The latest report from your
Fund's management team
ANNUAL REPORT
Core
Equity Fund
DECEMBER 31, 1999
TRUSTEES
Dennis S. Aronowitz*
Stephen L. Brown
Richard P. Chapman, Jr.*
William J. Cosgrove
Leland O. Erdahl
Richard A. Farrell
Maureen R. Ford
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
Stephen L. Brown
Chairman
Maureen R. Ford
Vice Chairman and Chief Executive Officer
Anne C. Hodsdon
President, Chief Operating Officer
and Chief Investment Officer
Osbert M. Hood
Executive 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
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
CEO CORNER
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief
Executive Officer, flush right next to third paragraph.]
DEAR FELLOW SHAREHOLDERS:
As "The American Century" drew to a close this past year, the U.S.
economy ended the era on a high note. With robust growth continuing in
1999, our economy stood poised to enter the history books for producing
the longest expansion on record.
The stock market also rang out the century in style. For an
unprecedented fifth straight year, both the Dow Jones Industrial
Average and the Standard & Poor's 500 Index produced 20%-plus returns.
However, the market's advances were restricted to a very select group
of stocks, primarily in the technology sector. Many others, including
some of the household blue-chip names, languished or lost ground as the
result of investors' seemingly insatiable appetite for tech stocks.
Bonds struggled through their second-worst year in more than two
decades, as the strength of the U.S. economy and the rebound of many
others around the world provoked inflation fears. Though their outlook
from here looks brighter, in many instances, bond mutual fund investors
actually lost a little ground or made only slight advances in 1999.
While we expect the market to broaden eventually, we also expect more
volatility. More than ever, this type of environment calls for
investment diversification. Since not all parts of your portfolio will
perform equally well all the time, we believe it is important to
allocate your assets among different types of investments and funds
that target a variety of market segments. This strategy, executed under
the guidance of a seasoned investment professional, could provide you
with a better chance of both realizing results and weathering the
market's changing conditions.
The market's disappointingly narrow focus has created a widening gap in
investment performance. Keep that in mind as you read the report from
your fund's portfolio management team on the following pages. It's all
too easy to get caught up in the headlines and miss what lies
underneath.
Sincerely,
/S/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
[A 3" x 2" photo at bottom right side of page of John Hancock Core
Equity Fund. Caption below reads "Fund management team members (l-r):
Stephen Lanzendorf, John Montgomery and Paul McManus."]
John Hancock
Core Equity Fund
Internet stocks lead a dramatic -- but
narrow -- market advance in 1999
1999 was another banner year for the popular stock averages, but once
again their strength masked extreme selectivity on the part of
investors. The technology sector proved to be a favorite, especially in
the fourth quarter, when the technology-laden Nasdaq Composite Index
skyrocketed. Propelling the rally, however, were a mere handful of
Internet and telecommunications stocks, many of them with sky-high
valuations that fell outside of the Fund's parameters. All in all, it
was a difficult environment for the Fund, which emphasizes broad
diversification and concentrates on undervalued stocks of companies
with improving fundamentals.
Another important development was rising interest rates. As the year
progressed and it became clear that the U.S. economy was continuing to
grow at a robust pace, the Federal Reserve Board raised interest rates
in June, August and November. These three moves effectively offset the
three interest-rate cuts engineered by the Fed in response to the
credit crunch of 1998 and contributed to the lackluster performance of
the broader market. Despite the Fed's recent tightening bias, though,
rates remained near the low end of their historical range, and the rate
hikes did not stop investors from piling into a select few market
leaders, virtually without regard to value.
"...we main-
tained the
Fund's
disciplined
investment
strategy."
Performance explained
Rather than chase stocks that we considered to be drastically
overvalued, or make big bets on specific stocks or sectors, we
maintained the Fund's disciplined investment strategy. While in some
market environments, for relatively short periods of time, certain
sectors may significantly outperform the rest of the market, we believe
that a core-holdings fund such as this one is best served in the long
run by a consistent focus on both diversification and growth at a
reasonable price. Unfortunately, 1999 was one of those years when our
approach was not favored by market conditions, as evidenced by the
performance gap between the Fund and the S&P 500.
