================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
Institutional
Series Trust
DIVIDEND PERFORMERS FUND
ACTIVE BOND FUND
GLOBAL BOND FUND
MULTI-SECTOR GROWTH FUND
FUNDAMENTAL VALUE FUND
INTERNATIONAL EQUITY FUND
SMALL CAPITALIZATION EQUITY FUND
SEMI-ANNUAL REPORT
August 31, 1996
<PAGE>
================================================================================
Table of Contents
John Hancock Funds - Institutional Series Trust
Page
1) Chairman's Message....................................................... 3
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio manager or
portfolio management team through the end of the Fund's period
discussed in this report. Of course, the manager's or team's
views are subject to change as market and other conditions
warrant.
John Hancock Dividend Performers Fund ................................. 4
John Hancock Active Bond Fund ......................................... 8
John Hancock Global Bond Fund.......................................... 12
John Hancock Multi-Sector Growth Fund.................................. 16
John Hancock Fundamental Value Fund.................................... 20
John Hancock International Equity Fund................................. 24
John Hancock Small Capitalization Equity Fund.......................... 28
3) Financial Statements..................................................... 32
4) Notes To Financial Statements............................................ 65
TRUSTEES
EDWARD J. BOUDREAU, JR.
THOMAS W.L. CAMERON
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
* Members of Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.,
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN, VICE CHAIRMAN AND
CHIEF INVESTMENT OFFICER
ANNE C. HODSDON, PRESIDENT
JAMES B. LITTLE,
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
SUSAN S. NEWTON,
VICE PRESIDENT AND SECRETARY
JAMES J. STOKOWSKI,
VICE PRESIDENT AND TREASURER
THOMAS H. CONNORS,
SECOND VICE PRESIDENT AND COMPLIANCE OFFICER
CUSTODIANS
Global Bond Fund
International Equity Fund
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MA 02110
Dividend Performers Fund
Active Bond Fund
Multi-Sector Growth Fund
Fundamental Value Fund
Small Capitalization Equity Fund
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MA 02111
TRANSFER AGENT
JOHN HANCOCK INVESTOR SERVICES CORPORATION
P.O. BOX 9277
BOSTON, MA 02205-9277
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
SUB-INVESTMENT ADVISER
Dividend Performers Fund
SOVEREIGN ASSET MANAGEMENT CORPORATION
1235 WESTLAKES DRIVE
BERWYN, PA 19312
Fundamental Value Fund
NM CAPITAL MANAGEMENT, INC.
6501 AMERICAS PARKWAY, SUITE 950
ALBUQUERQUE, NM 87110-5372
International Equity Fund
JOHN HANCOCK ADVISERS INTERNATIONAL LTD.
34 DOVER STREET
LONDON, ENGLAND W1X 3RA
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR
60 STATE STREET
BOSTON, MA 02109
2
<PAGE>
================================================================================
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since February, much of the economic news has been good. Employment levels are
at their highest in years. Real wages may have started growing again after a
long stagnant stretch. And a fair share of Corporate America logged
second-quarter earnings that have exceeded expectations, despite some glaring,
headline-making exceptions in the technology world. So why has the bond market
soured this year and the stock market been on a roller coaster. Isn't good
economic news good?
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
What keeps the market interesting is that the answer is not
straightforward. While a healthy economy helps corporate profits grow, an
economy growing too fast, or the fear that it's heating up, sends interest rates
up out of fear that rising wages and higher prices could spark inflation. That
could prompt the Federal Reserve, which views inflation as public enemy number
one, to slow the economy down. And the typical way to do that is to raise
short-term interest rates. For bonds, higher interest rates mean lower bond
prices, since the two move in opposite directions. What's more, inflation erodes
the value of a bondholder's fixed-income stream. For stocks, higher interest
rates mean higher borrowing costs, which cut into profits.
Those are just a couple of the more textbook explanations. But there's
another element driving the market and it's far less tangible or objective. It
has to do with perception rather than reality. By taking the market on a series
of dizzying ups and downs lately, investors are signaling uncertainties and
fears, more than anything else. Since the financial markets look forward,
investors seem to be saying that they are concerned about a number of things --
inflation, the direction of interest rates, the upcoming election and the
possibility that markets have advanced too far without a pullback.
So what should investors take away from it all? Probably the same thing
you've heard before -- that although the markets don't move up in a straight
line, they have historically rewarded patient, long-term investors. Short-term
turmoil is better as a topic of dinner party conversation, rather than a call to
action.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
================================================================================
BY JOHN F. SNYDER III AND BARRY EVANS, CO-PORTFOLIO MANAGERS
John Hancock
Dividend Performers Fund
Fund steers steady course through stock market turbulence
"...changing economic winds
rocked many sectors."
The stock market has continued its climb, but the going hasn't been easy. During
the spring and summer, changing economic winds rocked many sectors. In addition,
a growing number of companies reported that earnings would fall short of
estimates. By late July, the broad market -- as measured by the Standard &
Poor's 500-Stock Index -- had tumbled 7.6% from its mid-May high. Despite these
challenges, the S&P 500 had a positive return of 2.96% for the six months ended
August 31, 1996. By comparison, John Hancock Dividend Performers Fund posted a
total return of 4.05% at net asset value for the same period. This beat the
average growth and income fund's 3.13% total return, according to Lipper
Analytical Services.
The secret to our success was simple. We continued to focus on
high-quality, stable growth stocks with a history of increasing dividends every
year for at least 10 years. In a volatile market, these steady performers fared
well. Fortunately, some of our biggest gains came from the Fund's largest
investments. Plus, we avoided the market's potholes -- those stocks that
suffered from earnings disappointments.
Winners and losers
General Electric gave a sizable boost to performance, as earnings grew faster
than expected. GE is a global company that dominates its markets. It also
benefits from able management and tremendous cash flow. Similarly, Johnson &
Johnson beat the market nicely, thanks to its geographic diversification and
skilled management. The company's broad product line and unique acquisition
program also helped. American Home Products, another pharmaceuticals company
with some interesting new products, did quite well too. Finally, the stock of
NationsBank made significant gains, as the
[A 2 1/4" x 3 1/4" photo of the Fund management team at bottom right. Caption
reads: "The Dividend Performers management team: (l-r) Anne McDermott, John
Snyder, Barry Evans, Jere Estes."]
4
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 1%, with 5% at the top and 0% at the bottom. Within
the chart there are three solid bars. The first represents the 4.05% total
return for John Hancock Dividend Performers Fund. The second represents the
2.96% total return for the S&P 500-stock Index. The third represents the 3.13%
total return for the average growth and income fund. A footnote below states:
"The total return for John Hancock Dividend Performers Fund is at net asset
value with all dividends reinvested. The average growth and income fund is
tracked by Lipper Analytical Services. The S&P 500-Stock Index is an unmanaged
index that includes 500 widely-traded common stocks. See following two pages for
historical performance information."]
- --------------------------------------------------------------------------------
company continued to grow business, control costs, and buy back stock.
Of course, there were also some disappointments. The stock of AMP, the
world's largest maker of electrical connectors, faltered as weak economies in
Japan and Europe hurt its overseas business. A strong dollar -- which made
foreign-denominated earnings worth less when converted back into dollars -- and
the company's investment in new plants worldwide also temporarily dampened
profits. The stock of Electronic Data Systems (EDS) also stalled, despite
terrific potential in the outsourcing business. As prices softened, we added to
our stakes in both stocks and pared back on investments with less growth
potential like PepsiCo.
What we're looking for
In our search for companies that can reliably grow earnings, we've focused on
several investment themes. To start, we try to own the "haves" rather than the
"have-nots." These are the companies with dominant market share, usually the
number one or two players in a particular industry. Especially in very
fragmented industries with lots of players, companies like these usually have an
edge because they can provide products at much cheaper prices.
We also like companies like Emerson Electric with a strong hold in the
global marketplace. Some of the greatest growth opportunities are in developing
markets outside the United States. Finally, we think there's a big market for
companies that can supply outsourcing services. In a very competitive
marketplace, outsourcing firms give companies an edge by helping to lower costs
and improve productivity.
Stock selection is critical
in choppier waters.
Outlook
We're optimistic that stocks will continue to do well, as long as inflation
remains low and economic growth moderate. However, we're also realistic. In
recent years, the market has enjoyed unusually high returns. But many of the
tailwinds propelling these gains are gone, or in jeopardy, including lower
inflation and a steep drop in interest rates. Long term, returns will probably
be more in line with the historical averages of about 10%. Moreover, market
volatility and earnings disappointments will most likely increase, making stock
selection critical.
Dividend Performers is well-positioned with dominant companies that are
less likely to suffer from earnings disappointments. As market volatility
increases, these companies typically become more attractive -- and investors are
willing to pay more for them.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total returns and the average annual
total return for the John Hancock Dividend Performers Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Dividend Performers Fund 25.16% 29.83%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Dividend Performers Fund 25.16%(2) 23.23%(1)
Notes to Performance
(1) Commenced on March 30, 1995.
(2) The Advisor has agreed to limit the Fund's expenses to 0.70% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annualized total return for the one-year period would have been 23.84%.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Dividend Performers Fund would be worth on August 31, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Standard & Poor's
500 Stock Index -- an unmanaged index that includes 500 widely traded common
stocks and is a commonly used measure of stock market performance.
[Line chart with the heading Dividend Performers 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 Standard & Poor's Stock 500 Index and
is equal to $336,747 as of August 31, 1996. The second line represents the value
of the hypothetical $250,000 investment made in the Dividend Performers Fund on
March 30, 1995 and is equal to $319,410 as of August 31, 1996.]
7
<PAGE>
================================================================================
BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
Active Bond Fund
Interest rates rise as economic activity increases;
inflationary pressures only mild
"The Fund's growing stake in corporate
bonds...contributed positively..."
The past six months brought an increase in economic activity, contributing to
upward pressure on interest rates. The period began with a jolt to the bond
market, in the form of the February employment report. Released in early March,
it showed that the economy was generating new jobs at a rate about four times
greater than most analysts' expectations. Bond prices immediately fell and have
yet to recover. In the months that followed, it became increasingly clear that
the economy was indeed growing at an accelerated pace. During the second quarter
of 1996, for example, it expanded at an annual rate of almost 5%, compared to
about 2% during the first quarter. Nevertheless, inflationary pressures were
mild during the period, and the Federal Reserve chose not to raise short-term
interest rates.
The upshot was a flat period for most bond investors, including
shareholders of John Hancock Active Bond Fund. The Fund's total return for the
six months ended August 31, 1996 was 0.41% at net asset value, compared to a
- -0.64% total return for the average corporate debt A-rated fund, according to
Lipper Analytical Services. As further comparison, the Lehman
Government/Corporate Index returned -1.88% for the same period.
Strategy and sector review
The reason the Fund was able to outperform its peer group is that we took a more
conservative approach than many of our competitors. The Fund had a shorter than
average duration -- just over four years for most of the period, compared to
well over five years for many of our peers. Duration measures how much a bond's
price will
[A 2 1/2" x 3 1/4" photo of the Fund management team at bottom right. Caption
reads: "James Ho (center) and Fund management team members Ben Matthews (l) and
Seth Robbins (r)".]
8
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 1%, with 2% at the top and -2% at the bottom. Within
the chart there are three solid bars. The first represents the 0.41% total
return for the John Hancock Active Bond Fund. The second represents the -1.88%
for the Lehman Government/Corporate Index. The third represents the -0.64% total
return for the average corporate debt A-rated fund. A footnote below states "The
total return for John Hancock Active Bond Fund is at net asset value with all
distributions reinvested. The average corporate debt A-rated fund is tracked by
Lipper Analytical Services. The Lehman Brothers Government/Corporate Bond Index
is a broad index composed of investment-grade corporate and government bonds.
See following two pages for historical performance information."]
- --------------------------------------------------------------------------------
vary in response to changes in interest rates. When rates are rising
and bond prices are falling, it pays to have a shorter duration. The Fund's
growing stake in corporate bonds also contributed positively to performance.
Corporate bonds as a percentage of the Fund's net assets rose from about
35% at the beginning of the period to about 40% at the end of August. As the
Fund accumulates assets and our investment options grow, we expect to continue
adding corporate bonds until we reach our goal of having about 70% of the Fund's
net assets in corporates and 30% in government securities. One corporate sector
that has performed well is the media and cable group, which lately has undergone
a spate of mergers and acquisitions. Top holdings include Time Warner, TCI and
Viacom. Other large holdings include cyclical companies that have benefited from
the uptick in the economy, such as Repap New Brunswick, a Canadian paper
company; and electric utilities such as Long Island Lighting Company, Cleveland
Electric and Consumers Power. Our focus in the utilities industry has been on
lower-rated, higher yielding credits issued by companies that stand to benefit
the most from deregulation.
High-yield bonds -- those with credit ratings of BB or lower -- made up
about 15% of the Fund's net assets at the end of the period. Their higher yields
make them a useful addition to the Fund, which is otherwise dominated by
higher-rated, lower-yielding credits. Our "Yankee" bonds -- foreign bonds issued
in the United States in U.S. dollar-denominated securities -- totaled about 13%
of the Fund's net assets.
"...it seems unlikely that interest rates
will fall in the near future..."
Outlook
The bond market outlook for the next several months is fairly difficult to
discern. As interest rates have risen, we've kept the Fund's average duration
shorter than its peers, although we slightly extended duration to about 4.8
years by the end of August. We feel comfortable doing that at this point
because, given recent economic data, we don't expect the Fed to raise interest
rates in the very near term. Eventually, however, if the economy continues to
expand and inflationary pressures build, the Fed will likely move rates up. As
that day nears -- and it could come before the end of the calendar year -- we'd
want to shorten the Fund's duration and prepare for the next buying opportunity.
In any case, it seems highly unlikely that interest rates will fall in the near
future.
9
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total returns and the average annual
total return for the John Hancock Active Bond Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Active Bond Fund 7.11% 8.36%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Active Bond Fund 7.11%(2) 6.64%(1)
- --------------------------------------------------------------------------------
YIELD
- --------------------------------------------------------------------------------
As of August 31, 1996
SEC 30-DAY
YIELD
-----
John Hancock Active Bond Fund 6.84%
Notes to Performance
(1) Commenced on March 30, 1995.
(2) The Advisor has agreed to limit the Fund's expenses to 0.60% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annualized total return for the one-year period would have been (1.17%).
10
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Active Bond Fund would be worth on August 31, 1996, assuming you invested on the
day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $250,000 investment in the Lehman Government/Corporate Bond
Index -- an unmanaged index that measures the performance of U.S. government
bonds, U.S. corporate bonds, and Yankee bonds.
[Line chart with the heading Active Bond 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 Lehman Government/Corporate Bond
Index and is equal to $278,558 as of August 31, 1996. The second line represents
the value of the hypothetical $250,000 investment made in the Active Bond Fund
on March 30, 1995 is equal to $271,175 as of August 31, 1996.]
11
<PAGE>
================================================================================
BY LAWRENCE J. DALY, ANTHONY A. GOODCHILD AND
JANET L. CLAY, CO-PORTFOLIO MANAGERS
John Hancock
Global Bond Fund
Stronger U.S. economy undermines bonds; impact felt
throughout industrialized world
"...we kept about 45% of the
Fund's net assets in Europe..."
The Fund's six month period started with the government releasing its monthly
employment report for February. It showed job creation proceeding at a rate well
above most analysts' expectations. The news raised fears of inflation and sent
interest rates sharply higher, both in the United States and in Europe. After
the initial shock, bond prices settled into a fairly narrow range, trading up or
down as market participants responded to the latest economic indicators. The
upshot was a lackluster period for bond markets in the world's developed
economies. Emerging market bonds, by contrast, performed very well. The Salomon
Brothers Brady Bond Index -- which tracks emerging market bonds -- rose 16.2%
during the period. Meanwhile, the JP Morgan Global Government Index -- which
tracks high-grade government bonds -- rose only 2.88%.
John Hancock Global Bond Fund had less exposure to emerging market bonds --
about 13% at the end of the reporting period -- than many of its competitors
did, and the Fund's comparative performance suffered as a result. During the six
months that ended August 31, 1996, the Fund had a total return of 2.18% at net
asset value, compared to 4.60% for the average general world income fund,
according to Lipper Analytical Services. Our below-average stake in emerging
markets was not a strategic choice but an unavoidable consequence of the fact
that the Fund is new and has a small asset base (many emerging market securities
are available only in large lots). As assets accumulate, we hope to participate
more actively in emerging markets.
[A 2" x 3" photo of the Global Bond management team at bottom right. Caption
reads: "The Global Bond management team: (l-r) Tony Goodchild, Janet Clay, Larry
Daly".]
12
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 1%, with 5% at the top and 0% at the bottom. Within
the chart there are three solid bars. The first represents the 2.18% total
return for the John Hancock Global Bond Fund. The second represents the 2.88%
total return for the JP Morgan Global Government Index. The third represents the
4.60% total return for the average general world income fund. A footnote below
states "The total return for John Hancock Global Fund is at net asset value with
all distributions reinvested. The average general world income fund is tracked
by Lipper Analytical Services. The JP Morgan Global Government Index is a
broad-based index composed of government bonds issued in 13 countries in Europe,
Asia, and North America. See following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
Strategy recap
Throughout the period, we kept about 45% of the Fund's net assets in Europe,
including about 13% in Germany. Basically, our strategy in Europe has been to
overweight countries on the periphery -- such as Spain, Sweden and Italy --
while underweighting the core. As Europe prepares to adopt a common currency in
1997, countries outside the economic mainstream will have to adopt more prudent
fiscal and monetary policies. To the extent that that strategy relieves upward
pressure on interest rates in those countries, the Fund stands to benefit.
U.S. Treasury notes made up 35% of the Fund's net assets at the end of
August, up slightly compared to six months ago. The Fund's 7% stake in Canadian
bonds was reduced to a 2% stake as the yield advantage of Canadian bonds over
their U.S. counterparts narrowed. Additions to the portfolio included
Argentinean and Mexican global bonds; global bonds are denominated in U.S.
dollars. While the Fund had no exposure to Japanese bonds during the period, it
did maintain a 15% direct stake in the yen. The Fund profited when the yen
rebounded versus the U.S. dollar in July. We see the potential for further
currency gains in the months ahead and will likely maintain our exposure to the
yen.
