<PAGE> 1
JOHN HANCOCK
CAPITAL GROWTH
FUND
ANNUAL REPORT
December 31, 1994
Seeks Long-Term Capital
Appreciation By Investing Its
Assets Primarily In Equity
Securities.
[LOGO]
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
[Back Cover]
In upper left corner, return address: John Hancock Capital Growth Fund, John
Hancock Funds Shareholder Services, P.O. Box 9656, Providence, RI 02940-9656.
In upper right corner, postage information: Bulk Rate U.S. Postage Paid Permit
No. 6011, Houston, Texas. In lower left corner, 3/8" x 3/8" John Hancock Funds
logo. A box sectioned in quadrants with a triangle in upper left, a circle in
upper right, a cube in lower left and a diamond in lower right.
<PAGE> 2
Chairman's Message
Page 1
A 2" x 2 7/16" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, centered at top of page with copy wrapped around photo.
Dear Shareholders,
On behalf of our nearly 700 associates, I'm delighted to welcome you to John
Hancock Funds. As you all know, Transamerica Fund Management Company was
acquired by John Hancock Funds on December 22, 1994, following
a favorable shareholder vote. At that time, all of the Transamerica mutual
funds became part of the John Hancock family of funds.
We're excited about the opportunities this acquisition will bring to
shareholders. The combined firms form a larger, more competitive organization
with more than $13 billion in assets under management and more than 1 million
shareholders. Now with 50 open-end funds, 8 closed-end funds and a full array
of retirement and private account services, John Hancock Funds offers you a
broader selection of investment choices to meet your long-term financial needs.
What's more, the union of the John Hancock and Transamerica investment teams
gives you access to some of the top talent in the industry.
The Transamerica name is changing, but the commitment to serving you as a
valued shareholder isn't. Here at John Hancock Funds, our motto is: "We invest
in quality first." It has to do with the way we invest your money and the way
we work with you. Not only do we strive to ensure that your investments are
well managed, we also take pride in providing the highest quality customer
service. We can't guarantee investment performance; nobody can. The quality of
our service, however, depends totally on us. That is something that we can
guarantee.
In mid-May, we anticipate that all of the Transamerica funds will be
fully integrated into John Hancock's internal shareholder service organization,
John Hancock Investor Services. At that time, not only will you gain exchange
privileges into all John Hancock funds, but your account will be handled by one
of the top-rated service organizations in the industry. To show you how
seriously we take our commitment to quality, you will have access to our
service guarantee. If we make an error in processing a transaction in your
account, we will deposit $25 into it. Or, if you have a retirement account, we
will waive the annual fee.
We value your business and look forward to serving your investment needs in
the years to come.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
John Hancock Funds
1
<PAGE> 3
BY BEN A. HOCK, JR., PORTFOLIO MANAGER
JOHN HANCOCK CAPITAL GROWTH FUND
HIGHER INTEREST RATES JAR STOCK MARKET, BUT STRONG ECONOMY
AND EARNINGS MAKE LONG-TERM OUTLOOK POSITIVE
The stock market moved through several distinct phases from December 31, 1993
to December 31, 1994, as a result of the abrupt change in Federal Reserve Board
policy beginning in February.
The period started with a robust market and economy. When the Federal
Reserve began raising short-term interest rates in early February, investors
altered their outlook and strategy on fears of rising inflation. Sharp swings in
investor sentiment created ongoing group rotation and an overall downward trend
for the market during the year.
Virtually no sector escaped the market's downturn. Stocks of companies in
the automobile, machinery and transportation sectors were particularly hard hit
as investors lost conviction that companies tied to continued economic growth
could continue to do well in a higher interest rate environment.
ECONOMICALLY-SENSITIVE ORIENTATION HURT FUND PERFORMANCE
The Fund's economically-sensitive orientation performed well early in 1994, but
eventually succumbed to the weight of successive interest-rate increases. For
the 12-month period ended December 31, 1994, Class A and Class B Shares posted
returns of -11.34% and -11.88%, respectively, at net asset value. During the
same period, the average growth fund had a total return of -2.15%, according to
Lipper Analytical Services.*
In December 1994, the Fund distributed $0.293 in long-term capital gains
that resulted primarily from the sale of Paramount. The stock increased
substantially when Paramount was acquired by Viacom. The rest of the gain
resulted from our ongoing efforts to divest the portfolio of the small
capitalization issues that are not in line with current strategy.
BASIC STRATEGY REMAINED STEADY
The hallmark of our strategy remained our stock selection process. We are
committed to finding stocks with superior earnings growth, consistency and
resiliency. We favored mid-size companies with established product lines,
experienced management teams and exceptional financial resources. We sought to
build a portfolio with approximately 30 to 40 of these issues.
