<PAGE> 1
As filed with the Securities and Exchange Commission on January 5, 1996.
File Nos. 33-86102; 811-8852
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
----
Pre-Effective Amendment No. / /
----
Post-Effective Amendment No. 4 / X /
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
----
Amendment No. 5 / X /
----
(Check appropriate box or boxes.)
-------------------
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
----------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 375-1700
-------------------
THOMAS H. DROHAN, ESQ.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
-----------------------------------------
(Name and Address of Agent for Service)
-------------------
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
- ---
on (date) pursuant to paragraph (b)
- ---
75 days after filing pursuant to paragraph (a) of rule 485
- ---
on [date] pursuant to paragraph (a) of rule 485
- ---
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
the Registrant has elected to register an indefinite number of shares of the
Registrant and each series thereof.
Page 1 of total pages.
Exhibit index is on page .
<PAGE> 2
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
---------------------------------------
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
JOHN HANCOCK INDEPENDENCE VALUE FUND
JOHN HANCOCK INDEPENDENCE GROWTH FUND
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
JOHN HANCOCK INDEPENDENCE BALANCED FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER FORM N-1A, PROSPECTUS CAPTION STATEMENT OF ADDITIONAL
PART A INFORMATION CAPTION
- -----------------------------------------------------------------------------
<S> <C> <C>
1 Front Cover Page *
2 Expense Information; The Fund's *
Expenses; Share Price
3 The Fund's Financial Highlights; *
Performance
4 An Overview of the Funds; *
Investment Policies and
Strategies; Organization and
Management of the Funds;
Performance; Investments,
Techniques and Risk Factors
5 Organization and Management of *
the Funds; The Fund's Expenses
6 Organization and Management of *
the Fund; Dividends and Taxes;
Redeeming Shares.
7 How to Buy Shares; Shares Price; *
8 Redeeming Shares; Exchange *
Privilege
9 Not Applicable
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NUMBER FORM N-1A, PROSPECTUS CAPTION STATEMENT OF ADDITIONAL
PART A INFORMATION CAPTION
- -----------------------------------------------------------------------------
<S> <C> <C>
13 * Investment Objectives
and Policies; Certain
Investment Restrictions
14 * Those Responsible for
Management
15 * Those Responsible for
Management
16 * Investment Advisory and
Other Services; Transfer
Agent Services; Custody
of Portfolio;
Independent Auditors
17 * Brokerage Allocation
18 * Description of Trust's
Shares
19 * Net Asset Value; Special
Redemptions
20 * Tax Status
21 * Not Applicable
22 * Calculation of
Performance
23 * Financial Statements
</TABLE>
<PAGE> 4
JOHN HANCOCK FUNDS
101 Huntington Avenue
Boston, Massachusetts 02199
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
PROSPECTUS
January 5, 1996
The John Hancock Institutional Series Trust consists of twelve mutual funds,
five of which are offered in this Prospectus (each a "Fund," and collectively,
the "Funds"):
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
JOHN HANCOCK INDEPENDENCE VALUE FUND
JOHN HANCOCK INDEPENDENCE GROWTH FUND
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
JOHN HANCOCK INDEPENDENCE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C>
Expense Information................................................................ 2
The Funds' Financial Highlights.................................................... 3
An Overview of the Funds........................................................... 8
Investment Policies and Strategies................................................. 9
Who May Buy Shares................................................................. 11
Investors' Guide to Services....................................................... 12
How to Buy Shares............................................................. 12
Opening an Account............................................................ 12
Buying Additional Shares...................................................... 13
Reports to Shareholders....................................................... 13
Share Price................................................................... 13
Redeeming Shares.............................................................. 14
Exchange Privilege............................................................ 15
Organization and Management of the Funds........................................... 16
The Funds' Expenses................................................................ 16
Dividends and Taxes................................................................ 17
Performance........................................................................ 18
Risk Factors, Investments and Techniques........................................... 18
</TABLE>
This Prospectus sets forth information about the Funds, which are each a
series of John Hancock Institutional Series Trust (the "Trust"), that you should
know before investing. Please read and retain it for future reference.
Additional information about the Trust and the Funds has been filed
with the Securities and Exchange Commission (the "SEC"). You can obtain a copy
of the Funds' Statement of Additional Information dated January 5, 1996, which
is incorporated by reference into this Prospectus, free of charge by writing or
telephoning: John Hancock Investor Services Corporation, P.O. Box 9277, Boston,
Massachusetts 02205-9277, 1-800-755-4371.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO] [LOGO]Printed on Recycled Paper.
<PAGE> 5
<TABLE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various costs and expenses that you will bear, directly or indirectly. Since the
Funds have a limited operating history, the costs and expenses included in the
table and hypothetical example below are based on estimated fees and expenses
for the Funds' fiscal year ending February 29, 1996 and should not be considered
as representative of future expenses. Actual expenses may be greater or less
than those shown.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ALL FUNDS
---------
<S> <C>
Maximum Sales Charge (as a percentage of offering price) NONE
Sales Charge on Reinvested Dividends NONE
Deferred Sales Charge and Redemptions NONE
Redemption Fees NONE*
Exchange Fees NONE
</TABLE>
<TABLE>
EXAMPLE: You would pay the
following expenses for the
indicated period of years on
a hypothetical $1,000
investment assuming a 5%
annual rate of return and a
voluntary expense limitation
as noted below: +
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
<CAPTION>
MANAGEMENT TOTAL FUND
FEE (NET OPERATING
OF OTHER EXPENSES (NET OF 3
LIMITATION) EXPENSES** LIMITATION)*** 1 YEAR YEARS
---------- ---------- ---------------- ------ ------
<S> <C> <C> <C> <C> <C>
DIVERSIFIED CORE EQUITY FUND II 0.12% 0.58% 0.70% $ 7 $ 22
VALUE FUND 0.37% 0.58% 0.95% $ 10 $ 30
GROWTH FUND 0.37% 0.58% 0.95% $ 10 $ 30
MEDIUM CAPITALIZATION FUND 0.42% 0.58% 1.00% $ 10 $ 32
BALANCED FUND 0.32% 0.58% 0.90% $ 9 $ 29
- ---------------
<FN>
* Redemption by wire fee (currently $4.00) not included.
** Other Expenses include transfer agent, legal, audit, custody and other expenses.
*** Estimated for the Funds based on expenses to have been incurred if shares
had been in existence for an entire fiscal year. Total Fund Operating
Expenses in the table reflect a voluntary limitation by the Funds' Adviser.
Without such limitation, the Management Fee would have been, and Total Fund
Operating Expenses would have been estimated, respectively, as the
following: Diversified Core Equity Fund II, 0.50% and 1.08%; Value Fund,
0.80% and 1.38%; Growth Fund, 0.80% and 1.38%; Medium Capitalization Fund,
0.80% and 1.38%; and Balanced Fund, 0.70% and 1.28%.
+ This example should not be considered a representation of the Funds' actual
or future expenses, which may be greater or less than those shown.
The management fee referred to above is more fully explained in this Prospectus
under the caption "THE FUNDS' EXPENSES" and in the Statement of Additional
Information under the caption "INVESTMENT ADVISORY AND OTHER SERVICES."
</TABLE>
2
<PAGE> 6
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS
John Hancock Independence Diversified Core Equity Fund II
The following table includes selected data for a share outstanding
throughout the period indicated. Total investment return, key ratios and
supplemental data are listed as follows.
<CAPTION>
FOR THE PERIOD
MARCH 10, 1995
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1995
(UNAUDITED)
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.............................................................. $ 8.50(b)
-------
Net Investment Income............................................................................. 0.03
Net Realized and Unrealized Gain on Investments................................................... 0.78
-------
Total from Investment Operations........................................................ 0.81
Less Distributions:
Dividends from Net Investment Income......................................................... (0.02)
-------
Net Asset Value, End of Period.................................................................... $ 9.29
=======
Total Investment Return at Net Asset Value(d)..................................................... 9.50%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................................................... $85,467
Ratio of Expenses to Average Net Assets........................................................... 0.70%*
Ratio of Adjusted Expenses to Average Net Assets(a)(e)............................................ 1.54%*
Ratio of Net Investment Income to Average Net Assets.............................................. 3.87%*
Ratio of Adjusted Net Investment Income to Average Net Assets(a)(e)............................... 3.03%*
Portfolio Turnover Rate........................................................................... 2%
<FN>
- ---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the voluntary limitation, total investment return would have been lower.
(e) 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 are expected to increase as the net assets of the fund grow.
</TABLE>
3
<PAGE> 7
FINANCIAL HIGHLIGHTS (CONTINUED)
John Hancock Independence Value Fund
<TABLE>
The following table includes selected data for a share outstanding
throughout the period indicated. Total investment return, key ratios and
supplemental data are listed as follows.
<CAPTION>
FOR THE PERIOD
OCTOBER 2, 1995
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30,
1995
(UNAUDITED)
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.............................................................. $ 8.50(b)
-------
Net Investment Income............................................................................. 0.05
Net Unrealized Gain on Investments................................................................ 0.33
-------
Total from Investment Operations........................................................ 0.38
Net Asset Value, End of Period.................................................................... $ 8.88
=======
Total Investment Return at Net Asset Value(d)..................................................... 4.47%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................................................... $ 522
Ratio of Expenses to Average Net Assets........................................................... 0.95%*
Ratio of Adjusted Expenses to Average Net Assets(a)(e)............................................ 16.87%*
Ratio of Net Investment Income to Average Net Assets.............................................. 3.31%*
Ratio of Adjusted Net Investment Loss to Average Net Assets(a)(e)................................. (12.61)%*
Portfolio Turnover Rate........................................................................... 0%
<FN>
- ---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the voluntary limitation, total investment return would have been lower.
(e) 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 are expected to increase as the net assets of the Fund grow.
</TABLE>
4
<PAGE> 8
FINANCIAL HIGHLIGHTS (CONTINUED)
John Hancock Independence Growth Fund
<TABLE>
The following table includes selected data for a share outstanding
throughout the period indicated. Total investment return, key ratios and
supplemental data are listed as follows.
<CAPTION>
FOR THE PERIOD
OCTOBER 2, 1995
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30,
1995
(UNAUDITED)
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.............................................................. $ 8.50(b)
-------
Net Investment Income............................................................................. 0.02
Net Unrealized Gain on Investments................................................................ 0.31
-------
Total from Investment Operations........................................................ 0.33
Net Asset Value, End of Period.................................................................... $ 8.83
=======
Total Investment Return at Net Asset Value(d)..................................................... 3.88%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................................................... $ 519
Ratio of Expenses to Average Net Assets........................................................... 0.95%*
Ratio of Adjusted Expenses to Average Net Assets(a)(e)............................................ 16.89%*
Ratio of Net Investment Income to Average Net Assets.............................................. 1.19%*
Ratio of Adjusted Net Investment Loss to Average Net Assets(a)(e)................................. (14.75)%*
Portfolio Turnover Rate........................................................................... 0%
<FN>
- ---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the voluntary limitation, total investment return would have been lower.
(e) 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.
</TABLE>
5
<PAGE> 9
FINANCIAL HIGHLIGHTS (CONTINUED)
John Hancock Independence Medium Capitalization Fund
<TABLE>
The following table includes selected data for a share outstanding
throughout the period indicated. Total investment return, key ratios and
supplemental data are listed as follows.
<CAPTION>
FOR THE PERIOD
OCTOBER 2, 1995
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30,
1995
(UNAUDITED)
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.............................................................. $ 8.50(b)
------
Net Investment Income............................................................................. 0.04(c)
Net Unrealized Gain on Investments................................................................ 0.28
------
Total from Investment Operations........................................................ 0.32
Net Asset Value, End of Period.................................................................... $ 8.82
======
Total Investment Return at Net Asset Value(e)..................................................... 3.77%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................................................... $3,389
Ratio of Expenses to Average Net Assets........................................................... 1.00%*
Ratio of Adjusted Expenses to Average Net Assets(a)(f)............................................ 7.62%*
Ratio of Net Investment Income to Average Net Assets.............................................. 2.74%*
Ratio of Adjusted Net Investment Loss to Average Net Assets(a)(f)................................. (3.88)%*
Portfolio Turnover Rate........................................................................... 0%
<FN>
- ---------------
* 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.
(e) Without the voluntary limitation, total investment return would have been lower.
(f) 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 are expected to increase as the net assets of the fund grow.
</TABLE>
6
<PAGE> 10
FINANCIAL HIGHLIGHTS (CONTINUED)
John Hancock Independence Balanced Fund
<TABLE>
The following table includes selected data for a share outstanding
throughout the period indicated. Total investment return, key ratios and
supplemental data are listed as follows.
<CAPTION>
FOR THE PERIOD
JULY 6, 1995
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30,
1995
(UNAUDITED)
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.............................................................. $ 8.50(b)
------
Net Investment Income............................................................................. 0.15
Net Realized and Unrealized Gain on Investments................................................... 0.48
------
Total from Investment Operations........................................................ 0.63
Less Distributions:
Dividends from Net Investment Income......................................................... (0.07)
Net Asset Value, End of Period.................................................................... $ 9.06
======
Totalw Investment Return at Net Asset Value(d)..................................................... 7.40%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................................................... $5,106
Ratio of Expenses to Average Net Assets........................................................... 0.90%*
Ratio of Adjusted Expenses to Average Net Assets(a)(e)............................................ 7.20%*
Ratio of Net Investment Income to Average Net Assets.............................................. 4.52%*
Ratio of Adjusted Net Investment Loss to Average Net Assets(a)(e)................................. (1.78)%*
Portfolio Turnover Rate........................................................................... 5%
<FN>
- ---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the voluntary limitation, total investment return would have been lower.
(e) 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 are expected to increase as the net assets of the fund grow.
</TABLE>
7
<PAGE> 11
AN OVERVIEW OF THE FUNDS
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II seeks above-average
total return consisting of capital appreciation and income. The Fund's
performance and risk profile benchmark is the Standard and Poor's 500 Composite
Stock Index[REGISTERED TRADEMARK] (the "S&P 500 Index").
JOHN HANCOCK INDEPENDENCE VALUE FUND seeks above-average total return. The Fund
emphasizes relatively undervalued securities and seeks higher dividend yield
than the Diversified Core Equity Fund II. The Fund's performance and risk
profile benchmark portfolio is the Russell 1000 Value
Index[REGISTERED TRADEMARK].
JOHN HANCOCK INDEPENDENCE GROWTH FUND seeks above-average total return. The Fund
emphasizes investments in companies whose securities show potential for
relatively high long-term earnings growth rather than current dividend yield.
The Fund's performance and risk profile benchmark is the Russell 1000 Growth
Index[REGISTERED TRADEMARK].
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND seeks above-average total
return. The Fund emphasizes investments in securities of medium-sized companies
that tend to be at a stage of development where their growth is higher than the
average of all companies. The Fund's performance and risk profile benchmark is
the Callan Medium Capitalization Index.
JOHN HANCOCK INDEPENDENCE BALANCED FUND seeks above-average total return through
capital appreciation and income. The Fund invests in a balanced portfolio
actively allocated between equity securities and fixed-income securities. The
Fund's performance and risk profile benchmark is a composite of the S&P 500
Index[REGISTERED TRADEMARK] and the Lehman Brothers Government/Corporate Bond
Index.
The investment adviser of each Fund is John Hancock Advisers, Inc. (the
"Adviser"), a wholly-owned indirect subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"). The sub-adviser of each Fund is
Independence Investment Associates, Inc. ("IIA" or the "Sub-adviser"), also a
wholly-owned indirect subsidiary of the Life Company.
- ---------------
[REGISTERED TRADEMARK] "Standard & Poor's 500" and "S&P 500" are registered
trademarks of Standard & Poor's Ratings Group. "Russell 1000 Value Index" and
"Russell 1000 Growth Index" are registered trademarks of Frank Russell Company.
None of the Funds, the Adviser or the Sub-Adviser is affiliated with Standard &
Poor's Corporation, Frank Russell Company, Lehman Brothers (publisher of the
Lehman Brothers Government/Corporate Bond Index) or Callan Associates, Inc.
(publisher of the Callan Medium Capitalization Index and the Callan Broad
Market Index).
------------------------
Risk Factors. Each Fund is a recently organized series of the Trust and has a
limited operating history. There can be no assurance that the Funds will achieve
their investment objectives. An investment in one or more of the Funds is
intended for long-term investors who can accept the risks associated with
investing primarily in equity and fixed-income securities. The Funds'
investments will be subject to market fluctuation and other risks inherent in
all securities. The yield, return and price volatility of each Fund depend on
the type and quality of its investments as well as market and other factors. In
addition, a Fund's potential investments and management techniques may entail
specific risks. For additional information about risks associated with an
investment in one or more of the Funds, see "RISK FACTORS, INVESTMENTS AND
TECHNIQUES" on page 18.
8
<PAGE> 12
INVESTMENT POLICIES AND STRATEGIES
Each Fund invests in common stocks. IIA considers stocks which combine value and
improving fundamentals to be attractive investments for the Funds. In
determining what constitutes "value," IIA seeks stocks with the following
attributes: high growth relative to price/earning ratio, rising dividend stream,
and high asset value. To determine whether a company's stock exhibits improving
fundamentals, IIA looks for accelerating earnings growth, positive earnings
surprises when compared to the market's expectations, and favorable cyclical
timing. Each stock is given a score and ranked from most to least attractive
based on how cheap it is and how much its fundamentals are improving. IIA
selects stocks from the top of this list and observes a mandatory sell policy of
the bottom quintile. IIA calls this strategy of ranking an index of stocks and
nixing out the bottom-ranked issues: "NIXDEX".
- -------------------------------------------------------------------------------
EACH FUND INVESTS A PERCENTAGE OF ITS TOTAL
ASSETS IN COMMON STOCKS.
- -------------------------------------------------------------------------------
The "Equity Funds" (Diversified Core Equity Fund II, Value Fund, Growth Fund,
and Medium Capitalization Fund) will invest at least 65% of their assets in
common stocks although, under normal market conditions, the Equity Funds will be
substantially fully invested in common stocks. The Balanced Fund will allocate
its investments between common stocks and fixed-income debt securities in
varying ratios. However, under normal market conditions, at least 25% of the
Balanced Fund's portfolio will be invested in common stocks and 25% in fixed-
income senior securities.
Each Fund may invest in fixed-income securities. Although under normal market
conditions each Equity Fund intends to be substantially fully invested in common
stocks, each Equity Fund will normally invest in fixed-income securities for
purposes of managing its cash position and for temporary defensive purposes.
These fixed-income securities will be rated A or better by Moody's Investors
Service, Inc. ("Moody's") or Standard and Poor's Ratings Group ("S&P") or, if
unrated, determined to be of comparable quality by IIA.
- -------------------------------------------------------------------------------
EACH FUND MAY INVEST A PORTION OF ITS TOTAL
ASSETS IN CORPORATE AND GOVERNMENTAL FIXED-
INCOME DEBT SECURITIES.
- -------------------------------------------------------------------------------
Under normal market conditions, the Balanced Fund will normally invest at least
25% of its total assets in fixed-income senior securities. These fixed-income
securities will be rated investment grade, i.e., Baa by Moody's or BBB by S&P
or, if unrated, determined to be of investment grade quality by IIA.
Fixed-income securities rated Baa or BBB are considered of medium-grade quality
with speculative characteristics. Adverse economic conditions or changing
circumstances may weaken the issuer's capacity to pay interest and repay
principal on these securities.
The Equity Funds may retain fixed-income securities whose ratings are downgraded
below A until IIA determines that disposing of such securities is in the best
interest of the affected Fund. The Balanced Fund may retain fixed-income
securities whose ratings are downgraded below investment grade until IIA
determines that disposing of such securities is in the best interest of the
Fund.
The value of fixed-income securities generally varies inversely with interest
rates. The longer the maturity of the fixed-income security, the more volatile
will be changes in its value resulting from changes in interest rates. The value
of fixed-income securities with conversion features, however, will also be
affected by changes in the value of the common stock into which such
fixed-income securities are convertible.
When, in the opinion of IIA, extraordinary market or economic conditions
warrant, each Fund may, for temporary defensive purposes, hold cash, cash
equivalents or fixed-income securities without limitation.
Each Fund may invest in the securities of foreign issuers in the form of
American Depository Receipts ("ADRs") that are denominated in U.S. dollars and
traded on an exchange in the United States. Each Fund may purchase securities on
a forward commitment or when-issued basis and illiquid securities. In addition,
each Fund may lend portfolio securities and may make temporary investments in
short-term securities, including repurchase agreements and other money market
instruments, in order to receive a return on excess cash. See "RISK FACTORS,
INVESTMENTS AND TECHNIQUES" for more information on the Funds' investments.
- -------------------------------------------------------------------------------
EACH FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES AND TECHNIQUES TO HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
- -------------------------------------------------------------------------------
Each Fund has adopted investment restrictions which are enumerated in detail in
the Statement of Additional Information. Some of these restrictions may help to
reduce investment risk. Those restrictions designated as fundamental may not be
changed without shareholder approval. Each Fund's investment objective,
investment policies and nonfundamental restrictions, however, may be changed by
a vote of the Trustees without shareholder approval. If
9
<PAGE> 13
there is a change in a Fund's investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their current
financial position and needs.
Each Fund's portfolio of investments is comprised of securities of entities
that, while not identical to those of the particular benchmark index, have
similar performance characteristics and risk profiles. Each Fund will seek to
establish a performance record that exceeds that of the particular benchmark
index. See page 7 for a description of each benchmark index.
- -------------------------------------------------------------------------------
EACH FUND'S PORTFOLIO CHARACTERISTICS AND RISK
PROFILE ARE BENCHMARKED TO A SPECIFIC
PERFORMANCE INDEX.
- -------------------------------------------------------------------------------
- - The Diversified Core Equity Fund II's performance and risk profile benchmark
is the S&P 500 Index[REGISTERED TRADEMARK].
- - The Value Fund's performance and risk profile benchmark is the Russell 1000
Value Index[REGISTERED TRADEMARK].
- - The Growth Fund's performance and risk profile benchmark is the Russell 1000
Growth Index[REGISTERED TRADEMARK].
- - The Medium Capitalization Fund's performance and risk profile benchmark is the
Callan Medium Capitalization Index.
- - The Balanced Fund's performance and risk profile benchmark is an
equally-weighted composite of the S&P 500 Index[REGISTERED TRADEMARK] and
the Lehman Brothers Government/Corporate Bond Index.
In attempting to exceed the performance of the S&P 500 Index[REGISTERED
TRADEMARK], the DIVERSIFIED CORE EQUITY FUND II focuses on securities of
companies offering capital growth and/or income potential over both the
intermediate and long term.
In attempting to exceed the performance of the Russell 1000 Value
Index[REGISTERED TRADEMARK], the VALUE FUND focuses on common stocks of
companies which are undervalued given current market and economic conditions.
IIA selects common stocks of companies with stock prices which, in its
opinion, are undervalued relative to the securities' intrinsic value and the
stock market in general at the time of purchase based on such measures as the
Russell 1000 Value Index[REGISTERED TRADEMARK] and price/earnings ratios,
price/book ratios, and yield.
In attempting to exceed the performance of the Russell 1000 Growth
Index[REGISTERED TRADEMARK], the GROWTH FUND emphasizes investments in
companies whose securities show potential for relatively high long-term
earnings growth rather than current dividend yield and which appear
inexpensive relative to the Index. The Growth Fund invests in the securities
of companies whose growth in the areas of earnings or gross sales measured
either in dollars or in unit volume may exceed that of the average of the
companies whose securities are included in the Russell 1000 Growth
Index[REGISTERED TRADEMARK]. IIA seeks out companies with above-average growth
potential in the future, typically by investing in companies that have high
long-term earnings growth relative to the securities of other companies. The
securities of these companies generally command high multiples (price/earnings
ratios) in the stock markets over time.
In attempting to exceed the performance of the Callan Medium Capitalization
Index, the MEDIUM CAPITALIZATION FUND consists of a portfolio whose risk profile
matches a portfolio of companies whose market capitalization at the time of
purchase falls within the capitalization range of the Callan Medium
Capitalization Index. Currently, companies with a market capitalization of
between $1 billion and $5 billion fall within this range. Companies whose
capitalization falls outside this range after purchase continue to be considered
medium capitalized companies for purposes of the Fund's investment policies. The
stocks of medium-capitalized companies generally involve more short-term
volatility than stocks of companies with a larger capitalization, but
significantly less volatility and lower trading costs than are usually
associated with stocks of small-capitalization companies. Typically, a medium
capitalization company has passed through its start-up and initial establishment
phase yet is still small enough to react more quickly than large-capitalization
companies to changes in the marketplace that may present opportunities for the
company.
In attempting to exceed the performance of the composite of the S&P 500
Index[REGISTERED TRADEMARK] and the Lehman Brothers Government/Corporate Bond
Index, the BALANCED FUND will invest in both equity and fixed-income
securities. IIA looks at broad market and economic variables to determine the
overall mix of the Fund's assets between equity and fixed-income securities.
IIA expects that, under normal circumstances, between 25% and 75% of the Fund's
assets will be allocated to the fixed-income class and the balance of the
Fund's assets will be invested in common stocks. At all times, however, at
least 25% of the Fund's assets will be invested in fixed-income senior
securities. As market and economic conditions change, IIA gradually adjusts
the asset mix, but has no fixed formula to determine the timing of any
adjustment to the allocation of the asset classes. IIA considers the
following factors in its analysis of market
10
<PAGE> 14
and economic variables: prospective return spreads among stocks, bonds and
bills; the absolute valuation levels of both the stock and bond markets; the
stage of the economic cycle; the direction and intent of the government's
monetary policies; and inflationary trends.
INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II. The S&P 500
Index[REGISTERED TRADEMARK] is comprised of 500 industrial, utility,
transportation and financial companies in the United States markets. Most of
these companies are listed on the New York Stock Exchange (the "Exchange").
Companies included in the S&P 500 Index[REGISTERED TRADEMARK] represent
about 75% of the Exchange's market capitalization and 30% of the Exchange's
issuers. The S&P 500 Index[REGISTERED TRADEMARK] is a capitalization-weighted
index calculated on a total return basis with dividends reinvested.
- -------------------------------------------------------------------------------
EACH FUND'S PERFORMANCE AND RISK BENCHMARK HAS
CERTAIN CHARACTERISTICS.
- -------------------------------------------------------------------------------
INDEPENDENCE VALUE FUND. The Russell 1000 Value Index[REGISTERED TRADEMARK] is
comprised of stocks of companies from the Russell 1000 Index(R) with a
less-than-average growth orientation. The Russell 1000 Value
Index[REGISTERED TRADEMARK] represents the universe of stocks from which
value managers typically select. It is capitalization weighted and includes
only common stocks belonging to large-capitalization, domestic corporations.
INDEPENDENCE GROWTH FUND. The Russell 1000 Growth Index[REGISTERED TRADEMARK]
is comprised of stocks of companies from the Russell 1000 Index[REGISTERED
TRADEMARK] with a greater-than-average growth orientation. The Russell 1000
Growth Index[REGISTERED TRADEMARK] represents the universe of stocks from
which growth managers typically select. It is capitalization weighted and
includes only common stocks belonging to large-capitalization domestic
corporations.
INDEPENDENCE MEDIUM CAPITALIZATION FUND. The Callan Medium Capitalization Index
is a subset of the Callan Broad Market Index. The Callan Broad Market Index
includes common stocks of the two thousand largest companies with
capitalizations ranging between $85 million and $75 billion. The Callan Medium
Capitalization Index covers about 25% of the Callan Broad Market Index with
companies that range from approximately $1 billion to $5 billion in
capitalization. The Callan Medium Capitalization Index includes both growth and
value stocks.
INDEPENDENCE BALANCED FUND. The S&P 500 Index[REGISTERED TRADEMARK] is a
capitalization-weighted index comprised of 500 publicly traded industrial,
utility, transportation, and financial companies located in the United States
markets. The Diversified Core Equity Fund II (see above) is benchmarked to
this Index. The Lehman Brothers Government/Corporate Bond Index is composed
of all bonds that are investment grade (i.e., rated Baa or higher by Moody's
or BBB or higher by S&P). Issues must have at least one year to maturity and
the Lehman Brothers Government-Corporate Index is rebalanced monthly by
market capitalization.
The primary consideration in choosing brokerage firms to carry out the Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of shares of the Funds. Pursuant to procedures
determined by the Trustees, the Adviser may place securities transactions with
brokers affiliated with the Adviser and the Sub-adviser. These brokers include
Tucker, Anthony Incorporated, John Hancock Distributors, Inc. and Sutro and
Company, Inc., which are indirectly owned by the Life Company, which in turn
indirectly owns the Adviser and the Sub-adviser. Fixed-income securities are
generally purchased and sold in transactions directly with dealers acting as
principal and involve a "spread" rather than a commission.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN FOR FUND TRANSACTIONS ON
THE BASIS OF BEST PRICE AND EXECUTION.
- -------------------------------------------------------------------------------
WHO MAY BUY SHARES
INVESTORS ARE LIMITED TO THE QUALIFIED RETIREMENT PLANS ("PLANS") AND
INSTITUTIONS DEFINED BELOW. THERE IS NO SALES CHARGE. John Hancock Funds, Inc.
("JH Funds") may make payment out of its own resources to a Selling Broker who
sells shares of a Fund in an amount not to exceed 0.15% of the amount invested.
PLANS are defined as follows: (a) unaffiliated benefit plans and (b) tax-exempt
retirement plans of the Adviser and its affiliates, including the retirement
plans of the Adviser's affiliated brokers. A PARTICIPANT is an individual
employee participating in a Plan.
INSTITUTIONS are defined as follows: (a) certain trusts, endowment funds and
foundations; (b) banks and insurance companies purchasing for their own account;
(c) investment companies not affiliated with the Adviser; (d) any entity taxed
as a corporation for purposes of federal taxation; and (e) any state, county,
city or any instrumentality, department, authority or agency thereof.
11
<PAGE> 15
INVESTORS' GUIDE TO SERVICES
HOW TO BUY SHARES
Each Plan or Institution must make a minimum initial investment in a Fund of at
least $250,000 unless you invest or have invested at least $1 million in the
aggregate in any of the series of the Trust. There is no minimum initial
investment applicable to employee benefit or retirement plans having 350 or more
eligible employees.
The Trust includes the Funds as well as the following additional funds: John
Hancock Small Capitalization Equity Fund, John Hancock Dividend Performers Fund,
John Hancock Active Bond Fund, John Hancock Global Bond Fund, John Hancock
Multi-Sector Growth Fund, John Hancock Fundamental Value Fund, and John Hancock
International Equity Fund (the "John Hancock Series Funds") whose shares are
offered by means of a separate prospectus available by calling 1-800-755-4371.
Please read that prospectus before investing.
OPENING AN ACCOUNT
PARTICIPANTS
- --------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PLANS AND INSTITUTIONS
- --------------------------------------------------------------------------------
<S> <C>
BY CHECK 1. Make check payable to John Hancock Investor Services Corporation
("Investor Services").
2. Mail the completed account information package directly to Investor Services at:
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, MA 02205-9277
- ---------------------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by calling 1-800-755-4371.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900022260
ABA Routing No. 211475000
For credit to: [Full Name of Fund]
Your Account Number
Name(s) under which account is registered
Please note that wires sent in this manner must be for mutual fund investments
only.
3. In the case of multiple series purchases made by one wire, include clear
instructions as to the specific allocation of the monies.
4. Mail the completed account information package directly to Investor
Services at P.O. Box 9277, Boston, MA 02205-9277.
5. Plan Sponsors may make arrangements for Automatic Clearing House ("ACH")
transactions and other types of wire transfers by contacting Investor
Services at 1-800-755-4371.
---------------------------------------------------------------------------------------------
</TABLE>
Investor Services will open an account when it receives an investment in 'good
order.' A 'good order' is defined as receipt of a completed account information
package and the initial investment amount, if applicable.
OTHER REQUIREMENTS. All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received and a
collection charge may be imposed. Wire purchases normally take two or more hours
to complete and, to be accepted the same day, must be received by 4:00 p.m. New
York time. Your bank may charge a fee to wire funds. Telephone transactions are
recorded to verify information. Share certificates are not issued unless a
request is made to Investor Services.
12
<PAGE> 16
<TABLE>
BUYING ADDITIONAL SHARES
PARTICIPANTS
- -----------------------------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- -----------------------------------------------------------------------------------------------------
PLANS
- -----------------------------------------------------------------------------------------------------
<S> <C>
BY CHECK Please follow the procedures as set forth above for opening an account by check.
BY WIRE Please follow the procedures as as set forth above for opening an account by wire.
- -----------------------------------------------------------------------------------------------------
INSTITUTIONS
- -----------------------------------------------------------------------------------------------------
BY CHECK Please follow the procedures as set forth above for opening an account by check.
BY WIRE Please follow the procedures as set forth above for opening an account by wire.
BY TELEPHONE 1. Complete the "Invest-By Phone" and "Bank Information" sections on the
Account Application designating a bank account from which funds may be
drawn. Note that in order to invest by phone, your account must be in a
bank or credit union that is a member of the ACH System.
2. After your authorization form has been processed, you may purchase
additional shares by calling Investor Services toll-free at 1-800-755-4371.
3. Give the Investor Services representative the name(s) in which your account
is registered, the Fund name, your account number, and the amount you wish to invest.
4. Your investment normally will be credited to your account the business day
following your phone request.
- ------------------------------------------------------------------------------------------------------
</TABLE>
REPORTS TO SHAREHOLDERS
Participants should direct all inquiries about the Funds to either the Plan
Sponsor or Investor Services at 1-800-755-4371.
The Funds will issue an annual report containing audited financial statements
and a semiannual report to shareholders (i.e., Plans or Institutions). A printed
confirmation for each transaction affecting share balance or account
registration will be provided to shareholders by Investor Services. Statements
related to reinvestment of dividends will be furnished quarterly. A tax
information statement will be mailed by January 31 of each year.
SHARE PRICE
SHARES OF EACH FUND ARE OFFERED AT THE NET ASSET VALUE ("NAV") OF THAT FUND. The
NAV is the value of one share and is calculated by dividing that Fund's net
assets by the number of outstanding shares of a Fund.
Equity securities in a Fund's portfolio that are listed or traded on an exchange
or quoted on the Nasdaq National Market are generally valued at their last sale
price as furnished by a pricing service which utilizes electronic pricing
techniques. If no sale has occurred on the date assets are valued, or if the
security is traded only in the over-the-counter market, it will normally be
valued at its last available bid price. Fixed-income securities are generally
valued by a pricing service which uses electronic pricing techniques based on
general institutional trading. Some securities are valued at fair value based on
procedures approved by the Board of Trustees, and for certain other securities,
the amortized cost method is used if the Trustees determine, in good faith, that
this cost approximates fair value as described more fully in the Statement of
Additional Information. The NAV is calculated once daily as of the close of
regular trading on the Exchange (generally at 4:00 p.m. New York time) on each
day the Exchange is open.
Shares of the Fund are sold at the NAV computed after your investment is
received in 'good order' by Investor Services. The Fund will normally issue
shares for cash consideration only.
13
<PAGE> 17
REDEEMING SHARES
The payment of redemption proceeds will be made by check or electronic credit to
a shareholder's account at a financial institution, generally on the next
business day. When you redeem your shares, you may realize a gain or loss. Under
unusual circumstances a Fund may suspend redemptions or postpone payment as
permitted by the Federal securities laws, which could be up to seven (7) days. A
Fund may hold payment until reasonably satisfied that investments which were
recently made by check have been collected, which may take up to 10 calendar
days.
PARTICIPANTS
- --------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PLANS
- --------------------------------------------------------------------------------
<S> <C>
IN WRITING Send a letter of instruction specifying the name of the Fund, the dollar
amount or the number of shares to be redeemed, your name, your account
number and the additional requirements listed below that apply to your
particular account.
