---------------------------
The latest report from your
Fund's management team
---------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Core
Equity Fund
(formerly Independence Equity Fund)
JUNE 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-----------------------------------
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.*
William J. Cosgrove
Douglas M. Costle
Leland O. Erdahl
Richard A. Farrell
Gail D. Fosler
William F. Glavin
Anne C. Hodsdon
Dr. John A. Moore
Patti McGill Peterson
John W. Pratt*
Richard S. Scipione
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The Year 2000 is fast approaching and people around the world are getting ready
to celebrate this historic transition to a new millennium. At John Hancock
Funds, we share the excitement, but we aren't popping the champagne corks just
yet. Rather, we are staying on the course that we set more than two years ago to
ensure that the transition to a new millennium is a smooth one for our
shareholders.
As many already know, the Year 2000 has created more than the prospect of New
Year's festivities of epic proportions. It has also presented the world with a
challenge: making sure that older computers, and any equipment powered by
computer chips, can properly read and process the date "00" as 2000, not 1900.
Much has been written about how the world will weather the change. Some view it
as a non-event, while others see the potential for disruptions. How much
disruption, and for how long, depends on whom you talk to.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
As a company, we recognize that the Year 2000 ("Y2K") phenomenon is an important
issue to be dealt with and we have made it a top priority. Two years ago, John
Hancock Funds put a full-time team of experts on the case and established a
company-wide program to evaluate all computer applications and to modify or
replace those that needed changing.
These modifications and replacements for all mission-critical systems are done
and successfully compliance tested. The rest of 1999 will be spent completing
the few remaining non mission-critical systems, testing with our business
partners and continuing to participate in industry testing. We have also
established additional contingency plans beyond our regular ones to prepare for
any challenges that the Year 2000 might present. In the end, John Hancock will
spend approximately $90-$95 million to ensure we make a successful transition to
the Year 2000.
Throughout 1999, each of our quarterly "Fundamentals" newsletters is featuring
articles with more detailed information on Y2K matters of importance to our
shareholders. I encourage you to read them, or contact one of our Customer
Service Representatives at 1-800-225-5291 for another copy. For your own peace
of mind, we also recommend that you save your 1999 statements, especially those
you receive between October and December, so that you are able to check them
against the first one you receive in 2000. It's a measure of prudence, not
panic. Good record keeping is part of good planning.
No one knows how the dawning of the new millennium will unfold. Although we
cannot make any ironclad assurances, we are confident that the steps we have
taken will provide shareholders with as smooth a transition as possible. Once
that occurs, we will happily raise our glasses to toast the New Year, future
prosperity and our hopes to serve you well into the 2000's.
Sincerely,
/s/Edward J. Boudreau, Jr.
- --------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Paul McManus for the Portfolio Management Team
John Hancock
Core Equity Fund
Stocks advance, but market leadership
-------------------------------------
shifts away from growth stocks
------------------------------
Effective May 1, 1999, John Hancock Independence Equity Fund's name was changed
to John Hancock Core Equity to better describe how the Fund invests.
During the first half of 1999, the U.S. economy continued to offer investors the
unbeatable combination of strong growth, low interest rates and negligible
inflation. There were a few clouds on the horizon, though. Interest rates edged
up a little, with yields on the 30-year bond hovering around 6%. Moreover, on
the final day of the period, the Federal Reserve Board (Fed) raised the federal
funds rate by a quarter percentage point as a pre-emptive strike against
inflation. Since the move was widely expected and accompanied by a shift back to
a neutral bias, however, its immediate effect on the stock market was actually
positive.
Inflation also reared its head briefly in the form of a much
higher-than-expected Consumer Price Index (CPI) in April. But when May's CPI
fell back to benign levels, investors heaved a sigh of relief and stocks
rallied. Overall, the economic news during the period was good enough to
maintain the market's upward momentum, although not at the torrid pace of 1998's
fourth quarter.
Market shift
U.S. stocks exhibited two distinct phases that corresponded closely to the first
and second quarters of the year. During the first quarter,
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Core
Equity Fund. Caption below reads "Core Equity Fund management team members
(l-r): "Paul McManus, Jane Shigley, Jeff Saef, David Canavan and Coreen
Kraysler."]
- --------------------------------------------------------------------------------
"Investor interest also broadened in the second quarter..."
3
<PAGE>
================================================================================
John Hancock Funds- Core Equity Fund
"...with a background of rising oil prices, energy stocks were one source of
strength..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Holdings." The first listing
is Microsoft 4.5%, the second is Citigroup 3.1%, the third General Electric
3.0%, the fourth Time Warner 2.6% and the fifth Tyco International 2.5%.
A note below the table reads "As a percentage of net assets on June 30, 1999."]
