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John Hancock Funds
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Institutional
Series Trust
INDEPENDENCE BALANCED FUND
INDEPENDENCE GROWTH FUND
INDEPENDENCE MEDIUM CAPITALIZATION FUND
INDEPENDENCE VALUE FUND
INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
SEMI-ANNUAL REPORT
August 31, 1996
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Table of Contents
Page
1) Chairman's Message...................................................... 3
2) Portfolio Manager Commentary
These commentaries reflect the views of the portfolio management team
through the end of the Fund's period discussed in this report. Of
course, the team's views are subject to change as market and other
conditions warrant.
John Hancock Independence Balanced Fund............................... 4
John Hancock Independence Growth Fund................................. 8
John Hancock Independence Medium Capitalization Fund.................. 12
John Hancock Independence Value Fund ................................. 16
John Hancock Independence Diversified Core Equity Fund II ............ 20
3) Financial Statements.................................................... 24
4) Notes To Financial Statements........................................... 51
TRUSTEES
EDWARD J. BOUDREAU, JR.
THOMAS W.L. CAMERON
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
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 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
SUSAN S. NEWTON
VICE PRESIDENT AND SECRETARY
JAMES J. STOKOWSKI
VICE PRESIDENT AND TREASURER
THOMAS H. CONNORS
SECOND VICE PRESIDENT AND
COMPLIANCE OFFICER
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MA 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9277
BOSTON, MA 02205-9277
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
INVESTMENT SUB-ADVISER
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 STATE STREET
BOSTON, MA 02109
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MA 02109
2
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CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since February, much of the economic news has been good. Employment levels are
at their highest in years. Real wages may have started growing again after a
long stagnant stretch. And a fair share of Corporate America logged
second-quarter earnings that have exceeded expectations, despite some glaring,
headline-making exceptions in the technology world. So why has the bond market
soured this year and the stock market been on a roller coaster. Isn't good
economic news good?
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
What keeps the market interesting is that the answer is not
straightforward. While a healthy economy helps corporate profits grow, an
economy growing too fast, or the fear that it's heating up, sends interest rates
up out of fear that rising wages and higher prices could spark inflation. That
could prompt the Federal Reserve, which views inflation as public enemy number
one, to slow the economy down. And the typical way to do that is to raise
short-term interest rates. For bonds, higher interest rates mean lower bond
prices, since the two move in opposite directions. What's more, inflation erodes
the value of a bondholder's fixed-income stream. For stocks, higher interest
rates mean higher borrowing costs, which cut into profits.
Those are just a couple of the more textbook explanations. But there's
another element driving the market and it's far less tangible or objective. It
has to do with perception rather than reality. By taking the market on a series
of dizzying ups and downs lately, investors are signaling uncertainties and
fears, more than anything else. Since the financial markets look forward,
investors seem to be saying that they are concerned about a number of things --
inflation, the direction of interest rates, the upcoming election and the
possibility that markets have advanced too far without a pullback.
So what should investors take away from it all? Probably the same thing
you've heard before -- that although the markets don't move up in a straight
line, they have historically rewarded patient, long-term investors. Short-term
turmoil is better as a topic of dinner party conversation, rather than a call to
action.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
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BY JANE A. SHIGLEY AND JEFFREY B. SAEF
FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Balanced Fund
Rising interest rates make for a bumpy time
for stocks and bonds
"...some of our largest
investments boosted
the Fund's performance."
Volatility reared its head during the past six months, making it a rockier path
for stock and bond investors alike. For the six months ended August 31, 1996,
John Hancock Independence Balanced Fund posted a total return of 1.08% at net
asset value, while the average balanced fund returned 1.80%, according to Lipper
Analytical Services. During the same period, a 50/50 blended index combining the
Standard & Poor's 500-Stock Index and the Lehman Brothers Government Corporate
Bond Index (L.G.C.) returned 1.33%, as tracked by the Frank Russell Company.
While we can't say for certain, we suspect that most balanced funds had a higher
weighting in stocks -- which performed better than bonds during the year -- than
this Fund. That helps account for why the Fund lagged its peers during the last
six months.
The Fund has the flexibility to have either stocks or bonds as high as 75%
of its investments as market and economic conditions warrant. At the end of the
period, stocks made up 43% of investments, while bonds accounted for 57% of
investments. Six months earlier, the Fund was almost evenly divided between
stocks and bonds.
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Pie chart with the heading "Portfolio Diversification" at bottom left hand
column. The chart is divided into two sections: Bonds 57%; Stocks 43%. A
footnote below states "As a percentage of net assets on August 31, 1996."
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Retail and pharmaceuticals winners
During the past six months, the Fund benefited most from our stock selection in
the retail and pharmaceutical sectors. In the retail group one of the top
contributors to performance was Wal-Mart, which was boosted by a rise in
consumer spending, among other factors. One of the top performers in the drug
group was Johnson & Johnson, whose stock price rose largely because of its
strong array of new products.
4
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John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
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Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 1% with 2% at the top and 0% at the bottom. Within
the chart there are three solid bars. The first represents the 1.08% total
return for John Hancock Independence Balanced Fund. The second represents the
1.80% total return for the average balanced fund. The third represents the 1.33%
total return for the 50% S&P 500-Stock Index/50% L.G.C. Bond Index. A footnote
below states "The total return for John Hancock Balanced Fund is at net asset
value with all dividends reinvested. The average balanced fund is tracked by
Lipper Analytical Services. The S&P 500-Stock Index and the Lehman Brothers
Government/Corporate Bond Index are unmanaged indices commonly used as broad
measures of stock and bond performance. The performance of these indices is
tracked by the Frank Russell Company. See following two pages for historical
performance information."
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In addition, some of our largest investments boosted the Fund's
performance. Two of them -- Xerox and Philips Petroleum -- benefited from higher
earnings generated from abroad. Of course there were disappointments. Among them
was General Motors, which suffered from declining auto sales. Philip Morris
suffered a large decline as a jury awarded a large settlement to litigants
against a tobacco manufacturer and the rhetoric out of Washington turned very
negative against cigarette manufacturers.
Fixed-income strategy
During the past six months, the fixed-income portion of the portfolio maintained
an average maturity of about seven years. We continued to emphasize
intermediate-term securities, based on the output of our fundamental and
quantitative models. In hindsight, the Fund might have benefited from owning
more shorter- and longer-term securities. But we continue to believe that some
intermediate-term securities offer the best value in the marketplace today.
Additionally, we kept the Fund's overall credit quality relatively high and
kept it well-diversified across various fixed-income categories. At the end of
the period, our bond holdings were allocated as follows: government securities
stood at 49%; investment-grade corporates were 30%; mortgage-backed securities
were 9%; and asset-backed securities were 12%. With interest rates rising during
the year, performance largely has been driven by sectors which offer higher
yields than Treasury securities. The Fund's corporate, mortgage and asset-back
securities have helped cushion it from price losses caused by higher interest
rates.
"In our view, economic growth
could slow in 1997..."
Outlook
In our view, economic growth could slow in 1997, although not to the point where
the country would go into a recession. Consensus in the marketplace seems to be
that the Federal Reserve Board will raise interest rates, and the markets appear
to have already factored in a small interest rate hike. Given that scenario,
we'll most likely keep our current mix of stocks and bonds. And within the
fixed-income area, we'll continue to emphasize intermediate-maturity securities
with particular emphasis on corporate, mortgage-backed and asset-backed
securities.
5
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A LOOK AT PERFORMANCE
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The table on the right shows the cumulative total return for the John Hancock
Independence Balanced Fund. Total return is a performance measure that equals
the sum of all income and capital gains dividends, assuming reinvestment of
these distributions, and the change in the price of the Fund's shares, expressed
as a percentage of the Fund's net asset value per share. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURN
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For the period ended June 30, 1996
LIFE OF
FUND
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John Hancock Independence Balanced Fund 13.07%(1,2)
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YIELDS
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As of August 31, 1996
SEC 30-DAY
YIELD
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John Hancock Independence Balanced Fund 3.96%
Notes to Performance
(1) Commenced on July 6, 1995.
(2) The Advisor has agreed to limit the Fund's expenses to 0.90% of the Fund's
average daily net assets. Without the limitation of expenses, the total
return for the period would have been 9.15%.
6
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WHAT HAPPENED TO A $250,000 INVESTMENT...
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The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Balanced Fund would be worth on August 31, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in a blend of 50% in the
Standard & Poor's 500 Stock Index and 50% in the Lehman Brothers Government/
Corporate Bond Index. The Standard & Poor's 500 Stock Index is an unmanaged
index that includes 500 widely traded common stocks and is a commonly used
measure of stock market performance. The Lehman Brothers Government/ Corporate
Bond Index is an unmanaged index that measures the performance of U.S.
government bonds, U.S. corporate bonds, and Yankee bonds.
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Independence Balanced Fund
Line chart with the heading Independence Balanced Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value in a blend of 50% in the Standard & Poor's
500 Stock Index and 50% in the Lehman Brothers Government/Corporate Bond Index
and is equal to $283,946 as of August 31, 1996. The second line represents the
value of the hypothetical $250,000 investment made in the Independence Balanced
Fund on July 6, 1995, and is equal to $279,038.
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7
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BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Growth Fund
Stock market steers bumpy course as
economic outlook shifts back and forth
"We did well with drug stocks..."
Nobody said the sailing would be smooth in 1996. And it hasn't been for either
the stock market or John Hancock Independence Growth Fund during the most recent
six-month period. There seemed to be no clear direction about where the economy
or interest rates were headed. This left many investors tossing and turning,
trying to find sectors that could provide wind for their sails.
Two growth sectors -- technology stocks and large, multinational, consumer
stocks -- led the pack for performance. But even within these sectors, not all
stocks went up. Stock selection was critical.
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Chart entitled "Top Five Common Stock Holdings" at bottom left hand column. The
chart lists five holdings: 1) General Electric 4.6%; 2) AT&T 3.8%; 3) Johnson &
Johnson 2.6%; 4) Bristol-Myers Squibb 3.2%; 5) Intel 2.9%. A footnote below
states "As a percentage of net assets on August 31, 1996."
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Despite the market's volatility, the Russell 1000 Growth Index managed to
eke out a return of 2.85% for the six months ended August 31, 1996. The Fund had
a total return of -0.32% at net asset value for the same period, which lagged
the average growth fund's return of 2.67%, according to Lipper Analytical
Services.
Bad news/good news
Although many of our top investments did quite well, their gains were not enough
to offset a few losses that undermined the Fund's performance. To start, we had
a sizable stake in AT&T, which sank some 17% during the period. We bought the
stock because of its excellent long-term prospects. AT&T, which is the largest
long-distance carrier, also owns MaCaw Cellular (the largest cellular company),
Lucent Technologies (a major network technology company), and NCR (computers).
Valued separately these four companies are worth more than AT&T's total current
value. In addition, new telecommunications legislation should help lower AT&T's
costs in local markets. Recently, however, lower-than-expected long distance
volumes caused revenues to fall short of estimates. This, combined with negative
press about its downsizing efforts, temporarily hurt the stock. We were also
disappointed by insurance
8
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John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
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Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 2%, with 4% at the top and -4% at the bottom. The
first represents the -0.32% total return for the John Hancock Independence
Growth Fund. The second represents the 2.67% total return for the average growth
fund. The third represents 2.85% total return for the Russell 1000 Growth Index.
A footnote below states "The total return for John Hancock Independence Growth
Fund is at net asset value with all distributions reinvested. The average growth
fund is tracked by Lipper Analytical Services. The Russell 1000 Growth Index is
an unmanaged index comprised of stocks with a greater than average growth
orientation. It is comprised of securities of the largest 1000 public companies
in the United States equity markets. See following two pages for historical
performance information."
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stocks, which suffered from the prospect of rising interest rates.
Finally, a few technology stocks floundered, including Digital Equipment
Corporation (DEC) which we sold during the period. The company had a string of
earnings disappointments when PC sales were lower than expected. By contrast,
another technology name --Intel -- was the Fund's top performer. Thanks to
strong sales in the semiconductor business, Intel returned 32% over the period.
We did well with drug stocks, which prospered from new product
introductions and higher prices. Bristol-Myers Squibb and Johnson & Johnson --
our two largest drug stocks -- both had solid returns for these reasons. In
addition, Bristol-Myers' hair coloring business continued to flourish. And
Johnson & Johnson had strong sales growth partly because of its position as the
largest, most diversified health-care company in the business.
We also saw good performance from General Electric, the Fund's largest
investment. The stock rose 10% over the period, as it continued to benefit from
strong management, global reach, new initiatives, and strong cash flow. The
stock of Home Depot also shot up with a pick-up in home building. We took
profits there and at Xerox, which bounced back after a sales force
reorganization and rose 23%.
"...it's important to take
a long-term perspective..."
What's ahead
We believe that the economy will continue to show decent growth this year,
slowing down by the end of 1997. In the meantime, the stock market will probably
continue to be volatile, until it's clear whether or not the Federal Reserve
will raise interest rates. In this environment, and for this Fund in particular,
we believe it's important to take a long-term perspective. The Fund seeks above
average total return by emphasizing investment in companies whose stock shows
potential for relatively high long-term earnings growth rather than current
dividend yield. With that in mind, we remain fairly optimistic. Historically,
the stock market has outperformed other financial instruments over long time
periods. And we believe our strategy of buying cheap stocks with improving
fundamentals will help steer John Hancock Independence Growth Fund toward stocks
with the best potential to outperform over the long term.
