<PAGE>
================================================================================
John Hancock Funds
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Institutional
Series Trust
INDEPENDENCE BALANCED FUND
INDEPENDENCE GROWTH FUND
INDEPENDENCE MEDIUM CAPITALIZATION FUND
INDEPENDENCE VALUE FUND
INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
ANNUAL REPORT
February 29, 1996
<PAGE>
<TABLE>
Table Of Contents
John Hancock Funds - Institutional Series Trust
<CAPTION>
Page
<S> <C>
1) Chairman's Message........................................................... 3
2) Portfolio Manager Commentary
These commentaries reflect 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 Independence Balanced Fund.................................... 4
John Hancock Independence Growth Fund...................................... 8
John Hancock Independence Medium Capitalization Fund....................... 12
John Hancock Independence Value Fund....................................... 16
John Hancock Independence Diversified Core Equity Fund II.................. 20
3) Financial Statements......................................................... 24
4) Notes To Financial Statements................................................ 51
</TABLE>
<TABLE>
<S> <C> <C>
TRUSTEES Thomas H. Drohan INVESTMENT ADVISER
Edward J. Boudreau, Jr. Senior Vice President and Secretary John Hancock Advisers, Inc.
Thomas W.L. Cameron James B. Little 101 Huntington Avenue
James F. Carlin* Senior Vice President and Boston, MA 02199-7603
William H. Cunningham* Chief Financial Officer
Charles F. Fretz* Susan S. Newton INVESTMENT SUB-ADVISER
Harold R. Hiser, Jr.* Vice President, Independence Investment Associates, Inc.
Charles L. Ladner* Assistant Secretary and 53 State Street
Leo E. Linbeck, Jr.* Compliance Officer Boston, MA 02109
Patricia P. McCarter* James J. Stokowski,
Steven R. Pruchansky* Vice President and Treasurer PRINCIPAL DISTRIBUTOR
Richard S. Scipione John Hancock Funds, Inc.
John P. Toolan* CUSTODIAN 101 Huntington Avenue
* Members of Audit Committee Investors Bank & Trust Company Boston, MA 02199-7603
89 South Street
OFFICERS Boston, MA 02110 LEGAL COUNSEL
Edward J. Boudreau, Jr., Hale and Dorr
Chairman and Chief Executive Officer TRANSFER AGENT 60 State Street
Robert G. Freedman John Hancock Investor Services Corporation Boston, MA 02109
Vice Chairman and P.O. Box 9277
Chief Investment Officer Boston, MA 02205-9277 INDEPENDENT ACCOUNTANTS
Anne C. Hodsdon Arthur Andersen LLP
President One International Place
Boston, MA 02110-2604
</TABLE>
2
<PAGE>
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders N technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place N slow economic growth, muted inflation and decent corporate earnings N it
would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations to determine if rebalancing their portfolio makes sense.
[PHOTO: A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.]
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call a Customer Service Representative at 1-800-755-4371 if you have
any questions or need information. We take pride in helping you with the same
spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
BY JANE A. SHIGLEY AND JEFFREY B. SAEF
FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Balanced Fund
Fund continues to build positions during
----------------------------------------
strong stock, bond markets
--------------------------
[call out--left side]
"...Financial services companies...were strong performers for the Fund..."
Throughout the past eight months, the U.S. stock market continued to astound
many observers as most of the broad market measures broke through to record
heights. The stock market's gains stemmed largely from lower interest rates and
rising company profits and earnings. The U.S. bond market also showed surprising
strength during five of the past six months, fueled as well by falling interest
rates, a benign inflation outlook and expectations of a slow growth economy. In
January, the Federal Reserve Board cut short-term interest rates one-quarter
point, but investors were disappointed with the magnitude of that action. In the
following weeks, they also worried that scattered signs of economic strength
could be enough to stall any further Fed cuts. These factors set the stage for
the bond market's slight pullback in February.
From July 6, 1995, through February 29, 1996, John Hancock Independence
Balanced Fund posted a total return of 10.42% at net asset value, while the
average balanced fund returned 10.95%, according to Lipper Analytical Services.
During the same period, a 50/50 blended index combining the Standard & Poor's
500-Stock Index and the Lehman Brothers Government/Corporate Bond Index (L.G.C.)
returned 12.09%, as tracked by the Frank Russell Company.
The Fund has the flexibility to weigh either stocks or bonds to as high as
75% of its investments as market and economic conditions warrant. However, we
continued to keep the
[PHOTO: A 2 1/2" x 3 1/2" photo of Jane A. Shigley and Jeffrey B. Saef at
bottom right. Caption reads: "Jane A. Shigley and Jeffrey B. Saef."]
4
<PAGE>
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
[call out--right side]
"...our stock market outlook calls for continued corporate earnings growth, but
not as strong as 1995."
[CHART: Bar chart with the heading "Fund Performance" at top left hand column. A
footnote below states "For the period July 6, 1995 through February 29, 1996."
The chart is scaled in increments of 5% from bottom to top, with 15% at the top
and 0% at the bottom. Within the chart are three solid bars. The first
represents 10.42% total return for John Hancock Independence Balanced Fund. The
second represents 10.95% total return for the average balanced fund. The third
represents 12.09% total return for the 50% S&P 500-Stock Index/50% L.G.C. Bond
Index. A footnote below reads: "The total return for John Hancock Independence
Balanced Fund is at net asset value with all dividends reinvested. The average
capital appreciation fund is tracked by Lipper Analytical Services. The S&P
500-Stock Index and the Lehman Brothers Government/Corporate Bond Index are
unmanaged indices commonly used as broad measures of stock and bond performance.
The performance is tracked by Frank Russell Company. See following page for
historical information.]
Fund almost evenly divided between stocks and bonds during the period.
Financials, Health-care Stocks Winners
On the equity side, we continued to apply our disciplined investment style.
Using a team of research analysts, we combine human analysis and computer
valuation models to rank our investment universe. The most attractively ranked
stocks are generally "cheap" stocks with improving fundamentals. Additionally,
we kept an eye toward diversifying across a broad range of stocks -- such as
growth and value, large and small companies -- in order to spread and reduce the
overall volatility of the Fund.
Financial services companies, such as American Express, benefited from a
favorable interest-rate environment and were strong performers for the Fund
during its first fiscal year. Health-care companies -- including Johnson &
Johnson and Bristol-Myers Squibb -- also provided good gains on the heels of new
product developments and rising earnings. Finally, PepsiCo, one of the fund's
largest holdings and best performers during the period, was buoyed by its
growing snack food and soft drink businesses.
Fixed Income Strategy
Because the Fund is still in its early stages, we believe that the best way to
provide a diversified and liquid portfolio was to put our fixed-income money to
work in the U.S. Treasury market. As the Fund grows, we will move toward
generally dividing its bond holdings roughly as follows: 50% in government
securities, 35% in corporate bonds and 15% in mortgage-backed securities. When
opportunities within these sectors present themselves, however, there may be
times when we will tilt these weightings slightly away from the norm.
Outlook
As we begin 1996, our stock market outlook calls for continued corporate
earnings growth, but not as strong as 1995. If the economy chugs along at a
moderate growth rate, and interest rates continue to stay low, we could see more
upside from stocks. As far as the bond market goes, we believe that the pullback
the market experienced in February allows for a more constructive environment
going forward. But regardless of market conditions, we'll stick to our
disciplined investment style in striving for above-average total returns.
5
<PAGE>
A LOOK AT PERFORMANCE
<TABLE>
The table on the right shows the cumulative total return for the John Hancock
Independence Balanced Fund. Total return is a performance measure that equals
the sum of all income and capital gains dividends, assuming reinvestment of
these distributions, and the change in the price of the Fund's shares, expressed
as a percentage of the Fund's net asset value per share. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
CUMULATIVE TOTAL RETURN
For The Period Ended December 31, 1995
<CAPTION>
LIFE OF
FUND
----
<S> <C>
John Hancock Independence Balanced Fund (1) 9.23%
Notes On Performance
(1) Commenced on July 6, 1995
</TABLE>
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
Independence Balanced Fund would be worth on February 29, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in a blend of 50% in the
Standard & Poor's 500 Stock Index and 50% in the Lehman Brothers Government/
Corporate Bond Index. The Standard & Poor's 500 Stock Index is an unmanaged
index that includes 500 widely traded common stocks and is a commonly used mea
sure of stock market performance. The Lehman Brothers Government/Corporate Bond
Index is an unmanaged index that measures the performance of U.S. government
bonds, U.S. corporate bonds, and Yankee bonds.
[CHART: Line chart with the heading Independence Balanced Fund, representing the
growth of a hypothetical $250,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $280,249 as of February 29, 1996. The second line represents the
value of the hypothetical $250,000 investment made in the Independence Balanced
Fund on July 6, 1995 and is equal to $276,055 as of February 29, 1996.]
7
<PAGE>
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Growth Fund
Stocks move higher led by technology,
-------------------------------------
finance and health-care sectors
-------------------------------
[call out--left side]
"...U.S. stock indexes posted some of their highest annual returns ever in
1995."
To the surprise of many, the stock market has just kept on climbing. Propelled
by low inflation, moderate economic growth and huge investor inflows, U.S. stock
indexes posted some of their highest annual returns ever in 1995. Among the
winners were large company stocks, and technology, finance and health-care
shares. The upward momentum continued into early 1996. For the year ended
February 29, 1996, the Russell 1000 Growth Index advanced 35.67%.
Into this favorable climate, we launched John Hancock Independence Growth
Fund. The Fund had a total return of 9.94% at net asset value from its opening
on October 2, 1995 through February 29, 1996. This number isn't particularly
meaningful, however, because it's based on such a short time early in the Fund's
life. During the same period, the Russell 1000 Growth Index N the Fund's
benchmark N returned 10.03% and the average growth and income fund returned
8.86%, according to Lipper Analytical Services.
Strategy and performance
We believe our strategy made the difference in our results. Our goal is to
deliver above-average total return by focusing on stocks that are cheap with
improving fundamentals. In other words, we look for stocks anywhere we can find
them that are priced at less than what they're worth and show signs of improving
prospects. To find securities like this, we conduct in-depth research on
companies, looking at measures like earnings growth, sales projections, cash
flow and dividends. From that, we come up with earnings and growth estimates.
Then our proprietary models digest this data to generate a ranking of stocks
from most to least attractive, based on both cheapness and improving
fundamentals. We use this list in tailoring the Fund to mirror the risk
characteristics
[PHOTO: A 2 1/4" x 2 1/4" photo of Coreen Kraysler centered at bottom of page.
Caption reads: "Coreen Kraysler."]
8
<PAGE>
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
[call out--right side]
"...we'll stick to looking for cheap stocks with improving fundamentals."
[CHART: Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the period October 2, 1995 through February 29,
1996." The chart is scaled in increments of 5%, with 15% at top and 0% at
bottom. Within the chart there are three solid bars. The first represents the
9.94% total return for John Hancock Independence Growth Fund. The second
represents the 8.86% total return for the average growth and income fund. The
third represents the 10.03% total return for the Russell 1000 Growth Index. A
footnote below states: "The total return for John Hancock Independence Growth
Fund is at net asset value with all distributions reinvested. the average growth
and income fund is tracked by Lipper Analytical Services. The Russell 1000
Growth Index is an unmanaged index comprised of stocks with greater than average
growth orientation. It is comprised of securities of the largest 1000 public
companies in the United States equity markets. See following page for historical
performance information."]
and industry weightings of the Russell 1000 Growth Index.
During its first five months, the Fund benefited most from our stock
selection in the drug, technology and chemical sectors. In the drug group --
about 11% of the Fund's total net assets N one of the top contributors to
performance was Johnson & Johnson. Its stock price rose 30% during the period
largely because of its strong array of new products. About 13% of the Fund's
investments were in technology, where one of the top performers was Digital
Equipment Corporation. Strong earnings sent the company's stock up 15% in the
first two months of 1996. In the chemical group, Monsanto returned 30% for the
five-month period, thanks to its success in developing products that rely on
biotechnology to help lower farming costs.
In addition, some of our largest investments gave the Fund a strong start.
Three of them -- PepsiCo, Philip Morris, and General Electric (GE) -- benefited
from strong international growth. At PepsiCo, improved earnings from the
company's restaurant operations, worldwide dominance in the snack food business
and a share buy back program also gave the stock a boost. Philip Morris' huge
cash flow (that is, earnings after capital expenditures) helped its stock
performance, as did GE's strong portfolio of businesses.
Of course, there were also disappointments. Among them was Home Depot,
which suffered from the slowdown in housing turnover and steep decline in lumber
prices. The combination was simply too much to overcome. Nevertheless, we held
onto the stock, believing that it's well-positioned to benefit once home sales
do pick-up.
Our outlook is for more of the same: continued low inflation with moderate
economic growth. Under this scenario, we could see decent stock market returns
in 1996. But it's unlikely they'd rival 1995's exceptional results. Regardless
of what happens, we'll stick to looking for cheap stocks with improving
fundamentals. We believe this strategy works in all market climates and can help
the Fund produce strong long-term results.
9
<PAGE>
A LOOK AT PERFORMANCE
<TABLE>
The table on the right shows the cumulative total return for the John Hancock
Independence Growth Fund. Total return is a performance measure that equals the
sum of all income and capital gains dividends, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
<CAPTION>
CUMULATIVE TOTAL RETURN
For the period ended December 31, 1995
LIFE OF
FUND
----
<S> <C>
John Hancock Independence Growth Fund(1) 4.85%
Notes To Performance
(1) Commenced on October 2, 1995.
</TABLE>
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
Independence Growth Fund would be worth on February 29, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell 1000 Growth
Index -- an unmanaged capitalization-weighted price-only index, which is
comprised of 1,000 of the largest capitalized U.S. domiciled companies whose
common stock traded in the United States on the New York Stock Exchange. The
securities in this index have less than average growth orientation.
[CHART: Line chart with the heading Independence Growth Fund, representing the
growth of hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value of the Russell 1000 Growth Index and is
equal to $276,975 as of February 29, 1996. The second line represents the value
of the hypothetical $250,000 investment made in the Independence Growth Fund on
October 2, 1995 and is equal to $274,852 as of February 29, 1996.]
11
<PAGE>
BY DAVID CANAVAN FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Medium
Capitalization Fund
Fund launched in strong stock market environment
------------------------------------------------
[CALL OUT -- LEFT SIDE]
"One of the major themes for the stock market's prospects in 1996 will be the
economic climate."
Over the past five months the stock market has grabbed headlines as it continued
to reach record highs, then outdo itself by eventually breaking through these
records. Company earnings were strong, interest rates were falling and while
economic growth was slow, it was steady. However, the rally didn't treat all
stocks equally. Large capitalization stocks -- represented by the Standard &
Poor's 500-Stock Index -- were the market leaders, up over 10% during that
period. Their strong performance can be attributed, in part, to the fact that
individual investors poured records amounts of cash into the stock market
through mutual funds. The managers of those funds, in turn, gravitated toward
the more liquid, larger-cap stocks. Small capitalization stocks, as measured by
the Russell 2000, were up only 5.25%. Medium capitalization stocks, meanwhile,
fell nicely between the two, and the Callan Medium Capitalization Index returned
8.05% for the period.
Strategy/performance review
From its inception on October 2, 1995 through February 29, 1996, John Hancock
Independence Medium Capitalization Fund had a total return of 9.71% at net asset
value. The result isn't particularly meaningful, however, because it is based on
such a short term early in the life of the Fund. For the same period, the
average mid cap fund returned 6.08%, accord ing to Lipper Analytical Services.
At the core of our investment philosophy is the conviction that the most
attractive stocks -- those with the best chances of outperforming the Callan
Medium Capitalization index -- combine cheapness with improving fundamentals. By
cheapness, we mean that the current price of
[PHOTO: A 2 1/2" x 2" photo of David Canavan centered at bottom. Caption reads
"David Canavan."]
12
<PAGE>
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
[CALL OUT -- RIGHT SIDE]
"Many of our oil stocks...did particularly well during the period."
[CHART: Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the period October 2, 1995 through February 29,
1996." The chart is scaled in increments of 5%, with 10% at top and 0% at
bottom. Within the chart there are three solid bars. The first represents the
9.71% total return for John Hancock Independence Medium Capitalization Fund. The
second represents the 6.08% total return for the average mid-cap fund. The third
represents the 8.05% total return for the Callan Medium Capitalization Index. A
footnote below states: "The total return for John Hancock Independence Medium
Capitalization Fund is at net asset value with all distributions reinvested. the
average medium capitalization fund is tracked by Lipper Analytical Services. The
Callan Medium Capitalization Index is an unmanaged index commonly used as a
broad measure of performance of the stock of companies with market
capitalization of $1 billion to $5 billion. See following page for historical
performance information.]
a given security is not reflecting what we believe to be its fair value. By
improving fundamentals, we're referring to the notion that a company's basic
business is getting better.
Many of our oil stocks, including Anadarko, and Phillips Petroleum did
particularly well during the period. The harsh Northeast winter led to
higher-than-normal draws on a relatively low energy supply and helped push the
price of oil, and oil-related stocks, higher. Health-care stocks, particularly
those companies that apply some technology to their core businesses, also were
winners. Guidant Corp., for instance, is a leader in using technology in its
pulmonary devices. Airlines stocks rallied on a wave of good news. Greater
passenger traffic, and the labor agreement with Delta pilots not only lifted
Delta stock, but also Northwest Airlines and UAL Corp., the parent company of
United Airlines. Within the financial sector, insurance companies such as
Lincoln National and Allstate and banks such as Chemical Bank, got a boost from
falling interest rates.
Many of our technology stocks, on the other hand, proved to be
disappointing. It's not altogether surprising that the sector experienced a
sharp pullback toward the end of the period, given its robust strength during
most of 1995. Semiconductor makers and manufacturers of semiconductor equipment
- -- including LSI Logic, National Semiconductor and LAM Research -- were among
the hardest hit. Because the underlying fundamentals of these semiconductor
companies had deteriorated significantly, we pared back our stake in them.
Outlook for 1996
One of the major themes for the stock market's prospects in 1996 will be the
economic climate. In our view, inflation will remain low at between 2.5% and 3%
this year. Meanwhile, we expect the economy to continue to grow, although the
pace could be weaker than in 1995. Our estimates call for real gross domestic
product growth to decline to 1% in 1996. However, that scenario still provides a
fairly healthy backdrop for the stock market. Given our economic outlook, we
expect corporate earnings to grow an average of 5% in 1996, down from 18% in
1995. So while it's unlikely that the market will achieve last year's tremendous
gains, stocks could perform more in line with historical returns. Regardless of
market conditions, we'll continue to focus on finding stocks within our universe
that offer the best potential for outperforming the medium capitalization sector
as a whole.
13
<PAGE>
A LOOK AT PERFORMANCE
<TABLE>
The table on the right shows the cumulative total return for the John Hancock
Independence Medium Capitalization Fund. Total return is a performance measure
that equals the sum of all income and capital gains dividends, assuming
reinvestment of these distributions, and the change in the price of the Fund's
shares, expressed as a percentage of the Fund's net asset value per share.
Remember that all figures represent past performance and are no guarantee of how
the Fund will perform in the future. Also, keep in mind that the total return
and share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost, depending on
when you sell them.
CUMULATIVE TOTAL RETURN
<CAPTION>
For the period ended December 31, 1995
LIFE OF
FUND
----
<S> <C>
John Hancock Independence Medium Capitalization Fund(1) 4.75%
Notes to Performance
(1) Commenced on October 2, 1995.
</TABLE>
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
Independence Medium Capitalization Fund would be worth on February 29, 1996,
assuming you invested on the day the Fund started and have reinvested all
distributions. For comparison, we've shown the same $250,000 investment in the
Callan Medium-Capitalization Index -- a subset of the Callan Broad Market Index.
The Callan Broad Market Index is an unmanaged index that includes common stocks
of the two thousand largest companies with capitalizations ranging between $85
million and $75 billion. This index includes both growth and value stocks.
[CHART: Line chart with the heading Independence Medium Capitalization Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Medium Capitalization Fund on October 2, 1995 and is equal
to $274,269 as of February 29, 1996. The second line represents the value of the
Callan Medium-Capitalization Index and is equal to $270,125 as of February 29,
1996.]
15
<PAGE>
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock Independence Value Fund
Fund starts with wind at its back as
------------------------------------
stock market continues to climb
-------------------------------
[CALL OUT -- LEFT SIDE]
"Our strategy gave us an edge this period in the banking and insurance
sectors..."
John Hancock Independence Value Fund began on October 2, 1995, well into one of
the stock market's strongest years on record. With moderate economic growth, low
inflation, positive corporate earnings, and huge inflows from mutual funds, most
U.S. stock indexes returned over 30% for the year. Although high-flying
technology stocks pulled back late in 1995, many other sectors continued to
rise. The Russell 1000 Value Index, the Fund's benchmark, rose 34.14% for the
year ended February 29, 1996 -- and 10.79% during the last five months.
This environment helped the Fund get off to a good start with a total
return of 12.52% at net asset value from October 2, 1995, through February 29,
1996. This number isn't particularly meaningful, however, because it's based on
such a short time early in the Fund's life. For the same period, the average
growth and income fund returned 8.86%, according to Lipper Analytical Services.
Strategy
We try to deliver an above-average total return by focusing on stocks that meet
two criteria. First, they have to be cheap, meaning that they're selling for
less than what we believe they're worth. And, second, they have to show signs of
improving fundamentals -- like a pick-up in earnings growth, sales projections,
cash flow or dividends. What we're aiming for are risk characteristics and
industry weightings that mirror the Russell 1000 Value Index, plus better stock
selection. To do this, our analysts research companies to come up with estimates
for earnings and growth potential. Then we feed this information into a
proprietary data base with models that rank the stocks from most to least
attractive. We use this list to tailor the Fund to look like the Index.
Our strategy gave us an edge this period in the banking and insurance
sectors, which together represented 26% of the Fund's net assets.
[PHOTO: A 2 1/4" x 2 1/4" photo of Coreen Kraysler centered at bottom. Caption
reads: "Coreen Kraysler."]
16
<PAGE>
John Hancock Mutual Funds - Institutional Series Trust --
Independence Value Fund
[CALL OUT -- RIGHT SIDE]
"...we'll keep looking for cheap stocks with improving prospects."
[CHART: Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the period October 2, 1995 through February 29,
1996." The chart is scaled in increments of 5%, with 10% at top and 0% at
bottom. Within the chart there are three solid bars. The first represents the
12.52% total return for John Hancock Independence Value Fund. The second
represents the 10.79% total return for the Russell 1000 Value Index. The third
represents the 8.86% total return for the average growth and income fund. A
footnote below states: "The total return for John Hancock Independence Value
Fund is at net asset value with all distributions reinvested. The average growth
and income fund is tracked by Lipper Analytical Services. The Russell 1000 Value
Index is comprised of stocks of companies from the Russell 1000 Index with a
less than average growth orientation. See following page for historical
performance information."]
Chemical Bank and First Chicago, two of our largest investments, benefited from
a favorable environment for financial stocks. In addition, Chemical Bank's stock
price rose on expectations that its merger with Chase Manhattan would cut costs
and strengthen earnings prospects. Meanwhile, First Chicago's stock rebounded
after investors decided concerns about its large credit card portfolio were
unfounded.
Our energy selections -- about 11% of net assets -- also fueled the Fund's
return. In the oil group, both Halliburton and Texaco did especially well.
Texaco's stock benefited from the company's restructuring, as well as an
improved outlook for production from new oil fields in Mexico and the North Sea.
Similarly, investors rewarded Halliburton for its restructuring, improving
fundamentals and naming a new CEO. By contrast, Exxon, the Fund's largest
investment, just kept pace with the market, despite the company's strong
management, worldwide exposure and solid chemical operation.
Although electric utilities -- about 10% of the Fund's investments --
usually benefit from falling interest rates, some of our utilities did not do as
well as we'd hoped. Baltimore Gas and Electric's stock price suffered from
concerns that its planned merger with Potomac Electric might not be approved.
And Pacific Gas & Electric did poorly due to uncertainties about what kind of
rate decreases California regulatory authorities might impose. Nevertheless, we
still believe both stocks have strong prospects.
Outlook
With continued low inflation and moderate economic growth, the stock market
could continue to deliver decent returns. But it's unlikely they'll approach
1995's stellar performance. Regardless of what happens, we'll keep looking for
cheap stocks with improving prospects. In the process, we'll continually adjust
our earnings and growth estimates to reflect changing market and economic
conditions. New telecommunications legislation, for example, recently made long
distance telephone carriers attractive. That's the kind of opportunity we'll be
looking for.
17
<PAGE>
A LOOK AT PERFORMANCE
<TABLE>
The table on the right shows the cumulative total return for the John Hancock
Independence Value Fund. Total return is a performance measure that equals the
sum of all income and capital gains dividends, assuming reinvestment of these
distributions, and 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
<CAPTION>
For the period ended December 31, 1995
LIFE OF
FUND
----
<S> <C>
John Hancock Independence Value Fund(1) 7.77%
Notes to Performance
(1) Commenced on October 2, 1995.
</TABLE>
18
<PAGE>
WHAT HAPPENED TO A $250,000 INVESTMENT...
