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John Hancock Funds
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[Institutional Series Trust]
INDEPENDENCE BALANCED FUND
INDEPENDENCE VALUE FUND
INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
INDEPENDENCE GROWTH FUND
INDEPENDENCE MEDIUM CAPITALIZATION FUND
ANNUAL REPORT
February 28, 1997
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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 Value Fund ............................... 8
John Hancock Independence Diversified Core Equity Fund II .......... 12
John Hancock Independence Growth Fund............................... 16
John Hancock Independence Medium Capitalization Fund................ 20
3) Financial Statements.................................................. 24
4) Notes To Financial Statements......................................... 55
TRUSTEES
Edward J. Boudreau, Jr.
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 Signature Services, Inc.
1 John Hancock Way, Ste 1000
Boston, MA 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
INVESTMENT SUBADVISER
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 LLP
60 State Street
Boston, MA 02109
INDEPENDENT AUDITORS
Arthur Andersen LLP
225 Franklin Street
Boston, MA 02110
2
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CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of money by the
year 2030 unless Congress makes some changes. Although it seems a long way off,
the issue is serious enough that at least one group has already studied the
problem, and experts and politicians alike have weighed in with a slew of
prescriptions.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The problem stems from demographic and societal changes. The number of
retirees collecting Social Security is growing rapidly, while the number of
workers supporting the system is shrinking. Consider this: in 1950, there were
16 workers paying into the Social Security system for each retiree collecting
benefits. Today, there are three workers for each retiree and by 2019 there will
be two. Starting then, the Social Security Administration estimates that the
amount paid out in Social Security benefits will start to be greater than the
amount collected in Social Security taxes. Compounding the issue is the fact
that people are retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A recent survey
by the Employee Benefits Research Institute (EBRI) found that 79% of current
workers polled had little confidence in the ability of Social Security to
maintain the same level of benefits as those received by today's retirees.
Instead, they said they expect to use their own savings or employer-sponsored
pensions for their retirement. Yet, remarkably, another EBRI survey revealed
that only slightly more than half of America's current workers are saving money
for retirement. Fewer than half own IRAs or participate in employer-sponsored
pension or savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce your
standard of living once you stop working. So we encourage you to save all that
you can now, so you can live the way you'd like later.
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
Stocks rally while bonds languish
"...the Fund benefited from its holdings in some of the market leaders..."
For the year ended February 28, 1997, John Hancock Independence Balanced Fund
posted a total return of 12.36% at net asset value, while the average balanced
fund returned 14.41%, according to Lipper Analytical Services, Inc. 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
15.18%, as tracked by the Frank Russell Company. We believe that many balanced
funds had a larger weighting in stocks -- which kept advancing during the year
and performed much better than bonds -- than we did. That helps account for why
the Fund lagged its peers. During the year, stocks made up between 43% to 50% of
the Fund's investments, while bonds accounted for 50% to 57% of investments. Our
decision to weight bonds more heavily then stocks was a function of our
quantitative computer analysis, which takes into consideration numerous
variables including economic factors, interest rates and stock and bond prices.
[Pie chart with the heading "Portfolio Diversification" at bottom of left hand
column. The chart is divided into three sections. Going from left to right:
Stocks 45%, Bonds 51%, Short-Term Investments & Other 4%. A footnote below
states "As a percentage of net assets on February 28, 1997."]
Big blue chips and financials speed ahead
The stock market's strong rally was dominated primarily by the largest companies
in the S&P 500 Index, and the Fund benefited from its holdings in some of the
market leaders, particularly during the past six months. Many of our financial
stocks, including banks and credit card companies, also performed well. Bank of
America, First Union and Chase Manhattan benefited from strengthening balance
sheets, declining loan losses, and strong dividend and earnings growth.
Meanwhile, strong consumer spending boosted the share prices of American Express
and Dean Witter/Discover. And of course, Dean Witter/Discover got an added kick
from its proposed merger with Morgan Stanley. Finally, pharmaceutical companies
Merck and Bristol Meyers -- two large blue-chip companies -- also did well.
4
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John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
[Bar chart with the heading "Fund Performance" at top left hand column. A
footnote below states "For the year ended February 28, 1997." The chart is
scaled in increments of 5% from bottom to top, with 20% at the top and 0% at the
bottom. Within the chart are three solid bars. The first represents 12.36% total
return for John Hancock Independence Balanced Fund. The second represents 14.41%
total return for the Average balanced fund. The third represents 15.18% total
return for the 50% S&P 500-Stock Index/50% L.G.C. Bond Index. A footnote below
reads: "The total return for John Hancock Independence Balanced Fund is at net
asset value with all distributions reinvested. The average balanced fund is
tracked by Lipper Analytical Services, Inc. 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 the following two pages for
historical information.]
Of course, there were disappointments. One was Xerox, which was one of our
leaders in the first half of the period, but lagged the market in the second
half. Despite its place among the largest of blue chips, the stock suffered on
news of lower-than-expected earnings. Likewise, AT&T's stock price stumbled when
it announced its own negative earnings surprise.
Fixed-income strategy
The higher-yielding sectors of the portfolio -- including our investments in
asset-backed, mortgage-backed, and corporate securities -- were our best
performers throughout the year. More recently, we've taken advantage of the
strong performance of these holdings by selling some to lock in their gains.
Throughout the year, these issues performed well as the yield spread -- which
measures the difference in yield paid by bonds with various credit qualities
- -- narrowed. Toward the end of the period, we felt that some asset-backed,
mortgages and corporates no longer offered enough of a yield advantage over U.S.
Treasuries to compensate for their added risk. At the end of February, our bond
holdings were allocated as follows: government securities 58%; investment-grade
corporate securities 31%; mortgage-backed securities 7% and asset-backed
securities 4%.
Throughout the year, the fixed-income portion of the portfolio maintained a
neutral duration of about 5 years. Duration measures how sensitive a bond's
share price -- and therefore, a fund's share price -- is to changes in interest
rates. We also continued to emphasize intermediate-term securities, based on the
output from our fundamental and quantitative models.
"...we expect to keep our current mix of stocks and bonds...."
Outlook
From an economic standpoint, we think 1997 will bring more of what we saw in
1996 -- a slow, but steadily growing economy with little or no inflation. In our
view, that scenario supports interest rates staying at current levels or perhaps
rising slightly. With that in mind, we expect to keep our current mix of stocks
and bonds. With stocks, we'll keep our focus on finding the best growth for the
right price. And within the fixed-income portion of the Fund, we'll continue to
emphasize the higher-yielding sectors such as mortgage and corporate securities
and focus on intermediate-maturity securities.
5
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns for the John Hancock
Independence Balanced Fund. Total return is a performance measure that equals
the sum of all income and capital gain distributions, 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 December 31, 1996
ONE LIFE OF
YEAR FUND
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John Hancock Independence Balanced Fund 10.39% 20.57%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
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John Hancock Independence Balanced Fund(2) 10.39% 13.47%(1)
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YIELDS
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As of February 28, 1997
SEC 30-DAY
YIELD
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John Hancock Independence Balanced Fund 3.68%
Notes to Performance
(1) Commenced operations on July 6, 1995.
(2) The Adviser 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 average
annual total return for the one-year and since inception periods would have
been 8.95% and 10.96%, respectively.
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 February 28, 1997 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.
[Line chart with the heading John Hancock 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 of a 50% blend of the Standard & Poor's 500
Stock Index and the Lehman Brothers Government/Corporate Bond Index and is equal
to $322,756 as of February 28, 1997. The second line represents the value of the
hypothetical $250,000 investment made in the John Hancock Independence Balanced
Fund on July 6, 1995 and is equal to $310,167 as of February 28, 1997.]
7
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BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Value Fund
Stock market blasts ahead to set new record
"The Fund's best gains came from financial stocks."
The stock market seems to know no bounds. Last spring, it climbed higher
even as interest rates rose. It shrugged off a sizable decline in mid-summer,
then took off again in the fall -- fueled by declining interest rates, moderate
economic growth and low inflation. With the November election maintaining the
status quo, and both parties staying focused on a balanced budget, the market
went into overdrive. The Dow Jones Industrial Average broke 7000 in February,
led by large company stocks with a history of above-average earnings growth. The
energy, technology, financial and health-care sectors were top performers.
[Chart with heading "Top Five Common Stock Holdings" at bottom of left hand
column. The chart lists five holdings: 1) General Motors 3.1% 2) BankAmerica
2.6% 3) General Re 2.6% 4) Texas Utilities 2.5% 5) AT&T 2.4%. A footnote below
reads: "As a percentage of net assets on February 28, 1997."]
John Hancock Independence Value Fund profited from the market's strength,
posting a total return of 21.36% at net asset value for the year ended February
28, 1997. This matched the average growth and income fund's return of 21.34%,
according to Lipper Analytical Services, Inc. However, the Fund lagged the
24.56% return of the Russell 1000 Value Index. Higher stakes than the index in
certain areas hampered our performance.
Financials drive performance
The Fund's best gains came from financial stocks. Both banks and insurance
companies thrived on stable economic conditions and lower interest rates.
BankAmerica, our second largest investment, posted a 48% return during the
second half of the period. Its new management team, efforts to divest non-core
businesses, strong presence in Southern California, and stock buy back plans
also helped the stock. CIGNA, a multi-line insurance company that was among our
top 10, also did well. It benefited from a turnaround in its property and
casualty division, as well as growth in its health-care business.
Other strong gainers included drug stocks like Bristol-Myers Squibb. A
promising new cancer drug and strong sales in its hair coloring business sent
the stock soaring. Its price went so high that in December we sold our stake. In
the
8
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John Hancock Funds - Institutional Series Trust -- Independence Value Fund
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended February 28, 1997." The chart is
scaled in increments of 10%, with 30% at top and 0% at bottom. Within the chart
there are three solid bars.
The first represents the 21.36% total return for John Hancock Independence Value
Fund.
The second represents the 21.34% total return for the Average growth and income
fund.
The third represents the 24.56% total return for the Russell 1000 Value Index..
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 the
following two pages for historical performance information."]
technology group, IBM posted a 26% return in the second half of the period.
Strong sales growth in the company's mainframe, PC, and outsourcing services
businesses helped, as did on-going cost cutting and stock buy back plans.
Finally, United Technologies, one of our top 10 investments, gained 35% in the
last six months, as sales picked up in its aircraft engine, air-conditioning and
elevator divisions.
There were, however, disappointments. U.S. auto stocks retreated as the
weak yen put a dent in U.S. auto sales. Investors overreacted, pummeling stocks
like General Motors (GM). We used the opportunity to add to our stake, making GM
our largest investment by period end. Utilities stocks suffered because of
uncertainties surrounding industry deregulation. Our largest utility investment
- -- Texas Utilities -- also faced concerns about a pending rate case. But we held
on because of the company's good service territory and strong non-utilities
businesses. Our biggest single disappointment was AT&T, which increased spending
and cut prices to combat declining market share in its phone business. We expect
the company's earnings prospects to improve once local access costs come down.
Outlook is positive
We're optimistic about the market's near-term prospects. Economic conditions
seem ideal, and interest rates are stable. Moreover, we don't see any events
looming that would trigger a downturn. But we're tempering our optimism with
caution. The stock market has gained over 60% in just two years -- a pace it
can't realistically keep up. And an interest-rate hike appears to be coming from
the Federal Reserve. No matter what the market brings we'll stick with our
strategy of buying stocks that we believe are cheap compared to their prospects.
When reinsurance stocks fell out of favor last fall, for example, we bought
General Re. It's one of the best managed reinsurance companies in the world,
with strengths investors are just beginning to notice. We also rece ntly bought
Revlon --a cost-conscious company which is bringing out great new products that
are driving sales and earnings growth. We believe companies like these offer the
best potential for the Fund and its shareholders.
"...we're tempering our optimism with caution."
9
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A Look at Performance
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The tables on the right show the cumulative total returns for the John Hancock
Independence Value Fund. Total return is a performance measure that equals the
sum of all income and capital gain distributions, 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 December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Value Fund 20.66% 30.03%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Value Fund(2) 20.66% 23.58%(1)
Notes to Performance
(1) Commenced operations on October 2, 1995.
(2) The Adviser 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 average
annual total return for the one-year and since inception periods would have
been 14.20% and 8.17%, respectively.
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 Value Fund would be worth on February 28, 1997 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 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.
[Line chart with the heading John Hancock 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 Russell 1000 Value Index and is equal
to $345,004 as of February 28, 1997. The second line represents the value of the
hypothetical $250,000 investment made in the John Hancock Independence Value
Fund on October 2, 1995 and is equal to $341,384 as of February 28, 1997.]
11
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BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Diversified Core Equity Fund II
Bull market continues, but success is narrower,
as select large-company stocks lead the way
"Falling interest rates and industry consolidations were a boon to financial
stocks..."
The stock market continued its advance over the last 12 months amidst a
near-perfect environment. The economy grew modestly, interest rates stayed
relatively low, inflation remained at bay, consumer confidence was high and
corporate profits were strong. One of the driving forces was the huge inflows of
cash from mutual fund investors directed toward the larger capitalization
companies like Coca-Cola, Procter & Gamble and Gillette. As the year progressed,
the market's success became quite narrow, dominated by a handful of the largest
growth companies whose stock prices rose to lofty heights. For the 12-month
period ending February 28, 1997, the broad market, as measured by the Standard &
Poor's 500-Stock Index returned 26.16%. In the same period, the Fund posted a
total return of 22.63%, which compared favorably to the 21.34% return of the
average growth and income fund, according to Lipper Analytical Services, Inc.
[Chart with heading "Top Five Common Stock Holdings" at bottom of left hand
column. The chart lists five holdings: 1) Intel 3.1% 2) Philip Morris 2.8% 3)
AT&T 2.6% 4) United Technologies 2.6% 5) General Electric 2.6%. A footnote below
reads: "As a percentage of net assets on February 28, 1997."]