9
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A LOOK AT PERFORMANCE
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The table on the right shows the cumulative total return for the John Hancock
Independence Growth Fund. Total return is a performance measure that equals the
sum of all income and capital gains dividends, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURN
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For the period ended June 30, 1996
LIFE OF
FUND
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John Hancock Independence Growth Fund 14.08%(1,2)
Notes to Performance
(1) Commenced on October 2, 1995.
(2) The Advisor has agreed to limit the Fund's expenses to 0.95% of the Fund's
average daily net assets. Without the limitation of expenses, the total
return for the period would have been (4.76%).
10
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WHAT HAPPENED TO A $250,000 INVESTMENT...
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The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Growth Fund would be worth on August 31, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell 1000 Growth
Index -- an unmanaged capitalization-weighted price-only index, which is
comprised of 1,000 of the largest capitalized U.S. domiciled companies whose
common stock traded in the United States on the New York Stock Exchange. The
securities in this index have less than average growth orientation.
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Independence Growth Fund
Line chart with the heading Independence Growth Fund, representing the growth of
a hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Russell 1000 Growth Index and is
equal to $284,866 as of August 31, 1996. The second line represents the value of
the hypothetical $250,000 investment made in the Independence Growth Fund on
October 2, 1995, and is equal to $273,965.
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11
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BY DAVID CANAVAN FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Medium
Capitalization Fund
Up and down moves prevail for small- and
mid-cap stocks in last six months
"Our retail and energy stocks were
some of our best performers..."
During the past six months, small- and mid-cap stocks experienced a series of
gyrations. Between March and May, these stocks became the darlings of the
overall market's rally and their stock prices soared. But from late June through
end of July, they came under pressure as investors fretted over the strength of
soon-to-be-released second quarter company earnings and the prospect of higher
inflation. At their worst point, these fears caused a dramatic market slide in
mid-July. But in an abrupt turnaround, the market retraced most of its previous
losses during August as inflation fears subsided and second quarter corporate
earnings proved to be quite positive.
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Chart entitled "Top Five Common Stock Holdings" at bottom left hand column. The
chart lists five holdings: 1) Cigna 3.0%; 2) Marsh & McLennan 2.2%; 3) Xerox
2.0%; 4) Unocal Corp. 1.9%; 5) Energy Corp. 1.9%. A footnote below states "As a
percentage of net assets on August 31, 1996."
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Performance overview
For the six-month period ended August 31, 1996, John Hancock Independence Medium
Capitalization Fund had a total return of 0.75% at net asset value. For the same
period, the average medium capitalization fund returned 3.83%, according to
Lipper Analytical Services and the Callan Medium Capitalization Index returned
1.65%. The Fund's lag can be attributed to two factors. First, the spring rally
heavily favored the very smallest company stocks. Our disciplined investment
strategy requires that we take a more balanced approach by diversifying our
investments among both small- and medium-capitalization stocks. Second, our
valuation model -- which emphasizes stocks that combine cheapness with improving
fundamentals -- wasn't in sync with the way the market was valuing stocks during
this time. While no one valuation model is going to work in every market
environment and may not work perfectly in a given, short-term period, we think
that investing in well-priced stocks where the underlying company is
experiencing improving fundamentals will provide superior returns over the long
term.
12
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John Hancock Funds - Institutional Series Trust
-- Independence Medium Capitalization Fund
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Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 2%, with 4% at the top and 0% at the bottom. The
first represents the 0.75% total return John Hancock Independence Medium
Capitalization Fund. The second represents the 3.83% total return for the
average mid-cap fund. The third represents the 1.65% total return for the Callan
Medium Capitalization Index. A footnote below states "The total return for John
Hancock Independence Medium Capitalization Fund is at net asset value with all
distributions reinvested. The average medium capitalization fund is tracked by
Lipper Analytical Services. The Callan Medium Capitalization Index is an
unmanaged index commonly used as a broad measure of performance of the stock of
companies with market capitalization of $1 billion to $5 billion. See following
two pages for historical performance information."
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Our retail and energy stocks were some of our best performers during the
period. The department store chain TJX benefited from rising consumer confidence
and improving retail sales. Two of our more successful retailing companies
during the period are no longer in the Fund. Our Stop and Shop holdings were
sold at an attractive profit when the company was taken over. Likewise, we sold
our holdings in supermarket chain Safeway at a price well above our original
purchase price. Energy companies such as Baker Hughes and PanEnergy benefited
from strong and steady demand both in the United States and abroad, the rising
price of natural gas, and lower costs.
Many technology stocks had a rough go of it between March and August and
most of our disappointments occurred in this sector. Particularly hard hit were
stocks related to the manufacture and distribution of semiconductor chips, as
investors fretted that the supply of chips would outpace demand. As their
business fundamentals worsened, we eliminated many of those stocks. The question
of demand for computers cast a pall over nearly the entire tech sector and many
otherwise healthy companies got painted with the same brush. Analog Devices, for
example, reported strong second quarter earnings but was caught in the emotional
downdraft. In our view, the fundamentals for many of our tech stocks remain
quite strong and we'll hang on for now. We took advantage of the market's slide
to purchased companies like Linear Tech, People Soft and Honeywell after they
had cheapened up significantly.
"...the fundamentals for many of our
tech stocks remain quite strong..."
Outlook
In our view, there are no significant indications that inflation will heat up
during the balance of this year. The companies we meet with tell us that they
have very little flexibility when it comes to increasing their product prices,
which supports the idea that inflation will stay moderate. The consensus is that
the economy will continue to chug along at a reasonable pace and poses no real
threat toward igniting inflation. From a market standpoint, earnings growth will
be a key factor. After years of downsizing, American companies have pretty much
wrung out all the cost savings that came from cut backs and consolidation. Going
forward, weak growth could hit bottom line growth. Regardless of what happens,
we'll keep looking for stocks that combine both cheapness and improving
fundamentals.
13
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A LOOK AT PERFORMANCE
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The table on the right shows the cumulative total return for the John Hancock
Independence Medium Capitalization Fund. Total return is a performance measure
that equals the sum of all income and capital gains dividends, assuming
reinvestment of these distributions, and the change in the price of the Fund's
shares, expressed as a percentage of the Fund's net asset value per share.
Remember that all figures represent past performance and are no guarantee of how
the Fund will perform in the future. Also, keep in mind that the total return
and share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost, depending on
when you sell them.
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CUMULATIVE TOTAL RETURN
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For the period ended June 30, 1996
LIFE OF
FUND
----
John Hancock Independence Medium Capitalization Fund 12.78%(1,2)
Notes to Performance
(1) Commenced on October 2, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 1.00% of the Fund's
average daily net assets. Without the limitation of expenses, the total
return for the period would have been 3.16%.
14
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WHAT HAPPENED TO A $250,000 INVESTMENT...
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The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Medium Capitalization Fund would be worth on August 31, 1996,
assuming you invested on the day the Fund started and have reinvested all
distributions. For comparison, we've shown the same $250,000 investment in the
Callan Medium-Capitalization Index -- an unmanaged index that covers 25% of the
Callan Broad Market Index, with companies that range from approximately $1
billion to $5 billion in capitalization.
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Independence Medium Capitalization Fund
Line chart with the heading Independence Medium Capitalization Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Medium Capitalization Fund on March 2, 1995, and is equal to
$276,336. The second line represents the value of the Callan
Medium-Capitalization Index and is equal to $274,582 as of August 31, 1996.
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15
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BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Value Fund
Despite increased volatility, stock market ekes out modest gain
"Oil and bank stocks
also did well for us."
The stock market took investors on a roller coaster ride for much of the spring
and summer. As the outlook for interest rates fluctuated, so did the market. In
March, strong employment numbers suggested the economy was growing faster than
expected and interest rates might be on the rise; the market tumbled. By May,
signs of slower economic growth had pushed the market higher. Mixed economic
signals, however, continued, with the market taking a severe downturn in July.
Throughout these months, most sectors experienced volatility. The best gains
overall came from technology stocks and large, consumer growth stocks -- those
with steadily growing earnings.
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Chart entitled "Top Five Common Stock Holdings" at bottom left hand column. The
chart lists five holdings: 1) Texaco 3.1%; 2) General Motors 2.9%; 3) Ford Motor
Co. 2.7%; 4) CIGNA 2.7%; 5) IBM 2.7%. A footnote below states "As a percentage
of net assets on August 31, 1996."
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Most market indexes emerged with modestly positive returns for the six
months ended August 31, 1996. The Russell 1000 Value Index, for example,
returned 2.38%. Over the same period, John Hancock Independence Value Fund
posted a total return of 2.01% at net asset value, while the average growth and
income fund returned 3.13%, according to Lipper Analytical Services. We believe
the Fund's focus on value stocks -- out-of-favor stocks -- explains the
difference. This meant the Fund's stake in top performing technology and growth
names was lower than the average growth and income fund's.
Leaders and laggards
One of our best performers was Xerox, which returned 23% for the period. We
bought the stock last October, following a sales force reorganization and
revenue shortfall. Since then, the stock has bounced back, thanks to some
interesting new products and management's efforts to cut costs and increase
profit margins. Although we took some profits, Xerox remains one of our largest
investments.
Oil and bank stocks also did well for us. Oil stocks in general benefited
from higher prices in the wake of tight supply. As a result, stocks like Texaco
and Phillips Petroleum far outpaced the market. In addition, many bank stocks
came back after losing ground early in the year. Initially investors were afraid
banks would experience high loan losses because consumer
16
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
- --------------------------------------------------------------------------------
Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 1%, with 4% at the top and 0% at the bottom. The
first represents the 2.01% total return for John Hancock Independence Value
Fund. The second represents the 2.38% total return for the Russell 1000 Value
Index. The third represents the 3.13% total return for the average growth and
income fund. A footnote below states "The total return for John Hancock
Independence Value Fund is at net asset value with all distributions reinvested.
The average growth and income fund is tracked by Lipper Analytical Services. The
Russell 1000 value Index is an unmanaged index comprised of stocks of companies
from the Russell 1000 Index with a less than average growth orientation. See
following two pages for historical performance information."
- --------------------------------------------------------------------------------
debt levels were at record levels. Then when loan losses turned out not to be as
bad as expected -- and consumer credit quality was better than expected -- the
stocks rebounded. About 15% of the Fund's investments were in banks. Among the
top performers were NationsBank, First Bank System, Bank of Boston, and J.P.
Morgan.
There were, of course, some disappointments -- especially among
interest-sensitive stocks. First Chicago, a bank stock with a
higher-than-average consumer credit card business, never rebounded. And Cigna,
like many insurance stocks, suffered from the prospect of rising interest rates,
as well as falling prices in the property/casualty business. The possibility of
a rate hike also clobbered utilities stocks, like Pacific Gas and Electric,
which we sold at a loss. Our biggest disappointment, however, was AT&T -- one of
our top investments. Its share price fell nearly 17% on lower-than-expected
revenues and long distance volumes, as well as negative press about its
downsizing. We view these problems as short term, and continue to own the stock
because of its solid long-term prospects.
Opportunities ahead
We believe the economy will continue to show decent growth over the near term,
then taper off to slower growth by the end of 1997. But until it's clear just
how strong economic growth is and whether interest rates will go higher, the
market will remain jittery. While it's tough to predict where the market will be
in six months, we remain optimistic about its longer-term prospects.
"Our goal is above average
total return..."
We'll continue to look for cheap stocks with improving fundamentals. Our
goal is above-average total return, emphasizing relatively undervalued
securities and seeking higher dividend yield than John Hancock Independence
Diversified Core Equity Fund II. Right now, we're finding opportunities in
automobile stocks like Ford and GM. Auto stock prices recently fell when people
became concerned that higher interest rates and current consumer debt levels
would hurt car buying. However, we think sales could be good for sport utility
vehicles and decent for autos overall. We've also increased our investment in
telecommunications stocks, believing that recent legislation could increase
competition and lower costs for long-distance companies. Finally, at the end of
August, we added a sizable stake in IBM to the Fund. We expect a turnaround in
IBM's PC sales and the launch of a new mainframe product to help boost the
stock's price.
17
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total return for the John Hancock
Independence Value Fund. Total return is a performance measure that equals the
sum of all income and capital gains dividends, assuming reinvestment of these
distributions, and change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
LIFE OF
FUND
----
John Hancock Independence Value Fund 17.27%(1,2)
Notes to Performance
(1) Commenced on October 2, 1995.
(2) The Advisor has agreed to limit the Fund's expenses to 0.95% of the Fund's
average daily net assets. Without the limitation of expenses, the total
return for the period would have been 1.62%.
18
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Value Fund would be worth on August 31, 1996, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell 1000 Value
Index -- an unmanaged capitalization-weighted price-only index, which is
comprised of 1,000 of the largest capitalized U.S. domiciled companies whose
common stock traded in the United States on the New York Stock Exchange. The
securities in this index have less than average growth orientation.
- --------------------------------------------------------------------------------
Independence Value Fund
Line chart with the heading Independence Value Fund, representing the growth of
a hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Value Fund on March 2, 1995, and is equal to $286,943. The
second line represents the value of the Russell 1000 Value Index and is equal to
$283,572 as of August 31, 1996.
- --------------------------------------------------------------------------------
19
<PAGE>
================================================================================
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Diversified
Core Equity Fund II
Inflation fears, higher interest rates rock the stock market
"Automobile stocks boosted
Fund performance."
Stocks advanced in the last six months, although the trip was tumultuous and the
result rather modest. As the economy gained strength in 1996, higher interest
rates and growing inflation fears impacted the market, as investors reacted to
each daily release of economic data. In July, fears of higher interest rates and
disappointing earnings estimates, particularly among some highly visible
technology companies, prompted a significant market correction. Some sectors
were particularly hard hit, including technology, healthcare and some
economically sensitive groups such as automobile and financial companies. But
the trend turned positive again in August as actual second quarter earnings were
strong overall and investors felt more confident that the economy would grow
enough to produce solid earnings. With all the difficulties, the stock market --
as measured by the Standard & Poor's 500-Stock Index -- managed to gain 2.96%
for the six months ended August 31, 1996. By comparison, John Hancock
Independence Diversified Core Equity Fund II posted a total return of 2.87% at
net asset value and the average growth and income fund returned 3.13%, according
to Lipper Analytical Services.