- --------------------------------------------------------------------------------
market leadership continued to be concentrated in a relatively small group of
well-known growth stocks. In that difficult environment, the Fund, which
stresses diversification and targets undervalued stocks of companies with
improving fundamentals, fell behind both the S&P 500 Index and its peers. The
addition of America Online to the Index exacerbated the performance discrepancy.
AOL roughly doubled during the quarter, but it was one of a number of market
leaders that the Fund's value criteria prevented it from owning at the time.
The second quarter brought several changes that benefited the Fund. On
the one hand, investors became more optimistic about prospects for the recovery
of the depressed economies of Asia and South America. Another positive influence
was a surge in the price of crude oil. These developments, together with ongoing
strength in the U.S. economy, triggered a surge of interest in cyclical
stocks-those that
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Tyco
International followed by an up arrow with the phrase "Beneficial acquisitions."
The second listing is Royal Dutch Petroleum followed by an up arrow with the
phrase "Sharply higher oil prices boost profits." The third listing is
HEALTHSOUTH followed by a down arrow with the phrase "Out-of-favor sector;
pricing concerns." A note below the table reads "See `Schedule of Investments.'
Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
are particularly sensitive to fluctuations in economic conditions. Cyclical
shares typically do best in the latter stages of an expansion, when the economy
is hitting on all cylinders. Examples of cyclical businesses include those
engaged in manufacturing steel, chemicals, paper or industrial equipment.
Investor interest also broadened in the second quarter to include a
number of relatively undervalued mid- and small-cap stocks. This return to more
"normal" market conditions enabled the Fund to gain some ground on its
benchmarks.
Fund performance
For the first six months of 1999, the John Hancock Core Equity Fund's Class A,
Class B and Class C shares posted total returns of 10.09%, 9.71% and 9.71%,
respectively, at net asset value. In comparison, the average growth and income
fund returned 10.93%, according to Lipper, Inc.,1 while the S&P 500 returned
12.38%. Keep in mind that your net asset value return will differ from those
listed above if you were not invested in the Fund for the entire period or did
not reinvest all distributions. Historical performance information can be found
on pages six and seven.
Energy, industrial equipment, conglomerates
In keeping with a background of rising oil prices, energy stocks were one source
of strength for the Fund. The shares of integrated oil companies such as Exxon,
Texaco and Royal Dutch Petroleum did well. Ingersoll-Rand, an industrial
equipment stock, also contributed positively to performance and participated in
the rally in cyclical shares. Two of the Fund's conglomerates, Tyco
International and United Technologies, also turned in strong performances. In
Tyco's
4
<PAGE>
================================================================================
John Hancock Funds- Core Equity Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended June 30, 1999." The chart
is scaled in increments of 2% with 0% at the bottom and 12% at the top. The
first bar represents the 10.09% total return for John Hancock Core Equity Fund
Class A. The second bar represents the 9.71% total return for John Hancock Core
Equity Fund Class B. The third bar represents the 9.71 % total return for John
Hancock Core Equity Fund Class C. The fourth bar represents the 10.93% total
return for Average growth and income fund. A note below the chart reads "Total
returns for John Hancock Core Equity Fund are at net asset value with all
distributions reinvested. The average growth and income fund is tracked by
Lipper, Inc1. See the following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
case, the company was engaged in a number of acquisitions that investors
considered beneficial. United Technologies stock responded to the company's
recent cost-cutting initiatives, as well as renewed optimism about its
jet-engine business.
Software and health care underperform
Among the Fund's disappointments were software stocks, many of which revised
their earnings estimates downward as a result of customers' deferring purchases
until after the new year. J.D. Edwards and Computer Associates International
were two software issues that were weak, especially in the first quarter. We
eliminated the Fund's position in J.D. Edwards. Hospital management companies
HEALTHSOUTH and Omnicare also performed poorly, as many investors sold
health-care holdings to make way for purchases of cyclical stocks. Those two
holdings also suffered from concerns about the companies' ability to price their
services profitably, as well as worries about Medicare reimbursement.
Outlook
There are several things to watch in the second half of the year. Stocks have
shrugged off the rise in interest rates so far, but any further rate increases
might limit the market's upward potential. On the other hand, corporate
earnings, another important piece of the puzzle, look to be strong in the second
half of 1999 compared to last year's figures. We'll also be watching the recent
strength in cyclical stocks to see whether it looks to be a short-term
phenomenon or something more lasting.
Finally, the Year 2000 (Y2K) computer issues will get more attention as
we come closer to the end of the year. We suspect that any Y2K-related problems
experienced by the stock market will be due more to investor uncertainty than
actual technological glitches. Nonetheless, we are factoring Y2K considerations
into our earnings forecasts, and we will adjust the Fund's portfolio
appropriately if the prospects for any of our holdings change materially.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
1Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
"...any further rate increases might limit the market's upward potential."
