<PAGE> 1
JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
GROWTH
FUND
ANNUAL REPORT
DECEMBER 31, 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
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
INDEPENDENTAUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
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.]
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and the level of assistance we provide you. Our commitment to this
task is no less than John Hancock's loyalty was to his fledgling country when he
is said to have uttered, "if it does the public good, burn Boston." We won't go
that far, of course, but we share our namesake's dedication to putting the
public before all else.
In our case, that public is you, our shareholders. We take very seriously the
role you have entrusted to us, that of helping you achieve your financial goals.
Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
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 PROPELS TO RECORD HIGHS IN 1995,
BOOSTED BY DECLINING INTEREST RATES, MUTED INFLATION
AND STRONG CORPORATE EARNINGS
Last Autumn, shareholders of John Hancock Capital Growth Fund approved the
merger of their fund with John Hancock Growth Fund. The merger was effective
September 15, 1995.
The same drivers that propelled the stock market in the first half of 1995
remained in place for the last six months, producing an outstanding year and
double-digit returns. The Federal Reserve did a tremendous job of walking a
tightrope that kept interest rates low, inflation down and the economy moving
forward. The added ingredient of strong corporate profits created an ideal
environment for stocks.
Technology stocks led the charge for most of the year, but they suffered some
setbacks in the fourth quarter. However, good showings from health-care and
consumer staples companies helped the Fund to a strong finish. For the year
ended December 31, 1995, John Hancock Growth Fund Class A and Class B shares
posted total returns at net asset value of 27.17% and 26.01%, respectively. By
comparison, the average growth fund's return for the year was 30.79% according
to Lipper Analytical Services.(1)
[A 2 1/2" x 3 1/2" photo of Bernice S. Behar centered at bottom of page. Caption
reads: "Bernice S. Behar".
[CAPTION]
"AN IDEAL ENVIRONMENT FOR 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) Paychex 3.4% 2) Merck & Co. 2.6% 3) HBO & Co.
2.5% 4) Coca-Cola 2.3% 5) Adaptec 2.2% A footnote below reads: "As a percentage
of net assets on December 31, 1995."]
The Fund lagged its peers primarily because of the drop-off in technology and
telecommunications stocks during the last quarter. While we still believe that
the opportunity for technology stocks is one of the most important investment
stories of the decade, we started making some cutbacks during the fourth
quarter, mostly in semiconductor stocks, to help reduce our exposure to this
volatile group.
SMOOTHING THE BUMPS
During the fourth quarter we increased our holdings in some larger, well-known
companies in the health-care and consumer staples areas. We also added some new
ones, which should help temper volatility while providing the potential for
strong returns. These were bright spots for the Fund during the last few months.
Companies in these areas have an ability to maintain their earnings when the
economy slows. Despite a weakening economy, people still buy products made by
large drug companies such as Johnson & Johnson and Merck, and consumer companies
like Gillette, McDonald's and Coca-Cola, all classic names in the growth-stock
world. In uncertain times, their predictable earnings often draw investors away
from the cyclical companies whose profits are more tied to swings in the
economy.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers." The first listing is Sun
Microsystems followed by an up arrow and the phrase "Internet-based leading edge
technology." The second listing is HBO & Co. followed by an up arrow and the
phrase "Dominant player in hospital information systems." The third listing is
Motorola followed by a down arrow and the phrase "Weakening demand for cellular
phones." Footnote below reads: "See "Schedule of Investments. "Investment
holdings are subject to change."]
TECHNOLOGY STILL LARGEST SECTOR
The largest portion of the portfolio, about 27%, was still invested in
technology-related stocks at the end of the period. We own a variety of
companies that touch on many aspects of the technology revolution. These
holdings range from network system companies, to database companies, to Internet
access providers and telecommunications/cellular providers. While these are all
part of the broad technology sector, our diversity among subsectors helps
protect the Fund when one group is weak. For instance, on-line and computer
networking companies, such as America Online (AOL) and Sun Microsystems, were
very strong in the second half of the year as demand for their services
continued to develop. AOL, one of the leading providers of on-line services, is
also giving us exposure to the Internet -- one of the most far-reaching
investment opportunities we may see in our lifetime.
These gains helped buffer losses in other technology stocks such as
semiconductors and telecommunications. Applied Materials and other semiconductor
manufacturers suffered during the last six months due to concern
[CAPTION]
"OUR HOLDINGS IN MEDICAL-DEVICE FIRMS HAVE ALSO SERVED US WELL LATELY."