The identification of a catalyst continued to be particularly important to
our selection process. A catalyst is a specific characteristic or event that
should propel the stock to a much higher value by providing substantial sales
and earnings growth potential to the company.
During the year, we changed the sector weighting of the portfolio. We
decreased our exposure to transportation issues because these
economically-sensitive stocks were battered by higher rates. At the same time,
we looked for companies with superior export potential which should benefit
from the current global economic expansion. Many of these companies were in the
technology sector. The U.S. is without a doubt the leading exporter of
technology, and companies in this sector stand to grow as they satisfy the
world's demand.
Silicon Graphics, for example, is at the forefront of designing and
producing visual computing systems for the scientific, technical and corporate
workplace.** The
2
<PAGE> 4
company, a recognized leader in both applications and new
product development, has enjoyed considerable success from its broad product
line. Over the past five years, sales growth has been 25.5% annually, and
earnings growth a stellar 26.5%. The company is well capitalized and capable of
sustaining future growth.
We also increased our health care holdings. This sector is undergoing a
consolidation, which should result in stronger earnings for the remaining
companies. Of particular interest are companies such as Manor Care, an
acknowledged leader in the nursing home industry and a player in the lodging
industry. The nursing home sector accounts for over 75% of the company's
revenues and profits. Over the last five years, revenues have advanced 13%
annually and earnings have grown at a 17% annual rate. An aging U.S. population
should provide a positive operating environment for this company. Results in
the lodging sector should also benefit from improved occupancy rates and
stronger pricing.
The Fund maintained its position in the energy sector, which did not
perform well. Earnings for companies such as Enron Oil and Gas were hurt as
mild winter weather weakened demand and gas prices. Despite the short-term
setback, Enron's long-term prospects are positive. Almost all of its reserves
are located in North America, its financial position is strong, and it is well
positioned to generate higher sales and earnings once demand and pricing firm.
FAVORABLE OUTLOOK
Our market outlook remains positive, although our enthusiasm remains tempered
by the rise in short-term interest rates and the prospects for an eventual
economic slowdown. We anticipate that the U.S. economy will slow down in the
spring of 1995 and return to a more normal growth rate in the range of 2.5% to
3.0%.
Going forward, we believe that increased export activity will be an
important source of growth for businesses and that will help keep the U.S.
economy on track. We do not believe that rising inflation will be a problem, as
higher rates should keep it at bay.
Against the backdrop of a steadily growing economy and strong business
activity, stocks of mid-size companies should do well. Once investors move
beyond the fear created by higher rates and focus on the long-term story of
growing earnings, stocks should begin performing better. Of course, there is no
way of knowing when this will occur, but we believe the market is in an
excellent position to advance in 1995.
* Figures from Lipper Analytical Services include reinvested distributions and
do not take into account sales charges. Actual load-adjusted performance would
be lower.
** Stock of Silicon Graphics, Inc. and other companies noted or discussed in
this report were acquired at varying and different times and in varying and
different amounts; reference to such securities herein does not constitute a
recommendation to purchase any of such securities.
Page 3
A box with heading: "Top Five Common Stock Holdings" following the footnote in
the middle of the second (right) column. Box lists the following: 1. Silicon
Graphics, Inc., 3.92%. 2. Marriott International Inc., 3.89%. 3. Manor Care,
Inc., 3.79%. 4. EMC Corp., 3.49%. 5. Sterling Software, Inc., 3.39%. The
footnote below states: "As a percentage of total net assets on December 31,
1994."
Page 3
Table entitled "Scorecard" following the "Top Five Common Stock Holdings" box.
The header for the left column is "Investments;" the header for the right
column is "Recent performance...and what's behind the numbers." The first
listing is Silicon Graphics followed by an up arrow and the phrase "Strong
sales growth." The second listing is Manor Care followed by an up arrow and
the phrase "Growing nursing home business." The third listing is Enron Oil and
Gas followed by a down arrow and the phrase "Falling natural gas prices."
Page 3
Bar chart with heading "Fund Performance" following the "Scorecard." Under the
heading is the note: "For the year ended December 31, 1994." The horizontal
chart is scaled in increments of 4% from -12% at the left and 12% at the
right. Within the chart, there are three solid bars. The first represents the
- -11.34% total return for John Hancock Capital Growth Fund Class A. The second
represents the -11.88% total return for John Hancock Capital Growth Fund Class
B. The third represents the -2.15% total return for the Lipper Average Growth
Fund. The footnote below states: "Total returns for John Hancock Capital
Growth Fund are at net asset value with all distributions reinvested. The
average growth company fund is tracked by Lipper Analytical Services.* See the
following page for historical performance information."