CORPORATION OR Letter of instruction and a corporate resolution, signed by person(s)
ASSOCIATION authorized to act on the account with the signature(s) guaranteed.
TRUST Letter of instruction signed by the Trustee(s) with a signature(s)
guaranteed. (If the Trustee's name is not registered on your account, also
provide a copy of the Trust document, certified within the last 60 days.)
IF YOU DO NOT FALL INTO EITHER OF THESE REGISTRATION CATEGORIES PLEASE
CALL 1-800-755-4371 FOR FURTHER INSTRUCTIONS.
If you have share certificates you must submit them with your letter of
instruction.
BY WIRE Redemption proceeds of $1,000 or more can be wired on the next business
day to your designated bank account and a small fee may be deducted. You
may also use electronic funds transfer to your assigned bank account and
the funds are usually collectable after 2 business days. Your bank may or
may not charge a fee for this service. Redemptions of less than $1,000
will be sent by check or electronic funds transfer.
Wire redemption is not available for Fund shares in certificate form.
- ---------------------------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONS
- ---------------------------------------------------------------------------------------------------
<S> <C>
IN WRITING Please follow the instructions as set forth for Plans on how to redeem in
writing.
BY WIRE Please follow the instructions as set forth for Plans on how to redeem by
wire.
BY TELEPHONE As an Institution you are automatically eligible for the telephone
redemption privilege. Call 1-800-755-4371, from 8:00 a.m. to 4:00 p.m. (New
York time), Monday through Friday, excluding days on which the Exchange is
closed. Investor Services employs the following procedures to confirm that
instructions received by telephone are genuine. Your name, account number,
taxpayer identification number applicable to the account and other relevant
information may be requested. In addition, telephone instructions are
recorded.
You may redeem up to $100,000 by telephone, but the address on the account
must not have changed for the last 30 days. A check will be mailed to the
exact name(s) and address on the account.
If reasonable procedures, such as those described above, are not followed,
the Funds may be liable for any loss due to unauthorized or fraudulent
instructions. In all other cases, neither the Funds nor Investor Services
will be liable for any loss or expense for acting upon telephone
instructions made in accordance with the procedures mentioned above.
Telephone redemption is not available for Fund shares in certificate form.
During periods of extreme economic conditions or market changes, telephone
requests may be difficult to implement due to a large volume of calls.
During such times you should consider placing redemption requests in writing
or using EASI-line. EASI-line is a telephone number which is listed on
account statements.
- ---------------------------------------------------------------------------------------------------
</TABLE>
WHO MAY GUARANTEE YOUR SIGNATURE. A signature guarantee is a widely accepted
way to protect you and the Funds by verifying the signature on your request. It
may not be provided by a notary public. If the net asset value of the shares
redeemed is $100,000 or less or if this is a total redemption of a Plan's
assets, Investor Services may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the
institution meets credit standards established by Investor Services: (i) a bank;
(ii) a securities broker or dealer, including a government or municipal
securities broker or dealer, that is a member of a clearing corporation or meets
certain net capital requirements; (iii) a credit union having authority to issue
signature guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or clearing
agency.
14
<PAGE> 18
EXCHANGE PRIVILEGE
There is no sales charge for exchanges within the Trust. An exchange is a
redemption of shares in one Fund and the purchase of shares in another Fund
within the Trust. Read the Prospectus of the Fund into which you want to
exchange.
When you make an exchange, your account registration must be identical in both
the existing and new account. The exchange privilege is available only in states
where the exchange can be made legally.
PARTICIPANTS
- --------------------------------------------------------------------------------
Should your investment objective change or if you wish to achieve further
diversification, you must contact your Plan Sponsor to determine Plan
requirements for exchanging shares among the Funds of the Trust or other
investment options available under your Plan.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PLANS
- --------------------------------------------------------------------------------------------------------
<S> <C>
IN WRITING 1. In a letter request an exchange and list the following:
-- the name of the Fund to be exchanged out of
-- the account number
-- name(s) in which the account is registered
-- name of the Fund in which to invest the exchanged shares
-- the number of shares or the dollar amount wished to be exchanged.
Sign the request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
Attn: Institutional Services
P.O. Box 9277
Boston, MA 02205-9277
- --------------------------------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONS
- --------------------------------------------------------------------------------------------------------
IN WRITING Please follow the instructions as set forth for Plans on how to exchange shares in writing.
BY TELEPHONE 1. Exchange by telephone is automatically authorized unless the box indicating
that the telephone exchange privilege is not desired is marked.
2. Call 1-800-755-4371. Have the account number of the Fund to be exchanged out of
and the exact name in which it is registered available to give to the
telephone representative.
- --------------------------------------------------------------------------------------------------------
</TABLE>
Each Fund reserves the right to require Institutions to keep previously
exchanged shares (and reinvested dividends) in the Fund for 90 days before they
are permitted a new exchange. Participants may exchange shares according to Plan
provisions. The Fund may also terminate or alter the terms of the exchange
privilege upon 60 days' notice to shareholders.
SPECIAL INVESTMENT PRIVILEGE FOR FORMER PLAN PARTICIPANTS. A former Participant
in a Plan may invest the redemption proceeds of Fund shares beneficially owned
by the Participant without a sales charge in other John Hancock funds.
Participants may only invest in the Funds through a Plan. If a Participant
elects or is required to withdraw from a Plan, the shares cannot be transferred
into an account in the name of the Participant. In this circumstance the
Participant may, subject to any other rights or restrictions under the Plan,
cause the Plan Sponsor to redeem shares of the Funds. The proceeds of such
redemption may be either distributed to the Participant or rolled over into an
Individual Retirement Account or other retirement plan.
In either case, such proceeds may be invested at NAV without the imposition of a
sales charge in shares of any other fund (other than those of the Trust) in the
John Hancock family of funds. If the fund selected by the Participant has more
than one class of shares, the privilege of purchasing shares at NAV will only
apply to Class A shares. A Participant should obtain and carefully read the
Prospectus of each John Hancock fund in which the Participant is considering an
investment.
A Participant may obtain a Prospectus, establish an Individual Retirement
Account and arrange the rollover of redemption proceeds by contacting Investor
Services at 1-800-755-4371. Unlike a rollover, the distribution of redemption
proceeds to a Participant may subject the Participant to tax withholding equal
to 20% of the amount of the distribution.
15
<PAGE> 19
ORGANIZATION AND MANAGEMENT OF THE FUNDS
Each Fund is organized as a separate portfolio of the Trust, which is an
open-end investment management company organized as a Massachusetts business
trust in 1994. The Trust has an unlimited number of authorized shares and
currently has eleven distinct funds. The John Hancock Series Funds are offered
through a separate prospectus.
Each Fund currently has one class of shares with equal rights as to voting,
redemption, dividends, and liquidation within their respective Fund. The
Trustees also have the authority without further shareholder approval to
establish additional funds within the Trust and to classify and reclassify the
shares of the Funds, or any new fund of the Trust, into one or more classes. The
Trust is not required to hold annual shareholder meetings, although special
meetings may be called for such purposes as electing or removing Trustees,
changing fundamental restrictions or approving a management contract.
- -------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE
ADVISER AND THE SUB-ADVISER WHO ARE
RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF
THE FUNDS, SUBJECT TO THE TRUSTEES' POLICIES
AND SUPERVISION.
- -------------------------------------------------------------------------------
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Fund. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of a
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which a Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote. Liabilities
attributable to one Fund are not charged against the assets of any other Fund.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. The Sub-adviser was
formed in 1982 as an indirect wholly-owned subsidiary of the Life Company and
provides investment advice and advisory services to other investment companies
and various additional clients, primarily institutional clients. Total assets
managed by the Sub-adviser amount to approximately $19 billion. The organization
of the Sub-adviser is such that all investment decisions are made by the
portfolio management team and no single person is primarily responsible for
making recommendations to the team.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT
COMPANIES HAVING TOTAL ASSETS OF OVER $16
BILLION.
- -------------------------------------------------------------------------------
JH Funds distributes shares for all of the John Hancock mutual funds directly
and through selected broker-dealers ("Selling Brokers"). Certain officers of the
Trust are also officers of the Adviser and JH Funds.
In order to avoid conflicts with portfolio trades for the Funds, the Adviser,
the Sub-Adviser and the Funds have adopted extensive restrictions on personal
securities trading by personnel of the Adviser and its affiliates. In the case
of the Adviser, some of these restrictions are: pre-clearance for all personal
trades and a ban on the purchase of initial public offerings as well as
contributions to specified charities of profits on securities held for less than
91 days. The Sub-Adviser has adopted similar restrictions which may differ where
appropriate, as long as they have the same intent. These restrictions are a
continuation of the basic principle that the interests of the Funds and their
shareholders come before those of management.
<TABLE>
THE FUNDS' EXPENSES
Each Fund pays a monthly fee to the Adviser for managing the Fund's investment
and business affairs, which is equal on an annual basis to a percentage of the
Fund's average daily net assets. The Adviser (not the Fund) pays a monthly fee
to the Sub-adviser for sub-advisory services provided to each Fund. These fees
are as follows:
<CAPTION>
ADVISORY FEE
FUND PAID BY FUND
---- ------------
<S> <C>
Diversified Core Equity Fund II .50% of the average daily net assets.
Value Fund, Growth Fund and Medium .80% of the average daily net assets up to $500
Capitalization Fund million; .75% of such assets in excess of $500 million.
Balanced Fund .70% of the average daily net assets up to $500
million; .65% of such assets in excess of $500 million.
</TABLE>
While higher than the investment advisory fees paid by other investment
companies in general, the advisory fees paid by Value Fund, Growth Fund and
Medium Capitalization Fund are comparable to those paid by many investment
companies with similar investment objectives and policies. The Adviser pays a
portion of its advisory fee from each Fund to IIA as follows:
16
<PAGE> 20
Diversified Core Equity Fund II, 80% of the advisory fee payable on the Fund's
average daily net assets; Value Fund, Growth Fund and Medium Capitalization
Fund, 55% of the advisory fee payable on the Fund's average daily net assets;
and Balanced Fund, 60% of the advisory fee payable on the Fund's average daily
net assets.
Each Fund pays fees to the Independent Trustees of the Trust, the expenses of
the continuing registration and qualification of its shares for sale, the
charges of custodians and transfer agents, and auditing and legal expenses. The
Adviser may, from time to time, agree that all or a portion of its fee will not
be imposed for specific periods or make other arrangements to limit a Fund's
expenses to not more than a specified percentage of average net assets. The
Adviser retains the right to impose such fee and recover any other payments to
the extent annual expenses fall below the limit at the end of the fiscal year.
The Adviser has voluntarily agreed to limit each Fund's expenses until further
notice to the percentages of each Fund's average net assets specified under
"EXPENSE INFORMATION."
- -------------------------------------------------------------------------------
EACH FUND PAYS CERTAIN ADDITIONAL EXPENSES.
- -------------------------------------------------------------------------------
DIVIDENDS AND TAXES
Dividends from net investment income of the Value Fund, Growth Fund and Medium
Capitalization Fund are declared annually and paid annually. Dividends from net
investment income of Diversified Core Equity Fund II and Balanced Fund are
declared quarterly and paid quarterly.
Capital gains distributions are generally declared annually. Dividends are
reinvested in additional shares unless you elect the option to receive them
entirely in cash. If you elect the cash option and the U.S. Postal Service
cannot deliver your checks, your election will be converted to reinvestment in
additional shares.
TAXATION. Each Fund intends to elect to be treated and qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Fund will
not be subject to Federal income taxes on any net investment income and net
realized capital gains that are distributed to its shareholders at least
annually. For institutional investors who are not exempt from federal income
taxes, dividends from a Fund's net investment income and net short-term capital
gains are taxable to you as ordinary income. Dividends from a Fund's net
long-term capital gains are taxable as long-term capital gains. These dividends
and capital gains are taxable whether they are reinvested in additional shares
or received in cash unless you are exempt from taxation or entitled to tax
deferral. Certain dividends may be paid by a Fund in January of a given year but
may be taxable to shareholders as if received on December 31 of the prior year.
Each Fund will send you a statement by January 31 showing the tax status of the
distributions you received for the prior year. Plan participants should consult
their Plan sponsor for tax information.
When you redeem (sell) or exchange shares you may realize a gain or loss.
On the account application you must certify that the social security or other
taxpayer identification number you provide is correct and that you are not
subject to back-up withholding of federal income tax unless you are a
corporation or other entity that is exempt from backup withholding. If you do
not provide this information or are otherwise subject to such withholding, the
applicable Fund may be required to withhold 31% of your dividends, redemptions
and exchanges.
In addition to Federal taxes, you may be subject to state and local or foreign
taxes with respect to your investment in and distributions from a Fund. In many
states, a portion of the Fund's dividends that represent interest received by
the Fund on direct U.S. Government obligations may be exempt from tax. The
foregoing discussion relates to investors that are subject to tax. Different tax
consequences will apply to Plan participants, tax-exempt investors and investors
that are subject to tax deferral. Under the Code, a tax-exempt investor holding
shares in the Funds for investment will not generally recognize unrelated
business taxable income from its investment in the Funds unless the tax-exempt
investor incurred indebtedness to acquire or continue to hold Fund shares and
such indebtedness remains unpaid during the relevant periods. You should consult
your tax adviser for specific advice.
17
<PAGE> 21
PERFORMANCE
Total return is based on the overall change in value of a hypothetical
investment in a Fund. A Fund's total return shows the overall dollar or
percentage change in value, assuming the reinvestment of all dividends.
Cumulative total return shows a Fund's performance over a period of time.
Average annual total return shows the cumulative return divided over the number
of years included in the period. Because average annual total return tends to
smooth out variations in a Fund's performance, you should recognize that it is
not the same as actual year-to-year results. Total return calculations are at
net asset value because no sales charges are incurred by institutions eligible
to buy the Funds.
- -------------------------------------------------------------------------------
EACH FUND MAY ADVERTISE ITS TOTAL RETURN.
- -------------------------------------------------------------------------------
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30-day period by the net
asset value per share on the last day of that period. Yield is also calculated
according to accounting methods that are standardized for all stock and bond
funds. Because yield accounting methods differ from the methods used for other
accounting purposes, the Fund's yield may not equal the income paid on shares or
the income reported in the Fund's financial statements.
- -------------------------------------------------------------------------------
BALANCED FUND MAY ALSO ADVERTISE ITS YIELD.
- -------------------------------------------------------------------------------
The value of a Fund's shares, when redeemed, may be more or less than their
original cost. Total return and yield are historical calculations and are not
indications of future performance.
RISK FACTORS, INVESTMENTS AND TECHNIQUES
COMMON STOCKS. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's preferred stock and other senior equity.
Ownership of common stock usually carries with it the right to vote and,
frequently, an exclusive right to do so. Each Fund will diversify its
investments in common stocks of companies in a number of industry groups without
concentrating in any particular industry. Common stocks have the potential to
outperform fixed-income securities over the long term. Common stocks provide the
most potential for growth, yet are the more volatile of the two asset classes.
DEBT OBLIGATIONS. Debt securities of corporate and governmental issuers in
which the Fund may invest are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Particular debt securities will be selected
based upon credit risk analysis of potential issuers, the characteristics of the
security and the interest rate sensitivity of the various debt issues available
with respect to a particular issuer, and analysis of the anticipated volatility
and liquidity of the particular debt instruments.
PREFERRED STOCKS. Preferred stock generally has a preference to dividends and,
upon liquidation, over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on debt securities, preferred stock dividends are
payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may be subject to optional or mandatory
redemption provisions.
CONVERTIBLE SECURITIES. The Balanced Fund may invest in convertible securities
which may include corporate notes or preferred stock but are ordinarily
long-term debt obligations of the issuer convertible at a stated exchange rate
into common stock of the same or another issuer. The Balanced Fund's investments
in convertible securities are not subject to the rating criteria with respect to
non-convertible debt obligations. As with all debt securities, the market value
of convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. The market value of
convertible securities can also be heavily dependent upon the changing value of
the equity securities into which such securities are convertible, depending on
whether the market price of the underlying security exceeds the conversion
price. Convertible securities generally rank senior to common stocks in an
issuer's capital structure and consequently entail less risk than the issuer's
common stock. However, the extent to
18
<PAGE> 22
which such risk is reduced depends upon the degree to which the convertible
security sells above its value as a fixed-income security. In evaluating a
convertible security, the Sub-Adviser will give primary emphasis to the
attractiveness of the underlying common stock.
DEPOSITARY RECEIPTS. Each Fund may invest in securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"). ADRs (sponsored and
unsponsored) are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation and are designed for trading in United States securities markets.
Issuers of the shares underlying unsponsored ADRs are not contractually
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the unsponsored ADR.
SMALLER CAPITALIZATION COMPANIES. Each Fund may invest in
smaller-capitalization companies. These companies may have limited product lines
and market and financial resources, or they may be dependent upon smaller or
less experienced management groups. In addition, trading volume for these
securities may be limited. Historically, the market price for these securities
has been more volatile than for securities of companies with greater
capitalization. However, securities of companies with smaller capitalization may
offer greater potential for capital appreciation since they may be overlooked
and, thus, undervalued by investors.
RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid investments which include repurchase agreements maturing in
more than seven days, restricted securities and securities not readily
marketable. Each Fund may also invest up to 15% of its assets in restricted
securities eligible for resale to certain institutional investors pursuant to
Rule 144A under the Securities Act of 1933.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional income, each Fund may lend to broker-dealers portfolio securities
amounting to not more than 33 1/3% of their respective total assets taken at
current value. Each Fund may also enter into repurchase agreements. In a
repurchase agreement, the Fund buys a security subject to the right and
obligation to sell it back to the issuer at the same price plus accrued
interest. These transactions must be fully collateralized at all times. However,
they may involve some credit risk to a Fund if the other party should default on
its obligation and that Fund is delayed in or prevented from recovering the
collateral. Securities loaned by a Fund will remain subject to fluctuations of
market value.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a forward or
"when-issued" basis. When a Fund engages in when-issued transactions, it relies
on the seller or the buyer, as the case may be, to consummate the transaction.
Failure to consummate the transaction may result in the Fund's losing the
opportunity to obtain an advantageous price and yield.
SHORT TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. Short-term trading may have the effect of
increasing portfolio turnover. The Funds do not intend to invest for the purpose
of seeking short-term profits. Each Fund's particular portfolio securities may
be changed, however, without regard to the holding period of these securities
(subject to certain tax restrictions) when the Adviser deems that this action
will help achieve the Fund's objective given a change in an issuer's operations
or changes in general market conditions.
The portfolio turnover rate for Diversified Core Equity Fund II is shown in the
section captioned "The Funds' Financial Highlights." The estimated portfolio
turnover rate of Value Fund, Growth Fund and Medium Capitalization Fund, which
had no operating history as of June 30, 1995, is expected to be less than 100%.
The portfolio turnover rate of the fixed-income portion of Balanced Fund is
expected to be 150% and the equity portion of that Fund is expected to be 65%. A
higher rate of portfolio turnover (100% or greater) involves correspondingly
higher transaction expenses and may make it more difficult for a Fund to qualify
as a regulated investment company for federal income tax purposes.
19
<PAGE> 23
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
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
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O Box 9277
Boston, Massachusetts 02205-9277
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP
One International Place
Boston, Massachusetts 02110-2640
HOW TO OBTAIN INFORMATION
ABOUT THE FUNDS
For Service Information
For Telephone Exchange
For Investment-by-Phone 101 HUNTINGTON AVENUE
For Telephone Redempton BOSTON, MASSACHUSETTS 02199-7603
call 1-800-755-4371 TELEPHONE 1-800-4371
JHD-KI00P 1/96
<PAGE> 24
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
101 Huntington Avenue
Boston, Massachusetts 02199
consisting of twelve series,
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND
JOHN HANCOCK DIVIDEND PERFORMERS FUND
JOHN HANCOCK ACTIVE BOND FUND
JOHN HANCOCK GLOBAL BOND FUND
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
JOHN HANCOCK FUNDAMENTAL VALUE FUND
JOHN HANCOCK INTERNATIONAL EQUITY FUND
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
JOHN HANCOCK INDEPENDENCE VALUE FUND
JOHN HANCOCK INDEPENDENCE GROWTH FUND
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
JOHN HANCOCK INDEPENDENCE BALANCED FUND
(each, a "Fund" and collectively, the "Funds")
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 5, 1996
This Statement of Additional Information ("SAI") provides information
about the Funds in addition to the information that is contained in the John
Hancock Series Funds' Prospectus dated December 11, 1995 and in the
Independence Funds' Prospectus dated January 5, 1996 (together, the
"Prospectuses").
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectuses, copies of which can be obtained free of charge by writing
or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, Massachusetts 02205-9277
1-800-755-4371
<PAGE> 25
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Cross-Referenced Cross-Referenced
Statement of to John Hancock to Independence
Additional Information Series Funds Funds Prospectus
Page Prospectus Page Page
<S> <C> <C> <C> <C>
I. Organization of the Trust 3 21 12
II. Investment Objectives and
Policies 4
-John Hancock Series Funds 4 7 -
-Independence Funds 7 - 5
III. Certain Investment
Practices 9 25 14
IV. Investment Restrictions 24 7 5
V. Those Responsible for
Management 29 21 12
VI. Investment Advisory and
Other Services 39 21 12
VII. Net Asset Value 42 18 9
VIII. Special Redemptions 43 - -
IX. Tax Status 43 24 13
X. Description of the Trust's
Shares 48 18 9
XI. Calculation of Performance 50 25 14
XII. Brokerage Allocation 51 21 12
</TABLE>
2
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C>
XIII. Transfer Agent Services 53 Back Cover Back Cover
XIV. Custody of Portfolio 53 Back Cover Back Cover
XV. Independent Auditors 54 Back Cover Back Cover
XVI. Financial Statements
</TABLE>
Appendix A--Description of Securities Ratings
Appendix B-- Economic sectors in which Sector Opportunity Fund
Invests
I. ORGANIZATION OF THE TRUST
John Hancock Institutional Series Trust (the "Trust") is an open-end
management investment company organized as a Massachusetts business
trust under a Declaration of Trust dated October 31, 1994, as amended
from time to time. The Trust currently has twelve series of shares
designated as: John Hancock Small Capitalization Equity Fund ("Small
Capitalization Fund"), John Hancock Dividend Performers Fund
("Dividend Performers Fund") (formerly John Hancock Berkeley Dividend
Performers Fund), John Hancock Active Bond Fund ("Active Bond Fund")
(formerly John Hancock Berkeley Bond Fund), John Hancock Global Bond
Fund ("Global Bond Fund") (formerly John Hancock Berkeley Global Bond
Fund), John Hancock Multi-Sector Growth Fund ("Multi-Sector Growth
Fund") (formerly John Hancock Berkeley Sector Opportunity Fund), John
Hancock Fundamental Value Fund ("Fundamental Value Fund") (formerly
John Hancock Berkeley Fundamental Value Fund), John Hancock
International Equity Fund ("International Equity Fund") (formerly
John Hancock Berkeley Overseas Growth Fund), John Hancock
Independence Diversified Core Equity Fund II ("Diversified Core
Equity Fund II"), John Hancock Independence Value Fund ("Value
Fund"), John Hancock Independence Growth Fund ("Growth Fund"), John
Hancock Independence Medium Capitalization Fund ("Medium
Capitalization Fund") and John Hancock Independence Balanced Fund
("Balanced Fund").
Small Capitalization Fund, Dividend Performers Fund, Active Bond
Fund, Global Bond Fund, Multi-Sector Growth Fund, Fundamental Value
Fund and International Equity Fund are sometimes referred to herein
collectively as the "John Hancock Series Funds." Diversified Core
Equity Fund II, Value Fund, Growth Fund, Medium Capitalization Fund
and Balanced Fund are sometimes referred to herein collectively as
the "Independence Funds."
The investment adviser of each Fund is John Hancock Advisers, Inc.
(the "Adviser"), a wholly-owned indirect subsidiary of John Hancock
Mutual Life Insurance Company (the "Life Company"). The investment
subadviser of Dividend Performers Fund is Sovereign Asset Management
Corp. ("SAMCorp"). The subadviser of International Equity Fund is
John Hancock Advisers International
3
<PAGE> 27
Limited ("JHAI"). The subadviser of Fundamental Value Fund is NM
Capital Management, Inc. ("NM Capital"). The investment subadviser
of each Independence Fund is Independence Investment Associates, Inc.
("IIA"). Together, SAMCorp, JHAI, NM Capital and IIA are sometimes
referred to herein collectively as the "Subadvisers" or,
individually, as the "Subadviser." The Subadvisers are affiliates of
the Life Company.
II. INVESTMENT OBJECTIVES AND POLICIES
See "Investment Objectives and Policies" in the Prospectuses. There
can be no assurance that the objective of any Fund will be realized.
Each Fund has adopted certain investment restrictions which are
enumerated in detail under "Investment Restrictions" in this SAI
where they are classified as fundamental or nonfundamental. Those
restrictions designated as fundamental may not be changed without
shareholder approval. Each Fund's investment objective, investment
policies and nonfundamental restrictions, however, may be changed by
a vote of the Board of Trustees of the Trust (the "Board") without
shareholder approval. If there is a change in a Fund's investment
objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial
position and needs.
A. THE JOHN HANCOCK SERIES FUNDS.
-----------------------------
For a further description of the John Hancock Series Funds' inve
stment objectives, policies and restrictions see "Investment
Objectives and Policies" in the John Hancock Series Funds' Prospectus
and "Investment Restrictions" in this SAI. See Appendix A to this
SAI for a description of the quality categories of corporate bonds in
which certain of the John Hancock Series Funds may invest.
SMALL CAPITALIZATION FUND
-------------------------
Small Capitalization Fund's Investment Objective is long-term growth
of capital. The Fund invests primarily in domestic and foreign
rapidly growing "smaller capitalization companies" (those with market
capitalizations of $750 million or less) that tend to be in an
emerging growth state of development and where the Adviser believes
there is growth potential higher than the average for all companies.
Under normal circumstances, the Fund will invest at least 65% of its
total assets in smaller capitalization companies. The potential for
growth of capital will be the sole basis for selection of portfolio
securities. Current income will not be a factor in this selection.
The Fund may also invest in equity securities of established
companies that the Adviser believes to offer superior growth
potential.
DIVIDEND PERFORMERS FUND
------------------------
Dividend Performers Fund's investment objective is long-term growth
of capital and income without assuming undue market risk. At times,
however, because of market conditions, the Fund may invest primarily
for current income. The Fund will make investments in different
types and classes of securities in accordance with the Board's and
the Adviser's appraisal of economic and market conditions. The
4
<PAGE> 28
securities held by the Fund are under continuous study by the
Adviser. Securities are selected for the Fund's portfolio if they
are considered by the Adviser to contribute to the possible
achievement of the Fund's objective. They are held or disposed of in
accordance with the results of a continuing examination of their
investment merit.
The Fund may invest 100% of its total assets in common stocks or, for
defensive purposes, it may hold cash or liquid, high grade preferred
stocks or debt securities. In addition, temporary investments in
short-term debt securities may be made so as to receive a return on
excess cash.
The Fund endeavors to achieve its objectives by utilizing experienced
management and generally investing in securities of seasoned
companies in sound financial condition. A company or its
predecessors must have been in continuous business for at least five
years and must have total assets of at least $10,000,000 before its
securities can be purchased by the Fund.
ACTIVE BOND FUND
----------------
Active Bond Fund's investment objective is a high level of current
income, consistent with prudent investment risk, through investment
primarily in a diversified portfolio of freely marketable investment
grade debt securities of U.S. and foreign issuers. The Fund will
invest primarily in debt securities within the four highest
investment ratings and unrated securities considered by the Adviser
to be of comparable investment quality. The Fund will, when
feasible, purchase debt securities which are non-callable.
The Fund may purchase corporate debt securities bearing fixed, f
loating or variable interest as well as those which carry certain
equity features, such as conversion or exchange rights or warrants
for the acquisition of stock of the same or a different issuer, or
participations based on revenues, sales or profits. The Fund will
not exercise any such conversion, exchange or purchase rights if, at
the time, the value of all equity interests so owned would exceed 10%
of the Fund's total assets taken at market value.
The market value of debt securities which carry no equity partic
ipation usually reflects yields generally available on securities of
similar quality and type. When such yields decline, the market value
of a portfolio already invested at higher yields can be expected to
rise if such securities are protected against early call. Similarly,
when such yields increase, the market value of a portfolio already
invested can be expected to decline. The Fund's portfolio may include
debt securities which sell at substantial discounts from par. These
securities are low coupon bonds which, during periods of high
interest rates, because of their lower acquisition cost tend to sell
on a yield basis approximating current interest rates.
GLOBAL BOND FUND
----------------
Global Bond Fund's investment objective is a competitive total i
nvestment return, consisting of current income and capital
appreciation. The Fund invests primarily in a global portfolio of
high grade, fixed income securities. Normally, the Fund will invest
in fixed income securities denominated in at least three currencies
or multi-currency units, including the U.S. Dollar.
5
<PAGE> 29
Under normal circumstances, Global Bond Fund invests primarily (at
least 65% of total assets) in fixed income securities issued or
guaranteed by: (i) the U.S. Government, its agencies or
instrumentalities; (ii) foreign governments (including foreign
states, provinces and municipalities) or their political
subdivisions, authorities, agencies or instrumentalities; (iii)
international organizations backed or jointly owned by more than one
national government, such as the International Bank for
Reconstruction and Development, European Investment Bank, Asian
Development Bank and European Coal and Steel Community; and (iv)
foreign corporations or financial institutions. The term "fixed
income securities" encompasses debt obligations of all types,
including bonds, debentures, notes and stocks, such as preferred
stocks. A fixed income security may itself be convertible into or
exchangeable for equity securities, or may carry with it the right to
acquire equity securities evidenced by warrants attached to the
security or acquired as part of a unit with a security.
MULTI-SECTOR GROWTH FUND
------------------------
Multi-Sector Growth Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve its objective by emphasizing
investments in equity securities of issuers in various economic
sectors.
The equity securities in which the Fund invests consist primarily of
common stocks of U.S. and foreign issuers but may also include
preferred stocks, convertible debt securities and warrants. The Fund
seeks to achieve its investment objective by varying the relative
weighting of its portfolio securities among various economic sectors
based upon both macroeconomic factors and the outlook for each
particular sector. The Adviser selects equity securities for the
Fund from various economic sectors, including, but not limited to,
the following: automotive and housing, consumer goods and services,
defense and aerospace, energy, financial services, health care, heavy
industry, leisure and entertainment, machinery and equipment,
precious metals, retailing, technology, transportation, utilities,
foreign and environmental. The Fund may modify these sectors if the
Adviser believes that they no longer represent appropriate
investments for the Fund, or if other sectors offer better
opportunities for investment. See APPENDIX B to this SAI for a
further description of the sectors in which the Fund invests.
FUNDAMENTAL VALUE FUND
----------------------
Fundamental Value Fund's investment objective is capital appreci
ation, with income as a secondary consideration. The Fund will seek
to achieve its objective by investing primarily in equity securities
that are undervalued relative to alternative equity investments.
The equity securities in which the Fund will invest include common
stocks, preferred stocks, convertible debt securities and warrants of
U.S. and foreign issuers. In selecting equity securities for the
Fund, the Adviser and the Fund's investment subadviser, NM Capital,
emphasize issuers whose equity securities trade at market to book
value ratios lower than comparable issuers or the Standard & Poor's
Composite Index. The Fund's portfolio securities will also include
equity securities considered by the Adviser or NM Capital to have the
potential for capital appreciation due to potential recognition of
earnings power or asset value which is not fully reflected in such
securities' current market value. The Adviser or NM
6
<PAGE> 30
Capital attempts to identify investments which possess
characteristics, such as high relative value, intrinsic value, going
concern value, net asset value and replacement book value, which are
believed to limit sustained downside price risk, generally referred
to as the "margin of safety" concept. The Adviser or NM Capital also
considers an issuer's financial strength, competitive position,
projected future earnings and dividends and other investment
criteria. These securities are collectively referred to as
"Fundamental Value" securities.
The Fund's investment policy reflects the Adviser's and NM Capital's
belief that while the securities markets tend to be efficient,
sufficiently persistent price anomalies exist which the strategically
disciplined active equity manager can exploit in seeking to achieve
an above average rate of return. Based on this premise, the Adviser
and NM Capital have adopted a strategy for the Fund of investing in
low market to book value, out of favor, stocks.
The Fund's investments may include securities of both large, widely
traded companies and smaller, less well known issuers. Higher risks
are often associated with investments in companies with smaller
market capitalizations. See "Smaller Capitalization Companies" in
the John Hancock Series Funds' Prospectus.
INTERNATIONAL EQUITY FUND
-------------------------
International Equity Fund's investment objective is long-term growth
of capital. The Fund seeks to achieve its investment objective by
investing primarily in foreign equity securities.
Under normal circumstances, at least 65% of the Fund's total assets
will be invested in equity securities of issuers located outside the
United States in various countries around the world. Generally, the
Fund's portfolio will contain securities of issuers from at least
three countries other than the United States. The Fund normally
invests substantially all of its assets in equity securities, such as
common stock, preferred stock and securities convertible into common
and preferred stock. However, if deemed advisable by the Adviser or
the Fund's investment subadviser, JHAI, the Fund may invest in any
other types of securities including warrants, bonds, notes and other
debt securities (including Euro-dollar securities) or obligations of
domestic or foreign governments and their political subdivisions, or
domestic or foreign corporations.
B. THE INDEPENDENCE FUNDS.
----------------------
For a further description of the Independence Funds' investment
objectives, policies and restrictions see "Investment Objectives and
Policies" in the Independence Funds' Prospectus and "Investment
Restrictions" in this SAI.
IIA serves as the investment subadviser to each of the Independence
Funds. In selecting common stocks for the Funds' portfolios, IIA
uses an investment strategy it calls "NIXDEX." To produce a NIXDEX
portfolio, IIA excludes ("nixes") from consideration stocks contained
in the bottom two quintiles of its ranked stock universe and
optimizes the remaining stocks to produce a portfolio whose risk
exposure is similar to that of each of the Independence Fund's
respective performance and risk
7
<PAGE> 31
profile benchmark portfolio. By avoiding stocks which are not ranked
within the top three quintiles of IIA's ranked stock universe, IIA
seeks to construct a NIXDEX portfolio whose performance will exceed,
under all market environments, the performance of the respective
Independence Fund's performance and risk profile benchmark portfolio.
IIA uses a quantitative, multifactor proprietary stock-ranking model
called "Cybercode" to produce a list of stocks for consideration
which are ranked from most to least attractive. IIA's in-house team
of professional securities analysts generate the data necessary to
produce a Cybercode ranked list. For each Fund, IIA's analysts
concentrate their research and analysis on those stocks from IIA's
unbiased universe of 3,000 stocks which satisfy the Fund's
performance and risk profile benchmark. The analysts focus on
fundamental research such as: projecting current year and next
year's earnings and cash flows; developing five-year growth
forecasts; and understanding the strategic plan of the companies they
follow, and how this plan might affect capital expenditures and stock
dividends. IIA's most senior investment professionals determine the
macroeconomic assumptions needed to forecast an individual company's
progress. These macroeconomic assumptions are integrated into the
analysts' research and analysis. IIA's investment process is
distinguished by its focus on evaluation of risk and, in particular,
its avoidance of stocks that do not score above a certain benchmark
with respect to price and fundamentals.
Using the analysts' research and analysis, Cybercode evaluates each
stock in the stock selection universe on ten discrete criteria and
scores each stock based on its inherent value relative to its cost
(price) and the stock's fundamental prospects for improvement.
Cybercode produces a list of the selection universe ranked from most
to least attractive. The top stock on the ranked list exhibits the
most favorable combination of inherent value and fundamental
prospects for improvement; the bottom stock is the least favorable.