"...some sort of rate increase before
year end now seems likely."
Outlook
The U.S. economy has shown above average growth during the past six months. As
long as that trend continues -- and the key variables in our mind are job growth
and wage pressures -- pressure on the Federal Reserve to raise interest rates
will build. While it may not happen until after the U.S. presidential election,
some sort of rate increase before year end now seems likely. That should make
for some volatility in the months ahead. Accordingly, we've taken steps to adopt
a more conservative stance. We've done this by lowering the Fund's average
duration to less than 4.5 years. Duration is an indicator of how much a bond's
price will vary in response to changes in interest rates. The Fund's current
average duration could be described as slightly defensive.
- --------------------------------------------------------------------------------
International investing involves special risks, such as currency and political
risks and differences in accounting standards and financial reporting.
13
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total returns and the average annual
total returns for the John Hancock Global Bond Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Global Bond Fund 4.27% 5.12%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Global Bond Fund 4.27%(2) 4.25%(1)
- --------------------------------------------------------------------------------
YIELD
- --------------------------------------------------------------------------------
As of August 31, 1996
SEC 30-DAY
YIELD
-----
John Hancock Global Bond Fund 6.28%
Notes to Performance
(1) Commenced on April 19, 1995.
(2) The Advisor has agreed to limit the Fund's expenses to 0.85% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annualized total return for the one-year period would have been (63.97%).
14
<PAGE>
================================================================================
WHAT HAPPENED TO A $250,000 INVESTMENT...
================================================================================
The chart on the right shows how much a $250,000 investment in the John Hancock
Global Bond Fund would be worth on August 31, 1996, assuming you invested on the
day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $250,000 investment in the J. P. Morgan Global Government
Index -- an unmanaged market capitalization-weighted index consisting of the
government bond markets of Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden, the United Kingdom and the United
States. All issues have a remaining maturity of at least one year and are
rebalanced monthly.
[Line chart with the heading Global Bond 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 J.P. Morgan Global Government Index
and is equal to $274,184 as of August 31, 1996. The second line represents the
value of the hypothetical $250,000 investment made in the Global Bond Fund on
April 19, 1995 and is equal to $266,656 as of August 31, 1996.]
15
<PAGE>
================================================================================
BY KEVIN R. BAKER, PORTFOLIO MANAGER
John Hancock
Multi-Sector Growth Fund
Sector selection key as Fund outperforms peers
"...the Fund moved out of the media
and health-care sectors..."
Looking back on the past six months, the Fund's strong performance was driven
both by what the Fund owned and what it didn't own. During this period, the Fund
moved out of the media and health-care sectors -- avoiding the sell-off in HMOs
- -- and established positions in leisure and entertainment as well as aerospace
and defense. The Fund also continued to maintain positions in the oil and gas,
precious metals and technology sectors. We've also established a position in
selected financial sector stocks. The Fund's results have been gratifying. For
the six months ended August 31, 1996, the Fund returned 9.35% at net asset
value. For the same period, the Russell Midcap Growth Index gained 2.51%. For
another comparison, the average capital appreciation Fund returned 2.74%
according to Lipper Analytical Services.
Still bullish on oil and gas
More than 40% percent of the Fund's net assets continue to be invested in energy
stocks, particularly oil and gas. It's worth noting here that in general oil and
gas stocks trade somewhat independently of the overall market and the Fund's
heavy weighting in them insulated it from the volatility in the market during
the past six months. We made very few changes to the top holdings in this sector
but have emphasized exploration and production companies over drillers. We
continue to be attracted to the fundamental operating environment for these
companies and believe further upward earnings revisions are likely as prices for
oil and gas increased during the period. We also reduced holdings and took
profits in drillers such as Falcon Drilling and Sonat Offshore Drilling.
Sectors
We shifted the Fund's concentration in technology and precious metals stock,
increasing the
[A 2" x 3" photo of the Fund management team at bottom right. Caption reads:
"Kevin Baker (seated) and Fund management team members Ben Hock (l) and James
Boyd (r)".]
16
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 2% with 10% at the top and 0% at the bottom. Within
the chart, there are three solid bars. The first represents the 9.35% total
return for the John Hancock Multi-Sector Growth Fund. The second represents the
2.51% total return for the Russell Midcap Growth Index with a greater than
average growth orientation. The third represents the 2.74% total return for the
average capital appreciation fund. A footnote below states "The total return for
John Hancock Multi-Sector Growth Fund is at net asset value with all
distributions reinvested. The average capital appreciation fund is tracked by
Lipper Analytical Services(1). The Russell Midcap Index is an unmanaged index
that contains those securities from the Russell Midcap Index with a greater than
average growth orientation. See following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
high-tech position and nearly halving our metals stake. While many technology
stocks endured a bumpy six months, the Fund more than held its own with respect
to its technology-related investments. We avoided semiconductor manufacturers
and other stocks that were clobbered during the period and instead did well with
companies that are adding value to the infrastructure of the Internet and
Intranet. We added to our position in Sun Microsystems and made selective
investments in others such as Cisco Systems and Comverse Technology. After a
stellar performance during the first three months of the year, precious metals
stocks added little to the Fund's performance during the past six months with
the notable exception of Bema Gold. Bema's recent discovery in Chile propelled
the stock higher.
With the sale of the Fund's health-care and media stocks, we decided to
take positions in the leisure and entertainment sector. On the heels of the
current bull market, affluent consumers have been spending in fairly lavish
ways. As a result, we have invested in companies that are the beneficiaries of
higher-end spending, such as Callaway Golf and Lewis Galoob Toys. Leisure stocks
now account for about 8% of the Fund's investments. We've also begun focusing on
aerospace and defense stocks. The large aerospace companies are at the beginning
of what should prove to be a five year-trend of increasing orders for commercial
aircraft. The stocks that we own, such as Rohr and Precision Castparts, supply
manufacturers such as Boeing and Pratt & Whitney. These are lean companies with
lots of pricing power in the market. Further, the Fund owns titanium producers
such as Titanium Metals and RMI Titanium. These companies are experiencing both
explosive growth in orders and an increasing level of pricing for their
products.
"...we will watch interest
rates very carefully."
Looking ahead
The Fund's participation in the oil and gas industry should continue to be one
of the predominant investment themes going forward. We continue to believe that
fundamentals of the oil and gas sector are consistent with early stages of what
we expect to be a multi-year bull market. As for the rest of the economy, we
will watch interest rates very carefully. Though we don't think rates will
skyrocket, we think it's unrealistic to expect them to get much lower. We expect
to remain well-positioned in industries such as aerospace and energy which
should ride out a rising interest rate scenario better than some other sectors.
17
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total returns and the average annual
total returns for the John Hancock Multi-Sector Growth Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Multi-Sector Growth Fund 43.06% 44.24%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Multi-Sector Growth Fund 43.06%(2) 35.02%(1)
Notes to Performance
(1) Commenced on April 11, 1995.
(2) The Advisor has agreed to limit the Fund's expenses to 0.90% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annualized total return for the one-year period would have been 42.46%.
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
Multi-Sector Growth Fund would be worth on August 31, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell Midcap
Growth Index -- an unmanaged index that contains those Russell Midcap securities
with a greater-than-average growth orientation.
[Line chart with the heading Multi-Sector 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 hypothetical $250,000 investment made
in the Multi-Sector Growth Fund on April 11, 1995 and is equal to $344,403 as of
August 31, 1996. The second line represents the value of the Russell Midcap
Growth Index and is equal to $324,552 as of August 31, 1996.]
19
<PAGE>
================================================================================
BY TIMOTHY KEEFE, CFA, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Fundamental Value Fund
Changing economic signals leads to see-saw stock market in 1996
"The stock market gained some ground
in the last six months..."
The stock market gained some ground in the last six months, but it was hard won.
Signs of a stronger economy in spring and summer sparked inflation fears and
sent interest rates higher. Then the market was rocked by some estimates of
lower-than-expected second quarter earnings, most notably among highly-visible
technology companies. The shock waves sparked a hefty correction in the market
in late July. With all its turbulence, the market, as measured by the Standard &
Poor's 500-Stock Index, advanced 2.96% for the six months ended August 31, 1996.
John Hancock Fundamental Value Fund posted a total return of 3.93% at net asset
value, compared to the average growth and income fund's 3.13% return for the
same period, according to Lipper Analytical Services.
Profit taking
The Fund benefited during the period from the profitable sale of a number of
stocks that had reached or exceeded our target levels. Among the more
outstanding profit opportunities were Cooper Cameron and Ross Stores, both of
which provided gains in excess of 65% in less than a six month holding period.
We also took equally rewarding profits in several others, including Boeing,
Dole, Harnischfeger, Times Mirror and Great A&P. This amount of turnover was
unusual in a six month period, but it reflects our determination to sell stocks
when they approach our estimates of fair value, especially when we find
attractive new investment opportunities in which to reinvest the proceeds.
Noteworthy additions
We did indeed find a number of attractive alternatives to add to the Fundamental
Value line-up. Among them was Morrison Restaurants, an
[A 2 1/4" x 3 1/2" photo of the Fund management team at bottom right. Caption
reads: "Tim Keefe (standing) and Fund management team members Anurag Pandit (l)
and Ben Hock (r).]
20
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
- --------------------------------------------------------------------------------
Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 2%, with 4% at the top and 0% at the bottom. Within
the chart, there are three solid bars. The first represents the 3.93% total
return for John Hancock Fundamental Value Fund. The second represents the 2.96%
total return for the S&P 500-Stock Index. The third represents the 3.13% total
return for the average growth and income fund. A footnote below states: "The
total return for John Hancock Fundamental Value Fund is at net asset value with
all distributions reinvested. The average growth and income fund is tracked by
Lipper Analytical Services. The S&P 500-Stock Index is an unmanaged index that
includes 500 widely-traded common stocks. See following two pages for historical
information."
- --------------------------------------------------------------------------------
interesting restructuring candidate that split into three new companies after we
bought the stock. We are most interested in the potential at two of the
surviving companies: Ruby Tuesday, which provides casual dining in a low price/
high value format and has substantial franchise growth opportunities, and
Morrison Fresh Cooking, purveyor of "home-style" cooking in both traditional
cafeteria and smaller, more modern settings. Morrison is currently selling at
less than half the price that private investors were recently willing to pay for
a comparable cafeteria operator.
Textile buys
The Fund also established a position in Ruddick Corp., a stock we call an
"orphan" because of its lack of Wall Street sponsorship. Ruddick is neglected by
Wall Street because its hybrid structure -- half thread manufacturer, half
grocery store -- prevents it from being tracked by any group of traditional
industry analysts. We believe this has resulted in investors missing some
extremely promising company developments. Earnings power has been unfolding,
driven by Ruddick's assimilation of a major rival to its thread operations and
by a cyclical recovery in the U.S. textile industry. And revenue growth
continues to exceed historic rates as the grocery division pursues its
successful expansion in the dynamic growth markets of the Southeast.
Finally, we added shares of Burlington Industries to the Fund. The stock is
currently selling at a low multiple of less than 1.5 times book value -- a
classic measurement of an undervalued stock -- and 12 times current earnings.
It's also selling at less than six times our estimate of normalized earnings
power. In addition, Burlington's own internal resturcturing and programs to
reduce debt should incrementally enhance returns. None of this potential appears
to be reflected in the current stock price.
"...we're likely to see stocks
continue their rollercoaster ride..."
Looking forward
Looking ahead to the remainder of 1996, we're likely to see stocks continue
their rollercoaster ride as worries about the economy, interest rates and
inflation persist. While this environment makes some investors nervous, we're
optimistic about the future, particularly for value-oriented stocks. That's
because volatile markets, like we've experienced recently, present much better
opportunities for us to find discrepancies between the stock's price and its
true value.
21
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total returns and the average annual
total returns for the John Hancock Fundamental Value Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Fundamental Value Fund 13.21% 15.05%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Fundamental Value Fund 13.21%(2) 12.39%(1)
Notes to Performance
(1) Commenced on April 19, 1995.
(2) The Advisor has agreed to limit the Fund's expenses to 0.80% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annualized total return for the one-year period would have been 12.34%.
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
Fundamental Value Fund would be worth on August 31, 1996, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the 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 Fundamental 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 Standard & Poor's 500 Stock Index and
is equal to $336,749 as of August 31, 1996. The second line represents the value
of the hypothetical $250,000 investment made in the Fundamental Value Fund on
April 19, 1995 and is equal to $282,208 as of August 31, 1996.]
23
<PAGE>
================================================================================
BY JOHN L.F. WILLS, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
International Equity Fund
Upward pressure on U.S. interest rates impacts overseas
markets; Asian markets falter as growth in exports tails off
"...it was a challenging period
for international investors..."
During the past six months, growing expectations of a rate increase by the
Federal Reserve contributed to stock-market volatility at home and abroad. In
Europe, where the overall economic recovery remains sluggish, the prospect of
higher interest rates cast a pall over the markets, and returns were basically
flat. The same was true in Hong Kong, whose close currency ties to the dollar
make it particularly vulnerable to conditions in U.S. credit markets. Japanese
stocks rose slightly, thanks to rising corporate profits and consumer
confidence, but gains were largely offset by further declines in the value of
the yen. Asia's emerging markets, meanwhile, were undermined by a declining rate
of growth in exports tied to falling semiconductor prices.
All in all, it was a challenging period for international investors. In
part because we overemphasized two countries where performance was essentially
flat -- Hong Kong, and Japan -- John Hancock International Equity Fund
underperformed its peers. For the six-month period that ended August 31, 1996,
the Fund had a total return of -0.87%, at net asset value, compared to 2.46% for
the average international fund, according to Lipper Analytical Services. During
the same period, the FT Actuaries World Ex-US Index had a total return of 1.38%.
Japan
Most trends in Japan are positive despite some continuing problems. As the yen
has declined versus the dollar, Japanese exports have risen, contributing to
sharply higher profits, increased consumer confidence and an accelerating
economic growth rate. Our focus was on exporters such as Bridgestone, the tire
company, which outperformed the broader market; consumer products companies,
such as Sony Music Entertainment, which was hurt by disappointing record sales;
and industrial cyclicals such as Nippon Steel and Mitsubishi Heavy Industries.
At the end of August, Japanese stocks totaled 26% of the Fund's net assets.
Hong Kong
There were opportunities in Hong Kong during the period, but also pitfalls. The
main factor
[A 1 3/4" x 1 1/2" photo of John L.F. Wills at bottom center. Caption reads
"John L.F. Wills".]
24
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- International Equity Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1996." The chart
is scaled in increments of 2%, with 4% at the top and -4% at the bottom. Within
the chart, there are three solid bars. The first represents the -0.78% total
return for John Hancock International Equity Fund. The second represents the
1.38% total return for the FT Actuaries World Ex-US Index. The third represents
the 2.46% total return for the average international fund. A footnote below
states "The total return for John Hancock International Equity Fund is at net
asset value with all distributions reinvested. The average international fund is
tracked by Lipper Analytical Services.(1) The FT Actuaries World Ex-US Fund is a
broad-based index composed of approximately 1800 securities in 23 countries. See
following two pages for historical information."]
- --------------------------------------------------------------------------------
influencing stock prices, other than U.S. interest rates, was the colony's
planned transfer to China in July 1997. Already China has taken positive steps
to discourage speculation and keep a lid on inflation. HSBC Holdings, Hong
Kong's largest bank, was up about 30% in an otherwise flat market. Other winners
included CITIC Pacific, an industrial conglomerate with exposure to China and
property developers such as Cheung Kong Holdings and Wharf Holdings, both
beneficiaries of rising real estate prices. Joyce Boutique, a lower-price
clothing retailer with outlets in China, was a major disappointment during the
period, but remains an attractive long-term investment. The Fund maintained a
15% stake in Hong Kong during the period.
Europe
Of the Fund's 33% stake in Europe, the largest chunk -- about 16% -- was in the
United Kingdom, which helped the Fund's performance. Because interest rates are
at a 30-year low in Britain and consumer confidence is at a 16-year high, we've
focused on consumer stocks, including Bass, Britain's largest brewer. Interest
rates are falling elsewhere in Europe, too, as countries moved to generate
growth and prepare for the shift to a common currency in 1997. Top performers in
Europe included two Swiss companies: Nestle and ABB, an engineering concern.
Australia/New Zealand
Sliding metals prices undercut mining stocks, including one of the Fund's
largest holdings, Plutonic Resources, an Australian gold mining company. Given
the positive outlook for economic growth in most parts of the world, we may add
more mining stocks in the months ahead, increasing the Fund's 4% exposure to the
region.
"We're especially positive on
the prospects for consumer stocks..."
Outlook
The outlook for the international markets appears promising. By most traditional
measures of value, many foreign stocks look like bargains. We're especially
positive on the prospects for consumer stocks, which stand to benefit the most
from falling interest rates and rising consumer confidence.
- --------------------------------------------------------------------------------
International investing involves special risks, such as currency and political
risks and differences in accounting standards and financial reporting.
25
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total returns and the average annual
total returns for the John Hancock International Equity Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Equity Fund 11.65% 13.49%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Equity Fund 11.65%(2) 10.66%(1)
Notes to Performance
(1) Commenced on March 30, 1995.
(2) The Advisor 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
annualized total return for the one-year period would have been 9.89%.
26
<PAGE>
================================================================================
WHAT HAPPENED TO A $250,000 INVESTMENT...
================================================================================
The chart on the right shows how much a $250,000 investment in the John Hancock
International Equity Fund would be worth on August 31, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Financial
Times-Actuaries World EX-US Index --an unmanaged index composed of securities in
23 countries, excluding the United States. Selection criteria, overseen by the
World Index Policy Committee, exclude all companies that cannot be purchased by
foreigners. Companies then are ranked by market capitalization, and the top 5%
are automatically included.
[Line chart with the heading International Equity 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 Financial Times-Actuaries World EX-US
Index and is equal to $279,754 as of August 31, 1996. The second line represents
the value of the hypothetical $250,000 investment made in the International
Equity Fund on March 30, 1995 and is equal to $272,143 as of August 31, 1996.]
27
<PAGE>
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
Small Capitalization
Equity Fund
Fund builds positions during volatile
stock market environment
"...technology companies continue to
offer some of the most attractive growth..."