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 year ended December 31, 1995." The chart
is scaled in increments of 10% from bottom to top, with 40% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 27.17% total return for John Hancock Growth Fund: Class A. The second
represents the 26.01% total return for John Hancock Growth Fund: Class B. The
third represents the 30.79% total return for the average growth fund. The
footnote below states: "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. See page seven for historical performance
information."]
about production outpacing demand. And telecommunications bellwether Motorola
and Finland-based Nokia stumbled because of a slowdown in telecommunications
legislation and weaker-than-expected demand. We still believe technology is a
growth area for the U.S. economy as companies strive to cut costs and increase
productivity, but we do expect the bumps we've seen lately to continue.
HEALTH-CARE STOCKS THRIVING
Apart from drug companies, other areas of healthcare have also proved robust.
Companies such as Health Management Associates, which runs hospitals in rural
locations; Health Care & Retirement, which owns rehabilitation and nursing home
facilities; and HBO & Co., which has a leading position in hospital information
systems, have been able to stay out of the legislative fray surrounding many
HMOs and other health-care providers. These companies are addressing the need
for cost containment, often through consolidation, and have developed niches in
their segments of the industry.
Our holdings in medical-device firms have also served us well lately. As
hospitals look to contain costs and streamline operations, they are looking for
fewer providers. Boston Scientific has capitalized on this trend, becoming a
leading supplier of medical devices to hospitals. One of Boston Scientific's
approaches is to buy companies that have niche products and leverage their
distribution system. For example, Boston Scientific recently bought Heart
Technologies, a specialist in cardiovascular devices and also a holding of the
Fund.
We have made some cutbacks as well. Early in the year we had purchased
broadcast and media companies such as New World Communications and Time Warner
on the expectation of increasing advertising revenues. But now, anticipated
revenues from the upcoming Summer Olympics and the presidential election have
already been figured into stock prices and several of these companies appear to
have reached their peak valuations. As a result, we have reduced or eliminated
our positions in these firms.
The newest additions to the portfolio are in the energy sector. We think oil
prices will be on the rise in the coming months, driven by a harsher-than-normal
winter in much of the
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is lower.
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
[CAPTION]
"IT WOULD BE UNREALISTIC TO EXPECT A REPEAT PERFORMANCE IN 1996."
5
<PAGE> 6
John Hancock Funds - Growth Fund
country and by growing demand for energy from rapidly developing third world
nations. Couple these with America's continuing love affair with gas-guzzling
minivans and sport utility vehicles and lower oil reserves, and we could have
the makings of a strong year for oil prices. To ride this wave, we've purchased
drilling and oil service companies such as Reading & Bates, Schlumberger and
Halliburton Co.
ON THE HORIZON
Although the factors that drove the sensational market in 1995 are still in
place, it would be unrealistic to expect a repeat performance in 1996. Since the
start of the year, the market has already experienced a few corrections. More
volatility could lie ahead as investors take profits and different sectors
rotate in and out of favor.
Despite these expected setbacks, in our view the fundamental picture still
looks good for growth stocks. With economic growth slowing, interest rates have
room to come down further, and inflation should remain low. Traditionally, these
factors have contributed to stock market advances. What's more, presidential
election years tend to be favorable for stocks. Overall, we're looking for
growth stocks to perform reasonably well in the months to come, albeit not at
1995's torrid pace.
6
<PAGE> 7
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Growth Fund. Total return is a performance
measure that equals the sum of all dividends and capital gains, assuming
reinvestment of these distributions and the change in the price of the Fund's
average net assets. 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. 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. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, keep in mind
that the total return and share price of the Fund's investments will fluctuate.
As a result, your Fund's shares may be worth more or less than their original
cost, depending on when you sell them.
CUMULATIVE TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
<S> <C> <C> <C>
Growth Fund: Class A 20.82% 89.81% 205.92%
Growth Fund: Class B 21.01% 13.75%(1) N/A
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------
FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
<S> <C> <C> <C>
Growth Fund: Class A 20.82% 13.69% 11.76%
Growth Fund: Class B 21.01% 6.69%(1) N/A
</TABLE>
NOTES TO PERFORMANCE
(1) Class B shares started on January 3, 1994.
