SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Institutional Series Trust
Independence Balanced Fund
Independence Value Fund
Independence Diversified Core Equity Fund II
Independence Growth Fund
Independence Medium Capitalization Fund
AUGUST 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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Table of Contents
Page
1) Chairman's Message................................................... 3
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio management
team through the end of the Fund's period discussed in this
report. Of course, the team's views are subject to change as
market and other conditions warrant.
John Hancock Independence Balanced Fund............................ 4
John Hancock Independence Value Fund .............................. 7
John Hancock Independence Diversified Core Equity Fund II.......... 10
John Hancock Independence Growth Fund.............................. 13
John Hancock Independence Medium Capitalization Fund............... 16
3) Financial Statements................................................. 19
4) Notes To Financial Statements........................................ 49
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TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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 AND CHIEF OPERATING OFFICER
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
VICE PRESIDENT AND
CHIEF COMPLIANCE OFFICER
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MA 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
INVESTMENT SUBADVISER
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 STATE STREET
BOSTON, MA 02109
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MA 02109
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2
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==========================CHAIRMAN'S MESSAGE====================================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. Recently, the market has given us a stark example of this
phenomenon. From the new highs set in mid-July, the major indices plunged by 19%
through the end of August. It was the worst such fall since 1990. For the first
time in a number of years, some bonds and bond mutual funds outperformed stocks
and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
For the record-breaking number of investors who have entered the market for
the first time since 1990, it was their worst taste of stock market reality. We
are pleased to report that most individual investors did not panic, and we hope
that means they've taken our words to heart. Over the long term, markets do not
move up or down in a straight line. That's why after watching the market charge
ahead almost uninterrupted for so many years, we have been striking a more
cautionary stance in this space over the last several months.
Analysts are still pondering whether the global turmoil and the prospects for
slower U.S. economic and corporate earnings growth are signs that the long bull
market has finally run its course. While we don't make a practice of opining on
what the market will do next, we continue to believe it would be wise for
investors to set more realistic expectations. Over the long term, the market's
historical results have been more in the 10% per year range, which is still a
solid result, considering it has been produced despite wars, depressions and
other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and higher-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
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BY JANE A. SHIGLEY AND JEFFREY B. SAEF
FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Balanced Fund
Stocks plunge, Treasury bonds rally amid
overseas economic turbulence
"Treasuries benefited from a 'flight to safety'..."
During the past six months, a litany of economic, fiscal and political problems
in Asia, Latin America and Russia caused investors to become increasingly
uncertain about the fate of U.S. corporate earnings. While the U.S. stock market
weakened in response, U.S. Treasuries rallied as domestic and foreign investors
alike sought cover from the world's problems. For the six-month period that
ended August 31, 1998, John Hancock Independence Balanced Fund posted a total
return of -4.80% at net asset value. That compared to the average balanced
fund's -6.54% return, according to Lipper Analytical Services, Inc. During the
same six-month period, a 50/50 blended index combining the Standard & Poor's 500
Stock Index and the Lehman Brothers Government/Corporate Bond Index returned
- -1.33%. For historical performance information, see page six. During the period,
we kept the Fund's asset allocation more or less constant, with 65% of the
Fund's net assets in stocks, and 34% in bonds.
Stocks: Winners and laggards
The optimistic American consumer created strong domestic demand for autos and
specialty retail goods and helped boost our holdings in Ford Motor Co., Dayton
Hudson, Home Depot and Staples, several of which we took profits on during the
period. Communications technology companies, particularly Lucent Technologies,
also performed well as the global demand for networking and business
communications services remained strong. On the other hand, we lost ground in
energy, oil and oil services companies, including Baker Hughes and Halliburton,
as the price of oil plummeted. Technology stocks as a group were disappointing
because investors worried about slowing Asian demand for computer services and
products, and its effect on computer company earnings.
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[Pie Chart at the bottom left hand column with the heading "Portfolio
Diversification". The chart is divided into four sections (from top to left):
Common Stocks 65%, Short-Term Investments 1%, U.S. Government and Agency Bonds
18% and Corporate Bonds 16%. A note below the chart reads "As apercentage of net
assets on August 31, 1998."]
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4
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JOHN HANCOCK INDEPENDENCE BALANCED FUND
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[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 2% with -10% at the bottom and 0% at the top.
The first bar represents the -4.80% total return for John Hancock Independence
Balanced Fund . The second bar represents the -6.54% total return for Average
balanced fund and the third bar represents -1.33% total return for 50% S&P 500
Stock Index/50% L.B.G.C. Bond Index. A note below the chart reads "The Total
return for John Hancock Independence Balanced Fund is at net asset value with
all distributions reinvested. The average balanced fund is tracked by Lipper
Analytical Services, Inc. See the following page for historical performance
information.
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Treasuries rally; corporates, mortgages falter
Interest rates fell dramatically during the past six months, providing a
favorable backdrop for the bond market. As the period wore on, however,
Treasuries steadily gained ground on their corporate and mortgage-backed
counterparts. Treasuries benefited from a "flight to safety" as global investors
sought shelter from worsening economic problems in Asia, Latin America and
Russia. On the other hand, corporate bonds suffered a summer pullback amid fears
of slowing corporate profits. Mortgage securities also faltered because mortgage
prepayments accelerated as investors sought to refinance older, more expensive
mortgages at lower interest rates. While mortgage prepayments are good for
homeowners, they're often bad for mortgage bond holders because they generally
force bond holders to reinvest the proceeds at lower, prevailing rates.
The Fund benefited from our decreased exposure to corporate securities. After
enjoying their performance in the early months of the period, we became
concerned about future corporate earnings in light of economic turmoil in Asia
and its potential slowing effect on the U.S. and the rest of the world. In
response to these concerns, we sold some of our long-maturity corporate holdings
prior to their weak performance in July and August. In their place, we added
more long-term Treasury holdings, which proved to be some of the bond market's
best performers during the period. On the other hand, our increase in the Fund's
relatively small weighting in mortgage securities in the summer curtailed our
performance when prepayments continued to rise.
Outlook
In our view, the problems overseas are not likely to abate over the near term.
As Asia, Latin America and Russia struggle to cure their economic and fiscal
woes, U.S. corporate earnings are likely to continue to slow in response. For
that reason, we think the U.S. stock market could remain volatile over the next
six months as investors and stock prices adjust to slower corporate earnings
growth. Even so, we believe that companies with inexpensive stock prices and
improving fundamentals will continue to reward us over the long term, no matter
what the stock market does over a shorter period. We also believe that the
Federal Reserve Board will cut interest rates several times over the next 12 to
18 months, which should provide a favorable backdrop for the bond market.
"...U.S. corporate earnings are likely to continue to slow..."
5
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JOHN HANCOCK INDEPENDENCE BALANCED FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (7/6/95)
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Cumulative Total Returns 21.45% 58.96%
Average Annual Total Returns(1) 21.45% 16.79%
YIELD
As of August 31, 1998
SEC 30-DAY
YIELD
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John Hancock Independence Balanced Fund 2.59%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) 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 21.34%
and 15.51%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock
Independence Balanced Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in a blend of 50% in the Standard & Poor's 500 Stock Index
and 50% in the Lehman Brothers Government/Corporate Bond Index. The Standard &
Poor's 500 Stock Index is an unmanaged index that includes 500 widely traded
common stocks and is a commonly used measure of stock market performance. The
Lehman Brothers Government/Corporate Bond Index is an unmanaged index that
measures the performance of U.S. corporate bonds and Yankee bonds.
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Line chart with the heading John Hancock Independence Balanced Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of a 50% blend of the Standard & Poor's 500
Stock Index and the Lehman Brothers Government/Corporate Bond Index and is equal
to $393,753 as of August 31, 1998. The second line represents the value of a
hypothetical $250,000 investment made in the Independence Balanced Fund on July
6, 1995 and is equal to $355,667 as of August 31, 1998.
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6
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BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Value Fund
Global financial turmoil causes rout in U.S. stocks
Financial markets hate uncertainty. And this year has been no exception. After
making strong gains early in the year, U.S. stock prices grew increasingly
volatile for much of the spring. Fears mounted as Asia remained mired in
financial problems. At the same time, many U.S. companies began lowering
earnings estimates for the second quarter. The market temporarily shook off
these concerns, climbing to a new record in mid-July. But the collapse of the
Russian ruble in late August triggered panic around the world, as investors
worried about currency devaluations in other emerging markets, debt defaults and
weak overseas business. On the domestic front, growing wage pressures and tough
price competition slowed corporate profit growth. Investors reacted by sending
U.S. stock prices down some 19% between mid-July and the end of August. Few
corners of the market escaped unscathed. For the six months ended August 31,
1998, the Russell 1000 Value Index returned -10.87%, while the average growth
and income fund returned -12.88%, according to Lipper Analytical Services, Inc.
John Hancock Independence Value Fund returned -10.84% at net asset value in the
same period. For historical performance information, please see page nine.
Financials and oils hit hard
Like the Russell 1000 Value Index, the Fund had two of its largest
concentrations in financial and energy stocks. Unfortunately, these sectors
fared poorly in the market debacle. Comerica, a well-managed regional bank with
a large stake in the Detroit area, saw its stock price tumble over 20% on fears
that the General Motors strike would erode loan demand. Travelers Group -- which
is slated to merge with Citicorp -- also took a sharp downturn as trading losses
surfaced at its Salomon Smith Barney subsidiary and rumors circulated that the
merger with Citicorp might not go through. Even First Union, a regional bank
somewhat insulated from trading losses, posted a negative return for the period.
While we held on to these names, we gave up on
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[Table at bottom of left hand column entitled "Top Five Common Stock Holdings".
The first listing is First Union 3.0%, the second is Comerica 2.4%, the third
is Travelers Group 2.2%, the fourth is IBM 2.2% and the fifth Bell is Atlantic
2.2%. A note below the table reads "As a percentage of net assets on August 31,
1998."]
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"Fears mounted as Asia remained mired in financial problems."
7
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JOHN HANCOCK INDEPENDENCE VALUE FUND
"...we view downturns as great buying opportunities."
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[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 5% with -15% at the bottom and 0% at the top.
The first bar represents the -10.84% total return for John Hancock Independence
Value Fund . The second bar represents the -12.88% total return for Average
growth and income fund and the third bar represents the -10.87% total return for
Russell 1000 Value Index. A note below the chart reads "The Total return for
John Hancock Independence Value Fund is at net asset value with all
distributions reinvested. The average growth and income fund is tracked by
Lipper Analytical Services, Inc. See the following page for historical
performance information."
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some of our oil stocks which had been hurt by weak commodity pricing. We sold
both Mobil, a former top holding, and pared our stake in Rowan, a driller which
suffered as oil companies cut back on exploration.
Despite the disappointments, there were some bright spots. We realized good
gains from selling reinsurer General Re following Berkshire Hathaway's
acquisition announcement. We also did well in autos, getting out of GM shortly
before the June 5 strike. The GM strike in turn helped Ford Motor Co.'s stock,
which also benefited from strong consumer demand, good products, and a focus on
shareholder value. In March, we bought Chrysler, whose stock price climbed on
aggressive cost cutting, a good product line up, and the Daimler-Benz buyout.
Other top performers included IBM, up 7.8% as the company successfully
transformed itself into a full-service provider of technology solutions and Home
Depot, up 19% thanks to strength in the home building and renovation markets.
Finally, both Bell Atlantic and new addition SBC Communications (formerly
Southwestern Bell) held their own, due to strong growth in their businesses.
Bargain hunting ahead
We believe there's more uncertainty ahead. The economy might slow down, causing
consumers to cut back on spending. This, along with weaker demand from Asia and
Latin America, could hurt U.S. sales growth and cause corporate profits to grow
at an even slower pace. In addition, the solution to the financial problems in
emerging markets is neither clear -- nor near. Given these uncertainties, we
expect the stock market to be jittery in the short term with the possibility of
sliding further. Fortunately, we view downturns as great buying opportunities.
Already we've added to insurers like Allstate and Travelers Property Casualty
Corp. -- cheap stocks with great prospects. We've also recently increased our
investment in technology names like IBM and Computer Associates International.
Longer term, we believe the market will come back. Inflation is low. Interest
rates are also low with the prospect of going even lower. And consumers are
still reasonably confident. All these factors bode well for both stock prices
and long-term investors.
8
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JOHN HANCOCK INDEPENDENCE VALUE FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (10/2/95)
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Cumulative Total Returns 33.80% 97.48%
Average Annual Total Returns(1) 33.80% 28.13%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.95% of the Fund's
average daily net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 32.91%
and 20.73%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in the John Hancock
Independence Value Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in the Russell 1000 Value Index--an unmanaged capitalization
weighted price-only index, which is comprised of 1,000 of the largest
capitalized U.S.-domiciled companies whose common stock is traded on the New
York Stock Exchange. The securities in this index have a less-than-average
growth orientation.
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Line chart with the heading John Hancock Independence Value Fund, representing
the growth of a hypothetical $250,000 investment over the life of the fund.
Within the chart are two lines.
The first line represents the value of the Russell 1000 Value Index and is equal
to $411,117 as of August 31, 1998. The second line represents the value of the
hypothetical $250,000 investment made in the Independence Value Fund on October
2, 1995 and is equal to $404,746 as of August 31, 1998.
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9
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BY PAUL MCMANUS FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Diversified Core Equity Fund II
Stocks fall as heightened global uncertainty
causes concern about corporate profits
"...disciplined investment strategy and strong emphasis on risk management..."
The stock market lost ground during the past six months, as the end of the
period saw collapsing share prices that more than wiped out gains registered
earlier in the period. In March and April, the popular stock averages climbed
steadily to new highs as fears of deflationary pressures from Asia moderated and
the economy continued to show strong growth with low inflation. However,
investors were subjected to a series of reality checks from May through August,
as companies with Asian exposure began to report lower-than-expected earnings
and the U.S. economy slowed from the unsustainably high growth rate of the first
quarter. As Asia continued to make its presence known through disappointing
earnings and scaled-back earnings growth estimates, other negatives appeared in
the form of a worsening political and financial climate in Russia that investors
feared would add fuel to the deflationary fires ignited by the Asian financial
crisis, and a European recovery that, while still intact, seemed to be losing
steam. These factors precipitated a sharp slide in the Standard & Poor's 500
Stock Index toward the end of the period, punctuated by a plunge of nearly 7% on
August 31. For the six months ended August 31, 1998, the S&P 500 returned
- -8.07%, including reinvested dividends. In the same period, the Fund posted a
total return of -9.36%, besting the -12.88% return posted by the average growth
and income fund, according to Lipper Analytical Services, Inc. For historical
performance information, please see page 12.
Performance review
The Fund was well served by its disciplined investment strategy and strong
emphasis on risk management, especially during the latter part of the period.
Our goal is to maintain a highly diversified portfolio with a risk level
comparable to the S&P 500, a lower price-to-earnings ratio
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[Table at bottom of left hand column entitled "Top Five Common Stock Holdings".
The first listing is General Electric 3.4%, the second is Microsoft 3.2%, the
third is Procter & Gamble 2.6%, the fourth is United Technologies 2.2% and the
fifth is Home Depot 2.2%. A note below the table reads "As a percentage of net
assets on August 31, 1998."]
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10
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JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
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[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 5% with -15% at the bottom and 0% at the top.
The first bar represents the -9.36% total return for John Hancock Independence
Diversified Core Equity Fund II. The second bar represents the -12.88% total
return for Average growth and income fund and the third bar represents -8.07%
total return for S&P 500 Stock Index. A note below the chart reads "The Total
return for John Hancock Independence Diversified Core Equity Fund II is at net
asset value with all distributions reinvested. The average growth and income
fund is tracked by Lipper Analytical Services, Inc. See the following page for
historical performance information.
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than the overall market, and a higher expected growth rate than the market. In
this way, we seek to soften the effects of market corrections while retaining
the ability to participate meaningfully in advances.
Health care was once again one of the better-performing sectors for the Fund,
resisting end-of-period selling pressures comparatively well. In particular,
large pharmaceutical companies were helped by sound business prospects that
included strong product development, relaxed regulations that permitted more
aggressive advertising, and the ability to maintain a firm pricing structure
that yielded healthy profit margins. Examples included Bristol-Myers Squibb and
Pfizer.
In financial services, stock selection was crucial, as many stocks in the
sector, particularly banks, did well in the first half of the year but then more
than gave back all of their gains in August. Given the high valuations of many
banks, the Fund favored financial services holdings with a strong insurance
component. For example, reinsurance provider General Re, which was taken over by
Berkshire Hathaway during the period, held its ground relatively well, and we
took profits. Travelers Group and Hartford Life were other insurance holdings
that helped the Fund's performance. Finally, some large-cap technology issues,
such as Microsoft and IBM, were some of the better performers in the Fund's
portfolio.
Disappointing sectors included metals and mining, paper and forest products,
and energy. Energy service stocks such as Baker Hughes, Schlumberger and
Halliburton were hit particularly hard, as the ongoing slump in oil prices
curtailed exploration activity and reduced demand for drilling and related
services offered by those companies.
A look ahead
The factors that contributed to the market's recent decline will probably
continue to affect stock prices over the next several months. Weakness in the
Russian ruble is expected to add somewhat to the deflationary pressures on the
U.S. economy, as would devaluations in the currencies of Latin American
countries such as Brazil. These pressures make it increasingly unlikely that the
Federal Reserve will raise interest rates any time soon. If the market can stop
its downward momentum and interest rates drift moderately lower, we could have a
positive environment for stocks. On the other hand, rising interest rates,
combined with the market's failure to hold its recent lows, would concern us.
Regardless of what happens, however, our disciplined approach of finding
companies with relatively inexpensive stock prices and improving earnings
prospects will remain unchanged.
"In financial services, stock selection was crucial..."
11
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JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (3/10/95)
---- ---------
Cumulative Total Returns 33.56% 134.48%
Average Annual Total Returns(1) 33.56% 29.37%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.70% of the Fund's
average daily net assets. However, for the period ended August 31, 1998, the
Fund's expense ratio was 0.66% of the Fund's average daily net assets. Without
the limitation of expenses, the average annual total return for the since
inception period would have been 29.35%.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock
Independence Diversified Core Equity Fund II would be worth, assuming all
distributions were reinvested for the period indicated. 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.
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Line chart with the heading John Hancock Independence Diversified Core Equity
Fund II, representing the growth of a hypothetical $250,000 investment over the
life of the fund. Within the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $511,944 as of August 31, 1998. The second line represents the value
of the hypothetical $250,000 investment made in the Independence Diversified
Core Equity Fund II on March 10, 1995 and is equal to $484,429 as of August 31,
1998.
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12
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BY COREEN KRAYSLER FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Growth Fund
Stock market takes investors on wild ride
After a strong start early in 1998, U.S. stock prices moved sideways during much
of the spring. Although the economy remained healthy, market volatility
increased as Asia's financial problems deepened and corporate profits slowed.
Stocks briefly regained some momentum, posting new highs in mid-July before
plunging 19% by the end of August. While no single event precipitated the
decline, financial turmoil in Russia and the possibility of currency
devaluations in China and Latin America hurt the prospects of many U.S.
companies. At the same time, growing wage pressures, stiff price competition,
and tighter profit margins deflated earnings expectations. Even market leaders
- -- including high-flying technology names and large-company stocks with
predictable earnings growth -- suffered. Most major stock indices and growth
funds posted sizable losses for the six months through August 31, 1998. The
Russell 1000 Growth Index, for example, returned -8.22%, while the average
growth fund returned -13.10%, according to Lipper Analytical Services, Inc. By
comparison, John Hancock Independence Growth Fund returned -7.93% at net asset
value. For historical performance information, please see page 15.
Weighing winners and losers
As always, we tried to match the Russell 1000 Growth Index in terms of sector
weightings and risk characteristics. This meant we had only an average stake in
technology stocks, which helped us weather the market's drop better than many of
our peers. In addition, our in-depth research and proprietary computer models
helped us zero in on the best stocks in each sector -- cheap stocks with strong
prospects. Many of our top 10 names turned in outstanding results. Lucent
Technologies, a leading telecommunications provider, returned over 30% for the
period. Home Depot, which continued to benefit from strength in the housing
market, was up over 19%. And Microsoft's stock climbed 13%, thanks to a
significant number of new releases and deeper penetration of the corporate
market. Cardinal Health, a drug distribution
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Top Five Common Stock Holdings".
The first listing is General Electric 4.4%, the second is Microsoft 3.8%, the
third is Lucent Technologies 3.8%, the fourth is Procter & Gamble 3.5% and the
fifth is Intel 3.2%. A note below the table reads "As a percentage of net
assets on August 31, 1998."]
- --------------------------------------------------------------------------------
"...proprietary computer models helped us zero in on the best stocks in each
sector..."
13
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE GROWTH FUND
"...we expect continued near-term volatility in the U.S. stock market."
- -------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 5% with -15% at the bottom and 0% at the top.
The first bar represents the -7.93% total return for John Hancock Independence
Growth Fund . The second bar represents the -13.10% total return for Average
growth fund and the third bar represents -8.22% total return for Russell 1000
Growth Index. A note below the chart reads "The Total return for John Hancock
Independence Growth Fund is at net asset value with all distributions
reinvested. The average growth fund is tracked by Lipper Analytical Services,
Inc. See the following page for historical performance information.
- --------------------------------------------------------------------------------
company that is benefiting as the population ages and demand increases, also
helped the Fund's performance. Even stocks like General Electric that had
positive -- if not stellar -- returns boosted our results.
Unfortunately, these gains were not sufficient to offset some sizable losses.
In the technology sector, we had some major disappointments including software
companies like Autodesk and Computer Associates International. Cendant, a
franchise company that owns Avis, and United Healthcare, an HMO, both fell on
hard times with no near-term prospects of recovery. We sold mostly out of both.
Finally, a few of our top holdings faltered. PepsiCo's stock plummeted on the
prospect of weaker snack food volume. We held on, however, believing that the
company's restructuring efforts will eventually pay off. By contrast, Procter &
Gamble's struggle with weak Asian sales and market share problems caused us to
pare back.
Taking advantage of market opportunities
The market provided us with both buying and selling opportunities throughout the
period. We sold our shares of General Re -- the third largest reinsurance
company in the world -- when Berkshire Hathaway announced in June that it was
going to acquire the company. The stock price shot up, allowing us to lock in
some nice gains. We also realized some profits in Lucent Technologies as well as
certain drug stocks that seemed fairly valued. As stock prices dipped, we added
to existing stakes like Cardinal Health and Home Depot while snapping up some
new names that seemed especially cheap relative to their strong prospects. Among
them were Warner-Lambert, a drug company with a great pipeline of new products;
Tyco International, a conglomerate with strong cash flow and synergies from
recent mergers; and Allstate, a property and casualty insurer with leading
market share and no international exposure.
With many uncertainties remaining in financial markets around the world, we
expect continued near-term volatility in the U.S. stock market. However, longer
term, we remain optimistic about the market's prospects. The U.S. economy is
healthy, interest rates are low, and inflation is in check -- all positives.
Given this outlook, we'll regard any further downturns as excellent long-term
buying opportunities for the Fund and its shareholders.
14
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (10/2/95)
---- ---------
Cumulative Total Returns 40.17% 111.72%
Average Annual Total Returns(1) 40.17% 31.42%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.95% of the Fund's
average daily net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 38.09%
and 22.22%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock
Independence Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in the Russell 1000 Growth Index--an unmanaged
capitalization weighted price-only index, which is comprised of 1,000 of the
largest capitalized U.S.-domiciled companies whose common stock is traded on the
New York Stock Exchange. The securities in this index have a
greater-than-average growth orientation.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Independence Growth Fund, representing
the growth of a hypothetical $250,000 investment over the life of the fund.
Within the chart are two lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Independence Growth Fund on October 2, 1995 and is equal to $441,615 as
of August 31, 1998. The second line represents the value of the Russell 1000
Growth Index and is equal to $426,821 as of August 31, 1998.
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY DAVID CANAVAN FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Independence Medium Capitalization Fund
Difficult market environment for mid-cap stocks
"...our focus on stocks that combine cheapness with improving fundamentals was
rewarded."
Medium-capitalization stocks posted losses during the past six months, with most
of the suffering concentrated in the last six weeks of the period. The mid-cap
market decline owed much to the ever-unfolding saga of worsening Asian
economies, coupled with the more recent collapse of the Soviet ruble and the
ensuing political and economic instability in Russia. Those developments
prompted growing numbers of investors to sell their small- and mid-sized company
holdings and flock to larger-company stocks, and later to U.S. Treasury bonds,
in search of shelter against global turmoil. Despite a robust U.S. economy,
world economic challenges caused some mid-sized companies to post second quarter
earnings disappointments. Although many mid-sized companies don't do business
directly with Asia, Latin America and other troubled regions, they supply larger
companies that do. As a result, the slowdown in global demand for U.S. goods and
services trickled down to mid-cap companies.
Strategy and performance review
John Hancock Independence Medium Capitalization Fund wasn't able to escape the
overall market's decline, but it did post better returns than its peers. For the
six months ended August 31, 1998 the Fund had a total return of -14.44% at net
asset value. For the same six-month period, the average mid-cap fund returned
- -20.90%, according to Lipper Analytical Services, Inc. and the Callan Medium
Capitalization Index returned -16.13%. Please see page 18 for historical
performance information.
The Fund was able to sidestep some of the more seriously damaged stocks
thanks to a number of strategies. First, we had scaled back our earnings growth
expectations last fall. At that point, our research indicated that Asia's
problems would act to slow earnings growth much more
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Top Five Common Stock Holdings".
The first listing is FPL Group 2.3%, the second is Florida Progress Group 2.2%,
the third is Waste Management 1.9%, the fourth is Comerica 1.8% and the fifth is
Hartford Financial Services Group 1.7%. A note below the table reads "As a
percentage of net assets on August 31, 1998."]
- --------------------------------------------------------------------------------
16
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 10% with -30% at the bottom and 0% at the top.
The first bar represents the -14.44% total return for John Hancock Independence
Medium Capitalization Fund . The second bar represents the -20.90% total return
for Average mid-cap fund and the third bar represents -16.13% total return for
Callan Medium Capitalization Index. A note below the chart reads "The Total
return for John Hancock Independence Medium Capitalization Fund is at net asset
value with all distributions reinvested. The average mid-cap fund is tracked by
Lipper Analytical Services, Inc. See the following page for historical
performance information."
- --------------------------------------------------------------------------------
dramatically than many market observers were predicting. That led us to focus on
companies that we felt could continue to post respectable earnings in spite of
Asia's tremendous problems, and to generally avoid companies that ended up
posting significant earnings disappointments as a result. Second, our focus on
stocks that combine cheapness with improving fundamentals was rewarded. Finally,
we remained well-diversified and avoided the pain experienced by those who "bet
the farm" on a handful of stocks or industries.
Among some stocks that finished the period with positive returns were
domestically focused companies that benefited from a continued robust U.S.
economy, low and falling interest rates and strong consumer confidence. The
stock price of home-building retailer Lowe's surged thanks to a home building
and renovation boom ignited by falling interest rates. Other retailers,
including office-supplier Staples and discounter TJX, also posted strong
returns. Electric utility Montana Power also benefited from the fact that its
revenues are generated domestically. A continued consolidation in the financial
services industry further benefited companies such as Equitable.
More internationally sensitive technology and energy stocks, on the other
hand, performed poorly. Slowing demand for computers hurt companies such as
Autodesk and Analog Devices. Extremely low oil prices pained our holdings in
Baker Hughes and Dresser Industries. Even though sectors rotate in and out of
favor, we believe that holding the best in each sector, rather than avoiding a
sector altogether, will lead to the best long-term results.
Outlook
In our view, the ongoing problems plaguing Asia and other emerging markets are
not going to subside over the near term. As a result, we expect U.S. mid-cap
earnings to slow from the double-digit rates of the past several years to the
mid-single digits over the next six months or so. Because we remain reasonably
optimistic about the U.S. economy, we'll continue our search for more
domestically-oriented companies, including electric and telephone utilities,
retailers and financial companies focusing on primarily U.S. customers. No
matter what the investment backdrop, we'll continue to emphasize companies that
offer the most exciting growth prospects at the most attractive prices.
"...we'll continue our search for more domestically-oriented companies..."
17
<PAGE>
================================================================================
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (10/2/95)
---- ---------
Cumulative Total Returns 33.87% 87.27%
Average Annual Total Returns(1) 33.87% 25.68%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) 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 33.48%
and 23.89%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in the John Hancock
Independence Medium Capitalization Fund would be worth, assuming all
distributions were reinvested for the period indicated. For comparison, we've
shown the same $250,000 investment in the Callan Medium Capitalization Index--an
unmanaged index that covers 25% of the Callan Broad Market Index, with companies
that range from approx-imately $1 billion to $5 billion in capitalization.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Independence Medium Capitalization
Fund, representing the growth of a hypothetical $250,000 investment over the
life of the fund. Within the chart are two lines.
The first line represents the value of the Callan Medium Capitalization Index
and is equal to $381,704 as of August 31, 1998. The second line represents the
value of the hypothetical $250,000 investment made in the Independence Medium
Capitalization Fund on October 2, 1995 and is equal to $377,597 as of August 31,
1998.
- --------------------------------------------------------------------------------
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------ ------------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $47,505,431 and $5,814,909, respectively) ...................... $45,415,686 $5,600,287
Corporate bonds (cost - $11,103,459 and none, respectively) .......................... 11,157,427 --
U.S. government and agencies securities (cost - $12,175,903 and none, respectively) .. 12,564,860 --
Joint repurchase agreement (cost - $582,000 and $120,000, respectively) .............. 582,000 120,000
Corporate savings account ............................................................ 874 813
------------ ------------
69,720,847 5,721,100
Receivable for investments sold ....................................................... 3,087,559 416,861
Receivable for shares sold ............................................................ -- 53
Dividends receivable .................................................................. 66,740 12,823
Interest receivable ................................................................... 375,220 32
Receivable from John Hancock Advisers, Inc. - Note B .................................. -- 831
Deferred organization expenses - Note A ............................................... 3,458 3,638
Other assets .......................................................................... 1,328 118
------------ ------------
Total Assets ........................................................ 73,255,152 6,155,456
--------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ..................................................... 2,782,959 510,153
Payable to John Hancock Advisers, Inc. and affiliates - Note B ........................ 51,638 --
Accounts payable and accrued expenses ................................................. 33,196 19,006
------------ ------------
Total Liabilities ................................................... 2,867,793 529,159
--------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ....................................................................... 66,926,878 4,534,492
Accumulated net realized gain on investments .......................................... 4,794,754 1,251,038
Net unrealized depreciation of investments ............................................ (1,646,800) (214,620)
Undistributed net investment income ................................................... 312,527 55,387
------------ ------------
Net Assets .......................................................... $70,387,359 $5,626,297
==================================================================================================
Net Asset Value Per Share:
(based on 6,558,199 and 453,107 shares, respectively, of beneficial
interest outstanding - unlimited number of shares authorized with no par value) ....... $10.73 $12.42
====================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of August 31, 1998. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust
Statements of Assets and Liabilities (continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE
INDEPENDENCE MEDIUM
DIVERSIFIED CORE INDEPENDENCE CAPITALIZATION
EQUITY FUND II GROWTH FUND FUND
---------------- ------------ --------------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $424,751,105, $5,132,023 and $8,720,683,
respectively) ................................................. $455,952,115 $5,183,647 $8,716,960
Joint repurchase agreement (cost - $8,091,000, $88,000 and
$195,000, respectively) ....................................... 8,091,000 88,000 195,000
Corporate savings account ....................................... 596 283 987
------------ ---------- ----------
464,043,711 5,271,930 8,912,947
Receivable for investments sold .................................. 5,782,075 -- 26,268
Receivable for shares sold ....................................... 20,896 1,019 --
Dividends receivable ............................................. 734,119 4,531 13,768
Interest receivable .............................................. 2,551 16 35
Receivable from John Hancock Advisers, Inc. - Note B ............. -- 2,392 --
Deferred organization expenses - Note A .......................... 2,878 3,638 3,638
Other assets ..................................................... 23,591 63 391
------------ ---------- ----------
Total Assets ................................... 470,609,821 5,283,589 8,957,047
-----------------------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased ................................... 12,686,531 -- 2,355
Payable to John Hancock Advisers, Inc. and affiliates - Note B ... 277,821 -- 2,032
Accounts payable and accrued expenses ............................ 123,193 19,412 19,495
------------ ---------- ----------
Total Liabilities .............................. 13,087,545 19,412 23,882
-----------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .................................................. 355,513,547 4,948,484 7,816,974
Accumulated net realized gain on investments ..................... 70,052,031 261,194 1,081,793
Net unrealized appreciation (depreciation) of investments ........ 31,201,674 51,626 (3,709)
Undistributed net investment income .............................. 755,024 2,873 38,107
------------ ---------- ----------
Net Assets ..................................... $457,522,276 $5,264,177 $8,933,165
===============================================================================================
Net Asset Value Per Share:
(based on 33,028,790, 384,251 and 785,297 shares, respectively, of
beneficial interest outstanding - unlimited number of shares
authorized with no par value) .................................... $13.85 $13.70 $11.38
=================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust
Statements of Operations
Six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
------------- -----------
<S> <C> <C>
Investment Income:
Interest ..................................................................... $980,944 $2,019
Dividends (net of foreign withholding tax of $2,310 and $214, respectively) .. 342,088 66,334
----------- -----------
1,323,032 68,353
----------- -----------
Expenses:
Investment management fee - Note B .......................................... 275,809 28,613
Custodian fee ............................................................... 23,923 6,436
Registration and filing fees ................................................ 22,469 12,834
Transfer agent fee - Note B ................................................. 19,701 1,788
Financial services fee - Note B ............................................. 6,532 594
Auditing fee ................................................................ 6,004 6,004
Printing .................................................................... 4,913 5,089
Trustees' fees .............................................................. 3,115 365
Organization expense - Note A ............................................... 944 881
Miscellaneous ............................................................... 850 570
Legal fees .................................................................. 520 97
----------- -----------
Total Expenses ............................................. 364,780 63,271
---------------------------------------------------------------------------------------
Less Expense Reductions - Note B ........................... (9,905) (29,212)
---------------------------------------------------------------------------------------
Net Expenses ............................................... 354,875 34,059
---------------------------------------------------------------------------------------
Net Investment Income ...................................... 968,157 34,294
---------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ........................................ 3,923,639 827,138
Change in net unrealized appreciation/depreciation of investments ............ (8,261,831) (1,442,551)
----------- -----------
Net Realized and Unrealized Loss on Investments ............ (4,338,192) (615,413)
---------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations ....... ($3,370,035) ($581,119)
=======================================================================================
</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.