5
<PAGE>
================================================================================
John Hancock Funds- Core Equity Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Core Equity Fund. Total return measures the
change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years). Class C performance
includes a contingent deferred sales charge (1% declining to 0% after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (6/10/91)
------- ------- --------
Cumulative Total Returns 13.29% 196.05% 289.60%
Average Annual Total Returns(1) 13.29% 24.24% 18.39%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
SINCE
ONE INCEPTION
YEAR (9/7/95)
------- --------
Cumulative Total Returns 13.43% 131.42%
Average Annual Total Returns(1) 13.43% 24.61%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended June 30, 1999
SINCE
ONE INCEPTION
YEAR (5/1/98)
------- --------
Cumulative Total Returns 17.43% 20.09%
Average Annual Total Returns 17.43% 17.03%
Notes to Performance
(1) From September 1, 1995 through February 28, 1997, the Adviser
limited the Fund's expenses to 1.30% and 2.00% for Class A and Class B
shares, respectively, of the Fund's average daily net asset value.
Prior to September 1, 1995, and the creation of Class B shares, the
limitation of expenses was 0.70% of the Fund's average daily net asset
value. Without the limitation of expenses, the average annualized
returns for the five-year period and since inception for Class A would
have been 23.65% and 17.73%, respectively. Without the limitation of
expenses the average annualized return since inception for Class B
would have been 24.29%.
6
<PAGE>
================================================================================
John Hancock Funds- Core Equity Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Core Equity Fund would be worth, assuming all distributions were reinvested for
the period indicated. For comparison, we've shown the same $10,000 investment in
the Standard & Poor's 500 Stock Index - an unmanaged index that includes 500
widely traded common stocks and is often used as a measure of stock market
performance.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Core Equity 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 Standard &
Poor's 500 Stock Index and is equal to $42,591 as of June 30, 1999. The second
line represents the value of the hypothetical $10,000 investment made in the
John Hancock Core Equity Fund on June 10, 1991, before sales charge, and is
equal to $41,025 as of June 30, 1999. The third line represents the value of the
same hypothetical investment made in the John Hancock Core Equity Fund, after
sales charge, and is equal to $38,960 as of June 30, 1999.
Line chart with the heading John Hancock Core Equity 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 Standard &
Poor's 500 Stock Index and is equal to $26,178 as of June 30, 1999. The second
line represents the value of the hypothetical $10,000 investment made in the
John Hancock Core Equity Fund on September 7, 1995, before sales charge, and is
equal to $23,442 as of June 30, 1999. The third line represents the value of the
same hypothetical investment made in the John Hancock Core Equity Fund, after
sales charge, and is equal to $23,142 as of June 30, 1999.
Line chart with the heading John Hancock Core Equity Fund Class C*, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are two lines. The first line represents the Standard & Poor's
500 Stock Index and is equal to $12,555 as of June 30, 1999. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Core Equity Fund on May 1, 1998, before sales charge, and is equal to
$12,009 as of June 30, 1999.
*No contingent deferred sales charge appicable.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1999. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $802,269,511).......................... $968,293,188
Joint repurchase agreement (cost - $9,727,000) .............. 9,727,000
Corporate savings account ................................... 802
--------------
978,020,990
Receivable for shares sold ................................... 1,133,886
Dividends and interest receivable ............................ 873,300
Foreign tax receivable ....................................... 7,414
--------------
Total Assets ........................ 980,035,590
----------------------------------------------------
Liabilities:
Payable for shares repurchased ............................... 669,524
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ..................................... 651,137
Accounts payable and accrued expenses ........................ 12,724
--------------
Total Liabilities ................... 1,333,385
----------------------------------------------------
Net Assets:
Capital paid-in .............................................. 787,848,347
Accumulated net realized gain on investments ................. 26,264,936
Net unrealized appreciation of investments ................... 166,023,677
Accumulated net investment loss .............................. (1,434,755)
--------------
Net Assets .......................... $978,702,205
====================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $347,226,711/10,464,987 ............................ $33.18
=============================================================================
Class B - $610,876,834/18,715,201 ............................ $32.64
=============================================================================
Class C - $20,598,660/631,074 ................................ $32.64
=============================================================================
Maximum Offering Price Per Share*
Class A - ($33.18 x 105.26%) ................................. $34.93