7
<PAGE> 8
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Growth Fund would be worth on December 31, 1995, assuming you have been invested
for the past ten years or since 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 used often as a 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. Within the chart are
three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $39,955 as of December 31, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the Growth Fund on December
31, 1985, before sales charge, and is equal to $32,196 as of December 31, 1995.
The third line represents the Growth Fund after sales charge and is equal to
$30,592 as of December 31, 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 $13,934 as of December 31, 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 $11,755 as of
December 31, 1995. The third line represents the Growth Fund after contingent
deferred sales charge and is equal to $11,375 as of December 31, 1995.]
8
<PAGE> 9
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 DECEMBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks, preferred stock and
other investments (cost - $165,477,205) ................... $250,529,960
Publicly traded convertible bonds (cost - $650,000) ......... 712,563
Joint repurchase agreement (cost - $7,320,000) .............. 7,320,000
Corporate savings account ................................... 5,883
------------
258,568,406
Receivable for shares sold ................................... 10,795
Receivable for investments sold .............................. 4,273,499
Interest receivable .......................................... 8,649
Dividends receivable ......................................... 141,137
Other assets ................................................. 23,796
------------
Total Assets ............................... 263,026,282
------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased ............................... 123
Payable for investments purchased ............................ 5,028,850
Payable to John Hancock Advisers, Inc. .......................
and affiliates - Note B ..................................... 267,247
Accounts payable and accrued expenses ........................ 117,421
------------
Total Liabilities .......................... 5,413,641
------------------------------------------------------------
NET ASSETS:
Capital paid-in .............................................. 172,385,747
Accumulated net realized gain on investments ................. 111,577
Net unrealized appreciation of investments ................... 85,115,318
------------
Net Assets ................................. $257,612,642
============================================================
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 - $241,699,860/12,388,361 ............................ $ 19.51
==============================================================================
Class B - $15,912,782/826,498 ................................ $ 19.25
==============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($19.51 x 105.26%) ................................. $ 20.54
==============================================================================
<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 (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Year ended December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $14,730) ..... $ 1,202,907
Interest .................................................... 785,627
-----------
1,988,534
-----------
Expenses:
Investment management fee - Note B ......................... 1,561,020
Distribution/service fee - Note B
Class A .................................................. 559,382
Class B .................................................. 82,591
Transfer agent fee - Note B ................................ 578,813
Printing ................................................... 46,658
Custodian fee .............................................. 43,950
Auditing fee ............................................... 32,214
Registration and filing fees ............................... 29,808
Trustees' fees ............................................. 15,625
Miscellaneous .............................................. 10,421
Legal fees ................................................. 1,633
-----------
Total Expenses ............................ 2,962,115
-----------------------------------------------------------
Net Investment Loss ....................... (973,581)
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold ....................... 9,207,214
Change in net unrealized appreciation/depreciation
of investments ............................................. 30,638,725
-----------
Net Realized and Unrealized
Gain on Investments ....................... 39,845,939
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................. $38,872,358
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss ................................................ $ (973,581) $ (986,780)
Net realized gain (loss) on investments sold ....................... 9,207,214 1,529,276
Change in net unrealized appreciation/depreciation of investments .. 30,638,725 (13,091,731)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations ... 38,872,358 (12,549,235)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments sold
Class A - ($0.6945 and $0.2020 per share, respectively) ........... (8,391,968) (1,850,208)
Class B** - ($0.6945 and $0.2020 per share, respectively) ......... (552,264) (43,984)
Class C*** - (none and $0.2020 per share, respectively) ........... -- (18,255)
------------- -------------