21
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust
Statements of Operations (continued)
Six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
DIVERSIFIED CORE INDEPENDENCE MEDIUM
EQUITY FUND II GROWTH FUND CAPITALIZATION FUND
---------------- ------------ -------------------
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $13,812, $29 and $172,
respectively) ......................................................... $3,973,405 $25,440 $78,087
Interest ................................................................ 130,304 3,197 6,642
------------ ------------ ------------
4,103,709 28,637 84,729
------------ ------------ ------------
Expenses:
Investment management fee - Note B ..................................... 1,428,157 22,210 42,808
Custodian fee .......................................................... 144,994 6,494 9,364
Transfer agent fee - Note B ............................................ 142,816 1,388 2,676
Registration and filing fees ........................................... 57,146 12,200 12,716
Financial services fee - Note B ........................................ 47,407 457 887
Trustees' fees ......................................................... 29,055 206 332
Miscellaneous .......................................................... 11,572 359 630
Auditing fee ........................................................... 6,004 6,004 6,004
Printing ............................................................... 6,114 5,114 4,862
Legal fees ............................................................. 4,736 68 122
Organization expense - Note A .......................................... 957 881 881
------------ ------------ ------------
Total Expenses ........................................ 1,878,958 55,381 81,282
--------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ...................... -- (28,971) (27,691)
--------------------------------------------------------------------------------------------------------
Net Expenses .......................................... 1,878,958 26,410 53,591
--------------------------------------------------------------------------------------------------------
Net Investment Income ................................. 2,224,751 2,227 31,138
--------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ................................... 50,472,212 133,633 782,571
Change in net unrealized appreciation/depreciation of investments ....... (96,046,681) (683,466) (2,357,562)
------------ ------------ ------------
Net Realized and Unrealized Loss on Investments ....... (45,574,469) (549,833) (1,574,991)
--------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations .. ($43,349,718) ($547,606) ($1,543,853)
========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE INDEPENDENCE
BALANCED FUND VALUE FUND
---------------------------------- -----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1998
FEBRUARY 28, 1998 (UNAUDITED) FEBRUARY 28, 1998 (UNAUDITED)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................... $1,595,486 $968,157 $95,376 $34,294
Net realized gain on investments sold ................... 1,714,204 3,923,639 617,872 827,138
Change in net unrealized appreciation/depreciation
of investments ......................................... 5,930,015 (8,261,831) 1,060,357 (1,442,551)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets from Operations .. 9,239,705 (3,370,035) 1,773,605 (581,119)
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income .................... (1,287,391) (1,040,966) (78,693) --
Distributions from net realized gain on investments
sold ................................................... (970,387) -- (218,123) --
------------ ------------ ------------ ------------
Total Distributions to Shareholders .................... (2,257,778) (1,040,966) (296,816) --
------------ ------------ ------------ ------------
From Fund Share Transactions: **
Shares sold ............................................. 81,192,471 10,444,913 8,846,958 1,029,026
Shares issued to shareholders in reinvestment
of distributions ....................................... 2,258,195 1,040,785 296,816 --
------------ ------------ ------------ ------------
83,450,666 11,485,698 9,143,774 1,029,026
Less shares repurchased ................................. (26,408,815) (13,803,799) (4,196,521) (2,568,970)
------------ ------------ ------------ ------------
Net Increase (Decrease) ................................ 57,041,851 (2,318,101) 4,947,253 (1,539,944)
------------ ------------ ------------ ------------
Net Assets:
Beginning of period ..................................... 13,092,683 77,116,461 1,323,318 7,747,360
------------ ------------ ------------ ------------
End of period (including undistributed net investment
income of $385,336, $312,527, $21,093 and $55,387,
respectively) .......................................... $77,116,461 $70,387,359 $7,747,360 $5,626,297
============ ============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income .......... $0.3496 $0.1558 $0.1303 --
------------ ------------ ------------ ------------
Per share distributions from net realized gain on
investments sold ....................................... $0.1479 -- $0.3613 --
------------ ------------ ------------ ------------
** Analysis of Fund Share Transactions:
Shares sold ............................................. 7,672,953 888,216 747,624 69,243
Shares issued to shareholders in reinvestment of
distributions .......................................... 213,374 88,023 23,538 --
------------ ------------ ------------ ------------
7,886,327 976,239 771,162 69,243
Less shares repurchased ................................. (2,450,824) (1,170,152) (336,616) (172,281)
------------ ------------ ------------ ------------
Net Increase (Decrease) ................................ 5,435,503 (193,913) 434,546 (103,038)
============ ============ ============ ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets has changed since the end of the previous period. The difference reflects
net investment income, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in each
Fund. The footnotes illustrate the number of Fund shares sold, reinvested and
repurchased during the period, along with the per share amount of distributions
made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE DIVERSIFIED CORE INDEPENDENCE
EQUITY FUND II GROWTH FUND
------------------------------------- -----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1998
FEBRUARY 28, 1998 (UNAUDITED) FEBRUARY 28, 1998 (UNAUDITED)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................. $4,933,422 $2,224,751 $7,124 $2,227
Net realized gain on investments sold ............. 54,376,230 50,472,212 211,135 133,633
Change in net unrealized appreciation/
depreciation of investments ...................... 73,641,789 (96,046,681) 599,553 (683,466)
------------- ------------- ----------- -----------
Net Increase (Decrease) in Net Assets
from Operations ................................. 132,951,441 (43,349,718) 817,812 (547,606)
------------- ------------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income .............. (4,912,959) (2,257,950) (7,336) --
Distributions from net realized gain on
investments sold ................................. (45,208,159) -- (132,773) --
------------- ------------- ----------- -----------
Total Distributions to Shareholders .............. (50,121,118) (2,257,950) (140,109) --
------------- ------------- ----------- -----------
From Fund Share Transactions: **
Shares sold ....................................... 265,869,777 74,898,487 3,657,210 2,134,583
Shares issued to shareholders in
reinvestment of distributions .................... 50,122,592 2,258,041 140,097 --
------------- ------------- ----------- -----------
315,992,369 77,156,528 3,797,307 2,134,583
Less shares repurchased ........................... (146,757,914) (146,120,001) (752,800) (928,295)
------------- ------------- ----------- -----------
Net Increase (Decrease) .......................... 169,234,455 (68,963,473) 3,044,507 1,206,288
------------- ------------- ----------- -----------
Net Assets:
Beginning of period ............................... 320,028,639 572,093,417 883,285 4,605,495
------------- ------------- ----------- -----------
End of period (including undistributed
net investment income of $788,223,
$755,024, $646 and $2,873, respectively) ......... $572,093,417 $457,522,276 $4,605,495 $5,264,177
============= ============= =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income .... $0.1667 $0.0638 $0.0266 --
------------- ------------- ----------- -----------
Per share distributions from net realized
gain on investments sold ......................... $1.3273 -- $0.4820 --
------------- ------------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ....................................... 18,671,866 4,634,787 274,154 133,271
Shares issued to shareholders in
reinvestment of distributions .................... 3,704,135 137,618 10,945 --
------------- ------------- ----------- -----------
22,376,001 4,772,405 285,099 133,271
Less shares repurchased ........................... (10,157,269) (9,035,991) (55,833) (58,532)
------------- ------------- ----------- -----------
Net Increase (Decrease) .......................... 12,218,732 (4,263,586) 229,266 74,739
============= ============= =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDEPENDENCE MEDIUM
CAPITALIZATION FUND
---------------------------------------
SIX MONTHS ENDED
YEAR ENDED AUGUST 31, 1998
FEBRUARY 28, 1998 (UNAUDITED)
----------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................. $53,439 $31,138
Net realized gain on investments sold ............................................. 730,981 782,571
Change in net unrealized appreciation/depreciation of investments ................. 1,628,168 (2,357,562)
------------ -----------
Net Increase (Decrease) in Net Assets from Operations ............................ 2,412,588 (1,543,853)
------------ -----------
Distributions to Shareholders: *
Dividends from net investment income .............................................. (56,108) --
Distributions from net realized gain on investments sold .......................... (523,103) --
------------ -----------
Total Distributions to Shareholders ............................................... (579,211) --
------------ -----------
From Fund Share Transactions: **
Shares sold ....................................................................... 10,618,575 1,469,200
Shares issued to shareholders in reinvestment of distributions .................... 579,211 --
------------ -----------
11,197,786 1,469,200
Less shares repurchased ........................................................... (8,549,263) (713,958)
------------ -----------
Net Increase ..................................................................... 2,648,523 755,242
------------ -----------
Net Assets:
Beginning of period ............................................................... 5,239,876 9,721,776
------------ -----------
End of period (including undistributed net investment income of $6,969
and $38,107, respectively) ....................................................... $9,721,776 $8,933,165
============ ===========
* Distributions to Shareholders:
Per share dividends from net investment income .................................... $0.0901 --
------------ -----------
Per share distributions from net realized gain on investments sold ................ $0.8402 --
------------ -----------
** Analysis of Fund Share Transactions:
Shares sold ....................................................................... 859,487 105,486
Shares issued to shareholders in reinvestment of distributions .................... 49,044 --
------------ -----------
908,531 105,486
Less shares repurchased ........................................................... (678,916) (51,064)
------------ -----------
Net Increase ..................................................................... 229,615 54,422
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Financial Highlights
The following tables include selected data for a share outstanding throughout
each period, total investment return, key ratios and supplemental data.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JULY 6, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ---------------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
--------------------------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............. $8.50 $9.25 $9.94 $11.42
---------- ---------- ---------- ----------
Net Investment Income (3) ........................ 0.25 0.38 0.38 0.15
Net Realized and Unrealized Gain (Loss)
on Investments .................................. 0.63 0.73 1.60 (0.68)
---------- ---------- ---------- ----------
Total from Investment Operations .............. 0.88 1.11 1.98 (0.53)
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ............ (0.13) (0.34) (0.35) (0.16)
Distributions from Net Realized Gain on
Investments Sold ............................... -- (0.08) (0.15) --
---------- ---------- ---------- ----------
Total Distributions ........................... (0.13) (0.42) (0.50) (0.16)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ................... $9.25 $9.94 $11.42 $10.73
========== ========== ========== ==========
Total Investment Return at Net Asset Value (6) ... 10.42%(2) 12.36% 20.44% (4.80%)(2)
Total Adjusted Investment Return at Net
Asset Value (6,7) ............................... 7.36%(2) 11.62% 20.28% (4.82%)(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......... $5,155 $13,093 $77,116 $70,387
Ratio of Expenses to Average Net Assets .......... 0.90%(1) 0.90% 0.90% 0.90%(1)
Ratio of Adjusted Expenses to Average Net
Assets (4,5) .................................... 5.58%(1) 1.64% 1.06% 0.93%(1)
Ratio of Net Investment Income to Average Net
Assets .......................................... 3.96%(1) 3.96% 3.52% 2.46%(1)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (4,5) ..................... (0.72%)(1) 3.22% 3.36% 2.43%(1)
Portfolio Turnover Rate .......................... 31% 149% 224% 46%
Fee Reduction Per Share (3) ...................... $0.29 $0.07 $0.02 $0.00(8)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
(8) Less than $0.01 per share.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions 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.
26
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ---------------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
------------------------------ ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........... $8.50 $9.47 $10.88 $13.93
---------- ---------- ---------- ----------
Net Investment Income (3) ...................... 0.10 0.23 0.21 0.07
Net Realized and Unrealized Gain (Loss)
on Investments ................................ 0.96 1.77 3.33 (1.58)
---------- ---------- ---------- ----------
Total from Investment Operations ............ 1.06 2.00 3.54 (1.51)
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .......... (0.09) (0.19) (0.13) --
Distributions from Net Realized Gain
on Investments Sold .......................... -- (0.40) (0.36) --
---------- ---------- ---------- ----------
Total Distributions ......................... (0.09) (0.59) (0.49) --
---------- ---------- ---------- ----------
Net Asset Value, End of Period ................. $9.47 $10.88 $13.93 $12.42
========== ========== ========== ==========
Total Investment Return at Net Asset
Value (6) ..................................... 12.52%(2) 21.36% 32.97% (10.84%)(2)
Total Adjusted Investment Return at Net
Asset Value (6,7) ............................. (1.18%)(2) 15.92% 32.02% (11.25%)(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....... $682 $1,323 $7,747 $5,626
Ratio of Expenses to Average Net Assets ........ 0.95%(1) 0.95% 0.95% 0.95%(1)
Ratio of Adjusted Expenses to Average Net
Assets (4,5) .................................. 34.06%(1) 6.39% 1.90% 1.77%(1)
Ratio of Net Investment Income to Average
Net Assets .................................... 2.81%(1) 2.26% 1.60% 0.96%(1)
Ratio of Adjusted Net Investment Income
(Loss) to Average Net Assets (4,5) ............ (30.30%)(1) (3.18%) 0.65% 0.14%(1)
Portfolio Turnover Rate ........................ 12% 66% 119% 43%
Fee Reduction Per Share (3) .................... $1.22 $0.55 $0.12 $0.06
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust
-- Independence Diversified Core Equity Fund II
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 10, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ---------------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
----------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........ $8.50 $10.96 $12.76 $15.34
---------- ---------- ---------- ----------
Net Investment Income (3) ................... 0.20 0.20 0.17 0.06
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions ............................... 2.38 2.23 3.91 (1.49)
---------- ---------- ---------- ----------
Total from Investment Operations ......... 2.58 2.43 4.08 (1.43)
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....... (0.11) (0.19) (0.17) (0.06)
Distributions from Net Realized Gains on
Investments Sold and Foreign
Currency Transactions .................... (0.01) (0.44) (1.33) --
---------- ---------- ---------- ----------
Total Distributions ...................... (0.12) (0.63) (1.50) (0.06)
---------- ---------- ---------- ----------
Net Asset Value, End of Period .............. $10.96 $12.76 $15.34 $13.85
========== ========== ========== ==========
Total Investment Return at Net Asset
Value (6) .................................. 30.48%(2) 22.63% 33.61% (9.36%)(2)
Total Adjusted Investment Return at
Net Asset Value (6,7) ...................... 30.42%(2) N/A N/A N/A
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .... $188,679 $320,029 $572,093 $457,522
Ratio of Expenses to Average Net Assets ..... 0.70%(1) 0.67% 0.65% 0.66%(1)
Ratio of Adjusted Expenses to Average Net
Assets (4,5) ............................... 0.76%(1) N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets ................................. 2.00%(1) 1.65% 1.12% 0.78%(1)
Ratio of Adjusted Net Investment Income
to Average Net Assets (4,5) ................ 1.94%(1) N/A N/A N/A
Portfolio Turnover Rate ..................... 39% 81% 76% 23%
Fee Reduction Per Share (3) ................. $0.01 N/A N/A N/A
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ---------------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
------------------------------ ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................ $8.50 $9.29 $11.01 $14.88
---------- ---------- ---------- ----------
Net Investment Income (3) ........................... 0.03 0.05 0.04 0.01
Net Realized and Unrealized Gain
(Loss) on Investments .............................. 0.81 2.16 4.34 (1.19)
---------- ---------- ---------- ----------
Total from Investment Operations ................. 0.84 2.21 4.38 (1.18)
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ............... (0.03) (0.04) (0.03) --
Distributions from Net Realized Gain
on Investments .................................... (0.02) (0.45) (0.48) --
---------- ---------- ---------- ----------
Total Distributions .............................. (0.05) (0.49) (0.51) --
---------- ---------- ---------- ----------
Net Asset Value, End of Period ...................... $9.29 $11.01 $14.88 $13.70
========== ========== ========== ==========
Total Investment Return at Net Asset Value (6) ...... 9.94%(2) 24.19% 40.52% (7.93%)(2)
Total Adjusted Investment Return at Net
Asset Value (6,7) .................................. (5.63%)(2) 17.40% 37.95% (8.45%)(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............ $549 $883 $4,605 $5,264
Ratio of Expenses to Average Net Assets ............. 0.95%(1) 0.95% 0.95% 0.95%(1)
Ratio of Adjusted Expenses to Average
Net Assets (4,5) ................................... 38.57%(1) 7.74% 3.52% 1.99%(1)
Ratio of Net Investment Income to Average
Net Assets ......................................... 0.91%(1) 0.49% 0.34% 0.08%(1)
Ratio of Adjusted Net Investment Loss to
Average Net Assets (4,5) ........................... (36.71%)(1) (6.30%) (2.23%) (0.96%)(1)
Portfolio Turnover Rate ............................. 21% 142% 91% 24%
Fee Reduction Per Share (3) ......................... $1.36 $0.68 $0.33 $0.08
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD OCTOBER 2, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ---------------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
------------------------------ ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........... $8.50 $9.29 $10.45 $13.30
---------- ---------- ---------- ----------
Net Investment Income (3) ...................... 0.08 0.12 0.09 0.04
Net Realized and Unrealized Gain
(Loss) on Investments ......................... 0.74 1.45 3.69 (1.96)
---------- ---------- ---------- ----------
Total from Investment Operations ............ 0.82 1.57 3.78 (1.92)
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .......... (0.03) (0.12) (0.09) --
Distributions from Net Realized Gain
on Investments Sold .......................... -- (0.29) (0.84) --
---------- ---------- ---------- ----------
Total Distributions ......................... (0.03) (0.41) (0.93) --
---------- ---------- ---------- ----------
Net Asset Value, End of Period ................. $9.29 $10.45 $13.30 $11.38
========== ========== ========== ==========
Total Investment Return at Net Asset
Value (6) ..................................... 9.71%(2) 17.19% 37.30% (14.44%)(2)
Total Adjusted Investment Return at
Net Asset Value (6,7) ......................... 7.00%(2) 15.49% 36.94% (14.70%)(2)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....... $3,923 $5,240 $9,722 $8,933
Ratio of Expenses to Average Net Assets ........ 1.00%(1) 1.00% 1.00% 1.00%(1)
Ratio of Adjusted Expenses to Average
Net Assets (4,5) .............................. 7.55%(1) 2.70% 1.36% 1.52%(1)
Ratio of Net Investment Income to Average
Net Assets .................................... 1.94%(1) 1.26% 0.75% 0.58%(1)
Ratio of Adjusted Net Investment Income
(Loss) to Average Net Assets (4,5) ............ (4.61%)(1) (0.44%) 0.39% 0.06%(1)
Portfolio Turnover Rate ........................ 3% 78% 65% 30%
Fee Reduction Per Share (3) .................... $0.26 $0.17 $0.04 $0.05
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Balanced Fund on August 31, 1998. It's divided into four main
categories: common stocks, corporate bonds, U.S. government and agencies
securities and short-term investments. The investments are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Aerospace (2.39%)
Lockheed Martin Corp. ........................... 6,000 $524,625
Northrop Grumman Corp. .......................... 2,000 126,750
Precision Castparts Corp. ....................... 4,500 169,594
United Technologies Corp. ....................... 11,900 863,494
----------
1,684,463
----------
Automobile/Trucks (1.43%)
Dana Corp. ...................................... 3,600 141,075
Ford Motor Co. .................................. 16,700 734,800
Ryder System, Inc. .............................. 5,500 129,594
----------
1,005,469
----------
Banks - United States (6.20%)
Banc One Corp. .................................. 6,800 258,400
BankAmerica Corp. ............................... 5,400 345,938
Citicorp ........................................ 2,400 259,500
Comerica, Inc. .................................. 15,200 794,200
Fifth Third Bancorp ............................. 3,000 159,563
First Chicago NBD Corp. ......................... 6,600 418,275
First Union Corp. ............................... 9,200 446,200
NationsBank Corp. ............................... 14,500 826,500
Norwest Corp. ................................... 13,500 401,625
State Street Corp. .............................. 4,300 223,869
U.S. Bancorp .................................... 2,600 88,725
Wells Fargo & Co. ............................... 500 140,938
----------
4,363,733
----------
Beverages (1.10%)
PepsiCo, Inc. ................................... 28,000 775,250
----------
Building (0.32%)
Masco Corp. ..................................... 9,700 223,100
----------
Chemicals (0.51%)
Air Products & Chemicals, Inc. .................. 8,600 262,838
Millennium Chemicals, Inc. ...................... 4,600 99,475
----------
362,313
----------
Computers (4.74%)
Autodesk, Inc. .................................. 2,500 58,438
Cadence Design Systems, Inc.* ................... 8,100 171,113
Cisco Systems, Inc.* ............................ 4,300 352,063
Computer Associates International, Inc. ......... 6,600 178,200
Hewlett-Packard Co. ............................. 3,500 169,969
International Business Machines Corp. ........... 3,900 439,238
Microsoft Corp.* ................................ 17,800 1,707,688
Oracle Corp.* ................................... 5,600 111,650
Sun Microsystems, Inc.* ......................... 3,700 146,613
----------
3,334,972
----------
Cosmetics & Personal Care (0.66%)
Avon Products, Inc. ............................. 2,000 125,750
Dial Corp. (The) ................................ 14,200 276,900
Revlon, Inc. (Class A) * ........................ 1,700 61,306
----------
463,956
----------
Diversified Operations (1.75%)
Canadian Pacific, Ltd. (Canada) ................ 5,700 107,944
National Service Industries, Inc. ............... 3,500 130,375
Textron, Inc. ................................... 3,500 219,625
Tyco International Ltd. ......................... 14,000 777,000
----------
1,234,944
----------
Electronics (3.33%)
General Electric Co. ............................ 17,400 1,392,000
Honeywell, Inc. ................................. 4,000 250,000
Intel Corp. ..................................... 8,400 597,975
Parker- Hannifin Corp. .......................... 900 26,100
Thomas & Betts Corp. ............................ 2,300 78,344
----------
2,344,419
----------
Finance (1.14%)
Associates First Capital Corp. (Class A) ........ 4,376 258,731
MBNA Corp. ...................................... 2,900 68,150
Morgan Stanley, Dean Witter,
Discover & Co. ................................. 8,200 476,113
----------
802,994
----------
Food (0.74%)
Flowers Industries, Inc. ........................ 14,300 254,719
Quaker Oats Co. ................................. 5,000 265,625
----------
520,344
----------
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Insurance (4.63%)
Allstate Corp. (The) ............................ 12,000 $450,000
American International Group, Inc. .............. 7,200 556,650
CIGNA Corp. ..................................... 3,700 215,294
Equitable Companies, Inc. (The) ................. 1,600 91,500
Hartford Financial Services Group, Inc. (The) ... 8,400 375,900
Hartford Life, Inc. (Class A) ................... 2,800 143,500
Marsh & McLennan Companies, Inc. ................ 7,900 383,150
Travelers Group, Inc. ........................... 18,800 834,250
Travelers Property Casualty Corp. (Class A) ..... 6,400 210,800
----------
3,261,044
----------
Machinery (0.36%)
Deere & Co. ..................................... 5,600 184,450
Ingersoll-Rand Co. .............................. 1,700 67,575
----------
252,025
----------
Media (0.41%)
Viacom, Inc. (Class B)* ......................... 5,800 287,825
----------
Medical (8.03%)
Abbott Laboratories ............................. 16,500 635,250
Amgen, Inc.* .................................... 2,700 164,363
Becton, Dickinson & Co. ......................... 5,000 166,563
Bristol-Myers Squibb Co. ........................ 7,500 734,063
Cardinal Health, Inc. ........................... 8,100 708,750
Guidant Corp. ................................... 4,200 259,350
Health Management Associates,
Inc. (Class A)* ................................ 12,150 219,459
HEALTHSOUTH Corp.* .............................. 23,600 446,925
McKesson Corp. .................................. 2,200 165,000
Merck & Co., Inc. ............................... 6,300 730,406
Mylan Laboratories, Inc. ........................ 4,600 105,225
Pfizer, Inc. .................................... 2,200 204,600
Schering-Plough Corp. ........................... 4,700 404,200
Tenet Healthcare Corp.* ......................... 8,600 221,988
Warner-Lambert Co. .............................. 3,800 247,950
Wellpoint Health Networks, Inc.* ................ 4,400 234,850
----------
5,648,942
----------
Mortgage Banking (1.06%)
Fannie Mae ...................................... 13,100 744,244
----------
Office (3.19%)
Avery Dennison Corp. ............................ 2,200 118,113
Pitney Bowes, Inc. .............................. 18,800 932,950
Reynolds & Reynolds Co. (The) (Class A) ......... 6,800 85,850
Xerox Corp. ..................................... 12,600 1,106,438
----------
2,243,351
----------
Oil & Gas (2.97%)
Baker Hughes, Inc. .............................. 13,000 237,250
British Petroleum Co. PLC, ADR
(United Kingdom) ............................... 5,600 409,500
Dresser Industries, Inc. ........................ 12,700 324,644
Halliburton Co. ................................. 7,700 204,531
Mobil Corp. ..................................... 4,000 276,500
Phillips Petroleum Co. .......................... 2,900 118,356
Schlumberger, Ltd. .............................. 2,500 109,531
Sun Co., Inc. ................................... 5,700 188,456
USX - Marathon Group ............................ 8,400 218,400
----------
2,087,168
----------
Paper & Paper Products (0.16%)
Fort James Corp. ................................ 4,000 116,500
----------
Retail (2.77%)
Albertson's, Inc. ............................... 8,100 409,556
Costco Cos., Inc.* .............................. 1,200 56,475
Home Depot, Inc. (The) .......................... 18,600 716,100
Lowe's Cos., Inc. ............................... 8,400 294,525
TJX Cos., Inc. .................................. 10,400 232,050
Wal-Mart Stores, Inc. ........................... 4,100 240,875
----------
1,949,581
----------
Soap & Cleaning Preparations (1.28%)
Procter & Gamble Co. (The) ...................... 11,800 902,700
----------
Telecommunications (5.15%)
AT&T Corp. ...................................... 11,700 586,463
Bell Atlantic Corp. ............................. 17,800 785,425
Lucent Technologies, Inc. ....................... 10,100 715,838
Northern Telecom Ltd. (Canada) .................. 14,200 678,050
Tellabs, Inc.* .................................. 6,600 278,850
WorldCom, Inc.* ................................. 14,100 577,219
----------
3,621,845
----------
Textile (0.88%)
Jones Apparel Group, Inc.* ...................... 6,100 118,188
Liz Claiborne, Inc. ............................. 3,600 102,600
Tommy Hilfiger Corp.* ........................... 6,600 308,550
Unifi, Inc. ..................................... 4,200 93,450
----------
622,788
----------
Tobacco (1.54%)
Philip Morris Cos., Inc. ........................ 21,700 901,906
UST, Inc. ....................................... 6,900 180,263
----------
1,082,169
----------
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Transportation (2.37%)
AMR Corp.* ....................................... 7,900 $430,550
Burlington Northern Santa Fe Corp. ............... 5,100 474,617
Norfolk Southern Corp. ........................... 1,300 36,642
Northwest Airlines Corp. ......................... 7,700 214,156
Southwest Airlines Co. ........................... 13,725 244,477
UAL Corp.* ....................................... 4,400 265,375
----------
1,665,817
----------
Utilities (4.95%)
Ameritech Corp. .................................. 5,900 278,037
BellSouth Corp. .................................. 13,100 898,168
Consolidated Natural Gas Co. ..................... 2,500 109,530
Dominion Resources, Inc. ......................... 5,600 233,450
El Paso Energy Corp. ............................. 4,400 109,174
Florida Progress Corp. ........................... 4,500 189,843
FPL Group, Inc. .................................. 5,900 392,718
GTE Corp. ........................................ 15,200 760,000
New Century Energies, Inc. ....................... 7,400 341,324
NIPSCO Industries, Inc. .......................... 6,000 175,500
----------
3,487,744
----------
Waste Disposal Service & Equipment (0.46%)
Allied Waste Industries, Inc.* ................... 8,100 153,900
Waste Management, Inc.* .......................... 3,900 172,086
----------
325,986
----------
TOTAL COMMON STOCKS
(Cost $47,505,431) (64.52%) 45,415,686
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- -------- -------- -------------- ------
<S> <C> <C> <C> <C>
CORPORATE BONDS
Automobile/Trucks (0.10%)
General Motors Acceptance Corp.,
Med Term Note 05-22-01 .................................... 6.800% A- $70 $71,814
----------
Banks - United States (0.36%)
Capital One Bank,
Sr Note 06-20-00 .......................................... 7.350 Baa3 250 255,615
----------
Broker Services (1.70%)
Lehman Brothers, Inc.,
Sr Sub Note 04-15-03 ...................................... 7.250 A 1,160 1,198,210
----------
Finance (0.32%)
CARCO Auto Loan Master Trust,
Pass Thru Ctf Ser 1997-1 Class A 08-15-04 08-15-06 ........ 6.689 AAA 220 222,200
----------
Instruments - Scientific (0.34%)
Millipore Corporation,
Note 04-01-07 ............................................. 7.500 BBB- 230 239,044
----------
Media (1.45%)
News America Holdings, Inc.,
Sr Note 06-01-00 .......................................... 7.450 BBB- 1,000 1,023,800
----------
Mortgage Banking (3.64%)
AMRESCO Commercial Mortgage Funding I Corp.,
Mtg Pass Thru Ctf Ser 1997-C1 Class A3 06-17-29 ........... 7.190 AAA 348 367,359
Camden Property Trust,
Med Term Note 06-21-04 .................................... 7.172 BBB- 160 167,944
Chase Commercial Mortgage Securities Corp.,
Commercial Pass Thru Ctf Ser 1997-1 Class A2 06-19-29 ..... 7.370 AAA 140 149,586
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1998-6 Class A 04-10-03 ................. 5.850 AAA 810 813,289
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1997-C1 Class A1C 06-20-29 7.240 AAA 580 611,262
Merrill Lynch Mortgage Investors, Inc.,
Mtg Pass Thru Ctf Ser 1997-C1 Class A3 06-18-29 ........... 7.120 AAA 90 95,063
Mortgage Capital Funding, Inc.,
Commercial Mtg Pass Thru Ctf Ser 1996-MC2 Class A1 12-21-26 6.758 Aaa 47 48,195
United Dominion Realty Trust, Inc.,
Note 01-15-07 ............................................. 7.250 BBB+ 300 308,739
----------
2,561,437
----------
Oil & Gas (1.46%)
Petroleum Geo-Services ASA,
Note (Norway) 03-31-07, (Y) ............................... 7.500 BBB 810 839,192
Petroleum Geo-Services,
Sr Note (Norway) 03-30-28, (Y) ............................ 7.125 BBB 200 189,500
----------
1,028,692
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- -------- -------- -------------- ------
<S> <C> <C> <C> <C>
Paper & Paper Products (1.40%)
James River Corp.,
Note 10-01-99 .................................. 6.750% BBB- $975 $982,449
----------
Real Estate Operations (0.49%)
Simon DeBartolo Group, L.P.,
Co Gtd 07-15-04 ................................ 6.750 BBB+ 350 344,936
----------
Real Estate Investment Trust (0.99%)
Avalon Properties, Inc.,
Note 12-15-07 .................................. 6.875 BBB+ 390 385,870
Post Apartment Homes, L.P.,
Med Term Note 04-01-04 ......................... 7.300 BBB+ 180 190,213
Spieker Properties L.P.,
Med Term Note 07-19-05 ......................... 8.000 BBB 110 120,751
----------
696,834
----------
Retail (3.12%)
Sears Roebuck Acceptance Corp.,
Med Term Note Ser II 06-26-01 .................. 7.130 A- 1,060 1,100,036
Woolworth Corp.,
Note 06-01-00 .................................. 7.000 BBB- 1,100 1,099,406
----------
2,199,442
----------
Telecommunications (0.25%)
WorldCom, Inc.,
Sr Note 04-01-07 ............................... 7.750 BBB+ 160 172,610
----------
Utilities (0.23%)
Enersis S.A.,
Note (Chile) 12-01-06, (Y) ..................... 6.900 A- 180 160,344
----------
TOTAL CORPORATE BONDS
(Cost $11,103,459) (15.85%) 11,157,427
------ ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Balanced Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING** (000s OMITTED) VALUE
- ------------------- -------- -------- -------------- ------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Government - U.S. (14.61%)
United States Treasury,
Bond 11-15-27 .......................... 6.125% Aaa $5,500 $6,109,290
Note 08-31-02 .......................... 6.250 Aaa 1,825 1,903,420
Note 04-30-03 .......................... 5.750 Aaa 1,190 1,226,438
Note 02-15-07 .......................... 6.250 Aaa 950 1,022,286
Note 05-15-07 .......................... 6.625 Aaa 20 22,078
-----------
10,283,512
-----------
Government - U.S. Agencies (3.24%)
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 01-01-13 ........... 6.500 AAA 449 454,342
15 Yr Pass Thru Ctf 08-01-13 ........... 6.000 AAA 689 686,768
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 11-15-27 to 05-15-28 7.000 AAA 1,118 1,140,238
-----------
2,281,348
-----------
TOTAL U.S. GOVERNMENT AND
AGENCIES SECURITIES
(Cost $12,175,903) (17.85%) 12,564,860
------- -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.83%)
Investment in a joint repurchase agreement
transaction with SBC Warburg, Inc. -
Dated 08-31-98, due 09-01-98 (secured by U. S.