- --------------------------------------------------------------------------------
Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) AT&T 4.2% 2) Xerox 4.0% 3) Bristol-Myers
Squibb 3.1% 4) General Electric 2.8% 5) GTE 2.4%. A footnote below reads "As a
percentage of net assets on August 31, 1996."
- --------------------------------------------------------------------------------
Strategy and performance
We continue to apply our disciplined investment style across a wide range of
company sectors, types and sizes to find ones whose stocks are well-priced and
whose prospects are improving. We find these companies by conducting in-depth
analysis of such measures as earnings growth, cash flow and dividends, and then
factor in the direction of earnings estimates and the stock's price to determine
its relative attractiveness. The goal is to create a portfolio with
characteristics and a risk profile similar to that of the S&P 500.
Our automobile stock holdings were a perfect example of our valuation system
at work.
20
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust
-- Independence Diversified Core Equity Fund II
- --------------------------------------------------------------------------------
Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 1%, with 4% at the top and 0% at the bottom. Within
the chart there are three solid bars. The first represents the 2.87% total
return for John Hancock Independence Diversified Core Equity Fund II. The second
represents the 3.13% total return for the average growth and income fund. The
third represents the 2.96% total return for the S&P 500-Stock Index. A footnote
below states "The total return for John Hancock Independence Diversified Core
Equity Fund II is at net asset value with all dividends reinvested. The average
balanced fund is tracked by Lipper Analytical Services. The S&P 500-Stock Index
is an unmanaged index that includes 500 widely-traded common stocks. See
following two pages for historical performance information."
- --------------------------------------------------------------------------------
Late last year and early in 1996, automobile companies were lagging the overall
market. More recently, sales of trucks and sport-utility vehicles picked up and
the momentum was stronger than analysts expected. As a result, earnings
estimates rose while stock prices lagged the earnings estimate advances. We took
the opportunity to add Ford Motor Company to our holdings and its stock has
performed nicely since we bought it. Our holdings in Chrysler also benefited
from the positive developments. Then later in the year, we pared our Chrysler
position because we believed the company was closer to its earnings peak than
some of the other auto manufacturers. In its place, we added General Motors,
which had lagged Chrysler, leading us to believe it has more room to move up the
earnings curve.
We had particular success during the period with our energy stocks,
including Phillips Petroleum and Texaco, because oil prices rose with increased
worldwide demand and tight supplies that were aggravated by a harsh winter and
the lack of oil exports from Iraq. Energy stocks reaped the rewards.
Our largest holding, AT&T, was also our biggest disappointment during the
period. We continue to believe that AT&T and the other long-line carriers will
benefit most from the ongoing changes in the telecommunications industry. But in
the short term, AT&T's stock was hurt by stepped up competition that caused a
slowdown in customer growth and disappointing July earnings. We're sticking with
the company, because we believe AT&T will get earnings back on track and be a
winner in the longer term. Our second largest holding, Xerox, on the other hand,
was one of the Fund's better performers during the period. Some of its new
office products have been well received and the company has bounced back after a
sales force reorganization and management's efforts to cut costs.
"...we'll stick to our disciplined
investment strategy..."
Outlook
For the rest of the year, we expect volatility to be the stock market's
watchword as politics and interest rate moves leave their mark. Any changes in
the economy or interest rates would certainly cause us to adjust our earnings
estimates and rebalance the portfolio accordingly. But, no matter what moves the
market makes, we'll stick to our disciplined investment strategy, looking for
companies whose earnings are improving and whose stocks are attractively priced.
21
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total return for the John Hancock
Independence Diversified Core Equity Fund II. Total return is a performance
measure that equals the sum of all income and capital gains dividends, assuming
reinvestment of these distributions, and the change in the price of the Fund's
shares, expressed as a percentage of the Fund's net asset value per share.
Remember that all figures represent past performance and are no guarantee of how
the Fund will perform in the future. Also, keep in mind that the total return
and share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost, depending on
when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Diversified Core
Equity Fund II 25.87% 37.83%(1)
Notes to Performance
(1) Commenced on March 10, 1995.
22
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Diversified Core Equity Fund II would be worth on August 31, 1996,
assuming you invested on the day the Fund started and have reinvested all
distributions. For comparison, we've shown the same $250,000 investment in the
Standard & Poor's 500 Stock Index -- an unmanaged index that includes 500 widely
traded common stocks and is often used as a measure of stock market performance.
- --------------------------------------------------------------------------------
Independence Diversified Core Equity Fund II
Line chart with the heading Independence Diversified Core Equity Fund II,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $335,890 as of August 31, 1996. The second line represents the value
of the hypothetical $250,000 investment made in the Independence Diversified
Core Equity Fund II on March 10, 1995, and is equal to $335,565.
- --------------------------------------------------------------------------------
23
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENCE INDEPENDENCE
INDEPENDENCE INDEPENDENCE MEDIUM INDEPENDENCE DIVERSIFIED
BALANCED GROWTH CAPITALIZATION VALUE CORE EQUITY
FUND FUND FUND FUND FUND II
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $2,730,818; $521,423; $3,915,181;
$811,870 and $210,217,123; respectively) ................ $ 2,908,084 $ 550,734 $ 4,115,819 $ 852,906 $231,356,031
Corporate bonds (cost - $1,679,187 and none, respectively) 1,679,463 -- -- -- --
U.S. government and agencies securities (cost - $1,903,390
and none; respectively) ................................. 1,829,428 -- -- -- --
Short-term investments (cost - $383,000; none; $98,000;
$3,000 and $493,000; respectively) ...................... 383,000 -- 98,000 3,000 493,000
Corporate savings account ................................. 1,225 -- 564 616 1,522,161
------------ ------------ ------------ ------------ ------------
6,801,200 550,734 4,214,383 856,522 233,371,192
Receivable for shares sold ................................. 333 -- 294 -- 5,871
Receivable for investments sold ............................ 6,119 24,715 -- -- 637,157
Dividends receivable ....................................... 8,110 666 11,990 4,060 673,129
Foreign Tax receivable ..................................... -- -- -- -- 1,198
Interest receivable ........................................ 51,262 -- 39 -- 639
Other assets ............................................... 199 -- 133 -- 6,519
Deferred organization expenses - Note A .................... 7,208 7,139 7,140 7,140 6,679
------------ ------------ ------------ ------------ ------------
Total Assets ........................................ 6,874,431 583,254 4,233,979 867,722 234,702,384
---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................. -- -- -- 20 54,666
Payable for investments purchased .......................... 125,297 23,594 -- -- 590,820
Payable to John Hancock Advisers, Inc. and affiliates
- Note B ................................................. 3,480 4,230 4,268 5,541 121,537
Accounts payable and accrued expenses ...................... -- 7,577 11,391 7,701 100,893
------------ ------------ ------------ ------------ ------------
Total Liabilities ................................... 128,777 35,401 15,659 13,262 867,916
---------------------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 6,563,318 503,059 3,890,255 777,808 205,443,387
Accumulated net realized gain on investments ............... 30,839 13,768 89,063 23,803 6,537,306
Net unrealized appreciation of investments ................. 103,580 29,311 200,638 41,036 21,138,908
Undistributed net investment income ........................ 47,917 1,715 38,364 11,813 714,867
------------ ------------ ------------ ------------ ------------
Net Assets .......................................... $ 6,745,654 $ 547,853 $ 4,218,320 $ 854,460 $233,834,468
===========================================================================================================================
Net Asset Value Per Share:
(based on 733,919; 59,172; 450,618; 88,419 and 20,917,370
shares, respectively, of beneficial interest outstanding -
unlimited number of shares authorized with no par value) ... $ 9.19 $ 9.26 $ 9.36 $ 9.66 $ 11.18
==================================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of August 31, 1996. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Operations
Six months ended August 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENCE INDEPENDENCE
INDEPENDENCE INDEPENDENCE MEDIUM INDEPENDENCE DIVERSIFIED
BALANCED GROWTH CAPITALIZATION VALUE CORE EQUITY
FUND FUND FUND FUND FUND II
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $162; $20;
$122; $122 and $13,955 respectively) ................ $ 34,576 $ 4,232 $ 46,353 $ 14,012 $ 2,657,950
Interest .............................................. 112,474 129 3,525 435 98,610
----------- ----------- ----------- ----------- -----------
147,050 4,361 49,878 14,447 2,756,560
Expenses:
Investment management fee - Note B ................... 21,404 2,228 16,619 3,288 561,656
Registration and filing fees ......................... 13,089 13,446 16,354 13,711 67,448
Custodian fee ........................................ 6,947 4,377 5,344 4,644 45,998
Auditing fee ......................................... 5,766 5,014 5,766 5,014 5,014
Printing ............................................. 5,271 3,164 5,087 3,199 7,794
Transfer agent fee - Note B .......................... 1,529 139 1,039 205 56,166
Trustees' fees ....................................... 1,399 25 308 226 14,501
Organization expense - Note A ........................ 939 877 876 876 952
Financial services fees - Note B ..................... 573 52 389 77 21,062
Legal fees ........................................... 528 528 214 530 4,510
Miscellaneous ........................................ 253 51 28 50 1,300
----------- ----------- ----------- ----------- -----------
Total Expenses ................................. 57,698 29,901 52,024 31,820 786,401
Less Expense Reductions ........................ (30,179) (27,255) (31,243) (27,916) --
----------- ----------- ----------- ----------- -----------
Net Expenses ................................... 27,519 2,646 20,781 3,904 786,401
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income .......................... 119,531 1,715 29,097 10,543 1,970,159
--------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ................. 10,416 12,190 93,710 20,658 5,179,549
Change in net unrealized appreciation/depreciation of
investments ......................................... (66,934) (15,479) (91,096) (16,547) (1,111,672)
----------- ----------- ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments .................................. (56,518) (3,289) 2,614 4,111 4,067,877
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease)in Net Assets
Resulting from Operations ...................... $ 63,013 $ (1,574) $ 31,711 $ 14,654 $ 6,038,036
==========================================================================================================================
</TABLE>
The Statement of Operations summarizes for each of the Funds, the investment
income earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENCE INDEPENDENCE INDEPENDENCE INDEPENDENCE
BALANCED FUND BALANCED FUND GROWTH FUND GROWTH FUND
----------- ----------- ----------- -----------
SIX MONTHS SIX MONTHS
PERIOD ENDED PERIO ENDED
ENDED AUGUST 31, ENDED AUGUST 31,
FEBRUARY 29 1996 FEBRUARY 29, 1996
1996+ (UNAUDITED) 1996+ (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................................. $ 67,293 $ 119,531 $ 1,937 $ 1,715
Net realized gain on investments sold .................................. 20,423 10,416 2,701 12,190
Change in net unrealized appreciation/depreciation of investments ...... 170,514 (66,934) 44,790 (15,479)
----------- ----------- ----------- --------
Net Increase (Decrease) in Net Assets from Operations ................. 258,230 63,013 49,428 (1,574)
----------- ----------- ----------- --------
Distributions to Shareholders: *
Dividends from net investment income ................................... (38,521) (100,386) (1,937) --
Distributions from net realized short-term gain on investments sold .... -- -- (1,123) --
----------- ----------- ----------- --------
Total distributions to shareholders ................................... (38,521) (100,386) (3,060) --
----------- ----------- ----------- --------
From Fund Share Transactions: **
Shares sold ............................................................ 5,415,754 2,106,215 500,075 --
Shares issued to shareholders in reinvestment of distributions ......... 38,522 100,377 3,060 --
----------- ----------- ----------- --------
5,454,276 2,206,592 503,135 --
Less shares repurchased ................................................ (519,051) (578,499) (76) --
----------- ----------- ----------- --------
Net increase .......................................................... 4,935,225 1,628,093 503,059 --
----------- ----------- ----------- --------
Net Assets:
Beginning of period .................................................... -- 5,154,934 -- 549,427
----------- ----------- ----------- --------
End of period (including undistributed net investment
income of $28,772, $47,917, none, and $1,715, respectively) ........... $ 5,154,934 $ 6,745,654 $ 549,427 $547,853
=========== =========== =========== ========
* Distributions to Shareholders
Per share dividends from net investment income ......................... $ 0.1300 $ 0.1597 $ 0.0329 --
----------- ----------- ----------- --------
Per share distributions from net realized gain on
investments sold and foreign currency transactions .................... -- -- $ 0.0191 --
=========== =========== =========== ========
** Analysis of Fund Share Transactions:
Shares sold ............................................................ 609,416 228,181 58,832 --
Shares issued to shareholders in reinvestment of distributions ......... 4,250 10,893 348 --
---------- --------- -------- --------
613,666 239,074 59,180 --
Less shares repurchased ................................................ (56,371) (62,450) (8) --
---------- --------- -------- --------
Net increase .......................................................... 557,295 176,624 59,172 --
========== ========= ======== ========
</TABLE>
+ Independence Balanced Fund and Independence Growth Fund commenced Operations
on July 6, 1995 and October 2, 1995, respectively.