Standouts and disappointments
In this market, the Fund benefited from its stakes in a number of the select
large-capitalization stocks that led the way. They included the Fund's top
holding, Intel, which rose along with the popularity of its newest generation
chip, and other technology favorites IBM and Microsoft, which posted strong
gains as PC sales have grown. Aerospace giants Boeing and United Technologies
also performed well on the strength of a favorable time in the airplane
replacement cycle. Falling interest rates and industry consolidations were a
boon to financial stocks in the second half of the period, including banks such
as NationsBank, which recently announced a merger with Boatmen's Bancshares.
12
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John Hancock Funds - Institutional Series Trust -- Independence
Diversified Core Equity Fund II
[Bar chart with the heading "Fund Performance" at top left hand column. A
footnote below states "For the year ended February 28, 1997." The chart is
scaled in increments of 10% from bottom to top, with 30% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 22.63% total return for John Hancock Independence Diversified Core Equity
Fund II. The second represents the 21.34% total return for the Average growth
and income fund. The third represents the 26.16% 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
distributions reinvested. The average growth and income fund is tracked by
Lipper Analytical Services, Inc. The S&P 500-Stock Index is an unmanaged index
that includes 500 widely-traded common stocks. See the following two pages for
historical performance information."]
One disappointment among our largest holdings was AT&T. It suffered during the
period from increased competition and delays in realizing the benefits of its
major restructuring, but we remained convinced of its long-term strength.
Strategy and changes
The Fund's performance is driven, as always, by its unwavering, disciplined
investment strategy. Through computer modeling and fundamental analysis, we
strive to create a portfolio of stocks with a risk level comparable to that of
the S&P, selecting companies whose stock is inexpensive and whose earnings
prospects are improving. With such a run-up in large stocks during the period,
their prices have become less compelling and recently we began paring some of
our larger holdings to invest in places where we've started to find better
value. For example, we cut back slightly on our stakes in Boeing, Eastman Kodak,
IBM and NationsBank and used those profits to buy stocks such as BankAmerica,
another bank that continues to do well but whose stock is more attractively
priced.
During the period, we gradually changed our emphasis within the financial
area, lessening our focus on banks and increasing our stake in insurance
companies such as General Re and financial companies. Their earnings momentum
and stock prices became more attractive than many banks after banks' strong
performance during the year. Likewise, we shifted focus within the chemical
sector toward the smaller, specialty companies such as Hercules and Monsanto.
Outlook
We're taking a cautious approach to the stock market this year, because after
two years of lofty returns stock prices appear high by many valuation methods.
What's more, history has shown that after two strong years, the market could be
in for a rougher time in 1997. And even though many economic factors are
favorable, this good news has largely been factored into the market, making it
more vulnerable to any shifts. That means that if the economy starts to move
either faster or slower than its 2% growth path, it could give the market pause
while investors contemplate either rising inflatio n prospects or softening
corporate profits. In any case, we will stick to our investment discipline,
buying stocks that are inexpensive and whose prospects are improving. We believe
it's a good way to both manage the Fund's risk level and provide the best
opportunity for growth.
"...we will stick to our investment discipline..."
13
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A Look at Performance
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns 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 gain distributions,
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 December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Diversified Core
Equity Fund II 20.08% 50.10%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Diversified Core
Equity Fund II 20.08% 25.62%(1,2)
Notes to Performance
(1) Commenced operations on March 10, 1995.
(2) The Adviser 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 average
annual total return for the Fund since inception period would have been
25.41%.
14
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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 February 28, 1997
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.
[Line chart with the heading John Hancock 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 $424,827 as of February 28, 1997. The second line represents the
value of the hypothetical $250,000 investment made in the John Hancock
Independence Diversified Core Equity Fund II on March 10, 1995 and is equal to
$400,012 as of February 28, 1997.]
15
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BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Growth Fund
Large company stocks lead market's
charge into new territory
"...we looked for stocks whose prices were inexpensive compared to their
prospects."
Fueled by falling interest rates, moderate economic growth, and low inflation,
the stock market continued to climb throughout 1996 and into early 1997. The
market's momentum was not lost on investors, who poured more than $400,000 a
minute into stock mutual funds -- a total of $220 billion for 1996. To keep pace
with the market, fund managers had to invest new assets quickly. Many flocked to
large, growth company stocks, which offer both liquidity and steady earnings
growth. Prices on these mega-stocks went so high that just 25 accounted for
nearly half of the Standard & Poor's 500-Stock Index's 26.16% gain in 1996.
Top-performing sectors included energy, technology, financials and healthcare.
[Chart with heading "Top Five Common Stock Holdings" at bottom of left hand
column. The chart lists five holdings: 1) Intel 4.8% 2) Johnson & Johnson 4.6%
3) Coca-Cola 4.1% 4) General Electric 3.5% 5) United Technologies 3.4%. A
footnote below reads: "As a percentage of net assets on February 28, 1997."]
In this environment, John Hancock Independence Growth Fund delivered a
total return of 24.19% at net asset value for the year ended February 28, 1997.
This was well ahead of the 18.22% return of the average growth fund over the
same period, according to Lipper Analytical Services. The Fund's return also
matched the 24.36% return of its benchmark, the Russell 1000 Growth Index. Good
stock selection and a bias toward large company names account for the Fund's
strong results.
Technology and drug stocks boost returns
As always, we looked for stocks whose prices were inexpensive compared to their
prospects. We found ones that met this criterion in the technology sector, where
we focused on companies like Intel and Analog Devices that have proprietary
products. Intel, the Fund's largest investment, returned 134% for the year. But
its price still seemed reasonable, given its growing market share, strong sales
and earnings momentum. We also liked companies with PC exposure because of
consolidation and growth in this end of the industry. IBM returned 26% in the
second half, thanks to growth in its PC business, as well as in its mainframe
and outsourcing
16
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended February 28, 1997." The chart is
scaled in increments of 5%, with 25% at top and 0% at bottom. Within the chart
there are three solid bars. The first represents the 24.19% total return for
John Hancock Independence Growth Fund. The second represents the 18.22% total
return for the Average growth fund. The third represents the 24.36% 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 the following two pages for historical performance
information."]
services divisions. The company's on-going cost cutting and stock buy back
programs also helped.
Drug stocks -- many of which are large companies -- benefited from improved
pricing flexibility and strong new product flow. Among our top investments in
this area were Johnson & Johnson, Merck and Abbott Laboratories. Another big
gainer, however, was Bristol-Myers Squibb, which soared 50% between August and
February on news of a promising new cancer drug as well as strong sales in its
hair coloring business.
Certain individual stocks also posted strong gains. They included United
Technologies -- one of our top 10 investments -- which saw sales pick up in its
aircraft engine, elevator, and air-conditioning divisions. General Electric,
another large holding, again posted handsome returns thanks to its strong global
presence, experienced management team, hefty cash flow and a stock buy-back
program. Finally, Fruit of the Loom's efforts to cut costs, lower inventories,
pay down debt and grow sales boosted its share price by 47% in the second half.
In contrast to these stellar performers were stocks like AT&T that failed
to keep pace with the market. Throughout the year, the company's phone business
battled declining market share. But we held on, expecting earnings to improve
once local access costs come down. PepsiCo's earnings slowed due to weakness in
its Latin American and restaurant operations. We decided to take profits before
further erosion occurred.
Stick to strategy
We remain optimistic about the market's prospects, although our optimism is
tinged with realism. Economic conditions are ideal, and it would take a major
change -- which we don't anticipate -- to spark a downturn. But we also
recognize that bull markets don't go on forever. We plan to stick to our
strategy of owning cheap stocks with improving prospects, regardless of what
happens. And we're still finding plenty of opportunities. In January, we added
General Re, which is probably the best reinsurer worldwide, and Coca-Cola, which
continues to deliver good sales and earnings growth. Even more recently, we
bought Microsoft, which is benefiting from strong PC growth and good cost
controls. We believe stocks like these will continue to reward Fund shareholders
over the long term.
"...our optimism is tinged with realism."
17
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A Look at Performance
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns for the John Hancock
Independence Growth Fund. Total return is a performance measure that equals the
sum of all income and capital gain distributions, 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 December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Growth Fund 20.52% 26.37%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Growth Fund(2) 20.52% 20.77%(1)
Notes to Performance
(1) Commenced operations on October 2, 1995.
(2) The Adviser 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 average
annual total return for the one-year and since inception periods would have
been 12.72% and 2.95%, respectively.
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 Growth Fund would be worth on February 28, 1997 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.
[Line chart with the heading John Hancock 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 $342,045 as of February 28, 1997. The second line represents the value
of the hypothetical $250,000 investment made in the John Hancock Independence
Growth Fund on October 2, 1995 and is equal to $341,340 as of February 28,
1997.]
19
<PAGE>
================================================================================
BY DAVID CANAVAN FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Medium
Capitalization Fund
Small and mid-sized stocks advance, despite bumps in the road
"...several of our holdings profited from the merger trend."
Medium- and small-company stocks advanced over the past year, boosted by a
combination of decent domestic economic growth, low inflation, relatively steady
interest rates and good earnings. That's not to say their rise went
uninterrupted. The year got off to a good enough start when these stocks were
heavily favored by investors. But beginning in the summer, the market began to
worry that inflation would accelerate, and then a number of high-profile
companies surprised investors with lower-than-expected second quarter earnings.
That set off a "flight to safety," with investors gravitating toward large, blue
chip company stocks whose earnings track record was perceived to be a lot more
reliable. The shift toward large-company stocks forced many small- and mid-sized
company stocks lower in the summer. Even though they resumed their advance in
the fall and maintained it for the remainder of the period, their returns were
somewhat overshadowed by the performance of bigger, blue-chip company stocks.
[Chart with heading "Top Five Common Stock Holdings" at bottom of left hand
column. The chart lists five holdings: 1) CIGNA 2.6% 2) Marsh & McLennan 2.2% 3)
Dean Witter Discover 2.1% 4) General Re 1.9% 5) Entergy Corp. 1.7%. A footnote
below reads: "As a percentage of net assets on February 28, 1997."]
Performance overview
For the year ended February 28, 1997, John Hancock Independence Medium
Capitalization Fund had a total return of 17.19% at net asset value. For the
same period, the average medium capitalization fund returned 12.64%, according
to Lipper Analytical Services, Inc. and the Callan Medium Capitalization Index
returned 18.93%.
The primary reason for the Fund's outperformance compared to its peers was
our individual security selection. We emphasize stocks that combine cheapness
with improving fundamentals. In our view, these stocks will provide superior
returns over the long term. Our recent success had to do with both finding those
stocks that fit those criteria, and avoiding more expensive stocks with
deteriorating business prospects.
20
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Independence
Medium Capitalization Fund
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended February 28, 1997." The chart is
scaled in increments of 5%, with 20% at top and 0% at bottom. Within the chart
there are three solid bars. The first represents the 17.19% total return for
John Hancock Independence Medium Capitalization Fund. The second represents the
12.64% total return for the Average mid-cap fund. The third represents the
18.93% 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, Inc. The Callan
Medium Capitalization Index is an unmanaged index commonly used as a broad
measure of performance of the stock of companies with market capitalizations of
$1 billion to $5 billion. See the following two pages for historical performance
information.]
Leaders
Some of our best performers were in the financial sector, namely banks,
brokerage concerns and insurance companies. The stocks of Barnett Banks,
Northern Trust and Bank of Boston shot higher thanks to continuing consolidation
in the banking industry and steady earnings growth. Balance sheets strengthened,
loan losses dwindled and dividends and earnings grew. Meanwhile, brokerage firms
- -- including Dean Witter/ Discover -- rode the rising stock market to a boom of
their own. And of course, the company's proposed merger with Morgan Stanley was
an added boost to Dean Witter's stock price. The insurance companies improved
their profitability through better pricing of their products, cost-cutting and
consolidation. That helps to explain why insurance company CIGNA did so well.
The past 12 months were a blockbuster year for mergers and acquisitions,
and several of our holdings profited from the merger trend. CSX's takeover of
Conrail and British Telecom's acquisition of MCI sent the price of our Conrail
and MCI holdings soaring. So we took profits and sold both. It's not that we
single out companies that are ripe for takeover. It's just that in many cases
acquiring companies share our investment criteria. That is, we both want to find
companies with improving fundamentals that can be purchased at an attractive
price.
Technology: mixed bag
Our technology holdings turned in a mixed performance over the past year. The
winners included Parametric Technology, a world leader in providing
computer-aided design, manufacturing and engineering software and Adobe, the
leading provider of desktop publishing software. Both rebounded handsomely from
a midsummer technology sell-off. Others didn't. For example, Komag, Inc., which
manufactures components for hard disk drives, was plagued by production delays,
a problem the company has recently rectified.
Outlook
Our view is that the backdrop should remain favorable for stocks. We don't
see any signs that economic growth will accelerate to such a level that it
would force inflation, and therefore interest rates, significantly higher.
While investors continue to favor the larger- over the smaller- and
medium-company stocks, we believe that could change. Slow economic growth
often favors faster-growing small- and medium-sized companies. Whatever the
environment, we'll remain focused on finding stocks that offer the best
growth for the right price.
"...we'll remain focused on finding stocks that offer the best growth for the
right price."
21
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A Look at Performance
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns for the John Hancock
Independence Medium Capitalization Fund. Total return is a performance measure
that equals the sum of all income and capital gain distributions, 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 December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Medium
Capitalization Fund 17.10% 22.66%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Medium
Capitalization Fund(2) 17.10% 17.91%(1)
Notes to Performance
(1) Commenced operations 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 average
annual total return for the one-year and since inception periods would have
been 15.65% and 14.75%, respectively.
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 Medium Capitalization Fund would be worth on February 28, 1997
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.
[Line chart with the heading John Hancock 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 Callan Medium Capitalization Index
and is equal to $321,419 as of February 28, 1997. The second line represents the
value of the hypothetical $250,000 investment made in the John Hancock
Independence Medium Capitalization Fund on October 2, 1995 and is equal to
$321,264 as of February 28, 1997.]