Treasury Bonds 6.50% thru 8.875%, due
08-15-17 thru 11-15-26) - Note A ....... 5.800 582 582,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ..................... 874
-----------
TOTAL SHORT-TERM INVESTMENTS (0.83%) 582,874
------- -----------
TOTAL INVESTMENTS (99.05%) 69,720,847
------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.95%) 666,512
------- -----------
TOTAL NET ASSETS (100.00%) $70,387,359
======= ===========
</TABLE>
* Non-income producing security.
** Credit ratings are unaudited and rated by Moody's Investors Service or John
Hancock Advisers, Inc. where Standard and Poor's ratings are not available.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer, however, security is U.S. dollar
denominated.
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.
36
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Value Fund on August 31, 1998. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
COMMON STOCKS
Aerospace (4.19%)
Goodrich (B.F.) Co. ................................ 1,400 $37,887
Lockheed Martin Corp. .............................. 600 52,463
Precision Castparts Corp. .......................... 300 11,306
Sundstrand Corp. ................................... 400 18,225
United Technologies Corp. .......................... 1,600 116,100
--------
235,981
--------
Automobile/Trucks (4.82%)
Chrysler Corp. ..................................... 1,900 84,787
Dana Corp. ......................................... 900 35,269
Ford Motor Co. ..................................... 1,900 83,600
Lear Corp.* ........................................ 500 20,281
Meritor Automotive, Inc. ........................... 1,600 28,400
Ryder System, Inc. ................................. 800 18,850
--------
271,187
--------
Banks - United States (16.36%)
Banc One Corp. ..................................... 800 30,400
Bank of New York Co., Inc. ......................... 1,600 38,700
BankAmerica Corp. .................................. 1,400 89,687
Bankers Trust New York Corp. ....................... 400 29,725
Chase Manhattan Corp. .............................. 600 31,800
Comerica, Inc. ..................................... 2,550 133,237
Fifth Third Bancorp ................................ 400 21,275
First Chicago NBD Corp. ............................ 800 50,700
First Union Corp. .................................. 3,500 169,750
NationsBank Corp. .................................. 2,000 114,000
Norwest Corp. ...................................... 2,700 80,325
State Street Corp. ................................. 600 31,238
U.S. Bancorp ....................................... 2,100 71,662
Wells Fargo & Co. .................................. 100 28,188
--------
920,687
--------
Beverages (0.34%)
PepsiCo, Inc. ...................................... 700 19,381
--------
Building (1.41%)
Centex Corp. ....................................... 800 28,300
Masco Corp. ........................................ 1,200 27,600
Webb (Del E.) Corp. ................................ 1,200 23,625
--------
79,525
--------
Chemicals (0.27%)
Millennium Chemicals, Inc. ......................... 700 15,138
--------
Computers (2.44%)
Computer Associates International, Inc. ............ 500 13,500
International Business Machines Corp. .............. 1,100 123,887
--------
137,387
--------
Cosmetics & Personal Care (0.55%)
Dial Corp. (The) ................................... 1,600 31,200
--------
Diversified Operations (1.92%)
National Service Industries, Inc. .................. 1,200 44,700
Ogden Corp. ........................................ 1,300 29,981
Tyco International Ltd. ............................ 600 33,300
--------
107,981
--------
Electronics (1.70%)
Honeywell, Inc. .................................... 1,100 68,750
Parker-Hannifin Corp. .............................. 450 13,050
Thomas & Betts Corp. ............................... 400 13,625
--------
95,425
--------
Finance (3.96%)
Associates First Capital Corp. (Class A) ........... 576 34,056
Fannie Mae ......................................... 900 51,131
Kansas City Southern Industries, Inc. .............. 800 26,300
Morgan Stanley, Dean Witter, Discover & Co. ........ 1,200 69,675
Washington Mutual, Inc. ............................ 1,300 41,600
--------
222,762
--------
Food (1.14%)
Flowers Industries, Inc. ........................... 1,200 21,375
Quaker Oats Co. .................................... 800 42,500
--------
63,875
--------
Funeral Services & Related (0.42%)
Service Corp. International ........................ 700 23,713
--------
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
Insurance (11.38%)
Allstate Corp. ..................................... 2,800 $105,000
American International Group, Inc. ................. 900 69,581
Equitable Cos., Inc. (The) ......................... 400 22,875
EXEL Ltd. (Class A) (Bermuda) ...................... 201 13,413
Hartford Financial Services Group, Inc. (The) ...... 2,400 107,400
Hartford Life, Inc. (Class A) ...................... 600 30,750
Marsh & McLennan Cos., Inc. ........................ 1,550 75,175
PartnerRe Ltd. (Bermuda) ........................... 400 16,100
Travelers Group, Inc. .............................. 2,800 124,250
Travelers Property Casualty Corp. (Class A) ........ 2,300 75,756
--------
640,300
--------
Machinery (1.53%)
Caterpillar, Inc. .................................. 400 16,875
Deere & Co. ........................................ 1,200 39,525
Ingersoll-Rand Co. ................................. 750 29,813
--------
86,213
--------
Media (1.15%)
Viacom, Inc. (Class B)* ............................ 1,300 64,512
--------
Medical (3.70%)
Allegiance Corp. ................................... 1,200 33,900
Cardinal Health, Inc. .............................. 800 70,000
Guidant Corp. ...................................... 400 24,700
HEALTHSOUTH Corp.* ................................. 3,100 58,706
Mylan Laboratories, Inc. ........................... 900 20,588
--------
207,894
--------
Office (3.05%)
Avery Dennison Corp. ............................... 500 26,844
Pitney Bowes, Inc. ................................. 1,500 74,437
Xerox Corp. ........................................ 800 70,250
--------
171,531
--------
Oil & Gas (6.95%)
Baker Hughes, Inc. ................................. 2,500 45,625
British Petroleum Co. PLC, American
Depositary Receipts (United Kingdom) .............. 600 43,875
Dresser Industries, Inc. ........................... 2,000 51,125
El Paso Energy Corp. ............................... 1,800 44,662
Halliburton Co. .................................... 1,000 26,562
Phillips Petroleum Co. ............................. 1,700 69,381
Rowan Cos., Inc.* .................................. 200 1,850
Sun Co., Inc. ...................................... 1,400 46,288
Texaco, Inc. ....................................... 500 27,781
USX - Marathon Group ............................... 1,300 33,800
--------
390,949
--------
Paper & Paper Products (0.70%)
Abitibi-Consolidated, Inc. (Canada) ................ 2,100 16,275
Fort James Corp. ................................... 800 23,300
--------
39,575
--------
Pollution Control (0.24%)
Waste Management, Inc.* ............................ 300 13,238
--------
Retail (1.90%)
Albertson's, Inc. .................................. 1,100 55,619
Home Depot, Inc. (The) ............................. 400 15,400
TJX Cos., Inc. (The) ............................... 1,600 35,700
--------
106,719
--------
Telecommunications (6.22%)
AT&T Corp. ......................................... 1,700 85,212
Bell Atlantic Corp. ................................ 2,800 123,550
Lucent Technologies, Inc. .......................... 300 21,263
Northern Telecom Ltd. (Canada) ..................... 600 28,650
US WEST, Inc. ...................................... 1200 62,400
WorldCom, Inc.* .................................... 700 28,656
--------
349,731
--------
Textile (2.38%)
Jones Apparel Group, Inc.* ......................... 1,400 27,125
Liz Claiborne, Inc. ................................ 700 19,950
Tommy Hilfiger Corp.* .............................. 1,100 51,425
Warnaco Group, Inc. (The) (Class A) ................ 1,300 35,425
--------
133,925
--------
Tobacco (1.46%)
Philip Morris Cos., Inc. ........................... 700 29,094
Universal Corp. .................................... 600 18,900
UST, Inc. .......................................... 1,300 33,963
--------
81,957
--------
Transportation (5.03%)
AMR Corp.* ......................................... 500 27,250
Burlington Northern Santa Fe Corp. ................. 700 65,144
CSX Corp. .......................................... 700 26,425
Delta Air Lines, Inc. .............................. 600 61,200
Southwest Airlines Co. ............................. 1,800 32,063
UAL Corp.* ......................................... 500 30,156
Yellow Corp. * ..................................... 3,400 40,588
--------
282,826
--------
Utilities (14.33%)
Ameritech Corp. .................................... 1,300 61,263
Baltimore Gas & Electric Co. ....................... 2,200 67,787
Consolidated Natural Gas Co. ....................... 1,700 74,481
Dominion Resources, Inc. ........................... 900 37,519
DQE, Inc. .......................................... 800 28,550
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Value Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
Utilities (continued)
Florida Progress Corp. ....................... 1,500 $63,281
FPL Group, Inc. .............................. 1,100 73,219
GTE Corp. .................................... 2,200 110,000
Houston Industries, Inc. ..................... 2,000 57,625
Montana Power Co. ............................ 2,300 89,700
NIPSCO Industries, Inc. ...................... 1,000 29,250
SBC Communications, Inc. ..................... 3,000 114,000
---------
806,675
---------
TOTAL COMMON STOCKS
(Cost $5,814,909) (99.54%) 5,600,287
------ ---------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- -------- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.13%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 6.500% thru 8.875%,
due 08-15-17 thru 11-15-26) -
Note A ............................ 5.80% $120 $120,000
-----------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ................ 813
-----------
TOTAL SHORT-TERM INVESTMENTS (2.15%) 120,813
------- -----------
TOTAL INVESTMENTS (101.69%) 5,721,100
------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.69%) (94,803)
------- -----------
TOTAL NET ASSETS (100.00%) $5,626,297
======= ===========
* 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.
39
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Diversified Core Equity Fund II on August 31, 1998. It's divided
into two main categories: common stocks and short-term investments. Common
stocks are further broken down by industry group. Short-term investments, which
represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
COMMON STOCKS
Aerospace (2.91%)
Lockheed Martin Corp. .................. 10,500 $918,094
Northrop Grumman Corp. ................. 16,900 1,071,038
Precision Castparts Corp. .............. 30,900 1,164,544
United Technologies Corp. .............. 140,000 10,158,750
-----------
13,312,426
-----------
Automobile/Trucks (2.81%)
Dana Corp. ............................. 26,500 1,038,469
Ford Motor Co. ......................... 156,300 6,877,200
Lear Corp.* ............................ 53,600 2,174,150
Meritor Automotive, Inc. ............... 48,500 860,875
Ryder System, Inc. ..................... 80,500 1,896,781
-----------
12,847,475
-----------
Banks - United States (8.27%)
Banc One Corp. ......................... 39,500 1,501,000
BankAmerica Corp. ...................... 131,300 8,411,406
Citicorp ............................... 71,300 7,709,312
Comerica, Inc. ......................... 101,400 5,298,150
First Union Corp. ...................... 31,900 1,547,150
NationsBank Corp. ...................... 32,400 1,846,800
Norwest Corp. .......................... 160,500 4,774,875
State Street Corp. ..................... 25,300 1,317,181
Wells Fargo & Co. ...................... 19,300 5,440,187
-----------
37,846,061
-----------
Beverages (2.00%)
PepsiCo, Inc. .......................... 329,900 9,134,106
-----------
Building (0.67%)
Masco Corp. ............................ 133,600 3,072,800
-----------
Chemicals (1.86%)
Air Products & Chemicals, Inc. ......... 182,500 5,577,656
Millennium Chemicals, Inc. ............. 67,100 1,451,038
Solutia, Inc. .......................... 66,100 1,483,119
-----------
8,511,813
-----------
Computers (7.87%)
Autodesk, Inc. ......................... 142,200 3,323,925
Cadence Design Systems, Inc.* .......... 102,500 2,165,313
Cisco Systems, Inc.* ................... 33,000 2,701,875
Computer Associates International, Inc. 80,500 2,173,500
Dell Computer Corp.* ................... 8,000 800,000
Hewlett-Packard Co. .................... 61,200 2,972,025
International Business Machines Corp. .. 42,600 4,797,825
Microsoft Corp.* ....................... 154,900 14,860,719
Oracle Corp.* .......................... 50,600 1,008,838
Sun Microsystems, Inc.* ................ 30,000 1,188,750
-----------
35,992,770
-----------
Cosmetics & Personal Care (1.42%)
Avon Products, Inc. .................... 22,800 1,433,550
Dial Corp. (The) ....................... 219,900 4,288,050
Revlon, Inc. (Class A) * ............... 21,600 778,950
-----------
6,500,550
-----------
Diversified Operations (2.29%)
National Service Industries, Inc. ...... 24,800 923,800
Textron, Inc. .......................... 59,800 3,752,450
Tyco International Ltd. ................ 104,800 5,816,400
-----------
10,492,650
-----------
Electronics (6.06%)
Analog Devices, Inc.* .................. 40,800 573,750
General Electric Co. ................... 192,100 15,368,000
Honeywell, Inc. ........................ 82,900 5,181,250
Intel Corp. ............................ 92,900 6,613,319
-----------
27,736,319
-----------
Finance (3.94%)
Associates First Capital Corp. (Class A) 57,291 3,387,330
Fannie Mae ............................. 172,500 9,800,156
Morgan Stanley, Dean Witter,
Discover & Co. ........................ 83,800 4,865,637
-----------
18,053,123
-----------
Food (0.84%)
Quaker Oats Co. ........................ 72,300 3,840,937
-----------
Funeral Services & Related (0.30%)
Service Corp. International ............ 40,000 1,355,000
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
Insurance (8.11%)
Allstate Corp. (The) .............. 64,600 $2,422,500
American International Group, Inc. 90,600 7,004,513
Hartford Financial Services
Group, Inc. (The) ................ 180,600 8,081,850
Hartford Life, Inc. (Class A) ..... 10,000 512,500
Marsh & McLennan Cos., Inc. ....... 156,900 7,609,650
Travelers Group, Inc. ............. 181,950 8,074,031
Travelers Property Casualty Corp. .
(Class A) ........................ 104,000 3,425,500
-----------
37,130,544
-----------
Machinery (0.26%)
Ingersoll-Rand Co. ................ 29,900 1,188,525
-----------
Media (0.42%)
Viacom, Inc. (Class B)* ........... 38,600 1,915,525
-----------
Medical (13.18%)
Abbott Laboratories ............... 123,000 4,735,500
Amgen, Inc.* ...................... 21,300 1,296,638
Becton, Dickinson & Co. ........... 56,200 1,872,162
Bristol-Myers Squibb Co. .......... 77,200 7,555,950
Cardinal Health, Inc. ............. 82,200 7,192,500
Guidant Corp. ..................... 62,000 3,828,500
Health Management Associates, Inc.
(Class A)* ....................... 77,250 1,395,328
HEALTHSOUTH Corp.* ................ 222,000 4,204,125
Johnson & Johnson ................. 9,300 641,700
McKesson Corp. .................... 27,200 2,040,000
Merck & Co., Inc. ................. 77,700 9,008,344
Pfizer, Inc. ...................... 57,700 5,366,100
Schering-Plough Corp. ............. 54,400 4,678,400
Tenet Healthcare Corp.* ........... 28,700 740,819
United Healthcare Corp. ........... 16,200 585,225
Warner-Lambert Co. ................ 29,900 1,950,975
Wellpoint Health Networks, Inc.* .. 60,600 3,234,525
-----------
60,326,791
-----------
Office (3.96%)
Avery Dennison Corp. .............. 39,600 2,126,025
Pitney Bowes, Inc. ................ 137,100 6,803,587
Xerox Corp. ....................... 104,600 9,185,187
-----------
18,114,799
-----------
Oil & Gas (4.31%)
Baker Hughes, Inc. ................ 99,500 1,815,875
British Petroleum Co. PLC, American
Depositary Receipts (ADR)
(United Kingdom) ................. 40,500 2,961,563
Dresser Industries, Inc. .......... 89,800 2,295,513
Exxon Corp. ....................... 39,000 2,552,062
Halliburton Co. ................... 61,600 1,636,250
Phillips Petroleum Co. ............ 96,100 3,922,081
Schlumberger, Ltd. ................ 22,000 963,875
Sun Co., Inc. ..................... 39,900 1,319,194
USX - Marathon Group .............. 86,000 2,236,000
-----------
19,702,413
-----------
Paper & Paper Products (0.34%)
Abitibi-Consolidated, Inc. (Canada) 57,000 441,750
Fort James Corp. .................. 37,900 1,103,838
-----------
1,545,588
-----------
Retail (4.28%)
Albertson's, Inc. ................. 12,000 606,750
Home Depot, Inc. (The) ............ 256,200 9,863,700
Lowe's Cos., Inc. ................. 115,600 4,053,225
TJX Cos., Inc. .................... 109,600 2,445,450
Wal-Mart Stores, Inc. ............. 44,400 2,608,500
-----------
19,577,625
-----------
Rubber - Tires & Misc (0.37%)
Goodyear Tire & Rubber Co. (The) .. 34,300 1,680,700
-----------
Soap & Cleaning Preparations (2.63%)
Procter & Gamble Co. (The) ........ 157,600 12,056,400
-----------
Telecommunications (5.56%)
AT&T Corp. ........................ 131,400 6,586,425
Bell Atlantic Corp. ............... 189,500 8,361,687
Lucent Technologies, Inc. ......... 121,700 8,625,487
Tellabs, Inc.* .................... 10,900 460,525
U S WEST, Inc. .................... 26,700 1,388,400
-----------
25,422,524
-----------
Textile (1.00%)
Liz Claiborne, Inc. ............... 38,000 1,083,000
Tommy Hilfiger Corp.* ............. 44,600 2,085,050
Warnaco Group, Inc. (The) (Class A) 51,500 1,403,375
-----------
4,571,425
-----------
Tobacco (2.35%)
Philip Morris Cos., Inc. .......... 169,200 7,032,375
UST, Inc. ......................... 142,100 3,712,362
-----------
10,744,737
-----------
Transportation (3.52%)
AMR Corp.* ........................ 32,600 1,776,700
Burlington Northern Santa Fe Corp. 45,400 4,225,038
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust --
Independence Diversified Core Equity Fund II
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
Transportation (continued)
Delta Air Lines, Inc. ........................ 21,600 $2,203,200
Norfolk Southern Corp. ....................... 35,100 989,381
Northwest Airlines Corp. ..................... 42,000 1,168,125
Southwest Airlines Co. ....................... 196,200 3,494,813
UAL Corp.* ................................... 22,300 1,344,969
US Airways Group, Inc.* ...................... 15,200 885,400
-----------
16,087,626
-----------
Utilities (7.43%)
Ameritech Corp. .............................. 159,800 7,530,575
BellSouth Corp. .............................. 35,800 2,454,537
Consolidated Natural Gas Co. ................. 21,200 928,825
El Paso Energy Corp. ......................... 30,200 749,338
Florida Progress Corp. ....................... 93,300 3,936,094
FPL Group, Inc. .............................. 64,800 4,313,250
GTE Corp. .................................... 135,200 6,760,000
Houston Industries, Inc. ..................... 51,900 1,495,369
Montana Power Co. ............................ 54,600 2,129,400
New Century Energies, Inc. ................... 80,000 3,690,000
-----------
33,987,388
-----------
Waste Disposal Service & Equip. (0.70%)
Waste Management, Inc.* ...................... 72,600 3,203,475
-----------
TOTAL COMMON STOCKS
(Cost $424,751,105) (99.66%) 455,952,115
------ -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- -------- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.77%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 6.500% thru 8.875%,
due 08-15-17 thru 11-15-26) -
Note A .................................. 5.80% $8,091 $8,091,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ...................... 596
------------
TOTAL SHORT-TERM INVESTMENTS (1.77%) 8,091,596
------- ------------
TOTAL INVESTMENTS (101.43%) 464,043,711
------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.43%) (6,521,435)
------- ------------
TOTAL NET ASSETS (100.00%) $457,522,276
======= ============
* 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.
42
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Independence Growth Fund on August 31, 1998. 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
Advertising (0.72%)
Omnicom Group, Inc. ....................... 800 $38,100
--------
Aerospace (1.64%)
Northrop Grumman Corp. .................... 100 6,338
United Technologies Corp. ................. 1,100 79,819
--------
86,157
--------
Automobile/Trucks (0.98%)
Ford Motor Co. ............................ 900 39,600
Lear Corp.* ............................... 300 12,169
--------
51,769
--------
Banks - United States (1.55%)
BankAmerica Corp. ......................... 200 12,813
Comerica, Inc. ............................ 800 41,800
Norwest Corp. ............................. 900 26,775
--------
81,388
--------
Beverages (2.68%)
PepsiCo, Inc. ............................. 5,100 141,206
--------
Building (0.40%)
Centex Corp. .............................. 200 7,075
Clayton Homes, Inc. ....................... 900 13,894
--------
20,969
--------
Chemicals (1.00%)
Air Products & Chemicals, Inc. ............ 1,000 30,562
Millennium Chemicals, Inc. ................ 500 10,813
Solutia, Inc. ............................. 500 11,219
--------
52,594
--------
Computers (10.02%)
Autodesk, Inc. ............................ 1,100 25,712
Cadence Design Systems, Inc.* ............. 1,000 21,125
Cisco Systems, Inc.* ...................... 900 73,687
Computer Associates International, Inc. ... 1,500 40,500
Dell Computer Corp.* ...................... 400 40,000
Hewlett-Packard Co. ....................... 1,000 48,562
IMS Health, Inc. .......................... 300 16,500
Microsoft Corp.* .......................... 2,100 201,469
Oracle Corp.* ............................. 1,100 21,931
Stratus Computer, Inc.* ................... 400 10,050
Sun Microsystems, Inc.* ................... 700 27,738
--------
527,274
--------
Cosmetics & Personal Care (2.05%)
Avon Products, Inc. ....................... 1,200 75,450
Dial Corp. (The) .......................... 1,300 25,350
Revlon, Inc. (Class A) * .................. 200 7,213
--------
108,013
--------
Diversified Operations (2.07%)
Textron, Inc. ............................. 500 31,375
Tyco International Ltd. ................... 1,400 77,700
--------
109,075
--------
Electronics (8.34%)
Analog Devices, Inc.* ..................... 600 8,438
General Electric Co. ...................... 2,900 232,000
Intel Corp. ............................... 2,400 170,850
Teradyne, Inc.* ........................... 1,600 27,800
--------
439,088
--------
Finance (3.65%)
Associates First Capital Corp. (Class A) .. 500 29,562
Fannie Mae ................................ 1,900 107,944
MBNA Corp. ................................ 1,100 25,850
Morgan Stanley, Dean Witter, Discover & Co. 500 29,031
--------
192,387
--------
Food (1.99%)
Flowers Industries, Inc. .................. 2,600 46,312
Heinz (H.J.) Co. .......................... 300 15,994
Quaker Oats Co. ........................... 800 42,500
--------
104,806
--------
Funeral Services & Related (0.58%)
Service Corp. International ............... 900 30,487
--------
Insurance (4.92%)
Allstate Corp. (The) ...................... 600 22,500
American International Group, Inc. ........ 1,050 81,178
Equitable Cos., Inc. (The) ................ 300 17,156
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
Insurance (continued)
EXEL Ltd. (Class A) (Bermuda) ............... 102 $6,825
Marsh & McLennan Cos., Inc. ................. 1,200 58,200
PartnerRe Ltd. (Bermuda) .................... 500 20,125
Travelers Group, Inc. ....................... 1,200 53,250
----------
259,234
----------
Leisure (0.55%)
Mattel, Inc. ................................ 900 29,138
----------
Media (1.04%)
Viacom, Inc. (Class B)* ..................... 1,100 54,587
----------
Medical (20.55%)
Abbott Laboratories ......................... 2,800 107,800
Allegiance Corp. ............................ 600 16,950
Becton, Dickinson & Co. ..................... 600 19,988
Bristol-Myers Squibb Co. .................... 700 68,512
Cardinal Health, Inc. ....................... 1,400 122,500
Chiron Corp. * .............................. 1,400 20,125
Guidant Corp. ............................... 1,300 80,275
Health Management Associates, Inc. (Class A)* 1,500 27,094
HEALTHSOUTH Corp.* .......................... 2,800 53,025
Lilly (Eli) & Co. ........................... 900 58,950
Lincare Holdings, Inc.* ..................... 400 13,575
McKesson Corp. .............................. 400 30,000
Merck & Co., Inc. ........................... 900 104,344
Mylan Laboratories, Inc. .................... 800 18,300
Pfizer, Inc. ................................ 1,300 120,900
Schering-Plough Corp. ....................... 1,200 103,200
Tenet Healthcare Corp.* ..................... 600 15,488
United Healthcare Corp. ..................... 800 28,900
Warner-Lambert Co. .......................... 1,100 71,775
----------
1,081,701
----------
Office (3.47%)
Pitney Bowes, Inc. .......................... 1,200 59,550
Xerox Corp. ................................. 1,400 122,937
----------
182,487
----------
Oil & Gas (1.35%)
Cooper Cameron Corp.* ....................... 300 6,375
Dresser Industries, Inc. .................... 1,500 38,344
Halliburton Co. ............................. 1,000 26,563
----------
71,282
----------
Paper & Paper Products (0.59%)
Fort James Corp. ............................ 600 17,475
Stone Container Corp. * ..................... 1,300 13,569
----------
31,044
----------
Retail (7.43%)
Albertson's, Inc. ........................... 500 25,281
Costco Cos., Inc.* .......................... 400 18,825
Dayton Hudson Corp. ......................... 1,100 39,600
Home Depot, Inc. (The) ...................... 4,400 169,400
Lowe's Cos., Inc. ........................... 1,800 63,112
Staples, Inc.* .............................. 1,600 43,400
TJX Cos., Inc. (The) ........................ 1,400 31,237
----------
390,855
----------
Soap & Cleaning Preparations (3.49%)
Procter & Gamble Co. (The) .................. 2,400 183,600
----------
Telecommunications (6.39%)
AT&T Corp. .................................. 600 30,075
Lucent Technologies, Inc. ................... 2,800 198,450
Northern Telecom Ltd. (Canada) .............. 1,100 52,525
Scientific-Atlanta, Inc. .................... 2,400 42,450
Tellabs, Inc.* .............................. 300 12,675
----------
336,175
----------
Textile (1.62%)
Jones Apparel Group, Inc.* .................. 1,100 21,313
Liz Claiborne, Inc. ......................... 600 17,100
Tommy Hilfiger Corp.* ....................... 1,000 46,750
----------
85,163
----------
Tobacco (2.59%)
Philip Morris Cos., Inc. .................... 2,600 108,062
Universal Corp. ............................. 900 28,350
----------
136,412
----------
Transportation (4.22%)
Alaska Air Group, Inc.* ..................... 300 11,681
AMR Corp.* .................................. 500 27,250
Burlington Northern Santa Fe Corp. .......... 400 37,225
Delta Air Lines, Inc. ....................... 100 10,200
Kansas City Southern Industries, Inc. ....... 500 16,438
Northwest Airlines Corp. * .................. 1,000 27,812
Southwest Airlines Co. ...................... 1,200 21,375
US Airways Group, Inc.* ..................... 1,200 69,900
----------
221,881
----------
Utilities (1.42%)
GTE Corp. ................................... 1,500 75,000
----------
Waste Disposal Service & Equipment (1.17%)
Waste Management, Inc.* ..................... 1,400 61,775
----------
TOTAL COMMON STOCKS
(Cost $5,132,023) (98.47%) 5,183,647
------ ----------
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust -- Independence Growth Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- -------- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreetment (1.67%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 08-31-98
due 09-01-98 (secured by U.S.
Treasury Bonds, 6.500% thru
8.875%, due 08-15-17 thru
11-15-26) - Note A ................... 5.80% $88 $88,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ................... 283
----------
TOTAL SHORT-TERM INVESTMENTS (1.68%) 88,283
------- ----------
TOTAL INVESTMENTS (100.15%) 5,271,930
------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.15%) (7,753)
------- ----------
TOTAL NET ASSETS (100.00%) $5,264,177
======= ==========
* 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.
45
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
Schedule of Investments
August 31, 1998 (Unaudited)
................................................................................
