<PAGE> 1
JOHN HANCOCK FUNDS
- -------------------------------------------------------------------------------
INDEPENDENCE
DIVERSIFIED CORE
EQUITY FUND II
SEMI-ANNUAL REPORT
August 31, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
Thomas W.L. Cameron
James F. Carlin*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Charles L. Ladner*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC*
John P. Toolan*
*Members of Audit Committee
OFFICERS
Edward J. Boudreau, Jr.,
Chairman and Chief Executive Officer
Robert G. Freedman,
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon,
President
James B. Little,
Senior Vice President and
Chief Financial Officer
Thomas H. Drohan,
Senior Vice President and
Secretary
Michael P. DiCarlo,
Senior Vice President
James K. Ho,
Senior Vice President
Andrew F. St. Pierre,
Senior Vice President
James J. Stokowski,
Vice President and Treasurer
Susan S. Newton,
Vice President, Assistant Secretary and Compliance Officer
John A. Morin,
Vice President
CUSTODIAN
Investors Bank & Trust Company
8s9 South Street
Boston, MA 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, MA 02205-9277
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
INVESTMENT SUB-ADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, MA 02109
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, MA 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Investors around the world have been watching Wall Street in awe for the better
part of 1995. Through August, the Dow Jones Industrial Average has reached
record highs and has grown, along with the Standard & Poor's 500-Stock Index, by
more than 20%. Investors who stayed in the market after a disappointing 1994
have been rewarded.
On another street, Pennsylvania Avenue, one of the hot topics many
people are watching is Medicare reform. While the Congressional rhetoric is just
beginning to heat up, today's Medicare debate should serve as another wake-up
call to all Americans about the need to have a financial plan and to save for
retirement. Whether or not the government changes the way health-care benefits
are allotted to senior citizens, the message is clear: your future security and
well-being lies in your own hands -- not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement.
Many of them will perhaps scare you or make you think that the task of
saving for retirement is just too daunting. But take heart. We don't believe
that and neither do many financial experts.
Yet retirement planning is not to be taken lightly. To live the way you
want to -- the way you deserve to after all those years of hard work -- you need
to plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial
adviser about establishing your retirement planning roadmap, if you haven't
already. And educate yourself by reading some of the many articles about how to
save for retirement. Take control of your future by saving today. That way, when
it comes time for retirement, you shouldn't have to think about any street but
Easy Street.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
INDEPENDENCE DIVERSIFIED
CORE EQUITY FUND II
NEAR-IDEAL STOCK MARKET CONDITIONS
PREVAIL IN FUND'S FIRST MONTHS
John Hancock Independence Diversified Core Equity Fund II was launched on March
10, 1995. To date, the Fund's assets and holdings consist of those transferred,
along with the majority of investors such as you, from John Hancock Independence
Diversified Core Equity Fund.
[A 2 1/2" x 3 3/4" photo of Paul McManus at bottom right. Caption reads: "Paul
McManus"]
The Fund began amid near-ideal conditions for the stock market --
declining interest rates, slow economic growth, low inflation and strong
corporate earnings. And while certain sectors of the economy are showing signs
of slowing down, such as autos and housing, people seem to believe we don't need
to fear a recession any time soon. Against that backdrop, the Fund's total
return was 14.69% at net asset value from its March 10, 1995 inception through
August 31, 1995. We have provided this performance information in compliance
with Securities and
[CAPTION]
"...PEOPLE SEEM TO BELIEVE WE DON'T NEED TO FEAR A RECESSION ANY TIME SOON."
3
<PAGE> 4
John Hancock Funds - Independence Diversified Core Equity Fund II
[CAPTION]
"...BANK AND TECHNOLOGY STOCKS WERE AMONG THE TOP PERFORMERS."
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) General Electric 3.6% 2) AT&T 2.8% 3) IBM 2.7%
4) DuPont 2.5% 5) American Express 2.2%. A footnote below reads "As a percentage
of net assets on August 31, 1995."]
Exchange Commission regulations. The result isn't particularly meaningful,
however, because it is based on such a short time early in the life of the fund.
Performance information is historical and assumes reinvestment of all
distributions. The Fund's investment return and share value will fluctuate so
that Fund shares, when redeemed, may be worth more or less than their original
cost. Since this Fund has, and will continue to have, nearly identical holdings
as John Hancock Independence Diversified Core Equity Fund, we expect the Fund's
performance to almost mirror that of John Hancock Independence Diversified Core
Equity Fund going forward.