Through this process, IIA seeks to construct a NIXDEX portfolio whose
performance will exceed, under all market environments, the
performance of the respective Independence Fund's performance and
risk profile benchmark portfolio. For a further description of each
Fund's performance and risk profile benchmark portfolio, see
"Investment Objectives and Policies" in the Independence Funds'
Prospectus.
DIVERSIFIED CORE EQUITY FUND II
-------------------------------
Diversified Core Equity Fund II's investment objective is above-
average total return, consisting of capital appreciation and income.
The Fund's performance and risk profile benchmark is the
capitalization weighted Standard and Poor's 500 Composite Stock
Index[REGISTERED TRADEMARK] (the "S&P 500 Index").
VALUE FUND
- ----------
Value Fund's investment objective is above-average total return. The
Fund will emphasize relatively undervalued securities and seek higher
dividend yield than Diversified Core Equity Fund II. The Fund's
performance and risk profile benchmark is the Russell 1000 Value
Index[REGISTERED TRADEMARK].
8
<PAGE> 32
GROWTH FUND
- -----------
Growth Fund's investment objective is above-average total return.
The Fund will emphasize investments in companies whose securities
show potential for relatively high long-term earnings growth rather
than current dividend yield. The Fund's performance and risk profile
benchmark is the Russell 1000 Growth Index[REGISTERED TRADEMARK].
MEDIUM CAPITALIZATION FUND
--------------------------
Medium Capitalization Fund's investment objective is above-average
total return. The Fund will emphasize investment in securities of
faster growing, medium sized companies than those companies included
in the other Independence Funds. The Fund's performance and risk
profile benchmark is the Callan Medium Capitalization Index.
BALANCED FUND
-------------
Balanced Fund's investment objective is above-average total return
through capital appreciation and income. The Fund will invest in a
balanced portfolio allocated between equity securities and fixed-
income securities. The Fund's performance and risk profile benchmark
is a composite of the S&P 500 Index and the Lehman Brothers
Government/Corporate Bond Index.
III. CERTAIN INVESTMENT PRACTICES
FOREIGN SECURITIES AND EMERGING COUNTRIES. Small Capitalization
Fund, Active Bond Fund, Multi-Sector Growth Fund, Fundamental Value
Fund and, in particular, International Equity Fund and Global Bond
Fund may invest in U.S. dollar and Foreign currency denominated
securities of foreign issuers. International Equity Fund and Global
Bond Fund may also invest in debt and equity securities of corporate
and governmental issuers of countries with emerging economies or
securities markets.
Investing in securities of non-U.S. issuers, and in particular those
located in emerging countries, may entail greater risks than
investing in securities of issuers in the U.S. These risks include
(i) less social, political and economic stability; (ii) the small
current size of the markets for many such securities and the
currently low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict a Fund's investment
opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign
taxation; and (v) the absence of developed structures governing
private or foreign investment or allowing for judicial redress for
injury to private property.
Investing in securities of non-U.S. companies may entail additional
risks due to the potential political and economic instability of
certain countries and the risks of expropriation, nationalization,
confiscation or the imposition of restrictions on foreign investment
and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country,
a Fund could lose its entire investment in any such country.
9
<PAGE> 33
In addition, even though opportunities for investment may exist in
foreign countries, and in particular emerging markets, any change in
the leadership or policies of the governments of those countries or
in the leadership or policies of any other government which exercises
a significant influence over those countries, may halt the expansion
of or reverse the liberalization of foreign investment policies now
occurring and thereby eliminate any investment opportunities which
may currently exist.
Investors should note that upon the accession to power of author
itarian regimes, the governments of a number of Latin American
countries previously expropriated large quantities of real and
personal property similar to the property which may be represented by
the securities purchased by the Funds. The claims of property owners
against those governments were never finally settled. There can be
no assurance that any property represented by foreign securities
purchased by a Fund will not also be expropriated, nationalized, or
otherwise confiscated. If such confiscation were to occur, a Fund
could lose a substantial portion of its investments in such
countries. A Fund's investments would similarly be adversely
affected by exchange control regulation in any of those countries.
Certain countries in which the Funds may invest may have vocal m
inorities that advocate radical religious or revolutionary
philosophies or support ethnic independence. Any disturbance on the
part of such individuals could carry the potential for wide-spread
destruction or confiscation of property owned by individuals and
entities foreign to such country and could cause the loss of a Fund's
investment in those countries.
Certain countries prohibit or impose substantial restrictions on
investments in their capital markets, particularly their equity
markets, by foreign entities such as the Funds. As illustrations,
certain countries require governmental approval prior to investments
by foreign persons, or limit the amount of investment by foreign
persons in a particular company, or limit the investment by foreign
persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available
for purchase by nationals. Moreover, the national policies of
certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some
countries require governmental approval for the repatriation of
investment income, capital or the proceeds of securities sales by
foreign investors. A Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investments.
Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly,
from those applicable to U.S. companies. In particular, the assets,
liabilities and profits appearing on the financial statements of such
a company may not reflect its financial position or results of
operations in the way they would be reflected had such financial
statements been prepared in accordance with U.S. generally accepted
accounting principles. Most foreign securities held by the Funds
will not be registered with the Securities and Exchange Commission
(the "SEC") and the issuers thereof will not be subject to the SEC's
reporting requirements. Thus, there will be less available
information concerning foreign issuers of securities held by the
Funds than is available concerning U.S. issuers. If the financial
statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Adviser or Subadviser will
take appropriate steps to
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<PAGE> 34
evaluate the proposed investment, which may include on-site
inspection of the issuer, interviews with its management and
consultations with accountants, bankers and other specialists. There
is substantially less publicly available information about foreign
companies than there are reports and ratings published about U.S.
companies and the U.S. government. In addition, even if public
information is available, it may be less reliable than such
information regarding U.S. issuers.
Because the Funds may invest and Global Bond Fund and International
Equity Fund will (under normal circumstances) invest a substantial
portion of their total assets, in securities which are denominated or
quoted in foreign currencies, the strength or weakness of the U.S.
dollar against such currencies may account for part of the Funds'
investment performance. A decline in the value of any particular
currency against the U.S. dollar will cause a decline in the U.S.
dollar value of a Fund's holdings of securities denominated in such
currency and, therefore, will cause an overall decline in the Fund's
net asset value and any net investment income and capital gains to be
distributed in U.S. dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for
particular currencies, central bank efforts to support particular
currencies, the movement of interest rates, the pace of business
activity in certain other countries and the U.S., and other economic
and financial conditions affecting the world economy.
Although the Funds value their respective assets daily in terms of
U.S. dollars, the Funds do not intend to convert their holdings of
foreign currencies into U.S. dollars on a daily basis. However, the
Funds may do so from time to time, and investors should be aware of
the costs of currency conversion. Although currency dealers do not
charge a fee for conversion, they do realize a profit based on the
difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a
foreign currency to a Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to sell that currency to the
dealer.
Securities of foreign issuers, and in particular many emerging c
ountry issuers, may be less liquid and their prices more volatile
than securities of comparable U.S. issuers. In addition, foreign
securities exchanges and brokers are generally subject to less
governmental supervision and regulation than in the U.S., and foreign
securities exchange transactions are usually subject to fixed
commissions, which are generally higher than negotiated commissions
on U.S. transactions. Foreign securities exchange transactions may
also be subject to difficulties associated with the settlement of
such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned
thereon. The inability of a Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to
a Fund due to subsequent declines in value of the portfolio security
or, if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser.
The Funds' investment income or, in some cases, capital gains from
foreign issuers may be subject to foreign withholding or other taxes,
thereby reducing the Funds' net investment income and/or net realized
capital gains. See "Tax Status."
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RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest in res
tricted securities eligible for resale to certain institutional
investors pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "1933 Act"), and foreign securities acquired in
accordance with Regulation S under the 1933 Act. No Fund will invest
more than 15% of its net assets in illiquid investments, which
include repurchase agreements maturing in more than seven days,
securities that are not readily marketable, restricted securities,
purchased over-the-counter ("OTC") options, certain assets used to
cover written OTC options, and privately issued stripped mortgage-
backed securities. However, if the Board determines, based upon a
continuing review of the trading markets for specific Rule 144A
securities, that such securities are liquid, then these securities
may be purchased without regard to the 15% limit. The Board may
adopt guidelines and delegate to the Adviser or respective Subadviser
the daily function of determining and monitoring the liquidity of
restricted securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. The
Board will carefully monitor each Fund's investments in these
securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of
illiquidity in the Funds if qualified institutional buyers become for
a time uninterested in purchasing these restricted securities.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agre
ements. A repurchase agreement is a contract under which a Fund
would acquire a security for a relatively short period (generally not
more than 7 days) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and
price (representing the Fund's cost plus interest). The Funds will
enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government
securities. The Adviser or respective Subadviser will continuously
monitor the creditworthiness of the parties with whom the Funds enter
into repurchase agreements. Each Fund has established a procedure
providing that the securities serving as collateral for each
repurchase agreement must be delivered to the Fund's custodian either
physically or in book-entry form and that the collateral must be
marked to market daily to ensure that each repurchase agreement is
fully collateralized at all times. In the event of bankruptcy or
other default by a seller of a repurchase agreement, a Fund could
experience delays in liquidating the underlying securities and could
experience losses, including the possible decline in the value of the
underlying securities during the period which the Fund seeks to
enforce its rights thereto, possible subnormal levels of income and
lack of access to income during this period, and the expense of
enforcing its rights.
FORWARD COMMITMENT AND WHEN-ISSUED SECURITIES. Each Fund may pu
rchase securities on a when-issued or forward commitment basis.
"When-issued" refers to securities whose terms are available and for
which a market exists, but which have not been issued. A Fund will
engage in when-issued transactions with respect to securities
purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction.
For when-issued transactions, no payment is made until delivery is
due, often a month or more after the purchase. In a forward
commitment transaction, a Fund contracts to purchase securities for a
fixed price at a future date beyond customary settlement time. When
a Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of
the issuer or seller to
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<PAGE> 36
consummate the transaction may result in the Funds losing the
opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and
forward commitment basis also involves a risk of loss if the value of
the security to be purchased declines prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on
a when-issued or forward commitment basis, the Fund will segregate in
a separate account cash or liquid, high grade debt securities equal
in value to the Fund's commitment. These assets will be valued daily
at market, and additional cash or securities will be segregated in a
separate account to the extent that the total value of the assets in
the account declines below the amount of the when-issued commitments.
Alternatively, a Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
SHORT-TERM TRADING. Small Capitalization Fund, Active Bond Fund,
Multi-Sector Growth Fund, Global Bond Fund and International Equity
Fund may engage in short-term trading. These Funds intend to use
short-term trading of securities as a means of managing their
portfolio to achieve their respective investment objective. In
reaching a decision to sell one security and purchase another
security at approximately the same time, the Funds will take into
account a number of factors, including the quality ratings, interest
rates, yields, maturity dates, call prices, and refunding and sinking
fund provisions of the securities under consideration, as well as
historical yield spreads and current economic information. The
success of short-term trading will depend upon the ability of the
Funds to evaluate particular securities, to anticipate relevant
market factors, including trends of interest rates and earnings and
variations from such trends, to obtain relevant information, to
evaluate it promptly, and to take advantage of its evaluations by
completing transactions on a favorable basis. It is expected that
the expenses involved in short-term trading, which would not be
incurred by an investment company which does not use this portfolio
technique, will be less than the profits and other benefits which
will accrue to shareholders.
The Funds' portfolio turnover rates will depend on a number of f
actors, including the fact that each Fund intends to elect to be
treated and to qualify as a regulated investment company under the
Internal Revenue Code. Accordingly, the Funds intend to limit short-
term trading so that less than 30% of each Fund's respective gross
annual income (including all dividend and interest income and gross
realized capital gains, both short and long-term, without being
offset for realized capital losses) will be derived from gross
realized gains on the sale or other disposition of securities and
certain other investments held for less than three months. This
limitation, which must be met by all regulated investment companies
in order to obtain such Federal tax treatment, at certain times may
prevent the Funds from realizing capital gains on some securities
held for less than three months.
SHORT SALES. Small Capitalization Fund, International Equity Fund and
Multi-Sector Growth Fund may engage in short sales in order to profit
from an anticipated decline in the value of a security. All of the
Funds may also engage in short sales to attempt to limit their
exposure to a possible market decline in the value of their portfolio
securities through short sales of securities which the Adviser
believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, a Fund must
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<PAGE> 37
borrow the security sold short to make delivery to the buyer. The
Fund then is obligated to replace the security borrowed by purchasing
it at the market price at the time of replacement. Until the
security is replaced, the Fund is required to pay to the lender any
accrued interest and may be required to pay a premium.
A Fund will realize a gain if the security declines in price between
the date of the short sale and the date on which the Fund replaces
the borrowed security. On the other hand, the Fund will incur a loss
as a result of the short sale if the price of the security increases
between those dates. The amount of any gain will be decreased, and
the amount of any loss increased, by the amount of any premium or
interest or dividends the Fund may be required to pay in connection
with a short sale. The successful use of short selling as a hedging
device may be adversely affected by imperfect correlation between
movements in the price of the security sold short and the securities
being hedged.
Under applicable guidelines of the staff of the SEC, if a Fund e
ngages in short sales of the type referred to in Fundamental
Investment Restriction No. (2) below, it must put in a segregated
account (not with the broker) an amount of cash or U.S. Government
securities equal to the difference between (a) the market value of
the securities sold short at the time they were sold short and (b)
any cash or U.S. Government securities required to be deposited as
collateral with the broker in connection with the short sale (not
including the proceeds from the short sale). In addition, until the
Fund replaces the borrowed security, it must daily maintain the
segregated account at such a level that (1) the amount deposited in
it plus the amount deposited with the broker as collateral will equal
the current market value of the securities sold short, and (2) the
amount deposited in it plus the amount deposited with the broker as
collateral will not be less than the market value of the securities
at the time they were sold short. Except for short sales against the
box, the amount of the Fund's net assets that may be committed to
short sales is limited and the securities in which short sales are
made must be listed on a national securities exchange.
Short selling may produce higher than normal portfolio turnover which
may result in increased transaction costs to a Fund and may result in
gains from the sale of securities deemed to have been held for less
than three months, which gains must be less than 30% of the Fund's
gross income in order for the Fund to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as
amended.
FINANCIAL FUTURES CONTRACTS. Each John Hancock Series Fund may buy
and sell futures contracts (and related options) on debt securities,
currencies, interest rate indices, and other instruments. These
Funds may also buy and sell futures contracts (and related options)
on stocks and stock indices. Each of these Funds may hedge its
portfolio by selling or purchasing financial futures contracts as an
offset against the effects of changes in interest rates or in
security or foreign currency values. Although other techniques could
be used to reduce exposure to interest rate fluctuations, a Fund may
be able to hedge its exposure more effectively and perhaps at a lower
cost by using financial futures contracts. These Funds may enter
into financial futures contracts for hedging and speculative purposes
to the extent permitted by regulations of the Commodity Futures
Trading Commission ("CFTC").
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Financial futures contracts have been designed by boards of trade
which have been designated "contract markets" by the CFTC. Futures
contracts are traded on these markets in a manner that is similar to
the way a stock is traded on a stock exchange. The boards of trade,
through their clearing corporations, guarantee that the contracts
will be performed. Currently, financial futures contracts are based
on interest rate instruments such as long-term U.S. Treasury bonds,
U.S. Treasury notes, Government National Mortgage Association
("GNMA") modified pass-through mortgage-backed securities, three-
month U.S. Treasury bills, 90-day commercial paper, bank certificates
of deposit and Eurodollar certificates of deposit. It is expected
that if other financial futures contracts are developed and traded
the Funds may engage in transactions in such contracts.
Although some financial futures contracts by their terms call for
actual delivery or acceptance of financial instruments, in most cases
the contracts are closed out prior to delivery by offsetting
purchases or sales of matching financial futures contracts (same
exchange, underlying security and delivery month). Other financial
futures contracts, such as futures contracts on securities indices,
by their terms call for cash settlements. If the offsetting purchase
price is less than a Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than a Fund's original purchase price,
the Fund realizes a gain, or if it is less, the Fund realizes a loss.
The transaction costs must also be included in these calculations.
Each Fund will pay a commission in connection with each purchase or
sale of financial futures contracts, including a closing transaction.
For a discussion of the Federal income tax considerations of trading
in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time a Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or
U.S. Government securities, known as "initial margin," ranging upward
from 1.1% of the value of the financial futures contract being
traded. The margin required for a financial futures contract is set
by the board of trade or exchange on which the contract is traded and
may be modified during the term of the contract. The initial margin
is in the nature of a performance bond or good faith deposit on the
financial futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations
have been satisfied. The Funds expect to earn interest income on
their initial margin deposits. Each day, the futures contract is
valued at the official settlement price of the board of trade or
exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis
as the market price of the financial futures contract fluctuates.
This process is known as "mark to market." Variation margin does not
represent a borrowing or lending by the Funds but is instead
settlement between the Funds and the broker of the amount one would
owe the other if the financial futures contract expired. In
computing net asset value, the Funds will mark to market their
respective open financial futures positions.
Successful hedging depends on a strong correlation between the market
for the underlying securities and the futures contract market for
those securities. There are several factors that will probably
prevent this correlation from being a perfect one, and even a correct
forecast of general interest rate trends may not result in a
successful hedging transaction. There are significant differences
between the securities and futures markets which could create an
imperfect correlation between the markets and which could affect the
success of a given hedge. The degree of imperfection of correlation
depends on
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<PAGE> 39
circumstances such as: variations in speculative market demand for
financial futures and debt securities, including technical influences
in futures trading and differences between the financial instruments
being hedged and the instruments underlying the standard financial
futures contracts available for trading in such respects as interest
rate levels, maturities and creditworthiness of issuers. The degree
of imperfection may be increased where the underlying debt securities
are lower-rated and, thus, subject to greater fluctuation in price
than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise
of skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or unexpected
interest rate trends. The Funds will bear the risk that the price of
the securities being hedged will not move in complete correlation
with the price of the futures contracts used as a hedging instrument.
Although the Adviser or Subadviser believes that the use of financial
futures contracts will benefit the Funds, an incorrect prediction
could result in a loss on both the hedged securities in the
respective Fund's portfolio and the hedging vehicle so that the
Fund's return might have been better had hedging not been attempted.
However, in the absence of the ability to hedge, the Adviser or
Subadviser might have taken portfolio actions in anticipation of the
same market movements with similar investment results but,
presumably, at greater transaction costs. The low margin deposits
required for futures transactions permit an extremely high degree of
leverage. A relatively small movement in a futures contract may
result in losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The
daily limit establishes the maximum amount the price of a futures
contract may vary either up or down from the previous day's
settlement price, at the end of the current trading session. Once
the daily limit has been reached in a futures contract subject to the
limit, no more trades may be made on that day at a price beyond that
limit. The daily limit governs only price movements during a
particular trading day and, therefore, does not limit potential
losses because the limit may work to prevent the liquidation of
unfavorable positions. For example, futures prices have occasionally
moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of
positions and subjecting some holders of futures contracts to
substantial losses.
Finally, although the Funds engage in financial futures transactions
only on boards of trade or exchanges where there appears to be an
adequate secondary market, there is no assurance that a liquid market
will exist for a particular futures contract at any given time. The
liquidity of the market depends on participants closing out contracts
rather than making or taking delivery. In the event participants
decide to make or take delivery, liquidity in the market could be
reduced. In addition, the Funds could be prevented from executing a
buy or sell order at a specified price or closing out a position due
to limits on open positions or daily price fluctuation limits imposed
by the exchanges or boards of trade. If a Fund cannot close out a
position, it will be required to continue to meet margin requirements
until the position is closed.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each John Hancock Series
Fund may buy and sell options on financial futures contracts on debt
securities, currencies, interest rate indices, and other instruments.
These Funds may buy and sell options on financial futures contracts
on stocks and stock indices. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a
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position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of
the option delivers the futures contract to the holder at the
exercise price. The Funds would be required to deposit with their
custodian initial and variation margin with respect to put and call
options on futures contracts written by them. Options on futures
contracts involve risks similar to the risks relating to transactions
in financial futures contracts. Also, an option purchased by a Fund
may expire worthless, in which case the Fund would lose the premium
it paid for the option.
OTHER CONSIDERATIONS. Each John Hancock Series Fund may use futures
and options transactions for bona fide hedging or speculative
purposes, if consistent with a Fund's investment policies, to the
extent permitted by CFTC regulations. A Fund will determine that the
price fluctuations in the futures contracts and options on futures
used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which it expects to
purchase. Except as stated below, the Funds' futures transactions
will be entered into for traditional hedging purposes -- i.e.,
futures contracts will be sold to protect against a decline in the
price of securities that the Funds own, or futures contracts will be
purchased to protect the Funds against an increase in the price of
securities, or the currency in which they are denominated, the Fund
intends to purchase. As evidence of this hedging intent, the Funds
expect that on 75% or more of the occasions on which they take a long
futures or option position (involving the purchase of futures
contracts), the Funds will have purchased, or will be in the process
of purchasing equivalent amounts of related securities or assets
denominated in the related currency in the cash market at the time
when the futures contract or option position is closed out. However,
in particular cases, when it is economically advantageous for a Fund
to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other
assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Funds to elect to comply
with a different test, under which the aggregate initial margin and
premiums required to establish speculative positions in futures
contracts and options on futures will not exceed 5% of the net asset
value of the respective Fund's portfolio, after taking into account
unrealized profits and losses on any such positions and excluding the
amount by which such options were in-the-money at the time of
purchase. The Funds will engage in transactions in futures contracts
only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code for maintaining their
qualifications as regulated investment companies for Federal income
tax purposes.
When the Funds purchase financial futures contracts, or write put
options or purchase call options thereon, cash or liquid, high grade
debt securities will be deposited in a segregated account with the
Funds' custodian in an amount that, together with the amount of
initial and variation margin held in the account of its broker,
equals the market value of the futures contracts.
OPTIONS TRANSACTIONS. Each John Hancock Series Fund may write listed
and over-the-counter covered call options and covered put options on
securities in order to earn additional income from the premiums
received. In addition, these Funds may purchase listed and over-the-
counter call and put options on securities and indices. The extent
to which covered options will be used by the Funds will depend upon
market conditions and the availability of alternative strategies.
The Funds may write listed and over-the-counter call and put options
on up to 100% of their respective net assets.
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A Fund will write listed and over-the-counter call options only if
they are "covered," which means that the Fund owns or has the
immediate right to acquire the securities underlying the options
without additional cash consideration upon conversion or exchange of
other securities held in its portfolio. A call option written by a
Fund may also be "covered" if the Fund holds on a share-for-share
basis a covering call on the same securities where (i) the exercise
price of the covering call held is equal to or less than the exercise
price of the call written if the difference is maintained by the Fund
in cash or high grade liquid debt obligations in a segregated account
with the Fund's custodian, and (ii) the covering call expires at the
same time as the call written. If a covered call option is not
exercised, a Fund would keep both the option premium and the
underlying security. If the covered call option written by a Fund is
exercised and the exercise price, less the transaction costs, exceeds
the cost of the underlying security, the Fund would realize a gain in
addition to the amount of the option premium it received. If the
exercise price, less transaction costs, is less than the cost of the
underlying security, a Fund's loss would be reduced by the amount of
the option premium.
As the writer of a covered put option, each Fund will write a put
option only with respect to securities it intends to acquire for its
portfolio and will maintain in a segregated account with its
custodian bank cash or high-grade liquid debt securities with a value
equal to the price at which the underlying security may be sold to
the Fund in the event the put option is exercised by the purchaser.
The Funds may also write a "covered" put option by purchasing on a
share-for-share basis a put on the same security as the put written
by the Fund if the exercise price of the covering put held is equal
to or greater than the exercise price of the put written and the
covering put expires at the same time or later than the put written.
When writing listed and over-the-counter covered put options on
securities, the Funds would earn income from the premiums received.
If a covered put option is not exercised, the Funds would keep the
option premium and the assets maintained to cover the option. If the
option is exercised and the exercise price, including transaction
costs, exceeds the market price of the underlying security, a Fund
would realize a loss, but the amount of the loss would be reduced by
the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, it may effect a "closing purchase
transaction." This is accomplished by buying an option of the same
series as the option previously written. The effect of the purchase
is that a Fund's position will be offset by the Options Clearing
Corporation. The Funds may not effect a closing purchase transaction
after they have been notified of the exercise of an option. There is
no guarantee that a closing purchase transaction can be effected.
Although the Funds will generally write only those options for which
there appears to be an active secondary market, there is no assurance
that a liquid secondary market on an exchange or board of trade will
exist for any particular option or at any particular time, and for
some options no secondary market on an exchange may exist. In the
case of a written call option, effecting a closing transaction will
permit a Fund to write another call option on the underlying security
with either a different exercise price, expiration date or both. In
the case of a written put option, it will permit a Fund to write
another put option to the extent that the exercise price thereof is
secured by deposited cash or short-term securities. Also, effecting
a closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be used
for other investments. If a Fund desires to sell a particular
security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the
sale of the security.
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<PAGE> 42
The Funds will realize a gain from a closing transaction if the cost
of the closing transaction is less than the premium received from
writing the option. The Funds will realize a loss from a closing
transaction if the cost of the closing transaction is more than the
premium received for writing the option. However, because increases
in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the
Fund.
OVER-THE-COUNTER OPTIONS. Each Fund may engage in options trans
actions on exchanges and in the over-the-counter markets. In
general, exchange-traded options are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange
or clearing corporation) with standardized strike prices and
expiration dates. Over-the-counter ("OTC") transactions are two-
party contracts with price and terms negotiated by the buyer and
seller. A Fund will acquire only those OTC options for which
management believes the Fund can receive on each business day at
least two separate bids or offers (one of which will be from an
entity other than a party to the option) or those OTC options valued
by an independent pricing service. The Funds will write and purchase
OTC options only with member banks of the Federal Reserve System and
primary dealers in U.S. Government securities or their affiliates
which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million. The
SEC has taken the position that OTC options are illiquid securities
subject to the restriction that illiquid securities are limited to
not more than 15% of the respective Fund's net assets. The SEC,
however, has a partial exemption from the above restrictions on
transactions in OTC options. The SEC allows a Fund to exclude from
the 15% limitation on illiquid securities a portion of the value of
the OTC options written by the Fund, provided that certain conditions
are met. First, the other party to the OTC options has to be a
primary U.S. Government securities dealer designated as such by the
Federal Reserve Bank. Second, the Fund must have an absolute
contractual right to repurchase the OTC options at a formula price.
If the above conditions are met, a Fund may treat as illiquid only
that portion of the OTC option's value (and the value of its
underlying securities) which is equal to the formula price for
repurchasing the OTC option, less the OTC option's intrinsic value.
Although Diversified Core Equity Fund II may invest in certain types
of derivative securities, it has no current plans to do so. However,
this policy could change at any time in the future.
GOVERNMENT SECURITIES. Certain U.S. Government securities, including
U.S. Treasury bills, notes and bonds, and Government National
Mortgage Association certificates ("Ginnie Maes"), are supported by
the full faith and credit of the United States. Certain other U.S.
Government securities, issued or guaranteed by Federal agencies or
government sponsored enterprises, are not supported by the full faith
and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities
include obligations of the Federal Home Loan Mortgage Corporation
("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds
("Fannie Maes"). No assurance can be given that the U.S. Government
will provide financial support to such Federal agencies, authorities,
instrumentalities and government sponsored enterprises in the future.
19
<PAGE> 43
MORTGAGE-BACKED SECURITIES. Each Fund that may invest in U.S. G
overnment securities, and in particular Dividend Performers Fund and
Active Bond Fund, may invest in mortgage pass-through certificates
and multiple-class pass-through securities, such as real estate
mortgage investment conduits ("REMIC") pass-through certificates,
collateralized mortgage obligations ("CMOs") and stripped mortgage-
backed securities ("SMBS"), and other types of "Mortgage-Backed
Securities" that may be available in the future.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed mortgage
pass-through securities represent participation interests in pools of
residential mortgage loans and are issued by U.S. Governmental or
private lenders and guaranteed by the U.S. Government or one of its
agencies or instrumentalities, including but not limited to the
Government National Mortgage Association ("Ginnie Mae"), the Federal
National Mortgage Association ("Fannie Mae") and the Federal Home
Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates
are guaranteed by the full faith and credit of the U.S. Government
for timely payment of principal and interest on the certificates.
Fannie Mae certificates are guaranteed by Fannie Mae, a federally
chartered and privately owned corporation, for full and timely
payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate
instrumentality of the U.S. Government, for timely payment of
interest and the ultimate collection of all principal of the related
mortgage loans.
MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. CMOs and REMIC pass-through or participation
certificates may be issued by, among others, U.S. Government agencies
and instrumentalities as well as private lenders. CMOs and REMIC
certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several
classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is
issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Generally,
interest is paid or accrues on all classes of CMOs or REMIC
certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or
Freddie Mac certificates but also may be collateralized by other
mortgage assets such as whole loans or private mortgage pass-through
securities. Debt service on CMOs is provided from payments of
principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages primarily secured by interests
in real property and other permitted investments. Investors may
purchase "regular" and "residual" interest shares of beneficial
interest in REMIC trusts although the Funds do not intend to invest
in residual interests.
STRIPPED MORTGAGE-BACKED SECURITIES. SMBS are derivative multiple-
class mortgage-backed securities. SMBS are usually structured with
two classes that receive different proportions of interest and
principal distributions on a pool of mortgage assets. A typical SMBS
will have one class receiving some of the interest and most of the
principal, while the other class will receive most of the interest
and the
20
<PAGE> 44
remaining principal. In the most extreme case, one class will
receive all of the interest (the "interest only" class) while the
other class will receive all of the principal (the "principal only"
class). The yields and market risk of interest only and principal
only SMBS, respectively, may be more volatile than those of other
fixed income securities. The staff of the SEC considers privately
issued SMBS to be illiquid.
STRUCTURED OR HYBRID NOTES. Funds that may invest in mortgage-backed
securities may invest in "structured" or "hybrid" notes. The
distinguishing feature of a structured or hybrid note is that the
amount of interest and/or principal payable on the note is based on
the performance of a benchmark asset or market other than fixed-
income securities or interest rates. Examples of these benchmarks
include stock prices, currency exchange rates and physical commodity
prices. Investing in a structured note allows a Fund to gain
exposure to the benchmark market while fixing the maximum loss that
the Fund may experience in the event that market does not perform as
expected. Depending on the terms of the note, a Fund may forego all
or part of the interest and principal that would be payable on a
comparable conventional note; a Fund's loss cannot exceed this
foregone interest and/or principal. An investment in structured or
hybrid notes involves risks similar to those associated with a direct
investment in the benchmark asset.
RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing
in Mortgage-Backed Securities involves certain risks, including the
failure of a counter-party to meet its commitments, adverse interest
rate changes and the effects of prepayments on mortgage cash flows.
In addition, investing in the lowest tranche of CMOs and REMIC
certificates involves risks similar to those associated with
investing in equity securities. Further, the yield characteristics
of Mortgage-Backed Securities differ from those of traditional fixed
income securities. The major differences typically include more
frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments
of principal may be made substantially earlier than their final
distribution dates.
Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and
cannot be predicted with certainty. Both adjustable rate mortgage
loans and fixed rate mortgage loans may be subject to a greater rate
of principal prepayments in a declining interest rate environment and
to a lesser rate of principal prepayments in an increasing interest
rate environment. Under certain interest rate and prepayment rate
scenarios, a Fund may fail to recoup fully its investment in Mortgage- Backed
Securities notwithstanding any direct or indirect governmental, agency or other
guarantee. When a Fund reinvests amounts representing payments and unscheduled
prepayments of principal, it may receive a rate of interest that is lower than
the rate on existing adjustable rate mortgage pass-through securities. Thus,
Mortgage-Backed Securities, and adjustable rate mortgage pass- through
securities in particular, may be less effective than other types of U.S.
Government securities as a means of "locking in" interest rates.
Conversely, in a rising interest rate environment, a declining p
repayment rate will extend the average life of many Mortgage-Backed
Securities. This possibility is often referred to as extension risk.
Extending the average life of a Mortgage-Backed Security increases
the risk of depreciation due to future increases in market interest
rates.
21
<PAGE> 45
RISK ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT SECURITIES.
Different types of derivative debt securities are subject to
different combinations of prepayment, extension and/or interest rate
risk. Conventional mortgage pass-through securities and sequential
pay CMOs are subject to all of these risks, but are typically not
leveraged. Thus, the magnitude of exposure may be less than for more
leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with
interest only debt securities ("IOs"), super floaters, other
leveraged floating rate instruments and Mortgage-Backed Securities
purchased at a premium to their par value. In some instances, early
prepayments may result in a complete loss of investment in certain of
these securities. The primary risks associated with certain other
derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost
of Funds Index ("COFI floaters"), other "lagging rate" floating rate
securities, floating rate securities that are subject to a maximum
interest rate ("capped floaters"), Mortgage-Backed Securities
purchased at a discount, leveraged inverse floating rate securities
("inverse floaters"), principal only debt securities ("POs"), certain
residual or support tranches of CMOs and index amortizing notes.
Index amortizing notes are not Mortgage-Backed Securities, but are
subject to extension risk resulting from the issuer's failure to
exercise its option to call or redeem the notes before their stated
maturity date. Leveraged inverse IOs combine several elements of the
Mortgage-Backed Securities described above and thus present an
especially intense combination of prepayment, extension and interest
rate risks.
Planned amortization class ("PAC") and target amortization class
("TAC") CMO bonds involve less exposure to prepayment, extension and
interest rate risk than other Mortgage-Backed Securities, provided
that prepayment rates remain within expected prepayment ranges or
"collars." To the extent that prepayment rates remain within these
prepayment ranges, the residual or support tranches of PAC and TAC
CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
Other types of floating rate derivative debt securities present more
complex types of interest rate risks. For example, range floaters
are subject to the risk that the coupon will be reduced to below
market rates if a designated interest rate floats outside of a
specified interest rate band or collar. Dual index or yield curve
floaters are subject to depreciation in the event of an unfavorable
change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual
period. Thus, the type of risk involved in these securities depends
on the terms of each individual X-reset floater.
FORWARD FOREIGN CURRENCY TRANSACTIONS. Each John Hancock Series
Fund, other than Dividend Performers Fund, may engage in forward
foreign currency transactions. Foreign currency exchange
transactions may be conducted on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the
foreign exchange market. The Funds may also deal in forward foreign
currency exchange contracts involving currencies of the different
countries in which they may invest as a hedge against possible
variations in the foreign exchange rate between these currencies.
This is accomplished through contractual agreements to purchase or
sell a specified currency at a specified
22
<PAGE> 46
future date and price set at the time of the contract. The Funds'
dealings in forward foreign currency exchange contracts will be
limited to hedging either specified transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward
foreign currency contracts with respect to specific receivables or
payables of a Fund accruing in connection with the purchase and sale
of its portfolio securities denominated in foreign currencies.
Portfolio hedging is the use of forward foreign currency contracts to
offset portfolio security positions denominated or quoted in such
foreign currencies. A Fund will not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions
only to the extent, if any, deemed appropriate by the Adviser or
Subadviser. The Funds will not engage in speculative forward foreign
currency exchange transactions.
If a Fund purchases a forward contract, its custodian bank will
segregate cash or high grade liquid debt securities in a separate
account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of such forward contract.
Those assets will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or
securities will be placed in the account so that the value of the
account will be equal to the amount of the Fund's commitment with
respect to such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Such transactions also
preclude the opportunity for gain if the value of the hedged currency
rises. Moreover, it may not be possible for the Funds to hedge
against a devaluation that is so generally anticipated that the Funds
are not able to contract to sell the currency at a price above the
devaluation level they anticipate.