The Schedule of Investments is a complete list of all securities owned by the
Independence Medium Capitalization Fund on August 31, 1998. It is 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
Advertising (1.21%)
Omnicom Group, Inc. .......................... 1,700 $80,962
WPP Group PLC, American Depositary
Receipts (ADR) (United Kingdom) ............. 500 27,188
----------
108,150
----------
Aerospace (2.94%)
Goodrich (B.F.) Co. (The) .................... 1,100 29,769
Northrop Grumman Corp. ....................... 900 57,037
Precision Castparts Corp. .................... 1,200 45,225
United Technologies Corp. .................... 1,800 130,612
----------
262,643
----------
Automobile/Trucks (2.74%)
Borg-Warner Automotive, Inc. ................. 700 28,350
Dana Corp. ................................... 1,300 50,944
Lear Corp.* .................................. 1,400 56,787
Meritor Automotive, Inc. ..................... 2,100 37,275
Ryder System, Inc. ........................... 2,400 56,550
Superior Industries International, Inc. ...... 700 14,569
----------
244,475
----------
Banks - United States (6.84%)
Bankers Trust New York Corp. ................. 1,700 126,331
Comerica, Inc. ............................... 3,000 156,750
Fifth Third Bancorp .......................... 2,100 111,694
Northern Trust Corp. ......................... 1,200 66,900
State Street Corp. ........................... 1,500 78,094
U.S. Bancorp ................................. 2,100 71,662
----------
611,431
----------
Building (1.85%)
Centex Corp. ................................. 1,200 42,450
Clayton Homes, Inc. .......................... 2,400 37,050
Masco Corp. .................................. 2,800 64,400
Oakwood Homes Corp. .......................... 1,500 21,375
----------
165,275
----------
Chemicals (3.10%)
Air Products & Chemicals, Inc. ............... 4,600 140,587
Lyondell Chemical Co. ........................ 1,800 38,813
Millennium Chemicals, Inc. ................... 1,100 23,788
Morton International, Inc. ................... 1,600 35,600
Solutia, Inc. ................................ 1,700 38,144
----------
276,932
----------
Computers (2.97%)
Autodesk, Inc. ............................... 3,200 74,800
Cadence Design Systems, Inc.* ................ 2,500 52,812
Edwards (J.D.) & Co.* ........................ 800 32,400
First Data Corp. ............................. 4,000 82,750
PeopleSoft, Inc.* ............................ 800 22,500
----------
265,262
----------
Cosmetics & Personal Care (1.16%)
Avon Products, Inc. .......................... 800 50,300
Dial Corp. (The) ............................. 2,000 39,000
Revlon, Inc. (Class A) * ..................... 400 14,425
----------
103,725
----------
Diversified Operations (2.78%)
Canadian Pacific, Ltd. (Canada) ............. 4,000 75,750
National Service Industries, Inc. ............ 500 18,625
Ogden Corp. .................................. 2,700 62,269
Textron, Inc. ................................ 1,100 69,025
Viad Corp. ................................... 1,100 22,825
----------
248,494
----------
Electronics (2.14%)
Analog Devices, Inc.* ........................ 3,500 49,219
Honeywell, Inc. .............................. 600 37,500
Parker- Hannifin Corp. ....................... 2,300 66,700
Thomas & Betts Corp. ......................... 1,100 37,469
----------
190,888
----------
Finance (1.62%)
Associates First Capital Corp. (Class A) ..... 900 53,212
Household International, Inc. ................ 900 33,244
Morgan Stanley, Dean Witter,
Discover & Co. .............................. 1,000 58,062
----------
144,518
----------
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Food (2.17%)
Flowers Industries, Inc. ..................... 2,100 $37,406
General Mills, Inc. .......................... 900 58,894
Quaker Oats Co. .............................. 1,200 63,750
Universal Foods Corp. ........................ 1,600 33,800
----------
193,850
----------
Funeral Services & Related (1.10%)
Service Corp. International .................. 2,900 98,237
----------
Household (0.49%)
Premark International, Inc. .................. 800 21,150
Rubbermaid, Inc. ............................. 900 22,894
----------
44,044
----------
Insurance (11.61%)
Chubb Corp. (The) ............................ 400 25,000
CIGNA Corp. .................................. 2,200 128,012
Equitable Cos., Inc. (The) ................... 2,400 137,250
EXEL Ltd. (Class A) (Bermuda) ................ 1,022 68,249
Hartford Financial Services Group, Inc. (The). 3,400 152,150
Hartford Life, Inc. (Class A) ................ 1,300 66,625
Lincoln National Corp. ....................... 800 68,800
Marsh & McLennan Cos., Inc. .................. 3,000 145,500
PartnerRe Ltd. (Bermuda) ..................... 900 36,225
Travelers Group, Inc. ........................ 2,200 97,625
Travelers Property Casualty Corp. (Class A) .. 3,400 111,987
----------
1,037,423
----------
Leisure (0.80%)
Mattel, Inc. ................................. 2,200 71,225
----------
Machinery (1.05%)
Deere & Co. .................................. 800 26,350
Ingersoll-Rand Co. ........................... 1,700 67,575
----------
93,925
----------
Media (0.81%)
Knight-Ridder, Inc. .......................... 800 38,100
Viacom, Inc. (Class B)* ...................... 700 34,738
----------
72,838
----------
Medical (8.68%)
Allegiance Corp. ............................. 1,800 50,850
Becton, Dickinson & Co. ...................... 1,200 39,975
Cardinal Health, Inc. ........................ 1,300 113,750
Chiron Corp. * ............................... 1,500 21,563
Guidant Corp. ................................ 1,600 98,800
Health Management Associates,
Inc. (Class A)* ............................. 2,250 40,641
HEALTHSOUTH Corp.* ........................... 5,000 94,687
Lincare Holdings, Inc.* ...................... 1,000 $33,938
McKesson Corp. ............................... 600 45,000
Mylan Laboratories, Inc. ..................... 1,600 36,600
Sepracor, Inc. * ............................. 600 28,575
Tenet Healthcare Corp.* ...................... 1,900 49,044
United Healthcare Corp. ...................... 1,500 54,187
Universal Health Services, Inc. (Class B)* ... 500 19,375
Wellpoint Health Networks, Inc.* ............. 900 48,037
----------
775,022
----------
Office (4.20%)
Avery Dennison Corp. ......................... 1,900 102,006
Pitney Bowes, Inc. ........................... 2,600 129,025
Reynolds & Reynolds Co. (The) (Class A) ...... 3,800 47,975
Xerox Corp. .................................. 1,100 96,594
----------
375,600
----------
Oil & Gas (4.19%)
Anadarko Petroleum Corp. ..................... 1,600 46,000
Baker Hughes, Inc. ........................... 3,800 69,350
Dresser Industries, Inc. ..................... 3,000 76,687
Halliburton Co. .............................. 1,200 31,875
Phillips Petroleum Co. ....................... 2,300 93,869
Sun Co., Inc. ................................ 1,700 56,206
----------
373,987
----------
Paper & Paper Products (0.72%)
Fort James Corp. ............................. 2,200 64,075
----------
Pollution Control (0.47%)
Browning-Ferris Industries, Inc. ............. 1,300 42,250
----------
Real Estate Operations (0.53%)
Webb (Del E.) Corp. .......................... 2,400 47,250
----------
Retail (6.29%)
Albertson's, Inc. ............................ 1,600 80,900
Costco Cos., Inc.* ........................... 600 28,238
Dayton Hudson Corp. .......................... 1,000 36,000
Federated Department Stores, Inc. * .......... 800 34,850
Home Depot, Inc. (The) ....................... 2,100 80,850
Lowe's Cos., Inc. ............................ 3,900 136,744
Staples, Inc.* ............................... 2,200 59,675
SYSCO Corp. .................................. 1,200 24,225
TJX Cos., Inc. ............................... 3,600 80,325
----------
561,807
----------
Rubber - Tires & Misc (0.55%)
Goodyear Tire & Rubber Co. (The) ............. 1,000 49,000
----------
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Institutional Series Trust --
Independence Medium Capitalization Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Telecommunications (1.66%)
Harris Corp. ................................. 800 $25,500
Lucent Technologies, Inc. .................... 712 50,463
Northern Telecom, Ltd. (Canada) ............. 1,100 52,525
Scientific-Atlanta, Inc. ..................... 1,100 19,456
----------
147,944
----------
Textile (2.81%)
Burlington Industries, Inc.* ................. 1,500 14,250
Jones Apparel Group, Inc.* ................... 2,000 38,750
Liz Claiborne, Inc. .......................... 1,400 39,900
Tommy Hilfiger Corp.* ........................ 1,300 60,775
Unifi, Inc. .................................. 900 20,025
VF Corp. ..................................... 900 34,087
Warnaco Group, Inc. (The) (Class A) .......... 1,600 43,600
----------
251,387
----------
Tobacco (0.90%)
Universal Corp. .............................. 1,300 40,950
UST, Inc. .................................... 1,500 39,188
----------
80,138
----------
Transportation (6.19%)
Alaska Air Group, Inc.* ...................... 600 23,363
AMR Corp.* ................................... 1,400 76,300
CSX Corp. .................................... 1,500 56,625
Delta Air Lines, Inc. ........................ 800 81,600
Kansas City Southern Industries, Inc. ........ 1,300 42,738
Norfolk Southern Corp. ....................... 900 25,369
Northwest Airlines Corp. (Class A) ........... 1,500 41,719
Southwest Airlines Co. ....................... 3,825 68,133
Trinity Industries, Inc. ..................... 800 24,200
UAL Corp.* ................................... 1,000 60,312
US Airways Group, Inc.* ...................... 900 52,425
----------
552,784
----------
Utilities (10.69%)
Baltimore Gas & Electric Co. ................. 1,700 52,381
CMS Energy Corp. ............................. 1,100 46,544
Consolidated Natural Gas Co. ................. 1,200 52,575
Dominion Resources, Inc. ..................... 1,800 75,037
El Paso Energy Corp. ......................... 1,500 37,219
Florida Progress Corp. ....................... 4,700 198,281
FPL Group, Inc. .............................. 3,100 206,344
Hawaiian Electric Industries, Inc. ........... 800 30,050
Houston Industries, Inc. ..................... 400 11,525
Montana Power Co. ............................ 3,500 136,500
New Century Energies, Inc. ................... 1,600 73,800
Pinnacle West Capital Corp. .................. 800 34,550
----------
954,806
----------
Waste Disposal Service & Equipment (2.32%)
Allied Waste Industries, Inc.* ............... 2,100 $39,900
Waste Management, Inc.* ...................... 3,800 167,675
----------
207,575
----------
TOTAL COMMON STOCK
(Cost $8,720,683) ............... (97.58%) 8,716,960
---------- ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.18%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 6.500% thru
8.875%, due 08-15-17 thru
11-15-26) - Note A.......................... 5.80% $195 195,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%.......................... 987
----------
TOTAL SHORT-TERM INVESTMENTS .............. (2.19%) 195,987
---------- ----------
TOTAL INVESTMENTS .............. (99.77%) 8,912,947
---------- ----------
OTHER ASSETS AND LIABILITIES, NET .............. (0.23%) 20,218
---------- ----------
TOTAL NET ASSETS .............. (100.00%) $8,933,165
========== ==========
* 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.
48
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Independence Balanced Fund ("Independence Balanced Fund"), John
Hancock Independence Value Fund ("Independence Value Fund"), John Hancock
Independence Diversified Core Equity Fund II ("Independence Diversified Core
Equity Fund II"), John Hancock Independence Growth Fund ("Independence Growth
Fund") and John Hancock Independence Medium Capitalization Fund ("Independence
Medium Capitalization Fund") (each, a "Fund" and collectively, the "Funds"), are
separate portfolios of John Hancock Institutional Series Trust (the "Trust"), an
open-end management investment company registered under the Investment Company
Act of 1940. The Trust, organized as a Massachusetts business trust in 1994,
consists of twelve series portfolios: the Funds, John Hancock Active Bond Fund,
John Hancock Global Bond Fund, John Hancock Dividend Performers Fund, John
Hancock Multi-Sector Growth Fund, John Hancock Small Capitalization Growth Fund,
John Hancock Small Capitalization Value Fund and John Hancock International
Equity Fund. The other seven series of the Trust are reported in separate
financial statements. The investment objective of Independence Balanced Fund and
Independence Diversified Core Equity Fund II is to seek above average total
return consisting of capital appreciation and income. The investment objective
of Independence Growth Fund, Independence Medium Capitalization Fund and
Independence Value Fund is to seek above average total return. Each Fund
currently has one class of shares with equal rights as to voting, redemption,
dividends and liquidation within their respective Fund. The Trustees may
authorize the creation of additional portfolios from time to time to satisfy
various investment objectives.
Significant accounting policies of the Funds are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio 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."
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,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Funds' custodian bank receives delivery of the underlying
securities for the joint account on the Funds' behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of their taxable income, including net realized gain on
investments, to their shareholders. Therefore, no federal income tax provisions
are required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or in the case of some foreign securities,
on the date thereafter when the Funds identify the dividend. Interest income on
investment securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable.
The Funds record all dividends and distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
DISCOUNT ON SECURITIES The Funds accrete discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
49
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund will be allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and type of
expense and the relative sizes of the funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Funds have been capitalized and are being charged to the Funds' operations
ratably over a five-year period that began with the commencement of the
investment operations of the Funds.
In the event that any of the initial shares are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of the then unamortized organization expense in the same proportion as
the number of the initial shares redeemed bears to the number of the initial
shares outstanding at the time of such redemption.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amount of assets, liabilities, revenues
and expenses of the Funds. Actual results could differ from these estimates.
BANK BORROWINGS The Funds are permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Funds to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $1 billion,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
Funds had no borrowing activity for the period ended August 31, 1998.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Funds do not isolate those portions of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Funds pay a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
FUND RATE
---- ----
Independence 0.70% of average daily net assets up to $500 million
Balanced Fund 0.65% of such assets in excess of $500 million
Independence 0.80% of average daily net assets up to $500 million
Value Fund 0.75% of such assets in excess of $500 million
Independence 0.50% of average daily net assets
Diversified
Core Equity Fund II
Independence 0.80% of average daily net assets up to $500 million
Growth Fund 0.75% of such assets in excess of $500 million
Independence Medium 0.80% of average daily net assets up to $500 million
Capitalization Fund 0.75% of such assets in excess of $500 million
50
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
The Adviser is responsible for managing the Funds' investment business
affairs and overseeing the investment activities of Independence Investment
Associates, Inc. (the "Sub-Adviser"). The Adviser has a sub-investment
management contract with the Sub-Adviser, under which the Sub-Adviser, subject
to the review of the Trustees and the overall supervision of the Adviser,
provides the Funds with investment services and advice with respect to
investment transactions. The Adviser pays the Sub-Adviser a portion of its
advisory fee quarterly from each Fund as follows:
Independence 60% of the advisory fee payable on the Fund's
Balanced Fund average daily net assets
Independence 55% of the advisory fee payable on the Fund's
Value Fund average daily net assets
Independence 80% of the advisory fee payable on the Fund's
Diversified average daily net assets
Core Equity Fund II
Independence 55% of the advisory fee payable on the Fund's
Growth Fund average daily net assets
Independence Medium 55% of the advisory fee payable on the Fund's
Capitalization Fund average daily net assets
Effective July 1, 1995, the Sub-Adviser has waived its fees until further
notice on Independence Value Fund, Independence Growth Fund and Independence
Medium Capitalization Fund.
The Adviser has agreed to limit the Funds' expenses further to the extent
required to prevent expenses from exceeding: 0.90% of Independence Balanced
Fund's average daily net assets, 0.95% of Independence Value Fund's average
daily net assets, 0.70% of Independence Diversified Core Equity Fund II's
average daily net assets, 0.95% of Independence Growth Fund's average daily net
assets and 1.00% of Independence Medium Capitalization Fund's average daily net
assets. Accordingly, for the period ended August 31, 1998, the reduction in the
Funds' expenses collectively with any additional amounts not borne by the Funds
by virtue of the expense limit amounted to $9,905 for Independence Balanced
Fund, $29,212 for Independence Value Fund, none for Independence Diversified
Core Equity Fund II, $28,971 for Independence Growth Fund and $27,691 for
Independence Medium Capitalization Fund. The Adviser reserves the right to
terminate this limitation in the future.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended August
31, 1998, all sales of shares of beneficial interest were sold at net asset
value. The Funds pay all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states and all other expenses in connection with the sale and
offering for sale of the shares of the Funds which have not been herein
specifically allocated to the Trust.
The Funds have a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect wholly owned subsidiary of
John Hancock Mutual Life Insurance Company. The Funds pay Signature Services a
monthly transfer agent fee equivalent, on an annual basis, to 0.05% of the
Funds' average daily net asset value, plus certain out-of-pocket expenses.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Funds.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are directors and officers of the Adviser and/or its affiliates, as well as
Trustees of the Funds. The compensation of unaffiliated Trustees is borne by the
Funds. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Funds make investments into other John Hancock funds, as
applicable, to cover their liabilities for the deferred compensation.
Investments to cover the Funds' deferred compensation liability are recorded on
the Funds' books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a periodic
basis to reflect any income earned by the investment as well as any unrealized
gains or losses. At August 31, 1998 the Funds' investment to cover the deferred
compensation had unrealized appreciation of $20 for the Independence Balanced
Fund,
51
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Institutional Series Trust
$2 for the Independence Value Fund, $664 for the Independence Diversified Core
Equity Fund II, $2 for the Independence Growth Fund and $14 for the Independence
Medium Capitalization Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended August 31, 1998 were as follows:
PURCHASES PROCEEDS
--------- --------
Independence Balanced Fund
U.S. Government Securities ............. $23,897,679 $29,171,179
Other Investments ...................... 11,156,961 11,369,125
Independence Value Fund .................. 2,947,916 4,471,471
Independence Diversified Core
Equity Fund II ......................... 125,637,389 181,459,861
Independence Growth Fund ................. 2,446,255 1,272,572
Independence Medium
Capitalization Fund .................... 3,778,286 3,063,241
At August 31, 1998, 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>
Independence
Balanced
Fund ........... $71,370,240 $3,911,695 ($5,561,962) ($1,650,267)
Independence
Value Fund ..... 5,936,435 416,309 (632,457) (216,148)
Independence
Diversified
Core Equity
Fund II ........ 432,853,192 74,327,223 (43,137,300) 31,189,923
Independence
Growth
Fund ........... 5,220,023 562,525 (510,901) 51,624
Independence
Medium
Capitalization
Fund ........... 8,915,683 1,155,007 (1,158,730) (3,723)
</TABLE>
52
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
53
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
54
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Institutional Series Trust
55
<PAGE>
================================================================================
-------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds -------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Institutional Series Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[Recycle Logo] Printed on Recycled Paper KI0SA 8/98
10/98
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Institutional
Series Trust
Active Bond Fund
Global Bond Fund
Dividend Performers Fund
Multi-Sector Growth Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
International Equity Fund
AUGUST 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
================================Table of Contents===============================
John Hancock Funds - Institutional Series Trust
Page
1) Chairman's Message................................................... 3
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio manager or
portfolio management team through the end of the Fund's period
discussed in this report. Of course, the manager's or team's
views are subject to change as market and other conditions
warrant.
John Hancock Active Bond Fund...................................... 4
John Hancock Global Bond Fund...................................... 7
John Hancock Dividend Performers Fund ............................. 10
John Hancock Multi-Sector Growth Fund.............................. 13
John Hancock Small Capitalization Growth Fund...................... 16
John Hancock Small Capitalization Value Fund....................... 19
John Hancock International Equity Fund............................. 22
3) Financial Statements................................................. 25
4) Notes To Financial Statements........................................ 64
-----------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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 AND CHIEF OPERATING OFFICER
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,
VICE PRESIDENT AND CHIEF 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
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE FUND
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY SUITE 1000
BOSTON, MA 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
SUB-INVESTMENT ADVISER
DIVIDEND PERFORMERS FUND
SOVEREIGN ASSET MANAGEMENT CORPORATION
1235 WESTLAKES DRIVE
BERWYN, PA 19312
INTERNATIONAL EQUITY FUND
JOHN HANCOCK ADVISERS INTERNATIONAL LTD.
DUKES COURT, 6TH FLOOR
32-36 DUKE STREET ST. JAMES'S
LONDON, ENGLAND SWIY 6DF
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MA 02109-1803
-----------------------------------------
2
<PAGE>
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. Recently, the market has given us a stark example of this
phenomenon. From the new highs set in mid-July, the major indices plunged by 19%
through the end of August. It was the worst such fall since 1990. For the first
time in a number of years, some bonds and bond mutual funds outperformed stocks
and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.] ]
For the record-breaking number of investors who have entered the market for
the first time since 1990, it was their worst taste of stock market reality. We
are pleased to report that most individual investors did not panic, and we hope
that means they've taken our words to heart. Over the long term, markets do not
move up or down in a straight line. That's why after watching the market charge
ahead almost uninterrupted for so many years, we have been striking a more
cautionary stance in this space over the last several months.
Analysts are still pondering whether the global turmoil and the prospects
for slower U.S. economic and corporate earnings growth are signs that the long
bull market has finally run its course. While we don't make a practice of
opining on what the market will do next, we continue to believe it would be wise
for investors to set more realistic expectations. Over the long term, the
market's historical results have been more in the 10% per year range, which is
still a solid result, considering it has been produced despite wars, depressions
and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and higher-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, Jr., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
================================================================================
BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
Active Bond Fund
Overseas uncertainty boosts Treasuries,
rocks other bond issues
"...we continued to upgrade the credit quality of the portfolio..."
U.S. Treasury bonds staged a sharp rally during the last six months, while other
parts of the bond market fared less well in reaction to the deepening political
and economic turmoil in Asia and emerging markets. As fears grew about the
impact this growing global crisis would have on U.S. growth and corporate
profits, investors fled to the safety of U.S. Treasury bonds. The move was most
apparent at the end of August, when chaos in Russia caused stock markets
worldwide to plummet and sent investors heading for safety. As a result, the
price of the bellwether 30-year Treasury bond rose and its yield, which moves in
the opposite direction of prices, fell to 5.25% by the end of August, the lowest
level for long-term rates in 30 years.
On the other hand, U.S. investment-grade and high-yield corporate bonds
suffered bouts of price weakness as a result of the global uncertainty.
Investors feared that Asia's woes would eventually affect corporate earnings and
credit quality at home. Heavy new issuance in the high-yield sector amid
lackluster demand placed further downward pressure on this group.
Emerging-market debt around the world took the brunt of the volatility, falling
in response to each new wave of concern.
Performance and strategy review
In this volatile environment, John Hancock Active Bond Fund produced solid
results. For the six months ended August 31, 1998, the Fund posted a total
return of 4.45% at net asset value. That performance was slightly ahead of the
average corporate debt A-rated fund's 3.95% return, according to Lipper
Analytical Services, Inc. For another comparison, the Lehman Brothers
Government/Corporate Bond Index returned 5.03% in the same period. Historical
performance information can be found on page six.
During the period, we continued to upgrade the credit quality of the
portfolio in response to
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom of page of John Hancock Active Bond Fund management
team. Caption below reads "Fund management team members (l - r): Ben Matthews,
Lee Crockett, Jim Ho, Tony Goodchild and Beverly Cleathero."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
JOHN HANCOCK ACTIVE BOND FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 2% with 0% at the bottom and 6% at the top. The
first bar represents the 4.45% total return for John Hancock Active Bond Fund .
The second bar represents the 3.95% total return for Average corporate debt
A-rated fund and the third bar represents 5.03% total return for Lehman Brothers
Government/Corporate Bond Index. A note below the chart reads "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. See the following page for historical performance
information."
- --------------------------------------------------------------------------------
the market upheaval. We did this by almost eliminating any exposure to foreign
low-quality markets, avoiding Asia altogether and slightly reducing our stake in
U.S. high-yield bonds. We also underemphasized capital goods and cyclical
credits, maintaining very little exposure to paper, steel, oil and gas
companies. Instead, we kept our focus on corporate bonds in industry sectors
that stand to perform well regardless of economic swings, including utilities,
media, cable and telecommunications. Some of our best performance came from
these sectors, including Time Warner and long-distance carrier Qwest
Communications International, which is on its way to earning investment-grade
status. These and others have also benefited from the strength of the domestic
economy and buoyant consumers. That has helped utility company Niagara Mohawk
Power Corp., whose fundamentals are improving, and sportswear manufacturer
Tropical Sportswear International. Conversely, our holding in Zilog, a
semiconductor company was hurt by the Asian economic slowdown.
We continue to favor the high quality and safety of government issues, and
the Fund benefited from its 56% stake in U.S. Treasury and government agency
securities. In addition to Treasuries, we held high-quality asset-backed
securities such as home equity loans, and mortgage-backed securities that are
discount coupon mortgages, those whose coupons are below current market rates.
They are more insulated from price swings in a declining rate environment.
A look ahead
The turbulent economies worldwide could cause a slowing of U.S. growth in the
next six to nine months. A slowing economy and the safe-haven appeal of U.S.
Treasuries could cause Treasury prices to rise and their rates to fall even
further. The environment also suggests that the Federal Reserve's next move will
likely be to lower interest rates to spur the economy, although the timing of
such a move is uncertain. These factors, combined with the extremely favorable
inflation environment, have led us to keep our portfolio duration at the longer
end of our target range and slightly longer than our benchmark. Duration is a
measure of how sensitive a bond's price is to changes in interest rates. The
longer the duration, the more the price moves up when rates fall (or down when
rates rise). We're more cautious on corporate bonds, since a slowdown could
cause corporate earnings growth to wane and put further pressure on corporate
bond prices.
"...the Federal Reserve's next move will likely be to lower interest rates..."
5
<PAGE>
================================================================================
JOHN HANCOCK ACTIVE BOND FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (3/30/95)
---- ---------
Cumulative Total Returns 11.35% 31.32%
Average Annual Total Returns(1) 11.35% 8.74%
YIELD
As of August 31, 1998
SEC 30-DAY
YIELD
-----
John Hancock Active Bond Fund 5.64%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.60% of the Fund's
daily average net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 9.45%
and 4.35%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock Active Bond
Fund would be worth, assuming all distributions were reinvested for the period
indicated. For comparison, we've shown the same $250,000 investment in the
Lehman Brothers Government/ Corporate Bond Index--an unmanaged index that
measures the performance of U.S. government bonds, U.S. corporate bonds and
Yankee bonds. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 Brothers Government/Corporate
Bond Index and is equal to $340,890 as of August 31, 1998. 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 $333,286 as of August 31, 1998.
- --------------------------------------------------------------------------------
6
<PAGE>
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BY ANTHONY A. GOODCHILD, JAMES K. HO, CFA, AND
FREDERICK CAVANAUGH, PORTFOLIO MANAGERS
John Hancock
Global Bond Fund
High-quality bonds rally, emerging markets
plummet in volatile market
Recently, Anthony Goodchild, James Ho and Frederick Cavanaugh became managers of
John Hancock Global Bond Fund. Messrs. Goodchild and Cavanaugh, senior vice
presidents, and Mr. Ho, executive vice president, are all managers of other John
Hancock global and domestic fixed-income funds.
World bond markets turned in mixed results during the last six months amid
heightened turbulence. The period was marked by growing economic turmoil in Asia
that caused further waves of currency devaluations and worldwide fears that the
region's woes would spark a global economic slowdown. U.S. Treasury bonds reaped
the rewards of the uncertain climate, as investors worldwide sought their
safe-haven status. Continental Europe also surprised investors by gaining
significant ground, bolstered by growing confidence in the preparations for
European Monetary Union set for January 1999. Offsetting these positives was the
downfall of all emerging markets as they were tainted by Asia's deepening
problems. Investors' confidence was thoroughly shaken in August, when Russia
defaulted on its debt and its currency crumbled, crippling the economy. With no
evident signs of decisive leadership moves to reverse the declines in either
Russia or Japan, all emerging market countries' bonds took the hit. After
struggling just to stay even for the year, emerging markets fell by 28% in the
month of August alone.
Performance and strategy review
In this perilous environment for both bond and currency markets, it was
difficult for investors to make headway. For the six months ended August 31,
1998, John Hancock Global Bond Fund did better than its peers by essentially
breaking even with a total return of 0.62% at net asset value. The average
global income fund returned -2.64%, according to Lipper Analytical Services,
"High-quality markets were the place to be during the last six months..."
- --------------------------------------------------------------------------------
[A 2 1/2" x 1 1/6" photo at bottom center of page of John Hancock Global Bond
Fund management team. Caption below reads "Fund management team members (l - r):
Fred Cavanaugh, Tony Goodchild and Jim Ho."]
- --------------------------------------------------------------------------------
7
<PAGE>
================================================================================
JOHN HANCOCK GLOBAL BOND FUND
"...short-term interest rates should continue to fall around the world..."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 3% with -6% at the bottom and 6% at the top.
The first bar represents the 0.62% total return for John Hancock Global Bond
Fund . The second bar represents the -2.64% total return for Average global
income fund and the third bar represents 4.58% total return for J.P. Morgan
Global Government Bond Index. A note below the chart reads "The Total return for
John Hancock Global Bond Fund is at net asset value with all distributions
reinvested. The average global income fund is tracked by Lipper Analytical
Services, Inc. See the following page for historical performance information."
- --------------------------------------------------------------------------------
Inc. and the J.P. Morgan Global Government Bond Index returned 4.58% in the same
period. Historical performance information can be found on page nine.
High-quality markets were the place to be during the last six months, and the
Fund benefited from its strong weighting in U.S. government and agency bonds,
which made up 61% of the Fund's net assets by the end of August. We also
established an 11% position in German government bonds during the period, which
we believe represents the best proxy for Europe. In so doing, we got a yield
comparable to that of U.S. Treasuries, while at the same time increasing our
exposure to deutschemarks as a solid alternative to the U.S. dollar. Although we
avoided much of the emerging world, our 7% stake in emerging market bonds -- all
U.S. dollar-denominated issues primarily in Latin America -- held us back during
the period. But we believe they are solid credits that will rebound once the
turbulence subsides.
In currency terms, we kept the bulk of the Fund's net assets -- 68% at the
end of August -- in U.S. dollar-denominated bonds, and that helped us for most
of the period as the U.S. dollar gained ground against most major currencies.
But with all the cross currents impacting currency markets, we believe now is a
time to have stakes in more than one currency, although our focus will stay on
the U.S. dollar. As a result, we established a 22% stake in the deutschemark,
kept a stake in the British pound sterling and established small ones in the
South African rand and the Japanese yen, which rallied for technical reasons as
the period ended.
Outlook
As long as uncertainty rules the world's markets, the high-grade bond markets of
the United States and Europe should continue to perform well. What's more, given
the real prospects for slowing economic growth worldwide, we also believe that
short-term interest rates should continue to fall around the world as a way of
maintaining growth or jump-starting weak or stagnant economies. We're well
positioned to benefit from these trends, with our high-quality bias and slightly
longer-than-average duration. Duration measures how sensitive a bond's price is
to changes in interest rates. The longer the bond's duration, the more the price
rises if rates fall (or falls if rates rise). With all the currency cross
currents, we will also continue to maintain a diversified approach, yet keep a
strong overweighting versus our benchmark in U.S. dollars to manage our risk
level.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
8
<PAGE>
================================================================================
JOHN HANCOCK GLOBAL BOND FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (4/19/95)
---- ---------
Cumulative Total Returns 3.32% 13.94%
Average Annual Total Returns(1) 3.32% 4.17%
YIELD
As of August 31, 1998
SEC 30-DAY
YIELD
-----
John Hancock Global Bond Fund 5.22%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.85% of the Fund's
daily average net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 2.23%
and (16.74%), respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock Global Bond
Fund would be worth, assuming all distributions were reinvested for the period
indicated. For comparison, we've shown the same $250,000 investment in the J.P.
Morgan Global Government Bond Index--an unmanaged market capitalization-weighted
index consisting of the government bond markets of Australia, Belgium, Canada,
Denmark, France, Germany, Italy, Japan, the 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. Past performance is no guarantee of
future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 Bond
Index and is equal to $295,530 as of August 31, 1998. 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 $286,684 as of August 31, 1998.
- --------------------------------------------------------------------------------
9
<PAGE>
================================================================================
BY JOHN F. SNYDER, III, PORTFOLIO MANAGER
John Hancock
Dividend Performers Fund
Stock market reverses course as global economic troubles deepen
"...companies with a more domestic focus had an edge."
After getting off to a good start in early March, the stock market ran into
stiff headwinds from overseas that rocked the market for the rest of the Fund's
six-month period. At first, stocks reacted well to the good domestic news of the
economy's strong first-quarter growth, muted inflation and full employment.
After overcoming jitters about Asia's economic woes, by mid-July the major
market indices had reached new highs. However, just weeks later, the spillover
effects, both real and psychological, of the deepening turmoil in overseas
economies -- particularly Japan and Russia -- took their toll. As reports of
slowing U.S. corporate earnings emerged, fearful investors headed for the safe
haven of U.S. Treasury bonds. By the end of August, the market's fall was deep
and broad, with many stocks tumbling across all major indices. The Dow Jones
Industrial Average and the Standard & Poor's 500 Stock Index plunged by more
than 19% from their July highs and gave back all their earlier gains, ending the
period in negative territory.
Performance review
In this increasingly volatile environment, the average growth and income fund
was unable to produce positive results, and John Hancock Dividend Performers
Fund was no exception. For the six months ended August 31, 1998, the Fund posted
a total return of -.18% at net asset value, which was somewhat below the average
growth and income fund's -12.88% return, according to Lipper Analytical
Services, Inc. Historical performance information can be found on page 12. The
Fund's lag stemmed from the fact that we did not own the top-performing
large-company stocks because of their high valuations. These companies performed
well and held up the best until the last days of the period. We missed their run
because we prefer to buy companies at more reasonable prices as a way of
managing the Fund's level of risk.
- --------------------------------------------------------------------------------
[A 2 1/2" x 1 1/6" photo at bottom right column of page of John Hancock Dividend
Performers Fund management team. Caption below reads "John Snyder (standing
left) and Fund management team members (l - r): Peter Schofield, Jim Moorehead,
William Young and Jere Estes."]
- --------------------------------------------------------------------------------
10
<PAGE>
================================================================================
JOHN HANCOCK DIVIDEND PERFORMERS FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 5% with -15% at the bottom and 0% at the top.
The first bar represents the -14.18% total return for John Hancock Dividend
Performers Fund . The second bar represents the -12.88% total return for Average
growth and income fund and the third bar represents -8.07% total return for S&P
500 Stock Index. A note below the chart reads "The Total return for John Hancock
Dividend Performers Fund is at net asset value with all distributions
reinvested. The average growth and income fund is tracked by Lipper Analytical
Services, Inc. See the following page for historical performance information."
- --------------------------------------------------------------------------------
With concerns mounting about the impact of global turmoil on U.S. corporate
earnings, companies with a more domestic focus had an edge. The Fund's holdings
in the consumer cyclical sector, primarily retail stocks, were a good example.
Companies such as Home Depot and discounter Wal-Mart Stores continued to benefit
from the strong U.S. economy and buoyant consumers whose spending habits have
been bolstered by wage growth and the lowest unemployment level in years. A
domestic orientation also served our pharmaceutical companies well, including
Abbott Laboratories. What's more, in an uncertain earnings environment, drug
companies tend to have more stable earnings growth, given the continued strong
stream of new products and the regular demand for their products regardless of
the economy's health.
The Fund felt the negative effects of our exposure to the more economically
sensitive sectors of the market, those more susceptible to a U.S. economic and
industrial slowdown. Dover, a multi-sector industrial company, fared poorly
because of its exposure to the lagging semiconductor industry, and we sold the
stock. Distribution company W.W. Grainger lagged because of indirect exposure to
Asia through the Fortune 500 companies it serves.
Portfolio moves
During the period, we took steps to upgrade the portfolio by reducing or
eliminating positions in companies whose earnings growth was more cyclical,
including chemical company DuPont and specialty steel company NuCor. Recently,
the Fund also broadened the universe in which it can invest to include companies
that exhibit stable earnings growth, although we still intend to keep the bulk
of the Fund's assets in "dividend performer" companies that have increased their
dividends for each of the last 10 years. With this flexibility, we established
positions in several technology companies that have shown the greatest
predictability of earnings growth, such as Microsoft and IBM.
A look ahead
Given the overseas financial turmoil and price competition, as well as a strong
dollar and increased labor costs, the earnings environment for U.S. corporations
has grown more challenging. As a result, it has become increasingly important to
own strong, high-quality companies. We continue to believe that this is the
sweet spot of the economic cycle for such stable growth companies, those that
historically have been able to grow their earnings through an economic slowdown.
"...the earnings environment for U.S. corporations has grown more challenging."
11
<PAGE>
================================================================================
JOHN HANCOCK DIVIDEND PERFORMERS FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (3/30/95)
---- ---------
Cumulative Total Returns 24.20% 107.87%
Average Annual Total Returns(1) 24.20% 25.23%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.70% of the Fund's
daily average net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 23.90%
and 23.82%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock Dividend
Performers Fund would be worth, assuming all distributions were reinvested for
the period indicated. 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. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 $511,944 as of August 31, 1998. 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 $433,021 as of August 31, 1998.
- --------------------------------------------------------------------------------
12
<PAGE>
================================================================================
BY BARBARA C. FRIEDMAN, CFA, PORTFOLIO MANAGER
John Hancock
Multi-Sector Growth Fund
U.S. stocks tumble in heightened volatility;
mid-caps hard hit
After a long run, the stock market lost its luster and turned downward during
the last six months. Despite a sound U.S. economy, low interest rates and muted
inflation, the market became increasingly volatile. Investors' fears grew over
how the expanding global economic crisis that started in Asia last year would
impact corporate earnings. The result was a flight to the high ground of U.S.
Treasury bonds and the largest, most liquid blue-chip stocks. The market's
sharpest decline came in August when Russia's economy fell apart following a
debt default and a devaluing currency. Many stocks across the market spectrum
fell precipitously, finally including the high-flying clique of large stocks
that had led the market's advance for much of the year. By the end of August,
the major indices dropped by almost 20% from their mid-July highs. These
continuing trends and market volatility hurt mid-cap stocks -- the Fund's
primary focus -- and caused them to post double-digit losses over the last six
months.