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets has changed since the commencement of operations. The difference reflects
net investment income, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in
each Fund. The footnotes illustrate the number of Fund shares sold, reinvested
and redeemed during the period, along with the per share amount of distributions
made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENCE INDEPENDENCE
MEDIUM MEDIUM INDEPENDENCE INDEPENDENCE
CAPITALIZATION CAPITALIZATION VALUE VALUE
FUND FUND FUND FUND
----------- -------------- ------------ ------------
SIX MONTHS SIX MONTHS
PERIOD ENDED PERIOD ENDED
ENDED AUGUST 31, ENDED AUGUST 31,
FEBRUARY 29 1996 FEBRUARY 29, 1996
1996+ (UNAUDITED) 1996+ (UNAUDITED)
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................ $ 22,280 $ 29,097 $ 6,524 $ 10,543
Net realized gain (loss) on investments sold ..................... (4,647) 93,710 3,145 20,658
Change in net unrealized appreciation/depreciation of
investments .................................................... 291,734 (91,096) 57,583 (16,547)
----------- ----------- ----------- -----------
Net Increase in Net Assets from Operations ...................... 309,367 31,711 67,252 14,654
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................. (13,013) -- (5,254) --
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ...................................................... 3,855,325 497,667 615,732 204,873
Shares issued to shareholders in reinvestment of
distributions .................................................. 13,012 -- 5,254 --
----------- ----------- ----------- -----------
3,868,337 497,667 620,986 204,873
Less shares repurchased .......................................... (241,783) (233,966) (1,081) (46,970)
----------- ----------- ----------- -----------
Net increase .................................................... 3,626,554 263,701 619,905 157,903
----------- ----------- ----------- -----------
Net Assets:
Beginning of period .............................................. -- 3,922,908 -- 681,903
----------- ----------- ----------- -----------
End of period (including undistributed net investment
income of $9,267, $38,364, $1,270 and $11,813, respectively) .... $ 3,922,908 $ 4,218,320 $ 681,903 $ 854,460
=========== =========== =========== ===========
* Distributions to Shareholders
Per share dividends from net investment income ................... $ 0.0333 -- $ 0.0893 --
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ...................................................... 448,130 52,926 71,507 21,195
Shares issued to shareholders in reinvestment of distributions ... 1,480 -- 585 --
----------- ----------- ----------- -----------
449,610 52,926 72,092 21,195
Less shares repurchased .......................................... (27,231) (24,687) (120) (4,748)
----------- ----------- ----------- -----------
Net increase .................................................... 422,379 28,239 71,972 16,447
=========== =========== =========== ===========
</TABLE>
+ Independence Medium Capitalization Fund and Independence Value Fund commenced
operations on October 2, 1995, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
INDEPENDENCE INDEPENDENCE
DIVERSIFIED CORE DIVERSIFIED CORE
EQUITY FUND II EQUITY FUND II
---------------- ----------------
PERIOD ENDED SIX MONTHS ENDED
FEBRUARY 29, AUGUST 31, 1996
1996+ (UNAUDITED)
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................. $ 2,020,577 $ 1,970,159
Net realized gain on investments sold and foreign currency transactions 1,499,534 5,179,549
Change in net unrealized appreciation/depreciation of investments ..... 22,250,580 (1,111,672)
------------- -------------
Net Increase in Net Assets from Operations ........................... 25,770,691 6,038,036
------------- -------------
Distributions to Shareholders: *
Dividends from net investment income .................................. (1,434,011) (1,842,690)
Distributions from net realized gain on investments sold
and foreign currency transactions ................................... (140,945) --
------------- -------------
Total Distributions to Shareholders .................................. (1,574,956) (1,842,690)
------------- -------------
From Fund Share Transactions: **
Shares sold ........................................................... 174,862,644 64,758,357
Shares issued to shareholders in reinvestment of distributions ........ 1,574,424 1,842,775
------------- -------------
176,437,068 66,601,132
Less shares repurchased ............................................... (11,954,213) (25,640,600)
------------- -------------
Net increase ......................................................... 164,482,855 40,960,532
------------- -------------
Net Assets:
Beginning of period ................................................... -- 188,678,590
------------- -------------
End of period (including undistributed net investment
income of $587,398 and $714,867, respectively) ...................... $ 188,678,590 $ 233,834,468
============= =============
* Distributions to Shareholders
Per share dividends from net investment income ........................ $ 0.1113 $ 0.0955
------------- -------------
Per share distributions from net relaized
gain on investments sold and foreign currency transactions .......... $ 0.0090 --
------------- -------------
** Analysis of Fund Share Transactions:
Shares sold ........................................................... 18,245,546 5,824,466
Shares issued to shareholders in reinvestment of distributions ........ 153,808 163,229
------------- -------------
18,399,354 5,987,695
Less shares repurchased ............................................... (1,184,950) (2,284,729)
------------- -------------
Net increase ......................................................... 17,214,404 3,702,966
============= =============
</TABLE>
+ Independence Diversified Core Equity Fund II commenced operations on March
10, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD JULY 6, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
---------------------------- ----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................................... $ 8.50(a) $ 9.25
----------- -----------
Net Investment Income ...................................................... 0.25 0.17
Net Realized and Unrealized Gain (Loss) on Investments ..................... 0.63 (0.07)
----------- -----------
Total from Investment Operations .......................................... 0.88 0.10
----------- -----------
Less Distributions:
Dividends from Net Investment Income ...................................... (0.13) (0.16)
----------- -----------
Net Asset Value, End of Period ............................................. $ 9.25 $ 9.19
=========== ===========
Total Investment Return at Net Asset Value (e) ............................. 10.42%(c) 1.08%(c)
Total Adjusted Investment Return at Net Asset Value (b) (e) ................ 7.36%(c) 0.59%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .................................. $ 5,155 $ 6,746
Ratio of Expenses to Average Net Assets .................................... 0.90%* 0.90%*
Ratio of Adjusted Expenses to Average Net Assets (b) (d) ................... 5.58%* 1.88%*
Ratio of Net Investment Income to Average Net Assets ....................... 3.96%* 3.89%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (b) (d) (0.72%)* 2.91%*
Portfolio Turnover Rate .................................................... 31% 83%
Average Brokerage Commission Rate (f) ...................................... N/A $ 0.0256
</TABLE>
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(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) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD OCTOBER 2, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
------------------------------ ----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $ 8.50(a) $ 9.29
----------- -----------
Net Investment Income ............................................. 0.03(e) 0.03
Net Realized and Unrealized Gain (Loss) on Investments ............ 0.81 (0.06)
----------- -----------
Total from Investment Operations ............................... 0.84 (0.03)
----------- -----------
Less Distributions:
Dividends from Net Investment Income ............................. (0.03) --
Distributions from Net Realized Short-Term Gain on Investments ... (0.02) --
----------- -----------
Total Distributions ............................................ (0.05) --
----------- -----------
Net Asset Value, End of Period .................................... $ 9.29 $ 9.26
=========== ===========
Total Investment Return at Net Asset Value (f) .................... 9.94%(c) (0.32%)(c)
Total Adjusted Investment Return at Net Asset Value (b) (f) ....... (5.63%)(c) (5.23%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................... $ 549 $ 548
Ratio of Expenses to Average Net Assets ........................... 0.95%* 0.95%*
Ratio of Adjusted Expenses to Average Net Assets (b) (d) .......... 38.57%* 10.68%*
Ratio of Net Investment Income to Average Net Assets .............. 0.91%* 0.61%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (b) (d) (36.71%)* (9.12%)*
Portfolio Turnover Rate ........................................... 21% 79%
Average Brokerage Commission Rate (g) ............................. N/A $ 0.0234
</TABLE>
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(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) On average month end shares outstanding.
(f) Total investment return assumes dividend reinvestment.
(g) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
-- Independence Medium Capitalization Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD OCTOBER 2, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
---------------------------- ----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................................. $ 8.50(a) $ 9.29
----------- -----------
Net Investment Income ................................................. 0.08(c) 0.06
Net Realized and Unrealized Gain on Investments ....................... 0.74 0.01
----------- -----------
Total from Investment Operations ..................................... 0.82 0.07
----------- -----------
Less Distributions:
Dividends from Net Investment Income ................................. (0.03) --
----------- -----------
Net Asset Value, End of Period ........................................ $ 9.29 $ 9.36
----------- -----------
Total Investment Return at Net Asset Value (e) ........................ 9.71%(d) 0.75%(d)
Total Adjusted Investment Return at Net Asset Value (b) (e) ........... 7.00%(d) (0.01%)(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ............................. $ 3,923 $ 4,218
Ratio of Expenses to Average Net Assets ............................... 1.00%* 1.00%*
Ratio of Adjusted Expenses to Average Net Assets (b)(g) ............... 7.55%* 2.51%*
Ratio of Net Investment Income to Average Net Assets .................. 1.94%* 1.41%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (b)(g)..... (4.61%)* (0.10%)*
Portfolio Turnover Rate ............................................... 3% 50%
Average Brokerage Commission Rate (f) ................................. N/A $ 0.0238
</TABLE>
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(c) On average month end shares outstanding.
(d) Not annualized.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(g) 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.
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD OCTOBER 2, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
---------------------------- ----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $ 8.50(a) $ 9.47
----------- -----------
Net Investment Income ............................................. 0.10(e) 0.12
Net Realized and Unrealized Gain on Investments ................... 0.96 0.07
----------- -----------
Total from Investment Operations ............................... 1.06 0.19
----------- -----------
Less Distributions:
Dividends from Net Investment Income ............................. (0.09) --
----------- -----------
Net Asset Value, End of Period .................................... $ 9.47 $ 9.66
=========== ===========
Total Investment Return at Net Asset Value (f) .................... 12.52%(c) 2.01%(c)
Total Adjusted Investment Return at Net Asset Value (b) (f) ....... (1.18%)(c) (1.40%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................... $ 682 $ 854
Ratio of Expenses to Average Net Assets ........................... 0.95%* 0.95%*
Ratio of Adjusted Expenses to Average Net Assets (b) (d) .......... 34.06%* 6.76%*
Ratio of Net Investment Income to Average Net Assets .............. 2.81%* 2.55%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (b) (d) (30.30%)* (4.21%)*
Portfolio Turnover Rate ........................................... 12% 34%
Average Brokerage Commission Rate (g) ............................. N/A $ 0.0223
</TABLE>
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(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) On average month end shares outstanding.
(f) Total investment return assumes dividend reinvestment.
(g) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Diversified Core Equity Fund II
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
MARCH 10, 1995
(COMMENCEMENT SIX MONTHS ENDED
OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
-------------------- ----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................... $ 8.50(a) $ 10.96
------------- -------------
Net Investment Income .............................................. 0.20(c) 0.10
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions ............................................ 2.38 0.22
------------- -------------
Total from Investment Operations ................................ 2.58 0.32
------------- -------------
Less Distributions:
Dividends from Net Investment Income .............................. (0.11) (0.10)
Distributions from Net Realized Gains on Investments Sold
and Foreign Currency Transactions ............................... (0.01) --
------------- -------------
Total Distributions ............................................. (0.12) (0.10)
------------- -------------
Net Asset Value, End of Period ..................................... $ 10.96 $ 11.18
============= =============
Total Investment Return at Net Asset Value (e) ..................... 30.48%(d) 2.87%(d)
Total Adjusted Investment Return at Net Assets Value (b) (e) ....... 30.42%(d) N/A
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .......................... $ 188,679 $ 233,834
Ratio of Expenses to Average Net Assets ............................ 0.70%* 0.70%*
Ratio of Adjusted Expenses to Average Net Assets (b)(g) ............ 0.76%* N/A
Ratio of Net Investment Income to Average Net Assets ............... 2.00%* 1.75%*
Ratio of Adjusted Net Investment Income to Average Net Assets (b)(g) 1.94%* N/A
Portfolio Turnover Rate ............................................ 39% 38%
Average Brokerage Commission Rate (f) .............................. N/A $ 0.0420
</TABLE>
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(c) On average month end shares outstanding.
