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John Hancock Funds
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[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
ANNUAL REPORT
February 28, 1997
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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............................................ 71
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
89 SOUTH STREET
BOSTON, MA 02111
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY STE 1000
BOSTON, MA 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
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
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
125 SUMMER STREET
BOSTON, MA 02210-1617
2
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CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
["a 1-1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph"]
Most analysts agree that the Social Security system will run out of money by the
year 2030 unless Congress makes some changes. Although it seems a long way off,
the issue is serious enough that at least one group has already studied the
problem, and experts and politicians alike have weighed in with a slew of
prescriptions.
The problem stems from demographic and societal changes. The number of
retirees collecting Social Security is growing rapidly, while the number of
workers supporting the system is shrinking. Consider this: in 1950, there were
16 workers paying into the Social Security system for each retiree collecting
benefits. Today, there are three workers for each retiree and by 2019 there will
be two. Starting then, the Social Security Administration estimates that the
amount paid out in Social Security benefits will start to be greater than the
amount collected in Social Security taxes. Compounding the issue is the fact
that people are retiring earlier and living longer.
The state of the system has already left many people, especially younger and
middle-aged workers, feeling insecure about Social Security. A recent survey by
the Employee Benefits Research Institute (EBRI) found that 79% of current
workers polled had little confidence in the ability of Social Security to
maintain the same level of benefits as those received by today's retirees.
Instead, they said they expect to use their own savings or employer-sponsored
pensions for their retirement. Yet, remarkably, another EBRI survey revealed
that only slightly more than half of America's current workers are saving money
for retirement. Fewer than half own IRAs or participate in employer-sponsored
pension or savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce your
standard of living once you stop working. So we encourage you to save all that
you can now, so you can live the way you'd like later.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
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BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
Active Bond Fund
Conflicting economic data and inflation fears
produce anxiety, mixed bond returns
"We continue to see strong results from the media and cable sector..."
The bond market traveled a rough road during the last 12 months, driven by
stronger than expected economic data and heightened inflation fears. When the
Fund's fiscal year began in March 1996, investors were still reeling from a much
stronger than expected February employment report that sent bond prices into a
tailspin. Interest rates climbed and bond prices fell throughout the summer as a
mix of strong economic news provoked inflation fears, yet inflation remained at
bay. In the fall, bonds staged a rally when emotions calmed down along with the
economy, but it was cut short in December and January when stronger economic
data rekindled inflation angst. The market recouped somewhat in February on tame
inflation and employment news, but the year ended as it began, roiled following
Federal Reserve Chairman Alan Greenspan's hint of a possible rate increase as a
pre-emptive strike against inflation. With that backdrop, John Hancock Active
Bond Fund posted a total return of 6.17% at net asset value. That compared
favorably to the 4.81% return of the average corporate debt A-rated fund,
according to Lipper Analytical Services, Inc. As further comparison, the Lehman
Government/Corporate Bond Index returned 4.83%.
Strategy and portfolio review
Several factors contributed to the Fund's outperformance, including its
conservative approach throughout the year. We kept the Fund's duration shorter
than average for most of the year because of the volatile interest rate
environment. Duration measures how much a bond's price will move in response to
changes in interest rates. When rates are rising and prices are falling, it pays
to keep duration short. The only change we made was in September, when we
extended duration to slightly longer than neutral, allowing us to capture the
full benefit of the market's rally in October and November. But by year end our
[A 2 1/4" x 3" photo of the Active Bond Management Group. 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 the heading "Fund Performance" at top of left hand column. A
footnote below states "For the year ended February 28, 1997." The chart is
scaled in increments of 2%, with 8% at top and 0% at bottom. Within the chart
there are three solid bars. The first represents the 6.17% total return for John
Hancock Active Bond Fund. The second represents the 4.81% total return for the
average corporate debt A-rated fund. The third represents the 4.83% 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, Inc. The Lehman Brothers Government/Corporate Bond
Index is a broad index composed of investment-grade corporate and government
bonds. See the following two pages for historical performance information.]
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duration was back to slightly shorter than neutral, where it remained at the end
of the fiscal year.
Also helping performance was our growing stake in corporate bonds, which
stood at 39% of net assets at the end of the period, up from 35% at the
beginning. The remainder of the Fund's assets were in government securities. We
did especially well with corporates late last year, when we bought more at a
time when their prices became attractive in the wake of a heavy supply of new
issues. Once the supply was absorbed, prices rose again, as we had expected.
Careful credit selection also helped. We continue to see strong results from the
media and cable sector, which is benefiting from industry consolidation. During
the period, we successfully sold our position in Continental Cablevision, a
below-investment-grade credit, when its bond price rose after being taken over
by single A-rated USWest. In a similar vein, our focus on the lower-rated,
higher-yielding electric utility companies has paid off. Our Long Island
Lighting Company high-yield bonds have also been boosted by the news of a
pending takeover by Brooklyn Union and Gas, an investment-grade credit.
We also added several "Yankee" bonds from emerging market countries to our
stake in high-yield bonds, which are those with credit ratings of BB or lower.
Yankee bonds are U.S. dollar denominated foreign bonds issued in the United
States. Our 15% position in high-yield bonds gives a boost to the Fund which is
otherwise dominated by higher-rated, lower-yielding credits. In the emerging
markets, we were able to buy solid corporate credits fairly cheaply because a
government rating ceiling prevents any corporate credit from receiving a rating
that is higher than that of its country's government. That allowed us to buy a
number of issues whose creditworthiness we believe is better than their ratings
show. One example was our holding in Philippine Long Distance Telephone Co.
"We remain cautious in the near term about the prospects for bonds."
Outlook
We remain cautious in the near term about the prospects for bonds. With the
economy continuing to show signs of strength and the labor market close to full
employment, worries about inflation will remain - even if inflation stays tame.
What's more, the vigilant Federal Reserve remains on hyper-alert for signs of
inflation. As long as the specter of Fed rate increases remains real, we'll
maintain our conservative posture and continue to keep the Fund's duration
shorter than average.
5
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns for the John Hancock
Active Bond Fund. Total return is a performance measure that equals the sum of
all income and capital gain distributions, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURNS
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For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
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John Hancock Active Bond Fund 4.84% 13.29%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
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John Hancock Active Bond Fund(2) 4.84% 7.39%(1)
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YIELD
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As of February 28, 1997
SEC 30-DAY
YIELD
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John Hancock Active Bond Fund 6.67%
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 (3.07%) and 0.21%, 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 February 28, 1997 assuming you invested on
the day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $250,000 investment in the 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 $293,164 as of February 28, 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 $286,855 as of February 28, 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
Bonds from Europe and emerging markets
perform well over the last 12 months
"...our U.K. holdings... grew to 9% of net assets by the end of the period..."
Many foreign bond markets rallied over the past year, aided in part by
worldwide economic growth without inflationary pressures. Leading the way were
emerging markets, whose sound economic policies helped keep inflation down and
stimulate economic growth. Investors flocked to these markets, eager to capture
the high yields they offered. Elsewhere, most European markets were strong
performers as interest rates declined and the region moved closer to adopting a
common currency.
By contrast, the past 12 months will go down as a rather mediocre period for
U.S. bonds. Despite the fact that the Federal Reserve Board neither raised nor
lowered interest rates during the period covered by this report, bond prices
were volatile, reflecting shifting concerns about the direction of the U.S.
economy, inflation trends and interest rates.
For the year ended February 28, 1997, John Hancock Global Bond Fund posted
a total return of 3.39% at net asset value. That compared to 10.01% for the
average general world income fund, according to Lipper Analytical Services. For
another comparison, the JP Morgan Global Government Bond Index returned 2.74%
for the period. The performance difference can be attributed to our smaller
weighting than our peers in emerging market securities. We have been constrained
by our size at this early stage of the Fund's operation because most emerging
market securities are available only in amounts larger than the Fund can
currently accommodate. But we continued to build our stake in emerging markets
whenever possible during the period, focusing on Argentina and Mexican global
bonds which are
[A 2" x 2 1/2" photo of the Fund management team. Caption reads: "The Global
Bond management team: 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 the heading "Fund Performance at top of left hand column. A
footnote below states: "For year ended February 28, 1997." The chart is scaled
in increments of 3%, with 12% at the top and 0% at the bottom. Within the chart,
there are three solid bars. The first represents the 3.39% total return for John
Hancock Global Bond Fund. The second represents the 10.01% total return for the
average general world income fund. The third represents the 2.74% total return
for the JP Morgan Global Government Bond Index. A footnote below states: "The
total return for John Hancock Global Bond Fund is at net asset with all
distributions reinvested. The average general world income fund is tracked by
Lipper Analytical Services, Inc. The JP Morgan Global Government Bond 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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denominated in U.S. dollars, and in Brady bonds from Brazil.
Strategy recap
Over the past year we slightly reduced our European holdings to 38% by the end
of February. As yields fell in these markets, bond prices rose and helped the
Fund's performance throughout the year. But as a result of the strong rally,
their yields became less attractive than in the U.S. and other areas. What's
more, Europe's core currencies -- the French franc and the German mark -- had
been weak relative to the dollar. So we began to position the portfolio to have
less currency risk by emphasizing other higher-yielding, dollar-denominated
opportunities in the U.S. and Latin American markets. One exception was our U.K.
holdings, which grew to 9% of net assets by the end of the period and offer
relatively higher-yields than other European markets.
U.S. Treasury notes made up 41% of the Fund's net assets at the end of
February, up slightly compared to a year ago. We continued to avoid Japanese
bonds, which offered much lower yields than those available in the U.S. and
Europe. However, we did have a 10% direct stake in the yen. That yen exposure
was a disappointment since the U.S. dollar continued to strengthen versus the
yen over the period. But in our view the yen remains an attractive longer-term
investment because we believe that Japan no longer needs a weak currency in
order to jump-start its economy. If that is the case, the yen could rebound
relative to the U.S. dollar.
"We do not anticipate dramatic changes in the world's economies..."
Outlook
While we do not anticipate dramatic changes in the world's economies, our view
is that the U.S. economy is performing well enough to possibly warrant higher
interest rates. So, we will maintain a portfolio duration that is slightly
defensive. Duration is a measure of how much a bond's price will vary in
response to changes in interest rates. From a global perspective, we expect that
inflation will continue to be under control in Europe, which argues for
continued low or declining interest rates in those markets. However, it's
unlikely that the peripheral markets will replicate last year's strong
performance. Likewise, we expect emerging markets to perform well, although not
as well as they did in 1996.
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International investing involves special risks, such as currency and political
risks and differences in accounting standards and financial reporting. See
prospectus for details.
9
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns for the John Hancock
Global Bond Fund. Total return is a performance measure that equals the sum of
all income and capital gain distributions, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURNS
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For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
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John Hancock Global Bond Fund 4.08% 11.13%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
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John Hancock Global Bond Fund(2) 4.08% 6.40%(1)
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YIELD
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As of February 28, 1997
SEC 30-DAY
YIELD
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John Hancock Global Bond Fund 5.63%
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 (12.61%) and (31.50%), 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 February 28, 1997 assuming you invested on
the day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $250,000 investment in the J. P. Morgan Global Government
Index -- an unmanaged market capitalization-weighted index consisting of the
government bond markets of Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden, the United Kingdom and the United
States. All issues have a remaining maturity of at least one year and are
rebalanced monthly.
[Line chart with the heading Global Bond Fund, representing the growth of a
hypothetical $250,000 investment over the life of the fund. Within the chart are
two lines.
The first line represents the value of the J.P. Morgan Global Government Index
and is equal to $274,190 as of February 28, 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 $269,822 as of February 28, 1997.]
11
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BY TIMOTHY KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
Fundamental Value Fund
Bull market continues, led by large-company
growth stocks; smaller companies lag
"During the fiscal year, we shifted our weightings in several industry
sectors..."
In September 1996, Timothy Keefe began leading the management team of John
Hancock Fundamental Value Fund. Prior to joining John Hancock Funds as a senior
vice president and portfolio manager, Mr. Keefe was vice president and portfolio
manager for Federated Investors specializing in value investing.
The stock market surged to record highs during the last 12 months,
recouping from a summer selloff and rewarding investors with healthy gains for a
second straight year. The returns were most pronounced for a small group of
large growth companies that have the ability to grow earnings predictably.
Investors favored these more liquid, tested companies as mixed economic signals
during the period led to uncertainty about the economy. This environment was not
as kind to the more volatile small-company stocks, which lagged their larger
brethren in the ensuing "flight to quality." For the 12 months ended February
28, 1997, the broad market, as measured by the Standard & Poor's 500-Stock
Index, advanced 26.16%. In the same period, John Hancock Fundamental Value Fund
posted a total return of 13.78% at net asset value. But its emphasis on
smaller-capitalization stocks caused it to lag the 21.34% return of the average
growth and income fund, as tracked by Lipper Analytical Services, Inc. This
category includes many funds that focus on the large companies that led the pack
during the Fund's fiscal year. As another comparison, the Russell 2000 Index, a
broad measure of small-company performance, returned 12.56% for the period.
Strategy review
The Fund continues to seek capital appreciation, with income as a secondary
consideration, by investing in undervalued companies, those whose fundamental
strengths are not reflected in their stock prices. Often, we find these
opportunities
[A 2 1/4" x 3 1/4" photo of The Fundamental Value portfolio management team,
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 left hand column. Footnote
below states "For the year ended February 28, 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 13.78% total return for
John Hancock Fundamental Value Fund. The second represents the 21.34% total
return for the average growth and income fund The third represents the 26.16%
total return for the S&P 500-Stock Index.. A footnote below states: "The total
return for John Hancock Fundamental Value Fund is at net asset with all
distributions reinvested. The average growth and income fund is tracked by
Lipper Analytical Services. The S&P 500-Stock Index is an unmanaged index that
includes 500 widely-traded common stocks. See the following two pages for
historical performance information."]
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in stocks that are misunderstood or not actively followed by market analysts.
Our investment method uses a disciplined three-step process. First, a
computer analytic model helps us identify which stocks are inexpensive today
relative to their historical averages. Since we want companies with improving
fundamentals as well as cheap stock prices, we next apply a computer momentum
model to identify companies with growing revenues and earnings. The last step,
where we spend the majority of our time, is rigorous fundamental analysis to
determine whether a company offers a business that we would indeed want to own.
Through the process, we find "mispriced opportunities" -- outstanding businesses
selling at a discount to their intrinsic value, with a catalyst to unlock the
value.
Boost to technology and financial stocks
During the fiscal year, we shifted our weightings in several industry sectors,
de-emphasizing some sectors that appeared fully valued, such as the basic
industries, particularly fabric and apparel manufacturers, and focusing on
investments in more attractively priced areas.
We did this particularly in the summer, when rising interest rates and the
July market correction-- which hit small-cap technology stocks the hardest--
helped us add more financial and technology stocks to the Fund at very
compelling prices. One example was Financial Security Assurance Holding
(Salomon, Inc.), an issuer of insurance for municipal bonds and asset-backed
securities. It's a steady business with a strong management team that we bought
at a 30% discount to its adjusted book value when comparable companies were
selling at a 20% premium. Another was Elexsys International, manufacturer of
technology-related products for some of the largest companies.
"...we expect the market to remain choppy in the near term, marked by high
volatility..."
Outlook
We're taking a cautious approach to 1997 and believe investors would be wise to
temper expectations. After such a strong and long run-up in stocks, it's hard to
imagine a repeat performance over the next year. In fact, we expect the market
to remain choppy in the near term, marked by high volatility levels. Concerns
about the economy persist and many stocks appear fully valued. That said, we
also believe that many of the underfollowed, misunderstood companies we target
won't always be as affected by the forces moving the market as a whole. So no
matter what the market does, we will continue our search for solid yet
inexpensive companies with growth potential. We believe it's a good way both to
lower the Fund's risk level and provide the best opportunity for growth.
13
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns for the John Hancock
Fundamental Value Fund. Total return is a performance measure that equals the
sum of all income and capital gain distributions, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURNS
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For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Fundamental Value Fund 15.60% 22.66%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Fundamental Value Fund(2) 15.60% 12.76%(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 14.66% and 10.41%, 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 February 28, 1997 assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Standard & Poor's
500 Stock Index -- an unmanaged index that includes 500 widely traded common
stocks and is often used as a measure of stock market performance.
[Line chart with the heading 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 $412,654 as of February 28, 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 $308,953 as of February 28, 1997.]
15
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BY JOHN F. SNYDER III AND BARRY EVANS, CO-PORTFOLIO MANAGERS
John Hancock
Dividend Performers Fund
Double-digit returns, volatility mark the
stock market's latest 12-month rise
"...we began allocating new Fund assets to a broader tier of companies..."
Stocks advanced during the last 12 months into record-setting territory and
produced above-average returns for investors for a second straight year. The
market continued to be propelled by the same nirvana-like economic conditions
that prevailed the year before. The economy grew modestly, interest rates stayed
relatively low, inflation remained benign and corporate profits were strong. But
the market was also more volatile over the last 12 months, as mixed signals
about how fast the economy was growing heightened inflation fears and caused
concerns about future earnings prospects, especially last summer. Those fears
prompted investors to flow to the large, high-quality, predictable growth
companies that are also more liquid. And although the market's success became
more and more narrow as the period progressed, this "flight to quality"
benefited the types of stocks owned by John Hancock Dividend Performers Fund.
During the 12 months ended February 28, 1997, the broad market, as measured by
the Standard & Poor's 500-Stock Index returned 26.16%. In the same period, the
Fund posted a total return of 21.26% at net asset value. That was in line with
the 21.34% return of the average growth and income fund, according to Lipper
Analytical Services, Inc.
Performance and investment focus
Our investment strategy continues to focus on companies that can predictably
grow earnings and have consistently increased their dividends over the past 10
years. The Fund benefited during the period from owning a number of the
high-quality, predictable growth companies that led the market's advance --
absent one noticeable group. Technology stocks, which account for 14% of the S&P
500, rallied strongly in the last quarter of the year, but the Fund didn't
participate fully in that rally because most technology
[A 2" x 3 1/4" photo of the Dividend Performers management team, bottom right.
Caption reads: "The Dividend Performers management team: (l-r) Anne McDermott,
John Snyder, Barry Evans, Jere Estes."]
16
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
- --------------------------------------------------------------------------------
[Bar chart with heading "Fund Performance" at top left hand column. Footnote
below states "For the year ended February 28, 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 21.26% total return for
John Hancock Dividend Performers Fund. The second represents the 21.34% total
return for the average growth and income fund The second represents the 26.16%
total return for the S&P 500-stock Index.. A footnote below states: "The total
return for John Hancock Dividend Performers Fund is at net asset with all
distributions reinvested. The average growth and income fund is tracked by
Lipper Analytical Services, 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."]
- --------------------------------------------------------------------------------
stocks just don't meet our investment criteria of predictable earnings and
rising dividends.
But the Fund did well by holding a number of other top-performing companies,
including some of our largest holdings like General Electric, Kimberly Clark,
Johnson & Johnson, Emerson Electric and DuPont. These companies share important
common traits: they are all large, global concerns that have consistently
increased profits through a combination of growing market share, cost cutting
and restructuring. We are maintaining our stake in these stocks because we
believe they will continue to deliver returns and remain in investors' favor.
