<PAGE> 1
John Hancock Funds
-----------------------------------------
INDEPENDENCE
BALANCED FUND
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
89 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.]
Educating shareholders has always been one of the most important
responsibilities of a mutual fund company. But that challenge has taken on new
significance in the past several years. Looking at the most recent statistics,
you can see why. According to the Investment Company Institute, the mutual fund
industry now manages more than $2.3 trillion for investors. More than half of
that money has come into mutual funds in just the last four years. Today, there
are more than 95 million mutual fund shareholder accounts. That's up from 12
million in 1980. This explosive growth, coupled with the growing complexity of
the financial landscape, has made all of us in the mutual fund industry work
harder to inform our shareholders.
At John Hancock Funds, we strive to educate you about all aspects of
your fund: the performance, the strategies and the holdings. We want you to
fully understand what you own. We want you to have realistic expectations of the
potential rewards as well as the potential risks of your investment. These
shareholder reports -- which we send you twice a year -- are the best way to
give you the most in-depth and up-to-date information.
In the message that follows, the portfolio manager gives a candid
commentary on the market environment; the factors that affected performance; the
Fund's current investment strategies; and the outlook for the months ahead.
The ensuing financial statements provide a comprehensive look at the
Fund's statistics and holdings.
We hope you find these shareholder reports a useful tool in evaluating
your investments. Of course, if you have any questions or need more information,
feel free to call one of our customer service representatives on our toll-free
line at 1-800-755-4371, from 8:30 a.m. to 8:00 p.m. Eastern time, Monday through
Friday.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY JANE A. SHIGLEY AND JEFFREY B. SAEF
FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
INDEPENDENCE BALANCED FUND
Fund launched amid near-ideal market
conditions for stocks and bonds
[A 2 1/4" x 3 1/4" photo of Jane A. Shigley and Jeffrey B. Saef at bottom
right. Caption reads: "Jane A. Shigley and Jeffrey B. Saef."]
John Hancock Independence Balanced Fund was launched on July 6, 1995, and was
still in the process of building its positions at the end of the Fund's period
on August 31, 1995. During July and August, the investing environment was nearly
ideal for both the stock and bond markets, characterized by declining interest
rates, slow but steady economic growth, low inflation and rising corporate
earnings. From July 6, 1995 through August 31, 1995, the Fund posted a total
return of 1.18% at net asset value. We have provided this performance
information in compliance with Securities and 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. In the discussion that follows, we will
outline our investment philosophy, provide an overview of the Fund's initial
investments and take a look forward.
[CAPTION]
"...THE INVESTING ENVIRONMENT WAS NEARLY IDEAL..."
3
<PAGE> 4
John Hancock Funds - Independence Balance Fund
[Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into three sections. Going from top left to right:
Stocks 50%, Bonds 47%, Cash and Short-Term Investments 3%. Footnote below reads:
"As a percentage of net assets on August 31, 1995."]
STRATEGY EXPLAINED
At the core of our investment strategy is a disciplined investment approach that
looks for value. That means we don't react to every twist and turn the equity
and bond markets take, but rather stick to a consistent approach to investing.
For stocks, we try to identify reasonably priced stocks with strong earnings
potential. For bonds, we seek cheap, predictable sources of cash flow, or
income.
During the period, we kept the Fund almost evenly divided between stocks
and bonds. However, we have the flexibility to weigh either stocks or bonds to
as high as 75% of the Fund's investments as market and economic conditions
warrant. 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
inclusion in the Fund. By diversifying among a broad range of holdings, we help
keep the Fund's level of volatility close to that of the overall market.
On the equity side, the companies we invest in combine strong earnings
growth with improving fundamentals. We focus on stocks that are cheap.
Typically, our stocks have a lower p/e ratio (price to earnings) than that of
the average company in the S&P 500. During the Fund's initial months, its
leading performers were financial services companies. Stocks including American
Express, Citicorp, and American International Group were boosted by rising
profit margins resulting from lower interest rates, as well as a wave of
takeover activity. Telephone and aerospace stocks also turned in strong
performances. By now, it's widely known that the 1995 stock market rally was led
by technology stocks. In spite of the surge in technology stock prices, their
expected returns are such that we added some to the portfolio.
In the Fund's start-up stage, we put our fixed-income money to work in
the U.S. Treasury market, by purchasing a U.S. Treasury security that has the
same duration, or sensitivity to changes in interest rates, as the market.