It was a particularly challenging six-month period for stock mutual funds,
especially as the August sell-off grew less rational and caused many stock
prices to fall indiscriminately. For the six months ended August 31, 1998, John
Hancock Multi-Sector Growth Fund posted a total return of -22.21%, while the
average mid-cap stock fund returned -20.90%, according to Lipper Analytical
Services, Inc. In the same period, the Russell Midcap Growth Index returned
- -19.35%. Historical performance information can be found on page 15. The
portfolio declined slightly more than our peers because we focus primarily on
medium-sized companies, while many mid-cap funds blend large- and small-company
holdings for a medium-sized average.
"...we kept our focus on the same five sector concentrations..."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right column of page of John Hancock Multi-Sector
Growth Fund management team. Caption below reads "Babara Friedman (l) and Fund
management team members (l - r): Ben Hock, Lisa Welch and John Golden."]
- --------------------------------------------------------------------------------
13
<PAGE>
================================================================================
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
"...we will maintain our focus on those sectors with the most favorable
outlook..."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 10% with -30% at the bottom and 0% at the top.
The first bar represents the -22.21% total return for John Hancock Multi-Sector
Growth Fund . The second bar represents the -20.90% total return for Average
mid-cap fund and the third bar represents -19.35% total return for Russell
Midcap Growth Index. A note below the chart reads "The Total return for John
Hancock Multi-Sector Growth Fund is at net asset value with all distributions
reinvested. The average mid-cap fund is tracked by Lipper Analytical Services,
Inc. See the following page for historical performance information."
- --------------------------------------------------------------------------------
Domestic focus and portfolio buys
During the period we maintained our concentration on the same five sector
concentrations, with the greatest emphasis on the financial, technology and
healthcare groups, followed to a lesser degree by retail and consumer cyclical
stocks. None of these sectors was immune to the market downturn and many of the
stocks in our portfolio lost ground, with a few exceptions.
We continued to target domestically oriented stocks that are less vulnerable
to Asia's economic slowdown. As the period progressed, we also took advantage of
price weaknesses by adding high-quality companies that previously had been too
expensive. Examples include Cambridge Technology Partners and Finova Group, a
financial services company specializing in mid-sized businesses. Both companies
generate consistent earnings growth and tend to be less cyclical. We also added
to our stake in nursing home company Manor Care, which is being acquired by
another Fund holding, Health Care & Retirement Corp.
During the period we increased our exposure to more stable, defensive
companies whose products are more immune to changes in the economy's strength.
We added to our positions in Richfood Holdings, a grocery chain in the
Washington, D.C. area and Aurora Foods, makers of Duncan Hines cake mix, Aunt
Jemima pancake mix and Log Cabin syrup.
A look ahead
We believe the U.S. economy will continue to show positive growth, but at a more
modest pace than the torrid one of the first quarter of 1998. This should keep a
damper on inflation and interest rates and decrease the likelihood of a
recession. That said, the possibility remains for the Asian economic crisis to
spread to Latin America -- a major U.S. trading partner -- and drag down the
worldwide economy. In this uncertain climate, we will maintain our focus on
those sectors with the most favorable outlook and the most promising stocks
within those sectors.
- --------------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
14
<PAGE>
================================================================================
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (4/11/95)
---- ---------
Cumulative Total Returns 22.49% 82.62%
Average Annual Total Returns(1) 22.49% 20.57%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.90% of the Fund's
daily average net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 22.30%
and 19.62%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock
Multi-Sector Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. 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. Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Multi-Sector Growth, representing the
growth of a hypothetical $250,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Russell Midcap Growth Index and is
equal to $376,983 as of August 31, 1998. The second line represents the value of
the hypothetical $250,000 investment made in the Multi-Sector Growth Fund on
April 11, 1995 and is equal to $342,243 as of August 31, 1998.
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
Small Capitalization
Growth Fund
Small-company stocks slide on international uncertainty
"Technology stocks...led the summer market sell-off."
Small-company stocks suffered significant losses over the past six months, in
large part due to the economic and currency problems plaguing much of Asia and
Latin America. In light of heightened global uncertainty and its potential
slowing effect on U.S. corporate earnings, investors both here and abroad
increasingly sought out the liquidity -- the ease with which a stock can be
bought or sold -- of large, well-known U.S.-based companies and shunned less
liquid small-company stocks. The market's most severe losses started in mid-July
after some smaller companies reported lower-than-expected second quarter
earnings. The small-cap market's trouble was compounded in August by worsening
news out of Asia and the near-collapse of the Russian economy.
Against a very difficult background for small-cap stocks, John Hancock Small
Capitalization Growth Fund performed in line with its peers. For the six-months
ended August 31, 1998, the Fund had a total return of -25.89% at net asset
value, compared to the average small-cap fund's return of -25.56%, according to
Lipper Analytical Services, Inc. In the same period, the Russell 2000 Index
returned -26.48% and the Russell 2000 Growth Index returned -30.77%. Historical
performance information can be found on page 18.
Strategy overview
Technology stocks -- which are viewed as extremely sensitive to a global
economic slowdown -- led the summer market sell-off, and we suffered along with
our peers from many of our holdings in that sector. Our strategy was to
generally avoid companies that make computers and their components. Instead, we
focused primarily on software and service companies. While
- --------------------------------------------------------------------------------
[A 3"x 2" photo at bottom right column of page of John Hancock Small
Capitalization Growth Fund management team. Caption below reads "Fund management
team members (l -r): Anurag Pandit, Bernice Behar and Laura Allen."]
- --------------------------------------------------------------------------------
16
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 15% with -45% at the bottom and 0% at the top.
The first bar represents the -25.89% total return for John Hancock Small
Capitalization Growth Fund . The second bar represents the -25.56% total return
for Average small-cap fund. The third bar represents -26.48% total return for
Russell 2000 Index and the fourth bar represents -30.77 total return for Russell
Growth 2000 Index. A note below the chart reads "The Total return for John
Hancock Small Capitalization Growth Fund is at net asset value with all
distributions reinvested. The average small-cap fund is tracked by Lipper
Analytical Services, Inc. See the following page for historical performance
information."
- --------------------------------------------------------------------------------
problems in Asia have dampened global computer sales, we expect demand for
software will continue to grow. Companies across the globe utilize software as a
means to boost productivity. Because of this trend, we emphasized holdings such
as Advent Software, a maker of programs for financial analysis. More recently,
however, we began to add to our holdings in hardware companies based on our
belief that the worst news had already been priced into their stocks. One
addition was Rambus, which designs, develops, licenses and markets high-speed
semiconductor chips that enhance the performance and cost-effectiveness of
computers.
Another area of focus for the Fund was the retail sector. Although overall
performance for the sector was strong, several holdings declined during the
market sell off. However, we continue to favor the group because we believe low
interest rates, modest wage growth, low inflation and lower unemployment support
disposable income and consumer spending. Among our favorites are department
store chain Stage Stores and retailer Hibbett Sporting Goods, both of which have
found success by serving small-town America.
Outlook
Despite their recent travails and continued potential for near-term volatility,
we remain optimistic about the long-term prospects for small-company stocks. We
believe that the longer-term trend is for interest rates to go lower. Interest
rates are a critical factor for small growth companies since they tend to borrow
to finance their growth. Lower interest costs, in turn, could translate into
better profitability. Furthermore, small-company stocks are even more
attractively priced and offer superior earnings growth rates relative to their
large-company counterparts, currently trading at roughly the same price-earnings
ratio as large-cap stocks. As a result, we believe that small-cap stocks are
extremely undervalued relative to the larger end of the market, and therefore we
remain extremely optimistic that the pendulum will swing again towards small
caps.
"...small-cap stocks are extremely under-valued..."
- --------------------------------------------------------------------------------
See the prospectus for a discussion about the risks of investing in
small-company stocks.
17
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (5/2/96)
---- --------
Cumulative Total Returns 18.00% 41.42%
Average Annual Total Returns(1) 18.00% 17.39%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.90% of the Fund's
daily average net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 14.60%
and 9.44%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock Small
Capitalization Growth Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in the Russell 2000 Index and the Russell 2000 Growth Index.
The Russell 2000 Index is an unmanaged small-cap index comprised of 2,000 U.S.
stocks. The Russell 2000 Growth Index is an unmanaged index containing Russell
2000 Index stocks with a greater-than-average growth orientation. Past
performance is no guarantee of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Small Capitalization Growth Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the hypothetical $250,000 investment made
in the Small Capitalization Growth Fund on May 2, 1996 and is equal to $256,329
as of August 31, 1998. The second line represents the value of the Russell 2000
Index and is equal to $250,106 as of August 31, 1998. The third line represents
the value of the Russell 2000 Growth Index and is equal to $205,112 as of August
31, 1998.
- --------------------------------------------------------------------------------
18
<PAGE>
================================================================================
BY TIMOTHY E. KEEFE, CFA, PORTFOLIOMANAGER
John Hancock
Small Capitalization
Value Fund
Small-cap stocks hit harder than most amid
increased volatility and market downturn
Economic tumult overseas finally washed ashore during the past six months,
causing waves of stock market volatility that hit small-company stocks
particularly hard. At the beginning of the period, when the U.S. economy
remained stronger than many analysts thought it would, fears had subsided about
an Asian-induced slowdown. But as Asia's woes increased, especially in Japan,
and began spreading to other emerging markets, investors grew more worried about
the impact on U.S. corporate profits. They moved in greater numbers to the
relative safety of U.S. Treasury bonds and the largest, most liquid blue-chip
companies.
In such an uncertain environment, small-cap stocks, despite their compelling
valuations and stronger earnings projections, suffered significant losses,
because investors were less convinced of these smaller companies' ability to
weather the storm. The market was quick to punish earnings disappointments and
equally quick to paint entire sectors of the small-cap group with the same
brush, regardless of the fundamental strength of individual companies. The worst
turn came in August, when Russia's economy virtually collapsed and the stock
market reacted to the uncertainty, sending stocks of all sizes and shapes
tumbling, wiping out the market's year-to-date gains.
There were few places to hide over the last six months and, like its peers,
John Hancock Small Capitalization Value Fund experienced losses across the
board. For the six months ended August 31, 1998, the Fund had a total return of
- -27.91% at net asset value. That compared to the -25.56% return of the average
small-cap fund and the -26.48% return of the Russell 2000 Index, a key measure
of small-cap performance. Historical performance information can be found on
page 21.
"We reduced our holdings in some of our industrial, more cyclical companies..."
- --------------------------------------------------------------------------------
[A 2 1/2" x 2" photo at bottom center of page of John Hancock Small
Capitalization Value Fund management team. Caption below reads "Fund management
team members (l - r): Tim Keefe, Tim Quinlisk and Lisa Welch."]
- --------------------------------------------------------------------------------
19
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND
"...still waiting for the catalyst to bring small-cap stocks back into favor..."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 10% with -30% at the bottom and 0% at the top.
The first bar represents the -27.91% total return for John Hancock Small
Capitalization Value Fund . The second bar represents the -25.56% total return
for Average small-cap fund and the third bar represents -26.48% total return for
Russell 2000 Index. A note below the chart reads "The Total return for John
Hancock Small Capitalization Fund is at net asset value with all distributions
reinvested. The average small-cap fund is tracked by Lipper Analytical Services,
Inc. See the following page for historical performance information."
- --------------------------------------------------------------------------------
Strategy and performance review
In this punishing environment, the valuations of many publicly traded companies
fell to levels that were below what we considered their private market value.
Although that hurt the Fund's performance in the short term, it also provided us
with some very attractive buying opportunities. We reduced our holdings in some
of our industrial, more cyclical companies whose growth hinged more on the
strength of the economy, and put the money to work in companies with more
enduring franchises. We either initiated positions or added to companies that
were in businesses we liked and whose stock prices were inordinately low.
Examples included television rating company Nielsen Media Research, with its
monopoly position and promising growth, and Dominick's Supermarkets, a chain
with a dominant franchise that has just put itself up for sale.
Although the results were very mixed during the period, another sector we
continued to favor and add to was finance, since the valuations and fundamentals
of this group are attractive. Favorites included dominant players like asset
manager Eaton Vance and specialty insurer Executive Risk. We did well with
Executive Risk because we sold our stake earlier in the period and doubled our
money, and then bought it back at half the price when the market dropped.
However, many specialty insurers, including HCC Insurance Holdings, struggled
during the period with overcapacity and weak pricing. We also added to our stake
in specialty finance companies, including FIRSTPLUS Financial Group, which has
good potential given that it's up for sale.
A look ahead
With uncertainty and emotion still at work on the market when the period ended,
we're still waiting for the catalyst to bring small-cap stocks back into favor.
In our view, valuations could be the trigger, given that small-cap prices are at
such low levels. This compelling circumstance could either cause small companies
to buy back some of their stock -- or even take their companies private -- or it
could entice large companies to buy small niche players. Either scenario could
spark a small-cap rebound. We'll also watch the narrow group of leading
large-company stocks, since it would be hard for small caps to rebound while
these larger ones were still languishing. In any case, we'll stick to our
discipline of buying small companies in good businesses for prices that don't
reflect their true value. Over time, we believe that's the best way to capture
price gains and control risk.
- --------------------------------------------------------------------------------
See the prospectus for a discussion about the risks of investing in
small-company stocks.
20
<PAGE>
================================================================================
JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (4/19/95)
---- ---------
Cumulative Total Returns 16.46% 65.50%
Average Annual Total Returns(1) 16.46% 17.07%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.80% of the Fund's
daily average net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 15.83%
and 15.49%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock Small
Capitalization Value Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in the Russell 2000 Index--an unman-aged, small-cap index
comprised of 2,000 U.S. stocks. Past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Small Capitalization Value Fund,
representing the growth of a hypothetical $250,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the Russell 2000 Index and is equal to
$340,013 as of August 31, 1998. The second line represents the hypothetical
$250,000 investment made in the Small Capitalization Value Fund on April 19,
1995 and is equal to $315,765 as of August 31, 1998.
- --------------------------------------------------------------------------------
21
<PAGE>
================================================================================
BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND
GERARDO J. ESPINOZA, PORTFOLIO MANAGERS
John Hancock
International Equity Fund
Global economic tumult sparks market corrections worldwide
"The Fund benefited from its large position in western Europe..."
During the last six months, overseas markets went from riches to rags in a
volatile atmosphere sparked by rising fears of a global economic slowdown. When
the period began, markets around the world were mostly rebounding after late
1997 fallout from currency and economic problems in Asia, particularly Japan.
But as the period progressed, Japan's hopes for recovery faded when the
government made no effective moves toward reform, the currency fell and the
economy slipped back into recession. All Asian stock markets -- and emerging
markets in general, including Latin America -- began to take a turn for the
worse. Europe, on the other hand, kept forging ahead because of strong economic
forces, including progress toward the fast-approaching Economic Monetary Union
(EMU).
But the environment was turbulent, and market volatility reached a crescendo
in late August when political uncertainty and economic chaos in Russia erupted
following a debt default and the ruble's devaluation. This catalyst sent
investors worldwide fleeing to the safety of U.S. Treasury bonds and caused
stock markets around the world to correct sharply on August 31. Most, including
the United States, gave up all their earlier ground and ended the period with
losses, as measured by the Morgan Stanley Capital International (MSCI) All
Country World Index Free ex-U.S.A., which returned -11.62% for the six months
ended August 31, 1998. Europe was the clear winner, managing to stay even for
the period. Indeed, some western European countries such as France, Italy,
Spain, Belgium and Finland even registered double-digit gains despite the August
rout.
Europe overweighted; emerging markets scarce
For the six months ended August 31, 1998, the Fund posted a total return of
- -5.50%, compared to the -7.87% return of the average international fund,
according to Lipper Analytical Services, Inc. See page 24 for historical
performance information. The Fund benefited from its large position in western
Europe, which rose from 66% to 79% of the Fund's
- --------------------------------------------------------------------------------
[A 2" x 1 1/3" photo at bottom center of page of John Hancock International
Equity Fund management team. Caption below reads "The International Equity Fund
management team (l - r): Gererdo Espinoza, Miren Etcheverry, John Wills."]
- --------------------------------------------------------------------------------
22
<PAGE>
================================================================================
JOHN HANCOCK INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended August 31, 1998". The
chart is scaled in increments of 5% with -15% at the bottom and 0% at the top.
The first bar represents the -5.50% total return for John Hancock International
Equity Fund . The second bar represents the -7.87% total return for Average
international fund and the third bar represents -11.62% total return for MSCI
All Country World Index Free ex-U.S.A. A note below the chart reads "The Total
return for John Hancock International Equity Fund is at net asset value with all
distributions reinvested. The average international fund is tracked by Lipper
Analytical Services, Inc. See the following page for historical performance
information."
- --------------------------------------------------------------------------------
net assets. We kept building our stake there and continued to diversify both our
stock and country selections, adding positions in Belgium, Norway and Denmark
during the period. In our view, the investment environment remains compelling,
driven by monetary union and good economic growth prospects. At the corporate
level, restructuring and merger activity have increased as companies work to
remain competitive in the more open EMU corporate environment. Our largest
country weighting was France, at 16% of the Fund's net assets, where we had
several of our top performing stocks, such as Cap Gemini and France Telecom. We
were also well served by avoiding Russia and eastern Europe and by keeping an
underweighted stake in the U.K., where the market lagged on sluggish growth and
rising interest rates. We increased our U.K. stake to 15% by the end of August,
although still kept an underweighted position versus our benchmark, reasoning
that given it's downturn, it was less susceptible to further turmoil than other
markets.
During the period, we became even more conservative in our approach to Asia
and emerging markets worldwide. By the end of August, our Asian holdings were
primarily in Japan, where we remain underweighted at 9% because of its
structural problems and weak economy. With currency uncertainty spreading to
Latin America, we are also avoiding this region until the emerging-market
backlash abates.
Looking ahead
We expect the market volatility to continue for now because of several elements
of uncertainty. These include whether U.S. consumers, who have driven the strong
U.S. economy, stay confident, and how much the economies slow in Latin America
- -- a major U.S. trading partner. By far the most critical element, however,
remains Japan, and how quickly and effectively it can implement reforms. As long
as investors remain concerned about the stability of emerging markets in general
and are expecting slower worldwide growth, we will keep our posture defensive.
Selectivity -- of both stocks and markets -- continues to be of utmost
importance. Our sights remain on the high-quality European countries. We will
also target individual companies that can prosper under deflationary conditions,
such as many utility, pharmaceutical and technology companies. For the longer
term, we remain confident that the global markets will recover -- only the
timing is unclear. We will stay poised to take advantage of opportunities when
prudence dictates.
"...we will keep our posture defensive."
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
23
<PAGE>
================================================================================
JOHN HANCOCK INTERNATIONAL EQUITY FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (3/30/95)
---- ---------
Cumulative Total Returns 3.34% 26.00%
Average Annual Total Returns(1) 3.34% 7.37%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested.
All figures represent past performance and are no guarantee of future results.
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. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 1.00% of the Fund's
daily average net assets. Without the limitation of expenses, the average annual
total return for the one-year and since inception periods would have been 1.94%
and 4.10%, respectively.
WHAT HAPPENED TO
A $250,000 INVESTMENT...
The chart below shows how much a $250,000 investment in John Hancock
International Equity Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$250,000 investment in the Morgan Stanley Capital International (MSCI) All
Country World Free Ex-U.S. Index--an unmanaged index that measures the
performance of both developed and emerging foreign stock markets. The index
represents freely traded stocks. Past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock International Equity Fund, representing
the growth of a hypothetical $250,000 investment over the life of the fund.
Within the chart are three lines.
The first line represents the value of the MSCI Index and is equal to $387,627
as of August 31, 1998. 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 $274,841 as of August 31, 1998.
- --------------------------------------------------------------------------------
24
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
Statements of Assets and Liabilities
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL DIVIDEND MULTI-SECTOR
BOND BOND PERFORMERS GROWTH
Assets: FUND FUND FUND FUND
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investments at value - Note C:
Bonds (cost - $5,348,593, $9,448,165, none and none, respectively) .. $5,417,609 $9,456,745 -- --
Common stocks and warrants (cost - $103, none, $15,930,545 and
$32,543,056, respectively) ........................................ 350 -- $15,837,266 $26,806,838
Options (cost - none, $10,719, none and none, respectively) ......... -- 23,398 -- --
Short-term investments (cost - $513,000, $30,000, $716,000 and
$569,000, respectively) ........................................... 513,000 30,000 716,000 569,000
Corporate savings account ........................................... 7,401 -- 881 594
---------- ------------ ------------ ------------
5,938,360 9,510,143 16,554,147 27,376,432
Cash ................................................................. -- 332 -- --
Foreign currency, at value (cost - none, $363, none and none,
respectively) ....................................................... -- 369 -- --
Receivable for open forward foreign currency exchange contracts
purchased - Note A .................................................. -- 14,363 -- --
Receivable for investments sold ...................................... 311,651 -- 66,357 894,543
Receivable for shares sold ........................................... -- 16 -- --
Interest receivable .................................................. 64,800 172,445 117 137
Dividends receivable ................................................. -- -- 29,757 10,365
Deferred organization expenses - Note A .............................. 2,593 2,635 2,616 3,287
Receivable from John Hancock Advisers, Inc. and affiliates - Note B .. 5,232 -- -- --
Other assets ......................................................... 177 146 535 1,624
---------- ------------ ------------ ------------
Total Assets ....................................... 6,322,813 9,700,449 16,653,529 28,286,388
------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for open forward foreign currency exchange contracts
sold - Note A ....................................................... -- 2,642 -- --
Payable for investments purchased .................................... 493,858 -- -- 422,106
Payable for shares repurchased ....................................... -- -- 162 672
Dividend payable ..................................................... 3,001 4,150 -- 509
Payable to John Hancock Advisers, Inc. and affiliates - Note B ....... -- 1,543 5,521 20,779
Accounts payable and accrued expenses ................................ 22,075 16,013 20,719 21,121
---------- ------------ ------------ ------------
Total Liabilities .................................. 518,934 24,348 26,402 465,187
------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ...................................................... 5,626,120 9,998,285 14,844,125 29,904,571
Accumulated net realized gain (loss) on investments and foreign
currency transactions ............................................... 107,750 (189,119) 1,846,060 3,656,437
Net unrealized appreciation (depreciation) of investments and
foreign currency transactions ....................................... 69,267 34,052 (93,268) (5,736,193)
Undistributed net investment income (distributions in
excess of net investment income) .................................... 742 (167,117) 30,210 (3,614)
---------- ------------ ------------ ------------
Net Assets ......................................... $5,803,879 $9,676,101 $16,627,127 $27,821,201
============================================================================================================
Net Asset Value Per Share:
(based on 649,561, 1,210,917, 1,304,667 and 2,647,696 shares,
respectively, of beneficial interest outstanding - unlimited number
of shares authorized with no par value) .............................. $8.94 $7.99 $12.74 $10.51
==============================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes as of August 31, 1998. You'll
also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
Statements of Assets and Liabilities (continued)
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL SMALL INTERNATIONAL
CAPITALIZATION CAPITALIZATION EQUITY
GROWTH FUND VALUE FUND FUND
---------- ---------- ------------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks, rights and warrants (cost - $1,687,392, $7,025,176 and
$7,521,110, respectively) ...................................................... $1,504,432 $5,537,034 $7,271,148
Preferred stocks (cost - none, $494,225 and $250,906, respectively) .............. -- 605,162 176,711
Short-term investments (cost - $100,000, $99,000 and $129,000, respectively) ..... 100,000 99,000 129,000
Corporate savings account ........................................................ 271 810 --
---------- ---------- ----------
1,604,703 6,242,006 7,576,859
Cash .............................................................................. -- -- 814
Foreign currency, at value (cost - none, none and $67,815, respectively) .......... -- -- 68,121
Receivable for investments sold ................................................... 20,251 33,246 238,200
Receivable for shares sold ........................................................ 1,342 -- --
Interest receivable ............................................................... 19 18 21
Dividends receivable .............................................................. 162 3,525 12,334
Foreign tax receivable ............................................................ -- -- 12,371
Deferred organization expenses - Note A ........................................... 10,925 2,681 2,592
Receivable from John Hancock Advisers, Inc. and affiliates - Note B ............... 1,711 -- --
Other assets ...................................................................... 28 510 595
---------- ---------- ----------
Total Assets .................................................... 1,639,141 6,281,986 7,911,907
------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for open forward foreign currency exhange contracts sold - Note A ......... 22 -- --
Payable for investments purchased ................................................. 17,577 19,775 75,330
Payable for shares repurchased .................................................... -- 342 782
Foreign tax payable ............................................................... -- -- 1,557
Payable to John Hancock Advisers, Inc. and affiliates - Note B .................... -- 2,917 7,876
Accounts payable and accrued expenses ............................................. 18,465 14,066 14,668
---------- ---------- ----------
Total Liabilities ............................................... 36,064 37,100 100,213
------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................................... 1,583,528 6,757,955 8,072,026
Accumulated net realized gain on investments and foreign currency transactions .... 209,147 854,303 2,712
Net unrealized depreciation of investments and foreign currency transactions ...... (182,987) (1,377,184) (324,202)
Undistributed net investment income (distributions in excess of net
investment income) .............................................................. (6,611) 9,812 61,158
---------- ---------- ----------
Net Assets ...................................................... $1,603,077 $6,244,886 $7,811,694
============================================================================================================
Net Asset Value Per Share:
(based on 184,322, 738,845 and 858,107 shares, respectively, of beneficial
interest outstanding - unlimited number of shares authorized with no par value) ... $8.70 $8.45 $9.10
==============================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
Statements of Operations
Six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL DIVIDEND MULTI-SECTOR
BOND BOND PERFORMERS GROWTH
FUND FUND FUND FUND
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Interest ................................................................ $187,059 $306,601 $27,130 $47,659
Dividends (net of foreign withholding tax of none, none, none and
$193, respectively) ................................................... -- -- 148,888 126,060
--------- --------- ----------- -----------
187,059 306,601 176,018 173,719
--------- --------- ----------- -----------
Expenses:
Investment management fee - Note B ..................................... 13,334 37,054 63,603 157,065
Custodian fee .......................................................... 29,621 10,251 7,206 15,334
Registration and filing fees ........................................... 12,236 11,335 13,827 12,821
Auditing fee ........................................................... 6,006 6,004 6,004 6,004
Printing ............................................................... 2,621 2,508 2,837 2,594
Transfer agent fee - Note B ............................................ 1,333 2,470 5,300 9,817
Organization expense - Note A .......................................... 828 813 835 1,029
Financial services fee - Note B ........................................ 460 820 1,761 3,265
Trustees' fees ......................................................... 228 425 866 1,869
Miscellaneous .......................................................... 201 303 500 759
Legal fees ............................................................. 86 95 242 363
--------- --------- ----------- -----------
Total Expenses ........................................ 66,954 72,078 102,981 210,920
----------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ...................... (50,910) (29,988) (28,593) (33,805)
----------------------------------------------------------------------------------------------------------
Net Expenses .......................................... 16,044 42,090 74,388 177,115
----------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) .......................... 171,015 264,511 101,630 (3,396)
----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain on investments sold ................................... 38,168 44,098 809,625 1,254,116
Net realized loss on foreign currency transactions ...................... -- (197,694) -- --
Change in net unrealized appreciation (depreciation) of investments ..... 27,437 (81,043) (3,666,762) (9,258,972)
Change in net unrealized appreciation of foreign currency transactions .. -- 26,610 -- --
--------- --------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ......... 65,605 (208,029) (2,857,137) (8,004,856)
----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ............................. $236,620 $56,482 ($2,755,507) ($8,008,252)
==========================================================================================================
</TABLE>
The Statement of Operations summarizes for each of the Funds, the investment
income earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
Statements of Operations (continued)
Six months ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL SMALL INTERNATIONAL
CAPITALIZATION CAPITALIZATION EQUITY
GROWTH FUND VALUE FUND FUND
-------------- -------------- -------------
<S> <C> <C> <C>
Investment Income:
Interest ................................................................ $1,564 $7,538 $7,454
Dividends (net of foreign withholding tax of none, $177 and $15,562,
respectively) ......................................................... 2,215 48,105 104,568
--------- ----------- ---------
3,779 55,643 112,022
--------- ----------- ---------
Expenses:
Investment management fee - Note B ................................... 9,196 30,848 40,085
Registration and filing fees ......................................... 13,556 11,647 14,436
Custodian fee ........................................................ 13,482 6,884 56,242
Auditing fee ......................................................... 6,004 6,004 6,004
Printing ............................................................. 3,164 2,534 2,531
Organization expense - Note A ........................................ 2,063 828 828
Transfer agent fee - Note B .......................................... 575 2,203 2,227
Financial services fee - Note B ...................................... 192 736 738
Trustees' fees ....................................................... 133 389 334
Legal fees ........................................................... 96 158 88
Miscellaneous ........................................................ 33 393 494
--------- ----------- ---------
Total Expenses ........................................ 48,494 62,624 124,007
---------------------------------------------------------------------------------------------------
Less Expense Reductions - Note B ...................... (38,120) (27,287) (79,389)
---------------------------------------------------------------------------------------------------
Net Expenses .......................................... 10,374 35,337 44,618
---------------------------------------------------------------------------------------------------
Net Investment Income (Loss) .......................... (6,595) 20,306 67,404
---------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain (loss) on investments sold ............................ 279,059 (108,033) 360,976
Net realized gain (loss) on foreign currency transactions ............... 12 9 (71,977)
Change in net unrealized depreciation of investments .................... (770,989) (2,358,700) (862,948)
Change in net unrealized appreciation (depreciation) of foreign
currency transactions ................................................. (27) -- 775
--------- ----------- ---------
Net Realized and Unrealized Loss on Investments
and Foreign Currency Transactions ..................... (491,945) (2,466,724) (573,174)
---------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations .. ($498,540) ($2,446,418) ($505,770)
===================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE GLOBAL
BOND FUND BOND FUND
------------------------------ ------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1998 FEBRUARY 28, AUGUST 31, 1998
Increase in Net Assets: 1998 (UNAUDITED) 1998 (UNAUDITED)
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income ............................................. $248,646 $171,015 $249,040 $264,511
Net realized gain (loss) on investments sold and foreign
currency transactions ............................................ 86,744 38,168 (167,705) (153,596)
Change in net unrealized appreciation (depreciation) of investments
and foreign currency transactions ................................ 37,222 27,437 96,133 (54,433)
----------- ----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations ............. 372,612 236,620 177,468 56,482
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income .............................. (248,646) (170,122) (249,040) (264,511)
Distributions in excess of net investment income .................. (148) -- -- --
Distributions from net realized gain on investments sold .......... (23,264) -- (31,000) --
