SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Institutional
Series Trust
Active Bond Fund
Global Bond Fund
Fundamental Value Fund
Dividend Performers Fund
Multi-Sector Growth Fund
Small Capitalization Equity Fund
International Equity Fund
AUGUST 31, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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Table of Contents
John Hancock Funds - Institutional Series Trust
Page
1) Chairman's Message................................................... 3
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio manager or
portfolio management team through the end of the Fund's period
discussed in this report. Of course, the manager's or team's views
are subject to change as market and other conditions warrant.
John Hancock Active Bond Fund ....................................... 4
John Hancock Global Bond Fund........................................ 8
John Hancock Fundamental Value Fund.................................. 12
John Hancock Dividend Performers Fund ............................... 16
John Hancock Multi-Sector Growth Fund................................ 20
John Hancock Small Capitalization Equity Fund........................ 24
John Hancock International Equity Fund............................... 28
3) Financial Statements................................................. 32
4) Notes To Financial Statements........................................ 69
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
JOHN P. TOOLAN*
* Members of Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ROBERT G. FREEDMAN,
VICE CHAIRMAN AND
CHIEF INVESTMENT OFFICER
ANNE C. HODSDON,
PRESIDENT
JAMES B. LITTLE,
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
SUSAN S. NEWTON,
VICE PRESIDENT AND SECRETARY
JAMES J. STOKOWSKI,
VICE PRESIDENT AND TREASURER
THOMAS H. CONNORS,
SECOND VICE PRESIDENT AND COMPLIANCE OFFICER
CUSTODIANS
Global Bond Fund
International Equity Fund
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MA 02110
Active Bond Fund
Dividend Performers Fund
Multi-Sector Growth Fund
Fundamental Value Fund
Small Capitalization Equity Fund
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY SUITE 1000
BOSTON, MA 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
SUB-INVESTMENT ADVISER
Dividend Performers Fund
SOVEREIGN ASSET MANAGEMENT CORPORATION
1235 WESTLAKES DRIVE
BERWYN, PA 19312
International Equity Fund
JOHN HANCOCK ADVISERS INTERNATIONAL LTD.
34 DOVER STREET
LONDON, ENGLAND W1X 3RA
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MA 02109
2
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CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The Taxpayer Relief Act of 1997 recently signed into law by President Clinton
includes new twists and important changes to Individual Retirement Account (IRA)
laws. The provisions will, among other things, allow more people to qualify for
annual tax-deductible IRA contributions and to save tax-free for college. They
also allow IRA investors to withdraw money penalty-free from all IRAs to buy a
first home or pay for college expenses.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
For existing deductible IRAs, the law doubles income limits over the next
eight to 10 years for those eligible to deduct an annual IRA contribution of up
to $2,000. For individuals, the annual income cap will increase incrementally
from the current $25,000 to $50,000 by 2005. For couples, the limit would
increase from $40,000 today to $80,000 in 2007. The new law also allows
non-working spouses to make IRA contributions even if their spouse is covered by
a company-sponsored plan, provided the couple's joint income is less than
$150,000.
The law also creates two new IRA investment vehicles. One, called the
"Roth IRA" after its principal congressional sponsor, allows for non-deductible
annual contributions up to a $2,000 maximum. But income accumulates tax-free and
if the account has been open for five years, distributions are tax-free if they
are used after age 59 1/2 or upon death, disability or a first-time home
purchase. Withdrawals for higher-education expenses would not be subject to a
10% penalty. Eligible investors must earn less than $95,000 per year
individually or $150,000 per couple.
A second new IRA plan is called the "Education IRA" and it allows
non-deductible contributions of up to $500 per year, per child under age 18.
Earnings in the account accumulate tax-free, and withdrawals are also not taxed
when applied toward undergraduate or graduate-level expenses. Eligible investors
are subject to the same income restrictions as the Roth IRA.
The law has also made some important changes in capital gains tax rates and
estate tax laws. But the devil is in the details, and so we recommend exploring
how you can benefit from the changes with your investment professional and tax
advisor. The Taxpayer Relief Act of 1997 gives investors new options toward
savings. It's a move we applaud.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
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BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
Active Bond Fund
Bonds travel volatile path in the last six months;
strong economy prompts inflation fears
"Our 27% stake in corporate bonds served us well."
Fixed-income securities moved ahead in fits and starts over the last six months.
When the period began in March, interest rates were rising and bond prices
falling in anticipation of a pre-emptive strike against inflation by the Federal
Reserve Board. After the Fed raised the federal funds rate by one quarter
percentage point, rates continued to rise through April as investors nervously
awaited each new economic report to try to determine whether the economy's
growth pace was slowing from its torrid first quarter pace. But signs that
growth was indeed slowing and that inflation remained mute helped the bond
market stage a summer rally through the end of July. The yield on the 30-year
Treasury fell from its April peak of 7.27% to 6.40% by the end of July. It
didn't end there, however. Bonds reversed course again in August, when more
signs of a robust economy sowed fears anew that the Fed would need to raise
rates again before year end.
In this fitful environment, John Hancock Active Bond Fund posted solid
results, producing a total return of 4.83% at net asset value for the six months
ended August 31, 1997. That result was ahead of the average corporate debt
A-rated fund, which returned 4.10% in the same period, according to Lipper
Analytical Services, Inc. Another benchmark, the Lehman Government/Corporate
Bond Index, returned 4.36%.
Strategy
Although we never make strong bets on the direction of interest rates, our
duration adjustments helped the Fund's performance. Duration measures how
sensitive a bond's price is to changes in interest rates. The shorter the
duration, the less a bond's price moves in response to changing interest rates.
At first, the Fund's duration was shorter than average, which helped us during
the spring selloff. By mid June, we became less defensive, lengthening duration
[A 2" x 3" photo of the Fund management team at bottom right. Caption reads:
"James Ho (center) and Fund management team members Ben Matthews (l) and Seth
Robbins (r)".]
4
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John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
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[Bar chart with heading "FUND PERFORMANCE" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." The chart
is scaled in increments of 2%, with 6% at the top and 0% at the bottom. Within
the chart there are three solid bars. The first represents the 4.83% total
return for the John Hancock Active Bond Fund. The second represents the 4.10%
total return for the Average corporate debt A-rated fund. The third represents
the 4.36% total return for the Lehman Government/Corporate Index. A footnote
below states "The total return for John Hancock Active Bond Fund is at net asset
value with all distributions reinvested. The average corporate debt A-rated fund
is tracked by Lipper Analytical Services. The Lehman Brothers
Government/Corporate Bond Index is a broad index composed of investment-grade
corporate and government bonds. See following two pages for historical
performance information."]
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to about the neutral point and capturing much of the summer rally before we
shortened again in mid August.
U.S. and emerging-market corporate bonds boost performance
Our 27% stake in corporate bonds served us well. Investors' continuing appetite
for yield and the financial strength of corporate America helped boost corporate
bond prices and push corporate yields lower, bringing them closer to one another
and to the yields offered by Treasuries. High-yield bonds, those with credit
ratings of below investment grade, performed particularly well. Our cable
holdings -- Time Warner, TCI and Viacom -- were strong contributors. What's
more, two of our securities -- Owens Illinois and Stone Container -- were
tendered during the period at prices dramatically higher than what we had paid
for them. The remainder of the Fund's assets were in government securities. As
assets continue to grow, we plan to further boost our stake in corporate bonds,
as we will be less constrained by minimum purchase requirements.
"We're keeping our cautious outlook for the near term."
With narrowing yield spreads, risk premiums also came down, meaning that
investors were getting less benefit for taking on more risk. Given this reality,
we began to upgrade the portfolio's credit quality. We have been able to do this
without sacrificing yield by buying dollar-denominated emerging-market corporate
bonds whose creditworthiness is often masked, since no corporation's rating can
be higher than that of its home country's government bonds. Our in-depth credit
research has led us to several issues that have served us well, such as Camuzzi
Gas, in Argentina and Yanachhoca, a Peruvian mining company. We were hurt during
the period, however, by our Indonesian and Philippine holdings which suffered
after many Southeast Asian currencies were devalued. However, the majority of
our holdings there are corporate bonds with strong sources of dollar-based
revenues, and are therefore likely to withstand the currency volatility.
Cautious optimism
We're keeping our cautious outlook for the near term. With strong labor numbers
and higher consumer confidence, inflation worries will likely remain. In our
view, there's still a possibility that the Fed will raise interest rates before
year's end, although we believe any increase would be modest and could prompt
bonds to rebound afterward. For now, we will keep the Fund's duration slightly
shorter than its benchmark and closely monitor the economic reports for clearer
signs of the economy's direction.
5
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A LOOK AT PERFORMANCE
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The tables on the right show 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 price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURNS
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For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
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John Hancock Active Bond Fund 8.67% 17.94%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
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John Hancock Active Bond Fund(2) 8.67% 7.60%(1)
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YIELD
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As of August 31, 1997
SEC 30-DAY
YIELD
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John Hancock Active Bond Fund 6.23%
Notes to Performance
(1) Commenced operations on March 30, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.60% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 5.72% and 2.13%, respectively.
6
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WHAT HAPPENED TO A $250,000 INVESTMENT...
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The chart on the right shows how much a $250,000 investment in the John Hancock
Active Bond Fund would be worth on August 31, 1997 assuming you invested on the
day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $250,000 investment in the Lehman Government Corporate Bond
Index--an unmanaged index that measures the performance of U.S. Government
bonds, U.S. corporate bonds and Yankee bonds.
[Line chart with the heading Active Bond Fund, representing the growth of a
hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Lehman Government/Corporate Bond
Index and is equal to $305,932 as of August 31, 1997. The second line represents
the value of the hypothetical $250,000 investment made in the Active Bond Fund
on March 30, 1995 and is equal to $300,683 as of August 31, 1997.]
7
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BY LAWRENCE J. DALY, ANTHONY A. GOODCHILD AND
JANET L. CLAY, CO-PORTFOLIO MANAGERS
John Hancock
Global Bond Fund
U.S. interest-rate uncertainty keeps global
bond markets volatile
"A combination of higher-yielding securities and shorter duration helped the
Fund..."
A host of factors combined to make global bond markets volatile over the last
six months. Interest-rate uncertainty -- led primarily by the U.S. bond market
- -- kept global bond investors on edge. Political uncertainty also played a role
in the world markets' gyrations. Major elections in the U.K., France and Mexico
ousted long-standing incumbent parties and ushered in new political regimes.
Finally, the devaluation of local currencies in Thailand, the Philippines and
Indonesia added to the market volatility.
Despite the ups and downs, global bond investors ended the period with
small gains. For the six months ended August 31, 1997, John Hancock Global Bond
Fund posted a total return of 2.12% at net asset value. That was slightly ahead
of the average general world income fund's return of 1.94%, according to Lipper
Analytical Services, Inc. For another comparison, the JP Morgan Global
Government Bond Index returned 1.66% for the period.
A combination of higher-yielding securities and shorter duration helped
the Fund come out ahead of its competitors. Our higher-yielding bonds,
particularly in Latin America, performed well during the second quarter rally.
Our shorter duration helped the Fund weather the market volatility. Duration is
a measure of how sensitive the Fund's share price is to market fluc tuations.
The shorter the duration, the less volatile the share price.
Our exposure to foreign currencies produced mixed results. Early in the
period, it detracted from performance as the U.S. dollar continued to
strengthen. However, later in the period, the dollar weakened and the Fund
benefited from its local currency exposure in Germany, the U.K. and Japan.
Shift toward U.S. bonds
In the past year, global bond investors have
[A 2" x 3" photo of the Global Bond management team at bottom right. Caption
reads: "The Global Bond management team: (l-r) Tony Goodchild, Janet Clay, Larry
Daly".]
8
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John Hancock Funds -- Institutional Series Trust Global Bond Fund
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[Bar chart with heading "FUND PERFORMANCE" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." The chart
is scaled in increments of 1%, with 3% at the top and 0% at the bottom. Within
the chart there are three solid bars. The first represents the 2.12% total
return for the John Hancock Global Bond Fund. The second represents the 1.94%
total return for the Average general world income fund. The third represents the
JP Morgan Global Government Bond Index. A footnote below states "The total
return for John Hancock Global Fund is at net asset value with all distributions
reinvested. The average general world income fund is tracked by Lipper
Analytical Services, Inc. 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 the following two pages for historical performance
information."]
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witnessed a massive compression of yield spreads worldwide. (The difference in
yields between bonds of different countries has narrowed to minimal levels.) We
believe that this dramatic convergence in yields has strongly swung the
risk/reward balance in favor of the United States. Bonds in many foreign
countries simply don't offer a significant yield advantage over U.S. Treasuries,
and the economic fundamentals don't warrant future rate declines. So we've
increased our U.S. Treasury holdings to 60% of the Fund's net assets. Our focus
remains primarily on the five-year maturity range. The remaining 40% of the
Fund's net assets are in selective markets that we feel offer attractive yields
and upside potential. Below is a look at our current allocation outside of the
U.S. market.
o EUROPE. We've pared our European position to 11%, down from 38% at the end of
February. Many of the European markets have had a good run, and we felt it was
time to take profits. What's more, the uncertainty surrounding the outcome of
Europe's Economic and Monetary Union has started to weigh heavily on the
European markets. Our remaining holdings are in the U.K. and Russia.
o LATIN AMERICA. After trimming our position in Brazil, we maintained an 18%
position in Latin American markets. We believe that the long-term trends of
increasing political stability and improving fiscal conditions continue to favor
these markets.
o AUSTRALIA/NEW ZEALAND. Interest-rate cuts have resulted in strong rallies in
both Australia and New Zealand. After such a big run, yield spreads narrowed
considerably to U.S. Treasuries, and we decided to take some profits. By the end
of the period, our stake in Australia and New Zealand had fallen from 12% to 7%.
"Our short-term focus is on U.S. Treasuries. Outlook
With worldwide yield spreads at such low levels, we're clearly facing a unique
situation in global bond markets. Until we're rewarded for going overseas, we'll
keep our strong focus on U.S. Treasuries. In addition, given the interest-rate,
political and currency uncertainties putting pressure on many foreign markets,
we're comfortable keeping a good portion of our assets at home.
- ----------
International investing involves special risks such as political and currency
risks and differences in accounting standards and financial reporting.
9
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A LOOK AT PERFORMANCE
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The tables on the right show 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 price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURNS
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For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
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John Hancock Global Bond Fund 4.87% 10.28%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
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John Hancock Global Bond Fund(2) 4.87% 4.55%(1)
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YIELD
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As of August 31, 1997
SEC 30-DAY
YIELD
-----
John Hancock Global Bond Fund 6.00%
Notes to Performance
(1) Commenced operations on April 19, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.85% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been (0.94%) and (25.91%), respectively.
10
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WHAT HAPPENED TO A $250,000 INVESTMENT...
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The chart on the right shows how much a $250,000 investment in the John Hancock
Global Bond Fund would be worth on August 31, 1997 assuming you invested on the
day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $250,000 investment in the J.P. Morgan Global Government
Index--an unmanaged market capitalization-weighted index consisting of the
government bond markets of Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden, the United Kingdom and the United
States. All issues have a remaining maturity of at least one year and are
rebalanced monthly.
[Line chart with the heading Global Bond Fund, representing the growth of a
hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the J.P. Morgan Global Government Index
and is equal to $292,943 as of August 31, 1997. 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 $275,213 as of August 31, 1997.]
11
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BY TIMOTHY E. KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
Fundamental Value Fund
Small-company stocks rebound after a one-year lag
"...the financial sector was a main contributor to performance."
The Fund produced very strong results over the last six months, boosted by an
idyllic economic backdrop and a rebound in small-company stocks. Overall, the
market advanced on the heels of moderate growth, subdued inflation and solid
corporate profits. But its rise was marked by heightened volatility, as
investors periodically fretted about the strength of the economy, inflation and
corporate earnings prospects, most recently in August. Along with market
fluctuations came a change in stock leadership, as the largest blue-chip stocks
of the Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index
took a breather. Investors fearful that mega-stock prices were too lofty for the
companies' earnings prospects turned their attentions back to smaller companies.
Their valuation levels were much more attractive after lagging the market for
months. For the six months ended August 31, 1997, the market, as measured by the
S&P 500, advanced 14.78%, including reinvested dividends, while the Russell 2000
Index, a broad measure of small-company performance, returned 18.53%. In the
same period, John Hancock Fundamental Value Fund significantly outperformed its
peers due to good stock picking and an emphasis on small-company stocks. For the
six months ended August 31, 1997, the Fund posted a total return of 25.83% at
net asset value, compared to the 14.32% return of the average growth and income
fund, according to Lipper Analytical Services, Inc.
Strategy and performance review
After the small-company rally began in April, we reduced our exposure to stocks
that, while they fit our criteria of being inexpensive, were not in businesses
that we wanted to own long term. For example, we significantly cut our position
in restaurant company Darden, and we eliminated our stake in Morrison Fresh
Cooking. In their place, we added companies whose stocks were both undervalued,
and that operate in better businesses. As always, we're looking for companies
that show strong prospects for growth, but
[A 2" x 3" photo of the Fund management team at bottom right. Caption reads:
"Tim Keefe (standing) and Fund management team members Anurag Pandit (l) and Ben
Hock (r).]
12
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John Hancock Funds -- Institutional Series Trust -- Fundamental Value Fund
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[Bar chart with heading "FUND PERFORMANCE" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." 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 25.83% total
return for John Hancock Fundamental Value Fund. The second represents the 14.32%
total return for the Average growth and income fund. The third represents the
14.78% total return for the S&P 500-Stock Index. A footnote below states: "The
total return for John Hancock Fundamental Value Fund is at net asset value with
all distributions reinvested. The average growth and income fund is tracked by
Lipper Analytical Services, Inc. The S&P 500-Stock Index is an unmanaged index
that includes 500 widely-traded common stocks. See the following two pages for
historical information."]
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whose stocks are inexpensive because of temporary market volatility or because
the company is misunderstood or neglected. Dominick's Supermarkets is a perfect
example. Because the company received little coverage from Wall Street analysts,
we were able to buy a company with strong management and leading market share
for a solid discount to other supermarket providers.
With the sell-off in stocks that accompanied rising interest rates in
March and April, we found some good buying opportunities, particularly in the
financial sector, which was a main contributor to performance. The consumer
finance subsector provided fertile ground when negative sentiment abounded
because of the perception of rising delinquencies and increasing personal
bankruptcies. In addition, several consumer finance companies either were
accused of accounting irregularities, filed for Chapter 11 bankruptcy protection
or suffered earnings shortfalls. We took advantage of investors' fears to invest
in several well-managed companies that we believe stand to benefit from the
sector's turmoil. One was FIRSTPLUS Financial Group, one of the leading home
equity lenders growing at 20% to 30% per year. Its stock rose by 40% in the
period. Other significant contributors to performance were MoneyGram Payment
Systems, a money wire transfer agent, and CMAC Investment Corp., provider of
private mortgage insurance.
Some other solid performers during the period were companies in
consolidating industries. Fiberboard, a building products supplier, benefited
from being a consolidator in a consolidating industry. Its stock was further
boosted when it, too, was taken over, at which point we took profits, given its
solid price increase, and sold our position. Envelope manufacturer Mail-Well's
stock rose 110% in the last six months on stronger-than-expected first quarter
earnings and the announced purchase of another company.
"...we use this nervous environment to our advantage in finding great
companies..."
A look ahead
It's very likely that increased market volatility is here to stay for a while,
given investors' skittishness about the economy, inflation and the lofty level
of many stock valuations. As disciplined value investors, we use this nervous
environment to our advantage in finding great com panies selling at prices that
don't reflect their worth. In any event, the portfolio of small-company stocks
that we opportunistically craft for John Hancock Fundamental Value Fund tends to
be less correlated to overall market shifts. We'll continue to look for
situations that we believe have the potential to do well no matter how the
market behaves.
13
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A LOOK AT PERFORMANCE
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The tables on the right show 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 price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURNS
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For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Fundamental Value Fund 23.52% 42.10%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Fundamental Value Fund(2) 23.52% 17.34%(1)
Notes to Performance
(1) Commenced operations on April 19, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.80% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 22.71% and 15.29%, respectively.
14
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WHAT HAPPENED TO A $250,000 INVESTMENT...
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The chart on the right shows how much a $250,000 investment in the John Hancock
Fundamental Value Fund would be worth on August 31, 1997, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Standard & Poor's
500 Stock Index--an unmanaged index that includes 500 widely traded common
stocks and is often used as a measure of stock market performance.
[Line chart with the heading Fundamental Value Fund, representing the growth of
a hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Standard and Poor's 500 Stock Index
and is equal to $473,491 as of August 31, 1997. 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 $389,635 as of August 31, 1997.]
15
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BY JOHN F. SNYDER III AND BARRY H. EVANS, CFA,
CO-PORTFOLIO MANAGERS
John Hancock
Dividend Performers Fund
Volatility marks the market's strong advance
We're finding good values among mid-cap stocks.
Economic nirvana has continued to propel stocks higher over the last six months.
In the seventh year of the economic expansion, corporate profits are still
strong, unemployment is only 4.8%, interest rates remain at relatively low
levels and inflation hasn't been this tame in more than three decades. The
market's ride up, however, wasn't straight up. Fears about an inflation
resurgence, and the ability of corporations to sustain their high profit levels
roiled the market, most particularly at the beginning and end of the period. But
the broad market, as measured by the Standard & Poor's 500-Stock Index, still
advanced by 14.78% including reinvested dividends during the period.
Performance review
Overall, John Hancock Dividend Performers Fund also performed well. For the six
months ended August 31, 1997, the Fund returned 15.54% at net asset value,
compared to the 14.32% return of the average growth and income fund, according
to Lipper Analytical Services, Inc.
Larger companies led the market's advance up until recently. Our big
pharmaceutical stocks such as Johnson & Johnson and Pfizer performed well thanks
to successful new product developments and strong earnings. Also, retail
behemoths Wal-Mart and Home Depot posted strong gains. Their attractive
valuations, coupled with growing market shares, have enticed more investors into
the stocks.
On the downside, Automatic Data Processing (ADP) was a lackluster
performer, despite its strong fundamentals. With many investors chasing after
the hottest technology stocks, we believe that ADP has simply gotten lost in the
shuffle. Rockwell International, one of the world's largest diversified
technology firms, also disappointed us. Heavy publicity surrounding price
competition in its semiconductor business has put pressure on the stock.
However, semiconductors only comprise 20% of Rockwell's revenues. Once investors
recognize this, we are confident that the stock will bounce back.
[A 2 1/4" x 3 1/4" photo of the Fund management team at bottom right. Caption
reads: "The Dividend Performers management team: (l-r) Anne McDermott, John
Snyder, Barry Evans, Jere Estes."]
16
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John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "FUND PERFORMANCE" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." 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 15.54% total
return for John Hancock Dividend Performers Fund. The second represents the
14.32% total return forthe Average growth and income fund. The third represents
the 14.78% total return for theS&P 500-Stock Index. A footnote below states:
"The total return for John Hancock Dividend Performers Fund is at net asset
value with all dividends reinvested. The average growth and income fund is
tracked by Lipper Analytical Services, Inc. The S&P 500-Stock Index is an
unmanaged index that includes 500 widely-traded common stocks. See following two
pages for historical performance information."]
- --------------------------------------------------------------------------------
Shift to medium-capitalization stocks
After such strong performance, we felt that many of our larger capitalization
stocks were ripe for profit-taking. So we sold long-time holdings such as Pfizer
in favor of mid-cap stocks that offered better value. Up until recently, the
stock rally has been narrowly confined to a select group of big, blue-chip
stocks. The mid-cap sector of the market has largely been ignored, and this is
where we have found the greatest value.
Investors should rest assured, however, that this is simply a shift in
stock selection, not a change in our fundamental investment philosophy. We
continue to invest exclusively in "dividend performers" -- those companies that
have raised their dividends consecutively for at least the last 10 years.
High-quality growth companies with predictable earnings growth remain our
primary focus.
BetzDearborn, which produces specialty chemicals to treat water, is a
typical new holding. As the dominant player, the company is the prime
beneficiary of the rapidly growing water treatment market. We've also beefed up
our position in Bemis. This flexible-packaging company is not only extremely
well-managed, but it dominates the industry. What's more, Bemis' overseas
business is rapidly expanding.
"We're cautiously optimistic about stocks."
Looking ahead
As we look ahead, we're cautiously optimistic about stocks. The good news is
that inflation remains benign, and liquidity remains very strong, despite the
recent slowdown in cash inflows into the market.
However, we cannot forget that the U.S. economy is in the seventh year of
its expansion. As a result, it will become increasingly difficult for companies
to increase sales revenues. In addition, the productivity gains that have fueled
record earnings gains over the last few years are going to be harder to come by.
To top it off, pricing power continues to diminish due to fierce competitive
pressures and virtually non-existent inflation. Given that, we believe we could
see more earnings disappointments as we head into 1998. Companies that can grow
earnings in the double digits will be few and far between. It will be critical
to invest in those stable, high-quality growth companies with clear industry
leadership. In this economic environment, our "dividend performers" stocks are
likely to maintain an important competitive advantage.
17
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- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show 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 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 RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Dividend Performers Fund 28.91% 67.38%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Dividend Performers Fund(2)28.91% 25.70%(1)
Notes to Performance
(1) Commenced operations on March 30, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.70% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 28.53% and 23.78%, respectively.
18
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- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Dividend Performers Fund would be worth August 31, 1997, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Standard & Poor's
500 Stock Index--an unmanaged index that includes 500 widely traded common
stocks and is often used as a measure of stock market performance.
[Line chart with the heading 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 $473,491 as of August 31, 1997. 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 $430,079 as of August 31, 1997.]
19
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BY ROBERT G. FREEDMAN, BENJAMIN A. HOCK, JR. CFA,
AND JAMES M. BOYD, CO-PORTFOLIO MANAGERS
John Hancock
Multi-Sector Growth Fund
Stock market charges ahead; advance broadens
beyond the largest names
"Our financial stocks became our largest weighting..."
Recently, John Hancock Funds' chief investment officer Robert Freedman, along
with Fund management team members Ben Hock and Jim Boyd, assumed co-manager
responsibilities for the Fund. Mr. Hock, a senior vice president, joined John
Hancock Funds in 1994 and has been in the investment business since 1974. Mr.
Boyd joined John Hancock Funds in 1992.
The stock market advanced strongly over the last six months, bolstered by
moderate economic growth, tame inflation and healthy corporate earnings. At
center stage were the large, more predictable blue-chip companies in the Dow
Jones Industrial Average and the Standard & Poor's 500 Stock Index. They
dominated the market's drive forward for much of the period, as investors
nervously pondered the direction of the economy and the inflation picture. The
mega-cap spotlight posed some hurdles for John Hancock Multi-Sector Growth Fund,
whose focus is on mid-sized companies, many of which languished in the large-cap
shadows until late in the period.
For the six months ended August 31, 1997, the Fund posted a total return
of 5.21% at net asset value. By comparison, the Russell Midcap Growth Index
returned 17.43% and the average capital appreciation fund returned 15.52%,
according to Lipper Analytical Services, Inc. The Fund was also held back by its
investments in basic materials and energy, which suffered along with declines in
the prices of gold and crude oil.
Strategy review
When the period began in March, the Fund's five focus sectors were energy,
financials, health care, basic materials and capital equipment. At the end of
August, our focus remained on the energy, financial and capital equipment
sectors. But we made two shifts to better target sectors that we believe will
benefit most from the continued vibrant economy with low inflation and interest
rates. We eliminated our stake in basic materials since, even though demand for
gold continues to grow, the stocks were hurt with the heavy gold selling by
[A 1 3/4" x 2 1/4" photo of the Fund management team at bottom right. Caption
reads: "The Multi-Sector Growth Fund management team (l-r): Robert Freedman, Ben
Hock and Jim Boyd".]
20
<PAGE>
================================================================================
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "FUND PERFORMANCE" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." 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 the5.21% total
return for the John Hancock Multi-Sector Growth Fund. The second represents the
15.52% total return for the Average capital appreciation fund. The third
represents the 17.43% total return for the Russell Midcap Growth Index. A
footnote below states "The total return for John Hancock Multi-Sector Growth
Fund is at net asset value with all distributions reinvested. The average
capital appreciation fund is tracked by Lipper Analytical Services, Inc. The
Russell Midcap Growth Index is an unmanaged index that contains those securities
from the Russell Midcap Index with a greater than average growth orientation.
See following two pages for historical performance information."]
- --------------------------------------------------------------------------------
central banks. We also pared our health-care stake from 16% to 3%. Although the
long-term story for increased health care demand remains compelling, the
fastest-growing companies in the group have been the large drug companies that
are above our size targets. In their place, we established a 10% position in
retail stocks, given the economy's surge and the burst of consumer confidence.
There, we benefited first from discounters like TJX and Dollar General before we
sold them, and then from drugstores such as CVS. It's a play on industry
consolidation and the strong pharmaceutical business. We also upped our
technology stake from 7% to 22%, with a focus on semiconductor capital equipment
companies, including Applied Materials, Novellus Systems and KLA-Tencor.
Financials, energy, capital equipment
Our financial stake -- including banks, insurance and finance companies --
became our largest weighting at 24% of net assets by the end of August, because
of our conviction that the low inflation, low interest rate environment would
prevail. Our focus is on select regional banks with strong franchises that are
buying back stock and are expected to have earnings growth of 15% this year and
next. Banc One and Comerica are two examples. With insurance companies, we
bought the smart consolidators such as Travelers Property Casualty and General
Re. In the energy field, we reduced our exposure from its high of nearly 30%
early in the period to 20% by the end of August and shifted our emphasis from
the exploration and production side to the energy service companies whose stock
prices are less correlated to moves in the underlying commodity. With our 8%
stake in capital equipment, we emphasized companies such as Allied Signal,
Honeywell and Crane, all linked to fast-growing profitable niches in the strong
aerospace industry.
"We will continue to emphasize established mid-sized companies..."
A look ahead
Unless the economic or inflation outlook changes significantly, which we don't
anticipate for now, we plan to stick with our sector choices, believing they
have the potential to provide investors with above-average growth opportunities
at least through year end. We will continue to emphasize established mid-sized
companies that are market leaders showing strong revenue growth. It's a group
that we believe stands to benefit from shifting investor sentiment away from the
mega-cap leaders.
- ----------
Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
21
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show 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 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 RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Multi-Sector Growth Fund 3.36% 49.08%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Multi-Sector Growth Fund(2) 3.36% 19.72%(1)
Notes to Performance
(1) Commenced operations on April 11, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.90% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 3.13% and 18.43%, respectively.
22
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Multi-Sector Growth Fund would be worth on August 31, 1997, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in Russell Midcap Growth
Index--an unmanaged index that contains those Russell Midcap securities with a
greater-than-average growth orientation.
[Line chart with the heading Multi-Sector Growth Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value of the Russell Midcap Growth Index and is
equal to $442,876 as of August 31, 1997.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 $393,411 as of August 31, 1997.]
23
<PAGE>
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BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
Small Capitalization
Equity Fund
Small-company stocks regain their footing
"Our large weighting in technology stocks contributed to our outper- formance."
Small-company stocks enjoyed an impressive rebound over the past six months and
handily outpaced their large-company counterparts. After crowding into
large-company stocks over the past two years, investors began to question
whether those securities were becoming too expensive. Meanwhile, some well-known
large companies -- including Coca Cola and Gillette -- began to warn investors
that their future earnings may be lower than originally expected. In search of
more attractively-priced, faster-growing companies, investors shifted their
focus to small-company stocks. The rotation from large- to small-company stocks
provided the underpinnings for a small-company stock rally that began in April
and continued through the end of the period.
For the six month period ended August 31, 1997, the Fund posted a total
return of 21.97% at net asset value. For the same period, the average small
company growth fund returned 20.13%, according to Lipper Analytical Services,
Inc. For another comparison, the Russell 2000 Index returned 18.53%.
Performance review
Our large weighting in technology stocks contributed to our outperformance. Some
of our biggest technology winners were companies that manufacture equipment used
to produce and test semiconductor chips. Unitrode, Semtech, and Aehr Test
Systems all benefited from the strengthening demand for semiconductor chips.
Other good performers in the
[A 2" x 2 3/4" photo of the Fund management team. Caption reads: "Bernice Behar
and Fund management team members(l-r) Rob Hallisey, Anurag Pandit and Andrew
Slabin".]
24
<PAGE>
================================================================================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Equity Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "FUND PERFORMANCE" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." The chart
is scaled in increments of 5%, with 25% at the top and 0% at the bottom. Within
the chart, there are three solid bars. The first represents the 21.97% total
return for the John Hancock Small Capitalization Equity Fund. The second
represents the 20.13% total return for the Average small-company growth fund.
The third represents the 18.53% total return for the Russell 2000 Index. A
footnote below states "The total return for John Hancock Small Capitalization
Equity Fund is at net asset value with all distributions reinvested. The average
small company growth fund is tracked by Lipper Analytical Services, Inc. The
Russell 2000 Index is an unmanaged index comprised of the smallest 2000
securities. See the following two pages for historical information."]
- --------------------------------------------------------------------------------
technology group were REMEC and Sawtek, makers of sophisticated equipment used
in the fast-growing world of wireless communications.
Energy service companies -- which provide services and equipment to energy
exploration and production companies -- also posted their share of winners. As
the global demand for energy grew and the supply of stockpiled energy dwindled,
the exploration and production (E&P) companies ramped up their capital
expenditures. Maverick Tube and Lone Star Technologies -- which make tube and
pipe for E&P companies -- not only benefited from that trend, but were also
aided by an improved pricing environment.