3
<PAGE> 5
JOHN HANCOCK CAPITAL GROWTH FUND
LONG-TERM PERFORMANCE REVIEW
If you had invested $10,000 in John Hancock Capital Growth Fund on September
26, 1985 (Class A inception) and reinvested all dividends, your investment,
upon redemption, would have grown more than two times to $33,031 as of December
31, 1994.* Class B Shares, which were introduced on June 30, 1993, would have
declined slightly to $9,436.
The chart compares the Fund's performance to the S&P 500 Index. The S&P 500
is an unmanaged index of large capitalization stocks and is not available as an
investment vehicle.
Returns for Class A Shares (including the Fund's average annual total
returns for the one- and five-year and since inception periods ended December
31, 1994, as shown in the inset box) reflect the maximum 5.75% sales charge.
Returns for Class B Shares (for one-year and since inception, as shown in the
box) reflect expenses and the applicable contingent deferred sales charge which
declines yearly as follows: 5%, 4%, 3%, 3%, 2%, 1%, 0%. Return for the S&P 500
does not reflect a sales charge. If you were to purchase individual stocks of
companies represented in the S&P 500, any sales charges that you would pay
would reduce your return accordingly.
Your investment return will fluctuate so that your shares, when redeemed,
may be worth more or less than the original cost. Past performance is not a
guarantee of future results.
* Prior to April 1991, the Fund emphasized investments in the technology sector
and pursued an objective of long-term growth of capital. Without expense
reimbursement, return would have been lower.
Page 4
Boxed line chart at top right corner of page with heading "Transamerica/John
Hancock Capital Growth Fund A vs. S&P 500." Note below states" "Growth of
$10,000 Investment Since Inception, 9/26/85 - 12/31/94." The chart is scaled
in $5,000 increments from $10,000 to $40,000 at the left. The chart is scaled
at the bottom from 9/26/85 at the left to 1994 at the right. Within the chart
are two lines. The solid line represents the value of a hypothetical $10,000
investment in the Transamerica/John Hancock Capital Growth Fund Class A on
September 26, 1985 including 5.75% front load sales charge that is equal to
$33,031 on December 31, 1994. The dotted line represents the value of a
hypothetical $10,000 investment in the S&P 500 on September 25, 1985 and is
equal to $34,008 on December 31, 1994. In the upper left corner of the chart,
is a box with the heading "Average Annual Total Return." Text for the box
reads from left: "1 year, 5 year, Inception" on the first line and from left
on the second line, "-16.42%, 3.91% and 13.76%."
Page 4
Boxed line chart at bottom right corner of page with heading
"Transamerica/John Hancock Capital Growth Fund B vs. S&P 500." Note below
states" "Growth of $10,000 Investment Since Inception, 6/30/93 - 12/31/94."
The chart is scaled in $5,000 increments from $0,000 to $15,000 at the left.
The chart is scaled at the bottom from 6/30/93 at the left to 12/94 at the
right. Within the chart are two lines. The solid line represents the value of
a hypothetical $10,000 investment in the Transamerica/John Hancock Capital
Growth Fund Class B on June 30, 1993 including the applicable 5.00% contingent
deferred sales charge and expenses that is equal to $9,436 on December 31,
1994. The dotted line represents the value of a hypothetical $10,000
investment in the S&P 500 on June 30, 1993 and is equal to $10,637 on December
31, 1994. In the center of the chart, is a box with the heading
"Average Annual Total Return." Text for the box reads from left: "1 year, 5
year, Inception" on the first line and from left on the second line, "-16.88%,
N/A and -3.80%."
4
<PAGE> 6
STRATEGIES TO HELP YOUR INVESTMENT PROGRAM REALIZE
ITS POTENTIAL.
The key to investment success is to develop a sensible long-range investment
plan and stick with it. An affordable investment program won't make you wealthy
overnight, but it can help you reach your investment goals.
Once you've set your investment objectives, there are some simple,
time-tested strategies that you can use in your plan to help maximize your
investment success.
PAY YOURSELF FIRST
The first step to achieving financial independence does not involve picking the
right investments. It's more important to develop the habit of paying yourself
first.
Write a check to an investment account before you pay your monthly bills.
Increase the amount each time your salary increases. To make investing easier,
you can arrange to have an amount transferred automatically from your checking
account into your investment account through bank drafts.
DIVERSIFY TO HELP REDUCE RISK
Having a balanced, diversified investment program is smart. It leaves you less
vulnerable to a major decline in any one market or industry. When the markets
are volatile, some investments may lose value while others may register
significant gains.
One mutual fund, however, is not a complete investment program. To be well
diversified, you need investments from more than one fund category.