----------- ----------- ----------- -----------
Total Distributions to Shareholders .............................. (272,058) (170,122) (280,040) (264,511)
----------- ----------- ----------- -----------
From Portfolio Share Transactions: **
Shares sold ....................................................... 4,645,044 2,080,704 9,080,251 58,797
Shares issued to shareholders in reinvestment of distributions .... 261,643 167,764 17,009 6,148
----------- ----------- ----------- -----------
4,906,687 2,248,468 9,097,260 64,945
Less shares repurchased ........................................... (2,040,235) (1,668,712) (60,430) (140,926)
----------- ----------- ----------- -----------
Net Increase (Decrease) .......................................... 2,866,452 579,756 9,036,830 (75,981)
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ............................................... 2,190,619 5,157,625 1,025,853 9,960,111
----------- ----------- ----------- -----------
End of period (including undistributed net investment income
(distributions in excess of net investment income) of ($151),
$742, ($167,117) and ($167,117), respectively) ................... $5,157,625 $5,803,879 $9,960,111 $9,676,101
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income .................... $0.5907 $0.3048 $0.4821 $0.2179
----------- ----------- ----------- -----------
Per share distributions in excess of net investment income ........ $0.0004 -- -- --
----------- ----------- ----------- -----------
Per share distributions from net realized gain on
investments sold ................................................. $0.0460 -- $0.0254 --
----------- ----------- ----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold ....................................................... 532,093 234,567 1,100,749 7,282
Shares issued to shareholders in reinvestment of distributions .... 30,042 18,949 2,086 764
----------- ----------- ----------- -----------
562,135 253,516 1,102,835 8,046
Less shares repurchased ........................................... (234,419) (188,221) (7,419) (17,375)
----------- ----------- ----------- -----------
Net Increase (Decrease) .......................................... 327,716 65,295 1,095,416 (9,329)
=========== =========== =========== ===========
</TABLE>
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets has changed since the previous period. The difference reflects net
investment income, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in each
Fund. The footnotes illustrate the number of Fund shares sold, reinvested and
repurchased during the period, along with the per share amount of distributions
made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND MULTI-SECTOR
PERFORMERS FUND GROWTH FUND
------------------------------ ------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1998 FEBRUARY 28, AUGUST 31, 1998
Increase (Decrease) in Net Assets: 1998 (UNAUDITED) 1998 (UNAUDITED)
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income (loss) ................................. $200,218 $101,630 $9,544 ($3,396)
Net realized gain on investments sold ........................ 2,026,525 809,625 4,749,043 1,254,116
Change in net unrealized appreciation (depreciation)
of investments .............................................. 2,433,147 (3,666,762) 1,644,227 (9,258,972)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from
Operations ................................................. 4,659,890 (2,755,507) 6,402,814 (8,008,252)
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ......................... (188,048) (108,070) (2,904) --
Distributions from net realized gain on investments sold ..... (1,154,688) -- (3,575,102) --
----------- ----------- ----------- -----------
Total Distributions to Shareholders ......................... (1,342,736) (108,070) (3,578,006) --
----------- ----------- ----------- -----------
From Portfolio Share Transactions: **
Shares sold .................................................. 11,392,158 3,341,970 25,552,524 6,121,180
Shares issued to shareholders in reinvestment of distributions 1,336,430 107,930 3,563,690 --
----------- ----------- ----------- -----------
12,728,588 3,449,900 29,116,214 6,121,180
Less shares repurchased ...................................... (3,828,808) (4,843,641) (20,723,580) (10,593,746)
----------- ----------- ----------- -----------
Net Increase (Decrease) ..................................... 8,899,780 (1,393,741) 8,392,634 (4,472,566)
----------- ----------- ----------- -----------
Net Assets:
Beginning of period .......................................... 8,667,511 20,884,445 29,084,577 40,302,019
----------- ----------- ----------- -----------
End of period (including undistributed net investment income
(distributions in excess of net investment income) of
$36,650, $30,210, ($218) and ($3,614), respectively) ........ $20,884,445 $16,627,127 $40,302,019 $27,821,201
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ............... $0.1749 $0.0777 $0.0010 --
----------- ----------- ----------- -----------
Per share distributions from net realized gain on
investments sold ............................................ $0.9152 -- $1.2186 --
----------- ----------- ----------- -----------
** Analysis of Portfolio Share Transactions:
Shares sold .................................................. 856,008 220,067 1,989,505 444,685
Shares issued to shareholders in reinvestment of distributions 99,380 7,050 294,763 --
----------- ----------- ----------- -----------
955,388 227,117 2,284,268 444,685
Less shares repurchased ...................................... (283,722) (322,064) (1,597,014) (779,075)
----------- ----------- ----------- -----------
Net Increase (Decrease) ..................................... 671,666 (94,947) 687,254 (334,390)
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAPITALIZATION SMALL CAPITALIZATION
GROWTH FUND VALUE FUND
----------------------------------- -----------------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1998 FEBRUARY 28, AUGUST 31, 1998
Increase (Decrease) in Net Assets: 1998 (UNAUDITED) 1998 (UNAUDITED)
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income (loss) .......... ($5,754) ($6,595) $45,212 $20,306
Net realized gain (loss) on investments
sold and foreign currency transactions (14,223) 279,071 1,689,121 (108,024)
Change in net unrealized appreciation
(depreciation) of investments and
foreign currency transactions ........ 551,977 (771,016) 742,018 (2,358,700)
---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations .......... 532,000 (498,540) 2,476,351 (2,446,418)
---------- ---------- ---------- ----------
Distributions to Shareholders: *
Dividends from net investment income .. (229) -- (60,567) (13,491)
Distributions from net realized gain on
investments sold ..................... -- -- (857,697) --
---------- ---------- ---------- ----------
Total Distributions to Shareholders .. (229) -- (918,264) (13,491)
---------- ---------- ---------- ----------
From Portfolio Share Transactions: **
Shares sold ........................... 3,168,688 900,621 10,734,873 1,929,951
Shares issued to shareholders in
reinvestment of distributions ........ 229 -- 918,083 13,491
---------- ---------- ---------- ----------
3,168,917 900,621 11,652,956 1,943,442
Less shares repurchased ............... (1,597,977) (1,901,211) (9,672,795) (2,787,477)
---------- ---------- ---------- ----------
Net Increase (Decrease) .............. 1,570,940 (1,000,590) 1,980,161 (844,035)
---------- ---------- ---------- ----------
Net Assets:
Beginning of period ................... 999,496 3,102,207 6,010,582 9,548,830
---------- ---------- ---------- ----------
End of period (including undistributed
net investment income (distributions
in excess of net investment income) of
($16), ($6,611), $2,997, $9,812,
($6,246) and $61,158, respectively) .. $3,102,207 $1,603,077 $9,548,830 $6,244,886
========== ========== ========== ==========
* Distributions to Shareholders:
Per share dividends from net investment
income ............................... $0.0009 -- $0.0962 $0.0173
---------- ---------- ---------- ----------
Per share distributions from net
realized gain on investments sold .... -- -- $1.2633 --
---------- ---------- ---------- ----------
** Analysis of Portfolio Share
Transactions:
Shares sold ........................... 312,919 76,896 907,426 169,798
Shares issued to shareholders in
reinvestment of distributions ........ 22 -- 89,116 1,193
---------- ---------- ---------- ----------
312,941 76,896 996,542 170,991
Less shares repurchased ............... (156,837) (156,884) (824,315) (245,184)
---------- ---------- ---------- ----------
Net Increase (Decrease) .............. 156,104 (79,988) 172,227 (74,193)
========== ========== ========== ==========
<CAPTION>
INTERNATIONAL
EQUITY FUND
------------------------------
YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, AUGUST 31, 1998
Increase (Decrease) in Net Assets: 1998 (UNAUDITED)
------------ ----------------
<S> <C> <C>
From Operations:
Net investment income (loss) ........... $41,542 $67,404
Net realized gain (loss) on investments
sold and foreign currency transactions (278,948) 288,999
Change in net unrealized appreciation
(depreciation) of investments and
foreign currency transactions ......... 292,145 (862,173)
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations ........... 54,739 (505,770)
---------- ----------
Distributions to Shareholders: *
Dividends from net investment income ... (5,208) --
Distributions from net realized gain on
investments sold ...................... -- --
---------- ----------
Total Distributions to Shareholders ... (5,208) --
---------- ----------
From Portfolio Share Transactions: **
Shares sold ............................ 12,446,539 2,355,932
Shares issued to shareholders in
reinvestment of distributions ......... 5,208 --
---------- ----------
12,451,747 2,355,932
Less shares repurchased ................ (8,722,378) (2,021,335)
---------- ----------
Net Increase (Decrease) ............... 3,729,369 334,597
---------- ----------
Net Assets:
Beginning of period .................... 4,203,967 7,982,867
---------- ----------
End of period (including undistributed
net investment income (distributions
in excess of net investment income) of
($16), ($6,611), $2,997, $9,812,
($6,246) and $61,158, respectively) ... $7,982,867 $7,811,694
========== ==========
* Distributions to Shareholders:
Per share dividends from net investment
income ................................ $0.0064 --
---------- ----------
Per share distributions from net
realized gain on investments sold ..... -- --
---------- ----------
** Analysis of Portfolio Share
Transactions:
Shares sold ............................ 1,326,050 226,303
Shares issued to shareholders in
reinvestment of distributions ......... 604 --
---------- ----------
1,326,654 226,303
Less shares repurchased ................ (947,485) (196,897)
---------- ----------
Net Increase (Decrease) ............... 379,169 29,406
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<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>
PERIOD FROM MARCH 30, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ----------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
---------------------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $8.50 $8.64 $8.54 $8.83
------- ------- ------- -------
Net Investment Income (6) ............................ 0.51 0.60 0.59 0.30
Net Realized and Unrealized Gain (Loss) on Investments 0.16 (0.09) 0.34 0.11
------- ------- ------- -------
Total from Investment Operations .................. 0.67 0.51 0.93 0.41
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................ (0.51) (0.60) (0.59) (0.30)
Distributions in Excess of Net Investment Income .... -- -- (0.00)(8) --
Distributions from Net Realized Gain on Investments
Sold ............................................... (0.02) (0.01) (0.05) --
------- ------- ------- -------
Total Distributions ............................... (0.53) (0.61) (0.64) (0.30)
------- ------- ------- -------
Net Asset Value, End of Period ....................... $8.64 $8.54 $8.83 $8.94
======= ======= ======= =======
Total Investment Return at Net Asset Value (5) ....... 7.76%(3) 6.17% 11.25% 4.45%(3)
Total Adjusted Investment Return at Net Asset
Value (5,7) ......................................... (0.46%)(3) 2.72% 9.21% 3.49%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $1,171 $2,191 $5,158 $5,804
Ratio of Expenses to Average Net Assets .............. 0.65%(2) 0.60% 0.60% 0.60%(2)
Ratio of Adjusted Expenses to Average Net Assets (1,4) 9.60%(2) 4.05% 2.64% 2.51%(2)
Ratio of Net Investment Income to Average Net Assets 6.53%(2) 7.10% 6.78% 6.41%(2)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (1,4) ............................ (2.42%)(2) 3.65% 4.74% 4.50%(2)
Portfolio Turnover Rate .............................. 71% 136% 230% 210%
Fee Reduction Per Share (6) .......................... $0.75 $0.30 $0.18 $0.08
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
(8) Less than $0.01 per share.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important rela tionships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Global Bond Fund
Financial Highlights (continued)
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>
PERIOD FROM APRIL 19, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ----------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
--------------------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $8.50 $8.46 $8.22 $8.16
------- ------- ------- -------
Net Investment Income (6) ............................ 0.41 0.52 0.48 0.22
Net Realized and Unrealized Loss on Investments and
Foreign Currency Transactions ....................... (0.04) (0.24) (0.03) (0.17)
------- ------- ------- -------
Total from Investment Operations .................. 0.37 0.28 0.45 0.05
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................ (0.41) (0.35) (0.48) (0.22)
Distributions from Net Realized Gain on Investments
Sold ............................................... -- -- (0.03) --
Distributions from Capital Paid-in .................. -- (0.17) -- --
------- ------- ------- -------
Total Distributions ............................... (0.41) (0.52) (0.51) (0.22)
------- ------- ------- -------
Net Asset Value, End of Period ....................... $8.46 $8.22 $8.16 $7.99
======= ======= ======= =======
Total Investment Return at Net Asset Value (5) ....... 4.37%(3) 3.39% 5.62% 0.62%(3)
Total Adjusted Investment Return at Net Asset
Value (5,7) ......................................... (54.55%)(3) (2.93%) 4.30% 0.31%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $217 $1,026 $9,960 $9,676
Ratio of Expenses to Average Net Assets .............. 0.91%(2) 0.85% 0.85% 0.85%(2)
Ratio of Adjusted Expenses to Average Net Assets (1,4) 69.15%(2) 7.17% 2.17% 1.46%(2)
Ratio of Net Investment Income to Average Net Assets . 5.91%(2) 6.26% 5.44% 5.35%(2)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (1,4) ........................... (62.33%)(2) (0.06%) 4.12% 4.74%(2)
Portfolio Turnover Rate .............................. 129% 119% 123% 54%
Fee Reduction Per Share (6) .......................... $5.35 $0.56 $0.11 $0.02
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
Financial Highlights (continued)
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>
PERIOD FROM MARCH 30, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ----------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
--------------------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $8.50 $10.15 $11.91 $14.92
------- ------- ------- -------
Net Investment Income (6) ............................ 0.23 0.21 0.18 0.08
Net Realized and Unrealized Gain (Loss) on Investments 1.68 1.92 3.92 (2.18)
------- ------- ------- -------
Total from Investment Operations .................. 1.91 2.13 4.10 (2.10)
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................ (0.19) (0.18) (0.17) (0.08)
Distributions from Net Realized Gain on Investments
Sold ............................................... (0.07) (0.19) (0.92) --
------- ------- ------- -------
Total Distributions ............................... (0.26) (0.37) (1.09) (0.08)
------- ------- ------- -------
Net Asset Value, End of Period ....................... $10.15 $11.91 $14.92 $12.74
======= ======= ======= =======
Total Investment Return at Net Asset Value (5) ....... 22.79%(3) 21.26% 35.55% (14.18%)(3)
Total Adjusted Investment Return at Net Asset
Value (5,7) ......................................... 19.79%(3) 20.07% 35.23% (14.32%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $3,319 $8,668 $20,884 $16,627
Ratio of Expenses to Average Net Assets .............. 0.75%(2) 0.70% 0.70% 0.70%(2)
Ratio of Adjusted Expenses to Average Net Assets (1,4) 4.02%(2) 1.89% 1.02% 0.97%(2)
Ratio of Net Investment Income to Average Net Assets . 2.51%(2) 1.94% 1.31% 0.96%(2)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (1,4) ............................ (0.76%)(2) 0.75% 0.99% 0.69%(2)
Portfolio Turnover Rate .............................. 70% 37% 77% 34%
Fee Reduction Per Share (6) .......................... $0.30 $0.13 $0.04 $0.02
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
Financial Highlights (continued)
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>
PERIOD FROM APRIL 11, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ----------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
--------------------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $8.50 $10.69 $12.67 $13.51
------- ------- ------- -------
Net Investment Income (Loss) (6) ..................... (0.01) 0.01 0.00(7) 0.00(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ................... 2.22 2.02 2.06 (3.00)
------- ------- ------- -------
Total from Investment Operations .................. 2.21 2.03 2.06 (3.00)
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................ (0.02) -- (0.00)(7) --
Distributions from Net Realized Gain on
Investments Sold ................................... -- (0.05) (1.22) --
------- ------- ------- -------
Total Distributions ............................... (0.02) (0.05) (1.22) --
------- ------- ------- -------
Net Asset Value, End of Period ....................... $10.69 $12.67 $13.51 $10.51
======= ======= ======= =======
Total Investment Return at Net Asset Value (5) ....... $25.98%(3) 19.00% 17.39% (22.21%)(3)
Total Adjusted Investment Return at Net Asset
Value (5,8) ......................................... 23.70%(3) 18.48% 17.19% (22.30%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $8,399 $29,085 $40,302 $27,821
Ratio of Expenses to Average Net Assets .............. 0.93%(2) 0.90% 0.90% 0.90%(2)
Ratio of Adjusted Expenses to Average Net Assets (1,4) 3.51%(2) 1.42% 1.10% 1.07%(2)
Ratio of Net Investment Income (Loss) to Average
Net Assets .......................................... (0.10%)(2) 0.06% 0.03% (0.02%)(2)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (1,4) .................................... (2.68%)(2) (0.46%) (0.17%) (0.19%)(2)
Portfolio Turnover Rate .............................. 189% 281% 341% 52%
Fee Reduction Per Share (6) .......................... $0.23 $0.06 $0.03 $0.01
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) Less than $0.01 per share.
(8) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Growth Fund
Financial Highlights (continued)
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>
PERIOD FROM MAY 2, 1996 YEAR ENDED SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) FEBRUARY 28, AUGUST 31, 1998
TO FEBRUARY 28, 1997 1998 (UNAUDITED)
---------------------------- ------------ ----------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $8.50 $9.24 $11.74
------- ------- -------
Net Investment Income (Loss) (5) ......................... 0.03 (0.03) (0.03)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ........................... 0.73 2.53 (3.01)
------- ------- -------
Total from Investment Operations ...................... 0.76 2.50 (3.04)
------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................... (0.02) (0.00)(6) --
------- ------- -------
Net Asset Value, End of Period ........................... $9.24 $11.74 $8.70
======= ======= =======
Total Investment Return at Net Asset Value (7) ........... 8.89%(3) 27.07% (25.89%)(3)
Total Adjusted Investment Return at Net Asset Value (7,8) (3.84%)(3) 23.92% (27.56%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $999 $3,102 $1,603
Ratio of Expenses to Average Net Assets .................. 0.90%(2) 0.90% 0.90%(2)
Ratio of Adjusted Expenses to Average Net Assets (1,4) ... 16.24%(2) 4.05% 4.22%(2)
Ratio of Net Investment Income (Loss) to Average
Net Assets .............................................. 0.35%(2) (0.25%) (0.57%)(2)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (1,4) ........................................ (14.99%)(2) (3.40%) (3.89%)(2)
Portfolio Turnover Rate .................................. 92% 117% 57%
Fee Reduction Per Share (5) .............................. $1.22 $0.34 $0.19
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Based on the average of the shares outstanding at the end of each month.
(6) Less than $0.01 per share.
(7) Total investment return assumes dividend reinvestment.
(8) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust --
Small Capitalization Value Fund
Financial Highlights (continued)
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>
PERIOD FROM APRIL 19, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ----------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
--------------------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $8.50 $9.09 $9.38 $11.74
------- ------- ------- -------
Net Investment Income (6) ............................ 0.17 0.14 0.07 0.03
Net Realized and Unrealized Gain (Loss) on Investments 0.56 1.08 3.65 (3.30)
------- ------- ------- -------
Total from Investment Operations .................. 0.73 1.22 3.72 (3.27)
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................ (0.14) (0.12) (0.10) (0.02)
Distributions from Net Realized Gain on Investments
Sold ............................................... -- (0.81) (1.26) --
------- ------- ------- -------
Total Distributions ............................... (0.14) (0.93) (1.36) (0.02)
------- ------- ------- -------
Net Asset Value, End of Period ....................... $9.09 $9.38 $11.74 $8.45
======= ======= ======= =======
Total Investment Return at Net Asset Value (5) ....... 8.61%(3) 13.78% 41.81% (27.91%)(3)
Total Adjusted Investment Return at Net Asset
Value (5,7) ......................................... 5.40%(3) 12.75% 41.19% (28.22%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $5,293 $6,011 $9,549 $6,245
Ratio of Expenses to Average Net Assets .............. 0.83%(2) 0.80% 0.80% 0.80%(2)
Ratio of Adjusted Expenses to Average Net Assets (1,4) 4.55%(2) 1.83% 1.42% 1.42%(2)
Ratio of Net Investment Income to Average Net Assets . 2.04%(2) 1.46% 0.62% 0.46%(2)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (1,4) ............................ (1.68%)(2) 0.43% 0.00% (0.16%)(2)
Portfolio Turnover Rate .............................. 0% 96% 216% 53%
Fee Reduction Per Share (6) .......................... $0.30 $0.10 $0.07 $0.04
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
Financial Highlights (continued)
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>
PERIOD FROM MARCH 30, 1995 YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) ----------------------- AUGUST 31, 1998
TO FEBRUARY 29, 1996 1997 1998 (UNAUDITED)
--------------------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $8.50 $9.24 $9.35 $9.63
------- ------- ------- -------
Net Investment Income (6) ............................ 0.15 0.12 0.06 0.08
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ................... 0.68 0.14 0.23 (0.61)
------- ------- ------- -------
Total from Investment Operations .................. 0.83 0.26 0.29 (0.53)
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................ (0.08) (0.10) (0.01) --
Distributions from Net Realized Gain on
Investments Sold ................................... (0.01) (0.05) -- --
------- ------- ------- -------
Total Distributions ............................... (0.09) (0.15) (0.01) --
------- ------- ------- -------
Net Asset Value, End of Period ....................... $9.24 $9.35 $9.63 $9.10
======= ======= ======= =======
Total Investment Return at Net Asset Value (5) ....... 9.81%(3) 2.79% 3.07% (5.50%)(3)
Total Adjusted Investment Return at Net Asset
Value (5,7) ......................................... 3.26%(3) 0.47% 2.05% (6.40%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $2,897 $4,204 $7,983 $7,812
Ratio of Expenses to Average Net Assets .............. 1.05%(2) 1.00% 1.00% 1.00%(2)
Ratio of Adjusted Expenses to Average Net Assets (1,4) 8.19%(2) 3.32% 2.02% 2.78%(2)
Ratio of Net Investment Income to Average Net Assets . 1.75%(2) 1.26% 0.60% 1.51%(2)
Ratio of Adjusted Net Investment Loss to Average Net
Assets (1,4) ........................................ (5.39%)(2) (1.06%) (0.42%) (0.27%)(2)
Portfolio Turnover Rate .............................. 59% 68% 125% 49%
Fee Reduction Per Share (6) .......................... $0.60 $0.22 $0.10 $0.09
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Active Bond Fund on August 31, 1998. It's divided into three main categories:
bonds, warrants and short-term investments. The bonds are further broken down by
industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C>
BONDS
Automobile/Trucks (0.36%)
ERAC USA Finance Co.,
Note 02-15-05 (R) ............................. 6.625% BBB $21 $20,822
-------
Banks - Foreign (1.33%)
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 ......................... 10.125 A+ 30 35,482
Scotland International Finance No. 2 B.V.,
Gtd Sub Note (Netherlands) 11-01-06 (R) (Y) ... 8.850 A+ 35 41,552
-------
77,034
-------
Banks - United States (1.33%)
Banc One Corp.,
Sub Deb 10-15-26 .............................. 7.625 A+ 10 10,848
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 ......................... 9.750 AA- 25 28,210
National Westminster Bank Plc - New York Branch,
Sub Note 05-01-01 ............................. 9.450 AA- 15 16,359
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ..................... 8.250 A- 20 21,556
-------
76,973
-------
Broker Services (0.26%)
Salomon Smith Barney Holdings, Inc.,
Note 10-15-02 ................................. 6.500 A 15 15,250
-------
Building (0.11%)
Nortek, Inc.,
Sr Note 08-01-08 (R) .......................... 8.875 B+ 7 6,597
-------
Electronics (0.03%)
Zilog, Inc.,
Sr Sec Note 03-01-05 (R) ...................... 9.500 B- 3 1,560
-------
Energy (0.88%)
AES Corp.,
Sr Sub Note 07-15-06 .......................... 10.250 B+ 17 17,170
Sr Sub Note 08-15-07 .......................... 8.375 B+ 12 10,800
CalEnergy Company, Inc.,
Sr Note 09-15-06 .............................. 9.500 BB+ 15 17,232
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) ...................... 9.625 B 6 5,700
-------
50,902
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C>
Finance (5.60%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A 08-15-02 6.350% AAA $55 $55,808
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R) ........... 9.150 BBB 6 7,066
ContiFinancial Corp.,
Sr Note 03-15-02 ........................ 7.500 BB 12 11,622
DR Investments,
Sr Note 05-15-07 (R) .................... 7.450 A- 20 21,462
EES Coke Battery Company, Inc.,
Sr Sec Note Ser A 04-15-02 (R) .......... 7.125 BBB 8 8,748
Ford Capital B.V.,
Gtd Deb 05-15-02 ........................ 9.875 A 35 39,446
General Motors Acceptance Corp.,
Medium Term Note 04-06-00 ............... 5.850 A2 55 55,146
JCP Master Credit Card Trust,
Pass Thru Ctf Ser C Class A 06-15-00 .... 9.625 AA+ 55 58,674
United Companies Financial Corp.,
Sr Note 01-15-04 ........................ 7.700 BB+ 5 5,056
WMC Finance (USA) Ltd.,
Gtd Note (Australia) 11-15-03 (Y) ....... 6.500 A 55 54,465
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A 06-15-05 (R) .. 8.400 BBB- 8 7,344
----------
324,837
----------
Glass Products (0.08%)
Vicap S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 (R) (Y) ... 11.375 B+ 7 4,900
----------
Government - Foreign (0.08%)
Panama, Republic of,
Note (Panama) 02-13-02 (R) (Y) .......... 7.875 BB+ 5 4,350
----------
Government - U.S. (49.99%)
United States Treasury,
Bond 08-15-17 ........................... 8.875 AAA 162 227,281
Bond 02-15-23 ........................... 7.125 AAA 676 827,255
Note 05-15-01 ........................... 8.000 AAA 297 319,183
Note 05-15-02 ........................... 7.500 AAA 406 439,178
Note 08-15-03 ........................... 5.750 AAA 322 332,162
Note 02-15-05 ........................... 7.500 AAA 354 400,905
Note 07-15-06 ........................... 7.000 AAA 317 355,237
----------
2,901,201
----------
Government - U.S. Agencies (5.72%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1601 10-15-08 ................. 6.000 AAA 25 25,367
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C>
Government - U.S. Agencies (continued)
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 02-15-13+ ............................ 6.500% AAA $50 $50,609
30 Yr Pass Thru Ctf 03-01-24+ ............................ 6.500 AAA 130 130,488
30 Yr Pass Thru Ctf 01-01-28 ............................. 6.000 AAA 25 24,262
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ............. 6.940 AAA 7 6,986
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 11-15-24 to 08-15-26 ................. 8.000 AAA 91 94,449
--------
332,161
--------
Insurance (3.56%)
Conseco, Inc.,
Note 06-15-05 ............................................ 6.800 BBB 15 14,891
Equitable Life Assurance Society of the United States,
Surplus Note 12-01-05 (R) ................................ 6.950 A 10 10,436
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26 (Y) ............................... 8.300 BBB+ 25 27,204
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) ................................ 8.200 A+ 35 40,086
Surplus Note 10-15-26 (R) ................................ 7.875 A2 15 17,433
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) ................................ 7.625 AA 15 17,522
NAC Re Corp.,
Note 06-15-99 ............................................ 8.000 A- 5 5,085
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ................................ 7.500 AA- 15 15,828
Phoenix Home Life Mutual Insurance Co.,
Surplus Note 12-01-06 (R) ................................ 6.950 A+ 15 15,528
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ................................ 6.625 AA 20 20,450
URC Holdings Corp.,
Sr Note 06-30-06 (R) ..................................... 7.875 A- 20 21,891
--------
206,354
--------
Leisure (0.67%)
HMH Properties, Inc.,
Gtd Sr Sec Note Ser A 08-01-05 ........................... 7.875 BB 15 14,250
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas) 03-15-07 (Y) ................... 9.000 B+ 7 7,140
Gtd Sr Sub Note (Bahamas) 12-15-07 (Y) ................... 8.625 B+ 7 7,000
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 ......................................... 15.500 B- 10 10,500
--------
38,890
--------
Manufacturing (0.11%)
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 (R) ................................. 10.000 B2 7 6,510
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C>
Media (2.85%)
Adelphia Communications Corp.,
Sr Note 07-15-03 (R) ....................................... 8.125% B $8 $7,720
Sr Note Ser B 10-01-02 ..................................... 9.250 B2 15 15,150
Clear Channel Communications, Inc.,
Deb 10-15-27 ............................................... 7.250 BBB- 5 4,894
Garden State Newspapers, Inc.,
Sr Sub Note Ser B 10-01-09 ................................. 8.750 B+ 8 7,600
Le Groupe Videotron Ltee,
Sr Note (Canada) 02-15-05 (Y) .............................. 10.625 BBB- 25 27,362
News America Holdings Inc.,
Gtd Sr Deb 08-10-18 ........................................ 8.250 BBB- 16 17,508
OpTel, Inc.,
Sr Note 07-01-08 (R) ....................................... 11.500 B- 5 4,750
Rogers Cablesystems Ltd.,
Sr Sec 2nd Priority Note (Canada) 08-01-02 (Y) ............. 9.625 BB+ 29 30,015
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 ................................. 10.750 B- 10 10,650
TeleWest Communications Plc,
Sr Deb (United Kingdom) 10-01-06 (Y) ....................... 9.625 B+ 5 4,850
Time Warner, Inc.,
Deb 01-15-13 ............................................... 9.125 BBB- 16 18,696
TKR Cable I, Inc.,
Sr Deb 10-30-07 ............................................ 10.500 BBB- 15 16,483
--------
165,678
--------
Medical (1.21%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) .............................. 10.750 B+ 8 7,840
Fresenius Medical Care Capital Trust II,
Gtd Trust Preferred Security 02-01-08 ...................... 7.875 B+ 15 13,650
Integrated Health Services, Inc.,
Sr Sub Note 01-15-08 ....................................... 9.250 B- 16 15,040
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ....................................... 10.750 B+ 6 6,600
Sola International, Inc.,
Note 03-15-08 .............................................. 6.875 BBB- 10 9,893
Tenet Healthcare Corp.,
Sr Sub Note 01-15-07 ....................................... 8.625 BB- 12 12,000
Watson Pharmaceuticals, Inc.,
Sr Note 05-15-08 ........................................... 7.125 BBB- 5 5,000
--------
70,023
--------
Mortgage Banking (4.99%)
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 ................ 8.100 AAA 15 15,651
Credit Suisse First Boston Mortgage Securities Corp.,
Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class A-1A 12-17-07 6.260 AAA 20 20,126
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C>
Mortgage Banking (continued)
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3 Class A-9 02-15-29 ...... 6.570% AAA $40 $41,088
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 ..... 6.566 Aaa 25 24,963
Homeside Lending, Inc.,
Sr Med Term Note 05-15-03 ........................ 6.200 A+ 20 20,176
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1998-1 Class A-4 03-20-25 ...... 6.600 AAA 20 20,264
Money Store Home Equity Trust (The),
Pass Thru Ctf Ser 1997-D Class AF-7 12-15-38 ..... 6.485 AAA 24 24,675
Morgan Stanley Capital I, Inc.,
Pass Thru Ctf Ser 1997-WFI Class A-1 10-15-06 .... 6.830 AAA 78 80,615
Salomon Brothers Mortgage Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 6.750 Aaa 11 11,323
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1 Class A-8 06-15-28 ..... 7.220 AAA 30 30,938
--------
289,819
--------
Oil & Gas (0.61%)
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01 (Y) .................... 9.250 BBB- 11 9,790
Norsk Hydro ASA,
Deb (Norway) 10-01-16 (Y) ........................ 7.500 A 20 20,734
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) .................... 6.625 BBB 5 4,894
--------
35,418
--------
Paper & Paper Products (0.34%)
Fort James Corp.,
Sr Note 09-15-02 ................................. 6.500 BBB- 10 10,021
Repap New Brunswick, Inc.,
Sr Sec 2nd Priority Note (Canada) 04-15-05 (Y) ... 10.625 CCC+ 5 4,350
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 ....................... 12.000 B+ 5 5,450
--------
19,821
--------
Real Estate Investment Trust (0.69%)
American Health Properties, Inc.,
Note 01-15-07 .................................... 7.500 BBB- 20 19,953
Liberty Property L.P.,
Med Term Note 06-05-02 ........................... 6.600 BBB- 10 9,942
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 .................................... 7.300 BBB- 10 10,188
--------
40,083
--------
Retail (0.21%)
Southern Foods/SFG Capital Corp.,
Sr Sub Note 09-01-07 ............................. 9.875 B 12 12,180
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C>
Steel (0.25%)
Bayou Steel Corp.,
1st Mtg Bond 05-15-08 (R) .............................. 9.500% B $10 $9,100
IVACO, Inc.,
Sr Note (Canada) 09-15-05 (Y) .......................... 11.500 B+ 5 5,275
--------
14,375
--------
Telecommunications (1.85%)
Axia, Inc.,
Sr Sub Note 07-15-08 (R) ............................... 10.750 B- 5 4,725
Call-Net Enterprises, Inc.,
Sr Note (Canada) 08-15-08 (Y) .......................... 8.000 BB- 7 6,510
FLAG Ltd.,
Sr Note (Bermuda) 01-30-08 (Y) ......................... 8.250 B+ 15 13,950
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) .......................... 12.000 B 10 10,600
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.75%, 02-15-99) 08-15-04 (A) Zero CCC+ 18 17,505
Sr Disc Note, Step Coupon (9.95%, 02-15-03) 02-15-08 (A) Zero CCC+ 12 6,840
NEXTLINK Communications, Inc.,
Sr Note 03-15-08 ....................................... 9.000 B 5 4,925
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 ....................................... 12.750 B- 9 8,640
Orange Plc,
Sr Note (United Kingdom) 08-01-08 (Y) .................. 8.000 B+ 9 8,100
Qwest Communications International, Inc.,
Sr Note Ser B 04-01-07 ................................. 10.875 BB+ 6 6,720
Teligent, Inc.,
Sr Note 12-01-07 ....................................... 11.500 CCC 12 11,040
WinStar Communications, Inc.,
Sr Sub Note 03-15-08 (R) ............................... 10.000 CCC 10 8,000
--------
107,555
--------
Textile (0.41%)
Tropical Sportswear International Corp.,
Sr Sub Note 06-15-08 (R) ............................... 11.000 B- 10 9,400
Unifi, Inc.,
Note Ser B 02-01-08 .................................... 6.500 A- 15 14,629
--------
24,029
--------
Tobacco (0.85%)
Philip Morris Companies, Inc.,
Note 08-15-02 .......................................... 7.125 A 20 20,685
RJR Nabisco, Inc.,
Note 12-01-02 .......................................... 8.625 BBB- 20 20,630
Note 09-15-03 .......................................... 7.625 BBB- 8 7,921
--------
49,236
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C>
Transport (2.53%)
America West Airlines,
Pass Thru Ctf Ser B 01-02-08 ............ 6.930% A- $5 $4,648
Continental Airlines, Inc.,
Pass Thru Ctf Ser 972C 06-30-04 ......... 7.206 BBB- 24 24,456
Enterprises Shipholding Corp.,
Sr Note (Greece) 05-01-08 (R) (Y) ....... 8.875 BB 12 10,680
Fine Air Services, Inc.,
Sr Note 06-01-08 (R) .................... 9.875 B 15 13,800
Northwest Airlines Corp.,
Gtd Note 03-15-04 ....................... 8.375 BB 15 15,787
Pass Thru Ctf Ser 1996-1 01-02-15 ....... 8.970 BBB- 5 5,471
NWA Trust,
Sr Note Ser A 06-21-14 .................. 9.250 A2 35 41,201
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1 03-19-05 ...... 11.200 BB 21 24,100
Wisconsin Central Transportation Corp.,
Note 04-15-08 ........................... 6.625 BBB- 7 6,895
--------
147,038
--------
Utilities (6.44%)
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ........... 9.000 BB- 19 22,167
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 ...... 8.890 BB- 7 8,050
Calpine Corp.,
Sr Note 04-01-08 (R) .................... 7.875 BB- 5 4,800
CE Electric UK Funding Co.,
Sr Note (United Kingdom) 12-30-07 (R) (Y) 6.995 Baa1 10 10,433
Cleveland Electric Illuminating Co.,
1st Mtg Bond Ser B 05-15-05 ............. 9.500 BB+ 35 38,110
Sr Sec Note Ser D 11-01-17 .............. 7.880 BB+ 20 21,548
EIP Funding-PNM,
Sec Fac Bond 10-01-12 ................... 10.250 Ba2 24 28,813
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) .......... 9.400 A+ 15 19,474
Gtd Bond (Canada) 01-15-22 (Y) .......... 8.400 A+ 25 29,352
Gtd Deb (Canada) 02-01-03 (Y) ........... 7.375 A+ 25 26,362
Iberdrola International B.V.,
Note 10-01-02 ........................... 7.500 AA- 28 29,732
Note (Spain) 06-01-03 (R) (Y) ........... 7.125 AA- 25 26,526
Long Island Lighting Co.,
Deb 07-15-19 ............................ 8.900 A- 7 7,430
Deb 11-01-22 ............................ 9.000 A- 10 11,531
Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 07-23-02 ............... 10.330 BB- 16 16,725
Niagara Mohawk Power Corp.,
Sr Note Ser G 10-01-08 .................. 7.750 BB- 10 9,925
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- -------- ------- --------- ------
<S> <C> <C> <C> <C>
Utilities (continued)
North Atlantic Energy Corp.,
1st Mtg Bond 06-01-02.......................... 9.050% B+ $14 $14,576
Public Service Company of New Mexico,
Sr Note Ser A 08-01-05......................... 7.100 BB+ 10 9,800
Puget Sound Energy Capital Trust I,
Gtd Cap Security Ser B 06-01-27................ 8.231 Baa2 10 9,901
System Energy Resources, Inc.,
1st Mtg Bond 08-01-01.......................... 7.710 BBB- 5 5,184
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 01-02-17............. 8.090 BBB- 22 23,574
---------
374,013
---------
TOTAL BONDS
(Cost $5,348,593) (93.34%) 5,417,609
------ ---------
<CAPTION>
NUMBER OF
WARRANTS
---------
<S> <C> <C> <C>
WARRANTS
MetroNet Communications Corp. (Canada) (Y)**.... 10 350
---------
TOTAL WARRANTS
(Cost $103) (0.01%) 350
------ ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Active Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.84%)
Investment in a joint repurchase agreement transaction with SBC Warburg, Inc. -
Dated 08-31-98, due 09-01-98 (secured by U.S. Treasury Bonds, 6.500% thru
8.875%, due 08-15-17 thru 11-15-26) - Note A................................... 5.80% $513 $513,000
----------
Corporate Savings Account (0.13%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.90%............................................................ 7,401
----------
TOTAL SHORT-TERM INVESTMENTS (8.97%) 520,401
------- ----------
TOTAL INVESTMENTS (102.32%) 5,938,360
------- ----------
OTHER ASSETS AND LIABILITIES, NET (2.32%) (134,481)
------- ----------
TOTAL NET ASSETS (100.00%) $5,803,879
======= ==========
</TABLE>
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investors Service or John Hancock Advisers, Inc.
where Standard & Poor's ratings are not available.