In the consumer arena, top performing companies came from the broadcast
and retailing sectors. Continued consolidation among radio stations provided a
lift for the stock prices of SFX Broadcasting and Heftel Broadcasting. SFX was
further boosted by rumors that it was about to be taken over, while Heftel's
Spanish format helped it gain advertising revenues. Retail companies Proffitt's,
a department store chain which caters to mid- to upper-income customers, and
Hibbett Sporting Goods, which operates sporting goods stores in small towns,
benefited from rising consumer confidence and spending. Similarly, department
store chain Stage Stores, which also operates in small towns, performed well as
a result of continuing to surpass expectations.
Environment remains ripe for small-cap stocks to keep advancing.
Outlook
If investors continue to fear that large companies' earnings growth rates are
questionable, it could well result in more money flowing into small-company
stocks. Corporate earnings -- the under pinning of stock prices -- have come
under pressure at some big multinational companies, due in large part to the
strength of the U.S. dollar. If large multinationals continue to disappoint
investors, small-company stocks stand a good chance to continue advancing.
Because we target small companies with earnings growth rates of at least 20% to
25% annually -- well in excess of the large-company blue-chip stocks -- we are
well positioned to benefit from that environment.
25
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total return for the John Hancock
Small Capitalization Equity Fund. Total return is a performance measure that
equals the sum of all income and capital gains dividends, assuming reinvestment
of these distributions, and the change in price of the Fund's shares, expressed
as a percentage of the Fund's net asset value per share. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Small Capitalization Equity Fund 10.97% 19.85%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Small Capitalization Equity Fund(2) 10.97% 16.86%(1)
Notes to Performance
(1) Commenced operations on May 2, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.90% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 6.71% and 2.72%, respectively.
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
Small Capitalization Equity Fund would be worth on August 31, 1997, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell 2000
Index--an unmanaged index that consists of the smallest 2,000 securities in the
Russell 3000 Index, representing approximately 11% of the Russell 3000 total
market capitalization.
[Line chart with the heading Small Capitalization Equity Fund, representing the
growth of a hypothetical $250,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Russell 2000 Index and is equal to
$310,299 as of August 31, 1997. The second line represents the value of the
hypothetical $250,000 investment made in the Small Capitalization Equity Fund on
May 2, 1996 and is equal to $293,746 as of August 31, 1997.]
27
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BY MIREN ETCHEVERRY, GERARDO J. ESPINOZA, AND JOHN L.F. WILLS,
CO-PORTFOLIO MANAGERS
John Hancock
International Equity Fund
Mixed results for international stock markets
We increased our stake in Europe, emphasizing corporate restructuring plays.
Foreign stock market performance varied widely during the past six months. Among
the top performers during the period were Europe and the reform-minded
emerging-market countries of Latin America. On the other hand, the emerging
Southeast Asian markets were slammed by currency devaluations in August and
financial problems that caused most markets there to drop by as much as 30% to
45%. The region's woes even had a brief ripple effect on Hong Kong and Latin
America.
Overall, international investors came out ahead, despite losing ground
late in the period. For the six months ended August 31, 1997, the average
international fund returned a total 6.09% and the FT Actuaries World Ex-US Index
returned 6.16%. During the same period, John Hancock International Equity Fund
lagged its peers, posting a total return of -0.21% at net asset value. There
were several factors contributing to the Fund's underperformance, including
substantial inflows of new cash during the period that had to be invested during
rising markets. In addition, we were held back by an overweighted position in
Singapore -- a traditional Southeast Asian stalwart that fell prey to the
region's weakness -- and the sharp decline in several Australian mining stocks.
Developed vs. developing Asia
The developed markets of Asia, including Japan and Hong Kong, advanced modestly
during the period. We added to our stake in Japan, which remains our largest
country holding at 15% of the Fund's assets, up from 12% in March. Its market
rose earlier in the period as the economy began to awaken, and domestic pensions
and foreign investors returned to the equity market after a lengthy absence. But
by the end of August, the market gave back much of its earlier gains. The
economy slowed in the summer as consumers digested the imposition of higher
taxes, and the belief grew that economic recovery would be delayed. We kept our
focus on exporters, such as TDK, Sony and Matsushita-Kotobuki, which continue to
benefit from a relatively weak yen.
Hong Kong had periodic bouts of volatility concern-
[A 1 3/4" x 2 1/4" photo of the International Equity Fund Management team at the
bottom middle. Caption reads "The International Equity Fund Management team:
(l-r) Gerardo Espinoza, Miren Etcheverry, John Wills".]
28
<PAGE>
================================================================================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "FUND PERFORMANCE" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." The chart
is scaled in increments of 4%, with 8% at the top and -8% at the bottom. Within
the chart, there are three solid bars. The first represents the -0.21% total
return for John Hancock International Equity Fund. The second represents the
6.09% total return for the Average International Fund. The third represents the
6.16% total return for the FT Actuaries World Ex-US Index. A footnote below
states "The total return for John Hancock International Equity Fund is at net
asset value with all distributions reinvested. The average international fund is
tracked by Lipper Analytical Services, Inc. The FT Actuaries World Ex-US Fund is
a broad-based index composed of approximately 1800 securities in 23 countries.
See the following two pages for historical performance information."]
- --------------------------------------------------------------------------------
ing transition to Chinese rule, concerns about rising U.S. interest rates and
its neighbors' currency crises. But the market rebounded each time. Our best
performers were property conglomerates Hutchison Whampoa and Cheung Kong
Holdings. We remain overweighted in Hong Kong, but we cut our position almost in
half, from 12% to 7%, in order to more broadly diversify the portfolio.
Southeast Asia, on the other hand, had nothing but problems during the period.
We cut our total stake in Singapore, Malaysia and Thailand in half, from 9% to
4%, eliminating Thailand.
Latin American growth; European selectivity
Conversely, our stake in the emerging markets of Latin America grew to 17% from
13%, and served us well, even with some emerging-market jitters during the
period. Our largest country remains Brazil, where we nearly tripled our stake to
12%. Its stock market has soared as the positive combination of political
stability and moves toward privatization and economic reform play out.
Communications giant Telecomunicacoes Brasileiras is a perfect example. We upped
our stake in Europe from 27% to 44%, with a focus on select companies that have
embraced corporate restructurings, such as auto maker Volkswagen, and exporting
companies benefiting from weaker currencies. In Europe, the UK remains our
largest country weighting, which we increased to 13% of the Fund's assets based
on a strong economy and currency, and a buoyant consumer.
"We are positive about prospects for world markets next year."
A look forward
We are positive about prospects for world markets next year. Going forward, we
plan to diversify the Fund more into countries that have less correlation to
moves in the U.S. market, as a way to manage risk. We will stay overweighted in
Latin America because of our belief in the region's strong growth prospects. In
Europe, we will continue to take advantage of restructuring plays. As for
developed Asia, we are comfortable with our Hong Kong and Japan weightings. In
Japan, we are adequately positioned to take advantage of any short-term upticks.
Yet, our underweighting relative to our peers should help to limit the potential
we see longer term for risks associated with Japan's remaining structural
challenges. Should Hong Kong's incorporation into China continue smoothly, that
will enhance its position as a major worldwide financial center. Finally, we
will carefully monitor emerging Asia for attractive values.
- ----------
International investing involves special risks such as political and currency
risks and differences in accounting standards and financial reporting.
29
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show 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 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 RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Equity Fund 7.43% 21.93%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Equity Fund(2) 7.43% 9.20%(1)
Notes to Performance
(1) Commenced operations on March 30, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 1.00% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 6.16% and 5.08%, respectively.
30
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- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
International Equity Fund would be worth August 31, 1997, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Financial
Times-Actuaries World EX-US Index--an unmanaged index composed of securities in
23 countries, excluding the United States. Selection criteria, overseen by the
World Index Policy Committee, exclude all companies that cannot be purchased by
foreigners. Companies then are ranked by market capitalization, and the top 5%
are automatically included.
[Line chart with the heading International Equity Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value of the Financial Times-Actuaries World
EX-US Index and is equal to $324,365 as of August 31, 1997. The second line
represents the value of the hypothetical $250,000 investment made in the
International Equity Fund on March 30, 1995 and is equal to $281,579 as of
August 31, 1997.]
31
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL FUNDAMENTAL DIVIDEND
BOND BOND VALUE PERFORMERS
Assets: FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investments at value - Note C:
Common stocks (cost - none; none; $5,415,479 and $13,986,406,
respectively) .......................................................... $ -- $ -- $ 6,628,089 $16,116,038
Preferred stocks (cost - none; none; $216,725 and none,
respectively) .......................................................... -- -- 280,000 --
Bonds (cost - $3,320,501; $1,007,942; none and none, respectively) ...... 3,350,061 1,004,786 -- --
Short-term investments (cost - $219,000; $32,000; $386,000 and
$822,000, respectively) ................................................ 219,000 32,000 386,000 822,000
Corporate savings account ............................................... 76 -- 238 414
--------- --------- --------- ----------
3,569,137 1,036,786 7,294,327 16,938,452
Cash .................................................................... -- 174 -- --
Receivable for open forward foreign currency exchange
contracts purchased - Note A .......................................... -- 3,759 -- --
Receivable for open forward foreign currency exchange
contracts sold - Note A ............................................... -- 665 -- --
Receivable for investments sold ......................................... -- -- 344,087 --
Interest receivable ..................................................... 41,641 16,371 186 383
Dividends receivable .................................................... -- -- 2,744 33,616
Deferred organization expenses - Note A ................................. 4,235 4,248 4,324 4,273
Receivable from John Hancock Advisers, Inc. - Note B .................... 3,849 4,124 -- --
Other assets ............................................................ 41 6 236 142
--------- --------- --------- ----------
Total Assets .................................................. 3,618,903 1,066,133 7,645,904 16,976,866
-------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for closed forward foreign currency exchange
contracts sold - Note A .................................................. -- 672 -- --
Payable for open forward foreign currency exchange contracts
purchased - Note A ....................................................... -- 692 -- --
Payable for investments purchased ......................................... 13,162 -- 176,641 --
Payable for shares repurchased ............................................ -- -- -- 7,720
Dividend payable .......................................................... 2,010 476 -- --
Payable to John Hancock Advisers, Inc. - Note B ........................... -- -- 679 8,286
Accounts payable and accrued expenses ..................................... 14,662 14,909 18,208 16,238
--------- --------- --------- ----------
Total Liabilities ............................................. 29,834 16,749 195,528 32,244
-------------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ........................................................... 3,556,700 1,072,478 5,602,575 13,989,086
Accumulated net realized gain (loss) on investments and
foreign currency transactions ............................................ 2,575 (19,036) 564,533 784,146
Net unrealized appreciation (depreciation) of investments
and foreign currency transactions ........................................ 29,564 (123) 1,275,906 2,129,643
Undistributed net investment income (distributions in excess
of net investment income) ................................................ 230 (3,935) 7,362 41,747
--------- --------- --------- ----------
Net Assets .................................................... $3,589,069 $ 1,049,384 $ 7,450,376 $16,944,622
===================================================================================================================
Net Asset Value Per Share
(based on 415,327; 129,127; 635,836 and 1,239,634 shares,
respectively, of beneficial interest outstanding -
unlimited number of shares authorized with no par value) ................. $ 8.64 $ 8.13 $ 11.72 $ 13.67
===============================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of August 31, 1997. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-SECTOR SMALL INTERNATIONAL
GROWTH CAPITALIZATION EQUITY
FUND EQUITY FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $36,623,360; $1,860,019 and $6,758,225,
respectively) ................................................ $39,429,281 $ 2,308,173 $ 6,955,566
Preferred stocks (cost - none; none; $400,688) ................ -- -- 345,916
Short-term investments (cost - $512,000; $65,000 and $185,000,
respectively) ................................................ 512,000 65,000 185,000
Corporate savings account ..................................... 465 224 --
----------- ----------- -----------
39,941,746 2,373,397 7,486,482
Cash ........................................................... -- -- 869
Foreign currency, at value (cost - none; none and $19,662,
respectively) ................................................. -- -- 19,658
Receivable for investments sold ................................ 245,033 -- 221,551
Interest receivable ............................................ 247 32 86
Dividends receivable ........................................... 38,750 262 5,797
Foreign tax receivable ......................................... -- -- 4,138
Deferred organization expenses - Note A ........................ 5,328 15,017 4,243
Receivable from John Hancock Advisers, Inc. - Note B ........... -- 5,230 --
Other assets ................................................... 374 363 9
----------- ----------- -----------
Total Assets ..................................... 40,231,478 2,394,301 7,742,833
------------------------------------------------------------------------------------------
Liabilities:
Payable for open forward foreign currency exchange contracts
purchased - Note A ............................................ -- -- 77
Payable for investments purchased .............................. 237,018 19,108 39,656
Payable for shares repurchased ................................. 6,878 -- 10,996
Foreign tax payable ............................................ -- -- 524
Payable to John Hancock Advisers, Inc. and affiliates - Note B . 23,633 4 10,264
Accounts payable and accrued expenses .......................... 21,434 14,228 21,040
----------- ----------- -----------
Total Liabilities ................................ 288,963 33,340 82,557
------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................ 34,856,406 1,962,226 7,651,977
Accumulated net realized gain (loss) on investments and
foreign currency transactions ................................. 2,250,425 (50,062) (164,254)
Net unrealized appreciation of investments and foreign
currency transactions ......................................... 2,805,946 448,154 140,313
Undistributed net investment income ............................ 29,738 643 32,240
----------- ----------- -----------
Net Assets ....................................... $39,942,515 $ 2,360,961 $ 7,660,276
==========================================================================================
Net Asset Value Per Share:
(based on 2,997,671; 209,503; and 821,453 shares, respectively,
of beneficial interest outstanding - unlimited number of shares
authorized with no par value) ................................. $ 13.32 $ 11.27 $ 9.33
==========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Statements of Operations
Six months ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL FUNDAMENTAL DIVIDEND
BOND BOND VALUE PERFORMERS
FUND FUND FUND FUND
-------- ------- --------- ----------
<S> <C> <C> <C> <C>
Investment Income:
Interest (net of foreign withholding tax of none;
$114; none and none, respectively) ...................... $114,331 $ 37,742 $ 20,931 $ 26,669
Dividends (net of foreign withholding tax of none;
none; $417 and none, respectively) ...................... -- -- 37,139 106,233
-------- -------- ---------- ----------
114,331 37,742 58,070 132,902
-------- -------- ---------- ----------
Expenses:
Registration and filing fees ............................ 12,011 7,735 9,387 6,052
Custodian fee ........................................... 9,647 7,854 6,643 7,836
Investment management fee - Note B ...................... 7,448 3,928 22,553 37,462
Auditing fee ............................................ 4,915 5,142 4,915 5,142
Printing ................................................ 2,717 3,162 860 1,488
Transfer agent fee - Note B ............................. 745 265 1,611 3,122
Financial services fee - Note B ......................... 273 96 591 1,140
Miscellaneous ........................................... 200 215 222 1,133
Trustees' fees .......................................... 98 46 118 71
Legal fees .............................................. 43 6 50 124
Organization expense - Note A ........................... 828 813 828 835
-------- -------- ---------- ----------
Total Expenses ............................. 38,925 29,262 47,778 64,405
----------------------------------------------------------------------------------------------------
Less Expenses Reductions - Note B .......... (29,987) (24,810) (22,003) (20,699)
----------------------------------------------------------------------------------------------------
Net Expenses ............................... 8,938 4,452 25,775 43,706
----------------------------------------------------------------------------------------------------
Net Investment Income ...................... 105,393 33,290 32,295 89,196
----------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain (loss) on investments sold ............. ( 3,527) 30,921 432,600 619,548
Net realized loss on foreign currency transactions ....... -- (49,957) -- --
Change in net unrealized appreciation of investments ..... 24,956 7,237 1,036,408 989,296
Change in net unrealized appreciation of foreign currency
transactions ............................................ -- 288 -- --
-------- -------- ---------- ----------
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currency Transactions ..................... 21,429 (11,511) 1,469,008 1,608,844
----------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations ........................... $126,822 $ 21,779 $1,501,303 $1,698,040
====================================================================================================
</TABLE>
The Statement of Operations summarizes for each of the Funds, the investment
income earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Statements of Operations
Six months ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-SECTOR SMALL INTERNATIONAL
GROWTH CAPITALIZATION EQUITY
FUND EQUITY FUND FUND
--------- --------- ---------
<S> <C> <C> <C>
Investment Income:
Interest .......................................................... $ 70,329 $ 4,817 $ 22,998
Dividends (net of foreign withholding tax of $1,506;
none and $6,382, respectively) ................................... 116,784 3,941 50,433
----------- --------- ---------
187,113 8,758 73,431
----------- --------- ---------
Expenses:
Investment management fee - Note B .............................. 138,113 7,416 28,192
Custodian fee ................................................... 28,451 9,367 15,701
Transfer agent fee - Note B ..................................... 8,632 464 1,566
Registration and filing fees .................................... 6,685 12,484 4,278
Auditing fee .................................................... 5,142 5,142 5,142
Financial services fee - Note B ................................. 3,165 170 572
Printing ........................................................ 2,094 2,412 2,254
Organization expense - Note A ................................... 1,028 2,063 819
Miscellaneous ................................................... 352 26 349
Legal fees ...................................................... 343 10 67
Trustees' fees .................................................. 304 40 47
----------- --------- ---------
Total Expenses ...................................... 194,309 39,594 58,987
----------------------------------------------------------------------------------------------
Less Expenses Reductions - Note B ................... (38,932) (31,250) (27,663)
----------------------------------------------------------------------------------------------
Net Expenses ........................................ 155,377 8,344 31,324
----------------------------------------------------------------------------------------------
Net Investment Income ............................... 31,736 414 42,107
----------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions:
Net realized gain (loss) on investments sold ...................... 1,048,340 6,239 (71,665)
Net realized loss on foreign currency transactions ................ (13,316) -- (52,537)
Change in net unrealized appreciation (depreciation) of investments 927,413 412,102 (103,284)
Change in net unrealized appreciation (depreciation) of foreign
currency transactions ............................................ (19) -- (2,229)
----------- --------- ---------
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ....... 1,962,418 418,341 (229,715)
----------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations ..................................... $ 1,994,154 $ 418,755 ($187,608)
==============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL
BOND FUND BOND FUND
------------------------- -------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1997 FEBRUARY 28, AUGUST 31, 1997
Increase (Decrease) in Net Assets: 1997 (UNAUDITED) 1997 (UNAUDITED)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income ......................................... $ 116,552 $ 105,393 $ 63,630 $ 33,290
Net realized gain (loss) on investments sold and foreign
currency transactions ........................................ 7,241 (3,527) (26,163) (19,036)
Change in net unrealized appreciation (depreciation)
of investments and foreign currency transactions ............. (4,783) 24,956 (7,200) 7,525
----------- ----------- ----------- ------------
Net Increase in Net Assets Resulting from Operations ......... 119,010 126,822 30,267 21,779
----------- ----------- ----------- ------------
Distributions to Shareholders: *
Dividends from net investment income .......................... (116,555) (105,163) (42,732) (33,290)
Distributions from net realized gain on investments sold ...... (2,809) -- -- --
Distributions from capital paid-in ............................ -- -- (20,898) --
----------- ----------- ----------- ------------
Total Distributions to Shareholders .......................... (119,364) (105,163) (63,630) (33,290)
----------- ----------- ----------- ------------
From Portfolio Share Transactions: **
Shares sold ................................................... 1,178,749 2,559,841 901,911 45,435
Shares issued to shareholders in reinvestment of distributions 118,599 101,763 14,405 8,533
----------- ----------- ----------- ------------
1,297,348 2,661,604 916,316 53,968
Less shares repurchased ....................................... (277,002) (1,284,813) (73,841) (18,926)
----------- ----------- ----------- ------------
Net Increase ................................................. 1,020,346 1,376,791 842,475 35,042
----------- ----------- ----------- ------------
Net Assets:
Beginning of period ........................................... 1,170,627 2,190,619 216,741 1,025,853
----------- ----------- ----------- ------------
End of period (including undistributed net investment
income of none; $230 and distributions in excess of
net investment income of $3,935; $3,935, respectively) ....... $ 2,190,619 $ 3,589,069 $ 1,025,853 $ 1,049,384
=========== =========== =========== ============
* Distributions to Shareholders:
Per share dividends from net investment income ................ $ 0.5983 $ 0.3048 $ 0.3513 $ 0.2617
----------- ----------- ----------- ------------
Per share distributions from net realized gain on
investments sold ............................................. $ 0.0114 -- -- --
----------- ----------- ----------- ------------
Per share distributions from capital paid-in .................. -- -- $ 0.1718 --
----------- ----------- ----------- ------------
** Analysis of Portfolio Share Transactions:
Shares sold ................................................... 139,746 297,681 106,277 5,571
Shares issued to shareholders in reinvestment of distributions 13,886 11,879 1,713 1,052
----------- ----------- ----------- ------------
153,632 309,560 107,990 6,623
Less shares repurchased ....................................... (32,519) (150,783) (8,773) (2,326)
----------- ----------- ----------- ------------
Net Increase ................................................. 121,113 158,777 99,217 4,297
=========== =========== =========== ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets have changed since the previous period. 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 repurchased during the period, along with the per share amount of
distributions made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUNDAMENTAL DIVIDEND
VALUE FUND PERFORMERS FUND
------------------------- -------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1997 FEBRUARY 28, AUGUST 31, 1997
Increase (Decrease) in Net Assets: 1997 (UNAUDITED) 1997 (UNAUDITED)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income ......................................... $ 84,569 $ 32,295 $ 96,299 $ 89,196
Net realized gain on investments sold ......................... 590,179 432,600 240,807 619,548
Change in net unrealized appreciation of investments .......... 13,894 1,036,408 674,538 989,296
----------- ----------- ----------- ------------
Net Increase in Net Assets Resulting from Operations ......... 688,642 1,501,303 1,011,644 1,698,040
----------- ----------- ----------- ------------
Distributions to Shareholders: *
Dividends from net investment income .......................... (73,585) (42,255) (76,479) (71,929)
Distributions from net realized gain on investments sold ...... (458,016) -- (98,355) --
----------- ----------- ----------- ------------
Total Distributions to Shareholders .......................... (531,601) (42,255) (174,834) (71,929)
----------- ----------- ----------- ------------
From Portfolio Share Transactions: **
Shares sold ................................................... 1,315,767 1,611,869 5,594,177 8,629,851
Shares issued to shareholders in reinvestment
of distributions ............................................. 531,562 42,248 174,842 71,941
----------- ----------- ----------- ------------
1,847,329 1,654,117 5,769,019 8,701,792
Less shares repurchased ....................................... (1,286,544) (1,673,371) (1,257,538) (2,050,792)
----------- ----------- ----------- ------------
Net Increase (Decrease) ...................................... 560,785 (19,254) 4,511,481 6,651,000
----------- ----------- ----------- ------------
Net Assets:
Beginning of period ........................................... 5,292,756 6,010,582 3,319,220 8,667,511
----------- ----------- ----------- ------------
End of period (including undistributed net investment
income of $17,322; $7,362;
$24,480 and $41,747, respectively) ........................... $ 6,010,582 $ 7,450,376 $ 8,667,511 $ 16,944,622
=========== =========== =========== ============
* Distributions to Shareholders:
Per share dividends from net investment income ................ $ 0.1236 $ 0.0677 $ 0.1752 $ 0.0825
----------- ----------- ----------- ------------
Per share distributions from net realized gain on
investments sold ............................................ $ 0.8103 -- $ 0.1901 --
----------- ----------- ----------- ------------
** Analysis of Portfolio Share Transactions:
Shares sold ................................................... 135,360 153,795 498,503 662,369
Shares issued to shareholders in reinvestment
of distributions ............................................. 57,853 4,414 15,790 5,737
----------- ----------- ----------- ------------
193,213 158,209 514,293 668,106
Less shares repurchased ....................................... (134,414) (163,184) (113,243) (156,420)
----------- ----------- ----------- ------------
Net Increase (Decrease) ...................................... 58,799 (4,975) 401,050 511,686
=========== =========== =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-SECTOR SMALL CAPITALIZATION
GROWTH FUND EQUITY FUND
------------------------------ ------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1997 FEBRUARY 28, AUGUST 31, 1997
Increase (Decrease) in Net Assets: 1997 (UNAUDITED) 1997 (UNAUDITED)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income ......................................... $ 10,399 $ 31,736 $ 1,870 $ 414
Net realized gain (loss) on investments sold and
foreign currency transactions ................................ 1,221,912 1,035,024 (56,301) 6,239
Change in net unrealized appreciation of investments and
foreign currency transactions ................................ 912,165 927,394 36,052 412,102
----------- ----------- ----------- ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 2,144,476 1,994,154 (18,379) 418,755
----------- ----------- ----------- ------------
Distributions to Shareholders: *
Dividends from net investment income .......................... -- -- (1,629) --
Distributions from net realized gain on investments sold ...... (102,180) -- -- --
----------- ----------- ----------- ------------
Total Distributions to Shareholders .......................... (102,180) -- (1,629) --
----------- ----------- ----------- ------------
From Portfolio Share Transactions: **
Shares sold ................................................... 21,261,390 18,970,096 1,221,905 1,955,799
Shares issued to shareholders in reinvestment of distributions 101,551 -- 1,444 --
----------- ----------- ----------- ------------
21,362,941 18,970,096 1,223,349 1,955,799
Less shares repurchased ....................................... (2,719,594) (10,106,312) (203,845) (1,013,089)
----------- ----------- ----------- ------------
Net Increase ................................................. 18,643,347 8,863,784 1,019,504 942,710
----------- ----------- ----------- ------------
Net Assets:
Beginning of period ........................................... 8,398,934 29,084,577 -- 999,496
----------- ----------- ----------- ------------
End of period (including undistributed net investment
income (distributions in excess) of
($1,998); $29,738; $229 and $643, respectively) .............. $29,084,577 $39,942,515 $ 999,496 $ 2,360,961
=========== =========== =========== ============
* Distributions to Shareholders:
Per share dividends from net investment income ................ -- -- $ 0.0157 --
----------- ----------- ----------- ------------
Per share distributions from net realized gain on
investments sold ............................................. $ 0.0534 -- -- --
----------- ----------- ----------- ------------
** Analysis of Portfolio Share Transactions:
Shares sold ................................................... 1,719,796 1,506,557 129,297 207,484
Shares issued to shareholders in reinvestment of distributions 7,658 -- 153 --
----------- ----------- ----------- ------------
1,727,454 1,506,557 129,450 207,484
Less shares repurchased ....................................... (218,299) (803,718) (21,244) (106,187)
----------- ----------- ----------- ------------
Net Increase ................................................. 1,509,155 702,839 108,206 101,297
=========== =========== =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY FUND
------------------------------
YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1997
Increase (Decrease) in Net Assets: 1997 (UNAUDITED)
----------- -----------
<S> <C> <C>
From Operations:
Net investment income .............................. $ 41,479 $ 42,107
Net realized loss on investments sold and foreign
currency transactions ............................. (34,481) (124,202)
Change in net unrealized appreciation (depreciation)
of investments and foreign currency transactions .. 77,370 (105,513)
----------- -----------
Net Increase (Decrease) in Net Assets Resulting
from Operations .................................. 84,368 (187,608)
----------- -----------
Distributions to Shareholders:*
Dividends from net investment income ............... (35,170) --
Distributions from net realized gain on
investments sold .................................. (15,751) --
----------- -----------
Total Distributions to Shareholders ............... (50,921) --
----------- -----------
From Portfolio Share Transactions: **
Shares sold ........................................ 2,191,748 5,149,114
Shares issued to shareholders in reinvestment
of distributions .................................. 50,885 --
----------- -----------
2,242,633 5,149,114
Less shares repurchased ............................ (968,875) (1,505,197)
----------- -----------
Net Increase ...................................... 1,273,758 3,643,917
----------- -----------
Net Assets:
Beginning of period ................................ 2,896,762 4,203,967
----------- -----------
End of period (including distributions in excess
of net investment income of $9,867 and
undistributed net investment income of $32,240) ... $ 4,203,967 $ 7,660,276
=========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ..... $ 0.1030 --
----------- -----------
Per share distributions from net realized
gain on investments sold .......................... $ 0.0461 --
----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold ........................................ 233,402 524,713
Shares issued to shareholders in reinvestment
of distributions .................................. 5,396 --
----------- -----------
238,798 524,713
Less shares repurchased ............................ (102,900) (152,792)
----------- -----------
Net Increase ...................................... 135,898 371,921
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
----------------------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $ 8.50 $ 8.64 $ 8.54
------ ------ ------
Net Investment Income (3) ................................. 0.51 0.60 0.31
Net Realized and Unrealized Gain (Loss) on Investments .... 0.16 (.09) 0.09
------ ------ ------
Total from Investment Operations ........................ 0.67 0.51 0.40
------ ------ ------
Less Distributions:
Dividends from Net Investment Income ..................... (0.51) (0.60) (0.30)
Distributions from Net Realized Gain on Investments Sold . (0.02) (0.01) --
------ ------ ------
Total Distributions ..................................... (0.53) (0.61) (0.30)
------ ------ ------
Net Asset Value, End of Period ............................ $ 8.64 $ 8.54 $ 8.64
====== ====== ======
Total Investment Return at Net Asset Value (6) ............ 7.76%(2) 6.17% 4.83%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) . (0.46%)(2) 2.72% 3.82%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $1,171 $2,191 $3,589
Ratio of Expenses to Average Net Assets ................... 0.65%(1) 0.60% 0.60%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .... 9.60%(1) 4.05% 2.61%(1)
Ratio of Net Investment Income to Average Net Assets ...... 6.53%(1) 7.10% 7.08%(1)
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets (4,5) ......................................... (2.42%)(1) 3.65% 5.07%(1)
Portfolio Turnover Rate ................................... 71% 136% 82%