The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Value Fund would be worth on February 29, 1996, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell 1000 Value
Index -- an unmanaged capitalization-weighted price-only index, which is
comprised of 1,000 of the largest capitalized U.S. domiciled companies whose
common stock traded in the United States on the New York Stock Exchange. The
securities in this index have less than average growth orientation.
[CHART: Line chart with the heading Independence Value Fund, representing the
growth of a hypothetical $250,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Value Fund on October 2, 1995 and is equal to $281,299 as of
February 29, 1996. The second line represents the value of the Russell 1000
Value Index and is equal to $276,975 as of February 29, 1996.]
19
<PAGE>
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Diversified
Core Equity Fund II
Strong corporate earnings and soaring bull market
-------------------------------------------------
mark Fund's first year
----------------------
[CALL OUT -- LEFT SIDE]
"Our stocks come from across a vast range of industries..."
The near-ideal market conditions that existed when the Fund was launched on
March 10, 1995 prevailed throughout its first fiscal year. The period was marked
by a slow-growing economy, declining interest rates, muted inflation and strong
corporate earnings. The result was a strongly advancing market and a solid
return for the Fund's first fiscal year. From its opening through February 29,
1996, the Fund posted a total return of 30.48% at net asset value. During the
same period, the average growth and income fund returned 29.32%, according to
Lipper Analytical Services, and the Standard & Poor's 500-Stock Index returned
33.93%.
Strategy and
top performers
The Fund takes a bottom-up approach to investing. That simply means that we
don't make bets on market sectors, but instead build the portfolio
stock-by-stock based on individual merit. Using our team of analysts and
computer valuation models, we choose the best stocks that combine our two
selection criteria: value and improving fundamentals. Our stocks come from
across a vast range of industries and company types to create a portfolio that
reflects the risk profile and characteristics of our benchmark S&P 500-Stock
Index. During the Fund's first fiscal year, some of its top performers were in
the telecommunications, technology and aerospace groups. Our financial and
pharmaceutical companies were also steady performers.
Telecommunications companies are reaping the rewards of some major changes
in their industry, in particular the recent passage of a major
[PHOTO: A 2 1/2" x 2 1/2" photo of Paul McManus centered at bottom. Caption
reads: "Paul McManus."]
20
<PAGE>
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
"...there's still room for the market to advance, even at a slower rate."
[CHART: Bar chart with the heading "Fund Performance" at top left hand column. A
footnote below states "For the period March 10, 1995 through February 29, 1996."
The chart is scaled in increments of 10% from bottom to top, with 40% at the top
and 0% at the bottom. Within the chart, there are three solid bars. The first
represents the 30.48% total return for John Hancock Independence Diversified
Core Equity II. The second represents the 29.32% total return for the average
growth and income fund. The third represents the 33.93% total return for the S&P
500-Stock Index. A footnote below states: "The total return for John Hancock
Independence Diversified Core Equity II 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 page for historical
performance information."]
telecommunications bill that fosters competition. While we still don't know the
bill's full impact, in our view, the long-line carriers such as Fund holdings
AT&T and GTE are better positioned from a cost perspective to benefit from the
new bill than the higher-cost local Bell operating companies. AT&T has already
taken steps to position itself by splitting into three companies and, despite
criticism for its announced layoffs, the company's stock charged forward in the
period.
Technology stocks, the darlings of the 1995 rally, served us well,
especially in the first half of the period when earnings momentum was at its
height. In late summer, tech stocks experienced some pullback, especially the
semiconductor companies as supply began to catch up to demand. While the Fund
felt the effect, it was moderated by the fact that by then, we were
underweighted in the sector, having taken profits on some high flyers earlier
on. As prices came down, we began to increase or add to our technology holdings
across several subsectors, including Microsoft, Texas Instruments, Integrated
Device Technologies and Komag, a disc-drive company with strong fundamentals and
an attractive price. Another addition was Analog Devices, a specialty
semiconduct or company whose stock rose after we bought it in the second half
despite the sector's overall decline.
Our aerospace stocks turned in strong showings, including Lockheed, which
continues to generate excess cash, and Boeing, which benefited from an
anticipated increase in airplane orders on the heels of improvement in the
airline industry. Not surprisingly, the cyclical companies -- those such as
paper, forest product and automobile-related companies that are more vulnerable
to a slow economy -- lagged during the period.
Outlook
After the market's 1995 performance, it would be unrealistic to expect more of
the same this year. However, as long as interest rates stay low or fall, and the
economy continues its slow-growth mode, there's still room for the market to
advance, even at a slower rate. Politics will be key this year in determining
which direction the market takes. We'll be watching to see whether, once
campaigning ends, there is a renewed effort to balance the federal budget. That
would send a positive message to the market and possibly prompt lower interest
rates. Whatever happens, we'll stick to our disciplined investment style of
finding reasonably priced companies that have improving prospects. It's the way
we know best to add value over the long term.
21
<PAGE>
A LOOK AT PERFORMANCE
<TABLE>
The table on the right shows the cumulative total return for the John Hancock
Independence Diversified Core Equity Fund II. Total return is a performance
measure that equals the sum of all income and capital gains dividends, assuming
reinvestment of these distributions, and the change in the price of the Fund's
shares, expressed as a percentage of the Fund's net asset value per share.
Remember that all figures represent past performance and are no guarantee of how
the Fund will perform in the future. Also, keep in mind that the total return
and share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost, depending on
when you sell them.
CUMULATIVE TOTAL RETURN
<CAPTION>
For the period ended December 31, 1995
LIFE OF
FUND
----
<S> <C>
John Hancock Independence Diversified Core Equity Fund II(1) 25.84%
Notes to Performance
(1) Commenced on March 10, 1995.
</TABLE>
22
<PAGE>
WHAT HAPPENED TO A $250,000 INVESTMENT...
The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Diversified Core Equity Fund II would be worth on February 29,
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.
[CHART: Line chart with the heading Independence Diversified Core Equity Fund
II, representing the growth of a hypothetical $250,000 investment over the life
of the fund. Within the chart are two lines.
The first line represents the value of the Standard and Poor's 500 Stock Index
and is equal to $327,024 as of February 29, 1996. The second line represents the
value of the hypothetical $250,000 investment made in the Independence
Diversified Core Equity Fund II on March 10, 1995 and is equal to $326,197 as of
February 29, 1996.]
23
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Assets and Liabilities
February 29, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND GROWTH FUND
------------- -----------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $2,348,623 and $500,016, respectively) $2,546,331 $544,806
Corporate bonds (cost - $31,930 and none, respectively) 30,885 --
U.S. government and agencies securities (cost - $2,524,743 and none, respectively). 2,498,594 --
Short-term investments (cost - $88,000 and $5,000, respectively) 88,000 5,000
Corporate savings account 444 773
---------- --------
5,164,254 550,579
Receivable for investments sold 4,448 --
Dividends receivable 7,848 874
Interest receivable 40,250 --
Receivable from John Hancock Advisers, Inc. - Note B 68,683 80,327
Other assets 188 --
Deferred organization expenses - Note A 8,147 8,016
---------- --------
Total Assets 5,293,818 639,796
---------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 21,934 --
Payable for investments purchased 31,046 --
Payable to John Hancock Advisers, Inc. and affiliates - Note B 13,322 10,549
Accounts payable and accrued expenses 72,582 79,820
---------- --------
Total Liabilities 138,884 90,369
---------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 4,935,225 503,059
Accumulated net realized gain on investments 20,423 1,578
Net unrealized appreciation of investments 170,514 44,790
Undistributed net investment income 28,772 --
---------- --------
Net Assets $5,154,934 $549,427
===============================================================================================================
Net Asset Value Per Share:
(based on 557,295 and 59,172 shares, respectively, of beneficial interest outstanding -
unlimited number of shares authorized with no par value) $ 9.25 $ 9.29
=======================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of February 29,
1996. You'll also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Assets and Liabilities
February 29, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INDEPENDENCE
MEDIUM INDEPENDENCE
CAPITALIZATION FUND VALUE FUND
------------------- ------------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $3,546,872 and $618,673, respectively) $3,838,606 $676,256
Short-term investments (cost - $99,000 and $10,000, respectively) 99,000 10,000
Corporate savings account 404 3,192
---------- --------
3,938,010 689,448
Receivable for investments sold -- 10,683
Dividends receivable 10,234 2,958
Interest receivable 27 5
Receivable from John Hancock Advisers, Inc. - Note B 48,525 76,973
Other assets 127 --
Deferred organization expenses - Note A 8,016 8,016
---------- --------
Total Assets 4,004,939 788,083
-------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased -- 18,985
Payable to John Hancock Advisers, Inc. and affiliates - Note B 11,820 10,710
Accounts payable and accrued expenses 70,211 76,485
---------- --------
Total Liabilities 82,031 106,180
-------------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 3,626,554 619,905
Accumulated net realized gain (loss) on investments (4,647) 3,145
Net unrealized appreciation of investments 291,734 57,583
Undistributed net investment income 9,267 1,270
---------- --------
Net Assets $3,922,908 $681,903
===================================================================================================================
Net Asset Value Per Share:
(based on 422,379 and 71,972 shares, respectively, of beneficial interest outstanding -
unlimited number of shares authorized with no par value) $ 9.29 $ 9.47
===========================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Assets and Liabilities
February 29, 1996
- --------------------------------------------------------------------------------------------------
<CAPTION>
INDEPENDENCE
DIVERSIFIED CORE
EQUITY FUND II
----------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $163,762,530) $186,013,110
Short-term investments (cost - $2,343,000) 2,343,000
Corporate savings account 583
------------
188,356,693
Receivable for shares sold 15,422
Dividends receivable 535,567
Foreign tax receivable 1,108
Interest receivable 688
Receivable from John Hancock Advisers, Inc. - Note B 31,754
Other assets 6,062
Deferred organization expenses - Note A 7,631
------------
Total Assets 188,954,925
--------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 22,768
Payable to John Hancock Advisers, Inc. and affiliates - Note B 109,367
Accounts payable and accrued expenses 144,200
------------
Total Liabilities 276,335
--------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 164,482,855
Accumulated net realized gain on investments and foreign currenc transactions 1,357,757
Net unrealized appreciation of investments 22,250,580
Undistributed net investment income 587,398
------------
Net Assets $188,678,590
======================================================================================
Net Asset Value Per Share:
(based on 17,214,404 shares of beneficial interest outstanding - unlimited
number of shares authorized with no par value) $ 10.96
==========================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Operations
Period ended February 29, 1996*
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND GROWTH FUND
------------- ------------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $83 and none, respectively) $ 22,351 $ 3,537
Interest 60,233 426
-------- --------
82,584 3,963
Expenses:
Registration and filing fees 58,256 61,477
Investment management fee - Note B 11,878 1,704
Auditing fee 11,500 11,500
Custodian fee 5,490 4,165
Printing 4,532 2,164
Organization expense - Note A 1,226 723
Transfer agent fee - Note B 848 107
Trustees' fees 496 50
Legal fees 372 404
Financial services fee - Note B 160 16
Miscellaneous 126 59
-------- --------
Total Expenses 94,884 82,369
Less Expense Reimbursements and Reductions - Note B (79,593) (80,343)
-------- --------
Net Expenses 15,291 2,026
---------------------------------------------------------------------------------------------------
Net Investment Income 67,293 1,937
---------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 20,423 2,701
Change in net unrealized appreciation/depreciation of investments 170,514 44,790
-------- --------
Net Realized and Unrealized Gain on Investments 190,937 47,491
---------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $258,230 $ 49,428
===================================================================================================
* Independence Balanced Fund and Independence Growth Fund commenced operations on July 6, 1995 and
October 2, 1995, respectively.
</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.
27
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Operations
Period ended February 29, 1996*
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
INDEPENDENCE
MEDIUM INDEPENDENCE
CAPITALIZATION FUND VALUE FUND
------------------- ------------
<S> <C> <C>
Investment Income:
Dividends $ 25,988 $ 8,146
Interest 7,777 584
-------- --------
33,765 8,730
-------- --------
Expenses:
Registration and filing fees 56,134 57,767
Auditing fee 11,500 11,500
Investment management fee - Note B 9,177 1,855
Custodian fee 4,984 4,165
Printing 2,751 2,539
Organization expense - Note A 723 723
Transfer agent fee - Note B 574 116
Legal fees 416 405
Trustees' fees 385 50
Financial services fee - Note B 116 20
Miscellaneous 104 59
-------- --------
Total Expenses 86,864 79,199
Less Expense Reimbursements and Reductions - Note B (75,379) (76,993)
-------- --------
Net Expenses 11,485 2,206
-------------------------------------------------------------------------------------------------------
Net Investment Income 22,280 6,524
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments sold (4,647) 3,145
Change in net unrealized appreciation/depreciation of investments 291,734 57,583
-------- --------
Net Realized and Unrealized Gain on Investments 287,087 60,728
-------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $309,367 $ 67,252
=======================================================================================================
* Independence Medium Capitalization Fund and Independence Value Fund commenced operations on
October 2, 1995, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Operations
Period ended February 29, 1996*
- ------------------------------------------------------------------------------------------------
<CAPTION>
INDEPENDENCE
DIVERSIFIED CORE
EQUITY FUND II
----------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding tax of $11,178) $ 2,572,006
Interest 156,903
-----------
2,728,909
Expenses:
Investment management fee - Note B 504,982
Registration and filing fees 116,406
Custodian fee 57,145
Transfer agent fee - Note B 50,498
Trustees' fees 16,701
Auditing fee 11,500
Financial services fee - Note B 5,556
Printing 2,954
Miscellaneous 2,274
Organization expense - Note A 1,856
Legal fees 1,543
-----------
Total Expenses 771,415
Less Expense Reimbursements and Reductions - Note B (63,083)
-----------
Net Expenses 708,332
------------------------------------------------------------------------------------------------
Net Investment Income 2,020,577
------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments and Foreign Currency Transactions:
Net realized gain on investments sold and foreign currency transactions 1,499,534
Change in net unrealized appreciation/depreciation of investments 22,250,580
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 23,750,114
------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $25,770,691
===============================================================================================-
* Independence Diversified Core Equity Fund II commenced operations on March 10, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------------
INDEPENDENCE INDEPENDENCE
BALANCED FUND GROWTH FUND
------------- ------------
PERIOD ENDED PERIOD ENDED
FEBRUARY 29, 1996 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 67,293 $ 1,937
Net realized gain on investments sold 20,423 2,701
Change in net unrealized appreciation/depreciation of investments 170,514 44,790
---------- ----------
Net Increase in Net Assets Resulting from Operations 258,230 49,428
---------- ----------
Distributions to Shareholders: *
Dividends from net investment income (38,521) (1,937)
Distributions from net realized short-term gain on investments sold 0 (1,123)
---------- ----------
Total Distributions to Shareholders (38,521) (3,060)
---------- ----------
From Fund Share Transactions: **
Shares sold 5,415,754 500,075
Shares issued to shareholders in reinvestment of distributions 38,522 3,060
---------- ----------
5,454,276 503,135
Less shares repurchased (519,051) (76)
---------- ----------
Net increase 4,935,225 503,059
---------- ----------
Net Assets:
Beginning of period 0 0
---------- ----------
End of period (including undistributed net investment income of $28,772 and none, respectively) $5,154,934 $ 549,427
========== ==========
* Distributions to Shareholders
Per share dividends from net investment income $ 0.1300 $ 0.0329
---------- ----------
Per share distributions from net realized short-term gain on investments sold 0 $ 0.0191
---------- ----------
** Analysis of Fund Share Transactions:
Shares sold 609,416 58,832
Shares issued to shareholders in reinvestment of distributions 4,250 348
---------- ----------
613,666 59,180
Less shares repurchased (56,371) (8)
---------- ----------
Net increase 557,295 59,172
========== ==========
[dagger] Independence Balanced Fund and Independence Growth Fund commenced Operations on July 6, 1995 and
October 2, 1995, respectively.
</TABLE>
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets has changed since the commencement of operations. The difference reflects
net investment income, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shar eholders invested in
each Fund. The footnotes illustrate the number of Fund shares sold, reinvested
and redeemed during the period, along with the per share amount of distributions
made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INDEPENDENCE
MEDIUM INDEPENDENCE
CAPITALIZATION FUND VALUE FUND
------------------- -----------------
PERIOD ENDED PERIOD ENDED
FEBRUARY 29, 1996 FEBRUARY 29, 1996
------------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 22,280 $ 6,524
Net realized gain (loss) on investments sold (4,647) 3,145
Change in net unrealized appreciation/depreciation of investments 291,734 57,583
---------- --------
Net Increase in Net Assets Resulting from Operations 309,367 67,252
---------- --------
Distributions to Shareholders: *
Dividends from net investment income (13,013) (5,254)
---------- --------
From Fund Share Transactions: **
Shares sold 3,855,325 615,732
Shares issued to shareholders in reinvestment of distributions 13,012 5,254
---------- --------
3,868,337 620,986
Less shares repurchased (241,783) (1,081)
---------- --------
Net increase 3,626,554 619,905
---------- --------
Net Assets:
Beginning of period --- ---
End of period (including undistributed net investment income of
$9,267 and $1,270, respectively) $3,922,908 $681,903
========== ========
* Distributions to Shareholders
Per share dividends from net investment income $ 0.0333 $ 0.0893
---------- --------
** Analysis of Fund Share Transactions:
Shares sold 448,130 71,507
Shares issued to shareholders in reinvestment of distributions 1,480 585
---------- --------
449,610 72,092
Less shares repurchased (27,231) (120)
---------- --------
Net increase 422,379 71,972
========== ========
[dagger] Independence Medium Capitalization Fund and Independence Value Fund commenced operations
on October 2, 1995, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INDEPENDENCE
DIVERSIFIED
EQUITY FUND II
-----------------
PERIOD ENDED
FEBRUARY 29, 1996
-----------------
<S> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 2,020,577
Net realized gain on investments sold and foreign currency transactions 1,499,534
Change in net unrealized appreciation/depreciation of investments 22,250,580
-------------
Net Increase in Net Assets Resulting from Operations 25,770,691
-------------
Distributions to Shareholders: *
Dividends from net investment income (1,434,011)
Distributions from net realized short-term gain on investments sold and foreign currency transactions (140,945)
-------------
Total Distributions to Shareholders (1,574,956)
-------------
From Fund Share Transactions: **
Shares sold 174,862,644
Shares issued to shareholders in reinvestment of distributions 1,574,424
-------------
176,437,068
Less shares repurchased (11,954,213)
-------------
Net increase 164,482,855
-------------
Net Assets:
Beginning of period ---
-------------
End of period (including undistributed net investment income of $587,398) $ 188,678,590
=============
* Distributions to Shareholders
Per share dividends from net investment income $ 0.1113
-------------
Per share distributions from net realized short-term gain on investments sold and
foreign currency transactions $ 0.0090
-------------
** Analysis of Fund Share Transactions:
Shares sold 18,245,546
Shares issued to shareholders in reinvestment of distributions 153,808
-------------
18,399,354
Less shares repurchased (1,184,950)
-------------
Net increase 17,214,404
=============
[dagger] Independence Diversified Core Equity Fund II commenced operations on March 10, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
Financial Highlights
The following table includes selected data for a share outstanding
throughout the period, total investment return, key ratios and supplemental data.
- ---------------------------------------------------------------------------------------
<CAPTION>
THE PERIOD JULY 6, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(a)
------
Net Investment Income 0.25
Net Realized and Unrealized Gain on Investments 0.63
------
Total from Investment Operations 0.88
------
Less Distributions:
Dividends from Net Investment Income (0.13)
------
Net Asset Value, End of Period $ 9.25
======
Total Investment Return at Net Asset Value (e) 10.42%(c)
Total Adjusted Investment Return at Net Asset Value (b)(e) 7.36%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $5,155
Ratio of Expenses to Average Net Assets 0.90%*
Ratio of Adjusted Expenses to Average Net Assets (b)(d) 5.58%*
Ratio of Net Investment Income to Average Net Assets 3.96%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (b)(d) (0.72%)*
Portfolio Turnover Rate 31%
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets are expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for the 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.
33
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
<TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout the period,
total investment return, key ratios and supplemental data.
- -----------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
-------------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(a)
-------
Net Investment Income 0.03(e)
Net Realized and Unrealized Gain on Investments 0.81
-------
Total from Investment Operations 0.84
-------
Less Distributions:
Dividends from Net Investment Income (0.03)
Distributions from Net Realized Short-Term Gain on Investments (0.02)
-------
Total Distributions (0.05)
-------
Net Asset Value, End of Period $ 9.29
=======
Total Investment Return at Net Asset Value (f) 9.94%(c)
Total Adjusted Investment Return at Net Asset Value (b)(f) (5.63%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 549
Ratio of Expenses to Average Net Assets 0.95%*
Ratio of Adjusted Expenses to Average Net Assets (b)(d) 38.57%*
Ratio of Net Investment Income to Average Net Assets 0.91%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (b)(d) (36.71%)*
Portfolio Turnover Rate 21%
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) On average month end shares outstanding.
(f) Total investment return assumes dividend reinvestment.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Medium
Capitalization
<TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout the period,
total investment return, key ratios and supplemental data.
- ------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
------------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(a)
------
Net Investment Income 0.08(c)
Net Realized and Unrealized Gain on Investments 0.74
------
Total from Investment Operations 0.82
------
Less Distributions:
Dividends from Net Investment Income (0.03)
------
Net Asset Value, End of Period $ 9.29
======
Total Investment Return at Net Asset Value (e) 9.71%(d)
Total Adjusted Investment Return at Net Asset Value (b)(e) 7.00%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $3,923
Ratio of Expenses to Average Net Assets 1.00%*
Ratio of Adjusted Expenses to Average Net Assets (b) 7.55%*
Ratio of Net Investment Income to Average Net Assets 1.94%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (b) (4.61%)*
Portfolio Turnover Rate 3%
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(c) On average month end shares outstanding.
(d) Not annualized.
(e) Total investment return assumes dividend reinvestment.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
<TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout the period,
total investment return, key ratios and supplemental data.
- ------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
------------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(a)
------
Net Investment Income 0.10(e)
Net Realized and Unrealized Gain on Investments 0.96
------
Total from Investment Operations 1.06
------
Less Distributions:
Dividends from Net Investment Income (0.09)
-------
Net Asset Value, End of Period $ 9.47
=======
Total Investment Return at Net Asset Value (f) 12.52%(c)
Total Adjusted Investment Return at Net Asset Value (b)(f) (1.18%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 682
Ratio of Expenses to Average Net Assets 0.95%*
Ratio of Adjusted Expenses to Average Net Assets (b)(d) 34.06%*
Ratio of Net Investment Income to Average Net Assets 2.81%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (b)(d) (30.30%)*
Portfolio Turnover Rate 12%
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to decrease
and adjusted net investment income as a percentage of average net assets are
expected to increase as the net assets of the Fund grow.
(e) On average month end shares outstanding.
(f) Total investment return assumes dividend reinvestment.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Diversified Core
Equity Fund
<TABLE>
Financial Highlights
The following table includes selected data for a share outstanding throughout the period,
total investment return, key ratios and supplemental data.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD MARCH 10, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(a)
--------
Net Investment Income 0.20(c)
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 2.38
--------
Total from Investment Operations 2.58
--------
Less Distributions:
Dividends from Net Investment Income (0.11)
Distributions from Net Realized Gains on Investments Sold and Foreign Currency Transactions (0.01)
--------
Total Distributions (0.12)
--------
Net Asset Value, End of Period $ 10.96
========
Total Investment Return at Net Asset Value (e) 30.48%(d)
Total Adjusted Investment Return at Net Assets Value (b)(e) 30.42%(d)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $188,679
Ratio of Expenses to Average Net Assets 0.70%*
Ratio of Adjusted Expenses to Average Net Assets (b) 0.76%*
Ratio of Net Investment Income to Average Net Assets 2.00%*
Ratio of Adjusted Net Investment Income to Average Net Assets (b) 1.94%*
Portfolio Turnover Rate 39%
* On an annualized basis.
(a) Initial price to commence operations.
(b) On an unreimbursed basis.
(c) On average month end shares outstanding.
(d) Not annualized.