Total Distributions to Shareholders ............................. (8,944,232) (1,912,447)
------------- -------------
FROM FUND SHARE TRANSACTIONS -- NET* ................................. 75,837,052 2,086,820
------------- -------------
NET ASSETS:
Beginning of period ................................................ 151,847,464 164,222,326
------------- -------------
End of period ...................................................... $ 257,612,642 $ 151,847,464
============= =============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1994
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 1,671,481 $ 32,932,574 4,198,071 $ 71,177,794
Shares issued in reorganization - Note D ........................ 3,788,495 77,588,384 -- --
Shares issued to shareholders in reinvestment of distributions .. 402,050 7,803,606 110,953 1,738,305
---------- ------------ ---------- ------------
5,862,026 118,324,564 4,309,024 72,916,099
Less shares repurchased ......................................... (2,691,827) (52,370,704) (4,457,375) (75,094,698)
---------- ------------ ---------- ------------
Net increase (decrease) ......................................... 3,170,199 $ 65,953,860 (148,351) $ (2,178,599)
========== ============ ========== ============
CLASS B **
Shares sold ..................................................... 333,335 $ 6,333,583 259,658 $ 4,192,534
Shares issued in reorganization - Note D ........................ 471,911 9,563,328 -- --
Shares issued to shareholders in reinvestment of distributions .. 27,495 526,875 2,737 42,721
---------- ------------ ---------- ------------
832,741 16,423,786 262,395 4,235,255
Less shares repurchased ......................................... (246,690) (4,843,723) (21,948) (347,495)
---------- ------------ ---------- ------------
Net increase .................................................... 586,051 $ 11,580,063 240,447 $ 3,887,760
========== ============ ========== ============
CLASS C ***
Shares sold ..................................................... 841 $ 15,270 30,518 $ 480,690
Shares issued to shareholders in reinvestment of distributions .. -- -- 1,121 17,646
---------- ------------ ---------- ------------
841 15,270 31,639 498,336
Less shares repurchased ......................................... (99,061) (1,712,141) (7,014) (120,677)
---------- ------------ ---------- ------------
Net increase (decrease) ......................................... (98,220) $ (1,696,871) 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.
10
<PAGE> 11
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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <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
-------- -------- -------- -------- --------
Net Investment Income (Loss) .................................. (0.09)(c) (0.10) (0.11) (0.06) 0.04
Net Realized and Unrealized Gain (Loss) on Investments ........ 4.40 (1.21) 2.33 1.10 5.36
-------- -------- -------- -------- --------
Total from Investment Operations ............................. 4.31 (1.31) 2.22 1.04 5.40
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .......................... -- -- -- -- (0.04)
Distributions from Net Realized Gain on Investments Sold ...... (0.69) (0.20) (2.14) (1.20) (0.81)
-------- -------- -------- -------- --------
Total Distributions .......................................... (0.69) (0.20) (2.14) (1.20) (0.85)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ................................ $ 19.51 $ 15.89 $ 17.40 $ 17.32 $ 17.48
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (g) ................ 27.17% (7.50%) 13.03% 6.06% 41.68%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ..................... $241,700 $146,466 $162,937 $153,057 $145,287
Ratio of Expenses to Average Net Assets ....................... 1.48% 1.65% 1.56% 1.60% 1.44%
Ratio of Net Investment Income (Loss) to Average Net Assets ... (0.46%) (0.64%) (0.67%) (0.36%) 0.27%
Portfolio Turnover Rate ....................................... 68%(i) 52% 68% 71% 82%
CLASS B (a)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .......................... $ 15.83 $17.16(b)
------- ------
Net Investment Loss ........................................... (0.26)(c) (0.20)(c)
Net Realized and Unrealized Gain (Loss) on Investments ........ 4.37 (0.93)
------- ------
Total from Investment Operations ............................. 4.11 (1.13)
------- ------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ...... (0.69) (0.20)
------- ------
Net Asset Value, End of Period ................................ $ 19.25 $15.83
======= ======
Total Investment Return at Net Asset Value (g) ................ 26.01% (6.56%)(f)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ..................... $15,913 $3,807
Ratio of Expenses to Average Net Assets ....................... 2.31% 2.38%(d)
Ratio of Net Investment Loss to Average Net Assets ............ (1.39%) (1.25%)(d)
Portfolio Turnover Rate ....................................... 68%(i) 52%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
PERIOD ENDED DECEMBER 31, PERIOD ENDED
MARCH 31, 1995 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(c) (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 (g) ............ 8.11%(f) (7.07%) (15.18%)(f)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ................. $ 1,672 $ 1,574 $ 1,285
Ratio of Expenses to Average Net Assets ................... 1.05%(d) 1.12% 1.05%(d)
Ratio of Net Investment Income (Loss) to Average Net Assets 0.44%(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.
(g) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(i) Portfolio turnover rate excludes merger activity.