Fee Reduction Per Share (3) ............................... $ 0.75 $ 0.30 $ 0.09
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: 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 rela tionships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Global Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 19, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
----------------------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $ 8.50 $ 8.46 $ 8.22
-------- ------ ------
Net Investment Income (3) ................................. 0.41 0.52 0.26
Net Realized and Unrealized Loss on Investments and
Foreign Currency Transactions ............................ (0.04) (0.24) (0.09)
-------- ------ ------
Total from Investment Operations ........................ 0.37 0.28 0.17
-------- ------ ------
Less Distributions:
Dividends from Net Investment Income ..................... (0.41) (0.35) (0.26)
Distributions from Capital Paid-in ....................... -- (0.17) --
-------- ------ ------
Total Distributions ..................................... (0.41) (0.52) (0.26)
-------- ------ ------
Net Asset Value, End of Period ............................ $ 8.46 $ 8.22 $ 8.13
======== ====== ======
Total Investment Return at Net Asset Value (6) ............ 4.37%(2) 3.39% 2.12%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) . (54.55%)(2) (2.93%) (0.27%)(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $ 217 $1,026 $1,049
Ratio of Expenses to Average Net Assets ................... 0.91%(1) 0.85% 0.85%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .... 69.15%(1) 7.17% 5.59%(1)
Ratio of Net Investment Income to Average Net Assets ...... 5.91%(1) 6.26% 6.36%(1)
Ratio of Adjusted Net Investment Loss to
Average Net Assets (4,5) ................................. (62.33%)(1) (0.06%) 1.62%(1)
Portfolio Turnover Rate ................................... 129% 119% 106%
Fee Reduction Per Share (3) ............................... $ 5.35 $ 0.56 $ 0.19
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Fundamental Value Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 19, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
----------------------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $ 8.50 $ 9.09 $ 9.38
------ ------ ------
Net Investment Income (3) ................................. 0.17 0.14 0.05
Net Realized and Unrealized Gain on Investments ........... 0.56 1.08 2.36
------ ------ ------
Total from Investment Operations ....................... 0.73 1.22 2.41
------ ------ ------
Less Distributions:
Dividends from Net Investment Income ..................... (0.14) (0.12) (0.07)
Distributions from Net Realized Gain on Investments Sold . -- (0.81) --
------ ------ ------
Total Distributions .................................... (0.14) (0.93) (0.07)
------ ------ ------
Net Asset Value, End of Period ............................ $ 9.09 $ 9.38 $11.72
====== ====== ======
Total Investment Return at Net Asset Value (6) ............ 8.61%(2) 13.78% 25.83%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) . 5.40%(2) 12.75% 25.49%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $5,293 $6,011 $7,450
Ratio of Expenses to Average Net Assets ................... 0.83%(1) 0.80% 0.80%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .... 4.55%(1) 1.83% 1.48%(1)
Ratio of Net Investment Income to Average Net Assets ...... 2.04%(1) 1.46% 1.00%(1)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (4,5) ................................. (1.68%)(1) 0.43% 0.32%(1)
Portfolio Turnover Rate ................................... 0% 96% 79%
Fee Reduction Per Share (3) ............................... $ 0.30 $ 0.10 $ 0.03
Average Brokerage Commission Rate (7) ..................... N/A $0.0640 $0.0652
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Totalinvestment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
----------------------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $ 8.50 $10.15 $11.91
------ ------ ------
Net Investment Income (3) ................................. 0.23 0.21 0.10
Net Realized and Unrealized Gain on Investments ........... 1.68 1.92 1.74
------ ------ ------
Total from Investment Operations ........................ 1.91 2.13 1.84
------ ------ ------
Less Distributions:
Dividends from Net Investment Income ..................... (0.19) (0.18) (0.08)
Distributions from Net Realized Gain on Investments Sold . (0.07) (0.19) --
------ ------ ------
Total Distributions ..................................... (0.26) (0.37) (0.08)
------ ------ ------
Net Asset Value, End of Period ............................ $10.15 $11.91 $13.67
====== ====== ======
Total Investment Return at Net Asset Value (6) ............ 22.79%(2) 21.26% 15.54%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) . 19.79%(2) 20.07% 15.37%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $3,319 $8,668 $16,945
Ratio of Expenses to Average Net Assets ................... 0.75%(1) 0.70% 0.70%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .... 4.02%(1) 1.89% 1.03%(1)
Ratio of Net Investment Income to Average Net Assets ...... 2.51%(1) 1.94% 1.43%(1)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (4,5) ................................ (0.76%)(1) 0.75% 1.10%(1)
Portfolio Turnover Rate ................................... 70% 37% 33%
Fee Reduction Per Share (3) ............................... $ 0.30 $ 0.13 $ 0.02
Average Brokerage Commission Rate (7) ..................... N/A $0.0700 $0.0697
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 19, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
----------------------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $ 8.50 $10.69 $12.67
------ ------ ------
Net Investment Income (Loss) (3) .......................... (0.01) 0.01 0.01
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions ........................... 2.22 2.02 0.64
------ ------ ------
Total from Investment Operations ........................ 2.21 2.03 0.65
------ ------ ------
Less Distributions:
Dividends from Net Investment Income ..................... (0.02) -- --
Distributions from Net Realized Gain on Investments Sold . -- (0.05) --
------ ------ ------
Total Distributions ..................................... (0.02) (0.05) --
------ ------ ------
Net Asset Value, End of Period ............................ $10.69 $12.67 $13.32
====== ====== ======
Total Investment Return at Net Asset Value (6) ............ 25.98%(2) 19.00% 5.21%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) . 23.70%(2) 18.48% 5.10%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $8,399 $29,085 $39,943
Ratio of Expenses to Average Net Assets ................... 0.93%(1) 0.90% 0.90%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .... 3.51%(1) 1.42% 1.13%(1)
Ratio of Net Investment Income (Loss) to
Average Net Assets ...................................... (0.10%)(1) 0.06% 0.18%(1)
Ratio of Adjusted Net Investment Loss to
Average Net Assets (4,5) ................................ (2.68%)(1) (0.46%) (0.05%)(1)
Portfolio Turnover Rate ................................... 189% 281% 176%
Fee Reduction Per Share (3) ............................... $ 0.23 $ 0.06 $ 0.01
Average Brokerage Commission Rate (7) ..................... N/A $0.0620 $0.0652
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Equity Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 2, 1996 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1997
TO FEBRUARY 29, 1997 (UNAUDITED)
----------------------------- ----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................................... $ 8.50 $ 9.24
------ ------
Net Investment Income (3) ............................................... 0.03 --
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions ................................................. 0.73 2.03
------ ------
Total from Investment Operations ...................................... 0.76 2.03
------ ------
Less Distributions:
Dividends from Net Investment Income ................................... (0.02) --
------ ------
Net Asset Value, End of Period .......................................... $ 9.24 $11.27
====== ======
Total Investment Return at Net Asset Value (6) .......................... 8.89%(2) 21.97%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) ............... (3.84%)(2) 20.27%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................ $ 999 $2,361
Ratio of Expenses to Average Net Assets ................................. 0.90%(1) 0.90%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .................. 16.24%(1) 4.27%(1)
Ratio of Net Investment Income to Average Net Assets .................... 0.35%(1) 0.04%(1)
Ratio of Adjusted Net Investment Loss to Average Net Assets (4,5) ....... (14.99%)(1) (3.33%)(1)
Portfolio Turnover Rate ................................................. 92% 53%
Fee Reduction Per Share (3) ............................................. $ 1.22 $ 0.16
Average Brokerage Commission Rate (7) ................................... $0.0692 $0.0698
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
----------------------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $ 8.50 $ 9.24 $ 9.35
------ ------ ------
Net Investment Income (3) ................................. 0.15 0.12 0.08
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions ................................... 0.68 0.14 (0.10)
------ ------ ------
Total from Investment Operations ....................... 0.83 0.26 (0.02)
------ ------ ------
Less Distributions:
Dividends from Net Investment Income ..................... (0.08) (0.10) --
Distributions from Net Realized Gain on Investments Sold . (0.01) (0.05) --
------ ------ ------
Total Distributions .................................... (0.09) (0.15) --
------ ------ ------
Net Asset Value, End of Period ............................ $ 9.24 $ 9.35 $ 9.33
====== ====== ======
Total Investment Return at Net Asset Value (6) ............ 9.81%(2) 2.79% (0.21%)(2)
Total Adjusted Investment Return at Net Asset Value (4,6) . 3.26%(2) 0.47% (0.66%)(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $2,897 $4,204 $7,660
Ratio of Expenses to Average Net Assets ................... 1.05%(1) 1.00% 1.00%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .... 8.19%(1) 3.32% 1.88%(1)
Ratio of Net Investment Income to Average Net Assets ...... 1.75%(1) 1.26% 1.34%(1)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (4,5) ................................ (5.39%)(1) (1.06%) 0.46%(1)
Portfolio Turnover Rate ................................... 59% 68% 28%
Fee Reduction Per Share (3) ............................... $ 0.60 $ 0.22 $ 0.04
Average Brokerage Commission Rate (7) ..................... N/A $0.0237 $0.0155
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by Active
Bond Fund on August 31, 1997. It's divided into two main categories: bonds and
short-term investments. The bonds are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
BONDS
Banks (2.77%)
Banque National de Paris - New York Branch,
Sub Note 01-15-07 ......................................... 7.200% A $ 5 $ 5,026
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ..................................... 9.750 AA- 25 27,965
Landeskreditbank Baden-Wuerttemberg,
Sub Note (Germany) 02-01-23, (Y) .......................... 7.625 AAA 10 10,609
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01 ......................................... 9.450 AA- 15 16,392
NB Capital Trust IV,
Cap Sec 04-15-27 .......................................... 8.250 A- 10 10,275
RBSG Capital Corp.,
Gtd Cap Note (United Kingdom) 03-01-04, (Y) ............... 10.125 A+ 25 29,161
---------
99,428
---------
Broadcasting (1.86%)
Comcast Corp.,
Sr Sub Deb 07-15-12 ....................................... 10.625 BB+ 9 10,890
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 ................................ 10.750 B3 10 10,800
TeleWest Communications PLC,
Sr Deb (Great Britian) 10-01-06, (Y) ...................... 9.625 B+ 5 5,225
Time Warner, Inc., Deb 01-15-13 ............................ 9.125 BBB- 10 11,264
TKR Cable I, Inc., Sr Deb 10-30-07 ......................... 10.500 BBB- 15 16,681
Viacom, Inc., Sr Note 06-01-05 ............................. 7.750 BB+ 12 11,922
---------
66,782
---------
Containers (0.32%)
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 .................................. 10.875 CCC+ 12 11,430
---------
Finance (4.45%)
American Health Properties, Inc.,
Note 01-15-07 ............................................. 7.500 BBB- 10 10,116
Constitution Capital Trust I,
Cap Sec 04-15-27 (R) ...................................... 9.150 BBB 6 6,288
ContiFinancial Corp.,
Sr Note 08-15-03 .......................................... 8.375 BB+ 10 10,275
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-4 06-15-14 ......................... 6.710 AAA 35 34,836
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Finance (continued)
CS First Boston,
Sub Note 05-15-06 (R) ..................................... 7.750% A2 $ 10 $ 10,454
First Plus Home Loan Owner Trust,
Pass Thru Ctf Ser 1997-1 12-10-15 ......................... 6.950 AAA 10 10,028
Green Tree Home Improvement Loan Trust,
Pass Thru Ctf Ser 1996-F Class HIA3 11-15-27 .............. 6.750 AAA 6 5,955
Pass Thru Ctf Ser 1997-A Class HIA3 08-15-23 .............. 7.050 AAA 10 10,122
Polytama International Finance Co. B.V.,
Gtd Sec Note (Indonesia) 06-15-07, (Y) .................... 11.250 B+ 8 7,691
UCFC Home Equity Loan,
Pass Thru Ctf Ser 1997-A1 Class A8 06-15-28 ............... 7.220 AAA 30 30,694
United Companies Financial Corp.,
Sr Note 07-15-04 .......................................... 7.700 BBB- 5 4,967
Wharf International Finance Ltd,
Unsec Gtd Note (Cayman Islands) 03-13-07, (Y) ............. 7.625 A 10 9,923
Yanacocha Receivables,
Pass Thru Ctf Ser 1997-A (Peru) 06-15-05 (R), (Y) ......... 8.400 BBB- 8 8,160
---------
159,509
---------
Funeral Services (0.43%)
Loewen Group International, Inc.,
Gtd Sr Note, Ser 4 10-15-03 ............................... 8.250 BB+ 15 15,589
---------
Glass Products (0.21%)
VICAP S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 (R), (Y) .................... 11.375 B+ 7 7,560
---------
Government - Foreign (1.21%)
Croatia, Republic of,
Sr Note (Croatia) 02-27-02 (R), (Y) ....................... 7.000 BBB- 10 9,985
Moscow, City of,
Unsub Deb (Russia) 05-31-00 (R), (Y) ...................... 9.500 BB- 10 10,225
Panama, Republic of,
Note (Panama) 02-13-02 (R), (Y) ........................... 7.875 BB+ 8 8,008
Russian Federation, Ministry of Finance,
Unsub Deb (Russia) 06-26-07 (R), (Y) ...................... 10.000 Ba2 15 15,413
---------
43,631
---------
Government - U.S. (60.31%)
United States Treasury,
Bond 08-15-17 ............................................. 8.875 AAA 8 9,910
Bond 02-15-23 ............................................. 7.125 AAA 389 408,816
Note 02-15-99 ............................................. 8.875 AAA 272 283,092
Note 11-30-99 ............................................. 7.750 AAA 390 403,833
Note 05-15-01 ............................................. 8.000 AAA 123 130,322
Note 05-15-02 ............................................. 7.500 AAA 220 231,275
Note 02-15-05 ............................................. 7.500 AAA 654 697,530
---------
2,164,778
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Government - U.S. Agencies (5.61%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1601 10-15-08 ................................... 6.000% AAA $ 25 $ 23,508
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 11-15-24 to 09-15-26 .................. 8.000 AAA 173 177,664
---------
201,172
---------
Insurance (3.07%)
Conseco, Inc.,
Sr Note 12-15-04 .......................................... 10.500 BBB 10 11,814
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26, (Y) ............................... 8.300 BBB+ 25 26,411
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) ................................. 8.200 A+ 15 16,104
Surplus Note 10-15-26 (R) ................................. 7.875 A2 5 5,127
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ................................. 7.625 AA 15 15,306
NAC Re Corp.,
Note 06-15-99 ............................................. 8.000 A- 5 5,137
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ................................. 7.500 AA- 10 9,660
Sun Canada Financial Co.,
Note (Canada) 12-15-07 (R), (Y) ........................... 6.625 AA 10 10,035
URC Holdings Corp.,
Sr Note 06-30-06 (R) ...................................... 7.875 A- 10 10,427
---------
110,021
---------
Leisure and Recreation (0.33%)
Trump Hotels & Casinos Resorts Funding, Inc.
Sr Note 06-15-05 .......................................... 15.500 B+ 10 11,675
---------
Medical (0.18%)
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ...................................... 10.750 B+ 6 6,525
---------
Oil & Gas (1.25%)
Camuzzi Gas, Pampeana S.A.,
Bond (Argentina) 12-15-01 (R), (Y) ........................ 9.250 BBB- 4 4,220
Enserch Exploration, Inc.,
Pass Thru Ctf 01-02-09 (R) ................................ 7.540 BBB 5 4,906
Iberdrola International B.V.,
Sr Note (Netherlands) 06-01-03 (R), (Y) ................... 7.125 A 25 25,531
Norsk Hydro ASA,
Deb (Norway) 10-01-16, (Y) ................................ 7.500 A 10 10,273
---------
44,930
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Paper & Paper Products (1.08%)
Georgia Pacific Corp.,
Deb 01-15-18 .............................................. 9.750% BBB- $ 10 $ 10,434
Indah Kiat International Finance Co.,
Gtd Sr Note (Indonesia) 07-01-07 (R), (Y) ................. 10.000 Ba3 10 9,550
Gtd Sec Bond Ser C (Indonesia) 06-15-06 (Y) ............... 12.500 BB 12 13,110
S.D. Warren Co.,
Sr Sub Note 12-15-04 ...................................... 12.000 B1 5 5,613
---------
38,707
---------
Publishing (0.43%)
News America Holdings, Inc.,
Deb 08-10-18 .............................................. 8.250 BBB 15 15,322
---------
Real Estate Investment Trust (0.28%)
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ............................................. 7.300 BBB- 10 10,169
---------
Retail (0.14%)
Southern Foods Group L.P.,
Sr Sub Note B 09-01-07 (R) ** ............................. 9.875 B 5 5,045
---------
Steel (0.31%)
NS Group, Inc.,
Unit (Sr Sec Note & Warrant) 07-15-03 ..................... 13.500 B- 4 5,620
IVACO, Inc.,
Sr Note (Canada) 09-15-05, (Y) ............................ 11.500 B+ 5 5,581
---------
11,201
---------
Telecommunications (1.04%)
Impsat Corp.,
Gtd Sr Sec Note 07-15-03 .................................. 12.125 BB- 5 5,350
Metronet Communications Corp.,
Unit (Sr Note & Warrant) (Canada) 08-15-07 (R), (Y) ....... 12.000 B3 10 10,650
Paging Network, Inc.,
Sr Sub Note 10-15-08 ...................................... 10.000 B2 8 8,080
Qwest Communications International, Inc.,
Sr Note 04-01-07 (R) ...................................... 10.875 B+ 6 6,630
TCI Communications, Inc.,
Sr Deb 08-01-15 ........................................... 8.750 BBB- 6 6,415
---------
37,125
---------
Tobacco (0.37%)
RJR Nabisco, Inc.,
Note 12-01-02 ............................................. 8.625 BBB- 5 5,212
Note 09-15-03 ............................................. 7.625 BBB- 8 7,937
---------
13,149
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
<S> <C> <C> <C> <C>
Transportation (0.92%)
America West Airlines,
Pass Thru Ctf Ser B 01-02-08 .............................. 6.930% A- $ 5 $ 4,927
Northwest Airlines Corp.,
Unsec Gtd Note 03-15-04 ................................... 8.375 BB- 14 14,254
Pass Thru Ctf Ser 1996-1 01-02-15 ......................... 8.970 BBB- 5 5,403
NWA Trust,
Sr Note Ser A 06-21-14 .................................... 9.250 A2 8 8,553
---------
33,137
---------
Utilities (6.77%)
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 ........................ 8.890 BB- 7 7,145
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 .................................... 9.500 BB+ 17 18,471
Cleveland Electric Illuminating Co. & Toledo Edison Co.,
Sec Note Ser A 07-01-04 (R) ............................... 7.670 BB+ 10 10,025
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ..................................... 10.250 Ba2 25 27,678
Enersis S.A.,
Note (Cayman Islands) 12-01-16, (Y) ....................... 7.400 A- 10 9,845
First PV Funding Corp.,
Deb Ser 86B 01-15-16 ...................................... 10.150 BB- 10 10,684
GTE Corp.,
Deb 11-15-17 .............................................. 10.300 A 25 26,442
Hydro-Quebec,
Deb (Canada) 02-01-03, (Y) ................................ 7.375 A+ 25 25,632
Deb (Canada) 02-01-21, (Y) ................................ 9.400 A+ 25 30,407
Long Island Lighting Co.,
Deb 07-15-19 .............................................. 8.900 BB+ 7 7,323
Gen Ref Bond 05-01-21 ..................................... 9.750 BBB- 25 25,329
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02 ......................... 10.330 Ba3 20 21,064
Philippine Long Distance Telephone Co.,
Note (Philippine Islands) 03-06-07, (Y) ................... 7.850 BB+ 5 4,714
System Energy Resources, Inc.,
1st Mtg 08-01-01 .......................................... 7.710 BBB- 5 5,130
Tenaga Nasional Berhad,
Note (Malaysia) 06-15-04 (R), (Y) ......................... 7.875 A+ 5 5,187
Waterford 3 Funding Corp.,
Sec Lease Bond 01-02-17 ................................... 8.090 BBB- 8 8,100
---------
243,176
---------
TOTAL BONDS
(Cost $3,320,501) (93.34%) 3,350,061
------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.10%)
Investment in a joint repurchase agreement
transaction with Swiss Bank Corp. - Dated 08-29-97,
due 09-02-97 (secured by U.S. Treasury Bonds,
7.125% through 10.375%, due 11-15-12 through
02-15-23) - Note A ........................................ 5.550% $219 $ 219,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ........................................ 76
----------
TOTAL SHORT-TERM INVESTMENTS (6.10%) 219,076
------ ----------
TOTAL INVESTMENTS (99.44%) $3,569,137
====== ==========
</TABLE>
(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. Rule144A
securities amounted to $224,496 or 6.25% of net assets as of August 31,
1997.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
* Credit ratings are unaudited and rated by Standard and Poor's where
available, or Moody's Investor Services or John Hancock Advisers, Inc. where
Standard and Poor's ratings are not available.
** This security having an aggregate value of $5,045 or 0.14% of the Fund's net
asset value, has been purchased as a forward commitment -- that is, the Fund
has agreed on trade date, to take delivery of and make payment for such
security on a delayed basis subsequent to this schedule. The purchase price
and interest rate of such security is fixed at trade date, although the Fund
does not earn any interest on such security until settlement date. The Fund
has instructed its Custodian Bank to segregate assets with a current value
at least equal to the amount of the forward commitment. Accordingly, the
market value of $5,255 of U.S. Treasury Bond, 7.125%, 02/15/23, has been
segregated to cover the forward commitment.
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
52
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Global Bond Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
BONDS
Australian Dollar (2.26%)
State of Queensland Treasury Corp.,
Global Note 08-14-01 ................... 8.000% $ 30 $ 23,707
--------
British Pound Sterling (8.46%)
United Kingdom Treasury,
Bond 11-06-01 .......................... 7.000 55 88,819
--------
New Zealand Dollar (4.79%)
Government of New Zealand,
Bond 02-15-00 .......................... 6.500 80 50,285
--------
U.S. Dollar (80.24%)
Federative Republic of Brazil, (Brazil),
Global Bond 11-05-01 ................... 8.875 25 25,813
Republic of Argentina, (Argentina),
Global Bond 02-23-01 ................... 9.250 50 52,063
Republic of Equador, (Equador),
Unsub Deb 04-25-02 (R) ................. 11.250 25 26,469
Republic of Panama, (Panama),
Note Ser REGS 02-13-02 ................. 7.875 30 29,913
Russian Federation Ministry
of Finance, (Russia),
Unsub Deb Ser
REGS 11-27-01 .......................... 9.250 25 25,503
United Mexican States, (Mexico),
Global Bond 02-06-01 ................... 9.750 25 26,438
Global Bond 05-15-26 ................... 11.500 25 29,625
United States Treasury,
Note 02-28-02 .......................... 6.250 25 25,016
Note 05-31-02 .......................... 6.500 330 333,353
Note 07-31-02 .......................... 6.000 50 49,531
Note 05-15-05 .......................... 6.500 156 157,219
Note 05-15-07 .......................... 6.62 560 61,032
--------
841,975
--------
TOTAL LONG-TERM DEBT
(Cost $1,007,942) (95.75%) $1,004,786
----- ----------
The Schedule of Investments is a complete list of all securities owned by Global
Bond Fund on August 31, 1997. It's divided into two main categories: bonds and
short-term investments. The bonds are further broken down by currency
denomination. Short-term investments, which represent the Fund's "cash"
position, are listed last.
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement ( 3.05%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 08-29-97, due 09-02-97
(secured by U.S. Treasury Bonds
6.00% thru 7.25%, due 08-15-22
thru 02-15-26) - Note A ................ 5.550% $32 $ 32,000
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $32,000) (3.05%) 32,000
------ ----------
TOTAL INVESTMENTS (98.80%) $1,036,786
====== ==========
# Par value of foreign bonds are expressed in local currency.
(R) Security is 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. See Note A of the Notes to
Financial Statements for valuation policy. Rule 144A securities amounted to
$26,469 or 2.52% as of August 31, 1997.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Global Bond Fund
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 on August 31, 1997 assigned to
the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
- --------------------- --------------------
Government -- Foreign................................. 36.08%
Government -- United States .......................... 59.67
Short-term investments................................ 3.05
-----
TOTAL INVESTMENTS 98.80%
=====
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Fundamental Value Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Automobile / Trucks (2.62%)
Arvin Industries, Inc. .................... 5,600 $ 194,950
----------
Banks - United States (3.32%)
Summit Bancshares, Inc. ................... 8,000 247,500
----------
Chemicals (0.74%)
Millennium Chemicals, Inc. ................ 1,135 23,835
Sybron Chemicals, Inc.* ................... 1,400 31,675
----------
55,510
----------
Computers (9.02%)
Advanced Digital Information* ............. 5,000 91,250
Aseco Corp* ............................... 9,000 156,938
En Pointe Technologies, Inc.* ............. 12,000 171,000
GENICOM Corp.* ............................ 14,000 170,625
OzEmail Ltd. American Depositary
Receipts ADR (Australia)* ................ 1,000 11,875
Symix Inc.* ............................... 5,000 70,625
----------
672,313
----------
Consumer Products Misc. (4.15%)
Russ Berrie & Co., Inc. ................... 7,700 220,412
Samsonite Corp.* .......................... 2,300 88,550
----------
308,962
----------
Cosmetics & Personal Care (0.89%)
Carson, Inc.* ............................. 5,500 66,000
----------
Diversified Operations (1.83%)
Viad Corp. ................................ 7,500 136,406
----------
Electronics (13.81%)
Amphenol Corp. (Class A)* ................ 5,000 196,250
DII Group, Inc.* .......................... 2,000 109,500
Elexsys International, Inc.* .............. 6,400 163,200
Fisher Scientific International ........... 1,500 73,875
Innovex, Inc. ............................. 6,000 201,750
Interphase Corp.* ......................... 5,100 52,912
Oak Industries, Inc.* ..................... 8,000 231,500
----------
1,028,987
----------
Finance (9.13%)
Aames Financial Corp. ..................... 3,000 53,437
Astoria Financial Corp. ................... 2,100 101,063
FIRSTPLUS Financial Group, Inc.* .......... 4,500 207,000
MoneyGram Payment Systems, Inc.* .......... 15,500 271,250
The Schedule of Investments is a complete list of all securities owned by
Fundamental Value Fund on August 31, 1997. It's divided into two main
categories: bonds and short-term investments. The bonds are further broken down
by currency denomination. Short-term investments, which represent the Fund's
"cash" position, are listed last.
Finance (continued)
Safeguard Scientifics, Inc.* .............. 700 $ 20,344
White River Corp.* ........................ 400 27,000
----------
680,094
----------
Food (1.00%)
Morrison Health Care, Inc. ................ 4,333 74,473
----------
Instruments - Scientific (1.26%)
Millipore Corp. ........................... 1,900 94,050
----------
Insurance (9.77%)
Allmerica Financial Corp. ................. 2,000 82,750
AmerUs Life Holdings, Inc. (Class A) ...... 1,800 51,750
CMAC Investment Corp. ..................... 4,000 184,500
Executive Risk Inc. ....................... 2,300 132,969
Frontier Insurance Group, Inc. ............ 2,600 91,000
HCC Insurance Holdings, Inc. .............. 7,000 185,063
----------
728,032
----------
Leisure (0.96%)
Equity Marketing Inc.* .................... 3,000 71,250
----------
Linen Supply & Related (0.60%)
Angelica Corp. ............................ 2,500 44,844
----------
Machinery (1.42%)
Greenfield Industries, Inc. ............... 4,000 105,500
----------
Media (0.59%)
Holdingmaatschappij De Telegraaf
(Netherlands) ............................ 2,000 44,018
----------
Mortgage Banking (1.25%)
Imperial Credit Industries, Inc.* ......... 5,000 93,125
----------
Office (1.95%)
Gradco Systems, Inc.* ..................... 20,000 145,000
----------
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Fundamental Value Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Oil & Gas (4.36%)
Daniel Industries, Inc. ................... 7,800 $ 145,275
Parker Drilling Co.* ...................... 13,600 179,350
----------
324,625
----------
Paper & Paper Products (3.72%)
Glatfelter (P.H.) Co. ..................... 13,400 277,212
----------
Pollution Control (1.98%)
Calgon Carbon Corp. ....................... 5,520 75,900
Philip Services Corp.* (Canada) ........... 4,000 71,750
----------
147,650
----------
Printing - Commercial (2.02%)
Mail-Well, Inc.* .......................... 5,400 150,863
----------
Real Estate Operations (4.20%)
Tejon Ranch Co. ........................... 8,700 313,200
----------
Retail (5.80%)
Brown Group, Inc. ......................... 4,000 66,750
Darden Restaurants, Inc. .................. 4,000 40,250
Dominick's Supermarkets, Inc.* ............ 5,000 137,500
Ruddick Corp. ............................. 12,500 187,500
----------
432,000
----------
Telecommunications (2.57%)
Cable Design Technologies* ................ 3,200 107,000
360 Communications Co.* ................... 4,600 84,525
----------
191,525
----------
TOTAL COMMON STOCK
(Cost $5,415,479) .................. (88.96%) 6,628,089
------ ----------
PREFERRED STOCK
Broker Services (3.76%)
Salomon Inc. 7.625%, Ser FSA .............. 8,000 280,000
----------
TOTAL PREFERRED STOCK
(Cost $216,725) (3.76%) 280,000
------ ----------
TOTAL COMMON AND
PREFERRED STOCKS
(Cost $5,632,204) (92.72%) 6,908,089
------ ----------
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.19%)
Investment in a joint repurchase
agreement transaction with SBC Capital
Markets, Inc. Dated 08-29-97, Due 09-02-97
(secured by U.S.Treasury Bonds
7.125% thru 10.375% due 11-15-12
thru 02-15-03) - Note A .................. 5.56% $386 $ 386,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%. 238
----------
TOTAL SHORT-TERM INVESTMENTS (5.19%) 386,238
------ ---------
TOTAL INVESTMENTS (97.91%) $7,294,327
====== =========
* 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
56
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
Schedule of Investments
August 31, 1997 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks and are unaudited.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS (95.11%) RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Advertising (2.95%)
10,250 Interpublic Group Inc. @ 48 3/4.............................................. $ 499,688
----------
One of the largest advertising agencies in the world
Earnings P/S...........$ .61, .70, .75, .78, .88, .93, 1.13, 1.26, 1.13, 1.73 12.3%
Dividends P/S..............$ .15, .17, .21, .25, .27, .30, .33, .37, .41, .45 13.0%
Price/Earnings Ratio.....................................................16.4
Banks (6.34%)
5,000 Banc One Corp. @ 53 5/8 ..................................................... 268,125
Ohio-based bank holding company
Earnings P/S.....$ 1.56, 1.66, 1.83, 1.64, 1.75, 2.27, 2.70, 2.16, 3.00, 3.32 8.8%
Dividends P/S...........$ .45, .50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36 13.1%
Price/Earnings Ratio.....................................................15.6
4,000 BB&T Corp. @ 51 3/4 ......................................................... 207,000
Multi-regional bank holding company
Earnings P/S......$ 1.14, 1.12, 1.33, 1.04, 1.43, 1.92, .09, 1.61, 2.43, 2.66 9.9%
Dividends P/S.............$ .34, .36, .39, .42, .46, .50, .64, .74, .86, 1.00 12.7%
Price/Earnings Ratio.....................................................17.1
2,000 First Tennessee National Corp. @ 53 1/4...................................... 106,500
Tennessee-based bank holding company
Earnings P/S.......$ 1.10, .65, .98, 1.23, 1.50, 1.62, 1.77, 2.08, 2.47, 2.72 10.6%
Dividends P/S.............$ .40, .43, .49, .54, .57, .63, .75, .87, .97, 1.10 11.9%
Price/Earnings Ratio.....................................................19.8
3,000 First Union Corp. @ 48 1/16 ................................................. 144,188
North Carolina-based bank holding company
Earnings P/S........$ .55, .33, .49, 1.26, 1.19, 1.46, 2.36, 2.31, 2.35, 3.09 21.1%
Dividends P/S............$ .385, .43, .50, .54, .56, .64, .75, .86, .98, 1.10 12.4%
Price/Earnings Ratio.....................................................14.9
2,000 NationsBank Corp. @ 59 3/8 .................................................. 118,750
Largest superregional bank in the Southeast
Earnings P/S.......$ 2.90, 4.44, 3.34, .76, .76, 2.31, 2.90, 3.17, 3.77, 4.17 4.1%
Dividends P/S...........$ .43, .47, .55, .71, .74, .755, .82, .94, 1.04, 1.20 12.1%
Price/Earnings Ratio.....................................................13.9
4,000 Norwest Corp. @ 57 7/16 ..................................................... 229,750
The 12th largest bank holding company in
the U.S.
Earnings P/S......$ 1.12, 1.25, 1.36, .46, 1.49, 1.53, 1.99, 2.52, 2.84, 3.17 12.3%
Dividends P/S.............$ .30, .32, .38, .42, .47, .54, .64, .77, .90, 1.05 14.9%
Price/Earnings Ratio.....................................................18.7
----------
1,074,313
----------
Beverages (0.64%)
3,000 PepsiCo, Inc. @ 36 .......................................................... 108,000
----------
Second largest soft drink company
Earnings P/S............$ .49, .57, .68, .70, .69, .82, 1.00, 1.14, 1.04, .75 4.8%
Dividends P/S..............$ .11, .14, .16, .19, .23, .26, .31, .35, .39, .45 16.9%
Price/Earnings Ratio.....................................................36.1
</TABLE>
The Schedule of Investments is a complete list of all securities owned by
Dividend Performers Fund on August 31, 1997. It's divided into two main
categories: bonds and short-term investments. The bonds are further broken down
by currency denomination. Short-term investments, which represent the Fund's
"cash" position, are listed last.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Building (4.54%)
7,700 Masco Corp. @ 44 7/16........................................................ $ 342,169
Manufactures buildings, home improvement and consumer products
Earnings P/S........$ 2.10, 1.42, .91, .57, .46, 1.30, 1.48, 1.14, 1.20, 1.97 NMF
Dividends P/S..............$ .38, .44, .50, .54, .57, .61, .65, .69, .73, .77 8.2%
Price/Earnings Ratio.......................................................21
21,000 RPM, Inc. @ 20 5/16 ......................................................... 426,562
Manufacturer of specialty chemicals and coatings to waterproof and
rustproof structures
Earnings P/S...............$ .38, .45, .42, .40, .50, .44, .73, .81, .89, .97 11.0%
Dividends P/S...............$.21, .25, .27, .30, .34, .37, .39, .42, .46, .49 9.9%
Price/Earnings Ratio.....................................................19.3
----------
768,731
----------
Chemicals (7.97%)
8,100 BetzDearborn, Inc. @ 65 3/16 ................................................ 528,019
Produces and markets a wide range of engineered programs and specialty
chemical products for process
systems
Earnings P/S.....$ 1.58, 1.73, 2.02, 1.47, 2.53, 2.67, 2.04, 2.45, 2.30, 2.04 2.9%
Dividends P/S.......$ .74, .80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49 8.1%
Price/Earnings Ratio.....................................................30.9
13,000 Schulman (A), Inc. @ 21 7/8.................................................. 284,375
Manufactures plastic compounds, buys and sells plastic resins and
distributes plastic products and synthetic rubber for prime producers
in domestic and international markets
Earnings P/S.........$ .73, .82, .95, .76, 1.11, 1.01, 1.14, 1.48, 1.07, 1.32 6.8%
Dividends P/S..............$ .09, .11, .14, .16, .19, .22, .26, .30, .34, .38 17.4%
Price/Earnings Ratio.....................................................17.5
16,500 Sigma - Aldrich Corp. @ 32 5/8............................................... 538,312
Manufacturer of biochemical and organic products used for research
and diagnostics
Earnings P/S.........$ .575, .65, .72, .59, .84, .99, .1.11, 1.14, 1.36, 1.52 11.4%
Dividends P/S........$ .075, .085, .095, .10, .115, .13, .15, .17, .19, .2275 13.1%
Price/Earnings Ratio.....................................................21.1
----------
1,350,706
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Computers (4.78%)
12,000 Automatic Data Processing, Inc. @ 45 9/16.................................... $ 546,750
Largest independent computing services firm in the U.S.