Currently the average duration is 4.8 years. As the Fund grows, we'll use new
money to invest based on our disciplined approach.
The total return for bonds is made up of two components: price
appreciation (or depreciation) and income. History shows us that during very
short periods, price change can account for a large portion of a bond's total
return. That, of course, has been the case so far in 1995. But over longer
periods, income is the dominant factor in a bond's total return. Because income
is historically such a large component of total return, we focus on bonds that
have cheap, predictable cash flows. And since income happens to be the source of
return that has the least amount of volatility over time, this strategy also
helps us to reduce the Fund's overall level of volatility.
[CAPTION]
"...OUR INVESTMENT STRATEGY IS A DISCIPLINED ... APPROACH THAT LOOKS FOR VALUE."
4
<PAGE> 5
John Hancock Funds - Independence Balanced Fund
We choose our investments from three major sectors: governments,
corporates and mortgages. However, each sector carries a different risk to its
cash flow than the others. With corporate bonds, it's credit risk, or the risk
of downgrade or default; with mortgages, it's prepayment, or refinancing risk;
in governments, it's maturity risk. Using three separate valuation models and
the specific risk factors for each sector, we identify bonds that offer cheap,
predictable cash flows. We then rank these securities from cheapest and most
predictable, to most expensive and least predictable. Finally, we create a
portfolio that maximizes exposure to the highest-ranked securities in each of
these sectors. Normally, we will divide the Fund's bond holdings roughly as
follows: 50% of investments in governments, 35% in corporates and 15% in
mortgages. However, there are times when we may tilt these weights slightly away
from the normal weighting as opportunities present themselves.
OUTLOOK
For the near term, we expect technology and financial stocks to continue to
perform well. Health-care and pharmaceutical companies are also attractive.
Consolidations among hospital management companies are producing larger, more
profitable companies. Drug companies with new products, such as Merck, should
see sales and earnings increases over time. If the same moderate growth, lower
interest rate environment continues, we could see more upside for stocks. For
many bond investors, the big question now is where do interest rates go from
here? We believe that it's nearly impossible to predict the direction of
interest rates with any accuracy or consistency. No matter what happens to
interest rates and the market, we won't change our disciplined investment style.
[CAPTION]
"...WE EXPECT TECHNOLOGY AND FINANCIAL STOCKS TO CONTINUE TO PERFORM WELL."
5
<PAGE> 6
FINANCIAL STATEMENTS
John Hancock Funds - Independence Balanced Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON AUGUST 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $133,612) .............................. $136,025
U.S. government obligations (cost - $129,556) ................ 128,080
Joint repurchase agreement (cost - $8,000) ................... 8,000
Corporate savings account .................................... 965
--------
273,070
Receivable for investments sold .............................. 11,961
Dividends receivable ......................................... 452
Interest receivable .......................................... 2,657
Receivable from John Hancock Advisers, Inc. - Note B ......... 8,278
Deferred organization expenses - Note A ...................... 39,793
--------
Total Assets ................................. 336,211
-----------------------------------------------------------
LIABILITIES:
Payable for investments purchased .............................. 15,375
Payable to John Hancock Advisers, Inc. and
affiliates - Note B .......................................... 41,377
Accounts payable and accrued expenses .......................... 7,058
--------
Total Liabilities ............................ 63,810
-----------------------------------------------------------
NET ASSETS:
Capital paid-in ................................................ 269,305
Accumulated net realized gain on investments ................... 400
Net unrealized appreciation of investments ..................... 937
Undistributed net investment income ............................ 1,759
--------
Net Assets ................................... $272,401
===========================================================
NET ASSET VALUE PER SHARE:
(based on 31,680 shares of beneficial interest
outstanding - unlimited number of shares
authorized with no par value) .................................. $ 8.60
===============================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
For the period July 6, 1995 (commencement of operations) to August 31, 1995
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest ....................................................... $ 1,540
Dividends ...................................................... 583
-------
2,123
-------
Expenses:
Custodian fee ................................................ 3,398
Auditing fee ................................................. 1,789
Organization expense - Note A ................................ 1,282