We'll continue to apply the same disciplined investment style to this
Fund that we have with John Hancock Independence Diversified Core Equity Fund
toward the same goal of above-average return from both income and price gains.
That means that we won't react to every twist and turn the market takes, but
rather stick to a consistent approach of investing in a diverse range of
reasonably priced stocks with strong earnings potential. We believe it's the
best way to achieve solid results over the long term, through any market
environment. Using a team of analysts, we apply the tools of human analysis and
computer valuation models to produce what we think are the best candidates for
the Fund's portfolio -- "cheap" stocks with improving fundamentals. We spread
the risk by diversifying among a broad range of stocks -- growth companies,
value companies, large ones and small ones.
During the Fund's initial months, bank and technology stocks were among
the top performers. Falling interest rates helped the profitability of banks
such as Citicorp and Chemical Bank through improving credit spreads -- the
difference between what banks pay depositors and charge borrowers. That
improvement goes right to the bottom line. Technology stocks such as IBM and
Hewlett Packard did well on positive earnings reports.
Looking ahead, we expect technology and financial stocks to continue
their positive trends. We also believe health-care and pharmaceutical companies
look attractive. Consolidations among hospital management companies are
producing larger, more profitable companies. Drug companies with new products,
such as Schering-Plough and Merck, should see sales and earnings increase over
time. If the same moderate growth, low interest rate environment continues, we
could see more upside for stocks. No matter what, we'll stick to our disciplined
investment style.
4
<PAGE> 5
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund II
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 AUGUST 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AS OF THAT DATE.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $120,880,295).......................... $125,846,773
Joint repurchase agreement (cost - $1,825,000)............... 1,825,000
Corporate savings account.................................... 126
------------
127,671,899
Receivable for shares sold.................................... 10,318
Receivable for investments sold............................... 142,163
Dividends receivable.......................................... 381,550
Foreign tax receivable........................................ 912
Interest receivable........................................... 397
Receivable from John Hancock Advisers, Inc. - Note B.......... 20,894
Deferred organization expenses - Note A....................... 37,117
------------
Total Assets................................ 128,265,250
-----------------------------------------------------------
LIABILITIES:
Payable for investments purchased............................. 1,389,677
Payable to John Hancock Advisers, Inc.
and affiliates - Note B...................................... 165,296
Accounts payable and accrued expenses......................... 51,285
------------
Total Liabilities........................... 1,606,258
-----------------------------------------------------------
NET ASSETS:
Capital paid-in............................................... 121,067,003
Accumulated net realized gain on investments 170,971
Net unrealized appreciation of investments and
foreign currency transactions................................ 4,966,436
Undistributed net investment income........................... 454,582
------------
Net Assets.................................. $126,658,992
===========================================================
NET ASSET VALUE PER SHARE:
(based on 13,016,994 shares of beneficial interest
outstanding - unlimited number of shares authorized
with no par value)............................................ $ 9.73
=============================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the period March 10, 1995 (commencement of operations) to August 31, 1995
(Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $4,990)........ $ 634,224
Interest...................................................... 57,790
------------
692,014
------------
Expenses:
Investment management fee - Note B........................... 112,950
Registration and filing fees................................. 22,903
Custodian fee................................................ 17,647
Transfer agent fee........................................... 11,295
Organization expense - Note A................................ 3,934
Auditing fee................................................. 3,676
Printing..................................................... 2,941
Legal fees................................................... 2,598
Trustees' fees - Note B...................................... 1,275
Miscellaneous................................................ 245
------------
Total Expenses.............................. 179,464
Less expenses reimbursable by