Earnings P/S..........$ .54, .62, .72, .79, .90, 1.01, 1.15, 1.34, 1.53, 1.74 13.9%
Dividends P/S..............$ .11, .13, .15, .17, .20, .23, .26, .29, .35, .42 16.1%
Price/Earnings Ratio.....................................................27.6
4,300 Hewlett-Packard Co. @ 6 15/16................................................ 263,644
Manufactures and services electronic measurement, analysis and
computation instruments
Earnings P/S.........$ 1.25, 1.68, 1.76, .77, .83, .93, .86, 1.31, 1.92, 2.63 8.6%
Dividends P/S..............$ .06, .07, .10, .11, .13, .20, .24, .29, .38, .46 25.4%
Price/Earnings Ratio.....................................................22.1
----------
810,394
----------
Containers (3.50%)
13,500 Bemis Co., Inc. @ 43 15/16................................................... 593,156
----------
Producer of a broad range of flexible packaging and equipment and pressure
sensitive materials
Earnings P/S..........$ .74, .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73, 1.86 10.8%
Dividends P/S...............$.18, .22, .30, .36, .42, .46, .50, .54, .64, .72 16.7%
Price/Earnings Ratio.....................................................24.4
Diversified Operations (3.81%)
7,400 DuPont (E.I.) De Nemours & Co. @ 62 5/16..................................... 461,112
Nation's largest chemical manufacturer
Earnings P/S............$ .76, .89, .85, .85, .46, .38, .26, 1.12, 1.45, 1.68 9.2%
Dividends P/S..$ .275, .3125, .3625, .405, .42, .435, .44, .455, .5075, .5575 8.2%
Price/Earnings Ratio.....................................................17.8
7,100 IKON Office Solutions, Inc. @ 26............................................. 184,600
Distributor of office and paper products
Earnings P/S..........$ 1.15, 1.96, .91, .81, 1.04, 1.18, .05, .74, 1.55, .97 NMF
Dividends P/S..............$ .26, .28, .31, .34, .36, .37, .39, .41, .43, .45 6.3%
Price/Earnings Ratio.....................................................27.6
----------
645,712
----------
Electronics (11.75%)
7,000 AMP, Inc. @ 50............................................................... 350,000
World's largest manufacturer of electrical/electronic connectors
Earnings P/S.....$ 1.48, 1.32, 1.35, 1.31, 1.23, 1.39, 1.44, 1.83, 2.01, 1.24 NMF
Dividends P/S.............$ .43, .50, .60, .68, .72, .76, .80, .84, .92, 1.00 9.8%
Price/Earnings Ratio.....................................................36.7
6,600 Emerson Electric Co. @ 541 1/16.............................................. 360,937
Produces and sells electrical/electronic products and systems
Earnings P/S.....$ 1.16, 1.32, 1.38, 1.40, 1.44, 1.53, 1.91, 1.95, 2.15, 2.39 8.4%
Dividends P/S..........$ .49, .515, .58, .64, .67, .70, .735, .80, .92, 1.005 8.3%
Price/Earnings Ratio.....................................................23.1
Electronics (continued)
3,000 General Electric Co. @ 62 1/2................................................ $ 187,500
Dominant force in home appliances,
electrical power, and financial services
Earnings P/S......$ .94, 1.09, 1.22, 1.26, 1.28, 1.12, 1.57, 1.84, 2.07, 2.34 10.7%
Dividends P/S.............$ .325, .35, .41, .47, .51, .56, .63, .72, .82, .92 12.3%
Price/Earnings Ratio.....................................................29.7
5,000 Grainger (W.W.), Inc. @ 881 3/16............................................. 444,063
Leading distributor of electrical equipment
Earnings P/S.....$ 1.57, 1.96, 2.19, 2.31, 2.38, 2.70, 3.04, 2.61, 3.70, 4.09 11.2%
Dividends P/S..............$ .39, .43, .50, .57, .61, .65, .71, .78, .89, .98 10.8%
Price/Earnings Ratio.....................................................20.7
4,500 Parker Hannifin Corp. @ 64 5/16.............................................. 289,406
Operates in the industrial and aerospace industries, producing a wide range of
motion control devices and designs and manufactures products for the aircraft,
missile and spacecraft markets
Earnings P/S...........$ .79, .97, 1.13, 1.01, .55, .10, .59, .43, 1.97, 2.15 11.8%
Dividends P/S.....$ .353, .367, .373, .393, .406, .413, .426, .433, .453, .48 3.5%
Price/Earnings Ratio.....................................................13.3
6,000 Rockwell International Corp. @ 60............................................ 360,000
Leading producer of aerospace, automotive and electronics products
Earnings P/S......$1.98, 2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79 7.5%
Dividends P/S............$.66, .72, .77, .82, .88, .92, .96, 1.04, 1.10, 1.16 6.5%
Price/Earnings Ratio.....................................................14.7
----------
1,991,906
----------
Food (2.28%)
17,850 Archer-Daniel Midland Co. @ 21 5/8........................................... 386,006
----------
Processes and merchandises agricultural products
Earnings P/S.............$ .59, .71, .74, .71, .77, .84, .81, 1.34, 1.20, .67 1.4%
Dividends P/S....$ .026, .028, .033, .046, .048, .050, .053, .063, .110, .184 24.3%
Price/Earnings Ratio.....................................................33.8
Furniture (1.02%)
4,000 Leggett & Platt, Inc. @ 43................................................... 172,000
---------
Produces intermediate products for the
home furnishings industry
Earnings P/S........$ .278, .273, .323, .35, .64, .87, 1.12, 1.47, 1.62, 1.76 22.8%
Dividends P/S............$ .14, .16, .185, .21, .215, .23, .27, .31, .38, .46 14.1%
Price/Earnings Ratio.....................................................24.3
Insurance (5.11%)
5,500 Chubb Corp. @ 66 7/8......................................................... 367,812
Broadly based property-casualty insurance organization
Earnings P/S.....$ 2.38, 2.78, 3.09, 3.26, 3.20, 3.70, 1.43, 3.61, 3.77, 3.21 3.4%
Dividends P/S.............$ .45, .54, .58, .66, .74, .80, .86, .92, .98, 1.08 10.2%
Price/Earnings Ratio.....................................................21.2
1,100 General RE Corp. @ 193 7/8................................................... 213,263
Broadly based re-insurance organization
Earnings P/S....$ 5.04, 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02 10.59, 11.08 9.2%
Dividends P/S....$ 1.00, 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04 8.2%
Price/Earnings Ratio.....................................................17.2
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Insurance (continued)
3,800 Reliastar Financial Corp. @ 74 3/4........................................... $ 284,050
Financial services company engaged in life/health insurance and
consumer finance
Earnings P/S......$ .79, 1.035, .995, .98, .835, 1.13, 1.42, 1.74, 2.31, 2.52 13.8%
Dividends P/S......$ .235, .285, .295, .325, .345, .365, .395, .44, .49, .545 9.8%
Price/Earnings Ratio.....................................................15.1
----------
865,125
----------
Machinery (6.00%)
7,500 Dover Corp. @ 69 1/16........................................................ 517,969
Manufactures a variety of specialized
industrial products
Earnings P/S.....$ 1.11, 1.14, 1.28, 1.23, 1.09, 1.16, 1.46, 1.93, 2.60, 3.47 13.5%
Dividends P/S..............$ .26, .31, .35, .38, .41, .43, .45, .49, .56, .64 10.5%
Price/Earnings Ratio.....................................................18.3
14,000 Pentair, Inc. @ 35 5/8....................................................... 498,750
Manufactures enclosures for electrical, electronic, woodworking and power
tool equipment
Earnings P/S........$ 1.12, .95, .80, .89, 1.11, 1.11, 1.14, 1.32, 1.54, 1.91 6.1%
Dividends P/S..............$ .21, .22, .27, .29, .31, .33, .34, .36, .40, .50 10.1%
Price/Earnings Ratio.....................................................18.1
----------
1,016,719
----------
Media (3.50%)
2,000 Gannett Co., Inc. @ 97 7/16.................................................. 194,875
Publishes 81 daily/50 nondaily newspapers, operates 10 TV , 8 FM and
7 AM stations
Earnings P/S.....$ 1.13, 1.24, 1.18, 1.11, 1.03, 1.24, 1.41, 1.67, 1.64, 2.45 4.5%
Dividends P/S..............$ .47, .51, .56, .61, .62, .63, .65, .67, .69, .71 4.7%
Price/Earnings Ratio.....................................................19.4
6,500 McGraw-Hill Cos., Inc. @ 6 15/16............................................. 398,531
Provides informational products and services for business and industry
Earnings P/S.......$ 1.92, .91, 1.77, 1.73, 1.51, 1.60, .11, 2.04, 2.30, 2.84 4.45%
Dividends P/S......$ .84, .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32 5.2%
Price/Earnings Ratio.....................................................21.8
----------
593,406
----------
Medical (6.82%)
5,100 Abbott Laboratories @ 59 15/16............................................... 305,681
Major pharmaceutical and healthcare firm
Earnings P/S.......$ .84, .97, 1.11, 1.19, 1.38, 1.58, 1.77, 2.01, 2.28, 2.57 5.2%
Dividends P/S..............$ .24, .29, .34, .40, .48, .58, .66, .74, .82, .93 16.2%
Price/Earnings Ratio.....................................................24.9
1,800 American Home Products Corp. @ 72............................................ 129,600
Leading manufacturer of ethical pharmaceuticals
Earnings P/S.....$ 1.60, 1.77, 1.96, 3.07, 1.85, 2.26, 2.39, 3.48, 1.84, 3.09 7.6%
Dividends P/S.......$ .83, .90, .98, 1.08, 1.19, 1.33, 1.43, 1.47, 1.51, 1.57 7.3%
Price/Earnings Ratio.....................................................25.2
Medical (continued)
7,000 Baxter International, Inc. @ 53 3/16......................................... $ 372,312
The company operates four divisions: renal, biotech, cardiovascular and
intravenous systems and
international distribution
Earnings P/S...$ 1.30, 1.49, (.05), 1.91, 1.81, 1.73, (.70), 2.01, 1.50, 2.36 6.85%
Dividends P/S............$ .41, .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11 11.7%
Price/Earnings Ratio.....................................................22.9
1,500 Johnson & Johnson @ 561 1/16................................................. 85,031
Major producer of prescription and non-prescription drugs, toiletries,
medical instruments and supplies
Earnings P/S.........$ .71, .80, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.94, 2.26 13.7%
Dividends P/S..............$ .20, .24, .28, .33, .39, .45, .51, .57, .64, .74 15.7%
Price/Earnings Ratio.....................................................27.7
1,700 Medtronic, Inc. @ 90 3/8..................................................... 153,638
Leading manufacturer of medical devices
and instruments
Earnings P/S...........$ .40, .46, .48, .56, .68, .89, 1.01, 1.28, 1.94, 2.23 21.0%
Dividends P/S..............$ .06, .07, .09, .10, .12, .14, .17, .21, .26, .32 20.4%
Price/Earnings Ratio.....................................................41.2
1,200 Merck & Co., Inc. @ 911 3/16................................................. 110,175
World's largest ethical drug manufacturer
Earnings P/S.....$ 1.02, 1.26, 1.52, 1.59, 1.89, 2.18, 1.87, 2.45, 2.79, 3.34 14.1%
Dividends P/S..........$ .27, .43, .55, .64, .77, .92, 1.03, 1.14, 1.24, 1.42 20.3%
Price/Earnings Ratio.....................................................30.5
----------
1,156,437
----------
Metal (2.19%)
20,000 Worthington Industries, Inc. @ 18 9/16....................................... 371,250
----------
Manufactures metal and plastic products
Earnings P/S.............$ .61, .70, .61, .50, .63, .74, .94, 1.29, 1.01, .96 5.2%
Dividends P/S..............$ .17, .19, .23, .26, .28, .32, .34, .39, .43, .47 20.8%
Price/Earnings Ratio.....................................................20.4
Office (1.80%)
4,000 Pitney Bowes, Inc. @ 76 3/8.................................................. 305,500
----------
Manufactures office automation equipment
Earnings P/S.....$ 1.54, 1.19, 1.34, 1.35, 1.79, 1.98, 1.99, 2.33, 2.75, 3.23 8.6%
Dividends P/S...........$ .38, .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38 15.4%
Price/Earnings Ratio.....................................................22.1
Oil & Gas (2.58%)
6,000 Mobil Corp. @ 72 3/4......................................................... 436,500
----------
One of the largest integrated, international
oil companies with interest in petrochemicals
and plastics
Earnings P/S......$ 5.07, 4.40, 4.60, 4.65, 2.70, 1.60, 2.02, 2.60,2.27, 3.07 NMF
Dividends P/S.....$ 1.10, 1.18, 1.28, 1.41, 1.56, 1.60,1.63, 1.70, 1.81, 1.96 6.6%
Price/Earnings Ratio.....................................................24.8
Retail (6.54%)
8,000 Home Depot, Inc. @ 47 3/16................................................... 377,500
Operates a chain of retail building supply/home improvement "warehouse"
stores
Earnings P/S.............$ .42, .46, .23, .32, .43, .59, .73, .91, 1.08, 1.38 14.1%
Dividends P/S........$ .053, .06, .073, .08, .087, .093, .10, .113, .126, .14 11.4%
Price/Earnings Ratio.....................................................32.5
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Retail (continued)
6,000 Pep Boys - Manny, Moe & Jack (The) @ 26 1/2.................................. $ 159,000
Retailer of automotive parts and accessories
Earnings P/S...........$ .76, .63, .66, .63, .75, .93, 1.13, 1.30, 1.40, 1.66 9.1%
Dividends P/S..............$ .08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio.....................................................20.5
8,000 Sysco Corp. @ 35 1/2......................................................... 284,000
Largest distributor of food service products
Earnings P/S..........$ .45, .60, .73, .81, .90, 1.00, 1.16, 1.33, 1.48, 1.65 15.5%
Dividends P/S..............$ .07, .08, .09, .10, .14, .22, .28, .36, .44, .52 25.0%
Price/Earnings Ratio.....................................................22.8
8,100 Wal-Mart Stores, Inc. @ 35 1/2............................................... 287,550
Operates chain of discount department stores
Earnings P/S...........$ .37, .48, .50, .59, .73, .90, 1.05, 1.20, 1.21, 1.38 15.4%
Dividends P/S..............$ .03, .04, .06, .07, .09, .11, .13, .17, .20, .21 24.1%
Price/Earnings Ratio.....................................................25.7
----------
1,108,050
----------
Soap & Cleaning Preparations (1.86%)
7,000 Ecolab, Inc. @ 45 1/16....................................................... 315,438
----------
Develops and markets premium institutional cleansing, sanitizing and
maintenance products and services
Earnings P/S........$ .88, .18, 1.04, .93, 1.00, 1.05, 1.26, 1.27, 1.53, 1.85 8.6%
Dividends P/S..............$ .30, .32, .33, .34, .35, .36, .40, .46, .52, .58 7.6%
Price/Earnings Ratio.....................................................26.5
Steel (1.67%)
5,000 Nucor Corp. @ 56 11/16....................................................... 283,438
----------
Manufactures steel and steel products
Earnings P/S...........$ .84, .68, .88, .86, .78, .98, 1.57, 2.97, 2.97, 2.97 15.1%
Dividends P/S..............$ .09, .10, .11, .12, .13, .14, .16, .18, .28, .32 15.1%
Price/Earnings Ratio.....................................................19.6
Utilities (7.46%)
5,000 Century Telephone Enterprise, Inc. @ 36 5/16................................. 181,563
Louisiana based telecommunications company
Earnings P/S..........$ .51, .67, .63, .67, .89, 1.32, 1.39, 1.99, 1.99, 2.20 17.6%
Dividends P/S....$ .253, .264, .272, .280, .287, .293, .310, .320, .330, .360 9.0%
Price/Earnings Ratio.....................................................15.9
12,000 National Fuel Gas Co. @ 44 7/16.............................................. 533,250
Integrated natural gas system serving N.Y.,
PA. and Ohio
Earnings P/S.....$ 1.65, 1.93, 1.83, 1.95, 1.89, 1.88, 2.05, 2.27, 2.40, 2.96 6.7%
Dividends P/S....$ 1.19, 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67 3.8%
Price/Earnings Ratio.....................................................14.2
11,000 Questar Corp. @ 40........................................................... 440,000
Diversified holding company for Utah, Wyoming and Colorado natural gas
transmission, distribution and
storage
Earnings P/S......$ .64, 1.27, 1.46, 1.57, 1.53, 2.00, 1.97, 1.11, 2.23, 2.54 16.6%
Dividends P/S........$ .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19 3.0%
Price/Earnings Ratio.....................................................16.7
Utilities (continued)
2,000 SBC Communications, Inc. @ 54 3/8............................................ $ 108,750
Provides telephone service throughout the United States and internationally
Earnings P/S.....$ 1.74, 1.76, 1.82, 1.84, 1.85, 2.11, 2.34, 2.67, 2.96, 3.40 7.7%
Dividends P/S....$ 1.14, 1.22, 1.29, 1.36, 1.41, 1.45, 1.50, 1.56, 1.63, 1.70 4.5%
Price/Earnings Ratio.....................................................17.1
----------
1,263,563
----------
TOTAL COMMON STOCKS
(Cost $13,986,406) 16,116,038
----------
<CAPTION>
PARVALUE
(000s SHORT-TERM INVESTMENTS INTEREST
OMITTED) (4.85%) RATE
- -------- ----
Joint Repurchase Agreement (4.85%)
$822 Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 08-29-97, due 09-02-97
(secured by U.S. Treasury Bonds
7.125% thru 10.375%, due 11-15-12
thru 02-15-23) - Note A .................................................. 5.55% 822,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ........................................................... 414
----------
SHORT-TERM INVESTMENTS (4.85%) 822,414
------ ----------
TOTAL INVESTMENTS (99.96%) $16,938,452
====== ===========
</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
60
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
Schedule of Investments August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (1.79%)
Sundstrand Corp. .......................... 9,500 $ 560,500
Tracor, Inc.* ............................. 5,200 156,650
----------
717,150
----------
Banks - United States (8.92%)
Banc One Corp. ............................ 17,000 911,625
Comerica, Inc. ............................ 14,000 991,375
Compass Bancshares, Inc. .................. 17,000 605,625
Crestar Financial Corp. ................... 6,000 268,125
U.S. Bancorp .............................. 9,000 788,062
----------
3,564,812
----------
Computers (6.73%)
Adaptec, Inc.* ............................ 21,000 1,008,000
Computer Sciences Corp.* .................. 9,500 706,562
EMC Corp.* ................................ 12,500 641,406
Network Appliance, Inc.* .................. 7,000 330,750
----------
2,686,718
----------
Diversified Operations (4.50%)
AlliedSignal, Inc. ........................ 14,000 1,155,875
Crane Co. ................................. 14,500 639,812
----------
1,795,687
----------
Electronics (13.15%)
Altera Corp.* ............................. 13,000 692,250
Applied Materials, Inc.* .................. 11,500 1,085,312
Honeywell, Inc. ........................... 15,000 1,036,875
KLA-Tencor Corp.* ......................... 9,000 637,875
Novellus Systems, Inc.* ................... 5,300 607,512
Texas Instruments, Inc. ................... 10,500 1,193,062
----------
5,252,886
----------
Finance (2.99%)
Charter One Financial, Inc. ............... 22,000 1,196,250
----------
Food (7.70%)
ConAgra, Inc. ............................. 13,000 836,062
Morningstar Group, Inc.*.. 23,000 ......... 687,125
Quaker Oats Co. ........................... 33,000 1,551,000
----------
3,074,187
----------
Household (2.07%)
Newell Co. ................................ 21,000 826,875
----------
The Schedule of Investments is a complete list of all securities owned by
Multi-Sector Growth Fund on August 31, 1997. It's divided into two main
categories: bonds and short-term investments. The bonds are further broken down
by currency denomination. Short-term investments, which represent the Fund's
"cash" position, are listed last.
Insurance (12.31%)
Allmerica Financial Corp. ................. 23,500 $ 972,313
American General Corp. .................... 24,000 1,156,500
Frontier Insurance Group, Inc. ............ 12,700 444,500
General Re Corp. .......................... 5,000 969,375
Oxford Health Plans, Inc.* ................ 7,500 548,438
Travelers Property Casualty Corp. .........
(Class A) ................................ 20,500 825,125
----------
4,916,251
----------
Medical (2.73%)
AmeriSource Health Corp. (Class A)* ....... 9,000 450,563
Baxter International Inc.. ................ 12,000 638,250
----------
1,088,813
----------
Oil & Gas (20.14%)
BJ Services Co.* .......................... 12,500 903,125
Cooper Cameron Corp.* ..................... 17,500 1,135,313
Dresser Industries, Inc. .................. 31,000 1,294,250
EVI, Inc.* ................................ 26,500 1,392,906
Falcon Drilling Co., Inc.* ................ 31,000 976,500
Global Industries Ltd. * .................. 21,500 783,406
Gulf Canada Resources, Ltd. (Canada)* ..... 57,000 459,563
Halliburton Co. ........................... 19,000 907,250
Ocean Energy, Inc.* ....................... 3,000 192,938
----------
8,045,251
----------
Pollution Control (1.45%)
Philip Services Corp. (Canada)* ........... 32,200 577,588
----------
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Retail (10.29%)
American Stores Co. ....................... 26,000 $ 615,875
CVS Corp. ................................. 21,000 1,183,875
Gap, Inc. (The) ........................... 18,000 799,875
Payless ShoeSource, Inc.* ................ 7,000 448,875
Safeway, Inc.* ............................ 14,000 713,125
Walgreen Co. .............................. 13,000 350,188
----------
4,111,813
----------
Telecommunications (2.13%)
Nokia Corp. American Depositary
Receipts (Finland) ....................... 11,000 852,500
----------
Transport (1.81%)
CNF Transportation, Inc. .................. 20,000 722,500
----------
TOTAL COMMON STOCKS
(Cost $36,623,360) (98.71%) 39,429,281
------ ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.28%)
Investment in a joint repurchase
agreement transaction with SBC Capital
Markets, Inc. Dated 08-29-97, due
09-02-97 (secured by U.S. Treasury Bonds
7.125% thru 10.375%, due 11-15-12
thru 02-15-23) - Note A .................. 5.55% $512 512,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%. ...................... 465
----------
TOTAL SHORT-TERM INVESTMENTS (1.28%) 512,465
----- ----------
TOTAL INVESTMENTS (99.99%) $39,941,746
====== ===========
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund
Portfolio Concentration (Unaudited)
- -------------------------------------------------------------------------------
The Multi-Sector Growth Fund invests primarily in 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 on August 31, 1997 assigned to country
categories.
MARKET VALUE AS A
PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Canada................................ 2.60%
Finland............................... 2.13
United States......................... 93.98
Short-term Investments................ 1.28
------
TOTAL INVESTMENTS 99.99%
======
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Equity Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.34%)
Outdoor Systems, Inc.* .................... 675 $ 17,845
Universal Outdoor Holdings, Inc.* ......... 400 13,700
----------
31,545
----------
Aerospace (0.85%)
AAR Corp. ................................. 600 20,137
----------
Automobile / Trucks (0.79%)
Budget Group, Inc. (Class A)* ............. 400 11,750
Special Devices, Inc.* .................... 300 6,825
----------
18,575
----------
Beverages (1.45%)
Mondavi (Robert) Corp. (Class A)* ......... 400 18,200
Scheid Vineyards Inc. (Class A)* .......... 1,500 16,125
----------
34,325
----------
Broker Services (1.69%)
E* TRADE Group, Inc.* ..................... 700 22,487
Interra Financial, Inc. ................... 400 17,400
----------
39,887
----------
Building (1.24%)
Royal Group Technologies Ltd.* (Canada) ... 500 13,094
Watsco, Inc. .............................. 600 16,275
----------
29,369
----------
Business Services - Misc (3.37%)
Caribiner International, Inc.* ............ 300 12,675
Coinstar, Inc.* ........................... 800 9,500
CORESTAFF, Inc.* .......................... 300 8,925
Fair, Isaac & Company, Inc. ............... 200 8,437
Hagler Bailly, Inc.* ...................... 200 4,325
Hall, Kinion & Associates, Inc.* .......... 100 2,137
MAXIMUS, Inc.* ............................ 200 4,575
On Assignment, Inc.* ...................... 400 18,050
StarTek, Inc.* ............................ 700 10,981
----------
79,605
----------
Computers (10.82%)
ACE*COMM Corp.* ........................... 700 11,637
Advent Software, Inc.* .................... 400 10,600
Aris Corp.* ............................... 100 2,450
Aseco Corp * .............................. 600 10,462
Aspect Development, Inc.* ................. 600 22,950
Aspen Technologies, Inc.* ................. 400 13,650
BISYS Group, Inc. (The)* .................. 300 10,125
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Equity Fund on August 31, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
Computers (continued)
Computer Management Sciences, Inc. * ...... 400 $ 7,600
Discreet Logic, Inc.* ..................... 900 21,037
Information Management Resources, Inc.* ... 450 14,681
JDA Software Group, Inc.* ................. 200 6,250
National Instruments Corp.* .............. 600 24,750
Network Appliance, Inc.* .................. 600 28,350
Remedy Corp.* ............................. 400 15,425
Sequent Computer Systems, Inc.* ........... 500 14,094
Transaction Systems Architects, Inc. ......
(Class A)* ............................... 300 10,388
Vantive Corp.* ............................ 300 9,150
Visio Corp.* .............................. 400 13,800
Xionics Document Technologies, Inc.* ...... 600 8,100
----------
255,499
----------
Consumer Products Misc. (0.65%)
Samsonite Corp.* .......................... 400 15,400
----------
Electronics (9.62%)
Advanced Technology Materials, Inc.* ...... 600 17,700
Aehr Test Systems* ........................ 700 12,250
ANADIGICS, Inc.* .......................... 400 19,800
Electroglas, Inc.* ........................ 500 16,000
Integrated Circuit Systems, Inc.* ......... 800 27,600
Level One Communications, Inc.* ........... 600 21,375
Novellus Systems, Inc.* ................... 100 11,463
Sawtek, Inc.* ............................. 600 23,625
Schick Technologies, Inc.* ................ 100 2,650
SeaMED Corp.* ............................. 800 14,000
Semtech Corp.* ............................ 400 23,650
Silicon Valley Group, Inc.* .............. 400 13,500
Unitrode Corp.* ........................... 300 23,400
----------
227,013
----------
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Finance (2.04%)
FIRSTPLUS Financial Group, Inc.* .......... 400 $ 18,400
Medallion Financial Corp. ................. 800 16,200
PMT Services, Inc.* ....................... 800 13,500
----------
48,100
----------
Food (1.24%)
Fine Host Corp.* .......................... 500 17,375
Morningstar Group, Inc.* .................. 400 11,950
----------
29,325
----------
Insurance (4.54%)
Capital Re Corp. .......................... 400 20,325
CMAC Investment Corp. ..................... 300 13,837
HCC Insurance Holdings, Inc. .............. 600 15,862
Life Re Corp. ............................. 200 10,263
Philadelphia Consolidated Holding Corp.* .. 500 20,688
Pre-Paid Legal Services, Inc.* ............ 400 9,500
Western National Corp. .................... 600 16,725
----------
107,200
----------
Leasing Companies (0.76%)
Rollins Truck Leasing Corp. ............... 1,100 17,806
----------
Leisure (3.32%)
Ballantyne of Omaha, Inc.* ................ 800 15,600
Cinar Films, Inc. (Class B)* (Canada) ..... 600 19,050
Premier Parks, Inc.* ...................... 600 19,350
Silicon Gaming, Inc.* ..................... 700 9,013
Silverleaf Resorts, Inc.* ................. 800 15,400
----------
78,413
----------
Machinery (1.89%)
Gardner Denver Machinery, Inc.* ........... 600 22,237
ITEQ, Inc.* ............................... 1,800 22,275
----------
44,512
----------
Media (6.53%)
American Radio Systems Corp.* ............. 300 14,775
Central Newspapers, Inc. (Class A) ........ 200 13,612
CMP Media, Inc. (Class A)* ................ 600 16,050
Cox Radio, Inc. (Class A)* ................ 600 16,050
Heftel Broadcasting Corp. (Class A)* ...... 300 18,600
Mecklermedia Corp.* ....................... 700 14,088
Network Event Theater, Inc.* .............. 2,500 13,438
SFX Broadcasting, Inc. (Class A)* ......... 300 22,013
Univision Communications, Inc. (Class A)* . 500 25,625
----------
154,251
----------
Medical (10.02%)
Affymetrix, Inc.* ......................... 400 13,400
Andrx Corp.* .............................. 300 11,775
ESC Medical Systems Ltd.* (Israel) ........ 550 18,012
Medical (continued)
Healthcare Recoveries, Inc.* .............. 500 $ 8,813
Incyte Pharmaceuticals, Inc.* ............. 200 12,100
Kendle International Inc.* ................ 100 1,600
Kos Pharmaceuticals, Inc.* ................ 400 13,800
MiniMed, Inc.* ............................ 400 14,050
Monarch Dental Corp.* ..................... 900 16,313
Myriad Genetics, Inc.* .................... 600 14,250
National Surgery Centers, Inc.* ........... 500 14,875
Ocular Sciences, Inc.* .................... 200 3,825
PathoGenesis Corp.* ....................... 300 9,863
Perclose, Inc.* ........................... 600 14,100
Protein Design Labs, Inc.* ................ 500 17,813
Sonus Pharmaceuticals, Inc.* .............. 600 23,925
Universal Health Services, Inc. (Class B)* 300 13,144
Warner Chilcott Laboratories*
American Depositary Receipt ADR (Ireland) 100 1,850
Wesley Jessen VisionCare, Inc.* ........... 500 13,000
----------
236,508
----------
Office (0.81%)
Shelby Williams Industries, Inc. .......... 1,200 19,125
----------
Oil & Gas (7.89%)
Dawson Production Services, Inc.* ......... 600 11,250
Eagle Geophysical, Inc.* .................. 400 8,200
EVI, Inc.* ................................ 400 21,025
Forcenergy, Inc.* ......................... 500 18,125
Key Energy Group, Inc.* ................... 800 20,700
National-Oilwell, Inc.* ................... 300 18,469
Ocean Energy, Inc.* ....................... 200 12,863
Precision Drilling Corp.* (Canada) ........ 400 21,900
Pride International, Inc.* ................ 800 25,600
Stone Energy Corp.* ....................... 500 15,250
Vintage Petroleum, Inc. ................... 300 12,881
----------
186,263
----------
Pollution Control (3.21%)
Eastern Environmental Services, Inc.* ..... 600 12,000
Newpark Resources, Inc.* .................. 400 13,550
Philip Services Corp.* (Canada) ........... 1,600 28,700
Superior Services, Inc.* .................. 800 21,500
----------
75,750
----------
Printing - Commercial (0.47%)
Mail-Well, Inc.* .......................... 400 11,175
----------
Real Estate Operations (3.90%)
Arden Realty Group, Inc. .................. 400 11,550
Beacon Properties Corp. ................... 500 18,000
Cali Realty Corp. ......................... 400 14,900
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Real Estate Operations (continued)
Glenborough Realty Trust, Inc. ............ 800 $ 20,650
Redwood Trust, Inc. ....................... 400 15,350
Starwood Lodging Trust .................... 250 11,547
----------
91,997
----------
Retail (10.57%)
Arbor Drugs, Inc. ......................... 900 21,487
CKE Restaurants, Inc. ..................... 300 9,675
Concepts Direct, Inc.* .................... 600 11,100
Cost Plus, Inc.* .......................... 400 10,350
Dominick's Supermarkets, Inc.* ............ 600 16,500
Furniture Brands International, Inc.* ..... 900 15,862
Hibbett Sporting Goods, Inc.* ............. 800 18,600
Hot Topic, Inc.* .......................... 600 9,450
Keystone Automotive Industries, Inc.* ..... 600 11,325
Linens `N Things, Inc.* ................... 600 17,400
Logan's Roadhouse, Inc.* .................. 400 9,800
99 Cents Only Stores* ..................... 500 16,062
Peapod, Inc.* ............................. 900 8,100
Proffitt's, Inc.* ......................... 400 21,475
Quality Food Centers, Inc.* .............. 550 22,619
Rainforest Cafe, Inc.* .................... 300 8,063
Stage Stores, Inc.* ....................... 700 21,656
----------
249,524
----------
Schools / Education (0.47%)
Strayer Education, Inc. ................... 300 11,175
----------
Shoes & Related Apparel (0.47%)
Wolverine World Wide, Inc. ................ 500 11,063
----------
Steel (1.87%)
Lone Star Technologies, Inc.* ............. 600 24,488
Maverick Tube Corp.* ...................... 600 19,575
----------
44,063
----------
Telecommunications (3.70%)
Comverse Technology, Inc.* ................ 400 18,375
Corsair Communications, Inc.* ............. 100 2,000
Innova Corp.* ............................. 400 8,800
MRV Communications, Inc.* ................. 400 11,750
REMEC, Inc.* .............................. 750 25,031
Tel-Save Holdings, Inc.* .................. 1,200 21,450
----------
87,406
----------
Textile (1.22%)
Culp, Inc. ................................ 900 19,012
Cutter & Buck, Inc.* ...................... 500 9,875
----------
28,887
----------
Transport (1.03%)
Eagle USA Airfreight, Inc.* .............. 600 $ 16,650
Ryanair Holdings PLC* ADR (Ireland) ....... 100 2,750
Travel Services International, Inc.* ...... 200 4,875
----------
24,275
----------
TOTAL COMMON STOCK
(Cost $1,860,019) (97.77%) 2,308,173
------ ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.75%)
Investment in a joint repurchase
agreement transaction with SBC Capital
Markets, Inc. Dated 08-29-97,
Due 09-02-97 (secured by U.S.
Treasury Bonds 7.125% thru 10.375%
due 11-15-12 thru 02-15-23) - Note A ..... 5.55% $65 65,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%. ...................... 224
----------
TOTAL SHORT-TERM INVESTMENTS (2.76%) 65,224
----- ----------
TOTAL INVESTMENTS (100.53%) $2,373,397
======= ==========
* 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
65
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Australia (3.62%)
Normandy Mining Ltd. (Metal) .............. 145,500 $ 176,155
WMC Ltd. (Metal) .......................... 20,000 101,257
----------
277,412
----------
Brazil (7.13%)
Centrais Electricas Brasileiras S/A
(American Depositary Receipts)
(ADR) (Utilities) ........................ 5,800 130,500
Companhia Paranaense de Energia
(ADR) (Utilities) ........................ 3,900 56,063
Telecomunicacoes Brasileiras S/A
(ADR) (Telecommunications) ............... 3,050 359,900
----------
546,463
----------
Canada (2.20%)
Royal Bank of Canada (Banks - Foreign) .... 3,580 168,260
----------
Chile (1.17%)
Maderas y Sinteticos SA (ADR) (Building) .. 6,200 89,900
----------
France (4.71%)
Banque Nationale de Paris
(Banks - Foreign)* ....................... 280 11,939
Carrefour SA (Retail) ..................... 265 159,716
LVMH Moet Hennessy Louis Vuitton
SA (Beverages) ........................... 475 98,764
Suez Lyonnaise des Eaux
(Diversified Operations) ................ 900 90,529
----------
360,948
----------
Germany (6.14%)
Bayerische Motoren Werke AG
(Automobile / Trucks) .................... 340 241,121
Mannesmann AG (Machinery) ................ 130 60,214
Schering AG (Medical) ..................... 1,000 97,346
Volkswagen AG (Automobile / Trucks) ....... 100 71,749
----------
470,430
----------
Hong Kong (6.73%)
Cheung Kong Holdings Ltd. .................