(e) Total investment return assumes dividend reinvestment.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
Schedule of Investments
February 29, 1996
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Aerospace (1.33%)
Boeing Co. 200 $ 16,225
Raytheon Co. 400 20,050
United Technologies Corp. 300 32,250
----------
68,525
----------
Automobile/Truck (1.60%)
Chrysler Corp. 700 39,462
Dana Corp. 400 12,100
General Motors Corp. 600 30,750
----------
82,312
----------
Banks (3.21%)
Banc One Corp. 110 3,918
BankAmerica Corp. 400 28,500
Chemical Banking Corp. 300 21,488
Citicorp 100 7,800
First Bank System, Inc. 400 23,050
First Chicago NBD Corp. 200 8,675
First Union Corp. 300 18,150
Fleet Financial Group, Inc. 200 8,225
J.P. Morgan & Co., Inc. 200 16,375
NationsBank Corp. 400 29,500
----------
165,681
----------
Beverages (1.60%)
PepsiCo, Inc. 1,300 82,225
----------
Building Products (0.92%)
Home Depot, Inc. (The) 700 30,275
Lowe's Cos., Inc. 300 9,300
Masco Corp. 100 2,850
Willamette Industries, Inc. 100 5,250
----------
47,675
----------
Chemicals (2.04%)
Air Products & Chemicals, Inc. 100 5,325
Hercules, Inc. 800 48,000
Monsanto Co. 300 40,386
Morton International, Inc. 300 11,363
----------
105,074
----------
Computers (1.77%)
Cisco Systems, Inc.* 200 9,500
Compaq Computer Corp.* 100 5,063
Digital Equipment Corp. * 200 14,400
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the
Independence Balanced Fund on February 29, 1996. It's divided into four main
categories: Common Stocks, Corporate Bonds, U.S. Government and Agencies
Securities and short-term investments. The investments are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Computers (continued)
Hewlett-Packard Co. 100 $ 10,075
Komag, Inc. * 400 12,550
Microsoft Corp.* 400 39,475
----------
91,063
----------
Diversified Operations (2.19%)
AlliedSignal, Inc. 300 16,688
Lockheed Martin Corp. 400 30,500
Ogden Corp. 100 2,136
Tenneco, Inc. 1,000 55,875
Textron, Inc. 100 7,875
----------
113,074
----------
Drugs (3.32%)
Abbott Laboratories 900 37,575
Bristol-Myers Squibb Co. 800 68,100
Merck & Co., Inc. 900 59,625
Schering-Plough Corp. 100 5,613
----------
170,913
----------
Electronics (2.26%)
Applied Materials, Inc.* 300 10,725
General Electric Co. 800 60,400
Integrated Device Technology, Inc.* 400 4,800
Lam Research Corp.* 300 11,063
Linear Technology Corp. 300 13,950
Tektronix, Inc. 100 4,538
Teradyne, Inc. * 300 6,113
Texas Instruments, Inc. 100 4,988
----------
116,577
----------
Finance (1.65%)
American Express Co. 1,300 59,800
Federal National Mortgage Assn 800 25,300
85,100
----------
Foods (1.45%)
Conagra, Inc. 100 4,213
CPC International, Inc. 100 6,925
Heinz (H.J.) Co. 500 17,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Foods (continued)
Sara Lee Corp. 200 $ 6,475
Unilever N.V 300 40,350
----------
74,963
----------
Healthcare (0.32%)
Columbia/HCA Healthcare Corp. 100 5,475
Vencor, Inc. * 300 11,213
----------
16,688
----------
Insurance (2.97%)
Aetna Life & Casualty Co. 500 37,813
Allstate Corp. 200 8,575
American International Group, Inc. 100 9,663
General Re Corp. 100 14,386
Lincoln National Corp. 800 44,000
Marsh & McLennan Cos., Inc. 400 38,850
----------
153,287
----------
Machinery (0.17%)
Dover Corp. 200 8,900
----------
Medical/Dental (2.14%)
Baxter International, Inc. 600 27,450
Johnson & Johnson 700 65,450
Medtronic, Inc. 300 17,213
----------
110,113
----------
Metals (0.23%)
Aluminum Co. of America 100 5,675
Phelps Dodge Corp. 100 6,113
----------
11,788
----------
Office Equipment & Supplies (1.89%)
Pitney-Bowes, Inc. 400 19,300
Xerox Corp. 600 78,150
----------
97,450
----------
Oil & Gas (5.53%)
Amoco Corp. 800 55,600
Baker Hughes, Inc. 300 7,913
British Petroleum Co. PLC, American
Depository Receipt ("ADR")
(United Kingdom) 100 10,036
Exxon Corp. 1,000 79,500
Halliburton Co. 400 21,950
Mobil Corp. 500 54,813
Panhandle Eastern Corp. 700 20,038
Phillips Petroleum Co. 1,000 35,000
----------
284,850
----------
Paper (0.59%)
Kimberly-Clark Corp. 400 30,550
----------
Photo Equipment (0.69%)
Eastman Kodak Co. 500 $ 35,750
----------
Pollution Control (0.23%)
Browning-Ferris Industries, Inc. 400 11,850
----------
Retail (3.20%)
Albertson's, Inc. 200 7,400
Federated Department Stores, Inc. * 900 27,225
Gap, Inc. (The) 100 5,360
McDonald's Corp. 600 30,000
Premark International, Inc.100 5,235
Price/Costco, Inc.* 1,100 18,975
Ryans Family Steak Houses, Inc.* 1,200 7,950
Safeway, Inc. 400 11,950
Toys "R" Us, Inc. 700 16,713
Wal-Mart Stores, Inc. 1,600 34,000
----------
164,808
----------
Rubber (0.46%)
Goodyear Tire & Rubber Co. 500 23,750
----------
Telecommunications (2.34%)
A T & T Corp. 1,600 101,800
MCI Communications Corp. 200 5,850
Sprint Corp. 300 12,900
----------
120,550
----------
Textiles (0.15%)
Tommy Hilfiger Corp.* . 200 7,925
----------
Tobacco (1.35%)
Philip Morris Cos., Inc. 700 69,300
----------
Transportation (0.84%)
Conrail, Inc. 300 21,638
CSX Corp. 100 4,488
Delta Air Lines, Inc. 100 7,800
Northwest Airlines Corp.* 200 9,175
----------
43,101
----------
Utilities (2.96%)
Entergy Corp. 900 25,538
GTE Corp. 1,500 64,313
Northern States Power Co. 300 14,775
Pacific Telesis Group . 1,500 42,375
SBC Communications, Inc. 100 5,488
----------
152,489
----------
TOTAL COMMON STOCKS
(Cost $2,348,623) (49.40%) 2,546,331
----- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST MATURITY PAR VALUE MARKET
ISSUER, DESCRIPTION RATE DATE (000'S OMITTED) VALUE
- ------------------- ---- ---- --------------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
Diversified Operations (0.40%)
Hanson Overseas
PLC, Sr Note 7.375% 01-15-03 $ 20 $ 20,485
----------
Utilities (0.20%)
Hydro-Quebec Corp.,
Deb Ser IF,
(Gtd By Province
of Quebec) 7.375 02-01-03 10 10,400
----------
TOTAL CORPORATE BONDS
(Cost $31,930) (0.60%) 30,885
----- ----------
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (48.47%)
United States
Treasury Bond 11.625 11-15-04 500 683,985
United States
Treasury Bond 8.125 08-15-21 205 241,771
United States
Treasury Note 7.375 11-15-97 110 113,403
United States
Treasury Note 6.125 05-15-98 320 324,198
United States
Treasury Note 7.125 09-30-99 110 115,053
United States
Treasury Note 6.125 07-31-00 235 238,342
United States
Treasury Note 6.125 09-30-00 160 162,426
United States
Treasury Note 7.500 11-15-01 200 215,594
United States
Treasury Note 7.500 02-15-05 370 403,822
----------
TOTAL U.S. GOVERNMENT
AND AGENCIES SECURITIES
(Cost $2,524,743) (48.47%) 2,498,594
----- ----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.71%)
Investment in a joint repurchase
agreement transaction with
BT Securities Corp., Dated
02-29-96, due 03-01-96
(secured by U.S. Treasury
Bond, 12.50% due 08-15-14
and by U. S. Treasury Notes,
6.00% thru 8.25% due
08-31-97 thru 07-15-98)
- Note A 5.43% $88 $ 88,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 444
----------
TOTAL SHORT-TERM INVESTMENTS (1.71%) 88,444
---- ----------
TOTAL INVESTMENTS (100.18%) $5,164,254
====== ==========
* 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
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
<TABLE>
Schedule of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Advertising (2.26%)
Interpublic Group Of Companies, Inc. 100 $ 4,213
Omnicom Group, Inc. 200 8,175
--------
12,388
--------
Aerospace (1.83%)
Raytheon Co. 200 10,025
--------
Automobile/Truck (1.04%)
General Motors Corp. (Class E) 100 5,713
--------
Banks (2.39%)
First Bank System, Inc. 100 5,763
NationsBank Corp. 100 7,375
--------
13,138
--------
Beverages (4.60%)
PepsiCo, Inc. 400 25,300
--------
Building Products (5.32%)
Home Depot, Inc. (The) 400 17,300
Lowe's Cos., Inc. 200 6,200
Masco Corp. 200 5,700
--------
29,200
--------
Chemicals (4.84%)
Great Lakes Chemical Corp. 100 7,150
Hercules, Inc. 100 6,000
Monsanto Co. 100 13,463
--------
26,613
--------
Computers (6.78%)
Cisco Systems, Inc.* 200 9,500
Compaq Computer Corp.* 100 5,063
Digital Equipment Corp.* 100 7,200
Mentor Graphics Corp. * 200 2,850
Oracle Systems Corp.* 100 5,200
Parametric Technology Corp.* 100 7,433
--------
37,246
--------
Cosmetics & Toiletries (1.46%)
Avon Products, Inc. 100 8,038
--------
Diversified Operations (2.03%)
AlliedSignal, Inc. 100 5,563
Tenneco, Inc. 100 5,588
--------
11,151
--------
</TABLE>
The Schedule Of Investments is a complete list of all securities owned by the
Independence Growth Fund on February 29, 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
Funds's "cash" position, are listed last.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Drugs (11.04%)
Abbott Laboratories 100 $ 4,175
Bristol-Myers Squibb Co. 100 8,513
Forest Laboratories, Inc.* 200 10,400
Lilly (Eli) and Co. 200 12,100
Merck & Co., Inc. 300 19,870
Schering-Plough Corp. 100 5,613
--------
60,671
--------
Electronics (10.68%)
Analog Devices, Inc.* 300 8,063
Applied Materials, Inc.* 200 7,150
General Electric Co. 200 15,100
Integrated Device Technology, Inc.* 200 2,400
Intel Corp. 100 5,881
Linear Technology Corp. 100 4,650
LSI Logic Corp. 100 2,763
Millipore Corp. 100 4,438
Teradyne, Inc. * 100 2,036
Texas Instruments, Inc. 100 4,988
VLSI Technology, Inc.* 100 1,200
--------
58,669
--------
Finance (3.41%)
American Express Co. 200 9,200
Dean Witter Discover & Co. 100 5,375
Equifax, Inc. 200 4,150
--------
18,725
--------
Foods (2.63%)
CPC International, Inc. 100 6,925
Kellogg Co. 100 7,550
--------
14,475
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Hotels & Motels (0.89%)
Marriott International, Inc. 100 $ 4,913
--------
Insurance (2.55%)
Allstate Corp. 100 4,288
Marsh & McLennan Cos., Inc. 100 9,713
--------
14,001
--------
Machinery (1.62%)
Dover Corp. 200 8,900
--------
Medical/Dental (6.33%)
Baxter International, Inc. 100 4,575
Johnson & Johnson 200 18,700
Medtronic, Inc. 200 11,475
--------
34,750
--------
Office Equipment & Supplies (3.25%)
Pitney-Bowes, Inc. 100 4,825
Xerox Corp. 100 13,025
--------
17,850
--------
Oil & Gas (0.99%)
Anadarko Petroleum Corp. 100 5,450
--------
Paper (1.39%)
Kimberly-Clark Corp. 100 7,638
--------
Photo Equipment (1.30%)
Eastman Kodak Co. 100 7,150
--------
Pollution Control (1.06%)
Browning-Ferris Industries, Inc. 100 2,963
WMX Technologies, Inc. 100 2,850
--------
5,813
--------
Publishing (1.59%)
McGraw-Hill Cos., Inc. 100 8,738
--------
Retail (7.24%)
Albertson's, Inc. 200 7,400
Federated Department Stores, Inc. * 100 3,025
Outback Steakhouse, Inc.* 100 3,550
Premark International, Inc. 100 5,238
Staples, Inc. * 200 5,175
Toys "R" Us, Inc.* 200 4,775
Wal-Mart Stores, Inc. 500 10,625
--------
39,788
--------
Steel (0.52%)
British Steel PLC, (ADR)
(United Kingdom) 100 2,850
--------
Telecommunications (3.38%)
A T & T Corp. 200 12,725
MCI Communications Corp. 200 5,850
--------
18,575
--------
Tobacco (3.60%)
Philip Morris Cos., Inc. 200 $ 19,800
--------
Transportation (1.42%)
Delta Air Lines, Inc. 100 7,800
--------
Utilities (1.72%)
GTE Corp. 100 4,288
Nynex Corp. 100 5,150
--------
9,438
--------
TOTAL COMMON STOCKS
(Cost $500,016) (99.16%) 544,806
--------
<CAPTION>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED)
- ------------------- ---- -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.91%)
Investment in a joint repurchase
agreement transaction with BT
Securities Corp., Dated 02-29-96,
due 03-01-96 (secured by U.S.
Treasury Bond, 12.50% due
08-15-14 and by U. S. Treasury
Notes, 6.00% thru 8.25% due
08-31-97 thru 07-15-98) -
Note A 5.43% $5 5,000
--------
Corporate Savings Account (0.14%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 773
--------
TOTAL SHORT-TERM INVESTMENTS (1.05%) 5,773
---- --------
TOTAL INVESTMENTS (100.21%) $550,579
====== ========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
<TABLE>
Schedule of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Advertising (1.25%)
Omnicom Group, Inc. 1,200 $ 49,050
----------
Aerospace (0.27%)
United Technologies Corp. 100 10,750
----------
Automobile/Truck (0.99%)
Dana Corp. 1,100 33,275
General Motors Corp.(Class H) 100 5,725
----------
39,000
----------
Banks (8.80%)
Bank Of Boston, Corp. 600 29,175
Bank Of New York 200 10,375
Barnett Banks, Inc. 400 25,000
Chemical Banking Corp. 400 28,650
Comerica, Inc. 400 15,550
Fifth Third Bancorp 600 30,750
First Bank System, Inc. 1,000 57,625
First Chicago NBD Corp. 1,100 47,713
Fleet Financial Group, Inc. 1,000 41,120
NationsBank Corp. 300 22,120
Northern Trust Corp. 700 36,920
----------
344,998
----------
Beverages (0.16%)
PepsiCo, Inc. 100 6,325
----------
Building Products (2.13%)
Home Depot, Inc. (The) 300 12,975
Lowe's Cos., Inc. 900 27,900
Masco Corp. 900 25,650
Rayonier, Inc. 500 17,125
----------
83,650
----------
Chemicals (5.98%)
Air Products & Chemicals, Inc. 800 42,600
Great Lakes Chemical Corp. 500 35,750
Hercules, Inc. 1,000 60,000
Monsanto Co. 100 13,461
Morton International, Inc. 700 26,511
Praxair, Inc. 800 27,600
Sigma Aldrich Corp. 500 28,625
----------
234,547
----------
Computers (2.24%)
Digital Equipment Corp. * 500 36,000
Komag, Inc. * 400 12,550
</TABLE>
The Schedule Of Investments is a complete list of all securities owned by the
Independence Medium Capitalization Fund on February 29, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Computers (continued)
Mentor Graphics Corp. * 400 $ 5,700
Novell, Inc.* 700 8,531
Parametric Technology Corp. * 200 14,875
Policy Management Systems Corp. * 200 10,225
----------
87,881
----------
Cosmetics & Toiletries (1.15%)
Avon Products, Inc. 500 40,186
Tambrands, Inc. 100 4,825
----------
45,011
----------
Diversified Operations (4.23%)
AlliedSignal, Inc. 100 5,563
Canadian Pacific, Ltd. 700 13,825
Corning, Inc. 300 9,750
Lockheed Martin Corp. 300 22,875
Ogden Corp. 700 14,963
Tenneco, Inc. 600 33,525
Textron, Inc. 600 47,250
Tyco International Ltd. 500 18,063
----------
165,814
----------
Drugs (1.16%)
Bristol-Myers Squibb Co. 100 8,513
Forest Laboratories, Inc. * 300 15,600
Mylan Laboratories, Inc. 1,100 21,450
----------
45,563
----------
Electronics (5.04%)
Analog Devices, Inc.* . 550 14,781
Applied Materials, Inc.* 800 28,600
General Signal Corp. 600 21,825
Integrated Device Technology, Inc.* 400 4,800
Lam Research Corp.* 300 11,063
Linear Technology Corp. 600 27,900
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Electronics (continued)
LSI Logic Corp. 800 $ 22,100
Millipore Corp. 100 4,438
National Semiconductor Corp.* 900 14,063
Parker-Hannifin Corp. 600 21,075
Teradyne, Inc. * 600 12,225
Texas Instruments, Inc. 300 14,963
----------
197,833
----------
Energy (0.40%)
Wheelabrator Technologies, Inc. 1,000 15,875
----------
Finance (3.96%)
Ahmanson (H.F.) & Co. 1,200 27,300
American Express Co. 800 36,800
Dean Witter Discover & Co. 500 26,875
Golden West Financial Corp. 100 5,063
Great Western Financial Corp. 100 2,288
MBNA Corp. 1,350 38,138
Salomon, Inc. 500 19,063
----------
155,527
----------
Foods (0.48%)
Universal Foods Corp. 500 18,938
----------
Healthcare (1.94%)
Health Management Associates,
Inc. (Class A) * 150 4,706
Tenet Healthcare Corporation 1,200 26,850
U.S. Health Care, Inc. 300 14,625
Vencor, Inc. * 800 29,900
----------
76,081
----------
Hotels & Motels (1.00%)
Marriott International, Inc. 800 39,300
----------
Insurance (10.49%)
Aetna Life & Casualty Co. 1,200 90,750
Allstate Corp. 100 4,288
Aon Corp. 500 26,000
Cigna Corp. 400 47,400
Lincoln National Corp. 1,200 66,000
Marsh & McLennan Cos., Inc. 1,000 97,125
Providian Corp. 1,100 50,875
Safeco Corp. 800 29,000
----------
411,438
----------
Leisure & Recreation (0.16%)
Gaylord Entertainment Co. (Class A) 100 2,675
Harley-Davidson, Inc. 100 3,588
----------
6,263
----------
Machinery (1.71%)
Cooper Industries, Inc. 700 $ 27,038
Dover Corp. 900 40,050
----------
67,088
----------
Medical/Dental (2.86%)
Baxter International, Inc. 100 4,575
Becton Dickinson & Co. 500 41,000
Guidant Corp. 700 33,163
Medtronic, Inc. 200 11,475
Pall Corp. 800 21,800
----------
112,013
----------
Metals (1.00%)
Asarco, Inc. 100 2,988
Newmont Mining Corp. 100 5,688
Phelps Dodge Corp. 500 30,563
----------
39,239
----------
Office Equipment & Supplies (2.93%)
Pitney-Bowes, Inc. 1,300 62,725
Xerox Corp. 400 52,100
----------
114,825
----------
Oil & Gas (7.31%)
Anadarko Petroleum Corp. 200 10,900
Baker Hughes, Inc. 1,300 34,288
Dresser Industries, Inc. 1,100 30,938
Halliburton Co. 900 49,388
Kerr-McGee Corp. 500 29,813
Mobil Corp. 100 10,963
Panhandle Eastern Corp. 1,400 40,075
Phillips Petroleum Co. 700 24,500
Sun Co., Inc. 1,100 32,038
Texaco, Inc. 300 23,925
----------
286,828
----------
Paper (1.63%)
Champion International 500 20,000
Kimberly-Clark Corp. 100 7,638
Westvaco Corp. 1,250 36,250
----------
63,888
----------
Pollution Control (0.93%)
Allwaste 200 875
Browning-Ferris Industries, Inc. 1,200 35,550
----------
36,425
----------
Retail (9.06%)
Albertson's, Inc. 300 11,100
Cracker Barrel Old Country Store, Inc. 1,000 21,000
Federated Department Stores, Inc. * 1,600 48,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Retail (continued)
Gap, Inc. (The) 700 $ 37,538
Kroger Co. 600 22,275
Outback Steakhouse, Inc. * 300 10,650
Premark International, Inc. 700 36,663
Price/Costco, Inc.* 1,800 31,050
Ryans Family Steak Houses, Inc.* 2,600 17,225
Safeway, Inc. 1,200 35,850
Super Valu Stores, Inc. 100 3,225
Sysco Corp. 1,100 36,163
TJX Cos., Inc. (The) 800 17,800
Toys "R" Us, Inc.* 1,100 26,263
----------
355,202
----------
Rubber (1.21%)
Goodyear Tire & Rubber Co. 1,000 47,500
----------
Steel (1.27%)
AK Steel Holding Corp. 300 10,838
British Steel PLC, (ADR)
(United Kingdom) 600 17,100
Carpenter Technology 600 21,750
----------
49,688
----------
Telecommunications (0.44%)
A T & T Corp. 200 12,725
MCI Communications Corp. 100 2,925
Scientific-Atlanta, Inc. 100 1,675
----------
17,325
----------
Textiles (1.27%)
Liz Claiborne, Inc. 500 15,688
Tommy Hilfiger Corp.* . 400 15,850
Warnaco Group, Inc. (Class A) 700 18,200
----------
49,738
----------
Tobacco (1.22%)
Universal Corp. 200 5,375
UST, Inc. 1,200 42,600
----------
47,975
----------
Toys/Games/Hobby Products (0.08%)
Mattel, Inc. 100 3,325
----------
Transportation (4.09%)
Conrail, Inc. 700 50,488
CSX Corp. 500 22,438
Delta Air Lines, Inc. 300 23,400
Northwest Airlines Corp. * 400 18,350
Trinity Industries, Inc. 300 10,013
UAL Corp. 200 35,725
----------
160,414
----------
Utilities (9.01%)
Baltimore Gas & Electric Co. 1,700 $ 48,238
Central & South West Corp. 1,200 33,300
CMS Energy Corp. 100 3,038
Consolidated Edison Of N.Y. 700 22,838
Consolidated Natural Gas Co. 1,100 47,300
Entergy Corp. 2,800 79,450
GTE Corp. 200 8,575
Houston Industries, Inc. 400 9,050
Idaho Power Co. 600 17,400
LG&E Energy Corp. 100 4,300
Northern States Power Co. 700 34,475
Peco Energy Co. 600 16,950
Pinnacle West Capital Corp. 1,000 28,375
----------
353,289
----------
TOTAL COMMON STOCKS
(Cost $3,546,872) (97.85%) 3,838,606
----- ----------
<CAPTION>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED)
- ------------------- ---- -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.52%)
Investment in a joint repurchase
agreement transaction with BT
Securities Corp., Dated 02-29-96,
due 03-01-96 (secured by U.S.
Treasury Bond, 12.50% due
08-15-14 and by U. S. Treasury
Notes, 6.00% thru 8.25% due
08-31-97 thru 07-15-98) -
Note A 5.43% $99 99,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%. 404
----------
TOTAL SHORT-TERM INVESTMENTS (2.53%) 99,404
---- ----------
TOTAL INVESTMENTS (100.38%) $3,938,010
====== ==========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
<TABLE>
Schedule of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Aerospace (4.24%)
Boeing Co. 100 $ 8,113
Raytheon Co. 200 10,025
United Technologies Corp. 100 10,750
--------
28,888
--------
Automobile/Truck (5.81%)
Chrysler Corp. 200 11,275
Dana Corp. 200 6,050
Eaton Corp. 100 5,788
Ford Motor Co. 200 6,250
General Motors Corp. 200 10,250
--------
39,613
--------
Banks (18.50%)
Bank of Boston, Corp. 100 4,863
BankAmerica Corp. 200 14,250
Chemical Banking Corp. 300 21,486
Citicorp 100 7,800
First Bank System, Inc. 200 11,525
First Chicago NBD Corp. 400 17,350
First Union Corp. 100 6,050
Fleet Financial Group, Inc. 300 12,336
J.P. Morgan & Co., Inc. 100 8,186
Key Corp. 200 7,525
NationsBank Corp. 200 14,750
--------
126,121
--------
Building Products (0.84%)
Masco Corp. 200 5,700
--------
Chemicals (3.41%)
Hercules, Inc. 100 6,000
Monsanto Co. 100 13,463
Morton International, Inc. 100 3,788
--------
23,251
--------
Computers (0.46%)
Komag, Inc. * 100 3,138
--------
Containers (0.20%)
Stone Container Corp. 100 1,375
--------
Diversified Operations (5.14%)
AlliedSignal, Inc. 100 5,563
Lockheed Martin Corp. 100 7,625
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the
Independence Value Fund on February 29, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Diversified Operations (continued)
Ogden Corp. 500 $ 10,688
Tenneco, Inc. 200 11,175
--------
35,051
--------
Drugs (2.50%)
Bristol-Myers Squibb Co. 200 17,025
--------
Electronics (2.14%)
Analog Devices, Inc.* 150 4,031
Applied Materials, Inc.* 100 3,575
Teradyne, Inc. * 100 2,038
Texas Instruments, Inc. 100 4,988
--------
14,632
--------
Finance (2.13%)
Ahmanson (H.F.) & Co. 200 4,550
American Express Co. 100 4,600
Dean Witter Discover & Co. 100 5,375
--------
14,525
--------
Insurance (7.77%)
Aetna Life & Casualty Co. 100 7,563
Allstate Corp. 300 12,863
Cigna Corp. 100 11,850
Lincoln National Corp. 200 11,000
Marsh & McLennan Cos., Inc. 100 9,713
--------
52,989
--------
Medical/Dental (0.67%)
Baxter International, Inc. 100 4,575
--------
Metals (1.77%)
Asarco, Inc. 200 5,975
Phelps Dodge Corp. 100 6,113
--------
12,088
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Office Equipment & Supplies (2.62%)
Pitney-Bowes, Inc. 100 $ 4,825
Xerox Corp. 100 13,025
--------
17,850
--------
Oil & Gas (10.65%)
Amoco Corp. 100 6,950
Anadarko Petroleum Corp. 100 5,450
Chevron Corp. 100 5,563
Exxon Corp. 300 23,850
Halliburton Co. 100 5,488
Mobil Corp. 100 10,963
Panhandle Eastern Corp. 100 2,863
Phillips Petroleum Co. 100 3,500
Texaco, Inc. 100 7,975
--------
72,602
--------
Paper (1.12%)
Kimberly-Clark Corp. 100 7,638
--------
Retail (2.93%)
Albertson's, Inc. 200 7,400
Federated Department Stores, Inc. * 100 3,025
Price/Costco, Inc.* 200 3,450
Ryans Family Steak Houses, Inc.* 200 1,325
Toys "R" Us, Inc.* 200 4,775
--------
19,975
--------
Rubber (0.70%)
Goodyear Tire & Rubber Co. 100 4,750
--------
Steel (1.67%)
British Steel PLC, (ADR)
(United Kingdom) 400 11,400
--------
Telecommunications (1.56%)
A T & T Corp. 100 6,363
Sprint Corp. 100 4,300
--------
10,663
--------
Tobacco (1.97%)
Philip Morris Cos., Inc. 100 9,900
UST, Inc. 100 3,550
--------
13,450
--------
Transportation (0.66%)
CSX Corp. 100 4,488
--------
Utilities (19.72%)
Baltimore Gas & Electric Co. 600 17,025
Bellsouth Corp. 200 7,975
British Telecommunications PLC, (ADR)
(United Kingdom) 100 5,686
Central & South West Corp. 200 5,550
Consolidated Natural Gas Co. 100 4,300
Entergy Corp. 400 11,350
GTE Corp. 500 21,436
Houston Industries, Inc. 600 13,575
LG&E Energy Corp. 200 8,600
Nynex Corp. 200 10,300
Pacific Gas And Electric Co. 300 7,686
Pacific Telesis Group 200 5,650
Peco Energy Co. 400 11,300
Texas Utilities 100 4,036
--------
134,469
--------
TOTAL COMMON STOCKS
(Cost $618,673) (99.18%) 676,256
----- --------
<CAPTION>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED)
- ------------------- ---- -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.47%)
Investment in a joint repurchase
agreement transaction with BT
Securities Corp., Dated 02-29-96,
due 03-01-96 (secured by U.S.