For example, if you own stocks, bonds and money market instruments, you
won't be as vulnerable to a decline in the stock market as an investor who owns
only stocks. With thorough diversification, you'll have the opportunity for
some holdings to perform relatively well no matter what happens in the markets.
Remember: no single investment can fit all your needs through every part of
your life. That's why it's important to develop a flexible, diversified program
that can be modified as you grow older.
HERE'S A SIMPLE ILLUSTRATION TO HELP EXPLAIN THE BENEFITS OF DIVERSIFICATION.
Grab a pencil and break it using both hands. That task is fairly easy. Now,
take nine smaller pencils, place them together and attempt to break them in the
same manner. It's virtually impossible.
Imagine those pencils are your investments. If all your investments had
been concentrated in that one pencil, you would have been devastated when the
pencil broke. However, by spreading your assets among many investments, you
have a "strong" position that protects you from the "weak pencil."
Page 14
Illustration of a group of pencils tied with a piece of string centered at the
bottom of the page.
5
<PAGE> 7
This illustrates the benefits of a mutual fund. Mutual funds are an
excellent way to diversify because they invest your assets in a large number of
securities.
REINVEST YOUR EARNINGS
Do you really need any income generated by your investment?
If not, put the income "back to work" -- immediately and automatically.
Most mutual funds allow you to reinvest dividends or capital gains
distributions automatically. When you reinvest, you buy additional shares.
These shares, in turn, can generate more income or capital gains. You increase
the opportunity for greater return when you reinvest. The chart at right
demonstrates the power of compounding through reinvestment with the added
benefit of a regular investment program.
KEEP A LONG-TERM PERSPECTIVE
In investing, patience can be a real virtue.
Remember, over the short term, financial markets rise and fall in response
to a number of factors. Attempting to "time" these market moves for quick gains
is extremely difficult. It's also risky. That's why many successful investors
take the long-term approach to reach their financial goals. The longer you stay
with an investment, riding out market fluctuations, the greater your
opportunity to reduce risk and achieve higher returns.
Page 15
Boxed line chart with heading "The Power Of Compounding" that illustrates the
growth of a hypothetical $10,000 initial investment and subsequent monthly
investments of $200 over a 30-year period at 6%, 8% and 10% fixed rates of
return. The chart is scaled in $100,000 increments from $0 to $700,000 on the
left. The chart is scaled at the bottom in five year increments from 1 to 30.
The first line represents the value of the investment at a 6% annual rate that
is equal to $260,929 in the thirtieth year. The second represents the value of
the investment at an 8% annual rate that is equal to $407,229 in the thirtieth
year. The third represents the value of the investment at a 10% annual rate
that is equal to $650,272 in the thirtieth year. Footnote below states: "This
table shows the effects of compounding monthly at different interest rates
over various time periods, assuming an initial investment of $10,000 and
subsequent investments of $200 on the same day each month. This table is for
illustrative purposes only and should not be construed as an indication of the
performance of a specific investment or the availability of any rate of return
over any specific time period."
6
<PAGE> 8
STATEMENT OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
COMPANY SHARES VALUE
- ------- -------- ---------
<S> <C> <C>
COMMON STOCKS-92.68%
- -------------------
COMPUTERS AND OFFICE
EQUIPMENT-22.07%
Corel Corp.*................................. 170,000 $ 2,348,125
EMC Corp.*................................... 140,000 3,027,500
LEGENT Co.*.................................. 50,000 1,437,500
Paychex, Inc. ............................... 70,000 2,835,000
Silicon Graphics, Inc.*...................... 110,000 3,396,250