After a relatively strong showing in the first six months of 1996, the stock
market cooled off in mid-summer when investors became increasingly vexed by the
twin threats of lower company earnings and rising interest rates. While the
market continued on a strong pace in June, it experienced a notable correction
in July. The gyrations were caused in large part by worries that companies'
second-quarter earnings would come up short. Investors also fretted that the
economy was growing too fast and, as a consequence, the Federal Reserve Board
would be forced to raise interest rates to stave off inflation. Stock investors
dislike higher interest rates because they often translate into lower earnings
for growth companies, many of whom depend on borrowed capital to sustain their
growth. But when second quarter corporate earnings proved to be strong and
inflation fears subsided, the market re-gained most of its July losses in
August.
Into this volatile climate we launched John Hancock Small Capitalization
Equity Fund. From its opening on May 2, 1996 through August 31, 1996, the Fund
posted a total return of 9.88% at net asset value. The result should be kept in
perspective, because it is based on such as short term early in the life of the
Fund. For the same period, the average small company growth fund returned
- -2.25%, according to Lipper Analytical Services. For another comparison, the
Russell 2000 Index returned -3.75% for the same period.
Strategy overview
In building the Fund's investments, we chose companies that meet our investment
criteria,
[A 2" x 2 1/2" photo of the Fund management team. Caption reads: "Bernice Behar
and Fund management team members Ben Hock (l) and Andrew Slabin (r)".]
28
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Small Capitalization
Equity Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the period May 2, 1996 through August 31, 1996."
The chart is scaled in increments of 5%, with 10% at the top and -10% at the
bottom. Within the chart, there are three solid bars. The first represents the
9.88% total return for the John Hancock Small Capitalization Equity Fund. The
second represents the -3.75% total return for the Russell 2000 Index. The third
represents the -2.25% total return for the average small company growth fund. A
footnote below states "The total return for John Hancock Small Capitalization
Equity Fund is at net asset value with all distributions reinvested. The average
small company growth fund is tracked by Lipper Analytical Services (1). The
Russell 2000 Index is an unmanaged index comprised of the smallest 2000
securities. See following two pages for historical information."]
- --------------------------------------------------------------------------------
have a profitable or niche position in the marketplace, capable management team
with vision and the ability to execute that vision and a track record of growing
earnings by at least 20-25% annually. Below is a discussion of where we found
opportunities that fit those parameters.
While technology stocks experienced their share of ups and downs so far
this year, we believe that selected technology companies continue to offer some
of the most attractive growth opportunities in the market today. One of the
Fund's largest holdings -- DSP Communications -- makes chip sets for cellular
phones. Two other favorites were CBT Group, PLC, which provides interactive
software designed for business information-technology education and training,
and HNC Software, which develops and produces client/server software used in
decision-making applications, retail inventory management, merchant risk and
bank-lending decisions.
We found other opportunities in the consumer finance, health-care and
business services sectors. We focused on consumer finance companies that address
the problems resulting from rising consumer debt -- including Cityscape
Financial Corp. and IMC Mortgage -- by consolidating an individual's debt into
one payment. And even though competitive and cost-cutting pressures on the
health-care industry continued to take their toll, we felt optimistic about
companies that help health-care providers control costs. One example is NCS
Healthcare, which provides a number of pharmaceutical-related services for
nursing homes. To take advantage of the trend toward outsourcing business
services we bought APAC Teleservices, which provides telephone-based sales,
marketing and customer-management services for credit-card issuers,
telecommunications companies and other businesses. Throughout the year, consumer
confidence and some areas of the retail sector exhibited real strength such as
young men's casual wear. Mossimo Inc. and Tommy Hilfiger were two prime
beneficiaries of this trend.
"...the July correction was
well overdue and healthy..."
Outlook
In our view, the July correction was well overdue and healthy. Prior to July,
many stocks had become quite pricey relative to their earnings prospects. The
correction helped return most stock prices to more realistic levels. But it's
important to remember that while stock prices fell, the business fundamentals of
companies didn't change and that bodes well for the future.
29
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total return for the John Hancock
Small Capitalization Equity Fund. Total return is a performance measure that
equals the sum of all income and capital gains dividends, assuming reinvestment
of these distributions, and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share. Remember that
all figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
LIFE OF
FUND
----
John Hancock Small Capitalization Equity Fund 8.00%(1,2)
Notes to Performance
(1) Commenced on May 2, 1996.
(2) The Advisor has agreed to limit the Fund's expenses to 0.90% of the Fund's
average daily net assets. Without the limitation of expenses, the total
return for the period would have been 4.82%.
30
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Small Capitalization Equity Fund would be worth on August 31, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell 2000 Index
- -- an unmanaged index that consists of the smallest 2,000 securities in the
Russell 3000 Index, representing approximately 11% of the Russell 3000 total
market capitalization.
[Line chart with the heading Small Capitalization Equity Fund, representing the
growth of a hypothetical $250,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Small Capitalization Equity Fund on May 2, 1996 and is equal to $274,706
as of August 31, 1996. The second line represents the value of the Russell 2000
Index and is equal to $240,631 as of August 31, 1996.]
31
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND ACTIVE GLOBAL MULTI-SECTOR
PERFORMERS BOND BOND GROWTH
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $3,418,002, none, none and
$13,490,761, respectively) ........................................ $ 3,943,687 -- -- $ 15,618,503
Bonds (cost - $203,125, $1,165,631, $985,460 and none,
respectively) .................................................... 204,156 $ 1,141,377 $ 981,984 --
Repurchase Agreements (cost - $728,000, $126,000,
$21,000 and $2,815,000, respectively) ............................ 728,000 126,000 21,000 2,815,000
Corporate savings account ......................................... 3,281 700 -- --
------------ ------------ ------------ ------------
4,879,124 1,268,077 1,002,984 18,433,503
Cash ............................................................... -- -- 579 --
Foreign currency, at value (cost - none, none, none and $187,272) .. -- -- -- 187,417
Receivable for investments sold .................................... -- -- 108,520 325,157
Interest receivable ................................................ 845 20,765 24,856 476
Dividends receivable ............................................... 9,895 -- -- 3,459
Deferred organization expenses - Note A ............................ 5,934 5,881 5,865 7,373
Other assets ....................................................... -- 1,516 73 --
------------ ------------ ------------ ------------
Total Assets ..................................... 4,895,798 1,296,239 1,142,877 18,957,385
---------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased .................................. -- 5,176 109,050 439,065
Payable for closed forward foreign currency exchange
contracts - Note A ................................................ -- -- 289 --
Payable for open forward foreign currency exchange contracts
purchased - Note A ................................................ -- -- 1,021 --
Payable for open forward foreign currency exchange
contracts sold - Note A ........................................... -- -- 657 --
Foreign tax payable ................................................ -- -- 263 --
Dividend payable ................................................... -- 252 182 --
Payable to John Hancock Advisers, Inc. and Affiliates - Note B ..... 2,833 1,956 1,477 13,233
Accounts payable and accrued expenses .............................. 12,656 22,268 5,571 49,721
------------ ------------ ------------ ------------
Total Liabilities ................................ 15,489 29,652 118,510 502,019
---------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .................................................... 4,278,440 1,292,144 1,039,139 16,628,498
Accumulated net realized gain (loss) on investments and
foreign currency transactions ..................................... 56,451 (1,444) (8,849) (296,969)
Net unrealized appreciation (depreciation) of investments
and foreign currency transactions ................................. 526,716 (24,254) (5,307) 2,127,272
Undistributed net investment income (distributions in excess
of net investment income) ......................................... 18,702 141 (616) (3,435)
------------ ------------ ------------ ------------
Net Assets ....................................... $ 4,880,309 $ 1,266,587 $ 1,024,367 $ 18,455,366
===============================================================================================================
Net Asset Value Per Share
(based on 465,190, 151,071, 122,301 and 1,578,795 shares,
respectively, of beneficial interest outstanding - unlimited
number of shares authorized with no par value) .................... $ 10.49 $ 8.38 $ 8.38 $ 11.69
===================================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of August 31, 1996. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUNDAMENTAL INTERNATIONAL SMALL
VALUE EQUITY CAPITALIZATION
FUND FUND EQUITY FUND
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks and warrants (cost - $5,324,542, $2,824,068 and
$426,919, respectively) .................................................. $ 5,282,359 $ 2,901,160 $ 459,113
Repurchase Agreements (cost - $493,000, $305,000 and $20,000, respectively) 493,000 305,000 20,000
Corporate savings account ................................................. 725 -- 648
----------- ----------- -----------
5,776,084 3,206,160 479,761
Cash ....................................................................... -- 984 --
Foreign currency, at value (cost - none, $350 and none) .................... -- 348 --
Receivable for investments sold ............................................ -- -- 962
Interest receivable ........................................................ 87 45 6
Dividends receivable ....................................................... 3,479 4,426 --
Foreign tax receivable ..................................................... -- 649 --
Deferred organization expenses - Note A .................................... 5,971 5,881 19,135
Other assets ............................................................... 10 -- 20
----------- ----------- -----------
Total Assets ............................................. 5,785,631 3,218,493 499,884
-----------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased .......................................... -- 38,706 21,290
Payable for open forward foreign currency exchange contracts
purchased - Note A ........................................................ -- 28 --
Payable to John Hancock Advisers, Inc. and Affiliates - Note B ............. 4,060 2,789 19,982
Accounts payable and accrued expenses ...................................... 13,301 11,189 --
----------- ----------- -----------
Total Liabilities ........................................ 17,361 52,712 41,272
-----------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................................ 5,374,795 3,036,886 430,711
Accumulated net realized gain (loss) on investments and foreign
currency transactions ..................................................... 417,696 26,637 (5,004)
Net unrealized appreciation (depreciation) of investments and
foreign currency transactions ............................................. (42,183) 77,132 32,194
Undistributed net investment income ........................................ 17,962 25,126 711
----------- ----------- -----------
Net Assets ............................................... $ 5,768,270 $ 3,165,781 $ 458,612
=====================================================================================================
Net Asset Value Per Share:
(based on 614,365, 345,752 and 49,088 shares, respectively, of beneficial
interest outstanding - unlimited number of shares authorized with
no par value) ............................................................. $ 9.39 $ 9.16 $ 9.34
=========================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Operations
Six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND ACTIVE GLOBAL MULTI-SECTOR
PERFORMERS BOND BOND GROWTH
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $35, none,
none and $34, respectively) .................................. $ 39,245 -- -- $ 14,760
Interest (net of foreign withholding tax of none, none,
$594 and none, respectively) ................................. 13,563 $ 45,348 $ 35,493 41,374
----------- ----------- ----------- -----------
52,808 45,348 35,493 56,134
Expenses:
Registration and filing fees ................................. 15,184 12,713 12,759 17,683
Investment management fee - Note B ........................... 11,814 3,024 3,727 52,950
Custodian fee ................................................ 4,777 5,085 9,938 15,673
Auditing fee ................................................. 3,919 6,225 5,223 3,919
Printing ..................................................... 3,874 4,780 3,698 4,091
Transfer agent fee - Note B .................................. 985 302 244 3,309
Organization expense - Note A ................................ 831 824 809 1,023
Legal fees ................................................... 430 592 362 618
Financial services fee - Note B .............................. 369 114 93 1,241
Miscellaneous ................................................ 125 251 5 10
Trustees' fee ................................................ 55 1,323 53 150
----------- ----------- ----------- -----------
Total Expenses .............................. 42,363 35,233 36,911 100,667
Less Expense Reductions - Note B ............ (28,580) (31,604) (32,698) (41,098)
----------- ----------- ----------- -----------
Net Expenses ................................ 13,783 3,629 4,213 59,569
--------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) ................ 39,025 41,719 31,280 (3,435)
--------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions:
Net realized gain (loss) on investments sold .................. 34,305 (3,114) (105) (387,480)
Net realized loss on foreign currency transactions ............ -- -- (9,076) (880)
Change in net unrealized appreciation (depreciation) of
investments .................................................. 60,907 (33,645) (3,461) 1,161,355
Change in net unrealized appreciation (depreciation) of foreign
currency transactions ........................................ -- -- (1,398) (470)
----------- ----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Transactions ................................ 95,212 (36,759) (14,040) 772,525
--------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations .................................. $ 134,237 $ 4,960 $ 17,240 $ 769,090
========================================================================================================
</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.
34
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Operations
Six months ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUNDAMENTAL INTERNATIONAL SMALL
VALUE EQUITY CAPITALIZATION
FUND FUND EQUITY FUND*
----------- ------------- ---------------
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $1,563, $4,404 and
none, respectively) ................................................................ $ 51,939 $ 33,643 $ 1,533
Interest ............................................................................ 17,652 8,095 25
--------- --------- ---------
69,591 41,738 1,558
Expenses:
Investment management fee - Note B ................................................. 20,256 14,219 753
Registration and filing fees ....................................................... 14,995 15,179 17,699
Custodian fee ...................................................................... 4,459 10,337 2,803
Auditing fee ....................................................................... 3,919 3,719 4,592
Printing ........................................................................... 2,947 2,304 400
Transfer agent fee - Note B ........................................................ 1,447 790 47
Organization expense - Note A ...................................................... 824 824 1,345
Financial services fee - Note B .................................................... 543 296 18
Legal fees ......................................................................... 443 389 30
Trustees' fee ...................................................................... 79 42 20
Miscellaneous ...................................................................... 126 7 89
--------- --------- ---------
Total Expenses .................................................... 50,038 48,106 27,796
Less Expense Reductions - Note B .................................. (26,889) (32,307) (26,949)
--------- --------- ---------
Net Expenses ...................................................... 23,149 15,799 847
-----------------------------------------------------------------------------------------------------------
Net Investment Income ............................................. 46,442 25,939 711
-----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions:
Net realized gain (loss) on investments sold ........................................ 417,926 34,743 (5,004)
Net realized loss on foreign currency transactions .................................. -- (1,325) --
Change in net unrealized appreciation (depreciation) of investments ................. (267,787) (91,397) 32,194
Change in net unrealized appreciation (depreciation) of foreign currency transactions -- 73 --
--------- --------- ---------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ..................................... 150,139 (57,906) 27,190
-----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations ... $ 196,581 ($ 31,967) $ 27,901
===========================================================================================================
</TABLE>
* Small Capitalization Equity Fund commenced investment operations on May 2,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND ACTIVE
PERFORMERS BOND
FUND FUND
-------------------------- ----------------------------
PERIOD SIX MONTHS PERIOD SIX MONTHS
ENDED ENDED AUGUST ENDED ENDED AUGUST
FEBRUARY 31, 1996 FEBRUARY 31, 1996
29, 1996+ (UNAUDITED) 29, 1996+ (UNAUDITED)
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................ $ 63,484 $ 39,025 $ 58,232 $ 41,719
Net realized gain (loss) on investments sold ..................... 43,668 34,305 3,558 (3,114)
Change in net unrealized appreciation (depreciation) of
investments ...................................................... 465,809 60,907 9,391 (33,645)
----------- ----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations ............ 572,961 134,237 71,181 4,960
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................. (58,824) (24,983) (58,232) (41,578)
Distributions from net realized gain on investments sold ......... (21,522) -- (1,888) --
----------- ----------- ----------- -----------
Total Distributions to Shareholders ............................. (80,346) (24,983) (60,120) (41,578)
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ...................................................... 5,484,852 1,639,313 2,151,742 220,252
Shares issued to shareholders in reinvestment of distributions ... 80,347 24,987 57,656 41,239
----------- ----------- ----------- -----------
5,565,199 1,664,300 2,209,398 261,491
Less shares repurchased .......................................... (2,738,594) (212,465) (1,049,832) (128,913)
----------- ----------- ----------- -----------
Net Increase .................................................... 2,826,605 1,451,835 1,159,566 132,578
----------- ----------- ----------- -----------
Net Assets:
Beginning of period .............................................. -- 3,319,220 -- 1,170,627
----------- ----------- ----------- -----------
End of period (including undistributed net investment income
of $4,660, $18,702, none and $141, respectively) ................ $ 3,319,220 $ 4,880,309 $ 1,170,627 $ 1,266,587
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ................... $ 0.1863 $ 0.0709 $ 0.5144 $ 0.2923
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments sold $ 0.0742 -- $ 0.0152 --
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ...................................................... 627,033 156,262 252,193 25,939
Shares issued to shareholders in reinvestment of distributions ... 8,685 2,386 6,688 4,874
----------- ----------- ----------- -----------
635,718 158,648 258,881 30,813
Less shares repurchased .......................................... (308,820) (20,356) (123,444) (15,179)
----------- ----------- ----------- -----------
Net increase .................................................... 326,898 138,292 135,437 15,634
=========== =========== =========== ===========
</TABLE>
+ Dividend Performers Fund and Active Bond Fund commenced investment
operations on March 30, 1995.
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets have changed since the commencement of operations. The difference
reflects net investment income, any investment gains and losses, distributions
paid to shareholders, and any increase or decrease in money shareholders
invested in each Fund. The footnotes illustrate the number of Fund shares sold,
reinvested and redeemed during the period, along with the per share amount of
distributions made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL MULTI-SECTOR
BOND GROWTH
FUND FUND
-------------------------- -------------------------------
PERIOD SIX MONTHS PERIOD SIX MONTHS
ENDED ENDED AUGUST ENDED ENDED AUGUST
FEBRUARY 31, 1996 FEBRUARY 31, 1996
29, 1996+ (UNAUDITED) 29, 1996+ (UNAUDITED)
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ................................... $ 6,883 $ 31,280 ($ 3,720) ($ 3,435)
Net realized gain (loss) on investments sold and foreign
currency transactions ......................................... (1,325) (9,181) 104,980 (388,360)
Change in net unrealized appreciation (depreciation) of
investments and foreign currency transactions ................. (448) (4,859) 966,387 1,160,885
------------ ------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations .......... 5,110 17,240 1,067,647 769,090
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ........................... (6,883) (31,280) (9,869) --
------------ ------------ ------------ ------------
From Fund Share Transactions: **
Shares sold .................................................... 289,031 858,773 7,818,477 10,081,083
Shares issued to shareholders in reinvestment of distributions . 6,810 6,861 9,654 --
------------ ------------ ------------ ------------
295,841 865,634 7,828,131 10,081,083
Less shares repurchased ........................................ (77,327) (43,968) (586,975) (793,741)
------------ ------------ ------------ ------------
Net Increase .................................................. 218,514 821,666 7,241,156 9,287,342
------------ ------------ ------------ ------------
Net Assets:
Beginning of period ............................................ -- 216,741 100,000++ 8,398,934
------------ ------------ ------------ ------------
End of period (including distributions in excess of net
investment income of $616, $616, none and $3,435, respectively) $ 216,741 $ 1,024,367 $ 8,398,934 $ 18,455,366
============ ============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ................. $ 0.4059 $ 0.2601 $ 0.0168 --
------------ ------------ ------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................... 33,983 101,143 833,819 861,837
Shares issued to shareholders in reinvestment of distributions . 797 819 967 --
------------ ------------ ------------ ------------
34,780 101,962 834,786 861,837
Less shares repurchased ........................................ (9,167) (5,274) (60,874) (68,719)
------------ ------------ ------------ ------------
Net increase .................................................. 25,613 96,688 773,912 793,118
============ ============ ============ ============
</TABLE>
+ Global Bond Fund and Multi-Sector Growth Fund commenced investment
operations on April 19, 1995 and April 11, 1995, respectively.