But as many stocks became more fully valued during the period, we began
allocating new Fund assets to a broader tier of companies where we found better
value. These are still high-quality companies with predictable earnings growth,
but their stocks are also currently selling at or below the market average. We
recently added a position in Ecolab, a specialty chemical company providing
sanitation type services to hotels and restaurants. It dominates its market, is
broadening its global horizons and it's stock price is in line with the market's
average price to earnings multiple (a measure of how much you're paying for
earnings power.) We also added to our position in Sysco, a leader in the food
distribution business but which still only has 10% market share. In a
consolidating industry, it continues to gain ground and has repeatedly grown
profits at 15% per year, yet its stock has been selling at a discount to the
market. We also bought more of Automatic Data Processing (ADP) at a point when
its stock price was at a smaller premium than usual to the market. ADP performs
outsourcing functions ranging from payroll processing to brokerage back office
functions and auto dealer inventory control. They're the best at what they do,
as evidenced by 147 consecutive quarters of double digit earnings growth and a
growing market share.
"...we're likely to see more earnings disappointments in 1997."
Looking forward
We're tempering our expectations for the broad stock market this year, but we
remain cautiously optimistic. It's unlikely that we'll see in the next several
years the same level of growth that corporations have achieved over the last
five through restructuring and productivity enhancements. And with very little
pricing flexibility and forecasts for more moderate economic growth, it's going
to get even harder for corporate earnings to advance from their already high
profitability ratios. With more sluggish growth in profits, we're likely to see
more earnings disappointments in 1997. In this climate, high-quality predictable
growth companies like the ones the Fund targets could look even more attractive
to investors.
17
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns for the John Hancock
Dividend Performers Fund. Total return is a performance measure that equals the
sum of all income and capital gain distributions, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Dividend Performers Fund 18.56% 40.27%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Dividend Performers Fund(2) 18.56% 21.33%(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 17.43% and 19.07%, 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
Dividend Performers Fund would be worth on February 28, 1997 assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Standard & Poor's
500 Stock Index -- an unmanaged index that includes 500 widely traded common
stocks and is a commonly used measure of stock market performance.
[Line chart with the heading Dividend Performers Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $412,654 as of February 28, 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 $372,232 as of February 28, 1997.]
19
<PAGE>
================================================================================
BY KEVIN R. BAKER, PORTFOLIO MANAGER
John Hancock
Multi-Sector Growth Fund
Strong corporate earnings and low inflation
help propel stock market
"...energy stocks...contributed significantly to the Fund's outperformance."
During the Fund's fiscal year, the economy continued to progress at a
comfortable pace, establishing the background for a surging stock market. Over
the past 12 months, inflation stayed low and interest rates remained relatively
steady without any intervention from the Federal Reserve Board. Much of
corporate America thrived and pursued downsizing plans in order to further
enhance positive earnings.
For the year ended February 28, 1997, John Hancock Multi-Sector Growth Fund,
which invests in stocks of companies in selected sectors believed to offer
above-average growth, posted a strong total return of 19.00% at net asset value.
The Russell Midcap Growth Index, which represents mid-sized companies and serves
as a benchmark for the Fund, returned 13.60% for the same one-year period and
the average capital appreciation fund returned 13.23%, according to Lipper
Analytical Services, Inc.
Sectors: Energy still on top
During the year, the Fund's top sectors included energy, technology, precious
metals (now folded into a broader category more appropriately named basic
materials), financials, capital equipment and health care. During the period, we
made selective shifts in our category weightings, including eliminating for a
while our stake in health care. That helped us avoid a mid-year selloff in
health-care stocks. But we recently re-established a 16% position in health care
as we took profits in our energy holdings, reducing that stake from 32% a year
ago to 21% of the Fund's assets by the end of February. With health care, we
emphasized biotechnology companies with new drug products that are moving well
through the federal approval process.
Over the fiscal year, our largest sector concentration -- energy stocks,
specifically oil and gas exploration companies, drillers, and equipment and
services companies -- contributed significantly to the Fund's outperformance. We
[A 2" x 3" photo of the Multi-Sector Growth Fund management team. Caption
reads: "Kevin R. Baker, (left) and Fund management team members Ben Hock (c) and
James Boyd (r)."]
20
<PAGE>
================================================================================
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
- --------------------------------------------------------------------------------
[Bar chart with the heading "Fund Performance" at the top of left hand column. A
footnote below states: "For the year ended February 28, 1997." The chart is
scaled in increments of 5%, with 20% at the top and 0% at the bottom. Within the
chart, there are three solid bars. The first represents the 19.00% total return
for John Hancock Multi-Sector Growth Fund. The second represents the 13.23%
total return for the average capital appreciation fund. The third represents the
13.60% total return for the S&P 500-stock Index. A footnote below states: "The
total return for John Hancock Multi-Sector Growth Fund is at net asset with all
distributions reinvested. The average capital appreciation fund is tracked by
Lipper Analytical Services. The Russell Midcap Growth Index is an unmanaged
index that contains those securities from the Russell Midcap Index with a
greater than average growth orientations. See the following two pages for
historical performance information.]
- --------------------------------------------------------------------------------
still favor the energy sector because demand continues to rise worldwide -- from
efficiency-complacent Americans to high-growth countries like Indonesia, China
and India. Our emphasis for now will be more on exploration and production
companies.
Financial, basic materials, capital equipment and technology
The financial sector, comprising 16% of the Fund's net assets, has done well in
a fairly steady interest-rate environment. We focused on hotel and office real
estate investment trusts (REITs), especially those targeting urban areas such as
Houston and Boston, as office rents, hotel occupancy and room rates have been on
the rise. One of the Fund's largest holdings is Starwood Lodging Trust. Starwood
is a master at buying attractive locations in low-priced areas, renovating the
property, and emphasizing service.
Our 17% stake in basic materials reflects our belief that the rising demand
for gold in fast-growing nations should help boost gold stocks. We also own
several titanium-related stocks, a play on the use of that material in both
aerospace and defense manufacturing as well as in golf clubs. Capital equipment
stocks, which totaled 14% of the Fund's net assets in February, included
aerospace-related companies and pollution control companies whose stocks are
currently more attractively valued than other sectors. They also tend to be less
sensitive to moves in the economy and are benefiting from industry
consolidation. Technology, stocks at 7% of the Fund's assets, continue to offer
growth opportunities, but as we have been reminded over the last several months,
the sector can be volatile and now requires more stock selectivity than ever.
Still, we believe in the large-scale trend of technology driving increased
worker productivity. We have maintained our positions in such noteworthy
companies as Gateway 2000, Altera and Adaptec.
"Although the economic outlook remains good... there is room for caution."
Looking ahead
The sharp rise in the stock market over the past 24 months raises questions
about how long this rally can last. Although the economic outlook remains good
and interest rates are fairly steady, there is room for caution. In such an
environment, we will continue to seek out the industries that will offer our
shareholders above-average growth opportunities while keeping an eye toward
managing risk.
- --------------------------------------------------------------------------------
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 returns for the John Hancock
Multi-Sector Growth Fund. Total return is a performance measure that equals the
sum of all income and capital gain distributions, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Multi-Sector Growth Fund 31.55% 58.90%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Multi-Sector Growth Fund(2) 31.55% 30.90%(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 31.10% and 29.36%, 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 February 28, 1997 assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the Russell Midcap
Growth Index -- an unmanaged index that contains those Russell Midcap securities
with a greater-than-average growth orientation.
[Line chart with the heading Multi-Sector Growth Fund, representing the growth
of a hypothetical $250,000 investment over the life of the fund. Within the
chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Multi-Sector Growth Fund on April 11, 1995 and is equal to $374,779 as of
February 28, 1997. The second line represents the value of the Russell Midcap
Growth Index and is equal to $287,581 as of February 28, 1997.]
23
<PAGE>
================================================================================
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
Small Capitalization
Equity Fund
Volatile period for small-company stocks; larger,
more liquid companies outperform
"...energy and real-estate holdings... benefited the Fund's performance."
From its opening on May 2, 1996 through February 28, 1997, John Hancock Small
Capitalization Equity Fund posted a total return of 8.89% at net asset value.
For the same period, the average small company growth fund returned 3.37%,
according to Lipper Analytical Services. For another comparison, the Russell
2000 Index returned 5.42%.
While a rising tide lifted many small-company boats in the first couple of
months of the period, a tidal wave of investor skittishness clearly separated
the winners from the losers beginning in July. At that point, the overheated
market, coupled with inflation fears and rising interest rates, triggered a
selloff in small-company stocks. Later, some rebounded and moved beyond their
July lows, powered by a combination of slow but steady economic growth, low
inflation, relatively steady interest rates and good earnings. Meanwhile, large
company blue-chip stocks climbed to successive records as investors poured money
into index mutual funds, the most popular of which invest in the companies that
make up the S&P 500 Index. Untouched by the popularity of indexing and plagued
by nervousness over earnings, many small-company stocks languished throughout
the remainder of the period.
Winners and disappointments
One of our best performers was our largest holding, E* TRADE Group, which
provides a service that allows investors to trade stocks, bonds and other
securities over the Internet. The company typifies the type of stock we
emphasize. It has a profitable niche position in the marketplace, a capable
management team with vision and the ability to execute that vision and a track
record of growing earnings by at least 20-25% annually.
[A 1 3/4" x 2 1/2" 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 left hand column. Footnote
below states "For the period from May 2, 1996 through February 28, 1997." The
chart is scaled in increments of 2%, with 10% at the top and 0% at the bottom.
Within the chart, there are three solid bars. The first represents the 8.89%
total return for John Hancock Small Capitalization Equity Fund. The second
represents the 3.37% total return for the average small-company growth fund. The
third represents the 5.42% total return for the Russell 2000 Index. 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. The Russell 2000
Index is an unmanaged index comprised of the smallest 2000 securities in the
Russell 3000 Index, representing approximately 11% of the Russell 3000 total
market capitalization. See the following two pages for historical performance
information.]
- --------------------------------------------------------------------------------
Other brokerage-related holdings -- Alex Brown, Inc., and Interra Financial
- --also were among our top performers, thanks in part to the strength of the
current bull market and speculation about a potential wave of mergers and
acquisitions among brokerage firms.
Technology stocks were among the market's most volatile during the period,
and many technology stocks never rebounded from the July sell-off. Despite that,
corporate America's intense focus on improving productivity sent the stocks of
some other small technology companies soaring. Two of our strongest performers
in this area were CBT Group, which provides interactive software designed for
business information-technology education and training, and National TechTeam, a
technology consulting firm.
Our energy and real-estate holdings also benefited the Fund's performance.
Colder weather, Middle East tensions and rising demand in the developing world
produced a five-year high in oil prices. Higher oil prices helped not only
exploration and production companies, including Forceenergy, but also boosted
energy service companies such as Newpark Resources, which provides maintenance
and clean-up work for oil plants and refineries. On the real estate front, our
investments in Beacon Properties and Starwood Lodging saw gains based on a
growing demand for hotels, offices and other commercial space at a time when
supply was somewhat limited.
Footwear maker Converse also had a strong showing, more than doubling since
we bought the stock. A new management team has re-energized the Converse brand,
restructured the company and helped it regain its footing. But not all
consumer-related stocks performed well, and some our of broadcasting and outdoor
advertising stocks were disappointments. Temporary softness in advertising
spending and a bout of profit taking hurt these stocks at year end, although
some have since re-traced a portion of their earlier losses.
"...it's just a question of when investors turn their sights back toward
small-company stocks."
Outlook
We believe that the long-term prospects for small company, aggressive growth
stocks are quite good. The companies we target have earnings growth rates well
in excess of the large company, blue chip stocks that have dominated the
market's recent rise. And since stock prices generally follow earnings, we think
it's just a question of when investors turn their sights back toward
small-company stocks. They currently offer better growth rates at more
attractive prices than many blue chip companies. As always, investing in
aggressive-growth companies requires a long-term outlook and a healthy tolerance
for market fluctuations.
25
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total return for the John Hancock
Small Capitalization Equity Fund. Total return is a performance measure that
equals the sum of all income and capital gain distributions, assuming
reinvestment of these distributions, and the change in the price of the Fund's
shares, expressed as a percentage of the Fund's net asset value per share.
Remember that all figures represent past performance and are no guarantee of how
the Fund will perform in the future. Also, keep in mind that the total return
and share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost, depending on
when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
LIFE OF
FUND
----
John Hancock Small Capitalization Equity Fund(2) 13.48%(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 since inception would have been 2.52%.
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 February 28, 1997 assuming
you invested on the day the Fund started and have reinvested all distributions.
For comparison, we've shown the same $250,000 investment in the Russell 2000
Index -- an unmanaged index that consists of the smallest 2,000 securities in
the Russell 3000 Index, representing approximately 11% of the Russell 3000 total
market capitalization.
[Line chart with the heading Small Capitalization Equity Fund, representing the
growth of a hypothetical $250,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Small Capitalization Equity Fund on May 2, 1996 and is equal to $272,215
as of February 28, 1997. The second line represents the value of the Russell
2000 Index and is equal to $261,815 as of February 28, 1997.]
27
<PAGE>
BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND GERARDO J. ESPINOZA,
CO-PORTFOLIO MANAGERS
John Hancock
International Equity Fund
Fund lags peers during period; stake in Latin America growing
"...we combine top-down country allocation with bottom-up stock selection."
In December 1996, Miren Etcheverry and Gerardo J. Espinoza joined the management
team of John Hancock International Equity Fund. Prior to joining John Hancock
Funds, Ms. Etcheverry and Mr. Espinoza were portfolio managers at Baring Asset
Management and Ms. Etcheverry was the head of Baring's Latin American equities
team. Mr. Wills has been with Hancock since 1987.
Early in the period, worries about sluggish growth and higher interest rates
clouded foreign equity markets. International investors remained on the edge of
their seats, watching carefully for the next move by the U.S. Federal Reserve
Bank as well as their own central banks. By the third quarter of 1996, the
clouds had lifted as a combination of rate decreases by foreign central banks
and a healthy U.S. stock market boosted equities around the globe. These
favorable trends continued throughout the fourth quarter and into the first few
months in 1997.
Despite a strong second half, John Hancock International Equity Fund's
performance lagged behind its peers during the year. For the 12 months ended
February 28, 1997, the Fund had a total return of 2.79% at net asset value.
According to Lipper Analytical Services, the average international fund had a
total return of 10.16 %. During the same period, the FT Actuaries World Ex-US
Index returned 4.21%.
Largest holdings: Japan, Hong Kong, Europe
Our large weighting in Japan -- which reached nearly 30% at one point in the
year -- detracted most from performance. Stocks remained under pressure as
doubts persisted about whether the economy was emerging from recession and the
impact of the government's recent tax increases. The falling yen also weighed
heavily on Japanese stocks. We kept our focus on exporters, such as Bridgestone,
and consumer electronics, such as Sony Music Entertainment. These sectors
outperformed the broad market, and we've recently taken profits in both to
reduce our position in Japan, which stood at 12% by the end of February.
Hong Kong was our second largest country weighting, at 12% of net assets.
Growing confidence in the colony's smooth transition
[A 1 3/4" x 2 1/4" photo of the Fund management team. 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 left hand column. Footnote
below states "For the year ended February 28, 1997." The chart is scaled in
increments of 3%, with 12% at the top and 0% at the bottom. Within the chart,
there are three solid bars. The first represents the 2.79% total return for John
Hancock International Equity Fund. The second represents the 10.16% total return
for the average international fund. The third represents the 4.21% 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 with all
distributions reinvested. The average international fund is tracked by Lipper
Analytical Services. The FT Actuaries World Ex-US Index is a broad-based index
composed of approximately 1800 securities in 23 countries. See the following two
pages for historical performance information.]
- --------------------------------------------------------------------------------
to Chinese rule propelled stocks to record highs during the year. Our top
performers were hotel/ property stocks -- such as Cheung Kong Holdings and Hong
Kong & Shanghai Hotels. They benefited both from the strong stock market and a
spectacular 30% advance in real estate prices.
Low inflation, falling interest rates and slow growth fueled strong gains
throughout Europe. At 9% of net assets, the U.K. remained the Fund's largest
country weighting of our 27% position in Europe. After the U.K. market's solid
advance last year, we took profits there and moved the assets to other markets
such as Germany, where falling interest rates and corporate restructurings are
boosting earnings.
Investment Strategy
In managing the portfolio, we combine top-down country allocation with bottom-up
stock selection. The cornerstone of our process is in-depth fundamental
research, which involves substantial travel to the countries in which the Fund
invests. In country allocation, our emphasis is on selecting countries with
favorable political trends, growing economies and improving liquidity dynamics.
In stock selection, the emphasis is on companies that meet the following
stringent criteria: solid management, growing markets, strong competitive
advantage, sustainable earnings growth, and attractive valuation.
"Reform - both economic and political - is a key investment theme for us..."
Outlook
We are optimistic about the long-term prospects for foreign equity markets.
Major industries continue to shift from government to private control and entire
economies are ushering out the inefficiencies of centralized control in favor of
free markets. As this economic deregulation continues, global growth and rising
profits are likely to remain strong. Moreover, new technologies worldwide are
driving down the cost of production, distribution and investment. What makes
this environment so attractive is that we believe this global economic expansion
will occur without significant inflation.
Reform -- both economic and political -- is a key investment theme for us,
which means for now we will likely continue reducing our exposure to Japan where
economic recovery is fragile and corporate restructurings still rare. Instead,
we will keep focused on European companies in the midst of profitable
restructurings. We will also emphasize the emerging markets of Asia and
especially Latin America, where we very recently increased our stake to 12% of
net assets. These markets have embraced economic reform and in so doing
unleashed significant investment opportunities.
- --------------------------------------------------------------------------------
International investing involves special risks, such as currency and political
risks and differences in accounting standards and financial reporting. See
prospectus for details.
29
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns for the John Hancock
International Equity Fund. Total return is a performance measure that equals the
sum of all income and capital gain distributions, assuming reinvestment of these
distributions, and the change in the price of the Fund's shares, expressed as a
percentage of the Fund's net asset value per share. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Equity Fund 8.49% 15.65%(1)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended December 31, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Equity Fund(2) 8.49% 8.66%(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 6.32% and 3.89%, respectively.
30
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $250,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $250,000 investment in the John Hancock
International Equity Fund would be worth on February 28, 1997 assuming you
invested on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $250,000 investment in the 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 $287,581 as of February 28, 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 $282,180 as of
February 28, 1997.]