</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.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
GROWTH FUND ON DECEMBER 31, 1995. IT'S DIVIDED INTO FIVE MAIN CATEGORIES: COMMON
STOCKS, PREFERRED 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
December 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
COMMON STOCKS
AEROSPACE (0.53%)
Thiokol Corp. ................................. 40,000* $ 1,355,000
-----------
BANKS (1.41%)
Chase Manhattan Corp. ......................... 60,000* 3,637,500
-----------
BEVERAGES (2.31%)
Coca-Cola Co. (The) ........................... 80,000 5,940,000
-----------
BROADCASTING (0.72%)
Capital Cities /ABC, Inc. ..................... 15,000* 1,850,625
-----------
CHEMICALS (2.08%)
Eastman Chemical Co. .......................... 20,000* 1,252,500
Millipore Corp. ............................... 100,000* 4,112,500
-----------
5,365,000
-----------
COMPUTERS (8.14%)
Cognex Corp. * * .............................. 120,000* 4,170,000
Compaq Computer Corp. * * ..................... 80,000* 3,840,000
Hewlett-Packard Co. ........................... 20,000* 1,675,000
Lexmark International Group, Inc. .............
(Class A) * * ................................ 80,000* 1,460,000
Seagate Technology, Inc. * * .................. 70,000* 3,325,000
Silicon Graphics, Inc. * * .................... 70,000* 1,925,000
Sun Microsystems, Inc. * * .................... 100,000* 4,562,500
-----------
20,957,500
-----------
COSMETICS & TOILETRIES (3.37%)
Estee Lauder Cos., Inc. (Class A) * * ......... 84,600* 2,950,425
Gillette Co. (The) ............................ 110,000 5,733,750
-----------
8,684,175
-----------
DIVERSIFIED OPERATIONS (0.19%)
ITT Industries, Inc. .......................... 20,000* 480,000
-----------
DRUGS (7.88%)
Johnson & Johnson ............................. 65,000 5,565,625
Merck & Co., Inc. ............................. 100,000* 6,575,000
Pfizer, Inc. .................................. 60,000 3,780,000
Schering-Plough Corp. ......................... 80,000* 4,380,000
-----------
20,300,625
-----------
ELECTRONICS (14.28%)
Adaptec, Inc. * * ............................. 140,000 5,740,000
Altera Corp. * * .............................. 25,000* 1,243,750
Applied Materials, Inc. * * ................... 80,000* 3,150,000
Bay Networks, Inc. * * ........................ 112,500* 4,626,562
Benchmarq Microelectronics, * * ............... 75,000* 609,375
Cisco Systems, Inc. * * ....................... 60,000 4,477,500
Duracell International, Inc. .................. 90,000* 4,657,500
Intel Corp. ................................... 30,000* 1,702,500
LSI Logic Corp. * * ........................... 60,000* 1,965,000
Molex, Inc. ................................... 50,000* 1,587,500
Molex, Inc. (Class A) ......................... 93,750 2,871,094
Vishay Intertechnology, Inc. * * .............. 132,300 4,167,450
-----------
36,798,231
-----------
FINANCIAL/BUSINESS SERVICES (8.08%)
Capital One Financial Corp. ................... 60,000* 1,432,500
Dean Witter Discover & Co. .................... 50,000* 2,350,000
Edwards (A.G.), Inc. .......................... 45,000* 1,074,375
First Data Corp. .............................. 40,000* 2,675,000
MBNA Corp. .................................... 120,000 4,425,000
Paychex, Inc. ................................. 177,500 8,852,812
-----------
20,809,687
-----------
FOOD (2.77%)
ConAgra, Inc. ................................. 40,000* 1,650,000
Kellogg Co. ................................... 50,000* 3,862,500
Nabisco Holdings Corp. (Class A) .............. 50,000* 1,631,250
-----------
7,143,750
-----------
HEALTHCARE (10.10%)
Amgen, Inc. * * ............................... 70,000* 4,156,250
Boston Scientific Corp. * * ................... 25,000* 1,225,000
Cardinal Health, Inc. * * ..................... 82,500 4,516,875
HBO & Co. ..................................... 85,000 6,513,125
Health Management Associates, Inc. ............