The cost to the Funds of engaging in foreign currency exchange t
ransactions varies with such factors as the currency involved, the
length of the contract period and the market conditions then
prevailing. Since transactions in foreign currency are usually
conducted on a principal basis, no fees or commissions are involved.
LOWER RATED HIGH YIELD DEBT OBLIGATIONS. Dividend Performers Fund,
Active Bond Fund and Global Bond Fund may invest in high yielding,
fixed income securities rated below investment grade (e.g., rated Baa
or lower by Moody's Investors Service, Inc. ("Moody's") or BBB or
lower by Standard & Poor's Ratings Group ("S&P")). Dividend
Performers Fund will not invest in securities rated below C by
Moody's or by S&P. In addition, no more than 5% of Dividend
Performers Fund's net assets will be invested in securities rated
below investment grade and no more than 5% of the Fund's net assets
will be invested in securities rated BBB by S&P or Baa by Moody's and
their equivalents. Active Bond Fund will not invest in securities
rated below Ca by Moody's or CC by S&P. Global Bond Fund may invest
up to 25% of its net assets in securities rated as low as Ca by
Moody's or CC by S&P and their equivalents.
Ratings are based largely on the historical financial condition of
the issuer. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current
financial condition, which may be better or worse than the rating
would indicate. See Appendix A to this SAI which describes the
characteristics of corporate bonds in the various ratings categories.
The Funds may invest in comparable quality unrated securities which,
in the opinion of the Adviser or Subadviser, offer comparable yields
and risks to those securities which are rated.
23
<PAGE> 47
Debt obligations rated in the lower ratings categories, or which are
unrated, involve greater volatility of price and risk of loss of
principal and income. In addition, lower ratings reflect a greater
possibility of an adverse change in financial condition affecting the
ability of the issuer to make payments of interest and principal.
The high yield fixed income market is relatively new and its growth
occurred during a period of economic expansion. The market has not
yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities
generally respond to short term corporate and market developments to
a greater extent than do the price and liquidity of higher rated
securities because such developments are perceived to have a more
direct relationship to the ability of an issuer of such lower rated
securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations will make it more difficult
to dispose of the bonds and to value accurately the Funds' assets.
The reduced availability of reliable, objective data may increase the
Funds' reliance on management's judgment in valuing high yield bonds.
In addition, the Funds' investments in high yield securities may be
susceptible to adverse publicity and investor perceptions, whether or
not justified by fundamental factors. A Fund's investments, and
consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
IV. INVESTMENT RESTRICTIONS
A. Fundamental Investment Restrictions.
-----------------------------------
Each Fund has adopted the following fundamental investment restr
ictions which may not be changed without approval of a majority of
the applicable Fund's outstanding voting securities. Under the
Investment Company Act of 1940, as amended (the "1940 Act"), and as
used in the Prospectuses and this SAI, a "majority of the outstanding
voting securities" requires the approval of the lesser of (1) the
holders of 67% or more of the shares of a Fund represented at a
meeting if the holders of more than 50% of the outstanding shares of
the Fund are present in person or by proxy or (2) the holders of more
than 50% of the outstanding shares of the Fund.
A Fund may not:
1. Issue senior securities, except as permitted by paragraphs 3, 6
and 7 below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in accordance
with the Fund's investment policies or within the meaning of paragraph 6
below, are not deemed to be senior securities.
24
<PAGE> 48
2. Purchase securities on margin or make short sales, or unless, by
virtue of its ownership of other securities, the Fund has the right to
obtain securities equivalent in kind and amount to the securities sold
and, if the right is conditional, the sale is made upon the same
conditions, except (i) in connection with arbitrage transactions, (ii) for
hedging the Fund's exposure to an actual or anticipated market decline in
the value of its securities, (iii) to profit from an anticipated decline
in the value of a security, and (iv) obtaining such short-term credits as
may be necessary for the clearance of purchases and sales of securities.
3. Borrow money, except for the following extraordinary or
emergency purposes: (i) from banks for temporary or short-term purposes or
for the clearance of transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed) taken at
market value; (ii) in connection with the redemption of Fund shares or to
finance failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets; (iii) in order to
fulfill commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets; and (iv) in the
case of Small Capitalization Fund, in connection with entering into
reverse repurchase agreements and dollar rolls, but only if after each
such borrowing there is asset coverage of at least 300% as defined in the
1940 Act. A Fund, other than Small Capitalization Fund, may not borrow
money for the purpose of leveraging the Funds' assets. For purposes of
this investment restriction, the deferral of Trustees' fees and
transactions in short sales, futures contracts, options on futures
contracts, securities or indices and forward commitment transactions shall
not constitute borrowing. Small Capitalization Fund has no current
intention of entering into reverse repurchase agreements or dollar rolls.
4. Act as an underwriter, except to the extent that in connection
with the disposition of portfolio securities, the Fund may be deemed to be
an underwriter for purpose of the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i)
acquire or lease office space for its own use, (ii) invest in securities
of issuers that invest in real estate or interests therein, (iii) invest
in securities that are secured by real estate or interests therein, (iv)
purchase and sell mortgage- related securities and (v) hold and sell real
estate acquired by the Fund as a result of the ownership of securities.
6. Invest in commodities, except the Fund may purchase and sell
options on securities, securities indices and currency, futures contracts
on securities, securities indices and currency and options on such
futures, forward foreign currency exchange contracts, forward commitments,
securities index put or call warrants and repurchase agreements entered
into in accordance with the Fund's investment policies.
7. Make loans, except that the Fund (1) may lend portfolio
securities in accordance with the Fund's investment policies up to 33 1/3%
of the Fund's total assets taken at market value, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities.
25
<PAGE> 49
8. Purchase the securities of issuers conducting their principal
activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total
assets taken at market value at the time of such investment. This
limitation does not apply to investments in obligations of the U.S.
Government or any of its agencies, instrumentalities or authorities.
9. For each Fund other than Global Bond Fund and Multi-Sector
Growth Fund, with respect to 75% of total assets, purchase securities of
an issuer (other than the U.S. Government, its agencies, instrumentalities
or authorities), if:
(a) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities of such
issuer; or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
B. Non-Fundamental Investment Restrictions.
---------------------------------------
The following restrictions are designated as non-fundamental and may
be changed by the Board of Trustees without the approval of
shareholders.
A Fund may not:
1. Pledge, mortgage or hypothecate its assets, except to secure
permitted borrowings and then only if such pledging, mortgaging or
hypothecating does not exceed 33 1/3% of the Fund's total assets taken at
market value. Collateral arrangements with respect to margin, option,
short sale and other risk management and when-issued and forward
commitment transactions are not deemed to be pledges or other encumbrances
for purposes of this restriction.
2. Participate on a joint or joint-and-several basis in any
securities trading account. The "bunching" of orders for the sale or
purchase of marketable portfolio securities with other accounts under the
management of the Adviser or any Subadviser to save commissions or to
average prices among them is not deemed to result in a joint securities
trading account.
3. Purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or directors or officers of the Adviser,
any Subadviser or any investment management subsidiary of the Adviser
individually owns beneficially more than 0.5% and together own
beneficially more than 5% of the securities of such issuer.
4. Purchase a security if, as a result, (i) more than 10% of the
Fund's assets would be invested in securities of other investment
companies, (ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one such investment company being
held by the Fund or (iii) more than 5% of the Fund's assets would be
invested in any one such investment company. The Fund will not purchase
the securities of any open-end investment company except when such
purchase is part of a plan of merger, consolidation, reorganization or
purchase of substantially all of the assets of any other investment
company, or purchase the securities of any closed-end investment company
26
<PAGE> 50
except in the open market where no commission or profit to a sponsor or
dealer results from the purchase, other than customary brokerage fees.
The Fund has no current intention of investing in other investment
companies. Notwithstanding the foregoing, each Fund may, in connection
with the John Hancock Group of Funds Deferred Compensation Plan for
Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds provided that, as a
result, (i) no more than 10% of the Fund's assets would be invested in
securities of all other investment companies, (ii) such purchase would not
result in more than 3% of the total outstanding voting securities of any
one such investment company being held by the Fund and (iii) no more than
5% of the Fund's assets would be invested in any one such investment
company.
5. Invest more than 15% of its total assets in the aggregate in (1)
securities of any issuer which, together with its predecessors, has been
in operation for less than three years and (2) restricted securities,
excluding securities eligible for resale pursuant to Rule 144A under the
1933 Act or foreign securities which are offered or sold outside the
United States in accordance with Regulation S under the 1933 Act;
provided, however, that the Fund may not invest more than 15% of its net
assets in restricted securities including those eligible for resale under
Rule 144A.
6. Invest in securities which are illiquid if, as a result, more
than 15% of its net assets would consist of such securities, including
repurchase agreements maturing in more than seven days, securities that
are not readily marketable, restricted securities not eligible for resale
pursuant to Rule 144A under the 1933 Act, purchased OTC options, certain
assets used to cover written OTC options, and privately issued stripped
mortgage-backed securities.
7. Purchase securities while outstanding borrowings exceed 5% of
the Fund's total assets.
8. Invest in real estate limited partnership interests.
9. Purchase warrants of any issuer, if, as a result of such
purchase, more than 2% of the value of the Fund's total assets would be
invested in warrants which are not listed on the New York or American
Stock exchange or more than 5% of the value of the total assets of the
Fund would be invested in warrants generally, whether or not so listed.
For these purposes, warrants are to be valued at the lesser of cost or
market, but warrants acquired by the Fund in units with or attached to
debt securities shall be deemed to be without value.
10. Purchase interests in oil, gas, or other mineral exploration
programs or mineral leases; however, this policy will not prohibit the
acquisition of securities of companies engaged in the production or
transmission of oil, gas, or other minerals.
27
<PAGE> 51
11. Write covered call or put options with respect to more than 25%
of the value of its total assets, invest more than 25% of its total assets
in protective put options or invest more 5% of its total assets in puts,
calls, spreads or straddles, or any combination thereof, other than
protective put options. The aggregate value of premiums paid on all
options, other than protective put options, held by the Fund at any time
will not exceed 20% of the Fund's total assets.
12. Invest for the purpose of exercising control over or management
of any company.
If a percentage restriction on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a
later change in percentage resulting from changes in the values of a
Fund's assets will not be considered a violation of the restriction.
In order to permit the sale of shares of the Funds in certain states,
the Board may, in its sole discretion, adopt restrictions on
investment policy more restrictive than those described above.
Should the Board determine that any such more restrictive policy is
no longer in the best interest of a Fund and its shareholders, the
Fund may cease offering shares in the state involved and the Board
may revoke such restrictive policy. Moreover, if the states involved
shall no longer require any such restrictive policy, the Board may,
in its sole discretion, revoke such policy.
International Equity Fund, Multi-Sector Growth Fund and Small
Capitalization Fund agree that, in accordance with Texas Blue Sky
Regulations, until such regulations no longer require, they will not
engage in short sales (other than short sales against the box) unless
(i) the dollar amount of the short sales does not exceed 25% of the
net assets of the Fund; (ii) the value of the securities of any one
issuer in which the Fund maintains a short position does not exceed
the lesser of (a) 2% of the net asset value of the Fund or (b) 2%
of the securities of any class of any issuer; and (iii) the
securities in which short sales are made are listed on a national
securities exchange. The Independence Funds have no current intent
to engage in short sales.
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<PAGE> 52
V. THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Funds is managed by the Trustees of the Trust who
elect officers who are responsible for the day-to-day operations of
the Funds and who execute policies formulated by the Trustees.
Several of the officers and Trustees of the Trust are also officers
or directors of the Funds' Adviser and/or one or more or the
Subadvisers, or officers or directors of the Funds' principal
distributor, John Hancock Funds, Inc. ("JH Funds").
<TABLE>
The following table sets forth the principal occupation or employment
of the Trustees and principal officers of the Trust during the past
five years.
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Chairman (1,2) Chairman and Chief Executive Officer, the
101 Huntington Avenue Adviser and The Berkeley Financial Group
Boston, MA 02199 ("The Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM Capital");
John Hancock Advisers International Limited;
("JHAI"); John Hancock Funds, Inc., ("JH
Funds"), John Hancock Investor Services
Corporation ("Investor Services") and
Sovereign Asset Management Corporation
("SAMCorp"); (hereinafter the Adviser, the
Berkeley Group, NM Capital, JHAI, JH Funds,
Investor Services and SAMCorp are
collectively referred to as the "Affiliated
Companies"); Chairman, Transamerica Fund
Management Company ("TFMC") and First
Signature Bank & Trust; Director, John
Hancock Freedom Securities Corp., John
Hancock Capital Corp., New England/Canada
Business Council; Member, Investment
Company Institute Board of Governors;
Director, Asia Strategic Growth Fund, Inc.;
Trustee, Museum of Science; President, the
Adviser (until July 1990); Chairman, John
Hancock Distributors, Inc. ("Distributors")
(until April 1994).
<FN>
___________________
* An "interested person" of the Funds, as such term is defined in the 1940 Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating
Committees.
</TABLE>
29
<PAGE> 53
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
Thomas W.L. Cameron Trustee Chairman and Director, Sovereign Advisers,
Interstate/Johnson Lane Inc.; Senior Vice President, Interstate/Johnson
1892 Andell Bluff Blvd. Lane Corp. (securities dealer).
Johns Island, SC 29455
William H. Cunningham Trustee (4) Chancellor, University of Texas System and
601 Colorado Street former President of the University of Texas,
O'Henry Hall Austin, Texas; Regents Chair in Higher
Austin, TX 78701 Education Leadership; James L. Bayless Chair
for Free Enterprise; Professor of Marketing and
Dean, College of Business Administration/
Graduate School of Business (1983 - 1985);
Centennial Chair in Business Education.
Charles F. Fretz Trustee (4) Consultant, self employed; Vice President and
RD #5, Box 300B Director, Towers, Perrin, Forster & Crosby, Inc.
Clothier Springs Road (international management consultants) (until
Malvern, PA 19355 1985).
Charles L. Ladner Trustee (4) Director, Energy North, Inc. (public utility
UGI Corporation holding company) (until 1992); Senior Vice
P.O. Box 858 President, and Chief Financial Officer, UGI
Valley Forge, PA 19482 Corp. (gas distribution utility).
Leo E. Linbeck, Jr. Trustee (4) Chairman, President, Chief Executive Officer
3810 W. Alabama and Director, Linbeck Corporation (a holding
Houston, TX 77027 company engaged in various phases of the
construction industry and warehousing interests);
Director and Chairman, Federal Reserve Bank of
Dallas; Chairman of the Board and Chief
Executive Officer, Linbeck Construction
Corporation; Director, Panhandle Eastern
Corporation (a diversified energy company);
Director, Daniel Industries, Inc. (manufacturer of
gas measuring products and energy related
equipment); Director, GeoQuest International,
Inc. (a geophysical consulting firm); and
Director, Greater Houston Partnership.
<FN>
___________________
* An "interested person" of the Funds, as such term is defined in the 1940 Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating
Committees.
</TABLE>
30
<PAGE> 54
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
Patricia P. McCarter Trustee (4) Director and Secretary of the McCarter Corp.
Swedesford Road (machine manufacturer).
RD #3, Box 121
Malvern, PA 19355
Steven R. Pruchansky Trustee (3, 4) Director and Treasurer, Mast Holdings, Inc.;
6920 Daniel Road Director, First Signature Bank & Trust
Naples, FL 33942 Company (until August 1991); General Partner,
Mast Realty Trust; President, Maxwell Building
Corp. (until 1991).
Richard S. Scipione* Trustee (1) General Counsel, the Life Company; Director,
John Hancock Place the Adviser, JH Funds, Investor Services,
P.O. Box 111 Distributors, John Hancock Subsidiaries , Inc.,
Boston, MA 02117 John Hancock Property and Casualty Insurance
and its affiliates, SAMCorp and NM Capital;
Trustee, The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.; Director,
John Hancock Home Mortgage Corporation and
John Hancock Financial Access, Inc. (until July,
1990).
John P. Toolan Trustee (4) Director, The Muni Bond Funds, National Liquid
13 Chadwell Place Reserves, Inc., The Tax Free Money Fund, Inc.
Morristown, NJ 07960 and Vantage Money Market Funds (mutual
funds), and The Inefficient-Market Fund, Inc.
(closed-end investment company; Chairman,
Smith Barney Trust Company (retired
December, 1991); Director, Smith Barney, Inc.,
Mutual Management Company and Smith
Barney Advisers, Inc. (investment advisers)
(until December 1991).
<FN>
___________________
* An "interested person" of the Funds, as such term is defined in the 1940 Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating Committees.
</TABLE>
31
<PAGE> 55
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
James F. Carlin Trustee (4) Chairman and Chief Executive Officer, Carlin
233 West Central Street Consolidated, Inc. (insurance); Director,
Natick, MA 01760 Arabella Mutual Insurance Company; Receiver,
City of Chelsea, Massachusetts (until
August 1992).
Harold R. Hiser, Jr. Trustee (4) Executive Vice President, Schering-Plough
Schering-Plough Corporation Corporation (pharmaceuticals); Director,
One Giralda Farms ReCapital Corporation (reinsurance).
Madison, NJ 07940-1000
Robert G. Freedman* Vice Chairman Vice Chairman, Director and Chief Investment
101 Huntington Avenue and Chief Investment Officer, the Adviser; President, the Adviser
Boston, MA 02199 Officer (2) (until December 1994); Director, JHAI,
Investor Services, JH Funds, SAMCorp, NM Capital;
Senior Vice President, The Berkeley Group and
Distributors (until April, 1994); Director, TFMC;
and an officer of other investment companies managed
by the Adviser.
Anne C. Hodsdon* President (2) President and Chief Operating Officer, the
101 Huntington Avenue Adviser; Executive Vice President, the
Boston, MA 02199 Adviser (until December 1994); Director,
JHAI; President and Director, TFMC.
Thomas H. Drohan* Senior Vice President Senior Vice President and Secretary, the Adviser
101 Huntington Avenue and Secretary and The Berkeley Group, Senior Vice President,
Boston, MA 02199 JH Funds, Investor Services, and Distributors
(until April, 1994); Director, JHAI; Secretary,
NM Capital; Director and Secretary, TFMC.
James B. Little* Senior Vice President Senior Vice President, the Adviser, JH Funds,
101 Huntington Avenue and Chief Financial Investor Services, Distributors (until
Boston, MA 02199 Officer (2) April, 1994).
<FN>
- -------------------
* An "interested person" of the Funds, as such term is defined in the 1940 Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating Committees.
</TABLE>
32
<PAGE> 56
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
Susan S. Newton* Vice President, Vice President and Assistant the Adviser;
101 Huntington Avenue Assistant Secretary, Vice President and Secretary, JH
Boston, MA 02199 and Compliance Officer Funds, Investor Services and Distributors
(until April, 1994); Secretary, SAMCorp;
Vice President, The Berkeley Group; Assistant
Secretary, NM Capital.
John A. Morin* Vice President Vice President, the Adviser, JH Funds, Distributors
101 Huntington Avenue (until April, 1994) and Investor Services;
Boston, MA 02199 Counsel, the Life Company; Vice President and
Assistant Secretary, The Berkeley Group.
James J. Stokowski* Vice President Vice President, the Adviser.
101 Huntington Avenue and Treasurer
Boston, MA 02199
<FN>
- -------------------
* An "interested person" of the Funds, as such term is defined in the 1940 Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating Committees.
</TABLE>
All of the officers listed are officers or employees of the Adviser and
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
33
<PAGE> 57
<TABLE>
COMPENSATION OF THE TRUSTEES. The following table provides information
regarding the compensation paid by the Funds and the other investment companies
in the John Hancock Fund Complex to the Independent Trustees for their
services. Mr. Boudreau, a non-Independent Trustee, and each of the officers
of the Trust, who are interested persons of the Adviser, are compensated by the
adviser and received no compensation from the Funds for their services.
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM THE FUNDS
AGGREGATE BENEFITS ESTIMATED AND THE JOHN
COMPENSATION ACCRUED AS PART ANNUAL HANCOCK FUND
FROM THE OF THE FUNDS' BENEFITS UPON COMPLEX TO
INDEPENDENT TRUSTEES FUNDS EXPENSES RETIREMENT TRUSTEES/DIRECTORS
- -------------------- ----- -------- ---------- ------------------------
(1)(2)
<S> <C> <C> <C> <C>
James F. Carlin $ 1,650 - - $ 60,700
William H. Cunningham 1,650 - - 30,280
Charles F. Fretz 1,643 - - 56,200
Harold R. Hiser, Jr. 1,643 - - 60,200
Charles L. Ladner 1,650 - - 60,700
Leo E. Linbeck, Jr. 1,650 - - 72,700
Patricia P. McCarter 1,650 - - 60,700
Steven R. Pruchansky 1,705 - - 62,700
Norman H. Smith 1,705 - - 62,700
John P. Toolan 1,650 - - 60,700
------- ------- ------- --------
$16,596 $587,580
<FN>
(1) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees/Directors is as of the calendar year ended December 31,
1995.
(2) All Trustees except Messrs. Cunningham and Linbeck are Trustees/Directors
of 32 funds in the John Hancock Fund Complex as of the date of this SAI.
Messrs. Cunningham and Linbeck are Trustees/Directors of 30 funds and were not
Trustees/Directors of any funds in the John Hancock Fund Complex prior to
December 22, 1994.
</TABLE>
34
<PAGE> 58
As of December 27, 1995 the officers and trustees of the Trust as a group
owned 12.42% of the outstanding shares of Dividend Performers Fund; 16.87% of
the outstanding shares of Active Bond Fund; 15.55% of the outstanding shares of
Global Bond Fund; 4.08% of the outstanding shares of Multi-Sector Growth Fund;
3.41% of the outstanding shares of Fundamental Value Fund; 9.65% of the
outstanding shares of International Equity Fund; less than 1% of the
outstanding shares of Independence Diversified Core Equity Fund II; and less
than 1% of the outstanding shares of Independence Balanced Fund, Independence
Value Fund, Independence Growth Fund and Independence Medium Capitalization
Fund.
<TABLE>
As of December 27, 1995 the following shareholders beneficially owned 5% of
or more of the outstanding shares of the Funds listed below:
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF SHARES OUTSTANDING
OF BENEFICIAL SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND INTEREST OWNED FUND
- ------------------------------- ---- -------------- -------------
<S> <C> <C> <C>
Lathers' Local No. 144L Dividend Performers 93,403 31.80%
Pension Plan II (DC)
c/o Price Administrators, Inc.
400 S. El Camino Real, Suite 950
San Mateo, CA 94402-1708
John Hancock Advisers 401(k) Plan Active Bond 14,040 12.60%
Beverly A. Cleathero
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Advisers 401(k) Plan Active Bond 8,854 7.94%
Robert G. Freedman
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Advisers 401(k) Plan Global Bond 3,836 18.42%
Katherine M. Harman
101 Huntington Avenue
Boston, MA 02199-7603
</TABLE>
35
<PAGE> 59
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF SHARES OUTSTANDING
OF BENEFICIAL SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND INTEREST OWNED FUND
- ------------------------------- ---- -------------- -------------
<S> <C> <C> <C>
Independence Investment Associates Independence Growth 58,823 100.00%
Colleen Pink
53 State Street
Boston, MA 02109-2809
John Hancock Advisers 401(k) Plan Global Bond 2,391 11.48%
Anne C. Hodsdon
101 Huntington Avenue
Boston, MA 02199-7603
Investment Incentive Program for Multi-Sector 410,742 69.80%
John Hancock Employees Growth
John Hancock Place
PO Box 111
Boston, MA 02117-0111
John Hancock Funds, Inc. Fundamental Value 414,939 69.03%
FBO Gilbane Building Company
Instituitonal Ret Services
Beth Orup, 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
Lathers' Local No. 144L Fundamental Value 59,744 9.94%
Pension Plan II (DB)
c/o Price Administrators, Inc.
400 S. El Camino Real, Suite 950
San Mateo, CA 94402-1708
John Hancock Funds, Inc. International Equity 147,551 57.99%
FBO Gilbane Building Company
Instituitonal Ret Services
Beth Orup, 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
</TABLE>
36
<PAGE> 60
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF SHARES OUTSTANDING
OF BENEFICIAL SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND INTEREST OWNED FUND
- ------------------------------- ---- -------------- -------------
<S> <C> <C> <C>
Independence Investment Associates Independence Value 59,409 100.00%
Colleen Pink
53 State Street
Boston, MA 02109-2809
John Hancock Funds, Inc. Independence 327,597 83.40%
FBO Gilbane Building Company Medium
Instituitonal Ret Services Capitalization
Beth Orup, 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
Independence Investment Associates Independence 59,046 15.03%
Colleen Pink Medium
53 State Street Capitalization
Boston, MA 02109-2809
</TABLE>
37
<PAGE> 61
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF SHARES OUTSTANDING
OF BENEFICIAL SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND INTEREST OWNED FUND
- ------------------------------- ---- -------------- -------------
<S> <C> <C> <C>
Missionary Oblates of Mary Immaculate Independence 998,697 6.36%
Nancy Ryman Diversified Core
267 East 8th Street Equity II
Saint Paul, MN 55101-2307
Wachovia Bank of Georgia Independence 4,490,402 28.61%
National Service Industries, Inc. Diversified Core
Defined Contribution Plans Equity II
Mr. W. Russell Watson
1420 Peachtree Street, N.E.
Atlanta, GA 30309-3002
Weil Gotshal & Manges Independence 1,410,723 8.99%
401(k) Plan FBO The Plan Diversified Core
Mark A. Vogel Equity II
767 Fifth Avenue
New York, NY 10153-0001
The Chase Manhattan Bank, N.A. Independence 897,026 5.72%
Trustee Diversified Core
Anjou Pension Trust Equity II
Anne Clark
770 Broadway, 10th Floor
New York, NY 10003-9522
Saxon & Co. Independence 801,745 5.11%
FBO Amsco ERA Independence Diversified Core
A/C#10-01-002-1041481 Equity II
PO Box 7780-1888
Philadelphia, PA 19182
</TABLE>
38
<PAGE> 62
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF SHARES OUTSTANDING
OF BENEFICIAL SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND INTEREST OWNED FUND
- ------------------------------- ---- -------------- -------------
<S> <C> <C> <C>
John Hancock Mutual Life Cust. for Independence 37,018 5.46%
Mokrynski Associates 401(k) Plan Balanced
Bill Koch - 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Funds, Inc. Independence 393,606 68.66%
FBO Gilbane Building Company Balanced
Instituitonal Ret. Services
Beth Orup, 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Mutual Life Cust. for Independence 141,387 24.67%
ONE Color Communications 401(k) Balanced
Institutional Ret. Services
Steve O'Brien, 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
</TABLE>
Shareholders of a Fund having beneficial ownership of more than 25% of the
shares of a Fund may be deemed for purposes of the Investment Company Act of
1940, as amended, to control that Fund.
VI. INVESTMENT ADVISORY AND OTHER SERVICES
Each of the Trustees and principal officers affiliated with the Trust who
is also an affiliated person of the Adviser or any Subadviser is named above,
together with the capacity in which such person is affiliated with the Trust,
the Adviser or Subadviser.
The Trust, on behalf of each Fund, has entered into an investment
management contract with John Hancock Advisers, Inc. (the "Adviser"). Under
the respective investment management contract, the Adviser provides each Fund
with (i) a continuous investment program, consistent with the Fund's stated
investment objective and policies, (ii) supervision of all aspects of the
Fund's operations except those that are delegated to a custodian, transfer
agent or other agent and (iii) such executive, administrative and clerical
personnel, officers and equipment as are necessary for the conduct of its
business.
39
<PAGE> 63
With respect to Dividend Performers Fund, the Adviser has entered into a
sub-investment management contract with SAMCorp. With respect to International
Equity Fund, the Adviser has entered into a sub-investment management contract
with JHAI. With respect to Fundamental Value Fund, the Adviser has entered
into a sub-investment management contract with NM Capital. With respect to
each Independence Fund, the Adviser has entered into a sub-investment
management contract with IIA. Under each respective sub-investment management
contract, the corresponding Subadviser, subject to the review of the Trustees
and the over-all supervision of the Adviser, is responsible for managing the
investment operations of the corresponding Fund and the composition of the
Fund's portfolio and furnishing the Fund with advice and recommendations with
respect to investments, investment policies and the purchase and sale of
securities.
See "Organization and Management of the Funds" and "The Funds' Expenses"
in the Prospectuses for a description of certain information concerning each
Fund's investment management contract and the sub-investment management
contracts of Dividend Performers Fund, International Equity Fund, Fundamental
Value Fund and the Independence Funds.
Securities held by the Funds may also be held by other funds or investment
advisory clients for which the Adviser, the Subadvisers or their respective
affiliates provide investment advice. Because of different investment
objectives or other factors, a particular security may be bought for one or
more funds or clients when one or more are selling the same security. If
opportunities for purchase or sale of securities by the Adviser or Subadviser
for a Fund or for other funds or clients for which the Adviser or Subadvisers
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To
the extent that transactions on behalf of more than one client of the Adviser,
Subadvisers or their respective affiliates may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
No person other than the Adviser and the corresponding Subadviser and
their directors and employees regularly furnishes advice to the Funds with
respect to the desirability of the Funds investing in, purchasing or selling
securities. The Adviser and Subadvisers may from time to time receive
statistical or other similar factual information, and information regarding
general economic factors and trends, from the Life Company and its affiliates.
Under the terms of the investment management contracts with the Trust on
behalf of each Fund, the Adviser provides each Fund with office space, supplies
and other facilities required for the business of the Fund. The Adviser pays
the compensation of all officers and employees of the Trust and Trustees of the
Trust affiliated with Adviser, the office expenses of the Funds, including
those of the Trust's Treasurer and Secretary, and other expenses incurred by
the Adviser in connection with the performance of its duties.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Funds including fees of Trustees of the Trust
who are not "interested persons," as such term is defined in the 1940 Act (the
"Non-Interested Trustees") and the continuous public offering of the shares of
the Funds are borne by the Funds.
40
<PAGE> 64
As provided by the investment management contracts, each Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly
in arrears, equal on an annual basis to a stated percentage of the respective
Fund's average daily net asset value. The Adviser, not any Fund, pays the
subadvisory fees as described in the Prospectuses. See "Organization and
Management of the Funds" in the Prospectuses.
In the event normal operating expenses of a Fund, exclusive of certain
expenses prescribed by state law, are in excess of any 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 required by law. At this time, the
most restrictive limit on expenses imposed by a state requires that expenses
charged to a Fund in any fiscal year not exceed 2.5% of the first $30,000,000
of the Fund's average daily net asset value, 2% of the next $70,000,000 and
1.5% of the remaining average daily net asset value. When calculating the
limit above, the Funds may exclude interest, brokerage commissions and
extraordinary expenses.
Pursuant to each investment management contract and, where applicable,
sub-investment management contract, the Adviser and Subadviser are not liable
to the Funds or their shareholders for any error of judgment or mistake of law
or for any loss suffered by the Funds in connection with the matters to which
their respective contracts relate, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser or
Subadviser in the performance of their duties or from their reckless disregard
of the obligations and duties under the applicable contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and has over $13 billion in assets under
management in its capacity as investment adviser to the Funds and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,030,000 shareholders. The Adviser
is an indirect wholly-owned subsidiary of the Life Company, one of the nation's
oldest and largest financial services companies. With total assets under
management of over $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries Standard & Poor's and
A.M. Best's highest ratings. Founded in 1862, the Life Company has been
serving clients for over 130 years.
JHAI, located at 34 Dover Street, London, England, W1X 3RA, is a wholly-
owned subsidiary of the Adviser, formed in 1987 to provide international
investment research and advisory services to U.S. institutional clients.
SAMCorp, located at 235 Westlakes Drive, Berwyn, PA 19312, is a wholly-owned
subsidiary of The Berkeley Financial Group. NM Capital, located at 6501
Americas Parkway, Suite 950, Albuquerque, NM 87110, is a wholly-owned
subsidiary of The Berkeley Financial Group. IIA, located at 53 State Street,
Boston, Massachusetts 02109, was organized in 1982, and is a wholly-owned
subsidiary of John Hancock Asset Management, which is in turn a wholly-owned
subsidiary of John Hancock Subsidiaries, Inc., which is in turn a wholly-owned
subsidiary of The Life Company.
Under each investment management contract, each Fund may use the name
"John Hancock" or any name derived from or similar to it only for so long as
the investment management contract or any extension, renewal or amendment
thereof remains in effect. If a Fund's investment management contract is no
longer in effect, the Fund (to the extent that it lawfully can) will cease to
use such name
41
<PAGE> 65
or any other name indicating that it is advised by or otherwise connected with
the Adviser. In addition, the Adviser or the Life Company may grant the non-
exclusive right to use the name "John Hancock" or any similar name to any other
corporation or entity, including but not limited to any investment company of
which the Life Company or any subsidiary or affiliate thereof or any successor
to the business of any subsidiary or affiliate thereof shall be the investment
adviser.
Under the subadvisory contract of each Independence Fund, each
Independence Fund may use the name "Independence" or any name derived from or
similar to it only for so long as the sub-investment management contract or any
extension, renewal or amendment thereof remains in effect. If an Independence
Fund's sub-investment management contract is no longer in effect, the Fund (to
the extent that it lawfully can) will cease to use such name or any other name
indicating that it is advised by or otherwise connected with IIA. In addition,
IIA or the Life Company may grant the non-exclusive right to use the name
"Independence" or any similar name to any other corporation or entity,
including but not limited to any investment company of which IIA or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
Each investment management contract and sub-investment management contract
initially expires in the spring of 1997 and will continue in effect from year
to year thereafter if approved annually by a vote of a majority of the Trustees
of the Trust who are not interested persons of one of the parties to the
contract, cast in person at a meeting called for the purpose of voting on such
approval, or by either the Trustees or the holders of a majority of the
applicable Fund's outstanding voting securities. Each contract automatically
terminates upon assignment. Each contract may be terminated without penalty on
60 days' notice at the option of either party to the respective contract or by
vote of the holders of a majority of the outstanding voting securities of the
applicable Fund. Each sub-investment management contract terminates
automatically upon the termination of the corresponding investment management
contract.
VII. NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished
by a principal market maker or a pricing service, both of which generally
utilize electronic data processing techniques to determine valuations for
normal institutional size trading units of debt securities without exclusive
reliance upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
42
<PAGE> 66
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value.
If market quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not representative of true market value, the
fair value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of determination of a Fund's NAV.
A Fund will not price its securities on the following national holidays:
New Year's Day, Presidents' Day, Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day, and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign
securities will be valued at the prior day's close with the current day's
exchange rate. Trading of foreign securities may take place on Saturdays and
U.S. business holidays on which a Fund's NAV is not calculated. Consequently,
a Fund's portfolio securities may trade and the NAV of the Fund's redeemable
securities may be significantly affected on days when a shareholder has no
access to the Fund.
VIII. SPECIAL REDEMPTIONS
Although no Fund would normally do so, each Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Board. When the shareholder sells portfolio
securities received in this fashion it would incur a brokerage charge. Any
such securities would be valued for the purposes of making such payment at the
same value as used in determining net asset value. Each Fund has, however,
elected to be governed by Rule 18f-1 under the 1940 Act. Under that rule, each
Fund must redeem its shares for cash except to the extent that the redemption
payments to any one shareholder during any 90-day period would exceed the
lesser of $250,000 or 1% of the Fund's net asset value at the beginning of that
period.
IX. TAX STATUS
Each series of the Trust, including the Funds, is treated as a separate
entity for accounting and tax purposes. It is each Fund's intention to elect
to be treated and to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"), for each
taxable year. As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its distributions, and
the diversification of its assets, a Fund will not be subject to Federal income
tax on taxable income (including net realized capital gains) which is
distributed to shareholders at least annually.