=============================================================================
* 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.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends
(net of foreign withholding taxes of $81,268).................. $4,736,399
Interest ....................................................... 581,149
------------
5,317,548
------------
Expenses:
Investment management fee - Note B ............................ 2,868,223
Distribution and service fee - Note B
Class A ...................................................... 413,473
Class B ...................................................... 2,405,584
Class C ...................................................... 66,746
Transfer agent fee - Note B ................................... 729,558
Registration and filing fees .................................. 105,826
Custodian fee ................................................. 65,886
Accounting and legal services fee - Note B .................... 55,487
Printing ...................................................... 12,363
Trustees' fees ................................................ 10,582
Auditing fee .................................................. 8,251
Miscellaneous ................................................. 4,757
Legal fees .................................................... 2,568
------------
Total Expenses ........................ 6,749,304
----------------------------------------------------
Net Investment Loss ................... (1,431,756)
----------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold .......................... 26,950,009
Change in net unrealized appreciation/depreciation
of investments ................................................ 53,573,315
------------
Net Realized and Unrealized
Gain on Investments ................... 80,523,324
----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............. $79,091,568
====================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1999
DECEMBER 31, 1998 (UNAUDITED)
------------------- --------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss...................................................... ($935,510) ($1,431,756)
Net realized gain on investments sold ................................... 13,181,577 26,950,009
Change in net unrealized appreciation/depreciation of investments ....... 80,681,551 53,573,315
------------ -------------
Net Increase in Net Assets Resulting from Operations ................... 92,927,618 79,091,568
------------ -------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.6487 and none per share, respectively) ................... (4,150,187) -
Class B - ($0.6487 and none per share, respectively) ................... (7,112,432) -
Class C** - ($0.6487 and none per share, respectively) ................. (133,363) -
------------ -------------
Total Distributions to Shareholders .................................... (11,395,982) -
------------ -------------
From Fund Share Transactions - Net:* ..................................... 246,233,654 344,702,844
------------ -------------
Net Assets:
Beginning of period ..................................................... 227,142,503 554,907,793
------------ -------------
End of period (including accumulated net investment loss of $2,999 and
$1,434,755, respectively) .............................................. $554,907,793 $978,702,205
============ =============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1999
DECEMBER 31, 1998 (UNAUDITED)
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 4,979,980 $134,932,213 6,576,839 $204,402,865
Shares issued to shareholders in reinvestment of distributions .. 135,084 3,819,908 - -
------------ ------------- ----------- --------------
5,115,064 138,752,121 6,576,839 204,402,865
Less shares repurchased ......................................... (2,300,458) (61,680,952) (2,779,464) (86,757,725)
------------ ------------- ----------- --------------
Net increase .................................................... 2,814,606 $77,071,169 3,797,375 $117,645,140
============ ============= =========== ==============
CLASS B
Shares sold ..................................................... 7,856,988 $211,689,398 9,356,021 $285,675,487
Shares issued to shareholders in reinvestment of distributions .. 216,410 6,044,436 - -
------------ ------------- ----------- --------------
8,073,398 217,733,834 9,356,021 285,675,487
Less shares repurchased ......................................... (2,080,210) (54,856,608) (2,304,826) (70,794,387)
------------ ------------- ----------- --------------
Net increase .................................................... 5,993,188 $162,877,226 7,051,195 $214,881,100
============ ============= =========== ==============
CLASS C**
Shares sold ..................................................... 246,963 $6,687,807 477,339 $14,537,317
Shares issued to shareholders in reinvestment of distributions .. 2,753 76,896 - -
------------ ------------- ----------- --------------
249,716 6,764,703 477,339 14,537,317
Less shares repurchased ......................................... (17,783) (479,444) (78,198) (2,360,713)
------------ ------------- ----------- --------------
Net increase .................................................... 231,933 $6,285,259 399,141 $12,176,604
============ ============= =========== ==============
**Class C shares commenced operations on May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
PERIOD FROM
JUNE 1, 1996
YEAR ENDED MAY 31, TO YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------- DECEMBER 31, ---------------------- JUNE 30, 1999
1994 1995 1996 1996(8) 1997 1998 (UNAUDITED)