(Real Estate Operations) ................ 18,000 190,464
CITIC Pacific Ltd. (Diversified Operations) 12,000 63,953
Hong Kong & Shanghai Hotels Ltd. (Leisure) 31,000 38,002
Hutchison Whampoa Ltd. ....................
(Diversified Operations) ................ 20,000 166,462
The Schedule of Investments is a complete list of all securities owned by the
International Equity Fund on August 31, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
Hong Kong (continued)
Jardine Matheson Holdings Ltd. ............
(Diversified Operations) ................ 2,400 $ 16,800
Wharf Holdings Ltd. .......................
(Real Estate Operations) ................ 11,000 39,815
----------
515,496
----------
India (1.49%)
State Bank of India, Global Depositary
Receipts (Banks - Foreign) ............... 5,790 114,353
----------
Japan (15.25%)
Fujitsu Ltd. (Computers) .................. 15,000 178,838
Ito-Yokado Co., Ltd. (Retail) ............. 3,000 161,451
Matsushita-Kotobuki Electronics
Industries, Ltd. (Electronics) ........... 5,000 162,692
Shin-Etsu Chemical Co., Ltd. (Chemicals) .. 8,000 204,007
Sony Corp. (Electronics) .................. 2,000 173,870
Sumitomo Sitix Corp. (Metal) .............. 7,000 133,880
TDK Corp. (Electronics) ................... 2,000 153,337
----------
1,168,075
----------
Malaysia (0.93%)
Sime Darby Berhad (Diversified Operations) 30,000 70,799
----------
Mexico (4.55%)
Grupo Industrial Maseca SA
de CV (ADR) (Food) ....................... 9,000 150,188
Panamerican Beverages, Inc. (Beverages) ... 6,600 198,413
----------
348,601
----------
Netherlands (7.15%)
Gucci Group N.V. (Retail) ................ 4,130 251,414
ING Groep N.V. (ADR) (Banks - Foreign) .... 5,350 235,734
Ispat International N.V. (Steel)* ......... 1,700 45,581
Koninklijke PTT Nederland (Utilities)* .... 425 15,076
----------
547,805
----------
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
New Zealand (0.58%)
Telecom Corp. of New Zealand
(Telecommunications) ..................... 9,000 $ 44,387
----------
Norway (1.85%)
Orkla ASA (Diversified Operations) ........ 750 53,130
Saga Petroleum ASA (Oil & Gas) ............ 4,200 88,864
----------
141,994
----------
Portugal (2.04%) Electricidade de Portugal, S.A.
(ADR) (Utilities)* ....................... 5,100 156,188
----------
Singapore (2.88%)
NatSteel Ltd. (Steel) ..................... 14,000 38,110
Oversea-Chinese Banking Corp., Ltd. .......
(Banks - Foreign) ........................ 18,000 140,337
Wing Tai Holdings Ltd. ....................
(Real Estate Operations) ................ 20,000 42,286
----------
220,733
----------
Sweden (2.92%)
Investor AB (Diversified Operations) ...... 4,590 223,531
----------
Switzerland (6.61%)
ABB AG (Engineering / R&D Services) ....... 80 23,651
Nestle SA (Food) .......................... 15 17,436
Novartis AG (Medical) ..................... 174 246,450
SMH AG (Consumer Products Misc.) .......... 780 102,459
Zurich Versicherungs-Gesellschaft
(Insurance) .............................. 320 116,106
----------
506,102
----------
United Kingdom (12.85%)
EMAP PLC (Media) .......................... 20,000 265,860
Marks & Spencer PLC (Retail) .............. 30,000 284,989
Pearson PLC (Media) ....................... 17,000 199,801
Regal Hotel Group PLC (Leisure) ........... 150,000 119,151
Wetherspoon (J.D.) PLC (Retail) ........... 5,000 114,288
----------
984,089
----------
TOTAL COMMON STOCKS
(Cost $6,758,225) ............... (90.80%) 6,955,566
------ ----------
PREFERRED STOCKS
Brazil (4.52%)
Compania Riograndense
de Telecomunicaciones SA
(Telecommunications) ..................... 273,549 $ 345,916
----------
TOTAL PREFERRED STOCKS
(Cost $400,688) ............... (4.52%) 345,916
------ ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.41%)
Investment in a joint repurchase agreement
transaction with SBC Capital Markets,
Inc. Dated 08-29-97, due 09-02-97
(secured by U.S. Treasury Bonds
6.00% thru 7.25%, due 08-15-22
thru 02-15-26) - Note A .................. 5.55% $185 185,000
----------
TOTAL SHORT-TERM INVESTMENTS (2.41%)
-------
TOTAL INVESTMENTS (97.73%) $7,486,482
======= ==========
* 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
67
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
Industry Diversification (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries it invests. The concentration of investments by country for
individual securities held by the Fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various
industry groups. The table below shows the percentages of the Fund's investments
at August 31, 1997 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS
- --------------------- -------------------------
Automobile/Trucks.................................... 4.08%
Banks - Foreign...................................... 8.75
Beverages............................................ 3.88
Building............................................. 1.17
Chemicals............................................ 2.66
Computers............................................ 2.33
Consumer Products.................................... 1.34
Diversified Operations............................... 8.95
Electronics.......................................... 6.40
Engineering/R & D Services........................... 0.31
Food................................................. 2.19
Insurance............................................ 1.52
Leisure.............................................. 2.05
Machinery............................................ 0.79
Media................................................ 6.08
Medical.............................................. 4.49
Metal................................................ 5.37
Oil & Gas............................................ 1.16
Real Estate Operations............................... 3.56
Retail............................................... 12.69
Steel................................................ 1.09
Telecommunications................................... 9.79
Utilities............................................ 4.67
Short-Term Investments............................... 2.41
-----
TOTAL INVESTMENTS 97.73%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Active Bond Fund ("Active Bond Fund"), John Hancock Global Bond
Fund ("Global Bond Fund"), John Hancock Fundamental Value Fund ("Fundamental
Value Fund"), John Hancock Dividend Performers Fund ("Dividend Performers
Fund"), John Hancock Multi-Sector Growth Fund ("Multi-Sector Growth Fund"), John
Hancock Small Capitalization Equity Fund ("Small Capitalization 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. The Trust,
organized as a Massachusetts business trust in 1994, consists of twelve series
portfolios: the Funds, John Hancock Independence Balanced Fund, John Hancock
Independence Value Fund, John Hancock Independence Diversified Core Equity Fund
II, John Hancock Independence Growth Fund and John Hancock Independence Medium
Capitalization Fund. The other five series of the Trust are reported in separate
financial statements. 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 Active Bond Fund is a high rate of total
return, consistent with prudent investment risk. The investment objective of the
Global Bond Fund is a competitive total investment return, consisting of current
income and capital appreciation. The investment objective of the Fundamental
Value Fund is capital appreciation with income as a secondary objective. 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 Multi-Sector Growth Fund is long-term capital appreciation. The
investment objective of the Small Capitalization Fund is long-term growth of
capital. 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
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' 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. 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 Small
Capitalization Equity Fund has a capital loss carryforward available of $29,711
expiring February 28, 2005. To the extent that such
69
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
carryforwards are used by the Funds, no capital gains distribution will be made.
Expired capital loss carryforwards are reclassified to capital paid-in, in the
year of expiration. Additionally, net capital losses for the Active Bond Fund of
$890, the Fundamental Value of $371,611, the Small Capitalization Equity Fund of
$26,590 and the International Equity Fund of $40,051 and net foreign currency
losses for the Multi-Sector Growth Fund of $1,998 and the International Equity
Fund of $9,171 attributable to security transactions occurring after October 31,
1996 are treated as arising on the first day (March 1, 1997) 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 identify the dividend. Interest income on
investment securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable.
The Funds record all 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.
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.
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 Funds. Actual results could differ from these estimates.
BANK BORROWINGS The Funds are permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Funds had no borrowing
activity for the period ended August 31, 1997.
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 Funds do 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
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds, other than Dividend
Performers Fund, may enter into forward foreign currency exchange contracts as a
hedge against the effect of fluctuations in currency exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date at a set price. The aggregate principal
amounts of the
70
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
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 Funds' 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 Funds' Statements of Assets and Liabilities. The
Funds may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
Open foreign currency forward sell contracts at August 31, 1997 for Global
Bond Fund was as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY: COVERED BY CONTRACT MONTH (DEPRECIATION)
- --------- ------------------- ----- --------------
NEW ZEALAND
DOLLAR 80,149 SEPT 97 $ 665
=====
Open foreign currency forward buy contracts at August 31, 1997 for the
Global Bond Fund was as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY: COVERED BY CONTRACT MONTH (DEPRECIATION)
- --------- ------------------- ----- --------------
DEUTSCHE MARK 270,000 SEPT 97 $3,759
JAPANESE YEN 5,000,000 SEPT 97 ($ 692)
------
$3,067
======
Open forward currency exchange buy contracts at August 31, 1997 for the
International Equity Fund was as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY: COVERED BY CONTRACT MONTH (DEPRECIATION)
- --------- ------------------- ----- --------------
SINGAPORE DOLLAR 30,349 SEPT 97 ($ 77)
=====
FINANCIAL FUTURES CONTRACTS The Funds may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Funds' exposure to the
underlying instrument. Selling futures tends to decrease the Funds' exposure to
the underlying instrument or hedge other Fund instruments. At the time a Fund
enters into a financial futures contract, it is required to deposit with its
custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," are recorded by the Funds as unrealized gains or losses.
When the contracts are closed, the Funds recognize a gain or loss. Risks
of entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities.
For federal income tax purposes, the amount, character and timing of the
Funds' gains and/or losses can be affected as a result of futures contracts.
At August 31, 1997, there were no open positions in financial futures
contracts.
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 Funds will be included in the Statement of Assets
and Liabilities as an asset
71
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
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 their exposure to the stock
market and currency interest rates. Writing puts and buying calls will tend to
increase a Fund's exposure to the underlying instrument and buying puts and
writing calls will tend to decrease a 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 Funds 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 Funds are 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 Funds will
continuously monitor the creditworthiness of all of their counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Funds' period-end
Statements of Assets and Liabilities.
There were no written option transactions for the period ended August 31,
1997 for all Funds.
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
---- ----
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
Fundamental Value Fund .70% of average daily net assets up to $500 million
.65% of such assets in excess of $500 million
Dividend Performers Fund .60% of average daily net assets up to $500 million
.55% of such assets in excess of $500 million
Multi-Sector Growth Fund .80% of average daily net assets up to $500 million
.75% of such assets in excess of $500 million
Small Capitalization Fund .80% of average daily net assets
International Equity Fund .90% of average daily net assets up to $500 million
.65% of such assets in excess of $500 million
Effective September 12, 1995, the Adviser agreed to limit the Funds'
expenses to the extent required to prevent expenses from exceeding: 0.60% of
Active Bond Fund's average daily net assets, 0.85% of Global Bond Fund's average
daily net assets, 0.80% of Fundamental Value Fund's average daily net assets,
0.70% of Dividend Performers Fund's average daily net assets, 0.90% of
Multi-Sector Growth Fund's average daily net assets, 0.90% of Small
Capitalization 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 August 31,
1997, the reduction in the Funds' expenses with any additional amounts not borne
by the Funds by virtue of the expense limit amounted to $29,987 for Active Bond
Fund, $24,810 for Global Bond Fund, $22,003 for Fundamental Value Fund, $20,699
for Dividend Performers Fund, $38,932 for Multi-Sector Growth Fund, $31,250 for
Small Capitalization Fund and $27,663 for International Equity Fund.
The Adviser has entered into a sub-advisory agreement with Sovereign Asset
Management Corporation ("SAMCORP"), an affiliate of the Adviser, to provide
certain investment research and portfolio management services for Dividend
Performers Fund, for which the
72
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
Adviser pays SAMCORP (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. (the "Sub-Adviser") serves as
subadviser to International Equity Fund pursuant to a subadvisory agreement with
that Fund and the Adviser. Formed in 1987, it is a wholly owned subsidiary of
the Adviser. The Adviser pays the Sub-Adviser a fee, equivalent on an annual
basis to the sum of (a) 70% of the advisory fee payable on the Fund's average
daily net assets up to $500 million and (b) 90% of the advisory fee payable on
the Fund's assets exceeding $500 million.
The Funds are not responsible for payment of these subadvisory fees.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended August
31, 1997, all sales of shares of beneficial interest were sold at net asset
value. The Funds pay all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states, and all other expenses in connection with the sale and
offering for sale of the shares of the Funds which have not been herein
specifically allocated to the Trust.
The Funds have a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect wholly-owned subsidiary of
JHMLICo. Each fund pays transfer agent fees at an annual fee accrued daily of
0.05% of its average daily net assets, plus certain out-of-pocket expenses.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are directors and/or officers of the Adviser, and/or its affiliates as
well as Trustees of the Funds. The compensation of unaffiliated Trustees is
borne by the Funds. The Adviser and other subsidiaries of John Hancock Mutual
Life Insurance Company owned 94,118 and 11,765 shares of beneficial interest of
the Global Bond Fund and Multi-Sector Growth Fund, respectively, as of August
31, 1997. 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 its liability for the deferred compensation. Investments to
cover the Funds' deferred compensation liability are recorded on the Fund's
books as another asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At August 31, 1997, the Fund's investment to cover the deferred
compensation had unrealized appreciation of $4 for the Active Bond Fund, none
for the Global Bond Fund, $21 for the Fundamental Value Fund, $11 for the
Dividend Performers Fund, $25 for the Multi-Sector Growth Fund, none for the
Small Capitalization Equity Fund and none for the International Equity Fund.
73
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds -- Institutional Series Trust
NOTE C -
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended August 31, 1997 were as follows:
PURCHASES SALES
--------- -----
Active Bond Fund
U.S. Government Securities ...... $ 2,670,801 $ 1,383,363
Other Investments ............... 856,354 865,869
Global Bond Fund ..................
U.S. Government Securities ...... 517,151 313,993
Other Investments ............... 541,349 719,306
Fundamental Value Fund ............ 4,493,121 4,483,162
Dividend Performers Fund .......... 10,424,857 3,861,378
Multi-Sector Growth Fund .......... 66,531,694 56,498,608
Small Capitalization Fund ......... 1,813,656 878,167
International Equity Fund ......... 5,769,790 1,536,423
At August 31, 1997, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of investments owned by
the Funds, as computed on a federal income tax basis, were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION (DEPRECIATION)
---- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Active Bond
Fund ........................ $ 3,539,501 $ 44,133 ($ 14,573) $ 29,560
Global Bond
Fund ........................ 1,039,942 8,014 (11,170) (3,156)
Fundamental
Value Fund .................. 6,018,204 1,387,872 (111,987) 1,275,885
Dividend
Performers Fund ............. 14,808,406 2,212,232 (82,600) 2,129,632
Multi-Sector
Growth Fund ................. 37,135,360 3,174,314 (368,393) 2,805,921
Small Capitalization
Equity Fund ................. 1,925,019 487,717 (39,563) 448,154
International
Equity Fund ................. 7,343,913 559,572 (417,003) 142,569
</TABLE>
74
<PAGE>
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John Hancock Funds -- Institutional Series Trust
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in Dividend Performers Fund as of August 31, 1997.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories .................................. 12.50%
American Home Products Corp. ......................... 3.90
AMP, Inc. ............................................ 4.00
Archer-Daniels-Midland Co. ........................... 5.00
Automatic Data Processing, Inc. ...................... 15.00
Banc One Corp. ....................................... 11.80
Baxter International, Inc. ........................... 0.39
BB&T Corp. ........................................... 14.80
Bemis Co. ............................................ 11.10
BetzDearborn, Inc. ................................... 1.40
Century Telephone Enterprises, Inc. ... .............. 2.80
Chubb Corp. .......................................... 10.20
Dover Corp. .......................................... 13.30
Du Pont (E.I.) De Nemours & Co. ...................... 10.50
Ecolab, Inc. ......................................... 14.30
Emerson Electric Co. ................................. 10.20
First Tennessee National Corp. ....................... 13.20
First Union Corp. .................................... 11.50
Gannett Co., Inc. .................................... 2.90
General Electric Co. ................................. 13.00
General Re Corp. ..................................... 7.80
Grainger (W.W.), Inc. ................................ 1.10
Hewlett-Packard Co. .................................. 16.70
Home Depot, Inc. ..................................... 1.25
IKON Office Solutions, Inc. .......................... 7.70
Interpublic Group, Inc. .............................. 14.70
Johnson & Johnson .................................... 15.80
Leggett & Platt, Inc. ................................ 8.50
Masco Corp. .......................................... 5.30
McGraw-Hill Cos., Inc. ............................... 9.10
Medtronic, Inc. ...................................... 15.80
Merck & Co., Inc. .................................... 5.00
Mobil Corp. .......................................... 6.00
National Fuel Gas Co. ................................ 3.60
NationsBank Corp. .................................... 13.80
Norwest Corp. ........................................ 11.10
Nucor Corp. .......................................... 25.00
Parker Hannifin Corp. ................................ 12.50
Pentair, Inc. ........................................ 8.00
Pep Boys - Manny, Moe & Jack ......................... 14.30
PepsiCo, Inc. ........................................ 8.70
Pitney Bowes, Inc. ................................... 15.90
Questar Corp. ........................................ 3.40
ReliaStar Financial Corp. ............................ 10.70
Rockwell International Corp. ......................... 5.50
RPM, Inc. ............................................ 8.30
SBC Communications, Inc. ............................. 4.10
Schulman (A), Inc. ................................... 10.50
Sigma-Aldrich Corp. .................................. 13.60
Sysco Corp. .......................................... 15.40
Wal-Mart Stores, Inc. ................................ 28.60
Worthington Industries, Inc. ......................... 8.30
-----
The average dividend increase for this group was ..... 9.96%
=====
75
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A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603 ---------------
1-800-755-4371 1-800-554-6713(TDD) Bulk Rate
Internet:www.jhancock.com/funds U.S. Postage
PAID
Randolph, MA
Permit No. 75
---------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Institutional Series Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."
KBOSA 8/97
10/97
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Institutional
Series Trust
Independence Balanced Fund
Independence Value Fund
Independence Diversified Core Equity Fund II
Independence Growth Fund
Independence Medium Capitalization Fund
AUGUST 31, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
================================================================================
Table of Contents
Page
1) Chairman's Message...................................................... 3
2) Portfolio Manager Commentary
These commentaries reflect the views of the portfolio management
team through the end of the Fund's period discussed in this report.
Of course, the team's views are subject to change as market and
other conditions warrant.
John Hancock Independence Balanced Fund................................. 4
John Hancock Independence Value Fund ................................... 8
John Hancock Independence Diversified Core Equity Fund II .............. 12
John Hancock Independence Growth Fund................................... 16
John Hancock Independence Medium Capitalization Fund.................... 20
3) Financial Statements.................................................... 24
4) Notes To Financial Statements........................................... 56
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM*
CHARLES F. FRETZ*
HAROLD R. HISER, JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.*
PATRICIA P. MCCARTER*
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN NORMAN H. SMITH, USMC (RET)*
JOHN P. TOOLAN*
* MEMBERS OF AUDIT COMMITTEE
OFFICERS
EDWARD J. BOUDREAU, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ROBERT G. FREEDMAN
VICE CHAIRMAN AND
CHIEF INVESTMENT OFFICER
ANNE C. HODSDON
PRESIDENT
JAMES B. LITTLE
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
SUSAN S. NEWTON
VICE PRESIDENT AND SECRETARY
JAMES J. STOKOWSKI
VICE PRESIDENT AND TREASURER
THOMAS H. CONNORS
SECOND VICE PRESIDENT AND
COMPLIANCE OFFICER
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MA 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
INVESTMENT SUBADVISER
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 STATE STREET
BOSTON, MA 02109
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MA 02109
2
<PAGE>
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CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The Taxpayer Relief Act of 1997 recently signed into law by President
Clinton includes new twists and important changes to Individual Retirement
Account (IRA) laws. The provisions will, among other things, allow more people
to qualify for annual tax-deductible IRA contributions and to save tax-free for
college. They also allow IRA investors to withdraw money penalty-free from all
IRAs to buy a first home or pay for college expenses.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
For existing deductible IRAs, the law doubles income limits over the next
eight to 10 years for those eligible to deduct an annual IRA contribution of up
to $2,000. For individuals, the annual income cap will increase incrementally
from the current $25,000 to $50,000 by 2005. For couples, the limit would
increase from $40,000 today to $80,000 in 2007. The new law also allows
non-working spouses to make IRA contributions even if their spouse is covered by
a company-sponsored plan, provided the couple's joint income is less than
$150,000.
The law also creates two new IRA investment vehicles. One, called the
"Roth IRA" after its principal congressional sponsor, allows for non-deductible
annual contributions up to a $2,000 maximum. But income accumulates tax-free and
if the account has been open for five years, distributions are tax-free if they
are used after age 59 1/2 or upon death, disability or a first-time home
purchase. Withdrawals for higher-education expenses would not be subject to a
10% penalty. Eligible investors must earn less than $95,000 per year
individually or $150,000 per couple.
A second new IRA plan is called the "Education IRA" and it allows
non-deductible contributions of up to $500 per year, per child under age 18.
Earnings in the account accumulate tax-free, and withdrawals are also not taxed
when applied toward undergraduate or graduate-level expenses. Eligible investors
are subject to the same income restrictions as the Roth IRA.
The law has also made some important changes in capital gains tax rates
and estate tax laws. But the devil is in the details, and so we recommend
exploring how you can benefit from the changes with your investment professional
and tax advisor. The Taxpayer Relief Act of 1997 gives investors new options
toward savings. It's a move we applaud.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
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BY JANE A. SHIGLEY AND JEFFREY B. SAEF
FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Balanced Fund
Low inflation, moderate economy benefit both stocks and bonds
"Our retail holdings proved to be a mixed bag."
Despite bouts of volatility, the stock market continued its advance over the
past six months, thanks in part to a healthy economy which kept corporate
earnings strong. A relatively favorable outlook for inflation helped bonds,
although their returns paled in comparison to stocks. For the six months ended
August 31, 1997, John Hancock Independence Balanced Fund posted a total return
of 7.85% at net asset value. That compared to the average balanced fund's return
of 10.17%, according to Lipper Analytical Services, Inc. During the same period,
a 50/50 blended index combining the Standard & Poor's 500-Stock Index and the
Lehman Brothers Government Corporate Bond Index (L.G.C.) returned 9.60%. The
Fund's lag was due primarily to equity underperformance. From March through
June, we were underweighted in the largest blue-chip stocks, which outperformed
the remainder of the market. Because these stocks traded at relatively high
price-to-earnings multiples, our valuation models -- which focus on finding
undervalued stocks -- did not find them attractive. However, the stocks that we
emphasized did outperform the largest blue chips in July and August. In
addition, the Fund was slightly underweighted in stocks during the entire
period. Based on our analysis, fixed-income securities looked more attractive
than equities. As a result, our asset allocation remains at a slightly below
normal equity exposure. At the end of August, 44% of the Fund's assets were
invested in stocks, 54% in bonds and 2% in short-term investments.
PORTFOLIO DIVERSIFICATION
[Pie chart entitled "Portfolio Diversification" at bottom left hand column. The
chart is divided into three sections. Going from top to right: Stocks 44%; Bonds
54%; Short-Term Investments and other 2%. Footnote below states "As a percentage
of net assets on August 31, 1997."]
Stocks: Winners and laggards
The Fund benefited from the strong showings of some of its financial,
technology, and defense holdings. In the financial sector, we saw good
performance from BankAmerica and CIGNA. Both were fueled by continuing industry
consolidation, strong earnings growth and a generally positive interest rate
environment. Two of our top performers in the technology group were Computer
Associates and Sun Microsystems, which ben efited from the growing demand for
technology
4
<PAGE>
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John Hancock funds - Institutional Series Trust - Independence Balanced Fund
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the six months ended August 31, 1997
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." The chart
is scaled in increments of 5%, with 15% the top and 0% at the bottom. Within the
chart there are three solid bars. The first represents the 7.85% total return
for John Hancock Dividend Performers Fund. The second represents the 10.17%
total return for the S&P 500-stock Index. The third represents the 9.60% total
return for the average growth and income fund. A footnote below states: "The
total return for John Hancock Independence Balanced Fund is at net asset value
with all distributions reinvested. The average balanced fund is tracked by
Lipper Analytical Services, Inc. The S&P 500-Stock Index and the Lehman Brothers
Government/Corporate Bond Index are unmanaged indices commonly used as broad
measures of stock and bond performance. The performance of these indices is
tracked by the Frank Russell Company. See the following two pages for historical
performance information."]
- --------------------------------------------------------------------------------
products and services. In the defense group, the top con tributor to performance
was Northrop Grumman, which rose when it was taken over by Lockheed.
Our retail holdings proved to be a mixed bag. On the plus side, Home Depot
enjoyed higher earnings as the home improvement market showed signs of strength
and Costco continued to show better sales and earnings. On the negative side
were specialty retailers Tommy Hilfiger and Nine West, which despite rising
consumer confidence, failed to keep pace with other retailers.
Mortgage-backed, corporate bonds winners
Within the fixed-income portion of the Fund, our relatively heavy weighting in
mortgage-backed securities was a plus during the past six months. The period saw
low interest-rate volatility, which had a positive effect on mortgage-backed
securities. Because the rate of prepayments was more predictable in a relatively
stable interest-rate environment, mortgage-backed securities generally rallied.
At one point during the period, we had built our stake in mortgage-backed
securities to as much as 15% of the Fund's fixed-income investments. But given
their strong recent performance, we felt that it was prudent to pare back our
holdings at the end of July and wait for values in this sector to re-emerge.
"...we are encouraged that the market's performance has broadened..."
Our relatively heavy stake in corporate bonds -- which were buoyed by
continued strong corporate earnings -- also made a positive contribution to the
Fund's performance. We recently doubled our stake in higher-yielding, lower
investment-grade corporate bonds because we think they offer the potential to do
quite well. At the end of August, our bond holdings as a percentage of the
Fund's assets were: U.S. Treasuries, 35%; investment-grade corporate securities,
19% and mortgage- and asset-backed securities, 1%.
Outlook
In our view, the economic environment is favorable for stocks as long as
inflation stays low and growth remains moderate and steady. That's not to say
that there won't be short-term bumps along the way. For the longer term, we are
encouraged that the market's performance has broadened further to small- and
medium-sized companies. No matter what, we'll stick to our discipline in search
of companies whose stock prices are inexpensive while their earnings prospects
are improving. We also remain optimistic about corporate bonds and plan to
maintain a relatively heavy weighting in them.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show 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 distributions, assuming reinvestment of
these distributions, and the change in 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 RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Balanced Fund 15.76% 30.89%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Balanced Fund(2) 15.76% 14.51%(1)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of August 31, 1997
SEC 30-DAY
YIELD
-----
John Hancock Independence Balanced Fund 3.53%
Notes to Performance
(1) Commenced operations on July 6, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.90% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 15.16% and 12.61%, respectively.
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 August 31, 1997, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in a blend of 50% in the
Standard & Poor's 500 Stock Index and 50% in the Lehman Brothers
Government/Corporate Bond Index. The Standard & Poor's 500 Stock Index is an
unmanaged index that includes 500 widely traded common stocks and is a commonly
used measure of stock market performance. The Lehman Brothers/Corporate Bond
Index is an unmanaged index that measures the performance of U.S. corporate
bonds, and Yankee bonds.
John Hancock Independence Balanced Fund
[Line chart with the heading Independence Balanced Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value of a 50% blend of the Standard & Poor's 500
Stock Index and the Lehman Brothers Government/Corporate Bond Index and is equal
to $359,786 as of August 31, 1997. 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 $332,649 as of August 31, 1997.]
7
<PAGE>
================================================================================
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Value Fund
Ideal economic conditions favor rising stock market
The Fund keeps its sights on inexpensive stocks with good prospects.
Despite a rocky start and finish, most U.S. stock market indices produced
stellar returns during the last six months. Early in the period, the Dow Jones
Industrial Average tumbled 700 points between mid-March and mid-April. But a
combination of moderate economic growth, stable interest rates, and low
inflation soon rekindled the market's rise. Led by large-company stocks with
reliable earnings growth through June, the market charged into new territory.
Stock prices peaked in early August, then retreated when two blue-chip companies
announced lower-than-expected earnings. Many other large-company stocks also
fell, causing turbulence at summer's end.
John Hancock Independence Value Fund captured some -- but not all -- of
the market's gains. For the six months ended August 31, 1997, the Fund delivered
a total return of 13.51% at net asset value, compared to 14.69% for its
benchmark, the Russell 1000 Value Index. The Fund also trailed the average
growth and income fund, which returned 14.32%, according to Lipper Analytical
Services, Inc. Stock selection in two of our largest sectors -- utilities and
energy -- held the Fund back.
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
[Chart with heading "Top Five Common Stock Holdings" at bottom of left hand
column. The chart lists five holdings: 1) Citicorp 3.1% 2) Ford Motor Co. 3.1%
3) General Re 2.9% 4)Chase Manhattan 2.2 % 5) Texaco 2.1%. A footnote below
reads: "As a percentage of net assets on August 31, 1997]
- --------------------------------------------------------------------------------
Performance review
We continued to generally match the industry weightings of the Russell 1000
Value Index, while choosing inexpensive stocks with good prospects. One of the
stocks that helped the Fund was defense contractor Northrop Grumman, which
returned 41% for the period. The company's revenues and profit margins improved,
thanks to production efficiencies in its aerospace business, as well as gains
from newly acquired Westinghouse Electric. Ford -- our second largest investment
- -- also boosted Fund performance. Attracted by the success of its restructuring
efforts, its strong new product line and good labor relations, investors bid the
stock price up 33% during the period. Another top investment, BankAmerica, beat
the market,
8
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust - Independence Value Fund
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the six months ended August 31, 1997
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." 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 13.51% total
return for the John Hancock Independence Value Fund. The second represents the
14.32% total return for the Average growth and income fund. The third represents
the 14.69% total return for the Russell 1000 Value Index. A footnote below
states "The total return for John Hancock Independence Value Fund is at net
asset value with all distributions reinvested. The average growth and income
fund is tracked by Lipper Analytical Services. The Russell 1000 Value Index is
an unmanaged index comprised of stocks of companies from the is a broad index
composed of investment-grade corporate and government bonds. See following two
pages for historical performance information."]
- --------------------------------------------------------------------------------
thanks to an upturn in southern California's economy and the efforts of new
management.
Several of our largest investments performed in line with the market.
Citicorp has the best global franchise and revenue stream of all the major
banks, but concerns about growing competition in emerging markets held the stock
back from further gains. General Re, one of the largest reinsurance companies
worldwide, has terrific underwriting skills, superior management, and good
international growth opportunities that aren't fully reflected in the stock's
price. In the oil sector, weak prices in the second quarter hampered companies
like Texaco, Phillips Petroleum and British Petroleum.
The Fund lost ground in the utilities sector, where many stocks seem to be
struggling as investors wait to see the effect of deregulation. Despite good
service territories, utilities like Florida Progress posted flat or negative
returns for the period. Telecommunications companies also experienced problems
stemming from deregulation. This hurt companies like GTE, which suffered as well
from its acquisition of Internet service provider BBN. The banking sector -- 18%
of the Fund's assets -- lagged the market early in the period because of fears
early in 1997 that interest rates would rise. This temporarily hurt Chase
Manhattan, Bankers Trust, and First Union, all of which were among our top 10
investments.
"We're optimistic about the stock market's prospects..."
More reasons for optimism ahead
We believe the Fund's prospects are better than ever. We've cut back or
eliminated laggards like AT&T that have failed to live up to investors'
expectations. We've also used market weakness to add to stocks with excellent
prospects, particularly in the banking sector.
We're also optimistic about the stock market's prospects, even as
volatility continues. Economic conditions couldn't be more favorable. Plus,
market leadership is broadening beyond the small number of large-company growth
stocks that have accounted for so much of the market's gains in recent years.
This shift should bode well for diversified funds like ours.
9
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show 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 distributions, assuming reinvestment of
these distributions, the change in 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 RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Value Fund 25.86% 47.60%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Value Fund(2) 25.86% 24.99%(1)
Notes to Performance
(1) Commenced operations on October 2, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.95% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 24.29% and 13.70%, respectively.
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 Value Fund would be worth on August 31, 1997, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell 1000 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
is traded in the United States on The New York Stock Exchange. The securities in
this index have a less than average growth orientation.
John Hancock Independence Balanced Fund
[Line chart with the heading Independence Value Fund, representing the growth of
a hypothetical $250,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Russell 1000 Value Index and is equal
to $395,716 as of August 31, 1997. The second line represents the value of the
hypothetical $250,000 investment made in the Independence Value Fund on October
2, 1995 and is equal to $391,940 as of August 31, 1997.]
11
<PAGE>
================================================================================
BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Diversified Core Equity Fund II
Moderate growth, benign inflation push stocks to new heights
"...financial and health-care sectors were two of the largest contributors..."
The stock market turned in a strong performance over the last six months.
Despite bouts of market volatility caused by fears that a vibrant economy might
trigger inflation, the economic backdrop remained almost perfect. That, coupled
with strong corporate profits, caused stock prices to soar. The market's rise
was particularly surprising since it came on the heels of two years of strong
stock advances that many thought would moderate this year. In March, at the
beginning of the Fund's six month period, the market's gains rested mainly with
the large-company blue-chip stocks that had led the market's advance since the
latter part of 1996. But by the end of the period, the market's performance had
broadened. For the six months ended August 31, 1997, the Standard & Poor's 500
Stock Index returned 14.78%, including reinvested dividends. In the same period,
the Fund posted a total return of 13.35% and the average growth and income fund
returned 14.32%, according to Lipper Analytical Services, Inc.