Sterling Software, Inc.*..................... 80,000 2,940,000
Sun Microsystems Inc.*....................... 40,000 1,420,000
SyBase Inc.*................................. 25,000 1,300,000
VMARK Software Inc.*......................... 25,000 443,750
-----------
19,148,125
CONSUMER CYCLICALS-3.97%
Men's Wearhouse Inc.*........................ 70,000 1,575,000
Rite Aid Corp................................ 80,000 1,870,000
-----------
3,445,000
CONSUMER GOODS &
SERVICES-9.20%
Landry's Seafood
Restaurants Inc.*.......................... 40,000 1,135,000
Marriott International Inc................... 120,000 3,375,000
Outback Steakhouse Inc.*..................... 60,000 1,410,000
Sysco Corp................................... 80,000 2,060,000
-----------
7,980,000
ENERGY-4.45%
Enron Oil & Gas Co........................... 60,000 1,125,000
Noble Drilling Corp.*........................ 75,000 440,625
Phillips Petroleum Co........................ 70,000 2,292,500
-----------
3,858,125
HEALTH CARE-19.07%
Columbia/HCA
Healthcare Corp.............................. 75,000 2,737,500
Envoy Corp.*................................. 60,000 1,230,000
Humana Inc.*................................. 90,000 2,036,250
Manor Care, Inc.............................. 120,000 3,285,000
Merck & Co., Inc............................. 75,000 2,859,375
Schering-Plough Corp......................... 35,000 2,590,000
United Healthcare Corp....................... 40,000 1,805,000
-----------
16,543,125
INDUSTRIAL-10.60%
Allwaste Inc.*............................... 200,000 1,125,000
Cognex Corp.*................................ 40,000 1,030,000
Eastman Chemical Co.......................... 50,000 2,525,000
Federal Paper Board Co., Inc................. 95,000 2,755,000
Union Carbide Corp........................... 60,000 1,762,500
-----------
9,197,500
MEDIA & LEISURE-4.03%
Brassie Golf Corp.*.......................... 315,000 1,023,750
Harcourt General Inc......................... 70,000 2,467,500
-----------
3,491,250
TECHNOLOGY- RELATED - 14.23%
E-Systems Inc. .............................. 20,000 832,500
Lithium Technology Corp.*.................... 2,611,890 365,664
Millipore Corp. ............................. 40,000 1,935,000
Molex, Inc. ................................. 75,000 2,587,500
Motorola, Inc. .............................. 50,000 2,893,750
Tektronix, Inc. ............................. 50,000 1,712,500
Thomas & Betts Corp. ........................ 30,000 2,013,750
-----------
12,340,664
TELECOMMUNICATIONS - 5.06%
Ericsson (L.M.) Telephone, Co. Class B....... 50,000 2,756,250
Tele-Communications, Inc. Class A*.......... 75,000 1,631,250
-----------
4,387,500
-----------
TOTAL COMMON STOCKS
(Cost $77,128,322)........................... 80,391,289
</TABLE>
7
<PAGE> 9
STATEMENT OF NET ASSETS
Continued
<TABLE>
<CAPTION>
FACE
ISSUER AMOUNT VALUE
- ------ ---------- -----------
<S> <C> <C>
SHORT-TERM
OBLIGATIONS--11.92%
COMMERCIAL PAPER--8.64%
CONSUMER CYCLICALS--2.30%
Warner Lambert Co.
5.900% due 01/03/95........................ $2,000,000 1,999,344
CONSUMER GOODS &
SERVICES--4.61%
McDonald's Corp.
5.800% due 01/05/95........................ 4,000,000 3,997,422
TELECOMMUNICATIONS--1.73%
American Telephone &
Telegraph Co.
5.850% due 01/09/95...................... 1,500,000 1,498,050
-----------
TOTAL COMMERCIAL PAPER
(Cost $7,494,816)............................ 7,494,816
REPURCHASE
AGREEMENT--3.28%
Lehman Brothers 5.500% due
01/03/95 (dated 12/30/94).
Collateralized by
$2,910,755 value, U.S.
Treasury Bonds 8.125%
due 08/15/21. (Repurchase
proceeds $2,850,741)
(Cost $2,849,871)............................ 2,849,000 2,849,871
-----------
TOTAL SHORT-TERM
OBLIGATIONS
(Cost $10,344,687)........................... 10,344,687
-----------
TOTAL INVESTMENTS--104.60%
(Cost $87,473,009)........................... 90,735,976
CASH AND OTHER ASSETS,
LESS LIABILITIES--(4.60)%.................... (3,994,365)
-----------
NET ASSETS, at value,
equivalent to $10.93 per
share for 6,411,229 Class A
Shares ($.01 par value)
outstanding and $10.80 per
share for 1,542,392 Class B
Shares ($.01 par value)
outstanding-- 100.00%...................... $86,741,611
===========
*Non-income producing.