[Table at top left hand column entitled "Top Five Common Stock
Holdings." The first listing is Microsoft 4.8%, the second is General
Electric 3.9%, the third Cisco Systems 3.7%, the fourth Citigroup 3.2%
and the fifth MCI WorldCom 2.5%. A note below the table reads "As a
percentage of net assets on December 31, 1999."]
"...a number
of our tech-
nology names
were top
contributors
to the
Fund's
performance."
Fund results
For the year ended December 31, 1999, John Hancock Core Equity Fund's
Class A, Class B and Class C shares had returns of 12.37%, 11.59% and
11.59%, respectively, at net asset value. In comparison, the S&P 500
returned 21.04%, including reinvested dividends. The Fund's returns
were much closer to those of its peer group, as reflected in the 13.76%
return of the average growth and income fund, according to Lipper,
Inc.1 Longer-term performance information can be found on pages six and
seven. 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.
[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 Cisco Systems followed by an up arrow with the phrase
"Exponential growth of data communications." The second listing is
Microsoft followed by an up arrow with the phrase "Market leader in
strong tech sector." The third listing is B.F. Goodrich followed by a
down arrow with the phrase "Hurt by defense spending cuts." A note
below the table reads "See 'Schedule of Investments.' Investment
holdings are subject to change."]
Technology, retailing lead the way
Although the Fund's technology holdings did not have the eye-popping
gains of some of the market leaders, we maintained a technology
weighting roughly comparable to that of the S&P 500, and a number of
our technology names were top contributors to the Fund's performance.
They included Cisco Systems, America Online and Microsoft, as well as
computer hardware company Hewlett Packard, which we sold, and
semiconductor makers Intel and Teradyne.
The strong economy also benefited well- managed retailers like Home
Depot and Wal-Mart Stores. Home Depot was one of the sector's strongest
performers, boosted by a 3-for-2 split and the stock's inclusion in the
Dow Jones Industrial Average as of late October. From then until year
end, the price of Home Depot shares rose roughly 39%. Wal-Mart advanced
on the basis of strong sales and earnings results, as well as an
announced partnership with America Online. The agreement calls for the
two companies to provide budget-priced Internet access aimed at the 40%
of Wal-Mart's customers who don't already have local Internet access.
For its part, America Online will provide a customized version of its
CompuServe service that prominently features Wal-Mart advertising and
provides easy access to the Wal-Mart Web site.
Finance
In the financial sector, a few stocks, such as Citigroup, were able to
buck the interest-rate headwinds in virtue of cost reductions stemming
from recent mergers or acquisitions. In addition, the long-term
prospects for many of our financial holdings brightened when Congress
repealed the Glass-Steagall Act, enacted in 1933, which barred
commercial banks from merging with brokerage firms, investment banks
and insurance companies.
[Bar chart at top of left hand column with heading "Fund Performance".
Under the heading is a note that reads "For the year ended December 31,
1999." The chart is scaled in increments of 3% with 0% at the bottom
and 15% at the top. The first bar represents the 12.37% total return
for John Hancock Core Equity Fund Class A. The second bar represents
the 11.59% total return for John Hancock Core Equity Fund Class B. The
third bar represents the 11.59% total return for John Hancock Core
Equity Fund Class C. The fourth bar represents the 13.76% 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, Inc.1 See the following two pages for historical
performance information"]
Aerospace, health care struggle
Holding back the Fund's returns were stocks in the aerospace industry.
While industry consolidation helped their performance earlier in the
year, cutbacks in government defense spending resulted in a weak second
half for most aerospace stocks, including B.F. Goodrich, General
Dynamics and Textron. Another weak sector was health care, especially
the hospital management and large pharmaceutical sub- sectors. Hospital
management holdings HEALTHSOUTH and Omnicare were hurt by continued
problems concerning the government's Medicare reimbursement policy. We
sold those two stocks because we didn't see the situation improving any
time soon. The large pharmaceutical company stocks were a different
story. They normally suffer some temporary weakness when the
presidential campaign season rolls around because of the candidates'
penchant for complaining about high drug prices. After reducing the
Fund's large drug-company holdings earlier in 1999 in favor of
biotechnology stocks, we rotated back into drug stocks later in the
year, after the biotechnology sector had enjoyed a strong run.