------ ------- -------- ------------ --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period........... $12.16 $12.68 $14.41 $17.98 $19.42 $23.93 $30.14
-------- ------- -------- -------- -------- -------- ---------
Net Investment Income(2) ...................... 0.28 0.32 0.20 0.13 0.10 0.05 0.01
Net Realized and Unrealized Gain on Investments 0.52 1.77 3.88 1.72 5.55 6.81 3.03
-------- ------- -------- -------- -------- -------- ---------
Total from Investment Operations .......... 0.80 2.09 4.08 1.85 5.65 6.86 3.04
-------- ------- -------- -------- -------- -------- ---------
Less Distributions:
Dividends from Net Investment Income ......... (0.23) (0.28) (0.22) (0.14) (0.04) - -
Distributions from Net Realized Gain on
Investments Sold ............................ (0.05) (0.08) (0.29) (0.27) (1.10) (0.65) -
-------- ------- -------- -------- -------- -------- ---------
Total Distributions ....................... (0.28) (0.36) (0.51) (0.41) (1.14) (0.65) -
-------- ------- -------- -------- -------- -------- ---------
Net Asset Value, End of Period ................ $12.68 $14.41 $17.98 $19.42 $23.93 $30.14 $33.18
======== ======= ======== ======== ======== ======== =========
Total Investment Return
at Net Asset Value(3) ........................ 6.60% 16.98% 29.12% 10.33%(6) 29.19% 28.84% 10.09%(6)
Total Adjusted Investment Return
at Net Asset Value(3,4) ...................... 6.15% 16.94% 28.47% 10.08%(6) 29.17% - -
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...... $66,612 $101,418 $14,878 $31,013 $92,204 $200,962 $347,227
Ratio of Expenses to Average Net Assets ....... 0.70% 0.70% 0.94% 1.30%(7) 1.42% 1.39% 1.30%(7)
Ratio of Adjusted Expenses
to Average Net Assets(5) ..................... 1.15% 0.74% 1.59% 1.73%(7) 1.44% - -
Ratio of Net Investment Income
to Average Net Assets ........................ 2.20% 2.43% 1.55% 1.16%(7) 0.45% 0.17% 0.08%(7)
Ratio of Adjusted Net Investment Income
to Average Net Assets(5) ..................... 1.75% 2.39% 0.90% 0.73%(7) 0.43% - -
Portfolio Turnover Rate ....................... 43% 71% 157% 35% 62% 50% 54%
Fee Reduction Per Share ....................... $0.06(2) $0.005(2) $0.08(2) $0.05(2) -(2,9) - -
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD
FROM
PERIOD JUNE 1, YEAR ENDED
ENDED 1996 TO DECEMBER 31, SIX MONTHS ENDED
MAY 31, DECEMBER 31, ---------------- JUNE 30, 1999
1996(1) 1996(8) 1997 1998 (UNAUDITED)
--------- ------------- ------ ------- ---------------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................... $15.25 $17.96 $19.41 $23.80 $29.75
-------- -------- -------- -------- --------
Net Investment Income (Loss)(2) ........................................ 0.09 0.05 (0.06) (0.14) (0.10)
Net Realized and Unrealized Gain on Investments ........................ 2.71 1.72 5.56 6.74 2.99
-------- -------- -------- -------- --------
Total from Investment Operations ................................... 2.80 1.77 5.50 6.60 2.89
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .................................. (0.09) (0.05) (0.01) - -
Distributions from Net Realized Gain on Investments Sold .............. - (0.27) (1.10) (0.65) -
-------- -------- -------- -------- --------
Total Distributions ................................................ (0.09) (0.32) (1.11) (0.65) -
-------- -------- -------- -------- --------
Net Asset Value, End of Period ......................................... $17.96 $19.41 $23.80 $29.75 $32.64
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(3) .......................... 18.46%(6) 9.83%(6) 28.39% 27.90% 9.71%(6)
Total Adjusted Investment Return at Net Asset Value(3,4) ............... 17.59%(6) 9.58%(6) 28.37% - -
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................... $15,125 $42,461 $134,939 $347,045 $610,877
Ratio of Expenses to Average Net Assets ................................ 2.00%(7) 2.00%(7) 2.12% 2.09% 2.00%(7)
Ratio of Adjusted Expenses to Average Net Assets(5) .................... 3.21%(7) 2.43%(7) 2.14% - -
Ratio of Net Investment Income (Loss) to Average Net Assets ............ 0.78%(7) 0.45%(7) (0.25%) (0.53%) (0.62%)(7)
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets(5) (0.43%)(7) 0.02%(7) (0.27%) - -
Portfolio Turnover Rate ................................................ 157% 35% 62% 50% 54%
Fee Reduction Per Share(2) ............................................. $0.13 $0.05 - (9) - -
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
MAY 1, 1998 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) JUNE 30, 1999
TO DECEMBER 31, 1998 (UNAUDITED)
---------------------------- ----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $27.81 $29.75
------- -------
Net Investment Loss(2) .......................................... (0.09) (0.10)
Net Realized and Unrealized Gain on Investments ................. 2.68 2.99
------- -------
Total from Investment Operations ............................ 2.59 2.89
------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ..... (0.65) -
------- -------
Net Asset Value, End of Period .................................. $29.75 $32.64
======= =======
Total Investment Return at Net Asset Value(3) ................... 9.46%(6) 9.71%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $6,901 $20,599
Ratio of Expenses to Average Net Assets ......................... 2.12%(7) 2.00%(7)
Ratio of Net Investment Loss to Average Net Assets .............. (0.53%)(7) (0.65%)(7)
Portfolio Turnover Rate ......................................... 50% 54%
</TABLE>
(1) Class B shares commenced operations on September 7, 1995.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Unreimbursed, without fee reduction. (6) Not annualized.
(7) Annualized.
(8) Effective December 31, 1996, the fiscal year end changed from May 31 to
December 31.