23
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- ----------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $5,089,964 and $1,140,220, respectively) ................... $ 5,826,943 $1,307,794
Corporate bonds (cost - $2,404,078 and none, respectively) ....................... 2,404,116 --
U.S. government and agencies securities (cost - $4,444,028 and none, respectively) 4,392,027 --
Short-term investments (cost - $487,000 and $20,000, respectively) ............... 487,000 20,000
Corporate savings account ........................................................ 6,395 99
----------- ----------
13,116,481 1,327,893
Receivable for shares sold ......................................................... 2,377 2,054
Dividends receivable ............................................................... 14,238 4,392
Interest receivable ................................................................ 110,936 78
Other assets ....................................................................... 203 --
Deferred organization expenses - Note A ............................................ 6,275 6,268
----------- ----------
Total Assets ..................................... 13,250,510 1,340,685
-------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased ..................................................... 533 --
Payable for investments purchased .................................................. 126,742 --
Payable to John Hancock Advisers, Inc. and affiliates - Note B ..................... 6,499 12,491
Accounts payable and accrued expenses .............................................. 24,053 4,876
----------- ----------
Total Liabilities ................................ 157,827 17,367
-------------------------------------------------------------------------------
Net Assets:
Capital paid-in .................................................................... 12,203,544 1,127,475
Accumulated net realized gain on investments ....................................... 127,298 24,151
Net unrealized appreciation of investments ......................................... 685,016 167,574
Undistributed net investment income ................................................ 76,825 4,118
----------- ----------
Net Assets ....................................... $13,092,683 $1,323,318
===============================================================================
Net Asset Value Per Share:
(based on 1,316,609 and 121,599 shares, respectively, of beneficial interest
outstanding - unlimited number of shares authorized with no par value) ............. $ 9.94 $ 10.88
=======================================================================================================================
</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 February 28, 1997. 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 Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE
INDEPENDENCE MEDIUM
DIVERSIFIED CORE INDEPENDENCE CAPITALIZATION
EQUITY FUND II GROWTH FUND FUND
------------ ---------- ----------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $264,036,719, $729,381 and $4,419,823, respectively) ... $317,643,275 $ 864,920 $5,145,508
Short-term investments (cost - $8,757,000, $24,000 and $103,000 respectively) 8,757,000 24,000 103,000
Corporate savings account .................................................... 14,921 1,865 582
------------ ---------- ----------
326,415,196 890,785 5,249,090
Receivable for investments sold .............................................. 11,374,982 -- --
Dividends receivable ......................................................... 820,776 1,067 10,884
Foreign tax receivable ....................................................... 1,500 -- --
Interest receivable .......................................................... 2,206 6 44
Receivable from John Hancock Advisers, Inc. - Note B ......................... -- 1,869 19,312
Other assets ................................................................. 6,712 -- 137
Deferred organization expenses - Note A ...................................... 5,733 6,268 6,268
------------ ---------- ----------
Total Assets ................................. 338,627,105 899,995 5,285,735
------------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................................... 73,753 -- 8,155
Payable for investments purchased ............................................ 18,296,832 -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............... 146,744 -- --
Accounts payable and accrued expenses ........................................ 81,137 16,710 37,704
------------ ---------- ----------
Total Liabilities ............................ 18,598,466 16,710 45,859
------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .............................................................. 255,242,856 697,981 4,413,500
Accumulated net realized gain on investments and foreign currency transactions 10,411,753 49,199 91,344
Net unrealized appreciation of investments ................................... 53,606,566 135,539 725,685
Undistributed net investment income .......................................... 767,464 566 9,347
------------ ---------- ----------
Net Assets ................................... $320,028,639 $ 883,285 5,239,876
==========================================================================================
Net Asset Value Per Share:
(based on 25,073,644, 80,246 and 501,260 shares, respectively, of beneficial
interest outstanding - unlimited number of shares authorized with no par value) .. $ 12.76 $ 11.01 $ 10.45
==================================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Operations
Year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- ----------
<S> <C> <C>
Investment Income:
Interest ............................................................................. $ 301,177 $ 1,067
Dividends (net of foreign withholding tax of $145 and $174, respectively) ............ 81,711 28,954
----------- ---------
382,888 30,021
----------- ---------
Expenses:
Investment management fee - Note B ................................................. 55,136 7,488
Registration and filing fees ....................................................... 25,005 19,124
Custodian fee ...................................................................... 16,001 9,121
Printing ........................................................................... 11,875 9,775
Auditing fee ....................................................................... 11,500 11,500
Transfer agent fee - Note B ........................................................ 3,938 468
Organization expense - Note A ...................................................... 1,872 1,748
Financial services fee - Note B .................................................... 1,477 176
Trustees' fees ..................................................................... 881 50
Legal fees ......................................................................... 826 307
Miscellaneous ...................................................................... 289 34
----------- ---------
Total Expenses ..................................... 128,800 59,791
Less Expense Reductions - Note B ................... (57,912) (50,898)
----------- ---------
Net Expenses ....................................... 70,888 8,893
---------------------------------------------------------------------------------
Net Investment Income .............................. 312,000 21,128
---------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ................................................ 191,257 60,494
Change in net unrealized appreciation/depreciation of investments .................... 514,502 109,991
----------- ---------
Net Realized and Unrealized Gain on Investments .... 705,759 170,485
---------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 1,017,759 $ 191,613
=================================================================================
</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.
26
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Operations
Year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE
DIVERSIFIED CORE INDEPENDENCE
EQUITY FUND II GROWTH FUND
-------------- -----------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $16,071 and $28, respectively) ...................... $ 5,731,945 $ 9,402
Interest ......................................................................................... 208,338 502
------------ ---------
5,940,283 9,904
------------ ---------
Expenses:
Investment management fee - Note B ............................................................. 1,280,296 5,514
Transfer agent fee - Note B .................................................................... 128,030 345
Custodian fee .................................................................................. 105,410 9,271
Registration and filing fees ................................................................... 79,437 14,314
Financial services fee - Note B ................................................................ 48,011 129
Trustees' fees ................................................................................. 27,798 50
Printing ....................................................................................... 14,369 10,148
Auditing fee ................................................................................... 11,500 11,500
Legal fees ..................................................................................... 8,134 304
Miscellaneous .................................................................................. 6,118 28
Organization expense - Note A .................................................................. 1,898 1,748
------------ ---------
Total Expenses .................................................................. 1,711,001 53,351
Less Expense Reductions - Note B ................................................ -- (46,803)
------------ ---------
Net Expenses .................................................................... 1,711,001 6,548
----------------------------------------------------------------------------------------------------------
Net Investment Income ........................................................... 4,229,282 3,356
----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain on investments sold ............................................................ 19,375,879 82,811
Net realized loss on foreign currency transactions ............................................... (36) --
Change in net unrealized appreciation/depreciation of investments ................................ 31,355,986 90,749
------------ ---------
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 50,731,829 173,560
----------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............................ $ 54,961,111 $ 176,916
==========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Operations
Year ended February 28, 1997
- --------------------------------------------------------------------------------
INDEPENDENCE
MEDIUM
CAPITALIZATION
FUND
--------------
Investment Income:
Dividends (net of foreign withholding tax of $122) .............. $ 91,150
Interest ........................................................ 7,650
--------
98,800
--------
Expenses:
Investment management fee - Note B ............................ 35,010
Registration and filing fees .................................. 43,803
Custodian fee ................................................. 11,656
Auditing fee .................................................. 11,500
Printing ...................................................... 10,569
Transfer agent fee - Note B ................................... 2,188
Organization expense - Note A ................................. 1,748
Financial services fee - Note B ............................... 820
Legal fees .................................................... 457
Trustees' fees ................................................ 385
Miscellaneous ................................................. 97
--------
Total Expenses .......................................... 118,233
Less Expense Reductions - Note B ........................ (74,463)
--------
Net Expenses ............................................ 43,770
------------------------------------------------------------------
Net Investment Income ................................... 55,030
------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ........................... 225,644
Change in net unrealized appreciation/depreciation of investments 433,951
--------
Net Realized and Unrealized Gain on Investments ......... 659,595
------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations .... $714,625
==================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
-------------------------- -----------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1996+ 1997 1996+ 1997
----------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................... $ 67,293 $ 312,000 $ 6,524 $ 21,128
Net realized gain on investments sold ............................... 20,423 191,257 3,145 60,494
Change in net unrealized appreciation/depreciation of investments ... 170,514 514,502 57,583 109,991
----------- ------------ --------- -----------
Net Increase in Net Assets from Operations ........................ 258,230 1,017,759 67,252 191,613
----------- ------------ --------- -----------
Distributions to Shareholders: *
Dividends from net investment income ................................ (38,521) (264,635) (5,254) (18,692)
Distributions from net realized gain on investments sold ............ -- (84,382) -- (39,488)
----------- ------------ --------- -----------
Total Distributions to Shareholders ............................... (38,521) (349,017) (5,254) (58,180)
----------- ------------ --------- -----------
From Fund Share Transactions: **
Shares sold ......................................................... 5,415,754 9,549,116 615,732 514,840
Shares issued to shareholders in reinvestment of distributions ...... 38,522 348,838 5,254 58,180
----------- ------------ --------- -----------
5,454,276 9,897,954 620,986 573,020
Less shares repurchased ............................................. (519,051) (2,628,947) (1,081) (65,038)
----------- ------------ --------- -----------
Net Increase ...................................................... 4,935,225 7,269,007 619,905 507,982
----------- ------------ --------- -----------
Net Assets:
Beginning of period ................................................. -- 5,154,934 -- 681,903
----------- ------------ --------- -----------
End of period (including undistributed net investment income
of $28,772; $76,825; $1,270 and $4,118, respectively) ........... $ 5,154,934 $ 13,092,683 $ 681,903 $ 1,323,318
=========== ============ ========= ===========
* Distributions to Shareholders
Per share dividends from net investment income ...................... $ 0.1300 $ 0.3399 $ 0.0893 $ 0.1878
----------- ------------ --------- -----------
Per share distributions from net realized gain on investments sold .. -- $ 0.0831 -- $ 0.3968
----------- ------------ --------- -----------
** Analysis of Fund Share Transactions:
Shares sold ......................................................... 609,416 996,538 71,507 50,457
Shares issued to shareholders in reinvestment of distributions ...... 4,250 36,803 585 5,605
----------- ------------ --------- -----------
613,666 1,033,341 72,092 56,062
Less shares repurchased ............................................. (56,371) (274,027) (120) (6,435)
----------- ------------ --------- -----------
Net Increase ...................................................... 557,295 759,314 71,972 49,627
=========== ============ ========= ===========
</TABLE>
+ Independence Balanced Fund and Independence Value 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 shar
eholders 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.
29
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE DIVERSIFIED CORE INDEPENDENCE
EQUITY FUND II GROWTH FUND
---------------------------- ---------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1996+ 1997 1996+ 1997
------------ ------------- --------- ---------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................. $ 2,020,577 $ 4,229,282 $ 1,937 $ 3,356
Net realized gain on investments sold and foreign currency transactions 1,499,534 19,375,843 2,701 82,811
Change in net unrealized appreciation/depreciation of investments ..... 22,250,580 31,355,986 44,790 90,749
------------ ------------- --------- ---------
Net Increase in Net Assets from Operations .......................... 25,770,691 54,961,111 49,428 176,916
------------ ------------- --------- ---------
Distributions to Shareholders: *
Dividends from net investment income .................................. (1,434,011) (4,049,756) (1,937) (3,202)
Distributions from net realized gain on investments sold
and foreign currency transactions ................................... (140,945) (10,321,883) (1,123) (35,190)
------------ ------------- --------- ---------
Total Distributions to Shareholders ................................. (1,574,956) (14,371,639) (3,060) (38,392)
------------ ------------- --------- ---------
From Fund Share Transactions: **
Shares sold ........................................................... 174,862,644 129,325,966 500,075 197,312
Shares issued to shareholders in reinvestment of distributions ........ 1,574,424 14,371,926 3,060 38,392
------------ ------------- --------- ---------
176,437,068 143,697,892 503,135 235,704
Less shares repurchased ............................................... (11,954,213) (52,937,315) (76) (40,370)
------------ ------------- --------- ---------
Net Increase ........................................................ 164,482,855 90,760,577 503,059 195,334
------------ ------------- --------- ---------
Net Assets:
Beginning of period ................................................... -- 188,678,590 -- 549,427
------------ ------------- --------- ---------
End of period (including undistributed net investment income
of $587,398; $767,464; none and $566, respectively) ............... $188,678,590 $ 320,028,639 $ 549,427 $ 883,285
============ ============= ========= =========
* Distributions to Shareholders
Per share dividends from net investment income ........................ $ 0.1113 $ 0.1937 $ 0.0329 $ 0.0407
------------ ------------- --------- ---------
Per share distributions from net realized gain on investments sold
and foreign currency transactions ................................... $ 0.0090 $ 0.4361 $ 0.0191 $ 0.4478
------------ ------------- --------- ---------
** Analysis of Fund Share Transactions:
Shares sold ........................................................... 18,245,546 11,159,217 58,832 21,181
Shares issued to shareholders in reinvestment of distributions ........ 153,808 1,201,115 348 3,764
------------ ------------- --------- ---------
18,399,354 12,360,332 59,180 24,945
Less shares repurchased ............................................... (1,184,950) (4,501,092) (8) (3,871)
------------ ------------- --------- ---------
Net Increase ........................................................ 17,214,404 7,859,240 59,172 21,074
============ ============= ========= =========
</TABLE>
+ Independence Diversified Core Equity Fund II and Independence Growth Fund
commenced operations on March 10, 1995 and October 2, 1995, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE MEDIUM
CAPITALIZATION FUND
-------------------------
PERIOD ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996+ 1997
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................ $ 22,280 $ 55,030
Net realized gain (loss) on investments sold ......................... (4,647) 225,644
Change in net unrealized appreciation/depreciation of investments .... 291,734 433,951
----------- -----------
Net Increase in Net Assets from Operations ......................... 309,367 714,625
----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ................................. (13,013) (55,362)
Distributions from net realized gain on investments sold ............. -- (129,653)
----------- -----------
Total Distributions to Shareholders ................................ (13,013) (185,015)
----------- -----------
From Fund Share Transactions: **
Shares sold .......................................................... 3,855,325 1,356,381
Shares issued to shareholders in reinvestment of distributions ....... 13,012 185,014
----------- -----------
3,868,337 1,541,395
Less shares repurchased .............................................. (241,783) (754,037)
----------- -----------
Net Increase ....................................................... 3,626,554 787,358
----------- -----------
Net Assets:
Beginning of period .................................................. -- 3,922,908
----------- -----------
End of period (including undistributed net investment income of $9,267
and $9,347, respectively) .......................................... $ 3,922,908 $ 5,239,876
=========== ===========
* Distributions to Shareholders
Per share dividends from net investment income ....................... $ 0.0333 $ 0.1247
----------- -----------
Per share distributions from net realized gain on investments sold ... -- $ 0.2919
----------- -----------
** Analysis of Fund Share Transactions:
Shares sold .......................................................... 448,130 137,397
Shares issued to shareholders in reinvestment of distributions ....... 1,480 18,576
----------- -----------
449,610 155,973
Less shares repurchased .............................................. (27,231) (77,092)
----------- -----------
Net Increase ....................................................... 422,379 78,881
=========== ===========
</TABLE>
+ Independence Medium Capitalization Fund commenced operations on October 2,
1995.