++ On January 11, 1995, the Adviser made an initial investment of $100,000 in
order to seed the Trust.
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUNDAMENTAL INTERNATIONAL SMALL
VALUE EQUITY CAPITALIZATION
FUND FUND EQUITY FUND
-------------------------- -------------------------- -------------
PERIOD SIX MONTHS PERIOD SIX MONTHS PERIOD ENDED
ENDED ENDED AUGUST ENDED ENDED AUGUST AUGUST 31,
FEBRUARY 31, 1996 FEBRUARY 31, 1996 1996++
29, 1996+ (UNAUDITED) 29, 1996+ (UNAUDITED) (UNAUDITED)
--------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................. $ 45,709 $ 46,442 $ 22,599 $ 25,939 $ 711
Net realized gain (loss) on investments sold and foreign
currency transactions ................................. (230) 417,926 (7,536) 33,418 (5,004)
Change in net unrealized appreciation/depreciation
of investments ........................................ 225,604 (267,787) 168,456 (91,324) 32,194
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting
from Operations ...................................... 271,083 196,581 183,519 (31,967) 27,901
----------- ----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ................... (39,371) (34,818) (20,847) -- --
Distributions from net realized gain on investments sold -- -- (1,810) -- --
----------- ----------- ----------- ----------- -----------
Total Distributions to Shareholders ................... (39,371) (34,818) (22,657) -- --
----------- ----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ............................................ 5,729,142 701,661 3,965,415 623,485 465,609
Shares issued to shareholders in reinvestment of
distributions ......................................... 39,370 34,794 22,657 -- --
----------- ----------- ----------- ----------- -----------
5,768,512 736,455 3,988,072 623,485 --
Less shares repurchased ................................ (707,468) (422,704) (1,252,172) (322,499) (34,898)
----------- ----------- ----------- ----------- -----------
Net Increase .......................................... 5,061,044 313,751 2,735,900 300,986 430,711
----------- ----------- ----------- ----------- -----------
Net Assets:
Beginning of period .................................... -- 5,292,756 -- 2,896,762 --
----------- ----------- ----------- ----------- -----------
End of period (including undistributed net investment
income of $6,338 and $17,962, distributions in excess
of net investment income of $813 and undistributed net
investment income of $25,126 and $711, respectively) .. $ 5,292,756 $ 5,768,270 $ 2,896,762 $ 3,165,781 $ 458,612
=========== =========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ......... $ 0.1380 $ 0.0578 $ 0.0832 -- --
----------- ----------- ----------- ----------- -----------
Per share distributions from net realized gain on
investments sold ...................................... -- -- $ 0.0072 -- --
----------- ----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ............................................ 656,980 73,361 449,585 66,686 53,147
Shares issued to shareholders in reinvestment of
distributions ......................................... 4,423 3,665 2,551 -- --
----------- ----------- ----------- ----------- -----------
661,403 77,026 452,136 66,686 --
Less shares repurchased ................................ (79,391) (44,673) (138,502) (34,568) (4,059)
----------- ----------- ----------- ----------- -----------
Net increase .......................................... 582,012 32,353 313,634 32,118 49,088
=========== =========== =========== =========== ===========
</TABLE>
+ Fundamental Value Fund and International Equity Fund commenced investment
operations on April 19, 1995 and March 30, 1995, respectively.
++ Small Capitalization Equity Fund commenced investment operations on May 2,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
----------------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................. $ 8.50(b) $ 10.15
-------- ---------
Net Investment Income ................................................ 0.23** 0.10
Net Realized and Unrealized Gain on Investments ...................... 1.68 0.31
-------- ---------
Total from Investment Operations .................................. 1.91 0.41
-------- ---------
Less Distributions:
Dividends from Net Investment Income ................................ (0.19) (0.07)
Distributions from Net Realized Gain on Investments Sold ............ (0.07) --
-------- ---------
Total Distributions ............................................... (0.26) (0.07)
-------- ---------
Net Asset Value, End of Period ....................................... $ 10.15 $ 10.49
======== =========
Total Investment Return at Net Asset Value (e) ....................... 22.79%(c) 4.05%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) ........... 19.79%(c) 3.32%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ............................ $ 3,319 $ 4,880
Ratio of Expenses to Average Net Assets .............................. 0.75%* 0.70%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) .............. 4.02%* 2.16%*
Ratio of Net Investment Income to Average Net Assets ................. 2.51%* 1.98%*
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets (a)(d) .................................................. (0.76%)* 0.52%*
Portfolio Turnover Rate .............................................. 70% 8%
Average Broker Commission Rate (f) ................................... N/A $ 0.0700
</TABLE>
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
------------------------------ -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 8.50(b) $ 8.64
--------- ---------
Net Investment Income ........................................... 0.51 0.29
Net Realized and Unrealized Gain (Loss) on Investments .......... 0.16 (0.26)
--------- ---------
Total from Investment Operations ............................. 0.67 0.03
--------- ---------
Less Distributions:
Dividends from Net Investment Income ........................... (0.51) (0.29)
Distributions from Net Realized Gain on Investments Sold ....... (0.02) --
--------- ---------
Total Distributions .......................................... (0.53) (0.29)
--------- ---------
Net Asset Value, End of Period .................................. $ 8.64 $ 8.38
========= =========
Total Investment Return at Net Asset Value (e) .................. 7.76%(c) 0.41%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) ...... (0.46%)(c) (4.81%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ....................... $ 1,171 $ 1,267
Ratio of Expenses to Average Net Assets ......................... 0.65%* 0.60%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ......... 9.60%* 5.83%*
Ratio of Net Investment Income to Average Net Assets ............ 6.53%* 6.92%*
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets (a)(d) ............................................. (2.42%)* 1.69%*
Portfolio Turnover Rate ......................................... 71% 34%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 19, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
--------------------- ------------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................ $ 8.50(b) $ 8.46
--------- ---------
Net Investment Income ........................................................... 0.41 0.26
Net Realized and Unrealized Loss on Investments and Foreign Currency Transactions (0.04) (0.08)
--------- ---------
Total from Investment Operations ............................................. 0.37 0.18
--------- ---------
Less Distributions:
Dividends from Net Investment Income ........................................... (0.41) (0.26)
--------- ---------
Net Asset Value, End of Period .................................................. $ 8.46 $ 8.38
========= =========
Total Investment Return at Net Asset Value (e) .................................. 4.37%(c) 2.18%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) ...................... (54.55%)(c) (4.40%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ....................................... $ 217 $ 1,024
Ratio of Expenses to Average Net Assets ......................................... 0.91%* 0.85%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ......................... 69.15%* 7.43%*
Ratio of Net Investment Income to Average Net Assets ............................ 5.91%* 6.29%*
Ratio of Adjusted Net Investment loss to Average Net Assets (a)(d) .............. (62.33%)* (0.29%)*
Portfolio Turnover Rate ......................................................... 129% 89%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 11, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
---------------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................................... $ 8.50(b) $ 10.69
------------ ------------
Net Investment Loss .......................................................... (0.01)** (0.00)**(g)
Net Realized and Unrealized Gain on Investments and Foreign Currency
Transactions ............................................................... 2.22 1.00
------------ ------------
Total from Investment Operations .......................................... 2.21 1.00
------------ ------------
Less Distributions:
Dividends from Net Investment Income ........................................ (0.02) --
------------ ------------
Net Asset Value, End of Period ............................................... $ 10.69 $ 11.69
============ ============
Total Investment Return at Net Asset Value (e) ............................... 25.98%(c) 9.35%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) ................... 23.70%(c) 9.04%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .................................... $ 8,399 $ 18,455
Ratio of Expenses to Average Net Assets ...................................... 0.93%* 0.90%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ...................... 3.51%* 1.52%*
Ratio of Net Investment Loss to Average Net Assets ........................... (0.10%)* (0.05%)*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) ........... (2.68%)* (0.67%)*
Portfolio Turnover Rate ...................................................... 189% 140%
Average Brokerage Commission Rate (f) ........................................ N/A $ 0.0641
</TABLE>
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(g) Less than $.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 19, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
------------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................................... $ 8.50(b) $ 9.09
----------- -----------
Net Investment Income ..................................................... 0.17** 0.08
Net Realized and Unrealized Gain on Investments ........................... 0.56 0.28
----------- -----------
Total from Investment Operations ....................................... 0.73 0.36
----------- -----------
Less Distributions:
Dividends from Net Investment Income ..................................... (0.14) (0.06)
----------- -----------
Net Asset Value, End of Period ............................................ $ 9.09 $ 9.39
=========== ===========
Total Investment Return at Net Asset Value (e) ............................ 8.61%(c) 3.93%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) ................ 5.40%(c) 3.46%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ................................. $ 5,293 $ 5,768
Ratio of Expenses to Average Net Assets ................................... 0.83%* 0.80%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ................... 4.55%* 1.73%*
Ratio of Net Investment Income to Average Net Assets ...................... 2.04%* 1.60%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (a)(d) (1.68%)* 0.67%*
Portfolio Turnover Rate ................................................... 0% 23%
Average Brokerage Commission Rate (f) ..................................... N/A $ 0.0625
</TABLE>
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
------------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................. $ 8.50(b) $ 9.24
----------- -----------
Net Investment Income ............................................ 0.15** 0.08**
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions ........................................... 0.68 (0.16)
----------- -----------
Total from Investment Operations .............................. 0.83 (0.08)
----------- -----------
Less Distributions:
Dividends from Net Investment Income ............................ (0.08) --
Distributions from Net Realized Gain on Investments Sold ........ (0.01) --
----------- -----------
Total Distributions ........................................... (0.09) --
----------- -----------
Net Asset Value, End of Period ................................... $ 9.24 $ 9.16
=========== ===========
Total Investment Return at Net Asset Value (e) ................... 9.81%(c) (0.87)%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) ....... 3.26%(c) (1.90)%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ........................ $ 2,897 $ 3,166
Ratio of Expenses to Average Net Assets .......................... 1.05%* 1.00%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) .......... 8.19%* 3.04%*
Ratio of Net Investment Income to Average Net Assets ............. 1.75%* 1.62%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) (5.39%)* (0.42%)*
Portfolio Turnover Rate .......................................... 59% 29%
Average Brokerage Commission Rate (f) ............................ N/A $ 0.0235
</TABLE>
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Small
Capitalization Equity Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 2, 1996
(COMMENCEMENT OF OPERATIONS)
TO AUGUST 31, 1996
(UNAUDITED)
----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $ 8.50(b)
---------
Net Investment Income ...................................... 0.01**
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions ............................. 0.83
---------
Total from Investment Operations .......................... 0.84
---------
Net Asset Value, End of Period ............................. $ 9.34
=========
Total Investment Return at Net Asset Value ................. 9.88%(c)
Total Adjusted Investment Return at Net Asset Value (a) .... 0.46%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .................. $ 459
Ratio of Expenses to Average Net Assets .................... 0.90%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) .... 29.30%*
Ratio of Net Investment Loss to Average Net Assets ......... 0.75%*
Ratio of Adjusted Net Investment Loss to Average Net
Assets (a)(d) ............................................. (27.65%)*
Portfolio Turnover Rate .................................... 19%
Average Brokerage Commission Rate (e) ...................... $ 0.0669
</TABLE>
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Per portfolio share traded.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
Schedule of Investments
August 31, 1996 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks and are unaudited.
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Dividend Performers Fund on August 31, 1996. Its divided into three main
categories: common stocks, U.S. government and agencies obligations and
short-term investments. The common stocks are further broken down by industry
groups. Short-term Investments, which represent the Fund's "cash" position are
listed last.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS (80.81%) RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Advertising (1.95%)
2,100 Interpublic Group Inc. @ 45 1/4 ........................................... $ 95,025
----------
One of the largest advertising agencies in the world
Earnings P/S....$.75, .91, 1.05, 1.19, 1.21, 1.40, 1.46,1.76, 1.99. 1.91 11.0%
Dividends P/S....$.20, .22, .26, .32, .37, .41, .45, .49, .55, .61 13.2%
Price/Earnings Ratio.....24.3
Aerospace (0.96%)
900 Rockwell International Corp. @ 52 ......................................... 46,800
----------
Leading producer of aerospace, automotive and electronics products
Earnings P/S....$1.98, 2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79 7.5%
Dividends P/S....$.59, .66, .72, .77, .82, .88, .92, .98, 1.04, 1.10 7.2%
Price/Earnings Ratio.....14.3
Banks (6.01%)
1,000 Banc One Corp. @ 38 3/8.................................................... 38,375
Ohio-based bank holding company
Earnings P/S....$1.19, 1.56, 1.66, 1.83, 1.64, 1.91, 2.35, 2.78, 2.14, 3.10 11.2%
Dividends P/S....$.41, .45, .50, .57, .63, .70, .81, .98, 1.13, 1.24 13.1%
Price/Earnings Ratio.....12.8
600 CoreStates Financial Corp. @ 41 3/8 ....................................... 24,825
Interstate banking organization, Pennsylvania & New Jersey
Earnings P/S....$1.96, 2.25, 1.02, .78, .86, 2.15, 2.36, 1.54, 2.72, 3.12 5.3%
Dividends P/S....$.64, .70, .77, .87, .96, .97, 1.02, 1.14, 1.24, 1.44 9.4%
Price/Earnings Ratio.....13.5
1,600 First Tennessee National Corp. @ 34 1/8 ................................... 54,600
Tennessee-based bank holding company
Earnings P/S....$.78, 1.10, .65, .98, 1.22, 1.63, 1.56, 1.89, 2.15, 2.51 13.9%
Dividends P/S....$.38, .40, .43, .49, .54, .57, .63, .75, .87, .97 11.0%
Price/Earnings Ratio.....13.4
1,400 KeyCorp. @ 40 1/8.......................................................... 56,175
Multi-regional bank holding company
Earnings P/S....$1.88, 2.10, 2.32, 2.32, 2.45, 2.52, 2.82, 3.05, 3.25, 3.56 7.4%
Dividends P/S....$.48, .60, .68, .80, .88, .92, .98, 1.12, 1.28, 1.44 13.0%
Price/Earnings Ratio.....11.9
1,400 NationsBank Corp. @ 85 1/8................................................. 119,175
Largest superregional bank in the Southeast
Earnings P/S....$2.01, 2.87, 4.44, 2.61, .76, 1.51, 4.62, 5.80, 6.32, 7.52 15.8%
Dividends P/S....$.78, .86, .94, 1.10, 1.42, 1.48, 1.51, 1.64, 1.88, 2.08 11.5%
Price/Earnings Ratio.....11.2
----------
293,150
----------
Chemicals (5.39%)
800 Air Products & Chemicals, Inc. @ 54 3/4 ................................... 43,800
----------
Producer of industrial and specialty chemicals and gases
Earnings P/S....$.04, 1.95, 2.02, 2.08, 2.28, 2.34, 2.52, 1.22, 3.15, 3.72 65.5%
Dividends P/S....$.39, .45, .55, .63, .69, .75, .83, .89, .95, 1.01 11.2%
Price/Earnings Ratio.....15.0
1,100 E.I. du Pont de Nemours and Co. @ 82 1/8................................... 90,338
Nation's largest chemical manufacturer
Earnings P/S....$2.46, 3.03, 3.53, 3.40, 3.17, 1.44, 1.87, 1.44, 5.00, 5.86 10.1%
Dividends P/S....$1.02, 1.10, 1.23, 1.45, 1.62, 1.68, 1.74, 1.76, 1.82, 2.03 8.0%
Price/Earnings Ratio.....14.5
600 PPG Inds., Inc. @ 49 3/8................................................... 29,625
Manufacturer of specialty chemicals, coatings and resins
Earnings P/S....$1.60, 2.13, 2.09, 2.22, 1.46, 1.35, 1.65, 1.41, 3.52, 3.78 10.0%
Dividends P/S....$.47, .56, .64, .74, .82, .86, .94, 1.04, 1.12, 1.18 10.8%
Price/Earnings Ratio.....13.7
1,250 RPM, Inc. @ 16............................................................. 20,000
Manufacturer of specialty chemicals and coatings to waterproof and
rustproof structures
Earnings P/S....$.34, .38, .45, .42, .47, .59, .49, .75, .85, .93 11.8%