(Class A) * * ................................ 195,000 5,094,375
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
HEALTHCARE (CONTINUED)
Heart Technology, Inc. * * .................. 30,000* $ 986,250
IDEXX Laboratories, Inc. * * ................ 75,000* 3,525,000
-----------
26,016,875
-----------
HOTELS & MOTELS (0.37%)
Marriott International, Inc. ................ 25,000* 956,250
-----------
INSURANCE (0.38%)
ITT Hartford Group, Inc. * * ................ 20,000* 967,500
-----------
LEISURE & RECREATION (3.54%)
Disney (Walt) Co., (The) .................... 70,000 4,130,000
ITT Corp. * * ............................... 20,000* 1,060,000
PolyGram N.V. American Depository
Receipt, (ADR) ............................. 75,000 3,937,500
-----------
9,127,500
-----------
LINEN SUPPLY (1.55%)
Cintas Corp. ................................ 90,000 4,005,000
-----------
NURSING HOMES (3.26%)
Health Care & Retirement Corp. * * .......... 130,000 4,550,000
Manor Care, Inc. ............................ 110,000 3,850,000
-----------
8,400,000
-----------
OIL / GAS (4.73%)
Diamond Offshore Drilling, * *............... 100,000* 3,375,000
Halliburton Co. ............................. 50,000* 2,531,250
Reading & Bates Corp. * * ................... 100,000* 1,500,000
Schlumberger Ltd. ........................... 35,000* 2,423,750
Western Atlas, Inc. * * ..................... 46,600* 2,353,300
-----------
12,183,300
-----------
PUBLISHING (1.94%)
News Corp. Ltd. (The) (ADR) ................. 125,000 2,671,875
Scholastic Corp. * * ........................ 30,000* 2,332,500
-----------
5,004,375
-----------
RETAIL (9.69%)
Borders Group, Inc. * * ..................... 125,000* 2,312,500
Circuit City Stores, Inc. ................... 54,700* 1,511,087
CUC International, Inc. * * ................. 142,500 4,862,812
Landry's Seafood Restaurants, Inc. * * ...... 120,000* 2,047,500
McDonald's Corp. ............................ 120,000 5,415,000
Men's Wearhouse, Inc. (The) * * ............. 45,000* 1,158,750
PetSmart, Inc. * * .......................... 100,000* 3,100,000
Walgreen Co. ................................ 100,000* 2,987,500
Wal-Mart Stores, Inc. ....................... 70,000 1,566,250
-----------
24,961,399
-----------
SOFTWARE (4.98%)
America Online, Inc. * * .................... 120,000 4,500,000
Electronic Arts, Inc. * * ................... 40,000* 1,045,000
Microsoft Corp. * * ......................... 25,000* 2,193,750
Oracle Corp. * * ............................ 120,000* 5,085,000
------------
12,823,750
------------
TELECOMMUNICATIONS (4.95%)
Airtouch Communications, Inc. * * ........... 90,000 2,542,500
AT&T Corp. .................................. 25,000* 1,618,750
Ericsson (L.M.) Telephone Co., (Class B)
(ADR) * * .................................. 104,500* 2,037,750
Motorola, Inc. .............................. 60,400 3,442,800
Nokia Corp. (Class A) (ADR) ................. 80,000* 3,110,000
------------
12,751,800
------------
TOTAL COMMON STOCK
(Cost $165,395,830) (97.25%) 250,519,842
--------- ------------
PREFERRED STOCK
ELECTRONICS (0.00%)
Teledyne, Inc., Ser E, $1.20 ................ 700* 10,063
------------
TOTAL PREFERRED STOCK
(Cost $10,500) (0.00%) 10,063
--------- ------------
OTHER INVESTMENT
DRUGS (0.00%)
Lilly (Eli) & Co., Contingent
Payment Units ** ........................... 14,000 55
------------
TOTAL OTHER INVESTMENT
(Cost $70,875) (0.00%) 55
--------- ------------
TOTAL COMMON STOCKS,
PREFERRED STOCK AND
OTHER INVESTMENT
(Cost $165,477,205) (97.25%) 250,529,960
--------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
<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 (0.28%)
Hasbro, Inc.
Conv. Sub.
Note 11-15-98.................. 6.00% A- $ 650 $ 712,563
------------
TOTAL PUBLICLY TRADED
CONVERTIBLE BONDS
(Cost $650,000) (0.28%) 712,563
------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.84%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 12-29-95, due 01-02-96
(secured by U.S. Treasury
Bonds, 10.375% due
11-15-12 and 7.50%
due 11-15-16).................. 5.90 7,320 7,320,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.00% 5,883
------------
TOTAL SHORT-TERM INVESTMENTS (2.84%) 7,325,883
------- ------------
TOTAL INVESTMENTS (100.37%) $258,568,406
======= ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio during the year ended December 31, 1995.