** Non-income producing security.
+ These securities having an aggregate value of $181,097, or 3.12% of the
Fund's net assets, have been purchased on a when-issued basis. The
purchase prices and the interest rates of such securities are fixed at
trade date, although the Fund does not earn any interest on such
securities until settlement date. The Fund has instructed its Custodian
Bank to segregate assets with a current value at least equal to the amount
of its when-issued commitments. Accordingly, a market value of $196,167 of
U.S. Treasury Bond, 7.125%, 02-15-23, has been segregated to cover the
when-issued commitments.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $405,719 or 6.99% of net assets as of
August 31, 1998.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
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.
47
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Global Bond Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Global Bond Fund on August 31, 1998. It's divided into three main categories:
bonds, options and short-term investments. The bonds are further broken down by
currency denomination. Short-term investments, which represent the Fund's "cash"
position, are listed last.
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
-------- --------- ------
BONDS
British Pound Sterling (5.36%)
United Kingdom Treasury,
Bond 11-06-01 .................. 7.000% 300 $518,422
----------
Deutsche Mark (21.92%)
Colt Telecom Group PLC
(United Kingdom),
Bond Ser DTC 07-31-08 .......... 7.625 65 34,372
Federal Republic of Germany,
Bond Ser 98 01-04-08 ........... 5.250 1,750 1,074,558
Ford Motor Credit Co. ...........
(United States),
Global Bond 06-16-08 ........... 5.250 1,770 1,012,363
----------
2,121,293
----------
European Currency Unit (1.07%)
Orange PLC,
Sr Note 08-01-08 ............... 7.625 100 103,394
----------
South African Rand (0.99%)
ESKOM,
Sec Deb Ser E168 06-01-08 ...... 11.000 1,000 96,071
----------
U.S. Dollar (68.39%)
Federal Home Loan Mortgage Corp.,
Giant Mtg Part Cert 07-01-12 ... 7.000 $590 604,190
Federative Republic of Brazil (Brazil),
Global Bond 11-05-01 ........... 8.875 25 19,000
Government of Jamaica (Jamaica),
Note 06-09-05 (R) .............. 10.875 50 35,000
Petroleo Brasileiro S.A. (Brazil)
Unsub Deb Ser REGS 10-17-01 .... 8.750 200 150,000
Petroleos Mexicanos (Mexico),
Bond 09-15-07 .................. 8.850 200 152,000
Republic of Argentina (Argentina),
Floating Rate Bond Ser FRB
03-31-05 ....................... 6.625* 238 160,312
Republic of Costa Rica (Costa Rica),
Deb 05-01-03 (R) ............... 8.000 50 49,000
Republic of Ecuador (Ecuador),
Deb 04-25-02 (R) ............... 11.250 25 18,750
Republic of Panama (Panama),
Note Ser REGS 02-13-02 ......... 7.875 100 86,000
United Mexican States (Mexico),
Global Bond 02-06-01 ........... 9.750 25 22,000
United States Treasury,
Bond 08-15-27 .................. 6.375 200 228,062
Bond 11-15-27 .................. 6.125 800 888,624
Note 09-30-02 .................. 5.875 2,000 2,060,620
Note 11-30-02 .................. 5.750 380 390,271
Note 04-30-03 .................. 5.750 325 334,952
Note 08-15-07 .................. 6.125 1,325 1,418,784
----------
6,617,565
----------
TOTAL BONDS
(Cost $9,448,165) (97.73%) 9,456,745
------ ----------
EXPIRATION
CURRENCY DATE/STRIKE
CURRENCY PURCHASED SOLD PRICE
- ------------------ -------- -----------
OPTIONS
Japanese Yen......... USD 1,225,000 March 99/140-150 23,398
----------
TOTAL OPTIONS
(Premium Paid $10,719) (0.24%) 23,398
------ ----------
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Global Bond Fund
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.31%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 8.75% thru
9.00%, due 05-15-17 thru 11-15-18)
- Note A................ 5.80% $30 $30,000
----------
TOTAL SHORT-TERM INVESTMENTS (0.31%) 30,000
------- ----------
TOTAL INVESTMENTS (98.28%) 9,510,143
------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.72%) 165,958
------- ----------
TOTAL NET ASSETS (100.00%) $9,676,101
======= ==========
* Represents rate in effect on August 31, 1998.
# Par value of non-US$ denominated foreign bonds is expressed in local
currency for each country listed.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $102,750 or 1.06% of the Fund's net
assets as of August 31, 1998.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by companies and governments of other
countries. The performance of the Fund is closely tied to the economic condition
within the countries in which it invests. The concentration of investments by
currency denomination for individual securities held by the Fund is shown in the
schedule of investments. In addition, concentration of investments can be
aggregated by various investment categories. The table below shows the
percentages of the Fund's investments at August 31, 1998 assigned to the various
investment categories.
MARKET VALUE AS A
INVESTMENT CATEGORIES % OF FUND'S NET ASSETS
- --------------------- ----------------------
Finance.................................. 10.46%
Government - Foreign..................... 20.50
Government - U.S......................... 55.00
Government - U.S. Agencies............... 6.24
Oil & Gas................................ 3.12
Telecommunications....................... 1.42
Utilities................................ 0.99
Options.................................. 0.24
Short-term Investments................... 0.31
-----
TOTAL INVESTMENTS 98.28%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Dividend Performers Fund on August 31, 1998. It's 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.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
COMMON STOCKS
Advertising (1.71%)
Interpublic Group of Companies, Inc. (The) ....... 5,000 $285,000
----------
Banks - United States (6.49%)
Banc One Corp. ................................... 8,800 334,400
First Tennessee National Corp. ................... 5,000 119,062
KeyCorp .......................................... 8,000 204,000
NationsBank Corp. ................................ 4,000 228,000
Norwest Corp. .................................... 3,000 89,250
Regions Financial Corp. .......................... 3,000 103,875
----------
1,078,587
----------
Beverages (1.50%)
PepsiCo, Inc. .................................... 9,000 249,187
----------
Building (3.93%)
Masco Corp. ...................................... 28,400 653,200
----------
Chemicals (3.73%)
Air Products & Chemicals, Inc. ................... 8,000 244,500
RPM, Inc. ........................................ 28,750 375,547
----------
620,047
----------
Computers (7.81%)
Automatic Data Processing, Inc. .................. 3,000 191,250
Cisco Systems, Inc.* ............................. 2,200 180,125
Computer Associates International, Inc. .......... 3,500 94,500
Computer Sciences Corp.* ......................... 3,000 169,687
Hewlett-Packard Co. .............................. 5,000 242,812
International Business Machines Corp. ............ 2,200 247,775
Microsoft Corp.* ................................. 1,800 172,688
----------
1,298,837
----------
Containers (3.99%)
Bemis Co., Inc. .................................. 8,500 304,937
Sonoco Products Co. .............................. 14,000 358,750
----------
663,687
----------
Diversified Operations (1.39%)
Du Pont (E.I.) De Nemours & Co. .................. 4,000 230,750
----------
Electronics (7.60%)
Emerson Electric Co. ............................. 7,000 399,000
General Electric Co. ............................. 2,000 160,000
Grainger (W.W.), Inc. ............................ 10,000 391,875
Honeywell, Inc. .................................. 5,000 312,500
----------
1,263,375
----------
Food (1.63%)
Sara Lee Corp. ................................... 6,000 271,500
----------
Furniture (2.17%)
Leggett & Platt, Inc. ............................ 18,000 361,125
----------
Insurance (10.59%)
AFLAC, Inc. ...................................... 4,000 100,500
American International Group, Inc. ............... 4,500 347,906
Chubb Corp. (The) ................................ 6,500 406,250
ReliaStar Financial Corp. ........................ 9,600 376,800
Travelers Group, Inc. ............................ 5,000 221,875
UNUM Corp. ....................................... 7,000 308,000
----------
1,761,331
----------
Leisure (0.75%)
Hasbro, Inc. ..................................... 4,000 125,250
----------
Machinery (2.35%)
Pentair, Inc. .................................... 14,000 390,250
----------
Media (1.75%)
Gannett Co., Inc. ................................ 3,000 177,000
McGraw-Hill Cos., Inc. (The) ..................... 1,500 114,375
----------
291,375
----------
Medical (12.26%)
Abbott Laboratories .............................. 10,200 392,700
Baxter International, Inc. ....................... 8,000 426,000
Becton, Dickinson & Co. .......................... 6,000 199,875
Bristol-Myers Squibb Co. ......................... 5,000 489,375
Johnson & Johnson ................................ 4,000 276,000
Merck & Co., Inc. ................................ 2,200 255,063
----------
2,039,013
----------
Office (2.69%)
Pitney Bowes, Inc. ............................... 9,000 446,625
----------
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Dividend Performers Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- --------- ------
Oil & Gas (4.95%)
Chevron Corp. .............................. 3,000 $222,188
Halliburton Co. ............................ 7,000 185,938
Mobil Corp. ................................ 6,000 414,750
-----------
822,876
-----------
Retail (13.00%)
Dayton Hudson Corp. ........................ 13,000 468,000
Home Depot, Inc. (The) ..................... 13,000 500,500
May Department Stores ...................... 7,000 393,750
SYSCO Corp. ................................ 25,000 504,688
Wal-Mart Stores, Inc. ...................... 5,000 293,750
-----------
2,160,688
-----------
Soap & Cleaning Preparations (1.34%)
Ecolab, Inc. ............................... 8,000 222,500
-----------
Tobacco (2.25%)
Philip Morris Cos., Inc. ................... 9,000 374,063
-----------
Utilities (1.37%)
SBC Communications, Inc. ................... 6,000 228,000
-----------
TOTAL COMMON STOCKS
(Cost $15,930,545) (95.25%) 15,837,266
----------- -----------
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.31%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 6.500% thru
8.875%, due 08-15-17 thru
11-15-26) - Note A ................... 5.80% $716 $716,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ................... 881
-----------
TOTAL SHORT-TERM INVESTMENTS (4.31%) 716,881
------- -----------
TOTAL INVESTMENTS (99.56%) 16,554,147
------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.44%) 72,980
------- -----------
TOTAL NET ASSETS (100.00%) $16,627,127
======= ===========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Multi-Sector Growth Fund on August 31, 1998. It's 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.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (2.24%)
Lamar Advertising Co.* ........................ 8,900 $289,250
Outdoor Systems, Inc.* ........................ 14,400 334,800
----------
624,050
----------
Automobile/Trucks (1.30%)
Avis Rent A Car, Inc.* ........................ 23,000 360,812
----------
Banks (4.52%)
First American Corp. .......................... 8,800 315,700
First Tennessee National Corp. ................ 9,400 223,837
Northern Trust Corp. .......................... 5,500 306,625
Regions Financial Corp. ....................... 9,000 311,625
Republic New York Corp. ....................... 2,400 99,000
----------
1,256,787
----------
Business Services (2.31%)
AccuStaff, Inc.* .............................. 19,100 238,750
Personnel Group of America, Inc. * ............ 19,400 219,462
Select Appointments Holdings PLC,
American Depositary Receipts (ADR)
(United Kingdom) ............................. 8,475 185,391
----------
643,603
----------
Computers (16.74%)
Ascend Communications, Inc.* .................. 11,300 397,619
Aspen Technologies, Inc.* ..................... 8,840 209,397
BEA Systems, Inc.* ............................ 21,150 322,538
Cambridge Technology Partners, Inc.* .......... 11,100 360,750
Citrix Systems, Inc.* ......................... 6,300 363,037
Compuware Corp.* .............................. 5,200 236,275
E*TRADE Group, Inc.* .......................... 5,800 96,425
EMC Corp.* .................................... 9,700 438,319
Fiserv, Inc.* ................................. 2,900 113,100
Gartner Group, Inc. (Class A)* ................ 7,400 171,125
HBO & Co. ..................................... 8,200 174,250
Keane, Inc.* .................................. 6,500 273,000
Lexmark Internationall Group, Inc.
(Class A)* ................................... 4,500 272,531
Networks Associates, Inc.* .................... 9,800 316,050
Quantum Corp. * ............................... 11,925 136,392
Saville Systems Ireland PLC*
(ADR) (Ireland) .............................. 6,100 99,888
Sterling Commerce, Inc.* ...................... 6,400 211,200
SunGard Data Systems, Inc. .................... 4,900 155,269
Unisys Corp.* ................................. 15,800 283,413
Wang Laboratories, Inc.* ...................... 1,400 27,300
----------
4,657,878
----------
Cosmetics & Personal Care (3.35%)
Dial Corp. (The) .............................. 7,700 150,150
Revlon, Inc. (Class A) * ...................... 5,700 205,556
Rexall Sundown, Inc.* ......................... 15,200 277,400
Twinlab Corp.* ................................ 10,260 298,822
----------
931,928
----------
Electronics (4.96%)
Artesyn Technologies, Inc.* ................... 15,400 229,075
Berg Electronics Corp.* ....................... 16,100 523,250
Jabil Circuit, Inc.* .......................... 7,760 182,360
Linear Technology Corp. ....................... 600 28,200
Maxim Intergrated Products, Inc.* ............. 1,000 27,500
SCI Systems, Inc* ............................. 2,300 52,756
Waters Corp.* ................................. 6,275 338,066
----------
1,381,207
----------
Finance (5.72%)
Charter One Financial, Inc. ................... 11,200 257,600
CIT Group, Inc. (The) (Class A) ............... 11,100 285,131
Concord EFS, Inc.* ............................ 3,800 75,050
Finova Group, Inc. ............................ 2,200 98,175
Price (T. Rowe) Associates, Inc. .............. 10,200 310,463
Sovereign Bancorp., Inc. ...................... 23,160 282,262
TCF Financial Corp. ........................... 5,100 112,519
Waddell & Reed Financial, Inc. (Class A) ...... 10,200 169,575
----------
1,590,775
----------
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Food (2.77%)
Aurora Foods, Inc.* ........................... 13,400 $195,137
International Home Foods, Inc.* ............... 13,500 226,125
Suiza Foods Corp.* ............................ 7,245 350,477
----------
771,739
----------
Funeral Services & Related (0.29%)
Loewen Group, Inc. (Canada) ................... 7,000 80,500
----------
Furniture (0.99%)
Leggett & Platt, Inc. ......................... 13,700 274,856
----------
Insurance (10.97%)
Ace, Ltd. (Bermuda) ........................... 11,100 321,900
Allmerica Financial Corp. ..................... 7,200 429,300
CMAC Investment Corp. ......................... 6,200 238,700
Executive Risk, Inc. .......................... 7,400 266,400
EXEL Ltd. (Class A) (Bermuda) ................. 5,108 341,245
Life Re Corp. ................................. 5,300 475,675
Mutual Risk Management Ltd. ................... 11,350 340,500
Reinsurance Group of America, Inc.* ........... 5,400 248,400
ReliaStar Financial Corp. ..................... 9,900 388,575
----------
3,050,695
----------
Leisure (0.91%)
Hasbro, Inc. .................................. 8,100 253,631
----------
Media (4.12%)
Central Newspapers, Inc. (Class A) ............ 5,600 347,200
Clear Channel Communications, Inc.* ........... 6,400 288,000
Sinclair Broadcast Group, Inc. (Class A)* ..... 15,600 250,575
Univision Communications, Inc. (Class A)* ..... 9,800 260,925
----------
1,146,700
----------
Medical (12.94%)
Elan Corp., PLC * (ADR) (Ireland) ............. 6,200 364,250
Forest Laboratories, Inc.* .................... 11,800 386,450
Genzyme Corp.* ................................ 14,300 386,100
Health Care & Retirement Corp.* ............... 1,300 33,150
Health Management Associates, Inc.
(Class A)* ................................... 15,100 272,744
HEALTHSOUTH Corp.* ............................ 18,800 356,025
Humana, Inc.* ................................. 20,600 267,800
Manor Care, Inc. .............................. 8,200 196,800
Mylan Laboratories, Inc. ...................... 18,300 418,612
Omnicare, Inc. ................................ 9,600 299,400
Quorum Health Group, Inc.* .................... 12,500 237,500
Sofamor Danek Group, Inc.* .................... 3,300 275,344
Steris Corp. * ................................ 4,400 105,050
----------
3,599,225
----------
Office (0.92%)
OfficeMax, Inc. * ............................. 24,300 255,150
----------
Oil & Gas (0.68%)
Mitchell Energy & Development Corp.* .......... 14,100 190,350
----------
Real Estate Investment Trust (3.86%)
FelCor Lodging Trust, Inc. .................... 12,000 244,500
Spieker Properties, Inc. ...................... 9,100 323,619
Starwood Hotels & Resorts ..................... 7,200 262,800
Vornado Realty Trust .......................... 7,700 241,588
----------
1,072,507
----------
Retail (6.55%)
CVS Corp. ..................................... 11,400 414,675
Meyer (Fred), Inc. * .......................... 10,400 408,850
Pier 1 Imports, Inc. .......................... 24,000 238,500
Richfood Holdings, Inc. ....................... 13,500 277,594
Rite Aid Corp. ................................ 10,400 376,350
Ruddick Corp. ................................. 7,000 105,875
----------
1,821,844
----------
Service (1.16%)
Interim Services, Inc. * ...................... 15,700 321,850
----------
Telecommunications (7.19%)
American Tower Corp. (Class A)* ............... 15,000 236,250
Global Crossing Ltd.* ......................... 9,600 162,000
Global TeleSystems Group, Inc.* ............... 5,300 169,600
ICG Communications, Inc.* ..................... 12,000 215,250
Intermedia Communications, Inc.* .............. 11,400 283,575
McLeodUSA, Inc. (Class A)* .................... 11,100 321,900
NEXTLINK Communications, Inc. (Class A)* ...... 5,000 103,750
Tel-Save Holdings, Inc.* ...................... 33,900 508,500
----------
2,000,825
----------
Utilities (1.21%)
MCN Energy Group, Inc. ........................ 13,400 235,338
Questar Corp. ................................. 6,300 102,375
----------
337,713
----------
Waste Disposal Service & Equip. (0.65%)
Republic Services, Inc. (Class A)* ............ 11,300 182,213
----------
TOTAL COMMON STOCKS
(Cost $32,543,056) ....................... (96.35%) 26,806,838
----------
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- Multi-Sector Growth Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.05%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 6.500% thru
8.875%, due 08-15-17 thru
11-15-26) - Note A ................... 5.80% $569 $569,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ................... 594
------------
TOTAL SHORT-TERM INVESTMENTS (2.05%) 569,594
----------- ------------
TOTAL INVESTMENTS (98.40%) 27,376,432
----------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.60%) 444,769
----------- ------------
TOTAL NET ASSETS (100.00%) $27,821,201
=========== ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
MARKET VALUE AS A
PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Bermuda................................................... 2.38%
Canada.................................................... 0.29
Ireland................................................... 1.67
United Kingdom............................................ 0.66
United States............................................. 91.35
Short-term Investments.................................... 2.05
-----
TOTAL INVESTMENTS 98.40%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
-- Small Capitalization Growth Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Growth Fund on August 31, 1998. 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.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (1.31%)
Getty Images, Inc.* ........................... 700 $9,887
Outdoor Systems, Inc.* ........................ 450 10,463
24/7 Media, Inc.* ............................. 100 675
----------
21,025
----------
Aerospace (0.55%)
AAR Corp. ..................................... 400 8,850
----------
Automobile/Trucks (1.63%)
Gentex Corp.* ................................. 700 8,094
Special Devices, Inc.* ........................ 300 10,313
United Rentals, Inc. * ........................ 400 7,800
----------
26,207
----------
Beverages (0.19%)
Beringer Wine Estates Holdings, Inc. (Class B)* 100 3,050
----------
Broker Services (0.46%)
Dain Rauscher Corp. ........................... 200 7,437
----------
Building (1.42%)
Crossmann Communities, Inc.* .................. 400 10,200
D. R. Horton, Inc. ............................ 600 9,600
SMED International, Inc. (Canada)* ............ 300 3,000
----------
22,800
----------
Business Services - Miscellaneous (10.61%)
Abacus Direct Corp.* .......................... 300 12,262
Charles River Associates, Inc.* ............... 600 14,700
Coinstar, Inc.* ............................... 1,000 7,312
First Consulting Group, Inc* .................. 500 9,062
Forrester Research, Inc.* ..................... 500 15,500
Hagler Bailly, Inc.* .......................... 400 7,750
INSpire Insurance Solutions, Inc.* ............ 750 13,781
Lason, Inc.* .................................. 300 12,169
Mac-Gray Corp.* ............................... 600 7,500
MAXIMUS, Inc.* ................................ 100 2,194
META Group, Inc. * ............................ 700 17,325
Metamor Worldwide, Inc.* ...................... 300 7,125
Metzler Group, Inc. (The)* .................... 450 12,600
On Assignment, Inc.* .......................... 500 16,125
Pilot Network Services, Inc.* ................. 200 925
ProBusiness Services, Inc.* ................... 600 13,800
----------
170,130
----------
Computers (23.00%)
Actuate Software Corp.* ...................... 100 1,075
Advent Software, Inc.* ........................ 400 12,150
AnswerThink Consulting Group, Inc.* ........... 600 10,350
Aris Corp.* ................................... 800 18,300
Aspect Development, Inc.* ..................... 400 11,650
BARRA, Inc.* .................................. 400 8,200
BindView Development Corp.* ................... 200 1,950
CBT Group PLC, American Depositary
Receipts (Ireland) ........................... 300 14,100
Cognizant Technology Solutions Corp.* ......... 800 9,600
Concentric Network Corp. * .................... 500 8,000
Dendrite International, Inc.* ................. 800 15,800
E*TRADE Group, Inc.* .......................... 700 11,637
Exodus Communications, Inc.* .................. 300 8,625
Fundtech Ltd. * ............................... 900 11,475
HNC Software, Inc.* ........................... 400 14,525
Hyperion Solutions Corp.* ..................... 285 7,980
IDX Systems Corp. * ........................... 300 12,750
Information Management Resources, Inc.* ....... 375 7,219
International Integration Inc.* ............... 100 1,550
International Network Services, Inc.* ......... 400 13,200
Manhattan Associates, Inc. * .................. 600 6,750
Micromuse, Inc. * ............................. 300 4,125
MicroStrategy, Inc. (Class A)* ................ 200 5,837
National Computer Systems, Inc. ............... 500 10,937
National Instruments Corp.* ................... 450 11,363
Network Appliance, Inc.* ...................... 450 18,759
Pegasystems, Inc.* ............................ 500 7,813
RealNetworks, Inc.* ........................... 400 7,900
SCM Microsystems, Inc.* ...................... 300 12,544
software.net Corp.* ........................... 1,100 9,488
SOFTWORKS, Inc.* .............................. 1,300 5,525
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
-- Small Capitalization Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
Symantec Corp.* ............................... 600 $9,825
Verio, Inc.* .................................. 400 8,850
VeriSign, Inc.* ............................... 500 14,188
Visio Corp.* .................................. 400 8,400
Whittman-Hart, Inc.* .......................... 600 11,250
Wind River Systems, Inc.* ..................... 400 15,000
----------
368,690
----------
Consumer Products - Miscellaneous (0.05%)
Natrol, Inc.* ................................. 100 813
----------
Electronics (4.19%)
ANADIGICS, Inc.* .............................. 700 8,881
ATMI, Inc.* ................................... 800 9,300
DuPont Photomasks, Inc.* ...................... 100 2,738
Flextronics International Ltd. * .............. 300 8,100
Level One Communications, Inc.* ............... 600 10,463
Novellus Systems, Inc.* ...................... 200 5,325
Rambus, Inc.* ................................. 300 14,325
Semtech Corp.* ................................ 500 8,000
----------
67,132
----------
Finance (2.19%)
AmeriCredit Corp.* ............................ 500 12,469
Financial Federal Corp.* ...................... 500 8,687
Medallion Financial Corp. ..................... 900 12,712
TeleBanc Financial Corp.* ..................... 100 1,238
----------
35,106
----------
Food (1.36%)
American Italian Pasta Co. (Class A)* ......... 600 15,037
Suiza Foods Corp.* ............................ 140 6,773
----------
21,810
----------
Funeral Services & Related (0.61%)
Carriage Services, Inc. (Class A)* ............ 500 9,812
----------
Insurance (1.62%)
Capital Re Corp. .............................. 400 10,600
Hartford Life, Inc. (Class A) ................. 300 15,375
----------
25,975
----------
Leasing Companies (0.88%)
LINC Capital, Inc.* ........................... 400 5,150
Rollins Truck Leasing Corp. ................... 950 9,025
----------
14,175
----------
Leisure (3.66%)
Cinar Films, Inc. (Class B) (Canada)* ......... 1,000 16,562
Family Golf Centers, Inc.* .................... 500 7,562
Premier Parks, Inc.* .......................... 600 9,750
Silverleaf Resorts, Inc.* ..................... 500 4,063
Steiner Leisure Ltd.* ......................... 550 12,100
Travel Services International, Inc.* .......... 400 8,700
----------
58,737
----------
Linen Supply & Related (0.81%)
G & K Services, Inc. (Class A) ................ 300 13,012
----------
Machinery (1.64%)
Applied Power, Inc. (Class A) ................. 500 12,406
Gardner Denver Machinery, Inc.* ............... 400 7,575
Terex Corp.* .................................. 400 6,300
----------
26,281
----------
Media (3.55%)
Adelphia Communications Corp. (Class A)* ...... 500 17,250
Central Newspapers, Inc. (Class A) ............ 150 9,300
Heftel Broadcasting Corp. (Class A)* .......... 100 3,025
Network Event Theater, Inc.* .................. 3,000 9,938
Wiley (John) & Sons, Inc. (Class A) ........... 300 17,475
----------
56,988
----------
Medical (6.57%)
Alkermes, Inc.* ............................... 600 6,562
American Healthcorp, Inc.* .................... 700 5,250
Gilead Sciences, Inc.* ........................ 200 3,650
Hanger Orthopedic Group, Inc.* ................ 600 8,962
Human Genome Sciences, Inc.* .................. 300 7,425
IDEC Pharmaceuticals Corp.* ................... 200 3,600
IMPATH, Inc. * ................................ 400 9,450
MiniMed, Inc.* ................................ 300 15,300
PAREXEL International Corp.* .................. 400 9,950
Professional Detailing, Inc.* ................. 300 5,100
Renal Care Group, Inc.* ...................... 450 9,084
Res-Care, Inc.* ............................... 600 8,738
Symphonix Devices, Inc.* ...................... 700 2,188
Ventana Medical Systems, Inc.* ................ 500 10,000
----------
105,259
----------
Metal (0.53%)
CompX International, Inc.* .................... 500 8,531
----------
Oil & Gas (1.46%)
Core Laboratories N.V. (Netherlands)* ......... 500 6,062
Dril-Quip, Inc.* .............................. 300 3,694
National-Oilwell, Inc.* ...................... 400 3,100
Stone Energy Corp.* ........................... 300 6,019
Tuboscope, Inc.* .............................. 500 4,594
----------
23,469
----------
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
-- Small Capitalization Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Pollution Control (1.59%)
American Disposal Services, Inc.* ............. 400 $11,725
Eastern Environmental Services, Inc.* ......... 400 10,300
Newpark Resources, Inc.* ...................... 600 3,413
----------
25,438
----------
Printing - Commercial (1.25%)
Consolidated Graphics, Inc.* .................. 200 10,012
Mail-Well, Inc.* .............................. 600 9,975
----------
19,987
----------
Real Estate Investment Trust (0.41%)
Glenborough Realty Trust, Inc. ................ 300 6,525
----------
Real Estate Operations (1.03%)
Central Parking Corp. ......................... 400 16,525
----------
Retail (11.43%)
Abercrombie & Fitch Co. (Class A)* ............ 350 15,050
Buckle, Inc. (The)* ........................... 400 7,850
CSK Auto Corp.* ............................... 454 9,903
Dominick's Supermarkets, Inc.* ................ 300 13,519
Duane Reade, Inc.* ............................ 500 18,687
Eagle Hardware & Garden, Inc.* ................ 600 12,825
Ethan Allen Interiors, Inc. ................... 200 6,500
Furniture Brands International, Inc.* ......... 400 8,950
Garden Fresh Restaurant Corp.* ................ 500 7,250
Genovese Drug Stores, Inc. (Class A) .......... 640 10,680
Hibbett Sporting Goods, Inc.* ................. 600 13,350
Linens `N Things, Inc.* ...................... 400 9,350
99 Cents Only Stores* ......................... 325 11,416
Proffitt's, Inc.* ............................. 400 10,200
Stage Stores, Inc.* ........................... 500 5,219
Tweeter Home Entertainment Group, Inc.* ....... 500 6,563
White Cap Industries, Inc.* ................... 500 6,375
Wild Oats Markets, Inc.* ...................... 500 9,500
----------
183,187
----------
Schools/Education (0.75%)
ITI Education Corp. (Canada)* ................. 700 2,730
Strayer Education, Inc. ....................... 350 9,275
----------
12,005
----------
Service (0.77%)
Interim Services, Inc. * ...................... 600 12,300
----------
Telecommunications (4.26%)
Carrier Access Corp.* ......................... 400 5,750
Global TeleSystems Group, Inc.* ............... 250 8,000
Hyperion Telecommunications, Inc. (Class A) * . 300 2,700
ICG Communications, Inc.* ..................... 300 5,381
Intermedia Communications, Inc.* .............. 200 4,975
L-3 Communications Holdings, Inc.* ............ 100 3,312
Metromedia Fiber Network, Inc. (Class A)* ..... 700 14,700
NEXTLINK Communications, Inc. (Class A)* ...... 300 6,225
Primus Telecommunications Group, Inc. * ....... 700 6,300
STAR Telecommunications, Inc. * ............... 515 5,408
WinStar Communications, Inc.* ................. 300 5,475
----------
68,226
----------
Textile (1.25%)
Cutter & Buck, Inc.* .......................... 600 12,675
Interface, Inc. ............................... 600 7,350
----------
20,025
----------
Transportation (1.88%)
Carey International, Inc.* .................... 500 8,000
MotivePower Industries, Inc.* ................. 600 12,000
Westinghouse Air Brake Co. .................... 500 10,094
----------
30,094
----------
Waste Disposal Service & Equipment (0.93%)
Waste Connections, Inc.* ...................... 700 14,831
----------
TOTAL COMMON STOCKS
(Cost $1,687,392) (93.84%) 1,504,432
---------- ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.24%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 6.50% thru
8.875%, due 08-15-17 thru
11-15-26) - Note A ........... 5.80% $100 100,000
----------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ........... 271
----------
TOTAL SHORT-TERM INVESTMENTS (6.26%) 100,271
---------- ----------
TOTAL INVESTMENTS (100.10%) 1,604,703
---------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.10%) (1,626)
---------- ----------
TOTAL NET ASSETS (100.00%) $1,603,077
========== ==========
* 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.