31
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL FUNDAMENTAL DIVIDEND
BOND BOND VALUE PERFORMERS
FUND FUND FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - none; none; $4,972,513 and $6,804,378, respectively) ...... $ -- $ -- $5,184,736 $7,944,725
Preferred stocks (cost - none; none; $216,725 and none, respectively) ........... -- -- 244,000 --
Bonds (cost - $2,047,360; $991,536; none and none, respectively) ............... 2,051,968 981,143 -- --
Short-term investments (cost - $126,000; $19,000; $572,000 and
$795,000, respectively) ....................................................... 126,000 19,000 572,000 795,000
Corporate savings account ....................................................... 696 -- 158 11,870
---------- ---------- ---------- ----------
2,178,664 1,000,143 6,000,894 8,751,595
Cash ............................................................................. -- 652 -- --
Receivable for closed forward foreign currency exchange contracts - Note A ....... -- 782 -- --
Receivable for open forward foreign currency exchange contracts purchased
- Note A ....................................................................... -- 3,049 -- --
Receivable for investments sold .................................................. 16,607 -- 566,433 --
Interest receivable .............................................................. 28,156 24,130 157 221
Dividends receivable ............................................................. -- -- 6,258 16,791
Deferred organization expenses - Note A .......................................... 5,063 5,061 5,152 5,108
Receivable from John Hancock Advisers, Inc. - Note B ............................. 8,075 13,716 4,088 8,026
Other assets ..................................................................... 3 1 15 10
---------- ---------- ---------- ----------
Total Assets ................................................... 2,236,568 1,047,534 6,582,997 8,781,751
---------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for open forward foreign currency exchange contracts sold - Note A ....... -- 180 -- --
Payable for investments purchased ................................................ 27,588 -- 547,738 83,918
Payable for shares repurchased ................................................... -- -- -- 5,741
Foreign tax payable .............................................................. -- 234 -- --
Dividend payable ................................................................. 481 283 -- --
Accounts payable and accrued expenses ............................................ 17,880 20,984 24,677 24,581
---------- ---------- ---------- ----------
Total Liabilities .............................................. 45,949 21,681 572,415 114,240
---------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .................................................................. 2,179,909 1,037,436 5,621,829 7,338,086
Accumulated net realized gain on investments and foreign currency
transactions .................................................................... 6,102 -- 131,933 164,598
Net unrealized appreciation (depreciation) of investments and foreign
currency transactions ........................................................... 4,608 ( 7,648) 239,498 1,140,347
Undistributed net investment income (distributions in excess of net
investment income)............................................................... -- ( 3,935) 17,322 24,480
---------- ---------- ---------- ----------
Net Assets ..................................................... $2,190,619 $1,025,853 $6,010,582 $8,667,511
===============================================================================================================
Net Asset Value Per Share
(based on 256,550; 124,830; 640,811 and 727,948 shares, respectively, of
beneficial interest outstanding - unlimited number of shares authorized
with no par value) ............................................................... $ 8.54 $ 8.22 $ 9.38 $ 11.91
==================================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of February 28, 1997. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
February 28, 1997
- --------------------------------------------------------------------------------
<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, rights and warrants (cost - $25,541,935; $918,292 and $3,033,315,
respectively) ........................................................................ $27,420,468 $ 954,344 $ 3,279,168
Short-term investments (cost - $1,797,000; $39,000 and $877,000, respectively) ....... 1,797,000 39,000 877,000
Corporate savings account ............................................................ 4,818 1,421 --
----------- --------- ----------
29,222,286 994,765 4,156,168
Cash .................................................................................. -- -- 1,502
Foreign currency, at value (cost - $38,880; none and $903, respectively) .............. 38,797 -- 899
Receivable for investments sold ....................................................... 720,267 22,419 56,796
Interest receivable ................................................................... 356 11 131
Dividends receivable .................................................................. 10,505 251 509
Foreign tax receivable ................................................................ -- -- 911
Deferred organization expenses - Note A ............................................... 6,356 17,080 5,062
Receivable from John Hancock Advisers, Inc. - Note B .................................. -- -- 10,820
Other assets .......................................................................... 33 -- 8
----------- --------- ----------
Total Assets ........................................................ 29,998,600 1,034,526 4,232,806
-----------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ..................................................... 867,533 13,221 --
Payable to John Hancock Advisers, Inc. and affiliates - Note B ........................ 7,618 6,245 --
Accounts payable and accrued expenses ................................................. 38,872 15,564 28,839
----------- --------- ----------
Total Liabilities ................................................... 914,023 35,030 28,839
-----------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ....................................................................... 25,992,622 1,019,516 4,008,060
Accumulated net realized gain (loss) on investments and foreign currency
transactions .......................................................................... 1,215,401 ( 56,301) ( 40,052)
Net unrealized appreciation of investments and foreign currency
transactions .......................................................................... 1,878,552 36,052 245,826
Undistributed net investment income (distributions in excess of net
investment income) .................................................................... ( 1,998) 229 ( 9,867)
----------- --------- ----------
Net Assets .......................................................... $29,084,577 $ 999,496 $4,203,967
===========================================================================================================
Net Asset Value Per Share:
(based on 2,294,832; 108,206 and 449,532 shares, respectively, of beneficial
interest outstanding - unlimited number of shares authorized with no par value) ....... $ 12.67 $ 9.24 $ 9.35
=============================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Operations
Year ended February 28, 1997
<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; $975; none and none,
respectively) ........................................................ $ 126,406 $ 72,264 $ 26,938 $ 36,049
Dividends (net of foreign withholding tax of none; none; $2,262 and $35,
respectively) ........................................................ -- -- 103,897 94,931
--------- --------- --------- -----------
126,406 72,264 130,835 130,980
Expenses:
Investment management fee - Note B .................................... 8,212 7,618 40,482 29,727
Registration and filing fees .......................................... 24,345 22,081 28,733 30,881
Auditing fee .......................................................... 11,817 11,953 11,817 11,817
Custodian fee ......................................................... 10,445 19,924 9,162 7,722
Printing .............................................................. 7,957 6,187 8,250 5,286
Organization expense - Note A ......................................... 1,642 1,613 1,643 1,657
Transfer agent fee - Note B ........................................... 821 2,467 2,892 4,433
Legal fees ............................................................ 715 702 1,068 805
Financial services fee - Note B ....................................... 308 190 1,084 929
Trustees' fees ........................................................ 194 96 551 538
Miscellaneous ......................................................... 94 38 382 --
--------- --------- --------- -----------
Total Expenses ....................................... 66,550 72,869 106,064 93,795
Less Expenses Reductions - Note B .................... (56,696) (64,235) (59,798) (59,114)
--------- --------- --------- -----------
Net Expenses ......................................... 9,854 8,634 46,266 34,681
---------------------------------------------------------------------------------------------------------------
Net Investment Income ................................ 116,552 63,630 84,569 96,299
---------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions:
Net realized gain on investments sold .................................. 7,241 8,032 590,179 240,807
Net realized loss on foreign currency transactions ..................... -- (34,195) -- --
Change in net unrealized appreciation (depreciation) of investments .... (4,783) (10,218) 13,894 674,538
Change in net unrealized appreciation (depreciation) of foreign
currency transactions ................................................ -- 3,018 -- --
--------- --------- --------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ........ 2,458 (33,363) 604,073 915,345
---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . $ 119,010 $ 30,267 $ 688,642 $ 1,011,644
===============================================================================================================
</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
Year ended February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-SECTOR SMALL INTERNATIONAL
GROWTH CAPITALIZATION EQUITY
FUND EQUITY FUND* FUND
------------ -------------- -------------
<S> <C> <C> <C>
Investment Income:
Interest ............................................................................ $ 94,319 $ 6,044 $ 18,795
Dividends (net of foreign withholding tax of $964; none and $6,491, respectively) ... 84,378 585 55,545
----------- -------- ---------
178,697 6,629 74,340
Expenses:
Investment management fee - Note B ................................................. 149,598 4,230 29,575
Custodian fee ...................................................................... 40,217 8,385 22,834
Registration and filing fees ....................................................... 37,223 53,006 31,403
Auditing fee ....................................................................... 11,817 11,400 13,117
Transfer agent fee - Note B ........................................................ 11,306 264 3,657
Printing ........................................................................... 5,068 4,859 4,486
Financial services fee - Note B .................................................... 3,506 99 616
Trustees' fees ..................................................................... 2,195 50 1,043
Organization expense - Note A ...................................................... 2,040 3,396 1,643
Legal fees ......................................................................... 1,194 50 775
Miscellaneous ...................................................................... 716 123 81
----------- -------- ---------
Total Expenses .................................................... 264,880 85,862 109,230
Less Expenses Reductions - Note B ................................. (96,582) (81,103) (76,369)
----------- -------- ---------
Net Expenses ...................................................... 168,298 4,759 32,861
------------------------------------------------------------------------------------------------------------
Net Investment Income ............................................. 10,399 1,870 41,479
------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ........................................ 1,226,171 (56,301) (24,301)
Net realized loss on foreign currency transactions .................................. (4,259) -- (10,180)
Change in net unrealized appreciation (depreciation) of investments ................. 912,146 36,052 77,365
Change in net unrealized appreciation (depreciation) of foreign currency transactions 19 -- 5
----------- -------- ---------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ..................................... 2,134,077 (20,249) 42,889
------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations ... $ 2,144,476 ($18,379) $ 84,368
============================================================================================================
</TABLE>
*Small Capitalization Equity Fund commenced investment operations on May 2,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE
BOND FUND
-------------------------------------
PERIOD ENDED YEAR ENDED
FEBRUARY 29, 1996+ FEBRUARY 28, 1997
------------------ -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................ $ 58,232 $ 116,552
Net realized gain (loss) on investments sold and foreign
currency transactions .......................................... 3,558 7,241
Change in net unrealized appreciation (depreciation) of
investments and foreign currency transactions .................. 9,391 (4,783)
----------- -----------
Net Increase in Net Assets Resulting from Operations ............ 71,181 119,010
----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................. (58,232) (116,555)
Distributions from net realized gain on investments sold ......... (1,888) (2,809)
Distributions from capital paid-in ............................... -- --
----------- -----------
Total Distributions to Shareholders ............................. (60,120) (119,364)
----------- -----------
From Portfolio Share Transactions: **
Shares sold ...................................................... 2,151,742 1,178,749
Shares issued to shareholders in reinvestment of distributions ... 57,656 118,599
----------- -----------
2,209,398 1,297,348
Less shares repurchased .......................................... (1,049,832) (277,002)
----------- -----------
Net Increase .................................................... 1,159,566 1,020,346
----------- -----------
Net Assets:
Beginning of period .............................................. -- 1,170,627
----------- -----------
End of period (including undistributed net investment income of
none; none and distributions in excess of net investment income
of $616 and $3,935, respectively) ................................ $ 1,170,627 $ 2,190,619
=========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ................... $ 0.5144 $ 0.5983
----------- -----------
Per share distributions from net realized gain on investments sold $ 0.0152 $ 0.0114
----------- -----------
Per share distributions from capital paid-in ..................... -- --
----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold ...................................................... 252,193 139,746
Shares issued to shareholders in reinvestment of distributions ... 6,688 13,886
----------- -----------
258,881 153,632
Less shares repurchased .......................................... (123,444) (32,519)
----------- -----------
Net Increase .................................................... 135,437 121,113
=========== ===========
<CAPTION>
GLOBAL
BOND FUND
-------------------------------------
PERIOD ENDED YEAR ENDED
FEBRUARY 29, 1996+ FEBRUARY 28, 1997
------------------ -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................ $ 6,883 $ 63,630
Net realized gain (loss) on investments sold and foreign
currency transactions .......................................... (1,325) (26,163)
Change in net unrealized appreciation (depreciation) of
investments and foreign currency transactions .................. (448) (7,200)
--------- -----------
Net Increase in Net Assets Resulting from Operations ............ 5,110 30,267
--------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................. (6,883) (42,732)
Distributions from net realized gain on investments sold ......... -- --
Distributions from capital paid-in ............................... -- (20,898)
--------- -----------
Total Distributions to Shareholders ............................. (6,883) (63,630)
--------- -----------
From Portfolio Share Transactions: **
Shares sold ...................................................... 289,031 901,911
Shares issued to shareholders in reinvestment of distributions ... 6,810 14,405
--------- -----------
295,841 916,316
Less shares repurchased .......................................... (77,327) (73,841)
--------- -----------
Net Increase .................................................... 218,514 842,475
--------- -----------
Net Assets:
Beginning of period .............................................. -- 216,741
--------- -----------
End of period (including undistributed net investment income of
none; none and distributions in excess of net investment income
of $616 and $3,935, respectively) ................................ $ 216,741 $ 1,025,853
========= ===========
* Distributions to Shareholders:
Per share dividends from net investment income ................... $ 0.4059 $ 0.3513
--------- -----------
Per share distributions from net realized gain on investments sold -- --
--------- -----------
Per share distributions from capital paid-in ..................... -- $ 0.1718
--------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold ...................................................... 33,983 106,277
Shares issued to shareholders in reinvestment of distributions ... 797 1,713
--------- -----------
34,780 107,990
Less shares repurchased .......................................... (9,167) (8,773)
--------- -----------
Net Increase .................................................... 25,613 99,217
========= ===========
</TABLE>
+ Active Bond Fund and Global Bond Fund commenced investment operations on
March 30, 1995 and April 19, 1995, respectively.
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets have changed since the commencement of operations. The difference
reflects net investment income, any investment gains and losses, distributions
paid to shareholders, and any increase or decrease in money shareholders
invested in each Fund. The footnotes illustrate the number of Fund shares sold,
reinvested and 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
VALUE FUND
--------------------------------------
PERIOD ENDED YEAR ENDED
FEBRUARY 29, 1996+ FEBRUARY 28, 1997
------------------ -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................ $ 45,709 $ 84,569
Net realized gain (loss) on investments sold ..................... (230) 590,179
Change in net unrealized appreciation (depreciation) of investments 225,604 13,894
----------- -----------
Net Increase in Net Assets Resulting from Operations ............ 271,083 688,642
----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................. (39,371) (73,585)
Distributions from net realized gain on investments sold ......... -- (458,016)
----------- -----------
Total Distributions to Shareholders ............................. (39,371) (531,601)
----------- -----------
From Portfolio Share Transactions: **
Shares sold ...................................................... 5,729,142 1,315,767
Shares issued to shareholders in reinvestment of distributions ... 39,370 531,562
----------- -----------
5,768,512 1,847,329
Less shares repurchased .......................................... (707,468) (1,286,544)
----------- -----------
Net Increase .................................................... 5,061,044 560,785
----------- -----------
Net Assets:
Beginning of period .............................................. -- 5,292,756
----------- -----------
End of period (including undistributed net investment
income of $6,338; $17,322; $4,660 and $24,480, respectively) ..... $ 5,292,756 $ 6,010,582
=========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ................... $ 0.1380 $ 0.1236
----------- -----------
Per share distributions from net realized gain on investments sold -- $ 0.8103
----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold ...................................................... 656,980 135,360
Shares issued to shareholders in reinvestment of distributions ... 4,423 57,853
----------- -----------
661,403 193,213
Less shares repurchased .......................................... (79,391) (134,414)
----------- -----------
Net Increase .................................................... 582,012 58,799
=========== ===========
<CAPTION>
DIVIDEND
PERFORMERS FUND
---------------------------------------
PERIOD ENDED YEAR ENDED
FEBRUARY 29, 1996+ FEBRUARY 28, 1997
------------------ -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................ $ 63,484 $ 96,299
Net realized gain (loss) on investments sold ..................... 43,668 240,807
Change in net unrealized appreciation (depreciation) of investments 465,809 674,538
--------- -----------
Net Increase in Net Assets Resulting from Operations ............ 572,961 1,011,644
--------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................. (58,824) (76,479)
Distributions from net realized gain on investments sold ......... (21,522) (98,355)
--------- -----------
Total Distributions to Shareholders ............................. (80,346) (174,834)
--------- -----------
From Portfolio Share Transactions: **
Shares sold ...................................................... 5,484,852 5,594,177
Shares issued to shareholders in reinvestment of distributions ... 80,347 174,842
--------- -----------
5,565,199 5,769,019
Less shares repurchased .......................................... (2,738,594) (1,257,538)
--------- -----------
Net Increase .................................................... 2,826,605 4,511,481
--------- -----------
Net Assets:
Beginning of period .............................................. -- 3,319,220
--------- -----------
End of period (including undistributed net investment
income of $6,338; $17,322; $4,660 and $24,480, respectively) ..... $3,319,220 $ 8,667,511
========= ===========
* Distributions to Shareholders:
Per share dividends from net investment income ................... $ 0.1863 $ 0.1752
--------- -----------
Per share distributions from net realized gain on investments sold $ 0.0742 $ 0.1901
--------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold ...................................................... 627,033 498,503
Shares issued to shareholders in reinvestment of distributions ... 8,685 15,790
--------- -----------
635,718 514,293
Less shares repurchased .......................................... (308,820) (113,243)
--------- -----------
Net Increase .................................................... 326,898 401,050
========= ===========
</TABLE>
+ Fundamental Value Fund and Dividend Performers Fund commenced investment
operations on April 19, 1995 and March 30, 1995, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MULTI-SECTOR SMALL CAPITALIZATION
GROWTH FUND EQUITY FUND
-------------------------------------- --------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED
FEBRUARY 29, 1996+ FEBRUARY 28, 1997 FEBRUARY 28, 1997+
------------------ ----------------- --------------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ...........................................($ 3,720) $ 10,399 $ 1,870
Net realized gain (loss) on investments sold and foreign currency
transactions ......................................................... 104,980 1,221,912 (56,301)
Change in net unrealized appreciation (depreciation) of investments .... 966,387 912,165 36,052
------------ ------------ -----------
Net Increase (Decrease) in Net Assets Resulting from Operations ....... 1,067,647 2,144,476 (18,379)
------------ ------------ -----------
Distributions to Shareholders: *
Dividends from net investment income ................................... (9,869) -- (1,629)
Distributions from net realized gain on investments sold ............... -- (102,180) --
------------ ------------ -----------
Total Distributions to Shareholders ................................... (9,869) (102,180) (1,629)
------------ ------------ -----------
From Portfolio Share Transactions: **
Shares sold ............................................................ 7,818,477 21,261,390 1,221,905
Shares issued to shareholders in reinvestment of distributions ......... 9,654 101,551 1,444
------------ ------------ -----------
7,828,131 21,362,941 1,223,349
Less shares repurchased ................................................ (586,975) (2,719,594) (203,845)
------------ ------------ -----------
Net Increase .......................................................... 7,241,156 18,643,347 1,019,504
------------ ------------ -----------
Net Assets:
Beginning of period .................................................... 100,000++ 8,398,934 --
------------ ------------ -----------
End of period (including undistributed net investment income
(distributions in excess) of none; ($1,998) and $229,
respectively) .........................................................$ 8,398,934 $ 29,084,577 $ 999,496
============ ============ ===========
* Distributions to Shareholders:
Per share dividends from net investment income .........................$ 0.0168 -- $ 0.0157
------------ ------------ -----------
Per share distributions from net realized gain on investments sold ..... -- $ 0.0534 --
------------ ------------ -----------
** Analysis of Portfolio Share Transactions:
Shares sold ............................................................ 833,819 1,719,796 129,297
Shares issued to shareholders in reinvestment of distributions ......... 967 7,658 153
------------ ------------ -----------
834,786 1,727,454 129,450
Less shares repurchased ................................................ (60,874) (218,299) (21,244)
------------ ------------ -----------
Net Increase .......................................................... 773,912 1,509,155 108,206
============ ============ ===========
</TABLE>
+ Multi-Sector Growth Fund and Small Capitalization Equity Fund commenced
investment operations on April 11, 1995 and May 2, 1996, respectively.
++ On January 11, 1995, the Adviser made an initial investment of $100,000 in
order to seed the Trust.