Printing ..................................................... 835
Legal fees................................ ................... 715
Investment management fee - Note B ........................... 282
Registration and filing fees ................................. 261
Miscellaneous ................................................ 60
Transfer agent fee - Note B .................................. 20
-------
Total Expenses ............................... 8,642
Less expenses reimbursable by
John Hancock Advisers, Inc. -
Note B ....................................... (8,278)
-----------------------------------------------------------
Net Expenses ................................. 364
-----------------------------------------------------------
Net Investment Income ........................ 1,759
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments sold .......................... 400
Change in net unrealized appreciation/depreciation
of investments................................................ 937
-------
Net Realized and Unrealized
Gain on Investments 1,337
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .................... $ 3,096
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Independence Balanced Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------
FOR THE PERIOD
JULY 6, 1995
(COMMENCEMENT OF
OPERATIONS) TO
AUGUST 31, 1995
(UNAUDITED)
----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income...................................................... $ 1,759
Net realized gain on investments sold...................................... 400
Change in net unrealized appreciation/depreciation of investments.......... 937
--------
Net Increase in Net Assets Resulting from Operations..................... 3,096
--------
FROM FUND SHARE TRANSACTIONS-- NET*.......................................... 269,305
--------
NET ASSETS:
Beginning of period........................................................ --
--------
End of period (including undistributed net investment income of $1,759).... $272,401
========
</TABLE>
<TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
FOR THE PERIOD JULY 6, 1995
(COMMENCEMENT OF OPERATIONS)
TO AUGUST 31, 1995
(UNAUDITED)
----------------------------
SHARES AMOUNT
------ --------
<S> <C> <C>
Shares sold...................................................... 31,689 $269,380
Less shares repurchased.......................................... (9) (75)
------ --------
Net increase..................................................... 31,680 $269,305
====== ========
</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 GAINS AND LOSSES, AND ANY INCREASE OR
DECREASE IN MONEY THAT SHAREHOLDERS HAVE INVESTED IN THE FUND. THE FOOTNOTE
ILLUSTRATES THE NUMBER OF FUND SHARES SOLD AND REDEEMED DURING THE PERIOD, ALONG
WITH THE CORRESPONDING DOLLAR VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Independence Balanced Fund
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period investment return, key ratios, and supplemental data.
<TABLE>
- --------------------------------------------------------------------------------
FOR THE PERIOD JULY 6, 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............................................................. 0.06
Net Realized and Unrealized Gain on Investments................................... 0.04
-------
Total from Investment Operations................................................ 0.10
-------
Net Asset Value, End of Period.................................................... $ 8.60
=======
Total Investment Return at Net Asset Value........................................ 1.18%(c)
Total Adjusted Investment Return at Net Asset Value (a)........................... (2.02%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................................... $ 272
Ratio of Expenses to Average Net Assets........................................... 0.90%*
Ratio of Adjusted Expenses to Average Net Assets (a) (d).......................... 21.39%*
Ratio of Net Investment Income to Average Net Assets.............................. 4.35%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a) (d)............... (16.14%)*
Portfolio Turnover Rate........................................................... 6%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES) 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.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Independence Balanced Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
INDEPENDENCE BALANCED FUND ON AUGUST 31, 1995. IT'S DIVIDED INTO THREE MAIN
CATEGORIES:COMMON STOCKS, U.S. GOVERNMENT AND AGENCIES SECURITIES 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 (2.41%)
Raytheon Co................................. 40 $ 3,235
United Technologies Corp.................... 40 3,335
--------
6,570
--------
AUTOMOBILE / TRUCK (1.39%)
Eaton Corp.................................. 70 3,788
========
BANKS (3.69%)
Banc One Corp............................... 100 3,363
BankAmerica Corp............................ 60 3,390
Citicorp.................................... 50 3,319
========
10,072
--------
BEVERAGES (1.99%)
PepsiCo, Inc................................ 120 5,431
--------
BUILDING PRODUCTS (0.44%)
Home Depot, Inc............................. 30 1,196
--------
CHEMICALS (0.95%)