John Hancock Advisers, Inc. -
Note B...................................... ( 20,894)
-----------------------------------------------------------
Net Expenses................................ 158,570
-----------------------------------------------------------
Net Investment Income....................... 533,444
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments sold......................... 170,971
Change in net unrealized appreciation/depreciation
of investments............................................... 4,966,478
Change in net unrealized appreciation/depreciation
of foreign currency transactions............................. ( 42)
------------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions....................... 5,137,407
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations................... $ 5,670,851
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund II
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
MARCH 10, 1995
(COMMENCEMENT OF
OPERATIONS) TO
AUGUST 31, 1995
(UNAUDITED)
----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................................................................................ $ 533,444
Net realized gain on investments sold ................................................................ 170,971
Change in net unrealized appreciation/depreciation of investments and foreign currency transactions... 4,966,436
------------
Net Increase in Net Assets Resulting from Operations ................................................ 5,670,851
------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.0176 per share) ............................................. ( 78,862)
------------
FROM FUND SHARE TRANSACTIONS -- NET* ................................................................... 121,067,003
------------
NET ASSETS:
Beginning of period .................................................................................. --
------------
End of period (including undistributed net investment income of $454,582) ............................ $126,658,992
============
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 10, 1995
(COMMENCEMENT OF OPERATIONS)
TO AUGUST 31, 1995
(UNAUDITED)
-----------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Shares sold ........................................................................... 13,458,392 $125,306,351
Shares issued to shareholders in reinvestment of distributions......................... 8,426 78,862
---------- ------------
13,466,818 125,385,213
Less shares repurchased ............................................................... ( 449,824) ( 4,318,210)
---------- ------------
Net increase .......................................................................... 13,016,994 $121,067,003
========== ============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE COMMENCEMENT OF OPERATIONS. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT AND FOREIGN CURRENCY GAINS AND LOSSES,
DISTRIBUTIONS PAID TO SHAREHOLDERS AND ANY INCREASE OR DECREASE IN MONEY THAT
SHAREHOLDERS HAVE INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF
FUND SHARES SOLD, REINVESTED AND REDEEMED DURING THE PERIOD, ALONG WITH THE
CORRESPONDING DOLLAR VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund II
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period investment return, key ratios and supplemental data.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD MARCH 10, 1995
(COMMENCEMENT OF OPERATIONS)
TO AUGUST 31, 1995
(UNAUDITED)
-----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period......................................................... $ 8.50(b)
---------
Net Investment Income........................................................................ 0.10(c)
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions............ 1.15
---------
Total from Investment Operations............................................................ 1.25
---------
Less Distributions:
Dividends from Net Investment Income........................................................ ( 0.02)
---------
Net Asset Value, End of Period............................................................... $ 9.73
=========
Total Investment Return at Net Asset Value................................................... 14.69%(d)
Total Adjusted Investment Return at Net Assets Value (a)..................................... 14.65%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................................................... $ 126,659
Ratio of Expenses to Average Net Assets...................................................... 0.70%*
Ratio of Adjusted Expenses to Average Net Assets (a)......................................... 0.79%*
Ratio of Net Investment Income to Average Net Assets......................................... 2.35%*
Ratio of Adjusted Net Investment Income to Average Net Assets (a)............................ 2.26%*
Portfolio Turnover Rate...................................................................... 4%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) On average month end shares outstanding.
(d) Not annualized.