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY FUND
--------------------------------------
PERIOD ENDED YEAR ENDED
FEBRUARY 29, 1996+ FEBRUARY 28, 1997
------------------ -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................. $ 22,599 $ 41,479
Net realized loss on investments sold ............................. (7,536) (34,481)
Change in net unrealized appreciation (depreciation) of investments 168,456 77,370
----------- -----------
Net Increase in Net Assets Resulting from Operations ............. 183,519 84,368
----------- -----------
Distributions to Shareholders:*
Dividends from net investment income .............................. (20,847) (35,170)
Distributions from net realized gain on investments sold .......... (1,810) (15,751)
----------- -----------
Total Distributions to Shareholders .............................. (22,657) (50,921)
----------- -----------
From Portfolio Share Transactions: **
Shares sold ....................................................... 3,965,415 2,191,748
Shares issued to shareholders in reinvestment of distributions .... 22,657 50,885
----------- -----------
3,988,072 2,242,633
Less shares repurchased ........................................... (1,252,172) (968,875)
----------- -----------
Net Increase ..................................................... 2,735,900 1,273,758
----------- -----------
Net Assets:
Beginning of period ............................................... -- 2,896,762
----------- -----------
End of period (including distributions in excess of net investment
income of $813 and $9,867, respectively) .......................... $ 2,896,762 $ 4,203,967
=========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income .................... $ 0.0832 $ 0.1030
----------- -----------
Per share distributions from net realized gain on investments sold $ 0.0072 $ 0.0461
----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold ....................................................... 449,585 233,402
Shares issued to shareholders in reinvestment of distributions .... 2,551 5,396
----------- -----------
452,136 238,798
Less shares repurchased ........................................... (138,502) (102,900)
----------- -----------
Net Increase ..................................................... 313,634 135,898
=========== ===========
</TABLE>
+ International Equity Fund commenced investment operations on March 30,
1995.
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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................................... $ 8.50(b) $ 8.64
--------- ---------
Net Investment Income ..................................................... 0.51 0.60
Net Realized and Unrealized Gain (Loss) on Investments .................... 0.16 (.09)
--------- ---------
Total from Investment Operations ....................................... 0.67 0.51
--------- ---------
Less Distributions:
Dividends from Net Investment Income ..................................... (0.51) (0.60)
Distributions from Net Realized Gain on Investments Sold ................. (0.02) (0.01)
--------- ---------
Total Distributions .................................................... (0.53) (0.61)
--------- ---------
Net Asset Value, End of Period ............................................ $ 8.64 $ 8.54
========= =========
Total Investment Return at Net Asset Value (e) ............................ 7.76%(c) 6.17%
Total Adjusted Investment Return at Net Asset Value (a)(e) ................ (0.46%)(c) 2.72%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ................................. $ 1,171 $ 2,191
Ratio of Expenses to Average Net Assets ................................... 0.65%* 0.60%
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ................... 9.60%* 4.05%
Ratio of Net Investment Income to Average Net Assets ...................... 6.53%* 7.10%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (a)(d) (2.42%)* 3.65%
Portfolio Turnover Rate ................................................... 71% 136%
Fee Reduction Per Share (f) ............................................... $ 0.75 $ 0.30
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) On average month end shares outstanding.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................ $ 8.50(b) $ 8.46
------- ---------
Net Investment Income ........................................................... 0.41 0.52
Net Realized and Unrealized Loss on Investments and Foreign Currency Transactions (0.04) (0.24)
------- ---------
Total from Investment Operations ............................................. 0.37 0.28
------- ---------
Less Distributions:
Dividends from Net Investment Income ........................................... (0.41) (0.35)
Distributions from Capital Paid-in ............................................. -- (0.17)
------- ---------
Total Distributions .......................................................... (0.41) (0.52)
------- ---------
Net Asset Value, End of Period .................................................. $ 8.46 $ 8.22
======= =========
Total Investment Return at Net Asset Value (e) .................................. 4.37%(c) 3.39%
Total Adjusted Investment Return at Net Asset Value (a)(e) ...................... (54.55%)(c) (2.93%)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ....................................... $ 217 $ 1,026
Ratio of Expenses to Average Net Assets ......................................... 0.91%* 0.85%
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ......................... 69.15%* 7.17%
Ratio of Net Investment Income to Average Net Assets ............................ 5.91%* 6.26%
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) .............. (62.33%)* (0.06%)
Portfolio Turnover Rate ......................................................... 129% 119%
Fee Reduction Per Share (f) ..................................................... $ 5.35 $ 0.56
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) On average month end shares outstanding.
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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................................. $ 8.50(b) $ 9.09
------- ---------
Net Investment Income (f) ......................................................... 0.17 0.14
Net Realized and Unrealized Gain on Investments ................................... 0.56 1.08
------- ---------
Total from Investment Operations .................................................. 0.73 1.22
------- ---------
Less Distributions:
Dividends from Net Investment Income .............................................. (0.14) (0.12)
Distributions from Net Realized Gain on Investments Sold .......................... --- (0.81)
------- ---------
Total Distributions ............................................................... (0.14) (0.93)
------- ---------
Net Asset Value, End of Period .................................................... $ 9.09 $ 9.38
======= =========
Total Investment Return at Net Asset Value (e) .................................... 8.61%(c) 13.78%
Total Adjusted Investment Return at Net Asset Value (a)(e) ........................ 5.40%(c) 12.75%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................................... $ 5,293 $ 6,011
Ratio of Expenses to Average Net Assets ........................................... 0.83%* 0.80%
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ........................... 4.55%* 1.83%
Ratio of Net Investment Income to Average Net Assets .............................. 2.04%* 1.46%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (a)(d) ....... (1.68%)* 0.43%
Portfolio Turnover Rate ........................................................... 0% 96%
Fee Reduction Per Share (f) ....................................................... $ 0.30 $ 0.10
Average Brokerage Commission Rate (g) ............................................. N/A $ 0.0640
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) On average month end shares outstanding.
(g) 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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................................. $ 8.50(b) $ 10.15
------- ---------
Net Investment Income (f) ......................................................... 0.23 0.21
Net Realized and Unrealized Gain on Investments ................................... 1.68 1.92
------- ---------
Total from Investment Operations .................................................. 1.91 2.13
------- ---------
Less Distributions:
Dividends from Net Investment Income .............................................. (0.19) (0.18)
Distributions from Net Realized Gain on Investments Sold .......................... (0.07) (0.19)
------- ---------
Total Distributions ............................................................... (0.26) (0.37)
------- ---------
Net Asset Value, End of Period .................................................... $ 10.15 $ 11.91
======= =========
Total Investment Return at Net Asset Value (e) .................................... 22.79%(c) 21.26%
Total Adjusted Investment Return at Net Asset Value (a)(e) ........................ 19.79%(c) 20.07%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................................... $ 3,319 $ 8,668
Ratio of Expenses to Average Net Assets ........................................... 0.75%* 0.70%
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ........................... 4.02%* 1.89%
Ratio of Net Investment Income to Average Net Assets .............................. 2.51%* 1.94%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (a)(d) ....... (0.76%)* 0.75%
Portfolio Turnover Rate ........................................................... 70% 37%
Fee Reduction Per Share (f) ....................................................... $ 0.30 $ 0.13
Average Brokerage Commission Rate (g) ............................................. N/A $ 0.0700
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) On average month end shares outstanding.
(g) 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 11, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................................. $ 8.50(b) $ 10.69
------- ---------
Net Investment Income (Loss) (f) .................................................. (0.01) 0.01
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions . 2.22 2.02
------- ---------
Total from Investment Operations .................................................. 2.21 2.03
------- ---------
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
======= =========
Total Investment Return at Net Asset Value (e) .................................... 25.98%(c) 19.00%
Total Adjusted Investment Return at Net Asset Value (a)(e) ........................ 23.70%(c) 18.48%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ......................................... $ 8,399 $ 29,085
Ratio of Expenses to Average Net Assets ........................................... 0.93%* 0.90%
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ........................... 3.51%* 1.42%
Ratio of Net Investment Income (Loss) to Average Net Assets ....................... (0.10%)* 0.06%
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) ................ (2.68%)* (0.46%)
Portfolio Turnover Rate ........................................................... 189% 281%
Fee Reduction Per Share (f) ....................................................... $ 0.23 $ 0.06
Average Brokerage Commission Rate (g) ............................................. N/A $ 0.0620
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) On average month end shares outstanding.
(g) 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 the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 2, 1996
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1997
--------------------
Per Share Operating Performance
<S> <C>
Net Asset Value, Beginning of Period ............................................ $ 8.50(b)
---------
Net Investment Income (f) ....................................................... 0.03
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 0.73
---------
Total from Investment Operations ............................................... 0.76
---------
Less Distributions:
Dividends from Net Investment Income ........................................... (0.02)
---------
Net Asset Value, End of Period .................................................. $ 9.24
=========
Total Investment Return at Net Asset Value ...................................... 8.89%(c)
Total Adjusted Investment Return at Net Asset Value (a) ......................... (3.84%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ....................................... $ 999
Ratio of Expenses to Average Net Assets ......................................... 0.90%*
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ......................... 16.24%*
Ratio of Net Investment Income to Average Net Assets ............................ 0.35%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) .............. (14.99%)*
Portfolio Turnover Rate ......................................................... 92%
Fee Reduction Per Share (f) ..................................................... $ 1.22
Average Brokerage Commission Rate (e) ........................................... $ 0.0692
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Per portfolio share traded.
(f) On average month end shares outstanding.
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
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------- -----------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................ $ 8.50(b) $ 9.24
--------- ---------
Net Investment Income (f) ................................................... 0.15 0.12
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 0.68 0.14
--------- ---------
Total from Investment Operations ............................................ 0.83 0.26
--------- ---------
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
========= =========
Total Investment Return at Net Asset Value (e) .............................. 9.81%(c) 2.79%
Total Adjusted Investment Return at Net Asset Value (a)(e) .................. 3.26%(c) 0.47%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) ................................... $ 2,897 $ 4,204
Ratio of Expenses to Average Net Assets ..................................... 1.05%* 1.00%
Ratio of Adjusted Expenses to Average Net Assets (a)(d) ..................... 8.19%* 3.32%
Ratio of Net Investment Income to Average Net Assets ........................ 1.75%* 1.26%
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(d) .......... (5.39%)* (1.06%)
Portfolio Turnover Rate ..................................................... 59% 68%
Fee Reduction Per Share (f) ................................................. $ 0.60 $ 0.22
Average Brokerage Commission Rate (g) ....................................... N/A $ 0.0237
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(e) Total investment return assumes dividend reinvestment.
(f) On average month end shares outstanding.
(g) 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
February 28, 1997
The Schedule of Investments is a complete list of all securities owned by Active
Bond Fund on February 28, 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>
S+P PAR VALUE
INTEREST* RATING* (000'S MARKET
ISSUER, DESCRIPTION RATE (UNAUDITED) OMITTED) VALUE
- ------------------- ---- ----------- -------- -----
<S> <C> <C> <C> <C>
BONDS
Banks (4.31%)
Banco Nacional de Obras y Servicios Publicos S.N.C.,
Sr Note (Mexico) 11-15-03, (Y)................................................ 9.625% BB $ 5 $5,213
Banque National de Paris,
Sub Note (France) 01-15-07, (Y)............................................... 7.200 A 5 4,987
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21......................................................... 9.750 AA- 25 28,375
Landeskreditbank Baden-Wuerttemberg,
Sub Note (Germany) 02-01-23, (Y).............................................. 7.625 AAA 10 10,370
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01............................................................. 9.450 AA- 15 16,446
RBSG Capital Corp.,
Gtd Cap Note (United Kingdom) 03-01-04, (Y)................................... 10.125 A+ 25 28,984
---------
94,375
---------
Broadcasting (4.69%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04........................................................... 10.750 B 10 10,300
Century Communications Corp.,
Sr Sub Deb 10-15-03........................................................... 11.875 B+ 10 10,550
Comcast Corp.,
Sr Sub Deb 07-15-12........................................................... 10.625 BB- 10 11,250
NS Group Inc.,
Unit 07-15-03................................................................. 13.500 B- 4 4,440
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06.................................................... 10.750 B- 10 10,800
TeleWest Communications PLC,
Sr Deb (Great Britain) 10-01-06, (Y).......................................... 9.625 BB 5 5,062
Time Warner Inc.,
Deb 01-15-13.................................................................. 9.125 BBB- 10 10,982
TKR Cable I, Inc.,
Sr Deb 10-30-07............................................................... 10.500 BBB- 10 10,973
TV Asteca, S.A. de C.V.,
Gtd Sr Note (Mexico) 02-15-04 (R), (Y)........................................ 10.125 B 20 20,300
Viacom Inc.,
Sr Note 06-01-05.............................................................. 7.750 BB+ 8 7,992
---------
102,649
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
================================================================================
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
S+P PAR VALUE
INTEREST* RATING* (000'S MARKET
ISSUER, DESCRIPTION RATE (UNAUDITED) OMITTED) VALUE
- ------------------- ---- ----------- -------- -----
<S> <C> <C> <C> <C>
Finance (4.69%)
American Health Properties, Inc.,
Note 01-15-07................................................................. 7.500% BBB- $ 10 $
10,050
Access Financial Mortgage Loan Trust,
Pass Thru Ctf Ser 1996-A4 11-01-26............................................ 6.775 AAA 10 9,856
ContiFinancial Corp.,
Sr Note 08-15-03.............................................................. 8.375 BB+ 5 5,120
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1996-4 06-15-14............................................. 6.710 AAA 35 34,256
CS First Boston,
Sub Note 05-15-06 (R)......................................................... 7.750 A2 5 5,174
First Plus Home Loan Owner Trust,
Pass Thru Ctf Ser 1997-1 12-10-15............................................. 6.950 AAA 10 9,959
Money Store Home Equity Trust,
Ser 1995-C 09-15-11........................................................... 6.375 AAA 5 4,859
Polysindo International Finance Co. B.V.,
Gtd Sr Note (Indonesia) 06-15-06, (Y)......................................... 11.375 BB 3 3,277
Trinet Corporate Realty Trust, Inc.,
Note 05-15-01................................................................. 7.300 BBB- 5 5,054
UCFC Home Equity Loan,
Pass Thru Ctf Ser 1996-C1 01-15-28............................................ 7.825 AAA 10 10,100
United Companies Financial Corp.,
Sr Note 01-15-04.............................................................. 7.700 BBB- 5 4,956
---------
102,661
---------
Funeral Services (0.46%)
Loewen Group International, Inc.,
Gtd Sr Note 10-15-03 (R)...................................................... 8.250 BB+ 10 10,139
---------
Glass Products (0.51%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03............................................................... 11.000 BB 10 11,175
---------
Government - Foreign (1.89%)
Argentina, Republic of,
Bond (Argentina) 01-30-17, (Y)................................................ 11.375 BB- 10 10,625
Columbia, Republic of,
Bond (Columbia) 02-15-07, (Y)................................................. 7.625 Baa3 10 9,675
Croatia, Republic of,
Sr Note (Croatia) 02-27-02 (R), (Y)........................................... 7.000 BBB- 10 9,845
United Mexican States,
Bond (Mexico) 09-15-16, (Y)................................................... 11.375 BB 10 11,150
---------
41,295
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
S+P PAR VALUE
INTEREST* RATING* (000'S MARKET
ISSUER, DESCRIPTION RATE (UNAUDITED) OMITTED) VALUE
- ------------------- ---- ----------- -------- -----
<S> <C> <C> <C> <C>
Government - U.S. (40.74%)
United States Treasury,
Bond 08-15-17................................................................. 8.875% AAA $ 15 $18,166
Bond 05-15-18................................................................. 9.125 AAA 25 31,039
Bond 02-15-23................................................................. 7.125 AAA 212 216,539
Note 02-15-99................................................................. 8.875 AAA 265 278,375
Note 11-30-99................................................................. 7.750 AAA 205 212,751
Note 05-15-01................................................................. 8.000 AAA 84 89,001
Note 02-15-05................................................................. 7.500 AAA 44 46,516
---------
892,387
---------
Government - U.S. Agencies (12.28%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1601 10-15-08....................................................... 6.000 AAA 25 23,203
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 11-15-24 to 09-15-26...................................... 8.000 AAA 241 245,772
---------
268,975
---------
Insurance (4.44%)
Conseco, Inc.,
Sr Note 12-15-04.............................................................. 10.500 BBB 10 11,744
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26, (Y)................................................... 8.300 BBB+ 25 25,800
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R)..................................................... 8.200 A+ 15 15,940
Surplus Note 10-15-26 (R)..................................................... 7.875 A+ 5 4,929
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R)..................................................... 7.625 AA 15 14,761
Nac Re Corp.,
Note 06-15-99................................................................. 8.000 A- 5 5,132
New York Life Insurance Co.,
Surplus Note 12-15-23 (R)..................................................... 7.500 AA- 10 9,452
Sun Canada Financial Co.,
Note (Canada) 12-15-07 (R), (Y)............................................... 6.625 AA 10 9,492
---------
97,250
---------
Leisure and Recreation (0.52%)
Trump Hotels & Casinos Resorts Funding, Inc.,
Sr Note 06-15-05.............................................................. 15.500 B+ 10 11,450
---------
Medical (0.28%)
Tenet Healthcare Corp.,
Sr Sub Note 01-15-07.......................................................... 8.625 B+ 6 6,150
---------
Oil & Gas (2.43%)
Camuzzi Gas, Pampeana S.A.,
Bond (Argentina) 12-15-01 (R), (Y)............................................ 9.250 BB- 4 4,155
Enserch Exploration, Inc.,
Pass Thru Ctf 01-02-09 (R).................................................... 7.540 BBB 5 4,919
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
S+P PAR VALUE
INTEREST* RATING* (000'S MARKET
ISSUER, DESCRIPTION RATE (UNAUDITED) OMITTED) VALUE
- ------------------- ---- ----------- -------- -----
<S> <C> <C> <C> <C>
Oil & Gas (continued)
Iberdrola International B.V.,
Gtd Note (Netherlands) 06-01-03 (R), (Y)...................................... 7.125% AA- $ 25 $25,281
Norsk Hydro ASA,
Deb (Norway) 10-01-16, (Y).................................................... 7.500 A 10 10,067
TransTexas Gas Corp.,
Sr Note 06-15-02.............................................................. 11.500 BB- 8 8,870
---------
53,292
---------
Paper & Paper Products (0.73%)
Georgia Pacific Corp.,
Deb 01-15-18.................................................................. 9.750 BBB- 10 10,437
SD Warren Co.,
Sr Sub Note 12-15-04.......................................................... 12.000 B+ 5 5,525
---------
15,962
---------
Publishing (1.16%)
News America Holdings Inc.,
Deb 08-10-18.................................................................. 8.250 BBB 25 25,480
---------
Steel (0.24%)
IVACO Inc.,
Sr Note (Canada) 09-15-05, (Y)................................................ 11.500 B+ 5 5,356
---------
Telecommunications (1.67%)
IMPSAT Corp.,
Gtd Sr Note 07-15-03 (R)...................................................... 12.125 10 10,800
Paging Network Inc.,
Sr Sub Note 10-15-08.......................................................... 10.000 B 10 10,000
TCI Communications, Inc.,
Sr Deb 08-01-15............................................................... 8.750 BBB- 16 15,888
---------
36,688
---------
Tobacco (0.90%)
RJR Nabisco, Inc.,
Note 12-01-02................................................................. 8.625 BBB- 5 5,159
Note 09-15-03................................................................. 7.625 BBB- 15 14,657
---------
19,816
---------
Transportation (0.86%)
America West Airlines, Inc.,
Pass Thru Ctf Ser B 01-02-08.................................................. 6.930 Baa2 5 4,912
Northwest Airlines, Inc.,
Pass Thru Ctf Ser 1996-1D 01-02-15............................................ 8.970 BBB- 5 5,316
NWA Trust,
Sr Note Ser A 06-21-14........................................................ 9.250 AA 8 8,562
---------
18,790
---------
Utilities (10.87%)
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17............................................ 8.890 BB+ 7 6,755
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
S+P PAR VALUE
INTEREST* RATING* (000'S MARKET
ISSUER, DESCRIPTION RATE (UNAUDITED) OMITTED) VALUE
- ------------------- ---- ----------- -------- -----
<S> <C> <C> <C> <C>
Utilities (continued)
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05........................................................ 9.500% BB $ 5 $ 5,368
CTC Mansfield Funding Corp.,
Sec Lease Oblig 09-30-16...................................................... 11.125 B+ 15 15,887
EIP Funding-PNM,
Sec Fac Bond 10-01-12......................................................... 10.250 BB- 25 25,934
Enersis S.A.,
Note (Cayman Islands) 12-01-16, (Y)........................................... 7.400 A- 10 9,686
First PV Funding Corp.,
Deb Ser 86B 01-15-16.......................................................... 10.150 BB- 10 10,600
GTE Corp.,
Deb 11-15-17.................................................................. 10.300 A- 25 26,914
Hydro-Quebec,
Deb (Canada) 02-01-03, (Y).................................................... 7.375 A+ 25 25,568
Deb (Canada) 02-01-21, (Y).................................................... 9.400 A+ 25 29,544
Long Island Lighting Co.,
Deb 03-15-03.................................................................. 7.050 BB+ 10 9,817
Deb 07-15-19.................................................................. 8.900 BB+ 7 7,235
Gen Ref Bond 05-01-21......................................................... 9.750 BBB- 25 25,707
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02............................................. 10.330 BB- 21 22,794
Philippine Long Distance Telephone Co.,
Note (Philippine Islands) 03-06-07, (Y)....................................... 7.850 BB+ 6 5,880
System Energy Resources, Inc.,
1st Mtg 08-01-01.............................................................. 7.710 BBB- 5 5,165
Tenaga Nasional Berhad,
Note (Malaysia) 06-15-04 (R), (Y)............................................. 7.875 A+ 5 5,224
---------
238,078
---------
TOTAL BONDS
(Cost $2,047,360) (93.67%) 2,051,968
-------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST* (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.75%)
Investment in a joint repurchase agreement transaction with Toronto Dominion
Securities - Dated 02-28-97, due 03-03-97 (secured by U.S. Treasury Notes,
4.75% through 8.25%, due
11-15-97 through 11-15-05) - Note A................................................. 5.390% $126 $ 126,000
-----------
Corporate Savings Account (0.03%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%.................................................................. 696
---------
TOTAL SHORT-TERM INVESTMENTS ( 5.78%) 126,696
---------
TOTAL INVESTMENTS (99.45%) $2,178,664
======= ==========
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule144A
securities amounted to $150,411 as of February 28, 1997.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer, however, security is U.S. dollar
denominated.