SEE NOTES TO FINANCIAL STATEMENTS.
31
<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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................................... $ 8.50(a) $ 9.25
------- --------
Net Investment Income (g) .................................................. 0.25 0.38
Net Realized and Unrealized Gain on Investments ............................ 0.63 0.73
------- --------
Total from Investment Operations ..................................... 0.88 1.11
------- --------
Less Distributions:
Dividends from Net Investment Income ..................................... (0.13) (0.34)
Distributions from Net Realized Gain on Investments Sold ................. -- (0.08)
------- --------
Total Distributions .................................................. (0.13) (0.42)
------- --------
Net Asset Value, End of Period ............................................. $ 9.25 $ 9.94
======= ========
Total Investment Return at Net Asset Value (e) ............................. 10.42%(c) 12.36%
Total Adjusted Investment Return at Net Asset Value (b) (e) ................ 7.36%(c) 11.62%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .................................. $ 5,155 $ 13,093
Ratio of Expenses to Average Net Assets .................................... 0.90%* 0.90%
Ratio of Adjusted Expenses to Average Net Assets (b) (d) ................... 5.58%* 1.64%
Ratio of Net Investment Income to Average Net Assets ....................... 3.96%* 3.96%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (b) (d) (0.72%)* 3.22%
Portfolio Turnover Rate .................................................... 31% 149%
Fee Reduction Per Share (g) ................................................ $ 0.29 $ 0.07
Average Brokerage Commission Rate (f) ...................................... N/A $ 0.0276
</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.
(g) On average month end shares outstanding.
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.
32
<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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $ 8.50(a) $ 9.47
-------- --------
Net Investment Income (g) ......................................... 0.10 0.23
Net Realized and Unrealized Gain on Investments ................... 0.96 1.77
-------- --------
Total from Investment Operations ............................ 1.06 2.00
-------- --------
Less Distributions:
Dividends from Net Investment Income ............................ (0.09) (0.19)
Distributions from Net Realized Gain on Investments Sold ........ -- (0.40)
-------- --------
Total Distributions ......................................... (0.09) (0.59)
-------- --------
Net Asset Value, End of Period .................................... $ 9.47 $ 10.88
======== ========
Total Investment Return at Net Asset Value (e) .................... 12.52%(c) 21.36%
Total Adjusted Investment Return at Net Asset Value (b) (e) ....... (1.18%)(c) 15.92%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................... $ 682 $ 1,323
Ratio of Expenses to Average Net Assets ........................... 0.95%* 0.95%
Ratio of Adjusted Expenses to Average Net Assets (b) (d) .......... 34.06%* 6.39%
Ratio of Net Investment Income to Average Net Assets .............. 2.81%* 2.26%
Ratio of Adjusted Net Investment Loss to Average Net Assets (b) (d) (30.30%)* (3.18%)
Portfolio Turnover Rate ........................................... 12% 66%
Fee Reduction Per Share (g) ....................................... $ 1.22 $ 0.55
Average Brokerage Commission Rate (f) ............................. N/A $ 0.0233
</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.
(g) On average month end shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<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 OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................ $ 8.50(a) $ 10.96
--------- ---------
Net Investment Income (g) ................................................... 0.20 0.20
Net Realized and Unrealized Gain on Investments and Foreign Currency
Transactions .............................................................. 2.38 2.23
--------- ---------
Total from Investment Operations ...................................... 2.58 2.43
--------- ---------
Less Distributions:
Dividends from Net Investment Income ...................................... (0.11) (0.19)
Distributions from Net Realized Gains on Investments Sold and Foreign
Currency Transactions ................................................... (0.01) (0.44)
--------- ---------
Total Distributions ................................................... (0.12) (0.63)
--------- ---------
Net Asset Value, End of Period .............................................. $ 10.96 $ 12.76
========= =========
Total Investment Return at Net Asset Value (e) .............................. 30.48%(c) 22.63%
Total Adjusted Investment Return at Net Assets Value (b) (e) ................ 30.42%(c) N/A
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ................................... $ 188,679 $ 320,029
Ratio of Expenses to Average Net Assets ..................................... 0.70%* 0.67%
Ratio of Adjusted Expenses to Average Net Assets (b)(d) ..................... 0.76%* N/A
Ratio of Net Investment Income to Average Net Assets ........................ 2.00%* 1.65%
Ratio of Adjusted Net Investment Income to Average Net Assets (b)(d) ........ 1.94%* N/A
Portfolio Turnover Rate ..................................................... 39% 81%
Fee Reduction Per Share (g) ................................................. $ 0.01 N/A
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) 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.
(g) On average month end shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
34
<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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $ 8.50(a) $ 9.29
--------- ---------
Net Investment Income (g) ......................................... 0.03 0.05
Net Realized and Unrealized Gain on Investments ................... 0.81 2.16
--------- ---------
Total from Investment Operations ............................ 0.84 2.21
--------- ---------
Less Distributions:
Dividends from Net Investment Income ............................ (0.03) (0.04)
Distributions from Net Realized Gain on Investments ............. (0.02) (0.45)
--------- ---------
Total Distributions ......................................... (0.05) (0.49)
--------- ---------
Net Asset Value, End of Period .................................... $ 9.29 $ 11.01
========= =========
Total Investment Return at Net Asset Value (e) .................... 9.94%(c) 24.19%
Total Adjusted Investment Return at Net Asset Value (b) (e) ....... (5.63%)(c) 17.40%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................... $ 549 $ 883
Ratio of Expenses to Average Net Assets ........................... 0.95%* 0.95%
Ratio of Adjusted Expenses to Average Net Assets (b) (d) .......... 38.57%* 7.74%
Ratio of Net Investment Income to Average Net Assets .............. 0.91%* 0.49%
Ratio of Adjusted Net Investment Loss to Average Net Assets (b) (d) (36.71%)* (6.30%)
Portfolio Turnover Rate ........................................... 21% 142%
Fee Reduction Per Share (g) ....................................... $ 1.36 $ 0.68
Average Brokerage Commission Rate (f) ............................. N/A $ 0.0233
</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.
(g) On average month end shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................. $ 8.50(a) $ 9.29
------- --------
Net Investment Income (g) ........................................ 0.08 0.12
Net Realized and Unrealized Gain on Investments .................. 0.74 1.45
------- --------
Total from Investment Operations ........................... 0.82 1.57
------- --------
Less Distributions:
Dividends from Net Investment Income ........................... (0.03) (0.12)
Distributions from Net Realized Gain on Investments Sold ....... ... (0.29)
------- --------
Total Distributions ........................................ (0.03) (0.41)
------- --------
Net Asset Value, End of Period ................................... $ 9.29 $ 10.45
======= ========
Total Investment Return at Net Asset Value (e) ................... 9.71%(c) 17.19%
Total Adjusted Investment Return at Net Asset Value (b) (e) ...... 7.00%(c) 15.49%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ........................ $ 3,923 $ 5,240
Ratio of Expenses to Average Net Assets .......................... 1.00%* 1.00%
Ratio of Adjusted Expenses to Average Net Assets (b)(d) .......... 7.55%* 2.70%
Ratio of Net Investment Income to Average Net Assets ............. 1.94%* 1.26%
Ratio of Adjusted Net Investment Loss to Average Net Assets (b)(d) (4.61%)* (0.44%)
Portfolio Turnover Rate .......................................... 3% 78%
Fee Reduction Per Share (g) ...................................... $ 0.26 $ 0.17
Average Brokerage Commission Rate (f) ............................ N/A $ 0.0252
</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.
(g) On average month end shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by the
Independence Balanced Fund on February 28, 1997. 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 (1.61%)
Boeing Co. (The) ............................. 600 $ 61,050
Precision Castparts Corp. .................... 600 29,400
United Technologies Corp. .................... 1,600 120,400
----------
210,850
----------
Automobile/Trucks (2.10%)
Chrysler Corp. ............................... 2,000 67,750
Dana Corp. ................................... 1,100 34,100
Ford Motor Co. ............................... 2,100 69,038
General Motors Corp. ......................... 1,800 104,175
----------
275,063
----------
Banks - United States (2.83%)
Banc One Corp. ............................... 510 22,504
Bank of New York Co., Inc. ................... 1,000 38,750
BankAmerica Corp. ............................ 800 91,000
Bankers Trust New York Corp. ................. 300 27,225
Chase Manhattan Corp. ........................ 600 60,075
Citicorp ..................................... 200 23,350
Comerica, Inc. ............................... 500 30,063
First Bank Systems, Inc. ..................... 300 23,550
First Union Corp. ............................ 200 17,550
NationsBank Corp. ............................ 600 35,925
----------
369,992
----------
Beverages (0.47%)
Coca-Cola Co. ................................ 1,000 61,000
----------
Building (0.03%)
Masco Corp. .................................. 100 3,513
----------
Chemicals (1.73%)
Air Products & Chemicals, Inc. ............... 1,400 103,775
Hercules, Inc. ............................... 500 23,250
Monsanto Co. ................................. 1,400 50,925
Morton International, Inc. ................... 700 28,875
Praxair, Inc. ................................ 400 19,450
----------
226,275
----------
Computers (2.84%)
Adobe Systems, Inc. .......................... 400 14,600
Compaq Computer Corp.* ....................... 900 71,325
Computer Associates International, Inc. ...... 600 26,100
Electronic Data Systems Corp. ................ 1,300 58,663
Hewlett-Packard Co. .......................... 1,400 78,400
Informix Corp.* .............................. 800 13,900
International Business Machines Corp. ........ 200 28,750
Komag, Inc.* ................................. 400 12,000
Microsoft Corp.* ............................. 700 68,250
----------
371,988
----------
Cosmetics & Personal Care (0.30%)
Revlon, Inc. (Class A) * ..................... 1,000 38,875
----------
Diversified Operations (1.74%)
Allied Signal, Inc. .......................... 400 28,900
Canadian Pacific, Ltd. (Canada) .............. 600 14,850
Du Pont (E.I.) De Nemours & Co. .............. 1,200 128,700
Lockheed Martin Corp. ........................ 400 35,400
Textron, Inc. ................................ 200 19,725
----------
227,575
----------
Electronics (2.42%)
General Electric Co. ......................... 1,000 102,875
Honeywell, Inc. .............................. 300 21,338
Intel Corp. .................................. 1,000 141,875
Raychem Corp. ................................ 600 51,075
----------
317,163
----------
Finance (1.03%)
American Express Co. ......................... 600 39,225
Dean Witter Discover & Co. ................... 2,000 76,750
First Data Corp. ............................. 500 18,313
----------
134,288
----------
Food (0.74%)
ConAgra, Inc. ................................ 600 31,800
Unilever N.V. (Netherlands) .................. 200 38,100
Universal Foods Corp. ........................ 800 27,600
----------
97,500
----------
Instruments - Scientific (0.38%)
Perkin-Elmer Corp. ........................... 700 49,700