Treasury Bond, 12.50% due 08-15-14
and by U. S. Treasury Notes, 6.00%
thru 8.25% due 08-31-97 thru
07-15-98) - Note A. 5.43% $10 10,000
--------
Corporate Savings Account (0.46%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%. 3,192
--------
TOTAL SHORT-TERM INVESTMENTS (1.93%) 13,192
---- --------
TOTAL INVESTMENTS (101.11%) $689,448
====== ========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
<TABLE>
Schedule of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Aerospace (2.77%)
Boeing Co. 22,700 $ 1,841,538
Raytheon Co. 35,000 1,754,375
United Technologies Corp. 15,100 1,623,250
------------
5,219,163
------------
Automobile/Truck (2.24%)
Chrysler Corp. 27,800 1,567,225
Dana Corp. 26,500 801,625
Eaton Corp. 15,000 868,125
General Motors Corp. 19,200 984,000
------------
4,220,975
------------
Banks (6.57%)
BankAmerica Corp. 19,700 1,403,625
Barnett Banks, Inc. 8,700 543,750
Chemical Banking Corp. 26,700 1,912,387
First Bank System, Inc. 33,200 1,913,150
First Union Corp. 37,000 2,238,500
Fleet Financial Group, Inc. 42,400 1,743,700
NationsBank Corp. 35,800 2,640,250
------------
12,395,362
------------
Beverages (2.74%)
Anheuser-Busch Cos., Inc. 6,000 404,250
Coca-Cola Co. (The) 15,400 1,243,550
PepsiCo, Inc. 55,800 3,529,350
------------
5,177,150
------------
Building Products (2.72%)
Home Depot, Inc. (The) 93,300 4,035,225
Lowe's Cos., Inc. 35,300 1,094,300
------------
5,129,525
------------
Chemicals (5.40%)
Hercules, Inc. 67,200 4,032,000
Monsanto Co. 24,400 3,284,850
Morton International, Inc. 75,900 2,874,712
------------
10,191,562
------------
Computers (2.61%)
Cisco Systems, Inc.* . 14,000 665,000
Digital Equipment Corp.* 14,900 1,072,800
Hewlett-Packard Co. 12,700 1,279,525
Komag, Inc.* 14,500 454,937
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the
Independence Diversified Core Equity Fund II on February 29, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Computers (continued)
Mentor Graphics Corp.* 20,000 $ 285,000
Microsoft Corp.* 11,800 1,164,512
------------
4,921,774
------------
Cosmetics & Toiletries (0.21%)
Avon Products, Inc. 4,900 393,838
------------
Diversified Operations (5.04%)
AlliedSignal, Inc. 14,900 828,813
Dial Corp. 45,200 1,356,000
Lockheed Martin Corp. 40,500 3,088,125
Tenneco, Inc. 48,600 2,715,525
Textron, Inc. 9,500 748,125
Whitman Corp. 32,800 762,600
------------
9,499,188
------------
Drugs (5.21%)
Bristol-Myers Squibb Co. 69,300 5,899,162
Merck & Co., Inc. 29,100 1,927,875
Pfizer, Inc. 15,300 1,007,887
Schering-Plough Corp. 17,700 993,412
------------
9,828,336
------------
Electronics (6.83%)
Analog Devices, Inc.* 35,500 954,063
Applied Materials, Inc.* 23,800 850,850
General Electric Co. 77,200 5,828,600
Intel Corp. 28,000 1,646,750
Lam Research Corp.* 12,600 464,625
Millipore Corp. 24,200 1,073,875
Parker-Hannifin Corp. 50 1,756
Tektronix, Inc. 18,500 839,437
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
<S> <C> <C>
Electronics (continued)
Teradyne, Inc.* 23,700 $ 482,887
Texas Instruments, Inc. 15,000 748,125
------------
12,890,968
------------
Finance (3.60%)
American Express Co. 89,600 4,121,600
Dean Witter Discover & Co. 32,300 1,736,125
Equifax, Inc. 7,800 161,850
Federal National Mortgage Assn 24,500 774,812
------------
6,794,387
------------
Foods (3.36%)
CPC International, Inc. 10,000 692,500
General Mills, Inc. 10,300 592,250
Sara Lee Corp. 35,300 1,142,838
Unilever N.V., (ADR) (Netherlands) 29,100 3,913,950
------------
6,341,538
------------
Healthcare (0.93%)
Columbia/HCA Healthcare Corp. 19,200 1,051,200
Health Management Associates, Inc.
(Class A)* 14,100 442,388
Vencor, Inc.* 7,200 269,100
------------
1,762,688
------------
Insurance (6.77%)
Aetna Life & Casualty Co. 46,800 3,539,250
Allstate Corp. 70,610 3,027,404
Cigna Corp. 12,200 1,445,700
Lincoln National Corp. 35,000 1,925,000
Marsh & McLennan Cos., Inc. 24,900 2,418,412
Safeco Corp. 11,300 409,625
------------
12,765,391
------------
Machinery (0.46%)
Dover Corp. 19,400 863,300
------------
Medical/Dental (3.66%)
Baxter International, Inc. 47,600 2,177,700
Johnson & Johnson 35,400 3,309,900
Medtronic, Inc. 24,800 1,422,900
------------
6,910,500
------------
Metals (0.28%)
Asarco, Inc. 10,400 310,700
Phelps Dodge Corp. 3,700 226,163
------------
536,863
------------
Office Equipment & Supplies (2.66%)
Xerox Corp. 38,500 5,014,625
------------
Oil & Gas (9.15%)
Amoco Corp. 28,600 $ 1,987,700
Anadarko Petroleum Corp. 35,500 1,934,750
British Petroleum Co. PLC, (ADR)
(United Kingdom) 5,200 521,950
Exxon Corp. 36,700 2,917,650
Halliburton Co. 15,400 845,075
Imperial Oil Ltd. (Canada)24,500 894,250
Mobil Corp. 30,800 3,376,450
Panhandle Eastern Corp. 27,200 778,600
Phillips Petroleum Co. 69,800 2,443,000
Texaco, Inc. 19,600 1,563,100
------------
17,262,525
------------
Paper (2.28%)
Kimberly-Clark Corp. 39,200 2,993,900
Mead Corp. 26,200 1,310,000
------------
4,303,900
------------
Photo Equipment (1.56%)
Eastman Kodak Co. 41,200 2,945,800
------------
Pollution Control (0.33%)
Browning-Ferris Industries, Inc. 21,000 622,125
------------
Retail (5.04%)
Albertson's, Inc. 46,100 1,705,700
Federated Department Stores, Inc.* 52,500 1,588,125
McDonald's Corp. 14,700 735,000
Price/Costco, Inc.* 86,600 1,493,850
Staples, Inc.* 26,700 690,863
Toys "R" Us, Inc.* 73,400 1,752,425
Wal-Mart Stores, Inc. 73,000 1,551,250
------------
9,517,213
------------
Rubber (0.60%)
Goodyear Tire & Rubber Co. 23,800 1,130,500
------------
Soap & Cleaning Preparations (0.61%)
Colgate-Palmolive Co. 14,700 1,150,275
------------
Steel (0.53%)
British Steel PLC, (ADR)
(United Kingdom) 35,300 1,006,050
------------
Telecommunications (4.98%)
A T & T Corp. 113,500 7,221,438
Pacific Telesis Group 37,200 1,050,900
Sprint Corp. 26,000 1,118,000
------------
9,390,338
------------
Tobacco (2.60%)
Philip Morris Cos., Inc. 37,000 3,663,000
UST, Inc. 34,700 1,231,850
------------
4,894,850
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
<S> <C> <C>
Transportation (0.50%)
Conrail, Inc. 4,100 $ 295,713
Delta Air Lines, Inc. 8,400 655,200
------------
950,913
------------
Utilities (6.35%)
Consolidated Natural Gas Co. 11,900 511,700
Entergy Corp. 86,400 2,451,600
GTE Corp. 141,600 6,071,100
Pacific Gas & Electric Co.24,700 632,938
Peco Energy Co. 11,800 333,350
Unicom Corp. 61,900 1,980,800
------------
11,981,488
------------
TOTAL COMMON STOCKS
(Cost $163,762,530) (98.59%) 186,013,110
----- ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.24%)
Investment in a joint repurchase
agreement transaction with BT
Securities Corp., Dated 02-29-96,
due 03-01-96 (secured by U.S.
Treasury Bond, 12.50% due
08-15-14 and by U. S. Treasury
Notes, 6.00% thru 8.25% due
08-31-97 thru 07-15-98) -
Note A 5.43% $2,343 $ 2,343,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 583
------------
TOTAL SHORT-TERM INVESTMENTS (1.24%) 2,343,583
---- ------------
TOTAL INVESTMENTS (99.83%) $188,356,693
===== ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
NOTE A -
ACCOUNTING POLICIES
John Hancock Independence Balanced Fund ("Independence Balanced Fund"), John
Hancock Independence Growth Fund ("Independence Growth Fund"), John Hancock
Independence Medium Capitalization Fund ("Independence Medium Capitalization
Fund"), John Hancock Independence Value Fund ("Independence Value Fund") and
John Hancock Independence Diversified Core Equity Fund II ("Independence
Diversified Core Equity Fund II"), (each, a "Fund" and collectively, the
"Funds"), are separate portfolios of John Hancock Institutional Series Trust
(the "Trust"), an open-end management investment company, registered under the
Investment Company Act of 1940. The Trust, organized as a Massachusetts business
trust in 1994, consists of twelve series portfolios: the Funds, John Hancock
Small Capitalization Equity Fund, John Hancock Multi-Sector Growth Fund, John
Hancock Active Bond Fund, John Hancock Dividend Performers Fund, John Hancock
Fundamental Value Fund, John Hancock Global Bond Fund and John Hancock
International Equity Fund. Prior to September 12, 1995, John Hancock
Multi-Sector Growth Fund was known as John Hancock Berkeley Sector Opportunity
Fund, John Hancock Active Bond Fund was known as John Hancock Berkeley Bond
Fund, John Hancock Dividend Performers Fund was known as John Hancock Berkeley
Dividend Performers Fund, John Hancock Fundamental Value Fund was known as John
Hancock Berkeley Fundamental Value Fund, John Hancock Global Bond Fund was known
as John Hancock Berkeley Global Bond Fund and John Hancock International Equity
Fund was known as John Hancock Berkeley Overseas Growth Fund. The investment
objective of Independence Balanced Fund and Independence Diversified Core Equity
Fund II is to seek above average total return consisting of capital appreciation
and income. The investment objective of Independence Growth Fund, Independence
Medium Capitalization Fund and Independence Value Fund is to seek above-average
total return. Each Fund currently has one class of shares with equal rights as
to voting, redempt ion, dividends and liquidation within their respective Fund.
The Trustees may authorize the creation of additional portfolios from time to
time to satisfy various investment objectives.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Funds' portfolios are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Funds' custodian bank receives delivery of the underlying securities for the
joint account on the Funds' behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policies are to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment companies
and to distribute all of their taxable income, including net realized gain on
investments, to their shareholders. Therefore, no federal income tax provisions
are required. Additionally, net capital losses of $4,647 attributable to
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
security transactions occuring after October 31, 1995 from Independence Medium
Capitalization Fund are treated as arising on the first day (March 1, 1996) of
the Fund's current taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Funds are made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Funds record all dividends and distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund will be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
DEFERRED ORGANIZATION EXPENSE Expenses incurred in connection with the
organization of the Funds have been capitalized and are being charged to the
Funds' operations ratably over a five-year period that began with the
commencement of the investment operations of the Funds.
In the event that any of the initial shares are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of the then unamortized organization expense in the same proportion as
the number of the initial shares redeemed bears to the number of the initial
shares outstanding at the time of such redemption.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amount of assets, liabilities, revenues,
and expenses of the Funds.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Funds do not isolate those portions of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investmen ts in securities at fiscal
year end, resulting from changes in the exchange rate.
NOTE B -
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Funds pay a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
FUND RATE
---- ----
Independence .70% of average daily net assets up to $500 million
Balanced Fund .65% of such assets in excess of $500 million
Independence .80% of average daily net assets up to $500 million
Growth Fund .75% of such assets in excess of $500 million
Independence Medium .80% of average daily net assets up to $500 million
Capitalization Fund .75% of such assets in excess of $500 million
Independence .80% of average daily net assets up to $500 million
Value Fund .75% of such assets in excess of $500 million
Independence .50% of average daily net assets
Diversified Core
Equity Fund II
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
The Adviser is responsible for managing the Funds' investment business
affairs and overseeing the investment activities of the sub-adviser. The adviser
has a sub-investment management contract with Independence Investment
Associates, Inc. (the "Sub-Adviser"), under which the Sub-Adviser, subject to
the review of the Trustees and the overall supervision of the Adviser, provides
the Funds with investment services and advice with respect to investment
transactions. The Adviser pays the Sub-Adviser a portion of its advisory fee
quarterly from each Fund as follows:
Independence 60% of the advisory fee payable on the Fund's
Balanced Fund average daily net assets
Independence 55% of the advisory fee payable on the Fund's
Growth Fund average daily net assets
Independence 55% of the advisory fee payable on the Fund's
Medium average daily net assets
Capitalization Fund
Independence 55% of the advisory fee payable on the Fund's
Value Fund average daily net assets
Independence 80% of the advisory fee payable on the Fund's
Diversified average daily net assets
Core Equity Fund II
Effective July 1, 1995, the Sub-Adviser has waived its fees until further
notice on Independence Balanced Fund, Independence Growth Fund, Independence
Medium Capitalization Fund and Independence Value Fund.
In the event normal operating expenses of the Funds, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Funds are registered to sell shares of beneficial interest, the
fees payable to the Adviser will be reduced to the extent of such excess, and
the Adviser will make additional arrangements necessary to eliminate any
remaining excess expenses. The current limits are 2.5% of the first $30,000,000
of the Fund's average daily net assets, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net assets.
The Adviser has agreed to limit Funds' expenses further to the extent
required to prevent expenses from exceeding: 0.90% of Independence Balanced
Fund's average daily net assets, 0.95% of Independence Growth Fund's average
daily net assets, 1.00% of Independence Medium Capitalization Fund's average
daily net assets, 0.95% of Independence Value Fund's average daily net assets
and 0.70% of Independence Diversified Core Equity Fund II's average daily net
assets. Accordingly, for the period ended February 29, 1996, the reduction in
the Funds' expenses collectively with any additional amounts not borne by the
Funds by virtue of the expense limit amounted to $79,593 for Independence
Balanced Fund, $80,343 for Independence Growth Fund, $75,379 for Independence
Medium Capitalization Fund, $76,993 for Independence Value Fund and $63,083 for
Independence Diversified Core Equity Fund II. The Adviser reserves the right to
terminate this limitation in the future.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended February
29, 1996, all sales of shares of beneficial interest were sold at net asset
value. The Funds pay all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states, and all other expenses in connection with the sale and
offering for sale of the shares of the Funds which have not been herein
specifically allocated to the Trust.
The Funds have a transfer agent agreement with John Hancock Investor
Services Corporation ("Investor Services"), a wholly-owned subsidiary of The
Berkeley Financial Group. The Funds pay Investor Services a monthly transfer
agent fee equivalent, on an annual basis, to 0.05% of the Funds' average daily
net asset value, plus out-of-pocket expenses incurred by Investor Services on
behalf of the Funds for proxy mailings.
On March 26, 1996, the Board of Trustees approved retroactively to January
1, 1996, an agreement, with the Adviser to perform necessary tax and financial
management services for the Funds.
Edward J. Boudreau, Jr., Richard S. Scipione and Thomas W.L. Cameron are
directors and officers of the Adviser, and/or its affiliates as well as Trustees
of the Funds. The compensation of unaffiliated
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Trustees is borne by the Funds. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Funds make investments into other John Hancock funds, as applicable, to
cover their liabilities for the deferred compensation. Investments to cover the
Funds' deferred compensation liability are recorded on the Funds' books as an
other asset. The deferred compensation liability and the related other asset are
always equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
investment has no impact on the operations of the Funds.
NOTE C -
INVESTMENT TRANSACTIONS
<TABLE>
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended February 29, 1996 were as follows:
<CAPTION>
PURCHASES PROCEEDS
--------- --------
<S> <C> <C>
Independence Balanced Fund
U.S. Government Securities $ 2,887,219 $ 364,798
Other Investments 3,756,846 394,395
Independence Growth Fund 605,829 108,514
Independence Medium
Capitalization Fund 3,621,411 69,891
Independence Value Fund 682,756 67,228
Independence Diversified Core
Equity Fund II 208,169,010 45,905,183
</TABLE>
<TABLE>
At February 29, 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:
<CAPTION>
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION DEPRECIATION
--------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Independence
Balanced Fund $ 4,993,296 $ 225,835 $ (55,321) $ 170,514
Independence
Growth Fund 505,016 60,598 (15,808) 44,790
Independence
Medium
Capitalization
Fund 3,645,872 357,236 (65,502) 291,734
Independence
Value Fund 628,673 63,772 (6,189) 57,583
Independence
Diversified Core
Equity Fund II 166,116,602 24,761,255 (2,521,747) 22,239,508
</TABLE>
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended February 29, 1996, Independence Diversified Core Equity
Fund II has reclassified $832 from accumulated net realized gain on investments
and foreign currency transactions to undistributed net investment income. This
represents the cumulative adjustment necessary to report these balances on a tax
basis, excluding certain temporary differences, as of February 29, 1996.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments
54
<PAGE>
John Hancock Funds - Institutional Series Trust
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of John Hancock Institutional Series
Trust:
We have audited the accompanying statements of assets and liabilities of John
Hancock Institutional Series Trust (the Trust) comprising the Independence
Balanced Fund, Independence Growth Fund, Independence Medium Capitalization
Fund, Independence Value Fund, and Independence Diversified Core Equity Fund II,
including the schedules of investments, as of February 29, 1996, the related
statements of operations for the periods then ended, and the statements of
changes in net assets and the financial highlights for the periods presented.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and these financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 29, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
John Hancock Institutional Series Trust as of February 29, 1996, the results of
their operations for the periods then ended, the changes in their net assets and
the financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
April 5, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Funds during its fiscal year ended February
29, 1996.
With respect to the Funds' ordinary taxable income for the fiscal year
ended February 29, 1996, shareholders will receive a 1996 U.S. Treasury
Department Form 1099-DIV in January of 1997. This will reflect the total of all
distributions which are taxable for the calendar year 1996.
For the fiscal year ended February 29, 1996, 24.92% of the ordinary income
distributions from Independence Balanced Fund qualify for the corporate
dividends received deduction, 100% of the ordinary income distributions from
Independence Growth Fund qualify for the corporate dividends received deduction,
100% of the ordinary income distributions from Independence Medium
Capitalization Fund qualify for the corporate dividends received deduction,
83.67% of the ordinary income distributions from Independence Value Fund qualify
for the corporate dividends received deduction and 72.64% of the ordinary income
distributions from Independence Diversified Core Equity Fund II qualify for the
corporate dividends received deduction.
55
<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."
Bulk Rate
U.S. Postage
PAID
Brocton, MA
Permit No. 582
This report is for the information of shareholders of the John Hancock
Institutional Series Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."
<PAGE>
================================================================================
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
ANNUAL REPORT
February 29, 1996
<PAGE>
<TABLE>
Table of Contents
John Hancock Funds - Institutional Series Trust
<CAPTION>
Page
<S> <C>
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
3) Financial Statements ................................................. 28
4) Notes To Financial Statements ........................................ 56
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TRUSTEES JAMES J. STOKOWSKI, SUB-INVESTMENT ADVISER
EDWARD J. BOUDREAU, JR. VICE PRESIDENT AND TREASURER Dividend Performers Fund
THOMAS W.L. CAMERON SUSAN S. NEWTON, VICE PRESIDENT, SOVEREIGN ASSET MANAGEMENT CORPORATION
JAMES F. CARLIN* ASSISTANT SECRETARY AND COMPLIANCE OFFICER 1235 WESTLAKES DRIVE
WILLIAM H. CUNNINGHAM* JOHN A. MORIN, VICE PRESIDENT BERWYN, PA 19312
CHARLES F. FRETZ* Fundamental Value Fund
HAROLD R. HISER, JR.* CUSTODIANS NM CAPITAL MANAGEMENT, INC.
CHARLES L. LADNER* Global Bond Fund 6501 AMERICAS PARKWAY, SUITE 950
LEO E. LINBECK, JR.* International Equity Fund ALBUQUERQUE, NM 87110-5372
PATRICIA P. MCCARTER* STATE STREET BANK AND TRUST COMPANY International Equity Fund
STEVEN R. PRUCHANSKY* 225 FRANKLIN STREET JOHN HANCOCK ADVISERS INTERNATIONAL LTD
RICHARD S. SCIPIONE BOSTON, MA 02110 34 DOVER STREET
LT. GEN. NORMAN H. SMITH, USMC (RET.)* Dividend Performers Fund LONDON, ENGLAND W1X 3RA
JOHN P. TOOLAN* Active Bond Fund
* Members of Audit Committee Multi-Sector Growth Fund PRINCIPAL DISTRIBUTOR
Fundamental Value Fund JOHN HANCOCK FUNDS, INC.
OFFICERS INVESTORS BANK & TRUST COMPANY 101 HUNTINGTON AVENUE
EDWARD J. BOUDREAU, JR., 89 SOUTH STREET BOSTON, MA 02199-7603
Chairman and Chief Executive Officer BOSTON, MA 02111
ROBERT G. FREEDMAN, VICE CHAIRMAN AND LEGAL COUNSEL
CHIEF INVESTMENT OFFICER TRANSFER AGENT HALE AND DORR
ANNE C. HODSDON, PRESIDENT JOHN HANCOCK INVESTOR SERVICES CORPORATION 60 STATE STREET
JAMES B. LITTLE, P.O.BOX 9277 BOSTON, MA 02109
SENIOR VICE PRESIDENT AND BOSTON, MA 02205-9277
CHIEF FINANCIAL OFFICER INDEPENDENT ACCOUNTANTS
THOMAS H. DROHAN, INVESTMENT ADVISER DELOITTE & TOUCHE LLP
SENIOR VICE PRESIDENT AND SECRETARY JOHN HANCOCK ADVISERS, INC. 125 SUMMER STREET
101 HUNTINGTON AVENUE BOSTON, MA 02110-1617
BOSTON, MA 02199-7603
</TABLE>
2
<PAGE>
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders N technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place N slow economic growth, muted inflation and decent corporate earnings N it
would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations to determine if rebalancing their portfolio makes sense.
[PHOTO: A 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to first paragraph.]
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and assistance we provide you. Our commitment to this task is no
less than John Hancock's loyalty was to his fledgling country when he is said to
have uttered, "if it does the public good, burn Boston." We won't go that far,
of course, but we share our namesake's dedication to putting the public before
all else.