* Credit ratings are rated 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.
52
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Global Bond Fund
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
BONDS
Australian Dollar (1.29%)
Commonwealth of Australia,
Bond Ser 400 04-15-00 ................. 7.000% 17 $ 13,238
----------
British Pound Sterling (8.59%)
United Kingdom Treasury,
Bond 11-06-01 ......................... 7.000 54 88,100
----------
Canadian Dollar (2.27%)
Government of Canada,
Bond 09-01-01 ......................... 7.000 30 23,262
----------
Danish Krone (3.67%)
7 Kingdom of Denmark,
Bond-Bullet 03-15-06 .................. 8.000 217 37,692
----------
Deutsche Mark (7.71%)
Federal Republic of Germany,
Bond Ser 96 01-05-06 .................. 6.000 129 79,128
----------
French Franc (3.70%)
Republic of France,
Deb 04-25-05 .......................... 7.500 100 20,227
Deb 10-25-05 .......................... 7.750 86 17,688
----------
37,915
----------
Italian Lira (5.75%)
Republic of Italy,
Bond 11-01-00 ......................... 10.500 90,000 58,999
----------
Spanish Peseta (4.61%)
Kingdom of Spain,
Deb 02-28-05 .......................... 10.000 5,710 47,263
----------
Swedish Krona (3.82%)
Kingdom of Sweden,
Bond Ser 1033 05-05-03 ................ 10.250 200 32,314
Swedish Export Credit Corp.,
Global Bond 06-05-01 .................. 6.500 50 6,883
----------
39,197
----------
U.S. Dollar (54.23%)
Federative Republic of Brazil, (Brazil),
Floating Rate Bond 04-15-09 ........... 6.563* 100 86,125
Republic of Argentina, (Argentina),
Global Bond 02-23-01 .................. 9.250 25 25,562
United Mexican States, (Mexico),
Global Bond 02-06-01 .................. 9.750 25 26,000
The Schedule of Investments is a complete list of all securities owned by Global
Bond Fund on February 28, 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.
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
U.S. Dollar (continued)
United States Treasury,
Note 02-28-98 ......................... 5.125% 50 $ 49,672
Note 05-31-98 ......................... 6.000 55 55,078
Note 06-30-98 ......................... 6.250 30 30,136
Note 01-31-99 ......................... 6.000 50 49,812
Note 12-31-00 ......................... 5.500 81 78,696
Note 05-15-05 ......................... 6.500 156 155,268
----------
556,349
----------
TOTAL BONDS
(Cost $991,536) (95.64%) 981,143
------ ----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.85%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities -
Dated 02-28-97, Due 03-03-97
(secured by U.S. Treasury Bond,
7.875% Due 02-15-21 and by
U.S. Treasury Notes, 4.750%
through 6.000% Due
08-31-98 through 09-30-98)
Note A ................................ 5.390 19 19,000
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $19,000) (1.85%) 19,000
------ ----------
TOTAL INVESTMENTS (97.49%) $1,000,143
====== ==========
# Par value of foreign bonds are expressed in local currency.
* Represents rate in effect on February 28, 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 (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by companies and governments of other
countries. The performance of the Fund is closely tied to the economic
conditions within the countries in which it invests. The concentration of
investment by country of denomination for individual securities held by the fund
is shown in the schedule of investments. In addition, the concentration of
investments can be aggregated by various investment categories. The table below
shows the percentages of the Fund's investments at February 28, 1997 assigned to
the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
- --------------------- --------------------
Finance............................................. 0.67%
Governmental - Foreign.............................. 54.16
Governmental - United States........................ 40.81
Short-term investments.............................. 1.85
-----
TOTAL INVESTMENTS 97.49%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Automobile/Trucks (2.19%)
Arvin Industries, Inc. ....................... 5,600 $ 131,600
----------
Building (1.39%)
Fibreboard Corp.* ............................ 2,500 83,438
----------
Chemicals (1.45%)
Millennium Chemicals, Inc. ................... 1,135 21,707
Sybron Chemicals, Inc.* ...................... 3,800 65,550
----------
87,257
----------
Computers (1.77%)
Western Micro Technology, Inc.* .............. 10,500 106,312
----------
Consumer Products Misc. (3.63%)
Samsonite Corp.* ............................. 4,600 218,500
----------
Diversified Operations (1.86%)
Energy Group PLC (American
Depositary Receipts) (ADR)
(United Kingdom)* ........................... 1,987 67,575
Hanson PLC (ADR) (United Kingdom) ............ 1,987 44,222
----------
111,797
----------
Electronics (3.82%)
Elexsys International, Inc.* ................. 9,400 158,625
Oak Industries, Inc.* ........................ 3,500 70,875
----------
229,500
----------
Finance (7.26%)
Aames Financial Corp. ........................ 3,000 90,375
Delta Financial Corp.* ....................... 200 4,200
MoneyGram Payment Systems, Inc.* ............. 15,000 195,000
RAC Financial Group, Inc.* ................... 4,500 146,812
----------
436,387
----------
Food (5.61%)
Archer-Daniels-Midland Co. ................... 7,240 133,940
Morrison Health Care, Inc. ................... 4,333 58,496
Savannah Foods & Industries, Inc. ............ 9,900 144,788
----------
337,224
----------
Insurance (8.73%)
Allmerica Financial Corp. .................... 2,000 74,750
AmerUs Life Holdings, Inc.* .................. 1,800 37,800
AVEMCO Corp. ................................. 7,000 166,250
CMAC Investment Corp. ........................ 4,000 140,000
Executive Risk Inc. .......................... 1,300 62,563
Frontier Insurance Group, Inc. ............... 1,000 43,250
----------
524,613
----------
The Schedule of Investments is a complete list of all securities owned by the
Fundamental Value Fund on February 28, 1997. It's divided into three main
categories: common stocks, preferred stocks and short-term investments. Common
stocks and preferred stocks are further broken down by industry groups.
Short-term investments, which represent the Fund's "cash" position are listed
last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Leisure (0.91%)
Equity Marketing Inc.* ....................... 3,000 $ 54,938
----------
Machinery (1.46%)
Greenfield Industries, Inc. .................. 4,000 87,500
----------
Oil & Gas (3.48%)
Daniel Industries, Inc. ...................... 7,800 95,550
Parker Drilling Co.* ......................... 13,600 113,900
----------
209,450
----------
Paper & Paper Products (3.82%)
Glatfelter (P.H.) Co. ........................ 13,400 229,475
----------
Pollution Control (4.10%)
Calgon Carbon Corp. .......................... 21,900 246,375
----------
Printing - Commercial (2.38%)
Mail-Well, Inc.* ............................. 7,200 143,100
----------
Real Estate Operations (8.43%)
Tejon Ranch Co. .............................. 8,200 137,350
Trizec Hahn Corp. (Canada) ................... 15,800 369,325
----------
506,675
----------
Retail (14.67%)
Brown Group, Inc. ............................ 4,000 65,000
Darden Restaurants, Inc. ..................... 13,000 94,250
Intelligent Electronics, Inc.* ............... 9,700 33,950
Morrison Fresh Cooking, Inc. ................. 18,950 90,012
Ruby Tuesday, Inc.* .......................... 6,500 112,125
Ruddick Corp. ................................ 20,000 320,000
Russ Berrie & Co., Inc. ...................... 7,700 166,512
----------
881,849
----------
Telecommunications (2.43%)
ANTEC Corp. * ................................ 10,700 90,950
COMSAT Corp. ................................. 2,100 55,125
----------
146,075
----------
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Fundamental Value Fund
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ------------------- ---- --------------- ------------
Textile (3.00%)
Burlington Industries Inc.* .................. 14,000 $ 180,250
----------
Tobacco (0.92%)
Imperial Tobacco Group PLC
(ADR) (United Kingdom)* ..................... 3,975 55,059
----------
Transport (2.80%)
Overseas Shipholding Group, Inc. ............. 5,700 99,037
Swift Transportation Co., Inc.* ............. 2,600 69,225
----------
168,262
----------
Utilities (0.15%)
El Paso Electric Co.* ........................ 1,300 9,100
----------
TOTAL COMMON STOCKS
(Cost $4,972,513) (86.26%) 5,184,736
------ ----------
PREFERRED STOCKS
Broker Services (4.06%)
Salomon Inc. 7.625% Ser FSA .................. 8,000 244,000
----------
TOTAL PREFERRED STOCKS
(Cost $216,725) ( 4.06%) 244,000
------ ----------
TOTAL COMMON STOCKS AND
PREFERRED STOCKS
(Cost $5,189,238) (90.32%) 5,428,736
------ ----------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ------------------- ---- --------------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.52%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities,
Dated 02-28-97, Due 03-03-97
(secured by U.S. Treasury
Notes, 4.750% thru 8.250%,
Due 11/15/97 thru 11/15/05)
- Note A........................ 5.39% $572 $ 572,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%............... 158
----------
TOTAL SHORT-TERM INVESTMENTS ( 9.52%) 572,158
----- ---------
TOTAL INVESTMENTS (99.84%) $6,000,894
===== ==========
* 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
February 28, 1997
Per share earnings and dividends, price/earnings ratios, company description,
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 (91.66)% RATE VALUE
- --------- ------------- ---- -----
<S> <C> <C> <C>
Advertising (2.02%)
3,500 Interpublic Group Inc. @ 50 1/8 ............................................... $ 175,437
----------
One of the largest advertising agencies in the world
Earnings P/S.........$ .75, .91, 1.05, 1.19, 1.30, 1.37, 1.67, 1.86, 1.66, 2.56 14.6%
Dividends P/S................$ .22, .26, .32, .37, .41, .45, .49, .55, .61, .67 13.2%
Price/Earnings Ratio.......................................................20.8
Aerospace (1.34%)
1,800 Rockwell International Corp. @ 64 3/4 ......................................... 116,550
----------
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, .98, 1.04, 1.10, 1.16 6.5%
Price/Earnings Ratio.......................................................14.7
Banks (7.35%)
1,000 Banc One Corp. @ 44 1/8........................................................ 44,125
Ohio-based bank holding company
Earnings P/S.......$ 1.19, 1.56, 1.66, 1.66, 1.72, 2.08, 2.61, 2.20, 2.91, 3.23 11.7%
Dividends P/S..............$.45, .50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36 13.1%
Price/Earnings Ratio.......................................................14.4
2,000 First Tennessee National Corp. @ 46 3/4 ....................................... 93,500
Tennessee-based bank holding company
Earnings P/S ........$ .78, 1.10, .65, 1.00, 1.35, 1.60, 1.66, 2.15, 2.43, 2.68 14.7%
Dividends P/S ..............$ .40, .43, .49, .54, .57, .63, .75, .87, .97, 1.10 11.9%
Price/Earnings Ratio.......................................................17.6
1,400 KeyCorp. @ 53 1/2............ ................................................. 74,900
Multi-regional bank holding company
Earnings P/S ......$ 1.88, 2.10, 2.32, 2.32, 2.45, 2.42, 2.89, 3.45, 3.30, 3.37 6.7%
Dividends P/S ............$.60, .68, .80, .88, .92, .98, 1.12, 1.28, 1.44, 1.52 10.9%
Price/Earnings Ratio.......................................................16.2
2,000 NationsBank Corp. @ 59 7/8... ................................................. 119,750
Largest superregional bank in the Southeast
Earnings P/S....$ 1.01, 1.44, 2.22, 1.31, .41, 2.30, 2.50, 3.06, 3.57, 4.01 ... 16.6%
Dividends P/S....$ .43, .47, .55, .71, .74, .755, .82, .94, 1.04, 1.20 ........ 12.1%
Price/Earnings Ratio......................................................15.7
3,000 Norwest Corp. @ 49 3/4....... ................................................. 149,250
Large superregional bank providing commercial and retail banking services
Earnings P/S .....$ (.22), 1.12, 1.25, .45, 1.46, 1.41, 1.89, 2.45, 2.76, 3.07 NMF
Dividends P/S .............$ .30, .32, .38, .42, .47, .54, .64, .77, .90, 1.05 14.9%
Price/Earnings Ratio......................................................16.8
</TABLE>
The Schedule of Investments is a complete list of all securities owned by
Dividend Performers Fund on February 28, 1997. Its divided into two main
categories: common stocks and short-term investments. The common stocks are
further broken down by industry groups. Short-term Investments, which represent
the Fund's "cash" position are listed last.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ------------- ---- -----
<S> <C> <C> <C>
Banks (continued)
4,000 Southern National Corp. @ 38 7/8 ............................................. $ 155,500
Multi-bank holding company
Earnings P/S .......$ .95, 1.13, 1.14, 1.01, 1.36, 1.72, .13, 2.27, 1.67, 2.59 11.8%
Dividends P/S .............$ .34, .36, .39, .42, .46, .50, .64, .74, .86, 1.00 12.7%
Price/Earnings Ratio......................................................15.7
----------
637,025
----------
Beverages (1.14%)
3,000 PepsiCo, Inc. @ 32 7/8 ....................................................... 98,625
----------
Second largest soft drink company
Earnings P/S .............$ .38, .49, .57, .68, .68, .81, .98, 1.11, 1.00, .72 7.4%
Dividends P/S ..............$ .11, .14, .16, .19, .23, .26, .31, .35, .39, .45 16.9%
Price/Earnings Ratio......................................................36.1
Building (3.26%)
3,000 Ecolab, Inc. @ 37 7/8......................................................... 113,625
Manufacturer of specialty chemicals
and coatings to waterproof and rustproof structures
Earnings P/S ..........$ .37, .81, .68, .98, .94, 1.03, 1.21, 1.25, 1.50, 1.75 18.8%
Dividends P/S ...............$.30, .32, .33, .34, .35, .36, .40, .46, .52, .58 7.6%
Price/Earnings Ratio......................................................22.2
1,800 Masco Corp. @ 35 1/8.......................................................... 63,225
Manufactures buildings, home improvement and consumer products
Earnings P/S .......$ 1.65, 2.10, 1.42, .91, .30, 1.21, 1.45, 1.09, 1.25, 1.84 1.2%
Dividends P/S ..............$ .38, .44, .50, .54, .57, .61, .65, .69, .73, .77 8.2%
Price/Earnings Ratio......................................................19.8
6,000 RPM, Inc. @ 1751/48........................................................... 105,750
Manufacturer of specialty chemicals
and coatings to waterproof and rustproof structures
Earnings P/S ...............$ .38, .45, .42, .40, .48, .46, .68, .80, .88, .98 11.1%
Dividends P/S ...............$.21, .25, .27, .30, .34, .37, .39, .42, .46, .49 9.9%
Price/Earnings Ratio......................................................18.3
----------
282,600
----------
Chemicals (2.35%)
2,000 PPG Inds., Inc. @ 56 ......................................................... 112,000
Manufacturer of specialty chemicals, coatings and resins
Earnings P/S ......$ 1.60, 2.13, 2.09, 2.22, .95, 1.51, 1.39, 2.44, 3.80, 3.96 10.6%
Dividends P/S ..........$ .56, .64, .74, .82, .86, .94, 1.04, 1.12, 1.18, 1.26 9.4%
Price/Earnings Ratio......................................................14.3
</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
- --------- ------------- ---- -----
<S> <C> <C> <C>
Chemicals (continued)
3,000 Sigma - Aldrich Corp. @ 30 5/8 ................................................... $ 91,875
Manufacturer of biochemical and organic products used for research and diagnostics
Earnings P/S ...............$ .43, .58, .65, .56, .80, .96, 1.08, 1.11, 1.32, 1.30 13.1%
Dividends P/S ............$ .075, .085, .095, .10, .115, .13, .15, .17, .19, .2275 13.1%
Price/Earnings Ratio..........................................................24.6
----------
203,875
----------
Computers (5.66%)
4,000 Automatic Data Processing, Inc.
@ 42 5/8.......................................................................... 170,500
Largest independent computing services firm in the U.S.
Earnings P/S ...............$ .54, .62, .72, .76, .86, .97, 1.10, 1.27, 1.47, 1.67 13.4%
Dividends P/S ..................$ .11, .13, .15, .17, .20, .23, .26, .29, .35, .42 16.1%
Price/Earnings Ratio..........................................................26.8
2,500 Electronic Data Systems Corp. @ 45 1/8............................................ 112,812
Leading provider of information processing services
Earnings P/S..............$ .66, .79, .91, 1.04, 1.15, 1.33, 1.51, 1.71, 1.96, .89 3.4%
Dividends P/S...................$ .13, .17, .24, .28, .32, .36, .40, .48, .52, .60 18.5%
Price/Earnings Ratio.........................................................50.9
3,700 Hewlett-Packard Co. @ 56......................................................... 207,200
Manufactures and services electronic
measurement, analysis and computation instruments
Earnings P/S .............$ 1.68, 1.76, .77, .79, .85, .83, 1.26, 1.76, 2.49, 2.58 4.9%
Dividends P/S ..................$ .06, .07, .10, .11, .13, .20, .24, .29, .38, .46 25.4%
Price/Earnings Ratio ........................................................21.2
----------
490,512
----------
Containers (1.43%)
3,000 Bemis Company, Inc. @ 41 3/8 ..................................................... 124,125
Producer of a broad range of flexible ----------
packaging and equipment and
pressure sensitive materials
Earnings P/S ..............$ .59, .74, .90, .99, 1.03, 1.10, .89, 1.40, 1.63, 1.90 13.9%
Dividends P/S ...................$.18, .22, .30, .36, .42, .46, .50, .54, .64, .72 16.7%
Price/Earnings Ratio ........................................................22.2
Diversified Operations (4.40%)
1,100 E.I. du Pont de Nemours and Co.