43
<PAGE> 67
Distributions of net investment income (which includes accrued original
issue discount and accrued, recognized market discount) and any net realized
capital gains, as computed for Federal income tax purposes, will be taxable as
described in the Prospectuses whether made in shares or in cash. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for Federal income tax purposes in each share so received equal to
the amount of cash they would have received had they taken the distribution in
cash.
If a Fund invests (either directly or through depository receipts such as
ADRs, GDRs or EDRs) in certain non-U.S. corporations that receive at least 75%
of their annual gross income from passive sources (such as sources that produce
interest, dividend, rental, royalty or capital gain income) or hold at least
50% of their assets in such passive sources ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Funds
would not be able to pass through to their respective shareholders any credit
or deduction for such a tax. In certain cases, an election may be available
that would ameliorate these adverse tax consequences. Accordingly, the Funds
may limit their investments in such passive foreign investment companies and
will undertake appropriate actions, including the consideration of any
available elections, to limit their tax liability, if any, with respect to such
investments.
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to a Fund's investment in stock or securities may increase the amount
of gain it is deemed to recognize from the sale of certain investments held for
less than three months, which gain is limited under the Code to less than 30%
of its annual gross income, and may under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its annual gross income.
The amount of net realized capital gains, if any, in any given year will
result from sales of securities or transactions in options or futures contracts
made with a view to the maintenance of a portfolio believed by the respective
Fund's management to be most likely to attain such Fund's investment objective.
Such sales, and any resulting gains or losses, may therefore vary considerably
from year to year. Since, at the time of an investor's purchase of Fund
shares, a portion of the per share net asset value by which the purchase price
is determined may be represented by realized or unrealized appreciation in a
Fund's portfolio or undistributed taxable income of a Fund, subsequent
distributions (or portions thereof) on such shares may be taxable to such
investor even if the net asset value of his shares is, as a result of the
distributions, reduced below his cost for such shares and the distributions (or
portions thereof) in reality represent a return of a portion of the purchase
price.
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Upon a redemption of shares (including by exercise of the exchange
privilege), a shareholder will ordinarily realize a taxable gain or loss
depending upon his basis in his shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands and will be long-term or short-term, depending upon the shareholder's
holding period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to the Dividend Reinvestment Plan. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital
loss to the extent of any amounts treated as distributions of long-term capital
gain with respect to such shares.
The Funds reserve the right to retain and reinvest all or any portion of
the excess, as computed for Federal income tax purposes, of net long-term
capital gain over net short-term capital loss in any year. Although each
Fund's present intention is to distribute all net realized capital gains, if
any, the Fund will not in any event distribute net long-term capital gains
realized in any year to the extent that a capital loss is carried forward from
prior years against such gain. To the extent such excess was retained and not
exhausted by the carryforward of prior years' capital losses, it would be
subject to Federal income tax in the hands of the Fund. Each shareholder would
be treated for Federal income tax purposes as if such Fund had distributed to
him on the last day of its taxable year his pro rata share of such excess, and
he had paid his pro rata share of the taxes paid by such Fund and reinvested
the remainder in the Fund. Accordingly, each shareholder would (a) include his
pro rata share of such excess as long-term capital gain income in his return
for his taxable year in which the last day of the Fund's taxable year falls,
(b) be entitled either to a tax credit on his return for, or a refund of, his
pro rata share of the taxes paid by the Fund, and (c) be entitled to increase
the adjusted tax basis for his Fund shares by the difference between his pro
rata share of such excess and his pro rata share of such taxes.
For Federal income tax purposes, each Fund is permitted to carry forward a
net realized capital loss in any year to offset net realized capital gains of
that Fund, if any, during the eight years following the year of the loss. To
the extent subsequent net realized capital gains are offset by such losses,
they would not result in Federal income tax liability to a Fund and, as noted
above, would not be distributed as such to shareholders. Presently, there are
no realized capital loss carry forwards in any of the Funds to offset against
future net realized capital gains.
With respect to any Fund that receives dividends from U.S. domestic
corporations, a portion of its distributions representing such dividend income
is normally eligible for the dividends-received deduction for corporations.
Distributions from other sources, including long-term capital gain
distributions, do not qualify for the dividends-received deduction allowable to
corporations. Corporate shareholders which borrow to acquire or retain Fund
shares will be denied a portion of the dividends-received deduction, and
corporate shareholders will not be eligible for any deduction if they fail to
meet applicable holding period requirements. The entire qualifying dividend,
including the otherwise
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<PAGE> 69
deductible amount, will be included in determining the excess (if any) of a
corporation's adjusted current earnings over its alternative minimum taxable
income, which may increase a corporate shareholder's alternative minimum tax
liability, if any. Such shareholder's tax basis in its Fund shares may also be
reduced to the extent of any "extraordinary dividends," as determined under
applicable Code provisions.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their
tax advisers for more information.
Certain entities otherwise exempt from federal income taxes (such as
pension plans, Individual Retirement Accounts and other exempt organizations)
are nevertheless taxable under Section 511 of the Code on unrelated business
taxable income ("UBTI"). UBTI is income from an unrelated trade or business
(as defined in Section 513 of the Code) regularly carried on. A tax-exempt
entity is subject to tax on UBTI in any taxable year at corporate tax rates or,
in the case of certain trusts, at the rates applicable to trusts. Tax-exempt
entities with gross income, included in computing UBTI, of $1,000 or more must
report UBTI, if any, on Form 990-T. Dividends, interest and capital gain
realized on the sale of property held for investment are generally excluded
from UBTI. However, income from such sources will be included in UBTI if
"acquisition indebtedness" exists with respect to the property generating such
income. Acquisition indebtedness ordinarily includes the unpaid amount of
indebtedness incurred to acquire or to continue to hold the property. Based on
these rules, a tax-exempt investor holding shares in the Funds for investment
will not generally recognize unrelated business taxable income from such
investment in the Funds unless the tax-exempt investor incurred indebtedness to
acquire or to continue to hold Fund shares and such indebtedness remains unpaid
during the relevant period(s).
Each Fund that invests in securities of foreign issuers may be subject to
withholding and other taxes imposed by foreign countries with respect to its
investments in foreign securities. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes. With respect to each
Fund, other than International Equity Fund and Global Bond Fund, because more
than 50% of the Fund's total assets at the close of any taxable year will not
consist of stock or securities of foreign corporations, the Funds will not be
able to pass such taxes through to their shareholders, who in consequence will
not be able to include any portion of such taxes in their incomes and will not
be entitled to tax credits or deductions with respect to such taxes. However,
such Funds will be entitled to deduct such taxes in determining the amounts
they must distribute in order to avoid Federal income tax. If more than 50% of
the value of the total assets of International Equity Fund or Global Bond Fund
at the close of any taxable year consists of stock or securities of foreign
corporations, the applicable Fund may file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
(i) include in ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid by the Fund even
though not actually received, and (ii) treat such respective pro rata portions
as foreign income taxes paid by them.
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If the election is made, shareholders of the applicable Fund may then
deduct such pro rata portions of foreign income taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for Federal income tax purposes will not,
however, be able to deduct their pro rata portion of foreign taxes paid by
International Equity Fund or Global Bond Fund, although such shareholders will
be required to include their shares of such taxes in gross income.
Shareholders who claim a foreign tax credit for such foreign taxes may be
required to treat a portion of dividends received from the relevant Fund as a
separate category of income for purposes of computing the limitations on the
foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year that International Equity Fund or Global Bond Fund
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of foreign income taxes paid by
the Fund and (ii) the portion of Fund dividends which represents income from
each foreign country.
Each Fund that invests in zero coupon securities or certain PIK or
increasing rate securities and any other securities with original issue
discount (or with market discount if the Fund elects to include market discount
in income currently) accrues income on such securities prior to the receipt of
the corresponding cash payments. Each Fund must distribute, at least annually,
all or substantially all of its net income, including such accrued income, to
shareholders to qualify as a regulated investment company under the Code and
avoid Federal income and excise taxes. Therefore, a Fund may have to dispose
of its portfolio securities under disadvantageous circumstances to generate
cash, or may have to leverage itself by borrowing the cash, to satisfy
distribution requirements.
Dividend Performers Fund, Active Bond Fund and Global Bond Fund may invest
in debt obligations that are in the lower rating categories or are unrated,
including debt obligations of issuers not currently paying interest as well as
issuers who are in default. Investments in debt obligations that are at risk
of or in default present special tax issues for the Funds. Tax rules are not
entirely clear about issues such as when the Funds may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by Dividend Performers Fund,
Active Bond Fund and Global Bond Fund, in the event they invest in such
securities, in order to ensure that they distribute sufficient income to
preserve their status as regulated investment companies and to avoid becoming
subject to Federal income or excise tax.
With respect to each Fund that may enter into forwards, futures and
options transactions, limitations imposed by the Code on regulated investment
companies may restrict the Funds' ability to enter into such transactions. The
options and futures transactions undertaken by a Fund may cause the Fund to
recognize gains or losses from marking to market even though its positions have
not been sold or terminated and affect their character as long-term or
short-term and timing of some capital gains and losses realized by the Fund.
Also, a Fund's losses on its transactions involving options and futures
contracts and/or offsetting portfolio positions may be deferred rather than
being taken into account
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currently in calculating the Fund's taxable income. A Fund's foreign currency
forward contracts may also be subject to certain of these rules in addition to
the provisions of Section 988 of the Code, described above. These transactions
may thereafter affect the amount, timing and character of the Funds'
distributions to shareholders. The Funds will take into account the special
tax rules applicable to options, futures and forward transactions in order to
minimize any potential adverse tax consequences.
Each Fund will be subject to a four percent nondeductible Federal excise
tax on certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum distribution
requirements. Each Fund intends, under normal circumstances, to avoid
liability for such tax by satisfying such distribution requirements.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the exchange or redemption of Fund shares may also be subject to
state and local taxes. Shareholders should consult their own tax advisers as
to the Federal, state or local tax consequences of ownership of shares of the
Fund in particular circumstances.
Foreign investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal income
tax treatment that is different from that described above, including a possible
30% U.S. withholding tax (or lower treaty rate) on dividends representing
ordinary income, and should consult their tax advisers regarding such treatment
and the application of foreign taxes to an investment in the Funds.
The Funds are not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Funds qualify as regulated investment companies under
the Code, they will also not be required to pay any Massachusetts income tax.
X. DESCRIPTION OF THE TRUST'S SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Funds. The Declaration of Trust, dated October 31, 1994, as
amended from time to time, permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of the Funds, without par
value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this SAI, the Trustees have
authorized shares of twelve series. Additional series may be added in the
future. The Declaration of Trust also authorizes the Trustees to classify and
reclassify the shares of the Funds, or any other series of the Trust, into one
or more classes. As of the date of this SAI, the Trustees have not authorized
the issuance of additional classes of shares.
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Each share of a Fund represents an equal proportionate interest in the
assets belonging to that Fund. When issued, shares are fully paid and
nonassessable except as provided in the Prospectuses under the caption
"Organization and Management of the Funds." In the event of liquidation of a
Fund, shareholders are entitled to share PRO RATA in the net assets of the Fund
available for distribution to such shareholders. Shares of the Trust are
freely transferable and have no preemptive, subscription or conversion rights.
In accordance with the provisions of the Declaration of Trust, the
Trustees have initially determined that shares entitle their holders to one
vote per share on any matter on which such shares are entitled to vote. The
Trustees may determine in the future, without the vote or consent of
shareholders, that each dollar of net asset value (number of shares owned times
net asset value per share) will be entitled to one vote on any matter on which
such shares are entitled to vote.
Unless otherwise required by the 1940 Act or the Declaration of Trust, the
Trust has no intention of holding annual meetings of shareholders. Trust
shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the
record holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. However, the Trust's Declaration of Trust contains
an express disclaimer of shareholder liability for acts, obligations or affairs
of the Trust. The Declaration of Trust also provides for indemnification out
of the Trust's assets for all losses and expenses of any shareholder held
personally liable by reason of being or having been a shareholder. The
Declaration of Trust also provides that no series of the Trust shall be liable
for the liabilities of any other series. Liability is therefore limited to
circumstances in which a Fund itself would be unable to meet its obligations,
and the possibility of this occurrence is remote.
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XI. CALCULATION OF PERFORMANCE
YIELD
- -----
A Fund's yield is computed by dividing its net investment income per share
determined for a 30-day period by the maximum offering price per share on the
last day of the period, according to the following standard formula:
A-B
--- 6
YIELD = 2 [ ( CD + 1) -1]
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV).
TOTAL RETURN
- ------------
A Fund's total return is computed by finding the average annual compounded
rate of return over the indicated period that would equate the initial amount
invested to the ending redeemable value according to the following formula:
______
T = \n/ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
investment made at the beginning of the indicated period.
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This calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period.
In addition to average annual total returns, the Funds may quote
unaveraged or cumulative total returns reflecting the change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period.
From time to time, in reports and promotional literature, a Fund's total
return will be ranked or compared to indices of mutual funds and bank deposit
vehicles. Such indices may include Lipper Analytical Services, Inc.'s "Lipper-
Mutual Performance Analysis," a monthly publication which tracks net assets and
total return on equity mutual funds in the United States, as well as those
published by Frank Russell, Callan Associates, Wilshire Associates and SEI.
Performance rankings and ratings reported periodically in national
financial publications including, but not limited to, Money magazine, Forbes,
Business Week, The Wall Street Journal, Micropal, Inc., Morningstar, Stanger's,
Barron's, Pensions & Investments, and Institutional Investor, will also be
utilized.
The performance of the Funds is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of any
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease a
Fund's performance.
XII. BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities of the
Funds are made by officers of the Trust pursuant to recommendations made by an
investment policy committee of the Adviser, which consists of officers and
directors of the Adviser, corresponding Subadviser (if applicable), officers
and Trustees who are interested persons of the Trust. Orders for purchases and
sales of securities are placed in a manner, which, in the opinion of the
officers of the Trust, will offer the best price and market for the execution
of each such transaction. Purchases from underwriters of portfolio securities
may include a commission or commissions paid by the issuer and transactions
with dealers serving as market makers reflect a "spread." Debt securities are
generally traded on a net basis through dealers acting for their own account as
principals and not as brokers; no brokerage commissions are payable on such
transactions.
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Each Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. The policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing
primary policy, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of the Funds as a factor in the
selection of broker-dealers to execute a Fund's portfolio transactions.
To the extent consistent with the foregoing, each Fund will be governed in
the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research
information and to a lesser extent statistical assistance furnished to the
Adviser and corresponding Subadviser (if applicable) of the Funds. It is not
possible to place a dollar value on information and services to be received
from brokers and dealers, since it is only supplementary to the research
efforts of the Adviser and corresponding Subadviser (if applicable). The
receipt of research information is not expected to reduce significantly the
expenses of the Adviser and Subadviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may
result in research information and statistical assistance beneficial to the
Funds. Similarly, research information and assistance provided to a Subadviser
by brokers and dealers may benefit other advisory clients or affiliates of such
Subadviser. The Funds will not make any commitment to allocate portfolio
transactions upon any prescribed basis. While the Adviser, in connection with
the corresponding Subadviser (if applicable), will be primarily responsible for
the allocation of the Funds' brokerage business, the policies and practices of
the Adviser in this regard must be consistent with the foregoing and will, at
all times, be subject to review by the Trustees.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, each
Fund may pay to a broker which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which
another broker would have charged for effecting that transaction. This
practice is subject to a good faith determination by the Trustees that such
price is reasonable in light of the services provided and to such policies as
the Trustees may adopt from time to time.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its
subsidiaries, two of which, Tucker Anthony Incorporated and Sutro & Company,
Inc., are broker-dealers. In addition, John Hancock Distributors, Inc., an
indirect wholly-owned subsidiary of the Life Company, is a broker-dealer
(together with Tucker Anthony Incorporated and Sutro & Company, "Affiliated
Brokers"). Pursuant to procedures adopted by the Trustees consistent with the
above policy of obtaining best net results, each Fund may execute portfolio
transactions with or through the Affiliated Brokers.
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Any of the Affiliated Brokers may act as broker for the Funds on exchange
transactions, subject, however, to the general policy of the Funds set forth
above and the procedures adopted by the Trustees pursuant to the 1940 Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Trustees believe to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if a Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers except for accounts for which
the Affiliated Broker acts as clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Trustees who are not interested persons (as defined in the
1940 Act) of the Funds, the Adviser, the corresponding Subadviser (if
applicable) or the Affiliated Broker. Because the Adviser, which is affiliated
with the Affiliated Brokers, and the corresponding Subadviser (if applicable),
have, as investment advisers to the Funds, the obligation to provide investment
management services, which includes elements of research and related investment
skills, such research and related skills will not be used by the Affiliated
Broker as a basis for negotiating commissions at a rate higher than that
determined in accordance with the above criteria. The Funds will not effect
principal transactions with Affiliated Brokers.
Other investment advisory clients advised by the Adviser may also invest
in the same securities as the Funds. When these clients buy or sell the same
securities at substantially the same time, the Adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including the
Funds. In some instances, this investment procedure may adversely affect the
price paid or received by a Fund or the size of the position obtainable for it.
On the other hand, to the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for the Funds with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
XIII. TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9277, Boston, MA
02205-9277, a wholly-owned indirect subsidiary of the Life Company is the
transfer and dividend paying agent for each Fund. Each Fund pays Investor
Services an annual fee accrued daily of 0.05% of the its average daily net
assets, plus certain out-of-pocket expenses.
XIV. CUSTODY OF PORTFOLIO
Portfolio securities of International Equity Fund and Global Bond Fund are
held pursuant to a Master Custodian Agreement, as amended, between the Adviser
and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110. Portfolio securities of the other Funds are held pursuant
to a Master Custodian Agreement, as amended, between the Adviser and Investors
Bank & Trust Company, 24 Federal Street, Boston, Massachusetts 02205-9116.
Under the Master Custodian Agreements, Investors Bank & Trust Company and State
Street Bank and Trust Company perform custody, portfolio and fund accounting
services for their respective Funds.
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XV. INDEPENDENT AUDITORS
The independent accountants of the John Hancock Series Funds are Deloitte
& Touche LLP, 125 Summer Street, Boston, Massachusetts 02110. The independent
accountants of the Independence Funds are Arthur Andersen LLP, One
International Place, Boston, Massachusetts 02110-2640. Arthur Andersen LLP and
Deloitte & Touche LLP audit and render opinions on their respective Funds'
annual financial statements and review their respective Funds' annual Federal
income tax returns.
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APPENDIX A
----------
DESCRIPTION OF SECURITIES RATINGS(1)
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
- -------------------------------
1 The ratings described here are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise these ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
those which would be given to these securities on the date of a Fund's fiscal
year-end.
A1
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Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
The ratings described here are believed to be the most recent ratings available
at the date of this SAI for the securities listed. Ratings are generally given
to securities at the time of issuance. While the rating agencies may from time
to time revise these ratings, they undertake no obligation to do so, and the
ratings indicated do not necessarily represent those which would be given to
these securities on the date of a Fund's fiscal year-end.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
A2
<PAGE> 80
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-I or P-1
repayment ability will often be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
A3
<PAGE> 81
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
A4
<PAGE> 82
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus of minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "P" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
L: The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit collateral is
insured by the Federal Saving & Loan Insurance Corp. or the Federal Deposit
Insurance Corp. and interest is adequately collateralized. In the case of
certificates of deposit the letter "L" indicates that the deposit, combined
with other deposits, being held in the same right and capacity will be honored
for principal and accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured institution or, in the event
that the deposit is assumed by a successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate
a particular type of obligation as a matter of policy.
COMMERCIAL PAPER
Standard & Poor's describes its three highest ratings for commercial paper as
follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
********
A5
<PAGE> 83
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. A Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
A6
<PAGE> 84
APPENDIX B
- ----------
ECONOMIC SECTORS IN WHICH MULTI-SECTOR GROWTH FUND MAY INVEST
As more fully described in the John Hancock Series Funds' Prospectus, Multi-
Sector Growth Fund seeks to achieve its investment objective by varying the
weight in of its portfolio among the following sixteen economic sectors:
1. AUTOMOTIVE AND HOUSING SECTOR: companies engaged in the design, production
and sale of automobiles, automobile parts, mobile homes and related products,
and in the design, construction, renovation and refurbishing of residential
dwellings. The value of automobile industry securities is affected by foreign
competition, consumer confidence, consumer debt and installment loan rates.
The housing construction industry is affected by the level of consumer
confidence, consumer debt, mortgage rates and the inflation outlook.
2. CONSUMER GOODS AND SERVICES SECTOR: companies engaged in providing
consumer goods and services such as: the design, processing, production and
storage of packaged, canned, bottled and frozen foods and beverages; and the
design, production and sale of home furnishings, appliances, clothing,
accessories, cosmetics and perfumes. Certain such companies are subject to
government regulation affecting the permissibility of using various food
additives and production methods, which regulations could affect company
profitability. Also, the success of food- and fashion-related products may be
strongly affected by fads, marketing campaigns and other factors affecting
supply and demand.
3. DEFENSE AND AEROSPACE SECTOR: companies engaged in the research,
manufacture or sale of products or services related to the defense and
aerospace industries, such as: air transport; data processing or
computer-related services; communications systems; military weapons and
transportation; general aviation equipment, missiles, space launch vehicles and
spacecraft; units for guidance, propulsion and control of flight vehicles; and
airborne and ground-based equipment essential to the test, operation and
maintenance of flight vehicles. Since such companies rely largely on U.S. (and
other) governmental demand for their products and services, their financial
conditions are heavily influenced by Federal (and other governmental) defense
spending policies.
4. ENERGY SECTOR: companies in the energy field, including oil, gas,
electricity and coal as well as nuclear, geothermal, oil shale and solar
sources of energy. The business activities of companies comprising this sector
may include: production, generation, transmission, marketing, control or
measurement of energy or energy fuels; provision of component parts or services
to companies engaged in such activities; energy research or experimentation;
environmental activities related to the solution of energy problems; and
activities resulting from technological advances or research discoveries in the
energy field. The value of such companies' securities varies based on the
price and supply of energy fuels and may be affected by events relating to
international politics, energy conservation, the success of exploration
projects, and the tax and other regulatory policies of various governments.
B1
<PAGE> 85
5. FINANCIAL SERVICES SECTOR: companies providing financial services to
consumers and industry, such as: commercial banks and thrift institutions;
consumer and industrial finance companies; securities brokerage companies;
leasing companies; and firms in all segments of the insurance field (such as
multiline, property and casualty, and life insurance). These kinds of
companies are subject to extensive governmental regulations, some of which
regulations are currently being studied by Congress. The profitability of
these groups may fluctuate significantly as a result of volatile interest rates
and general economic conditions.
6. HEALTH CARE SECTOR: companies engaged in the design, manufacture or sale
of products or services used in connection with health care or medicine, such
as: pharmaceutical companies; firms that design, manufacture, sell or supply
medical, dental and optical products, hardware or services; companies involved
in biotechnology, medical diagnostic and biochemical research and development;
and companies involved in the operation of health care facilities. Many of
these companies are subject to government regulations, which could affect the
price and availability of their products and services. Also, products and
services in this sector could quickly become obsolete.
7. HEAVY INDUSTRY SECTOR: companies engaged in the research, development,
manufacture or marketing of products, processes or services related to the
agriculture, chemicals, containers, forest products, non-ferrous metals, steel
and pollution control industries, such as: synthetic and natural materials,
for example, chemicals, plastics, fertilizers, gases, fibers, flavorings and
fragrances; paper, wood products; steel and cement. Certain companies in this
sector are subject to regulation by state and Federal authorities, which could
require alteration or cessation of production of a product, payment of fines or
cleaning of a disposal site. In addition, since some of the materials and
processes used by these companies involve hazardous components, there are risks
associated with their production, handling and disposal. The risk of product
obsolescence is also present.
8. LEISURE AND ENTERTAINMENT SECTOR: companies engaged in the design,
production or distribution of goods or services in the leisure industry, such
as: television and radio broadcast or manufacture; motion picture and
photography; recordings and musical instruments; publishing; sporting goods,
camping and recreational equipment; sports arenas; toys and games; amusement
and theme parks; travel-related services and airlines; hotels and motels; fast
food and other restaurants; and gaming casinos. Many products produced by
companies in this sector - for example, video and electronic games - may
quickly become obsolete.
9. MACHINERY AND EQUIPMENT SECTOR: companies engaged in the research,
development or manufacture of products, processes or services relating to
electrical equipment, machinery, pollution control and construction services,
such as: transformers, motors, turbines, hand tools, earth-moving equipment
and waste disposal services. The profitability of most companies in this group
may fluctuate significantly in response to capital spending and general
economic conditions. Since some of the materials and processes used by these
companies involve hazardous components, there are risks associated with their
production, handling and disposal. The risk of product obsolescence is also
present.
B2
<PAGE> 86
10. PRECIOUS METALS SECTOR: companies engaged in exploration, mining,
processing or dealing in gold, silver, platinum, diamonds or other precious
metals or companies which, in turn, invest in companies engaged in these
activities. A significant portion of this sector may be represented by
securities of foreign companies, and investors should understand the special
risks related to such an investment emphasis. Also, such securities depend
heavily on prices in metals, some of which may experience extreme price
volatility based on international economic and political developments.
11. RETAILING SECTOR: companies engaged in the retail distribution of home
furnishings, food products, clothing, pharmaceuticals, leisure products and
other consumer goods, such as: department stores; supermarkets; and retail
chains specializing in particular items such as shoes, toys or pharmaceuticals.
The value of securities in this sector will fluctuate based on consumer
spending patterns, which depend on inflation and interest rates, level of
consumer debt and seasonal shopping habits. The success or failure of a
particular company in this highly competitive sector will depend on such
company's ability to predict rapidly changing consumer tastes.
12. TECHNOLOGY SECTOR: companies which are expected to have or develop
products, processes or services which will provide or will benefit
significantly from technological advances and improvements or future automation
trends in the office and factory, such as: semiconductors; computers and
peripheral equipment; scientific instruments; computer software;
telecommunications; and electronic components, instruments and systems. Such
companies are sensitive to foreign competition and import tariffs. Also, many
products produced by companies in this sector may quickly become obsolete.
13. TRANSPORTATION SECTOR: companies involved in the provision of
transportation of people and products, such as airlines, railroads and trucking
firms. Revenues of companies in this sector will be affected by fluctuations
in fuel prices resulting from domestic and international events, and government
regulation of fares.
14. UTILITIES SECTOR: companies in the public utilities industry and
companies deriving a substantial majority of their revenues through supplying
public utilities such as: companies engaged in the manufacture, production,
generation, transmission and sale of gas and electric energy; and companies
engaged in the communications field, including telephone, telegraph, satellite,
microwave and the provision of other communications facilities to the public.
The gas and electric public utilities industries are subject to various
uncertainties, including the outcome of political issues concerning the
environment, price of fuel for electric generation, availability of natural
gas, and risks associated with the construction and operation of nuclear power
facilities.
15. FOREIGN SECTOR: companies whose primary business activity takes place
outside of the Untied States. The securities of foreign companies would be
heavily influenced by the strength of national economies, inflation levels and
the value of the U.S. dollar versus foreign currencies. Investments in the
Foreign Sector will be subject to certain risks not generally associated with
domestic investments. Such investments may be favorably or unfavorably
affected by changes in interest rates, currency exchange rates and exchange
control regulations, and costs may be incurred in connection with conversions
B3
<PAGE> 87
between currencies. In addition, investments in foreign countries could be
affected by less favorable tax provisions, less publicly available information,
less securities regulations, political or social instability, limitations on
the removal of funds or other assets of the Fund, expropriation of assets,
diplomatic developments adverse to U.S. investments and difficulties in
enforcing contractual obligations.
16. ENVIRONMENTAL SECTOR: companies that are engaged in the research,
development, manufacture or distribution of products, processes or services
related to pollution control, waste management or pollution/waste remediation,
or that provide alternative energies such as natural gas, water utilities and
clean renewable fuels such as solar, geothermal and hydropower, various
technologies that make coal burning cleaner, notably scrubbers, emission
monitoring and control equipment, biodegradable products and materials, or new
biotechnological products favoring the environment such as non-chemical
pesticides. These companies may have broadly-diversified business segments or
lines of business, only one or several of which are in the environmental
sector.
B4
<PAGE> 88
John Hancock Funds
Independence
Value Fund
November 30, 1995
<PAGE> 89
John Hancock Funds - Independence Value Fund
DIRECTORS
Edward J. Boudreau, Jr.
Thomas W.L. Cameron
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr. *
Charles L. Ladner*
Leo E. Linbeck*
Patricia P. McCarter *
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.) *
John P. Toolan *
* Members of the 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
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
John A. Morin
Vice President
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, Massachusetts 02205-9277
INVESTMENT ADVISER
John Hancock Advisers, Inc
101 Huntington Avenue
Boston, Massachusetts 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, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
<PAGE> 90
John Hancock Funds - Independence Value Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
-------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $496,842) $516,537
Joint repurchase agreement (cost - $4,000) 4,000
Corporate savings account 543
--------
521,080
Dividends and interest receivable 2,121
Receivable from John Hancock Advisers, Inc. - Note B 13,004
Deferred organization expenses - Note A 41,369
--------
Total Assets 577,574
--------------------------------------------------------
LIABILITIES:
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 1,690
Accounts payable and accrued expenses 53,459
--------
Total Liabilities 55,149
--------------------------------------------------------
NET ASSETS:
Capital paid-in 500,025
Net unrealized appreciation of investments 19,695
Undistributed net investment income 2,705
--------
Net Assets $522,425
========================================================
NET ASSET VALUE PER SHARE:
(based on 58,826
shares of beneficial interest outstanding - unlimited number
of shares authorized with no par value) $8.88
===============================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 91
John Hancock Funds - Independence Value Fund
<TABLE>
STATEMENT OF OPERATIONS
For the period October 2, 1995 (commencement of operations) to
November 30, 1995 (Unaudited)
- ------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $9) $ 3,100
Interest 381
-------
3,481
Expenses:
Auditing fee 4,523
Custodian fee 3,279
Investment management fee - Note B 1,590
Organization expense - Note A 1,382
Printing 1,377
Legal fees 865
Registration and filing fees 566
Transfer agent fee - Note B 99
Miscellaneous 98
-------
Total Expenses 13,779
Less expenses reimbursable by
John Hancock Advisers, Inc. - Note B (13,003)
------------------------------------------------------------------
Net Expenses 776
------------------------------------------------------------------
Net Investment Income 2,705
------------------------------------------------------------------
UNREALIZED GAIN ON INVESTMENTS
Change in net unrealized appreciation/
depreciation of investments 19,695
-------
Net Increase in Net Assets
Resulting from Operations $22,400
==================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 92
John Hancock Funds - Independence Value Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
OCTOBER 2, 1995
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30, 1995
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 2,705
Change in net unrealized appreciation/depreciation of investments 19,695
--------
Net Increase in Net Assets Resulting from Operations 22,400
--------
FROM FUND SHARE TRANSACTIONS - NET* 500,025
--------
NET ASSETS:
Beginning of period --
--------
End of period (including undistributed net investment income of $2,705) $522,425
========
</TABLE>
<TABLE>
*ANALYSIS OF FUND SHARE TRANSACTIONS:
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
(UNAUDITED)
------------------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares sold 58,832 $500,075
Less shares repurchased (6) (50)
------------------------------
Net increase and shares outstanding end of period 58,826 $500,025
==============================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 93
John Hancock Funds - Independence Value Fund
<TABLE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout the period, total
investment return, key ratios and supplemental data.
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
(UNAUDITED)
------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $ 8.50 (b)
------
Net Investment Income 0.05
Net Unrealized Gain on Investments 0.33
------
Total from Investment Operations 0.38
Net Asset Value, End of Period $ 8.88
======
Total Investment Return at Net Asset Value (e) 4.47% (c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $ 522
Ratio of Expenses to Average Net Assets 0.95% *
Ratio of Adjusted Expenses to Average Net Assets (a) (d) 16.87% *
Ratio of Net Investment Income to Average Net Assets 3.31% *
Ratio of Adjusted Net Investment Loss to Average Net Assets (a) (d) (12.61%) *
Portfolio Turnover Rate 0%
<FN>
* 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 are expected to increase as the net assets of the Fund grow. "(e)
Without the reimbursement, total investment return would have been lower."
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 94
JOHN HANCOCK FUNDS - INDEPENDENCE VALUE FUND
<TABLE>
SCHEDULE OF INVESTMENTS
November 30, 1995 (Unaudited)
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -------
<S> <C> <C>
COMMON STOCKS
AEROSPACE ( 4.50%)
Boeing Co. (The) 100 $ 7,288
Lockheed Martin Corp. 100 7,337
Raytheon Co. 200 8,900
------
23,525
------
AUTOMOBILE/TRUCK ( 4.96%)
Chrysler Corp. 200 10,375
Dana Corp. 200 5,850
General Motors Corp. 200 9,700
------
25,925
------
BANKS ( 14.64%)
BankAmerica Corp. 200 12,725
Chemical Banking Corp. 100 6,000
Citicorp 200 14,150
First Union Corp. 100 5,462
Fleet Financial Group, Inc. 300 12,525
KeyCorp 100 3,687
NationsBank Corp. 200 14,275
NBD Bancorp, Inc. 200 7,675
------
76,499
------
BEVERAGES ( 1.06%)
PepsiCo, Inc. 100 5,525
------
BUILDING PRODUCTS ( 1.13%)
Masco Corp. 200 5,900
------
CHEMICALS ( 5.16%)
Eastman Chemical Co. 100 6,562
Hercules, Inc. 100 5,487
Monsanto Co. 100 11,450
Morton International, Inc. 100 3,463
------
26,962
------
DIVERSIFIED OPERATIONS (0.81%)
Ogden Corp. 200 4,250
------
DRUGS ( 1.54%)
Bristol-Myers Squibb Co. 100 8,025
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 95
JOHN HANCOCK FUNDS - INDEPENDENCE VALUE FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -------
<S> <C> <C>
ELECTRONICS ( 1.94%)
Analog Devices, Inc. ** 100 $ 3,700
General Motors Corp.(Class H) 100 4,750
Integrated Device Technology, Inc. ** 100 1,700
------
10,150
------
ENGINEERING ( 0.91%)
AlliedSignal, Inc. 100 4,725
------
FINANCE ( 2.81%)
Ahmanson (H.F.) & Co. 200 5,350
American Express Co. 100 4,250
Dean Witter Discover & Co. 100 5,100
------
14,700
------
FOODS ( 0.66%)
Archer Daniels Midland Co. 200 3,450
------
INSURANCE ( 8.53%)
Aetna Life & Casualty Co. 100 7,337
Allstate Corp. 200 8,200
Cigna Corp. 100 11,000
Lincoln National Corp. 200 9,350
Marsh & McLennan Cos., Inc. 100 8,675
------
44,562
------
MEDICAL/DENTAL ( 0.80%)
Baxter International, Inc. 100 4,200
------
OFFICE EQUIPMENT & SUPPLIES (2.63%)
Xerox Corp. 100 13,712
------
OIL & GAS ( 14.28%)
Amoco Corp. 100 6,775
Anadarko Petroleum Corp. 100 4,812
Chevron Corp. 200 9,875
Exxon Corp. 300 23,213
Halliburton Co. 100 4,338
Mobil Corp. 100 10,438
Sun Co., Inc. 200 5,550
Tenneco, Inc. 200 9,600
------
74,601
------
PAPER ( 1.47%)
Kimberly-Clark Corp. 100 7,688
------
POLLUTION CONTROL ( 0.58%)
Browning-Ferris Industries, Inc. 100 3,012
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 96
JOHN HANCOCK FUNDS - INDEPENDENCE VALUE FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- --------
<S> <C> <C>
RETAIL ( 4.10%)
Albertson's, Inc. 200 $ 6,150
Federated Department Stores, Inc. ** 200 5,825
Price/Costco Inc. ** 200 3,325
Ryan's Family Steak Houses, Inc. ** 200 1,475
Toys R Us, Inc. ** 200 4,650
-------
21,425
-------
RUBBER (0.81%)
Goodyear Tire & Rubber Co. 100 4,238
-------
SOAP & CLEANING PREPARATIONS ( 1.03%)
Dial Corp. 200 5,400
-------
STEEL ( 1.16%)
AK Steel Holding Corp. 100 3,462
British Steel, PLC,
American Depository Receipt, (ADR) 100 2,600
-------
6,062
-------
TELECOMMUNICATIONS ( 9.77%)
BellSouth Corp. 200 7,775
GTE Corp. 500 21,313
MCI Communications Corp. 300 8,025
NYNEX Corp. 200 9,925
Sprint Corp 100 4,000
-------
51,038
-------
TOBACCO ( 2.31%)
Philip Morris Cos., Inc. 100 8,775
UST, Inc. 100 3,263
-------
12,038
-------
UTILITIES ( 11.28%)
Baltimore Gas & Electric Co. 600 15,975
Consolidated Natural Gas Co. 100 4,437
Houston Industries, Inc. 300 13,725
LG&E Energy Corp. 200 8,250
Pacific Telesis Group 200 6,000
Panhandle Eastern Corp. 100 2,838
Texas Utilities Co. 200 7,700
-------
58,925
-------
TOTAL COMMON STOCKS
(Cost $496,842) (98.87%) 516,537
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 97
JOHN HANCOCK FUNDS - INDEPENDENCE VALUE FUND
<TABLE>
<CAPTION>
INTEREST MARKET
ISSUER, DESCRIPTION RATE PAR VALUE VALUE
- ------------------- -------- --------- --------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.77%)
Investment in a joint repurchase
agreement transaction with U.B.S. Securities
Inc., Dated 11-30-95, due 12-01-95
(secured by U.S. Treasury Bond, 7.25%
due 05-15-16) - Note A 5.91% 4,000 $ 4,000
-------
CORPORATE SAVINGS ACCOUNT (0.10%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.25% 543
-------
TOTAL SHORT-TERM INVESTMENTS ( 0.87%) 4,543
-------------------------------
TOTAL INVESTMENTS (99.74%) $521,080
===============================
<FN>
** Non-income producing security.
</TABLE>
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
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - INDEPENDENCE VALUE FUND
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Independence Value Fund (the "Fund"), a separate
portfolio of 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 Diversified Core Equity Fund II, John
Hancock Independence Growth Fund and John Hancock Independence Medium
Capitalization 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 their 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
to the Fund's operations ratably over a five-year period that began
with the commencement of investment operations of the Fund.