"...investors
will likely
continue to
focus on
interest
rates."
Outlook
Aside from election-year uncertainties, investors will likely continue
to focus on interest rates. It might be difficult in the short term for
stocks--even in the technology sector--to continue advancing in the
face of rising interest rates. However, unless the economy slows
noticeably from its recent pace, the Fed will have no choice but to
increase rates again. In the stock market, the situation appears
somewhat reminiscent of late 1996, when Fed Chairman Alan Greenspan
criticized market participants for their "irrational exuberance" and
raised rates shortly thereafter. We may be in for a repeat performance
of that scenario. Looking at the big picture, though, stocks recovered
nicely from the weakness following the Fed's decision to hike rates
early in 1997, and we expect that they could do so should further rate
increases be in the cards for the first half of 2000.
- ------------------------------------------------------------------------
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.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
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 December 31, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (6/10/91)
------- ------- -------
Cumulative Total Returns 6.74% 195.64% 297.66%
Average Annual Total Returns(1) 6.74% 24.21% 17.50%
CLASS B
For the period ended December 31, 1999
SINCE
ONE INCEPTION
YEAR (9/7/95)
------- -------
Cumulative Total Returns 6.59% 136.43%
Average Annual Total Returns(1) 6.59% 22.07%
CLASS C
For the period ended December 31, 1999
SINCE
ONE INCEPTION
YEAR (5/1/98)
------- -------
Cumulative Total Returns 10.59% 22.15%
Average Annual Total Returns 10.59% 12.74%
Note 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 shares
would have been 24.02% and 16.88%, respectively. Without the limitation
of expenses, the average annualized return since inception for Class B
shares would have been 21.80%.
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 Index -- an
unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance. It is not possible
to invest in an index. Past performance is not indicative of
future results.
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 $45,871
as of December 31, 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 $41,877 as
of December 31, 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 $39,783 as of December 31, 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 $28,194
as of December 31, 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 $23,843
as of December 31, 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 $23,643 as of December 31, 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 three lines. The first line
represents the Standard & Poor's 500 Stock Index and is equal to $13,522
as of December 31, 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 $12,215 as of
December 31, 1999.
* No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
John Hancock Funds - Core Equity Fund
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance sheet and
shows the value of what the Fund owns, is due and owes on December 31,
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
December 31, 1999
- ------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $899,626,358) $1,082,795,846
Corporate savings account 567,969
--------------
1,083,363,815
Receivable for investments sold 4,824,179
Receivable for shares sold 582,088
Dividends and interest receivable 812,722
Other assets 7,414
--------------
Total Assets 1,089,590,218
--------------
Liabilities:
Payable for shares repurchased 814,072
Payable to John Hancock Advisers,
Inc. and affiliates - Note B 879,739
Accounts payable and accrued expenses 141,025
--------------
Total Liabilities 1,834,836
--------------
Net Assets:
Capital paid-in 900,855,702
Accumulated net realized gain on investments 3,734,854
Net unrealized appreciation of investments 183,169,488
Accumulated net investment loss (4,662)
--------------
Net Assets $1,087,755,382
==============
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 - $393,792,198/11,856,971 $33.21
============================================================
Class B - $664,104,025/20,406,365 $32.54
============================================================
Class C - $29,859,159/917,486 $32.54