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
[Chart with heading "Top Five Common Stock Holdings" at bottom of left hand
column. The chart lists five holdings: 1) General Re 2.8% 2) General Electric
2.8% 3) BankAmerica 2.7% 4)Home Depot 2.6 % 5) United Technologies 2.6%. A
footnote below reads: "As a percentage of net assets on August 31, 1997."]
- --------------------------------------------------------------------------------
Performance review
The Fund continued to pursue its objectives of growth and income through its
disciplined investment strategy. That involves applying fundamental company
analysis and computer modeling to the task of finding companies with improving
earnings prospects and inexpensive stock prices. One stock at a time, we seek to
create a diversified portfolio with a risk level that is comparable to the S&P
500.
With much of the period dominated by large-com pany stocks, the Fund
benefited from its hold in gs in such giants as Home Depot and Compaq Computer.
On the other hand, we slightly lagged our peers because we avoided some of the
blue-chip names that we considered overvalued. Two aerospace-related companies
also did well -- Northrop Grumman because it was acquired by Lockheed, and
Textron because of improving margins in its auto parts division
12
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Independence Diversified Core
Equity Fund II
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the six months ended August 31, 1997
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." 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 13.35% total
return for the John Hncock Independence Diversified Core Equity Fund II. The
second represents the 14.32% total return for the Average Growth and Income
Fund. The third represents the 14.78% total return for the average S&P 500-Stock
Index. A footnote below states "The total return for John Hancock Independence
Diversified Core Equity Fund II is at net asset value with all distributions
reinvested. The average growth and income fund is tracked by Lipper Analytical
Services, Inc. The S&P 500-Stock Index is an unmanaged index that includes 500
widely-traded common stocks. See the following two pages for historical
performance information.]
- --------------------------------------------------------------------------------
and the approval of defense spending for its V22 helicopter.
Over the last six months, the financial and health-care sectors were two
of the largest contributors to the Fund's performance. The financial area --
including banks, insurance com pa nies and brokerage firms -- was lifted by
continuing industry consolidation, strong earnings growth and the positive
interest rate environment that followed the brief rate spike in the spring. Our
larger banks such as BankAmerica and BankBoston served us well. Insurance
companies, which have large portfolios of bonds, also benefited from the
improved interest-rate environment, including Fund holdings CIGNA and General
Re. Even with the strong performance, the financial area remained a source of
good values, and lately we added several names, including Travelers Group Inc.,
an insurance company.
Health-care stocks, particularly the large pharmaceutical companies,
continued to be propelled by the strong flow of new products and industry
consolidation. As a result, companies such as Warner Lambert, Johnson & Johnson
and Abbott Labs have seen strong and predictable growth in both sales and
earnings. At the same time, their stock price levels have remained attractively
valued relative to their prospects.
Among the disappointments were our energy and utility-related companies.
Energy stocks were lackluster until the end of the period, due to lower oil
prices. Utility companies such as Texas Utilities and GTE suffered from the
uncertainty surrounding deregulation.
"...the economic environment couldn't get much better."
A look ahead
For now, the economic environment couldn't get much better. That suggests that
stocks could continue to move ahead as long as inflation stays low and growth
remains moderate and steady. But we won't be surprised to see the market pause
periodically, with pullbacks from time to time, as it digests new economic data.
The market is especially vulnerable now to such moves, given that stock prices
already reflect the excellent environment.
For the longer term, we are encouraged that the market's performance has
broadened further as the spotlight turns away somewhat from mega-cap stocks and
their lofty valuation levels. That bodes well for broadly-diversified portfolios
such as John Hancock Independence Diversified Core Equity Fund II. Whatever the
market does next, we'll stick to our discipline in search of com panies whose
stock prices are inexpensive while their earnings prospects are improving.
13
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show 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 distributions,
assuming reinvestment of these distributions, and the change in 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 RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Diversified Core
Equity Fund II 27.38% 75.56%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Diversified Core
Equity Fund II 27.38% 27.59%(1,2)
Notes to Performance
(1) Commenced operations on March 10, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.70% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return since inception would have been 27.56%.
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 Diversified Core Equity Fund II would be worth on August 31, 1997,
assuming you invested on the day the Fund started and have rein vested 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.
John Hancock
Independence Diversified Core Equity Fund II
[Line chart with the heading Independence Diversified Core Equity Fund II,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $473,491 as of August 31, 1997. 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 $452,394 as of August 31,
1997.]
15
<PAGE>
================================================================================
BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Growth Fund
Stock market skyrockets, then slumps in late summer,
but produces strong results overall
"Among the top contributors... were some of our largest investments."
Propelled by ideal conditions, the stock market kept climbing during the last
six months. The economy chugged along nicely; inflation was tame; interest rates
remained low; and corporate earnings were good. Throughout the spring and early
summer, money continued to pour into the stock market. Of special interest to
investors were a small number of large, multi-national companies with a history
of consistent earnings growth. Led by these stocks, the Dow Jones Industrial
Average set a new record of 8,259 in early August. But days later, with the
prospect of earnings disappointments at some of these stalwarts, the market gave
back a portion of its year-to-date gains.
In this environment, stock selection made all the difference. We stuck to
our strategy -- matching the industry weightings of the Russell 1000 Growth
Index, while focusing on stocks whose prices were cheap compared to prospects.
This enabled John Hancock Independence Growth Fund to return 15.26% at net asset
value for the six months ended August 31, 1997, matching the Russell 1000 Growth
Index's 15.26% return. Over the same period, the Fund was also in line with the
average growth fund, which returned 15.70%, according to Lipper Analytical
Services, Inc.
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
Chart with heading "Top Five Common Stock Holdings" at bottom of left hand
column. The chart lists five holdings: 1) Intel 4.1% 2) Bristol-Myers Squibb
3.9% 3) Merck & Co. 3.5% 4)General Electric 3.2 % 5) Home Depot 3.2%. A footnote
below reads: "As a percentage of net assets on August 31, 1997."
- --------------------------------------------------------------------------------
Technology stocks drive results
Among the top contributors to the Fund's results were some of our largest
investments. Several of these included technology stocks, which benefited from
strong demand for personal computers. Compaq Computer was the Fund's best
performer. It returned 100% for the period, as the company gained market share
over other PC man ufacturers. Our largest investment, Intel, also nicely
outpaced the market, thanks to growing demand for its new Pentium II
microprocessor. We also had a sizable stake in Microsoft, another strong
performer. The company continues to benefit from the shift to Windows 95, which
will soon be followed by Windows 98.
16
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the six months ended August 31, 1997
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." 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 15.26% total
return for the John Hancock IndependenceGrowth Fund. The second represents the
15.70% total return for the Average Growth Fund. The third represents the 15.26%
total return for the Russell 1000 Growth Index. A footnote below states "The
total return for John Hancock Independence Growth Fund is at net asset value
with all distributions reinvested. The average growth fund is tracked by Lipper
Analytical Services, Inc. The Russell 1000 Growth Index is an unmanaged index
comprised of stocks with a greater than average growth orientation. It is
comprised of securities of the largest 1000 public companies in the United
States equity markets. See the following two pages for historical performance
information.]
- --------------------------------------------------------------------------------
Other top performers included stocks with a commanding lead in the markets
they serve. Home Depot and General Electric both dominated their competition.
Each locked in its position by initiating programs to help earnings grow faster
than the competition. Another standout was Lucent Technologies, a
telecommunications equipment company that has seen its sales grow worldwide
since AT&T spun it off. We also added Corning, a diversified operation best
known for its glassware, that recently shifted its focus to the manufacture of
high-tech fiber optic cables.
But not all our picks panned out. Some drug stocks, like Bristol-Myers
Squibb, just barely kept pace with the market. Others, like Merck, fell
considerably behind as its cholesterol-lowering drug faced stiff competition.
Despite strength in its car rental and time share businesses, HFS also saw its
stock price fall. We held on, believing the company can successfully digest its
recent acquisitions. Finally, Fruit of the Loom's stock price tumbled nearly 35%
because of price competition industry-wide. We expect the stock to recover,
given that pricing has begun to improve and costs are falling as the company
moves more manufacturing offshore.
We will keep our focus on inexpensive stocks with improving prospects.
Opportunity ahead
Even as stock prices hit new records, we continued to find opportunities. In
May, we bought both Procter & Gamble and PepsiCo, both of whose prices were
below what we believe they were worth. P&G improved its earnings prospects by
purchasing Tambrands -- a product line with strong overseas growth potential.
PepsiCo has a new management team that is getting back to basics by spinning off
the company's restaurants, paying down debt and stepping up its stock repurchase
plan. Textron, a multi-industry company, was another recent addition. It's
hitting on all cylinders in both its jet and finance businesses. Plus, it's
working hard to improve profit margins in its fastener division.
As long as we can find investments like these, we believe the Fund can do
well going for ward. In addition, economic conditions remain ideal for the stock
market to resume its climb. Of course, we expect some bumps along the way,
especially if the expensive, large company stocks can't deliver on their
earnings estimates. Regardless of what happens, we believe the best strategy
will be to continue buying stocks that are inexpensive, with improving
prospects.
17
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show 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 distributions, assuming reinvestment of
these distributions, and the change in 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 RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Growth Fund 32.40% 51.05%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Growth Fund(2) 32.40% 26.66%(1)
Notes to Performance
(1) Commenced operations on October 2, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 0.95% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 27.94% and 13.59%, respectively.
18
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Growth Fund would be worth on August 31, 1997, assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell 1000 Growth
Index-- an unmanaged capitalization weighted price-only index, which is
comprised of 1,000 of the largest capitalized U.S. domiciled companies whose
common stock is traded in the United States on The New York Stock Exchange. The
securities in this index have a less-than-average growth orientation.
John Hancock
John Hancock Independence Growth Fund
[Line chart with the heading Independence Growth Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Growth Fund on October 2, 1995 and is equal to $397,013 as
of August 31, 1997. The second line represents the value of the Russell 1000
Growth Index and is equal to $395,716 as of August 31, 1997.]
19
<PAGE>
================================================================================
BY DAVID CANAVAN FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Medium
Capitalization Fund
Mid-sized stocks move up on the leader board
"Many of our technology stocks were some of our biggest winners..."
After lagging for most of the previous two years, medium-company stocks finally
started to emerge from the shadows of their larger-company counterparts during
the past six months. The period got off to a slow start for mid-cap stocks
because investors virtually ignored them in favor of larger-cap names. In the
midst of uncertainty over the economy, interest rates and inflation, investors'
preference for large-company stocks was viewed as a "flight to safety." But
beginning in the late spring, market observers began to question whether large
companies were becoming too expensive. Later, some large multinational companies
intimated that the strong U.S. dollar might curtail their future earnings
prospects. Searching for more attractively-priced stocks that were less
dollar-sensitive, investors began to turn their sights toward the mid- and
small-company markets. Their growing allegiance to these companies was most
evident in July and August, when medium-sized company stocks rallied while
larger stocks languished.
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
[Chart with heading "Top Five Common Stock Holdings" at bottom of left hand
column. The chart lists five holdings: 1) Bankers Trust New York 2.4% 2) CIGNA
2.3% 3) Marsh & McLennan 1.9% 4)General Re 1.9 % 5) H.F. Ahmanson 1.8%. A
footnote below reads: "As a percentage of net assets on August 31, 1997."]
- --------------------------------------------------------------------------------
Performance overview
For the six months ended August 31, 1997, John Hancock Independence Medium
Capitalization Fund had a total return of 15.60% at net asset value. For the
same period, the average medium capitalization fund returned 17.54%, according
to Lipper Analytical Services, Inc., and the Callan Medium Capitalization Index
returned 16.18%. There were two reasons why the Fund lagged its peers. Many
funds heavily emphasized the best-performing growth stocks -- which post
faster-than-average earnings gains. By contrast, we prefer to hold a more
blended portfolio of both growth and value stocks, which are bought and sold
based on the value of a company's assets. Second, our valuation model -- which
emphasizes stocks that combine cheapness with improving company fundamentals --
wasn't always in sync with the market's short-term preferences.
Leaders and laggards
Many of our technology stocks were some of
20
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Independence Medium
Capitalization Fund
- --------------------------------------------------------------------------------
FUND PERFORMANCE
For the six months ended August 31, 1997
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended August 31, 1997." 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 15.60% total
return for John Hancock Independence Medium Capitalization Fund. The second
represents the 17.54% total return for the Average medium capitalization fund.
The third represents the 16.18% total return for the Callam Medium
Capitalziation Index. A footnote below states: "The total return for John
Hancock Independence Medium Capitalization Fund is at net asset value with all
distributions reinvested. The average medium capitalization fund is tracked by
Lipper Analytical Services, Inc. The Callan Medium Capitalization Index is an
unmanaged index commonly used as a broad measure of performance of the stocks of
companies with market capitalzations of $ 1 billon to $ 5 billion. See the
following two pages for historical performance information.]
- --------------------------------------------------------------------------------
our biggest winners during the period, boosted in part by strong demand for
personal computers. Amid a rebound for many technology stocks, equipment and
software maker Sun Microsystems was up more than 50%. Financial companies, which
were buoyed by continued industry consolidation and a relatively benign
interest-rate environment, also were among our strong est performers. Equitable
and Bankers Trust were each up by about a third during the period. Barnett Banks
rose nearly 50% during the period on news that it was being taken over by
NationsBank. Consolidation also was a theme that ran through the aerospace
industry, best illustrated by Lockheed's acquisition of Northrop Grumman. That
combination of two former competitors sent the stock price of Northrop Grumman
up almost 60%. Likewise, the stock of aerospace supplier Rohr enjoyed equally
impressive gains from the time we purchased it in May.
Our disappointments were scattered across a number of industries and were
due to company-specific problems. The market frowned on HFS, the world's largest
hotel franchiser, when it announced plans to merge with data processor CUC
International. Fruit of the Loom declined on the news of lower-than-expected
earnings. Informix, a developer of database management systems and tools,
dropped by half on questions surrounding its accounting procedures. After those
questionable procedures surfaced, we sold the stock but not in time to sidestep
its decline.
"We're optimistic about the prospects for medium-sized companies..."
Outlook
We're optimistic about the prospects for stocks in general, and for medium-sized
companies in particular. The economy appears to be in pretty good shape and our
outlook for interest rates is fair. Despite the market's occasional worries to
the contrary, we see no indication that inflation is on the rise. We talk to the
management teams of many companies, and virtually none discuss the possibility
of raising their product or service costs. Furthermore, they don't appear
concerned that wages will rise much. Without evidence of major price and/or wage
increases, we don't see inflation as much of a threat. Based on that view, we
don't believe that interest rates will move a lot higher. As for medium-sized
company stocks, we think that they could attract more attention from investors.
In our view, the U.S. dollar will continue to remain strong and many
large-company stocks remain relatively expensive. To the extent that investors
go looking for more reasonable values elsewhere, medium-sized company stocks
could benefit.
21
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show 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 distributions, assuming reinvestment of
these distributions, and the change in 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 RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Medium
Capitalization Fund 24.04% 39.89%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Independence Medium
Capitalization Fund(2) 24.04% 21.21%(1)
Notes to Performance
(1) Commenced operations on October 2, 1995.
(2) The Adviser has agreed to limit the Fund's expenses to 1.00% of the Fund's
average daily net assets. Without the limitation of expenses, the average
annual total return for the one-year and since inception periods would
have been 23.32% and 18.54%, respectively.
22
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
Independence Medium Capitalization Fund would be worth August 31, 1997, assuming
you invested on the day the Fund started and have reinvested all distri butions.
For comparison, we've shown the same $250,000 investment in the Callan
Medium-Capitalization Index--an unmanaged index that covers 25% of the Callan
Broad Market Index, with companies that range from approximately $1 billion to
$5 billion in capitalization.
John Hancock Independence Medium Capitalization Fund
[Line chart with the heading Independence Medium Capitalization Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Medium Capitalization Fund on October 2, 1995 and is equal
to $380,150 as of August 31, 1997. The second line represents the value of the
Callan Medium Capitalization Index and is equal to $373,235 as of August 31,
1997.]
23
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- -----------
Assets:
<S> <C> <C>
Investments at value - Note C:
Common stocks (cost - $15,621,421 and $5,360,591, respectively) .. $17,463,031 $6,001,422
Corporate bonds (cost - $7,347,436 and none, respectively) ....... 7,441,089 --
U.S. government and agencies securities (cost - $14,149,709
and none, respectively) .......................................... 14,205,936 --
Short-term investments (cost - $701,000 and $42,000, respectively) 701,000 42,000
Corporate savings account ........................................ 287 505
----------- ----------
39,811,343 6,043,927
Receivable for investments sold ................................... -- 50,895
Receivable for shares sold ........................................ -- 2,597
Dividends receivable .............................................. 39,840 17,537
Interest receivable ............................................... 363,659 22
Other assets ...................................................... 444 24
Deferred organization expenses - Note A ........................... 5,331 5,387
----------- ----------
Total Assets .................................... 40,220,617 6,120,389
----------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased .................................... 87,327 --
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ............................................... 31,111 18,255
Accounts payable and accrued expenses ............................. 19,657 290
----------- ----------
Total Liabilities ............................... 138,095 18,545
----------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................... 37,408,733 5,300,592
Accumulated net realized gain on investments ...................... 436,280 114,400
Net unrealized appreciation of investments ........................ 1,991,510 640,833
Undistributed net investment income ............................... 245,999 46,019
----------- ----------
Net Assets ...................................... $40,082,522 $6,101,844
============================================================================
Net Asset Value Per Share:
(based on 3,803,951 and 494,179 shares, respectively, of
beneficial interest outstanding - unlimited number of
shares authorized with no par value) .............................. $ 10.54 $ 12.35
================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of August 31, 1997. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE
DIVERSIFIED CORE INDEPENDENCE
EQUITY FUND II GROWTH FUND
---------------- ------------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $343,863,778 and $1,293,522, respectively) . $425,721,522 $1,550,922
Short-term investments (cost - $445,000 and $26,000, respectively) 445,000 26,000
Corporate savings account ........................................ 127 717
------------ ----------
426,166,649 1,577,639
Receivable for investments sold ................................... 1,787,678 28,258
Receivable for shares sold ........................................ 4,085 --
Dividends receivable .............................................. 822,296 1,432
Interest receivable ............................................... 217 14
Receivable from John Hancock Advisers, Inc. - Note B .............. -- 2,035
Other assets ...................................................... 14,281 20
Deferred organization expenses - Note A ........................... 4,776 5,387
------------ ----------
Total Assets .................................... 428,799,982 1,614,785
-----------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased .................................... 293,772 --
Payable for investments purchased ................................. -- 36,883
Payable to John Hancock Advisers, Inc. and affiliates - Note B .... 226,917 --
Accounts payable and accrued expenses ............................. 68,855 11,827
------------ ----------
Total Liabilities ............................... 589,544 48,710
-----------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................... 316,300,973 1,217,331
Accumulated net realized gain on investments and foreign
currency transactions ........................................... 29,181,270 89,052
Net unrealized appreciation of investments ........................ 81,858,408 257,402
Undistributed net investment income ............................... 869,787 2,290
------------ ----------
Net Assets ...................................... $428,210,438 $1,566,075
=============================================================================
Net Asset Value Per Share:
(based on 29,798,296 and 123,464 shares, respectively,
of beneficial interest outstanding -- unlimited number of
shares authorized with no par value) .............................. $ 14.37 $ 12.68
=================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INDEPENDENCE
MEDIUM
CAPITALIZATION FUND
-------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $5,697,564) ........................... $7,127,694
Short-term investments (cost - $161,000) .................... 161,000
Corporate savings account ................................... 181
----------
7,288,875
Dividends receivable ......................................... 10,259
Interest receivable .......................................... 80
Other assets ................................................. 292
Deferred organization expenses - Note A ...................... 5,387
----------
Total Assets ............................... 7,304,893
--------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................... 3,473
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ......................................... 23,379
Accounts payable and accrued expenses ........................ 4,385
----------
Total Liabilities .......................... 31,237
--------------------------------------------------------
Net Assets:
Capital paid-in .............................................. 5,508,983
Accumulated net realized gain on investments ................. 299,467
Net unrealized appreciation of investments ................... 1,430,144
Undistributed net investment income .......................... 35,062
----------
Net Assets ................................. $7,273,656
========================================================
Net Asset Value Per Share:
(based on 601,980 shares of beneficial interest
outstanding - unlimited number of shares
authorized with no par value) ............................... $ 12.08
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Operations
Six Months Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- ----------
<S> <C> <C>
Investment Income:
Interest ............................................................. $ 535,254 $ 6,114
Dividends (net of foreign withholding tax of
$145 and $313, respectively) ....................................... 113,024 57,960
----------- ---------
648,278 64,074
----------- ---------
Expenses:
Investment management fee - Note B .................................. 97,230 18,672
Custodian fee ....................................................... 20,700 8,727
Registration and filing fees ........................................ 14,887 13,353
Transfer agent fee - Note B ......................................... 6,945 1,167
Auditing fee ........................................................ 5,142 5,142
Financial services fee - Note B ..................................... 2,531 426
Printing ............................................................ 2,466 3,244
Organization expense - Note A ....................................... 944 881
Trustees' fees ...................................................... 463 76
Legal fees .......................................................... 232 30
Miscellaneous ....................................................... 227 235
----------- ---------
Total Expenses ..................................... 151,767 51,953
-----------------------------------------------------------------------------
Less Expense Reductions - Note B ................... (26,757) (29,780)
-----------------------------------------------------------------------------
Net Expenses ....................................... 125,010 22,173
-----------------------------------------------------------------------------
Net Investment Income .............................. 523,268 41,901
-----------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ................................ 308,982 90,249
Change in net unrealized appreciation/depreciation of investments .... 1,306,494 473,259
----------- ---------
Net Realized and Unrealized Gain on Investments .... 1,615,476 563,508
-----------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 2,138,744 $ 605,409
=============================================================================
</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
Statements of Operations
Six months ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
DIVERSIFIED CORE INDEPENDENCE MEDIUM
EQUITY FUND II GROWTH FUND CAPITALIZATION FUND
-------------- ----------- -------------------
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax
of $6,181, $37 and $31, respectively) ................................... $ 3,422,607 $ 1,177 $ 51,305
Interest .................................................................. 198,923 6,151 5,731
----------- --------- ---------
3,621,530 7,328 57,036
----------- --------- ---------
Expenses:
Investment management fee - Note B ....................................... 964,411 4,719 25,056
Transfer agent fee - Note B .............................................. 96,412 295 1,566
Custodian fee ............................................................ 82,574 4,650 5,259
Financial services fee - Note B .......................................... 35,356 108 574
Registration and filing fees ............................................. 24,658 8,496 1,067
Trustees' fees ........................................................... 10,349 61 117
Auditing fee ............................................................. 5,417 5,142 5,142
Legal fees ............................................................... 4,188 7 79
Miscellaneous ............................................................ 3,255 231 236
Printing ................................................................. 1,339 2,924 2,317
Organization expense - Note A ............................................ 957 881 881
----------- --------- ---------
Total Expenses .......................................... 1,228,916 27,514 42,294
---------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ........................ -- (21,910) (10,973)
---------------------------------------------------------------------------------------------------------
Net Expenses ............................................ 1,228,916 5,604 31,321
---------------------------------------------------------------------------------------------------------
Net Investment Income ................................... 2,392,614 1,724 25,715
---------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ..................................... 18,769,517 39,853 208,123
Change in net unrealized appreciation/depreciation of investments ......... 28,251,842 121,863 704,459
----------- --------- ---------
Net Realized and Unrealized Gain on Investments ......... 47,021,359 161,716 912,582
---------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations .... $49,413,973 $ 163,440 $ 938,297
=========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
---------------------------- ----------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1997 FEBRUARY 28, AUGUST 31, 1997
1997 (UNAUDITED) 1997 (UNAUDITED)
----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................ $ 312,000 $ 523,268 $ 21,128 $ 41,901
Net realized gain on investments sold ............................ 191,257 308,982 60,494 90,249
Change in net unrealized appreciation/depreciation of investments 514,502 1,306,494 109,991 473,259
------------ ------------ ----------- -----------
Net Increase in Net Assets from Operations ...................... 1,017,759 2,138,744 191,613 605,409
------------ ------------ ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................. (264,635) (354,094) (18,692) --
Distributions from net realized gain on investments sold ......... (84,382) -- (39,488) --
------------ ------------ ----------- -----------
Total Distributions to Shareholders ............................. (349,017) (354,094) (58,180) --
------------ ------------ ----------- -----------
From Fund Share Transactions: **
Shares sold ...................................................... 9,549,116 32,161,057 514,840 5,263,719
Shares issued to shareholders in reinvestment of distributions ... 348,838 354,134 58,180 --
------------ ------------ ----------- -----------
9,897,954 32,515,191 573,020 5,263,719
Less shares repurchased .......................................... (2,628,947) (7,310,002) (65,038) (1,090,602)
------------ ------------ ----------- -----------
Net Increase .................................................... 7,269,007 25,205,189 507,982 4,173,117
------------ ------------ ----------- -----------
Net Assets:
Beginning of period .............................................. 5,154,934 13,092,683 681,903 1,323,318
------------ ------------ ----------- -----------
End of period (including undistributed net
investment income of $76,825; $245,999;
$4,118 and $46,019, respectively) ............................... $ 13,092,683 $ 40,082,522 $ 1,323,318 $ 6,101,844
============ ============ =========== ===========
* Distributions to Shareholders
Per share dividends from net investment income ................... $ 0.3399 $ 0.1715 $ 0.1878 --
------------ ------------ ----------- -----------
Per share distributions from net realized gain on investments sold $ 0.0831 -- $ 0.3968 --
------------ ------------ ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ...................................................... 996,538 3,151,000 50,457 473,082
Shares issued to shareholders in reinvestment of distributions ... 36,803 35,025 5,605 --
------------ ------------ ----------- -----------
1,033,341 3,186,025 56,062 473,082
Less shares repurchased .......................................... (274,027) (698,683) (6,435) (100,502)
------------ ------------ ----------- -----------
Net Increase .................................................... 759,314 2,487,342 49,627 372,580
============ ============ =========== ===========
</TABLE>
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets has changed since the end of the previous period. 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 repurchased during the period, along with the per share amount of
distributions made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE DIVERSIFIED CORE INDEPENDENCE
EQUITY FUND II GROWTH FUND
----------------------------- ----------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1997 FEBRUARY 28, AUGUST 31, 1997
1997 (UNAUDITED) 1997 (UNAUDITED)
----------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................ $ 4,229,282 $ 2,392,614 $ 3,356 $ 1,724
Net realized gain on investments sold and
foreign currency transactions ................................... 19,375,843 18,769,517 82,811 39,853
Change in net unrealized appreciation/depreciation
of investments .................................................. 31,355,986 28,251,842 90,749 121,863
------------ ------------ ----------- -----------
Net Increase in Net Assets from Operations ...................... 54,961,111 49,413,973 176,916 163,440
------------ ------------ ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................. (4,049,756) (2,290,291) (3,202) --
Distributions from net realized gain on investments sold and
foreign currency transactions ................................... (10,321,883) -- (35,190) --
------------ ------------ ----------- -----------
Total Distributions to Shareholders ............................. (14,371,639) (2,290,291) (38,392) --
------------ ------------ ----------- -----------
From Fund Share Transactions: **
Shares sold ...................................................... 129,325,966 123,540,392 197,312 550,196
Shares issued to shareholders in reinvestment of distributions ... 14,371,926 2,288,847 38,392 --
------------ ------------ ----------- -----------
143,697,892 125,829,239 235,704 550,196
Less shares repurchased .......................................... (52,937,315) (64,771,122) (40,370) (30,846)
------------ ------------ ----------- -----------
Net Increase .................................................... 90,760,577 61,058,117 195,334 519,350
------------ ------------ ----------- -----------
Net Assets:
Beginning of period .............................................. 188,678,590 320,028,639 549,427 883,285
------------ ------------ ----------- -----------
End of period (including undistributed net
investment income of $767,464; $869,787;
$566 and $2,290, respectively) .................................. $320,028,639 $428,210,438 $ 883,285 $ 1,566,075
============ ============ =========== ===========
* Distributions to Shareholders
Per share dividends from net investment income ................... $ 0.1937 $ 0.0853 $ 0.0407 --
------------ ------------ ----------- -----------
Per share distributions from net realized gain on
investments sold and foreign currency transactions .............. $ 0.4361 -- $ 0.4478 --
------------ ------------ ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ...................................................... 11,159,217 9,158,360 21,181 45,763
Shares issued to shareholders in reinvestment of distributions ... 1,201,115 173,954 3,764 --
------------ ------------ ----------- -----------
12,360,332 9,332,314 24,945 45,763
Less shares repurchased .......................................... (4,501,092) (4,607,662) (3,871) (2,545)
------------ ------------ ----------- -----------
Net Increase .................................................... 7,859,240 4,724,652 21,074 43,218
============ ============ =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE MEDIUM
CAPITALIZATION FUND
--------------------------------
YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1997
1997 (UNAUDITED)
------------ ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................ $ 55,030 $ 25,715
Net realized gain on investments sold ................................ 225,644 208,123
Change in net unrealized appreciation/depreciation of investments .... 433,951 704,459
----------- ----------
Net Increase in Net Assets from Operations .......................... 714,625 938,297
----------- ----------
Distributions to Shareholders: *
Dividends from net investment income ................................. (55,362) --
Distributions from net realized gain on investments sold ............. (129,653) --
----------- ----------
Total Distributions to Shareholders ................................. (185,015) --
----------- ----------
From Fund Share Transactions: **
Shares sold .......................................................... 1,356,381 1,816,040
Shares issued to shareholders in reinvestment of distributions ....... 185,014 --
----------- ----------
1,541,395 1,816,040
Less shares repurchased .............................................. (754,037) (720,557)
----------- ----------
Net Increase ........................................................ 787,358 1,095,483
----------- ----------
Net Assets:
Beginning of period .................................................. 3,922,908 5,239,876
----------- ----------
End of period (including undistributed net investment
income of $9,347 and $35,062, respectively) ......................... $ 5,239,876 $7,273,656
=========== ==========
* Distributions to Shareholders
Per share dividends from net investment income ....................... $ 0.1247 --
----------- ----------
Per share distributions from net realized gain on investments sold ... $ 0.2919 --
----------- ----------
** Analysis of Fund Share Transactions:
Shares sold .......................................................... 137,397 164,537
Shares issued to shareholders in reinvestment of distributions ....... 18,576 --
----------- ----------
155,973 164,537
Less shares repurchased .............................................. (77,092) (63,817)
----------- ----------
Net Increase ........................................................ 78,881 100,720
=========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 6, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
---------------------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $ 8.50 $ 9.25 $ 9.94
------------ ------------ ------------
Net Investment Income (3) ............................... 0.25 0.38 0.20
Net Realized and Unrealized Gain on Investments ......... 0.63 0.73 0.57
------------ ------------ ------------
Total from Investment Operations ..................... 0.88 1.11 0.77
------------ ------------ ------------
Less Distributions:
Dividends from Net Investment Income ................... (0.13) (0.34) (0.17)
Distributions from Net Realized Gain on Investments Sold -- (0.08) --
------------ ------------ ------------
Total Distributions .................................. (0.13) (0.42) (0.17)
------------ ------------ ------------
Net Asset Value, End of Period .......................... $ 9.25 $ 9.94 $ 10.54
============ ============ ============
Total Investment Return at Net Asset Value (6) .......... 10.42%(2) 12.36% 7.85%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) 7.36%(2) 11.62% 7.75%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $ 5,155 $ 13,093 $ 40,083
Ratio of Expenses to Average Net Assets ................. 0.90%(1) 0.90% 0.90%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,6) .. 5.58%(1) 1.64% 1.09%(1)
Ratio of Net Investment Income to Average Net Assets .... 3.96%(1) 3.96% 3.77%(1)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (4,5) ............................ (0.72%)(1) 3.22% 3.58(1)
Portfolio Turnover Rate ................................. 31% 149% 99%
Fee Reduction Per Share (3) ............................. $ 0.29 $ 0.07 $ 0.01
Average Brokerage Commission Rate (7) ................... N/A $ 0.0276 $ 0.0256
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: 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 rela tionships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
------------------------------ ----------------- ---------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $ 8.50 $ 9.47 $ 10.88
----------- ----------- -----------
Net Investment Income (3) ............................... 0.10 0.23 0.12
Net Realized and Unrealized Gain on Investments ......... 0.96 1.77 1.35
----------- ----------- -----------
Total from Investment Operations ..................... 1.06 2.00 1.47
----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income ................... (0.09) (0.19) --
Distributions from Net Realized Gain on Investments Sold -- (0.40) --
----------- ----------- -----------
Total Distributions .................................. (0.09) (0.59) --
----------- ----------- -----------
Net Asset Value, End of Period .......................... $ 9.47 $ 10.88 $ 12.35
=========== =========== ===========
Total Investment Return at Net Asset Value (6) .......... 12.52%(2) 21.36% 13.51%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) (1.18%)(2) 15.92% 12.86%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $ 682 $ 1,323 $ 6,102
Ratio of Expenses to Average Net Assets ................. 0.95%(1) 0.95% 0.95%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,6) .. 34.06%(1) 6.39% 2.23%(1)
Ratio of Net Investment Income to Average Net Assets .... 2.81%(1) 2.26% 1.80%(1)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (4,6) ............................ (30.30%)(1) (3.18%) 0.52%(1)
Portfolio Turnover Rate ................................. 12% 66% 61%
Fee Reduction Per Share (3) ............................. $ 1.22 $ 0.55 $ 0.08
Average Brokerage Commission Rate (7) ................... N/A $ 0.0233 $ 0.0267
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Diversified Core
Equity Fund II
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 10, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
----------------------------- ----------------- ---------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $ 8.50 $ 10.96 $ 12.76
------------ ------------ ------------
Net Investment Income (3) ............................... 0.20 0.20 0.09
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions ...................... 2.38 2.23 1.61
------------ ------------ ------------
Total from Investment Operations ..................... 2.58 2.43 1.70
------------ ------------ ------------
Less Distributions:
Dividends from Net Investment Income ................... (0.11) (0.19) (0.09)
Distributions from Net Realized Gains on Investments
Sold and Foreign Currency Transactions ............... (0.01) (0.44) --
------------ ------------ ------------
Total Distributions .................................. (0.12) (0.63) (0.09)
------------ ------------ ------------
Net Asset Value, End of Period .......................... $ 10.96 $ 12.76 $ 14.37
============ ============ ============
Total Investment Return at Net Asset Value (5) .......... 30.48%(2) 22.63% 13.35%(2)
Total Adjusted Investment Return at Net Assets Value (4,5) 30.42%(2) N/A N/A
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $ 188,679 $ 320,029 $ 428,210
Ratio of Expenses to Average Net Assets ................. 0.70%(1) 0.67% 0.64%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,7) .. 0.76%(1) N/A N/A
Ratio of Net Investment Income to Average Net Assets .... 2.00%(1) 1.65% 1.24%(1)
Ratio of Adjusted Net Investment Income to Average
Net Assets (4,7) ....................................... 1.94%(1) N/A N/A
Portfolio Turnover Rate ................................. 39% 81% 33%
Fee Reduction Per Share (3) ............................. $ 0.01 N/A N/A
Average Brokerage Commission Rate (6) ................... N/A $ 0.0420 $ 0.0451
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) Total investment return assumes dividend reinvestment.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Adjusted expenses as a percentage of average net assets are expected to
decrease and an adjusted net investment income as a percentage of average
net assets is expected to increase as the net assets of the Fund grow.