----------
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (3.70%)
American International Group, Inc. ........... 400 $ 48,400
CIGNA Corp. .................................. 600 91,725
General Re Corp. ............................. 1,100 186,588
ITT Hartford Group, Inc. ..................... 700 52,500
Marsh & McLennan Cos., Inc. .................. 900 105,300
----------
484,513
----------
Leisure (1.06%)
Eastman Kodak Co. ............................ 700 62,738
HFS, Inc.* ................................... 700 47,950
Hilton Hotels Corp. .......................... 1,100 27,638
----------
138,326
----------
Machinery (0.40%)
Cooper Industries, Inc. ...................... 300 13,275
Dover Corp. .................................. 600 29,775
Ingersoll-Rand Co. ........................... 200 9,500
----------
52,550
----------
Medical (5.41%)
Abbott Laboratories .......................... 1,100 61,875
Allegiance Corp. ............................. 1,000 26,375
Amgen, Inc.* ................................. 500 30,563
Becton, Dickinson & Co. ...................... 600 29,550
Bristol-Myers Squibb Co. ..................... 300 39,150
Columbia/HCA Healthcare Corp. ................ 350 14,700
Glaxo Wellcome PLC (American
Depositary Receipt) (ADR)
(United Kingdom) ........................... 1,000 33,875
HEALTHSOUTH Corp.* ........................... 600 24,150
Johnson & Johnson ............................ 2,800 161,350
Mallinckrodt, Inc. ........................... 1,000 42,500
Medtronic, Inc. .............................. 400 25,900
Merck & Co., Inc. ............................ 1,400 128,800
Pfizer, Inc. ................................. 500 45,813
Pharmacia & Upjohn, Inc. ..................... 1,200 44,250
----------
708,851
----------
Office (1.62%)
Avery Dennison Corp. ......................... 1,400 56,525
Pitney Bowes, Inc. ........................... 500 31,063
Xerox Corp. .................................. 2,000 125,000
----------
212,588
----------
Oil & Gas (3.93%)
Amoco Corp. .................................. 400 33,800
Anadarko Petroleum Corp. ..................... 700 39,370
Atlantic Richfield Co. ....................... 700 87,500
Baker Hughes, Inc. ........................... 1,200 42,600
Dresser Industries, Inc. ..................... 500 15,188
Kerr - McGee Corp. ........................... 200 12,525
Mobil Corp. .................................. 400 49,100
PanEnergy Corp. .............................. 700 29,832
Phillips Petroleum Co. ....................... 2,200 91,025
Texaco Inc. .................................. 600 59,325
Unocal Corp. ................................. 1,400 54,075
----------
514,340
----------
Paper & Paper Products (0.32%)
Kimberly-Clark Corp. ......................... 400 42,400
----------
Retail (2.64%)
Albertson's, Inc. ............................ 500 17,625
Costco Cos., Inc.* ........................... 1,100 28,188
Dayton Hudson Corp. .......................... 600 25,200
Federated Department Stores, Inc.* ........... 600 20,850
Home Depot, Inc. ............................. 1,100 59,950
Lowe's Cos., Inc. ............................ 1,000 36,500
Sears, Roebuck And Co. ....................... 600 32,550
Staples, Inc.* ............................... 1,900 41,088
Toys "R" Us, Inc.* ........................... 900 23,400
Wal-Mart Stores, Inc. ........................ 2,300 60,663
----------
346,014
----------
Rubber - Tires & Misc (0.20%)
Goodyear Tire & Rubber Co. (The) ............. 500 26,375
----------
Shoes & Related Apparel (0.58%)
Nike, Inc. (Class B) ......................... 600 43,125
Nine West Group, Inc.* ....................... 700 32,900
----------
76,025
----------
Steel (0.15%)
British Steel PLC (ADR) (United Kingdom) ..... 800 19,900
----------
Telecommunications (1.24%)
A T & T Corp. ................................ 3,200 127,600
Lucent Technologies, Inc. .................... 639 34,426
----------
162,026
----------
Textile (0.29%)
Fruit of the Loom, Inc. (Class A)* ........... 300 12,263
Liz Claiborne, Inc. .......................... 500 20,250
Tommy Hilfiger Corp.* ........................ 100 5,463
----------
37,976
----------
Tobacco (1.08%)
Philip Morris Cos., Inc. ..................... 700 94,588
UST, Inc. .................................... 1,500 46,313
----------
140,901
----------
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Transportation (0.66%)
CSX Corp. .................................... 400 $ 18,450
Norfolk Southern Corp. ....................... 500 45,563
Trinity Industries, Inc. ..................... 700 22,575
----------
86,588
----------
Utilities (3.01%)
BellSouth Corp. .............................. 600 28,125
Consolidated Natural Gas Co. ................. 500 25,500
Dominion Resources, Inc. ..................... 1,100 44,275
Entergy Corp. ................................ 4,600 121,325
GTE Corp. .................................... 1,800 84,150
SBC Communications, Inc. ..................... 800 46,000
Texas Utilities Co. .......................... 1,100 44,413
----------
393,788
----------
TOTAL COMMON STOCKS
(Cost $5,089,964) .............. (44.51%) 5,826,943
----- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
Automobile/Trucks (1.52%)
Ford Motor Credit Corp.,
Note 02-15-02 ......................... 8.200% A+ $ 70 $ 73,888
General Motors Acceptance Corp.,
Med Term Note 05-22-01 ................ 6.800 A- 70 70,136
General Motors Corp.,
Deb 12-01-00 .......................... 9.625 A- 50 54,832
----------
198,856
----------
Banks - Foreign (0.17%)
Kansallis-Osake-Pankki Bank,
Sub Note (Finland) 05-01-02, (Y) ...... 10.000 BBB 20 22,656
----------
Banks - United States (4.11%)
BankAmerica Corp.,
Sub Note 04-15-06 ..................... 7.200 A 50 50,309
Bankers Trust New York Corp.,
Sub Note 05-01-05 ..................... 8.250 A- 30 31,932
First Union Corp.,
Sub Note 08-01-05 ..................... 7.050 A- 60 59,842
Fleet Capital Trust II,
Co Gtd 12-11-26 ....................... 7.920 BBB 70 69,168
Fleet Financial Group Inc.,
Sub Note 03-01-03 ..................... 6.875 BBB+ 70 69,595
Mellon Capital II,
Co Gtd 01-15-27 ....................... 7.995 BBB+ 80 79,498
NationsBank Corp.,
Sub Note 03-15-06 ..................... 6.500 A- 60 57,540
NB Capital Trust II,
Co Gtd 12-15-26 ....................... 7.830 A- 80 79,452
Society National Bank,
Sub Note 06-01-05 ..................... 7.250 A- 40 40,065
----------
537,401
----------
Beverages (0.46%)
Coca-Cola Co.,
Bond 10-15-36 ......................... 6.700 AA- 60 59,989
----------
Broker Services (1.91%)
Lehman Brothers Inc.,
Sr Sub Note 04-15-03 .................. 7.250 A 110 109,750
Salomon Inc.,
Note 02-01-04 ......................... 7.200 BBB 100 99,839
Sr Note 01-20-98 ...................... 7.000 BBB 20 20,136
Sr Note 12-01-98 ...................... 6.700 BBB 20 20,065
----------
249,790
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
Chemicals (0.37%)
Monsanto Co.,
Note 07-01-00 ......................... 6.000% A $ 50 $ 48,889
----------
Diversified Operations (0.39%)
Lockheed Martin Corp.,
Co Gtd 06-15-04 ....................... 7.450 BBB+ 50 51,316
----------
Finance (3.87%)
Chemical Master Credit Card Trust I,
Class A Ser 1995-3 04-15-05 ........... 6.230 AAA 50 49,047
Citibank Credit Card Master Trust I,
Bond 02-07-03 ......................... Zero AAA 60 46,406
Dean Witter Discover & Co.,
Note 03-01-03 ......................... 6.875 A 50 49,953
Green Tree Financial Corp.,
Class A5 Ser 1993-3 10-15-18 .......... 5.750 Aa2 50 48,469
IBM Credit Corp.,
Deb 12-01-96 .......................... 7.125 A 50 46,971
Nationsbank Credit Card Master Trust,
Class A Ser 1993-2 12-15-05 ........... 6.000 AAA 30 28,809
Sears Credit Account Master Trust,
Class A Ser 1995-5 01-15-08 ........... 6.050 AAA 30 29,072
Class A Ser 1996-4 10-15-06 ........... 6.450 AAA 30 29,803
Sears Roebuck Acceptance Corp.,
Note 11-05-03 ......................... 6.720 A- 120 118,004
Wells Fargo Capital I,
Bond 12-15-26 ......................... 7.960 BBB+ 60 59,795
----------
506,329
----------
Insurance (0.15%)
American General Finance Corp.,
Sr Note 05-15-05 ...................... 7.250 A+ 20 20,140
----------
Media (0.15%)
News America Holdings Inc.,
Note 10-17-16 ......................... 8.000 BBB 20 19,990
----------
Medical (0.45%)
Columbia/HCA Healthcare Corp.,
Deb 11-15-20 .......................... 7.500 A- 60 58,769
----------
Mortgage Banking (0.69%)
ERP Operating LP.,
Note 04-15-02 ......................... 7.950 BBB 20 20,565
Mortgage Capital Funding, Inc.,
Class A1 Ser 1996-MC2 02-20-04 ........ 6.758 Aaa 50 50,037
United Dominion Realty Trust Inc.,
Note 01-15-07 ......................... 7.250 BBB+ 20 19,910
----------
90,512
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
Oil & Gas (1.06%)
Phillips 66 Capital Trust II,
Co Gtd 01-15-37 ....................... 8.000% BBB+ $ 140 $ 138,842
----------
Pollution Control (0.24%)
WMX Technologies Inc.,
Note 04-30-04 ......................... 6.220 A 30 31,643
----------
Tobacco (1.13%)
Philip Morris Cos., Inc.,
Deb 10-15-03 .......................... 8.250 A 140 148,046
----------
Transportation (0.26%)
Rail Car Trust,
Class A Pass Thru Ser 1992-1 06-01-04 .. 7.750 AAA 32 33,350
----------
Utilities (1.43%)
GTE Southwest Inc.,
1st Mtg 11-15-31 ...................... 8.500 A+ 50 55,429
Hydro-Quebec,
Deb (Canada) 02-01-03, (Y) ............ 7.375 A+ 10 10,227
Ontario, Province of,
Bond (Canada) 02-21-06, (Y) ........... 6.000 AA- 60 56,248
Pacific Bell,
Deb 06-15-01 .......................... 8.700 AA- 25 26,801
Quebec, Province of,
Note (Canada) 03-02-26, (Y) ........... 5.735 A+ 40 38,893
----------
187,598
----------
TOTAL CORPORATE BONDS
(Cost $2,404,078) (18.36%) $2,404,116
------ ----------
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (30.00%)
United States Treasury,
Bond 11-15-04 ........................ 11.625 AAA 330 429,927
Bond 08-15-21 ........................ 8.125 AAA 40 45,469
Bond 08-15-26 ........................ 6.750 AAA 90 88,439
Note 05-15-98 ........................ 6.125 AAA 50 50,149
Note 09-30-00 ........................ 6.125 AAA 479 476,083
Note 11-15-01 ........................ 7.500 AAA 1,050 1,095,938
Note 11-30-01 ........................ 5.875 AAA 435 425,621
Note 05-15-02 ........................ 7.500 AAA 75 78,563
Note 08-15-04 ........................ 7.250 AAA 855 890,534
Note 10-15-06 ........................ 6.500 AAA 350 347,267
----------
3,927,990
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
Governmental - U.S. Agencies (3.54%)
Federal National Mortgage Assn.,
Medium Term Note 08-16-00 ........................ 6.360% AAA $ 90 $ 89,902
15 Yr Sf Pass Thru Ctf 09-01-10 ................ 6.500 AAA 57 56,181
15 Yr Sf Pass Thru Ctf 05-01-11 ................ 6.500 AAA 57 55,932
30 Yr Sf Pass Thru Ctf 09-23-24 ++ ............. 7.500 AAA 50 49,917
30 Yr Sf Pass Thru Ctf 12-01-25 ................ 7.000 AAA 25 24,051
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 08-15-23 ................... 7.000 AAA 28 27,077
30 Yr Pass Thru Ctf 04-15-23 to 02-15-25 ++ .... 7.500 AAA 73 73,658
30 Yr Sf Pass Thru Ctf 02-01-20 to 01-15-23 ++ . 8.000 AAA 85 87,319
-----------
464,037
-----------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $4,444,028) (33.54%) $ 4,392,027
------ -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.72%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion
Securities - Dated 02-28-97, Due 03-03-97
(secured by U.S. Treasury Notes, 4.750% thru
8.250% due 11-15-97 thru 11-15-05) - Note A ...... 5.390 -- 487 487,000
-----------
Corporate Savings Account (0.05%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% ............................... 6,395
-----------
TOTAL SHORT-TERM INVESTMENTS (3.77%) 493,395
------- -----------
TOTAL INVESTMENTS (100.18%) $13,116,481
======= ===========
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer, however, security is U.S. dollar
denominated.
* Non-income producing security.
** Credit ratings are unaudited and rated by Moody's Investor Services or John
Hancock Advisers, Inc. where Standard and Poors ratings are not available.
++ These securities having an aggregate value of $125,917 or 0.96% of the
Fund's net assets, have been purchased on a when issued basis subsequent to
the date of this schedule. The purchase price and the interest rate of such
securities are fixed at trade date, although the Fund does not earn any
interest on such securities until settlement date. The Fund has instructed
its Custodian Bank to segregate assets with a current value at least equal
to the amount of its when issued commitments. Accordingly, the market
values of $128,978 of U.S. Treasury Bond, 11.625%, 11-15-04 has been
segregated to cover the issued commitments.
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.
