* 0.99% *
Ratio of Adjusted Expenses to Average Net Assets (a)....................... 1.98%* 4.98% *
Ratio of Net Investment Income to Average Net Assets....................... 2.57%* 2.10% *
Ratio of Adjusted Net Investment Income to Average Net Assets (a).......... 1.53%* (1.89%)*
Portfolio Turnover Rate.................................................... 3% 0.3%
Expense Reimbursement Per Share............................................ $ 0.05(b) $ 0.34 (b)
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....................................... $ 9.00 $ 8.50 (c)
------- -------
Net Investment Income...................................................... 0.08(b) 0.13 (b)
Net Realized and Unrealized Gain on Investments............................ 0.94 0.48
------- -------
Total from Investment Operations......................................... 1.02 0.61
------- -------
Less Distributions:
Dividends from Net Investment Income....................................... (0.07) (0.11)
------- -------
Net Asset Value, End of Period............................................. $ 9.95 $ 9.00
======= =======
Total Investment Return at Net Asset Value .............................. 11.32%(d) 7.15% (d)
Total Adjusted Investment Return at Net Asset Value (a).................. 10.81%(d) 3.16% (d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................................. $10,616 $ 3,296
Ratio of Net Expenses to Average Net Assets ............................... 1.75%* 1.72% *
Ratio of Adjusted Expenses to Average Net Assets (a)....................... 2.79%* 5.71% *
Ratio of Net Investment Income to Average Net Assets....................... 1.66%* 1.53% *
Ratio of Adjusted Net Investment Income to Average Net Assets (a).......... 0.62%* (2.46%)*
Portfolio Turnover Rate.................................................... 3% 0.3%
Expense Reimbursement Per Share............................................ $ 0.05(b) $ 0.34 (b)
<FN>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) On average month end shares outstanding.
(c) Initial price to commence operations.
(d) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 32
FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
SPECIAL VALUE FUND ON JUNE 30, 1995. IT'S DIVIDED INTO TWO MAIN CATEGORIES:
COMMON STOCKS AND SHORT-TERM INVESTMENTS. THE COMMON STOCKS ARE FURTHER BROKEN
DOWN BY INDUSTRY GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S
"CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
COMMON STOCKS
AIRCRAFT (9.03%)
AAR Corp....................................... 30,000 $ 536,250
Boeing Co. (The)............................... 10,800 676,350
Thiokol Corp................................... 19,000 574,750
-----------
1,787,350
-----------
BEVERAGES (2.81%)
Coors (Adolph) Co.............................. 34,000 556,750
-----------
CHEMICALS (2.40%)
LeaRonal, Inc.................................. 22,500 475,313
-----------
DIVERSIFIED OPERATIONS (8.44%)
Hanson PLC, American Depositary Receipts....... 48,000 846,000
Tejon Ranch.................................... 58,000* 804,750
U. S. Industries, Inc.**....................... 1,400 19,075
-----------
1,669,825
-----------
FOODS (4.97%)
Archer-Daniels-Midland Co...................... 6,615 123,204
Dole Food Co................................... 20,500 597,062
Rykoff-Sexton, Inc............................. 15,000 264,375
-----------
984,641
-----------
LEISURE & RECREATION (6.91%)
Outboard Marine Corp........................... 21,000 412,125
Russ Berrie & Co. Inc.......................... 68,900 955,988
-----------
1,368,113
-----------
MACHINERY (4.85%)
Harnischfeger Industries, Inc.................. 11,700 405,112
Twin Disc, Inc................................. 22,200 555,000
-----------
960,112
-----------
OFFICE EQUIPMENT & SUPPLIES (3.18%)
Cross (A.T.) Co................................ 42,300 629,212
-----------
OIL & GAS ( 4.86%)
Daniel Industries.............................. 36,300 571,725
Parker Drilling Co.**.......................... 74,200 389,550
-----------
961,275
-----------
PAPER (9.55%)
Gibson Greetings, Inc.**....................... 50,900 680,788
Glatfelter (P.H.) Co........................... 30,700 617,838
James River Corp. of Virginia.................. 21,400 591,175
-----------
1,889,801
-----------
POLLUTION CONTROL (4.77%)
Calgon Carbon Corp............................. 77,800 943,325
-----------
PUBLISHING (4.58%)
Times Mirror Co. (The) Class A................. 38,000* 907,250
-----------
RETAIL (8.10%)
Great Atlantic & Pacific Tea Co., Inc. (The)... 29,000* 764,875
Mercantile Stores Co., Inc..................... 18,000 837,000
-----------
1,601,875
-----------
Shoes (4.37%)
Brown Group, Inc............................... 38,000 864,500
-----------
Textile (6.14%)
Delta Woodside Industries, Inc................. 53,800 410,225
Garan Inc...................................... 48,000* 804,000
-----------
1,214,225
-----------
Transportation - Ship (4.69%)
Overseas Shipholding Group, Inc................ 44,700 927,525
-----------
TOTAL COMMON STOCKS
(Cost $16,369,793) (89.65%) 17,741,092
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 33
FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- -------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (13.52%)
Investment in a joint repurchase
agreement transaction with
Lehman Brothers, Inc.,
Dated 06-30-95, due 07-03-95
(Secured by U.S. Treasury Bill,
5.45% due 12-28-95, and
U.S. Treasury Note, 6.875%
due 12-28-95) - Note A............... 6.18% $2,675 $ 2,675,000
-----------
CORPORATE SAVINGS ACCOUNT (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%................... 1,793
-----------
TOTAL SHORT-TERM INVESTMENTS (13.53%) 2,676,793
------- -----------
TOTAL INVESTMENTS (103.18%) $20,417,885
======= ===========
<FN>
* Securities, other than short-term investments, newly added to the portfolio
during the period ended June 30, 1995.
** Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Capital Series (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of two series portfolios: John Hancock Special Value Fund (the "Fund") and John
Hancock Growth Fund.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B shares. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class,
which bears distribution/service expenses under the terms of a distribution
plan, have exclusive voting rights regarding such distribution plan. No Class C
shares were outstanding in the current fiscal year and were abolished by the
Trustees on May 1, 1995. Significant accounting policies of the Fund are as
follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies. It
will not be subject to Federal income tax on taxable earnings which are
distributed to shareholders.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes. Transfer
agent expenses and distribution/service fees, if any, are calculated daily at
the class level based on the appropriate
14
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
net assets of each class and the specific expense rate(s) applicable to each
class.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of 0.70% of the Fund's average daily net asset
value. Pursuant to a subadvisory agreement between the Adviser and an affiliated
company of the Adviser, NM Capital Management, Inc. (the "Sub-Adviser"), the
Adviser pays the Sub-Adviser 40% of the fee received by the Adviser for managing
the Fund. The Fund is not responsible for the sub-advisory fee.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
The Adviser has agreed to limit Fund expenses, including the management fee
(but not including the transfer agent fee and the 12b-1 fee), to 0.40% of the
Fund's average daily net assets. Accordingly, for the period ended June 30,
1995, the reduction in the Fund's expenses collectively with any additional
amounts not borne by the Fund by virtue of the expense limit amounted to
$70,000. The Adviser reserves the right to terminate this limitation in the
future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended June 30,
1995, JH Funds received net sales charges of $123,534 with regard to sales of
Class A shares. Out of this amount, $9,949 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $60,420 was paid
as sales commissions to unrelated broker-dealers and $53,165 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"). The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company, is the indirect sole shareholder of Distributors and John
Hancock Freedom Securities Corporation and its subsidiaries, which include
Tucker Anthony and Sutro, all of which are broker-dealers.
15
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Value Fund
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended June 30, 1995,
contingent deferred sales charges received by JH Funds amounted to $8,807.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses at an annual rate not to exceed 0.30% of Class
A average daily net assets and 1.00% of Class B average daily net assets to
reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of these payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation, ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Class A and Class B shares pay transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors and/or
officers of the Adviser, and/or its affiliates as well as Trustees of the Fund.
The compensation of unaffiliated Trustees is borne by the Fund. The Adviser and
NM Capital Management, Inc. own 47,062 and 11,765 Class A shares of beneficial
interest of the Fund, respectively. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock Funds, as applicable, to
cover its liability with regard to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as an other asset. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligation of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1995 aggregated $9,624,557 and $324,254, respectively. There were
no purchases or sales of obligations of the U.S. government and its agencies
during the period ended June 30, 1995.
The cost of investments owned at June 30, 1995 (excluding the corporate
savings account) for Federal income tax purposes was $19,044,793. Gross
unrealized appreciation and depreciation of investments aggregated $1,861,405,
and $490,106, respectively, resulting in net unrealized appreciation of
$1,371,299.
16
<PAGE> 37
NOTES
John Hancock Funds - Special Value Fund
See notes to financial statements.
17
<PAGE> 38
NOTES
John Hancock Funds - Special Value Fund
See notes to financial statements.
18
<PAGE> 39
NOTES
John Hancock Funds - Special Value Fund
See notes to financial statements.
19
<PAGE> 40
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This report is for the information of shareholders of the John Hancock
Special Value Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
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