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
------------------------------ ----------------- ---------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $ 8.50 $ 9.29 $ 11.01
------------ ------------ ------------
Net Investment Income (3) ............................... 0.03 0.05 0.02
Net Realized and Unrealized Gain on Investments ......... 0.81 2.16 1.65
------------ ------------ ------------
Total from Investment Operations ..................... 0.84 2.21 1.67
------------ ------------ ------------
Less Distributions:
Dividends from Net Investment Income ................... (0.03) (0.04) --
Distributions from Net Realized Gain on Investments .... (0.02) (0.45) --
------------ ------------ ------------
Total Distributions .................................. (0.05) (0.49) --
------------ ------------ ------------
Net Asset Value, End of Period .......................... $ 9.29 $ 11.01 $ 12.68
============ ============ ============
Total Investment Return at Net Asset Value (6) .......... 9.94%(2) 24.19% 15.26%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) (5.63%)(2) 17.40% 13.39%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $ 549 $ 883 $ 1,566
Ratio of Expenses to Average Net Assets ................. 0.95%(1) 0.95% 0.95%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .. 38.57%(1) 7.74% 4.66%(1)
Ratio of Net Investment Income to Average Net Assets .... 0.91%(1) 0.49% 0.29%(1)
Ratio of Adjusted Net Investment Loss to Average Net
Assets (4,5) ........................................... (36.71%)(1) (6.30%) (3.42%)(1)
Portfolio Turnover Rate ................................. 21% 142% 46%
Fee Reduction Per Share (3) ............................. $ 1.36 $ 0.68 $ 0.23
Average Brokerage Commission Rate (7) ................... N/A $ 0.0233 $ 0.0247
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Medium
Capitalization Fund
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) YEAR ENDED AUGUST 31, 1997
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 (UNAUDITED)
------------------------------ ----------------- ---------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $ 8.50 $ 9.29 $ 10.45
------------ ------------ ------------
Net Investment Income (3) ............................... 0.08 0.12 0.05
Net Realized and Unrealized Gain on Investments ......... 0.74 1.45 1.58
------------ ------------ ------------
Total from Investment Operations ..................... 0.82 1.57 1.63
------------ ------------ ------------
Less Distributions:
Dividends from Net Investment Income ................... (0.03) (0.12) --
Distributions from Net Realized Gain on Investments Sold -- (0.29) --
------------ ------------ ------------
Total Distributions .................................. (0.03) (0.41) --
------------ ------------ ------------
Net Asset Value, End of Period .......................... $ 9.29 $ 10.45 $ 12.08
============ ============ ============
Total Investment Return at Net Asset Value (6) .......... 9.71%(2) 17.19% 15.60%(2)
Total Adjusted Investment Return at Net Asset Value (4,6) 7.00%(2) 15.49% 15.42%(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $ 3,923 $ 5,240 $ 7,274
Ratio of Expenses to Average Net Assets ................. 1.00%(1) 1.00% 1.00%(1)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .. 7.55%(1) 2.70% 1.35%(1)
Ratio of Net Investment Income to Average Net Assets .... 1.94%(1) 1.26% 0.82%(1)
Ratio of Adjusted Net Investment Income
(Loss) to Average Net Assets (4,5) ..................... (4.61%)(1) (0.44%) 0.47%(1)
Portfolio Turnover Rate ................................. 3% 78% 25%
Fee Reduction Per Share (3) ............................. $ 0.26 $ 0.17 $ 0.02
Average Brokerage Commission Rate (7) ................... N/A $ 0.0252 $ 0.0254
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) On average month end shares outstanding.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Balanced Fund on August 31, 1997. It's divided into four main
categories: common stocks, corporate bonds, U.S. government and agencies
securities and short-term investments. The investments are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (1.36%)
Northrop Grumman Corp. ........................ 1,400 $ 163,888
Precision Castparts Corp. ..................... 600 38,775
United Technologies Corp. ..................... 4,400 343,475
-----------
546,138
-----------
Automobile / Trucks (1.52%)
Dana Corp. .................................... 1,300 59,881
Ford Motor Co. ................................ 8,700 374,100
General Motors Corp. .......................... 2,800 175,700
-----------
609,681
-----------
Banks - United States (4.49%)
Bank of New York Co., Inc. .................... 1,000 44,625
BankAmerica Corp. ............................. 5,000 329,063
BankBoston Corp. .............................. 1,100 91,438
Bankers Trust New York Corp. .................. 2,000 207,500
Chase Manhattan Corp. ......................... 1,800 200,138
Citicorp ...................................... 2,900 370,113
Comerica, Inc. ................................ 1,400 99,138
First Union Corp. ............................. 3,000 144,188
Morgan (J.P.) & Co., Inc. ..................... 1,800 193,050
Norwest Corp. ................................. 2,100 120,619
-----------
1,799,872
-----------
Beverages (0.45%)
PepsiCo, Inc. ................................. 5,000 180,000
-----------
Business Services (0.33%)
Dun & Bradstreet Corp. ........................ 2,500 70,000
Reuters Holdings PLC
(American Depositary Receipts)
(ADR) (United Kingdom) ....................... 1,000 60,875
-----------
130,875
-----------
Chemicals (1.08%)
Air Products & Chemicals, Inc. ................ 3,000 244,688
Praxair, Inc. ................................. 1,200 64,125
Rohm & Haas Co. ............................... 1,300 124,556
-----------
433,369
-----------
Computers (4.08%)
Adobe Systems, Inc. ........................... 1,300 51,188
Cadence Design Systems, Inc.* ................. 1,500 71,344
Cisco Systems, Inc.* .......................... 1,400 105,525
Compaq Computer Corp.* ........................ 2,350 153,925
Computer Associates International, Inc. ....... 2,800 187,250
Hewlett-Packard Co. ........................... 3,000 183,938
International Business Machines Corp. ......... 800 80,700
Microsoft Corp.* .............................. 3,500 462,656
Oracle Corp.* ................................. 2,100 80,063
Parametric Technology Corp.* .................. 4,000 185,750
Sun Microsystems, Inc.* ....................... 1,500 72,000
-----------
1,634,339
-----------
Cosmetics & Personal Care (0.08%)
Revlon, Inc. (Class A)* ....................... 700 34,038
-----------
Diversified Operations (2.81%)
Allied Signal, Inc. ........................... 2,000 165,125
Canadian Pacific, Ltd. (Canada) .............. 2,300 67,131
Corning Inc. .................................. 4,200 222,075
Du Pont (E.I.) De Nemours & Co. ............... 3,700 230,556
National Service Industries Inc. .............. 3,500 154,875
Textron, Inc. ................................. 4,600 286,638
-----------
1,126,400
-----------
Electronics (2.69%)
General Electric Co. .......................... 7,300 456,250
Honeywell, Inc. ............................... 2,600 179,725
Intel Corp. ................................... 3,400 313,225
Raychem Corp. ................................. 1,400 130,288
-----------
1,079,488
-----------
Finance (0.78%)
American Express Co. .......................... 700 54,425
Morgan Stanley, Dean Witter,
Discover & Co. ............................... 5,400 259,875
-----------
314,300
-----------
Food (0.56%)
ConAgra, Inc. ................................. 3,000 192,938
Universal Foods Corp. ......................... 800 31,050
-----------
223,988
-----------
Instruments - Scientific (0.26%)
Perkin-Elmer Corp. ............................ 1,400 103,600
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (3.05%)
American International Group, Inc. ............ 2,100 $ 198,188
CIGNA Corp. ................................... 1,100 201,713
Equitable Cos., Inc., (The) ................... 3,100 134,850
General Re Corp. .............................. 2,000 387,750
Hartford Financial Services Group
Inc., (The) .................................. 1,200 95,700
Marsh & McLennan Cos., Inc. ................... 3,000 204,750
-----------
1,222,951
-----------
Leisure (1.38%)
Disney (Walt) Co., (The) ...................... 5,100 391,744
HFS, Inc.* .................................... 2,900 161,494
-----------
553,238
-----------
Machinery (0.80%)
Cooper Industries, Inc. ....................... 1,700 90,631
Deere & Co. ................................... 2,600 145,600
Dover Corp. ................................... 600 41,438
Ingersoll-Rand Co. ............................ 700 42,088
-----------
319,757
-----------
Medical (5.34%)
Abbott Laboratories ........................... 3,600 215,775
Allegiance Corp. .............................. 1,300 40,788
Amgen, Inc.* .................................. 2,000 99,125
Becton, Dickinson & Co. ....................... 1,500 71,906
Bristol-Myers Squibb Co. ...................... 6,300 478,800
Cardinal Health, Inc. ......................... 3,300 218,620
Glaxo Wellcome PLC (ADR)
(United Kingdom) ............................. 1,000 39,870
Health Management Associates, Inc. ............
(Class A)* ................................... 2,000 59,120
HEALTHSOUTH Corp.* ............................ 3,900 97,256
Johnson & Johnson ............................. 2,800 158,725
Medtronic, Inc. ............................... 600 54,225
Merck & Co., Inc. ............................. 6,600 605,963
-----------
2,140,173
-----------
Office (1.36%)
Avery Dennison Corp. .......................... 2,200 90,338
Pitney Bowes, Inc. ............................ 2,700 206,213
Xerox Corp. ................................... 3,300 249,150
-----------
545,701
-----------
Oil & Gas (3.82%)
Anadarko Petroleum Corp. ...................... 400 29,375
Atlantic Richfield Co. ........................ 1,000 75,000
Baker Hughes, Inc. ............................ 3,800 161,025
British Petroleum Co. PLC (ADR)
(United Kingdom) ............................. 2,000 169,250
Chevron Corp. ................................. 2,100 162,619
Dresser Industries, Inc. ...................... 1,900 79,325
El Paso Natural Gas Co. ....................... 1,400 78,750
Halliburton Co. ............................... 1,000 47,750
Phillips Petroleum Co. ........................ 4,300 204,519
Schlumberger, Ltd. ............................ 1,200 91,425
Texaco Inc. ................................... 1,900 218,975
USX - Marathon Group .......................... 6,500 211,656
-----------
1,529,669
-----------
Retail (2.22%)
Costco Cos., Inc.* ............................ 3,900 140,644
Home Depot, Inc. .............................. 8,900 419,969
Lowe's Cos., Inc. ............................. 3,800 131,338
Unisource Worldwide, Inc. ..................... 2,100 38,063
Wal-Mart Stores, Inc. ......................... 4,500 159,750
-----------
889,764
-----------
Rubber - Tires & Misc (0.06%)
Goodyear Tire & Rubber Co. (The) .............. 400 24,650
-----------
Shoes & Related Apparel (0.07%)
Nine West Group, Inc.* ........................ 700 29,575
-----------
Soap & Cleaning Preparations (0.46%)
Proctor & Gamble Co., (The) ................... 1,400 186,288
-----------
Steel (0.23%)
British Steel PLC (ADR) (United Kingdom) ...... 3,200 91,400
-----------
Telecommunications (0.73%)
Lucent Technologies, Inc. ..................... 3,739 291,175
-----------
Textile (0.40%)
Liz Claiborne, Inc. ........................... 1,500 66,844
Tommy Hilfiger Corp.* ......................... 2,100 91,613
-----------
158,457
-----------
Tobacco (0.34%)
Philip Morris Cos., Inc. ...................... 2,100 91,613
UST, Inc. ..................................... 1,500 43,313
-----------
134,926
-----------
Transportation (0.18%)
CSX Corp. ..................................... 400 22,875
Norfolk Southern Corp. ........................ 500 49,000
-----------
71,875
-----------
Utilities (2.64%)
American Electric Power Co., Inc. ............. 2,700 117,956
Consolidated Natural Gas Co. .................. 2,400 141,750
Dominion Resources, Inc. ...................... 1,400 50,400
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Utilities (continued)
Entergy Corp. ................................. 1,900 $ 47,144
GTE Corp. ..................................... 6,800 303,025
NIPSCO Industries, Inc. ....................... 1,700 69,381
SBC Communications, Inc. ...................... 800 43,500
Southern Co. .................................. 4,700 98,994
Texas Utilities Co. ........................... 1,100 38,363
US WEST Communications Group .................. 4,100 146,831
-----------
1,057,344
-----------
TOTAL COMMON STOCKS
(Cost $15,621,421) ................ (43.57%) 17,463,031
----- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- ---- ------ -------------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
Automobile/Trucks (0.31%)
General Motors Acceptance Corp.,
Med Term Note 05-22-01 ...................................... 6.800% A- $ 70 $ 70,572
General Motors Corp.,
Deb 12-01-00 ................................................ 9.625 A- 50 54,547
----------
125,119
----------
Banks - United States (4.47%)
BankAmerica Corp.,
Sub Note 04-15-06 ........................................... 7.200 A 450 455,972
Bankers Trust New York Corp.,
Sub Note 05-01-05 ........................................... 8.250 A- 240 256,481
Fleet Capital Trust II,
Co Gtd 12-11-26 ............................................. 7.920 BBB 100 98,911
MBNA America Bank, N.A.,
Note 5-22-02 ................................................ 7.060 BBB+ 240 243,031
Mellon Capital II,
Co Gtd 01-15-27 ............................................. 7.995 BBB+ 150 149,972
NationsBank Corp.,
Sub Note 03-15-06 ........................................... 6.500 A 60 58,430
NBD Bancorp, Inc.,
Sub Note 05-15-07 ........................................... 7.125 A 180 181,656
Society National Bank,
Sub Note 06-01-05 ........................................... 7.250 A- 340 345,151
----------
1,789,604
----------
Beverages (0.53%)
Coca-Cola Enterprises Inc.,
Bond 10-15-36 ............................................... 6.700 A+ 210 212,165
----------
Broker Services (1.24%)
Lehman Brothers Inc.,
Sr Sub Note 04-15-03 ........................................ 7.250 A 220 222,737
Salomon Inc.,
SR Note 05-15-02 ............................................ 7.300 BBB 170 172,526
SR Note 02-01-04 ............................................ 7.200 BBB 100 100,340
----------
495,603
----------
Business Services (0.35%)
AMRESCO Commercial Mortgage Funding I Corp.,
Mtg Pass Thru Ctf Ser 1997-C1 Class A3, 06-17-29 ............ 7.190 AAA 140 141,820
----------
Chemicals (0.12%)
Monsanto Co.,
Note 07-01-00 ............................................... 6.000 A 50 49,300
----------
Computers (0.12%)
International Business Machines Corp.,
Deb 12-01-96 ................................................ 7.125 A 50 47,971
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- ---- ------ -------------- -----
<S> <C> <C> <C> <C>
Finance (3.47%)
Capital One Bank,
SR Note 6-20-00 ............................................. 7.350% BBB- $250 $ 253,585
CARCO Auto Loan Master Trust,
Pass Thru Ctf Ser 1997-1 Class A, 08-15-04 .................. 6.689 AAA 220 217,670
First Union Institutional Capital II,
Co Gtd 01-01-27 ............................................. 7.850 BBB+ 80 78,856
Security Capital Industrial Trust,
Note 07-01-17 ............................................... 7.625 BBB+ 70 69,558
Post Apartment Homes, LP.,
Med Term Note 04-01-04 ...................................... 7.300 BBB+ 180 183,400
Sears Roebuck Acceptance Corp.,
Med Term Note 11-05-03 ...................................... 6.720 A- 120 119,290
SUSA Partnership, LP.,
Note 06-01-17 ............................................... 8.200 BBB- 260 268,848
Wells Fargo Capital I,
Bond 12-15-26 ............................................... 7.960 BBB+ 200 199,168
----------
1,390,375
----------
Funeral Services (0.39%)
Service Corp. International,
Note 04-15-09 ............................................... 7.700 BBB+ 150 156,410
----------
Government - Foreign (0.45%)
Quebec, Province of,
Note (Canada) 03-02-26, ..................................... 5.735 A+ 180 179,080
----------
Instruments - Scientific (0.59%)
Millipore Corporation,
Note 4-01-07 ................................................ 7.500 BBB 230 235,642
----------
Leisure (0.66%)
Hilton Hotels Corp.,
SR Note 07-15-04 ............................................ 7.000 BBB+ 110 108,307
SR Note 04-15-07 ............................................ 7.950 BBB+ 150 155,682
----------
263,989
----------
Media (0.48%)
News America Holdings Inc.,
Co Gtd. 10-17-16 ............................................ 8.000 BBB 190 191,172
----------
Mortgage Banking (2.38%)
Camden Property Trust,
Med Term Note 06-21-04 ...................................... 7.142 BBB- 160 161,629
Chase Commercial Mortgage Securities Corp.,
Commercial Pass Thru Ctf Ser 1997-1 Class A2, 06-19-29 ...... 7.370 AAA 140 144,242
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1997-C1 Class A1C, 06-20-29 7.240 AAA 280 286,476
ERP Operating LP.,
Note 04-15-02 ............................................... 7.950 BBB+ 20 20,766
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- ---- ------ -------------- -----
<S> <C> <C> <C> <C>
Mortgage Banking (continued)
Merrill Lynch Mortgage Investors, Inc.,
Mtg Pass Thru Ctf Ser 1997-C1 Class A3 ...................... 7.120% AAA $ 90 $ 91,632
Mortgage Capital Funding, Inc.,
Commercial Mtg Pass Thru Ctf Ser 1996-MC2 Class A1, 12-21-26 6.758 Aaa 49 49,023
United Dominion Realty Trust Inc.,
Note 01-15-07 ............................................... 7.250 BBB+ 200 202,126
----------
955,894
----------
Oil & Gas (0.88%)
Petroleum Geo Services ASA,
Note 3-31-07 ................................................ 7.500 BBB- 210 213,694
Phillips 66 Capital II,
Sub Deb 01-15-37 ............................................ 8.000 BBB+ 140 140,897
----------
354,591
----------
Real Estate Investment Trust (1.20%)
Simon DeBartolo Group, LP.,
Co Gtd 07-15-04 ............................................. 6.750 BBB 350 345,503
Spieker Properties LP,
Med Term Note 07-19-05 ...................................... 8.000 BBB 110 115,715
Note 12-01-06 ............................................... 7.125 BBB 20 19,989
----------
481,207
----------
Telecommunications (0.41%)
WorldCom, Inc.,
Sr Note 04-01-07 ............................................ 7.750 BBB- 160 165,099
----------
Tobacco (0.37%)
Philip Morris Cos., Inc.,
Note 10-15-03 ............................................... 8.250 A 140 148,705
----------
Utilities (0.14%)
GTE Southwest Inc.,
1st Mtg 11-15-31 ............................................ 8.500 AA- 50 57,343
----------
TOTAL CORPORATE BONDS
(Cost $7,347,436) (18.56%) 7,441,089
----- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- ---- ------ -------------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Governmental - U.S. (34.88%)
United States Treasury,
Bond 08-15-26 ............................................... 6.750% AAA $1,670 $ 1,687,485
Bond 11-15-26 ............................................... 6.500 AAA 700 685,454
Note 09-30-98 ............................................... 4.750 AAA 2,820 2,790,475
Note 11-30-98 ............................................... 5.125 AAA 700 693,987
Note 02-28-99 ............................................... 5.875 AAA 1,300 1,299,597
Note 09-30-00 ............................................... 6.125 AAA 2,499 2,499,775
Note 11-15-01 ............................................... 7.500 AAA 640 669,798
Note 08-15-04 ............................................... 7.250 AAA 3,480 3,656,158
-----------
13,982,729
-----------
Governmental - U.S. Agencies (0.56%)
Federal National Mortgage Assn.,
30 Yr Sf Pass Thru Ctf 08-16-00 ............................. 6.360 AAA 90 90,365
30 Yr Sf Pass Thru Ctf 12-01-25 ............................. 7.000 AAA 23 23,047
Government National Mortgage Assn.,
14 Day Delay 08-15-23 ....................................... 7.000 AAA 26 25,829
30 Yr Sf Pass Thru Ctf 01-15-23 ............................. 8.000 AAA 35 36,275
30 Yr Pass Thru Ctf 04-15-23 ................................ 7.500 AAA 47 47,691
-----------
223,207
-----------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $14,149,709) (35.44%) 14,205,936
----- -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.75%)
Investment in a joint repurchase agreement transaction with
SBC Capital Markets, Inc. - Dated 08-29-97, Due 09-02-97
(secured by U.S. Treasury Bonds 7.125% thru 10.375%,
Due 11-15-12 thru 02-15-23) - Note A ...................... 5.550 -- 701 701,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ........................................ 287
-----------
TOTAL SHORT-TERM INVESTMENTS (1.75%) 701,287
----- -----------
TOTAL INVESTMENTS (99.32%) $39,811,343
===== ===========
</TABLE>
* Non-income producing security.
** Credit ratings are rated by Standard and Poor's where available, or by
Moody's Investor Services or John Hancock Advisers, Inc. where Standard
and Poor's ratings are not available.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Value Fund on August 31, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (2.29%)
Goodrich (B.F.) Co. ........................... 200 $ 8,425
Northrop Grumman Corp. ........................ 400 46,825
Precision Castparts Corp. ..................... 100 6,462
United Technologies Corp. ..................... 1,000 78,063
-----------
139,775
-----------
Automobile / Trucks (6.48%)
Borg-Warner Automotive, Inc. .................. 400 20,850
Chrysler Corp. ................................ 700 24,588
Dana Corp. .................................... 900 41,456
Ford Motor Co. ................................ 4,400 189,200
General Motors Corp. .......................... 1,900 119,225
-----------
395,319
-----------
Banks - United States (17.84%)
Bank of New York Co., Inc. .................... 500 22,312
BankAmerica Corp. ............................. 1,800 118,463
BankBoston Corp. .............................. 1,000 83,125
Bankers Trust New York Corp. .................. 1,200 124,500
Barnett Banks, Inc. ........................... 1,400 95,375
Chase Manhattan Corp. ......................... 1,200 133,425
Citicorp ...................................... 1,500 191,438
Comerica, Inc. ................................ 200 14,162
First Union Corp. ............................. 2,400 115,350
Morgan (J.P.) & Co., Inc. ..................... 800 85,800
NationsBank Corp. ............................. 600 35,625
Norwest Corp. ................................. 1,200 68,925
-----------
1,088,500
-----------
Beverages (0.88%)
PepsiCo, Inc. ................................. 1,500 54,000
-----------
Building (0.66%)
Centex Corp. .................................. 400 21,750
Clayton Homes, Inc. ........................... 300 5,044
Masco Corp. ................................... 300 13,331
-----------
40,125
-----------
Chemicals (1.57%)
Air Products & Chemicals, Inc. ................ 1,100 89,719
Ethyl Corp. ................................... 700 6,300
-----------
96,019
-----------
Computers (3.40%)
Adobe Systems, Inc. ........................... 500 19,688
Cadence Design Systems, Inc.* ................. 200 9,512
Computer Associates International, Inc. ....... 200 13,375
Electronic Data Systems Corp. ................. 300 11,344
Hewlett-Packard Co. ........................... 400 24,525
International Business Machines Corp. ......... 800 80,700
Komag, Inc.* .................................. 100 1,756
Parametric Technology Corp.* .................. 900 41,794
Sun Microsystems, Inc.* ....................... 100 4,800
-----------
207,494
-----------
Diversified Operations (4.79%)
AlliedSignal, Inc. ............................ 400 33,025
Canadian Pacific, Ltd. (Canada) ............... 1,600 46,700
Du Pont (E.I.) de Nemours & Co. ............... 1,300 81,006
National Service Industries Inc. .............. 1,300 57,525
Ogden Corp. ................................... 500 11,594
Textron, Inc. ................................. 1,000 62,313
-----------
292,163
-----------
Electronics (2.00%)
Honeywell, Inc. ............................... 400 27,650
Raychem Corp. ................................. 500 46,531
Rockwell International Corp. .................. 800 48,000
-----------
122,181
-----------
Finance (3.10%)
Ahmanson (H.F.) & Co. ......................... 1,400 71,050
MBNA Corp. .................................... 700 26,906
Morgan Stanley, Dean Witter, Discover & Co. ... 1,900 91,438
-----------
189,394
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Food (0.59%)
ConAgra, Inc. ................................. 200 $ 12,862
General Mills, Inc. ........................... 300 19,238
Universal Foods Corp. ......................... 100 3,881
-----------
35,981
-----------
Instruments - Scientific (0.48%)
Perkin-Elmer Corp. ............................ 400 29,600
-----------
Insurance (7.94%)
American International Group, Inc. ............ 450 42,469
CIGNA Corp. ................................... 400 73,350
Equitable Cos., Inc. .......................... 800 34,800
General Re Corp. .............................. 900 174,487
Hartford Financial Services Group Inc. (The) .. 500 39,875
Marsh & McLennan Cos., Inc. ................... 1,100 75,075
Mid Ocean Ltd. (Bermuda) ...................... 500 28,375
PartnerRe, Ltd. (Bermuda) ..................... 400 15,900
-----------
484,331
-----------
Leisure (1.08%)
HFS, Inc.* .................................... 900 50,119
Promus Hotel Corp.* ........................... 400 15,525
-----------
65,644
-----------
Machinery (2.05%)
Caterpillar Tractor Inc. ...................... 600 34,838
Cooper Industries, Inc. ....................... 500 26,656
Deere & Co. ................................... 600 33,600
Ingersoll-Rand Co. ............................ 500 30,062
-----------
125,156
-----------
Medical (3.79%)
Allegiance Corp. .............................. 600 18,825
ALZA Corp.* ................................... 200 5,800
Bristol-Myers Squibb Co. ...................... 1,100 83,600
Cardinal Health, Inc. ......................... 1,000 66,250
HEALTHSOUTH Corp.* ............................ 800 19,950
Merck & Co., Inc. ............................. 400 36,725
-----------
231,150
-----------
Office (2.20%)
Avery Dennison Corp. .......................... 500 20,531
Pitney Bowes, Inc. ............................ 400 30,550
Xerox Corp. ................................... 1,100 83,050
-----------
134,131
-----------
Oil & Gas (11.50%)
Anadarko Petroleum Corp. ...................... 300 22,031
Baker Hughes, Inc. ............................ 1,400 59,325
British Petroleum Co. PLC, American Depositary
Receipts, ADR (United Kingdom) ............... 800 67,700
Chevron Corp. ................................. 900 69,694
Dresser Industries, Inc. ...................... 400 16,700
El Paso Natural Gas Co. ....................... 500 28,125
Kerr - McGee Corp. ............................ 500 31,062
Mobil Corp. ................................... 800 58,200
Phillips Petroleum Co. ........................ 2,300 109,394
Rowan Cos., Inc.* ............................. 400 11,950
Texaco Inc. ................................... 1,100 126,775
USX - Marathon Group .......................... 3,100 100,944
-----------
701,900
-----------
Paper & Paper Products (0.56%)
Consolidated Papers, Inc. ..................... 300 17,494
Fort James Corp. .............................. 400 16,800
-----------
34,294
-----------
Pollution Control (0.76%)
USA Waste Services, Inc. ...................... 1,100 46,200
-----------
Retail (3.16%)
Costco Cos., Inc.* ............................ 1,200 43,275
Home Depot, Inc. .............................. 1,350 63,703
Lowe's Cos., Inc. ............................. 1,500 51,844
Staples, Inc. ................................. 500 11,750
TJX Cos., Inc. ................................ 800 22,000
-----------
192,572
-----------
Rubber - Tires & Misc (0.10%)
Goodyear Tire & Rubber Co. (The) .............. 100 6,162
-----------
Shoes & Related Apparel (0.14%)
Nine West Group, Inc.* ........................ 200 8,450
-----------
Steel (1.18%)
British Steel PLC, ADR (United Kingdom) ....... 2,200 62,838
Carpenter Technology Corp. .................... 200 8,962
-----------
71,800
-----------
Telecommunications (0.51%)
Lucent Technologies, Inc. ..................... 400 31,150
-----------
Textile (1.25%)
Liz Claiborne, Inc. ........................... 600 26,737
Tommy Hilfiger Corp.* ......................... 700 30,538
Unifi, Inc. ................................... 500 19,187
-----------
76,462
-----------
Tobacco (0.45%)
Philip Morris Cos., Inc. ...................... 300 13,088
Universal Corp. ............................... 400 14,550
-----------
27,638
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Transport (3.06%)
Burlington Northern Santa Fe .................. 600 $ 55,013
CSX Corp. ..................................... 200 11,437
Delta Air Lines, Inc. ......................... 800 69,200
Norfolk Southern Corp. ........................ 400 39,200
Trinity Industries, Inc. ...................... 300 11,925
-----------
186,775
-----------
Utilities (14.54%)
Alltel Corp. .................................. 1,400 44,275
American Electric Power Co., Inc. ............. 1,300 56,794
Baltimore Gas & Electric Co. .................. 2,200 59,400
Cinergy Corp. ................................. 300 9,919
CMS Energy Corp. .............................. 900 32,344
Consolidated Edison Co. of NY, Inc. ........... 800 24,500
Consolidated Natural Gas Co. .................. 1,700 100,406
Dominion Resources, Inc. ...................... 1,200 43,200
DQE, Inc. ..................................... 800 25,400
Entergy Corp. ................................. 600 14,887
Florida Progress Corp. ........................ 1,500 48,281
FPL Group, Inc. ............................... 1,100 51,150
GTE Corp. ..................................... 2,300 102,494
Hawaiian Electric Industries, Inc. ............ 700 25,331
Houston Industries, Inc. ...................... 2,000 40,500
Montana Power Co. ............................. 700 16,144
NIPSCO Industries, Inc. ....................... 1,200 48,975
Northern States Power Co. ..................... 1,000 48,125
Texas Utilities Co. ........................... 500 17,437
Unicom Corp. .................................. 400 9,450
US West Communications Group .................. 1,900 68,044
-----------
887,056
-----------
TOTAL COMMON STOCKS
(Cost $5,360,591) ................ (98.35%) 6,001,422
----- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.70%)
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets, Inc. - Dated 08-29-97,
Due 09-02-97 (secured by U.S.