@ 107 1/4 ........................................................................ 117,975
Nation's largest chemical manufacturer
Earnings P/S ..........$ 2.46, 3.03, 3.53, 3.40, 2.08, 1.43, .83, 4.00, 5.61, 6.47 11.3%
Dividends P/S ........$ 1.10, 1.23, 1.45, 1.62, 1.68, 1.74, 1.76, 1.82, 2.03, 2.23 8.2%
Price/Earnings Ratio ........................................................17.4
6,200 Federal Signal Corp. @ 25 1/8 .................................................... 155,775
Manufactures fire trucks and street sweepers, as well as public
safety, signaling and communications equipment
Earnings P/S ................$ .32, .41, .50, .61, .68, .68, .85, 1.02, 1.14, 1.36 17.4%
Dividends P/S ..................$ .15, .16, .19, .22, .27, .32, .36, .42, .50, .58 16.2%
Price/Earnings Ratio ........................................................18.9
2,600 Ikon Office Solutions, Inc. @ 41 1/4 ............................................. 107,250
Distributor of office and paper products
Earnings P/S ............$ .84, 1.15, 1.96, .89, 1.00, 1.16, .015, .65, 1.68, 1.18 3.9%
Dividends P/S ...............$ .09, .10, .11, .12, .126, .13, .137, .143, .15, .16 6.6%
Price/Earnings Ratio ........................................................33.6
----------
381,000
----------
Electronics (8.40%)
2,100 AMP Inc. @ 38 7/8 ................................................................ 81,637
World's largest manufacturer of electrical/electronic connectors
Earnings P/S .........$ 1.16, 1.48, 1.32, 1.35, 1.23, 1.38, 1.42, 1.72, 1.96, 1.31 1.4%
Dividends P/S .................$ .43, .50, .60, .68, .72, .76, .80, .84, .92, 1.00 9.8%
Price/Earnings Ratio ........................................................29.6
1,600 Emerson Electric Co. @ 99 ........................................................ 158,400
Produces and sells electrical/electronic products and systems
Earnings P/S .........$ 1.16, 1.32, 1.38, 1.39, 1.43, 1.51, 1.87, 1.87, 2.09, 2.33 8.1%
Dividends P/S ...............$ .49, .515, .58, .64, .67, .70, .735, .80, .92, 1.01 8.4%
Price/Earnings Ratio ........................................................21.7
2,200 General Electric Co. @ 102 7/8 ................................................... 226,325
Dominant force in home appliances and electrical power
Earnings P/S .........$ 1.60, 1.88, 2.18, 2.43, 2.56, 2.51, 2.46, 3.46, 3.91, 4.40 11.9%
Dividends P/S ............$ .65, .70, .82, .94, 1.02, 1.12, 1.26, 1.44, 1.64, 1.84 12.3%
Price/Earnings Ratio ........................................................23.8
2,000 Parker Hannifin Corp. @ 43 3/4 ................................................... 87,500
Manufacturer of motion control products
Earnings P/S ............$ 1.47, 1.41, 1.58, 1.45, .61, .92, .89, 1.45, 3.24, 3.19 9.0%
Dividends P/S ..................$ .53, .55, .56, .59, .61, .62, .64, .65, .68, .72 3.5%
Price/Earnings Ratio ........................................................14.3
2,200 W.W. Grainger, Inc. @ 79 1/4 ..................................................... 174,350
Leading distributor of electrical equipment
Earnings P/S .........$ 1.48, 1.57, 1.96, 2.31, 2.38, 2.58, 2.88, 2.50, 3.64, 4.04 11.8%
Dividends P/S ..................$ .39, .43, .50, .57, .61, .65, .71, .78, .89, .98 10.8%
Price/Earnings Ratio ........................................................19.3
----------
728,212
----------
Food (5.91%)
4,000 Archer-Daniel Midland Co. @ 18 1/2 ............................................... 74,000
Processes and merchandises agricultural products
Earnings P/S .................$ .62, .75, .85, .73, .80, .83, .79, 1.13, 1.45, .92 4.5%
Dividends P/S .........$ .028, .029, .034, .048, .05, .053, .056, .066, .116, .193 23.9%
Price/Earnings Ratio.....20.2
4,600 ConAgra, Inc. @ 53 ............................................................... 243,800
Leader in frozen & processed foods, and distributor of agricultural supplies
Earnings P/S ...........$ .85, 1.08, 1.25, 1.33, 1.45, 1.55, 1.62, 1.92, 2.20, .95 1.2%
Dividends P/S ..................$ .27, .31, .36, .42, .48, .56, .65, .75, .86, .99 15.5%
Price/Earnings Ratio ........................................................57.6
</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
- --------- ------------- ---- -----
<S> <C> <C> <C>
Food (continued)
1,200 CPC International Inc. @ 84 1/8 .................................................. $ 100,950
Major international food processor
Earnings P/S .........$ 2.17, 1.84, 2.11, 2.42, 2.61, 2.78, 2.95, 2.25, 3.43, 3.93 6.8%
Dividends P/S ...........$ .65, .76, .88, 1.00, 1.10, 1.20, 1.28, 1.38, 1.48, 1.58 10.4%
Price/Earnings Ratio ........................................................21.6
2,400 Sara Lee Corp. @ 38 3/4 .......................................................... 93,000
Manufacturer of brand name packaged food and consumer products
Earnings P/S .............$ .71, .88, .95, 1.01, 1.46, 1.33, 1.47, .49, 1.72, 1.94 11.8%
Dividends P/S ..................$ .25, .30, .36, .42, .47, .50, .58, .64, .68, .76 13.2%
Price/Earnings Ratio ........................................................20.4
----------
511,750
----------
Furniture (1.24%)
3,000 Leggett & Platt, Inc. @ 35 7/8 ................................................... 107,625
Produces intermediate products for the home furnishings industry ----------
Earnings P/S ............$ .278, .273, .323, .42, .56, .82, 1.05, 1.39, 1.59, 1.68 22.1%
Dividends P/S ................$ .14, .16, .185, .21, .215, .23, .27, .31, .38, .46 14.1%
Price/Earnings Ratio ........................................................21.7
Insurance (6.81%)
3,300 AFLAC Corp. @ 40 3/8 ............................................................. 133,237
Global specialty insurer
Earnings P/S ...............$.62, .72, .53, .77, .97, 1.20, 1.55, 1.89, 2.35, 2.73 17.9%
Dividends P/S ..................$ .12, .13, .15, .18, .20, .23, .26, .30, .34, .39 14.0%
Price/Earnings Ratio ........................................................15.2
700 American International Group @ 121 .............................................. 84,700
Broadly based property-casualty insurance organization
Earnings P/S .........$ 3.92, 4.42, 4.61, 4.86, 3.20, 3.28, 3.92, 4.43, 5.10, 5.94 4.7%
Dividends P/S ..................$ .09, .13, .16, .18, .21, .24, .26, .29, .32, .37 17.0%
Price/Earnings Ratio ........................................................20.6
1,100 General RE Corp. @ 169 5/8 ....................................................... 186,587
Broadly based re-insurance organization
Earnings P/S ........$ 5.04, 5.04, 6.52, 6.90, 7.46, 6.86, 8.12, 7.97, 9.92, 10.98 9.0%
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 ........................................................15.9
3,000 Reliastar Financial Corp. @ 62 ................................................... 186,000
Financial services company engaged in life/health insurance and consumer finance
Earnings P/S .........$ 1.86, 1.58, 2.07, 2.09, 1.71, 2.06, 2.62, 3.30, 4.36, 5.02 11.7%
Dividends P/S .................$ .47, .57, .59, .65, .69, .73, .79, .88, .98, 1.09 9.8%
Price/Earnings Ratio ........................................................13.0
----------
590,524
----------
Machinery (2.58%)
4,500 Dover Corp. @ 49 5/8 ............................................................. 223,313
Manufactures a variety of specialized industrial products ----------
Earnings P/S ..........$ .83, 1.11, 1.14, 1.28, 1.08, 1.12, 1.39, 1.77, 2.46, 3.45 17.2%
Dividends P/S ..................$ .26, .31, .35, .38, .41, .43, .45, .49, .56, .64 10.5%
Price/Earnings Ratio ........................................................15.5
Media (4.08%)
3,000 Gannett Co., Inc @ 79 3/4 ........................................................ 239,250
Publishes 81 daily/50 nondaily newspapers, operates 10 TV , 8 FM and 7
AM stations
Earnings P/S .........$ 1.98, 2.26, 2.47, 2.36, 2.00, 2.40, 2.73, 3.25, 3.38, 4.58 9.8%
Dividends P/S .........$ .94, 1.02, 1.11, 1.21, 1.24, 1.26, 1.30, 1.34, 1.38, 1.42 4.7%
Price/Earnings Ratio ........................................................17.9
2,200 McGraw-Hill Companies, Inc. @ 51 7/8 ............................................. 114,125
Supplier of information products and services for business and education industry
Earnings P/S ...........$ 1.64, 1.92, .91, 1.77, 1.52, 1.57, .12, 2.05, 2.28, 4.96 13.1%
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 ........................................................10.5
----------
353,375
----------
Medical (10.60%)
1,600 Abbott Laboratories @ 56 1/4 ..................................................... 90,000
Major pharmaceutical and healthcare firm
Earnings P/S ............$ .70, .84, .97, 1.11, 1.27, 1.47, 1.69, 1.87, 2.12, 2.41 14.7%
Dividends P/S ..................$ .24, .29, .34, .40, .48, .58, .66, .74, .82, .93 16.2%
Price/Earnings Ratio ........................................................24.5
3,000 Baxter International @ 46 ........................................................ 138,000
Manufacturer and distributor of hospital supplies
Earnings P/S .......$ 1.09, 1.30, 1.49, (.05), 1.73, 1.98, (.97), 2.13, 1.34, 2.11 7.6%
Dividends P/S ................$ .41, .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11 11.7%
Price/Earnings Ratio ........................................................22.5
1.200 Eli Lilly & Co. @ 87 3/8 ........................................................ 104,850
Major producer of prescription and non-prescription drugs, health products
Earnings P/S ..........$ 1.11, 1.34, 1.60, 1.95, 2.25, 1.41, .84, 2.05, 2.30, 2.78 10.7%
Dividends P/S ............$ .50, .57, .67, .82, 1.00, 1.10, 1.21, 1.25, 1.31, 1.37 11.9%
Price/Earnings Ratio ........................................................31.1
2,800 Johnson & Johnson @ 57 5/8 . ..................................................... 161,350
Major producer of prescription and
non-prescription drugs, toiletries, medical instruments and supplies
Earnings P/S .............$ .59, .71, .80, .86, 1.10, 1.23, 1.37, 1.56, 1.86, 2.18 15.6%
Dividends P/S ..................$ .20, .24, .28, .33, .39, .45, .51, .57, .64, .74 15.7%
Price/Earnings Ratio ........................................................27.4
1,700 Medtronic, Inc. @ 64 3/4 ......................................................... 110,075
Leading manufacturer of medical devices and instruments
Earnings P/S ...............$ .79, .92, 1.01, .53, .65, .85, .97, 1.19, 1.71, 2.15 11.8%
Dividends P/S ..................$ .06, .07, .09, .10, .12, .14, .17, .21, .26, .32 20.4%
Price/Earnings Ratio ........................................................30.9
1,200 Merck & Co., Inc. @ 92 ........................................................... 110,400
World's largest ethical drug manufacturer
Earnings P/S ..........$ .74, 1.02, 1.26, 1.52, 1.83, 2.12, 1.87, 2.38, 2.70, 3.20 17.7%
Dividends P/S ..............$ .27, .43, .55, .64, .77, .92, 1.03, 1.14, 1.24, 1.42 20.3%
Price/Earnings Ratio ........................................................28.8
6,000 Pall Corp. @ 21 3/4 .............................................................. 130,500
Manufactures filtration and separation devices
Earnings P/S .................$ .50, .50, .50, .61, .71, .68, .85, .92, 1.13, 1.19 10.1%
Dividends P/S ..................$ .11, .13, .16, .19, .22, .27, .32, .37, .42, .49 18.1%
Price/Earnings Ratio ........................................................19.8
</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
- --------- ------------- ---- -----
<S> <C> <C> <C>
Medical (continued)
800 Pfizer, Inc. @ 91 5/8 ............................................................ $ 73,300
Leading ethical pharmaceutical producer
Earnings P/S .........$ 1.02, 1.18, 1.01, 1.19, 1.07, 1.63, 1.03, 2.07, 2.47, 2.99 12.7%
Dividends P/S ................$ .45, .50, .55, .60, .66, .74, .84, .94, 1.04, 1.20 11.5%
Price/Earnings Ratio ........................................................31.7
----------
918,475
----------
Metal (1.93%)
500 Illinois Tool Works, Inc. @ 84 3/8 ............................................... 42,188
Manufactures construction fasteners and packaging systems
Earnings P/S .........$ 1.03, 1.33, 1.53, 1.68, 1.63, 1.72, 1.84, 2.45, 3.32, 3.93 16.0%
Dividends P/S ..................$ .20, .22, .27, .33, .40, .45, .49, .54, .62, .70 14.9%
Price/Earnings Ratio ........................................................22.4
6,000 Worthington Industries, Inc. @ 20 7/8 ........................................... 125,250
Processor of close-tolerance steel
Earnings P/S .................$ .61, .70, .61, .64, .52, .68, .86, 1.10, 1.23, .93 4.8%
Dividends P/S ..................$ .17, .19, .23, .26, .28, .32, .34, .39, .43, .47 20.8%
Price/Earnings Ratio ........................................................21.9
----------
167,438
----------
Office (2.15%)
3,000 Pitney Bowes, Inc. @ 62 1/8 ...................................................... 186,375
Manufactures office automation equipment ----------
Earnings P/S .........$ 1.27, 1.54, 1.19, 1.30, 1.80, 1.96, 1.92, 2.21, 2.68, 3.12 10.5%
Dividends P/S ...............$ .38, .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38 15.4%
Price/Earnings Ratio ........................................................20.3
Oil & Gas (3.03%)
1,400 Exxon Corp. @ 99 7/8 ............................................................. 139,825
Major factor in the crude oil, natural gas and chemical industry
Earnings P/S .........$ 2.65, 3.95, 2.74, 3.96, 4.45, 3.82, 4.21, 4.07, 5.18, 6.02 9.6%
Dividends P/S ........$ 1.90, 2.15, 2.30, 2.47, 2.68, 2.83, 2.88, 2.91, 3.00, 3.12 5.7%
Price/Earnings Ratio ........................................................16.9
1,000 Mobil Corp. @ 122 3/4 ............................................................ 122,750
Major integrated, international oil company
Earnings P/S .........$ 3.28, 5.07, 4.40, 4.60, 4.65, 3.13, 5.07, 4.28, 5.87, 7.38 9.4%
Dividends P/S ........$ 2.20, 2.35, 2.55, 2.83, 3.13, 3.20, 3.25, 3.40, 3.63, 3.93 6.7%
Price/Earnings Ratio ........................................................17.7
----------
262,575
----------
Paper & Paper Products (2.91%)
900 Kimberly-Clark Corp. @ 106 ....................................................... 95,400
Leading producer of consumer and personal care products
Earnings P/S ..........$ 1.87, 2.36, 2.63, 2.70, 3.18, 2.15, 3.18, 3.33, .12, 4.98 11.5%
Dividends P/S ..........$ .70, .78, 1.26, 1.32, 1.48, 1.59, 1.67, 1.71, 1.76, 1.84 11.3%
Price/Earnings Ratio ........................................................21.9
5,000 Pentair, Inc. @ 31 3/8 ........................................................... 156,875
Manufactures enclosures for electrical,
electronic, woodworking and power tool equipment
Earnings P/S ............$ .65, 1.12, .95, .84, 1.10, 1.08, 1.13, 1.21, 1.48, 1.83 12.2%
Dividends P/S ..................$ .21, .22, .27, .29, .31, .33, .34, .36, .40, .50 10.1%
Price/Earnings Ratio ........................................................17.0
----------
252,275
----------
Retail (7.23%)
4,000 Home Depot, Inc. @ 54 1/2 ........................................................ 218,000
Large retailer of building materials and home improvement products
Earnings P/S ...............$ .17, .23, .32, .45, .61, .82, 1.02, 1.33, 1.55, 1.95 31.1%
Dividends P/S ..................$ .01, .02, .03, .04, .06, .08, .11, .15, .19, .23 41.7%
Price/Earnings Ratio ........................................................28.9
4,300 Pep Boys - Manny, Moe & Jack (The)
@ 32 5/8 ......................................................................... 140,288
Retailer of automotive parts and accessories
Earnings P/S ...............$ .62, .76, .63, .70, .64, .87, 1.01, 1.27, 1.33, 1.57 10.9%
Dividends P/S ..................$ .08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio ........................................................21.5
4,000 Sysco Corp. @ 34 3/4 ............................................................. 139,000
Largest distributor of food service products
Earnings P/S ...............$ .45, .60, .73, .79, .87, .97, 1.14, 1.29, 1.46, 1.61 15.2%
Dividends P/S ..................$ .07, .08, .09, .10, .14, .22, .28, .36, .44, .52 25.0%
Price/Earnings Ratio ........................................................21.7
4,900 Wal-Mart Stores, Inc. @ 26 3/8 ................................................... 129,238
Operates chain of discount department stores
Earnings P/S ................$ .28, .37, .48, .55, .64, .80, .97, 1.11, 1.24, 1.27 18.3%
Dividends P/S ..................$ .03, .04, .06, .07, .09, .11, .13, .17, .20, .21 24.1%
Price/Earnings Ratio ........................................................21.7
----------
626,526
----------
Steel (0.72%)
1,300 Nucor Corp. @ 48 1/8 ............................................................. 62,563
Manufactures steel and steel products ----------
Earnings P/S ...............$ .60, .84, .68, .88, .75, .91, 1.42, 2.60, 3.14, 2.83 18.8%
Dividends P/S ...................$ .09, .10, .11, .12, .13, .14, .16, .18, 28, .32 15.1%
Price/Earnings Ratio ........................................................17.2
Tobacco (1.25%)
800 Philip Morris Cos., Inc. @ 135 1/8 ............................................... 108,100
Global tobacco, brewing and food company ----------
Earnings P/S .....................$ 3.18, 3.83, 4.24, 5.45, 4.06, 5.45, 6.51, 7.68 10.3%
Dividends P/S .........$ .79, 1.01, 1.25, 1.55, 1.91, 2.35, 2.60, 3.03, 3.65, 4.40 21.0%
Price/Earnings Ratio ........................................................18.0
Utilities (3.87%)
2,800 National Fuel Gas Co. @ 43 ....................................................... 120,400
Integrated natural gas system serves the Buffalo, New York area and
contiguous districts reaching into western Pennsylvania and eastern
Ohio
Earnings P/S .........$ 1.65, 1.93, 1.83, 1.71, 1.81, 1.84, 2.20, 2.29, 2.08, 2.94 6.6%
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 ........................................................14.8
2,400 Questar Corp. @ 36 1/4 ........................................................... 87,000
Diversified holding company for Utah, Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S ...........$ .67, .64, 1.27, 1.44, 1.63, 1.85, 2.10, 1.21, 2.05, 2.39 15.2%
Dividends P/S ............$ .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19 3.0%
Price/Earnings Ratio ........................................................15.5
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Dividend Performers Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ------------- ---- -----
<S> <C> <C> <C>
Utilities (continued)
1,700 SBC Communications, Inc. @ 57 1/2 ................................................ $ 97,750
Provides telephone service throughout the United States and internationally
Earnings P/S .........$ 1.74, 1.76, 1.82, 1.84, 1.93, 2.17, 2.39, 2.74, 3.10, 3.45 7.9%
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 ........................................................16.2
800 Union Electric Co. @ 38 3/8 ...................................................... 30,700
Largest electric utility in Missouri
Earnings P/S .........$ 2.91, 2.56, 2.91, 2.74, 3.01, 2.83, 2.77, 3.01, 2.95, 2.86 NMF
Dividends P/S ........$ 1.92, 1.94, 2.02, 2.10, 2.18, 2.26, 2.34, 2.40, 2.46, 2.51 3.0%
Price/Earnings Ratio ........................................................13.0
----------
335,850
----------
TOTAL COMMON STOCKS
(Cost $6,804,378) 7,944,725
----------
</TABLE>
PAR VALUE
(000'S SHORT-TERM INVESTMENTS INTEREST MARKET
OMITTED) (9.31%) RATE VALUE
Joint Repurchase Agreement (9.17%)
795 Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities.