Dividends P/S....$.18, .21, .25, .27, .30, .34, .37, .39, .42, .46 11.0%
Price/Earnings Ratio.....17.6
1,500 Sigma - Aldrich Corp. @ 52 3/4 ............................................ 79,125
Manufacturer of biochemical and organic products used for research and
diagnostics
Earnings P/S....$.85, 1.15, 1.30, 1.44, 1.21, 1.75, 2.04, 2.21, 2.40, 2.79 14.1%
Dividends P/S....$.13, .15, .17, .19, .20, .23, .26, .30, .34, .38 12.7%
Price/Earnings Ratio.............19.0
----------
262,888
----------
Commercial Services (1.25%)
1,900 Sysco Corp. @ 32 1/8....................................................... 61,038
----------
Largest distributer of food service products
Earnings P/S....$.35, .45, .60, .73, .84, .93, 1.08, 1.18, 1.38, 1.52 17.7%
Dividends P/S....$.06, .07, .08, .09, .10, .14, .22, .28, .36, .44 24.8%
Price/Earnings Ratio.....22.0
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Computer & Office Equipment (2.32%)
2,600 Alco Standard Corp @ 43 5/8 ............................................... $ 113,425
----------
Distributor of office and paper products
Earnings P/S....$.84, 1.15, 1.96, .91, .82, 1.07, 1.18, (.72), 1.71, 1.81 8.9%
Dividends P/S....$.32, .33, .35, .39, .43, .45, .47, .49, .51, .53 6.0%
Price/Earnings Ratio.....25.5
Consumer Cyclicals & Services (1.44%)
1,000 Albertson's,Inc. @ 42 3/8 ................................................. 42,375
Idaho-based operator of supermarkets and combination food-drug stores
Earnings P/S....$.47, .61, .74, .79, .93, .91, 1.26, 1.46, 1.75, 1.96 17.2%
Dividends P/S....$.12, .14, .19, .23, .27, .31, .35, .42, .50, .58 19.1%
Price/Earnings Ratio.....21.2
600 McDonald's Corp @ 46 3/8 .................................................. 27,825
Dominant force in the fast food industry
Earnings P/S....$.73, .86, .98, 1.10, 1.14, 1.24, 1.38, 1.55, 1.82, 2.08 12.3%
Dividends P/S....$.11, .12, .14, .15, .17, .18, .20, .21, .23, .26 10.0%
Price/Earnings Ratio.....23.0
----------
70,200
----------
Consumer Durables (1.88%)
500 Illinois Tool Works, Inc. @ 69 1/8 ........................................ 34,563
Manufactures construction fasteners and packaging systems
Earnings P/S....$1.03, 1.33, 1.53, 1.68, 1.64, 1.64, 1.77, 2.04, 2.95, 3.61 15.0%
Dividends P/S....$.18, .20, .22, .27, .33, .40, .45, .49, .54, .62 14.7%
Price/Earnings Ratio.....19.6
2,000 Leggett & Platt, Inc. @ 28 1/2 ............................................ 57,000
Produces intermediate products for the home furnishings industry
Earnings P/S....$.278, .273, .323, .21, .30, .70, .93, 1.21, 1.52, 1.53 20.9%
Dividends P/S....$.10, .14, .16, .185, .21, .215, .23, .27, .31, .38 9.4%
Price/Earnings Ratio.....18.9
----------
91,563
----------
Consumer Non-Durables (9.25%)
1,200 CPC International Inc. @ 68 7/8 ........................................... 82,650
Major international food processor
Earnings P/S....$2.17, 1.84, 2.11, 2.42, 2.50, 2.68, 2.85, 2.13, 3.42, 3.60 5.8%
Dividends P/S....$.57, .65, .76, .88, 1.00, 1.10, 1.20, 1.28, 1.38, 1.48 11.2%
Price/Earnings Ratio.....19.3
750 H.J. Heinz Co. @ 31 1/2..... .............................................. 23,625
Leading food manufacturer and distributor
Earnings P/S....$1.46, 1.67, 1.26, 1.31, 1.69, 1.33, 1.39, 1.59, 1.64, 1.77 2.2%
Dividends P/S....$.32, .39, .45, .52, .60, .68, .76, .84, .92, 1.01 13.6%
Price/Earnings Ratio.....18.4
900 Kimberly-Clark Corp. @ 78 3/8 ............................................. 70,538
Leading producer of consumer and personal care products
Earnings P/S....$1.87, 2.36, 2.63, 2.70, 2.99, 3.32, 2.10, 3.36, 3.35, .72 NMF
Dividends P/S....$.60, .70, .78, 1.26, 1.32, 1.48, 1.59, 1.67, 1.71, 1.76 12.7%
Price/Earnings Ratio.....17.2
2,600 PepsiCo, Inc. @ 28 3/4 .................................................... 74,750
Second largest soft drink company
Earnings P/S....$.38, .49, .57, .68, .72, .73, .85, 1.01, 1.16, 1.10 12.5%
Dividends P/S....$.105, .11, .14, .16, .19, .23, .26, .31, .35, .39 15.7%
Price/Earnings Ratio.....27.3
1,400 Procter & Gamble Co. (The) @ 88 7/8 ....................................... 124,425
Leading producer of household consumer products
Earnings P/S....$.46, 1.48, 1.74, 2.25, 2.46, 2.62, .25, 1.90, 3.71, 4.29 28.2%
Dividends P/S....$.67, .68, .70, .83, .93, 1.00, 1.08, 1.17, 1.32, 1.50 9.4%
Price/Earnings Ratio.....21.2
2,400 Sara Lee Corp. @ 31 1/2 ................................................... 75,600
Manufacturer of brand name packaged food and consumer products
Earnings P/S....$.59, .71, .88, .95, 1.08, 1.54, 1.40, .44, 1.62, 1.83 13.4%
Dividends P/S....$.20, .25, .30, .36, .42, .47, .50, .58, .64, .68 14.6%
Price/Earnings Ratio.....18.1
----------
451,588
----------
Diversified Operations (1.69%)
1,300 Corning Inc. @ 37 1/4 ..................................................... 48,425
Operations are in laboratory services, fiber optics, specialty
materials and consumer products Earnings P/S....$1.03, 1.63, 1.40, 1.54,
1.59, 1.70, 1.44, (.001), (.47), 1.46 4.0%
Dividends P/S....$.35, .36, .38, .41, .46, .53, .62, .68, .69, .72 8.3%
Price/Earnings Ratio.....26.5
1,500 Federal Signal Corp. @ 22 5/8 ............................................. 33,938
Manufactures fire trucks and street sweepers, as well as public
safety, signaling and communications equipment
Earnings P/S....$.32, .41, .50, .66, .63, .70, .72, .92, 1.13, 1.19 15.7%
Dividends P/S....$.14, .15, .16, .19, .22, .27, .32, .36, .42, .50 15.2%
Price/Earnings Ratio.....19.2
----------
82,363
----------
Electrical Equipment (11.15%)
2,200 AMP Inc. @ 38 1/4 ......................................................... 84,150
World's largest manufacturer of electrical/electronic connectors
Earnings P/S....$1.16, 1.48, 1.32, 1.35, 1.29, 1.26, 1.41, 1.52, 1.84, 2.09 6.8%
Dividends P/S....$.37, .43, .50, .60, .68, .72, .76, .80, .84, .92 10.7%
Price/Earnings Ratio.....18.5
1,800 Emerson Electric Co. @ 83 3/4 ............................................. 150,750
Produces and sells electrical/electronic products and systems
Earnings P/S....$2.00, 2.31, 2.63, 2.75, 2.81, 2.92, 3.10, 3.91, 4.03, 4.42 9.2%
Dividends P/S....$.93, .98, 1.03, 1.16, 1.28, 1.34, 1.40, 1.47, 1.60, 1.84 7.9%
Price/Earnings Ratio.....19.4
2,500 General Electric Co. @ 83 1/8 ............................................. 207,813
Dominant force in home appliances, electrical power, and financial
services
Earnings P/S....$1.60, 1.88, 2.18, 2.43, 2.52, 2.55, 2.24, 3.13, 3.67, 4.14 11.1%
Dividends P/S....$.58, .65, .70, .82, .94, 1.02, 1.12, 1.26, 1.44, 1.64 12.2%
Price/Earnings Ratio.....20.7
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Electrical Equipment (continued)
1,500 W.W. Grainger, Inc. @ 67 1/2 .............................................. $ 101,250
Leading distributor of electrical equipment
Earnings P/S....$1.48, 1.57, 1.96, 2.19, 2.35, 2.43, 2.71, 3.19, 2.55, 3.89 11.3%
Dividends P/S....$.36, .39, .43, .50, .57, .61, .65, .71, .78, .89 10.6%
Price/Earnings Ratio.....18.0
----------
543,963
----------
Energy (2.13%)
700 Exxon Corp. @ 81 3/8 ...................................................... 56,963
Major factor in the crude oil, natural gas and chemical industry
Earnings P/S....$3.43, 3.83, 3.51, 3.10, 4.76, 3.56, 3.95, 3.91, 5.08, 5.32 5.0%
Dividends P/S....$1.80, 1.90, 2.15, 2.30, 2.47, 2.68, 2.83, 2.88, 2.91, 3.00 5.8%
Price/Earnings Ratio.....15.9
1,300 Questar Corp. @ 36 1/4 .................................................... 47,125
Diversified holding company for Utah, Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S....$.67, .64, 1.27, 1.46, 1.67, 1.46, 2.24, 1.92, 1.12, 2.27 14.5%
Dividends P/S....$.87, .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16 3.3%
Price/Earnings Ratio.....16.2
----------
104,088
----------
Healthcare (9.65%)
1,800 Abbott Laboratories @ 45 1/8 .............................................. 81,225
Major pharmaceutical and healthcare firm
Earnings P/S....$.70, .84, .97, 1.11, 1.19, 1.38, 1.58, 1.77, 2.01, 2.28 14.0%
Dividends P/S....$.20, .24, .29, .34, .40, .48, .58, .66, .74, .82 17.0%
Price/Earnings Ratio.....20.5
1,600 American Home Products
Corp. @ 59 1/4 ............................................................ 94,800
Leading manufacturer of ethical pharmaceuticals
Earnings P/S....$(1.32), 1.61, 1.77, 3.03, 1.95, 1.85, 2.30, 2.42, 3.48, 1.97 NMF
Dividends P/S....$.78, .84, .90, .98, 1.08, 1.19, 1.33, 1.43, 1.47, 1.51 7.6%
Price/Earnings Ratio.....31.3
2,800 Johnson & Johnson @ 49 1/4 ................................................ 137,900
Major producer of prescription and non-prescription drugs, toiletries,
medical instruments and supplies
Earnings P/S....$.59, .71, .80, .86, 1.03, 1.16, 1.31, 1.47, 1.73, 2.04 14.8%
Dividends P/S....$.17, .20, .24, .28, .33, .39, .45, .51, .57, .64 15.9%
Price/Earnings Ratio.....24.3
400 Medtronic, Inc. @ 52 ...................................................... 20,800
World's leading producer of implantable cardiac pacemakers
Earnings P/S....$.79, .92, 1.01, .50, .59, .72, .93, 1.07, 1.43, 1.99 10.8%
Dividends P/S....$.05, .06, .07, .09, .10, .12, .14, .17, .21, .26 20.1%
Price/Earnings Ratio.....30.7
1,000 Merck & Co., Inc. @ 65 5/8 ................................................ 65,625
World's largest ethical drug manufacturer
Earnings P/S....$.74, 1.02, 1.26, 1.52, 1.67, 1.97, 1.77, 2.33, 2.53, 2.90 16.4%
Dividends P/S....$.21, .27, .43, .55, .64, .77, .92, 1.03, 1.14, 1.24 21.8%
Price/Earnings Ratio.....23.1
1,000 Pfizer Inc. @ 71 .......................................................... 71,000
Leading ethical pharmaceutical producer
Earnings P/S....$1.02, 1.18, 1.01, 1.19, 1.25, 1.18, 1.76, 1.14, 2.22, 2.72 11.5%
Dividends P/S....$.41, .45, .50, .55, .60, .66, .74, .84, .94, 1.04 10.9%
Price/Earnings Ratio.....26.6
----------
471,350
----------
Information Processing (4.65%)
2,700 Automatic Data Processing, Inc. @ 41 5/8 .................................. 112,388
Largest independent computing services firm in the U.S.
Earnings P/S....$.42, .54, .62, .72, .81, .92, 1.04, 1.19, 1.39, 1.58 15.9%
Dividends P/S....$.09, .11, .13, .15, .17, .20, .23, .26, .29, .35 15.9%
Price/Earnings Ratio.....26.8
2,100 Electronic Data Systems Corp. @ 54 1/2 .................................... 114,450
Leading provider of information processing services
Earnings P/S....$.66, .79, .91, 1.04, 1.06, 1.25, 1.41, 1.59, 1.83, .85 2.9%
Dividends P/S....$.10, .13, .17, .24, .28, .32, .36, .40, .48, .52 20.1%
Price/Earnings Ratio.....66.2
----------
226,838
----------
Insurance (3.81%)
1,200 AFLAC Corp. @ 34 3/8....................................................... 41,250
Global specialty insurer
Earnings P/S....$.62, .72, .53, .77, .86, 1.09, 1.34, 1.72, 2.17, 2.35 16.0%
Dividends P/S....$.11, .12, .13, .15, .18, .20, .23, .26, .30, .34 13.4%
Price/Earnings Ratio.....14.6
700 American International Group @ 95 ......................................... 66,500
Broadly based property-casualty insurance organization
Earnings P/S....$3.92, 4.42, 4.61, 4.86, 3.13, 3.35, 3.68, 4.24, 4.91, 5.71 4.3%
Dividends P/S....$.08, .09, .13, .16, .18, .21, .24, .26, .29, .32 16.6%
Price/Earnings Ratio.....17.0
500 Chubb Corp. @ 44 3/8 ...................................................... 22,188
Broadly based property-casualty insurance organization
Earnings P/S....$1.99, 2.14, 2.46, 3.04, 3.26, 3.20, 3.20, 3.70, 1.43,
3.61, 3.89 7.7%
Dividends P/S....$.40, .45, .54, .58, .66, .74, .80, .86, .92, .98 10.5%
Price/Earnings Ratio.....11.6
500 Providian Corp. @ 41 3/8 .................................................. 20,688
Broadly based property-casualty insurance organization
Earnings P/S....$1.68, 2.00, 2.93, 1.70, 2.45, 2.76, 3.28, 3.04, 3.17, 4.17 10.6%
Dividends P/S....$.41, .44, .47, .50, .54, .60, .66, .73, .80, .90 9.1%
Price/Earnings Ratio......9.9
800 Reliastar Financial Corp. @ 44 1/8 ........................................ 35,300
Financial services company engaged in life/health insurance and
consumer finance
Earnings P/S....$1.86, 1.58, 2.07, 1.99, 1.70, 1.72, 2.44, 2.95, 3.82, 4.70 10.9%
Dividends P/S....$.43, .47, .57, .59, .65, .69, .73, .79, .88, .98 9.6%
Price/Earnings Ratio......9.8
----------
185,926
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Media and Information Services (2.90%)
1,500 Gannett Co., Inc @ 67...................................................... $ 100,500
Publishes 81 daily/50 nondaily newspapers, operates 10 TV , 8 FM and 7
AM stations
Earnings P/S....$1.98, 2.26, 2.47, 2.36, 2.16, 2.13, 2.58, 2.93, 3.43, 3.51 6.6%
Dividends P/S....$.86, .94, 1.02, 1.11, 1.21, 1.24, 1.26, 1.30, 1.34, 1.38 5.4%
Price/Earnings Ratio.....19.2
1,000 McGraw-Hill Companies, Inc. @ 41 .......................................... 41,000
Supplier of information products and services for business and
education industry
Earnings P/S....$1.64, 1.92, .91, 1.77, 1.70, 1.53, 1.66, .16, 2.09, 2.34 4.0%
Dividends P/S....$.76, .84, .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20 5.2%
Price/Earnings Ratio.....17.9
----------
141,500
----------
Packaging (2.43%)
2,000 Bemis Company, Inc. @ 29 7/8 .............................................. 59,750
Producer of a broad range of flexible packaging and equipment and
pressure sensitive materials
Earnings P/S....$.59, .74, .90, .99, .96, 1.13, 1.10, 1.00, 1.50, 1.79 13.1%
Dividends P/S....$.15, .18, .22, .30, .36, .42, .46, .50, .54, .64 17.5%
Price/Earnings Ratio.....18.5
2,000 Sonoco Products Corp. @ 29 5/8 ............................................ 59,250
Leading manufacturer of containers, paper products and packaging
Earnings P/S....$.77, 1.10, 1.18, .52, .48, 1.11, .97, 1.24, 1.54, 1.75 9.6%
Dividends P/S....$.18, .21, .30, .39, .43, .44, .48, .50, .53, .59 14.1%
Price/Earnings Ratio.....16.7
----------
119,000
----------
Retail (4.38%)
900 Lowe's Companies, Inc. @ 36 1/8 ........................................... 32,513
Retailer of building materials and supplies, lumber, hardware and
appliances
Earnings P/S....$.39, .46, .51, .55, .38, .16, .72, 1.21, 1.53, 1.50 16.2%
Dividends P/S....$.098, .105, .113, .12, .13, .135, .14, .16, .17, .185 7.4%
Price/Earnings Ratio.....26.3
600 May Dept. Stores Co. (The) @ 45 1/2 ....................................... 27,300
Operates 318 department stores and 3,295 shoe stores
Earnings P/S....$1.45, 1.82, 1.76, 1.75, 2.00, 2.01, 2.36, 2.77, 3.06, 3.00 8.4%
Dividends P/S....$.46, .50, .56, .63, .70, .73, .75, .81, .91, 1.01 9.1%
Price/Earnings Ratio.....15.6
2,300 Pep Boys - Manny, Moe & Jack (The) @ 33 1/2 ............................... 77,050
Retailer of automotive parts and accessories
Earnings P/S....$.62, .76, .63, .71, .60, .82, .97, 1.21, 1.32, 1.48 10.2%
Dividends P/S....$.07, .08, .09, .11, .12, .13, .14, .15, .17, .19 11.7%
Price/Earnings Ratio.....23.9
2,900 Wal-Mart Stores, Inc. @ 26 1/2 ............................................ 76,850
Operates chain of discount department stores
Earnings P/S....$.28, .37, .48, .52, .62, .77, .93, 1.08, 1.23, 1.24 18.0%
Dividends P/S....$.02, .03, .04, .06, .07, .09, .11, .13, .17, .20 30.7%
Price/Earnings Ratio.....22.0
----------
213,713
----------
Steel (0.33%)
800 Worthington Industries, Inc. @ 20 1/4 ..................................... 16,200
----------
Processor of close-tolerance steel
Earnings P/S....$.45, .61, .70, .61, .50, .63, .74, .94, 1.29, 1.01 9.4%
Dividends P/S....$.14, .17, .19, .23, .26, .28, .32, .34, .39, .43 13.3%
Price/Earnings Ratio.....19.9
Telecommunications (2.77%)
1,000 ALLTEL Corp. @ 28 1/4 ..................................................... 28,250
One of the country's largest telephone systems
Earnings P/S....$1.00, .94, 1.13, 1.12, 1.19, 1.14, 1.32, 1.49, 1.58, 1.85 7.1%
Dividends P/S....$.44, .45, .51, .57, .64, .70, .74, .80, .88, .96 9.1%
Price/Earnings Ratio.....14.9
2,200 Frontier Corp. @ 29 1/2 ................................................... 64,900
Provides telephone service to the city of Rochester N.Y. and outlying
areas
Earnings P/S....$.93, 1.06, .99, .86, 1.12, .98, 1.14, 1.43, 1.30, 1.30 3.8%
Dividends P/S....$.64, .66, .68, .71, .73, .75, .77, .79, .81, .83 2.9%
Price/Earnings Ratio.....21.7
900 SBC Communications, Inc. @ 46 5/8 ......................................... 41,963
Provides telephone service throughout the United States and
internationally
Earnings P/S....$1.74, 1.76, 1.82, 1.84, 1.79, 2.07, 2.30, 2.55, 2.89, 3.30 7.4%
Dividends P/S....$1.05, 1.14, 1.22, 1.29, 1.36, 1.41, 1.45, 1.50, 1.56, 1.63 5.0%
Price/Earnings Ratio.....14.4
----------
135,113
----------
Tobacco (1.47%)
800 Philip Morris Cos., Inc. @ 89 3/4 ......................................... 71,800
----------
Global tobacco, brewing and food company
Earnings P/S....$1.94, 2.22, 3.18, 3.83, 4.17, 5.34, 4.25, 5.96, 7.10 15.5%
Dividends P/S....$.62, .79, 1.01, 1.25, 1.55, 1.91, 2.35, 2.60, 3.03, 3.65 21.8%
Price/Earnings Ratio.....12.9
Transportation - Rail (0.73%)
700 CSX Corp. @ 50 5/8 ........................................................ 35,432
----------
Nation's third largest rail system
Earnings P/S....$2.78, (.30), 4.11, 3.62, 2.02, (2.47), 2.06, 2.17, 2.65, 4.07 4.3%
Dividends P/S....$.58, .58, .62, .64, .70, .72, .76, .79, .88, .92 5.3%
Price/Earnings Ratio.....12.4
Utilities (2.27%)
1,000 Central and South West Corp. @ 26 3/8 ..................................... 26,374
Dallas-based utility holding company
Earnings P/S....$1.96, 1.72, 1.63, 1.90, 1.73, 1.92, 2.05, 1.47, 2.00, 1.63 NMF
Dividends P/S....$1.07, 1.14, 1.22, 1.30, 1.38, 1.46, 1.54, 1.62, 1.70, 1.72 5.4%
Price/Earnings Ratio.....15.8
1,100 National Fuel Gas Co. @ 37 ................................................ 40,700
Integrated natural gas system serves the Buffalo, New York area and
contiguous districts reaching into western Pennsylvania and eastern
Ohio
Earnings P/S....$1.49, 1.65, 1.93, 1.83, 1.92, 1.99, 1.91, 2.22, 2.25, 2.62 6.5%
Dividends P/S....$1.12, 1.19, 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61 4.1%
Price/Earnings Ratio.....14.0
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Utilities (continued)
800 Union Electric Co. @ 37 3/8 ............................................... $29,900
Largest electric utility in Missouri
Earnings P/S....$2.91, 2.56, 2.91, 2.74, 2.90, 2.61, 3.15, 2.81, 2.80, 2.85 NMF
Dividends P/S....$1.86, 1.92, 1.94, 2.02, 2.10, 2.18, 2.26, 2.34, 2.40, 2.46 3.2%
Price/Earnings Ratio.....12.9
500 Wisconsin Energy Corp. @ 27 1/2 ........................................... 13,750
Electric and gas utility holding company
Earnings P/S....$1.70, 1.82, 1.92, 1.83, 1.85, 1.80, 1.68, 1.57, 2.10, 2.07 2.2%
Dividends P/S....$.88, .94, 1.01, 1.09, 1.16, 1.22, 1.29, 1.34, 1.40, 1.46 5.8%
Price/Earnings Ratio.....13.0
----------
110,724
----------
TOTAL COMMON STOCKS
(Cost $3,418,002) 3,943,687
----------
PAR VALUE UNITED STATES GOVERNMENT
(000'S AND AGENCY OBLIGATIONS
OMITTED) (4.18%)
- --------
200 United States Treasury, Note 7.25%, 08-15-04 @ 102.078..................... 204,156
----------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $203,125) 204,156
----------
NUMBER SHORT-TERM INVESTMENTS INTEREST MARKET
OF SHARES (14.99%) RATE VALUE
- --------- ---- -----
Joint Repurchase Agreement (14.92%)
728 Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc. -
Dated 08-30-96, due 09-03-96
(secured by U.S. Treasury Bonds,
7.25% thru 12.00% due 08-15-13
thru 08-15-22 and by U.S.