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - INDEPENDENCE VALUE 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) 0.80% of the first $500,000,000 of the Fund's average daily
net asset value and (b) 0.75% 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 0.55% 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 asset value.
The Adviser has agreed to limit Fund expenses further to the extent
required to prevent expenses from exceeding 0.95% of the Fund's
average daily net asset value. Accordingly, the reduction in the
Adviser's fee collectively with any additional amounts not borne by
the Fund by virtue of the expense limit amounted to $13,003 for the
period ended November 30, 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 November 30, 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 November 30, 1995, aggregated
$496,842 and none, respectively. There were no purchases or sales of
the U.S. government and its agencies during the period ended November
30, 1995.
The cost of investments owned at November 30, 1995 (including the
joint repurchase agreement) for Federal income tax purposes was
$500,842. Gross unrealized appreciation and depreciation of
investments aggregated $24,536 and $4,841, respectively, resulting in
net unrealized appreciation of $19,695.
<PAGE> 100
John Hancock Funds
Independence
Growth Fund
November 30, 1995
<PAGE> 101
John Hancock Funds - Independence Growth Fund
DIRECTORS
Edward J. Boudreau, Jr.
Thomas W.L. Cameron
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr. *
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter *
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.) *
John P. Toolan *
* Members of the 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
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
John A. Morin
Vice President
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, Massachusetts 02205-9277
INVESTMENT ADVISER
John Hancock Advisers, Inc
101 Huntington Avenue
Boston, Massachusetts 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, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
<PAGE> 102
John Hancock Funds - Independence Growth Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
- ----------------- ------------------------------------------ --------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $497,792) $515,975
Joint repurchase agreement (cost - $3,000) 3,000
Corporate savings account 64
--------
519,039
Dividends and interest receivable 909
Receivable from John Hancock Advisers, Inc. - Note B 12,959
Deferred organization expenses - Note A 40,160
--------
Total Assets 573,067
----------------------------------------------------
LIABILITIES:
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 1,681
Accounts payable and accrued expenses 52,210
--------
Total Liabilities 53,891
----------------------------------------------------
NET ASSETS:
Capital paid-in 500,025
Net unrealized appreciation of investments 18,183
Undistributed net investment income 968
--------
NET ASSETS $519,176
====================================================
NET ASSET VALUE PER SHARE:
(based on 58,826
shares of beneficial interest outstanding - unlimited number
of shares authorized with no par value) $8.83
===========================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 103
John Hancock Funds - Independence Growth Fund
<TABLE>
STATEMENT OF OPERATIONS
For the period October 2, 1995 (commencement of operations) to
November 30, 1995 (Unaudited)
- --------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,375
Interest 365
--------
1,740
--------
Expenses:
Auditing fee 4,523
Custodian fee 3,279
Investment management fee - Note B 1,582
Printing 1,377
Organization expense - Note A 1,342
Legal fees 865
Registration and filing fees 566
Transfer agent fee - Note B 99
Miscellaneous 98
--------
Total Expenses 13,731
Less expenses reimbursable by
John Hancock Advisers, Inc. - Note B (12,959)
---------------------------------------------------------
Net Expenses 772
---------------------------------------------------------
Net Investment Income 968
---------------------------------------------------------
UNREALIZED GAIN ON INVESTMENTS
Change in net unrealized appreciation/
depreciation of investments 18,183
--------
Net Increase in Net Assets
Resulting from Operations $ 19,151
=========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 104
John Hancock Funds - Independence Growth Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
FOR THE PERIOD
OCTOBER 2, 1995
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30, 1995
(UNAUDITED)
-----------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 968
Change in net unrealized appreciation/depreciation of investments 18,183
--------
Net Increase in Net Assets Resulting from Operations 19,151
--------
FROM FUND SHARE TRANSACTIONS - NET* 500,025
--------
NET ASSETS:
Beginning of period ----
--------
End of period (including undistributed net investment income of $968) $519,176
========
</TABLE>
<TABLE>
*ANALYSIS OF FUND SHARE TRANSACTIONS:
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
(UNAUDITED)
------------------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares sold 58,832 $500,075
Less shares repurchased (6) (50)
------------------------------
Net increase and shares outstanding end of period 58,826 $500,025
==============================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 105
John Hancock Funds - Independence Growth Fund
<TABLE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period, total investment return, key ratios and supplemental data.
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
(UNAUDITED)
------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $8.50 (b)
-----
Net Investment Income 0.02
Net Unrealized Gain on Investments 0.31
-----
Total from Investment Operations 0.33
-----
Net Asset Value, End of Period $8.83
=====
Total Investment Return at Net Asset Value (e) 3.88% (c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $519
Ratio of Expenses to Average Net Assets 0.95% *
Ratio of Adjusted Expenses to Average Net Assets (a) (d) 16.89% *
Ratio of Net Investment Income to Average Net Assets 1.19% *
Ratio of Adjusted Net Investment Loss to Average Net Assets (a) (d) (14.75%) *
Portfolio Turnover Rate 0%
<FN>
* 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.
(e) Without the reimbursement, total investment return would have been lower.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 106
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
SCHEDULE OF INVESTMENTS
November 30, 1995 (Unaudited)
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -------
<S> <C> <C>
COMMON STOCKS
ADVERTISING (2.02%)
Interpublic Group Cos., Inc. 100 $ 3,838
Omnicom Group, Inc. 100 6,675
-------
10,513
AEROSPACE (1.71%)
Raytheon Co. 200 8,900
-------
APPLIANCES-HOUSEHOLD (0.98%)
Premark International, Inc. 100 5,100
-------
BANKS (2.74%)
Citicorp 100 7,075
NationsBank Corp. 100 7,137
-------
14,212
BEVERAGES (4.26%)
PepsiCo, Inc. 400 22,100
-------
BUILDING PRODUCTS (1.14%)
Masco Corp. 200 5,900
-------
CHEMICALS (5.70%)
Air Products & Chemicals, Inc. 100 5,550
Great Lakes Chemical Corp. 100 7,112
Hercules, Inc. 100 5,488
Monsanto Co. 100 11,450
-------
29,600
COMPUTERS (8.65%)
Cisco Systems, Inc.** 100 8,412
Compaq Computer Corp.** 100 4,950
First Data Corp. 100 7,100
General Motors Class E 200 10,100
Parametric Technology Co.** 100 7,075
Silicon Graphics, Inc.** 200 7,300
-------
44,937
COSMETICS & TOILETRIES (1.40%)
Avon Products, Inc. 100 7,262
-------
DRUGS (10.66%)
Abbott Laboratories 200 8,125
Amgen, Inc.** 100 4,962
Bristol-Myers Squibb Co. 100 8,025
Lilly (Eli) & Co. 100 9,950
Merck & Co., Inc. 300 18,563
Schering-Plough Corp. 100 5,738
-------
55,363
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 107
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
SCHEDULE OF INVESTMENTS
November 30, 1995 (Unaudited)
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -------
<S> <C> <C>
ELECTRONICS (9.61%)
Analog Devices, Inc. ** 200 $ 7,400
Applied Materials, Inc. ** 200 9,725
Duracell International Inc. 100 5,300
Emerson Electric Co. 100 7,800
Integrated Device Technology Inc. ** 200 3,400
LSI Logic Corp. ** 100 4,187
Texas Instruments, Inc. 100 5,788
Tyco International Ltd. 200 6,275
-------
49,875
ENGINEERING (2.16%)
AlliedSignal, Inc. 100 4,725
Fluor Corp. 100 6,500
-------
11,225
FINANCE (3.43%)
American Express Co. 200 8,500
Dean Witter Discover & Co. 100 5,100
Equifax, Inc. 100 4,188
-------
17,788
FOODS (2.79%)
CPC International, Inc. 100 6,875
Kellogg Co. 100 7,637
-------
14,512
HOTELS & MOTELS (0.72%)
Marriott International Inc. 100 3,725
-------
INSURANCE (3.40%)
American International Group, Inc. 100 8,975
Marsh & McLennan Cos., Inc. 100 8,675
-------
17,650
MACHINERY (1.50%)
Dover Corp. 200 7,775
-------
MEDICAL/DENTAL (2.65%)
Baxter International, Inc. 100 4,200
Boston Scientific Corp. ** 100 4,050
Medtronic Inc. 100 5,488
-------
13,738
METALS (1.22%)
Illinois Tool Works Inc. 100 6,338
-------
OFFICE EQUIPMENT & SUPPLIES (3.50%)
Pitney Bowes, Inc. 100 4,475
Xerox Corp. 100 13,713
-------
18,188
OIL & GAS (3.07%)
Anadarko Petroleum Corp. 100 4,813
Schlumberger, Ltd. 100 6,350
Tenneco, Inc. 100 4,800
-------
15,963
=======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 108
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
SCHEDULE OF INVESTMENTS
November 30, 1995 (Unaudited)
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- --------
<S> <C> <C>
PAPER (1.48%)
Kimberly-Clark Corp. 100 $ 7,687
--------
PHOTO EQUIPMENT (1.31%)
Eastman Kodak Co. 100 6,800
--------
POLLUTION CONTROL (1.73%)
Browning-Ferris Industries, Inc. 200 6,025
WMX Technologies, Inc. 100 2,950
--------
8,975
PUBLISHING (1.61%)
McGraw-Hill Cos., Inc. 100 8,375
--------
RETAIL (7.52%)
Albertson's, Inc. 200 6,150
Federated Department Stores, Inc. ** 100 2,912
Home Depot, Inc. (The) 300 13,313
Toys "R" Us, Inc. ** 200 4,650
Wal-Mart Stores, Inc. 500 12,000
--------
39,025
SOAP & CLEANING PREPARATIONS (4.38%)
Dial Corp. 200 5,400
Johnson & Johnson 200 17,325
--------
22,725
TELECOMMUNICATIONS (3.58%)
GTE Corp. 100 4,262
MCI Communications Corp. 200 5,350
NYNEX Corp. 100 4,962
Sprint Corp 100 4,000
--------
18,574
TOBACCO (3.38%)
Philip Morris Cos., Inc. 200 17,550
--------
TOYS/GAMES/HOBBY PRODUCTS (1.08%)
Mattel, Inc. 200 5,600
--------
TOTAL COMMON STOCKS
(COST $497,792) (99.38%) 515,975
</TABLE> ====== ========
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 109
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
<CAPTION>
INTEREST MARKET
ISSUER, DESCRIPTION RATE PAR VALUE VALUE
- ------------------- -------- --------- --------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.58%)
Investment in a joint repurchase
agreement with U.B.S. Securities Inc.,
Dated 11-30-95, due 12-01-95 (secured
by U.S. Treasury Bond, 7.25% due
05-15-16) - Note A 5.91% 3,000 $ 3,000
--------
CORPORATE SAVINGS ACCOUNT (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Acount
Current Rate 5.25% 64
--------
TOTAL SHORT-TERM INVESTMENTS (0.59%) 3,064
------- --------
TOTAL INVESTMENTS (99.97%) 519,039
======= ========
<FN>
** Non-income producing security.
</TABLE>
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
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Independence Growth Fund (the "Fund"), a separate portfolio of
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 Diversified Core Equity Fund II, 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 their
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. Interest income on investment securities
is recorded on the accrual basis.
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 to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH 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) 0.80% of the first $500,000,000 of the Fund's average
daily net asset value and (b) 0.75% 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 0.55% 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 asset value.
The Adviser has agreed to limit Fund expenses further to the extent
required to prevent expenses from exceeding 0.95% of the Fund's average daily
net asset value. Accordingly, the reduction in the Adviser's fee collectively
with any additional amounts not borne by the Fund by virtue of the expense
limit amounted to $12,959 for the period ended November 30, 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
November 30, 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 November 30, 1995, aggregated $497,792 and none, respectively. There were
no purchases or sales of obligations of the U.S. government and its agencies
during the period ended November 30, 1995.
The cost of investments owned at November 30, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $500,792. Gross
unrealized appreciation and depreciation of investments aggregated $28,157 and
$9,974, respectively, resulting in net unrealized appreciation of $18,183.
<PAGE> 112
John Hancock Funds
INDEPENDENCE MEDIUM
CAPITALIZATION FUND
November 30, 1995
<PAGE> 113
John Hancock Funds - Independence Medium Capitalization Fund
DIRECTORS
Edward J. Boudreau, Jr.
Thomas W.L. Cameron
James F. Carlin*
William H. Cunningham
Charles F. Fretz*
Harold R. Hiser, Jr. *
Charles L. Ladner*
Leo E. Linbeck, Jr. *
Patricia P. McCarter *
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.) *
John P. Toolan *
* Members of the 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
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
John A. Morin
Vice President
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, Massachusetts 02205-9277
INVESTMENT ADVISER
John Hancock Advisers, Inc
101 Huntington Avenue
Boston, Massachusetts 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, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
<PAGE> 114
John Hancock Funds - Independence Medium Capitalization Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
- ---------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $3,068,298) $3,166,806
Joint repurchase agreement (cost - $206,000) 206,000
Corporate savings account 13,688
----------
3,386,494
Receivable for shares sold 342
Dividends receivable 4,083
Receivable from John Hancock Advisers, Inc. - Note B 15,585
Deferred organization expenses - Note A 40,637
----------
Total Assets 3,447,141
----------------------------------------------------------
LIABILITIES:
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 4,867
Accounts payable and accrued expenses 53,708
----------
Total Liabilities 58,575
----------------------------------------------------------
NET ASSETS:
Capital paid-in 3,283,619
Net unrealized appreciation of investments 98,508
Undistributed net investment income 6,439
----------
Net Assets $3,388,566
==========================================================
NET ASSET VALUE PER SHARE:
(based on 384,056
shares of beneficial interest outstanding - unlimited number
of shares authorized with no par value) $ 8.82
===========================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 115
John Hancock Funds - Independence Medium Capitalization Fund
<TABLE>
STATEMENT OF OPERATIONS
For the period October 2, 1995 (commencement of operations) to
November 30, 1995 (Unaudited)
- -----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $9) $ 4,820
Interest 3,972
--------
8,792
--------
Expenses:
Investment management fee - Note B 4,581
Auditing fee 4,523
Custodian fee 3,278
Registration and filing fees 1,571
Printing 1,377
Organization expense - Note A 1,358
Legal fees 865
Transfer agent fee - Note B 286
Miscellaneous 98
--------
Total Expenses 17,937
Less expenses reimbursable by
John Hancock Advisers, Inc. - Note B (15,584)
--------------------------------------------------
Net Expenses 2,353
--------------------------------------------------
Net Investment Income 6,439
--------------------------------------------------
UNREALIZED GAIN ON INVESTMENTS
Change in net unrealized appreciation/
depreciation of investments 98,508
--------
Net Increase in Net Assets
Resulting from Operations $104,947
==================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 116
John Hancock Funds - Independence Medium Capitalization Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
OCTOBER 2, 1995
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30, 1995
(UNAUDITED)
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 6,439
Change in net unrealized appreciation/depreciation of investments 98,508
----------
Net Increase in Net Assets Resulting from Operations 104,947
----------
FROM FUND SHARE TRANSACTIONS - NET* 3,283,619
----------
NET ASSETS:
Beginning of period -----
----------
End of period (including undistributed net investment income of $6,439) $3,388,566
==========
</TABLE>
<TABLE>
*ANALYSIS OF FUND SHARE TRANSACTIONS:
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
(UNAUDITED)
------------------------------
SHARES AMOUNT
-------- ----------
<S> <C> <C>
Shares sold 391,508 $3,349,084
Less shares repurchased (7,452) (65,465)
------- ----------
Net increase and shares outstanding end of period 384,056 $3,283,619
======= ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 117
John Hancock Funds - Independence Medium Capitalization Fund
<TABLE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period, total investment return, key ratios and supplemental data.
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
(UNAUDITED)
------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $ 8.50 (b)
------
Net Investment Income 0.04 (c)
Net Unrealized Gain on Investments 0.28
------
Total from Investment Operations 0.32
------
Net Asset Value, End of Period $ 8.82
======
Total Investment Return at Net Asset Value (f) 3.77% (d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $3,389
Ratio of Expenses to Average Net Assets 1.00% *
Ratio of Adjusted Expenses to Average Net Assets (a) (e) 7.62% *
Ratio of Net Investment Income to Average Net Assets 2.74% *
Ratio of Adjusted Net Investment Loss to Average Net Assets (a) (e) (3.88%) *
Portfolio Turnover Rate 0%
<FN>
* 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.
(e) 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.
(f) Without the reimbursement, total investment return would have been lower.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 118
JOHN HANCOCK FUNDS - INDEPENDENCE MEDIUM CAPITALIZATION FUND
<TABLE>
SCHEDULE OF INVESTMENTS
November 30, 1995 (Unaudited)
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- --------
<S> <C> <C>
COMMON STOCKS
ADVERTISING (1.18%)
Omnicom Group, Inc. 600 $ 40,050
--------
AEROSPACE / AIRCRAFT (1.78%)
Lockheed Martin Corp. 300 22,013
Textron Inc. 500 38,312
--------
60,325
--------
APPLIANCES - HOUSEHOLD (1.05%)
Premark International, Inc. 700 35,700
--------
AUTOMOBILE / TRUCK (1.03%)
Dana Corp. 1,100 32,175
Harley-Davidson, Inc. 100 2,775
--------
34,950
--------
BANKS (8.56%)
Bank Of Boston, Corp. 600 27,825
Bank Of New York Co., Inc. 200 9,425
Barnett Banks, Inc. 400 24,050
Comerica, Inc. 500 18,688
Chemical Banking Corp. 100 6,000
Fifth Third Bancorp 400 29,250
First Bank System, Inc 1,000 51,624
Fleet Financial Group, Inc. 900 37,575
MBNA Corp. 900 36,338
NationsBank Corp. 100 7,138
NBD Bancorp Inc. 1,100 42,212
--------
290,125
--------
BUILDING PRODUCTS (0.78%)
Masco Corp. 900 26,550
--------
CHEMICALS (6.30%)
Air Products & Chemicals, Inc. 800 44,399
Eastman Chemical Co. 100 6,563
Great Lakes Chemical Corp. 500 35,563
Hercules, Inc. 1,000 54,875
Morton International, Inc. 700 24,238
Praxair, Inc. 800 23,300
Sigma-Aldrich Corp. 500 24,625
--------
213,563
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 119
JOHN HANCOCK FUNDS - INDEPENDENCE MEDIUM CAPITALIZATION FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- --------
<S> <C> <C>
COMPUTERS (1.66%)
Digital Equipment Corp. ** 300 $ 17,663
First Data Corp. 100 7,100
Komag, Inc. ** 200 10,625
Parametric Technology Co. ** 100 7,075
Policy Management System Corp. ** 200 8,950
Silicon Graphics, Inc. ** 100 3,650
Tandem Computers, Inc. ** 100 1,250
--------
56,313
--------
COSMETICS & TOILETRIES (1.23%)
Avon Products, Inc. 500 36,312
Tambrands, Inc. 100 5,213
--------
41,525
--------
DIVERSIFIED OPERATIONS (1.08%)
Ogden Corp. 700 14,875
Pall Corp. 800 21,700
--------
36,575
--------
DRUGS (1.00%)
Bristol-Myers Squibb Co. 100 8,025
Mylan Laboratories, Inc. 1,100 25,713
--------
33,738
--------
ELECTRONICS (5.08%)
Analog Devices, Inc. ** 100 3,700
Applied Materials, Inc.** 200 9,725
Duracell International Inc. 100 5,300
General Motors Corp. Class H 100 4,750
General Signal Corp. 100 3,225
Integrated Device Technology, Inc.** 400 6,800
Lam Research Corp.** 300 16,425
Linear Technology Corp. 600 27,149
LSI Logic Corp. ** 800 33,499
Millipore Corp. 100 3,725
National Semiconductor Corp.** 900 19,238
Scientific-Atlanta, Inc. 100 1,588
Teradyne, Inc. ** 600 15,675
Texas Instruments, Inc. 100 5,788
Tyco International Ltd. 500 15,688
--------
172,275
--------
ENGINEERING (0.14%)
AlliedSignal, Inc. 100 4,725
--------
FINANCE (3.37%)
Ahmanson (H.F.) & Co. 1,200 32,099
American Express Co. 100 4,250
Dean Witter Discover & Co. 300 15,300
Golden West Financial Corp. 100 5,113
Great Western Financial Corp. 100 2,550
Northern Trust Corp. 700 36,575
Salomon, Inc. 500 18,188
--------
114,075
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 120
JOHN HANCOCK FUNDS - INDEPENDENCE MEDIUM CAPITALIZATION FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- --------
<S> <C> <C>
FOODS (1.51%)
Sysco Corp. 1,100 $ 33,687
Universal Foods Corp. 500 17,438
--------
51,125
--------
GOLD MINING & PROCESSING (0.13%)
Newmont Mining Corp. 100 4,313
--------
HEALTHCARE (1.89%)
Health Management Associates, Inc. Class A ** 150 3,975
Tenet Healthcare Corp. ** 1,200 21,450
U.S. Healthcare, Inc. 300 13,650
Vencor, Inc. ** 800 24,800
--------
63,875
--------
HOTELS & MOTELS (0.88%)
Marriott International Inc. 800 29,800
--------
INSURANCE (9.53%)
Aetna Life & Casualty Co. 600 44,024
Allstate Corp. 100 4,100
Aon Corp. 500 23,563
Cigna Corp 400 44,000
Lincoln National Corp. 1,200 56,100
Marsh & McLennan Cos., Inc. 1,000 86,750
Providian Corp. 900 36,113
Safeco Corp. 400 28,400
--------
322,050
--------
LEISURE & RECREATION (0.07%)
Gaylord Entertainment Co. Class A 100 2,525
--------
MACHINERY (2.44%)
Cooper Industries, Inc 700 25,550
Dover Corp. 900 34,988
Parker Hannifin Corp. 600 22,050
--------
82,588
--------
MEDICAL / DENTAL (1.93%)
Baxter International, Inc. 100 4,200
Becton, Dickinson & Co. 500 38,875
Guidant Corp. 700 22,050
--------
65,238
--------
METALS (1.38%)
Asarco, Inc. 100 3,537
Phelps Dodge Corp. 500 33,938
Trinity Industries, Inc. 300 9,225
--------
46,700
--------
OFFICE EQUIPMENT & SUPPLIES (2.12%)
Pitney Bowes, Inc. 1,300 58,175
Xerox Corp. 100 13,713
--------
71,888
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 121
JOHN HANCOCK FUNDS - INDEPENDENCE MEDIUM CAPITALIZATION FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- --------
<S> <C> <C>
OIL & GAS (6.00%)
Anadarko Petroleum Corp. 200 $ 9,625
Baker Hughes, Inc. 1,300 26,487
Dresser Industries, Inc. 1,100 25,987
Halliburton Co. 900 39,038
Kerr-McGee Corp. 500 28,938
Phillips Petroleum Co. 700 23,275
Sun Co., Inc. 1,100 30,525
Tenneco, Inc. 400 19,200
--------
203,075
--------
PAPER (2.96%)
Champion International Corp. 500 23,562
Georgia-Pacific Corp. 200 15,550
Kimberly-Clark Corp. 100 7,688
Rayonier, Inc. 500 19,125
Westvaco Corp. 1,250 34,219
--------
100,144
--------
POLLUTION CONTROL (1.53%)
Allwaste, Inc.** 200 850
Browning-Ferris Industries, Inc. 1,200 36,150
Wheelabrator Technologies, Inc. 1,000 15,000
--------
52,000
--------
RETAIL (9.24%)
Albertson's, Inc. 200 6,150
Cracker Barrel Old Country Store, Inc. 700 13,038
Federated Department Stores, Inc. ** 1,600 46,600
Gap, Inc. (The) 700 31,674
Kroger Co. ** 600 20,100
Liz Claiborne, Inc. 500 14,688
Lowe's Co's, Inc. 800 25,200
Price / Costco Inc. ** 1,800 29,925
Ryan's Family Steak House, Inc. ** 2,600 19,175
Safeway, Inc. ** 600 27,900
Supervalu, Inc. 100 3,225
Tandy Corp. 400 19,050
TJX Cos., Inc. (The) 800 13,300
Tommy Hilfiger Corp.** 400 17,650
Toys "R" Us, Inc. ** 1,100 25,575
--------
313,250
--------
RUBBER (1.25%)
Goodyear Tire & Rubber Co. 1,000 42,375
--------
SHOES (0.08%)
Reebok International Ltd. 100 2,600
--------
SOAP & CLEANING PREPARATIONS ( 0.08%)
Dial Corp. 100 2,700
--------
STEEL (0.95%)
AK Steel Holding Corp. 100 3,463
British Steel PLC (ADR) 100 2,600
Carpenter Technology Corp. 600 25,950
--------
32,013
--------
TELECOMMUNICATIONS (0.20%)
MCI Communications Corp. 100 2,675
GTE Corp. 100 4,263
--------
6,938
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 122
JOHN HANCOCK FUNDS - INDEPENDENCE MEDIUM CAPITALIZATION FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ----------
<S> <C> <C>
TOBACCO (1.20%)
Universal Corp. 200 $ 4,750
UST, Inc. 1,100 35,885
----------
40,635
----------
TOYS/GAMES/HOBBY PRODUCTS (0.08%)
Mattel, Inc. 100 2,800
----------
TRANSPORTATION (4.20%)
Burlington Northern Santa Fe Corp. 100 8,063
Conrail, Inc. 700 48,912
Delta Air Lines, Inc. 300 23,288
Northwest Airlines Corp. Class A ** 400 20,150
UAL Corp. ** 200 41,850
----------
142,263
----------
UTILITIES (9.57%)
Baltimore Gas & Electric Co. 1,700 45,262
Central & South West Corp. 1,200 32,250
CMS Energy Corp. 100 2,725
Consolidated Edison Co. of New York, Inc. 700 20,213
Consolidated Natural Gas Co. 900 39,937
Entergy Corp. 1,300 36,235
Houston Industries, Inc. 200 9,150
Idaho Power Co. 600 17,250
LG&E Energy Corp. 100 4,125
Northern States Power Co. 700 32,900
Panhandle Eastern Corp. 1,400 39,725
Peco Energy Co. 600 17,400
Pinnacle West Capital Corp. 1,000 27,250
----------
324,422
----------
TOTAL COMMON STOCKS
(COST $3,068,298) (93.46%) 3,166,806
----- ----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST MARKET
ISSUER, DESCRIPTION RATE PAR VALUE VALUE
- ------------------- -------- --------- ----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (6.08%)
Investment in a joint repurchase agreement
transaction with U.B.S. Securities Inc.,
Dated 11-30-95, due 12-01-95 (secured by
U.S. Treasury Bond, 7.25% due 05-15-16)
- Note A 5.91% 206,000 206,000
----------
CORPORATE SAVINGS ACCOUNT (0.40%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.25% 13,688
----------
TOTAL SHORT-TERM INVESTMENTS (6.48%) 219,688
----- ----------
TOTAL INVESTMENTS (99.94%) $3,386,494
===== ==========
<FN>
** Non-income producing security.
</TABLE>
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.
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - INDEPENDENCE MEDIUM CAPITALIZATION FUND
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Independence Medium Capitalization Fund (the "Fund"), a separate
portfolio of 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 Diversified Core Equity Fund II, John Hancock
Independence Growth 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 their
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 to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - INDEPENDENCE MEDIUM CAPITALIZATION 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) 0.80% of the first $500,000,000 of the Fund's average
daily net asset value and (b) 0.75% 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 0.55% 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 asset value.
The Adviser has agreed to limit Fund expenses further to the extent required
to prevent expenses from exceeding 1.00% of the Fund's average daily net asset
value. Accordingly, the reduction in the Adviser's fee collectively with any
additional amounts not borne by the Fund by virtue of the expense limit
amounted to $15,584 for the period ended November 30, 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
November 30, 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 November 30, 1995, aggregated $3,068,298 and none, respectively. There
were no purchases or sales of the U.S. government and its agencies during the
period ended November 30, 1995.
The cost of investments owned at November 30, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $3,274,298. Gross
unrealized appreciation and depreciation of investments aggregated $109,318 and
$10,810, respectively, resulting in net unrealized appreciation of $98,508.
<PAGE> 125
JOHN HANCOCK FUNDS
INDEPENDENCE
BALANCED FUND
NOVEMBER 30, 1995
<PAGE> 126
John Hancock Funds - Independence Balanced Fund
DIRECTORS
Edward J. Boudreau, Jr.
Thomas W.L. Cameron
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr. *
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter *
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.) *
John P. Toolan *
* Members of the 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
Susan S. Newton
Vice President, Assistant Secretary and
Compliance Officer
James J. Stokowski
Vice President and Treasurer
John A. Morin
Vice President
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, Massachusetts 02205-9277
INVESTMENT ADVISER
John Hancock Advisers, Inc
101 Huntington Avenue
Boston, Massachusetts 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, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
<PAGE> 127
John Hancock Funds - Independence Balanced Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $2,493,703) $2,571,230
U.S. government and agencies securities (cost - $2,448,402) 2,468,548
Short-term investments (cost - $92,000) 92,000
Corporate savings account 376
----------
5,132,154
Dividends receivable 5,092
Interest receivable 23,203
Receivable from John Hancock Advisers, Inc. - Note B 25,523
Deferred organization expenses - Note A 37,769
----------
Total Assets 5,223,741
-------------------------------------------------------
LIABILITIES:
Payable for investments purchased 50,858
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 3,032
Accounts payable and accrued expenses 63,909
----------
Total Liabilities 117,799
-------------------------------------------------------
NET ASSETS:
Capital paid-in 4,993,503
Accumulated net realized loss on investments (1,168)
Net unrealized appreciation of investments 97,673
Undistributed net investment income 15,934
----------
Net Assets $5,105,942
=======================================================
NET ASSET VALUE PER SHARE:
(based on 563,408 shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value) $ 9.06
</TABLE> ==========
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 128
John Hancock Funds - Independence Balanced Fund
<TABLE>
STATEMENT OF OPERATIONS
For the period July 6, 1995 (commencement of operations) to
November 30, 1995 (Unaudited)
- --------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 15,757
Interest 6,197
---------
21,954
---------
Expenses:
Custodian fee 10,321
Auditing fee 7,121
Organization expense - Note A 3,282
Investment management fee - Note B 2,830
Printing 2,167
Registration and filing fees 1,685
Legal fees 1,362
Transfer agent fee - Note B 202
Miscellaneous 202
---------
Total Expenses 29,172
Less expenses reimbursable by
John Hancock Advisers, Inc. - Note B (25,524)
----------------------------------------------------
Net Expenses 3,648
----------------------------------------------------
Net Investment Income 18,306
----------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold (1,168)
Change in net unrealized appreciation/
depreciation of investments 97,673
---------
Net Realized and Unrealized Gain
on Investments 96,505
----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $114,811
====================================================
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 129
John Hancock Funds - Independence Balanced Fund
<TABLE>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
JULY 6, 1995
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30, 1995
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 18,306
Net realized loss on investments sold (1,168)
Change in net unrealized appreciation/depreciation of investments 97,673
----------
Net Increase in Net Assets from Operations 114,811
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.0666 per share) (2,372)
----------
FROM FUND SHARE TRANSACTIONS - NET* 4,993,503
----------
NET ASSETS:
Beginning of period ----
----------
End of period (including undistributed net investment income of $15,934) $5,105,942
==========
</TABLE>
<TABLE>
*ANALYSIS OF FUND SHARE TRANSACTIONS:
<CAPTION>
FOR THE PERIOD JULY 6, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
(UNAUDITED)
----------------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares sold 566,063 $5,017,574
Shares issued to shareholders in reinvestment of distributions 273 2,372
----------------------------
566,336 5,019,946
Less shares repurchased (2,928) (26,443)
----------------------------
Net increase 563,408 $4,993,503
============================
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 130
John Hancock Funds - Independence Balanced Fund
<TABLE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period, total investment return, key ratios and supplemental data.
<CAPTION>
FOR THE PERIOD JULY 6, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period $ 8.50 (b)
------
Net Investment Income 0.15
Net Realized and Unrealized Gain on Investments 0.48
------
Total from Investment Operations 0.63
------
Less Distributions:
Dividends from Net Investment Income (0.07)
------
Net Asset Value, End of Period $ 9.06
======
Total Investment Return at Net Asset Value (e) 7.40% (c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $5,106
Ratio of Expenses to Average Net Assets 0.90% *
Ratio of Adjusted Expenses to Average Net Assets (a) (d) 7.20% *
Ratio of Net Investment Income to Average Net Assets 4.52% *
Ratio of Adjusted Net Investment Loss to Average Net Assets (a) (d) (1.78%) *
Portfolio Turnover Rate 5%
<FN>
* 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 are expected to increase as the net assets of the Fund grow.