Dated 02-28-97, due 03-03-97
(Secured by U.S. Treasury Notes,
4.75% thru 8.25%, due 11-15-97
thru 11-15-05) - Note A................ 5.39% $ 795,000
----------
Corporate Savings Account (0.14%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%..................... 11,870
----------
TOTAL SHORT-TERM INVESTMENTS (9.31%) 806,870
------- ----------
TOTAL INVESTMENTS (100.97%) $8,751,595
======= ==========
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.
61
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Multi-Sector Growth Fund on February 28, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (3.65%)
Precision Castparts Corp. ....................... 7,200 $ 352,800
Tracor, Inc.* ................................... 25,000 596,875
Wyman-Gordon Co.* ............................... 6,200 110,825
-----------
1,060,500
-----------
Agricultural Operations (3.13%)
Dekalb Genetics Corp. (Class B) ................. 6,700 437,175
Northland Cranberries, Inc. (Class A) ........... 7,700 132,825
Pioneer Hi-Bred International, Inc. ............. 5,000 340,625
-----------
910,625
-----------
Broker Services (2.82%)
Alex Brown, Inc. ................................ 6,250 363,281
Bear Stearns Companies, Inc. .................... 5,250 157,500
Donaldson, Lufkin & Jenrette, Inc. .............. 7,000 301,000
-----------
821,781
-----------
Business Services - Misc (1.72%)
Employee Solutions, Inc.* ....................... 21,000 501,375
-----------
Computers (4.38%)
Adaptec, Inc.* .................................. 14,000 532,875
Boole & Babbage, Inc.* .......................... 7,000 183,750
Gateway 2000, Inc.* ............................. 9,500 558,125
-----------
1,274,750
-----------
Consumer Products Misc. (1.31%)
Samsonite Corp.* ................................ 8,000 380,000
-----------
Cosmetics & Personal Care (1.37%)
Alberto-Culver Co. (Class B) .................... 14,000 399,000
-----------
Electronics (2.70%)
Altera Corp.* ................................... 14,000 635,250
Atmel Corp.* .................................... 4,000 149,500
-----------
784,750
-----------
Finance (3.84%)
Associates First Capital Corp. .................. 3,500 168,875
MacKenzie Financial Corp. (Canada) .............. 16,000 238,000
Newcourt Credit Group, Inc. (Canada) ............ 4,500 168,720
Price (T. Rowe) Associates, Inc. ................ 3,500 154,437
RAC Financial Group, Inc.* ...................... 5,000 163,125
SunAmerica, Inc. ................................ 4,900 224,787
-----------
1,117,944
-----------
Food (1.58%)
Grupo Industrial Maseca SA de CV
American Depositary Receipts
(ADR) (Mexico) ................................. 4,100 73,800
Smithfield Foods, Inc.* ......................... 10,000 387,500
-----------
461,300
-----------
Media (0.49%)
Comcast Corp. (Class A) ......................... 8,000 143,000
-----------
Medical (15.55%)
AmerSource Health Corp.* ........................ 6,000 302,250
Ballard Medical Products ........................ 8,000 157,000
Bio-Technology General Corp.* ................... 19,000 308,750
BioChem Pharma, Inc. (Canada)* .................. 3,000 159,000
Biogen, Inc.* ................................... 13,500 664,875
Elan Corp., PLC (ADR) (Ireland)* ................ 8,000 277,000
Health Management Associates, Inc. ..............
(Class A) * .................................... 17,000 450,500
Liposome Co., Inc. * ............................ 21,000 522,375
Mycogen Corp.* .................................. 18,000 470,250
NovaCare, Inc.* ................................. 13,000 162,500
Sybron International Corp.* ..................... 5,000 148,750
Tenet Healthcare Corp.* ......................... 22,150 600,819
US Surgical Corp. ............................... 7,000 298,375
-----------
4,522,444
-----------
Metal (13.58%)
Bema Gold Corp. (Canada)* ....................... 58,000 485,750
Coeur d'Alene Mines Corp. ....................... 36,500 666,125
Euro-Nevada Mining Corp. (Canada) ............... 20,000 655,496
Franco-Nevada Mining Corp., Ltd. ................
(Canada)* ...................................... 5,500 259,126
Getchell Gold Corp.* ............................ 7,500 386,250
Greenstone Resources Ltd. (Canada)* ............. 3,500 42,438
Hecla Mining Co.* ............................... 35,000 249,375
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Metal (continued)
Kinross Gold Corp. (Canada)* .................... 31,000 $ 224,750
Santa Fe Pacific Gold Corp. ..................... 27,000 506,250
Stillwater Mining Co.* .......................... 11,500 269,531
TVX Gold, Inc. (Canada)* ........................ 23,000 204,125
-----------
3,949,216
-----------
Mortgage Banking (4.44%)
Apartment Investment & Management Co. ...........
(Class A) ...................................... 14,200 411,800
Beacon Properties Corp. ......................... 5,700 203,063
Cali Realty Corp. ............................... 3,000 96,000
Prentiss Properties Trust ....................... 21,500 580,500
-----------
1,291,363
-----------
Oil & Gas (20.69%)
Abacan Resource Corp. (Canada)* ................ 34,000 312,375
Canadian Natural Resources Ltd. (Canada)* ....... 12,000 286,194
Energy Ventures, Inc.* .......................... 9,000 459,000
ENSCO International, Inc.* ...................... 12,000 520,500
Falcon Drilling Co., Inc.* ...................... 14,000 474,250
Flores & Rucks, Inc.* ........................... 6,000 270,000
Forcenergy, Inc.* ............................... 10,000 260,000
Global Marine, Inc.* ............................ 22,500 419,063
Harken Energy Corp.* ............................ 87,000 424,125
Newfield Exploration Co.* ....................... 5,400 107,325
Noble Drilling Corp.* ........................... 24,000 426,000
Nuevo Energy Co.* ............................... 10,500 435,750
Petroleum Geo-Services ASA (ADR)
(Norway)* ...................................... 13,000 546,000
Smith International, Inc.* ...................... 11,000 446,875
Tosco Corp. ..................................... 22,500 627,187
-----------
6,014,644
-----------
Pollution Control (6.14%)
Philip Environmental, Inc. (Canada)* ............ 33,000 540,375
Republic Industries, Inc.* ...................... 10,000 355,000
Superior Services, Inc.* ........................ 19,000 413,250
USA Waste Services, Inc.* ....................... 13,300 478,800
-----------
1,787,425
-----------
Real Estate Investment Trusts (4.93%)
Arden Realty Group, Inc. ........................ 10,500 290,063
Patriot American Hospitality, Inc. .............. 4,000 181,000
Reckson Associates Realty Corp. ................. 6,000 274,500
Spieker Properties, Inc. ........................ 6,000 218,250
Starwood Lodging Trust .......................... 12,000 469,500
-----------
1,433,313
-----------
Schools/Education (0.96%)
Firearms Training Systems, Inc.* ................ 19,000 277,875
-----------
Steel (0.74%)
Titanium Metals Corp.* .......................... 7,900 216,263
-----------
Telecommunications (0.25%)
ADC Telecommunications, Inc.* ................... 2,700 72,900
-----------
TOTAL COMMON STOCKS
(Cost $25,541,935) (94.27%) 27,420,468
-------- -----------
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.18%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
Dated 02-28-97, Due 03-03-97
(Secured by U.S. Treasury Notes,
4.75% thru 8.25%, due 11-15-97
thru 11-15-05) - Note A .................. 5.39% $ 1,797 1,797,000
-----------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%.............................. 4,818
-----------
TOTAL SHORT-TERM INVESTMENTS (6.20%) 1,801,818
-------- -----------
TOTAL INVESTMENTS (100.47%) $29,222,286
======== ===========
* 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.
63
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- Multi-Sector Growth 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 at February 28, 1997 assigned to country
categories.
MARKET VALUE AS A
PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Canada........................................ 12.30%
Ireland....................................... 0.95
Mexico........................................ 0.25
Norway........................................ 1.87
United States................................. 78.90
Shor-term Investments......................... 6.20
------
TOTAL INVESTMENTS 100.47%
======
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Small Capitalization Equity Fund
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Equity Fund on February 28, 1997. It's divided into two
main categories: common stocks and short-term investments. Common stocks are
further broken down by industry groups. Short-term investments, which represent
the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCK
Advertising (1.95%)
Catalina Marketing Corp.* ....................... 100 $ 5,025
Lamar Advertising Co. (Class A)* ................ 100 1,850
Outdoor Systems, Inc.* .......................... 150 4,500
Universal Outdoor Holdings, Inc.* ............... 300 8,100
-----------
19,475
-----------
Agricultural Operations (0.86%)
Northland Cranberries, Inc. (Class A) ........... 500 8,625
-----------
Automobile/Trucks (0.54%)
Special Devices, Inc. * ......................... 300 5,400
-----------
Beverages (0.82%)
Mondavi (Robert) Corp. (Class A)* ............... 200 8,200
-----------
Broker Services (4.31%)
Alex Brown, Inc. ................................ 200 11,625
E* TRADE Group, Inc.* ........................... 700 16,800
Hambrecht & Quist Group* ........................ 300 6,450
Interra Financial, Inc. ......................... 200 8,175
-----------
43,050
-----------
Building (0.58%)
Watsco, Inc. .................................... 200 5,800
-----------
Business Services - Misc (1.24%)
Adminstaff Inc.* ................................ 100 2,387
Computer Management Sciences, Inc. * ........... 200 3,300
Snyder Communications, Inc.* .................... 100 2,700
Superior Consultant Holdings Corp.* ............. 200 4,050
-----------
12,437
-----------
Computers (14.12%)
Aspect Development, Inc.* ....................... 300 7,425
Aspen Technologies, Inc.* ....................... 100 6,162
Baan Co., N.V. (Netherlands) * .................. 300 13,313
BISYS Group, Inc. (The) * ....................... 100 3,125
CBT Group PLC (American Depositary
Receipt) (ADR) (Ireland)* ...................... 200 10,900
DST Systems, Inc.* .............................. 300 9,862
Excite, Inc.* ................................... 600 9,525
HNC Software, Inc.* ............................. 400 10,000
Intelligroup, Inc.* ............................. 100 1,275
IONA Technologies PLC ADR (Ireland) * ........... 100 2,013
JDA Software Group, Inc.* ....................... 200 5,150
National Instruments Corp.* ..................... 100 3,825
National TechTeam, Inc.* ........................ 400 9,200
Network Appliance, Inc.* ........................ 200 8,000
Pegasystems, Inc.* .............................. 300 7,725
Procom Technology, Inc.* ........................ 500 7,688
Project Software & Development, Inc.* ........... 200 7,100
Puma Technology, Inc.* .......................... 200 2,550
Transaction Systems Architects, Inc. (Class A)* . 100 2,600
Versant Object Technology Corp* ................. 100 1,075
Wind River Systems* ............................. 200 7,500
Xionics Document Technologies, Inc.* ........... 300 5,100
-----------
141,113
-----------
Consumer Products Misc. (0.48%)
Samsonite Corp.* ................................ 100 4,750
-----------
Electronics (4.78%)
Advanced Technology Materials, Inc.* ........... 600 11,400
DuPont Photomasks, Inc.* ........................ 200 9,400
Integrated Process Equipment * .................. 300 7,575
Novellus Systems, Inc.* ......................... 100 8,175
Semtech Corp.* .................................. 200 3,975
Unitrode Corp.* ................................. 200 7,300
-----------
47,825
-----------
Finance (6.17%)
Aames Financial Corp. ........................... 150 4,519
Capital One Financial Corp. ..................... 200 7,950
Checkfree Corp.* ................................ 600 9,300
Cityscape Financial Corp.* ...................... 100 2,737
Concord EFS, Inc.* .............................. 300 7,106
Delta Financial Corp.* .......................... 400 8,400
Medallion Financial Corp. ....................... 700 11,900
RAC Financial Group, Inc.* ...................... 300 9,788
-----------
61,700
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Small Capitalization Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Household (1.13%)
Culp, Inc. ...................................... 300 $ 5,400
Furniture Brands International, Inc.* ........... 400 5,900
-----------
11,300
-----------
Insurance (3.50%)
Capital Re Corp. ................................ 100 4,325
CMAC Investment Corp. ........................... 200 7,000
HCC Insurance Holdings, Inc. .................... 400 9,850
Western National Corp. .......................... 600 13,800
-----------
34,975
-----------
Leasing Companies (1.59%)
Leasing Solutions, Inc.* ........................ 400 8,900
Rollins Truck Leasing Corp. ..................... 500 7,000
-----------
15,900
-----------
Leisure (2.70%)
Cinar Films, Inc. (Class B) (Canada) * .......... 400 10,000
Family Golf Centers, Inc.* ...................... 200 5,500
Premier Parks, Inc.* ............................ 200 6,050
Silicon Gaming, Inc.* ........................... 300 5,456
-----------
27,006
-----------
Machinery (1.41%)
Air-Cure Technologies, Inc.* .................... 1,000 6,375
Gardner Denver Machinery, Inc.* ................. 300 7,725
-----------
14,100
-----------
Media (2.50%)
Cox Radio, Inc. (Class A) * ..................... 100 1,912
Jacor Communications, Inc.* ..................... 200 5,888
Lin Television Corp.* ........................... 200 8,300
Mecklermedia Corp.* ............................. 200 5,550
Univision Communications, Inc. (Class A) * ...... 100 3,300
-----------
24,950
-----------
Medical (9.65%)
Affymetrix, Inc.* ............................... 300 8,400
Alkermes, Inc.* ................................. 300 7,462
Dura Pharmaceuticals, Inc.* ..................... 300 10,087
ESC Medical Systems, Ltd. (Israel)* ............. 350 11,988
Liposome Co., Inc. * ............................ 200 4,975
Myriad Genetics, Inc.* .......................... 200 7,250
National Surgery Centers, Inc.* ................. 300 9,075
NCS HealthCare, Inc. (Class A)* ................. 300 7,575
Omnicare, Inc. .................................. 300 7,950
Parexel International Corp.* .................... 200 5,600
Safeskin Corp.* ................................. 400 7,400
Sonus Pharmaceuticals, Inc.* .................... 300 8,663
-----------
96,425
-----------
Metal (0.47%)
Maverick Tube Corp.* ............................ 300 4,688
-----------
Oil & Gas (5.78%)
Chesapeake Energy Corp.* ........................ 200 4,150
Energy Ventures, Inc.* .......................... 100 5,100
Forcenergy, Inc.* ............................... 300 7,800
National-Oilwell, Inc.* ......................... 300 9,225
Nuevo Energy Co. * .............................. 200 8,300
Offshore Logistics, Inc.* ....................... 300 5,475
Precision Drilling Corp. (Canada)* .............. 100 4,000
Pride Petroleum Services, Inc.* ................. 300 5,025
Stone Energy Corp.* ............................. 200 4,400
Swift Energy Co.* ............................... 200 4,300
-----------
57,775
-----------
Paper & Paper Products (0.82%)
American Pad & Paper Co.* ....................... 400 8,200
-----------
Pollution Control (2.68%)
Newpark Resources, Inc.* ........................ 300 13,650
Philip Environmental, Inc. (Canada)* ........... 800 13,100
-----------
26,750
-----------
Printing - Commercial (0.80%)
Mail-Well, Inc.* ................................ 400 7,950
-----------
Protection - Safety Equip&Svc (0.55%)
Ultrak, Inc.* ................................... 300 5,513
-----------
Real Estate Operations (4.65%)
Beacon Properties Corp. ......................... 300 10,687
Cali Realty Corp. ............................... 300 9,600
Central Parking Corp. ........................... 300 8,137
Kilroy Realty Corp.* ............................ 100 2,625
Redwood Trust, Inc. ............................. 200 9,550
Starwood Lodging Trust .......................... 150 5,869
-----------
46,468
-----------
Retail (9.03%)
Arbor Drugs, Inc. ............................... 400 7,700
Central Garden & Pet Co.* ....................... 400 8,650
Circuit City Stores, Inc.* ...................... 100 2,012
CompUSA, Inc.* .................................. 600 12,000
Gucci Group, NV (Netherlands) ................... 100 6,463
Hibbett Sporting Goods, Inc.* ................... 400 6,400
Hot Topic, Inc.* ................................ 300 5,400
Insight Enterprises, Inc.* ...................... 300 9,375
MSC Industrial Direct Co., Inc. (Class A)* ...... 200 6,600
Quality Food Centers, Inc. ...................... 250 9,156
Stage Stores, Inc.* ............................. 300 6,375
Starbucks Corp.* ................................ 300 10,088
-----------
90,219
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust --
Small Capitalization Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Schools/Education (2.56%)
Apollo Group, Inc. (Class A)* ................... 350 $ 9,450
Learning Tree International, Inc.* .............. 300 9,300
Sylvan Learning Systems, Inc.* .................. 200 6,825
-----------
25,575
-----------
Service (0.51%)
Four Media Corp.* ............................... 500 5,063
-----------
Shoes & Related Apparel (2.28%)
Converse, Inc.* ................................. 500 12,187
Wolverine World Wide, Inc. ...................... 300 10,650
-----------
22,837
-----------
Steel (0.63%)
Lone Star Technologies, Inc.* ................... 400 6,300
-----------
Telecommunications (4.71%)
Comverse Technology, Inc.* ...................... 300 13,087
P-COM, Inc.* .................................... 300 9,638
REMEC, Inc.* .................................... 500 13,625
Tel-Save Holdings, Inc.* ........................ 600 10,725
-----------
47,075
-----------
Textile (1.69%)
Cutter & Buck, Inc.* ............................ 700 11,900
Nautica Enterprises, Inc.* ...................... 200 5,000
-----------
16,900
-----------
TOTAL COMMON STOCKS
(Cost $918,292) .............. (95.49%) 954,344
-------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.90%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
Dated 02-28-97, due 03-03-97
(secured by U.S. Treasury
Note, 4.750% thru 8.250%
due 11-15-97 thru 11-15-05) -
Note A .................................... 5.39% $ 39 $ 39,000
-----------
Corporate Savings Account (0.14%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% ............................. 1,421
-----------
TOTAL SHORT-TERM INVESTMENTS (4.04%) 40,421
-------- -----------
TOTAL INVESTMENTS (99.53%) $ 994,765
======== ===========
* 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
Schedule of Investments
February 28, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Equity Fund on February 28, 1997. It's divided into four main
categories: common stocks, rights, warrants and short-term investments. Common
stocks, rights and warrants are further broken down by country. Short-term
investments, which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Argentina (2.44%)
Perez Companc S.A. (American
Depositary Receipts) (ADR)
(Diversified Operations) ....................... 6,700 $ 102,554
-----------
Australia (3.70%)
Newcrest Mining Ltd. (Metal) .................... 20,000 76,122
News Corp. Ltd. (The) (Media) ................... 3,100 16,519
WMC Ltd. (Metal) ................................ 10,000 63,081
-----------
155,722
-----------
Brazil (4.85%)
Telecomunicacoes Brasileiras S/A
(ADR) (Telecommunications) ..................... 2,100 203,700
-----------
France (5.53%)
Banque Nationale de Paris
(Banks - Foreign) .............................. 280 12,709
Carrefour SA (Retail) ........................... 150 92,476
LVMH Moet Hennessy Louis Vuitton
(Beverages) .................................... 325 76,071
Lyonnaise des Eaux SA
(Diversified Operations) ....................... 500 51,097
-----------
232,353
-----------
Germany (5.69%)
Mannesmann AG (Diversified Operations) .......... 130 51,388
Schering AG (Medical) ........................... 1,000 90,801
Volkswagen AG (Automobile/Trucks) ............... 200 97,029
-----------
239,218
-----------
Hong Kong (12.03%)
Cheung Kong (Holdings) Ltd.