============================================================
Maximum Offering Price Per Share*
Class A - ($33.21 x 105.26%) $34.96
============================================================
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
</TABLE>
<TABLE>
<CAPTION>
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
Year ended December 31, 1999
- ------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign
withholding taxes of $111,929) $10,746,746
Interest (including income on
securities loaned of $22) 1,033,962
--------------
11,780,708
--------------
Expenses:
Investment management fee - Note B 6,706,432
Distribution and service fee - Note B
Class A 973,850
Class B 5,607,635
Class C 191,098
Transfer agent fee - Note B 2,223,039
Registration and filing fees 246,544
Custodian fee 172,554
Accounting and legal services fee - Note B 163,633
Printing 47,871
Miscellaneous 41,327
Trustees' fees 30,398
Auditing fee 22,264
Legal fees 8,261
Interest expense - Note A 926
--------------
Total Expenses 16,435,832
--------------
Net Investment Loss (4,655,124)
--------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 35,836,416
Change in net unrealized
appreciation/depreciation of
investments 70,719,126
--------------
Net Realized and Unrealized Gain
on Investments 106,555,542
--------------
Net Increase in Net Assets
Resulting from Operations $101,900,418
==============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1999
-------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($935,510) ($4,655,124)
Net realized gain on investments
sold 13,181,577 35,836,416
Change in net unrealized
appreciation/depreciation of
investments 80,681,551 70,719,126
@ -------------- --------------
Net Increase in Net Assets
Resulting from Operations 92,927,618 101,900,418
-------------- --------------
Distributions to Shareholders:
Distributions from net realized gain on
investments sold
Class A - ($0.6487 and $0.6338 per
share, respectively) (4,150,187) (7,493,385)
Class B - ($0.6487 and $0.6338 per
share, respectively) (7,112,432) (12,945,566)
Class C** - ($0.6487 and $0.6338
per share, respectively) (133,363) (560,223)
-------------- --------------
Total Distributions to Shareholders (11,395,982) (20,999,174)
-------------- --------------
From Fund Share Transactions - Net:* 246,233,654 451,946,345
-------------- --------------
Net Assets:
Beginning of period 227,142,503 554,907,793
-------------- --------------
End of period (including
accumulated net investment loss of
$2,999 and $4,662, respectively) $554,907,793 $1,087,755,382
============== ==============
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.
<CAPTION>
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1999
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 4,979,980 $134,932,213 11,089,403 $349,612,898
Shares issued to shareholders in
reinvestment of distributions 135,084 3,819,908 219,924 7,018,772
-------------- -------------- -------------- --------------
5,115,064 138,752,121 11,309,327 356,631,670
Less shares repurchased (2,300,458) (61,680,952) (6,119,968) (194,552,349)
-------------- -------------- -------------- --------------
Net increase 2,814,606 $77,071,169 5,189,359 $162,079,321
============== ============== ============== ==============
CLASS B
Shares sold 7,856,988 $211,689,398 14,318,400 $442,530,048
Shares issued to shareholders in
reinvestment of distributions 216,410 6,044,436 329,313 10,303,723
-------------- -------------- -------------- --------------
8,073,398 217,733,834 14,647,713 452,833,771
Less shares repurchased (2,080,210) (54,856,608) (5,905,354) (184,187,259)
-------------- -------------- -------------- --------------
Net increase 5,993,188 $162,877,226 8,742,359 $268,646,512
============== ============== ============== ==============
CLASS C**
Shares sold 246,963 $6,687,807 834,300 $25,819,138
Shares issued to shareholders in
reinvestment of distributions 2,753 76,896 13,139 411,030
-------------- -------------- -------------- --------------
249,716 6,764,703 847,439 26,230,168
Less shares repurchased (17,783) (479,444) (161,886) (5,009,656)
-------------- -------------- -------------- --------------
Net increase 231,933 $6,285,259 685,553 $21,220,512
============== ============== ============== ==============
** Class C shares commenced operations on May 1, 1998.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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
YEAR ENDED MAY 31, JUNE 1, 1996 TO YEAR ENDED DECEMBER 31,