Treasury Bonds 7.125% thru 10.375%
Due 11-15-12 thru 02-15-23) -
Note A................................... 5.55% $42 $ 42,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%....................... 505
-----------
TOTAL SHORT-TERM INVESTMENTS (0.70%) 42,505
----- -----------
TOTAL INVESTMENTS (99.05%) $ 6,043,927
===== ===========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Diversified Core Equity Fund II on August 31, 1997. It's divided
into two main categories: common stocks and short-term investments. Common
stocks are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (3.58%)
Northrop Grumman Corp. ........................ 37,300 $ 4,366,431
United Technologies Corp. ..................... 140,600 10,975,587
-----------
15,342,018
-----------
Automobile / Trucks (3.04%)
Chrysler Corp. ................................ 10,200 358,275
Dana Corp. .................................... 26,500 1,220,656
Ford Motor Co. ................................ 137,400 5,908,200
General Motors Corp. .......................... 88,500 5,553,375
-----------
13,040,506
-----------
Banks - United States (8.62%)
BankAmerica Corp. ............................. 173,200 11,398,725
BankBoston Corp. .............................. 7,000 581,875
Bankers Trust New York Corp. .................. 64,300 6,671,125
Chase Manhattan Corp. ......................... 45,800 5,092,387
Citicorp ...................................... 68,200 8,704,025
First Union Corp. ............................. 17,400 836,288
Morgan (J.P.) & Co., Inc. ..................... 27,000 2,895,750
Norwest Corp. ................................. 12,600 723,713
-----------
36,903,888
-----------
Beverages (0.34%)
PepsiCo, Inc. ................................. 40,000 1,440,000
-----------
Business Services - Misc (0.38%)
Dun & Bradstreet Corp. ........................ 28,400 795,200
Reuters Holdings PLC American
Depositary Receipts (ADR)
(United Kingdom) ............................. 13,400 815,725
-----------
1,610,925
-----------
Chemicals (1.91%)
Air Products & Chemicals, Inc. ................ 74,000 6,035,625
Praxair, Inc. ................................. 40,100 2,142,844
-----------
8,178,469
-----------
Computers (9.68%)
Adobe Systems, Inc. ........................... 37,000 1,456,875
Cadence Design Systems, Inc.* ................. 33,000 1,569,563
Compaq Computer Corp.* ........................ 59,100 3,871,050
Computer Associates International, Inc. ....... 52,500 3,510,938
Electronic Data Systems Corp. ................. 38,100 1,440,656
Hewlett-Packard Co. ........................... 132,000 8,093,250
International Business Machines Corp. ......... 45,200 4,559,550
Microsoft Corp.* .............................. 71,000 9,385,312
Oracle Corp.* ................................. 43,050 1,641,281
Parametric Technology Corp.* .................. 73,000 3,389,938
Sun Microsystems, Inc.* ....................... 52,800 2,534,400
-----------
41,452,813
-----------
Cosmetics & Personal Care (0.20%)
Revlon, Inc. (Class A)* ....................... 17,400 846,075
-----------
Diversified Operations (5.73%)
AlliedSignal, Inc. ............................ 20,900 1,725,556
Canadian Pacific, Ltd. (Canada) ............... 125,900 3,674,706
Corning Inc. .................................. 90,700 4,795,762
du Pont (E.I.) de Nemours & Co. ............... 100,300 6,249,944
National Service Industries Inc. .............. 24,800 1,097,400
Ogden Corp. ................................... 27,700 642,294
Textron, Inc. ................................. 101,800 6,343,412
-----------
24,529,074
-----------
Electronics (6.74%)
General Electric Co. .......................... 192,100 12,006,250
Honeywell, Inc. ............................... 52,700 3,642,887
Intel Corp. ................................... 97,400 8,972,975
Raychem Corp. ................................. 34,500 3,210,656
Tektronix, Inc. ............................... 18,500 1,027,906
-----------
28,860,674
-----------
Finance (2.36%)
American Express Co. .......................... 38,100 2,962,275
Household International, Inc. ................. 6,600 732,188
MBNA Corp. .................................... 17,000 653,438
Morgan Stanley, Dean Witter,
Discover & Co. ............................... 119,600 5,755,750
-----------
10,103,651
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Food (2.00%)
ConAgra, Inc. ................................. 98,000 $ 6,302,625
Quaker Oats Co. ............................... 48,000 2,256,000
-----------
8,558,625
-----------
Instruments - Scientific (0.64%)
Perkin-Elmer Corp. ............................ 37,100 2,745,400
-----------
Insurance (8.72%)
American International Group, Inc. ............ 35,400 3,340,875
CIGNA Corp. ................................... 44,500 8,160,187
Equitable Cos., Inc. .......................... 32,300 1,405,050
General Re Corp. .............................. 62,900 12,194,737
Hartford Financial Services
Group Inc. (The) ............................. 50,200 4,003,450
Marsh & McLennan Cos., Inc. ................... 104,600 7,138,950
Travelers Group, Inc. ......................... 17,400 1,104,900
-----------
37,348,149
-----------
Leisure (2.32%)
Disney (Walt) Co., (The) ...................... 61,400 4,716,287
HFS, Inc.* .................................... 78,800 4,388,175
Promus Hotel Corp.* ........................... 21,100 818,944
-----------
9,923,406
-----------
Machinery (1.28%)
Cooper Industries, Inc. ....................... 29,500 1,572,719
Deere & Co. ................................... 45,700 2,559,200
Dover Corp. ................................... 19,400 1,339,813
-----------
5,471,732
-----------
Media (0.41%)
Time Warner, Inc. ............................. 33,900 1,745,850
-----------
Medical (12.35%)
Abbott Laboratories ........................... 46,800 2,805,075
Allegiance Corp. .............................. 45,800 1,436,975
ALZA Corp.* ................................... 29,700 861,300
Amgen, Inc.* .................................. 21,300 1,055,681
Becton, Dickinson & Co. ....................... 28,100 1,347,044
Bristol-Myers Squibb Co. ...................... 100,500 7,638,000
Cardinal Health, Inc. ......................... 86,700 5,743,875
Glaxo Wellcome PLC (ADR)
(United Kingdom) ............................. 40,100 1,598,988
Health Management Associates, Inc. ............
(Class A)* ................................... 15,000 443,438
HEALTHSOUTH Corp.* ............................ 124,500 3,104,719
Johnson & Johnson ............................. 111,600 6,326,325
Medtronic, Inc. ............................... 14,500 1,310,438
Merck & Co., Inc. ............................. 116,200 10,668,612
Schering-Plough Corp. ......................... 35,400 1,699,200
Warner-Lambert Co. ............................ 54,000 6,861,375
-----------
52,901,045
-----------
Office (2.41%)
Avery Dennison Corp. .......................... 39,600 1,626,075
Pitney Bowes, Inc. ............................ 60,500 4,620,687
Xerox Corp. ................................... 54,200 4,092,100
-----------
10,338,862
-----------
Oil & Gas (7.90%)
Anadarko Petroleum Corp. ...................... 18,000 1,321,875
Baker Hughes, Inc. ............................ 98,000 4,152,750
British Petroleum Co. PLC (ADR)
(United Kingdom) ............................. 20,800 1,760,200
Chevron Corp. ................................. 22,600 1,750,088
Dresser Industries, Inc. ...................... 68,100 2,843,175
El Paso Natural Gas Co. ....................... 15,100 849,375
Exxon Corp. ................................... 39,000 2,386,313
Halliburton Co. ............................... 17,800 849,950
Imperial Oil Ltd. (Canada) .................... 26,800 1,480,700
Phillips Petroleum Co. ........................ 138,200 6,573,137
Rowan Cos., Inc.* ............................. 22,600 675,175
Texaco Inc. ................................... 33,100 3,814,775
USX - Marathon Group .......................... 164,900 5,369,556
-----------
33,827,069
-----------
Retail (5.71%)
Albertson's, Inc. ............................. 46,700 1,605,313
Costco Cos., Inc.* ............................ 88,900 3,205,956
CUC International, Inc.* ...................... 46,500 1,092,750
Home Depot, Inc. .............................. 237,750 11,218,828
Lowe's Cos., Inc. ............................. 92,400 3,193,575
Staples, Inc.* ................................ 41,850 983,475
TJX Cos., Inc. ................................ 18,900 519,750
Wal-Mart Stores, Inc. ......................... 74,000 2,627,000
-----------
24,446,647
-----------
Shoes & Related Apparel (0.67%)
Nike, Inc. (Class B) .......................... 13,300 709,888
Nine West Group, Inc.* ........................ 50,900 2,150,525
-----------
2,860,413
-----------
Soap & Cleaning Preparations (1.85%)
Proctor & Gamble Co. (The) .................... 59,600 7,930,525
-----------
Steel (0.41%)
British Steel PLC (ADR) (United Kingdom) ...... 61,700 1,762,306
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Telecommunications (0.79%)
Harris Corp. .................................. 1,500 $ 130,688
Lucent Technologies, Inc. ..................... 41,550 3,235,706
-----------
3,366,394
-----------
Textile (0.92%)
Fruit of the Loom, Inc. (Class A)* ............ 34,500 922,875
Liz Claiborne, Inc. ........................... 24,500 1,091,781
Tommy Hilfiger Corp.* ......................... 44,600 1,945,675
-----------
3,960,331
-----------
Tobacco (1.87%)
Philip Morris Cos., Inc. ...................... 181,700 7,926,662
UST, Inc. ..................................... 3,000 86,625
-----------
8,013,287
-----------
Transport (0.80%)
CSX Corp. ..................................... 16,000 915,000
Norfolk Southern Corp. ........................ 11,700 1,146,600
Southwest Airlines Co. ........................ 48,700 1,363,600
-----------
3,425,200
-----------
Utilities (5.79%)
Baltimore Gas & Electric Co. .................. 43,000 1,161,000
BellSouth Corp. ............................... 86,100 3,788,400
Cinergy Corp. ................................. 64,600 2,135,838
Consolidated Natural Gas Co. .................. 94,400 5,575,500
Dominion Resources, Inc. ...................... 84,200 3,031,200
GTE Corp. ..................................... 138,200 6,158,537
Houston Industries, Inc. ...................... 51,900 1,050,975
Texas Utilities Co. ........................... 54,100 1,886,738
-----------
24,788,188
-----------
TOTAL COMMON STOCKS
(Cost $343,863,778 (99.42%) 425,721,522
------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.10%)
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets, Inc. - Dated 08-29-97,
Due 09-02-97 (secured by U.S.
Treasury Bonds 7.125% thru 10.375%,
due 11-15-12 thru 02-15-23)
Note A.................................. 5.55% $445 $ 445,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%...................... 127
-----------
TOTAL SHORT-TERM INVESTMENTS (0.10%) 445,127
------ ------------
TOTAL INVESTMENTS (99.52%) $426,166,649
====== ============
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Growth Fund on August 31, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS Aerospace (3.59%)
Northrop Grumman Corp. ........................ 100 $ 11,706
Rohr, Inc.* ................................... 200 5,413
United Technologies Corp. ..................... 500 39,031
-----------
56,150
-----------
Automobile / Trucks (1.65%)
Ford Motor Co. ................................ 600 25,800
-----------
Banks - United States (2.47%)
BankAmerica Corp. ............................. 500 32,906
Norwest Corp. ................................. 100 5,744
-----------
38,650
-----------
Beverages (1.15%)
PepsiCo, Inc. ................................. 500 18,000
-----------
Building (0.62%)
Centex Corp. .................................. 100 5,438
Clayton Homes, Inc. ........................... 250 4,203
-----------
9,641
-----------
Chemicals (2.41%)
Air Products & Chemicals, Inc. ................ 200 16,312
Praxair, Inc. ................................. 400 21,375
-----------
37,687
-----------
Computers (15.99%)
Adobe Systems, Inc. ........................... 200 7,875
Cadence Design Systems, Inc.* ................. 300 14,269
Cisco Systems, Inc.* .......................... 200 15,075
Cognizant Corp. ............................... 300 12,600
Compaq Computer Corp.* ........................ 500 32,750
Computer Associates International, Inc. ....... 200 13,375
Dell Computer Corp.* .......................... 200 16,412
Hewlett-Packard Co. ........................... 400 24,525
Komag, Inc.* .................................. 100 1,756
Microsoft Corp.* .............................. 300 39,656
Oracle Corp.* ................................. 600 22,875
Parametric Technology Corp.* .................. 500 23,219
PeopleSoft, Inc.* ............................. 100 5,625
Policy Management Systems Corp.* .............. 100 6,006
Sun Microsystems, Inc.* ....................... 300 14,400
-----------
250,418
-----------
Cosmetics & Personal Care (0.63%)
Dial Corp. (The) .............................. 300 5,063
Revlon, Inc. (Class A)* ....................... 100 4,863
-----------
9,926
-----------
Diversified Operations (5.45%)
Canadian Pacific, Ltd. (Canada) ............... 500 14,594
Corning Inc. .................................. 700 37,012
du Pont (E.I.) de Nemours & Co. ............... 200 12,462
IKON Office Solutions, Inc. ................... 100 2,600
Textron, Inc. ................................. 300 18,694
-----------
85,362
-----------
Electronics (10.78%)
Applied Materials, Inc.* ...................... 100 9,438
General Electric Co. .......................... 800 50,000
Honeywell, Inc. ............................... 200 13,825
Intel Corp. ................................... 700 64,487
Maxim Intergrated Products, Inc.* ............. 100 6,913
Raychem Corp. ................................. 200 18,612
Tektronix, Inc. ............................... 100 5,556
-----------
168,831
-----------
Finance (1.60%)
MBNA Corp. .................................... 150 5,766
Morgan Stanley, Dean Witter, Discover & Co. ... 400 19,250
-----------
25,016
-----------
Food (1.42%)
ConAgra, Inc. ................................. 200 12,862
Quaker Oats Co. ............................... 200 9,400
-----------
22,262
-----------
Household (0.51%)
WestPoint Stevens, Inc.* ...................... 200 8,000
-----------
Instruments - Scientific (0.47%)
Perkin-Elmer Corp. ............................ 100 7,400
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (4.42%)
CIGNA Corp. ................................... 100 $ 18,337
Equitable Cos., Inc., (The) ................... 300 13,050
General Re Corp. .............................. 100 19,387
Marsh & McLennan Cos., Inc. ................... 200 13,650
United Healthcare Corp. ....................... 100 4,863
-----------
69,287
-----------
Leisure (4.59%)
Disney (Walt) Co., (The) ...................... 400 30,725
HFS, Inc. ..................................... 600 33,412
Promus Hotel Corp.* ........................... 200 7,763
-----------
71,900
-----------
Machinery (0.34%)
Cooper Industries, Inc. ....................... 100 5,331
-----------
Media (0.38%)
Viacom, Inc. (Class B)* ....................... 200 5,925
-----------
Medical (19.69%)
Abbott Laboratories ........................... 300 17,981
Allegiance Corp. .............................. 200 6,275
ALZA Corp.* ................................... 200 5,800
Amgen, Inc.* .................................. 300 14,869
Becton, Dickinson & Co. ....................... 200 9,588
Bristol-Myers Squibb Co. ...................... 800 60,800
Cardinal Health, Inc. ......................... 500 33,125
Glaxo Wellcome PLC, American Depositary
Receipts, ADR (United Kingdom) ............... 400 15,950
Guidant Corp. ................................. 100 8,781
Health Management Associates, Inc. ............
(Class A)* ................................... 300 8,869
HEALTHSOUTH Corp.* ............................ 600 14,962
Johnson & Johnson ............................. 500 28,344
McKesson Corp. ................................ 100 9,369
Medtronic, Inc. ............................... 100 9,038
Merck & Co., Inc. ............................. 600 55,087
Schering-Plough Corp. ......................... 200 9,600
-----------
308,438
-----------
Mortgage Banking (0.28%)
Fannie Mae .................................... 100 4,400
-----------
Office (0.96%)
Xerox Corp. ................................... 200 15,100
-----------
Oil & Gas (4.06%)
Baker Hughes, Inc. ............................ 500 21,187
Dresser Industries, Inc. ...................... 100 4,175
El Paso Natural Gas Co. ....................... 100 5,625
Phillips Petroleum Co. ........................ 200 9,513
Rowan Cos., Inc.* ............................. 300 8,963
Schlumberger, Ltd. ............................ 100 7,619
USX - Marathon Group .......................... 200 6,513
-----------
63,595
-----------
Pollution Control (0.54%)
USA Waste Services, Inc. ...................... 200 8,400
-----------
Retail (6.62%)
Costco Cos., Inc.* ............................ 400 14,425
CUC International, Inc.* ...................... 200 4,700
Home Depot, Inc. .............................. 1,050 49,547
Lowe's Cos., Inc. ............................. 500 17,281
Safeway, Inc.* ................................ 100 5,094
Staples, Inc.* ................................ 300 7,050
TJX Cos., Inc. ................................ 200 5,500
-----------
103,597
-----------
Shoes & Related Apparel (0.27%)
Nine West Group, Inc.* ........................ 100 4,225
-----------
Soap & Cleaning Preparations (1.70%)
Proctor & Gamble Co. (The) .................... 200 26,612
-----------
Telecommunications (2.49%)
Lucent Technologies, Inc. ..................... 500 38,938
-----------
Textile (1.35%)
Fruit of the Loom, Inc. (Class A)* ............ 300 8,025
Liz Claiborne, Inc. ........................... 100 4,456
Tommy Hilfiger Corp.* ......................... 200 8,725
-----------
21,206
-----------
Tobacco (1.25%)
Philip Morris Cos., Inc. ...................... 300 13,087
Universal Corp. ............................... 100 3,638
UST, Inc. ..................................... 100 2,888
-----------
19,613
-----------
Transport (0.83%)
Southwest Airlines Co. ........................ 100 2,800
US Air Group, Inc.* ........................... 300 10,237
-----------
13,037
-----------
Utilities (0.52%)
GTE Corp. ..................................... 100 4,456
Union Electric Co. ............................ 100 3,719
-----------
8,175
-----------
TOTAL COMMON STOCK
(Cost $1,293,522) (99.03%) 1,550,922
----- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.66%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc. -
Dated 08-29-97, Due 09-02-97
(secured by U.S. Treasury Bonds
7.125% thru 10.375% Due 11-15-12
thru 02-15-23) - Note A............... 5.55% $ 26 $ 26,000
----------
Corporate Savings Account (0.05%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%.................... 717
----------
TOTAL SHORT-TERM INVESTMENTS (1.71%) 26,717
------ ----------
TOTAL INVESTMENTS (100.74%) $1,577,639
------ ----------
* 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.
52
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
Schedule of Investments
August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Medium Capitalization Fund on August 31, 1997. It is divided into
two main categories: common stocks and short-term investments. Common stocks are
further broken down by industry group. Short-term investments, which represent
the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS Aerospace (2.53%)
Northrop Grumman Corp. ........................ 700 $ 81,944
Rohr, Inc.* ................................... 900 24,356
United Technologies Corp. ..................... 1,000 78,063
-----------
184,363
-----------
Automobile / Trucks (1.87%)
Borg-Warner Automotive, Inc. .................. 700 36,488
Chrysler Corp. ................................ 600 21,075
Dana Corp. .................................... 1,300 59,881
Lear Corp.* ................................... 400 18,325
-----------
135,769
-----------
Banks - United States (9.08%)
BankBoston Corp. .............................. 1,500 124,687
Bankers Trust New York Corp. .................. 1,700 176,375
Barnett Banks, Inc. ........................... 1,200 81,750
Comerica, Inc. ................................ 800 56,650
Fifth Third Bancorp ........................... 300 17,475
Mellon Bank Corp. ............................. 1,600 77,000
Northern Trust Corp. .......................... 1,400 74,375
U.S. Bancorp .................................. 600 52,537
-----------
660,849
-----------
Broker Services (0.49%)
Salomon, Inc. ................................. 600 35,925
-----------
Building (1.42%)
Centex Corp. .................................. 600 32,625
Masco Corp. ................................... 1,100 48,881
Sherwin-Williams Co. .......................... 800 21,950
-----------
103,456
-----------
Chemicals (3.66%)
Air Products & Chemicals, Inc. ................ 1,500 122,344
Albemarle Corp. ............................... 800 19,650
Praxair, Inc. ................................. 1,000 53,437
Rohm & Haas Co. ............................... 400 38,325
Sigma-Aldrich Corp. ........................... 1,000 32,625
-----------
266,381
-----------
Computers (6.41%)
Adobe Systems, Inc. ........................... 1,000 39,375
Cabletron Systems, Inc.* ...................... 1,100 33,275
Cadence Design Systems, Inc.* ................. 1,100 52,319
Ceridian Corp.* ............................... 500 17,281
Cognizant Corp. ............................... 1,200 50,400
Komag, Inc.* .................................. 600 10,538
Parametric Technology Corp.* .................. 1,700 78,944
PeopleSoft, Inc.* ............................. 900 50,625
Policy Management Systems Corp.* .............. 300 18,019
Sun Microsystems, Inc.* ....................... 2,400 115,200
-----------
465,976
-----------
Consumer Products Misc. (0.43%)
American Greetings Corp. (Class A) ............ 900 31,275
-----------
Cosmetics & Personal Care (0.23%)
Dial Corp. (The) .............................. 1,000 16,875
-----------
Diversified Operations (4.14%)
Canadian Pacific, Ltd. (Canada) .............. 4,000 116,750
IKON Office Solutions, Inc. ................... 1,300 33,800
National Service Industries Inc. .............. 500 22,125
Ogden Corp. ................................... 1,500 34,781
Textron, Inc. ................................. 1,500 93,469
-----------
300,925
-----------
Electronics (3.00%)
Honeywell, Inc. ............................... 1,700 117,512
Raychem Corp. ................................. 900 83,756
Tektronix, Inc. ............................... 300 16,669
-----------
217,937
-----------
Energy (0.26%)
Wheelabrator Technologies, Inc. ............... 1,200 18,825
-----------
Finance (5.13%)
Ahmanson (H.F.) & Co. ......................... 2,600 131,950
American Express Co. .......................... 300 23,325
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Finance (continued)
Household International, Inc. ................. 400 $ 44,375
MBNA Corp. .................................... 1,625 62,461
Morgan Stanley, Dean Witter,
Discover & Co. ............................... 2,300 110,687
-----------
372,798
-----------
Food (0.43%)
Universal Foods Corp. ......................... 800 31,050
-----------
Funeral Services & Related (0.70%)
Service Corp. International ................... 1,600 51,200
-----------
Instruments - Scientific (0.92%)
Perkin-Elmer Corp. ............................ 900 66,600
-----------
Insurance (9.99%)
CIGNA Corp. ................................... 900 165,037
Equitable Cos., Inc. (The) .................... 2,600 113,100
General Re Corp. .............................. 700 135,712
Hartford Financial Services Group Inc. ........ 1,000 79,750
Marsh & McLennan Cos., Inc. ................... 2,000 136,500
Torchmark Corp. ............................... 600 22,613
Travelers Group, Inc. ......................... 700 44,450
United Healthcare Corp. ....................... 600 29,175
-----------
726,337
-----------
Leisure (2.26%)
Choice Hotels International, Inc.* ............ 1,100 20,969
HFS, Inc.* .................................... 1,600 89,100
Promus Hotel Corp.* ........................... 1,400 54,337
-----------
164,406
-----------
Machinery (2.83%)
Cooper Industries, Inc. ....................... 1,800 95,962
Dover Corp. ................................... 900 62,156
Ingersoll-Rand Co. ............................ 800 48,100
-----------
206,218
-----------
Media (0.39%)
New York Times Co. (Class A) .................. 600 28,350
-----------
Medical (5.35%)
Allegiance Corp. .............................. 900 28,238
ALZA Corp.* ................................... 1,300 37,700
Becton, Dickinson & Co. ....................... 700 33,556
Cardinal Health, Inc. ......................... 1,200 79,500
Guidant Corp. ................................. 300 26,344
Health Management Associates, Inc. ............
(Class A)* ................................... 1,000 29,563
HEALTHSOUTH Corp.* ............................ 2,500 62,344
McKesson Corp. ................................ 600 56,213
Tenet Healthcare Corp.* ....................... 1,300 35,425
-----------
388,883
-----------
Metal (0.17%)
Newmont Mining Corp. .......................... 300 12,694
-----------
Office (3.30%)
Avery Dennison Corp. .......................... 1,400 57,488
Pitney Bowes, Inc. ............................ 1,300 99,287
Xerox Corp. ................................... 1,100 83,050
-----------
239,825
-----------
Oil & Gas (7.59%)
Anadarko Petroleum Corp. ...................... 800 58,750
Baker Hughes, Inc. ............................ 1,800 76,275
Dresser Industries, Inc. ...................... 1,600 66,800
El Paso Natural Gas Co. ....................... 255 14,344
Halliburton Co. ............................... 1,200 57,300
Kerr-McGee Corp. .............................. 900 55,912
Phillips Petroleum Co. ........................ 1,800 85,613
Rowan Cos., Inc.* ............................. 1,000 29,875
USX - Marathon Group .......................... 3,300 107,456
-----------
552,325
-----------
Paper & Paper Products (0.49%)
Westvaco Corp. ................................ 1,050 35,569
-----------
Pollution Control (2.03%)
Safety-Kleen Corp. ............................ 1,900 38,356
USA Waste Services, Inc.* ..................... 2,600 109,200
-----------
147,556
-----------
Real Estate Operations (0.22%)
Webb (Del) Corp. .............................. 900 15,750
-----------
Retail (7.00%)
Costco Cos., Inc.* ............................ 1,000 36,062
CUC International, Inc.* ...................... 2,900 68,150
Dayton Hudson Corp. ........................... 1,000 57,000
Federated Department Stores, Inc.* ............ 1,400 58,800
Home Depot, Inc. .............................. 2,550 120,328
Lowe's Cos., Inc. ............................. 2,300 79,494
Staples, Inc.* ................................ 2,150 50,525
TJX Cos., Inc. ................................ 1,400 38,500
-----------
508,859
-----------
Rubber - Tires & Misc (0.59%)
Goodyear Tire & Rubber Co. (The) .............. 700 43,137
-----------
Shoes & Related Apparel (0.17%)
Nine West Group, Inc.* ........................ 300 12,675
-----------
Steel (0.88%)
British Steel PLC American Depositary
Receipts (United Kingdom) .................... 1,000 28,563
Carpenter Technology Corp. .................... 800 35,850
-----------
64,413
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Telecommunications (1.61%)
Harris Corp. .................................. 400 $ 34,850
Lucent Technologies, Inc. ..................... 1,056 82,236
-----------
117,086
-----------
Textile (1.80%)
Fruit of the Loom, Inc. (Class A)* ............ 1,000 26,750
Liz Claiborne, Inc. ........................... 800 35,650
Tommy Hilfiger Corp. .......................... 900 39,263
Warnaco Group, Inc. (Class A) ................. 900 29,194
-----------
130,857
-----------
Tobacco (1.24%)
Universal Corp. ............................... 1,300 47,288
UST, Inc. ..................................... 1,500 43,312
-----------
90,600
-----------
Transportation (3.53%)
CSX Corp. ..................................... 800 45,750
Delta Air Lines, Inc. ......................... 800 69,200
Norfolk Southern Corp. ........................ 400 39,200
Northwest Airlines Corp. (Class A)* ........... 400 14,625
Southwest Airlines Co. ........................ 1,700 47,600
Trinity Industries, Inc. ...................... 500 19,875
US Airways Group Inc.* ........................ 600 20,475
-----------
256,725
-----------
Utilities (5.85%)
Baltimore Gas & Electric Co. .................. 1,700 45,900
Cinergy Corp. ................................. 1,800 59,512
CMS Energy Corp. .............................. 500 17,969
Consolidated Natural Gas Co. .................. 1,400 82,687
Dominion Resources, Inc. ...................... 1,200 43,200
Entergy Corp. ................................. 700 17,369
Florida Progress Corp. ........................ 1,500 48,281
Houston Industries, Inc. ...................... 400 8,100
Idaho Power Co. ............................... 600 18,975
Teco Energy, Inc. ............................. 300 7,219
Texas Utilities Co. ........................... 900 31,388
Union Electric Co. ............................ 1,200 44,625
-----------
425,225
-----------
TOTAL COMMON STOCKS
(Cost $5,697,564) (97.99%) 7,127,694
----- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
TOTAL SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.22%)
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets, Inc. - Dated 08-29-97,
Due 09-02-97 (secured by U.S.
Treasury Bonds 7.125% thru 10.375%,
Due 11-15-12 thru 02-15-23)
Note A.................................. 5.55% $161 $ 161,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%....................... 181
----------
TOTAL SHORT-TERM INVESTMENTS (2.22%) 161,181
------ ----------
TOTAL INVESTMENTS (100.21%) $7,288,875
====== ==========
* 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.
55
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Independence Balanced Fund ("Independence Balanced Fund"), John
Hancock Independence Value Fund ("Independence Value Fund"), John Hancock
Independence Diversified Core Equity Fund II ("Independence Diversified Core
Equity Fund II"), John Hancock Independence Growth Fund ("Independence Growth
Fund") and John Hancock Independence Medium Capitalization Fund ("Independence
Medium Capitalization Fund"), (each, a "Fund" and collectively, the "Funds"),
are separate portfolios of John Hancock Institutional Series Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940. The Trust, organized as a Massachusetts business
trust in 1994, consists of twelve series portfolios: the Funds, John Hancock
Active Bond Fund, John Hancock Global Bond Fund, John Hancock Fundamental Value
Fund, John Hancock Dividend Performers Fund, John Hancock Multi-Sector Growth
Fund, John Hancock Small Capitalization Equity Fund and John Hancock
International Equity Fund. The other seven series of the Trust are reported in
separate financial statements. The investment objective of Independence Balanced
Fund and Independence Diversified Core Equity Fund II is to seek above average
total return consisting of capital appreciation and income. The investment
objective of Independence Growth Fund, Independence Medium Capitalization Fund
and Independence Value Fund is to seek above average total return. Each Fund
currently has one class of shares with equal rights as to voting, redemption,
dividends and liquidation within their respective Fund. The Trustees may
authorize the creation of additional portfolios from time to time to satisfy
various investment objectives.
Significant accounting policies of the Funds are as follows:
VALUATION OF INVESTMENTS Securities in the Funds' portfolios are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Funds' custodian bank receives delivery of the underlying
securities for the joint account on the Funds' behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policies are to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment companies
and to distribute all of their taxable income, including net realized gain on
investments, to their shareholders. Therefore, no federal income tax provisions
are required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or in the case of some foreign securities,
on the date thereafter when the Funds identify the dividend. Interest income on
investment securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable.
The Funds record all dividends and distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
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.
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FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund will be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Funds have been capitalized and are being charged to the Funds' operations
ratably over a five-year period that began with the commencement of the
investment operations of the Funds.
In the event that any of the initial shares are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of the then unamortized organization expense in the same proportion as
the number of the initial shares redeemed bears to the number of the initial
shares outstanding at the time of such redemption.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amount of assets, liabilities, revenues
and expenses of the Funds. Actual results could differ from these estimates.
BANK BORROWINGS The Funds are permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Funds had no borrowing
activity for the period ended August 31, 1997.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Funds do not isolate those portions of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Funds pay a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
FUND RATE
---- ----
Independence .70% of average daily net assets up to $500 million
Balanced Fund .65% of such assets in excess of $500 million
Independence .80% of average daily net assets up to $500 million
Value Fund .75% of such assets in excess of $500 million
Independence .50% of average daily net assets
Diversified Core
Equity Fund II
Independence .80% of average daily net assets up to $500 million
Growth Fund .75% of such assets in excess of $500 million
Independence .80% of average daily net assets up to $500 million
Medium .75% of such assets in excess of $500 million
Capitalization Fund
The Adviser is responsible for managing the Funds' investment business
affairs and overseeing the investment activities of the sub-adviser.
57
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FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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
Value Fund average daily net assets
Independence 80% of the advisory fee payable on the Fund's
Diversified average daily net assets
Core Equity Fund II
Independence 55% of the advisory fee payable on the Fund's
Growth Fund average daily net assets
Independence 55% of the advisory fee payable on the Fund's
Medium average daily net assets
Capitalization Fund
Effective July 1, 1995, the Sub-Adviser has waived its fees until further
notice on Independence Balanced Fund, Independence Value Fund, Independence
Growth Fund, and Independence Medium Capitalization Fund.
The Adviser has agreed to limit the Funds' expenses further to the extent
required to prevent expenses from exceeding: 0.90% of Independence Balanced
Fund's average daily net assets, 0.95% of Independence Value Fund's average
daily net assets, 0.70% of Independence Diversified Core Equity Fund II's
average daily net assets, 0.95% of Independence Growth Fund's average daily net
assets and 1.00% of Independence Medium Capitalization Fund's average daily net
assets. Accordingly, for the period ended August 31, 1997, the reduction in the
Funds' expenses collectively with any additional amounts not borne by the Funds
by virtue of the expense limit amounted to $26,757 for Independence Balanced
Fund, $29,780 for Independence Value Fund, none for Independence Diversified
Core Equity Fund II, $21,910 for Independence Growth Fund and $10,973 for
Independence Medium Capitalization Fund. The Adviser reserves the right to
terminate this limitation in the future.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended August
31, 1997, all sales of shares of beneficial interest were sold at net asset
value. The Funds pay all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states, and all other expenses in connection with the sale and
offering for sale of the shares of the Funds which have not been herein
specifically allocated to the Trust.
The Funds have a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect wholly owned subsidiary of
John Hancock Mutual Life Insurance Company. The Funds pay Signature Services a
monthly transfer agent fee equivalent, on an annual basis, to 0.05% of the
Funds' average daily net asset value, plus out-of-pocket expenses incurred by
Signature Services on behalf of the Funds for proxy mailings.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Funds.
Edward J. Boudreau, Jr., Anne C. Hodsdon and Richard S. Scipione are
trustees and officers of the Adviser, and/or its affiliates as well as Trustees
of the Funds. The compensation of unaffiliated Trustees is borne by the Funds.
The unaffiliated Trustees may elect to defer for tax purposes their receipt of
this compensation under the John Hancock Group of Funds Deferred Compensation
Plan. The Funds make investments into other John Hancock funds, as applicable,
to cover their liabilities for the deferred compensation. Investments to cover
the Funds' deferred compensation liability are recorded on the Funds' books as
an other asset. The deferred compensation liability and the related other asset
are always equal and are marked to market on a periodic basis to reflect any
income earned by the investment as well as any unrealized gains or losses. At
August 31, 1997, the Funds' investment to cover the deferred compensation had
unrealized appreciation of $20 for the
58
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FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Independence Balanced Fund, $2 for the Independence Value Fund, $664 for the
Independence Diversified Core Equity Fund II, $2 for the Independence Growth
Fund and $14 for the Independence Medium Capitalization Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended August 31, 1997 were as follows:
PURCHASES PROCEEDS
--------- --------
Independence Balanced Fund
U.S. Government Securities...... $ 28,502,354 $ 19,739,986
Other Investments............... 22,105,249 6,010,845
Independence Value Fund........... 6,672,704 2,555,505
Independence Diversified Core
Equity Fund II.................. 182,317,850 121,260,304
Independence Growth Fund.......... 1,038,155 513,866
Independence Medium
Capitalization Fund............. 2,592,441 1,522,823
At August 31, 1997, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of investments owned by
the Funds, as computed on a federal income tax basis, were as follows:
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION DEPRECIATION
---- ------------ ------------ ------------
Independence
Balanced
Fund .......... $ 37,819,566 $ 2,182,579 ($ 191,089) $ 1,991,490
Independence
Value Fund .... 5,402,591 688,378 (47,547) 640,831
Independence
Diversified
Core Equity
Fund II ....... 344,308,778 85,556,834 (3,699,090) 81,857,744
Independence
Growth
Fund .......... 1,319,522 275,222 (17,822) 257,400
Independence
Medium
Capitalization
Fund .......... 5,858,564 1,491,875 (61,745) 1,430,130
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box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
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This report is for the information of shareholders of the John Hancock
Institutional Series Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
KI0SA 8/97
10/97
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Paper."]