(9) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Core Equity Fund on June 30, 1999. It's divided into two main categories:
common stocks and short0term investments. Common stocks are further broken
down by industry group. Short-term investments, which represent the Fund's
"cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Aerospace (3.88%)
General Dynamics Corp. ................... 111,200 $7,617,200
Goodrich (B.F.) Co. (The) ................ 129,500 5,503,750
Precision Castparts Corp. ................ 75,000 3,187,500
United Technologies Corp. ................ 302,800 21,706,975
------------
38,015,425
------------
Automobile/Trucks (2.63%)
Borg-Warner Automotive, Inc. ............. 75,400 4,147,000
Ford Motor Co. ........................... 229,900 12,974,981
Lear Corp.* .............................. 131,300 6,532,175
Meritor Automotive, Inc. ................. 83,400 2,126,700
------------
25,780,856
------------
Banks - United States (6.40%)
Bank of America Corp. .................... 134,700 9,875,194
Chase Manhattan Corp. .................... 256,300 22,201,987
Comerica, Inc. ........................... 71,300 4,237,894
First Tennessee National Corp. ........... 120,200 4,605,162
Fleet Financial Group, Inc. .............. 72,700 3,226,062
Mellon Bank Corp. ........................ 242,600 8,824,575
Wells Fargo Co. .......................... 225,800 9,652,950
------------
62,623,824
------------
Beverages (1.11%)
Anheuser-Busch Cos., Inc. ................ 152,600 10,825,062
------------
Building (2.22%)
Black & Decker Corp. (The) ............... 209,000 13,193,125
Centex Corp. ............................. 71,600 2,689,475
Danaher Corp. ............................ 39,200 2,278,500
Masco Corp. .............................. 124,100 3,583,387
------------
21,744,487
------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Chemicals (0.52%)
Grace (W. R.) & Co.* ..................... 149,100 $2,739,713
Solutia, Inc. ............................ 110,000 2,344,375
------------
5,084,088
------------
Computers (11.95%)
America Online, Inc.* .................... 91,300 10,088,650
Cadence Design Systems, Inc.* ............ 267,900 3,415,725
Cisco Systems, Inc.* ..................... 296,200 19,049,362
Computer Associates International, Inc. .. 88,300 4,856,500
Dell Computer Corp.* ..................... 194,100 7,181,700
Hewlett-Packard Co. ...................... 91,100 9,155,550
International Business Machines Corp. .... 128,000 16,544,000
Microsoft Corp.* ......................... 491,200 44,300,100
Network Appliance, Inc.* ................. 42,600 2,380,275
------------
116,971,862
------------
Consumer Products Misc. (0.27%)
American Greetings Corp. (Class A) ....... 86,100 2,593,762
------------
Cosmetics & Personal Care (0.46%)
Avon Products, Inc. ...................... 81,000 4,495,500
------------
Diversified Operations (3.25%)
National Service Industries, Inc. ........ 62,800 2,260,800
Textron, Inc. ............................ 60,400 4,971,675
Tyco International Ltd. .................. 259,500 24,587,625
------------
31,820,100
------------
Electronics (7.25%)
Analog Devices, Inc.* .................... 65,900 3,307,356
Applied Materials, Inc.* ................. 77,800 5,747,475
General Electric Co. ..................... 261,500 29,549,500
Honeywell, Inc. .......................... 59,900 6,940,912
Intel Corp. .............................. 390,500 23,234,750
Teradyne, Inc.* .......................... 30,200 2,166,850
------------
70,946,843
------------
Finance (4.75%)
Citigroup, Inc. .......................... 647,400 30,751,500
Golden West Financial Corp. .............. 38,800 3,802,400
MBNA Corp. ............................... 293,700 8,994,562
Morgan Stanley Dean Witter & Co. ......... 28,600 2,931,500
------------
46,479,962
------------
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Food (1.31%)
Heinz (H.J.) Co. ......................... 140,000 $7,017,500
Quaker Oats Co. .......................... 87,400 5,801,175
------------
12,818,675
------------
Household (0.56%)
Premark International, Inc. .............. 84,200 3,157,500
WestPoint Stevens, Inc. .................. 76,400 2,277,675
------------
5,435,175
------------
Instruments-Scientific (0.28%)
PE Corp.-PE Biosystems Group ............. 23,800 2,731,050
------------
Insurance (4.47%)
American International Group, Inc. ....... 64,000 7,492,000
Equitable Companies, Inc. (The) .......... 154,200 10,331,400
Hartford Financial Services Group, Inc.