43
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by the
Independence Value Fund on February 28, 1997. 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 (3.72%)
Boeing Co. ................................... 100 $ 10,175
Goodrich (B.F.) Co. .......................... 100 4,063
Precision Castparts Corp. .................... 100 4,900
United Technologies Corp. .................... 400 30,100
----------
49,238
----------
Automobile/Trucks (7.83%)
Chrysler Corp. ............................... 600 20,325
Dana Corp. ................................... 300 9,300
Eaton Corp. .................................. 100 7,175
Ford Motor Co. ............................... 800 26,300
General Motors Corp. ......................... 700 40,512
----------
103,612
----------
Banks - United States (13.88%)
Banc One Corp. ............................... 300 13,237
Bank of Boston Corp. ......................... 100 7,537
Bank of New York Co., Inc. ................... 500 19,375
BankAmerica Corp. ............................ 300 34,125
Bankers Trust New York Corp. ................. 100 9,075
Barnett Banks, Inc. .......................... 100 4,625
Chase Manhattan Corp. ........................ 200 20,025
Citicorp ..................................... 200 23,350
Comerica, Inc. ............................... 200 12,025
First Bank System, Inc. ...................... 100 7,850
First Chicago NBD Corp. ...................... 200 11,700
First Union Corp. ............................ 100 8,775
NationsBank Corp. ............................ 200 11,975
----------
183,674
----------
Building (1.05%)
Centex Corp. ................................. 100 4,038
Clayton Homes, Inc. .......................... 200 2,850
Masco Corp. .................................. 200 7,025
----------
13,913
----------
Chemicals (3.06%)
Air Products & Chemicals, Inc. ............... 200 14,825
Ethyl Corp. .................................. 300 2,738
Hercules, Inc. ............................... 100 4,650
Monsanto Co. ................................. 100 3,638
Morton International, Inc. ................... 100 4,125
PPG Industries, Inc. ......................... 100 5,600
Praxair, Inc. ................................ 100 4,862
----------
40,438
----------
Computers (3.61%)
Compaq Computer Corp.* ....................... 100 7,925
Electronic Data Systems Corp. ................ 100 4,513
Imation Corp.* ............................... 100 2,663
International Business Machines Corp. ........ 200 28,750
Komag, Inc.* ................................. 100 3,000
Mentor Graphics Corp.* ....................... 100 956
----------
47,807
----------
Cosmetics & Personal Care (0.29%)
Revlon, Inc. (Class A) * ..................... 100 3,888
----------
Diversified Operations (5.41%)
Canadian Pacific, Ltd. (Canada) .............. 500 12,375
Du Pont (E.I.) de Nemours & Co. .............. 200 21,450
Lockheed Martin Corp. ........................ 200 17,700
Ogden Corp. .................................. 500 10,187
Textron, Inc. ................................ 100 9,863
----------
71,575
----------
Electronics (0.54%)
Honeywell, Inc. .............................. 100 7,112
----------
Energy (0.11%)
Wheelabrator Technologies, Inc. .............. 100 1,425
----------
Finance (2.46%)
Ahmanson (H.F.) & Co. ........................ 100 4,113
American Express Co. ......................... 200 13,075
Dean Witter Discover & Co. ................... 400 15,350
----------
32,538
----------
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
================================================================================
Financial Statements
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Food (0.26%)
Universal Foods Corp. ........................ 100 $ 3,450
----------
Instruments - Scientific (0.54%)
Perkin-Elmer Corp. ........................... 100 7,100
----------
Insurance (9.39%)
CIGNA Corp. .................................. 200 30,575
Equitable Cos., Inc. ......................... 100 3,138
General Re Corp. ............................. 200 33,925
ITT Hartford Group, Inc. ..................... 300 22,500
Lincoln National Corp. ....................... 100 5,812
Marsh & McLennan Cos., Inc. .................. 200 23,400
Mid Ocean Ltd. ............................... 100 4,950
----------
124,300
----------
Leisure (1.38%)
Eastman Kodak Co. ............................ 100 8,962
HFS, Inc.* ................................... 100 6,850
Hilton Hotels Corp. .......................... 100 2,513
----------
18,325
----------
Machinery (0.69%)
Cooper Industries, Inc. ...................... 100 4,425
Ingersoll-Rand Co. ........................... 100 4,750
----------
9,175
----------
Medical (2.50%)
Allegiance Corp. ............................. 200 5,275
Alza Corp.* .................................. 100 2,838
Becton, Dickinson & Co. ...................... 100 4,925
Glaxo Wellcome PLC (American Depositary
Receipt) (ADR) (United Kingdom) ............ 100 3,388
Guidant Corp. ................................ 100 6,700
Johnson & Johnson ............................ 100 5,762
Mallinckrodt, Inc. ........................... 100 4,250
----------
33,138
----------
Office (2.97%)
Avery Dennison Corp. ......................... 200 8,075
Pitney Bowes, Inc. ........................... 100 6,212
Xerox Corp. .................................. 400 25,000
----------
39,287
----------
Oil & Gas (11.60%)
Amoco Corp. .................................. 100 8,450
Anadarko Petroleum Corp. ..................... 100 5,625
Atlantic Richfield Co. ....................... 200 25,000
Baker Hughes, Inc. ........................... 200 7,100
El Paso Natural Gas Co. ...................... 100 5,362
Kerr - McGee Corp. ........................... 100 6,262
Mobil Corp. .................................. 100 12,275
PanEnergy Corp. .............................. 100 4,263
Phillips Petroleum Co. ....................... 500 20,688
Texaco Inc. .................................. 300 29,662
Unocal Corp. ................................. 400 15,450
USX - Marathon Group ......................... 500 13,313
----------
153,450
----------
Retail (4.04%)
Albertson's, Inc. ............................ 100 3,525
Costco Cos., Inc.* ........................... 300 7,687
Dayton Hudson Corp. .......................... 200 8,400
Federated Department Stores, Inc.* ........... 200 6,950
Home Depot, Inc. ............................. 200 10,900
Lowe's Cos., Inc. ............................ 200 7,300
Staples, Inc.* ............................... 400 8,650
----------
53,412
----------
Rubber - Tires & Misc. (0.40%)
Goodyear Tire & Rubber Co. (The) ............. 100 5,275
----------
Shoes & Related Apparel (0.71%)
Nine West Group, Inc.* ....................... 200 9,400
----------
Steel (0.65%)
British Steel PLC (ADR) (United Kingdom) ..... 200 4,975
Carpenter Technology Corp. ................... 100 3,650
----------
8,625
----------
Telecommunications (2.82%)
A T & T Corp. ................................ 800 31,900
Lucent Technologies, Inc. .................... 100 5,387
----------
37,287
----------
Textile (0.86%)
Fruit of the Loom, Inc. (Class A)* ........... 100 4,088
Liz Claiborne, Inc. .......................... 100 4,050
Warnaco Group, Inc. (Class A) ................ 100 3,188
----------
11,326
----------
Tobacco (1.49%)
Philip Morris Cos., Inc. ..................... 100 13,512
UST, Inc. .................................... 200 6,175
----------
19,687
----------
Transportation (2.56%)
CSX Corp. .................................... 200 9,225
Norfolk Southern Corp. ....................... 200 18,225
Trinity Industries, Inc. ..................... 200 6,450
----------
33,900
----------
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
- ------------------- ------ -----
Utilities (14.01%)
Baltimore Gas & Electric Co. .................... 300 $ 8,250
Bell Atlantic Corp. ............................. 100 6,912
BellSouth Corp. ................................. 200 9,375
Consolidated Edison Co. of NY, Inc. ............. 800 24,700
Consolidated Natural Gas Co. .................... 200 10,200
Dominion Resources, Inc. ........................ 700 28,175
Entergy Corp. ................................... 600 15,825
GTE Corp. ....................................... 400 18,700
Hawaiian Electric Industries, Inc. .............. 200 7,025
Houston Industries, Inc. ........................ 400 9,300
NICOR, Inc. ..................................... 200 6,700
SBC Communications, Inc. ........................ 100 5,750
Texas Utilities Co. ............................. 800 32,300
Unicom Corp. .................................... 100 2,225
---------
185,437
---------
TOTAL COMMON STOCKS
(Cost $1,140,220) (98.83%) 1,307,794
------- ---------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.51%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities -
Dated 02-28-97, Due 03-03-97
(secured by U.S. Treasury
Notes, 4.750% thru 8.250%
due 11-15-97 thru 11-15-05) -
Note A.............................. 5.39% $20 $ 20,000
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%.................... 99
----------
TOTAL SHORT-TERM INVESTMENTS ( 1.52%) 20,099
-------- ----------
TOTAL INVESTMENTS (100.35%) $1,327,893
======== ==========
* 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.
46
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Diversified
Core Equity Fund II
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Diversified Core Equity Fund II on February 28, 1997. 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 (3.31%)
Boeing Co. (The) ................................. 22,000 $ 2,238,500
United Technologies Corp. ........................ 111,200 8,367,800
-----------
10,606,300
-----------
Automobile/Trucks (3.57%)
Chrysler Corp. ................................... 110,200 3,733,025
Dana Corp. ....................................... 26,500 821,500
Ford Motor Co. ................................... 105,500 3,468,313
General Motors Corp. ............................. 59,000 3,414,625
-----------
11,437,463
-----------
Banks - United States (4.86%)
Banc One Corp. ................................... 29,500 1,301,688
BankAmerica Corp. ................................ 49,600 5,642,000
Chase Manhattan Corp. ............................ 36,500 3,654,563
Citicorp ......................................... 13,300 1,552,775
NationsBank Corp. ................................ 56,600 3,388,925
-----------
15,539,951
-----------
Chemicals (3.31%)
Air Products and Chemicals, Inc. ................. 31,400 2,327,525
Hercules, Inc. ................................... 29,900 1,390,350
Monsanto Co. ..................................... 57,800 2,102,475
Morton International, Inc. ....................... 64,000 2,640,000
PPG Industries, Inc. ............................. 17,600 985,600
Praxair, Inc. .................................... 23,700 1,152,413
-----------
10,598,363
-----------
Computers (8.04%)
Adobe Systems, Inc. .............................. 30,800 1,124,200
Compaq Computer Corp.* ........................... 52,300 4,144,775
Computer Associates International, Inc. .......... 48,200 2,096,700
Dell Computer Corp.* ............................. 11,000 782,375
Electronic Data Systems Corp. .................... 31,200 1,407,900
Hewlett-Packard Co. .............................. 136,700 7,655,200
Imation Corp.* ................................... 15,300 407,363
Informix Corp.* .................................. 30,600 531,675
International Business Machines Corp. ............ 15,900 2,285,625
Komag, Inc.* ..................................... 14,500 435,000
Microsoft Corp.* ................................. 50,000 4,875,000
-----------
25,745,813
-----------
Cosmetics & Personal Care (0.24%)
Avon Products, Inc. .............................. 3,000 174,750
Revlon, Inc. (Class A) * ......................... 15,500 602,563
-----------
777,313
-----------
Diversified Operations (4.38%)
AlliedSignal Inc. ................................ 20,900 1,510,025
Canadian Pacific, Ltd. (Canada) .................. 26,000 643,500
Du Pont (E.I.) De Nemours & Co. .................. 56,200 6,027,450
Lockheed Martin Corp. ............................ 38,900 3,442,650
Minnesota Mining & Manufacturing Co. ............. 4,400 404,800
Ogden Corp. ...................................... 27,700 564,388
Textron, Inc. .................................... 14,300 1,410,338
-----------
14,003,151
-----------
Electronics (6.74%)
General Electric Co. ............................. 79,700 8,199,138
Intel Corp. ...................................... 69,300 9,831,938
Raychem Corp. .................................... 30,900 2,630,363
Tektronix, Inc. .................................. 18,500 901,875
-----------
21,563,314
-----------
Finance (2.80%)
Ahmanson (H.F.) & Co. ............................ 6,500 267,313
American Express Co. ............................. 45,800 2,994,175
Dean Witter Discover & Co. ....................... 148,600 5,702,525
-----------
8,964,013
-----------
Food (1.12%)
ConAgra, Inc. .................................... 49,700 2,634,100
Unilever N.V. (Netherlands) ...................... 5,000 952,500
-----------
3,586,600
-----------
Instruments - Scientific (0.47%)
Perkin-Elmer Corp. ............................... 21,100 1,498,100
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Diversified
Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- -----
Insurance (8.02%)
American International Group, Inc. ............. 20,800 $ 2,516,800
CIGNA Corp. .................................... 44,500 6,802,938
General Re Corp. ............................... 38,100 6,462,713
ITT Hartford Group, Inc. ....................... 50,200 3,765,000
Marsh & McLennan Cos., Inc. .................... 52,300 6,119,100
-----------
25,666,551
-----------
Leisure (2.19%)
Eastman Kodak Co. .............................. 31,400 2,814,225
HFS, Inc.* ..................................... 39,700 2,719,450
Hilton Hotels Corp. ............................ 59,200 1,487,400
-----------
7,021,075
-----------
Machinery (0.71%)
Cooper Industries, Inc. ........................ 29,500 1,305,375
Dover Corp. .................................... 19,400 962,725
-----------
2,268,100
-----------
Media (1.15%)
McGraw-Hill Cos., Inc. ......................... 30,100 1,561,438
Time Warner, Inc. .............................. 51,700 2,119,700
-----------
3,681,138
-----------
Medical (11.53%)
Abbott Laboratories ............................ 88,100 4,955,625
Allegiance Corp. ............................... 30,900 814,988
Alza Corp.* .................................... 29,700 842,738
Amgen, Inc.* ................................... 21,300 1,301,963
Becton, Dickinson & Co. ........................ 28,100 1,383,925
Bristol-Myers Squibb Co. ....................... 19,700 2,570,850
Columbia/HCA Healthcare Corp. .................. 38,850 1,631,700
Glaxo Wellcome PLC, (American
Depositary Receipt) (ADR)
(United Kingdom) ............................. 40,100 1,358,387
HEALTHSOUTH Corp.* ............................. 18,800 756,700
Johnson & Johnson .............................. 111,600 6,430,950
Mallinckrodt, Inc. ............................. 26,000 1,105,000
Medtronic, Inc. ................................ 10,900 705,775
Merck & Co., Inc. .............................. 67,800 6,237,600
Pfizer, Inc. ................................... 9,800 897,925
Schering-Plough Corp. .......................... 17,700 1,356,262
Warner-Lambert Co. ............................. 54,000 4,536,000
-----------
36,886,388
-----------
Office (2.22%)
Avery Dennison Corp. ........................... 39,600 1,598,850
Pitney Bowes, Inc. ............................. 63,200 3,926,300
Xerox Corp. .................................... 25,100 1,568,750
-----------
7,093,900
-----------
Oil & Gas (9.02%)
Amoco Corp. .................................... 14,300 1,208,350
Anadarko Petroleum Corp. ....................... 35,500 1,996,875
Atlantic Richfield Co. ......................... 51,900 6,487,500
Baker Hughes, Inc. ............................. 18,400 653,200
Chevron Corp. .................................. 14,100 909,450
Halliburton Co. ................................ 8,900 575,162
Imperial Oil Ltd. (Canada) ..................... 24,500 1,074,937
Kerr - McGee Corp. ............................. 48,100 3,012,262
Mobil Corp. .................................... 8,300 1,018,825
PanEnergy Corp. ................................ 27,200 1,159,400
Phillips Petroleum Co. ......................... 125,800 5,204,975
Texaco Inc. .................................... 12,900 1,275,487
Unocal Corp. ................................... 86,800 3,352,650
USX - Marathon Group ........................... 34,700 923,887
-----------
28,852,960
-----------
Paper & Paper Products (1.14%)
Kimberly-Clark Corp. ........................... 34,400 3,646,400
-----------
Retail (6.75%)
Albertson's, Inc. .............................. 46,700 1,646,175
Costco Cos., Inc.* ............................. 29,000 743,125
Dayton Hudson Corp. ............................ 22,200 932,400
Federated Department Stores, Inc.* ............. 60,600 2,105,850
Gap, Inc. (The) ................................ 8,100 267,300
Home Depot, Inc. ............................... 103,400 5,635,300
Lowe's Cos., Inc. .............................. 70,800 2,584,200
Staples, Inc.* ................................. 117,650 2,544,181
Toys "R" Us, Inc.* ............................. 49,400 1,284,400
Wal-Mart Stores, Inc. .......................... 146,000 3,850,750
-----------
21,593,681
-----------
Shoes & Related Apparel (1.09%)
Nike, Inc. (Class B) ........................... 15,200 1,092,500
Nine West Group, Inc.* ......................... 50,900 2,392,300
-----------
3,484,800
-----------
Steel (0.22%)
British Steel PLC (ADR) (United Kingdom) ....... 28,000 696,500
-----------
Telecommunications (3.14%)
A T & T Corp. .................................. 211,500 8,433,562
Lucent Technologies, Inc. ...................... 30,050 1,618,943
-----------
10,052,505
-----------
Textile (0.88%)
Fruit of the Loom, Inc. (Class A)* ............. 36,200 1,479,675
Liz Claiborne, Inc. ............................ 17,900 724,950
Tommy Hilfiger Corp.* ......................... 11,300 617,262
-----------
2,821,887
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
48
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================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Diversified
Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- -----
Tobacco (3.43%)
Philip Morris Cos., Inc. ....................... 66,300 $ 8,958,787
UST, Inc. ...................................... 65,700 2,028,487
-----------
10,987,274
-----------
Transport (0.87%)
CSX Corp. ...................................... 28,900 1,333,012
Norfolk Southern Corp. ......................... 11,700 1,066,162
Trinity Industries, Inc. ....................... 12,400 399,900
-----------
2,799,074
-----------
Utilities (8.05%)
BellSouth Corp. ................................ 95,100 4,457,812
Consolidated Natural Gas Co. ................... 48,000 2,448,000
Dominion Resources, Inc. ....................... 59,000 2,374,750
Entergy Corp. .................................. 205,300 5,414,787
GTE Corp. ...................................... 117,500 5,493,125
Houston Industries, Inc. ....................... 51,900 1,206,675
Texas Utilities Co. ............................ 87,100 3,516,662
Unicom Corp. ................................... 38,600 858,850
-----------
25,770,661
-----------
TOTAL COMMON STOCKS
(Cost $264,036,719) (99.25%) 317,643,275
------ -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.74%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities.