(d) Not annualized.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(g) 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.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Balanced Fund on August 31, 1996. It's divided into four main
categories: Common Stocks, Corporate Bonds, U.S. Government and Agencies
Securities and short-term investments. The investments are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (1.85%)
Boeing Co. (The) ............................. 300 $ 27,150
Raytheon Co. ................................. 400 20,600
Rockwell International ....................... 400 20,800
United Technologies Corp. .................... 500 56,375
---------
124,925
---------
Automobile Trucks (2.03%)
Chrysler Corp. ............................... 800 23,300
Dana Corp. ................................... 400 12,000
Ford Motor Co. ............................... 1,700 56,950
General Motors Corp. ......................... 900 44,775
---------
137,025
---------
Banks (2.77%)
Banc One Corp. ............................... 110 4,221
BankAmerica Corp. ............................ 300 23,250
Chase Manhattan Corp. ........................ 400 29,750
First Bank Systems, Inc. ..................... 400 25,700
First Union Corp. ............................ 200 12,775
Fleet Financial Group, Inc. .................. 500 20,875
J.P Morgan & Co., Inc. ....................... 800 70,100
---------
186,671
---------
Beverages (0.84%)
Anheuser-Busch Cos., Inc. .................... 100 7,575
PepsiCo, Inc. ................................ 1,700 48,875
---------
56,450
---------
Building Products (0.04%)
Masco Corp. .................................. 100 2,913
---------
Chemicals (0.97%)
Hercules, Inc. ............................... 500 24,875
Morton International, Inc. ................... 700 25,988
PPG Industries, Inc. ......................... 300 14,813
---------
65,676
---------
Computers (1.35%)
Bay Networks, Inc.* .......................... 300 8,250
Compaq Computer Corp.* ....................... 400 22,650
International Business Machines Corp. ........ 200 22,875
Komag, Inc.* ................................. 400 8,500
Oracle Corp.* ................................ 200 7,050
Peoplesoft, Inc.* ............................ 100 7,675
Silicon Graphics, Inc.* ...................... 600 13,950
---------
90,950
---------
Containers (0.14%)
Crown Cork & Seal Co., Inc. .................. 200 9,350
---------
Diversified Operations (0.87%)
Lockheed Martin Corp. ........................ 500 42,063
Minnesota Mining & Manufacturing Co. ......... 100 6,875
Tenneco, Inc. ................................ 200 9,950
---------
58,888
---------
Electronics (1.96%)
Analog Devices, Inc.* ........................ 200 4,825
General Electric Co. ......................... 800 66,500
Intel Corp. .................................. 600 47,886
Maxim Intergrated Products, Inc.* ............ 200 6,136
Raychem Corp. ................................ 100 6,863
---------
132,210
---------
Finance (1.33%)
American Express Co. ......................... 700 30,625
Dean Witter Discover & Co. ................... 400 20,000
Federal National Mortgage Association ........ 800 24,800
Morgan Stanley Group, Inc. ................... 300 14,325
---------
89,750
---------
Food (0.67%)
ConAgra, Inc. ................................ 600 25,275
CPC International, Inc. ...................... 200 13,775
Sara Lee Corp. ............................... 200 6,300
---------
45,350
---------
Instruments - Scientific (0.08%)
Perkin-Elmer Corp. ........................... 100 5,186
---------
Insurance (2.00%)
American International Group, Inc. ........... 100 9,500
CIGNA Corp. .................................. 500 58,063
General Re Corp. ............................. 100 14,486
ITT Hartford Group, Inc. ..................... 300 15,825
Marsh & McLennan Cos., Inc. .................. 400 37,200
---------
135,074
---------
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Leisure (1.15%)
Eastman Kodak Co. .......................... 700 $ 50,750
Hilton Hotels Corp. ........................ 100 10,686
ITT Corp.* ................................. 300 15,975
---------
77,411
---------
Machinery (0.31%)
Cooper Industries, Inc. .................... 300 12,150
Dover Corp. ................................ 200 8,775
---------
20,925
---------
Medical (5.54%)
Abbott Laboratories ........................ 900 40,613
Bristol-Myers Squibb Co. ................... 1,100 96,525
Columbia/HCA Healthcare Corp. .............. 500 28,186
Glaxo Wellcome PLC, American
Depository Receipt ("ADR")
(Great Britain) ........................... 300 8,550
Johnson & Johnson .......................... 1,400 68,950
Medtronic, Inc. ............................ 600 31,200
Merck & Co., Inc. .......................... 700 45,938
Pfizer, Inc. ............................... 500 35,500
Pharmacia & Upjohn, Inc. ................... 300 12,600
Schering-Plough Corp. ...................... 100 5,587
---------
373,649
---------
Metal (0.28%)
Aluminum Co. of America .................... 300 18,638
---------
Office Equipment & Supplies (2.52%)
Avery Dennison Corp. ....................... 700 35,788
Pitney Bowes, Inc. ......................... 500 24,125
Xerox Corp. ................................ 2,000 109,750
---------
169,663
---------
Oil & Gas (4.95%)
Amoco Corp. ................................ 200 13,800
Anadarko Petroleum Corp. ................... 100 5,275
Atlantic Richfield Co. ..................... 300 35,025
Baker Hughes, Inc. ......................... 400 12,100
British Petroleum Co. PLC ("ADR")
(United Kingdom) .......................... 100 11,775
Chevron Corp. .............................. 300 17,663
Mobil Corp. ................................ 400 45,100
PanEnergy Corp. ............................ 700 23,188
Phillips Petroleum Co. ..................... 1,700 68,850
Texaco Inc. ................................ 600 53,250
Unocal Corp. ............................... 1,400 47,950
---------
333,976
---------
Paper & Paper Products (0.46%)
Kimberly-Clark Corp. ....................... 400 31,350
---------
Retail (3.18%)
Albertson's, Inc. .......................... 500 21,188
Federated Department Stores, Inc. * ........ 600 20,775
Home Depot, Inc. ........................... 700 37,188
Lowe's Cos., Inc. .......................... 300 10,838
Nike, Inc. (Class B) ....................... 100 10,800
Price/Costco, Inc.* ........................ 1,100 21,863
Ryan's Family Steak Houses, Inc.* .......... 1,200 10,050
Toys "R" Us, Inc.* ......................... 700 20,650
Wal-Mart Stores, Inc. ...................... 2,300 60,950
---------
214,302
---------
Rubber (0.34%)
Goodyear Tire & Rubber Co. (The) ........... 500 22,813
---------
Telecommunications (1.96%)
A T & T Corp. .............................. 2,000 105,000
MCI Communications Corp. ................... 600 15,075
Sprint Corp. ............................... 300 12,188
---------
132,263
---------
Textile (0.38%)
Fruit of the Loom, Inc. (Class A)* ......... 300 8,325
Liz Claiborne, Inc. ........................ 500 17,375
---------
25,700
---------
Tobacco (0.93%)
Philip Morris Cos., Inc. ................... 700 62,825
---------
Transport (0.58%)
CSX Corp. .................................. 700 35,438
Northwest Airlines Corp.* .................. 100 3,775
---------
39,213
---------
Utilities (3.63%)
BellSouth Corp. ............................ 600 21,750
Consolidated Natural Gas Co. ............... 500 27,188
Entergy Corp. .............................. 900 22,838
GTE Corp. .................................. 1,500 59,062
NYNEX Corp. ................................ 1,600 69,000
Texas Utilities Co. ........................ 1,100 45,100
---------
244,938
---------
TOTAL COMMON STOCKS
(Cost $2,730,818) (43.11%) 2,908,084
----- ---------
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST S&P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING (000'S OMITTED) VALUE
- ------------------- ---- ------ --------------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
Automobile/Trucks (1.83%)
General Motors Corp.,
Deb 12/01/00 .......................................... 9.625% A- $ 50 $ 54,342
Medium Term Note 5/22/01 .............................. 6.800 A- 70 68,732
----------
123,074
----------
Banks - Foreign (0.33%)
Kansallis-Osake-Pankki Bank (Finland), Sub Note 5/01/02 10.000 BBB 20 22,362
----------
Banks - United States (2.45%)
BankAmerica Corp., Sub Note 4/15/06 .................... 7.200 A 50 48,499
Bankers Trust NY, Sub Note 5/01/05 ..................... 8.250 A- 30 31,014
First Union Corp., Sub Note 8/01/05 .................... 7.050 A- 60 57,830
NationsBank Credit Master Trust, Class A Credit Card
Pass-thru Ctf Ser 1993-2 12/15/05 .................... 6.000 AAA 30 27,890
----------
165,233
----------
Broker Services (1.02%)
Lehman Brothers Hldgs. Inc., Sr Note 11/15/00 .......... 6.625 A 30 29,228
Salomon Inc.,
Sr Note 01/20/98 ...................................... 7.000 BBB 20 20,037
Sr Note 12/01/98 ...................................... 6.700 BBB 20 19,872
----------
69,137
----------
Diversified Operations (0.30%)
Hanson Overseas PLC, Sr Note 1/15/03 ................... 7.375 A+ 20 20,056
----------
Finance (12.23%)
AT&T Universal Card Master Trust, Class A Credit Card
Pass-thru Ctf Ser 1995-2 10/17/02 ..................... 5.950 AAA 50 48,172
Banc One Auto Trust, O Day Delay 8/15/98 ............... 7.050 AAA 20 20,175
Chemical Master Credit Card Trust I,
Class A Credit Card Part Ctf Ser 1995-3 4/15/05 ....... 6.230 AAA 50 47,844
Class A Credit Card Part Ctf Ser 1996-1 9/15/03 ....... 5.550 AAA 40 37,850
Citibank Credit Card Master Trust I, Bond 2/07/03 ...... Zero AAA 60 43,969
Dean Witter Discovery & Co., Note 3/01/03 .............. 6.875 A 50 48,625
Discover Card MasterTrust I,
Class A Credit Card Pass-thru Ctf Ser 1996-3 8/18/08 .. 6.050 AAA 70 63,240
Fleet Financial Group, Inc., Sub Note 3/01/03 .......... 6.875 BBB+ 70 68,004
Ford Motor Credit Corp., Note 2/15/02 .................. 8.200 A+ 70 72,752
Green Tree Financial Corp.,
Ctf Home Improv Ln Ser 1993-3 Cl A-5 10/15/18 ......... 5.750 Aa2** 50 47,703
Ctf Home Improv Ln Ser 1994-5 Cl A-2 11/15/19 ......... 7.300 Aa2** 30 30,244
IBM Corp., Deb 10/30/25 ................................ 7.000 A 50 45,045
Lockheed Martin Corp., Note 6/15/04 .................... 7.450 BBB+ 50 50,046
NationsBank Corp., Sub Note 3/15/06 .................... 6.500 A- 60 55,522
Prime Credit Card Master Trust,
Class A Credit Card Pass-thru Ctf Ser 1996-1 7/15/04 .. 6.700 AAA 30 29,550
Sears Credit Account Master Trust II, Class A Credit
Card Pass-thru Ctf Ser 1995-5 1/16/08 ................. 6.050 AAA 30 28,172
Society National Bank, Sub Note 6/01/05 ................ 7.250 A- 40 39,098
Standard Credit Card Master Trust, Class A Credit
Card Part Ctf Ser 1995-10 2/07/01 ..................... 5.900 AAA 50 49,094
----------
825,105
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST S&P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING (000'S OMITTED) VALUE
- ------------------- ---- ------ --------------- -----
<S> <C> <C> <C> <C>
Insurance (0.73%)
American General Finance Corp., Sr Note 5/15/05 ........ 7.250% A+ $ 20 $ 19,625
Columbia/HCA Healthcare Corp., Note 6/15/25 ............ 7.690 A- 30 29,281
----------
48,906
----------
Paper & Paper Products (0.69%)
James River Corp., Deb 11/15/23 ........................ 7.750 BBB- 50 46,733
----------
Pollution Control (0.46%)
WMX Technologies Inc., Note 4/30/04 .................... 6.220 A+ 30 30,797
----------
Telecommunications (1.51%)
GTE Southwest Inc., 1st Mtg Note 11/15/31 .............. 8.500 A+ 50 53,512
Monsanto Co., Note 7/01/00 ............................. 6.000 A 50 48,155
----------
101,667
----------
Tobacco (0.94%)
Phillip Morris Cos., Inc., (The), Deb 1/01/01 .......... 9.000 A 60 63,563
----------
Transportation (0.50%)
Rail Car Trust No. 1992-1, Trust Note Ser 92-1 6/01/04 . 7.750 AAA 33 33,705
----------
Utilities (1.91%)
Hydro-Quebec (Gtd By Province Of Quebec), Deb 2/01/03 .. 7.375 A+ 10 10,003
Ontario, Province of, Bond 2/21/06 ..................... 6.000 AA- 60 54,410
Pacific Bell, Deb 6/15/01 .............................. 8.700 AA- 25 26,610
Quebec, Province of, Note 3/02/26 ...................... 5.735 A+ 40 38,102
----------
129,125
----------
TOTAL CORPORATE BONDS
(Cost $1,679,187) (24.90%) 1,679,463
----- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST S&P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING (000'S OMITTED) VALUE
- ------------------- ---- ------ --------------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (20.26%)
United States Treasury,
Bond 11/15/04 ......................................... 11.625% AAA $ 410 $ 529,093
Note 5/15/98 .......................................... 6.125 AAA 50 49,875
Note 9/30/00 .......................................... 6.125 AAA 315 308,700
Note 2/15/03 .......................................... 6.250 AAA 200 194,032
Note 2/15/05 .......................................... 7.500 AAA 275 284,884
----------
1,366,584
----------
Governmental - U.S. Agencies (6.86%)
Federal National Mortgage Assn.,
Medium Term Note 8/16/00 .............................. 6.360 Aaa** 90 88,608
15 Yr SF Pass thru Ctf 9/01/10 ........................ 6.500 AAA 59 57,282
15 Yr SF Pass thru Ctf 5/01/11 ........................ 6.500 AAA 59 56,648
15 Yr SF Pass thru Ctf 9/23/24 ........................ 7.500 AAA 50 48,864
30 Yr SF Pass thru Ctf 12/01/25 ....................... 7.000 AAA 25 23,812
Government National Mortgage Assn.,
30 Yr SF Pass thru Ctf 1/15/23 ........................ 8.000 AAA 35 35,636
30 Yr SF Pass thru Ctf 4/15/23 ........................ 7.500 AAA 50 49,399
30 Yr SF Pass thru Ctf 8/15/23 ........................ 7.000 AAA 29 28,144
30 Yr SF Pass thru Ctf 1/01/25 ........................ 8.000 AAA 50 50,032
30 Yr SF Pass thru Ctf 2/01/26 ........................ 7.500 AAA 25 24,419
----------
462,844
----------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $1,903,390) (27.12%) 1,829,428
----- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.68%)
Investment in a joint repurchase agreement transaction
with SBC Capital Markets, Inc. - Dated 8/30/96, due
9/03/96 (Secured by U. S. Treasury Bonds 7.25% through
12.00%, due 8/15/13 through 8/15/22, and by U.S.
Treasury Note, 5.25%, due 12/31/97) - Note A........... 5.260% $ 383 $ 383,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current rate 4.75%..................................... 1,225
----------
TOTAL SHORT-TERM INVESTMENTS (5.69%) 384,225
------ ----------
TOTAL INVESTMENTS (100.82%) $6,801,200
====== ==========
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
* Non-income producing security.
** Credit ratings are rated by Moody's Investor Services or John Hancock
Advisers, Inc. where Standard and Poors ratings are not available.