(e) Without the reimbursement, total investment return would have been lower.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 131
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
SCHEDULE OF INVESTMENTS
November 30, 1995 (Unaudited)
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
COMMON STOCKS
AEROSPACE (2.05%)
Boeing Co. (The) 200 $ 14,575
Lockheed Martin Corp. 600 44,023
Raytheon Co. 400 17,800
United Technologies Corp. 300 28,125
--------
104,523
--------
APPLIANCES - Household (0.10%)
Premark International, Inc. 100 5,100
--------
AUTOMOBILE/TRUCK (1.51%)
Chrysler Corp. 700 36,311
Dana Corp. 400 11,700
General Motors Corp. 600 29,100
--------
77,111
--------
BANKS (3.37%)
Banc One Corp. 100 3,813
Bank Of New York Co., Inc. 200 9,425
Bankamerica Corp. 400 25,450
Chemical Banking Corp. 500 30,000
Citicorp 100 7,075
First Bank System, Inc. 400 20,650
First Union Corp. 300 16,386
J.P. Morgan & Co., Inc. 200 15,700
NationsBank Corp. 500 35,688
NBD Bancorp, Inc. 200 7,675
--------
171,862
--------
BEVERAGES (1.52%)
Pepsico, Inc. 1,400 77,350
--------
BUILDING MATERIALS (0.06%)
Masco Corp. 100 2,950
--------
CHEMICALS (2.42%)
Air Products And Chemicals, Inc. 500 27,750
Eastman Chemical Co. 100 6,563
Hercules, Inc. 1,000 54,875
Monsanto Co. 300 34,350
--------
123,538
--------
COMPUTERS (1.54%)
Digital Equipment Corp.** 200 11,775
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 132
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
COMPUTERS (CON'T.)
International Business Machines Corp. 40 $ 3,865
Komag, Inc. ** 200 10,625
Microsoft Corp.** 600 52,273
--------
78,538
--------
DIVERSIFIED OPERATIONS (0.19%)
Ogden Corp. 100 2,125
Textron, Inc. 100 7,663
--------
9,788
--------
DRUGS (3.73%)
Abbott Laboratories 1,200 48,750
Bristol-Myers Squibb Co. 1,000 80,250
Merck & Co., Inc. 900 55,686
Schering-Plough Corp. 100 5,738
--------
190,424
--------
ELECTRONICS (2.24%)
General Electric Co. 80 5,380
Hewlett Packard Co. 40 3,315
Integrated Device Technology, Inc.** 400 6,800
Lam Research Corp.** 300 16,425
Linear Technology Corp. 300 13,575
LSI Logic Corp.** 200 8,375
Motorola, Inc. 300 18,375
Tektronix, Inc. 100 5,386
Teradyne, Inc. ** 300 7,838
Texas Instruments, Inc. 500 28,938
--------
114,407
--------
ENGINEERING (0.28%)
AlliedSignal, Inc. 300 14,175
--------
FINANCE (1.26%)
American Express Co. 1,000 42,500
Federal National Mortgage Association 200 21,900
--------
64,400
--------
FOODS (1.69%)
Conagra, Inc. 100 3,988
CPC International, Inc. 100 6,875
Heinz (H.J.) Co. 500 15,936
Sara Lee Corp. 200 6,450
Unilever N.V. 400 53,150
--------
86,399
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 133
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
HEALTHCARE (0.41%)
Columbia/HCA Healthcare Corp. 100 $ 5,163
Vencor, Inc. ** 500 15,500
--------
20,663
--------
INSURANCE (2.90%)
Aetna Life & Casualty Co. 600 44,025
Allstate Corp. 200 8,200
American International Group, Inc. 100 8,975
General Re Corp. 100 14,963
Lincoln National Corp. 800 37,400
Marsh & McLennan Cos., Inc. 400 34,700
--------
148,263
--------
MACHINERY (0.25%)
Applied Materials, Inc.** 100 4,863
Dover Corp. 200 7,775
--------
12,638
--------
MEDICAL / DENTAL (0.68%)
Baxter International, Inc. 600 25,200
Guidant Corp. 200 7,475
Medtronic Inc. 40 2,195
--------
34,870
--------
METALS (0.11%)
Aluminum Co. of America 100 5,850
--------
OFFICE EQUIPMENT & SUPPLIES (1.70%)
Pitney Bowes, Inc. 100 4,475
Xerox Corp. 600 82,275
--------
86,750
--------
OIL & GAS (6.63%)
Amoco Corp. 800 54,200
Baker Hughes, Inc. 300 6,113
British Petroleum Co. PLC (The) 100 9,563
Exxon Corp. 1,000 77,375
Halliburton Co. 500 21,688
Mobil Corp. 500 52,188
Panhandle Eastern Corp. 700 19,863
Phillips Petroleum Co. 1,400 46,550
Sun Co., Inc. 100 2,775
Tenneco, Inc. 1,000 48,000
--------
338,315
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 134
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
PAPER (0.81%)
Kimberly-Clark Corp. 400 $ 30,750
Weyerhauser Co. 100 4,525
Willamette Industries, Inc. 100 6,050
--------
41,325
PHOTO EQUIPMENT (0.80%)
Eastman Kodak Co. 600 40,800
--------
PUBLISHING (0.08%)
McGraw-Hill Cos., Inc. 50 4,188
--------
RETAIL (4.04%)
'Albertson's, Inc. 200 6,150
Federated Department Stores, Inc. ** 900 26,213
Gap, Inc. (The) 100 4,525
Home Depot, Inc. (The) 700 31,063
McDonald's Corp. 600 26,775
Price/Costco Inc. ** 1,100 18,288
Ryan's Family Steak House, Inc. ** 1,200 8,850
Safeway, Inc. ** 200 9,300
Tommy Hilfiger Corp.** 200 8,825
Toys "R" Us, Inc. 1,200 27,900
Wal-Mart Stores, Inc. 1,600 38,400
--------
206,289
--------
POLLUTION CONTROL (0.24%)
Browning-Ferris Industries, Inc. 400 12,050
--------
RUBBER (0.41%)
Goodyear Tire & Rubber Co. 500 21,188
--------
SOAP & CLEANING PREPARATIONS (1.18%)
Johnson & Johnson 700 60,638
--------
TELECOMMUNICATIONS (4.21%)
Ameritech Corp./Del 100 5,500
AT & T Corp. 1,400 92,400
GTE Corp. 2,500 106,563
MCI Communications Corp. 200 5,350
SBC Communications, Inc. 100 5,400
--------
215,213
--------
TOBACCO (1.20%)
Philip Morris Cos., Inc. 700 61,425
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 135
JOHN HANCOCK FUNDS - INDEPENDENCE GROWTH FUND
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
<S> <C> <C>
TRANSPORTATION (0.76%)
Conrail, Inc. 300 $ 20,962
Delta Air Lines, Inc. 100 7,763
Northwest Airlines Corp., (Class A) *** 200 10,075
----------
38,800
----------
UTILITIES (1.99%)
Entergy Corp. 800 22,300
Northern States Power Co. 300 14,100
Pacific Telesis Group 1,500 45,000
Sprint Corp. 500 20,000
----------
101,400
----------
TOTAL COMMON STOCKS
(Cost $2,493,703) (50.36%) 2,571,230
-------- ----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST MATURITY PAR VALUE MARKET
RATE DATE (000'S OMITTED) VALUE
---- ---- --------------- ------
U.S. GOVERNMENT AND
AGENCIES SECURITIES
<S> <C> <C> <C> <C>
GOVERNMENTAL - U.S. (48.34%)
BONDS
United States Treasury Bond 11.625% 11-15-04 500 701,170
United States Treasury Bond 8.125 08-15-21 175 216,043
---------
917,213
---------
NOTES
United States Treasury Note 7.375 11-15-97 210 217,548
United States Treasury Note 6.125 05-15-98 280 284,637
United States Treasury Note 7.125 09-30-99 300 316,452
United States Treasury Note 6.125 07-31-00 195 199,508
United States Treasury Note 7.500 11-15-01 170 185,990
United States Treasury Note 7.500 02-15-05 310 347,200
---------
1,551,335
---------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $2,448,402) (48.34%) 2,468,548
-------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 136
John Hancock Funds - Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
RATE (000'S OMITTED) VALUE
-------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.80%)
Investment in a joint repurchase
agreement with U.B.S. Securities Inc.,
Dated 11-30-95, due 12-01-95 (secured
by U.S. Treasury Bond, 7.25% due
05-15-16) - Note A 5.91% 92 $ 92,000
----------
CORPORATE SAVINGS ACCOUNT (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.25% 376
----------
TOTAL SHORT-TERM INVESTMENTS (1.81%) 92,376
-------- ----------
TOTAL INVESTMENTS (100.51%) $5,132,154
======== ==========
<FN>
** 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 137
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
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
their 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 to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
<PAGE> 138
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK FUNDS - INDEPENDENCE BALANCED 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 0.60% 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 asset value.
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 assets. Accordingly, the reduction in the Adviser's fee collectively with
any additional amounts not borne by the Fund by virtue of the expense limit
amounted to $25,524 for the period ended November 30, 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
November 30, 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 November 30, 1995, aggregated $2,532,329 and $37,409, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies during the period ended November 30, 1995 aggregated $2,464,557 and
$16,204, respectively.
The cost of investments owned at November 30, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $5,034,105. Gross
unrealized appreciation and depreciation of investments aggregated $112,718 and
$15,045, respectively, resulting in net unrealized appreciation of $97,673.
<PAGE> 139
PART C.
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements included in the Registration Statement:
John Hancock Institutional Series Trust
---------------------------------------
John Hancock Independence Value Fund
------------------------------------
Statement of Assets and Liabilities as of November 30, 1995
(unaudited).
Statement of Operations of the period ended November 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended November
30, 1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended November 30,
1995 (unaudited).
Schedule of Investments as of November 30, 1995 (unaudited).
John Hancock Independence Growth Fund
-------------------------------------
Statement of Assets and Liabilities as of November 30, 1995
(unaudited).
Statement of Operations of the period ended November 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended November
30, 1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended November 30,
1995 (unaudited).
Schedule of Investments as of November 30, 1995 (unaudited).
John Hancock Medium Capitalization Fund
---------------------------------------
Statement of Assets and Liabilities as of November 30, 1995
(unaudited).
Statement of Operations of the period ended November 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended November
30, 1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended November 30,
1995 (unaudited).
Schedule of Investments as of November 30, 1995 (unaudited).
<PAGE> 140
John Hancock Independence Balanced Fund
---------------------------------------
Statement of Assets and Liabilities as of November 30, 1995
(unaudited).
Statement of Operations of the period ended November 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended November
30, 1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended November 30,
1995 (unaudited).
Schedule of Investments as of November 30, 1995 (unaudited).
,
,
<PAGE> 141
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit
Index hereto and are incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is directly or indirectly controlled by or under common
control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
As of December 29, 1995, the number of record holders of shares of
the Registrant was as follows:
<CAPTION>
Title Number of Record Holders
----- ------------------------
<S> <C>
Dividend Performers 346
Active Bond 212
Global Bond 98
Multi-Sector Growth 251
Fundamental Value 354
International Equity 267
Independence Diversified Core Equity II 380
Independence Value 2
Independence Growth 1
Independence Medium Capitalization 4
Independence Balanced 5
Small Capitalization Equity 0
</TABLE>
ITEM 27. INDEMNIFICATION
(a) Under Registrant's Declaration of Trust. Article IV, Section 4.3
of the Registrant's Declaration of Trust contains provisions
indemnifying each trustee and each officer of Registrant from
liability to the full extent permitted by law, subject to the
provisions of the Investment Company Act of 1940, as amended.
(b) Under the Underwriting Agreement. Under Section 12 of the
Distribution Agreement, the principal underwriter has agreed to
indemnify the Registrant and its Trustees, officers and
controlling persons against claims arising out of certain acts and
statements of the underwriter.
<PAGE> 142
(c) Under The By-Laws of the John Hancock Mutual Life Insurance
Company ("the Company"), John Hancock Funds, Inc. ("JH Funds,
Inc.") and John Hancock Advisers, Inc. (the "Adviser"). Section
9a of the By-Laws of the Company provides, in effect, that the
Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the Company
who serves as a director or officer of the Registrant at the
direction or request of the Company against litigation expenses
and liabilities incurred while acting as such, except that such
indemnification does not cover any expense or liability incurred
or imposed in connection with any matter as to which such person
shall be finally adjudicated not to have acted in good faith in
the reasonable belief that his action was in the best interests of
the Company. In addition, no such person will be indemnified by
the Company in respect of any liability or expense incurred in
connection with any matter settled without final adjudication
unless such settlement shall have been approved as in the best
interests of the Company either by vote of the Board of Directors
at a meeting composed of directors who have no interest in the
outcome of such vote or by vote of the policyholders. The Company
may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an
undertaking by the person indemnified to repay such payment if he
should be determined to be entitled to indemnification.
Article IX of the respective By-Laws of JH Funds, Inc. and the
Adviser provides as follows:
Section 9.01. Indemnity: Any person made or threatened to be
made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the
fact that he is or was at any time since the inception of the
Corporation a director, officer, employee or agent of the
Corporation, or is or was at any time since the inception of
the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and the liability was not incurred by reason of
gross negligence or reckless disregard of the duties involved
in the conduct of his office, and expenses in connection
therewith may be advanced by the Corporation, all to the full
extent authorized by law.
Section 9.02. Not Exclusive; Survival of Rights: The
indemnification provided by Section 9.01 shall not be deemed
exclusive of any other right to which those indemnified may be
entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such
a person.
<PAGE> 143
(d) Under the Investment Management Contracts of Registrant on behalf of
each Fund. Each of the Registrant's Investment Management Contracts (the
"Contracts") provides that the Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Contract relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under the contract. Any
person, even though also employed by the Adviser, who may be or become an
employee of and paid by the Trust a Fund shall be deemed, when acting
within the scope of his employment by the Fund, to be acting in such
employment solely for the Fund and not as the Adviser's employee or agent.
(e) Under the Sub-Investment Management Contracts. Each of the
Sub-Investment Management Contracts (the "Sub-Investment Contracts")
provides that the Sub-Adviser shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust, the Fund or the
Adviser in connection with matters to which the Sub-Investment Contract
relates, except a loss resulting from willful misfeasance, bad faith or
gross negligence on the Sub-Adviser's part in the performance of its duties
or from reckless disregard by it of its obligations and duties under the
contract. Any person, even though also employed by the Sub-Adviser, who
may be or become an employee of and paid by the Trust or the Fund shall be
deemed, when acting within the scope of his employment by the Trust or the
Fund, to be acting in such employment solely for the Trust or the Fund and
not as the Sub-Adviser's employee or agent.
(f) Insofar as indemnification for liabilities under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to Trustees, officers
and controlling persons of Registrant pursuant to the foregoing provisions,
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against policy as expressed in
the 1933 Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with
the securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether indemnification by
it is against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
For all of the information required by this item reference is made to
the Forms ADV, as amended, filed under the Investment Advisers Act of
1940 of the Registrant's Adviser, John Hancock Advisers, Inc. (File
No. 801-8124), and the Registrant's Sub-Advisers; Independence
Investment Associates, Inc. (File No. 801- 18048), John Hancock
Advisers International, Ltd. (File No. 801-294981), NM Capital
Management, Inc. (File No. 801
<PAGE> 144
-14571) and Sovereign Asset Management Corporation (File No. 801-
420231) incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The Registrant's sole principal underwriter is JH Funds, Inc., which
also acts as principal underwriter for the following investment companies:
John Hancock Capital Series, John Hancock Sovereign Bond Fund, John Hancock
Sovereign Investors Fund, Inc., John Hancock Special Equities Fund, John
Hancock Strategic Series, John Hancock Tax- Exempt Income Fund, John
Hancock Tax-Exempt Series Fund, John Hancock Technology Series, Inc., John
Hancock Limited Term Government Fund, John Hancock World Fund, Freedom
Investment Trust, Freedom Investment Trust II, Freedom Investment Trust
III, John Hancock Bond Fund, John Hancock California Tax-Free Income Fund,
John Hancock Cash Reserve, Inc., John Hancock Current Interest, John
Hancock Investment Trust, John Hancock Series, Inc. and John Hancock
Tax-Free Bond Fund.
<TABLE>
(b) The following table lists, for each director and officer of JH Funds,
Inc., the information indicated.
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman of Chairman and
101 Huntington Avenue the Board Chief Executive
Boston, Massachusetts Officer
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
Robert H. Watts Director None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
C. Troy Shaver, Jr. President, Chief None
101 Huntington Avenue Executive Officer
Boston, Massachusetts and Director
Stephen W. Blair Executive Vice None
101 Huntington Avenue President
Boston, Massachusetts
James V. Bowhers Executive Vice None
101 Huntington Avenue President
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and Chief Financial
Boston, Massachusetts Officer
Thomas H. Drohan Senior Vice Senior Vice
101 Huntington Avenue President President and
Boston, Massachusetts Secretary
David A. King Director and Senior None
101 Huntington Avenue Vice President
Boston, Massachusetts
James B. Little Senior Vice Senior Vice
101 Huntington Avenue President President and
Boston, Massachusetts Chief
Financial Officer
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President Vice President,
101 Huntington Avenue and Secretary Assistant Secretary
Boston, Massachusetts and Compliance
Officer
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
1000 Louisiana Street
Houston, Texas
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman
101 Huntington Avenue and Chief Investment
Boston, Massachusetts Officer
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
John Goldsmith Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Registrant maintains the records required to be maintained by it under
Rules 31a-1(a), 31a-1(b) and 31a-2(a) under the Investment Company Act
of 1940 at its principal executive offices at 101 Huntington Avenue,
Boston, Massachusetts 02199- 7603. Certain records, including records
relating to Registrant's shareholders and the physical possession of
its securities, may be maintained pursuant to Rule 31a-3 at the main
office of Registrant's Transfer Agent or Custodian.
ITEM 31. MANAGEMENT SERVICES
The Registrant is not a party to any management-related service
contract, except as described in this Registration Statement.
ITEM 32. UNDERTAKINGS
The Registrant undertakes:
(a) not applicable;
<PAGE> 148
(b) to file a post-effective amendment, using financial statements which
need not be certified, within four to six months from the effective date of
the Trust's 1933 Act registration statement;
(c) to furnish each person to whom a prospectus is delivered with a copy
of the Registrant's latest annual report to shareholders upon request and
without charge; and
(d) if requested to do so by holders of at least 10% of the outstanding
shares of the Registrant, to call and hold a meeting of shareholders of the
Registrant for the purpose of voting upon the question of removal of a
trustee or trustees and to assist shareholders in the communication with
other shareholders.
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
fifth day of January 1996.
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
By: *
-------------------------------
Edward J. Boudreau, Jr.
Chairman
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman
- --------------------------- (Principal Executive Officer)
Edward J. Boudreau, Jr.
Senior Vice President and Chief
Financial Officer (Principal
/s/ James B. Little Financial and Accounting Officer) January 5, 1996
- ---------------------------
James B. Little
*
- --------------------------- Trustee
Thomas W. L. Cameron
*
- --------------------------- Trustee
James F. Carlin
*
- --------------------------- Trustee
William H. Cunningham
*
- --------------------------- Trustee
Charles F. Fretz
</TABLE>
<PAGE> 150
<TABLE>
<S> <C> <C>
*
- --------------------------- Trustee
Harold R. Hiser, Jr.
*
- --------------------------- Trustee
Charles L. Ladner
*
- --------------------------- Trustee
Leo E. Linbeck, Jr.
*
- --------------------------- Trustee
Patricia P. McCarter
*
- --------------------------- Trustee
Steven R. Pruchansky
*
- --------------------------- Trustee
Richard S. Scipione
*
- --------------------------- Trustee
Norman H. Smith
*
- --------------------------- Trustee
John P. Toolan
*By:
/s/Thomas H. Drohan January 5, 1996
- ---------------------------
Thomas H. Drohan
(Attorney-in-Fact)
</TABLE>
<PAGE> 151
<TABLE>
JOHN HANCOCK INSTITUTIONAL SERIES
---------------------------------
EXHIBIT INDEX
-------------
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NUMBER
- ----------- ------------------- -----------
<S> <C>
1 Declaration of Trust dated October 31, 1994.*
1a Instrument Changing Names of Series of Shares of
Trust, Increasing the Number of Trustees and Appointing
Individuals to Fill the Vacancies, and Establishing
New Series *
2 Amended and Restated By-Laws dated December 19, 1994.*
3 None
4 Specimen share certificates for each series of the
Registrant.*
5 Investment Management Contracts between John Hancock
Advisers, Inc. and the Registrant on behalf of
John Hancock Berkeley Bond Fund, John Hancock
Berkeley Sector Opportunity Fund, John Hancock
Independence Diversified Core Equity Fund II, John
Hancock Berkeley Dividend Performers Fund, John Hancock
Berkeley Global Bond Fund, John Hancock Berkeley Fundamental
Value Fund, John Hancock Berkeley Overseas Growth Fund.*
5.1 Sub-Investment Management Contracts among the
Registrant on behalf of John Hancock Independence
Diversified Core Equity Fund II and John Hancock
Independence Balanced Fund, John Hancock Advisers,
Inc., and Independence Investment Associates, Inc.*
5.2 Sub-Investment Management Contract among the Registrant
on behalf of John Hancock Berkeley Dividend Performers
Fund, John Hancock Advisers, Inc., and Sovereign Asset
Management Corporation.*
5.3 Sub-Investment Management Contact among the Registrant
on behalf of John Hancock Berkeley Overseas Growth
Fund, John Hancock Advisers, Inc., and John Hancock
Advisers International, Ltd.*
5.4 Sub-Investment Management Contract among the Registrant
on behalf of John Hancock Berkeley Fundamental Value
Fund, John Hancock Advisers, Inc., and NM Capital
Management, Inc.*
5.5 Investment Management Contracts between John Hancock
Advisers, Inc. and the Registrant on behalf of John
Hancock Independence Value Fund, John Hancock Independence
Growth Fund, John Hancock Independence Balanced Fund, John
Hancock Small Capitalization Equity Fund, and John Hancock
Independence Medium Capitalization Fund. +
5.6 Sub-Investment Management Contract among the Registrant on
behalf of John Hancock Independence Value Fund, John Hancock
Independence Medium Capitalization Fund, and John Hancock
Independence Growth Fund, John Hancock Advisers, Inc., and
Independence Investment Associates, Inc. +
6 Distribution Agreement between the Registrant and John
Hancock Funds, Inc. dated January 30, 1995.*
6.1 Amendment to Distribution Agreement between the Registrant and
John Hancock Funds, Inc. dated December 11, 1995. +
7 None
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NUMBER
- ----------- ------------------- -----------
<S> <C>
8 Master Custodian Agreement between John Hancock Mutual
Funds and Investors Bank and Trust Company. *
8.1 Master Custodian Agreement between John Hancock Mutual
Funds and State Street Bank and Trust Company.*
8.2 Amendment to Master Custodian Agreement between
Registrant on behalf of John Hancock Berkeley Global
Bond Fund and John Hancock Berkeley Overseas Growth
Fund and State Street Bank and Trust Company.*
8.3 Amendment to Master Custodian Agreement between
Registrant on behalf of John Hancock Berkeley Dividend
Performers Fund, John Hancock Berkeley Bond Fund, John
Hancock Berkeley Fundamental Value Fund, John Hancock
Berkeley Sector Opportunity Fund, John Hancock
Independence Diversified Core Equity Fund II, John
Hancock Independence Value Fund, John Hancock
Independence Growth Fund, John Hancock Independence
Medium Capitalization Fund and John Hancock
Independence Balanced Fund and Investors Bank and Trust
Company.*
8.4 Amendment to Master Custodian Agreement between Registrant
on behalf of John Hancock Small Capitalization Fund and
Investors Bank and Trust Company. +
9 Transfer Agency and Service Agreement between the
Registrant and John Hancock Investor Services
Corporation dated January 30, 1995.*
9.1 Amendment to Transfer Agency and Service Agreement between the
Registrant and John Hancock Investor Services Corporation dated
December 11, 1995. +
10 Legal Opinion with respect to the Registrant.*
11 None
12 Financial Statements of the Registrant for the periods
ended June 30, 1995* and November 30, 1995+ included in
Parts A and B.
13 Subscription agreement between Registrant and John
Hancock Advisers, Inc. dated January 12, 1995.*
14 None
15 None
16 None
17 Powers of Attorney*
27.1 Independence Value Fund
27.2 Independence Growth Fund
27.3 Medium Capitalization Fund
<FN>
* Previously filed with Registration Statement and/or
post-effective amendments and incorporated by reference
herein.
+ Filed herewith.
</TABLE>
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NUMBER
- ----------- ------------------- -----------
<S> <C>
27.4 Independence Balanced Fund
</TABLE>
<PAGE> 1
EXHIBITS 5.5
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND
101 Huntington Avenue
Boston, Massachusetts
December 11, 1995
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
Ladies and Gentlemen:
John Hancock Institutional Series Trust (the "Trust") of which John
Hancock Small Capitalization Equity Fund (the "Fund") is a series, has been
organized as a business trust under the laws of the Commonwealth of
Massachusetts to engage in the business of an investment company. The Trust's
shares of beneficial interest are currently divided into twelve series
(including the Fund), each series representing the entire undivided interest in
a separate portfolio of assets. Series may be established or terminated from
time to time by action of the Board of Trustees of the Trust.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and the Adviser is willing to provide such advice, management
and services under the terms and conditions hereinafter set forth.
Accordingly, the Adviser and the Trust, on behalf of the Fund, agree as
follows:
1. Delivery of Documents. The Trust has furnished the Adviser
with copies, properly certified or otherwise authenticated, of
each of the following:
(a) Declaration of Trust of the Trust, dated October 31, 1994, as
amended as of September 11, 1995 (the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as the
investment adviser for the Fund and approving the form of this
Agreement.
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states; and
(e) The Trust's Code of Ethics.
<PAGE> 2
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
101 Huntington Avenue
Boston, Massachusetts
September 27, 1995
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
Ladies and Gentlemen:
John Hancock Institutional Series Trust (the "Trust") of which John
Hancock Independence Medium Capitalization Fund (the "Fund") is a series, has
been organized as a business trust under the laws of the Commonwealth of
Massachusetts to engage in the business of an investment company. The Trust's
shares of beneficial interest are currently divided into eleven series
(including the Fund), each series representing the entire undivided interest in
a separate portfolio of assets. Series may be established or terminated from
time to time by action of the Board of Trustees of the Trust.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and the Adviser is willing to provide such advice, management
and services under the terms and conditions hereinafter set forth.
Accordingly, the Adviser and the Trust, on behalf of the Fund, agree as
follows:
1. Delivery of Documents. The Trust has furnished the Adviser
with copies, properly certified or otherwise authenticated, of
each of the following:
(a) Declaration of Trust of the Trust, dated October 31, 1994,
(the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as the
investment adviser for the Fund and approving the form of this
Agreement.
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states; and
(e) The Trust's Code of Ethics.
The Trust will furnish the Adviser from time to time with copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
<PAGE> 3
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
JOHN HANCOCK INDEPENDENCE VALUE FUND
101 Huntington Avenue
Boston, Massachusetts
September 27, 1995
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
Ladies and Gentlemen:
John Hancock Institutional Series Trust (the "Trust") of which John
Hancock Independence Value Fund (the "Fund") is a series, has been organized as
a business trust under the laws of the Commonwealth of Massachusetts to engage
in the business of an investment company. The Trust's shares of beneficial
interest are currently divided into eleven series (including the Fund), each
series representing the entire undivided interest in a separate portfolio of
assets. Series may be established or terminated from time to time by action of
the Board of Trustees of the Trust.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and the Adviser is willing to provide such advice, management
and services under the terms and conditions hereinafter set forth.
Accordingly, the Adviser and the Trust, on behalf of the Fund, agree as
follows:
1. Delivery of Documents. The Trust has furnished the Adviser
with copies, properly certified or otherwise authenticated, of
each of the following:
(a) Declaration of Trust of the Trust, dated October 31, 1994,
(the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as the
investment adviser for the Fund and approving the form of this
Agreement.
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states; and
(e) The Trust's Code of Ethics.
The Trust will furnish the Adviser from time to time with copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
<PAGE> 4
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
JOHN HANCOCK INDEPENDENCE BALANCED FUND
101 Huntington Avenue
Boston, Massachusetts
July 5, 1995
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
Ladies and Gentlemen:
John Hancock Institutional Series Trust (the "Trust") of which John
Hancock Independence Balanced Fund (the "Fund") is a series, has been organized
as a business trust under the laws of the Commonwealth of Massachusetts to
engage in the business of an investment company. The Trust's shares of
beneficial interest are currently divided into eleven series (including the
Fund), each series representing the entire undivided interest in a separate
portfolio of assets. Series may be established or terminated from time to time
by action of the Board of Trustees of the Trust.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and the Adviser is willing to provide such advice, management
and services under the terms and conditions hereinafter set forth.
Accordingly, the Adviser and the Trust, on behalf of the Fund, agree as
follows:
1. Delivery of Documents. The Trust has furnished the Adviser
with copies, properly certified or otherwise authenticated, of
each of the following:
(a) Declaration of Trust of the Trust, dated October 31, 1994,
(the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as the
investment adviser for the Fund and approving the form of this
Agreement.
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states; and
(e) The Trust's Code of Ethics.
The Trust will furnish the Adviser from time to time with copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
<PAGE> 5
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
JOHN HANCOCK INDEPENDENCE GROWTH FUND
101 Huntington Avenue
Boston, Massachusetts
September 27, 1995
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Investment Management Contract
Ladies and Gentlemen:
John Hancock Institutional Series Trust (the "Trust") of which John
Hancock Independence Growth Fund (the "Fund") is a series, has been organized as
a business trust under the laws of the Commonwealth of Massachusetts to engage
in the business of an investment company. The Trust's shares of beneficial
interest are currently divided into eleven series (including the Fund), each
series representing the entire undivided interest in a separate portfolio of
assets. Series may be established or terminated from time to time by action of
the Board of Trustees of the Trust.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, as more fully
set forth below, and the Adviser is willing to provide such advice, management
and services under the terms and conditions hereinafter set forth.
Accordingly, the Adviser and the Trust, on behalf of the Fund, agree as
follows:
1. Delivery of Documents. The Trust has furnished the Adviser
with copies, properly certified or otherwise authenticated, of
each of the following:
(a) Declaration of Trust of the Trust, dated October 31, 1994,
(the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Adviser as the
investment adviser for the Fund and approving the form of this
Agreement.
(d) Commitments, limitations and undertakings made by the Fund to
state securities or "blue sky" authorities for the purpose of
qualifying shares of the Fund for sale in such states; and
(e) The Trust's Code of Ethics.
The Trust will furnish the Adviser from time to time with copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
<PAGE> 6
2. Investment and Management Services. The Adviser will use its
best efforts to provide to the Fund continuing and suitable investment
programs with respect to investments, consistent with the investment
objectives, policies and restrictions of the Fund. In the performance
of the Adviser's duties hereunder, subject always (x) to the provisions
contained in the documents delivered to the Adviser pursuant to Section
1, as each of the same may from time to time be amended or
supplemented, and (y) to the limitations set forth in the Fund's
then-current Prospectus and Statement of Additional Information
included in the registration statement of the Trust as in effect from
time to time under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended (the "1940 Act"), the
Adviser will, at its own expense:
(a) furnish the Fund with advice and recommendations, consistent
with the investment objectives, policies and restrictions of the Fund,
with respect to the purchase, holding and disposition of portfolio
securities including the purchase and sale of options, alone or in
consultation with any sub-adviser or sub-advisers appointed pursuant to
this Agreement and subject to the provisions of any sub-investment
management contract respecting the responsibilities of such sub-adviser
or sub-advisers;
(b) advise the Fund in connection with policy decisions to be made
by the Trustees or any committee thereof with respect to the Fund's
investments and, as requested, furnish the Fund with research, economic
and statistical data in connection with the Fund's investments and
investment policies;
(c) provide administration of the day-to-day investment operations
of the Fund;
(d) submit such reports relating to the valuation of the Fund's
securities as the Trustees may reasonably request;
(e) assist the Fund in any negotiations relating to the Fund's
investments with issuers, investment banking firms, securities brokers
or dealers and other institutions or investors;
(f) consistent with provisions of Section 8 of this Agreement,
place orders for the purchase, sale or exchange of portfolio securities
with brokers or dealers selected by the Adviser, provided that in
connection with the placing of such orders and the selection of such
brokers or dealers the Adviser shall seek to obtain execution and
pricing within the policy guidelines determined by the Trustees and set
forth in the Prospectus and Statement of Additional Information of the
Fund as in effect from time to time;
(g) provide office space and equipment and supplies, the use of
accounting equipment when required, and necessary executive, clerical
and secretarial personnel for the administration of the affairs of the
Fund;
(h) from time to time or at any time requested by the Trustees,
make reports to the Fund of the Adviser's performance of the foregoing
services and furnish advice and recommendations with respect to other
aspects of the business and affairs of the Fund;
(i) maintain all books and records with respect to the Fund's
securities transactions required by the 1940 Act, including
sub-paragraphs (b)(5), (6), (9) and (10) and paragraph (f) of Rule
31a-1 thereunder (other than those records being maintained by the
Fund's custodian or transfer agent) and preserve such records for the
periods prescribed therefor by Rule 31a-2 of the 1940 Act (the Adviser
agrees that such records are the property of the Fund and will be
surrendered to the Fund promptly upon request therefor);
2
<PAGE> 7
(j) obtain and evaluate such information relating to economies,
industries, businesses, securities markets and securities as the
Adviser may deem necessary or useful in the discharge of the Adviser's
duties hereunder;
(k) oversee and use the Adviser's best efforts to assure the
performance of the activities and services of the custodian, transfer
agent or other similar agents retained by the Fund; and
(l) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment of cash
for the account of the Fund.
3. Sub-advisers. The Adviser may engage one or more investment
advisers which are either registered as such or specifically exempt
from registration under the Investment Advisers Act of 1940, as
amended, to act as sub-advisers to provide, with respect to the Fund,
certain services set forth in Section 2 of this Agreement, all as shall
be set forth in a written contract to which the Trust and the Adviser
shall be parties, which contract shall be subject to approval by the
vote of a majority of the Trustees of the Trust who are not interested
persons of the Adviser, the sub-adviser or of the Trust, cast in person
at a meeting called for the purpose of voting on such approval and by
the vote of a majority of the outstanding voting securities of the Fund
and otherwise consistent with the terms of the 1940 Act. Any fee,
compensation or expense to be paid to any sub-adviser shall be paid by
the Adviser, and no obligation to the sub-adviser shall be incurred on
the Fund's or Trust's behalf, except as agreed upon by the Trustees of
the Trust and otherwise consistent with the terms of the 1940 Act.
4. Expenses paid by the Adviser. The Adviser will pay:
(a) the compensation and expenses of all officers and employees of
the Fund;
(b) the expenses of office, rent, telephone and other utilities,
office furniture, equipment, supplies and other expenses of the Fund;
(c) any other expenses incurred by the Adviser in connection with
the performance of its duties hereunder; and
(d) premiums for such insurance as may be agreed upon be the
Adviser and the Trustees.
5. Expenses of the Fund Not Paid by the Adviser. The Adviser
will not be required to pay any expenses which this Agreement does not
expressly make payable by it. In particular, and without limiting the
generality of the foregoing but subject to the provisions of Section 4,
the Adviser will not be required to pay under this Agreement:
(a) the expenses of organizing the Trust and the Fund (including
without limitation legal, accounting and auditing fees and expenses
incurred in connection with the matters referred to in this clause
(a)), of initially registering the shares of the Trust under the
Securities Act of 1933, as amended, and of qualifying the shares for
sale under state securities laws for the initial offering and sale of
shares;
(b) the compensation and expenses of Trustees who are not
interested persons (as used in this Agreement such term shall have the
meaning specified in the 1940 Act) of the Adviser, and of independent
advisers, independent contractors, consultants, managers and other
unaffiliated agents employed by the Fund other than through the
Adviser;
(c) legal (including an allocable portion of the cost of its
employees rendering legal services to the Fund), accounting and
auditing fees and expenses of the Fund;
3
<PAGE> 8
(d) the fees or disbursements of custodians and depositories of
the Fund's assets, transfer agents, disbursing agents, plan agents and
registrars;
(e) taxes and governmental fees assessed against the Fund's assets
and payable by the Fund;
(f) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders of the Fund;
(g) brokers' commissions and underwriting fees; and
(h) the expense of periodic calculations of the net asset value of
the shares of the Fund.