Dated 02-28-97, Due 03-03-97
(secured by U.S. Treasury Notes,
4.75% thru 8.25%, due 11-15-97
thru 11-15-05) - Note A ........... 5.39% $8,757 $ 8,757,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%................. 14,921
------------
TOTAL SHORT-TERM INVESTMENTS (2.74%) 8,771,921
------- ------------
TOTAL INVESTMENTS (101.99%) $326,415,196
======= ============
* 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.
49
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Growth Fund on February 28, 1997. 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 (3.61%)
Rohr, Inc.* ......................................... 100 $ 1,813
United Technologies Corp. ........................... 400 30,100
--------
31,913
--------
Automobile/Trucks (1.04%)
Chrysler Corp. ...................................... 100 3,388
General Motors Corp. (Class E) ...................... 100 5,787
--------
9,175
--------
Beverages (4.14%)
Coca-Cola Co. ....................................... 600 36,600
--------
Building (1.15%)
Centex Corp. ........................................ 100 4,038
Clayton Homes, Inc. ................................. 250 3,563
Ryland Group, Inc. .................................. 200 2,525
--------
10,126
--------
Chemicals (1.29%)
Monsanto Co. ........................................ 200 7,275
Morton International, Inc. .......................... 100 4,125
--------
11,400
--------
Computers (14.38%)
Adobe Systems, Inc. ................................. 100 3,650
Ceridian Corp.* ..................................... 100 3,913
Compaq Computer Corp.* .............................. 200 15,850
Computer Associates International, Inc. ............. 100 4,350
Electronic Data Systems Corp. ....................... 200 9,025
Hewlett-Packard Co. ................................. 400 22,400
Imation Corp.* ...................................... 100 2,663
Informix Corp.* ..................................... 200 3,475
International Business Machines Corp. ............... 100 14,375
Komag, Inc.* ........................................ 100 3,000
Mentor Graphics Corp.* .............................. 200 1,913
Microsoft Corp.* .................................... 200 19,500
Oracle Corp.* ....................................... 100 3,925
Parametric Technology Corp.* ........................ 200 11,275
Policy Management Systems Corp.* .................... 100 4,300
Stratus Computer, Inc.* ............................. 100 3,388
--------
127,002
--------
Electronics (10.09%)
Analog Devices, Inc.* ............................... 100 2,333
General Electric Co. ................................ 300 30,862
Intel Corp. ......................................... 300 42,562
Raychem Corp. ....................................... 100 8,512
Tektronix, Inc. ..................................... 100 4,875
--------
89,144
--------
Energy (0.65%)
Wheelabrator Technologies, Inc. ..................... 400 5,700
--------
Finance (1.41%)
Dean Witter Discover & Co. .......................... 200 7,675
MBNA Corp. .......................................... 150 4,800
--------
12,475
--------
Food (2.16%)
Unilever N.V. (Netherlands) ........................ 100 19,050
--------
Household (1.17%)
WestPoint Stevens, Inc.* ............................ 300 10,350
--------
Instruments - Scientific (0.80%)
Perkin-Elmer Corp. .................................. 100 7,100
--------
Insurance (4.98%)
CIGNA Corp. ......................................... 100 15,287
General Re Corp. .................................... 100 16,962
Marsh & McLennan Cos., Inc. ......................... 100 11,700
--------
43,949
--------
Leisure (2.24%)
HFS, Inc.* .......................................... 200 13,700
Hilton Hotels Corp. ................................. 100 2,513
Promus Hotel Corp.* ................................. 100 3,538
--------
19,751
--------
Machinery (0.56%)
Dover Corp. ......................................... 100 4,962
--------
Media (0.40%)
Viacom, Inc. (Class B)* ............................. 100 3,525
--------
Medical (22.46%)
Abbott Laboratories ................................. 400 22,500
Allegiance Corp. .................................... 200 5,275
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------- -----
Medical (continued)
Alza Corp.* ......................................... 200 $ 5,675
Amgen, Inc.* ........................................ 200 12,225
Becton, Dickinson & Co. ............................. 200 9,850
Bristol-Myers Squibb Co. ............................ 100 13,050
Glaxo Wellcome PLC, American Depositary
Receipts (ADR) (United Kingdom) ................... 400 13,550
Guidant Corp. ....................................... 100 6,700
Health Management Associates, Inc. ..................
(Class A)* ........................................ 200 5,300
HEALTHSOUTH Corp.* .................................. 300 12,075
Johnson & Johnson ................................... 700 40,337
Merck & Co., Inc. ................................... 300 27,600
Pfizer, Inc. ........................................ 100 9,162
Schering-Plough Corp. ............................... 100 7,662
SmithKline Beecham PLC (ADR)
(United Kingdom) .................................. 100 7,425
--------
198,386
--------
Mortgage Banking (0.45%)
Fannie Mae .......................................... 100 4,000
--------
Office (2.12%)
Xerox Corp. ......................................... 300 18,750
--------
Oil & Gas (3.01%)
Anadarko Petroleum Corp. ............................ 100 5,625
Baker Hughes, Inc. .................................. 100 3,550
Dresser Industries, Inc. ............................ 100 3,038
Kerr - McGee Corp. .................................. 100 6,262
Phillips Petroleum Co. .............................. 100 4,138
Rowan Cos., Inc.* ................................... 200 3,975
--------
26,588
--------
Paper & Paper Products (1.57%)
James River Corp. of Virginia ....................... 100 3,275
Kimberly-Clark Corp. ................................ 100 10,600
--------
13,875
--------
Pollution Control (0.41%)
USA Waste Services, Inc.* ........................... 100 3,600
--------
Retail (7.94%)
Costco Cos., Inc.* .................................. 300 7,687
Federated Department Stores, Inc.* .................. 100 3,475
Home Depot, Inc. .................................... 400 21,800
Lowe's Cos., Inc. ................................... 200 7,300
Safeway, Inc.* ...................................... 100 4,813
Staples, Inc.* ...................................... 600 12,975
TJX Cos., Inc. ...................................... 100 4,175
Wal-Mart Stores, Inc. ............................... 300 7,912
--------
70,137
--------
Shoes & Related Apparel (0.53%)
Nine West Group, Inc.* .............................. 100 4,700
--------
Telecommunications (2.71%)
A T & T Corp. ....................................... 600 23,925
--------
Textile (2.31%)
Fruit of the Loom, Inc. (Class A)* .................. 400 16,350
Liz Claiborne, Inc. ................................. 100 4,050
--------
20,400
--------
Tobacco (2.94%)
Philip Morris Cos., Inc. ............................ 100 13,512
Universal Corp. ..................................... 100 3,150
UST, Inc. ........................................... 300 9,262
--------
25,924
--------
Utilities (1.40%)
Dominion Resources, Inc. ............................ 100 4,025
Entergy Corp. ....................................... 100 2,638
SBC Communications, Inc. ............................ 100 5,750
--------
12,413
--------
TOTAL COMMON STOCK
(Cost $729,381) (97.92%) 864,920
----- --------
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.72%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities -
Dated 02-28-97, Due 03-03-97
(secured by U.S. Treasury Notes,
4.750% thru 8.250% due 11-15-97
thru 11-15-05) - Note A ............. 5.39% $ 24 24,000
--------
Corporate Savings Account (0.21%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% .................. 1,865
--------
TOTAL SHORT-TERM INVESTMENTS (2.93%) 25,865
------- --------
TOTAL INVESTMENTS (100.85%) $890,785
======= ========
*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.
51
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Medium Capitalization Fund
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Medium Capitalization Fund on February 28, 1997. It is 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 (2.04%)
Boeing Co. (The) ................................. 300 $ 30,525
Goodrich (B. F.) Co. ............................. 400 16,250
United Technologies Corp. ........................ 800 60,200
--------
106,975
--------
Automobile/Trucks (1.47%)
Chrysler Corp. ................................... 800 27,100
Dana Corp. ....................................... 1,100 34,100
Lear Corp.* ...................................... 400 15,600
--------
76,800
--------
Banks - United States (4.81%)
Bank of Boston Corp. ............................. 500 37,688
Barnett Banks, Inc. .............................. 1,200 55,500
Comerica, Inc. ................................... 600 36,075
First Bank Systems, Inc. ......................... 600 47,100
Mellon Bank Corp. ................................ 200 16,075
Northern Trust Corp. ............................. 1,400 59,500
--------
251,938
--------
Broker Services (0.36%)
Morgan Stanley Group, Inc. ....................... 300 18,937
--------
Building (2.18%)
Centex Corp. ..................................... 600 24,225
Masco Corp. ...................................... 1,100 38,638
Ryland Group, Inc. ............................... 2,300 29,038
Sherwin-Williams Corp. ........................... 400 22,450
--------
114,351
--------
Chemicals (4.96%)
Air Products and Chemicals, Inc. ................. 1,100 81,538
Hercules, Inc. ................................... 700 32,550
Morton International, Inc. ....................... 1,400 57,750
Praxair, Inc. .................................... 800 38,900
Rohm & Haas Co. .................................. 200 18,400
Sigma-Aldrich Corp. .............................. 1,000 30,625
--------
259,763
--------
Computers (5.15%)
Adobe Systems, Inc. .............................. 700 25,550
Ceridian Corp.* .................................. 600 23,475
Cognizant Corp. .................................. 400 13,950
Dell Computer Corp.* ............................. 600 42,675
Imation Corp.* ................................... 500 13,313
Informix Corp.* .................................. 1,300 22,587
Komag, Inc.* ..................................... 600 18,000
Mentor Graphics Corp.* .......................... 1,300 12,431
NCR Corp. * ...................................... 68 2,244
Parametric Technology Corp.* ..................... 700 39,463
Policy Management Systems Corp.* ................. 300 12,900
Sun Microsystems, Inc.* .......................... 1,400 43,225
--------
269,813
--------
Consumer Products Misc. (0.53%)
American Greetings Corp. (Class A) ............... 900 27,900
--------
Cosmetics & Personal Care (0.30%)
Revlon, Inc. (Class A) * ......................... 400 15,550
--------
Diversified Operations (2.78%)
Canadian Pacific, Ltd. (Canada) .................. 1,500 37,125
Ikon Office Solutions, Inc.500 ................... 20,625
Lockheed Martin Corp. ............................ 200 17,700
Ogden Corp. ...................................... 1,500 30,562
Textron, Inc. .................................... 400 39,450
--------
145,462
--------
Electronics (3.63%)
Analog Devices, Inc.* ............................ 1,667 38,750
General Signal Corp. ............................. 600 26,175
Honeywell, Inc. .................................. 600 42,675
Raychem Corp. .................................... 800 68,100
Tektronix, Inc. .................................. 300 14,625
--------
190,325
--------
Energy (0.35%)
Wheelabrator Technologies, Inc. .................. 1,300 18,525
--------
Finance (4.89%)
Ahmanson (H.F.) & Co. ............................ 600 24,675
American Express Co. ............................. 300 19,612
Dean Witter Discover & Co. ....................... 2,800 107,450
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------- -----
Finance (continued)
Great Western Financial Corp. ................... 1,200 $ 52,650
MBNA Corp. ...................................... 1,625 52,000
--------
256,387
--------
Food (0.53%)
Universal Foods Corp. ........................... 800 27,600
--------
Funeral Services & Related (0.28%)
Service Corp. International ..................... 500 14,500
--------
Household (0.27%)
Rubbermaid, Inc. ................................ 600 14,325
--------
Instruments - Scientific (0.68%)
Perkin-Elmer Corp. .............................. 500 35,500
--------
Insurance (10.99%)
CIGNA Corp. ..................................... 900 137,587
Equitable Cos., Inc. ............................ 1,400 43,925
General Re Corp. ................................ 600 101,775
ITT Hartford Group, Inc. ........................ 1,000 75,000
Lincoln National Corp. .......................... 400 23,250
Marsh & McLennan Cos., Inc. ..................... 1,000 117,000
Providian Corp. ................................. 800 44,700
Torchmark Corp. ................................. 300 17,662
United Healthcare Corp. ......................... 300 14,962
--------
575,861
--------
Leisure (2.58%)
HFS, Inc.* ...................................... 900 61,650
Hilton Hotels Corp. ............................. 1,800 45,225
ITT Corp.* ...................................... 500 28,250
--------
135,125
--------
Machinery (2.64%)
Cooper Industries, Inc. ......................... 900 39,825
Dover Corp. ..................................... 900 44,662
Duriron Co., Inc. ............................... 700 15,662
Ingersoll Rand Co. .............................. 800 38,000
--------
138,149
--------
Media (0.89%)
McGraw-Hill Cos., Inc. .......................... 900 46,687
--------
Medical (5.36%)
Allegiance Corp. ................................ 900 23,737
Alza Corp.* ..................................... 1,300 36,887
Baxter International, Inc. ...................... 300 13,800
Becton, Dickinson & Co. ......................... 700 34,475
Chiron Corp. * .................................. 1,300 26,975
Guidant Corp. ................................... 500 33,500
Health Management Associates, Inc. ..............