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.
39
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Growth Fund on August 31, 1996. Common stocks are further broken
down by industry groups.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (3.71%)
Boeing Co. (The) ................................. 100 $ 9,050
United Technologies Corp. ........................ 100 11,275
--------
20,325
--------
Beverages (2.10%)
PepsiCo, Inc. .................................... 400 11,500
--------
Building (0.73%)
Clayton Homes, Inc. .............................. 200 4,025
--------
Chemicals (1.85%)
Monsanto Co. ..................................... 200 6,425
Morton International, Inc. ....................... 100 3,712
--------
10,137
--------
Computers (11.08%)
Bay Networks, Inc.* .............................. 100 2,750
Compaq Computer Corp.* ........................... 100 5,662
Dell Computer Corp.* ............................. 100 6,712
International Business Machines Corp. ............ 100 11,437
Komag, Inc.* ..................................... 100 2,125
Mentor Graphics Corp.* ........................... 200 2,738
Novell, Inc.* .................................... 400 4,175
Oracle Corp.* .................................... 300 10,575
Parametric Technology Corp. * .................... 100 4,528
Peoplesoft, Inc.* ................................ 100 7,675
Silicon Graphics, Inc.* .......................... 100 2,325
--------
60,702
--------
Containers (0.85%)
Crown Cork & Seal Co., Inc. ...................... 100 4,675
--------
Diversified Operations (1.54%)
Lockheed Martin Corp. ............................ 100 8,412
--------
Electronics (10.16%)
Analog Devices, Inc.* ............................ 200 4,825
General Electric Co. ............................. 300 24,937
Intel Corp. ...................................... 200 15,962
Maxim Intergrated Products, Inc.* ................ 100 3,069
Raychem Corp. .................................... 100 6,862
--------
55,655
--------
Energy (0.27%)
Wheelabrator Technologies, Inc. .................. 100 1,488
--------
Finance (0.80%)
American Express Co. ............................. 100 4,375
--------
Food (0.77%)
ConAgra, Inc. .................................... 100 4,213
--------
Household (1.76%)
Rubbermaid, Inc. ................................. 100 2,650
Tupperware Corp. ................................. 100 4,375
WestPoint Stevens, Inc.* ......................... 100 2,613
--------
9,638
--------
Instruments - Scientific (1.64%)
Millipore Corp. .................................. 100 3,825
Perkin-Elmer Corp. ............................... 100 5,187
--------
9,012
--------
Insurance (4.27%)
CIGNA Corp. ...................................... 100 11,612
Equitable Cos., Inc. ............................. 100 2,463
Marsh & McLennan Cos., Inc. ...................... 100 9,300
--------
23,375
--------
Leisure (4.36%)
Eastman Kodak Co. ................................ 100 7,250
HFS, Inc.* ....................................... 100 5,987
ITT Corp.* ....................................... 200 10,650
--------
23,887
--------
Machinery (0.80%)
Dover Corp. ...................................... 100 4,387
--------
Medical (22.05%)
Abbott Laboratories .............................. 200 9,025
Amgen, Inc.* ..................................... 100 5,825
Becton, Dickinson & Co. .......................... 100 4,088
Bristol-Myers Squibb Co. ......................... 200 17,550
Columbia/HCA Healthcare Corp. .................... 200 11,275
Health Management Associates, Inc. (Class A)* .... 200 4,550
HEALTHSOUTH Corp. * .............................. 200 6,475
Johnson & Johnson ................................ 400 19,700
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Medical (continued)
Medtronic, Inc. .................................. 100 $ 5,200
Merck & Co., Inc. ................................ 200 13,125
Pfizer, Inc. ..................................... 200 14,200
Pharmacia & Upjohn, Inc. ......................... 100 4,200
Schering-Plough Corp. ............................ 100 5,587
--------
120,800
--------
Mortgage Banking (0.57%)
Federal National Mortgage Assn ................... 100 3,100
--------
Office (3.60%)
Pitney Bowes, Inc. ............................... 100 4,825
Staples, Inc.* ................................... 200 3,950
Xerox Corp. ...................................... 200 10,975
--------
19,750
--------
Oil & Gas (3.69%)
Anadarko Petroleum Corp. ......................... 100 5,275
Baker Hughes, Inc. ............................... 100 3,025
Dresser Industries, Inc. ......................... 100 2,900
Phillips Petroleum Co. ........................... 100 4,050
Rowan Cos., Inc.* ................................ 100 1,538
Unocal Corp. ..................................... 100 3,425
--------
20,213
--------
Retail (11.66%)
Albertson's, Inc. ................................ 100 4,238
Cracker Barrel Old Country Store, Inc. ........... 100 2,338
Darden Restaurants, Inc. ......................... 100 800
Federated Department Stores, Inc.* ............... 100 3,463
Gap, Inc. ........................................ 100 3,500
Home Depot, Inc. ................................. 200 10,625
Lowe's Cos., Inc. ................................ 100 3,613
Nike, Inc. (Class B) ............................. 100 10,800
Outback Steakhouse, Inc.* ........................ 100 2,825
Price/Costco, Inc.* .............................. 100 1,988
TJX Cos., Inc. ................................... 100 3,200
Toys "R" Us, Inc.* ............................... 200 5,900
Wal-Mart Stores, Inc. ............................ 400 10,600
--------
63,890
--------
Telecommunications (4.75%)
A T & T Corp. .................................... 400 21,000
Lucent Technologies, Inc. ........................ 100 3,688
Scientific-Atlanta, Inc. ......................... 100 1,350
--------
26,038
--------
Textile (1.14%)
Fruit of the Loom, Inc. (Class A)* ............... 100 2,775
Liz Claiborne, Inc. .............................. 100 3,475
--------
6,250
--------
Tobacco (2.65%)
Philip Morris Cos., Inc. ......................... 100 8,975
Universal Corp. .................................. 100 2,525
UST, Inc. ........................................ 100 3,000
--------
14,500
--------
Transport (2.27%)
CSX Corp. ........................................ 100 5,062
Northwest Airlines Corp. (Class A)* .............. 100 3,775
USAir Group, Inc.* ............................... 200 3,575
--------
12,412
--------
Utilities (1.46%)
Consolidated Natural Gas Co. ..................... 100 5,437
Entergy Corp. .................................... 100 2,538
--------
7,975
--------
TOTAL COMMON STOCKS
(Cost $521,423) (100.53%) 550,734
------ --------
TOTAL INVESTMENTS (100.53%) $550,734
====== ========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Medium Capitalization Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Medium Capitalization Fund on August 31, 1996. It's divided into
two main categories: common stocks and short-term investments. Common stocks are
further broken down by industry groups. Short-term investments, which represent
the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (1.28%)
Boeing Co. (The) ......................... 100 $ 9,050
United Technologies Corp. ................ 400 45,100
----------
54,150
----------
Automobile/Trucks (1.63%)
Chrysler Corp. ........................... 700 20,388
Dana Corp. ............................... 1,100 33,000
Lear Corp.* .............................. 400 15,350
----------
68,738
----------
Banks - United States (6.83%)
Bank of Boston Corp. ..................... 700 36,925
Barnett Banks, Inc. ...................... 600 39,375
First Bank Systems, Inc. ................. 1,000 64,250
First Chicago NBD Corp. .................. 300 12,788
First Tennesse National Corp. ............ 1,500 51,188
Fleet Financial Group, Inc. .............. 900 37,575
Northern Trust Corp. ..................... 700 45,938
----------
288,039
----------
Broker Services (1.02%)
Morgan Stanley Group, Inc. ............... 900 42,975
----------
Building (1.47%)
Centex Corp. ............................. 600 19,275
Masco Corp. .............................. 1,100 32,038
Ryland Group, Inc. ....................... 800 10,800
----------
62,113
----------
Chemicals (3.22%)
Hercules, Inc. ........................... 500 24,875
Morton International, Inc. ............... 1,500 55,688
Praxair, Inc. ............................ 700 28,788
Sigma-Aldrich Corp. ...................... 500 26,375
----------
135,726
----------
Computers (3.51%)
Adobe Systems, Inc. ...................... 400 13,950
Cabletron Systems, Inc.* ................. 400 24,400
Komag, Inc.* ............................. 600 12,750
Mentor Graphics Corp.* ................... 1,100 15,056
Parametric Technology Corp. * ............ 400 18,112
Peoplesoft, Inc.* ........................ 300 23,025
Policy Management Systems Corp.* ......... 300 10,575
Silicon Graphics, Inc.* .................. 1,300 30,225
----------
148,093
----------
Consumer Products Misc. (0.87%)
American Greetings Corp. (Class A) ....... 900 23,175
Duracell International, Inc. ............. 300 13,538
----------
36,713
----------
Containers (1.11%)
Crown Cork & Seal Co., Inc. .............. 1,000 46,750
----------
Diversified Operations (3.56%)
ITT Industries Inc. ...................... 1,000 22,875
Lockheed Martin Corp. .................... 400 33,650
Ogden Corp. .............................. 1,500 29,438
Tenneco, Inc. ............................ 600 29,850
Textron, Inc. ............................ 400 34,150
----------
149,963
----------
Electronics (3.92%)
Analog Devices, Inc.* .................... 950 22,919
General Signal Corp. ..................... 600 24,075
Honeywell, Inc. .......................... 500 29,063
Linear Technology Corp. .................. 700 23,800
Maxim Intergrated Products, Inc.* ........ 700 21,481
Parker Hannifin Corp. .................... 300 11,700
Raychem Corp. ............................ 300 20,588
Tektronix, Inc. .......................... 300 11,625
----------
165,251
----------
Energy (0.35%)
Wheelabrator Technologies, Inc. .......... 1,000 14,875
----------
Finance (2.55%)
American Express Co. ..................... 200 8,750
Dean Witter Discover & Co. ............... 1,400 70,000
MBNA Corp. ............................... 950 28,856
----------
107,606
----------
Food (0.34%)
Universal Foods Corp. .................... 500 14,313
----------
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Instruments - Scientific (0.85%)
Millipore Corp. .......................... 400 $ 15,300
Perkin-Elmer Corp. ....................... 400 20,750
----------
36,050
----------
Insurance (9.64%)
CIGNA Corp. .............................. 1,100 127,738
Equitable Cos., Inc. ..................... 1,400 34,475
ITT Hartford Group, Inc. ................. 1,000 52,750
Lincoln National Corp. ................... 1,200 53,100
Marsh & McLennan Cos., Inc. .............. 1,000 93,000
Providian Corp. .......................... 1,100 45,513
----------
406,576
----------
Leisure (1.36%)
Harley-Davidson, Inc. .................... 100 4,100
Hilton Hotels Corp. ...................... 200 21,375
ITT Corp.* ............................... 600 31,950
----------
57,425
----------
Machinery (2.15%)
Cooper Industries, Inc. .................. 800 32,400
Dover Corp. .............................. 900 39,488
Duriron Co., Inc. ........................ 700 18,900
----------
90,788
----------
Media (0.87%)
McGraw-Hill Cos., Inc. ................... 900 36,900
----------
Medical (5.04%)
Alza Corp. * ............................. 500 13,688
Bausch & Lomb, Inc. ...................... 400 13,250
Becton Dickinson & Co. ................... 1,200 49,050
HEALTHSOUTH Corp. * ...................... 700 22,663
Mallinckrodt Group, Inc. ................. 900 36,450
Medtronic, Inc. .......................... 600 31,200
Mylan Laboratories, Inc. ................. 1,100 18,013
Pall Corp. ............................... 800 18,800
Vencor, Inc.* ............................ 300 9,413
----------
212,527
----------
Metal (0.82%)
Aluminum Co. Of America .................. 300 18,638
Newmont Mining Corp. ..................... 300 15,847
----------
34,485
----------
Office (4.89%)
Avery Dennison Corp. ..................... 700 35,788
Pitney Bowes, Inc. ....................... 1,400 67,550
Staples, Inc.* ........................... 1,050 20,738
Xerox Corp. .............................. 1,500 82,313
----------
206,389
----------
Oil & Gas (9.47%)
Anadarko Petroleum Corp. ................. 800 42,200
Baker Hughes, Inc. ....................... 900 27,225
Halliburton Co. .......................... 500 26,313
Kerr - McGee Corp. ....................... 800 45,900
PanEnergy Corp. .......................... 1,400 46,375
Phillips Petroleum Co. ................... 1,500 60,750
Texaco Inc. .............................. 600 53,250
Unocal Corp. ............................. 2,300 78,775
USX - Marathon Group ..................... 900 18,788
----------
399,576
----------
Paper & Paper Products (0.71%)
Westvaco Corp. ........................... 1,050 30,056
----------
Pollution Control (0.78%)
Safety Kleen Corp. ....................... 1,900 32,775
----------
Retail (8.90%)
Albertson's, Inc. ........................ 500 21,188
Cracker Barrel Old Country Store, Inc. ... 1,000 23,375
Dayton Hudson Corp. ...................... 600 20,700
Federated Department Stores, Inc. * ...... 1,400 48,475
Gap, Inc. (The) .......................... 700 24,500
Home Depot, Inc. ......................... 400 21,250
Lowe's Cos., Inc. ........................ 700 25,288
Outback Steakhouse, Inc.* ................ 800 22,600
Price/Costco, Inc. ....................... 1,700 33,788
Ryan's Family Steak Houses, Inc.* ........ 2,600 21,775
Sysco Corp. .............................. 900 28,913
TJX Cos., Inc. ........................... 800 25,600
Toys "R" Us, Inc.* ....................... 1,700 50,150
Wal-Mart Stores, Inc. .................... 300 7,950
----------
375,552
----------
Rubber - Tires & Misc (0.87%)
Goodyear Tire & Rubber Co. (The) ......... 800 36,500
----------
Soap & Cleaning Preparations (0.89%)
Clorox Co. ............................... 400 37,450
----------
Steel (1.05%)
British Steel PLC ADR (United Kingdom) ... 600 17,475
Carpenter Technology Corp. ............... 800 27,000
----------
44,475
----------
Telecommunications (1.61%)
AT&T Corp. ............................... 1,100 57,750
MCI Communications Corp. ................. 400 10,050
----------
67,800
----------
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Textile (1.55%)
Fruit of the Loom, Inc. (Class A)* ....... 800 $ 22,200
Liz Claiborne, Inc. ...................... 600 20,850
Warnaco Group, Inc. (Class A) ............ 900 22,275
----------
65,325
----------
Tobacco (1.73%)
Universal Corp. .......................... 1,100 27,775
UST, Inc. ................................ 1,500 45,000
----------
72,775
----------
Transport (4.29%)
AMR Corp.* ............................... 600 49,200
Conrail, Inc. ............................ 500 34,063
CSX Corp. ................................ 800 40,500
Northwest Airlines Corp.* ................ 600 22,650
Southwest Airlines Co. ................... 800 18,300
Trinity Industries, Inc. ................. 500 16,188
----------
180,901
----------
Utilities (8.44%)
Baltimore Gas & Electric Co. ............. 1,700 44,200
Central & South West Corp. ............... 900 23,738
Consolidated Edison Co. of New York, Inc. 500 13,063
Consolidated Natural Gas Co. ............. 1,400 76,125
Entergy Corp. ............................ 3,100 78,663
GTE Corp. ................................ 200 7,875
Houston Industries, Inc. ................. 400 8,700
Idaho Power Co. .......................... 600 19,725
NICOR, Inc. .............................. 400 12,550
Peco Energy Co. .......................... 1,300 30,550
Texas Utilities Co. ...................... 1,000 41,000
----------
356,189
----------
TOTAL COMMON STOCKS
(Cost $3,915,181) (97.57%) 4,115,819
----- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.33%)
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets, Inc. - Dated 08-30-96,
due 09-03-96 (secured by U.S.