6. Compensation of the Adviser. For all services to be rendered,
facilities furnished and expenses paid or assumed by the Adviser as
herein provided, the Adviser shall be entitled to a fee, paid monthly
in arrears, equal to a stated percentage of the average daily net
assets of the Fund for the preceding month as set forth below:
<TABLE>
<CAPTION>
Net Asset Value Annual Rate
--------------- -----------
<S> <C>
up to $500 million 0.80%
in excess of $500 million 0.75%
</TABLE>
The "average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's Prospectus or otherwise consistent with
the 1940 Act and the regulations promulgated thereunder. The Adviser
will receive a pro-rata portion of such monthly fee for any periods in
which the Adviser serves as investment adviser to the Fund for less
than a full month. On any day that the net asset value calculation is
suspended as specified in the Fund's Prospectus, the net asset value
for purposes of calculating the advisory fee shall be calculated as of
the date last determined.
In the event that normal operating expenses of the Fund, exclusive of
certain expenses prescribed by state law, are in excess of any
limitation imposed by the law of a state where the Fund is registered
to sell shares of beneficial interest, the fee payable to the Adviser
will be reduced to the extent required by law, and the Adviser will
make any arrangements that the Adviser is required by law to make.
In addition to the foregoing, the Adviser may from time to time agree
not to impose all or a portion of its fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion of its expenses not otherwise required to be borne or
reimbursed by the Adviser. Any such fee reduction or undertaking may
be discontinued or modified by the Adviser at any time.
7. Other Activities of the Adviser and Its Affiliates. Nothing
herein contained shall prevent the Adviser or any affiliate or
associate of the Adviser from engaging in any other business or from
acting as investment adviser or investment manager for any other person
or entity, whether or not having investment policies or portfolios
similar to the Fund's; and it is specifically understood that officers,
directors and employees of the Adviser and those of its parent company,
John Hancock Mutual Life Insurance Company, or other affiliates may
continue to engage in providing portfolio management services and
advice to other investment companies, whether or not registered, to
other investment advisory clients of the Adviser or of its affiliates
and to said affiliates themselves.
4
<PAGE> 9
8. Avoidance of Inconsistent Position. In connection with
purchases or sales of portfolio securities for the account of the Fund,
neither the Adviser nor any of its investment management subsidiaries,
nor any of the Adviser's or such investment management subsidiaries'
directors, officers or employees will act as principal or agent or
receive any commission except as may be permitted by the 1940 Act and
rule and regulations promulgated thereunder. If any occasions shall
arise in which the Adviser advises persons concerning the shares of the
Fund, the Adviser will act solely on its own behalf and not in any way
on behalf of the Fund.
Nothing herein contained shall limit or restrict the Adviser or any of
its officers, affiliates or employees from buying, selling or trading
in any securities for its or their own account or accounts. The Fund
acknowledges that the Adviser and its officers, affiliates, and
employees, and its other clients may at any time have, acquire,
increase, decrease or dispose of positions in investments which are at
the same time being acquired or disposed of hereunder. The Adviser
shall have no obligation to acquire with respect to the Fund a position
in any investment which the Adviser, its officers, affiliates or
employees may acquire for its or their own accounts or for the account
of another client, if, in the sole discretion of the Adviser, it is not
feasible or desirable to acquire a position in such investment on
behalf of the Fund. Nothing herein contained shall prevent the Adviser
from purchasing or recommending the purchase of a particular security
for one or more funds or clients while other funds or clients may be
selling the same security.
9. No Partnership or Joint Venture. Neither the Trust, the Fund,
nor the Adviser are partners of or joint ventures with each other and
nothing herein shall be construed so as to make them such partners or
joint ventures or impose any liability as such on any of them.
10. Name of the Trust and Fund. The Fund may use the names "John
Hancock" or any name or names derived from or similar to the names
"John Hancock Advisers, Inc." or "John Hancock Mutual Life Insurance
Company" or "The Berkeley Financial Group" only for so long as this
Agreement (or similar agreement with John Hancock Mutual Life Insurance
Company or any of its affiliates or subsidiaries) remains in effect.
At such time as this Agreement or such other agreement shall no longer
be in effect, the Fund will (to the extent that it lawfully can) cease
to use such a name or any other name indicating that the Fund is
advised by or otherwise connected with the Adviser. The Fund
acknowledges that it has adopted the name "John Hancock Independence
Growth Fund" through permission of John Hancock Mutual Life Insurance
Company, a Massachusetts insurance company, and agrees that John
Hancock Mutual Life Insurance Company reserves to itself and any
successor to its business the right to grant the non-exclusive right to
use the name "John Hancock" or any similar name or names to any other
corporation or entity, including but not limited to any investment
company of which John Hancock Mutual Life Insurance Company or any
subsidiary or affiliate thereof shall be the investment adviser.
11. Limitation of Liability of the Adviser. The Adviser shall not
be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though
also
5
<PAGE> 10
employed by the Adviser, who may be or become an employee of and paid
by the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the
Fund and not as the Adviser's employee or agent.
12. Duration and Termination of this Agreement. This Agreement
shall remain in force until the second anniversary of the date upon
which this Agreement was executed by the parties hereto, and from year
to year thereafter, but only so long as such continuance is
specifically approved at least annually by (a) a majority of the
Trustees who are not interested persons of the Adviser or (other than
as Board Members) of the Fund, cast in person at a meeting called for
the purpose of voting on such approval, and (b) either (i) the Trustees
or (ii) a majority of the outstanding voting securities of the Fund.
This Agreement may, on 60 days' written notice, be terminated at any
time without the payment of any penalty by the vote of a majority of
the outstanding voting securities of the Fund, by the Trustees or by
the Adviser. Termination of this Agreement shall not be deemed to
terminate or otherwise invalidate any provisions of any contract
between the Adviser and any other series of the Trust. This Agreement
shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Section 12, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions
of "assignment," "interested person" and "voting security"), shall be
applied.
13. Amendment of this Agreement. No provision of this agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, and no
amendment, transfer, assignment, sale, hypothecation or pledge of this
Agreement shall be effective until approved by (a) the Trustees,
including a majority of the Trustees who are not interested persons of
the Adviser or (other than as Board Members) of the Fund, cast in
person at a meeting called for the purpose of voting on such approval,
and (b) a majority of the outstanding voting securities of the Fund, as
defined in the 1940 Act.
14. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the Commonwealth of Massachusetts.
15. Severability. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be deemed invalid
or unenforceable in whole or in part.
16. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or limit any of
the provisions hereof or otherwise affect their construction or effect.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. The name
John Hancock Independence Growth Fund is a series designation of the
Trustees under the Trust's Declaration of Trust, dated October 31,
1994, as amended from time to time. The Declaration of Trust has been
filed with the Secretary of State of the Commonwealth of Massachusetts.
The obligations of the Fund are not personally binding upon, nor shall
resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Fund, but only the
Fund's property shall be bound. The Fund shall not be liable for the
obligations of any other series of the Trust.
6
<PAGE> 11
Yours very truly,
JOHN HANCOCK INSTITUTIONAL
SERIES TRUST
--on behalf of John Hancock Independence
Growth Fund
By: /s/ Anne C. Hodsdon
-------------------------------------
Its: President
The foregoing contract is hereby agreed
to as of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Anne C. Hodsdon
------------------------------------
President
7
<PAGE> 1
EXHIBIT 5.6
JOHN HANCOCK ADVISERS, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
September 27, 1995
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
- -- John Hancock Independence Value Fund
101 Huntington Avenue
Boston, Massachusetts 02199
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 State Street
Boston, MA 02109
Sub-Investment Management Contract
Dear Sirs:
John Hancock Institutional Series Trust (the "Trust"), of which John
Hancock Independence Value Fund (the "Fund") is a series, has been organized as
a business trust under the laws of The Commonwealth of Massachusetts to engage
in the business of an investment company. The Trust's shares of beneficial
interest are currently divided into eleven series (including the Fund), each
series representing the entire undivided interest in a separate portfolio of
assets.
The Board of Trustees of the Trust (the "Trustees") have selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, under the terms
and conditions provided in the investment management contract, dated as of the
date hereof, between the Trust, on behalf of the Fund, and the Adviser (the
"Investment Management Contract").
The Adviser and the Trustees have selected Independence Investment
Associates, Inc. (the "Sub-Adviser") to provide the Adviser and the Fund with
the advice and services set forth below, and the Sub-Adviser is willing to
provide such advice and services, subject to the review of the Trustees and
overall supervision of the Adviser, under the terms and conditions hereinafter
set forth. The Sub-Adviser hereby represents and warrants that it is registered
as an investment adviser under the Investment Advisers Act of 1940, as amended
(the "1940 Act"). Accordingly, the Trust, on behalf of the Fund, and the
Adviser agree with the Sub-Adviser as follows:
1. DELIVERY OF DOCUMENTS. The Trust has furnished the Sub-Adviser
with copies, properly certified or otherwise authenticated, of each of
the following:
<PAGE> 2
JOHN HANCOCK ADVISERS, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
September 27, 1995
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
- -- John Hancock Independence Growth Fund
101 Huntington Avenue
Boston, Massachusetts 02199
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 State Street
Boston, MA 02109
Sub-Investment Management Contract
Dear Sirs:
John Hancock Institutional Series Trust (the "Trust"), of which John
Hancock Independence Growth Fund (the "Fund") is a series, has been organized as
a business trust under the laws of The Commonwealth of Massachusetts to engage
in the business of an investment company. The Trust's shares of beneficial
interest are currently divided into eleven series (including the Fund), each
series representing the entire undivided interest in a separate portfolio of
assets.
The Board of Trustees of the Trust (the "Trustees") have selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, under the terms
and conditions provided in the investment management contract, dated as of the
date hereof, between the Trust, on behalf of the Fund, and the Adviser (the
"Investment Management Contract").
The Adviser and the Trustees have selected Independence Investment
Associates, Inc. (the "Sub-Adviser") to provide the Adviser and the Fund with
the advice and services set forth below, and the Sub-Adviser is willing to
provide such advice and services, subject to the review of the Trustees and
overall supervision of the Adviser, under the terms and conditions hereinafter
set forth. The Sub-Adviser hereby represents and warrants that it is registered
as an investment adviser under the Investment Advisers Act of 1940, as amended
(the "1940 Act"). Accordingly, the Trust, on behalf of the Fund, and the
Adviser agree with the Sub-Adviser as follows:
1. DELIVERY OF DOCUMENTS. The Trust has furnished the Sub-Adviser
with copies, properly certified or otherwise authenticated, of each of
the following:
<PAGE> 3
JOHN HANCOCK ADVISERS, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
September 27, 1995
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
- -- John Hancock Independence Medium Capitalization Fund
101 Huntington Avenue
Boston, Massachusetts 02199
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 State Street
Boston, MA 02109
Sub-Investment Management Contract
----------------------------------
Dear Sirs:
John Hancock Institutional Series Trust (the "Trust"), of which John
Hancock Independence Medium Capitalization Fund (the "Fund") is a series, has
been organized as a business trust under the laws of The Commonwealth of
Massachusetts to engage in the business of an investment company. The Trust's
shares of beneficial interest are currently divided into eleven series
(including the Fund), each series representing the entire undivided interest in
a separate portfolio of assets.
The Board of Trustees of the Trust (the "Trustees") have selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund, and to provide certain other services, under the terms
and conditions provided in the investment management contract, dated as of the
date hereof, between the Trust, on behalf of the Fund, and the Adviser (the
"Investment Management Contract").
The Adviser and the Trustees have selected Independence Investment
Associates, Inc. (the "Sub-Adviser") to provide the Adviser and the Fund with
the advice and services set forth below, and the Sub-Adviser is willing to
provide such advice and services, subject to the review of the Trustees and
overall supervision of the Adviser, under the terms and conditions hereinafter
set forth. The Sub-Adviser hereby represents and warrants that it is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "1940 Act"). Accordingly, the Trust, on behalf of the Fund,
and the Adviser agree with the Sub-Adviser as follows:
1. DELIVERY OF DOCUMENTS. The Trust has furnished the Sub- Adviser with
copies, properly certified or otherwise authenticated, of each of the
following:
<PAGE> 4
(a) Declaration of Trust of the Trust, dated October 31, 1994 (the
"Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees selecting the Sub-Adviser as the
investment subadviser to the Fund and approving the form of this
Sub-Investment Management Contract (the "Contract");
(d) Resolutions of the Trustees selecting the Adviser as investment
adviser to the Fund and approving the form of the Investment
Management Contract and resolutions adopted by the initial
shareholder of the Fund approving the form of the Investment
Management Contract;
(e) The Adviser's Investment Management Contract;
(f) Commitments, limitations and undertakings made by the Trust to
state "blue sky" authorities for the purpose of qualifying shares of
the Fund for sale in such states;
(g) The Fund's prospectus and statement of additional information;
and
The Adviser will furnish the Sub-Adviser from time to time with
copies, properly certified or otherwise authenticated, of all amendments
of or supplements to the foregoing, if any.
The Sub-Adviser has furnished the Adviser with a copy of the
Sub-Adviser's Code of Ethics, and will furnish the Adviser from time to
time with copies of any amendments to the code. The restrictions of the
Sub-Adviser may differ from those of the Trust where appropriate as long
as they maintain the same intent consistent with the sub-adviser's own
procedures for recommending and purchasing securities.
2. INVESTMENT SERVICES. The Sub-Adviser will use its best efforts to
provide to the Fund continuing and suitable investment advice with respect
to investments, consistent with the investment policies, objectives and
restrictions of the Fund as set forth in the Fund's Prospectus and
Statement of Additional Information. In the performance of the
Sub-Adviser's duties hereunder, subject always to the provisions contained
in the documents delivered to the Sub-Adviser pursuant to Section 1 above,
as each of the same may from time to time be amended or supplemented, the
Sub-Adviser will have investment discretion with respect to the Fund and
will, at its own expense:
(a) furnish the Adviser and the Fund with advice and
recommendations, consistent with the investment policies, objectives
and restrictions of the Fund as set forth in the Fund's prospectus
and statement of additional information, with respect to the
purchase, holding and disposition of portfolio securities and other
permitted investments;
(b) furnish the Adviser and the Fund with advice as to the manner in
which voting rights, subscription rights, rights to consent to
corporate action and any other rights
2
<PAGE> 5
pertaining to the Fund's assets shall be exercised, the Fund
having the responsibility to exercise such voting and other rights;
and, as requested, furnish the Fund with research, economic and
statistical data in connection with the Fund's investments and
investment policies;
(c) submit such reports relating to the valuation of the Fund's
securities as the Adviser may reasonably request;
(d) subject to prior consultation with the Adviser, engage in
negotiations relating to the Fund's investments with issuers,
investment banking firms, securities brokers or dealers and other
institutions or investors;
(e) consistent with the provisions of Section 7 of this Contract,
place orders for the purchase, sale or exchange of portfolio
securities for the Fund's account with brokers or dealers selected by
the Adviser or the Sub-Adviser, provided that in connection with the
placing of such orders and the selection of such brokers or dealers
the Sub- Adviser shall seek to obtain execution and pricing within
the policy guidelines determined by the Trustees and set forth in the
prospectus and statement of additional information of the Fund as in
effect and furnished to the Sub-Adviser from time to time;
(f) from time to time or at any time requested by the Adviser or the
Trustees, make reports to the Adviser or the Trust, as requested, of
the Sub-Adviser's performance of the foregoing services;
(g) subject to the supervision of the Adviser, maintain and preserve
the records required by the 1940 Act to be maintained by the
Sub-Adviser (the Sub-Adviser agrees that such records are the
property of the Trust and copies will be surrendered to the Trust
promptly upon request therefor);
(h) give instructions to the custodian (including any subcustodian)
of the Fund as to deliveries of securities to and from such custodian
and payments of cash for the account of the Fund, and advise the
Adviser on the same day such instructions are given;
(i) cooperate generally with the Fund and the Adviser to provide
information necessary for the preparation of registration statements
and periodic reports to be filed with the Securities and Exchange
Commission, including Form N-1A, semi-annual reports on Form N-SAR,
periodic statements, shareholder communications and proxy materials
furnished to holders of shares of the Fund, filings with state "blue
sky" authorities and with United States agencies responsible for tax
matters, and other reports and filings of like nature; and
3. EXPENSES PAID BY THE SUB-ADVISER. The Sub-Adviser will pay the cost
of maintaining the staff and personnel necessary for it to perform its
obligations under this Contract, the expenses of office rent, telephone,
telecommunications and other facilities it is obligated to provide in
order to perform the services specified in Section 2, and any other
expenses incurred by it in connection with the performance of its duties
hereunder.
3
<PAGE> 6
4. EXPENSES OF THE FUND NOT PAID BY THE SUB-ADVISER. The Sub-Adviser
will not be required to pay any expenses which this Contract does not
expressly state shall be payable by the Sub-Adviser. In particular, and
without limiting the generality of the foregoing but subject to the
provisions of Section 3, the Sub-Adviser will not be required to pay under
this contract:
(a) the compensation and expenses of Trustees and of independent
advisers, independent contractors, consultants, managers and other
agents employed by the Trust or the Fund other than through the
Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the
Trust or the Fund;
(c) the fees and disbursements of custodians and depositories of the
Trust or the Fund's assets, transfer agents, disbursing agents, plan
agents and registrars;
(d) taxes and governmental fees assessed against the Trust or the
Fund's assets and payable by the Trust or the Fund;
(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders of the Trust or
the Fund except that the Sub-Adviser shall bear the costs of
providing the information referred to in Section 2(i) to the Adviser;
(f) brokers' commissions and underwriting fees; and;
(g) the expense of periodic calculations of the net asset value of
the shares of the Fund.
5. COMPENSATION OF THE SUB-ADVISER. For all services to be rendered,
facilities furnished and expenses paid or assumed by the Sub-Adviser as
herein provided for the Fund, the Adviser will pay the Sub-Adviser
quarterly, based on the "average daily net asset" value of the Fund for
each of the preceding 3 months, in arrears a fee at the annual rate of 55%
of the investment advisory fee payable to the Adviser. The "average daily
net assets" of the Fund shall be determined on the basis set forth in the
Fund's prospectus or otherwise consistent with the 1940 Act and the
regulations promulgated thereunder. The Sub-Adviser will receive a pro
rata portion of such monthly fee for any periods in which the Sub-Adviser
advises the Fund less than a full month. The Sub-Adviser understands and
agrees that neither the Trust nor the Fund has any liability for the
Sub-Adviser's fee hereunder. Calculations of the Sub-Adviser's fee will
be based on average net asset values as provided by the Adviser.
In addition to the foregoing, the Sub-Adviser may from time to time
agree not to impose all or a portion of its fee otherwise payable
hereunder (in advance of the time such fee or portion thereof would
otherwise accrue) and/or undertake to pay or reimburse the Fund for all or
a portion of its expenses not otherwise required to be borne or reimbursed
by it. Any such fee reduction or undertaking may be discontinued or
modified by the Sub-Adviser at any time.
6. OTHER ACTIVITIES OF THE SUB-ADVISER AND ITS AFFILIATES. Nothing
herein contained shall prevent the Sub-Adviser or any of its affiliates or
associates from engaging in any other business or from acting as
investment adviser or investment manager for any other person or entity,
whether or not having investment policies or a portfolio similar to the
Fund. It is specifically
4
<PAGE> 7
understood that officers, directors and employees of the Sub-Adviser
and those of its affiliates may engage in providing portfolio management
services and advice to other investment advisory clients of the
Sub-Adviser or of its affiliates.
7. AVOIDANCE OF INCONSISTENT POSITION. In connection with purchases or
sales of portfolio securities for the account of the Fund, neither the
Sub-Adviser nor any of its directors, officers or employees will act as
principal or agent or receive any commission, except as permitted by the
1940 Act and the rules and regulations promulgated thereunder. The
Sub-Adviser shall not knowingly recommend that the Fund purchase, sell or
retain securities of any issuer in which the Sub-Adviser has a financial
interest without obtaining prior approval of the Adviser prior to the
execution of any such transaction.
Nothing herein contained shall limit or restrict the Sub-Adviser or
any of its officers, affiliates or employees from buying, selling or
trading in any securities for its or their own account or accounts. The
Trust and Fund acknowledge the Sub-Adviser and its officers, affiliates
and employees, and its other clients may at any time have, acquire,
increase, decrease or dispose of positions in investments which are at the
same time being acquired or disposed of by the Fund. The Sub-Adviser
shall have no obligation to acquire with respect to the Fund, a position
in any investment which the Sub-Adviser, its officers, affiliates or
employees may acquire for its or their own accounts or for the account of
another client if, in the sole discretion of the Sub-Adviser, it is not
feasible or desirable to acquire a position in such investment on behalf
of the Fund. Nothing herein contained shall prevent the Sub-Adviser from
purchasing or recommending the purchase of a particular security for one
or more funds or clients while other funds or clients may be selling the
same security.
8. NO PARTNERSHIP OR JOINT VENTURE. The Trust, the Fund, the Adviser
and the Sub-Adviser are not partners of or joint venturers with each other
and nothing herein shall be construed so as to make them such partners or
joint venturers or impose any liability as such on any of them.
9. LIMITATION OF LIABILITY OF THE SUB-ADVISER. The Sub-Adviser shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust, the Fund or the Adviser in connection with the
matters to which this Contract relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the Sub-Adviser's
part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Contract. Any person, even though
also employed by the Sub-Adviser, who may be or become an employee of and
paid by the Trust or the Fund shall be deemed, when acting within the
scope of his employment by the Trust or the Fund, to be acting in such
employment solely for the Trust or the Fund and not as the Sub-Adviser's
employee or agent.
10. DURATION AND TERMINATION OF THIS CONTRACT. This Contract shall
remain in force until the second anniversary of the date upon which this
Contract was executed by the parties hereto, and from year to year
thereafter, but only so long as such continuance is specifically approved
at least annually by (a) a majority of the Trustees who are not interested
persons of the Adviser, of the Sub-Adviser or (other than as Board
members) of the Trust or the Fund, cast in person at a meeting called for
the purpose of voting on such approval, and (b) either (i) the Trustees or
(ii) a majority of the outstanding voting securities of the Fund. This
Contract may, on 60 days' written notice, be terminated at any time
without the payment of any penalty by the Trust on
5
<PAGE> 8
behalf of the Fund by vote of a majority of the outstanding voting
securities of the Fund or by the Board of Trustees or by the Adviser or by
the Sub-Adviser. Termination of this Contract with respect to the Fund
shall not be deemed to terminate or otherwise invalidate any provisions of
any contract between you and any other series of the Trust. This Contract
shall automatically terminate in the event of its assignment or upon the
termination of the Adviser's Investment Management Contract. In
interpreting the provisions of this Section 10, the definitions contained
in Section 2(a) of the 1940 Act (including the definitions of
"assignment," "interested person" and "voting security"), shall be
applied.
11. AMENDMENT OF THIS CONTRACT. No provision of this Contract may be
changed, discharged, terminated or waived orally, but only by an
instrument in writing signed by the party against which enforcement of the
change discharge, termination or waiver is sought, and no amendment,
transfer, assignment, sale, hypothecation or pledge of this Contract shall
be effective until approved by (a) the Trustees, including a majority of
the Trustees who are not interested persons of the Adviser, the Sub-
Adviser or (other than as Board members) the Trust or the Fund, cast in
person at a meeting called for the purpose of voting on such approval, and
(b) a majority of the outstanding voting securities of the Fund, as
defined in the 1940 Act.
12. MISCELLANEOUS.
(a) The captions in this Contract are included for convenience of
reference only and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect. This
Contract may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. The name John Hancock
Institutional Series Trust is the designation of the Trustees under
the Declaration of Trust, dated October 31, 1994 as amended from time
to time. The Declaration of Trust has been filed with the Secretary
of State of The Commonwealth of Massachusetts. The obligations of
the Trust and the Fund are not personally binding upon, nor shall
resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Trust or the Fund,
but only the Fund's property shall be bound. The Trust or the Fund
shall not be liable for the obligations of any other series of the
Trust.
(b) Any information supplied by the Sub-Adviser, which is not
otherwise in the public domain, in connection with the performance of
its duties hereunder is to be regarded as confidential and for use
only by the Fund and/or its agents, and only in connection with the
Fund and its investments.
(c) The Trust and the Fund may use the name "Independence" or
"NIXDEX" or any name similar to "Independence Investment Associates,
Inc." or "NIXDEX" only for so long as this Agreement remains in
effect. At such time as this Agreement shall no longer be in effect,
the Fund will (to the extent that it lawfully can) cease to use such
names or any other names indicating that the Fund is advised by or
otherwise connected with the Sub-Adviser. The Fund acknowledges that
it has adopted a name that includes the name "Independence" through
permission of the Sub-Adviser and agrees that the Sub-Adviser
reserves to itself and any successor to its business the right to
grant the non-exclusive right to use the name "Independence" or
"NIXDEX" or any similar name to any other
6
<PAGE> 9
corporation or entity, including but not limited to any
investment company of which it or any of its subsidiaries or
affiliates shall be the investment adviser.
13. GOVERNING LAW. This Contract shall be construed in accordance with
the laws of The Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act.
14. SEVERABILITY. The provisions of this contract are independent of
and separable from each other and no provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any
reason any other or others of them may be deemed invalid or unenforceable
in whole or in part.
Yours very truly,
JOHN HANCOCK ADVISERS, INC.
By: /s/ Anne C. Hodsdon
--------------------
Its: President
-------------------
The foregoing Contract is hereby agreed to as of the date thereof.
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
on behalf of John Hancock Independence Medium Capitalization Fund
By: /s/ Anne C. Hodsdon
--------------------
Its: President
-------------------
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
By: /s/ William C. Fletcher
------------------------
Its: President
-----------------------
7
<PAGE> 1
EXHIBIT 6.1
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
101 Huntington Avenue
Boston, MA 02199
December 11, 1995
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199
Re: Distribution Agreement
Ladies and Gentleman:
Pursuant to Section 11 of the Distribution Agreement dated as of
January 30, 1995 (the "Agreement") between John Hancock Institutional Series
Trust (the "Trust") and John Hancock Funds, Inc., please be advised that the
Trust has established a new series of its shares designated John Hancock Small
Capitalization Equity Fund (the "Fund"), and that the Trust desires to retain
John Hancock Funds, Inc. to serve as distributor and principal underwriter for
the Fund under the terms of the Agreement.
Please indicate your acceptance of this responsibility by signing below
and returning a signed copy of this letter to the undersigned.
ACCEPTED AND AGREED TO:
JOHN HANCOCK FUNDS, INC. JOHN HANCOCK INSTITUTIONAL
SERIES TRUST----
On behalf of John Hancock Small
Capitalization Equity Fund
By: /s/ C. Troy Shaver, Jr. By: /s/ Anne C. Hodsdon
------------------------- --------------------
Name: C. Troy Shaver, Jr. Name: Anne C. Hodsdon
Title: President Title: President
<PAGE> 1
EXHIBIT 8.4
December 11, 1995
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02205-9277
RE: JOHN HANCOCK INSTITUTIONAL SERIES TRUST
John Hancock Small Capitalization Equity Fund
Dear Sirs,
John Hancock Institutional Series Trust (the "Trust"), a Massachusetts business
trust, on behalf of John Hancock Small Capitalization Equity Fund (the "Fund"),
a series of the Trust, hereby notifies Investors Bank & Trust Company (the
"Bank"), that the Trust desires to place and maintain the Fund's securities and
cash in the custody of the Bank pursuant to the Master Custodian Agreement
between John Hancock Mutual Funds and the Bank dated December 15, 1992, as
amended from time to time. If the Bank agrees to provide such services, please
sign below and return a signed copy of this letter to the undersigned.
INVESTORS BANK JOHN HANCOCK
& TRUST COMPANY INSTITUTIONAL SERIES TRUST
On behalf of the above-named series
of the Trust
By: /s/ Henry Joyce By: /s/ Anne C. Hodsdon
---------------- --------------------
Name: Name:
Title: Director Title:
Attest: /s/ J. M. Keenan Attest: /s/ Theresa Apruzzese
----------------- ----------------------
<PAGE> 1
EXHIBIT 9.1
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
101 Huntington Avenue
Boston, MA 02199
December 11, 1995
John Hancock Investor Services Corporation
101 Huntington Avenue
Boston, MA 02199
Re: Transfer Agency and Service Agreement
Ladies and Gentleman:
Pursuant to Section 9.01 of the Transfer Agency and Service Agreement
dated as of January 30, 1995 (the "Agreement") between John Hancock
Institutional Series Trust (the "Trust") and John Hancock Investor Services
Corporation (the "Transfer Agent"), please be advised that the Trust has
established a new series of its shares designated John Hancock Small
Capitalization Equity Fund (the "Fund"), and that the Trust desires to retain
the Transfer Agent to render transfer agency services to the Fund under the
terms of the Agreement in accordance with the fee schedule attached hereto as
Exhibit A.
If the Transfer Agent agrees to provide such services in accordance
with the fee schedule attached hereto as Exhibit A, please sign below and return
a signed copy of this letter to the undersigned.
JOHN HANCOCK INVESTOR JOHN HANCOCK INSTITUTIONAL
SERVICES CORPORATION SERIES TRUST----
On behalf of John Hancock Small
Capitalization Equity Fund
By: /s/ David A. King By: /s/ Anne C. Hodsdon
------------------ --------------------
Name: David A. King Name: Anne C. Hodsdon
Title: President Title: President
Attest: /s/ Theresa Apruzzese Attest: /s/ Theresa Apruzzese
---------------------- ----------------------
<PAGE> 2
EXHIBIT A
TRANSFER AGENT FEE SCHEDULE
Maintenance Fee - The Fund shall pay a monthly fee equal, on an annual basis, to
0.05% of the average daily net asset value of the Fund.
Out-of-Pocket Expenses - Out-of-pocket expenses borne by the Fund include all
costs of proxy solicitation incurred at the specific direction of the Fund,
including telephone and postage for mailings of proxies.
<PAGE> 1
Independence Value Exhibit 27.1
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] 2-MOS
[FISCAL-YEAR-END] FEB-29-1996
[PERIOD-START] OCT-02-1995
[PERIOD-END] NOV-30-1995
[INVESTMENTS-AT-COST] 500,842
[INVESTMENTS-AT-VALUE] 520,537
[RECEIVABLES] 15,125
[ASSETS-OTHER] 41,912
[OTHER-ITEMS-ASSETS] 19,695
[TOTAL-ASSETS] 577,574
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 55,149
[TOTAL-LIABILITIES] 55,149
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 500,025
[SHARES-COMMON-STOCK] 58,826
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 2,705
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 19,695
[NET-ASSETS] 522,425
[DIVIDEND-INCOME] 3,100
[INTEREST-INCOME] 381
[OTHER-INCOME] 0
[EXPENSES-NET] 776
[NET-INVESTMENT-INCOME] 2,705
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 19,695
[NET-CHANGE-FROM-OPS] 22,400
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 58,832
[NUMBER-OF-SHARES-REDEEMED] 6
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 522,425
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,590
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13,779
[AVERAGE-NET-ASSETS] 505,374
[PER-SHARE-NAV-BEGIN] 8.50
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0.33
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 8.88
[EXPENSE-RATIO] 0.95
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
Independence Growth Exhibit 27.2
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] 2-MOS
[FISCAL-YEAR-END] FEB-29-1996
[PERIOD-START] OCT-02-1995
[PERIOD-END] NOV-30-1995
[INVESTMENTS-AT-COST] 500,792
[INVESTMENTS-AT-VALUE] 518,975
[RECEIVABLES] 13,868
[ASSETS-OTHER] 40,224
[OTHER-ITEMS-ASSETS] 18,183
[TOTAL-ASSETS] 573,067
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 53,891
[TOTAL-LIABILITIES] 53,891
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 500,025
[SHARES-COMMON-STOCK] 58,826
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 968
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 18,183
[NET-ASSETS] 519,176
[DIVIDEND-INCOME] 1,375
[INTEREST-INCOME] 365
[OTHER-INCOME] 0
[EXPENSES-NET] 772
[NET-INVESTMENT-INCOME] 968
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 18,183
[NET-CHANGE-FROM-OPS] 19,151
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 58,832
[NUMBER-OF-SHARES-REDEEMED] 6
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 519,176
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,582
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13,731
[AVERAGE-NET-ASSETS] 502,893
[PER-SHARE-NAV-BEGIN] 8.50
[PER-SHARE-NII] 0.02
[PER-SHARE-GAIN-APPREC] 0.31
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 8.83
[EXPENSE-RATIO] 0.95
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
Medium Capitalization Exhibit 27.3
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] 2-MOS
[FISCAL-YEAR-END] FEB-29-1996
[PERIOD-START] OCT-02-1995
[PERIOD-END] NOV-30-1995
[INVESTMENTS-AT-COST] 3,274,298
[INVESTMENTS-AT-VALUE] 3,372,806
[RECEIVABLES] 20,010
[ASSETS-OTHER] 54,325
[OTHER-ITEMS-ASSETS] 98,508
[TOTAL-ASSETS] 3,447,141
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 58,575
[TOTAL-LIABILITIES] 58,575
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 3,283,619
[SHARES-COMMON-STOCK] 384,056
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 6,439
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 98,508
[NET-ASSETS] 3,388,566
[DIVIDEND-INCOME] 4,820
[INTEREST-INCOME] 3,972
[OTHER-INCOME] 0
[EXPENSES-NET] 2,353
[NET-INVESTMENT-INCOME] 6,439
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 98,508
[NET-CHANGE-FROM-OPS] 104,947
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 391,508
[NUMBER-OF-SHARES-REDEEMED] 7,452
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 3,388,566
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4,581
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 17,937
[AVERAGE-NET-ASSETS] 1,455,705
[PER-SHARE-NAV-BEGIN] 8.50
[PER-SHARE-NII] 0.04
[PER-SHARE-GAIN-APPREC] 0.28
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 8.82
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
Independence Balanced Exhibit 27.4
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] 5-MOS
[FISCAL-YEAR-END] FEB-29-1996
[PERIOD-START] JUL-06-1995
[PERIOD-END] NOV-30-1995
[INVESTMENTS-AT-COST] 5,034,105
[INVESTMENTS-AT-VALUE] 5,131,778
[RECEIVABLES] 53,818
[ASSETS-OTHER] 38,145
[OTHER-ITEMS-ASSETS] 97,673
[TOTAL-ASSETS] 5,223,741
[PAYABLE-FOR-SECURITIES] 50,858
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 66,941
[TOTAL-LIABILITIES] 117,799
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 4,993,503
[SHARES-COMMON-STOCK] 563,408
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 15,934
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1,168)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 97,673
[NET-ASSETS] 5,105,942
[DIVIDEND-INCOME] 15,757
[INTEREST-INCOME] 6,197
[OTHER-INCOME] 0
[EXPENSES-NET] 3,648
[NET-INVESTMENT-INCOME] 18,306
[REALIZED-GAINS-CURRENT] (1,168)
[APPREC-INCREASE-CURRENT] 97,763
[NET-CHANGE-FROM-OPS] 114,811
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2,372
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 566,063
[NUMBER-OF-SHARES-REDEEMED] 2,928
[SHARES-REINVESTED] 273
[NET-CHANGE-IN-ASSETS] 5,105,942
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,830
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 29,172
[AVERAGE-NET-ASSETS] 999,820
[PER-SHARE-NAV-BEGIN] 8.50
[PER-SHARE-NII] 0.15
[PER-SHARE-GAIN-APPREC] 0.48
[PER-SHARE-DIVIDEND] 0.07
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.06
[EXPENSE-RATIO] 0.90
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