57
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
-- Small Capitalization Value Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Small Capitalization Value Fund on August 31, 1998. It's divided into three main
categories: common stocks, preferred stocks and short-term investments. Common
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
- ------------------- ---------------- -----
COMMON STOCKS
Agricultural Operations (2.78%)
Scheid Vineyards, Inc. (Class A)* ............. 400 $1,700
Tejon Ranch Co. ............................... 8,700 171,825
----------
173,525
----------
Automobile/Trucks (2.42%)
Arvin Industries, Inc. ........................ 4,000 151,000
----------
Banks - United States (4.10%)
HUBCO, Inc. ................................... 4,522 119,821
Summit Bancshares, Inc. ....................... 8,000 136,000
----------
255,821
----------
Building (3.90%)
Coachmen Industries, Inc. ..................... 6,000 112,125
Hussmann International, Inc. .................. 10,000 131,250
----------
243,375
----------
Business Services - Misc. (4.80%)
Nielsen Media Research ........................ 33,333 300,000
----------
Chemicals (0.39%)
Millennium Chemicals, Inc. .................... 1,135 24,544
----------
Computers (7.19%)
Advanced Digital Information Corp.* ........... 5,000 34,062
Award Software International, Inc.* ........... 8,000 56,000
Data General Corp. * .......................... 10,400 78,000
FDP Corp. ..................................... 5,000 48,125
Fundtech Ltd. * ............................... 100 1,275
Interplay Entertainment Corp. * ............... 8,000 44,000
Pathways Group, Inc.* ......................... 10,000 162,500
Symix, Systems, Inc.* ......................... 1,250 24,844
----------
448,806
----------
Consumer Products Misc. (2.37%)
Russ Berrie & Co., Inc. ....................... 7,700 147,744
----------
Electronics (8.49%)
ATMI, Inc.* ................................... 1,700 19,763
DII Group, Inc.* .............................. 2,600 33,475
Etec Systems, Inc. ............................ 1,700 41,012
Oak Industries, Inc.* ........................ 9,000 269,438
Photronics, Inc. * ............................ 3,000 36,000
Sanmina Corp.* ................................ 4,224 130,416
----------
530,104
----------
Energy (2.97%)
Calpine Corp.* ................................ 10,000 185,625
----------
Finance (9.98%)
AMRESCO, Inc.* ................................ 1,600 19,800
ContiFinancial Corp.* ........................ 5,300 66,912
Core Cap, Inc. (r) ............................ 11,100 144,300
Eaton Vance Corp. ............................. 5,000 198,750
FIRSTPLUS Financial Group, Inc.* .............. 3,000 68,250
Safeguard Scientifics, Inc.* .................. 5,200 125,450
----------
623,462
----------
Food (1.22%)
Morrison Health Care, Inc. .................... 4,333 76,369
----------
Insurance (12.86%)
Allmerica Financial Corp. ..................... 2,000 119,250
AmerUs Life Holdings, Inc. (Class A) .......... 4,489 119,520
CMAC Investment Corp. ......................... 4,000 154,000
Executive Risk, Inc. .......................... 7,500 270,000
HCC Insurance Holdings, Inc. .................. 4,000 74,750
Mercury General Corp. ......................... 1,800 65,812
----------
803,332
----------
Leasing Companies (1.14%)
Mitcham Industries, Inc.* ..................... 13,200 70,950
----------
Leisure (0.94%)
Equity Marketing, Inc.* ....................... 3,800 58,425
----------
Linen Supply & Related (0.77%)
Angelica Corp. ................................ 2,500 47,969
----------
Media (0.76%)
Holdingmaatschappij De Telegraaf
(Netherlands) ................................ 2,000 47,737
----------
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust
-- Small Capitalization Value Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Medical (4.59%)
DENTSPLY International, Inc. .................. 5,000 $106,719
Shire Pharmaceuticals Group PLC*
(United Kingdom) ............................. 27,000 179,942
----------
286,661
----------
Oil & Gas (1.79%)
Parker Drilling Co.* .......................... 13,600 54,400
Triton Energy Ltd.* ........................... 5,000 57,500
----------
111,900
----------
Retail (6.76%)
Darden Restaurants, Inc. ...................... 3,400 52,700
Dominick's Supermarkets, Inc.* ................ 4,000 180,250
Ruddick Corp. ................................. 12,500 189,063
----------
422,013
----------
Telecommunications (8.45%)
Cable Design Technologies* .................... 4,800 67,500
Commonwealth Telephone Enterprises, Inc.* ..... 15,000 324,375
EIS International, Inc.* ...................... 9,000 31,500
RCN Corp.* .................................... 7,500 104,297
----------
527,672
----------
TOTAL COMMON STOCKS
(Cost $7,025,176) (88.67%) 5,537,034
---------- ----------
PREFERRED STOCKS
Broker Services (5.17%)
Salomon Inc. 7.625%, Ser FSA .................. 8,000 323,000
----------
Finance (4.52%)
Core Cap, Inc.10% Ser A/I, (r) ................ 11,100 282,162
----------
TOTAL PREFERRED STOCKS
(Cost $494,225) (9.69%) 605,162
---------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement ( 1.58%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 6.500% thru
8.875%, due 08-15-17 thru
11-15-26) - Note A .................. 5.80% $99 $99,000
----------
Corporate Saving Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% .................. 810
----------
TOTAL SHORT-TERM INVESTMENTS (1.59%) 99,810
---------- ----------
TOTAL INVESTMENTS (99.95%) 6,242,006
---------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.05%) 2,880
---------- ----------
TOTAL NET ASSETS (100.00%) $6,244,886
========== ==========
* Non-income producing security.
(r) The Securities listed below are direct placement securities and are
restricted as to resale. The Fund has limited rights to registration under
the Securities Act of 1933 with respect to restricted securities (not
including rule 144A securities). In certain circumstances the Fund may
bear a portion of the cost of such registrations; otherwise, such costs
would be borne by the issuer. Additional information on these restricted
securities is as follows:
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE MARKET VALUE
ACQUISITION ACQUISITION OF FUNDS AT AUGUST 31,
DATE COST NET ASSETS 1998
---- ---- ---------- ----
<S> <C> <C> <C> <C>
Core Cap. Inc (Common) 10-31-97 $222,000 2.31% $144,300
Core Cap. Inc (Preferred) 10-31-97 $277,500 4.52% $282,162
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
Schedule of Investments
August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Equity Fund on August 31, 1998. It's divided into five main
categories: common stocks, rights, and warrants, preferred stocks and short-term
investments. Common stocks, rights and warrants and preferred stocks are further
broken down by country. Short-term investments, which represent the Fund's
"cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Australia (2.06%)
Australia & New Zealand Banking Group Ltd.,
American Depositary Receipts (ADR)
(Banks - Foreign) ............................ 2 $49
National Australia Bank Ltd.
(Banks - Foreign) ............................ 3,539 43,730
News Corp. Ltd. (The) (Media) ................. 3,500 21,381
News Corp. Ltd. (The) (ADR) (Media) ........... 725 17,445
Normandy Mining Ltd. (Metal) .................. 28,459 16,425
Telstra Corp., Ltd. (Telecommunications) ...... 16,792 43,469
Westpac Banking Corp., Ltd.
(Banks - Foreign) ............................ 3,500 18,601
----------
161,100
----------
Belgium (3.55%)
Electrabel SA (Utilities) ..................... 246 80,147
Fortis AG (Insurance) ........................ 213 57,507
Fortis AG (New shares) (Insurance)* ........... 63 3
Fortis AG (Certificate De Valeur Garantie)
(Insurance)* ................................. 63 430
Generale de Banque SA (Banks - Foreign) ....... 28 12,240
PetroFina SA (Oil & Gas) ...................... 120 45,117
Tractebel SA (Utilities) ...................... 538 81,502
----------
276,946
----------
Brazil (0.01%)
Telecomunicacoes Brasileiras S/A
(ADR) (Telecommunications) ................... 10 707
----------
Canada (2.27%)
BCE Inc. (Telecommunications) ................. 504 16,198
Bombardier Inc. (Diversified Operations) ...... 5,424 57,532
Canadian Imperial Bank of Commerce
(Banks - Foreign) ............................ 2,050 39,206
Northern Telecom Ltd. (Telecommunications) .... 1,340 64,045
Royal Bank of Canada (Banks - Foreign) ........ 1 38
Toronto-Dominion Bank (Banks - Foreign) ....... 1 25
----------
177,044
----------
Denmark (0.85%)
Novo Nordisk A/S (Medical) .................... 292 40,158
Tele Danmark A/S (Telecommunications) ......... 250 26,579
----------
66,737
----------
Finland (1.74%)
Nokia AB (Telecommunications) ................. 1,896 135,674
----------
France (15.69%)
Accor SA (Leisure) ............................ 247 57,058
Alcatel Alsthom SA (Telecommunications) ....... 544 88,114
Alstom SA (Machinery)* ........................ 2,085 48,801
Axa SA (Insurance) ............................ 939 108,297
Cap Gemini SA (Computers) ..................... 551 86,911
Carrefour SA (Retail) ........................ 82 48,121
Compagnie de Saint Gobain SA (Building) ....... 144 20,711
Danone SA (Food) .............................. 370 98,148
Elf Aquitaine SA (Oil & Gas) .................. 872 86,520
France Telecom SA (Telecommunications) ........ 280 20,587
France Telecom SA (ADR)
(Telecommunications)* ........................ 1,738 123,615
L'Air Liquide SA (Chemicals) .................. 136 18,107
L'Oreal SA (Cosmetics & Personal Care) ........ 77 41,608
Legrand SA (Electronics) ...................... 96 21,183
Paribas SA (Banks - Foreign) .................. 301 25,398
Pinault-Printemps-Redoute SA (Retail) ......... 260 40,746
Renault SA (Automobile / Trucks) .............. 364 16,286
Schneider SA (Electronics) .................... 270 15,909
Suez Lyonnaise des Eaux
(Diversified Operations) ..................... 290 47,809
Synthelabo SA (Medical) ....................... 300 45,794
Total SA (Oil & Gas) .......................... 183 17,816
Valeo SA (Automobile / Trucks) ................ 507 38,180
Vivendi SA (Diversified Operations) ........... 552 110,288
----------
1,226,007
----------
Germany (7.61%)
Allianz AG (Insurance) ........................ 358 103,036
Bayerische Motoren Werke AG
(Automobile/Trucks) .......................... 98 73,022
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Germany (continued)
Bayerische Motoren Werke AG
(New shares) (Automobile/Trucks)* ............ 32 $23,480
Bayerische Vereinsbank AG
(Banks - Foreign) ............................ 701 53,629
Daimler-Benz AG (Automobile / Trucks) ......... 250 22,610
Deutsche Bank AG (Banks - Foreign) ............ 1,547 96,528
Deutsche Telekom AG (Telecommunications) ...... 1,850 49,141
Fresenius AG (Medical) ........................ 102 14,504
Mannesmann AG (Machinery) ..................... 680 61,498
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance) ............................... 75 29,222
Muenchener Rueckversicherungs-Gesellschaft
AG (New shares) (Insurance)* ................. 2 772
Siemens AG (Diversified Operations) ........... 596 38,816
VEBA AG (Diversified Operations) .............. 557 28,159
----------
594,417
----------
Hong Kong (0.07%)
China Telecom Ltd. (Telecommunications)* ...... 4,400 5,792
----------
Ireland (1.78%)
Allied Irish Banks PLC (ADR)
(Banks - Foreign) ............................ 1,593 123,457
CRH PLC (Building) ............................ 1,461 15,845
----------
139,302
----------
Italy (5.61%)
Assicurazioni Generali SpA (Insurance) ........ 700 23,794
Banca Popolare di Brescia SpA
(Banks - Foreign) ............................ 2,300 52,715
Credito Italiano SpA (Banks - Foreign) ........ 15,830 76,250
Ente Nazionale Idrocarburi SpA (Oil & Gas) .... 6,261 33,129
Istituto Nazionale delle Assicurazioni
SpA (Insurance) .............................. 20,172 53,948
Telecom Italia Mobile SpA
(Telecommunications). 12,986 ................. 85,443
Telecom Italia SpA (Telecommunications) ....... 14,554 112,669
----------
437,948
----------
Japan (9.33%)
Bank of Tokyo-Mitsubishi, Ltd.
(Banks - Foreign) ............................ 3,000 21,252
Bridgestone Corp. (Rubber - Tires & Misc.) .... 2,000 44,151
Fuji Photo Film Co., Ltd. (Leisure) ........... 1,000 32,297
Fujitsu Ltd. (Computers) ...................... 4,000 40,602
Honda Motor Co., Ltd. (Automobile/Trucks) ..... 2,000 68,995
Ito-Yokado Co., Ltd. (Retail) ................. 1,000 46,635
Kansai Electric Power Co., Inc. (Utilities) ... 3,000 49,510
Matsushita Electric Industrial Co., Ltd.
(Electronics) ................................ 6,000 86,457
Nippon Telephone & Telegraph Corp.
(Telecommunications) ........................ 13 98,737
Nomura Securities Co., Ltd. (Finance) ......... 7,000 68,072
Shin-Etsu Chemical Co., Ltd. (Chemicals) ...... 3,000 42,483
Sony Corp. (Electronics) ...................... 600 43,910
TDK Corp. (Electronics) ....................... 1,000 69,492
Tokio Marine & Fire Insurance Co.
(Insurance) .................................. 4,000 16,496
----------
729,089
----------
Mexico (0.89%)
Panamerican Beverages, Inc. (Beverages) ....... 4,343 69,217
----------
Netherlands (4.61%)
ABN AMRO Holding NV (ADR)
(Banks - Foreign) ............................ 159 3,289
AEGON NV (Insurance) .......................... 758 68,744
Akzo Nobel NV (Chemicals) ..................... 880 36,224
ING Groep NV (ADR) (Banks - Foreign) .......... 1,602 87,309
KPN NV (Telecommunications) ................... 900 40,766
Royal Dutch Petroleum Co. (Oil & Gas) ......... 452 20,086
Royal Philips Electronics NV (Electronics) .... 1,296 84,757
TNT Post Group NV (Transport)* ................ 900 18,955
----------
360,130
----------
Norway (1.26%)
Norsk Hydro ASA (Oil & Gas) ................... 1,000 35,950
Orkla ASA (Diversified Operations) ............ 3,988 62,356
----------
98,306
----------
Portugal (1.95%)
Cimpor-Cimentos de Portugal SA (Building) ..... 1,613 48,788
Electricidade de Portugal SA (Utilities) ...... 1,426 33,318
Portugal Telecom SA (Telecommunications) ...... 1,534 70,236
----------
152,342
----------
Singapore (0.33%)
Overseas-Chinese Banking Corp., Ltd.
(Banks - Foreign) ............................ 5,374 13,882
Singapore Telecommunications, Ltd.
(Telecommunications) ........................ 8,000 11,686
----------
25,568
----------
Spain (4.32%)
Argentaria SA (Banks - Foreign) ............... 1,856 35,680
Banco Bilbao Vizcaya SA (Banks - Foreign) ..... 3,909 51,844
Banco Santander SA (Banks - Foreign) .......... 2,632 49,364
Endesa SA (Utilities) ........................ 3,792 72,264
Iberdrola SA (Utilities) ...................... 1,290 19,053
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Spain (continued)
Repsol SA (Oil & Gas) ........................ 431 $19,487
Telefonica de Espana SA
(Telecommunications) ........................ 2,344 89,967
----------
337,659
----------
Sweden (3.20%)
Astra AB (Medical) ............................ 1,672 28,087
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ........................ 3,560 83,193
Investor AB (Diversified Operations) .......... 1,879 88,635
Nordbanken Holding AB (Banks - Foreign) ....... 7,668 45,820
Saab AB (Aerospace)* .......................... 494 4,103
----------
249,838
----------
Switzerland (10.49%)
Adecco SA (Business Services - Misc.) ......... 120 56,089
Alusuisse-Lonza Holding AG (Containers)* ...... 17 17,271
Barry Callebaut AG (Food)* .................... 116 26,546
Credit Suisse Group (Banks - Foreign) ......... 477 83,855
Nestle SA (Food) .............................. 76 141,354
Novartis AG (Medical) ........................ 93 145,046
Roche Holding AG (Medical) .................... 3 31,134
Schweizerische Rueckversicherungs-
Gesellschaft (Insurance) ..................... 30 66,595
UBS AG (Banks - Foreign)* ..................... 371 120,150
Zurich Allied AG (Insurance)* ................. 219 131,522
----------
819,562
----------
United Kingdom (15.45%)
B.A.T. Industries PLC (Tobacco) ............... 3,164 31,133
British Petroleum Co. PLC (Oil & Gas) ......... 6,207 78,400
British Telecommunications PLC
(Telecommunications) ........................ 4,100 55,189
Diageo PLC (Beverages) ........................ 2,888 29,289
EMAP PLC (Media) .............................. 2,415 41,697
Glaxo Wellcome PLC (Medical) .................. 3,618 109,167
Granada Group PLC (Diversified Operations) .... 3,700 47,758
Kingfisher PLC (Retail) ....................... 6,000 49,283
Lloyds TSB Group PLC (Banks - Foreign) ........ 10,022 119,783
Pearson PLC (Media) ........................... 3,184 53,534
Royal & Sun Alliance Insurance Group PLC
(Insurance) .................................. 6,303 53,040
Royal Bank of Scotland Group PLC
(Banks - Foreign) ............................ 3,990 56,718
SEMA Group PLC (Computers) .................... 1,700 15,531
SmithKline Beecham PLC (Medical) .............. 7,608 89,911
Thames Water PLC (Utilities) .................. 2,375 42,679
Unilever PLC (Consumer Products/Misc.) ........ 10,240 95,611
Vodafone Group PLC (Telecommunications) ....... 2,900 40,494
WPP Group PLC (Advertising) ................... 17,750 97,297
Zeneca Group PLC (Medical) .................... 2,559 100,163
----------
1,206,677
----------
TOTAL COMMON STOCKS
(Cost $7,521,110) (93.07%) 7,270,062
---------- ----------
RIGHTS
Spain (0.01%)
Banco Santander SA (Bonds) (Banks - Foreign)* . 2,632 18
Banco Santander SA (Stocks) (Banks - Foreign)* 2,632 987
----------
1,005
----------
TOTAL RIGHTS
(Cost $0) (0.01%) 1,005
---------- ----------
WARRANTS
Germany (0.00%)
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance)* .............................. 2 81
----------
TOTAL WARRANTS
(Cost $0) (0.00%) 81
---------- ----------
TOTAL COMMON STOCKS, RIGHTS
AND WARRANTS (Cost $7,521,110) (93.08%) 7,271,148
---------- ----------
PREFERRED STOCKS
Brazil (1.23%)
Compania Riograndense de Telecomunicacoes
SA (Telecommunications) ...................... 12,263 5,210
Petroleo Brasileiro SA (Oil & Gas) ............ 200,400 20,432
Telecomunicacoes de Sao Paulo SA
(Telecommunications) ........................ 355,196 50,400
Telesp Celular SA (Telecommunications)* ....... 339,252 19,889
----------
95,931
----------
Germany (1.03%)
Henkel KGaA (Chemicals) ....................... 298 23,900
SAP AG (Computers) ............................ 100 56,880
----------
80,780
----------
TOTAL PREFERRED STOCKS
(Cost $250,906) (2.26%) 176,711
---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds -- Institutional Series Trust -- International Equity Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.65%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc.- Dated 08-31-98,
due 09-01-98 (secured by U.S.
Treasury Bonds, 8.75% thru
9.00%, due 05-15-17 thru
11-15-18) - Note A.......... 5.80% $129 $129,000
----------
TOTAL SHORT-TERM INVESTMENTS (1.65%) 129,000
------- ----------
TOTAL INVESTMENTS (96.99%) 7,576,859
------- ----------
OTHER ASSETS AND LIABILITIES, NET (3.01%) 234,835
------- ----------
TOTAL NET ASSETS (100.00%) $7,811,694
======= ==========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The 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 in which it invests. The concentration of
investments by country for individual securities held by the Fund is shown in
the schedule of investments. In addition, the concentration of investments can
be aggregated by various industry groups. The table below shows the percentages
of the Fund's investments at August 31, 1998 assigned to the various investment
categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS
- --------------------- -------------------------
Advertising ........................................... 1.25%
Aerospace ............................................. 0.05
Automobile/Trucks ..................................... 3.11
Banks - Foreign ....................................... 15.77
Beverages ............................................. 1.26
Building .............................................. 1.09
Business Services - Misc .............................. 0.72
Chemicals ............................................. 1.55
Computers ............................................. 2.56
Consumer Products/Misc ................................ 1.22
Containers ............................................ 0.22
Cosmetics & Personal Care ............................. 0.53
Diversified Operations ................................ 6.16
Electronics ........................................... 3.91
Finance ............................................... 0.87
Food .................................................. 3.41
Insurance ............................................. 9.13
Leisure ............................................... 1.14
Machinery ............................................. 1.62
Media ................................................. 1.72
Medical ............................................... 7.73
Metal ................................................. 0.21
Oil & Gas ............................................. 4.57
Retail ................................................ 2.37
Rubber - Tires & Misc ................................. 0.56
Telecommunications .................................... 17.13
Tobacco ............................................... 0.40
Transport ............................................. 0.24
Utilities ............................................. 4.84
Short-Term Investments ................................ 1.65
-----
TOTAL INVESTMENTS 96.99%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds -- Institutional Series Trust
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Active Bond Fund ("Active Bond Fund"), John Hancock Global Bond
Fund ("Global Bond Fund"), John Hancock Dividend Performers Fund ("Dividend
Performers Fund"), John Hancock Multi-Sector Growth Fund ("Multi-Sector Growth
Fund"), John Hancock Small Capitalization Growth Fund ("Small Capitalization
Growth Fund"), John Hancock Small Capitalization Value Fund ("Small
Capitalization Value Fund") and John Hancock International Equity Fund
("International Equity Fund") (each, a "Fund" and collectively, the "Funds") are
separate portfolios of John Hancock Institutional Series Trust (the "Trust") an
open-end management investment company registered under the Investment Company
Act of 1940. Prior to January 1, 1998, Small Capitalization Growth Fund was
known as John Hancock Small Capitalization Equity Fund and Small Capitalization
Value Fund was known as John Hancock Fundamental Value Fund. The Trust,
organized as a Massachusetts business trust in 1994, consists of twelve series
portfolios: the Funds, John Hancock Independence Balanced Fund, John Hancock
Independence Value Fund, John Hancock Independence Diversified Core Equity Fund
II, John Hancock Independence Growth Fund and John Hancock Independence Medium
Capitalization Fund. The other five series of the Trust are reported in separate
financial statements. Each Fund currently has one class of shares with equal
rights as to voting, redemption, dividends and liquidation within their
respective Fund. The Trustees may authorize the creation of additional
portfolios from time to time to satisfy various investment objectives.
The investment objective of the Active Bond Fund is a high rate of total
return, consistent with prudent investment risk. The investment objective of the
Global Bond Fund is a competitive total investment return, consisting of current
income and capital appreciation. The investment objective of the 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 Growth Fund is long-term growth of capital. The investment
objective of the Small Capitalization Value Fund is capital appreciation with
income as a secondary objective. The investment objec tive 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,
Inc., 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 income even
64
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds -- Institutional Series Trust
though such items are capital gains and losses for accounting purposes.
For federal income tax purposes, the following Funds had capital loss
carryforwards available. These carryforwards are available to offset future net
realized capital gains to the extent provided by regulations. Additionally, net
capital losses attributable to security transactions occurring after October 31,
1997 are treated as arising on the first day (March 1, 1998) of the Funds' next
taxable year.
<TABLE>
<CAPTION>
POST 10/31/1997
CURRENCY
CAPITAL LOSS CAPITAL LOSS POST 10/31/1997 LOSS TREATED
CARRYFORWARD CARRYFORWARD LOSS TREATED AS AS ARISING
FUND EXPIRES 02/28/05 EXPIRES 02/28/06 ARISING 3/1/98 3/1/98
- ---- ---------------- ---------------- -------------- ------
<S> <C> <C> <C> <C>
Active Bond
Fund ................ -- -- -- --
Global Bond
Fund ................ -- -- $35,523 $162,759
Dividend
Performers
Fund ................ -- -- -- --
Multi-Sector
Growth Fund ......... -- -- 4,815 --
Small
Capitalization
Growth Fund ......... $3,648 -- 63,035 15
Small
Capitalization
Value Fund .......... -- -- -- --
International
Equity Fund ......... -- $45,231 225,423 --
</TABLE>
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Funds identify the dividend. Interest income on
investment securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Funds record all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
DISCOUNT ON SECURITIES The Funds accrete discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Funds have been capitalized and are being charged to the Funds' operations
ratably over a five-year period that began with the commencement of investment
operations of the Funds.
In the event that any of the initial shares are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of the then unamortized organization expense in the same proportion as
the number of the initial shares redeemed bears to the number of the initial
shares outstanding at the time of such redemption.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Funds. Actual results could differ from these estimates.
BANK BORROWINGS The Funds are permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Funds to participate with other funds managed by the Adviser in unsecured
lines of credit with banks, which permit borrowings up to $1 billion,
collectively. Interest is charged to each of the Funds, based on its borrowings,
at a rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee,
at rates ranging from 0.070% to 0.075% per annum based on the average daily
unused portion of the line of credit, is allocated among the participating
funds. The Funds had no borrowing activity for the period ended August 31, 1998.
65
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds -- Institutional Series Trust
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds, other than Dividend
Performers Fund, may enter into forward foreign currency exchange contracts as a
hedge against the effect of fluctuations in currency exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date at a set price. The aggregate principal
amounts of the contracts are marked to market daily at the applicable foreign
currency exchange rates. Any resulting unrealized gains and losses are included
in the determination of the Fund's daily net assets. The Funds record realized
gains and losses at the time the forward foreign currency contract is closed out
or offset by a matching contract. Risks may arise upon entering these contracts
from the 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 if they are offset by the currency amount of the underlying
transaction.
Open forward foreign currency exchange buy contracts at August 31, 1998
for the Global Bond Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT MONTH APPRECIATION
- -------- ------------------- ----- ------------
Japanese Yen 100,282,500 SEPT 98 $14,363
=======
Open forward foreign currency exchange sell contracts at August 31, 1998
for the Global Bond Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT MONTH DEPRECIATION
- -------- ------------------- ----- ------------
South African
Rand 621,650 SEPT 98 ($2,642)
======
Open forward foreign currency exchange sell contracts at August 31, 1998
for the Small Capitalization Growth Fund were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT MONTH DEPRECIATION
- -------- ------------------- ----- ------------
Canadian
Dollar 3,468 SEPT 98 ($22)
===
There were no open forward foreign currency exchange contracts at August
31, 1998 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
66
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds -- Institutional Series Trust
futures contract, it is required to deposit with its custodian a specified
amount of cash or U.S. government securities, known as "initial margin," equal
to a certain percentage of the value of the financial futures contract being
traded. Each day, the futures contract is valued at the official settlement
price of the board of trade or U.S. commodities exchange on which it trades.
Subsequent payments, known as "variation margin," to and from the broker are
made on a daily basis as the market price of the financial futures contract
fluctuates. Daily variation margin adjustments, arising from this "mark to
market," are recorded by the Funds as unrealized gains or losses.
When the contracts are closed, the Funds recognize a gain or loss. Risks
of entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities.
For federal income tax purposes, the amount, character and timing of the
Funds' gains and/or losses can be affected as a result of futures contracts.
At August 31, 1998, 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 the
liability will be subsequently marked to market to reflect the current market
value of the written option.
The Funds may use option contracts to manage their exposure to the price
volatility of financial instruments. Writing puts and buying calls will tend to
increase the Fund's exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the 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 ("credit risk") 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 the Funds' period-end
Statements of Assets and Liabilities.
There were no written option transactions for the period ended August 31,
1998 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 0.50% of average daily net assets up to $1.5 billion
0.45% of such assets in excess of $1.5 billion
Global Bond Fund 0.75% of average daily net assets up to $250 million
0.70% of such assets in excess of $250 million
Dividend Performers Fund 0.60% of average daily net assets up to $500 million
0.55% of such assets in excess of $500 million
Multi-Sector Growth Fund 0.80% of average daily net assets up to $500 million
0.75% of such assets in excess of $500 million
67
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds -- Institutional Series Trust
Small Capitalization
Growth Fund 0.80% of average daily net assets
Small Capitalization 0.70% of average daily net assets up to $500 million
Value Fund 0.65% of such assets in excess of $500 million
International Equity Fund 0.90% of average daily net assets up to $500 million
0.65% 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, 0.70% 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 Growth Fund's average daily net assets, 0.80% of
Small Capitalization Value Fund's average daily net assets and 1.00% of
International Equity Fund's average daily net assets. The Adviser reserves the
right to terminate this limitation in the future. Accordingly, for the period
ended August 31, 1998, the reduction in the Funds' expenses with any additional
amounts not borne by the Funds by virtue of the expense limit amounted to
$50,910 for the Active Bond Fund, $29,988 for the Global Bond Fund, $28,593 for
the Dividend Performers Fund, $33,805 for the Multi-Sector Growth Fund, $38,120
for the Small Capitalization Growth Fund, $27,287 for the Small Capitalization
Value Fund and $79,389 for the International Equity Fund.
The Adviser has entered into a subadvisory agreement with Sovereign Asset
Management Corporation ("SAMCORP"), an affiliate of the Adviser, to provide
certain investment research and portfolio management services for the Dividend
Performers Fund, for which the Adviser pays SAMCORP (a) 20% of the advisory fee
payable on the Fund's average daily net assets up to $100 million and (b) 55% of
the advisory fee payable on the Fund's assets exceeding $100 million. SAMCORP
has waived their fee for the year ended February 28, 1999.
John Hancock Advisers International, Ltd. (the "Sub-Adviser") serves as
subadviser to International Equity Fund pursuant to a subadvisory agreement with
that Fund and the Adviser. Formed in 1987, it is a wholly owned subsidiary of
the Adviser. The Adviser pays John Hancock Advisers International, Ltd. a
monthly management fee, equivalent on an annual basis, to the sum of (a) 70% of
the advisory fee payable on the Fund's average daily net assets up to $500
million and (b) 90% of the advisory fee payable on the Fund's assets exceeding
$500 million.
The Funds are not responsible for payment of these sub advisory fees.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended August
31, 1998, 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
John Hancock Mutual Life Insurance Company ("JHMLICo"). Each fund pays transfer
agent fees at an annual fee accrued daily of 0.05% of its average daily net
assets, plus certain out-of-pocket expenses.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione and are directors and/or officers of the Adviser and/or its affiliates,
as well as Trustees of the Funds. The compensation of unaffiliated Trustees is
borne by the Funds. The Adviser and other subsidiaries of John Hancock Mutual
Life Insurance Company owned 1,185,027 and 11,765 shares of beneficial interest
of the Global Bond Fund and Multi-Sector Growth Fund, respectively, as of August
31, 1998. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this
68
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds -- Institutional Series Trust
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Funds make investments into other John Hancock funds, as applicable, to
cover their 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. At August
31, 1998, the Funds' investment to cover the deferred compensation had
unrealized appreciation of $4 for the Active Bond Fund, $1 for the Global Bond
Fund, $11 for the Dividend Performers Fund, $25 for the Multi-Sector Growth
Fund, none for the Small Capitalization Growth Fund, $21 for the Small
Capitalization Value Fund and $9 for the International Equity Fund.
NOTE C --
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, for the period ended August 31, 1998 were as follows:
PURCHASES SALES
--------- -----
Active Bond Fund
US Government Securities ...................... $7,341,179 $7,009,764
Other Investments ............................. 3,598,559 3,328,764
Global Bond Fund
US Government Securities ...................... 1,172,496 4,033,524
Other Investments ............................. 4,149,948 1,012,998
Dividend Performers Fund ....................... 6,556,311 7,552,464
Multi-Sector Growth Fund ....................... 18,925,663 21,975,413
Small Capitalization Growth Fund ............... 1,230,843 2,293,005
Small Capitalization Value Fund ................ 4,440,660 5,111,926
International Equity Fund ...................... 4,426,044 4,118,433
At August 31, 1998, 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 ................ $5,861,696 $107,164 ($37,901) $69,263
Global Bond Fund ................ 9,488,884 336,707 (315,448) 21,259
Dividend Performers
Fund ........................... 16,646,545 1,451,386 (1,544,665) (93,279)
Multi-Sector Growth
Fund ........................... 33,112,056 1,648,688 (7,384,906) (5,736,218)
Small Capitalization
Growth Fund .................... 1,787,392 159,699 (342,659) (182,960)
Small Capitalization
Value Fund ..................... 7,623,629 334,574 (1,717,007) (1,382,433)
International Equity
Fund ........................... 7,915,696 530,344 (869,181) (338,837)
</TABLE>
69
<PAGE>
======================================NOTES=====================================
John Hancock Funds -- Institutional Series Trust
70
<PAGE>
======================================NOTES=====================================
John Hancock Funds -- Institutional Series Trust
71
<PAGE>
================================================================================
----------------
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