(The) ................................... 83,400 4,863,262
Hartford Life, Inc. (Class A) ............ 54,800 2,883,850
Lincoln National Corp. ................... 85,800 4,488,412
Marsh & McLennan Cos., Inc. .............. 142,150 10,732,325
Travelers Property Casualty Corp. (Class A) 74,800 2,926,550
------------
43,717,799
------------
Leisure (0.38%)
Mattel, Inc. ............................. 140,400 3,711,825
------------
Machinery (1.22%)
Ingersoll-Rand Co. ....................... 185,200 11,968,550
------------
Media (6.40%)
CBS Corp.* ............................... 412,200 17,904,937
Clear Channel Communications, Inc.* ...... 175,300 12,084,744
Time Warner, Inc. ........................ 351,900 25,864,650
Viacom, Inc. (Class B)* .................. 154,900 6,815,600
------------
62,669,931
------------
Medical (10.87%)
Abbott Laboratories ...................... 131,300 5,974,150
Boston Scientific Corp.* ................. 58,400 2,565,950
Bristol-Myers Squibb Co. ................. 98,200 6,916,962
Cardinal Health, Inc. .................... 284,400 18,237,150
Glaxo Wellcome Plc, American Depositary
Receipts (ADR) (United Kingdom) ......... 73,300 4,150,612
HEALTHSOUTH Corp.* ....................... 511,800 7,645,012
Johnson & Johnson ........................ 122,600 12,014,800
Lilly (Eli) & Co. ........................ 106,600 7,635,225
Lincare Holdings, Inc.* .................. 100,500 2,512,500
Merck & Co., Inc. ........................ 190,000 14,060,000
Mylan Laboratories, Inc. ................. 111,700 2,960,050
Omnicare, Inc. ........................... 169,700 2,142,463
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Medical (continued)
Pfizer, Inc. ............................. 40,400 $4,433,900
Schering-Plough Corp. .................... 166,500 8,824,500
Universal Health Services, Inc. (Class B)* 38,000 1,814,500
Warner-Lambert Co. ....................... 64,900 4,502,438
------------
106,390,212
------------
Mortgage Banking (1.44%)
Fannie Mae ............................... 205,900 14,078,413
------------
Office (0.19%)
Reynolds & Reynolds Co. (The) (Class A) .. 81,200 1,892,975
------------
Oil & Gas (3.34%)
Chevron Corp. ............................ 19,300 1,837,119
Exxon Corp. .............................. 105,800 8,159,825
Royal Dutch Petroleum Co. (Netherlands) .. 286,200 17,243,550
Texaco, Inc. ............................. 86,700 5,418,750
------------
32,659,244
------------
Paper & Paper Products (0.19%)
Smurfit-Stone Container Corp.* ........... 87,800 1,805,388
------------
Pollution Control (0.59%)
Waste Management, Inc. ................... 108,100 5,810,375
------------
Retail (5.10%)
Dayton Hudson Corp. ...................... 107,400 6,981,000
Home Depot, Inc. (The) ................... 195,200 12,578,200
Lowe's Cos., Inc. ........................ 122,900 6,966,894
Outback Steakhouse, Inc.* ................ 68,500 2,692,906
Tandy Corp. .............................. 43,800 2,140,725
TJX Cos., Inc. ........................... 61,800 2,058,713
Wal-Mart Stores, Inc. .................... 341,600 16,482,200
------------
49,900,638
------------
Soap & Cleaning Preparations (0.53%)
Procter & Gamble Co. (The) ............... 58,000 5,176,500
------------
Steel (0.25%)
AK Steel Holding Corp. ................... 109,500 2,463,750
------------
Telecommunications (6.82%)
AT&T Corp. ............................... 137,800 7,690,963
Bell Atlantic Corp. ...................... 53,800 3,517,175
Lucent Technologies, Inc. ................ 259,100 17,473,056
MCI WorldCom, Inc.* ...................... 235,400 20,259,113
Nortel Networks Corp. (Canada) ........... 35,700 3,099,206
Sprint Corp. ............................. 100,200 5,291,813
Tellabs, Inc.* ........................... 95,500 6,452,219
U S WEST, Inc. ........................... 49,900 2,931,625
------------
66,715,170
------------
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Core Equity Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Textile (0.20%)
Tommy Hilfiger Corp.* .................... 26,400 $1,940,400
------------
Tobacco (1.48%)
Philip Morris Cos., Inc. ................. 301,400 12,112,513
UST, Inc. ............................... 82,400 2,410,200
------------
14,522,713
------------
Transport (1.72%)
Airborne Freight Corp. ................... 64,600 1,788,613
Alaska Air Group, Inc.* .................. 65,800 2,747,150
Kansas City Southern Industries, Inc. .... 144,500 9,220,906
Northwest Airlines Corp.* ................ 95,800 3,113,500
------------
16,870,169
------------
Utilities (6.91%)
Ameren Corp. ............................. 142,100 5,453,088
Ameritech Corp. .......................... 177,700 13,060,950
BellSouth Corp. .......................... 327,900 15,370,313
Florida Progress Corp. ................... 165,400 6,833,088
GTE Corp. ................................ 107,500 8,143,125
PECO Energy Co. .......................... 93,900 3,932,063
PG&E Corp. ............................... 77,400 2,515,500
Reliant Energy, Inc. ..................... 156,400 4,320,550
Sempra Energy ............................ 88,700 2,006,838
Southern Co. (The) ....................... 226,300 5,996,950
------------
67,632,465
------------
TOTAL COMMON STOCKS
(Cost $802,269,511) (98.94%) 968,293,188
-------- ------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.99%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
06-30-99, due 07-01-99
(Secured by U.S. Treasury
Bonds 9.875% and 11.250%
due 02-15-15 and 11-15-15)
- Note A ......................... 4.800% $9,727 $9,727,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ............... 802
-----------
TOTAL SHORT-TERM INVESTMENTS (0.99%) 9,727,802
-------- -----------
TOTAL INVESTMENTS (99.93%) 978,020,990
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.07%) 681,215
-------- -----------
TOTAL NET ASSETS (100.00%) $978,702,205
======== ============
* Non-income producing security.