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 10
STATEMENT OF OPERATIONS / STATEMENTS OF CHANGES IN NET ASSETS
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends ...................... $ 1,062,137
Interest ....................... 186,714
-----------
1,248,851
EXPENSES
Management fees ................ $539,809
Transfer agent fees ............ 323,567
Distribution expenses
(see Note D) ................. 283,190
Administrative service fees .... 115,878
Custodian fees ................. 49,605
Audit and legal fees ........... 38,998
Shareholder reports ............ 28,222
Registration fees .............. 24,313
Trustees' fees and expenses .... 23,216
Miscellaneous .................. 12,386 1,439,184
-------- -----------
NET INVESTMENT LOSS .......... (190,333)
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain on
investments .................. 2,453,497
Net change in unrealized
appreciation of investments .. (12,203,891)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS .......... (9,750,394)
------------
DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS .... $ (9,940,727)
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<Captions>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment loss ........... $ (190,333) $ (804,875)
Net realized gain on
investments ................. 2,453,497 919,090
Net change in unrealized
appreciation of
investments ................. (12,203,891) 4,715,305
------------ ------------
Increase (decrease) in net
assets resulting from
operations .................. (9,940,727) 4,829,520
DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net realized gain on
investments-
Class A ...................... (1,798,987) -
Class B ...................... (429,429) -
------------ ------------
Total distributions to
shareholders ................ (2,228,416) -
SHARE TRANSACTIONS
Increase (decrease) in
shares outstanding .......... 12,917,743 (13,697,388)
------------ ------------
Increase (decrease) in
net assets .................. 748,600 (8,867,868)
NET ASSETS
Beginning of year ............. 85,993,011 94,860,879
------------ ------------
End of year ................... $ 86,741,611 $ 85,993,011
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 11
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------------------------------- ------------------------------
Year Period From
Year Ended December 31 Ended June 30, 1993
------------------------------------------- December 31, to December 31,
1994(1) 1993 1992 1991 1990(2) 1994(1) 1993(3)
------- ------- ------- ------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share income and capital changes
for a share outstanding during
each period:(4)
Net asset value, beginning of period...... $ 12.66 $ 11.90 $ 11.47 $ 9.82 $ 10.65 $ 12.59 $11.28
INCOME FROM INVESTMENT OPERATIONS
Net investment loss....................... (0.02) (0.11) (0.14) (0.13) (0.09) (0.09) (0.07)
Net realized and unrealized gain (loss)
on investments.......................... (1.42) 0.87 0.76 3.73 (0.60) (1.41) 1.38
------- ------- ------- ------- ------- ------- ------
Total from Investment Operations........ (1.44) 0.76 0.62 3.60 (0.69) (1.50) 1.31
LESS DISTRIBUTIONS
Dividends from net investment income...... -- -- -- -- (0.01) -- --
Distributions from realized gains......... (0.29) -- (0.19) (1.95) (0.13) (0.29) --
------- ------- ------- ------- ------- ------- ------
Total Distributions..................... (0.29) -- (0.19) (1.95) (0.14) (0.29) --
------- ------- ------- ------- ------- ------- ------
Net asset value, end of period............ $ 10.93 $ 12.66 $ 11.90 $ 11.47 $ 9.82 $ 10.80 $12.59
======= ======= ======= ======= ======= ======= ======
TOTAL RETURN(5)........................... (11.34)% 6.39% 5.48% 38.00% (6.37)% (11.88)% 11.61%
======= ======= ======= ======= ======= ======= ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets... 1.59% 1.46% 1.41% 1.68% 1.54% 2.34% 1.06%
Ratio of net investment loss to average
net assets.............................. (0.14)% (0.92)% (1.20)% (1.04)% (0.82)% (0.89)% (0.54)%
Portfolio turnover........................ 290% 159% 70% 139% 152% 290% 159%
Net Assets, end of period (in thousands).. $70,090 $85,553 $94,861 $89,008 $56,794 $16,652 $ 440
======= ======= ======= ======= ======= ======= ======
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the Investment
Adviser. Prior to this date, Transamerica Fund Management Company was the
Investment Adviser.
(2) Per share information has been adjusted retroactively for the 2 for 1
stock split to shareholders of record on September 10, 1990.
(3) Financial highlights, including total return, have not been annualized.
Portfolio turnover is for the year ended December 31, 1993.
(4) Per share information has been calculated using the average number of
shares outstanding.
(5) Total return does not include the effect of the initial sales charge for
Class A Shares nor the contingent deferred sales charge for Class B Shares.
See Notes to Financial Statements.
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
John Hancock Capital Growth Fund (the ``Fund''), formerly Transamerica
Capital Growth Fund, is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. On December
16, 1994, the shareholders of each of the mutual funds managed by Transamerica
Fund Management Company (TFMC) voted to approve new Investment Advisory
contracts with John Hancock Advisers, Inc. Each such approval was subject to
the acquisition of TFMC by The Berkeley Financial Group (known beginning
January 1, 1995 as John Hancock Funds), the parent company of John Hancock
Advisers, Inc. The acquisition became effective on December 22, 1994. The
Fund's name change was also effective on this date.
The Fund offers two classes of shares to the public. Class A Shares are
subject to an initial sales charge of up to 5.75% and a 12b-1 distribution
plan. Class B Shares are subject to a contingent deferred sales charge and a
separate 12b-1 distribution plan. The following is a summary of significant
accounting policies consistently followed by the Fund.