Treasury Bonds, 7.25% thru 12.00%
due 08-15-13 thru 08-15-22 and
by U.S. Treasury Note, 5.25%,
due 12-31-97) - Note A................... 5.26% $ 98 $ 98,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%.............................. 564
----------
TOTAL SHORT-TERM INVESTMENTS (2.34%) 98,564
---- ----------
TOTAL INVESTMENTS (99.91%) $4,214,383
===== ==========
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Value Fund on August 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (3.84%)
Raytheon Co. ................................. 200 $ 10,300
United Technologies Corp. .................... 200 22,550
--------
32,850
--------
Automobile/Trucks (8.03%)
Chrysler Corp. ............................... 300 8,737
Dana Corp. ................................... 200 6,000
Eaton Corp. .................................. 100 5,537
Ford Motor Co. ............................... 700 23,450
General Motors Corp. ......................... 500 24,875
--------
68,599
--------
Banks - United States (14.51%)
BankAmerica Corp. ............................ 200 15,500
Bank of Boston Corp. ......................... 100 5,275
Banc One Corp. ............................... 200 7,675
Chase Manhattan Corp. (formerly Chemical
Banking Corp.) .............................. 200 14,875
First Bank System, Inc. ...................... 100 6,425
First Chicago NBD Corp. ...................... 400 17,050
First Union Corp. ............................ 100 6,387
Fleet Financial Group, Inc. .................. 400 16,700
KeyCorp ...................................... 200 8,025
Morgan (J.P.) & Co., Inc. .................... 200 17,525
NationsBank Corp. ............................ 100 8,512
--------
123,949
--------
Broker Services (0.56%)
Morgan Stanley Group, Inc. ................... 100 4,775
--------
Building (1.06%)
Centex Corp. ................................. 100 3,213
Masco Corp. .................................. 200 5,825
--------
9,038
--------
Chemicals (1.59%)
Hercules, Inc. ............................... 100 4,975
Morton International, Inc. ................... 100 3,713
PPG Industries, Inc. ......................... 100 4,937
--------
13,625
--------
Computers (3.36%)
International Business Machines Corp. ........ 200 22,875
Komag, Inc.* ................................. 100 2,125
Mentor Graphics Corp.* ....................... 100 1,369
Silicon Graphics, Inc.* ...................... 100 2,325
--------
28,694
--------
Diversified Operations (4.28%)
Lockheed Martin Corp. ........................ 200 16,825
Ogden Corp. .................................. 500 9,812
Tenneco, Inc. ................................ 200 9,950
--------
36,587
--------
Electronics (0.78%)
Analog Devices, Inc.* ........................ 150 3,619
Maxim Intergrated Products, Inc.* ............ 100 3,069
--------
6,688
--------
Energy (0.17%)
Wheelabrator Technologies, Inc. .............. 100 1,488
--------
Finance (1.98%)
Ahmanson (H.F.) & Co. ........................ 100 2,525
American Express Co. ......................... 100 4,375
Dean Witter Discover & Co. ................... 200 10,000
--------
16,900
--------
Instruments - Scientific (1.06%)
Millipore Corp. .............................. 100 3,825
Perkin-Elmer Corp. ........................... 100 5,187
--------
9,012
--------
Insurance (6.89%)
Allstate Corp. ............................... 100 4,463
CIGNA Corp. .................................. 200 23,225
Equitable Cos., Inc. ......................... 100 2,463
ITT Hartford Group, Inc. ..................... 200 10,550
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (continued)
Lincoln National Corp. ....................... 200 $ 8,850
Marsh & McLennan Cos., Inc. .................. 100 9,300
--------
58,851
--------
Leisure (1.47%)
Eastman Kodak Co. ............................ 100 7,250
ITT Corp.* ................................... 100 5,325
--------
12,575
--------
Medical (3.02%)
Bristol-Myers Squibb Co. ..................... 200 17,550
Mallinckrodt Group, Inc. ..................... 100 4,050
Pharmacia & Upjohn, Inc. ..................... 100 4,200
--------
25,800
--------
Metal (0.30%)
Asarco, Inc. ................................. 100 2,588
--------
Office (3.73%)
Avery Dennison Corp. ......................... 100 5,112
Pitney Bowes, Inc. ........................... 100 4,825
Xerox Corp. .................................. 400 21,950
--------
31,887
--------
Oil & Gas (12.36%)
Anadarko Petroleum Corp. ..................... 100 5,275
Atlantic Richfield Co. ....................... 100 11,675
Chevron Corp. ................................ 200 11,775
Kerr - McGee Corp. ........................... 100 5,737
Mobil Corp. .................................. 100 11,275
PanEnergy Corp. (formerly Panhandle
Eastern Corp.) .............................. 100 3,313
Phillips Petroleum Co. ....................... 400 16,200
Texaco Inc. .................................. 300 26,625
Unocal Corp. ................................. 400 13,700
--------
105,575
--------
Retail (3.99%)
Albertson's, Inc. ............................ 200 8,475
Federated Department Stores, Inc.* ........... 200 6,925
Lowe's Cos., Inc. ............................ 100 3,613
Price/Costco, Inc.* .......................... 200 3,975
Ryan's Family Steak Houses, Inc.* ............ 300 2,513
Toys "R" Us, Inc.* ........................... 200 5,900
Wal-Mart Stores, Inc. ........................ 100 2,650
--------
34,051
--------
Rubber - Tires & Misc (0.53%)
Goodyear Tire & Rubber Co. (The) ............. 100 4,563
--------
Steel (1.42%)
British Steel PLC, American Depositary
Receipts (ADR) (United Kingdom) ............. 300 8,737
Carpenter Technology Corp. ................... 100 3,375
--------
12,112
--------
Telecommunications (3.82%)
AT&T Corp. ................................... 400 21,000
MCI Communications Corp. ..................... 300 7,537
Sprint Corp. ................................. 100 4,063
--------
32,600
--------
Textile (1.02%)
Fruit of the Loom, Inc. (Class A)* ........... 100 2,775
Liz Claiborne, Inc. .......................... 100 3,475
Warnaco Group, Inc. (Class A) ................ 100 2,475
--------
8,725
--------
Tobacco (1.40%)
Philip Morris Cos., Inc. ..................... 100 8,975
UST, Inc. .................................... 100 3,000
--------
11,975
--------
Transport (1.56%)
CSX Corp. .................................... 200 10,125
Trinity Industries, Inc. ..................... 100 3,238
--------
13,363
--------
Utilities (17.09%)
Baltimore Gas & Electric Co. ................. 500 13,000
Bell Atlantic Corp. .......................... 100 5,625
BellSouth Corp. .............................. 200 7,250
British Telecommunications PLC (ADR)
(United Kingdom) ............................ 100 5,862
Central & South West Corp. ................... 200 5,275
Consolidated Natural Gas Co. ................. 200 10,875
Entergy Corp. ................................ 600 15,225
GTE Corp. ...................................... 500 19,687
Houston Industries, Inc. ....................... 600 13,050
NICOR, Inc. .................................... 200 6,275
NYNEX Corp. .................................... 300 12,937
Peco Energy Co. ................................ 500 11,750
SBC Communications, Inc. ....................... 100 4,662
Southern Co. ................................... 100 2,263
Texas Utilities Co. ............................ 300 12,300
--------
146,036
--------
TOTAL COMMON STOCKS
(Cost $811,870) (99.82%) 852,906
----- --------
SEE NOTES TO FINANCIAL STATEMENTS.
46
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================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.35%)
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets, Inc. - Dated
08-30-96, due 09-03-96 (secured
by U.S. Treasury Bonds, 7.25%
thru 12.00% due 08-15-13 thru
08-15-22 and by U.S. Treasury
Note, 5.25%, due 12-31-97) -
Note A ............................ 5.26% $ 3 $ 3,000
Corporate Savings Account (0.07%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% ................ 616
--------
TOTAL SHORT-TERM INVESTMENTS (0.42%) 3,616
------ --------
TOTAL INVESTMENTS (100.24%) $856,522
====== ========
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Diversified Core Equity Fund II
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Diversified Core Equity Fund II on August 31, 1996. It's divided
into two main categories: common stocks and short-term investments. Common
stocks are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (4.76%)
Boeing Co. ............................... 22,700 $ 2,054,350
Lockheed Martin Corp. .................... 40,500 3,407,062
Raytheon Co. ............................. 35,000 1,802,500
United Technologies Corp. ................ 34,200 3,856,050
-----------
11,119,962
-----------
Automobile/Trucks (3.54%)
Chrysler Corp. ........................... 73,000 2,126,125
Dana Corp. ............................... 26,500 795,000
Ford Motor Co. ........................... 83,600 2,800,600
General Motors Corp. ..................... 51,300 2,552,175
-----------
8,273,900
-----------
Banks - United States (7.04%)
Banc One Corp. ........................... 21,600 828,900
BankAmerica Corp. ........................ 27,800 2,154,500
Barnett Banks, Inc. ...................... 8,700 570,938
Chase Manhattan Corp. .................... 34,800 2,588,250
First Bank Systems, Inc. ................. 17,200 1,105,100
Fleet Financial Group, Inc. .............. 69,500 2,901,625
Morgan (J.P.) & Co., Inc. ................ 49,600 4,346,200
NationsBank Corp. ........................ 23,100 1,966,387
-----------
16,461,900
-----------
Beverages (1.91%)
Anheuser-Busch Cos., Inc. ................ 18,400 1,393,800
PepsiCo, Inc. ............................ 107,000 3,076,250
-----------
4,470,050
-----------
Broker Services (0.54%)
Morgan Stanley Group, Inc. ............... 26,200 1,251,050
-----------
Chemicals (3.51%)
Hercules, Inc. ........................... 32,300 1,606,925
Monsanto Co. ............................. 72,600 2,332,275
Morton International, Inc. ............... 75,900 2,817,787
PPG Industries, Inc. ..................... 29,400 1,451,625
-----------
8,208,612
-----------
Computers (2.40%)
Bay Networks, Inc.* ...................... 27,500 756,250
Compaq Computer Corp.* ................... 34,900 1,976,212
International Business Machines Corp. .... 20,100 2,298,937
Komag, Inc.* ............................. 14,500 308,125
Mentor Graphics Corp.* ................... 20,000 273,750
-----------
5,613,274
-----------
Diversified Operations (2.90%)
Minnesota Mining & Manufacturing Co. ..... 35,000 2,406,250
Tenneco, Inc. ............................ 48,600 2,417,850
Textron, Inc. ............................ 14,300 1,220,863
Whitman Corp. ............................ 32,800 733,900
-----------
6,778,863
-----------
Electrical Equipment (2.83%)
General Electric Co. ..................... 79,700 6,625,062
-----------
Electronics (3.10%)
Analog Devices, Inc.* .................... 35,900 866,087
Intel Corp. .............................. 48,700 3,886,869
Maxim Integrated Products, Inc.* ......... 33,400 1,024,963
Raychem Corp. ............................ 11,000 754,875
Tektronix, Inc. .......................... 18,500 716,875
-----------
7,249,669
-----------
Finance (1.75%)
American Express Co. ..................... 48,600 2,126,250
Dean Witter Discover & Co. ............... 39,200 1,960,000
-----------
4,086,250
-----------
Food (2.22%)
ConAgra, Inc. ............................ 40,300 1,697,637
CPC International, Inc. .................. 15,600 1,074,450
Sara Lee Corp. ........................... 36,800 1,159,200
Unilever N.V., American Depositary
Receipts, (ADR) (Netherlands) ........... 8,700 1,248,450
-----------
5,179,737
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Diversified Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Instruments - Scientific (0.45%)
Millipore Corp. ........................ 27,800 $ 1,063,350
------------
Insurance (4.08%)
CIGNA Corp. ............................ 44,500 5,167,562
ITT Hartford Group, Inc. ............... 38,800 2,046,700
Marsh & McLennan Cos., Inc. ............ 24,900 2,315,700
------------
9,529,962
------------
Leisure (1.49%)
Eastman Kodak Co. ...................... 47,900 3,472,750
------------
Machinery (0.36%)
Dover Corp. ............................ 19,400 851,175
------------
Media (0.70%)
McGraw-Hill Cos., Inc. ................. 40,000 1,640,000
------------
Medical (12.06%)
Abbott Laboratories .................... 120,500 5,437,562
Amgen, Inc.* ........................... 19,400 1,130,050
Bristol-Myers Squibb Co. ............... 83,900 7,362,225
Columbia/HCA Healthcare Corp. .......... 25,900 1,460,113
Johnson & Johnson ...................... 86,800 4,274,900
Medtronic, Inc. ........................ 50,500 2,626,000
Merck & Co., Inc. ...................... 51,700 3,392,812
Pfizer, Inc. ........................... 21,500 1,526,500
Schering-Plough Corp. .................. 17,700 988,988
------------
28,199,150
------------
Metal (0.81%)
Aluminum Co. Of America ................ 30,600 1,901,025
------------
Mortgage Banking (0.84%)
Federal National Mortgage Assn ......... 63,600 1,971,600
------------
Office (5.97%)
Avery Dennison Corp. ................... 15,700 802,663
Pitney Bowes, Inc. ..................... 64,200 3,097,650
Staples, Inc.* ......................... 40,050 790,988
Xerox Corp. ............................ 168,900 9,268,387
------------
13,959,688
------------
Oil & Gas (10.04%)
Amoco Corp. ............................ 17,000 1,173,000
Anadarko Petroleum Corp. ............... 35,500 1,872,625
Atlantic Richfield Co. ................. 8,100 945,675
British Petroleum Co. PLC ADR
(United Kingdom) ...................... 5,200 612,300
Chevron Corp. .......................... 15,600 918,450
Halliburton Co. ........................ 8,900 468,363
Imperial Oil Ltd. (Canada) ............. 24,500 1,053,500
Kerr - McGee Corp. ..................... 37,800 2,168,775