** Non-income producing security.
*** Credit rating is unaudited.
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
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 investment objective of the Fund is to achieve long-term
appreciation of capital by diversifying its investments among a number of
industry groups without concentration in any particular industry.
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. 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 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 for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST 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, if any, 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 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 Fund.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth 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 (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 December
31, 1995, net sales charges received with regard to sales of Class A shares
amounted to $376,267. Out of this amount, $59,781 was retained and used for
printing prospectuses, advertising, sales literature, and other purposes,
$20,565 was paid as sales commissions to unrelated broker-dealers, and $295,921
was paid as sales commissions to personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"), all of which are broker-dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company, is the indirect sole
shareholder of Distributors and John Hancock Freedom Securities Corporation and
its subsidiaries, which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase 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 December 31,
1995, contingent deferred sales charges amounted to $16,695.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan 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/service costs. Up to a maximum of 0.25%
of such payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the amended
Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corp. ("Investor Services"), a wholly-owned subsidiary of The Berkeley Financial
Group. For the period January 1, 1995 through September 30, 1995 Class A and
Class B shares paid transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket expenses. Class C shares paid a monthly
transfer agent fee equivalent, on an annual basis, to 0.10% of the average daily
net asset value of Class C shares of the Fund. For the nine months ended
September 30, 1995 the transfer agent expense, calculated as a class specific
expense was $385,350 for Class A, $22,387 for Class B and $408 for Class C
shares, respectively. Effective October 1, 1995, transfer agent expense is a
fund expense.
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
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Hancock Group of Funds Deferred Compensation Plan. The Fund makes 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 are recorded on the Fund's books as an other asset. The
deferred compensation liability is marked to market on a periodic basis and
income earned by the investment is recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended December 31, 1995 aggregated $107,466,892
and $116,529,822, respectively.
The cost of investments owned at December 31, 1995 (excluding the corporate
savings account), for Federal income tax purposes was $173,452,018. Gross
unrealized appreciation and depreciation of investments aggregated $88,383,168
and $3,272,662, respectively, resulting in net unrealized appreciation of
$85,110,506.
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of John Hancock Capital Growth Fund
(JHCGF) approved a plan of reorganization between JHCGF and the Fund providing
for the transfer of substantially all of the assets and liabilities of JHCGF to
the Fund in exchange solely for Class A and Class B shares of the Fund. The
acquisition was accounted for as a tax free exchange of 3,788,495 Class A
shares, and 471,911 Class B shares of John Hancock Growth Fund for the net
assets of JHCGF, which amounted to $77,588,384 and $9,563,328 for Class A and B
shares, respectively, including $20,624,702 of unrealized appreciation, at the
close of business on September 15, 1995.
NOTE E --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended December 31, 1995, the Fund has reclassified the
accumulated net investment loss $973,581 to capital paid-in. This represents the
cumulative amount necessary to report these balances on a tax basis, excluding
certain temporary differences, as of December 31, 1995. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications, which
have no impact on the net asset value of the Fund, are primarily attributable to
certain differences in the computation of distributable income and capital gains
under federal tax rules versus generally accepted accounting principles.
18
<PAGE> 19
John Hancock Funds - Growth Fund
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Capital Series --
John Hancock Growth Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Growth Fund (the "Fund'), one of the portfolios constituting John
Hancock Capital Series, including the schedule of investments, as of December
31, 1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers, or other
appropriate auditing procedures when replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of John
Hancock Growth Fund portfolio of John Hancock Capital Series at December 31,
1995, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated periods, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 9, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the taxable distributions of the Fund for its fiscal year ended
December 31, 1995.
The Fund designated a distribution to shareholders $8,944,000 as long-term
capital gain dividends. Shareholders were mailed a 1995 U.S. Treasury Department
Form 1099-DIV in January 1996 representing their proportionate share.
United States Government Obligations:None of the 1995 income earned by the
Fund was derived from obligations of the U.S. government or its agencies. The
Fund did not have any assets invested in U.S. Treasury bonds, bills, notes or
other U.S. Government Agencies at year end.
For the fiscal year ending December 31, 1995 none of the distributions
qualify for the dividends received deduction available to corporations.
For specific information on exemption provisions in your state, consult your
local tax office or your tax adviser.
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
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Permit No. 582
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- --------------------------------------------------------------------------------
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 the caption "Printed on
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JHD 2000A 12/95
2/96