(1) Securities traded on stock exchanges or in the over-the-counter
market are valued at the last sale price on the primary exchange or market on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the mean between the most
recent closing bid and asked prices. Securities for which market quotations are
not readily available are valued at a fair value as determined in good faith by
the Fund's Board of Trustees. Short-term investments are valued at amortized
cost (original cost plus amortized discount or accrued interest).
(2) Security transactions are accounted for on the trade date. Dividend
income is recorded on the ex-dividend date for both financial reporting and
federal income tax purposes. Interest income on investments is accrued daily.
Realized gains and losses from security transactions are determined on the
basis of identified cost for both financial reporting and federal income tax
purposes.
(3) No provision for federal income taxes has been made since it is the
Fund's intention to distribute all of its taxable income and profits to its
shareholders and to comply with the requirements applicable to regulated
investment companies and the minimum distribution requirements of the Internal
Revenue Code.
(4) The Fund reports custodian fees net of credits and charges
resulting from cash positions in the custodial accounts greater than or less
than the amounts required to settle portfolio transactions. For the year ended
December 31, 1994, these amounts were $4,810 and $14,037, respectively.
(5) Dividends and other distributions are recorded by the Fund on the
ex-dividend date and may be reinvested at net asset value. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Distributions payable to shareholders at December 31, 1994 were $232,814.
(6) On a daily basis, income, unrealized and realized gains and losses,
and expenses which are not class specific are allocated to each class based on
their respective relative net assets. Class specific expenses, such as
distribution expenses, are applied to the class to which they are attributed.
NOTE B - MANAGEMENT FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
From January 1, 1994 through December 21, 1994, TFMC acted as the Investment
Adviser to the Fund. On December 22, 1994, John Hancock Advisers, Inc., a
wholly-owned subsidiary of John Hancock Funds, became the Investment Adviser
following the approval of the Fund's shareholders. Throughout these financial
statement notes, TFMC and John Hancock Advisers, Inc. are referred to
collectively as the ``Investment Adviser'', as each acted in this capacity
during the time periods noted above. TFMC was, prior to December 22, 1994, a
subsidiary of Transamerica Corporation.
The Fund's management fee is payable monthly and is calculated based on
the monthly average daily net assets of the Fund at an annual rate of 0.625%.
At December 31, 1994, the management fee payable to the Investment Adviser was
$43,133.
The Investment Adviser also provided administrative services to the
Fund pursuant to an administrative service agreement. During the year ended
December 31, 1994, the Fund paid or accrued $101,838 to the Investment Adviser
for these services, of which $17,669 was payable at December 31, 1994.
During the year ended December 31, 1994, Transamerica Fund
Distributors, Inc., an affiliate of TFMC and principal underwriter of the Fund
through December 22,
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE B (Continued)
1994 and John Hancock Funds, Inc., an affiliate of John Hancock Advisers,
Inc. and principal underwriter since December 22, 1994, retained $8,567 as
their portion of the commissions charged on sales of Class A Shares of the
Fund. Throughout these financial statement notes, Transamerica Fund
Distributors, Inc. and John Hancock Funds, Inc. are referred to collectively as
the "Distributor", as each acted in this capacity during the time periods noted
above. At December 31, 1994, receivables from and payables to the Distributor
for Fund share transactions were $22,505 and $37,968, respectively.
The Fund paid no compensation directly to any officer. Certain officers
of the Fund are affiliated with the Investment Adviser.
During the year ended December 31, 1994, the Fund paid legal fees of
$12,034 to Baker & Botts. A partner with Baker & Botts was an officer of the
Fund until December 22, 1994.
NOTE C - COST, PURCHASES AND SALES OF
INVESTMENT SECURITIES
During the year ended December 31, 1994, purchases and sales of securities,
other than short-term obligations, aggregated $248,472,504 and $243,300,663,
respectively. At December 31, 1994, receivables from and payables to brokers
for securities sold and purchased were $1,859,500 and $5,583,708,
respectively.
The identified cost of total investments owned is the same for both
financial reporting and federal income tax purposes. At December 31, 1994, the
gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes were $5,197,025 and $1,934,058, respectively.
NOTE D - PLAN OF DISTRIBUTION
Pursuant to Rule 12b-1 of the Investment Company Act of 1940, the Fund is
authorized under separate distribution plans to finance activities
related to the distribution of its Class A and Class B Shares (the ``Class A
Plan'' and the ``Class B Plan,'' respectively). The distribution plans,
together with the initial sales charge on Class A Shares and the contingent
deferred sales charge on Class B Shares, comply with the regulations covering
maximum sales charges assessed by mutual funds distributed through securities
dealers that are NASD members.