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES),
DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET
ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE COMMENCEMENT OF OPERATIONS.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund II
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II ON AUGUST 31, 1995. IT'S DIVIDED
INTO TWO MAIN CATEGORIES:COMMON STOCKS AND SHORT-TERM INVESTMENTS. COMMON STOCKS
ARE FURTHER BROKEN DOWN BY INDUSTRY GROUP. UNDER EACH INDUSTRY GROUP IS A LIST
OF THE SECURITIES OWNED BY THE FUND. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE
FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
August 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
COMMON STOCKS
AEROSPACE (2.04%)
Lockheed Martin Corp. .................. 28,500 $ 1,734,938
Raytheon Co. ........................... 10,500 849,188
------------
2,584,126
------------
AUTOMOBILE/TRUCK (1.43%)
Chrysler Corp. ......................... 200 10,775
Dana Corp. ............................. 26,500 791,687
Eaton Corp. ............................ 18,700 1,012,137
------------
1,814,599
------------
BANKS (5.76%)
Barnett Banks, Inc. .................... 8,700 496,988
Chemical Banking Corp. ................. 20,000 1,165,000
Citicorp ............................... 30,700 2,037,713
First Interstate Bancorp ............... 10,500 1,002,750
First Union Corp. ...................... 9,000 451,125
Fleet Financial Group, Inc. ............ 11,500 425,500
NationsBank Corp. ...................... 27,900 1,712,363
------------
7,291,439
------------
BEVERAGES (2.60%)
Anheuser-Busch Cos., Inc. .............. 6,000 342,750
Coca-Cola Co. (The) .................... 15,400 989,450
PepsiCo, Inc. .......................... 43,400 1,963,850
------------
3,296,050
------------
BIOMEDICS/GENETICS (0.67%)
Amgen, Inc.** .......................... 17,600 842,600
------------
BROADCASTING (1.04%)
Walt Disney Co., (The) ................. 23,400 1,313,325
------------
BUILDING PRODUCTS (1.99%)
Home Depot, Inc. (The) ................. 27,000 1,076,625
Weyerhaeuser Co. ....................... 31,400 1,444,400
------------
2,521,025
------------
CHEMICALS (4.38%)
Eastman Chemical Co. ................... 13,700 885,362
Hercules, Inc. ......................... 36,800 2,047,000
Monsanto Co. ........................... 4,500 426,938
Morton International, Inc. ............. 34,300 1,114,750
PPG Industries, Inc. ................... 25,000 1,068,750
------------
5,542,800
------------
COMPUTERS (3.77%)
Abode Systems, Inc. ........................ 4000 204,000
Ceridian Corp. ** .......................... 10,200 446,250
International Business Machines Corp. ...... 32,600 3,370,025
Komag, Inc.** .............................. 3,000 186,750
Microsoft Corp. ............................ 2,300 212,750
Novell, Inc.** ............................. 20,000 360,000
------------
4,779,775
------------
COSMETICS & TOILETRIES (0.27%)
Avon Products, Inc. ........................ 4,900 346,063
------------
DIVERSIFIED OPERATIONS (9.30%)
Dial Corp. ................................. 45,200 1,084,800
DuPont (E.I.) De Nemours & Co. ............. 47,400 3,098,775
General Electric Co. ....................... 77,200 4,545,150
Tenneco Inc. ............................... 35,900 1,741,150
Textron Inc. ............................... 9,500 650,750
Whitman Corp. .............................. 32,800 660,100
------------
11,780,725
------------
DRUGS (4.05%)
Bristol-Myers Squibb Co. ................... 40,500 2,779,312
Merck & Co., Inc. .......................... 29,100 1,451,362
Schering-Plough Corp. ...................... 15,700 732,012
Warner-Lambert Co. ......................... 1,800 162,675
------------
5,125,361
------------
ELECTRONICS (6.99%)
Amp, Inc. .................................. 20,000 812,500
Hewlett-Packard Co. ........................ 12,700 1,016,000
Intel Corp. ................................ 41,500 2,547,062
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund II
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
ELECTRONICS (CONTINUED)
Lam Research Corp.** ....................... 12,600 $ 759,150
Mentor Graphics Corp. ...................... 10,300 198,275
Parker-Hannifin Corp. ...................... 53,650 2,125,881
Tektronix, Inc. ............................ 4,000 182,500
Teradyne, Inc.** ........................... 19,200 727,200
Texas Instruments, Inc. .................... 6,400 479,200
------------
8,847,768
------------
FINANCE (3.66%)
American Express Co. ....................... 70,400 2,842,400
Dean Witter Discover & Co. ................. 32,300 1,647,300
Equifax, Inc. .............................. 3,900 151,612
------------
4,641,312
------------
FOODS (2.61%)
Archer Daniels Midland Co. ................. 37,905 630,170
CPC International, Inc. .................... 10,000 628,750
Sara Lee Corp. ............................. 35,300 979,575
Unilever N.V. American Depository
Receipt ("ADR") ........................... 8,600 1,063,175
------------
3,301,670
------------
HEALTHCARE (0.96%)
Columbia/HCA Healthcare Corp. .............. 19,200 902,400
Health Management Associates, Inc. .........