--------------------- DECEMBER 31, ----------------------------------
1995 1996 1996(8) 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $12.68 $14.41 $17.98 $19.42 $23.93 $30.14
-------- -------- -------- -------- -------- --------
Net Investment Income (Loss)(2) 0.32 0.20 0.13 0.10 0.05 (0.02)
Net Realized and Unrealized Gain on
Investments 1.77 3.88 1.72 5.55 6.81 3.72
-------- -------- -------- -------- -------- --------
Total from Investment Operations 2.09 4.08 1.85 5.65 6.86 3.70
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.28) (0.22) (0.14) (0.04) -- --
Distributions from Net Realized Gain on
Investments Sold (0.08) (0.29) (0.27) (1.10) (0.65) (0.63)
-------- -------- -------- -------- -------- --------
Total Distributions (0.36) (0.51) (0.41) (1.14) (0.65) (0.63)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $14.41 $17.98 $19.42 $23.93 $30.14 $33.21
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(3) 16.98% 29.12% 10.33%(6) 29.19% 28.84% 12.37%
Total Adjusted Investment Return at Net
Asset Value(3,4) 16.94% 28.47% 10.08%(6) 29.17% -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $101,418 $14,878 $31,013 $92,204 $200,962 $393,792
Ratio of Expenses to Average Net Assets 0.70% 0.94% 1.30%(7) 1.42% 1.39% 1.37%(10)
Ratio of Adjusted Expenses to
Average Net Assets(5) 0.74% 1.59% 1.73%(7) 1.44% -- --
Ratio of Net Investment Income (Loss) to
Average Net Assets 2.43% 1.55% 1.16%(7) 0.45% 0.17% (0.06%)
Ratio of Adjusted Net Investment Income to
Average Net Assets(5) 2.39% 0.90% 0.73%(7) 0.43% -- --
Portfolio Turnover Rate 71% 157% 35% 62% 50% 98%
Fee Reduction Per Share $0.005(2) $0.08(2) $0.05(2) --(2,9) -- --
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
- ------------------------------------------------------------------------------------------------------------
PERIOD PERIOD FROM
ENDED JUNE 1, 1996 TO YEAR ENDED DECEMBER 31,
MAY 31, DECEMBER 31, ----------------------------------
1996(1) 1996(8) 1997 1998 1999
-------- -------- -------- -------- --------
<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) (0.24)
Net Realized and Unrealized Gain on
Investments 2.71 1.72 5.56 6.74 3.66
-------- -------- -------- -------- --------
Total from Investment Operations 2.80 1.77 5.50 6.60 3.42
-------- -------- -------- -------- --------
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) (0.63)
-------- -------- -------- -------- --------
Total Distributions (0.09) (0.32) (1.11) (0.65) (0.63)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $17.96 $19.41 $23.80 $29.75 $32.54
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(3) 18.46%(6) 9.83%(6) 28.39% 27.90% 11.59%
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 $664,104
Ratio of Expenses to Average Net Assets 2.00%(7) 2.00%(7) 2.12% 2.09% 2.07%(10)
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%) (0.77%)
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% 98%
Fee Reduction Per Share(2) $0.13 $0.05 --(9) -- --
<CAPTION>
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD
FROM MAY 1, 1998 YEAR
(COMMENCEMENT OF ENDED
OPERATIONS) TO DECEMBER 31,
DECEMBER 31, 1998 1999
----------------- --------
<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) (0.25)
Net Realized and Unrealized Gain on
Investments 2.68 3.67
-------- --------
Total from Investment Operations 2.59 3.42
-------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold (0.65) (0.63)
-------- --------
Net Asset Value, End of Period $29.75 $32.54
======== ========
Total Investment Return at Net Asset
Value(3) 9.46%(6) 11.59%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $6,901 $29,859
Ratio of Expenses to Average Net Assets 2.12%(7) 2.08%(10)
Ratio of Net Investment Loss to Average Net Assets (0.53%)(7) (0.80%)
Portfolio Turnover Rate 50% 98%
(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.
(10) Expense ratios do not include interest expense due to bank loans,
which amounted to less than 0.01%.
See notes to financial statements.
</TABLE>
<TABLE>
Schedule of Investments
December 31, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned
by the Core Equity Fund on December 31, 1999. It's divided into two
main categories: common stocks and short-term investments. Common
stocks are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed
last.