The percentage shown for each investment category is the total of that category
as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Core Equity Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Capital Series (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of one series: John Hancock Core Equity Fund (the "Fund"). Prior to May 1, 1999,
the Fund was known as John Hancock Independence Equity Fund. The investment
objective of the Fund is to seek above-average total return, consisting of
capital appreciation plus current income.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The shares of
each class represent an interest in the same portfolio of investments of the
Fund and have equal rights to voting, redemptions, dividends and liquidation,
except that certain expenses, subject to the approval of the Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal Revenue
Service. Shareholders of a class which bears distribution and service expenses
under terms of a distribution plan have exclusive voting rights to that
distribution plan.
Significant 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 instruments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
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 relative net assets of the respective classes. Distribution
and service fees are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Core Equity Fund
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowing. In
addition, a commitment fee based on the average daily unused portion of the line
of credit is allocated among the participating funds. The Fund had no borrowing
activity for the period ended June 30, 1999.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
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) 0.75% of
the first $750,000,000 of the Fund's average daily net asset value and (b) 0.70%
of the Fund's average daily net asset value in excess of $750,000,000.
The Fund and the Adviser have a sub-investment management contract with
Independence Investment Associates, Inc. (the "Sub-Adviser"), a wholly owned
subsidiary of John Hancock Asset Management, under which the Sub-Adviser
provides the Fund with investment research and portfolio management services.
The Adviser pays the Sub-Adviser a quarterly fee at an annual rate of 55% of the
investment management fee paid by the Fund to the Adviser for the preceding
three months. The Fund is not responsible for payment of the Sub-Adviser's fee.
The Fund has a distribution agreement with John Hancock Funds, Inc.
("JH Funds"), a wholly owned subsidiary of the Adviser. For the period ended
June 30, 1999, JH Funds received net sales of $1,588,888 with regard to sales of
Class A shares. Out of this amount, $159,294 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $1,023,799 was
paid as sales commissions to unrelated broker-dealers, and $405,795 was paid as
sales commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Signator Investors.
Class B shares which are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended June 30, 1999,
the contingent deferred sales charges received by JH Funds amounted to $477,373.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market value
at the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or
in part to defray its expenses related to providing distribution related
services to the Fund in connection with the sale of Class C shares. For the
period ended June 30,1999, the contingent deferred sales charges received by JH
Funds amounted to $3,288.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C 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 and Class C
average daily net assets, to
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Core Equity Fund
reimburse JH Funds for its distribution and 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 Signature
Services, Inc. ("Signature Services"), a wholly owned subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses. The Fund has an agreement with the Adviser to
perform necessary tax, accounting and legal services for the Fund. The
compensation for the period was at an annual rate of less than 0.02% of the
average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Stephen L. Brown, Ms. Anne C. Hodsdon
and Mr. Richard S. Scipione are trustees and/or officers of the Adviser, and its
affiliates, as well as Trustees of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for
tax purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. The investment had no impact on the operations
of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1999, aggregated $744,269,755 and $403,926,152, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended June 30, 1999.
The cost of investments owned at June 30,1999 (excluding the corporate
savings account) for federal income tax purposes was $811,997,780. Gross
unrealized appreciation and depreciation of investments aggregated $182,625,420
and $16,603,012, respectively, resulting in net unrealized appreciation of
$166,022,408.
19
<PAGE>
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[LOGO] JOHN HANCOCK FUNDS -----------------
A Global Investment Management Firm Bulk Rate
U.S. Postage
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713(TDD) Randolph, MA
INTERNET: www.jhancock.com/funds Permit No. 75
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This report is for the information of shareholders of the John Hancock
Core Equity Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[LOGO] Printed on Recycled Papaer 250SA 6/99
8/99