In our case, that public is you, our shareholders. We take very seriously
the role you have entrusted to us, that of helping you achieve your financial
goals. Part of that will always involve good customer service. So please do not
hesitate to call a Customer Service Representative at 1-800-755-4371 if you have
any questions or need information. We take pride in helping you with the same
spirit that John Hancock displayed at the dawning of America.
Sincerely,
/S/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR. CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
BY JOHN F. SNYDER III, PORTFOLIO MANAGER
John Hancock
Dividend Performers Fund
[CALL OUT -- LEFT SIDE]
"...Some of our top performers during the period were our drug stocks..."
Historic Bull Market Marks Fund's First Year
- --------------------------------------------
John Hancock Dividend Performers Fund's first fiscal year was marked by an
historic bull market whose engine was falling interest rates, soaring corporate
earnings, tame inflation and slow economic growth. This combination drove the
Standard & Poor's 500-Stock Index -- the most common measure of the broad stock
market -- up 30.45% between March 30, 1995, when the Fund was launched, and
February 29, 1996, the Fund's fiscal year end. The Fund, too, prospered in this
environment and posted a total return of 22.79% at net asset value, for the same
period. That compared to the average growth and income fund's 25.76% total
return, according to Lipper Analytical Services.
The difference in performance was due to the fact that we own almost no
technology stocks, while many of our peers have invested as much as 20% to 50%
of their portfolios in the sector. We believe the key to successful wealth
building lies in sticking to a time-tested investment discipline, no matter
which way the market's winds blow. It's not that we don't like technology
stocks; they simply don't meet our primary investment criterion. The Fund
focuses on high-quality, stable growth stocks that have a history of increasing
dividends every year for at least 10 years. Most technology stocks don't fit
that bill. In fact, some technology companies didn't even exist 10 years ago and
many don't pay dividends. So we're sticking to our tried and true investme nt
strategy. It's not too exciting, but we believe it's the best way to prese rve
and enhance wealth over time and outperform the broader market while maintaining
a prudent level of risk.
Winners And Losers
Some of our top performers during the period were our drug stocks, especially
Johnson &
[PHOTO: A 1 1/2" x 3 1/2" photo of the Dividend Performers management team,
bottom right. Caption reads: "John Snyder, Portfolio Manager, (seated center)
and members of the Dividend Performers Management Group."]
4
<PAGE>
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
[CALL OUT -- RIGHT SIDE]
"...We're still optimistic about the long-term prospects for stocks."
[CHART: Bar chart with heading "Fund Performance" at top left hand column.
Footnote below states "For the period March 30, 1995 through February 29, 1996."
The chart is scaled in increments of 10%, with 40% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
22.79% total return for John Hancock Dividend Performers Fund. The second
represents the 30.45% total return for the S&P 500-stock Index. The third
represents the 25.76% 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 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
page for historical performance information."]
Johnson and Merck & Co., which benefited from a slew of new drug approvals and
waning fears of government mandated health-care reform. Two other stars were
NationsBank and PepsiCo -- two of our largest holdings. NationsBank reaped the
rewards of falling interest rates, low inflation and strong loan growth.
PepsiCo's snack food and soft drink businesses have continued to grow rapidly,
especially overseas.
Our retail stocks, however, were disappointing. Uncertainty about the
economy and high debt levels have kept consumers from spending money. Almost all
our retailers have felt the pinch, from Wal-Mart to Pep Boys, the auto parts
chain. We're holding onto the stocks nonetheless, because most of the bad news
is already priced into them and we're confident that the retailers we have
chosen can advance in a more competitive climate.
Investment Theme
One consistent growth theme that has attracted our attention is the
consolidation of distribution companies in highly fragmented industries. In
their quest to cut costs, companies are reducing the number of vendors they use
in order to negotiate better prices and manage inventories more efficiently. In
response, we are seeing consolidation among distributors trying to grow big
enough to satisfy the full-service needs of these companies. The distributors we
prefer not only outperform their peers, but als o are increasing their market
share through acquisitions. A favorite is Alco Standard, the nation's leading
distributor of office supplies, primarily copiers. It still has only 8% market
share. However, it is rapidly acquiring smaller rivals. Another is Sysco Corp.,
the largest food service company in the country, which has only 10% market share
and an acquisition strategy that gives it lots of room to grow.
A Look Ahead
We're not likely to see stocks repeat their spectacular 1995 gains, but we're
still optimistic about the long-term prospects for stocks. The key will be to
maintain a stock-picking discipline even if we see a slowdown in earnings growth
in the broader market. The stable growth companies that we favor have the
potential to increase their earnings more than the projected earnings growth of
the market. After a wild 1995, investors may look with favor upon these stable
"dividend performers."
5
<PAGE>
A LOOK AT PERFORMANCE
The table on the right shows the cumulative 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
<TABLE>
CUMULATIVE TOTAL RETURN
For the period ended December 31, 1995
LIFE OF
FUND
----
<S> <C>
John Hancock Dividend Performers Fund(1) 18.31%
Notes to Performace
(1) Commenced on March 30, 1995.
</TABLE>
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 February 29, 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 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 500 Stock Index and
is equal to $327,024 as of February 29, 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 $306,972 as of February 29, 1996.]
7
<PAGE>
BY JAMES K. HO, PORTFOLIO MANAGER
John Hancock
Active Bond Fund
Attractive bond market conditions prevail
-----------------------------------------
during the Fund's first year
----------------------------
[CALL OUT--LEFT SIDE]
"...we increased the Fund's exposure to corporate bonds..."
After a difficult 1994, the new year brought dramatic proof of just how swiftly
the investment climate can change for the better. By the time the Fund began
operating on March 30, 1995, the pace of economic growth had slowed enough that
many bond market investors expected the Federal Reserve would soon sever its
string of seven straight interest-rate increases and begin cutting rates again.
Those expectations were fulfilled in July 1995, when the Fed trimmed one-quarter
percentage point off the rate banks charge each other for overnight loans, known
as the federal funds rate. Two more quarter-point cuts followed, in December
1995 and January 1996. The cuts took place against a backdrop of moderating
inflation and slowing growth. As investors reached for yield in a declining-rate
environment, corporate bonds, with their higher yields than comparable
government securities, were prime beneficiaries.
During its first fiscal year, John Hancock Active Bond Fund focused on
building strategic positions. One consequence of that was an unusually high cash
position during the period as we selectively added holdings to the portfolio.
Cash as a percentage of the Fund's total assets was 22% at the end of February;
normally, we would expect it to be around 5%. While having a large cash position
caused performance to lag overall in 1995, it helped protect the Fund in
February when interest rates rose and bond prices fell on reports that suggested
the economy
[PHOTO: A 2 1/2" x 3 1/2" photo of the Active Bond Management Group. Caption
reads: "The Active Bond Management Group (l-r): Ben Matthews; James Ho,
Portfolio Manager; Seth Robbins"]
8
<PAGE>
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
[CALL OUT--RIGHT SIDE]
"...the outlook for bonds has become more uncertain in 1996."
[CHART: Bar chart with the heading "Fund Performance" at top of left hand
column. A footnote below states "For the period March 30, 1995 through February
29, 1996." The chart is scaled in increments of 5%, with 15% at the top and 0%
at the bottom. Within the chart, there are three solid bars. The first
represents the 7.76% total return for John Hancock Active Bond Fund. The second
represents the 11.86% total return for the Lehman Government/Corporate Index.
The third represents the 10.90% 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 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 page for
historical performance information.]
might be heating up. The Fund's total return from its inception on March 30,
1995 through February 29, 1996 was 7.76% at net asset value, compared to 10.90%
for the average corporate debt A-rated fund, according to Lipper Analytical
Services. The Lehman Government/Corporate Index's return was 11.86% for the
same period.
Sector and strategy review
During the period, we continued to increase the Fund's stake in corporate bonds
and by the end of February, they totaled about 35% of the Fund's net assets.
Another 42% was in U.S. Government securities. In the current climate, our goal
is to increase the corporate sector to about 70% of the Fund. Utilities, at 18%
of net assets, were the largest corporate sector in the Fund. Electric utilities
were top performers during the past year, despite serious questions about the
long-term health of the industry as it prepares for deregulation. Accordingly,
we focused on higher-yielding utility bonds, issued by improving companies that
were among the first to confront the challenges of a more competitive future.
Examples include Long Island Lighting Company and Midland Funding Corp., a
co-generation venture with Consumer Power.
As economic growth slowed, we de-emphasized our stake in the bonds of
cyclical industries. One exception is Weirton Steel, which makes tin containers
for food and is therefore less susceptible to downturns in the economy than more
traditional steel manufacturers. Also, as media companies benefited from
industry consolidation and the long-awaited passage of the Telecommunications
Act, the Fund profited from investments in Time Warner, Turner Broadcasting
Systems and Century Communications, a cable-service provider.
Outlook
The outlook for bonds has become more uncertain in 1996. Shortly after the
Fund's fiscal year ended, interest rates on the bellwether 30-year Treasury Bond
rose as a spate of mixed economic data prompted fears that increased economic
growth might keep the Fed from further lowering interest rates. It remains to be
seen whether rates will keep increasing. In this environment, the Fund should
hold up well relative to its peers because of its shorter duration. Duration is
a measure of how much the Fund's share price fluctuates in response to interest
rate moves. The shorter the duration, the less the price moves with changes in
rates.
9
<PAGE>
A LOOK AT PERFORMANCE
The table on the right shows the cumulative 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.
<TABLE>
CUMULATIVE TOTAL RETURN
For the period ended December 31, 1995
<CAPTION>
LIFE OF
FUND
----
<S> <C>
John Hancock Active Bond Fund(1) 8.78%
YIELD
As of February 29, 1996
<CAPTION>
SEC 30-DAY
YIELD
-----
John Hancock Active Bond Fund 6.21%
Notes to Performance
(1) Commenced on March 30, 1995.
</TABLE>
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 February 29, 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.
[CHART: 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 $279,662 as of February 29, 1996. The second line
represents the value of the hypothetical $250,000 investment made in the Active
Bond Fund on March 30, 1995 and is euqal to $269,393 as of February 29, 1996.]
11
<PAGE>
BY LAWRENCE J. DALY, ANTHONY A. GOODCHILD AND
JANET L. CLAY, CO-PORTFOLIO MANAGERS
John Hancock
Global Bond Fund
Attractive environment for global bonds;
---------------------------------------
Europe lags United States
-------------------------
[CALL OUT--LEFT SIDE]
"During its first year of operation, the Fund remained in a building stage..."
John Hancock Global Bond Fund began operating in April 1995, at a time when
interest rates were peaking around the world and bond prices were bottoming out.
Later in the year, as U.S. economic growth slowed, the Federal Reserve lowered
interest rates three times, shaving a total of three-quarters of a percentage
point off the federal funds rate, the rate banks charge each other for overnight
loans. Stable to declining wages -- due mainly to competitive pressures from
developing economies in Asia and Latin America -- convinced many global bond
market investors that inflation was unlikely to be a problem anytime soon.
Meanwhile, the dollar rebounded versus most global currencies, offsetting losses
earlier in the year. Together those factors made for an attractive environment
for global bond investors, despite some volatility during the final weeks of the
Fund's fiscal year.
During its first year of operation, the Fund remained in a building stage
and lacked sufficient assets to take full advantage of favorable market
conditions. In some cases, the Fund faced minimum investment requirements it
could not meet, forcing it to pass up some attractive opportunities. As a
result, cash levels were unusually high for most of the period and overall
performance lagged somewhat. The Fund's total return from its starting date on
April 19, 1995 through February 29, 1996 was 4.37%, at net asset value. During
the same period, the JP Morgan Global Government Index returned 4.27%. By
comparison, the average general world income fund returned 9.26%, according to
Lipper Analytical Services. As the Fund has grown, we've begun implementing a
strategy we believe will yield competitive results in the months and years to
come.
[PHOTO: A 2" x 3" photo of Anthony A. Goodchild, Janet Clay, Lawrence J. Daly,
bottom right. Caption reads: "Anthony A. Goodchild, Janet Clay, Lawrence J.
Daly."]
12
<PAGE>
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
[CALL OUT--RIGHT SIDE]
"The outlook for the global bond market remains favorable despite its recent
setbacks."
[CHART: Bar Chart with the heading "Fund Performance at top of left hand
column. A footnote below states: "For the period April 19, 1995 through February
29, 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 4.37% total return for John Hancock Global Bond Fund. The second
represents the 9.26% total return for the average general world income fund. The
third represents the 4.27% total return for the JP Morgan Global Government
Index. A footnote below states: "The total return for John Hancock Global Bond
Fund is at net asset 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 page for
historical performance information.]
Strategy recap
The Fund distributes its assets among a number of attractive countries in an
effort to diversify the portfolio's risk. In determining country allocations, we
look for evidence of political stability, sound fiscal policies, a stable
currency and high relative value compared to other countries. At the end of the
fiscal year, the Fund's assets were invested in government bonds as follows:
about 45% in Europe, mainly Germany, France, Italy and the United Kingdom; about
34% in U.S. government bonds; about 7% in Canada, Australia and New Zealand.
Another 12% of the Fund's assets remained in cash equivalents. In Europe, our
largest concentration was a 17% stake in Germany, where interest rates have
remained stubbornly high despite low inflation and would therefore appear to
have room to fall. Notable for its absence in the Fund during the year was
Japan, where rates are so low and the economic picture so uncertain that we've
chosen not to get involved, other than through a 15.4% direct currency stake in
the yen. Elsewhere around the world, the Fund's currency positions roughly
paralleled global weightings with a slight bias toward the U.S. dollar. The Fund
also maintained a neutral stance on duration, an indicator of how much the
Fund's share price will vary in response to changing interest rates. With a
duration of just over five years, we essentially avoided betting on a move in
interest rates in either direction.
Outlook
The outlook for the global bond market remains favorable despite its recent
setbacks. We believe the world's developed economies are in the midst of a
long-term deflationary cycle brought on by increased competition from emerging
markets in Latin America and the Pacific Rim. This is very positive over the
long term. Real rates of return, which take into account inflation, remain
artificially high, especially in Europe. This should inhibit growth in the
coming months and eventually force down rates as central banks attempt to
stimulate economic activity. Given the lackluster economic climate in Europe,
rates would appear to have little room to rise much above current levels. In the
months ahead, we'll be watching closely for progress on a balanced budget
agreement in Washington. If the United States can show leadership by reducing
spending and cutting the deficit, others may follow, significantly improving the
outlook for global bond markets.
- --------------------------------------------------------------------------------
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 return 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.
<TABLE>
CUMULATIVE TOTAL RETURN
For the period ended December 31, 1995
LIFE OF
FUND
----
<S> <C> <C>
John Hancock Global Bond Fund(1) 6.96%
YIELD
As of February 29, 1996
<CAPTION>
SEC 30-DAY
YIELD
-----
John Hancock Global Bond Fund 5.90%
Notes to Performance
(1) Commenced on April 19, 1995.
</TABLE>
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 February 29, 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.
[CHART: 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 lines represents the value of the J.P.Morgan Global Government Index
and is equal to $266,886 as of February 29, 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 $260,912 as of February 29, 1996.]
15
<PAGE>
BY KEVIN R. BAKER, PORTFOLIO MANAGER
John Hancock
Multi-Sector Growth Fund
Technology, health-care and energy stocks
-----------------------------------------
boost Fund in its first year
----------------------------
[CALL OUT--LEFT SIDE]
"...throughout the year, the Fund maintained its holdings within the same five
sectors..."
Kevin R. Baker, previously a member of John Hancock Multi-Sector Growth Fund's
management group, is now carrying out the day-to-day investment decisions for
the Fund. A second vice president of John Hancock Funds, Mr. Baker also manages
John Hancock Global Resources Fund and John Hancock Special Opportunities Fund.
Declining interest rates, low inflation, slow economic growth and steady
corporate earnings helped propel the stock market to record highs in 1995. The
trend continued in the first two months of 1996, despite an increase in market
volatility. In this positive environment, the Fund produced strong results for
its first fiscal year. From its opening on April 11, 1995 through February 29,
1996, the Fund had a total return of 25.98% at net asset value. For the same
period, the Standard & Poor's 500-Stock Index gained 29.49%. For another
comparison, the average capital appreciation fund returned 27.02% according to
Lipper Analytical Services.
Strategy & performance
Throughout the year, the Fund maintained its holdings within the same five
sectors of the economy that we identified at the outset as having the best
growth potential. They are energy, precious metals, technology, healthcare and
media and information distribution companies.
Investing in energy stocks, which became the Fund's largest category by the
period's end at 31% of net assets, is a way to capitalize on exploding growth in
the world's developing markets, which have a huge unmet demand for energy.
Demand is also being fueled in the U.S. by the popularity of gas-guzzling
vehicles, increased speed limits and more driving. At the same time, worldwide
supply remains unchanged. Chesapeake Energy, whose advanced drilling techniques
paid off with new finds, was one of the Fund's best performers.
[PHOTO: A 2 " x 3" photo of Kevin R. Baker and James Boyd. Caption reads: "Kevin
R. Baker, Portfolio Manager (right) and Multi-Sector Growth group member James
Boyd."]
16
<PAGE>
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
[CALL OUT--RIGHT SIDE]
"...the outlook remains positive for growth stocks..."
[CHART: Bar chart with the heading "Fund Performance" at the top of left
hand column. A footnote below states: "For the period April 11, 1995 through
February 29, 1996." The chart is scaled in increments of 10%, with 30% at the
top and 0% at the bottom. Within the chart, there are three solid bars. The
first represents the 25.98% total return for John Hancock Multi-Sector Growth
Fund. The second represents the 29.49% total return for the S&P 500-stock Index.
The third represents the 27.02% 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 with all distributions reinvested. The
average capital appreciation 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 page for historical performance information.]
As oil companies search for new resources, deep-water drilling companies such as
Diamond Offshore Drilling and Reading & Bates have profited. The same positive
supply and demand fundamentals exist in the precious metals sector. That caused
us to up our stake in this group to 14% of the Fund's net assets at the end of
the period. Two strong performers were Newmont Gold and Kinross Gold.
After leading in the early part of the year, technology finished the period
as the Fund's second smallest category, with 9% of the Fund's net assets. The
shift out of technology occurred because we took profits on some popular
Internet stocks. These included Netscape and Uunet, bo th of which we sold for
three times what their prices were at the end of the period. We still like the
Internet stocks, but we'll wait until prices come down more before we go back
in. Several other tech winners during the period were Sun Microsystems, whose
software and hardware are being applied toward the Internet, and network company
Cascade Communications, which we sold during the period.
Health-care stocks, which accounted for 26% of the Fund's net assets at the
end of the period, performed well as the industry's focus on cost containment
continues. Boston Scientific, a medical device manufacturer with a broad array
of products, was a stellar performer which we sold during the period. Others
were Healthsource, one of our largest holdings, and pharmaceutical giant Johnson
& Johnson.
The media and information distribution sector dropped from 22% of the
Fund's net assets on August 31, 1995 to 2% by February 29, 1996 primarily
because we took profits on America Online and sold our broadcasting stocks. The
broadcasters' prices already reflected the expected increase in 1996 ad revenues
from the Olympics and presidential election. In addition, spot advertising
appeared weak. We're watching this category for signs of deterioration in future
earnings growth which would cause us to re-evaluate the group.
Outlook
It's unrealistic to expect 1996 to stage a repeat of last year's record-breaking
performance and we believe the broad stock market could revert to its more
historical level of 8% to 10% returns. Nonetheless, the outlook remains positive
for growth stocks, as long as the economy grows slowly and interest rates stay
low or decline further. With careful stock selection, the growth companies we
target are often better able to deliver higher-than-average earnings than the
more economically sensitive cyclical companies.
17
<PAGE>
A LOOK AT PERFORMANCE
The table on the right shows the cumulative total return 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.
<TABLE>
CUMULATIVE TOTAL RETURN
For the period ended December 31, 1995
<CAPTION>
LIFE OF
FUND
----
<S> <C>
John Hancock Multi-Sector Growth Fund(1) 20.79%
Notes to Performance
(1) Commenced on April 11, 1995.
</TABLE>
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 February 29, 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.
[CHART: 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 Standard & Poor's 500 Stock Index
and is equal to $327,024 as of February 29, 1996. The second 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 $314,941 as of February 29, 1996.]
19
<PAGE>
BY ANGELA BRISTOW, CFA, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Fundamental Value Fund
Fund maintains value discipline in the face
-------------------------------------------
of a booming stock market
-------------------------
[CALL OUT--LEFT SIDE]
"The Fund's value stratege is driven towards buying assets...of undervalued
companies."
John Hancock Fundamental Value Fund began on April 19, 1995, as the stock market
was starting what was to be one of its strongest years on record. During this
time, the Fund concentrated on building positions in stocks that demonstrate
outstanding potential for above-average capital appreciation over the long-term.
From April 19, 1995 through February 29, 1996, the Fund posted a total return of
8.61% at net asset value. During the same period, the Standard & Poor's
500-Stock Index returned 29.62%. By comparison, the average growth and income
fund posted total returns of 23.09% according to Lipper Analytical Services.
The Fund's value strategy is driven toward buying assets, specifically of
undervalued companies, those that are fundamentally sound with earnings growth
potential, but whose stocks are mispriced. Because of our asset value
orientation, we are less focused on near-term earnings momentum. This
longer-term perspective means we will very often be "out of step" with the
broader market, as we were during this period. While some short-term results may
be disappointing, we believe that those who understand our strategy and have the
ability to invest for the long term will share with us in the full potential of
our approach.
Top performers
One of the Fund's strongest performers in 1995 was Dole Foods. When it was added
to the Fund, it was out of favor and selling at a low price relative to both
asset value and earnings power. Since then, Dole has benefited from a
combination of a cyclical recovery in banana prices and
[PHOTO: A 2 1/2" x 3 1/2" photo of The Fundamental Value portfolio management
team, bottom right. Caption reads: "The Fundamental Value Portfolio Management
Team: Charles Womack (left), Thomas Christopher (middle), Angela Bristow
(right)."]
20
<PAGE>
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
[CALL OUT--RIGHT SIDE]
"The universe of stocks from which the Fund selects its holdings is more
undervalued today...than at any time in the last 10 years."
[CHART: Bar chart with heading "Fund Performance" at top left hand column.
Footnote below states "For the period April 19, 1995 through February 29, 1996."
The chart is scaled in increments of 10%, with 30% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
8.61% total return for John Hancock Fundamental Value Fund. The second
represents the 29.62% total return for the S&P 500-stock Index. The third
represents the 23.09% 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 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
page for historical performance information."]
its internal restructuring moves. These combined to recapture investors'
attention and the stock rose by more than 50%. We saw similar results from our
holdings in Ross Stores, Times Mirror and Boeing.
Three additions share common traits
Among the several interesting additions to the Fund was ANTEC, a leading
provider of the basic components needed to build the network systems that the
telecommunications industry will need with deregulation. It's also a "back door"
play on the growth potential of the Internet. Another was Cooper Cameron, a
market leader in deep-water, subsea oil and gas well completion technology which
has been overlooked by the market. With an outstanding management program of
internal restructuring, the company shows the potential to provide surprisingly
strong earnings recovery and price appreciation as the world's major oil
companies seek to add to productive reserves in heretofore undeveloped offshore
areas. A third holding was Horsham. Astutely managed, this company's shares sell
at a 30% discount to net asset value and near the value of the company's
holdings in gold and cash alone. That means investors are getting the rest of
the company's assets, primarily extensive holdings in North American commercial
real estate and gasoline refining and marketing, essentially "for free."
While these companies are from different industries and appear quite
different, from our perspective they are really quite similar. Each has a strong
margin of safety, selling at or near conservative estimates of private market or
asset value. Each management has a solid track record and is highly motivated to
increase the stock price. Finally, each operates in an industry that gives it
room to grow earnings and stock prices above current levels. For these reasons,
we believe each of these new stocks can add materially to the Fund's future
returns.
Looking ahead, we expect the perennial forces of competitive capitalism to
prevail, which could allow the asset values in our investments to be fully
realized. The universe of stocks from which the Fund selects its holdings is
more undervalued today, based on a comparison of median price to book value,
than at any time in the last 10 years. This bodes well for our strategy in
general and sustains our resolve to proceed as always, seeking the hidden
opportunities and overlooked asset values which have the potential to provide
above-average returns over time.
21
<PAGE>
A LOOK AT PERFORMANCE
The table on the right shows the cumulative total return 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.
<TABLE>
CUMULATIVE TOTAL RETURN
For the period ended December 31, 1995
<CAPTION>
LIFE OF
FUND
----
<S> <C>
John Hancock Fundamental Value Fund(1) 6.10%
Notes to Performance
(1) Commenced on April 19, 1995.
</TABLE>
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 February 29, 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.
[CHART: 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 Lehman Brothers Government/Corporate
Bond Index and is equal to $327,024 as of February 29, 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 $271,534 as of
February 29, 1996.]
23
<PAGE>
BY DAVID S. BECKWITH AND JOHN L.F. WILLS, CO-PORTFOLIO MANAGERS
John Hancock
International Equity Fund
[CALL OUT--LEFT SIDE]
"...Japanese stocks totaled about 28% of the Fund's assets."