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ------------------- ------------- --------------
<S> <C> <C>
COMMON STOCKS
Aerospace (4.19%)
General Dynamics Corp. 123,500 $6,514,625
Goodrich (B.F.) Co. (The) 141,100 3,880,250
Honeywell International, Inc. 308,401 17,790,854
United Technologies Corp. 267,800 17,407,000
--------------
45,592,729
--------------
Automobile/Trucks (1.74%)
Borg-Warner Automotive, Inc. 75,400 3,053,700
Ford Motor Co. 217,900 11,644,031
Lear Corp.* 131,300 4,201,600
--------------
18,899,331
--------------
Banks - United States (3.89%)
Bank of America Corp. 134,700 6,760,256
Chase Manhattan Corp. 121,300 9,423,494
Comerica, Inc. 71,300 3,328,819
Fifth Third Bancorp. 60,100 4,409,837
FleetBoston Financial Corp. 266,300 9,270,569
Wells Fargo Co. 225,800 9,130,787
--------------
42,323,762
--------------
Beverages (1.24%)
Anheuser-Busch Cos., Inc. 152,600 10,815,525
PepsiCo, Inc. 75,600 2,664,900
--------------
13,480,425
--------------
Building (2.86%)
Black & Decker Corp. (The) 209,000 10,920,250
Danaher Corp. 118,900 5,736,925
Georgia-Pacific Group 142,900 7,252,175
Willamette Industries, Inc. 155,100 7,202,456
--------------
31,111,806
--------------
Chemicals (0.29%)
Dow Chemical Co. 24,000 3,207,000
--------------
Computers (18.13%)
America Online, Inc.* 301,500 22,744,406
Cisco Systems, Inc.* 371,700 39,818,362
Compaq Computer Corp. 106,300 2,876,744
Computer Associates International, Inc. 139,600 9,763,275
Dell Computer Corp.* 211,300 10,776,300
EMC Corp.* 37,100 4,053,175
First Data Corp. 180,300 8,891,044
International Business Machines Corp. 196,800 21,254,400
Microsoft Corp.* 446,700 52,152,225
Oracle Corp.* 124,700 13,974,194
Yahoo! Inc.* 25,100 10,860,456
--------------
197,164,581
--------------
Consumer Products Misc. (0.51%)
American Greetings Corp. (Class A) 233,000 5,504,625
--------------
Cosmetics & Personal Care (0.25%)
Avon Products, Inc. 81,000 2,673,000
--------------
Diversified Operations (2.88%)
Monsanto Co. 370,500 13,199,062
Textron, Inc. 60,400 4,631,925
Tyco International Ltd. 346,800 13,481,850
--------------
31,312,837
--------------
Electronics (9.86%)
Altera Corp.* 53,800 2,666,462
General Electric Co. 271,500 42,014,625
Intel Corp. 308,700 25,409,869
Linear Technology Corp. 38,000 2,719,375
Maxim Integrated Products, Inc.* 176,200 8,314,437
SCI Systems, Inc.* 31,200 2,564,250
Teradyne, Inc.* 57,800 3,814,800
Texas Instruments, Inc. 129,300 12,525,937
Xilinx, Inc.* 159,400 7,247,727
--------------
107,277,482
--------------
Finance (4.37%)
Associates First Capital Corp.