(Class A)** ............................... 9,400 314,900
------------
1,217,300
------------
INSURANCE (5.76%)
Aetna Life & Casualty Co. .................. 10,700 730,275
Allstate Corp. ............................. 70,611 2,391,934
Cigna Corp. ................................ 12,200 1,180,350
Lincoln National Corp. ..................... 35,000 1,505,000
Marsh & McLennan Cos., Inc. ................ 14,800 1,219,150
St. Paul Cos., Inc. ........................ 5,000 271,250
------------
7,297,959
------------
MACHINERY (0.67%)
Millipore Corp. ............................ 24,200 843,975
------------
MEDICAL/DENTAL (4.31%)
Baxter International, Inc. ................. 41,600 1,622,400
Johnson & Johnson .......................... 30,900 2,132,100
Medtronic Inc. ............................. 9,300 877,688
Pfizer, Inc. ............................... 16,800 829,500
------------
5,461,688
------------
METALS (1.44%)
Phelps Dodge Corp. ......................... 28,700 1,818,862
------------
OFFICE EQUIPMENT & SUPPLIES (1.33%)
Xerox Corp. ................................ 14,000 1,690,500
------------
OIL & GAS (8.94%)
Amoco Corp. ............................ 28,600 1,823,250
Anadarko Petroleum Corp. ............... 17,500 835,625
Chevron Corp. .......................... 15,200 735,300
Exxon Corp. ............................ 16,300 1,120,625
Halliburton Co. ........................ 18,000 762,750
Imperial Oil Ltd. ...................... 24,500 878,938
Mobil Corp. ............................ 23,000 2,190,750
Panhandle Eastern Corp. ................ 27,200 680,000
Phillips Petroleum Co. ................. 69,800 2,294,675
------------
11,321,913
------------
PAPER (3.05%)
Georgia Pacific Corp. .................. 6,300 567,000
International Paper Co. ................ 5,800 474,875
Kimberly-Clark Corp. ................... 2,500 159,688
Mead Corp. ............................. 26,200 1,608,025
Willamette Industries, Inc. ............ 15,400 1,058,750
------------
3,868,338
------------
PHOTO EQUIPMENT (1.20%)
Eastman Kodak Co. ...................... 26,300 1,515,538
------------
RETAIL (3.29%)
Albertson's Inc. ....................... 34,100 1,086,938
Federated Department Stores, Inc. ** ... 31,000 837,000
Price/Costco Inc.** .................... 47,100 794,812
Toys "R" Us, Inc.** .................... 8,400 218,400
Wal-Mart Stores, Inc. .................. 50,200 1,236,175
------------
4,173,325
------------
RUBBER (0.75%)
Goodyear Tire & Rubber Co. ............. 23,800 952,000
------------
SOAP & CLEANING PREPARATIONS (1.30%)
Proctor & Gamble Co. (The) ............. 23,700 1,644,187
------------
STEEL (0.42%)
British Steel, PLC, (ADR) .............. 18,900 529,200
------------
TELECOMMUNICATIONS (6.44%)
AT & T Corp. ........................... 63,800 3,604,700
GTE Corp. .............................. 66,600 2,439,225
SBC Communications, Inc. ............... 23,400 1,184,625
Sprint Corp. ........................... 26,000 923,000
------------
8,151,550
------------
TOBACCO (2.92%)
Philip Morris Cos., Inc. ............... 37,000 2,761,125
UST, Inc. .............................. 34,700 945,575
------------
3,706,700
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund II
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
TRANSPORTATION (1.06%)
Conrail, Inc. .......................... 4,100 $ 275,725
Delta Air Lines, Inc. .................. 2,100 156,187
Ryder System, Inc. ..................... 10,900 264,325
UAL Corp. .............................. 4,100 645,750
------------
1,341,987
------------
UTILITIES (4.96%)
Ameritech Corp. ........................ 21,500 1,101,875
Browning-Ferris Industries, Inc. ....... 12,000 403,500
Pacific Gas & Electric Co. ............. 94,700 2,722,625
Peco Energy Co. ........................ 11,800 314,175
Unicom Corp. ........................... 61,900 1,740,938
------------
6,283,113
------------
TOTAL COMMON STOCKS
(Cost $120,880,295) (99.36%) 125,846,773
------ ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- -------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.44%)
Investment in a joint repurchase
agreement transaction with U.B.S.
Securities Inc., Dated 08-31-95,
due 09-01-95 (secured by U.S.