The Class A Plan and the Class B Plan permit each class to make
payments to the Distributor up to 0.25% annually of average daily net assets
for certain distribution costs such as service fees paid to dealers, production
and distribution of prospectuses to prospective investors, services provided to
new and existing shareholders and other distribution related activities. During
the year ended December 31, 1994, Class A and Class B made payments to the
Distributor of $193,470 or 0.25% and $22,615 or 0.25%, respectively, related to
these activities.
The Class B Plan also permits Class B to reimburse the Distributor up
to 0.75% annually of average daily net assets for costs related to compensation
paid to securities dealers, in place of an initial sales charge to investors,
on the sale of Class B Shares. These costs are based upon a commission payment
charge of 5% of the value of Class B Shares sold (excluding shares acquired
through reinvestment), reduced by the amount of contingent deferred sales
charges (CDSC) that have been received by the Distributor on redemptions of
Class B Shares. These costs also include a charge of interest (carrying charge)
at an annual rate of 1% over the prevailing prime rate to the extent cumulative
commission payment charges, plus any previous carrying charges, less CDSC
received by the Distributor, have not been paid in full by the Fund. For the
year ended December 31, 1994, Class B reimbursed the Distributor $67,105 or
0.75% for such costs. For the year ended December 31, 1994, the Distributor
received $8,342 in CDSC.
At December 31, 1994, Class A had $74,119 and Class B had $17,603
payable to the Distributor pursuant to the above distribution plans.
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
Continued
NOTE E - SHARE AND RELATED TRANSACTIONS
A summary of share transactions follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1993(1)
----------------------- -----------------------
Shares Dollars Shares Dollars
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold - Class A........................................... 3,163,337 $ 37,415,876 2,167,638 $ 25,193,278
Shares sold - Class B........................................... 2,312,014 27,133,045 36,251 449,933
Shares issued in reinvestment of distributions - Class A........ 150,788 1,640,574 -- --
Shares issued in reinvestment of distributions - Class B........ 33,057 355,028 -- --
Shares redeemed - Class A....................................... (3,660,949) (43,573,191) (3,377,746) (39,325,285)
Shares redeemed - Class B....................................... (837,605) (10,053,589) (1,325) (15,314)
--------- ------------ ---------- ------------
Net increase (decrease) in shares outstanding................... 1,160,642 $ 12,917,743 (1,175,182) $(13,697,388)
========= ============ ========== ============
</TABLE>
___________
(1) Class B Share transactions are for the period June 30, 1993 to
December 31, 1993.
The components of net assets at December 31, 1994, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Capital paid-in (unlimited number of shares authorized)................... $83,428,097
Accumulated net realized gain on investments.............................. 50,547
Net unrealized appreciation of investments................................ 3,262,967
-----------
Net Assets................................................................ $86,741,611
===========
</TABLE>
13
<PAGE> 15
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
John Hancock Capital Growth Fund
We have audited the accompanying statement of net assets of John Hancock
Capital Growth Fund, formerly Transamerica Capital Growth Fund, as of
December 31, 1994, and the related statement of operations for the year then
ended, the statements 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, 1994, by correspondence with the custodian and brokers. 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 Capital Growth Fund at December 31, 1994, 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.
Houston, Texas
February 3, 1995
14
<PAGE> 16
FUND INFORMATION
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
OFFICERS
Edward J. Boudreau, Jr., Chairman and
Chief Executive Officer
Robert G. Freedman, Vice Chairman and
Chief Investment Officer
Thomas M. Simmons, President
Anne C. Hodsdon, Executive Vice President
James B. Little, Senior Vice President and
Chief Financial Officer
Thomas H. Drohan, Senior Vice President and Secretary
Warren Schmalenberger, Senior Vice President
Michael P. DiCarlo, Senior Vice President
B.J. Willingham, Senior Vice President
Edgar Larson, Senior Vice President
James J. Stokowski, Vice President and Treasurer
Susan S. Newton, Vice President and Compliance Officer
John A. Morin, Vice President
Thomas J. Press, Vice President and Assistant Secretary
TRUSTEES
James F. Carlin
William H. Cunningham
Charles L. Ladner
Leo E. Linbeck
Patricia P. McCarter
Steven R. Pruchansky
Norman H. Smith
John P. Toolan
DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
TRANSFER AGENT
The Shareholder Services Group, Inc.
P.O. Box 9656
Providence, RI 02940-9656
1-800-343-6840
This material is not authorized for distribution unless preceded or
accompanied by a current prospectus.
The performance information referred to in this report is historical and
does not represent a guarantee of similar future results. The investment
return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
IMPORTANT TAX INFORMATION
The distributions paid by John Hancock Capital Growth Fund during the
year ended December 31, 1994 were from long-term capital gains of $0.293.
The federal tax status of all 1994 distributions paid by the Fund were
reported on Form 1099 in early 1995.
15