(Class A) 137,200 3,764,425
Citigroup, Inc. 617,400 34,304,288
MBNA Corp. 345,700 9,420,325
--------------
47,489,038
--------------
Food (0.82%)
Kellogg Co. 104,700 $3,226,069
Quaker Oats Co. 87,400 5,735,625
--------------
8,961,694
--------------
Insurance (3.52%)
American General Corp. 87,300 6,623,887
American International Group, Inc. 41,400 4,476,375
AXA Financial, Inc. 470,800 15,948,350
Lincoln National Corp. 85,800 3,432,000
Marsh & McLennan Cos., Inc. 33,300 3,186,394
XL Capital Ltd. (Class A) 89,300 4,632,438
--------------
38,299,444
--------------
Machinery (1.20%)
Ingersoll-Rand Co. 237,100 13,055,319
--------------
Media (4.73%)
CBS Corp. 223,900 14,315,606
Clear Channel Communications, Inc.* 122,500 10,933,125
Time Warner, Inc. 362,300 26,244,106
--------------
51,492,837
--------------
Medical (10.04%)
American Home Products Corp. 58,000 2,287,375
Baxter International, Inc. 70,800 4,447,125
Bristol-Myers Squibb Co. 267,000 17,138,062
Genentech, Inc.* 25,600 3,443,200
Johnson & Johnson 172,600 16,073,375
Lilly (Eli) & Co. 106,600 7,088,900
Merck & Co., Inc. 190,000 12,741,875
Pfizer, Inc. 302,300 9,805,856
Schering-Plough Corp. 431,500 18,203,906
Warner-Lambert Co. 220,000 18,026,250
--------------
109,255,924
--------------
Metal (0.65%)
Illinois Tool Works, Inc. 103,842 7,015,825
--------------
Mortgage Banking (0.73%)
Fannie Mae 127,700 7,973,269
--------------
Office (0.29%)
Avery Dennison Corp. 43,400 3,162,775
--------------
Oil & Gas (5.32%)
Anadarko Petroleum Corp. 94,200 3,214,575
Atlantic Richfield Co. 100,700 8,710,550
Chevron Corp. 127,500 11,044,687
Exxon Mobil Corp. 74,600 6,009,962
Kerr-McGee Corp. 61,400 3,806,800
Royal Dutch Petroleum Co.,
American Depositary Receipts (ADR)
(Netherlands) 279,400 16,886,238
USX - Marathon Group 330,900 8,169,094
--------------
57,841,906
--------------
Paper & Paper Products (0.63%)
Champion International Corp. 48,000 2,973,000
Kimberly-Clark Corp. 59,400 3,875,850
--------------
6,848,850
--------------
Retail (7.09%)
CVS Corp. 75,100 2,999,306
Dayton Hudson Corp. 82,100 6,029,219
Federated Department Stores, Inc.* 108,600 5,491,088
Gap, Inc. (The) 158,200 7,277,200
Home Depot, Inc. (The) 276,750 18,974,672
Limited, Inc. (The) 125,400 5,431,388
Lowe's Cos., Inc. 84,500 5,048,875
TJX Cos., Inc. 285,500 5,834,906
Wal-Mart Stores, Inc. 289,300 19,997,863
--------------
77,084,517
--------------
Soap & Cleaning Preparations (0.34%)
Colgate-Palmolive Co. 56,600 3,679,000
--------------
Telecommunications (7.44%)
AT&T Corp. 178,600 9,063,950
Lucent Technologies, Inc. 253,200 18,942,525
MCI WorldCom, Inc.* 522,000 27,698,625
Sprint Corp. 120,800 8,131,350
Sprint PCS* 54,700 5,606,750
Tellabs, Inc.* 178,400 11,451,050
--------------
80,894,250
--------------
Textile (0.11%)
Tommy Hilfiger Corp.* 52,800 1,230,900
--------------
Tobacco (0.86%)
Philip Morris Cos., Inc. 227,200 5,268,200
UST, Inc. 163,300 4,113,119
--------------
9,381,319
--------------
Transportation (0.71%)
UAL Corp.* 99,600 7,725,225
--------------
Utilities (4.86%)
Ameren Corp. 142,100 4,653,775
BellSouth Corp. 120,000 5,617,500
Edison International 243,900 6,387,131
Florida Progress Corp. 165,400 6,998,488
GTE Corp. 107,500 7,585,469
PECO Energy Co. 111,100 3,860,725
Reliant Energy, Inc. 272,100 6,224,288
SBC Communications, Inc. 127,400 6,210,750
Southern Co. (The) 226,300 5,318,050
--------------
52,856,176
--------------
TOTAL COMMON STOCKS
(Cost $899,626,358) (99.55%) 1,082,795,846
-------------- --------------
SHORT-TERM INVESTMENTS
Corporate Savings Account (0.05%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.50% 567,969
--------------
TOTAL SHORT-TERM INVESTMENTS (0.05%) 567,969
-------------- --------------
TOTAL INVESTMENTS (99.60%) 1,083,363,815
-------------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.40%) 4,391,567
-------------- --------------
TOTAL NET ASSETS (100.00%) $1,087,755,382
============== ==============
* Non-income producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Core Equity Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Capital Series (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of