(Real Estate Operations) ....................... 6,000 57,337
CITIC Pacific Ltd. (Diversified Operations) ..... 12,000 61,211
First Sign International Holdings Ltd.
(Textile) ...................................... 200,000 52,301
Hong Kong & Shanghai Hotels Ltd.
(Leisure) ...................................... 30,000 52,882
HSBC Holdings Ltd. (Banks - Foreign) ............ 3,400 82,984
Hutchison Whampoa Ltd.
(Diversified Operations) ....................... 10,000 76,191
Jardine Matheson Holdings Ltd.
(Diversified Operations) ....................... 2,400 14,520
Joyce Boutique Holdings Ltd. (Retail) ........... 250,000 59,403
Wharf (Holdings) Ltd.
(Real Estate Operations) ....................... 11,000 48,866
-----------
505,695
-----------
Japan (12.24%)
Matsushita Communication Industrial
Co., Ltd. (Telecommunications) ................ 3,000 78,997
Matsushita-Kotobuki Electronics
Industries, Ltd. (Electronics) ................ 2,000 57,316
Mitsubishi Heavy Industries, Ltd.
(Machinery) .................................... 10,000 72,185
Rohm Co., Ltd. (Electronics) .................... 400 28,741
Sharp Corp. (Electronics) ....................... 5,000 62,715
Shin-Etsu Chemical Co., Ltd. (Chemicals) ........ 5,000 96,773
Sony Corp. (Electronics) ........................ 700 50,646
TDK Corp. (Electronics) ......................... 1,000 67,118
-----------
514,491
-----------
Malaysia (2.47%)
Resorts World Berhad (Leisure) .................. 6,000 28,031
Sime Darby Berhad (Diversified Operations) ...... 20,000 75,715
-----------
103,746
-----------
Mexico (5.46%)
Empresas La Moderna S.A. de C.V
(ADR) (Tobacco) ................................ 1,800 37,800
Grupo Industrial Maseca SA de CV (Food) ......... 4,400 79,200
Panamerican Beverages, Inc. (Beverages) ......... 2,000 112,750
-----------
229,750
-----------
Netherlands (1.47%)
Koninklijke PTT Nederland (Utilities) ........... 425 15,227
PolyGram NV (Household) ......................... 1,015 46,528
-----------
61,755
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust -- International Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
New Zealand (1.79%)
Carter Holt Harvey Ltd. (Building) .............. 15,300 $ 34,659
Telecom Corp. of New Zealand
(Telecommunications) ........................... 9,000 40,464
-----------
75,123
-----------
Norway (1.43%)
Orkla ASA (Diversified Operations) .............. 750 60,203
-----------
Singapore (5.37%)
Fraser & Neave Ltd. (Beverages) ................ 2,400 21,550
Keppel Corp., Ltd. (Diversified Operations) ..... 10,000 72,255
Oversea-Chinese Banking Corp., Ltd.
(Banks - Foreign) .............................. 5,000 66,293
Wing Tai Holdings Ltd.
(Real Estate Operations) ....................... 20,000 65,661
-----------
225,759
-----------
Sweden (1.63%)
Investor AB (Diversified Operations) ............ 1,550 68,610
-----------
Switzerland (2.01%)
ABB AG (Engineering/R&D Services) ............... 80 17,909
Nestle SA (Food) ................................ 15 16,342
Novartis AG (Medical)* .......................... 44 50,325
-----------
84,576
-----------
Thailand (1.04%)
Shinawatra Computer and Communication
PLC (Telecommunications) ....................... 2,000 17,146
Siam Cement PLC (Building) ...................... 1,000 26,723
-----------
43,869
-----------
United Kingdom (8.75%)
Dixons Group PLC (Retail) ....................... 6,300 54,870
Marks & Spencer PLC (Retail) .................... 10,000 80,984
Pearson PLC (Media) ............................. 7,000 87,714
Regal Hotel Group PLC (Leisure) ................ 50,000 51,328
Wetherspoon (J.D.) PLC (Retail) ................ 5,000 93,083
-----------
367,979
-----------
TOTAL COMMON STOCKS
(Cost $3,031,762) (77.90%) 3,275,104
-------- -----------
RIGHTS
Switzerland (0.07%)
Ciba Specialty Chemicals AG (Chemicals)* ........ 44 2,785
-----------
TOTAL RIGHTS
(Cost $0) (0.07%) 2,785
-------- -----------
WARRANTS
Sweden (0.03%)
Scania AB (Automobile/Trucks)* .................. 1,500 1,280
-----------
TOTAL WARRANTS
(Cost $1,553) (0.03%) 1,280
-------- -----------
TOTAL COMMON STOCKS, RIGHTS
AND WARRANTS
(Cost $3,033,315) (78.00%) 3,279,168
-------- -----------
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (20.86%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
Dated 02-28-97, Due 03-03-97
(secured by U.S. Treasury Bond,
7.875% Due 02-15-21, and by
U.S. Treasury Notes 4.75%
Due 08-31-98, and 6.00%
Due 09-30-98) - Note A .................... 5.39% $ 877 877,000
-----------
TOTAL SHORT-TERM INVESTMENTS (20.86%) 877,000
-------- -----------
TOTAL INVESTMENTS (98.86%) $ 4,156,168
======== ===========
* 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.
69
<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 February 28, 1997 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS
- --------------------- -------------------------
Automobile/Trucks ........................................... 2.34%
Banks - Foreign ............................................. 3.85
Beverages ................................................... 5.00
Building .................................................... 1.46
Chemicals ................................................... 2.37
Diversified Operations ...................................... 15.07
Electronics ................................................. 6.34
Engineering/R & D Services .................................. 0.43
Food ........................................................ 2.27
Household ................................................... 1.11
Leisure ..................................................... 3.15
Machinery ................................................... 1.72
Media ....................................................... 2.48
Medical ..................................................... 3.36
Metal ....................................................... 3.31
Real Estate Operations ...................................... 4.09
Retail ...................................................... 9.06
Telecommunications .......................................... 8.09
Textile ..................................................... 1.24
Tobacco ..................................................... 0.90
Utilities ................................................... 0.36
Short-Term Investments ...................................... 20.86
-----
TOTAL INVESTMENTS 98.86%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
70
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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. 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 level of
current income, consistent with prudent investment risk, through investment
primarily in a diversified portfolio of freely marketable investment grade debt
securities of U.S. and foreign issuers. The investment objective of the Global
Bond Fund is a competitive total investment return, consisting of current income
and capital appreciation. The investment objective of the 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 joint repurchase agreement transactions. 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
71
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
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 carryforwards are used by the Funds, no capital gain
distribution will be made. Expired capital loss carryforwards are reclassified
to capital paid-in, in the year of expiration. Additionally, net capital losses
for the Active Bond Fund of $890, the Fundamental Value Fund 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.
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.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from these estimates.
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.
DISCOUNT ON SECURITIES The Funds accrete discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The 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. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the
72
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
U.S. dollar and to the effects of changes in each country's legal and economic
environment.
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 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 Fund's Statement of Assets and Liabilities. The
Funds may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
Open foreign currency forward sell contracts at February 28, 1997 for
Global Bond Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH DEPRECIATION
- --------- ------------------- ----- ------------
SWISS FRANC 70,000 MAR 97 ($180)
====
Open foreign currency forward buy contracts at February 28, 1997 for
Global Bond Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH DEPRECIATION
- --------- ------------------- ----- ------------
JAPANESE YEN 12,354,152 MAR 97 $3,049
======
There were no open forward currency exchange contracts at February 28,
1997 for all other Funds.
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 the 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 Fund 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 February 28, 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 and corresponding liability. The amount of
73
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
the liability will be subsequently marked-to-market to reflect the current
market value of the written option.
The Funds may use option contracts to manage its exposure to the stock
market and currency interest rates. Writing puts and buying calls will tend to
increase the Funds' exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the Funds' 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 their counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in a Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended February
28, 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 further 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 Equity Fund's average daily net assets, and 1.00% of
International Equity Fund's average daily net assets. The Adviser reserves the
right to terminate this limitation in the future. Accordingly, for the period
ended February 28, 1997, the reduction in the Fund's expenses with any
additional amounts not borne by the Funds by virtue of the expense limit
amounted to $56,696 for Active Bond Fund, $64,235 for Global Bond Fund, $59,798
for Fundamental Value Fund, $59,114 for Dividend Performers Fund, $96,582 for
Multi-Sector Growth Fund, $79,052 for Small Capitalization Equity Fund and
$76,369 for the International Equity Fund.
74
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Institutional Series Trust
Sovereign Asset Management Corporation ("SAMCorp"), serves as subadviser
to Dividend Performers Fund pursuant to a subadvisory agreement with that Fund
and the Adviser. The Adviser pays SAMCorp, an affiliate of the adviser, a
quarterly management fee, equivalent on an annual basis, to the sum of (a) 20%
of the advisory fee payable on the Fund's average daily net assets up to $100
million and (b) 55% of the advisory fee payable on the Fund's assets exceeding
$100 million.
John Hancock Advisers International, Limited serves as subadviser to
International Equity Fund pursuant to a subadvisory agreement with that Fund and
the Adviser. Formed in 1987, it is a wholly owned subsidiary of the Adviser. The
Adviser pays John Hancock Advisers International, Limited a quarterly management
fee, equivalent on an annual basis, to the sum of (a) 70% of the advisory fee
payable on the Fund's average daily net assets up to $500 million and (b) 90% of
the advisory fee payable on the Fund's average daily net assets exceeding $500
million.
The Funds are not responsible for payment of these subadvisory fees.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended February
28, 1997, all sales of shares of beneficial interest were sold at net asset
value. The Funds pay all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states, and all other expenses in connection with the sale and
offering for sale of the shares of the Fund 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 year was
at an annual rate of 0.01875% 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 Adviser and other subsidiaries of John
Hancock Mutual Life Insurance Company owned 94,118; 1,791,739; 8,743 shares of
beneficial interest of the Global Bond Fund, Multi-Sector Growth Fund, and Small
Capitalization Equity Fund, respectively, as of February 28, 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 Funds' books as an
other asset. The deferred compensation liability and the related other asset are
always equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
investment has no impact on the operations of the Funds. The compensation of
unaffiliated Trustees is borne by the Funds.
75
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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 February 28, 1997 were as follows:
PURCHASES SALES
--------- -----
Active Bond Fund
U.S. Government Securities ............... $ 1,793,062 $ 1,192,040
Other Investments ........................ 1,396,044 775,222
Global Bond Fund
U.S. Government Securities ............... 584,891 159,830
Other Investments ........................ 1,300,617 931,812
Fundamental Value Fund ..................... 5,173,163 5,969,013
Dividend Performers Fund
U.S. Government Securities ............... 203,125 215,375
Other Investments ........................ 5,504,726 1,445,409
Multi-Sector Growth Fund ................... 65,542,644 48,533,988
Small Capitalization Fund .................. 1,451,002 476,409
International Equity Fund .................. 2,511,984 2,001,499
At February 28, 1997, the cost (excluding the corporate savings account)
and gross unrealized appreciation and depreciation in value of investments owned
by the Funds, as computed on a federal income tax basis, were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
COST APPRECIATION DEPRECIATION (DEPRECIATION)
---- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Active Bond Fund ... $ 2,174,885 $ 18,586 $ 15,503 $ 3,083
Global Bond Fund ... 1,010,536 9,461 (19,854) (10,393)
Fundamental Value
Fund ............. 5,761,238 711,214 (471,716) 239,498
Dividend Performers
Fund ............. 7,599,378 1,208,633 (68,286) 1,140,347
Multi-Sector Growth
Fund ............. 27,387,840 2,676,558 (798,025) 1,878,533
Small Capitalization
Equity Fund ...... 957,280 94,806 (58,742) 36,064
International Equity
Fund ............. 3,911,011 401,821 (156,664) 245,157
</TABLE>
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended February 28, 1997, reclassifications have been made in
each Fund's capital accounts which represent the cumulative amount necessary to
report these balances on a tax basis, excluding certain temporary differences,
as of February 28, 1997. Additional adjustments may be needed in subsequent
reporting periods. These reclassifications have no impact on the net asset value
of the Funds. The calculation of net investment income per share in the
financial highlights excludes these adjustments.
CAPITAL UNDISTRIBUTED ACCUMULATED NET
PAID-IN NET INVESTMENT INCOME REALIZED GAIN (LOSS)
------- --------------------- --------------------
Active Bond Fund ........ ($ 3) $ 3 $ --
Global Bond Fund ........ (22,512) (3,319) 25,831
Fundamental Value
Fund .................. -- -- --
Dividend Performers
Fund .................. -- -- --
Multi-Sector Growth
Fund .................. 8,119 (12,397) 4,278
Small Capitalization
Equity Fund ........... 12 (12) --
International Equity
Fund .................. (1,598) (15,363) 16,961
76
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John Hancock Funds - Institutional Series Trust
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
John Hancock Institutional Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of John Hancock Institutional Series Trust
(comprising, respectively, 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 "Funds"), as of
February 28, 1997, and the related statements of operations for the period then
ended, and the statements of changes in net assets, and the financial highlights
for each of the years in the two-year period ended February 28, 1997. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and these financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1997 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the Funds
constituting John Hancock Institutional Series Trust at February 28, 1997, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
April 4, 1997
TAX INFORMATION (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the taxable distribution of the Funds for the fiscal year ended
February 28, 1997.
The Funds' designated distributions to shareholders of long-term capital
gain dividends are as follows: Active Bond $174, Global Bond Fund $222,
Fundamental Value $12,430, Dividend Performers $36,672 and International Equity
$8,970. Shareholders were mailed a 1996 U.S. Treasury Department Form 1099-DIV
in January 1997 representing their proportionate share.
With respect to the Funds' ordinary taxable income for the fiscal year
ended February 28, 1997, the qualifying corporate dividends received deduction
percentages are as follows: Fundamental Value 12.59%, Dividend Performers
39.88%, Multi-Sector Growth 20.83%, and Small Capitalization 30.64%.
77
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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 February 28, 1997.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories ........................................ 12.5%
AFLAC ...................................................... 15.3
American International Group ............................... 17.6
AMP, Inc. .................................................. 4.0
Archer Daniels Midland ..................................... 5.0
Automatic Data Processing, Inc. ............................ 15.0
BankOne .................................................... 11.8
Baxter International, Inc. ................................. 0.4
Bemis, Inc. ................................................ 11.1
ConAgra, Inc. .............................................. 14.7
CPC International .......................................... 7.9
Dover Corp. ................................................ 13.3
E.I. DuPont De Nemours & Co., Inc. ......................... 9.6
Ecolab, Inc. ............................................... 14.3
Electronic Data Systems Corp. .............................. 15.4
Eli Lilly & Co. ............................................ 5.1
Emerson Electric Co. ....................................... 10.2
Exxon ...................................................... 5.3
Federal Signal Corp. ....................................... 15.5
First Tennessee National Corp. ............................. 13.2
Gannett Co., Inc. .......................................... 2.9
General Electric ........................................... 13.0
General Re Corp. ........................................... 7.8
Hewlett-Packard Co. ........................................ 20.0
Home Depot, Inc. ........................................... 20.0
Ikon Office Solutions, Inc. ................................ 7.7
Illinois Tool Works, Inc. .................................. 11.8
Interpublic Group, Inc. .................................... 9.7
Johnson & Johnson .......................................... 15.2
KeyCorp .................................................... 10.5
Kimberly Clark Corp. ....................................... 4.3
Leggett & Platt, Inc. ...................................... 8.3
Masco Corp. ................................................ 5.3
McGraw-Hill Cos., Inc. ..................................... 9.1
Medtronic, Inc. ............................................ 46.2
Merck & Co., Inc. .......................................... 5.0
Mobil Corp. ................................................ 6.0
National Fuel & Gas ........................................ 3.7
NationsBank Corp. .......................................... 13.8
Norwest Corp. .............................................. 11.1
Nucor Corp. ................................................ 25.0
Pall Corp. ................................................. 14.3
Parker Hannifin Corp. ...................................... 11.1
Pentair, Inc. .............................................. 8.0
Pep Boys (The) ............................................. 10.5
PepsiCo, Inc. .............................................. 15.0
Pfizer, Inc. ............................................... 13.3
Phillip Morris Cos., Inc. .................................. 20.0
Pitney Bowes, Inc. ......................................... 15.9
PPG Industries ............................................. 3.1
Questar Corp. .............................................. 3.4
Reliastar Financial Corp. .................................. 12.0
Rockwell International Corp. ............................... 7.4
RPM, Inc. .................................................. 8.3
Sara Lee Corp. ............................................. 10.5
SBC Communications ......................................... 4.2
Sigma Aldrich Corp. ........................................ 13.6
Southern National Corp. .................................... 17.4
Sysco Corp. ................................................ 15.4
Union Electric Co. ......................................... 1.6
W.W. Grainger, Inc. ........................................ 8.7
Wal-Mart Stores, Inc. ...................................... 28.6
Worthington Industries, Inc. ............................... 9.1
-----
The average dividend increase for this group was ........... 11.51%
=====
Historical Data (Unaudited)
The table below shows the record of the Dividend Performers Fund during past
periods.
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PER SHARE
-------------------------------------------------------
YEAR SHARES DIVIDENDS NET ASSET CAPITAL GAINS
ENDED OUTSTANDING FROM INCOME VALUE DISTRIBUTION
----- ----------- ----------- ----- -------------
February 29, 1996 326,898 $0.19 $10.15 $0.074
February 28, 1997 727,948 $0.18 $11.91 $0.190
78
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NOTES
John Hancock Funds - Institutional Series Trust
79
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