Foreign Stocks Lag Surging U.S. market;
faster growth, strong earnings help asia outpace europe
John Hancock International Equity Fund began operating on March 30, 1995. As is
often the case with new funds that are accumulating assets, cash as a percentage
of the Fund's total investments was high earlier in the period, and that held
performance back in the Fund's first fiscal year relative to its peer group.
From March 30, 1995 through February 29, 1996, the Fund's total return was 9.81%
at net asset value, compared to 15.41% for the average international fund,
according to Lipper Analytical Services. By comparison, the FT Actuaries World
Ex-US Index returned 10.38% for the same period.
As time went on and we were able to put more of the Fund's assets to work,
we began to see results we hope will be more indicative of the Fund's long-term
performance. In fact, through the first two months of 1996, the Fund had
outperformed its peers. Clearly, this is a short-term barometer, but it's
encouraging. What follows is a regional breakdown of the Fund's key investments.
Japan
The Japanese economy has shown signs lately of emerging from a long and
difficult recession. Industrial production is picking up, buoyed in part by the
long-delayed rebuilding effort following the Kobe earthquake. Throughout the
Japanese economy, we see the potential for significant earnings gains. Large
holdings include cyclicals, such as Daido Steel and Fanuc, an industrial
robotics manufacturer. As consumer confidence has grown, we've moved into
consumer products manufacturers such as Matsushita Electric and Sony; and Jusco,
a retailer. By the end of the period, Japanese stocks totaled 28% of the Fund's
assets.
Hong Kong
Banks have been the performance drivers lately in Hong Kong, boosted by lower
interest rates around the world and a thriving local real estate market. The
Fund has investments in Wharf Holdings, a real estate developer; HSBC Holdings,
a bank; and CITIC Pacific, Swire Pacific and Hutchison Whampoa, broad-based
conglomerates that give the Fund exposure to China. Over the past six months,
Hong Kong has been the hottest market in Asia, with stocks up an average
[PHOTO: A 1 3/4" x 1 1/2" photo of David S. Beckwith, bottom center. Caption
reads: "David S. Beckwith, Co-Portfolio Manager."]
24
<PAGE>
John Hancock Funds - Institutional Series Trust -- International Equity Fund
[CALL OUT--RIGHT SIDE]
"There are signs that the rest of the world may be catching up to the U.S.
market."
[CHART: Bar chart with heading "Fund Performance" at top left hand column.
Footnote below states "For the period March 30, 1995 through February 29, 1996."
The chart is scaled in increments of 5%, with 20% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
9.81% total return for John Hancock International Equity Fund. The second
represents the 10.38% total return for the FT Actuaries World Ex-US Index. The
third represents the 15.41% total return for the average international fund. A
footnote below states: "The total return for John Hancock International Equity
Fund is at net asset with all distributions reinvested. The average
international fund is tracked by Lipper Analytical Services. The FT Actuaries
World Ex-US Index is a broad-based index composed of approximately 1800
securities in 23 countries. See following page for historical performance
information.]
of around 20%. Hong Kong represents about 15% of the Fund's total assets.
Elsewhere in Southeast Asia, the Fund has investments in Singapore, where our
largest holding is Keppel, a conglomerate with interests in shipping, banking
and property development; and Malaysia, where we own Resorts World, a casino and
resort operator.
[PHOTO: A 1 3/4" x 1 1/2" photo of John L.F. Wills at bottom left. Caption
reads: "John L.F. Wills, Co-Portfolio Manager."]
Europe
In Europe, we focused on France, Britain and Germany, and to a lesser extent on
Scandinavia. As a whole, Europe was overshadowed last year by surging stock
prices in the United States, despite stronger economic growth and solid
earnings. Overall, stock prices there are more attractive than they are in the
U.S. right now. In France, our largest holding is Carrefour, a global retailer
expanding aggressively into Latin America and other emerging markets. In
Britain, we especially like Dixons Group, an electronics retailer; and Thorn
EMI, an entertainment company whose music holdings have become takeover targets.
In Germany, we own just two stocks: Bayer, the pharmaceutical and chemical
company; and Mannesmann, a giant industrial conglomerate with holdings in
cellular communications, engineering and automotive applications.
Australia/New Zealand
Our focus in this part of the world is on natural-resource stocks, such as
Broken Hill Proprietary and Carter Holt Harvey, a New Zealand wood products
company. We also hold a position in Telecom Corp. of New Zealand, a well-run
communications company with a growing cellular operation.
Outlook
While foreign markets have lagged the U.S. stock market since 1993, there are
signs that the rest of the world may be catching up to the U.S. market. Even
while stock prices have stalled overseas, economic expansion and earnings growth
have continued unabated, often at a faster rate than in the United States. As a
result, traditional measures of value such as price-to-earnings ratio have grown
steadily more attractive, and represent a significant long-term opportunity.
- --------------------------------------------------------------------------------
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 return 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.
<TABLE>
CUMULATIVE TOTAL RETURN
For the period ended December 31, 1995
<CAPTION>
LIFE OF
FUND
----
<S> <C>
John Hancock International Equity Fund(1) 6.60%
Notes to Performance
(1) Commenced on March 30, 1995
</TABLE>
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 February 29,
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.
[CHART: 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 hypothetical $250,000 investment made
in the International Equity Fund on March 30, 1995 and is equal to $274,520 as
of February 29, 1996. The second line represents the value of the Financial
time-Actuaries World Index and is equal to $263,263 as of February 29, 1996.]
27
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Assets and Liabilities
February 29, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDEND ACTIVE GLOBAL
PERFORMERS BOND BOND
FUND FUND FUND
---------- ------ ------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks (cost - $2,510,160, none and none, respectively) $2,975,969 $ -- $ --
Bonds (cost - none, $887,319 and $186,537, respectively) -- 896,710 186,522
Options (premium paid - none, none and $288, respectively) -- -- 128
Short-term investments (cost - $351,000, $260,000 and $26,000, respectively) 351,000 260,000 26,000
Corporate savings account 3,387 2,202 --
---------- ---------- --------
3,330,356 1,158,912 212,650
Cash -- -- 47
Receivable for closed forward foreign currency exchange contracts - Note A -- -- 916
Receivable for open forward foreign currency exchange contracts sold - Note A -- -- 67
Receivable for shares sold 13 -- --
Interest receivable 56 17,714 4,344
Dividends receivable 7,756 -- --
Foreign tax receivable -- -- 143
Deferred organization expenses - Note A 6,765 6,705 6,674
---------- ---------- --------
Total Assets 3,344,946 1,183,331 224,841
------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for open forward foreign currency exchange contracts purchased - Note A -- -- 318
Dividend payable -- 226 47
Payable to John Hancock Advisers, Inc. and affiliates - Note B 25,726 12,478 7,735
---------- ---------- --------
Total Liabilities 25,726 12,704 8,100
------------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 2,826,605 1,159,566 217,473
Accumulated net realized gain on investments and foreign currency transactions 22,146 1,670 332
Net unrealized appreciation (depreciation) of investments and foreign currency
transactions 465,809 9,391 (448)
Undistributed net investment income (distributions in excess of net investment income) 4,660 -- (616)
---------- ---------- --------
Net Assets $3,319,220 $1,170,627 $216,741
==================================================================================================================
Net Asset Value Per Share
(based on 326,898, 135,437 and 25,613 shares, respectively, of beneficial interest
outstanding - unlimited number of shares authorized with no par value) $ 10.15 $ 8.64 $ 8.46
===============================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of February 29, 1996. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Assets and Liabilities
February 29, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MULTI-SECTOR FUNDAMENTAL INTERNATIONAL
GROWTH VALUE EQUITY
FUND FUND FUND
------------ ----------- ------------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $7,307,108, $4,959,504 and $2,547,128, respectively) $8,273,495 $5,185,108 $2,715,616
Short-term investments (cost - $381,000, $121,000 and $190,000, respectively) 381,000 121,000 190,000
Corporate savings account 262 266 --
---------- ---------- ----------
8,654,757 5,306,374 2,905,616
Cash -- -- 518
Foreign currency, at value (cost - none, none and $103) -- -- 102
Interest receivable 60 23 29
Dividends receivable 1,530 5,107 4,991
Deferred organization expenses - Note A 8,396 6,795 6,705
---------- ---------- ----------
Total Assets 8,664,743 5,318,299 2,917,961
-------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 224,027 -- --
Payable for shares repurchased -- -- 872
Foreign tax payable -- -- 129
Payable to John Hancock Advisers, Inc. and affiliates - Note B 41,782 25,543 20,198
---------- ---------- ----------
Total Liabilities 265,809 25,543 21,199
-------------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in 7,341,156 5,061,044 2,735,900
Accumulated net realized gain (loss) on investments and foreign currency
transactions 91,391 (230) (6,781)
Net unrealized appreciation of investments and foreign currency transactions 96,387 225,604 168,456
Undistributed net investment income (distributions in excess of net investment
income) -- 6,338 (813)
---------- ---------- ----------
Net Assets $8,398,934 $5,292,756 $2,896,762
===================================================================================================================
Net Asset Value Per Share
(based on 785,677, 582,012 and 313,634 shares, respectively,
of beneficial interest outstanding - unlimited number of shares
authorized with no par value) $ 10.69 $ 9.09 $ 9.24
============================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Operations
Period ended February 29, 1996*
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDEND ACTIVE GLOBAL
PERFORMERS BOND BOND
FUND FUND FUND
---------- -------- ---------
<S> <C> <C> <C>
Investment Income:
Dividends $ 49,945 $ -- $ --
Interest (net of foreign withholding tax of none, none and $113, respectively) 32,501 64,005 7,944
-------- -------- --------
82,446 64,005 7,944
Expenses:
Registration and filing fees 60,443 55,622 58,256
Investment management fee - Note B 15,229 4,469 876
Custodian fee 8,809 8,463 7,268
Printing 7,286 7,951 5,575
Auditing fee 7,000 7,000 7,000
Organization expense - Note A 1,525 1,512 1,397
Transfer agent fee - Note B 1,259 447 58
Financial services fee 98 35 7
Legal fees 88 73 63
-------- -------- --------
Total Expenses 101,737 85,572 80,500
Less Expenses Reimbursable by John Hancock Advisers, Inc. - Note B (82,775) (79,799) (79,439)
-------- -------- --------
Net Expenses 18,962 5,773 1,061
---------------------------------------------------------------------------------------------------------------------
Net Investment Income 63,484 58,232 6,883
---------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain on investments sold 43,668 3,558 1,105
Net realized loss on foreign currency transactions -- -- (2,430)
Change in net unrealized appreciation (depreciation) of investments 465,809 9,391 (15)
Change in net unrealized appreciation (depreciation) of foreign currency transactions -- -- (433)
-------- -------- --------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions 509,477 12,949 (1,773)
---------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $572,961 $ 71,181 $ 5,110
=====================================================================================================================
* Dividend Performers Fund and Active Bond Fund commenced investment operations on March 30, 1995. Global Bond Fund commenced
investment operations on April 19, 1995.
</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.
30
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Operations
Period ended February 29, 1996*
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MULTI-SECTOR FUNDAMENTAL INTERNATIONAL
GROWTH VALUE EQUITY
FUND FUND FUND
------------ ----------- -------------
<S> <C> <C> <C>
Investment Income:
Interest $ 23,782 $ 21,664 $ 19,380
Dividends (net of foreign withholding tax of $60, $931 and $2,460, respectively) 5,884 42,598 16,711
---------- -------- --------
29,666 64,262 36,091
Expenses:
Registration and filing fees 61,477 60,249 59,624
Investment management fee - Note B 28,922 15,765 11,818
Custodian fee 14,103 9,127 16,802
Auditing fee 9,750 7,000 7,000
Printing 8,145 7,286 7,951
Organization expense - Note A 1,811 1,422 1,512
Transfer agent fee - Note B 1,806 1,125 646
Financial services fee 216 167 84
Legal fees 78 68 70
---------- -------- --------
Total Expenses 126,308 102,209 105,507
Less Expenses Reimbursable by John Hancock Advisers, Inc. - Note B (92,922) (83,656) (92,015)
---------- -------- --------
Net Expenses 33,386 18,553 13,492
---------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (3,720) 45,709 22,599
---------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain (loss) on investments sold 100,214 (230) (4,972)
Net realized gain (loss) on foreign currency transactions 4,766 -- (2,564)
Change in net unrealized appreciation (depreciation) of investments 966,387 225,604 168,488
Change in net unrealized appreciation (depreciation) of foreign
currency transactions -- -- (32)
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions 1,071,367 225,374 160,920
---------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $1,067,647 $271,083 $183,519
=====================================================================================================================
* Multi-Sector Growth Fund, Fundamental Value Fund and International Equity
Fund commenced investment operations on April 11, 1995, April 19, 1995 and March
30, 1995, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
<TABLE>
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDEND ACTIVE GLOBAL
PERFORMERS BOND BOND
FUND FUND FUND
----------------- ---------------- -----------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
FEBRUARY 29, 1996 FEBRUARY 29,1996 FEBRUARY 29, 1996
----------------- ---------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 63,484 $ 58,232 $ 6,883
Net realized gain (loss) on investments sold and foreign currency transactions 43,668 3,558 (1,325)
Change in net unrealized appreciation (depreciation) of investments and
foreign currency transactions 465,809 9,391 (448)
----------- ----------- --------
Net Increase in Net Assets Resulting from Operations 572,961 71,181 5,110
----------- ----------- --------
Distributions to Shareholders: *
Dividends from net investment income (58,824) (58,232) (6,883)
Distributions from net realized gain on investments sold (21,522) (1,888) --
----------- ----------- --------
Total Distributions to Shareholders (80,346) (60,120) (6,883)
----------- ----------- --------
From Portfolio Share Transactions: **
Shares sold 5,484,852 2,151,742 289,031
Shares issued to shareholders in reinvestment of distributions 80,347 57,656 6,810
----------- ----------- --------
5,565,199 2,209,398 295,841
Less shares repurchased (2,738,594) (1,049,832) (77,327)
----------- ----------- --------
Net Increase 2,826,605 1,159,566 218,514
----------- ----------- --------
Net Assets:
Beginning of period -- -- --
----------- ----------- --------
End of period (including undistributed net investment income of $4,660, none
and distributions in excess of net investment income of $616, respectively) $ 3,319,220 $ 1,170,627 $216,741
=========== =========== ========
* Distributions to Shareholders:
Per share dividends from net investment income $ 0.1863 $ 0.5144 $ 0.4059
----------- ----------- --------
Per share distributions from net realized gain on investments sold $ 0.0742 $ 0.0152 --
----------- ----------- --------
* Analysis of Portfolio Share Transactions:
Shares sold 627,033 252,193 33,983
Shares issued to shareholders in reinvestment of distributions 8,685 6,688 797
----------- ----------- --------
635,712 258,881 34,780
Less shares repurchased (308,820) (123,444) (9,167)
----------- ----------- --------
Net increase 326,898 135,437 25,613
=========== =========== ========
[DAGGER]Dividend Performers Fund and Active Bond Fund commenced investment
operations on March 30, 1995. Global Bond Fund commenced investment operations
on April 19, 1995.
</TABLE>
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.
32
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds Institutional Series Trust
<TABLE>
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MULTI-SECTOR FUNDAMENTAL INTERNATIONAL
GROWTH VALUE EQUITY
FUND FUND FUND
---------------- ---------------- ----------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
FEBRUARY 29,1996 FEBRUARY 29,1996 FEBRUARY 29,1996
[DAGGER] [DAGGER] [DAGGER]
---------------- ---------------- ----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) $ (3,720) $ 45,709 $ 22,599
Net realized gain (loss) on investments sold and foreign currency transactions 104,980 (230) (7,536)
Change in net unrealized appreciation (depreciation) of investments 966,387 225,604 168,456
---------- ---------- ----------
Net Increase in Net Assets Resulting from Operations 1,067,647 271,083 183,519
---------- ---------- ----------
Distributions to Shareholders: *
Dividends from net investment income -- (39,371) (20,847)
Distributions from net realized gain on investments sold (9,869) -- (1,810)
---------- ---------- ----------
Total Distributions to Shareholders (9,869) (39,371) (22,657)
---------- ---------- ----------
From Portfolio Share Transactions: **
Shares sold 7,818,477 5,729,142 3,965,415
Shares issued to shareholders in reinvestment of distributions 9,654 39,370 22,657
---------- ---------- ----------
7,828,131 5,768,512 3,988,072
Less shares repurchased (586,975) (707,468) (1,252,172)
---------- ---------- ----------
Net Increase 7,241,156 5,061,044 2,735,900
---------- ---------- ----------
Net Assets:
Beginning of period 100,000[DOUBLE -- --
DAGGER]
---------- ---------- ----------
End of period (including undistributed net investment income of
none, $6,338 and distributions in excess of net investment income
of $813, respectively) $8,398,934 $5,292,756 $2,896,762
========== ========== ==========
* Distributions to Shareholders:
Per share dividends from net investment income $ 0.0168 $ 0.1380 $ 0.0832
---------- ---------- ----------
Per share distributions from net realized gain on investments sold -- -- $ 0.0072
---------- ---------- ----------
** Analysis of Portfolio Share Transactions:
Shares sold 833,819 656,980 449,585
Shares issued to shareholders in reinvestment of distributions 967 4,423 2,551
---------- ---------- ----------
834,786 661,403 452,136
Less shares repurchased (60,874) (79,391) (138,502)
---------- ---------- ----------
Net increase 773,912 582,012 313,634
========== ========== ==========
[DAGGER] Multi-Sector Growth Fund, Fundamental Value Fund and International
Equity Fund commenced investment operations on April 11, 1995, April 19, 1995
and March 30, 1995, respectively.
[DOUBLE DAGGER] On January 11, 1995, the Adviser made an initial investment of
$100,000 in order to seed the Trust.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- ----------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD MARCH 30, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(b)
------
Net Investment Income 0.23**
Net Realized and Unrealized Gain on Investments 1.68
------
Total from Investment Operations 1.91
------
Less Distributions:
Dividends from Net Investment Income (0.19)
Distributions from Net Realized Gain on Investments Sold (0.07)
------
Total Distributions (0.26)
------
Net Asset Value, End of Period $10.15
======
Total Investment Return at Net Asset Value (e) 22.79%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) 19.79%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $3,319
Ratio of Expenses to Average Net Assets 0.75%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) 4.02%*
Ratio of Net Investment Income to Average Net Assets 2.51%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) (0.76%)*
Portfolio Turnover Rate 70%
* 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 are expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
</TABLE>
The financial highlights summarizes the impact of the following factors on a
single share for the 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.
34
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
<TABLE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD MARCH 30, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(b)
------
Net Investment Income 0.51
Net Realized and Unrealized Gain on Investments 0.16
------
Total from Investment Operations 0.67
------
Less Distributions:
Dividends from Net Investment Income (0.51)
Distributions from Net Realized Gain on Investments Sold (0.02)
------
Total Distributions (0.53)
------
Net Asset Value, End of Period $ 8.64
======
Total Investment Return at Net Asset Value (e) 7.76%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) (0.46%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $1,171
Ratio of Expenses to Average Net Assets 0.65%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) 9.60%*
Ratio of Net Investment Income to Average Net Assets 6.53%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) (2.42%)*
Portfolio Turnover Rate 71%
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets are expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
<TABLE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD APRIL 19, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
------------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(b)
-------
Net Investment Income 0.41
Net Realized and Unrealized Loss on Investments and Foreign Currency Transactions (0.04)
-------
Total from Investment Operations 0.37
-------
Less Distributions:
Dividends from Net Investment Income (0.41)
-------
Net Asset Value, End of Period $ 8.46
=======
Total Investment Return at Net Asset Value (e) 4.37%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) (54.55%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 217
Ratio of Expenses to Average Net Assets 0.91%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) 69.15%*
Ratio of Net Investment Income to Average Net Assets 5.91%*
Ratio of Adjusted Net Investment Income to Average Net Assets (a)(d) (62.33%)*
Portfolio Turnover Rate 129%
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets are expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
<TABLE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD APRIL 11, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(b)
-------
Net Investment Loss (0.01)**
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 2.22
-------
Total from Investment Operations 2.21
-------
Less Distributions:
Dividends from Net Investment Income (0.02)
-------
Net Asset Value, End of Period $ 10.69
=======
Total Investment Return at Net Asset Value (e) 25.98%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) 23.70%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $ 8,399
Ratio of Expenses to Average Net Assets 0.93%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) 3.51%*
Ratio of Net Investment Loss to Average Net Assets (0.10%)*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) (2.68%)*
Portfolio Turnover Rate 189%
* 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 are expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
<TABLE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD APRIL 19, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(b)
------
Net Investment Income 0.17**
Net Realized and Unrealized Gain on Investments 0.56
------
Total from Investment Operations 0.73
------
Less Distributions:
Dividends from Net Investment Income (0.14)
------
Net Asset Value, End of Period $ 9.09
======
Total Investment Return at Net Asset Value (e) 8.61%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) 5.40%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $5,293
Ratio of Expenses to Average Net Assets 0.83%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) 4.55%*
Ratio of Net Investment Income to Average Net Assets 2.04%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) (1.68%)*
Portfolio Turnover Rate 0%
* 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 and does not reflect
the effect of sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
<TABLE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD MARCH 30, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50(b)
------
Net Investment Income 0.15**
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 0.68
------
Total from Investment Operations 0.83
------
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
======
Total Investment Return at Net Asset Value (e) 9.81%(c)
Total Adjusted Investment Return at Net Asset Value (a)(e) 3.26%(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $2,897
Ratio of Expenses to Average Net Assets 1.05%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) 8.19%*
Ratio of Net Investment Income to Average Net Assets 1.75%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) (5.39%)*
Portfolio Turnover Rate 59%
* 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 are expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
Schedule of Investments
February 29, 1996
Per share earnings and dividends, price/earnings ratios, company descriptions and their compound growth rates are
shown for the most recently reported ten year periods on common stocks and are unaudited.