1940. The Trust consists of 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.
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
borrowings. In addition, a commitment fee is charged based on the
average daily unused portion of the line of credit and is allocated
among the participating funds. The maximum loan balance during the year
outstanding amounted to $1,458,000. The annualized interest rate
charged during the year ranged from 5.75% through 6.00%. At December
31, 1999, there were no outstanding borrowings.
SECURITIES LENDING The Fund may lend its securities to certain
qualified brokers who pay the Fund negotiated lender fees. These fees
are included in interest income. The loans are collateralized at all
times with cash or securities with a market value at least equal to the
market value of the securities on loan. As with other extensions of
credit, the Fund may bear the risk of delay of the loaned securities in
recovery or even loss of rights in the collateral should the borrower
of the securities fail financially. At December 31, 1999, the Fund
loaned securities having a market value of $5,538,375 collateralized
by securities in the amount of $5,659,789.
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 year
ended December 31, 1999, JH Funds received net sales of $2,540,595 with
regard to sales of Class A shares. Out of this amount, $229,219 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $1,554,298 was paid as sales commissions
to unrelated broker-dealers, and $757,078 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 year ended December 31, 1999, the contingent
deferred sales charges received by JH Funds amounted to $1,502,665.
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 year ended December 31, 1999, the
contingent deferred sales charges received by JH Funds amounted to
$11,569.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution
Plans with respect to Class A, 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
reimburse JH Funds for its distribution and service costs. A maximum of
0.25% of such payments may be service fees as defined by the amended
Conduct Rules of the National Association of Securities Dealers. Under
the amended Conduct Rules, 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"), an indirect 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
year was at an annual rate of less than 0.02% of the average net assets
of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford, 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 year ended December 31, 1999, aggregated $1,251,081,750 and
$819,243,948, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the year
ended December 31, 1999.
The cost of investments owned at December 31,1999 (excluding the
corporate savings account) for federal income tax purposes was
$900,094,535. Gross unrealized appreciation and depreciation of
investments aggregated $229,195,862 and $46,494,551, respectively,
resulting in net unrealized appreciation of $182,701,311.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended December 31, 1999, the Fund has reclassified
amounts to reflect a decrease in accumulated net realized gain on
investments of $10,417,315, a decrease in accumulated net investment
loss of $4,653,461 and an increase in capital paid-in of $5,763,854.
This represents the amount necessary to report these balances on a tax
basis, excluding certain temporary differences, as of December 31,
1999. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset
value of the Fund, are primarily attributable to the treatment of net
operating losses in the computation of distributable income and capital
gains under federal tax rules versus generally accepted accounting
principles, and the Fund's use of the tax accounting practice known as
equalization. The calculation of net investment income per share in
the financial highlights excludes these adjustments.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock Core Equity Fund
and the Trustees of John Hancock Capital Series
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and financial highlights
present fairly, in all material respects, the financial position of
John Hancock Core Equity Fund (the "Fund") (formerly John Hancock
Independence Equity Fund) (a series of John Hancock Capital Series) at
December 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated,
in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities owned at
December 31, 1999 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 11, 2000
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund for its fiscal year ended
December 31, 1999.
The Fund designated a distribution to shareholders of $14,865,937 as a
long-term capital gain dividend. These amounts were reported on the
1999 U.S. Treasury Department Form 1099-DIV.
With respect to the ordinary dividends paid by the Fund for the fiscal
year ended December 31, 1999, 35.44% of the dividends qualify for the
corporate dividends received deduction.
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2500A 12/99
2/00