Treasury Note, 5.25%,
due 12-31-97) Note A............. 5.26% $728,000
----------
Corporate Savings Account (0.07%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%............... 3,281
----------
TOTAL SHORT-TERM INVESTMENTS (14.99%) 731,281
------ ----------
TOTAL INVESTMENTS (99.98%) $4,879,124
====== ==========
</TABLE>
NMF No Meaningful Figure
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Active
Bond Fund on August 31, 1996. It's divided into two main categories: bonds and
short-term investments. The bonds are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S+P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING OMITTED) VALUE
- ------------------- ---- ------ -------- -----
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
Banks (6.80%)
Barclays North American Capital Corp., Gtd Cap Note 5/15/21.................... 9.750% AA- $ 25 $ 28,156
International Bank For Reconstruction and Development, 30 Yr Bond 7/15/17...... 9.250 AAA 25 29,424
RBSG Capital Corp., Gtd Cap Note 3/01/04....................................... 10.125 A+ 25 28,562
----------
86,142
----------
Broadcasting (3.98%)
Cablevision Systems Corp., Sr Sub Deb 4/01/04.................................. 10.750 B 5 5,125
Century Communications Corp., Sr Sub Deb 10/15/03.............................. 11.875 B+ 10 10,625
Lenfest Communications, Inc., Sr Sub Note 6/15/06, (R)......................... 10.500 BB- 10 9,950
NS Group, Inc., Sr Sec Note 7/15/03............................................ 13.500 B- 5 4,913
Time Warner Inc., Deb 1/15/13, (R)............................................. 9.125 BBB- 10 10,242
Viacom Inc., Sr Note 6/01/05................................................... 7.750 BB+ 10 9,533
----------
50,388
----------
Finance (4.67%)
Contifinancial Corp., Sr Note 8/15/03.......................................... 8.375 BB+ 5 4,913
CS First Boston, Sub Note 5/15/06, (R)......................................... 7.750 A3* 10 10,022
Fairfax Financial Holdings, Ltd., Note 4/15/26................................. 8.300 BBB+ 25 24,379
Money Store Trust, (The) Asset Backed Ctf, Ser 1995-C 9/15/11.................. 6.375 AAA 5 4,811
Polysindo International Finance Co., Gtd Sec Note 6/15/06...................... 11.375 BB 5 5,038
Spieker Properties, L.P., Medium Term Note 7/19/05............................. 8.000 BBB 10 10,033
----------
59,196
----------
Governmental - U.S. (36.51%)
United States Treasury,
Bond 8/15/17.................................................................. 8.875 AAA 30 35,136
Bond 5/15/18.................................................................. 9.125 AAA 25 30,000
Bond 2/15/23.................................................................. 7.125 AAA 40 39,312
Note 11/15/96................................................................. 7.250 AAA 25 25,084
Note 5/15/98.................................................................. 9.000 AAA 95 99,110
Note 11/30/99................................................................. 7.750 AAA 135 139,493
Note 5/15/01.................................................................. 8.000 AAA 65 68,340
Note 2/15/05.................................................................. 7.500 AAA 25 25,899
----------
462,374
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond 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 (13.40%)
Federal Home Loan Mortgage Corp., Ser 1601 10/15/08............................ 6.000% AAA $ 25 $ 22,180
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 11/15/24............................................... 8.000 AAA 137 137,542
30 Yr SF Pass thru Ctf 8/15/26................................................ 8.000 AAA 10 9,997
----------
169,719
----------
Insurance (0.72%)
New York Life Insurance Co., Surplus Note 12/15/23, (R)........................ 7.500 AA 10 9,149
----------
Paper (0.37%)
Repap New Brunswick, Sr Note 4/15/05........................................... 10.625 B+ 5 4,750
----------
Publishing (1.92%)
News America Holdings, Inc., Deb 8/10/18....................................... 8.250 BBB 25 24,283
----------
Steel (0.77%)
Weirton Steel Corp., Sr Note 7/01/04, (R)...................................... 11.375 B 10 9,700
----------
Telecommunications (1.52%)
TCI Communications, Inc., Deb 8/01/15.......................................... 8.750 BBB- 15 14,243
Teleport Communications Group Inc., Sr Note 7/01/06............................ 9.875 B 5 5,013
----------
19,256
----------
Tobacco (1.09%)
RJR Nabisco, Inc., Note 9/15/03................................................ 7.625 BBB- 15 13,800
----------
Utilities (18.36%)
Cleveland Electric Illuminating Co., 1st Mtg Note 5/15/05...................... 9.500 BB 10 9,675
CTC Mansfield Funding Corp., Sec Lease Oblig 9/30/16........................... 11.125 B+ 15 15,080
E.I.P. Refunding Corp., Sec Fac Bond 10/01/12.................................. 10.250 B+ 25 25,580
Empresa Electrica Pehuenche S.A., Note 5/1/03.................................. 7.300 BBB+ 25 24,564
First PV Funding Corp., Lease Oblig Ser 1986-B 1/15/16......................... 10.150 B+ 10 10,525
GTE Corp., Deb 11/15/17........................................................ 10.300 BBB+ 25 27,234
Hydro-Quebec (Gtd By Province Of Quebec),
Deb 2/01/03................................................................... 7.375 A+ 25 25,008
Deb Ser HS 2/01/21............................................................ 9.400 A+ 15 17,005
Iberdrola International B.V., Gtd Note 6/01/23, (R)............................ 7.125 AA- 25 24,938
Long Island Lighting Co., Gen Ref Bond 5/01/21................................. 9.750 BBB- 25 24,558
Midland Funding Corp. I, Sr Sec Lease Oblig Ser C 7/23/02...................... 10.330 BB- 22 23,409
System Energy Resources, Bond 8/01/01.......................................... 7.710 BBB- 5 5,044
----------
232,620
----------
TOTAL PUBLICLY TRADED BONDS
(Cost $1,165,631) (90.11%) 1,141,377
------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.95%)
Investment in a joint repurchase agreement transaction with SBC Capital
Markets, Inc. - Dated 08-30-96, due 9-03-96 (Secured by U. S. Treasury
Bonds 7.25% through 12.00%, due 8-15-13 through 8-15-22, and
by U.S. Treasury Note, 5.25%, due 12-31-97) - Note A................................ 5.260% $126 $ 126,000
----------
Corporate Savings Account (0.05%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current rate 4.75%.................................................................. 700
----------
TOTAL SHORT-TERM INVESTMENTS (10.00%) 126,700
------ ----------
TOTAL INVESTMENTS (100.11%) $1,268,077
======= ==========
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $74,001 as of August 31,1996. See note A
of the Notes to Financial Statements for valuation policy.
* Credit ratings are rated by Moody's Investor Services or John Hancock
Advisers, Inc. where Standard and Poors ratings are not available.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Global
Bond Fund on August 31, 1996. It's divided into two main categories: bonds and
short-term investments. The bonds are further broken down by currency
denomination. Short-term investments, which represent the Fund's "cash"
position, are listed last.
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
BONDS
Australia (1.29%)
Commonwealth of Australia,
Bond Ser 400 04-15-00 ............... 7.000% 17 $ 13,259
--------
Canada (2.17%)
Government of Canada,
Bond 09-01-01 ....................... 7.000 30 22,191
--------
Denmark (3.86%)
Kingdom of Denmark, Bond-Bullet
03-15-06 ............................ 8.000 217 39,563
--------
France (3.88%)
Republic of France,
Deb 04-25-05 ........................ 7.500 100 21,221
Deb 10-25-05 ........................ 7.750 86 18,541
--------
39,762
--------
Germany (13.41%)
Federal Republic of Germany,
Bond Ser 96 01-05-06 ................ 6.000 209 137,337
--------
Italy (6.16%)
Republic of Italy, Bond 11-01-00 ..... 10.500 90,000 63,134
--------
Spain (4.77%)
Kingdom of Spain,
Deb 02-28-05 ........................ 10.000 5,710 48,819
--------
Sweden (4.04%)
Kingdom of Sweden,
Bond Ser 1033 05-05-03 .............. 10.250 200 34,035
Swedish Export Credit Corp.,
Global Bond 06-05-01 ................ 6.500 50 7,298
--------
41,333
--------
United Kingdom (7.85%)
United Kingdom Treasury,
Bond 12-07-06 ....................... 7.500 53 80,459
--------
United States (48.43%)
Federative Republic of Brazil,
Floating Rate Bond
Ser EI-L 04-15-06 ................... 6.500* 100 84,250
Republic of Argentina,
Global Bond 02-23-01 ................ 9.250 25 23,750
United Mexican States,
Global Bond 02-06-01 ................ 9.750 25 25,187
United States Treasury,
Note 02-28-98 ....................... 5.125 50 49,226
Note 05-31-98 ....................... 6.000 55 54,725
Note 06-30-98 ....................... 6.250 30 29,972
Note 12-31-00 ....................... 5.500 81 77,380
Note 05-15-05 ....................... 6.500 156 151,637
--------
496,127
--------
TOTAL BONDS
(Cost $985,460) (95.86%) 981,984
--------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.05%)
Investment in a joint repurchase agreement
transaction with SBC Capital Markets Inc. -
Dated 08-30-96, due 09-03-96 (secured by
U.S. Treasury Bond, 8.125% due 08-15-21,
and by U.S. Treasury Note, 7.50%
due 12-31-96) Note A..... 5.260 21 21,000
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $21,000) (2.05%) 21,000
------- ----------
TOTAL INVESTMENTS (97.91%) $1,002,984
======= ==========
# Par value of foreign bonds are expressed in local currency.
* Represents rate in effect on August 31, 1996.
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
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by companies and governments of other
countries. The performance of the Fund is closely tied to the economic
conditions within the countries in which it invests. The concentration of
investment by country of denomination for individual securities held by the fund
is shown in the schedule of investments. In addition, the concentration of
investments can be aggregated by various investment categories. The table below
shows the percentages of the Fund's investments at August 31, 1996 assigned to
the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
- --------------------- --------------------
Finance............................................... 0.71%
Governmental - Foreign................................ 59.72
Governmental - United States.......................... 35.43
Short-term Investments................................ 2.05
-----
TOTAL INVESTMENTS 97.91%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Multi-Sector Growth Fund on August 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (4.13%)
Hexcel Corp.* .............................. 5,500 $ 96,938
Precision Castparts Corp. .................. 4,000 195,500
Rohr Industries, Inc.* ..................... 4,000 83,500
Wyman-Gordon Co.* .......................... 18,500 386,188
----------
762,126
----------
Computers (8.71%)
BDM International, Inc.* ................... 6,400 339,200
Cisco Systems, Inc.* ....................... 3,300 174,075
Comverse Technology, Inc.* ................. 11,000 387,750
McAfee Associates, Inc.* ................... 3,400 202,725
Netscape Communications Corp.* ............. 4,500 159,188
Peoplesoft, Inc.* .......................... 2,300 176,525
Sun Microsystems, Inc.* .................... 3,100 168,563
----------
1,608,026
----------
Finance (4.80%)
Aames Financial Corp. ...................... 4,000 195,500
Amresco, Inc.* ............................. 4,500 107,430
Associates First Capital Corp. ............. 2,200 86,900
Cityscape Financial Corp.* ................. 2,700 74,250
Green Tree Financial Corp. ................. 4,500 156,375
Imperial Credit Industries, Inc.* .......... 3,000 90,750
United Companies Finanacial Corp. .......... 4,600 174,800
----------
886,005
----------
Leisure (8.03%)
Anchor Gaming* ............................. 900 49,163
Callaway Golf Co. .......................... 5,400 178,200
Lewis Galoob Toys, Inc.* ................... 15,200 399,000
Prime Hospitality Corp.* ................... 21,500 408,500
Sodak Gaming, Inc.* ........................ 8,600 447,200
----------
1,482,063
----------
Metals (5.59%)
Oregon Metallurgical Corp.* ................ 7,300 217,175
RMI Titanium Co.* .......................... 17,200 350,450
Titanium Metals Corp.* ..................... 19,400 463,175
----------
1,030,800
----------
Mining (6.28%)
Aurora Gold Ltd. (Australia)* .............. 20,000 38,770
Bema Gold Corp. (Canada)* .................. 38,000 292,125
Compania de Minas Buenaventura S.A .........