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS (87.93%) RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Advertising (2.28%)
1,800 Interpublic Group Inc. @ 42 1/8 $ 75,825
One of the largest advertising agencies in --------
the world
Earnings P/S $ .62, .75, .91, 1.05, 1.19, 1.30, 1.37, 1.67,1.86, 1.66 10.3%
Dividends P/S $ .20, .22, .26, .32, .37, .41, .45, .49, .55, .61 13.2%
Price/Earnings Ratio 26.7
Aerospace (0.69%)
400 Rockwell International Corp. @ 57 22,800
Leading producer of aerospace, automotive -------
and electronics products
Earnings P/S $1.98, 2.23, 3.01, 2.84, 2.56, 2.57, 2.16, 2.53, 2.87, 3.42 6.3%
Dividends P/S $.59, .66, .72, .77, .82, .88, .92, .98, 1.04, 1.10 7.2%
Price/Earnings Ratio 16.5
Banks (5.87%)
770 Banc One Corp. @ 35 5/8 27,431
Ohio-based bank holding company
Earnings P/S $1.16, 1.19, 1.56, 1.66, 1.66, 1.72, 2.08, 2.61, 2.20, 2.91 9.6%
Dividends P/S $.41, .45, .50, .57, .63, .70, .81, .98, 1.13, 1.24 11.7%
Price/Earnings Ratio 12.0
1,200 First Tennessee National Corp. @ 31 1/2 37,800
Tennessee-based bank holding company
Earnings P/S $1.01, .78, 1.10, .65, 1.00, 1.35, 1.60, 1.66, 2.25, 2.43 9.2%
Dividends P/S $ .375, .395, .425, .485, .54, .57, .63, .75, .865, .97 10.0%
Price/Earnings Ratio 13.1
700 KeyCorp. @ 37 5/8 26,338
Multi-regional bank holding company
Earnings P/S $1.72, 1.88, 2.10, 2.32, 2.32, 2.45, 2.42, 2.89, 3.45, 3.30 6.7%
Dividends P/S $.48, .60, .68, .80, .88, .92, .98, 1.12, 1.28, 1.44 13.0%
Price/Earnings Ratio 11.4
1,400 NationsBank Corp. @ 73 3/4 103,250
Largest superregional bank in the Southeast
Earnings P/S $2.51, 2.01, 2.87, 4.44, 2.61, .81, 4.60, 5.00, 6.11, 7.13 11.0%
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 10.5
--------
194,819
--------
Chemicals (5.78%)
1,300 Air Products & Chemicals, Inc. @ 53 1\4 69,225
Producer of industrial and specialty
chemicals and gases
Earnings P/S $1.18, .04, 1.95, 2.02, 2.08, 2.23, 2.45, 1.76, 2.05, 3.29 12.1%
Dividends P/S $.39, .45, .55, .63, .69, .75, .83, .89, .95, 1.01 10.0%
Price/Earnings Ratio 17.1
</TABLE>
The Schedule of Investments is a complete list of all securities owned by
Dividend Performers Fund on February 29, 1996. Its divided into three main
categories: common stocks, preferred stocks 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 RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Chemicals (continued)
700 E.I. du Pont de Nemours and Co. @ 76 1/2 $ 53,550
Nation's largest chemical manufacturer
Earnings P/S $2.12, 2.46, 3.03, 3.53, 3.40, 2.08, 1.43, .83, 4.00, 5.61 10.2%
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 14.7
600 PPG Inds., Inc. @ 46 3/8 27,825
Manufacturer of specialty chemicals,
coatings and resins
Earnings P/S $ 1.33, 1.60, 2.13, 2.09, 2.22, .95, 1.51, 1.39, 2.44, 3.80 11.1%
Dividends P/S $ .47, .56, .64, .74, .82, .86, .94, 1.04, 1.12, 1.18 10.8%
Price/Earnings Ratio 12.8
1,250 RPM, Inc. @ 14 3/4 18,438
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof
structures
Earnings P/S $ .34, .38, .45, .52, .43, .45, .54, .58, .79, .87 11.0%
Dividends P/S $.18, .21, .25, .27, .30, .34, .37, .39, .42, .46 11.0%
Price/Earnings Ratio 16.8
400 Sigma-Aldrich Corp. @ 57 1/4 22,900
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S $ .69, .85, 1.15, 1.30, 1.13, 1.60, 1.92, 2.15, 2.21, 2.64 14.4%
Dividends P/S $ .13, .15, .17, .19, .20, .23, .26, .30, .34, .38 12.7%
Price/Earnings Ratio 22.3
--------
191,938
--------
Commercial Services (2.48%)
2,500 Sysco Corp. @ 32 7/8 82,188
Largest distributer of food service products --------
Earnings P/S $ .35, .45, .60, .73, .76, .86, .95, 1.10, 1.24, 1.42 16.8%
Dividends P/S $ .06, .07, .08, .09, .10, .14, .22, .28, .36, .44 24.8%
Price/Earnings Ratio 22.7
Computer & Office Equipment (2.28%)
1,600 Alco Standard Corp @ 47 3/8 75,800
Distributor of office and paper products --------
Earnings P/S $ .64, .84, 1.15, 1.96, .91, .98, 1.11, (.025), .56, 1.82 12.3%
Dividends P/S $ .315, .325, .35, .39, .425, .445, .465, .485, .51, .53 6.0%
Price/Earnings Ratio 26.1
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Consumer Cyclicals & Services (1.68%)
700 Albertson's,Inc. @ 37 $ 25,900
Idaho-based operator of supermarkets and
combination food-drug stores
Earnings P/S $.38, .47, .61, .74, .88, .97, 1.05, 1.34, 1.65, 1.84 17.1%
Dividends P/S $ .10, .12, .14, .19, .23, .27, .31, .35, .42, .50 19.6%
Price/Earnings Ratio 21.0
600 McDonald's Corp @ 50 30,000
Dominant force in the fast food industry
Earnings P/S $.63, .73, .86, .98, 1.10, 1.18, 1.30, 1.46, 1.68, 1.98 12.1%
Dividends P/S $ .11, .12, .14, .15, .17, .18, .20, .21, .23, .26 10.0%
Price/Earnings Ratio 26.2
--------
55,900
--------
Consumer Durables (1.13%)
1,600 Leggett & Platt, Inc. @ 23 3/8 37,400
Produces intermediate products for the --------
home furnishings industry
Earnings P/S $ .475, .555, .545, .645, .42, .56, .82, 1.05, 1.39, 1.59 12.8%
Dividends P/S $ .10, .14, .16, .185, .21, .215, .23, .27, .31, .38 9.4%
Price/Earnings Ratio 15.5
Consumer Non-Durables (12.62%)
1,000 Archer-Daniels-Midland Co. @ 19 1/4 19,250
Major factor in soybean processing, corn
refining and flour milling
Earnings P/S $ .49, .65, .79, .89, .79, .82, .83, .84, 1.05, 1.50 13.2%
Dividends P/S $.027, .029, .030, .036, .050, .053, .056, .058, .069, .121 18.1%
Price/Earnings Ratio 12.2
600 Campbell Soup Co. @ 61 3/4 37,050
Leading food manufacturer and distributor
Earnings P/S $ .96, .94, .05, .02, 1.05, 1.68, 2.04, 1.08, 2.64, 2.89 13.0%
Dividends P/S $ .33, .36, .42, .46, .50, .58, .76, .97, 1.12, 1.24 15.9%
Price/Earnings Ratio 20.9
1,000 CPC International Inc. @ 69 1/4 69,250
Major international food processor
Earnings P/S $ 1.15, 2.17, 1.84, 2.11, 2.42, 2.61, 2.78, 2.95, 2.25, 3.43 11.5%
Dividends P/S $ .5675, .645, .76, .875, 1.00, 1.10, 1.20, 1.28, 1.38, 1.48 11.2%
Price/Earnings Ratio 20.3
750 H.J. Heinz Co. @ 34 25,500
Leading food manufacturer and distributor
Earnings P/S $ 1.24, 1.46, 1.67, 1.90, 1.34, 1.65, 1.43, 1.49, 1.46, 1.69 3.5%
Dividends P/S $ .32, .39, .45, .52, .60, .68, .76, .84, .92, 1.01 13.6%
Price/Earnings Ratio 20.0
600 Kimberly-Clark Corp. @ 76 3/8 45,825
Leading producer of consumer and personal care products
Earnings P/S $ 1.47, 1.87, 2.36, 2.63, 2.70, 3.01, 3.37, 1.95, 3.55, 3.66 10.7%
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 21.5
1,600 PepsiCo, Inc. @ 63 1/4 101,200
Second largest soft drink company
Earnings P/S $ .58, .76, .97, 1.13, 1.37, 1.35, 1.61, 1.96, 2.22, 2.00 13.2%
Dividends P/S $ .21, .22, .27, .32, .38, .46, .51, .61, .70, .78 15.7%
Price/Earnings Ratio 31.6
1,000 Procter & Gamble Co. (The) @ 82 $ 82,000
Leading producer of household consumer products
Earnings P/S $.46, 1.48, 1.74, 2.25, 2.42, 2.49, 2.50, .74, 2.21, 4.05 24.3%
Dividends P/S $ .67, .68, .70, .83, .93, 1.00, 1.08, 1.17, 1.32, 1.50 9.4%
Price/Earnings Ratio 21.3
1,200 Sara Lee Corp. @ 32 3/8 38,850
Manufacturer of brand name packaged food
and consumer products
Earnings P/S $ .59, .71, .88, .94, .98, 1.41, 1.28, 1.43, .46, 1.66 12.2%
Dividends P/S $ .20, .25, .30, .36, .42, .47, .50, .58, .64, .68 14.6%
Price/Earnings Ratio 19.3
--------
418,925
--------
Diversified Operations (1.26%)
500 Corning Inc. @ 32 1/2 16,250
Operations are in laboratory services, fiber
optics, specialty materials and consumer products
Earnings P/S $.93, 1.03, 1.63, 1.40, 1.54, 1.66, 1.40, (.09), 1.32, (.23) NMF
Dividends P/S $ .35, .36, .38, .41, .46, .53, .62, .68, .69, .72 8.3%
Price/Earnings Ratio 19.3
1,000 Federal Signal Corp. @ 25 1/2 25,500
Manufactures fire trucks and street
sweepers, as well as public safety, signaling
and communications equipment
Earnings P/S $ .26, .32, .41, .50, .61, .68, .68, .85, 1.02, 1.14 15.9%
Dividends P/S $ .14, .15, .16, .19, .22, .27, .32, .36, .42, .50 15.2%
Price/Earnings Ratio 24.1
--------
41,750
--------
Electrical Equipment (10.51%)
1,500 AMP Inc. @ 42 5/8 63,937
World's largest manufacturer of
electrical/electronic connectors
Earnings P/S $ .75, 1.16, 1.48, 1.32, 1.35, 1.23, 1.38, 1.42, 1.76, 1.98 10.2%
Dividends P/S $ .37, .43, .50, .60, .68, .72, .76, .80, .84, .92 10.7%
Price/Earnings Ratio 21.7
900 Emerson Electric Co. @ 77 7/8 70,088
Produces and sells electrical/electronic products and systems
Earnings P/S $ 1.87, 2.00, 2.31, 2.63, 2.75, 2.83, 2.96, 3.15, 4.04, 4.16 9.3%
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 19.6
2,300 General Electric Co. @ 75 1/2 173,650
Dominant force in home appliances,
electrical power, and financial services
Earnings P/S $1.37, 1.60, 1.88, 2.18, 2.43, 2.56, 2.51, 2.46, 3.46, 3.91 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 19.9
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Electrical Equipment (continued)
600 W.W. Grainger, Inc. @ 68 3/8 $ 41,025
Leading distributor of electrical equipment
Earnings P/S $ 1.24, 1.48, 1.57, 1.96, 2.31, 2.38, 2.58, 2.88, 2.50, 3.64 11.4%
Dividends P/S $ .36, .39, .43, .50, .57, .61, .65, .71, .78, .89 10.6%
Price/Earnings Ratio 19.1
--------
348,700
--------
Energy (2.63%)
700 Exxon Corp. @ 79 1/2 55,650
Major factor in the crude oil, natural gas and
chemical industry
Earnings P/S $ 3.71, 3.43, 3.95, 2.32, 3.96, 4.45, 3.82, 4.21, 4.07, 5.18 2.7%
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 15.7
1,000 Questar Corp. @ 31 1/2 31,500
Diversified holding company for Utah,
Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S $ 1.20, .67, .64, 1.27, 1.44, 1.63, 1.85, 2.10, 1.21, 2.05 5.5%
Dividends P/S $ .87, .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16 2.9%
Price/Earnings Ratio 15.8
--------
87,150
--------
Healthcare (11.20%)
2,100 Abbott Laboratories @ 41 3/4 87,675
Major pharmaceutical and healthcare firm
Earnings P/S $ .58, .70, .84, .97, 1.11, 1.27, 1.47, 1.69, 1.87, 2.12 15.5%
Dividends P/S $ .20, .24, .29, .34, .40, .48, .58, .66, .74, .82 17.0%
Price/Earnings Ratio 19.5
500 American Home Products Corp. @ 98 1/2 49,250
Leading manufacturer of ethical pharmaceuticals
Earnings P/S $ 2.73, (2.64), 3.22, 3.54, 6.01, 4.36, 3.67, 4.73, 4.97, 5.45 7.2%
Dividends P/S $ 1.55, 1.67, 1.80, 1.95, 2.15, 2.38, 2.66, 2.86, 2.94, 3.02 7.7%
Price/Earnings Ratio 18.1
1,100 Johnson & Johnson @ 93 1/2 102,850
Major producer of prescription and non-
prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S $.45, 1.18, 1.41, 1.60, 1.71, 2.20, 2.46, 2.74, 3.12, 3.72 23.5%
Dividends P/S $ .34, .40, .48, .56, .66, .77, .89, 1.01, 1.13, 1.28 15.9%
Price/Earnings Ratio 25.4
1,000 Merck & Co., Inc. @ 66 1/4 66,250
World's largest ethical drug manufacturer
Earnings P/S $ .54, .74, 1.02, 1.26, 1.52, 1.83, 2.12, 1.87, 2.38, 2.70 17.5%
Dividends P/S $ .21, .27, .43, .55, .64, .77, .92, 1.03, 1.14, 1.24 21.8%
Price/Earnings Ratio 23.2
1,000 Pfizer Inc. @ 65 5/8 65,875
Leading ethical pharmaceutical producer
Earnings P/S $.98, 1.02, 1.18, 1.01, 1.19, 1.07, 1.63, 1.03, 2.09, 2.48 9.7%
Dividends P/S $ .41, .45, .50, .55, .60, .66, .74, .84, .94, 1.04 10.9%
Price/Earnings Ratio 25.7
--------
371,900
--------
Information Processing (3.93%)
1,600 Automatic Data Processing, Inc. @ 38 3/4 $ 62,000
Largest independent computing services firm in the U.S.
Earnings P/S $ .42, .54, .62, .72, .74, .83, .94, 1.07, 1.22, 1.43 14.6%
Dividends P/S $ .093, .105, .125, .145, .17, .195, .225, .255, .29, .35 15.9%
Price/Earnings Ratio 27.3
1,200 General Motors Corp. Class E @ 57 1/8 68,550
Leading provider of information processing
services
Earnings P/S $.53, .66, .79, .91, 1.04, 1.15, 1.33, 1.51, 1.71, 1.96 14.0%
Dividends P/S $ .10, .13, .17, .24, .28, .32, .36, .40, .48, .52 20.1%
Price/Earnings Ratio 29.3
--------
130,550
--------
Insurance (5.61%)
800 AFLAC Corp. @ 46 3/8 37,100
Global specialty insurer
Earnings P/S $.78, .93, 1.08, .80, 1.16, 1.46, 1.79, 2.32, 2.83, 3.52 16.3%
Dividends P/S $ .16, .18, .20, .23, .26, .30, .34, .39, .45, .51 13.8%
Price/Earnings Ratio 13.1
400 American International Group @ 96 5/8 38,650
Broadly based property-casualty insurance organization
Earnings P/S $ 3.35, 3.92, 4.42, 4.61, 3.08, 3.24, 3.40, 4.03, 4.58, 5.31 4.7%
Dividends P/S $ .081, .093, .125, .157, .183, .209, .236, .258, .287, .323 16.6%
Price/Earnings Ratio 17.4
500 Chubb Corp. @ 97 1/8 48,562
Broadly based property-casualty insurance organization
Earnings P/S $3.53, 3.97, 4.27, 4.91, 6.07, 6.55, 6.40, 4.32, 5.99, 7.44 8.6%
Dividends P/S $ .80, .89, 1.08, 1.16, 1.32, 1.48, 1.60, 1.72, 1.84, 1.96 10.5%
Price/Earnings Ratio 13.1
200 Providian Corp. @ 46 1/4 9,250
Broadly based property-casualty insurance organization
Earnings P/S $1.60, 1.75, 2.00, 2.31, 1.70, 2.67, 3.14, 3.13, 3.01, 3.61 8.5%
Dividends P/S $ .41, .44, .47, .50, .54, .60, .66, .73, .80, .90 8.2%
Price/Earnings Ratio 12.2
1,100 Reliastar Financial Corp. @ 48 52,800
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S $2.29, 1.86, 1.58, 2.07, 2.09, 1.71, 2.06, 2.62, 3.30, 4.36 6.7%
Dividends P/S $ .43, .47, .57, .59, .65, .69, .73, .79, .88, .98 9.6%
Price/Earnings Ratio 10.8
--------
186,362
--------
Media and Information Services (1.64%)
800 Gannett Co., Inc @ 68 54,400
Publishes 81 daily/50 nondaily newspapers, --------
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S $ 1.71, 1.98, 2.26, 2.47, 2.36, 2.00, 2.40, 2.73, 3.25, 3.42 7.2%
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 20.3
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Packaging (2.53%)
1,400 Bemis Company, Inc. @ 30 5/8 $ 42,875
Producer of a broad range of flexible
packaging and equipment and pressure
sensitive materials
Earnings P/S $ .47, .59, .74, .90, .99, 1.03, 1.10, .89, 1.40, 1.63 13.2%
Dividends P/S $.15, .18, .22, .30, .36, .42, .46, .50, .54, .64 17.5%
Price/Earnings Ratio 18.4
1,500 Sonoco Products Corp. @ 27 3/8 41,062
Leading manufacturer of containers, paper
products and packaging
Earnings P/S $ .63, .77, 1.10, 1.18, .55, 1.05, .89, 1.25, 1.31, 1.70 10.4%
Dividends P/S $ .18, .21, .30, .39, .43, .44, .48, .50, .53, .59 14.1%
Price/Earnings Ratio 16.6
--------
83,937
--------
Retail (4.78%)
900 Lowe's Companies, Inc. @ 31 27,900
Retailer of building materials and supplies,
lumber, hardware and appliances
Earnings P/S $ .36, .39, .46, .51, .48, .044, .581, .90, 1.45, 1.41 14.6%
Dividends P/S $ .0975, .105, .1125, .12, .13, .135, .14, .16, .17, .185 7.4%
Price/Earnings Ratio 25.4
800 May Dept. Stores Co. (The) @ 46 5/8 37,300
Operates 318 department stores and 3,295 shoe stores
Earnings P/S $ 1.22, 1.45, 1.82, 1.75, 2.00, 2.01, 2.36, 2.77, 3.06, 3.00 9.4%
Dividends P/S $ .51, .56, .62, .69, .77, .81, .83, .90, 1.01, 1.12 9.1%
Price/Earnings Ratio 16.8
1,700 Pep Boys - Manny, Moe & Jack
(The) @ 30 51,000
Retailer of automotive parts and accessories
Earnings P/S $ .52, .62, .76, .63, .70, .64, .87, 1.01, 1.27, 1.33 11.0%
Dividends P/S $ .07, .08, .09, .11, .12, .13, .14, .15, .17, .19 11.7%
Price/Earnings Ratio 23.6
2,000 Wal-Mart Stores, Inc. @ 21 1/4 42,500
Operates chain of discount department stores
Earnings P/S $.20, .28, .37, .48, .57, .69, .87, 1.03, 1.18, 1.20 19.6%
Dividends P/S $ .021, .03, .04, .06, .07, .09, .11, .13, .17, .20 30.7%
Price/Earnings Ratio 19.9
--------
158,700
--------
Steel (0.52%)
800 Worthington Industries, Inc. @ 21 1/2 17,200
Processor of close-tolerance steel --------
Earnings P/S $ .45, .61, .70, .60, .61, .50, .63, .74, .94, 1.29 11.1%
Dividends P/S $ .14, .17, .19, .23, .26, .28, .32, .34, .39, .43 11.9%
Price/Earnings Ratio 18.3
Telecommunications (2.85%)
1,000 ALLTEL Corp. @ 33 1/4 33,250
One of the country's largest telephone
systems
Earnings P/S $ .53, 1.00, .94, 1.13, 1.18, 1.12, 1.22, 1.39, 1.43, 1.86 13.4%
Dividends P/S $ .44, .45, .51, .57, .64, .70, .74, .80, .88, .96 9.1%
Price/Earnings Ratio 16.4
1,500 Frontier Corp. @ 30 $ 45,000
Provides telephone service to the city of
Rochester N.Y. and outlying areas
Earnings P/S $.89, .93, 1.06, .99, .86, 1.18, 1.06, 1.21, 1.42, 1.02 1.4%
Dividends P/S $ .64, .66, .68, .71, .73, .75, .77, .79, .81, .83 2.9%
Price/Earnings Ratio 29.9
300 SBC Communications, Inc. @ 54 7/8 16,462
Provides telephone service throughout the
United States and internationally
Earnings P/S $ 1.71, 1.74, 1.76, 1.82, 1.84, 1.93, 2.17, 2.39, 2.74, 3.10 6.1%
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 17.0
--------
94,712
--------
Tobacco (1.79%)
600 Philip Morris Cos., Inc. @ 99 59,400
Global tobacco, brewing and food company --------
Earnings P/S $ 1.55, 1.94, 2.22, 3.18, 3.83, 4.24, 5.45, 4.06, 5.45, 6.51 15.4%
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 13.5
Transportation - Rail (0.27%)
200 CSX Corp. @ 44 7/8 8,975
Nation's third largest rail system --------
Earnings P/S $ 2.73, 2.78, (.30), 4.11, 1.82, (.34), .10, 1.73, 3.12, 2.94 0.7%
Dividends P/S $ .58, .58, .62, .64, .70, .72, .76, .79, .88, .92 4.7%
Price/Earnings Ratio 16.2
Utilities (3.60%)
1,000 Central and South West Corp. @ 27 3/4 27,750
Dallas-based utility holding company
Earnings P/S $ 1.88, 1.96, 1.72, 1.63, 1.90, 1.99, 2.03, 1.40, 2.08, 2.10 1.1%
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 13.0
500 Florida Progress Corp. @ 35 3/8 17,687
Holding Co. for Florida Power electric utility services
Earnings P/S $ 2.47, 2.49, 2.35, 2.39, 2.33, 2.15, 2.05, 2.22, 2.27, 2.50 0.1%
Dividends P/S $ 1.54, 1.61, 1.67, 1.72, 1.78, 1.84, 1.90, 1.95, 1.99, 2.02 3.1%
Price/Earnings Ratio 13.5
800 National Fuel Gas Co. @ 32 1/8 25,700
Integrated natural gas system serves the
Buffalo, New York area and contiguous
districts reaching into western Pennsylvania
and eastern Ohio
Earnings P/S $ 1.75, 1.49, 1.65, 1.93, 1.83, 1.68, 1.94, 2.21, 2.23, 2.03 1.7%
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 16.2
800 Union Electric Co. @ 42 1/4 33,800
Largest electric utility in Missouri
Earnings P/S $ 2.89, 2.91, 2.56, 2.91, 2.74, 3.01, 2.83, 2.77, 3.01, 2.95 0.2%
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 13.5
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Utilities (continued)
500 Wisconsin Energy Corp. @ 28 7/8 $ 14,438
Electric and gas utility holding company
Earnings P/S $ 1.58, 1.70, 1.82, 1.92, 1.85, 1.87, 1.66, 1.81, 1.67, 2.13 3.0%
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 13.2
----------
119,375
----------
TOTAL COMMON STOCKS
(Cost $2,457,888) 2,918,706
----------
PREFERRED STOCKS (1.73%)
700 American Express Co. FDC, 6 1/4%
Conv @ 58 1/2 40,950
500 Browing-Ferris ACES, Conv Pfd
7.25% @ 32 5/8 16,313
----------
TOTAL PREFERRED STOCKS
(Cost $52,272) 57,263
----------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
SHORT-TERM INVESTMENTS INTEREST (000'S MARKET
(10.68%) RATE OMITTED) VALUE
---- ------- -----
<S> <C> <C> <C>
Joint Repurchase Agreement (10.58%)
Investment in a joint repurchase agreement
transaction with BT Securities Corp., -
Dated 2-29-96, due 03-01-96 (secured
by U.S. Treasury Bonds 12.50% due
8-15-14 and by U.S. Treasury Notes,
6.00% - 8.25% due 8-31-97 thru
7-15-98) Note A 5.43% $351 $ 351,000
----------
Corporate Savings Account (0.10%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 3,387
----------
TOTAL SHORT-TERM INVESTMENTS (10.68%) 354,387
====== ----------
TOTAL INVESTMENTS (100.34%) $3,330,356
====== ==========
</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.
44
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
Schedule of Investments
February 29, 1996
- -------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST S+P (000's MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- ---- -------- -------- -----
<S> <C> <C> <C> <C>
BONDS
Banks (5.07%)
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 9.750% AA- $ 25 $ 29,210
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 10.125 A+ 25 30,110
--------
59,320
--------
Broadcasting (3.61%)
Century Communications Corp.,
Sr Sub Deb 10-15-03 11.875 B+ 25 27,063
Turner Broadcasting Systems Inc.,
Sr Note 07-01-13 8.375 BB+ 15 15,188
--------
42,251
--------
Governmental - U.S. (25.54%)
United States Treasury,
Bond 05-15-18 9.125 AAA 25 32,211
Bond 02-15-23 7.125 AAA 20 21,210
Note 11-15-96 7.250 AAA 25 25,336
Note 05-15-98 9.000 AAA 40 42,888
Note 11-30-99 7.750 AAA 130 138,876
Note 05-15-01 8.000 AAA 35 38,456
--------
298,977
--------
Governmental - U.S. Agencies (16.30%)
Financing Corp.,
Bond Ser B 04-06-18 9.800 AAA 25 32,945
Government National Mortgage Association,
30 Yr SF Pass Thru Ctf 11-15-24 8.000 AAA 153 157,830
--------
190,775
--------
Publishing (3.60%)
News America Holding Inc.,
Deb 08-10-18 8.250 BBB 25 25,683
Time Warner Inc.,
Deb 01-15-13 9.125 BBB- 15 16,448
--------
42,131
--------
Steel (2.07%)
Weirton Steel Corp.,
Sr Note 06-01-05 10.750 B 25 24,188
--------
Tobacco (1.21%)
RJR Nabisco, Inc.,
Note 09-15-03 7.625 BBB- 15 14,223
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
<TABLE>
PER VALUE
INTEREST S+P (OOO'S MARKET
ISSUER, DESCRIPTION RATE RATING OMITTED) VALUE
- ------------------- ---- ------ -------- -----
<S> <C> <C> <C> <C>
Transportation (1.65%)
United Air Lines, Inc.,
Deb Ser B 05-01-14 11.210% BB $ 15 $ 19,397
----------
Utilities (17.55%)
BVPS II Funding Corp.,
Collateralized Lease Bond 12-01-07 8.330 BB 10 9,820
CTC Mansfield Funding Corp.,
Sec Lease Oblig 09-30-16 11.125 B+ 15 15,964
E.I.P. Refunding Corp.,
Sec Fac Bond 10-01-12 10.250 B+ 25 26,502
First PV Funding Corp.,
Lease Oblig Ser 1986 B 01-15-16 10.150 B+ 10 10,350
GTE Corp.,
Deb 11-15-17 10.300 BBB+ 25 27,871
Hydro-Quebec (Gtd by Province of Quebec),
Deb 02-01-03 7.375 A+ 25 25,999
Deb Ser HS 02-01-21 9.400 A+ 10 11,914
Iberdrola International B.V.,
Gtd Note 06-01-03 (R) 7.125 AA- 25 25,707
Long Island Lighting Co.,
Gen Ref Bond 05-01-21 9.750 BBB- 25 25,715
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02 10.330 BB- 24 25,606
----------
205,448
----------
TOTAL BONDS
(Cost $887,319) (76.60%) 896,710
----- ----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (22.21%)
Investment in a joint repurchase agreement transaction with B.T.