Mobil Corp. ............................ 8,300 935,825
PanEnergy Corp. ........................ 27,200 901,000
Phillips Petroleum Co. ................. 125,800 5,094,900
Texaco Inc. ............................ 49,100 4,357,625
Unocal Corp. ........................... 86,800 2,972,900
------------
23,474,938
------------
Paper & Paper Products (0.37%)
Kimberly-Clark Corp. ................... 11,100 869,963
------------
Retail (8.11%)
Albertson's, Inc. ...................... 100,600 4,262,925
Darden Restaurants, Inc. ............... 48,000 384,000
Federated Department Stores, Inc. * .... 25,700 889,863
Home Depot, Inc. ....................... 64,100 3,405,312
Lowe's Cos., Inc. ...................... 39,300 1,419,713
Price/Costco, Inc.* .................... 86,600 1,721,175
Safeway, Inc.* ......................... 6,400 232,000
Toys "R" Us, Inc.* ..................... 93,900 2,770,050
Wal-Mart Stores, Inc. .................. 146,000 3,869,000
------------
18,954,038
------------
Rubber - Tires & Misc. (0.46%)
Goodyear Tire & Rubber Co. (The) ....... 23,800 1,085,875
------------
Shoes & Related Apparel (0.45%)
Nike, Inc. (Class B) ................... 9,800 1,058,400
------------
Soap & Cleaning Preparations (0.51%)
Colgate-Palmolive Co. .................. 14,700 1,194,375
------------
Steel (0.43%)
British Steel PLC (ADR)
(United Kingdom) ...................... 34,900 1,016,463
------------
Telecommunications (5.43%)
AT&T Corp. ............................. 189,100 9,927,750
MCI Communications Corp. ............... 95,500 2,399,437
Sprint Corp. ........................... 9,000 365,625
------------
12,692,812
------------
Tobacco (2.29%)
Philip Morris Cos., Inc. ............... 46,300 4,155,425
UST, Inc. .............................. 39,900 1,197,000
------------
5,352,425
------------
Transport (1.33%)
CSX Corp. .............................. 61,600 3,118,500
------------
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Diversified Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Utilities (6.26%)
Consolidated Natural Gas Co. ........... 48,300 2,626,313
Entergy Corp. .......................... 110,400 2,801,400
GTE Corp. .............................. 141,600 5,575,500
Peco Energy Co. ........................ 11,800 277,300
Texas Utilities Co. .................... 47,000 1,927,000
Unicom Corp. ........................... 61,900 1,423,700
------------
14,631,213
------------
TOTAL COMMON STOCKS
(Cost $210,217,123) (98.94%) 231,356,031
----- ------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.21%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 08-30-96, due 09-03-96
(secured by U.S. Treasury Bonds,
7.25% thru 12.00% due 08-15-13
thru 08-15-22 and by U.S.
Treasury Note, 5.25%, due 12-31-97) -
Note A................................. 5.26% $ 493 $ 493,000
------------
Corporate Savings Account (0.65%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%..................... 1,522,161
------------
TOTAL SHORT-TERM INVESTMENTS (0.86%) 2,015,161
---- ------------
TOTAL INVESTMENTS (99.80%) $233,371,192
===== ============
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Independence Balanced Fund ("Independence Balanced Fund"), John
Hancock Independence Growth Fund ("Independence Growth Fund"), John Hancock
Independence Medium Capitalization Fund ("Independence Medium Capitalization
Fund"), John Hancock Independence Value Fund ("Independence Value Fund") and
John Hancock Independence Diversified Core Equity Fund II ("Independence
Diversified Core Equity Fund II"), (each, a "Fund" and collectively, the
"Funds"), are separate portfolios of John Hancock Institutional Series Trust
(the "Trust"), 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 twelve series portfolios: the Funds, John Hancock
Small Capitalization Equity 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 and John Hancock
International Equity 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. The investment
objective of Independence Balanced Fund and Independence Diversified Core Equity
Fund II is to seek above average total return consisting of capital appreciation
and income. The investment objective of Independence Growth Fund, Independence
Medium Capitalization Fund and Independence Value Fund is to seek above-average
total return. 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 Funds' portfolios 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. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, 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
Funds' custodian bank receives delivery of the underlying securities for the
joint account on the Funds' 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. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policies are to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment companies
and to distribute all of their taxable income, including net realized gain on
investments, to their shareholders. Therefore, no federal income tax provisions
are required. Additionally, net capital losses of $4,647 attributable to
security transactions occuring after October 31, 1995 from Independence Medium
Capitalization Fund are treated as arising on the first day (March 1, 1996) of
the Fund's current taxable year.
51
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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 Funds are 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 Funds record all dividends and 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.
DEFERRED ORGANIZATION EXPENSE Expenses incurred in connection with the
organization of the Funds have been capitalized and are being charged to the
Funds' operations ratably over a five-year period that began with the
commencement of the investment operations of the Funds.
In the event that any of the initial shares are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of the then unamortized organization expense in the same proportion as
the number of the initial shares redeemed bears to the number of the initial
shares outstanding at the time of such redemption.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amount of assets, liabilities, revenues,
and expenses of the Funds.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Funds do not isolate those portions of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Funds pay a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
FUND RATE
---- ----
Independence .70% of average daily net assets up to $500 million
Balanced Fund .65% of such assets in excess of $500 million
Independence .80% of average daily net assets up to $500 million
Growth Fund .75% of such assets in excess of $500 million
Independence Medium .80% of average daily net assets up to $500 million
Capitalization Fund .75% of such assets in excess of $500 million
Independence .80% of average daily net assets up to $500 million
Value Fund .75% of such assets in excess of $500 million
Independence .50% of average daily net assets
Diversified Core
Equity Fund II
52
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
The Adviser is responsible for managing the Funds' 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 overall supervision of the Adviser, provides
the Funds with investment services and advice with respect to investment
transactions. The Adviser pays the Sub-Adviser a portion of its advisory fee
quarterly from each Fund as follows:
Independence 60% of the advisory fee payable on the Fund's
Balanced Fund average daily net assets
Independence 55% of the advisory fee payable on the Fund's
Growth Fund average daily net assets
Independence 55% of the advisory fee payable on the Fund's
Medium average daily net assets
Capitalization Fund
Independence 55% of the advisory fee payable on the Fund's
Value Fund average daily net assets
Independence 80% of the advisory fee payable on the Fund's
Diversified average daily net assets
Core Equity Fund II
Effective July 1, 1995, the Sub-Adviser has waived its fees until further
notice on Independence Balanced Fund, Independence Growth Fund, Independence
Medium Capitalization Fund and Independence Value Fund.
In the event normal operating expenses of the Funds, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Funds are registered to sell shares of beneficial interest, the
fees 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 assets, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net assets.
The Adviser has agreed to limit Funds' expenses further to the extent
required to prevent expenses from exceeding: 0.90% of Independence Balanced
Fund's average daily net assets, 0.95% of Independence Growth Fund's average
daily net assets, 1.00% of Independence Medium Capitalization Fund's average
daily net assets, 0.95% of Independence Value Fund's average daily net assets
and 0.70% of Independence Diversified Core Equity Fund II's average daily net
assets. Accordingly, for the period ended August 31, 1996, the reduction in the
Funds' expenses collectively with any additional amounts not borne by the Funds
by virtue of the expense limit amounted to $30,179 for Independence Balanced
Fund, $27,255 for Independence Growth Fund, $31,243 for Independence Medium
Capitalization and $27,916 for Independence Value Fund. The Adviser reserves the
right to terminate this limitation in the future.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended August
31, 1996, all sales of shares of beneficial interest were sold at net asset
value. The Funds pay 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 Funds which have not been herein
specifically allocated to the Trust.
The Funds have a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly-owned subsidiary of The
Berkeley Financial Group. The Funds pay Investor Services a monthly transfer
agent fee equivalent, on an annual basis, to 0.05% of the Funds' average daily
net asset value, plus out-of-pocket expenses incurred by Investor Services on
behalf of the Funds for proxy mailings.
On March 26, 1996, the Board of Trustees approved retroactively to January
1, 1996, an agreement, with the Adviser to perform necessary tax and financial
management services for the Funds. The compensation for 1996 is estimated to be
at an annual rate of 0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon, Mr. Richard S. Scipione
and Thomas W.L. Cameron are directors and officers of the Adviser, and/or its
affiliates as well as Trustees of the Funds.
53
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
The compensation of unaffiliated Trustees is borne by the Funds. Effective with
the fees paid for 1995, the unaffiliated Trustees may elect to defer for tax
purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Funds make investments into other John
Hancock funds, as applicable, to cover their liabilities for the deferred
compensation. Investments to cover the Funds' deferred compensation liability
are recorded on the Funds' books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At August 31, 1996, the Independence Diversified
Core Equity Fund II's investments to cover the deferred compensation liability
had unrealized appreciation of $9. The investment had no impact on any other
Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended August 31, 1996 were as follows:
PURCHASES PROCEEDS
--------- --------
Independence Balanced Fund
U.S. Government Securities ...... $ 2,936,670 $ 3,510,695
Other Investments ............... 3,286,083 1,315,725
Independence Growth Fund .......... 448,395 439,178
Independence Medium
Capitalization Fund ............. 2,267,776 1,993,178
Independence Value Fund ........... 444,770 272,231
Independence Diversified Core
Equity Fund II .................. 125,204,425 83,929,397
At August 31, 1996, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of investments owned by
the Funds, as computed on a federal income tax basis, were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION DEPRECIATION
---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Independence
Balanced
Fund ......... $ 6,696,395 $ 238,628 $ (135,048) $ 103,580
Independence
Growth
Fund ......... 521,423 41,282 (11,971) 29,311
Independence
Medium
Capitalization
Fund ......... 4,013,180 325,247 (124,609) 200,638
Independence
Value Fund ... 814,870 61,628 (20,592) 41,036
Independence
Diversified
Core Equity
Fund II ...... 210,710,125 25,109,526 (3,970,618) 21,138,908
</TABLE>
54
<PAGE>
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ADDITIONAL INFORMATION
John Hancock Funds - Institutional Series Trust
SHAREHOLDER MEETINGS
On June 26, 1996, a special meeting of 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 (collectively, the "Funds") was held.
The following trustees were elected with the votes tabulated on a
trust-wide basis as indicated:
NAME OF TRUSTEE FOR WITHHELD
- --------------- --- --------
Edward J. Boudreau, Jr ........... 12,455,495 0
Thomas W.L. Cameron .............. 12,455,495 0
James F. Carlin .................. 12,455,495 0
William H. Cunningham ............ 12,455,495 0
Charles F. Fretz ................. 12,455,495 0
Harold R. Hiser, Jr .............. 12,455,495 0
Anne C. Hodsdon .................. 12,455,495 0
Charles L. Ladner ................ 12,455,495 0
Leo E. Linbeck, Jr ............... 12,455,495 0
Patricia P. McCarter ............. 12,455,495 0
Steven R. Pruchansky ............. 12,455,495 0
Richard S. Scipione .............. 12,455,495 0
Norman H. Smith .................. 12,455,495 0
John P. Toolan ................... 12,455,495 0
55
<PAGE>
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box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."
-------------
Bulk Rate
JOHN HANCOCK FUNDS U.S. Postage
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101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 Randolph, MA
Permit No. 75
-------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Institutional Series Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."
KI0SA 8/96
10/96