(American Depositary Receipt) (Peru)* ..... 14,000 264,250
Euro-Nevada Mining Corp. (Canada) .......... 8,000 198,791
Getchell Gold Corp.* ....................... 3,000 131,250
Newmont Gold Co. ........................... 1,500 80,813
Stillwater Mining Co.* ..................... 7,500 153,750
----------
1,159,749
----------
Oil & Gas - Equipment and Services (22.97%)
Baker Hughes, Inc. ......................... 6,500 196,625
Diamond Offshore Drilling, Inc.* ........... 10,200 520,200
Energy Ventures, Inc.* ..................... 11,900 391,213
Ensco International, Inc.* ................. 12,500 365,625
Falcon Drilling Co., Inc.* ................. 15,500 350,688
Global Marine, Inc.* ....................... 38,000 546,250
Nabors Industries, Inc.* ................... 10,000 148,750
Pool Energy Services Co.* .................. 7,000 81,375
Precision Drilling Corp. (Class A) (Canada)* 9,500 236,065
Pride Petroleum Services, Inc.* ........... 12,000 172,500
Reading & Bates Corp.* ..................... 18,500 453,250
Smith International, Inc.* ................. 12,500 434,375
Varco International, Inc.* ................. 21,200 341,850
----------
4,238,766
----------
Oil & Gas - Exploration and Production (17.37%)
Barrett Resources Corp.* ................... 5,400 178,875
Benton Oil & Gas Co.* ...................... 21,700 431,288
Canadian Natural Resources Ltd. (Canada)* .. 9,000 184,503
Chesapeake Energy Corp.* ................... 7,700 413,875
Flores & Rucks, Inc.* ...................... 10,800 355,050
Forcenergy, Inc.* .......................... 11,000 237,875
Helmerich & Payne, Inc. .................... 4,000 158,000
Newfield Exploration Co.* .................. 3,000 133,875
Nuevo Energy Co.* .......................... 12,500 467,188
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Oil & Gas - Exploration and Production (continued)
Stone Energy Corp.* ........................ 6,000 $ 117,750
Swift Energy Co.* .......................... 15,800 393,025
Vintage Petroleum, Inc. .................... 5,300 133,825
----------
3,205,129
----------
Real Estate (3.30%)
BRE Properties, Inc. (Class A) ............. 4,000 78,500
Beacon Properties Corp. .................... 3,200 87,200
Franchise Finance Corporation of America ... 3,200 76,000
Reckson Associates Realty Corp. ............ 2,500 88,438
Spieker Properties, Inc. ................... 2,700 80,663
Starwood Lodging Trust ..................... 5,200 197,600
----------
608,401
----------
Telecommunications (2.77%)
Cascade Communications Corp.* .............. 3,400 231,625
DSP Communications, Inc.* .................. 5,500 279,813
----------
511,438
----------
Tobacco (0.68%)
Consolidated Cigar Holdings, Inc.* ......... 4,000 126,000
----------
TOTAL COMMON STOCKS
(Cost $13,490,761) (84.63%) 15,618,503
------ ----------
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (15.25%)
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets, Inc.
Dated 08-30-96, due 09-03-96
(secured by U.S. Treasury Bonds,
7.25% thru 12.00% due 08-15-13
thru 08-15-22 and by U.S. Treasury
Note, 5.25% due 12-31-97)
Note A.................. 5.26% $2,815 2,815,000
-----------
TOTAL SHORT-TERM INVESTMENTS (15.25%) 2,815,000
------ -----------
TOTAL INVESTMENTS (99.88%) $18,433,503
====== ===========
* 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.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Multi-Sector Growth Fund invests primarily in common stocks of U.S. and
foreign issuers. The performance of the Fund is closely tied to the economic and
financial conditions within the countries in which it invests. The concentration
of investments by industry category for individual securities held by the Fund
is shown in the schedule of investments. In addition, concentration of
investments can be aggregated by various countries. The table below shows the
percentages of the Fund's investments at August 31, 1996 assigned to country
categories.
MARKET VALUE AS A
PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Australia ................................................ 0.21%
Canada ................................................... 4.94
Peru ..................................................... 1.43
United States ............................................ 93.30
-----
TOTAL INVESTMENTS ........... 99.88%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fundamental Value Fund on August 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (2.33%)
Thiokol Corp. .............................. 3,000 $ 134,625
----------
Automobile/Trucks (5.42%)
Arvin Industries Inc. ...................... 13,600 312,800
----------
Beverages (4.54%)
Coors (Adolph) Co. (Class B) ............... 13,100 262,000
----------
Chemicals (1.04%)
Sybron Chemicals, Inc.* .................... 3,800 59,850
----------
Diversified Operations (10.52%)
ACX Technologies, Inc.* .................... 10,000 167,500
Hanson PLC ADR (Great Britain) ............. 15,900 200,738
Horsham Corp. (Canada) ..................... 18,000 238,500
----------
606,738
----------
Food (9.69%)
Archer-Daniels-Midland Co. ................. 15,241 270,523
Morrison Health Care, Inc. ................. 4,333 53,079
Savannah Foods & Industries, Inc. .......... 19,000 235,125
----------
558,727
----------
Leisure (1.05%)
Outboard Marine Corp. ...................... 3,600 60,300
----------
Oil & Gas (5.85%)
Daniel Industries, Inc. .................... 17,800 242,525
Parker Drilling Co.* ....................... 13,600 95,200
----------
337,725
----------
Paper & Paper Products (4.83%)
Glatfelter (P.H.) Co. ...................... 13,400 244,550
James River Corp. of Virginia .............. 1,300 33,800
----------
278,350
----------
Pollution Control (4.37%)
Calgon Carbon Corp. ........................ 21,900 251,850
----------
Real Estate Operations (4.73%)
Tejon Ranch Co. ............................ 17,200 273,050
----------
Retail (16.05%)
Brown Group, Inc. .......................... 4,000 76,000
Darden Restaurants, Inc. ................... 20,000 160,000
Morrison Fresh Cooking, Inc. ............... 38,250 215,156
Ruby Tuesday, Inc. ......................... 6,500 134,875
Ruddick Corp. .............................. 20,000 257,500
Russ Berrie & Co., Inc. .................... 5,200 82,550
----------
926,081
----------
Telecommunications (3.97%)
ANTEC Corp. * .............................. 16,500 228,938
----------
Textile (8.97%)
Burlington Industries Inc. * ............... 20,000 270,000
Delta Woodside Industries, Inc. ............ 2,900 14,500
Garan, Inc. ................................ 14,000 232,750
----------
517,250
----------
Transport (4.29%)
Overseas Shipholding Group, Inc. ........... 13,200 247,500
----------
Utilities (3.93%)
Destec Energy, Inc.* ....................... 17,100 226,575
----------
TOTAL COMMON STOCKS
(Cost $5,324,542) .............. (91.58%) 5,282,359
------ ----------
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.55%)
Investment in a joint repurchase agreement
transaction with SBC Capital Markets, Inc. -
Dated 08-30-96, Due 09-03-96 (secured by
U.S. Treasury Bonds, 7.25% thru 12.00% Due
08-15-13 thru 08-15-22 and by U.S.
Treasury Note, 5.25% due 12-31-97) - Note A.... 5.26% $493 $ 493,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%............................. 725
----------
TOTAL SHORT-TERM INVESTMENTS (8.56%) 493,725
------- ----------
TOTAL INVESTMENTS (100.14%) $5,776,084
======= ==========
* 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.
59
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Equity Fund on August 31, 1996. It's divided into three main
categories: common stocks, warrants and short-term investments. Common stocks
and warrants are further broken down by country. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Australia (4.22%)
Broken Hill Proprietary Co., Ltd.
(Diversified Operations) .................. 1,210 $ 16,483
News Corp. Ltd. (The) (Media) .............. 3,100 16,529
Plutonic Resources Ltd. (Metal) ........... 20,000 100,467
----------
133,479
----------
Brazil (1.88%)
Telecomunicacoes Brasileiras S/A,
American Depositary Receipts (ADR)
(Telecommunications) ...................... 800 59,500
----------
Chile (0.80%)
Santa Isabel S.A. (ADR) (Retail) ........... 1,000 25,375
----------
France (4.21%)
Banque Nationale de Paris
(Banks - Foreign) ......................... 280 10,089
Carrefour SA (Retail) ...................... 150 75,825
LVMH Moet Hennessy Louis Vuitton
(Beverages) ............................... 225 47,424
----------
133,338
----------
Germany (3.79%)
Mannesmann AG (Diversified Operations) ..... 130 46,918
Schering AG (Medical) ...................... 1,000 72,993
----------
119,911
----------
Hong Kong (14.88%)
Cheung Kong (Holdings) Ltd.
(Real Estate Operations) .................. 11,000 77,179
CITIC Pacific Ltd. (Diversified Operations) 12,000 52,768
Hong Kong & Shanghai Hotels Ltd. (Leisure) . 30,000 51,798
HSBC Holdings Ltd. (Banks - Foreign) ....... 3,400 58,704
Hutchison Whampoa Ltd. (Diversified
Operations) ............................... 10,000 60,528
Joyce Boutique Holdings Ltd. (Retail) ...... 250,000 66,283
Swire Pacific Ltd. (Diversified Operations) 7,000 62,241
Wharf Holdings Ltd. (Real Estate
Operations) ............................... 11,000 41,542
----------
471,043
----------
Japan (25.74%)
Bridgestone Corp. (Rubber - Tires & Misc) .. 4,000 65,525
Daido Steel Co., Ltd. (Steel) .............. 3,000 13,390
Denki Kagaku Kogyo K.K. (Chemicals) ........ 4,000 13,473
Fujisawa Pharmaceutical Co., Ltd.
(Medical) ................................. 3,000 27,388
Matsushita Electric Industrial Co., Ltd.
(Electronics) ............................. 5,000 84,208
Matsushita-Kotobuki Electronics Industries,
Ltd. (Electronics) ........................ 2,000 48,040
Mitsubishi Heavy Industries, Ltd.
(Machinery) ............................... 10,000 79,054
Nippon Steel Corp. (Steel) ................. 30,000 94,975
Nippon Television Network Corp. (Media) .... 200 59,636
NKK Corp. (Steel)* ......................... 6,000 15,848
Rohm Co., Ltd. (Electronics) ............... 400 23,965
Sanwa Bank Ltd. (Banks - Foreign) .......... 4,000 70,679
Seino Transportation Co., Ltd. (Transport) . 1,000 14,725
Sony Corp. (Electronics) ................... 700 43,935
Sony Music Entertainment, Inc.
(Electronics) ............................. 2,000 78,410
Sumitomo Osaka Cement Co., Ltd.
(Building) ................................ 3,000 12,176
Sumitomo Trust & Banking Co., Ltd.
(Banks - Foreign) ......................... 1,000 11,872
TDK Corp. (Electronics) .................... 1,000 57,611
----------
814,910
----------
Malaysia (1.03%)
Resorts World Berhad (Leisure) ............. 6,000 32,732
----------
Mexico (1.35%)
Telefonos de Mexico S.A. de C.V. (ADR)
(Telecommunications) ...................... 1,300 42,737
----------
Netherlands (2.38%)
Koninklijke P.T.T. Nederland (Utilities) ... 425 14,909
PolyGram N.V. (Household) .................. 1,015 60,444
----------
75,353
----------
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
New Zealand (2.44%)
Carter Holt Harvey Ltd. (Building) ......... 15,300 $ 34,329
Telecom Corporation of New Zealand
(Telecommunications) ...................... 9,000 43,058
----------
77,387
----------
Norway (2.10%)
Nycomed ASA (Medical)* ..................... 2,000 24,966
Orkla AS (Diversified Operations) .......... 750 41,487
----------
66,453
----------
Singapore (3.65%)
Fraser & Neave Ltd. (Beverages) ........... 2,400 24,222
Jardine Matheson Holdings Ltd.
(Diversified Operations) .................. 2,400 15,120
Keppel Corp. Ltd. (Diversified Operations) . 10,000 76,048
----------
115,390
----------
Sweden (1.76%)
Investor AB (Diversified Operations) ....... 1,550 55,712
----------
Switzerland (2.85%)
ABB AG (formerly BBC Brown Boveri AG)
(Engineering / R&D Services) .............. 80 19,528
Ciba Geigy AG (Medical) .................... 42 53,012
Nestle SA (Food) ........................... 15 17,558
----------
90,098
----------
Thailand (2.19%)
Shinawatra Computer and Communication
Public Co., Ltd. (Computers) .............. 2,000 30,982
Siam Cement Public Co., Ltd.
(The) (Building) .......................... 1,000 38,411
----------
69,393
----------
United Kingdom (16.32%)
Bass PLC (Beverages) ....................... 5,000 64,803
Burton Group PLC (Retail) .................. 40,000 95,253
Dixons Group PLC (Retail) .................. 11,300 95,284
EMI PLC (formerly Thorn EMI PLC) (Leisure) . 3,140 70,655
Pearson PLC (Media) ........................ 5,000 53,092
Regal Hotel Group PLC (Leisure) ........... 50,000 44,503
Thorn PLC (Consumer Products)* ............. 3,140 19,024
Wetherspoon (J.D.) PLC (Retail) ........... 5,000 74,172
----------
516,786
----------
TOTAL COMMON STOCKS
(Cost $2,824,068) (91.59%) 2,899,597
------ ----------
WARRANTS
Sweden (0.05%)
Scania AB (Automobile / Trucks)* ............. 1,500 1,563
----------
TOTAL WARRANTS
(Cost $0) ( 0.05%) 1,563
------ ----------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $2,824,068) (91.64%) 2,901,160
------ ----------
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.63%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc. -
Dated 8-30-96, due 9-03-96
(secured by U.S. Treasury Bond,
8.125% due 8-15-21; and
U.S. Treasury Note, 7.50%,
due 12-31-96) - Note A ................... 5.260% $ 305 305,000
----------
TOTAL SHORT-TERM INVESTMENTS (9.63%) 305,000
------- ----------
TOTAL INVESTMENTS (101.27%) $3,206,160
======= ==========
* 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.
61
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries it invests. The concentration of investments by country for
individual securities held by the Fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various
industry groups. The table below shows the percentages of the Fund's investments
at August 31, 1996 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
- --------------------- --------------------------
Automobile/Trucks .................................... 0.05%
Banks - Foreign ...................................... 4.78
Beverages ............................................ 4.31
Building ............................................. 2.68
Chemicals ............................................ 0.43
Computers ............................................ 0.98
Consumer Products .................................... 0.60
Diversified Operations ............................... 13.50
Electronics .......................................... 10.62
Engineering / R & D Services ......................... 0.62
Food ................................................. 0.55
Household ............................................ 1.91
Leisure .............................................. 6.31
Machinery ............................................ 2.50
Media ................................................ 4.08
Medical .............................................. 5.63
Metal ................................................ 3.17
Real Estate Operations ............................... 3.75
Retail ............................................... 13.65
Rubber ............................................... 2.07
Steel ................................................ 3.92
Telecommunications ................................... 4.59
Transport ............................................ 0.47
Utilities ............................................ 0.47
Short-Term Investments ............................... 9.63
------
TOTAL INVESTMENTS 101.27%
======
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Small
Capitalization Equity Fund
Schedule of Investments
August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Equity Fund on August 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCK
Advertising (6.08%)
Ackerley Communications, Inc. .............. 200 $ 5,575
Catalina Marketing Corp.* .................. 100 4,750
Lamar Advertising Co.* ..................... 300 8,400
Universal Outdoor Holdings, Inc.* .......... 300 9,150
----------
27,875
----------
Aerospace (0.95%)
REMEC, Inc.* ............................... 300 4,350
----------
Agricultural Operations (0.78%)
Northland Cranberries, Inc. (Class A) ...... 100 3,600
----------
Automobile/Trucks (1.05%)
Gentex Corp. * ............................. 200 4,800
----------
Broker Services (1.14%)
E*TRADE Group, Inc. * ...................... 500 5,250
----------
Business Services - Miscellaneous (5.88%)
Alternative Resources Corp.* ............... 200 7,200
APAC Teleservices, Inc.* ................... 200 8,850
Central Parking Corp. ...................... 200 5,775
National Processsing, Inc.* ................ 300 5,138
----------
26,963
----------
Computers (21.92%)
Access Health, Inc.* ....................... 100 5,075
Aspect Development, Inc.* .................. 300 7,875
Baan Co., N.V. * ........................... 100 3,187
CBT Group PLC * American Depositary Receipt
(Ireland) ................................. 200 8,950
CCC Information Services Group* ............ 300 5,550
CFI Proservices, Inc.* ..................... 200 3,650
Edify Corp.* ............................... 200 4,550
Geoworks * ................................. 100 2,212
HNC Software, Inc.* ........................ 300 9,225
JDA Software Group, Inc.* .................. 200 4,050
MDL Information Systems, Inc.* ............. 300 8,438
National TechTeam, Inc.* ................... 400 7,250
Netscape Communications Corp.* ............. 100 3,538
Prism Solutions, Inc.* ..................... 200 3,125
Project Software & Development, Inc.* ...... 200 7,575
Transaction Systems Architects, Inc. (Class A)* 200 6,100
Versant Object Technology Corp. * .......... 400 6,600
Whittman - Hart, Inc. * .................... 100 3,575
----------
100,525
----------
Electronics (2.85%)
SRS Labs, Inc.* ............................ 500 5,938
Ultrak, Inc.* .............................. 300 7,125
----------
13,063
----------
Finance (11.46%)
Aames Financial Corp. ...................... 100 4,887
Checkfree Corp.* ........................... 400 6,650
Cityscape Financial Corp.* ................. 200 5,500
First USA Paymentech, Inc.* ................ 200 7,550
IMC Mortgage Co.* .......................... 300 9,862
Medallion Financial Corp.* ................. 500 6,438
PMT Services, Inc.* ........................ 450 8,156
RAC Financial Group, Inc.* ................. 100 3,500
----------
52,543
----------
Household (0.96%)
Harman International Industries, Inc. ...... 100 4,387
----------
Leisure (8.02%)
Cinar Films, Inc. (Class B)* ............... 300 7,162
Family Golf Centers, Inc.* ................. 300 8,887
Premier Parks, Inc.* ....................... 100 2,500
Regal Cinemas, Inc.* ....................... 200 7,450
Rio Hotel and Casino, Inc.* ................ 200 3,475
Silicon Gaming, Inc.* ...................... 500 4,875
Trump Hotels & Casino Resorts, Inc.* ...... 100 2,413
----------
36,762
----------
Media (3.37%)
Chancellor Corp. (Class A)* ................ 100 3,750
EZ Communications, Inc. (Class A)* ......... 200 8,350
Jacor Communications, Inc.* ................ 100 3,350
----------
15,450
----------
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Small
Capitalization Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Medical (10.65%)
Assisted Living Concepts, Inc. * ........... 300 $ 5,850
CNS, Inc.* ................................. 200 3,575
Dura Pharmaceuticals, Inc.* ................ 200 6,950
ESC Medical Systems, Ltd.* ................. 150 4,069
Myriad Genetics, Inc. * .................... 300 6,600
NCS HealthCare, Inc.* ...................... 300 10,313
Parexel International Corp.* ............... 100 4,850
Schein (Henry) Inc.* ....................... 200 6,650
----------
48,857
----------
Oil & Gas (1.73%)
Benton Oil & Gas Co.* ...................... 400 7,950
----------
Retail (7.79%)
CompUSA, Inc.* ............................. 200 8,025
Global DirectMail Corp. * .................. 100 4,525
North Face, Inc. (The)* .................... 200 4,900
Papa John's International, Inc. * .......... 200 9,050
PetSmart, Inc.* ............................ 200 5,500
Seattle Filmworks, Inc.* ................... 200 3,725
----------
35,725
----------
Schools/Education (1.39%)
Apollo Group, Inc. (Class A)* .............. 250 6,375
----------
Telecommunications (9.65%)
Boston Communications Group, Inc.* ......... 450 7,762
Comverse Technology, Inc. * ................ 200 7,050
DSP Communications, Inc.* .................. 200 10,175
Intermedia Communications, Inc.* ........... 300 9,300
McLeod, Inc. (Class A)* .................... 100 2,888
P-COM, Inc.* ............................... 100 2,475
Tel-Save Holdings, Inc.* ................... 200 4,600
----------
44,250
----------
Textile (3.07%)
Mossimo, Inc. * ............................ 200 9,075
Tommy Hilfiger Corp.* ...................... 100 5,013
----------
14,088
----------
Tobacco (1.37%)
Consolidated Cigar Holdings, Inc.* ......... 200 6,300
----------
TOTAL COMMON STOCK
(Cost $426,919) (100.11%) 459,113
------- ----------
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.36%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 08-30-96, due 09-03-96
(Secured by U.S. Treasury Bonds,
7.25% thru 12.00% due 08-15-13
thru 08-15-22 and by U.S.