Securities Corp., - Dated 02-29-96, Due 03-01-96 (secured by U.S.
Treasury Bond, 12.50%, due 8-15-14;
and U.S. Treasury Notes, 6.00% - 8.25%, due 8-31-97 thru 7-15-98) - Note A 5.430 -- 260 260,000
----------
Corporate Savings Account (0.19%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 2,202
----------
TOTAL SHORT-TERM INVESTMENTS (22.40%) 262,202
----- ----------
TOTAL INVESTMENTS (99.00%) $1,158,912
===== ==========
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 $25,707
as of February 29, 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 and are unaudited.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
<TABLE>
Schedule of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER RATE OMITTED)# VALUE
- ------ ---- --------- -----
<S> <C> <C> <C>
BONDS
Australia (3.61%)
Commonwealth of
Australia, 1-15-01 8.75% 10 $ 7,813
--------
Canada (1.82%)
Government of Canada, 12-01-05 8.75 5 3,944
--------
Denmark (3.91%)
Kingdom of Denmark, 3-15-06 8.00 47 8,484
--------
France (6.50%)
Government of France, 10-25-05 7.75 66 14,084
--------
Germany (16.76%)
Federal Republic of
Germany, 1-05-06 . 6.00 55 36,331
--------
Italy (4.58%)
Republic of Italy, 11-01-00 10.50 15,000 9,922
--------
New Zealand (1.55%)
Government of
New Zealand, 7-15-98 8.00 5 3,361
--------
Spain (3.84%)
Government of Spain, 02-28-05 10.00 1,010 8,316
--------
Sweden (3.16%)
Swedish Export Credit, 06-05-01 6.50 50 6,853
--------
United Kingdom (6.11%)
United Kingdom
Treasury Bonds, 12-07-06 7.50 9 13,248
--------
United States (34.22%)
United States
Treasury Notes, 12-31-00 5.50 16 15,830
United States
Treasury Notes, 05-15-05## 6.50 57 58,336
--------
74,166
--------
TOTAL BONDS
(Cost $186,537) (86.06%) 186,522
----- --------
</TABLE>
The Schedule of Investments is a complete list of all securities owned by Global
Bond Fund on February 29, 1996. It's divided into three main categories: bonds,
options 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.
<TABLE>
<CAPTION>
EXPIRATION
CURRENCY CURRENCY DATE/STRIKE MARKET
PURCHASED SOLD PRICE VALUE
- --------- -------- ----------- ------
<S> <C> <C> <C>
OPTIONS
USD 21,000 YEN 2,289,000 July 96/109 $128
----
TOTAL OPTIONS
(Premium paid $288) ( 0.06%) 128
----- ----
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S
ISSUER RATE OMITTED)#
- ------ ---- ---------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (11.99%)
Investment in a joint repurchase
agreement transaction with BT
Securities Corp. - Dated 02-29-96,
Due 03-01-96 (secured by U.S.
Treasury Bond, 12.50% Due
08-15-14, and by U.S. Treasury Note,
8.50% Due 04-15-97) Note A 5.43% $ 26 26,000
--------
TOTAL SHORT-TERM INVESTMENTS
(Cost $26,000) (11.99%) 26,000
----- --------
TOTAL INVESTMENTS (98.11%) $212,650
===== ========
# Par value of foreign bonds are expressed in local currency.
## A portion of this security is segregated as collateral for open forward
currency contracts.
USD US Dollar
YEN Japanese Yen
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
<TABLE>
Portfolio Concentration
- --------------------------------------------------------------------------------
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 February 29, 1996 assigned to
the various investment categories.
<CAPTION>
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
- --------------------- --------------------
<S> <C>
Finance 3.16%
Governmental - Foreign 48.68
Governmental - United States 34.22
Options 0.06
Short-term Investments 11.99
-----
TOTAL INVESTMENTS 98.11%
=====
</TABLE>
NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
<TABLE>
Schedule of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Aerospace (2.11%)
Wyman-Gordon Co.* 10,000 $ 177,500
----------
Computers (5.48%)
Bell & Howell Co.* 3,000 89,625
Compucom Systems, Inc.* 10,000 73,750
Intuit, Inc.* 500 33,375
Parametric Technology Co.* 1,500 111,562
Sun Microsystems, Inc.* 1,500 78,750
3Com Corp.* 1,500 73,313
----------
460,375
----------
Diversified Operations (4.01%)
CUC International Inc.* 1,000 32,375
Primark Corp.* 7,700 304,150
----------
336,525
----------
Drugs (4.66%)
Elan Corp. PLC (American Depositary
Receipt) (Ireland)* 3,000 174,000
Pfizer, Inc. 2,000 131,750
Watson Pharmaceutical, Inc.* 2,000 86,000
----------
391,750
----------
Electronics (1.05%)
Linear Technology Corp. 1,500 69,750
SCI Systems, Inc.* 500 18,531
----------
88,281
----------
Hazardous Waste (2.11%)
TETRA Technologies, Inc.* 13,000 177,125
----------
Healthcare (20.42%)
Access Health, Inc.* 4,000 219,000
HBO & Co. 4,000 396,000
HealthCare COMPARE Corp.* 1,000 48,750
Healthsource, Inc.* 10,000 378,750
Henry Schein, Inc.* 3,900 113,100
Home Health Corporation of America* 19,000 194,750
Johnson & Johnson 1,000 93,500
Oxford Health Plans, Inc.* 1,500 123,469
PhyCor, Inc.* 1,000 45,500
Universal Health Services, Inc.* 2,000 102,250
----------
1,715,069
----------
Leisure & Recreation (0.39%)
Walt Disney Co., (The) 500 32,750
----------
</TABLE>
The schedule of investments is a complete list of all securities owned by the
Multi-Sector Growth Fund on February 29, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Medical (0.90%)
I-Stat Corp.* 2,000 $ 76,000
----------
Mining (23.07%)
Agnico-Eagle Mines Ltd. 11,000 185,625
Aurora Gold Ltd. (Australia)* 13,000 23,360
Couer D'Alene Mines Corp. 11,000 259,875
Kinross Gold Corp. (Canada)* 31,000 286,750
Newmont Gold Co. 6,000 337,500
Prime Resource Group, Inc. (Canada)* 4,000 38,635
Santa Fe Pacific Gold Corp. 16,500 257,813
Stillwater Mining Co.* 11,000 242,000
TVX Gold, Inc. (Canada)* . 31,000 306,125
----------
1,937,683
----------
Oil & Gas - Equipment and Services (17.73%)
Diamond Offshore Drilling, Inc.* 7,000 256,375
Falcon Drilling Co., Inc.* 17,000 344,250
Global Marine, Inc.* 34,000 301,750
Nabors Industries, Inc.* . 14,000 180,250
Pride Petroleum Services, Inc.* 9,000 100,687
Reading & Bates Corp.* 16,000 306,000
----------
1,489,312
----------
Oil & Gas - Exploration and Production (13.32%)
Cairn Energy USA, Inc.* 14,000 152,250
Chesapeake Energy Corp.* . 8,000 331,000
Global Natural Resources, Inc.* 4,400 55,000
Lomak Petroleum, Inc. 6,000 66,000
Swift Energy Co.* 6,000 69,750
Triton Energy Corp.* 4,000 198,500
Vintage Petroleum, Inc. 12,000 246,000
----------
1,118,500
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Publishing (1.25%)
Scholastic Corp.* 1,500 $ 104,625
----------
Telecommunications (2.00%)
U.S. Order, Inc.* 3,000 70,500
United States Satellite Broadcasting Co., Inc.* 3,000 97,500
----------
168,000
----------
TOTAL COMMON STOCKS
(Cost $7,307,108) (98.50%) 8,273,495
----- ----------
<CAPTION>
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.54%)
Investment in a joint repurchase
agreement transaction with BT
Securities Corp. - Dated 02-29-96,
due 03-01-96 (secured by U.S.
Treasury Bond, 12.50% due 08-15-14,
and by U.S. Treasury Notes,
6.00% thru 8.25% due 08-31-97
thru 07-15-98) - Note A 5.43% $ 381 381,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 262
----------
TOTAL SHORT-TERM INVESTMENTS (4.54%) 381,262
------ ----------
TOTAL INVESTMENTS (103.04%) $8,654,757
====== ==========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
Portfolio Concentration
- --------------------------------------------------------------------------------
<TABLE>
The Multi-Sector Growth Fund invests primarily in securities issued in the
United States of America. 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
February 29, 1996 assigned to country categories.
<CAPTION>
MARKET VALUE AS A
PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
<S> <C>
Australia 0.28%
Canada 7.52
Ireland 2.07
United States 88.63
Short-term Investments 4.54
------
TOTAL INVESTMENTS 103.04%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
<TABLE>
Schedule of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
Aircraft (6.04%)
Boeing Co. (The) 400 $ 32,450
Thiokol Corp. 7,000 287,000
----------
319,450
----------
Auto/Truck (5.68%)
Arvin Industries Inc. 13,600 300,900
----------
Beverages (4.80%)
Coors (Adolph) Co. 13,100 253,813
----------
Diversified Operations (9.45%)
Hanson PLC, American Depository Receipts 15,900 234,525
Horsham Corp. 18,000 265,500
----------
500,025
----------
Foods (15.05%)
Archer-Daniels-Midland Co. 14,515 279,414
Dole Food Co. 2,300 92,575
Morrison Restaurants Inc. 13,000 217,750
Savannah Foods & Inds, Inc. 19,000 206,625
----------
796,364
----------
Leisure & Recreation (2.95%)
Outboard Marine Corp. 3,600 72,900
Russ Berrie & Co. Inc. 5,200 83,200
----------
156,100
----------
Machinery (0.64%)
Harnischfeger Industries, Inc. 900 34,087
----------
Oil & Gas ( 12.17%)
Cooper Cameron Corp.* 9,500 308,750
Daniel Industries, Inc. 17,800 253,650
Parker Drilling Co.* 13,600 81,600
----------
644,000
----------
Paper (4.89%)
Crown Vantage, Inc.* 130 1,950
Glatfelter (P.H.) Co. 13,400 222,775
James River Corporation of Virginia 1,300 34,287
----------
259,012
----------
Pollution Control (4.65%)
Calgon Carbon Corp. 21,900 246,375
----------
Publishing (0.83%)
Times Mirror Co. (The) Class A 1,300 44,200
----------
</TABLE>
The schedule of investments is a complete list of all securities owned by the
Fundamental Value Fund on February 29, 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.
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
Real Estate (5.33%)
Castle & Cooke, Inc.* 766 $ 11,394
Tejon Ranch 17,200 270,900
----------
282,294
----------
Retail (6.32%)
Great Atlantic & Pacific Tea Co., Inc. (The) 11,600 261,000
Ross Stores, Inc. 3,000 73,500
----------
334,500
----------
Shoes (0.94%)
Brown Group, Inc. 4,000 49,500
----------
Telecommunications (5.46%)
ANTEC Corp.* 16,500 288,750
----------
Textile (4.33%)
Delta Woodside Industries, Inc. 2,900 15,950
Garan Inc. 14,000 213,500
----------
229,450
----------
Transportation - Ship (4.68%)
Overseas Shipholding Group, Inc. 13,200 247,500
----------
Utility - Electric Power (3.76%)
Destec Energy, Inc.* 17,100 198,788
----------
TOTAL COMMON STOCKS
(Cost $4,959,504) 97.97% 5,185,108
------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ------------------- ---- --------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.29%)
Investment in a joint repurchase
agreement transaction with BT
Securities Corp., - Dated 2-29-96,
due 03-01-96 (secured by U.S.
Treasury Bonds 12.50% due
8/15/14 and by U.S. Treasury Notes,
6.00% thru 8.25% due 8/31/97
thru 7/15/98) - Note A 5.43% $121 $ 121,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 266
----------
TOTAL SHORT-TERM INVESTMENTS (2.29%) 121,266
---- ----------
TOTAL INVESTMENTS (100.26%) $5,306,374
====== ==========
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
<TABLE>
Schedule of Investments
February 29, 1996
- --------------------------------------------------------------------------------
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Australia (5.09%)
Broken Hill Proprietary Co., Ltd.
(Diversified Operations) . 1,210 $ 17,529
News Corp. Ltd. (The) (Publishing) 3,100 17,632
Plutonic Resources Ltd.
(Gold Mining & Products) . 20,000 112,377
----------
147,538
----------
Brazil (1.09%)
Telecomunicacoes Brasileiras S/A.,
American Depositary Receipts (ADR)
(Telecommunications) 600 31,500
----------
Chile (0.85%)
Santa Isabel S.A., (ADR) (Retail)* 1,000 24,625
----------
Denmark (1.62%)
Tele Danmark AS (Telecommunications) 800 47,027
----------
France (4.48%)
Banque Nationale de Paris (Banks) 280 10,834
Carrefour SA (Retail) 100 67,524
LVMH Moet Henessey Louis Vuitton
(Beverages) 225 51,253
----------
129,611
----------
Germany (3.19%)
Bayer AG (Chemicals) 150 45,759
Mannesmann AG (Diversified Operations) 130 46,466
----------
92,225
----------
Hong Kong (15.00%)
Cheung Kong (Holdings) Ltd. (Real Estate) 11,000 76,479
CITIC Pacific Ltd. (Diversified Operations) 12,000 46,722
HSBC Holdings Ltd. (Banks) 3,400 54,534
Hutchison Whampoa Ltd.
(Diversified Operations) . 10,000 63,382
Joyce Boutique Holdings Ltd. (Retail) 250,000 89,737
Swire Pacific Ltd. (Diversified Operations) 7,000 61,118
Wharf (Holdings) Ltd. (Diversified Operations) 11,000 42,615
----------
434,587
----------
Japan (27.96%)
Bridgestone Corp. (Auto/Truck) 4,000 62,420
Daido Steel Co., Ltd. (Steel) 3,000 15,329
Denki Kagaku Kogyo K.K. (Chemicals)* 4,000 16,024
Fanuc Ltd. (Machinery) 2,000 86,779
Fujisawa Pharmaceutical Co., Ltd. (Drugs) 3,000 28,546
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the
International Equity Fund on February 29, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by country. Under each country heading is a list of the securities
owned by the Fund. Short-term inve stments, which represent the Fund's "cash"
position, are listed last. Number of Market
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Japan (continued)
Itochu Corp. (Diversified Operations) 10,000 $ 66,987
Jusco Co., Ltd. (Retail) . 2,000 50,240
Matsushita Electric Industrial Co., Ltd.
(Electronics) 5,000 79,928
Matsushita-Kotobuki Electronics Industries,
Ltd. (Electronics) 2,000 50,431
NKK Corp. (Steel)* 6,000 16,671
Nippon Television Network Corp.
(Broadcasting) 200 57,091
Oki Electric Industry Co., Ltd.
(Telecommunications)* 4,000 34,749
Rohm Co., Ltd. (Electronics) 400 23,788
Sanwa Bank, Ltd. (Banks) . 2,000 36,729
Seino Transportation Co., Ltd. (Transportation) 1,000 16,652
Sony Corp. (Electronics) . 700 41,030
Sony Music Entertainment Inc. (Electronics) 1,000 49,669
Sumitomo Osaka Cement Co., Ltd.
(Building Products) 3,000 14,016
Sumitomo Trust & Banking Co., Ltd.
(The) (Banks) 1,000 12,465
TDK Corp. (Electronics) 1,000 50,431
----------
809,975
----------
Malaysia (1.16%)
Resorts World Berhad (Leisure & Recreation) 6,000 33,669
----------
Mexico (1.37%)
Telefonos de Mexico S.A. de C.V. (ADR)
(Telecommunications) 1,300 39,650
----------
Netherlands (2.63%)
Koninklijke P.T.T. Nederland
(Telecommunications) 425 17,064
Polygram N.V. (Audio/Video) 1,015 59,187
----------
76,251
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
New Zealand (2.52%)
Carter Holt Harvey Ltd. (Paper) 15,300 $ 32,750
Telecom Corporation of New Zealand
(Telecommunications) 9,000 40,347
----------
73,097
----------
Norway (3.68%)
Den norske Bank AS (Banks) 5,500 17,868
Hafslund Nycomed (Drugs) . 2,000 54,821
Orkla AS (Diversified Operations) 750 33,971
----------
106,660
----------
Singapore (3.34%)
Fraser & Neave Ltd. (Diversified Operations) 2,000 26,771
Jardine Matheson Holdings Ltd.
(Diversified Operations) . 2,400 19,200
Keppel Corp. (Diversified Operations) 5,000 50,637
----------
96,608
----------
Spain (0.63%)
Repsol SA (Oil & Gas) 500 18,262
----------
Sweden (3.37%)
Atlas Copco AB (Machinery) 1,000 17,327
Investor AB (Diversified Operations) 1,550 58,305
Telefonaktiebolaget (LM) Ericsson
(Telecommunications) 1,012 21,956
----------
97,588
----------
Switzerland (2.51%)
BBC Brown Boveri AG (Engineering) 80 18,817
Ciba-Geigy AG (Drugs) 42 37,519
Nestle S.A. (Food) 15 16,415
----------
72,751
----------
United Kingdom (13.26%)
British Petroleum Co. PLC (Oil & Gas) 10,000 82,746
Carlton Communications PLC (Broadcasting) 2,500 16,022
Dixons Group PLC (Retail) 11,300 80,170
Glaxo Welcome PLC (Drugs) 2,700 37,360
National Westminster Bank PLC (Banks) 8,000 84,769
Reed International PLC (Publishing) 2,670 42,038
Thorn EMI PLC (Leisure & Recreation) 1,640 40,887
----------
383,992
----------
TOTAL COMMON STOCKS
(Cost $2,547,128) (93.75%) 2,715,616
----- ----------
</TABLE>
<TABLE>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.56%)
Investment in a joint repurchase
agreement transaction with BT
Securities Corp. - Dated 02-29-96,
Due 03-01-96 (secured by U.S.
Treasury Bond, 12.50% Due 08-15-14
and by U.S. Treasury Note, 8.50%
Due 04-15-97) - Note A 5.43% $190 $ 190,000
----------
TOTAL SHORT-TERM INVESTMENTS (6.56%) 190,000
---- ----------
TOTAL INVESTMENTS (100.31%) $2,905,616
====== ==========
</TABLE>
*Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
<TABLE>
Portfolio Concentration
- --------------------------------------------------------------------------------
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 February 29, 1996 assigned to the various investment categories.
<CAPTION>
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
- --------------------- --------------------
<S> <C>
Audio/Video 2.04%
Automobile/Trucks 2.16
Banks 7.50
Beverages 1.77
Broadcasting 2.52
Building Products 0.48
Chemicals 2.13
Diversified Operations 18.43
Drugs 5.46
Electronics 10.19
Engineering 0.65
Food 0.57
Gold Mining & Products 3.88
Leisure & Recreation 2.57
Machinery 3.59
Oil & Gas 3.49
Paper 1.13
Publishing 2.06
Real Estate 2.64
Retail 10.78
Steel 1.11
Telecommunications 8.02
Transportation 0.58
Short-Term Investments 6.56
------
TOTAL INVESTMENTS 100.31%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
NOTES OF FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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") and John Hancock
International Equity Fund ("International Equity 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 Small
Capitalization Equity Fund, 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 curre nt 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.
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 regulated investment companies.
They will not be subject to federal income tax on taxable earnings which are
distributed to shareholders.
56
<PAGE>
NOTES OF FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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 28, 2004. To the extent that
such carryforwards are used by the Funds, no capital gain dist ribution 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 accr ual 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 investmen ts 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
57
<PAGE>
NOTES OF 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.
<TABLE>
Open foreign currency forward sell contracts at February 29, 1996 for
Global Bond Fund were as follows:
<CAPTION>
PRINCIPAL AMOUNT EXPIRATION UNREALIZED APPRECIATION/
CURRENCY: COVERED BY CONTRACT MONTH (DEPRECIATION)
- --------- ------------------- ----- --------------
<S> <C> <C> <C>
GERMAN MARK 47,000 APR 96 $ 1
FRENCH FRANK 49,418 APR 96 (1)
BRITISH POUND 7,000 MAR 96 $67
---
$67
===
</TABLE>
<TABLE>
Open foreign currency forward buy contracts at February 29, 1996 for Global
Bond Fund were as follows:
<CAPTION>
PRINCIPAL AMOUNT EXPIRATION UNREALIZED APPRECIATION/
CURRENCY: COVERED BY CONTRACT MONTH (DEPRECIATION)
- --------- ------------------- ----- --------------
<S> <C> <C> <C>
JAPANESE YEN 417,532 MAR 96 ($25)
JAPANESE YEN 3,147,940 APR 96 (293)
----
($318)
====
</TABLE>
There were no open forward currency exchange contracts at February 29, 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 February 29,
1996 for all Funds.
58
<PAGE>
NOTES OF 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
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 and 1.00% of International
Equity Fund's average daily net assets. The Adviser reserves the right to
terminate this limitation in the future. Accordingly, for the period ended
February 29, 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
$82,775 for Dividend Performers Fund, $79,799 for Active Bond Fund, $79,439 for
Global Bond Fund, $92,922 for Multi-Sector Growth Fund, $83,656 for Fundamental
Value Fund and $92,015 for International Equity 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.
NM Capital Management, Inc. ("NM Capital"), serves 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 pays
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.
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
59
<PAGE>
NOTES OF FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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 February
29, 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 annual rate of 0.01875% of the average net assets of each Fund.
Messrs. Edward J. Boudreau, Jr., Richard S. Scipione and Thomas W.L.
Cameron are directors and/or officers of the Adviser, and/or its affiliates as
well as Trustees of the Fund. The Adviser and other subsidiaries of John Hancock
Mutual Life Insurance Company owned 635,416 shares of beneficial interest of
Multi-Sector Growth Fund as of February 29, 1996. The compensation of
unaffiliated Trustees is borne by the Funds.
NOTE C --
INVESTMENT TRANSACTIONS
<TABLE>
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended February 29, 1996 were as follows:
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
Dividend Performers Fund
U.S. Government Securities $ 201,250 $ 201,000
Other Investments 3,768,396 1,302,342
Active Bond Fund
U.S. Government Securities 644,083 178,788
Other Investments 588,061 169,520
Global Bond Fund
U.S. Government Securities 115,165 42,790
Other Investments 207,174 94,302
Multi-Sector Growth Fund . 14,222,604 7,015,710
Fundamental Value Fund 4,962,327 2,593
International Equity Fund 3,218,007 665,907
</TABLE>
<TABLE>
At February 29, 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:
<CAPTION>
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION EPRECIATION)
---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Dividend
Performers Fund $2,865,116 $ 473,890 ($ 12,037) $461,853
Active Bond Fund 1,147,319 13,019 ( 3,628) 9,391
Global Bond Fund 212,537 1,419 ( 1,434) (15)
Multi-Sector
Growth Fund 7,698,896 1,094,586 ( 138,987) 955,599
Fundamental
Value Fund 5,080,504 493,136 ( 267,532) 225,604
International
Equity Fund 2,737,128 201,544 ( 33,056) 168,488
</TABLE>
60
<PAGE>
NOTES OF FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the period ended February 29, 1996, the Global Bond Fund has reclassified
amounts to reflect a decrease in undistributed net investment income of $616, an
increase in accumulated net realized loss on investments of $1,657 and a
decrease in capital paid-in of $1,041. The Multi-Sector Growth Fund has
reclassified amounts to reflect a decrease in accumulated net realized gain on
investments and accumulated net investment loss on investments of $3,720. The
International Equity Fund has reclassified amounts to reflect a decrease in
accumulated net realized loss on investments and undistributed net investment
income of $2,565. These represent the cumulative amounts necessary to report
these balances on a tax basis, excluding certain temporary differences, as of
February 29, 1996. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to certain differences in the computation
of distributable income and capital gains under federal tax rules versus
generally accepted accounting principles.
61
<PAGE>
John Hancock Funds - Institutional Series Trust
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Trustees
John Hancock Institutional Series Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of John Hancock Institutional Series Trust
(comprised 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 and John Hancock International Equity Fund,
respectively) (The "Funds") as of February 29, 1996, and the related statements
of operations, the statements of changes in net assets and the financial
highlights for the period ended February 29, 1996. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at February
29, 1996 by correspondence with the custodian and brokers, where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds constituting John Hancock Institutional Series Trust at
February 29, 1996, the results of their operations, the changes in their net
assets, and their financial highlights for each of the periods then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
April 10, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended February 29,
1996.
Shareholders will receive a 1996 U.S. Treasury Department Form 1099-DIV in
January of 1997. This will reflect the total of all distributions which are
taxable for the calendar year 1996.
For the fiscal year ending February 29, 1996, the Dividend Performers Fund
had 45% of the ordinary income distributions qualify for the dividends received
deductions, the Multi-Sector Growth Fund had 5% of the ordinary income
distributions qualify for the dividends received deductions, the Fundamental
Value Fund had 82% of the ordinary income distributions qualify for the
dividends received deductions and the International Equity Fund had 7% of the
ordinary income distributions qualify for the dividends received deductions.
62
<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 February 29,1996.
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories ............................ 10.5%
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
CPC International .............................. 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, Cl 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
Rockwell International ......................... 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%
=====
63
<PAGE>
[Back Cover
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."]
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Institutional Series Trust. It may be used as sales literature when preceded
or accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