Treasury Bill, 5.54% due 05-30-96,
by U.S. Treasury Bonds, 12.50%
thru 14.00% due 11-15-10 thru
08-15-14, and by U.S. Treasury
Notes, 4.375% thru 7.25%
due 08-15-96 thru 12-31-98) -
Note A.................. 5.80% 1,825 $ 1,825,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%...... 126
------------
TOTAL SHORT-TERM INVESTMENTS ( 1.44%) 1,825,126
------ ------------
TOTAL INVESTMENTS (100.80%) $127,671,899
====== ============
</TABLE>
** 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.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund II
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Independence Diversified Core Equity Fund II (the "Fund"), a
separate portfolio of the John Hancock Institutional Series Trust (the "Trust"),
is an open-end management investment company, registered under the Investment
Company Act of 1940. The Trust, organized as a Massachusetts business trust in
1994, consists of eleven series portfolios: the Fund, John Hancock Multi-Sector
Growth Fund, John Hancock Active Bond Fund, John Hancock Dividend Performers
Fund, John Hancock Fundamental Value Fund, John Hancock Global Bond Fund, John
Hancock International Equity Fund, John Hancock Independence Balanced Fund, John
Hancock Independence Growth Fund, John Hancock Independence Medium
Capitalization Fund and John Hancock Independence Value Fund. Prior to September
12, 1995, John Hancock Multi- Sector Growth Fund was known as John Hancock
Berkeley Sector Opportunity Fund, John Hancock Active Bond Fund was known as
John Hancock Berkeley Bond Fund, John Hancock Dividend Performers Fund was known
as John Hancock Berkeley Dividend Performers Fund, John Hancock Fundamental
Value Fund was known as John Hancock Berkeley Fundamental Value Fund, John
Hancock Global Bond Fund was known as John Hancock Berkeley Global Bond Fund and
John Hancock International Equity Fund was known as John Hancock Berkeley
Overseas Growth Fund. Each Fund currently has one class of shares with equal
rights as to voting, redemption, dividends and liquidation within its respective
Fund. The Trustees may authorize the creation of additional portfolios from time
to time to satisfy various investment objectives.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund intends to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any realized gain on
investments, to its 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.
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 will be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund II
the Fund's operations ratably over a five-year period that began with the
commencement of investment operations of the Fund.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
The Adviser is responsible for managing the Fund's investment business affairs
and overseeing the investment activities of the sub- adviser. The Adviser has a
sub-investment management contract with Independence Investment Associates, Inc.
(the "Sub-Adviser"), under which the Sub-Adviser, subject to the review of the
Trustees and the over-all supervision of the Adviser, provides the Fund with
investment services and advice with respect to investment transactions. Under
the present investment management contract, the Fund pays a monthly management
fee to the Adviser, equivalent on an annual basis, of 0.50% of the Fund's
average daily net asset value. The Adviser pays the Sub-Adviser a monthly
management fee, equivalent on an annual basis, of 80% of the advisory fee
payable on the Fund's average daily net assets. The Fund is not responsible for
payment of the Sub-Adviser's fee.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net assets.
The Adviser has agreed to limit Fund expenses further to the extent
required to prevent expenses from exceeding 0.70% of the Fund's average daily
net asset value. Accordingly, the reduction in the Adviser's fee amounted to
$20,894 for the period ended August 31, 1995. The Adviser reserves the right to
terminate this limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended August
31, 1995, all sales of shares of beneficial interest were sold at net asset
value. The Fund pays all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states, and all other expenses in connection with the sale and
offering for sale of the shares of the Fund which have not been herein
specifically allocated to the Trust.
The Fund has a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly-owned subsidiary of
The Berkeley Financial Group. The Fund pays Investor Services a monthly transfer
agent fee equivalent, on an annual basis, to 0.05% of the Fund's average daily
net asset value, plus certain out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr., Richard S. Scipione and Thomas W.L.
Cameron are directors and/or officers of the Adviser, and/or its affiliates as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund.
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 August 31, 1995, aggregated $123,456,995 and $2,747,671, respectively.
There were no purchases or sales of the U.S. government and its agencies during
the period ended August 31, 1995.
The cost of investments owned at August 31, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $122,705,295. Gross
unrealized appreciation and depreciation of investments aggregated $6,251,160
and $1,284,682, respectively, resulting in net unrealized appreciation of
$4,966,478.
12
<PAGE> 13
NOTES
John Hancock Funds - Independence Diversified Core Equity Fund II
13
<PAGE> 14
NOTES
John Hancock Funds - Independence Diversified Core Equity Fund II
14
<PAGE> 15
NOTES
John Hancock Funds - Independence Diversified Core Equity Fund II
15
<PAGE> 16
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Independence Diversified Core Equity Fund II. It may be used as sales literature
when preceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
JHD 42SSA 8/95