Treasury Note, 5.25%,
due 12-31-97) - Note A..................... 5.26% 20 $20,000
----------
Corporate Savings Account (0.14%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% ......................... 648
----------
TOTAL SHORT-TERM INVESTMENTS (4.50%) 20,648
------- ----------
TOTAL INVESTMENTS (104.61%) $ 479,761
======= ==========
* 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.
64
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Dividend Performers Fund ("Dividend Performers Fund"), John Hancock
Active Bond Fund ("Active Bond Fund"), John Hancock Global Bond Fund ("Global
Bond Fund"), John Hancock Multi-Sector Growth Fund ("Multi-Sector Growth Fund"),
John Hancock Fundamental Value Fund ("Fundamental Value Fund"), John Hancock
International Equity Fund ("International Equity Fund"), and John Hancock Small
Capitalization Equity Fund ("Small 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. Prior to September
12, 1995, Dividend Performers Fund was known as John Hancock Berkeley Dividend
Performers Fund, Active Bond Fund was known as John Hancock Berkeley Bond Fund,
Global Bond Fund was known as John Hancock Berkeley Global Bond Fund,
Multi-Sector Growth Fund was known as John Hancock Berkeley Sector Opportunity
Fund, Fundamental Value Fund was known as John Hancock Berkeley Fundamental
Value Fund and International Equity Fund was known as John Hancock Berkeley
Overseas Growth Fund. The Trust, organized as a Massachusetts business trust in
1994, consists of twelve series portfolios: the Funds, John Hancock Independence
Balanced Fund, John Hancock Independence Diversified Core Equity Fund II, John
Hancock Independence Growth Fund, John Hancock Independence Medium
Capitalization Fund and John Hancock Independence Value Fund. 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.
The investment objective of the Dividend Performers Fund is long-term growth
of capital and of income without assuming undue market risk. The investment
objective of the Active Bond Fund is a high level of current income, consistent
with prudent investment risk, through investment primarily in a diversified
portfolio of freely marketable investment grade debt securities of U.S. and
foreign issuers. The investment objective of the Global Bond Fund is a
competitive total investment return, consisting of current income and capital
appreciation. The investment objective of the Multi-Sector Growth Fund is
long-term capital appreciation. The investment objective of the Fundamental
Value Fund is capital appreciation with income as a secondary consideration. The
investment objective of the International Equity Fund is long-term growth of
capital. The investment objective of the Small Capitalization Fund is long-term
growth of capital.
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 repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are determined
on the identified cost basis. Capital gains realized on some foreign securities
are subject to foreign taxes and are accrued, as applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to
65
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
regulated investment companies. They will not be subject to federal income tax
on taxable earnings which are distributed to shareholders. For federal income
tax purposes, net currency exchange gains and losses from sales of foreign debt
securities may be treated as ordinary income even though such items are gains
and losses for accounting purposes. For federal income tax purposes and to the
extent provided by regulations, to offset future net realized capital gains, the
Fundamental Value Fund has a capital loss carryforward available of $230
expiring February 29, 2004. To the extent that such carryforwards are used by
the Funds, no capital gain distribution will be made. Expired capital loss
carryforwards are reclassified to capital paid-in, in the year of expiration.
Additionally, net capital losses for the International Equity Fund of $6,781 and
net foreign currency losses for the Global Bond Fund of $1,367 attributable to
security transactions occurring after October 31, 1995 are treated as arising on
the first day (March 1, 1996) of the Funds next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Funds are made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Funds record all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Funds have been capitalized and are being charged to the Funds' operations
ratably over a five-year period that began with the commencement of 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 amounts of assets, liabilities, revenues,
and expenses of the Fund.
DISCOUNT ON SECURITIES The Funds accrete discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FOREIGN CURRENCY TRANSLATION All assets or 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 Fund does not isolate that portion 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
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds, other than Dividend
Performers Fund, may enter into forward foreign currency exchange contracts as a
hedge against the effect of fluctuations in currency exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency
66
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
at a future date at a set price. The aggregate principal amounts of the
contracts are marked-to-market daily at the applicable foreign currency exchange
rates. Any resulting unrealized gains and losses are included in the
determination of the Fund's daily net assets. The Funds record realized gains
and losses at the time the forward foreign currency contract is closed out or
offset by a matching contract. Risks may arise upon entering these contracts
from potential inability of counterparties to meet the terms of the contract and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Funds may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
Open foreign currency forward sell contracts at August 31, 1996 for Global
Bond Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH DEPRECIATION
- --------- ------------------- ----- ------------
FRENCH FRANC 207,427 SEPT 96 ($657)
====
Open foreign currency forward buy contracts at August 31, 1996 for Global
Bond Fund and International Equity Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH DEPRECIATION
- --------- ------------------- ----- ------------
GLOBAL BOND FUND
JAPANESE YEN 16,804,552 SEPT 96 ($1,021)
INTERNATIONAL EQUITY FUND
SIGNAPORE DOLLAR 54,460 SEPT 96 ($ 28)
======
There were no open forward currency exchange contracts at August 31, 1996 for
all other Funds.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Funds may use option contracts to manage its exposure to the stock market
and currency interest rates. Writing puts and buying calls will tend to increase
the Fund's exposure to the underlying instrument and buying puts and writing
calls will tend to decrease the Fund's exposure to the underlying instrument, or
hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended August 31,
1996 for all Funds.
67
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, each Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
FUND RATE
---- ----
Dividend Performers Fund .60% of average daily net assets up to $500 million
.55% of such assets in excess of $500 million
Active Bond Fund .50% of average daily net assets up to $1.5 billion
.45% of such assets in excess of $1.5 billion
Global Bond Fund .75% of average daily net assets up to $250 million
.70% of such assets in excess of $250 million
Multi-Sector Growth Fund .80% of average daily net assets up to $500 million
.75% of such assets in excess of $500 million
Fundamental Value Fund .70% of average daily net assets up to $500 million
.65% of such assets in excess of $500 million
International Equity Fund .90% of average daily net assets up to $500 million
(.95% prior to September 12, 1995)
.65% of such assets in excess of $500 million
Small Capitalization Fund .80% of average daily net assets
In the event normal operating expenses of the Funds, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Funds are registered to sell shares of beneficial interest, the
fees payable to the Adviser will be reduced to the extent of such excess, and
the Adviser will make additional arrangements necessary to eliminate any
remaining excess expenses. The current limits are 2.5% of the first $30,000,000
of the Fund's average daily net assets, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
Prior to September 12, 1995, the Adviser agreed to limit the Funds expenses,
including the management fee, to the extent required to prevent expenses from
exceeding: 0.80% of Dividend Performers Fund's average daily net assets, 0.70%
of Active Bond Fund's average daily net assets, 1.10% of Global Bond Fund's
average daily net assets, 1.00% of Multi-Sector Growth Fund's average daily net
assets, 0.95% of Fundamental Value Fund's average daily net assets and 1.15% of
International Equity Fund's average daily net assets.
Effective September 12, 1995, the Adviser agreed to limit the Funds expenses
further to the extent required to prevent expenses from exceeding: 0.70% of
Dividend Performers Fund's average daily net assets, 0.60% of Active Bond Fund's
average daily net assets, 0.85% of Global Bond Fund's average daily net assets,
0.90% of Multi-Sector Growth Fund's average daily net assets, 0.80% of
Fundamental Value Fund's average daily net assets, 1.00% of International Equity
Fund's average daily net assets, and .90% of Small Capitalization Fund's average
daily net assets. The Adviser reserves the right to terminate this limitation in
the future. Accordingly, for the period ended August 31, 1996, the reduction in
the Fund's expenses with any additional amounts not borne by the Funds by virtue
of the expense limit amounted to $28,580 for Dividend Performers Fund, $31,604
for Active Bond Fund, $32,698 for Global Bond Fund, $41,098 for Multi-Sector
Growth Fund, $26,889 for Fundamental Value Fund, $32,307 for International
Equity Fund, and $26,949 for the Small Capitalization Fund.
Sovereign Asset Management Corp. ("SAMCorp"), serves as subadviser to
Dividend Performers Fund pursuant to a subadvisory agreement with that Fund and
the Adviser. SAMCorp was organized in 1992 and is an indirect wholly-owned
subsidiary of the John Hancock Mutual Life Insurance Company. The Adviser pays
SAMCorp a monthly management fee, equivalent on an annual basis, to the sum of
(a) 20% of the advisory fee payable on the Fund's average daily net assets up to
$100 million and (b) 55% of the advisory fee payable on the Fund's assets
exceeding $100 million.
Until September 10, 1996, NM Capital Management, Inc. ("NM Capital"), served
as subadviser to Fundamental Value Fund pursuant to a subadvisory agreement with
that Fund and the Adviser. NM Capital was organized in 1977 and is an indirect
wholly-owned subsidiary of the John Hancock Mutual Life Insurance Company. The
Adviser paid NM Capital a monthly management fee, equivalent on an annual basis,
to the sum of (a) 20% of the advisory fee payable on the Fund's average daily
net assets up to $100 million and (b) 55% of the advisory fee payable on the
Fund's assets exceeding $100 million.
68
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
John Hancock Advisers International, Ltd. serves as subadviser to
International Equity Fund pursuant to a subadvisory agreement with that Fund and
the Adviser. Formed in 1987, it is a wholly-owned subsidiary of the Adviser. The
Adviser pays John Hancock Advisers International, Ltd. a monthly management fee,
equivalent on an annual basis, to the sum of (a) 70% of the advisory fee payable
on the Fund's average daily net assets up to $500 million and (b) 90% of the
advisory fee payable on the Fund's assets exceeding $500 million.
The Funds are not responsible for payment of these subadvisory fees.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended August
31, 1996, all sales of shares of beneficial interest were sold at net asset
value. The Funds pay all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states, and all other expenses in connection with the sale and
offering for sale of the shares of the Fund which have not been herein
specifically allocated to the Trust.
The Funds have a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Each fund pays Investor Services an annual fee accrued daily of
0.05% of its average daily net assets, plus certain out-of-pocket expenses.
On March 26, 1996, the Board of Trustees approved retroactively to January 1,
1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Funds. The compensation for 1996 is estimated to be
at an annual rate of 0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon, Mr. Richard S. Scipione and
Mr. Thomas W.L. Cameron are directors and/or officers of the Adviser, and/or its
affiliates as well as Trustees of the Fund. The Adviser and other subsidiaries
of John Hancock Mutual Life Insurance Company owned 1,289,295 shares of
beneficial interest of Multi-Sector Growth Fund, 11,768 shares of beneficial
interest of the Small Capitalization Fund, and 94,118 shares of beneficial
interest of the Global Bond Fund as of August 31, 1996. The compensation of
unaffiliated Trustees is borne by the Funds.
NOTE C --
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended August 31, 1996 were as follows:
PURCHASES SALES
--------- -----
Dividend Performers Fund
U.S. Government Securities ............. $ 203,125 --
Other Investments ...................... 1,160,585 $ 287,048
Active Bond Fund
U.S. Government Securities ............. 313,653 143,340
Other Investments ...................... 310,779 199,403
Global Bond Fund
U.S. Government Securities ............. 535,008 209,174
Other Investments ...................... 1,013,601 542,056
Multi-Sector Growth Fund ................. 23,257,523 16,686,390
Fundamental Value Fund ................... 1,202,702 1,441,750
International Equity Fund ................ 947,226 705,118
Small Capitalization Fund ................ 482,353 50,431
At August 31, 1996, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of investments owned by
the Funds, as computed on a federal income tax basis, were as follows:
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION (DEPRECIATION)
---- ------------ ------------ --------------
Dividend Performers
Fund ............... $ 4,349,127 $ 543,916 ($ 17,200) $ 526,716
Active Bond Fund ..... 1,291,631 1,131 (25,385) (24,254)
Global Bond Fund ..... 1,006,460 11,125 (14,601) (3,476)
Multi-Sector Growth
Fund ............... 16,305,761 2,268,230 (140,488) 2,127,742
Fundamental Value
Fund ............... 5,817,542 283,999 (326,182) (42,183)
International Equity
Fund ............... 3,129,068 234,914 (157,822) 77,092
Small Capitalization
Fund ............... 446,919 50,458 (18,263) 32,195
69
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in Dividend Performers Fund as of August 31, 1996.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories ............................................ 10.05%
AFLAC .......................................................... 13.0
Air Products ................................................... 6.1
Albertson's .................................................... 18.2
Alco Standard .................................................. 7.7
ALLTEL Corp. ................................................... 8.3
American Home Products ......................................... 2.7
American International Group ................................... 10.8
AMP, Inc. ...................................................... 9.5
Archer Daniels Midland ......................................... 110.1
Automatic Data Processing, Inc. ................................ 14.3
BankOne ........................................................ 9.7
Bemis, Inc. .................................................... 18.5
Campbell's ..................................................... 11.3
Central and SouthWest .......................................... 1.2
Chubb .......................................................... 6.5
Corning, Inc. .................................................. 5.9
CPCInternational ............................................... 5.6
CSX Corp. ...................................................... 18.1
E.I. DuPont De Nemours & Co., Inc. ............................. 10.6
Emerson Electric ............................................... 14.0
Exxon .......................................................... 4.2
Federal Signal Corp. ........................................... 19.0
First Tennessee National Corp. ................................. 12.8
Florida Progress Corp. ......................................... 2.0
Frontier Corp. ................................................. 2.4
Gannett ........................................................ 2.9
General Electric ............................................... 12.2
General Motors, CI E ........................................... 8.3
Heinz .......................................................... 10.4
Interpublic Group .............................................. 10.7
Johnson & Johnson .............................................. 13.8
KeyCorp ........................................................ 12.5
Kimberly Clark ................................................. 3.0
Leggett & Platt ................................................ 11.1
Lowe's Department Stores ....................................... 11.1
May Department Stores .......................................... 9.6
McDonald's ..................................................... 12.5
Merck .......................................................... 13.3
National Fuel & Gas ............................................ 2.5
Nationsbank .................................................... 16.0
Pep Boys (The) ................................................. 11.8
PepsiCo ........................................................ 11.1
Pfizer, Inc. ................................................... 10.6
Phillip Morris ................................................. 21.2
PPG Industries ................................................. 3.4
Procter & Gamble ............................................... 14.3
Providian ...................................................... 11.1
Questar ........................................................ 3.5
Reliastar Financial ............................................ 11.1
RockwellInternational .......................................... 7.4
RPM, Inc. ...................................................... 7.1
Sara Lee ....................................................... 11.8
SBC Communications ............................................. 4.4
Sigma Aldrich .................................................. 22.2
Sonoco Products ................................................ 12.5
Sysco .......................................................... 18.2
Union Electric ................................................. 2.5
W. W. Grainger ................................................. 15.0
Wal-Mart ....................................................... 17.6
Wisconsin Energy Corp. ......................................... 4.3
Worthington Ind ................................................ 10.0
------
The average dividend increase for this group was ............... 11.84%
======
Historical Data (Unaudited)
The table below shows the record of the Dividend Performers Fund during past
periods.
- --------------------------------------------------------------------------------
PER SHARE
YEAR ----------------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
FEB. 29 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- ----- -------------
1996(1) 326,898 $0.19 $10.15 $0.074
1996(2) 465,190 0.07 10.49 --
(1) For the period March 30, 1995 (commencement of operations) to February 29,
1996
(2) Six months ended August 31, 1996.
70
<PAGE>
================================================================================
ADDITIONAL INFORMATION
John Hancock Funds - Institutional Series Trust
SHAREHOLDER MEETINGS
On June 26, 1996, a special meeting of John Hancock Dividend Performers Fund,
John Hancock Active Bond Fund, John Hancock Global Bond Fund, John Hancock
Multi-Sector Growth Fund, John Hancock Fundamental Value Fund, John Hancock
International Equity Fund (collectively, the "Funds") was held.
The shareholders elected the following trustees with the votes on a
trust-wide basis as indicated:
WITHHELD
FOR AUTHORITY
--- ---------
Edward J. Boudreau, Jr........... 2,142,157 0
Thomas W.L. Cameron.............. 2,142,157 0
James F. Carlin.................. 2,142,157 0
William H. Cunningham............ 2,142,157 0
Charles F. Fretz................. 2,142,157 0
Harold R. Hiser, Jr.............. 2,142,157 0
Anne C. Hodsdon.................. 2,142,157 0
Charles L. Ladner................ 2,142,157 0
Leo E. Linbeck, Jr............... 2,142,157 0
Patricia P. McCarter............. 2,142,157 0
Steven R. Pruchansky............. 2,142,157 0
Richard S. Scipione.............. 2,142,157 0
Norman H. Smith.................. 2,142,157 0
John P. Toolan................... 2,142,157 0
71
<PAGE>
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."]
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603
-------------
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
-------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Institutional Series Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies. CPrinted on Recycled Paper
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
KB0SA 8/96
10/96