(Class A) * ................................... 500 13,250
HEALTHSOUTH Corp.* .............................. 800 32,200
Mallinckrodt, Inc. .............................. 900 38,250
Pall Corp. ...................................... 800 17,400
Vencor, Inc.* ................................... 300 10,387
--------
280,861
--------
Metal (0.36%)
Newmont Mining Corp. ............................ 400 19,000
--------
Office (3.93%)
Avery Dennison Corp. ............................ 1,400 56,525
Pitney Bowes, Inc. .............................. 1,300 80,762
Xerox Corp. ..................................... 1,100 68,750
--------
206,037
--------
Oil & Gas (8.41%)
Anadarko Petroleum Corp. ........................ 800 45,000
Baker Hughes, Inc. .............................. 1,200 42,600
Dresser Industries, Inc. ........................ 400 12,150
El Paso Natural Gas Co. ......................... 255 13,674
Halliburton Co. ................................. 500 32,312
Kerr - McGee Corp. .............................. 700 43,837
PanEnergy Corp. ................................. 1,400 59,675
Phillips Petroleum Co. .......................... 1,500 62,062
Rowan Cos., Inc.* ............................... 600 11,925
Unocal Corp. .................................... 1,800 69,525
USX - Marathon Group ............................ 1,800 47,925
-------
440,685
-------
Paper & Paper Products (0.59%)
Westvaco Corp. .................................. 1,050 30,975
-------
Pollution Control (1.06%)
Safety Kleen Corp. .............................. 1,900 34,200
USA Waste Services, Inc.* ....................... 600 21,600
-------
55,800
-------
Retail (9.04%)
Costco Cos., Inc.* .............................. 1,700 43,563
Cracker Barrel Old Country Store, Inc. .......... 600 16,350
Dayton Hudson Corp. ............................. 900 37,800
Federated Department Stores, Inc.* .............. 1,500 52,125
Gap, Inc. (The) ................................. 1,100 36,300
Home Depot, Inc. ................................ 700 38,150
Lowe's Cos., Inc. ............................... 1,500 54,750
Nordstrom, Inc. ................................. 300 11,025
Outback Steakhouse, Inc.* ....................... 800 19,100
Safeway, Inc.* .................................. 700 33,688
Staples, Inc.* .................................. 2,250 48,656
TJX Cos., Inc. .................................. 400 16,700
Toys "R" Us, Inc.* .............................. 1,600 41,600
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence
Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- -------- -----
Retail (continued)
Unisource Worldwide, Inc. .......................... 250 $ 5,375
Wal-Mart Stores, Inc. .............................. 300 7,913
Wendy's International, Inc. ........................ 500 10,375
---------
473,470
---------
Rubber - Tires & Misc (0.40%)
Goodyear Tire & Rubber Co. (The) ................... 400 21,100
---------
Shoes & Related Apparel (0.27%)
Nine West Group, Inc.* ............................ 300 14,100
---------
Steel (0.89%)
British Steel PLC, (American Depositary
Receipts) (ADR) (United Kingdom) ................. 700 17,413
Carpenter Technology Corp. ......................... 800 29,200
---------
46,613
---------
Telecommunications (1.20%)
A T & T Corp. ...................................... 1,100 43,863
Lucent Technologies, Inc. .......................... 356 19,180
---------
63,043
---------
Textile (1.79%)
Fruit of the Loom, Inc. (Class A)* ................. 1,000 40,875
Liz Claiborne, Inc. ................................ 600 24,300
Warnaco Group, Inc. (Class A) ...................... 900 28,688
---------
93,863
---------
Tobacco (1.66%)
Universal Corp. .................................... 1,100 34,650
UST, Inc. .......................................... 1,700 52,488
---------
87,138
---------
Transportation (3.78%)
CSX Corp. .......................................... 800 36,900
Delta Air Lines, Inc. .............................. 700 56,350
Newport News Shipbuilding .......................... 120 1,860
Norfolk Southern Corp. ............................. 400 36,450
Northwest Airlines Corp. (Class A)* ................ 500 17,688
Southwest Airlines Co. ............................. 800 18,800
Trinity Industries, Inc. ........................... 500 16,125
US Airways Group, Inc.* ............................ 700 13,825
---------
197,998
---------
Utilities (7.14%)
Baltimore Gas & Electric Co. ....................... 1,700 46,750
CINergy Corp. ...................................... 400 13,800
Consolidated Edison Co. of NY, Inc. ................ 500 15,438
Consolidated Natural Gas Co. ....................... 1,400 71,400
Dominion Resources, Inc. ........................... 1,500 60,375
Entergy Corp. ...................................... 3,300 87,038
Houston Industries, Inc. ........................... 400 9,300
Idaho Power Co. .................................... 600 18,525
Teco Energy, Inc. .................................. 300 7,313
Texas Utilities Co. ................................ 1,100 44,413
---------
374,352
---------
TOTAL COMMON STOCKS
(Cost $4,419,823) (98.20%) 5,145,508
------ ---------
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.97%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities -
Dated 2-28-97, Due 3-3-97
(secured by U.S. Treasury Notes,
4.75% thru 8.25%, due 11-15-97
thru 11-15-05) - Note A ............... 5.39% $103 103,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%. ................... 582
----------
TOTAL SHORT-TERM INVESTMENTS (1.98%) 103,582
------- ----------
TOTAL INVESTMENTS (100.18%) $5,249,090
======= ==========
* 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.
54
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
NOTE A --
ACCOUNTING POLICIES
John Hancock Independence Balanced Fund ("Independence Balanced Fund"), John
Hancock Independence Value Fund ("Independence Value Fund") , John Hancock
Independence Diversified Core Equity Fund II ("Independence Diversified Core
Equity Fund II"), John Hancock Independence Growth Fund ("Independence Growth
Fund") and John Hancock Independence Medium Capitalization Fund ("Independence
Medium Capitalization Fund"), (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
Active Bond Fund, John Hancock Global Bond Fund, John Hancock Fundamental Value
Fund, John Hancock Dividend Performers Fund, John Hancock Multi-Sector Growth
Fund, John Hancock Small Capitalization Equity Fund and John Hancock
International Equity Fund. The other seven series of the Trust are reported in
separate financial statements. 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 Funds 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 large 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.
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 identify 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.
55
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
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. Actual results could differ from these estimates.
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
Value Fund .75% of such assets in excess of $500 million
Independence .50% of average daily net assets
Diversified Core
Equity Fund II
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
The Adviser is responsible for managing the Funds' investment business
affairs and overseeing the investment activities of the subadviser. The adviser
has a sub-investment management contract with Independence Investment
Associates, Inc. (the "Subadviser"), under which the Subadviser, subject to the
review of the Trustees and the overall supervision of the Adviser, provides the
Funds with investment
56
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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
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
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
Effective July 1, 1995, the Subadviser has waived its fees until further
notice on Independence Balanced Fund, Independence Value Fund, Independence
Growth Fund, and Independence Medium Capitalization Fund.
The Adviser has agreed to limit the 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 Value Fund's average
daily net assets, 0.70% of Independence Diversified Core Equity Fund II's
average daily net assets, 0.95% of Independence Growth Fund's average daily net
assets, and 1.00% of Independence Medium Capitalization Fund's average daily net
assets. Accordingly, for the period ended February 28, 1997, the reduction in
the Funds' expenses collectively with any additional amounts not borne by the
Funds by virtue of the expense limit amounted to $57,912 for Independence
Balanced Fund, $50,898 for Independence Value Fund, none for Independence
Diversified Core Equity Fund II, $46,803 for Independence Growth Fund, and
$74,463 for Independence Medium Capitalization 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 February
28, 1997, 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 Signature
Services, Inc. ("Signature Services"), an indirect wholly owned subsidiary of
John Hancock Mutual Life Insurance Company. The Funds pay Signature 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
Signature Services on behalf of the Funds for proxy mailings.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the year was
at an annual rate of 0.01875% of the average net assets of the Funds.
Edward J. Boudreau, Jr., Richard S. Scipione, and Anne C. Hodsdon are
directors and officers of the Adviser, and/or its affiliates as well as Trustees
of the Funds. The compensation of unaffiliated Trustees is borne by the Funds.
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. The
investment has no impact on the operations of the Funds except for Independence
Diversified Core Equity Fund II for which the investment had unrealized
appreciation of $10.
57
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
NOTE C --
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended February 28, 1997 were as follows:
PURCHASES PROCEEDS
--------- --------
Independence Balanced Fund
U.S. Government Securities ........ $ 9,657,143 $ 7,816,328
Other Investments ................. 8,460,406 3,467,233
Independence Value Fund ............. 1,077,881 616,829
Independence Diversified Core
Equity Fund II .................... 284,366,380 203,468,070
Independence Growth Fund ............ 1,119,527 972,974
Independence Medium
Capitalization Fund ................ 3,956,120 3,308,814
At February 28, 1997, 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:
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION DEPRECIATION
---- ------------ ------------ ------------
Independence
Balanced
Fund ......... $ 12,433,709 $ 842,472 $ (166,095) $ 676,377
Independence
Value Fund ... 1,160,220 187,443 (19,869) 167,574
Independence
Diversified
Core Equity
Fund II ...... 272,935,761 57,135,826 (3,671,312) 53,464,514
Independence
Growth
Fund ......... 753,381 146,975 (11,436) 135,539
Independence
Medium
Capitalization
Fund ......... 4,522,823 819,334 (93,649) 725,685
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended February 28, 1997, reclassifications have been made in
each Fund's capital accounts which represent the cumulative amount necessary to
report these balances on a tax basis, excluding certain temporary differences,
as of February 28, 1997. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications, which have no impact on the net
asset value of the Funds, are primarily attributable to certain differences in
the computation of distributable income under federal tax rules versus generally
accepted accounting principle. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
CAPTIAL UNDISTRIBUTED ACCUMULATED NET
PAID-IN NET INVESTMENT INCOME REALIZED GAIN (LOSS)
------- --------------------- --------------------
Independence
Balanced Fund ........ $(688) $688 $--
Independence
Value Fund ........... (412) 412 --
Independence
Diversified Core
Equity Fund II ....... (576) 540 36
Independence
Growth Fund .......... (412) 412 --
Independence
Medium
Capitalization
Fund ................. (412) 412 --
58
<PAGE>
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John Hancock Funds - Institutional Series Trust
REPORT OF ARTHUR ANDERSEN LLP,
INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
John Hancock Institutional Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedules of investments, of John Hancock Institutional Series Trust (the
Trust) comprising the Independence Balanced Fund, Independence Value Fund,
Independence Diversified Core Equity Fund II, Independence Growth Fund, and
Independence Medium Capitalization Fund, as of February 28, 1997, and the
related statements of operations for the year then ended, and the statements of
changes in net assets and financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds constituting the John Hancock Institutional Series
Trust at February 28, 1997, the results of their operations for the year then
ended, the changes in their net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
April 4, 1997
TAX INFORMATION (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the taxable distribution of the Funds for the fiscal year ended
February 28, 1997.
The Funds' designated distributions to shareholders of long-term capital
gain dividends are as follows: Independence Balanced Fund $3,183, Independence
Value Fund $5,748, Independence Diversified Core Equity Fund II $1,750,766,
Independence Growth Fund $2,027, Independence Medium Capitalization Fund $2,271.
Shareholders were mailed a 1996 U.S. Treasury Department Form 1099-DIV in
January 1997 representing their proportionate share.
With respect to the Funds' ordinary taxable income for the fiscal year
ended February 28, 1997, the qualifying corporate dividends received deduction
percentages are as follows:
Independence Balanced Fund 17.10%
Independence Value Fund 45.85
Independence Diversified Core Equity Fund II 31.10
Independence Growth Fund 11.68
Independence Medium Capitalization Fund 39.48
59
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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."]
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INTERNET: www.jhancock.com/funds
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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
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KI00A 2/97
4/97