Eastman Chemical Co......................... 40 2,585
========
COMPUTERS (1.90%)
International Business Machines Corp........ 50 5,169
========
DIVERSIFIED OPERATIONS (4.82%)
Dover Corp.................................. 30 2,385
Du Pont (E.I.) De Nemours & Co.............. 60 3,923
Tenneco, Inc................................ 70 3,395
Textron, Inc................................ 50 3,425
--------
13,128
--------
DRUGS (3.75%)
Abbott Laboratories......................... 80 3,100
Bristol-Myers Squibb Co..................... 60 4,118
Merck & Co., Inc............................ 60 2,992
--------
10,210
========
ELECTRONICS (1.17%)
Hewlett-Packard Co.......................... 40 3,180
--------
ENVIRONMENTAL CONTROL (0.99%)
Browning-Ferris Industries, Inc............. 80 2,690
--------
FINANCE (2.24%)
American Express Co......................... 80 3,230
Federal National Mortgage Association 861 30 2,861
--------
6,091
--------
FOODS (0.92%)
Sara Lee Corp............................... 90 2,498
--------
INSURANCE (3.50%)
American International Group, Inc........... 50 4,032
Allstate Corp............................... 65 2,198
Marsh & McLennan Cos., Inc.................. 40 3,295
========
9,525
========
MEDICAL/DENTAL (2.67%)
Baxter International, Inc................... 80 3,120
Johnson & Johnson........................... 60 4,140
--------
7,260
--------
OFFICE EQUIPMENT & SUPPLIES (1.77%)
Xerox Corp.................................. 40 4,830
--------
OIL & GAS (4.10%)
Amoco Corp.................................. 40 2,550
Exxon Corp.................................. 70 4,813
Mobil Corp.................................. 40 3,810
--------
11,173
--------
PAPER (1.20%)
International Paper Co...................... 40 3,275
--------
PUBLISHING / PRINTING (2.93%)
Dun & Bradstreet Corp....................... 70 4,051
McGraw-Hill Companies, Inc.................. 50 3,937
--------
7,988
========
RETAIL (0.80%)
Federated Department Stores, Inc.**......... 80 2,190
========
TELECOMMUNICATIONS (4.55%)
A T & T Corp................................ 80 4,530
GTE Corp.................................... 90 3,296
SBC Communications, Inc..................... 90 4,556
========
12,382
========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
Financial Statements
John Hancock Funds - Independence Balanced Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- --------
<S> <C> <C>
TRANSPORTATION (0.82%)
Delta Air Lines, Inc................ 30 $ 2,231
--------
UTILITIES (0.94%)
Ameritech Corp...................... 50 2,563
--------
TOTAL COMMON STOCKS
(Cost $133,612) (49.94%) 136,025
------ --------
</TABLE>
<TABLE>
<CAPTION>
INTEREST MATURITY PAR VALUE MARKET
RATE DATE (000'S OMITTED) VALUE
---- -------- --------------- --------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (47.02%)
United States Treasury Note ........ 7.50% 11-15-01 128 128,080
------- --------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $129,556) (47.02%) 128,080
--------- --------
</TABLE>
<TABLE>
<CAPTION>
INTEREST MATURITY PAR VALUE MARKET
ISSUER, DESCRIPTION RATE DATE (000'S OMITTED) VALUE
- ------------------- ---- -------- --------------- --------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (2.94%)
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% 09-01-95 8 $ 8,000
--------
CORPORATE SAVINGS ACCOUNT (0.35%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%................. 965
--------
TOTAL SHORT-TERM INVESTMENTS (3.29%) 8,965
------ --------
TOTAL INVESTMENTS (100.25%) $273,070
======== ========
</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 Balanced Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Independence Balanced Fund (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 Diversified Core Equity
Fund II, 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 Funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged
11
<PAGE> 12
Notes to Financial Statements
John Hancock Funds - Independence Balanced Fund
to 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, to the sum of (a) 0.70% of
the first $500,000,000 of the Fund's average daily net asset value and (b) 0.65%
of the Fund's average daily net asset value in excess of $500,000,000. The
Adviser pays the Sub-Adviser a monthly management fee, equivalent on an annual
basis, of 60% 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 0.90% of the Fund's average daily net asset
value. Accordingly, the reduction in the Adviser's fee amounted to $8,278 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 $149,191 and $15,979, respectively. Purchases
and proceeds from sales of obligations of the U.S. government and its agencies,
during the period ended August 31, 1995, aggregated $129,556 and none,
respectively.
The cost of investments owned at August 31, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $271,168. Gross
unrealized appreciation and depreciation of investments aggregated $4,343 and
$3,406, respectively, resulting in net unrealized appreciation of $937.
12
<PAGE> 13
Notes
John Hancock Funds - Independence Balanced Fund
13
<PAGE> 14
Notes
John Hancock Funds - Independence Balanced Fund
14
<PAGE> 15
Notes
John Hancock Funds - Independence Balanced Fund
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 Balanced Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
